PA L ADIN PALADIN RESOURCES LTD ACN 061 681 098 2004 ANNUAL REPORT CONTENTS COMPANY SNAPSHOT CHAIRMAN’S LETTER IN SUMMARY URANIUM UPDATE REVIEW OF OPERATIONS CORPORATE GOVERNANCE STATEMENT DIRECTORS’ REPORT STATEMENTS OF FINANCIAL PERFORMANCE STATEMENTS OF FINANCIAL POSITION STATEMENTS OF CASH FLOWS NOTES TO THE FINANCIAL STATEMENTS DIRECTORS’ DECLARATION 1 2 3 4 6 12 15 18 19 20 21 41 INDEPENDENT AUDIT REPORT TO THE MEMBERS 42 ADDITIONAL INFORMATION CORPORATE DIRECTORY 43 45 The financial report covers both Paladin Resources Ltd as an individual entity and the consolidated entity consisting of Paladin Resources Ltd and its controlled entities. Paladin Resources Ltd is a company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Paladin Resources Ltd 1st Floor, 245 Churchill Avenue SUBIACO WA 6008 A description of the nature of the consolidated entity’s operations and its principal activities is included in the review of operations and activities on pages 6-11 and in the directors’ report on pages 15-17. Through the use of the internet, we have ensured that our corporate reporting is timely, complete, and available globally at minimum cost to the company. All press releases, financial statements and other information is available on our website www.paladinresources.com.au. Cover photos: Paladin’s Uranium Development Projects. Top: Langer Heinrich, Namibia. Bottom: Kayelekera, Malawi PA L ADIN COMPANY SNAPSHOT Paladin - The New Energy in the Market EMERGING URANIUM PRODUCER WITH PRIMARY FOCUS IN SOUTHERN AFRICA LANGER HEINRICH URANIUM PROJECT, NAMIBIA Bankable Feasibility Study in progress, mineral resources upgraded and further drilling underway. Financial parameters robust, NPV(10%) US$83M / Project IRR 47% at US$20/lb U3O8 KAYELEKERA PROJECT, MALAWI Metallurgical drilling underway Updated study reveals positive NPV(10%) US$61M / Project IRR 32% at US$20/lb U3O8 URANIUM PRICE AT 20 YEAR HIGH Supply shortages predicted BEST PERFORMING ASX STOCK FOR YEAR TO JUNE 2004 (UP 1,127%) WA Business News, TRUDO Total Shareholder Return Survey PALADIN SHARE PRICE PERFORMANCE Cents (AUD$) 0.50 0.40 0.30 0.20 0.10 Jun Jul Aug Sep Oct Nov Dec Jan 2004 Feb Mar Apr May Jun Jul Aug Sep Oct ANNUAL REPORT 2004 1 CHAIRMAN’S LETTER Dear Shareholder The past year has been a redefining one for Paladin. The market capitalisation of the Company sat at $3 million at the beginning of this period and finished around June $47 million. By mid September this had increased to $140 million - a remarkable recovery. The Company was declared the best performing publicly listed company on the Australian Stock Exchange in terms of share price improvement. At the close of my previous Chairman’s letter I predicted that an exciting year lay ahead for Paladin and this claim has certainly been achieved! Six years of acquiring and developing advanced uranium projects during a period of extended, depressed uranium outlook is now set to reward your company handsomely. Uranium prices have continued to rise, the nuclear based electricity generating industry is thriving and uranium shortages are predicted for the coming decade. In this context Paladin, with its portfolio of advanced quality uranium projects, is ideally situated to benefit its shareholders and other stakeholders (including the governments and people of Namibia and Malawi). Paladin can We hope to start the bankable feasibility study for the Kayelekera Project in Malawi in April 2005 and, with the study teams already in place, we foresee a seamless transition from one project to the other. Paladin is entering into an exciting phase of its development. The Company will need to grow. Additional staffing will be necessary to accept the new challenges that lay ahead as the Company becomes a uranium producer working in the international arena. Lastly I would like to thank my Board, all the staff and consultants that have worked so tirelessly for Paladin and particularly the efforts and vision of John Borshoff our Managing Director who has placed the Company in such an enviable position. Next year promises to be even more exciting! rightly consider itself as an emerging uranium Rick Crabb producer and amongst the leaders of the uranium juniors worldwide. CHAIRMAN In April we commenced our Langer Heinrich Bankable Feasibility Study after raising sufficient funds without the need to farm-out or otherwise dilute thus allowing Paladin to retain 100% of the Project. It took almost 9 months to secure these funds. Once Société Générale offered a loan facility of $2M for the feasibility study it provided the turning point, ultimately generating worldwide interest in Paladin. The bankable feasibility study will be completed early next year and, with positive outcome, about US$45M will have to be raised through debt and equity to fund mine development and infrastructure construction for anticipated production start-up in 2006. On current analysis this project has an NPV10% of US$83M on conservative sales contracts of US$20/lb for uranium oxide. Mine life is expected to be greater than 10 years and, with further uranium price rises (as forecast), the Langer Heinrich Project represents a true company maker. 2 PALADIN RESOURCES LTD IN SUMMARY In the annual TRUDO survey published by WA Business News which assesses performance of all companies listed on the Australian Stock Exchange Limited, Paladin came out as a clear winner for the best performing company in Australia for the year ending 30 June 2004 in terms of share price increase. The Company’s share price improved dramatically in this period from 0.08 cents per share to 14 cents per share. This remarkable recovery in the Company’s fortune has been the result of two critical developments:- * Paladin’s persistence in accumulating advanced uranium projects between 1997 and 2002 during a period of extended depressed outlook for this commodity; and * The phenomenal recovery that has occurred in the nuclear industry causing the price for uranium to spiral over the past 18 months due to shortages of supply that are predicted. Paladin now finds itself in a unique position where it is the only junior uranium company in the world which is so well prepared to benefit from the uranium upswing. Paladin has a solid portfolio of advanced quality uranium projects. These are the Langer Heinrich Uranium Project in Namibia, Kayelekera Uranium Project in Malawi and the Manyingee Uranium Project in Western Australia. The Langer Heinrich Uranium Project has a Bankable Feasibility Study in progress and the Kayelekera Uranium Project is being prepared for similar work in 2005. Although the Company’s Western Australian uranium projects are not being progressed because of negative policies of the State Labor Government with regard to uranium, these projects nevertheless also represent significant assets of the Company which could be considered for development later in the decade. Add to this the extensive uranium database which the Company owns covering both Australia and Africa and it becomes evident that Paladin overall is very well positioned the considerable opportunities which are now becoming available from this uranium boom and the supply shortages which are predicted over the mid to long term. to capitalize on PROJECT SUMMARY LANGER HEINRICH PROJECT KAYELEKERA PROJECT MANYINGEE PROJECT OOBAGOOMA PROJECT Namibia 100% Malawi 90% West Australia 100% West Australia 100% 11,000t U3O8 @ 0.11% 11,547t U3O8 @ 0.15% 7,860t U3O8 @ 0.12% 9,950t U3O8 @ 0.14% A$20M A$9M A$16M A$5M LOCATION/ EQUITY RESOURCES PAST EXPENDITURE MAIN ACTIVITY PERIOD 1973 - 1980 Feasibility studies 1982 - 1990 Feasibility studies 1979 - 1988 Feasibility studies 1982 - 1985 Pre-feasibility WORK REQUIRED NPV (10%) 1 year BFS 18 months BFS 3 year staged BFS US$83M @ US$20.00/lb U3O8 US$61M @ US$20.00/lb U3O8 US$20M @ US$16.00/lb U3O8 IRR 47% 32% 26% 2 year reserve drilling N/A N/A ANNUAL REPORT 2004 3 URANIUM UPDATE THE NUCLEAR REVIVAL Uranium Supply Market - Shortages Predicted The uranium spot price maintained upward momentum during the year reaching US$18.50/lb U3O8 in June 2004, a 20 year high. This price strengthening is being created by a strongly performing global nuclear electricity generating regime coupled with diminished above-ground inventories. The inability of miners to increase current production due to limited incremental capacity is a key problem placing pressure on uranium pricing. Potential uranium shortages are identified for the period 2006 and beyond for which supply orders need to be filled late 2004/early 2005 due to the long lead times involved. Even current elevated pricing appears insufficient as it is not encouraging the majority of suppliers to release additional uranium into the market. For this reason, further price increases are expected. Nuclear Power Generation - Improving Performance In 2003 three new reactors commenced commercial operation and two refurbished ones connected into their grids. Today, some 440 reactors provide 16 percent of the world’s electricity. Importantly, this is virtually without greenhouse gas emissions. (Industrialised countries on average generate 24 percent of their electricity from nuclear power). About 30 more nuclear power reactors have been permitted and are under construction. China and India plan at least a fourfold increase in nuclear capacity by 2020, while those Asian countries - Japan, South Korea, Taiwan, which already meet a substantial proportion of their electricity demand from nuclear power, plan steady expansion. China, faced with an expected 12% increase in electricity demand this year, compared with only a 9% increase in capacity to meet it, is seeking rapid expansion of generating capacity. The China National Nuclear Corporation (CNNC) has confirmed plans to expand nuclear power generation. Due to looming power shortages, the Nuclear Power Corporation of India is speeding up construction of three reactors to have them on line by 2007. Up to four more advanced reactors may be built by 2020. 13 out of 25 EU States generate power from nuclear energy, using 155 reactors - more than a third of the world total. Several of the remaining 12 states, such as Italy and Austria, depend significantly on nuclear power through imports. Europe depends on nuclear power for one third of its electricity. A large new-generation reactor is now being built in Finland after very careful cost-benefit analysis and public consultation. A similar 4 PALADIN RESOURCES LTD unit has been announced for France. France is thoroughly committed to nuclear power (80% of supply) and is the world’s largest net exporter of electricity. The last operating coal mine in France has closed, indicating the end of nearly three centuries of dependence on the industrial era’s prime fuel. In the USA public opinion is increasingly positive on the grounds of forward price stability for electricity, clean air values, and reliability of supply. The US Nuclear Regulatory Commission has approved further 20-year licence extensions with 26 (a quarter of the total) US reactors now having 60-year operating licences. Both USA government and industry are gearing up for a new phase of nuclear plant construction. Each year the US Department of Energy publishes its Annual Energy Outlook (AEO), and an overview of the 2004 data has been released. Five years ago the AEO predicted that more than half the country’s nuclear capacity would be closed down by 2020, but the new figures show a slight nuclear capacity increase to 103 GWe in 2025, due to plant uprates and one start-up in 2007. All this amounts to further strengthening of the view that nuclear energy will continue to play a vital role in US electricity generation beyond 2025. In Canada, Ontario has resolved to close down its coal-fired plants in 2007. Its task force report rejects reliance on gas and points to more nuclear for replacement capacity and this is supported by Government. Nuclear Power - Competitive Costs Recent reports analyzing the comparative costs of power generation show nuclear power in an increasingly favourable light. A new report for the Royal Academy of Engineering looks at electricity generation costs from new plant in the UK on a more credible basis than before. The cost of standby capacity for wind, as well as carbon values up to £30 per tonne CO2 (£110/tC) for coal and gas are included in this analysis. Wind power is shown to be more than twice as expensive as nuclear power. This study shows nuclear to be in the lowest cost category and on present-day cost of generating UK electricity (p/kWh) from new plants is determined as follows:- Nuclear Gas-fired CCGT Basic cost 2.3p 2.2p Coal pulverised fuel 2.5p Coal fluidised bed 2.6p Onshore wind Offshore wind 3.7p 5.5p With With back-up £30/t* CO2 n/a n/a n/a n/a 5.4p 7.2p n/a 3.4p 5.0p 5.1p n/a n/a *or £100/t Carbon tax Lovelock is best known for developing the Gaia hypothesis, suggesting that the Earth remains fit for life due to self-regulating chemistry and climate feedback - a notion that was slow to gain scientific credibility. No firm figures have been agreed to limit global warming. A figure of 450ppm carbon dioxide is suggested as the maximum tolerable level in the atmosphere. This would require a huge reduction from present day emission levels. 