ANNUAL REPORT
for the year ended 31 December 2018
Hillgrove Resources Limited
ACN 004 297 116
CORPORATE DIRECTORY
Corporate and
Registered Office
5-7 King William Road,
Unley S.A. 5061, Australia
Tel: +61 8 7070 1698
Kanmantoo Copper Mine
Eclair Mine Road
Kanmantoo S.A. 5252, Australia
Tel: + 61 8 8538 6800
Fax: + 61 8 8538 5255
Share Registry
Boardroom Pty Limited
Level 7, 207 Kent Street
Sydney N.S.W. 2000, Australia
Tel: + 61 2 9290 9600
Fax: + 61 2 9279 0664
Bankers
Westpac Banking Corporation
31 Willoughby Road
Crows Nest N.S.W. 2065, Australia
Macquarie Bank Limited
50 Martin Place
Sydney N.S.W. 2000, Australia
Auditors
PricewaterhouseCoopers
70 Franklin Street
Adelaide S.A. 5000, Australia
Web Site
www.hillgroveresources.com.au
General Enquiries
Info@hillgroveresources.com.au
CONTENTS
Chairman and Managing
Director’s Statement
Kanmantoo Copper Mine
Exploration
Mineral Resource
and Ore Reserves
Sustainability: Environment,
Safety and Community
Financial Statements
Directors’ Declaration
1
3
6
12
14
15
66
Independent Auditor’s Report 67
Shareholder Information
74
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Chairman and Managing Director’s Statement
Dear Shareholders,
At last year’s Annual General Meeting
we reviewed the investment phase of
the Kanmantoo Giant Pit cutback and
the initiatives that we implemented to
ensure our operations were on a sound
footing. We made some predictions
then regarding our performance in the
future and the strengthening of our
financial performance after a period of
poor cashflows.
So we are pleased to report that
2018 was a positive year for Hillgrove
Resources. We achieved our cost and
production guidance, we returned
to profitability and we continued to
overcome a number of challenges.
The significant mining challenges
faced during the year included mining
productivity shortfalls resulting from a
lack of equipment availability, inclement
weather, a tighter working area in the pit
and the rock fall in December which,
as reported in January 2019, is likely
to reduce future copper production by
approximately two thousand tonnes.
All of these factors contributed to a
slower than expected mining rate which
delayed the completion of mining and
added to costs. Furthermore, there was
unplanned downtime in the processing
plant to replace the mill gearbox and
motor, rotate the girth gear, and rebuild
the primary crusher.
The deepening of the pit during
the final few months of mining may
present further geotechnical challenges
however, safety remains our priority. As
such, detailed planning and additional
costs to ensure safe conduct of
activities in the pit are imperatives for
mining operations.
Despite the greater challenges than
expected, our dedicated management
and production personnel have
successfully weathered these issues
in a professional and timely manner
and continue to strive towards creating
value for shareholders.
Mr John Gooding
Independent Non-Executive Chairman
Mr Steven McClare - Chief Executive
Officer and Managing Director
The revenue generated from the highest annual copper production on record
allowed creditors to be returned to near normal terms and helped repair the
balance sheet so that the Company is in a much stronger position than this time
last year.
The next phase in the Hillgrove journey is finalising pit mining and moving to a
cash accumulation phase, as we complete the milling of our stockpiled ore with
the aim of returning a large part of this cash to shareholders in the form of
franked dividends.
Financial and Operational Highlights
The financial highlights include:
Revenue
EBITDA
EBIT
Statutory net profit
Earnings per share
Ending cash balance
Debt reduction
Creditor reduction / (addition)
2018
$180.1M
$44.3M
$27.6M
$29.5M
5.1c
$2.5M
$8.6M
$21.7M
2017
$113.3M
$16.2M
$4.4M
($14.1M)
(4.8c)
$0.5M
$3.5M
($11.9M)
Operations
With the pit nearing completion, stockpiles will continue to accumulate to support
milling for a further 12 months after mining ceases. As mentioned earlier, there
have been some ground issues that have caused delays during 2018 and as the
pit gets deeper in 2019, it is likely that some further disruptions and inefficiencies
may occur, although management has implemented many protocols to ensure
that the safety of our employees and contractors remains the ultimate driver, as we
complete the mining phase.
In summary:
■ The mining of ore is anticipated to cease around April 2019,
■ Processing will continue through to approximately May 2020, and
■ More than half of the ore to be processed through to May 2020, has already
been stockpiled.
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Chairman and Managing Director’s Statement (cont.)
Strategy and Direction
The Board will continue to focus
on realising value from the current
operations whilst also looking at
the optimal future use of all of the
Company’s assets and exploration
potential. With this in mind, during
2018, the Company has initiated
a Pumped Hydro Energy Strorage
(PHES) sale process. Negotiations
continue with a preferred bidder but
remain incomplete.
Whilst the Exploration Target in and
around the pit is promising, a number
of the underground targets that are
in the area directly below the pit rim
and to the north of the pit are likely
to be sterilised should the PHES sale
proceed.
Therefore, areas to the south like
Nugent are being reviewed to consider
whether they are viable as standalone
operations for underground mining.
In addition, the Company is building
a pipeline of near mine exploration
projects for future evaluation. To this
end, low cost exploration activities
are being conducted on a number
of areas to improve prospectivity
and generate specific drill targets.
The importance of any exploration
success to shareholders is that it
may add substantial value to the fully
owned processing infrastructure at
Kanmantoo, given its proximity to
these target areas.
Site rehabilitation works have been
undertaken progressively to date but
there will be a need to complete this
activity after cessation of operations.
Detailed plans for this work have been
prepared. In any case, the processing
facilities and associated infrastructure
retains some residual value post wind
down of operations, for which options
are currently being evaluated to
crystallise this value for shareholders.
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Safety and community
The emphasis on reducing safety
incidents has pleasingly led to a
significant and sustained reduction in
the total recordable injury frequency.
This has resulted in a 60% reduction
over the calendar year 2018 and a
63% sustained reduction over the last
four years.
Working with the local community
on the progressive rehabilitation of
the site, local community projects
and concepts such as the PHES,
have advanced with input by the
hard-working Kanmantoo Callington
Community Consultative Committee.
With the rehabilitation concentrated
in and around the mining operation,
we are determined to leave a positive
legacy in the district post mining.
2019 key focus areas
The key focus areas will be completing
mining, continuing to maximise
processing efficiency, winding back
overheads, pushing forward with
the PHES, building the value of the
exploration potential and returning cash
to shareholders.
Whilst the outlook for copper is promising,
the Company will continue to carefully
manage its fixed pricing contracts with
some flexibility to deliver product into the
spot market when A$ prices are relatively
high or otherwise utilise fixed pricing
when prices are relatively weak.
Finally, we sincerely thank our fellow
directors for their guidance and diligence,
all shareholders, employees, suppliers
and our local community for their
commitment and continued support
during 2018 and we look forward to
continuing that relationship through 2019
and beyond.
Kanmantoo Copper Mine, South Australia
IMPROVED SAFETY
PERFORMANCE WITH
A 60% REDUCTION
IN TRIFR TO THE
LOWEST LEVEL
SINCE OPERATIONS
COMMENCED
KANMANTOO HIGHLIGHTS
■ ACHIEVED COPPER AND GOLD PRODUCTION AND COST
GUIDANCE DESPITE PRODUCTION INTERRUPTIONS IN THE
PROCESSING FACILITY INCLUDING CRUSHER REBUILD, MILL
MOTOR AND GEARBOX REPLACEMENT
■ ORE STOCKPILES INCREASED TO 2.9MT, EQUIVALENT TO
10 MONTHS PROCESSING, DESPITE A NUMBER OF MINING
PRODUCTION CHALLENGES INCLUDING WEATHER DELAYS
AND A MAJOR ROCKFALL EVENT
RECORD
PRODUCTION OF
22,584 TONNES
OF COPPER IN
CONCENTRATE
■ CONTINUED PROGRESSIVE REHABILITATION PROGRAMME
WITH 62HA NOW PLANTED AND AN ADDITIONAL 40HA
PREPARED FOR 2019
■ ADVANCED GROWTH PIPELINE INCLUDING STAGED
UNDERGROUND DEVELOPMENT AT KANMANTOO, AND
REGIONAL EXPLORATION OPPORTUNITIES
■ SALE OF PHES PROJECT PROGRESSED
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Kanmantoo Copper Mine, South Australia (cont.)
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 Port 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 Port Adelaide, permitting the
trucking of copper concentrate.
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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,
providing 100% redundancy to the
Mount Barker supply.
Approximately 190 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 12% from the local
area, 67% from the nearby regional
area, 15% from Adelaide metropolitan
area and the remaining 6% from outside
of these regions.
Along with Hillgrove’s direct
employment, specialist contract services
are being undertaken by its three
main mining contractors which 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,
production and dilution control during
mining and milling operations.
The safety performance in CY18
improved significantly with Total
Reportable Injury Frequency Rate
(TRIFR) down to 8.2 injuries per
million work hours (CY17: 20.3). Injury
prevention in CY19 will continue to
focus on manual handling practices
and reducing soft muscle injuries in
static roles.
Kanmantoo Copper Mine, South Australia (cont.)
Copper production was 22,584 tonnes
of copper in concentrate, the highest
annual production recorded at
Kanmantoo. C1 costs were within
guidance at US$2.09/lb of copper
produced (guidance US$2.00/lb to
US$2.25/lb). High grade gold areas
encountered on the eastern lens of the
pit also contributed to gold production
of 6,003oz, slightly above the revised
guidance range of 5,000oz to 6,000oz
gold in concentrate.
Mining costs were $18.28/BCM, and
processing costs $8.43/tonne milled.
Mining production in CY18 was 27%
lower than the previous year, as
expected, due to the tighter working
areas as the pit nears completion,
resulting in increased unit mining
costs (CY17: $13.15/BCM). The unit
mining costs were also driven up by the
increased rate of final landform shaping
of the waste rock dumps as part of the
progressive rehabilitation programme.
Utilising idle mining equipment during
the mining production phase is the
most cost-effective way to complete the
rehabilitation obligations.
A number of factors including a lack
of equipment availability, inclement
weather, a tighter working area in
the pit and the rock fall in December
(which is likely to reduce future copper
production by 2,000 tonnes) contributed
to a slower than expected mining rate
which will delay the completion of
mining and add to costs.
A low strip ratio increased ore
production to 5.7M tonnes (CY17:
3.9M tonnes), creating ore stockpiles of
2.9M tonnes, which is equivalent to 10
months mill feed. The stockpiles will
continue to grow as the pit is completed
and then processed for approximately
12 months after mining ceases. It is
during this period that the bulk of the
cash accumulation is expected to occur
as mining costs are no longer incurred
in the business.
Nuriootpa
Gawler
Kanmantoo
Regional
EL5628
Mount Pleasant
Sedan
Mt Rhine
Kanappa
River
St Vincent
Gulf
Dawesley
ADELAIDE
Kanmantoo
Copper Mine
(ML6345)
Mannum
Millbrae
Kanmantoo
Callington
Meadows
Strathalbyn
Wheal Ellen
EL6176
Milang
Lake
Alexandrina
Victor Harbour
NORTH
0
25
kilometres
u r r a y
M
EL 6294
Karoonda - Ni
Sherlock - Cu, Zn
Cooke Plains
Peake
Kiki - Ni
EL 6174
EL 6175
EL 6208
Coonalpyn
Alamil - Cu
Kangaroo Flat - Mn
Tintinara
Colebatch - Mo
EL 6207
ELA 2019/08
Black Range - Fe
Weampa - U
KANMANTOO TENEMENT MAP
Mineral Lease
Exploration Licence
Exploration Project
Kanmantoo and South East Regional Tenement Map
Milling costs were higher than the
previous year (CY17: $7.41/tonne
milled) due to unplanned maintenance,
which included replacement of the mill
gearbox and motor, rotation of the girth
gear and the primary crusher rebuild
which led to higher costs and reduced
mill throughput. Risk management
through critical spares limited the
downtime associated with these
major works.
Hillgrove continued its engagement
during the year with the local
Kanmantoo Callington Community
Consultative Committee (KCCCC).
In CY18, the Company assisted the
KCCCC to develop a regional master
plan which focusses on how the mine
can have a lasting positive effect on the
local area, through shared infrastructure
and enhancing the local environment
by linking on site rehabilitation works
with off site vegetation. This innovative
approach was recognised in the 2018
Premier’s Awards as an excellent
example of community engagement.
Along with direct employment
opportunities and the significant use of
local suppliers and businesses, Hillgrove
continues to support local township
community events and sporting groups,
and engages 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.
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Exploration
NEAR MINE AND REGIONAL EXPLORATION
In 2018, the Company continued to advance a number of opportunities for organic growth around the Kanmantoo infrastructure,
namely the Kanmantoo Underground Exploration Targets, the South Kanmantoo Cu-Au targets, and the Kanappa and Mt
Rhine Cu-Au exploration projects. In addition to this, a number of new opportunities became evident and are continuing to be
evaluated, including the South-East Regional Corridor for magmatic hosted Cu-Au mineralisation.
The development of these opportunities resulted in several announcements in 2018 on their progress on 8 May, 24 May,
26 June, 31 July, 16 October and 7 December 2018.
Kanmantoo Underground Exploration Targets
The Company demonstrated the extension of several high grade copper-gold zones beyond the final open pit design. This
resulted in the announcement (25 May 2017) of an Exploration Target 1 of: 5-10Mt @ 1.7-2.2% Cu, 0.4-1.0g/t Au
614500mN
615000mN
615500mN
Kanmantoo
Copper Mine
NORTH
1200m RL
1000m RL
800m RL
600m RL
Final Pit Design
Nugent
South West
South West
Kavanagh
Kavanagh
East
Kavanagh
North East
Kavanagh
North
Kavanagh
Coopers
Spitfire
West Kavanagh
Central Kavanagh
0
300
metres
Kanmantoo Copper Mine Longitudinal Section - Exploration Target Zones
If the Pumped Hydro Energy Storage (PHES) transaction proceeds to financial
closure, then the Exploration Target immediately below the Giant Pit (but not the
former Nugent Pit) will likely be sterilised and underground mining may not be
possible.
However, the change in the final pit wall design may enable an opportunity to exploit
a number of the Cu-Au zones through an underground mining operation before any
PHES agreement is closed. This possibility is being investigated.
1
The Exploration Target is conceptual
in nature as there has been
insufficient exploration to define a
Mineral Resource. It is uncertain if
further exploration will result in the
determination of a Mineral Resource.
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NUGENT UNDERGROUND
OPPORTUNITY
The Nugent underground feasibility
study was completed in 2018 and an
application to the Department of Energy
and Mining for a permit to commence
the evaluation of the lode system via
underground drilling platforms and trial
stoping was submitted and approved.
Since that application, it has been
determined that the proposed access
route to the Nugent lode system from
the Giant Pit will be affected by the
PHES, and alternative underground
access routes are now being evaluated.
Exploration (cont.)
NEAR MINE AND REGIONAL EXPLORATION (cont.)
Kanmantoo Underground Exploration Targets (cont.)
W
1200mRL
North
K
avanagh one
Z
E
KTDDH029
KTDDH071
Grade Control Data
with Cu Grade
Pit Surface
1000mRL
33m @ 2.06% Cu,
0.24 g/t A
u
800mRL
12
0 - 0.1% Cu
0.2 - 0.5% Cu
0.5 - 1.0% Cu
1.0 - 2.0% Cu
> 2.0% Cu
8
m @ 2. % Cu,
0. g/t A
u
7
0
200
metres
318000mE
,
318 200m
E
,
318 400m
E
North Kavanagh Zone, Kanmantoo Copper Mine, Section 6,115,140mN
W
Kavanagh Ore Zone
E
KTDDH027
1200mRL
Grade Control Data
with Cu Grade
Current Pit Surface
Final Pit Design
0 - 0.1% Cu
0.2 - 0.5% Cu
0.5 - 1.0% Cu
1.0 - 2.0% Cu
> 2.0% Cu
7
m @ 2. % Cu,
7
0. g/t A
u
6
1000mRL
21
m @ 2.0 % Cu,
3
0. g/t A
u
1
0
50
metres
800mRL
,
318 000m
E
,
318 200m
E
,
318 400m
E
Kavanagh Zone, Kanmantoo Copper Mine, Section 6,115,040mN
The above diagrams show two cross sections through the Central Kavanagh Cu-Au
mineralisation at depth under the final pit shell. This Cu-Au zone is only 50 metres
from the final open pit shell and is one that is being investigated for underground
mining.
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Exploration (cont.)
NEAR MINE AND REGIONAL EXPLORATION (cont.)
Kanmantoo Exploration
Exploration activities around the
Kanmantoo mine site have identified a
number of geochemical and geophysical
targets for further exploration.
North West
K
anmantoo
318,000mE
SOUTH KANMANTOO MINE
CORRIDOR
This zone of interest is within 1,500m
of the processing plant. Previous drilling
has intersected a number of Cu-Au
zones of interest that require further
work. This area is a focus for further
underground mining opportunities, with
intersects including:
■ 5m @ 2.5% Cu, 0.8g/t Au from
13m in KTRC742
■ 19m @ 0.9% Cu, 0.5g/t Au from
48m in KTRC757
■ 33m @ 0.8% Cu, 0.1g/t Au from
12m in KTRC264
STELLA
In 2018, the Stella target was mapped
with a Magneto-Telluric (MT) survey
that identified a strong deep-seated
conductor that is coincident with a
magnetic high and is supported by
an Induced Polarity (IP) chargeability
zone. This zone has not been previously
drilled.
NORTH-WEST KANMANTOO
Mapping and sampling has identified
a 4km long zone of Cu-Au anomalism
coincident with a strong magnetic high
and broad widths of FeOx alteration at
surface, within 5kms of the processing
plant.
