KULA GOLD LIMITED
ABN 83 126 741 259
2014 ANNUAL REPORT
Kula Gold Limited ABN 83 126 741 259
2014 Annual Report
Corporate Directory
Directors:
David Frecker
Chairman
Louis Rozman
Non-executive director
Lee Spencer
Mark Stowell
Non-executive director
Non-executive director
Chief Executive Officer
Stuart Pether
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
2014 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
4
5
13
17
26
27
34
35
36
37
39
72
73
75
77
77
3
Kula Gold Limited
Chairman’s letter
31 December 2014
Chairman’s letter
Your Company's major achievement during 2014 was to complete permitting for the Woodlark Island Gold Project in Papua New
Guinea.
The Environment Permit for the Project was issued in February 2014 for a term of 20 years; and the Mining Lease was signed by
the Minister for Mining and granted with effect from 4 July 2014 for a term of 20 years. Both the Permit and the Lease are subject
to agreed conditions. We are appreciative of the professional manner in which the staff of the Department of Environment and
Conservation and the Mineral Resources Authority worked through the permitting process with the Company.
In late August 2014, the Company received written confirmation from the PNG Government that it will exercise the State equity
option to participate in the development of the Woodlark Island Gold Project by acquiring a 5% interest, to be held on behalf of
landowners and the provincial government. In accordance with the terms of the option in all exploration licences, the purchase
price will be 5% of the accumulated exploration expenditure on the Project and thereafter proportionate contributions to further
exploration and development. The Company is in the process of agreeing the details of this participation with the Government.
The PNG Government's decision to acquire equity in the Project for landowners and the provincial government is further evidence
of the strong support Kula Gold is receiving from the Government and local communities on Woodlark Island for the development
of the Project.
On Woodlark Island, the Company continues to provide employment opportunities for local people, and health services for them
through its clinic at Bomagai. 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 are expected to be formalised
in a Memorandum of Agreement to be concluded soon.
During 2014, the Company undertook two equity capital raisings. In June, $2.15 million was raised through an underwritten non-
renounceable rights issue of shares. In November, a total of $6.56 million, comprising $3.56 million through an institutional equity
placement and $3.0 million through the conversion of the outstanding working capital debt facility into equity was obtained by the
issue of shares and options. The Board was appreciative of the support of a number of its major shareholders in these capital
raisings, and was also pleased to welcome a number of new shareholders. The Board is striving to deliver value for all these
shareholders.
The next task for the Company's Board and management is to source the funds required, both equity capital and debt finance, to
develop the Project. At current gold prices, this presents a challenge. However, the Company approaches this challenge fully
permitted and debt free. It has been in discussion with a number of potential investors and financiers, and has appointed advisers
to assist it in the process.
The Board thanks the small management team - energetically led by our CEO, Stuart Pether – and all our employees (especially
our dedicated employees on Woodlark Island) for their efforts during the year. We thank the Minister for Mining, the Hon. Byron
Chan MP, and the Milne Bay Provincial Governor, the Hon. Titus Philemon MP, for their ongoing support of the Woodlark Island
Mining Project. We also thank the leaders of the people on Woodlark Island as they patiently wait for the development of the
Project to proceed.
David Frecker
Chairman
4
Kula Gold Limited
Chief Executive Officer’s report
31 December 2014
Chief Executive Officer’s report
Overview
The year ending 31 December 2014 has been a period of reducing risk for the Woodlark Island Gold Project. The issue of the
Environment Permit and the Mining Lease, along with notification by the State of Papua New Guinea of its decision to acquire a
5% equity interest in the Project, are significant milestones that remove risk and uncertainty for existing shareholders, future
investors and Project financiers.
The Company successfully raised funds for working capital and converted the 2013 working capital debt facility into equity. The
Company is now free of debt and poised to advance the Woodlark Island Gold Project toward Project funding and production.
All activities during the year have been aimed at advancing the Project toward development and increasing the attractiveness of
the Project to future investors and financiers. The key activities and milestones completed during the year are:
The issues of the Environment Permit for the Woodlark Island Gold Project by the PNG Director of Environment on 17
February 2014. The Permit is for a twenty year term expiring on 15 March 2034.
The issue of the Mining Lease 508 by the PNG Minister for Mining on 4 July 2014. The Lease is for a term of twenty years
and can be extended for a further 10 years.
The completion of an underwritten non-renounceable rights issue of shares in June 2014, raising funds for the demonstration
of Resource discovery potential at the Project and for working capital.
An institutional equity placement of shares and the conversion of the 2013 working capital debt facility into equity was
completed in November. This has left the Company debt free and sufficiently funded to advance the Project toward
development.
A Helimag survey was undertaken in July 2014 on high priority target areas in the central part of Woodlark Island. The high
quality magnetic and structural data will allow for more efficient on ground locating of identified exploration targets.
Analysis of the Helimag data and follow up low cost drilling and trenching programs were undertaken on two of the highest
priority target areas. The program where planned to demonstrate the improved targeting process and Resource growth
potential. A number of zones of ore grade gold mineralisation were identified, confirming the significant potential to expand
the Woodlark Island Gold Project resource base.
The State of Papua New Guinea exercised the option to acquire a 5% equity in the Woodlark Island Gold Project for the
payment of sunk costs and commitment to contributing to the corresponding percentage of future exploration and
development costs within Mining Lease 508. The acquired equity interest will be allocated by the State to local landowners
and the Milne Bay Provincial Government.
Corporate
The Company successfully raised working capital during the year via an underwritten 1 for 5 non-renounceable rights issue in June
2014, raising $2.15 million from existing shareholders and via an institutional equity placement to major shareholders and new and
sophisticated investors in November, raising $3.56 million.
The $3 million working capital debt facility was converted into equity under the same terms as the November equity placement and
left the Company debt free and with working capital to continue to advance the Woodlark Island Gold Project towards production.
Cost control continued during the year to conserve the Company’s cash position during the permitting process. Personnel numbers
were further reduced at a corporate and Project level.
A funding advisor was appointed to assist the Company in identifying funding options for the development of the Woodlark Island
Gold Project.
Strategic advisors for Australia and North America were appointed to assist with negotiations around the future funding and
development opportunities for the Woodlark Island Gold Project.
Permits and Licenses
The Environment Permit for the Woodlark Island Gold Project was issued by the PNG Director of Environment on 17 February 2014.
The issue of the Permit was the result of a 12 month process assessing the Project Environmental Impact Statement (EIS) by the
PNG Department of Environment and Conservation (DEC).
The DEC assessment involved a technical review by an independent marine and environmental consultancy, a public consultation
process and a final recommendation to the Minister for Environment and Conservation by the PNG Environmental Council, a
Government appointed independent group of PNG professionals.
5
Kula Gold Limited
Chief Executive Officer’s report
31 December 2014
Chief Executive Officer’s report (continued)
The Mining Lease for the Project was signed by the Papua New Guinea Minister for Mining, the Hon. Byron Chan MP, on Friday 4
July 2014. The signing ceremony was held in Alotau, the capital of the Milne Bay Province and was attended by the Governor for
Milne Bay Province, the Hon. Titus Philemon MP, senior executives from the Mineral Resources Authority and the Milne Bay Provincial
Government, representatives of the Woodlark Island Landowner’s Association, representatives of Woodlark Mining Limited and a
number of other interested stakeholders.
The Minister for Mining the Hon. Byron Chan MP,
signing the Woodlark Island Gold Project Mining Lease.
