ANNUAL REPORT
PROGRESSING TOWARDS DEVELOPMENT
Kula Gold limited
aCN 126 741 259
Corporate directory
directors:
David Frecker
Lee Spencer
John Watkins
Louis Rozman
Mark Stowell
Chairman
Managing director and chief executive officer
Executive director and chief financial officer
Non-executive director
Non-executive director
Company secretary:
Leanne Ralph
Registered office:
auditor:
Share registry:
Suite 2, Level 15, 1 York Street
Sydney, NSW 2000
T: + 61 2 9262 5651
F: + 61 2 9262 5680
Email: info@kulagold.com.au
Website: www.kulagold.com.au
PricewaterhouseCoopers Australia
Darling Park Tower 2
201 Sussex Street
Sydney, NSW 2000
T: +61 2 8266 0000
Link Market Services Limited
Level 12, 680 George Street
Sydney, NSW 2000
T: 1300 554 474
or
+61 2 8280 7111
Stock exchange listing: Australian Securities Exchange
ASX code: KGD
ii
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Kula Gold limited aCN 126 741 259
Kula Gold limited aCN 126 741 259
Contents
Chairman’s letter
Chief executive officer’s report
directors’ report
Remuneration report
auditor’s independence declaration
Corporate governance statement
Financial statements
directors’ declaration
independent auditor’s report
to the members of Kula Gold limited
Shareholder information
interest in mining tenements
page
1
2
11
17
27
28
35
84
85
87
90
2011 aNNual RepoRt
2011 aNNual RepoRt
iii
iii
Chairman’s letter
“Kula Gold has achieved significant exploration
success as well as making steady progress on its
Woodlark Island Gold Project”
iv
Kula Gold limited aCN 126 741 259
Chairman’s letter
David Frecker
For Kula Gold, 2011 was a year of steady progress for the Woodlark Island Gold Project (Project)
in addition to some significant exploration success. Let me highlight for shareholders some of the
achievements during the year.
The Company’s overall resources (measured, indicated
and inferred) of gold on Woodlark Island were increased
during the year to 2.0 million ounces, based on a 0.5 g/t
Au lower cut-off grade and appropriate upper cuts. The
first increase, announced in May 2011, was as a result
of successful exploration drilling at Woodlark King. The
studies underway now include a third pit in the Project at
Woodlark King which is a short trucking distance from the
proposed processing plant at Busai. The second increase
in resources announced at the beginning of February 2012,
resulted from further exploration drilling through to the end
of 2011, mainly at Kulumadau East. Further details of this
exploration success are contained in the chief executive
officer’s report.
The new zone of mineralisation at Kulumadau East was
initially discovered by step-out drilling from the proposed pit
for mining of the main Kulumadau deposit. Our technical
team believe that there is potential to make further discoveries
of this nature beneath the marine sedimentary layer which
covers much of Woodland Island.
The feasibility study for the Project is due to be completed
by the end of March 2012, which will allow the
Company to lodge its application for a mining lease and
associated tenements with the Papua New Guinea (PNG)
Government. In tandem, the environmental impact study is
being completed so that it can be submitted to the PNG
Government as part of the process leading to the grant of
the mining lease and associated tenements. The Company
has well-qualified and reputable consultants working on all
aspects of the feasibility study and environmental impact
study.
The Company has also continued active health, safety and
community programs (as detailed in the chief executive
officer’s report). I should like to highlight two things.
First, there is the work of the health clinic at the Company’s
Bomagai Camp on Woodlark Island, which is staffed by
qualified nursing sisters. The clinic provides free medical
treatment for all the Company’s employees and their
immediate family members. Those who do not fall into this
category pay a small charge for treatment. In this way, the
clinic provides an essential service to the local community
in the central part of the Island. The only other health clinic
on the Island is one run by the PNG Government which is
at the far eastern end near Guasopa.
Second, the Company has recently completed a new
community affairs building on the Island which will provide
an important focus for community activities and support.
The Company is very appreciative of the continuing support
it has received from the local community on Woodlark,
particularly the people in and around Kulumadau. We
look forward to working closely with the local people as
the Project advances.
I must commend the executive management team for their
efforts throughout the year. The two executive directors,
Lee Spencer (chief executive officer) and John Watkins
(chief financial officer), have continued to provide stable
and effective leadership. They have built up around them
a good team, both at the Company’s corporate office in
Sydney and on the Island. The board has confidence
in their ability to continue to deliver on the Company’s
objectives.
At board level, Peter Bradford resigned as a director
with effect from 30 June 2011 due to other commitments.
The board decided not to replace him as a director
immediately. The board is working well, and at this stage
of the Company’s development additional directors are not
required.
As shareholders will be aware, there was a change of
political leadership in PNG in October 2011, but this has
had no effect on advancing the Company’s activities on
Woodlark Island. A scheduled general election is due to
be held in June 2012. Whilst there can be some disruption
around elections in PNG, the Company hopes that the
political situation continues to be resolved in a peaceful
and constitutional manner in 2012.
The Company acknowledges and is grateful for the
continuing support for the Project from the PNG National
Government (through the Mineral Resources Authority
and the Minister for Mining), the Milne Bay Provincial
Government and the people of Woodlark Island.
david Frecker
Chairman
2011 aNNual RepoRt
1
Chief executive officer’s report
Lee K Spencer
The year ending 31 December 2011 has seen significant progress for Kula Gold on the
path towards the development of an operating gold mine on the Company’s core asset
on Woodlark Island, Milne Bay Province, Papua New Guinea.
The transition from explorer to developer is accelerating
with the following achievements:
Corporate
+ In line with the development of a mine on Woodlark
Island the Company was engaged in building its
operations team during the year. Key positions
to reflect development status are actively being
sought.
+ The Company is well funded with $20 million
in cash at 31 December 2011 to complete the
FS and EIS.
+ The Company now operates a corporate office
in Sydney.
Resources
During the first quarter of 2011, a drilling program was
initiated at the Woodlark King historical mine in the
Boniavat area, where shallow open pits had extracted
approximately 10,000 ozs pre-World War 2. Final
infill drilling and drilling on the south east strike extent
of the deposit early in the second quarter of 2011
resulted in a JORC resource of 3.7 million tonnes at
1.2g/t Au for 145,000 ozs.
JORC
resources
for Woodlark
Global
Island
were updated, after drilling at Kulumadau East in
late 2011. The global resource now stands at
2 million ozs (42.4Mt @ 1.5g/t Au at a lower cutoff
of 0.5g/t Au and appropriate upper cuts based on
statistical analysis). Refer to Table 1.
to known
+ Discovery of further mineralisation at Kulumadau
under cover adjacent
resources.
Exploration drilling of this new zone through to
the end of December 2011 has resulted in a
further increase in the JORC Project Resource
to 2.0 million ozs of gold (announced on
1 February 2011);
+ Significant progress on the bankable Feasibility
Study (FS) with extensive geotechnical drilling
and assessment being completed to design pit
walls, dam foundations and infrastructure as well
as extensive hydrological studies to assess water
management and supply. Metallurgical test work
is nearing completion enabling process design to
be undertaken, pit optimisation studies leading to
project reserves and mine scheduling are all well
advanced. All site investigations for the FS were
completed during the year;
+ The FS envisages mining ore from three open
pits with ore being hauled a maximum of five
kilometres to a centrally located processing plant.
Ore processing utilising a conventional gravity/
CIL circuit will commence at 1.5 Mtpa (million
tonnes per annum) with an initial mine life of at
least seven years. The FS will be submitted to the
Mineral Resource Authority (MRA), a Papua New
Guinea (PNG) government department, as part of
the permitting process and subsequently used as a
basis for project financing;
+ Submission of an Environmental Inception Report to
the Department of the Environment and Conservation
in Port Moresby in conjunction with the Company’s
environmental consultants Coffey Environments.
Kula Gold has significantly progressed all the
elements of the Environmental Impact Study (EIS)
required by the PNG Government as part of the
permitting process;
+ Kula Gold continues to provide project update
briefings to the PNG Government and other
statutory bodies to progress the permitting process
which is the main critical path item in the overall
project development schedule.
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Kula Gold limited aCN 126 741 259
Chief executive officer’s report (continued)
TAbLE 1: GLObAL REsOURCEs fOR ThE WOOdLARk IsLANd GOLd PROjECT
Deposit
Category
Kulumadau Measured
Kulumadau
Indicated
Kulumadau
Inferred
Kulumadau
Total
Busai
Busai
Busai
Busai
Boniavat
Boniavat
Measured
Indicated
Inferred
Total
Indicated
Inferred
Boniavat
Total
All
All
All
Measured
Indicated
Inferred
Total *
Resource
(Mt)*
Grade
(Uncut)
(g/t Au)*
5.1
2.8
9.6
17.6
3.6
7.1
10.0
20.8
3.0
1.0
4.0
8.8
12.9
20.8
42.4
1.8
1.7
1.7
1.7
1.5
1.6
1.5
1.5
1.3
1.9
1.4
1.7
1.6
1.6
1.6
Grade
(Cut)
(g/t Au)*
1.75
1.5
1.4
1.5
1.5
1.5
1.4
1.5
1.2
1.8
1.4
1.6
1.5
1.4
1.5
Au
(Uncut)
(Oz)*
300,000
150,000
510,000
970,000
175,000
370,000
470,000
1,000,000
125,000
60,000
185,000
470,000
650,000
1,000,000
Au
(Cut)
(Oz)*
290,000
140,000
440,000
870,000
170,000
350,000
450,000
970,000
115,000
60,000
175,000
460,000
600,000
950,000
2,150,000
2,000,000
* Totals may appear incorrect due to rounding
Note 1: The Busai Inferred Resource includes 3.9 Mt @ 0.9g/t for 110,000 oz Au from Munasi (2km southeast of Busai).
Note 2: The Boniavat Inferred Resource includes 0.3Mt @ 3.0g/t for 30,000oz Au from Watou (1.5km south of Woodlark King).
2011 aNNual RepoRt
3
Chief executive officer’s report (continued)
The widespread distribution of hydrothermal breccias
with gold mineralisation associated with linear
structures on the flanks of the breccias indicates the
Kulumadau mineralisation as a whole may represent
a diatreme breccia complex which has been
subsequently modified by post mineralisation faulting.
Several blank areas remain where no drilling has
been conducted but where mineralisation could be
reasonably expected. Kula Gold expects to undertake
further exploratory drilling to confirm this.
A schematic plan of the breccia distribution with
gold mineralisation as presently understood, with the
young cover sediments removed, is shown in Figure 2.
Figure 1: Gold mineralisation at Kulumadau
Figure 2: Geology of Kulumadau (Sub-Kiriwina)
Exploration
Previous exploration on Woodlark had concluded
that gold mineralisation was associated with base
metal-carbonate, low sulphidation, epithermal systems
formed in Miocene andesitic volcanics and their
subvolcanic intrusive equivalents. Pre-1930 historical
gold production from Woodlark Island, estimated at
220,000 ozs was sourced from both hardrock and
alluvial sources with the dominant hardrock mining
having taken place at the three centres of Busai,
Kulumadau and Boniavat.
The bulk of Woodlark Island is covered by a thin veneer
of young sediments consisting of coralline detritus and
marine clays. The ability to discover resources on
Woodlark is due to the experience and persistence
of the Company’s exploration team to search beneath
this thin cover. By utilising a combination of regional
vectors such as structure, aeromagnetics, geochemistry
and vegetation anomalies caused by 19th Century
alluvial mining activities, the potential for discovering
further resources has become apparent. A total of
eight regional targets have been identified and these
have been rated for follow up.
The first target assessed in 2011 was Woodlark King
at Boniavat where regional reconnaissance drilling in
2010 identified two areas of significant alteration and
mineralisation. This resulted in a resource for Woodlark
King described above.
Exploration during the fourth quarter of 2011 was
focused on the Kulumadau East area following the
discovery of previously unknown mineralisation
beneath a shallow limestone cover of around 20
metres in thickness. The discovery was made during
sterilisation drilling for waste dumps immediately
adjacent to the Kulumadau Resource and the collar of
the FS open pit.
Step out drilling on strike to the north west and south east
of the original discovery holes confirmed a strike length
of 350 metres of this new mineralisation. Figure
1 shows the Kulumadau resource and the new
mineralisation at Kulumadau East.
Geological reassessment of Kulumadau by systematic
relogging of over 45 historical diamond holes has
now been completed with evidence that mineralisation
occurs in association with a mill matrix breccia in an
annulus around a central diatreme.
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Kula Gold limited aCN 126 741 259
Chief executive officer’s report (continued)
Total drilling for the year amounted to 43,042 metres of reverse circulation (RC) and 8,096 metres of diamond
drilling with details in Table 2 and 3 respectively.
TAbLE 2: METREs Of REVERsE CIRCULATION dRILLING dURING 2011
Month
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Total
Exploration
(m)
Feasibility Study
Resource
(m)
Hydrogeology
(m)
Sterilsation
(m)
2,032
7,564
4,736
3,912
3,333
3,250
3,194
–
–
1,200
3,855
1,746
34,822
–
–
–
1,144
1,571
–
–
–
–
–
–
–
–
–
–
–
–
–
124
371
600
600
–
–
–
–
–
738
2,322
750
–
–
–
–
–
–
2,715
1,695
3,810
TAbLE 3: METREs Of dIAMONd dRILLING dURING 2011
Month
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Total
Exploration
(m)
Feasibility Study
Resource
(m)
Geotech
(m)
Metallurgy
(m)
Site Investigation
(m)
307
–
200
–
285
724
905
222
583
784
400
500
–
–
–
–
381
–
–
–
–
–
–
–
–
335
204
412
–
–
–
–
–
–
–
–
–
–
585
268
–
–
–
–
–
–
–
–
4,910
381
951
853
–
151
–
–
–
–
–
–
–
350
450
50
1,001
LJ Putland and Associates (LJP) are currently carrying out open pit optimisation studies at a US$1,200 per ounce
gold price for the Kulumadau, Busai and Woodlark King deposits to derive a reserve as part of the FS.
2011 aNNual RepoRt
5
Chief executive officer’s report (continued)
The various components as part of the FS are all
progressing well including geotechnical studies (Peter
O’Bryan & Associates), hydrology (Klohn Crippen
Berger Ltd), metallurgy (R.W. Nice & Assoc. Pty Ltd),
process and infrastructure design work (GR Engineering
Services Limited), tailings disposal (Coffey Environments
Australia Pty Ltd) and tails dam design (Knight Piesold
Pty Limited). A proposed operational layout is shown
in Figure 4.
Ramp up to 2.6 Mtpa on the back of conversion of
existing resources to reserves and the discovery of
further resources particularly at Kulumadau is likely.
Figure 4: Proposed operational layout
development
In Papua New Guinea, for a Mining Lease to be
granted, the Company is required to submit a FS
together with an EIS in conjunction with various social
agreements with the local landholders, local level
government, provincial government and the PNG
national government.
Kula Gold is currently completing a FS on the
Woodlark Gold Project, with top tier consultants
with extensive PNG experience. The Study
is
anticipated to be completed at the end of the first
quarter of 2012.
The FS envisages mining ore from three open pits with
ore being hauled a maximum of five kilometres to a
centrally located processing plant. Ore processing
utilising a conventional gravity/CIL circuit will commence
at 1.5 Mtpa (million tonnes per annum) with an initial
mine life of at least seven years. The conceptual plant
layout has been developed and is shown in Figure 3.
During 2011, extensive geotechnical drilling and
assessment was completed to design pit walls, dam
foundations and infrastructure, extensive hydrological
studies have been undertaken to assess water
management and supply. Metallurgical test work
is nearing completion, pit optimisation studies and
mine scheduling are all currently underway. All site
investigations for the FS were completed during the
December quarter.
Figure 3: Conceptual plant layout
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Kula Gold limited aCN 126 741 259
Chief executive officer’s report (continued)
health, safety and the Community
Kula Gold Limited operates in PNG through its 100%
owned subsidiary Woodlark Mining Limited. Together
they employ a total of 317 employees with the majority
being local Muyuw people indigenous to Woodlark
Island. They are responsible for the management
of exploration, administration and environmental
activities. Safety and health has been the number one
issue for the Company operating in the challenging
tropical environment on the island.
The safety record for the period reported has been
excellent considering the number of drill rigs and
earth moving machinery involved during exploration.
The Company rigorously conducts safety inductions,
weekly tool box meetings, incident reporting and
analysis and has a safety officer in place to train
local Woodlark Islanders in safety procedures and
regulations.
Through its community relations department, which
is responsible for managing community and social
issues, the Company has identified the key areas of
most concern to the local communities, these include:
+ Health: Woodlark Island has endemic malaria with
few government medical facilities. The Company
has established a clinic under the supervision of a
health extension officer, the services of which are
available to Company employees, their extended
families and emergency cases. The Company’s
clinic regularly treats 700 local people a month
and during the past year has undertaken several
emergency evacuations to the base hospital at
Alotau and has been instrumental in saving lives.
+ Employment:
the
In conjunction with
local
communities an Employee Consultative Committee
has been established to advise the Company
on work related issues including but not limited
to ensuring a fair and reasonable spread of
employment opportunities across the whole of the
island.
+ Training: The Company has instituted a training
program for equipment operators, surveyors,
drillers and other employees. The training program
has proved very successful and during the year
was placed under the supervision of an expatriate
training manager.
+ Education: The Company has been instrumental in
providing basic educational hardware to various
schools throughout the island.
2011 aNNual RepoRt
7
Chief executive officer’s report (continued)
Environment
The Company is committed to developing the project
in an environmentally responsible manner. Due to
the fact that significant impacts have already been
made on the environment by pre-World War 1 mining
operations and by extensive logging operations in
the 20th Century, extensive environmental studies
have been conducted by a number of recognised
consultants as part of the EIS scheduled to be submitted
in mid-2012.
As a concluding remark I would like to thank the
Woodlark Island communities and all levels of local,
provincial and national government in PNG for the
support they have given the Company and the project
during the year. Special thanks go to our enthusiastic
team of employees both in Australia and PNG
through whose persistence and efforts the Company
has achieved its 2011 objectives. I look forward to the
continued support of all stakeholders as we progress
the project along the path towards development in
2012.
Yours Sincerely
Lee k spencer
Chief executive officer
Kula Gold Limited
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Kula Gold limited aCN 126 741 259
fINANCIAL REPORT
annual Report
Contents
page
directors’ report
Remuneration report
auditor’s independence declaration
Corporate governance statement
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
directors’ declaration
independent auditor’s report
to the members of Kula Gold limited
Shareholder information
interest in mining tenements
11
17
27
28
36
37
38
39
40
84
85
87
90
10
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Kula Gold limited aCN 126 741 259
Kula Gold limited aCN 126 741 259
directors’ report
Your directors present their report on the consolidated entity (referred to hereafter
as the Group) consisting of Kula Gold Limited (referred to hereafter as Kula Gold or
the Company) and the entities it controlled at the end of, or during, the year ended
31 December 2011.
directors
The following persons were directors of Kula Gold Limited during the whole of the financial year
(unless noted otherwise) and up to the date of this report:
David Frecker
Lee Spencer
John Watkins
Louis Rozman
Peter Bradford (resigned 30 June 2011)
Mark Stowell
Principal activities
The principal activity of the Group is the development of the Woodlark Island Gold Project located on
Woodlark Island in Papua New Guinea.
dividends
No dividends have been paid or declared during the year (2010: $nil).
Result of operations
The net loss from operations of the consolidated entity was $1,354,000 (2010: loss of $5,058,000).
2011 aNNual RepoRt
11
directors’ report (continued)
Review of operations
During the year ending 31 December 2011 the Group has been undertaking an extensive drilling program on
its core assets located on Woodlark Island, Milne Bay Province, Papua New Guinea. The objectives of the
drilling program have been to:-
+ Better define the extent of the known gold reserves.
