Paladin Energy Annual Report 2008

Plain-text annual report

Kayelekera in construction and making excellent progress annual report 20082008 Paladin Energy Ltd The annual report covers both Paladin Energy Ltd as an individual entity and the Group consisting of Paladin Energy Ltd and its controlled entities. Paladin Energy Ltd is a company limited by shares, incorporated and domiciled in Australia. Its registered ofﬁce and principal place of business is: Paladin Energy Ltd Grand Central, 1st Floor, 26 Railway Road SUBIACO WA 6008 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 are available on our website www.paladinenergy.com.au. Pictures left to right: (1) and (2) Kayelekera Contents Corporate Values Paladin Snapshot Chairman’s Letter Executive Team Nuclear Power – The Essential Partner Management Discussion and Analysis Review of Operations Financial Review Sustainable Development Corporate Governance Directors’ Report Remuneration Report Contents of The Financial Report Consolidated Income Statements Consolidated Balance Sheets Consolidated Statements of Changes In Equity Parent Entity Statements of Changes In Equity Consolidated Cash Flow Statements Notes to The Consolidated Financial Statements Directors’ Declaration Independent Audit Report Additional Information 2 4 6 8 10 14 20 35 42 47 55 59 69 70 71 72 73 74 75 144 145 147 Directors Non-executive Chairman Mr Rick Crabb Managing Director Mr John Borshoff Non-executive Directors Mr Sean Llewelyn Mr Ian Noble Mr Donald Shumka Company Secretary Ms Gillian Swaby Registered Ofﬁce Grand Central, 1st Floor, 26 Railway Road Subiaco Western Australia 6008 (PO Box 201, Subiaco, 6904) Telephone: Facsimile: Email: Web: (+61 8) 9381 4366 (+61 8) 9381 4978 paladin@paladinenergy.com.au www.paladinenergy.com.au Share Register Australia Computershare Investor Services Pty Ltd Level 2, 45 St Georges Terrace Perth Western Australia 6000 Telephone: Facsimile: (+61 8) 9323 2000 (+61 8) 9323 2033 Canada Computershare Investor Services Inc 100 University Avenue, 9th Floor Toronto Ontario M5J 2Y1 Telephone: Facsimile: (+1) 1 800 564 6253 or 1 514 982 7555 (+1) 1 888 453 0330 or 416 263 9394 corporate directory Investor Relations Australia – Corporate Ofﬁce Ms Gillian Swaby Grand Central, 1st Floor, 26 Railway Road Subiaco Western Australia 6008 (PO Box 201, Subiaco, 6904) Telephone: Facsimile: Email: (+61 8) 9381 4366 (+61 8) 9381 4978 gillian.swaby@paladinenergy.com.au North America Mr Greg Taylor Ontario Canada Business/Cell: (+1) 905 337 7673 / (+1) 416 605 5120 Facsimile: Email: (+1) 905 844 6532 greg.taylor@paladinenergy.com.au Auditors Ernst & Young 11 Mounts Bay Road Perth Western Australia 6000 Stock Exchange Listings Australian Securities Exchange and Toronto Stock Exchange Code: PDN Munich, Berlin, Stuttgart and Frankfurt Stock Exchanges Code: PUR Namibian Stock Exchange Code: NM-PDN Paladin Energy Ltd 1 Pictures left to right: (1) Supporting the local community, Malawi (2) Langer Heinrich Achieving across the spectrum with a clear and enduring commitment to become a major global uranium supplier 2 Annual Report 2008 corporate values (cid:115)(cid:0) (cid:35)(cid:82)(cid:69)(cid:65)(cid:84)(cid:69)(cid:0)shareholder wealth and develop the considerable opportunities it has generated to become a major player in the global uranium supply market. (cid:115)(cid:0) (cid:47)(cid:80)(cid:69)(cid:82)(cid:65)(cid:84)(cid:69) with a safe best practice philosophy having due regard for the environment. (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:50)(cid:69)(cid:87)(cid:65)(cid:82)(cid:68) employee performance and provide a fulﬁlling work environment. (cid:35)(cid:79)(cid:78)(cid:84)(cid:82)(cid:73)(cid:66)(cid:85)(cid:84)(cid:69) to the growth and prosperity of the countries in which Paladin operates by conducting operations in an efﬁcient and effective manner and by seeking out opportunities for expansion. (cid:50)(cid:69)(cid:83)(cid:80)(cid:79)(cid:78)(cid:68) to the attitudes and expectations of the communities in which it operates as part of its corporate social responsibility obligations. (cid:115)(cid:0) (cid:33)(cid:67)(cid:84)(cid:0)with integrity, honesty and cultural sensitivity in all of its dealings. Paladin Energy Ltd 3 paladin snapshot Valhalla Manyingee Angela In Construction Kayelekera 4 Year Production Outlook ACTUAL FORECAST 8.4 9.3 6.6 3.6 1.71 Mlb U3O8 10 9 8 7 6 5 4 3 2 1 0 2007/08 2008/09 2009/10 2010/11 2011/12 4 Annual Report 2008 In Production and Expansion Langer Heinrich Uranium Mining Operation Langer Heinrich Production Kayelekera Production Mergers and Acquisitions New Project Acquisitions Future Projects Oobagooma Database Utilisation Strong Project Pipeline highlights (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:33)(cid:67)(cid:72)(cid:73)(cid:69)(cid:86)(cid:73)(cid:78)(cid:71)(cid:0)stated operational objectives at Langer Heinrich, Namibia (cid:115) planning 3.1Mlb U3O8 for 12 months ending June 2009 substantial resource upgrade to support long mine life (cid:115) (cid:35)(cid:79)(cid:78)(cid:83)(cid:84)(cid:82)(cid:85)(cid:67)(cid:84)(cid:73)(cid:78)(cid:71)(cid:0)mine at Kayelekera, Malawi (cid:115) commissioning from January 2009 (cid:37)(cid:88)(cid:80)(cid:65)(cid:78)(cid:68)(cid:73)(cid:78)(cid:71)(cid:0)at Langer Heinrich (cid:115) commissioning Stage II from January 2009 (cid:115) commence Stage III expansion in 2009 to reach 6Mlb pa (cid:35)(cid:79)(cid:78)(cid:84)(cid:73)(cid:78)(cid:85)(cid:69)(cid:68)(cid:0)growth of project pipeline (cid:115) Angela Project (NT) (cid:35)(cid:79)(cid:78)(cid:84)(cid:73)(cid:78)(cid:85)(cid:73)(cid:78)(cid:71)(cid:0)evaluation of further M&A opportunities on deﬁned strategic expansion path (cid:33)(cid:71)(cid:71)(cid:82)(cid:69)(cid:83)(cid:83)(cid:73)(cid:86)(cid:69)(cid:0)exploration leading to signiﬁcant expansion of resource base (cid:37)(cid:83)(cid:84)(cid:65)(cid:66)(cid:76)(cid:73)(cid:83)(cid:72)(cid:73)(cid:78)(cid:71)(cid:0)an integrated uranium trading entity (cid:35)(cid:65)(cid:83)(cid:72)(cid:0)position US$337M and a strong balance sheet Paladin Energy Ltd 5 progress with excellence Kayelekera 6 Annual Report 2008 chairman’s letter It is now widely accepted that those involved in the nuclear fuel cycle are contributing positively to the goal of reducing greenhouse gas emissions. The Paladin Board: Gillian Swaby, Sean Llewelyn, Donald Shumka, Rick Crabb, Ian Noble and John Borshoff. The central theme of my 2007 Chairman’s letter was the emergence of Paladin Energy as a uranium producer. It has been a challenging year since then, particularly in the commodity and equity markets. However, I am ﬁrmly of the view that Paladin Energy remains well poised for strong future growth as a key player in the global uranium supply industry. As is documented elsewhere in this Annual Report, the prominence of nuclear fuel to generate electricity is growing. It is now widely accepted that those involved in the nuclear fuel cycle are contributing positively to the goal of reducing greenhouse gas emissions. Langer Heinrich has now been operational for over 18 months and notwithstanding some teething problems, we now have conﬁdence in achieving nameplate production. Given the considerable technical, environment and social issues involved in bringing a uranium mine into operation, this has been a fantastic achievement. It is a credit to the Langer Heinrich teams (both the ‘builders’ led by Jim Morgan and the ‘operators’ led by Wyatt Buck) and on behalf of my Board and shareholders, I thank them all. Moreover, the Company is well advanced on engineering and construction for Stage II of Langer Heinrich, to take annual production to 3.7 million pounds uranium oxide per annum. Having regard to the long-term resource base in the Langer Heinrich deposit and the world demand for new production, the Company quickly moved to planning and preliminary engineering design for the Stage III expansion, to further materially increase annual production. Concurrent with the substantial activity at Langer Heinrich, steady progress has been made on construction of the Kayelekera Mine in Malawi. Commissioning and production ramp-up will commence early 2009, with annual scheduled production of 3.3 million pounds uranium oxide to be reached in 2010. This project is a major economic driver for Malawi and with an onsite construction workforce of around 1,250 people (some 75% of whom are Malawian) is already having a signiﬁcant positive impact on the wonderful people of that country. The Kayelekera construction project recently achieved 2,000,000 man-hours lost time injury free. This is a positive reﬂection on management’s commitment to health and safety and also on the manner in which the Malawian workforce has adopted the Company’s world’s best practice requirements. Considerable work was also undertaken on the Company’s cornerstone Australian uranium project, in Mount Isa, which is steadily progressing to present to the Queensland government as an important economic project for that State and which will contribute positively to satisfying world demand for carbon free electricity generation. The award to Paladin Energy and its joint venturer, Cameco Australia Pty Ltd, by the Northern Territory government of the Angela/Pamela project has given the Company a superb base from which to launch its Australian uranium production aspirations (upon meeting appropriate feasibility and regulatory requirements for the Angela/ Pamela project). The timely raising of US$325 million by a convertible note issue in February 2008 is a key component to my opening observation that Paladin Energy is well placed for future opportunities. The Company has a strong commitment to both organic and inorganic growth in an orderly and sustainable fashion. The Board and senior management have therefore, over the past year in particular, continuously reﬂected upon growth opportunities within the evolving uranium supply space. I anticipate that the forthcoming 12 months or so will reveal further fascinating developments both for the industry at large and Paladin Energy in particular. Paladin’s Corporate Social Responsibility ethos requires us to consider the interests of host societies by taking account of the effect of our activities on key stakeholders, including employees, local suppliers, communities, governments and interested non-government organisations, as well as our impact on the environment. In so doing, Paladin looks beyond its minimum statutory obligation to comply with relevant legislation and voluntarily seeks to take steps to improve the quality of life of its employees and their families, as well as for the local community and host society at large. On behalf of my Board and shareholders I again extend my sincere thanks to John Borshoff and all Paladin Energy Group employees for their ongoing valuable contribution to our Company. Mr Rick Crabb Chairman Paladin Energy Ltd 7 executive team During the past year the Executive Team was further strengthened with the appointments of additional highly experienced management personnel. Paladin is an emerging global uranium supply and mining company and requires the best staff possible to grow and develop the Company to its full stated potential. Mr John Borshoff Managing Director Ms Gillian Swaby Company Secretary Mr Wyatt Buck General Manager – Production & Langer Heinrich Operations Mr James Eggins Mr Dustin Garrow General Manager – Sales and Contract Administration Executive General Manager – Marketing Mr Brendan O’Hara General Manager – Special Projects & Risk 8 Annual Report 2008 Mr David Marsh General Manager – Technical Project Development Mr Simon Solomons* Executive General Manager – Operations Development Mr Andrew (Jim) Morgan General Manager – Project Construction Mr Ed Becker General Manager – Geology & Exploration Ms Cathy Gupanis* General Manager – Sustainable Development Mr Greg Walker* General Manager – International Affairs * New appointments Paladin Energy Ltd 9 moving from strength to strength Pictures left to right: (1) and (2) Kayelekera nuclear power – the essential partner Nearly every aspect of development – from reducing poverty to improving health care – requires reliable access to modern energy services. Faced with a growing shortfall of energy and rising fossil fuel prices, many countries are now looking to nuclear power as a way to increase the diversity of their energy supplies. A factor driving the renewed interest in nuclear power is that it emits almost no greenhouse gases. (Annual Report 2007, International Atomic Energy Agency (GC(52)9, p1) 10 Annual Report 2008 Communities around the world are confronting difﬁcult energy choices. Rising oil prices are a warning that the era of cheap and abundant transport fuel may be drawing to a close. Universal concern about climate change and the impact of global warming is forcing a re-appraisal of the use of carbon-emitting fossil fuel in the energy generation sector of most economies. Rapid and massive economic growth in China and India, and signiﬁcant economic reform in Eastern Europe and parts of Latin America are increasing demand for global energy fuels as well as driving up the prices of raw materials and food. In this context it is no surprise that nuclear energy is emerging as the major low cost, reliable, low carbon, large scale energy technology for the 21st century. Nuclear Power Today Nuclear power is not a new technology. With over ﬁfty years of commercial operation, nuclear power reactors are now an established part of global electricity production. Critics of the industry tend to overlook the signiﬁcant, and in many countries quite indispensable contribution existing nuclear power plants already make to energy production. It is the excellent performance of the operating reactor ﬂeet which forms the solid foundation for the expansion of nuclear power in the years ahead. In 2007 there were 439 nuclear power reactors operating in 30 countries. The proportion of nuclear electricity to total electricity production varies, but 19 countries are dependent on nuclear power for more than 15% of their electricity production and several countries are more than 50% dependent. Worldwide, nuclear power produced 16% of total electricity production, a factor that has been almost constant over the past 20 years. While it is true that reactor building slowed down considerably during the nineties, especially in Europe and the USA, this did not signiﬁcantly reduce nuclear power’s share of electricity production because many reactor operators were able to systematically raise output from existing plants. The most graphic example of this is in the USA where improvement to reactor output in the period 1990 to 2002 was the equivalent of building 25 new power plants. Paladin Energy Ltd 11 Nuclear Power – The Essential Partner Pictures left to right: (1) and (2) Langer Heinrich The next wave of nuclear power plants will be driven by the twin imperatives of meeting aggressive energy demand in a severely carbon-constrained environment. Nuclear Power Tomorrow There are presently 35 reactors under construction. 34 of these new plants are additions to existing ﬂeets in 12 countries and have been in the planning process for many years. Completion of these plants is really the end of the “ﬁrst phase” of nuclear reactor construction, commissioned in a different world for less urgent needs. The next wave of nuclear power plants will be driven by the twin imperatives of meeting aggressive energy demand in a severely carbon-constrained environment. The challenge presented by economic growth cannot be understated. According to the OECD’s International Energy Agency, total world primary energy demand grew by 54% between 1980 and 2004, and is projected to continue to grow at the same rate (about 1.6% per year) to 2030. Electricity growth will be even stronger and is projected to double from 2004 to 2030 due primarily to population and economic growth in the developing world. If the current energy fuels mix (coal 40%, oil 10%, natural gas 15%, hydro and others 19%) is not changed, then the world’s CO2 emissions from energy production will rise by 55% in direct contravention of the International Panel on Climate Change’s 2007 recommendation that the world reduce CO2 emissions by between 50% to 80% of 2000 levels by 2050. As governments and international agencies grapple with climate change policies it is becoming increasingly obvious that nuclear power has a vital and possibly pivotal role in achieving signiﬁcant energy de-carbonisation. The International Energy Agency’s “Energy Technology Perspectives” (OECD/IEA 2008) identiﬁed a need for 32 gigawatts of new nuclear capacity each year between now and 2050 as a key component of power sector carbon abatement. This implies building up to 1,000 new nuclear power plants over the next 42 years. Similar conclusions have been reached by independent studies worldwide. The next wave of nuclear power plants will be different. 12 Annual Report 2008 Strong Growth Needs More Uranium Supply from Mining Countries with existing ﬂeets will inevitably add more. In the USA applications for up to 34 new reactors are expected by 2010 under the strong endorsement of both presidential candidates. China, India, and Russia have announced substantial new reactor construction plans. Japan and Korea have re-afﬁrmed their long-term commitment to nuclear power and will continue ambitious plant building. Pressing energy imperatives mean new countries will inevitably join the nuclear power industry, and those who abandoned nuclear power will think again. Italy, which abandoned operating nuclear plants in the eighties, has announced it will resume construction within ﬁve years. In Germany the pledge to phase out nuclear power by 2021 is under serious questioning for the ﬁrst time as the wisdom of shutting down 17 reactors producing up to 30% of the nation’s electricity seems increasingly short-sighted. Countries as diverse as Vietnam, Indonesia, the United Arab Emirates, Egypt, Morocco, Syria, Jordan, Saudi Arabia, and Turkey are now seriously studying nuclear power. The potential for a massive expansion of the world’s nuclear power ﬂeet presents particular challenges for the reactor vendors and the fuel supply industry. Paladin has consistently maintained that while there are adequate uranium resources to underpin the new nuclear power age, the supply-demand balance will be severely stretched for many years to come because uranium production will continue to lag reactor requirements. Restrictions on uranium mining and development in some countries, long licensing lead times, complex tax or regulatory systems, all work together to retard rapid growth in natural uranium output. Buyers, who have become accustomed to a wide range of supply choices, including an abundance of secondary material, may face a tighter market with more competition for limited strategic supply. Paladin Energy Ltd 13 developing innovative capability Pictures left to right: (1), (2) and (3) Kayelekera management discussion and analysis The past year was distinguished by dynamic achievement across the entire Company. 14 Annual Report 2008 The following Management Discussion and Analysis (MD&A) for Paladin Energy Ltd (Paladin or the Company) should be read in conjunction with the Directors’ Report and the audited Financial Report for the year ended 30 June 2008. The effective date of this report is 11 September 2008. The ﬁnancial information presented in this MD&A has been prepared in accordance with applicable International Financial Reporting Standards (IFRS), other mandatory professional reporting requirements and the Corporations Act 2001. In addition to these Australian requirements further information has been included in the Consolidated Financial Statements for the year ended 30 June 2008 in order to comply with applicable Canadian securities law, as the Company is listed on the Toronto Stock Exchange. Additional information relating to the Company, including public announcements, is available at www.paladinenergy.com.au. Forward Looking Statements Some of the statements contained in this MD&A, including those relating to strategies and other statements, are predictive in nature, and depend upon or refer to future events or conditions, or include words such as “expects”, “intends”, “plans”, “anticipates”, “believes”, “estimates” or similar expressions that are forward looking statements. Forward looking statements include, without limitation, the information concerning possible or assumed further results of operations as set forth herein. These statements are not historical facts but instead represent only expectations, estimates and projections regarding future events and are qualiﬁed in their entirety by the inherent risks and uncertainties surrounding future expectations generally. The forward looking statements contained in this MD&A are not guarantees of future performance and involve certain risks and uncertainties that are difﬁcult to predict. The future results of the Company may differ materially from those expressed in the forward looking statements contained in this MD&A due to, among other factors, the risks and uncertainties inherent in the business of the Company. The Company does not undertake any obligation to update or release any revisions to these forward looking statements to reﬂect events or circumstances after the date of this MD&A or to reﬂect the occurrence of unanticipated events. Overview The Company operates in the minerals resources industry focused on the development and operation of uranium projects in Africa and Australia, as well as pursuing evaluation and acquisition opportunities throughout the world. The Company is incorporated under the laws of Western Australia with a primary share market listing on the Australian Securities Exchange and additional listings on the Toronto Stock Exchange in Canada; and Munich, Berlin, Stuttgart and Frankfurt Stock Exchanges in Europe, and on the Namibian Stock Exchange. The past year was distinguished by dynamic achievement across the entire Company. The Langer Heinrich Uranium Mine (Langer Heinrich) in Namibia emerged from a protracted production ramp- up period to report production of 1.71Mlb U3O8 for the year and reached design output in June 2007. As a consequence, Langer Heinrich has reported an operating proﬁt of US$11.0M and is now performing in accordance with the Company’s expectations. Work on the Stage II expansion at Langer Heinrich which will increase annual production from 2.6Mlb U3O8 to 3.7Mlb U3O8 is on budget and on schedule for completion by the end of 2008. The Company is proud of the achievement of everyone at Langer Heinrich and we are conﬁdent that we have built a signiﬁcant new, robust, long-life, uranium production facility which will generate consistently good rewards for our shareholders and beneﬁt other stakeholders. The Kayelekera Uranium Project (Kayelekera) in Malawi is also making outstanding progress towards commissioning and ramp-up beginning in January 2009. At the time of this Report, the project was 61% complete, with all major construction and procurement contracts awarded. The construction workforce peaked at around 1,500 persons of whom at least 75% were Malawians. A team of experienced senior professional operations staff have been recruited in readiness for progressive hand-over from construction to operations. The Company’s obligations to the community have not been neglected. A comprehensive community development program is in place which enables trained personnel to provide direct support and assistance to communities in areas of general health, HIV/AIDS education and prevention, nutritional awareness, and agricultural development and training. Paladin Energy Ltd 15 Management Discussion and Analysis Pictures left to right: (1) Langer Heinrich ofﬁces, Swakopmund, Namibia (2) and (3) Yellowcake The Company is also assisting in the design and will fund a new water supply project to provide a signiﬁcantly upgraded potable water supply to the 45,000 people living in the Karonga region. The Government of Malawi has generously agreed that the new water supply system will be named after Garnet Halliday who died tragically in an aircraft accident in Malawi in 2007. Despite turbulent ﬁnancial markets during the past year, the Company successfully raised US$325M in a Convertible Bond issue in March 2008 and enjoys a strong balance sheet with net assets of US$1.4Bn including US$337M in cash at the end of the ﬁnancial year. The outlook for the nuclear industry has never looked better. Nuclear power is now ﬁrmly on the agenda as a core strategy for low carbon electricity production, not only in countries which already have nuclear power plants, but also in many other countries, most of which will inevitably proceed with some form of nuclear electricity. The Company is committed to its strategy of progressive development of its uranium resources, complemented by strategic M&A activity, supported by opportunities arising from its new marketing entity, Paladin Nuclear, to establish a global footprint underpinned by signiﬁcant uranium production to meet the growing demand for nuclear fuel. Health & Safety Paladin is committed to working with its employees and contractors to create a safe working environment across its operations. It is extremely pleasing to note that at Kayelekera, the ﬁrst major mining development in Malawi, Paladin and its contractors have completed more than 2,000,000 man-hours lost time injury free. At Langer Heinrich only 4 LTIs were recorded, all of a relatively minor nature. The Company continues to place the health and safety of its workers as top priority and is proud of the safety record achieved. Corporate Social Responsibility In addition to creating shareholder wealth, Paladin’s core values address contributing to the growth and prosperity of host countries and responding positively to community needs and expectations. Paladin seeks to meet its Corporate Social Responsibility undertakings through the following actions: (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:51)(cid:84)(cid:65)(cid:75)(cid:69)(cid:72)(cid:79)(cid:76)(cid:68)(cid:69)(cid:82)(cid:0)(cid:35)(cid:79)(cid:78)(cid:83)(cid:85)(cid:76)(cid:84)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:26) Paladin understands the linkages and interdependencies between the Company and its stakeholders and encourages communication with stakeholders at local, national and international levels. (cid:37)(cid:84)(cid:72)(cid:73)(cid:67)(cid:65)(cid:76)(cid:0)(cid:34)(cid:85)(cid:83)(cid:73)(cid:78)(cid:69)(cid:83)(cid:83)(cid:0)(cid:34)(cid:69)(cid:72)(cid:65)(cid:86)(cid:73)(cid:79)(cid:85)(cid:82)(cid:26) Internally and externally, ethical behaviour is reinforced through a formal ethical code and non-tolerance of corrupt and unethical behaviour or practices. (cid:51)(cid:79)(cid:67)(cid:73)(cid:65)(cid:76)(cid:0)(cid:33)(cid:67)(cid:67)(cid:79)(cid:85)(cid:78)(cid:84)(cid:65)(cid:66)(cid:73)(cid:76)(cid:73)(cid:84)(cid:89)(cid:26) Paladin believes that the Company is accountable to stakeholders for its social impacts and effectively monitors and reports social performance. (cid:35)(cid:79)(cid:77)(cid:77)(cid:85)(cid:78)(cid:73)(cid:84)(cid:89)(cid:0)(cid:36)(cid:69)(cid:86)(cid:69)(cid:76)(cid:79)(cid:80)(cid:77)(cid:69)(cid:78)(cid:84)(cid:26) Paladin actively supports a range of community social development and local business development initiatives in consultation with local communities. Operations – Langer Heinrich Uranium Mine, Namibia The 2007/2008 ﬁnancial year saw the ﬁrst full year of production with 1.71Mlb U3O8 produced to 30 June 2008. The operation now employs 190 people directly and a further 200 people indirectly through contracting companies. 16 Annual Report 2008 During the ramp-up phase a number of improvements were made to the plant with the aim of de-bottlenecking portions of the plant and increasing processing capacity. A number of these improvements have now been incorporated into the Stage II upgrade with the intention of lifting production to 3.7Mlb U3O8 per year. During April 2008 a localised rain event ﬂooded a portion of the pit. Work had already commenced on the next stage of mining and no production interruption occurred. No other signiﬁcant safety or environmental incidents occurred during the year. In June 2008 studies began on an updated resource estimation following the completion of 17,731m of RC drilling from 717 holes. The resource upgrade represents a 64% increase in metal content over the previous Mineral Resource and now stands at 56.4Mt at a grade of 0.06% U3O8 containing 32,858t U3O8 in the Measured and Indicated categories. The Mineral Resource also contains 70.7Mt at a grade of 0.06% U3O8 containing 41,557t U3O8 in the Inferred category. Figures are quoted at a 250ppm U3O8 cut-off grade. The project has an enviable safety record having recently achieved 2,000,000 man-hours lost time injury free. Paladin is clearly developing skills and a work culture focussed on exceptionally high safety standards and environmental awareness within the local construction workforce. This will provide a ﬁrm platform from which the operational workforce can develop. Some key developments to date are the construction of the site’s main access roads, completion of the planned earthworks and good progress with the in-plant civil and steel erection works. Major activities such as the completion of the on-site 10 MW power station and erection of the SAG mill’s main rotating components are providing a good indication that the project is on track for completion this year. A grade control drilling programme of approximately 13,000m has been undertaken to allow more accurate scheduling of material from the pit with open pit mining having commenced in June 2008. It is planned to have approximately 65,000t of ore feed available by the scheduled commissioning date. Langer Heinrich sold 1.41Mlb U3O8 with a gross value of over US$93.8 million during the year. Problems encountered with matching shipping availability to production that occurred in the previous year have now been resolved and, as a consequence, Langer Heinrich’s business performance has improved markedly. Resource deﬁnition drilling to accurately deﬁne the limits of the orebody and upgrade the Inferred Resources to Indicated and Measured status – comprising 6,458m and 95 holes – was completed during December 2007 and upgrade resource and reserve estimation is currently being carried out. Development – Kayelekera Uranium Project, Malawi Paladin has made signiﬁcant progress in the project development phase of Kayelekera. The project is now 61% complete with all major construction and procurement contracts having been awarded. The project remains on schedule and within budget and it is expected that the operation to be commissioning during January 2009. The construction project currently employees a workforce of around 1,250 people with 75% of these workers being Malawians. Exploration was commenced on four Exclusive Prospecting Licences (EPL) to the east, west and south of the Kayelekera mining lease. To date this exploration has been limited to ground follow-up of previously identiﬁed airborne radiometric targets with scout drilling of some of the prospects planned to start in September 2008. A new airborne radiometric survey covering all of the Karoo sediments on Paladin’s EPL’s was ﬂown in the September 2008 quarter. Paladin Energy Ltd 17 Management Discussion and Analysis Pictures left to right: (1), (2) and (3) Kayelekera Exploration and Evaluation Corporate In Queensland at the Mount Isa uranium project, Paladin, through the Isa Uranium Joint Venture operating committee, approved a budget of A$8M for the ﬁnancial year. This budget allowed the development of a drilling plan of 147 drill holes for a total of 50,000m at the Valhalla project. This program was aimed at ensuring that the majority of the upper 400m of the resource falls into the Measured and Indicated Resource categories. In addition, a number of drill lines have been planned to test for the expected strike extension of the mineralisation. Following drilling completion in late 2007, a new resource estimate for the Skal uranium deposit has been completed. The Inferred Mineral Resource now stands at 7.6Mt at a grade of 508ppm U3O8 for 3,781t U3O8 at a cut-off of 250ppm. Geological mapping, as well as ground radiometric and magnetic surveys are expected to further extend the Skal deposit. Following a drilling program completed in late 2007, a new resource estimate has been undertaken for the Bigrlyi Uranium Project with the results announced in February 2008. The new estimate has increased the Indicated Resource to 2.3Mt at a grade of 1,739ppm for 4,053t U3O8 and Inferred Resources to 5.2Mt at a grade of 1,250ppm for 6,537t U3O8 at a 500ppm cut-off grade. A scoping study undertaken by Energy Metals in July 2008 indicated that the project is viable with a potential annual production of approximately 1.5Mlb U3O8. The Joint Venture has approved an ongoing drill program of approximately 15,000m RC and 2,000m diamond drilling as well as a small grade control programme to deﬁne the lateral extent of the mineralisation. In February 2008 a joint venture between Paladin Energy Minerals NL and Cameco Australia Pty Ltd was awarded the Angela project located 25km south of Alice Springs in the Northern Territory. Work is presently under way to digitise all of the existing historic data which has been located within Paladin’s uranium database to enable the Joint Venture to rapidly advance the project. At the present time the Joint Venture partners are awaiting the granting of Exploration Licences by the Northern Territory government. The Company issued US$325M in convertible bonds on 11 March 2008 with an underlying coupon rate of 5%, maturing on 11 March 2013 and with a conversion price of US$6.59 for Company shares. Proceeds are being used to further advance Kayelekera, establish a uranium marketing subsidiary, fund opportunities as they arise for acquisitions and corporate growth, and for general corporate purposes. Australia’s Uranium Politics Australia’s policies on the mining and export of uranium continue to follow the trend of greater bipartisan acceptance of mining between the major political parties. At the National Conference in April 2007, the federal Australian Labor Party abandoned its traditional opposition to the development of new uranium mines. The outcome of the decision was that the approval or prohibition of uranium mining is now a matter for each state. The Labour governments of South Australia and the Northern Territory are receptive to new uranium projects. The Labor governments of the states of Queensland and Western Australia have maintained the status quo under which uranium mines are prohibited. The Labor Party was elected to federal government in November 2007. Its policy is to encourage further development of the uranium industry. It has renewed funding for the Uranium Industry Framework and (in a time of sharply increased budgetary constraint) has committed A$10.6 million over four years to develop its goals for the uranium industry. Earlier this year, the Federal Resources Minister, The Hon Martin Ferguson, was quoted in the media as saying that uranium will play an important role in powering nuclear reactors in other countries wanting to cut their greenhouse gas emissions, that uranium has a bright future and that it is going to lead to increased export earnings for Australia and jobs. He went on to say that “Queensland and Western Australia, at a point, will fall into line. The uranium industry will open up.” 18 Annual Report 2008 Current Market and Long-Term Uranium Outlook Management Team Development Paladin has continued to build an executive team with substantial uranium and resource industry experience operating over a wide spectrum of activities covering production, operations development and construction, technical (geology, engineering, metallurgical, environmental and radiological), marketing, corporate and ﬁnance – all in a global context. M&A Activities Paladin continues to evaluate uranium opportunities as part of its stated strategic objective to achieve an appropriate global production footprint. The Company is considering both speciﬁc advanced project opportunities and corporate acquisitions where good assets with clear production potential are identiﬁed that show value accretion potential. In the past year the uranium market, as measured by the commonly used published prices for the spot market and the long-term market, has softened from its highest point in June 2007. The Company believes that current price levels are a temporary phenomenon, inﬂuenced only in part by interactions of primary buyers and sellers. The short-term uranium market has been affected by deteriorating credit markets worldwide, which may have stimulated some liquidation of inventories accumulated by ﬁnancial participants during 2006 and 2007. There is evidence that some utilities have now met their immediate forward requirements and so will not need to return to the market until 2010 or 2011, which may have absorbed some momentum from the market over the last year. However, there remain signiﬁcant unﬁlled requirements amongst a regionally diverse range of utilities which will begin to apply pressure to the market over the next few years. The Company believes that sections of the industry tend to over-estimate future uranium production, both from existing and new sources, and under-estimate the widening supply- demand gap. Future unﬁlled requirements from the operating ﬂeet will be exaggerated by the need to purchase fresh core material for the signiﬁcant new reactor build planned worldwide. Primary uranium production will continue to lag demand as producers grapple with rising capital and operating costs, licensing and regulatory delays, and unforeseen technical challenges. Paladin Energy Ltd 19 Management Discussion and Analysis Pictures left to right: (1) Transporting yellowcake product from Langer Heinrich (2) Kayelekera construction and (3) Kayelekera pre-strip mining Review of Operations Paladin’s total Mineral Resource inventory includes 69,600t U3O8 (153.4Mlb of U3O8) at 0.071% U3O8 in the Indicated and Measured categories, a 14% increase from that reported in the previous year. Paladin also holds 67,900t of U3O8 (149.7Mlb of U3O8) at 0.06% U3O8 in the Inferred Resource category, a 70% increase from that reported for the previous year. A summary of the status of each of the advanced projects is detailed in the following table. This table does not include Inferred Resources from Bikini, Andersons and Watta deriving from Paladin’s 81.99% ownership of Summit Resources Ltd. Paladin Uranium Project Summary Criteria Langer Heinrich Kayelekera Manyingee Oobagooma Project* Project* Project** Project Valhalla Deposit* Skal Project Bigrlyi Deposit* Angela Deposit Paladin equity 100% 85% 100% 100% 91% 91% 42.06% 50% Location Namibia, Malawi, Southern Africa Southern Africa West Pilbara, Western Australia West Kimberley, Western Australia Queensland, Queensland, Northern Territory, Australia Australia Australia Northern Territory, Australia Deposit Type Calcrete Sandstone Sandstone Sandstone Metasomatic Metasomatic Sandstone Sandstone 15.3Mt @ 0.09% U3O8 (13,630t U3O8) 30.0Mlb 3.4Mt @ 0.06% U3O8 (2,040t U3O8) 4.5Mlb - - 7.9Mt @ 0.1% U3O8 (8,080t U3O8) 17.8Mlb 5.5Mt @ 0.05% U3O8 (2,810t U3O8) 6.2Mlb - 21.3Mt @ 0.08% U3O8 (16,900t U3O8) 37.2Mlb 12Mt @ 0.075% U3O8 (9,000t U3O8) 19.8Mlb 7.6Mt @ 0.05% U3O8 (3,781t U3O8) 8.5Mlb - - 2.3Mt @ 0.17% U3O8 (4,053t U3O8) 8.9Mlb 5.2Mt @ 0.13% U3O8 (6,537t U3O8) 14.4Mlb Measured 56.4Mt @ & Indicated 0.06% U3O8 Resources (32,858t U3O8) 72.4Mlb 70.7Mt @ 0.06% U3O8 (41,557t U3O8) 91.6Mlb Inferred Resource Historic Resources (non-JORC compliant) - - - - - - 8.3Mt @ 0.12%- 0.14% U3O8 (9,950t U3O8) 21.9Mlb 11Mt @ 0.1%- 0.13% U3O8 (12,000- 13,000t U3O8) 26-28Mlb Mining Method Conventional open pit Conventional open pit In-Situ Leach In-Situ Leach Open pit / Under ground Open pit / Under ground Open pit / Open pit / Under ground Under ground Previous Owners Gencor Limited Central (South African Electricity Mining Company) and Acclaim Generating Board (UK utility) Cogema (French utility) Cogema (French utility) 20 Annual Report 2008 Queensland Queensland AGIP Mines Ltd Mines Ltd Australia Pty Ltd Uranerz Australia Pty Ltd Paladin Uranium Project Summary (continued) Criteria Langer Heinrich Kayelekera Manyingee Oobagooma Project* Project* Project** Project Valhalla Deposit* Skal Project Bigrlyi Deposit* Angela Deposit Activity Periods 1973 – 1980, 1999 to present Project Status Stage II development underway Project Globally Signiﬁcance ﬁrst new uranium mine and mill in a decade. Timeframe Production 1982 – 1990, 1998 to present 1979 – 1988 Acquired 1998 Construction On hold. commenced. Feasibility Study in readiness. 