2050 has been suggested as the target date for implementation of this environmental regime. Significant emission reduction technologies most obviously include nuclear power supplemented by renewables for electricity generation, and non-fossil production of hydrogen for transport fuel. The USA plans to commit some $1 billion to demonstrate the non-fossil hydrogen production, using a high- temperature gas-cooled nuclear reactor. URANIUM UPDATE Hydrogen Economy - Need for Nuclear Power A US National Research Council and National Academy of Engineering report on The Hydrogen Economy affirmed the “fundamental and dramatic benefits” of this new technology for both energy its security and establishment would take many decades to achieve. the environment, though At a recent Canadian nuclear conference a senior US Department of Energy director said that the USA had established a production target of 30 million tonnes of hydrogen per year to replace a quarter of today’s US petrol consumption. This would require some 225,000 MW thermal of nuclear power capacity and would represent more than a 60% increase of that which exists today in the US. Global Warming - A Serious Problem James Lovelock, the world-famous British scientist who has been at the forefront of drawing attention to global warming, has again spoken out about the urgent need to develop nuclear power. He said that the Green lobbies had let everybody down and that they should “drop their wrongheaded objection to nuclear energy.”“Civilisation is in imminent danger and has to use nuclear - the one safe, available energy source, now.” Renewable energy sources are insufficient to make much difference. Professor URANIUM SPOT PRICE GRAPH (HISTORICAL) 8 O 3 U b l / $ S U US$ 20.00 17.50 15.00 12.50 10.00 7.50 5.00 Oct Apr July Oct Jan 2000 Jan 2001 Apr July Oct Apr July Oct Jan 2002 Jan 2003 Apr July Oct Jan 2004 Apr July Oct ANNUAL REPORT 2004 5 REVIEW OF OPERATIONS DEVELOPMENT SCHEDULE VERSUS URANIUM DEMAND OUTLOOK ) 0 0 0 1 X ( 3 O 8 U s d n u o P 140,000 120,000 100,000 80,000 60,000 Langer Heinrich 100% (Namibia) Kayelekera 100% (Malawi) Uranium database exploitation Manyingee 100% (W. Aust) Scheduled Global Mine Production Total Requirement From Mine Production 2004 2005 2006 2007 2008 2009 BFS-US$2M CONSTRUCTION US$45M PRODUCTION - 1.000 TPA - 10 YEARS PLUS PRE-FEASIBILITY UPDATE BFS-US$2M CONSTRUCTION US$45M PRODUCTION 1.000 TPA - 10 YEARS PLUS JOINT VENTURE OF URANIUM DATABASE - IDENTIFY NEW PROJECT OPPORTUNITIES PRE-FEASIBILITY COMPLETED (PROJECT ON HOLD) DEVELOPMENT OPPORTUNITY 2012 & BEYOND ➔ 2004 2005 2006 2007 2008 2009 Year View North Along Access Road Towards Langer Heinrich Mountain 6 PALADIN RESOURCES LTD REVIEW OF OPERATIONS LANGER HEINRICH URANIUM PROJECT The Langer Heinrich Uranium Project is 100% owned by Paladin through its wholly owned Namibian subsidiary Langer Heinrich Uranium (Pty) Ltd. Paladin purchased the Langer Heinrich Project in August 2002 from Aztec Resources Ltd. The deposit was discovered in 1973 by Gencor Limited, a major South African Mining House (now part of BHP Billiton). The 2 previous owners spent a total of US$14 million on the project. This is a calcrete type deposit containing a global resource of 41,200t U3O8 at a grade of 0.05% contained in 7 designated mineralised zones along a 15km length within an extensive paleodrainage system. The deposit is located in the Namib Desert, 80km east of the major seaport of Walvis Bay. LANGER HEINRICH MAP Metallurgical work has commenced with preliminary leach test work being undertaken to establish baseline data for uranium extraction and recovery. Solid-liquid separation characteristics of the ore will also be established as a second phase of this early work. The results of this preliminary program should refine the scope of later work, and may lead to a shortened program allowing earlier definition of process selection and design. A 6 tonne bulk sample from mineralized material reflecting the key ore classes from the deposit was collected and sent to the MINTEK metallurgical laboratories in Johannesburg for the major testwork. In March 2003 Paladin completed the Pre-Feasibility Study, the results showing clearly that the project should be taken to final feasibility determination. In April 2004 Paladin commenced its Bankable Feasibility Study on the Langer Heinrich Project. The overall project management of the Bankable Feasibility Study was awarded to GRD Minproc based in Johannesburg. Improving uranium prices have made the timing for the development of this project completely in tune with positive market outlook for uranium. The study is anticipated to cost AUD$3M and be completed by March 2005. The current mining model allows for an annual production of 1,000t of U3O8 over a period of at least 10 years. Capital cost for development will be approximately US$45M with production start-up expected mid 2006. Using a realistic long term sales contract price of US$20.00/lb U3O8 the project has strong financials with an NPV(10%) of US$83M and an IRR of 47%. A number of site visits have been carried out to address power and water supply, field verification for final ore resource assessment and environmental and tailings dam design studies. The meetings with power and water supply sub- contractors as well as Namibian government utility agencies Nampower and Namwater have resolved where both services will be sourced and a preferred supply route has been identified. It is hoped that approvals for this route will be obtained once the environmental assessment is completed, after which detailed design can proceed. Field assessment by the flora and fauna specialists has been completed together with an archaeological survey of the site. All field work has now been done for the environmental assessment, and work on the draft has commenced. Environment Statement Impact ANNUAL REPORT 2004 7 REVIEW OF OPERATIONS Hellman and Schofield Pty Ltd (H&S), mineral resource specialists, have completed new resource estimates according to the Joint Ore Reserves Committee (JORC) (1999) Code. H&S’s evaluation work has confirmed and significantly increased the total resources previously estimated with the tonnage of contained U3O8 increasing by 20% (at a 100ppm U3O8 cut-off) and 28% (at 300ppm and 500ppm cut-offs). Mineral Resources now stand at:- • 89.3Mt ore at 0.046% U3O8 containing 41,200t U3O8 (100ppm cut-off) • 42.7Mt ore at 0.076% U3O8 containing 32,300t U3O8 (300ppm cut-off) • 21.2Mt ore at 0.113% U3O8 containing 24,100t U3O8 (500ppm cut-off) The new resource estimates have significantly increased the amount of Measured Resources to 10.2Mt from the previous 2.0 Mt. Details of the new estimates at a 300ppm U3O8 cut- off are set out below: This evaluation work by H&S has confirmed that a large body of uranium mineralisation exists at Langer Heinrich. These new results and reinterpretation of the existing data by Paladin indicates that, with Inferred restricted additional drilling, sufficient Resources can be converted to Measured and Indicated Resource categories in order to achieve a 10 year mine life based on only one open pit within the Detail 1 area, rather than having to develop three pits within Details 1, 2 and 3 as required by the current mine schedule. A 5,000m RC drilling programme commenced in September 2004 to refine the resource model. This work will also incorporate collecting mineralised drill sample material for the ongoing metallurgical testwork. This expanded programme has the ability to either extend the mine life or allow increased annual uranium production. No delay is expected in the Bankable Feasibility Study completion because of this work. A new palaeochannel interpretation carried out by Paladin identified targets not previously drilled. This includes deeper channel sections in Detail 1 and the possible existence of a larger and deeper, so far unexplored, channel in the northern parts of Detail 2. The validity of this model will also be checked during the current drilling programme. • Measured Resource 10.2Mt ore at 0.067% U3O8 (6,900t of contained U3O8) • Indicated Resource 4.4Mt ore at 0.060% U3O8 (2,600t of contained U3O8) • Inferred Resource 28.1Mt ore at 0.080% U3O8 (22,800t of contained U3O8) TOTAL 42.7Mt ore at 0.076% U3O8 (32,300t of contained U3O8) Looking North From Kayelekera Deposit Hill Top 8 PALADIN RESOURCES LTD REVIEW OF OPERATIONS KAYELEKERA PROJECT The Kayelekera Uranium Project is located in northern Malawi (Southern Africa) and is 8km south of the main road that connects the townships of Karonga and Chitipa. It is 40km west of the provincial town of Karonga. The Kayelekera Uranium Project is owned 90% by Paladin through its wholly owned Malawi subsidiary Paladin Africa Ltd. This project had US$7M spent by Central Electricity Generating Board (CEGB), the previous owners, culminating in completion of a final feasibility study in 1990 which showed the project to be uneconomic on the parameters then utilised. Modelling of a new mining concept by Paladin indicates that the project can be optimised with a positive financial outcome. Paladin completed a Pre- Feasibility Study in 2000 and this showed the project could be considered for development at US$15/lb U3O8 or higher. KAYELEKERA MAP These estimates are reported as Inferred Category Resources at this stage. The key aspect restraining classification to the higher resource categories is verification of the base data, which is in progress. Pre-Feasibility Update The overall result of the new scoping engineering and financial study shows positive project economics can be achieved on this project. The financial models from the Paladin’s Pre-Feasibility Study carried out in 2000 have been recalculated in the light of the improved uranium price. The new model, using a conservative price for term contracts of US$20/lb, indicates the project would achieve strong returns. A mining operation at Kayelekera producing 1,000t of U3O8 over a 10 year period would attain an NPV(10%) of US$61M and an IRR of 32%. At US$22.50/lb the project would obtain an NPV(10%) of US$88M and an IRR of 43%. Currently term contract prices for uranium are reported at US$23.00/lb. These highly positive findings now require further assessment of the project. 