Annual Report
for the year ended 31 December
2019
Hillgrove Resources Limited ACN 004 297 116
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Corporate Directory
Corporate and
Registered Office
5-7 King William Road,
Unley S.A. 5061, Australia
Tel: +61 8 7070 1698
Kanmantoo Copper Mine
Eclair Mine Road
Kanmantoo S.A. 5252, Australia
Tel: + 61 8 8538 6800
Fax: + 61 8 8538 5255
Share Registry
Boardroom Pty Limited
Level 7, 207 Kent Street
Sydney N.S.W. 2000, Australia
Tel: + 61 2 9290 9600
Fax: + 61 2 9279 0664
Bankers
Westpac Banking Corporation
31 Willoughby Road
Crows Nest N.S.W. 2065, Australia
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
5
10
12
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Independent Auditor’s Report 67
Shareholder Information
74
Chairman and Managing Director’s Statement
Dear Shareholders,
The year in review
Safety is a fundamental consideration
in everything we do at Hillgrove.
Although any injury is one too many,
we are pleased to report that 2019
saw the lowest number of injuries
recorded in a year since operations at
Kanmantoo commenced in late 2011.
The rolling 12-month total recordable
injury frequency rate (TRIFR) remains
at historically low levels, (46%
reduction over the past 2 years).
The past 12 months marked the
commencement of the transition from
producer to explorer / developer with
the completion of the open pit mining
activities in May and commencement
of processing of the low grade
ore stockpiles which is expected
to continue through until the end
of March 2020. Open pit mining
was stopped prior to reaching the
ultimate pit depth due to rockfalls in
December 2018, and in February and
May 2019. The cessation of mining
ahead of the final design prevented
all copper metal from being
recovered, and increased unit mining
costs due to delays as the pit was
remediated and engineering controls
implemented to ensure worker safety
prior to recommencing mining.
In addition, based on actual results
the assumed loose stockpile density
was reduced during the year by 9%,
which in turn reduced the estimated
copper content of the stockpile and
further reduced the forward looking
metal production forecast.
Notwithstanding the geotechnical
challenges in the pit, the 2019
copper and gold production
guidance, as well as the C1 and
capital cost guidance was met
or bettered.
Exploration expenditure overran
cost guidance by $0.2m due to
the acceleration of technical and
regulatory approval studies which
were brought forward to position
Hillgrove to take advantage of
any future underground mining
opportunity.
The cessation of mining resulted in
the workforce downsizing from 185
employees at the beginning of the
year to 55 by year end.
The reduced cash cost structure
since the completion of mining
in May 2019 helped in operating
cash flow generation of $21.8m. In
2019 the Company repaid the final
$0.5 million owed in debt finance,
reduced creditors from $26.6 million
to $8.6 million, paid a fully franked
cash dividend to shareholders of
$8.8 million and ended the year with
$9.3 million cash on hand.
Empowering our community
Over the past 4 years Hillgrove has
assisted the local communities of
Kanmantoo and Callington to create
a clear and comprehensive Master
Plan for the future management
and development of the region. The
Master Plan is a community led
process supported by Hillgrove,
designed to build community
capability in the areas of Callington
and Kanmantoo for a future after
mining. This highly commended
approach empowers the community
to collectively strive for the betterment
of the local region.
Rehabilitation activities continued,
with over 80 ha planted with
native vegetation at year end, and
the anticipated preparation of an
additional ~40 ha that will be planted
in 2020.
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Mr John Gooding
Independent Non-Executive
Chairman
Mr Lachlan Wallace
Chief Executive Officer and
Managing Director
Actively improving the site and
surrounds by establishing high quality
native vegetation fulfils a promise
made to the local community over
a decade ago when the restart of
Kanmantoo was permitted. This,
coupled with the launch of the Master
Plan, are real world examples that
can demonstrate how mining can
leave a positive impact on the host
community long after operations
cease, which is increasingly important
as we ramp up exploration activities
in the local region and south east of
South Australia.
Chairman and Managing Director’s Statement (cont.)
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Pumped Hydro Terminated
In April 2019, Hillgrove announced it
had entered into binding agreements
with AGL Energy Limited (AGL), to sell
the right to develop, own and operate
the Pumped Hydro Energy Storage
(PHES) project at the Kanmantoo
mine site. The sale was subject to the
satisfaction of a number of conditions
which needed to be satisfied within
specified timeframes. Ultimately the
parties mutually agreed to terminate the
agreement.
Since signing the project agreements
Hillgrove has conducted work on an
underground mining project below the
Giant Pit and continued to evaluate and
explore the prospectivity of its tenements
near the minesite and in south east
of South Australia. Termination of the
PHES agreement will enable Hillgrove to
advance the evaluation of the Kavanagh
Underground project.
Outlook
Hillgrove will continue to advance
projects in close proximity to Kanmantoo
that can come into operation relatively
quickly, for a low capital investment,
maximising the use of its existing
infrastructure, including the low cost
3.6Mtpa processing plant and permitted
tailings storage facility.
When processing of the open
pit stockpiles is completed, the
workforce will downsize further. The
Kanmantoo site will be placed on to
care and maintenance to preserve the
processing assets, and a small core
group retained to focus on growth
through the advancement of the
Kavanagh underground studies and the
continuation of a measured exploration
and development programme.
In addition, the Board will be reduced
to conserve cash and Board renewal will
consider the skills and experience that
are necessary to guide the Company as
it transitions to an explorer / developer.
Kavanagh Underground
The next phase of this strategy will focus on the evaluation of the Kavanagh
Underground project which aims to access the depth extensions of the
Kavanagh orebodies below the pit, using the 350m deep Giant Pit as a
“quasi decline” to significantly reduce the capital investment requirements.
A drilling program of a portion of the Central and East Kavanagh Cu-Au
lode systems was completed in October 2019 with promising drilling
results(1) and resulting in the release of the maiden underground Mineral
Resource Estimate(2). Importantly, the drilling showed the mineralisation to
be open both along strike to the north and south, as well as down dip. The
drilling did not target the Western Kavanagh lode, which was the orebody
that drove the open pit optimisation to depth, leaving an opportunity to
expand the underground resource through additional drilling. In December
2019, Hillgrove received regulatory approval to commence the Kavanagh
underground and expand the TSF.
The termination of the PHES project agreement in February 2020 removes
all encumbrances on the Kavanagh Underground, enabling Hillgrove to
advance the project with certainty over tenure. In 2020 Hillgrove plans
to advance the project through further drilling and progressing of the
underground study.
Hillgrove will also progress the advanced discussions it is having with
multiple parties seeking a suitable funding partner in the event that the
Kavanagh Underground project should proceed.
Other Growth Projects
In addition, Hillgrove will continue to identify opportunities to increase
shareholder value through exploration, including the South Hub
mineralisation(3), nearby exploration opportunities such as Stella and
North West(4), and the broader south east exploration tenements, on
which Hillgrove will continue to undertake low cost exploration to further
demonstrate the iron oxide copper gold (IOCG) / porphyry prospectivity of
the region.
Financial and Operational Results
Ending cash balance
Debt reduction
Creditor reduction / (addition)
Cash flow from operating activities
Dividend Paid
2019
$9.3M
$0.5M
$18.0M
$21.8M
$8.8M
2018
$2.5M
$8.6M
2017
$0.5M
$3.5M
$21.7M
($11.9M)
$18.0M
$0.7M
-
-
(1) ASX Release, 10-Oct-19, Excellent Drill Results from Kanmantoo Cu-Au Deposit.
(2) ASX Release, 30-Oct-19, Maiden Kavanagh Underground Mineral Resource Estimate.
(3) ASX Release, 27-Sep-19, Kanmantoo South Hub Cu-Au Growth Opportunity.
(4) ASX Release, 29-Apr-19, Cu-Au and Cu-Mo Zones Uncovered by Exploration.
Kanmantoo Copper Mine, South Australia
ACHIEVED GUIDANCE
– Production of 13,783 Tonnes of Copper in Concentrate
EXCEEDED TOP END OF GUIDANCE
– Production of 3,651 Ounces of Gold
ACHIEVED GUIDANCE
– Cash Costs of $US2.21 Per Pound
Kanmantoo Highlights
■ SAFE COMPLETION OF OPEN PIT MINING
■ CONTINUED PROGRESSIVE REHABILIATION PROGRAMME
WITH 84HA NOW PLANTED AND AN ADDITIONAL
40HA PLANNED FOR 2020.
■ ADVANCED GROWTH PIPELINE INCLUDING STAGED
UNDERGROUND DEVELOPMENT AT KANMANTOO,
AND NEAR MINE AND REGIONAL EXPLORATION
OPPORTUNITIES.
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Kanmantoo Copper Mine, South Australia (cont.)
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Hillgrove’s flagship development is the
open pit Kanmantoo Copper Mine in
South Australia, located 55 kilometres
from Adelaide. The site is in an enviable
position - close to road, rail, power and
Port Adelaide. The exploration and mining
lease is scattered 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. 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.
Completion of the Giant open pit in
May 2019 saw the cessation of mining
operations and a reduction of around 130
employees. Approximately 55 Hillgrove
employees remain at the operation as
stockpiled ore is processed, exploration and
evaluation activities are conducted and site
rehabilitation works are undertaken. 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 18% from the
local area, 61% from the nearby regional
area and the remaining 21% from the
Adelaide metropolitan area.
Calendar year 2019 (CY19) safety
performance remained positive with the
number of recordable injuries decreasing to
4 (CY18: 6). However, the Total Reportable
Injury Frequency Rate (TRIFR) increased to
11.0 injuries per million work hours (CY19:
8.2) due to the lower number of hours
worked as a result of less employees and
contractors at the operation. The Company
is focussed on an injury free transition from
producer to explorer / developer.
Copper production during 2019 was
13,783 tonnes of copper in concentrate
and gold production was 3,651 ounces
of gold in concentrate. C1 costs were
within guidance at US$2.21/lb of
copper produced (guidance US$2.00/
lb to US$2.30/lb). Processing of high
grade ore was completed in June 2019
with low grade stockpiled ore processed
for the remainder of the year.
Mining costs were $26.94/BCM with
mine production ceasing in May 2019.
The increase in unit mining costs
(CY18: $18.28/BCM) was expected
due to the slower advance as the pit
became deeper and more exposed to
geotechnical issues. The December
2018 rock fall resulted in a “step-in”
to the pit wall design, and subsequent
rockfalls in February and May 2019
resulted in the final pit planned depth
not being achieved due to safety
concerns. In addition to reducing
the amount of recoverable ore, these
rockfalls delayed the rate of advance
as the pit was continually inspected
and remediated to ensure the safety of
our employees, which was the primary
driver of the mining unit cost increase.
Ore production from the pit for the year
was 1.6M tonnes (CY18: 5.7M tonnes).
ROM costs increased to $1.71 per
tonne milled (CY18: $0.80) due to
the commencment of reclaiming of
low grade ore from the stockpile using
a small fleet of haul trucks and a
production excavator.
Ore processed through the mill was
3.45M tonnes, an increase from the
previous year (CY18: 3.32M tonnes).
Processing costs were $7.12 per
tonne milled which was a reduction
from the previous year (CY18: $8.43/
tonne milled) due to lower electricity
costs and improved plant availability
resulting in lower maintenance costs.
Hillgrove continued its engagement
during the year with the local
Kanmantoo Callington Community
Consultative Committee (K4C).
CY19 saw the K4C launch the K4C
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 onsite rehabilitation works
with offsite vegetation.
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.
Exploration
Near Site, Near Mine and
Regional Exploration
In 2019, the Company continued to
advance a number of opportunities for
organic growth around the Kanmantoo
infrastructure, principally the Kavanagh
Underground project and South Hub
Cu-Au mineralisation. In addition the
Company progressed its exploration
for large scale magmatic Cu-Au targets
at the Kanappa and Mt Rhine Cu-Au
projects, and upon its regional south-
east Porphyry Cu-Au tenements.
The progress of these opportunities
has been reported in several
announcements during 2019 on
30 January, 9 April, 29 April, 30 April,
20 June, 27 September, 10 October,
30 October and 29 November 2019.
The Company has prioritised its
exploration and development activities
to optimise its operational infrastructure
and capability at Kanmantoo (Figure 2)
and a summary of the status of these
projects are as follows.
Kanmantoo Underground
The Kavanagh Underground project
is the most attractive investment
Nuriootpa
Gawler
Kanmantoo
Regional
EL5628
Mount Pleasant
Sedan
Mt Rhine
Kanappa
River
St Vincent
Gulf
NW Kanmantoo
ADELAIDE
Mannum
u r r a y
M
Kanmantoo
(ML6345)
Kanmantoo
Callington
EL 6294
Bowhill - Cu
Meadows
Strathalbyn
Wheal Ellen
EL6176
Milang
Lake
Alexandrina
Cooke Plains
Moorlands - Cu
Cooke - Cu
Sherlock - Cu, Zn
Peake
EL 6208
Victor Harbour
Yumali - Cu
Kiki - Cu, Ni
Kangaroo Flat - Mn
EL 6174
EL 6175
Coonalpyn
Alamil - Cu
Richardson - Cu
Colebatch - Mo
Tintinara
EL 6207
Tolmer - Cu
Cadzow - Cu
EL 6397
NORTH
0
25
kilometres
Black Range - Cu
Hillgrove tenements
Mine
Exploration Project
Figure 1: South Australia tenement & project map.
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opportunity for Hillgrove given its likely short development
timeframe and low capital cost. The recent termination of
the PHES agreement with AGL removes all restrictions to the
Kavanagh Underground project.
In 2019 the Company drill tested a portion of the down-dip
extension of the Kavanagh mineralisation beneath the Giant
Pit to estimate an Indicated and Inferred Mineral Resource
(Figure 3) for the Central and East Kavanagh lodes.
In 2017, the Company demonstrated the extension of several
high grade copper-gold zones beyond the final open pit design.
KANMANTOO
Under Mine
Operational
Open Pit
& Stockpiles
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Kavanagh
Underground
South Hub
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Stella
North West
Mullewa
Near Mine
Regional
Mt Rhine
Kanappa
South East IOCG
/ Porphyry Province
Results of the 2019 Kavanagh drilling(1) include:
■ KTDD187-Parent 6.0m @ 0.80% Cu, 0.04 g/t Au, 2.0 g/t
Ag from 429m downhole
■ KTDD187_W1 14.55m @ 1.9% Cu, 0.08 g/t Au, 4.4 g/t Ag
from 442.45m downhole
■ KTDD187_W2 16.37m @ 3.0% Cu, 0.21 g/t Au, 7.8 g/t Ag
from 434.73m downhole
■ KTDD187_W3 20.0m @ 2.1% Cu, 0.26 g/t Au, 6.8g/t Ag
from 421m downhole
■ KTDD187_W4 no significant intersection at these criteria
■ KTDD187_W5 20.15m @ 1.5% Cu, 0.1 g/t Au, 4.1 g/t Ag
from 393.25m downhole
■ KTDD187_W5 14.0m @ 2.4% Cu, 0.3 g/t Au, 6.7 g/t Ag
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from 420m downhole
Figure 2 : Project status chart.
(1)
Intersections at a 0.6% Cu cut-off grade over a minimum of 5m
horizontal width.
Exploration (cont.)
Near Mine and Regional Exploration (cont.)
■ KTDD187_W6 22.5m @ 2.5% Cu,
0.11 g/t Au, 6.9 g/t Ag from 372m
downhole
SOUTH
GIANT
OPEN PIT
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■ KTDD187_W7 10.3m @ 2.7% Cu,
0.27 g/t Au, 8.1 g/t Ag from 390.7m
downhole
■ KTDD187_W8 7.5m @ 1.9% Cu,
0.53 g/t Au, 5.6 g/t Ag from 461m
downhole
■ KTDD187_W9 11.6m @ 1.2% Cu,
0.10 g/t Au, 1.8 g/t Ag from 319m
downhole
■ KTDD187_W10 18m @ 2.3% Cu,
0.16 g/t Au, 7.8 g/t Ag from 367m
downhole
■ KTDD187_W11 6.1m @ 1.7% Cu,
0.10 g/t Au, 4.3 g/t Ag from 382m
downhole.
The conclusion of the phase 1
drilling has enabled an Indicated and
Inferred Resource to be estimated.
Table 1 on page 10 summarises the
Mineral Resource Estimate (“MRE”)
for the Central and East Kavanagh
underground areas between 900 and
750 mRL at 0.6% Cu cut-off grade.
Figure 3 shows the location of the
drilling and MRE area.
