KULA GOLD LIMITED
ABN 83 126 741 259
2013 ANNUAL REPORT
Kula Gold Limited ABN 83 126 741 259
2013 Annual Report
Corporate Directory
Directors:
David Frecker
Chairman
Louis Rozman
Non-executive director
Lee Spencer
Managing director and chief executive officer (resigned
1 July 2013), non-executive director (from 2 July 2013)
Mark Stowell
Non-executive director
John Watkins
Executive director and chief financial officer (resigned
1 July 2013), non-executive director from 2 July 2013,
(resigned 19 July 2013)
Chief executive officer
Stuart Pether
(appointed 2 July 2013)
Company secretary:
Leanne Ralph
Registered office:
Suite 2, Level 15, 1 York Street
Auditor:
Share registry:
Sydney, NSW 2000
T: + 61 2 9262 5651
F: + 61 2 9262 5680
Email: info@kulagold.com.au
Website: www.kulagold.com.au
Ernst & Young
Ernst & Young Centre
680 George Street
Sydney, NSW 2000
Telephone: +61 2 9248 5555
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
2
Kula Gold Limited ABN 83 126 741 259
2013 Annual Report
Contents
Chairman’s letter
Chief executive officer’s report
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
Mineral resources and ore reserves
Page
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3
Chairman’s letter
Kula Gold Limited
Chairman’s letter
31 December 2013
The focus of your Company's activities during 2013 continued to be the Woodlark Island Gold Project and the permitting process
for it in Papua New Guinea. A major milestone was receipt of environmental approval in principle in November 2013, followed
by the grant of the Environment Permit for the Project in February 2014. This process was successfully managed by Stuart
Pether, who joined the Company as Chief Operating Officer in February 2013.
The Company expected the grant of the Mining Lease for the Project to follow closely upon receipt of the environmental approval
and permit. The Mining Lease Application is currently undergoing final consideration by the PNG Mineral Resources Authority
(MRA) and Mining Advisory Council (the inter-departmental body which advises the Minister for Mining on the grant of all mining
tenements).
Since the completion of the Feasibility Study for the Project in October 2012, and the Company's submission of its Mining Lease
Application and Proposal for Development to the MRA, there has been a significant change in the US dollar gold price from the
2012 levels of US$1,550 to US$1,800 per ounce to a low of around US$1,200 per ounce in late 2013. In 2014, the US dollar
gold price has recovered somewhat from the low point reached in 2013.
The Company has assessed the Ore Reserves of the Woodlark Island Gold Project (under the 2004 JORC guidelines) to be
10.99 million tonnes at 2.2g/t Au for 766,000 contained ounces of gold, based on a gold price of US$1,200 per ounce. At current
gold prices in excess of that price, the Feasibility Study for the Project shows that it is economically viable with acceptable
returns. If the gold price increases, the Project returns will improve significantly.
There were a number of changes in the corporate management team of the Company during the year. In July 2013, the Board
appointed Stuart Pether as Chief Executive Officer in place of Lee Spencer, who has continued to serve the Company as a
non-executive director. At the same time, John Watkins stepped down as Chief Financial Officer and, after a short period as a
non-executive director, elected to leave the Company in order to take up an executive position elsewhere. The Board thanks
both Lee Spencer and John Watkins for their contributions to the Company in executive roles during its formative years, and is
pleased to have continuing access to Lee's geological knowledge and experience in his role as a director.
Stuart Pether, being a mining engineer with a background in mine construction and development, is providing very good
leadership of the Company as its Project moves towards development.
On Woodlark Island, the Company continues to provide employment opportunities for local people. Through its health clinic at
Bomagai, it also provides an important service to the local people which they would not otherwise have. Over the year, the clinic
(which is staffed and funded solely by the Company) saw an average of about 400 patients each month. The local people
continue to demonstrate strong support for the Company and its Project. The Company looks forward to the benefit-sharing
arrangements between the local people in the mining area, the local-level government on Woodlark Island, the Milne Bay
Provincial Government and the National Government being concluded. The process to conclude a Memorandum of Agreement
is well underway, and will build on the Compensation Agreement and Relocation Agreement with the local people which are
already in place with the Company.
The Company thanks the people of Woodlark Island, the Milne Bay Provincial Government, the MRA and the Minister for Mining,
the Honourable Byron Chan MP, for their ongoing support.
The Board has appreciated the support which the Company has received from a number of its major shareholders, through
difficult times, and acknowledges that its shareholder base has increased through a significant number of retail investors buying
shares on market. We hope to deliver better results for all shareholders in the future.
The Board also records its appreciation of the dedicated service of its employees, both in Australia and in Papua New Guinea.
David Frecker
Chairman
4
Kula Gold Limited
Chief Executive Officer’s report
31 December 2013
Chief Executive Officer’s report
Overview
The year ending 31 December 2013 has been a year of consolidation and confirmation for Kula Gold and the Woodlark Island
Gold Project (Project). A number of key milestones have been achieved. These milestones and activities prove our
commitment towards the development of an operating gold mine on Woodlark Island in the near future.
Following are the key milestones and activities completed during the year:
•
•
•
•
•
•
•
•
The Department of Environment and Conservation completed the assessment of the Environmental Impact Statement.
The assessment involved an independent technical review, a public consultation process, a presentation to the PNG
Environment Council and a final recommendation by the Environment Council to the Environment Minister to grant the
Environment Permit. This process confirms the environmental credentials of the Project.
The Mining Lease Application progressed significantly with the PNG Mineral Resources Authority, starting with the
successful completion of the Warden hearing for the Mining Lease at Woodlark Island, a detailed review of the Project
by the PNG State team, the calling of the community consultative workshop and the final review of the Mining Lease
Application by the Mining Advisory Council.
The Company received further funding through a working capital facility of A$3 million with RMB Resources, with the
funds being provided by supportive major shareholders.
Changes to the senior management team, reflecting the Company’s transition from an explorer to an emerging gold
developer and the new focus on permitting, construction and future operations, along with implementation of a number
of cost control measures to conserve the Company’s cash position during the permitting process.
The completion of works to improve the projected Feasibility Study returns, through the development of a new mining
schedule which reduced mining costs by US$10 million over the first three years of operation.
The completion of a Scoping Study identifying the benefits of an upgrade in process plant capacity from 1.8Mtpa to
4Mtpa and the targeting of Resource growth opportunities.
Confirmation of 2004 JORC Ore Reserves at US$1,200 per ounce gold price at 10.991 million tonnes at 2.2g/t Au for
766,000 contained ounces of gold at 1.0g/t gold lower cut off.
Since the end of 2013, the Company has received the grant of the Environment Permit for the Project.
Corporate
A number of cost control measures were implemented to conserve cash during the permitting process. Personnel numbers
were reduced at a corporate and Project level. Work activities within the Company were focused on achieving the Project
approvals, improving the Project’s Net Present Value and maintaining the Project’s infrastructure and assets.
The Company completed a working capital facility of A$3 million at the end of 2013 arranged by RMB Resources. The Lenders
were Kula Gold's major shareholders, RMB Australia Holdings Limited and the Pacific Road Resources Funds.
5
Kula Gold Limited
Chief Executive Officer’s report
31 December 2013
Chief Executive Officer’s report (continued)
Mineral Resources
Mineral Resources for the Project remained unchanged from 2012. The current JORC 2004 Mineral Resources are 45.1 million
tonnes at 1.5g/t Au for 2.12 million ounces of gold at a 0.5g/t Au lower cut off. See Table 1.
Table 1: JORC 2004 Mineral Resources for the Woodlark Island Gold Project at a 0.5 g/t gold lower cut off
Deposit
Category
Resource
(Mt)
Grade
(g/t Au)
Kulumadau
Kulumadau
Kulumadau
Kulumadau
Busai
Busai
Busai
Busai
Boniavat
Boniavat
Boniavat
All
All
All
Totals*
Measured
Indicated
Inferred
Totals
Measured
Indicated
Inferred
Total
Indicated
Inferred
Total
Measured
Indicated
Inferred
Totals may appear incorrect due to rounding
5.0
4.4
8.6
18.0
3.9
10.4
8.8
23.1
3.0
1.0
4.0
8.9
17.8
18.5
45.1
1.78
1.75
1.4
1.6
1.54
1.4
1.3
1.4
1.2
1.8
1.4
1.67
1.5
1.4
1.5
Gold
(Ounces)
285,000
245,000
375,000
910,000
190,000
480,000
370,000
1,040,000
115,000
60,000
175,000
480,000
840,000
800,000
2,120,000
Note 1: The Busai Indicated Resource includes 0.4 million tonnes @ 1.4g/t Au for 20,000 ounces of gold from overlying alluvial
mineralisation.
Note 2: The Busai Inferred Resource includes 0.4 million tonnes @ 1.2g/t Au for 15,000 ounces of gold from overlying alluvial
mineralisation and 3.9 million tonnes @ 0.9g/t Au for 110,000 ounces of gold from Munasi (2km southeast of Busai).
Note 3: The Boniavat Inferred Resource includes 0.3 million tonnes @ 3.0g/t Au for 30,000 ounces of gold from Watou (1.5km south of
Woodlark King).
6
Kula Gold Limited
Chief Executive Officer’s report
31 December 2013
Chief Executive Officer’s report (continued)
Feasibility Study
The Project Ore Reserves were determined at a US$1,200 per ounce gold price and remain unchanged from 2012. The JORC
2004 Ore Reserves are 10.991 million tonnes at a grade of 2.2g/t Au for 766,000 contained ounces at a 1.0g/t gold lower cut off.
See Table 2 below.
Table 2: JORC 2004 Ore Reserves for the Woodlark Island Gold Project at a 1.0g/t gold lower cut off
Deposit
Proved
Probable
Total
Tonnes Grade Ounces
Tonnes Grade Ounces
Tonnes
Grade
Ounces
Busai (000’s)
Kulumadau (000’s)
Woodlark King (000’s)
Kulumadau East (000,s)
3,283
3,144
2.2
2.2
233
223
2,811
751
704
330
Total
6,427
2.2
456
4,596
Note: Totals may appear incorrect due to rounding
1.9
2.4
1.7
3.7
2.1
175
59
39
37
6,094
3,863
704
330
310
10,991
2.1
2.3
1.7
3.7
2.2
408
282
39
37
766
The table 3 below shows the change of key Project financial parameters to the US dollar gold price.
Table 3: Project Financial Summary at Range of US Dollar Gold Prices
Gold Price
US$1,400 per ounce
Gold Price
US$1,600 per ounce
Pre-tax NPV @ 7%* (millions)
US$133
US$237
Pre-tax IRR
23%
34%
Post-tax NPV @ 7% (millions)
US$110
US$194
Post-tax IRR
22%
31%
Payback
3.2 years
2.6 years
The table also shows the significant upside to gold price, which exists in the Project.
7
Kula Gold Limited
Chief Executive Officer’s report
31 December 2013
Chief Executive Officer’s report (continued)
Feasibility Study and Project Improvement Opportunities
The Feasibility Study was reviewed for areas that could improve the Project value. A number of areas were identified to improve
value and include; a review of staged pit designs and mining schedule, the construction delivery methodology and opportunities
for secondhand or leased equipment.
A review of the staged pit designs and mining schedule was completed and showed a reduction in mining costs of US$10 million
during the first 3 years of the Project could be achieved.
A number of discussions were held with engineering and manufacturing companies regarding opportunities to reduce
construction costs. Whilst areas for construction cost reductions were identified, due to the uncertainty of the construction time
frame these were not progressed.
A Scoping Study was completed by Lycopodium Minerals which assessed the possibility of an increase in process plant capacity
from 1.8Mtpa to 4Mtpa and the use of a larger mining fleet. The study used key input parameters from the Feasibility Study,
along with Lycopodium Mineral’s recent construction cost experience and Woodlark Island specific requirements, to determine
capital and operating cost estimates for the upgraded scenario. The work considered all of the Measured, Indicated and
Inferred Resources in estimating a mining inventory, a new mining and processing schedule, costs and potential value. The
study estimated the capital costs of the 4Mtpa scenario to be in the range of US$240 to US$260 million, an all in sustaining cost
in the range of US$875 to US$925 per ounce and, based on a US$1,400 per ounce gold price, an after tax NPV in the range of
US$150M to US$170M. The study estimated gold production between 180k and 220k ounces of gold per annum and a 4.5
year Project life.
The work identified the potential increase in Project value that could be delivered through an increase in Project capacity and the
opportunity for a staged expansion from the 1.8Mtpa Feasibility Study to a 4Mtpa scenario.
The work refocused the identification of Resource expansion and regional exploration targets which could deliver significant
Resource growth. Three major areas for Resource growth were identified:
•
•
•
Resource Conversion. These opportunities are contained within the geological models of the known deposits. Increased
drilling density is required to improve the confidence of Inferred Resource to the Indicated and Measured Resource
categories, to allow their use in the determining Reserves.
Resource Expansion. These opportunities are developed from advanced exploration models, additional geophysical
surveys and limited resource definition drilling results.
Resource Discovery. These opportunities have been developed by the use of a combination of vectoring indicators of
structural analysis, aeromagnetic surveys and gold panning concentrate analysis.
The 2014 Project budget has indicated a range of work programs to further these opportunities. The implementation of the
programs will be dependent on funding.
