KalNorth Gold Mines Limited
Annual Report 2015

Plain-text annual report

KalNorth Gold Mines Limited and Controlled Entities ACN 100 405 954 Annual Report For the year ended 30 June 2015 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 CONTENTS Corporate Particulars Chairman Statement Directors’ Report Financial Report Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Auditors’ Independence Declaration Independent Auditors’ Report Corporate Governance Statements Mineral Resources and Ore Reserves Statement Mining Tenement Statements Shareholders Information 1 2 3 16 17 18 19 20 43 44 45 47 54 58 61 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Chairman Executive Director Non-Executive Director CORPORATE PARTICULARS Directors Mr Jiajun Hu Mr Lijun Yang Mr Yuanguang Yang Company Secretary Mr Lijun Yang Registered Office and Principal Place of Business Share Registry 224 Dugan Street Kalgoorlie, Western Australia 6430 Advanced Share Registry Limited 110 Stirling Highway Perth WA 6009 Auditor Solicitor RSM Bird Cameron Partners 8 St Georges Terrace Perth WA 6000 Steinepreis Paganin 16 Milligan St Perth WA 6000 Stock Exchange Listing Australian Securities Exchange (ASX: KGM) Company Website www.kalnorthgoldmines.com 1 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Dear Shareholders, As Chairman of KalNorth Gold Mines Limited, it is my pleasure to present to you the 2015 Annual Report. The Company’s financial position remained under challenge all through the year and indeed threatened the Company’s survival. In the very tough capital markets environment that persisted all through the year, the Board was keen to avoid having to raise equity capital and dilute existing shareholders’ interest. Consequently, the Board and management worked extremely hard to improve the Company’s working capital position through the strategy of reducing administration and corporate overheads and realising value from existing resource assets. The Mt Jewell assets were disposed during the year, enabling settlement of the remaining purchase price from the original acquisition and leaving a surplus of $0.75 million to add to working capital. KalNorth also successfully lodged a research and development tax offset claim during the year and received a cash refund of over $0.5 million. As an interim measure however and in order to address a short term gap, the Company raised $0.35 million by issue of convertible notes to Gold Fresh Limited. More pressing was the need to deal with secured and unsecured loans over $4.2 million which matured at the end of November 2014. After prolonged negotiations, agreement was reached in March 2015 to extend the maturity date of all the loans to 30 April 2016, settle all accrued interest up to 31 December 2014 by issue of shares and reduce the interest rate on all loans to 10% per annum (down from 15% and 18%) with effect from 1 January 2015. Despite these financial constraints, the Company managed to recommence and complete field exploration works including diamond drilling, ground based gravity surveys and prospecting as well as in house resource estimation, geophysical data compilation and geophysical interpretation. These programmes resulted in the announcement of a new gold resource at Parrot Feather lode and highlighted the deep resources potential under the Parrot Feather pit at the Lindsay’s Project. Several high quality gold targets were generated which provide a foundation for ongoing exploration to extend current trends and identify the new gold mineralization system at Kurnalpi. The Company will focus on the new gold mineralisation discovery and assess any development options in this new financial year. The extension of the maturity date of the loans to 30 April 2016 was only an interim solution. With legacy debts of that magnitude on the Balance Sheet it is very hard to raise new equity capital and carry out value- adding exploration work. At the time of writing this, agreements have been negotiated with the major secured and unsecured lenders as well as our major shareholder, Cross-Strait Common Development Fund Co., Limited. The secured lenders and the two largest unsecured lenders have agreed to the settlement of their loans and interest by issue of shares and Cross-Strait has agreed to provide a $2 million convertible note facility. These transactions are subject to shareholder approval, which will be sought at the forthcoming AGM. Whilst these transactions will result in significant dilution of existing shareholders’ interest, the Directors believe that the agreement by these lenders to accept shares in settlement of their loans and the concurrent approval of the Cross-Strait convertible note facility gives the Company the best possible opportunity to remain a going concern in current market circumstances and remain viable for any improvement in the mineral exploration sector (including any exploration success from the use of funds under the convertible note facility) which may ultimately see some restoration in shareholder value. On behalf of the Board, I thank you, our shareholders, for your continuing support and I also acknowledge the efforts by executive director, Lijun Yang and his team in difficult conditions. Jiajun Hu Chairman 12 October 2015 2 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 The Directors of KalNorth Gold Mines Limited (“the Company”) present their financial report on the consolidated entity, being the company and its controlled entities, for the financial year ended 30 June 2015. Directors The names of directors in office at any time during or since the end of the financial year are listed hereunder. Directors have been in office since the start of the financial year to the date of this report unless otherwise stated. • • • • Jiajun Hu Lijun Yang Yuanguang Yang Brendan Peter Connell Non-executive Chairman Executive Director Non-executive Director (appointed 28 August 2014) Former non-executive Chairman (resigned 28 August 2014) Information on Directors JIAJUN HU Non-Executive Chairman (appointed Chairman 14 April 2015) Mr. Jiajun Hu acts as Regional Business Executive of Cross-Strait Common Development Fund Co., Ltd (hereinafter referred to as “Cross-Strait”). Currently, Cross-Strait, with its global headquarters in Hong Kong, is the largest shareholder in the Company. He is responsible for supervising and administrating the investment projects of Cross-Strait in Oceania and he directly reports to the managing director of Cross-Strait and has gained significant experience in international investment, financial accounting, commercial contract negotiation and contract dispute negotiation through corporate transactions in North America, Africa, Asia and Oceania. He has a Bachelor’s Degree in Business Studies in 2008 from the Australian National University majoring in finance and accounting. Mr. Hu has specialized knowledge of financial transaction market and investment capital market, and is familiar with Chinese business and capital market operation. Mr. Hu is fluent in both English and Chinese Mr Hu has held no other directorships of other public companies within the last three years. Interest in shares and options: nil LIJUN YANG Executive Director Mr Yang is a geologist with more than 10 years working experience at various Chinese and Australian gold operations. He received his Master’s Degree in Exploration Mineralogy from the China University of Geosciences in 2012 and developed new methodologies to explore for gold mineralisation using the typomorphic properties of minerals. He commenced working for KalNorth as a Project Evaluation Geologist in August 2013 and was appointed to the Board in November 2013 as an Executive Director. Mr Yang is multi-lingual (Chinese & English). He is a member of the Australian Institute of Geoscientists (“AIG”) and the Society of Economic Geologists (“SEG”). Mr Yang has held no other directorships of other public companies within the last three years. Interest in shares and options: 31,400 ordinary fully paid shares 3 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Information on Directors (Cont’d) YUANGUANG YANG Non-Executive Director (Appointed 28 August 2014) Mr. Yang is a Hong Kong CPA (practising) and currently operates a CPA firm in Hong Kong with business focus in markets of Hong Kong, Mainland China, Australia and New Zealand. Mr. Yang is also a Chartered Accountant in Australia and New Zealand. He has over 15 years’ experience in audit and assurance, global tax planning, corporate advisory, family business and M & A business and also worked with the Industrial and Commercial Bank of China for several years before running his CPA business. Mr Yang resides in Hong Kong and is an authorised officer of South Victory Global Limited, a major lender to and shareholder in the Company. Mr. Yang has held no other directorships of other public companies within the last three years. Interest in shares and options: nil BRENDAN PETER CONNELL Resigned 28 August 2014 Company Secretary Mr Lijun Yang Appointed 29 August 2014 Mr James Church Resigned 29 August 2014 Principal Activities The consolidated entity’s principal activity during the year was gold exploration on the Lindsays, Kalpini and Kurnalpi projects near Kalgoorlie, Western Australia. Operating Results and Financial Performance The operating loss after income tax of the consolidated entity for the year ended 30 June 2015 was $774,451 (2014: loss $10,763,483). The operating loss for the year was impacted by the following key items: (i) Exploration expenditure of $0.79 million (2014: $0.80 million) across all project areas and immediately written-off to the profit and loss. (ii) No impairment charge for the further write-down of past exploration expenditures in the current year (2014: $10.1 million). (iii) Interest expense of $0.56 million (2014: $0.73 million) on the secured and unsecured loans. (iv) Profit on the sale of the Mt. Jewell project of $0.9 million (2014: nil). (v) A tax refund of $0.53 million with respect to the 2014 financial year and supported by a tax incentive submission based upon the R&D activities and development of new mining knowledge relating to mine design and mining methodologies at the Lindsays mine (2014: $2.40 million). In addition to the sources of funding referred to above, the company also raised $350,000 via the completion of a convertible note issue. 4 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Operating Results and Financial Performance (Cont’d) As at 30 June 2015 the company had $238,640 (2014: $128,867) in cash reserves and an aggregate of $4,764,557 (2014: $4,891,788) in secured/unsecured loans and convertible notes (and accrued interest payable). At 30 June 2015, the consolidated entity had net assets of $1,764,199 (2014: $1,513,157). Review of Operations The company has four core gold exploration projects each located within 90 kilometres of Kalgoorlie in the Eastern Goldfields of Western Australia. Each project hosts a gold resource within a package of semi contiguous tenements that are located close to existing infrastructure and operating gold plants that could provide options for milling with any future development proposal. The past year, with improvement in the financial capacity of the company resulted in the first exploration programs being initiated and completed in over two years on three of the four project areas. The company’s strategy has and continues to focus on seeking to realise value from existing resource assets by improving the value whilst at the same time rationalising the large tenement portfolio to reduce the commitment costs to keep tenure in good standing. During the year field based work programs included diamond drilling, ground based gravity surveys and prospecting. Desktop work comprising resource estimation, geophysical data compilation and geophysical interpretation resulted in the announcement of a new gold resource at Lindsays and the definition of several high quality gold targets at Kurnalpi that require further evaluation. In particular the geological interpretation and targeting exercise at Kurnalpi has supported the company’s view of the project being a favourable area for significant gold mineralisation and provided a foundation for ongoing exploration. Lindsays Project (100% KGM) The Lindsays Project is located approximately 65km to the north east of Kalgoorlie and contains the Lindsays mine site which continues to remain under suspension since August 2013. During the past year three RC precollared diamond drill holes were completed at Lindsays successfully targeting the narrow flat dipping Parrot Feathers lode below the Stage 2 pit which hosts the Parrot Feathers lode to improve understanding of the lode geometry and grade in an area previously evaluated with reverse circulation drilling. The Parrot Feathers lode is exposed along the entire length of the Stage 2 open pit and the recent and historical drilling has shown the lode to have good continuity both along strike and down dip. All three holes intersected the mineralised quartz vein in the expected position The results of these drill holes were combined with the relogging and reinterpretation of existing drilling to refine the geological model and support a resource estimate of the Parrot Feathers lode. The company elected to focus on re-modelling and estimating the Parrot Feathers lode as it was exposed at the base of the suspended stage 2 pit, contained higher grade intercepts from previous drilling than other zones at Lindsays and had exhibited down dip continuity to some 250m from surface. Furthermore the Stage 2 open pit provided a sound option from which to develop an underground mining operation. The company engaged Ravensgate Mining Industry Consultants (“Ravensgate) to complete the mineral resource estimate to JORC 2012 standard. The more robust geological model and improved grade distribution within the Parrot Feathers lode gives further confidence to consider underground development from the base of the stage 2 open pit. The company has commenced and is well advanced with an initial scoping study and preliminary economic evaluation to develop the Parrot Feathers lode via underground mining. The company continues to progress negotiations with parties interested in a tribute type of underground mining development of the Parrot Feathers lode. 5 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Review of Operations (Cont’d) Kurnalpi Project (100% KGM) The company’s wholly owned Kurnalpi project is located some 90km to the east of Kalgoorlie and covers approximately 100km2 centered on the historical Kurnalpi townsite. Kurnalpi was the site of a major alluvial gold rush in the late 1890’s, was exploited in the mid 1980’s by modern alluvial mining and continues to yield gold nuggets to this day over a wide area by prospectors who work the company’s ground under agreement. Numerous small historical gold workings are located throughout the Kurnalpi area but a primary source to the extensive alluvial gold areas is yet to be located. The company considers the Kurnalpi Project to have the core geological, geophysical, geochemical and structural characteristics that are required to host major Archaean orogenic lode gold deposits, and has initiated work to progress exploration over this high priority area. In March 2015 the company engaged Core Geophysics to commence a geophysical interpretation of the Kurnalpi area using all available open file company and Government aeromagnetic data sets that were merged to create a seamless mosaic over the wider area surrounding the interpretation block. The purpose of the interpretation was to deliver both a significantly improved geological and structural framework of Kurnalpi, but also a range of ranked target areas considered prospective for gold mineralisation that would assist the prioritisation and focusing of future exploration. On 20 July 2015 the company reported the completion of the interpretation and targeting compilation with the delivery of an advanced geological and structural interpretation map of the Kurnalpi District at a 1:25000 scale. In addition a range of targets were identified from the interpretation that are considered prospective for gold mineralisation and five top tier targets were selected after field inspection. These high priority targets have been selected for follow up evaluation by drilling, mapping and geophysical surveys in 2016. Prospecting for surface gold by independent individuals under agreement with the company over most of the Kurnalpi tenements continued throughout the year. This activity whilst being at no cost to the company provides small revenue from a share of the gold nuggets won, but most importantly the expenditure for the work undertaken on each tenement by the prospectors is additional to that by the company to support the annual commitment required to maintain the tenements in good standing. The geological information obtained from the location and texture of the nuggets in the surface weathering profile also provides data that can contribute to targeting the source of this alluvial gold. The company plans to initiate detailed research into the source of the gold nuggets at Kurnalpi in 2016 with the aim of providing vectors to the primary source or sources. Kalpini Project (100%KGM) The company’s wholly owned Kalpini project is located some 60km to the north east of Kalgoorlie and 23km east of the Lindsays gold project. The project consists of three tenements one of which is a mining lease centered on the historical Atlas gold workings which were operating in the early 1900’s, but also the smaller nearby Camelia and Gambia prospects. Substantial reverse circulation (RC) and minor diamond drilling by the company at Kalpini during the period 2009-2012 supported the delineation of a mineral resource estimate (JORC 2004 Compliant) of 4.6Mt @1.7g/t Au for 255, 600oz (refer ASX announcement dated 24 October 2012). The resource is covered by a single granted Mining Lease and is linked to Saracen Mineral Holdings (ASX:SAR) Carosue Dam haul and access road 5.5km to the north by a granted miscellaneous license, which can be used as a future haul road route if required. The company resumed exploration at Kalpini in April 2015 and completed a five hole programme of infill reverse circulation (RC) precollared diamond holes along the Gambia-Camelia Trend. An aggregate 508m was drilled in five holes, four of which were new holes, the fifth being a re-entry of a hole drilled in 2012 (KPDD009-012, KPRCD371). The programme was specifically designed to provide further geological and structural controls on the flat dipping mineralisation to support future upgrading of the resource estimate to JORC 2012 compliance. Each of the holes intersected the narrow mineralised lodes, the best intercept being 1.45m from 117.55m at 15.2g/t Au in hole KPRCD371. The assay results received coupled with the structural data interpreted from the drill core confirm the flat dipping high grade nature of the lodes at Gambia and Camelia with the information providing confidence in the current geological interpretation . The April 2015 drilling campaign at Kalpini is part of the company’s strategy to realize value from its existing resource base through development. The information from the drilling will be incorporated into the Kalpini resource model to aid in refining the model and supporting reporting to JORC 2012 compliance. Resource modelling and targeting for additional styles of gold mineralisation at Kalpini will be pursued in 2016. 