+ Investigate and define new resources.
+ Carrying out engineering drilling as required for completion of mine planning.
All of the objectives have been met. The most significant outcome for the Group has been the identification
of high grade intercepts of gold mineralisation to the east of the current deposit at Kulumadau. This discovery
together with the results of our other drilling activities has enabled the Group to increase the current JORC
Compliant Resource to 2.0 million ounces of gold (previous resource 1.75 million ounces).
Work on the Feasibility Study (FS) continued throughout 2011 and it is anticipated lodgement will occur
with the Papua New Guinea Mineral Resource Authority (MRA) by the end of the first quarter of 2012. The
Environmental Impact Study (EIS) has also been progressed at the same time and it is planned for lodgement
with the Papua New Guinea Department of Environment and Conservation (DEC) by mid-year 2012.
Corporate:
+ Building of a corporate and technical team which will oversee the Company into the development phase.
Environment:
+ The Group is committed to developing the project in an environmentally responsible manner. Extensive
baseline environmental studies continue during the year. This data is being used to prepare the EIS which is
due for completion by the end of the 2nd quarter 2012.
significant changes in the state of affairs
In the opinion of the directors there were no other significant changes in the state of affairs of the Group that
occurred during the financial year under review not otherwise disclosed in this annual report.
Likely developments and expected results of operations
Further information on likely developments in the operations of the Group and the expected results of
operations have not been included in this annual report because the directors believe it would be likely to
result in unreasonable prejudice to the Group.
Environmental regulation
The Group’s exploration activities in Papua New Guinea are subject to the environmental regulation of Papua
New Guinea. The Group aims to ensure the appropriate standard of environmental care is achieved, and in
doing so, that it is aware of and is in compliance with all environmental legislation. The directors of the Group
are not aware of any breach of environmental legislation for the period under review.
12
Kula Gold limited aCN 126 741 259
directors’ report (continued)
Information on directors
David Frecker BA, LLM Independent chairman and non-executive director. Age 63.
Experience and expertise
David Frecker is a non-executive director of Kula Gold and has been elected chairman of the board.
David is a commercial lawyer with over 35 years’ experience in practice in Australia and PNG. He is a
partner of Ashurst Australia (formerly Blake Dawson), practising in the corporate and commercial area and
specialising in mining, oil & gas and resources law, and all aspects of commercial law in PNG. Prior to
joining Ashurst Australia in 1980, David worked for five years in the Mining and Major Projects section of the
State Solicitor’s Office in PNG. He subsequently spent four years as one of Ashurst Australia’s resident partners
in PNG.
David is a member of AMPLA (the Resources and Energy Law Association of Australia) and the Resources,
Energy and Environmental Law Committee of the Law Council of Australia. He is admitted to practise in
Australia and PNG and holds Bachelor of Arts, Bachelor of Laws and Masters of Laws degrees from the
University of Sydney.
Other current directorships
The Kokoda Track Foundation Limited.
Former directorships in last 3 years
None.
Special responsibilities
Independent chairman.
Member of the audit committee.
Member of the remuneration and nomination committee.
Interests in shares and options
+ 20,000 ordinary fully paid shares (balance up to the date of signing the directors’ report);
+ 100,000 KGDOPT2 class options to acquire ordinary fully paid shares.
Lee Spencer MSc App (Mineral exploration) Managing director and chief executive officer. Age 58.
Experience and expertise
Lee is a geologist with over 30 years’ experience in the mining industry. He has proven expertise in operating
mines, project development and exploration and has worked in South East Asia and PNG since 1976. Lee has
been associated with the Woodlark Island Gold Project for over ten years.
Lee has held numerous senior executive positions in the mining industry including chief executive officer of BDI
Mining Corp and vice president of exploration for Indomin Resources Ltd. Lee has extensive developing country
experience and has been credited with several project discoveries and developments in the region, including
the Cempaka diamond mine in Indonesia.
Lee holds an MSc App (Mineral Exploration) degree from the University of New South Wales.
2011 aNNual RepoRt
13
directors’ report (continued)
Information on directors (continued)
Lee Spencer MSc App (Mineral exploration) (continued)
Other current directorships
None.
Lee Spencer has been Kula Gold’s chief executive officer and managing director since July 2007.
Former directorships in last 3 years
None.
Special responsibilities
Managing director.
Member of the risk committee.
Interests in shares and options
+ 542,370 ordinary fully paid shares;
+ 1,126,155 KGDOPT1 class options to acquire ordinary fully paid shares;
+ 1,500,000 KGDOPT5 class options to acquire ordinary fully paid shares.
John Watkins BA (Acct/Geo), Dip GeoSc (Min Ec), M App Fin Executive director and
chief financial officer. Age 57.
Experience and expertise
John Watkins has been Kula Gold’s chief financial officer since January 2008.
John is a mining industry executive with commercial and geoscience qualifications and over 30 years’
experience working in the resources sector. He was previously the commercial manager at Barrick Gold
Corporation’s Porgera Gold Mine and has worked in PNG or on PNG projects for approximately 20 years.
John has held the positions of chief financial officer, financial controller and company secretary for AMEX,
ASX and TSX listed mining companies, including Endeavour Silver Corp and Nicron Resources Ltd.
John is a member of the Australian Society of CPAs, FCIS, FFin and a Fellow of the Australasian Institute
of Mining and Metallurgy. He has a BA (Acct/Geo) degree and a Diploma in Geoscience (Min Ec) from
Macquarie University and a Master of Applied Finance from Kaplin/Finsia.
Other current directorships
None.
Former directorships in last 3 years
None.
Special responsibilities
Executive director.
Interests in shares and options
+ 310,000 ordinary fully paid shares (balance up to the date of signing the directors’ report);
+ 563,078 KGDOPT1 class options to acquire ordinary fully paid shares;
+ 1,500,000 KGDOPT5 class options to acquire ordinary fully paid shares.
14
Kula Gold limited aCN 126 741 259
directors’ report (continued)
Information on directors (continued)
Louis Rozman BEng (Mining), Masters in Geoscience (Min Ec) Non-executive director. Age 54.
Experience and expertise
Louis Rozman has been a non-executive director of Kula Gold since July 2007.
Louis is a mining engineer and executive with 30 years’ experience operating and constructing projects in
Africa and Australasia. Louis was chief operating officer of Aurion Gold Limited and was instrumental in the
development of its predecessor, Delta Gold Limited.
Louis is currently investment director of Pacific Road Capital Management Pty Ltd.
Louis is a Fellow and Chartered Professional (Management) of the Australasian Institute of Mining and
Metallurgy and a Member of the Australian Institute of Company Directors. He has a BEng (Mining) degree
from the University of Sydney and a Masters in Geoscience (Min Ec) from Macquarie University.
Other current directorships
Pacific Energy Ltd, Mawson West Ltd and Carbon Energy Ltd.
Former directorships in last 3 years
Timmins Gold Corp.
Special responsibilities
Non-executive director.
Chairman of the risk committee.
Chairman of the remuneration and nomination committee.
Interests in shares and options
+ 359,023 ordinary fully paid shares;
+ 100,000 KGDOPT2 class options to acquire ordinary fully paid shares.
Mark Stowell BBus, CA Independent non-executive director. Age 48.
Experience and expertise
Mark Stowell has been a non-executive director of Kula Gold since September 2010.
Mark is a chartered accountant with over 20 years of corporate finance and resource business management
experience.
He served as manager in the corporate division of Arthur Andersen and subsequently in the establishment
and management of a number of successful ventures as principal, including resource companies operating in
Australia and internationally. He was a founder of Anvil Mining Ltd (DRC) and on its board for seven years
until 2000. He was also a founder and non-executive director of Incremental Petroleum Limited, an oil and
gas producer with operations in Turkey and the USA. He is the chairman of Mawson West Ltd, an unlisted
copper miner operating in Africa, and its associated group company, Orrex Resources Ltd. Mark is also a
non-executive director of Incremental Oil and Gas Ltd, (ASX: IOG) a Californian oil and gas producer.
2011 aNNual RepoRt
15
directors’ report (continued)
Information on directors (continued)
Mark Stowell BBus, CA (continued)
Mark is a member of the Institute of Chartered Accountants and has a BBus degree from Edith Cowan
University (formerly the WA College of Advanced Education).
Other current directorships
Mawson West Ltd, Orrex Resources Ltd, Incremental Oil and Gas Ltd.
Former directorships in last 3 years
Incremental Petroleum Limited.
Special responsibilities
Chairman of the audit committee.
Member of the risk committee.
Member of remuneration and nomination committee.
Interests in shares and options
+ 25,000 ordinary fully paid shares;
+ 100,000 KGDOPT2 class options to acquire ordinary fully paid shares.
Company secretary
Mrs Leanne Ralph was appointed to the position of company secretary on 1 June 2011. Leanne is a member
of the Chartered Secretaries Australia, Australian Institute of Company Directors and of CPA Australia. Leanne
is the principal of Boardworx Australia Pty Ltd which supplies bespoke outsourced company secretarial
services to a number of listed and unlisted companies. Mr John Watkins resigned from the position of company
secretary on 1 June 2011. John remains an executive director and chief financial officer of the Company.
Meetings of directors
The numbers of meetings of the Company’s board of directors and of each board committee held during the
year ended 31 December 2011, and the numbers of meetings attended by each director were:
2011
board meetings
Meetings of committees
AUDIT
RISK
REMUNERATION AND
NOMINATION
NUMBER
ELIGIBLE TO
ATTEND
NUMBER
ATTENDED
NUMBER
ELIGIBLE TO
ATTEND
NUMBER
ATTENDED
NUMBER
ELIGIBLE TO
ATTEND
NUMBER
ATTENDED
NUMBER
ELIGIBLE TO
ATTEND
NUMBER
ATTENDED
10
10
10
10
3
10
10
10
10
9
1
8
3
–
–
–
1
3
3
–
–
–
1
3
–
1
–
1
1
–
–
1
–
1
1
–
2
–
–
2
–
2
2
–
–
2
–
2
NAME
D Frecker
L Spencer
J Watkins
L Rozman
P Bradford *
M Stowell
* P Bradford: Resigned 30 June 2011.
16
Kula Gold limited aCN 126 741 259
directors’ report (continued)
Remuneration report
The remuneration report sets out remuneration information for Kula Gold Limited’s executive directors,
non-executive directors, other key management personnel and the five highest remunerated executives of
the Group and Company.
a) Principles used to determine the nature and amount of remuneration:
b) Role of remuneration and nomination committee
c) Details of remuneration
d) Service agreements of key management personnel
e) Share-based compensation
f) Bonuses
g) Shares under option
h) Additional information
The information provided in this remuneration report has been audited as required by section 308(3C) of the
Corporations Act 2001.
a) Principles used to determine the nature and amount of remuneration
The objective of the Group’s executive reward framework is to ensure reward for performance is competitive
and appropriate for the results delivered. The framework aligns executive reward with achievement of
strategic objectives and the creation of value for shareholders, and conforms with market practice for delivery
of reward. The board ensures that executive reward satisfies the following key criteria for good reward
governance practices:
+ competitiveness and reasonableness;
+ acceptability to shareholders;
+ performance linkage/alignment of executive compensation;
+ transparency; and
+ capital management.
The Group has structured an executive remuneration framework that is market competitive and complementary
to the reward strategy of the organisation.
b) Role of remuneration and nomination committee
The board has established a remuneration committee which makes recommendations to the board on
remuneration and incentive policies and practices and specific recommendations on remuneration packages
and other terms of employment for executive directors, other senior executives and non-executive directors. The
Corporate Governance Statement provides further information on the role of this committee.
The role of the remuneration and nomination committee is to attend to matters relating to Kula Gold’s
remuneration policy to enable Kula Gold to attract and retain executives who will create value for shareholders
and to oversee remuneration packages for executive directors and senior management of Kula Gold.
The committee also attends to matters relating to succession planning and recommends candidates for election
or re-election to the board at each annual shareholder’s meeting. The committee will periodically assess the
appropriate mix of skills, experience and expertise required on the board and assess the extent to which the
required skills and experience are represented on the board.
The committee will comprise only non-executive directors, at least three members and a majority of
independent directors. The committee will be chaired by a non-executive director who is not the
Chair of the board.
2011 aNNual RepoRt
17
directors’ report (continued)
Remuneration report (continued)
b) Role of remuneration and nomination committee (continued)
The current members of the remuneration and nomination committee are Louis Rozman (Chairman),
Mark Stowell and David Frecker.
Non-executive directors
Non-executive directors are remunerated by way of directors’ fees within the limit approved by shareholders.
The board determines fees paid to individual board members. The current maximum aggregate sum which
shareholders have fixed to be paid as fees to non-executive directors is $300,000 per annum. This is
unchanged from prior year. This amount was fixed by shareholders at the general meeting held on 20
September 2010.
The chairman is paid an annual fee of $70,000 plus superannuation. Other non-executive directors are paid
annual base fees of $40,000 plus $10,000 for each chairman of a board committee, plus superannuation.
Remuneration to non-executive directors is not paid by commission on, or percentage of, profits or operating
revenue.
Fees and payments to non-executive directors reflect the demands which are made on, and the responsibilities
of, the directors. Non-executive directors’ fees and payments are reviewed annually by the board. The chair’s
fees are determined independently to the fees of non-executive directors based on comparative roles in the
external market. The chair is not present at any discussions relating to determination of his own remuneration.
Executive compensation
Remuneration to executives is not paid by commission on, or percentage of, profits or operating revenue.
The executive compensation and reward framework has three components:
+ Fixed compensation which includes base pay and benefits, including superannuation;
+ Short-term performance incentives, and
+ Long-term incentives through participation in the Kula Gold Limited Option Plan.
Fixed compensation
Fixed compensation consists of base compensation which is calculated on a total cost basis, as well as
employer contributions to superannuation funds.
Short-term incentives (“STI”)
The remuneration committee is responsible for assessing whether the key performance indicators are met in
light of the Company’s corporate goals and objectives and arranges annually a performance evaluation of the
Company’s senior executives, including the chief executive officer and the chief financial officer. The evaluation
is based on specific criteria, including the business performance of the Company, whether strategic objectives
are being achieved and the development of management and personnel.
Long-term incentives (“LTI”)
Long-term incentives are provided to certain employees via the Kula Gold Limited Option Plan (Plan). The role
of the Plan is detailed under the heading ‘share-based compensation’ within the remuneration report.
18
Kula Gold limited aCN 126 741 259
directors’ report (continued)
Remuneration report (continued)
c) Details of remuneration
Amounts of remuneration
Details of the remuneration of the directors, other key management personnel (as defined in AASB 124 Related
Party Disclosures) and the five highest remunerated executives of the Group and Company are set out in the
following tables:
Executive directors
Position
L Spencer
J Watkins
Managing director and chief executive officer
Executive director and chief financial officer
Non-executive directors
Position
D Frecker
L Rozman
M Stowell
Non-executive chairman
Non-executive director
Non-executive director
Former non-executive directors
Position
P Bradford
Non-executive director (resigned 30 June 2011)
In addition, the following persons must be disclosed under the Corporations Act 2001 as they are among the
5 highest remunerated Group and/or Company executives:
Other key management personnel
Position
T Mulroney
Executives
G Clapp
K Neate
Project manager (resigned 31 August 2011)
Position
Community affairs/environment manager
Site manager (Woodlark Island)
2011 aNNual RepoRt
19
directors’ report (continued)
Remuneration report (continued)
c) Details of remuneration (continued)
Key management personnel and other executives of the Group and the Company.
short-term
employee benefits
Long–
term
benefits
share–based
payments
2011
NAME
Directors
D Frecker
L Spencer
J Watkins
L Rozman
M Stowell
P Bradford *
CASH
SALARY
AND FEES
$
70,000
312,500
257,500
50,000
50,000
25,000
Other key management personnel
T Mulroney + #
392,399
Executives
G Clapp #
K Neate #
278,039
244,251
Post–
employment
benefits
SUPERANNUATION
$
6,300
22,875
18,675
–
4,500
–
–
–
–
CASH
BONUS
$
–
34,375
53,750
–
–
–
–
–
–
LONG
SERVICE
LEAVE
$
–
27,361
22,525
–
–
–
–
–
–
OPTIONS
$
13,279
224,856
135,997
13,279
13,279
6,585
PERCENTAGE
OF TOTAL
PACKAGE
%
14.8
36.2
27.8
21.0
19.6
20.9
TOTAL
$
89,579
621,967
488,447
63,279
67,779
31,585
24,071
5.8
416,470
–
13,789
445,135
–
5.3
–
278,039
258,040
2,315,185
1,679,689
88,125
52,350
49,886
* P Bradford resigned 30 June 2011.
+ T Mulroney resigned 31 August 2011. All payments were made to PACT Mining Pty Ltd.
# Employees/contractor of Woodlark Mining Limited.
The relative proportions of remuneration that are linked to performance and those that are fixed are as follows:
Key management personnel and other executives of the Group and the Company.
fixed remuneration
At risk
short-term incentives
At risk
long-term incentives
2011
NAME
Directors
D Frecker
L Spencer
J Watkins
L Rozman
M Stowell
P Bradford *
Other key management personnel
T Mulroney + #
Executives
G Clapp #
K Neate #
2011
%
85
58
61
79
80
79
94
100
95
2011
%
–
6
11
–
–
–
–
–
–
2011
%
15
36
28
21
20
21
6
–
5
* P Bradford resigned 30 June 2011.
+ T Mulroney resigned 31 August 2011. All payments were made to PACT Mining Pty Ltd.
# Employees/contractor of Woodlark Mining Limited.
20
Kula Gold limited aCN 126 741 259
directors’ report (continued)
Remuneration report (continued)
c) Details of remuneration (continued)
Key management personnel and other executives of the Group and the Company.
2010
NAME
Directors
D Frecker
L Spencer
J Watkins
L Rozman
M Stowell
P Bradford
A Vogel *
R Perkes *
Executives
G Clapp #
K Harland #
short-term
employee benefits
CASH SALARY
AND FEES
CASH
BONUS
Post–
employment
benefits
SUPERANNUATION
$
20,417
206,219
148,610
14,583
14,583
39,500
–
31,500
229,167
120,000
$
–
62,500
41,284
–
–
–
–
–
–
–
$
1,838
50,000
52,359
–
1,312
–
–
–
–
–
824,579
103,784
105,509
* A Vogel & R Perkes resigned 16 September 2010
# Employees of Woodlark Mining Limited
Long–
term
benefits
LONG
SERVICE
LEAVE
$
–
–
–
–
–
–
–
–
–
–
–
share–based
payments
OPTIONS
PERCENTAGE
OF TOTAL
PACKAGE
$
1,128
15,094
7,547
1,128
1,128
1,128
–
–
–
–
27,153
%
4.8
4.5
3.0
7.2
6.6
2.8
–
–
–
–
–
TOTAL
$
23,383
333,813
249,800
15,711
17,023
40,628
–
31,500
229,167
120,000
1,061,025
d) Service agreements of key management personnel
Compensation and other terms of employment for the managing director and the chief financial officer are
formalised in service agreements. All contracts with executives may be terminated early, subject to termination
payments as detailed below.
L Spencer, Managing director and chief executive officer
+ Term of agreement: Ongoing under new terms and conditions which commenced 16 November 2010;
+ Base salary: $350,000 plus superannuation guarantee, to be reviewed annually on 1 July each year;
+ Performance bonus: Eligible to be paid a performance related bonus of up to 25% of the base salary
which is assessed as detailed in short-tem incentives;
+ Termination benefits:
i) 90 day’s notice is required on resignation;
ii) Termination by the Company, three months of base salary; and if terminated within 12 months after a change
of control of the Company, 18 months of base salary grossed up to include any unpaid bonus and net of all
deductions required by law.