Environmental Impact Statement
The Environmental Impact Statement was completed by Coffey with the aid of a number of independent consultants and was
submitted to the Department of Environment and Conservation in January 2013.
The Department of Environment and Conservation completed the assessment of the Project Environmental Impact Statement
during the year. The assessment involved an independent technical review, a public consultation process, a presentation to the
PNG Environment Council and in November a final recommendation by the Council to the Environment Minister to grant the
Project Environment Permit.
The technical review was completed by BMT WBM Pty Ltd, a marine and environmental consultancy company, and included a
site visit, auditing and reviewing of designs and modelling assumptions used in the Project and the recommendation of permit
conditions for the Project. The public consultation process involved a number of community meetings on Woodlark Island and
mainland PNG. The Environmental Impact Statement document was made available for comment and review by the public and
number of PNG and Australian institutions and authorities. All public comments were reviewed by the independent expert and
considered in the technical review and permit conditions. The PNG Environment Council, an independent group of PNG
professionals, reviewed the final assessment of the Environmental Impact Statement and permit conditions. Based upon this
assessment, a recommendation was made to the Environment Minister to grant the Project Environment Permit.
In February 2014, the Company received the Environment Permit for the Project, which is a significant milestone. The
assessment of the Environmental Impact Statement and the grant of the Environment Permit is a strong confirmation of the
quality of the Project’s environmental credentials.
8
Kula Gold Limited
Chief Executive Officer’s report
31 December 2013
Chief Executive Officer’s report (continued)
Mining Lease Application
The Feasibility Study, together with an application for the Mining Lease and the Proposal for Development, were submitted to the
PNG Mineral Resources Authority on 30 October 2012. The submission of the Mining Lease Application commenced a
number of processes by the Mineral Resources Authority which were completed during the year. These included the wardens
hearing for the Mining Lease, a review of the Project by a PNG State team, the community consultative workshop and final review
of the Mining Lease Application by the Mining Advisory Council.
The Mining Lease Application was initiated in early 2013 with a successful onsite wardens hearing. A site visit was conducted
by the PNG State team which included representatives from State Solicitors Office, Treasury, Mineral Resource Authority,
Department of Environment and Conservation and the Department of Labour and Commerce. This multi-faceted team held a
series of public and landowner meetings on Woodlark Island to inform the landowners about the Mining Lease Application and
the Government approval processes and to familiarise the departments with Woodlark Island, the community and the Project.
Figure 1 – State Team Visit to Woodlark Island
A business training workshop was held on Woodlark Island to inform and train the traditional landowners about operating small
businesses and their roles in the planned community consultative workshop. The figure 2 below shows Woodlark Island
landowners receiving their business training certificates from the Mineral Resource Authority training program.
Figure 2 – Mineral Resource Authority Training Workshop.
9
Kula Gold Limited
Chief Executive Officer’s report
31 December 2013
Chief Executive Officer’s report (continued)
Mining Lease Application (continued)
The community consultative workshop was held in Alotau, Milne Bay Province, PNG late in 2013. The workshop was opened by
the Minister for Mining and attended by the Governor for Milne Bay, senior executives from the Mineral Resource Authority and
the Milne Bay Provincial Government, Woodlark Island landowners and a number of interested parties.
The workshop laid out the key components of the Memorandum of Agreement to all stakeholders and a road map towards the
finalisation of the Memorandum of Agreement in 2014. The Memorandum of Agreement defines the sharing of benefits and
commitments for the Project to the Project stakeholders.
The Mining Advisory Council reviewed the Mining Lease Application in December and deferred their final decision on the
application, subject to the Company providing additional information on the status of the Environment Permit and the business
case for the Project on current gold prices.
Since the completion of the 2013 year, the Company has progressed discussions with stakeholders on the Memorandum of
Agreement and provided additional information to the Mining Advisory Council regarding the grant of the Environment Permit and
the Project economics at a gold price in the US$1,300 per ounce range. The Mineral Resource Authority have since engaged
an independent expert to advise on the Project business case.
State Equity
In 2012, the Company was informed by the Minister for Mining that the State owned company, Petromin PNG Holdings Limited,
was nominated as the State's nominee to assess the States options to acquire up to a 30% equity participation in the Project.
Petromin signed a confidentiality agreement and commenced a review of the Feasibility Study to determine if the State should
elects to exercise its option.
During the year the Company assisted Petromin and the PNG Treasury in completing their internal reviews on the Project.
Treasury made a recommendation to the PNG National Executive Council late in the year. The Company is still waiting on
notification from the State of its decision.
Project Financing
Discussions on financing were progressed towards the end of 2012 with several banks expressing interest to provide Project
financing. During the year the Company provided details of its Feasibility Study to a group of selected financial institutions with
strong credentials in both financing gold projects and lending into PNG. The Company received very positive responses and
prepared a consensus term sheet with the shortlisted group of banks and financial institutions. Indications are that between
50% and 70% of the Project development costs can be financed by debt, with the final level dependent on detailed due diligence,
the gold price and the extent to which gold hedging is undertaken.
Site Operations
No serious or lost time injury was record at the Project during the year. Work activities at the Woodlark Island Gold Project were
focused on achieving the Project approvals and maintaining the Project infrastructure and assets.
Surveying of the associated tenements required for the Project’s infrastructure commenced. These tenements include Leases for
Mining Purposes (LMP’s), which cover proposed waste storage areas and other infrastructure and Mining Easements (ME’s)
which cover road and pipeline routes.
A surface trenching program was completed to confirm the interpretation of the near surface mineralisation within the Busai
deposit. A total of 13 trenches were excavated across the deposit and these were sampled and mapped on one metre intervals.
The results from the program confirmed the interpretation of the mineralization within the Resource models.
No exploration drilling occurred and the drilling contractor was demobilised from site.
10
Kula Gold Limited
Chief Executive Officer’s report
31 December 2013
Chief Executive Officer’s report (continued)
Health, Safety and the Community
The Company continues to conduct safety inductions, weekly tool box meetings, incident reporting and train local Woodlark
Islanders in safety procedures and regulations.
The Company manages community and social issues through its community relations department on the island which continues
to maintain excellent relations with the local communities. Key areas of activities with the local communities include:
•
Health: The Company continued to operate the Bomagai clinic under the supervision of a health extension officer and
provides services to Company employees, their extended families and the community. During the year an emergency
case required the air evacuation of a community member to the Alotau Base Hospital, which was supported by the
Company. The Company aided ‘Rotary Against Malaria’ to distribute nets across the island.
• Employment: The Company continued to employ personnel from the local communities and where possible provide a fair
and reasonable spread of employment opportunities across the whole of the island.
•
Training: The Company continued training programs for employees and landowners during the course of the year.
Thanks must be given to the Woodlark Island communities and all levels of local, provincial and national government in Papua
New Guinea for the support they have given to the Company and the Project during the year. A special thanks must go to our
enthusiastic team of employees and consultants both in Australia and PNG through whose persistence and efforts, the Company
has completed these key milestones and activities. We look forward to the continued support of all stakeholders as the Project
progresses towards development.
Stuart Pether
Chief Executive Officer
Kula Gold Limited
11
Kula Gold Limited
Directors’ report
31 December 2013
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 2013.
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 (resigned 19 July 2013)
Louis Rozman
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 (2012: $nil).
Result of operations
The net loss from operations of the consolidated entity was $2,535,000 (2012: loss of $29,234,000).
For the 2012 year, the Company wrote-off $26,587,000 of capitalised exploration and evaluation expenditure. See note 12 for
more details.
Review of operations
With the lodgement of the mining lease application (MLA508) with the Papua New Guinea (PNG) Mineral Resources Authority
(MRA) on 30th October 2012 and Environmental Impact Statement (EIS) to the PNG Department of Environment (DEC) on 17
January 2013, the Company has been active in moving through the permitting process.
After undertaking a number of meetings with the MRA, MLA508 has been presented to the PNG Mining Advisory Council (MAC)
which is the government body that makes the final recommendation to the Minister for Mining for the granting of the mining lease.
The MAC has considered the application and has raised a number of issues which need clarification. The Company will be
meeting with the MRA during the March 2014 quarter to clarify the issues raised which it is hoped will be to the satisfaction of both
the MRA and MAC.
On 17 February 2014, Woodlark Mining Limited received the Environment Permit for its Woodlark Island gold project (the Project).
The permit was issued by the PNG Director of Environment. This is a major step forward in obtaining the Mining Lease.
Technical and financial due diligence was completed with Petromin and PNG Treasury regarding the PNG government’s option to
acquire up to 30% of the Project. No official recommendation has been received from the PNG National Executive Council on the
level of government equity to be taken up.
On 2 July 2013 Stuart Pether was appointed Chief Executive Officer (CEO) of the Company. Stuart, who previously held the
position of Chief Operating Officer of the Company, is a qualified mining engineer with over 25 years’ experience.
On 1 July 2013, Lee Spencer resigned his executive position as CEO but remains as a non-executive director on the board. John
Watkins resigned from his executive position as Chief Financial Officer (CFO) on 1 July 2013. He resigned as a director on 19
July 2013. John’s resignation was due to other business commitments.
To ensure continued funding of the Company’s operations, a working capital facility of AUD$3.0M was established with RMB
Resources acting as agents for the financiers. This facility was fully drawn down prior to 31 December 2013.
12
Kula Gold Limited
Directors’ report
31 December 2013
Directors' report (continued)
Significant matters relating to the ongoing viability of operations
At 31 December 2013, the Company has cash and cash equivalents balance of $3,184,000 and a negative working capital of
$224,000. The group reported a net loss of $2,535,000 for the current financial year.
The Company has lodged with the PNG Mineral Resources Authority its Mining Lease application. The application has been
considered by the PNG Mining Advisory Council (MAC) in December 2013 at which it raised a number of issued which included
the issuing of the Environment Permit. A reply has been made to the MAC on the issues raised in early 2014. On the 17
February 2014 the Environment Permit was issued by the PNG Director of Environment. The issue of the Mining Lease by the
end of the March quarter 2014 is the Company’s expectation.
The Company will likely need to secure further funding by debt, equity or joint venture or other for operations and/or development
within the next 3 months depending on other corporate activities.
Given the reliance on securing funds from one or more of the above sources, there is some uncertainty as to whether the Company
will be successful in securing funds and therefore be able to pay debts as and when they fall due. However, the directors are
confident that funding can be obtained to enable the business to continue as a going concern. The Company has received debt
funding from its major shareholders, and has expressions of interest from others. It is hoped additional debt funding can be
secured from one of these sources or an equity or joint venture opportunity will arise. On this basis the directors consider it
reasonable that the accounts be prepared on a going concern basis.
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.
13
Kula Gold Limited
Directors’ report
31 December 2013
Directors' report (continued)
Information on directors
David Frecker BA, LLM Independent chairman and non-executive director. Age 65.
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 Papua New Guinea (PNG). He is an
employee (as special counsel) 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). 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
•
•
•
100,000 ordinary fully paid shares.
100,000 KGDOPT2 class options to acquire ordinary fully paid shares. Exercise price $1.80, expiry 1 December 2015
612,000 KGDOPT7 class options to acquire ordinary fully paid shares. Exercise price $0.17, expiry 20 December 2018
Lee Spencer MSc App (Mineral exploration) Non-executive director. Age 60.
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 Papua New Guinea 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.
Other current directorships
None.
Lee Spencer was previously Kula Gold’s chief executive officer and managing director for the period July 2007 to 1 July 2013.
Former directorships in last 3 years
None
Special responsibilities
Member of the risk committee.
Interests in shares and options
•
•
•
•
579,870 ordinary fully paid shares;
1,126,155 KGDOPT1 class options to acquire ordinary fully paid shares. Exercise price$1.80, expiry 1 December 2015
1,500,000 KGDOPT5 class options to acquire ordinary fully paid shares. Exercise price $2.00, expiry 16 December 2016
233,000 KGDOPT7 class options to acquire ordinary fully paid shares. Exercise price $0.17, expiry 20 December 2018
14
Kula Gold Limited
Directors’ report
31 December 2013
Directors' report (continued)
Information on directors (continued)
Louis Rozman BEng (Mining), Masters in Geoscience (Min Ec) Non-executive director. Age 56.
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, Australia and
Papua New Guinea. Louis was chief operating officer of Aurion Gold Limited and was instrumental in the development of its
predecessor, Delta Gold Limited. He was also chief executive officer of CH4 Gas Ltd, a successful pioneering coal bed methane
developer and producer.
Louis is a founding partner and 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 Bachelor of Engineering (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
•
•
•
315,277 ordinary fully paid shares;
100,000 KGDOPT2 class options to acquire ordinary fully paid shares. Exercise price $1.80, expiry 1 December 2015
291,000 KGDOPT7 class options to acquire ordinary fully paid shares. Exercise price $0.17, expiry 20 December 2018
Mark Stowell BBus, CA Independent non-executive director. Age 50.
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 a non-executive director and
founder of Mawson West Ltd, a Toronto Stock Exchange (TSX:MWE) listed 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 USA oil
and gas producer.
Mark is a member of the Institute of Chartered Accountants and has a Bachelor of Business 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
None
Special responsibilities
Chairman of the audit committee.
Member of the risk committee.
Member of remuneration and nomination committee.