The Kavanagh Underground project has
received regulatory approval, including
the increase in tailings storage capacity
by 7.5M tonnes. Hillgrove plans to
advance the Kavanagh Underground
through further drilling and finalisation
of a feasibility study. Hillgrove will
have a modest budget to advance
the underground and will continue
advanced discussions regarding the
Kavanagh Underground funding with
several interested parties should the
project proceed.
South Hub Underground Targets
During 2019 the Company
approximated an Exploration Target(2) at
the Kanmantoo South Hub area (Table 3
on page 11) of between four and nine
million tonnes with a target grade of
between 1.2% and 2.2% Cu and 0.1 g/t
to 0.3 g/t Au.
NORTH
1100 RL
1000 RL
Blast Hole Cu
0.1 - 0.3% Cu
0.3 - 0.6% Cu
0.6 - 1.5% Cu
> 1.5% Cu
East Kavanagh intersection
Central Kavanagh intersection
2019 Drill holes
2006 Drill holes
KTDD148
KTDD149
W09
KTDD029
900 RL
KTDD027
0
100
W03
W04
W10
W05
W11
W06
metres
W02
P
W01
Area of MRE
W07-East
W07-Ctrl
W08
800 RL
KTDD071
700 RL
6114700mN
6114900mN
6115100mN
Figure 3 : Kavanagh longitudinal section.
Tailings
Facility
6115000mN
Processing
Plant
Giant Open Pit
6114500mN
Emily Star Target
Nugent Target
Paringa Target
0
200
metres
317500mE
318000mE
318500mE
6114000mN
Figure 4 : South Hub Exploration Targets.
(2) The South Hub Exploration Target in this Annual Report is based on currently available
data and was reported on 27 September 2019. 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).
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Exploration (cont.)
Near Mine and Regional Exploration (cont.)
South Hub Underground Targets
(cont.)
The main target areas are Nugent and
Emily (both previously mined as small open
pits), and Paringa (not previously mined).
6120000mN
316000mE
320000mE
North West Kanmantoo
The South Hub Exploration Targets are
within 900 metres of the Kanmantoo
processing facility. Figure 4 shows the
location of the South Hub targets.
The South Hub Exploration Target
suggests the potential for a significant
underground opportunity beneath and/
or along strike of the recently mined
Emily Star and Nugent open pits. Further
work is planned to assess the economic
importance of this target.
Kanmantoo Near Mine
Exploration
Exploration activities within EL 5628 and
within 5 kms of the Kanmantoo mine site
have continued to advance a number
of geochemical and geophysical targets
towards drill testing including Stella and
North West Kanmantoo. Figure 5 shows
the location of these targets in proximity
to the Kanmantoo Operations on a
magnetic TMI image.
Stella
In 2019 the Magneto-Telluric (MT) survey
undertaken at Stella in 2018 was infilled
and a 3D inversion modelled. This model
confirms the previous 2D conductivity zone
with a coincident magnetic high and gravity
Cu-Au Open Pit
Operations
Stella Target
6116000mN
6112000mN
Mine Alteration
Corridor
Old Cu-Au shafts
Structural domains
NORTH
0
2
kilometres
Figure 5 : Kanmantoo airmagnetics and structural trends.
low. Figure 6 is a cross section of the modelled conductivity zone and modelled
magnetic high.
Aberfoyle completed one diamond drill hole near Stella in 1999(3). This drill hole
is located approximately 300m north of the 2019 modelled conductivity zone. As
reported by Aberfoyle, KAN001 intersected a 60m wide zone of chlorite-pyrrhotite-
Fe-garnet altered sediments (128-188m downhole), within which:
■ 3.6m @ 0.39% Cu, 2.43 g/t Au, from 156.4m downhole, including
■ 0.9m @ 9.28 g/t Au, 0.18% Cu from 156.4m downhole; and
■ 6.56m @ 0.77% Cu, 0.84 g/t Au from 173m downhole
This drill hole is considered to indicate that the Stella area is prospective for
significant Cu-Au mineralisation.
This target is now ready for drill testing.
(3) Aberfoyle Ltd reported the results of
drill hole KAN001 in 1999 in SARIG
envelope 8183. The results herein are
reported by Peter Rolley, a Competent
Person as defined by the JORC Code
for Reporting Exploration Results, who
has inspected the drill core and the
original assay sheets.
318100mE
KTR C170
KTR C258
K A N01
Cu
OPEN
318300mE
East
Cu-ppm
< 200
200 - 500
500 - 1000
1000 - 2500
>= 2500
Au-g/t
< 0.1
0.1 - 0.3
0.3 - 0.5
>= 0.5
North West Kanmantoo
Mapping and sampling has identified a 4km long zone of
Cu-Au anomalism (see figure 7) coincident with a strong
magnetic high and broad widths of FeOx alteration and FeOx
brecciation at surface, within 4.5kms of the Kanmantoo
processing plant. Further geophysical and geochemical
surveys are in progress.
The rock chip sampling, where possible, across the North
West Kanmantoo area has identified mineralisation with a
strong magmatic association including:
Modelled
Magnetic Plate
■ Rock chip samples to 2.2 g/t Au, 0.1% Cu
■ Elevated Mo, Bi, Co, Sn, U, La, Ce
Exploration (cont.)
Near Mine and Regional Exploration (cont.)
KTR C255
KTR C256
KTR C257
317900mE
West
100mRL
0mRL
Au
-100mRL
-200mRL
Modelled
MT Conductivity
0
100
metres
-300mRL
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Figure 6 : Sectional view of Stella conductive zone and
nearest drilling.
316000mE
317000mE
Gossan Zone
Gold Zone
32 - 124 Cu ppm
15 - 31 Cu ppm
9 - 14 Cu ppm
3 - 8 Cu ppm
0.5 - 2 Cu ppm
0
500
metres
Pipeline
North West
Kanmantoo Area
Kanmantoo
Hillgrove Mine Lease
Kanmantoo Operations
Stella Area
NORTH
0
5
kilometres
6120000mN
6119000mN
6118000mN
Figure 7 : Plan view of copper soil geochemistry
at North West Kanmantoo.
The area has not previously been drilled by Hillgrove or its
predecessors. A series of three BX holes drilled in 1962
by the Department of Mines are not able to be spatially
located, although somewhere in the area. These intersected
strong copper mineralisation with attendant specular
haematite, magnetite and chalcopyrite.
Further work is in progress by Hillgrove, to define drill targets.
Regional Exploration
Kanappa Copper-Gold Exploration
Hillgrove has previously reported the results of the
diamond drilling at Kanappa that intersected copper-gold
mineralisation within a skarn mineralising system. Kanappa
is approximately 65 kms by road from the Kanmantoo
operation.
The petrology work on a suite of samples from all drill holes
by internationally respected alteration petrologist, Dr Roger
Taylor, has clearly identified the mineralisation as an
overprinting Cu rich skarn with attendant alteration stages
including:
■ Garnet-pyroxene
■ Amphibole-magnetite
■ Cu and Fe Sulphides
A review of the whole rock geochemistry of the monzonites
intersected by the drill holes shows that the magmatic
system is classified as a Volcanic Arc Granite and classified
within the Loucks (2014) porphyry fertility field.
These drill results confirm the Company’s view that the
Kanappa area is prospective for large scale magmatic
related copper-gold mineral deposits and further work is
continuing in the area.
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Exploration (cont.)
Near Mine and Regional Exploration (cont.)
Mt Rhine Copper-Gold Exploration
Project
The Company has 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 which
indicated a 1.7km long anomaly for drill
targeting.
Colebatch Prospect
A significant discovery to date has been the re-location of the Colebatch
molybdenum occurrences. Figure 8 below shows a face of one of the vein
sets “spackled” with molybdenite. The molybdenite is associated with
fluorite, chalcopyrite, and quartz veining and alteration selvedges through
a chloritized, pyritic Quartz Monzonite. Petrology of the monzonite and
attendant alteration by an international petrologist has classified it as a
“classic Porphyry Cu-Mo system”. Two Cu-Mo occurrences were located,
approximately 1.6 kms apart. There is no report of this area having been
drilled or investigated for its copper molybdenum endowment.
Field inspection of the copper-gold and
conductivity anomaly has located a series of
north-south striking carbonate Cu-Fe skarns
over a strike length of 1km. These have never
been drilled and present as a large scale Cu-
Au magmatic target similar to the Kanappa
style mineralisation.
The Mt Rhine Project is 80kms via existing
roads from the Kanmantoo processing plant
and 12kms from the Kanappa copper-gold
exploration project.
South-East Exploration Project
Hillgrove holds 5,652 sq kms of tenements in
the south-east of South Australia within part
of the Delamerian Orogen. The Delamerian
Orogen is now being investigated by the
Geological Survey of South Australia and
MINEX-CRC for its porphyry copper-gold
endowment as a consequence of the
discoveries on the Stavely Belt also on the
Delamerian Orogen in western Victoria. As a
result of the government funding the geological
investigations and ensuing drilling programs,
the whole of the Delamerian in eastern South
Australia, under cover of the Murray Basin,
has been placed under a Section 15 tenement
moratorium. The moratorium allows HGO to
continue all its exploration activities, but does
not permit any other Exploration Licences to be
granted until the GSSA complete their geologic
investigations.
Hillgrove have implemented a program of
passive-seismic data acquisition to model the
depth of the Murray Valley Sediments over the
prospective Cambrian basement to prioritise
its exploration activities. This is proving to work
very successfully and showing that large areas
of the Company’s exploration area have cover
of less than 100m.
Figure 8 : Molybdenite, chalcopyrite, quartz and flourite vein.
Alamil Prospect
The Alamil prospect was discovered by Red Metal with drill hole KMD-07-01
in 2007. This drill hole intersected chlorite/epidote/adularia/carbonate zones
with chalcopyrite and sulphides over 267m, from 86m to 353m downhole
(vertical drill hole). Figure 9 is an example of one of these zones. Petrology
has interpreted this low temperature mineral assemblage as epithermal in
character.
Figure 9 : Mineralised portion of NQ drill hole KMD-07-01 at 326.6m
downhole.
Exploration (cont.)
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Near Mine and Regional Exploration (cont.)
Sherlock Prospect
The Sherlock prospect was discovered in 1994 by the State
Government and partly drilled by Pasminco.
As reported by Pasminco in SARIG Envelope 9015, SHR08
intersected a 38m long drill intercept of chlorite-biotite-pyrrhotite
altered volcanics-sediments, carbonates and cherts, within which
Pasminco reported an intersection of:
■ SHR08 0.5m @ 11.6% Cu, 1.1% Zn from 102m in basalts
and volcaniclastics.
The Company is continuing to compile the geology and
geochemistry of this area.
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Summary
Overall, the large exploration holding is very prospective for large
scale copper gold mineralisation and Hillgrove is continuing to
prudently advance a number of exploration targets within the
tenement packages in alignment with its stated objective of
focusing on those with near term realisation.
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.
Pumped Hydro Energy Storage
In April 2019, Hillgrove announced it had entered into
binding agreements with AGL Energy Limited (AGL), to sell
the right to develop, own and operate the Pumped Hydro
Energy Storage (PHES) project at the Kanmantoo mine
site. The sale was subject to the satisfaction of a number
of conditions which needed to be satisfied within specified
timeframes. Several of those conditions remained
unsatisfied. After a period of extensive negotiations,
Hillgrove and AGL have mutually agreed to terminate
the PHES Project Agreement and associated project
documents and effect a clean break without any further
obligations on either party.
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Mineral Resource and Ore Reserve Estimates
Statement of Mineral Resource and Ore Reserve Estimates
and Exploration Targets as at 31 December 2019
The Company has taken the view that, with the closure of the open pit mining operations, it is unlikely that further open pit
mining will be able to be economically undertaken within the Kanmantoo Mining Lease area. As a result, the Companies’ Mineral
Resource Estimate (“MRE”) is limited to the underground MRE as reported in October 2019.
Table 1 summarises the Mineral Resource Estimate (“MRE”) for the Central and East Kavanagh underground areas between 900
and 750 mRL at 0.6% Cu cut-off grade.
Table 1 – Mineral Resource Estimate for Central and East Kavanagh underground area
Mine
Kavanagh UG
Total
JORC 2012
Tonnage
Classification
Indicated
Inferred
(kt)
646
310
957
Cu
(%)
1.63
1.8
1.7
Au
(g/t)
0.13
0.2
0.14
Ag
(g/t)
3.6
4.0
3.8
Cu Metal
(kt)
10.5
6.0
16.2
Note: Copper Cut Off Grade is 0.60% Cu. Due to appropriate rounding, numbers may not sum.
As a result of the cessation of open pit mining operations at Kanmantoo in May 2019 there is no longer an Ore Reserve reported
for the Kanmantoo District, other than the remaining ore stockpiles which are still being processed.
Mineral Resource and Ore Reserve Estimates (cont.)
Table 2 – Kanmantoo Stockpile Ore Reserve Estimate as at 31 December 2019
Mine
Stockpiles
JORC 2012
Tonnage
Classification
Proved
(mt)
0.8
Cu
(%)
0.3
Au
(g/t)
Ag
(g/t)
Cu Metal
(kt)
2.3
Note: 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.
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.
South Hub underground copper-gold Exploration Target
The South Hub Exploration Target in this Annual Report is based on currently available data and was reported on 19 September
2019. 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.
Hillgrove has approximated an Exploration Target at the Kanmantoo South Hub area (Table 2) of between four and nine million
tonnes with a target grade of between 1.2% and 2.2% Cu and 0.1 g/t to 0.3 g/t Au.
Table 3 – Summary of the South Hub Exploration Target by zone
Nugent
Paringa
Emily Star
Totals
Tonnage Range
(Mt)
Grade Range
(Cu%)
1.5-2.5
0.5-1.5
2.0-4.5
4.0-9.0
1.3-2.2
1.1-2.2
1.2-2.2
1.2-2.2
Grade Range
(Au g/t)
0.4-0.8
0.4-0.8
0.4-0.8
0.1-0.3
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Competent Person’s Statement
The information in this release that relates to Exploration Results, Exploration Targets, Mineral Resource Estimates and to Ore Reserve Estimates were
prepared by Competent Persons in accordance with the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources
and Ore Reserves’ (JORC Code). The information in this release that relates to the Exploration Results, the Exploration Target at the South Hub, and
the Mineral Resource Estimate at Kavanagh are based on information compiled by Mr Peter Rolley, who is a Member of The Australian Institute of
Geoscientists. Mr Rolley is a full-time employee of Hillgrove Resources Limited and has sufficient experience relevant to the style of mineralisation and
type of deposit under consideration to qualify as a Competent Person as defined in the JORC Code. Hillgrove Resources confirms that it is not aware
of any new information or data that materially affects the information included in the relevant 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 Exploration Results and the Mineral Resource Estimates and Lachlan Wallace in relation to the Ore
Reserve Estimates) have been presented, have not been materially modified from the original market announcement apart from completion of all open
pit mining and depletion of the ore stockpiles. 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.
Sustainability: Environment, Safety and Community
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. 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.
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 has been 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.
Master Plan
During the year Hillgrove was pleased to support the development and launch
of the K4C Master Plan. Over 4 years in the making, the Master Plan is a
community led process supported by Hillgrove which is designed to build
community capability in the areas of Callington and Kanmantoo for a future after
mining. By design, Hillgrove’s financial assistance is limited to helping community
groups identify and develop their own projects which meet the objectives of the
Master Plan to a point that they can successfully raise their own funds. This
building of capability ensures that the Master Plan endures well beyond the
presence of mining at Kanmantoo.
The Master Plan incorporates input gathered from the broader community at
various forums including; the Callington Show, public meetings and surveys.
Over 100 different projects have been identified and broadly distilled into four
pillars; heritage, environment; economic development and arts & culture. The
Master Plan brings these together in a cohesive narrative that represents the
broader community’s long-term regional development aspirations.
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 continued 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.
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Financial Report
for the year ended 31 December
2019
Contents
Financial Statements
Directors’ Report
Remuneration Report (audited)
Auditor’s Independence Declaration
Consolidated statement of profit or loss and
other comprehensive income
Consolidated balance sheet
13
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38
39
40
Consolidated statement of
changes in equity
Consolidated statement of cash flows
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Shareholder Information
41
42
43
66
67
74
These financial statements are the consolidated financial statements for the consolidated entity consisting of Hillgrove Resources
Limited and its subsidiaries. The financial statements are presented in the Australian currency.
Hillgrove Resources Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered office and
principal place of business is:
Hillgrove Resources Limited
Ground Floor, 5-7 King William Road,
Unley, South Australia 5061
The financial statements were authorised for issue by the Directors on 27 February 2020. The Directors have the power to
amend and reissue the financial statements.