1,000m RC drilling and 150m diamond drilling for collection of suitable sample material for ore sorting testwork in preparation for optimizing and planning of the bankable feasibility study commenced September 2004. Mineral Resources specialists, have Hellman and Schofield Pty Ltd (H&S), mineral resource completed new preliminary resource estimates on the Kayelekera Uranium Project. These are reported here according to the JORC (1999) Code. This evaluation work indicates the total resources contained U3O8 in the 100ppm and 400ppm cut off ranges as follows:- • 12.5Mt ore at 0.092% U3O8 containing 11,500t U3O8 (100ppm cut-off) • 7Mt ore at 0.14% U3O8 containing 9,900t U3O8 (500ppm cut-off) ANNUAL REPORT 2004 9 REVIEW OF OPERATIONS Bankable Feasibility Study 2005 OOBAGOOMA PROJECT On the basis of revived uranium market outlook and positive economic returns which are indicated, a Bankable Feasibility Study is being considered for start up by mid 2005. The focus of the study will be detailed verification of the new mining/milling concepts planned to be adopted in the project and validation (or modification, if required) of all other mine model parameters used in the 1990 final feasibility study. The cost of the new feasibility study building on the merits of the existing work will be in the vicinity of US$2.0M, can be done in 2 distinct stages and is expected to take 18 months to complete. With the uranium market outlook predicted to remain strong during the mid to long term, the Kayelekera for Uranium Project offers excellent potential development and reward for the Paladin shareholders. The Oobagooma Project is located 75km north east of Derby in the Kimberley Region of Western Australia on freehold land owned by the Commonwealth and used by the military. The area is covered by two EL applications covering 392km2. The project was explored by Afmeco from 1983 to 1986 during which time extensive zones of uranium mineralisation were discovered. Using geostatisical methods Afmeco calculated total geological resources of 8.2Mt of ore at a grade of 0.12% U3O8 containing 9,950t U3O8 (300ppm cut off). No work was carried out on this project during the year. The main exploration effort, once the tenements have been granted, will be to confirm continuity of the uranium mineralisation by infill drilling concentrating on mineralised redox fronts as re- interpreted and further develop the reserves for consideration of a future ISL mining operation. PROJECT LOCATIONS MANYINGEE PROJECT QUASAR-PALADIN JOINT VENTURE The Manyingee Uranium Project is located in the northwest of Western Australia, 85km inland from the coastal township of Onslow. Good access to the site exists, either via the North West Coastal Highway (39km) or the Barradale-Onslow road 22km to the west. The Tubridgi Natural Gas Pipeline passes 500 metres east of the licence area. The property is protected by 3 Mining Leases totalling 13km2. The Project contains an Indicated and Inferred Resource of 6.4Mt of ore at a grade of 0.12% U3O8 containing 7,680t of U3O8 in permeable sandstone. Previous field trial testwork indicates the deposit is amenable to In-situ Leach Mining (ISL). The Project is currently mothballed and no field work was carried out during the year, with the Southern African projects being given priority for development. 10 PALADIN RESOURCES LTD Paladin is in joint venture in South Australia on EL3001 and EL3078 with Quasar Resources Pty Ltd, a wholly owned subsidiary of Heathgate Resources Ltd, owner of the Beverley ISL uranium mining operation in the Frome Basin. Beverly commenced operations in 2001. Heathgate Resources is an Australian affiliate of General Atomics of the USA. The two tenements cover 1,050km2 and are located immediately north of the Beverley Mine tenements. Heathgate can earn an 80% interest in these properties with Paladin retaining a free carried interest of 20% and 15% respectively until completion of a bankable feasibility study and a decision to mine. Heathgate previously carried out an electromagnetic airborne TEMPEST survey over the properties to identify prospective palaeochannels. The data delineated numerous targets and further rotary mud drilling is planned to test these prospective zones. REVIEW OF OPERATIONS NON URANIUM ACTIVITIES MT LOFTY PROJECT The first pass exploration work on the Mt Lofty Joint Venture tenements was completed with Absolut Resources Corp. (‘Absolut’) completing its minimum expenditure of $60,000 to earn a 10% interest in the project. Absolut can earn a total of 45% on expenditure of a further $345,000 on EL2863. Absolute has agreed to fund the next stage of evaluation and continue earning further equity in the joint venture. The investigations to date have isolated high grade gold mineralisation in the Stockyard Gully area. Encouraging results of the first pass investigations warrant further exploration once the small exemption area within the prospective zone has been lifted by the Mines Department and access clearance has been achieved to carry out drilling in the Forest Reserve area. No active exploration was carried out on this project during the year due to this access clearance being delayed. The exploration work which is planned will involve RC drilling targeted to test both depth extension and lateral continuity of the identified mineralisation. Typical Desert Terrain at Langer Heinrich with Ore Dumps From 1977 Test Work in Background ANNUAL REPORT 2004 11 CORPORATE GOVERNANCE STATEMENT INTRODUCTION The Board of Directors of Paladin Resources Ltd is responsible for the corporate governance of the consolidated entity. The Board guides and monitors the business of Paladin on behalf of shareholders, by whom they are elected and to whom they are accountable. The Board is responsible for setting corporate direction, defining policies and monitoring the business of the Company, to ensure it is conducted appropriately and in the best interests of shareholders. Paladin has adopted systems of control and accountability as the basis for the administration of corporate governance. The following information about the Company’s Corporate Governance practices is set out on the Company’s website at www.paladinresources.com.au: • statement of board and management functions (including Materiality Threshold and description of roles of Chair, Independent Directors and managing director) • nomination committee charter • summary of policy and procedure for selection and appointment of new directors • summary of code of conduct for directors and key executives • summary of policy on securities trading • audit review guidelines • policy and procedure for selection of external auditor and rotation of audit engagement partners • summary of policy and procedures for compliance with continuous disclosure requirements • description of arrangements regarding communication with and participation of shareholders • summary of Company’s risk management policy and internal compliance and control system • summary of process for performance evaluation of the Board • remuneration committee charter • corporate code of conduct CORPORATE GOVERNANCE DISCLOSURES During the year ended 30 June 2004 (the Reporting Period) the ASX Corporate Governance Council developed a set of guidelines, Principles of Good Corporate Governance and Best Practice Recommendations. This document articulates 10 core principles that the ASX Corporate Governance Council believes underlie good corporate governance, together with best practice recommendations. The Company has complied with each of the Ten Essential Corporate Governance Principles and the corresponding Best Practice Recommendations as published by the Australian Stock Exchange Corporate Governance Council, other than in relation to the matters specified below. Independence of Board The recommendations state a majority of the Board should be independent Directors. No member of the Board satisfies the test of independence as set out in the recommendations. The Board considers the Chairman Rick Crabb to be independent for the reasons set out below under the heading “Identification of Independent Directors”. The current Board structure comprises an Independent Chairman, Managing Director and executive director. The Board considers this structure best suits the Company’s present activities which are focused on uranium exploration and development. 12 PALADIN RESOURCES LTD CORPORATE GOVERNANCE (continued) CORPORATE GOVERNANCE STATEMENT Independence of Chairman The Chairperson does not satisfy paragraph 3 of the Independence Test set out in the recommendations. Notwithstanding this, the Board considers Rick Crabb to be independent for the reasons set out below under the heading “Identification of Independent Directors”. Nomination Committee There is no formal Nomination Committee. Given the Board comprises three members it was decided that no efficiencies would be achieved by establishing a separate nomination committee. The whole board carries out the duties which would otherwise be undertaken by the nomination committee and each member excludes him or herself from matters in which he/or she has a material person interest and otherwise ensures compliance with all aspects of the Corporations Act in relation to related party transactions. Remuneration Committee There is no formal Remuneration Committee. Given the Board comprises three members it was decided that no efficiencies would be achieved by establishing a separate Remuneration Committee. All matters of remuneration were determined by the Board in accordance with Corporations Law requirements, especially in respect of related party transactions. That is, no director participated in any deliberation regarding his or her own remuneration or related issues. Written Code of Conduct Prior to 16 June 2004 there was no written Code of Conduct. Although there was no written policy the Board considered the business practices and ethics exercised by individual Board members and key executives was of the highest standards. On 16 June 2004 the Company certified and disclosed its practices as a Code of Conduct. Written Securities Trading Policy The Company adopted a written Securities Trading Policy on 16 June 2004. Although prior to 16 June 2004 there was no written policy, there was an understanding as to when it was appropriate for security trading to occur which understanding is the basis upon which the written policy is adopted. Audit Committee There is no Audit Committee. The duties usually carried out by an audit committee are performed by Rick Crabb who has relevant financial and industry experience to qualify him to perform this role. Written Policies and Procedures Designed to Ensure ASX Listing Rule Disclosure Requests Until16 June 2004 there were no written policies and procedures designed to ensure ASX Listing Rule disclosure requests. Although there was no written policy or procedure such policies and procedures did in fact exist and have now been documented and were formally implemented by the Board on 16 June 2004. Shareholder Communication Strategy Until 16 June 2004 there was no formal communication strategy to promote shareholder communication. Although there were no written policies or procedures the Company had a positive strategy to communicate with and actively promote shareholder involvement in the Company. The strategy included making information about the Company available on its website. The policy has now been documented and disclosed on 16 June 2004. Code of Conduct A Code of Conduct was adopted 16 June 2004. Although until 16 June 2004 there was no Code of Conduct documented or disclosed the Board considered its business practices as led by the example of the Board and key executives were the equivalent of a Code of Conduct, which has now been documented, approved and disclosed. ANNUAL REPORT 2004 13 CORPORATE GOVERNANCE STATEMENT SKILLS, EXPERIENCE, EXPERTISE AND TERM OF OFFICE OF EACH DIRECTOR A profile of each director containing the applicable information is set out in the Directors’ Report. IDENTIFICATION OF INDEPENDENT DIRECTORS The independent director of the Company is its chairperson Mr Rick Crabb. Mr Rick Crabb was a principal of the legal firm Blakiston & Crabb until his retirement on 30 June 2004. Blakiston & Crabb have been the main provider of legal service to the Company in respect of matters concerning Australian law. The Company pays fees on a normal commercial basis to Blakiston & Crabb. Accordingly Mr Crabb does not fit within paragraph 3 of the Independence Test. Mr Crabb passes all other aspects of the Independence Test. The Board of Paladin (in absence of Mr Crabb) considered Mr Crabb demonstrates he consistently makes decisions and takes actions