ABN 42 000 837 472 T R O P E R L A U N N A 0 2 0 2 2020 Annual Report Front cover: Khun Yuwathida from the Akara Resources Community Relations Department. www.kingsgate.com.au Akara personnel supporting the community by providing PPE to local health care facilities. 1 Contents T R O P E R L A U N N A 0 2 0 2 Contents Chairman’s Review ...................................................... Operations Report Chatree Gold Mine .................................................................. Projects Report Nueva Esperanza ................................................................... Ore Reserves and Mineral Resources .......................... Competent Persons Statement .................................... 2 4 6 8 9 Directors’ Report ........................................................... 10 15 Remuneration Report .............................................................. Auditor’s Independence Declaration ............................. 22 Financial Statements Consolidated Statement of Profit or Loss and Other Comprehensive Income ................................. Consolidated Statement of Financial Position .......................... Consolidated Statement of Changes in Equity ........................ Consolidated Statement of Cash Flows .................................. 24 25 26 27 Notes to the Financial Statements ............................... 28 Directors’ Declaration .................................................. 56 Independent Auditor’s Report ........................................ 57 Shareholder Information ............................................... 62 Corporate Information ................................................... 63 2 Chairman’s Review Chairman’s Review Well I have to say it was another eventful year all round. Just two days after Kingsgate’s Annual General Meeting in November last year, the TAFTA arbitration hearing scheduled for Hong Kong was aborted due to the escalating demonstrations and violence, making travelling to Hong Kong at best problematic and considered to be bordering on dangerous. However, as soon as the news of the sludge became known the Non-Governmental Organisations remarshalled and there has been a surge of misinformation and lies again appearing in the Thai media. Whilst handicapped by not having the real facts as revealed at the TAFTA hearing, elements of the Thai media have reverted to their usual baseless and irresponsible reporting. Support for the mine and its potential re-opening remains very strong in local commu- nities and, despite it being closed for close to four years, we have continued to liaise with, and provide information and assistance to local villagers. The Government will need to stand firm this time against the lies. We reiterate, there has never been an environmental or health problem that can be attributed to the mine and the Government is well aware of this. Consequently the hearing was re-scheduled for Singapore the following February. The senior management of your company attended the hearings for 10 days and a number of us gave evidence. Due to a confidentiality order by the Tribunal (requested by Thailand) we are handicapped on what we can report on the proceedings. Suffice to say that there was nothing revealed at the hearing that appeared to be new or that altered our advisors’ opinions that we have a very strong case. Interestingly, our attendance at the hearings in Singapore coincided with the arrival of what has turned the whole world upside down ever since —the coronavirus epidemic. Immediately Singapore initiated some of the measures everybody in the world has become familiar with, and to enter the chambers the hearing was being held in and to re-enter our hotel, we became quickly familiar with continued temperature testing. The coronavirus epidemic has certainly impacted on our ability to resolve the situation in many ways, the travel restrictions being front and centre. We have continued to say that we are prepared to negotiate with the Thai Government to establish a solution to our mutual problem. It has become clearer with the effluxion of time of how politically dangerous for the Thai Prime Minister it could be if the Thai Government was to lose this case. It appears this is being recognised, and we have detected a softening of attitude as we have pursued discussions over the last few months. A sign of the change and of goodwill from Thailand, was the recent release of the sludge that we had requested for over three and a half years. Whilst it is unknown when the Tribunal will hand down its findings, we remain committed to achieving a resolution. www.kingsgate.com.au Ross Smyth-Kirk visiting the Chilean Government booth to discuss Nueva Esperanza at the PDAC Conference in Toronto in March 2020.A local villager near the Chatree Gold Mine making PPE to help fight COVID-19. This is one of the many local microeconomic programs supported by Akara Resources. i w e v e R s ’ n a m r i a h C 3 Chairman’s Review The recent strong rises in the prices of gold and silver have not only made the Chatree mine a more valuable asset, they have increased significantly the potential mineable reserves at Chatree. On top of this they have generated renewed interest in our Chilean asset, Nueva Esperanza, now fully permitted. We are in discussions with a number of parties as to the future direction of this project and hope to be able to announce something regarding it in the not too distant future. Again our thanks to all our management and staff at all of our three locations, who, although heavily depleted in size, have continued to persevere through the difficult conditions we have been dealt. We are working assiduously towards a resolution in Thailand and sincerely hope that the coming year could see that come to pass. Ross Smyth-Kirk Executive Chairman A posse of Vicuñas at Nueva Esperanza.Akara Resources staff from left, Siroj Prasertphon, Chamrat Sangsrichan, Surachat Munsamai, Cherdsak Utha-aroon, and Kingsgate staff, Ross Coyle, Jamie Gibson, Ross Smyth-Kirk, Peter Hayman and Ron James, attending the TAFTA hearings in Singapore in February 2020. 4 Operations Report Operations Report Chatree Gold Mine Thailand Summary Akara Resources Public Company Limited (“Akara”), a subsidiary of Kingsgate, ceased operating the Chatree Gold Mine on 31 December 2016 in accordance with the closure order by the Thai Government. Chatree was placed on Care and Maintenance effective 1 January 2017. Approximately 31 full time staff remain at the Chatree Gold Mine to manage the ongoing Care and Maintenance and rehabilitation works. Chatree Closure Remedies The arbitral hearings under the Thailand – Australia Free Trade Agreement (“TAFTA”) that relate to the Thai Government’s premature closure of the Chatree Gold Mine in 2016, were heard in full in Singapore, from 3 to 12 February 2020. As previously stated the TAFTA Tribunal has ordered that the proceedings are to be kept confidential, except where disclosure is required to fulfil a legal duty. Following the completion of the arbitral hearings, the Kingsgate Board maintains that the Company has excellent prospects for a successful outcome. The arbitral panel is not required to make a decision on the claim by a prescribed date in the future; rather they have now retired to consider the matter and will render a decision in their own time. In the interim, Kingsgate remains open to seeking a negotiated settlement of the matter with the Thai Government and in September 2020, Kingsgate was delighted to announce that www.kingsgate.com.au its subsidiary, Akara Resources, was granted permission by the Thai Government to sell the high value gold and silver “sludge,” that was secured at the Chatree Gold Mine, to a refinery to be processed into doré. The sludge refers to material cleaned from the tanks and processing plant following the closure of the Chatree Gold Mine on 31 December 2016, and has always been, and acknowledged to be, the property of Akara Resources. The sludge contains approximately 4,750 ounces of gold and 34,800 ounces of silver, and is valued at around A$14 million at a gold price of A$2,673 an ounce (as at 21 September 2020) before royalties, transportation and refining costs. Akara Resources agreed terms with a Thai refinery to process the sludge pursuant to new legislation requiring Thai gold to be refined in Thailand. The sludge was processed in three separate shipments to de-risk the process. Whilst this move is long overdue, Kingsgate sees it as an act of good faith, indicating a new willingness by the Thai Government to pursue a negotiated settlement between the two parties, a process Kingsgate has advocated for some considerable time. Response to the Coronavirus Kingsgate acknowledges the unprecedented impact the Coronavirus pandemic is having on both global communities and economies alike. In response, Kingsgate has rolled out a Coronavirus Response Plan across all employees in its group including staff in Australia, Thailand, and Chile. These measures include implementing best practice safety/social distancing measures at various work sites, working from home where possible, following the advice of local health authorities and keeping open communication channels to stay up to date with the latest developments and updated health advice. 5 Operations Report t r o p e R s n o i t a r e p O Akara is also supporting a local micro-economic project that will see COVID-19 face masks manufactured by locals living around the mine. Akara has provided sewing equipment, training and materials to facilitate this program for the locals, who are the same group that manufacture Akara staff uniforms. This includes the application of quarantining measures and seeking medical assistance for those staff who may be exhibiting symptoms consistent with Coronavirus. (Note: as at the date of this report no Kingsgate personnel have tested positive for Coronavirus). In addition to taking precautionary measures to ensure the safety of company employees, in early April, Akara’s Community Relations Department donated 70 Personal Protection Equipment (PPE) gowns which were previously used in the gold room at the Chatree Gold Mine to local health authorities. These gowns designed to withstand high temperatures, repel liquids and provide a strong protective barrier are ideally suited for use in conjunction with other PPE’s to fight the Coronavirus. PPE’s are in short supply across many areas of Thailand. These gowns were distributed to Thap Khlo Hospital, Khao Chet Luk Hospital, Wang Sai Phun Hospital which are located in the Phichit Province. The Thung Yao Hospital, Dong Long Hospital, Dan Chang Hospital, and Wang Pong Hospital also recived gowns and are located in Phetchabun Province. These gowns have been donated for the express purpose of helping local medical personnel fight against the Coronavirus. A Chatree Gold Mine Security Officer takes the temperature of all employees entering the site. Aerial view of the A Pit at the Chatree Gold Mine. 6 Projects Report Projects Report Nueva Esperanza Gold/Silver Chile Summary Nueva Esperanza Mineral Resources inclusive of Ore Reserves remain unchanged from 30 June 2017, and are estimated at 0.30 million ounces of gold and 47.8 million ounces of silver (17.1Mt at 0.5g/t Au and 87g/t Ag). During the year, the project’s feasibility was significantly advanced with the successful approval of an Environmental Impact Assessment by the Chilean Government. Another significant milestone during the year was the successful negotiation of an extension to the water supply agreement until 2025. www.kingsgate.com.au 7 Projects Report t r o p e R s t c e o r P j Permitting Kingsgate’s 100% owned Laguna Resources Chile entity was granted an Environmental Impact Assessment (EIA) approval, referred to in Chile as a RCA-64/20, for the Nueva Esperanza Gold and Silver Project in the Atacama region in northern Chile. The EIA was approved uncontested. The RCA-64/20 certifies that the project complies with the evaluation process and all applicable environmental requirements including mitigation and remediation measures, and importantly it meets all applicable community and indigenous consultation requirements. The RCA-64/20 effectively allows the pre-development, construction and operation of the three project areas, namely Arqueros, Chimberos and Teterita. This approval is the successful culmination of 18 months of detailed work that saw Kingsgate working closely with environmental consultants, and local indigenous communities. More than 25 local and regional Chilean government agencies gave the green light to the RCA-64/20. Laguna Resources Chile also negotiated an extension of its water supply agreement for the project until December 2024. In addition, a substantial deferral of the costs related to the water rights has also been negotiated which is subject to final documentation. The recent rise in commodity prices has seen renewed interest in the Nueva Esperanza Gold/ Silver Project, and has afforded Kingsgate the opportunity to methodically work its way through all the options available to maximise the outcome for shareholders. 8 Ore Reserves and Mineral Resources Ore Reserves and Mineral Resources as at 30 June 2020 Chatree and Nueva Esperanza Ore Reserves Grade Contained Metal Source Chatree Nueva Esperanza Total Category Proved Probable Total Proved Probable Total Proved Probable Total Tonnes (Million) Gold (g/t) Silver (g/t) – – – – 17.1 17.1 – 17.1 17.1 – – – – 0.5 0.5 – 0.5 0.5 – – – – 87 87 – 87 87 Gold (M oz) – – – – 0.30 0.30 – 0.30 0.30 Chatree and Nueva Esperanza Mineral Resources (inclusive of Ore Reserves) Grade Contained Metal Tonnes (Million) 73.2 49.8 40.6 163.6 1.6 27.2 10.6 39.4 74.8 77.0 51.2 203.0 Gold (g/t) 0.69 0.64 0.59 0.65 0.01 0.46 0.30 0.39 0.68 0.58 0.53 0.60 Silver (g/t) 6.20 5.58 4.50 5.59 93 73 43 66 8.06 29.4 12.5 17.3 Gold (M oz) 1.63 1.02 0.77 3.42 0.0005 0.40 0.09 0.49 1.63 1.42 0.86 3.91 Source Chatree Nueva Esperanza Total Category Measured Indicated Inferred Total Measured Indicated Inferred Total Measured Indicated Inferred Total www.kingsgate.com.au Silver (M oz) – – – – 47.8 47.8 – 47.8 47.8 Silver (M oz) 14.6 8.9 5.9 29.4 4.8 63.8 14.8 83.4 19.4 72.7 20.7 112.8 www.kingsgate.com.au 9 Ore Reserves and Mineral Resources Notes to the Ore Reserves and Mineral Resources Tables on page 8: (1) Rounding of figures causes some numbers to not add correctly. (2) (3) (4) Nueva Esperanza metallurgical recoveries: 80% Au and 84% Ag estimated from test work by Kingsgate. Chatree metallurgical recoveries: 83.3% Au and 38.7% Ag based on metallurgical test work and plant performance. Cut-off grades for Resources are: Chatree 0.30g/t Au, Nueva Esperanza 0.5g/t AuEq60 (assuming metal prices of USD1,200/oz Au, USD19.00/oz Ag and metallurgical recoveries as per (2) above. (5) 6) Nueva Esperanza Ore Reserves are based on a floating cut-off grade method. In this method each Resource block is subjected to a series of estimates to generate revenue and cost fields that are used to determine a breakeven cut-off grade. Please refer to ASX: KCN release published 14 April 2016 titled, “Nueva Esperanza Pre-Feasibility Study Confirms Kingsgate Growth Strategy” for details on Mineral Resources, Ore Reserves and JORC 2012 Table 1. s e c r u o s e R d n a s e v r e s e R Chatree Ore Reserves (assuming Metallurgical Licence granted) The table below shows what the Chatree Reserve would be if the Metallurgical Licence was granted in the future. Source Chatree Category Proved Probable Total Grade Contained Metal Tonnes (Million) 26.1 9.3 35.4 Gold (g/t) 0.77 0.80 0.78 Silver (g/t) 6.70 7.04 6.79 Gold (M oz) 0.65 0.24 0.89 Silver (M oz) 6.2 2.1 8.3 Notes to the Chatree Ore Reserves Table above: (1) For the material in the table above to become a JORC 2012 Ore Reserve, the Thai Department of Primary Industries and Mines need to grant the Chatree Gold Mine a Metallurgical Licence. (2) The information in the table above is not currently an Ore Reserve under JORC reporting requirements. Competent Persons Statement The information relating to Nueva Esperanza Ore Reserves is extracted from an ASX announcement by Kingsgate titled ‘Nueva Esperanza Pre-Feasibility Study’ published 14 April 2016. The information relating to Nueva Esperanza Mineral Resources is extracted from an ASX announcement by Kingsgate titled ‘Nueva Esperanza Mineral Resource Update’ published 14 April 2016. Previous announcements referred to in this report are available to view on Kingsgate’s public website (www.kingsgate.com.au). The Company confirms that it is not aware of any new information or data that materially affects the information included in the original market announcement, and in the case of estimates of Mineral Resources or Ore Reserves that all material assumptions and technical parameters underpinning the estimates in the relevant market announcements continue to apply and have not materially changed. The Company confirms that the form and context in which the Competent Person’s findings are presented have not been materially altered from the original announcements. The information in this report that relates to Nueva Esperanza and Chatree Mineral Resources is based on information compiled by Ron James, who is a consultant geologist to the Kingsgate Group. Ron James is a member of The Australasian Institute of Mining and Metallurgy, and qualifies as a Competent Person. Mr James has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration, and to the activity being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Mineral Resources and Ore Reserves.’ Mr James has consented to the public reporting of these statements and the inclusion of the material in the form and context in which it appears. 10 Directors’ Report Your Directors’ present their report on the Group consisting of Kingsgate Consolidated Limited and the entities it controlled at the end of, or during the year ended 30 June 2020. Directors The following persons were directors of Kingsgate Consolidated Limited during the year ended 30 June 2020 and up to the date of this report, except where noted otherwise: 〉 Ross Smyth-Kirk 〉 Peter Alexander 〉 Peter Warren Executive Chairman Non-Executive Director Non-Executive Director Principal activities The principal activities of Kingsgate Consolidated Limited during the year were the progression of its claim with respect to the arbitral proceedings against the Kingdom of Thailand under the Australia-Thailand Free Trade Agreement. This is in conjunction with Kingsgate continuing its rehabilitation obligations and maintaining and keeping the project in good standing. Work also continued on a process to unlock the value of the Nueva Esperanza Gold/ Silver Project (“Nueva Esperanza”) in Chile. Dividends 〉 No final dividend was declared for the year ended 30 June 2019 (30 June 2018: nil). 