2011 aNNual RepoRt
21
directors’ report (continued)
Remuneration report (continued)
d) Service agreements of key management personnel (continued)
J Watkins, Executive director and chief financial officer
+ Term of agreement: Ongoing under new terms and conditions which commenced 16 November 2010;
+ Base salary: $300,000 plus superannuation guarantee, to be reviewed annually on 1 July each year;
+ Performance bonus: Eligible to be paid a performance related bonus of up to 25% of the base salary
which is assessed as detailed in short-tem incentives;
+ Termination benefits:
i) 90 day’s notice is required on resignation;
ii) Termination by the Company, three months of base salary; and if terminated within 12 months after a change
of control of the Company, 18 months of base salary grossed up to include any unpaid bonus and net of all
deductions required by law.
e) Share-based compensation
Options
Options over shares in Kula Gold Limited are granted under the Kula Gold Limited Option Plan (Plan) to
employees (including directors). The Plan is designed to provide long-term incentives for executives and senior
employees to deliver long-term shareholder returns. Participation in the Plan is at the board’s discretion and
no individual has a contractual right to participate in the Plan or to receive any guaranteed benefits. Options
granted under the Plan carry no dividend or voting rights. Separately, at the time of the initial public offering of
the Company’s shares, each of the current non-executive directors was offered options. Details of options over
ordinary shares in the Company provided as remuneration to each director of Kula Gold Limited and each of
the key management personnel of the Group are set out below. When exercisable, each option is convertible
into one ordinary share of Kula Gold Limited. Further information on the options is set out in note 26 to the
financial statements.
The following options are held by directors and key management personnel of the Company as at
31 December 2011:
NAME
GRANTED
NUMBER
GRANT DATE
VESTED
NUMBER
FORFEITED
IN YEAR
EXPIRY DATE
EXERCISE
PRICE
FAIR VALUE
AT GRANT
DATE
VALUE AT
FORFEITURE
DATE ^
D Frecker ‡
100,000
01 Dec 2010
L Spencer #
1,126,155
01 Dec 2010
–
–
L Spencer *
750,000
16 Dec 2011
750,000
L Spencer #
750,000
16 Dec 2011
J Watkins #
563,078
01 Dec 2010
–
–
J Watkins *
750,000
16 Dec 2011
750,000
J Watkins #
750,000
16 Dec 2011
L Rozman ‡
100,000
01 Dec 2010
P Bradford ‡
100,000
01 Dec 2010
M Stowell ‡
100,000
01 Dec 2010
T Mulroney #
300,000
13 Jan 2011
K Neate #
100,000
16 Mar 2011
–
–
–
–
–
–
–
–
–
–
–
–
–
–
01 Dec 2015
01 Dec 2015
16 Dec 2016
16 Dec 2016
01 Dec 2015
16 Dec 2016
16 Dec 2016
01 Dec 2015
100,000
01 Dec 2015
–
01 Dec 2015
300,000
13 Jan 2016
$1.80
$1.80
$2.00
$2.00
$1.80
$2.00
$2.00
$1.80
$1.80
$1.80
$1.80
$41,000
$349,109
$45,000
$45,000
$174,555
$45,000
$45,000
$41,000
–
–
–
–
–
–
–
–
$41,000
$33,287
$41,000
–
$96,000
$71,929
–
16 Mar 2016
$1.80
$29,000
–
^ The value at forfeiture date of options that were granted as part of the remuneration and that lapsed during the year because a
vesting condition was not satisfied. The value is determined at the time of lapsing, but assuming the condition was satisfied.
22
Kula Gold limited aCN 126 741 259
directors’ report (continued)
Remuneration report (continued)
e) Share-based compensation (continued)
The following factors were used in determining the fair value of options on grant date:
NAME
GRANTED
NUMBER
EXPIRY DATE
FAIR VALUE
PER OPTION
EXERCISE
PRICE
PRICE OF
SHARES ON
GRANT DATE
EXPECTED
VOLATILITY
INTEREST
RATE
MAXIMUM TOTAL
VALUE OF OPTIONS
YET TO VEST
D Frecker ‡
L Spencer #
L Spencer *
L Spencer #
J Watkins #
J Watkins *
J Watkins #
L Rozman ‡
P Bradford ‡
M Stowell ‡
T Mulroney #
K Neate #
100,000 01 Dec 2015
1,126,155 01 Dec 2015
750,000 16 Dec 2016
750,000 16 Dec 2016
563,078 01 Dec 2015
750,000 16 Dec 2016
$0.41
$0.31
$0.06
$0.06
$0.31
$0.06
750,000 16 Dec 2016 $0.06
100,000 01 Dec 2015
100,000 01 Dec 2015
100,000 01 Dec 2015
$0.41
$0.41
$0.41
300,000
13 Jan 2016
$0.32
100,000 16 Mar 2016
$0.29
$1.80
$1.80
$2.00
$2.00
$1.80
$2.00
$2.00
$1.80
$1.80
$1.80
$1.80
$1.80
$1.68
$1.68
$1.09
$1.09
$1.68
$1.09
$1.09
$1.68
$1.68
$1.68
$1.70
$1.65
30%
30%
37%
37%
30%
37%
37%
30%
30%
30%
30%
30%
5.33%
5.33%
3.24%
3.24%
5.33%
3.24%
3.24%
5.33%
5.33%
5.33%
5.28%
5.10%
$26,593
$156,296
–
$42,864
$78,148
–
$42,864
$26,593
–
$26,593
–
$15,211
All options carry no voting rights and no rights to dividends.
* Options vest on 16 December 2011.
# Options vest on 16 November 2012.
‡ Options granted to non-executive directors will only vest and become exercisable after either of the following events:
i) the Company’s Woodlark Island gold project (Project) reaches commercial production as determined by the pour of the first gold
from the Project or,
ii) there is a change of control of the Company.
f) Bonuses
For cash bonuses the percentage of the available bonus paid in the financial year and the percentage that
was forfeited because the person did not meet the performance criteria are set out below. No part of the
bonus is payable in future years.
2011
NAME
L Spencer
J Watkins
BONUS PAID
BONUS FORFEITED
%
50
100
%
50
–
g) Shares under option
Unissued ordinary shares of Kula Gold Limited under options at the date of this report are as follows:
DATE OPTIONS
GRANTED
EXPIRY DATE
EXERCISE PRICE
OF SHARES
NUMBER UNDER
OPTION
01 Dec 2010
01 Dec 2015
16 Mar 2011
16 Mar 2016
14 Apr 2011
16 Mar 2016
16 Dec 2011
16 Dec 2016
$1.80
$1.80
$1.80
$2.00
1,989,233
100,000
120,000
3,000,000
5,209,233
No option holder has any right under the options to participate in any other share issue of the Company or
any other entity.
2011 aNNual RepoRt
23
directors’ report (continued)
Remuneration report (continued)
h) Additional information
There were no loans to directors or executives during the reporting period.
No options were exercised during the year ended 31 December 2011 (2010: Nil).
Indemnification and insurance of officers
The Group has agreed to indemnify the directors and officers of the Group for any:
i)
liability for any act or omission in their performance as director or officer; and
ii) costs incurred in settling or defending any claim or proceeding relating to any such liability, not being a
criminal liability.
During the financial year, Kula Gold paid premiums to insure the directors and the officers of the Group. In
accordance with commercial practice the policy has a confidentiality clause which prohibits the disclosure of
the amount of the premium and the nature and amount of the liability covered. There were no claims under the
policy during the reporting period.
The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may
be brought against the officers in their capacity as officers of entities in the Group, and any other payments
arising from liabilities incurred by the officers in connection with such proceedings. This does not include
such liabilities that arise from conduct involving a wilful breach of duty by the officers or the improper use by
the officers of their position or of information to gain advantage for themselves or someone else or to cause
detriment to the Group. It is not possible to apportion the premium between amounts relating to the insurance
against legal costs and those relating to other liabilities.
Employees
Kula Gold Group staff members as at 31 December 2011:
2011
POSITION
Directors (Executive)
Directors (Non-executive)
Senior executive
Other
kula Gold
Limited
Woodlark
Mining Limited
Total
MALE
FEMALE
MALE
FEMALE
MALE
FEMALE
2
3
1
1
7
–
–
–
2
2
–
–
1
278
279
–
–
–
29
29
2
3
2
279
286
–
–
–
31
31
Proceedings on behalf of the Group
No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring
proceedings on behalf of the Group, or to intervene in any proceedings to which the Group is a party, for the
purpose of taking responsibility on behalf of the Group for all or part of those proceedings.
No proceedings have been brought or intervened in on behalf of the Group with leave of the Court under
section 237 of the Corporations Act 2001.
24
Kula Gold limited aCN 126 741 259
directors’ report (continued)
Non-Audit services
The Company may decide to employ the auditor on assignments additional to their statutory audit duties where
the auditor’s expertise and experience with the Group are important.
Details of the amounts paid or payable to the auditor (PricewaterhouseCoopers) for non-audit services
provided during the year are set out below. The board of directors has considered the position and, in
accordance with advice received from the audit committee, is satisfied that the provision of the non-audit
services is compatible with the general standard of independence for auditors imposed by the Corporations
Act 2001. The directors are satisfied that the provision of non-audit services by the auditor, as set out below,
did not compromise the auditor independence requirements of the Corporations Act 2001 for the following
reasons:
+ all non-audit services have been reviewed by the audit committee to ensure they do not impact the
impartiality and objectivity of the auditor; and
+ none of the services undermine the general principles relating to auditor independence as set out in
APES 110 Code of Ethics for Professional Accountants.
During the year the following fees were paid or payable for non-audit services provided by the auditor of the
Group, its related practices and non-related audit firms:
Non-audit services
Other assurance services
PricewaterhouseCoopers Australian firm:
Investigating accountants report and other services relating to
initial public offering
Other services
Total remuneration for other assurance services
Taxation services
PricewaterhouseCoopers Australian firm:
Tax compliance service
Other tax advice
Related practices of PricewaterhouseCoopers Australian firm
Total remuneration for taxation services
CONsOLIdATEd
2011
$
2010
$
–
–
–
491,080
9,496
500,576
12,450
5,000
5,512
22,962
40,350
–
22,928
63,278
Total remuneration for non-audit services
22,962
563,854
2011 aNNual RepoRt
25
directors’ report (continued)
functional and presentation currency
The amounts included in the directors’ report and consolidated financial statements are presented in Australian
dollars, which is the Company’s functional and presentation currency.
Auditor’s Independence declaration
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act
2001 is set out on page 27.
Rounding of amounts
The Group is of a kind referred to in Class Order 98/100, issued by the Australian Securities and Investments
Commission, relating to the ‘’rounding off’’ of amounts in the directors’ report. Amounts in the directors’ report
have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain
cases, to the nearest dollar.
Auditor
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.
David Frecker
Chairman
Sydney
27 March 2012
Lee Spencer
Director
26
Kula Gold limited aCN 126 741 259
auditor’s
independence declaration
2011 aNNual RepoRt
27
Corporate
governance statement
The board is committed to ensuring that Kula Gold is properly managed to protect and enhance shareholder
interests, and that Kula Gold, its directors, officers and employees operate in an appropriate environment of
corporate governance.
Accordingly, the board has adopted corporate governance policies and practices (the majority of which are
in accordance with ASX’s Corporate Governance Principles and Recommendations (ASX Recommendations)
designed to promote the responsible management and conduct of Kula Gold Limited (Company). Where
the Company’s practices do not correlate with the ASX Recommendations, Kula Gold is working towards
compliance but does not consider that all practices are appropriate for the size and scale of Kula Gold’s
operations. The board continues to review the framework and practices to ensure they meet the interests of
shareholders. The Company and its controlled entity together are referred to as the Group in this statement.
A description of the Group’s main corporate governance practices is set out below.
Details of Kula Gold’s key policies and practices and charters for the board and each of its committees may
be obtained from the company secretary.
Principle 1 – Lay solid foundations for management and oversight
Principle 2 – Structure the Board to add value
Principle 3 – Promote ethical and responsible decision-making
Principle 4 – Safeguard integrity in financial reporting
Principle 5 – Make timely and balanced disclosure
Principle 6 – Respect the rights of shareholders
Principle 7 – Recognise and manage risk
Principle 8 – Remunerate fairly and responsibly
28
Kula Gold limited aCN 126 741 259
Corporate
governance statement (continued)
Principle 1 – Lay solid foundations for management and oversight
Recommendation 1.1: Companies should establish the functions reserved to the board and those
delegated to senior executives and disclose those functions.
The board is ultimately responsible for setting policies regarding the strategic direction and goals for the
business and affairs of Kula Gold.
In discharging their duties, directors are provided direct access to and may rely upon senior management and
outside advisers. The board collectively, the board committees and individual directors may seek independent
professional advice at Kula Gold’s expense for the purposes of the proper performance of their duties.
Role of the board
The responsibilities of the board include:
+ overseeing the business and affairs of Kula Gold;
+ appointing the managing director and other senior executives and determining their terms and conditions,
including remuneration and termination;
+ driving the strategic direction of Kula Gold, ensuring appropriate resources are available to meet objectives
and monitoring management’s performance;
+ reviewing and ratifying systems of risk management and internal compliance and control, codes of conduct
and legal compliance;
+ overseeing and reviewing the Company’s occupational health and safety systems;
+ approving and monitoring the progress of major capital expenditure, capital management and significant
acquisitions and divestitures;
+ approving and monitoring the budget and the adequacy and integrity of financial and other reporting;
+ approving the annual, half-yearly and quarterly accounts;
+ approving significant changes to the organisational structure;
+ approving the issue of any shares, options, equity instruments or other securities in Kula Gold;
+ ensuring a high standard of corporate governance practice and regulatory compliance and promoting
ethical and responsible decision-making;
+ recommending to Shareholders the appointment of the external auditor as and when their appointment or
re-appointment is required to be approved; and
+ meeting with external auditor, at their request, without management being present.
Role of senior executives
The board delegates day-to-day management of Kula Gold’s resources to management, under the leadership
of the chief executive officer, to deliver the strategic direction and goals determined by the board.
Recommendation 1.2: Companies should disclose the process for evaluating the performance
of senior executives.
Kula Gold aims to have a clear process for evaluating the performance of senior executives. The board has
delegated to the remuneration and nomination committee the responsibility to arrange annually a performance
evaluation of the Company’s senior executives, including the chief executive officer and the chief financial
officer. The evaluation will be based on specific criteria, including the business performance of the Company,
whether strategic objectives are being achieved and the development of management and personnel.
2011 aNNual RepoRt
29
Corporate
governance statement (continued)
Principle 2 – structure the board to add value
It is a policy of Kula Gold that the board comprises individuals with a range of knowledge, skills and
experience which are appropriate to its objectives. The composition of the board is to be reviewed regularly to
ensure the appropriate mix of skills and expertise is present to facilitate successful strategic direction.
Currently the board comprises five directors, being a non-executive chairman, two executive directors and two
non-executive directors. The directors have a broad mix of skills, experience and knowledge to enable them to
effectively and efficiently discharge their responsibilities and duties. Details of the members of the board, their
experience, expertise, qualifications and independent status are set out in the directors’ report.
Recommendation 2.1: A majority of the board should be independent directors.
The board has adopted specific principles in relation to directors’ independence. The board considers an
independent director to be a non-executive director who is not a member of Kula Gold’s management and
who is free of any business or other relationship that could materially interfere with, or could reasonably be
perceived to interfere with, the independent exercise of their judgement. The board will consider the materiality
of any given relationship on a case-by-case basis, having regard to both quantitative and qualitative principles.
The board currently comprises three non-executive directors and two executive directors. The chairman is a
non-executive director. The current members of the board are D Frecker (Chairman), L Spencer (Executive
director), J Watkins (Executive director), L Rozman and M Stowell.
D Frecker and M Stowell are considered by the board to be independent. The board considers that the
existing board structure is appropriate for Kula Gold’s current operations and stage of development despite the
fact that it does not have a majority of independent non-executive directors.
Recommendation 2.2: The Chair should be an independent director.
Chairman
Mr D Frecker was appointed chairman of the Company for the full financial year and is considered an
independent director in accordance with recommendation 2.1 of the ASX recommendations.
Recommendation 2.3: The roles of Chair and chief executive officer should not be exercised by the
same individual.
The role of Chair and chief executive officer is not occupied by the same individual.
Recommendation 2.4: The board should establish a nomination committee.
The board has an established remuneration and nomination committee. The remuneration and nomination
committee has a written charter defining the role and responsibility of the committee. The responsibilities of
the remuneration and nomination committee include matters relating to succession planning and recommend
candidates for election or re-election to the board at each annual shareholders’ meeting. The committee will
periodically assess the appropriate mix of skills, experience and expertise required on the board and assess
the extent to which the required skills and experience are represented on the board.
Recommendation 2.5: Companies should disclose the process for evaluating the performance of the
board, its committees and individual directors.
It is intended that a review of the board’s own performance will be conducted together with the reviews of the
performance of its committees and individual directors. However, due to the size of the board and the nature
of its business, it was not deemed necessary to institute a formal documented performance review program
during the 2011 year.
30
Kula Gold limited aCN 126 741 259
Corporate
governance statement (continued)
Principle 3 – Promote ethical and responsible decision-making
Recommendation 3.1: Companies should establish a code of conduct.
The board acknowledges the need for high standards of corporate governance practice and ethical conduct
by all directors and employees of Kula Gold.
The board has adopted a code of conduct which sets out Kula Gold’s commitment to maintaining high levels
of integrity and ethical standards in its business practices. The code of conduct sets out for all directors,
management and employees the standards of behaviour expected of them.
The code of conduct sets out Kula Gold’s policies on various matters, including, conflicts of interest, public
and media comment, use of Kula Gold resources, security of information, intellectual property/copyright,
discrimination and harassment, corrupt conduct, occupational health and safety and insider trading.
In addition to their obligations under the Corporations Act in relation to inside information, all directors,
employees and consultants have a duty of confidentiality to Kula Gold in relation to confidential information
they possess.
Recommendation 3.2: Companies should establish a policy concerning diversity and disclose the
policy or a summary of that policy. The policy should include requirements for the board to establish
measurable objectives for achieving gender diversity for the board to assess annually both the objectives
and progress in achieving them.
The board has not yet established a formal diversity policy.
Recommendation 3.3: Companies should disclose in each annual report the measurable objectives
for achieving gender diversity set by the board in accordance with the diversity policy and progress
towards achieving them.
A formal diversity policy including measurable objectives for achieving gender diversity has not yet been
adopted.
Recommendation 3.4: Companies should disclose in each annual report the proportion of women
employees in the whole organisation, women in senior executive positions and women on the board.
Set out in the directors’ report is the number of women employees in the whole organisation, senior positions
and on the board.
2011 aNNual RepoRt
31
Corporate
governance statement (continued)
Principle 4 – safeguard integrity in financial reporting
Recommendation 4.1: The board should establish an audit committee.
The board has an established audit committee.
Recommendation 4.2: The audit committee should be structured so that it:
+ consists only of non-executive directors
+ consists of a majority of independent directors
+ is chaired by an independent director, who is not Chair of the board
+ has at least three members
The audit committee consists of two non-executive directors both of whom are independent directors and
is chaired by an independent director who is not Chair of the board. The chairman satisfies the test of
independence. Due to the small composition of the board there are only 2 independent directors.
The current members of the audit committee are M Stowell (Chairman) and D Frecker.
Details of these directors’ qualifications and attendance at audit committee meetings are set out in the directors’
report.
Recommendation 4.3: The audit committee should have a formal charter.
The audit committee has a written charter defining the role and responsibility of the committee. The role of
the audit committee is to assist the board in monitoring and reviewing any matters of significance affecting
financial reporting and compliance.