15
Kula Gold Limited
Directors’ report
31 December 2013
Directors' report (continued)
Information on directors (continued)
Mark Stowell (continued)
Interests in shares and options
•
•
•
2,980,060 ordinary fully paid shares
100,000 KGDOPT2 class options to acquire ordinary fully paid shares. Exercise price $1.80, expiry 1 December 2015
291,000 KGDOPT7 class options to acquire ordinary fully paid shares. Exercise price $0.17, expiry 20 December 2018
Company secretary
Mrs Leanne Ralph was appointed to the position of company secretary on 1 June 2011. Leanne is a member of the Governance
Institute of Australia (formally Charter Secretaries Australia) and the Australian Institute of Company Directors. Leanne is the
principal of Boardworx Australia Pty Ltd which supplies bespoke outsourced company secretarial services to a number of listed
and unlisted companies.
Meetings of directors (to be updated from Leanne)
The numbers of meetings of the Company's board of directors and of each board committee held during the year ended 31
December 2013, and the numbers of meetings attended by each director were:
Board meetings
Meetings of committees
Audit
Risk
Remuneration and
nomination
Name
D Frecker
L Spencer
J Watkins
L Rozman
M Stowell
Number
eligible to
attend
Number
attended
Number
eligible to
attend
Number
attended
Number
eligible to
attend
Number
attended
Number
eligible to
attend
Number
attended
15
15
8
15
15
15
15
8
13
12
3
-
-
-
3
3
-
-
-
3
-
2
-
2
2
-
2
-
2
2
2
-
-
2
2
2
-
-
2
2
Remuneration report
The remuneration report sets out remuneration information for Kula Gold Limited’s executive directors, non-executive directors
and other key management personnel.
(i) Principles used to determine the nature and amount of remuneration
(ii) Role of remuneration and nomination committee
(iii) Details of remuneration
(iv) Service agreements of key management personnel
(v) Share-based compensation
(vi) Bonuses
(vii) Additional information
The information provided in this remuneration report has been reviewed and reported on by the auditors as required by section
308(3C) of the Corporations Act 2001.
16
Kula Gold Limited
Directors’ report
31 December 2013
Directors' report (continued)
Remuneration report (continued)
I.
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.
II.
Role of remuneration and nomination committee
The board has established a remuneration and nomination 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.
Remuneration surveys are reviewed by the committee from time to time to ensure the group’s remuneration system and reward
practices are in line with current market practice.
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 must comprise only non-executive directors, at least three members and a majority of independent directors. The
committee must be chaired by a non-executive director who is not the Chair of the board.
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 the 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. Where a director acts as a chairman of
more than one board committee, the maximum remuneration payable is $10,000.
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.
17
Directors' report (continued)
Remuneration report (continued)
Executive compensation
Remuneration to executives is not paid by commission on, or percentage of, profits or operating revenue.
Kula Gold Limited
Directors’ report
31 December 2013
Fixed compensation which includes base pay and benefits, including superannuation;
The executive compensation and reward framework has three components:
•
• 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 and nomination 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 which include the chief executive 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.
III.
Details of remuneration
Amounts of remuneration
Details of the remuneration of the directors and key management personnel (as defined in AASB 124 Related Party Disclosures) of
the Group and Company are set out in the following tables:
Executive directors
L Spencer
J Watkins
Position
Managing director and chief executive officer (resigned 1 July 2013)
Executive director and chief financial officer (resigned 1 July 2013)
Non-executive directors
D Frecker
L Rozman
L. Spencer
M Stowell
J Watkins
Other key management personnel
S Pether
Position
Non-executive chairman
Non-executive director
Non-executive director (from 2 July 2013)
Non-executive director
Non-executive director (from 2 July 2013, resigned 19 July 2013)
Chief executive officer (from 2 July 2013)
18
Kula Gold Limited
Directors’ report
31 December 2013
Directors' report (continued)
Remuneration report (continued)
Key management personnel of the Group – 2013
Short-term employee
benefits
Post-employment
benefits
Long-term
benefits
Share-based
payments
Name
Directors
D Frecker
L Spencer
J Watkins*
L Rozman**
M Stowell
Cash
salary and
fees
$
70,000
^307,579
^^225,000
12,500
50,000
Cash
bonus
$
-
-
-
-
-
Annual
Leave
$
-
14,552
12,474
-
-
Superannuation
$
6,388
10,085
8,235
-
4,562
Long service
leave
$
-
3,292
2,822
-
-
Options
Percentage of
total package
$
31,638
6,990
-
22,008
22,008
%
29.3
1.6
-
63.8
28.7
Total
$
108,026
342,498
248,531
34,508
76,570
Other key management personnel
S Pether #
239,591
115,375
18,609
15,750
5,743
138,380
25.9
533,448
904,670
115,375
Total
* Resigned from all positions of the company on 19 July 2013
** Waived receipt of directors fees from 1 April 2013
# Chief executive officer of Kula Gold Limited from 2 July 2013. From 2 July 2013 salary reduced to 60% of base salary.
^ Includes termination benefits of $112,579
^^ Includes termination benefits of $75,000
221,024
45,020
11,857
45,635
1,343,581
The relative proportions of remuneration that are linked to performance and those that are fixed are as follows:
Name
Directors
D Frecker
L Spencer
J Watkins
L Rozman
M Stowell
Other key management personnel
S Pether
Key management personnel of the Group – 2012
Fixed remuneration
2013
%
At risk
short-term incentives
2013
%
At risk
long-term incentives
2013
%
71
98
100
36
71
52
-
-
-
-
-
22
29
2
-
64
29
26
Short-term employee
benefits
Post-employment
benefits
Long-term
benefits
Share-based
payments
Cash
salary and
fees
$
70,000
350,000
300,000
50,000
50,000
820,000
Cash
bonus
$
-
32,813
33,000
-
-
65,813
Superannuation
$
6,300
13,510
15,010
-
4,500
39,320
Long service
leave
$
-
6,418
5,509
-
-
11,927
Options
Percentage of
total package
$
13,315
199,159
121,011
13,315
13,315
360,115
%
14.9
33.1
25.5
21.0
19.6
-
Total
$
89,615
601,900
474,530
63,315
67,815
1,297,175
Name
Directors
D Frecker
L Spencer
J Watkins
L Rozman
M Stowell
Total
19
Kula Gold Limited
Directors’ report
31 December 2013
Directors' report (continued)
Remuneration report (continued)
IV.
Service agreements of key management personnel
Compensation and other terms of employment for the chief executive officer are formalised in a service agreement. All contracts
with an executive may be terminated early, subject to termination payments as detailed below.
S Pether, Chief executive officer
•
•
• Base salary: $338,530 per annum plus superannuation guarantee, to be reviewed annually on 1 July each year; For the
Commencement of employment date 4 February 2013, as Chief Operating Officer;
Terms of agreement: Ongoing under new terms and conditions which commenced 23 July 2013;
period 1 July to 31 December 2013 salary reduced to 60% of base, that is on a pro-rata rate of $203,118 per annum.
• Performance bonus: Eligible to be paid a performance related bonus of up to 50% of the base salary which is assessed as
detailed in short-term incentives;
Termination benefits:
•
(i) 90 days’ notice is required on resignation;
(ii) Termination by the Company after the transition period of 12 months and before the end of the first 24 months of
employment, 12 months base salary plus any bonus as determined by the board; if termination occurs after the first
24 months, then, 3 months base salary; and if termination occurs within 12 months after a change of control of the
Company, 12 months of base salary grossed up to include any unpaid bonus. All payments will be net of all
deductions required by law.
V.
Share-based compensation
Options
Options over shares in Kula Gold Limited are granted under the Kula Gold Limited Option Plan (Plan) to employees. 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, and again in December 2013, non-executive directors were 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 and not cancelled 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 27 to the financial statements.
The following options are held by directors and key management personnel of the Company as at 31 December 2013:
Name
D Frecker #
D Frecker
L Spencer
L Spencer
L Spencer
L Spencer
J Watkins
J Watkins
J Watkins
L Rozman #
L Rozman
M Stowell #
M Stowell
S Pether
S Pether
S Pether
Granted
Vested
Forfeited
Exercise
Number
Grant Date
Number
In Year Expiry Date
100,000
01 Dec 2010
-
- 01 Dec 2015
612,000 20 Dec 2013
612,000
1,126,155
01 Dec 2010
1,126,155
750,000
16 Dec 2011
750,000
750,000
16 Dec 2011
750,000
233,000
20 Dec 2013
233,000
563,078
01 Dec 2010
563,078
750,000
16 Dec 2011
750,000
750,000
16 Dec 2011
750,000
- 20 Dec 2018
- 01 Dec 2015
- 16 Dec 2016
- 16 Dec 2016
- 20 Dec 2018
- 01 Dec 2015
- 16 Dec 2016
- 16 Dec 2016
100,000
01 Dec 2010
-
- 01 Dec 2015
291,000
20 Dec 2013
291,000
- 20 Dec 2018
100,000
01 Dec 2010
-
- 01 Dec 2015
291,000
20 Dec 2013
291,000
1,000,000
25 Jan 2013
1,000,000
500,000 29 May 2013
500,000
- 20 Dec 2018
-
25 Jan 2016
- 29 May 2016
2,446,000
8 Nov 2013
2,446,000
-
8 Nov 2018
Price
$1.80
$0.17
$1.80
$2.00
$2.00
$0.17
$1.80
$2.00
$2.00
$1.80
$0.17
$1.80
$0.17
$0.48
$0.16
$0.17
Fair Value
Value at
At Grant
Date
forfeiture
date ^
$41,000
$18,360
$349,109
$45,000
$45,000
$6,990
$174,555
$45,000
$45,000
$41,000
$8,730
$41,000
$8,730
$50,000
$15,000
$73,380
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
^ 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.
20
Kula Gold Limited
Directors’ report
31 December 2013
Directors' report (continued)
Remuneration report (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
D Frecker #
100,000
01 Dec 2015
$0.41
$1.80
D Frecker
612,000
20 Dec 2018
$0.03
$0.17
L Spencer
1,126,155
01 Dec 2015
$0.31
$1.80
L Spencer
750,000
16 Dec 2016
$0.06
$2.00
L Spencer
750,000
16 Dec 2016
$0.06
$2.00
L Spencer
233,000
20 Dec 2018
$0.03
$0.17
J Watkins
563,078
01 Dec 2015
$0.31
$1.80
J Watkins
750,000
16 Dec 2016
$0.06
$2.00
J Watkins
750,000
16 Dec 2016
$0.06
$2.00
L Rozman #
100,000
01 Dec 2015
$0.41
$1.80
L Rozman
291,000
20 Dec 2018
$0.03
$0.17
M Stowell #
100,000
01 Dec 2015
$0.41
$1.80
M Stowell
291,000
20 Dec 2018
$0.03
$0.17
S Pether
1,000,000
25 Jan 2016
$0.05
$0.48
S Pether
500,000 29 May 2016
$0.03
$0.16
S Pether
2,446,000
8 Nov 2018
$0.03
$0.17
All options carry no voting rights and no rights to dividends.
Price Of
Shares On
Grant Date
Expected
Volatility
Interest Rate
$1.68
$0.11
$1.68
$1.09
$1.09
$0.11
$1.68
$1.09
$1.09
$1.68
$0.11
$1.68
$0.11
$0.33
$0.10
$0.12
30%
69%
30%
37%
37%
69%
30%
37%
37%
30%
69%
30%
69%
47%
60%
67%
5.33%
3.25%
5.33%
3.24%
3.24%
3.25%
5.33%
3.24%
3.24%
5.33%
3.25%
5.33%
3.25%
2.83%
3.03%
3.35%
# These options granted to non-executive directors will only vest and become exercisable after either of the following events:
i)
ii)
the Company’s Woodlark Island gold project (Project) reaches commercial production as determined by the pour of the first gold from the Project or,
there is a change of control of the Company.
VI.
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.
Name
S Pether
Bonus paid
%
65
Potential
Bonus unearned
%
35
21
Kula Gold Limited
Directors’ report
31 December 2013
Directors' report (continued)
Remuneration report (continued)
VII.
Additional information
There were no loans to directors or executives during the reporting period.
No options were exercised during the year ended 31 December 2013 (2012: Nil).
Shares under option
Unissued ordinary shares of Kula Gold Limited under options at the date of this report are as follows:
Date options granted
01 Dec 2010
16 Mar 2011
14 Apr 2011
16 Dec 2011
25 Jan 2013
29 May 2013
08 Nov 2013
20 Dec 2013
20 Dec 2013
Expiry date
01 Dec 2015
16 Mar 2016
16 Mar 2016
16 Dec 2016
25 Jan 2016
29 May 2016
08 Nov 2018
20 Dec 2018
31 Aug 2018
Exercise price of
shares
$1.80
$1.80
$1.80
$2.00
$0.48
$0.16
$0.17
$0.17
$0.13
Number under
option
1,989,233
100,000
120,000
3,000,000
1,000,000
500,000
4,355,000
1,427,000
24,000,000
36,491,233
No option holder has any right under the options to participate in any other share issue of the Company or any other entity.
Indemnification and insurance of officers
The Group has agreed to indemnify the directors and officers of the Group for any:
(i)
(ii)
liability for any act or omission in their performance as director or officer; and
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.
Indemnification of auditors
To the extent permitted by law, the Company has agreed to indemnify the auditors, Ernst & Young, as part of the terms of its audit
engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been
made to indemnify Ernst & Young during or since the financial year.