Through the use of the internet, we have ensured that our corporate reporting is timely and complete. All press releases, financial
reports and other information are available at our Investors’ Centre on our website www.hillgroveresources.com.au
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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 2019.
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 near mine and regional exploration targets. The minesite is
located 55km from Adelaide in South Australia.
The Kanmantoo Mine in 2019 produced 13,783 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 to 31 December 2019 are:
Name/Qualifications
Experience and special responsibilities
Mr John Gooding
Independent Non-Executive Chairman / Chairman Nomination Committee
Qualifications
Experience
Mr Philip Baker
Qualifications
Experience
Assoc Dip. Mining Eng., FIE Aust., FAusIMM, 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 (2007-2016), and
was a Board member of the PNG Chamber of Mines and Petroleum from 2009. He was also the Non-
Executive Chairman of the Board for Kasbah Resources Ltd and is a Non- Executive Director of KGL
Resources Ltd.
John is a member of the Audit and Risk and Remuneration Committees.
Appointed 31 May 2007.
Independent Non-Executive Director / Chairman Remuneration, Audit and Risk and
Treasury Committees
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 Nomination Committee.
Appointed 29 October 2014.
Mr Anthony (Tony) Breuer
Independent Non-Executive Director
Qualifications
Experience
BCom/LLB
Tony had over 33 years of experience at investment bank Gresham Partners Limited and was the
Managing Director of Gresham Funds Management Group, Deputy Chairman of Gresham Partners
Capital Limited, and was 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.
Directors’ Report (cont.)
Directors and Officers (cont.)
Name/Qualifications
Experience and special responsibilities
Mr Murray Boyte
Non-Executive Director
Qualifications
Experience
B CA, CA, MAICD
Murray has over 35 years experience in merchant banking and finance, undertaking company
reconstructions, mergers and acquisitions in Australia, New Zealand, North America and Hong Kong.
Murray holds a Bachelor of Commerce and Administration from the Victoria University in Wellington and
is a member of the Australian Institute of Company Directors, the Institute of Directors of New Zealand
and Chartered Accountants Australia & New Zealand. In addition, Murray has held executive positions
and directorships in the transport, horticulture, finance service, investment, health services and property
industries. Murray is currently the Chairman of Eureka Group Holdings (ASX: EGH) and National Tyre &
Wheel Limited (ASX: NTD) and a director of Abano Healthcare Group Limited (NZX: ABA).
Murray is a member of the Remuneration, Audit and Risk and Nomination Committees.
Appointed 10 May 2019.
Mr Lachlan Wallace
Chief Executive Officer and Managing Director
Qualifications
Experience
Mr Paul Kiley
Qualifications
Experience
BEng (Mining Hons), MSc (Mineral & Energy Economics), MBA, M.Aus.IMM, MAICD
Lachlan joined Hillgrove in 2011 initially as the Mine Manager, then in 2015 the General Manager
at the Kanmantoo Copper Mine and in May 2019 he was promoted to Chief Executive Officer and
Managing Director. Previously Lachlan was responsible for Stemcor’s global mining assets, developing
their iron ore and manganese portfolio in India and nickel project in Indonesia at a time when
Stemcor’s annual turnover exceeded £6Bn. In addition, Lachlan chaired a JV between Stemcor and
an Indonesian partner to facilitate thermal coal trade ex-Indonesia. Prior to Stemcor, Lachlan held
technical, managerial and consulting roles in Africa and Australia, including Anglo Gold Ashanti’s Siguiri
gold project in Guinea, the Lumwana copper mine in Zambia, and the Savage River iron ore mine in
Tasmania.
Lachlan is a member of the Treasury Committee.
Appointed 24 May 2019.
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.
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Retired Directors and Officers
Mr Maurice Loomes
Non-Executive Director
Resigned 10 May 2019.
Mr Steven McClare
Chief Executive Officer and Managing Director
Resigned 2 May 2019.
Directors’ Report (cont.)
Directors and Officers (cont.)
Directors’ Meetings
The number of Directors’ meetings and number of meetings attended by each of the Directors of the Company during the
twelve month period are:
Meetings Held
Director
Mr J E Gooding
Mr P Baker
Mr A Breuer
Mr M Boyte
Mr L Wallace
Mr M W Loomes
Mr S P McClare
Board
Remuneration
Committee
Audit
Committee
Nomination
Committee
Treasury
Committee
A
18
18
17
9
8
9
9
B
18
18
17
9
8
9
8
A
7
7
7
4
4
3
3
B
7
7
7
4
4
3
3
A
4
4
4
3
3
1
1
B
4
4
4
3
3
1
1
A
1
1
1
-
-
1
1
B
1
1
1
-
-
1
1
A
-
1
-
-
1
-
-
B
-
1
-
-
1
-
-
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 L Wallace, Mr P Kiley and Mr J Sutanto (Group Finance & Planning
Manager).
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Directors’ Report (cont.)
Results
Revenue from ordinary activities
$113.5m
$180.1m
CY19
CY18
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
($10.0m)
$29.5m
($10.0m)
$29.5m
Overview of consolidated financial
results
For the year ended 31 December 2019, the net loss after
tax was $10.0 million compared to a net profit after tax of
$29.5 million for the year ended 31 December 2018.
The underlying operating result for 2019 was earnings before
interest, tax, depreciation and impairment (EBITDA) of
$12.1 million compared to an EBITDA of $44.3 million
in 2018.
In CY18 the Company achieved its highest annual copper
production on record of 22,584 tonnes of copper metal.
From mid-2019, open pit mining in the Giant Pit was
completed and previously mined low-grade stockpiles became
the source of ore feed for the processing plant. Revenue in
CY19 therefore decreased to $113.5 million from the peak of
$180.1 million in CY18.
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Review of operations for the
CY19 year and outlook
The Company has been generating surplus cash from
operations consistently for the past two years. From 2018 and
into the first half of 2019, the low waste to ore strip ratio from
mining the final benches in the Giant Pit meant that mining
costs per unit of copper were relatively low and the highest-
grade material could be preferentially processed through the
plant. The average milled grade for first half of 2019 was
0.60% (vs 0.74% for CY18). In the second half of 2019 the
average grade of ore recovered from stockpiles was 0.30%
but this was still cash-generative due to the absence of cash
mining costs.
For the past two years, the free cashflow from production
has been used by the Company to improve its balance sheet
through the repayment of debt and reducing trade creditors
balances. In CY19 the Company repaid the final $0.5 million
owed in debt finance, reduced creditors from $26.6 million
to $8.6 million, paid a cash dividend to shareholders of $8.8
million and ended the year with $9.3 million cash on hand.
During 2019, Hillgrove achieved production of 59,137 tonnes
of dry concentrate containing 13,783 tonnes of copper metal
which was sold at an average price of A$8,795 per tonne. At
the end of December 2019, the Company had fixed pricing
agreements in place for future sales of 1,500 tonnes of copper
at an average price of A$8,797 per tonne representing about
78% of expected production from the remaining stockpile.
In 2019 the Company also produced 3,651 ounces of gold
and 102,795 ounces of silver as by-products for additional
revenues of $6.3 million and $2.0 million respectively.
Processing of stockpiled ore is expected to be completed by
the end of March 2020. Based on the projected cashflows
plus cash on hand, the Company will have sufficient cash
to cover forecast expenditure for the next twelve months
including its ongoing rehabilitation and compliance
requirements and to meet expenditure commitments under
exploration leases. Hillgrove will continue to advance projects
in close proximity to Kanmantoo that can come into operation
relatively quickly, for a low capital investment, and maximise
the existing infrastructure, including the low cost 3.6Mtpa
processing plant and permitted tailings storage facility.
These projects include Kavanagh Underground, South Hub,
North West and Stella.
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Directors’ Report (cont.)
Review of operations for the CY19 year and outlook (cont.)
Kanmantoo Copper Mine Production Statistics
MAR-19 QTR
JUN-19 QTR
SEP-19 QTR
DEC-19 QTR
CY19
Ore to ROM from Pit
Mined Waste
Total Tonnes Mined
Closing Ore Stocks
Mining Grade to ROM
Ore Milled
Milled Grade
kt
kt
kt
kt
%
kt
%
g/t
%
%
1,059
739
1,797
3,128
0.60
828
0.65
0.06
91.6
56.3
515
116
631
-
-
-
2,846
1,673
0.61
842
0.55
0.06
90.8
53.1
-
902
0.29
0.06
86.6
51.5
-
-
-
782
-
874
0.30
0.07
88.6
49.5
- Cu
- Au
- Cu
- Au
18
Recovery
1,574
855
CY18
5,728
7,557
2,428
13,285
782
0.60
3,446
0.44
0.06
90.0
52.4
2,893
0.53
3,324
0.74
0.10
92.0
55.6
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Cu Concentrate Produced
Dry mt
20,821
17,701
10,268
10,347
59,137
94,576
Concentrate Grade
- Cu
- Au
Contained Metal in Concentrate
- Cu
- Au
- Ag
%
g/t
t
oz
oz
Total Concentrate Sold
Dry mt
23.8
1.4
23.9
1.4
22.1
2.6
22.5
3.1
23.3
1.9
23.9
2.0
4,963
961
37,034
20,189
4,223
801
30,140
18,536
2,272
858
17,828
10,565
2,324
1,032
13,783
3,651
22,584
6,003
17,793
102,795
161,592
9,882
59,172
96,102
Overview of consolidated financial results
The underlying EBITDA for the year was $12.1 million, however this was not sufficient to offset the depreciation and amortisation
charge which would have delivered an expected near-breakeven net result, given that ore stockpiles had been written down
to net realisable value at the start of the year. Depreciation and amortisation expense was relatively higher in 2019 due to
adjustments necessary to take into account copper tonnes that were unable to be mined following pit wall geotechnical issues
near the completion of the Giant Pit. The full year net EBIT was a loss of $5.6 million after depreciation and the $3.0 million
combined writedown of the PHES project and exploration licence capitalised costs.
The lower level of EBITDA profitability compared to the previous year reflected the necessary transition to processing entirely
from low grade ore stockpiles shortly after mining from the open pit ceased as planned in May 2019.
The run-down of stockpiles is reflected by the $20.9 million non-cash expense for inventory movement as opposed to the
build-up of inventory and deferral costs which occurred in 2018.
A consequence of the cessation of mining was a significant reduction in cash operating costs which meant cash generation
remained strong despite lower reported net earnings.
Cash generated from operations was $21.8 million in 2019 compared to $18.0 million in 2018 and this enabled the Company
to pay a dividend of $8.8 million to shareholders while improving the closing cash balance from $2.5 million to $9.3 million at
31 December 2019 and paying down creditors by $18.0 million.
Directors’ Report (cont.)
Review of operations for the CY19 year and outlook (cont.)
Overview of consolidated financial results (cont.)
Income Statement overview
12 months to
31 December 2019
12 months to
31 December 2018
Copper revenue
Gold revenue
Silver revenue
Less: Treatment and refining costs
NET REVENUE FROM SALE OF CONCENTRATE
Mining costs
Pre-strip and deferral
Processing costs
Transport and shipping costs
Other direct costs
Inventory movements
Royalties
Corporate costs
TOTAL COSTS
Net realised gains/(losses)
Other income
EBITDA
Depreciation and amortisation
Impairment charges
EBIT
Net interest and financing charges
Income tax benefit/(expense)
NET PROFIT AFTER TAX
$ million
116.1
6.3
2.0
(10.9)
113.5
(21.2)
(7.9)
(31.4)
(7.0)
(4.4)
(20.9)
(5.4)
(4.9)
(103.1)
-
1.7
12.1
(14.7)
(3.0)
(5.6)
(0.7)
(3.7)
(10.0)
$ million
191.3
8.2
2.9
(22.3)
180.1
(78.5)
(19.4)
(30.6)
(9.6)
(5.1)
20.6
(8.6)
(4.9)
(136.1)
0.1
0.2
44.3
(16.7)
(0.2)
27.4
(1.6)
3.7
29.5
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Change
$ million
(75.2)
(1.9)
(0.9)
11.4
(66.6)
57.3
11.5
(0.8)
2.6
0.7
(41.5)
3.2
-
33.0
(0.1)
1.5
(32.2)
2.0
(2.8)
(33.0)
0.9
(7.4)
(39.5)
Revenue
Revenue for the year to 31 December 2019 was from the sale of 59,172 dmt of copper concentrate containing 13,073 payable
copper tonnes (year to 31 December 2018: 96,102 dmt and 21,075 tonnes payable copper). Since June 2019, the plant has
been processing low-grade ore stockpiles. Gross metal revenue before treatment and refining deductions was $124.4 million
compared to $202.4 million for the same period last year.
For the year to 31 December 2019, the average realised cash price was A$8,795 per tonne or A$3.99/lb (vs A$8,833 per tonne
in the previous corresponding period). The average realised price has continued to reflect the benefit of the majority of sales
being conducted at contracted fixed prices as prevailing spot prices in 2019 were generally lower than the previous period.
Treatment and refining charges were $10.9 million for 2019 at an average cost of $185 per dmt which was less than last year’s
average of $232 per dmt due to lower global benchmark rates and the completion of the production target subject to price
participation charge under the offtake agreement.
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Directors’ Report (cont.)
Review of operations for the CY19 year and outlook (cont.)
Overview of consolidated financial results (cont.)
Net Result
Costs
In 2019 the Company generated other income of $1.7 million of which
Total costs were $103.1 million compared to
$1.0 million was the non-refundable receipt from AGL in respect of the
$136.1 million for the previous year. The decrease of
discontinued PHES project and most of the remainder was from the
$33.0 million is explained below:
utilisation of earthmoving equipment on work for third parties.
■ Mining costs of $21.2 million were incurred in
the first half of 2019 prior to the last ore being
extracted from the pit in May.
■ Pre-strip and deferral – with the completion of
the Giant Pit cutback in late 2017, the Company
switched from deferring mining costs to the
balance sheet, to taking deferred mining costs
back from the balance sheet and expensing
these to profit and loss. Operating costs in
2019 include $7.9 million of this current year
non-cash costs representing the last of these
deferred costs to be expensed.
■ With the completion of mining in 2019 and
the transition to 100% of mill feed coming
from previously stockpiled lower-grade ore, the
value of inventory on the balance sheet began
to decline with the cost of ore being expensed
to the P&L as it was processed. This explains
why there was a net $20.9 million inventory
movement cost in 2019 compared to a deferral
of net $20.6 million in 2018 when stockpiles
were increasing.
■ Processing costs in 2019 were only $0.8 million
higher than the previous year even though
throughput was higher, costs were incurred
for hauling ore from the stockpile to the ROM
and a $1.0 million redundancy provision was
recognised at year end. The level of throughput
for the twelve-month period increased by 3.6%
from 3.32 million tonnes to 3.44 million tonnes,
mainly as a result of higher run-time availability.
■ SA Government royalty costs declined by
$3.2 million in 2019 in line with the lower
volume of metal sold.
■ Shipping and transport costs were $7.0 million
and also declined in gross terms due to the lower
volume. However, on a unit basis this cost was
about 19% higher than 2018 principally due to
increased ship freight rates.
■ Corporate costs ($4.9 million) were at the level
as the previous year, while administration costs
incurred directly at mine site ($4.4 million)
were lower mainly from the benefit of a reduced
rehabilitation provision estimate.
While depreciation rates were accelerated in the first half of 2019
to reflect a reduced reserve in the pit as a result of the mine design
changes to remediate rock falls experienced during the period, overall
depreciation and amortisation expense for the full year was $2.0 million
lower than 2018 in line with the reduced metal output.
Net interest and finance charges reduced significantly in 2019 to
$0.7 million following the repayment of borrowings and the Company
was less reliant on early sales drawdowns (on which interest was
charged) from the offtake partner for cashflow management.
Tax expense of $3.7 million in 2019 reflects the derecognition of
deferred tax assets on the balance sheet, effectively reversing the benefit
recognised in 2018.
Cash flow overview
Net cash inflows from
operating activities
Net cash used in investing
activities
Net cash inflows/ (outflows) from
financing activities
Net increase/(decrease)
in cash held
Cash and cash equivalents
at the end of the year
12 months to
31 Dec 2019
$million
12 months to
31 Dec 2018
$million
Change
$ million
21.8
18.0
(5.4)
(6.9)
3.8
1.5
(9.5)
(9.1)
(0.4)
6.9
9.3
2.0
2.5
4.9
6.8
Operating activities cash flow
Cash received in the course of operations of $116.8 million primarily
relates to the sale of copper concentrate in 2019 which aligns to
reported concentrate revenue net of treatment costs plus the reduction
in receivables. This was 35% lower than the previous year due to the
depletion of high-grade ore from the open pit in May 2019.