The external auditor will attend the annual general meeting and be available to answer shareholder questions
about the conduct of the audit and the preparation and content of the audit report.
Principle 5 – Make timely and balanced disclosure
Recommendation 5.1: Companies should establish written policies designed to ensure compliance with
ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that
compliance and disclose those policies or a summary of those policies.
Kula Gold is committed to continuous disclosure of material information as a means of promoting transparency
and investor confidence.
The company secretary has been nominated as the persons responsible for communications with the Australian
Securities Exchange (ASX). This role includes the responsibility for ensuring compliance with the continuous
disclosure requirements in the ASX listing rules and overseeing and co-ordinating information disclosure to ASX.
The Company has written policies and procedures on information disclosure that focus on continuous disclosure
of any information concerning the Company that a reasonable person would expect to have a material effect
on the price of the Company’s securities.
32
Kula Gold limited aCN 126 741 259
Corporate
governance statement (continued)
Principle 6 – Respect the rights of shareholders
Recommendation 6.1: Companies should design a communications policy for promoting effective
communication with shareholders and encouraging their participation at general meetings and disclose
their policy or a summary of that policy.
The board aims to ensure that shareholders are informed of all major developments affecting the Company.
Shareholders are updated on the Company’s operations via ASX announcements, “Quarterly Activities
Reports”, “Quarterly Cash Flow Reports” and other disclosure information. All ASX announcements are
available on the Company’s website at www.kulagold.com.au, or alternatively, by request via email, facsimile
or post. In addition, a copy of the annual report will be distributed to all shareholders who elect to receive it.
Principle 7 – Recognise and manage risk
Recommendation 7.1: Companies should establish policies for the oversight and management of material
business risks and disclose a summary of those policies.
Kula Gold has a process for the identification, monitoring and management of risks associated with its business
activities and the implementation of practical and effective control systems to manage them.
Recommendation 7.2: The board should require management to design and implement the risk
management and internal control system to manage the company’s material business risks and report
to it on whether those risks are being managed effectively. The board should disclose that management
has reported to it as to the effectiveness of the company’s management of its material business risks.
The board is responsible for ensuring that sound risk management strategy and polices are in place. The
board has an established risk committee. The board has delegated to the risk committee responsibility for
identifying and overseeing major risk areas and that systems are in place to manage them, and report to the
board as and when appropriate.
The role of the risk committee is to assist the board with the identification and management of business
and operational risks faced by the Company. The committee has primary responsibility for overseeing the
Company’s risk management systems, practices and procedures and reviewing periodically the scope and
adequacy of the Company’s insurance to cover these risks.
The risk committee has developed and maintains a risk register which identifies the risks to the Company and
its operation and assesses the likelihood of their occurrence. The risk register is updated periodically and
presented to the board for its consideration at least once a year.
The responsibility for undertaking and assessing risk management and internal control effectiveness is
delegated to management. Management is required to assess risk management and associated internal
compliance and control procedures and report back to the risk committee on whether those risks are being
managed effectively.
The risk committee is comprised of three members and may include both executive and non-executive directors.
The committee is chaired by a non-executive director who is not the Chair of the board.
The current members of the risk committee are L Rozman (Chairman), M Stowell and L Spencer.
Details of these directors’ qualifications and attendance at risk committee meetings are set out in the directors’
report.
2011 aNNual RepoRt
33
Corporate
governance statement (continued)
Principle 7 – Recognise and manage risk (continued)
Recommendation 7.3: The board should disclose whether it has received assurance from the chief
executive officer (CEO or equivalent) and the chief financial officer (CFO or equivalent) that the
declaration provided in accordance with section 295A of the Corporations Act is founded on a sound
system of risk management and internal control and that the system is operating effectively in all material
respects in relation to financial reporting risks.
Mr L Spencer (CEO) and Mr J Watkins (CFO) have made the following certifications to the board:
+ the financial records of the Company (and the consolidated entity) have been properly maintained in
accordance with Section 286 of the Corporations Act 2001; and
+ the financial statements and notes to the financial statements of the Company and the consolidated entity
comply with the relevant accounting standards, the Corporations Regulations 2001 and other mandatory
professional reporting requirements; and
+ give a true and fair view of the Company’s (and consolidated entity’s) financial position and performance.
Principle 8 – Remunerate fairly and responsibly
Recommendation 8.1: The board should establish a remuneration committee.
The board has an established remuneration and nomination committee. The remuneration and nomination
committee has a written charter defining the role and responsibility of the committee.
Recommendation 8.2: The remuneration committee should be structured so that it:
+ consists of a majority of independent directors
+ is chaired by one of its members, who is not the Chair of the board
+ has at least three members
The remuneration and nomination committee consists of the following non-executive directors (a majority of
whom are independent): L Rozman (Chairman), M Stowell and D Frecker. Details of these directors’ attendance
at remuneration and nomination committee meetings are set out in the directors’ report.
The role of the remuneration and nomination committee is to attend to matters relating to Kula Gold’s
remuneration policy to enable Kula Gold to attract and retain executives who will create value for shareholders
and to oversee remuneration packages for executive directors and senior management of Kula Gold.
Recommendation 8.3: Companies should clearly distinguish the structure of non-executive directors’
remuneration from that of executive directors and senior executives.
Each member of the senior executive team, including the two executive directors, have signed a formal
employment contract at the time of their appointment covering a range of matters including their duties, rights,
responsibilities and any entitlements on termination. The standard contract refers to a specific formal job
description. Each contract sets out the remuneration of the executive, including his or her entitlements to any
options under the Kula Gold Limited Option Plan.
Non-executive directors receive director’s fees in agreed amounts. Each of the current non-executive directors
hold options on terms approved by the ASX. These are set out in the directors’ report.
Further information on directors’ and executives’ remuneration, including principles used to determine
remuneration, is set out in the directors’ report under the heading ‘’remuneration report’’.
34
Kula Gold limited aCN 126 741 259
Financial Statements
Contents
page
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
directors’ declaration
independent auditor’s report
to the members of Kula Gold limited
36
37
38
39
40
84
85
These financial statements are the consolidated financial statements of the consolidated entity consisting of Kula Gold
Limited and its subsidiary. The financial statements are presented in the Australian currency.
Kula Gold Limited is a company limited by shares, incorporated and domiciled in Australia. The registered and principal
place of business is Suite 2, Level 15, 1 York Street, Sydney, NSW 2000.
A description of the nature of the consolidated entity’s operations and its principal activities is included in the directors’
report on pages 11 to 26, which is not part of these financial statements.
The financial statements were authorised for issue by the directors on 27 March 2012. The directors have the power to
amend and reissue the financial statements.
2011 aNNual RepoRt
35
Consolidated statement
of comprehensive income
For the year ended 31 December 2011
Revenue from continuing operations
Employee benefits expense
Professional and consulting expenses
Rental expense
Insurance expense
Foreign exchange gain/(losses)
Other expenses
Loss before income tax
Income tax benefit/(expense)
Loss for the year from continuing operations
Other comprehensive income
Notes
5
6
7
CONsOLIdATEd
2011
$’000
2,032
(1,837)
(1,048)
(185)
(96)
51
(271)
(1,354)
2010
$’000
370
(811)
(3,306)
(90)
(46)
(1,037)
(138)
(5,058)
–
–
(1,354)
(5,058)
Exchange differences on translation of foreign operations
17(a)
Total comprehensive income/(loss) for the year
20,251
18,897
(7,330)
(12,388)
Earnings per share for loss from continuing operations
attributable to the ordinary equity holders of the company:
Basic earnings per share
Diluted earnings per share
CENTS
CENTS
25
25
(1.20)
(1.20)
(6.40)
(6.40)
The above consolidated statement of comprehensive income should be read in conjunction with the
accompanying notes.
36
Kula Gold limited aCN 126 741 259
Consolidated statement
of financial position
For the year ended 31 December 2011
ASSETS
Current assets
Cash and cash equivalents
Receivables and other assets
Inventories
Total current assets
Non-current assets
Property, plant and equipment
Mineral exploration and evaluation expenditure
Other non-current assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Total current liabilities
Non-current liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Accumulated losses
Total equity
Notes
CONsOLIdATEd
2011
$’000
2010
$’000
8
9
10
11
12
13
14
15
20,112
863
867
21,842
3,416
115,077
107
118,600
48,158
1,008
1,101
50,267
2,158
68,393
125
70,676
140,442
120,943
3,715
3,715
3,795
3,795
358
358
147
147
4,073
3,942
136,369
117,001
16
17(a)
17(b)
134,792
134,792
10,508
(8,931)
(10,214)
(7,577)
136,369
117,001
The above consolidated statement of financial position should be read in conjunction with the accompanying
notes.
2011 aNNual RepoRt
37
Consolidated statement
of changes in equity
For the year ended 31 December 2011
ATTRIbUTAbLE TO OWNERs Of kULA GOLd LIMITEd
CONTRIBUTED
EQUITY
SHARE–
BASED
PAYMENTS
RESERVE
FOREIGN
CURRENCY
TRANSLATION
RESERVE
TOTAL
RESERVES
ACCUMULATED
LOSSES
TOTAL
EQUITY
Notes
$'000
$'000
$'000
$’000
$'000
$'000
Balance at
1 January 2010
Loss for the year
Exchange differences on
translation of
foreign operations
Total comprehensive
loss for the year
Transactions with
owners in their
capacity as owners:
Contributions of equity
net of transaction costs
Share-based payments
Cancellation of options
Balance at
31 December 2010
Balance at
1 January 2011
Loss for the year
Exchange differences on
translation of
foreign operations
Total comprehensive
income for the year
Transactions with
owners in their
capacity as owners:
Share-based payments
Cancellation of options
Balance at
31 December 2011
17
16
17
17
17
17
17
62,964
558
(2,025)
(1,467)
(2,519)
58,978
–
–
–
–
–
–
–
–
(5,058)
(5,058)
(7,330)
(7,330)
–
(7,330)
(7,330)
(7,330)
(5,058)
(12,388)
71,828
–
–
–
29
(1,446)
71,828
(1,417)
–
–
–
–
–
29
(1,446)
(1,417)
–
–
–
–
71,828
29
(1,446)
70,411
134,792
(859)
(9,355)
(10,214)
(7,577)
117,001
134,792
(859)
(9,355)
(10,214)
(7,577)
117,001
–
–
–
–
–
–
–
–
–
471
–
471
–
–
(1,354)
(1,354)
20,251
20,251
–
20,251
20,251
20,251
(1,354)
18,897
–
–
–
471
–
471
–
–
–
471
–
471
134,792
(388)
10,896
10,508
(8,931)
136,369
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
38
Kula Gold limited aCN 126 741 259
Consolidated statement
of cash flows
For the year ended 31 December 2011
Notes
CONsOLIdATEd
2011
$’000
2010
$’000
Cash flows from operating activities
Payments to suppliers and employees
(inclusive of goods and services tax)
Interest income
Net cash (outflow) inflow from operating activities
Cash flows from investing activities
Payments for property, plant and equipment
Payments for exploration activities
Net cash (outflow) inflow from investing activities
Cash flows from financing activities
Proceeds from issues of shares
Payment for repurchase of share options
Net cash inflow (outflow) from financing activities
24
11
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at end of year
8
(2,783)
(4,614)
(2,783)
1,936
(847)
(4,614)
151
(4,463)
(1,510)
(26,082)
(27,592)
(544)
(18,805)
(19,349)
–
–
–
(28,439)
48,265
393
20,219
71,828
(1,446)
70,382
46,570
2,614
(919)
48,265
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
2011 aNNual RepoRt
39
Notes to the consolidated
financial statements
For the year ended 31 December 2011
Contents
Page
1
Summary of significant accounting policies
2
Financial risk management
3 Critical accounting estimates and judgements
4
Segment information
5
Revenue
6
Expenses
7
Income tax (benefit)/expense
8 Current assets – Cash and cash equivalents
9 Current assets – Receivables
10 Current assets – Inventories
11 Non-current assets – Property, plant and equipment
12 Non-current assets – Mineral exploration and evaluation expenditure
13 Non-current assets – Other non-current assets
14 Current liabilities – Trade and other payables
15 Non-current liabilities – Provisions
16 Contributed equity
17
Reserves and accumulated losses
18
Key management personnel disclosures
19
Remuneration of auditors
20 Contingencies
21 Commitments
22
Related party transactions
23
Subsidiary
24
Reconciliation of loss after income tax to net cash outflow from operating activities
25
Earnings per share
26
Share-based payments
27
Parent entity financial information
41
52
54
55
56
56
57
59
59
59
60
61
62
62
63
63
66
67
73
74
74
75
76
76
77
78
83
40
Kula Gold limited aCN 126 741 259
Notes to the consolidated
financial statements
For the year ended 31 December 2011
1 summary of significant accounting policies
The principal accounting policies adopted in the preparation of these consolidated financial statements are set
out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
The financial statements are for the consolidated entity consisting of Kula Gold Limited and its subsidiary.
(a) Basis of preparation
These general purpose financial statements have been prepared in accordance with Australian Accounting
Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues
Group Interpretations and the Corporations Act 2001.
Compliance with IFRS
The consolidated financial statements of the Kula Gold Limited group also comply with International Financial
Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
Historical cost convention
These financial statements have been prepared under the historical cost convention.
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.
Matters relating to the recovery of mineral exploration and evaluation expenditure
The Company believes that it has sufficient funds to settle its debts as and when they become due and
payable. For future development and construction of the Woodlark Island Gold Project, located on Woodlark
Island, Papua New Guinea, the Company will need to secure sufficient funding through borrowings, equity
raising or other arrangements to enable sufficient cash to be available to further its development plans. The
directors expect the Company will be able to secure the necessary funding through one, or a combination of,
the aforementioned alternatives.
(b) Principles of consolidation
(i) Subsidiaries
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Kula Gold
Limited (‘’Company’’ or ‘’Parent entity’’) as at 31 December 2011 and the results of all subsidiaries for the year
then ended. Kula Gold Limited and its subsidiaries together are referred to in this financial report as the group
or the consolidated entity.
Subsidiaries are all entities (including special purpose entities) over which the group has the power to govern
the financial and operating policies, generally accompanying a shareholding of more than one-half of the
voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are
considered when assessing whether the group controls another entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the group.
They are de-consolidated from the date that control ceases.
The acquisition method of accounting is used to account for business combinations by the group
(refer to note 1(h)).
2011 aNNual RepoRt
41
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
1 summary of significant accounting policies (continued)
(b) Principles of consolidation (continued)
Intercompany transactions, balances and unrealised gains on transactions between group companies are
eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment
of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the group.
Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated
statement of comprehensive income, consolidated statement of changes in equity and consolidated statement
of financial position respectively.
(c) 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 executive directors which
includes the chief executive officer and the chief financial officer.
(d) Foreign currency translation
(i)
Functional and presentation currency
Items included in the financial statements of each of the group’s operations are measured using the currency of
the primary economic environment in which it operates (”the functional currency”). The consolidated financial
statements are presented in Australian dollars, which is Kula Gold Limited’s functional and presentation
currency.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing
at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated
in foreign currencies are recognised in 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.
Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange
rates at the date when the fair value was determined. Translation differences on assets and liabilities carried
at fair value are reported as part of the fair value gain or loss. For example, 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 and translation differences on non-monetary assets such as
equities classified as available-for-sale financial assets are included in the fair value reserve in equity.
(iii) Group companies
The results and financial position of foreign operations (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:
+ assets and liabilities for each statement of financial position presented are translated at the closing rate at
the date of that statement of financial position;
+ income and expenses for each statement of comprehensive income are translated at average exchange
rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the
transaction dates, in which case income and expenses are translated at the dates of the transactions), and
+ all resulting exchange differences are recognised in other comprehensive income.
42
Kula Gold limited aCN 126 741 259
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
1 summary of significant accounting policies (continued)
(d) Foreign currency translation (continued)
On consolidation, exchange differences arising from the translation of any net investment in foreign entities,
and of borrowings and other financial instruments designated as hedges of such investments, are recognised
in other comprehensive income. When a foreign operation is sold or any borrowings forming part of the net
investment are repaid, a proportionate share of such exchange difference is reclassified to profit or loss, as
part of the gain or loss on sale where applicable.
(e) Revenue recognition
Revenue represents interest income and is recognised using the effective interest method.
Income tax
(f)
The income tax expense or revenue for the period is the tax payable on the current period’s taxable income
based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and
liabilities attributable to temporary differences and to unused tax losses.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted
at the end of the reporting period in the countries where the company’s subsidiaries operate and generate
taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in
which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the
basis of amounts expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the
tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However,
the deferred income tax liability is not accounted for if it arises from initial recognition of an asset or liability in
a transaction other than a business combination that at the time of the transaction affects neither accounting nor
taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or
substantially enacted by the end of the reporting period and are expected to apply when the related deferred
income tax asset is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is
probable that future taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount
and tax bases of investments in foreign operations where the company is able to control the timing of the
reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable
future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and
tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a
net basis, or to realise the asset and settle the liability simultaneously.
(g) Leases
Leases in which a significant portion of the risks and rewards of ownership are not transferred to the group
as lessee are classified as operating leases (note 21). Payments made under operating leases (net of any
incentives received from the lessor) are charged to the consolidated income statement on a straight line basis
over the period of the lease.
(h) Business combinations
The acquisition method of accounting is used to account for all business combinations regardless of whether
equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary
comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the
2011 aNNual RepoRt
43
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
1 summary of significant accounting policies (continued)
(h) Business combinations (continued)
group. The consideration transferred also includes the fair value of any asset or liability resulting from contingent
consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Acquisition
related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are, with limited exceptions, measured initially at their fair values at the
acquisition date. On an acquisition-by-acquisition basis, the group recognises any non-controlling interest in
the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net
identifiable assets.
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the
acquisition date fair value of any previous equity interest in the acquiree over the fair value of the group’s share
of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of
the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed,
the difference is recognised directly in profit or loss as a bargain purchase.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are
discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental
borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier
under comparable terms and conditions.
Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial
liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss.
Impairment of assets
(i)
Intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for
impairment, or more frequently if events or changes in circumstances indicate that they might be impaired.
Other 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 asset’s carrying
amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs
to sell and 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
an impairment are reviewed for possible reversal of the impairment at each reporting date.
(j) Cash and cash equivalents
For the purpose of presentation in the consolidated statement of cash flows, 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 six months or less that are readily convertible to known amounts of cash and which
are subject to an insignificant risk of changes in value.
(k) Inventories
Raw materials and stores, work in progress and finished goods 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.
44
Kula Gold limited aCN 126 741 259
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
1 summary of significant accounting policies (continued)
Investments and other financial assets
(l)
Classification
The group classifies its investments as loans and receivables. The classification depends on the purpose for
which the investments were acquired. Management determines the classification of its investments at initial
recognition. 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 period which are classified as non-current assets. Loans and receivables are
included in trade and other receivables (note 9) in the consolidated statement of financial position.
Recognition and derecognition
Regular purchases and sales of financial assets are recognised on trade-date – the date on which the group
commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows
from the financial assets have expired or have been transferred and the group has transferred substantially all
the risks and rewards of ownership.
Measurement
At initial recognition, the group measures a financial asset at its fair value plus transaction costs that are
directly attributable to the acquisition of the financial asset. Loans and receivables are subsequently carried at
amortised cost using the effective interest method.
Impairment
The group assesses at the end of each reporting period whether there is objective evidence that a financial
asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and
impairment losses are incurred only if there is objective evidence of impairment as a result of one or more
events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an
impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably
estimated.
For loans and receivables, the amount of the loss is measured as the difference between the asset’s carrying
amount and the present value of estimated future cash flows (excluding future credit losses that have not been
incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is
reduced and the amount of the loss is recognised in the consolidated statement of comprehensive income. If
a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective
interest rate determined under the contract. As a practical expedient, the group may measure impairment on
the basis of an instrument’s fair value using an observable market price.