〉 No interim dividend was declared for the year ended 30 June 2020 (30 June 2019: nil). Australia–Thailand Free Trade Agreement (“TAFTA”) On 2 November 2017, Kingsgate commenced arbitral proceedings against the Kingdom of Thailand under the Australia-Thailand Free Trade Agreement, in order to recover the substantial losses that it has suffered, and continues to suffer, as a result of the unlawful expropriation of the Chatree Mine by the Thai Government. The arbitral hearings scheduled to take place in Hong Kong between 18 to 29 November 2019 were rescheduled. The joint decision to reschedule the hearings was made as a consequence of the escalating violence and volatility in and around Hong Kong at that time. Following this decision, the arbitral hearings were rescheduled to take place between 3 to 12 February 2020, in Singapore, and as a result have now been completed in full. As previously stated the TAFTA Tribunal has ordered that the proceedings are to be kept confidential, except where disclosure is required to fulfil a legal duty. Kingsgate stands by its previous comments that the Board considers the Company has excellent prospects for a successful outcome. While there is no allocated date for a decision on the hearings, the Tribunal has now retired to consider the matter and will render a decision in its own time. In the interim, Kingsgate remains open to a negotiated settlement with the Thai Government. The recent approval given to Akara Resources to monetise of the high grade gold and silver sludge, is viewed by Kingsgate as a small but positive step, and seemingly as an act of good faith, indicating a new willingness by the Thai Government to pursue a negotiated settlement between the two parties. Review of operations and results Operational Performance Kingsgate is a gold and silver mining, development and exploration company based in Sydney, Australia. Kingsgate owns the Chatree Gold Mine (“Chatree”) in Thailand. In addition, the Company has an advanced development project, Nueva Esperanza, in the highly prospective Maricunga Gold/Silver Belt in Chile. Chatree Akara Resources Public Company Limited (“Akara”), a subsidiary of Kingsgate, ceased operating the Chatree Gold Mine on 31 December 2016 in accordance with the closure order by the Thai Government. Chatree was placed on Care and Maintenance effective 1 January 2017. Approximately 25 full time staff remain at the Chatree Gold Mine to manage the ongoing Care and Maintenance and rehabilitation works. At mine closure, approximately A$14 million of gold and silver inventory in the form of high-grade sludge remained at the Chatree site. In September 2020, Akara Resources was granted permission by the Thai Government to sell the high value gold and silver sludge, which is secured at the Chatree Gold Mine, to a Thai refinery to be processed into fine gold and silver. The sludge refers to material cleaned from the tanks and processing plant following the closure of the Chatree Gold Mine on 31 December 2016, and has always been, and acknowledged to be, the property of Akara Resources. The sludge which was previously written down to nil contains approximately 4,750 ounces of gold and 34,800 ounces of silver and is valued at around A$14 million at a gold price of A$2,673 an ounce (as at 21 September 2020) before royalties, transportation and refining costs. Akara Resources has agreed terms with a Thai refinery to process the sludge pursuant to new legislation requiring gold mined in Thailand to be refined in Thailand. Shipment of the sludge to the refinery has commenced. Directors’ Reportwww.kingsgate.com.au 11 Thai Media Reports The Thai media has reported several stories recently, concerning the TAFTA Arbitration against Thailand seeking compensation for the expropriation of the Chatree Gold Mine. Kingsgate has always stated that it is open to a negotiated settlement, and more recently there has been a positive dialogue with the Thai Government as to how this might be achieved. Kingsgate has advocated this approach for some time, however, there can be no guarantee that this will occur. Kingsgate continues to await the decision of the Arbitral Tribunal, and continues to consider that its prospects for a positive outcome are excellent. The Thai media has also reported that the Thai National Anti-Corruption Commission alleges that they have emails indicating improper conduct on behalf of Kingsgate to obtain mining concessions. Kingsgate categorically refutes those allegations, and advises that in 2011/12, Kingsgate was the subject of an Australian Securities and Investments Commission (ASIC) investigation into allegations of corrupt activity in Thailand. ASIC concluded its investigation in mid-2014, and subsequently advised Kingsgate in writing that it would not be taking the matter any further. As a result, Kingsgate considers the matter to be closed. As stated previously, Kingsgate urges shareholders to check trusted information sources such as the Company website or ASX Announcements for any information when it comes to the veracity of Thai media speculation on these matters. Nueva Esperanza Nueva Esperanza is a feasibility-stage develop- ment project with a resource base (inclusive of ore reserves) of approximately 0.49 million ounces gold and 83.4 million ounces of silver. (See ASX:KCN released titled “Kingsgate Mineral Resources and Ore Reserves 2016” dated 7 October 2016). With the successful settlement in March 2019, of the Political Risk Insurance claim that Kingsgate had in place at the time the Chatree Gold Mine was unlawfully closed by the Thai Government in 2016, the Company has time to carefully consider its options with respect to Nueva Esperanza, and the recent rise in commodity prices has seen renewed interest in the project. Kingsgate has made all non-essential staff redundant to reduce ongoing holding costs of the project. In addition, Kingsgate is currently in the process of finalising an agreement with Anglo American that will see a deferral of fees for both the water rights and project royalty payments until 2025, with an approximate value of US$3.4 million. On 14 July 2020, Kingsgate advised that its 100% owned Laguna Resources Chile entity (“LRC”) has been granted an Environmental Impact Assessment (“RCA-64/20”) approval for the Nueva Esperanza Gold/Silver Project in the Atacama region in northern Chile. (See ASX:KCN release titled “Nueva Esperanza Project – EIA Approved”). This approval will enable the development of the project (subject to compliance with local mining laws/regulations) and follows a public consul- tation period that resulted in no objections being lodged against the project, and is the successful culmination of 18 months of detailed work that saw Kingsgate working closely with environmental consultants, local indigenous communities and the Chilean Government. These factors combined, have afforded Kingsgate the opportunity to work its way through all the options available for Nueva Esperanza to maximise the outcome for shareholders. Financing At the end of June 2020, Kingsgate’s Group Cash totalled A$15.6 million excluding approximately A$14 million of gold and silver inventory in the form of high grade sludge secured at the Chatree mine site which has not been recog- nised on the statement of financial position of the Group at balance sheet date. The monetisation of the gold sludge and expectations for costs in the 2021 financial year to be significantly lower than that in the current year will provide sufficient liquidity for Kingsgate to continue as a going concern. The Group’s expenditure for the TAFTA arbitration process was approximately $10 million in this current financial year. These costs would be significantly lower in the 2021 financial year considering the status of the litigation process. continuedu Directors’ ReportDirectors' Report 12 Financial results Net (loss)/profit after tax ($’000) EBITDA ($’000) Dividends paid (Cash & DRP) ($’000) Share price 30 June ($) Basic (loss)/earnings per share (Cents) Diluted (loss)/earnings per share (Cents) 2020 (24,244) (22,782) – 0.40 (10.84) (10.84) 2019 8,375 15,958 – 0.245 3.70 3.70 2018 (76,722) (71,706) – 0.28 (34.26) (34.26) 2017 7,088 63,042 – 0.20 3.17 3.17 2016 (229,451) 39,864 – *0.41 (102.6) (102.6) * Price at 10 May 2016 as shares were suspended from 13 May 2016 to 16 October 2016. EBITDA before significant items The pre-tax loss for the Group before significant items was $24.2 million compared to a profit of $8.4 million in the previous year. EBITDA before significant items was negative $22.8 million (2019: negative $26.9 million). Significant items are detailed below. (Loss)/profit after income tax Income tax expense (Loss)/profit before income tax Significant items Settlement of Political Risk Insurance claim Impairment losses – Nueva Esperanza Loss before tax and significant item Net finance costs Depreciation and amortisation EBITDA before significant items EBITDA before significant items is a financial measure which is not prescribed by International Financial Reporting Standards (“IFRS”) and repre- sents the profit under IFRS adjusted for specific significant items. The table above summarises key items between statutory profit/(loss) after income tax and EBITDA before significant items. The EBITDA before significant items has not been subject to any specific auditor review procedures by our auditor but has been extracted from the accompanying financial statement. 2020 $’000 (24,244) - (24,244) 2019 $’000 8,375 – 8,375 – – (76,319) 33,436 (24,244) (34,508) 1,248 214 6,983 600 (22,782) (26,925) Material Business Risks The material business risks that may have an impact on the operating and financial prospects of the Group are: Mineral resources and ore reserves Ore reserves and mineral resources are estimates. These estimates are substantially based on interpretations of geological data obtained from drill holes and other sampling techniques. Actual mineralisation or geological conditions may be different from those predicted and as a consequence there is a risk that any part, or all of the mineral resources, will not be converted into reserves. Market price fluctuations of gold and silver as well as increased production and capital costs, may render ore reserves unprofitable to develop at a particular site for periods of time. Mining risks and insurance risks These risks and hazards could result in significant costs or delays that could have a material adverse impact on the Group’s financial performance and position. The Group maintains insurance to cover some of these risks and hazards at levels that are believed to be appropriate for the circumstances surrounding each identified risk. However, there remains the possibility that the level of insurance may not provide sufficient coverage for losses related to specific loss events. Directors’ Reportwww.kingsgate.com.au Reliance on contractors Some aspects of Kingsgate’s activities are conducted by contractors. As a result, the Group’s business performance is impacted upon by the availability and performance of contractors and the associated risks. Maintaining title The Group’s activities are subject to obtaining and maintaining the necessary titles, authorisa- tions, permits and licences, and associated land access arrangements with the local community, which authorise those activities under the relevant law (“Authorisations”). There can be no guarantee that the Group will be able to successfully obtain and maintain relevant Authorisations to support its activities, or that renewal of existing Authorisations will be granted in a timely manner or on terms acceptable to the Group. Authorisations held by or granted to the Group may also be subject to challenge by third parties which, if successful, could impact on Kingsgate’s exploration, development and/or mining activities. Political, economic, social and security risks Kingsgate’s activities are subject to the political, economic, social and other risks and uncertainties in the jurisdictions in which those activities are undertaken. As evidenced by the decision by the Thai Government that the Chatree Gold Mine must cease operation by 31 December 2016, there can be no certainty as to what changes, if any, will be made to relevant laws in the jurisdictions where the Company has current interests, or other jurisdictions where the Company may have interest in the future, or the impact that relevant changes may have on Kingsgate’s ability to own and operate its mining and related interests and to otherwise conduct its business in those jurisdictions. Environmental, health and safety regulations The Group’s activities are subject to extensive laws and regulations. Delays in obtaining, or failure to obtain government permits and approvals may adversely affect the Group. Measures have been implemented in line with COVID-19 guidelines. There has been no direct adverse impact on the Group from COVID-19. Community relations The Group has established community relations functions that have developed a community engagement framework, including a set of principles, policies and procedures designed to provide a structured and consistent approach to community activities. A failure to appropriately manage local community stakeholder expectations may lead to disruptions in the Group’s activities. Risk management The Group manage the risks listed above, and other day-to-day risks through an established management framework. The Group has policies in place to manage risk in the areas of health and safety, environment and equal employment opportunity. Management and the Board regularly review the risk portfolio of the business and the effectiveness of the Group’s management of those risks. Significant change in the state of affairs There were no significant changes in the state of affairs of the Group that occurred during the financial year not otherwise disclosed in this report or the consolidated financial statements. Matters subsequent to the end of the financial year Akara Resources Public Company Limited (“Akara”), a subsidiary of Kingsgate has been granted permission by the Thai Government to sell the high value gold and silver “sludge,” which is secured at the Chatree Gold Mine, to a refinery to be processed into fine gold. The sludge which was written down to nil and contains approximately 4,750 ounces of gold and 34,800 ounces of silver and is valued at around A$14 million before royalties, transpor- tation and refining costs. Akara has agreed terms with a Thai refinery to process the sludge pursuant to new legislation requiring Thai gold to be refined in Thailand. No other matter or circumstance has arisen since 30 June 2020 that has significantly affected, or may significantly affect: 〉 〉 〉 the Group’s operations in future financial periods; the results of those operations in future financial periods; or the Group’s state of affairs in future financial periods. 13 Likely developments and expected results Kingsgate continues to prosecute its claim under the Australia-Thailand Free Trade Agreement (“TAFTA”) as it remains committed to negotiations with the Thai Government for both restitution of the Chatree Gold Mine and associated compensation. On 2 November 2017, Kingsgate commenced arbitral proceedings against the Kingdom of Thailand under TAFTA, in order to recover the substantial losses that it has suffered, and continues to suffer, as a result of the unlawful expropriation of the Chatree Mine by the Thai Government. The arbitral hearings took place between 3 to 12 February 2020, in Singapore, and have been completed in full. While there is no allocated date for a decision on the hearings, the Tribunal has now retired to consider the matter and will render a decision in its own time. However, the Tribunal has also ordered that the proceedings are to be kept confidential, except where disclosure is required to fulfil a legal duty. The Kingsgate Board considers that the Company’s prospects of successfully prose- cuting its claim against Thailand are excellent, but remains committed to seeking a negotiated settlement of the investment dispute with the Kingdom of Thailand. Environmental laws The Group is subject to various environmental laws in respect to its activities in Thailand and Chile. For the year ended 30 June 2020, the Group has operated within all applicable environmental laws and regulations. continuedu Directors’ ReportDirectors' Report 14 Directors’ meetings The number of meetings of the Company’s Board of Directors and of each Board Committee held during the year ended 30 June 2020, and the number of meetings attended by each Director were: Directors Ross Smyth-Kirk Peter Alexander Peter Warren Board Meetings A 4 4 4 B 4 4 4 Meetings of Committees Audit Nomination Remuneration A 2 2 2 B 2 2 2 A 1 1 1 B 1 1 1 A – – – B – – – A B Number of meetings attended. Number of meetings held during the time the Director held office or was a member of the committee during the year. Information on Directors/Company Secretary Ross Smyth-Kirk B Com, CPA, F Fin Peter Alexander Ass. Appl. Geol Executive Chairman Ross Smyth-Kirk was a founding Director of the former leading investment management company, Clayton Robard Management Limited and has had extensive experience over a number of years in investment management including a close involvement with the minerals and mining sectors. He has been a Director of a number of companies over the past 40 years in Australia and the United Kingdom. Mr Smyth-Kirk is a former Chairman of the Australian Jockey Club Limited. He is Chairman of Kingsgate’s wholly owned subsidiary, Akara Resources Public Company Limited. Responsibilities Chairman of the Board, member of the Audit Committee, Chairman of the Nomination and Remuneration Committees. Non-Executive Director Peter Alexander has had 47 years’ experience in the Australian and offshore mining and exploration industry. He was Managing Director of Dominion Mining Limited for 10 years prior to his retirement in January 2008. Mr Alexander was appointed a Non-Executive Director of Dominion Mining Limited in February 2008 and resigned on 21 February 2011. Mr Alexander was a Non-Executive Director of ASX listed Doray Minerals Limited prior to the merger with Silver Lake Resources and is now a Non-Executive Director of Silver Lake Resources. He has previously been Non-Executive Chairman of Doray Minerals Limited and ASX listed Caravel Minerals. Responsibilities Member of the Audit, Nomination and Remuneration Committees. Peter Warren B Com, CPA Non-Executive Director Peter Warren was Chief Financial Officer and Company Secretary of Kingsgate Consolidated Limited for six years up until his retirement in 2011. He is a CPA of over 45 years standing, with an extensive involvement in the resources industry. He was Company Secretary and Chief Financial Officer for Equatorial Mining Limited and of the Australian subsidiaries of the Swiss based Alusuisse Group and has held various financial and accounting positions for Peabody Resources and Hamersley Iron. Mr Warren is a Director of Kingsgate’s wholly owned subsidiary, Akara Resources Public Company Limited. Responsibilities Chairman of the Audit Committee and member of the Nomination and Remuneration Committees. Ross Coyle BA, FCPA, FGIA Company Secretary Ross Coyle is a CPA with over 38 years’ experience in the resources sector. He joined Kingsgate in March 2011 and was reappointed on a contractual and temporary basis Company Secretary on 24 December 2018, having previously served in this office from September 2011 to November 2014 and December 2015 to August 2018. Directors’ Reportwww.kingsgate.com.au 15 Remuneration Report Introduction This Remuneration Report forms part of the Directors’ Report. It outlines the Remuneration Policy and framework applied by the Company as well as details of the remuneration paid to Key Management Personnel (“KMP”). KMP are defined as those persons having the authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly, including Directors and Executive Management. The information provided in this report has been prepared in accordance with s300A and audited as required by section 308 (3c) of the Corporations Act 2001. The objective of the Company’s remuneration philosophy is to ensure that Directors and Executives are remunerated fairly and respon- sibly at a level that is