6 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Review of Operations (Cont’d) Spargoville Project (100% KGM) The Spargoville Project is located approximately 50km to the south west of Kalgoorlie and 30km west of Kambalda and consists of 16 semi-contiguous tenements over a 25km north and south strike. The Lady Allison gold resource, located on a Mining Lease is the core asset in the tenement portfolio with an inferred resource estimate of 2.13Mt at 1.3g/t Au. Work completed during the year consisted of rehabilitation of the drill sites for drilling completed during 2014. In December 2012 the company announced the execution of a farm-out agreement with Mithril Resources Limited (“Mithril” & ASX: MTH) for exploration over the Spargoville Project. During 2014 Mithril earned a 20% interest in the tenements after having completed the stage 1 expenditure of $0.32 million and made an election to proceed toward earning an additional 60% interest (stage 2 commitment). On 11 March 2015 Mithril notified the company of its withdrawal from the Spargoville Farm-In and Joint Venture with an effective date of 11 May 2015. Mithril also elected to return its 20% interest to KalNorth for no consideration, and from the effective date KalNorth resumed 100% ownership of the project. The Spargoville Project is not considered a priority for exploration in 2016 and the company will likely seek other interested parties for joint venture or outright sale. Significant Changes in the State of Affairs There was a reduction to the consolidated entity’s resource and reserve base after adjustments to the Lindsays resource were made in the course of compiling the Parrot Feathers lode, and the removal of the Mt. Jewell resource and reserve following the divestment of the project. No changes were made to the other resources or reserves. Except for the matters mentioned in the Review of Operations above, there have been no significant changes in the state of affairs of the consolidated entity during the current year. Dividends Paid or Recommended The Directors do not recommend the payment of a dividend and no dividends have been paid or declared since the end of the last financial year. Significant Events after the Reporting Date Since the end of the financial year and to the date of this report no matter or circumstance has arisen which has significantly affected, or may significantly affect, the operations of the consolidated entity, the results of those operations or the state of affairs of the consolidated entity in subsequent financial years other than the matters referred to below. (a) On 31 August 2015 and 11 September 2015, binding agreements were entered into with Renergy Pty Ltd, South Victory Global Limited, Smarter Group (Australia) Pty Ltd and Mr John McKinstry, as a result of which principal amounts and all outstanding interest (accruing up to the date immediately prior to the date of issue of shares by the Company) owed to these parties will be settled by issue of shares at an issue price of $0.01 each. At 30 June 2015, the principal and interest amounts due to these parties amounted to $4.35 million. (b) On 15 September 2015, a convertible note facility agreement was entered into with the Company’s largest shareholder, Cross-Strait, under the terms of which the Company will be able to draw down up to $2 million. As at the date of the financial report $0.3m was received from Cross-Strait. Cross-Strait will have the right to convert all or part of the amounts drawn down under the facility into shares in the Company at an issue price of $0.01 per share. The facility will have a maturity date of 30 April 2017. 7 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Significant Events after the Reporting Date (Cont’d) (c) On 29 July 2015, the Company issued a prospectus for a non-renounceable entitlement offer of shares at $0.01 each. The rights offer has closed, however the issue of shares has not been completed as the Company is required to give applicants an opportunity to withdraw their applications on or before 16 October 2015. On 27 August 2015, the Company announced acceptances have been received for 44,730,803 shares. Assuming no material applications for the rights offer are withdrawn, an amount of approximately $0.4 million is expected to be raised when the Company completes the rights issue on 19 October 2015. The completion of the transactions referred to in (a) and (b) above is subject to shareholder and other regulatory approvals which must be obtained by 30 November 2015 (unless the parties agree to an extension). Likely Developments and Expected Results The company intends to remain focused on adding value through ongoing exploration activities at its main projects and may seek alliance partners to fast track development of existing resource assets. Environmental Issues The consolidated entity is subject to significant environmental regulation in respect of its exploration activities. The consolidated entity aims to ensure the appropriate standard of environmental care is achieved and, in doing so, comply with all environmental legislation. The directors of the consolidated entity are not aware of any breach of environmental legislation for the year under review. Meetings of Directors During the financial year 13 meetings of Directors were held. Attendances by each Director during the year were as follows: Directors’ Meetings Number of meetings eligible to attend Number attended Lijun Yang Jiajun Hu Yuanguang Yang Brendon Connell (resigned 28/8/2014) 13 13 10 3 13 13 9 3 ¹There were no Audit or Remuneration Committee meetings held, with all matters dealt with by the Board as a whole. Options At the date of this report, there were no unissued ordinary shares of KalNorth Gold Mines Limited under option (2014: 25,000,000). During the year ended 30 June 2015 and to the date of this report, no shares were issued on the exercise of options (2014: nil). Risk Management The Board is responsible for ensuring that risks and opportunities are identified in a timely manner and that activities are aligned with the risks and opportunities identified by the Board. 8 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Risk Management (Cont’d) The consolidated entity believes that it is crucial for all Board members to be a part of this process and, as such, the Board has not established a separate risk management committee, but considers these matters at Board meetings. The Board has a number of mechanisms in place to ensure that management’s objectives and activities are aligned with the risks identified by the Board. These include Board approval of a strategic plan which encompasses strategy statements designed to meet stakeholders needs and manage business risk, and implementation of Board approved operating plans and budgets and the monitoring thereof. Remuneration Report (Audited) This report outlines the remuneration arrangements in place for Directors and executives of the consolidated entity. Remuneration Policy The remuneration policy of KalNorth Gold Mines Limited has been designed to align Director and executive objectives with shareholder and business objectives by providing a fixed remuneration component and offering specific long-term incentives based on key performance areas affecting the consolidated entity’s ability to attract and retain the best Directors and executives to run and manage the consolidated entity. The Board’s policy for determining the nature and amount of remuneration for Board members and senior executives of the consolidated entity is as follows: The remuneration policy setting out the terms and conditions for executive directors and other senior executives was developed by the Board. All executives receive a base salary (which is based on factors such as the length of service and experience) and superannuation. The Board reviews executive packages annually by reference to the consolidated entity’s performance, executive performance, and comparable information from industry sectors and other listed companies in similar industries. The Board may exercise discretion in relation to approving incentives, bonuses, and options. The policy is designed to attract the highest calibre of executives and reward them for performance that results in long- term growth in shareholder wealth. All remuneration paid to Directors and executives is valued at the cost to the consolidated entity and expensed. Executives are also entitled to participate in the employee share and option arrangements. Shares given to Directors and executives are valued as the difference between the market price of those shares and the amount paid by the Director or executive. Options are valued using the Black-Scholes methodology. Performance-Based Remuneration The consolidated entity currently has no compulsory performance-based remuneration component built into Director and executive remuneration packages. However, performance-based bonuses may be awarded from time to time at the discretion of the Board, and this will be dependent on individual performance linked to the consolidated entity’s strategic objectives for that period. In the current year, no bonuses were paid or declared. Non-Executive Director Remuneration The Board seeks to set aggregate remuneration at a level that provides the Company with the ability to attract and retain Directors of the highest calibre, whilst incurring a cost that is acceptable to shareholders. The Board considers the fees paid to non-executive Directors of comparable companies when undertaking the annual review process. Independent advice is obtained when considered necessary to confirm that remuneration is in line with market practice. Each Director may receive a fee for being a Director of the Company. 9 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Remuneration Report (Cont’d) Non-executive Directors may also receive performance rights (subject to shareholder approval) as it is considered an appropriate method of providing sufficient reward whilst maintaining cash reserves. Relationship between Remuneration Policy and Consolidated Entity Performance The remuneration policy has been tailored to increase goal congruence between shareholders and Directors and executives. From time to time, this is facilitated through the issue of options to the majority of directors and executives to encourage the alignment of personal and shareholder interests. The consolidated entity believes this policy will be effective in increasing shareholder wealth. Key management personnel service agreements Details of the key conditions of service agreements for key management personnel are as follows: Lijun Yang Wade Johnson Commencement Date 01/08/2013 24/03/2014 Notice Period Base Salary 1 month 1 month Base Salary $80,0001 $150,0001 Termination Payments Provided - - ¹Entitled to statutory superannuation contributions There are no other agreements with key management personnel. 10 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 DIRECTORS’ REPORT Remuneration Report (Cont’d) Remuneration Details for the Year Ended 30 June 2015 (a) Key management personnel compensation: 2015 Name Short-term benefits Post-employment benefits Share-based payment Salary, fees and leave $ Non- Cash bonus $ Non-monetary benefits $ Super- annuation Retirement benefits Options Others Total $ $ $ $ $ Directors Lijun Yang Jiajun Hu Yuanguang Yang1 Brendan Peter Connell 2 Other key management personnel Wade Johnson3 Total 80,000 54,166 23,753 - 183,491 341,410 - - - - - - - - - - - - 7,600 7,521 - - 19,967 35,088 - - - - - - - - - - - - - - - - 87,600 61,687 23,753 - 26,689 26,689 230,148 403,188 1 Mr. Yuanguang Yang was appointed 28 August 2014. 2 Mr. Connell resigned on 28 August 2014. 3 Mr Johnson received an additional $33,491 in salary in lieu of forgoing a portion of his accrued annual leave entitlements. 11 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 DIRECTORS’ REPORT Remuneration Report (Cont’d) 2014 Name Directors Lijun Yang1 Jiajun Hu2 Yuanguang Yang3 Brendan Peter Connell 4 Laurence Freedman5 Robert Schuitema6 Jian Yu8 John McKinstry8 Other key management personnel James Church9 Wade Johnson Total Short-term benefits Post-employment benefits Share-based payment Salary, fees and leave $ Non- Cash bonus $ Non-monetary benefits $ Super- annuation Retirement benefits Options Others Total $ $ $ $ $ 65,846 25,000 - 15,000 - 65,333 - - 15,000 292,674 478,853 - - - - - - - - - - - - - - - - - - - - - 6,091 - - - - 6,043 - - - 27,072 39,206 - - - - - - - - - - - - - - - - - - - - - - - - - 93,6007 - - - - 93,600 71,937 25,000 - 15,000 - 164,976 - - 15,000 319,746 611,659 1 Mr. Lijun Yang was appointed to the board on 8 November 2013 and as Company Secretary on 29 August 2014 (post year-end). 2 Mr. Jiahun Hu was appointed to the board on 13 December 2013 3 Mr. Yuanguang Yang was appointed to the board on 28 August 2014 4 Mr. Connell was appointed to the board on 25 February 2014 and resigned on 28 August 2014 (post year-end). 5 Mr Laurence Freedman retired from the board on 8 November 2013. 6 Mr. Schuitema resigned from the board on 25 February 2014 7 Mr. Schuitema was paid $93,600 in consulting fees during the year. 8 Mr. Jian Yu resigned from the board on 13 December 2013 8 Mr. McKinstry resigned from the board on 2 August 2013. 9 Mr. Church was appointed on 25 February 2014 and resigned on 29 August 2014 (post year-end). 12 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 DIRECTORS’ REPORT Remuneration Report (Cont’d) Share-based payment compensation To ensure that the consolidated entity has appropriate mechanisms to continue to attract and retain the services of Directors and Executives of a high calibre, the consolidated entity has a policy of issuing options that are exercisable in the future at a certain fixed price. No options were granted to Directors or key management personnel during the year ended 30 June 2015 (2014: nil). Key management personnel shareholdings The number of ordinary shares in KalNorth Gold Mines Limited held by each key management personnel of the consolidated entity during the financial year is as follows: 2015 Directors Balance 1 July 2014 Granted as Remuneration Options Exercised Net Change Other Balance 30 June 2015 Lijun Yang Jiajun Hu Yuanguang Yang Brendan Peter Connell1 31,400 - - - Other Wade Johnson Total 2,000,000 2,031,400 1 Mr. Connell resigned on 28 August 2014. - - - - - - - - - - - - - - - - 31,400 - - - (990,000) (990,000) 1,010,000 1,041,400 Key management personnel option holdings No options were granted or held by key management personnel in the current or prior year. Loans to key management personnel and their related parties There were no loans outstanding at the reporting date to key management personnel and their related parties. Use of Remuneration Consultants The Company did not use any remuneration consultants during the period. END OF REMUNERATION REPORT 13 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 DIRECTORS’ REPORT Indemnification and Insurance of Officers and Auditors The Company’s Constitution requires it to indemnify Directors and officers of any entity within the consolidated entity against liabilities incurred to third parties and against costs and expenses incurred in defending civil or criminal proceedings, except in certain circumstances. An indemnity is also provided to the Company’s auditors under the terms of their engagement. Directors and officers of the consolidated entity have been insured against all liabilities and expenses arising as a result of work performed in their respective capacities, to the extent permitted by law. The insurance premium relates to: • costs and expenses incurred by the relevant officers in defending proceedings, whether civil or criminal and whatever the outcome; • other liabilities that may arise from their position, with the exception of conduct involving a wilful breach of duty or improper use of information or position to gain a personal advantage. Proceedings on Behalf of Company No person has applied for leave of the Court to bring proceedings on behalf of the company or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or any part of those proceedings. The company was not a party to any such proceedings during the year. Non-Audit Services The Board of Directors is satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the services disclosed below did not compromise the external auditor’s independence for the following reasons: • all non-audit services are reviewed and approved by the Board prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and • the nature of the services provided does not compromise the general principles relating to auditor independence in accordance with APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board. The following fees were paid or payable to RSM Bird Cameron for non-audit services: Taxation services Other taxation services – R&D return and lodgment assistance 2015 $ 9,000 48,659 57,659 2014 $ 17,350 72,783 90,133 Officers of the company who are former audit partners of RSM Bird Cameron Partners There are no officers of the company who are former audit partners of RSM Bird Cameron Partners. Auditor’s Independence Declaration The auditor, RSM Bird Cameron Partners, has provided the Board of Directors with an independence declaration in accordance with section 307C of the Corporations Act 2001. The independence declaration is located on the next page. 14 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 DIRECTORS’ REPORT The Report of Directors, incorporating the Remuneration Report, is signed pursuant to section 298(2) (a) of the Corporations Act 2001 in accordance with a resolution of the Board of Directors. Lijun Yang Executive Director Dated at Perth this 30th day of September 2015 15 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Financial Report CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE For the year ended 30 June 2015 Revenue from gold sales Cost of sales Gross profit / (loss) Other income Director and corporate employee costs Professional fees and consultants Advertising and promotion cost Depreciation expenses Listing and registry fees Exploration costs Impairment expense Interest expense Other administration expenses Loss before income tax Income tax benefit Loss after income tax for the year Note 2015 $ 2014 $ 9,295 5,211,564 - (5,520,582) 9,295 (309,018) 1,463,771 (178,812) (303,285) (5,945) (114,913) (29,047) (794,899) - (563,765) (256,851) 2,545,953 (430,498) (184,228) (25,636) (217,914) (38,030) (805,489) (10,124,900) (726,013) (447,710) (774,451) - (774,451) (10,763,483) - (10,763,483) 3 8 4 5 Other comprehensive income Items that may be reclassified subsequently to profit or loss Movement in fair value of available for sale investments Other comprehensive income for the year, net of tax - - 8,076 8,076 Total comprehensive loss for the year (774,451) (10,755,407) Loss per share Basic and diluted loss per share (cents) 17 (0.28) (5.28) The accompanying notes form an integral part of these financial statements. 