1982 – 1985 Acquired 1998 On hold. Resource deﬁnition drilling required. One of only Large three Australian advanced ISL projects. resource potential. Signiﬁcant contributor to Malawi economy 3.3Mlb U3O8/pa production. 1968 – 1972, 1997 to present Resource deﬁnition drilling in progress. Large uranium resource. 1970 – 1980, 2005 to present Resource deﬁnition drilling in progress. 1974 – 1983, 2005 to present Resource deﬁnition drilling in progress. Large uranium resource. Initial JORC resource. High uranium grades. Vanadium credits. 1972 – 1983 Data compilation resource validation in progress. Large uranium resource. Commissioning 3 year to commence staged in early 2009 11 year feasibility study required. commenced in 2007. 27 year project life. Expansion project life. to 3.7Mlb/pa from end 2008 underway. 2 year reserve / resource drilling required. dependent on Development Development Prefeasibility Prefeasibility dependent on Queensland Queensland Government Government U Policy changes. Study to follow resource validation. Study if sufﬁcient resources. U Policy changes. Resources are quoted inclusive of any reserves that may be applicable. Resources detailed above in all cases represent 100% of the resource – not the participant’s share. * JORC (2004) & NI 43-101 Compliant. ** JORC (1999) Compliant. For Valhalla and Skal, Paladin’s interest is based on 50% deriving from the Mount. Isa Joint Venture and 41% via Paladin’s 81.99% ownership of Summit Resources Ltd. Paladin Energy Ltd 21 Management Discussion and Analysis Review of Operations 22 Annual Report 2008 NAMIBIA Langer Heinrich Uranium Project The Langer Heinrich Uranium Mine in Namibia is owned 100% by Paladin through its wholly owned Namibia subsidiary Langer Heinrich Uranium (Pty) Ltd. Paladin purchased the Langer Heinrich Project in August 2002. Langer Heinrich is a surﬁcial, calcrete type uranium deposit containing a Mineral Resource of 74,415t U3O8 at a grade of 0.06% U3O8 (250ppm U3O8 cut-off grade) in seven mineralised zones designated Detail 1 to 7, within a 15km length of a contiguous paleodrainage system. The deposit is located in the Namib Desert, 80km from the major seaport of Walvis Bay. The attached ﬁgure shows the location of the uranium mineralisation along the length of the Langer Heinrich valley. Following the completion of a 717 hole, 17,731m RC drilling campaign to inﬁll a major portion of Details 1 and 2 as well as close off the majority of the remaining Details, an updated Mineral Resource has been estimated for the deposit. The updated resource announced on 28 August (cid:45)(cid:73)(cid:78)(cid:69)(cid:82)(cid:65)(cid:76)(cid:0)(cid:50)(cid:69)(cid:83)(cid:79)(cid:85)(cid:82)(cid:67)(cid:69)(cid:0)(cid:69)(cid:83)(cid:84)(cid:73)(cid:77)(cid:65)(cid:84)(cid:69)(cid:0)(cid:8)(cid:68)(cid:69)(cid:80)(cid:76)(cid:69)(cid:84)(cid:69)(cid:68)(cid:0)(cid:70)(cid:79)(cid:82)(cid:0)(cid:77)(cid:73)(cid:78)(cid:73)(cid:78)(cid:71)(cid:9)(cid:0)(cid:70)(cid:79)(cid:82)(cid:0)(cid:36)(cid:69)(cid:84)(cid:65)(cid:73)(cid:76)(cid:83)(cid:0)(cid:17)(cid:0)(cid:84)(cid:79)(cid:0)(cid:23)(cid:26)(cid:13) 2008 represents a signiﬁcant uplift to the previous resource announced in early 2006 with an increase of 68% in tonnes and 3% decrease in grade combining to produce a 64% increase in contained metal. The new Mineral Resource is detailed below at a cut-off grade of 250ppm U3O8 . Langer Heinrich Exploration (EPL3500) EPL3500 abuts the Langer Heinrich Mining Lease to the west and includes the sediment covered behind the western extension of the mineralised Langer Heinrich palaeochannel. Exploration of the EPL started in 2008 with a helicopter borne EM survey to better deﬁne the palaeochannel. Widespaced follow-up drilling started on the EPL in May. Early results indicate that the channel widens considerably when entering EPL3500 causing the uranium mineralisation to disperse, resulting in low grade and thin mineralisation. A total of 31 holes including 2,919m were drilled. Five holes intersected greater than 200ppm U3O8 all at 1m thickness varying from 271 to 504ppm U3O8. 250ppm Cut-off Measured Resources Indicated Resources Measured + Indicated Inferred Resources Mt 32.8 23.6 56.4 70.7 Grade % U3O8 t U3O8 Mlb U3O8 0.06 0.06 0.06 0.06 19,582 13,276 32,858 41,557 43.158 29.260 72.418 (46% increase) 91.591 (64% increase) (Figures may not add due to rounding and are quoted inclusive of any Reserves) Paladin Energy Ltd 23 In recent months the ion exchange, product precipitation and product drying sections of the plant has performed well, demonstrating consistent operation at or above design capacities. During the period under review the construction work on the Stage II plant upgrade started in various areas within the plant. The operations and construction teams work closely together with no unnecessary interruptions to production being experienced as a result of the construction activities. In summary the Langer Heinrich operation is running well, with critical areas for attention in the plant now identiﬁed and the necessary procedures have been put in place to ensure their effective management. MALAWI Management Discussion and Analysis Review of Operations Pictures left to right: (1) Langer Heinrich (2), (3) and (4) Kayelekera Operations The 2007/8 ﬁnancial year was the ﬁrst full year of production for the processing plant and in December 2007 the plant achieved its ﬁrst month of full design production. Consistency in production through the plant also improved throughout the year and the plant is now continuously producing in line with its original design capacity. The operation now has approximately 190 employees directly employed with another 200 people employed by contractors supplying outsourced services such as mining, reagent supplies, transport, security, engineering services and general site services. No signiﬁcant safety or environmental incidents occurred during the year. During the ramp-up process continuous improvements were made to the plant. The improvements were successful in de-bottlenecking areas of the plant and this contributed signiﬁcantly to the improved results experienced during the latter half of the ﬁnancial year. Mining activities, through the contract miner, Karibib Mining and Construction Company, progressed very well throughout the year with above schedule production rates being achieved. Mining has now advanced to the next stage (Pit B) to the west of the starter pit (Pit A). In April 2008 Pit A was ﬂooded during a rain event. Fortunately the preparation of the next stage of mining was well advanced at the time and plant operations were not impacted by this ﬂood. This did however aid the management in gaining a better understanding of the possible impact of periodic rain events and has subsequently led to modiﬁcation to pit development and tailings facility designs. The rain water that is recovered from Pit A is currently being used in the processing plant to offset water purchased from Namibia Water Corporation Limited (NamWater). The operation of the spiral heat exchangers has remained a challenge throughout the year. The original set of spiral heat exchangers have been progressively replaced during the year following a successful insurance claim. The functioning of these units remains pivotal to the successful operation of the plant and a dedicated maintenance team has been formed to address these issues. 24 Annual Report 2008 Kayelekera Uranium Project Mineral Resources and Reserves Kayelekera is located in northern Malawi, 40km west (by road) of the provincial town of Karonga and 12km south of the main road that connects Karonga with the township of Chitipa to the west. The JORC (2004) and NI 43-101 Code compliant Mineral Resource base (comprising both arkose and mudstone components) used for the BFS pit optimisation work is summarised in Table 1:- Kayelekera is a sandstone hosted uranium deposit associated with the Permian Karoo sediments and is hosted by the Kayelekera member of the North Rukuru sediments of the Karoo. The mineralisation is associated with seven variably oxidised, coarse grained arkoses, separated by shales and chocolate coloured mudstones. Uranium mineralisation occurs as lenses within these arkose units the lowest of which is at a depth of approximately 130m. Kayelekera is currently owned 100% by Paladin through its wholly owned subsidiary Paladin (Africa) Ltd (PAL). Paladin will transfer a 15% shareholding in PAL to the Government of Malawi under the terms of the Development Agreement signed between PAL and the Government in February 2007. After completing a Development Agreement with the Malawi Government and a Bankable Feasibility Study (BFS) together with an Environmental Impact Assessment, the Mining Licence, ML 152, covering 5,550 hectares was granted in April 2007 for a period of ﬁfteen years. Construction started in June 2007. The Project is designed to give an annual production of 3.3Mlb U3O8 from the processing of 1.5Mtpa of sandstone and associated ores by grinding, acid leaching, resin- in-pulp extraction, precipitation and drying to produce saleable product. (cid:52)(cid:65)(cid:66)(cid:76)(cid:69)(cid:0)(cid:17)(cid:26)(cid:0)(cid:45)(cid:73)(cid:78)(cid:69)(cid:82)(cid:65)(cid:76)(cid:0)(cid:50)(cid:69)(cid:83)(cid:79)(cid:85)(cid:82)(cid:67)(cid:69)(cid:83)(cid:0)(cid:73)(cid:78)(cid:67)(cid:76)(cid:85)(cid:83)(cid:73)(cid:86)(cid:69)(cid:0)(cid:79)(cid:70)(cid:0)(cid:47)(cid:82)(cid:69)(cid:0)(cid:50)(cid:69)(cid:83)(cid:69)(cid:82)(cid:86)(cid:69)(cid:83) Jorc Category Cut-Off Resource Grade %U3O8 %U3O8 Mt U3O8 Kt Measured Indicated Measured +Indicated 0.03 0.03 2.2 13.1 0.12 0.083 2.7 10.9 15.3 0.088 13.6 Inferred 0.03 3.4 0.060 2.0 0.06 0.06 Measured Indicated Measured +Indicated Inferred 0.06 1.6 7.0 8.6 1.2 0.16 0.12 2.5 8.2 0.13 10.7 0.09 1.1 The BFS results utilising the Measured and Indicated resources stated above (using a blend of 83% arkose and 17% mudstone) and estimated using a uranium price of US$30/lb U3O8 for pit optimisation purposes resulted in Ore Reserves as shown in Table 2. (cid:52)(cid:65)(cid:66)(cid:76)(cid:69)(cid:0)(cid:18)(cid:26)(cid:0)(cid:47)(cid:82)(cid:69)(cid:0)(cid:50)(cid:69)(cid:83)(cid:69)(cid:82)(cid:86)(cid:69)(cid:83)(cid:12)(cid:0)(cid:65)(cid:82)(cid:75)(cid:79)(cid:83)(cid:69)(cid:0)(cid:67)(cid:85)(cid:84)(cid:13)(cid:79)(cid:70)(cid:70)(cid:0)(cid:20)(cid:16)(cid:16)(cid:80)(cid:80)(cid:77)(cid:12)(cid:0)(cid:77)(cid:85)(cid:68)(cid:83)(cid:84)(cid:79)(cid:78)(cid:69)(cid:0)(cid:67)(cid:85)(cid:84)(cid:13)(cid:79)(cid:70)(cid:70)(cid:0)(cid:22)(cid:16)(cid:16)(cid:80)(cid:80)(cid:77) Type Arkose Mudstone Total Tonnes Mt 1.60 0.18 1.78 Proved Grade %U3O8 0.14 0.15 0.14 Metal kt Tonnes Mt 2.27 0.28 2.54 7.80 0.91 8.70 Probable Grade %U3O8 0.098 0.13 0.10 Total Grade %U3O8 0.11 0.14 Metal kt 9.9 1.5 Metal kt Tonnes Mt 9.40 1.10 7.6 1.2 8.8 10.50 0.11 11.4 Paladin Energy Ltd 25 Management Discussion and Analysis Review of Operations Pictures left to right: (1), (2) and (3) Kayelekera Additional marginal material within the pit design, not included in the Ore Reserves but expected to be processed at end of mine life (i.e. years 8 to 11), is shown in Table 3. This consists of arkose above 200ppm, mudstone above 400ppm and Inferred Resources contained within the pit design. (cid:52)(cid:65)(cid:66)(cid:76)(cid:69)(cid:0)(cid:19)(cid:26)(cid:0)(cid:45)(cid:65)(cid:82)(cid:71)(cid:73)(cid:78)(cid:65)(cid:76)(cid:0)(cid:77)(cid:73)(cid:78)(cid:69)(cid:82)(cid:65)(cid:76)(cid:73)(cid:83)(cid:69)(cid:68)(cid:0)(cid:77)(cid:65)(cid:84)(cid:69)(cid:82)(cid:73)(cid:65)(cid:76)(cid:0)(cid:67)(cid:79)(cid:78)(cid:84)(cid:65)(cid:73)(cid:78)(cid:69)(cid:68)(cid:0)(cid:87)(cid:73)(cid:84)(cid:72)(cid:73)(cid:78)(cid:0) the pit design (Non-JORC) Type Arkose Mudstone Total Tonnes Mt Grade % U3O8 Metal kt 5.7 0.7 6.4 0.03 0.08 0.04 2.0 0.5 2.5 Resource Drilling Resource deﬁnition drilling to accurately deﬁne the limits of the ore body and upgrade the Inferred Resources to Indicated and Measured status - comprising 6,458m in 95 holes - was completed during December 2007. An upgraded resource and reserve estimation is currently being carried out. Kayelekera Exploration Exploration commenced on four Exclusive Prospecting Licences east, west and south of the Kayelekera Mining Lease, EPLs 168,169 and 170 (granted 12 December 2005) and EPL 225 (granted 12 December 2007). Exploration on EPLs 169,170 and 225 began with follow-up of airborne radiometric anomalies as deﬁned by a previous helicopter radiometric survey. Ground follow-up identiﬁed an extensive target at the Mpata Prospect on EPL170, 18km northwest of the Kayelekera minesite. Radiometric anomalies were found to be associated with two distinct arkose units along a strike length of 3km. Scout drilling of the Prospect is planned to start in September 2008. 26 Annual Report 2008 Geological mapping and prospecting commenced on EPL 169 in the Juma area, 4 to 8km south of the minesite where a new exploration camp has been established. Initial ground work identiﬁed prospective reduced and oxidised strata showing anomalous radiometric response. A new airborne radiometric survey covering all Karoo sediments on Paladin’s EPLs was ﬂown in the September 2008 quarter. Project Development Paladin has made signiﬁcant progress with the project development phase of Kayelekera. The project is now 61% complete with all major construction and procurement contracts having been awarded. The project remains on schedule and within budget and expects the operation to be commissioning during January 2009. The construction project currently engages a workforce of around 1,250 persons with 75% of these workers being Malawians. The project has achieved an enviable safety record having recently achieved 2,000,000 man-hours lost time injury free. Paladin is clearly developing the skills and a culture of exceptionally high safety standards and environmental awareness within the local workforce during the project construction phase. This will provide a ﬁrm platform from which the operational workforce can develop. Some key developments to date are the construction of the site’s main access roads, completion of the plant earthworks and good progress with the in-plant civil and steel erection works. Major activities such as the completion of the on-site 10 Megawatt power station and erection of the SAG mill’s main rotating components are providing a good indication that the project is on track for completion this year. Mining activities have also commenced and pit development, haul roads and run-of-mine terrace works are all progressing smoothly. The engineering, procurement and construction management (EPCM) consultant is Engineering and Projects Company (E&PC), a large South African based experienced EPCM contractor associated with Griniker LTA, one of Africa’s largest construction companies. Paladin has provided an experienced owner’s team to oversee the development of the project and the Operations Manager and a number of other highly experienced operational staff are fully established at the site to assist with the technical and safety aspects of developing a uranium mining operation. The project has committed over US$171M to date and is ahead of schedule with its procurement activities. Despite a more prolonged wet season during the past year, the project is on track to deliver on its schedule and budget objectives. Pre-Operations A grade control drilling program of approximately 13,000m was undertaken to deﬁne reserves for the ﬁrst 18 months of mining. At the time of writing, not all assay results were available but results to date show a strong correlation to the resource model used in the Bankable Feasibility Study. Open pit mining commenced in June 2008 to develop initial stockpiles with the ﬁrst blast occurring on 24 July 2008. Mining plans have scheduled the availability of approximately 65,000t of plant feed ore by the scheduled commissioning date. A skilled operational team has been recruited, led by Bob Wyka (an ex-Cameco General Manager – Operations) with necessary business and operating processes being developed for implementation in late 2008. This group is ready to assist E&PC in the commissioning of the plant and then seamlessly accept full responsibility at the operational handover during the March to June quarter of 2009. Production ramp-up is scheduled over the 2009 calendar year with full design operating capacity expected to be achieved by December 2009. The following key site activities currently being progressed are: (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:80)(cid:73)(cid:84)(cid:0)(cid:68)(cid:69)(cid:86)(cid:69)(cid:76)(cid:79)(cid:80)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:68)(cid:82)(cid:65)(cid:73)(cid:78)(cid:65)(cid:71)(cid:69)(cid:0)(cid:77)(cid:65)(cid:78)(cid:65)(cid:71)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:67)(cid:79)(cid:78)(cid:84)(cid:82)(cid:79)(cid:76)(cid:83)(cid:0) eg stormwater drains, culverts, sediment traps; (cid:87)(cid:79)(cid:82)(cid:75)(cid:70)(cid:79)(cid:82)(cid:67)(cid:69)(cid:0)(cid:82)(cid:69)(cid:67)(cid:82)(cid:85)(cid:73)(cid:84)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:65)(cid:83)(cid:83)(cid:79)(cid:67)(cid:73)(cid:65)(cid:84)(cid:69)(cid:68)(cid:0)(cid:84)(cid:82)(cid:65)(cid:73)(cid:78)(cid:73)(cid:78)(cid:71)(cid:27) (cid:68)(cid:69)(cid:86)(cid:69)(cid:76)(cid:79)(cid:80)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:79)(cid:70)(cid:0)(cid:47)(cid:80)(cid:69)(cid:82)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:83)(cid:0)(cid:80)(cid:79)(cid:76)(cid:73)(cid:67)(cid:73)(cid:69)(cid:83)(cid:12)(cid:0)(cid:80)(cid:82)(cid:79)(cid:67)(cid:69)(cid:68)(cid:85)(cid:82)(cid:69)(cid:83)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0) systems; and (cid:78)(cid:69)(cid:71)(cid:79)(cid:84)(cid:73)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:79)(cid:70)(cid:0)(cid:77)(cid:65)(cid:74)(cid:79)(cid:82)(cid:0)(cid:82)(cid:69)(cid:65)(cid:71)(cid:69)(cid:78)(cid:84)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:67)(cid:79)(cid:78)(cid:83)(cid:85)(cid:77)(cid:65)(cid:66)(cid:76)(cid:69)(cid:0)(cid:83)(cid:85)(cid:80)(cid:80)(cid:76)(cid:89)(cid:0) contracts. QUEENSLAND Summit Resources (Aust) Pty Ltd (SRA), a wholly owned subsidiary of Summit Resources Ltd (Summit), operates the Isa Uranium Joint Venture (IUJV) as well as the Mount Isa North Uranium Project. These areas cover approximately 1,827km2 and host a number of uranium – vanadium deposits and resources including the Valhalla and Skal deposits. Isa Uranium Joint Venture Summit Resources (Aust) Pty Ltd 50% and Manager Mount Isa Uranium Pty Ltd 50% The IUJV covers ground containing the Valhalla and Skal uranium deposits 40km north of Mount Isa in Queensland. Participants in the Joint Venture are SRA and Mount Isa Uranium Pty Ltd (MIU), each holding a 50% interest with SRA acting as manager. MIU is a wholly owned subsidiary of Valhalla Uranium Ltd (VUL), a formerly listed public company and now a wholly owned subsidiary of Paladin. Following Paladin’s successful takeover of VUL in 2006 and Paladin’s acquisition of 81.9% of the issued capital in SMM earlier this year Paladin’s effective participating interest in the IUJV is now 90.95%. Ground subject to the IUJV covers 17km2 at Valhalla and 10km2 at Skal. These two areas lie within a much larger holding of contiguous tenements of 1,827km2 held 100% and managed by SRA. The IUJV operating committee has approved a budget of A$8M (US$7M) for the ﬁnancial year 2008/09. This amount includes an extensive drilling program, metallurgical and hydrogeological test work as well as environmental and radiation baseline studies. The drilling program at Valhalla and Skal is aimed at extending the existing resource envelopes along strike and improving the current resource classiﬁcation. Paladin Energy Ltd 27 Management Discussion and Analysis Review of Operations It is anticipated that this drilling will be completed in the September 2008 Quarter which will allow for the estimation of an updated Mineral Resource in the December 2008 Quarter. A Mineral Resource estimate conforming to the JORC guidelines, shown in Table 4, was prepared by SRA and reported during 2006. (cid:52)(cid:65)(cid:66)(cid:76)(cid:69)(cid:0)(cid:20)(cid:26)(cid:0)(cid:54)(cid:65)(cid:76)(cid:72)(cid:65)(cid:76)(cid:76)(cid:65)(cid:0)(cid:50)(cid:69)(cid:83)(cid:79)(cid:85)(cid:82)(cid:67)(cid:69)(cid:0)(cid:51)(cid:84)(cid:65)(cid:84)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:8)(cid:82)(cid:69)(cid:83)(cid:79)(cid:85)(cid:82)(cid:67)(cid:69)(cid:83)(cid:0)(cid:81)(cid:85)(cid:79)(cid:84)(cid:69)(cid:68)(cid:0)(cid:65)(cid:84)(cid:0)(cid:17)(cid:16)(cid:16)(cid:5)(cid:9) Jorc Category Indicated Inferred Cut-Off Resource Grade %U3O8 %U3O8 Mt Metal kt 0.023 0.023 21.3 12.0 Indicated 0.064 11.2 Inferred 0.064 5.1 0.080 0.075 0.11 0.11 16.9 9.0 12.6 6.0 Isa North Project Area Valhalla Uranium Deposit The Valhalla uranium deposit is located 40km northwest of Mount Isa on Exploration Permit for Minerals (EPM) 9221. Previous drilling by Queensland Mines Ltd in the 1960’s, and SRA in the 1990’s and 2000’s, established a combined Measured, Indicated and Inferred Resource of 56Mlb of U3O8 grading 0.14%. Substantial widths of high grade uranium mineralisation in albite-carbonate-hematite breccias and mylonites as well as altered maﬁc schists have been intersected in the latest drilling at Valhalla. The deposit is hosted within basalts and basaltic sediments of the Eastern Creek Volcanics, trends north–south, is approximately 800m in strike length and is open to the south and at depth. The drilling plan for 2007/08 included approximately 147 drill holes at Valhalla for a total of 50,000m including 33,000m RC and 17,000m diamond drilling. The program was aimed at ensuring that the majority of the upper 400m of the resource will fall into the Measured and Indicated Resource categories. This depth has been targeted as it is the current economic limit of any open pit development and extension into areas that would be mined from underground is not seen as a priority at this time. In addition, a number of 80m spaced drill lines have been planned to test the expected strike extension of the mineralisation and add to the Inferred portion of the resource. Radiometric down-hole logging will and has been used to check all drill hole samples in conjunction with geochemical assaying of selected drill holes for veriﬁcation. 28 Annual Report 2008 The SRA Mineral Resource estimate for the Valhalla deposit was independently checked and veriﬁed prior to announcement. The resource at Valhalla remains open to the north and south along strike, and down plunge. Along with near surface metallurgical diamond drilling, resource drilling will now be targeted at extending the resource along strike and down plunge. Metallurgical test work to establish the metallurgical ﬂow sheet, recoveries and metallurgical compatibility with the Skal uranium deposit is ongoing. Skal Uranium Deposit A Mineral Resource estimate conforming to the JORC guidelines for the Skal deposit located 32km north of Mount Isa city on EPM14048 has been completed. This estimate covered all three identiﬁed Skal mineralised zones, Skal South, Skal North and Skal Far North, adjacent to the historic King George copper workings. All three zones are structurally controlled, southerly plunging shoots with an accompanying low grade halo and have signiﬁcant surface expression. The Mineral Resource at Skal is estimated to be: Inferred Mineral Resource at 250ppm U3O8 cut-off grade Tonnes Grade U3O8 (ppm) Metal U3O8 (t) Metal U3O8 (lb) 7.6M 508 3,781 8.5M The current Mineral Resource estimate compares very favourably to the historic Skal resource of approximately 11Mlb U3O8, reported at a slightly lower cut-off grade, as the current Mineral Resource has only been estimated to approximately 200m depth whilst the previous historic resource appears to have been extrapolated to over 300m depth. Documentation on the historic resource indicates that approximately 36% of the resource tonnes were located below 200mRL. It is likely that future drilling to extend the resource at depth and replace the historic QML holes will result in a re-classiﬁcation and extension of the Skal Mineral Resource. The geological mapping of the prospect was expanded and ground radiometric and magnetic surveys were completed. This will enable planning for further drilling at the known mineralisation and exploration drilling of the currently untested Skal East prospect. Mount Isa North Uranium Project Summit Resources (Aust) Pty Ltd 100% and Operator The Project is located 10 to 70km North and East of Mount Isa. It contains numerous uranium anomalies, most of which still have to be investigated thoroughly. Over the year SRA completed two airborne radiometric and magnetic surveys covering close to 100% of the tenement holdings at close line spacings. The results are currently being evaluated and will help to focus exploration in 2008/09. A Mineral Resource estimate conforming to the JORC guidelines for the Bikini uranium deposit located 36km north of Mount Isa on EPM 9221 has been completed in 2008. The estimate covered the original Bikini deposit as well as the south western extension which was historically known as Pile and is based on SRA drilling only. The current Mineral Resource estimate for the Bikini uranium deposit is: Inferred Mineral Resource at 250ppm U3O8 cut-off grade Tonnes Grade U3O8 (ppm) Metal U3O8 (t) Metal U3O8 (lb) 10.1M 517 5,216 11.5M The Bikini deposit now has a strike length in excess of 1,100m with mineralisation extending from surface to a depth of over 400m and is structurally complex with a characteristic southerly plunge. The Mineral Resource has been classiﬁed as an Inferred Resource, primarily due to drill spacing and it is expected that any future inﬁll drilling will lead to an uplift in the resource classiﬁcation. Details of this resource estimation is given on the announcement made by Summit and can be viewed at www.summitresources.com.au. Resource Status Mount Isa Region – All Projects The Indicated Mineral Resources attributable to Paladin in the Mount Isa Region now stand at 33.9Mlb U3O8 with attributable Inferred Mineral Resources standing at 41.9Mlb U3O8. This translates to an overall increase of 30% in the Mount Isa Uranium Project JORC compliant resource base. As advised the Valhalla resource upgrade will be completed at the end of 2008 after the current drilling has been carried out and is expected to further increase the growing resource base at Mount Isa. Details of individual Mineral Resources, conforming to the JORC code, for the deposits quoted are as follows: (cid:52)(cid:65)(cid:66)(cid:76)(cid:69)(cid:0)(cid:21)(cid:26)(cid:0)(cid:41)(cid:78)(cid:68)(cid:73)(cid:86)(cid:73)(cid:68)(cid:85)(cid:65)(cid:76)(cid:0)(cid:42)(cid:47)(cid:50)(cid:35)(cid:0)(cid:67)(cid:79)(cid:77)(cid:80)(cid:76)(cid:73)(cid:65)(cid:78)(cid:84)(cid:0)(cid:45)(cid:73)(cid:78)(cid:69)(cid:82)(cid:65)(cid:76)(cid:0)(cid:50)(cid:69)(cid:83)(cid:79)(cid:85)(cid:82)(cid:67)(cid:69)(cid:0)(cid:108)(cid:71)(cid:85)(cid:82)(cid:69)(cid:83)(cid:0)(cid:81)(cid:85)(cid:79)(cid:84)(cid:69)(cid:68)(cid:0)(cid:79)(cid:78)(cid:0)(cid:17)(cid:16)(cid:16)(cid:5)(cid:0)(cid:66)(cid:65)(cid:83)(cid:73)(cid:83) Deposit Valhalla Skal Bikini Andersons Watta Total Total Resource Attributable to Paladin Cut-off ppm U3O8 Mt Grade ppm t U3O8 Mt Grade ppm t U3O8 Indicated Resources Inferred Resources Paladin Share 230 250 250 230 230 21.3 800 16,900 21.3 19.38 800 800 16,900 15,379 (33.9Mlb) 12.0 7.6 10.1 2.0 4.2 35.9 31.20 750 508 517 1,010 410 607 607 9,000 3,800 5,200 2,100 1,700 21,800 19,028 (41.9Mlb) 91.0% 91.0% 82.0% 82.0% 82.0% Paladin Energy Ltd 29 Management Discussion and Analysis Review of Operations Pictures left to right: (1), (2) and (3) Queensland Georgina Basin Project Mount Isa South SRA holds 16 granted EPM’s and one further application, together covering 12,000km2 of the Georgina Basin to the west of the Mount Isa Inlier in northwest Queensland. This Project was subject to a joint venture with Newland Resources Ltd (Newland) under which Newland could earn a 50% joint venture interest subject to certain terms and conditions. In April 2008, SRA agreed to sell the Georgina Basin tenements to Newland for a combination of cash and shares in Newland. The joint venture agreement has been terminated and assignment of the tenements to Newland will be completed in the near future. The Georgina Basin Project is at a very early stage of exploration and SRA decided that it should focus its efforts on its very prospective Isa North Project. OTHER PROJECTS (NON-URANIUM) Mount Isa South, May Downs, Constance Range and Mount Kelly comprise the non-uranium projects of SRA. A brief description of these projects is included below. In December 2007, SRA entered into an agreement with unlisted UK company MM Mining Plc for the farm-out of 80% of SRA’s interest in these tenements. SRA will retain a 20% interest in these projects, will retain the uranium rights and will be free carried through to any decision to mine. To earn its interest, MM Mining Plc (which will be the Manager) must spend A$10 million within the next 2 years. In return, SRA will receive A$5 million, 20 million ordinary shares (approximately 31% of the shares in MM Mining Plc), 20 million options exercisable at GPB 0.15 with an expiration date of December 2012 and a further 20 million ordinary shares if there is a decision to mine. Over recent years, the focus of Summit has shifted to its uranium projects to the point that these projects have assumed increased signiﬁcance. This Joint Venture will position Summit to concentrate its management time, in partnership with Paladin, on its exciting uranium projects. 30 Annual Report 2008 The Mount Isa South Project comprises over 1,970km2 of prospective Proterozoic terrane along the Mount Isa Paroo Fault (MIPF) from 40km to 160km south of Mount Isa. To date ﬁve of the EPM’s have been granted and the remaining four EPM applications are expected to be granted in the coming months. Glengarry Resources Ltd has a 10% carried interest to mine development in EPM14233. May Downs The May Downs Project is comprised of three granted EPM’s covering 1,217km2 35km west of Mount Isa. The potential for gold mineralisation in shale sequences along the 12km Golden Fault structure was drill tested in 2005. Several holes intersected narrow zones of anomalous gold generally associated with elevated copper values. Constance Range In the late 1950’s and early 1960’s BHP identiﬁed in excess of 200Mt of iron ore (non JORC) in a number of deposits, hosted by the Train Range Ironstone member of the Middle Proterozoic Mullera Formation, in the area. BHP also identiﬁed 38Mt of phosphate rock at Babbling Brook Hill and a further 11Mt at Riversleigh. The Constance Range Project covers 900km2 in six EPMs, with a further EPM application of 100km2 expected to be granted in the coming months. The tenements are centered 30km southwest to 45km northwest of Zinifex’s Century zinc mine in far northwest Queensland. Mount Kelly EPM14694 of 13km2 near CopperCo’s Mount Kelly copper gold discovery, 95km northwest of Mount Isa, was granted in October 2005. The target here is copper gold mineralisation in middle Proterozoic shales along northwest trending fault structures. Satellite imagery and geophysical survey data has been acquired for the area. A review of all previous exploration is underway and ﬁeld mapping and geochemical sampling to delineate drill targets are planned. NORTHERN TERRITORY Indicated Mineral Resources Bigrlyi Uranium Joint Venture Energy Metals Limited 53.7% and Manager Northern Territory Uranium Pty Ltd 42.1% Southern Cross Exploration NL 4.2% The Bigrlyi Uranium Joint Venture covers ten granted Exploration Retention Licences located approximately 390km northwest of Alice Springs in the Northern Territory. Participants in the Joint Venture are Energy Metals Limited (53.7% and Manager), Northern Territory Uranium Pty Ltd (a wholly owned subsidiary of Paladin) (42.1%) and Southern Cross Exploration NL (4.2%). Bigrlyi is located on the northern margin of the Neoproterozoic to Paleozoic Ngalia Basin in central Australia. Uranium mineralisation at Bigrlyi is conﬁned to a speciﬁc narrow horizon within the lower Mount Eclipse Sandstone for which a local stratigraphic succession has been deﬁned. The principal 16 uranium occurrences at Bigrlyi were discovered in 1973 in the course of regional exploration managed by Central Paciﬁc Minerals NL on behalf of various joint venture partners including Magellan Petroleum Australia Ltd, Agip Nucleare Pty Ltd, Urangesellschaft GmbH & Co. and the Atomic Energy Commission. In March 2008 Energy Metals Limited announced a new resource for the Bigrlyi deposit based on the drilling completed in the 2007 program. The result was a substantial increase in contained U3O8 as well as a signiﬁcant lift in vanadium. The increase was primarily due to extension of the resource along strike particularly in Anomaly 15 and the area between Anomaly 4 and Anomaly 7. The inclusion of a number of additional vanadium results has now allowed for the proper estimation of a vanadium resource. The current Mineral Resource for Bigrlyi stands at 4,053t (8.9Mlb) U3O8 in the Indicted category and 6,537t (14.4Mlb) U3O8 in the Inferred category. Cut-Off (ppm U3O8) Tonnes U3O8 (ppm) V2O5 (ppm) U3O8 (t) V2O5 (t) 500 2,330,600 1,739 2,429 4,053 5,660 1,000 1,508,000 2,288 2,877 3,450 4,339 Inferred Mineral Resources Cut-Off (ppm U3O8) Tonnes U3O8 (ppm) V2O5 (ppm) U3O8 (t) V2O5 (t) 500 5,230,900 1,250 2,705 6,537 14,149 1,000 2,527,100 1,819 3,661 4,596 9,251 In mid July Energy Metals Limited announced the results of the scoping study undertaken by Paladin on its behalf. The study was designed to aid in drill planning and attempted to deﬁne a minimum economic size for the deposit. The results indicate that the project is viable, with potential annual production rates of approximately 1.5Mlb U3O8, over a 10 year period from a number of open pits. An underground option was also assessed, and has been reported by Energy Metals Limited, but it is expected that this is not likely to be a priority target in the near future. Results from the metallurgical test work being undertaken by ANSTO appear to be very promising with good recoveries from acid leach of 94-98%, with reasonable acid consumption values. Coarse grinding studies have indicated the possibility of lowering the acid consumption without appreciably reducing uranium recoveries. Tests using a range of variables suggested optimum acid leach conditions yielded extraction rates of 94-95% uranium and 45% vanadium over 8 to 12 hours. Recoveries from alkaline leach test work were also good at 93%. The Joint Venture has approved an ongoing drilling program of approximately 15,000m RC and 2,000m diamond and it is probable that a small grade control pattern will be drilled at either Anomaly 4 or Anomaly 15 to validate the modeling of the lateral extent of the mineralisation. Funds have also been set aside for preliminary environmental studies and local Aboriginal engagement. Paladin Energy Ltd 31 Management Discussion and Analysis Review of Operations Pictures left to right: (1) and (2) Queensland Angela Joint Venture Cameco Australia Pty Ltd 50% and Manager Paladin Energy Minerals NL 50% The Angela Uranium Project is located 15km south of Alice Springs Airport in the Northern Territory. Access is by dirt road from the airport. In February 2008 the Northern Territory Government advised the 50:50 Joint Venture between Paladin Energy Minerals NL and Cameco Australia Pty Ltd (operator) that it had been awarded the Angela-Pamela Project which gave the Joint Venture the right to lodge an exploration licence application over the Angela and Pamela uranium deposits, located near Alice Springs in the Northern Territory. The Joint Venture’s bid was selected from a highly competitive ﬁeld. The licence application is now progressing through the administrative procedures set out in the Northern Territory’s Mining Act. The Angela Uranium Project Joint Venture parties have committed to a comprehensive conﬁrmatory and exploration work programme as well as a pre-feasibility study which if successful, will then progress to a Bankable Feasibility Study and an Environmental Impact Assessment. Extensive evaluation work was undertaken on the Angela and Pamela uranium deposits by Uranerz Australia Pty Ltd between 1972 and 1983. Historic uranium mineralisation deﬁned at the time comprised approximately 12,000t to 13,000t of U3O8 in the general range of 0.10% to 0.13% U3O8 and remains open at depth and laterally. Paladin owns all the original drill hole data for the deposit, including geology, geochemistry, downhole gamma surveys and feasibility studies. This information, together with Paladin’s extensive in-house knowledge of the deposits, will enable the Joint Venture to move rapidly into the pre-feasibility assessment. Cameco, the Project Manager, has opened an ofﬁce and is starting to set up facilities to support the project in Alice Springs. Cameco has been successful in attracting a senior project manager with experience in bringing a uranium project to development. Angela is a very exciting project for Paladin and offers the Company the opportunity to develop a mine in the Northern Territory, which has a very positive policy on uranium development. It will fully complement Paladin’s Mount Isa project, which is currently scheduled for development post 2012. 32 Annual Report 2008 WESTERN AUSTRALIA Manyingee Uranium Project Paladin Energy Minerals NL 100% The Manyingee Uranium Project is located in the northwest of Western Australia, 1,100km north of Perth and 85km inland from the coastal township of Onslow. The property is comprised of three mining leases covering 1,307 hectares. Paladin purchased the Manyingee Project in 1998 from Afmeco Mining and Exploration Pty Ltd (AFMEX), a subsidiary company of Cogema of France. Paladin’s 100% interest in Manyingee is held through its wholly owned subsidiary, Paladin Energy Minerals NL. AFMEX (previously named Total Mining Australia Pty Ltd) discovered uranium mineralisation at Manyingee in 1973 during regional exploration. Between 1973 and 1984 some 400 holes were drilled and this established the extent and continuity of the sediment hosted uranium mineralisation in permeable sandstone in palaeochannels. Field trials by AFMEX demonstrated that the Manyingee sandstone hosted uranium deposit is amenable to extraction by in-situ recovery (ISR). The Manyingee Project contains JORC (1999) Code compliant Mineral Resources as shown in Table 6: (cid:52)(cid:65)(cid:66)(cid:76)(cid:69)(cid:0)(cid:22)(cid:26)(cid:0)(cid:45)(cid:65)(cid:78)(cid:89)(cid:73)(cid:78)(cid:71)(cid:69)(cid:69)(cid:0)(cid:50)(cid:69)(cid:83)(cid:79)(cid:85)(cid:82)(cid:67)(cid:69)(cid:0)(cid:51)(cid:84)(cid:65)(cid:84)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84) Jorc Category (1999) Indicated Inferred Total Cut-Off Resource Grade %U3O8 %U3O8 Mt U3O8 Kt 0.03 0.03 7.9 5.5 0.10 0.05 8.1 2.8 13.4 0.08 10.9 The current State Government of Western Australia maintains a policy that it will not grant approval for mining or processing uranium in the State. As a result of this policy, Paladin has deferred feasibility studies and other work on the Manyingee Project for some time. It is Paladin’s belief that changing views about global energy supplies will lead to a change of policy in Western Australia at some time in the future that will allow development of Manyingee to proceed. Oobagooma Uranium Project Paladin Energy Minerals NL 100% The Oobagooma Project, beneﬁcially held 100% by Paladin, is located in the West Kimberley region of Western Australia, 1,900km north-north-east of Perth and 75km north east of the regional centre of Derby. The project is comprised of two long-standing applications for exploration licences covering 452km2. In 1998 Paladin acquired a call option in relation to the purchase of the Oobagooma Project and, in turn, granted a put option to the original holder of the Project. Exercise of both options is subject to the exploration licences being granted by the State. The exploration licences are situated on freehold land owned by the Commonwealth Government and used by the military for training purposes. Consent of the Commonwealth Government and the Department of Defence will be required before the mining tenements can be granted. The Oobagooma project area was explored by AFMEX in the period from 1983 to 1986 during which time extensive zones of uranium mineralisation were discovered. An estimate of the uranium resources using geostatistical methods was carried out by AFMEX. This work was done before the JORC Code had been formulated and was thus not carried out in accordance with the Code. The AFMEX historical estimate is shown in Table 7: (cid:52)(cid:65)(cid:66)(cid:76)(cid:69)(cid:0)(cid:23)(cid:26)(cid:0)(cid:47)(cid:79)(cid:66)(cid:65)(cid:71)(cid:79)(cid:79)(cid:77)(cid:65)(cid:0)(cid:40)(cid:73)(cid:83)(cid:84)(cid:79)(cid:82)(cid:73)(cid:67)(cid:65)(cid:76)(cid:0)(cid:50)(cid:69)(cid:83)(cid:79)(cid:85)(cid:82)(cid:67)(cid:69)(cid:0)(cid:51)(cid:84)(cid:65)(cid:84)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84) Non-Jorc Cut-Off Resource Grade % U3O8 % U3O8 Mt U3O8 kt Historic Resources 0.03 8.3 0.12 10.0 As with Manyingee, current Sate Government policy towards uranium mining in Western Australia precludes further investigation of the Oobagooma uranium deposit at this stage. 