competitive, reasonable and appropriate, in order to attract and retain suitably skilled and experienced people. Remuneration Policy The Remuneration Policy remains unchanged from last financial year. The Remuneration Policy has been designed to align the interests of shareholders, Directors, and employees. This is achieved by setting a framework to: 〉 help ensure an applicable balance of fixed and at-risk remuneration, with the at-risk component linking incentive and performance measures to both Group and individual performance; 〉 provide an appropriate reward for Directors and Executive Management to manage and lead the business successfully and to drive strong, long-term growth in line with the Company’s strategy and business objectives; 〉 〉 encourage executives to strive for superior performance; facilitate transparency and fairness in executive remuneration policy and practices; 〉 be competitive and cost effective in the current employment market; and 〉 contribute to appropriate attraction and retention strategies for Directors and executives. In consultation with external remuneration consultants, the Group has structured an executive remuneration framework that is market competitive and aligned with to the business strategy of the organisation. The framework is intended to provide a mix of fixed and variable remuneration, with a blend of short and long-term incentives as appropriate. As executives gain seniority within the Group, the balance of this mix shifts to a higher proportion of “at risk” rewards. Remuneration Governance Role of the Remuneration Committee The Remuneration Committee is a committee of the Board and has responsibility for setting policy for determining the nature and amount of emoluments of Board members and Executives. The Committee makes recommendations to the Board concerning: 〉 Non-Executive Director fees; 〉 remuneration level of Executive Directors and other KMP; 〉 〉 〉 the executive remuneration framework and operation of the incentive plan; key performance indicators and performance hurdles for the executive team; and the engagement of specialist external consultants to design or validate method- ology used by the Company to remunerate Directors and employees. In forming its recommendations the Committee takes into consideration the Group’s stage of development, remuneration in the industry and performance. The Corporate Governance Statement provides further information on the role of this committee. Remuneration consultants The Group engages the services of independent and specialist remuneration consultants from time to time. Under the Corporations Act 2001, remuneration consultants must be engaged by the Non-Executive Directors and reporting of any remuneration recommendations must be made directly to the Remuneration Committee. The Remuneration Committee engaged the services of Godfrey Remuneration Group Pty Ltd in the 2013/2014 financial year to review its remuneration practice revisions and to provide further validation in respect of both the executive short-term and long-term incentive plan design methodology and standards. These recommendations covered the remuneration of the Group’s Non-Executive Directors and KMP. Godfrey Remuneration Group Pty Ltd confirmed that the recommendations from that review were made free from undue influence by members of the Group’s KMP. The following arrangements were implemented by the Remuneration Committee to ensure that the remuneration recommendations were free from undue influence: 〉 Godfrey Remuneration Group Pty Ltd was engaged by, and reported directly to, the Chair of the Remuneration Committee. The agreement for the provision of remuneration consulting services was executed by the Chair of the Remuneration Committee under delegated authority on behalf of the Board; and 〉 any remuneration recommendations by Godfrey Remuneration Group Pty Ltd were made directly to the Chair of the Remuneration Committee. As a consequence, the Board is satisfied that the recommendations contained in the report were made free from undue influence from any members of the Group’s KMP at the time this review was completed. Executive Director and Key Management Personnel Remuneration The executive pay and reward framework is comprised of three components: 〉 〉 〉 fixed remuneration including superannuation; short-term performance incentives; and long-term incentives through participation in the Kingsgate Employee Share Option Plan (“ESOP”). Fixed remuneration Total fixed remuneration (“TFR”) is structured as a total employment cost package, including base pay and superannuation. Base pay may be delivered as a mix of cash, statutory and salary sacrificed superannuation, and prescribed non-financial benefits at the Executive’s discretion. Executives are offered a competitive base pay. Base pay for executives is reviewed annually to ensure their pay is competitive with the market. An executive’s pay is also reviewed on promotion. The Group has an Executive Chairman, but does not have a Chief Executive Officer. continuedu Directors’ ReportDirectors' Report 16 The following summarises the performance of the Group over the last five years: Revenue (‘000s) Net profit/(loss) after income tax (‘000s) EBITDA (‘000s) Share price at year end ($/share) Dividends paid (cent/share) KMP short term employee benefits (‘000s) * see page 19 for table outlining the short term employee benefits. 2020 2019 2018 2017 2016 – (24,244) (22,782) 0.40 Nil *328 – 8,375 15,958 0.245 Nil *901 – (76,722) (71,706) 0.28 Nil 1,604 176,119 7,088 63,042 0.20 Nil 2,099 253,328 (229,451) 39,864 0.41 Nil 2,358 Short-Term Incentives Linking current financial year earnings of executives to their performance and the performance of the Group is the key objective of our Short-Term Incentive (“STI”) Plan. The Remuneration Committee set key performance measures and indicators for the individual executives on an annual basis that reinforce the Group’s business plan and targets for the year. No short-term incentives were awarded during the financial year. The Board has discretion to issue cash bonuses to employees for individual performance outside the STI Plan. The structure of the STI Plan remains unchanged since 30 June 2016 and its key features are outlined in the table below: What is the STI Plan and who participates? The STI Plan is a potential annual reward for eligible Executive Key Management Personnel for achievement of predetermined individual Key Performance Indicators (“KPIs”) aligned to the achievement of business objectives for the assessment period (financial year commencing 1 July). How much can the executives earn under the STI Plan? Is there Board discretion in the payment of an STI benefit? Threshold – represents the minimum acceptable level of performance that needs to be achieved before any Individual Award would be payable in relation to that Performance Measure. Managing Director/CEO – up to 15% of TFR. COO & CFO – up to 12.5% of TFR. Other KMP – up to 10% of TFR. Target – represents a challenging but achievable level of performance relative to past and otherwise expected achievements. It will normally be the budget level for financial and other quantitative performance objectives. Managing Director/CEO – up to 30% of TFR. COO & CFO – up to 25% of TFR. Other KMP – up to 20% of TFR. Stretch (Maximum) – represents a clearly outstanding level of performance which is evident to all as a very high level of achievement. Managing Director/CEO – up to 60% of TFR. COO & CFO – up to 50% of TFR. Other KMP – up to 40% of TFR. (TFR – Total Fixed Remuneration) Yes, the plan provides for Board discretion in the approval of STI outcomes. What are the performance conditions? For KMP between 70–80% of potential STI weighting (dependent upon role) is assessed against specific predetermined KPIs by role with 20–30% being based on company performance indicators. How are performance targets set and assessed? Individual performance targets are set by the identification of key achievements required by role in order to meet business objectives determined for the upcoming assessment period in advance. The criteria for KMP are recommended by the Managing Director/CEO for sign off by the Remuneration Committee and in the case of the Managing Director/CEO, are recommended by the Chairman by sign off by the Remuneration Committee. The relative achievement at the end of the financial period is determined by the above authorities with final sign off by the Remuneration Committee after confirmation of financial results and individual/company performance against established criteria. The Remuneration Committee is responsible for assessing whether the KPIs are met. To assist in this assessment, the Committee receives detailed reports on performance from management which are verified by independent remuneration consultants if required. The Committee has the discretion to adjust STIs in light of unexpected or unintended circumstances. How is the STI delivered? STIs are paid in cash after the conclusion of the assessment period and confirmation of financial results/individual performance and subject to tax in accordance with prevailing Australian taxation laws. The STIs are then in effect paid and expensed in the financial year subsequent to the measurement year. What happens in the event of cessation of employment? Executives are required to be employed for the full 12 months of the assessment period before they are eligible to be considered to receive benefits from the STI Plan. Directors’ Reportwww.kingsgate.com.au 17 Long-Term Incentives The objectives of the LTI Plan are to retain key executives and to align an at-risk component of certain executives’ remuneration with shareholder returns. The previously operating Kingsgate Long-Term Incentive (“LTI”) plan, also referred to as the Executive Rights Plan, has been terminated. All outstanding Performance Rights and Deferred Rights vested on 1 July 2016 and the Performance Rights subsequently lapsed. The Executive Rights Plan was replaced by the Kingsgate Employee Share Option Plan (“ESOP”). The rules and terms and conditions of the ESOP have been independently reviewed. Under the terms of the ESOP long-term incentives can be provided to certain employees through the issue of options to acquire Kingsgate shares. Options are issued to employees to provide incentives for employees to deliver long-term shareholder returns. No executive was the recipient of options during the 2020 financial year. Key features of the ESOP LTI Plan are outlined in the following table: What is the LTI Plan and who participates? Kingsgate executives and other eligible employees can be granted options to acquire Kingsgate Consolidated Limited fully paid shares. In granting the options the Board takes into account such matters as the position of the eligible person, the role they play in the Company, their current level of fixed remuneration, the nature of the terms of employment and the contribution they make to the Group. What are the perfor- mance and vesting conditions? The period over which the options vest is at the discretion of the Board though in general it is 1–3 years. The executive and eligible employee must still be employed by the Company at vesting date. Is there a cost to participate? The options may at the discretion of the Board be issued for nil consideration and are granted in accordance with performance guidelines established by the Remuneration Committee and approved by the Board. What happens in the event of bonus shares, rights issues or other capital reconstructions? If between the grant date and the date of conversion of options into shares there are bonus shares, rights issues or other capital reconstructions that affect the value of Kingsgate Consolidated shares, the Board may, subject to the ASX Listing Rules make adjustments to the number of rights and/or the vesting entitlements to ensure that holders of rights are neither advantaged or disadvantaged by those changes. Directors and Key Management Personnel Except where noted, the named persons held their current positions for the whole of the year and up to the date of this report. Chairman Ross Smyth-Kirk Executive Chairman Non-Executive Directors Peter Alexander Non-Executive Director Peter Warren Non-Executive Director Changes since the end of the reporting period There were no changes to Directors and Key Management Personnel since the end of the reporting period. continuedu Directors’ ReportDirectors' Report 18 Contract terms of the Executive Directors and Key Management Personnel Remuneration and other key terms of employment for the Senior Executives are summarised in the following table. Name Ross Smyth-Kirk Ross Coyle Jamie Gibson Leonardo Hermosilla Term of agreement Fixed annual remuneration including superannuation Notice period by Executive Notice period by the Company6 Open Open Open Open FY 20201 FY 20191 2$157,680 2$157,680 3$405,000 4$190,000 7N/A 3 months 3 months 5CLP168,713,110 1 month N/A N/A N/A 7N/A 6 months 6 months 1 month 1 2 3 4 5 6 7 Amount shown are annual salaries as at year end or date ceased employment with the Group. Amount shown includes a voluntary 10% reduction in fixed remuneration effective from 1 October 2013. Chief Financial Officer and Company Secretary – 1 July 2018 to 31 August 2018. A voluntary 10% reduction in fixed remuneration effective from 1 October 2015. General Manager Corporate and External Relations – 1 July 2018 to 31 August 2018. Chilean pesos. Resigned 31 May 2019. Notice period by the Company in respect of benefits payable in the event of an early termination only. Temporary role as Executive Chairman. Role reverts to Non-Executive Chairman at the discretion of the Board. Fixed annual remuneration, inclusive of the required superannuation contribution amount is reviewed annually by the Board following the end of the financial year. In the event of the completion of a takeover (relevant interest exceeds 50%) certain executives will receive a lump sum gross payment equal to between six to twelve months of the Total Remuneration Package. If within six months after the completion of the takeover the executive elects to terminate his employment or his employment is terminated by the Company the executive will not be entitled to any notice of termination or payment in lieu of notice. Non-Executive Directors Fees Non-Executive Directors are paid fixed fees for their services to the Company plus statutory superannuation contributions the Company is required by law to make on their behalf. Those fees are inclusive of any salary-sacrificed contribution to superannuation that a Non-Executive Director wishes to make. The level of Non-Executive Directors fees is set so as to attract the best candidates for the Board while maintaining a level commensurate with boards of similar size and type. The Board may also seek the advice of independent remuneration consultants, including survey data, to ensure Non-Executive Directors’ fees and payments are consistent with the current market. Non-Executive Directors’ base fees inclusive of committee membership but not including statutory superannuation are outlined as follows. Note that from the period 1 October 2013, all Non-Executive Directors fees were voluntarily reduced by 10% and this reduction is still in place as at the date of this report. Financial year ended 30 June 20201 $ Financial year ended 30 June 20191 $ – 180,000 180,000 – 270,000 270,000 Chairman Directors 1 On an annualised basis for all Directors. The aggregate remuneration of Non-Executive Directors is set by shareholders in general meeting in accordance with the Constitution of the Company, with individual Non-Executive Directors remuneration determined by the Board within the aggregate total. The aggregate amount of Non-Executive Directors’ fees approved by shareholders on 13 November 2008 is $1,000,000. Non-Executive Directors do not receive any additional fees for serving on committees of the Company. There are no retirement allowances for Non-Executive Directors. Directors’ Reportwww.kingsgate.com.au 19 Additional Statutory Disclosures Details of remuneration Details of the nature and amount of each major element of the remuneration of the Directors and the Group Key Management Personnel are set out in the following tables: Short-term benefits Long-term benefits Post-employment benefits Year ended 30 June 2020 Name Non-Executive Directors Peter Alexander Peter Warren Sub-total Non-Executive Directors Compensation Executive Chairman Ross Smyth-Kirk TOTAL Cash salary and fees Cash bonus $ 90,000 90,000 180,000 144,000 324,000 $ – – – – – Other benefits2 $ Non- monetary benefits1 $ Other benefits2 $ Super- annuation Termination benefits3 $ $ Total $ – – – – – – – – 3,660 3,660 – – – – – 8,550 8,550 17,100 13,680 30,780 – – – – – 98,550 98,550 197,100 161,340 358,440 1 2 3 Non-monetary benefits relate primarily to car parking. Represents annual leave (short term) and long service leave (long term) entitlements, measured on an accrual basis, and reflects the movement in the entitlements over the 12 month period. Benefits paid were in accordance with employment contract. continuedu Directors’ ReportDirectors' Report 20 Short-term benefits Long-term benefits Post-employment benefits Year ended 30 June 2019 Name Non-Executive Directors Peter Alexander Peter Warren Sharon Skeggs4 Sub-total Non-Executive Directors Compensation Executive Chairman Ross Smyth-Kirk Other KMPs Ross Coyle5 Jamie Gibson6 Leonardo Hermosilla7 Sub-total other KMP Compensation Cash salary and fees Cash bonus $ 90,000 90,000 41,576 221,576 $ – – – – 144,000 90,000 64,078 28,919 350,574 443,571 – – – – TOTAL 809,147 90,000 Other benefits2 $ Non- monetary benefits1 $ Other benefits2 $ Super- annuation Termination benefits3 $ $ Total $ – – – – – (4,489) 2,490 – (1,999) (1,999) – – – – 3,657 – – – – 3,657 – – – – – 16,785 (3,915) – 12,870 12,870 8,550 8,550 3,950 21,050 13,680 3,422 2,747 – – – – – – 98,550 98,550 45,526 242,626 251,337 301,273 123,296 126,575 381,069 153,537 477,149 6,169 551,144 1,011,755 40,899 551,144 1,505,718 1 Non-monetary benefits relate primarily to car parking. 2 Represents annual leave (short term) and long service leave (long term) entitlements, measured on an accrual basis, and reflects the movement in the entitlements over the 12 month period. Benefits paid were in accordance with employment contract. 3 Resigned 17 December 2018. 4 Chief Financial Officer and Company Secretary from 1 July 2018 to 31 August 2018. 5 6 General Manager Corporate and External Relations from 1 July 2018 to 31 August 2018. 