Employees
Kula Gold Group staff members as at 31 December 2013:
Position
Kula Gold Limited
Woodlark Mining Limited
Total
Directors (Executive)
Directors (Non-executive)
Senior executive
Other
Male
-
4
2
1
7
Female
-
-
-
1
1
Male
-
1
2
29
32
Female
-
-
-
8
8
Male
-
5
4
30
39
Female
-
-
-
9
9
22
Kula Gold Limited
Directors’ report
31 December 2013
Directors' report (continued)
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.
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 (Ernst & Young) 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
Ernst & Young Australian firm:
Other services
PricewaterhouseCoopers Australian firm:
Other services
Total remuneration for other assurance services
Taxation services
Ernst & Young Australian firm:
Tax compliance service
Other tax advice
PricewaterhouseCoopers Australian firm:
Tax compliance service
Other tax advice
Related practices of PricewaterhouseCoopers Australian firm
Total remuneration for taxation services
Consolidated
2013
$
2012
$
-
3,500
3,500
-
-
8,800
-
16,179
24,979
-
-
-
-
-
8,800
-
10,154
18,954
Total remuneration for non-audit services
28,479
18,954
23
Kula Gold Limited
Directors’ report
31 December 2013
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
17 and forms part of this report.
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.
This report is made in accordance with a resolution of directors.
David Frecker
Chairman
Sydney, 20 March 2014
24
Ernst & Young
680 George Street
Sydney NSW 2000 Australia
GPO Box 2646 Sydney NSW 2001
Tel: +61 2 9248 5555
Fax: +61 2 9248 5959
ey.com/au
Auditor’s Independence Declaration to the Directors of Kula Gold
Limited
In relation to our audit of the financial report of Kula Gold Limited for the financial year ended 31
December 2013, to the best of my knowledge and belief, there have been no contraventions of the
auditor independence requirements of the Corporations Act 2001 or any applicable code of
professional conduct.
Ernst & Young
Anton Ivanyi
Partner
20 March 2014
25
Kula Gold Limited
31 December 2013
Corporate Governance Statement
Corporate governance statement
The board is committed to ensuring that Kula Gold Limited (Kula Gold or Company) 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. 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. All these practices, unless otherwise stated,
were in place for the entire year.
Details of Kula Gold’s key policies and charters for the board and each of its committees are available upon request to the company
secretary.
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,
subject to prior consultation with the chairman, for the purposes of the proper performance of their duties.
Role of the board
The responsibilities of the board as outlined in the board charter 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 (CEO), to deliver the strategic direction and goals determined by the board.
26
Kula Gold Limited
31 December 2013
Corporate Governance Statement
(continued)
Corporate governance statement (continued)
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 CEO. 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.
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 reviewed periodically to ensure the appropriate mix of skills and expertise is present
to facilitate successful strategic direction.
Currently the board comprises four directors, being a non-executive chairman, and three 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, principals that are in line with those suggested in the
ASX recommendations. 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 is currently comprised of all non-executive directors with Mr L Spencer, formally an executive director becoming a
non-executive director during the year. The chairman is a non-executive director. The current members of the board are D Frecker
(Chairman), L Spencer, L Rozman and M Stowell (all non-executive directors).
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. Under the ASX Recommendations, L Spencer is not considered to be independent because
he has been employed by the Company during the last three years. L Rozman is also not considered independent as he is a director
of a group that is a substantial shareholder of the Company.
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 CEO 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.
The Company’s corporate governance plan provides for annual performance reviews of the board as a whole, the committees of the
board and individual directors. There have been open communications between directors about issues of performance. However,
given the size of the board, a formal review process was not undertaken during 2013.
27
Kula Gold Limited
31 December 2013
Corporate Governance Statement
(continued)
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 2001 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.
The Company has a trading policy which outlines the restrictions, closed periods and processes required when directors and
employees trade Company securities. Broadly the policy states that directors and employees are prohibited from dealing in the
Company’s securities during closed periods. These periods are one week prior to release of the Company’s quarterly, half-yearly or
annual results or the release of a disclosure document offering securities in the Company. However should price sensitive
information, which is not available to the market, be in possession of a director or employee, they must not deal in the Company’s
securities.
Prior to trading in the company’s securities a director must obtain the approval of the chairman. The chairman must obtain the
approval of the CEO. First or second line employees of the CEO must obtain the CEO approval prior to transacting in the Company’s
securities. All share trades must be notified to the company secretary within five business days of the transaction.
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 adopted a diversity policy that outlines the Group’s commitment to equality and the treatment of all individuals with
respect.
The board considers that diversity within the Group refers to characteristics or factors such as religion, race, ethnicity, language,
gender, sexual orientation, disability, age or any other area of potential difference.
Although the Company is listed on the ASX and has its head office in Sydney, Australia, its main area of operations, through its wholly
owned subsidiary Woodlark Mining Limited, is in Papua New Guinea (PNG) where it is subject to laws and government policies which
may not be consistent in all respects with the recommendations of the ASX Corporate Governance Council on diversity. These PNG
laws and government policies include:
• Restrictions through the requirements for visas and work permits on the employment of persons who are not PNG citizens.
• Requirements to promote the employment of PNG citizens through training and localisation; and
•
conditions of any mining development approval that preference in employment is given, first to local people living in the
project area and secondly, to people from the province in which the project is situated.
28
Kula Gold Limited
31 December 2013
Corporate Governance Statement
(continued)
Corporate governance statement (continued)
Recommendation 3.2 (continued)
Subject to the PNG aspects referred to above, the Company’s diversity policy states the Group is to do the following:
• Attract and retain a skilled and diverse workforce from the communities in which its operations are located.
• Promote and maintain a work environment that values and utilises the contributions of employees with diverse
•
backgrounds, experience and perspectives.
Take action against inappropriate workplace behaviour including discrimination, harassment, bullying, victimisation and
vilification.
• Set measurable objectives for gender diversity that will be monitored and reviewed annually.
• Provide employees with opportunities to develop skills and experience for career advancement.
• Ensure appropriate selection criteria are used when hiring new staff, including board members, which do not contain any
direct or inferred discrimination.
• Ensure that applicants and employees of all backgrounds are encouraged to apply for and have a fair opportunity to be
considered for, all available roles.
• Develop flexible work practices to meet the differing needs of employees.
• Comply with equal opportunity and anti-discrimination legislation (where applicable).
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.
The board has adopted the following objectives for gender diversity: (1) 25% female employees across all group operations
(aggregating Australia and PNG) by 31 December 2014; and (2) one female director of Kula Gold Limited by 31 December 2014.
Good progress toward achieving the first objective is shown in the directors’ report under the title “Employees” (10 female employees
out of a total of 48 employees). There is not currently a female director.
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.
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. The board is of the opinion the
composition of the audit committee with the two independent directors is appropriate given the relatively small size of the current
board.
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.
29
Kula Gold Limited
31 December 2013
Corporate Governance Statement
(continued)
Corporate governance statement (continued)
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.
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 is distributed to all shareholders who have elected 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 established a 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 under its charter 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 and currently consists of all non-executive
directors.
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.
30
Kula Gold Limited
31 December 2013
Corporate Governance Statement
(continued)
Corporate governance statement (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 S Pether (CEO) and Mr L Solomon (Financial Controller) 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 has 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 holds 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''.
31
Kula Gold Limited ABN 83 126 741 259
Annual report - 31 December 2013
Contents
Page
Financial Statements
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
33
34
35
36
37
74
75
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 Australian dollars.
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 12 to 24, which
is not part of these financial statements.
The financial statements were authorised for issue by the directors on 19 March 2014. The directors have the power to amend and reissue the financial
statements.
32
Kula Gold Limited
Consolidated statement of comprehensive income
For the year ended 31 December 2013
Notes
2013
$'000
Consolidated
2012
$'000
Revenue from interest
Expenses
Employee benefits expense
Professional and consulting expenses
Rental expense
Insurance expense
Borrowing costs
Write-off of exploration & evaluation expenditure
Foreign exchange gain
Other expenses
Loss before income tax
Income tax benefit/(expense)
Loss for the year from continuing operations
Other comprehensive income
Items that may be reclassified to profit and loss
Exchange differences on translation of foreign operations
Total comprehensive (loss)/income for the year
Loss per share for losses from continuing operations attributable to the
ordinary equity holders of the company:
Basic loss per share
Diluted loss per share
5
6
6
6
7
132
504
(1,627)
(490)
(179)
(96)
(29)
-
1
(247)
(2,535)
-
(2,535)
(1,717)
(917)
(193)
(100)
-
(26,587)
64
(288)
(29,234)
-
(29,234)
18(a)
1,685
(850)
(752)
(29,986)
Cents
Cents
26
26
(2.01)
(2.01)
(25.45)
(25.45)
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
33
Kula Gold Limited
Consolidated statement of financial position
As at 31 December 2013
Notes
2013
$'000
Consolidated
2012
$'000
8
9
10
11
12
13
14
15
16
3,069
181
359
3,609
2,089
109,654
115
111,858
7,924
329
662
8,915
2,780
102,044
112
104,936
115,467
113,851
805
2,069
2,874
264
264
1,329
-
1,329
582
582
3,138
1,911
112,329
111,940
17
18(a)
18(b)
139,946
13,083
(40,700)
112,329
139,946
10,159
(38,165)
111,940
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
Borrowings
Total current liabilities
Non-current liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Accumulated losses
Total equity
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
34
Kula Gold Limited
Consolidated statement of changes in equity
For the year ended 31 December 2013
Attributable to owners of Kula Gold Limited
Contributed
equity
Share-based
payments reserve
Notes
$'000
$'000
Foreign
currency
translation
reserve
$'000
Total
reserves
Accumulated
losses
Total
equity
$'000
$'000
$'000
Balance at 1 January 2012
134,792
(388)
10,896
10,508
(8,931)
136,369
Loss for the year
Exchange differences on
translation of foreign operations
18
Total comprehensive income for
the year
-
-
-
Transactions with owners in
their capacity as owners:
Contributions of equity, net of
transactions costs and tax
Share-based payments
17
18
5,154
-
5,154
-
-
-
-
403
403
-
-
(29,234)
(29,234)
(752)
(752)
-
(752)
(752)
(752)
(29,234)
(29,986)
-
-
-
-
403
403
-
-
-
5,154
403
5,557
Balance at 31 December 2012
139,946
15
10,144
10,159
(38,165)
111,940
Balance at 1 January 2013
139,946
15
10,144
10,159
(38,165)
111,940
Loss for the year
Exchange differences on
translation of foreign operations
18
Total comprehensive loss for
the year
Transactions with owners in
their capacity as owners:
Share-based payments
18
-
-
-
-
-
-
-
-
-
(2,535)
(2,535)
1,685
1,685
-
1,685
1,685
1,685
(2,535)
(850)
1,239
1,239
-
-
1,239
1,239
-
-
1,239
1,239
Balance at 31 December 2013
139,946
1,254
11,829
13,083
(40,700)
112,329
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
35
Cash flows from operating activities
Payments to suppliers and employees (inclusive of goods and services tax)
Interest income
Net cash outflow from operating activities
Cash flows from investing activities
Payments for property, plant and equipment
Payments for exploration activities
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from issues of shares (net of transaction costs)
Proceeds from borrowings
Net cash inflow from financing activities
Net decrease 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
Kula Gold Limited
Consolidated statement of cash flows
For the year ended 31 December 2013
Notes
2013
$'000
Consolidated
2012
$'000
25
11
17
15
8
8
(2,222)
161
(2,061)
(32)
(5,808)
(5,840)
-
3,000
3,000
(4,901)
8,036
49
(2,552)
787
(1,765)
(142)
(15,428)
(15,570)
5,154
-
5,154
(12,181)
20,219
(2)
3,184
8,036
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
36
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
Notes to the consolidated financial statements
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 and other assets
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. Borrowings
16. Non-current liabilities - Provisions
17. Contributed equity
18. Reserves and accumulated losses
19. Key management personnel disclosures
20. Remuneration of auditors
21. Contingencies
22. Commitments
23. Related party transactions
24. Subsidiary
25. Reconciliation of loss after income tax to net cash outflow from operating activities
26. Earnings per share
27. Share-based payments
28. Parent entity financial information
29. Events occurring after the reporting period
30. Significant matters relating to the ongoing viability of operations
37
38
48
50
51
51
51
52
53
54
54
55
56
57
57
58
58
59
60
61
65
65
66
66
67
67
67
68
72
72
73
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
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 and
Interpretations issued by the Australian Accounting Standards Board and 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). Kula Gold Limited is a for-profit entity for the purposes
of preparing the financial statements.
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.
New and amended standards adopted by the group
New standards and amendments to standards that are mandatory for the first time for the financial year beginning 1 January 2013
are as follows:
i) AASB 10 - Consolidated Financial Statements
AASB 10 establishes a new control model that applies to all entities. It replaces parts of AASB 127 Consolidated and Separate
Financial Statements dealing with the accounting for consolidated financial statements and UIG-112Consolidation - Special
Purpose Entities.