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 preparation of a JORC compliant resource estimate. The mineralisation in this sandstone hosted uranium deposit is open and potential exists to increase the currently known resource base. The style of mineralisation is believed to be amenable to recovery of uranium by ISR methods. SOUTH AUSTRALIA Quasar Uranium Joint Venture Paladin Energy Ltd 15-20% Quasar Resources Pty Ltd 80% and Manager The Joint Venture with Quasar Resources Pty Ltd, established in 2001, encompasses two exploration licences covering 1,051km2 in the northeast of South Australia. Paladin holds a 15% free carried interest in Exploration Licence 3903 at Mount Yerila and a 20% free carried interest in Exploration Licence 4134 at Petermorra. The Joint Venture is managed by Quasar Resources Pty Ltd, a wholly owned subsidiary of Heathgate Resources Pty Ltd, operator of the Beverley ISR uranium mine which is situated immediately south of the Joint Venture tenements. Heathgate Resources Pty Ltd is an Australian subsidiary of General Atomics of the USA. The two exploration licences are located in the northern part of the Curnamona Province, a 90,000km2 block of shallow to outcropping basement rocks that extends from Olary, in the northeast of South Australia, 450km north east of Adelaide, to east of Broken Hill across the New South Wales border. The exploration licences are considered prospective for palaeochannel uranium mineralisation similar to that found and successfully developed at Beverley. Quasar is actively exploring the Joint Venture tenements and has conducted a number of drilling campaigns on the ground. Paladin Energy Ltd 33 Management Discussion and Analysis Review of Operations Kayelekera URANIUM DATABASE Paladin 100% Paladin owns a substantial uranium database, compiled over 30 years of investigations by the international uranium mining house Uranerzbergbau in Germany, incorporating all aspects of the uranium mining and exploration industry worldwide and including detailed exploration data for Africa and Australia. Uniquely among Australian exploration companies, the primary focus of Paladin’s activities for the past years has been uranium. In that time the Company has maintained and expanded the library of databases and it now holds a considerable amount of technical, geological, metallurgical, geophysical and geochemical data including country speciﬁc information such as mining laws or investment conditions comprising an estimated 60,000 individual books, documents, reports, reprints, and maps kept as hardcopies, microﬁche and a rapidly growing library of electronic ﬁles. The geology resource database is managed in an integrated relational database system readily available for processing of exploration and mining data. It is this database that held all of Angela/Pamela technical information that Paladin believes gave the Cameco Paladin Joint Venture the competitive edge to win the tender to acquire this important project. This underpins the signiﬁcance of this asset for project generation. The Company continues to evaluate opportunities for acquiring additional uranium projects assisted by the database. 34 Annual Report 2008 INVESTMENTS Deep Yellow Ltd (DYL) Paladin Energy Ltd 15.3% DYL is a dedicated uranium exploration company listed on the Australian Securities Exchange and the Namibian Stock Exchange with exploration holdings in Namibia and Australia. Through its wholly owned Namibian subsidiary, Reptile Uranium Namibia (Pty) Ltd, DYL is actively exploring for uranium on its four 100% owned Exclusive Prospecting Licences covering 2,872km2 in the Namib Naukluft Desert Park inland from Walvis Bay and south and west of Paladin’s Langer Heinrich Uranium Mine. Six RC and one diamond rig is being used to drill between 15,000 and 20,000 metre per month on three different projects within these tenements. Additional JORC Code resource announcements are due from September. In Australia DYL is focused on uranium exploration in the Mount Isa district in northwest Queensland and the Tanami Arunta Province in the Northern Territory. Both RC and diamond drilling is underway on a number of these projects. Paladin’s equity in DYL increased to 14.34% on 8 August 2007 via an entitlement issue and subscription to the subsequent shortfall. The additional investment totalled A$20.7M (US$17.8M). Subsequent to year end, Paladin’s equity in DYL increased further to 15.3% following the exercise of 12,500,000 unlisted options at a cost of A$1,012,500. Financial Review Income Statements Revenue from continuing operations Gross proﬁt/(loss) Exploration and evaluation expenses Other expenses net of other income Finance costs Share of loss of an associate Income tax beneﬁt Minority interests Loss after tax from continuing operations attributable to the ordinary equity holders of the Company Loss per share – basic and diluted Year Ended 30 June 2007 US$M 2008 US$M 101.9 11.2 35.5 (0.8) (13.1) (7.4) (35.7) (30.7) (28.5) (13.0) (0.2) 7.0 1.2 - 11.7 0.4 (36.0) (37.6) US$ US$ (0.06) (0.07) Revenue from Continuing Operations increased to US$101.9 million for the year ended 30 June 2008 as a result of sales of uranium of US$93.8 million from a full year of production from Langer Heinrich Uranium Project (LHUP). Total sales volume was 1,411,000lb of which 1,226,000lb was met with LHUP production and 185,000lb by the use of third party uranium purchased during the quarter ended 30 June 2007. Cash receipts from customers for the year ended 30 June 2008 were lower than sales at US$68.4million as a consequence of timing of invoice receipts. US$28.7million was received in July 2008. Gross Proﬁt in 2008 of US$35.5 million is higher than in 2007 as a consequence of a full year of operations at LHUP. In 2007 LHUP production costs were capitalised to 31 March 2007. The sale of 185,000lb of third party uranium did not impact gross proﬁt as sales contract provisions were recognised at 30 June 2007 and 30 September 2007 for the loss on sale. A one-off sales contracts expense for 2008 of US$2.9 million is recognised in the category of Other Expenses. Cost of sales includes a credit of US$2.0 million for the period relating to recognition of a value for stockpile inventory as a consequence of improved plant performance from 30 June 2007. Exploration and Evaluation Expenditure increased in 2008 to US$13.1 million primarily as a result of expenditure on the Valhalla/Skal, Isa North, Bigrlyi, Langer Heinrich and Kayelekera Uranium Projects. Of this total, US$7.9 million was spent on the Valhalla/Skal joint venture project. Other Expenses and Income increased in 2008 to US$35.7 million as a result of higher corporate/marketing costs, share based payments, a one-off sales contracts expense of US$2.9 million recognised for third party uranium at 30 September 2007, and foreign exchange loss; despite lower employee beneﬁts expenses. The higher costs relate to both the growth of the Paladin Group (“the Group”) and the expanded corporate capability in the last year to facilitate future growth. The foreign exchange loss was mainly attributable to the translation of monetary assets and liabilities in Namibian dollars relating to the LHUP. Employee beneﬁts expense for the 2007 period included a discretionary payment to a key management person relating to the 2004 to 2006 formative period of the Company. Finance Costs of US$30.7 million in 2008 relates to interest payable on the US$250 million convertible bonds issued 15 December 2006, the US$325 million convertible bonds issued 11 March 2008, and the Langer Heinrich project ﬁnance facilities. During the year ended 30 June 2007 ﬁnance costs for the LHUP were capitalised as part of the costs of construction and, as a consequence, ﬁnance costs only related to the US$250 million convertible bonds. Income Tax Beneﬁt of US$7.0 million relates to the recognition of additional Namibian deferred tax assets, the recognition of Malawian deferred tax assets, the reversal of deferred tax liabilities relating to the convertible bonds over the term of the respective bonds, and the reversal of deferred tax liabilities on sale of Non-Uranium Properties and Georgina Basin Project of Summit Resources Ltd. Minority Interests credit of US$1.2 million has been recorded in 2008 attributable to the 18.1% of Summit Resources Ltd not owned by the Group. Despite the higher gross proﬁt the loss after tax for the year ended 30 June 2008 of US$36.0 million was approximately the same as the loss after tax for the year ended 30 June 2007 of US$37.6 million; as a result of increased investment in exploration and evaluation expenditure, higher ﬁnance costs and other expenses. Paladin Energy Ltd 35 Management Discussion and Analysis Financial Review Summary of Quarterly Financial Results Total revenues Loss after tax Basic and diluted loss per share Total revenues Loss after tax Basic and diluted loss per share 2008 Total US$M 101.9 (36.0) (0.06) 2007 Total US$M 11.2 (37.6) (0.07) 2008 Jun Qtr US$M 38.9 (1.9) (0.01) 2007 Jun Qtr US$M 6.7 (17.4) (0.03) 2008 Mar Qtr US$M 15.3 (8.4) (0.01) 2007 Mar Qtr US$M 3.1 (11.4) (0.02) 2007 Dec Qtr US$M 19.4 (11.2) (0.02) 2006 Dec Qtr US$M 0.9 (4.9) 2007 Sep Qtr US$M 28.3 (14.5) (0.02) 2006 Sep Qtr US$M 0.5 (3.9) (0.01) (0.01) Total revenues have increased for each of the quarters in 2008 when compared to the equivalent period in 2007 as a result of the commencement of operations at the LHUP. In 2007 Langer Heinrich production costs were capitalised to 31 March 2007. Loss after tax has decreased each quarter in 2008 as a consequence of the increase in gross proﬁt due to the Langer Heinrich operations. The loss after tax for the September and December quarters of 2007 represents a substantial increase over the equivalent period in 2006 due to the increased investment in exploration and evaluation expenditure, higher other expenses and ﬁnance costs. Loss Per Share The Loss per Share noted on the Income Statements reﬂected the underlying result for the speciﬁc reported periods and the additional shares issued in 2008 compared to 2007. Segment Disclosure In the Namibian geographical segment the Group reﬂected a proﬁt after tax of US$11.0 million as a consequence of the increased sales volume for the year and an income tax beneﬁt for the period. The Malawian geographical segment loss after tax of US$0.5 million relates to costs of legal action commenced by a group of Malawian Civil Society Organisations which settled during the year, exploration and evaluation expenditure, corporate costs and an income tax beneﬁt for the period. In the Australian geographical segment the Group reﬂected the remaining Income Statement activities. 36 Annual Report 2008 Balance Sheets 30 June 2008 30 June 2007 US$M US$M Total current assets Total non current assets 447.9 2,115.2 233.4 1,825.0 Total assets 2,563.1 2,058.4 Total current liabilities 54.1 Total non current liabilities 1,079.7 Total liabilities 1,133.8 29.0 721.1 750.1 Net Assets 1,429.3 1,308.3 Current Assets have increased to US$447.9 million at 30 June 2008 attributable to an increase in cash, trade and other receivables and inventories. Cash has increased to US$337.6 million at 30 June 2008 as a result of the issue of US$325 million in convertible bonds on 11 March 2008; cash was utilised during the year for the construction of the Kayelekera Uranium Project, exploration and evaluation project expenditure, additional Deep Yellow Ltd share investment, ﬁnance costs, and corporate costs for the year ended 30 June 2008. Of the US$337.6 million held in cash as at 30 June 2008, US$249.7 million has been invested in short-term US$ treasury bonds and the balance of cash is held with banks. Trade and other receivables have increased to US$40.0 million during the year ended 30 June 2008 mainly as a result of trade receivables relating to US$28.7 million in uranium sales and the US$3.0 million receivable from the sale of non-uranium properties and the Georgina Basin Project of Summit Resources Ltd. Inventories have increased to US$68.9 million at 30 June 2008. Inventories produced by the LHUP have increased by US$23.8 million primarily as a result of both higher production levels despite the lower cost of production per lb due to the improved plant operating efﬁciencies and the recognition of a US$8.6 million value for stockpiles in the nine months (resulting from both a US$2.0 million credit to cost of sales and a US$6.6 million reduction in property, plant and equipment assets). The US$24.7 million of third party uranium purchased during the quarter ended 30 June 2007 and still on hand at 30 June 2007 was sold during the six months ended 31 December 2007. Paladin Nuclear Ltd, the Group’s newly-established marketing entity, purchased uranium totalling US$31.8 million in June 2008, which will be retained for future transactions by Paladin Nuclear Ltd. Non Current Assets have increased to US$2,115.2 million at 30 June 2008 mainly attributable to mine construction at the Kayelekera Uranium Project and positive foreign exchange movement on the A$ exploration assets. At 30 June 2008 the Group holds 159,058,461 shares and 12,500,000 options in Deep Yellow Ltd (14.34% interest) with a market value of US$41.1 million. These options were exercised after year end at a price of 8.1 Australian cents to further increase the Group’s stake in Deep Yellow Ltd. The acquisition of Summit Resources Ltd on 27 April 2007 resulted in the recognition of an A$1,689.1 million exploration and evaluation expenditure asset as part of the allocation of the consideration paid. During the year ended 30 June 2008 the allocation of the acquisition value to projects was completed and resulted in the following allocation: Valhalla/Skal Projects (50% share) A$1,273.5 million, Isa North Project A$405.9 million, Georgina Basin Project A$1.3 million, Other Projects Non-Uranium A$8.4 million. The allocation of this acquisition value in US$ has increased from US$1,433.4 million at 30 June 2007 to US$1,613.0 million at 30 June 2008 mainly due to the foreign exchange translation of the A$ asset, despite the sale of non-uranium properties and the Georgina Basin Project of Summit Resources Ltd. The foreign exchange translation movement is taken to the Foreign Currency Translation Reserve. Current Liabilities have increased from US$29.0 million to US$54.1 million at 30 June 2008 as a result of construction activities for the Kayelekera Uranium Project, Langer Heinrich project ﬁnance facilities repayments, increased exploration and evaluation expenditure on the Valhalla/ Skal, Isa North, Kayelekera and Langer Heinrich Uranium Projects; despite no sales contracts provision recognised at 30 June 2008. Non Current Liabilities have increased from US$721.1 million to US$1,079.7 million at 30 June 2008 mainly attributable to the issue of US$325 million convertible bonds on 11 March 2008, the recognition of a deferred tax liability on that issue, and an increase in existing deferred tax liabilities from a positive foreign exchange movement on A$ liabilities. On 11 March 2008, the Group issued US$325 million in convertible bonds with an underlying coupon rate of 5.0%, maturity 11 March 2013 and a conversion price of US$6.59. Under accounting standards these convertible bonds are treated as a liability (underlying bond) and an equity instrument (conversion rights into Paladin shares). On issue, US$307.1 million was allocated to a non current liability (underlying effective interest rate of 7.13%) and US$17.8 million to a non-distributable convertible bonds reserve. A deferred tax liability for the bonds of US$5.4 million has been recognised through reserves. This is set out in further detail in Note 19 to the Financial Statements. At 30 June 2008 the Langer Heinrich project ﬁnance facilities have been drawn down to US$66.3 million following principal repayments of US$4.6 million (current US$12.2 million and non current US$54.1 million) to fund construction, commissioning and ramp-up activities, leaving available facilities of US$Nil at 30 June 2008. The deferred tax liability relating to the recognition of acquired exploration and evaluation expenditure from the allocation of consideration paid for Summit Resources Ltd has increased to US$479.0 million due to the foreign exchange movement of the A$ liability despite the sale of non-uranium properties and the Georgina Basin Project of Summit Resources Ltd. Segment Disclosure In the Balance Sheet at 30 June 2008 the Group reﬂected an increase in the Australian geographical segment assets and liabilities as a result of the foreign exchange movement on the A$ exploration assets, increased cash as a result of the issue of US$325 million in convertible bonds, foreign exchange movement on A$ deferred tax liabilities and the additional convertible bond liability. For the Namibian geographical segment an increase occurred in assets and liabilities attributable to the operation, and exploration and evaluation activities for the LHUP. For the Malawi geographical segment an increase occurred in assets and liabilities as a result of mine construction, and exploration and evaluation activities for the Kayelekera Uranium Project. Paladin Energy Ltd 37 Management Discussion and Analysis Financial Review Statements of Changes In Equity Year Ended 30 June 2007 US$M 2008 US$M Total equity at the beginning of the ﬁnancial year 1,308.3 91.0 Loss for the year ended 30 June, after minority interests Movement in reserves, net of foreign currency Movement in equity, net of foreign currency (36.0) (37.6) (10.7) 70.9 13.1 959.2 Foreign currency translation 155.8 40.1 Minority interests, net of foreign currency Total Equity at the End of the Financial Year (1.2) 184.7 1,429.3 1,308.3 Loss for the Year Ended 30 June 2008 is discussed under the Income Statements’ section and is a slight decrease from the loss in the comparative period. Foreign Currency Translation Reserve relates to the translation of subsidiaries with Australian dollar functional currencies into the Group presentation currency of US dollars on an ongoing basis and for the comparative period. Movement in Other Reserves in 2008 of a US$10.7 million decrease relates to the revaluation decrement attributable to the decrease in Deep Yellow Ltd share price from the prior period (net of tax and foreign exchange movements) which more than offset the recognised value of unlisted employee options and the creation of the non-distributable reserve of US$17.8 million from the issue of US$325 million of convertible bonds on 11 March 2008. Unlisted employee options exercised during the year amounted to 11,060,000 with exercise prices ranging from A$1.00 to A$2.80. 11,291,620 employee options were granted and 833,218 were cancelled during the year with exercise prices ranging from A$4.50 to A$5.37 per share. Movement in Equity in 2008 of a US$13.1 million increase relates to the exercise of unlisted employee options. The number of fully paid ordinary shares on issue at 30 June 2008 is 613,497,369, an increase of 11,060,000 during the period. Share options of 19,077,072 remain outstanding at 30 June 2008 to the employees, and consultants directly engaged in corporate, mine construction, operations, exploration and evaluation work. 38 Annual Report 2008 Minority Interests recognised during the year relate to the 18.1% interest in Summit Resources Ltd not owned. The Development Agreement for the Kayelekera Uranium Project signed on 23 February 2007 entitles the Government of Malawi to a 15% equity interest in Paladin (Africa) Ltd, the owner of the project, in exchange for reductions of 2.5% in corporate tax, nil rent resource tax payable and royalty offsets. No minority interests have been reﬂected for this as at 30 June 2008 as Paladin (Africa) Ltd is in a net liability position as a consequence of the Group’s policy to previously expense exploration and evaluation expenditure prior to the decision made to proceed to development. Cash Flow Statements Net cash outﬂow from operating activities Net cash outﬂow from investing activities Net cash inﬂow from ﬁnancing activities Year Ended 30 June 2007 US$M 2008 US$M (18.4) (38.6) (150.9) (122.0) 324.0 298.7 Net increase in cash held 154.7 138.1 Cash at the beginning of ﬁnancial year Effects of exchange rate changes 182.8 0.1 43.6 1.1 Cash at the End of the Financial Year 337.6 182.8 Net Cash Outﬂow from Operating Activities was US$18.4 million in 2008 primarily due to uranium sales receipts of US$68.4 million being more than offset by payments to suppliers and employees of US$77.1 million relating to the mine operations at the LHUP, the growth of the Group and expanded corporate capability, interest payments on project ﬁnance facilities and a US$5.6 million bi-annual interest payment on the US$250 million convertible bonds maturing 15 December 2011. Net Cash Outﬂow from Investing Activities was US$150.9 million in 2008 as a result of mine construction at the Kayelekera Uranium Project, exploration and evaluation project expenditure, the acquisition of additional investments in Deep Yellow Ltd and the third party uranium purchases; despite receipts of US$4.0 million from the sale of non-uranium properties and Georgina Basin Project of Summit Resources Ltd and insurance claims at the LHUP. Net Cash Inﬂow from Financing Activities of US$324.0 million in 2008 is attributable to US$4.3 million drawn under the project ﬁnance facilities for the LHUP, proceeds from the exercise of 11,060,000 unlisted employee options and the issue of US$325 million in convertible bonds; despite US$11.2 million in establishment costs for the convertible bonds and Kayelekera Uranium Project ﬁnance facilities and the repayment of US$4.6 million of the project ﬁnance facilities for Langer Heinrich. The inﬂow was higher than in 2007 due to the increased proceeds received from convertible bonds in 2008 (US$325 million) compared to the convertible bonds issued in 2007 (US$250 million). Net Increase in Cash in 2008 was US$154.7 million, an increase over the previous corresponding period in 2007 of US$138.1 million as a result of the higher proceeds from the issue of convertible bonds, despite increased cash outﬂows from operating and investing activities. Effects of Exchange Rate Changes are a gain of US$0.1 million for 2008 against a US$1.1 million gain for 2007, due to exchange rate ﬂuctuations. The Cash at 30 June 2008 of US$337.6 million represents a signiﬁcant increase in cash to the comparative period of 2007. Liquidity and Capital Resources The Group’s principal source of liquidity as at 30 June 2008 is cash of US$337.6 million (30 June 2007 – US$182.8 million). Of this amount US$249.7 million has been invested in short-term US$ treasury bonds and the balance of cash held with banks. The Group’s principal sources of cash for the year ended 30 June 2008 were proceeds from the issue of US$325 million in convertible bonds, uranium sales receipts, project ﬁnance facilities drawdowns, interest received from cash investments, proceeds from exercise of unlisted employee options, and sale of non-uranium properties and the Georgina Basin Project of Summit Resources Ltd. The Group has in place Langer Heinrich project ﬁnance facilities of US$66.3 million following principal repayments of US$4.6 million, leaving available facilities to draw down of US$Nil. For the Kayelekera Uranium Project the Group has accepted credit committee approved offers of ﬁnancing totalling US$167 million, consisting of a seven year Project Finance Facility of US$145 million, a Standby Cost Overrun Facility of US$12 million and a Performance Bond Facility of US$10 million. The facilities are being provided by Société Générale Corporate and Investment Banking (as intercreditor agent and commercial lender), Nedbank Capital a division of Nedbank Limited (ECIC lender) and The Standard Bank of South Africa Ltd (as ECIC facility agent and lender). Drawdown on the ﬁnancing is subject to completion of legal documentation and fulﬁlment of other conditions precedent usual for this type of funding. The following is a summary of the Group’s outstanding commitments as at 30 June 2008: Total Less than 1 to 5yrs Unknown Payments due by period US$M 1 yr US$M US$M US$M Tenements 2.6 Mine construction 61.0 Operating leases 6.4 2.6 61.0 0.4 - - 3.3 Manyingee acquisition costs 0.7 - - Total commitments 70.7 64.0 3.3 - - 2.7 0.7 3.4 In relation to the Manyingee Uranium Project, the acquisition terms provide for a payment of A$0.75 million (US$0.7 million) by the Group to the vendors when all project development approvals are obtained. In addition to the outstanding commitments above, the Group acquired a call option on 19 June 1998 in relation to the purchase of the Oobagooma Uranium Project and, in turn, granted a put option to the original holder of the Project. Both the call and put options have an exercise price of A$0.75 million (US$0.7 million) and are subject to the Western Australian Department of Minerals & Energy granting tenements comprising 2 exploration licence applications. The A$0.75 million (US$0.7 million) is payable by the Group 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 the tenements are granted. The Group has no other off balance sheet arrangements. Outstanding Share Information As at 11 September 2008 Paladin had 613,997,369 fully paid ordinary shares issued and outstanding. The following table sets out the fully paid ordinary outstanding shares and those issuable under the Company Executive Share Option Plan and in relation to the Convertible Bonds: As at 11 September 2008 Outstanding shares Issuable under Executive Share Option Plan Issuable in relation to the US$250 million Convertible Bonds Issuable in relation to the US$325 million Convertible Bonds Total Number 613,997,369 17,946,455 32,530,904 49,317,147 713,791,875 Paladin Energy Ltd 39 Management Discussion and Analysis Financial Review Pictures left to right: (1), (2) and (3) Langer Heinrich Critical Accounting Estimates The preparation of ﬁnancial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Financial Statements and the reported amount of revenues and expenses during the reporting period. Signiﬁcant areas requiring the use of management estimates relate to the determination of the following: carrying value or impairment of inventories, ﬁnancial investments, property, plant and equipment, intangibles, mineral properties and deferred tax assets, carrying value of rehabilitation, mine closure, sales contracts provisions and deferred tax liabilities, calculation of share based payments expense and assessment of reserves. Financial Instruments At 30 June 2008 the Group has exposure to interest rate risk which is the risk that the Group’s ﬁnancial position will be adversely affected by movements in interest rates that will increase the cost of ﬂoating rate project ﬁnance debt or opportunity losses that may arise on ﬁxed rate convertible bonds in a falling interest rate environment. Interest rate risk on cash and short-term deposits is not considered to be a material risk due to the short-term nature of these ﬁnancial instruments. The Group’s main foreign currency translation risk is for monetary assets and liabilities of the Namibian and Malawian operations. These are deemed to have a functional currency of United States dollars, and the Group has adopted a presentation currency of United States dollars therefore eliminating any foreign currency translation risk for non-monetary assets and liabilities. The Group also has signiﬁcant foreign currency translation risk for non-monetary assets and liabilities of the Australian exploration and evaluation operations as these are deemed to have a functional currency of Australian dollars, and the Group has adopted a presentation currency of United States dollars. The Group has no signiﬁcant monetary foreign currency assets and liabilities apart from Namibian dollar cash, receivables, payables and provisions and Australian dollar cash, payables and deferred tax liabilities. 40 Annual Report 2008 The Group currently does not engage in any hedging or derivative transactions to manage interest rate or foreign currency risks. Transactions With Related Parties During the year ended 30 June 2008 no payments were made to Director related entities. Directors of the Group receive standard personal based compensation. Disclosure Controls The Group has applied its Disclosure Control Policy to the preparation of the Consolidated Financial Statements for the year ended 30 June 2008 and associated Management Discussion and Analysis. An evaluation of the Group’s disclosure controls and procedures used has been undertaken and concluded that the disclosure controls and procedures were effective. Internal Controls The Group has designed appropriate internal controls over ﬁnancial reporting (ICFR) and ensured that these were in place for the year ended 30 June 2008. An evaluation of the design of ICFR has concluded that it is adequate to prevent a material misstatement of the Group’s Consolidated Financial Statements as at 30 June 2008. During the year the Group continued to have an internal audit function externally contracted to Deloitte Touche Tohmatsu. Internal audit reports and follow-up reviews were completed during the year and the Group continues to address their recommendations. The resultant changes to ICFR have improved and will continue to improve the Group’s framework of internal control in relation to ﬁnancial reporting. Resources Upgrade for Langer Heinrich Uranium Project On the 28 August 2008, the Company announced an updated Mineral Resource estimate for the LHUP. Following the drilling of 717 RC holes for a total of 17,751m in all Details at Langer Heinrich, a new Mineral Resource of 56.4Mt at a grade of 0.06% U3O8 for 32,858t (72.4Mlb) U3O8 in the Measures and Indicated categories and 70.7Mt at a grade of 0.06% U3O8 for 41,557t (91.6Mlb) U3O8 in the Inferred category was estimated. The total resource for Langer Heinrich now stands at some 74,415t (164Mlb) U3O8. The Directors believe a considerable amount of these Inferred Resources will be able to be converted to Measured and Indicated Resource categories following additional drilling in the future. Ore Reserve studies are currently underway and are expected to be completed in the near future. Increased Holding in Summit Resources Ltd On 28 August 2008, the Company acquired an additional 3,378,733 shares in Summit Resources Ltd pursuant to a renounceable rights issue and 289,739 shares via subscription for the shortfall of the rights issue. The additional investment totalled A$9.1 million (US$8.6 million). After these acquisitions the Company now holds 81.99% of Summit Resources Ltd. Subsequent Events Since the end of the ﬁnancial year, the Directors are not aware of any other matter or circumstance not otherwise dealt with in this report or the Financial Statements, that has signiﬁcantly or may signiﬁcantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent years with the exception of the following, the ﬁnancial effects of which have not been provided for in the 30 June 2008 Financial Report: Allotment of Shares and Issue of Employee Options On 3 July 2008 the Company announced the granting of 450,000 unlisted incentive options, exercisable at A$5.27 vesting after 3 years, subject to performance conditions as outlined in the Executive Share Option Plan, with a 5 year expiry and the allotment of 400,000 fully paid ordinary shares after the exercise of employee options. On 10 September 2008 the Company announced the allotment of 100,000 fully paid ordinary shares after the exercise of employee options. Appointment of Mr Ross Glossop On 10 July 2008, the Company announced the appointment of Mr Ross Glossop as Chief Financial Ofﬁcer (CFO) of the Paladin group of companies. Mr Glossop has over 25 years of experience in the resources industry, where he has held positions in internal audit, treasury, and ﬁnance with increasing managerial responsibilities. Increased Holding in Deep Yellow Ltd On 28 July 2008, the Group acquired an additional 12,500,000 shares in Deep Yellow Ltd pursuant to the exercise of 12,500,000 options exercisable at 8.1 Australian cents. The additional investments totalled A$1.0 million (US$1.0 million). After this acquisition the Group now holds 15.30% of Deep Yellow Ltd. Paladin Energy Ltd 41 forging stronger relationships Pictures left to right: (1) and (2) Working with local farmers, Malawi (3) Children’s Christmas Party, Kayelekera 2007 sustainable development Paladin looks beyond its minimum statutory obligation to comply with relevant legislation and voluntarily seeks to take steps to improve the quality of life of its employees and their families, as well as for the local community and host society at large. 42 Annual Report 2008 Health And Safety Paladin is committed to working with its employees and contractors to create a safe working environment across its operations. In 2007, the Langer Heinrich construction program was concluded with only one Lost Time Injury (LTI) recorded over a period of 1.35 million worked hours. To-date, Paladin and its Kayelekera contractors have completed more than 2 million worked hours without a single LTI. This is a remarkable achievement considering Kayelekera’s status as the ﬁrst major mining development in Malawi and the fact that the local workforce has only the most basic construction experience. Paladin’s commitment to safety has been noted by the Government of Malawi, traditional chiefs and local inhabitants alike. Malawi’s Director of Safety in the Ministry of Energy and Mines, Mr Hlale Nyangulu, addressing a function held at Kayelekera in July to celebrate 1.5 million LTI-free hours, said: “This is a very rare achievement and, as Government, we are happy that safety requirements and regulations are adhered to the maximum at this new mine.” In Namibia, Langer Heinrich employees and contractors each recorded four LTI’s, for the year ending June, 2008. Included in the contractor ﬁgures is an off-site light vehicle incident not normally included in LTI records, however considered appropriate and in-line with a management initiative to improve transportation safety in and around the community. The balance of the recorded on-site injuries were of a relatively minor nature including knee and ankle strains requiring short periods of rest. The reporting of safety incidents is robust at the Langer Heinrich operation allowing management to properly assess incidents and take appropriate actions to reduce both frequency and severity of safety incidents into the future. Environment Policy and Standards Paladin is committed to ensure that effective environmental management is planned and undertaken for all aspects of its operations. The approach to environmental management is guided by our Environmental Policy that promotes a standard of excellence for environmental performance across its operations. The key points of our policy include: (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:67)(cid:79)(cid:77)(cid:80)(cid:76)(cid:73)(cid:65)(cid:78)(cid:67)(cid:69)(cid:0)(cid:87)(cid:73)(cid:84)(cid:72)(cid:0)(cid:65)(cid:80)(cid:80)(cid:76)(cid:73)(cid:67)(cid:65)(cid:66)(cid:76)(cid:69)(cid:0)(cid:69)(cid:78)(cid:86)(cid:73)(cid:82)(cid:79)(cid:78)(cid:77)(cid:69)(cid:78)(cid:84)(cid:65)(cid:76)(cid:0)(cid:76)(cid:69)(cid:71)(cid:73)(cid:83)(cid:76)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:27) (cid:68)(cid:69)(cid:86)(cid:69)(cid:76)(cid:79)(cid:80)(cid:73)(cid:78)(cid:71)(cid:0)(cid:83)(cid:84)(cid:65)(cid:78)(cid:68)(cid:65)(cid:82)(cid:68)(cid:83)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:83)(cid:89)(cid:83)(cid:84)(cid:69)(cid:77)(cid:83)(cid:0)(cid:84)(cid:79)(cid:0)(cid:73)(cid:68)(cid:69)(cid:78)(cid:84)(cid:73)(cid:70)(cid:89)(cid:12)(cid:0)(cid:65)(cid:83)(cid:83)(cid:69)(cid:83)(cid:83)(cid:0) and manage environmental risk; (cid:67)(cid:79)(cid:78)(cid:84)(cid:73)(cid:78)(cid:85)(cid:79)(cid:85)(cid:83)(cid:0)(cid:73)(cid:77)(cid:80)(cid:82)(cid:79)(cid:86)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:73)(cid:78)(cid:0)(cid:69)(cid:78)(cid:86)(cid:73)(cid:82)(cid:79)(cid:78)(cid:77)(cid:69)(cid:78)(cid:84)(cid:65)(cid:76)(cid:0) performance; (cid:67)(cid:79)(cid:77)(cid:77)(cid:85)(cid:78)(cid:73)(cid:67)(cid:65)(cid:84)(cid:73)(cid:78)(cid:71)(cid:0)(cid:69)(cid:78)(cid:86)(cid:73)(cid:82)(cid:79)(cid:78)(cid:77)(cid:69)(cid:78)(cid:84)(cid:65)(cid:76)(cid:0)(cid:82)(cid:69)(cid:83)(cid:80)(cid:79)(cid:78)(cid:83)(cid:73)(cid:66)(cid:73)(cid:76)(cid:73)(cid:84)(cid:89)(cid:0)(cid:84)(cid:79)(cid:0) employees and contractor; (cid:69)(cid:70)(cid:70)(cid:69)(cid:67)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:67)(cid:79)(cid:78)(cid:83)(cid:85)(cid:76)(cid:84)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:87)(cid:73)(cid:84)(cid:72)(cid:0)(cid:83)(cid:84)(cid:65)(cid:75)(cid:69)(cid:72)(cid:79)(cid:76)(cid:68)(cid:69)(cid:82)(cid:83)(cid:27)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0) (cid:73)(cid:78)(cid:83)(cid:80)(cid:69)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78)(cid:83)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:65)(cid:85)(cid:68)(cid:73)(cid:84)(cid:83)(cid:0)(cid:79)(cid:70)(cid:0)(cid:69)(cid:78)(cid:86)(cid:73)(cid:82)(cid:79)(cid:78)(cid:77)(cid:69)(cid:78)(cid:84)(cid:65)(cid:76)(cid:0) performance. Paladin is establishing internal Environmental Standards to be adhered to by all of its operational subsidiaries. Operational compliance with the Standards will form part of the Corporate Audit Programme. Environmental Management System Each operating site is required to develop and implement an Environmental Management System (EMS) that is consistent with the requirements of ISO14001:2004. Langer Heinrich has developed an EMS based on the ISO standard and is implementing the system across the site operations. Langer Heinrich has also commenced the veriﬁcation and certiﬁcation process for the EMS. The Kayelekera environmental team is developing the various components of the EMS for operations. Once operational teams are on site and operations commence the EMS will be implemented across all operational departments. Paladin Energy Ltd 43 Sustainable Development Pictures left to right: (1), (2) and (3) Environmental Management, Kayelekera (4) Local children, Malawi As part of the EMS, Environmental Management Plans (EMP) are prepared and submitted for review by Government and other stakeholders. The review processes for both Langer Heinrich and Kayelekera include technical reviews of the Management Plans by the appropriate international ﬁnancial lending institutions. A Construction EMP was prepared for Kayelekera and implemented to manage the potential environmental impacts from construction. To prepare for operations, an Operational EMP has been drafted containing details on the mine and the management programmes to be implemented to minimise potential impacts. Inspection and Audit Programme Inspection and audit programmes have been established to ensure that the environmental performance of Paladin’s operations is reviewed, audited and reported to the Board. These programmes will ensure that there is not only compliance with regulatory and Paladin requirements but also with the Equator Principles and other appropriate industry standards, as well as those standards speciﬁc to the uranium industry. Water Water resource is a major issue that requires management at most mining operations. This is particularly relevant to Paladin’s operations as Langer Heinrich is located in a desert environment where water supply is limited, and Kayelekera is located in a high rainfall area where the management of surface water runoff is paramount. Paladin has developed a Standard for Water Use and Water Quality to ensure that its operations apply efﬁcient, safe and sustainable use of water and protect the water resources and ecosystems around its sites. Both sites have prepared detailed water balances, ﬂow models and proposed water management strategies to ensure that Paladin’s objective is met. Tailings Tailings management continues to be a high priority at Paladin’s sites beginning with deﬁning acceptable properties of the tailings and ensuring appropriate design of tailings storage facilities (TSF). Specialist tailings facility engineers have been engaged by both sites to design, deﬁne operational practice and propose management of the TSFs to ensure that effective management of tailings is undertaken and the potential impacts of the tailings and TSF are minimised. Independent and internationally recognised uranium tailings experts have conducted reviews of the design, construction and operations of the TSF and continue to provide an ongoing external review role. This process ensures that tailings storage on site meets both industry standards and those speciﬁc for uranium tailings. Closure Mine closure planning is a key component of Paladin’s commitment to the environment. A Closure Standard has been developed for all developing and operational sites to comply with. The intent of this is to ensure that Paladin’s sites are left in a safe and stable manner with environmental impacts minimised so that tenements can be relinquished without future liability to the Company, Government or the community. Social Mandate With construction of the Kayelekera Project in Malawi nearing completion and the Stage II expansion of Langer Heinrich underway in Namibia, Paladin’s presence and stature in southern Africa is growing signiﬁcantly. Paladin’s social mandate is a reﬂection of its corporate reputation and the values others see Paladin and its representatives exhibit in the way they do business. Maintaining corporate standing requires not only continuing technical and commercial excellence, but also demonstrated sensitivity towards host communities. 