Net cash inflows from operating activities were $3.8 million higher than
the previous corresponding period despite the reduction in revenue
mainly because a higher proportion of operating cashflow was being
used to repay and reduce trade creditors during 2018. Cash paid in
the course of operations to contractors, suppliers and employees was
$95.0 million in 2019 which was substantially less than the $161.6
million paid in the corresponding period, reflecting the cessation of
mining in May 2019. Trade creditors and other payables continued to
be paid down during 2019 and are now on normal commercial terms.
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Directors’ Report (cont.)
Review of operations for the CY19 year and outlook (cont.)
Assets
Overview of consolidated financial results (cont.)
Investing activities cash flow
Cash at 31 December 2019 was $9.3 million,
an increase of $6.8 million from the previous
Net cash outflow from investing activities was $5.4 million compared to
year end. As expected, the Kanmantoo copper
an outflow of $6.9 million in the previous corresponding period. Capital
mine generated strong positive cashflows
expenditure in 2019 includes over $1.3 million spent on advancing the PHES
during the year which enabled the further
project (2018: $1.5 million) and $2.0 million on Kavanagh Underground
paydown of creditors and payment of a 1.5
(2018: $1.5 million) currently classified as mine development. Exploration
cents per share dividend totalling $8.8 million.
and underground evaluation activity increased with cash expenditure of
approximately $0.9 million on regional exploration licences. The major
investment activity in the previous year was expenditure on geotechnical
measures to help safeguard the pit walls from rockfalls.
Financing activities cash flow
In 2019 there was a net cash outflow of $9.5 million for financing activities of
which $8.8 million was the dividend paid to shareholders in late June.
In 2018 the net cash outflow from financing activities was mainly due to the
repayment of the $4 million debt in full to Freepoint.
Balance sheet overview
Cash
Receivables
Inventories
Property, Plant & Equipment
Exploration
Project Costs
Deferred Tax Assets
Total Assets
Trade Payables
Provisions
Borrowings
Employee Benefits
Deferred Income
Total Liabilities
Net Assets / Equity
31 Dec 2019
$ million
31 Dec 2018
$ million
Change
$ million
9.3
3.1
12.1
24.2
2.6
-
-
51.3
8.6
12.3
0.3
3.3
0.5
25.0
26.3
2.5
5.4
33.6
44.0
2.0
1.5
3.7
92.7
26.6
15.7
1.0
3.8
1.4
48.5
44.2
6.8
(2.3)
(21.5)
(19.8)
0.6
(1.5)
(3.7)
(41.4)
18.0
3.4
0.7
0.5
0.9
23.5
(17.9)
Equity
Total equity has decreased by $17.9 million from 31 December 2018 due to
the dividend paid to shareholders of $8.8 million and the net loss result for
the year of $10.0 million. This was partly offset by the $0.9 million increase
in employee share options reserve to reflect the value of performance rights
granted during previous years.
Inventories includes the cost of stockpiled
ore, copper concentrate on hand, store
consumables and plant spares. Inventories
decreased by $21.5 million which mainly
reflects the consumption of the low-grade
ore stockpile throughout 2019. At its peak in
May 2019 the ore stockpile was 3.1M tonnes
and became the sole ore source for the plant
from that time. At 31 December 2019 the ore
stockpile was 0.8Mt valued at $7.3 million and
is expected to be fully depleted by the end of
March 2020.
The decrease in property, plant and equipment
(PPE) is mainly due to $14.7 million of
depreciation and the transfer of the final
$7.9 million of deferred mining costs to the
P&L. Additions to PPE during 2019 were
$2.6 million of which $2.1 million was related
to assessment of Kavanagh underground.
Exploration expenditure capitalised to the
balance sheet has increased since December
2018 due to the ongoing work to progress
surface exploration of regional exploration
licences. Project costs capitalised in respect
of the PHES project have been impaired in
full subsequent to the decision by AGL and
Hillgrove in February 2020 to terminate the
project agreement.
Deferred tax assets were $3.7 million at
31 December 2018, but this balance has
been derecognised given the net loss result
for 2019 and the uncertain timing of future
taxable income after the expected cessation
of processing in the first quarter of 2020. Tax
losses not brought to account at 31 December
2019 were approximately $152.5 million.
Also, franking credits of $17.5 million are
available to the Company.
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Directors’ Report (cont.)
Review of operations for the CY19 year and outlook (cont.)
Liabilities
Total liabilities have decreased by
$23.5 million to $25.0 million as at
31 December 2019. The decrease is
mainly due to the pay down of trade
creditors, payment of leave entitlements
to terminated employees, performance
of rehabilitation civil works and the
repayment of debt.
Outlook
Looking forward, the immediate focus is to maximise the accumulation of cash from
the treatment of the remaining low grade stockpiles with the majority of copper to
be sold at fixed pricing. Processing is expected to continue until the end of March
2020.
As processing is completed, the workforce will downsize and the Kanmantoo site will
be placed on to care and maintenance to preserve the processing assets. A small
core group will be retained to focus on growth through exploration and development.
In addition, the Board will be reduced to conserve cash and the Board will consider
the skills and experience that are appropriate to guide the Company as it transitions
to an explorer / developer.
Creditors have returned to normal
trading terms and are also lower in
value due to the cessation of mining-
related activities. Borrowings now
only comprises vehicle finance
lease obligations and no other lease
commitments require inclusion on the
balance sheet.
At the end of 2018 year there was a
small working capital deficit as the
Group’s current liabilities exceeded
current assets by $2.1 million. As at
31 December 2019 the value of current
assets exceeded current liabilities by
$5.8 million and there is sufficient
cash funds to maintain liquidity whilst
employee entitlements and trade
creditors are likely to be substantially
extinguished throughout 2020.
Rehabilitation provisions for Kanmantoo
and Comet Vale were $11.4 million
and $0.3 million respectively as at 31
December 2019. This has decreased
by $2.9 million with rehabilitation
expenditure made during the year and
some cost improvements.
Modest exploration expenditure will be deployed to advance projects in close
proximity to Kanmantoo that can come into operation relatively quickly, for a low
capital investment, and maximise the existing infrastructure, including the low cost
3.6Mtpa processing plant and permitted tailings storage facility. These projects
include Kavanagh Underground, South Hub, Northwest and Stella. Negotiations
have been advanced to arrange funding for underground mine development.
In parallel, Hillgrove is employing low cost exploration techniques not used before in
south east South Australia to establish this region as a highly prospective porphyry
/ IOCG (iron oxide copper gold) province. With a number of encouraging targets
identified, Hillgrove is considering exploration funding options which may include
the introduction of JV partners or farm-ins.
2020 Guidance
The Company provides the following guidance for 2020 for the Kanmantoo Copper
Mine Open Pit:
■ Copper produced
1,650t to 2,150t copper contained in concentrates
■ Gold produced
450oz to 700oz gold contained in concentrates
■ C1 Costs
US$2.55 to US$2.75 per lb (at a 0.68 exchange rate)
■ Exploration
$1.0 million to $1.5 million
■ Capital projects
$0.5 million to $0.8 million
C1 costs for the remaining production should remain relatively high because they
include a non cash ore inventory adjustment (consumption of stockpiles that have
been built up), which will be reallocated from the balance sheet to operating costs.
Excluding the adjustments to ore inventory, the C1 cost would be in the order of
US$1.40 to US$1.60 (at a 0.68 exchange rate), and this would be more reflective of
cash costs.
Directors’ Report (cont.)
Once the processing of stockpiles
ceases the end of March 2020,
Hillgrove will transition from a copper
producer to an explorer / developer and
as a result many of the operating risks
will fall away.
Review of operations for the CY19 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. Open pit mining ceased in May
2019 and the operations now involve
the processing of low grade stockpiles,
which are due to be depleted by the end
of March 2020. The Kanmantoo mine
is located close to regional communities
and concentrate produced from the
stockpiles 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 cashflows and
financial result could be impacted.
In addition, the rehabilitation of
the site remains 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.
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 2019, the Company
had fixed pricing for 1,500 tonnes of
copper at an average copper price of
$8,797 per tonne after margins.
Capital Raisings
There were no equity capital raisings
during the current period.
Dividends
On the 28 June 2019, the Company
paid an $8.8 million fully franked
dividend out of its 2018 profit reserve.
This represented a 5% payout of the
2018 revenue and a 30% payout of the
2018 profit after tax.
Significant Changes in the
State of Affairs
Other than those matters listed in this
report there have been no significant
changes in the affairs of the Group
during the period.
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Events Subsequent to
Reporting Date
On 21 February 2020 the Group and
AGL Energy Limited announced they
had mutually agreed to terminate the
Pumped Hydro Energy Storage project
agreement. The full financial impact
of this decision has been reflected in
these financial statements for the period
ended 31 December 2019.
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 the processing
of stockpiles at the end of March 2020,
and looking at the optimal future use
of all of the Company’s assets and
exploration potential. 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 closure management
plan was independently reviewed and
verified during 2019.
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.
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 7(e).
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 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 38.
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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■ 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.
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 2019,
which forms part of the director’s
report and has been audited in
accordance with section 308 (3C) of the
Corporations Act 2001.
During 2019 the following remuneration
initiatives took effect to reward
employees for their considerable efforts
over the difficult period dating back
to 2016:
A Short Term Incentive (STI) was
paid in July 2019; and
In July 2019 employees remaining
after the cessation of mining
received a 2.15% CPI increase,
the first increase in Total Fixed
Remuneration (TFR) since 2013.
In addition, the repayment of the 10%
salary deferral for all staff (not including
directors) was completed in January
2019 (all staff had agreed to defer
10% of salaries from May 2016 to
November 2017).
Staff numbers were reduced
considerably in 2019, principally as a
result of the cessation of mining in May
2019, but also through natural attrition
and consolidating roles, where possible.
In addition, the Board put in place a Key
Employee Plan during the year.
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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 Boyte
(Non-independent)
Mr P Baker
Mr T Breuer
Executive Directors
Mr L Wallace
KMP Executives
Mr P Kiley
Title (at year end)
Chairman
Member 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
Chairman 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
Mr G K Norris
General Manager, Kanmantoo
Change in 2019
Financial Year
Full Year
Part Year
Appointed
10 May 2019
Full Year
Full Year
Part Year
Appointed
23 May 2019
Full Year
Part Year
Appointed
23 May 2019
Key Management Departures during the 2019 Financial Year
Non-executive Directors
Title (at year end)
Mr M W Loomes
(Non-independent)
Director
Member Remuneration Committee
Member Audit and Risk Committee
Member Nomination Committee
Change in 2019
Financial Year
Part Year
Resigned 10 May 2019
Mr S P McClare
CEO and Managing Director
Member Treasury Committee
Part Year
Resigned 2 May 2019
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Directors’ Report (cont.)
Remuneration Report (audited) (cont.)
2.0 Role of the Board and
the Remuneration
Committee
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.
The Board is responsible for the
Company’s remuneration strategy
and policy. Consistent with this
responsibility, the Board has established
a Remuneration Committee which
comprises a majority of independent
non-executive directors.
The role of the Remuneration
Committee is set out in its Charter and
in summary is to:
Review and approve the Company’s
remuneration strategy and policy;
Consider and propose to the
Board the remuneration of the
CEO and consider and approve
the remuneration of all designated
senior executives;
Review and approve Hillgrove
Resources’ short term incentive
(STI) and long term incentive (LTI)
schemes, including amounts, terms
and offer processes and procedures;
Determine and approve equity
awards in accordance with policy
and shareholder approvals,
including testing of vesting and
termination provisions; and
Review and make recommendations
to the Board regarding remuneration
of non-executive directors.
Further information on the
Remuneration Committee’s role,
responsibilities and membership is
contained in the Corporate Governance
Statement which is available on the
Company’s website
www.hillgroveresources.com.au.
The Remuneration and Benefits policy aims to:
Align employee remuneration to the principles and measurement of Total
Shareholder Return (TSR);
Present progressive incentive structures to encourage outstanding performance,
and hence improved TSR; and
Mitigate the business risks associated with poor performance, market
movements and employee turnover.
The Remuneration Committee Charter and Remuneration and Benefits Policy can be
viewed in the Corporate Governance section of the Company’s website
www.hillgroveresources.com.au.
2.2 Use of remuneration consultants
During the year no remuneration consultancy contracts were entered into by
the Company and no disclosure is required under section 300A (1) (h) of the
Corporations Act 2001.
3.0 Non-executive Director Remuneration
Elements
Details
Aggregate Board and
Committee Fees
The total amount of fees paid to non-executive directors
in the year ended 31 December 2019 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.
Board/Committee fees
per annum (1)
Board Chairman Fee
$150,000
Audit Committee Chairman
$10,000
Board NED Base Fee
$75,000
Post-employment Benefits
Details
Superannuation
Superannuation contributions are made at a rate of
9.5% of base fee (but only up to the Government’s
prescribed maximum contributions limit) which satisfies
the Company’s statutory superannuation contributions.
Contributions are included in the 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 2019 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) Fees include all committee memberships with no extra payments for committee
memberships, except as noted at (1) above.
Directors’ Report (cont.)
Remuneration Report (audited) (cont.)
4.0 Executive Remuneration
4.1 Executive KMP
remuneration framework
Hillgrove Resources’ executive
remuneration strategy is designed to
attract, retain and motivate a highly
qualified and experienced group of
executives.
4.2 Total fixed remuneration
Total Fixed Remuneration (TFR)
includes all remuneration and benefits
paid to an Executive KMP calculated
on a Total Employment Cost (TEC)
basis and includes base salary and
superannuation benefits paid in line with
the prevailing statutory Superannuation
Guarantee legislation.
In July 2019 employees received a
2.15% CPI increase. Other than for
award and anomaly changes, this was
the first increase in TFR since 2013.
4.3 Remuneration composition mix and timing of receipt
The Company endeavours to provide an appropriate and competitive mix of
remuneration components balanced between fixed and ‘at risk’. The broad
remuneration composition mix of the Company’s Executive KMP can be illustrated
as follows:
Remuneration mix (actual) CY 2019
Position
CEO/MD
Senior Executives (KMP)
TFR (Cash)
STI (Cash)
LTI (Equity) (1)
100%
100%
Up to 50% of TFR
Up to 50% of TFR
Up to 50% of TFR
Up to 50% of TFR
(1) During 2019, the Board adopted an interim cash based LTI scheme
– refer section 4.4.3.2 for details.
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
2020
December
2021
YEAR 1
July
2019
TFR
January
2019
TFR
STI
LTI
Performance measured
(one year)
Performance measured
(2.5 years)
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STI
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effective
LTI
performance
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4.4 Variable ‘at risk’ remuneration
As set out in the Section 4.3, variable remuneration forms a portion of the CEO/
MD and other Executive KMP remuneration. 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.
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Directors’ Report (cont.)
Remuneration Report (audited) (cont.)
4.0 Executive Remuneration (cont.)
4.4.1 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.
The Board adopted a Balanced Scorecard approach to determine 2019 STI performance. The Balanced Scorecard
measures performance against the Company’s internal goals and published key market guidance metrics each year
and includes safety, production, cost control, financial performance and growth measures.
The Balanced Scorecard also includes an individual performance component which is a subjective assessment that
gives the ability to recognise individuals that have performed above expectations to deliver value for shareholders.
A threshold and target is set for each STI outcome. Specific targets are not provided in detail due to commercial
sensitivity.
Validation of performance against the Balanced Scorecard 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.
4.4.2 Performance based remuneration granted and forfeited during the year
As the Company was still recovering from a cash constrained period the 2019 STI (for the Company’s 2018 performance) was
capped at 25% of staff’s contracted rate and was not paid to staff until July 2019.
The following shows for each KMP how much of their STI cash bonus was awarded and how much was forfeited.
2018
Mr L A Wallace
Mr P G Kiley
Mr G K Norris
Total Opportunity ($)
Awarded (%)
Forfeited (%)
210,000
204,300
150,000
25%
25%
25%
75%
75%
75%
4.4.3 Long Term Incentives (LTI)
In 2019 the Board decided that an equity based LTI scheme may no longer be an appropriate LTI scheme, given 2020 will be a
period of change for the Company and create uncertainty for employees as the Company transitions from a copper producer to
an exploration and development company.
As an interim scheme the Board approved a LTI cash payment scheme (the 2019 Key Employee Plan) which was adopted in
2019, in principle, to replace the Option & Performance Rights Plan (OPRP) for 2019.
As LTI schemes are by their nature long term schemes this means the Company had two LTI schemes on foot at the end of
December 2019, namely:
The OPRP, and
The 2019 Key Employees Plan (KEP), which is effective from 1 July 2019.