16 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Financial Report CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2015 ASSETS Current Assets Cash and cash equivalents Trade and other receivables Other assets Total Current Assets Non-Current Assets Property, plant and equipment Exploration and evaluation expenditure Total Non-Current Assets TOTAL ASSETS LIABILITIES Current Liabilities Trade and other payables Interest bearing liabilities Total Current Liabilities Non-Current Liabilities Restoration provision Total Non-Current Liabilities TOTAL LIABILITIES Note 2015 $ 2014 $ 19 (b) 6 7 238,640 15,993 7,500 262,133 128,867 32,503 34,548 195,918 8 9 389,920 7,147,846 7,537,766 504,833 8,035,398 8,540,231 7,799,899 8,736,149 10 11 12 122,785 4,764,557 4,887,342 1,231,834 4,891,788 6,123,622 1,148,358 1,148,358 1,099,370 1,099,370 6,035,700 7,222,992 NET ASSETS 1,764,199 1,513,157 EQUITY Issued capital Reserves Accumulated losses TOTAL EQUITY 13 14 76,251,722 - (74,487,523) 75,226,229 1,334,418 (75,047,490) 1,764,199 1,513,157 The accompanying notes form an integral part of these financial statements. 17 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Financial Report CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2015 Issued Capital $ Accumulated Losses $ Financial assets reserve $ Share payment reserve $ Total Equity $ 2014 As at 1 July 2013 74,603,464 (65,814,380) (8,076) 2,864,791 11,645,799 (10,763,483) - - 8,076 (10,763,483) 8,076 - - - (10,763,483) 8,076 (10,755,407) Loss after income tax for the year Movement in fair value of available for sale investments Total comprehensive income for the year, net of tax Transfer of expired share option costs Shares issued during the year, net of costs - - - - As at 30 June 2014 75,226,229 (75,047,490) 1,530,373 622,765 - - - - (1,530,373) - - 622,765 1,334,418 1,513,157 75,226,229 (75,047,490) - 1,334,418 1,513,157 2015 As at 1 July 2014 Loss after income tax for the year Total comprehensive income for the year, net of tax Transfer of expired share option costs Shares issued during the year, net of costs - - - (774,451) (774,451) 1,334,418 1,025,493 - As at 30 June 2015 76,251,722 (74,487,523) - - - - - - - (774,451) (774,451) (1,334,418) - - - - 1,764,199 The accompanying notes form an integral part of these financial statements. 18 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Financial Report CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 30 June 2015 Note 2015 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Research and development tax refund Interest received Interest paid Refund of office security bond Net cash used in operating activities 19(a) $ 25,890 (788,237) 533,785 6,923 (13,325) 27,050 (207,914) 2014 $ 6,074,603 (9,580,175) 2,377,491 21,392 (72,645) - (1,179,334) Cash flows from investing activities Proceeds from sale of investments Proceeds from sale of tenements Proceeds from sale of plant and equipment Payment for mine tenements Payments for plant and equipment Payment for mineral exploration activities Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Proceeds from borrowings – convertible loan Net cash provided by financing activities - 1,800,000 - (1,050,000) - (782,313) (32,313) 8,993 12,500 269,173 (1,200,000) (27,033) (805,489) (1,741,856) - 350,000 350,000 622,765 - 622,765 Net increase / (decrease) in cash held Cash and cash equivalents at the beginning of the financial year 109,773 128,867 (2,298,425) 2,427,292 Cash and cash equivalents at the end of the financial year 19(b) 238,640 128,867 The accompanying notes form an integral part of these financial statements. 19 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Financial Report Note 1: Statement of Significant Accounting Policies The financial statements cover KalNorth Gold Mines Limited (“KalNorth” “Company”) as a consolidated entity consisting of KalNorth Gold Mines Limited and the entities it controlled at the end of, or during, the year. The financial statements are presented in Australian dollars, which is KalNorth's functional and presentation currency. The financial report was authorised for issue on 30 September 2015 by the Board of Directors. Basis of preparation The financial statements are general purpose financial statements that have been prepared in accordance Interpretations, other authoritative with Australian Accounting Standards, Australian Accounting pronouncements of the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. Australian Accounting Standards set out accounting policies that the AASB has concluded would result in financial statements containing relevant and reliable information about transactions, events and conditions. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards as issued by the IASB. Material accounting policies adopted in the preparation of these financial statements are presented below and have been consistently applied unless otherwise stated. The financial statements have been prepared on an accruals basis and are based on historical costs, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. Going Concern The financial statements have been prepared on a going concern basis, which contemplates continuity of normal business activities and the realisation of assets and discharge of liabilities in the normal course of business. As disclosed in the financial statements, the Company and consolidated entity had net current liabilities of $4,625,209 at 30 June 2015, incurred a net loss of $774,551 and had net cash flows from operating activities of $207,914 for the year then ended. The Directors believe that it is reasonably foreseeable that the company and the consolidated entity will continue as going concerns and that it is appropriate to adopt the going concern basis in the preparation of the financial report after consideration of the following factors which are disclosed in events subsequent to reporting date (Note 27): (a) As disclosed in Note 11, secured and unsecured loans as at 30 June 2015 are $3.50 million and $0.70 million, respectively. Interest payable was $0.17 million and $0.03 million, respectively. Subsequent to balance date, binding agreements were entered into with secured lenders Renergy Pty Ltd and South Victory Global Limited as well as unsecured lenders Smarter Group (Australia) Pty Ltd and Mr John McKinstry, as a result of which $3.50 million of secured debt plus interest payable and $0.65 million of unsecured debt plus interest payable as at 30 June 2015 is proposed to be settled through the issuance of company shares at an issue price at $0.01 share each; (b) On 15 September 2015, a convertible note facility agreement was entered into with the Company’s largest shareholder, Cross-Strait, under the terms of which the Company will be able to draw down up to $2 million. As at the date of the financial report $0.3m was received from Cross-Strait. Cross-Strait will have the right to convert all or part of the amounts drawn down under the facility into shares in the Company at an issue price of $0.01 per share. The facility will have a maturity date of 30 April 2017; and 20 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Financial Report Note 1: Statement of Significant Accounting Policies (cont’d) Going Concern (cont’d) (c) On 29 July 2015, the Company issued a prospectus for a non-renounceable entitlement offer of shares at $0.01 each. The rights offer has closed, however the issue of shares has not been completed as the Company is required to give applicants an opportunity to withdraw their applications on or before 16 October 2015. On 27 August 2015, the Company announced acceptances have been received for 44,730,803 shares. Assuming no material applications for the rights offer are withdrawn, an amount of approximately $0.4 million is expected to be raised when the Company completes the rights issue on 19 October 2015. The completion of the transactions referred to in (a) and (b) above is subject to shareholder and other regulatory approvals which must be obtained by 30 November 2015 (unless the parties agree to an extension). As disclosed in Note 11, as at 30 June 2015 the convertible note facility totals $350,000. The convertible note facility is with Gold Fresh Limited and has a maturity date of 5 March 2016 and, subject to completion of the transaction referred to in (a) above, the Company is seeking Gold Fresh’s agreement to convert the convertible note to shares rather than require redemption. The Company has the intent and ability to curtail corporate and administration cash outflows. Adoption of new and revised standards Changes in accounting policies on initial application of Accounting Standards In the year ended 30 June 2015, the Group has reviewed and adopted all of the new and revised Standards and Interpretations issued by the AASB that are relevant to its operations and effective for the current annual reporting period. The Group has also reviewed all new Standards and Interpretations that have been issued but are not yet effective for the year ended 30 June 2015. As a result of these reviews the Directors have determined that there is no impact, material or otherwise, of the new and revised Standards and Interpretations on its business and, therefore, no change is necessary to Group accounting policies. Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the consolidated entity only. Supplementary information about the parent entity is disclosed in Note 26. Principles of consolidation The consolidated financial statements incorporate the assets, liabilities and results of entities controlled by KalNorth Gold Mines Limited at the end of the reporting period. A controlled entity is any entity over which KalNorth Gold Mines Limited has the ability and right to govern the financial and operating policies so as to obtain benefits from the entity’s activities. Where controlled entities have entered or left the Group during the year, the financial performance of those entities is included only for the period of the year that they were controlled. A list of controlled entities is contained in Note 21 to the financial statements. In preparing the consolidated financial statements, all inter-group balances and transactions between entities in the consolidated group have been eliminated in full on consolidation. 21 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Financial Report Note 1: Statement of Significant Accounting Policies (cont’d) Principles of consolidation (cont’d) Non-controlling interests, being the equity in a subsidiary not attributable, directly or indirectly, to a parent, are reported separately within the equity section of the consolidated statement of financial position and statement of comprehensive income. The non-controlling interests in the net assets comprise their interests at the date of the original business combination and their share of changes in equity since that date. Operating Segments Operating segments are presented using the 'management approach', where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers ('CODM'). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. Income tax The income tax expense (income) for the year comprises current income tax expense (income) and deferred tax expense (income). Current income tax expense charged to the profit of loss is the tax payable on taxable income calculated using applicable income tax rates enacted, or substantially enacted, as at reporting date. Current tax liabilities (assets) are therefore measured at the amounts expected to be paid to (recovered from) the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well as unused tax losses. Current and deferred income tax expense (income) is charged or credited directly to equity instead of profit or loss when the tax related to items that are credited or charged directly to equity. Deferred tax assets and liabilities are ascertained based on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets also result where amounts have been fully expensed but future tax deductions are available. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates enacted or substantially enacted at reporting date. Their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future. Current tax assets and liabilities are offset where a largely enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where a legally enforceable right of set-off exists, the deferred tax assets and liabilities related to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. 22 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Financial Report Note 1: Statement of Significant Accounting Policies (cont’d) Mining tenements and exploration and evaluation expenditure Mining tenements are carried at cost, less accumulated impairment losses. Exploration, evaluation and development expenditure incurred is accumulated in respect of each identifiable area of interest. These costs are only carried forward to the extent that they are expected to be recouped through the successful development of the area or where activities in the area have not yet reached a stage that permits reasonable assessment of the existence of economically recoverable reserves. Accumulated costs in relation to an abandoned area are written off in full against profit in the year in which the decision to abandon the area is made. When production commences, the accumulated costs for the relevant area of interest are amortised over the life of the area according to the rate of depletion of the economically recoverable reserves. A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. Costs of site restoration are provided over the life of the facility from when exploration commences and are included in the costs of that stage. Site restoration costs include the dismantling and removal of mining plant, equipment and building structures, waste removal, and rehabilitation of the site in accordance with clauses of the mining permits. Such costs have been determined using estimates of future costs, current legal requirements and technology on an undiscounted basis. Any changes in the estimates for the costs are accounted on a prospective basis. In determining the costs of site restoration, there is uncertainty regarding the nature and extent of the restoration due to community expectations and future legislation. Accordingly the costs have been determined on the basis that the restoration will be completed within one year of abandoning the site. Leases Leases of fixed assets, where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership that are transferred to the economic entity, are classified as finance leases. Leases where a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease. Employee benefits Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled within 12 months of the reporting date are recognised in current liabilities in respect of employees' services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. 23 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Financial Report Note 1: Statement of Significant Accounting Policies (cont’d) Property, plant and equipment Each class of property, plant and equipment is carried at cost or fair value less, where applicable, any accumulated depreciation and impairment losses. Property Freehold land and buildings are measured on the cost basis less depreciation and impairment losses. Plant and equipment Plant and equipment are measured on the cost basis less depreciation and impairment losses. The carrying amount of property, plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the assets employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. 