44 Annual Report 2008 Our People HIV & AIDS Paladin’s workforce has increased signiﬁcantly in the past 12 months and continues to grow as permanent staff for Kayelekera are recruited. The Paladin Group’s directly- employed workforce now exceeds 275 people. The Langer Heinrich workforce includes 198 employees, plus a further 200 personnel working for mining and security contractors. Fewer than 5% are non-Namibian. The Kayelekera construction workforce currently numbers around 1,250 people, of whom some 75% are Malawian nationals, providing a much-needed skills boost to that country. The permanent operating workforce at Kayelekera is expected to number 350 people, most of whom will be Malawian. Paladin’s Head Ofﬁce team of senior management and specialist support staff numbers 47 people, while a further 21 geologists and support staff are employed in the Group’s Mount Isa exploration ofﬁce. Paladin Nuclear Limited currently employs three people, located in Perth and Denver, Colorado. A scheme to provide study assistance was introduced at Langer Heinrich during 2008 and several employees have already commenced formal studies, including four employees enrolled for management development under Langer Heinrich’s succession planning programme. Paladin rewards employee performance and aligns the interests of its employees with those of its shareholders by offering participation in a share incentive scheme. In February 2008, the Company extended this scheme to include permanent employees of Langer Heinrich Uranium (Pty) Ltd in what is believed to be a ﬁrst initiative for the Namibian mining industry. In what is a difﬁcult environment for recruitment of staff due to the global resources boom and shortage of uranium experience, Paladin has been pleased to be considered an employee of choice and has been fortunate in attracting a high calibre of employees. The Kayelekera Environmental Impact Assessment (EIA) identiﬁed HIV/AIDS as a signiﬁcant on-going issue which Paladin would need to address in developing and operating the Kayelekera Project. The HIV/AIDS pandemic has hit Malawi particularly hard – the United Nations’ UNAIDS 2008 Report estimates that, of a population of nearly 14 million, almost one million people in Malawi were living with HIV at the end of 2007. HIV/AIDS is also a serious issue in Namibia. At Langer Heinrich, ﬁve employees volunteered during the year to train as peer educators for the Company’s HIV/AIDS awareness programme. Peer educators received initial and advanced training on HIV/AIDS awareness and prevention in a programme co-ordinated by the Namibian Chamber of Mines, of which Langer Heinrich is an active member. Paladin has also joined BHP-Billiton, Rio Tinto and nine other mining companies in supporting the Virax Southern Africa HIV Therapeutic Vaccine Project. Virax is an Australian bio-pharmaceutical company engaged in the development of treatments for cancer and chronic infectious diseases, such as HIV/AIDS. Virax has developed the VIR201 HIV vaccine, which is designed to treat HIV-infected people by lowering their HIV virus levels. To-date, VIR201 is understood to be one of the only such therapeutic vaccines from around the world to have been successfully tested in two fully-controlled human clinical trials (both conducted in Australia). These trials demonstrated the vaccine to be safe, with no side- effects and provided strongly encouraging evidence of suppression of HIV virus levels in HIV-infected patients. Paladin has contributed $US150,000 towards the initial cost of further trials, which the Company hopes will lead to the release of a cheaper, more effective vaccine to improve the life expectancy and well-being of the HIV-positive population, in both Namibia and Malawi and elsewhere. Paladin Energy Ltd 45 Sustainable Development Pictures left to right: (1) and (2) Working with the community, Malawi Working with Communities The development of the Kayelekera Project will make a very substantial ﬁscal contribution to Malawi and will open up opportunities for employment and improvements to social infrastructure in the economically-depressed Northern Region of the country. Kayelekera is currently the single most important development project in Malawi, which is among the poorest countries in the world. Our Social Responsibility vision is to work to address four key areas of need within the Kayelekera region. These are: (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:40)(cid:69)(cid:65)(cid:76)(cid:84)(cid:72)(cid:0)(cid:41)(cid:83)(cid:83)(cid:85)(cid:69)(cid:83)(cid:0)(cid:8)(cid:66)(cid:69)(cid:67)(cid:65)(cid:85)(cid:83)(cid:69)(cid:0)(cid:40)(cid:41)(cid:54)(cid:15)(cid:33)(cid:41)(cid:36)(cid:51)(cid:12)(cid:0)(cid:84)(cid:85)(cid:66)(cid:69)(cid:82)(cid:67)(cid:85)(cid:76)(cid:79)(cid:83)(cid:73)(cid:83)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0) malaria are the major killers in Malawi, as elsewhere in southern Africa); (cid:38)(cid:79)(cid:79)(cid:68)(cid:0)(cid:48)(cid:82)(cid:79)(cid:68)(cid:85)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:8)(cid:66)(cid:69)(cid:67)(cid:65)(cid:85)(cid:83)(cid:69)(cid:0)(cid:76)(cid:65)(cid:67)(cid:75)(cid:0)(cid:79)(cid:70)(cid:0)(cid:73)(cid:82)(cid:82)(cid:73)(cid:71)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0) subsistence farming leads to crop failure and famine) (cid:37)(cid:68)(cid:85)(cid:67)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:8)(cid:84)(cid:72)(cid:69)(cid:0)(cid:70)(cid:79)(cid:85)(cid:78)(cid:68)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:83)(cid:84)(cid:79)(cid:78)(cid:69)(cid:0)(cid:79)(cid:70)(cid:0)(cid:65)(cid:0)(cid:80)(cid:82)(cid:79)(cid:68)(cid:85)(cid:67)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0) fulﬁlling life) and (cid:34)(cid:85)(cid:83)(cid:73)(cid:78)(cid:69)(cid:83)(cid:83)(cid:0)(cid:36)(cid:69)(cid:86)(cid:69)(cid:76)(cid:79)(cid:80)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:8)(cid:84)(cid:79)(cid:0)(cid:67)(cid:82)(cid:69)(cid:65)(cid:84)(cid:69)(cid:0)(cid:69)(cid:77)(cid:80)(cid:76)(cid:79)(cid:89)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0) opportunities and grow local businesses which can supply Paladin and others with goods and services). Six Civil Society Organisations (CSOs) had commenced an action against the Company and the Government of Malawi in May 2007 in response to concerns over the Project approval process. The settlement between the six CSOs and Paladin in November 2007 resolved outstanding social issues of concern and was concluded on a positive and amicable basis, enabling construction at Kayelekera to proceed without interruption or modiﬁcation. Under the February 2007 Development Agreement with the Government of Malawi, Paladin undertook to spend $US10 million on community development and infrastructure projects in the Kayelekera region. It was subsequently agreed that US$8.2 million of the US$10 million would be applied to the urgently-needed upgrading of the community water supply at Karonga, the nearest major town to the Kayelekera Project. This Project is expected to be completed by mid-2009. Paladin will spend a further US$1.8 million to fund health and education infrastructure projects agreed in consultation with the local community. 46 Annual Report 2008 Paladin has undertaken to be accountable by providing the Government of Malawi with regular reports on work done and monies expended under its Community Development Program. Other initiatives include: (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:69)(cid:83)(cid:84)(cid:65)(cid:66)(cid:76)(cid:73)(cid:83)(cid:72)(cid:73)(cid:78)(cid:71)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:53)(cid:82)(cid:65)(cid:78)(cid:73)(cid:85)(cid:77)(cid:0)(cid:44)(cid:73)(cid:65)(cid:73)(cid:83)(cid:79)(cid:78)(cid:0)(cid:35)(cid:79)(cid:77)(cid:77)(cid:73)(cid:84)(cid:84)(cid:69)(cid:69)(cid:0)(cid:8)(cid:53)(cid:44)(cid:41)(cid:35)(cid:47)(cid:9)(cid:0) as the medium for on-going community consultation; (cid:65)(cid:83)(cid:83)(cid:73)(cid:83)(cid:84)(cid:73)(cid:78)(cid:71)(cid:0)(cid:73)(cid:78)(cid:0)(cid:68)(cid:69)(cid:86)(cid:69)(cid:76)(cid:79)(cid:80)(cid:73)(cid:78)(cid:71)(cid:0)(cid:73)(cid:77)(cid:80)(cid:82)(cid:79)(cid:86)(cid:69)(cid:68)(cid:0)(cid:65)(cid:71)(cid:82)(cid:73)(cid:67)(cid:85)(cid:76)(cid:84)(cid:85)(cid:82)(cid:65)(cid:76)(cid:0) production practices with an expatriate agricultural consultant working with local farmers to upgrade skills; (cid:80)(cid:82)(cid:79)(cid:86)(cid:73)(cid:68)(cid:73)(cid:78)(cid:71)(cid:0)(cid:65)(cid:67)(cid:67)(cid:69)(cid:83)(cid:83)(cid:0)(cid:84)(cid:79)(cid:0)(cid:67)(cid:76)(cid:69)(cid:65)(cid:78)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:83)(cid:65)(cid:70)(cid:69)(cid:0)(cid:87)(cid:65)(cid:84)(cid:69)(cid:82)(cid:0)(cid:70)(cid:79)(cid:82)(cid:0)(cid:65)(cid:0) signiﬁcant portion of the community and improved teacher-pupil ratio at the primary school, which Paladin supports ﬁnancially; (cid:77)(cid:65)(cid:73)(cid:78)(cid:84)(cid:65)(cid:73)(cid:78)(cid:73)(cid:78)(cid:71)(cid:0)(cid:65)(cid:0)(cid:68)(cid:79)(cid:67)(cid:84)(cid:79)(cid:82)(cid:13)(cid:83)(cid:84)(cid:65)(cid:70)(cid:70)(cid:69)(cid:68)(cid:0)(cid:77)(cid:69)(cid:68)(cid:73)(cid:67)(cid:65)(cid:76)(cid:0)(cid:67)(cid:76)(cid:73)(cid:78)(cid:73)(cid:67)(cid:0)(cid:79)(cid:78)(cid:13)(cid:83)(cid:73)(cid:84)(cid:69)(cid:0)(cid:65)(cid:84)(cid:0) Kayelekera, which caters for the medical needs of its employees, including employees living in Kayelekera village. As a consequence, some 22 per cent of the Kayelekera village population now has access to reliable health care. Paladin has undertaken to build a new community health clinic in Kayelekera; and (cid:65)(cid:83)(cid:83)(cid:73)(cid:83)(cid:84)(cid:73)(cid:78)(cid:71)(cid:0)(cid:73)(cid:78)(cid:0)(cid:68)(cid:69)(cid:86)(cid:69)(cid:76)(cid:79)(cid:80)(cid:73)(cid:78)(cid:71)(cid:0)(cid:73)(cid:77)(cid:80)(cid:82)(cid:79)(cid:86)(cid:69)(cid:68)(cid:0)(cid:65)(cid:71)(cid:82)(cid:73)(cid:67)(cid:85)(cid:76)(cid:84)(cid:85)(cid:82)(cid:65)(cid:76)(cid:0) production practices and supporting local communities through construction of wells and sinking boreholes. Langer Heinrich supports certain initiatives that have long-term beneﬁts to Namibia, speciﬁcally aimed towards education and skills development. This involves funding at a local school level together with providing ﬁnancial assistance for a youth development programme aimed at identifying high performing students who would otherwise have limited resources to enable them to further develop their skills. This programme requires very high levels of commitment from the students and is proving highly successful. In addition Langer Heinrich is working closely with a local artisan training facility whereby students are provided with practical training at the mine site, and senior artisans are made available to the college as lecturers whilst at the same time the usual lecturers spend time working on the mine site to expose them to the latest technology and practices. The Paladin Board (clockwise from top left): Ian Noble, Gillian Swaby, Sean Llewelyn, Donald Shumka, John Borshoff and Rick Crabb corporate governance statement Paladin Energy Ltd 47 Corporate Governance Statement Corporate Governance Framework Information will be communicated to shareholders by: The Board of Directors of Paladin Energy Ltd is responsible for the corporate governance of the Group. Paladin has adopted systems of control and accountability as the basis for the administration of corporate governance. This Corporate Governance Statement outlines the key principles and practices of the Company which, taken as a whole, is the system of governance. Shareholders are reminded that Paladin operates with a dual listing in Australia on the Australian Securities Exchange (ASX) and in Canada on the Toronto Stock Exchange (TSX). In formulating the governance framework, the regulatory requirements in both Australia and Canada have been taken into account. The Company has complied with each of the Eight Corporate Governance Principles and the corresponding Recommendations as published by the ASX Corporate Governance Council. Further the Company also complies with the Ontario Securities Commission’s corporate governance requirements as set out in National Instrument 58-101. The Company reviews and amends its corporate governance policies as appropriate to reﬂect the growth of the Company, current legislation and good practice. The website (www.paladinenergy.com.au) includes copies or summaries of key corporate governance policy documents. Relationship With Shareholders The Company places a high priority on communications with and accountability to shareholders. The Board recognises that shareholders, as the ultimate owners of the Company, are entitled to receive timely and relevant high quality information about their investment. Similarly, prospective investors should be able to make an informed decision when considering the purchase of shares in Paladin. To safeguard the effective dissemination of information, the Board has implemented a Disclosure Control Policy, detailed later in this Statement, and adopted a Shareholder Communications Policy. These reinforce the Company’s commitment to its continuous disclosure obligations imposed by law. (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:69)(cid:78)(cid:83)(cid:85)(cid:82)(cid:73)(cid:78)(cid:71)(cid:0)(cid:84)(cid:72)(cid:65)(cid:84)(cid:0)(cid:80)(cid:85)(cid:66)(cid:76)(cid:73)(cid:83)(cid:72)(cid:69)(cid:68)(cid:0)(cid:108)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:65)(cid:76)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:79)(cid:84)(cid:72)(cid:69)(cid:82)(cid:0)(cid:83)(cid:84)(cid:65)(cid:84)(cid:85)(cid:84)(cid:79)(cid:82)(cid:89)(cid:0) reports are prepared in accordance with applicable laws and industry best practice; (cid:69)(cid:78)(cid:83)(cid:85)(cid:82)(cid:73)(cid:78)(cid:71)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:68)(cid:73)(cid:83)(cid:67)(cid:76)(cid:79)(cid:83)(cid:85)(cid:82)(cid:69)(cid:0)(cid:79)(cid:70)(cid:0)(cid:70)(cid:85)(cid:76)(cid:76)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:84)(cid:73)(cid:77)(cid:69)(cid:76)(cid:89)(cid:0)(cid:73)(cid:78)(cid:70)(cid:79)(cid:82)(cid:77)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0) about the Company’s activities in accordance with the general and continuous disclosure principles in the ASX Listing Rules, the Corporations Act in Australia and all relevant legislation in Canada; (cid:80)(cid:82)(cid:79)(cid:86)(cid:73)(cid:68)(cid:73)(cid:78)(cid:71)(cid:0)(cid:68)(cid:69)(cid:84)(cid:65)(cid:73)(cid:76)(cid:69)(cid:68)(cid:0)(cid:82)(cid:69)(cid:80)(cid:79)(cid:82)(cid:84)(cid:83)(cid:0)(cid:70)(cid:82)(cid:79)(cid:77)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:35)(cid:72)(cid:65)(cid:73)(cid:82)(cid:77)(cid:65)(cid:78)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0) Managing Director at the Annual General Meeting; (cid:80)(cid:76)(cid:65)(cid:67)(cid:73)(cid:78)(cid:71)(cid:0)(cid:65)(cid:76)(cid:76)(cid:0)(cid:77)(cid:65)(cid:84)(cid:69)(cid:82)(cid:73)(cid:65)(cid:76)(cid:0)(cid:73)(cid:78)(cid:70)(cid:79)(cid:82)(cid:77)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:82)(cid:69)(cid:76)(cid:69)(cid:65)(cid:83)(cid:69)(cid:68)(cid:0)(cid:84)(cid:79)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0) market (including notices of meeting and explanatory materials) on the Company’s website as soon as practical following release; (cid:80)(cid:76)(cid:65)(cid:67)(cid:73)(cid:78)(cid:71)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:35)(cid:79)(cid:77)(cid:80)(cid:65)(cid:78)(cid:89)(cid:7)(cid:83)(cid:0)(cid:77)(cid:65)(cid:82)(cid:75)(cid:69)(cid:84)(cid:0)(cid:65)(cid:78)(cid:78)(cid:79)(cid:85)(cid:78)(cid:67)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:83)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0) ﬁnancial data for the preceding three years on its website. Earlier announcements are available on request; and (cid:80)(cid:82)(cid:79)(cid:86)(cid:73)(cid:68)(cid:73)(cid:78)(cid:71)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:33)(cid:78)(cid:78)(cid:85)(cid:65)(cid:76)(cid:0)(cid:50)(cid:69)(cid:80)(cid:79)(cid:82)(cid:84)(cid:0)(cid:73)(cid:78)(cid:0)(cid:65)(cid:0)(cid:104)(cid:85)(cid:83)(cid:69)(cid:82)(cid:0)(cid:70)(cid:82)(cid:73)(cid:69)(cid:78)(cid:68)(cid:76)(cid:89)(cid:118)(cid:0) electronic format on its website. In addition, the website includes a facility to allow interested parties to subscribe to receive, electronically, public releases and other relevant material concerning the Company. Shareholders are encouraged to attend Annual General Meetings and ask questions of Directors and senior management and also the Company’s external auditors, who are required to be in attendance. In the event that shareholders are unable to attend meetings, they are encouraged to lodge proxies signifying their approval or otherwise of the business to be considered. Board of Directors Role of the Board 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. The role of the Board is to oversee and guide the management of the Company with the aim of protecting and enhancing the interests of its shareholders, taking into account the interests of other stakeholders including employees, customers, suppliers and the wider community. 48 Annual Report 2008 The Board operates under a Charter and has a written Code of Conduct which establishes guidelines for its conduct. The purpose of the Code is to ensure that Directors act honestly, responsibly, legally and ethically and in the best interests of the Company. The Board is responsible for setting the strategic direction and establishing goals for management and the monitoring of the achievements against these goals. Composition of the Board The Board comprises four Non-executive Directors, including the Chairman and one Executive Director, being the Managing Director. The names of the Directors, both in ofﬁce at the date of this report and those who held the position during the past year, are set out in the Directors’ Report. This information includes their status as Non- executive, executive or independent, their qualiﬁcations and experience and length of service. The structure of the Board has evolved over time to reﬂect the changing needs of the Company to ensure an appropriate mix of skills and experience are available to oversee the growth of Paladin to its full potential. This was particularly relevant given the progress towards becoming a uranium supplier and, in the last quarter of the 2005 ﬁnancial year, Board membership underwent a major restructure. Skills sets represented at Board level include managerial, technical, ﬁnancial, corporate, legal and commercial. Particularly, members have a broad range of qualiﬁcations, experience and expertise in the uranium business. Director Independence Directors are expected to bring independent views and judgement to the Board’s deliberations. All of the Non- executive Directors are considered by the Board to be independent. In considering whether a Director is independent, the Board has regard to the independence criteria set out in the ASX Corporate Governance Council’s Corporate Governance and Principles Recommendations and the Corporate Governance Guidelines developed by the Ontario Securities Commission pursuant to National Policy 58-201 and other facts, information and circumstances that the Board considers relevant. The Board assesses the independence of new Directors prior to appointment and reviews the independence of all Directors as appropriate. Meetings of the Board The Board meets formally at least four times a year (each over a 2 day period) and on other occasions, as required. On the day preceding the Board meeting, members of senior management attend and make presentations to the Board covering all aspects of the Company’s operations. Non-executive Directors are able to meet without the Managing Director and management being present, as considered appropriate. Each of the four principle Board meetings provided this opportunity. The Board holds an annual strategic planning session with management at which the Company’s strategic plans for each operating activity and the Group as a whole are presented. This was held as part of the budget review process in May 2008. The Managing Director encourages full access to executive Managers by the Board to ensure transparency at a senior management level and Non- executive Directors are encouraged to visit the Company’s operations. Retirement and Re-election The Constitution of the Company requires one third of the Directors, other than the Managing Director, to retire from ofﬁce at each Annual General Meeting. Directors who have been appointed by the Board are required to retire from ofﬁce at the next Annual General Meeting and are not taken into account in determining the number of Directors to retire by rotation at that Annual General Meeting. Directors cannot hold ofﬁce for a period in excess of three years without submitting themselves for re-election. Retiring Directors are eligible for re-election by shareholders. Details of those Directors seeking re-election at the 2008 Annual General Meeting are set out in the Directors’ Report. The Board does not believe that any Director has served on the Board for a period which could, or be perceived to, materially interfere with his ability to act in the best interests of the Company. In reaching this conclusion, the Board has noted that each of R Crabb (the Chairman) and J Borshoff (the Managing Director) will have each served on the Board for 14 years. Notwithstanding their period of service, the Board concluded that both Directors retain independence of character and judgement and continue to make outstanding contributions at Board level. Both bring their unique skills to the Board and participate in robust constructive debate. The Board considers that Mr Borshoff’s uranium experience and Mr Crabb’s international resource law experience remains valuable at Board level during this critical stage of the Company’s development. Paladin Energy Ltd 49 Corporate Governance Statement Pictures left to right: (1), (2) and (3) Kayelekera Nomination and Appointment of New Directors Evaluation of Board Performance If it is necessary to appoint a new Director to ﬁll a vacancy on the Board or to complement the existing Board, a wide potential base of possible candidates is considered and external consultants are engaged to assist in the selection process, if required. The Board assesses the qualiﬁcations of the proposed new Director against a range of criteria including background, experience, professional skills, personal qualities, the potential for the candidate’s skills to augment the existing Board and the candidate’s availability to commit to the Board’s activities. If these criteria are met and the Board appoints the candidate as a Director, that Director must retire at the next following Annual General Meeting and will be eligible for re-election by shareholders at that Annual General Meeting. New Directors appointed to the Board are invited to participate in an induction programme which includes provision of comprehensive written material regarding the Company such as:- (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:41)(cid:78)(cid:70)(cid:79)(cid:82)(cid:77)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:79)(cid:78)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:108)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:65)(cid:76)(cid:12)(cid:0)(cid:83)(cid:84)(cid:82)(cid:65)(cid:84)(cid:69)(cid:71)(cid:73)(cid:67)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:79)(cid:80)(cid:69)(cid:82)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:65)(cid:76)(cid:0) position of the Company; (cid:33)(cid:0)(cid:67)(cid:79)(cid:77)(cid:80)(cid:82)(cid:69)(cid:72)(cid:69)(cid:78)(cid:83)(cid:73)(cid:86)(cid:69)(cid:0)(cid:76)(cid:69)(cid:84)(cid:84)(cid:69)(cid:82)(cid:0)(cid:79)(cid:70)(cid:0)(cid:65)(cid:80)(cid:80)(cid:79)(cid:73)(cid:78)(cid:84)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:87)(cid:72)(cid:73)(cid:67)(cid:72)(cid:0)(cid:83)(cid:69)(cid:84)(cid:83)(cid:0) out the Company’s expectations on acceptance of the position; (cid:33)(cid:0)(cid:87)(cid:82)(cid:73)(cid:84)(cid:84)(cid:69)(cid:78)(cid:0)(cid:83)(cid:84)(cid:65)(cid:84)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:87)(cid:72)(cid:73)(cid:67)(cid:72)(cid:0)(cid:83)(cid:69)(cid:84)(cid:83)(cid:0)(cid:79)(cid:85)(cid:84)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:68)(cid:85)(cid:84)(cid:73)(cid:69)(cid:83)(cid:12)(cid:0)(cid:82)(cid:73)(cid:71)(cid:72)(cid:84)(cid:83)(cid:0) and responsibilities they undertake on becoming a Director together with material detailing the operations, policies and practices of the Company; and (cid:35)(cid:79)(cid:80)(cid:73)(cid:69)(cid:83)(cid:0)(cid:79)(cid:70)(cid:0)(cid:80)(cid:82)(cid:69)(cid:86)(cid:73)(cid:79)(cid:85)(cid:83)(cid:0)(cid:77)(cid:73)(cid:78)(cid:85)(cid:84)(cid:69)(cid:83)(cid:0)(cid:79)(cid:70)(cid:0)(cid:34)(cid:79)(cid:65)(cid:82)(cid:68)(cid:0)(cid:77)(cid:69)(cid:69)(cid:84)(cid:73)(cid:78)(cid:71)(cid:83)(cid:0) together with recent Annual Reports and interim ﬁnancial statements. Further, new Directors are invited to attend brieﬁng sessions with the Managing Director and key members of the senior management team where they may ask questions and direct any queries they may have to the Chairman or the Managing Director or obtain any other brieﬁngs they feel necessary from the Chairman or the Managing Director. They are encouraged to attend site visits in liaison with the Managing Director, at appropriate times. Directors agree to participate in continuous improvement programs from time to time, as considered appropriate. 50 Annual Report 2008 Improvement in Board processes and effectiveness is a continuing objective and the primary purpose of Board evaluation is to identify ways to improve performance. The Chairman is responsible for conducting an annual review of the Board performance. An evaluation of the performance of the Board was carried out in the last quarter of the 2008 ﬁnancial year. This process involved completion of individual questionnaires focused on process, structure, effectiveness and contributions. Responses to the questionnaire were collated and discussed by the Board in an open forum and recommendations for improvement considered. Knowledge, Skills and Experience To assist Directors to maintain an appropriate level of knowledge, skill and experience in the operations of the Company, Directors have the opportunity to undertake site visits to familiarise themselves with the Company’s operations. Directors are also provided with papers, presentations and brieﬁngs on the Company’s operations and on matters which may affect the Company. These are provided in addition to Board papers and are designed to assist the Directors to gain relevant and timely information to assist in their decision making process. Directors are also encouraged to undertake continuing education relevant to the discharge of their obligations as Directors of the Company. Subject to prior approval by the Company Secretary, the reasonable cost of such education is met by the Company. Position Descriptions The Board has developed and adopted written position descriptions for the Non-executive Chairman of the Board, the Chairman of each Board Committee, the Managing Director and the Company Secretary. These delineate the role and responsibility of each position and provide clarity on the expectations for those individuals occupying these key positions within the Company. Conﬂicts of Interest Board Committees The Code of Conduct for Directors, a copy of which is available on the Company’s website, sets out the procedure to be followed if there is, or may be, a conﬂict between the personal or other interests of a Director and the business of the Company. A Director with an actual or potential conﬂict of interest in relation to a matter before the Board does not receive the Board papers relating to that matter and when the matter comes before the Board for discussion, the Director withdraws from the meeting for the period the matter is considered and takes no part in the discussions or decision-making process. Minutes reporting on matters in which a Director is considered to have a conﬂict of interest are not provided to that Director, however, the Director is given notice of the nature of the matter for discussions and, as much as practicable, of the general nature of the discussion or decision reached. Remuneration Details of the remuneration policies and practices of the Company and the remuneration paid to the Directors (Executive and Non-executive) and Senior Executives are set out in the Remuneration Report included in the Directors’ Report. Shareholders will be invited to consider and to approve the Remuneration Report at the Annual General Meeting in November 2008. In relation to the Non-executive Directors there are no termination or retirement beneﬁts. Independent advice The Board and its Committees may seek advice from independent experts whenever it is considered appropriate. With the consent of the Chairman, individual Directors may seek independent professional advice, at the expense of the Company, on any matter connected with the discharge of their responsibilities. No Director availed himself of this right during the course of the year. The Board has established Audit, Nomination and Remuneration Committees which assist in the discharge of the Board’s responsibilities. Board approved charters set out the terms of reference and rules governing these Committees. Audit Committee The Audit Committee assists the Board in discharging its responsibilities to ensure that the Company complies with appropriate and effective accounting, auditing, internal control and compliance and reporting practices in accordance with the Audit Committee Charter. The role of the Audit Committee is to: (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:45)(cid:79)(cid:78)(cid:73)(cid:84)(cid:79)(cid:82)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:73)(cid:78)(cid:84)(cid:69)(cid:71)(cid:82)(cid:73)(cid:84)(cid:89)(cid:0)(cid:79)(cid:70)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:108)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:65)(cid:76)(cid:0)(cid:83)(cid:84)(cid:65)(cid:84)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:83)(cid:0)(cid:79)(cid:70)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0) Company, reviewing signiﬁcant ﬁnancial reporting judgments; (cid:50)(cid:69)(cid:86)(cid:73)(cid:69)(cid:87)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:35)(cid:79)(cid:77)(cid:80)(cid:65)(cid:78)(cid:89)(cid:7)(cid:83)(cid:0)(cid:73)(cid:78)(cid:84)(cid:69)(cid:82)(cid:78)(cid:65)(cid:76)(cid:0)(cid:108)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:65)(cid:76)(cid:0)(cid:67)(cid:79)(cid:78)(cid:84)(cid:82)(cid:79)(cid:76)(cid:0) system and, unless expressly addressed by a separate risk committee or by the Board itself, risk management systems; (cid:45)(cid:79)(cid:78)(cid:73)(cid:84)(cid:79)(cid:82)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:82)(cid:69)(cid:86)(cid:73)(cid:69)(cid:87)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:69)(cid:70)(cid:70)(cid:69)(cid:67)(cid:84)(cid:73)(cid:86)(cid:69)(cid:78)(cid:69)(cid:83)(cid:83)(cid:0)(cid:79)(cid:70)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0) Company’s internal audit function; (cid:45)(cid:79)(cid:78)(cid:73)(cid:84)(cid:79)(cid:82)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:82)(cid:69)(cid:86)(cid:73)(cid:69)(cid:87)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:69)(cid:88)(cid:84)(cid:69)(cid:82)(cid:78)(cid:65)(cid:76)(cid:0)(cid:65)(cid:85)(cid:68)(cid:73)(cid:84)(cid:0)(cid:70)(cid:85)(cid:78)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0) including matters concerning appointment and remuneration, independence and non-audit services; and (cid:48)(cid:69)(cid:82)(cid:70)(cid:79)(cid:82)(cid:77)(cid:0)(cid:83)(cid:85)(cid:67)(cid:72)(cid:0)(cid:79)(cid:84)(cid:72)(cid:69)(cid:82)(cid:0)(cid:70)(cid:85)(cid:78)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78)(cid:83)(cid:0)(cid:65)(cid:83)(cid:0)(cid:65)(cid:83)(cid:83)(cid:73)(cid:71)(cid:78)(cid:69)(cid:68)(cid:0)(cid:66)(cid:89)(cid:0)(cid:76)(cid:65)(cid:87)(cid:12)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0) Company’s constitution, or the Board. The Audit Committee comprises three members, all of whom are independent Non-executive Directors. The current members of the Audit Committee are:- (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:36)(cid:79)(cid:78)(cid:65)(cid:76)(cid:68)(cid:0)(cid:51)(cid:72)(cid:85)(cid:77)(cid:75)(cid:65)(cid:0)(cid:110)(cid:0)(cid:35)(cid:72)(cid:65)(cid:73)(cid:82)(cid:77)(cid:65)(cid:78)(cid:0)(cid:8)(cid:65)(cid:80)(cid:80)(cid:79)(cid:73)(cid:78)(cid:84)(cid:69)(cid:68)(cid:0)(cid:25)(cid:0)(cid:42)(cid:85)(cid:76)(cid:89)(cid:0)(cid:18)(cid:16)(cid:16)(cid:23)(cid:9) Non-executive, Independent Director (George Pirie undertook this role to the date of his resignation , 9 July 2007) (cid:51)(cid:69)(cid:65)(cid:78)(cid:0)(cid:44)(cid:76)(cid:69)(cid:87)(cid:69)(cid:76)(cid:89)(cid:78)(cid:0)(cid:110)(cid:0)(cid:46)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82) Independent Director (cid:41)(cid:65)(cid:78)(cid:0)(cid:46)(cid:79)(cid:66)(cid:76)(cid:69)(cid:0)(cid:110)(cid:0)(cid:46)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82) Independent Director Paladin Energy Ltd 51 Corporate Governance Statement The Audit Committee meets at least once a quarter and at any other time requested by a Board member, Company Secretary or external auditor. The external auditors attend each quarterly meeting and on other occasions where circumstances warrant. At the discretion of the Chairman, having regard to the nature of the agenda, relevant members of management may be invited to attend meetings. The number of meetings of the Audit Committee during the reporting period and the names on the attendance record is set out in the Directors’ Report. The external auditors are Ernst and Young who were appointed as the Company’s auditors in June 2005. Nomination Committee The responsibilities of the Nomination Committee include:- (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:50)(cid:69)(cid:86)(cid:73)(cid:69)(cid:87)(cid:73)(cid:78)(cid:71)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:83)(cid:73)(cid:90)(cid:69)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:67)(cid:79)(cid:77)(cid:80)(cid:79)(cid:83)(cid:73)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:79)(cid:70)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:34)(cid:79)(cid:65)(cid:82)(cid:68)(cid:0) and making recommendations to the Board on any appropriate changes; (cid:36)(cid:69)(cid:86)(cid:69)(cid:76)(cid:79)(cid:80)(cid:73)(cid:78)(cid:71)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:80)(cid:76)(cid:65)(cid:78)(cid:78)(cid:73)(cid:78)(cid:71)(cid:0)(cid:70)(cid:79)(cid:82)(cid:0)(cid:73)(cid:68)(cid:69)(cid:78)(cid:84)(cid:73)(cid:70)(cid:89)(cid:73)(cid:78)(cid:71)(cid:12)(cid:0)(cid:65)(cid:83)(cid:83)(cid:69)(cid:83)(cid:83)(cid:73)(cid:78)(cid:71)(cid:0) and enhancing Director competencies; (cid:45)(cid:65)(cid:75)(cid:73)(cid:78)(cid:71)(cid:0)(cid:82)(cid:69)(cid:67)(cid:79)(cid:77)(cid:77)(cid:69)(cid:78)(cid:68)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:83)(cid:0)(cid:79)(cid:78)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:65)(cid:80)(cid:80)(cid:79)(cid:73)(cid:78)(cid:84)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0) removal of Directors; (cid:37)(cid:86)(cid:65)(cid:76)(cid:85)(cid:65)(cid:84)(cid:73)(cid:78)(cid:71)(cid:0)(cid:34)(cid:79)(cid:65)(cid:82)(cid:68)(cid:0)(cid:80)(cid:69)(cid:82)(cid:70)(cid:79)(cid:82)(cid:77)(cid:65)(cid:78)(cid:67)(cid:69)(cid:0)(cid:83)(cid:79)(cid:0)(cid:84)(cid:72)(cid:65)(cid:84)(cid:0)(cid:73)(cid:78)(cid:68)(cid:73)(cid:86)(cid:73)(cid:68)(cid:85)(cid:65)(cid:76)(cid:0) and collective performance is regularly and fairly assessed; and (cid:48)(cid:82)(cid:79)(cid:86)(cid:73)(cid:68)(cid:73)(cid:78)(cid:71)(cid:0)(cid:78)(cid:69)(cid:87)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:83)(cid:0)(cid:87)(cid:73)(cid:84)(cid:72)(cid:0)(cid:65)(cid:78)(cid:0)(cid:73)(cid:78)(cid:68)(cid:85)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:73)(cid:78)(cid:84)(cid:79)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0) Company and provide all Directors with access to on going education relevant to their position. The Chairman of the Board chairs the Nomination Committee. The Board considers that given the importance of Board composition, it is appropriate that all members of the Board are members of the Nomination Committee. There were no meetings of the Nomination Committee during the reporting period. This was due to there being no change in Board membership during the year. Remuneration Committee The role of the Committee, in accordance with the Remuneration Committee Charter, is to assist the Board with respect to remuneration by reviewing and making appropriate recommendations on:- (cid:115)(cid:0) (cid:115)(cid:0) (cid:50)(cid:69)(cid:77)(cid:85)(cid:78)(cid:69)(cid:82)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:80)(cid:65)(cid:67)(cid:75)(cid:65)(cid:71)(cid:69)(cid:83)(cid:0)(cid:79)(cid:70)(cid:0)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:83)(cid:12)(cid:0) Non-executive Directors and senior executives; and (cid:37)(cid:77)(cid:80)(cid:76)(cid:79)(cid:89)(cid:69)(cid:69)(cid:0)(cid:73)(cid:78)(cid:67)(cid:69)(cid:78)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:69)(cid:81)(cid:85)(cid:73)(cid:84)(cid:89)(cid:0)(cid:66)(cid:65)(cid:83)(cid:69)(cid:68)(cid:0)(cid:80)(cid:76)(cid:65)(cid:78)(cid:83)(cid:0) including the appropriateness of performance hurdles and total payments proposed. 