The Mining Lease is for a term of 20 years and under the Mining Act is be capable of being extended for a further period not exceeding
10 years.
6
Kula Gold Limited
Chief Executive Officer’s report
31 December 2014
Chief Executive Officer’s report (continued)
Mineral Resources
Mineral Resources for the Woodlark Island Gold Project remain unchanged. The current 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
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
(Mt)
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
Grade
(g/t Au)
Gold
(Ounces)
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
285,000
245,000
375,000
905,000
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).
Helimag Survey
A Helimag survey over the central part of Woodlark Island was completed during the year. The survey covered the most
prospective part of Woodlark Island which also contains the current 2.12 million ounces of Mineral Resources and the Mining
Lease. The results confirm the Company’s view that the Project’s current resource base could be significantly expanded with
further focused exploration beneath the thin overlying cover sediments.
A significant amount of geological knowledge has been accumulated during the discovery of the current Mineral Resources. The
relationship between host rocks, alteration, bounding structures and the economic mineralisation at the known deposits, has been
integrated with the magnetic data resulting in a significantly improved understanding of gold mineralising controls within the current
Mineral Resources. It is now clear that the magnetic lows associated with the Mineral Resources are fault bounded by NE and
NW trending structures. The fault bounded nature of these magnetic lows were not apparent from the previous historic
aeromagnetic data, collected by previous Project owners.
This understanding has been applied to enable a low cost and more efficient regional exploration phase. Additional resource
discovery will add to the profitability of the 1.8Mtpa Project and potentially enable an upgrade of capacity in a stage 2 expansion
to 4Mtpa.
7
Chief Executive Officer’s report (continued)
Kula Gold Limited
Chief Executive Officer’s report
31 December 2014
Historic aeromagnetic data at Kulumadau and known mineralisation outlined in white.
New Helimag survey data and structural interpretation at Kulumadau and
known mineralisation outlined in white.
This new understanding has led to an improved targeting process and resulted in the more efficient exploration of targets located
under the thin sediment cover.
8
Kula Gold Limited
Chief Executive Officer’s report
31 December 2014
Chief Executive Officer’s report (continued)
Kulumadau North Drilling Program
A drilling program was completed on the Kulumadau North area on the north-eastern flank of the interpreted magnetic low from
the new magnetics data. The first hole 14WGND001 returned 11 metres of ore grade mineralisation over 3 zones from 58 metres
down hole. The second hole 14WGND002 was drilled 200 metres west of the first hole intersected 36 metres of argillic alteration
with associated elevated base metals, however contained no significant gold assays.
The intersection of significant widths of ore grade mineralisation and the encouraging presence of alteration and associated base
metals confirms that a significant hydrothermal system lies to the north of the Kulumadau Mineral Resource, as indicated by the
Helimag data and shows the potential to expand the existing Project gold resource. The detailed results are in the table below:
Hole ID
Easting
Northing
Azimuth
Dip
From
To
g/T Au
Interval
Assay
14
WGND001
470215mE
8996669mN
051.5°mag
-55°
14
WGND002
470041mE
8996712mN
059°mag
-59
3
41
55
5
47
58
1.77
3.6
1.6
No
significant
assays
Helimag Image, Resources and Drill Hole Location Kulumadau North
9
Kula Gold Limited
Chief Executive Officer’s report
31 December 2014
Chief Executive Officer’s report (continued)
Watou Trenching Program
A total of 1,930 metres of reconnaissance and infill trenches were completed on approximately 30 metres spacing over a 400
metre strike length within the Watou target area.
Samples were secured on one metres intervals by the collection of rock and soil material from a regular shaded slot cut into the
wall of the trench. The trenching results have confirmed the presence of at least two zones of surface mineralisation which
demonstrate strike continuity with associated ore grade gold assays and at the third new zone open along strike.
Watou Infill Trenching Locations and Results.
The western mineralised zone is associated with a steeply dipping NW striking structure hosting silicified hydrothermal breccias
adjacent to a felsic dyke. A WNW striking quartz vein zone varying in width between 3 and 6 metres has been confirmed to the
east of the breccia zone. This quartz vein system dips westerly towards the breccia zone with the postulated intersection of the
two zones being of significant exploration interest.
A third quartz vein zone striking NS has been partially delineated in the south where indicative widths range from 8 to 23 metres
with attendant higher gold grades. Further trenching is required to confirm strike continuity of this latter quartz vein zone towards
the north and south. The western breccia zone is open to the SE and the NW where Helimag and geochemical data indicate the
possibility of further mineralisation.
10
Kula Gold Limited
Chief Executive Officer’s report
31 December 2014
Chief Executive Officer’s report (continued)
Little Mackenzie Trenching Program
A 106 metre long reconnaissance trench was completed at the Little Mackenzie target area which is formed by the north-west
trending Woodlark King-Illawarra Fault Zone and a north-east trending fault adjacent to an intense magnetic low identified by the
new Helimag data. The trench was located on the apex of a ridge characterised by thick soil cover and delineated as being a
prime target for epithermal gold mineralisation. Assays from trenching returned the following results:
•
•
•
Zone 1: 4 metres @ 4.8 g/t Au
Zone 2: 13 metres @ 2.0 g/t Au
Zone 3: 4 metres @ 1.9 g/t Au
The three zones were contained within a 40 metre section of the trench with Zones 2 and 3 separated by 4 metres and Zone 1 by
15 metres. The trench was oriented perpendicular to the NE strike of the zones, based on current geological understanding.
Three other zones of strong alteration were also intersected of similar dimensions with assays of less than 1 g/t Au, but with
associated base metals indicating potential at depth or along strike.
The mineralisation exposed by trenching at Zone 1 displayed silicified hydrothermal breccias, cut by later flat-lying quartz veins
within a strongly argillised envelope. Grab samples of the breccia returned assays up to 28.9 g/t Au. A chip sample from a 0.3
metre wide silicified structure in Zone 2 returned 11.6 g/t Au within a 1 metre zone assaying 4.5 g/t Au.
Little Mackenzie trenching exposed NE trending 4 metre wide zone of argillic alteration showing
silicified hydrothermal breccias (blue), flat-lying quartz vein (red).
State Equity
The PNG State exercised its option to acquire a 5% interest in the Woodlark Island Gold Project, which will be shared between the
local landowners and the Milne Bay Provincial Government. The 5% interest will see the PNG State contributing 5% of the hist oric
sunk costs, estimated at between US$5 and US$6 million and 5% of the future exploration and construction costs up to the point of
first production on the Mining Lease.
11
Kula Gold Limited
Chief Executive Officer’s report
31 December 2014
Chief Executive Officer’s report (continued)
Site Operations
No serious or lost time injury were record at the Project during the year. Work activities at the Woodlark Island Gold Project were
focused on Project approvals, demonstrating further resource potential through the Helimag survey, conducting trenching and
drilling programs and maintaining the Project infrastructure and assets.
The Company continues to conduct safety inductions, weekly tool box meetings and incident reporting and to 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 health services to Company employees, their extended families and the community.
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 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. This was especially so during the Mining
Lease and Memorandum of Agreement processes. 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
12
Kula Gold Limited
Directors’ report
31 December 2014
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 2014.
Directors
The following persons were directors of Kula Gold during the whole of the financial year and up to the date of this report:
David Frecker
Lee Spencer
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 (2013: $nil).
Result of operations
The net loss from operations of the consolidated entity was $53,230,000 (2013: loss of $2,535,000).