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320,000mE
6,116,000mN
Mine Corridor
Cultural
aAre
Open Pit
KTRC861
56m @ 0.6% Cu,
0.1g/t Au
KTRC757
19m @ 0.9% Cu,
0.5g/t Au
KTRC157
37m @ 0.5% Cu,
0.1g/t Au
KTRC742
5m @ 2.5% Cu,
0.8g/t Au
0
500
metres
NORTH
Kanmantoo exploration areas
6,114,000mN
K
South anmantoo
Mine Corridor
KTRC264
33m @ 0.8% Cu,
0.1g/t Au
KTRC255
17m @ 0.5% Cu,
0.2g/t Au
Stella
Airmagnetics - 1VD
Kanappa Copper-Gold Exploration
Hillgrove has previously identified a copper-gold mineralised zone at Kanappa over
4.8km long, confirmed with soil and rock chip sampling. In 2018, the Company
completed a detailed ground magnetic survey and an IP survey. As a result of this
work, six drilling targets were identified, of which three drill holes were completed.
The drilling at Kanappa was prematurely terminated after only three holes due to
excessively broken ground, which resulted in the drill holes not being able to reach
planned depth, low penetration rates, high water consumption and higher costs.
All assays from the diamond drilling of the three holes at Kanappa have now been
received. For the full report see the ASX release of 30 January 2019. The photograph
opposite shows an example of the copper mineralisation intersected in KPDD002.
Exploration (cont.)
250m RL
KPDD003
KPDD002
45m @ 0.2% Cu,
Mo to 241 ppm,
Co to 1175 ppm
from 47m downhole
NEAR MINE AND REGIONAL EXPLORATION (cont.)
Kanappa Copper-Gold
Exploration (cont.)
The drill holes intersected a wide
sequence of potassic, chlorite and
sericite altered and veined sediments,
monzonites and diorites that is at
least 250m wide and open to the
east. Petrology work by internationally
respected alteration petrologist, Dr
Roger Taylor, on a suite of samples from
the first hole (KPDD002), is summarised
below. Further work is in progress to
confirm these observations and their
implication for the next drilling program.
200m RL
100m RL
150m RL
50m RL
0
0
1
1
0
0
0
2
0
0m RL
7m @ 0.4% Cu,
Mo to 50 ppm,
W to 3570 ppm,
from 230.5m downhole
0
0
3
0
0
2
209m
2m @ 1.3 g/t Au
from 358m downhole
0
100
metres
336750mE
367m
337000mE
Melange of diorite, skarn,
breccias with K-spar, sericite,
chlorite epidote alteration
Surface
Chlorite sericite
altered metasediment
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P
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F
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t
Cu Legend
> 1000 ppm Cu
600 - 1000 ppm Cu
400 - 600 ppm Cu
250 - 400 ppm Cu
150 - 250 ppm Cu
Lithology Legend
Metasediment
Altered metasediment
Carbonate altered
Breccia + skarn
Diorites
Dr Taylor comments, “the paragenesis
records a classic magmatic related
down temperature sequence, often
recorded in porphyry copper gold
systems and in several iron oxide copper
gold systems.”
These drill results confirm the
Company’s view that the Kanappa area
is prospective for large scale magmatic
related copper-gold mineral deposits.
Results from all holes are as follows:
KPDD002
■ 7m @ 0.4% Cu, from 230.5
downhole
■ 2m @ 1.3g/t Au from 358m
downhole
KPDD003
■ 45m @ 0.2% Cu, from 47m
downhole, including two higher
grade zones
■ 5.5m @ 0.47% Cu from 69.5m
downhole, and
■ 4.5m @ 0.65% Cu from 85.0m
downhole
KPDD004
■ 1.0m @ 0.2% Cu, from 100m
downhole
Cross Section looking north of KPDD002 and KPDD003 drill holes at Kanappa
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Drill core from KPDD002
Exploration (cont.)
NEAR MINE AND REGIONAL EXPLORATION (cont.)
MT RHINE COPPER-GOLD EXPLORATION PROJECT
338,000X
339,000X
IP Chargeability Model
6,165,000Y
6,165,000Y
0
200
metres
NORTH
Magnetic 3D Model
Plan of the 1.7km long geophysical anomalies at the Cu-Au target zone at Mt Rhine
The Company had previously identified
two significant zones of copper-gold
at Mt Rhine through a systematic soil
and rock chip sampling program. In
2018, the stronger copper-gold zone
was covered with a program of ground
magnetics and pole-dipole IP. The
diagram above shows an isometric view
of the magnetic and IP chargeability
results which indicate a 1.7km long
anomaly for drill targeting.
The Mt Rhine Project is 80kms via
existing roads from the Kanmantoo
processing plant and 12kms from the
Kanappa copper-gold project.
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10
INDONESIAN
PROJECTS
The Company is continuing to progress
its withdrawal from Indonesia.
The Indonesian projects have been on
care and maintenance since 2013 and
the carrying values of both projects were
fully impaired in 2015.
Exploration (cont.)
PUMPED HYDRO ENERGY STORAGE
During 2018, and based on strong interest from a number of parties in the PHES
project, the Company conducted a formal process to seek offers for the sale of
rights to establish a PHES project utilising the final pit void at Kanmantoo. The aim
of the process was to unlock the value inherent in the project post the completion of
mining at Kanmantoo.
The end of mine Kanmantoo Pit presents a potential PHES opportunity due to the
difference in elevation between the base of the pit and an upper reservoir (>400m),
its proximity to the South Australian Electricity Interconnector, water availability, its
land holding on surrounding properties and the South Australian electricity market
requirements.
PHES helps address the challenges faced in the state emanating from reliance on
renewable energy, by adding system stability and storage, and also by providing
opportunities for associated projects, such as solar.
The process called for non-binding indicative offers to be received in Q3 2018,
and binding offers to be received in Q4 2018. Based on the indicative offers, the
Company together with its advisor Key Pacific selected a shortlist of bidders to
progress to the binding bid stage with final offers received in the December
2018 quarter.
Giant Pit
(Lower Pond)
Tailings Storage Facility
Upper Pond
and Dam
Upper Waterway
Powerhouse and
Transformer Cavern
NORTH
Access tunnel from Giant Pit
Kanmantoo Pumped Hydro Energy Storage - generalised project layout
The Company evaluated these bids against the potential returns from an
underground development. If this transaction were to proceed, the inferred resource
and the exploration targets that sit directly below the final pit footprint would be
sterilised, meaning that mining of this resource would only be possible before
commencement of the construction of the PHES facility.
The PHES bid process was completed as planned and a preferred bidder has
been selected. Negotiations have progressed well but are incomplete at the date of
this report.
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Mineral Resource and Ore Reserve Estimates
On 18 October 2016 a Mineral Resource Estimate and Ore Reserve Estimate was announced for the Kanmantoo Copper Mine.
The 2016 Mineral Resource Estimate for the Giant Pit was updated in 2017 with 1,617m of in-pit RC drilling (<0.01% increase in
drill metres) to provide more certainty for the production schedules. The in-pit drilling has not resulted in a material change to the
total Mineral Resource Estimate.
The 2017 Mineral Resource Estimate for the Kanmantoo District is reported at the 31 December 2018 mined surface and is
therefore depleted for production to 31 December 2018. As production has only been from the Giant Pit, only the Giant Pit has
been depleted. The Mineral Resource Estimate is inclusive of the Ore Reserve Estimate also tabulated below for the same surface
and cut-off grade for the Giant Pit.
The Kanmantoo Ore Reserve Estimate at 31 December 2018 in the table below has been depleted for production to 31 December
2018. It represents the ore within the remaining Giant Pit which is expected to be recovered by May 2019, and ore which has
already been mined and sitting on surface in stockpiles which will be processed after the completion of mining of the Giant Pit.
Kanmantoo Global Mineral Resource Estimate at 31 December 2018
JORC 2012
Tonnage
Mine
Kanmantoo Copper Mine,
All Deposits
Classification
Measured
Indicated
Inferred
Total
Note: Economic cut-off grade is 0.20% Cu.
(Mt)
5.1
9.0
10
24
Cu
(%)
0.6
0.6
0.6
0.6
Au
(g/t)
0.1
0.1
0.1
0.1
Giant Open Pit Mineral Resource Estimate at 31 December 2018
JORC 2012
Tonnage
Mine
Classification
Kanmantoo Copper Mine,
Measured
Giant Pit Only
Total
Indicated
Inferred
Note: Economic cut-off grade is 0.20% Cu.
(Mt)
3.8
3.5
8
15.9
Cu
(%)
0.6
0.5
0.6
0.5
Au
(g/t)
0.1
0.1
0.1
0.1
Kanmantoo Open Pit Ore Reserve Estimate at 31 December 2018
JORC 2012
Tonnage
Mine
Classification
Kanmantoo Copper Mine
Proved
(Giant Pit)
Total
Stockpiles
Probable
(Mt)
1.2
0.3
1.5
2.9
Cu
(%)
0.6
0.5
0.6
0.3
Au
(g/t)
0.1
0.1
0.1
Ag
(g/t)
1.3
1.5
1.0
1.3
Ag
(g/t)
1.1
0.9
0.8
1.0
Ag
(g/t)
1.2
0.8
1.2
Cu Metal
(kt)
33
57
60
150
Cu Metal
(kt)
21
18
47
86
Cu Metal
(kt)
8
1
9
9
Note: Economic cut-off grade is 0.20% Cu. The stockpiles are not assayed for gold or silver so no estimate for gold or silver grades are provided,
however gold and silver are expected to be recovered from the stockpiles.
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The figures included in the Mineral Resource and Ore Reserve statements are estimates only and not precise calculations,
therefore appropriate rounding according to JORC guidelines has been applied. Discrepancies in totals may occur due
to rounding.
Mineral Resource and Ore Reserve Estimates (cont.)
Kanmantoo underground copper-gold Exploration Target
The Kanmantoo Exploration Target in this Annual Report is based on currently available data and was reported on 25 May 2017.
The Exploration Target is conceptual in nature as there has been insufficient exploration to define a Mineral Resource. It is
uncertain if further exploration will result in the determination of a Mineral Resource under the “Australasian Code for Reporting
of Exploration Results, Mineral Resources and Ore Reserves, the JORC Code” (JORC 2012). The Exploration Target is in addition
to the Mineral Resource Estimates tabulated above.
EXPLORATION TARGET
Coopers
North Kavanagh
North East Zone
East Kavanagh
Central Kavanagh
West Kavanagh
South West Kavanagh
Spitfire
Nugent
Totals
DH Width Range
(m)
Tonnage Range
(Mt)
Grade Range
(Cu%)
Grade Range
(Au g/t)
Grade Range
(CuEq%)
6-10
6-10
12-33
10-24
13-30
11-28
7-22
16-37
8-15
6-37
0.1-0.3
0.1-0.7
0.4-0.7
0.4-0.8
1.2-2.2
0.8-1.6
0.8-1.0
0.4-0.7
0.8-2.0
1.5-2.0
1.5-2.0
2.0-2.5
2.0-2.5
1.5-2.0
2.0-2.5
1.8-2.2
1.5-2.0
1.5-2.0
5.0-10.0
1.7-2.2
0.4-0.8
0.4-0.8
0.4-0.8
0.05-0.2
0.1-0.4
0.01-0.05
0.1-0.4
1.5-3.0
1.5-2.5
0.4-1.0
1.8-2.5
1.8-2.5
2.2-3.0
2.0-2.6
1.6-2.2
2.0-2.5
1.8-2.4
2.5-4.0
2.5-3.5
2.0-2.8
Competent Person’s Statement
The information in this release that relates to 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 in this annual report, 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 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 apart from mining depletion. Peter Rolley (MAIG) and Lachlan Wallace (MAusIMM) consent
to the inclusion in this report of the matters based on their information in the form and context in which they appear.
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Sustainability: Environment, Safety and Community
Hillgrove’s Sustainability and Work
Health & Safety Policies provide a
strong, ethical foundation for our
approach to health, safety, environment
and community (HSEC) responsibilities.
Supporting these policies, Hillgrove
has implemented an Integrated
Risk Management System (Kan-do)
across our operations. The system
incorporates a prioritised risk based
approach and continual improvement
framework, ensuring our HSEC policy
objectives and legislative compliance
are achieved.
To reduce the risks as low as reasonably
practicable, the Kan-do system provides
the appropriate safe systems of work,
clearly outlined responsibilities and
accountabilities, and a strong audit
framework. Hillgrove has identified its
Principal HSEC risks and implemented
the appropriate control measures.
The Kan-do system is driven by
effective leadership, the acceptance
of individual responsibility and the
promotion of a risk aware culture
across its operations through the
implementation of a Due Diligence
Model.
The Kan-do system is audited regularly,
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. 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.
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Premier Steven Marshall recognising the excellent work by Hillgrove and the local community in developing the regional Master Plan;
ensuring positive and enduring benefit for the community surrounding the Kanmantoo mine
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 28 February 2019.
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
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
15
16
26
37
38
39
Consolidated statement of
changes in equity
Consolidated statement of cash flows
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Shareholder Information
40
41
42
66
67
74
FINANCIAL STATEMENTS
for the year ended 31 December 2018
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Directors’ Report
The Directors present their report on the consolidated entity (referred to hereafter as “the Group”) consisting of Hillgrove Resources
Limited (Hillgrove or the Company) and the entities it controlled during the 12 months ended 31 December 2018.
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 in 2018 produced 22,584 tonnes of
copper. 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 2018 are:
Name/Qualifications
Experience and special responsibilities
Mr John Gooding
Independent Non-Executive Chairman / Chairman Nomination and Remuneration Committees
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 is also the Non-Executive Chairman of the Board for Kasbah Resources Ltd and a
Non-Executive Director of KGL Resources Ltd.
John is a member of the Audit and Risk Committee.
Appointed 31 May 2007.
Mr Maurice 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 / Chairman Audit and Risk and Treasury Committees
Qualifications
Experience
CPA, MAICD, BBus, PGDipBA
Phil is a Certified Practising Accountant with over 37 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 was 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.
Appointed 29 October 2014.
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Directors’ Report (cont.)
DIRECTORS AND OFFICERS (CONT.)
Name/Qualifications
Experience and special responsibilities
Mr Anthony (Tony) Breuer
Independent Non-Executive Director
Qualifications
Experience
BCom/LLB
Tony has over 30 years of experience at investment bank Gresham Partners Limited and is currently
Managing Director of Gresham Funds Management Group and Deputy Chairman of Gresham Partners
Capital Limited, and is a Board member of various Gresham group companies and committees. He
was formerly, Director of National Gallery Australia Foundation. He was admitted as a Barrister to the
Supreme Court of NSW.
Tony is a member of the Remuneration, Audit and Risk and Nomination Committees.
Appointed 1 June 2017.
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 30 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 a member of the Treasury Committee.
Appointed 12 June 2015.
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
Mr J E Gooding
Mr M W Loomes
Mr P Baker
Mr A Breuer
Mr S P McClare
Board
Remuneration
Committee
Audit
Committee
Nomination
Committee
Treasury
Committee
A
15
15
15
15
15
B
15
14
15
15
15
A
7
7
7
7
7
B
7
6
7
7
7
A
8
8
8
8
8
B
8
7
8
8
8
A
1
1
1
1
-
B
1
-
1
1
-
A
-
-
2
-
2
B
-
-
2
-
2
A – Number of meetings held during the Directors time in office
B – Number of meetings attended
The Treasury Committee members are Mr P Baker, Mr S McClare, Mr P Kiley and Mr J Sutanto (Group Finance & Planning
Manager).
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Directors’ Report (cont.)
RESULTS
Revenue from ordinary activities
$180.1m CY17: $113.3m
Profit / (Loss) from ordinary
activities after tax attributable
to the owners of
Hillgrove Resources Limited
Profit / (Loss) for the period
attributable to the owners of
Hillgrove Resources Limited
$29.5m CY17: ($14.1m)
$29.5m CY17: ($14.1m)
OVERVIEW OF CONSOLIDATED
FINANCIAL RESULTS
For the year ended 31 December 2018, the net profit after tax
was $29.5 million compared to a net loss after tax of $14.1
million for the year ended 31 December 2017. The underlying
net profit after tax during the year was $29.7 million compared
with a $8.4 million loss in 2017 (refer page 21 for further details
including a reconciliation of statutory results to underlying
results).
Before the non-underlying items, the operating result for 2018
was a profit before interest and tax (EBIT) of $27.6 million
compared to an EBIT of $4.4 million in 2017. Depreciation
expense in CY18 was $4.9 million higher than the previous year,
in line with the higher copper production which occurred during
CY18. With non-cash depreciation and amortisation added
back, underlying EBITDA in 2018 increased by $28.1 million
from $16.2 million to $44.3 million as a result of increased
production.
REVIEW OF OPERATIONS FOR
THE CY18 YEAR AND OUTLOOK
With the completion of the Giant Pit cutback in December
2017, the Company entered a cash-generative phase as low
operating strip ratios resulted in the stockpiling of mined ore
which enabled higher grade ore to be prioritised through the
plant. Average milled grade for CY18 was 0.74% compared
to 0.48% in the previous year. As a consequence,
underlying EBITDA for CY18 increased from $16.2 million
to $44.3 million and inventory on hand increased by $20.9
million from $12.7 million to $33.6 million at the end of
December 2018.
The free cash flow generated from the higher copper sales
allowed the Company to improve its balance sheet through
debt reduction of $8.6M, a reduction in the creditors
balance of $21.7M, and a build up of cash of $2.5M by year
end.
As a result of cash flow challenges during CY16 and CY17,
a number of payable and debt repayments were deferred
until CY18. By the end of 2018, trade creditors which have
supported the Company through the 2016 to 2017 period
have been returned to near normal trading terms, employees
have been repaid their salary deferments and the Company
is close to being debt-free.
For CY18, the company achieved its highest annual copper
production on record of 22,584 tonnes of copper metal
which was sold at an average price of A$8,833 per tonne
(CY17: 14,802 tonnes at A$7,763 per tonne). At the end of
December 2018, the Company had fixed pricing agreements
in place for future sales of 10,900 tonnes of copper at an
average price of $8,873 per tonne, representing about 60%
of expected remaining production for the life of mine.