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. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred. Depreciation The depreciable amount of all fixed assets including building and capitalised lease assets, but excluding freehold land, is depreciated on a straight-line basis over the useful lives to the consolidated entity commencing from the time the asset is held ready for use. The depreciation rates used for each class of depreciable assets are: Class of fixed asset Plant and equipment Buildings Motor vehicles IT assets Depreciation rate 10-33% 10% 25% 33% The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the statement of comprehensive income or loss. When revalued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings. Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is current when: it is expected to be realised or intended to be sold or consumed in normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within twelve months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. All other assets are classified as non-current. 24 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Financial Report Note 1: Statement of Significant Accounting Policies (cont’d) Current and non-current classification (cont’d) A liability is current when: it is expected to be settled in normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within twelve months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. Financial instruments Financial instruments, incorporating financial assets and financial liabilities, are recognised when the entity becomes a party to the contractual provisions of the instrument. Trade date accounting is adopted for financial assets that are delivered within timeframes established by marketplace convention. Financial instruments are initially measured at fair value plus transactions costs where the instrument is not classified as at fair value through profit or loss. Transaction costs related to instruments classified as at fair value through profit or loss are expensed to profit or loss immediately. Financial instruments are classified and measured as set out below. Derecognition Financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised where the related obligations are either discharged, cancelled or expire. The difference between the carrying value of the financial liability extinguished or transferred to another party and their fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss. Classification and subsequent measurement Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost using the effective interest rate method. Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are either designated as such or that are not classified in any of the other categories. They comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable payments. Financial liabilities Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost using the effective interest rate method. Impairment of financial assets The consolidated entity assesses at the end of each reporting period whether there is any objective evidence that a financial asset or group of financial assets is impaired. Objective evidence includes significant financial difficulty of the issuer or obligor; a breach of contract such as default or delinquency in payments; the lender granting to a borrower concessions due to economic or legal reasons that the lender would not otherwise do; it becomes probable that the borrower will enter bankruptcy or other financial reorganisation; the disappearance of an active market for the financial asset; or observable data indicating that there is a measurable decrease in estimated future cash flows. 25 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Financial Report Note 1: Statement of Significant Accounting Policies (cont’d) Impairment of financial assets (cont’d) The amount of the impairment allowance for financial assets carried at cost is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the current market rate of return for similar financial assets. Available-for-sale financial assets are considered impaired when there has been a significant or prolonged decline in value below initial cost. Subsequent increments in value are recognised in other comprehensive income through the available-for-sale reserve. Fair value When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principle market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interest. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed each reporting date and transfers between levels are determined based on a reassessment of the lowest level input that is significant to the fair value measurement. For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. Impairment of non-financial assets At each reporting date, the group reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the comprehensive statement of income. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised in profit or loss immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised in profit or loss immediately, unless the relevant asset is carried at fair value, in which case the reversal of the impairment loss is treated as a revaluation increase. 26 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Financial Report Note 1: Statement of Significant Accounting Policies (cont’d) Cash and cash equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Trade and Other Receivables Trade and other receivables include amounts due from customers for goods sold and services performed in the ordinary course of business. Receivables expected to be collected within 12 months of the end of the reporting period are classified as current assets. All other receivables are classified as non-current assets. Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises all direct materials, direct labour and an appropriate portion of variable and fixed overheads. Fixed overheads are allocated on the basis of normal operating capacity. Costs are assigned to inventories using the first-in-first-out basis. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and selling expenses. Trade and Other Payables Trade and other payables represent the liabilities for goods and services received by the entity that remain unpaid at the end of the reporting period. The balance is recognised as a current liability with the amounts normally paid within 30 days of recognition of the liability. Provision for restoration Costs of site restoration are recognised in full at present value as a non-current liability and an equivalent amount capitalised as part of the cost of the asset when an obligation arises to decommission or restore a site to a certain condition after abandonment as a result of bringing the assets to their present location. The capitalised cost is amortised over the life of the project and the provision is accredited periodically as the discounting of the liability unwinds. The unwinding of the discount is recorded as interest expense. Site restoration costs include the dismantling and removal of mining plant, equipment and building structures, waste removal and rehabilitation of the site in accordance with clauses of the mining permits. Such costs are determined using estimates of future costs, current legal requirements and technology on an undiscounted basis. Any changes in the estimates for the costs are accounted for on a prospective basis. In determining the costs of site restoration there is uncertainty regarding the nature and extent of the restoration due to community expectations and future legislation. Accordingly the costs are determined on the basis that restoration will be completed within one year of abandoning a site. Borrowings Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. Where there is an unconditional right to defer settlement of the liability for at least 12 months after the reporting date, the loans or borrowings are classified as non-current. Goods and services tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST. Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. 27 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Financial Report Note 1: Statement of Significant Accounting Policies (cont’d) Revenue Sale of gold Revenue from sale of gold is recognised when the significant risks and rewards of ownership have passed to the buyer and can be reliably measured. Risks are considered passed to buyer when the customer takes possession of the ore, however, revenue is not reliably measurable until that ore has been processed. Therefore revenue from the sale of ore is recognised upon processing. Interest income Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. Share-based payment transactions The consolidated entity provides benefits to employees (including senior executives) in the form of share- based payments, whereby employees render services in exchange for shares or rights over shares (equity settled transactions). The consolidated entity does not provide cash settled share based payments. The cost of equity settled transactions with employees are measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by reference to the market price of the consolidated entity’s shares on the Australian Stock Exchange. The cost of equity settled transactions are recognised, together with a corresponding increase in equity, over the period in which the service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the vesting period). The cumulative expense recognised for equity settled transactions at each reporting date until vesting date reflects the extent to which the vesting period has expired, and the consolidated entity’s best estimate of the number of equity instruments that will ultimately vest. The profit or loss charge or credit for a period represents the movement in cumulative expense recognised for the period. No cumulative expense is recognised for awards that ultimately do not vest (in respect of non-market vesting conditions). Contributed equity 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. Incremental costs directly attributable to the issue of new shares or options for the acquisition of a business are not included in the cost of the acquisition as part of the purchase consideration. Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the consolidated entity, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year. Diluted earnings per share 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. 28 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Financial Report Note 1: Statement of Significant Accounting Policies (cont’d) Comparative figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. Finance costs Finance costs are expensed in the period in which they are incurred. Note 2: Critical accounting estimates and judgments The Directors evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the group. The critical accounting estimates and judgments are: Restoration provision The Company is required to ensure that appropriate rehabilitation is carried out on tenements that are mined. The amount of rehabilitation cost is an estimate based upon the estimated life of each mined tenement, as well as the future timing and cost of such rehabilitation. The provision is constantly revised as information about the life of mine, type of mining and cost estimates are updated. Deferred exploration and evaluation expenditure Exploration and evaluation costs are carried forward where right of tenure of the area of interest is current. These costs are carried forward in respect of an area that has not at statement of financial position date reached a stage that permits reasonable assessment of the existence of economically recoverable reserves, refer to the accounting policy stated in Note 1. Note 3: Other income Interest received on cash deposits Refundable R&D tax offset Gain on sale of tenements (i) Profit on sale of property, plant and equipment Other income Total other income 2015 $ 6,923 533,785 913,460 103 9,500 1,463,771 2014 $ 6,194 2,377,491 12,500 148,154 1,614 2,545,953 (i) On 7 November 2014, the Company settled its sale of the Mount Jewell project in the Goldfields region, Western Australia. The gain on sale consisting of the following components; Proceeds from sale (exclusive of GST) Deferred purchase consideration - early payment discount (Note 10(i)) Exploration & evaluation expenditure write-back on disposal (Note 9) Rehabilitation provision write-back on disposal Total gain on sale 1,800,000 50,000 (1,000,000) 63,460 913,460 Note 4: Impairment expenses Impairment of exploration and evaluation assets Total impairment expenses 2015 $ 2014 $ 10,124,900 10,124,900 - - 29 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Financial Report Note 5: Income tax (a) Income tax recognised No income tax is payable by the consolidated entity for the year as a loss was recorded for income tax purposes. (b) Numerical reconciliation between income tax expense and the loss before income tax Loss before income tax Income tax benefit at 30% (2014: 30%) Tax effect of permanent differences – Impairment Tax effect of temporary differences Tax effect of deferred tax asset not recognised Income tax expense (c) Unrecognised deferred tax balances 2015 $ 2014 $ (774,451) 232,335 (183,816) 77,472 (125,991) - (10,763,483) 3,229,045 (3,037,470) (65,374) (126,201) - Tax losses attributable to members of the tax consolidated group – revenue Potential tax benefit at 30% 78,063,584 23,419,075 75,596,401 22,678,920 A deferred tax asset attributable to income tax losses has not been recognised at reporting date as the probability criteria disclosed in Note 1 (Income Tax) is not satisfied and such benefit will only be available if the conditions of deductibility also disclosed in Note 1 (Income Tax) are satisfied. For the purposes of taxation, KalNorth Gold Mines Limited and its 100% owned Australian subsidiary are a tax consolidated group. The head entity of the tax consolidated group is KalNorth Gold Mines Limited. The group has not entered into a tax sharing agreement. Note 6: Trade and other receivables Current GST receivable Other receivables Note 7: Other assets Current Prepayments Credit card facility deposit Total other assets 2015 $ 2014 $ 15,993 - 15,993 16,534 15,969 32,503 2015 $ 2014 $ - 7,500 7,500 27,048 7,500 34,548 30 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Financial Report Note 8: Property, plant and equipment Plant and equipment At cost Accumulated depreciation Motor vehicles At cost Accumulated depreciation IT Assets At cost Accumulated depreciation Land and buildings At cost Accumulated depreciation 2015 $ 2014 $ 381,136 (330,897) 50,239 113,887 (102,283) 11,604 302,008 (283,990) 18,018 380,866 (70,807) 310,059 381,136 (305,086) 76,050 113,887 (83,261) 30,626 302,008 (222,910) 79,098 380,866 (61,807) 319,059 Total written down value 389,920 504,833 (a) Movements in carrying amounts Balance at 1 July 2013 Additions Disposals Depreciation expense Land & Buildings 328,059 - - (9,000) Plant & Equipment 147,284 300 (9,091) (62,443) Motor Vehicles 197,123 25,702 (142,652) (49,547) IT Assets 177,858 1,231 (3,067) (96,924) Total 850,324 27,233 (154,810) (217,914) Balance at 30 June 2014 319,059 76,050 30,626 79,098 504,833 Balance at 1 July 2014 Depreciation expense 319,059 (9,000) 76,050 (25,811) 30,626 (19,022) 79,098 (61,080) 504,833 (114,913) Balance at 30 June 2015 310,059 50,239 11,604 18,018 389,920 Note 9: Exploration and evaluation expenditure Cost Reconciliation Balance at beginning of year Exploration expenditure incurred Exploration expenditure immediately expensed (i) Disposal of tenements – Mt Jewell Project (ii) Additional allowance for rehabilitation Impairment (iii) Balance at end of year 2015 $ 2014 $ 7,147,846 8,035,398 8,035,398 794,899 (794,899) (1,000,000) 112,448 - 17,547,128 805,489 (805,489) - 613,170 (10,124,900) 7,147,846 8,035,398 (i) During the year the company incurred exploration expenditure costs which were immediately expensed as their recoverability was uncertain. (ii) The Mt Jewell Project was disposed of during the year (Note 3 (i)). (iii) During the prior year, the directors undertook an impairment assessment of the current carrying values of the exploration and evaluation assets. As a result, the carrying value of the exploration and evaluation asset was deemed to be impaired by $10,124,900. The ultimate recoupment of costs carried forward for exploration and evaluation phases is dependent on the successful development and commercial exploitation or sale of the respective mining areas. Amortisation of the costs carried forward for the development phase is not being charged pending the commencement of production. 31 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Financial Report Note 10: Trade and other payables Current Trade payables Deferred consideration (i) Sundry payables and accrued expenses 2015 $ 2014 $ 67,997 - 54,788 122,785 57,182 1,100,000 74,652 1,231,834 (i) A final cash payment of $1,050,000 was made as part of the settlement on disposal of the Mt. Jewell project. The Company negotiated a $50,000 early payment discount on this final deferred consideration (Note 3 (i)). Note 11: Interest bearing liabilities Current Secured loans (ii) Unsecured loans (ii) Convertible notes (iii) Interest payable on secured loans (i) Interest payable on unsecured loans (i) Interest payable on convertible notes (i) Total interest bearing liabilities (i) The interest payable movement for the year is as follows: Balance at beginning of year Interest expense incurred for the year Interest – equity settled on 2 September 2014 (Note 13 (i)) Interest – equity settled on 11 March 2015 (Note 13 (ii)) Interest paid for the year Interest 10% withholding on the convertible note Balance at end of year (ii) Secured and unsecured loans 2015 $ 2014 $ 3,500,000 700,000 350,000 173,562 34,712 6,283 3,500,000 700,000 - 606,666 85,122 - 4,764,557 4,891,788 691,788 563,765 (358,420) (667,073) (13,325) (2,178) 214,557 39,139 725,294 - - (72,645) - 691,788 On 2 September 2014, the company equity settled partial outstanding interest ($358,420) on the loan from secured lender South Victory Global Limited (“SVG”) by the issue of 35,842,004 ordinary fully paid shares (Note 13(i)). On 10 and 11 March 2015, the Company announced it had reached agreement for the restructuring of all its secured and unsecured loans which had become due and payable on 29 November 2014. As a consequence of Deeds of Settlement and Release executed with all lenders, the revised loan arrangements are as follows and were in effect as at balance date: (i) Principal amounts of the loans ($3,500,000 secured and $700,000 unsecured for an aggregate of $4,200,000) have a maturity date of 30 April 2016; (ii) Interest due and payable as at 31 December 2014 of $667,073 on all loans was settled by the issue of 41,177,334 fully paid ordinary shares at an issue price of $0.0162 per share (Note 13 (ii)); and (iii) With effect from 1 January 2015, the interest rate applicable to all loans was reduced to 10% per annum from either 15% (secured) or 18% (unsecured). With effect from 1 January 2015, interest is payable at six- monthly intervals across all loans. On 27 July 2015, the Company was advised that Smarter Group (Australia) Pty Ltd had purchased two unsecured loans totalling $600,000 (and the accrued interest as at 30 June 2015 of $29,753) from Link Traders (Aust) Pty Limited. See Events subsequent to reporting date (Note 27) for details of agreements with lenders to relieve liabilities. 