which are designed to be in the best interest of the Company. The Board notes the fees paid to Blakiston & Crabb are not material to the Company and are not of a high enough level to be material to Mr Crabb’s practice at the firm Blakiston & Crabb. Therefore, the Board considers Mr Crabb to be independent. STATEMENT CONCERNING AVAILABILITY OF INDEPENDENT PROFESSIONAL ADVICE If a director considers it necessary to obtain independent professional advice to properly discharge the responsibility of his/her office as a director then, provided the director first obtains approval for incurring such expense from the Chairman, the Company will pay the reasonable expenses associated with obtaining such advice. CONFIRMATION WHETHER PERFORMANCE EVALUATION OF THE BOARD AND ITS MEMBERS HAVE TAKEN PLACE AND HOW CONDUCTED During the Reporting Period an evaluation of the Board and its members was carried out. The evaluation process comprised the Chairman conducting a review of the Board’s operations, analysing its strengths and weaknesses. It was concluded for the present, the existing structure is suitable to the Company’s existing development. However, the matter is to be reviewed regularly and additional appointments to the Board will be considered according to the needs of the Company. The Board will be looking for persons with relevant experience in mining, engineering, finance or the highly specialised area of marketing of uranium sales. COMPANY’S REMUNERATION POLICIES Mr Crabb as a non-executive director receives directors’ fees of $35,000 per annum. The fees are not related to performance of the Company. The Company Constitution provides that directors may collectively be paid a fixed sum not exceeding the aggregate maximum per annum from time to time as determined by the Company. A director may be paid fees or other amounts as the directors determine where a director performs special duties or otherwise performs services outside the scope of the ordinary duties of a director. Mr Borshoff receives a fixed salary for the executive services he provides to the Company. The salary is not related to performance of the Company. Mr Pretorius receives a fixed salary, for the executive services he provides to the Company. His salary is not related to performance of the Company. No director of the Company is eligible to receive bonus payments. Directors have previously been allocated one off issues of options, which received shareholder approval prior to issue. The options do not form part of remuneration for those directors. EXISTENCE AND TERMS OF ANY SCHEMES FOR RETIREMENT BENEFITS FOR NON- EXECUTIVE DIRECTORS There are no termination and retirement benefits for non-executive directors. 14 PALADIN RESOURCES LTD DIRECTORS REPORT DIRECTORS’ REPORT The Directors present their report on the consolidated entity consisting of Paladin Resources Ltd and the entities it controlled at the end of, or during, the year ended 30 June 2004. Directors The Directors in office at the date of this report are: Mr Rick W. Crabb (Chairman) B. Juris (Hons), LLB, MBA Mr Crabb is a former partner with the legal practice, Blakiston and Crabb and a Director of the investment bank, Chatsworth Stirling Pty Ltd. He holds degrees of Bachelor of Jurisprudence (Honours), Bachelor of Laws and Master of Business Administration from the University of Western Australia. He has practised as a solicitor since 1980 and was previously a partner with a major law firm. He specialises in mining, corporate and commercial law. Mr Crabb is also a director of Port Bouvard Limited Holdings Limited, Ashburton Minerals NL, Alcaston Mining NL, ST Synergy Ltd, Thundelarra Exploration Ltd, Chatsworth Stirling Pty Ltd and Deep Yellow Limited. Mr Crabb was appointed a director on 8 February 1994. Mr John Borshoff (Managing Director) B.Sc. F.AusIMM Mr Borshoff is a geologist who has been involved in the Australian exploration and mining industry for 33 years. Mr Borshoff worked for International Nickel and Canadian Superior Mining before joining a German mining group, Uranerz from 1976 to 1991. He became Chief Geologist/Exploration Manager during the period 1981-1986 and served as its chief executive from 1987 to mid 1991 when the German parent of Uranerz made the decision to close its Australian operations. Uranerz primary focus was for the search and development of uranium projects with the company operating extensively throughout Australia, North America and Africa. Mr Borshoff has extensive experience in uranium, gold and base metal exploration, company management and administration. Mr Borshoff was appointed a director on 24 September 1993. Dr Leon Pretorius (Executive Director) BSc(Hons), MSc, PhD, FAusIMM (CP), MAIG, PrSciNat Dr Pretorius is a geochemist with 33 years experience working both in Australia and Africa. He has extensive experience in uranium, gold, base metal and industrial mineral exploration and has a sound knowledge of opencast mining operations in Sub-Saharan Africa. From 1984 to 1990 Dr Pretorius was Managing Director of Australian publicly listed company Keela-Wee Exploration Ltd and since has been actively involved in the resource sector both in Australia and Southern Africa. Dr Pretorius was appointed a director on 27 March 2003. Principal Activity The principal activity of the economic entity constituted by Paladin Resources Ltd and the entities it controlled during the financial year was mineral exploration. Results of Operations The economic entity’s policy is to write off acquisition and exploration costs associated with abandoned or non- commercial areas and to this extent an amount of $Nil (2003: $41,272) was written off. Expenditure totalling $3,815,639 (2003: $3,166,276) has been carried forward on other areas where operations are continuing. The consolidated results are as follows: Operating profit/(loss) after income tax 2004 $ 189,872 2003 $ (571,633) ANNUAL REPORT 2004 15 DIRECTORS’ REPORT Dividends No dividend has been paid during the financial year and no dividend is recommended for the current year. Review of Operations A detailed review of the economic entity’s operations is set out on pages 6 to 11 of this report. Significant Changes in the State of Affairs There were no significant changes in the state of affairs of the economic entity during the financial year not otherwise dealt with in this report. Matters Subsequent to the End of the Financial Year There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company, to affect substantially the operations of the economic entity, the results of these operations or the state of affairs of the economic entity in subsequent financial years with the exception of those matters disclosed in Note 26 of the financial statements. Environmental Regulations The consolidated entity is subject to significant environmental regulation in respect to its exploration The Company aims to ensure the appropriate standard of environmental care is achieved, and in doing so, that it is aware of and is in compliance with all environmental legislation. The Directors of the Company reviewed the Company’s projects during the year and are not aware of any breach of environmental legislation for the financial year under review. Likely Developments Likely developments in the operations of the economic entity constituted by Paladin Resources Ltd and the entities it controls from time to time are set out in the attached Review of Operations. Options over Unissued Capital Disclosure relating to options over unissued capital has been included in Note 18 to the financial report. Directors’ Interests in Shares and Options of the Company Fully Paid Shares R W Crabb 5,464,746 J Borshoff 13,091,394 L Pretorius 8,550,000 Options* 1,000,000 1,500,000 - Options** 2,250,000 2,500,000 2,250,000 Options*** 750,000 1,000,000 750,000 The particulars of Directors’ interests in shares and options are as at the date of this report. * ** *** Unlisted and exercisable at 15 cents on or before 30 November 2004 Unlisted and exercisable at 22 cents on or before 26 May 2006 Unlisted and exercisable at 32 cents on or before 26 May 2006 Directors’ and Executives’ Emoluments Disclosure relating to specified Directors’ and Executive Officers’ emoluments have been included in Note 17 to the financial report. 16 PALADIN RESOURCES LTD DIRECTORS’ REPORT Meetings of Directors The following table sets out the number of meetings of the Company’s Directors held during the year ended 30 June 2004 and the number of meetings attended by each Director. Number of meetings held: Number of meetings attended by: R W Crabb J Borshoff L Pretorius 10 10 10 10 Insurance of Officers During the financial year, the Company has paid premiums to insure each of the following persons against certain liabilities arising out of their conduct while acting in the capacity of officer of the Company. R. Crabb J. Borshoff L. Pretorius G. Swaby Under the terms of the insurance contract, the nature of liabilities insured against and the premium paid cannot be disclosed. DATED at Perth this 29th day of September 2004 Signed in accordance with a resolution of Directors. J Borshoff (Managing Director) ANNUAL REPORT 2004 17 STATEMENT OF FINANCIAL PERFORMANCE PALADIN RESOURCES LTD AND CONTROLLED ENTITIES FOR THE YEAR ENDED 30 JUNE 2004 CONSOLIDATED PARENT ENTITY Notes 2004 $ 2003 $ 2004 $ 2003 $ Revenue from ordinary activities Exploration costs written off Borrowing costs General and administration Bad debts written off Write down of investments Cost of investments sold Costs of exploration data sold Write back of investments Share of net loss of associate accounted for using the equity method Profit/(loss) from ordinary activities before income tax Income tax expense Total changes in equity other than those resulting from transactions with owners as owners Basic and diluted earnings per share 2 3 3 3 3 3 3 4 22 29 784,929 148,905 662,893 25,857 - (41,272) - (16,807) (59,166) (59,503) (2,480) - (520,891) (556,971) (480,834) (510,020) - - - (15,000) (81,800) - - - - - 256,000 (236,992) - - (29,227) (466,974) (589,735) - - - - - 256,000 - 189,872 (571,633) (410,156) (741,171) - - - - 189,872 (571,633) (410,156) (741,171) $0.0007 ($0.0027) The above Statement of Financial Performance should be read in conjunction with the accompanying notes. 18 PALADIN RESOURCES LTD STATEMENT OF FINANCIAL PERFORMANCE (continued) STATEMENT OF FINANCIAL POSITION PALADIN RESOURCES LTD AND CONTROLLED ENTITIES FOR THE YEAR ENDED 30 JUNE 2004 CURRENT ASSETS Cash Receivables Property Plant & Equipment TOTAL CURRENT ASSETS NON CURRENT ASSETS Receivables Investments in associate Other financial assets Property, plant & equipment Other CONSOLIDATED PARENT ENTITY Notes 2004 $ 2003 $ 2004 $ 2003 $ 5 6 7 8 9 10 11 12 4,638,702 121,829 4,518,447 115,178 48,724 171,279 24,470 145,159 1,114,242 1,132,955 - - 5,801,668 1,426,063 4,542,917 260,337 64,438 24,438 4,106,112 3,343,918 - - - 589,735 800,000 800,000 1,351,998 1,417,178 249,315 318,871 26,277 12,654 3,815,639 3,166,276 - - TOTAL NON CURRENT ASSETS 4,929,392 4,309,585 5,484,387 5,363,485 TOTAL ASSETS CURRENT LIABILITIES Accounts payable Provisions Interest bearing liabilities Other TOTAL CURRENT LIABILITIES NON CURRENT LIABILITIES Other TOTAL NON CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Reserves Accumulated losses TOTAL EQUITY 13 14 15 16 17 18 19 20 22 10,731,060 5,735,648 10,027,304 5,623,822 553,538 471,188 528,096 456,265 33,702 37,097 33,702 37,097 733,326 731,943 - 50,000 - - - 50,000 1,320,566 1,290,228 561,798 543,362 - - 20,000 20,000 - - - - 1,320,566 1,310,228 561,798 543,362 9,410,494 4,425,420 9,465,506 5,080,460 24,265,296 19,470,094 24,265,296 19,470,094 174,463 174,463 174,463 174,463 (15,029,265) (15,219,137) (14,974,253) (14,564,097) 9,410,494 4,425,420 9,465,506 5,080,460 The above Statements of Financial Position should be read in conjunction with the accompanying notes. ANNUAL REPORT 2004 19 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2004 PALADIN RESOURCES LTD AND CONTROLLED ENTITIES Cash flows from operating activities Payments to suppliers and employees Interest received Interest paid Rental income Other receipts Net cash outflow from operating activities Cash flows from investing activities Payments for property, plant and equipment Exploration and evaluation expenditure Loans to controlled entities Sale proceeds on investments Payment for controlled entities net of cash acquired Sale of exploration data Net cash outflow from investing activities Cash flows from financing activities Share placement Fundraising costs CONSOLIDATED PARENT ENTITY Notes 2004 $ 2003 $ 2004 $ 2003 $ (378,463) (346,710) (278,932) (275,215) 32,560 1,793 (59,166) (59,503) 169,400 122,674 32,511 (2,480) - 137,252 - 137,252 1,793 (61) - - 28 (98,417) (281,746) (111,649) (273,483) (19,444) (235) (19,444) (235) (572,507) (256,525) - (16,807) - 537,839 - - 10 - (4,649) 15,000 - (677,879) (147,900) 537,839 - - - - - (39,112) (261,409) (159,484) (164,942) 4,762,850 366,050 4,762,850 366,050 (38,448) (37,956) (38,448) (37,956) Repayment of borrowings (70,000) - (50,000) - Loan funding Net cash inflow from financing activities - 50,000 - 50,000 4,654,402 378,094 4,674,402 378,094 Net increase/(decrease) in cash held 4,516,873 (165,061) 4,403,269 (60,331) Cash at the beginning of the financial year Cash at the end of the financial year Non-cash financing and investing activities 121,829 286,890 115,178 175,509 5 4,638,702 121,829 4,518,447 115,178 28 The above Statement of Cash Flows should be read in conjunction with the accompanying notes. 