52 Annual Report 2008 The ASX Listing Rules and the Constitution require that the maximum aggregate amount of remuneration to be allocated among the Non-executive Directors be approved by the shareholders in general meeting. In proposing the maximum amount for consideration by shareholders, and in determining the allocation, the Remuneration Committee will take into account the time demands made on Directors given the increasing complexity of the Paladin Group and such factors as fees paid to Non-executive Directors in comparable Australian companies. The remuneration paid to Directors and senior executives is shown in the Directors’ Report. The Remuneration Committee comprises three members, all of whom are independent Directors. The Chairman of the Board is the Chairman of the Remuneration Committee and the Committee shall meet at least twice a year and otherwise as required. The current members of the Remuneration Committee are:- (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:50)(cid:73)(cid:67)(cid:75)(cid:0)(cid:35)(cid:82)(cid:65)(cid:66)(cid:66)(cid:0)(cid:110)(cid:0)(cid:35)(cid:72)(cid:65)(cid:73)(cid:82)(cid:77)(cid:65)(cid:78) Non-executive, Independent Director (cid:51)(cid:69)(cid:65)(cid:78)(cid:0)(cid:44)(cid:76)(cid:69)(cid:87)(cid:69)(cid:76)(cid:89)(cid:78)(cid:0)(cid:110)(cid:0)(cid:46)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82) Independent Director (cid:36)(cid:79)(cid:78)(cid:65)(cid:76)(cid:68)(cid:0)(cid:51)(cid:72)(cid:85)(cid:77)(cid:75)(cid:65)(cid:0)(cid:110)(cid:0)(cid:46)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:0) (appointed 10 August 2007) Independent Director (George Pirie undertook this role to the date of his resignation , 9 July 2007) The number of meetings of the Remuneration Committee during the reporting period and the names on the attendance record is set out in the Directors’ Report. Financial Reporting CEO and CFO Sign-offs In accordance with the Corporations Act 2001, ASX Corporate Governance Principle 4 (Safeguard Integrity in Financial Reporting) and Canadian Securities Law, relevant declarations, statements and certiﬁcations have been provided by the Managing Director and the Chief Financial Ofﬁcer in relation to the Company’s 30 June 2008 Annual Report, including ﬁnancial statements. Disclosure Controls Paladin is committed to ensuring that shareholders and the market are provided with full and timely information and that all stakeholders have equal and timely access to material information concerning the Company. The Company understands and respects that timely disclosure of price sensitive information is central to the efﬁcient operation of the Australian Securities Exchange’s and Toronto Stock Exchange’s securities market and has adopted a Disclosure Control Policy with underlying procedures covering public announcements, the prevention of selective or inadvertent disclosure, conduct of investor and analysts brieﬁngs, and media communications. This policy reﬂects the commitment of the Directors and management to promoting consistent disclosure practices aimed at accurate, timely and broadly disseminated disclosure of material information to the market. The Company has formed a Disclosure Control Committee which has responsibility for overseeing and co-ordinating disclosure of all public information. Members of this Committee are the Managing Director, Company Secretary and Chief Financial Ofﬁcer. Risk Management The Company has established policies on risk oversight and management and has a risk management and internal control system to manage the Company’s material business risks. The Company has developed its risk management policy in line with the implementation of the risk management system and a risk management framework. The Company’s Risk Management Policy is to identify, assess, evaluate, monitor and mitigate risks which are considered unacceptable to the Company. Operational business controls have been identiﬁed and are in place to ensure unwanted threats to the business are managed. Paladin has also developed the business environment for managers and senior personnel to assess risks and make sound business decisions. Whilst all personnel have a responsibility to identify and report to management risks which may materially affect the Company, the Managing Director has the overall responsibility for the management of risk in the Company. The Managing Director is assisted by the heads of operational business units who “champion” risks within the business unit. Paladin has adopted the Australian and New Zealand Standard 4360:2004, “Risk Management” in managing the risk management process. The risk management system is designed and implemented by the Managing Director, with assistance from senior executives, and is subject to the review of the Board of Directors. The Company maintains a Risk Register, which sets out all of the enterprise risks that have been identiﬁed and includes an assessment of the risk (risks analysed and evaluated), and treatment plans to mitigate risks. The risk register has been compiled and is subject to periodic review by the Managing Director and senior management to ensure adequate risk control measures have been identiﬁed. An operational risk assessment system is in place at the Langer Heinrich and Kayelekera operations, which is continuously reviewed and updated. Paladin is committed to continual improvement of the risk management process and procedures to ensure the highest return to shareholders and stakeholders. Environment The Company promotes an excellent standard of environmental performance across its business. The Company seeks to prevent, minimise, mitigate and remediate any harmful effects of its operations on the environment and strives to achieve continuous improvement in environmental performance. The Company has adopted an Environmental Policy which includes compliance with all applicable environmental laws as a minimum standard, development and implementation of Environmental Management Systems, preparation of Environmental and Radiological Management Plans and Standards to identify, assess and manage environmental risks, ensuring that its employees and contractors are aware of their environmental responsibilities, consulting with government and other stakeholders in relation to the Company’s operations and proposed projects, and undertaking regular audits and reviews and reporting on environmental performance. Safety and Occupational Health The safety, health and wellbeing of employees, contractors and the community are of core value to Paladin’s operations. A healthy workforce contributes to business success and the Company’s aim is for zero injuries. The Company will encourage safe behaviour by employees and contractors, establish a mindset that injuries are preventable, provide safety education and training, and conduct safety risk assessments. The safety and health performance of Paladin will be measured through internal and external internationally recognised auditing and reporting processes. Securities Ownership and Dealings The Company has a Policy for Trading in Company Securities which is binding on all Directors and employees. The Policy was updated and subsequently approved by the Board on 22 August 2008. This was due to the Company’s progress from explorer to producer and to keep the Company at the forefront of best practice in corporate governance. Prescribed ‘blackout’ periods have been introduced, during which all Directors, ofﬁcers and employees will be prohibited from dealing in the Company’s securities. This is in addition to the overriding prohibition against dealing in the Company’s securities when a person is in possession of inside information. In addition, all Directors, ofﬁcers and employees will need to complete an application form to gain the written acknowledgement of either; the Chairman, Managing Director or the Company Secretary before they deal in the Company’s securities. Paladin Energy Ltd 53 Corporate Governance Statement Pictures left to right: (1) Kayelekera, (2) and (3) Langer Heinrich The Board has appointed the Company Secretary as the Company’s compliance ofﬁcer in the case of employees, and the Chairman of the Audit Committee in the case of Directors and ofﬁcers, as the person responsible for receiving reports of breaches of the Code and this is the mechanism by which compliance with the Code is monitored. The Board has also approved a Whistleblower Policy which documents commitment to maintaining an open working environment in which employees and contractors are able to report instances of unethical, unlawful or undesirable conduct without fear of intimidation or reprisal. The purpose of the Whistleblower Policy is to: (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:40)(cid:69)(cid:76)(cid:80)(cid:0)(cid:68)(cid:69)(cid:84)(cid:69)(cid:67)(cid:84)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:65)(cid:68)(cid:68)(cid:82)(cid:69)(cid:83)(cid:83)(cid:0)(cid:85)(cid:78)(cid:65)(cid:67)(cid:67)(cid:69)(cid:80)(cid:84)(cid:65)(cid:66)(cid:76)(cid:69)(cid:0)(cid:67)(cid:79)(cid:78)(cid:68)(cid:85)(cid:67)(cid:84)(cid:27) (cid:40)(cid:69)(cid:76)(cid:80)(cid:0)(cid:80)(cid:82)(cid:79)(cid:86)(cid:73)(cid:68)(cid:69)(cid:0)(cid:69)(cid:77)(cid:80)(cid:76)(cid:79)(cid:89)(cid:69)(cid:69)(cid:83)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:67)(cid:79)(cid:78)(cid:84)(cid:82)(cid:65)(cid:67)(cid:84)(cid:79)(cid:82)(cid:83)(cid:0)(cid:87)(cid:73)(cid:84)(cid:72)(cid:0)(cid:65)(cid:0) supportive working environment in which they feel able to raise issues of legitimate concern to them and to the Company; and (cid:40)(cid:69)(cid:76)(cid:80)(cid:0)(cid:80)(cid:82)(cid:79)(cid:84)(cid:69)(cid:67)(cid:84)(cid:0)(cid:80)(cid:69)(cid:79)(cid:80)(cid:76)(cid:69)(cid:0)(cid:87)(cid:72)(cid:79)(cid:0)(cid:82)(cid:69)(cid:80)(cid:79)(cid:82)(cid:84)(cid:0)(cid:85)(cid:78)(cid:65)(cid:67)(cid:67)(cid:69)(cid:80)(cid:84)(cid:65)(cid:66)(cid:76)(cid:69)(cid:0) conduct in good faith. The Company has a ﬁrm commitment to protecting the privacy of any personal information that it collects and holds and recognises its obligations under the existing privacy legislation. It has adopted a Privacy Policy which provides details on the collection and use of personal information, circumstances under which it can be disclosed, management and security of personal information and how it can be accessed. Any changes to the above Codes and Policies are considered by the Board for approval. The Company’s policy also prohibits hedging of options granted under share options plans. This relates to both vested and unvested options. Prohibited hedging practices include put/call arrangements over “in money” options to hedge against a future drop in share price. The Board considers such hedging to be against the spirit of a share option plan and inconsistent with shareholder objectives. Codes of Conduct The Board has approved a Code of Conduct for Directors (incorporating underlying Guidelines for the Interpretation of Principles) together with a Code of Business Conduct and Ethics, which applies to all Directors, Ofﬁcers and Employees including those employed by subsidiaries, in all countries where Paladin does business. A copy of the Code is available on the Company’s website. These Codes demonstrate and codify Paladin’s commitment to appropriate and ethical corporate practices. Compliance with the Codes will also assist the Company to effectively manage its operating risks and meeting its legal and compliance obligations, as well as enhancing Paladin’s corporate reputation. The principles outlined in this document are intended to: (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:37)(cid:83)(cid:84)(cid:65)(cid:66)(cid:76)(cid:73)(cid:83)(cid:72)(cid:0)(cid:65)(cid:0)(cid:77)(cid:73)(cid:78)(cid:73)(cid:77)(cid:85)(cid:77)(cid:0)(cid:71)(cid:76)(cid:79)(cid:66)(cid:65)(cid:76)(cid:0)(cid:83)(cid:84)(cid:65)(cid:78)(cid:68)(cid:65)(cid:82)(cid:68)(cid:0)(cid:79)(cid:70)(cid:0)(cid:67)(cid:79)(cid:78)(cid:68)(cid:85)(cid:67)(cid:84)(cid:0)(cid:66)(cid:89)(cid:0) which all Paladin employees are expected to abide; (cid:48)(cid:82)(cid:79)(cid:84)(cid:69)(cid:67)(cid:84)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:66)(cid:85)(cid:83)(cid:73)(cid:78)(cid:69)(cid:83)(cid:83)(cid:0)(cid:73)(cid:78)(cid:84)(cid:69)(cid:82)(cid:69)(cid:83)(cid:84)(cid:83)(cid:0)(cid:79)(cid:70)(cid:0)(cid:48)(cid:65)(cid:76)(cid:65)(cid:68)(cid:73)(cid:78)(cid:12)(cid:0)(cid:73)(cid:84)(cid:83)(cid:0) employees and customers; (cid:45)(cid:65)(cid:73)(cid:78)(cid:84)(cid:65)(cid:73)(cid:78)(cid:0)(cid:48)(cid:65)(cid:76)(cid:65)(cid:68)(cid:73)(cid:78)(cid:7)(cid:83)(cid:0)(cid:82)(cid:69)(cid:80)(cid:85)(cid:84)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:70)(cid:79)(cid:82)(cid:0)(cid:73)(cid:78)(cid:84)(cid:69)(cid:71)(cid:82)(cid:73)(cid:84)(cid:89)(cid:27)(cid:0)(cid:65)(cid:78)(cid:68) (cid:38)(cid:65)(cid:67)(cid:73)(cid:76)(cid:73)(cid:84)(cid:65)(cid:84)(cid:69)(cid:0)(cid:67)(cid:79)(cid:77)(cid:80)(cid:76)(cid:73)(cid:65)(cid:78)(cid:67)(cid:69)(cid:0)(cid:66)(cid:89)(cid:0)(cid:48)(cid:65)(cid:76)(cid:65)(cid:68)(cid:73)(cid:78)(cid:0)(cid:69)(cid:77)(cid:80)(cid:76)(cid:79)(cid:89)(cid:69)(cid:69)(cid:83)(cid:0)(cid:87)(cid:73)(cid:84)(cid:72)(cid:0) applicable legal and regulatory obligations. The Code of Business Conduct and Ethics addresses honesty and integrity, following the law, conﬂicts of interest, conﬁdentiality, protection of Company assets, dealing with public ofﬁcials, responsibility for international operations, employment practices, record keeping and community relations. 54 Annual Report 2008 building our reputation directors’ report The Directors present their report on the Group consisting of Paladin Energy Ltd and the entities it controlled at the end of, or during, the year ended 30 June 2008. Paladin Energy Ltd 55 Directors’ Report Directors The following persons were Directors of Paladin Energy Ltd (Company) and were in ofﬁce for this entire period unless otherwise indicated: Mr Rick Crabb (Non-executive Chairman) Mr John Borshoff (Managing Director) Mr Sean Llewelyn (Non-executive Director) Mr Ian Noble (Non-executive Director) Mr Donald Shumka (Non-executive Director), Mr George Pirie appointed 9 July 2007 (Non-executive Director), resigned 9 July 2007 Principal Activity The principal activity of the Group was exploration, evaluation, development and operation of uranium projects in Africa and Australia. Review and Results of Operations A detailed operational and ﬁnancial review of the Group is set out on pages 20 to 41 of this report under the section entitled Management Discussion and Analysis. The Groups loss after tax for the year is US$36.0 million (2007:US$37.6 million) representing a decrease of 4% from the previous year. Dividends No dividend has been paid during the ﬁnancial year and no dividend is recommended for the current year. Signiﬁcant Changes In The State of Affairs There were no signiﬁcant changes in the state of affairs of the Group during the ﬁnancial year not otherwise dealt with in this report or listed below. On 11 March 2008, the Company issued US$325 million in convertible bonds with an underlying coupon rate of 5.0%, maturity 11 March 2013 and a conversion price of US$6.59 for Company shares. 56 Annual Report 2008 Signiﬁcant Events After The Balance Sheet Date Since the end of the ﬁnancial period, the Directors are not aware of any other matter or circumstance not otherwise dealt with in this report or the Financial Statements, that has signiﬁcantly or may signiﬁcantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent years with the exception of the following, the ﬁnancial effects of which have not been provided for in the 30 June 2008 Financial Report: Allotment of Shares and Issue of Employee Options On 3 July 2008 the Company announced the granting of 450,000 unlisted incentive options, exercisable at A$5.27 vesting after 3 years, subject to performance conditions as outlined in the Executive Share Option Plan, with a 5 year expiry and the allotment of 400,000 fully paid ordinary shares after the exercise of employee options. On 10 September 2008 the Company announced the allotment of 100,000 fully paid ordinary shares after the exercise of employee options. Appointment of Mr Ross Glossop On 10 July 2008, the Company announced the appointment of Mr Ross Glossop as Chief Financial Ofﬁcer (CFO) of the Paladin group of companies. Mr Glossop has over 25 years of experience in the resources industry, where he has held positions in internal audit, treasury, and ﬁnance with increasing managerial responsibilities. Increased Holding in Deep Yellow Ltd On 28 July 2008, the Group acquired an additional 12,500,000 shares in Deep Yellow Ltd pursuant to the exercise of 12,500,000 options exercisable at 8.1 Australian cents. The additional investments totalled A$1.0 million (US$1.0 million). After this acquisition the Group now holds 15.30% of Deep Yellow Ltd. Resources Upgrade for Langer Heinrich Uranium Project On the 28 August 2008, the Company announced an updated Mineral Resource estimate for the LHUP. Following the drilling of 717 RC holes for a total of 17,751m in all Details at Langer Heinrich, a new Mineral Resource of 56.4Mt at a grade of 0.06% U3O8 for 32,858t (72.4Mlb) U3O8 in the Measured and Indicated categories and 70.7Mt at a grade of 0.06% U3O8 for 41,557t (91.6Mlb) U3O8 in the Inferred category was estimated. The total resource for Langer Heinrich now stands at some 74,415t (164Mlb) U3O8. The Directors believe a considerable amount of these Inferred Resources will be able to be converted to Measured and Indicated Resource categories following additional drilling in the future. Ore Reserve studies are currently underway and are expected to be completed in the near future. Increased Holding in Summit Resources Ltd Information on Directors On 28 August 2008, the Company acquired an additional 3,378,733 shares in Summit Resources Ltd pursuant to a renounceable rights issue and 289,739 shares via subscription for the shortfall of the rights issue. The additional investment totalled A$9.1 million (US$8.6 million). After these acquisitions the Company now holds 81.99% of Summit Resources Ltd. Likely Developments Likely developments in the operations of the Group constituted by the Company and the entities it controls from time to time are set out under the section entitled Management, Discussion and Analysis. Environmental Regulations The Group is subject to signiﬁcant environmental regulation in respect to its exploration, evaluation, development and operational activities for uranium projects under the laws of the countries in which its activities are conducted. The Group currently has an operation in Namibia, a development in Malawi and exploration projects in Australia. The Group’s Policy is to comply with all applicable environmental laws and regulations in the countries in which it conducts business. Speciﬁc environmental regulations contained within the approvals and licences for the exploration, development and operation apply to the activities conducted at each site. In addition there are many other international and industry standards applied to the Group’s activities, including those speciﬁed for the global uranium industry. These environmental laws, regulations and standards relate to environmental factors such as radiation, water, ﬂora, fauna, air quality, noise, waste management and pollution control. The Directors are not aware of any environmental matters which would have a signiﬁcant adverse effect on the Group. Mr Rick Wayne Crabb (Non-executive Chairman) Age 51 B. Juris (Hons), LLB, MBA, FAICD Mr Crabb holds degrees of Bachelor of Jurisprudence (Honours), Bachelor of Laws and Master of Business Administration from the University of Western Australia. He has practiced as a solicitor from 1980 to 2004 specialising in mining, corporate and commercial law. He has advised on all legal aspects including ﬁnancing, marketing, government agreements and construction contracts for many resource development projects in Australia and Africa. Mr Crabb now focuses on his public company directorships and investments. He has been involved as a director and strategic shareholder in a number of successful public companies. He is presently also a director of Golden Rim Resources Ltd (since 2001), Ashburton Minerals Ltd (since 1999), Otto Energy Ltd (since 2004), Port Bouvard Ltd (since 1996) and Royal Resources Limited (since 2004). Mr Crabb was appointed a director on 8 February 1994 and Chairman on 27 March 2003. Former directorships of listed companies in last three years ST Synergy Ltd from 2001 to 2005 Aldershot Resources Ltd from 2004 to 2005 Thundelarra Exploration Ltd from 2003 to 2007 Special Responsibilities Chairman of the Board Chairman of Remuneration Committee from 1 June 2005 Chairman of Nomination Committee from 1 June 2005 Paladin Energy Ltd 57 Directors’ Report Mr John Borshoff (Managing Director) Age 63 B.Sc., F.AusIMM, FAICD Mr Donald Shumka (Non-executive Director) Age 66 B.A., MBA Mr Borshoff is a geologist who has been involved in the Australian and African exploration and mining industry for over 30 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. The primary focus of the Uranerz Group was the search and development of uranium with the company operating extensively throughout Australia, North America and Africa. He has extensive knowledge of the uranium industry and experience in company management, strategic planning and administration. He serves on a number of industry organisations including the board of the Australian Uranium Association, he is Chair of that associations Code of Practice working committee. Mr Borshoff founded Paladin Energy Ltd and was appointed a Director on 24 September 1993. Special Responsibilities Managing Director Member of Nomination Committee from 1 June 2005 Mr Sean Reveille Llewelyn (Non-executive Director) Age 60 LL.B Mr Llewelyn ﬁrst qualiﬁed as a solicitor in Australia and England, however he has worked in the ﬁnance and merchant banking industries for more than 20 years in Australia, the UK, the USA and South Africa. His considerable experience has been on derivatives, structured ﬁnance and early stage investment relating to the metal markets. He has been involved with uranium for many years and has a comprehensive understanding of the uranium market. Mr Llewelyn was involved as a key player in the formation of a joint venture company between Anglo Gold and First Rand International to assume marketing responsibility for uranium on behalf of Nuclear Fuels Corporation of South Africa (Nufcor). Mr Llewelyn was appointed to the Board on 12 April 2005. Special Responsibilities Member of Audit Committee from 12 April 2005 Member of Remuneration Committee from 1 June 2005 Member of Nomination Committee from 1 June 2005 58 Annual Report 2008 Mr Shumka is Vancouver based and is the President and Managing Director of Walden Management Ltd., a consulting ﬁrm specialising in natural resources. From 1989 to 2004, he was Managing Director, Investment Banking with CIBC World Markets and Raymond James Ltd. Prior to 1989, Mr Shumka was Vice President, Finance and Chief Financial Ofﬁcer of West Fraser Timber Co. Ltd., one of Canada’s largest forest products companies. He holds a Bachelor of Arts Degree in Economics from the University of British Columbia and a Master of Business Administration Degree from Harvard University. He currently sits on the boards of Eldorado Gold Corporation and Magma Energy Corporation. Mr Shumka was appointed to the Board on 9 July 2007. Special Responsibilities Chairman of Audit Committee from 9 July 2007 Member of Remuneration Committee from 10 August 2007 Member of Nomination Committee from 10 August 2007 Mr Ian Urquhart Noble (Non-executive Director) Age 67 BSc (Metallurgy), F.AusIMM, ARCST Mr Noble has more than 40 years experience covering the mining, chemical and nuclear industries with a strong emphasis in the mining and mineral processing ﬁelds. He is an internationally recognised consultant, specialising in hydrometallurgy and comminution, and has been involved in many of the major mining developments within Australia and overseas. He has held senior management positions with both Wright Engineers Australia Ltd and Fluor Australia and took a lead role in the design of Australia’s two major uranium processing plants. Mr Noble’s initial involvement with uranium was with Wright Engineers Pty Limited on the Rabbit Lake project in Canada. In Australia, in 1976, he was Lead Engineer on the Ranger Uranium Feasibility Study, followed by a three year involvement in the design construction phase, initially as Process Engineering Manager, and then a period as Project Engineer for the hydrometallurgical plant, and ﬁnally a year on site as Pre-Commissioning and Commissioning Manager. He was subsequently Lead Process Engineer for the design of Western Mining Corporation’s Olympic Dam Project. Mr Noble was appointed to the Board on 29 June 2005. Special Responsibilities Member of Audit Committee from 29 June 2005 Member of Nomination Committee from 29 June 2005 Interests In The Shares and Options of The Company Resignation, Election and Continuation In Ofﬁce of Directors As at date of this report, the interests of the Directors in the shares and options of Paladin Energy Ltd were: Number of Options over Ordinary Shares Ordinary Shares Number of Mr Rick Crabb 5,581,528* - Mr John Borshoff 21,591,394 2,750,000 Mr Ian Noble 21,000 - All other directors do not have an interest in shares and options of Paladin Energy Ltd. * Refer to Note 24 To The Consolidated Financial Statements, Key Management Personnel, in respect of events surrounding the decreased shareholding. Company Secretary Ms Gillian Swaby Age 48 B.Bus, FCIS, FAICD Ms Swaby has been involved in ﬁnancial and corporate administration for listed companies, as both Director and Company Secretary covering a broad range of industry sectors, for over 25 years. Ms Swaby has extensive experience in the area of secretarial practice, management accounting and corporate and ﬁnancial management. Ms Swaby is past Chair of the Western Australian Council of Chartered Secretaries of Australia, a former Director on their National Board and lecturer for the Securities Institute of Australia. Ms Swaby is the principal of a corporate consulting company and was a member of the Paladin Board for a period of 9 years. She currently serves as a Non-executive Director on Deep Yellow Limited, in which Paladin holds a 15.30% interest at 28 July 2008. Directors’ Meetings The number of Directors’ meetings and meetings of committees held in the period each Director held ofﬁce during the ﬁnancial year, and the number of meetings attended by each Director are: In accordance with the Constitution of the Company, Mr Sean Llewelyn retires by rotation at the Annual General Meeting and, being eligible, offers himself for re-election. Remuneration Report (Audited) This remuneration report outlines the director and executive remuneration arrangements of the Company and the Group in accordance with the requirements of the Corporations Act 2001 and its Regulations. For the purposes of this report, key management personnel (KMP) of the Group are deﬁned as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any director whether executive or otherwise) of the parent company, and includes the ﬁve executives in the Parent and the Group receiving the highest remuneration. For the purposes of this report, the term ‘executive’ encompasses the managing director, senior executives, general managers and secretaries of the Parent and the Group. Details of Key Management Personnel (Including The Five Highest Executives of The Company and The Group) Compensation of Key Management Personnel i) Compensation Policy (audited) The Remuneration Committee, on behalf of the Board of Directors, monitors compensation of Directors and Executives of the Company. Generally, compensation is provided by the Company to its Executives (including the Managing Director), by way of base salary, short-term bonus, granting of employee options and superannuation. The overall objective is to ensure that remuneration is fair and reasonable and sufﬁcient to attract and retain qualiﬁed and experienced Directors and Executives. Board of Directors’ meetings Audit Committee meetings Remuneration Committee meetings Nomination Committee meetings Number attended Number eligible to attend Number attended Number eligible to attend Number attended Number eligible to attend Number attended Number eligible to attend 9 9 8 8 7 9 9 9 9 9 - - 4 5 5 - - 5 5 5 2 - 2 2 - 2 - 2 2 - - - - - - - - - - - Name Mr Rick Crabb Mr John Borshoff Mr Sean Llewelyn Mr Donald Shumka Mr Ian Noble Paladin Energy Ltd 59 Directors’ Report The compensation programme for the Executives of the Company is designed to ensure that the level and form of compensation achieves certain objectives, including: (a) attracting and retaining talented, qualiﬁed and effective Executives; (b) motivating their short and long-term performance; and As the Company has only recently entered the production phase, the overall level of compensation does not focus on the earnings of the Company. The Board is, however, cognisant of general shareholder concern that long-term equity-based reward for key staff should be linked to the achievement by the Company of a performance condition. Accordingly, options granted are subject to performance conditions which must be satisﬁed before the options vest. (c) aligning their interests with those of the Company’s shareholders. Directors’ Fees In line with Corporate Governance principles, Non- executive Directors are remunerated solely by way of fees and statutory superannuation. The total pool of fees available is set by shareholders in general meeting. Following an extensive review with the assistance of external specialist remuneration consultants to both revise the share option plan and determine parameters for the payment of cash bonuses, the new Executive Share Option Plan was approved by shareholders at the 2006 Annual General Meeting. This plan is designed to increase the motivation of key staff and create a stronger link between increasing shareholder value and employee reward. Company Performance The overall level of compensation takes into account the growth in shareholder wealth of the Company. The chart below compares, assuming an initial investment of A$100, the yearly percentage change in the cumulative total shareholder return on the Company’s Ordinary Shares against the cumulative total shareholder return of the S&P/ASX 200 Index for the Company’s ﬁve most recently completed ﬁnancial years. The Company S&P 200 Index ) D U A ( 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 – Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 30 June 2004 A$ 30 June 2005 A$ 30 June 2006 A$ 30 30 June June 2007 2008 A$ A$ The Company 1,227 10,682 37,364 75,091 58,273 S&P/ASX 200 Index 117 141 168 207 172 60 Annual Report 2008 At the 2007 Annual General Meeting, shareholders approved an increase in the total pool of fees available to be paid to Non-executive Directors to A$900,000. Given the growth of the Company such an increase was considered necessary to attract and retain directors of a calibre required to effectively guide and monitor the business of the Company and to remunerate them appropriately for the expectations placed upon them both by the Company and the regulatory environment in which it operates. Fees payable to Non-executive Directors are set at A$160,000 per annum each, effective 1 February 2008, inclusive of any superannuation obligations. Exceptions to this fee structure are the Chairman of the Audit Committee who receives an additional A$20,000 per annum, and the Chairman of the Board who receives an additional A$165,000 per annum. The increased fees were arrived at on the basis of a review by external independent remuneration consultants looking at companies with similar market capitalisation. Compensation paid to the Managing Director is set out under (iv) Contracts for Services. In addition, the Company’s Constitution provides for additional compensation to be paid if any of the Directors are called upon to perform extra services or make any special exertions on behalf of the Company or the business of the Company. The Directors may compensate such Director in accordance with such services or exertions, and such compensation may be either in addition to or in substitution for the Directors’ fees referred to above. Executives Base Salary The ﬁrst step to attracting and retaining talented, qualiﬁed and effective Executives is paying base salaries which are competitive in the markets in which the Company operates. Competitive salary information on companies of a comparable size in the resource industry is compiled from a variety of sources, including surveys conducted by independent consultants and national and international publications. In addition, external remuneration consultants are involved in the process of salary determination. Expatriate Beneﬁts Share Incentive Option Plan Executives who are required to fulﬁl their responsibilities as an expatriate receive beneﬁts which may include health insurance, housing and car allowances, educational fees and tax advisory services. Short-term Cash Bonus The Company provides short-term bonuses to Executives of up to 20% of base salary. The short-term cash bonuses are entirely discretionary however the following measures are taken into account where these are applicable to the speciﬁc Executive: (a) production performance; (b) project development performance; (c) additional uranium resources delineated; (d) performance of the Company in meeting its various other objectives; (e) ﬁnancial performance of the Company; and (f) such other matters determined by the Remuneration Committee in its discretion. Speciﬁc targets for individuals have not been set. On an annual basis, as part of the remuneration review process and taking into account both the individuals the Company’s performance, the Remuneration Committee in accordance with its charter, determines the amount, if any, of the short-term bonus to be paid. In respect of the Managing Director, a bonus of up to 100% of base salary can be achieved, to be determined by the Remuneration Committee having consideration to outcomes achieved during the year. Outcomes to be considered include: - - - - - - - Continued nameplate (or better) production at Langer Heinrich; Kayelekera construction continuing on schedule and within budget; continued high safety and environmental achievements; continued good social programmes in Karonga region; development of the Paladin Nuclear Ltd business model; successful M&A activity; ongoing improvement (to handle corporate growth) of organisational structure, controls, reporting and infrastructure; and - impact on total shareholder return. The above measures have been selected to align the interests of Executives with shareholders. The Remuneration Committee is responsible for assessing whether the measures are met. The Company believes that encouraging its key employees to become shareholders is the best way of aligning their interests with those of its shareholders. Equity participation is accomplished through the Company’s Executive Share Option Plan which was approved by shareholders in November 2006. This replaced the previous plan and the Board believes that grants made under this Plan provide a powerful tool to achieve the following objectives:- - - - - enable the Company to recruit and retain the talented people needed to achieve the Company’s business objectives; link the reward of key staff with the achievement of strategic goals and the long-term performance of the Company; align the ﬁnancial interests of Plan participants with those of the shareholders; and provide incentives to Plan participants to focus on superior performance that creates shareholder value. The Board determines the number of options offered to an employee by reference to their base package and the option value, based on the binomial tree method with reference to the following formula:- Number of Options = Base Package x Stretch LTI% Option value (based on the binomial tree model) The resultant number of options may be adjusted, at the Board’s discretion, to deal with any special circumstances or other factors. “Stretch LTI” refers to the long-term incentive percentage of the Base Package that allows the maximum number of options to vest (i.e. become able to be exercised) if the performance condition is satisﬁed to the maximum. The “binomial tree model” for determining the option value is the mathematical model used in accordance with the International Financial Reporting Standards. By way of example, the stretch LTI is, in the case of the Managing Director, 180%; and senior executives 100%. Information on the Option Plan is set out under Note 29 Share Based Payment Plan. During the ﬁnancial year, a number of options were granted to attract high calibre executives, in what continues to be a highly competitive and tight market for human capital. These options granted during the year included speciﬁc vesting periods. The Company’s policy prohibits hedging of options granted under share option plans. Prohibited hedging practices include put/call arrangements over “in money” options to hedge against a future drop in share price. The Board considers such hedging to be against the spirit of a share option plan and inconsistent with shareholder objectives. Paladin Energy Ltd 61 Directors’ Report ii) Compensation of Key Management Personnel for the year ended 30 June 2008 (Consolidated and Company) Short-term Post Share Employment Based Payment Total Total (3) Total Total Perfor- Perfor- mance mance Related Related Salary & fees A$’000 Non Cash bonus Monetary Beneﬁts A$’000 A$’000 A$’000 Other Superan- Options nuation A$’000 A$’000 A$’000 US$’000 A$’000 % Directors Mr Rick Crabb 256 - Mr John Borshoff 1,587 600 Mr Sean Llewelyn Mr George Pirie Mr Ian Noble Mr Donald Shumka 127 2 127 151 - - - - Subtotal 2,250 600 Executives Ms Gillian Swaby Mr Ron Chamberlain Mr Wyatt Buck - 272 341 Mr James Eggins 317 35 20 50 20 - 30 50 - 50 50 - - - 575 302 247 211 427 143 34 157 - 3,026 5,276 305 905 Mr Dustin Garrow Mr David Marsh Mr Brendan O’Hara Mr Simon Solomons Mr Andrew Morgan Mr Eduard Becker Ms Cathy Gupanis Mr Greg Walker Mr Ross Glossop Subtotal Total - - - - - - - - - 10 - - - - 22 - - - 8 - 40 40 - - - - - - - 390 (1) - - - - - - - - - - - - 13 13 11 - 11 - 48 - 13 41 13 - 13 13 7 13 7 2 7 - - 269 240 - - 3,145 5,345 4,779 3,745 70.1 - - - - 138 2 138 151 123 2 123 135 - - - - - - - - 3,145 6,043 5,402 3,745 229 170 598 462 501 953 854 225 544 115 30 (2) 168 15 (2) 654 475 1,040 812 1,076 585 425 930 726 962 1,298 1,161 1,164 1,041 465 1,034 315 66 340 15 416 925 282 59 304 13 264 190 648 482 501 983 904 225 594 165 30 168 40.4 40.0 62.3 59.4 46.6 75.7 77.7 48.4 57.4 52.4 45.5 49.4 15 100.0 390 129 4,864 8,754 7,829 5,169 390 177 8,009 14,797 13,231 8,914 (1) Other represents fees paid for company secretarial services to a company of which Ms Gillian Swaby is a director and shareholder. (2) Options were granted on acceptance of the position prior to commencement (3) Exchange rate used in average for year US$ 1= AU$ 1.11832 62 Annual Report 2008 ii) Compensation of Key Management Personnel for the year ended 30 June 2007 (Consolidated and Company) Short-term Post Share Employment Based Payment Total Total (4) Total Total Perfor- Perfor- mance mance Related Related Non Cash bonus Monetary Beneﬁts A$’000 A$’000 A$’000 Other Superan- Options nuation A$’000 A$’000 A$’000 US$’000 A$’000 % Salary & fees A$’000 202 921 95 109 95 Directors Mr Rick Crabb Mr John Borshoff Mr Sean Llewelyn Mr George Pirie Mr Ian Noble - 600 - - - Subtotal 1,422 600 Executives Mr Garnet Halliday (deceased) 355 150 Ms Gillian Swaby Mr Ron Chamberlain - 232 Mr Wyatt Buck 315 Mr James Eggins 340 Mr Dustin Garrow Mr David Marsh Mr Brendan O’Hara 266 280 180 50 20 30 35 - 38 5 - - - - - - - - - 21 - 178 (1) 302 (2) - - - - 5,249 (3) 127 - - - - - - - - - 13 13 9 - 9 - 215 169 - - 1,098 2,632 2,064 1,698 64.5 - - - 104 109 104 82 85 82 - - - - - - 44 1,098 3,164 2,482 1,698 9 - 13 - 13 - 13 12 60 - 55 167 692 407 432 543 319 339 150 105 187 1,136 1,502 1,178 1,166 532 554 1,354 1,052 920 722 6,069 4,760 567 554 1,812 1,421 1,392 1,249 980 1,057 4,850 13,083 10,262 5,178 21.7 25.8 43.3 77.6 61.6 9.1 76.8 84.6 Subtotal Total 1,968 328 148 5,729 3,390 928 148 5,729 104 5,948 16,247 12,744 6,876 (1) Other represents a death beneﬁt. (2) Other represents fees paid for company secretarial services to a company of which Ms Gillian Swaby is a director and shareholder. (3) Other represents a discretionary payment relating to the 2004 to 2006 formative period for the Company. (4) Exchange rate used in average for year US$1 = AU$ 1.27493 (cid:73)(cid:73)(cid:73)(cid:9)(cid:0) (cid:35)(cid:79)(cid:77)(cid:80)(cid:69)(cid:78)(cid:83)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:66)(cid:89)(cid:0)(cid:35)(cid:65)(cid:84)(cid:69)(cid:71)(cid:79)(cid:82)(cid:89)(cid:26)(cid:0)(cid:43)(cid:69)(cid:89)(cid:0)(cid:45)(cid:65)(cid:78)(cid:65)(cid:71)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:48)(cid:69)(cid:82)(cid:83)(cid:79)(cid:78)(cid:78)(cid:69)(cid:76) Short-Term Post Employment Share-Based Payment Consolidated Parent Entity 2008 US$’000 2007 US$’000 2008 US$’000 2007 US$’000 5,911 158 7,162 7,998 81 4,655 5,553 121 6,627 7,710 81 3,774 13,231 12,744 12,301 11,565 Paladin Energy Ltd 63 Directors’ Report iv) Contracts for Services Remuneration and other terms of employment for the Key Management Personnel are normally formalised in contracts for services. All contracts with Key Management Personnel may be terminated early by either party providing between 3 to 6 months written notice or providing payments in lieu of the notice period (based on ﬁxed component of remuneration). On termination notice by the Company, any options that have vested, or that will vest during the notice period, will be released. Options that have not yet vested will be forfeited. Mr John Borshoff, Managing Director Mr Dustin Garrow, Executive General Manager – Marketing Term of agreement – no ﬁxed term. Base salary, of A$550,000, increased to A$600,000 effective 1 January 2008. No termination beneﬁt is speciﬁed in the agreement. Mr Brendan O’Hara, General Manager – Special Projects & Risk Term of agreement – no ﬁxed term. Base salary, inclusive of superannuation, of A$220,000, increased to A$300,000 effective 1 January 2008. Term of agreement – 2 years commencing 1 March 2008. No termination beneﬁt is speciﬁed in the agreement. Base salary, inclusive of superannuation, of A$1,400,000 increased to A$1,800,000 effective 1 January 2008. Payment of a beneﬁt on retirement or early termination by the Company, other than for gross misconduct, equal to 2 times base salary for the two years immediately preceding the termination date. This beneﬁt was approved by the Company shareholders on 9 November 2005. Ms Gillian Swaby, Company Secretary No contract for service exists for Ms Gillian Swaby and fees are paid in the ordinary course of business for company secretarial services to a company of which Ms Gillian Swaby is a director and shareholder. Mr Ron Chamberlain, Chief Financial Ofﬁcer (Resigned 18th July 2008) Term of agreement – no ﬁxed term. Mr David Marsh, General Manager – Technical Project Development Term of agreement – no ﬁxed term. Base salary, inclusive of superannuation, of A$300,000, increased to A$330,000 effective 1 January 2008. No termination beneﬁt is speciﬁed in the agreement. Mr Ross Glossop, Chief Financial Ofﬁcer (Commenced 18th July 2008) Term of agreement – no ﬁxed term. Base salary, inclusive of superannuation of A$425,000. No termination beneﬁt is speciﬁed in the agreement. Options were granted on acceptance of the position prior to his commencement on 18th July 2008. Base salary, inclusive of superannuation, of A$250,000 increased to A$320,000 effective 1 January 2008. Mr Simon Solomons, Executive General Manager – Operations Development (Commenced 12th January 2008) No termination beneﬁt is speciﬁed in the agreement. Term of agreement – no ﬁxed term. Base salary, inclusive of superannuation of A$430,000. No termination beneﬁt is speciﬁed in the agreement. Mr Andrew Morgan, General Manager Project Construction (Commenced 1st July 2007, formerly on contract for 2 years) Term of agreement – no ﬁxed term. Base salary, inclusive of superannuation of A$366,666 plus 20% expatriate allowance increased to A$400,000 plus 10% expatriate allowance effective 1 January 2008. No termination beneﬁt is speciﬁed in the agreement. Mr Wyatt Buck, General Manager – Production & Langer Heinrich Operations Term of agreement – no ﬁxed term. Base salary, inclusive of superannuation, of A$280,000 + 10% expatriate allowance increased to A$400,000 effective 1 January 2008. No termination beneﬁt is speciﬁed in the agreement. Mr James Eggins, General Manager – Sales and Contract Administration Term of agreement – no ﬁxed term. Base salary, inclusive of superannuation, of A$320,000 increased to A$340,000 effective 1 January 2008. No termination beneﬁt is speciﬁed in the agreement. 