32 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Financial Report Note 11: Interest bearing liabilities (cont’d) (iii) Convertible notes On 5 September 2014, the Company entered into a Converting Loan agreement with Goldfresh Limited, a Hong Kong based Investment Company, for an amount of $350,000 to the Company with short term funding for its working capital. The loan was converted to convertible notes on 16 February 2015 and the key terms are as follows: (a) Principal - $350,000 (b) Interest – 8% p.a. (c) Maturity – 5 March 2016 (d) Conversion price – lower of 1.5 cents or price of any shares issued after agreement execution date. Assuming completion of the rights issue of shares referred to in Note 27, the conversion price will be reduced to 1 cent per share. Note 12: Restoration provision Non-current Restoration provision (i) (ii) (i) The provision movement for the year is as follows: Carrying amount at the start of the year Sale of the Mt. Jewell Project Additional provisions recognised Carrying amount at the end of the year 2015 $ 2014 $ 1,148,358 1,099,370 2015 $ 2014 $ 1,099,370 (63,460) 112,448 486,200 - 613,170 1,148,358 1,099,370 (ii) Costs of site restoration are recognised in full at present value as a non-current liability and an equivalent amount capitalised as part of the cost of the asset when an obligation arises to decommission or restore a site to a certain condition after abandonment as a result of bringing the assets to their present location. Note 13: Contributed equity 2015 $ 2014 $ 315,966,034 fully paid ordinary shares (2014: 238,946,696) 76,251,722 75,226,229 Movements in ordinary shares on issue for the year: Balance 1 July 2014 Share issue at 1.00 cent each – (i) Share issue at 1.62 cents each – (ii) No. of shares 238,946,696 35,842,004 41,177,334 Paid up capital $ 75,226,229 358,420 667,073 Balance 30 June 2015 315,966,034 76,251,722 (i) On 2 September 2014, the company issued 35,842,004 ordinary fully paid shares (at an issue price of 1.00 cent each) in partial settlement of outstanding interest on loans of $358,420 (Note 11(i)). (ii) On 11 March 2015, the company issued 41,177,334 ordinary fully paid shares (at an issue price of 1.62 cents each) in settlement of outstanding interest on loans of $667,073 (Note 11(ii)). Ordinary shares Ordinary shares have the right to receive dividends as declared and, in the event of winding up of the consolidated entity, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. 33 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Financial Report Note 13: Contributed Equity (cont’d) On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Share buy-back There is no current on-market share buy-back. Capital risk management The consolidated entity's objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the consolidated entity may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The consolidated entity would look to raise capital when an opportunity to invest in a business or company was seen as value adding relative to the current company's share price at the time of the investment. The consolidated entity is not actively pursuing additional investments in the short term as it continues to integrate and grow its existing businesses in order to maximise synergies. The consolidated entity is subject to certain financing arrangements covenants and meeting these is given priority in all capital risk management decisions. There have been no events of default on the financing arrangements during the financial year. Note 14: Reserves Share based payment reserve (i) Movement in share based payments reserve Balance at 1 July 2014 Share options expired – transfer to accumulated losses Balance at 30 June 2015 (ii) Share based payments reserve 2015 $ 2014 $ 1,334,418 1,334,418 - - No of Options 25,000,000 (25,000,000) - Paid up Capital $ 1,334,418 (1,334,418) - The share based payments reserve records items recognised as expenses on valuation of share options. Note 15: Key management personnel compensation Refer to the Remuneration Report contained in the Directors’ Report for details of the remuneration paid to each member of the consolidated entity’s key management personnel for the year ended 30 June 2015. The totals of remuneration paid to key management personnel of the consolidated entity during the year are as follows: Short-term employee benefits Post-employment benefits 34 2015 $ 2014 $ 368,100 35,088 403,188 572,454 39,206 611,660 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Financial Report Note 16: Related party transactions During the financial year, other than remuneration paid or payable to key management personnel, the Company did not engage in any related party transactions. In the prior year, the Company engaged Mercury Consulting Pty Ltd and IRM Pty Ltd, both former director-related entities, to perform investor relations activities on behalf of the consolidated entity for a fee of $32,182. The services were provided on an arm’s length basis. Note 17: Loss per share a) Basic loss per share Loss after income tax 2015 $ 2014 $ (774,451) (10,763,483) Weighted average number of ordinary shares on issue during the year used as the denominator in calculating basic loss per share 281,026,497 203,923,588 Diluted loss per share is the same as basic loss per share as there are no securities to be classified as dilutive potential ordinary shares on issue. Note 18: Auditor’s remuneration Remuneration of the auditor for: - audit and review of financial reports - taxation services - other taxation services – R&D tax credit assistance Note 19: Cash flow information a) Reconciliation of the net loss after income tax to the net cash flows from operating activities: Net loss for the year Non-cash items included in net loss: Depreciation expense Exploration expenses Tenement impairment expense Gain on sale of plant and equipment Gain on sale of tenements Share based settled interest expense Changes in assets and liabilities: Decrease in inventories Decrease in trade and other receivables Decrease in other assets Decrease in trade and other creditors 2015 $ 2014 $ 33,800 9,000 48,659 91,459 38,800 17,350 72,783 128,933 2015 $ 2014 $ (774,451) (10,763,483) 114,913 794,899 - - (913,460) 548,261 - 16,509 27,050 (21,636) 217,914 805,489 10,124,900 (123,241) - - - 1,038,501 452,405 93,766 (3,025,585) Net cash outflow from operating activities (207,914) (1,179,334) b) Reconciliation of cash Cash balance comprises: - Cash at bank and on hand c) Non-Cash Financing and Investing Activities 238,640 128,867 As disclosed in Note 13, the Company issued 77,019,338 shares during the year to settle outstanding interest expense of $1,025,493. 35 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Financial Report Note 20: Commitments (i) Mining tenements The consolidated entity has certain commitments to meet minimum expenditure requirements on the mineral exploration assets in which it has an interest. The current annual minimum lease expenditure commitments on these tenements which covers the Lindsays, Kurnalpi, Kalpini and Mt. Jewell projects is $791,520 (2014: $1,316,037). If the consolidated entity decides to relinquish certain leases and/or does not meet these obligations, assets recognised in the balance sheet may require review to determine the appropriateness of carrying values. The sale, transfer, or farm-out of exploration rights to third parties will reduce or extinguish these obligations. (b) Non-cancellable operating lease commitments - Not later than 12 months - Between 12 months and 5 years - Greater than 5 years 2015 $ 2014 $ 8,004 - - 8,004 50,051 8,004 - 58,055 The consolidated entity has an operating lease for a hand held data analyser at a rental of $1,334 per month and expiring 31 December 2015. Note 21: Controlled entities Country of Incorporation Percentage Owned (%) Subsidiaries of KalNorth Gold Mines Limited: Shannon Resources Pty Ltd (dormant) Lusitan Prospecting Pty Ltd (dormant) Australia Australia 2015 100 100 2014 100 100 Shannon Resources Pty Ltd and Lusitan Prospecting Pty Limited are the registered owners of various tenements. The parent entity owns 100% of both entities. There was no income earned and no expenses incurred by these entities for the year end 30 June 2015 (2014: nil). 36 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Financial Report Note 22: Segment information Identification of reportable operating segments The consolidated entity is organised into two operating segments: mine development and mineral exploration, both within Australia. During the year ended 30 June 2015, the consolidated entity's external revenue was derived solely from the sale of its share of prospector gold. In 2014, the consolidated entity's external revenue was most significantly from sales of ore recovered from the Lindsays mining operation to Saracen Mineral Holdings Limited (an Australian listed gold miner), however mining was suspended in August 2013. 30 June 2015 Revenue Sales to external customers Other revenue Total revenue EBITDA Depreciation and amortisation Impairment expense Interest revenue Finance costs Loss before income tax Income tax benefit Loss after income tax 30 June 2015 Assets Segment assets Exploration assets Property, plant and equipment Unallocated assets: Cash and cash equivalents Other current and non-current assets Total assets Liabilities Segment liabilities Trade and other payables Restoration provision Unallocated liabilities: Interest-bearing liabilities Total liabilities Mine development Mineral exploration $ $ Admin $ Total consolidated group $ - - - - - - - - - - - - - - - - - - - - 9,265 1,456,848 1,466,113 9,265 1,456,848 1,466,113 (102,696) (102,696) (19,021) - - - (95,892) - 6,923 (563,765) (114,913) - 6,923 (563,765) (19,021) (755,430) (774,451) - - - (19,021) (755,430) (774,451) 7,147,846 11,603 - 378,317 7,147,846 389,920 - - 238,640 238,640 23,493 23,493 7,159,449 640,450 7,799,899 - (1,083,622) - (64,736) (122,785) - (122,785) (1,148,358) - (1,083,622) - (64,736) (4,764,557) (4,887,342) (4,764,557) (6,035,700) 37 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Financial Report Note 22:Segment information (cont’d) 30 June 2014 Revenue Sales to external customers Other revenue Total revenue EBITDA Depreciation and amortisation Impairment expense Interest revenue Finance costs Loss before income tax Income tax benefit Mine development Mineral exploration $ $ Admin $ Total consolidated group $ 5,211,564 - 5,192,150 (328,432) - - - - - 2,539,759 2,539,759 5,211,564 2,539,759 7,751,323 627,582 299,150 - - - - (49,547) (10,124,900) - - (168,367) - 6,194 (726,013) (217,914) (10,124,900) 6,194 (726,013) (328,432) (10,174,447) (260,604) (10,763,483) - - - - Loss after income tax (328,432) (10,174,447) (260,604) (10,763,483) 30 June 2014 Assets Segment assets Exploration assets Property, plant and equipment Unallocated assets: Cash and cash equivalents Other current and non-current assets Total assets Liabilities Segment liabilities Trade and other payables Restoration provision Unallocated liabilities: Interest-bearing liabilities Total liabilities - - - - - 8,035,399 - 8,035,399 30,626 474,207 504,833 - - 128,867 128,867 67,051 67,051 8,066,025 670,125 8,736,150 - (972,814) (1,100,000) (126,556) (131,834) - (1,231,834) (1,099,370) - (972,814) - (1,226,556) (4,891,788) (5,023,622) (4,891,788) (7,222,992) 38 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Financial Report Note 23: Financial risk management objectives and policies The Consolidated entity’s principal financial instruments comprise cash and short-term deposits. The main purpose of these financial instruments is to finance the consolidated entity’s operations. The Consolidated entity has various other financial assets and liabilities such as receivables and payables, which arise directly from its operations. The main risks arising from the consolidated entity’s financial instruments are interest rate risks, commodity price risks, and, indirectly, foreign exchange risk. Other minor risks have been summarised below. The Board reviews and agrees on policies for managing each of these risks. (a) Interest rate risk The Consolidated entity’s exposure to market interest rate relates primarily to the consolidated entity’s cash and short-term deposits. All other financial assets in the form of receivables and payables are non-interest bearing. The Consolidated entity does not engage in any hedging or derivative transactions to manage interest rate risk. The following tables set out the carrying amount by maturity of the consolidated entity’s exposure to interest rate risk and the effective weighted interest rate for each class of these financial instruments Weighted average interest Rate % Floating interest rate $ Fixed interest maturing 1 year or less $ Fixed interest maturing 1 to 5 years $ 30 June 2015 Cash at bank Total assets 1.97% 238,640 - Interest bearing liabilities Interest bearing liabilities Interest bearing liabilities Total liabilities 10% 10% 8% - - - - (734,712) (3,673,563) (356,282) (4,764,557) - - - - - Weighted average interest Rate % Floating interest rate $ Fixed interest maturing 1 year or less $ Fixed interest maturing 1 to 5 years $ 30 June 2014 Cash at bank Total assets 0.37% 128,867 - Interest bearing liabilities Interest bearing liabilities Total liabilities 18% 15% - - - (785,120) (4,106,668) (4,891,788) Interest rate sensitivity analysis – cash at bank - - - - At 30 June 2015, if interest rates had changed by 1% during the entire year with all other variables held constant, profit for the year and equity would have been $3,507 higher/lower (2014: $2,985), mainly as a result of higher/lower interest income from cash and cash equivalents. (b) Credit risk The maximum exposure to credit risk at reporting date on financial assets of the consolidated entity is the carrying amount, net of any provisions for doubtful debts, as disclosed in the statement of financial position and notes to the financial statements. 39 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Financial Report Note 23: Financial risk management objectives and policies (cont’d) (c) Liquidity risk The consolidated entity manages liquidity risk by monitoring forecast cash flows and ensuring that adequate unutilised borrowing facilities are maintained. The table below analyses the entity’s financial liabilities into relevant maturity groupings based on the remaining period from the statement of financial position date to the contractual maturity date. As the amounts disclosed in the table are the contractual undiscounted cash flows, these balances will not necessarily agree with the amounts disclosed in the statement of financial position. 