During the year, the Company initiated a formal process
to seek offers for the PHES project. Negotiations with the
preferred bidder have progressed but are incomplete.
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Directors’ Report (cont.)
REVIEW OF OPERATIONS FOR THE CY18 YEAR AND OUTLOOK (CONT.)
KANMANTOO COPPER MINE PRODUCTION STATISTICS
Ore to ROM from Pit
Mined Waste
Total Tonnes Mined
Strip Ratio
Closing Ore Stocks
Mining Grade
Ore Milled
Milled Grade
Recovery
- Cu
- Au
- Cu
- Au
MAR-18 QTR
JUN-18 QTR
SEP-18 QTR
DEC-18 QTR
1,636
2,571
4,207
1.6:1
1,257
0.47
876
0.64
0.12
91.4
54.3
1,843
1,889
3,733
1.0:1
2,331
0.54
747
0.82
0.15
92.5
55.5
1,184
1,614
2,799
1.4:1
2,643
0.62
870
0.80
0.08
92.4
58.5
1,064
1,483
2,547
1.4:1
2,893
0.52
831
0.70
0.06
91.7
54.4
kt
kt
kt
W:O
kt
%
kt
%
g/t
%
%
CY18
5,728
7,557
13,285
1.3:1
2,893
0.53
3,324
0.74
0.10
92.0
55.6
CY17
3,915
14,388
18,303
3.7:1
484
0.48
3,427
0.48
0.12
90.6
51.8
Cu Concentrate Produced
Dry mt
21,653
24,023
26,794
22,106
94,576
67,265
Concentrate Grade
- Cu
- Au
Contained Metal in Concentrate
- Cu
- Au
- Ag
%
g/t
t
oz
oz
Total Concentrate Sold
Dry mt
23.7
2.5
23.5
2.6
24.1
1.5
24.3
1.2
23.9
2.0
22.0
3.1
5,122
1,770
36,996
23,395
5,642
2,042
40,139
23,335
6,454
1,306
45,247
26,391
5,366
22,584
14,802
885
6,003
6,785
39,211
161,592
110,551
22,981
96,102
65,161
During 2018, Hillgrove achieved production of 94,576 tonnes of dry concentrate containing 22,584 tonnes of copper and 6,003
ounces of gold from the Kanmantoo Copper Mine, a record year for copper production.
With the completion of the Giant Pit cutback, strip ratios significantly decreased from 3.7:1 to 1.3:1, leading to increased ore
production from the Pit. As a result of this, stockpiles increased from 484k tonnes at the beginning of the year to 2,893k tonnes
by 31 December 2018. This ore inventory stockpile (equivalent to 10 months of processing) increases the business’ resilience
by allowing stockpiles to be processed if there are any unplanned mining interruptions. In addition to this, it allows copper
production to be optimised by enabling high grade ore to be preferentially processed.
The Company has taken the opportunity to accelerate the earthworks associated with the rehabilitation obligations prior to the
completion of mining in mid-2019. Progressive rehabilitation using idle equipment is the most cost effective method to complete
the rehabilitation obligations and will progressively reduce the Company’s environmental liability.
The 3.0Mtpa processing plant continued to operate above nameplate capacity, with crushing and milling of 3.3M tonnes during
CY18, against 3.4M tonnes in CY17. The slight reduction on the prior year was a result of the temporary stoppages to production
emanating from the crusher bearing and mill motor replacement.
Mining costs were $18.28/BCM, and processing costs were $8.43/tonne milled. The mining unit costs increased during the
year (CY17: $13.15/BCM) due to the increasingly tight working areas as we approach the final months of mining (which reduces
efficiency as the work area eventually becomes too small to manage load/haul and drill/blast activities concurrently), weather
related delays, and the effect of the December 2018 rock fall.
The CY18 C1 cost of US$2.09/lb of copper produced was within guidance of US$2.00/lb to US$2.25/lb.
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Directors’ Report (cont.)
REVIEW OF OPERATIONS FOR THE CY18 YEAR AND OUTLOOK (CONT.)
The successful delineation of the
KANMANTOO COPPER MINE PERFORMANCE
underground targets may result in an
Monthly Mining Performance
increase in mine life at Kanmantoo,
made possible only by the utilisation of
the substantial assets of the Company,
the open pit Haul Road and the efficient
processing plant. The development of
these underground opportunities will
be evaluated against the outcome of
the PHES once the formal process is
completed.
)
s
d
n
a
s
u
o
h
t
(
)
s
d
n
a
s
u
o
h
t
(
s
e
n
n
o
T
526
551
766
620
336
363
484
431
365
521
495
200
600
500
300
400
800
400
500
600
300
700
269
t
n
e
m
e
v
o
M
M
C
B
l
a
t
o
T
100
0
470
437
454
437
431
340
275
289
342
332
264
228
Jan
2018
Feb
2018
Mar
2018
Apr
2018
May
2018
Jun
2018
Jul
2018
Aug
2018
Sep
2018
Oct
2018
Nov
2018
Dec
2018
Total BCM movements (LHS)
Total Ore tonnes (RHS)
Monthly Processing Performance
)
s
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n
a
s
u
o
h
t
-
t
m
d
(
s
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n
n
o
T
d
e
l
l
i
M
350
300
250
200
150
100
50
0
91.1
90.7
99.1
91.5
91.6
90.7
92.5
91.7
96.1
92.5
92.5
93.5
92.7
96.7
97.3
95.0
95.3
92.2
92.3
91.1
91.9
92.0
78.0
299
287
289
269
68.4
199
280
288
292
291
244
291
296
Jan
2018
Feb
2018
Mar
2018
Apr
2018
May
2018
Jun
2018
Jul
2018
Aug
2018
Sep
2018
Oct
2018
Nov
2018
Dec
2018
Milled Tonnes (LHS)
Primary Copper Recovery (RHS)
Mill Run Time (RHS)
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l
a
t
o
T
e
g
a
t
n
e
c
r
e
P
200
100
0
100
95
90
85
80
75
70
65
60
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EXPLORATION PROGRAMME
Exploration activities during the year were focused on optimising the underground
plan for the Exploration Target 1 at the Kanmantoo Copper Mine, testing the regional
copper-gold projects, and undertaking diamond drilling at the Kanappa tenement.
As previously announced in 2017, the Company has demonstrated the extension
of several high grade copper-gold zones beyond the final open pit design, with the
most advanced of these being the underground targets in the Nugent zone where
the Company has identified a high copper-gold area (12m @ 2.2% Cu, 7.9g/t Au).
Preliminary design work was completed during the year and the Regulator has
approved the proposed underground exploration drive below the Nugent Pit.
As a result of the December pit wall failure and the resultant modified pit design,
the Company is investigating various underground mining scenarios to profitably
and expediently access the copper mineralisation no longer accessible by open pit
mining. The investigation of this is in addition to the previous work undertaken to
evaluate underground operations on the Nugent lode system.
Other exploration activities around the
Kanmantoo mine site were undertaken
during the year, and these identified a
number of geochemical and geophysical
targets for further exploration. This
included work in the South Kanmantoo
Mine Corridor, Stella, and North West
Kanmantoo targets.
At Kanappa, the Company completed a
detailed ground magnetic survey and an
IP survey, which led to three drill holes
being completed during the year. The
drill holes intersected a wide sequence
of potassic, chlorite and sericite altered
and veined sediments, monzonites and
diorites that is at least 250m wide and
open to the east – this confirms the
Company’s view that the Kanappa area
is prospective for large scale magmatic
related copper-gold mineral deposits.
At Mt Rhine, a detailed ground magnetic
survey and an IP survey was also
completed, and these identified a zone
with broadly coincident anomalism. The
Mt Rhine target area has a much higher
gold tenor compared to the Kanappa
exploration target and further work is
required to integrate the gold targets
with these copper anomalies for drill
hole targeting.
1
The Exploration Target is conceptual
in nature as there has been
insufficient exploration to define a
Mineral Resource. It is uncertain if
further exploration will result in the
determination of a Mineral Resource.
Directors’ Report (cont.)
REVIEW OF OPERATIONS FOR THE CY18 YEAR AND OUTLOOK (CONT.)
STATEMENT OF PROFIT OR LOSS
12 months to
31 December 2018
12 months to
31 December 2017
$ million
$ million
Change
$ million
Revenue
Revenue
Treatment and refining
TOTAL REVENUE
Cash costs of production
Mining
Pre-strip and deferral
Processing
Transport and shipping
Other direct costs
Inventory movements
Royalties
Corporate costs
Gain/(loss) on disposal of assets
Other income
Net foreign exchange gain/(loss) realised
TOTAL CASH COSTS OF PRODUCTION
UNDERLYING EBITDA
Depreciation and amortisation
UNDERLYING EBIT
Net interest and financing charges
Income tax (expense)/benefit
UNDERLYING NPAT
Non-underlying items, net of tax
REPORTED NET PROFIT / (LOSS) AFTER TAX
Non-underlying Items
Fair value movement – convertible notes
Impairment - Australian exploration write down
Impairment - Kanmantoo assets write down
Total Non-underlying Items
202.4
(22.3)
180.1
(78.5)
(19.4)
(30.6)
(9.6)
(5.1)
20.6
(8.6)
(4.9)
-
0.2
0.1
(135.8)
44.3
(16.7)
27.6
(1.7)
3.7
29.7
(0.2)
29.5
-
(0.2)
-
(0.2)
126.2
(12.9)
113.3
(73.8)
15.9
(27.7)
(5.1)
(5.1)
7.8
(4.6)
(4.4)
(0.1)
0.2
(0.2)
(97.1)
16.2
(11.8)
4.4
(4.6)
(8.2)
(8.4)
(5.7)
(14.1)
(5.5)
(0.2)
-
(5.7)
76.2
(9.4)
66.8
(4.7)
(35.3)
(2.9)
(4.5)
-
13.1
(4.0)
(0.5)
0.1
-
0.3
(38.4)
28.4
(5.2)
23.2
2.9
11.9
38.0
5.5
43.5
5.5
-
-
5.5
Revenue from the sale of concentrate increased from $113.3 million in 2017 to $180.1 million in 2018. Total concentrate sold in
2018 was 96,102 dry tonnes (CY17: 65,161 tonnes) at an average realised price of $8,833 per tonne of payable copper (CY17:
$7,763 per tonne). The value of gold sold in concentrate was $8.2 million (CY17: $10.0 million). The completion of the Giant
Pit cut-back in 2018 led to increased copper production, due to the increased grades available for processing and resulted in an
increase in the volume of concentrate produced.
Cash costs of production were higher, rising from $97.1 million in 2017 to $135.8 million in 2018. Although gross mining costs were
in line with the prior year, pre strip and deferred mining costs were reallocated from the balance sheet to operating costs as waste
removal ratios declined with the completion of the cut-back. In addition to this, transport and shipping, treatment and refining, and
royalties increased due to the higher levels of production.
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Directors’ Report (cont.)
REVIEW OF OPERATIONS FOR THE CY18 YEAR AND OUTLOOK (CONT.)
CASH FLOW OVERVIEW
Operating activities cash flow
12 months to
31 Dec 2018
12 months to
31 Dec 2017
Change
$ million
$ million
$ million
Receipts from customers
179.6
101.5
78.1
Payment to suppliers, employees and
contractors
(161.6)
(100.8)
Net cash inflows from operating activities
18.0
0.7
(60.8)
17.3
Net cash inflows from operating activities for the 12 months ended 31 December
2018 were $18.0 million, reflecting the increase in copper metal production during
the year. This includes the expenditure on deferred mining costs of $19.4 million
(2017: $14.5 million). In addition to this, it must be noted that of the $161.6M of
payments made to suppliers, employees, and contractors, $21.7M of this was to
reduce the creditors balance and $1.7M was for the repayment of deferred salaries.
Taking these two items into account, net cash inflows from operating activities would
have increased in 2018 from $18.0M to $41.4M (CY17: -$11.0M).
Investing activities cash flow
12 months to
31 Dec 2018
$ million
12 months to
31 Dec 2017
$ million
Payments for exploration activities
Payments for property, plant and equipment
Net cash (outflows) from investing activities
(1.5)
(5.4)
(6.9)
(0.1)
(6.8)
(6.9)
Change
$ million
(1.4)
1.4
-
The amount of capitalised pre-strip expenditure decreased in 2018 following
completion of the last bench with a strip ratio greater than ten to one. As such,
investing activities for property, plant and equipment were limited to sustaining capex
at Kanmantoo and costs associated with progressing the PHES. Payments related to
exploration activities increased in 2018 from $0.1M to $1.5M, which largely focussed
on the Kanmantoo tenements and the surrounds (predominantly Kanappa).
Financing activities cash flow
Proceeds from issue of shares
Proceeds from new borrowings
Repayment of borrowings
Repayment of finance leases
Net interest paid (incl. transaction costs)
Net cash inflows from financing activities
12 months to
31 Dec 2018
$ million
12 months to
31 Dec 2017
$ million
-
4.0
(12.0)
(0.3)
(0.8)
(9.1)
5.6
0.3
(0.3)
(0.3)
(0.6)
4.7
Change
$ million
(5.6)
3.7
(11.7)
-
(0.2)
(13.8)
The $4.0M loan from the South Australian Government was repaid in February
2018 and replaced with a $4.0M copper prepayment of future 2018 copper sales
(provided by Freepoint). This copper prepayment was repaid during the year. In
addition to this, loans related to two contractor creditors were largely repaid during
the year, with the liability due to be fully repaid by February 2019.
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STATEMENT OF FINANCIAL
POSITION
With the completion of the investment
phase, the Company entered a free cash
generative phase during the year due
to higher grade ore being selectively
processed. As a result, the balance
sheet significantly improved, with net
assets increasing from $13.8M to
$44.2M.
Cash and cash equivalents at
31 December 2018 were $2.5M. With
the forecast strong copper production,
cessation of mining (thereby reducing
costs), the fixed pricing contracts in
place, and creditors now back on
industry terms, the Kanmantoo copper
mine is expected to generate continued
net cash inflows from operations. This
should enable the Company to generate
significant surplus cash through 2019.
Inventories have continued to build
during the year, with ore stockpiles
and store consumables increasing
from $12.7M at 31 December 2017 to
$33.6M at 31 December 2018. This
build up is due to run-of-mine (ROM)
ore stocks, which increased because the
mine was producing ore at rates faster
than the mill could process at
full capacity.
Property, plant and equipment
decreased by $33.7M to $44.0M
during the year. This was a result
of depreciation and amortisation of
$16.7M, the release of deferred mining
from the balance sheet to the profit and
loss of $19.4M (to normalise costs in
the Giant Pit for the impacts of variable
waste ratios and copper grades), offset
by sustaining capital expenditure of
$2.8M (comprising mainly geotechnical
controls in the pit and ongoing tailings
storage facility construction).
Project costs of $1.5M relate to the
PHES project, which have been
capitalised.
Directors’ Report (cont.)
REVIEW OF OPERATIONS FOR THE CY18 YEAR AND OUTLOOK (CONT.)
Summary Balance Sheet
Statement of Financial
Position (cont.)
Deferred tax assets of $3.7M were
recognised on the balance sheet. The
tax benefit of carried forward tax losses
of approximately $126.1M has not been
brought to account.
Property, Plant & Equipment
Receivables
Inventories
31 Dec 2017
31 Dec 2018
$ million
$ million
44.0
33.6
Cash
77.7
12.7
5.4
2.5
0.5
5.2
Change
$ million
2.0
0.2
20.9
(33.7)
Exploration
2.0
0.9
Payables decreased by $21.7M to $26.6M
at 31 December 2018, reflecting the
repayment of creditors from the improved
free cash flow generation in 2018.
Provisions decreased by $1.1 million,
mainly as a result of a revision of the final
cost estimate due to works undertaken
during the year to close the Kanmantoo
mine upon depletion and fully rehabilitate
all affected areas.
Total borrowings of $1.0M at 31 December
2018 comprises of $0.5M in finance lease
liabilities and $0.5M for a promissory note
from a mining contractor. The liability for
this promissory note is scheduled to be
fully repaid at the end of February 2019.
Employee benefits payable decreased by
$3.5M, due to the repayment of salary
deferrals as planned and previously unpaid
liabilities for payroll related on costs.
For the year ended 31 December 2018,
total equity increased by $30.4M,
reflecting the profit for the year of $29.4M.
As was the case at 31 December 2017, by
applying impairment testing methodology
consistent with that used in previous years,
the calculated recoverable amount as at
31 December 2018 exceeds the carrying
value. However, past impairment charges
have not been written back until such
time as the Group has demonstrated a
sustained period of positive cashflows. In
addition to this, a significant portion of the
previously booked impairment charge was
recorded against mining related assets,
which are projected to be fully depreciated
within the next four months. Due to
these factors, prior impairments were
not reversed.
Project Costs
Deferred Tax Assets
Total Assets
Trade Payables
Provisions
Borrowings
Employee Benefits
Deferred Income
Total Liabilities
Net Assets / Equity
1.5
3.7
92.7
26.6
15.7
1.0
3.8
1.4
48.5
44.2
-
-
97.0
48.3
16.8
9.5
7.3
1.3
83.2
13.8
1.1
1.5
3.7
(4.3)
21.7
1.1
8.5
3.5
(0.1)
34.7
30.4
2019 GUIDANCE
The Company provides the following guidance for 2019 for the Kanmantoo
Copper Mine Open Pit:
■ Copper produced 13,000t to 15,000t copper contained in concentrates
■ Gold produced
2,000oz to 3,000oz gold contained in concentrates
■ C1 Costs
US$2.05 to US$2.30 per lb (at a 0.72 exchange rate)
■ Exploration
$1.5 million to $2.0 million
■ Capital projects
$1.5 million to $2.5 million
Despite the reduction in expenses due to the completion of mining in the
second quarter of 2019, C1 costs should remain relatively high because
they include non cash deferred mining costs and ore inventory adjustment
(consumption of stockpiles that have been built up), which will be reallocated
from the balance sheet to operating costs. Excluding the reallocation of the
deferred mining costs and adjustments to ore inventory, the C1 cost would be in
the order of US$1.40 to US$1.60 (at a 0.72 exchange rate), and this would be
more reflective of cash costs.
