Mineral Commodities Limited ABN 39 008 478 653 07 31 DECEMBER 2007 Annual Report For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 Corporate Directory Directors Joseph Anthony Caruso – Non-Executive Chairman Mark Victor Caruso – Managing Director Gregory Hugh Steemson – Non-Executive Director Company Secretary Peter Torre Registered Office Solicitors Auditors Share Registry Bankers Unit 15, Level 1 51–53 Kewdale Road Welshpool Western Australia 6106 Telephone: (61 8) 9353 4890 Facsimile: (61 8) 9353 4894 info@mncom.com.au Email: Website: www.mncom.com.au Steinepreis Paganin Level 4, Next Building 16 Milligan Street Perth WA 6000 BDO Kendalls Audit and Assurance (WA) Pty Ltd 128 Hay Street Subiaco, Western Australia 6008 Security Transfer Registrars Pty Limited 770 Canning Highway Applecross, Western Australia 6153 Telephone: (61 8) 9315 0933 Facsimile: (61 8) 9315 2233 Australia & New Zealand Banking Group Ltd 77 St Georges Terrace Perth WA 6000 Stock Exchange Listing The Company is Listed on the Australian Stock Exchange Limited under ASX Code – MRC For personal use only Contents / 1 / CORPORATE DiRECTORy ........................ inside Front Cover CHAiRMAN’S LETTER ........................................................ 2 REViEW OF OPERATiONS .................................................. 3 DiRECTORS REPORT .......................................................... 9 iNCOME STATEMENT ...................................................... 18 BALANCE SHEET ............................................................ 19 CASH FLOW STATEMENT ................................................ 20 STATEMENT OF CHANGES iN EqUiTy ..............................21 NOTES TO THE FiNANCiAL STATEMENTS ........................ 23 DiRECTORS’ DECLARATiON ............................................. 56 AUDiTORS iNDEPENDENCE DECLARATiON..................... 57 iNDEPENDENT AUDiT REPORT ........................................ 58 STATEMENT OF CORPORATE GOVERNANCE ................... 60 SHAREHOLDER iNFORMATiON ........................................ 63 For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 2 / Chairman’s Letter Dear Shareholders, your Company is on the verge of an exciting phase in its development. The 2007 year was one in which considerable work was completed to support the mining right applications for both the Xolobeni and Tormin mineral sands projects. This effort was rewarded with the decision by the Department of Minerals and Energy in South Africa to grant the mining right for Tormin. We are confident that a similar decision will be forthcoming for the Xolobeni Project. The decision vindicates the Company’s persistence and patience on the projects as it has always been the view of the Board that both projects will add considerable value to the Company. The Company continued to assess other projects throughout the year. The Sierra Leone diamond project has not delivered the desired outcome that the Board had expected. issues with the plant and contractors caused significant delays and the Board will seek to divest this project and extract as much value as possible. Despite this setback, the Board will continue to assess further projects in the interest of maximising shareholder value. The continued success of the Company’s associate Allied Gold Limited is outstanding and the value of the company’s investment has grown significantly throughout the year. Allied Gold has recently entered into a farm in and joint venture arrangement with the world’s pre-eminent gold producer Barrick Gold Limited which provides for it to invest up to $35 million in Allied Gold. We look forward to sharing in our associate’s success in the future. The coming year will be a defining one for the future of your Company. New projects will be considered and existing ones should flourish. On behalf of the Board, i would like to thank you, our shareholders, for your continued support. We trust this will endure in the future. i would also like to thank the staff both in Australia and overseas who work tirelessly in ensuring the success or our Company and projects. Joseph A. Caruso Chairman For personal use only / 3 / Review of Operations XOLOBENI MINERAL SANDS PROJECT, SOUTH AFRICA Location The Xolobeni mineral sands deposit is located in the Eastern Cape Province of South Africa approximately 300 kilometres north of East London and 200 kilometres south of Durban. The current tenement area is approximately 22 kilometres long and 1,500 metres wide and covers some 2866 hectares within the Xolobeni area. The area consists of three main dune systems which range from 25m to 95m above sea level. The resource is divided into five blocks bounded by the Mzamba, Mpahlane, Mnyameni, Kwanyana, Sikombe and Mtentu Rivers. Each block is named after the river defining the southern boundary. The current extent of mineralisation proposed to be mined takes in about 855ha or about 30% of the tenement area. Lodging the application for a Mining Right. (Left to right XolCo directors – Nomangesi Malunga and Zeka Mnyamana, DME regional director Nomvuyo Ketse, John Barnes MRC/TEM operations manager. Tenure TEM holds a current Prospecting Right issued under the Minerals and Petroleum Resources Development Act 2002. in March 2007 under a unique empowerment arrangement between Mineral Commodities Limited (MRC), its South African subsidiary Transworld Energy and Minerals Resources (SA) (Pty) Limited (TEM) and the Xolobeni community empowerment company – XolCo (now a 26% shareholder of TEM) lodged the Mining Right for the Xolobeni Heavy Mineral Sands Project with the department of Minerals and Energy in Port Elizabeth. The Xolobeni project is more than just a mining operation. When the mining right is granted it will bring socio-economic upliftment to the impoverished local communities. The benefits will include; • a solution to the environmental degradation of the area; • the provision of basic infrastructure and services which are currently severely lacking; • a significant impact on the local and regional economies; and • The project will maintain South Africa’s position as one of top 3 mineral sands producers in the world. Figure 1. Location of Xolobeni and Tormin projects. For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 4 / Review of Operations (continued) Resources The mineralised sands occur within recent sands and remnant red beds of Pleistocene Berea Formation. The predominant valuable heavy mineral is ilmenite, the feedstock for titanium slag production. Rutile, zircon and leucoxene add significantly to the value of the deposit. in 2002 a detailed drilling programme over the Sikombe, Kwanyana and Mnyameni blocks was completed. The results were assessed according to the JORC code by SRK Consulting, and used to complete a Resource Estimation Report and Desktop Mining Study. The Xolobeni mineral resource is estimated to be 346 million tonnes of sand containing nine million tonnes of ilmenite. Of this total resource 65% is in the measured category. it is the tenth largest mineral sands resource in the world. The mining study concluded that the Xolobeni mineral sand deposit is economically viable with a mine life of some 25 years. Project development A new order Prospecting Right was granted in October 2005. in March 2007 the Xolobeni Mining Right was lodged. South African environmental consultants GCS (Pty) Ltd begun working on the EiA for several months as part of the necessary environmental and social studies required by the MPRD Act. To compliment this effort, Australian based environmental consultants were engaged to ensure that the work meets international best practice standards. The completion and lodgement of the Environmental impact assessment and the formulation and submission of an Environmental Management Programme were accomplished during the year. The documents are currently under final review by the DME. The Minister of Minerals and Energy is due to announce a decision on the Mining Right Application during the first half of 2008. TAbLE 1 RESOuRCE ESTIMATE SuMMARy Resource Classification Tonnes (Mt) HM Grade (HM%) Measured indicated inferred Total Resource 224 104 18 346 5.7 4.1 2.3 5.0 TAbLE 2 XOLObENI bLOCk RESOuRCE DATA Resource Status Tonnes (Mt) % HM % Fines %Ilm(2) Area Mtentu Sikombe Kwanyana Not drilled Measured Measured Mnyameni indicated Mpahlane inferred TOTAL 85 139 104 18 346 5.5 5.8 4.1 2.3 5.0 17.9 19.6 28.1 28.0 22.2 3.1 3.1 2.2 1.6 2.7 (1) All tonnages are based on a 1% HM cut-off grade. (2) The reported percentage of ilmenite is a magnetic fraction of the THM. For personal use only / 5 / Review of Operations (continued) No further exploration activity is needed on the area as the mineral resources are classified as JORC compliant for measured, indicated and inferred. in 2002 part of the area was drilled on a grid spacing of 50m x 100m, sufficient density for mine planning. Subject to the mining right being granted, it is proposed to commence a bankable feasibility study in 2008. Socio–economic aspects MRC/TEM has entered into a unique agreement with XolCo the local Amadiba Tribal Community broad based Black Economic Empowerment (BEE) partner. XolCo as 26% equity partner will economically empower an impoverished community by having a significant stake in a major mining and down-stream processing project. MRC/TEM personnel have extensive experience in mining and rehabilitation and by combining this with XolCo as a broad based stakeholder engaged in operations and management will ensure the integrity of this unique project. Consultation between TEM, XolCo and the local, regional and national government departments is ongoing in order to link common development plans for the area. Key issues facing the local community are the creation of jobs, reduction in poverty, elimination of illiteracy, provision of water, power and transport and the determination of sustainable land use. The community’s continued concern over the accelerating degradation of the area in terms of top soil erosion, wet land destruction and uncontrolled indigenous bush clearing for firewood has been brought to the attention of key government departments. All parties agree that mining is one activity than can stop the degradation and bring in the required infrastructure, jobs and wealth. Figure 2. Xolobeni Project Site Plan. A number of community development programs are already in place as part of TEM’s long term commitment to the area. The project has the potential to bring a wide range of basic socio-economic benefits to the region such as improved roads, access to water and electricity, better education and health facilities providing a higher standard of living for all the people. infrastructure will also encourage the development of sustainable industries and these together with the down stream processing of material through the smelter will continue to deliver long term economic benefits to the region. XolCo represents a number of community base trusts as beneficiaries outlined in the following chart XolCo Trusts Youth Elderly Tribal Business Cultural Women Xolobeni resource statement The Xolobeni resource statement included in this report was prepared by Mr Daniel Guibal (SRK Consulting), a competent person as defined under the JORC code. Mr Guibal consents to the inclusion in the report of the matters based on his information in the form and context in which it appears. For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 6 / Review of Operations (continued) TORMIN MINERAL SANDS PROJECT SOUTH AFRICA Location The Tormin mineral sands prospect is a small beach deposit located on the rugged west coast of South Africa, approximately 400km north of Cape Town. The deposit is situated about 14km north of Transhex’s diamond processing operation at De Pont near the Olifants River and about 50km south of Anglo’s Namakwa Sands operation at Brand se Baai. The project is some 40 km from Anglo’s mineral separation plant at Lutzville. (Figure 3). The tenement area covers 90ha of mineralised beach which has accumulated along the ~12km long, 100m wide beach, to a maximum depth of 12m. Because of the dynamic beach environment the beach is continually being supplemented by erosion of a heavy mineral enriched 25m thick paleo-beach terrace 35m above current the sea level. The predominant heavy mineral is garnet with ilmenite, pyroxene, zircon, rutile, and leucoxene contained in the heavy mineral assemblage. Tenure Mineral Commodities Limited holds its interest in the Tormin project through South African subsidiary Mineral Sands Resources (Pty) Ltd (MSR). in late 2003 the Company applied for a Prospecting Permit over the area. With the introduction of the new MRPD Act a revised Prospecting Right Application (PRA) was submitted in August 2004. An environment management plan (EMP) was submitted in December 2004. The Prospecting Right was granted in March 2006 and the related EMP was also approved. Figure 3. Location of the Tormin prospecting permit application in relation to existing regional infrastructure. in February 2007 MSR lodged a Mining Right application over the area in concurrence with the EiA that had commenced and is ongoing as part of the mining right requirement. The Company has an agreement with the holder of a Mining Permit that covers part of the heavy mineral sand resource which allows the Company to purchase those rights. This will consolidate the Company’s rights over the full extent of the deposit. Resources The Tormin heavy mineral placer deposits overlie diamond bearing gravel beds. in 1992 a feasibility study into mining the beach deposits and extracting both diamonds and heavy minerals was undertaken by Trans Hex Operations (Pty) Ltd (THG), a South African diamond producer. in 2002 the Company signed an agreement with THG that allows MSR to apply for the mineral sand rights. Under this agreement THG would support the Company’s application and in turn THG will retain the rights to any diamond production from the area. Bateman Minerals (Pty) Ltd was engaged to undertake a feasibility study for the project in 2004–2005. An internal review was carried out to consider opportunities for cost savings, changes to the configuration of processing plant and the mining method to achieve better efficiencies. Based on these criteria independent engineering consultants RSV of South Africa were commissioned to carry out a formal technical assessment and re design work on the project. Metallurgical test work carried out indicates the deposit would yield a high quality (ceramic grade) zircon and high grade Ti product containing Rutile and Luecoxene. For personal use only / 7 / Review of Operations (continued) Based on the Transhex drilling and test work mineral resources were estimated at 3.43Mt containing 81,300t of Zircon and 20,000t of Rutile. As part of a recent review the resource has been re – estimated using the historical Transhex data in comparison to more recent MSR bulk sampling program. The MSR revised mineral resources for the Tormin beach sands is now estimated at 2.71Mt containing 76,100tn of Zircon and 18,300tn of Rutile in the inferred category. Project development The Mining Right Application was submitted at the beginning of the year for the Tormin Mineral Sands Project. in addition, the conversion of the existing Old Order Mining Permit to the south of the Prospecting Permit to a New Order Mining Right was lodged simultaneously. Once approved, the two rights will be consolidated into a single mining tenement. The final Environmental impact Assessment (EiA) and Environmental Management Programme (EMP) for the project were submitted to the DME in July 2007. The Board was pleased to advise that subsequent to year end, the Group received notification that the Mining Right was granted with an official signing ceremony to take place in late May 2008. The Company continues to field expressions of interest from parties that wish to secure the rights to the non magnetic heavy mineral concentrates likely to be produced from the Tormin project. Negotiations have reached an advanced stage with marketing samples dispatched to the various parties for review. Socio-economic aspects The Company will undertake a detailed social and labour plan as part of the feasibility study and local communities have been identified that would benefit from the project. Tormin Resources Statement The information in this report that relates to exploration results for the Tormin project is based on information compiled by Mr Greg Steemson who is a Fellow of the Australian institute of Geoscientists. Mr Steemson is a competent person as defined under the JORC Code. Greg Steemson consents to the inclusion in the report of the matters based on his information in the form and context in which it appears. INVESTMENT IN KARIBA KONO DIAMONDS, SIERRA LEONE