30 June 2015 Financial liabilities due for payment Trade and other payables Interest bearing liabilities Financial assets – cash flows realisable Cash assets Trade and other receivables Net (outflow)/inflow from financial instruments Less than 6 months $ 6 months to 1 year $ 1 to 5 years $ Total $ (122,785) - (4,764,557) (122,785) (4,764,557) 238,640 15,993 254,633 - 7,500 7,500 131,848 (4,757,057) - - - - - - - (122,785) (4,764,557) (4,887,342) 238,640 23,493 262,133 (4,625,209) Less than 6 months $ 6 months to 1 year $ 1 to 5 years $ Total $ 30 June 2014 Financial liabilities due for payment Trade and other payables Interest bearing liabilities Financial assets – cash flows realisable Cash assets Trade and other receivables Net outflow from financial instruments (1,231,834) (4,891,788) (6,123,622) 128,867 32,503 161,370 (5,962,252) - - - - - - - - - - - - - - (1,231,834) (4,891,788) (6,123,622) 128,867 32,503 161,370 (5,962,252) 40 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Financial Report Note 23: Financial risk management objectives and policies (cont’d) (d) Foreign exchange risk The Consolidated entity sold its ore in Australian Dollars (AUD) and costs of production are denominated in Australian Dollars (AUD). However the AUD gold price is set with reference to the USD price. A rapidly weakening US dollar exposes the consolidated entity to the downside risks related to movement in the AUD/USD exchange rate. The Consolidated entity’s current policy is for the all of gold production to be exposed to foreign exchange risk. As production ceased during the prior year and all gold inventories were sold, there is no current intention to enter into any currency hedging contracts and none are outstanding at year end. There were no financial instruments with a foreign currency exposure at the reporting date or at the end of the preceding financial year. (e) Net fair value of financial assets and liabilities The carrying amounts of financial instruments included in the statement of financial position approximate their fair values due to their short terms of maturity. Note 24: Share based payments Options issued The Consolidated entity may from time to time issue options to its directors and employees and third party lenders as part of its policy to continue to attract and retain the directors and employees of high calibre and maintain on-going commercial relationships with lenders. During the year ended 30 June 2015 there were no options issued (2014: nil). Set out below is a summary of those options on issue as at 30 June 2015 for the Consolidated entity: Expiry Issue date date 28/05/2013 28/11/2014 25,000,000 25,000,000 Balance at start of year Number issued during year Number expired during year (25,000,000) (25,000,000) - - Balance at end of year - - Number exercisable at end of year - - Expenses arising from share-based payment transactions Total expenses arising from share-based payment transactions recognised during the year as part of share based payment expense were nil (2014: nil). Note 25: Contingent liabilities and contingent assets There are no contingent liabilities or assets at reporting date. Note 26: Parent Information As referred to in Note 21, the consolidated entity comprises KalNorth Gold Mines Limited, the parent entity and two wholly-owned subsidiaries. The Parent entity disclosures are not materially different to the consolidated entity’s disclosures in the Statement of Financial Position and the Statement of Profit or Loss and Other Comprehensive Income. In addition, there are: a) no guarantees entered into by the parent entity in relation to the debts of its subsidiaries. b) no contingent liabilities of the parent entity as at the reporting date. c) no contractual commitments by the parent entity for the acquisition of property, plant and equipment as at the reporting date. 41 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Financial Report Note 27: Events subsequent to reporting date Since the reporting date and to the date of this report no matter or circumstance has arisen which has significantly affected, or may significantly affect, the operations of the consolidated entity, the results of those operations or the state of affairs of the consolidated entity in subsequent financial years other than the matters referred to below. (a) On 31 August 2015 and 11 September 2015, binding agreements were entered into with Renergy Pty Ltd, South Victory Global Limited, Smarter Group (Australia) Pty Ltd and Mr John McKinstry, as a result of which principal amounts and all outstanding interest (accruing up to the date immediately prior to the date of issue of shares by the Company) owed to these parties will be settled by issue of shares at an issue price of $0.01 each. (b) On 15 September 2015, a convertible note facility agreement has been entered into with the Company’s largest shareholder, Cross-Strait, under the terms of which the Company will be able to draw down up to $2 million. As at the date of the financial report $0.3m was received from Cross- Strait. Cross-Strait will have the right to convert all or part of the amounts drawn down under the facility into shares in the Company at an issue price of $0.01 per share. The facility will have a maturity date of 30 April 2017. (c) On 29 July 2015, the Company issued a prospectus for a non-renounceable entitlement offer of shares at $0.01 each. The rights offer has closed, however the issue of shares has not been completed as the Company is required to give applicants an opportunity to withdraw their applications on or before 16 October 2015. On 27 August 2015, the Company announced acceptances have been received for 44,730,803 shares. Assuming no material applications for the rights offer are withdrawn, an amount of approximately $0.4 million is expected to be raised when the Company completes the rights issue on 19 October 2015. The completion of the transactions referred to in (a) and (b) above is subject to shareholder and other regulatory approvals which must be obtained by 30 November 2015 (unless the parties agree to an extension). 42 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Financial Report DIRECTORS’ DECLARATION The directors of the company declare that, in the opinion of the directors: (a) the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2015 and its performance for the year ended on that date; and complying with Australian Accounting Standards, including the Interpretations, and the Corporations Regulations 2001; (ii) (b) (c) (d) the financial statements and notes thereto also comply with International Financial Reporting Standards, as disclosed in Note 1; and the directors have been given the declarations required by s295A of the Corporations Act 2001 there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; Signed in accordance with a resolution of the directors made pursuant to s295(5) of the Corporations Act 2001. On behalf of the Directors: Lijun Yang Executive Director Dated at Perth this 30th September 2015 43 RSM Bird Cameron Partners 8 St George’s Terrace Perth WA 6000 GPO Box R1253 Perth WA 6844 T +61 8 9261 9100 F +61 8 9261 9101 www.rsmi.com.au AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the financial report of KalNorth Gold Mines Limited for the year ended 30 June 2015, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. RSM BIRD CAMERON PARTNERS Perth, WA Dated: 30 September 2015 D J WALL Partner Liability limited by a scheme approved under Professional Standards Legislation Major Offices in: Perth, Sydney, Melbourne, Adelaide and Canberra ABN 36 965 185 036 RSM Bird Cameron Partners is a member of the RSM network. Each member of the RSM network is an independent accounting and advisory firm which practises in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. RSM Bird Cameron Partners 8 St George’s Terrace Perth WA 6000 GPO Box R1253 Perth WA 6844 T +61 8 9261 9100 F +61 8 9261 9101 www.rsmi.com.au INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF KALNORTH GOLD MINES LIMITED Report on the Financial Report We have audited the accompanying financial report of KalNorth Gold Mines Limited, which comprises the consolidated statement of financial position as at 30 June 2015, and the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity, and consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors' declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Liability limited by a scheme approved under Professional Standards Legislation Major Offices in: Perth, Sydney, Melbourne, Adelaide and Canberra ABN 36 965 185 036 RSM Bird Cameron Partners is a member of the RSM network. Each member of the RSM network is an independent accounting and advisory firm which practises in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of KalNorth Gold Mines Limited, would be in the same terms if given to the directors as at the time of this auditor's report. Opinion In our opinion: (a) the financial report of KalNorth Gold Mines Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2015 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the Remuneration Report contained within the directors’ report for the year ended 30 June 2015. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Opinion In our opinion the Remuneration Report of KalNorth Gold Mines Limited for the year ended 30 June 2015 complies with section 300A of the Corporations Act 2001. RSM BIRD CAMERON PARTNERS Perth, WA Dated: 30 September 2015 D J WALL Partner KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Corporate Governance The Board of Directors of KalNorth Gold Mines Limited is responsible for the corporate governance of the Company. The Board guides and monitors the business and affairs of KalNorth Gold Mines Limited on behalf of the shareholders by whom they are elected and to whom they are accountable. The Company’s governance approach aims to achieve exploration, development and financial success while meeting stakeholders’ expectations of sound corporate governance practices by proactively determining and adopting the most appropriate corporate governance arrangements. ASX Listing Rule 4.10.3 requires listed companies to disclose in their Annual Report the extent to which they have complied with the ASX Best Practice Recommendations of the ASX Corporate Governance Council (“CGC”) in the reporting period. A description of the Company’s main corporate governance practices is set out below. The Corporate Governance Statement is current as at 30 June 2015, and has been approved by the Board of Directors. All these practices, unless otherwise stated, were in place for the entire year. They comply with the ASX Corporate Governance Principles and Recommendations (3rd edition). The Company's directors are fully cognisant of the Corporate Governance Principles and Recommendations published by CGC and have adopted those recommendations where they are appropriate to the Company's circumstances. However, a number of those principles and recommendations are directed towards listed companies considerably larger than KalNorth Gold Mines Limited, whose circumstances and requirements accordingly differ markedly from the Company's. For example, the nature of the Company's operations and the size of its staff mean that a number of the board committees and other governance structures recommended by the CGC are not only unnecessary in the Company's case, but the effort and expense required to establish and maintain them would, in the directors' view, be an unjustified diversion of shareholders' funds. As the Company's activities develop in size, nature and scope, the size of the Board and the implementation of additional corporate governance structures will be given further consideration. The Company’s website at www.kalnorthgoldmines.com contains a corporate governance section that includes copies of the Company’s corporate governance policies. Principle 1: Lay solid foundations for management and oversight Recommendation 1.1: Companies should disclose the respective roles and responsibilities of its board and management and those matters expressly reserved to the Board and those delegated to management and disclose those functions. The Board’s role is to govern the Company rather than to manage it. In governing the Company, the Directors must act in the best interests of the Company as a whole. It is the role of the senior management to manage the Company in accordance with the direction and delegations of the Board and the responsibility of the Board to oversee the activities of management in carrying out these delegated duties. The Board is responsible for: • overseeing the Company’s commitment to the health and safety of employees and contractors, the environment and sustainable development; • overseeing the activities of the Company, including its control and accountability systems; • appointing and removing the Managing Director, Company Secretary, and other senior executives, evaluating their performance, reviewing their remuneration and ensuring an appropriate succession plan; setting the strategic objectives of the Company and monitoring its progress against those objectives; reviewing, ratifying and monitoring systems of risk management and internal control; setting the operational and financial objectives and goals for the Company; • • • • ensuring that there are effective corporate governance policies and practices in place • approving and monitoring budgets, capital management and acquisitions and divestments; • approving and monitoring all financial reporting to the market; • appointing external auditors and principal professional advisors; and • making formal determinations required by the Company’s constitutional documents or by law or other external regulation. The Managing Director (MD) is normally responsible for running the affairs of the Company under delegated authority from the Board and to implement the policies and strategy set by the Board. In carrying out those 47 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Corporate Governance Statement of Corporate Governance Practices (cont’d) responsibilities, the Managing Director must report to the Board in a timely manner and ensure all reports to the Board present a true and fair view of the Company’s financial condition and operational results. Given the present size and scale of operations, the Company does not have a Managing Director but rather an Executive Director supported by a small management team. Consequently the Board as a whole takes a closer interest in the day to day affairs of the Company. Recommendation 1.2: Companies should undertake appropriate checks before appointing a person, or putting forward to security holders a candidate for election, as a director and provide security holders with all material information in its possession relevant to a decision on whether or not to elect or re-elect a director. The Company undertakes checks on any person who is being considered as a director. These checks may include character, experience, education and financial history and background. All security holder releases will contain material information about any candidate to enable an informed decision to be made on whether or not to elect or re-elect a director. Recommendation 1.3: Companies should have a written agreement with each director and senior executive setting out the terms of their appointment. All directors have in place a formal letter of appointment including a director’s interest agreement with respect to disclosure of security interests. Recommendation 1.4: The Company Secretary should be accountable directly to the Board, through the chair, on all matters to do with the proper functioning of the Board. The Company Secretary has a direct reporting line to the Board, through the Chair. Recommendation 1.5: The Company should establish a policy concerning diversity and disclose the policy or summary of the policy. The policy should include requirements for the Board to establish measureable objectives for achieving gender diversity and for the Board to assess annually both the objectives and progress in achieving them. The Company recognises that a talented and diverse workforce is a key competitive advantage. The Company is committed to developing a workplace that promotes diversity. The Company’s policy is to recruit and manage on the basis of competence and performance regardless of age, nationality, race, gender, religious beliefs, sexuality, physical ability or cultural background. The Company has not yet formalised this policy into a written document. It is the Board’s intention to formalise the policy at a time when the size of the Company and its activities warrants such a structure. The Company has 6 staff (comprising the three directors and one exploration manager, one female casual job bookkeeper and one casual job geologist), - There are no women in senior executive positions or on the Board. Recommendation 1.6: The Company should have and disclose a process for periodically evaluating the performance of the Board, its committees and individual directors and whether a performance evaluation was undertaken in the reporting period in accordance with that process. Due to the size of the Board and the nature of its business, it has not been deemed necessary to institute a formal documented performance review program of individuals. The Chairman conducted an informal review during the financial year whereby the performance of the Board as a whole and the individual contributions of each director were discussed. The Board considers that at this stage of the Company’s development an informal process is appropriate. Recommendation 1.7: The Company should have and disclose a process for periodically evaluating the performance of senior executives and whether a performance evaluation was undertaken in the reporting period in accordance with that process. The Board undertakes a review of the senior executives’ performance annually, including setting the goals for the coming year and reviewing the achievement of these goals. 