Review of operations
The receipt of the Environment Permit for Woodlark Island Gold Project (the Project) on 17 February 2014 and the Mining Lease
(ML508) on 4 July 2014 means the Project is fully permitted and licensed, and is the result of the hard work and determination of
the Board, management and employees of the Company.
On 19 August 2014 management received notification that the PNG State had exercised its right to acquire a 5% interest in the
Woodlark Island Gold Project, on behalf of the landowners and Provincial Government, through a letter dated 17 June 2014. Initial
communication and negotiations have commenced with the PNG Treasury and Mineral Resource Development Company, with
the intention of concluding the terms of the agreement in the first half of 2015.
During the year the Company raised proceeds of $5,375,000 (net of transaction costs) and the working capital debt facility of
$3.0M, that was set up to ensure continued funding of the Company’s operations, was converted to equity. This leaves the
Company in a debt free position and funded to continue the efforts of securing Project funding.
On 21 October 2014 Garry Perotti was appointed Chief Financial Officer (CFO) of the Company. Garry has over 27 years’
experience in corporate finance, financial management, accounting and commercial roles.
Significant matters relating to the ongoing viability of operations
At 31 December 2014 the Company had cash and cash equivalents balance of $2,732,000. The Group reported a net loss of
$53,230,000 for the current financial year.
Now that the Project is fully permitted and licensed, the Board’s objective is to place the Project in a position to secure funding
through debt, equity, a corporate transaction or a joint venture agreement in order to progress the Project to the construction
phase.
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 converted the
debt funding, received from its major shareholders, to equity. It is anticipated that funds will be made available to the Company
through equity raising or through a joint venture or corporate transaction should an opportunity arise. On this basis the Directors
consider it reasonable that the accounts be prepared on a going concern basis.
13
Kula Gold Limited
Directors’ report
31 December 2014
Directors' report (continued)
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.
Information on directors
David Frecker BA, LLM Independent Chairman and Non-executive director. Age 66.
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
1,120,000 ordinary fully paid shares.
100,000 KGDOPT2 class options to acquire ordinary fully paid shares. Exercise price $1.80, expiry 1 Dec 2015
612,000 KGDOPT8 class options to acquire ordinary fully paid shares. Exercise price $0.17, expiry 20 Dec 2018
500,000 KGDOPT10 class options to acquire ordinary fully paid shares. Exercise price $0.125, expiry 28 Nov 2016
14
Kula Gold Limited
Directors’ report
31 December 2014
Directors' report (continued)
Information on directors (continued)
Lee Spencer MSc App (Mineral exploration) Non-executive director. Age 61.
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 Dec 2015
1,500,000 KGDOPT5 class options to acquire ordinary fully paid shares. Exercise price $2.00, expiry 16 Dec 2016
233,000 KGDOPT7 class options to acquire ordinary fully paid shares. Exercise price $0.17, expiry 20 Dec 2018
Louis Rozman BEng (Mining), Masters in Geoscience (Min Ec) Non-executive director. Age 57.
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 Fellow
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 and Carbon Energy Ltd.
Former directorships in last 3 years
Mawson West Ltd.
Special responsibilities
Non-executive director.
Chairman of the risk committee.
Chairman of the remuneration and nomination committee.
Interests in shares and options
813,605 ordinary fully paid shares;
100,000 KGDOPT2 class options to acquire ordinary fully paid shares. Exercise price $1.80, expiry 1 Dec 2015
291,000 KGDOPT7 class options to acquire ordinary fully paid shares. Exercise price $0.17, expiry 20 Dec 2018
20,944 KGDOPT9 class options to acquire ordinary fully paid shares. Exercise price $0.125, expiry 31 Aug 2018
159,280 KGDOPT10 class options to acquire ordinary fully paid shares. Exercise price $0.125, expiry 28 Nov 2016
15
Kula Gold Limited
Directors’ report
31 December 2014
Directors' report (continued)
Information on directors (continued)
Mark Stowell BBus, CA Independent Non-executive director. Age 51.
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 director of Incremental
Petroleum Limited, an oil and gas producer with operations in Turkey and the USA until its takeover in 2009. He is a Non-executive
director and founder of Mawson West Ltd, a Toronto Stock Exchange (TSX:MWE) listed copper miner operating in Africa. Mark is
also Chairman of Incremental Oil and Gas Ltd, (ASX: IOG) a USA oil and gas producer and a director of Orrex Resources Limited.
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.
Interests in shares and options
5,515,001 ordinary fully paid shares
100,000 KGDOPT2 class options to acquire ordinary fully paid shares. Exercise price $1.80, expiry 1 Dec 2015
291,000 KGDOPT7 class options to acquire ordinary fully paid shares. Exercise price $0.17, expiry 20 Dec 2018
800,000 KGDOPT10 class options to acquire ordinary fully paid shares. Exercise price $0.125, expiry 28 Nov 2016
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 2014, 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
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
15
15
15
13
15
14
3
-
-
3
3
-
-
3
-
-
-
-
-
-
-
-
2
-
2
2
2
-
2
2
16
Directors' report (continued)
Remuneration report
The remuneration report sets out remuneration information for Kula Gold Limited’s executive directors, Non-executive directors
and other key management personnel.
Kula Gold Limited
Directors’ report
31 December 2014
(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.
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.
17
Kula Gold Limited
Directors’ report
31 December 2014
Directors' report (continued)
Remuneration report (continued)
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.
Executive compensation
Remuneration to executives is not paid by commission on, or percentage of, profits or operating revenue.
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
Nil
Non-executive directors
D Frecker
L Rozman
L. Spencer
M Stowell
Other key management personnel
S Pether
G Perotti
Position
Position
Non-executive chairman
Non-executive director
Non-executive director
Non-executive director
Chief Executive Officer
Chief Financial Officer (appointed 21 October 2014)
18
Kula Gold Limited
Directors’ report
31 December 2014
Directors' report (continued)
Remuneration report (continued)
Key management personnel of the Group – 2014
Short-term employee
benefits
Post-employment
benefits
Long-term
benefits
Share-based
payments
Name
Directors
D Frecker
L Spencer
M Stowell
Cash
salary and
fees
$
70,000
40,000
50,000
Cash
bonus
$
-
-
-
Other key management personnel
S Pether
G Perotti #
338,885
29,891
140,049
-
Total
528,776
140,049
Annual
Leave
$
-
-
-
8,785
-
8,785
# Appointed Chief Financial Officer on 21 October 2014
Superannuation
$
6,563
3,750
4,688
18,279
2,840
36,120
Long service
leave
$
-
-
-
6,904
-
6,904
Options
Percentage of
total package
$
-
-
-
-
-
-
%
-
-
-
-
-
Total
$
76,563
43,750
54,688
512,902
32,731
720,634
The relative proportions of remuneration that are linked to performance and those that are fixed are as follows:
Name
Directors
D Frecker
L Spencer
M Stowell
Other key management personnel
S Pether
G Perotti
Key management personnel of the Group – 2013
Fixed remuneration
2014
%
At risk
short-term incentives
2014
%
At risk
long-term incentives
2014
%
100
100
100
61
100
-
-
-
39
-
-
-
-
-
-
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
-
-
Other key management personnel
S Pether #
239,591
115,375
18,609
Total
904,670
115,375
45,635
Superannuation
$
6,388
10,085
8,235
-
4,562
15,750
45,020
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
5,743
138,380
25.9
533,448399.4
399
11,857
221,024
1,343,581
* 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
19
Kula Gold Limited
Directors’ report
31 December 2014
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.