On 22 May 2006, Mineral Commodities Limited (MRC) announced an offer for all the shares in Erebus PLC (Erebus) that it did not already own. The offer consisted of 1.5 MRC shares plus half an option for every 1 Erebus share. The options have an exercise price of $0.40 and expire on 30 June 2007. On 16 June 2006, MRC announced that the offer had been accepted by holders representing 100% of the ordinary shares of Erebus. The takeover was successfully completed on 23 June, 2006 with the total number of shares and options issued being 9,406,878 and 3,135,626 respectively. Erebus’s principle activity through its 100% wholly owned Sierra Leone subsidiary, Kariba Kono (SL) Ltd, is diamond tailings dump re-treatment, diamond mining and mineral exploration in Sierra Leone. Kariba Kono’s principal asset is the No. 11 Oversize Tailings Dump at Koidu. The No.11 tailings dump resulted from alluvial diamond operations in the 1960’s by the Sierra Leone Diamond Trust (“SLDT”). Although the plant was advanced for its time, investigation into the operating history of the plant after the fortuitous discovery of the 969.8 carat “Star of Sierra Leone” diamond indicated that the initial plant design was flawed and it is believed the operating efficiency would have reduced with time, leading to the loss of diamonds to tailings. During 2006, MRC awarded the contract for the manufacture, supply, delivery and commissioning of an 80tph ROD Diamond Pan Plant for the No.11 tailings dump to ProMet Engineers Africa (Pty) Ltd. in the first half of the 2007 year, ProMet Engineers Africa (Pty) Ltd had erected and commissioned the Diamond Recovery Plant that it had designed and fabricated from South Africa. The plant was designed to treat 80 tonnes of material per hour, however metallurgical constraints impeded production to less than half this rate. These constraints were identified and evaluated and Promet and MRC commenced discussions to deliver the 80tph or to revise the project plan. For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 8 / Review of Operations (continued) The operations were suspended and the plant was placed under care and maintenance pending an engineering and design review. The Company held discussions with Promet to deliver the 80tph throughput pursuant to the contractual performance guarantee. These discussions were not successful and as a result the Company commenced legal proceedings in the Federal Court of Australia on 12 October 2007 against Promet Engineers Africa (Pty) Ltd (Promet), Promet Engineers Pty Ltd, James Dinsdale, Cribbes, Robert John Bennett and Richard George Ford. The proceedings have eventuated as a result of Promets failure to manufacture, supply, install ,erect and commission a diamond pan plant at the Company’s No 11 Oversize Tailings Dump in accordance with the terms of the contract. MRC claims in the proceedings that: (a) Promet breached the terms of the Contract; and (b) Promet Engineers Africa, Promet Engineers, Cribbes, Bennet and Ford; (i) Engaged in misleading and deceptive conduct, and (ii) Breached Section 52 of the Trade Practices Act. MRC is claiming damages for breach of Contract, as well as damages for contraventions of the Trade Practices Act, interest and costs. OTHER PROJECTS AND INVESTMENTS INVESTMENT IN ALLIED GOLD LIMITED Allied Gold Limited (ALD) is a listed gold development and exploration company with the Tabar islands Gold Project in Papua New Guinea as its principal asset. This project consists of the Simberi Oxide Gold Project and all exploration property on the Tabar islands. At reporting date, ALD was well advanced in the commissioning of its gold processing operation with the first production taking place immediately subsequent to year end. MRC is one of the largest shareholders in ALD and holds a direct interest in 5.71% (approximately 19.5 million shares) of ALD’s issued fully paid ordinary shares. The market value of MRC’s shares at 31 December 2006 was $14.2 million. INVESTMENT IN BLACKHAWK OIL AND GAS LIMITED/PETRO VENTuRES PLC During the period under review, the Company had entered into a Share Swap Agreement to roll all of its shareholding in BlackHawk Oil & Gas Limited into London based Petro Ventures Plc, however due to the Dutch Mining Ministry awarding the offshore licence P1 to a competing consortium, the roll up did not proceed. However, MRC remains as a significant seed capitalist investor in Petro Venture Plc. Petro Ventures was formed by a number of senior professionals in the UK and Australia with a view to securing oil and gas opportunities primarily in the UK and Europe on low risk appraisal/pre-development acreage in the vicinity of upstream infrastructure. Petro has successfully secured three project areas in the UK, Offshore Romania and onshore Hungary. it is also continuing its investigations on a number of advanced oil and gas plays in Morocco, Holland and Ukraine. For personal use only / 9 / Directors’ Report The Directors present their report together with the financial report of Mineral Commodities Limited (“the Company”) and its controlled entities for the year ended 31 December 2007. DIRECTORS The Directors of the Company in office during or since the end of the financial year are: • Mr Joseph A Caruso – Non Executive Chairman • Mr Mark V Caruso – Managing Director • Gregory Hugh Steemson – Non Executive Director Directors have been in office since the start of the financial year to the date of this report. DIRECTORS’ INFORMATION Joseph Anthony Caruso (61 Years of Age) Non-Executive Chairman Mr Caruso is a Director of Zurich Bay Holdings Pty Ltd and Construction Manager of Simto Australia Pty Ltd, both of which are involved in mining, earthmoving and civil engineering construction earthworks. Mr Caruso has considerable experience in managing and administration of engineering, mining, raw materials production operations, earthmoving and related infrastructure utilities services resource contracts. Mr Caruso has been a director of Mineral Commodities Limited since September 2000. Mark Victor Caruso (45 Years of Age) Managing Director Mr Caruso is a Director of Zurich Bay Holdings Pty Ltd and Simto Australia Pty Ltd, both of which are involved in mining, earthmoving and civil engineering construction earthworks. Mr Caruso has been a director of Mineral Commodities Limited since September 2000. He is also a Director of Allied Gold Limited. Former directorships of public listed companies in the last 3 years are Fortescue Metals Group Limited from June 2002 until November 2003 ORT Limited from August 2003 until August 2005 and CI Resources Limited from October 2003 to May 2007. Gregory Hugh Steemson (54 Years of Age) Non Executive Director Mr Steemson is a qualified Geologist and Geophysicist with an extensive background in exploration, development and management of mining projects. Mr Steemson has been a Director of the Company since April 2001. Mr Steemson is also a Director of Allied Gold Limited. Former directorships of public listed companies in the last 3 years include Fortescue Metals Group Limited from June 2002 until July 2003 and Sandfire Resources Limited from June 2003 to August 2007. Due to the size of the Company all directors are members of the Audit and Remuneration Committees as described further in the Corporate Governance statement. COMPANY SECRETARY Peter Torre CA, ACIS, MAICD Mr Torre was appointed Company Secretary of Mineral Commodities Limited in July 2006. He is a Chartered Accountant and a Chartered Secretary. He was previously a partner of an internationally affiliated firm of Chartered Accountants. Mr Torre is the Company Secretary of several ASX listed companies and is a Director of ORT Limited and Carbine Resources Ltd. PRINCIPAL ACTIVITIES The principal activity of the consolidated entity during the year was exploration for mineral sands and other mineral resources. This has mainly involved exploration and evaluation of the Xolobeni Mineral Sands Project in the Eastern Cape Province of South Africa, the Tormin Mineral Sands Project in the Western Cape Province of South Africa and diamond mining and tailings dump retreatment operation in Sierra Leone. The following significant change in the nature of activities of the Group occurred during the year: The diamond mining operations in Sierra Leone were placed on care and maintenance pending an engineering and design review For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 10 / Directors’ Report (continued) CONSOLIDATED RESULTS The loss of the consolidated entity after income tax and outside equity interests was $7,010,080 (2006: Loss of $1,523,542). DIVIDENDS No dividends have been paid, declared or recommended for payment, in respect of the current financial year. REVIEW OF OPERATIONS AND FUTURE DEVELOPMENTS Highlights of the Company’s operations for the period under review are as follows. Xolobeni Mineral Sands Project (South Africa) Mining Right In March 2007, MRC’s 75% owned South African subsidiary Transworld Energy and Minerals Resources Pty Ltd (TEM) lodged the mining right application for the Xolobeni Mineral Sands Project with the Department of Minerals and Energy (DME) in Port Elizabeth. The lodgement of the application was a significant milestone in the future commercialisation of this project. The completion and lodgement of the Environmental impact assessment and the formulation and submission of an Environmental Management Programme also took place during the year. The documents are currently under final review by the DME. The Minister of Minerals and Energy is due to announce a decision on the Mining Right Application during the first half of 2008. Xolobeni remains regarded as one of the largest undeveloped mineral sands resources in the world. Xolobeni Black Empowerment and Consultation The Group continues to work alongside its BEE Partner Xolobeni Empowerment Company (Pty) Ltd (Xolco) throughout the process. The project area was visited by the South African Government Minister of Minerals and Energy and the Minister of Social Development in December 2007. The delegation was accompanied by the newly appointed Chief Director of the DME for the Eastern Cape Region and was met by a large community gathering including Directors of Xolco. Tormin Zircon Project (South Africa) Mining Right Application The Mining Right Application was submitted at the beginning of the year for the Tormin Mineral Sands Project. In addition, the conversion of the existing Old Order Mining Permit to the south of the Prospecting Permit to a New Order Mining Right was lodged simultaneously. Once approved, the two rights will be consolidated into a single mining tenement. The final Environmental Impact Assessment (EIA) and Environmental Programme (EMP) for the project were submitted to the DME in July 2007. The Board was pleased to advise that subsequent to year end, the Group received notification that the Mining Right was granted with an official signing ceremony to take place in late April 2008. The Company continues to field expressions of interest from parties that wish to secure the rights to the non magnetic heavy mineral concentrates likely to be produced from the Tormin project. Negotiations have reached an advanced stage with marketing samples dispatched to the various parties for review. Black Economic Empowerment Partner Underpinning the Mining Right Application is the Company’s new Black Economic Empowerment (BEE) arrangement with Marodi Mining (Proprietary) Limited (Marodi). BEE compliance is a pre-condition to obtaining mining right approval under the South African Mineral and Petroleum Resources Development Act and the Broad-Based Socio Economic Empowerment Charter of South Africa. The Company’s South African subsidiaries, MRC Resources and Mineral Sands Resources (Pty) Ltd (MSR), have entered into a Shareholders Agreement with Marodi which will establish MSR as a fully compliant BEE company. For personal use only / 11 / Directors’ Report (continued) Erebus PLC. Investment in Allied Gold Limited In the first half of the year, ProMet Engineers Africa (Pty) Ltd had erected and commissioned the Diamond Recovery Plant that it had designed and fabricated from South Africa. The plant was designed to treat 80 tonnes of material per hour, however metallurgical constraints impeded production to less than half this rate. These constraints were identified and evaluated and ProMet and MRC commenced discussions to deliver the 80tph or to revise the project plan. The operations were suspended and the plant was placed under care and maintenance pending an engineering and design review. The Company held discussions with ProMet to deliver the 80tph throughput pursuant to the contractual performance guarantee. These discussions were not successful and as a result, the Company commenced legal proceedings in the Federal Court of Australia on 12 October 2007 against ProMet Engineers Africa (Pty) Ltd (ProMet), ProMet Engineers Pty Ltd, James Dinsdale Cribbes, Robert John Bennett and Richard George Ford. The proceedings have eventuated as a result of ProMet’s failure to manufacture, supply, install, erect and commission a diamond pan plant at the Company’s No 11 Oversize Tailings Dump in accordance with the terms of the contract. MRC claims in the proceedings that: (a) ProMet breached the terms of the Contract; and (b) ProMet Engineers Africa, ProMet Engineers, Cribbes, Bennet and Ford; (i) Engaged in misleading and deceptive conduct, and (ii) Breached Section 52 of the Trade Practices Act. MRC is claiming damages for breach of Contract, as well as damages for contraventions of the Trade Practices Act, interest and costs. Allied Gold Limited (ALD) is a listed gold development and exploration company with the Tabar Islands Gold Project in Papua New Guinea as its principal asset. This project consists of the Simberi Oxide Gold Project and all exploration property on the Tabar Islands. At reporting date, ALD was well advanced in the commissioning of its gold processing operation with the first production taking place immediately subsequent to year end. MRC is one of the largest shareholders in ALD and holds a direct interest in 5.71% (approximately 19.5 million shares) of ALD’s issued fully paid ordinary shares. The market value of MRC’s shares at 31 December 2007 was $14.2 million. Investment in Blackhawk Oil & Gas Limited During the period under review, the Company had entered into a Share Swap Agreement to roll all of its shareholding in BlackHawk Oil & Gas Limited into London based Petro Ventures Plc, however due to the Dutch Mining Ministry awarding the offshore licence P1 to a competing consortium, the roll up did not proceed. However, MRC remains as a significant seed capitalist investor in Petro Venture Plc. Petro Ventures was formed by a number of senior professionals in the UK and Australia with a view to securing oil and gas opportunities primarily in the UK and Europe on low risk appraisal/ pre-development acreage in the vicinity of upstream infrastructure. Petro has successfully secured three project areas in the UK, Offshore Romania and onshore Hungary. It is also continuing its investigations on a number of advanced oil and gas plays in Morocco, Holland and Ukraine. For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 12 / Directors’ Report (continued) FINANCIAL POSITION The net assets of the economic entity have decreased by $3,657,548 from 31 December 2006 to $19,049,809 at 31 December 2007. This has largely resulted from impairment losses arising from the fair value assessment of the Kariba Kono project. FUTURE DEVELOPMENTS, PROSPECTS AND BUSINESS STRATEGIES The company will continue the process of development of both the Tormin and Xolobeni projects in South Africa. The Company will seek to divest its interest in the Sierra Leone Diamond Project at a value acceptable to the Board. The Board will continue to review other projects and opportunities in the interest of increasing shareholder value. In the opinion of the directors, it may prejudice the interests of the Company to provide additional information in relation to likely developments in the operations of the Company and the expected results of those operations in subsequent financial periods. ENVIRONMENTAL REGULATIONS In the course of its normal mining and exploration activities, the Company adheres to environmental regulations imposed upon it by the relevant regulatory authorities, particularly those regulations relating to ground disturbance and the protection of rare and endangered flora and fauna. The Company has complied with all material environmental requirements up to the date of this report. SCHEDULE OF MINING TENEMENTS Mining tenements currently held by the economic entity are: Area Entity holding the interest % Held Title Status Xolobeni – South Africa Transworld Energy & Minerals