If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s
credit rating), the reversal of the previously recognised impairment loss is recognised in the consolidated
statement of comprehensive income.
(m) 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
2011 aNNual RepoRt
45
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
1 summary of significant accounting policies (continued)
(m) Property, plant and equipment (continued)
group and the cost of the item can be measured reliably. The carrying amount of any component accounted
for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to
profit or loss during the reporting period in which they are incurred.
Land is not depreciated. Depreciation on other assets is calculated using the reducing balance method to
allocate their cost, net of their residual values, over their estimated useful lives as follows:
+ Buildings
25 years
+ Motor vehicles and boats
3 years
+ Plant and equipment
+ Furniture and fittings
6 years
6 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount
is greater than its estimated recoverable amount (note 1(i)).
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are
included in profit or loss.
(n) Exploration and evaluation expenditure
Exploration and evaluation costs related to an area of interest are expensed as incurred except where they
may be carried forward as an item in the consolidated statement of financial position where the rights of tenure
of an area are current and one of the following conditions is met:
(i)
the costs are expected to be recouped through successful development and exploitation of the area of
interest, or alternatively, by its sale; or
(ii) exploration and/or 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 operations in, or in relation to, the area of interest are continuing.
Exploration and evaluation expenditure is written-off when it fails to meet at least one of the conditions outlined
above or an area of interest is abandoned.
Exploration and evaluation assets are assessed for impairment when facts and circumstances suggest that the
carrying amount of an exploration and evaluation asset may exceed its recoverable amount. When facts and
circumstances suggest that the carrying amount exceeds the recoverable amount the impairment loss will be
measured and disclosed in accordance with the group’s impairment policy (note 1(i)).
(o) Trade and other payables
These amounts represent liabilities for goods and services provided to the group prior to the end of financial
year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade
and other payables are presented as current liabilities unless payment is not due within 12 months from the
reporting date. They are recognised initially at their fair value and subsequently measured at amortised cost
using the effective interest method.
46
Kula Gold limited aCN 126 741 259
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
1 summary of significant accounting policies (continued)
(p) Provisions
Provisions 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 interest expense.
(q) Provision for decommissioning costs
A provision is recognised for the future decommissioning and restoration of mining operations at the end of
their economic lives. The timing of recognition requires the application of judgement to existing facts and
circumstances, which will be subject to changes. Estimates of the amounts of provision are based on current
legal and constructive requirements, technology and price levels. Because the actual outflows can differ from
estimates due to changes in laws, regulations, public expectations, technology, prices and conditions, and can
take place many years in the future, the carrying amount of the provision is regularly reviewed and adjusted to
take account of such changes.
(r) Employee benefits
(i) Short-term obligations
Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled
within 12 months after the end of the period in which the employees render the related service are recognised
in respect of employees’ services up to the end of the reporting period and are measured at the amounts
expected to be paid when the liabilities are settled. The liability for annual leave is recognised in other
payables and accruals together with other employee benefit obligations.
(ii)
Long service leave
The liability for long service leave 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
end of the reporting period using the projected unit credit method. Consideration is given to expected future
wage and salary levels, experience of employee departures and periods of service. Expected future payments
are discounted using market yields at the end of the reporting period on national government bonds with terms
to maturity and currency that match, as closely as possible, the estimated future cash outflows.
(iii) Share-based payments
Share-based compensation benefits are provided to employees via the Kula Gold Limited Option Plan (Plan).
Information relating to the Plan is set out in note 26.
The fair value of options granted under the Plan is recognised as an employee benefit expense with a
corresponding increase in equity. The total amount to be expensed is determined by reference to the fair value
of the options granted, which includes any market performance conditions and the impact of any non-vesting
conditions, but excludes the impact of any service and non-market performance vesting conditions.
2011 aNNual RepoRt
47
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
1 summary of significant accounting policies (continued)
(r) Employee benefits (continued)
Non-market vesting conditions are included in assumptions about the number of options that are expected
to vest. The total expense is recognised over the vesting period, which is the period over which all of the
specified vesting conditions are to be satisfied. At the end of each period, the entity revises its estimates of the
number of options that are expected to vest based on the non-marketing vesting conditions. It recognises the
impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity.
(s) Contributed equity
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or
options are shown in equity as a deduction, net of tax, from the proceeds.
(t) 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 consolidated statement of financial position.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing
or financing activities which are recoverable from, or payable to the taxation authority, are presented as
operating cash flows.
(u) Rounding of amounts
The group is of a kind referred to in Class Order 98/100, issued by the Australian Securities and Investments
Commission, relating to the ‘’rounding off’’ of amounts in the financial report. Amounts in the financial report
have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain
cases, the nearest dollar.
(v) Earnings per share
(i) Basic earnings per share
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.
(ii) Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into
account:
+ the after income tax effect of interest and other financing costs associated with dilutive potential ordinary
shares, and
+ the weighted average number of additional ordinary shares that would have been outstanding assuming
the conversion of all dilutive potential ordinary shares.
48
Kula Gold limited aCN 126 741 259
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
1 summary of significant accounting policies (continued)
(w) Parent entity financial information
The financial information for the parent entity, Kula Gold Limited, disclosed in note 27 has been prepared on
the same basis as the consolidated financial statements, except as set out below.
(i)
Investments in subsidiaries
Investments in subsidiaries are accounted for at cost in the financial statements of Kula Gold Limited.
(ii) Financial guarantees
Where the parent entity has provided financial guarantees in relation to loans and payables of subsidiaries
for no compensation, the fair values of these guarantees are accounted for as contributions and recognised as
part of the cost of the investment.
(iii) Share-based payments
The grant by the Company of options over its equity instruments to the employees of subsidiary undertakings in
the group is charged to the subsidiary’s loan account. The fair value of employee services received, measured
by reference to the grant date fair value, is recognised over the vesting period as an increase to the balance
sheet account, mineral and exploration expenditure (until the Company moves into the mining phase).
(x) New accounting standards and interpretations
Certain new accounting standards and interpretations have been published that are not mandatory for
31 December 2011 reporting periods. The group’s assessment of the impact of these new standards and
interpretations is set out below.
(i) AASB 9 Financial Instruments, AASB 2009-11 Amendments to Australian Accounting Standards arising
from AASB 9 and AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9
(December 2010) (effective for annual reporting periods beginning on or after 1 January 2013)
AASB 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets
and financial liabilities. The standard is not applicable until 1 January 2013 but is available for early adoption.
The standard is not expected to have any impact on the group’s accounting for financial assets when adopted
as all financial assets are currently measured at amortised cost and will continue to be under AASB 9.
There will be no impact on the group’s accounting for financial liabilities, as the new requirements only affect
the accounting for financial liabilities that are designated as at fair value through profit or loss and the group
does not have any such liabilities. The derecognition rules have been transferred from AASB 139 Financial
Instruments: Recognition and Measurement and have not been changed. The group has not yet decided when
to adopt AASB 9.
(ii) AASB 1053 Application of Tiers of Australian Accounting Standards and AASB 2010-2 Amendments to
Australian Accounting Standards arising from Reduced Disclosure Requirements (effective 1 July 2013)
On 30 June 2010 the AASB officially introduced a revised differential reporting framework in Australia. Under
this framework, a two-tier differential reporting regime applies to all entities that prepare general purpose
financial statements. Kula Gold Limited is listed on the ASX and is therefore not eligible to adopt the new
Australian Accounting Standards – Reduced Disclosure Requirements. As a consequence, the two standards
will have no impact on the financial statements of the entity.
(iii) AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements, AASB 12 Disclosure of
Interests in Other Entities, revised AASB 127 Separate Financial Statements and AASB 128 Investments in
Associates and Joint Ventures and AASB 2011-7 Amendments to Australian Accounting Standards arising
from the Consolidation and Joint Arrangements Standards (effective 1 January 2013)
2011 aNNual RepoRt
49
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
1 summary of significant accounting policies (continued)
(x) New accounting standards and interpretations (continued)
In August 2011, the AASB issued a suite of five new and amended standards which address the accounting
for joint arrangements, consolidated financial statements and associated disclosures.
AASB 10 replaces all of the guidance on control and consolidation in AASB 127 Consolidated and Separate
Financial Statements, and Interpretation 12 Consolidation – Special Purpose Entities. The core principle that
a consolidated entity presents a parent and its subsidiaries as if they are a single economic entity remains
unchanged, as do the mechanics of consolidation. The new standard does however introduce a single
definition of control that applies to all entities. It focuses on the need to have both power and rights or
exposure to variable returns before control is present. Power is the current ability to direct the activities that
significantly influence returns. Returns must vary and can be positive, negative or both. There is also new
guidance on participating and protective rights and on agent/principal relationships. Given the group’s
composition there will be no impact on the group’s financial statements on adoption of the new standard.
AASB 11 introduces a principles based approach to accounting for joint arrangements. The focus is no longer
on the legal structure of joint arrangements, but rather on how rights and obligations are shared by the parties
to the joint arrangement. Based on the assessment of rights and obligations, a joint arrangement will be
classified as either a joint operation or joint venture. Joint ventures are accounted for using the equity method,
and the choice to proportionately consolidate will no longer be permitted. Parties to a joint operation will
account their share of revenues, expenses, assets and liabilities in much the same way as under the previous
standard. AASB 11 also provides guidance for parties that participate in joint arrangements but do not share
joint control. As the group is not party to any joint arrangements, this standard will not have any impact on its
financial statements.
AASB 12 sets out the required disclosures for entities reporting under the two new standards, AASB 10 and
AASB 11, and replaces the disclosure requirements currently found in AASB 128. Application of this standard
by the group will not affect any of the amounts recognised in the financial statements, but will impact the type
of information disclosed in relation to the group’s investments.
AASB 127 is renamed Separate Financial Statements and is now a standard dealing solely with separate
financial statements. Application of this standard by the group will not affect any of the amounts recognised in
the financial statements.
Amendments to AASB 128 provide clarification that an entity continues to apply the equity method and does
not remeasure its retained interest as part of ownership changes where a joint venture becomes an associate,
and vice versa. The amendments also introduce a “partial disposal” concept. As the group does not have any
associates, this standard will not have any impact on its financial statements.
The group does not expect to adopt the new standards before their operative date. They would therefore be
first applied in the financial statements for the annual reporting period ending 31 December 2013.
(iv) AASB 13 Fair Value Measurement and AASB 2011-8 Amendments to Australian Accounting Standards
arising from AASB 13 (effective 1 January 2013)
AASB 13 was released in September 2011. It explains how to measure fair value and aims to enhance fair
value disclosures. The group does not use fair value measurements extensively. It is therefore unlikely that
the new rules will have a significant impact on any of the amounts recognised in the financial statements.
However, application of the new standard will impact the type of information disclosed in the notes to the
financial statements. The group does not intend to adopt the new standard before its operative date, which
means that it would be first applied in the annual reporting period ending 31 December 2013.
50
Kula Gold limited aCN 126 741 259
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
1 summary of significant accounting policies (continued)
(x) New accounting standards and interpretations (continued)
(v) AASB 1054 Australian Additional Disclosures, AASB 2011-1 Amendments to Australian Accounting
Standards arising from the Trans-Tasman Convergence Project and AASB 2011-2 Amendments to
Australian Accounting Standards arising from the Trans-Tasman Convergence Project - Reduced Disclosure
Requirements (effective 1 July 2011)
The AASB and NZ FRSB have issued accounting standards that eliminate most of the existing differences
between their local standards and IFRS. Where additional disclosures were considered necessary, they
were moved to the new standard AASB 1054. Adoption of the new rules will not affect any of the amounts
recognised in the financial statements, but may simplify some of the group’s current disclosures. The group
intends to adopt the standards from 1 January 2012.
(vi) Revised AASB 119 Employee Benefits, AASB 2011-10 Amendments to Australian Accounting Standards
arising from AASB 119 (September 2011) and AASB 2011-11 Amendments to AASB 119 (September
2011) arising from Reduced Disclosure Requirements (effective 1 January 2013)
In September 2011, the AASB released a revised standard on accounting for employee benefits. It requires
the recognition of all remeasurements of defined benefit liabilities/assets immediately in other comprehensive
income (removal of the so-called ‘corridor’ method) and the calculation of a net interest expense or income by
applying the discount rate to the net defined benefit liability or asset. This replaces the expected return on plan
assets that is currently included in profit or loss. The standard also introduces a number of additional disclosures
for defined benefit liabilities/assets and could affect the timing of the recognition of termination benefits. The
amendments will have to be implemented retrospectively. Since Kula Gold Limited does not have any defined
benefit obligations, the amendments will not have any impact on the group’s financial statements.
(vii) AASB 2011-9 Amendments to Australian Accounting Standards – Presentation of Items of Other
Comprehensive Income (effective 1 July 2012)
In September 2011, the AASB made an amendment to AASB 101 Presentation of Financial Statements which
requires entities to separate items presented in other comprehensive income into two groups, based on whether
they may be recycled to profit or loss in the future. This will not affect the measurement of any of the items
recognised in the balance sheet or the profit or loss in the current period. The group intends to adopt the new
standard from 1 January 2013.
(viii) AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management
Personnel Disclosure Requirements (effective 1 July 2013)
In July 2011 the AASB decided to remove the individual key management personnel (KMP) disclosure
requirements from AASB 124 Related Party Disclosures, to achieve consistency with the international equivalent
standard and remove a duplication of the requirements with the Corporations Act 2001. While this will
reduce the disclosures that are currently required in the notes to the financial statements, it will not affect any
of the amounts recognised in the financial statements. The amendments apply from 1 July 2013 and cannot
be adopted early. The Corporations Act 2001 requirements in relation to remuneration reports will remain
unchanged for now, but these requirements are currently subject to review and may also be revised in the
near future.
2011 aNNual RepoRt
51
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
2
financial risk management
The Group’s activities expose it to a variety of financial risks: market risk (including currency risk and interest rate
risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability
of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group.
The Group uses different methods to measure different types of risk to which it is exposed. These methods
include sensitivity analysis in the case of interest rate and foreign exchange risks. Liquidity risk is managed by
budgets to structure maturity dates of investments to meet anticipated outgoings of expenditure.
Risk management is carried out under policies approved by the board of directors.
(a) Market risk
(i)
Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency
exposures, primarily with respect to the Papua New Guinea Kina (PGK) and the United States dollar (USD).
Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities
denominated in a currency that is not the entity’s functional currency. The risk is measured using sensitivity
analysis and cash flow forecasting.
It is not the Group’s present policy to hedge foreign exchange risk.
The Company’s functional currency is Australian dollars (AUD). The Group’s Papua New Guinea subsidiary has
a functional currency of Papua New Guinea Kina.
The Group’s exposure to foreign currency risk at the end of the reporting period, expressed in Australian
dollars, was as follows:
Cash
Payables
Net exposure
CONsOLIdATEd
2011
PGK
A$’000
525
(640)
(115)
2011
USD
A$’000
283
–
283
2010
PGK
A$’000
1,162
(849)
313
2010
USD
A$’000
426
(110)
316
Foreign currency sensitivity analysis
The Group is exposed to movements in United States dollars and Papua New Guinea Kina. The following
table details the Group’s sensitivity to a 10% increase and a 10% decrease in the Australian dollar against the
relevant currencies:
Impact on post-tax loss
AUD increase against foreign currencies
AUD decrease against foreign currencies
CONsOLIdATEd
2011
$’000
(53)
53
2010
$’000
(228)
276
52
Kula Gold limited aCN 126 741 259
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
2
financial risk management (continued)
(a) Market risk (continued)
Interest rate risk
(ii)
The Group’s main interest rate risk arises from cash and cash equivalents. The Group does not have any
borrowings from external counterparties.
Group sensitivity
At 31 December 2011, the Group’s exposure to interest rates is not deemed to be material to its primary
activities and the interest is generally fixed.
(b) Credit risk
Credit risk arises from cash and cash equivalents as well as credit exposures in respect of outstanding
receivables. The Group has no significant concentrations of credit risk.
Cash deposits are held with two major Australian Banks, Westpac Banking Corporation (Westpac) and
Commonwealth Bank of Australia (CBA). These banks currently hold the following long-term credit ratings:
RATING AGENCY
Fitch Ratings
Moody’s Investors Service
Standard & Poor’s
WEsTPAC
AA
Aa2
AA-
CbA
AA
Aa2
AA-
(c) Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through
timing of rollover dates on its term deposits currently held by the Group. This ensures the best balance between
highest interest rates available and funding requirements.
The Group does not have any borrowing facilities in place at the reporting date.
Maturities of financial liabilities
The tables below analyse the Group’s financial liabilities into relevant maturity groupings based on the
remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are
the contractual undiscounted cash flows.
2011
CONTRACTUAL MATURITIEs Of fINANCIAL LIAbILITIEs
LESS
THAN 6
MONTHS
6 – 12
MONTHS
BETWEEN
1 AND 2
YEARS
BETWEEN
2 AND 5
YEARS
OVER 5
YEARS
TOTAL
CONTRACTUAL
CASH FLOWS
CARRYING
AMOUNT
LIABILITIES
$’000
$’000
$’000
$’000 $’000
$’000
$’000
Trade and other payables
Total non-derivatives
3,715
3,715
–
–
–
–
–
–
–
–
3,715
3,715
3,715
3,715
2010
CONTRACTUAL MATURITIEs Of fINANCIAL LIAbILITIEs
LESS
THAN 6
MONTHS
6 – 12
MONTHS
BETWEEN
1 AND 2
YEARS
BETWEEN
2 AND 5
YEARS
OVER 5
YEARS
TOTAL
CONTRACTUAL
CASH FLOWS
CARRYING
AMOUNT
LIABILITIES
$’000
$’000
$’000
$’000 $’000
$’000
$’000
Trade and other payables
Total non-derivatives
3,795
3,795
–
–
–
–
–
–
–
–
3,795
3,795
3,795
3,795
2011 aNNual RepoRt
53
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
2
financial risk management (continued)
(d) Fair value measurements
The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or
for disclosure purposes.
The carrying value less impairment provision of receivables and payables are assumed to approximate their
fair values due to their short-term nature.
3 Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on historical experience and other factors,
including expectations of future events that may have a financial impact on the entity and that are believed to
be reasonable under the circumstances.
The Group makes judgements, estimates and assumptions concerning the future. The resulting accounting
estimates will, by definition, seldom equal the related actual results. The judgements, estimates and assumptions
that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities
within the next financial year are discussed below.
(i) Area of interest
The Group currently holds three exploration licences and the sites under the three licences are in close
proximity to each other. The current assessment is that should the Group decide to commercially develop and
mine the reserves in these three exploration areas it will set up a central processing plant to process ore mined
from these three sites. Accordingly, all three exploration licensed areas are considered as one area of interest
for the purpose of applying the policy on exploration and evaluation expenditures.
(ii) Mineral Exploration and evaluation expenditure
Certain exploration and evaluation expenditure is capitalised where it is considered likely that the expenditure
will be recovered by future exploitation or sale, or where activities have not reached a stage which permits a
reasonable assessment of the existence of commercially recoverable reserves. This process necessarily requires
management to make certain estimates and assumptions as to future events and circumstances, in particular,
whether economically viable extraction operations can be established. Any such estimates and assumptions
may change as new information becomes available. If, after having capitalised expenditure under this policy
it is concluded unlikely that the expenditure will be recovered by future exploitation or sale, the relevant amount
capitalised is written off to profit or loss.
Carried forward mineral exploration and evaluation expenditures are disclosed in Note 12.