Details of the two schemes are outlined in more detail below.
Directors’ Report (cont.)
Remuneration Report (audited) (cont.)
4.0 Executive Remuneration (cont.)
4.4.3.1 OPRP Status
No OPRP performance rights were granted in 2019.
During 2019, 66% of the OPRP performance rights granted in 2017 vested and were converted into shares.
At the end of 2019, the OPRP performance rights granted in 2018 remain on foot with a vesting date of 31 May 2020.
4.4.3.1.1 OPRP Description
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 Total
Shareholder Return (TSR) performance hurdles over the vesting period, along with other performance criteria.
Long Term Incentives (OPRP)
Purpose
Equity award
To retain key executives and align their remuneration with shareholder value.
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 over the
vesting period, which is two years (1) from the grant date.
A service and performance requirement is imposed on all equity grants.
Performance hurdles
and vesting schedule
The equity grants which were made in 2018 (at a share price of $0.093) are 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.
If the TSR performance hurdle is not met at the vesting date, performance rights lapse, subject to Board
discretion.
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 4.3.
The target LTI $ value for each executive is then converted into a number of performance rights based on a
valuation methodology determined at the grant date, as follows:
Performance right allocation = LTI $ value determined / Hillgrove Resources share price at grant date.
Exercise Price
Voting rights
LTI Allocation
(1) The vesting period for the 2018 LTI’s was reduced to two years to reflect the current approved PEPR mine life.
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Directors’ Report (cont.)
Remuneration Report (audited) (cont.)
4.0 Executive Remuneration (cont.)
4.4.3.2 KEP Description
As with the OPRP, the KEP provides an opportunity for executives and key staff to receive a long term incentive which remains
at risk and subject to clawback ( in this case lapse) until vesting. Generally KEP payments will only be made where the TSR
performance hurdle is met or exceeded over the vesting period of 2.5 years from 1 July 2019.
Unlike the OPRP scheme, the KEP is a cash payment scheme rather than an equity securities based scheme but because the
benchmark is TSR, the KEP is accounted for as a share based compensation. Key details of the KEP are summarised in the
table below.
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Purpose
KEP Allocation
To retain key executives and align their remuneration with shareholder value.
The size of individual KEP entitlements for the CEO/MD and other KMPs was determined in accordance
with the Board approved remuneration strategy mix. See Section 4.3.
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Type of entitlement
The right to earn a future KEP cash payment (KEP Payment).
TSR Target Value Hurdle
KEP Payments will be subject to the Company meeting or exceeding a TSR Target Value over the
vesting period. The TSR Target Value has been calculated as a 27% increase on the Company’s market
capitalisation at the Grant Date (1 July 2019).
If the TSR Target Value is not met at the Vesting Date, the entitlement to a KEP Payment lapses (subject
to limited exceptions).
A continuous service requirement is also imposed on all eligible KEP employees (subject to limited
exceptions in the case of good leavers).
Key dates and periods
Grant Date was 1 July 2019.
Vesting Date is 31 December 2021.
KEP Payment Amount
Payable
Vesting Period is the two and a half year period between 1 July 2019 and 31 December 2021.
Key employees qualify for a target % of their TFR (LTI %) to be used to calculate their KEP Payment.
In the event the Company’s actual TSR performance reaches the TSR Target Value, eligible employees
will qualify for a KEP Payment. The KEP Payment will be equal to that employees LTI % multiplied by the
employees TFR, calculated for the two and a half year vesting period.
In the event of a change of control, the usual vesting arrangements may be adjusted, and a KEP
Payment (including an Uplift Entitlement if applicable) made, having regard to whether the adjusted TSR
Target Value is met.
KEP Uplift
Eligible employees will qualify for an increase in their KEP payment if the Company’s actual TSR
performance exceeds the TSR Target Value (Uplift Amount).
Good/Bad Leavers
Board Discretion
The Uplift Entitlement which may be paid under the KEP to all participants in total, will be equal to 10%
of the Uplift Amount, capped to a combined maximum for all participants of $3,300,000.
The Uplift Entitlement will be apportioned between all eligible KEP employees at the Vesting Date, on the
basis of each employees specified Uplift Entitlement % as at the Vesting Date.
A good leaver will remain an eligible employee and qualify for a pro rata share of the KEP Payment,
based on the period from Grant Date up until their cessation of employment. A bad leaver will lose any
rights to a KEP Payment.
The Board has discretion to administer the KEP and in limited cases to determine payments under the
rules (e.g. good leaver allocation, change of control, special circumstances) and to vary the KEP rules in
some circumstances.
Directors’ Report (cont.)
Remuneration Report (audited) (cont.)
4.0 Executive Remuneration (cont.)
4.4.4 Hedging and Margin Lending Prohibition
Under the Company’s Share Trading Policy and in accordance with the Corporations Act 2001, equity granted under the
Company’s equity incentive schemes must remain at risk until vested, or exercised. It is a specific condition of the policy that no
schemes are entered into, by an individual or their associates, that specifically protects the unvested value of shares, options or
performance rights allocated.
The Company, as required under the ASX Listing Rules, has a formal policy outlining how and when employees may deal in
Hillgrove Resources securities.
Hillgrove Resources Limited’s Share Trading Policy is available on the Company’s website www.hillgroveresources.com under
Investor Centre, Corporate Governance.
4.5 Relationship between Performance and Executive KMP Remuneration
4.5.1 Hillgrove Resources Financial Performance (31 January 2015 to 31 December 2019)
Sales Revenue ($M)
Underlying EBITDA ($M)
2015
139.5
16.1
2016
113.1
22.2
Reported net profit / (loss) ($M)
(130.1) (2)
(109.1) (4)
113.3 (1)
16.2
(14.1)
12 Months to 31 December
2017 (restated)
2018
180.1
44.3
29.5
2019
113.5
12.1
(10.0)
Return on equity (ROE) % (3)
(69.1%) (2)
(144.3%) (4)
(88.3%)
101.7%
(28.4%)
Basic earnings per share (EPS) (cents)
Diluted EPS (cents)
Dividends paid (cents per share)
Share price as at 31 December (cents)
(77.0) (2)
(77.0) (2)
-
16
(57.8) (4)
(57.8) (4)
-
4
(4.8)
(4.8)
-
9
5.1
4.9
-
9
(1.7)
(1.7)
1.5
6
Total shareholder return (TSR) % (Annual)
(64.4%)
(75.0%)
125.0%
0% (5)
(16.7%) (6)
(1) Restatement for changes in accounting policies.
(2)
Includes one off impairment charge of $112.9m.
(3) Based on average total equity.
(4)
(5) Share price as at 31 December was 9c in 2017 and 2018, which results in a 0% TSR.
Includes impairment charge of $68.5m.
(6) Hillgrove’s TSR performance includes the $0.015 cent dividend.
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Directors’ Report (cont.)
Remuneration Report (audited) (cont.)
4.0 Executive Remuneration (cont.)
4.6 KMP Remuneration Tables – Audited
Fixed Remuneration
Short-term
Long-term
Salary
and Fees
Non-monetary
benefits
Superannuation
Benefits
Long
Service
Leave
Non-Executive Directors
Mr J E Gooding
Mr M Boyte (2)
Mr P Baker
Mr A Breuer
Mr M W Loomes (3)
Total
Executive Directors
Mr L A Wallace
Mr S McClare
Total
Other key management personnel
Mr P G Kiley
Mr G K Norris (6)
Total
KMP Total
Year
CY19
CY18 (1)
CY19
CY18
CY19
CY18 (1)
CY19
CY18 (1)
CY19
CY18
CY19
CY18
136,986
132,420
44,169
-
77,626
75,342
68,493
66,210
24,675
66,210
351,949
340,182
CY19 (4)
CY18 (4)
368,953
348,806
CY19 (4)
662,377 (5)
CY18 (4)
539,632
CY19
CY18
1,031,330
888,438
CY19 (4)
CY18 (4)
CY19 (4)
CY18 (4)
CY19
CY18
CY19
CY18
383,681
437,988
163,547
n/a
547,228
437,988
1,930,507
1,666,608
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
13,014
12,601
4,196
-
7,374
7,158
6,507
6,290
2,344
6,290
33,435
32,339
-
-
-
-
-
-
-
-
-
-
-
-
29,484
25,662
28,975
14,869
7,500
21,693
30,301
23,157
Total
150,000
145,021
48,365
-
85,000
82,500
75,000
72,500
27,019
72,500
385,384
372,521
424,099
392,650
691,570
593,090
36,984
47,355
1,155,669
59,276
38,026
985,740
24,998
15,469
-
-
15,067
13,447
n/a
n/a
40,065
13,447
15,469
-
408,679
453,457
192,061
-
600,740
453,457
110,484
60,802
2,101,793
107,084
38,026
1,811,718
(1) The CY18 non-executive director’s fees are lower than CY19 because the 20% director voluntary fee reduction which was in place from
January to March 2018. The fee reduction was not repaid unlike the 10% staff salary deferral (see note 4).
(2) Mr M Boyte was appointed on 10 May 2019.
(3) Mr M Loomes resigned on 10 May 2019.
(4)
In 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 2019 salaries include 1 month of deferred salary repayments and the 2018 salaries include 12 months.
(5)
Includes $496,574 termination pay of which $89,381 was LSL and $76,612 was an STI for 2018 performance.
(6) The table shows Mr G Norris’s remuneration since 23 May 2019 when he was promoted to a KMP role.
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Directors’ Report (cont.)
Remuneration Report (audited) (cont.)
4.0 Executive Remuneration (cont.)
4.6 KMP Remuneration Tables – Audited (cont.)
Variable Remuneration
Total
Short-term
LTI
Compensation
Total
Proportion of
Total Remuneration
Performance
Related
Equity
Related
Year
Bonus
Value of
Performance
Rights
Value
of KEP
Entitlement
Fixed and
Variable
%
%
Non-Executive Directors
Mr J E Gooding
Mr M Boyte
Mr P Baker
Mr A Breuer
Mr M W Loomes
Total
Executive Directors
Mr L A Wallace
Mr S P McClare
CY19
CY18
CY19
CY18
CY19
CY18
CY19
CY18
CY19
CY18
CY19
CY18
CY19
CY18
CY19
CY18
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
150,000
145,021
48,365
0
85,000
82,500
75,000
72,500
27,019
72,500
385,384
372,521
52,500
114,728 (7)
3,238 (9)
170,466
594,565
81,303
130,832
89,381 101,184 (7)(8)
131,400
227,676
-
-
-
212,135
604,785
190,565
882,135
359,076
952,166
Total
CY19
141,881
215,912
3,238
361,031 1,476,700
CY18
212,703
358,508
-
571,211
1,556,951
Other key management personnel
Mr P G Kiley
Mr G K Norris
Total
Total
CY19
CY18
CY19
CY18
CY19
CY18
51,075
139,783 (7)
3,146 (9)
194,004
602,683
87,600
160,859
-
248,459
701,916
37,500
68,793 (7)
2,313 (9)
108,606
300,667
n/a
n/a
n/a
n/a
n/a
88,575
208,576
5,459
302,610
903,350
87,600
160,859
-
248,459
701,916
CY19
230,456
424,488
8,697
663,641 2,765,434
CY18
300,303
519,367
-
819,670
2,631,388
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
-
-
9%
13%
10%
14%
-
-
8%
12%
12%
n/a
-
-
-
-
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
-
-
19%
22%
11%
24%
-
-
23%
23%
23%
n/a
-
-
-
-
(7)
Includes the value of forfeited 2017 performance rights.
(8)
Includes the value of 2018 performance rights forfeited on termination. The 2018 performance rights were granted on condition that a
good leaver would remain eligible for a pro rata share of the LTI’s up to the date he/she left employment.
(9) KEP entitlement (including Uplift) valued at 31 December 2019.
Directors’ Report (cont.)
Remuneration Report (audited) (cont.)
5.0 Equity plan disclosures
5.1 Employee Share Schemes (ESS) operated by the Group
Plan Details
Type of Instruments
Details
Purpose
Employee share plan and
share issues
General Employee Share
Plan (GESP)
Hillgrove Resources Option
and Performance Rights Plan
Option and Performance
Rights Plan (OPRP)
Key Employee Plan
Cash payment linked to
TSR performance (KEP)
To incentivise and align part of employee
remuneration to shareholder value
Refer 4.4.3.1
Refer 4.4.3.2
To provide equity incentive subject to meeting
predetermined service and performance conditions.
To provide a cash incentive subject to meeting
predetermined service and performance conditions.
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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:
Grant
Date
Balance held
at 31/12/18
Granted
Number
vested
%
vested
Number
forfeited
%
lapsed
Balance held
at 31/12/19 (1)(2)
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Key Executives
Executive Directors
Mr L A Wallace
TOTAL
Jun 18
1,900,000
Jul 17
2,100,000
4,000,000
Other Key Management Personnel
Mr P Kiley
TOTAL
Mr GK Norris
TOTAL
Former Key Executives
Mr S P McClare
TOTAL
Jun 18
Jun 17
Jun 18
Jun 17
Jun 18
Jun 17
2,300,000
2,600,000
4,900,000
1,350,000
675,000
2,025,000
3,500,000
3,800,000
7,300,000
-
-
-
-
-
-
-
-
-
-
-
-
-
1,386,000
1,386,000
-
1,716,000
1,716,000
-
445,000
445,000
-
2,508,000
2,508,000
0%
66%
0%
66%
0%
66%
0%
66%
-
714,000
714,000
-
884,000
884,000
-
230,000
230,000
1,891,245(3)
1,292,000
3,183,245
1,900,000
-
1,900,000
2,300,000
-
2,300,000
1,350,000
-
1,350,000
1,608,755
-
1,608,755
(1) None of the 2018 performance rights are exercisable
(3) Mr McClare left the company on 2 May 2019. The 2018 performance
and will not vest until 31 May 2020.
(2) There were no performance rights granted in 2019.
rights were granted on condition that a good leaver would remain eligible
for a pro rata share of the LTI’s up to the date he/she left employment.
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)
Executive Directors
Mr L A Wallace
Other Key Management Personnel
Mr P Kiley
Mr G K Norris
Former Key Executives
Mr S P McClare
TOTAL
1,386,000
1,716,000
445,000
2,508,000
6,055,000
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$83,160
$102,960
$26,700
$150,480
$363,300
(1)
Intrinsic value at year end is the difference between the exercise price ($0.00) and the share price ($0.06) on 31 December 2019.
Directors’ Report (cont.)
Remuneration Report (audited) (cont.)
5.0 Equity plan disclosures (cont.)
5.4 Value of performance rights granted to Executive KMP, and on foot as at 31 December 2019
Key Executives
Grant Date
Executive Directors
Number
Granted
Vesting Date
Face Value
per right (1)
Fair
Value (2)
Intrinsic
Value (3)
Total Fair
Value
Mr L A Wallace
Jun 18
1,900,000
Jun 20
$0.06
(4) $0.0904
$114,000
$171,760
TOTAL
1,900,000
$114,000
$171,760
Other Key Management Personnel
Mr P Kiley
TOTAL
Mr G K Norris
TOTAL
Former Key Executives
Mr S McClare
TOTAL
Jun 18
2,300,000
Jun 20
$0.06
(4) $0.0904
$138,000
$207,920
2,300,000
$138,000
$207,920
Jun 18
1,350,000
Jun 20
$0.06
(4) $0.0904
$81,000
$122,040
1,350,000
$81,000
$122,040
Jun 18
(5) 1,608,755
Jun 20
$0.06
(6) $0.0865
$96,525
$139,157
1,608,755
$96,525
$139,157
(1) The Face Value ($0.06) is the closing share price on 31 December 2019.
(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 is the difference between the Face Value ($0.06) and the exercise price ($0.00).
(3)
(4) Valued at Grant Date on 1 June 2018.
(5) Original grant 3,500,000 rights less 1,891,245 rights forfeited on termination.
(6) Valued at 24 May 2018 when approved by shareholders at the AGM.
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 31/12/18
Exercise of Rights (1)
Net Other Changes
Held as at 31/12/19
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Directors
Mr J E Gooding
Mr M Boyte
Mr P Baker
Mr A Breuer
Mr L A Wallace
Other KMP
Mr P Kiley
Mr G K Norris
Shares
Shares
Shares
Shares
Shares
Shares
Shares
94,444
-
667,626
20,166,800
10,819,197
5,057,666
4,841,519
-
-
-
-
1,386,000
1,716,000
445,500
-
-
-
-
-
94,444
-
667,626
20,166,800
12,205,197
-746,000
-
6,027,666
5,287,019
(1) Rights were exercised on or before their expiry date of 31 July 2019.