The deepening of the pit during the final few months of mining may present
further geotechnical challenges, which may impact copper production.
This however, is expected to be limited as a result of the completion of mining
in April 2019.
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Directors’ Report (cont.)
CAPITAL RAISINGS
There were no equity capital raisings during the current period.
REVIEW OF OPERATIONS FOR THE CY18 YEAR AND OUTLOOK (CONT.)
RISKS
The Company currently has a single operating asset, the
Kanmantoo Copper Mine in South Australia. The operation
provides the Company with all of its income and it consists
of an open pit mine and processing plant located close to
regional communities. Concentrate is transported by road in
containers to the Port of Adelaide and then loaded onto ship
via the port rotainer operation. The concentrate is then shipped
to the receiver, typically located in China. Should any of these
elements be subject to failure, the Company’s expected financial
result could be impacted.
DIVIDENDS
There were no dividends declared or paid during the current
period or in the prior year.
SIGNIFICANT CHANGES IN THE
STATE OF AFFAIRS
Other than those matters listed in this report there have been
no significant changes in the affairs of the Group during the
period.
EVENTS SUBSEQUENT TO
REPORTING DATE
There were no events subsequent to balance date.
LIKELY DEVELOPMENTS AND EXPECTED
RESULTS OF OPERATIONS
Likely developments in the operations of the group in the short
to medium term include the cessation of mining in April 2019,
looking at the optimal future use of all of the Company’s assets
and exploration potential, and maximising value from the
PHES. For further details on each of these, refer to the review
of operations section of this report.
ENVIRONMENTAL REGULATION
Closure of an operation brings with it potential significant
financial, environment, and social impacts. Recognising this, a
closure management plan for Kanmantoo has been prepared,
which includes long term monitoring to verify that controls are
effective and standards are maintained.
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.
The Company’s annual budget and related mine plans and
production and operating 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. These 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. The Company has taken active steps to
mitigate copper price and exchange rate risk on revenues by
fixing the AUD copper price for a portion of future shipments.
As at the end of December 2018, the Company had fixed
pricing for 10,900 tonnes of copper at an average copper price
of $8,873 per tonne after margins.
With the economic life of the open pit approaching completion,
the rehabilitation of the site becomes a major focus to
ensure risks associated with the cost of the rehabilitation,
the Company’s obligations under the approved program for
environment protection and rehabilitation (PEPR) and its
responsibilities to the local community are managed. The
Company has actively ramped up the rehabilitation earthworks
to ensure the majority of the final land form shaping is
completed prior to demobilisation of the mining fleet and
personnel. Progressive rehabilitation of this nature is cost
effective, progressively reduces its rehabilitation liability and
demonstrates to surrounding communities that Hillgrove is a
socially and environmentally responsible company.
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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:
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 (PricewaterhouseCoopers) for audit and non-audit services provided
during the period are set out in Note 6.
■ 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.
Indemnity of auditors
Hillgrove Resources Limited has
agreed to indemnify their auditors,
PricewaterhouseCoopers, to the extent
permitted by law, against any claim
by a third party arising from Hillgrove
Resources Limited’s breach of their
agreement. The indemnity stipulates
that Hillgrove Resources Limited will
meet the full amount of any such
liabilities including a reasonable amount
of legal costs.
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.
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 37.
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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1.0 Key Management Personnel
Key management personnel comprise the Non-Executive Directors, the Executive
Director and Executives (KMP). Details of the KMP are set out in the table below.
Non-executive Directors
Mr J E Gooding
Mr M W Loomes
(Non-independent)
Mr P Baker
Mr T Breuer
Executive Directors
Mr S P McClare
KMP Executives
Mr P Kiley
Title (at year end)
Chairman
Chairman Remuneration Committee
Member Audit and Risk Committee
Chairman Nomination Committee
Director
Member Remuneration Committee
Member Audit and Risk Committee
Member Nomination Committee
Director
Chairman Audit and Risk Committee
Chairman Treasury Committee
Member Remuneration Committee
Member Nomination Committee
Director
Member Remuneration Committee
Member Audit and Risk Committee
Member Nomination Committee
CEO and Managing Director
Member Treasury Committee
Chief Financial Officer and
Company Secretary
Member Treasury Committee
Change in 2018
Financial Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Mr L Wallace
General Manager, Kanmantoo
Full Year
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 2018,
which forms part of the director’s
report and has been audited in
accordance with section 308 (3C) of the
Corporations Act 2001.
As a result of the completion of the Giant
Pit cutback in December 2017, copper
production levels increased during
2018, which resulted in additional
revenue generation and improved
cashflows, the bulk of which was
used to repay debt and creditors. The
additional cash was also used to both
repay deferred salaries and prudently
reward staff for their considerable efforts
over the difficult period leading up to the
completion of the cutback, as follows:
The continued repayment of the
10% salary deferral for all staff (staff
agreed to defer 10% of salaries
from May 2016 to November 2017),
which commenced in December
2017 and was completed in
January 2019;
A Short Term Incentive (STI) was
paid in October 2018 (Refer 4.1);
and
In March 2018 Directors fees were
reinstated to the pre-December 2015
levels (Refer 3.0).
Throughout 2018, the Company
continued its policies of maintaining the
pay freeze which was instituted in 2014
and which has maintained salaries at
2013 levels (other than for award and
anomaly changes) and reducing staff
through natural attrition and absorbing
their roles into remaining roles, where
possible.
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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.
Shareholder Return (TSR);
and hence improved TSR; and
and employee turnover.
The Remuneration and Benefits policy aims to:
Align employee remuneration to the principles and measurement of Total
Present progressive incentive structures to encourage outstanding performance,
Mitigate the business risks associated with poor performance, market movements
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.
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;
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 2018 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) (2).
Board/Committee fees
per annum*
Board Chairman Fee
$150,000 (1)
Audit Committee Chairman
$10,000 (2)
Board NED Base Fee
$75,000 (1)
Determine and approve equity
Post-employment Benefits
Details
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 the Remuneration and
Benefits Policy and is based on providing
competitive rewards that motivate talented
employees to deliver superior results.
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 total 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 2018 financial year for extra services or
special exertions. Directors are entitled to be reimbursed
for approved Company related expenditure e.g. flights
and expenses to attend Board meetings.
(1) Effective 1 December 2015, the Board agreed to a voluntary and temporary 20% fee
reduction in the light of the economic conditions and low commodity price environment, at
that time. From 1 March 2018 director’s fees were reinstated to the pre-December 2015
levels. As a result, the Chairman’s fee was reinstated from $120,000 back to $150,000 and
the NED fee was reinstated from $60,000 back to $75,000. Directors were not repaid any
of their respective 20% fee reductions for the December 2015 to February 2018 period.
(2) Effective 1 January 2017, the Board agreed to pay the chairman of the Audit & Risk
Committee an annual fee of $10,000 in recognition of the significant time commitment
which is required to fulfil this role.
*
Fees include all committee memberships with no extra payments for committee
memberships, except as noted at (2) above.
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Directors’ Report (cont.)
Remuneration Report (audited) (cont.)
4.0 Executive Remuneration
4.1 KMP Remuneration Tables – Audited
Fixed Remuneration
Short-term
Long-term
Year
Salary
and Fees
Non-monetary
benefits
Superannuation
Benefits
Termination
Benefits
Long
Service
Leave
Non-Executive Directors
Mr J E Gooding
Mr M W Loomes
Mr P Baker
Mr A Breuer
The Hon. D C Brown (1)
Total
Executive Directors
Mr S McClare
Total
Other key management personnel
Mr P G Kiley
Mr L A Wallace
Total
KMP Total
CY18 (2)
CY17 (3)
CY18
CY17 (3)
CY18
CY17 (3)
CY18
CY17 (3)
CY18
CY17 (3)
CY18
CY17
CY18 (4)
CY17 (4)
CY18
CY17
CY18 (4)
CY17 (4)
CY18 (4)
CY17 (4)
CY18
CY17
CY18
CY17
132,420
88,059
66,210
54,795
75,342
63,927
66,210
31,963
-
50,000
340,182
288,744
539,632
472,634
539,632
472,634
437,988
337,000
348,806
277,697
786,794
614,697
1,666,608
1,376,075
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
12,601
6,941
6,290
5,205
7,158
6,073
6,290
3,037
-
-
32,339
21,256
30,301
25,830
30,301
25,830
15,469
31,599
28,975
26,034
44,444
57,633
107,084
104,719
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
145,021
95,000
72,500
60,000
82,500
70,000
72,500
35,000
-
50,000
372,521
310,000
-
-
-
-
-
-
-
-
-
-
-
-
23,157
593,090
23,713
522,177
23,157
593,090
23,713
522,177
-
-
453,457
368,599
14,869
392,650
15,032
318,763
14,869
846,107
15,032
687,362
38,026
1,811,718
38,745
1,519,539
(1) The Honorable D C Brown retired from the Board in 2017.
(2) Mr Gooding’s CY18 fees are higher than his CY17 fees as they include a full year in the Chairman’s role.
(3) The CY18 directors fees are higher than the CY17 fees because the 20% voluntary reduction was reinstated in March 2018.
(4) On 19 May 2016 all Hillgrove management and staff, as part of a cost reduction initiative, agreed to defer 10% of their salary from
19 May 2016 until 30 November 2017. Beginning from 1 December 2017, the total salary deferral for each employee was repaid over a
14 month period. The 2018 salaries include 12 months of deferred salary repayments and the 2017 salaries include 1 month.
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Directors’ Report (cont.)
Remuneration Report (audited) (cont.)
4.0 Executive Remuneration (cont.)
4.1 KMP Remuneration Tables – Audited (cont.)
Variable Remuneration
Total
Short-term
Year
Bonus
Total
Equity
Compensation
Value of
Performance
Rights
Non-Executive Directors
Mr J E Gooding
Mr M W Loomes
Mr P Baker
Mr A Breuer
The Hon. D C Brown
Total
Executive Directors
Mr S P McClare
Total
Other key management personnel
Mr P G Kiley
Mr L A Wallace
Total
KMP Total
CY18
CY17
CY18
CY17
CY18
CY17
CY18
CY17
CY18
CY17
CY18
CY17
CY18
CY17
CY18
CY17
CY18
CY17
CY18
CY17
CY18
CY17
CY18
CY17
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Fixed and
Variable
145,021
95,000
72,500
60,000
82,500
70,000
72,500
35,000
-
50,000
372,521
310,000
131,400
227,676
359,076
952,166
-
126,566
126,566
648,743
131,400
227,676
359,076
952,166
-
126,566
126,566
648,743
87,600
160,859
248,459
701,916
-
100,667
100,667
469,266
81,303
130,832
212,135
604,785
-
86,413
86,413
405,176
168,903
291,691
460,594
1,306,701
-
187,080
187,080
874,442
300,303
519,367
819,670
2,631,388
-
313,646
313,646
1,833,185
Proportion of
Total Remuneration
Performance
Related
Equity Related
%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
-
-
14%
0%
-
-
12%
0%
13%
0%
-
-
-
-
%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
-
-
25%
20%
-
-
23%
21%
22%
22%
-
-
-
-
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Directors’ Report (cont.)
Remuneration Report (audited) (cont.)
4.0 Executive Remuneration (cont.)
4.2 Executive KMP
remuneration framework
Hillgrove Resources’ executive
remuneration strategy is designed to
attract, retain and motivate a highly
qualified and experienced group of
executives.
4.3 Total fixed remuneration
Total Fixed Remuneration (TFR)
includes all remuneration and benefits
paid to an Executive KMP calculated
on a Total Employment Cost (TEC)
basis and includes base salary and
superannuation benefits paid in line with
the prevailing statutory Superannuation
Guarantee legislation.
Other than for award and anomaly
changes, there has been no increases
in TFR during the last five 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 salaries from 19th May 2016
until 30th November 2017. In December
2017, the Company began repaying
these deferred amounts, over a fourteen
month period with the final payment
made in January 2019.
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4.4 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 2018
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 2017.
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.
YEARS 2 and 3
January
2019
June
2020
YEAR 1
June
2018
TFR
January
2018
TFR
STI
LTI
Performance measured
(one year)
Performance measured
(two years)
LTI
performance
period starts
STI
performance
period ends
STI
performance
period starts
and new TFR
effective
LTI
performance
period ends
4.5 Variable ‘at risk’ remuneration
As set out in Section 4.4, variable remuneration forms a portion of the CEO/MD
and other Executive KMP remuneration. Apart from being market competitive,
the purpose of variable remuneration is to direct executive’s behaviours towards
maximising Hillgrove Resources’ value and return value to shareholders, by
targeting short, medium and long term performance measures. The key aspects
are summarised below.
Directors’ Report (cont.)
Remuneration Report (audited) (cont.)
4.0 Executive Remuneration (cont.)
4.5 Variable ‘at risk’ remuneration (cont.)
4.5.1 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 under
Investor Centre, Corporate Governance.
4.5.2 Long Term Incentives (LTI)
The LTI provides an annual opportunity for 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 clawback (forfeiture or lapse) until vesting and must meet or exceed relative TSR
performance hurdles over the vesting period, along with other performance criteria.
Long Term Incentives (LTI)
Purpose
Types of equity
awarded
To retain key executives and align their remuneration with shareholder value.
LTI has been provided under the Company’s Executive Long Term Incentive Plan. See Section 5.1 for further
details.
Under the LTI, executives and key staff are offered performance rights (to acquire ordinary shares of Hillgrove
Resources Limited).
Time restrictions
Equity grants awarded to the CEO/MD and other KMPs are tested against the performance hurdle at the
vesting date which is two years (1) after the grant date. If the performance hurdle is not met at the vesting
date, performance rights lapse, subject to Board discretion.
A service and performance requirement is imposed on all equity grants.
Performance hurdles
and vesting schedule
Equity grants were made in 2018 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
Below the 50th percentile
At the 50th percentile
0%
50% vest
Between the 50th to 75th percentile
2% vesting on a straight line interpolation for each percentile
ranking above the 50th percentile
At or above 75th percentile
100% vest
Performance rights vest as shares if the time restrictions and relevant performance hurdle are met. Special
provisions, in accordance with company policies, may apply in the event of termination of employment or a
change of control.
Exercise price of nil in the event performance hurdles are met.
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 4.4.
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.
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Exercise Price
Voting rights
LTI Allocation
(1) The vesting period for the 2017 and 2018 LTI’s has been reduced to two years to reflect the current approved PEPR mine life.
Directors’ Report (cont.)
Remuneration Report (audited) (cont.)
4.0 Executive Remuneration (cont.)
4.5 Variable ‘at risk’ remuneration (cont.)
4.5.3 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
threshold targets are 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 an STI for 2017 should be paid to reward staff, whose efforts and tenacity
were instrumental allowing the Company to continue through the very challenging cash constrained period leading up to the
completion of the Giant Pit cutback in December 2017.
4.5.4 Performance based remuneration granted and forfeited during the year
Due to the Company’s limited cash resources, the STI was capped at less than 50% of staff’s contracted rate. As payment of
the STI was subject to the achievement of both production and cashflow targets, it was not paid to staff until October 2018. The
following shows for each KMP how much of their STI cash bonus was awarded and how much was forfeited.
2018
Mr S McClare
Mr P G Kiley
Mr L A Wallace
Total Opportunity ($)
Awarded (%)
Forfeited (%)
300,000
200,000
165,000
44%
44%
49%
56%
56%
51%
4.6 Relationship between Performance and Executive KMP Remuneration
4.6.1 Hillgrove Resources Financial Performance (31 January 2014 to 31 December 2018)
Sales Revenue ($M)
Underlying EBITDA ($M)
Reported net profit / (loss) ($M)
Return on equity (ROE) % (3)
Basic earnings per share (EPS) (cents)
Diluted EPS (cents)
Share price as at 31 December (cents) (4)
11 Months to
31 December
12 Months to 31 December
2014
166.8
52.3
3.8
1.6%
2.6
2.5
45
2015
139.5
16.1
2016
113.1
22.2
(130.1) (2)
(109.1) (5)
2017
(restated)
113.3 (1)
16.2
(14.1)
2018
180.1
44.3
29.5
(69.1%) (2)
(144.3%) (5)
(88.3%)
101.7%
(77.0) (2)
(77.0) (2)
16
(57.8) (5)
(57.8) (5)
4
(4.8)
(4.8)
9
5.1
4.9
9
Total shareholder return (TSR) % (Annual)
(35.3%)
(64.4%)
(75.0%)
125.0%
0% (6)
(1) Restatement for changes in accounting policies.
(2)
Includes impairment charge of $112.9m.
(3) Based on average total equity.
(4) After 8 for 1 share consolidation effective on 17 September 2014.
(5)
Includes impairment charge of $68.5m.
(6) Share price as at 31 December was 9c in 2017 and 2018, which results
in a 0% TSR.
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Directors’ Report (cont.)
Remuneration Report (audited) (cont.)
4.0 Executive Remuneration (cont.)
4.6 Relationship between Performance and Executive KMP Remuneration (cont.)
4.6.2 Dividend History
No dividends have been declared or paid (interim or final) over the five years from 2014 to 2018.
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 4.5.2
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:
Balance held
at 31/12/17
Granted
Number
vested
%
vested
Number
forfeited
%
lapsed
Balance held
at 31/12/18 (1)
Key Executives
Mr S P McClare
TOTAL
Mr P Kiley
TOTAL
Mr L A Wallace
Grant
Date
Jun 18
Jun 17
Jul 16
Jun 18
Jun 17
-
3,500,000
3,800,000
2,500,000
-
-
-
-
0%
0%
2,500,000
100%
6,300,000
3,500,000
2,500,000
-
2,300,000
2,600,000
Jul 16
1,500,000
-
-
-
-
0%
0%
1,500,000
100%
4,100,000
2,300,000
1,500,000
Jun 18
Jun 17
Jul 16
-
1,900,000
2,100,000
1,200,000
-
-
-
-
0%
0%
1,200,000
100%
TOTAL
3,300,000
1,900,000
1,200,000
(1) None of these rights are exercisable and have not vested.