7 Resigned 31 May 2019. The relative proportions of remuneration that are linked to performance and those that are fixed are as follows: Name Executive Director Ross Smyth-Kirk Share Holdings 2020 Executive Chairman Ross Smyth-Kirk Non-Executive Directors Peter Alexander Peter Warren Fixed remuneration 2020 STI/cash bonus 2020 At risk – LTI 2020 100% – – Balance at start of year Other changes during the year Balance at year end 5,076,725 46,487 200,000 – – – 5,076,725 46,487 200,000 Directors’ Reportwww.kingsgate.com.au 21 Loans to Directors There were no loans made to Directors or other Key Management Personnel at any time during the year. Insurance of officers During the financial year, the Group paid premiums to insure Directors and Officers of the Group. The contracts include a prohibition on disclosure of the premium paid and nature of the liabilities covered under the policy. Directors’ interest in contracts No material contracts involving Directors’ interests were entered into since the end of the previous financial year or existed at the end of the financial year. Non-audit services Details of amounts paid or payable to the auditor for non-audit services provided during the year are detailed in Note 28: Auditors’ Remuneration. The Directors are satisfied that the provision of non-audit services during the period by the auditor is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are of the opinion that the services disclosed in Note 28: Auditors’ Remuneration to the financial statements do not compromise the external auditor’s independence, based on the Auditors’ representations and advice received from the Audit Committee, for the following reasons: 〉 all non-audit services have been reviewed to ensure they do not impact the integrity and objectivity of the auditor; and 〉 none of the services undermine the general principles relating to auditor independence as set out in Code of Conduct APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards. A copy of the Auditor’s Independence Declaration as required under section 307c of the Corporations Act 2001 is set out on page 22. Rounding of amounts The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 and in accordance with that instrument, amounts in the Directors’ Report and Financial Report are rounded to the nearest thousand dollars except where otherwise indicated. Auditors PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of Directors. Ross Smyth-Kirk Director Sydney 30 September 2020 continuedu Directors’ ReportDirectors' Report 22 Auditor’s Independence Declaration Auditor’s Independence Declaration Auditor’s Independence Declaration As lead auditor for the audit of Kingsgate Consolidated Limited for the year ended 30 June 2020, I declare that to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Kingsgate Consolidated Limited and the entities it controlled during the period. Marc Upcroft Partner PricewaterhouseCoopers Sydney 30 September 2020 One International Towers Sydney, Watermans Quay, Barangaroo, GPO Box 2650, SYDNEY NSW 2001 T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124 T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au www.kingsgate.com.au 23 s t n e m e t a t S l i a c n a n F i 24 Financial Statements Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2020 Exploration expenses Care and maintenance expenses Corporate and administration expenses Other income and expenses Foreign exchange gain/(losses) Impairment losses – Nueva Esperanza (Loss)/profit before finance costs and income tax Finance income Finance costs Net finance costs (Loss)/profit before income tax Income tax expense (Loss)/profit after income tax Other comprehensive income Items that may be reclassified to profit and loss Exchange differences on translation of foreign operations (net of tax) Total other comprehensive income for the year Total comprehensive (loss)/income for the year (Loss)/profit attributable to: Owners of Kingsgate Consolidated Limited Total comprehensive (loss)/income attributable to: Owners of Kingsgate Consolidated Limited Note 5a 5b 5c 6 17a 2020 $’000 (4,765) (2,150) (16,309) 76 152 – (22,996) 281 (1,529) (1,248) (24,244) – (24,244) (139) (139) 2019 $’000 (6,233) (1,920) (15,976) 76,714 (3,791) (33,436) 15,358 51 (7,034) (6,983) 8,375 – 8,375 3,720 3,720 (24,383) 12,095 (24,244) 8,817 (24,383) 12,095 Earnings per share Basic and diluted (loss)/earnings per share Cents (10.84) Cents 3.70 29 The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. www.kingsgate.com.au www.kingsgate.com.au s t n e m e t a t S l i a c n a n F i Consolidated Statement of Financial Position As at 30 June 2020 Assets Current assets Cash and cash equivalents Receivables Other assets Total current assets Non-current assets Property, plant and equipment Right-of-use assets Exploration, evaluation and development Other assets Total non-current assets TOTAL ASSETS Liabilities Current liabilities Payables Finance lease liability Lease liability Provisions Total current liabilities Non-current liabilities Payables Lease liability Borrowings Provisions Total non-current liabilities TOTAL LIABILITIES NET ASSETS Equity Contributed equity Reserves Accumulated losses TOTAL EQUITY The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 25 Financial Statements Note 2020 $’000 2019 $’000 7 8 9 10 11 12 9 13 14 11 15 13 11 14 15 16 17a 17b 15,569 294 372 16,235 90 190 25,649 9,382 35,311 51,546 4,726 – 86 190 5,002 4,363 103 12,520 17,246 34,232 39,234 12,312 42,137 1,540 287 43,964 745 – 25,319 9,198 35,262 79,226 6,441 591 – 186 7,218 4,276 – 12,392 16,803 33,471 40,689 38,537 675,919 57,523 (721,130) 677,761 57,662 (696,886) 12,312 38,537 26 Financial Statements Consolidated Statement of Changes in Equity For the year ended 30 June 2020 Balance at 1 July 2018 Profit after income tax Total other comprehensive income for the year Total comprehensive income for the year Balance at 30 June 2019 Balance at 1 July 2019 Loss after income tax Total other comprehensive income for the year Total comprehensive income/(loss) for the year Transaction with owners in their capacity as owners: Payments for share buy-backs Payments for share buy-back expenses Total transaction with owners Balance at 30 June 2020 Contributed equity $’000 Reserves $’000 Accumulated losses $’000 Total equity $’000 677,761 – – – 53,942 – 3,720 3,720 (705,261) 8,375 – 8,375 677,761 57,662 (696,886) 677,761 – – 57,662 – (139) (696,886) (24,244) – 26,442 8,375 3,720 12,095 38,537 38,537 (24,244) (139) – (139) (24,244) (24,383) (1,833) (9) (1,842) – – – – – – 675,919 57,523 (721,130) (1,833) (9) (1,842) 12,312 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. www.kingsgate.com.au www.kingsgate.com.au Consolidated Statement of Cash Flows For the year ended 30 June 2020 27 Financial Statements Note 2020 $’000 2019 $’000 Cash flows from operating activities Receipts from Political Risk Insurance claim Payments to suppliers and employees Interest received Finance costs paid Net cash (outflow)/inflow from operating activities 23 Cash flows from investing activities Payments for property, plant and equipment Payment of deposits Proceeds from sale of property, plant and equipment Net cash (outflow)/inflow from investing activities Cash flows from financing activities Proceeds from borrowings, net of transaction costs Repayment of borrowings Payment of lease liability Payments for share buy-backs Payments for share buy-back expenses Net cash outflow from financing activities Net (decrease)/increase in cash held Cash at the beginning of the year Effects of exchange rate on cash and cash equivalents Cash at the end of the year The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. – (23,570) 281 (1,148) (24,437) (2) (2) – (4) – – (89) (1,833) (9) (1,931) (26,372) 42,137 (196) 15,569 76,319 (24,993) 51 (5,204) 46,173 (8) 475 161 628 7,400 (23,156) – – – (15,756) 31,045 11,239 (147) 42,137 s t n e m e t a t S l i a c n a n F i 28 Notes to the Financial Statements for the year ended 30 June 2020 The Financial Report of Kingsgate Consolidated Limited (Kingsgate or the “Company”) for the year ended 30 June 2020 was authorised for issue in accordance with a resolution of Directors on 30 September 2020. Kingsgate is a Company limited by shares incor- porated in Australia whose shares are publicly traded on the Australian Securities Exchange using the ASX code KCN. The consolidated financial statements of the Company as at and for the year ended 30 June 2020 comprise the Company and its subsidiaries (together referred to as the “Group” and individually as “group entities”). A description of the nature of the Group’s operations and its principal activities is included in the Directors’ Report. 1. Basis of preparation The general purpose financial statements have been prepared on a going concern basis, which indicates continuity of business activities and the realisation of assets and settlement of liabilities in the normal course of business. The financial statements have been prepared in accordance with the Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. The Company is a for-profit entity for the purpose of preparing the financial statements. a. Compliance with IFRS The financial statements comply with International Financial Reporting Standards (“IFRS”) adopted by the International Accounting Standards Board (“IASB”). b. Historical cost convention The financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets and financial instruments (including derivative instruments) at fair value through profit or loss. Comparative information is reclassified where appropriate to enhance comparability or in conformity with revised standards and interpretations. c. Functional and presentation currency The financial statements of the Group entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated statements are presented in Australian dollars, which is the Company’s functional currency and presentation currency. d. Rounding of amounts The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/ Directors’ Reports) Instrument 2016/191 and in accordance with that instrument, amounts in the Directors’ Report and Financial Report are rounded to the nearest thousand dollars except where otherwise indicated. e. Critical accounting estimates The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3. f. New and amended standards adopted The Group adopted AASB 16 using the modified retrospective method of adoption with the date of initial application of 1 January 2019 and has not restated comparatives for the 2019 reporting period, as permitted under the transitional provisions in the standard. The Group did not have material finance and operating leases as at adoption date, as such the impact of the adoption was not material to the financial statements, however the Group changed its accounting policy as disclosed in Note 2e. 2. Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented. a. Principles of consolidation (i) Business combinations Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable. The consideration transferred for the acquisition of a subsidiary comprises the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred does not include amounts related to the settlement of a pre-existing relationship. Such amounts are generally recognised in profit or loss. Costs related to the acquisition other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred. Any contingent consideration payable is recognised at fair value at the acquisition date. Acquisitions of non-controlling interests are accounted for as transactions with owners in their capacity as owners and therefore no goodwill is recognised as a result of such transactions. The non-controlling interest in the acquiree is based on the fair value of the acquiree’s net identifiable assets. The adjustments to non-controlling interests are based on the proportionate amount of the net assets of the subsidiary. The acquisition of an asset or group of assets that is not a business is accounted for by allocating the cost of the transaction to the net identifiable assets and liabilities acquired based on their fair values. Notes to the Financial Statementswww.kingsgate.com.au 29 (ii) Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance. Intra-group balances and transactions, and any unrealised gains arising from intra-group transactions are eliminated in preparing the consolidated financial statements. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. b. Foreign currency translation (i) Transactions and balances Foreign currency transactions are translated into the respective functional currencies of the Group entities at exchange rates on the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit or loss; except when they are deferred in equity as qualifying cash flow hedges and qualifying net investment hedges or, are attributable to part of the net investment in a foreign operation. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. Translation differences on non-monetary assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary assets are included in the fair value reserve in equity. Exchange gains and losses which arise on balances between Group entities are taken to the foreign currency translation reserve where the intra-group balances are in substance part of the Group’s net investment. Where as a result of a change in circumstances, a previously designated intra-group balance is intended to be settled in the foreseeable future, the intra-group balance is no longer regarded as part of net investment. The exchange differences for such balance previously taken directly to the foreign currency translation reserves are recognised in the profit or loss. (ii) Foreign operations The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: 〉 〉 the assets and liabilities of the foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated at the year-end exchange rate; the income and expenses of foreign opera- tions are translated at average exchange rates (unless this is not a reasonable approxi- mation of the cumulative effect of the rate prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and 〉 foreign currency differences are recognised in other comprehensive income, and presented in the foreign currency translation reserve. c. Revenue The Group recognises revenue related to the transfer of goods or services when control of the goods or services passes to the customer. Income tax d. Income tax expense comprises current and deferred tax. Current tax and deferred tax is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income. Current tax is expected tax payable or receivable on the taxable income or loss for the year using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date. differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax is not recognised for: 〉 〉 temporary differences on the initial recog- nition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; temporary differences related to invest- ments in subsidiaries where the Company is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and 〉 taxable temporary differences arising on the initial recognition of goodwill. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets and, they relate to income taxes levied by the same tax authority on the same taxable entity. Additional income tax expenses that arise from the distribution of cash dividends are recognised at the same time that the liability to pay the related dividend is recognised. Tax consolidation The Company and its wholly owned Australian resident entities formed a tax-consolidation group with effect from 1 July 2003 and are therefore taxed as a single entity from that date. The head entity within the tax-consolidation group is Kingsgate Consolidated Limited. Current tax expense or benefit, deferred tax assets and deferred tax liabilities arising from temporary differences of the members of the tax-consolidation group are recognised in the separate financial statements of the members of the tax-consolidation group using the “stand alone taxpayer” approach by reference to the carrying amounts in the separate financial statements of each entity and the tax values applying under tax consolidation. Current tax assets or liabilities and deferred tax assets arising from unused tax losses assumed by the head entity from the subsidiaries in the tax-consolidation group, are recognised as amounts receivable or payable to other entities in the tax-consolidation group in conjunction with any tax funding agreement amounts. A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary The Company recognises deferred tax assets arising from unused tax losses of the continuedu Notes to the Financial StatementsNotes to the Financial Statements 30 d. Income tax continued tax-consolidation group to the extent that it is probable that future taxable profits of the tax-consolidation group will be available against which the asset can be utilised. Tax funding and sharing agreements The members of the tax-consolidation group have entered into a funding agreement that sets out the funding obligations of members of the tax-consolidation group in respect of tax amounts. The tax funding arrangements require payments to or from the head entity and any deferred tax asset assumed by the head entity, resulting in the head entity recognising an intra-group receivable or payable in the separate financial statements of the members of the tax-consolidation group equal in amount to the tax liability or asset assumed. The intra-group receivables or payables are at call. The head entity recognises the assumed current tax amounts as current tax liabilities or assets adding to its own current tax amounts, since they are also due to or from the same taxation authority. The current tax liabilities or assets are equivalent to the tax balances generated by external transactions entered into by the tax-consolidated group. The amounts receivable or payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. The members of the tax-consolidation group have also entered into a tax sharing agreement. The tax sharing agreement provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the consolidated financial statements in respect of this agreement as payment of any amounts under the tax sharing agreement is considered remote. Uncertain tax position An uncertain tax treatment is any tax treatment applied by the Group where there is uncertainty over whether that treatment will be accepted by the tax authority. The Group is required to determine the uncertainty over income tax treatment by addressing the following: 〉 the Group determines whether uncertain tax treatments should be considered separately, or together as a group, depending on which approach better predicts the resolution of the uncertainty; 〉 the Group determines if it is probable that the tax authorities will accept the uncertain tax treatment; and if it is not probable that the uncertain tax treatment will be accepted, the Group reflects the effect of the uncer- tainty in its income tax accounting in the period in which that determination is made (for example, by recognising an additional tax liability or applying a higher tax rate), 〉 the Group measures the tax uncertainty based on the most likely amount or expected value, depending on whichever method better predicts the resolution of the uncertainty. Based on the assessment completed by the Group, there is no material tax uncertainty that requires a tax liability to be recognised or that requires a different tax rate to be applied. e. Leases Up to 30 June 2019, leases of property, plant and equipment where the Group as lessee has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other short-term and long-term payables. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the asset’s useful life or over the shorter of the asset’s useful life and the lease term if there is no reasonable certainty that the Group will obtain ownership at the end of the lease term. The Group leases various offices. Until the end of the 2019 financial year, some leases were classified as operating expenses and payments made in relation to those leases were charged to profit and loss on a straight-line basis over the period of the lease. From 1 July 2019, where the Group has entered into a lease contract for the right to control the use of an asset over the lease term, the present value of future lease commitments is recognised as a liability on the balance sheet at commencement date, with the corresponding asset recognised as a right-of-use asset. The lease liability represents the present value of the expected future lease payments, discounted at the consolidated entity’s average incremental borrowing rate. The right of use assets are classified as leases of property and are carried at cost less accumulated depreciation and impairment loss. The asset are amortised on a straight line basis over the shorter of the asset’s useful life and the lease term. Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Impairment of assets f. Assets other than goodwill and indefinite life intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the assets carrying amount exceeds it recoverable amount. The recoverable amount is the higher of an asset’s fair value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. g. Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the statement of financial position. h. Trade and other receivables Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Receivables are due for settlement no more than 90 days from the date of recognition. Collectability of trade and other receivables is reviewed on an ongoing basis. The Group applies the AASB 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade and other receivables. The amount of the impairment loss is recognised in the income statement within other expenses. Notes to the Financial Statementswww.kingsgate.com.au 31 When a trade and other receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in the income statement. Inventories i. Raw materials and stores, work in progress and finished goods (including gold bullion), are stated at the lower of cost and net realisable value. Cost comprises direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Costs are assigned to individual items of inventory on the basis of weighted average costs. Costs of purchased inventory are determined after deducting rebates and discounts. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Stockpiles represent ore that has been extracted and is available for further processing. If there is significant uncertainty as to whether the stockpiled ore will be processed it is expensed as incurred. Where the future processing of this ore can be predicted with confidence, e.g. because it exceeds the mine’s cut-off grade, it is valued at the lower of cost and net realisable value. If the ore will not be processed within the 12 months after the reporting date, it is included within non-current assets. Work in progress inventory includes ore stockpiles and other partly processed material. Quantities are assessed primarily through surveys and assays, and truck counts. j. Non-derivative financial assets Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the reporting date which are classified as non-current assets. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. k. Derivative financial instruments Derivative financial instruments are used by the Group to protect against the Group’s Australian dollar gold price risk exposures. The Group does not apply hedge accounting and accordingly all fair value movements on derivative financial instruments are recognised in the profit or loss. Derivative financial instruments are stated at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The resulting gain or loss is recognised in the income statement immediately. l. Property, plant and equipment Property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to the income statement during the reporting period in which they are incurred. Depreciation Depreciation and amortisation of mine buildings, plant, machinery and equipment is provided over the assessed life of the relevant mine or asset, whichever is the shorter. Depreciation and amortisation is determined on a units-of-production basis over the estimated recoverable reserves from the related area. In some circumstances, where conversion of resources into reserves is expected, some elements of resources may be included. For mine plant, machinery and equipment, which have an expected economic life shorter than the life of the mine, a straight line basis is adopted. The expected useful lives are as follows: 〉 mine buildings – the shorter of applicable mine life and 25 years; 〉 plant, machinery and equipment – the shorter of applicable mine life and 3–15 years depending on the nature of the asset. The estimated recoverable reserves and life of each mine and the remaining useful life of each class of asset are reassessed at least annually. Where there is a change in the reserves during the period, depreciation and amortisation rates are adjusted prospectively from the beginning of the reporting period. Major spares purchased specifically for a particular plant are capitalised and depreciated on the same basis as the plant to which they relate. Impairment An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 2f). Derecognition An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the profit or loss in the period the item is derecognised. m. Deferred stripping costs As part of its mining operations, the Group incurs stripping (waste removal) costs both during the development phase and production phase of its operations. Stripping costs incurred during the production phase are generally considered to create two benefits, being either the production of inventory in the period or improved access to the ore to be mined in the future. Where the benefits are realised in the form of inventory produced in the period, the production stripping costs are accounted for as part of the cost of producing those inventories. Where production stripping costs are incurred and the benefit is improved access to the ore to be mined in the future, the costs are recognised as a non-current asset, referred to as a “production stripping asset”, if the following criteria are all met: 〉 〉 〉 future economic benefits (being improved access to the ore body) associated with the stripping activity are probable; the component of the ore body for which access has been improved can be accurately identified; and the costs associated with the stripping activity associated with that component can be reliably measured. The amount of stripping costs deferred is based on the ratio obtained by dividing the volume of waste mined by the volume of ore mined for each component of the mine. Stripping costs incurred in the period are deferred to the extent that the actual current period waste to ore ratio exceeds the life of component expected waste to ore (“life of component”) ratio. A component is defined as a specific volume of the ore body that is made more accessible by the stripping activity. An identified component of the ore body is typically a subset of the total Notes to the Financial StatementsNotes to the Financial Statementscontinuedu 32 m. Deferred stripping costs continued ore body of the mine. It is considered that each mine may have several components, which are identified based on the mine plan. The mine plans and therefore the identification of specific components will vary between mines as a result of both the geological characteristics and location of the ore body. The financial considerations of the mining operations may also impact the identification and designation of a component. The identification of components is necessary for both the measurement of costs at the initial recognition of the production stripping asset, and the subsequent depreciation of the production stripping asset. The life of component ratio is a function of an individual mine’s design and therefore changes to that design will generally result in changes to the ratio. Changes in other technical or economic parameters that impact reserves will also have an impact on the life of component ratio even if they do not affect the mine’s design. Changes to the life of component ratio are accounted for prospectively from the date of change. The production stripping asset is initially measured at cost, which is the accumulation of costs directly incurred to perform the stripping activity that improves access to the identified component of ore. If incidental operations are occurring at the same time as the production stripping activity, but are not necessary for the production stripping activity to continue as planned, these costs are not included in the cost of the stripping activity asset. The production stripping asset is amortised over the expected useful life of the identified component of the ore body that is made more accessible by the activity, on a units of production basis. Economically recoverable reserves are used to determine the expected useful life of the identified component of the ore body. The production stripping asset is then carried at cost less accumulated amortisation and any impairment losses. The production stripping asset is included in “Exploration, Evaluation and Development”. These costs form part of the total investment in the relevant cash generating unit to which they relate, which is reviewed for impairment in accordance with the Group’s impairment accounting policy (Note 2f). n. Exploration, evaluation and feasibility expenditure Exploration and evaluation expenditure Exploration and evaluation expenditure incurred by, or on behalf of the Group is accumulated separately for each area of interest. Such expend- iture comprises direct costs and depreciation and does not include general overheads or administrative expenditure not having a specific nexus with a particular area of interest. Exploration expenditure for each area of interest is carried forward as an asset provided the rights to tenure of the area of interest are current and one of the following conditions is met: 〉 〉 the exploration and evaluation expenditures are expected to be recouped through successful development and exploitation of the area of interest, or alternatively by its sale; or exploration and evaluation activities in the area of interest have not at the reporting date reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant opera- tions in, or in relation to, the area of interest are continuing. Exploration expenditure is written off when it fails to meet at least one of the conditions outlined above or an area of interest is abandoned. The carrying value of exploration and evaluation assets is assessed in accordance with AASB 6 Exploration for and Evaluation of Mineral Resources and the Group’s impairment policy (Note 2f). Feasibility expenditure Feasibility expenditure represents costs related to the preparation and completion of a feasi- bility study to enable a development decision to be made in relation to an area of interest and capitalised as incurred. At the commencement of production; all past exploration, evaluation and feasibility expenditure in respect of an area of interest that has been capitalised is transferred to mine properties where it is amortised over the life of the area of interest to which it relates on a unit-of-production basis. o. Mine properties Mine properties represents the accumulated exploration, evaluation, land and development expenditure incurred by or on behalf of the Group in relation to areas of interest in which mining of a mineral resource has commenced. When further development expenditure is incurred in respect of a mine property after commencement of production, such expenditure is carried forward as part of the mine property only when substantial future economic benefits are thereby established. Otherwise, such expenditure is classified as part of the cost of production. Amortisation of costs is provided on the units-of-production method with separate calcu- lations being made for each component. The units-of-production basis results in an amorti- sation charge proportional to the depletion of the estimated recoverable reserves. In some circumstances, where conversion of resources into reserves is expected, some elements of resources may be included. Development and land expenditure still to be incurred in relation to the current recoverable reserves are included in the amortisation calculation. Where the life of the assets is shorter than the mine life, their costs are amortised based on the useful life of the assets. The estimated recoverable reserves and life of each mine and the remaining useful life of each class of asset are reassessed at least annually. Where there is a change in the reserves during a six month period, depreciation and amortisation rates are adjusted prospectively from the beginning of that reporting period. p. Trade and other payables Trade and other payables represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. q. Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the drawdown occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised and amortised over the period of the facility to which it relates. Preference shares which are mandatorily redeemable on a specific date are classified as liabilities. The dividends on these preference shares are recognised in the profit or loss as finance costs. Borrowings are removed from the statement of financial position when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and Notes to the Financial Statementswww.kingsgate.com.au 33 the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in other income or finance costs. first recognised as a provision. This restoration asset is subsequently amortised on a units-of- production basis. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. r. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are added to the cost of those assets, until such time as the assets are substantially ready for their intended use. Where the funds used to finance a qualifying asset form part of general borrowings, the amount capitalised is calculated using a weighted average of rates applicable to the relevant borrowings during the period. Where funds borrowed are directly attributable to a qualifying asset, the amount capitalised represents the borrowing costs specific to those borrowings. All other borrowing costs are recognised as expenses in the period in which they are incurred. s. Provisions Provisions for legal claims are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the reporting date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as finance costs. t. Restoration and rehabilitation provision The estimated costs of decommissioning and removing an asset and restoring the site are included in the cost of the asset at the date the obligation first arises and to the extent that it is The corresponding provision of an amount equivalent to the restoration asset created is reviewed at the end of each reporting period. The provision is measured at the best estimate of present obligation at the end of the reporting period based on current legal and other requirements and technology, discounted where material using national government bond rates at the reporting date with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows. Where there is a change in the expected restoration, rehabilitation or decommissioning costs, an adjustment is recoded against the carrying value of the provision and any related restoration asset, and the effects are recognised in the income statement on a prospective basis over the remaining life of the operation. The unwinding of the effect of discounting on the rehabilitation provision is included within finance costs in the income statement. Costs incurred that relate to an existing condition caused by past operations, but do not have a future economic benefit are expensed as incurred. u. Employee benefits (i) Wages and salaries, annual leave and sick leave Liabilities for wages and salaries (including non-monetary benefits and annual leave) expected to be settled within 12 months of the reporting date are recognised in provisions for employee benefits 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. Liabilities for sick leave are recognised when the leave is taken and are measured at the rates paid or payable. (ii) Long service leave and severance pay The liability for long service leave and severance pay is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to the expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. The obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer settlement for at least twelve months after the reporting period, regardless of when the actual settlement is expected to occur. (iii) Cash bonuses Cash bonuses are expensed in the income statement at reporting date. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the Directors or employees and the obligation can be estimated reliably. (iv) Retirement benefit obligations Defined Contribution plan Contributions to defined contribution superan- nuation plans are recognised as an expense in the income statement as they become payable. Defined benefit plan The Company’s Thai subsidiary, Akara Resources Public Company Limited, have a defined benefit plan which is the amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. Retirement benefit Under labour laws applicable in Thailand, employees completing 120 days of service are entitled to severance pay on termination or retrenchment without cause or upon retirement age of 60. The severance pay will be at the rate according to number of years of service as stipulated in the Labor Law which is currently at a maximum rate of 400 days of final salary. The liability recognised in the statement of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period, together with adjustments for unrecognised past-service costs. The defined benefit obligation is calculated annually using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using market yield of government bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability. (v) Share-based payment transactions The Group provides benefits to employees (including Directors) in the form of share-based payments, whereby employees render services Notes to the Financial StatementsNotes to the Financial Statementscontinuedu 34 u. Employee benefits continued in exchange for shares or rights over shares (“equity settled transactions”). The fair value of these equity settled transac- tions is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled. The fair value at grant date is determined using a pricing model that takes into account the exercise price, the term, the share price at the grant date, the expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate. Upon the exercise of the equity settled reward, the related balance of the share-based payments reserve is transferred to share capital. v. Dividends Dividends are recognised as a liability in the period in which they are declared. w. Earnings per share Basic earnings per share (i) Basic earnings per share is calculated by dividing: 〉 the profit attributable to owners of the Company, excluding any costs of servicing equity other than ordinary shares; and 〉 by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year and excluding treasury shares. (ii) Diluted earnings per share Diluted earnings per share adjust 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 〉 by the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. x. Contributed equity Issued ordinary share capital is classified as equity and is recognised at the fair value of the consideration received by the Group. Incremental costs directly attributable to the issue of shares and share options are recognised as a deduction, net of tax from the proceeds. y. Goods and services tax (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from or payable to, the taxation authority is included with other receivables or payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of the cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. z. Operating and segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors. Segment results that are reported to the Board of Directors include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. The operating segments are disclosed in Note 4. aa. New accounting standards and interpretations The Group has not elected to early adopt any new standards, amendments or interpretations that are issued but are not yet effective. Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2020 reporting periods and have not yet been applied in the financial statements. bb. Parent entity financial information The financial information for the parent entity Kingsgate Consolidated Limited, disclosed in Note 30 has been prepared on the same basis as the consolidated financial statements except as set out below: Investments in subsidiaries Investments in subsidiaries are accounted for at cost in the financial statements of Kingsgate. Share-based payments The issue by the Company of equity instru- ments to extinguish liabilities of a subsidiary undertaking in the Group is treated as a capital contribution to that subsidiary undertaking. cc. Rounding of amounts The Company is of a kind referred to in ASIC Legislative Instrument 2016/191, relating to the ‘rounding off’ of amounts in the financial statements. Amounts in the financial state- ments have been rounded off in accordance with the instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. 3. Critical accounting estimates, assumptions and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectation of future events that may have a financial impact on the Group and that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. Actual results may differ from these estimates under different assumptions and conditions. The estimates and assumptions that could materially affect the financial position and results are discussed below: (i) Uncertainty in relation to Chatree Gold Mine assets and liabilities As noted in the Directors’ Report, following a decision made by the Thai Government, the Chatree Gold Mine ceased operations on 31 December 2016 when it was placed on Care and Maintenance effective 1 January 2017. The Group commenced arbitral proceedings against the Kingdom of Thailand under the Australia-Thailand Free Trade Agreement in order to be compensated for the losses it has incurred as a result of the expropriation of the Chatree Gold Mine by the Thai Government. In preparing the consolidated financial state- ments of the Group all mine related assets of the Chatree Gold Mine have been written down to nil value (an impairment charge of $227,564,000 was recorded against the Group’s carrying value of Chatree Gold Mine assets in the year ended 30 June 2016). In respect of rehabilitation liabilities, during the financial year ending 30 June 2017, the Group revised its previous estimates and reduced its total rehabilitation liability to approximately $16,938,000. This was based on management’s Notes to the Financial Statementswww.kingsgate.com.au 35 rehabilitation plan which is a revision from the initial plan submitted to the Thai Authorities in 2007. This plan takes into account the premature closure of the mine by the Thai Government. Considering the Group’s current legal dispute with the Thai Government, the Group has not been able to have meaningful discussions with the relevant Thai Authorities to determine if the restoration plan prepared by the Group will be approved. The restoration plan and estimated costs cannot effectively be finalised until after the Group’s legal dispute with the Thai Government is settled. (iii) Impairment of non-current assets – exploration, evaluation and development assets Nueva Esperanza At 30 June 2019, the recoverable amount of the Nueva Esperanza Gold/Silver Project CGU was determined to be $27,509,000 resulting in an impairment loss of $33,436,000. Significant judgements and assumptions were required in making estimates of the recoverable amounts. The Group has assessed if impairment indicators existed as at 30 June 2020 and determined that it was not necessary to formally estimate the recoverable amount of the CGU as no indication of an impairment loss was identified as a result of that assessment, in accordance with the Group’s accounting policy. The Group also assessed whether changes in estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised, existed as at 30 June 2020 and whether such changes in estimates would require reversal of impairment. The Group determined that no such changes in estimates were identified. In reaching these conclusions, the Group considered both external and internal factors relevant to the CGU, including but not limited to: 〉 Kingsgate’s market capitalisation; 〉 unsolicited expressions of interest received to date to invest in the Project; 〉 updates to the project including the 5-year extension to the water rights and lodgement of the updated Environmental Impact Application; and 〉 movement in gold and silver prices. rehabilitation plan which is a revision from the initial plan submitted to the Thai Authorities in 2007. Management still believes the revised plan will be commercially viable, cost effective and will meet all obligations in the context of the early mine closure that has been imposed on the Group with the overall objective to leave the site in a safe and stable condition that is consistent with the surrounding physical environment, be of benefit to the local community, and not require significant ongoing maintenance. The future of the Chatree Gold Mine remains unclear and there is a significant uncertainty around the carrying values of assets and liabilities. The ultimate impact on the Group’s financial position will depend on the sale of plant and equipment and non-strategic land and property and outcomes from discussions with the Thai Government, including: 〉 agreeing a rehabilitation plan, costing and timing in the context of the early mine closure; 〉 potential re-opening of the mine if permitted by the Thai Government; and 〉 pursuing available legal and other avenues for compensation including action for damages against the Thai Government. The Group has considered the status of its discussions with the Thai Government and the status of its legal process against the Thai Government and has concluded that the position adopted for financial reporting purposes and described above reflects a prudent approach in respect of its assets and liabilities including potential contingent assets and liabilities. At balance sheet date, the Group has considered that it was not appropriate to record a reversal of any impairment previously recog- nised. Refer to Note 24 for events occurring after the reporting date. (ii) Restoration and rehabilitation provision Significant estimates and assumptions are required in determining the provision for mine rehabilitation as there are many transactions and other factors that will affect the ultimate liability payable to rehabilitate the mine sites. Factors that will affect this liability include changes in technology, changes in regulations, price increases, changes in timing of cash flows which are based on life of mine plans and changes in discount rates. When these factors change or become known in the future, such differences will impact the mine rehabilitation provision in the period in which they change or become known. As noted above, the provision that has been recorded by the Group is based on a Notes to the Financial StatementsNotes to the Financial Statementscontinuedu 36 4. Segment information The Group’s operating segments are based on the internal management reports that are reviewed and used by the Board of Directors (chief operating decision maker). The operating segments represent the Group’s mine under care and maintenance and project and include the following: 〉 Chatree Gold Mine, Thailand; and 〉 Nueva Esperanza Gold/Silver Project, Chile. Information regarding the results of each reportable segment is included as follows: 2020 Other income/(expense) Total segment income Segment EBITDA Depreciation and amortisation Segment result Finance income Finance costs Net finance costs Loss before tax Other segment information Segment assets Segment liabilities Net assets/(liabilities) 2019 Other income Total segment income Segment EBITDA Depreciation and amortisation Impairment losses – Nueva Esperanza Segment result Finance income Finance costs Net finance costs Profit before tax Other segment information Segment assets Segment liabilities Net assets/(liabilities) 1 2 includes foreign exchange gain of $152,000 for the Group. includes foreign exchange loss of $3,791,000 for the Group. Care and Maintenance Chatree $’000 Nueva Esperanza $’000 24 24 (2,732) (55) (2,787) (54) (54) (4,692) (127) (4,819) Corporate $’000 106 106 Total $’000 76 76 (15,358)1 (32) (22,782) (214) (15,390) (22,996) 281 (1,529) (1,248) (24,244) 51,546 (39,234) 12,312 76,714 76,714 49,394 (600) (33,436) 15,358 51 (7,034) (6,983) 8,375 79,226 (40,689) 38,537 2,406 (31,368) (28,962) 34,039 (6,281) 27,758 15,101 (1,585) 13,516 228 228 (1,922) (475) – (2,397) 19 19 (6,134) (80) (33,436) (39,650) 76,467 76,467 57,4502 (45) – 57,405 2,272 (30,829) (28,557) 33,352 (6,137) 27,215 43,602 (3,723) 39,879 Notes to the Financial Statementswww.kingsgate.com.au 37 2020 $’000 2019 $’000 5,439 10,711 159 16,309 – (44) 120 76 7,215 *8,636 125 15,976 *76,319 161 234 76,714 5. Revenue and expenses a) Corporate and administration expenses Administration Statutory and professional fees Depreciation Total corporate and administration expenses b) Other income and expenses Settlement of Political Risk Insurance claim Net (loss)/gain on sale of fixed assets Other revenue Total other income and expenses * Settlement of Political Risk Insurance claim In October 2017, Kingsgate commenced proceedings in the New South Wales Supreme Court against Zurich Insurance Australia Ltd, and other named insurers, under a Political Risk Insurance Policy that was held by the Company when the Thai Government unlawfully expropriated the Chatree Gold Mine in May 2016. Kingsgate settled its Political Risk Insurance proceedings in March 2019. The settlement consisted of: 〉 〉 〉 a cash payment of US$55,000,000 (A$76,319,000) received on 11 April 2019; a requirement for the Insurers to contribute up to US$3,500,000 of future costs towards the Australia-Thailand Free Trade Agreement (TAFTA) Arbitration. The Insurers funding contribution will be paid on a pro-rata basis with Kingsgate; and a sharing arrangement between Kingsgate and the Insurers for future distributions of TAFTA Claim proceeds. The Insurers are only entitled to the amount of their original financial contribution including interest – Kingsgate keeps any TAFTA Claim proceeds in excess of that contribution. Legal expenditure amounting to $3,830,000 (2019: $1,154,000) and related reimbursement receivable under the settlement agreement have been presented on a net basis in the statement of profit and loss and other comprehensive income. c) Finance costs Interest and finance charges Borrowing costs and amortisation of deferred borrowing costs Total finance costs d) Depreciation and amortisation Property, plant and equipment Right-of-use assets Total depreciation and amortisation expenses Included in: Care and maintenance expenses Corporate depreciation e) Employee benefits expenses Included in: Care and maintenance expenses Corporate and administration expenses Total employee benefits expenses 2020 $’000 2019 $’000 1,529 – 1,529 125 89 214 55 159 1,073 1,954 3,027 5,210 1,824 7,034 600 – 600 475 125 714 3,218 3,932 Notes to the Financial StatementsNotes to the Financial Statementscontinuedu 38 5. Revenue and expenses continued f) Other items Short-term and low value lease expenses Total other items g) Significant items Settlement of Political Risk Insurance claim (see Note 5b) Impairment losses – Nueva Esperanza Total significant items 6. Income tax a) Income tax expense Current tax Deferred tax Total income tax expense Deferred tax expense included in income tax expense comprises: Increase in deferred tax assets Increase in deferred tax liabilities Deferred tax b) Numerical reconciliation of income tax expense to prima facie tax payable (Loss)/profit before income tax Tax at Australian rate of 30% Tax effect of amounts not deductible/assessable in calculating taxable income Non-deductible expenses Non-deductible interest expense to preference shareholders Non-assessable receipts from settlement of Political Risk Insurance claim Non-assessable other revenue Impairment losses – Nueva Esperanza Tax losses not brought to account Income tax expense c) Tax recognised in other comprehensive income Foreign exchange losses recognised directly in foreign currency translation reserves Total tax recognised in other comprehensive income d) Deferred tax liabilities offset Deferred tax assets amounting to $17,535,000 (2019: $15,985,000) have been offset against deferred tax liabilities. 2020 $’000 2019 $’000 230 230 – – – 337 337 76,319 (33,436) (42,883) 2020 $’000 2019 $’000 – – – (1,550) 1,550 – (24,244) (7,273) 2,843 459 – (15) – 3,986 – – – – – – (4,836) 4,836 – 8,375 2,512 2,478 623 (22,896) – 10,031 7,252 – – – Notes to the Financial Statementswww.kingsgate.com.au 39 2020 $’000 2019 $’000 317,528 12,161 1,278 330,967 197,237 295,649 26,050 1,278 322,977 193,520 e) Unrecognised deferred tax assets and tax liabilities Tax losses – Australian entities Tax losses – other entities Temporary difference Subtotal Unrecognised deferred tax assets 1 Amount excludes potential deductible temporary differences in respect of Akara relating to impairment charge recognised in previous year. It is not probable that there will be sufficient future assessable income available against which this deferred tax asset could be utilised. f) Tax consolidation group Kingsgate Consolidated Limited and its wholly owned Australian subsidiary have implemented the tax consolidation legislation as of 1 July 2003. The accounting policy in relation to this legislation is set out in Note 2d. On adoption of the tax consolidation legislation, the entities in the tax-consolidation group entered into a tax sharing agreement which, in the opinion of the Directors, limits the joint and several liabilities of the wholly owned entities in the case of default by the head entity, Kingsgate Consolidated Limited. The entities have also entered into a tax funding agreement under which the wholly owned entities fully compensate Kingsgate for any current tax payable assumed and are compensated for any current tax receivable and deferred assets relating to the unused tax losses or unused tax credits that are transferred to Kingsgate under the tax legislation. The funding amounts are determined by reference to the amounts recognised in the wholly owned entities’ financial statements. The amount receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. g) Recognised deferred tax assets and liabilities Deferred tax assets/(liabilities) Employee benefits Unrealised exchange (gains)/losses Other items Financial assets Tax losses Total deferred tax assets/(liabilities) Set off tax Net deferred tax assets/(liabilities) Deferred tax assets/(liabilities) expected to be recovered within 12 months Deferred tax assets/(liabilities) expected to be recovered after more than 12 months Total deferred tax assets/(liabilities) Assets Liabilities Net 2020 $’000 47 8,249 98 321 8,820 2019 $’000 54 7,477 491 321 7,642 17,535 (17,535) 15,985 (15,985) – – – – 2020 $’000 2019 $’000 – (17,535) – – – (17,535) 17,535 – – – (15,985) – – – (15,985) 15,985 – – 17,535 17,535 15,985 15,985 (17,535) (15,985) (17,535) (15,985) 2020 $’000 47 (9,286) 98 321 8,820 – – – – – – 2019 $’000 54 (8,508) 491 321 7,642 – – – – – – Notes to the Financial StatementsNotes to the Financial Statementscontinuedu 40 6. Income tax continued h) Movement in deferred tax balances 2020 Deferred tax assets/(liabilities): Employee benefits Unrealised exchange losses Other items Financial assets Tax losses Net deferred tax assets/(liabilities) 2019 Deferred tax assets/(liabilities): Employee benefits Unrealised exchange losses Other items Financial assets Tax losses Net deferred tax assets/(liabilities) 7. Cash and cash equivalents Cash on hand Deposits at call Total cash and cash equivalents Balance at 1 July $’000 Recognised in profit or loss $’000 Balance at 30 June $’000 54 (8,508) 491 321 7,642 – 94 (5,795) 210 321 5,170 – (7) (778) (393) – 1,178 – (40) (2,713) 281 – 2,472 – 2020 $’000 8 15,561 15,569 47 (9,286) 98 321 8,820 – 54 (8,508) 491 321 7,642 – 2019 $’000 9 42,128 42,137 Cash on hand Deposits at call Risk exposure These are petty cash balances held by subsidiaries. These deposits are at call, interest bearing and may be accessed daily. The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in Note 26. 8. Receivables Current Other debtors Total receivables – current Other debtors Other debtors relate to GST/VAT receivables. * mainly related to reimbursement receivable under the Political Risk Insurance settlement agreement (see Note 5b). Risk exposure The Group’s exposure to credit and currency risks are disclosed in Note 26. 2020 $’000 2019 $’000 294 294 *1,540 1,540 Notes to the Financial Statementswww.kingsgate.com.au 41 2020 $’000 2019 $’000 359 13 372 8,879 503 9,382 274 13 287 8,702 496 9,198 9. Other assets Current Prepayments Other deposits Total other assets – current Non-current Prepayments Other deposits Total other assets – non-current Prepayments Non-current prepayments include prepaid royalties and water rights in respect of the Nueva Esperanza Gold/Silver Project in Chile. 10. Property, plant and equipment At 1 July Cost Accumulated depreciation and amortisation Accumulated impairment Net book amount Year ended 30 June Opening net book amount Additions Disposals Depreciation and amortisation expense Foreign currency differences Closing net book amount At 30 June Cost Accumulated depreciation and amortisation Accumulated impairment Net book amount 11. Right-of-use assets and lease liabilities Amounts recognised in the consolidated statement of financial position: Right-of-use assets Property Lease liabilities Current Non-current 2020 $’000 2019 $’000 296,346 (111,341) (184,260) 261,544 (76,173) (184,260) 745 1,111 745 2 (557) (125) 25 90 1,111 8 – (600) 226 745 299,166 (114,816) (184,260) 296,346 (111,341) (184,260) 90 745 2020 $’000 190 86 103 Notes to the Financial StatementsNotes to the Financial Statementscontinuedu 42 11. Right-of-use assets and lease liabilities continued Future lease payments in relation to lease liabilities as at year end are as follows: Within one year Later than one year but not later than five years Depreciation of right-of-use assets: The depreciation and amortisation disclosed in the consolidated statement of profit or loss includes the following amount for right-of-use assets: Property (Note 5d) 2020 $’000 89 111 89 12. Exploration, evaluation and development Exploration & evaluation $’000 Feasibility expenditure $’000 Mine properties $’000 Total $’000 At 30 June 2018 Cost Accumulated depreciation and amortisation Accumulated impairment Net book amount Year ended 30 June 2019 Opening net book amount Impairment losses – Nueva Esperanza Foreign currency exchange differences Closing net book amount At 30 June 2019 Cost Accumulated depreciation and amortisation Accumulated impairment Net book amount Year ended 30 June 2020 Opening net book amount Foreign currency exchange differences Closing net book amount At 30 June 2020 Cost Accumulated depreciation and amortisation Accumulated impairment Net book amount 39,991 – (39,991) – – – – – 39,991 – (39,991) – – – – 85,103 – (42,652) 42,451 42,451 (20,440) 2,347 24,358 87,449 – (63,091) 24,358 24,358 320 24,678 356,631 (65,914) (289,871) 481,725 (65,914) (372,514) 846 43,297 846 – 115 961 43,297 (20,440) 2,462 25,319 404,898 (114,066) (289,871) 532,338 (114,066) (392,953) 961 25,319 961 10 971 25,319 330 25,649 39,991 – (39,991) 87,769 – (63,091) 409,046 (118,204) (289,871) 536,806 (118,204) (392,953) – 24,678 971 25,649 Notes to the Financial Statementswww.kingsgate.com.au 13. Payables Current Trade payables Other payables and accruals Total payables – current Non-current Other payables Total payables – non-current The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in Note 26. 