64 Annual Report 2008 Mr Ed Becker, General Manager – Geology & Exploration (Promoted 1st January 2008) Term of agreement – no ﬁxed term. Remuneration for all parties referred to above includes provision of an annual discretionary bonus and initial and ongoing discretionary grant of options. Base salary, inclusive of superannuation of A$300,000. (cid:86)(cid:9)(cid:0) (cid:35)(cid:79)(cid:77)(cid:80)(cid:69)(cid:78)(cid:83)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:47)(cid:80)(cid:84)(cid:73)(cid:79)(cid:78)(cid:83)(cid:26)(cid:0)(cid:39)(cid:82)(cid:65)(cid:78)(cid:84)(cid:69)(cid:68)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:86)(cid:69)(cid:83)(cid:84)(cid:69)(cid:68)(cid:0)(cid:68)(cid:85)(cid:82)(cid:73)(cid:78)(cid:71)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0) No termination beneﬁt is speciﬁed in the agreement. Ms Cathy Gupanis, General Manager – Sustainable Development (Commenced 1st May 2008, formerly a consultant for 10 years) Term of agreement – no ﬁxed term. Base salary, inclusive of superannuation of A$218,625. No termination beneﬁt is speciﬁed in the agreement. Mr Greg Walker, General Manager – International Affairs (Commenced 7th January 2008) Term of agreement – no ﬁxed term. Base salary, inclusive of superannuation of A$325,000. No termination beneﬁt is speciﬁed in the agreement. year (Consolidated and Company) During the ﬁnancial year options were granted as equity compensation beneﬁts under the long-term incentive plan to certain Key Management Personnel. The options were issued at no consideration. Each option entitles the holder to subscribe for one fully paid ordinary share in the entity at the exercise price. The contractual life of each option granted is ﬁve years (2007: ﬁve years). There are no cash settlement alternatives. No options have been granted since the end of the year to the Key Management Personnel listed below. For further details relating to the options, refer to Note 29. Vested Granted Terms & Conditions for each Grant 30 June 2008 No. No. Fair Value Exercise per option Price per at grant date (A$) (Note 29) (Note 29) option (A$) Grant Date Expiry Date First Last Exercise Exercise Date Date Directors Mr John Borshoff Executives 1,250,000 29/01/08 A$2.90 A$4.50 29/01/13 29/01/11 29/01/13 Ms Gillian Swaby - 258,785 29/01/08 A$2.66 A$4.50 29/01/13 29/01/11 29/01/13 Mr Ron Chamberlain 200,000 100,545 29/01/08 A$2.66 A$4.50 29/01/13 29/01/11 29/01/13 Mr Wyatt Buck Mr James Eggins Mr Dustin Garrow Mr David Marsh 500,000 201,533 29/01/08 A$2.66 A$4.50 29/01/13 29/01/11 29/01/13 650,000 146,698 29/01/08 A$2.66 A$4.50 29/01/13 29/01/11 29/01/13 600,000 266,199 29/01/08 A$2.66 A$4.50 29/01/13 29/01/11 29/01/13 500,000 140,654 29/01/08 A$2.66 A$4.50 29/01/13 29/01/11 29/01/13 Mr Brendan O’Hara 500,000 216,480 29/01/08 A$2.66 A$4.50 29/01/13 29/01/11 29/01/13 Mr Simon Solomons - 600,000 29/01/08 A$2.66 A$4.50 29/01/13 29/01/11 29/01/13 Mr Andrew Morgan 150,000 235,296 29/01/08 A$2.66 A$4.50 29/01/13 29/01/11 29/01/13 Mr Eduard Becker Ms Cathy Gupanis Mr Greg Walker Mr Ross Glossop - - - 208,925 29/01/08 A$2.66 A$4.50 29/01/13 29/01/11 29/01/13 25,000 18/04/08 A$2.61 A$4.59 18/04/13 18/04/11 18/04/13 450,000 29/01/08 A$2.66 A$4.50 29/01/13 29/01/11 29/01/13 450,000 18/06/08 A$3.01 A$5.27 18/06/13 18/06/11 18/06/13 Total 3,100,000 4,550,115 Paladin Energy Ltd 65 Directors’ Report Vested Granted Terms & Conditions for each Grant 30 June 2007 No. No. Directors Fair Value Exercise per option Price per at grant date (A$) (Note 29) (Note 29) option (A$) Grant Date Expiry Date First Last Exercise Exercise Date Date Mr John Borshoff - 1,500,000 1/02/07 A$5.27 A$8.77 1/02/12 1/02/10 1/02/12 Executives Ms Gillian Swaby Mr Ron Chamberlain Mr Wyatt Buck Mr James Eggins Mr Dustin Garrow Mr David Marsh Mr Brendan O’Hara Mr Brendan O’Hara - - 75,000 35,700 1/02/07 A$5.27 A$8.77 1/02/12 1/02/10 1/02/12 1/02/07 A$4.65 A$8.77 1/02/12 1/02/10 1/02/12 500,000 150,000 1/02/07 A$4.65 A$8.77 1/02/12 1/02/10 1/02/12 - - - - - 100,000 1/02/07 A$4.65 A$8.77 1/02/12 1/02/10 1/02/12 78,570 1/02/07 A$4.65 A$8.77 1/02/12 1/02/10 1/02/12 100,000 1/02/07 A$4.65 A$8.77 1/02/12 1/02/10 1/02/12 1,000,000 5/07/06 A$1.96 A$5.50 5/07/09 5/01/08 5/07/09 31,400 1/02/07 A$4.65 A$8.77 1/02/12 1/02/10 1/02/12 Total 500,000 3,070,670 vi) Shares Issued on exercise of Compensation Options (Consolidated and Company) 30 June 2008 No. Shares issued Directors Mr John Borshoff Mr Rick Crabb Executives Ms Gillian Swaby Mr Ron Chamberlain Total 3,750,000 3,250,000 2,750,000 200,000 9,750,000 Paid per share (Note 29) A$ A$1.00 A$1.00 A$1.00 A$2.80 Unpaid per share A$ - - - - No other Key Management Personnel exercised options during the year ended 30 June 2008. 30 June 2007 No. Shares issued Executives Mr Ron Chamberlain Mr Ron Chamberlain Mr Garnet Halliday Mr Garnet Halliday Mr James Eggins Mr Dustin Garrow Total 500,000 300,000 2,000,000 1,000,000 350,000 400,000 4,550,000 Paid per share (Note 29) A$ A$1.00 A$1.25 A$1.00 A$1.25 A$1.00 A$1.00 Unpaid per share A$ - - - - - - No other Key Management Personnel exercised options during the year ended 30 June 2007. 66 Annual Report 2008 Value at exercise date A$ 23,100,000 20,020,000 18,700,000 1,282,000 Value at exercise date A$ 3,990,000 1,248,000 14,240,000 7,120,000 1,456,000 1,816,000 vii) Options granted as part of remuneration Value of options granted during the year A$000 Value of options exercised during the year A$000 Value of options lapsed during the year A$000 % Remuneration consisting of for the year A$000 John Borshoff Gillian Swaby Ron Chamberlain Wyatt Buck James Eggins Dustin Garrow David Marsh Brendan O’Hara Simon Solomons Andrew Morgan Eduard Becker Cathy Gupanis Greg Walker Ross Glossop 3,625 688 267 536 390 708 374 576 1,596 626 556 65 1,197 1,354 948 670 288 - - - - - - - - - - - - - - - - - - - - - - - - - 58.8% 35.0% 35.8% 57.5% 56.9% 46.6% 73.4% 73.4% 48.4% 52.6% 36.5% 45.5% 49.4% 100.0% There were no alterations to the terms and conditions of options granted as remuneration since their grant date. The outstanding balance of Ron Chamberlain’s unvested options was forfeited following his resignation from the company, on 10 July 2008. The maximum grant, which will be payable assuming that all service and performance criteria are met, is equal to the number of options granted multiplied by the fair value at the grant date. The minimum grant payable assuming that service and performance criteria are not met is zero. Shares Under Option Unissued ordinary shares of the Company under option at the date of this report are as follows: Date options granted Expiry date Exercise price of options Number under option 13 January 2006 19 January 2006 16 February 2006 27 April 2006 5 July 2006 20 July 2006 1 February 2007 29 January 2008 15 February 2008 15 February 2008 18 April 2008 18 June 2008 Total 13 January 2009 13 January 2009 13 January 2009 28 April 2009 5 July 2009 5 July 2009 1 February 2012 29 January 2013 15 February 2011 15 February 2013 18 April 2013 18 June 2013 A$2.80 A$2.80 A$2.80 A$5.50 A$5.50 A$5.50 A$8.77 A$4.50 A$5.37 A$5.37 A$4.59 A$5.27 820,000 500,000 1,100,000 1,565,000 600,000 400,000 2,697,970 7,588,485 700,000 450,000 1,075,000 450,000 17,946,455 No option holder has any right under the options to participate in any other share issue of the Company or of any other entity. Paladin Energy Ltd 67 Directors’ Report Shares Issued as a Result of The Exercise of Options During the ﬁnancial year, directors, employees and consultants have exercised options to acquire 11,060,000 fully paid ordinary shares in Paladin Energy Ltd at a weighted average price of A$1.06. Since the end of the ﬁnancial year, a further 500,000 options have been exercised, at a weighted average price of A$4.96. Insurance of Ofﬁcers During the ﬁnancial year, the Company has paid premiums to insure the Directors and Speciﬁed Executives against certain liabilities arising out of their conduct while acting as an ofﬁcer of the Company. Under the terms and conditions of the insurance contract, the nature of liabilities insured against and the premium paid cannot be disclosed. Rounding The amounts contained in this report, the Financial Report and the Management, Discussion and Analysis have been rounded to the nearest US$100,000 (where rounding is applicable) under the option available to the Company under ASIC Class Order 98/0100. The Company is an entity to which the Class Order applies. Auditor Ernst & Young were appointed auditors for the Company on 21 June 2005, which was approved by shareholders at the 2005 Annual General Meeting on 9 November 2005. Auditor Independence and Non-Audit Services The Directors received the following declaration from the auditor of Paladin Energy Ltd. Auditor’s Independence Declaration to The Directors of Paladin Energy Ltd In relation to our audit of the ﬁnancial report of Paladin Energy Ltd for the year ended 30 June 2008, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct. Ernst & Young Non-Audit Services V W Tidy Partner Perth 11 September 2008 The following non-audit and assurance services were provided by the Company’s auditor, Ernst & Young. The Directors are satisﬁed that the provision of non-audit and assurance services is compatible with the general standard of independence for auditors imposed by the Corporations Act. The nature and scope of each type of non-audit and assurance service provided means that auditor independence was not compromised. Ernst & Young received or are due to receive US$335,000 for the year ended 30 June 2008 for the provision of taxation services. Signed in accordance with a resolution of the Directors. Mr John Borshoff Managing Director Perth, Western Australia 11 September 2008 68 Annual Report 2008 financial report Contents note title page note title page Consolidated Income Statements Consolidated Balance Sheets Consolidated Statements of Changes in Equity Parent Entity Statements of Changes in Equity Consolidated Cash Flow Statements Notes to the Consolidated Financial Statements Note 1. Corporate Information Note 2. Summary of Significant Accounting Policies Note 3. Segment Information Note 4. Revenues and Expenses Note 5. Income Tax Note 6. Cash and Cash Equivalents Note 7. Trade and Other Receivables Note 8. Inventories Note 9. Investments Held for Trading Note 10. Other Financial Assets Note 11. Investment in Associate Note 12. Deferred Borrowing Costs Note 13. Property, Plant and Equipment Note 14. Mine Development 70 71 72 73 74 75 75 75 92 93 95 98 99 100 100 101 102 103 104 106 Note 15. Exploration and Evaluation Expenditure Note 16. Intangible Assets Note 17. Trade and Other Payables Note 18. Unearned Revenue Note 19. Interest Bearing Loans and Borrowings Note 20. Provisions Note 21. Contributed Equity and Reserves Note 22. Minority Interests Note 23. Financial Instruments Note 24. Key Management Personnel Note 25. Auditors’ Remuneration Note 26. Commitments and Contingencies Note 27. Employee Benefits Note 28. Related Parties Note 29. Share-Based Payment Plan 107 111 111 112 112 114 116 123 123 131 134 135 137 137 137 Note 30. Interests In Jointly Controlled Assets 140 Note 31. Business Combination and Asset Acquisition 141 Note 32. Events After The Balance Sheet Date 142 Note 33. Non-Cash Financing and Investment Activities Note 34. Earnings Per Share 143 143 Paladin Energy Ltd 69 consolidated income statements for the year ended 30 June 2008 Revenue from continuing operations Revenue Cost of sales Gross profit/(loss) Other income Exploration and evaluation expenses Other expenses Finance costs Share of loss of an associate Loss before income tax benefit Notes 4(a) 4(c) 4(b) 15 4(e) 4(d) 11(b) Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M 101.9 (66.4) 35.5 - (13.1) (35.7) (30.7) (0.2) (44.2) 11.2 (12.0) (0.8) 0.1 (7.4) (28.6) (13.0) - 11.2 - - 11.2 - - - (28.5) (27.1) - - 10.8 10.8 0.1 (28.0) (11.1) (49.7) (44.4) (28.2) Income tax benefit 5 7.0 11.7 2.6 1.2 Loss after tax from continuing operations (37.2) (38.0) (41.8) (27.0) Minority interests 22 1.2 0.4 - - Loss after tax from continuing operations attributable to the ordinary equity holders of the Company (36.0) (37.6) (41.8) (27.0) Earnings per share US$ US$ Loss from continuing operations attributable to ordinary equity holders – basic and diluted 34 (0.06) (0.07) The above Consolidated Income Statements should be read in conjunction with the accompanying notes. 70 Annual Report 2008 consolidated balance sheets as at 30 June 2008 ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Financial assets held for trading TOTAL CURRENT ASSETS Non current assets Trade and other receivables Other financial assets Investment in associate Deferred borrowing costs Property, plant and equipment Mine development Exploration and evaluation expenditure Deferred tax asset Intangible assets TOTAL NON CURRENT ASSETS TOTAL ASSETS LIABILITIES Current liabilities Trade and other payables Unearned revenue Interest bearing loans and borrowings Provisions TOTAL CURRENT LIABILITIES Non current liabilities Trade and other payables Unearned revenue Interest bearing loans and borrowings Deferred tax liabilities Provisions TOTAL NON CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS Equity Contributed equity Reserves Accumulated losses Parent interests Minority interests TOTAL EQUITY Notes Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M 6 7 8 9 7 10 11 12 13 14 15 5 16 17 18 19 20 17 18 19 5 20 21(a) 21(d) 22 337.6 40.0 68.9 1.4 447.9 - 41.7 2.6 1.7 229.5 12.2 1,797.9 13.0 16.6 2,115.2 2,563.1 41.4 0.2 11.0 1.5 54.1 - 0.5 571.5 499.3 8.4 1,079.7 1,133.8 1,429.3 1,088.4 234.1 (101.0) 1,221.5 207.8 1,429.3 182.8 12.6 38.0 - 233.4 - 60.3 - 0.2 133.1 2.0 1,601.4 10.4 17.6 1,825.0 2,058.4 13.8 0.2 4.4 10.6 29.0 - 0.6 269.2 448.2 3.1 721.1 750.1 317.4 9.4 - - - - 326.8 218.6 1,019.7 - - - - 17.8 - - - - - - - - 1,256.1 1,582.9 7.5 - - - - 1.0 8.5 1.0 - - 517.4 10.8 0.1 - 529.3 537.8 169.7 4.2 173.9 81.3 1,027.3 17.3 1,125.9 1,299.8 2.8 0.5 3.3 2.7 209.2 16.1 228.0 231.3 1,308.3 1,045.1 1,068.5 1,075.3 113.2 (65.0) 1,088.4 56.3 (99.6) 1,075.3 51.0 (57.8) 1,123.5 1,045.1 1,068.5 184.8 - - 1,308.3 1,045.1 1,068.5 The above Consolidated Balance Sheets should be read in conjunction with the accompanying notes. Paladin Energy Ltd 71 - - - - - - consolidated statements of changes in equity for the year ended 30 june 2008 Notes Contributed Equity US$M Reserves US$M Accumulated Minority Interests US$M Losses US$M Total US$M 112.3 5.1 (26.4) CONSOLIDATED At 1 July 2006 Changes in fair value of available-for-sale financial assets Loss for the year ended Recognised value of unlisted employee options over vesting period Exercise of unlisted employee options 21(b) 1.8 Contributions of equity, net of transactions costs Convertible bonds – equity component Foreign currency translation Functional currency transition adjustment Income tax on items taken directly to equity Acquisition of Summit Resources Ltd Recognition of minority interests on acquisition of Summit Resources Ltd 21(b) 957.4 - - 3.8 - - - (37.6) (0.4) - - - - - - 0.1 - - - 91.0 37.5 (38.0) 6.2 - 957.4 37.8 33.6 6.5 (23.7) 14.9 185.1 185.1 - - - - - - (1.0) - - - 37.5 - 6.2 (1.8) - 37.8 33.5 3.7 (23.7) 14.9 - At 30 June 2007 1,075.3 113.2 (65.0) 184.8 1,308.3 1,075.3 113.2 (65.0) 184.8 1,308.3 CONSOLIDATED At 1 July 2007 Changes in fair value of available- for-sale financial assets Loss for the year ended Recognised value of unlisted employee options over vesting period Exercise of unlisted employee options 21(b) 2.6 Contributions of equity, net of transactions costs Convertible bonds – equity component Foreign currency translation 21(b) 10.5 - - Income tax on items taken directly to equity - (44.6) - 10.6 (2.6) - 17.8 131.6 8.1 - (36.0) - (1.2) (44.6) (37.2) - - - - - - - - - - 24.2 - 10.6 - 10.5 17.8 155.8 8.1 At 30 June 2008 1,088.4 234.1 (101.0) 207.8 1,429.3 The above Consolidated Statements of Changes in Equity should be read in conjunction with the accompanying notes. 72 Annual Report 2008 parent entity statements of changes in equity for the year ended 30 june 2008 Notes Contributed Equity US$M Reserves US$M Accumulated Losses US$M Total US$M PARENT ENTITY At 1 July 2006 Change in fair value of available-for-sale financial assets Loss for the year ended Recognised value of unlisted employee options over vesting period Exercise of unlisted employee options Contributions of equity, net of transactions costs 21(b) 21(b) Convertible bonds – equity component Foreign currency translation Functional currency transition adjustment Income tax on items taken directly to equity At 30 June 2007 PARENT ENTITY At 1 July 2007 112.3 2.0 (29.9) 84.4 - - - 1.8 957.4 - - 3.8 - 18.6 - 6.2 (1.8) - 37.8 2.0 3.1 (16.9) - (27.0) - - - - - (0.9) - 18.6 (27.0) 6.2 - 957.4 37.8 2.0 6.0 (16.9) 1,075.3 51.0 (57.8) 1,068.5 1,075.3 51.0 (57.8) 1,068.5 Change in fair value of available-for-sale financial assets Loss for the year ended Recognised value of unlisted employee options over vesting period Exercise of unlisted employee options Contributions of equity, net of transactions costs Convertible bonds – equity component Foreign currency translation Income tax on items taken directly to equity 21(b) 21(b) - - - 2.6 10.5 - - - At 30 June 2008 1,088.4 (28.4) - - (41.8) (28.4) (41.8) 10.6(1) (2.6) - 17.8 4.7 3.2 56.3 - - - - - - 10.6 - 10.5 17.8 4.7 3.2 (99.6) 1,045.1 (1) Recognised value of unlisted employee options over vesting period is larger than the share-based payments expense disclosed in Note 4(e) due to US$1.8 million expense allocated to the subsidiaries. The above Parent Entity Statements of Changes in Equity should be read in conjunction with the accompanying notes. Paladin Energy Ltd 73 consolidated cash flow statements for the year ended 30 june 2008 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest received Interest received from controlled entities Interest paid Other income NET CASH OUTFLOW FROM OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Exploration and evaluation expenditure Payments for property, plant and equipment Loans to controlled entities Loans from controlled entities Payments for available-for-sale financial assets Payments for controlled entities net of cash acquired 10(a) Proceeds on sale of property, plant & equipment Proceeds on sale of tenements Proceeds from sale of available-for-sale investments Notes Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M 68.4 (77.1) 7.5 - (17.4) 0.2 - (38.2) 6.8 - (7.2) - - - (17.2) (11.4) 6.5 3.2 (11.3) - - 6.3 3.6 (5.6) 6(a) (18.4) (38.6) (18.8) (7.1) (11.7) (99.6) - - - (17.8) - 1.9 2.1 - (8.6) (88.9) - (13.2) 21.3 0.2 - 0.6 - - (1.1) (154.3) 12.3 (15.7) - - - - - - - - (18.7) (56.7) 2.6 (12.3) (5.5) 0.6 Payments for third party uranium (25.8) (33.4) NET CASH OUTFLOW FROM INVESTING ACTIVITIES (150.9) (122.0) (158.8) (90.0) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from exercise of share options Equity fundraising costs Convertible bonds and project finance facility establishment costs Repayment of borrowings Proceeds from borrowings Proceeds from convertible bonds NET CASH INFLOW FROM FINANCING ACTIVITIES NET INFLOW IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL PERIOD 10.5 - (11.2) (4.6) 4.3 325.0 324.0 154.7 7.4 (0.3) (8.0) - 49.6 250.0 298.7 138.1 10.5 - 7.4 (0.3) (9.7) (7.9) - - - - 325.0 325.8 148.2 250.0 249.2 152.1 182.8 43.6 169.7 16.6 0.1 1.1 (0.5) 1.0 6 337.6 182.8 317.4 169.7 The above Consolidated Cash Flow Statements should be read in conjunction with the accompanying notes. 74 Annual Report 2008 notes to the consolidated financial statements for the year ended 30 June 2008 Note 1. Corporate Information The financial report of Paladin Energy Ltd for the year ended 30 June 2008 was authorised for issue in accordance with a resolution of the Directors on 22 August 2008, subject to final drafting and audit. Paladin Energy Ltd is a company limited by shares incorporated and domiciled in Australia whose shares are publicly traded on the Australian Securities Exchange with additional listings on the Toronto Stock Exchange in Canada; Munich, Berlin, Stuttgart and Frankfurt Stock Exchanges in Europe; and the Namibian Stock Exchange in Africa. The nature of the operations and principal activities of the Group are described in Management Discussion and Analysis on pages 14 to 41. Note 2. Summary of Significant Accounting Policies (a) Basis of preparation The financial report is a general purpose financial report, which complies with the requirements of the Corporations Act 2001 and Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report complies with International Financial Reporting Standards. The financial report has also been prepared on a historical cost basis, except for available-for-sale investments and financial assets held for trading, which have been measured at fair value. In addition to these Australian requirements further information has been included in the Consolidated Financial Statements for the year ended 30 June 2008 in order to comply with applicable Canadian securities law, as the Company is listed on the Toronto Stock Exchange. The financial report is presented in United States dollars and all values are rounded to the nearest hundred thousand dollars (US$100,000) unless otherwise stated under the option available to the Company under Australian Securities and Investments Commission (ASIC) Class Order 98/100. The Company is an entity to which the class order applies. (b) Statement of compliance The following Australian Accounting Standards that have recently been issued or amended but are not yet effective, have not been applied by Paladin Energy Ltd: Reference Title Summary AASB 2007-2 Amendments to Australian Accounting Standards arising from AASB Interpretation 12 [AASB 1, AASB 117, AASB 118, AASB 120, AASB, 121 AASB 127, AASB 131 & AASB 139] Amending standard issued as a consequence of AASB Interpretation 12 Service Concession Arrangements. Application Date for Group* 1 July 2008 Application Date of Standard 1 January 2008 Impact on Group Financial report As the Group currently has no service concession arrangements or public-private- partnerships (PPP) it is expected that this Interpretation will have no impact on its financial report. Paladin Energy Ltd 75 notes to the consolidated financial statements for the year ended 30 June 2008 Note 2. Summary of Significant Accounting Policies (continued) (b) Statement of compliance (continued) Reference Title Summary AASB 2007-3 Amending standard issued as a Amendments to Australian Accounting Standards arising from consequence of AASB 8 [AASB 5, AASB 6, AASB 102, AASB 107, AASB 119, AASB 127, AASB 134, AASB 136, AASB 1023 & AASB 1038] AASB 8 Operating Segments. Application Date of Standard 1 January 2009 AASB 2007-6 Amendments to Australian Accounting Standards arising from AASB 123 [AASB 1, AASB 101, AASB 107, AASB 111, AASB 116& AASB 138 and Interpretations 1 & 12] 1 January 2009 Amending standard issued as a consequence of AASB 123 (revised) Borrowing Costs AASB 2007-8 Amendments to Australian Accounting Standards arising from AASB 101 1 January 2009 Amending standard issued as a consequence of revisions to AASB 101 Presentation of Financial Statements 76 Annual Report 2008 Impact on Group Financial report Application Date for Group* 1 July 2009 AASB 8 is a disclosure standard so will have no direct impact on the amounts included in the Group’s Financial Statements. However, the new standard may have an impact on the segment disclosures included in the Group’s financial report. 1 July 2009 The Group does currently construct qualifying assets which are financed by borrowings, however, the revised no impact as it is consistent with the current consistent with the current Group policy. 1 July 2009 The amendments are expected to only affect the presentation of the Group’s financial report and will not have a direct impact on the measurement and recognition of amounts under the current AASB 101. The Group has not determined at this stage whether to present the new statement of comprehensive income as a single or two statements. Note 2. Summary of Significant Accounting Policies (continued) (b) Statement of compliance (continued) Reference Title Summary AASB 2008-1 AASB 2008-2 AASB 2008-3 AASB 3 (revised) Amendments to Australian Accounting Standards-Share- based Payments: Vesting Conditions and non-vesting condition Cancellations [AASB 2] The amendments to AASB 2 requires instances where a failure to satisfy a that is within the control of either the entity or the counterparty to be accounted for as a cancellation Amendments to Australian Accounting Standardss-Puttable Financial Instruments and Obligations arising on Liquidation [AASB 7, AASB 101, AASB 132, AASB 139 and Interpretation 2] The amending standard introduces an exception to the definition of financial liability to classify as equity instruments certain puttable financial instruments that impose on an entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation of the entity. Amending standard issued as a consequence of Amendments to Australian Accounting Standards Arising from AASB 3 and AASB 127 AASB 3 revisions to [AASBs 1, 2, 4, 5, 7, 101, 107, 112, 114, 116, 121, 129, 131, 132, 133, 134, 136, 137, 138 & 139 and Interpretations 9 & 107] Business Combinations and AASB 127 Consolidated and Separate Financial Statements. Business Combinations The revised standard introduces a number of changes in accounting for business combinations that will impact the amount of goodwill recognised, the results in the period that an acquisition occurs, and future revenues reported Application Date of Standard 1 January 2009 Impact on Group Financial report Application Date for Group* 1 July 2009 The Group Share Option Plan does not include any vesting conditions that are within the control of either the entity or the counterparty, and as such, is not expected to impact the Group’s financial report. 1 January 2009 The Group does not 1 July 2009 engage in puttable financial instruments and as such, is not expected to impact the Group’s financial report 1 July 2009 The Group will assess 1 July 2009 the impact this may have on future financial report. 1 July 2009 Refer to AASB 2008-3 above 1 July 2009 Paladin Energy Ltd 77 notes to the consolidated financial statements for the year ended 30 June 2008 Note 2. Summary of Significant Accounting Policies (continued) (b) Statement of compliance (continued) Reference Title Summary AASB 8 Operating Segments This new standard will replace AASB 114 Segment Reporting and adopts a management approach to segment reporting. Application Date of Standard Impact on Group Financial report 1 January 2009 Refer to AASB 2007-3 above. Application Date for Group* 1 July 2009 AASB 101 (revised) Presentation of Financial Statements of comprehensive Introduces a statement 1 January 2009 Refer to AASB 2007-8 above 1 July 2009 income. Other revisions include impacts on the presentation of items in the statement of changes in equity, new presentation requirements for restatements or reclassifications of items in the Financial Statements, changes in the presentation requirements for dividends and changes to the titles of the Financial Statements. The amendments to AASB 123 require that all borrowing costs associated with a qualifying asset must be capitalised. The revised standard allows a change in the ownership interest of a subsidiary (that does not result in loss of control) to be accounted for as an equity transaction and will have no impact on goodwill nor will it give rise to a gain or loss. AASB 123 (revised) Borrowing Costs AASB 127 (revised) Consolidated and Separate Financial Statements 1 January 2009 Refer to AASB 2007-6 above. 1 July 2009 1 July 2009 Refer to AASB 2008-3 above 1 July 2009 AASB Interpretation an Arrangement contains a Lease 4 (revised) Determining whether The revised Interpretation 1 January Refer to AASB 2007-2 above 1 July 2008 specifically scopes out arrangements that fall within the scope of AASB Interpretation 12. 2008 78 Annual Report 2008 Note 2. Summary of Significant Accounting Policies (continued) (b) Statement of compliance (continued) Reference Title Summary Application Date of Standard Impact on Group Financial report Application Date for Group* Customer Loyalty AASB Interpretation Programmes 13 Deals with the accounting 1 July for customer loyalty 2008 programmes, which are used by companies to provide incentives to their customers to buy their products or use their services Service Concession Requires disclosure of AASB Interpretation Arrangements: 129 Disclosures 1 January 2008 provisions or significant features necessary to assist in assessing the amount, timing and certainty of future cash flows and the nature and extent of the various rights and obligations involved. These disclosures apply to both grantors and operators. Amendments Cost of an Investment The main amendments to International in a Subsidiary, Reporting Standards Jointly Controlled Entity or Associate 1 January of relevance to Australian 2009 entities are those made to IAS 27deleting the ‘cost method’ and requiring all dividends from Subsidiary, jointly controlled entity or associate to be recognised in profit or loss in an entity’s separate Financial Statements (i.e., parent company accounts). The distinction between pre-and post- acquisition profits is no longer required. However, the payment of such dividends requires the entity to consider whether there is an indicator of impairment. AASB 127 has also been Amended to effectively allow the cost of an investment in a subsidiary, in limited reorganisations, to be based on the previous carrying amount of the subsidiary (that is, share of equity) rather than its fair value. The Group does not 1 July 2008 have any customer loyalty programmes and as such this interpretation is not expected to have any impact on the Group’s financial report Refer to AAASB 2007-2 above 1 July 2008 1 July 2009 Recognising all dividends received from subsidiaries jointly controlled Financial entities and associates as income will likely give rise to greater income being recognised by the parent entity after adoption of these. amendments. In addition, if the Group enters into any group reorganisation establishing new parent entities, an assessment will need to be made to determine if the reorganisation meets the conditions imposed to be effectively accounted for on a carry-over basis’rather than at fair value. Paladin Energy Ltd 79 notes to the consolidated financial statements for the year ended 30 June 2008 Note 2. Summary of Significant Accounting Policies (continued) (b) Statement of compliance (continued) Reference Title Summary Application Date of Standard Impact on Group Financial report Application Date for Group* IFRSs Amendments Improvement to to International Financial Reporting Standards IFRIC 15** Agreements for the Construction of Real Estate IFRIC 16** Hedges of a Net Investment in a Foreign Operation The Group has not 1 July 2009 yet determined the extent of the impact of the amendments, The improvement project 1 January is an annual project that 2009 provides a mechanism except for making non-urgent, for but necessary, amendments if any. to IFRS 5, amendments to IFRSs. The IASB has separated which are the amendments in two parts: Part 1 deals with the changes the IASB identified resulting in accounting changes; Part II deals with either terminology or editorial amendments that the IASB believes will have minimal impact. effective from July 1 2009 1 January 2009 The Group does not 1 July 2009 enter into agreements to provide construction services to the buyer’s specifications and as such this interpretation is not expected to have any impact on the Group’s financial report. 1 January 2009 The Group does not 1 July 2009 engage in hedging net investments in foreign operations and as such, is not expected to impact the Group’s financial report. This interpretation proposes that when the real estate developer is providing construction services tothe buyer’s specifications, revenue can be recorded only as construction progresses. Otherwise, revenue should be recognised on completion of the relevant real estate unit. This interpretation proposes that the hedged risk in a hedge of a net investment in a foreign operation is the foreign currency risk arising between the functional currency of the net investment and the functional currency of any parent entity. This also applies to foreign operations in the form of joint ventures, associates or branches. * designates the beginning of the applicable annual reporting period ** pronouncements that have been issued by the IASB and IFRIC but have not yet been issued by the AASB 80 Annual Report 2008 Note 2. Summary of Significant Accounting Policies (continued) (c) Basis of consolidation The Consolidated Financial Statements incorporate the assets and liabilities of all subsidiaries of Paladin Energy Ltd (Company or Parent Entity) as at 30 June 2008 and the results of all subsidiaries for the twelve months then ended. Paladin Energy Ltd and its subsidiaries together are referred to in this financial report as the Group or the Consolidated Entity. Subsidiaries are all those entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group (refer to Note 2(j)). Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. (d) Significant accounting judgements, estimates and assumptions The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are: (i) Net realisable value of inventories The Group reviews the carrying value of inventories regularly to ensure that their cost does not exceed net realisable value. In determining net realisable value various factors are taken into account including sales prices and costs to complete inventories to their final form. (ii) Impairment of property, plant and equipment; and intangibles The Group determines whether property, plant and equipment; and intangibles are impaired at least on a quarterly basis. This requires an estimation of the recoverable amount of cash-generating units to which the property, plant and equipment; and intangibles are allocated. (iii) Available-for-sale financial assets and financial assets held for trading The Group measures the fair value of available-for-sale financial assets by reference to the fair value of the equity instruments at the date at which they are valued. The fair value of the unlisted securities is determined using valuation techniques. Such techniques include using recent arm’s length market transactions, net asset values and by an external valuer using a binomial model. (iv) Carrying value of exploration and evaluation expenditure The Group reviews the carrying value of exploration and evaluation expenditure at least on a quarterly basis. This requires judgement as to the status of the individual projects and their future economic value. (v) Deferred tax assets and liabilities The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Significant judgement is required in determining deferred tax assets and liabilities. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Paladin Energy Ltd 81 notes to the consolidated financial statements for the year ended 30 June 2008 Note 2. Summary of Significant Accounting Policies (continued) (d) Significant accounting judgements, estimates and assumptions (continued) (vi) Mine closure provision The value of this provision represents the discounted value of the present obligation to restore, dismantle and close the mine. The discounted value reflects a combination of management’s assessment of the cost of performing the work required, the timing of the cash flows and the discount rate. A change in any, or a combination, of the three key assumptions used to determine the provision could have a material impact to the carrying value of the provision. (vii) Share based payment transactions The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by an external valuer using a binomial model using assumptions detailed in Note 29. (viii) Proved and probable reserves The Group uses the concept of a life of mine as an accounting value to determine such things as depreciation rates and the appropriate period to discount mine closure provisions. In determining life of mine the proved and probable reserves measured in accordance with the 2004 edition of the Joint Ore Reserves Committee (JORC) Code specific to a mine are taken into account which by their very nature require judgements, estimates and assumptions. (e) Segment reporting A geographical segment is a group of assets and operations engaged in providing products or services within a particular economic environment and is subject to risks and returns that are different from those of segments operating in other economic environments. A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different to those of other business segments. (f) Foreign currency translation (i) Functional and presentation currency Items included in the Financial Statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The Consolidated Financial Statements are presented in United States dollars (US dollars), which is the Company’s functional and presentation currency from 1 December 2006. Prior to this date the functional and presentation currency for was Australian dollars. In December 2006 there were several factors which produced a change in functional currency for the majority of the Group to US dollars. These included completion of construction and commissioning at the LHUP, issue of US$250 million convertible bonds, conversion of excess group cash into US dollars resulting in derivation of US interest revenue, and redesignation of all intercompany group loans into US dollars. The presentation currency for a company is the currency in which the company chooses to present its financial reports. As the functional currency of the Company and the majority of the Group changed on 1 December 2006 to US dollars, the Company has decided to change the presentation currency for financial reporting to US dollars in order to better reflect the Group’s financial position and financial performance. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Income Statement. Translation differences on available-for-sale financial assets are included in the available-for-sale reserve. 82 Annual Report 2008 Note 2. Summary of Significant Accounting Policies (continued) (f) Foreign currency translation (continued) (iii) Group companies Some Group entities have a functional currency of United States dollars which is consistent with the presentation currency of this financial report. For all other group entities the functional currency has been translated into US dollars for presentation purposes. Assets and liabilities are translated using exchange rates prevailing at the balance sheet date; revenues and expenses are translated using average exchange rates prevailing for the income statement year; and equity transactions are translated at exchange rates prevailing at the dates of transactions. The resulting difference from translation is recognised in a foreign currency translation reserve. The following material operating subsidiaries have a US dollar functional currency: – – – – Paladin Finance Pty Ltd Paladin (Africa) Ltd Langer Heinrich Uranium (Pty) Ltd Paladin Nuclear Ltd The following material operating subsidiaries have a Australian dollar functional currency: – – – – Northern Territory Uranium Pty Ltd Mount Isa Uranium Pty Ltd Paladin Energy Minerals NL Summit Resources (Aust) Pty Ltd (g) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of duties and taxes paid. Revenue is recognised for the major business activities as follows: (i) Sale of uranium Revenue from sale of uranium is recognised when title of the product passes from the Consolidated Entity pursuant to an enforceable contract, when selling prices are known or can be reasonably estimated and when the product is in a form that requires no further treatment by the Consolidated Entity. (ii) Interest revenue Interest revenue from investments in cash and US Treasury Bonds is recognised in the Income Statement as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. (iii) Database licence revenue Licence revenue generated from granting third parties access to proprietary database information on mineral property regions is recognised in the Income Statement on a straight line basis over the licence term. (h) Income tax The income tax expense or benefit for the period is the tax payable on the current period’s taxable income based on the notional income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the Financial Statements, and to unused tax losses. Paladin Energy Ltd 83 notes to the consolidated financial statements for the year ended 30 June 2008 Note 2. Summary of Significant Accounting Policies (continued) (h) Income tax (continued) Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the Parent Entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. Paladin Energy Ltd and all its wholly-owned Australian resident entities are part of a tax-consolidated group under Australian tax law. The head entity, Paladin Energy Ltd and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. The Group has applied the group allocation approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax consolidated group. In addition to its own current and deferred tax amounts, Paladin Energy Ltd also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the group. Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities. (i) Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Incentives received on entering into operating leases are recognised as liabilities. Lease payments are allocated between rental expense and reduction of the lease incentive liability on a straight line basis over the period of the lease. (j) Acquisitions of assets The purchase method of accounting is used to account for all acquisitions of assets (including business combinations) regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the value of the instruments is their published market price as at the date of exchange. Transaction costs arising on the issue of equity instruments are recognised directly in equity. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the Income Statement, but only after a reassessment of the identification and measurement of the net assets acquired. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. 84 Annual Report 2008 Note 2. Summary of Significant Accounting Policies (continued) (k) Impairment of assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). (l) Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. (m) Trade and other receivables Trade receivables, which generally have 30 day terms, are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less an allowance for any uncollectible amounts. Collectability of trade receivables is reviewed on an ongoing basis. Debts that are known to be uncollectible are written off when identified. An allowance for doubtful debts is raised when there is objective evidence that the group will not be able to collect the debt. Financial difficulties of the debtor, default payments or debts more than 60 days overdue are considered objective evidence of impairment. (n) Inventories Consumable stores inventory are valued at the lower of cost and net realisable value using the average cost method, after appropriate allowances for redundant and slow moving items. Finished goods and work in progress inventory are valued at the lower of cost and net realisable value using the average cost method. Cost is derived on an absorption costing basis including both fixed and variable production costs and attributable overheads incurred up to the delivery point where legal title to the product passes. No accounting value is attributed to ore in situ or stockpiles containing ore at less than the cut-off grade. Any inventory produced during the pre-production phase is recognised at net realisable value and deducted from capitalised development costs. The costs of production include labour costs, materials and contractor expenses which are directly attributable to the extraction and processing of ore (including any recognised expense of stripping costs); the depreciation of property, plant and equipment used in the extraction and processing of ore; and production overheads. (o) Investments and other financial assets The Group classifies its investments in the following categories: loans and receivables, held-to-maturity investments, available-for-sale financial assets and financial assets held for trading. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and re-evaluates this designation at each reporting date. (i) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of selling the receivable. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date which are classified as non current assets. Loans and receivables are included in receivables in the Balance Sheet. Loans and receivables are carried at amortised cost using the effective interest method. Paladin Energy Ltd 85 notes to the consolidated financial statements for the year ended 30 June 2008 Note 2. Summary of Significant Accounting Policies (continued) (o) Investments and other financial assets (continued) (ii) Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. Held- to-maturity investments are carried at amortised cost using the effective interest method. (iii) Available-for-sale financial assets Available-for-sale financial assets, comprising principally marketable equity securities, are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non current assets unless management intends to dispose of the investment within 12 months of the balance sheet date. Purchases and sales of investments are recognised on trade-date which is the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs. Financial assets are de-recognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. Available-for-sale financial assets are subsequently carried at fair value. Unrealised gains and loss which arise from changes in the fair value of non monetary securities classified as available-for-sale are recognised in equity in the available-for-sale reserve. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the Income Statement as gains and losses from investment securities. (iv) Financial assets held for trading Financial assets are classified as held for trading if they are derivative instruments or acquired for the purpose of selling in the near term. Gains or losses on investments held for trading are recognised in the Income Statement. Fair value of financial instruments The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include reference to the fair values of recent arm’s length transactions, involving the same instruments or other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer’s specific circumstances. Impairment of financial instruments The Group assesses at each balance date whether there is objective evidence that a financial asset or group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of a security below its cost is considered in determining whether the security is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss which is measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit and loss – is removed from equity and recognised in the Income Statement. (p) Interests in jointly controlled assets The Group has interests in joint ventures that are jointly controlled assets. A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. A jointly controlled asset involves use of assets and other resources of the venturers rather than establishment of a separate entity. The Group recognises its interest in jointly controlled assets by recognising its interest in the assets and the liabilities of the joint venture. The Group also recognises the expenses that it incurs and its share of the income that it earns from the sale of goods or services by jointly controlled assets. 86 Annual Report 2008 Note 2. Summary of Significant Accounting Policies (continued) (q) Fair value estimation The fair value of financial assets must be estimated for recognition and measurement or for disclosure purposes. The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and available-for-sale securities) is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Group is the current bid price. The fair value of financial instruments that are not traded in an active market (for example, unlisted securities) is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance date. Estimated discounted cash flows are used to determine the fair value of most financial instruments. The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. (r) Property, plant and equipment All property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/ losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the Income Statement during the financial period in which they are incurred. Property, plant and equipment costs include both the costs associated with construction of equipment associated with establishment of an operating mine, and the estimated costs of dismantling and removing the asset and restoring the site on which it is located. Land is not depreciated. Depreciation on other assets is calculated using the straight line method to allocate their cost amount, net of their residual values, over their estimated useful lives, as follows: - - - - - Buildings Databases Plant and equipment 20 years 10 years 3 6 years Leasehold improvements 2-5 years Mine plant and equipment lesser of life of mine and life of asset An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amounts. These are included in the Income Statement. When revalued assets are sold, it is Group policy to transfer the amounts included in other reserves in respect of those assets to retained earnings. (s) Mine development Pre-production costs are deferred as development costs until such time as the asset is able to be used as intended by management. Post-production costs are recognised as a cost of production. Overburden cost is capitalised and depreciated over the expected useful life of the relevant pit. Stripping costs are recognised as a production cost as incurred. Paladin Energy Ltd 87 notes to the consolidated financial statements for the year ended 30 June 2008 Note 2. Summary of Significant Accounting Policies (continued) (t) Exploration and evaluation expenditure Exploration and evaluation expenditure is charged against earnings as incurred. Exploration and evaluation expenditure is allocated separately to specific areas of interest. Each area of interest is limited to a size related to a known or probable Mineral Resource capable of supporting a mining operation. Such expenditure comprises net direct costs and an appropriate portion of related overhead expenditure directly related to activities in the area of interest. Costs related to the acquisition of properties that contain Mineral Resources are allocated separately to specific areas of interest. These costs are capitalised until the viability of the area of interest is determined. If no mineable ore body is discovered, capitalised acquisition costs are expensed in the period in which it is determined that the area of interest has no future economic value. When a decision to proceed to development is made the exploration and evaluation capitalised to that area is transferred to mine development within property, plant and equipment. All costs subsequently incurred to develop a mine prior to the start of mining operations within the area of interest are capitalised and carried at cost. These costs include expenditure incurred to develop new ore bodies within the area of interest, to define further mineralisation in existing areas of interest, to expand the capacity of a mine and to maintain production. Capitalised amounts for an area of interest may be written down if discounted future cash flows related to the area of interest are projected to be less than its carrying value. (u) Intangibles Intangible assets acquired separately or in a business combination are initially measured at cost. The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is recognised in the Income Statement in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful life and tested for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for prospectively by changing the amortisation period or method, as appropriate, which is a change in accounting estimate. The amortisation expense on the intangible assets with finite lives is recognised in profit or loss in the expense category consistent with the function of the intangible asset. Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash- generating unit level. Such intangibles are not amortised. The useful life of an intangible asset with an indefinite life is reviewed each reporting period to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for as a change in an accounting estimate and is thus accounted for on a prospective basis. A summary of the policies applied to the Group’s intangible assets is as follows: Right to use water and power supply Useful lives Finite Amortisation method used Amortised over the life of the mine on a straight-line basis 88 Annual Report 2008 Note 2. Summary of Significant Accounting Policies (continued) (u) Intangibles (continued) Impairment testing Annually and more frequently when an indication of impairment exists. The amortisation method is reviewed at each financial year-end. The rights to use water and power supply have been granted for a minimum of 17 years by the relevant utilities with the option of renewal without significant cost at the end of this period. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the Income Statement when the asset is derecognised. (v) Trade and other payables Trade payables and other payables are carried at amortised cost and represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days of recognition. (w) Interest bearing loans and borrowings Bank loan borrowings are initially recognised at fair value, net of transaction costs incurred. Bank loan borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the Income Statement over the period of the borrowings using the effective interest method. The component of convertible bonds that exhibits characteristics of a borrowing is recognised as a liability in the balance sheet, net of transaction costs. On issue of convertible bonds, the fair value of the liability component is determined using a market rate for an equivalent non-convertible bond and this amount is carried as a long-term liability on the amortised cost basis until extinguished on conversion or redemption. The increase in the liability due to the passage of time is recognised as a finance cost. The remainder of the proceeds is allocated to a convertible bond reserve that is recognised and included in shareholders’ equity. The carrying amount of the reserve is not remeasured in subsequent years. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. (x) Borrowing costs Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed as incurred including the unwinding of discounts related to mine closure provisions, and amortisation of ancillary costs incurred in connection with the arrangement of borrowings. The capitalisation rate used to determine the amount of borrowing costs to be capitalised is the weighted average interest rate applicable to the entity’s outstanding borrowings during the year. (y) Employee benefits (i) Wages and salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and measured at the rates paid or payable. Paladin Energy Ltd 89 notes to the consolidated financial statements for the year ended 30 June 2008 Note 2. Summary of Significant Accounting Policies (continued) (y) Employee benefits (continued) (ii) Long service leave The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. (iii) Share-based payments Share-based compensation benefits were provided to employees via the Paladin Energy Ltd Employee Share Incentive Option Plan (ESOP). Following the implementation of the Paladin Energy Ltd Executive Share option Plan (EXSOP) detailed in Note 29, no further options will be issued pursuant to the ESOP. The fair value of options granted under both the ESOP after 7 November 2002 and the EXSOP are recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options. The fair value at grant date is independently determined using the Cox, Ross and Rubinstein Binomial Tree option pricing model that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. The Monte Carlo method is used to model the future value of the Company’s shares and the movement of the comparator companies’ Total Shareholder Return on the various vesting dates associated with vesting requirements of the options. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the entity revises its estimate of the number of options that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate. Upon the exercise of options, the balance of the share-based payments reserve relating to those options is transferred to share capital. (z) Mine closure and rehabilitation Mine closure and restoration costs include the costs of dismantling and demolition of infrastructure or decommissioning, the removal of residual material and the remediation of disturbed areas specific to the infrastructure. Mine closure costs are provided for in the accounting period when the obligation arising from the related disturbance occurs, whether this occurs during the mine development or during the production phase, based on the net present value of estimated future costs. As the value of the provision for mine closure represents the discounted value of the present obligation to restore, dismantle and close the mine, the increase in this provision due to the passage of time is recognised as a borrowing cost. The discount rate used is a pre-tax rate that reflects the current market assessment of the time value of money and the risks specific to the liability. Provision is made for rehabilitation work when the obligation arises and this is recognised as a cost of production or development. The rehabilitation costs, provided for are the present value of the estimated costs to restore operating locations. The value of the provision represents the discounted value of the current estimate to restore and the discount rate used is the pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability. 90 Annual Report 2008 Note 2. Summary of Significant Accounting Policies (continued) (aa) Onerous contracts A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting the obligations under the contract. The provision is stated at the present value of the future net cash outflows expected to be incurred in respect of the contract. (ab) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options, or for the acquisition of a business, are included in the cost of the acquisition as part of the purchase consideration. (ac) Earnings per share (i) Basic earnings per share Basic earnings per share are calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the period. (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. (ad) Investments in associates The Group’s investment in its associates is accounted for using the equity method of accounting in the Consolidated Financial Statements and at cost in the parent. The associates are entities over which the Group has significant influence and that are neither subsidiaries nor joint ventures. The Group generally deems they have significant influence if they have over 20% of the voting rights. Under the equity method, investments in the associates are carried in the Consolidated Balance Sheet at cost plus post- acquisition changes in the Group’s share of net assets of the associates. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortised. After application of the equity method, the Group determines whether it is necessary to recognise any impairment loss with respect to the Group’s net investment in associates. The Group’s share of its associates’ post-acquisition profits or losses is recognised in the Income Statement and its share of post acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates are recognised in the parent entity’s Income Statement, while in the Consolidated Financial Statements they reduce the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any unsecured long-term receivables and loans, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. If an associate uses accounting policies other than those of the Group for like transactions and events in similar circumstances, adjustments shall be made to conform the associate’s accounting policies to those of the Group. Paladin Energy Ltd 91 notes to the consolidated financial statements for the year ended 30 June 2008 Note 3. Segment Information The Group’s primary segment reporting format is geographical segments as the Group’s risks and rates of return are affected predominately by differences in the particular economic environments in which it operates. The Group does not separately disclose any financial information for business segments (secondary reporting) as it only operates in the resource industry. Geographical segments – primary reporting The Company operates in Australia, Namibia and Malawi. The principal activity in these locations is the exploration, evaluation, development, construction and operation of uranium projects. The Group’s geographical segments are determined based on the location of the Group’s assets. The following tables present revenue, expenditure and certain asset information regarding geographical segments for the years ended 30 June 2008 and 30 June 2007. Year Ended 30 June 2008 Sales to external customers Other revenue Total segment revenue (Loss)/Profit from continuing operations before income tax benefit Income tax benefit (Loss)/Profit from continuing operations after income tax benefit/segment result Total assets/segment assets Segment liabilities Acquisitions of non current assets Cash flow information Net cash (outflow)/inflow from operating activities Net cash outflow from investing activities Net cash inflow/(outflow) from financing activities Non cash expenses: Depreciation and amortisation Inventory impairment reversal Sales contract impairment provision Share based payments Finance costs Australia US$M Namibia US$M Malawi US$M Consolidated US$M - 7.7 7.7 (52.1) 4.4 (47.7) 2,232.0 1,106.2 21.0 (29.8) (56.8) 325.4 0.7 - - 8.9 11.8 93.8 0.4 94.2 9.8 1.2 11.0 220.7 12.0 14.0 12.3 (13.5) - 10.0 (2.0) 2.9 1.2 0.5 - - - (1.9) 1.4 (0.5) 110.4 15.6 94.4 (0.9) (80.6) (1.4) 0.2 - - 0.5 - 93.8 8.1 101.9 (44.2) 7.0 (37.2) 2,563.1 1,133.8 129.4 (18.4) (150.9) 324.0 10.9 (2.0) 2.9 10.6 12.3 92 Annual Report 2008 Australia US$M Namibia US$M Malawi US$M Consolidated US$M Note 3. Segment Information (continued) Year Ended 30 June 2007 Sales to external customers Other revenue Total segment revenue - 7.8 7.8 3.3 0.1 3.4 Loss from continuing operations before income tax benefit (23.7) (21.8) Income tax benefit 1.3 10.4 Loss from continuing operations after income tax benefit/segment result Total assets/segment assets Segment liabilities Acquisitions of non current assets Cash flow information Net cash outflow from operating activities Net cash outflow from investing activities Net cash inflow/(outflow) from financing activities Non cash expenses: Depreciation and amortisation Inventory impairment losses Sales contract impairment provision Share based payments Finance costs Note 4. Revenues and Expenses (22.4) 1,882.3 732.3 1,434.9 (25.7) (45.7) 298.9 0.3 - - 6.2 5.2 (11.1) 163.0 16.3 64.0 (12.9) (64.9) - 1.8 3.3 7.8 - 0.1 - - - (4.2) - (4.2) 13.1 1.5 8.2 - (11.4) (0.2) - - - - - 3.3 7.9 11.2 (49.7) 11.7 (38.0) 2,058.4 750.1 1,507.1 (38.6) (122.0) 298.7 2.1 3.3 7.8 6.2 5.3 (a) Revenue Sale of uranium (1) Interest income from non-related parties Interest income from wholly owned Group Database licence revenue Other revenue Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M 93.8 6.9 - 0.2 1.0 3.3 7.6 - 0.2 0.1 - - 5.8 3.3 - - 2.1 101.9 11.2 11.2 7.1 3.6 0.1 10.8 (1) Includes US$14.0 million (2007: US$3.3 million) relating to uranium sales of 185,000lb (2007:65,000lb) which were met by use of third party uranium purchased during the quarter ended 30 June 2007. Paladin Energy Ltd 93 notes to the consolidated financial statements for the year ended 30 June 2008 Note 4. Revenues and Expenses (continued) (b) Other income Net gain on disposal of available for sale investments Total other income (c) Cost of sales (1) Cost of production Royalties Depreciation – property, plant and equipment Amortisation – intangibles Product distribution costs Total cost of sales Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M - - (53.8)(2) (1.6) (9.0) (1.0) (1.0) 0.1 0.1 (9.7) (0.3) (1.6) (0.2) (0.2) (66.4) (12.0) - - - - - - - - - - - - - 0.1 0.1 - (1) (2) Includes a credit of US$2.0 million (2007: US$Nil) relating to recognition of a value for stockpiles as a consequence of improved operating performance from 30 June 2007. In total US$8.6 million was attributed to stockpile values during the year – recognised as both a US$2.0 million credit to cost of sales and a US$6.5 million reduction in property, plant and equipment. Includes US$14.0 million (2007: US$3.3 million) expense relating to use of 185,000lb (2007:65,000lb) of third party uranium purchased during the year ended 30 June 2007 which was sold in the year ended 30 June 2008. (d) Finance costs Interest expense Non-cash convertible bond interest Mine closure provision discount interest expense Facility costs Total finance costs (e) Other expenses Corporate and marketing costs Employee benefits expense(2) Share-based payments expense Minimum lease payments – operating lease Write down of intercompany receivables Write down of intercompany investments Sales contracts expense (1) Foreign exchange loss (net) Depreciation – property, plant and equipment Loss on sale of property, plant and equipment (18.4) (8.6) (0.5) (3.2) (30.7) (11.5) (5.6) (10.6) (0.1) - - (2.9) (3.7) (0.9) (0.4) (7.7) (4.1) (0.1) (1.1) (16.3) (8.6) - - (2.2) (13.0) (27.1) (5.6) (7.3) (6.2) (0.2) - - (7.8) (1.0) (0.3) (0.2) (8.6) (5.3) (8.9) (0.1) (4.8) (0.1) - - (0.1) (0.6) - - (6.1) (4.1) (0.9) (11.1) (4.6) (6.8) (6.2) (0.2) (9.9) - (0.1) (0.2) Total other expenses (35.7) (28.6) (28.5) (28.0) (1) The sales contracts expense is attributable to the requirement to meet future Langer Heinrich sales commitments by use of the remaining 35,000lb of third party uranium purchased during the year ended 30 June 2007. (2) Employee benefits expense for the 2007 year included a discretionary payment of A$5.2m to a key management person relating to the 2004 to 2006 formative period of the Company. 94 Annual Report 2008 Note 5. Income Tax (a) Income tax benefit Current income tax Current income tax credit Deferred income tax Tax benefits not brought to account as future income tax benefits Prior year tax benefits brought to account as current income tax Foreign exchange movement Income tax benefit reported in the Income Statement (b) Numerical reconciliation of income tax benefit to prima facie tax payable Loss from continuing operations before income tax expense Tax at the Australian tax rate of 30% (2007 – 30%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Share-based payments Other expenditure not allowable Specific tax expenditure allowable Difference in overseas tax rates Prior year tax benefits not recognised now recouped Current year tax benefits not recognised Foreign exchange movement Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M (42.5) (14.7) (8.2) (6.8) 40.0 5.5 5.6 5.6 - (4.5) (7.0) (44.2) (13.3) 2.7 - (0.4) (11.0) 0.5 (2.4) 10.4 (4.5) (2.5) - - - - - (11.7) (2.6) (1.2) (49.7) (14.9) (44.4) (13.3) (28.2) (8.5) 1.9 0.1 (0.3) 2.7 - (0.4) (13.2) (11.0) (1.5) (2.5) 5.5 - - - 0.2 - 8.2 - 1.9 0.1 (0.3) (6.8) 5.6 - Income tax benefit reported in the Income Statement (7.0) (11.7) (2.6) (1.2) Paladin Energy Ltd 95 notes to the consolidated financial statements for the year ended 30 June 2008 Note 5. Income Tax (continued) (c) Deferred income tax Deferred tax liabilities Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M Accelerated prepayment deduction for tax purposes Accelerated stores and consumables deduction for tax purposes (0.3) (0.2) (0.1) (0.6) - - - - Revaluations of available-for-sale investments to fair value Foreign currency differences on available-for-sale investments Accelerated deduction for debt establishment and interest costs Accelerated depreciation for tax purposes Exploration expenditure Recognition of fair value of acquired exploration and evaluation expenditure Foreign currency differences on fair value of acquired exploration and evaluation expenditure - (13.5) 2.1 (6.2) 0.2 (1.0) 0.3 (0.3) (56.4) (6.5) (2.5) (20.8) - (425.8) (425.8) (53.2) - - - - - - - - - - - - - - Delayed revenue recognition for tax purposes - Recognition of convertible bond for accounting purposes (12.9) Gross deferred tax liabilities Set off of deferred tax assets (556.6) 57.3 (0.1) (10.1) (473.2) 25.0 (12.9) (10.8) - - (10.1) (16.1) Net deferred tax liabilities (499.3) (448.2) (10.8) (16.1) Deferred tax assets Revenue losses available for offset against future taxable income 95.3 32.8 16.4 Equity raising costs Foreign currency balances Provision for sales contracts Provision for audit services Investment cash acquisition costs for accounting purposes Provisions for employee benefits Provision for mine rehabilitation Provisions for write down of intercompany receivables Provisions for write down of intercompany investments Gross deferred tax assets Set off against deferred tax liabilities Deferred tax assets not recognised as not probable Net deferred tax assets recognised 0.5 6.5 - 0.1 - 0.4 0.1 - - 102.9 (57.3) (32.6) 13.0 0.9 0.6 2.9 - 0.9 0.2 - - - 38.3 (25.0) (2.9) 10.4 0.5 - - - - 0.1 - - - 0.4 - - 9.2 0.4 27.0 - - (27.0) - 5.4 0.9 0.2 9.4 0.4 16.3 (16.3) - 96 Annual Report 2008 Note 5. Income Tax (continued) (c) Deferred income tax (continued) The net deferred tax assets recognised are attributable to Langer Heinrich Uranium (Pty) Ltd, a Namibian company that owns the LHUP and Paladin (Africa) Ltd, a Malawian company that owns the Kayelekera Uranium Project. The utilisation of the net deferred tax assets is dependent upon future taxable profits in excess of profits arising from reversal of existing temporary differences and Langer Heinrich Uranium (Pty) Ltd and Paladin (Africa) Ltd have suffered losses in the current and preceding periods in Namibia and Malawi respectively. The recognition of the net deferred tax assets is supported by the production ramp-up at the LHUP and the Bank Feasibility Study for the Kayelekera Uranium Project. (d) Tax losses Australian unused tax losses for which no deferred tax asset has been recognised Namibian unused tax losses for which no deferred tax asset has been recognised Malawian unused tax losses for which no deferred tax asset has been recognised Total unused tax losses for which no deferred tax asset has been recognised Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M 105.6 27.8 54.9 18.0 - - - 2.7 - - - - 105.6 30.5 54.9 18.0 Potential tax benefit at tax rates between 30% - 37.5% 31.7 9.2 16.5 5.4 This benefit for tax losses will only be obtained if: (i) (ii) (iii) the Consolidated Entity derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions for the losses to be realised; the Consolidated Entity continues to comply with the conditions for deductibility imposed by tax legislation; and no changes in tax legislation adversely affect the Consolidated Entity in realising the benefit from the deductions for the losses. (e) Members of the tax consolidation group and the tax sharing arrangements Paladin Energy Ltd and its 100% owned Australian resident subsidiaries formed a tax consolidated group (the Group) with effect from 1 July 2003. Paladin Energy Ltd is the head entity of the Group. Members of the Group have entered into a tax sharing agreement that provides that the head entity will be liable for all taxes payable by the Group from the consolidation date. The parties have agreed to apportion the head entity’s taxation liability within the Group based on each contributing member’s share of the Group’s taxable income. Paladin Energy Ltd 97 notes to the consolidated financial statements for the year ended 30 June 2008 Note 6. Cash and Cash Equivalents Cash at bank and in hand Short-term bank deposits US$ treasury bonds Total cash and cash equivalents Consolidated Parent Entity 2008 US$M 2007 US$M 15.5 72.4 249.7 337.6 4.3 19.4 159.1 182.8 2008 US$M 1.4 66.3 249.7 317.4 2007 US$M 0.4 10.2 159.1 169.7 Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. At 30 June 2008, the Group had available US$Nil (2007: US$4.4million) of undrawn committed borrowing facilities in respect of which all conditions precedent have been met. (a) Reconciliation of net loss after tax to net cash flows from operating activities Net loss (37.2) (38.0) (41.8) (27.0) Adjustments for Depreciation and amortisation Exploration expenditure Provision for non-recovery of intercompany loan Provision for non-recovery of intercompany investments Loss on disposal of property, plant and equipment Profit on sale of investments Database licence revenue Net exchange differences Share options expensed Non-cash financing costs Changes in assets and liabilities Increase in prepayments Increase in trade and other receivables Increase/(decrease) in trade and other payables Increase/(decrease) in provisions Decrease in borrowings (Increase)/decrease in inventories Decrease in deferred tax liabilities Increase in deferred tax assets 10.9 13.1 - - 0.4 - (0.2) 3.7 10.6 12.3 (0.8) (26.0) 5.1 (6.7) (3.9) 7.3 (4.4) 2.1 7.4 - - 0.2 (0.1) (0.2) 1.0 6.2 5.3 (0.2) (6.1) (12.2) 8.5 - (0.9) (1.2) (2.6) (10.4) 0.6 - - 4.8 0.1 - - - - - - 0.1 8.9 10.8 - - (4.7) 4.5 0.5 - - - - (2.6) - - 0.2 9.9 (0.1) 0.1 6.2 5.0 (2.5) 1.9 0.4 (1.2) Net cash from operating activities (18.4) (38.6) (18.8) (7.1) (b) Disclosure of financing facilities Refer to Note 19. 98 Annual Report 2008 Note 7. Trade and Other Receivables Current Trade receivables - (a) Less provision for doubtful debts Net trade receivables Interest receivable Prepayments GST and VAT - (b) Sundry debtors - (c) Total current receivables Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M 28.7 - 28.7 0.1 1.1 5.0 5.1 40.0 3.3 - 3.3 0.8 0.3 6.6 1.6 12.6 - - - - - - 0.1 0.3 9.0 9.4 - 0.8 0.2 2.1 1.1 4.2 (a) (b) (c) Trade receivables are non-interest bearing and are generally on 30 day terms. An allowance for doubtful debts is made when there is objective evidence that a trade receivable is impaired. An allowance of US$Nil (2007: US$Nil) has been recognised as an expense for the current year for specific debtors for which such evidence exists. GST and VAT debtor relates to Australia, Namibia and Malawi. Interest is not normally charged and collateral is not normally obtained. Sundry debtors include a A$3.1 million (US$3.0 million) (2007: A$Nil/US$Nil) debtor due from the sale of non-uranium properties and Georgina Basin Project held by Summit Resources Ltd. Interest is not normally charged and collateral is not normally obtained. Sundry debtors includes amounts receivable by the Company from subsidiaries US$9.0 million (2007: US$1.0 million). Non Current Unsecured loans to wholly owned Group - (d) Less provision for non-recovery Net unsecured loans to the wholly owned Group Net other receivables Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M - - - - - - - - 249.2 (30.6) 218.6 218.6 107.1 (25.8) 81.3 81.3 (d) Of the unsecured loans to the wholly owned Group, the Company charges interest only on the loan to Paladin Finance Pty Ltd. The interest rate payable is the one month US$ LIBOR plus 2% (2007: one month US$ LIBOR plus 2%). In the year ending 30 June 2008 the average rate charged was 6.19% (11.87% for 1 July 2006 to 30 November 2006 and 7.32% from 1 December 2006 to 30 June 2007) and disclosure of interest revenue earned is set out in Note 4(a). The other unsecured loans are repayable on demand however the Company, for the foreseeable future, has no intention of demanding repayment until the subsidiary has the capacity to repay. Paladin Energy Ltd 99 notes to the consolidated financial statements for the year ended 30 June 2008 Note 8. Inventories Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M Stores and spares (at cost) Stockpiles (at cost) (1) Work-in-progress (at cost) Work-in-progress (at net realisable value) Finished goods (at cost) – third party uranium purchased Finished goods (at cost) Finished goods (at net realisable value) 3.9 13.4 5.6 - 31.8 14.2 - 1.8 - - 2.1 24.7 - 9.4 Total inventories at the lower of cost and net realisable value 68.9 38.0 - - - - - - - - - - - - - - - - (1) Value now recognised for stockpile as a consequence of lower cost of production of the LHUP from 30 June 2007. In total US$8.6 million was attributed to stockpile values during the financial year from the improved operating performance. (a) Inventory expense Inventories sold recognised as an expense for the year ended 30 June 2008 totalled US$66.4 million (2007: US$8.7 million) for the Group and US$Nil (2007: US$Nil) for the Company. This expense has been included in the cost of sales – refer Note 4(c). Impairment of inventories included in the cost of sales for the Consolidated Entity is US$Nil (2007: US$3.3 million). Note 9. Investments Held For Trading Current At fair value Options – unlisted Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M 1.4 1.4 - - - - - - The Consolidated Entity has an investment in MM Mining Plc (MMM), an unlisted public UK company that explores for base metals. At 30 June 2008 the Consolidated Entity holds 20 million (2007:Nil) warrants. Each warrant entitles it to acquire one fully paid ordinary share in MMM at an exercise price of 15 GB pence. Each warrant expires on 31 December 2012 As MMM is unlisted the options have been valued using the Black and Scholes option pricing methodology using the net assets per share method to determine the appropriate underlying value. 