20 PALADIN RESOURCES LTD NOTES TO THE FINANCIAL REPORT NOTES TO THE FINANCIAL REPORT PALADIN RESOURCES LTD AND CONTROLLED ENTITIES FOR THE YEAR ENDED 30 JUNE 2004 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Accounting The financial report has been prepared on the basis of accounting principles applicable to a going concern, which assumes the commercial realisation of the future potential of the Company’s and consolidated entity’s assets and the discharge of their liabilities in the normal course of business. This general purpose financial report has also been prepared in accordance with Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Consensus View, the Corporations Act 2001 and the historical cost convention, except for certain assets which, as noted, are at valuation. Unless otherwise stated, the accounting policies adopted are consistent with those of the previous year. Comparative information is reclassified where appropriate to enhance comparability. (b) Principles of Consolidation The consolidated accounts incorporate the assets and liabilities and results of all entities controlled by Paladin Resources Ltd as at 30 June 2004 and the results of all controlled entities for the year then ended. Paladin Resources Ltd and its controlled entities together are referred to in this financial report as the economic entity. The effects of inter-entity transactions have been eliminated from the consolidated accounts. Where controlled entities are acquired during the year, their results are included only from the date control commences. On acquisition of some or all of the shares in a controlled entity, the identifiable net assets acquired are measured at their fair value. The excess of the fair value of the purchase consideration over the fair value of identifiable assets acquired (ie: goodwill) is amortised over a period of twenty years. Where a discount on acquisition arises, that discount is accounted for by reducing proportionately the fair value of the non monetary assets acquired until the discount is eliminated. Any residual discount is immediately recognised in the statement of financial performance. Investments in associates are accounted for in the consolidated financial statements using the equity method. Under this method, the consolidated entity’s share of the profits or losses of associates is recognised as revenue in the consolidated statement of financial performance and its share of movements in reserves is recognised in consolidated reserves. Associates are those entities over which the consolidated entity exercises significant influence, but not control. (c) Exploration, Evaluation and Development Expenditure Costs incurred during the exploration, evaluation and development stages of specific areas of interest are accumulated. Such costs are written off unless the Directors consider that the costs are expected to be fully recouped through the successful development of the area, or where activities to date have not reached a stage to allow reasonable assessment regarding existence of economically recoverable reserves. Costs are written off as soon as an area has been abandoned or is considered to be non-commercial. Expenditure is not carried forward in respect of any area of interest/mineral resource unless the Company’s rights of tenure to that area of interest are current. Once production commences, expenditure accumulated in respect of areas of interest will be amortised on a unit of production basis against the economically recoverable mineral resources. (d) Earnings per Share (i) Basic Earnings per share Basic earnings per share is determined by dividing net profit after income tax attributable to members of the company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year. (ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (e) Cash For the purposes of the statements of cash flows, cash includes deposits which are readily convertible to cash on hand and which are used in the cash management function on a day-to-day basis, net of outstanding bank overdrafts. ANNUAL REPORT 2004 21 NOTES TO THE FINANCIAL REPORT PALADIN RESOURCES LTD AND CONTROLLED ENTITIES FOR THE YEAR ENDED 30 JUNE 2004 (f) Databases (i) Project Generation Database The project generation database, consists of unpublished and generally unavailable exploration, geological and other data. The cost of this database is amortised on a straight line basis over a period of 10 years. (ii) Technical Database The technical database includes an extensive technical library and published exploration data. The Directors consider that this information diminishes in value over time and accordingly periodic amortisation charges are raised on a straight line basis over a period of 10 years. (g) Valuation Of Non-Current Assets The carrying amounts of non-current assets are reviewed to determine whether they are in excess of their recoverable amounts at balance date. If the carrying amount of a non-current asset exceeds the recoverable amount, the asset is written down to the lower amount. Unless otherwise stated, in assessing recoverable amounts, the relevant cash flows have not been discounted to their present value. (h) Acquisition Of Assets The purchase method of accounting is used for all acquisitions of assets regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition plus incidental costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the value of the instruments is at the value agreed between the parties. Transaction costs arising on the issue of equity instruments are recognised directly in equity. (i) Income Tax Tax effect accounting procedures are followed whereby the income tax expense in the statement of financial performance is matched with the accounting profit after allowing for permanent differences. The future tax benefit relating to tax losses is not carried forward as an asset unless the benefit is virtually certain of realisation. Income tax on cumulative timing differences is set aside to the deferred income tax or the future income tax benefit accounts at the rates which are expected to apply when those timing differences reverse. (j) Receivables All trade debtors are recognised at the amounts receivable as they are due for settlement no more than 30 days. Collectibility of trade debtors is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for doubtful debts is raised when some doubt as to collection exists. (k) Investments Interests in listed and unlisted securities, other than controlled entities and associates in the consolidated financial statements, are brought to account at cost and dividend income is recognised in the statement of financial performance when receivable. Controlled entities and associates are accounted for in the consolidated financial statements as set out in note 1(a). (l) Trade and Other Creditors These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year and which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. (m) Borrowing Costs Borrowing costs are recognised as expenses in the period in which they are incurred. Borrowing costs include interest on bank overdrafts and short-term and long-term borrowings. (n) Adoption of Australian Equivalent to International Financial Reporting Standards Australia is currently preparing for the introduction of International Financial Reporting Standards (IFRS) effective for financial years commencing 1 January 2005. This requires the production of accounting data for future comparative purposes at the beginning of the next financial year. The company’s management, along with its auditors, are assessing the significance of these changes and preparing for their implementation. We will seek to keep stakeholders informed as to the impact of these new standards as they are finalised. 22 PALADIN RESOURCES LTD NOTES TO THE FINANCIAL REPORT (continued) NOTES TO THE FINANCIAL REPORT PALADIN RESOURCES LTD AND CONTROLLED ENTITIES FOR THE YEAR ENDED 30 JUNE 2004 CONSOLIDATED PARENT ENTITY Notes 2004 $ 2003 $ 2004 $ 2003 $ 2. REVENUE Revenue from outside the operating activities: Interest Property rental Proceeds on sale of investments Building contribution Hire of equipment 537,839 40,000 5,130 - - - 72,560 26,231 119,924 25,857 129,400 122,674 - 537,839 - 5,130 - - - - 784,929 148,905 662,893 25,857 3. OPERATING PROFIT/(LOSS) Profit/(loss) from ordinary activities before income tax expense includes the following specific net gains and expenses: Net gains/(losses) Net gain on disposal of investments 537,839 Net loss on disposal of investments - - - 125,024 (176,920) - - Expenses: Depreciation - property, plant and equipment - buildings Total depreciation Amortisation - technical database - project generation database Total amortisation Other charges against assets: Provision for non-recovery of - intercompany loan - investment in controlled entity - investment in associate Exploration expenditure written off Bad debts written off Write back of provision for non-recovery of convertible notes Other provisions: 5,821 18,713 24,534 8,786 59,393 68,179 11,050 18,713 29,763 26,250 59,393 85,643 - - - - - - - - - 41,272 81,800 (256,000) 5,821 11,050 - - 5,821 11,050 - - - 3,002 65,180 - - - - - - - 85,642 - 466,974 16,807 29,227 (256,000) Employee entitlements (3,395) 4,487 (3,395) 4,487 Borrowing costs: Interest paid/payable 59,166 59,503 2,480 61 ANNUAL REPORT 2004 23 NOTES TO THE FINANCIAL REPORT PALADIN RESOURCES LTD AND CONTROLLED ENTITIES FOR THE YEAR ENDED 30 JUNE 2004 CONSOLIDATED PARENT ENTITY 2004 $ 2003 $ 2004 $ 2003 $ 4. INCOME TAX The aggregate amount of income tax attributable to the financial year differs from the amount calculated on the operating profit/(loss). The differences are reconciled as follows: Operating profit/(loss) before income tax 189,872 (571,633) (410,156) (741,171) Income tax (benefit) calculated at 30% (2003: 30%) Tax effect of permanent differences: Capital profits not subject toincome tax 56,962 (171,490) (123,047) (222,351) (197,375) - - - Non-deductible expenditure 14,901 32,615 11,688 6,922 (125,512) (138,875) (111,359) (215,429) Tax benefit not recognised 125,512 138,875 111,359 215,429 Income tax attributable to operating profit/(loss) The Directors estimate that the potential future income tax benefit at 30 June 2004 not brought to account is: - - - - Tax losses Capital losses 2,535,227 2,409,715 1,051,154 939,79 1,129,332 1,113,763 1,114,836 1,099,267 This benefit for tax and capital losses will only be obtained if: (i) (ii) the economic entity derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions for the losses to be realised; the economic entity continues to comply with the conditions for deductibility imposed by tax legislation; and (iii) no changes in tax legislation adversely affect the economic entity in realising the benefit from the deductions for the losses. 