(2) Mr McClare left the Company on 2 May 2019. As at 31/12/18 Mr McClare held 9,379,706 shares and during 2019 exercised 2,508,000
performance rights increasing his shareholding to 11,887,706 shares.
Directors’ Report (cont.)
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Remuneration Report (audited) (cont.)
6.0 Service Contracts and Employment Agreements
The Company does not enter into service contracts for KMP Executives. The following sets out details of the employment
contracts for Executive KMPs as at 31 December 2019.
Employee
Position
Mr L A Wallace
Mr P G Kiley
Mr G K Norris
Chief Executive Officer and
Managing Director
Chief Financial Officer and
Company Secretary
General Manager,
Kanmantoo Copper Mine
Commencement
24 May 2019
12 June 2015
24 May 2019
Fixed Remuneration (1)
36
Short-term Incentive
Long-term Incentive
Contract Length
Notice periods for
resignation or termination
Redundancy Benefit
Death or Total and
Permanent Disability Benefit
$420,000 p.a. (2)
reviewed periodically
Up to 50% of fixed
remuneration
Up to 50% of fixed
remuneration
Indefinite
6 months
$408,600 p.a. (3)
reviewed periodically
Up to 50% of fixed
remuneration
Up to 50% of fixed
remuneration
Indefinite
3 months
$300,000 p.a. (4)
reviewed periodically
Up to 50% of fixed
remuneration
Up to 50% of fixed
remuneration
Indefinite
1 month
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 recruit employees or
make adverse comments or
actions by either party
For 6 months:
Must not recruit employees or
make adverse comments or
actions by either party
For 6 months:
Must not recruit employees or
make 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 Wallace’s annual fixed remuneration excludes $3,651 which was paid in January 2019 and which was attributable to the 2016 and
2017 salary deferral amounts.
(3) Mr Kiley’s annual fixed remuneration excludes $4,381 which was paid in January 2019, and which was attributable to the 2016 and 2017
salary deferral amounts.
(4) Mr Norris’s annual fixed remuneration excludes $2,415 which was paid in January 2019, and which was attributable to the 2016 and
2017 salary deferral amounts.
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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 2019 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 38.
Signed in accordance with a resolution of the Directors:
Dated at Adelaide this 27th day of February 2020
Mr John Gooding
Chairman
Mr Lachlan Wallace
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 2019, 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
27 February 2020
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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.
Consolidated Statement of Profit or Loss
and Other Comprehensive Income
For the year ended 31 December 2019
Concentrate revenue
Other income
Expenses
Interest and finance charges
Impairment charges
Profit / (Loss) before income tax
Income tax (expense) / benefit
Profit / (Loss) for the year attributable to owners
Comprehensive income
Items that may be reclassified to profit or loss:
Total comprehensive income for the period attributable to
equity holders of Hillgrove Resources Limited
Earnings per share for profit attributable to the ordinary equity
holders of the Company:
Basic earnings per share
Diluted earnings per share
Note
5
6
7(a)
7(b)
7(c)
8
9
9
31 Dec 2019
31 Dec 2018
$’000
$’000
113,537
1,703
(117,746)
(788)
(3,048)
(6,342)
(3,685)
(10,027)
180,080
225
(152,665)
(1,646)
(214)
25,780
3,685
29,465
-
-
(10,027)
29,465
Cents
(1.7)
(1.7)
Cents
5.1
4.9
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 43 to 65.
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Consolidated Balance Sheet
As at 31 December 2019
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Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Non-current assets
Inventories
Property, plant and equipment
Exploration and evaluation expenditure
Project costs
Deferred tax asset
Total assets
Current liabilities
Trade and other payables
Provisions
Borrowings and lease liabilities
Employee benefits payable
Deferred income
Non-current liabilities
Provisions
Borrowings and lease liabilities
Employee benefits payable
Deferred income
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Accumulated losses
Total equity
31 Dec 2019
31 Dec 2018
Note
$’000
$’000
10
11
12
12
13
14
15
16
17
18
19
20
21
22
19
23
21
24
25
26
9,329
3,075
10,182
22,586
1,899
24,163
2,616
-
-
28,678
51,264
8,640
4,132
253
3,322
479
16,826
8,140
-
-
-
8,140
24,966
26,298
2,451
5,421
25,616
33,488
8,000
44,008
2,034
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
234,322
27,113
(235,137)
26,298
234,327
34,986
(225,110)
44,203
The Consolidated Statement of Financial Position is to be read in conjunction with
the notes to the financial statements set out on pages 43 to 65.
Consolidated Statement of Changes in Equity
For the year ended 31 December 2019
Contributed
equity
$’000
Reserves
$’000
Accumulated
losses
$’000
Total equity
$’000
Note
Balance 1 January 2018
234,334
3,128
(223,709)
Profit/(Loss) for the period
Other comprehensive income
Transactions with owners:
Options exercised
Share-based compensation
Balance 31 December 2018
Profit/(Loss) for the period
Other comprehensive income
Transactions with owners:
Options exercised
Dividend paid
Share-based compensation
Balance 31 December 2019
24
35
24
3
35
-
-
(7)
-
30,866
(1,401)
-
-
992
-
-
-
234,327
34,986
(225,110)
44,203
(10,027)
(10,027)
-
-
(5)
-
-
-
-
-
(8,784)
911
-
-
-
-
234,322
27,113
(235,137)
13,753
29,465
-
(7)
992
-
(5)
(8,784)
911
26,298
The Consolidated Statement of Changes in Equity is to be read in conjunction with
the notes to the financial statements set out on pages 43 to 65.
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Consolidated Statement of Cash Flows
For the year ended 31 December 2019
31 Dec 2019
31 Dec 2018
Note
$’000
$’000
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Cash flows from operating activities
Cash receipts in the course of operations (inclusive of GST)
Cash payments in the course of operations (inclusive of GST)
Net cash generated by operating activities
30
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
42
Cash flows from financing activities
Dividends paid
Proceeds from borrowings
Transaction costs of borrowings / convertible notes
Repayment of borrowings
Repayment of finance leases
Interest received
Interest paid
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
10
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116,772
(94,957)
21,815
(950)
(4,574)
96
(5,428)
(8,784)
-
-
(430)
(225)
4
(76)
(9,509)
6,878
2,451
9,329
179,601
(161,651)
17,950
(1,446)
(5,422)
9
(6,859)
-
4,000
(135)
(12,000)
(326)
-
(650)
(9,111)
1,980
471
2,451
The Consolidated Statement of Cash Flows is to be read in conjunction with
the notes to the financial statements set out on pages 43 to 65.
Notes to the Financial Statements for the year ended 31 December 2019
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. Cash generating activities from the
processing of copper ore are likely to cease in March 2020.
Based on projected cashflows, the directors consider that
cash on hand at the date of the report plus cash generated
from other activities will be sufficient for the Group to cover
forecast expenditure for the next twelve months including its
ongoing rehabilitation and compliance requirements and to
meet expenditure commitments under exploration leases.
(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.
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(iv) Critical accounting estimates
The preparation of financial statements requires the use
of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of
applying the Group’s accounting policies. The areas involving
a higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the financial
statements are disclosed in Note 2.
(b) 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.
(ii) Transactions and balances
Foreign currency transactions are translated into the
functional currency using the exchange rates prevailing at
the dates of the transactions. Foreign exchange gains and
losses resulting from the settlement of such transactions and
from the translation at year end exchange rates of monetary
assets and liabilities denominated in foreign currencies are
recognised in the profit or loss, except when deferred in equity
as qualifying cash flow hedges and qualifying net investment
hedges.
For the purpose of presenting consolidated financial
statements, the assets and liabilities of Hillgrove Resources
Limited’s foreign operations are translated into Australian
dollars using exchange rates prevailing at the end of the
reporting period. Income and expense items are translated at
the average exchange rates for the period, unless exchange
rates fluctuated significantly during that period, in which case
the exchange rates at the dates of the transactions are used.
Exchange rate differences arising, if any, are recognised in
other comprehensive income and accumulated in equity
(attributed to non-controlling interests as appropriate).
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Notes to the Financial Statements for the year ended 31 December 2019 (cont.)
1. Statement of Significant
Accounting Policies (cont.)
Impairment of assets
(c)
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.
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”.
(d) 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 balance
sheet.
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;
The discount rate most appropriate to the CGU; and
The timing and amounts to be received from the sale of
processing equipment and land following completion of
mining and processing activities.
Annual assessments of the discounted future cash flows
for the Kanmantoo CGU have resulted in no adjustments to
the carrying values. Separate to the CGU there have been
impairments of carrying values of some exploration licences
and impairment of the current and carried forward costs for
the Pumped Hydro Energy Storage (PHES) project.
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.
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.
(e) 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.
Notes to the Financial Statements for the year ended 31 December 2019 (cont.)
2. Critical Accounting Estimates
3. Dividends
31 Dec 2019
31 Dec 2018
$’000
$’000
8,784
-
17,556
21,320
Franked dividend paid for
2019: 1.5 cents per share
Amount of franking
credits available to
shareholders for
subsequent financial years
4. 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, incurring minimal care and maintenance costs
and therefore are considered to be immaterial, not requiring
separate segment disclosure.
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and Judgements (cont.)
(b) 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 18
and 22.
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.
(c) Pumped Hydro Energy Storage
(PHES) project income recognition
The Hillgrove Group sold the rights to develop, own and
operate a PHES project at its Kanmantoo mine site to
AGL Energy Limited. Consideration was payable by AGL
in instalments which were linked to the achievement of
conditions precedent forming agreed project milestones.
Completion of all project milestones was estimated to take
between 18-36 months and would result in total consideration
of $31 million. The first receipt for Hillgrove was $1 million
on signing of the project agreements in March 2019. In the
June 2019 half year accounts the $1m received by Hillgrove
was accounted for as deferred income on the balance sheet
under non-current liabilities and not recorded as revenue in
the Profit & Loss. Costs incurred which were associated with
this contract were capitalised onto the balance sheet under
“Project Costs”.
In February 2020 the timeline for satisfaction of conditions
had lapsed and both parties mutually agreed to terminate
the PHES project agreement. As a consequence the
capitalised project costs have been impaired and expensed
to the Profit & Loss. At the same time, the $1 million deferred
income receipt has been recognised as other income in the
Profit & Loss.
Notes to the Financial Statements for the year ended 31 December 2019 (cont.)
7. Expenses
Profit or loss before income tax includes the following
expenses:
(a) Expenses per profit or loss
Note
(i)
(ii)
(iii)
Costs of production
Depreciation and
amortisation
Inventory movement
Cost of goods sold
Government royalties
Corporate and other
costs
Rehabilitation
adjustment
(Gain)/Loss on sale of
fixed assets
Foreign exchange loss
/ (gain)
Total Expenses per
Profit or Loss
31 Dec 2019
31 Dec 2018
$’000
72,583
14,664
20,859
108,106
5,388
$’000
143,322
16,713
(20,661)
139,374
8,552
4,945
4,880
(702)
(47)
56
-
4
(145)
117,746
152,665
(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.
(iii) The estimated decrease in the required rehabilitation
provision was first applied to reduce the carrying
amount of the rehabilitation asset in Mine Development
to zero and the remaining amount was recorded as
other income.
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5. Concentrate Revenue
Copper in concentrate
Gold in concentrate
Silver in concentrate
Treatment and refining
deductions
Concentrate revenue
31 Dec 2019
31 Dec 2018
$’000
116,152
6,325
2,011
(10,951)
113,537
$’000
191,339
8,169
2,868
(22,296)
180,080
Revenue is measured at the fair value of the consideration
received or receivable.
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.
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.
The group has recognised the following assets and liabilities
related to contracts with customers;
Deferred income
(contract liability)
Trade and other
receivables (contract asset)
6. Other Income
Interest
Grant income
PHES project initial receipt
Other – services provided
to third parties
Total other income
31 Dec 2019
31 Dec 2018
$’000
$’000
(479)
(1,166)
479
1,166
31 Dec 2019
31 Dec 2018
$’000
12
275
1,000
416
1,703
$’000
4
221
-
-
225
Notes to the Financial Statements for the year ended 31 December 2019 (cont.)
7. Expenses (cont.)
(b)
Interest and finance charges
31 Dec 2019
31 Dec 2018
Note
$’000
$’000
Discount on unwind of
rehabilitation provision
Borrowing costs, bank
fees and charges
Interest on borrowings
Other interest payable
(i)
Convertible Note
interest
Total Interest and
finance charges
257
6
3
522
-
350
200
286
809
1
788
1,646
(i)
Includes interest charged on sales proceeds received in
advance of ship loading. The cost is netted-off against
revenue as it is received and therefore is not dislcosed
as a financing activity cashflow in the Statement of
Cashflows.
(c)
Impairment charges
Exploration assets
PHES project costs
Note
(i)
(ii)
31 Dec 2019
31 Dec 2018
$’000
232
2,816
3,048
$’000
214
-
214
(i)
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.
(ii) Costs accumulated in connection with the PHES project
development by AGL were impaired at 31 December
due to mutual agreement to terminate the contract by
both parties in February 2020.
(d) Other required disclosures
Employee benefits
(excluding share-based
payments)
Share based payments
(see note 35)
31 Dec 2019
31 Dec 2018
$’000
$’000
19,023
27,349
911
992
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(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:
47
31 Dec 2019
31 Dec 2018
$
$
(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 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)
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226,355
257,459
19,900
246,255
15,470
272,929
11,450
9,000
24,299
35,677
-
35,749
8,330
53,007
Notes to the Financial Statements for the year ended 31 December 2019 (cont.)
8.
Income Tax Expense
31 Dec 2019
31 Dec 2018
$’000
$’000
9
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(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
- Non-assessable income
- Losses from non-resident
foreign operations
- Prior year tax losses utilised
and temporary differences
- Tax temporary differences
(recognised) / not recognised
Income tax expense/(benefit)
(c) Amounts recognised
directly in equity
Deferred tax – (credited)/
debited 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 16.
9. 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
-
-
3,685
3,685
(3,685)
(3,685)
(6,342)
25,780
(1,903)
7,734
273
10
(172)
225
297
212
-
267
-
(8,510)
5,252
3,685
(3,685)
(3,685)
-
-
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.
(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.
Notes to the Financial Statements for the year ended 31 December 2019 (cont.)
9. Earnings Per Share (cont.)
10. Cash and cash equivalents
31 Dec 2019
31 Dec 2018
$’000
$’000
(10,027)
29,465
(10,027)
29,465
Number
Number
Cash at bank and on hand
Restricted cash
31 Dec 2019
31 Dec 2018
$’000
8,971
358
9,329
$’000
2,058
393
2,451
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.
11. 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
Weighted average number
of shares used as the
denominator
Number for basic earnings
per share
Ordinary shares
581,988,390
573,567,811
Number for diluted earnings
per share
Diluted ordinary shares
604,903,137
601,376,365
Cents
Cents
Trade receivables
Prepayments
Other receivables
GST receivable
31 Dec 2019
31 Dec 2018
$’000
1,135
1,230
424
286
3,075
$’000
1,890
2,267
414
850
5,421
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(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
(1.7)
5.1
(1.7)
4.9
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 5 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 5 for additional information.
Prepayments include contract assets recognised under AASB
15 of $479,000 (CY18: $1,166,000).
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 27(c).
Notes to the Financial Statements for the year ended 31 December 2019 (cont.)
12. Inventories
13. Property, Plant and Equipment
31 Dec 2019
31 Dec 2018
$’000
$’000
31 Dec 2019
31 Dec 2018
$’000
$’000
1,976
1,803
At cost
Land and buildings
9
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N
N
A
Current Assets
Concentrates
Run-of-mine (ROM)
stockpile
Stores and consumables
Total current inventory
Non-Current Assets
50
ROM stockpile
Stores inventory
Total non-current inventory
7,313
893
10,182
-
1,899
1,899
20,756
3,057
25,616
8,000
-
8,000
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Inventory is recognised at the lower of cost and net realisable
value.
The cost of inventory is determined using the allocation of
costs between production and development activities. Costs
and activities are monitored at each stage of the production
process and allocated to physical units.
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.
Due to the probability of the processing plant entering a phase
of care and maintenance, an assessment has been made of
the estimated cost or net realisable value of stores inventory
which is unlikely to be consumed in the next financial year
but still has future economic value in conjunction with the
plant itself. This has been reclassified to non-current stores
inventory on the balance sheet at 31 December 2019.
In the previous year the value for ROM stockpiles was split
between current and non-current assets based on estimated
judgement of the timing for when this material was expected
to be processed.