The new control model broadens the situations when an entity is considered to be controlled by another entity and includes new
guidance for applying the model to specific situations, including when acting as a manager may give control, the impact of
potential voting rights and when holding less than a majority voting rights may give control.
ii) AASB 13 - Fair Value Measurement
AASB 13 establishes a single source of guidance for determining the fair value of assets and liabilities. AASB 13 does not
change when an entity is required to use fair value, but rather, provides guidance on how to determine fair value when fair value
is required or permitted. Application of this definition may result in different fair values being determined for the relevant assets.
AASB 13 also expands the disclosure requirements for all assets or liabilities carried at fair value. This includes information about
the assumptions made and the qualitative impact of those assumptions on the fair value determined.
Consequential amendments were also made to other standards via AASB 2011-8.
38
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
1 Summary of significant accounting policies (continued)
New and amended standards adopted by the group (continued)
iii) AASB 119 - Employee Benefits
The main change introduced by this standard is to revise the accounting for defined benefit plans. The amendment removes the
options for accounting for the liability, and requires that the liabilities arising from such plans is recognised in full with actuarial
gains and losses being recognised in other comprehensive income. It also revised the method of calculating the return on plan
assets.
The revised standard changes the definition of short-term employee benefits. The distinction between short-term and other
long-term employee benefits is now based on whether the benefits are expected to be settled wholly within 12 months after the
reporting date.
Consequential amendments were also made to other standards via AASB 2011-10.
The adoption of these standards did not have any impact on the current period or prior period and is not likely to affect
future periods.
(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 2013 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)).
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 board of directors and the chief executive officer.
39
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
1 Summary of significant accounting policies (continued)
(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.
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, the associated exchange differences are
reclassified to profit or loss, as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on a foreign operation are treated as assets and liabilities of the foreign operation and
translated at the closing rate.
(e) Revenue recognition
Revenue represents interest income and is recognised using the effective interest method.
40
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
1 Summary of significant accounting policies (continued)
(f)
Income tax
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, 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 22). Payments made under operating leases (net of any incentives received from the lessor) are charged
to the consolidated statement of comprehensive income 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 group. The consideration transferred also includes the fair
value of any asset or liability resulting from a 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 over the fair value 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.
41
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
1 Summary of significant accounting policies (continued)
(i)
Impairment of assets
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 three months or
less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
(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.
(l)
Investments and other financial assets
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 receivables and other assets (note 9) in the consolidated
statement of financial position.
Recognition and derecognition
Regular purchases and sales of financial assets are recognised on trade-date, that is, 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.
42
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
1 Summary of significant accounting policies (continued)
(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 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
- Motor vehicles and boats
- Plant and equipment
- Furniture and fittings
25 years
3 years
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 the
consolidated statement of comprehensive income.
(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
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 is continuing.
(ii)
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 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 the 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.
(p) Borrowings
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at
amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit
or loss over the period of the borrowings using the effective interest rate method. Fees paid on the establishment of loan facilities
are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In
this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of
the facility will be drawn down, the fee is capitalised as a repayment for liquidity services and amortised over the period of the
facility to which it relates.
Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at
least 12 months after the reporting date.
Borrowings are removed from the balance sheet when the obligation specified in the contract is discharge, cancelled or expired.
43
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
1 Summary of significant accounting policies (continued)
(q) 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.
(r) 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.
(s) 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) Other long-term employee benefit obligations
The liability for long service leave and annual leave which is not expected to be settled within 12 months after the end of the period
in which the employee renders the related service 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.
The obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer
settlement for at least twelve months after the reporting date, regardless of when the actual settlement is expected to occur.
(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 27.
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.
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.
44
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
1 Summary of significant accounting policies (continued)
(t) 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.
(u) 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.
(v) 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.
(w) Earnings per share
(i) Basic earnings per share
Basic earnings per share are 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.
(x) Parent entity financial information
The financial information for the parent entity, Kula Gold Limited, disclosed in note 28 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 mineral exploration and evaluation expenditure in the statement
of financial position. (until the Company moves into the mining phase).
45
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
1. Summary of significant accounting policies (continued)
(y) New accounting standards and interpretations
Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2013
reporting periods. The group’s assessment of the impact of these new standards and interpretations is set out below.
(i)
AASB1053 Application of Tiers of Australian Accounting Standards.(effective for annual reporting periods from
1 January 2014)
This standard establishes a differential financial reporting framework consisting of two tiers of reporting requirements for
preparing general purpose financial statements:
(a) Tier 1: Australian Accounting Standards
(b) Tier 2: Australian Accounting Standards – Reduced Disclosure Requirements
Tier 2 comprises the recognition, measurement and presentation requirements of Tier 1 and substantially reduced
disclosures corresponding to those requirements.
The following entities apply Tier 1 requirements in preparing general purpose financial statements:
(a) For-profit entities in the private sector that have public accountability (as defined in this standard)
(b) The Australian Government and State, Territory and Local governments
The following entities apply either Tier 2 or Tier 1 requirements in preparing general purpose financial statements:
(a) For-profit private sector entities that do not have public accountability
(b) All not-for-profit private sector entities
(c)
Public sector entities other than the Australian Government and State, Territory and Local governments.
Consequential amendments to other standards to implement the regime were introduced by AASB 2010-2, 2011-2,
2011-6, 2011-11, 2012-1, 2012-7 and 2012-11.
As a publicly listed entity this standard will not have any effect on the group’s reporting.
(ii)
AASB9 Financial Instruments (effective for reporting periods from 1 January 2017)
AASB 9 includes requirements for the classification and measurement of financial assets. It was further amended by
AASB 2010-7 to reflect amendments to the accounting for financial liabilities.
These requirements improve and simplify the approach for classification and measurement of financial assets compared
with the requirements of AASB 139. The main changes are described below.
(a) Financial assets that are debt instruments will be classified based on (1) the objective of the entity's business model
for managing the financial assets; (2) the characteristics of the contractual cash flows.
(b) Allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments
that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on
investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument.
46
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
1. Summary of significant accounting policies (continued)
(y) New accounting standards and interpretations (continued)
(iii)
AASB9 Financial Instruments (effective for reporting periods from 1 January 2017) (continued)
(c) Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so
eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or
liabilities, or recognising the gains and losses on them, on different bases.
(d) Where the fair value option is used for financial liabilities the change in fair value is to be accounted for as follows:
1)
2)
The change attributable to changes in credit risk are presented in other comprehensive income (OCI)
The remaining change is presented in profit or loss
If this approach creates or enlarges an accounting mismatch in the profit or loss, the effect of the changes in credit risk are
also presented in profit or loss.
Consequential amendments were also made to other standards as a result of AASB 9, introduced by AASB 2009-11 and
superseded by AASB 2010-7 and 2010-10.
The AASB issued a revised version of AASB 9 during December 2013. The revised standard incorporates three primary
changes:
1)
2)
3)
New hedge accounting requirements including changes to hedge effectiveness testing, treatment of hedging
costs, risk components that can be hedged and disclosures;
Entities may elect to apply only the accounting for gains and losses from own credit risk without applying the
other requirements of AASB 9 at the same time; and
The mandatory effective date moved to 1 January 2017.
(iv)
AASB 2013-3 Amendments to AASB 136 – Recoverable amounts disclosed for non-financial assets
(effective for reporting periods from 1 January 2014)
AASB 2013-3 amends the disclosure requirements in AASB 136 Impairment of Assets. The amendments include the
requirement to disclose additional information about the fair value measurement when the recoverable amount of impaired
assets is based on fair value less costs of disposal. The group will adopt the new standard from its operative date of 1
January 2014.
47
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
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:
Consolidated
2013
PGK
A$'000
2012
2013
PGK
USD
A$'000
A$'000
2012
USD
A$'000
Cash
Payables
Net exposure
87
(46)
41
25
(30)
(5)
243
(35)
208
128
(13)
115
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
(ii)
Interest rate risk
2013
$’000
(5)
6
Consolidated
2012
$’000
(29)
36
The Group is exposed to both interest rate risk arising from cash and cash equivalents and on borrowings from an external counter
party. Interest on borrowings is fixed on a quarterly basis by the external counter party.
Group sensitivity
At 31 December 2013, the Group's exposure to interest received rates is not deemed to be material to its primary activities and the
interest is generally floating rate. For borrowings, interest rates are fixed quarterly at the commencement of the quarter. Interest
rates are calculated as defined in the debt facility agreement. Interest payable would not be deemed material to the results of the
group. Reasonably possible movements in interest rates would not have a material impact on the results of the Group or the fair
value of any borrowings.
48
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
2 Financial Risk Management (continued)
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 has a fully drawn borrowing facilities of $3.0M in place at the reporting date. The facility is due for repayment on 30
November 2014. The Company will be required to re-negotiate the facility prior to this 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.
At 31 December 2013
Trade and other payables
Borrowings
Total non-derivatives
At 31 December 2012
Contractual maturities of financial liabilities
Less
than 6
months
$'000
6 - 12
months
$'000
Between
1 and 2
years
$'000
Between
2 and 5
years
$'000
Over 5
years
$'000
Total
contractual
cash flows
$'000
Carrying
Amount
liabilities
$'000
805
-
805
-
3,000
3,000
-
-
-
-
-
-
-
-
-
805
3,000
3,805
805
3,000
3,805
Less
than 6
months
$'000
6 - 12
months
$'000
Between
1 and 2
years
$'000
Between
2 and 5
years
$'000
Over 5
years
$'000
Total
contractual
cash flows
$'000
Carrying
Amount
liabilities
$'000
Trade and other payables
Total non-derivatives
1,329
1,329
-
-
-
-
-
-
-
-
1,329
1,329
1,329
1,329
(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. The fair value of borrowings approximates the carrying value, adjusted for capitalised transaction costs, if any.
The Company’s borrowings are categorised as level 2 in the fair value hierarchy. The fair value of these borrowings are
measured based upon market interest rate.
49
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
2 Financial Risk Management (continued)
(e) Financial liability related to options on issue
Equity-settled share based payments granted are measured at fair value at the date of grant. The fair value of share options is
measured by the Black Scholes model and require substantial judgement. Management has made its best estimates for the
effects of probability of meeting market conditions attached to the options and for options issued to directors and employee the
continued employment of the director and employee by the group. It is believed the fair value of the options is equal to the book
value of the liability the Company has for the options issued. The Company’s share price will need to rise by 25% from current
levels for the 24,000,000 options issued to the financiers of the Syndicated debt facility to be exercisable.
Should the options be exercised then the Company will issue additional equity to the option holder. At balance date the exercise
price of all options is higher than the Company’s share price.
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) 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.
The group has completed a feasibility study on the Woodlark Island Gold Project which concluded that a viable gold project exists.
The key assumptions used in the base case forecast were as follows:
• Recovery of 672,000 ounces over the first six years through a 1.8 Mtpa plant.
• Estimated operating costs of US$762/ounce for years 1 to 6.
• Establishment capital cost of US$160 million.
• Gold price at an average of US$1,373 per ounce (As quoted on the gold futures market) for years 1 to 6.
• Discount rate of 7%.
Sensitivity
If the post-tax discount rate in the NPV calculation was 10% (instead of 7% as used in the base case model), and all other
assumptions were held constant, the NPV under the based case scenario would be USD$67,067,000 – (AUD$75,255,000).
If the gold price decreased by USD$50/ounce to the price assumptions used in the base case, and all other assumptions were held
constant, the NPV under the base case scenario would be USD$74,842,000 – (AUD$83,979,000).
If either of these scenarios eventuated in the future it would not necessarily result in an impairment, despite the fact that the base
case NPV would be lower than book value, as the Company is continually optimising the mine plan and there is upside to the base
case model which is yet to be fully verified and quantified.
Carried forward mineral exploration and evaluation expenditures are disclosed in Note 12.
50
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
3 Critical Accounting Estimates and Judgements (continued)
(ii) 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.
4 Segment information
During the year the Group operated predominantly in one business segment, being the exploration and evaluation of the Woodlark
Island gold project in PNG. There is no material difference between the financial information provided to the Chief Operating
Decision Maker, being the board of directors and the chief executive officer, and the financial information presented in this report.
Segment accounting policies are the same as the Group’s policies described in Note 1.
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
Debt borrowing costs
Write-off of mineral exploration and evaluation expenditure (note 12)
51
2013
$'000
Consolidated
2012
$'000
132
132
504
504
2013
$'000
Consolidated
2012
$'000
34
508
37
176
(730)
25
-
-
-
25
179
279
(38)
241
29
-
33
494
34
207
(746)
22
8
(8)
-
22
193
403
(38)
365
-
26,587
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
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
2013
$'000
Consolidated
2012
$'000
-
-
-
-
-
-
-
-
-
-
(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% (2012: 30%)
Tax effect of amounts which are not deductible (taxable) in calculating taxable income:
(2,535)
(760)
(29,234)
(8,770)
Share-based payments
Impairment of capitalised exploration & evaluation expenditure
Management fees (elimination)
Unrealised foreign exchange variances
Sundry items
Borrowing expenses
Allowable capital expenditure (Papua New Guinea)
Income tax benefit not recognised
Total income tax expense
81
631
(12)
(163)
77
116
31
-
110
7,976
638
(7)
87
-
(66)
32
-
(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% (2012: 30%)
211
63
152
46
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.
(d) Unrecognised temporary differences
Temporary differences for which a deferred tax asset has not been recognised due to
there being no virtual certainty of the Group being profitable:
Employee provision
Capital raising costs
Borrowing costs
Accruals
Sundry items
53
-
(77)
110
12
98
119
91
-
139
(1)
348
52
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
7 Income tax (benefit)/expense (continued)
(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% (2012: 30%)
Consolidated
2012
$’000
2013
$’000
109,654
32,896
102,044
30,613
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.