14. Borrowings Current Finance lease liabilities Total borrowings – current Non-current Preference shares in controlled entity Total borrowings – non-current Borrowings Preference shares in controlled entity Finance lease liabilities Total borrowings 43 2020 $’000 2019 $’000 1,469 3,257 4,726 4,363 4,363 2,364 4,077 6,441 4,276 4,276 2020 $’000 2019 $’000 – – 12,520 12,520 12,520 – 12,520 591 591 12,392 12,392 12,392 591 12,983 Preference shares in controlled entity Terms and conditions of outstanding preference shares in controlled entity were as follows: Currency Interest rate Financial year of maturity Face value $’000 Carrying amount $’000 Preference shares in controlled entity Thai baht 12% n/a 12,520 12,520 The terms of the preference shares were amended in the prior year through a change made to the Shareholders Agreement of Akara Resources Public Company Limited resulting in the preference shares being repayable at the earliest on 30 July 2022. For more information about the Group’s exposure to interest rate and liquidity risk, see Note 26. Notes to the Financial StatementsNotes to the Financial Statementscontinuedu 44 15. Provisions Current Employee benefits Total provisions – current Non-current Employee benefits Restoration and rehabilitation Total provisions – non-current Movements in the restoration and rehabilitation provision: Restoration and rehabilitation At the beginning of the financial year Foreign currency exchange differences At the end of the financial year 16. Contributed equity Opening balance Payments for share buy-backs Payments for share buy-back expenses Closing balance 17. Reserves and accumulated losses (a) Reserves Foreign currency translation reserve Share-based payment reserve General reserve Total reserves Movements: Foreign currency translation reserve At the beginning of the financial year Exchange differences on translation of foreign controlled entities (net of tax) At the end of the financial year Share-based payment reserve At the beginning of the financial year Share-based payment expense At the end of the financial year General reserve At the beginning of the financial year Net change At the end of the financial year Note 2u, 22 2u, 22 2t 2020 Shares 2019 Shares 226,225,940 (4,372,088) – 226,225,940 – – 2020 $’000 190 190 308 16,938 17,246 16,766 172 16,938 2020 $’000 677,761 (1,833) (9) 221,853,852 226,225,940 675,919 2020 $’000 51,722 9,142 (3,341) 57,523 51,861 (139) 51,722 9,142 – 9,142 (3,341) – (3,341) 2019 $’000 186 186 37 16,766 16,803 14,768 1,998 16,766 2019 $’000 677,761 – – 677,761 2019 $’000 51,861 9,142 (3,341) 57,662 48,141 3,720 51,861 9,142 – 9,142 (3,341) – (3,341) Notes to the Financial Statementswww.kingsgate.com.au 45 Foreign currency translation reserve Exchange differences arising on translation of the foreign controlled entities are taken to the foreign currency translation reserve, as described in Note 2b. Share-based payment reserve The share-based payment reserve is used to recognise the fair value of deferred rights, performance rights and options issued but not exercised. General reserve The general reserve represents changes in equity as a result of changes in non-controlling interests and revaluation of employee benefit obligations recog- nised in other comprehensive income in prior periods. (b) Accumulated losses At the beginning of the year Net (loss)/profit attributable to members of Kingsgate Consolidated Limited At the end of the financial year 18. Commitments for expenditure Short-term and low value leases Within one year Later than one year but not later than five years Total short-term and low value leases Non-cancellable operating leases Within one year Later than one year but not later than five years Total non-cancellable operating leases 2020 $’000 2019 $’000 (696,886) (24,244) (705,261) 8,375 (721,130) (696,886) 2020 $’000 2019 $’000 24 – 24 – – – 23 3 26 96 217 313 As explained in Note 2e above, the Group has changed its accounting policy for leases where the Group is the lessee. In addition to the table above, the Group is also to pay Anglo American US$2 million per year in advance pre-production royalties related to the Nueva Esperanza Gold/Silver Project. The Group also has an obligation to pay US$64,800 per month to Anglo American for water rights. The water rights have been extended to December 2024. Notes to the Financial StatementsNotes to the Financial Statementscontinuedu 46 19. Controlled entities Entity Parent Entity Kingsgate Consolidated Limited Subsidiaries Dominion Mining Limited Gawler Gold Mining Pty Ltd Kingsgate Treasury Pty Ltd Kingsgate Capital Pty Ltd Kingsgate Chile NL Laguna Exploration Pty Ltd Akara Resources Public Company Limited Issara Mining Limited Suan Sak Patana Ltd Phar Mai Exploration Ltd Richaphum Mining Ltd Phar Lap Ltd Phar Rong Ltd Asia Gold Ltd Laguna Resources Chile Ltda Minera Kingsgate Limitada 20. Dividends Equity holding Country of Incorporation Class of shares 2020 % 2019 % Australia Australia Australia Australia Australia Australia Thailand Thailand Thailand Thailand Thailand Thailand Thailand Mauritius Chile Chile Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 No final dividend was declared for the year ended 30 June 2019 (30 June 2018: nil). No interim dividend was declared for the year ended 30 June 2020 (30 June 2019: nil). 21. Related parties Transaction with related parties Information on remuneration of Directors and Key Management Personnel is disclosed in Note 27 and the Remuneration Report. Controlling entity The ultimate parent entity of the Group is Kingsgate Consolidated Limited. 22. Employee benefits Employee benefits and related on-costs liabilities Provision for employment benefits – current Provision for employee benefits – non-current Total employee provisions 2020 $’000 2019 $’000 190 308 498 186 37 223 Superannuation The Group makes contributions on behalf of employees to externally managed defined contribution superannuation funds. Contributions are based on percentages of employee wages and salaries and include any salary-sacrifice amounts. Contributions to defined contribution plans for 2020 were $133,000 (2019: $156,000). Notes to the Financial Statementswww.kingsgate.com.au 23. Reconciliation of loss after income tax to net cash flow from operating activities (Loss)/profit for the year Depreciation and amortisation Amortisation of deferred borrowing costs Net loss/(gain) on sale of fixed assets Net exchange differences Impairment losses – Nueva Esperanza Change in operating assets and liabilities: (Increase)/decrease in receivables (Increase)/decrease in other assets (Increase)/decrease in prepayments (Increase)/decrease in inventories Increase/(decrease) in creditors Increase/(decrease) in provisions 47 2020 $’000 (24,244) 214 – 44 (1,737) – 1,245 – (84) – (143) 268 2019 $’000 8,375 600 1,824 (161) 3,151 33,436 (833) 304 499 – (813) (209) Net cash inflow/(outflow) from operating activities (24,437) 46,173 Net cash and cash equivalents/(debt) reconciliation Cash and cash equivalents Borrowings – repayable within one year Borrowings – repayable after one year Net cash and cash equivalents/(debt) Cash and cash equivalents Gross debt – fixed interest rates Gross debt – variable interest rates Gross debt – nil interest rates Net cash and cash equivalents/(debt) 15,569 (86) (12,623) 2,860 15,569 (12,520) – (189) 2,860 Cash Secured bank loans due within 1 year Preference shares in controlled entity due after 1 year Lease liabilities due within 1 year Lease liabilities due after 1 year Other loan due within 1 year $’000 $’000 $’000 $’000 $’000 $’000 Net debt as at 30 June 2018 Cash flows Foreign exchange adjustments Other non-cash movements Net cash and cash equivalents/ (debt) as at 30 June 2019 Cash flows Foreign exchange adjustments Other non-cash movements Net cash and cash equivalents/ (debt) as at 30 June 2020 11,239 31,045 (147) – 42,137 (26,372) (196) – 15,569 (14,360) 15,000 – (640) – – – – – (10,907) – (1,485) – (12,392) – (128) – (12,520) (465) 284 (87) (323) (591) 89 – 416 (86) (323) – – 323 – – – (103) (103) (472) 472 – – – – – – – 42,137 (591) (12,392) 29,154 42,137 (12,983) – – 29,154 Total $’000 (15,288) 46,801 (1,719) (640) 29,154 (26,283) (324) 313 2,860 Notes to the Financial StatementsNotes to the Financial Statementscontinuedu 48 24. Events occurring after reporting date Akara Resources Public Company Limited (“Akara”), a subsidiary of Kingsgate has been granted permission by the Thai Government to sell the high value gold and silver “sludge,” which is secured at the Chatree Gold Mine, to a refinery to be processed into fine gold. The sludge which was written down to nil and contains approximately 4,750 ounces of gold and 34,800 ounces of silver and is valued at around A$14 million before royalties, transportation and refining costs. Akara has agreed terms with a Thai refinery to process the sludge pursuant to new legislation requiring Thai gold to be refined in Thailand. No other matter or circumstance has arisen since 30 June 2020 that has significantly affected, or may significantly affect: 〉 〉 〉 the Group’s operations in future financial periods; the results of those operations in future financial periods; or the Group’s state of affairs in future financial periods. 25. Contingent assets and liabilities The Group had no contingent assets or liabilities at 30 June 2020 that is required to be reported. At the time of preparing this financial report some companies included in the Group are parties to pending legal proceedings. The Directors have determined that the possibility of any outflow in settlement resulting from these proceedings is remote. 26. Financial risk management and instruments The Group’s activities expose it to a variety of financial risks: market risk (including foreign currency risk, price risk, fair value risk and interest rate risk), credit risk and liquidity risk. At this point, the Directors believe that it is in the interest of shareholders to expose the Group to foreign currency risk and interest rate risk. Therefore, the Group does not employ any derivative hedging of foreign currency or interest rate risks. The Directors and management monitors these risks, in particular market forecasts of future movements in foreign currency and, if it is to be believed to be in the best interests of shareholders, will implement risk management strategies to minimise potential adverse effects on the financial performance of the Group. The Board provides written principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, credit risk, and investment of excess liquidity. Risk management is carried out by the senior executive team. The Group holds the following financial instruments: Financial assets Cash and cash equivalents Receivables Other deposits Total financial assets Financial liabilities Payables Borrowings Lease liabilities Total financial liabilities 2020 $’000 2019 $’000 15,569 294 516 16,379 (9,089) (12,520) (189) (21,798) 42,137 1,540 509 44,186 (10,717) (12,983) – (23,700) Notes to the Financial Statementswww.kingsgate.com.au 49 Market risk Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from currency exposures, primarily with respect to the US dollar and Thai baht and as discussed earlier, no financial instruments are employed to mitigate the exposed risks. This is the Group’s current policy and it is reviewed regularly including forecast movements in these currencies by management and the Board. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated in a currency that is not the functional currency of the relevant group entity. Currently foreign exchange risks arise primarily from: 〉 cash balances in US dollars; 〉 receivables denominated in US dollars for Australian entities; and 〉 payables denominated in Australian dollars for Thailand entities. The functional currency of the Thai subsidiaries is Thai baht. The functional currency of the Chilean subsidiaries is the US dollar. The Company’s functional currency is Australian dollar. The Group’s exposure to US dollar and Thai baht foreign currency risk arises mainly from balances receivable and payable between Group companies which are not considered to form part of the related investment balance in the entities. The unrealised foreign exchange gain/loss on these balances is therefore recorded in the statement of profit or loss of the Group. At the reporting date, expressed in Australian dollars these balances were as follows: USD 2020 $’000 THB 2020 $’000 Total 2020 $’000 USD 2019 $’000 THB 2019 $’000 Total 2019 $’000 Cash and cash equivalents Receivables Payables Total exposure to foreign currency risk 158 132,856 (134,313) (1,299) – 70,269 (70,269) 158 203,125 (204,582) 105 124,494 (126,117) – 70,269 (70,269) 105 194,763 (196,386) – (1,299) (1,518) – (1,518) One cent weakened in Australian dollar against the US dollar One cent strengthened in Australian dollar against the US dollar One cent weakened in Australian dollar against the Thai baht One cent strengthened in Australian dollar against the Thai baht Impact on post tax loss Impact on other comprehensive income 2020 $’000 1,342 (1,315) 726 (725) 2019 $’000 1,257 (1,233) 721 (720) 2020 $’000 1,342 (1,315) 947 (942) 2019 $’000 1,257 (1,233) 940 (935) Notes to the Financial StatementsNotes to the Financial Statementscontinuedu 50 26. Financial risk management and instruments continued Interest rate risk The Group’s exposure to interest rate risk for classes of financial assets and financial liabilities, at 30 June 2020 and 30 June 2019 are set out as follows: Fixed interest rate maturing in Floating interest rate $’000 1 year or less $’000 1–2 years $’000 2–5 years $’000 Non-interest bearing $’000 Total $’000 2020 Financial assets Cash and cash equivalents Receivables Other deposits Total financial assets Financial liabilities Payables Borrowings Lease liabilities Total financial liabilities 15,561 – 516 16,077 – – – – Net financial assets/(liabilities) 16,077 2019 Financial assets Cash and cash equivalents Receivables Other deposits Total financial assets Financial liabilities Payables Borrowings Total financial liabilities 42,128 – 509 42,637 – – – Net financial assets/(liabilities) 42,637 – – – – – – – – – – – – – – (591) (591) (591) – – – – – – – – – – – – – – – – – – – – – – (12,520) – (12,520) (12,520) – – – – – (12,392) (12,392) (12,392) 8 294 – 302 (9,089) – (189) (9,278) (8,976) 9 1,540 – 1,549 (10,717) – (10,717) (9,168) 15,569 294 516 16,379 (9,089) (12,520) (189) (21,798) (5,419) 42,137 1,540 509 44,186 (10,717) (12,983) (23,700) 20,486 Credit risk Credit risk arises from cash and cash equivalents, deposits with banks and financial institutions, as well as credit exposures to customers including, outstanding receivables and committed transactions. The Group has no significant concentrations of credit risk. Notes to the Financial Statementswww.kingsgate.com.au 51 The maximum exposure to credit risk is represented by the carrying value of the Group’s financial assets in the statement of financial position. The maximum exposure to credit risk at reporting date was: Cash and cash equivalents Receivables Other deposits Total exposure to credit risk at year end 2020 $’000 15,569 294 516 16,379 2019 $’000 42,137 1,540 509 44,186 Liquidity risk The Group’s liquidity requirements are based upon cash flow forecasts. Liquidity management, including debt/equity management, is carried out under policies approved by the Board and forecast material liquidity changes are discussed at Board meetings. The following table analyses the Company’s financial assets and liabilities into relevant maturity groupings based on the remaining period at the reporting date. The amounts disclosed are the contractual undiscounted cash flows. The borrowings of the Group are repayable on demand, however the contractual amounts for borrowings also include the interests that are expected to be repaid until the repayment of these debts based on the cash flow forecast prepared by the Group. 