48 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Corporate Governance Statement of Corporate Governance Practices (cont’d) Performance has been measured to date by the efficiency and effectiveness of the enhancement of the Company’s mineral interest portfolio, the designing and implementation of the exploration and development programme and the securing of ongoing funding so as to continue its exploration and development activities. This performance evaluation is not based on specific financial indicators such as earnings or dividends as the Company is at the exploration stage and during this period is expected to incur operating losses. Due to the size of the Company and the nature of its business, it has not been deemed necessary to institute a formal documented performance review program of senior executives. The Non-executive directors conducted an informal review process whereby they discussed with the Executive Director the approach toward meeting the short and long term objectives of the Company. The Board considers that at this stage of the Company’s development an informal process is appropriate. Principle 2: Structure the board to add value Recommendation 2.1: The Board should establish a Nomination Committee comprising a majority of independent directors (including the Chair). The Company established a nomination committee comprising the two non-executive directors, including the Chairman but no separate meetings of this committee were held in the reporting year. The Board considers that the Company is not currently of a size, nor are its affairs of such complexity, to justify separate committee meetings at this time. The Board as a whole is able to address the governance aspects of the full scope of the Company’s activities and to ensure that it adheres to appropriate ethical standards. In particular, the full Board considers those matters that would usually be the responsibility of a nomination committee. However the Board considers that no efficiencies or other benefits would be gained by having separate nomination committee meetings. Directors are appointed under the terms of the Company’s constitution. Appointments to the Board are based upon merit and against criteria that serves to maintain an appropriate balance of skills, expertise, and experience of the board. The categories considered necessary for this purpose are a blend of accounting and finance, business, technical and administration skills. Casual appointments must stand for election at the next annual general meeting of the Company. Retirement and rotation of Directors are governed by the Corporations Act 2001 and the Constitution of the Company. All Directors, with the exception of the Managing Director (if appointed), serve for a period of three years before they are requested to retire and if eligible offer themselves for re-election. Recommendation 2.2: The Company should have and disclose a Board skills matrix setting out the mix of skills and diversity that the Board currently has or is looking to achieve in its membership. The Company has a skills or diversity matrix in relation to its Board members which reflects the current size and scope of the Company’s operations. The Board will adopt a more detailed and comprehensive matrix if and when there is a significant change in the size and scale of its activities. Skills/Qualifications Experience Based on Skills/Knowledge Director Gender Jiajun Hu (Chairman) Male Lijun Yang Male Yuanguang Yang Male Finance and accounting BSc in Business Geologist MSc in Geology MAIG;MSEG Accounting CPA Accounting/ Finance Communications/ Investor Relations Corporate Management Fund Raising Geology √ √ √ √ √ √ √ √ √ √ √ Recommendation 2.3: The Company should disclose the names of the directors considered to be independent directors and length of service of each director. The names, position, appointment date and independence classification are set out in the table below: 49 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Corporate Governance Statement of Corporate Governance Practices (cont’d) Director Position Date Appointed Independent Jiajun Hu (Chairman) Non-executive Chairman 13 December 2013 (appointed as Chairman on 14 April 2015) Lijun Yang Executive Director 8 November 2013 Yuanguang Yang Non-executive Director 28 August 2014 No No No Recommendation 2.4: A majority of the Board of the Company should be independent directors. In assessing whether a director is classified as independent, the Board considers the independence criteria set out in the ASX Corporate Governance Council Recommendation 2.1 and other facts, information and circumstances deemed by the Board to be relevant. Using the ASX Best Practice Recommendations on the assessment of the independence of Directors, the Board considers that at present none of the Directors can be considered independent. Mr Jiajun Hu and Mr Yuanguang Yang have been nominated to the Board by major shareholders of the Company, whilst Mr Lijun Yang is an executive director. The Company considers that each of the directors possesses the skills and experience suitable for building the Company. Although the Company does not currently have a majority of independent directors, the current composition of the Board is considered appropriate in the circumstances. It is the Board’s intention to review its composition on a continual basis and in line with any future changes to Company’s size and level of activities. Recommendation 2.5: The Chair of the Board should be an independent director, and should not be the CEO of the Company. The Chair of the Board, Mr Jiajun Hu is not the CEO of the Company and he has a non-executive role. For the reasons explained in the preceding section, Mr Hu is a non-independent director. Given the size of the Company and the complexity of its affairs as well as the Board’s desire to maximise exploration expenditure within the constraints of the Company’s overall working capital, the Company is not presently in a position to have a majority of independent directors. Recommendation 2.6: The Company should have a program for inducting new directors and provide appropriate professional development opportunities for directors to develop and maintain the skills and knowledge needed to perform their role as directors effectively. The Company does not currently have a formal induction program for new Directors nor does it have a formal professional development program for existing Directors. The Board does not consider that a formal induction program is necessary given the current size and scope of the Company’s operations. The Board seeks to ensure that all of its members understand the Company’s operations. Directors also attend, on behalf of the Company and otherwise, technical and commercial seminars and industry conferences which enable them to maintain their understanding of industry matters and technical advances. Noting the above, the Board considers that a formal induction program is not necessary given the current size and scope of the Company’s operations, though the Board may adopt such a program in the future as the Company’s operations grow and evolve. Principle 3: Act ethically and responsibly Recommendation 3.1: Companies should have a Code of Conduct for its directors, senior executives and employees. The Company has established a Code of Conduct which sets out the Company’s key values and how they should be applied within the workplace and in dealings with those outside the Company. A copy of the Code is available on the Company’s website. 50 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Corporate Governance Statement of Corporate Governance Practices (cont’d) Principle 4: Safeguard Integrity in Financial Reporting Recommendation 4.1 The Board should have an Audit Committee. The Board established an audit committee comprising the two non-executive directors of the Company but no separate committee meetings were held during the reporting year. The Board considers that the Company is not currently of a size, nor are its affairs of such complexity, to justify separate committee meetings at this time. The Board as a whole is able to address the governance aspects of the full scope of the Company’s activities and to ensure that it adheres to appropriate ethical standards. In particular, the full Board considers those matters that would usually be the responsibility of an audit committee. However the Board considers that no efficiencies or other benefits would be gained by holding separate audit committee meetings. The Company requires external auditors to demonstrate quality and independence. The performance of the external auditor is reviewed and applications for tender of external audit services are requested as deemed appropriate, taking into consideration assessment of performance, existing value and tender costs. The external audit firm partner or an appropriate delegate responsible for the Company audit attends meetings of the Board by invitation. Recommendation 4.2 The Board of the Company should, before it approves the Company’s financial statements for a financial period, receive from its CEO and CFO a declaration that, in their opinion, the financial records of the entity have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the entity and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively. The Company has in place a procedure whereby prior to approval of financial statements by the Board (in addition to any formal management representation letter to the Company’s auditor) a declaration is provided in accordance with Sections 286 and 295(3)(b) of the Corporations Act 2001 (Cth) that financial records have been properly maintained, the financial statements comply with the accounting standards, and give a true and fair view of the financial position based on sound risk management and internal controls operating effectively. This declaration was provided by the Executive Director, Mr Lijun Yang who has been nominated by the Board to provide oversight and supervision of the Company’s financial affairs. Recommendation 4.3 The Company should ensure that the external auditor is present at the AGM and be available to answer questions from security holders relevant to the audit. The Company invites the auditor or representative of the auditor to the AGM in accordance of the requirements of Section 250RA of the Corporations Act 2001 (Cth) and is available to answer questions relevant to the audit. Principle 5 – Make timely and balanced disclosure Recommendation 5.1: Companies should have a written policy for complying with its continuous disclosure obligations under the Listing Rules. The Company has developed an ASX Listing Rules Disclosure Strategy which has been endorsed by the Board. The ASX Listing Rules Disclosure Strategy ensures compliance with ASX Listing Rules and Corporations Act obligations to keep the market fully informed of information which may have a material effect on the price or value of its securities and outlines accountability at both the Board and (where and when applicable) senior executive level for that compliance. All ASX announcements are posted to the Company’s website as soon as possible after confirmation of receipt is received from ASX. A copy of the continuous disclosure policy is available on the Company’s website. Principle 6 – Respect the rights of security holders Recommendation 6.1 and 6.2: Companies should provide information about itself and its governance to investors via its website. 51 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Corporate Governance Statement of Corporate Governance Practices (cont’d) Companies should design and implement an investor relations program to facilitate two-way communication with investors. The Company is committed to maintaining a Company website with general information about the Company and its operations, information about governance and information specifically targeted at keeping the Company’s shareholders informed about all major developments affecting the Company’s state of affairs. The Company has a Shareholder Communication Policy which is available on the Company’s website. Through this the Board aims to ensure that the shareholders are informed of the Company’s governance and all major developments affecting the Company’s state of affairs. Information is communicated to shareholders through the: • Company website; • ASX Company Announcements platform; • Quarterly Operational and Cash flow reports; • Half-year Financial Report; • Annual Report; • Investor Presentations • Shareholder meetings • Other correspondence from time to time regarding matters impacting on shareholders. Recommendations 6.3 and 6.4: Companies should disclose the policies and processes in place to facilitate and encourage participation at meetings of security holders. Companies should give security holders the option to receive communications from, and send communications to, the entity and its security registry electronically. In accordance with the Company’s Shareholder Communications Policy, the Company supports shareholder participation in general meetings and seeks to provide appropriate mechanisms for such participation. The Company will use general meetings as a tool to effectively communicate with shareholders and allow shareholders a reasonable opportunity to ask questions of the Board of Directors and to otherwise participate in the meeting. Mechanisms for encouraging and facilitating shareholder participation will be reviewed regularly to encourage the highest level of shareholder participation. The Company considers that communicating with shareholders by electronic means is an efficient way to distribute information in a timely and convenient manner. In accordance with the Shareholder Communication Policy, the Company has, as a matter of Practice, provided new shareholders with the option to receive communications from the Company electronically and the Company encourages them to do so. Existing shareholders are also encouraged to request communications electronically. All shareholders that have opted to receive communications electronically are provided with notifications by the Company when an announcement or other communication (including annual reports, notices of meeting etc) is uploaded to the ASX announcements platform. Principle 7 – Recognise and manage risk Recommendation 7.1: The Board should have a committee or committees to oversee risk. The Board established a risk management committee comprising and the two non-executive directors of the Company but no separate committee meetings were held in the reporting year. The role of the risk management committee is therefore undertaken by the full Board. The Board considers that, given the current size and scope of the Company’s operations, efficiencies or other benefits would not be gained by having separate risk management committee meetings at present. As the Company’s operations grow and evolve, the Board will reconsider the appropriateness of having separate risk management committee meetings. However, the Board has adopted a Risk Management Policy that sets out a framework for a system of risk management and internal compliance and control, and this is available on the Company’s website. 52 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Corporate Governance Statement of Corporate Governance Practices (cont’d) Recommendation 7.2: The Board should review the entity’s risk management framework at least annually to satisfy itself that it continues to be sound and disclose whether such a review has taken place. As the Board has responsibility for the monitoring of risk management it has not required a formal report regarding the material risks and whether those risks are managed effectively. The Board believes that the Consolidated Group is currently effectively communicating its significant and material risks to the Board and its affairs are not of sufficient complexity to justify the implementation of a more formal system for identifying, assessing, monitoring and managing risk in the Company. Recommendation 7.3: The Company should disclose if it has an internal audit function. The Company does not have an internal audit function. The Board considers that the Company is not currently of a size, nor are its affairs of such complexity, to justify the formation of an internal audit function at this time. The Board as a whole continually evaluates and improves the effectiveness of its risk management and internal control processes. Recommendation 7.4: The Company should disclose whether it has any material exposure to economic, environmental and social sustainability risks and, if it does, how it manages or intends to manage those risks. The Company is of the view that it has adequately disclosed the nature of its operations and relevant information on exposure to economic, environmental and social sustainability risks. Other than general risks associated with the mineral exploration industry, the Company does not currently have material exposure to environmental and social sustainability risks. Principle 8 – Remunerate fairly and responsibly Recommendation 8.1: The Board should have a Remuneration Committee. The Board has established a remuneration committee comprising the two non-executive directors of the Company but no separately remuneration committee meetings were held in the reporting year. The Board considers that the Company is not currently of a size, nor are its affairs of such complexity to justify the separate committee meetings at this time. The Board as a whole is able to address the governance aspects of the full scope of the Company’s activities and to ensure that it adheres to appropriate ethical standards. In particular, the full Board considers those matters that would usually be the responsibility of a remuneration committee. However the Board considers that no efficiencies or other benefits would be gained by having separate remuneration committee meetings at this stage. Recommendation 8.2: Companies should separately disclose its policies and practices regarding the remuneration of non-executive directors and the remuneration of executive directors and other senior executives. The Company’s policies and practices regarding the remuneration of Executive and Non-Executive Directors is set out in its Remuneration Policy which is available on the website. This information is also set out in the Remuneration Report contained in the Company’s Annual Report for each financial year Recommendation 8.3: A Company which has an equity based remuneration scheme should have a policy on whether participants are permitted to enter into transactions (whether through the use of derivatives or otherwise) which limit the economic risk of participating in the scheme and disclose that policy or summary of it. The Company does not have an equity based remuneration scheme which is affected by this recommendation. Recipients of equity-based remuneration (e.g. incentives options) are not permitted to enter into any transactions that would limit the economic risk of options or other unvested entitlements. 