-
-
-
-
-
-
-
-
-
-
3,500,000
3,800,000
-
7,300,000
2,300,000
2,600,000
-
4,900,000
1,900,000
2,100,000
-
4,000,000
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Directors’ Report (cont.)
Remuneration Report (audited) (cont.)
5.3 Exercise of Performance Rights granted as remuneration
During the financial year, the following shares were issued on the exercise of performance rights previously granted as part of
remuneration:
Key Executives
Number of shares
Amount paid
$/share
Total Amount paid
Intrinsic value of benefit based on
year end value of HGO shares (1) (2)
Executive Directors
Mr S P McClare
Mr P Kiley
Mr L A Wallace
TOTAL
2,500,000
1,500,000
1,200,000
5,200,000
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$212,500
$127,500
$102,000
$442,000
1. The value of performance rights exercised during the year is calculated as the market price of shares of the company on the ASX as at close
of trading on the date the performance rights were exercised after deducting the price paid or payable to exercise the performance rights.
2.
Intrinsic value at year end is the difference between the exercise price ($0.00) and the share price ($0.085) on 31 December 2018.
During the financial year 5,200,000 performance rights held by executive KMP members were exercised. There are no amounts
unpaid on the shares issued.
5.4 Value of performance rights granted to Executive KMP, and on foot as at 31 December 2018
Vesting Date
Face Value
per right (1)
Fair
Value (2)
Intrinsic
Value (3)
Key Executives
Mr S P McClare
TOTAL
Mr P Kiley
TOTAL
Mr L A Wallace
TOTAL
Grant Date
Jun 18
Jun 17
Jun 18
Jun 17
Jun 18
Jun 17
Number
Granted
3,500,000
3,800,000
7,300,000
2,300,000
2,600,000
4,900,000
1,900,000
2,100,000
4,000,000
Jun 20
Jun 19
Jun 20
Jun 19
Jun 20
Jun 19
$0.085
$0.085
$0.085
$0.085
$0.085
$0.085
Total Fair
Value
$302,750
$244,720
(4) $0.0865
$297,500
(5) $0.0644
$323,000
$620,500
$547,470
(6) $0.0904
(7) $0.0654
$195,500
$221,000
$207,920
$170,040
$416,500
$377,960
(6) $0.0904
(7) $0.0654
$161,500
$178,500
$171,760
$137,340
$340,000
$309,100
(1) The Face Value is the closing share price on 31 December 2018.
(2) 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.
Intrinsic value at year end is the difference between the Face Value and
the exercise price ($0.00)
(3)
(4) Valued at 24 May 2018 when approved by shareholders
at the AGM.
(5) Valued at 25 May 2017 when approved by shareholders
at the AGM.
(6) Valued at Grant Date on 1 June 2018.
(7) Valued at Grant Date on 1 June 2017.
5.5 Movement in equity held
The movement during the reporting period in the number of ordinary shares of Hillgrove Resources Limited held, directly,
indirectly or beneficially, by each specified Director and executive KMP, including their personally-related entities:
Held as at 31/12/17
Exercise of Rights (1)
Net Other Changes
Held as at 31/12/18
Directors
Mr J E Gooding
Mr M W Loomes
Mr P Baker
Mr A Breuer
Mr S P McClare
Other KMP
Mr P Kiley
Mr L A Wallace
Shares
Shares
Shares
Shares
Shares
Shares
Shares
94,444
10,127,346
667,626
20,166,800
6,879,706
3,557,666
9,619,197
-
-
-
-
2,500,000
1,500,000
1,200,000
-
-
-
-
-
-
-
94,444
10,127,346
667,626
20,166,800
9,379,706
5,057,666
10,819,197
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(1) Rights were exercised on or before their expiry date of 31 July 2018.
Directors’ Report (cont.)
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 2018.
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
$500,000 p.a. (2)
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
$400,000 p.a. (3)
reviewed periodically
Up to 50% of fixed
remuneration
Up to 50% of fixed
remuneration
Indefinite
3 months
1 August 2015
$330,000 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,
or 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 their salary from 19 May 2016 until
30 November 2017. From 1 December 2017, the total salary deferral for each employee was repaid over a 14 month period up until
January 2019.
(2) Mr McClare’s annual fixed remuneration excludes $64,632 which was paid in 2018 and which was attributable to the 2016 and 2017
salary deferral amounts, and also excludes a further $5,386 which was paid in January 2019.
(3) Mr Kiley’s annual fixed remuneration excludes $52,571 which was paid in 2018 and which was attributable to the 2016 and 2017 salary
deferral amounts, and also excludes a further $4,381 which was paid in January 2019.
(4) Mr Wallace’s annual fixed remuneration excludes $43,806 which was paid in 2018 and which was attributable to the 2016 and 2017 salary
deferral amounts, and also excludes a further $3,651 which was paid in January 2019.
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Directors’ Report (cont.)
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 2018 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 37.
Signed in accordance with a resolution of the Directors:
Dated at Adelaide this 28th day of February 2019
Mr John Gooding
Chairman
Mr Steve McClare
Managing Director
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Auditor’s Independence Declaration
Auditor’s Independence Declaration
As lead auditor for the audit of Hillgrove Resources Limited for the year ended 31 December 2018, I
declare that to the best of my knowledge and belief, there have been:
(a)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
(b)
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Hillgrove Resources Limited and the entities it controlled during the
period.
Andrew Forman
Partner
PricewaterhouseCoopers
Adelaide
28 February 2019
PricewaterhouseCoopers, ABN 52 780 433 757
Level 11, 70 Franklin Street, ADELAIDE SA 5000, GPO Box 418, ADELAIDE SA 5001
T: +61 8 8218 7000, F: +61 8 8218 7999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
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Consolidated Statement of Profit or Loss
and Other Comprehensive Income
For the year ended 31 December 2018
Revenue from contracts with customers
Other income
Expenses
Interest and finance charges
Impairment charges
Fair value movement in convertible notes
Profit / (Loss) before income tax
Income tax (expense) / benefit
Profit / (Loss) for the year attributable to owners
Items that may be reclassified to profit or loss
Recycle of cash flow hedge reserve
Income tax relating to components of other
comprehensive income
Other comprehensive income for the period (net of income tax)
Note
4
5
6(a)
6(b)
6(c)
7
24
24
31 Dec 2018
31 Dec 2017
$’000
Restated* $’000
180,080
225
(152,665)
(1,646)
(214)
-
25,780
3,685
29,465
-
-
-
113,315
212
(109,151)
(4,561)
(153)
(5,569)
(5,907)
(8,167)
(14,074)
(10,946)
3,284
(7,662)
Total comprehensive income for the period
29,465
(21,736)
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
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* See note 36 for details about restatements for changes in accounting policies.
29,465
-
29,465
Cents
5.1
4.9
(21,736)
-
(21,736)
Cents
(4.8)
(4.8)
The Consolidated Statement of Profit or Loss and Other Comprehensive Income is to be read in conjunction with
the notes to the financial statements set out on pages 42 to 65.
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Consolidated Statement of Financial Position
As at 31 December 2018
31 Dec 2018
31 Dec 2017
Note
$’000
Restated* $’000
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Total current assets
Non-current assets
Property, plant and equipment
Exploration and evaluation expenditure
Inventories
Project costs
Deferred tax assets
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
Accumulated losses
Total equity
9
10
11
12
13
11
14
15
16
17
18
19
20
21
22
19
23
24
25
2,451
5,421
25,616
33,488
44,008
2,034
8,000
1,515
3,685
59,242
92,730
26,647
3,277
836
3,448
1,383
35,591
12,402
145
331
58
12,936
48,527
44,203
471
5,216
12,734
18,421
77,691
889
-
-
-
78,580
97,001
48,317
2,896
8,151
6,716
1,155
67,235
13,826
1,388
609
190
16,013
83,248
13,753
234,327
34,986
(225,110)
44,203
234,334
3,128
(223,709)
13,753
* See note 36 for details about restatements for changes in accounting policies.
The Consolidated Statement of Financial Position is to be read in conjunction with
the notes to the financial statements set out on pages 42 to 65.
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Consolidated Statement of Changes in Equity
For the year ended 31 December 2018
Contributed
equity
Note
$’000
Reserves
$’000
Accumulated
losses
$’000
Total equity
$’000
Balance 31 December 2016
217,538
10,280
(209,635)
18,183
Profit/(Loss) for the period
Other comprehensive income
Transactions with owners:
Shares issued to creditors
Contributions to equity
Share based compensation
Balance 31 December 2017
23
23
34
Profit/(Loss) for the period
24, 25
Transactions with owners:
Contributions of equity
Share based compensation
Balance 31 December 2018
23
34
-
-
658
16,138
-
234,334
-
(7)
-
-
(14,074)
(7,662)
-
-
510
3,128
-
-
-
-
(223,709)
(14,074)
(7,662)
658
16,138
510
13,753
30,866
(1,401)
29,465
-
992
-
-
(7)
992
234,327
34,986
(225,110)
44,203
The Consolidated Statement of Changes in Equity is to be read in conjunction with
the notes to the financial statements set out on pages 42 to 65.
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Consolidated Statement of Cash Flows
For the year ended 31 December 2018
31 Dec 2018
31 Dec 2017
Note
$’000
$’000
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 disposal of plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of shares
Proceeds from borrowings
Transaction costs of borrowings / convertible notes
Repayment of borrowings
Repayment of finance leases
Interest received
Interest paid
29
23
Net cash from/(used) in financing activities
Net increase/(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
179,601
(161,651)
17,950
101,547
(100,836)
711
(1,446)
(5,422)
9
(6,859)
-
4,000
(135)
(12,000)
(326)
-
(650)
(9,111)
1,980
471
2,451
(107)
(6,788)
1
(6,894)
5,635
300
(276)
(300)
(288)
5
(364)
4,712
(1,471)
1,942
471
The Consolidated Statement of Cash Flows is to be read in conjunction with
the notes to the financial statements set out on pages 42 to 65.
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Notes to the Financial Statements for the year ended 31 December 2018
To minimise short term downside copper price risk on the
expected copper output, the Group has fixed pricing for
10,900 tonnes at an average of $8,873 per tonne as at 31
December 2018.
Mining activity is expected to wind down and be completed
in mid-2019 however, copper concentrate production is
expected to continue until mid-2020.
Short term mining risk is mitigated by the existence of large
ore stockpiles at year end, which could keep the plant
processing at full capacity for approximately 10 months.
(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 when necessary by the
revaluation of certain financial assets and liabilities to fair value
through other comprehensive income or through profit or loss.
(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.
1. Statement of Significant
Accounting Policies
The principal accounting policies adopted in the preparation
of these consolidated financial statements are set out below.
Where an accounting policy is specific to one note, the policy
is described in the note to which it relates. The financial
statements are for the consolidated entity consisting of
Hillgrove Resources Limited and its subsidiaries.
(a) Basis of preparation
This general purpose financial report has been prepared
in accordance with Australian Accounting Standards,
Interpretations and other authoritative pronouncements of the
Australian Accounting Standards Board and the Corporations
Act 2001. The financial statements comprise the consolidated
financial statements of the Group. For the purposes of
preparing the consolidated financial statements, Hillgrove
Resources Limited is a for-profit entity.
(i) Working capital
The consolidated financial statements have been prepared on
a going concern basis, which assumes the Group will be able
to realise its assets and discharge its liabilities in the normal
course of business. At 31 December 2018, the Group’s
current liabilities exceeded its current assets by $2.1 million.
This deficit has significantly improved from a deficit of $48.8
million in the prior year – largely as a result of the generation of
free cashflow to reduce trade payables and borrowings, as well
as the build up of ore inventories on stockpile for processing in
the next 12 months.
The Directors believe they have reasonable grounds to expect
that the Group will have sufficient funds to settle its liabilities
and meet its debts as and when they fall due throughout 2019
and beyond. The Directors have considered the funding and
operational status of the business, including:
Following the completion of the Giant Pit cutback, the
operating performance of the Kanmantoo mine improved
significantly from December 2017, with increases in
ore extraction and copper output (2018 was the highest
annual production since operations began).
The Group has generated positive cashflows from
operations, after reducing creditors by $21.7million
and borrowings by $8.6 million in the 12 months to
31 December 2018.
The most recent rolling twelve-month cash flow forecast
shows continued positive cash flows from operations
which will enable the Group to meet its obligations, build
cash reserves and manage working capital without any
requirement for new external finance.
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Notes to the Financial Statements for the year ended 31 December 2018
1. Statement of Significant
Accounting Policies (cont.)
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 2018 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.
(ii) Parent Entity
The financial information for the parent entity, Hillgrove
Resources Limited, disclosed in Note 35 has been prepared
on the same basis as the consolidated financial statements,
except as set out below.
Investments in subsidiaries and associates are accounted
for at cost in the financial statements of Hillgrove Resources
Limited. Dividends received from associates are recognised in
the parent entity’s profit or loss, rather than being deducted
from the carrying amount of these investments.
(c) Foreign currency translation
Functional and presentation currency
(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.
Transactions and balances
(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 rate 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 carrying value of property, plant and equipment is
assessed for impairment whenever there is an indicator that
the asset may be impaired. Determining whether property,
plant and equipment is impaired requires an estimation of
the recoverable value of the Cash Generating Unit (“CGU”)
to which property, plant and equipment has been allocated.
Impairment is recognised when the carrying amount exceeds
the recoverable amount.
In its impairment assessment, the Company determined
the recoverable amount based on a Value in Use (“VIU”)
calculation. The VIU assessment was undertaken using a
discounted cash flow approach. Cash flow projections are
based on the CGU’s life of mine plan. In assessing the VIU,
the estimated future post-tax cash flows are discounted to
their present value using a post-tax discount rate that reflects
the current market assessment of the time value of money and
business risk. Assets that have suffered an impairment charge
are reviewed for possible reversal of the impairment at each
reporting date.
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Notes to the Financial Statements for the year ended 31 December 2018
1. Statement of Significant
Accounting Policies (cont.)
Impairment of assets (cont.)
(d)
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) 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.
(f) 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.
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 are discussed below:
(a) Recoverability of non-current assets
The Group has a single Cash Generating Unit (CGU) being the
Kanmantoo copper mine. The estimates of discounted future
cash flows for the Kanmantoo 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; and
The discount rate most appropriate to the CGU.
Annual assessments of the discounted future cash flows for
the Kanmantoo CGU have resulted in no adjustments to the
carrying values.
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.
(b) 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.
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Notes to the Financial Statements for the year ended 31 December 2018
2. Critical Accounting Estimates
4. Revenue from Contracts
and Judgements (cont.)
with Customers
(c) 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.
(d) 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 cost of mining
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 Notes 16 and 20.
The provision represents management’s best estimate of
the costs that will be incurred, but significant judgement is
required as many of these costs will not crystallise until the
end of the life of the mine.
3. Financial Reporting by Segment
Through its ownership of the Kanmantoo copper mine, the
Group has one operating segment being in the resources
industry, in Australia. The Group also has exploration tenement
interests overseas, but these tenements are fully written down,
under minimal care and maintenance and therefore are
considered to be immaterial, not requiring separate segment
disclosure.
Revenue from contracts
with customers
Total revenue
31 Dec 2018
31 Dec 2017
$’000
$’000
180,080
180,080
113,315
113,315
Revenue is measured at the fair value of the consideration
received or receivable.
The Group sells copper concentrate (with gold and silver
by-products) under an offtake contract with FreepointMetal
& Concentrates LLC. The Group trades using CIF terms (ie.
seller’s cost, insurance and freight) for vessel chartering and
recognises revenue in accordance with the AASB 15 policy in
note 36.
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.
Revenue for 2017 also includes the net value realised from the
early close out in 2016 of commodity forward sale contracts
designated as cash flow hedges. All of the value realised
from this close out had been recycled to the profit and loss
statement by 31 December 2017.
The group has recognised the following assets and liabilities
related to contracts with customers.
Deferred income
(contract liability)
Trade and other
receivables (contract
asset)
31 Dec 2018
31 Dec 2017*
$’000
(1,166)
$’000
(849)
1,166
849
*
See note 36 for details about restatements for changes in
accounting policies.
The balance of the contract liability of $849,000 at the
beginning of the period has been recognised as revenue in
2018.
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Notes to the Financial Statements for the year ended 31 December 2018
5. Other Income
(b)
Interest and finance charges
Interest
Grant income (a)
Total other income
31 Dec 2018
31 Dec 2017
$’000
4
221
225
$’000
11
201
212
(a) 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 the same basis as
amortisation of the underlying asset.
6. Expenses
Profit or loss before income tax includes the following expenses:
(a) Expenses per Profit or Loss
31 Dec 2018
31 Dec 2017
Costs of production
Depreciation and
amortisation
Inventory movement
Cost of goods sold
Government royalties
Corporate and other
costs
Loss on sale of fixed
assets
Foreign exchange
loss / (gain)
Total Expenses per
Profit or Loss
Note
(i)
$’000
143,322
16,713
(20,661)
139,374
8,552
$’000
95,928
11,814
(7,794)
99,948
4,596
(ii)
4,880
4,352
4
(145)
18
237
152,665
109,151
(i)
Costs of production represent costs for mining,
processing, transport of concentrate to port, and site
overheads.
(ii) Corporate and other costs reflect the costs incurred
in running the corporate head office, together with
Indonesian care and maintenance costs.