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;
S Pether, Chief Executive Officer
Base salary: $338,530 per annum plus superannuation guarantee, to be reviewed annually on 1 January each year. The
annual salary was increased effective 1 January 2014 by CPI of 2.7% to an annual rate of $347,670. On the 1st of January
2015 the base salary was again increased by the CPI of 1.7% to the annual base rate of $353,581.
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.
G Perotti, Chief Financial Officer
Commencement of employment date 21 October 2014 as contract Chief Financial Officer;
Terms of agreement: Contracted to 31 March 2015;
Base salary: $150,000 per annum plus superannuation guarantee, inclusive of all benefits;
Performance bonus: Eligible to be paid a performance related bonus on the successful completion of stipulated KPI’s up to a
potential total of $50,000;
There are no termination benefits and, if required by the Company, the contract will be re-negotiated.
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.
20
Kula Gold Limited
Directors’ report
31 December 2014
Directors' report (continued)
The following options are held by directors and key management personnel of the Company as at 31 December 2014:
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.
21
Kula Gold Limited
Directors’ report
31 December 2014
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
%
77
Potential
Bonus unearned
%
23
22
Kula Gold Limited
Directors’ report
31 December 2014
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 2014 (2013: 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
28 Nov 2014
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
28 Nov 2016
Exercise price of
shares
$1.80
$1.80
$1.80
$2.00
$0.48
$0.16
$0.17
$0.17
$0.125
$0.125
Number under
option
1,989,233
100,000
120,000
3,000,000
1,000,000
500,000
3,962,000
1,427,000
24,000,000
54,604,178
90,702,411
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 2014:
Position
Kula Gold Limited
Woodlark Mining Limited
Total
Directors (Executive)
Directors (Non-executive)
Senior executive
Other
Male
-
4
2
-
6
Female
-
-
-
1
1
Male
-
1
2
37
40
Female
-
-
-
9
9
Male
-
5
4
37
46
Female
-
-
-
10
10
23
Kula Gold Limited
Directors’ report
31 December 2014
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:
Consolidated
2014
$
2013
$
-
-
-
6,750
-
-
-
-
6,750
6,750
-
3,500
3,500
-
-
8,800
-
16,179
24,979
28,479
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
Total remuneration for non-audit services
24
Kula Gold Limited
Directors’ report
31 December 2014
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
26 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, 30 March 2015
25
Kula Gold Limited
Directors’ report
31 December 2014
26
Kula Gold Limited
31 December 2014
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.
27
Kula Gold Limited
31 December 2014
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, principles 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. 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 Chief Executive Officer is not occupied by the same individual.
Recommendation 2.4: The Board should establish a nomination committee.
The Board has an established remuneration and nomination committee. The remuneration and nomination committee has a written
charter defining the role and responsibility of the committee. The responsibilities of the remuneration and nomination committee
include matters relating to succession planning and recommend candidates for election or re-election to the Board at each annual
shareholders’ meeting. The committee will periodically assess the appropriate mix of skills, experience and expertise required on the
Board and assess the extent to which the required skills and experience are represented on the Board.
Recommendation 2.5: Companies should disclose the process for evaluating the performance of the Board, its committees
and individual directors.
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 2014.
28
Kula Gold Limited
31 December 2014
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.
29
Kula Gold Limited
31 December 2014
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.
These objectives were not achieved. Due to natural attrition of the workforce during the reporting period the percentage of females
to total employees has reduced, as shown in the directors’ report under the title “Employees” (10 female employees out of a total of
51 employees). There was no need to appoint any directors during the year and thus no opportunity to appoint 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.
30
Kula Gold Limited
31 December 2014
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 is normally presented to the Board for its
consideration 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.
31
Kula Gold Limited
31 December 2014
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 G Perotti (CFO) have made the following certifications to the Board:
the financial records of the Company (and the consolidated entity) have been properly maintained in accordance with Section
286 of the Corporations Act 2001; and
the financial statements and notes to the financial statements of the Company and the consolidated entity comply with the
relevant accounting standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements;
and
give a true and fair view of the Company’s (and consolidated entity’s) financial position and performance.
Principle 8 – Remunerate fairly and responsibly
Recommendation 8.1: The Board should establish a remuneration committee.
The Board has an established remuneration and nomination committee. The remuneration and nomination committee has a written
charter defining the role and responsibility of the committee.
Recommendation 8.2: The remuneration committee should be structured so that it:
• consists of a majority of independent directors
• is chaired by one of its members, who is not the Chair of the Board
• has at least three members
The remuneration and nomination committee consists of the following Non-executive directors (a majority of whom are independent):
L Rozman (Chairman), M Stowell and D Frecker. Details of these directors' attendance at remuneration and nomination committee
meetings are set out in the directors' report.
The role of the remuneration and nomination committee is to attend to matters relating to Kula Gold’s remuneration policy to enable
Kula Gold to attract and retain executives who will create value for shareholders and to oversee remuneration packages for executive
directors and senior management of Kula Gold.
Recommendation 8.3: Companies should clearly distinguish the structure of Non-executive directors’ remuneration from
that of executive directors and senior executives.
Each member of the senior executive team has signed a formal contract of employment or engagement 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''.
32
Kula Gold Limited ABN 83 126 741 259
Annual report - 31 December 2014
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
34
35
36
37
39
72
73
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 13 to 25, which
is not part of these financial statements.
The financial statements were authorised for issue by the directors on 26 March 2015. The directors have the power to amend and reissue the financial
statements.
33
Kula Gold Limited
Consolidated statement of comprehensive income
For the year ended 31 December 2014
Other income - interest
Expenses
Employee benefits expense
Professional and consulting expenses
Rental expense
Insurance expense
Borrowing costs
Impairment 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
Notes
2014
$'000
Consolidated
2013
$'000
5
6
6
12
7
51
132
(1,135)
(285)
(243)
-
(931)
(50,214)
1
(474)
(53,230)
-
(53,230)
(1,627)
(490)
(179)
(96)
(29)
-
1
(247)
(2,535)
-
(2,535)
18(a)
2,067
(51,163)
1,685
(850)
Cents
Cents
26
26
(35.02)
(35.02)
(2.01)
(2.01)
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
34
Kula Gold Limited
Consolidated statement of financial position
As at 31 December 2014
Notes
2014
$'000
Consolidated
2013
$'000
8
9
10
11
12
13
14
15
16
2,617
186
291
3,094
1,571
65,428
115
67,114
3,069
181
359
3,609
2,089
109,654
115
111,858
70,208
115,467
390
-
390
303
303
693
805
2,069
2,874
264
264
3,138
69,515
112,329
17
18(a)
18(b)
148,295
15,150
(93,930)
69,515
139,946
13,083
(40,700)
112,329
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.