53 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Annual Mineral Resources and Ore Reserves Statement The Company’s reported Mineral Resources are located within four projects that lie in an arc 50-80kms’ to the north east and south west of Kalgoorlie, Western Australia. The main project area is to the north east of Kalgoorlie and comprises the Lindsays, Kalpini and Kurnalpi project areas which are spread over a 60km arc from west to east. The Spargoville project lies approximately 22kilometres to the east of Kambalda. The most significant change in the 2015 Annual Mineral Resources and Ore Reserve Statement has been the removal of the mineral resources and ore reserves contained within the Mt Jewell project as a result of that project’s divestment in November 2014. In addition, the board has taken the decision to declassify the ore reserves for Lindsays, Kurnalpi and Kalpini on the basis that the input mining costs and parameters that were used at the time to constrain the ore reserves are no longer applicable. In addition and with respect to Lindsays, part of the Eastern Structure mineral resource on which part of the Lindsays ore reserve was based was modified as a result of the reporting of the new Parrot Feathers lode (noted below). Given this previously reported resource has been the subject of more recent modification, the ore reserve previously estimated based on that mineral resource cannot be justified.The board’s decision was also influenced, supported and reinforced by a recently prepared (October 2015) independent 3rd party technical project review and valuation report of the Company’s mineral assets in which it was stated that no consideration had been given by the 3rd party to the ore reserves previously reported by the Company . The Lindsays project consists of a contiguous package of tenements centred around the Lindsays Mine site which remains under suspension. The Lindsay’s mineral resources are contained within two granted Mining Leases. During the year three diamond drill holes were completed at the Lindsays mine site which formed the basis for the reporting of the Parrot Feathers lode resource ( ASX:20 July 2015). The Parrot Feathers lode was previously incorporated into the previously reported Eastern Structure, and this resource has subsequently been adjusted downward to account for the removal of that part of the new Parrot Feathers lode resource. The Parrots Feathers Lode mineral resource was first reported on 20 July 2015 and the Company confirms that it is not aware of any new information or data that materially affects the information included in that market announcement. All material assumptions underpinning the mineral resource estimate contained in that announcement continue to apply and have not materially changed. The Kalpini Project resource is contained within a granted Mining Lease. There has been no change to the mineral resource estimate at Kalpini during the year ended 30 June 2015. The information was prepared and first disclosed under JORC 2004. It has not been updated since to comply with the JORC Code 2012 on the basis that the information has not materially changed since it was last reported. The Kurnalpi project lies 85km to the east of Kalgoorlie straddling the Kurnalpi Pinjin road and consists of a contiguous package of Exploration, Prospecting and Mining leases. The project contains six individual resources all located on granted Mining leases and centred within 3 kilometres of the more significant Brilliant deposit. There has been no change to the mineral resource estimate at Kurnalpi during the year ended 30 June 2015. The information was prepared and first disclosed under JORC 2004. It has not been updated since to comply with the JORC Code 2012 on the basis that the information has not materially changed since it was last reported. The Spargoville Project contains the Lady Allison gold mineral resource located on a granted Mining Lease. There has been no change to the mineral resource at Spargoville during the year ended 30 June 2015. The information was prepared and first disclosed under JORC 2004. It has not been updated since to comply with the JORC Code 2012 on the basis that the information has not materially changed since it was last reported. 54 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Annual Mineral Resources and Ore Reserves Statement Table 1: Ore Resources Summary of Mineral Resource Estimates (at 30 June 2015) Reported according to JORC Category and Deposit (JORC 2004 &2012 Compliant) Deposit Tonnes (t) Grade (g/t) Ounces (oz.) Tonnes (t) Grade (g/t) Ounces (oz.) Tonnes (t) Grade (g/t) Ounces (oz.) Tonnes (t) Grade (g/t) Ounces (oz.) Measured Indicated Inferred Total Discovery Hill Halfway Hill Scottish Lass Brilliant Sparkle Dazzle Total Gambia/Camelia Atlas Total Eastern Structure 1 Parrot Feathers Central Structure Neves Prospect - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2,821,300 288,900 - - - - 1.3 0.9 - Kurnalpi - - - 130,000 510,000 84,700 115,200 1,117,700 8,500 - 190,000 511,000 3,110,200 1.20 124,200 2,543,400 3,072,000 169,000 3,241,000 1,479,000 140,000 1,315,100 490,900 Kalpini 183,700 1,074,000 6,900 299,000 190,600 1,373,000 Lindsays 76,000 18,000 46,500 24,900 - 203,000 261,000 47,900 37,700 - 165,400 549,600 1.9 1.3 1.8 1.6 4.0 1.1 1.6 - 1.5 0.9 1.1 1.0 1.1 1.0 0.8 1.1 1.6 1.2 1.5 1.6 4.3 1.1 1.3 - 2.8 3,600 130,000 18,700 510,000 2,600 84,700 38,000 3,939,000 5,800 478,900 12,600 511,000 81,300 5,653,600 53,900 4,146,000 11,100 468,000 65,000 4,614,000 10,500 1,682,000 36,000 401,000 1,700 1,500 - 1,363,000 528,600 64,100 49,700 4,038,700 0.9 1.1 1.0 1.2 0.9 0.8 1.2 1.8 1.2 1.7 1.6 4.2 1.1 1.6 0.9 1.7 3,600 18,700 2,600 153,200 14,300 12,600 205,000 237,600 18,000 255,600 86,500 54,000 48,200 26,400 1,800 216,900 Stockpile Total 64,100 64,100 0.87 0.87 1,800 - 1,800 3,425,000 Lady Allison - - - - - Spargoville - 2,127,700 1.3 86,800 2,127,700 1.3 86,800 Total 64,100 0.87 1,800 9,776,200 1.5 480,200 6,593,700 1.3 282,800 16,434,000 1.4 764,300 1. Parrot Feathers reported under JORC 2012, all others under JORC 2004 KalNorth Gold Mines Total 55 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Annual Mineral Resources and Ore Reserves Statement Table 2: Comparison of Lindsays Ore Resources Reported according to JORC Category and Deposit (JORC 2004 &2012 Compliant) Deposit Eastern Structure June 2015 Eastern Structure June 2014 Parrot Feathers Lode June 2015 Parrot Feathers Lode June 2014 Central Structure June 2015 Central Structure June 2014 Neves Prospect June 2015 Neves Prospect June 2014 Stockpile June 2015 Stockpile June 2014 Total June 2015 Total June 2014 Measured Tonnes (t) Grade (g/t) Ounces (oz) - - - - - - - - - - 64,100 64,100 64,100 64,100 - - - - - - - 0.9 0.87 0.9 0.87 - - - - - - - 1,800 1,800 1,800 1,800 Lindsays Resource -Comparison June 30 2015 Vs June 30 2014 - Tonnes (t) 1,479,000 2,272,800 140,000 1,315,100 1,315,100 490,900 490,900 0 - 3,425,000 4,078,800 Indicated Grade (g/t) 1.6 2.04 4.0 - 1.1 1.10 1.6 1.60 - - 1.5 1.68 Ounces (oz) 76,000 149,000 18,000 Tonnes (t) 203,000 904,800 261,000 Inferred Grade (g/t) 1.6 3.1 4.3 Ounces (oz) 10,500 92,200 36,000 Tonnes (t) 1,682,000 3,177,600 401,000 - - - - - 46,500 46,500 24,900 24,900 - - 47,900 47,900 37,700 37,700 - - 165,400 220,400 549,600 990,400 1.1 1.1 1.3 1.3 2.8 3.0 - - 1,700 1,700 1,500 1,500 - - 49,700 95,400 1,363,000 1,363,000 528,600 528,600 64,100 64,100 3,974,600 5,133,300 Total Grade (g/t) 1.6 2.36 4.2 - 1.1 1.10 1.6 1.55 0.9 0.87 1.7 1.9 Ounces (oz) 86,500 241,200 54,000 - 48,200 48,200 26,400 26,400 1,800 1,800 216,900 317,600 56 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Annual Mineral Resources and Ore Reserves Statement Governance and Internal Controls The company ensures that all resource calculations are undertaken and or reviewed by independent industry consultants. All drill hole data was imported and stored into a master database managed by the company using Datashed and SQL. Data validation and interrogation is performed by KalNorth and independent resource consultants when required. Any errors in the data are communicated to the Exploration Manager and on approval rectified. Amendments made to the format of a drill holes, survey data samples and assay information are recorded in the database for future reference. As at June 30 2015 the database is managed by external consultants but stored on the company’s server. Quality control on resource drill programs have been undertaken to industry standards with implementation of appropriate drilling technique, survey data collection, assay standards, sample duplicates and repeat analysis. Samples were analysed by independent internationally accredited laboratories with a QAQC program that reported monthly and showing acceptable levels of accuracy and precision. Regular inspections of the assay laboratory were made during the course of drilling programs to ensure that the laboratory maintained strong adherence to QAQC. The company interrogates and validates its internal assay standards using Datashed QAQC software. The mineral resource estimates for the Kurnalpi and Spargoville Deposits were undertaken independently by Snowden Mining Industry Consultants. The mineral resource estimate for the Parrot Feathers lode was undertaken independently by Ravensgate Mining Industry Consultants. Competent Person Statement The Mineral Resources and Ore Reserves Statement is based on, and fairly represents information and supporting documentation compiled by the person named below The Mineral Resources and Ore Reserves statement as a whole has been approved by Mr Wade Johnson who is the Exploration Manager and a full time employee of and a holder of shares in KalNorth Gold Mines Limited and is a member of The Australian Institute of Geoscientists (AIG). The details within the Mineral Resources and Ore Reserve Statement are consistent with information previously released and prepared by previous employees and consultants of the company and compiled by Mr Johnson. Mr Johnson has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity that he is undertaking to qualify as a Competent Person as defined in the 2012 Edition of the “Australian Code for Reporting of exploration Results, Mineral Resources and Ore Reserves”. Mr Johnson consents to the inclusion in the report of the matters based on his information in the form and context in which it appears in this announcement. The information within this Annual Report that relates to Exploration results is based on information compiled by Mr Wade Johnson who is a full time employee of KalNorth Gold Mines Limited and is a member of The Australian Institute of Geoscientists (AIG). Mr Johnson has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity that he is undertaking to qualify as a Competent Person as defined in the 2012 Edition of the “Australian Code for Reporting of exploration Results, Mineral Resources and Ore Reserves”. Mr Johnson consents to the inclusion in the report of the matters based on his information in the form and context in which it appears in this announcement. 57 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Mining Tenement Mining Tenements held at 19 October 2015 All tenements are located in the Goldfields region of Western Australia. TENEMENT NUMBER STATUS LOCALITY KALNORTH PROJECT HOLDER INTEREST % M27/485 E27/412 E27/411 E28/2015 M28/0092 M28/0072 P28/1190 P28/1191 M28/0007 P28/1228 P28/1224 P28/1225 P28/1226 P28/1227 P28/1229 P28/1230 P28/1231 M28/0084 E28/2226 M28/374 M28/375 M28/0090 P28/1180 P28/1154 P28/1155 P28/1156 P28/1157 P28/1184 M28/0089 M28/0076 E28/2153 M28/0066 M28/0113 P28/1187 P28/1186 P28/1097 P28/1100 P28/1101 P28/1102 P28/1103 P28/1104 LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE KALPINI KALPINI HILL MAGGIES DAM COLOUR DAM KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI 6 MILE SOUTH KURNALPI 1 KURNALPI 2 KURNALPI KURNALPI RICHES FIND KURNALPI KURNALPI KURNALPI KALPINI KALPINI ALPINI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KALNORTH GOLD MINES LIMITED KALNORTH GOLD MINES LIMITED KALNORTH GOLD MINES LIMITED KALNORTH GOLD MINES LIMITED SHANNON RESOURCES PTY LTD SHANNON RESOURCES PTY LTD KALNORTH GOLD MINES LIMITED KALNORTH GOLD MINES LIMITED SHANNON RESOURCES PTY LTD LUSITAN PROSPECTING PTY LTD LUSITAN PROSPECTING PTY LTD LUSITAN PROSPECTING PTY LTD LUSITAN PROSPECTING PTY LTD LUSITAN PROSPECTING PTY LTD LUSITAN PROSPECTING PTY LTD LUSITAN PROSPECTING PTY LTD LUSITAN PROSPECTING PTY LTD SHANNON RESOURCES PTY LTD SHANNON RESOURCES PTY LTD SHANNON RESOURCES PTY LTD SHANNON RESOURCES PTY LTD SHANNON RESOURCES PTY LTD KALNORTH GOLD MINES LIMITED SHANNON RESOURCES PTY LTD SHANNON RESOURCES PTY LTD KALNORTH GOLD MINES LIMITED KALNORTH GOLD MINES LIMITED SUCCESS GOLD MINE KURNALPI KALNORTH GOLD MINES LIMITED KURNALPI KURNALPI SHANNON RESOURCES PTY LTD SCOTTISH LASS WELL KURNALPI SHANNON RESOURCES PTY LTD 5 MILE DAM KURNALPI KURNALPI COLOUR DAM KURNALPI - PURPLE PATCH KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KALNORTH GOLD MINES LIMITED SHANNON RESOURCES PTY LTD SHANNON RESOURCES PTY LTD KALNORTH GOLD MINES LIMITED KURNALPI KALNORTH GOLD MINES LIMITED SHANNON RESOURCES PTY LTD SHANNON RESOURCES PTY LTD SHANNON RESOURCES PTY LTD SHANNON RESOURCES PTY LTD SHANNON RESOURCES PTY LTD SHANNON RESOURCES PTY LTD KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI 58 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 TENEMENT NUMBER P28/1105 P28/1106 P28/1107 P28/1108 P28/1111 P28/1112 P28/1113 P28/1114 P28/1115 P28/1116 P28/1118 P28/1119 P28/1125 P28/1126 E28/2256 P28/1254 P28/1255 E28/1477 P28/1117 M27/34 M27/169 P27/2111 P27/2094 M27/486 P15/5264 P15/5494 E15/1174 P15/5216 M15/1806 P15/5236 P15/5537 P15/5545 P15/5546 P15/5547 P15/5548 P15/5392 P15/5409 L27/82 L27/84 L27/88 P 15/5766 P 15/5772 E 27/517 E28/2303 E28/2304 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Mining Tenement KALNORTH PROJECT LOCALITY HOLDER STATUS LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE LIVE KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNAPLI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI 2 KURNALPI 3 LAPAGE HILL KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI KURNALPI SHANNON RESOURCES PTY LTD SHANNON RESOURCES PTY LTD SHANNON RESOURCES PTY LTD SHANNON RESOURCES PTY LTD SHANNON RESOURCES PTY LTD SHANNON RESOURCES PTY LTD SHANNON RESOURCES PTY LTD SHANNON RESOURCES PTY LTD SHANNON RESOURCES PTY LTD SHANNON RESOURCES PTY LTD SHANNON RESOURCES PTY LTD SHANNON RESOURCES PTY LTD SHANNON RESOURCES PTY LTD SHANNON RESOURCES PTY LTD SHANNON RESOURCES PTY LTD SHANNON RESOURCES PTY LTD SHANNON RESOURCES PTY LTD SHANNON RESOURCES PTY LTD SHANNON RESOURCES PTY LTD AT LINDSAY LINDSAYS FIND KALNORTH GOLD MINES LIMITED LINDSAY FIND LINDSAYS FIND KALNORTH GOLD MINES LIMITED LINDSAYS NORTH LINDSAYS FIND KALNORTH GOLD MINES LIMITED LINSDAY DAM LINDSAYS FIND KALNORTH GOLD MINES LIMITED LINDSAYS LINDSAYS FIND KALNORTH GOLD MINES LIMITED LOGANS FIND SPARGOVILLE KALNORTH GOLD MINES LIMITED LOGANS SPARGOVILLE KALNORTH GOLD MINES LIMITED SPARGOVILLE SPARGOVILLE KALNORTH GOLD MINES LIMITED LOGANS SPARGOVILLE KALNORTH GOLD MINES LIMITED LADY ALLISON SPARGOVILLE KALNORTH GOLD MINES LIMITED LOGANS SPARGOVILLE KALNORTH GOLD MINES LIMITED LARKINVILLE SPARGOVILLE KALNORTH GOLD MINES LIMITED LOGANS LOGANS LOGANS LOGANS SPARGOVILLE KALNORTH GOLD MINES LIMITED SPARGOVILLE KALNORTH GOLD MINES LIMITED SPARGOVILLE KALNORTH GOLD MINES LIMITED SPARGOVILLE KALNORTH GOLD MINES LIMITED LARKINVILLE SPARGOVILLE KALNORTH GOLD MINES LIMITED LARKINVILLE SPARGOVILLE KALNORTH GOLD MINES LIMITED LINDSAYS LINDSAYS FIND KALNORTH GOLD MINES LIMITED LINDSAYS DEVIATION LINDSAYS FIND KALNORTH GOLD MINES LIMITED KALPINI KALPINI KALNORTH GOLD MINES LIMITED NORTH DAM SPARGOVILLE KALNORTH GOLD MINES LIMITED LADY ALLISON SPARGOVILLE KALNORTH GOLD MINES LIMITED LINDSAYS EAST LINDSAYS FIND KALNORTH GOLD MINES LIMITED CLAYPAN EAST YINIDI WOOLSHED KALNORTH GOLD MINES LIMITED LAKE ROE YINIDI WOOLSHED KALNORTH GOLD MINES LIMITED 59 INTEREST % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 80 80 80 80 80 80 80 80 80 80 80 80 80 100 100 100 80 80 100 100 100 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Mining Tenement KALNORTH PROJECT¹ LOCALITY HOLDER STATUS TENEMENT NUMBER E27/524 LIVE WELLINGTON KALPINI HERON RESOURCES LIMITED INTEREST % 100%Au ¹The Spargoville tenements were subject to an earn in Joint Venture by Mithril Resources Limited which terminated on 11 May 2015. Mithril have formally handed back the 20% interest to Kalnorth and the registration of the transfer is still pending as at 19 October 2015. 60 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Shareholder Information Shareholder Information The shareholder information set out below was applicable as at 19 October 2015. A. Distribution of Equity Securities Analysis of number of equity holders by size of holding: Spread of Holdings Number of Holders Number of Units % of Total Issued Capital 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Total 129 194 165 367 132 987 47,334 636,006 1,363,705 12,713,237 300,737,816 345,498,098 0.014% 0.184% 0.395% 3.680% 95.728% 100% The number of shareholders holding less than a marketable parcel is 987. B. Voting Rights At a general meeting of shareholders: a. On a show of hands, each person who is a member or sole proxy has one vote. b. On a poll, each shareholder is entitled to one vote for each fully paid share. C. Equity Security Holders The names of the twenty largest quoted equity security holders are listed below: Rank Shareholder 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED SOUTH VICTORY GLOBAL LIMITED RENERGY PTY LTD LINK 405 PTY LTD IRON MOUNTAIN PTY LTD TIMPETRA RESOURCES LTD MRS SUSAN MARIE CARR IRON MOUNTAIN PTY LIMITED LINK TRADERS (AUST) PTY LTD IRON MOUNTAIN PTY LIMITED INTERNATIONAL TECHNOLOGY GROUP PTY LTD J P MORGAN NOMINEES AUSTRALIA LIMITED MR JUSTIN JOHN WOOD + MRS CAROLYN WOOD CITICORP NOMINEES PTY LIMITED PERSHING AUSTRALIA NOMINEES PTY LTD EDWIN PAUL CAYZER + LORAINE HELEN CAYZER STEVEN WILLIS SHALLCRASS MR GREGORY GERARD RYAN BROADBENT NOMINEES PTY LTD MR LIONEL CEDRIC JULIAN LEES Total Units 111,045,588 45,110,916 24,868,646 22,761,692 15,737,841 14,761,340 14,710,000 8,828,687 7,272,998 4,800,000 3,398,012 2,978,179 2,316,839 2,057,196 1,881,796 1,860,000 1,710,000 1,350,000 1,294,190 1,288,000 Issued Capital % 32.14 13.06 7.2 6.59 4.56 4.27 4.26 2.56 2.11 1.39 0.98 0.86 0.67 0.6 0.54 0.54 0.49 0.39 0.37 0.37 Totals 290,031,920 83.95 61 KalNorth Gold Mines Limited and Controlled Entities For the year ended 30 June 2015 Shareholder Information D. Substantial Shareholders Substantial shareholders (>5% of shares held) in the Company are listed below: Rank Shareholder 1. 2. 3. 4. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED SOUTH VICTORY GLOBAL LIMITED RENERGY PTY LTD LINK 405 PTY LTD Total Total Units 111,045,588 45,110,916 24,868,646 22,761,692 203,786,842 62 

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