Discount on unwind of
rehabilitation provision
Borrowing costs, bank fees
and charges
Interest on borrowings
Interest payable on
financial liabilities
Convertible Note interest
Convertible Note costs
Shares in lieu of interest to
mining contractor
Loss on embedded
derivative
Total Interest and
finance charges
(c)
Impairment charges
Exploration assets
31 Dec 2018
31 Dec 2017
$’000
$’000
350
200
286
809
1
-
-
-
1,189
16
292
561
295
645
658
905
1,646
4,561
31 Dec 2018
31 Dec 2017
$’000
214
214
$’000
153
153
In accordance with the Group’s accounting policies, regular
impairment testing is carried out to ensure assets are not
carried at more than their recoverable amount. The value in
use methodology is used to estimate the recoverable amount,
rather than the fair value less cost of disposal method. This is
because the value in use methodology more closely portrays
Kanmantoo’s current life of mine plan which envisages
completion of mining and closure in the near-term and does
not assume any future expansion of the mineral resource.
As the recoverable amount can vary with market conditions
particularly the future estimated price of copper, impairment
testing is done at a point in time to reflect those market
conditions. No impairment charges were taken against the
Group’s Kanmantoo assets in the current year.
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. As
was the case at 31 December 2017, by applying methodology
consistent with that used in previous years, the calculated
recoverable amount as at 31 December 2018 exceeds the
carrying value. However, past impairment charges have
not been written back until such time as the Group has
demonstrated a sustained period of positive cashflows.
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Notes to the Financial Statements for the year ended 31 December 2018
6. Expenses (cont.)
In addition to this, a significant portion of the previously
booked impairment charge was recorded against mining
related assets, which are projected to be fully depreciated
within the next four months. Due to these factors, prior
impairments were not reversed.
Expenditure on exploration areas of interest where the
prospect of recoupment of costs capitalised through
successful development and commercial exploitation is no
longer considered likely, is charged to the profit or loss as an
impairment charge.
(d) Other required disclosures
31 Dec 2018
31 Dec 2017
$’000
$’000
Employee benefits (excluding
share-based payments)
Share based payments
(see note 34)
27,349
25,113
992
510
(e) Assurance services
The following fees were paid or payable for services provided
by the auditor of the parent entity, its related practices and
non-related audit firms:
31 Dec 2018
31 Dec 2017
$
$
(i) Audit Services
Fees paid to
PricewaterhouseCoopers:
Audit and review of
financial reports and other audit
work under the Corporations Act
2001
Fees paid to Deloitte Touche
Tohmatsu:
Audit and review of financial
reports and other audit work
under the Corporations Act 2001
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
Services by
PricewaterhouseCoopers:
Tax compliance services,
including review of income tax
returns
Services by other firms:
Singapore tax compliance
services, including income tax
returns (Crowe Horwath)
Research and development
concession claims (Shinewing)
257,459
203,060
-
63,490
15,470
14,624
272,929
281,174
9,000
12,477
35,677
-
8,330
8,348
-
53,007
10,335
31,160
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Notes to the Financial Statements for the year ended 31 December 2018
7.
Income Tax Expense
(a) Income tax expense
Income tax expense
comprises:
- Current tax expense
- Deferred tax expense
/ (benefit)
Income tax expense / (benefit)
(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-deductible expenses
- Losses from non-resident
foreign operations
- Prior year tax losses utilised
and temporary differences
- Tax temporary differences
recognised
- Tax temporary differences
not recognised
- Fair value movement in
convertible notes
31 Dec 2018
31 Dec 2017
$’000
$’000
-
3,284
(3,685)
(3,685)
4,883
8,167
25,780
(5,907)
7,734
(1,772)
297
212
267
(8,510)
(3,685)
-
-
153
45
261
-
-
7,809
1,671
8,167
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Income tax expense / (benefit)
(3,685)
(c) Amounts recognised
directly in equity
Deferred tax – (credited) /
debited directly in equity
-
(3,284)
(d)
Tax consolidation legislation
The income tax expense or revenue for the period is the tax
payable on the current period’s taxable income based on
the national income tax rate for each jurisdiction adjusted
by changes in deferred tax assets and liabilities attributable
to temporary differences between the tax bases of assets
and liabilities and their carrying amounts in the financial
statements, and to unused tax losses.
The Group’s liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the end
of the reporting period. Current and deferred tax balances
attributable to amounts recognised directly in equity are also
recognised directly in equity.
Hillgrove Resources Limited and its wholly-owned Australian
controlled entities have implemented the tax consolidation
legislation. The head entity, Hillgrove Resources Limited, and
the controlled entities in the tax consolidated group account
for their own current and deferred tax amounts. These tax
amounts are measured as if each entity in the tax consolidated
group continues to be a stand-alone taxpayer in its own right.
The entities in the tax-consolidated group entered into a tax
sharing agreement and a tax funding agreement. On adoption
of the legislation, the entities in the tax consolidated group
entered into a tax sharing agreement which, in the opinion
of the Directors, limits the joint and several liability of the
wholly owned entities in the case of a default by the head
entity. The entities have also entered a tax funding agreement
under which the wholly-owned entities fully compensate the
head entity for any current tax payable assumed and are
compensated by the head entity for any current tax receivable
and deferred tax assets relating to unused tax losses or
unused tax credits that are transferred to it under the tax
consolidation legislation. Refer to Note 14.
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.
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.
Notes to the Financial Statements for the year ended 31 December 2018
8. Earnings Per Share (cont.)
10. Trade and Other Receivables
(a) Basic earnings
Profit from continuing
operations attributable to the
ordinary equity holders of the
Company
(b) Diluted earnings
Profit from continuing
operations attributable to the
ordinary equity holders of the
Company.
31 Dec 2018
31 Dec 2017
$’000
$’000
29,465
(14,074)
29,465
(14,074)
Number
Number
Weighted average number of
shares used as the denominator
Number for basic earnings per share
Ordinary shares
573,567,811
294,649,666
Number for diluted earnings per share
Diluted ordinary shares
601,376,365
294,649,666
Cents
Cents
5.1
(4.8)
(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
Trade receivables
Prepayments
Other receivables
GST receivable
31 Dec 2018
31 Dec 2017
$’000
1,890
2,267
414
850
5,421
$’000
1,384
2,030
776
1,026
5,216
Trade receivables are for concentrate sales and the Group has
a single customer under the terms of an offtake agreement.
Sales are denominated in US dollars. Revenue is recognised
in accordance with the policy described in Note 36 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 period end are
revalued using the appropriate end of period exchange rate.
First progress payment is received three business days after
concentrate is delivered to port in minimum tonnage lots. First
provisional payment covering 95% of the value is received
three business days after ship loading. Second provisional
payment for the remaining 5% is received 45 days after ship
loading. Refer to note 36 (AASB 15 revenue from contracts with
customers) for additional information.
The group holds the trade receivables with the objective to
collect the contractual cash flows and therefore measures them
subsequently at amortised cost using the effective interest
method. Details about the group’s impairment policies and the
calculation of the loss allowance are provided in note 26(d).
4.9
(4.8)
Prepayments include contract assets of $1,166,000
(CY17: $849,000)
9. Cash and Cash Equivalents
11. Inventories
Cash at bank and on hand
Restricted cash
31 Dec 2018
31 Dec 2017
$’000
2,058
393
2,451
$’000
188
283
471
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 consent and
comprises deposits to cash back environmental bonds, office
rental security deposits, foreign exchange pre settlement risk
and unclaimed dividends.
Current Assets
Concentrates
ROM stockpile
Stores and consumables
Non-Current Assets
ROM stockpile
31 Dec 2018
31 Dec 2017
$’000
$’000
1,803
20,756
3,057
25,616
8,000
8,000
2,662
7,020
3,052
12,734
-
-
Inventory is recognised at the lower of cost and net realisable
value. The estimation of the split between current and non-current
assets for ROM stockpiles involves judgement of the timing for
when this material is expected to be processed.
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Notes to the Financial Statements for the year ended 31 December 2018
11. Inventories (cont.)
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.
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.
12. Property, Plant and Equipment
31 Dec 2018
31 Dec 2017
$’000
$’000
5,524
(379)
5,145
5,524
(379)
5,145
73,264
73,068
(58,112)
(56,314)
15,152
16,754
1,281
(761)
520
1,253
(711)
542
161,054
158,770
Land and building
At cost
Accumulated depreciation
Plant and equipment
At cost
Accumulated depreciation and
impairment
Motor vehicles
At cost
Accumulated depreciation
Mine development
At cost
Accumulated depreciation and
impairment
Deferred mining costs
At cost
Total property, plant and
equipment
The carrying amount of any component accounted for as
a separate asset is derecognised when replaced. All other
repairs and maintenance are charged to profit or loss during
the reporting period in which they are incurred.
The units of production basis is used when depreciating
mine specific assets which results in a depreciation charge
proportional to the depletion of the forecast remaining life of
mine production. Changes in factors such as estimates of
proven and probable reserves that affect the unit of production
calculations are applied on a prospective basis. The straight
line method of depreciation to allocate cost, net of residual
values, is used for all remaining assets over estimated
useful lives between 3-10 years from inception, the duration
reflects the specific nature of the assets. Freehold land is not
depreciated. The assets’ residual values and useful lives are
reviewed, and adjusted if appropriate, at each reporting date.
Mine development includes the Kanmantoo mine rehabilitation
asset (see Note 2(d)).
Deferred mining costs represent the mining costs which are
normalised for the impact of strip ratios and copper grades
over the life of specific pits.
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)).
Reconciliations of the carrying amounts for each class of asset
are set out below:
Land and buildings
Carrying amount at beginning
of period
31 Dec 2018
31 Dec 2017
$’000
$’000
5,145
5,145
-
-
-
-
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(145,768)
(130,778)
15,286
27,992
Disposals
Depreciation
Carrying amount at end of period
5,145
5,145
7,905
7,905
27,258
27,258
Plant and equipment
Carrying amount at beginning
of period
16,754
17,616
44,008
77,691
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. Subsequent costs are included in
the asset’s carrying amount or recognised as a separate asset,
as appropriate, only when it is probable that future economic
benefits associated with the item will flow to the group and the
cost of the item can be measured reliably.
Additions
Disposals
Depreciation
Carrying amount at end of period
Motor vehicles
Carrying amount at beginning of
period
Additions
Disposals
Depreciation
Carrying amount at end of period
196
-
(1,798)
15,152
542
136
(12)
(146)
520
172
-
(1,034)
16,754
628
77
(31)
(132)
542
Notes to the Financial Statements for the year ended 31 December 2018
12. Property, Plant and
Equipment (cont.)
Mine development
Carrying amount at beginning of
period
Additions
Transfers from exploration and
evaluation expenditure
Depreciation
(Decrease) / Increase provision
for rehabilitation
Carrying amount at end of period
Deferred mining costs
Carrying amount at beginning of
period
(Reductions) / Additions
31 Dec 2018
31 Dec 2017
$’000
$’000
27,992
2,620
32,600
3,918
246
-
(14,990)
(10,921)
(582)
15,286
2,395
27,992
27,258
(19,353)
12,671
14,587
27,258
13. Exploration and Evaluation
Expenditure
31 Dec 2018
31 Dec 2017
$’000
$’000
2,034
889
1,605
(246)
(214)
889
803
239
-
(153)
Exploration, evaluation and
expenditure
Carrying amount at beginning
of period
Additions
Transfers to mine development
Impairment losses
Carrying amount at end
of period
14. 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.
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.
DTA amounts recognised in
profit or loss
Employee benefits
Rehabilitation provisions
Tax revenue losses
Property, plant & equipment
Other
DTA/(DTL) amounts recognised
directly in equity
Share issue expenses
Other
Set-off deferred tax liabilities
pursuant to set-off provision
31 Dec 2018
31 Dec 2017
$’000
$’000
997
4,291
-
-
982
6,270
121
9
1,496
4,688
-
1,667
495
8,346
210
-
(2,715)
3,685
(8,556)
-
Carrying amount at end of period
7,905
Total property, plant and
equipment
44,008
77,691
Deferred tax asset (DTA)
2,034
889
Net deferred tax assets
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.
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 $126.1 million (tax benefit at the Australian
tax rate of 30%: $37.8 million). In addition there is an
unrecognised temporary difference on plant and equipment
amounting to approximately $93.4 million (tax benefit at the
Australian tax rate of 30%: $28.0 million).
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Notes to the Financial Statements for the year ended 31 December 2018
14. Deferred Tax (cont.)
Deferred tax assets of $1,562,000 (2017: $2,036,000) and
deferred tax liabilities of $2,715,000 (2017: $8,289,000)
are expected to be recovered in less than 12 months of the
balance sheet date.
The Company has $21.3 million of franking credits available
for future periods (31 December 2017: $21.3 million).
16. Provisions – Current
Rehabilitation provision
Make good provision
Unsettled ship provision
31 Dec 2018
31 Dec 2017
$’000
2,200
549
528
3,277
$’000
1,801
499
596
2,896
31 Dec 2018
31 Dec 2017
Movement in provisions
Deferred tax liability (DTL)
DTL amounts recognised in
profit or loss
Deferred mining costs
Other
Amount offset to deferred tax
assets pursuant to set-off
Net deferred tax liabilities
Movements in net deferred tax
balance
Opening balance
Credited/(charged) to profit or
loss
Credited/(charged) directly in
equity for cash flow hedges
Over/(under) provision in prior
years
$’000
$’000
2,372
343
2,715
8,177
379
8,556
(2,715)
(8,556)
-
-
-
4,883
3,685
(8,525)
-
-
3,284
358
-
Closing balance
3,685
15. Trade and Other Payables
Trade payables
Other payables and accruals
31 Dec 2018
31 Dec 2017
$’000
18,209
8,438
26,647
$’000
30,092
18,225
48,317
Information about the Group’s exposure to liquidity risk is
provided in Note 26.
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Carrying value at the beginning
of the period
Increase / (reduce) provision
recognised:
Make good provision
Unsettled ship provision
Transfer from/(to) non-current
provisions;
Rehabilitation provision
Balance at end of period
2,896
3,027
50
(68)
399
3,277
(209)
(421)
499
2,896
The rehabilitation provision is based on estimates for
tenements held and refers to the measures and actions
required to repair land disturbed by exploration and mining
activities. The current balance is in respect of the Kanmantoo
mine and Comet Vale tenement, which are expected to occur
over the next 12 months.
The make good provision is in respect of the contractual
requirement to make repairs necessary for mobile equipment
including vehicles to be returned to their original state.
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 2019.
17. 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.
Notes to the Financial Statements for the year ended 31 December 2018
17. Borrowings – Current (cont.)
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.
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.
Secured
Loan - South Australian
Government (a)
Unsecured
Lease liabilities
Promissory note (b)
Deferred payment (c)
Total current borrowings
31 Dec 2018
31 Dec 2017
$’000
$’000
-
4,259
333
503
-
836
836
544
1,417
1,931
3,892
8,151
(a) The loan from the South Australian Government
Financing Authority which was secured over Company-
owned property was repaid in February 2018 and
replaced with an advance from Freepoint Metals &
Concentrates LLC which was subsequently converted
to a copper prepayment of $800 per tonne for 5,000
tonnes of future 2018 copper sales. The copper
prepayment was repaid during the year.
(b) A contractor creditor of the Company agreed to convert
a portion of the amount owed for past services into an
unsecured interest-bearing liability. Repayments have
commenced and the liability is expected to be fully
repaid in February 2019.
(c) A contractor creditor of the Company agreed to receive
a deferred payment in lieu of a portion of an amount
owed for past services. This liability was repaid in
February 2018.
18. Employee Benefits
Payable – Current
Employee benefits payable
31 Dec 2018
31 Dec 2017
$’000
3,448
$’000
6,716
The current provision for employee benefits includes:
(a) Accrued annual leave and long service leave.
(b) Deferred salaries (now all current) plus unpaid liabilities
for payroll related on-costs.
The entire amount of employee benefits payable of $3.4 million
(2017: $6.7 million) is presented as current since the Group
does not have an unconditional right to defer settlement for any
of these obligations. However, based on past experience the
Group does not expect all employees to take the full amount of
accrued leave or require payment within the next 12 months.
31 Dec 2018
31 Dec 2017
$’000
$’000
Current leave obligations
expected to settle after 12 months
1,015
1,820
19. Deferred Income
31 Dec 2018
31 Dec 2017
$’000
$’000
Current Liabilities
Deferred pipeline grant (i)
217
306
Deferred revenue
(contract liability) (ii)
Non-Current Liabilities
Deferred pipeline grant (i)
1,166
1,383
849
1,155
31 Dec 2018
31 Dec 2017
$’000
$’000
58
58
190
190
(i)
Deferred income relates to a grant received to assist with
construction of a water pipeline.
(ii) Relates to the delivery of concentrate to the local
port and transfer of title being completed, however
loading of concentrate onto vessels and the shipping
of concentrate to the destination port had not yet been
performed. Refer to note 36 (AASB 15: revenue from
contracts with customers) for additional information.
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Notes to the Financial Statements for the year ended 31 December 2018
20. Provisions – Non-Current
21. Borrowings – Non-Current
Unsecured
Lease liabilities
Promissory note
(see Note 17(b))
Total non-current borrowings
31 Dec 2018
31 Dec 2017
$’000
$’000
145
-
145
128
1,260
1,388
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.
22. Employee Benefits Payable
– Non current
Long service leave
31 Dec 2018
31 Dec 2017
$’000
331
331
$’000
609
609
23. Contributed Equity
Share Capital
Issued and paid up capital for
577,477,118 fully paid shares
(31 December 2017:
568,929,118)
31 Dec 2018
31 Dec 2017
$’000
$’000
234,327
234,334
31 Dec 2018
31 Dec 2017
$’000
12,402
$’000
13,826
13,826
10,219
350
1,189
Rehabilitation provision
Movement in provisions
Carrying value at the beginning
of the period
Discount on unwind of
rehabilitation provision
Transfer (to)/from current
provisions
(399)
Expenditure charged to provision
(1,179)
(Reduce)/increase provision
recognised
Balance at end of period
(196)
12,402
(499)
(543)
3,460
13,826
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 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 in and shown as a financial cost.