35
Kula Gold Limited
Consolidated statement of changes in equity
For the year ended 31 December 2014
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 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
income/(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
Balance at 31 December 2013
139,946
1,254
11,829
13,083
(40,700)
112,329
Balance at 1 January 2014
139,946
1,254
11,829
13,083
(40,700)
112,329
Loss for the year
Exchange differences on
translation of foreign operations
18
Total comprehensive
income/(loss) for the year
Transactions with owners in
their capacity as owners:
-
-
-
Contributions of equity, net of
transactions costs and tax
17
8,349
-
-
-
-
-
-
(53,230)
(53,230)
2,067
2,067
-
2,067
2,067
2,067
(53,230)
(51,163)
-
-
-
8,349
Balance at 31 December 2014
148,295
1,254
13,896
15,150
(93,930)
69,515
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
36
Kula Gold Limited
Consolidated statement of cash flows
For the year ended 31 December 2014
Notes
2014
$'000
Consolidated
2013
$'000
Cash flows from operating activities
Payments to suppliers and employees (inclusive of goods and services tax)
Interest and other costs of finance paid
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
25
11
17
15
8
8
(1,785)
(239)
51
(1,973)
(15)
(3,814)
(3,829)
8,349
(3,000)
5,349
(353)
3,184
(99)
2,732
(2,222)
-
161
(2,061)
(32)
(5,808)
(5,840)
-
3,000
3,000
(4,901)
8,036
49
3,184
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
37
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(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
38
39
47
49
50
50
50
51
52
52
53
53
54
55
55
55
56
56
58
59
63
63
64
64
65
65
65
66
70
70
71
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(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
The new standards and amendments to standards that are mandatory for the first time for the financial year beginning 1 January
2014 are as follows:
i) AASB 2013-3 Amendments to AASB 136 – Recoverable amounts disclosed for non-financial assets
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.
(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 2014 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 2014
(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.
(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.
40
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(continued)
1 Summary of significant accounting policies (continued)
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.
(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 and exploration and evaluation
expenditure, 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.
41
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(continued)
1 Summary of significant accounting policies (continued)
(k)
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.
(l) Property, plant and equipment
Property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition of the items.
Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured
reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other
repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred.
Land is not depreciated. Depreciation on other assets is calculated using the straight line 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.
42
1 Summary of significant accounting policies (continued)
(m) Exploration and evaluation expenditure
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(continued)
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)).
(n) 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.
(o) 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.
(p) Provisions
Provisions are recognised when the group has a present legal or constructive obligation as a result of past events, it is probable
that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are
not recognised for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by
considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any
one item included in the same class of obligations may be small.
Provisions are measured at the present value of management's best estimate of the expenditure required to settle the present
obligation at the reporting date. The discount rate used to determine the present value reflects current market assessments of the
time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised
as interest expense.
(q) 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.
43
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(continued)
1 Summary of significant accounting policies (continued)
(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.
(r) 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.
(s) 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.
(t) 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.
(u) 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.
44
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(continued)
1 Summary of significant accounting policies (continued)
(v) 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).
(w) New accounting standards and interpretations
Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2014
reporting periods. The group’s assessment of the relevant new standards and interpretations are set out below.
i) AASB 9 - Financial Instruments (effective for reporting periods from 1 January 2018)
AASB 9 (December 2014) is a new Principal standard which replaces AASB 139. This new Principal version supersedes AASB 9
issued in December 2009 (as amended) and AASB 9 (issued in December 2010) and includes a model for classification and
measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially-reformed approach to hedge
accounting.
AASB 9 is effective for annual periods beginning on or after 1 January 2018. However, the Standard is available for early
application. The own credit changes can be early applied in isolation without otherwise changing the accounting for financial
instruments.
The final version of AASB 9 introduces a new expected-loss impairment model that will require more timely recognition of expected
credit losses. Specifically, the new Standard requires entities to account for expected credit losses from when financial instruments
are first recognised and to recognise full lifetime expected losses on a more timely basis.
Amendments to AASB 9 (December 2009 & 2010 editions )(AASB 2013-9) issued in December 2013 included the new hedge
accounting requirements, including changes to hedge effectiveness testing, treatment of hedging costs, risk components that can
be hedged and disclosures.
AASB 9 includes requirements for a simpler 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.
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:
i. The change attributable to changes in credit risk are presented in other comprehensive income (OCI)
ii. The remaining change is presented in profit or loss
45
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(continued)
1 Summary of significant accounting policies (continued)
AASB 9 also removes the volatility in profit or loss that was caused by changes in the credit risk of liabilities elected to be
measured at fair value. This change in accounting means that gains caused by the deterioration of an entity’s own credit risk
on such liabilities are no longer recognised 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, AASB 2010-10 and AASB 2014-1 – Part E.
AASB 2014-7 incorporates the consequential amendments arising from the issuance of AASB 9 in Dec 2014.
AASB 2014-8 limits the application of the existing versions of AASB 9 (AASB 9 (December 2009) and AASB 9 (December 2010))
from 1 February 2015 and applies to annual reporting periods beginning on after 1 January 2015.
ii) AASB 2014-4 – Clarification of Acceptable Methods of Depreciation and Amortisation (effective for reporting periods
from 1 January 2016)
AASB 116 and AASB 138 both establish the principle for the basis of depreciation and amortisation as being the expected
pattern of consumption of the future economic benefits of an asset.
The IASB has clarified that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate
because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption
of the economic benefits embodied in the asset.
The amendment also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption
of the economic benefits embodied in an intangible asset. This presumption, however, can be rebutted in certain limited
circumstances.
iii) AASB 15 – Revenue from Contracts with Customers (effective for reporting periods from 1 January 2017)
In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers, which replaces IAS 11 Construction Contracts,
IAS 18 Revenue and related Interpretations (IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction
of Real Estate, IFRIC 18 Transfers of Assets from Customers and SIC-31 Revenue—Barter Transactions Involving Advertising
Services).
The core principle of IFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An
entity recognises revenue in accordance with that core principle by applying the following steps:
a. Step 1: Identify the contract(s) with a customer
b. Step 2: Identify the performance obligations in the contract
c. Step 3: Determine the transaction price
d. Step 4: Allocate the transaction price to the performance obligations in the contract
e. Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
Early application of this standard is permitted.
AASB 2014-5 incorporates the consequential amendments to a number Australian Accounting Standards (including
Interpretations) arising from the issuance of AASB 15.
iv) AASB 2014-10 – Amendments to Australian Accounting Standards (effective for reporting periods from 1 January 2016)
AASB 2014-10 amends AASB 10 Consolidated Financial Statements and AASB 128 to address an inconsistency between the
requirements in AASB 10 and those in AASB 128 (August 2011), in dealing with the sale or contribution of assets between an
investor and its associate or joint venture. The amendments require:
a. a full gain or loss to be recognised when a transaction involves a business (whether it is housed in a subsidiary
or not); and
b. a partial gain or loss to be recognised when a transaction involves assets that do not constitute a business, even
if these assets are housed in a subsidiary.
AASB 2014-10 also makes an editorial correction to AASB 10.
AASB 2014-10 applies to annual reporting periods beginning on or after 1 January 2016. Early adoption permitted.
46
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(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
2014
PGK
A$'000
2014
2013
USD
PGK
A$'000
A$'000
2013
USD
A$'000
Cash
Payables
Net exposure
154
(52)
72
24
-
24
87
(46)
41
25
(30)
(5)
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
Consolidated
2013
$’000
(5)
6
2014
$’000
(11)
14
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 2014, 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. 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.
47
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(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.
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.
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
390
390
-
-
-
-
-
-
-
-
390
390
390
390
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
At 31 December 2014
Trade and other payables
Total non-derivatives
At 31 December 2013
Trade and other payables
Borrowings
Total non-derivatives
(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.
48
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(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 employees for
continued employment of the directors and employees 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 more than 125%
from current levels for the 24,000,000 options at 12.5 cents each issued to the financiers of the Syndicated debt facility and the
54,604,178 options at 12.5 cents each issued to the financiers on the conversion of the Syndicated debt facility to equity and to
the investors who purchased shares through the share placement in November 2014 to reach the option exercise price.