(iii) Functional currency
The Group’s transactions and balances are denominated in three main currencies (Australian dollars,
Papua New Guinea Kina and United States dollars). Operating costs are denominated in Australian
dollars, Papua New Guinea Kina and United States dollars, however, primarily in Australian dollars. As the
indicators are mixed, management has applied its judgement in accordance with the Group accounting policy
on foreign currency translation (note 1(d)) and has chosen the Australian dollar as the functional currency for
the parent entity and Papua New Guinea Kina as the functional currency for the subsidiary. The presentation
currency is in Australian dollars.
54
Kula Gold limited aCN 126 741 259
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
4 segment information
During the year the Group operated predominantly in one business segment, being gold mining exploration.
Geographically, the Group operates exclusively in two geographical segments being Papua New Guinea and
an office maintained in Australia. Segment accounting policies are the same as the Group’s policies described
in Note 1(c). Segment results are classified in accordance with the location of the business activity within
geographic segments:
2011
Revenue
Interest income
Management fees
Total segment revenue
Results
Operating profit/(loss)
before income tax
Income tax expense
Net profit/(loss) after tax
Included within segment results
Depreciation and amortisation
of segment assets
Segment assets
Segment liabilities
2010
Revenue
Interest income
Management fees
Total segment revenue
Results
Operating profit/(loss)
before income tax
Income tax expense
Net profit/(loss) after tax
Included within segment results
Depreciation and amortisation
of segment assets
Segment assets
Segment liabilities
CONsOLIdATEd
AUSTRALIA
PAPUA NEW
GUINEA
ELIMINATIONS
$’000
$’000
$’000
2,015
2,120
4,135
806
–
806
806
34
134,280
3,829
362
899
1,261
(3,773)
–
(3,773)
(3,773)
11
129,680
506
17
–
17
1,090
–
1,090
1,090
–
127,957
3,665
8
–
8
(276)
–
(276)
(276)
–
75,684
13,549
–
(2,120)
(2,120)
(3,250)
–
(3,250)
(3,250)
–
(121,795)
(3,421)
–
(899)
(899)
(1,009)
–
(1,009)
(1,009)
–
(84,421)
(10,113)
TOTAL
$’000
2,032
–
2,032
(1,354)
–
(1,354)
(1,354)
34
140,442
4,073
370
–
370
(5,058)
–
(5,058)
(5,058)
11
120,943
3,942
The total of non-current assets located in Australia is $114,257,195 (2010: $72,132,031) and Papua New Guinea
$122,716,469 (2010: $72,661,688). Segment assets are allocated to countries where the assets are located.
2011 aNNual RepoRt
55
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
5 Revenue
Revenue from continuing operations
Interest income
6
Expenses
Loss before income tax includes the following specific
expenses:
Depreciation
Buildings
Plant and equipment
Furniture and fittings
Motor vehicle and boats
Less: Capitalised to mineral exploration and evaluation
expenditure
Total depreciation
Amortisation
Exploration licence
Less: Capitalised to mineral exploration and evaluation
expenditure
Total amortisation
Total depreciation and amortisation
Rental expense relating to operating leases
Minimum lease payments
Options issued under Kula Gold Limited Option Plan
Less: Capitalised to mineral exploration and evaluation
expenditure
Employee option expense
CONsOLIdATEd
2011
$’000
2,032
2,032
2010
$’000
370
370
CONsOLIdATEd
2011
$’000
2010
$’000
29
361
43
279
(678)
34
–
–
–
34
185
471
(60)
411
18
183
23
191
(404)
11
13
(13)
–
11
90
29
–
29
56
Kula Gold limited aCN 126 741 259
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
7
Income tax (benefit)/expense
(a) Income tax expense:
Current tax
Deferred tax
Deferred income tax (revenue) expense included in
income tax expense comprises:
(Increase)/decrease in deferred tax assets
(b) Numerical reconciliation of income tax expense to
prima facie tax payable
Loss from continuing operations before income tax expense
Tax at the Australian tax rate of 30% (2010: 30%)
Tax effect of amounts which are not deductible (taxable)
in calculating taxable income:
Share-based payments
ASX listing costs
Management fees (elimination)
Unrealised foreign exchange variances
Sundry items
Prior year losses utilised
Income tax benefit not recognised
Total income tax expense
(c) Tax losses
Australian unused tax losses for which
no deferred tax asset has been recognised
Potential tax benefit at the Australian tax rate of 30%
(2010: 30%)
CONsOLIdATEd
2011
$’000
2010
$’000
–
–
–
–
–
–
–
–
–
–
(1,354)
(406)
(5,058)
(1,517)
123
–
636
1
49
(403)
–
–
38
11
9
745
270
65
68
–
360
–
1,381
414
Benefits for tax losses will only be obtained if:
(i)
the consolidated entity derives future Australian assessable income of a nature and of an amount
sufficient to enable the benefit from the deductions for the losses to be realised;
the consolidated entity continues to comply with the conditions for deductibility imposed by tax
legislation; and
(ii)
(iii) no changes in tax legislation adversely affect the consolidated entity in realising the benefit from the
deductions for the losses.
2011 aNNual RepoRt
57
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
7
Income tax (benefit)/expense (continued)
(d) Unrecognised temporary differences
Temporary differences for which deferred tax asset has not been
recognised due to there being no virtual certainty of the Group
being profitable:
Employee provision
Share-based payment
Sundry items
(e) Tax on exploration expenditure in
Woodlark Mining Limited (Papua New Guinea)
Exploration expenditure for which no
deferred tax asset has been recognised
Potential tax benefit at the Papua New Guinea tax rate of
30% (2010: 30%)
CONsOLIdATEd
2011
$’000
2010
$’000
36
123
8
167
17
9
74
100
115,077
68,393
34,523
20,518
The exploration expenditure incurred in the 20 years prior to the issue of a mining lease (“ML”) or special
mining lease (“SML”) within the area of an exploration licence (“EL”) from which a ML or SML is drawn
becomes part of the allowable exploration expenditure of that ML or SML in accordance with the Papua New
Guinea income tax laws.
Allowable exploration expenditure forms part of the allowable deductions of a mining operation. Exploration
companies do not incur tax losses in Papua New Guinea. Rather, they accumulate their exploration
expenditure until such time as 20 years has passed since the expenditure was incurred, the EL is abandoned,
or a ML or SML is withdrawn from the area covered by the EL.
During the period of the exploration a company does not claim deductions for depreciation, rather the cost of
otherwise depreciable assets acquired forms part of the exploration expenditure. In this way, future deductions
may be claimed for the cost of such assets by way of claiming deductions for the Allowable Exploration
Expenditure.
No deferred tax asset has been recognised in relation to this expenditure on the basis that realisation of the
tax benefit from the allowable exploration expenditure cannot be regarded as recoverable at this stage in the
life of the project.
58
Kula Gold limited aCN 126 741 259
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
8 Current assets – Cash and cash equivalents
Cash at bank and in hand
Short-term deposits*
Reconciliation to consolidated statement of cash flows
For the purposes of the consolidated statement of cash flows,
cash and cash equivalents comprise the following:
Cash at bank and in hand
Short-term deposits*
Non-current assets – deposits (Note 13)
CONsOLIdATEd
2011
$’000
1,813
18,299
20,112
1,813
18,299
107
20,219
2010
$’000
8,158
40,000
48,158
8,158
40,000
107
48,265
* Short-term deposits are made for varying periods of between one day and six months, depending on the cash requirements of the
Group, and earn interest at the respective short-term deposit rates.
(a) Risk exposure
The Group’s exposure to interest rate risk is discussed in note 2. The maximum exposure to credit risk at the end
of the reporting period is the carrying amount of each class of cash and cash equivalents mentioned above.
9 Current assets – Receivables
Goods and services tax receivable
Prepayment and other receivables
CONsOLIdATEd
2011
$’000
38
825
863
2010
$’000
369
639
1,008
(a) Impaired receivables
There were no impaired receivables for the Group.
(b) Past due but not impaired
There were no receivables past due for the Group.
(c) Foreign exchange and interest rate risk
Information about the Group’s exposure to foreign currency risk and interest rate risk in relation to receivables
is provided in note 2.
(d) Fair value and credit risk
Due to the short-term nature of these receivables, their carrying amount is assumed to approximate their fair
value. The maximum exposure to credit risk at the reporting date is the carrying amount of each class of
receivables mentioned above.
10 Current assets – Inventories
Inventory: Consumables
CONsOLIdATEd
2011
$’000
867
867
2010
$’000
1,101
1,101
2011 aNNual RepoRt
59
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
11 Non-current assets – Property, plant and equipment
CONsOLIdATEd
BUILDINGS
PLANT &
EQUIPMENT
FURNITURE &
FITTINGS
$'000
$'000
$'000
MOTOR
VEHICLES &
BOATS
$’000
571
(43)
528
528
82
(18)
(60)
1,786
(298)
1,488
1,488
217
(183)
(223)
95
(23)
72
72
68
(23)
(5)
780
(468)
312
312
177
(191)
(83)
TOTAL
$'000
3,232
(832)
2,400
2,400
544
(415)
(371)
532
1,299
112
215
2,158
593
(61)
532
532
90
(29)
127
1,780
(481)
1,299
1,299
921
(361)
251
720
2,110
820
(100)
720
3,171
(1,061)
2,110
158
(46)
112
112
40
(43)
7
116
209
(93)
116
874
(659)
215
215
459
(279)
75
3,405
(1,247)
2,158
2,158
1,510
(712)
460
470
3,416
1,459
(989)
470
5,659
(2,243)
3,416
At 1 January 2010
Cost
Accumulated depreciation
Net book amount
Year ended
31 December 2010
Opening net
book amount
Additions
Depreciation charge
Exchange differences
Closing net
book amount
At 31 December 2010
Cost
Accumulated depreciation
Net book amount
Year ended
31 December 2011
Opening net
book amount
Additions
Depreciation charge
Exchange differences
Closing net
book amount
At 31 December 2011
Cost
Accumulated depreciation
Net book amount
Total depreciation charge for the year is $711,537 (2010: $415,112) of which $677,634 (2010: $404,254)
has been capitalised under mineral exploration and evaluation expenditure (note 12) in accordance with the
Group’s accounting policy.
60
Kula Gold limited aCN 126 741 259
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
12 Non-current assets
– Mineral exploration and evaluation expenditure
At 1 January 2010
Cost
Accumulated amortisation
Net book amount
Year ended 31 December 2010
Opening net book amount
Exchange differences
Additions
Amortisation charge
Closing net book amount
At 31 December 2010
Cost
Accumulated amortisation
Net book amount
Year ended 31 December 2011
Opening net book amount
Exchange differences
Additions
Amortisation charge
Closing net book amount
At 31 December 2011
Cost
Accumulated depreciation
Net book amount
CONsOLIdATEd
EXPLORATION
LICENCES
DEFERRED
EXPLORATION
EXPENDITURE
TOTAL
$'000
$’000
$'000
9,535
(9,506)
29
29
(9)
–
(13)
7
9,526
(9,519)
7
7
1
–
–
8
8
–
8
54,852
–
54,852
54,852
(6,922)
20,456
–
68,386
68,386
–
68,386
68,386
18,057
28,626
–
64,387
(9,506)
54,881
54,881
(6,931)
20,456
(13)
68,393
77,912
(9,519)
68,393
68,393
18,058
28,626
–
115,069
115,077
115,069
115,077
–
–
115,069
115,077
The recoverability of the carrying amount of the mineral exploration and evaluation assets is dependent on
successful development and commercial exploitation, or alternatively, sale of the respective areas of interest.
2011 aNNual RepoRt
61
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
13 Non-current assets – Other non-current assets
Deposits
Other
14 Current liabilities – Trade and other payables
Trade payables
Other payables and accruals
CONsOLIdATEd
2011
$’000
107
–
107
2010
$’000
107
18
125
CONsOLIdATEd
2011
$’000
3,160
555
3,715
2010
$’000
3,514
281
3,795
(a) Amounts not expected to be settled within the next 12 months
Other payables include accruals for annual leave. The entire obligation is presented as current, since the
Group does not have an unconditional right to defer settlement. However, based on past experience,
the Group does not expect all employees to take the full amount of accrued leave within the next 12 months.
The following amounts reflect leave that is not expected to be taken within the next 12 months:
Annual leave obligation expected to be settled after 12 months
CONsOLIdATEd
2011
$’000
119
119
2010
$’000
41
41
(b) Risk exposure
Information about the Group’s exposure to foreign exchange risk is provided in note 2.
62
Kula Gold limited aCN 126 741 259
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
15 Non-current liabilities – Provisions
Provision for long service leave
Provision for rehabilitation
(a) Movements in provisions
Movements in the provision for rehabilitation during the financial
year are set out below:
Provision for rehabilitation
Carrying amount at the start of the period
– additional provisions recognised
– exchange differences
Carrying amount at the end of the period
CONsOLIdATEd
2011
$’000
162
196
358
2010
$’000
–
147
147
CONsOLIdATEd
2011
$’000
2010
$’000
147
14
35
196
116
42
(11)
147
16 Contributed equity
(a) Share capital
Ordinary shares
Ordinary shares Class A
Ordinary shares Class B
Class Z shares – US$1 each
Special shares Class Z
– US$1 each
Less: Transaction costs
PARENT ENTITY
2011
SHARES
2010
SHARES
2011
$’000
2010
$'000
112,615,523
112,615,523
134,792
141,552
–
–
–
–
–
–
–
–
–
–
112,615,523
112,615,523
134,792
–
–
–
–
–
–
–
–
–
(6,760)
134,792
2011 aNNual RepoRt
63
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
16 Contributed equity (continued)
(b) Movements in share capital:
DATE
DETAILS
PARENT ENTITY
NUMBER OF
SHARES
ISSUE PRICE
ISSUE PRICE
TOTAL
01 January 2010
Opening balance
26 February 2010
Issue of class A shares
26 February 2010
Issue of class B shares
53,080
1,252
1,690
US$
–
$
–
1,700
1,888
1,700
1,861
30 June 2010
Issue of class A shares
1,063
2,000
30 June 2010
Issue of class B shares
31 August 2010
Issue of class A shares
31 August 2010
Issue of class B shares
20 September 2010 Issue of class A shares
20 September 2010 Issue of class B shares
04 November 2010 Transfer from
1,437
1,170
1,580
288
390
2,000
2,000
2,000
2,000
2,000
ordinary shares –
Class A following
consolidation/
reclassification
(61,950)
04 November 2010 Share split
(refer to note c)
80,393,300
18 November 2010 Issue of new shares
32,222,223
Less: Transaction costs
arising on share issue
–
31 December 2010 Balance
112,615,523
–
–
–
–
–
$'000
62,964
2,364
3,144
2,503
3,286
2,610
3,524
667
903
–
–
2,355
2,287
2,231
2,231
2,315
2,315
–
–
1.80
58,000
–
–
(5,173)
134,792
DATE
DETAILS
PARENT ENTITY
NUMBER OF
SHARES
–
No movements
–
31 December 2011 Balance
112,615,523
ISSUE PRICE
ISSUE PRICE
TOTAL
US$
–
–
$
–
–
$'000
–
134,792
64
Kula Gold limited aCN 126 741 259
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
16 Contributed equity (continued)
(c) Ordinary shares
On 4 November 2010:
+ all of the issued B Ordinary Shares were reclassified as A Ordinary Shares on the basis of one
A Ordinary Share for one B Ordinary Share;
+ all of the issued Z Class Special Shares were reclassified as Z Class Shares on the basis of one
Z Class Share for one Z Class Special Share;
+ all of the issued Z Class Shares in the Company were consolidated into one Z Class Share;
+ the one Z Class Share were reclassified as an A Ordinary Share on the basis of one Z Class Share
for one A Ordinary Share;
+ all of the issued A Ordinary Shares were reclassified as Ordinary Shares on the basis of one
A Ordinary Share for one Ordinary Share;
+ and the 61,841 Ordinary Shares on issue following the above reclassifications were subdivided on
a 1 to 1300 basis into 80,393,300 Ordinary Shares.
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the
Company in proportion to the number of and amounts paid on the shares held.
On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled
to, one vote, and upon a poll each share is entitled to one vote.
(d) Options
Information relating to the options issued, exercised and lapsed during the financial year and options
outstanding at the end of the financial year, is set out in note 26.
(e) Capital risk management
The Group’s objectives when managing capital are to safeguard its ability to continue as a going
concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders
and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the directors may decide to restrict dividends paid
to shareholders, return capital to shareholders, issue new shares or sell assets to provide additional
cash resources.
2011 aNNual RepoRt
65
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
17 Reserves and accumulated losses
(a) Reserves
Share-based payments reserve
Foreign currency translation reserve
Movements:
Share-based payments reserve
Balance 1 January
Option expense
Cancellation of options
Balance 31 December
Foreign currency translation reserve
Balance 1 January
Currency translation differences arising during the year
Balance 31 December
(b) Accumulated losses
Balance 1 January
Net loss for the year
Balance 31 December
CONsOLIdATEd
2011
$’000
(388)
10,896
10,508
(859)
471
–
(388)
(9,355)
20,251
10,896
CONsOLIdATEd
2011
$’000
(7,577)
(1,354)
(8,931)
2010
$’000
(859)
(9,355)
(10,214)
558
29
(1,446)
(859)
(2,025)
(7,330)
(9,355)
2010
$’000
(2,519)
(5,058)
(7,577)
(c) Nature and purpose of reserves
(i) Share-based payments reserve
The share-based payments reserve is used to recognise the grant date fair value of options issued to
employees but not exercised.
(ii) Foreign currency translation reserve
Exchange differences arising on translation of the foreign controlled entity are recognised in other
comprehensive income as described in note 1(d) and accumulated in a separate reserve within equity.
The cumulative amount is reclassified to profit or loss when the net investment is disposed of.
66
Kula Gold limited aCN 126 741 259
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
18 key management personnel disclosures
(a) Directors and other key management personnel
The names of persons who were directors of Kula Gold Limited and other key management personnel at any
time during the financial year are as follows:
(i) Chairman – non-executive
D Frecker
(ii) Executive directors
L Spencer, Managing director and chief executive officer
J Watkins, Executive director and chief financial officer
(iii) Non-executive directors
L Rozman
P Bradford (resigned 30 June 2011)
M Stowell
(iv) Other key management personnel
T Mulroney (resigned 31 August 2011)
(b) Key management personnel compensation
Short-term employee benefits
Post-employment benefits
Long-term benefits
Share-based payments
CONsOLIdATEd
2011
$’000
1,245,524
52,350
49,886
431,346
1,779,106
2010
$’000
579,196
105,509
–
27,153
711,858
Detailed remuneration disclosures are provided in the remuneration report on pages 17 to 24.
2011 aNNual RepoRt
67
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
18 key management personnel disclosures (continued)
(c) Equity instrument disclosures relating to key management personnel
(i) Options provided as remuneration
Details of options over ordinary shares in the Company provided as remuneration to each director of Kula
Gold Limited and other key management personnel during the period ended 31 December 2011 and 2010
are set out below. When exercisable, each option is convertible into one ordinary share of Kula Gold Limited.
Further information on the options is set out in note 26.
The following options were granted as remuneration to key management personnel (KMP) of the Group during
the year ended 31 December 2011:
2011
NAME
L Spencer *
L Spencer #
J Watkins *
J Watkins #
OPTIONs GRANTEd As REMUNERATION TO kMP
GRANTED
NUMBER
GRANT DATE
VESTED
NUMBER
FORFEITED IN
YEAR
EXPIRY DATE
EXERCISE
PRICE
FAIR VALUE AT
GRANT DATE
750,000
16 Dec 2011
750,000
750,000
16 Dec 2011
–
750,000
16 Dec 2011
750,000
750,000
16 Dec 2011
–
–
–
–
16 Dec 2016
$2.00
$45,000
16 Dec 2016
$2.00
$45,000
16 Dec 2016
$2.00
$45,000
16 Dec 2016
$2.00
$45,000
(300,000)
13 Jan 2016
$1.80
$96,000
–
–
T Mulroney #
300,000
13 Jan 2011
* Options vest on 16 December 2011.