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Notes to the Financial Statements for the year ended 31 December 2018
23. Contributed Equity (cont.)
Ordinary Shares Issued – movements during the period
Opening balance
31 Dec 2018
No. of shares
31 Dec 2017
No. of shares
568,929,118
206,767,247
Employee option schemes / issues
8,548,000
Shares issued to creditor
Exercise of options
Conversion of notes
Less – transaction costs
Balance at end of period
-
9,405,467
187,792,770
164,963,634
-
-
-
-
-
577,477,118
568,929,118
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.
24. Reserves
Employee share options reserve
Profit reserve
Cash flow hedges
Foreign currency translation
Movements:
Employee share options reserve
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.
31 Dec 2018
31 Dec 2017
$’000
234,334
-
-
-
-
(7)
234,327
$’000
217,538
-
658
5,634
10,508
(4)
234,334
31 Dec 2018
31 Dec 2017
$’000
4,297
30,866
-
(177)
34,986
$’000
3,305
-
-
(177)
3,128
Opening balance
3,305
2,795
Share based compensation
expense
Closing balance
Profit reserve:
Opening balance
Transfer of current year profit
Closing balance
Cash flow hedge reserve
Opening balance
Cumulative (gain)/loss arising
on changes in fair value of
hedging instruments reclassified
to profit or loss
Deferred tax (Note 14)
Closing balance
992
4,297
510
3,305
-
30,866
30,866
-
-
-
-
-
-
-
7,662
(10,946)
3,284
-
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Notes to the Financial Statements for the year ended 31 December 2018
24. Reserves (cont.)
Nature and purpose of reserves
Employee share option reserve
(i)
The employee share option reserve is used to recognise the
fair value of share performance rights issued to employees but
not exercised.
(ii) Cash flow 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 reserve
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.
(iv)
Profit reserve
The profit reserve is used to accumulate distributable profits,
preserving the characteristics of profit by not appropriating
against prior year accumulated losses. The reserve can be
used to pay taxable dividends.
25. Accumulated Losses
31 Dec 2018
31 Dec 2017
$’000
$’000
At beginning of the period
(223,709)
(209,635)
Net loss not carried forward
to profit reserve
Accumulated losses at end
of the period
(1,401)
(14,074)
(225,110)
(223,709)
No dividend was paid during the current period (31 December
2017: Nil). The Company has $21.3 million of franking credits
available for future periods (31 December 2017: $21.3 million).
26. Financial Risk Management
The Group’s activities expose it to a variety of financial risks:
market risk, credit risk and liquidity risk. The Group’s overall
risk management program focuses on the unpredictability
of financial markets and seeks to minimise potential adverse
effects on the financial performance of the Group. Risk
management is carried out by senior management under
direction of the Board of Directors. The Board provides
principles for overall risk management, as well as policies
covering specific areas.
(a) Market risk
(i)
Copper and Gold – Commodity price and foreign
exchange risk management
The Group has exposure to copper and gold commodity prices
arising from sales contracts that commit the Group to supply
copper concentrate in future years. The prices for copper
concentrate supplied under these contracts will be determined
at the time of delivery with respect to the price of copper,
gold and silver which is quoted in US dollars. The copper
price component represents greater than 95% of the copper
concentrate sales value and gold represents about 4%.
During 2017 and 2018, the Group’s metal offtaker Freepoint
Metals LLC provided short term fixed A$ copper pricing to
the Group on market competitive cost margin terms. These
arrangements protected the Group from downside price risk,
however they are not tradeable instruments nor able to be
cancelled or settled/converted into cash. As a consequence,
hedge accounting is not applicable to the fixed price
arrangements.
As at 31 December 2018, the Group had a total of 10,900
tonnes of copper metal at agreed fixed prices ranging from
A$8,557 per tonne up to A$9,246 per tonne (average price of
A$8,873).
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Notes to the Financial Statements for the year ended 31 December 2018
26. Financial Risk Management (cont.)
(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.
Interest rate risk management
As at the reporting date, the Group had the following borrowings:
31 Dec 2018
31 Dec 2017
31 Dec 2018
31 Dec 2017
Weighted average interest rate
Book value $’000
Borrowings
5.6%
4.3%
981
7,608
The percentage of total borrowings which are at variable rates is 51% (31 December 2017: 35%).
An analysis by maturities is provided in (e) below.
Details of borrowings have been provided in Note 17 and 21. At 31 December 2018, 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 $5,030 (31 December 2017: $27,000).
(c) Foreign exchange risk
The Group sells copper concentrate and sales invoices are denominated in US$.
The current fixed pricing arrangements on a ship by ship basis with Freepoint include conversion from US$ into A$ to the extent
of the aggregate of the early drawdown values for each ship. Provisional and final invoicing is settled at spot foreign exchange
rates.
At 31 December 2018, the Group has US$-denominated trade receivables of US$1,333,665 (31 December 2017:
US$1,079,157). Offsetting this, the Group has unsettled ship provisions for final invoices which are also recorded in US$. At
31 December 2018 the Group has US$-denominated ship provisions of US$372,500 (31 December 2017: US$465,000). The
table below details the Group’s foreign exchange sensitivity on its net US$-denominated trade receivables and final invoice ship
provisions.
31 December 2018
Impact on profit or loss
31 December 2017
Impact on profit or loss
Increase ($‘000)
Decrease ($‘000)
Increase ($‘000)
Decrease ($‘000)
Impact of 10% increase/decrease in A$/US$
exchange rate on US$ denominated trade
receivables
(124)
136
(72)
79
The Group and parent entity also hold bank accounts denominated in US$ and IDR (Indonesian Rupiah) which had carrying
values of $NIL and $397 respectively at 31 December 2018 (31 December 2017: $NIL and $8,102 respectively). The risk 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 which
is considered to be an appropriate financial institution.
The Group has trade receivables of $1,889,580 (31 December 2017: $1,383,535). The maximum exposure to credit risk at the
reporting date is the carrying amount of the financial assets. The group applies the AASB 9 simplified approach to measuring
expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets. Applying the
principles of the expected credit loss model and historical recovery rates, the Consolidated entity has not recognised a provision
against trade receivables and contract assets.
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Notes to the Financial Statements for the year ended 31 December 2018
26. Financial Risk Management (cont.)
(d) Credit risk (cont.)
Trade receivables and contract assets are written off when there is no reasonable expectation of recovery. Indicators that there
is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the
group, and a failure to make contractual payments.
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 counterparty, taking into
account its financial position, past experience and other relevant factors.
(e) Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding
through an adequate amount of committed credit facilities and the ability to close out market positions. Liquidity risk is managed
on a Group basis. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the
maturity profiles of financial assets and liabilities.
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 2018 ($’000)
Trade and other payables
Borrowings
Total
31 December 2017 ($’000)
Trade and other payables
Borrowings
Total
Less than
1 year
26,647
836
27,483
48,317
8,151
56,468
1 to 2 year(s)
2 to 3 years
3 to 4 years
4 to 5 years
More than
5 years
-
145
145
-
1,388
1,388
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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Notes to the Financial Statements for the year ended 31 December 2018
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 2018 (%)
Equity holding
31 Dec 2017 (%)
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Singapore
Singapore
Singapore
Singapore
Indonesia
Indonesia
Indonesia
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
100
100
100
100
100
100
100
100
80
80
100
100
80
80
100
100
100
100
100
100
100
100
100
100
100
80
80
100
100
80
80
100
The proportion of ownership interest is equal to the proportion of voting power held.
Transactions with non-controlling interests
There were no transactions with non-controlling interests during the period.
28. Commitments
(a) Non-cancellable operating lease expense commitments
Future operating lease commitments not provided for in the financial statements and payable:
Within one year
One year or later and no later than five years
31 Dec 2018
31 Dec 2017
$’000
$’000
34
23
57
34
56
90
The group leases its corporate offices under non-cancellable operating leases expiring within five years of the reporting date. The
lease has been extended to 2020. The lease has varying CPI escalation clauses and renewal rights. On renewal, the terms of the
lease are renegotiated.
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Notes to the Financial Statements for the year ended 31 December 2018
28. Commitments (cont.)
(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 SA State Government has the
authority to defer, waive or amend the minimum expenditure
requirements. Eligible exploration expenditure includes an
appropriate allocation of overhead costs.
Commitments have increased from the prior year as a result
of the tenements that have been granted during 2018.
Within one year
One year or later and no later
than five years
31 Dec 2018
31 Dec 2017
$’000
820
520
1,340
$’000
300
300
600
(c) Capital commitments
At 31 December 2018 there were no contracted capital
commitments (31 December 2017: 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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(b) Reconciliation of operating profit after income
tax to net cash provided by operating activities
31 Dec 2018
31 Dec 2017
$’000
$’000
Operating profit after income tax
29,465
(14,074)
Add / (less) items classified as
investing/financing activities
Net loss on sale of fixed assets
Net interest expense
Finance lease payments
Add / (less) non-cash items
4
1,300
326
Depreciation and amortisation
16,713
18
1,817
288
11,814
153
5,569
511
-
214
-
992
688
-
(7,662)
350
1,189
-
-
(221)
300
905
654
(201)
231
50,131
1,212
Impairment asset write downs
Fair value adjustment –
convertible notes
Employee share options
Unrealised FX (gains) / losses
Unrealised (gain) / losses on
financial derivatives
Discount on unwind of
rehabilitation provision
Movement in deferred liability to
contractor
Shares in lieu of interest
Deferred income amortisation
Other non cash items
Net cash generated by
operating activities before
change in assets and liabilities
Changes in operating assets
and liabilities
Increase / (decrease) in revenue
317
-
(Increase) / decrease in
receivables, prepayments and
inventories
Increase / (decrease) in trade
creditors and accruals
(Increase) / decrease in net
deferred tax assets
(21,087)
(8,116)
(23,515)
14,265
(3,685)
4,883
Increase / (decrease) in
provisions and employee benefits
(3,564)
3,054
(Increase) / decrease in
deferred mining costs
Net cash generated by
operating activities
19,353
(14,587)
17,950
711
Notes to the Financial Statements for the year ended 31 December 2018
29. Notes to the Statement of Cash Flows (cont.)
(c) Net debt reconciliation
This section sets out an analysis of net debt and the movements in net debt for each of the periods presented.
Cash and cash equivalents
Borrowings – repayable
within one year
Borrowings – repayable
after one year
Net Debt
31 Dec 2018
31 Dec 2017
$’000
2,451
$’000
471
(836)
(8,151)
(145)
1,470
(1,388)
(9,068)
Reconciliation of movement of liabilities to cash flows arising from financing activities
Other Assets
Liabilities from Financing activities
Cash &
Bank
$’000
1,942
(1,471)
-
471
1,980
-
-
2,451
Net debt
as at 1 January 2017
Cash flows
Other non cash movement
Net debt
as at 31 December 2017
Cash flows
Acquisitions – finance leases
Other non cash movement
Net debt
as at 31 December 2018
Liquid
Investments
Finance leases
due within 1
year
Finance
leases due
after 1 year
Borrowings
due within
1 year
Borrowings
due after
1 year
Total
$’000
$’000
$’000
$’000
$’000
$’000
-
-
-
-
-
-
-
-
(443)
288
(388)
(515)
(2,391)
(9,678)
(11,085)
-
387
343
(5,559)
-
8,418
(841)
2,858
(544)
(128)
(7,607)
(1,260)
(9,068)
328
(30)
(86)
-
(103)
86
8,650
-
(1,546)
-
-
1,260
10,957
(133)
(286)
(333)
(145)
(503)
-
1,470
Non-cash movements represent accrued interest, repayment timing movements between current and non-current and
revaluations.
30. Key Management Personnel Disclosures
(a) Key management personnel compensation
31 Dec 2018
31 Dec 2017
$
$
Short-term employee benefits
1,666,608
1,376,075
Post-employment benefits
Cash bonus
Share based payments
145,110
300,303
519,367
143,464
-
313,646
2,631,388
1,833,185
Further detail regarding key management personnel compensation can be found in the Remuneration Report.
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Notes to the Financial Statements for the year ended 31 December 2018
31. Related Party Transactions
(a) Parent entities
The parent entity within the Group is Hillgrove Resources
Limited.
(b) Subsidiaries
Interests in subsidiaries are set out in Note 27.
(c) Key management personnel
Disclosures relating to key management personnel are set out
in Note 30.
(d) Related parties
Loans to controlled entities are eliminated on consolidation.
Hillgrove Copper Pty Ltd is the banker for the Group and re-
allocates via loan account all costs that relate to the Group.
Some assets and liabilities previously recognised in the parent
Company, mainly consisting of property, plant, equipment
and exploration related assets, have been transferred to the
controlled entities via loan account. All these transactions were
recorded at carrying value.
32. Events After the
Reporting Period
There were no subsequent events since the balance date.
33. Contingent Liabilities
Guarantees
31 Dec 2018
31 Dec 2017
$’000
$’000
Electranet performance
bond to support the build,
own, operate and maintain
agreement for installation of
transmission infrastructure
at the Kanmantoo site
Security bonds on rental properties
620
16
636
1,162
16
1,178
The consolidated entity has obligations to restore land
disturbed under exploration and mining licences. The
maximum obligation to the SA State Government in respect of
the Kanmantoo copper mine has been assessed at a value of
$9.2 million and is secured by the SA Government on a first
ranking basis against the assets of the consolidated entity.
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 2018.
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 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 two years after offer (for the 2017 and
2018 offers), 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 voting rights. When
exercisable, each performance right is convertible into one
fully paid ordinary share in Hillgrove Resources Limited. The
granting and exercise price of the rights is nil. The ability for
rights to vest and be automatically exercised under the OPRP
is dependent on the following:
a) The satisfaction of all the Performance Conditions (KPI’s);
b) The invitee complying with all Company policy and
procedures (e.g. no disciplinary action against the invitee
between offer and vesting); and
c) 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 are allocated equally over the period
from grant date to vesting date. Fair values at grant date are
independently determined using a Binominal Approximation or
Monte Carlo simulation model (as appropriate). Both models take
into account the exercise price, the term, the impact of dilution,
the share price at grant date, the expected price volatility of the
underlying share, the expected dividend yield and the risk-free
interest rate for the term of the performance rights. Expected
volatility is based on the Group’s three year rolling daily standard
deviation using Hillgrove’s closing share price for the six years
prior to the grant.
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Notes to the Financial Statements for the year ended 31 December 2018
34. Share-based Payments (cont.)
Movements in performance rights during the year
31 December 2018
31 December 2017
Number of
performance rights
Weighted average
exercise price ($)
Number of
performance rights
Weighted average
exercise price ($)
Balance at beginning of year
Granted during the year
Forfeited during the year
Exercised during the year
Expired during the year
Balance at end of year
Exercisable at end of year
21,188,000
19,575,000
(1,050,000)
(8,548,000)
-
31,165,000
-
-
-
-
-
-
-
-
9,410,500
12,640,000
(30,000)
-
(832,500)
21,188,000
-
-
-
-
-
-
-
-
Performance rights outstanding at the end of the year
At the end of the year there are 31,165,000 performance
rights outstanding that have been offered under the OPRP.
The exercise price of these performance rights are Nil
(31 December 2017: Nil), and the weighted average remaining
contractual life at the end of the period was
1.02 years (31 December 2017: 1.01 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:
31 Dec 2018
31 Dec 2017
$’000
$’000
Performance rights issued under
the OPRP
992
510
The expense arising from share based payment transactions
are determined using an adjusted form of the Black Scholes
Model, with the key model inputs including the following:
2018 Rights
2017 Rights
2016 Rights
Grant date
1 June 2018 5 June 2017 11 July 2016
Expiration date
31 July 2020 31 July 2019 31 July 2018
$0.093
1.85%
$0.071
1.89%
$0.074
2.75%
Share price at
grant date
Risk free rate
Expected price
volatility of the
company’s shares
35. Parent Entity Information
Set out below is the supplementary information about the
parent entity.
Parent
31 Dec 2018
31 Dec 2017
$’000
$’000
5,150
5,150
(21,735)
(21,735)
316
20,677
667
790
335
19,031
5,020
5,278
19,887
13,753
234,327
234,334
9,447
3,128
Profit (loss) after income tax
Total comprehensive income
Balance Sheet
Total current assets
Total assets
Total current liabilities
Total liabilities
Net assets
Shareholder’s Equity
Contributed equity
Reserves
Accumulated losses
(223,887)
(223,709)
Total equity
19,887
13,753
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.
29%
60%
60%
Contingent liabilities
Security bond on rental
properties
31 Dec 2018
31 Dec 2017
$’000
$’000
16
16
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Notes to the Financial Statements for the year ended 31 December 2018
36. Standards and interpretations
in issue
(a) 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.
AASB 9 Financial Instruments
AASB 9 replaces the provisions of AASB 139 that relate to the
recognition, classification and measurement of financial assets
and financial liabilities, dercognition of financial instruments,
impairment of financial assets and hedge accounting. The
majority of the Group financial assets are in the form of
cash and cash equivalents, trade and other receivables.
Accordingly, this new Standard does not have a significant
impact on the classification and measurement of its financial
assets and liabilities, its offtake pricing arrangements or its
results for the Group.
The adoption of AASB 9 Financial Instruments from
1 January 2018 resulted in changes in accounting policies
and adjustments to the amounts recognised in the financial
statements. The new accounting policies are set out in
note 26(d).
Classification and Measurement
On 1 January 2018 (the date of initial application of AASB 9),
the group’s management has assessed the classification and
measurement of the Group’s financial assets and no change
has been required.
Impairment of financial assets
The Group was required to revise its impairment methodology
under AASB 9 for each of the classes of assets. Refer to note
26(d) for further information.
Trade receivables and contract assets
The Group applies the AASB 9 simplified approach to
measuring expected credit losses which uses a lifetime
expected loss allowance for all trade receivables and contract
assets.
AASB 15 Revenue from Contracts with Customer
The Group has adopted AASB 15 Revenue from Contracts
with Customers from 1 January 2018 which resulted in
changes in accounting policies and adjustments to the
amounts recognised in the financial statements.