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
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%.
The Company reviews the value of exploration and evaluation on a periodic basis in accordance with AASB6. Following
permitting of the Woodlark Island Gold Project in the second half of the financial year, the carrying value of Exploration Expenditure
has been reviewed at year end. The assumptions used are disclosed in Note 12.
(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.
49
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(continued)
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 Other income
Other income 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
Impairment of exploration and evaluation expenditure
50
2014
$'000
Consolidated
2013
$'000
51
51
132
132
2014
$'000
Consolidated
2013
$'000
33
376
19
97
(519)
6
-
-
-
6
243
-
-
-
931
50,214
34
508
37
176
(730)
25
-
-
-
25
179
279
(38)
241
29
-
7 Income tax (benefit)/expense
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(continued)
2014
$'000
Consolidated
2013
$'000
(a) 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% (2013: 30%)
Tax effect of amounts which are not deductible (taxable) in calculating taxable income:
(53,230)
(15,969)
(2,535)
(760)
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
(b) Tax losses
-
15,064
737
7
(6)
-
7
159
-
81
-
631
(12)
(163)
77
116
31
-
Australian unused tax losses for which no deferred tax asset has been recognised
Potential tax benefit at the Australian tax rate of 30% (2013: 30%)
742
223
211
63
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.
(c) 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
(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% (2013: 30%)
(12)
(105)
-
18
(7)
(106)
53
-
(77)
110
12
98
2014
$’000
65,428
19,628
Consolidated
2013
$’000
109,654
32,896
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.
51
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(continued)
7 Income tax (benefit)/expense
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)
2014
$'000
307
2,310
2,617
Consolidated
2013
$'000
3,069
-
3,069
307
2,310
115
2,732
3,069
-
115
3,184
*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.
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
2014
$'000
Consolidated
2013
$'000
18
168
186
18
163
181
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.
52
10 Current assets – Inventories
Inventory: Consumables
Less: provision for write-down
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(continued)
2014
$'000
Consolidated
2013
$'000
291
-
291
601
(242)
359
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 $245,000 (2013: $242,000).
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
847
(133)
714
714
-
(34)
9
689
858
(169)
689
689
-
(35)
8
662
868
(206)
662
3,244
(1,552)
1,692
1,692
16
(508)
19
1,219
3,298
(2,079)
1,219
1,219
12
(401)
16
846
3,349
(2,503)
846
223
(126)
97
97
2
(37)
1
63
227
(164)
63
63
3
(19)
0
47
235
(188)
47
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
5,885
(3,796)
2,089
118
-
(103)
1
16
2,089
15
(558)
25
1,571
1,519
(1,503)
16
5,971
(4,400)
1,571
At 1 January 2013
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
Year ended 31 December 2014
Opening net book amount
Additions
Depreciation charge
Exchange differences
Closing net book amount
At 31 December 2014
Cost
Accumulated depreciation
Net book amount
Total depreciation charge for the year is $526,000 (2013: $755,000) of which $519,000 (2013: $730,000) has been capitalised
under exploration and evaluation expenditure (note 12) in accordance with the Group's accounting policy.
53
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(continued)
12 Non-current assets – Mineral exploration and evaluation expenditure
At 1 January 2013
Cost
Accumulated amortisation
Net book amount
Year ended 31 December 2013
Opening net book amount
Exchange differences
Additions
Closing net book amount
At 31 December 2013
Cost
Accumulated amortisation
Net book amount
Year ended 31 December 2014
Opening net book amount
Exchange differences
Additions
Impairment of exploration and evaluation expenditure
Closing net book amount
At 31 December 2014
Cost
Accumulated amortisation and write-off
Net book amount
Consolidated
Exploration
licences
$'000
Deferred
exploration
expenditure
$'000
Total
$'000
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
-
-
-
-
-
109,654
1,689
4,299
(50,214)
65,428
109,654
1,689
4,299
(50,214)
65,428
9,527
(9,527)
-
65,428
-
65,428
74,955
(9,527)
65,428
The Feasibility Study was completed in the prior period and determined where mining was to occur. 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 expenditure is dependent on successful
development and commercial exploitation, or alternatively, sale of the respective areas of interest. Given the adverse
movements in commodity prices and following obtaining all necessary permitting approvals, a full review of the carrying value
of exploration and evaluation expenditure has been conducted as at 31 December 2014.
Impairment of exploration and evaluation expenditure
Exploration and evaluation assets are assessed for impairment when facts and circumstances suggests that the carrying
amount of an exploration and evaluation asset may exceed its recoverable amount The Company’s review of its exploration
and evaluation expenditure included consideration of :
a discounted future gold price of US$1,208 (average for the first six years)
US$ to A$1 exchange rate of US$0.77
a weighted average cost of capital of 7.0% per annum
the mine plan having been updated for latest estimates of construction and operating costs
The evaluation of the carrying value and the recoverability of this asset has resulted in an impairment charge of $50,213,829
(2013: $nil)
54
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(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.
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
2014
$'000
Consolidated
2013
$'000
115
115
115
115
2014
$'000
Consolidated
2013
$'000
118
272
390
392
413
805
2014
$'000
Consolidated
2013
$'000
80
80
80
80
2014
$'000
Consolidated
2013
$'000
-
-
-
-
3,000
(960)
29
2,069
The secured shareholders loan that was provided equally by the two majority shareholders of the Company, Pacific Road
55
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(continued)
15 Current liabilities – Borrowings (continued)
Capital funds and RMB Australia Holdings Limited (the Lenders) was converted to equity during the current period.
Terms of the loan conversion to equity:
Amount converted: AUD$3.0million
Date of conversion: 28 November 2014
Share issue: The Company issued 50 million shares at a price of 6 cents per share totalling AUD$3.0 million.
Security: The mortgage over Woodlark Mining Limited’s shares owned by the Company was cancelled and
the share certificates returned to the Company on the 27th of February 2015. Furthermore the
registration with the “Personal Property Securities Register” was discharged on the 10th of March
2015.
Other: The lenders received options for shares issued for the loan conversion at a rate of one option for
every two shares issued (totalling 25 million options) at an option exercise price of 12.5 cents and
with an expiry date of 28 November 2016.
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 rehabilitation
(a) Movements in provisions
2014
$'000
Consolidated
2013
$'000
103
200
303
67
197
264
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 2014
- charge/(credited) to profit & loss
- payments from provision
- exchange differences
Carrying amount at the end of the year - 31 December 2014
17 Contributed equity
Consolidated
Provision for
rehabilitation
$'000
197
-
-
3
200
2014
Shares
Parent entity
2013
Shares
2014
$'000
Parent entity
2013
$'000
(a) Share capital
Ordinary shares
260,712,018
126,253,023
148,295
139,946
56
17 Contributed equity (continued)
(b) Movements in share capital
Date
Details
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(continued)
Number of
shares
Issue price
$
Total
$’000
1 January 2013
Opening balance
126,253,023
-
139,946
31 December 2013
Balance
126,253,023
139,946
25 June 2014
25 June 2014
24 October 2014
28 November 2014
28 November 2014
28 November 2014
31 December 2014
Rights issue
Transaction costs on rights issue
Share placement (tranche 1)
Share placement (tranche 2)
Debt conversion to equity
Transaction costs of debt conversion and
share placement
Balance
25,250,662
0.085
29,077,459
30,130,874
50,000,000
0.060
0.060
0.060
260,712,018
2,146
(83)
1,745
1,808
3,000
(267)
148,295
Details of the rights issue are as follows:
Rights issue:
Share price of issue:
Number of shares issued:
Capital raised:
Associated costs of issue:
Date of issue:
8.5 cents per share
25,250,662 ordinary shares
A$2,146,110
A$ 82,511
25 June 2014
Non-renounceable entitlement issue of one share for every five shares held by the registered shareholders at the “Record Date”
at an issue price of 8.5 cents per share to raise up to $2,146,301 based on the number of shares on issue. The issue was partially
underwritten by Pacific Road Corporate Finance Limited to a total of $1,200,000.