5. CASH Cash at bank and on hand 4,638,702 121,829 4,518,447 115,178 6. CURRENT RECEIVABLES Sundry debtors 48,724 171,279 24,470 145,159 24 PALADIN RESOURCES LTD NOTES TO THE FINANCIAL REPORT (continued) NOTES TO THE FINANCIAL REPORT PALADIN RESOURCES LTD AND CONTROLLED ENTITIES FOR THE YEAR ENDED 30 JUNE 2004 CONSOLIDATED PARENT ENTITY 2004 $ 2003 $ 2004 $ 2003 $ 7. CURRENT PROPERTY PLANT & EQUIPMENT Land and buildings - at cost 1,175,474 1,175,474 Less provision for depreciation (61,232) (42,519) 1,114,242 1,132,955 - - - - - - The land and building at 5 to 7 Belmont Avenue has been classified as a current asset in light of active negotiations to sell the property. Reconciliations Reconciliations of the carrying amounts of land and buildings at the beginning and end of the year are set out below: Consolidated - 2004 Carrying amount at start of year 1,132,955 1,151,668 Depreciation (Note 3) (18,713) (18,713) Carrying amount at end of year 1,114,242 1,132,955 8. NON CURRENT RECEIVABLES Unsecured loan to controlled entities Less provision for non-recovery Sundry debtors (i) - - - - - - 64,438 64,438 24,438 24,438 6,984,479 6,259,283 (2,942,805) (2,939,803) 4,041,674 3,319,480 64,438 24,438 4,106,112 3,343,918 (i) This represents interest at 5% per annum on the $800,000 Convertible Notes, effective from 22 November 2002. (Note 10) ANNUAL REPORT 2004 25 NOTES TO THE FINANCIAL REPORT PALADIN RESOURCES LTD AND CONTROLLED ENTITIES FOR THE YEAR ENDED 30 JUNE 2004 9. NON CURRENT INVESTMENTS - ACCOUNTED FOR USING THE EQUITY METHOD Shares in associate Shares in associate CONSOLIDATED PARENT ENTITY 2004 $ 2003 $ 2004 $ 2003 $ - - - 589,735 Investments in associates are accounted for in the consolidated financial statements using the equity method of accounting and are carried at cost by the parent entity. Investment in associate Name Principal Activity Ownership Interest 2004 2003 Consolidated Carrying Amount Parent Entity Carrying Amount 2004 $ 2003 $ 2004 $ 2003 $ ST Synergy Ltd* Knowledge Management Software - 23% Less provision for non-recovery of investment * Traded Movements in carrying amount of investment in associate Carrying amount at start of year Amortisation of goodwill Share of operating loss Carrying amount at the end of the financial year Summary of the performance and financial position of associate The aggregate losses, assets and liabilities of associates are: Losses from ordinary activities Assets Liabilities - - - - - - - 1,056,709 466,974 589,735 - - - - - - - - - - - - - 236,991 (200,000) (36,991) - 636,752 1,130,864 133,655 26 PALADIN RESOURCES LTD NOTES TO THE FINANCIAL REPORT (continued) NOTES TO THE FINANCIAL REPORT PALADIN RESOURCES LTD AND CONTROLLED ENTITIES FOR THE YEAR ENDED 30 JUNE 2004 10. OTHER FINANCIAL ASSETS Shares at cost - controlled entities (a) Less provision for non-recovery CONSOLIDATED PARENT ENTITY 2004 $ 2003 $ 2004 $ 2003 $ - - - - - - 1,961,605 1,961,605 (1,409,607) (1,344,427) 551,998 617,178 Convertible notes (c) 800,000 800,000 800,000 800,000 800,000 800,000 1,351,998 1,417,178 (a) Investments in Controlled Entities NAME COUNTRY OF INCORPORATION PERCENTAGE INTEREST HELD 2004 2003 COST OF PARENT ENTITY’S INVESTMENT 2004 $ 2003 $ Eden Creek Pty Ltd * Australia 100% 100% 1,700,002 1,700,002 Paladin Energy Minerals NL Australia Etron Properties Pty Ltd * Australia Paladin (Africa) Ltd * Malawi Lahndrik Holdings SA # Luxembourg 100% 100% 100% 100% 100% 100% 100% 100% Langer Heinrich Uranium (Pty) Ltd + Namibia 100% 100% Less provision for non-recovery of investment All investments comprise ordinary shares and all shares held are unquoted. * These entities are not required to prepare or lodge audited accounts. # Held by Paladin Energy Minerals NL + Held by Lahndrik Holdings SA (b) Acquisition of controlled entities 1 1 261,602 261,602 - - - - - - 1,961,605 1,961,605 (1,409,607) (1,344,427) 551,998 617,178 Outflow of cash to acquire controlled entity, net of cash acquired Cash consideration Less: balances acquired Cash Outflow of cash (c) Convertible Notes CONSOLIDATED PARENT ENTITY 2004 $ - - - 2003 $ 15,000 10,351 4,649 2004 $ 2003 $ - - - - - - The Deed of Company Arrangement (DOCA) for Coretel entered into by the Avanti Group International Pty Ltd was finalised 22 November 2002. Coretel has been successfully merged with e-span Solutions Pty Ltd (e-span). Paladin retains a convertible note of $800,000 with a term of 4 years. The convertible note will accrue interest at a rate of 5% per annum payable at maturity. On the present corporate structure Paladin has the right to a 30% equity in this new merged group via its convertible note facility and this conversion is at Paladin’s discretion. ANNUAL REPORT 2004 27 NOTES TO THE FINANCIAL REPORT PALADIN RESOURCES LTD AND CONTROLLED ENTITIES FOR THE YEAR ENDED 30 JUNE 2004 CONSOLIDATED PARENT ENTITY 2004 $ 2003 $ 2004 $ 2003 $ 11. NON CURRENT PROPERTY PLANT & EQUIPMENT Plant and equipment - at cost 420,535 401,091 420,535 401,091 Less provision for depreciation (394,258) (388,437) (394,258) (388,437) 26,277 12,654 26,277 12,654 - - - - - - - - - - - - Technical database - at cost 262,500 262,500 Less amortisation (262,500) (253,714) - 8,786 Project generation database - at cost 578,932 593,932 Less amortisation Reconciliations (355,894) (296,501) 223,038 297,431 249,315 318,871 26,277 12,654 Reconciliations of the carrying amounts of each class of property, plant and equipment at the beginning and end of the year are set out below: Consolidated - 2004 Carrying amount at start of year Additions Depreciation/amortisation expense (Note 3) Disposal at cost Total $ Plant & Equipment $ 318,871 19,444 12,654 19,444 (74,000) (5,821) (15,000) - Carrying amount at end of year 249,315 26,277 Parent Entity - 2004 Carrying amount at start of year Additions Depreciation/amortisation expense (Note 3) 12,654 19,444 12,654 19,444 (5,821) (5,821) Carrying amount at end of year 26,277 26,277 Database $ 306,217 - (68,179) (15,000) 223,038 - - - - 28 PALADIN RESOURCES LTD NOTES TO THE FINANCIAL REPORT (continued) NOTES TO THE FINANCIAL REPORT PALADIN RESOURCES LTD AND CONTROLLED ENTITIES FOR THE YEAR ENDED 30 JUNE 2004 CONSOLIDATED PARENT ENTITY 2004 $ 2003 $ 2004 $ 2003 $ 12. NON CURRENT ASSETS - OTHER Exploration Expenditure Carrying amount at start of year 3,166,276 2,808,937 Movements: Direct expenditure for year Expenditure written off 13. ACCOUNTS PAYABLE 649,363 398,611 - (41,272) 3,815,639 3,166,276 - - - - - 16,807 (16,807) - Trade creditors and accruals 553,538 471,188 528,096 456,265 Repayment Schedule for Certain Debts Agreement was reached between the Company (represented by the independent Director, Dr Leon Pretorius) and other Directors, former Directors and associates of Directors of Paladin in relation to the satisfaction of debts totalling $402,836. It was agreed repayment would only be made out of the balance reached by Paladin from sale by Etron Properties Pty Ltd of the property at 5-7 Belmont Avenue Belmont. It is further understood that if Paladin does not receive sufficient monies to satisfy these debts then the balance of those debts shall be forgiven and released in full. 14. CURRENT PROVISIONS Employee entitlements (Note 30) 33,702 37,097 33,702 37,097 15. CURRENT INTEREST BEARING LIABILITIES Bank loans - secured 733,326 731,943 - - The bank loan used to finance the purchase of 5 to 7 Belmont Avenue has been classified as a current liability in light of active negotiations to sell the property and then repay the bank loan. The bank loan referred to above of the controlled entity are secured by a first mortgage over the controlled entity’s freehold land and buildings, being charged interest at the rate of 7.7% on $260,000 and 8.05% on $472,500 (2003: 7.2% on $260,000 and 8.35% on $472,500). Assets pledged as security The carrying amounts of non-current assets pledged as security are: First mortgage Freehold land and buildings 1,114,243 1,132,955 - - ANNUAL REPORT 2004 29 NOTES TO THE FINANCIAL REPORT PALADIN RESOURCES LTD AND CONTROLLED ENTITIES FOR THE YEAR ENDED 30 JUNE 2004 CONSOLIDATED PARENT ENTITY 2004 $ 2003 $ 2004 $ 2003 $ 16. OTHER CURRENT LIABILITIES Loans - related parties (unsecured) Loans - non related parties (unsecured) 17. OTHER NON CURRENT LIABILITIES Loan from non-related party (unsecured) - - - - 45,000 5,000 50,000 20,000 - - - - 45,000 5,000 50,000 - CONSOLIDATED AND PARENT ENTITY 2004 Shares 2003 Shares 2004 $ 2003 $ 18. CONTRIBUTED EQUITY (a) Share Capital Ordinary shares fully paid 333,685,713 265,585,713 24,265,296 19,470,094 (b) Movements in ordinary share capital Date Number of Shares ¢ Issue Price $ Total September 2002 Issue in lieu of fees October 2002 Share Purchase Plan May 2003 Placement 1,795,000 4,645,888 32,400,000 Less: Transaction costs arising on share issues 2¢ 2.3¢ .08¢ 35,900 106,850 259,200 (31,249) Balance 30 June 2003 265,585,713 19,470,094 August 2003 Placement September 2003 Issue in lieu of fees October 2003 Placement October 2003 Issue in lieu of fees February 2004 Placement February 2004 Option Conversions February 2004 May 2004 Placement Placement Less: Transaction costs arising on share issues 5,000,000 3,000,000 6,350,000 1,000,000 10,000,000 4,500,000 6,250,000 32,000,000 1¢ 1¢ 2.1¢ 2.58¢ 5.25¢ 1.1¢ 8¢ 11¢ 50,000 30,000 133,350 25,800 525,000 49,500 500,000 3,520,000 (38,448) Balance 30 June 2004 333,685,713 24,265,296 30 PALADIN RESOURCES LTD NOTES TO THE FINANCIAL REPORT PALADIN RESOURCES LTD AND CONTROLLED ENTITIES FOR THE YEAR ENDED 30 JUNE 2004 18. CONTRIBUTED EQUITY (Cont’d) (c) Issued Options Unlisted Options (i) Exercisable at 15 cents, on or before 30 November 2004. Balance at 1 July Issued during year Balance at end of year (ii) Exercisable at 1.1 cents, on or before 31 March 2004 Balance at 1 July Issued during year Exercised during year Balance at end of year (iii) Exercisable at 1.2 cents, on or before 31 December 2004 Balance at 1 July Issued during year Balance at end of year (iv) Exercisable at 1.3 cents, on or before 30 November 2005 Balance at 1 July Issued during year Balance at end of year (v) Exercisable at 22 cents, on or before 26 May 2006 Balance at 1 July Issued during year Balance at end of year (vi) Exercisable at 32 cents, on or before 26 May 2006 Balance at 1 July Issued during year Balance at end of year Number of Options 2004 2003 4,700,000 4,700,000 - - 4,700,000 4,700,000 - 4,500,000 (4,500,000) - - 4,200,000 4,200,000 - 3,800,000 3,800,000 - 12,000,000 12,000,000 - 3,000,000 3,000,000 - - - - - - - - - - - - - - - - ANNUAL REPORT 2004 31 NOTES TO THE FINANCIAL REPORT PALADIN RESOURCES LTD AND CONTROLLED ENTITIES FOR THE YEAR ENDED 30 JUNE 2004 18. CONTRIBUTED EQUITY (Cont’d) (c) Issued Options Listed Options (vii) Exercisable at 10 cents, on or before 21 January 2004 Balance at 1 July Issued during year Expired during year Balance at end of year (viii) Exercisable at 15 cents, on or before 31 May 2003 Balance at 1 July Expired during year Balance at end of year (d) Ordinary Shares Number of Options 2004 2003 63,000,000 62,250,000 - 750,000 (63,000,000) - - - - - 63,000,000 52,303,071 (52,303,071) - 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. CONSOLIDATED PARENT ENTITY 2004 $ 2003 $ 2004 $ 2003 $ 19. RESERVES Option Application Reserve Balance brought forward 174,463 181,170 174,463 181,170 Less expenses of issue - (6,707) - (6,707) 174,463 174,463 174,463 174,463 20. ACCUMULATED LOSSES Accumulated losses at beginning of financial year Net profit/(loss) attributable to members of Paladin Resources Ltd Accumulated losses at the end of the financial year (15,219,137) (14,647,504) (14,564,097) (13,822,926) 189,872 (571,633) (410,156) (741,171) (15,029,265) (15,219,137) (14,974,253) (14,564,097) 32 PALADIN RESOURCES LTD NOTES TO THE FINANCIAL REPORT PALADIN RESOURCES LTD AND CONTROLLED ENTITIES FOR THE