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
5,524
(379)
5,145
5,524
(379)
5,145
73,370
73,264
(59,621)
13,749
(58,112)
15,152
763
(640)
123
1,281
(761)
520
163,313
161,054
(158,167)
(145,768)
5,146
15,286
-
-
7,905
7,905
Total property, plant and
equipment
24,163
44,008
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. 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.
A
N
N
U
A
L
R
E
P
O
R
T
2
0
1
9
51
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I
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Notes to the Financial Statements for the year ended 31 December 2019 (cont.)
13. Property, Plant and Equipment
Reconciliations of the carrying amounts for each class of asset
are set out below:
(cont.)
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(b)) as well as costs incurred to estimate the
quantum of the Kavanagh underground resource. Deferred
mining costs on the balance sheet in 2018 represented mining
costs which were normalised for the impact of strip ratios and
copper grades over the life of specific pits. These were fully
amortised to the profit or loss during 2019.
AASB 16 “Leases” became operative from 1 January 2019.
As forecast in the 2018 financial statements, the Group has
applied the simplified transition approach and comparative
amounts have not been restated upon first adoption.
As at 31 December 2018, the Group was a lessee under
finance leases for 23 motor vehicles and a multi-stream
analyser (“MSA”) in the processing plant. Of these lease
arrangements, only 12 vehicle leases remain open at 31
December 2019 with all due to expire before July 2020 and
the MSA has been purchased. As a consequence, asset
values relating to remaining lease contracts have not been
separately disclosed as “right-to-use” assets under AASB 16
as they are short term and immaterial.
For more information on the Group’s revised lease accounting
policy and its application to current leasing arrangements, refer
to Note 19 “Lease Liabilities”.
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 beyond the Kavanagh Ore Zone. 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. Costs capitalised in
connection with the PHES project and certain exploration areas
of interest were written down as impairment charges, refer to
Note 7(c).
Land and buildings
Carrying amount at
beginning of period
Disposals
Depreciation
Carrying amount at end of
period
Plant and equipment
Carrying amount at
beginning of period
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
Mine development
Carrying amount at
beginning of period
Additions
Transfers from exploration
and evaluation expenditure
31 Dec 2019
31 Dec 2018
$’000
$’000
5,145
5,145
-
-
-
-
5,145
5,145
15,152
16,754
106
-
196
-
(1,509)
(1,798)
13,749
15,152
520
-
(39)
(358)
123
542
136
(12)
(146)
520
15,286
2,488
27,992
2,620
-
246
Depreciation
(12,399)
(14,990)
(Decrease) / Increase
provision for rehabilitation
Carrying amount at end of
period
Deferred mining Costs
Carrying amount at
beginning of period
(Reductions) / Additions
Carrying amount at end of
period
Total property, plant and
equipment
(229)
(582)
5,146
15,286
7,905
(7,905)
27,258
(19,353)
-
7,905
24,163
44,008
Notes to the Financial Statements for the year ended 31 December 2019 (cont.)
14. Exploration and Evaluation
Expenditure
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.
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.
31 Dec 2019
31 Dec 2018
$’000
$’000
2,616
2,034
2,034
814
-
(232)
889
1,605
(246)
(214)
Exploration and evaluation
expenditure
Carrying at beginning of
period
Additions
Transfers to mine
development
Impairment loss
Carrying amount at end of
period
16. 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.
31 Dec 2019
31 Dec 2018
$’000
$’000
Deferred tax asset (DTA)
DTA amounts recognised in
profit or loss
Employee benefits
9
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A
52
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I
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S
E
C
R
U
O
S
E
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O
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G
L
L
I
H
893
-
-
-
4
897
32
-
(929)
-
997
4,291
-
-
1,599
6,887
121
9
(3,332)
3,685
2,616
2,034
Rehabilitation provisions
15. Project Costs
The Group accumulated certain costs associated with meeting
its commitments towards the progress of AGL’s Pumped
Hydro Energy Storage project. These costs were to be carried
forward until the performance obligations were satisfied.
Costs accumulated in connection with the PHES project
were impaired at 31 December due to mutual agreement to
terminate the contract by both parties in February 2020.
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 2019
31 Dec 2018
Net deferred tax assets
Project costs
Carrying at beginning of
period
Additions
Amortisation
Impairment losses
Carrying amount at end of
period
$’000
-
1,515
1,301
-
(2,816)
$’000
1,515
-
1,515
-
-
-
1,515
Notes to the Financial Statements for the year ended 31 December 2019 (cont.)
16. Deferred Tax (cont.)
18. Provisions – Current
A
N
N
U
A
L
R
E
P
O
R
T
2
0
1
9
53
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I
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R
O
V
E
R
E
S
O
U
R
C
E
S
L
I
M
I
T
E
D
31 Dec 2019
31 Dec 2018
$’000
3,588
420
124
4,132
$’000
2,200
549
528
3,277
3,277
2,896
Rehabilitation provision
Make good provision
Unsettled ship provision
Movement in provisions
Carrying value at the
beginning of the period
Payments charged against
provisions:
Rehabilitation provision
(2,200)
(1,179)
Make good provision
Unsettled ship provision
Increase / (reduce) provision
recognised:
Make good provision
Unsettled ship provision
Transfer from / (to) non-
current provisions:
Rehabilitation provision
Balance at end of period
(402)
(528)
273
124
3,588
4,132
-
-
50
(68)
1,578
3,277
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, subject
to fair wear and tear.
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
half of 2020.
31 Dec 2019
31 Dec 2018
$’000
$’000
Deferred tax liability
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
-
929
929
(929)
-
Opening balance
3,685
2,372
960
3,332
(3,332)
-
-
Credited/(charged) to profit
or loss
Over/(under) provision in
prior years
Closing balance
(3,685)
3,685
-
-
-
3,685
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
$152.5 million (tax benefit at the Australian tax rate of 30%:
$45.7 million). In addition, the total value of unrecognised
temporary differences is $92.1 million (tax benefit at the
Australian tax rate of 30%: $27.6 million) of which the
unrecognised temporary difference on plant and equipment is
approximately $74.5 million (tax benefit at the Australian tax
rate of 30%: $22.3 million).
Deferred tax assets of $nil (2018: $1,562,000) and deferred
tax liabilities of $144,000 (2018: $2,715,000) are expected to
be recovered in less than 12 months of the balance sheet date.
17. Trade and Other Payables
Trade payables
Other payables and accruals
31 Dec 2019
31 Dec 2018
$’000
2,608
6,032
8,640
$’000
18,209
8,438
26,647
Information about the Group’s exposure to liquidity risk is
provided in Note 27(d).
Notes to the Financial Statements for the year ended 31 December 2019 (cont.)
9
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N
A
19. Borrowings and lease liabilities
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.
54
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.
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Lease Liabilities
As detailed in Note 13, the Group leases motor vehicles
and equipment at Kanmantoo mine site and leases office
premises in Adelaide. The Group has also hired earthmoving
equipment which is used in processing and rehabilitation
activities. Until the 2018 financial year, leases of property,
plant and equipment were classified as either finance
leases or operating leases. Rental payments made under
operating leases were charged completely to the profit or
loss. Finance leases were capitalised at inception and the
corresponding liability for rental obligations, net of finance
charges, was included in current and non-current liabilities.
Each subsequent lease payment was allocated between the
liability and finance charges which were charged to the profit
or loss over the lease period. The lease liabilities disclosed
in this Note 19 “Borrowings” reflect the obligations for
previously contracted finance leases, all of which are due to
expire before July 2020. From 1 January 2019, leases are
recognised as a right-of-use asset and a corresponding liability
at the date at which the leased asset is available for use by the
Group.
Assets and liabilities arising from a lease are initially measured
on a present value basis. Lease liabilities include the net
present value of; fixed payments (including in-substance fixed
payments), less any lease incentives receivable, variable lease
payments, amounts expected to be payable under residual
value guarantees, the exercise price of a purchase option,
and payments of penalties for terminating the lease, if the
lease term reflects the group exercising that option. Lease
payments to be made under reasonably certain extension
options are also included in the measurement of the liability.
The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be readily determined,
the Group’s incremental borrowing rate is used, being the
rate that the Group would have to pay to borrow the funds
necessary to obtain an asset of similar value to the right-of-
use asset in a similar economic environment with similar
terms, security and conditions. Lease payments are allocated
between principal and finance cost. The finance cost is
charged to 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.
Right-of-use assets are measured at cost comprising; the
amount of the initial measurement of lease liability, any
lease payments made at or before the commencement date
less any lease incentives received, any initial direct costs,
and restoration costs. Right-of-use assets are depreciated
over the shorter of the asset’s useful life and the lease term
on a straight-line basis. If the Group is reasonably certain
to exercise a purchase option, the right-of-use asset is
depreciated over the underlying asset’s useful life.
Payments associated with new short-term leases of equipment
and vehicles and all leases of low-value assets are to be
recognised on a straight-line basis as an expense in profit or
loss. As a majority of all the Group’s leases are due to expire
in mid-2020, management have treated these contracts
as exempt as they are deemed to be short term leases
under AASB 16. The Group’s lease for hire of earthmoving
equipment contains an extension option which is not expected
to be exercised. 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
material.
Current - unsecured
Lease liabilities
Promissory note (a)
Total current borrowings
Non-current - unsecured
Lease liabilities
Total non-current borrowings
31 Dec 2019
31 Dec 2018
$’000
$’000
253
-
253
-
-
333
503
836
145
145
(a) A contractor creditor of the Company agreed to convert
a portion of the amount owed for past services into an
unsecured interest-bearing liability. The liability was
fully repaid in February 2019.
Notes to the Financial Statements for the year ended 31 December 2019 (cont.)
20. Employee Benefits Payable
22. Provisions – Non-Current
A
N
N
U
A
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R
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P
O
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2
0
1
9
55
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I
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Rehabilitation provision
Movement in provisions
Carrying value at the
beginning of the period
Discount on unwind of
rehabilitation provision
Transfer (to)/from current
provisions
(Reduce)/increase provision
recognised
Balance at end of period
31 Dec 2019
31 Dec 2018
$’000
8,140
$’000
12,402
12,402
13,826
257
350
(3,588)
(1,578)
(931)
8,140
(196)
12,402
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 and shown as a financial cost.
– Current
Employee benefits payable
31 Dec 2019
31 Dec 2018
$’000
3,322
$’000
3,448
The current provision for employee benefits includes accrued
annual leave, long service leave, redundancies and other
accrued remuneration.
The entire amount of employee benefits payable of
$3.3 million (2018: $3.4 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 2019
31 Dec 2018
$’000
$’000
Leave obligations expected
to settle after 12 months
276
1,015
21. Deferred Income
Current Liabilities
Deferred pipeline grant
Deferred revenue
(contract liability)
(i)
(ii)
Non-Current Liabilities
Deferred pipeline grant
(i)
31 Dec 2019
31 Dec 2018
$’000
$’000
-
479
479
-
-
217
1,166
1,383
58
58
(i)
(ii)
Deferred pipeline grant relates to a grant received to
assist with construction of a water pipeline.
Deferred revenue 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 5 for additional
information.
9
1
0
2
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A
U
N
N
A
56
D
E
T
I
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L
L
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Notes to the Financial Statements for the year ended 31 December 2019 (cont.)
23. Employee Benefits Payable – Non current
Long service leave
24. Contributed Equity
Share capital
Issued and paid up capital for 585,588,518 fully paid shares
(31 December 2018: 577,477,118)
31 Dec 2019
31 Dec 2018
$’000
-
-
$’000
331
331
31 Dec 2019
31 Dec 2018
$’000
$’000
234,322
234,327
Ordinary Shares Issued – movements during the period
Opening balance
31 Dec 2019
31 Dec 2018
31 Dec 2019
31 Dec 2018
No. of shares
No. of shares
577,477,118
568,929,118
$’000
234,327
$’000
234,334
Employee option schemes / issues
8,111,400
8,548,000
Shares issued to creditor
Exercise of options
Conversion of notes
Less – transaction costs
Balance at end of period
-
-
-
-
-
-
-
-
585,588,518
577,477,118
-
-
-
-
-
-
-
-
(5)
234,322
(7)
234,327
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in
equity as a deduction, net of tax, from the proceeds.
Terms and conditions
Holders of ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at shareholders
meetings. In the event of winding up the Company, ordinary shareholders rank after all other shareholders and creditors and are
fully entitled to any net proceeds of liquidation.
Capital risk management
The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, so it can provide
returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of
capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders,
return capital to shareholders, issue new shares or sell assets.
A
N
N
U
A
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P
O
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2
0
1
9
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Notes to the Financial Statements for the year ended 31 December 2019 (cont.)
25. Reserves
26. Accumulated Losses
31 Dec 2019
31 Dec 2018
$’000
$’000
31 Dec 2019
31 Dec 2018
$’000
$’000
At beginning of the period
(225,110)
(223,709)
5,208
22,082
(177)
27,113
4,297
30,866
(177)
34,986
Net loss not carried forward
to profit reserve
Accumulated losses at end
of the period
(10,027)
(1,401)
(235,137)
(225,110)
Employee share options
reserve
Profit reserve
Foreign currency translation
Movements:
Employee share options
reserve
Opening balance
4,297
3,305
Share based compensation
expense
Closing balance
Profit reserve
Opening balance
Transfer of current year
profit
Dividend paid
Closing balance
911
5,208
992
4,297
30,866
-
-
30,866
(8,784)
22,082
-
30,866
Nature and purpose of reserves
(i) Employee share option reserve
The employee share option reserve is used to recognise the
fair value of share performance rights issued to employees but
not exercised.
(ii) 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(b)(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.
(iii) 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.
27. 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 2020. 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 approximately 95%
of the copper concentrate sales value and gold represents
approximately 5%.
During 2018 and 2019, 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 2019, the Group had a total of 1,500
tonnes of copper metal at agreed fixed prices ranging from
A$8,569 per tonne up to A$8,918 per tonne (average price of
A$8,797).
9
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A
58
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Notes to the Financial Statements for the year ended 31 December 2019 (cont.)
27. Financial Risk Management (cont.)
b) Foreign exchange risk
The Group sells copper concentrate and sales invoices are denominated in US$.
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 2019, the Group has US$-denominated trade receivables of US$749,281 (31 December 2018:
US$1,333,665). Offsetting this, the Group has unsettled ship provisions for final invoices which are also recorded in US$.
At 31 December 2019 the Group has US$ denominated ship provisions of US$86,650 (31 December 2018: US$372,500).
The table below details the Group’s foreign exchange sensitivity on its net USD-denominated trade receivables and final invoice
ship provisions:
Impact on profit or loss
31 December 2019
31 December 2018
Increase $‘000
Decrease $‘000
Increase $‘000
Decrease $‘000
Impact of 10% increase/decrease
in A$/US$ exchange rate on US$
denominated trade receivables
(97)
107
(124)
136
The Group and parent entity also hold bank accounts denominated in US$ and IDR (Indonesian Rupiah) which had carrying
values of $866,645 and $945 respectively at 31 December 2019 (31 December 2018: $NIL and $397 respectively). The risk is
not material.
(c) 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 $1,135,058 (31 December 2018: $1,889,580). 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.
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.
(d) 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
and to meet its payment obligations when they fall due. The Group and the parent entity had no undrawn borrowing facilities at
the reporting date.
Notes to the Financial Statements for the year ended 31 December 2019 (cont.)
27. Financial Risk Management (cont.)
(d) Liquidity risk (cont.)
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 2019 ($’000)
Trade and other payables
Borrowings
Total
31 December 2018 ($’000)
Trade and other payables
Borrowings
Total
Less than
1 year
8,640
253
8,893
26,647
836
27,483
1 to 2 year(s)
2 to 3 years
3 to 4 years
4 to 5 years
More than
5 years
-
-
-
-
145
145
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
28. Subsidiaries
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Hillgrove Resources Limited
(the “parent entity”) as at 31 December 2019 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.
The proportion of ownership interest is equal to the proportion of voting power held. The consolidated financial statements
incorporate the assets, liabilities and results of the following subsidiaries detailed on the next page.
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Notes to the Financial Statements for the year ended 31 December 2019 (cont.)
28. Subsidiaries (cont.)
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 2019 (%)
Equity holding
31 Dec 2018 (%)
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
There were no transactions with non-controlling interests during the period.
29. 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 2019
31 Dec 2018
$’000
$’000
22
-
22
34
23
57
The Group leases corporate offices under a non-cancellable
operating lease expiring August 2020. The lease has varying
CPI escalation clauses and renewal rights. The Group has not
recognised this lease as a right-of-use asset under AASB 16
Leases as it is low value. If renewed, the terms of the lease
will be renegotiated.