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)
2013
$'000
3,069
-
3,069
Consolidated
2012
$'000
601
7,323
7,924
3,069
-
115
3,184
601
7,323
112
8,036
*Short-term deposits are made for varying periods of between one day and three 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.
53
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
2013
$'000
Consolidated
2012
$'000
18
163
181
61
268
329
9 Current assets – Receivables and other assets
Goods & services tax receivable
Prepayment and other receivables
(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
Less: provision for write-down
2013
$'000
Consolidated
2012
$'000
601
(242)
359
662
-
662
Inventory expense
(a)
A provision for write-down to net realisable value has been created to reflect the expected value of drilling consumables currently
held in inventory. This is due to the cessation of exploration drilling. The write-down amounted to $242,000 (2012: $Nil).
54
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
11 Non-current assets - Property, plant and equipment
Consolidated
Buildings
Plant and
equipment
Furniture and
fittings
Motor vehicles
and boats
Total
$'000
$'000
$'000
$'000
$'000
820
(100)
720
720
29
(33)
(2)
714
847
(133)
714
714
-
(34)
9
689
858
(169)
689
3,171
(1,061)
2,110
2,110
82
(494)
(6)
1,692
3,244
(1,552)
1,692
1,692
16
(508)
19
1,219
3,298
(2,079)
1,219
209
(93)
116
116
15
(34)
-
97
223
(126)
97
97
2
(37)
1
63
227
(164)
63
1,459
(989)
470
470
16
(207)
(2)
277
5,659
(2,243)
3,416
3,416
142
(768)
(10)
2,780
1,470
(1,193)
277
5,784
(3,004)
2,780
277
14
(176)
3
118
2,780
32
(755)
32
2,089
1,502
(1,384)
118
5,884
(3,796)
2,089
At 1 January 2012
Cost
Accumulated depreciation
Net book amount
Year ended 31 December 2012
Opening net book amount
Additions
Depreciation charge
Exchange differences
Closing net book amount
At 31 December 2012
Cost
Accumulated depreciation
Net book amount
Year ended 31 December 2013
Opening net book amount
Additions
Depreciation charge
Exchange differences
Closing net book amount
At 31 December 2013
Cost
Accumulated depreciation
Net book amount
Total depreciation charge for the year is $755,000 (2012: $768,000) of which $730,000 (2012: $747,000) has been
capitalised under exploration and evaluation expenditure (note 12) in accordance with the Group's accounting policy.
55
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
12 Non-current assets – Mineral exploration and evaluation expenditure
At 1 January 2012
Cost
Accumulated amortisation
Net book amount
Year ended 31 December 2012
Opening net book amount
Exchange differences
Additions
Amortisation charge
Write-off of exploration and evaluation expenditure*
Closing net book amount
At 31 December 2012
Cost
Accumulated amortisation
Net book amount
Year ended 31 December 2013
Opening net book amount
Exchange differences
Additions
Write-off of exploration and evaluation expenditure
Closing net book amount
At 31 December 2013
Cost
Accumulated amortisation and write-off
Net book amount
Consolidated
Exploration
licences
$'000
Deferred
exploration
expenditure
$'000
Total
$'000
9,527
(9,519)
8
115,069
-
115,069
124,596
(9,519)
115,077
8
-
-
(8)
-
-
115,069
(364)
13,926
-
(26,587)
102,044
115,077
(364)
13,926
(8)
(26,587)
102,044
9,527
(9,527)
-
128,631
(26,587)
102,044
138,158
(36,114)
102,044
-
-
-
-
-
102,044
1,622
5,988
-
109,654
102,044
1,622
5,988
-
109,654
9,527
(9,527)
-
109,654
-
109,654
119,181
(9,527)
109,654
*The Feasibility Study (see directors report – review of operations) is now completed and the areas where mining is planned
have been determined. At this time the previously capitalised mineral exploration and evaluation expenditure incurred in
areas of interest where mining is not presently anticipated in the mine plan have been written off through the statement of
comprehensive income. This is in line with the Group’s accounting policy for this type of expenditure.
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.
56
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
13 Non-current assets - Other non-current assets
Deposits
14 Current liabilities - Trade and other payables
Trade payables
Other payables and accruals
(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
(b) Risk exposure
Information about the Group's exposure to foreign exchange risk is provided in note 2.
Consolidated
2012
$'000
2013
$'000
115
115
112
112
2013
$'000
Consolidated
2012
$'000
392
413
805
180
1,149
1,329
2013
$'000
Consolidated
2012
$'000
80
80
119
119
57
15 Current liabilities – Borrowings
Secured interest bearing loan
Working capital facility (see loan details below)
Borrowings option costs (see note 27)
Amortisation of option borrowing costs
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
2013
$'000
3,000
(960)
29
2,069
Consolidated
2012
$'000
-
-
-
-
The secured shareholders loan has been provided equally by the two majority shareholders of the Company, Pacific Road
Capital funds and RMB Australia Holdings Limited (the Lenders).
Terms of the loan
Facility amount: AUD$3.0million
Interest rate: 90 day BBSW + margin of 5.5% p.a.
Interest payment due: Quarterly
Date of drawn down: 20 December 2013
Maturity of loan: 30 November 2014
Security: Fixed and floating charge over the assets of the Company.
Mortgage over Woodlark Mining Limited’s shares owned by the Company.
Other: Lenders to receive options for shares in the Company in proportion to the
value of funds drawn down. Option exercise price is 30 working days VWAP (prior to 16 December
2013) plus a margin of 25%. Expiry date of options issued is 31 August 2018.
a) Risk exposure
Details of the group’s exposure to risks arising from current borrowings are set out in note 2.
16 Non-current liabilities – Provisions
Provision for long service leave
Provision for demobilisation
Provision for rehabilitation
(a) Movements in provisions
2013
$'000
Consolidated
2012
$'000
67
-
197
264
137
250
195
582
Movements in each class of provision during the financial year, other than provision for long service leave, are set out below:
Carrying amount at the start of the year - 1 January 2013
- charge/(credited) to profit & loss
- payments from provision
- exchange differences
Carrying amount at the end of the year - 31 December 2013
58
Consolidated
Provision for
demobilisation
$’000
Provision for
rehabilitation
$'000
250
126
(379)
3
-
195
-
2
197
Total
$'000
445
126
(379)
5
197
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
17 Contributed equity
(a) Share capital
Ordinary shares
(b) Movements in share capital
Date
Details
2013
Shares
Parent entity
2012
Shares
2013
$'000
Parent entity
2012
$'000
126,253,023
126,253,023
139,946
139,946
Number of
shares
Issue price
$
Total
$’000
1 January 2012
Opening balance
112,615,523
-
134,792
9 November 2012
30 November 2012
3 December 2012
4 December 2012
31 December 2012
Share placement (tranche 1)
Share placement (tranche 2)
Share placement (tranche 2)
Share purchase plan
Transaction costs on share placement
6,987,500
1,094,782
4,417,718
1,137,500
0.40
0.40
0.40
0.40
2,795
438
1,767
455
(301)
31 December 2012
Balance
126,253,023
139,946
31 December 2013
Balance
126,253,023
139,946
(c) 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 27.
(e) Share buy-back
There is no current on-market buy-back
(f) 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.
59
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
2013
$'000
Consolidated
2012
$'000
1,254
11,829
13,083
15
1,239
1,254
10,144
1,685
11,829
15
10,144
10,159
(388)
403
15
10,896
(752)
10,144
Consolidated
2012
$'000
2013
$'000
(38,165)
(2,535)
(40,700)
(8,931)
(29,234)
(38,165)
18 Reserves and accumulated losses
(a) Reserves
Share-based payments reserve
Foreign currency translation reserve
Movements:
Share-based payments reserve
Balance 1 January
Option expense
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
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.
(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.
60
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
19 Key management personnel disclosures
(a) Key management personnel
The names of persons who were key management personnel of Kula Gold Limited 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 (resigned 1 July 2013)
J Watkins, Executive director and chief financial officer (resigned 1 July 2013)
(iii) Non-executive directors
L Rozman
L Spencer (from 2 July 2013)
M Stowell
J Watkins (from 2 July 2013 to 19 July 2013)
(iv) Other key management personnel
S Pether (appointed Chief executive officer from 2 July 2013)
(b) Key management personnel compensation
Short-term employee benefits
Post-employment benefits
Long-term benefits
Share-based payments
Consolidated
2012
$
2013
$
1,065,680
45,020
11,857
221,024
1,343,581
885,813
39,320
11,927
360,115
1,297,175
Detailed remuneration disclosures are provided in the remuneration report on pages 10 to 14.
(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 key management personnel of Kula Gold
Limited group during the period ended 31 December 2013 and 2012 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 27.
61
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
19 Key management personnel disclosures (continued)
(c) Equity instrument disclosures relating to key management personnel (continued)
Option holdings
The following options were granted as remuneration to key management personnel of the Group during the year ended 31
December 2013:
Name
S Pether
S Pether
S Pether
D Frecker
L Spencer
L Rozman
M Stowell
Granted
Number
Grant Date
Vested
Number
Forfeited
Number
Expiry Date
Exercise
Price
1,000,000
25 Jan 2013
1,000,000
500,000
29 May 2013
500,000
2,446,000
8 Nov 2013
2,446,000
612,000
20 Dec 2013
233,000
20 Dec 2013
291,000
20 Dec 2013
291,000
20 Dec 2013
612,000
233,000
291,000
291,000
-
-
-
-
-
-
-
25 Jan 2016
29 May 2016
8 Nov 2018
20 Dec 2018
20 Dec 2018
20 Dec 2018
20 Dec 2018
$0.48
$0.16
$0.17
$0.17
$0.17
$0.17
$0.17
Fair Value
At Grant
Date
$50,000
$15,000
$73,380
$18,360
$6,990
$8,730
$8,730
The following factors were used in determining the fair value of options on grant date:
Name
S Pether
S Pether
S Pether
D Frecker
L Spencer
L Rozman
M Stowell
Granted
Number
Expiry Date
Fair Value
Per Option
Exercise
Price
Price Of
Shares On
Grant Date
Expected
Volatility
Interest
Rate
1,000,000
25 Jan 2016
500,000
29 May 2016
2,446,000
8 Nov 2018
612,000
20 Dec 2018
233,000
20 Dec 2018
291,000
20 Dec 2018
291,000
20 Dec 2018
$0.05
$0.03
$0.03
$0.03
$0.03
$0.03
$0.03
$0.48
$0.16
$0.17
$0.17
$0.17
$0.17
$0.17
$0.33
$0.10
$0.12
$0.11
$0.11
$0.11
$0.11
47%
60%
67%
69%
69%
69%
69%
2.83%
3.03%
3.35%
3.25%
3.25%
3.25%
3.25%
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.
(iii) Shares provided on exercise of remuneration options
No options were exercised during the period ended 31 December 2013 (2012: Nil).
62
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
19 Key management personnel disclosures (continued)
(c) Equity instrument disclosures relating to key management personnel (continued)
(iv) 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 of the Group, including their personally related parties, are set out below.
2013 - Options
Name
Directors of Kula Gold Limited
D Frecker
L Spencer
L Rozman
M Stowell
Former director
J Watkins (resigned 19 July 2013)
Other key management personnel
S Pether
All vested options are exercisable.
2012 - Options
Name
Directors of Kula Gold Limited
Balance at
start of the
year
100,000
2,626,155
100,000
100,000
Granted as
compensation
Exercised
Balance at
end of the
year
Vested and
exercisable
Unvested
612,000
233,000
291,000
291,000
-
712,000
- 2,859,155
391,000
-
391,000
-
612,000
2,859,155
291,000
291,000
100,000
-
100,000
100,000
2,063,078
-
- 2,063,078
2,063,078
-
3,946,000
- 3,946,000
3,946,000
-
-
Balance at
start of the
year
Granted as
compensation
Exercised
Other
changes *
Balance at
end of the
year
Vested and
exercisable
Unvested
D Frecker
L Spencer
J Watkins
L Rozman
M Stowell
100,000
2,626,155
2,063,078
100,000
100,000
-
-
-
-
-
-
-
-
-
-
100,000
-
- 2,626,155
- 2,063,078
100,000
-
100,000
-
-
2,626,155
2,063,078
-
-
100,000
-
-
100,000
100,000
* Other changes represent options cancelled during the period.
All vested options are exercisable.
63
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
19 Key management personnel disclosures (continued)
(c) Equity instrument disclosures relating to key management personnel (continued)
(v) Share holdings
The numbers of shares in the Company held during the financial year by key management personnel of Kula Gold Limited group,
including their personally related parties, are set out below. There were no shares granted during the reporting period as
compensation.
2013 – Ordinary shares
Name
Directors of Kula Gold Limited
D Frecker
L Spencer
L Rozman
M Stowell
Former director
J Watkins (resigned 19 July 2013)
Other key management personnel
S Pether
* Represents shares purchased/sold on market.