# Options vest on 16 November 2012.
The following factors were used in determining the fair value of options on grant date:
2011
NAME
fACTORs UsEd IN dETERMINING fAIR VALUE Of OPTIONs
GRANTED
NUMBER
EXPIRY DATE
FAIR VALUE
PER OPTION
EXERCISE
PRICE
PRICE OF
SHARES ON
GRANT DATE
EXPECTED
VOLATILITY
INTEREST
RATE
L Spencer *
750,000
16 Dec 2016
L Spencer #
750,000
16 Dec 2016
J Watkins *
J Watkins #
750,000
16 Dec 2016
750,000
16 Dec 2016
T Mulroney #
300,000
13 Jan 2016
$0.06
$0.06
$0.06
$0.06
$0.32
$2.00
$2.00
$2.00
$2.00
$1.80
$1.09
$1.09
$1.09
$1.09
$1.70
37%
37%
37%
37%
30%
3.24%
3.24%
3.24%
3.24%
5.28%
* Options vest on 16 December 2011.
# Options vest on 16 November 2012.
Expected life in valuing options was two years.
68
Kula Gold limited aCN 126 741 259
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
18 key management personnel disclosures (continued)
(c) Equity instrument disclosures relating to key management personnel (continued)
(i) Options provided as remuneration (continued)
The following options were granted as remuneration to key management personnel (KMP) of the Group during
the year ended 31 December 2010:
2010
NAME
D Frecker
L Spencer
J Watkins
L Rozman
P Bradford
M Stowell
OPTIONs GRANTEd As REMUNERATION TO kMP
GRANTED
NUMBER
GRANT DATE
VESTED
NUMBER
FORFEITED IN
YEAR
EXPIRY DATE
EXERCISE
PRICE
FAIR VALUE
AT GRANT
DATE
100,000
01 Dec 2010
1,126,155
01 Dec 2010
563,078
01 Dec 2010
100,000
01 Dec 2010
100,000
01 Dec 2010
100,000
01 Dec 2010
–
–
–
–
–
–
–
–
–
–
–
–
01 Dec 2015
$1.80
$41,000
01 Dec 2015
$1.80
$349,109
01 Dec 2015
$1.80
$174,555
01 Dec 2015
01 Dec 2015
01 Dec 2015
$1.80
$1.80
$1.80
$41,000
$41,000
$41,000
The following factors were used in determining the fair value of options on grant date:
2010
NAME
D Frecker
L Spencer
J Watkins
L Rozman
P Bradford
M Stowell
fACTORs UsEd IN dETERMINING fAIR VALUE Of OPTIONs
GRANTED
NUMBER
EXPIRY DATE
FAIR VALUE
PER OPTION
EXERCISE
PRICE
PRICE OF
SHARES ON
GRANT DATE
EXPECTED
VOLATILITY
INTEREST
RATE
100,000
01 Dec 2015
1,126,155
01 Dec 2015
563,078
01 Dec 2015
100,000
01 Dec 2015
100,000
01 Dec 2015
100,000
01 Dec 2015
$0.41
$0.31
$0.31
$0.41
$0.41
$0.41
$1.80
$1.80
$1.80
$1.80
$1.80
$1.80
$1.68
$1.68
$1.68
$1.68
$1.68
$1.68
30%
30%
30%
30%
30%
30%
5.33%
5.33%
5.33%
5.33%
5.33%
5.33%
These options carry no voting rights and no rights to dividends.
The assessed fair value at grant date of options granted to key management personnel is allocated equally
over the period from grant date to vesting date, and the amount is included in the remuneration tables above.
Fair values at grant date are determined using a Black-Scholes option pricing model that takes into account
the exercise price, the expected life of the option, the vesting and performance criteria, the impact of dilution,
the non-tradeable nature of the option, the share price at grant date and expected price volatility of the
underlying share, the expected dividend yield and the risk-free interest rate for the expected life of the option.
The expected volatility reflects the assumption that the current volatility during the time of issue is indicative
of further trends, which may not necessarily be the actual outcome. The expected life of the options has
been determined as two years based upon the expected date of the Papua New Guinea Mineral Resource
Authority issuing a mining licence for the Woodlark mining project.
2011 aNNual RepoRt
69
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
18 key management personnel disclosures (continued)
(c) Equity instrument disclosures relating to key management personnel (KMP) (continued)
(ii) Shares provided on exercise of remuneration options
No options were exercised during the period ended 31 December 2011 (2010: Nil).
(iii) Option holdings
The numbers of options over ordinary shares in the Company held during the financial year by each director
of Kula Gold Limited and other key management personnel (KMP) of the Group, including their personally
related parties, are set out below.
2011
NAME
OPTIONs hOLdINGs hELd bY kMP
BALANCE
AT START OF
THE YEAR
GRANTED AS
COMPENSATION
EXERCISED
OTHER
CHANGES*
BALANCE
AT THE END
OF THE YEAR
VESTED AND
EXERCISABLE
UNVESTED
Directors of Kula Gold Limited
D Frecker
100,000
–
L Spencer
1,126,155
1,500,000
J Watkins
563,078
1,500,000
L Rozman
100,000
M Stowell
100,000
Former director
P Bradford †
100,000
Other key management personnel
–
–
–
T Mulroney #
–
300,000
† Resigned 30 June 2011.
# Resigned 31 August 2011.
* Other changes represent options forfeited during the period.
All vested options are exercisable.
–
–
–
–
–
–
–
–
–
–
–
–
(100,000)
(300,000)
100,000
–
100,000
2,626,155
750,000
1,876,155
2,063,078
750,000
1,313,078
100,000
100,000
–
–
–
–
–
–
100,000
100,000
–
–
70
Kula Gold limited aCN 126 741 259
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
18 key management personnel disclosures (continued)
(c) Equity instrument disclosures relating to key management personnel (KMP) (continued)
(iii) Option holdings (continued)
2010
NAME
OPTIONs hOLdINGs hELd bY kMP
BALANCE
AT START OF
THE YEAR#
GRANTED AS
COMPENSATION
EXERCISED
OTHER
CHANGES*
BALANCE
AT END OF
THE YEAR
VESTED AND
EXERCISABLE
UNVESTED
Directors of Kula Gold Limited
D Frecker
L Spencer
J Watkins
L Rozman
P Bradford
M Stowell
Former director
R Perkes
–
740
370
–
–
–
95
100,000
1,126,155
563,078
100,000
100,000
100,000
–
–
–
–
–
–
–
–
–
100,000
(740)
1,126,155
(370)
563,078
–
–
–
100,000
100,000
100,000
(95)
–
–
–
–
–
–
–
–
100,000
1,126,155
563,078
100,000
100,000
100,000
–
# These options were issued prior to the capital re-organisation – refer Note 16(c).
* Other changes represent options cancelled during the period.
(iv) Share holdings
The numbers of shares in the Company held during the financial year by each director of Kula Gold Limited
and other key management personnel of the Group, including their personally related parties, are set out
below. There were no shares granted during the reporting period as compensation.
2011
NAME
ORdINARY shAREs IN ThE COMPANY hELd bY kMP
BALANCE
AT START OF
THE YEAR
GRANTED DURING
REPORTING YEAR AS
COMPENSATION
RECEIVED DURING THE
YEAR ON THE EXERCISE
OF OPTIONS
OTHER CHANGES
DURING THE YEAR*
BALANCE
AT THE END
OF THE YEAR
Directors of Kula Gold Limited
D Frecker
L Spencer
L Rozman
J Watkins
M Stowell
10,000
542,370
359,023
275,600
25,000
Former director
P Bradford †
432,900
† Resigned 30 June 2011.
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10,000
542,370
359,023
14,400
290,000
–
–
25,000
432,900
* Other changes for J Watkins represent shares purchased on market.
2011 aNNual RepoRt
71
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
18 key management personnel disclosures (continued)
(c) Equity instrument disclosures relating to key management personnel (continued)
(iv) Share holdings (continued)
2010
NAME
ORdINARY shAREs IN ThE COMPANY hELd bY kMP
BALANCE
AT START OF
THE YEAR
GRANTED DURING
REPORTING YEAR AS
COMPENSATION
RECEIVED DURING THE
YEAR ON THE EXERCISE
OF OPTIONS
OTHER CHANGES
DURING THE YEAR*
BALANCE
AT THE END
OF THE YEAR
Directors of Kula Gold Limited
D Frecker
L Spencer
L Rozman
J Watkins
P Bradford
M Stowell
Former directors
A Vogel †
R Perkes †
–
463
–
87
285
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10,000
10,000
541,907
542,370
359,023
359,023
275,513
275,600
432,615
432,900
25,000
25,000
–
–
–
–
† Resigned 16 September 2010.
* Other changes for D Frecker and M Stowell represent shares purchased on market.
* Other changes for L Rozman represent shares acquired at the Offer Price under the Offer.
* Other changes for L Spencer, J Watkins and P Bradford represent shares subscribed and adjustments on capital reorganisation refer
Note 16(c).
(d) Loans and other transactions with key management personnel
There were no loans made to directors and other key management personnel during the reporting period
(2010: $nil).
Other transactions with directors and other key management personnel are disclosed in note 22.
72
Kula Gold limited aCN 126 741 259
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
19 Remuneration of auditors
During the year the following fees were paid or payable for services provided by the auditor of the parent
entity, its related practices and non-related audit firms:
(a) PricewaterhouseCoopers Australia
Audit and other assurance services
Statutory audit and review of financial statements
Non-statutory audit and review of financial statements
Other assurance services:
Investigating accountants report and other services relating to IPO
Other assurance services
CONsOLIdATEd
2011
$’000
2010
$’000
120,000
–
–
–
80,000
69,000
491,080
9,496
Total remuneration for audit and other assurance services
120,000
649,576
Taxation services
Tax compliance services
Other tax advice
Total remuneration for taxation services
12,450
40,350
5,000
–
17,450
40,350
Total remuneration of PricewaterhouseCoopers Australia
137,450
689,926
(b) Related practices of PricewaterhouseCoopers Australia
Audit and other assurance services
Statutory audit and review of financial statements
Non-statutory audit and review of financial statements
Total remuneration of audit and other assurance services
Taxation services
Tax compliance services
Total remuneration for taxation services
49,834
–
51,820
50,944
49,834
102,764
5,512
5,512
22,928
22,928
Total remuneration of related practices of PricewaterhouseCoopers Australia
55,346
125,692
2011 aNNual RepoRt
73
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
20 Contingencies
The Group had no contingent assets or liabilities at 31 December 2011 (2010: $nil).
21 Commitments
(a) Lease commitments
Commitments for minimum lease payments in relation
to non-cancellable operating leases are payable as follows:
Within one year
Later than one year but not later than five years
Later than five years
The Group leases office space and a warehouse under non-cancellable
operating leases. On renewal, the terms of the lease are renegotiated.
The Group does not have an option to purchase the leased asset at the
expiry of the lease period.
(b) Service commitments
Commitments for minimum service payments in relation to drilling services,
air charter, barge charter and aerial survey are payable as follows:
Within one year
Later than one year but not later than five years
Later than five years
CONsOLIdATEd
2011
$’000
2010
$’000
192
655
–
847
165
763
–
928
CONsOLIdATEd
2011
$’000
2010
$’000
47
–
–
47
7,359
–
–
7,359
74
Kula Gold limited aCN 126 741 259
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
22 Related party transactions
(a) Subsidiaries
Details of the interest in the subsidiary are set out in note 23.
(b) Key management personnel compensation
Details of key management personnel remuneration are disclosed in note 18 and the remuneration report
section of the directors’ report.
(c) Transactions with other related parties
The following transactions occurred with related parties during the year ending 31 December 2011:
+ Consulting fees paid to Goldkidz Pty Ltd for services of P Bradford as a director of the parent entity
$25,000.
+ Consulting fees paid to Pacific Road Capital Management Pty Ltd for services of L Rozman as a director of
the parent entity $50,000.
+ Fees paid to Pacific Road Capital Management Pty Ltd for facilitation of the 2010 share capital raisings
$121,018.
+ Fees paid to Ashurst Australia (formerly Blake Dawson) for legal fees $12,425.
+ Consulting fees paid to PACT Mining Pty Ltd for the services of T Mulroney $392,399.
The following transactions occurred with related parties during the year ending 31 December 2010:
+ Consulting fees paid to Capala Holdings Limited for services of R Perkes as a director of the parent entity
$31,500.
+ Consulting fees paid to Goldkidz Pty Ltd for services of P Bradford as a director of the parent entity
$39,500.
+ Fees paid/payable to Pacific Road Capital Management Pty Ltd for facilitation of share capital raisings
$344,439.
+ Fees paid/payable to RMB Resources for facilitation of share capital raisings $120,424.
+ Fees paid/payable to Meratus Minerals Limited for facilitation of share capital raisings $13,409.
+ Fees paid/payable to P and V Bradford for facilitation of share capital raisings $2,600.
+ Fees paid to Blake Dawson for legal fees $1,141,591.
2011 aNNual RepoRt
75
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
23 subsidiary
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiary in
accordance with the accounting policy described in note 1(b):
NAME OF ENTITY
COUNTRY OF
INCORPORATION
CLASS OF SHARES
EQUITY HOLDING
Woodlark Mining Limited
Papua New Guinea Ordinary
2011
%
100
2010
%
100
24 Reconciliation of loss after income tax to
net cash outflow from operating activities
Loss for the year
Depreciation and amortisation
Non cash employee benefits expense – share-based payments
Net exchange differences
Change in operating assets and liabilities:
(Increase)/decrease in receivables
(Increase)/decrease in inventories
(Increase)/decrease in deferred tax assets
(Decrease)/increase in trade and other payables
(Decrease)/increase in provision for income taxes payable
Net cash inflow/(outflow) from operating activities
CONsOLIdATEd
2011
$’000
(1,354)
34
411
(448)
145
234
–
131
–
(847)
2010
$’000
(5,058)
11
29
(322)
(789)
(807)
–
2,473
–
(4,463)
76
Kula Gold limited aCN 126 741 259
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
25 Earnings per share
(a) Basic earnings per share
From continuing operations attributable to the ordinary equity
holders of the company
(b) Diluted earnings per share
From continuing operations attributable to the ordinary equity
holders of the company
CONsOLIdATEd
2011
CENTS
2010
CENTS
(1.20)
(6.40)
(1.20)
(6.40)
CONsOLIdATEd
2011
2010
(c) Weighted average number of shares used as the denominator
Weighted average number of ordinary shares used as the
denominator in calculating basic earnings per share
Weighted average number of ordinary shares and potential
ordinary shares used as the denominator in calculating diluted
earnings per share
112,615,523
79,083,830
112,615,523
79,083,830
(d) Information concerning the classification of securities
(i) Options
Options granted to employees under the Kula Gold Limited Option Plan and to non-executive directors are
considered to be potential ordinary shares and have been included in the determination of diluted earnings
per share to the extent to which they are dilutive. The options have not been included in the determination of
basic earnings per share. Details relating to the options are set out in note 26.
2011 aNNual RepoRt
77
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
26 share-based payments
(a) (i) Employee option plan
The Kula Gold Limited Option Plan (Plan) is designed to provide long-term incentives for executives (including
executive directors) and senior employees to deliver long-term shareholder returns. Participation in the Plan is
at the board’s discretion and no individual has a contractual right to participate in the Plan or to receive any
guaranteed benefits.
Options were granted under the Plan for no consideration.
Options granted under the Plan carry no dividend or voting rights.
When exercisable, each option is convertible into one ordinary share.
The exercise price of options is based on market value.
Set out below are summaries of options granted under the Plan:
OPTIONs GRANTEd dURING ThE YEAR
GRANT DATE
EXPIRY DATE
ISSUE PRICE
ASSESSED FAIR
VALUE AT DATE
OF GRANT
NUMBER OF
OPTIONS
GRANTED
2011
NAME
L Spencer
L Spencer
J Watkins
J Watkins
16 Dec 2011
16 Dec 2016
16 Dec 2011
16 Dec 2016
16 Dec 2011
16 Dec 2016
16 Dec 2011
16 Dec 2016
T Mulroney
13 Jan 2011
13 Jan 2016
Other employees
16 Mar 2011
16 Mar 2016
Other employees
14 Apr 2011
16 Mar 2016
$0.06
$0.06
$0.06
$0.06
$0.32
$0.29
$0.43
$45,000
$45,000
$45,000
$45,000
$96,000
$58,000
$51,600
750,000
750,000
750,000
750,000
300,000
200,000
120,000
$385,600
3,620,000
2010
NAME
L Spencer
J Watkins
OPTIONs GRANTEd dURING ThE YEAR
GRANT DATE
EXPIRY DATE
ISSUE PRICE
01 Dec 2010
01 Dec 2015
01 Dec 2010
01 Dec 2015
$0.31
$0.31
ASSESSED FAIR
VALUE AT DATE
OF GRANT
NUMBER OF
OPTIONS
GRANTED
$349,109
1,126,155
$174,555
563,078
$523,664
1,689,233
78
Kula Gold limited aCN 126 741 259
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
26 share-based payments (continued)
(a) (ii) Options for non-executive directors
Pursuant to the decision of the board on 29 September 2010 a total of 400,000 options were granted to
Kula Gold non-executive directors.
Options were granted for no consideration.
Options carry no dividend or voting rights.
When exercisable, each option is convertible into one ordinary share.
The exercise price of options is based on market value. The options will only vest and become exercisable
after either of the following events:
i)
the Company’s Woodlark Island gold project (Project) reaches commercial production as determined by
the pour of the first gold from the Project or,
ii) there is a change of control of the Company.
Set out below are summaries of options granted to non-executive directors:
2011
NAME
NON-ExECUTIVE dIRECTORs’ OPTIONs GRANTEd
GRANT DATE
EXPIRY DATE
ISSUE PRICE
ASSESSED FAIR
VALUE AT DATE
OF GRANT
NUMBER OF
OPTIONS
GRANTED
No options granted
–
–
–
–
–
2010
NAME
D Frecker
L Rozman
P Bradford
M Stowell
NON-ExECUTIVE dIRECTORs’ OPTIONs GRANTEd
GRANT DATE
EXPIRY DATE
ISSUE PRICE
01 Dec 2010
01 Dec 2015
01 Dec 2010
01 Dec 2015
01 Dec 2010
01 Dec 2015
01 Dec 2010
01 Dec 2015
$0.41
$0.41
$0.41
$0.41
ASSESSED FAIR
VALUE AT DATE
OF GRANT
NUMBER OF
OPTIONS
GRANTED
$41,000
$41,000
$41,000
$41,000
$164,000
100,000
100,000
100,000
100,000
400,000
2011 aNNual RepoRt
79
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
26 share-based payments (continued)
(b) Options granted under the Plan
2011
TOTAL NUMbER Of OPTIONs GRANTEd UNdER ThE PLAN
GRANT DATE
EXPIRY DATE
EXERCISE
PRICE
BALANCE AT
START OF
THE YEAR
GRANTED
DURING
THE YEAR
EXERCISED
DURING
THE YEAR
FORFEITED
DURING
THE YEAR
BALANCE
AT END OF
THE YEAR
EXERCISABLE
AT END OF
THE YEAR
NUMBER
NUMBER
NUMBER
NUMBER
NUMBER
NUMBER
01 Dec 2010
01 Dec 2015
$1.80
2,089,233
–
13 Jan 2011
13 Jan 2016
$1.80
16 Mar 2011
16 Mar 2016
$1.80
14 Apr 2011
16 Mar 2016
$1.80
–
–
–
300,000
200,000
120,000
16 Dec 2011
16 Dec 2016
$2.00
– 3,000,000
2,089,233 3,620,000
–
–
–
–
–
–
(100,000) 1,989,233
(300,000)
–
(100,000)
100,000
–
120,000
–
–
–
–
– 3,000,000
1,500,000
(500,000) 5,209,233
1,500,000
Weighted average exercise price
$1.80
$1.97
$1.92
2010
GRANT DATE
EXPIRY DATE
TOTAL NUMbER Of OPTIONs GRANTEd UNdER ThE PLAN
EXERCISE
PRICE
BALANCE AT
START OF
THE YEAR
GRANTED
DURING
THE YEAR
EXERCISED
DURING
THE YEAR
CANCELLED
DURING
THE YEAR
BALANCE
AT END OF
THE YEAR
EXERCISABLE
AT END OF
THE YEAR
NUMBER
NUMBER
NUMBER
NUMBER
NUMBER
NUMBER
03 Apr 2009
07 Dec 2013 US$1,000
09 Dec 2008 07 Dec 2013 US$1,000
09 Dec 2008 29 Jan 2014
US$1,000
95
740
370
–
–
–
01 Dec 2010
01 Dec 2015
$1.80
– 2,089,233
1,205 2,089,233
–
–
–
–
–
(95)
(740)
(370)
–
–
–
– 2,089,233
(1,205) 2,089,233
–
–
–
–
–
Weighted average exercise price
US$1,000
$1.80
$1.80
No options expired during the periods covered by the tables above.