YEAR ENDED 30 JUNE 2004 21. COMMITMENTS AND CONTINGENT LIABILITIES There were no outstanding commitments or contingent liabilities, which are not disclosed in the financial statements of the economic entity and the Company as at 30 June 2004 other than: (a) Exploration Tenement Leases In order to maintain the tenements in which the Company and other parties are involved, all parties are committed to meet the conditions under which the tenements were granted in accordance with the relevant mining legislation in Australia. These commitments relate to tenement lease rentals and the minimum expenditure requirements of the Western Australian, Northern Territory and South Australian Mines Departments attaching to the tenements and are subject to re-negotiation upon expiry of the exploration leases or when application for a mining licence is made. In 2004/2005, estimated outlays by the Company and the economic entity are $220,000 (2003: $191,876). Commitments beyond 2004/2005 are dependent upon whether existing rights of tenure are renewed or new rights of tenure are acquired. (b) Acquisition Costs The economic entity acquired a call option on 19 June 1998 in relation to the purchase of the Oobagooma Uranium Deposit. As a condition to the option contract, the economic entity granted a put option to the current holder of the Oobagooma Uranium Deposit. Both the call and put options have an exercise price of $750,000. Both of the options are subject to the Department of Minerals & Energy granting tenements comprising 2 exploration licence applications. The $750,000 is payable by the economic entity within 10 business days of the later of the grant of the tenements or the exercise of either the call or put option. The options will expire 3 months after the date on which either of the tenements are granted. In relation to the Manyingee Uranium Project, the re-negotiated acquisition terms provide for a payment of $750,000 to the vendors only if all project development approvals have been obtained. 22. EQUITY Total equity at beginning of financial year Total changes in equity recognised in the statement of financial performance Transactions with owners as owners: Contributions of equity, net of transaction costs Total equity at the end of the financial year CONSOLIDATED PARENT ENTITY 2004 $ 2003 $ 2004 $ 2003 $ 4,425,420 4,633,059 5,080,460 5,457,637 189,872 (571,633) (410,156) (741,171) 4,795,202 363,994 4,795,202 363,994 9,410,494 4,425,420 9,465,506 5,080,460 ANNUAL REPORT 2004 33 NOTES TO THE FINANCIAL REPORT PALADIN RESOURCES LTD AND CONTROLLED ENTITIES FOR THE YEAR ENDED 30 JUNE 2004 23. AUDITOR’S REMUNERATION (a) Audit services Auditors of the Company Audit and review of financial reports Other auditors Audit and review of financial reports (b) Other services Auditors of the company Taxation compliance services CONSOLIDATED PARENT ENTITY 2004 $ 2003 $ 2004 $ 2003 $ 14,650 9,000 14,650 9,000 5,538 20,188 - 9,000 - - 14,650 9,000 7,090 13,810 7,090 13,810 24. DIRECTORS AND EXECUTIVES DISCLOSURE (a) Remuneration of Specified Directors and Specified Executives Directors R W Crabb (Chairman) J Borshoff (Managing Director) L Pretorius (Executive Director) Total Year Primary Post Employment Equity Other Total Salary/Fees $ 22,936 12,000 25,000 12,000 25,000 3,000 72,936 27,000 Cash Bonus $ - - - - - - - - 2004 2003 2004 2003 2004 2003 2004 2003 Superannuation Options $ $ $ $ 2,064 73,200 1 24,689 122,889 - - - - - - 28,576 40,576 83,750 2 102,767 211,517 - 153,500 165,500 73,200 3 79,200 177,400 1,500 20,000 24,500 2,064 230,150 206,656 511,806 - 1,500 202,076 230,576 1. Fees paid in the normal course of business for legal services totalling $24,689 (2003 : $28,576) were paid/payable (balance outstanding at 30 June 2004 and included in trade creditors $45,659 (2003 : $23,001)) to Blakiston & Crabb, Solicitors, a firm in which R W Crabb was a partner to 30 June 2004; 2. Fees paid in the normal course of business for geological and consulting services totalling $102,767 (2003 : $153,500) were paid/payable (balance outstanding at 30 June 2004 and included in trade creditors $195,227 (2003 : $204,760)) to a company in which J Borshoff is a director and shareholder; and 3. Fees paid in the normal course of business for geological and consulting services totalling $79,200 (2003:$20,000) were paid/payable (balance outstanding at 30 June 2004 and included in trade creditors: $6,600 (2003: Nil) to a company in which L E Pretorius is a director and shareholder. The Company had no Specified Executives during the year. (b) Remuneration policy This policy is set out in the Corporate Governance section of the Directors’ Report. 34 PALADIN RESOURCES LTD NOTES TO THE FINANCIAL REPORT PALADIN RESOURCES LTD AND CONTROLLED ENTITIES FOR THE YEAR ENDED 30 JUNE 2004 24. DIRECTORS AND EXECUTIVES DISCLOSURE (Cont’d) (c) Remuneration options During the financial year, options were granted to specified Directors as disclosed in Note (d) below. The options were issued free and each option entitles the option holder to subscribe for one fully paid ordinary share. The fair value of the options is calculated at the date of grant using a Black-Scholes model and allocated to each reporting period evenly over the period from grant date to vesting date. The options expire and their exercise price is disclosed in (d) below. The value disclosed in (a) above is the portion of the fair value of the options allocated to this reporting period. There is no key performance criteria to be met in the period prior to vesting. Share issues to specified directors on the exercise of remuneration options during the year are disclosed in Note (e) below. (d) Option holdings of Specified Directors Balance 1 July 2004 Options Granted Options Exercised Balance 30 June 2004 R W Crabb 15c* 22c** 32c*** Total J Borshoff 15c* 22c** 32c*** Total L Pretorious 22c** 32c*** Total 1,000,000 - - - 2,250,000 750,000 1,000,000 3,000,000 1,500,000 - - - 2,500,000 750,000 1,500,000 3,000,000 - - - 2,250,000 750,000 3,000,000 - - - - - - - - - - - 1,000,000 2,250,000 750,000 4,000,000 1,500,000 2,500,000 1,000,000 5,000,000 2,250,000 750,000 3,000,000 Unlisted and exercisable at 15 cents on or before 30 November 2004 * ** Unlisted and exercisable at 22 cents on or before 26 May 2006 *** Unlisted and exercisable at 32 cents on or before 26 May 2006 (e) Shareholdings of Specified Directors R W Crabb J Borshoff L Pretorious Total Balance 1 July 2003 Net Change Other Balance 30 June 2004 5,964,746 (500,000) 5,464,746 12,458,394 633,000 13,091,394 5,000,000 3,550,000 8,550,000 23,423,140 3,683,000 27,106,150 ANNUAL REPORT 2004 35 NOTES TO THE FINANCIAL REPORT PALADIN RESOURCES LTD AND CONTROLLED ENTITIES FOR THE YEAR ENDED 30 JUNE 2004 25. SEGMENT REPORTING Business segments The consolidated entity operates in the following segments:- Resources Strong resource focus on uranium together with a proprietary database covering uranium, gold, copper and platinum. Software The 23% investment in ST Synergy Ltd, a Knowledge Management software company listed on Australian Stock Exchange Limited, was sold during the year ended 30 June 2004. Telecommunications Convertible notes totalling $800,000 with a 4 year term, accruing interest at 5% per annum. These arise from the Company’s original investment in Coretel Pty Ltd, a niche telecommunications company. Property Commercial premises located in Belmont, Perth, Western Australia. Industry Segments 2004 Resources $ Soft- ware $ Tele- communications $ Other revenue 202,665 412,815 Total segment revenue 202,665 412,815 Profit/(loss) from ordinary activities before income tax expense (281,345) 412,815 Income tax expense - - Property Consolidated $ $ 169,449 784,929 169,449 784,929 57,702 189,172 - - 57,702 189,172 - - - - - (281,345) 412,815 8,816,818 189,246 - 189,246 668,807 74,000 - - - - - - - - 800,000 1,114,242 10,731,060 - - - - - - 733,326 922,572 - 397,994 733,326 1,320,566 - 668,807 18,713 92,713 - - Profit/(loss) from ordinary activities after income tax expense Total assets Segment liabilities Unallocated liabilities Total liabilities Acquisitions of property, plant and equipment, and other non-current segment assets Depreciation and amortisation expense Other non-cash expenses 36 PALADIN RESOURCES LTD NOTES TO THE FINANCIAL REPORT PALADIN RESOURCES LTD AND CONTROLLED ENTITIES FOR THE YEAR ENDED 30 JUNE 2004 25. SEGMENT REPORTING (Cont’d) Industry Segments 2003 Other revenue Total segment revenue Loss from ordinary activities before income tax expense Income tax expense Loss from ordinary activities after income tax expense Total assets Segment liabilities Unallocated liabilities Total liabilities Acquisitions of property, plant and equipment, and other non-current segment assets Depreciation and amortisation expense Other non-cash expenses Geographical Segments Resources $ 25,857 25,857 Soft- ware $ Tele- communications $ Property Consolidated $ $ - - - - 123,048 148,905 123,048 148,905 (554,663) (236,992) 256,000 (35,978) (571,633) - - - - - (554,663) (236,992) 256,000 (35,978) (571,633) 3,772,267 151,047 - 151,047 398,846 96,693 - - - - - - - 800,000 1,163,381 5,735,648 - - - - - 731,943 882,990 - 427,238 731,943 1,310,228 - 398,846 18,713 115,406 (256,000) 81,800 (174,200) Segment revenues 2003 $ 2004 $ Segment assets 2004 $ 2003 $ Acquisitions of property, plant and equipment, and other non- current segment assets 2003 $ 2004 $ Australia Africa 784,929 148,905 8,987,451 4,597,412 111,197 17,042 - - 1,743,609 1,138,236 557,610 381,804 784,929 148,905 10,731,060 5,735,648 668,807 398,846 ANNUAL REPORT 2004 37 NOTES TO THE FINANCIAL REPORT PALADIN RESOURCES LTD AND CONTROLLED ENTITIES FOR THE YEAR ENDED 30 JUNE 2004 26. EVENTS SUBSEQUENT TO BALANCE DATE There has not arisen since the end of the financial year any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company, to affect substantially the operations of the economic entity in subsequent financial years with the exception of:- a) Conversion of Options Subsequent to year end, the following unlisted options were exercised resulting in the issue of the equivalent number of fully paid ordinary shares: - * 4,200,000 exercisable at 1.2 cents * 3,800,000 exercisable at 1.3 cents b) Langer Heinrich Uranium Project - Increase in Mineral Resources On 6 August 2004 the Company announced an increase in the resource estimates for the Langer Heinrich Uranium Project. This follows work undertaken by Hellman and Schofield Pty Ltd, mineral resource specialists. Mineral resources now stand at: - • 89.3Mt ore at 0.046% U308 containing 41,200t U308 (100ppm cut-off) • 42.7Mt ore at 0.076% U308 containing 32,300t U308 (300ppm cut-off) • 21.2Mt ore at 0.113% U308 containing 24,100t U308 (500ppm cut-off) The new resource estimates have significantly increased the amount of Measured Resources to 10.2Mt from the previous 2.0Mt. c) Sale of Commercial Premises, Belmont On 17 September 2004 an offer and acceptance was signed for the sale of the property at 5-7 Belmont Avenue for $1,200,000. The offer is subject to finance and due diligence, becoming unconditional on 15 October 2004. Settlement date is anticipated to be 5 November 2004. d) Placement of Shares On 23 September 2004 the Company announced it had placed 7,500,000 fully paid shares at an issue price of 40 cents per share with a prominent Canadian investment fund to raise $3,000,000. Funds raised will be used for funding and development of the Kayelekera Uranium Project and to provide general working capital. 