Resources 100 New order Prospecting Right Granted Tormin – South Africa Mineral Sands Resources 100 New order Prospecting Right Geelwal Karoo 262 Koidu – Sierra Leone Kariba Kono (SL) Ltd 100 Mining Lease 3/04 Granted Granted SIGNIFICANT CHANGES IN STATE OF AFFAIRS AND LIKELY DEVELOPMENTS The following significant changes in the state of affairs of the Consolidated Entity occurred during the year: • • • • In June 2007, 4,373,519 shares were issued pursuant to the exercise of options at $0.30 and 183,500 shares were issued pursuant to the exercise of options at $0.40. In July 2007, 12,000,000 shares were issued under a placement at $0.26 per share to raise $3,120,000. In October 2007, 1,250,000 Employee Incentive Options were issued with an exercise price of $0.30 expiring on 30 September 2009. In November 2007, 500,000 Employee Incentive Options exercisable at $0.30 and 500,000 Employee Incentive Options exercisable at $0.40 were issued expiring on 30 September 2009. For personal use only / 13 / Directors’ Report (continued) OPTIONS The total number of unissued ordinary shares under option at the date of this report is 3,600,000, all of which are not listed. Options do not entitle the holder to receive a dividend paid to ordinary shareholders. New issues of options and options exercised in the period is as follows: Date of Grant Opening Balance – Options Exercised – Options Exercised – Options Lapsed – Options Issued – Options Issued Balance at 31 December 2007 DIRECTORS’ SHAREHOLDING INTERESTS No of Options Exercise Price Expiry date 22,494,233 (4,373,519) (183,500) (16,587,214) 1,750,000 500,000 3,600,000 $0.30 $0.30 $0.40 $0.30 $0.40 Various 30 June 2007 – – 30 September 2009 30 September 2009 Various The relevant interest of each director in the share capital of the Company, shown in the Register of Directors’ Shareholding at the date of the Directors’ Report is: Director Ordinary Shares Options over Ordinary Shares J A Caruso M V Caruso G H Steemson Direct – 12,627 210,000 Indirect 11,556,726 11,556,726 – Direct Indirect – – – – – – J A Caruso and M V Caruso are both directors of Zurich Bay Holdings Pty Ltd, which has a relevant interest in 11,556,727 shares in the Company. MEETINGS OF DIRECTORS The number of directors meetings and number of meetings attended by each of the directors of the Company during the financial year are: Meetings Held Meetings Attended J A Caruso M V Caruso G H Steemson 3 3 3 2 3 3 Other many matters of board business have been resolved by circular resolutions of directors, which are a record of decisions made at a number of informal meetings of the directors held to control, implement and monitor the Company’s activities throughout the year. For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 14 / Directors’ Report (continued) REMUNERATION REPORT (audited) The remuneration report is set out under the following main headings: A. Principles used to determine the nature and amount of remuneration. B. Details of remuneration C. Service Agreements D. Share-based compensation E. Additional Information The information provided in this remuneration report has been audited as required by section 308(3C) of the Corporations Act 2001. A. Principles used to determine the nature and amount of remuneration In order to retain and attract executives of sufficient calibre to facilitate the efficient and effective management of the Company’s operations, the board reviews the remuneration packages of all directors and executive officers on an annual basis and makes recommendations. Remuneration packages are reviewed with due regard to performance and other relevant factors. Remuneration packages may contain the following key elements: (a) Directors Fees; (b) Salary & Consultancy; (c) Benefits – including provision of motor vehicle, superannuation. Fees payable 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. Executives are offered a competitive base pay that consists of fixed components. Base pay for senior executives is reviewed annually to ensure the executives pay is competitive with the market. Total Base Pay can be structured as a total employment package which may be delivered as a combination of cash and prescribed non- financial benefits at the executives discretion. There were no short or medium term cash incentives provided to any executives of the company during the financial year. Short or medium term cash incentives are not incorporated into any executives salary packages at the time of this report. The directors are not required to hold any shares in the company under the constitution of the company; however, to align directors interests with shareholders interests the directors are encouraged to hold shares in the company. Remuneration is not directly related to company performance or key performance indicators. The board has no separate remuneration committee due to the size of the company. The directors perform the role of a remuneration committee as disclosed in the Corporate Governance statement. B. Details of Remuneration Details of the remuneration of directors and the key management personnel (as defined in AASB 124 Related Party Disclosures) of Mineral Commodities Limited and the Mineral Commodities Limited Group are set out in the following tables. Other than the directors of the company, the Company Secretary Mr Peter Torre is the only key management personnel. The amounts disclosed are therefore applicable for both Mineral Commodities Limited and the Mineral Commodities Limited Group. For personal use only Directors’ Report (continued) / 15 / Short-term benefits Post employment benefits Share-based payments Percentage performance based Cash Salary and fees Superannuation Shares/ Options Totals 2007 Name Non Executive Directors Joe Caruso Greg Steemson Sub-total non executive directors Executive Directors 44,037 69,800 113,837 Mark Caruso 48,000 Other Key Management Personnel Peter Torre 75,000 3,963 – 3,963 – – – – – 48,000 69,800 117,800 – 48,000 9,800 84,800 – – – – – Total Key management personnel disclosure 236,837 3,963 9,800 250,600 Short-term benefits Post employment benefits Share-based payments Percentage performance based Cash Salary and fees Superannuation Shares/ Options Totals 2006 Name Non Executive Directors Joe Caruso Greg Steemson Sub-total non executive directors Executive Directors 30,000 58,000 88,000 2,700 – 2,700 – – – – – 32,700 58,000 90,700 33,000 123,700 – – – – – Mark Caruso 33,000 – Total Key management personnel disclosure 121,000 2,700 C. Service Agreements There were no formal service agreements with any directors or key management personnel. For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 16 / Directors’ Report (continued) D. Share Based Compensation PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. INSURANCE OF OFFICERS During the financial year the Company has paid an insurance premium to insure the directors and secretaries of the company and its controlled entities. This contract prohibits disclosure of the nature of the liability and the amount of the premium. 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 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 company. AUDITORS’ INDEPENDENCE DECLARATION The Auditors’ Independence Declaration on page 57 forms part of the Directors’ Report for the year ended 31 December 2007. This relates to the audit report, where they state that they have issued an Independent Declaration. Options Options were granted by the Company to Mr Peter Torre in November 2007 for no consideration. In addition, options were granted under the Mineral Commodities Limited Employee Option Plan which was approved by shareholders at a general meeting held in November 2007. All full time employees, part time employees, consultants and Directors of the Company are eligible to participate in the plan at the absolute discretion of the board. Options are granted under the plan for no consideration and are at terms stipulated at the discretion of the Board. For further details of the options issued please refer to note 22(b) and 26. E. Additional Information There is no additional information to be provided in respect to the remuneration of the directors. INDEMNIFICATION AND INSURANCE OF DIRECTORS During the year, the Company has paid an insurance premium in respect of a contract indemnifying the parent entity’s directors. This contract prohibits disclosure of the nature of the liability and the amount of the premium. CORPORATE GOVERNANCE In recognising the need for the highest standards of corporate behaviour and accountability, the directors of Mineral Commodities Limited adhere to strict principles of corporate governance. The Company’s Corporate Governance statement is included before the Additional ASX Information section of the Annual Financial Report. SIGNIFICANT EVENTS AFTER THE BALANCE DATE No event or transaction has arisen in the interval between the end of the financial year and the date of this report of a material and unusual nature likely, in the opinion of the Directors of the Company, to affect significantly the operations of the Company or the Consolidated Entity, the results of those operations or the state of affairs of the Company or the Consolidated Entity in future financial years. For personal use only Directors’ Report (continued) NON-AUDIT SERVICES The company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the company and/or the group are important. The board of directors has considered the position and, in accordance with the 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. None of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of ethics for Professional Accountants. There were no non-audit services provided by BDO Kendalls in the year. / 17 / 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 firms: Audit Services: BDO Kendalls – $ Audit and review of financial reports 45,893 Non BDO Kendalls audit firm (Tuffias Sandberg) Total remuneration for audit services 12,713 58,606 This report has been made in accordance with a resolution of the Directors. Mark V Caruso Managing Director Perth, Western Australia 31 March 2008 For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 18 / Income Statement For the year ended 31 December 2007 Note Consolidated Company Revenue from continuing operations 2 Exploration written off 2007 $ 765,304 (186,867) 2006 $ 2007 $ 2006 $ 333,811 1,176,126 698,674 – (186,867) – General & Administration expenses (2,310,725) (1,773,047) (1,030,581) (1,115,951) Impairment of Fixed assets Impairment of Exploration expenditure Impairment of investments Impairment of Loan to subsidiary Share of net result of associates using the equity method Profit/(Loss) before income tax Income tax expense (1,385,087) (3,606,608) – – – – – – (1,385,087) – (2,154,612) (3,277,369) 11(a) (286,097) (167,770) – – – – – – 3 4 (7,010,080) (1,607,006) (6,858,390) (417,277) – 83,464 – – Profit/(Loss) from continuing operations (7,010,080) (1,523,542) (6,858,390) (417,277) Profit/(Loss) for the year attributable to the members of the parent entity (7,010,080) (1,523,542) (6,858,390) (417,277) Earnings per share for profit attributable to the ordinary equity holders of the company. Basic (loss) earnings per share (cents) 19 (6.1) (1.7) The income statements are to be read in conjunction with the notes to the financial statements. For personal use only / 19 / Balance Sheet as at 31 December 2007 CURRENT ASSETS Cash and cash equivalents Trade and other receivables Financial assets Other current assets Total Current Assets NON-CURRENT ASSETS Property, plant and equipment Exploration & development expenditure Note Consolidated Company 2007 $ 2006 $ 2007 $ 2006 $ 5 6 7 8 9 10 2,177,864 2,561,364 2,150,627 2,440,717 499,921 244,729 285,995 436,398 663,574 436,398 16,723 19,640 16,723 128,109 663,574 19,640 3,130,906 3,489,307 2,889,743 3,252,040 1,575,105 2,544,443 1,426,744 2,542,171 11,394,491 8,863,985 – 42,256 Investments accounted for using the equity method 11(a) 3,298,437 3,623,988 4,562,213 4,601,667 Other financial assets Trade and other receivables Total Non-Current Assets Total Assets CURRENT LIABILITIES Trade and other payables Provisions Total Current Liabilities Total Liabilities NET ASSETS EQUITY Contributed equity Reserves Accumulated losses Parent entity interest Minority interest TOTAL EQUITY 11(b) 13 – – 2,296,935 1,551,001 3,846,940 2,261,727 9,917,134 9,100,328 16,268,033 19,591,078 17,457,092 20,133,362 19,398,939 23,080,385 20,346,835 23,385,402 14 15 16 17 18 12 260,647 333,108 88,483 349,130 349,130 39,920 373,028 373,028 91,969 88,483 180,452 180,452 147,440 39,920 187,360 187,360 19,049,809 22,707,357 20,166,383 23,198,043 39,436,350 35,087,042 39,436,350 35,087,042 1,479,897 2,476,672 (8,550) 514,028 (22,000,778) (14,990,697) (19,261,417) (12,403,027) 18,915,469 22,573,017 20,166,383 23,198,043 134,340 134,340 – – 19,049,809 22,707,357 20,166,383 23,198,043 The balance sheets are to be read in conjunction with the notes to the financial statements. For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 20 / Cash Flow Statement For the year ended 31 December 2007 Note Consolidated Company 2007 $ 2006 $ 2007 $ 2006 $ CASH FLOWS FROM OPERATING ACTIVITIES Exploration and development expenditure Interest Received (2,812,802) (905,016) 133,000 166,290 (144,611) 127,830 (42,256) 162,811 Payments to suppliers & employees (1,857,890) (877,508) (923,491) (659,542) Interest Paid Sundry Income – – (10,933) 1,020 – – (10,933) 1,020 Net cash used in operating activities 24a (4,537,692) (1,626,147) (940,272) (548,900) CASH FLOWS FROM INVESTING ACTIVITIES Payment for plant and equipment 9 (354,890) (2,521,440) (330,137) (2,521,440) (411,320) (573,526) 567,207 (99,111) Purchase of equity investments (494,601) (411,320) (494,601) Purchase of further investment in associate 11(a) (632,043) (573,526) (632,043) Proceeds from sales of investments 1,344,513 567,207 1,344,513 Investment in controlled entities 11(b) Loans advanced to controlled entities Loans repaid by other entities Loans to other entities – – (99,111) – (1,995,280) (3,586,856) (3,216,014) 450,000 – 450,000 – (450,000) (100,645) (450,000) (100,645) Net cash used in investing activities (137,021) (5,134,115) (3,699,124) (6,354,849) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the issue of shares 16 4,349,306 8,437,500 4,349,306 8,437,500 Net cash generated by financing activities 4,349,306 8,437,500 4,349,306 8,437,500 Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of financial year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at end of financial year (325,407) 1,677,237 (290,090) 1,533,750 2,561,364 937,261 2,440,717 906,967 (58,093) (53,134) – – 5 2,177,864 2,561,364 2,150,627 2,440,717 The cash flow statements are to be read in conjunction with the notes to the financial statements. For personal use only Statement of Changes in Equity / 21 / Contributed Equity Accum- ulated Losses General Reserve Foreign Currency Transaction Reserve Share Based payments Reserve Financial Asset Reserve Minority Interests Total Equity $ $ $ $ $ $ $ $ Consolidated Entity For the year ended 31 December 2007 Balance at the beginning of the year Net Income recognised directly in equity Loss for the year Total recognised income and expense during the year Contributions of equity Transaction costs on share issues Employee share scheme Balance at the end of the year 35,087,042 (14,990,697) 2,551,100 (588,456) Issue of equity 4,505,308 Movement for the year – – – – – – – – – – (573,814) – – – – – – – – – – 78,500 514,028 134,340 22,707,357 – (501,461) – – 4,505,308 (1,075,275) – – – – – (7,010,080) – (7,010,080) – – (156,000) 78,500 – (7,010,080) – (7,010,080) (156,000) – – – 39,436,350 (22,000,777) 2,551,100 (1,162,270) 78,500 12,567 134,340 19,049,810 Parent Entity For the year ended 31 December 2007 Contributed Equity $ Accum- ulated Losses $ Share Based payments Reserve Foreign Currency Transaction Reserve Financial Asset Reserve $ $ $ Total Equity $ Balance at the beginning of the year 35,087,042 (12,403,027) Issue of equity Movement for the year Net Income recognised directly in equity Loss for the year Total recognised income and expense during the year Contributions of equity Transaction costs on share issues Employee share scheme 4,505,308 – – – – – – (6,858,390) (6,858,390) (156,000) – – – – – – – – – 78,500 – – 514,028 23,198,043 – 4,505,308 (99,617) (501,461) (601,078) – – – – – – – – – (6,858,390) (6,858,390) (156,000) 78,500 Balance at the end of the year 39,436,350 (19,261,417) 78,500 (99,617) 12,567 20,166,383 For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 22 / Statement of Changes in Equity (continued) Consolidated Entity For the year ended 31 December 2006 Contributed Equity Accum- ulated Losses General Reserve Foreign Currency Transaction Reserve