Balance at the
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
57,500
579,870
410,287
362,500
460,000
-
-
-
-
-
-
-
-
-
-
-
-
-
42,500
-
(95,010)
2,617,560
100,000
579,870
315,277
2,980,060
180,000
640,000
1,300,000
1,300,000
2012 – Ordinary shares
Name
Directors of Kula Gold Limited
D Frecker
L Spencer
J Watkins
L Rozman
M Stowell
Balance at the
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
10,000
542,370
290,000
359,023
25,000
-
-
-
-
-
-
-
-
-
-
47,500
37,500
170,000
51,264
337,500
57,500
579,870
460,000
410,287
362,500
* All directors participated in the Share Placement Plan and have purchased 37,500 shares each. All other changes represent shares purchased on market.
(d) Loans and other transactions with key management personnel
There were no loans made to key management personnel during the reporting period (2012: $nil).
Other transactions with key management personnel are disclosed in note 23.
64
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
20 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
Other assurance services
Total remuneration for audit and other assurance services
Taxation services
Tax compliance services
Other tax advice
Total remuneration for taxation services
Consolidated
2012
$
2013
$
-
3,500
3,500
8,800
-
8,800
100,000
-
100,000
8,800
-
8,800
Total remuneration of PricewaterhouseCoopers Australia
12,300
108,800
(b) Network firms of PricewaterhouseCoopers Australia
Audit and other assurance services
Statutory audit and review of financial statements
Total remuneration of audit and other assurance services
Taxation services
Tax compliance services
Other tax advice
Total remuneration for taxation services
-
-
6,292
9,887
16,179
45,790
45,790
10,154
-
10,154
Total remuneration of related practices of PricewaterhouseCoopers Australia
16,179
55,944
(c) Ernst & Young Australia
Audit and other assurance services
Statutory audit and review of financial statements
Total remuneration for audit and other assurance services
Taxation services
Tax compliance services
Other tax advice
Total remuneration for taxation services
Total remuneration of Ernst & Young Australia
21 Contingencies
The Group had no contingent assets or liabilities at 31 December 2013 (2012: $nil).
65
82,500
82,500
-
-
-
82,500
-
-
-
-
-
-
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
22 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 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.
2013
$’000
Consolidated
2012
$’000
240
250
-
490
159
491
-
650
23 Related party transactions
(a) Subsidiaries
Details of the interest in the subsidiary are set out in note 24.
(b) Key management personnel compensation
Details of key management personnel remuneration are disclosed in note 19 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 2013:
• Companies associated with Pacific Road group of entities & RMB Resources Limited (& associated entities), who are the
majority shareholders of the Company provided debt finance to the Company during the year. Terms of the finance
facility are as follows:
Terms of the loan
Facility amount: AUD$3.0million
Interest rate: 90 day BBSW + margin of 5.5% p.a.
Interest payment date: Quarterly
Date of draw down: 20 December 2013
Maturity of loan: 30 November 2014
Security: Fixed and floating charge over the assets of the Company.
Mortgage over Woodlark Mining shares owned by the Company.
Other: Lenders to receive options for shares (based upon the share price at time of draw down) in the
Company in proportion to the value of funds drawn down plus a premium of 25%. Options to
expire 31 August 2018.
• Pacific Road Capital Management Pty Ltd was paid for services of L Rozman as a director of the parent entity $12,500.
•
Fees paid to Ashurst Australia $7,556 for general legal advice. D Frecker, a director of the Company is an employee of
Ashurst.
The following transactions occurred with related parties during the year ending 31 December 2012:
• Pacific Road Capital Management Pty Ltd was paid for services of L Rozman as a director of the parent entity $50,000.
•
Fees paid to Ashurst Australia $97,004 and Ashurst Papua New Guinea $11,705 for general legal advice. D Frecker, a
director of the Company was a non-equity partner of Ashurst.
66
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
24 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
Woodlark Mining Limited
Country of
incorporation
Class of
shares
Papua New
Guinea
Ordinary
Equity holding
2013
%
100
2012
%
100
25 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
Non-cash benefit to financiers of debt facility agreement
Write-down in value of inventory
Write-off of exploration & evaluation expenditure
Change in operating assets and liabilities:
(Increase) decrease in receivables
(increase) decrease in inventories
(Decrease) increase in trade and other payables
(Decrease) increase in de-mobilisation provision
Net cash inflow (outflow) from operating activities
26 Earnings per share
(a) Basic loss per share
2013
$'000
Consolidated
2012
$'000
(2,535)
25
279
29
242
-
152
69
(69)
(253)
(2,061)
(29,234)
22
365
-
-
26,587
506
202
(463)
250
(1,765)
2013
Cents
Consolidated
2012
Cents
From continuing operations attributable to the ordinary equity holders of the company
(2.01)
(25.45)
(b) Diluted loss per share
From continuing operations attributable to the ordinary equity holders of the company
(2.01)
(25.45)
Consolidated
2012
2013
(c) Weighted average number of shares used as the denominator
Weighted average number of ordinary shares used as the denominator in calculating basic
loss per share
126,253,023
114,888,440
Weighted average number of ordinary shares and potential ordinary shares used as the
denominator in calculating diluted loss per share
126,253,023
114,888,440
(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 27.
67
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
27 Share-based payments
(a) (i) Employee option plan
The Kula Gold Limited Option Plan (Plan) is designed to provide long-term incentives for executives and 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 cash 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 at the time of grant. The options vest immediately and may be exercised at
the discretion of the option holder.
Set out below are summaries of options granted under the Plan:
2013
Name
S Pether
S Pether
S Pether
K Neate
F Swart
Other employees
Total
2012
Grant date
Expiry date
Fair value
per option
25 Jan 2013
29 May 2013
8 Nov 2013
8 Nov 2013
8 Nov 2013
8 Nov 2013
25 Jan 2016
29 May 2016
8 Nov 2018
8 Nov 2018
8 Nov 2018
8 Nov 2018
$0.05
$0.03
$0.03
$0.03
$0.03
$0.03
Assessed fair
value at date of
grant
$ 50,000
$ 15,000
$ 73,380
$ 22,290
$ 14,700
$ 20,280
$195,650
Number of
options granted
1,000,000
500,000
2,446,000
743,000
490,000
676,000
5,855,000
There were no options granted under the Plan during the year ended 31 December 2012.
(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. On 30 June 2011 a non-executive director (P Bradford) resigned from the board and 100,000 options were forfeited.
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 these options is $1.80. 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.
No further options with these conditions have been granted to non-executive directors during the years ended 31 December 2013
and 2012.
Pursuant to the decision of the board on 20 December 2013, a total of 1,427,000 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 these options is $0.17. The options vest immediately and
may be exercised at the discretion of the option holder.
68
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
27 Share-based payments (continued)
(ii) Options for non-executive directors (continued)
2013
Name
D Frecker
L Spencer
L Rozman
M Stowell
Total
2012
Grant date
Expiry date
20 Dec 2013
20 Dec 2013
20 Dec 2013
20 Dec 2013
20 Dec 2018
20 Dec 2018
20 Dec 2018
20 Dec 2018
Fair value
per option
$0.03
$0.03
$0.03
$0.03
Assessed fair
value at date of
grant
$ 18,360
$ 6,990
$ 8,730
$ 8,730
$42,810
Number of
options granted
612,000
233,000
291,000
291,000
1,427,000
There were no options granted to directors during the year ended 31 December 2012.
(b) Options granted under the employee option plan and to non-executive directors
2013
Grant Date
Expiry date
Exercise
price
Balance at
start of the
year
Number
Granted
during the
year
Number
Exercised
during the
year
Number
Forfeited
during the
year
Number
Balance at
end of the
year
Number
Exercisable
at end of the
year
Number
01 Dec 2010
16 Mar 2011
14 Apr 2011
16 Dec 2011
25 Jan 2013
29 May 2013
8 Nov 2013
20 Dec 2013
Total
01 Dec 2015
16 Mar 2016
16 Mar 2016
16 Dec 2016
25 Jan 2016
29 May 2016
8 Nov 2013
20 Dec 2018
$1.80
$1.80
$1.80
$2.00
$0.48
$0.16
$0.17
$0.17
1,989,233
100,000
120,000
3,000,000
-
-
-
-
5,209,233
-
-
-
-
1,000,000
500,000
4,355,000
1,427,000
7,282,000
Weighted average exercise price
$1.92
$0.21
2012
-
-
-
-
-
-
-
-
-
1,989,233
-
100,000
-
120,000
-
3,000,000
-
1,000,000
-
500,000
-
4,355,000
-
-
1,427,000
- 12,491,233
$0.92
1,689,233
100,000
120,000
3,000,000
1,000,000
500,000
4,355,000
1,427,000
12,191,233
Grant Date
Expiry date
Exercise
price
Balance at
start of
the year
Number
Granted
during the
year
Number
Exercised
during the
year
Number
Cancelled
during the
year
Number
Balance at
end of the
year
Number
Exercisable
at end of the
year
Number
01 Dec 2010
16 Mar 2011
14 Apr 2011
16 Dec 2011
Total
01 Dec 2015
16 Mar 2016
16 Mar 2016
16 Dec 2016
$1.80
$1.80
$1.80
$2.00
Weighted average exercise price
1,989,233
100,000
120,000
3,000,000
5,209,233
$1.80
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,989,233
100,000
120,000
3,000,000
5,209,233
$1.92
1,689,233
100,000
120,000
3,000,000
4,909,233
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 3.6 years (2012: 3.5
years).
69
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
27Share-based payments (continued)
(b) Options granted under the employee option plan and to non-executive directors (continued)
Fair value of options granted
Refer to note 19 for assessing the fair value of options.
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.
The following factors were used in determining the fair value of options granted during the year ended 31 December 2013:
Granted
Number
Expiry Date
Fair Value
Per Option
Exercise
Price
Price Of
Shares On
Grant Date
Expected
Volatility
Interest
Rate
Name
S Pether
S Pether
S Pether
K Neate
F Swart
1,000,000
25 Jan 2016
500,000
29 May 2016
2,446,000
8 Nov 2018
743,000
8 Nov 2018
490,000
8 Nov 2018
Other employees
676,000
8 Nov 2018
D Frecker
L Spencer
L Rozman
M Stowell
612,000
20 Dec 2018
233,000
20 Dec 2018
291,000
20 Dec 2018
291,000
20 Dec 2018
$0.05
$0.03
$0.03
$0.03
$0.03
$0.03
$0.03
$0.03
$0.03
$0.03
$0.48
$0.16
$0.17
$0.17
$0.17
$0.17
$0.17
$0.17
$0.17
$0.17
$0.33
$0.10
$0.12
$0.12
$0.12
$0.12
$0.11
$0.11
$0.11
$0.11
47%
60%
67%
67%
67%
67%
69%
69%
69%
69%
2.83%
3.03%
3.35%
3.35%
3.35%
3.35%
3.25%
3.25%
3.25%
3.25%
Options were granted for no consideration and vest based on terms detailed in the Kula Gold Limited Option Plan. All options
vested on the date of issue.
(c) options issued to major shareholders as part of a debt facility
Pursuant to the Syndicated debt facility agreement dated 16 December 2013, it was agreed to provide the parties listed under the
agreement (see below) options for shares (based upon the 10 business day VWAP share price at the time of draw down) in
proportion to the funds advanced to the Company plus a premium of 25%. The options exercise price was set at $0.125.
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 the options is based upon Company’s share price. The options vest immediately and may be exercised at
the discretion of the option holders.
70
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
27 Share-based payments (continued)
(c) Options issued to major shareholders as part of a debt facility (continued)
Set out below are options issued to date under the Syndicated facility agreement.
2013
Name
Pacific Road Capital Management
acting as General Partner of the
Pacific Road Resources Fund
limited partnership
Pacific Road Capital A Pty Limited
as trustee of Pacific Road
Resources Fund A
Pacific Road Capital B Pty Limited
as trustee of Pacific Road
Resources Fund B
RMB Australia Holdings Limited
Grant date Expiry date
Fair value
per option
Assessed fair value at
date of grant
20 Dec 2013
31 Aug 2018
$0.04
$384,800
Number of
options
granted
9,620,000
20 Dec 2013
31 Aug 2018
$0.04
$47,600
1,190,000
20 Dec 2013
31 Aug 2018
$0.04
$47,600
1,190,000
20 Dec 2013
31 Aug 2018
$0.04
$480,000
12,000,000
$960,000
24,000,000
The following factors were used in determining the fair value of options granted during the year ended 31 December 2013:
Name
Granted
Number
Expiry Date
Fair Value
Per Option
Exercise
Price
Price Of
Shares On
Grant Date
Expected
Volatility
Interest
Rate
Pacific Road Capital
Management
Pacific Road Capital
A Pty Limited
Pacific Road Capital
B Pty Limited
RMB Australia
Holdings Limited
9,620,000 31 Aug 2018
$0.04
$0.13
$0.11
69%
3.25%
1,190,000 31 Aug 2018
$0.04
$0.13
$0.11
69%
3.25%
1,190,000 31 Aug 2018
$0.04
$0.13
$0.11
69%
3.25%
12,000,000 31 Aug 2018
$0.04
$0.13
$0.11
69%
3.25%
Options vest based on terms detailed in the Syndicated facility agreement dated 16 December 2013. All options vested on the
date of issue.