38 PALADIN RESOURCES LTD NOTES TO THE FINANCIAL REPORT PALADIN RESOURCES LTD AND CONTROLLED ENTITIES FOR THE YEAR ENDED 30 JUNE 2004 27. RECONCILIATION OF NET CASH OUTFLOW FROM OPERATING ACTIVITIES TO OPERATING PROFIT/(LOSS) AFTER INCOME TAX Operating profit/(loss) after income tax 189,872 (571,633) (410,156) (741,171) CONSOLIDATED PARENT ENTITY 2004 $ 2003 $ 2004 $ 2003 $ Non cash items: Depreciation and amortisation 92,713 115,406 Exploration expenditure written off Provision for non-recovery of intercompany loan Provision for non-recovery of investments Write back of provision for non- recovery of convertible note - - - - Gain on disposal of investments (537,839) Profit on sale of investments Bad debts written off Share of loss in associate using equity method Change in operating assets and liabilities: - - 41,272 - - 5,821 - 11,050 16,807 3,002 85,642 65,180 466,974 (256,000) - (256,000) - - 81,800 236,992 51,896 - - - - 29,227 - Increase (Decrease) in trade debtors 5,700 (61,850) 80,689 9,545 (Increase)Decrease in operating liabilities Net cash outflow from operating activities 151,137 132,267 91,919 104,443 (98,417) (281,746) (111,649) (273,483) 28. FINANCING AND INVESTMENT ACTIVITIES (a) Non cash financing and investment activities Issue of shares in lieu of technical consulting fees (b) Financing facilities available 70,800 35,900 70,800 35,900 In December 2003, a financial institution approved a $2 million loan facility to assist with the bankable feasibility study of the Langer Heinrich uranium project. At the reporting date, the facility was unused. ANNUAL REPORT 2004 39 NOTES TO THE FINANCIAL REPORT PALADIN RESOURCES LTD AND CONTROLLED ENTITIES FOR THE YEAR ENDED 30 JUNE 2004 29. EARNINGS PER SHARE CONSOLIDATED 2004 $ 2003 $ (a) Basic and Diluted Profit/(Loss) Per Share $0.0007 ($0.0027) Weighted average number of ordinary shares on issue during the year used as the denominator in calculating basic earnings per share 288,130,097 208,280,686 $ $ Earnings used in calculating diluted and basic earnings per share 189,872 (571,633) (b) Diluted Earnings Per Share Diluted earnings per share is the same as basic earnings per share as there are no potential ordinary shares that are dilutive. 30. EMPLOYEE ENTITLEMENTS Provision for Annual Leave & Long Service Leave Aggregate employment entitlement liability PARENT ENTITY 2004 $ 2003 $ 33,702 37,097 Employee numbers Number Number Average number of employees during the financial year 4 4 Superannuation The Company contributes to employees’ superannuation plans in accordance with the requirements of Occupational Superannuation Legislation. Contributions by the parent entity represent a defined percentage of each employee’s salary. Employee contributions are voluntary. 31. FINANCIAL INSTRUMENTS (a) Credit Risk Exposure The credit risk of financial assets of the consolidated entity which have been recognised on the statement of financial position is generally the carrying amount, net of any provisions for doubtful debts. (b) Interest Rate Risk Exposure The consolidated entity’s exposure to interest rate risk is limited to the floating market rate for the cash deposit, convertible debt and a property mortgage. All other financial assets and liabilities are non- interest bearing. The weighted average interest rate on cash deposits, convertible debt and property mortgage is 4%, 5.0% and 8.1%, respectively. (c) Net Fair Value of Financial Assets and Liabilities. The net fair value of cash, convertible debt and non-interest bearing monetary financial assets and financial liabilities of the consolidated entity approximates their carrying value. 40 PALADIN RESOURCES LTD DIRECTORS’ DECLARATION The Directors declare that the financial statements and notes set out on pages 18 to 40. a) b) comply with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and give a true and fair view of the Company’s and consolidated entity’s financial position as at 30 June 2004 and of their performance, as represented by the results of their operations and their cash flows, for the financial year ended on that date. In the Directors’ opinion (a) the financial statements and notes are in accordance with the Corporations Act 2001; and (b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; and This declaration is made in accordance with a resolution of the Directors. Signed at Perth this 29th day of September 2004 in accordance with a resolution of the Directors. J Borshoff (Managing Director) ANNUAL REPORT 2004 41 INDEPENDENT AUDIT REPORT 8 St Georges Terrace Perth WA 6000 GPO Box R1253 Perth WA 6844 T +61 8 9261 9100 F +61 8 9261 9101 www.rsmi.com.au INDEPENDENT AUDIT REPORT TO THE MEMBERS OF PALADIN RESOURCES LTD Scope The financial report and directors’ responsibility The financial report comprises the statement of financial position, statement of financial performance, statement of cash flows, accompanying notes to the financial statements and the directors’ declaration for Paladin Resources Ltd (the Company) and the consolidated entity, for the year ended 30 June 2004. The consolidated entity comprises both the Company and the entities it controlled during that year. The directors of the Company are responsible for preparing a financial report that gives a true and fair view of the financial position and performance of the company and the consolidated entity and that complies with Accounting Standards in Australian, in accordance with the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error and for the accounting policies and accounting estimates inherent in the financial report. Audit Approach We conducted an independent audit of the financial report in order to express an opinion on it to the members of the Company. Our audit was conducted in accordance with Australian Auditing Standards, in order to provide reasonable assurance as to whether the financial report is free of material misstatement. The nature of an audit is influenced by factors such as the use of professional judgement, selective testing, the inherent limitations of internal control and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot guarantee that all material misstatements have been detected. We performed procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001, including compliance with Accounting Standards in Australia and other mandatory financial reporting requirements in Australia, a view which is consistent with our understanding of the Company’s and the consolidated entity’s financial position and of their performance as represented by the results of their operations and cash flows. We formed our audit opinion on the basis of these procedures, which included:- • examining, on a test basis, information to provide evidence supporting the amounts and disclosures in the financial report; and • assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of significant accounting estimates made by the directors. While we considered the effectiveness of management’s internal controls over financial reporting when determining the nature and extent of our procedures, our audit was not designed to provide assurance on internal controls. We performed procedures to assess whether the substance of business transactions was accurately reflected in the financial report. These and our other procedures did not include consideration or judgement of the appropriateness or reasonableness of the business plans or strategies adopted by the directors and management of the company. Independence We are independent of the company and have met the independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001. In addition to our audit of the financial report, we were engaged to undertake the services disclosed in the notes to the financial statements. The provision of these services has not impaired our independence. Audit Opinion In our opinion, the financial report of Paladin Resources Ltd is in accordance with: (a) the Corporations Act 2001, including: (i) giving a true and fair view of the financial position of Paladin Resources Ltd and the consolidated entity at 30 June 2004 and of their performance for the year ended on that date; and (ii) complying with Accounting Standards in Australia and the Corporations Regulations 2001; and (b) other mandatory financial reporting requirements in Australia. RSM BIRD CAMERON PARTNERS Perth, WA Dated: 29 September 2004 S C CUBITT Partner 42 PALADIN RESOURCES LTD ‘Liability is limited by the Accountants’ Scheme pursuant to the NSW Professional Standards Act 1994’ Major Offices in: Perth, Sydney, Melbourne, Adelaide and Canberra ABN 36 965 185 036 RSM Bird Cameron Partners is an independent member firm of RSM International, an affiliation of independent accounting and consulting firms. ADDITIONAL INFORMATION Pursuant to the Listing Requirements of Australian Stock Exchange Limited as at 27 September 2004. (a) Distribution and number of holders SHAREHOLDERS 1 1,001 5,001 10,001 100,001 - - - - - 1,000 5,000 10,000 100,000 maximum 30 126 267 1,115 266 1,804 39 shareholders hold less than a marketable parcel of shares. (b) The twenty largest shareholders hold 70.97% of the total shares issued. Holder ANZ Nominees Limited National Nominees Limited Citicorp Nominees Pty Limited Merrill Lynch (Australia) Nominees Pty Ltd Aylworth Holdings Pty Ltd Mr Robert Anthony Healy and Mrs Helen Maree Healy Dr Leon Eugene Pretorius Mr Gregory James Buchanan and Mrs Heather Joy Buchanan Resource Capital Fund 111 LP Strategic Consultants Pty Ltd Westpac Custodian Nominees Limited Mr Rick Wayne Crabb and Mrs Carol Jean Crabb Mr John Janowski Mr James U Blanchard III C/- Jefferson Financial Inc Mr Robert Anthony Healy Mr Leslie Murray McKenzie Calm Holdings Pty Ltd Neo Pro Tec Pty Ltd Mr Rick Wayne Crabb Bruce Marks Pty Ltd Total (c) Voting rights No. of Shares 86,070,171 46,344,253 15,668,910 14,917,173 12,476,237 13,501,570 8,550,000 8,480,434 6,250,000 5,595,515 4,460,000 3,248,050 3,000,000 2,777,778 2,721,143 2,030,000 1,711,994 1,600,000 1,529,218 1,511,667 % 25.19 13.56 4.59 4.37 3.65 3.96 2.50 2.48 1.83 1.64 1.31 0.95 0.88 0.81 0.80 0.59 0.50 0.47 0.45 0.44 242,444,113 70.97 For all shares, voting rights are one vote per member on a show of hands and one vote per share in a poll. ANNUAL REPORT 2004 43 ADDITIONAL INFORMATION (continued) Pursuant to the Listing Requirements of Australian Stock Exchange Limited as at 27 September 2004. (d) Mining Tenements held - URANIUM PROJECTS WESTERN AUSTRALIA Project Manyingee Oobagooma SOUTH AUSTRALIA Project Siccus Lake Elder Mt Yerila NORTHERN TERRITORY Project N E Arunta Napperby MALAWI - AFRICA Project Kayelekera NAMIBIA - AFRICA Project Langer Heinrich Tenement 3 ML’s 4 EL(A)’s Interest % 100% 100% JV Partner/s - - Operator - - Tenement 1 EL 1 EL(A) 1 EL 1 EL Interest % 90% 90% 20% 15% JV Partner/s Signature Resources NL Signature Resources NL Quasar Resources Pty Ltd Quasar Resources Pty Ltd J E Risinger Operator Paladin Paladin Quasar Resources Pty Ltd Quasar Resources Pty Ltd Tenement 1 EL 1 EL(A) Interest % 100% 100% JV Partner/s - - Operator - - Tenement 1 EPL Interest % 90% JV Partner/s Balmain Resources Pty Ltd Operator Paladin Tenement 1 MDRL Interest % 100% JV Partner/s - Operator - NON-URANIUM PROJECTS SOUTH AUSTRALIA Project Mt Lofty Ranges Reaphook JV NORTHERN TERRITORY Project Davenport Tenement 1 EL 1 EL Interest % 90% 7.5% JV Partner/s Absolut Resources Corporation Paladin Perilya Limited Operator Perilya Limited Tenement 3 EL(A)’s Interest % 30% JV Partner/s Newmont NFM Pty Ltd Operator Newmont NFM Pty Ltd Exploration Licence (Australia) EL EPL Exclusive Prospecting Licence (Malawi) MDRL Mineral Deposit Retention Licence (Namibia) ML (A) Mining Lease (Australia) Pending Application 44 PALADIN RESOURCES LTD CORPORATE DIRECTORY DIRECTORS Chairman Mr Rick Crabb Managing Director Mr John Borshoff Executive Director Dr Leon Pretorius COMPANY SECRETARY Ms Gillian Swaby REGISTERED OFFICE 1st Floor, 245 Churchill Avenue Subiaco Western Australia 6008 (PO Box 201, Subiaco, 6904) Telephone: Facsimile: Email: Web: (+61 8) 9381 4366 (+61 8) 9381 4978 paladin@paladinresources.com.au www.paladinresources.com.au Computershare Investor Services Pty Limited Level 2, 45 St Georges Terrace Perth Western Australia 6000 Telephone: Facsimile: (+61 8) 9323 2000 (+61 8) 9323 2033 RSM Bird Cameron 8 St Georges Terrace Perth Western Australia 6000 Blakiston & Crabb 1202 Hay Street West Perth Western Australia 6005 SHARE REGISTER AUDITORS SOLICITORS TO THE COMPANY LISTED ON AUSTRALIAN STOCK EXCHANGE LIMITED Code: PDN PALADIN RESOURCES LTD ACN 061 681 098 1st Floor, 245 Churchill Avenue Subiaco WA 6008 www.paladinresources.com.au