Financial Asset Reserve Minority Interests Total Equity $ $ $ $ $ $ $ Balance at the beginning of the year 23,001,718 (13,467,155) 2,551,100 192,493 Issue of equity Movement for the year Net Income recognised directly in equity Loss for the year Total recognised income and expense during the year Contributions of equity 12,647,824 – – – – – (1,523,542) (1,523,542) Transaction costs on share issues (562,500) – – – – – – – – – (780,949) 514,028 – – – – – – 134,340 12,412,496 – – – – – 12,647,824 (266,921) (1,523,542) (1,523,542) (562,500) Balance at the end of the year 35,087,042 (14,990,697) 2,551,100 (588,456) 514,028 134,340 22,707,357 Parent Entity For the year ended 31 December 2006 Balance at the beginning of the year Issue of equity Movement for the year Net Income recognised directly in equity Loss for the year Total recognised income and expense during the year Contributions of equity Transaction costs on share issues Balance at the end of the year Contributed Equity $ Accum- ulated Losses $ Financial Asset Reserve $ Total Equity $ 23,001,718 (11,985,750) 12,647,824 – – – – – (417,277) (417,277) (562,500) – – – 11,015,968 12,647,824 514,028 514,028 – – – (417,277) (417,277) (562,500) 35,087,042 (12,403,027) 514,028 23,198,043 For personal use only / 23 / Notes to the Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Accounting This financial report is for Mineral Commodities Limited as the parent entity, and Mineral Commodities Limited and controlled entities, as the consolidated entity. Mineral Commodities Limited is an Australian domiciled public listed company. This general purpose financial report for the year ended 31 December 2007 has been prepared in accordance with Australian Accounting Standards, other mandatory professional reporting requirements and Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. Compliance with IFRS Australian Accounting Standards include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the financial report of Mineral Commodities Limited as the Parent entity and Mineral Commodities Limited and controlled entities comply with International Financial Reporting Standards (IFRS). Historical Cost Convention The financial report has been prepared on an accruals basis and is based on historical costs modified by the revaluation of selected non current assets, financial assets and financial liabilities for which the fair value basis of accounting has been applied. Critical Accounting Estimates The preparation of financial statements in conformity with AIFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Groups 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 further on. The following significant accounting policies have been adopted in the preparation and presentation of the financial report and have been consistently applied to all the years presented, unless otherwise stated. (b) Principles of Consolidation The consolidated financial report incorporates the assets and liabilities of all subsidiaries of Mineral Commodities Ltd (“Company” or “parent entity”) as at 31 December 2007 and the results of its subsidiaries for the year then ended. Mineral Commodities Ltd and its subsidiaries together are referred to in this financial report as the consolidated entity. 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. Subsidiaries are those 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. Where control of an entity is obtained during a financial year, its results are included in the consolidated income statement from the date on which control commences. Where control of an entity ceases during a financial year, its results are included for that part of the year during which control existed. The purchase method of accounting is used to account for the acquisition of subsidiaries by the group – refer to note (f). The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group. Disposals to minority interests result in gains and losses for the Group that are recorded in the income statement. Purchases from minority interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of identifiable net assets of the subsidiary. For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 24 / Notes to the Financial Statements (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Principles of Consolidation (continued) Minority interests in the results and equity of subsidiaries are shown separately in the consolidated income statement and balance sheet respectively. Investments in subsidiaries are accounted for at cost in the individual financial statements of Mineral Commodities Limited. On 23 June 2006, Mineral Commodities Limited completed a takeover of Erebus Plc and effectively took control from this date. Immediately following the handing over of control to Mineral Commodities Limited, the accounting and financial records of Erebus Plc were requisitioned so that Mineral Commodities Limited could also control this function. Upon receipt of the accounting records subsequent to the reporting date, it became apparent that the records were incomplete and the Company began the process of reconstructing the records with the limited information that was available. As at 31 December 2006, the records were not sufficiently reliable to be able to represent a true and fair view of the financial position of Erebus Plc and its subsidiary for the full year ended 31 December 2006 due to the incomplete information received up to the date of acquisition. The value of the consideration paid for Erebus Plc was $2,297,935 comprising 9,406,878 shares and 3,135,626 unlisted options. For these reasons, the Directors of Mineral Commodities decided not to consolidate Erebus Plc from 23 June 2006 and to report its investment in Erebus Ltd at cost in the Economic Entity for the year ended 31 December 2006. The majority of the expenditure within the Erebus Group relates to the mining activities and is capitalised accordingly in the balance sheet. The acquisition and consolidation of the Erebus Group would have resulted in assigning a fair value to the mining right. The Directors believe that this value essentially represents the value of the consideration that was paid to takeover the company and reflecting the investment at cost at 31 December 2006 was a more appropriate way of reporting to shareholders given the situation. As the Company did not consolidate Erebus at 31 December 2006, the Investment in Erebus and loan receivable from Erebus were not eliminated. The Mineral Commodities Group that was reported as at 31 December 2006 therefore consists of the Parent Entity, Mineral Commodities Limited and the subsidiary companies listed in Note 11(b) with the exception of Erebus Ltd and its subsidiary. Erebus Ltd and its subsidiary were consolidated into the Group for the 2007 financial year. (c) Revenue Recognition Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances, rebates and amounts collected on behalf of third parties. Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: Interest Income Interest and other income is recognised as it accrues on a time proportion basis using the effective interest method. (d) Taxes Income taxes The charge for current income tax expense or revenue is based on the profit for the year adjusted for any non-assessable or disallowed items. It is calculated using tax rates that have been enacted or are substantively enacted by the balance sheet date, Income tax expense is adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and unused tax losses. For personal use only / 25 / Notes to the Financial Statements (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (d) Taxes (continued) Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where this is no effect on accounting or taxable profit or loss. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the income statement except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. 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. The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions or deductibility imposed by the law. The income tax expense for the year is calculated using the 30% tax rate (2006: 30%). Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST except where the GST incurred on a purchase of goods & services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and where receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables in the Balance Sheet. Cash flows are included in the Cashflow Statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (e) Foreign Currency Transactions and Balances Functional and presentation currency The functional currency of each of the group’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency. Transaction and balances Foreign currency transactions are translated into functional currency using the exchange rated prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined. Exchange differences arising on the translation of monetary items are recognised in the income statement, except where deferred in equity as a qualifying cash flow or net investment hedge. Exchange difference arising on the translation of non-monetary items are recognised directly in equity to the extent that the gain or loss is directly recognised in equity, otherwise the exchange difference is recognised in the income statement. For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 26 / Notes to the Financial Statements (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (e) Foreign Currency Transactions and Balances (continued) Group Companies The financial results and position of group entities whose functional currency is different from the group’s presentation currency are translated into the presentation currency as follows; Assets and liabilities translated at year-end exchange rates prevailing at that reporting date. Income and expenses are translated at average exchange rates for the period. Retained profits are translated at the exchange rates prevailing at the date of the transaction. Exchange differences arising on translation of foreign operations are transferred directly to the group’s foreign currency translation reserve in the balance sheet. These differences are recognised in the income statement in the period in which the operation is disposed. (f) Acquisitions of Assets The cost method of accounting is used for all acquisitions of assets regardless of whether shares or other assets are acquired. Cost is determined as the fair value of the assets given up at the date of acquisition plus costs incidental to the acquisition. Where shares are issued in an acquisition, the value of the shares is determined by reference to the fair value of the assets acquired, including goodwill where applicable. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value at the date of acquisition. The discount rate used is the rate at which a similar borrowing could be obtained under comparable terms and conditions. Where the fair value of the identifiable net assets acquired, including any liability for restructuring costs, exceeds the cost of acquisition, the difference, representing a discount on acquisition, is accounted for by reducing proportionately the fair values of the non-monetary assets acquired until the discount is eliminated. (g) Property, Plant and Equipment Each class of property, plant and equipment is carried at cost or fair value less, where applicable, any accumulated depreciation and impairment losses. Acquisition Items of plant and equipment are initially recorded at cost and depreciated as outlined below. Subsequent costs are included in the assets carrying amount or recognised as a separate asset as appropriate. All other repairs and maintenance are charged to the income statement during the reporting period in which they are incurred. Depreciation of Plant and Equipment Plant and equipment are depreciated at rates based upon the expected useful lives of these assets. The expected useful lives of these assets are 3-10 years. The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. An assets carrying amount is written down immediately to its recoverable amount if the assets carrying amount is greater than its estimated recoverable amount. Disposal of Assets The gain or loss on disposal of assets is calculated as the difference between the carrying amount of the asset at the time of disposal and the proceeds on disposal and is included in the income statement in the year of disposal. Any related revaluation increment standing in the asset revaluation reserve at the time of disposal is transferred to the capital profit reserve. For personal use only / 27 / Notes to the Financial Statements (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (h) Exploration and Evaluation Expenditure Costs incurred during the exploration and evaluation stages of specific areas of interest are accumulated. Such are only carried forward if they are expected to be fully recouped through the successful development of the area, or where activities to date have not yet reached a stage to allow reasonable assessment regarding the existence of economically recoverable reserves. Costs are written off as soon as an area has been abandoned or considered to be non-commercial or provided against where an area is considered non-commercial at the period end. Once production commences, expenditure accumulated in respect of areas of interest is amortised on a unit of production basis over the life of the total proven economically recoverable reserves. Restoration costs recognised in respect of areas of interest in the exploration and evaluation stage are carried forward as exploration and evaluation expenditure. Costs recognised after the commencement of production in areas of interest will be charged to the profit and loss statement. Potential capital gains tax is not taken into account in determining revaluation amounts unless there is an intention to sell the asset concerned (i) Investments Interests in – Subsidiaries Investments in subsidiaries are carried in the Company’s financial report at the lower of cost and recoverable amount. Dividends and distributions are brought to account in the Company’s income statement when they are declared by the subsidiaries. Investments in associates Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20%-50% of the voting rights. Investments in associates are accounted for in the parent entity financial statements using the cost method and in the consolidated financial statements using the equity method of accounting, after initially being recognised at cost. The Groups investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition. The Groups share of its associates post acquisition profits or losses is recognised in the income statement, and its share of post acquisition movements in reserves is recognised in reserves. The cumulative post acquisition movements are adjusted against the carrying amount of the investment. (j) Impairment of Assets At each reporting date, the group reviews the carrying values of it tangible assets and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over it recoverable amount is expensed to the income statement. Where it is not possible to estimate the recoverable amount of an individual asset, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs. (k) Financial Instruments The Group classifies its financial assets in the following categories. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition. Recognition Financial instruments are initially measured at cost on trade date, which includes transaction costs, when the related contractual rights or obligations exist. Subsequent to initial recognition these instruments are measured as set out below. For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 28 / Notes to the Financial Statements (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (k) Financial Instruments (continued) Financial assets at fair value though profit and loss A financial asset is classified in this category if acquired principally for the purpose of selling in the short term, or if so designated by management and within the requirement of AASB139: Recognition and Measurement of Financial Instruments. Derivatives are also categorised as held for trading unless they are designated as hedges. Realised and unrealised gains and losses arising from changes in the fair value of these assets are included in the Income statement in the period in which they arise. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are stated at amortised cost using the effective interest rate method. They are included within current assets, except for those with maturities greater than 12 months after the reporting date which are classified as non-current assets. Held-to-maturity investments These investments have fixed maturities, and it is the group’s intention to hold these investments to maturity. Any held-to- maturity investments held by the group are stated at amortised cost using the effective interest rate method. Available-for-sale financial assets Available-for-sale financial assets include any financial assets not included in the above categories. Available-for-sale financial assets are reflected at fair value. Unrealised gains and losses arising from changes in fair value are taken directly to equity. Financial Liabilities Non-derivative financial liabilities are recognised at amortised cost, comprising original debt less principle payments and amortisation. Fair value Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value of all unlisted securities, including recent arm’s length transactions, reference to similar instructions and option pricing models. Impairment At each reporting date, the group assess whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in the income statement. Recognition and derecognition Regular purchases and sales of financial assets are recognised on trade date- the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed to the income statement. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or been transferred and the Group has transferred substantially all the risks and rewards of ownership. Subsequent measurement Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest rate method. For personal use only / 29 / Notes to the Financial Statements (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (k) Financial Instruments (continued) Available for sale financial assets and financial assets at fair value through profit and loss are subsequently carried at fair value. Gains or losses arising from changes in the fair value of the financial assets are presented in the income statement within other income or other expenses in the period in which they arise. Details on how the fair value of financial instruments is determined are disclosed in note 25. (l) Contributed Equity Ordinary share capital is recognised at the fair value of the consideration received by the Company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received. (m) Cash and Cash Equivalents Cash and cash equivalents includes cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within short- term borrowings in current liabilities on the balance sheet. (n) Earnings per Share Basic Earnings per Share Basic earnings per share is determined by dividing the profit after income tax attributable to members of Mineral Commodities Ltd by the weighted average number of ordinary shares outstanding during the financial year. Diluted Earnings per Share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share by taking into account amounts unpaid on ordinary shares and any reduction in earnings per share that would arise from the exercise of options outstanding at the end of the financial year. (o) Employee Benefits Wages and Salaries, Annual Leave and Sick Leave Provision is made for the consolidated entity’s liability for employee entitlements arising from services rendered by employees to balance date. These benefits include wages and salaries annual leave. Sick leave is non-vesting and has not been provided for. Employee entitlements expected to be settled within one year have been measured at the amounts expected to be paid when the liabilities are settled and are recognised in other payables. The contributions made to superannuation funds by entities within the consolidated entity are charged against profits when due. Share-Based Payments Share-based compensation benefits are provided to employees via the Mineral Commodities Employee Incentive Option Scheme. Information relating to this scheme is set out in Note 26. The fair value of options granted under the Mineral Commodities Employee Incentive Option Scheme is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employee becomes unconditionally entitled to the options. The fair value at grant date is independently determined using a Binomial option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, 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 term of the option. For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 30 / Notes to the Financial Statements (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (p) Leases Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred. (q) Segment reporting A business segment is identified for a group of assets and operations engaged in providing services that are subject to risks and returns that are different to those of other business segments. A geographical segment is identified when services are provided within a particular economic environment subject to risks and returns that are different from those of segments operating in other economic environments. (r) Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days. (s) 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. (t) Comparatives Where required by Accounting Standards comparative figures have been adjusted to conform with changes in presentation for the current financial year. (u) Critical accounting estimates and assumptions The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The 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. Critical Accounting Estimates The directors evaluate estimates and judgements incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the group. Critical judgements in applying the entity’s accounting policies Impairment of available for sale financial assets, Investments in Subsidiaries and Exploration and evaluation costs. In the 2007 financial report, the Group and the parent entity made a significant judgement about the impairment of its available for sale financial assets, subsidiaries and exploration and development costs. The group assesses impairment at each reporting date by evaluating conditions specific to the group that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. Value in-use calculations performed in assessing recoverable amounts incorporate a number of key estimates. For personal use only / 31 / Notes to the Financial Statements (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (v) Change in Accounting Policy Australian Accounting Standards that have recently been issued or amended but are not yet effective for the parent and consolidated entity have not been adopted for the annual reporting period ended 31 December 2007. AASB Amendment Affected Standard(s) Nature of Change to Accounting Policy Revised AASB 123 and AASB 2007-6 AASB 123 Borrowing Costs and AASB 2007-6 Amendments to Australian Accounting Standards arising from AASB 123, Revised AASB 101 AASB 8 and AASB 2007-3 Revised AASB 101 Presentation of Financial Statements and AASB 2007-8 Amendments to Australian Accounting Standards arising from AASB 101. AASB 8 Operating Segments and AASB 2007-3 Amendments to Australian Accounting Standards arising from AASB 8. Removal of option to expense all borrowing costs and when adopted will require the capitalisation of all borrowing costs directly attributable to the acquisition of a qualifying asset. There will be no impact on the financial report of the Group. Requires changes to presentation and disclosure but will not affect any of the amounts recognised in the financial statements. Significant change in the approach to segment reporting and disclosure, however it is not expected to affect any of the amounts recognised in the financial statements. The following amendments are not applicable to the Group and therefore have no impact AASB Amendment Affected Standard(s) Nature of Change to Accounting Policy Application Date of Standard* Application Date for Group 1 Jan 09 1 Jan 09 1 Jan 09 1 Jan 09 1 Jan 09 1 Jan 09 Application Date of Standard* Application Date for Group 1 Jul 08 1 Jan 09 2007-9 2008-2 AASB-I 14 Amendments to Australian Accounting Standards arising from the review of AASs 27, 29 and 31. Amendments to Accounting Standards – Puttable Financial Instruments and Obligations Arising on Liquidation AASB-I 14 The limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction No change to accounting policy required. Therefore no impact. No change to accounting policy required. Therefore no impact. 1 Jan 09 1 Jan 09 No change to accounting policy required. Therefore no impact. 1 Jan 08 1 Jan 08 Application date is for the annual reporting periods beginning on or after the date shown in the above table. For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 32 / Notes to the Financial Statements (continued) 2. OTHER REVENUE FROM CONTINUING OPERATIONS Consolidated Company 2007 $ 2006 $ 2007 $ Gain from sales of investments in listed companies 539,419 49,466 539,419 Interest revenue from unrelated entities 133,000 166,290 127,830 Interest revenue from controlled entity – – 304,809 Management fees 90,000 100,035 201,183 Reversal of provision for impairment of investment in listed securities Other Income – 2,885 17,000 1,020 – 2,885 2006 $ 49,466 162,811 239,241 229,136 17,000 1,020 Total Revenue from continuing operations 765,304 333,811 1,176,126 698,674 3. PROFIT/(LOSS) FROM ORDINARY ACTIVITIES Consolidated Company 2007 $ 2006 $ 2007 $ 2006 $ Profit or/(Loss) from ordinary activities before income tax has been arrived at after charging the following: Exploration expenditure written off 186,867 – 186,867 – Operating Lease rentals 69,741 56,620 69,741 56,620 Depreciation – Plant and Equipment 102,511 25,958 60,477 22,223 Movement in provision for employee entitlements 48,563 14,559 48,563 14,559 Unrealised foreign exchange loss – 570,114 – 219,614 For personal use only / 33 / Notes to the Financial Statements (continued) 4. INCOME TAX The components of current income tax expense comprise: Deferred income tax relating to origination and reversal of temporary differences Income tax (benefit) reported in the income statement The prima facie tax on profit/(loss) from ordinary activities before income tax is reconciled to the income tax expense as follows: Consolidated Company 2007 $ 2006 $ 2007 $ 2006 $ – – (83,464) (83,464) – – – – Profit/(Loss before income tax (7,010,080) (1,523,542) (6,858,390) (417,277) Prima facie tax payable/(benefit) on profit/(loss) from ordinary activities @ 30% (2005:30%) Non allowable items Non-assessable income (2,103,024) (457,063) (2,057,517) (125,183) (429,596) (43,110) 99,722 (33,750) 70,113 (43,110) – (33,750) Net deferred tax assets not brought to account 2,575,730 307,627 2,030,514 158,933 Benefit of losses not previously brought to account Income tax expense/(benefit) reported in the consolidated income statement – – – (83,464) – – – – Future income tax benefit arising from un-recouped deductions at balance date, for Australian tax resident entities. Revenue losses Capital losses 2,985,234 2,923,764 1,467,402 1,549,863 4,643,254 4,643,254 4,643,254 4,643,254 In addition the economic entity has unconfirmed tax losses and accumulated exploration expenditure that gives rise to potential carry forward tax benefits in South Africa amounting to approximately Rand 16.2 million (approximately A$2.7 million). The benefit of these potential future tax benefits has not been brought to account, and will only be realised if circumstances similar to those described above, also apply to the economic entity’s future operations in South Africa. There are no franking credits available. For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 34 / Notes to the Financial Statements (continued) 5. CASH AND CASH EQUIVALENTS Cash at Bank Consolidated Company 2007 $ 2006 $ 2007 $ 2006 $ 2,177,864 2,561,364 2,150,627 2,440,717 2,177,864 2,561,364 2,150,627 2,440,717 The effective interest rate on cash at bank was 6%. (a) Interest rate risk exposure The Group’s and the parent entity’s exposure to interest rate risk is discussed in note 25. (b) Reconciliation to cash at the end of the year The above figures represent the cash at the end of the financial year as shown in the statement of cashflows. 6. TRADE AND OTHER RECEIVABLES – CURRENT Consolidated Company Trade receivables Term deposits Other debtors 2007 $ 35,634 36,950 2006 $ 27,360 38,029 2007 $ 2006 $ 35,639 27,360 – 361,897 103,695 250,356 – 25,104 75,645 Loans receivable from other entities 65,440 75,645 – 499,921 244,729 285,995 128,109 (a) Fair Values and credit risk Due to the short term nature of these receivables the carrying values represent their respective fair values as at 31 December 2007. The maximum exposure to credit risk at the reporting date is the carrying amount of each class of receivables mentioned above. Refer to note 25 for more information on the risk management policy of the Group and the credit quality of the entity’s receivables. (b) Foreign Exchange and Interest Rate Risk Information about the Group’s and the parent entity’s exposure to foreign exchange and interest rate Risk in relation to trade and other receivables is provided in Note 25. (c) Other Receivables These amounts generally arise from transactions outside the usual operating activities of the Group. Collateral is not normally obtained. For personal use only / 35 / Notes to the Financial Statements (continued) 7. FINANCIAL ASSETS – CURRENT Financial assets at fair value through profit or loss Investments in companies listed on a recognised stock exchange – shares at fair value Total available for sale investments in companies listed on a recognised stock exchange Available for sale investment in companies not listed on a recognised stock exchanges – at cost Total Financial Assets – Current Consolidated Company 2007 $ 2006 $ 2007 $ 2006 $ 75,000 613,574 75,000 613,574 75,000 613,574 75,000 613,574 361,398 436,398 50,000 361,398 50,000 663,574 436,398 663,574 Available for sale financial assets comprise investments in the ordinary share capital of various entities. There are no fixed returns or fixed maturity date attached to these investments. Changes in fair values of financial assets at fair value through profit or loss are recorded in other income or other expenses in the income statement. Non listed investments have been valued at their most recent capital raising. (a) Risk Exposure Information about the Group’s and the parent entity’s exposure to credit risk, foreign exchange and interest rate risk is provided in Note 25. 8. OTHER – CURRENT Consolidated Company 2007 $ 2006 $ 2007 $ 2006 $ Prepayments 16,723 19,640 16,723 19,640 For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 36 / Notes to the Financial Statements (continued) 9. PROPERTY, PLANT AND EQUIPMENT Consolidated Company 2007 $ 2006 $ 2007 $ 2006 $ Plant and office equipment – at cost 1,794,056 2,630,835 1,562,562 2,617,511 Accumulated depreciation (218,951) (86,392) (135,818) (75,340) Total property, plant and equipment 1,575,105 2,544,443 1,426,744 2,542,171 Reconciliation of the carrying amount of plant & equipment at the beginning and end of the current and previous financial year Plant and office equipment Carrying amount at beginning of year 2,544,443 52,825 2,542,171 47,230 Additions Disposal Impairment Depreciation 518,260 2,521,440 330,137 2,521,028 – (3,864) – (3,864) (1,385,087) – (1,385,087) – (102,511) (25,958) (60,477) (22,223) Carrying amount at end of year 1,575,105 2,544,443 1,426,744 2,542,171 (a) During the year an impairment loss of $1,385,087 was brought to account in respect of the Diamond pan plant situated in Sierra Leone. The impairment value has been calculated using the assets fair value less costs to sell. For personal use only / 37 / Notes to the Financial Statements (continued) 10. EXPLORATION AND DEVELOPMENT EXPENDITURE Consolidated Company 2007 $ 2006 $ 2007 $ 2006 $ Exploration expenditure – costs carried forward in respect of areas of interest in: Exploration and evaluation phases 11,394,491 8,863,985 Total exploration and evaluation expenditure 11,394,491 8,863,985 – – 42,256 42,256 Reconciliation of the carrying amount of mining tenements at the beginning and end of the current and the previous financial year. Carrying amount at beginning of year 8,863,985 7,749,010 42,256 Exploration expenditure on consolidation of Erebus/ Kariba Kono Expenditure during the year 4,606,608 2,233,094 – – 905,016 144,611 42,256 Expenditure outlaid other than in cash – 1,499,244 Impairment of exploration expenditure (3,606,608) – Foreign exchange translation reserve (515,721) (1,289,285) – – – Write off discontinued projects Carrying amount at end of year (186,867) – (186,867) 11,394,491 8,863,985 – 42,256 – – – – – – Recoupment of carried forward exploration and evaluation expenditure is dependent upon the successful development and commercial exploitation of each area of interest, or otherwise by their sale at an amount not less than the carrying value. The impairment loss of $3,606,608 was brought to account in respect of the exploration assets contained within the Company’s Sierra Leone project. The impairment value has been calculated using the assets fair value less costs to sell. 11(a) INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD Consolidated Company 2007 $ 2006 $ 2007 $ 2006 $ Investment in companies accounted for using the equity method – at cost 4,562,213 4,601,667 4,562,213 4,601,667 Equity accounting adjustments (1,263,776) (977,679) – – 3,298,437 3,623,988 4,562,213 4,601,667 For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 38 / Notes to the Financial Statements (continued) 11(a) INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (CONTINUED) Interests are held in the following associated companies: Name Listed Principal Activity Ownership Interest Carrying Amount of Investment 2007 2006 2007 2006 % % Ord 5.71 7.15 3,298,437 3,549,814 Ord – 50.0 – 74,174 Allied Gold Ltd (Incorporated in Australia) Unlisted Leonaust Mining Company Ltd (incorporated in Sierra Leone) Mineral exploration Mineral exploration Movements during the year in Equity Accounted investments in Associated Companies Carrying amount at beginning of financial year Disposal of Leonaust Mining Company Ltd Investments in associates acquired during the year, at cost Cost of shares in associates sold during the year Share of associate’s net loss Net gain on deemed disposal Carrying amount at end of financial year Summarised Presentation of Aggregate Assets, Liabilities and Performance of Associates The Group’s share of the results of its associate and its aggregated assets (including goodwill) and liabilities are as follows: Current Assets Non current assets Total assets Current liabilities Non current liabilities Total liabilities Net assets as reported by associates Share of net (loss) profit from ordinary activities after income tax as reported by the associate Although Mineral Commodities Limited owns less than 20% of Allied Gold Limited it is in a position of significant influence because it is one of the largest shareholders of Allied Gold Limited and two of the Mineral Commodities Limited directors are also directors of Allied Gold, amounting to 40% Board representation throughout the relevant period. Fair Value of Investments in Associates The market value of this investment in Allied Gold at balance date was $14,260,097 based on a price per share of 73 cents. 