Details of share placement are as follows:
Share placement:
Share price of issue:
Number of shares issued:
Capital raised:
Associated costs of issue:
Date of issue:
Options:
Option offer:
Option price:
Options granted:
Date of issue:
Date of expiry:
6.0 cents per share
59,208,333 ordinary shares
A$3,552,500
A$ 241,258
24 October 2014 and 28 November 2014
One option offered for every two shares issued
12.5 cents per option
29,604,178 options
28 November 2014
28 November 2016
Fosters Stockbroking Pty Ltd were engaged to facilitate a placement of 60,000,000 shares at an issue price of 6 cents per share.
The placement included a one for two free attaching option at an option price of 12.5 cents per option and a two year expiry period.
Details of share placement are as follows:
Details of the debt conversion to equity are as follows:
Debt conversion to equity:
Share price of issue:
Number of shares issued:
Capital raised:
Associated costs of issue:
Date of issue:
6.0 cents per share
50,000,000 ordinary shares
A$3,000,000
A$ 25,422
28 November 2014
57
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(continued)
17 Contributed equity (continued)
Options:
Option offer:
Option price:
Options granted:
Date of issue:
Date of expiry:
One option offered for every two shares issued
12.5 cents per option
25,000,000 options
28 November 2014
28 November 2016
This conversion of debt to equity was transacted at the same time and under the same conditions of the share placement as
detailed above.
(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.
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
58
2014
$'000
Consolidated
2013
$'000
1,254
13,896
15,150
1,254
-
1,254
11,829
2,067
13,896
1,254
11,829
13,083
15
1,239
1,254
10,144
1,685
11,829
(40,700)
(53,230)
(93,930)
(38,165)
(2,535)
(40,700)
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(continued)
18 Reserves and accumulated losses (continued)
(b) 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.
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
(iii) Non-executive directors
L Rozman
L Spencer
M Stowell
(iv) Other key management personnel
S Pether - Chief Executive Officer
G Perotti - Chief Financial Officer
(b) Key management personnel compensation
Short-term employee benefits
Post-employment benefits
Long-term benefits
Share-based payments
Consolidated
2013
$
2014
$
677,610
36,120
6,904
-
720,634
1,065,680
45,020
11,857
221,024
1,343,581
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 2014 and 2013 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.
No options were granted as remuneration to key management personnel of the Group during the year ended 31 December 2014.
59
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(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 2014 (2013: Nil).
60
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(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 provided as remuneration and 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.
2014 - Options
Name
Directors of Kula Gold Limited
D Frecker
L Spencer
L Rozman
M Stowell
Other key management personnel
Balance at
start of the
year
712,000
2,859,155
391,000
391,000
Granted on
basis of 1
option for
every 2 shares
purchased
through share
placement
Balance at
end of the
year
Exercised
Vested and
exercisable
Unvested
500,000
-
137,500
800,000
- 1,212,000
- 2,859,155
528,500
-
- 1,191,000
1,112,000
2,859,155
428,500
1,091,000
100,000
-
100,000
100,000
S Pether
3,946,000
500,000
- 4,446,000
4,446,000
-
All vested options are exercisable.
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.
Balance at
start of the
year
Granted as
compensation
Exercised
Balance
at end of
the year
Vested and
exercisable
Unvested
100,000
2,626,155
100,000
100,000
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
-
-
61
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(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.
2014 – Ordinary shares
Name
Directors of Kula Gold Limited
D Frecker
L Spencer
L Rozman
M Stowell
Other key management personnel
S Pether
* Represents shares purchased/sold on market.
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
Purchased
during the year
on placement
Received during
the year on the
exercise of
options
Received
during the
year on
rights issue
Balance at
the end of
the year
100,000
579,870
410,287
3,262,500
1,000,000
-
318,560
1,600,000
1,300,000
1,000,000
-
-
-
-
-
20,000
-
84,758
652,501
1,120,000
579,870
813,605
5,515,001
300,000
2,600,000
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
-
-
2,900,000
100,000
579,870
410,287
3,262,500
180,000
640,000
1,300,000
1,300,000
(d) Loans and other transactions with key management personnel
There were no loans made to key management personnel during the reporting period (2013: $nil).
Other transactions with key management personnel are disclosed in note 23.
62
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(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:
Consolidated
2013
$
2014
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,500
3,500
8,800
-
8,800
12,300
-
-
6,292
9,887
16,179
16,179
60,000
60,000
82,500
82,500
6,750
-
6,750
-
-
-
66,750
82,500
(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
Total remuneration of PricewaterhouseCoopers Australia
(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
Total remuneration of related practices of PricewaterhouseCoopers Australia
(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 2014 (2013: $nil).
63
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(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
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.
2014
$’000
Consolidated
2013
$’000
250
-
250
240
250
490
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 2014:
Companies associated with Pacific Road group of entities & RMB Resources Limited (& associated entities), who are
the majority shareholders of the Company converted the debt finance with the Company to equity during the year.
Terms of the conversion of the finance facility to equity are as follows:
50,000,000 (fifty million) ordinary shares
28 November 2014
AUD$3.0million
Amount converted:
Shares:
Share price on conversion: 6 cents per share
Number of shares issued:
Date of issue:
Options:
Option offer:
Option price:
Options granted:
Date of issue:
Date of expiry:
Security:
One option offered for every two shares issued
12.5 cents per option
25,000,000 (twenty five million) options
28 November 2014
28 November 2016
The charge over the Company’s assets and the mortgage over Woodlark Mining shares
owned by the Company have been cancelled.
This transaction was approved by the shareholders at a General Meeting held at the Kula Gold offices on Wednesday 26
November 2014. The security held has been released and all documents returned to the Company.
Fees paid to Ashurst Australia $5,995 for general legal advice. D Frecker, a director of the Company, is a consultant to
Ashurst.
64
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(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
2014
%
100
2013
%
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
Impairment of exploration and 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
2014
$'000
Consolidated
2013
$'000
(53,230)
6
-
931
-
50,214
(3)
71
38
-
(1,973)
(2,535)
25
279
29
242
-
152
69
(69)
(253)
(2,061)
2014
Cents
Consolidated
2013
Cents
From continuing operations attributable to the ordinary equity holders of the Company
(35.02)
(2.01)
(b) Diluted loss per share*
From continuing operations attributable to the ordinary equity holders of the Company
(35.02)
(2.01)
(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
151,989,903
126,253,023
Weighted average number of ordinary shares and potential ordinary shares used as the
denominator in calculating diluted loss per share
193,024,952
126,253,023
(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.
*As the resulting EPS is anti-dilutive no adjustment is recorded to basic EPS.
65
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(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:
2014
There were no options granted under the Plan during the year.
2013
Name
S Pether
S Pether
S Pether
K Neate
F Swart
Other employees
Total
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
(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 2014
and 2013.
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.