(b) Exploration expenditure commitments
In order to maintain current rights of tenure to exploration
tenements, the Group is required to perform exploration work
to meet the minimum expenditure requirements under the
various exploration licences which are held. These obligations
are expected to be fulfilled in the normal course of operations.
Mining interests may be relinquished or joint ventured to
reduce this amount. The 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 2019.
Within one year
One year or later and no
later than five years
31 Dec 2019
31 Dec 2018
$’000
1,365
1,965
3,330
$’000
820
520
1,340
(c) Capital commitments
At 31 December 2019 there were no contracted capital
commitments (31 December 2018: Nil).
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Notes to the Financial Statements for the year ended 31 December 2019 (cont.)
30. 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 Balance Sheet
as set out in Note 10.
(b) Reconciliation of operating profit after income tax to net cash provided by operating activities
31 Dec 2019
31 Dec 2018
Operating profit/(loss) after income tax
Add/(less) items classified as investing/financing activities
Net (gain)/loss on sale of fixed assets
Net interest expense
Finance lease payments
Add/(less) non-cash items
Depreciation and amortisation
Impairment asset write downs
Employee share options
Discount on unwind of rehabilitation provision
Deferred income amortisation
Rehabilitation adjustment
Net cash generated by operating activities before
change in assets and liabilities
Changes in operating assets and liabilities
Increase / (decrease) in deferred revenue
(Increase) / decrease in receivables, prepayments and inventories
Increase / (decrease) in trade creditors and accruals
(Increase) / decrease in net deferred tax assets
Increase / (decrease) in provisions and employee benefits
(Increase) / decrease in deferred mining costs
Net cash generated by operating activities
$’000
(10,027)
(47)
531
225
14,664
3,048
911
257
(275)
(702)
8,585
(687)
23,881
(18,140)
3,685
(3,414)
7,905
21,815
$’000
29,465
4
1,300
326
16,713
214
992
350
(221)
300
49,443
317
(21,087)
(22,827)
(3,685)
(3,564)
19,353
17,950
(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 funds / (debt)
31 Dec 2019
31 Dec 2018
$’000
9,329
(253)
-
9,076
$’000
2,451
(836)
(145)
1,470
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Notes to the Financial Statements for the year ended 31 December 2019 (cont.)
30. Notes to the Statement of Cash Flows (cont.)
(c) Net debt reconciliation (cont.)
Reconciliation of movement of liabilities to cash flows arising from financing activities
Other Assets
Liabilities from Financing activities
Cash & Bank
$’000
471
1,980
-
-
2,451
6,878
-
-
9,329
Liquid
Investments
$’000
-
-
-
-
-
-
-
-
-
Finance
leases due
within 1
year
$’000
(544)
328
(86)
(30)
Finance
leases due
after 1 year
Borrowings
due within
1 year
Borrowings
due after
1 year
$’000
$’000
$’000
(128)
(7,607)
(1,260)
-
86
(103)
8,650
(1,546)
-
(333)
(145)
(503)
225
-
(145)
(253)
-
-
145
-
506
-
(3)
-
Total
$’000
(9,068)
10,957
(286)
(133)
1,470
7,609
-
(3)
9,076
-
1,260
-
-
-
-
-
-
Net debt as at 1 January 2018
Cash flows
62
Other non cash movements
Acquisitions – finance leases
Net funds/(debt) as at
31 December 2018
Cash flows
Acquisitions – finance leases
Other non-cash movements
Net funds/(debt) as at
31 December 2019
Non-cash movements represent accrued interest, repayment timing movements between current and non-current and
revaluations.
31. Key Management Personnel
Disclosures
Key management personnel compensation
Short-term employee
benefits
Post-employment benefits
Cash bonus
Share based payments
31 Dec 2019
31 Dec 2018
$
$
1,930,507
1,666,608
171,286
230,456
433,185
145,110
300,303
519,367
2,765,434
2,631,388
Further detail regarding key management personnel
compensation can be found in the Remuneration Report.
32. 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 28.
(c) Key management personnel
Disclosures relating to key management personnel are set out
in Note 31.
(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.
Notes to the Financial Statements for the year ended 31 December 2019 (cont.)
33. Events After the Reporting Period
On 21 February 2020 the Group and AGL Energy Limited
announced they had mutually agreed to terminate the
Pumped Hydro Energy Storage project agreement. The full
financial impact of this decision has been reflected in these
financial statements for the period ended 31 December 2019.
34. Contingent Liabilities
Guarantees
31 Dec 2019
31 Dec 2018
$’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
333
16
349
620
16
636
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.
On 11 January 2020, 1,891,245 of the 2018 Performance
Rights were lapsed so that at the time of writing this report
16,983,755 rights remained on foot.
Share based compensation benefits have in prior years been
provided by the OPRP. The securities issued under this plan
are referred to as performance rights throughout the financial
statements.
The OPRP was 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 were granted rights which vest
and can be exercised two years after offer (for the most recent
offer which was in 2018), subject to the achievement of
certain pre-set performance measures and service conditions.
Participation in the plan is at the Board’s discretion and no
individual has a contractual right to participate in the plan or
to receive any guaranteed benefits.
Rights granted under the plan carry no 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.
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The consolidated entity had no other contingent liabilities at
31 December 2019.
Collectively the above conditions are referred to as the Vesting
Conditions.
35. Share-based Payments
In 2019 the Board decided that an equity based LTI scheme
may no longer be an appropriate LTI scheme, given 2020
will be a period of change for the Company and uncertainty
for employees as the Company transitioned from a copper
producer to an exploration / development company.
As an interim scheme the Board introduced a LTI cash
payment scheme (Key Employees Plan or KEP) with effect
from 1 July 2019 to replace the Options and Performance
Rights Plan (OPRP).
Options and Performance Rights Plan (OPRP)
There were no performance rights granted in 2019 (refer
Remuneration Report). As at 31 December 2019 18,875,000
of the 2018 performance rights remained on foot, with a
vesting date of 31 May 2020.
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 2019 (cont.)
35. Share-based payments (cont.)
Movements in performance rights during the year
31 December 2019
31 December 2018
Number of
performance rights
Weighted average
exercise price ($)
Number of
performance rights
Weighted average
exercise price ($)
Balance at beginning of year
31,165,000
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
-
(4,178,600)
(8,111,400)
-
18,875,000
-
-
-
-
-
-
-
-
21,188,000
19,575,000
(1,050,000)
(8,548,000)
-
31,165,000
-
-
-
-
-
-
-
-
Performance rights outstanding at the end of the year
At the end of the year there are 18,875,000 performance rights outstanding that have been offered under the OPRP. The
exercise price of these performance rights are Nil (31 December 2018: Nil), and the weighted average remaining contractual life
at the end of the period was 0.41 years (31 December 2018: 1.02 years).
On 11 January 2020, 1,891,245 of the 2018 Performance Rights were lapsed so that at the time of writing this report
16,983,755 rights remained on foot.
Expenses arising from share-based payment transactions
Total expenses arising from share-based payment transactions recognised during the period as part of employee benefit expense
were as follows:
Performance rights issued under the OPRP
31 Dec 2019
31 Dec 2018
$’000
911
$’000
992
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:
Grant date
Expiration date
Share price at grant date
Risk free rate
Expected price volatility of the company’s shares
2018 Rights
1 June 2018
31 July 2020
$0.093
1.85%
29%
2017 Rights
5 June 2017
31 July 2019
$0.071
1.89%
60%
Key Employees Plan (KEP)
The expense arising from share-based payment transactions related to KEP was not material in the current year.
The KEP is a cash payment scheme rather than an equity securities based scheme. Under the scheme key employees
are granted a right to be paid a cash payment at the end of a two and a half year measurement/vesting period ending on
31 December 2021. The payment is subject to the Company’s Total Shareholder Return (TSR) exceeding the TSR Target
hurdle over that period. The TSR Target hurdle is a 27% increase on the Company’s market capitalisation from the grant date of
1 July 2019.
Please refer section 4.4.3.2 of the Remuneration Report for more detail.
Notes to the Financial Statements for the year ended 31 December 2019 (cont.)
36. Parent Entity Information
The financial information for the parent entity, Hillgrove
Resources Limited, 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.
Set out below is the supplementary information about the
parent entity.
Parent
31 Dec 2019
31 Dec 2018
$’000
$’000
(5,671)
(5,671)
1,101
17,467
629
629
5,150
5,150
316
20,677
667
790
16,838
19,887
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
37. 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 16 Leases
AASB 16 “Leases” became operative from 1 January 2019.
As forecast in the 2018 financial statements, the Group has
applied the simplified transition approach and comparative
amounts have not been restated upon first adoption. As at 31
December 2018, the Group was a lessee under finance leases
for 23 motor vehicles and a multi-stream analyser (“MSA”) in
the processing plant. Of these lease arrangements, only 12
vehicle leases remain open at 31 December 2019 with all due
to expire before July 2020 and the MSA has been purchased.
As a consequence, asset values relating to remaining lease
contracts have not been separately disclosed as “right-to-use”
assets under AASB 16 as they are short term and immaterial.
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234,322
12,074
234,327
9,447
For more information on the Group’s revised lease accounting
policy and its application to current leasing arrangements,
refer to Note 19 “Borrowings and Lease Liabilities”.
Accumulated losses
(229,558)
(223,887)
Total equity
16,838
19,887
(b) Early adoption of standards
There were no standards adopted early.
Significant accounting policies
The accounting policies of the parent entity are consistent
with those of the consolidated entity, disclosed throughout the
report and notes. Investments in subsidiaries are accounted
for at cost, less any impairment.
Contingent liabilities
Security bond on rental
properties
31 Dec 2019
31 Dec 2018
$’000
$’000
16
16
Directors’ Declaration
In the Directors’ opinion:
(a)
the financial statements and notes set out on pages 39 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 2019 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 27th day of February 2020
Mr John Gooding
Chairman
Mr Lachlan Wallace
Managing Director
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Independent Auditor’s Report to the Members of Hillgrove Resources Limited
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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 2019 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 balance sheet as at 31 December 2019
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 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 (including Independence
Standards) (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.
Independent Auditor’s Report to the Members of Hillgrove Resources Limited (cont.)
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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 $0.8 million, which represents
approximately 0.7% of the Group’s total
concentrate revenue.
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 total concentrate revenue given it
is the benchmark against which the performance of
the Group is commonly measured.
We utilised a 0.7% 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.
Independent Auditor’s Report to the Members of Hillgrove Resources Limited (cont.)
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Key audit matter
How our audit addressed the key audit matter
Basis of preparation of the financial
report
(Refer to note 1(a))
In assessing the appropriateness of the Group’s going concern
basis of preparation for the financial report, we performed the
following procedures amongst others:
As described in Note 1 (a) 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.
• 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.
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), particularly
given the processing of copper ore from the
open pit is expected to cease in March
2020.
• 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
these 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 Assessed the reasonableness of the forecast ore
processing volumes by comparing these volumes to
stockpiles at balance date;
o Assessed the reasonableness of the forecast ore
production by comparing this to historical recovery
levels;
o Compared copper pricing data used to independent
industry forecasts;
o Compared foreign exchange rates 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 balance sheet as at 31 December 2019.
• Requested written representations from management and
the board of directors regarding their plans for future
action and the feasibility of these plans.
Independent Auditor’s Report to the Members of Hillgrove Resources Limited (cont.)
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Key audit matter
How our audit addressed the key audit matter
Carrying value of assets of
Kanmantoo cash generating unit
(Refer to note 13)
The assessment of the carrying value of the
Kanmantoo cash generating unit (‘CGU’)
was considered a key audit matter due to
the financial significance of property, plant
and equipment ($24.2 million) and the
judgemental assumptions included in the
Group’s discounted cash flow models for
the Kanmantoo mine, particularly:
•
•
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long term copper prices;
resource and reserve estimates;
processing volumes;
ore production;
operating costs;
expected proceeds from sale of
property, plant & equipment and land;
foreign exchange rates; and
discount rate.
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.
• 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.
• Compared foreign exchange rates to current market
information.
• Assessed the reasonableness of the forecast ore processing
volumes by comparing these volumes to stockpiles at
balance date.
• Assessed the reasonableness of the forecast ore production
by comparing this to historical recovery levels
• Assessed the reasonableness of forecast costs by comparing
forecast operating costs to actual costs incurred.
• Evaluated the Group’s plans for the Kanmantoo mine and
considered whether these are feasible. This included an
assessment of resource and reserve estimates and of the
competence of the Group’s expert;
Independent Auditor’s Report to the Members of Hillgrove Resources Limited (cont.)
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Key audit matter
How our audit addressed the key audit matter
• Assessed the timing and amounts to be received from the
sale of property, plant & equipment and land following
completion of mining and processing activities by
comparing these amounts to external valuation reports.
This included an assessment of the competence of the
external firms who prepared the valuations;
• Evaluated the sensitivity of the CGU value to changes in
the discount rate by varying the discount rate used in the
discounted cash flow model.
• Requested written representations from management and
the board of directors regarding their plans for the
Kanmantoo mine.
• Evaluated the adequacy of disclosures made in the
financial report, including those regarding key
assumptions, in light of the requirements of Australian
Accounting Standards.
We performed the following procedures, amongst others:
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.
Assessed the completeness of cash flows based on our
understanding of rehabilitation obligations.
Evaluated the appropriateness of the discount rates and
inflation rates utilised in calculating the closing provision
by comparing them to current market information.
Evaluated the adequacy of disclosures made in the
financial statements, in light of the requirements of
Australian Accounting Standards.
Rehabilitation provision
(Refer to notes 18 and 22)
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 2019
the consolidated balance sheet included
provisions for such obligations of $11.7m.
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 to future cash outflows associated
with rehabilitation activities.
Independent Auditor’s Report to the Members of Hillgrove Resources Limited (cont.)
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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 2019, 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.
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 25 to 36 of the directors’ report for the
year ended 31 December 2019.
In our opinion, the remuneration report of Hillgrove Resources Limited for the year ended 31
December 2019 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
27 February 2020
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Shareholder Information
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Shareholder Information for Listed Public Companies
The following additional information is required by the Australia Securities
Exchange Limited in respect of listed public companies only.
As at the reporting date the most recent Shareholder information available for
disclosure is as follows:
(a) Voting rights and classes of equity securities
As at 31 January 2020, the Company has 585,588,518 listed fully paid ordinary
shares. Each fully paid share carries on a poll one vote.
The company also has 16,983,755 unquoted performance rights on issue which are
held by 13 holders which do not carry voting rights.
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(b) Unmarketable parcels
The number of shareholdings holding less than a marketable parcel of ordinary
shares was 2,070 as at 31 January 2020.
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(c) Distribution schedule of Fully Paid Ordinary Shares
as at 31 January 2020
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
467
1,294
390
804
245
3,200
(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 31 January 2020
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
25.3%
9.5%
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Shareholder Information (cont.)
Twenty largest listed shareholders
The twenty largest shareholders hold 67.6% of the total ordinary shares issued.
The 20 largest shareholdings as at 31 January 2020 are listed below:
Shareholder
1
Portfolio Services Pty Ltd
2 Mr Raymond Edward Munro
3
4
5
6
7
8
9
J P Morgan Nominees Australia
Portfolio Services Pty Ltd
Portfolio Services Pty Ltd
BNP Paribas Nominees Pty Ltd
Bell Potter Nominees Pty Ltd
Portfolio Services Pty Ltd
Cosell Pty Ltd
10 Mr Malcolm Neil Nichols
11 WeyitinTrading Pty Ltd
12 Mr Antony Gordon Breuer
13 Emeco Pty Ltd
14 Mr Simon Robert Evans
15 Mr Lachlan Wallace
16 W Donnelly Services Pty Ltd
17 Sighet Pty Ltd
18 Rossdale Superannuation Pty Ltd
19 Proco Pty Ltd
20 McClare Pty Ltd
(h)
Interests in mining tenements
No. of ordinary
shares held
% of issued
shares
64,837,374
52,505,162
44,650,596
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
7,200,000
7,119,197
7,006,667
6,975,241
6,470,069
6,010,000
5,235,000
11.1%
9.0%
7.6%
6.3%
4.7%
4.4%
3.9%
3.0%
2.6%
2.2%
1.7%
1.7%
1.6%
1.2%
1.2%
1.2%
1.2%
1.1%
1.0%
0.9%
396,129,727
67.6%
Location
Percentage
Tenement
ML 6345
ML 6436
EML 6340
EL 5628
EL 6174
EL 6175
EL 6176
EL 6207
EL 6208
EL 6294
EL 6397
ML 755
IUP 322/2009 (1)
IUP 40/2010 (1)
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
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
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.
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