3,298,437 3,623,988 3,623,988 3,218,232 (74,174) 632,043 (686,890) – 573,526 – (286,097) (167,770) 89,567 – 3,298,437 3,623,988 2007 $ 2006 $ 528,021 2,415,465 7,541,951 4,026,093 8,069,972 6,441,558 3,096,004 399,908 411,755 – 3,507,759 399,908 4,562,213 6,041,650 (286,097) (167,770) For personal use only / 39 / Notes to the Financial Statements (continued) 11(b) SUBSIDIARIES Consolidated Company 2007 $ 2006 $ 2007 $ 2006 $ Unquoted investments – at cost Shares in controlled entities – – 2,296,935 1,551,001 3,846,940 2,296,935 1,551,001 3,846,940 Subsidiaries Class of Share Place of Incorporation Equity Holding Cost to Company Parent Entity Mineral Commodities Limited Controlled Entities Rexelle Pty Ltd Queensland Minex NL Q Smelt Pty Ltd Mincom Waste Pty Ltd MRC Resources (Pty) Ltd MRC Africa Pty Ltd Erebus Plc Kariba Kono (S.L.) Ltd Blackhawk Oil & Gas Ltd Less Impairment 2007 2006 % – 100 100 90 100 100 100 100 100 100 % - 100 100 90 100 100 100 100 100 100 Australia Australia Australia Australia Australia South Africa Australia United Kingdom Sierra Leone Australia Ord Ord Ord Ord Ord Ord Ord Ord Ord 2007 $ 2006 $ – – 1,450,001 1,450,001 4,718,302 4,718,302 – – – 1,000 – – – 2 – 2 2,296,935 – 100,000 100,000 6,269,303 8,565,242 (4,718,302) (4,718,302) 1,551,001 3,846,940 Subsidiaries of MRC Resources (Pty) Ltd Class of Share Place of Incorporation Equity Holding Cost to Company Transworld Energy & Minerals Resources (SA) (Pty) Limited Mineral Sands Resources (Pty) Ltd Nyati Titanium Eastern Cape (Pty) Ltd MRC Metals (Pty) Ltd Skeleton Coast Resources (Pty) Ltd Ord Ord Ord Ord Ord South Africa South Africa South Africa South Africa Namibia 2007 2006 % 75 100 100 100 100 % 75 100 100 100 100 2007 $ 2006 $ 2,500,000 2,500,000 – – – – – – – – Please refer to Note 1 (b) in respect to Erebus Ltd and Kariba Kono Pty Ltd. For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 40 / Notes to the Financial Statements (continued) 11(b) SUBSIDIARIES (CONTINUED) Business combination On 23 June 2006, Mineral Commodities Limited acquired all the issued shares in Erebus PLC that it did not already own. The consideration comprised the issue of 9,406,878 shares and 3,135,626 unlisted options with a total consideration value of $2,297,935. As stated in Note 1(b) to the financial statements, Mineral Commodities Limited did not consolidate Erebus Ltd at 31 December 2006. During 2006 a loan payable by Q Smelt Pty Ltd was converted into equity resulting in a dilution in the Group’s holding to 90%. 12. MINORITY INTERESTS Consolidated Company 2007 $ 2006 $ 2007 $ 2006 $ Minority interests in subsidiaries comprise: Interest in retained profits at the beginning of the financial year after adjusting for outside equity interests in the entities acquired during the financial year Operating loss Share capital Reserves Total minority interests 13. TRADE AND OTHER RECEIVABLES – NON-CURRENT Opening Balance Investment in subsidiary – – – – 54,710 79,630 54,710 79,630 134,340 134,340 2,261,727 – 9,100,328 5,496,236 Adjustment arising from consolidation (2,261,727) Loans and advances – controlled entities Less provision for impairment Total Trade and other receivables – – – – 2,261,727 – – – – 4,255,741 3,765,658 (3,438,935) (161,566) – – – 2,261,727 9,917,134 9,100,328 Recovery of the loans to controlled entities is dependent upon the commercial exploitation of mining tenements held by the controlled entities. Please refer to Note 1 (b) in respect to loans to Erebus Ltd and Kariba Kono (S.L.) Ltd. For personal use only / 41 / Notes to the Financial Statements (continued) 13. TRADE AND OTHER RECEIVABLES – NON-CURRENT (CONTINUED) (a) Impaired receivables and receivables past due As at 31 December 2007 non current loans and advances with a nominal value of $3,438,935 (2006 $161,566) were impaired. The amount of the provision was $3,438,935 (2006:$161,566). The impaired receivables in 2007 relate to the loans advanced to Kariba Kono (SL) Ltd. It is expected that the sale of the assets of this entity will not generate sufficient funds in order for these receivable to be repaid. The impaired receivable in 2006 relates to the loan advanced to Queensland Minex NL a portion of the loan not expected to be recovered through the realisation of the net assets of the company. (b) Fair Values The carrying values of non-current receivables represent their respective fair values as at 31 December 2007. (c) Risk Exposure Information about the Group’s and the parent entity’s exposure to credit risk, foreign exchange and interest rate risk is provided in Note 25. 14. TRADE AND OTHER PAYABLES – CURRENT Trade payables – unsecured Other payables and accruals – unsecured Consolidated Company 2007 $ 156,517 104,130 2006 $ 275,524 57,584 260,647 333,108 2007 $ 25,616 66,353 91,969 2006 $ 91,840 55,600 147,440 Refer to Note 25 for details of interest rates incurred on payables. Risk Exposure Information about the Groups and the parent entity’s exposure to foreign exchange risk is provided in Note 25. Employee entitlements represent unused annual and long service leave. 15. PROVISIONS – NON-CURRENT Provision for employee entitlements Opening balance Movement for the period Provision for employee entitlements Consolidated Company 2007 $ 39,920 48,563 88,483 2006 $ 25,361 14,559 39,920 2007 $ 39,920 48,563 88,483 2006 $ 25,361 14,559 39,920 For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 42 / Notes to the Financial Statements (continued) 16. CONTRIBUTED EQUITY Balance at beginning of financial year 106,436,002 62,029,124 35,087,042 23,001,718 2007 Number of shares 2006 Number of shares 2007 $ 2006 $ Placement of shares, May 2006 Placement of shares, May 2006 Placement of shares, June 2006 Placement of options Placement of shares, July 2007 Conversion of listed 30 cent options Conversion of 40 cent options Costs of capital raising 5,000,000 30,000,000 9,406,878 – – 1,450,000 9,000,000 2,163,582 34,244 3,120,000 1,311,908 73,400 (156,000) (562,502) 12,000,000 4,373,883 183,500 – Balance at end of financial year 122,993,385 106,436,002 39,436,350 35,087,042 • • In July 2007 the Company placed 12 million shares to various Institutions at 26cents per share to raise $3,120,000 before costs. In June 2007 4,373,883 options at 30 cents and 183,500 options at 40 cents were exercised to raise a total of $1,385,308. (a) 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. (b) Capital risk management The Group’s and the parent entity’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they can continue to provide returns to 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 Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Company monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as equity as shown in the balance sheet plus net debt. As the Company is a junior mineral explorer, the gearing ratio has been maintained throughout the year at 0%. For personal use only Notes to the Financial Statements (continued) 17. RESERVES General Reserve Financial assets reserve Share based payments reserve Foreign currency translation reserve Nature and purpose of reserves / 43 / 2006 $ – 514,028 – – 514,028 Consolidated Company 2007 $ 2006 $ 2007 $ 2,551,100 2,551,100 12,567 78,500 514,028 – (1,162,270) (588,456) 1,479,897 2,476,672 – 12,567 78,500 (99,617) (8,550) General Reserve The General Reserve arose from the issue of shares in MRC Resources Pty Ltd to an entity outside the economic entity. This entity’s holding gives rise to a minority interest. Financial assets The financial asset reserve arises from adjusting the value of options held for trading. Foreign Currency The foreign currency translation reserve records the unrealised foreign currency differences arising from the translation of operations into the presentational currency of the group. Refer to accounting policy Note 1 (e). Share Based payments The share based payments reserve is used to recognise the fair value of options issued to employees but not exercised and the fair value of shares issued to employees. 18. ACCUMULATED LOSSES Consolidated Company 2007 $ 2006 $ 2007 $ 2006 $ Accumulated losses at beginning of the year (14,990,698) (13,467,155) (12,403,027) (11,985,750) Net profit (loss) attributable to members (7,010,080) (1,523,542) (6,858,390) (417,277) Accumulated losses at end of the year (22,000,778) (14,990,697) (19,261,417) (12,403,027) For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 44 / Notes to the Financial Statements (continued) 19 LOSS PER SHARE Basic loss per share (cents per share) Weighted average number of ordinary shares outstanding during the year used in calculation of basic loss per share Weighted average number of options outstanding Loss used in the calculation of basic loss per share Consolidated 2007 $ 2006 $ 6.1 1.7 114,795,289 87,595,463 – 18,008,607 7,010,080 1,523,542 For personal use only / 45 / 2006 $ 333,811 333,811 333,811 Notes to the Financial Statements (continued) 20. SEGMENT INFORMATION Geographical Segments The consolidated entity has two geographical segments, Australia and South Africa. (a) Geographical Australia Africa Total 2007 $ 2006 $ 2007 $ 2006 $ 2007 $ Revenue External segment revenue Total segment revenue 761,556 761,556 333,811 333,811 3,748 3,748 – – 765,304 765,304 765,304 Total Revenue Result Segment result Eliminations Income Tax expense Net Loss for the year Segment Assets and Liabilities Segment assets Eliminations (6,870,688) (459,099) (2,182,910) (823,799) (9,053,598) (1,282,898) – – – 83,464 – 83,464 (7,010,080) (1,523,542) 2,043,518 (324,108) (7,010,080) (1,607,006) 20,112,791 20,145,154 11,753,450 7,518,803 31,866,241 27,663,957 (12,467,302) (4,583,572) 19,398,939 23,080,385 Segment liabilities 180,470 187,378 12,635,962 4,769,222 12,816,432 4,956,600 Eliminations Net segment assets Net entity assets (12,467,302) (4,583,572) 349,130 373,028 19,049,809 22,707,357 19,049,809 22,707,357 Investment in equity method associates included in segment assets 3,298,437 3,623,988 Share of net loss of associate 286,097 167,770 – – – – 3,298,437 3,623,988 286,097 167,770 Acquisition of property plant & equipment Depreciation Secondary Reporting 330,137 2,521,028 60,477 22,223 24,753 42,034 7,768 3,735 354,890 2,528,796 102,511 25,958 Business Segments The consolidated entity operates in only one business segment being the field of exploration for mineral resources. For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 46 / Notes to the Financial Statements (continued) 21. AUDITORS’ REMUNERATION During the year, the following fees were paid or payable for services provided by the auditor of the parent entity and non- related audit firms: Amounts received or due and receivable by auditors for: Auditors of the parent entity Auditing – the financial report Other auditors of subsidiaries Auditing – the financial report Consolidated Company 2007 $ 2006 $ 2007 $ 2006 $ 45,893 33,500 45,893 33,500 12,713 58,606 5,859 39,359 – – 45,893 33,500 22. KEY MANAGEMENT PERSONNEL DISCLOSURES The following persons were directors of Mineral Commodities during the financial year: (a) Details of Key Management Personnel Mr Mark Victor Caruso: Mr Joseph Anthony Caruso: Mr Gregory Hugh Steemson: Mr Peter Torre Managing Director Non-Executive Chairman Non-Executive Director Company Secretary There were no further key management personnel during the year. There were no changes to key management personnel between the reporting date and the date the financial report was authorised for issue. (b) Key Management Personnel Compensation The company has taken advantage of the relief provided by the Corporations Regulations and has transferred the detailed remuneration disclosures to the Directors’ Report. The relevant information can be found in section A-E of the Remuneration Report on pages 8 to 10. Remuneration by Category Key Management Personnel Economic Entity Parent Entity 2007 $ 2006 $ 2007 $ 2006 $ Short-term employee benefits 236,837 121,000 236,837 121,000 Post-employment benefits Share-based payments 3,963 9,800 2,700 – 3,963 9,800 2,700 – 250,600 123,700 250,600 123,700 For personal use only / 47 / Notes to the Financial Statements (continued) 22. KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED) (c) Option holdings of key management personnel The numbers of options over ordinary shares in the company held during the financial year by each director of Mineral Commodities Limited and other key management personnel of the Group are set out below: 2007 Key Management Personnel Balance at 1 January ‘07 Granted as Remuneration Options Exercised Mark Caruso Joseph Caruso Greg Steemson Peter Torre 2006 3,089,547 3,085,338 53,333 – – – – 250,000 – – – – Options Lapsed 3,089,547 3,085,338 53,333 Balance at 31 Dec ‘07 Unvested – – – – 250,000 Key Management Personnel Balance at 1 January ‘06 Granted as Remuneration Options Exercised Balance at 31 Dec ‘06 Total Vested and Exercisable 31 Dec ‘06 Unvested Mark Caruso Joseph Caruso Greg Steemson 3,089,547 3,085,338 53,333 – – – – – – 3,089,547 3,089,547 3,085,338 3,085,338 53,333 53,333 (d) Shareholdings of key management personnel The numbers of ordinary shares in the company held during the financial year by each director of Mineral Commodities Limited and other key management personnel of the Group are set out below: 2007 Director Mark Caruso Joseph Caruso Greg Steemson Peter Torre 2006 Director Mark Caruso Joseph Caruso Greg Steemson Balance at 1 January ‘07 Received as Remuneration Options Exercised Net change other Balance 31 Dec 07 9,268,642 9,256,015 210,000 – – – – – – – – – 2,300,711 11,569,353 2,300,711 11,556,726 – – 210,000 – Balance at 1 January ‘06 Received as Remuneration Options Exercised Net change other 9,268,642 9,256,015 210,000 – – – – – – – – – Balance 31 Dec 06 9,268,642 9,256,015 210,000 Joseph and Mark Caruso are both directors of Zurich Bay Holdings Pty Ltd which has a relevant interest in 11,556,726 shares. For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 48 / Notes to the Financial Statements (continued) 22. KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED) All equity transactions with key management personnel, other than those arising from the exercise of remuneration options, have been entered into under terms and conditions no more favourable that those the Group would have adopted if dealing at arm’s length. (e) Loans to key management personnel There were no loans to key management personnel during the period. (f) Other transactions and balances with key management personnel There were no transactions or balances with key personnel other than those disclosed in the remuneration report of the Director’s Report. 