2020 Payables Borrowings Lease liabilities Total financial liabilities 2019 Payables Borrowings Total financial liabilities Carrying amount $’000 1 year or less $’000 1–2 years $’000 2–5 years $’000 More than 5 years $’000 9,089 12,520 189 21,798 10,717 12,983 23,700 4,726 1,499 89 6,314 6,441 2,092 8,533 – 1,499 89 1,588 – 1,484 1,484 4,363 1 12,617 22 17,002 4,2761 13,974 18,250 – – – – – – – Total $’000 9,089 15,615 200 24,904 10,717 17,550 28,267 1 Related to pre-production royalties payable in respect of the Nueva Esperanza Gold/Silver Project in Chile. Notes to the Financial StatementsNotes to the Financial Statementscontinuedu 52 27. Key management personnel disclosures Executive Chairman Ross Smyth-Kirk Executive Chairman Non-Executive Directors Peter Alexander Non-Executive Director Peter Warren Non-Executive Director Key Management Personnel Compensation Short-term employee benefits Post-employment benefits Other long term benefits Total Key Management Personnel compensation 28. Auditors’ remuneration Audit and other assurance services PricewaterhouseCoopers Australian Firm Audit and review of the financial reports Related Practices of PricewaterhouseCoopers Australian Firm Audit and review of the financial statements Total remuneration for audit services Other Services PricewaterhouseCoopers Australian Firm Other services Related practices of PricewaterhouseCoopers Australian Firm Other services Total remuneration for non-audit related services Taxation services PricewaterhouseCoopers Australian Firm Tax compliance services Tax consulting services Related practices of PricewaterhouseCoopers Australian Firm Tax compliance services Total remuneration for tax related services 2020 $’000 327,660 30,780 – 2019 $’000 900,805 592,043 12,870 358,440 1,505,718 2020 $ 2019 $ 244,500 247,460 57,672 60,819 302,172 308,279 60,500 – 60,500 23,422 – 33,972 57,394 17,140 – 7,140 20,400 22,868 53,441 96,709 1 Exclude services provided by PricewaterhouseCoopers Australian Firm in respect of the PRI claim directly to the legal firm representing the Group. Notes to the Financial Statementswww.kingsgate.com.au s t n e m e t a t S l i i a c n a n F e h t o t s e t o N 53 2020 Cents (10.84) $’000 (24,244) 2019 Cents 3.70 $’000 8,375 Number Number 223,755,358 – 226,225,940 – 223,755,358 226,225,940 29. Earnings per share Basic and diluted (loss)/profit per share Net (loss)/profit used to calculate basic and diluted earnings per share Weighted average number of ordinary shares used as the denominator: basic Adjustment for dilutive effect Weighted average number of ordinary shares used as the denominator: diluted 30. Parent entity financial information As at, and throughout the financial year ending 30 June 2020, the parent entity of the Group was Kingsgate Consolidated Limited. Summary of financial information Results of parent entity (Loss)/profit for the year Other comprehensive loss Total comprehensive (losses)/income Financial position of parent entity at year end Current assets Total assets Current liabilities Total liabilities Total equity of the parent entity comprising: Issued capital Reserve Accumulated losses Total equity 2020 $’000 2019 $’000 (27,346) – (27,346) 15,029 42,544 77,898 77,932 42,895 – 42,895 43,496 71,016 77,179 77,216 675,919 8,763 (720,070) 677,761 8,763 (692,724) (35,388) (6,200) Contingent liabilities of the parent entity There are cross guarantees given by Kingsgate, Dominion Mining Limited and Gawler Gold Mining Pty Ltd as described in Note 31. No liability was recognised by the parent entity or the Group in relation to this guarantee, as the fair value of the guarantees is immaterial. As at 30 June 2020, the parent entity had no contractual commitments for the acquisition of property, plant or equipment. Notes to the Financial Statementscontinuedu 54 Notes to the Financial Statements 31. Deed of cross guarantee Pursuant to ASIC Corporations (Wholly-owned Companies) Instrument 2016/785, the wholly owned subsidiaries listed below are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports, and Directors’ Reports. It is a condition of the Class Order that the Company and each of the subsidiaries enter into a Deed of Cross Guarantee (“Deed”). The effect of the Deed is that the Company guarantees to each creditor payment in full of any debt on the event of the winding up of any of the subsidiaries under certain provisions of the Corporations Act 2001. If a winding up occurs under other provisions of the Corporations Act 2001, the Company will only be liable in the event that after six months any creditor has not been paid in full. The subsidiaries have also given similar guarantees in the event that the Company is wound up. The subsidiaries subject to the Deed are: 〉 Dominion Mining Limited; and 〉 Gawler Gold Mining Pty Ltd. The above companies represent a ‘closed group’ for the purpose of the Class Order, and as there are no other parties to the Deed of Cross Guarantee that are controlled by Kingsgate Consolidated Limited, they also represent the ‘extended closed group’. A consolidated statement of profit or loss and other comprehensive income, a summary of movements in consolidated accumulated losses, and consolidated statement of financial position, comprising the Company and controlled entities which are a party to the Deed, after eliminating all transactions between parties to the Deed of Cross Guarantee, is set out as follows: Statement of profit or loss and other comprehensive income Corporate and administration expenses Settlement of Political Risk Insurance claim Other income and expenses Foreign exchange gain/(loss) Impairment losses – investment in Nueva Esperanza Gold/Silver Project Write-off on loan to subsidiaries 2020 $’000 (12,564) - 5,975 2,588 - (23,621) 2019 $’000 (11,469) 76,319 5,754 7,282 (6,558) (23,546) (Loss)/profit before financial costs and income tax (27,622) 47,782 Finance income Finance costs Net finance costs (Loss)/profit before income tax Income tax expense (Loss)/profit after income tax Total comprehensive (loss)/income for the year (Loss)/profit attributable to: Owners of Kingsgate Consolidated Limited Total comprehensive (loss)/income attributable to: Owners of Kingsgate Consolidated Limited Summary of movements in consolidated retained earnings Accumulated losses At the beginning of the financial year (Loss)/profit for the year At end of the financial year 278 (4) 274 (27,348) - (27,348) (27,348) 49 (4,937) (4,888) 42,894 – 42,894 42,894 (27,348) 42,894 (27,348) 42,894 (692,718) (27,348) (735,612) 42,894 (720,066) (692,718) www.kingsgate.com.au Statement of financial position Assets Current assets Cash and cash equivalents Receivables Other assets Total current assets Non-current assets Property, plant and equipment Investment in subsidiaries Total non-current assets TOTAL ASSETS Liabilities Current liabilities Payables Borrowings Provisions Total current liabilities Non-current liabilities Provisions Total non-current liabilities TOTAL LIABILITIES NET LIABILITIES Equity Contributed equity Reserves Accumulated losses TOTAL EQUITY 55 Notes to the Financial Statements 2020 $’000 2019 $’000 s t n e m e t a t S l i i a c n a n F e h t o t s e t o N 14,529 161 349 15,039 6 27,509 27,515 42,554 77,780 – 124 77,904 34 34 77,938 (35,384) 41,823 1,418 266 43,507 11 27,509 27,520 71,027 77,042 – 142 77,184 37 37 77,221 (6,194) 675,919 8,763 (720,066) 677,761 8,763 (692,718) (35,384) (6,194) 56 Directors’ Declaration Directors’ Declaration In the Directors’ opinion: a) the financial statements and notes that are set out on pages 24 to 55 and the Remuneration Report in the Directors’ Report, are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its performance for the financial year ended on that date; and (ii) complying with Australian Accounting Standards, the Corporation Regulations 2001 and other mandatory professional reporting requirements. there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and at the date of this declaration, there are reasonable grounds to believe that the members of the extended closed group identified in Note 31 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the Deed of Cross Guarantee described in Note 31. b) c) Note 1 confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The Directors have been given the declarations required by section 295A of the Corporations Act 2001 from the Executive Chairman and Company Secretary for the financial year ended 30 June 2020. This declaration is made in accordance with a resolution of the Directors. Ross Smyth-Kirk Director Dated at Sydney on 30 September 2020 On behalf of the Board www.kingsgate.com.au Independent Auditor’s Report 57 Independent Auditor’s Report t r o p e R s ’ r o t i d u A t n e d n e p e d n I Independent auditor’s report To the members of Kingsgate Consolidated Limited Report on the audit of the financial report Our opinion In our opinion: The accompanying financial report of Kingsgate Consolidated Limited (the Company) and its controlled entities (together the Group) is in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its financial performance for the year then ended (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. What we have audited The Group financial report comprises: 〉 the consolidated statement of financial position as at 30 June 2020 〉 〉 〉 〉 〉 the consolidated statement of profit or loss and other comprehensive income for the year then ended the consolidated statement of changes in equity for the year then ended the consolidated statement of cash flows for the year then ended the notes to the consolidated financial statements, which include a summary of significant accounting policies the directors’ declaration. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial report section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. One International Towers Sydney, Watermans Quay, Barangaroo, GPO Box 2650, SYDNEY NSW 2001 T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124 T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au continuedu 58 Independent Auditor’s Report Independence We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards)(the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. Our audit approach An audit is designed to provide reasonable assurance about whether the financial report is free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial report as a whole, taking into account the geographic and management structure of the Group, its accounting processes and controls and the industry in which it operates. Materiality Audit scope Key audit matters 〉 Amongst other relevant topics, we communicated the following key audit matters to the Audit and Risk Committee: 〉 Carrying amount of assets and liabilities associated with the Chatree Gold Mine 〉 Impairment indicator assessment exploration and evaluation assets Nueva Esperanza Gold/Silver Project 〉 These are further described in the Key audit matters section of our report. 〉 For the purpose of our audit we used overall Group materiality of $0.5 million, which represents approximately 1% of the Group’s total assets. 〉 We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial report as a whole. 〉 We chose Group’s total assets because, in our view, it is the benchmark which best reflects the expected requirements of users of the Group’s financial statements. 〉 We chose total assets as the materiality benchmark rather than a profit measure given the closure of the Chatree Gold Mine and the Group’s focus on the development and possible sale of the Nueva Esperanza Gold/Silver Project. 〉 We utilised a 1% threshold based on our professional judgement, noting it is within the range of commonly acceptable thresholds. 〉 Our audit focused on where the Group made subjective judge- ments; for example, significant accounting estimates involving assumptions and inherently uncertain future events. 〉 〉 〉 The Australian engagement team directed the involvement of the Thai component audit team, which performed specified audit procedures on the financial information of Akara Resources Public Company Limited. The component auditor in Chile, operating under instructions, also performed specified audit proce- dures over the Group’s Chilean operations’ financial information. The Australian engagement team determined the required level of involvement in the work performed by the Thai and Chilean component audit teams, in order to be satisfied that sufficient appropriate audit evidence had been obtained for our opinion on the Group financial statements as a whole. www.kingsgate.com.au 59 Independent Auditor’s Report t r o p e R s ’ r o t i d u A t n e d n e p e d n I Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. The key audit matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Further, any commentary on the outcomes of a particular audit procedure is made in that context. Key audit matter How our audit addressed the key audit matter Carrying amount of assets and liabilities associated with the Chatree Gold Mine (Refer to note 3 (i) and note 3 (ii)) The Group’s Chatree Gold Mine in Thailand was placed on care and maintenance as a result of a decision made by the Thai Government to cease all gold mining activities in Thailand by 31 December 2016. With the exception of some assets that may be realised independently of re-opening the mine, all assets of the Chatree Gold Mine have been impaired to a nil value. At this time, the Group also revised the Chatree Gold Mine’s restoration and rehabilitation liability to reflect the premature closure of the mine. The total rehabilitation liability, amounting to approximately $17 million at 30 June 2020 is based on management’s rehabilitation plan which is a revision from the initial plan submitted to the Thai Authorities in 2007. The Group commenced arbitral proceedings against the Kingdom of Thailand under the Australia-Thailand Free Trade Agreement in order to be compensated for the losses it has incurred as a result of the expropriation of the Chatree Gold Mine by the Thai Government. The carrying amount of assets and liabilities of the Chatree Gold Mine and associated disclo- sures were considered to be a key audit matter because there remains significant uncertainty in respect of the rights and obligations of the Group in relation to the mine and the magnitude of a potential reversal of impairment, changes in the rehabilitation liability and potential recognition of contingent assets on the financial statements. We updated our understanding in respect of the situation regarding the Chatree Gold Mine by making enquiries of management and the directors as to their knowledge and understanding of the situation and by reading selected material correspondence on this matter which included key elements of the legal claim lodged by the Group against the Thai Government. We assessed the adequacy of the overall accounting position adopted by the Group at 30 June 2020 as described in notes 3 (i) and 3 (ii) in respect of the carrying amount of assets and liabilities and evaluated the adequacy of the disclosures in light of the requirements of the Australian Accounting Standards. In respect of the carrying amount of the assets associated with the Chatree Gold Mine, we performed the following: 〉 assessed the Group’s judgement as to whether the circumstances that led to the previously recognised impairment charge have changed and whether a reversal of this impairment should be recognised, and 〉 assessed if other assets which have been recognised at their short- term realisable value have a carrying amount based on supportable assumptions. In respect of the carrying amount of the liabilities associated with the Chatree Gold Mine, we assessed the Group’s restoration and rehabili- tation plans prepared in the context of the premature closure of the mine and the overall accounting position adopted by the Group at year end in respect of the Chatree Gold Mine’s obligations. We considered the status of the legal claims of the Group against the Thai Government in light of the requirement to disclose contingent assets and liabilities in the financial statements in accordance with Australian Accounting Standards. continuedu 60 Independent Auditor’s Report Key audit matter How our audit addressed the key audit matter Impairment indicator assessment of exploration and evaluation assets Nueva Esperanza Gold/Silver Project (Refer to note 3 (iii)) We considered the Group’s impairment indicator assessment for the Nueva Esperanza Gold/Silver Project and its conclusion that no impairment indicators, nor indicators for impairment loss reversal existed at balance sheet date. The impairment indicator assessment of the exploration and evaluation assets for the Nueva Esperanza Gold/Silver Project was a key audit matter given the significance of the carrying value of this CGU ($27.5 million as at 30 June 2020, the largest non-current asset in the balance sheet) and given the impairment charge recorded in the previous financial year ($33.4 million). The impairment indicator assessment is also subject to significant judgements by the Group as described in the notes to the financial statements. In respect of the impairment indicator assessment, we performed the following: 〉 evaluated if the Group identified and considered the relevant internal and external factors in its assessment, 〉 obtained and discussed with management and the directors offers for the acquisition of the project and the status of any discussions with the bidders, 〉 obtained and reviewed evidence around recent developments for the Project, and 〉 considered the Groups’ market capitalisation at balance sheet date compared with the net assets of the Group. We evaluated the adequacy of the disclosures made in note 3 (iii), including those regarding the key internal and external factors considered in light of the requirements of Australian Accounting Standards. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report for the year ended 30 June 2020, but does not include the financial report and our auditor’s report thereon. Prior to the date of this auditor’s report, the other information we obtained included the Corporate Information and the Directors’ report (including the remuneration report). We expect the remaining other information to be made available to us after the date of this auditor’s report. Our opinion on the financial report does not cover the other information and we do not and will not express an opinion or any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the other information not yet received, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgement to determine the appropriate action to take. Responsibilities of the directors for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. www.kingsgate.com.au 61 Independent Auditor’s Report Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our auditor’s report. t r o p e R s ’ r o t i d u A t n e d n e p e d n I Report on the remuneration report Our opinion on the remuneration report We have audited the remuneration report included in pages 15 to 20 of the directors’ report for the year ended 30 June 2020. In our opinion, the remuneration report of Kingsgate Consolidated Limited for the year ended 30 June 2020 complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. PricewaterhouseCoopers Marc Upcroft Partner Sydney 30 September 2020 62 Shareholder Information Shareholder Information As at 18 September 2020 Distribution of equity securities Size of Holding 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 + Total 20 largest shareholders Below are the 20 largest shareholders of quoted ordinary shares Shareholder J P Morgan Nominees Australia Pty Limited Zero Nominees Pty Ltd Citicorp Nominees Pty Limited HSBC Custody Nominees (Australia) Limited BNP Paribas Nominees Pty Ltd Arinya Investments Pty Ltd Clawson Holdings Pty Ltd Est Sir Lenox Hewitt Investec Australia Limited Thomas Fritz Ensmann Ian Gillespie-Jones Jay Evan Dale Hughes BNP Parabis Noms Pty Ltd Wyong Rugby League Club Ltd Andrew Lenox Hewitt Philip Storr National Nominees Limited Elizabeth Aprieska Frank Markert Pty Ltd HSBC Custody Nominees (Australia) Limited 1 2 3 4 5 6 7 8 9 10 11 11 12 13 14 14 15 16 17 18 Voting rights – Ordinary shares Number of shareholders of fully paid ordinary shares 4,063 2,644 850 1,294 233 9,084 Number of shares 18,493,071 18,259,859 17,133,789 8,157,710 5,934,873 4,996,944 3,180,623 2,700,000 2,641,003 2,200,000 2,000,000 2,000,000 1,847,676 1,610,000 1,600,000 1,600,000 1,516,286 1,412,590 1,404,087 1,366,504 Percentage 8.34 8.23 7.72 3.68 2.68 2.25 1.43 1.22 1.19 0.99 0.90 0.90 0.83 0.73 0.72 0.72 0.68 0.64 0.63 0.62 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. www.kingsgate.com.au Corporate Information Kingsgate Consolidated Limited ABN 42 000 837 472 63 Corporate Information n o i t a m r o f n I e t a r o p r o C Thailand Office Akara Resources Public Company Limited No. 99 Moo 9, Tambon Khao Chet Luk Amphur Thap Khlo Phichit 66230 Thailand Tel: Fax: +66 56 614 500 +66 56 614 190 Chile Office Laguna Resources Chile Ltda Av. Apoquindo 4700, oficina 602 Las Condes, Santiago Chile Tel: +56 2 3245 8650 Share Registry Link Market Services Limited Level 12, 680 George Street Sydney NSW 2000 Australia Postal address: Locked Bag A14 Sydney South NSW 1235 Australia +61 1300 554 474 +61 2 9287 0303 Tel: Fax: Email: registrars@linkmarketservices.com.au Web: www.linkmarketservices.com.au Auditor PricewaterhouseCoopers One International Towers Sydney Watermans Quay Barangaroo NSW 2000 Australia Tel: Fax: +61 2 8266 0000 +61 2 8266 9999 Directors Ross Smyth-Kirk Executive Chairman Peter Alexander Non-Executive Director Peter Warren Non-Executive Director Company Secretary Ross Coyle Stock Exchange Listing Kingsgate Consolidated Limited is a company limited by shares, listed on the Australian Securities Exchange (ASX) under the code KCN. The Company’s shares also trade in the United States of America over-the-counter (OTC) as an American Depository Receipt (ADR) under the code OTC: KSKGY. Registered Office and Principal Business Address Kingsgate Consolidated Limited Suite 2, Level 23, 20 Bond Street Sydney NSW 2000 Australia +61 2 8256 4800 Tel: Email: info@kingsgate.com.au Web: www.kingsgate.com.au Design & Production > APM Graphics Management > 1800 806 930 Suite 2, Level 23 20 Bond Street Sydney NSW 2000 Australia +61 2 8256 4800 Tel: Email: info@kingsgate.com.au Web: www.kingsgate.com.au