In accordance with the transition provisions in AASB 15, the
Group has adopted the new rules retrospectively and has
restated comparatives for the 2017 financial year. In summary,
the following adjustments were made to the amounts
recognised in the income statement and balance sheet at the
date of initial application (1 January 2018) and the beginning
of the earliest period presented (1 January 2017):
31 Dec 2017
As Originally
Presented
Impact of
AASB 15
31 Dec 2017
Restated
$’000
$’000
$’000
127,078
(13,763)
113,315
(122,914)
13,763
(109,151)
(306)
(849)
(1,155)
-
849
849
Revenue
Expenses
Deferred income
(contract liability)
Trade and other
receivables
(contract asset)
As at 31 December 2017, delivery of concentrate to the local
port was completed, however loading of concentrate onto
vessels and the shipping of concentrate to the destination port
had not yet been performed for one shipment. In the prior
period under the previous policy, revenue and expenses of
$849,000 were recognised in the Income Statement, having
a nil impact on retained earnings. Under AASB 15 not all
performance obligations have been met and therefore this
revenue and expense have been deferred to the Balance
Sheet and were recognised in 2018 once the performance
obligations had been satisfied.
Revenue was previously recorded on a gross basis in
accordance with AASB 118 however, under AASB 15 revenue
has been recorded on a net basis, with treatment and refining
charges deducted from the gross revenue received. This
treatment has affected both revenue and expense by $12.9m
and therefore has a nil impact on profit.
The Group sells copper concentrate under an offtake contract
and the Group trades using CIF terms (i.e. Seller’s cost,
insurance and freight) for vessel chartering. Under AASB 15,
the Company has three performance obligations relating to the
sale of concentrate which include delivery and transfer of title
of concentrate at the port of loading, loading of concentrate
onto the ship and transporting the shipment to the port of
destination. The transaction price applied to the delivery of
concentrate to the port is value of the concentrate delivered
adjusted for treatment and refining charges, the transaction
price allocated to the final two performance obligations
are cost of loading and chartering a vessel for shipment to
destination at cost recovery.
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Notes to the Financial Statements for the year ended 31 December 2018
Based on the above, the Group does not expect any significant
impact on the financial statements from the application of this
new standard. However, some additional disclosures will be
required from next year.
The Group will apply the standard from its mandatory
adoption date of 1 January 2019. The Group intends to
apply the simplified transition approach and will not restate
comparative amounts for the year prior to first adoption.
Right-of-use assets will be measured at the amount of the
lease liability on adoption (adjusted for any prepaid or accrued
lease expenses).
36. Standards and interpretations
in issue (cont.)
(b) Early adoption of standards
There were no standards adopted early.
(c) Standards and interpretations in issue
but not yet adopted
At the date of authorisation of the financial statements, the
standards and interpretations listed below were in issue but
not yet effective.
Standard/
Interpretation
Effective for annual
reporting periods
beginning on or after
Expected to be initially
applied in the financial
year ending
AASB 16 ‘Leases’
1 January 2019
31 December 2019
AASB 16 Leases
AASB 16 was issued in February 2016. It will result in almost
all leases being recognised on the balance sheet by lessees,
as the distinction between operating and finance leases is
removed. Under the new standard, an asset (the right to use
the leased item) and a financial liability to pay rentals are
recognised. The only exceptions are short-term and low-value
leases.
The Group has reviewed all of the Group’s leasing
arrangements over the last year in light of the new lease
accounting rules in AASB 16. The standard will primarily
affect the accounting for the group’s operating leases upon the
mandatory adoption date of 1 January 2019.
As a majority of all the Group’s leases are due to expire upon
cessation of mining in mid-2019, management have treated
these contracts as exempt as they are deemed to be short
term leases under AASB 16. Additionally, the Group has
one lease that contains an option to extend the lease for the
purposes of processing and rehabilitation activities. However,
there is uncertainty around the facts and circumstances of the
Group’s extension plans for this lease and as at 31 December
2018, the Group is not reasonably certain to exercise the
option to extend the lease. The Group will revisit this at the
next reporting period.
The Group has completed an assessment over all other leases,
and the amount of right of use assets and lease liabilities to be
recognised on 1 January 2019 is not expected to be material.
As at the reporting date, the Group has non-cancellable
operating lease commitments of $57,000, see note 28.
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65
Directors’ Declaration
In the Directors’ opinion:
(a)
the financial statements and notes set out on pages 38 to 65 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 2018 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 28th day of February 2019
Mr John Gooding
Chairman
Mr Steve McClare
Managing Director
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66
Independent Auditor’s Report
to the Members of Hillgrove Resources Limited
Independent auditor’s report
To the members of Hillgrove Resources Limited
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of Hillgrove Resources Limited (the Company) and its controlled
entities (together the Group) is in accordance with the Corporations Act 2001, including:
(a)
giving a true and fair view of the Group's financial position as at 31 December 2018 and of its
financial performance for the year then ended
(b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group financial report comprises:
the consolidated statement of financial position as at 31 December 2018
the consolidated statement of changes in equity for the year then ended
the consolidated statement of cash flows for the year then ended
the consolidated statement of profit or loss and other comprehensive income for the year then
ended
the notes to the consolidated financial statements, which include a summary of significant
accounting policies
the directors’ declaration.
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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
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.
PricewaterhouseCoopers, ABN 52 780 433 757
Level 11, 70 Franklin Street, ADELAIDE SA 5000, GPO Box 418, ADELAIDE SA 5001
T: +61 8 8218 7000, F: +61 8 8218 7999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
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Independent Auditor’s Report
to the Members of Hillgrove Resources Limited (cont.)
Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report is free from
material misstatement. Misstatements may arise due to fraud or error. They are considered material if
individually or in aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial report.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an
opinion on the financial report as a whole, taking into account the geographic and management
structure of the Group, its accounting processes and controls and the industry in which it operates.
Materiality
Audit scope
For the purpose of our audit we used overall Group
materiality of $1.0 million, which represents
approximately 4% of the Group’s profit before tax.
We applied this threshold, together with
qualitative considerations, to determine the scope
of our audit and the nature, timing and extent of
our audit procedures and to evaluate the effect of
misstatements on the financial report as a whole.
We chose Group profit before tax because, in our
view, it is the benchmark against which the
performance of the Group is most commonly
measured.
We utilised a 4% threshold based on our
professional judgement, noting it is within the
range of commonly acceptable thresholds.
Our audit focused on where the Group made
subjective judgements; for example, significant
accounting estimates involving assumptions and
inherently uncertain future events.
The Group’s accounting records are held and
managed at their operating mine in Kanmantoo
and the corporate head office, located in Adelaide.
We performed audit procedures at both locations.
The Kanmantoo mining operation was the focus of
the audit as it is the Group’s only operating mine
site. The Group has overseas subsidiaries in
Indonesia and Singapore which are not material to
the Group. We have performed limited audit
procedures over these subsidiaries from the
corporate head office.
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. The key audit 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. Further, any commentary on the outcomes of a
particular audit procedure is made in that context. We communicated the key audit matters to the
Audit and Risk Committee.
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Independent Auditor’s Report
to the Members of Hillgrove Resources Limited (cont.)
Key audit matter
How our audit addressed the key audit matter
Basis of preparation of the financial report
(Refer to note 1 (a))
As described in Note 1 to the financial report, the
financial statements have been prepared by the Group
on a going concern basis, which contemplates that the
Group will continue to meet its commitments, realise
its assets and settle its liabilities in the normal course of
business.
Assessing the appropriateness of the Group’s basis of
preparation for the financial report was a key audit
matter due to its importance to the financial report and
the level of judgement involved with respect to the
Group forecasting future cash flows for a period of at
least 12 months from the date of the financial report
(cash flow forecasts).
In assessing the appropriateness of the Group’s going
concern basis of preparation for the financial report, we
performed the following procedures amongst others:
Evaluated the appropriateness of the Group's
assessment of their ability to continue as a
going concern, including whether the
assessment is appropriate given the nature of
the Group, the period covered is at least 12
months from the date of our auditor’s report
and relevant information of which we are
aware as a result of the audit has been
included.
Enquired of management and the board of
directors as to their knowledge of events or
conditions that may cast significant doubt on
the Group's ability to continue as a going
concern.
Evaluated the Group’s plans for future actions
and whether the outcomes are feasible in the
circumstances.
Evaluated selected data and assumptions in
the Group’s cash flow forecasts for at least 12
months from the date of signing the auditor’s
report. We performed the following
procedures, amongst others:
o Compared copper pricing data used
to independent industry forecasts;
o Assessed the movement in reserve
estimates over the year and assessed
the competence of the Group’s
expert;
o Assessed the reasonableness of the
production and processing volumes
by comparing these volumes to the
overall mine reserve estimates;
o Compared foreign exchange and
inflation rate assumptions to current
market information; and
o Assessed the reasonableness of
forecast costs by comparing forecast
operating costs to actual costs
incurred.
Considered the liquidity of existing assets on
the consolidated statement of financial
position as at 31 December 2018.
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Independent Auditor’s Report
to the Members of Hillgrove Resources Limited (cont.)
Key audit matter
How our audit addressed the key audit matter
Requested written representations from
management and the board of directors
regarding their plans for future action and the
feasibility of these plans.
Evaluated whether, in view of the
requirements of Australian Accounting
Standards, the financial report provides
adequate disclosures about these events or
conditions.
We performed the following procedures, amongst
others:
Assessed the appropriateness of the CGU
identification in accordance with the
requirements of Australian Accounting
Standards.
Compared the cash flow forecasts used in the
discounted cash flow model to those in the
latest Board approved budgets and evaluated
the Group’s ability to forecast future results by
comparing budgets with reported actual
results for the previous financial year.
Tested the mathematical accuracy of the
discounted cash flow model, and assessed the
completeness of cash flows included within
the model based on our understanding of
operations from the audit.
Compared copper pricing data used to
independent industry forecasts.
Assessed the movement in reserve estimates
over the year and assessed the competence of
the Group's expert.
Assessed the reasonableness of the production
and processing volumes by comparing these
volumes to the overall mine reserve estimates.
Compared foreign exchange and inflation rate
assumptions to current market information.
Assessed the reasonableness of forecast costs
by comparing forecast operating costs to
actual costs incurred.
Carrying value of assets of Kanmantoo Cash
Generating Unit
(Refer to note 12)
Large impairment charges were recorded in the
consolidated statement of profit and loss and other
comprehensive income for the financial years ended 31
December 2016 ($68.5 million) and 31 December 2015
($112.9 million), the majority of which related to the
Kanmantoo Cash Generating Unit (“CGU”).
The Group considered whether there was objective
evidence that the conditions leading to the asset
impairment were no longer present through
assessment of the assumptions used in determining the
carrying value of the CGU and whether the Group
should consider a reversal of prior impairment charges.
The assessment of the carrying value of the Kanmantoo
CGU was considered a key audit matter due to the
financial significance of property, plant and equipment
($44 million) and the judgemental assumptions
included in the Group’s discounted cash flow model,
particularly:
long term copper prices;
reserve estimates;
production and processing volumes;
operating costs;
foreign exchange rates;
inflation rates; and
discount rate.
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Independent Auditor’s Report
to the Members of Hillgrove Resources Limited (cont.)
Key audit matter
How our audit addressed the key audit matter
Evaluated the sensitivity of the CGU carrying
value to changes in the discount rate by
varying the rate used in the discounted cash
flow model.
Assessed the Group’s judgement that there
was not sufficient objective evidence to
consider reversing previous impairment
charges in line with the requirements of
Australian Accounting Standards.
Evaluated the accuracy and adequacy of the
disclosures made in the financial report,
including those regarding the key assumptions
in light of the requirements of Australian
Accounting Standards.
Rehabilitation provision
(Refer to notes 16 and 20)
We performed the following procedures, amongst
others:
As a result of its mining and processing operations, the
Group is obligated to restore and rehabilitate the
environment disturbed by these operations.
Rehabilitation activities are governed by a combination
of legislative requirements and Group policies. At 31
December 2018 the balance sheet included provisions
for such obligations of $14.6m.
This was a key audit matter due to the judgement
applied by the Group in assessing the nature and extent
of the rehabilitation work to be performed, estimating
the future cost and timing of performing this work and
applying assumptions such as the discount rate and
inflation for future cash outflows associated with
rehabilitation activities.
Compared the actual rehabilitation costs
incurred against the Group’s forecasts to
check that rehabilitation estimates take into
account current experience.
Assessed the nature, timing and extent of
rehabilitation work to be performed by
inspecting mine and rehabilitation plans.
Tested the mathematical accuracy of the
Group’s rehabilitation estimate, and assessed
the completeness of cash flows based on our
understanding of rehabilitation obligations.
Considered the appropriateness of the
discount rates and inflation rates utilised in
calculating the closing provision by comparing
them to current market information.
Considered the adequacy of disclosures made
in the financial statements and their
appropriateness under Australian Accounting
Standards.
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Independent Auditor’s Report
to the Members of Hillgrove Resources Limited (cont.)
Other information
The directors are responsible for the other information. The other information comprises the
information included in the annual report for the year ended 31 December 2018, 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 accordingly 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 on the other information that we obtained prior to the date of
this auditor’s report, 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 directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In 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 directors either intend to liquidate the Group or to cease
operations, or have 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 the financial report.
A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website at:
http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our
auditor's report.
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72
Independent Auditor’s Report
to the Members of Hillgrove Resources Limited (cont.)
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 26 to 35 of the directors’ report for the
year ended 31 December 2018.
In our opinion, the remuneration report of Hillgrove Resources Limited for the year ended 31
December 2018 complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility
is to express an opinion on the remuneration report, based on our audit conducted in accordance with
Australian Auditing Standards.
PricewaterhouseCoopers
Andrew Forman
Partner
Adelaide
28 February 2019
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73
Shareholder Information
Shareholder Information for
Listed Public Companies
The following additional information is required by the Australian Securities
Exchange Limited in respect of listed public companies only.
As at the reporting date the most recent Shareholder information available for
disclosure is as follows:
(a) Voting rights and classes of equity securities
As at 1 February 2019, the Company has 577,477,118 listed fully paid ordinary
shares. Each fully paid share carries on a poll one vote.
The company also has 31,165,000 unquoted options on issue which are held by
13 holders which do not carry voting rights.
(b) Unmarketable parcels
The number of shareholdings holding less than a marketable parcel of
ordinary shares was 2,054 as at 1 February 2019.
(c) Distribution schedule of Fully Paid Ordinary Shares
as at 1 February 2019
Size of holding
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Number of shareholders
478
1,379
407
806
238
3,308
(d) Securities exchange listing
Quotation has been granted for all the ordinary shares of the Company on
all Member Exchanges of the Australian Securities Exchange Limited.
The ASX code is HGO.
(e) Company Secretary
Mr Paul Kiley is the Company Secretary.
(f) On-market buy-back
There is no current on-market buy-back.
(g) Substantial shareholders as at 1 February 2019
An extract of the Company’s register of Substantial Shareholders (who hold 5.0% or
more of the issued capital) in accordance with Form 604 Notices is set out below:
Name
Ariadne Australia Limited
Munro Family Super Fund
Issued capital
25.7%
8.5%
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74
Shareholder Information (cont.)
(g) Substantial shareholders as at 1 February 2019 (cont.)
Twenty largest listed shareholders
The twenty largest shareholders hold 69.4% of the total ordinary shares issued.
The 20 largest shareholders as at 1 February 2019 are listed below:
Shareholder
Portfolio Services Pty Ltd
J P Morgan Nominees Australia
1
2
3 Mr Raymond Edward Munro
Portfolio Services Pty Ltd
4
Portfolio Services Pty Ltd
5
BNP Paribas Nominees Pty Ltd
6
Bell Potter Nominees Pty Ltd
7
Portfolio Services Pty Ltd
8
9
Cosell Pty Ltd
10 Mr Malcolm Neil Nichols
11 WeyitinTrading Pty Ltd
12 Mr Antony Gordon Breuer
13 Emeco Pty Ltd
14 Mr Lachlan Wallace
15 W Donnelly Services Pty Ltd
16 Sighet Pty Ltd
17 Rossdale Superannuation Pty Ltd
18 Mr Steven Paul McClare
18 Mr Christopher Philip Martin
20 McClare Pty Ltd
No. of ordinary
shares held
% of issued
shares
64,837,374
55,162,977
51,120,000
36,692,125
27,482,196
25,714,373
23,071,761
17,546,894
15,000,000
13,074,700
10,127,346
10,005,559
9,405,467
7,119,197
7,006,667
6,975,241
6,470,069
5,000,000
4,550,000
4,379,706
11.2%
9.6%
8.9%
6.4%
4.8%
4.5%
4.0%
3.0%
2.6%
2.3%
1.8%
1.7%
1.6%
1.2%
1.2%
1.2%
1.1%
0.9%
0.8%
0.8%
400,741,652
69.4%
(h)
Interests in mining tenements
Tenement
ML 6345
ML 6436
EML 6340
EL 5628
EL 6174
EL 6175
EL 6176
EL 6207
EL 6208
EL 6294
ELA 2019/008
ML 755
IUP 322/2009 (1)
IUP 40/2010 (1)
Location
Kanmantoo, South Australia
Kanmantoo, South Australia
Kanmantoo, South Australia
Kanmantoo, South Australia
Coomandook, South Australia
Coonalpyn, South Australia
Wheal Ellen, South Australia
Tintinara, South Australia
Carcuma, South Australia
Wynarka, South Australia
Laffer, South Australia
Armidale, New South Wales
Sumba, Indonesia
Bird’s Head, Indonesia
Percentage
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
application
100%
80%
80%
(1)
the Company is continuing to progress its withdrawal from Indonesia.
(i) Other information
Hillgrove Resources Limited, incorporated and domiciled in Australia,
is a publicly listed Company limited by shares.
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75
HILLGROVE RESOURCES LIMITED
ACN 004 297 116
Adelaide Office
Ground Floor, 5-7 King William Road,
Unley SA 5061, Australia
P.O. Box 372, Unley SA 5061, Australia
T: +61 8 7070 1698
E: info@hillgroveresources.com.au
www.hillgroveresources.com.au