23. RELATED PARTY TRANSACTIONS There were no transactions with directors or director related entities during the financial period other than the payment of directors’ remuneration as is disclosed on note 22 and the payment of $7,898 for secretarial services provided by Minesite Constructions Ltd an entity in which Mr Joseph Caruso and Mr Mark Caruso are Directors and have a relevant interest in the Company. Mineral Commodities Ltd is a shareholder in Allied Gold Ltd owning 19,534,379 shares or 5.71% of the issued share capital at balance date. Mineral Commodities Limited has supported Allied Gold throughout the financial period by providing limited administrative services at an arms length basis to the value of $15,000. Mark Caruso and Greg Steemson are also directors of Allied Gold Limited. Wholly owned group The group consists of Mineral Commodities Limited and its wholly owned subsidiaries. Details of entities in the wholly owned group are set out in Note 11. Transactions between Mineral Commodities Limited and other entities in the wholly owned group during the years ended 31 December 2007 and 31 December 2006 consisted of loans advanced and payments received and made on inter company accounts. These transactions were made on normal commercial terms and conditions and at market rates. During the financial year, the Company provided management, accounting and administration services to other entities in the wholly-owned group. No provisions for doubtful debts have been raised in relation to any outstanding balances. An impairment loss was booked on the receivable from Kariba Kono please see note 13 for more information. Loans to/(from) related parties Opening Balance Investment in subsidiary Adjustment arising from consolidation (2,261,727) Loans and advances – controlled entities Less provision for impairment Total Trade and other receivables – – – Key management personnel Disclosures relating to key management personnel are set out in Note 22. Economic Entity Parent Entity 2007 $ 2006 $ 2007 $ 2006 $ 2,261,727 – 9,100,328 5,496,236 – 2,261,727 – – – – 4,255,741 3,765,658 (3,438,935) (161,566) – – – 2,261,727 9,917,134 9,100,328 For personal use only / 49 / Notes to the Financial Statements (continued) 24(a) RECONCILIATION OF PROFIT/(LOSS) FROM ORDINARY ACTIVITIES TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES Profit/(loss) after income tax and outside equity interest (7,010,080) (1,523,542) (6,858,389) (417,277) Consolidated Company 2007 $ 2006 $ 2007 $ 2006 $ Depreciation Unrealised foreign exchange loss/(gain) Non bank interest income not in cash Impairment losses Management fees not received in cash Share Based Payments (Profit)/loss on sale of investment in listed companies Provision for impairment of investments in listed companies Loss on Sales of fixed assets Provision – employee entitlements Equity accounting adjustments Exploration expenditure written off Exploration expenditure capitalised Other non-cash items Changes in assets and liabilities during the year: Increase (decrease) in trade payables and other liabilities (Increase) decrease in trade and other receivables (Increase) decrease in prepayments 102,511 – – 4,991,695 (75,000) 78,500 (539,419) – – 48,563 286,097 186,867 25,958 570,114 60,477 3,085 22,223 219,614 – – – – (304,809) (239,241) 6,817,068 (111,183) 78,500 – – – (49,466) (539,419) (49,466) (17,000) 3,864 14,559 167,770 – – – 48,563 – 186,867 (144,611) 33,919 (17,000) 3,864 14,559 – – (42,256) 24,815 (2,233,094) (905,016) (49,696) (21,963) (72,461) (255,192) 3,017 141,531 (26,205) (6,751) (55,471) (157,886) 3,017 (32,107) (29,877) (6,751) Net cash inflow/(outflow) from operating activities (4,537,697) (1,626,147) (940,272) (548,900) 24(b) NON-CASH INVESTING AND FINANCING ACTIVITIES The group has no available finance facilities as at balance date. During the 2006 year the Company acquired Erebus PLC. The consideration comprised of 9,406,878 shares and 3,135,626 unlisted options. As set out in Note 1(b), the Company did not consolidate Erebus PLC in the 2006 financial year. For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 50 / Notes to the Financial Statements (continued) 25. FINANCIAL RISK MANAGEMENT The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and price 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 does not hold any derivative financial instruments. The Group uses sensitivity analysis in the case of interest rate and foreign exchange risks and aging analysis for credit risk, to measure different types of risk to which it is exposed. Risk management is carried out by the Board of Directors. The Group and the parent entity hold the following financial instruments: Financial Assets Cash and cash equivalents Trade and other receivables Consolidated Company 2007 $ 2006 $ 2007 $ 2006 $ 2,177,864 2,561,364 2,150,627 2,440,717 499,921 244,729 10,203,129 2,308,906 Financial assets at fair value through profit or loss 436,398 663,574 436,398 663,574 3,114,183 3,469,667 12,790,154 5,413,197 Financial Liabilities Trade and other payables Market Risk 349,130 373,028 180,452 187,378 2,765,053 3,096,639 12,609,702 5,225,819 Foreign exchange risk The Group and the parent entity operate internationally and are exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the South African Rand, Great British Pound, and US Dollar. 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 and net investments in foreign operations. The risk is measured using sensitivity analysis and cash flow forecasting. The Group and the parent entity currently holds no derivatives or foreign exchange contracts to hedge their foreign exchange risk exposure. For personal use only / 51 / Notes to the Financial Statements (continued) 25. FINANCIAL RISK MANAGEMENT (CONTINUED) The Groups exposure to foreign currency risk at the reporting date was as follows: CAN$ USD $ ZAR $ Leones USD $ ZAR $ Leones 31-Dec-07 31-Dec-06 Cash and cash equivalents Trade and other receivables Financial assets at fair value through profit or loss Trade and other payables – – 2,452 93,247 11,712,580 – 1,095,385 1,250,000 11,628 11,628 – – – 2,452 1,188,632 12,962,580 – – 793,782 – 11,628 2,452 394,850 12,962,580 – – – – – – 650,681 516,880 – 1,167,561 1,034,070 133,491 – – – – – – The carrying amounts of the parent entity’s financial assets and liabilities are denominated in Australian dollars except as set out below: Trade and other receivables Financial assets at fair value through profit or loss CAN$ USD $ ZAR $ Leones USD $ ZAR $ Leones 31-Dec-07 31-Dec-06 – – 10,322,259 11,628 11,628 – – – 10,322,259 – – – – – – 8,437,516 – 8,437,516 – – – Group and Parent entity sensitivity Price risk The Group and the parent entity have limited exposure to equity securities price risk as the value of investments held by the group and classified on the balance sheet as fair value through profit or loss is immaterial. This arises from investments held by the Group and classified on the balance sheet as fair value through profit or loss. Neither the Group or the parent entity are exposed to commodity price risk. For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 52 / Notes to the Financial Statements (continued) 25. FINANCIAL RISK MANAGEMENT (CONTINUED) Cash flow and fair value interest rate risk The Group’s only interest rate risk arises from cash and cash equivalents held. Deposits and current accounts held with variable rates expose the Group to cash flow interest rate risk. The Group does not consider this to be material to the group and have therefore not undertaken any further analysis of risk exposure. Credit risk Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents and deposits with banks, as well as credit exposures including outstanding receivables and committed transactions. All cash balances held at banks are held at internationally recognised institutions. The majority of receivables held are with related parties and within the Group. Given this the credit quality of financial assets that are neither past due or impaired can be assessed by reference to historical information about default rates. The maximum exposure to credit risk at reporting date is the carrying amount of the financial assets as summarised on page 50. Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. As at reporting date the Group had sufficient cash reserves to meet its requirements. The Group therefore had no credit standby facilities or arrangements for further funding in place. The only financial liabilities the Group had at reporting date were trade payables incurred in the normal course of the business. These were non interest bearing and were due within the normal 30 day terms of creditor payments. Fair value estimation The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. The fair value of financial instruments traded in active markets, such as trading and available for sale securities, is based on quoted market prices as at reporting date. The quoted market price used for financial assets held by the Group is the current bid price. The fair value of financial instruments that are not traded in an active market such as unlisted investments and subsidiaries is determined using valuation techniques where applicable. Where this is unable to be done they are held at cost. The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values due to their short term nature. For personal use only / 53 / Notes to the Financial Statements (continued) 26. SHARE BASED PAYMENTS (a) Employee Option Plan The establishment of the Mineral Commodities Employee Incentive Option Scheme was approved by shareholders at the 2006 annual general meeting. The incentive scheme is designed to provide long term incentives for senior staff to deliver long term shareholder returns. Under the plan, participants are granted options which vest immediately but are not exercisable until 30 September 2009. Participation in the plan is at the Boards 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. When exercisable, each option is convertible into one ordinary share within 10 business days. Set out below are summaries of options granted under the plan: Consolidated and parent entity – 2007 Grant date Expiry date Exercise price Balance at start of the year Granted during the year Exercised during the year Forfeited during the year Balance at end of the year Vested and exercisable at end of the year 16-Nov-07 30-Sep-09 23-Nov-07 30-Sep-09 23-Nov-07 30-Sep-09 $0.30 $0.30 $0.40 Weighted average exercise price – – – – 1,250,000 500,000 500,000 2,250,000 $0.322 – – – – – – – – – – 1,250,000 1,250,000 500,000 500,000 500,000 500,000 2,250,000 2,250,000 $0.322 $0.322 No options expired during the periods covered by the above table. The weighted average remaining contractual life of share options outstanding at the end of the period was 1.75 years. For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 54 / Notes to the Financial Statements (continued) 26(b) SHARE BASED PAYMENTS (CONTINUED) Fair value of options granted The assessed fair value at grant date of options granted during the year ended 31 December 2007 was between $0.02 and $0.039. The fair value at grant date is independently determined using a Binomial option valuation model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and the expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. The model inputs for options granted during the year ended 31 December 2007 included: (a) Options are granted for no consideration and vest immediately with no performance criteria required to be met, however there are rules if an employee terminates employment before exercising the options. Vested options expire 30 September 2009; (b) Exercise price: $0.30 for 1,750,000 options and $0.40 for 500,000 options; (c) Grant date: 23 November 2007 for 500,000 options at $0.30 and 500,000 options at $0.40 and 16 November 2007 for 1,250,000 options at $0.30; (d) Expiry date: 30 September 2009; (e) Share Price at grant date $0.225; (f) (g) Expected dividend yield: Nil; and (h) Risk free Interest rate: 6.35%. Expected price volatility of company ‘s shares:50%; The expected price volatility is based on historic volatility (based on the remaining life of the options) , adjusted for any expected changes to future volatility due to publicly available information. Expenses arising from share-based payment transactions Total expenses arising from share-based payment transactions recognised during the period as part of employee benefit expense were as follows: Options issued under employee incentive option scheme Consolidated Company 2007 $ 78,500 78,500 2006 $ – – 2007 $ 78,500 78,500 2006 $ – – For personal use only / 55 / Notes to the Financial Statements (continued) 27. COMMITMENTS (a) Non-Cancellable Operating Leases 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 Total Consolidated Company 2007 $ 69,720 147,000 216,720 2006 $ 59,400 5,040 64,440 2007 $ 69,720 147,000 216,720 2006 $ 59,400 5,040 64,440 The operating lease is a rental agreement for the Company’s office premises in Welshpool. The lease is for a 3 year term expiring on 15 February 2008 the company exercised its option to renew for a further 3 years. The lease provides for annual rent reviews to the higher of CPI or market. (b) Exploration Tenement Leases – Commitments for Expenditure. In order to maintain current rights of tenure to exploration tenements, the Company and consolidated entity is required to outlay lease rentals and to meet the minimum expenditure requirements which are not considered to be material. 28. CONTINGENT LIABILITIES There are no Contingent Liabilities. 29. SUBSEQUENT EVENTS No event or transaction has arisen in the interval between the end of the financial year and the date of this report of a material and unusual nature likely, in the opinion of the Directors of the Company, to affect significantly the operations of the Company or the Consolidated Entity, the results of those operations or the state of affairs of the Company or the Consolidated Entity in future financial years. For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 56 / Directors’ Declaration The Directors of the Company declare that: 1. The financial statements, comprising the income statement, balance sheet, cash flow statement, statement of changes in equity and accompanying notes, are in accordance with the Corporations Act 2001 including; (a) complying with Australian Accounting Standards, Corporations Regulations 2001; and other mandatory professional reporting requirements, and (b) give a true and fair view of the company’s and consolidated entity’s financial position as at 31 December 2007 and of the performance for the year ended on that date. 2. In the Directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 3. The remuneration disclosures set out on pages 14 to 16 of the Directors’ Report comply with Accounting Standard AASB 124 Related Party Disclosures and the Corporations Regulations 2001 The directors have been given the declarations by the chief executive officer and chief financial officer required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of the Directors: Mark V Caruso Managing Director Dated at Perth, Western Australia this 31st day of March 2008 For personal use only / 57 / BDO Kendalls Audit & Assurance (WA) Pty Ltd 128 Hay Street SUBIACO WA 6008 PO Box 700 SUBIACO WA 6872 Phone 61 8 9380 8400 Fax 61 8 9380 8499 aa.perth@bdo.com.au www.bdo.com.au ABN 79 112 284 787 31st March 2008 The Directors Mineral Commodities Limited Unit 15, Level 1 51-53 Kewdale Rd WELSHPOOL WA 6106 Dear Sirs DECLARATION OF INDEPENDENCE BY PETER TOLL TO THE DIRECTORS OF MINERAL COMMODITIES LIMITED. As lead auditor of Mineral Commodities Limited for the year ended 31 December 2007, I declare that, to the best of my knowledge and belief, there have been: • no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and • no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Mineral Commodities Limited and the entities it controlled during the period. Peter Toll Director BDO Kendalls Audit & Assurance (WA) Pty Ltd Perth, Western Australia BDO Kendalls is a national association of separate partnerships and entities For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 58 / BDO Kendalls Audit & Assurance (WA) Pty Ltd 128 Hay Street SUBIACO WA 6008 PO Box 700 SUBIACO WA 6872 Phone 61 8 9380 8400 Fax 61 8 9380 8499 aa.perth@bdo.com.au www.bdo.com.au ABN 79 112 284 787 INDEPENDENT AUDITOR’S REPORT To the members of Mineral Commodities Ltd Report on the Financial Report and AASB 124 Remuneration Disclosures Contained in the Directors’ Report We have audited the accompanying financial report of Mineral Commodities Ltd which comprises the balance sheet as at 31 December 2007, and the income statement, statement of changes in equity and cash flow statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. We have also audited the remuneration disclosures contained in the directors’ report. As permitted by the Corporations Regulations 2001, the consolidated entity has disclosed information about the remuneration of directors and executives (“remuneration disclosures”), required by Accounting Standard AASB 124 Related Party Disclosures, under the heading “Remuneration Report” in pages 14 to 16 of the directors’ report and not in the financial report. Directors’ Responsibility for the Financial Report and the AASB 124 Remuneration Disclosures Contained in the Directors’ Report The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that compliance with the Australian equivalents to International Financial Reporting Standards ensures that the financial report, comprising the consolidated and parent financial statements and notes, complies with International Financial Reporting Standards. The directors of the company are also responsible for the remuneration disclosures contained in the directors’ report. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. Our responsibility is to also express an opinion on the remuneration disclosures contained in the directors’ report based on our audit. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report and the remuneration disclosures contained in the directors’ report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report and the remuneration disclosures contained in the directors’ report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report and the remuneration disclosures contained in the directors’ report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report and the remuneration disclosures contained in the directors’ report. For personal use only / 59 / We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001 would be in the same terms if it had been given to the directors at the time that this auditor’s report was made. Qualification As disclosed in the audit report to the financial statements for the year ended 31 December 2006, the Company had not consolidated two subsidiaries being Erebus Plc and Kariba Kono Ltd into the income statement, balance sheet, cash flow statement, statement of changes in equity or notes to the financial report as at 31 December 2006 due to the fact that the financial information was not considered reliable by the Board of Directors and ourselves. As Erebus Plc and Kariba Kono Ltd are controlled by Mineral Commodities Ltd at the 31 December 2006, all assets and liabilities of these subsidiaries should have been recorded within the consolidated balance sheet of Mineral Commodities Ltd. These assets and liabilities should have been recorded at their fair value at the date of acquisition, with any excess of consideration over the net assets acquired being recorded as exploration and evaluation expenditure (goodwill). In addition the results of these subsidiaries from the date of acquisition (23 June 2006) should have been included in the consolidated income statement and the cash flows since acquisition should have been included within Mineral Commodities Ltd’s consolidated cash flow statement. As at 1 January 2007 the company has now consolidated Erebus Plc and Kariba Kono Ltd. As Erebus Plc and Kariba Kono Ltd incurred losses from the date of acquisition (23 June 2006) until 31 December 2006 which were not recorded in the consolidated entity, this has had the effect of overstating the exploration and evaluation expenditure and understating accumulated losses as at the date of consolidation (1 January 2007). The Company and ourselves are unable to quantify this amount. Auditor’s Opinion on the Financial Report In our opinion, other than the matters mentioned in the qualification, the financial report of Mineral Commodities Ltd is in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the company’s and consolidated entity’s financial position as at 31 December 2007 and of their performance for the year ended on that date; and (b) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001. Auditor’s Opinion on the AASB 124 Remuneration Disclosures Contained in the Directors’ Report In our opinion the remuneration disclosures that are contained in pages 14 to 16 of the directors’ report comply with Accounting Standard AASB 124. BDO Kendalls Audit & Assurance (WA) Pty Ltd Peter Toll Director Perth, Western Australia 31st March 2008 BDO Kendalls is a national association of separate partnerships and entities For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 60 / Statement of Corporate Governance The Board of Directors of Mineral Commodities Limited has adopted the following set of principles for the corporate governance of the Company. These principles establish the framework of how the Board carries out its duties and obligations on behalf of the shareholders and were in place throughout the financial year. THE BOARD OF DIRECTORS Role of the Board The Board of Directors is responsible for setting the strategic direction and establishing the policies of Mineral Commodities Limited and the consolidated entity. It is responsible for overseeing the financial position, and for monitoring the business and affairs of the Company and the consolidated entity on behalf of the shareholders, by whom the directors are elected and to whom they are accountable. It also addresses issues related to internal controls and approaches to risk management. Composition of the Board The directors’ report contains details of the directors’ qualifications, experience and special responsibilities. Under the Constitution the minimum number of directors is three and the maximum is ten. Directors are not appointed for a fixed term. At each annual general meeting one third of the directors other than the Managing Director must resign by rotation, with those serving the longest resigning first. Resigning directors may stand for re-election. As a general principle the Company considers that the number of non-executive directors must exceed the number of executive directors. This has been the case throughout this financial year. The Board considers Mr Gregory Steemson to be an independent director in accordance with the definition used in ASX Principles of Good Corporate Governance. Details of directors’ shareholdings are disclosed in the directors’ report and financial report. There are no retirement schemes other than the payment of statutory superannuation contributions. Any equity based compensation of directors is required to be approved in advance by shareholders. CHAIR AND MANAGING DIRECTOR The Company maintains that there must be a separation between the roles of Chairman and the Managing Director. The Chairman is an independent person who is not involved in any executive management. The Managing Director is responsible for day to day operations and supervising the management of the business as designated by the Board. This ensures the appropriate independent functioning of the Board and management. INDEPENDENT PROFESSIONAL ADVICE The Company has procedures enabling any director or committee of the Board to seek external professional advice as considered necessary, at the Company’s expense subject to prior consultation with the Chairman. A copy of any advice sought by a director would be made available to all directors. CONFLICT OF INTEREST In the event that a potential conflict of interest may arise, involved directors must withdraw from all deliberations concerning the matter. They are not permitted to exercise any influence over other Board members. For personal use only / 61 / Statement of Corporate Governance (continued) TRADING IN THE COMPANY’S SECURITIES The Company has adopted a policy that imposes certain restrictions on directors and employees trading in the securities of the Company. Key aspects of the policy are: • All directors and employees are to formally notify the Company Secretary of their beneficial shareholdings in the Company and any changes to this within 2 days of such change occurring. The Company Secretary maintains a register of interests in the Company held by directors. • No director or employee or any entities controlled by them is allowed to trade in the securities of the Company without notifying the Chairman. • No director or employee or any entity controlled by them is allowed to engage in the business of active dealing in the Company’s securities. • A director or employee or any entities controlled by them must not trade at any time when he or she is in possession of information which if generally available would materially affect the price or value of the Company’s securities. SHAREHOLDERS RELATIONS AND COMMUNICATIONS The Company’s shareholders are responsible for voting on the appointment of directors. The Board informs shareholders of all major developments affecting the Company by: • Preparing half yearly and annual financial reports and making these available to all shareholders. • Advising the market of matters requiring disclosure under Australian Stock Exchange Continuous Disclosure Rules. • Maintaining a record of significant ASX announcements on the Company’s website. • Submitting proposed major changes in the Company’s affairs to a vote of shareholders, as required by the Corporations Law. • Reporting to shareholders at annual general meetings on the Company’s activities during the year. All shareholders that are unable to attend these meeting are encouraged to communicate issues or ask questions by writing to the Company. BOARD COMMITTEES The entire Board undertakes the function of an Audit Committee. The duties of this committee include: • • • • • • • to be the focal point of communication between the Board, management and the external auditor; to recommend and supervise the engagement of the external auditor and monitor auditor performance; review the effectiveness of management information and other systems of internal control; review all areas of significant financial risk and arrangements in place to contain those to acceptable levels; review significant transactions that are not a normal part of the Company’s business; review the year end and interim financial information and ASX reporting statements; to monitor the internal controls and accounting compliance with the Corporations Act, ASX Listing Rules, external audit reports and ensure prompt remedial action where required; and • review the Company’s financial statements and accounting procedures. The Company’s auditor is invited to attend the annual general meeting and the Company supports the principle of the auditor being available to answer questions on the conduct of the audit and the content of the audit report. The Board has not formally constituted a Nomination Committee or a Remuneration Committee. The whole Board conducts the functions of a Nomination Committee and Remuneration Committee. For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 62 / Statement of Corporate Governance (continued) INTERNAL CONTROL FRAMEWORK AND BUSINESS RISK MANAGEMENT The Board acknowledges that it is responsible for the overall internal control framework, but recognises that no cost effective internal control system will preclude all errors and irregularities. To assist in discharging this responsibility the Board has instigated an internal control framework that includes the following. • Financial reporting – there is a comprehensive budgeting and forecasting system with updates provided to the Board at each Board meeting. Periodic reports are provided to the Board. Quarterly, half yearly and annual reports are prepared in accordance with the Corporations Act and ASX Listing Rules. • The Managing Director and the Company Secretary are required to confirm in writing that the Company’s financial reports present a true and fair view, in all material respects, of the Company’s financial condition and operational results and are in accordance with relevant accounting standards. • The Company has written policies covering health, safety and the environment. ETHICAL STANDARDS The Board adopts a proactive approach to promoting the practice of high ethical standards. All directors and employees are expected to act with the utmost integrity and objectivity, striving at all times to enhance the reputation and performance of the Company, in the following areas; • professional conduct, • dealings with suppliers, advisers and regulators, • dealings with the community and specifically in dealings with traditional landowners, and • dealings with other employees. PRIVACY The company has resolved to comply with the National Privacy Principles contained in the Privacy Act 1988, to the extent required for a company the size and nature of Mineral Commodities Limited. ASX GUIDELINES ON CORPORATE GOVERNANCE Pursuant to ASX Listing Rules the Company must provide a statement disclosing the extent to which the ASX best practice recommendations have been not been followed in the reporting period. Below the Company provides an explanation of any areas where Mineral Commodities Limited does not presently comply withy ASX best practice recommendations. A majority of the Board of directors is not comprised of independent directors under the ASX definition of independent, and the Chairman is not an independent director. Mr Joseph Caruso and Mr Mark Caruso both have a relevant interest in Zurich Bay Holdings Pty Ltd a company that is a substantial shareholder of the Company. ASX considers that a person with an interest in a company with a substantial shareholding in the reporting company is not independent. Each individual member of the Board is satisfied that whilst the Company may not comply with this particular best practice recommendation, the Board always acts with independence and in accordance with the Statement of Corporate Governance. The ASX guidelines also prescribe that the Company should maintain a dedicated corporate governance information section on its website. Such a dedicated information section is not presently available on the Company’s website, although the annual financial report will be posted to the website and the Statement of Corporate Governance can be viewed there. For personal use only / 63 / Shareholder Information Additional information required by the Australian Stock Exchange Ltd Listing Rules and not disclosed elsewhere in this report. This information is current as at 04 April 2008. TWENTY LARGEST SHAREHOLDERS Name National Nominees Ltd HSBC Custody Nom Aust Ltd HSBC Custody Nom Aust Ltd Zurich Bay Holdings Pty Ltd Kathryn Yule ANZ Nominees Ltd HSBC Custody Nom Aust Ltd Scarp Holdings Pty Ltd Robert Cameron Galbraith Robert Hayden Aspinall Kevin Anthony Leo and Leticia Leo HSBC Custody Nom Aust Ltd International Mining Services Ltd Keng Heng Goh Scarp Holdings Pty Ltd Kingarth Pty Ltd Melville AG & ESIEC Investments Pty Ltd Bateman International C3D Holdings Pty Ltd There are currently no listed options on issue. Number of ordinary shares Percentage of issued shares 20,994,884 14,144,600 7,470,982 7,442,942 4,630,000 3,327,503 3,000,540 2,000,000 1,975,560 1,518,530 1,502,723 1,500,000 1,500,000 1,175,000 1,028,446 1,000,000 1,000,000 750,000 743,209 690,000 17.07% 11.50% 6.07% 6.05% 3.77% 2.71% 2.44% 1.63% 1.61% 1.23% 1.22% 1.22% 1.22% 0.96% 0.84% 0.81% 0.81% 0.61% 0.60% 0.56% 77,394,919 62.48% For personal use only MINERAL COMMODITIES LIMITED ANNUAL FINANCIAL REPORT 31 DECEMBER 2007 / 64 / Shareholder Information (continued) DISTRIBUTION OF SHAREHOLDERS Range of holdings 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – and over Total holders MARKETABLE PARCELS Number of shareholders 121 434 212 449 128 Number of shares 40,387 1,524,593 1,772,547 17,379,743 102,276,115 1,344 122,993,385 Number of shareholders holding less than a marketable parcel of ordinary shares is 265. VOTING RIGHTS Every ordinary shareholder present in person or by proxy at meetings of shareholders shall have one vote for every share held. Option holders have the right to attend meetings but have no voting rights until the options are exercised. SUBSTANTIAL SHAREHOLDERS The following shareholders are considered substantial shareholders: – WF Asian Reconnaissance Fund Limited holding 12.18% of the issued ordinary shares at the date of their last substantial interest notice to the Company. – RAB Special Situations (Master) Fund Limited holding 6.64% of the issued ordinary shares at the date of their last substantial interest notice to the Company. – Zurich Bay Holdings Pty Ltd holding 9.39 % of the issued ordinary shares. RESTRICTED SECURITIES There are no restricted securities. SHARE BUY BACKS There is no current on market share buy back. For personal use only For personal use only For personal use only