(d) Expenses arising from share-based payment transactions
Options issued under Kula Gold Limited Option Plan
2013
$’000
279
Consolidated
2012
$’000
403
71
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
28 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
(Loss)/Profit for the year
Total comprehensive (loss)/profit
2013
$’000
4,918
Parent entity
2012
$’000
5,870
138,583
109,378
2,196
26,254
392
468
112,329
108,910
139,946
1,254
(28,871)
139,946
15
(31,051)
112,329
108,910
(24,406)
(27,098)
(24,406)
(27,098)
(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 $112,486 (2012: $112,486).
(c) Contingent liabilities of the parent entity
The parent entity did not have any contingent liabilities as at 31 December 2013 (31 December 2012: $nil).
(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 2013
(31 December 2012: $nil).
29 Events occurring after the reporting period
On 17 February 2014 Woodlark Mining Limited received the Environment Permit for its Woodlark Island gold project. The permit
was issued by the PNG Director of Environment. This is a major step forward in obtaining the Mining Lease.
72
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2013
(continued)
30 Significant matters relating to the ongoing viability of operations
At 31 December 2013, the Company has cash and cash equivalents balance of $3,184,000 and a negative working capital of
$224,000. The group reported a net loss of $2,535,000 for the current financial year.
The Company has lodged with the PNG Mineral Resources Authority its Mining Lease Application. The application has been
considered by the PNG Mining Advisory Council (MAC) in December 2013 at which it raised a number of issued which included
the issuing of the Environment Permit. A reply has been made to the MAC on the issues raised in early 2014. On the 17
February 2014 the Environment Permit was issued by the PNG Director of Environment. The issue of the Mining Lease by the
end of the March quarter 2014 is the Company’s expectation.
The Company will likely need to secure further funding by debt, equity or joint venture or other for operations and/or development
within the next 3 months depending on other corporate activities.
Given the reliance on securing funds from one or more of the above sources, there is some uncertainty as to whether the Company
will be successful in securing funds and therefore be able to pay debts as and when they fall due. However, the directors are
confident that funding can be obtained to enable the business to continue as a going concern. The Company has received debt
funding from its major shareholders, and has expressions of interest from others. Directors are confident that additional debt
funding can be secured from one of these sources or an equity or joint venture opportunity will arise. On this basis the directors
consider it reasonable that the accounts be prepared on a going concern basis.
73
Kula Gold Limited
Directors' declaration
31 December 2013
In accordance with a resolution of the directors of Kula Gold Limited, I state that:
1.
In the opinion of the directors:
(a)
the financial statements and notes of Kula Gold Limited for the financial year ended 31 December 2013 are in accordance
with the Corporations Act 2001, including:
(i) giving a true and fair view of the consolidated entity's financial position as at 31 December 2013 and of its performance for
the year ended on that date; and
(ii) complying with Accounting Standards and the Corporations Regulations 2001;
(b)
the financial statements and notes also comply with International Financial Reporting Standards as disclosed in Note 1;
and
(c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and
payable.
2. This declaration has been made after receiving the declarations required to be made to the directors by the chief executive
officer and chief financial officer in accordance with section 295A of the Corporations Act 2001 for financial year ended 31
December 2013.
On behalf of the board
David Frecker
Chairman
Sydney
20 March 2014
74
Ernst & Young
680 George Street
Sydney NSW 2000 Australia
GPO Box 2646 Sydney NSW 2001
Tel: +61 2 9248 5555
Fax: +61 2 9248 5959
ey.com/au
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, which comprises the
consolidated statement of financial position as at 31 December 2013, the consolidated statement of
comprehensive income, the consolidated statement of changes in equity and the consolidated
statement of cash flows for the year then ended, notes comprising a summary of significant accounting
policies and other explanatory information, and the directors' declaration of the consolidated entity
comprising the company and the entities it controlled at the year's end or from time to time during the
financial year.
Directors' responsibility for the financial report
The directors of the company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal controls as the directors determine are necessary to enable the preparation of
the financial report that is free from material misstatement, whether due to fraud or error. 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. Those standards require that we comply with
relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain
reasonable assurance about whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial report. The procedures selected depend on the auditor's judgment, 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 controls 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 controls. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by the directors, as well as
evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
Independence
In conducting our audit we have complied with the independence requirements of the Corporations Act
2001. We have given to the directors of the company a written Auditor’s Independence Declaration.
75
Opinion
In our opinion:
a.
e financial report of Kula Gold Limited is in accordance with the Corporations Act 2001,
th
c
in
luding:
i
ii
giving a true and fair view of the consolidated entity's financial position as at 31
December 2013 and of its performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations
2001; and
b.
the financial report also complies with International Financial Reporting Standards as
disclosed in Note 1.
Report on the remuneration report
We have audited the Remuneration Report included in the directors' report for the year ended 31
December 2013. The directors of the company are responsible for the preparation and presentation of
the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
Opinion
In our opinion, the Remuneration Report of Kula Gold Limited for the year ended 31 December 2013,
complies with section 300A of the Corporations Act 2001.
Material Uncertainty Regarding Continuation as a Going Concern
Without qualifying our opinion, we draw attention to Note 30 in the financial report which describes
the principal conditions that raise doubt about the consolidated entities’ ability to continue as a going
concern. These conditions indicate the existence of a material uncertainty that may cast significant
doubt about the consolidated entity’s ability to continue as a going concern and therefore, the
consolidated entity may be unable to realise its assets and discharge its liabilities in the normal course
of business.
Ernst & Young
Anton Ivanyi
Partner
Sydney
20 March 2014
76
Kula Gold Limited
Shareholder information
31 December 2013
(continued)
Shareholder Information
Additional information required by the Australian Securities Exchange Limited and not shown elsewhere in the report is as follows:
The shareholder information set out below was applicable as at 24 April 2014.
Ordinary share capital
As at 24 April 2014, the issued capital comprised of 126,253,023 ordinary fully paid quoted shares.
Distribution of equity securities
Analysis of numbers of equity security holders by size of holding:
Holding
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and over
Ordinary shares
Number of
Shares
35,898
420,774
752,258
8,552,299
116,491,794
126,253,023
Number of
Holders
66
138
92
226
60
582
Options
Number of
Holders
-
-
-
2
13
15
Number of
options
-
-
-
164,000
36,327,233
36,491,233
There were 243 holders of less than a marketable parcel of ordinary shares.
Unquoted options
The Company had the following unquoted options on issue:
a) Employee option plan – there are 10,764,233 unquoted options on issue, held by 9 employees or contractors.
b) Other unlisted options
Option holder
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
Lee Keith Spencer & Ani Susilo Spencer
c) Options issued under the Syndicated facility agreement
Pacific Road Capital Management
acting as General Partner of the
Pacific Road Resources Fund limited partnership
Pacific Road Capital A Pty Limited
as trustee of Pacific Road Resources Fund A
Pacific Road Capital B Pty Limited
as trustee of Pacific Road Resources Fund B
RMB Australia Holdings Limited
77
Number of
Options
712,000
391,000
391,000
233,000
1,727,000
Number of
Options
9,620,000
1,190,000
1,190,000
12,000,000
24,000,000
Percentage
41.23%
22.64%
22.64%
13.49%
100.00%
Percentage
40.00%
5.00%
5.00%
50.00%
100.00%
Kula Gold Limited
Shareholder information
31 December 2013
(continued)
Shareholder Information (continued)
Twenty largest holders of quoted equity securities
No. Shareholder
Ordinary shares
1 Pacific Road Holdings NV
2 RMB Resources Limited
3 National Nominees Limited
4 Pacific Road Capital B Pty Ltd
4 Pacific Road Capital A Pty Ltd
5 Zero Nominees Pty Ltd
6 Brispot Nominees Pty Ltd
7 Merchant Holdings Pty Ltd
8 Mr Stuart James Pether & Mrs Fiona Maree Pether
9 Fancourt Links Pty Ltd
10 ABN Amro Clearing Sydney Nominees Pty Ltd
11 JP Morgan Nominees Australia Limited (cash income a/c)
12 HSBC Custody Nominees (Australia) Limited
13 Citicorp Nominees Pty Limited
14 Awesone Asset Securities Pty Ltd
15 Mr Stanislaw Antoni Zychewicz
16 Gecko Resources Pty Ltd
17 JP Morgan Nominees Australia Limited
18 Mr Godfrey Norman Mantle & Mrs Jennifer Deborah Mantle
19 JDW Investments Australia Pty Ltd
20 UBS Wealth Management Australia Nominees Pty Ltd
Substantial holders
Substantial holders in the Company are set out below:
Name of substantial shareholder
Pacific Road Holdings NV
RMB Resource Limited
National Nominees Limited
Number held
43,574,379
18,651,496
11,101,016
5,398,327
5,398,327
5,142,107
2,813,670
2,466,068
1,300,000
1,267,866
1,193,016
1,161,172
985,442
951,250
865,000
805,000
800,000
735,000
695,593
640,000
608,636
106,553,365
Percentage of
quoted shares
34.51%
14.77%
8.79%
4.28%
4.28%
4.07%
2.23%
1.95%
1.03%
1.00%
0.94%
0.92%
0.78%
0.75%
0.69%
0.64%
0.63%
0.58%
0.55%
0.51%
0.48%
84.38%
Number of
shares held
Percentage of
issued shares
54,371,033
18,651,496
11,101,016
43.07%
14.77%
8.79%
84,123,545
66.63%
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.
78
Kula Gold Limited
Shareholder information
31 December 2013
(continued)
Interest in Mining Tenements
Current interest in tenements held by Kula Gold Limited and its subsidiary, as at 24 April 2014 are listed below:
Country / Location
Papua New Guinea / Woodlark Island
Papua New Guinea / Woodlark Island
Papua New Guinea / Woodlark Island
Tenement
EL 1172
EL 1279
EL 1465
Interest
100%
100%
100%
Mineral Resources and Ore Reserves Statement
JORC 2004 Mineral Resources for the Woodlark Island Gold Project at 0.5g/t gold cut-off grade
Deposit
Category
Resource
Grade
Grade
Gold
(Mt)
(Uncut)
(Cut)
(Uncut)
(g/t Gold)
(g/t Gold)
(Oz)
Kulumadau
Measured
Kulumadau
Indicated
Kulumadau
Inferred
Kulumadau
Totals
Busai
Busai
Busai
Busai
Boniavat
Boniavat
Boniavat
All
All
All
Measured
Indicated
Inferred
Total
Indicated
Inferred
Total
Measured
Indicated
Inferred
Totals*
5.0
4.4
8.6
18.0
3.9
10.4
8.8
23.1
3.0
1.0
4.0
8.9
17.8
18.5
45.1
1.84
1.95
1.5
1.7
1.60
1.5
1.3
1.4
1.3
1.9
1.4
1.78
1.75
1.4
1.6
1.54
1.4
1.3
1.4
1.2
1.8
1.4
1.73
1.67
1.6
1.4
1.5
1.5
1.4
1.5
Gold
(Cut)
(Oz)
285,000
245,000
375,000
910,000
190,000
480,000
370,000
295,000
275,000
410,000
980,000
200,000
490,000
370,000
1,060,000
1,040,000
125,000
60,000
185,000
495,000
890,000
835,000
115,000
60,000
175,000
480,000
840,000
800,000
2,230,000
2,120,000
Note 1: Totals may appear incorrect due to rounding
Note 2: The Busai Indicated Resource includes 0.4Mt @ 1.4/t Au for 20,000oz from overlying alluvial mineralisation.
Note 3: The Busai Inferred Resource includes 0.4Mt @ 1.2/t Au for 15,000oz from overlying alluvial mineralisation and 3.9Mt @
0.9g/t Au for 110,000oz from Munasi (2km southeast of Busai).
Note 4: The Boniavat Inferred Resource includes 0.3Mt @ 3.0g/t for 30,000oz Au from Watou (1.5km south of Woodlark King).
79
Kula Gold Limited
Shareholder information
31 December 2013
(continued)
Mineral Resources and Ore Reserves (continued)
JORC 2004 Woodlark Island Gold Project Resources at 1.0g/t gold cut-off grade
Resource Category
Resource
Gold
Gold Oz
Measured
Indicated
Inferred
Totals*
(Mt)
5.1
7.6
7.0
19.7
Cut (g/t)
Cut
2.34
2.5
2.4
2.45
385,000
615,000
545,000
1,550,000
* as at July 2012 at a 1g/t Au lower cut. Totals may appear incorrect due to rounding
JORC 2004 Woodlark Island Gold Project Ore Reserves at a 1.0g/t gold cut off grade
Deposit
Proved
Gold
Probable
Gold
Total
Gold
Tonnes Grade Ounces
Tonnes Grade Ounces
Tonnes
Grade Ounces
Busai
3,283,000
2.2
233,000 2,811,000
1.9
175,000
6,094,000
2.1
408,000
Kulumadau
3,144,000
2.2
223,000
751,000
2.4
59,000
3,863,000
2.3
282,000
Woodlark King
Kulumadau East
704,000
1.7
39,000
704,000
1.7
39,000
330,000
3.7
37,000
330,000
3.7
37,000
Total
6,427,000
2.2
456,000 4,596,000
2.1
310,000 10,991,000
2.2
766,000
*as at July 2012 at a 1g/t Au lower cut. Totals may appear incorrect due to rounding
Note: There have been no material changes to the reported resources from what was previously reported under the old 2004
JORC code.
80
Kula Gold Limited
Shareholder information
31 December 2013
(continued)
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
a non-executive director 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.
81