The weighted average remaining contractual life of share options outstanding at the end of the period was
4.5 years (2010: 5 years).
80
Kula Gold limited aCN 126 741 259
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
26 share-based payments (continued)
(b) Options granted under the Plan (continued)
Fair value of options granted
The assessed fair value at grant date of options granted to key management personnel is allocated equally
over the period from grant date to vesting date, and the amount is included in the remuneration tables above.
Fair values at grant date are determined using a Black-Scholes option pricing model that takes into account
the exercise price, the expected life of the option, the vesting and performance criteria, the impact of dilution,
the non-tradeable nature of the option, the share price at grant date and expected price volatility of the
underlying share, the expected dividend yield and the risk-free interest rate for the expected life of the option.
The expected volatility reflects the assumption that the current volatility during the time of issue is indicative
of further trends, which may not necessarily be the actual outcome. The expected life of the options has
been determined as two years based upon the expected date of the Papua New Guinea Mineral Resource
Authority issuing a mining licence for the Woodlark mining project.
Where options are issued to employees of subsidiaries within the Group, the subsidiaries compensate Kula
Gold Limited for the amount recognised as expense in relation to these options.
Model inputs used in determining the fair value of options granted during the year ended 31 December 2011:
fACTORs UsEd IN dETERMINING fAIR VALUE Of OPTIONs
GRANTED
NUMBER
EXPIRY DATE
FAIR
VALUE PER
OPTION
EXERCISE
PRICE
PRICE OF
SHARES ON
GRANT DATE
EXPECTED
VOLATILITY
INTEREST
RATE
2011
NAME
L Spencer *
L Spencer #
J Watkins *
J Watkins #
750,000
16 Dec 2016
750,000
16 Dec 2016
750,000
16 Dec 2016
750,000
16 Dec 2016
T Mulroney #
300,000
13 Jan 2016
Other employees #
200,000
16 Mar 2016
Other employees #
120,000
16 Mar 2016
* Options vest on 16 December 2011.
# Options vest on 16 November 2012.
$0.06
$0.06
$0.06
$0.06
$0.32
$0.29
$0.43
$2.00
$2.00
$2.00
$2.00
$1.80
$1.80
$1.80
$1.09
$1.09
$1.09
$1.09
$1.70
$1.65
$1.86
37%
37%
37%
37%
30%
30%
30%
3.24%
3.24%
3.24%
3.24%
5.28%
5.10%
5.36%
Options were granted for no consideration and vest based on terms detailed in the Kula Gold Limited Option
Plan. Options vest on 16 November 2012 except for the options granted to Lee Spencer and John Watkins
which vested on 16 December 2011.
2011 aNNual RepoRt
81
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
26 share-based payments (continued)
(b) Options granted under the Plan (continued)
The following factors were used in determining the fair value of options granted during the year ended 31
December 2010:
2010
NAME
fACTORs UsEd IN dETERMINING fAIR VALUE Of OPTIONs
GRANTED
NUMBER
EXPIRY DATE
FAIR
VALUE PER
OPTION
EXERCISE
PRICE
PRICE OF
SHARES ON
GRANT DATE
EXPECTED
VOLATILITY
INTEREST
RATE
Executive directors
1,689,233
01 Dec 2015
Non-executive directors
400,000
01 Dec 2015
$0.31
$0.41
$1.80
$1.80
$1.68
$1.68
30%
30%
5.33%
5.33%
Options were granted to executive directors for no consideration and vest based on terms detailed in the Kula
Gold Limited Option Plan. These options will vest on 16 November 2012.
Options granted to non-executive directors will only vest and become exercisable after either of the following
events:
i)
the Company’s Woodlark island gold project (Project) reaches commercial production, which is assumed
to be on 31 December 2013, as determined by the pour of the first gold from the project or,
ii) there is a change of control of the Company.
(c) Expenses arising from share-based payment transactions
Options issued under Kula Gold Limited Option Plan
CONsOLIdATEd
2011
$’000
471
471
2010
$’000
29
29
82
Kula Gold limited aCN 126 741 259
Notes to the consolidated
financial statements (continued)
For the year ended 31 December 2011
27 Parent entity financial information
(a) Summary financial information
The individual financial statements for the parent entity show the following aggregate amounts:
Balance sheet
Current assets
Total assets
Current liabilities
Total liabilities
Net Assets
Shareholders’ equity
Contributed equity
Share-based payment reserve
Accumulated losses
Total equity
Profit/(Loss) for the year
Total comprehensive profit/(loss)
PARENT ENTITY
2011
$’000
2010
$’000
20,023
134,280
57,656
129,680
3,771
3,829
506
506
130,451
129,174
134,792
134,792
(388)
(3,953)
(859)
(4,759)
130,451
129,174
806
806
(3,773)
(3,773)
(b) Guarantees entered into by the parent entity
The parent entity has provided an unconditional bank guarantee to the lessor of Suite 2, Level 15,
1 York Street, Sydney in respect of a lease agreement which amounts to $107,286 (2010: $107,286).
(c) Contingent liabilities of the parent entity
The parent entity did not have any contingent liabilities as at 31 December 2011 (31 December 2010: $nil).
For information about guarantees given by the parent entity, please see above.
(d) Contractual commitments for the acquisition of property, plant or equipment
The parent entity had no contractual commitments for the acquisition of property, plant and equipment as at
31 December 2011 (31 December 2010: $nil).
2011 aNNual RepoRt
83
directors’ declaration
31 December 2011
In the directors’ opinion:
(a) the financial statements and notes set out on pages 36 to 83 are in accordance with the Corporations Act 2001,
including:
(i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional
reporting requirements, and
(ii) giving a true and fair view of the consolidated entity’s financial position as at 31 December 2011 and its
performance for the financial year ended on that date, and
(b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they
become due and payable.
Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued
by the International Accounting Standards Board.
The directors have been given the declarations by the chief executive officer and chief financial officer required
by section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the directors.
David Frecker
Chairman
Sydney
27 March 2012
Lee Spencer
Director
84
Kula Gold limited aCN 126 741 259
independent auditor’s report to
the members of Kula Gold limited
31 December 2011
Independent auditor’s report to the members of
Kula Gold Limited
Report on the financial report
We have audited the accompanying financial report of Kula Gold Limited (the company), which
comprises the statement of financial position as at 31 December 2011, and the statement of
comprehensive income, statement of changes in equity and statement of cash flows for the year ended
on that date, a summary of significant accounting policies, other explanatory notes and the directors’
declaration for the Kula Gold Limited group (the consolidated entity). The consolidated entity
comprises the company and the entities it controlled at the year's end or from time to time during the
financial year.
Directors’ responsibility for the financial report
The directors of the company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the
directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial
Statements, that the financial statements comply with International Financial Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted
our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we
comply with relevant ethical requirements relating to audit engagements and plan and perform the
audit to obtain reasonable assurance whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial report. The procedures selected depend on the auditor’s judgement, including the
assessment of the risks of material misstatement of the financial report, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the financial report in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by the directors, as well as
evaluating the overall presentation of the financial report.
Our procedures include reading the other information in the Annual Report to determine whether it
contains any material inconsistencies with the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinions.
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations
Act 2001.
PricewaterhouseCoopers, ABN 52 780 433 757
Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171
DX 77 Sydney, Australia
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
2011 aNNual RepoRt
85
independent auditor’s report to
the members of Kula Gold limited (continued)
31 December 2011
Auditor’s opinion
In our opinion:
(a)
the financial report of Kula Gold Limited is in accordance with the Corporations Act 2001,
including:
(i)
(ii)
giving a true and fair view of the consolidated entity’s financial position as at 31
December 2011 and of its performance for the year ended on that date; and
complying with Australian Accounting Standards (including the Australian
Accounting Interpretations) and the Corporations Regulations 2001; and
(b)
the financial report and notes also comply with International Financial Reporting Standards
as disclosed in Note 1.
Report on the Remuneration Report
We have audited the remuneration report included in pages 17 to 24 of the directors’ report for the
year ended 31 December 2011. 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.
Auditor’s opinion
In our opinion, the remuneration report of Kula Gold Limited for the year ended 31 December 2011,
complies with section 300A of the Corporations Act 2001.
PricewaterhouseCoopers
Peter Buchholz
Partner
Sydney
27 March 2012
86
Kula Gold limited aCN 126 741 259
Shareholder information
31 December 2011
Additional information required by the Australian Securities Exchange Limited and not shown elsewhere in the
report is as follows:
In accordance with ASX listing rule 4.10.19 the Company confirms that it has used the cash and assets in a
form readily convertible to cash that it had at the time of admission to the ASX in a way consistent with its
business objectives.
The shareholder information set out below was applicable as at 23 March 2012.
Ordinary share capital
As at 23 March 2012, the issued capital comprised of 92,200,707 ordinary fully paid quoted shares and
20,414,816 ordinary fully paid unquoted shares. The unquoted shares are held by five holders.
Distribution of equity securities
Analysis of numbers of equity security holders by size of holding:
HOLDING
1 to1,000
1,001 to 5000
5,001 to 10,000
10,001 to 100,000
100,000 and over
Ordinary shares
Options
NUMBER OF
HOLDERS
66
155
96
115
39
471
NUMBER OF
SHARES
42,389
423,718
755,667
3,311,001
108,082,748
112,615,523
NUMBER OF
HOLDERS
–
–
–
6
2
8
NUMBER OF
OPTIONS
–
–
–
520,000
4,689,233
5,209,233
There were 18 holders of less than a marketable parcel of shares.
Restricted securities
The Company has the following number and class of restricted securities on issue.
Restricted securites on issue
CLASS
NUMBER OF ORDINARY
SHARES
DATE ESCROW
PERIOD ENDS
Mandatory restricted securities – Fully paid ordinary shares
Voluntary escrowed securities – Fully paid ordinary shares
20,414,816
25,534,039
16 Nov 12
16 Nov 12
Unquoted options
a) Employee option plan – there are 4,909,233 unquoted options on issue held by 5 employees or contractors.
Employee option plan unquoted options
OPTION HOLDER
Mr LK & AS Spencer
JDW Investments Australia Pty Ltd
NUMBER OF OPTIONS
PERCENTAGE
2,626,155
2,063,078
4,689,233
50.41
39.60
90.01
2011 aNNual RepoRt
87
Shareholder information (continued)
31 December 2011
Unquoted options (continued)
b) Other unlisted options
OPTION HOLDER
NUMBER OF OPTIONS
PERCENTAGE
Non-executive directors’ unquoted options
DC Frecker & JM Frecker ATF The GEO Superannuation Fund
Pacific Road Capital Management Holdings Pty Ltd
Merchant Holdings Pty Ltd ATF The Zulu Family Trust
100,000
100,000
100,000
300,000
33.33
33.33
33.33
100.00
Twenty largest holders of issued equity securities
Ordinary shares
No
SHAREHOLDER
1
2
Pacific Road Holdings NV
RMB Resources Limited
3 National Nominees Limited
4 HSBC Custody Nominees (Australia) Limited
5
6
7
JP Morgan Nominees Australia Limited
Pacific Road Capital B Pty Ltd
Pacific Road Capital A Pty Ltd
8 Credit Suisse Securities (Europe) Ltd
9 Citicorp Nominees Pty Ltd
10
11
12
UBS Nominees Pty Ltd
AMP Life Limited
Escor Investments Pty Ltd
13 Mr GN & JD Mantle
14 Mr SA Zychewicz
15 Mr LK & AS Spencer
16 Cogent Nominees Pty Ltd
17 Mr PJ & VA Bradford
18 Mr CE Watson
19 Merrill Lynch (Australia) Nominees Pty Limited
20
JDW Investments Australia Pty Ltd
NUMBER
HELD
PERCENTAGE OF
ISSUED SHARES
39,156,661
16,663,253
13,288,078
9,951,311
5,069,926
4,850,936
4,850,936
1,760,000
1,536,923
1,351,629
1,187,575
800,000
695,593
605,000
542,370
449,355
432,900
408,636
396,822
310,000
34.77
14.80
11.80
8.84
4.50
4.31
4.31
1.56
1.36
1.20
1.05
0.71
0.62
0.54
0.48
0.40
0.38
0.36
0.35
0.28
104,307,904
92.62
88
Kula Gold limited aCN 126 741 259
Shareholder information (continued)
31 December 2011
Twenty largest holders of quoted equity securities
Ordinary shares
No
SHAREHOLDER
1
2
Pacific Road Holdings NV
RMB Resources Limited
3 National Nominees Limited
4 HSBC Custody Nominees (Australia) Limited
5
6
7
JP Morgan Nominees Australia Limited
Pacific Road Capital B Pty Ltd
Pacific Road Capital A Pty Ltd
8 Credit Suisse Securities (Europe) Ltd
9 Citicorp Nominees Pty Ltd
10
11
12
UBS Nominees Pty Ltd
AMP Life Limited
Escor Investments Pty Ltd
13 Mr GN & JD Mantle
14 Mr SA Zychewicz
15 Cogent Nominees Pty Ltd
16 Mr CE Watson
17 Merrill Lynch (Australia) Nominees Pty Limited
18
Baystreet Pty Ltd
19 Mr PJ & VA Bradford
20
Pacific Road Provident Pty Ltd
NUMBER
HELD
PERCENTAGE OF
QUOTED SHARES
19,406,573
16,663,253
13,288,078
9,951,311
5,069,926
4,850,936
4,850,936
1,760,000
1,536,923
1,351,629
1,187,575
800,000
695,593
605,000
449,355
408,636
396,822
300,000
299,392
277,778
21.05
18.07
14.41
10.79
5.50
5.26
5.26
1.91
1.67
1.47
1.29
0.87
0.75
0.66
0.49
0.44
0.43
0.33
0.32
0.30
84,149,716
91.27
2011 aNNual RepoRt
89
Shareholder information (continued)
31 December 2011
Unquoted ordinary shares
Unquoted ordinary shares
SHAREHOLDER
Pacific Road Holdings NV
Other holders of unquoted shares
substantial shareholders
NAME OF SUBSTANTIAL SHAREHOLDER
Pacific Road Holdings NV
RMB Resource Limited
NUMBER OF
SHARES HELD
PERCENTAGE OF
UNQUOTED SHARES
19,750,088
664,728
20,414,816
96.74
3.26
100.00
substantial shareholders
NUMBER OF
SHARES HELD
PERCENTAGE OF
ISSUED SHARES
Westpac Banking Corporate (& its related bodies corporate)
Franklin Resources, Inc
National Australia Bank Limited
48,859,833
16,663,253
8,667,043
8,005,000
5,860,185
88,055,314
43.39
14.80
7.70
7.11
6.36
79.36
Voting rights
The voting rights attaching to each class of equity securities are set out below:
(a) Ordinary shares – 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.
(b) Options – no voting rights.
interest in mining tenements
Current interest in tenements held by Kula Gold Limited and its subsidiaries as at 27 March 2012 are
listed below:
COUNTRY/LOCATION
TENEMENT
INTEREST
Mining tenements held
Papua New Guinea/Woodlark Island
Papua New Guinea/Woodlark Island
Papua New Guinea/Woodlark Island
EL 1172
EL 1279
EL 1465
100%
100%
100%
90
Kula Gold limited aCN 126 741 259
fORWARd LOOkING sTATEMENTs
All statements other than statements of historical fact included in this report including, without limitation, statements
regarding future plans and objectives of Kula Gold Limited (Kula Gold) are forward-looking statements. When used in
this report, forward-looking statements can be identified by words such as ‘may’, ‘could’, ‘believes’, ‘estimates’, ‘targets’,
‘expects’ or ‘intends’ and other similar words that involve risks and uncertainties.
These statements are based on an assessment of present economic and operating conditions, and on a number
of assumptions regarding future events and actions that, as at the date of this report, are expected to take place.
Such forward-looking statements are not guarantees of future performance and involve known and unknown risks,
uncertainties, assumptions and other important factors, many of which are beyond the control of the company, its
directors and management of Kula Gold that could cause Kula Gold’s actual results to differ materially from the results
expressed or anticipated in these statements.
The company cannot and does not give any assurance that the results, performance or achievements expressed or
implied by the forward-looking statements contained in this report will actually occur and investors are cautioned not to
place undue reliance on these forward-looking statements. Kula Gold does not undertake to update or revise forward-
looking statements, or to publish prospective financial information in the future, regardless of whether new information,
future events or any other factors affect the information contained in this report, except where required by applicable
law and stock exchange listing requirements.
COMPETENT PERsONs sTATEMENTs
The information in this report that relates to Exploration Results is based on information compiled by Lee Spencer.
Lee Spencer is the chief executive officer of Kula Gold Limited. Mr. Spencer is a Member of the Australasian Institute of
Mining and Metallurgy and has sufficient experience which is relevant to the style of mineralisation and type of deposit
under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the
2004 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’.
Mr. Spencer consents to the inclusion in the report of these matters based on information in the form and context in
which it appears.
The information in this report that relates to the Mineral Resource estimates for Kulumadau, Busai and Boniavat is based
on information compiled by Mr. John Doepel, Principal Geologist for Continental Resource Management Pty Limited
(CRM) (Resource Report, Woodlark Island). CRM has acted as independent consulting geologist to Woodlark Mining
Limited since 2005 and has undertaken several visits to the island and to the sample preparation facilities. Mr. Doepel
is a Member of The Australasian Institute of Mining and Metallurgy and has sufficient experience which is relevant to
the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify
as a Competent Person as defined in the 2004 Edition of the ‘Australasian Code for Reporting of Exploration Results,
Mineral Resources and Ore Reserves’. Mr. Doepel consents to the inclusion in this report of these matters based on
information in the form and context in which it appears.
The information in this report that relates to Ore Reserves based on information compiled by Mr. Linton Putland,
Principal of LJ Putland & Associates and a consultant to Woodlark Mining Limited. Mr. Putland is a Member of The
Australasian Institute of Mining and Metallurgy and has sufficient experience that is relevant to the style of mineralisation
and type of deposit under consideration and to the activity for which he is undertaking to qualify as a Competent
Person as defined in the 2004 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources
and Ore Reserves’. Mr. Putland consents to the inclusion in this report of these matters based on information in the form
and context in which it appears.
2011 aNNual RepoRt
91
SUITE 2, LEVEL 15
1 YORK STREET SYDNEY NSW 2000
T: +61 2 9262 5651
F: +61 2 9262 5680
www.kulagold.com.au