66
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(continued)
27 Share-based payments (continued)
2014
There were no options granted to directors during the year in lieu of remuneration.
2013
Name
D Frecker
L Spencer
L Rozman
M Stowell
Total
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
(b) Options granted under the employee option plan and to Non-executive directors
2014
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
1,000,000
500,000
4,355,000
1,427,000
12,491,233
Weighted average exercise price
$0.92
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
393,000
-
1,989,233
100,000
120,000
3,000,000
1,000,000
500,000
3,962,000
1,427,000
393,000 12,098,233
$0.17
$0.95
1,689,233
100,000
120,000
3,000,000
1,000,000
500,000
3,962,000
1,427,000
11,798,233
(b) Options granted under the employee option plan and to Non-executive directors (continued)
2013
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
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
-
-
-
-
-
-
-
-
-
-
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
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 (2013: 3.6
years).
67
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(continued)
27 Share-based payments (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.
68
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(continued)
27 Share-based payments (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
$960,000
12,000,000
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
$0.125
$0.11
69%
3.25%
1,190,000 31 Aug 2018
$0.04
$0.125
$0.11
69%
3.25%
1,190,000 31 Aug 2018
$0.04
$0.125
$0.11
69%
3.25%
12,000,000 31 Aug 2018
$0.04
$0.125
$0.11
69%
3.25%
(d) Expenses arising from share-based payment transactions
Options issued under Kula Gold Limited Option Plan
Consolidated
2014
$’000
-
2013
$’000
279
69
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(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
2014
$’000
5,001
Parent entity
2013
$’000
4,918
94,057
138,583
86
102
2,196
26,254
93,955
112,329
148,295
1,254
(55,594)
139,946
1,254
(28,871)
93,955
112,329
(50,742)
(24,406)
(50,742)
(24,406)
(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 $114,652 (2013: $112,486).
(c) Contingent liabilities of the parent entity
The parent entity did not have any contingent liabilities as at 31 December 2014 (31 December 2013: $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 2014
(31 December 2013: $nil).
29 Events occurring after the reporting period
There were no significant events after the reporting period.
70
Kula Gold Limited
Notes to the consolidated financial statements
31 December 2014
(continued)
30 Significant matters relating to the ongoing viability of operations
At 31 December 2014, the Company has cash and cash equivalents balance of $2,731,310. The group reported a net loss of
$53,229,829 for the current financial year primarily resulting from the write off of Exploration Expenditure of $50,213,829 in the
current period.
On 17 February 2014 Woodlark Mining Limited received the Environment Permit for its Woodlark Island gold Project from the
PNG Director of Environment. In addition the PNG Mineral Resources Authority issued Mining Lease 508 to Woodlark Mining
Limited on 4 July 2014. The receipt of these documents means that Woodlark Mining Limited is now fully permitted to commence
with the Woodlark Island Mining Project.
The Company will likely need to secure further funding within the next 3 months for operations and/or development through debt,
equity or joint venture or other means, 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 converted the
debt funding from its major shareholders to equity and is now debt free, and has expressions of interest from others. Directors
are confident that additional debt or equity funding can be secured from one of these sources or a joint venture or corporate
opportunity will arise. On this basis the directors consider it reasonable that the accounts be prepared on a going concern basis.
71
Kula Gold Limited
Directors' declaration
31 December 2014
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 2014 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 2014 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 2014.
On behalf of the Board
David Frecker
Chairman
Sydney
30 March 2014
72
73
74
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 26 March 2015.
Ordinary share capital
As at 26 March 2015, the issued capital comprised of 260,712,018 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
31,758
327,512
690,669
8,990,298
250,671,781
260,712,018
Number of
Holders
62
112
87
236
105
602
Options
Number of
Holders
-
-
-
2
13
15
Number of
options
-
-
-
164,000
36,327,233
36,491,233
There were 273 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 10,371,233 unquoted options on issue, held by 8 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
Number of
Options
712,000
391,000
391,000
233,000
1,727,000
Percentage
41.23%
22.64%
22.64%
13.49%
100.00%
9,620,000
40.00%
1,190,000
1,190,000
12,000,000
24,000,000
5.00%
5.00%
50.00%
100.00%
75
Shareholder Information (continued)
d) Options issued under the conversion of the Syndicated facility agreement to equity.
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
10,017,500
40.00%
1,241,250
1,241,250
12,500,000
25,000,000
5.00%
5.00%
50.00%
100.00%
e) Share placement option plan – there are 29,604,178 unquoted options on issue, held by 35 registered shareholders, including
entities associated with D Frecker, L Rozman and M Stowell which acquired shares and options under the placement on the
same terms as all other subscribers.
Twenty largest holders of quoted equity securities
No. Shareholder
Ordinary shares
1 Pacific Road Holdings NV
2 National Nominees Limited
3 Pacific Road Capital Management G.P. Ltd
4 RMB Australia Holdings Limited
5 RMB Resources Limited
6 C S Fourth Nominees Pty Ltd
7 Pacific Road Capital B Pty Ltd
7 Pacific Road Capital A Pty Ltd
9 HSBC Custody Nominees (Australia) Limited
10 Citicorp Nominees Pty Ltd
11 JP Morgan Nominees Australia Limited
12 Zero Nominees Pty Ltd
13 Washington H Soul Pattinson and Company Ltd
14 Merchant Holdings Pty Ltd
15 Brispot Nominees Pty Ltd
16 Mr Stuart James Pether & Mrs Fiona Maree Pether
17 USB Nominees Pty Ltd
18 Ascot Park Enterprises Pty Ltd
19 Foster Stockbroking Nominees Pty Ltd
19 KTAP Pty Ltd
19 Prospect Custodian 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
76
Number held
43,574,379
35,521,219
29,986,562
25,000,000
18,651,496
9,977,772
9,113,907
9,113,907
5,597,228
4,907,478
4,836,639
3,722,516
3,333,333
2,959,282
2,838,670
2,600,000
2,000,000
1,915,000
1,666,667
1,666,667
1,666,667
220,649,389
Percentage of
quoted shares
16.71%
13.62%
11.50%
9.59%
7.15%
3.83%
3.50%
3.50%
2.15%
1.88%
1.86%
1.43%
1.28%
1.14%
1.09%
1.00%
0.77%
0.73%
0.64%
0.64%
0.64%
84.63%
Number of
shares held
Percentage of
issued shares
91,788,755
43,651,496
35,521,219
170,961,470
35.21%
16.74%
13.62%
65.57%
Shareholder Information (continued)
Voting rights
The voting rights attaching to each class of equity securities are set out below:
(a) Ordinary shares
On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each
share shall have one vote.
(b) Options
No voting rights.
Interest in Mining Tenements
Current interest in tenements held by Kula Gold Limited and its subsidiary, as at 26 March 2015 are listed below:
Country / Location
Papua New Guinea / Woodlark Island
Papua New Guinea / Woodlark Island
Papua New Guinea / Woodlark Island
Interest in Mining Leases
Tenement
EL 1172
EL 1279
EL 1465
Interest
100%
100%
100%
Current interest in mining leases held by Kula Gold Limited and its subsidiary, as at 26 March 2015 are listed below:
Country / Location
Papua New Guinea / Woodlark Island
Mining Lease
ML 508
Interest
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
(Mt)
(Cut)
Gold
(Cut)
(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
1.78
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
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: 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).
77
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
1,545,000
* 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 cutoff 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 2004 JORC
code.
78
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 2012 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 2012 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 2012 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.
79