100 Annual Report 2008 Note 10. Other Financial Assets Non Current Investments in controlled entities – (a) Less provision for non-recovery Net investment in controlled entities Available-for-sale financial assets – (b) Total non current other financial assets Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M - - - 41.7 41.7 - - - 60.3 60.3 994.4 (1.3) 993.1 26.6 994.4 (1.2) 993.2 34.1 1,019.7 1,027.3 (a) Investments in material controlled entities Name Country of Incorporation Investment Percentage Interest Held Cost Of Parent Entity’s Interest 2008 % 2007 % 2008 US$M 2007 US$M Paladin Finance Pty Ltd (i)(ii) Paladin Energy Minerals NL (i) Eden Creek Pty Ltd (i)(ii) Paladin (Africa) Ltd (iii) Langer Heinrich Uranium (Pty) Ltd Valhalla Uranium Ltd (i)(vii) Northern Territory Uranium Pty Ltd (ii)(iv) Mount Isa Uranium Pty Ltd (ii)(iv) Paladin Nuclear Ltd (i)(viii) Summit Resources Ltd (i)(ix) Summit Resources (Aust) Pty Ltd (ii)(v) Pacific Mines Ltd (vi) Australia Australia Australia Malawi Namibia Australia Australia Australia Australia Australia Australia Australia 100 100 100 85* 100 100 100 100 100 81.9 81.9 81.9 Total investments in controlled entities Less provision for non-recovery of investments 100 100 100 85* 100 100 100 100 100 81.9 81.9 81.9 37.2 1.3 37.2 - - 1.3 - - - - 153.2 153.2 - - - - - - 802.7 802.7 - - - - 994.4 (1.3) 994.4 (1.2) Net investments in controlled entities 993.1 993.2 (*) The Development Agreement for the Kayelekera Uranium Project signed on 23 February 2007 provides the Government of Malawi with 15% of Paladin (Africa) Ltd, owner of the project, in exchange for a reduction of 2.5% in corporate tax, nil rent resource tax and royalty offsets. All investments comprise ordinary shares and all shares held are unquoted, with the exception of Summit Resources Ltd’s shares which are quoted on the Australian Securities Exchange. (i) Held by Paladin Energy Ltd (ii) These entities are not required to prepare or lodge audited accounts (iii) Held by Paladin Energy Minerals NL (iv) Held by Valhalla Uranium Ltd (v) Held by Summit Resources Ltd (vi) Held by Summit Resources (Aust) Pty Ltd (vii) Acquired on 7 September 2006 with the eventual issue of 37,974,256 Paladin shares plus US$1.7 million in transaction costs (viii) Incorporated on 27 April 2007 (ix) Acquired majority interest on 27 April 2007 with the eventual issue of 101,157,400 Paladin shares plus US$3.8 million in transaction costs Paladin Energy Ltd 101 notes to the consolidated financial statements for the year ended 30 June 2008 Note 10. Other Financial Assets (continued) (a) Investments in material controlled entities (continued) Acquisition Disclosure Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M Inflow of cash on acquisition of controlled entities Cash balances acquired Less: Cash consideration Net inflow/(outflow) of cash - - - 26.8 (5.5) 21.3 - - - - (5.5) (5.5) Included in the net inflow of cash is US$1.9 million from the acquisition of Valhalla Uranium Ltd and US$19.4 million from the acquisition of Summit Resources Ltd – refer Note 31. (b) Available-for-sale financial assets The Consolidated Entity has an investment in Deep Yellow Ltd (Deep Yellow) and at 30 June 2008 holds 159,058,461 (2007: 117,585,704) fully paid ordinary shares and 12,500,000 unlisted securities exercisable at 8.1 Australian cents on or before 31 July 2008 (2007: 12,500,000 unlisted securities exercisable at 8.1 Australian cents on or before 31 July 2008). The holding of these fully paid ordinary shares represents 14.34% interest at 30 June 2008 (2007: 12% interest) of the ordinary shares of Deep Yellow, a uranium explorer listed on ASX. The market value of the shares and unlisted securities in Deep Yellow at 30 June 2008 is A$42.7 million (US$41.1 million) (2007: A$76.5 million/ US$59.9 million) based on a share price of 25.5 Australian cents per share (2007: 55 Australian cents). Refer to Note 32 in relation to an increase in the interest in Deep Yellow after Balance Sheet date pursuant to the exercise of options. The Consolidated Entity also holds minor investments in other companies. Note 11. Investment in Associate (a) Investment details Unlisted Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M MM Mining Plc – ownership 35% Investment in associate 2.6 2.6 - - - - - - The Consolidated Entity has an investment in MM Mining Plc (MMM), an unlisted UK company that explores base metals. At 30 June 2008 it holds 20 million (2007:Nil) fully paid ordinary shares. This is in addition to the warrants held as disclosed in Note 9. As MMM is unlisted the value per share method has been used to determine the appropriate underlying value. 102 Annual Report 2008 Note 11. Investment in Associate (continued) Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M (b) Movements in the carrying amount of the Group’s investment in associate MM Mining Plc At 1 July 2007 Investment in associate Shares of losses after income tax At 30 June 2008 (c) Summarised financial information The following table illustrates summarised financial information relating to the Group’s associate Extract from the associate’s balance sheet: Current assets Non current assets Current liabilities Non current liabilities Net assets Share of associate’s net assets Extract from the associate’s income statement Revenue Net loss Contingent liabilities relating to the associate Share of contingent liabilities incurred jointly with other investors - 2.8 (0.2) 2.6 0.3 10.8 11.1 (3.5) - (3.5) 7.6 2.6 - 0.6 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Note 12. Deferred Borrowing Costs Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M Non Current Deferred borrowing costs 1.7 0.2 - - Deferred borrowing costs represent the initial capitalised costs of establishing project finance for the Kayelekera Uranium Project. Paladin Energy Ltd 103 notes to the consolidated financial statements for the year ended 30 June 2008 Note 13. Property, Plant and Equipment Consolidated Parent Entity Plant and equipment – at cost (1) Less provision for depreciation Total plant and equipment Technical database – at cost Less provision for amortisation Total technical database Land and buildings - at cost Less provision for depreciation Total land and buildings Construction work in progress – at cost Total non current property, plant and equipment 2008 US$M 125.8 (10.5) 115.3 0.9 (0.9) - 5.3 (0.2) 5.1 109.1 229.5 2007 US$M 124.1 (2.4) 121.7 0.7 (0.6) 0.1 3.4 (0.2) 3.2 8.1 2008 US$M 18.9 (1.1) 17.8 2007 US$M 17.8 (0.5) 17.3 - - - - - - - - - - - - - - 133.1 17.8 17.3 (1) Reduction of US$6.6 million (2007: US$Nil) occurred during the year ended 30 June 2008 relating to the recognition of value for stockpiles as a consequence of lower cost of production of the LHUP from 30 June 2007. Property, plant and equipment pledged as security for liabilities Refer to Note 19 for information on property, plant and equipment pledged as security. Reconciliations 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: Total Plant and Equipment Databases Land and Construction Building US$M US$M US$M US$M Work in Progress US$M Consolidated – 2008 Carrying amount at start of year Additions Depreciation and amortisation expense Disposals 133.1 106.8 (8.4) (2.3) Foreign currency translation reserve 0.3 121.7 3.9 (8.1) (2.3) 0.1 Carrying amount at end of year 229.5 115.3 Parent Entity – 2008 Carrying amount at start of year Additions 17.3 1.1 Depreciation and amortisation expense (0.6) Carrying amount at end of year 17.8 17.3 1.1 (0.6) 17.8 0.1 - (0.1) - - - - - - - 3.2 1.9 (0.2) - 0.2 5.1 - - - - 8.1 101.0 - - - 109.1 - - - - 104 Annual Report 2008 Note 13. Property, Plant and Equipment (continued) Total Plant and Equipment Databases Land and Construction Building Work in Progress US$M US$M US$M US$M US$M Consolidated – 2007 Carrying amount at start of year Additions Acquisition of subsidiary (Note 31) Depreciation and amortisation expense Disposals Re-classification to intangibles Re-classification of assets 58.7 88.7 1.4 (1.8) (0.3) (17.8) - Functional currency transition adjustment (1) 4.3 Foreign currency translation reserve (0.1) 0.4 20.6 0.5 (1.6) (0.1) - 101.8 0.1 - 0.1 - - - - - - - - 0.2 - 0.9 (0.2) (0.2) - 2.5 - - Carrying amount at end of year 133.1 121.7 0.1 3.2 Parent Entity - 2007 Carrying amount at start of year Additions 0.3 17.2 Depreciation and amortisation expense (0.2) Carrying amount at end of year 17.3 0.3 17.2 (0.2) 17.3 - - - - - - - - 58.0 68.1 - - - (17.8) (104.3) 4.2 (0.1) 8.1 - - - - (1) Adjustment relates to the transition from a functional and presentation currency of Australian dollars to a functional and presentation currency of United States dollars. Paladin Energy Ltd 105 notes to the consolidated financial statements for the year ended 30 June 2008 Note 14. Mine Development Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M Mine development Less provision for depreciation Total mine development Carrying amount at start of year Additions Depreciation and amortisation expense Reallocation from exploration Carrying amount at end of year 13.8 (1.6) 12.2 2.0 4.8 (1.5) 6.9 12.2 2.1 (0.1) 2.0 - 0.5 (0.1) 1.6 2.0 - - - - - - - - - - - - - - - - Canadian securities law requires the following description of the Consolidated Entity’s interests in mineral property tenements: Langer Heinrich Uranium Project (Namibia) – Paladin 100% The LHUP consists of one mining licence – ML 140 – covering 4,375 hectares in the Namib Naukluft Desert 180km west of Windhoek, the capital of Namibia, and 80km east of the major seaport of Walvis Bay. The licence was granted on 26 July 2005 for a 25 year term expiring on 25 August 2030. Rights conferred by the licence include the right to mine and sell base and rare metals and nuclear fuel groups of minerals and to carry out prospecting operations. The project was purchased from Acclaim Uranium NL (now Aztec Resources Ltd) in August 2002. The LHUP is owned through a wholly owned Namibian entity, Langer Heinrich Uranium (Pty) Ltd. Construction of the processing plant was commenced in late 2005 with staged commissioning being completed in December 2006. Following an extended ramp-up phase the plant and mine achieved nameplate production in late 2007. Work has commenced on the Stage II plant upgrade with planning underway for a further Stage III upgrade. Langer Heinrich Uranium (Pty) Ltd also holds an exclusive prospecting licence, EPL 3500 covering 30 sq. km. to the west of the mining licence. Kayelekera Uranium Project (Malawi) – Paladin 85% The Kayelekera Uranium Project consists of one mining licence - ML 152 – covering 5,550 hectares in northern Malawi 650km north of Lilongwe, the capital of Malawi, and 40km west of the provincial town of Karonga on the shore of Lake Malawi. The licence was granted on 2 April 2007 for a fifteen year term expiring on 1 April 2022. Rights conferred by the licence include the exclusive right to mine and sell uranium and associated minerals. The Consolidated Entity acquired its interest in the Kayelekera Uranium Project in February 1998 when it entered into a joint venture with Balmain Resources Pty Ltd, a private company based in Perth, Western Australia. In 2000 the Consolidated Entity increased its interest in the Kayelekera Project to 90% and in July 2005 acquired the remaining 10% interest held by Balmain Resources Pty Ltd. Paladin’s interest in the Kayelekera Uranium Project is held through a Malawian entity, Paladin (Africa) Ltd. A Development Agreement has been enacted between the Government of Malawi and Paladin (Africa) Ltd in which Paladin received certain taxation and royalty concessions and in return the Government of Malawi received a free carried interest in the project of 15% thus reducing Paladin’s share to 85%. Subsequent to the Development Agreement and the acceptance of the project Environmental Impact Assessment the Government of Malawi granted the mining licence covering the project area to Paladin (Africa) Ltd. Construction of the plant was commenced in 2007 with staged commissioning expected to be completed by December 2008. Mining to develop initial stockpiles was started in mid 2008. Paladin (Africa) Ltd also holds four exclusive prospecting licences in northern Malawi covering 1,298 sq.km. surrounding and to the south of the Kayelekera mining licence. 106 Annual Report 2008 Note 15. Exploration and Evaluation Expenditure Canadian securities law requires the following description of the Consolidated Entity’s interests in mineral property tenements: Manyingee Uranium Project (Australia) – Paladin 100% The Manyingee Uranium Project consists of three granted mining leases – M08/86, M08/87 and M08/88 – covering 1,307 hectares in the north west of Western Australia, 1,100km north of Perth, the State capital and 90km south of the township of Onslow on the North West coast. The Consolidated Entity purchased the Manyingee Uranium Project in 1998 from Afmeco Mining and Exploration Pty Ltd (AFMEX), a subsidiary company of Cogema of France. Under the terms (as amended) of the purchase agreement a final payment of A$0.75 million is payable to AFMEX when all development approvals have been obtained. Royalties of 2.5% for the first 2,000t of uranium oxide and 1.5% for the following 2,000t of uranium oxide are also payable to AFMEX and associated companies which formerly held interests in the project. The three Mining Leases were granted on May 18, 1989 for a 21-year term renewable for a further term or terms of 21 years. Rights conferred by the three Mining Leases include the exclusive right to explore and mine minerals, subject to environmental and other approvals. The interest in Manyingee is held through the wholly owned entity, Paladin Energy Minerals NL. Oobagooma Uranium Project (Australia) – Paladin 100% The Oobagooma Uranium Project consists of four applications for exploration licences covering 452 sq.km. in the West Kimberley region of northern Western Australia, 1,900km north-north-east of Perth, the State capital and 70km north east of the regional town of Derby. The four applications for exploration licences are 04/145 and 04/146 lodged on December 28, 1983 and 04/776 and 04/777 lodged on November 28, 1991 which largely overlie the earlier applications. The Consolidated Entity purchased the Oobagooma Project in 1998 from AFMEX. Under the terms of the purchase agreement a final payment of A$0.75 million is payable to AFMEX when the tenements are granted. A gross royalty of 1.0% on production is also payable to AFMEX. The applications for exploration licences remain in the name of Afmeco Pty Ltd (a company associated with AFMEX) until the date that they are granted after which title will be transferred. The interest in Oobagooma is held through the wholly owned entity, Paladin Energy Minerals NL. Bigrlyi Uranium Project (Australia) – Paladin 42.06% The Bigrlyi Uranium Project lies in the Northern Territory of Australia approximately 320km north west of Alice Springs and is comprised of ten exploration retention licences (ERLs 46-55) covering 1,214 hectares. These tenements were originally granted in 1983 and have been subject to 5 yearly renewals since 1988. The project is now a Joint Venture between Energy Metals Limited 53.74%, Southern Cross Exploration NL 4.20% and Northern Territory Uranium Pty Ltd 42.06% (100% owned by Paladin Energy Ltd) with Energy Metals Limited being operator and manager. Resource definition drilling is ongoing at the project and an Initial Scoping Study was released in November 2007 with an Updated Scoping Study released in July 2008. The Bigrlyi uranium deposit was originally discovered by Agip Australia Pty Ltd in the mid 1970’s before being transferred to Central Pacific Minerals NL in the early 1980’s. Ore Reserve studies were carried out during the 1980’s and 1990’s but no drilling was undertaken until recently. During 2005/2006 a drilling campaign was undertaken by the Joint Venture partners which resulted in an initial JORC Resource. Resource definition drilling on the project during 2007 has resulted in an updated resource. The Joint Venture has completed a number of scoping studies to assess the viability of the project with drill planning for 2008 based on these outcomes. Isa Uranium Joint Venture (Australia) – Paladin 90.9% The Isa Uranium Joint Venture in Northern Queensland is a 50:50 joint venture between Summit Resources (Aust) Pty Ltd (Paladin Energy Ltd 81.9% ownership) and Mount Isa Uranium Pty Ltd (Paladin Energy Ltd 100% ownership) with Summit Resources (Aust) Pty Ltd being the operator and manager. The Isa Uranium Joint Venture covers of two defined blocks of land totalling 27 sq.km. containing the Vahalla and Skal uranium deposits. Paladin’s effective equity in the Isa Uranium Joint Venture was increased from 50% to 90.9% following the acquisition of 81.9% of Summit Resources Ltd in 2007. Paladin Energy Ltd 107 notes to the consolidated financial statements for the year ended 30 June 2008 Note 15. Exploration and Evaluation Expenditure (continued) Valhalla Uranium Deposit The Valhalla Uranium Deposit is situated on Exploration Permit for Minerals 9221 (EPM 9221) and is located some 40km North of Mount Isa and straddles the Barkly Highway. EPM 9221 was originally granted to Summit Resources (Aust) Pty Ltd in 1993 but the ground had previously been worked on by Mount Isa Mines Limited and Queensland Mines Limited from the mid 1950’s to the early 1970’s. Queensland Mines Limited, in particular, conducted extensive exploration over the Valhalla ground between 1968 and 1972 including the estimation of resources and reserves. Queensland Mines Limited allowed the tenement to lapse in 1991 and the ground was subsequently acquired by Summit Resources (Aust) Pty Ltd in 1992. During 2008 resource definition drilling was commenced to enable completion of a detailed scoping study. Skal Uranium Deposit The Skal Uranium Deposit is located approximately 8km southeast of the Valhalla Uranium Deposit and 32km north of Mount Isa. Skal was originally discovered by Mount Isa Mines Limited in the mid 1950’s and was subject to mapping and drilling at that time. Queensland Mines Limited acquired the project in the 1960’s and conducted further drilling resulting in an estimation of a resource for the project. The deposit is situated on Exploration Permit for Minerals 14048 and the Isa Uranium Joint Venture re-commenced drilling in 2005. An initial JORC compliant resource estimate was completed in mid 2008. Summit Resources Ltd (Australia) – Paladin 81.9% Paladin acquired an 81.9% interest in Summit Resources Ltd as a result of a takeover bid which closed on 1 June 2007. Summit Resources Ltd holds a large number of exploration tenements surrounding and to the north of Mount Isa in Northern Queensland. Other than the Andersons, Bikini & Watta Projects, for which JORC resource estimates have been completed, limited exploration activities have taken place on these tenements in recent years and as such they are not considered material to Paladin at this point in time. Angela and Pamela Projects (Australia) – Paladin 50% In early 2008 the Northern Territory Government advised that the Angela Project Joint Venture (Paladin 50% and Cameco 50%) had been selected to explore the Angela and Pamela uranium deposits located near Alice Springs in the Northern Territory. Exploration licence applications are now underway through the normal procedures set out in the Northern Territory Mining Act and it is anticipated that this process will be completed by late 2008. Other mineral property interests The Consolidated Entity holds various other mineral property interests, however, these are not considered material and as a result no further disclosure of mineral property tenement information has been included in the consolidated schedules of information. Environmental contingency The Consolidated Entity’s exploration, evaluation, development and operation activities are subject to various national, federal, provincial and local laws and regulations governing the protection of the environment. These laws and regulations are continually changing and generally becoming more restrictive. The Consolidated Entity has made, and expects to make in the future, expenditures to comply with such laws and regulations. The impact, if any, of future legislative or regulatory changes cannot be determined. 108 Annual Report 2008 Note 15. Exploration and Evaluation Expenditure (continued) The following table details the expenditures on interests in mineral properties by area of interest for the year ended 30 June 2008: Areas of interest Valhalla/Skal Projects(1) Isa North Georgina Project(1) Basin Projects Non Project Other Bigrlyi Kayelekera Langer Other Total US$M US$M US$M US$M US$M Project(1) Uranium(1) Project Heinrich Uranium Project Projects US$M US$M US$M US$M Balance 30 June 2007 1,227.896 344.437 1.178 7.124 15.065 4.560 Acquisition property payments Project exploration and evaluation expenditure Tenement costs Labour Consultants and contractors Materials and utilities Transportation and communications Outside services Legal and accounting Camp expenses Overheads - - 1.213 0.353 0.184 0.209 5.327 - 0.049 0.301 Joint venture contributions - - - - 0.061 0.383 0.049 0.016 0.086 0.642 0.002 0.015 0.048 - 0.377 0.149 0.063 0.001 - 0.001 0.002 - 0.075 0.045 0.001 0.002 0.010 0.039 0.003 - 0.001 0.005 (1.317) - Other expenses 0.215 0.053 0.001 0.001 - - 0.031 0.003 0.006 0.009 - - - 0.023 2.372 0.003 - 0.001 0.430 0.032 0.068 0.170 0.544 (0.015) 0.012 0.025 - 0.341 - - - - - - - - - - - - 1.129 1,601.389 - - 0.038 0.286 0.042 0.019 0.043 0.020 0.015 0.050 - 0.552 2.537 0.543 0.296 0.527 7.574 0.012 0.091 0.453 1.055 0.004 0.618 1.021 - Total expenditure 7.851 1.355 (0.722) 0.181 2.447 1.608 1.021 0.517 14.258 Exploration expenditure expensed Exploration expenditure capitalised Cost of tenements sold Foreign exchange differences Transferred to Mine Development (7.851) (1.355) (0.463) (0.181) (2.447) (0.290) - (0.517) (13.104) - - - - (1.185) - - (7.350) - - 161.914 45.420 0.007 0.226 1.987 1.318 1.021 - - - - - - 1.154 (7.350) 0.150 209.704 Balance 30 June 2008 1,389.810 389.857 - - - - - - - (5.878) (1.021) - (6.899) 17.052 - - 1.279 1,797.998 (1) Allocation of the Summit Group acquisition value was completed during the year, and as a consequence the comparatives have been restated. Summit has a 50% interest in the Valhalla/Skal Projects with the other 50% interest held by the Paladin Group. As a consequence of the takeover of the Summit Group, the above table now reflects 100% of the Valhalla/Skal Projects with the minority interest reflected on the face of the Balance Sheet. Paladin Energy Ltd 109 notes to the consolidated financial statements for the year ended 30 June 2008 Note 15. Exploration and Evaluation Expenditure (continued) The following table details the expenditures on interests in mineral properties by area of interest for the year ended 30 June 2007: Areas of interest Valhalla/Skal Projects(1) Isa North Georgina Project(1) Basin Projects Non Project Other Bigrlyi Kayelekera Langer Other Total US$M US$M US$M US$M US$M Project(1) Uranium(1) Project Heinrich Uranium Project Projects US$M US$M US$M US$M Balance 30 June 2006 - - - - - 4.223 1.149 0.972 6.344 1,216.352 344.363 1.178 7.122 13.908 - - - 1,582.923 Acquisition property payments Project exploration and evaluation expenditure Tenement costs Labour Consultants and contractors Materials and utilities Transportation and communications Outside services Legal and accounting Camp expenses Overheads (0.016) (0.031) 0.062 - 0.022 - - 0.009 0.043 0.004 0.162 0.006 0.030 0.016 0.789 - 0.002 0.001 - 0.016 0.065 - 0.004 0.027 - 0.016 0.030 0.067 0.001 0.005 0.142 - 0.003 0.003 - - - - 0.006 0.017 - - - - - - 0.005 0.443 0.566 0.122 0.312 2.168 0.185 0.098 0.048 1.345 - 0.001 0.034 0.050 0.107 0.002 0.039 0.005 0.011 0.029 0.059 0.254 - - 0.107 0.002 0.017 - - 0.048 - 0.044 0.783 0.824 0.169 0.447 3.380 0.292 0.134 0.140 1.439 Joint venture contributions 0.671 - (0.577) Other expenses 0.026 0.001 - 0.001 - 0.103 0.008 0.005 0.144 Total expenditure 0.786 1.011 (0.462) 0.265 1.368 4.050 0.351 0.427 7.796 Exploration expenditure expensed Exploration expenditure capitalised Foreign exchange differences Transferred to Property, Plant & Equipment (0.786) (1.011) 0.462 (0.265) (1.368) (4.050) - (0.427) (7.445) - - 11.544 0.074 - - - - - - - - 0.351 - 0.351 0.002 1.157 0.337 0.083 0.157 13.354 - - - (1.583) - (1.583) Balance 30 June 2007 1,227.896 344.437 1.178 7.124 15.065 4.560 - 1.129 1,601.389 (1) Allocation of the Summit Group acquisition value was completed during the year, and as a consequence the comparatives have been restated. Summit has a 50% interest in the Valhalla/Skal Projects with the other 50% interest held by the Paladin Group. As a consequence of the takeover of the Summit Group, the above table now reflects 100% of the Valhalla/Skal Projects with the minority interest reflected on the face of the Balance Sheet. 110 Annual Report 2008 Note 16. Intangible Assets Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M (a) Reconciliation of carrying amount at the beginning and end of the period At 1 July Net of accumulated amortisation Reclassification from property, plant and equipment Amortisation At 30 June 17.6 - (1.0) - 17.8 (0.2) Net of accumulated amortisation 16.6 17.6 At 30 June Cost – right to supply of power and water Accumulated amortisation Net carrying amount of non current intangible assets 17.8 (1.2) 16.6 17.8 (0.2) 17.6 - - - - - - - - - - - - - - Amortisation of US$1.0 million (2007: US$0.2 million) is included in costs of sales in the Income Statement. (b) Description of the Group’s intangible assets (i) Right to supply of power Langer Heinrich Uranium Pty Ltd has entered into a contract with NamPower in Namibia for the right to access power at the Langer Heinrich mine. In order to obtain this right, the power line connection to the mine was funded by Langer Heinrich, however, ownership of the power line rests with NamPower. The amount funded is being amortised over the life of mine on a straight–line basis. (ii) Right to supply of water Langer Heinrich Uranium Pty Ltd has entered into a contract with NamWater in Namibia for the right to access water at the Langer Heinrich mine. In order to obtain this right, the water pipeline connection to the mine was funded by Langer Heinrich; however, ownership of the pipeline rests with NamWater. The amount funded is being amortised over the life of mine on a straight-line basis. Note 17. Trade and Other Payables Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M Current Trade and other payables Total current payables Trade payables are non-interest bearing and are normally settled on 60 day terms. Non Current 41.4 41.4 13.8 13.8 Unsecured loans from wholly owned Group Companies - Total non current payables - - - 7.5 7.5 1.0 1.0 2.8 2.8 2.7 2.7 The unsecured loans from wholly owned Group Companies are interest free and have no fixed terms of repayment, however, the companies for the foreseeable future have no intention of demanding repayment. Paladin Energy Ltd 111 notes to the consolidated financial statements for the year ended 30 June 2008 Note 18. Unearned Revenue Current Unearned revenue Non current Unearned revenue Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M 0.2 0.5 0.2 0.6 - - - - Unearned revenue represents the database licence revenue received from Deep Yellow Ltd for the use of the Frome Basin database from 15 July 2005 for a period of 6 years. Note 19. Interest Bearing Loans and Borrowings Current Secured bank loan Non current Unsecured convertible bonds Unsecured convertible bonds Secured bank loan Total non current Maturity Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M 11.0 4.4 - - 2011 2013 2012 218.4 299.0 54.1 571.5 209.2 - 60.0 269.2 218.4 299.0 - - - 517.4 209.2 209.2 The figures above include deferred borrowing costs Fair value disclosures Details of the fair value of the Group’s interest bearing liabilities are set out in Note 23. Unsecured convertible bonds On 15 December 2006, the Company issued US$250 million in convertible bonds with an underlying coupon rate of 4.5%, maturity 15 December 2011 and a conversion price of US$7.685 for Company shares. In disclosing the convertible bonds in the Consolidated Financial Statements, the Company has accounted for them in accordance with Australian Accounting Standards. Under these standards the convertible bonds are essentially both a liability (underlying bond) and an equity instrument (conversion rights into Company shares). Based on this allocation of the convertible bonds, US$212.2 million has been initially allocated to interest bearing loans and borrowings in non-current liabilities (underlying effective interest rate of 8.75%) and US$37.8 million to non-distributable convertible bond reserve in equity. A deferred tax liability of US$11.3 million has been recognised through reserves which relates to the equity component of the bond and this deferred tax liability reverses to the Income Statement over the term of the bond. On 11 March 2008, the Company issued US$325 million in convertible bonds with an underlying coupon rate of 5.0%, maturity 11 March 2013 and a conversion price of US$6.59 for Company shares. In disclosing the convertible bonds in the Consolidated Financial Statements, the Company has accounted for them in accordance with Australian Accounting Standards. Under these standards the convertible bonds are treated as both a liability (underlying bond) and an equity instrument (conversion rights into Company shares). Based on this treatment of the convertible bonds, US$307.1 million has been allocated to interest bearing loans and borrowings in non-current liabilities (underlying effective interest rate of 7.13%) and US$17.8 million to non- distributable convertible bond reserve in equity. A deferred tax liability for the bonds of US$5.4 million has been recognised through reserves which relates to the equity component of the bond and this deferred tax liability reverses to the Income Statement over the term of the bond. 112 Annual Report 2008 Note 19. Interest Bearing Loans and Borrowings (continued) Secured bank loan During the year ended 30 June 2006 the Consolidated Entity completed project finance facilities amounting to US$71 million for construction of the LHUP. The financing has been provided by Société Générale Australia Branch (as lead arranger), Nedbank Capital and Standard Bank Plc and consists of a 7 year Project Finance Facility of US$65 million and a Standby Cost Overrun Facility of US$6 million. The Project Finance Facility bears interest at the London Interbank Offered Rate (LIBOR) plus 3.5% up to and including practical completion of the project, and the interest cost reduces to LIBOR plus 2.5% after practical completion. No requirement for political risk insurance exists under the terms of the Project Finance Facility. The facilities are secured with fixed and floating charges over the assets of Langer Heinrich Uranium (Pty) Ltd and its immediate holding companies. Paladin Energy Ltd has provided a project completion guarantee as part of the facilities. At 30 June 2008 US$66.3 million (2007: US$66.6 million) had been drawn of the project finance facilities, following principal repayments of US$4.6M, leaving available facilities of US$Nil (2007: US$4.4 million). Deferred borrowing costs capitalised during the year relating to establishment of facilities Consolidated Entity – US$9.9 million (2007: US$8.3 million) Parent Entity – US$9.8 million (2007: US$8.0 million) 100% of borrowing costs incurred for the construction of any qualifying asset are capitalised. Financing facilities available At reporting date, the following financing facilities had been negotiated and were available: Total facilities: Unsecured convertible bonds Secured bank loans Facilities used at reporting date Unsecured convertible bonds Secured bank loans Facilities unused at reporting date Unsecured convertible bonds Secured bank loans Total facilities Facilities used at reporting date Facilities unused at reporting date Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M 575.0 66.3 641.3 575.0 66.3 641.3 - - - 641.3 - 641.3 250.0 71.0 321.0 250.0 66.6 316.6 - 4.4 4.4 316.6 4.4 321.0 575.0 - - 575.0 575.0 - - 575.0 - - 575.0 - - 575.0 250.0 250.0 250.0 250.0 - - 250.0 250.0 Paladin Energy Ltd 113 notes to the consolidated financial statements for the year ended 30 June 2008 Note 19. Interest Bearing Loans and Borrowings (continued) Assets pledged as security The carrying amounts of assets pledged as security for non current interest bearing liabilities (secured bank loans) are: Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M Current Floating charge - Cash and cash equivalents - Trade and other receivables - Inventories Total current assets pledged as security Non current - Property, plant and equipment - Exploration and evaluation expenditure - Deferred tax asset - Intangible assets Total non current assets pledged as security Total assets pledged as security 14.4 35.8 37.1 87.3 109.6 - 11.6 16.6 137.8 225.1 2.6 7.7 13.4 23.7 108.3 - 10.4 17.6 136.3 160.0 - - - - - - - - - - - - - - - - - - - - Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M 0.5 0.5 - - 1.5 1.5 0.1 4.4 3.9 8.4 2.0 7.8 0.8 10.6 0.1 - 3.0 3.1 - - - - 1.0 1.0 0.1 - - - - - 0.1 - Note 20. Provisions Current Rehabilitation Sales contracts Employee benefits (Note 27) Total current provisions Non Current Employee benefits (Note 27) Rehabilitation provision Mine closure Total non current provisions 114 Annual Report 2008 Note 20. Provisions (continued) For a description of the nature and timing of cash flows associated with the above provisions, refer to section (b) below : (a) Movements in provisions Movements in each class of provision during the financial year, other than provisions relating to employee benefits, are set out below :- Sales Rehabilitation Contracts US$M US$M Mine Closure US$M Total US$M 2.0 2.6 - (0.2) 4.4 - 4.4 4.4 2.0 - 2.0 7.8 - (7.8) - - - - - 7.8 - 7.8 3.0 1.3 - (0.4) 3.9 - 3.9 3.9 - 3.0 3.0 12.8 3.9 (7.8) (0.6) 8.3 - 8.3 8.3 9.8 3.0 12.8 Consolidated At 1 July 2007 Arising during the year Utilised Foreign currency movements At 30 June 2008 Current 2008 Non current 2008 Current 2007 Non current 2007 (b) Nature and timing of provisions (i) Rehabilitation A provision for rehabilitation has been recorded in relation to the LHUP. A provision is made for rehabilitation work when the obligation arises and this is recognised as a cost of production or development as appropriate. In 2007 the intention was to commence rehabilitation work on the original pit. Subsequently it was determined that the lifespan of this pit will be much longer than anticipated which has resulted in the liability changing from current to non current. (ii) Sales contracts A provision for sales contracts is recognised when the expected benefits to be derived by the Group from a sales contract are lower than the unavoidable cost of meeting the obligations under the sales contract. The provision is stated at the present value of the future net cash outflows expected to be incurred in respect of the contract. At 30 June 2007 a US$7.8 million sales contract provision was recognised attributable to the requirement to meet July 2007 Langer Heinrich sales commitments by use of third party uranium purchases. This provision was fully utilised during the year (refer to Note 4(e)(1)). (iii) Mine closure A provision for mine closure has been recorded in relation to the LHUP for the costs of dismantling and demolition of infrastructure or decommissioning, the removal of residual material and the remediation of disturbed areas specific to the infrastructure to a state acceptable to various authorities. Final mine closure is not expected until the cessation of operations, currently estimated to be beyond 2020. (iv) Employee benefits Refer to Note 27. Paladin Energy Ltd 115 notes to the consolidated financial statements for the year ended 30 June 2008 Note 21. Contributed Equity and Reserves (a) Issued and paid up capital Number of Shares 2007 2008 Consolidated/ Parent Entity 2008 US$M 2007 US$M Ordinary shares Issued and fully paid 613,497,369 602,437,369 1,088.4 1,075.3 Effective 1 July 1998, the Corporations legislation in place abolished the concepts of authorised capital and par value shares. Accordingly, the Company does not have authorised capital or par value in respect of its issued shares. Fully paid ordinary shares carry one vote per share and carry the right to dividends. (b) Movements in ordinary shares on issue Date Number of Shares Issue Price A$ Exchange Rate US$ : A$ Balance 30 June 2006 454,235,713 July 2006 July 2006 Option conversions Option conversions August 2006 Option conversions September 2006 Option conversions September 2006 Option conversions September 2006 Valhalla acquisition October 2006 Valhalla acquisition October 2006 Option conversions November 2006 Option conversions November 2006 Option conversions November 2006 Option conversions December 2006 Functional currency Transition adjustment (1) December 2006 Option conversions January 2007 Option conversions March 2007 Summit acquisition April 2007 April 2007 May 2007 June 2007 June 2007 Option conversions Summit acquisition Summit acquisition Summit acquisition Option conversions Transfer from reserves Less: Share issue costs 350,000 300,000 400,000 600,000 6,000 37,151,830 822,426 3,400,000 2,090,000 1,000,000 4,000 590,000 30,000 691,117 275,000 71,633,205 27,825,681 1,007,397 25,000 1.00 1.25 1.00 1.00 1.50 5.09 5.09 1.00 1.00 1.25 1.50 1.00 2.80 9.52 1.00 9.70 9.04 8.60 1.00 Balance 30 June 2007 602,437,369 Total US$M 112.3 0.3 0.3 0.3 0.5 - 1.27647 1.27647 1.27647 1.27647 1.27647 1.27647 148.1 1.27647 1.27647 1.27647 1.27647 1.27647 1.27175 1.26855 1.24395 1.23753 1.20060 1.21269 1.21219 1.21215 3.3 2.6 1.6 1.0 - 3.8 0.4 0.1 5.3 0.3 579.0 207.4 7.2 - 1.8 (0.3) 1,075.3 (1) Adjustment relates to the transition from a functional and presentation currency of Australian dollars to functional and presentation currency of United States dollars – refer Note 2(f)(i). 116 Annual Report 2008 Note 21. Contributed Equity and Reserves (continued) (b) Movements in ordinary shares on issue (continued) Date Number of Shares Issue Price A$ Exchange Rate US$ : A$ Total US$M Balance 30 June 2007 602,437,369 1,075.3 September 2007 Option conversions November 2007 Option conversions November 2007 Option conversions December 2007 Option conversions April 2008 April 2008 June 2008 June 2008 June 2008 Option conversions Option conversions Option conversions Option conversions Option conversions Transfer from reserves 250,000 50,000 3,270,000 7,000,000 100,000 94,600 90,000 200,000 5,400 1.00 1.00 1.00 1.00 1.50 2.80 1.50 2.80 2.80 1.22122 1.08369 1.08369 1.12974 1.09343 1.09343 1.04671 1.04671 1.04671 0.2 0.1 3.0 6.2 0.1 0.3 0.1 0.5 - 2.6 Balance 30 June 2008 613,497,369 1,088.4 (c) Issued options (i) Exercisable at A$1.00, on or before 30 November 2007 (granted 30 November 2004) Balance at 1 July Exercised during year Balance at 30 June Number of Options 2007 2008 3,570,000 (3,570,000) 8,050,000 (4,480,000) - 3,570,000 Vest on positive outcome for LHUP Bankable Feasibility Study together with completion of acceptable project funding. Vesting conditions were met by 30 June 2006. In July 2006 350,000 options above were exercised raising A$350,000 (US$274,194) in contributed equity and at the time of exercise the shares had a market value of A$1,456,000. In August 2006 400,000 options above were exercised raising A$400,000 (US$313,364) in contributed equity and at the time of exercise the shares had a market value of A$1,816,000. In September 2006 600,000 options above were exercised raising A$600,000 (US$470,046) in contributed equity and at the time of exercise the shares had a market value of A$2,640,000. In October 2006 150,000 options above were exercised raising A$150,000 (US$117,512) in contributed equity and at the time of exercise the shares had a market value of A$866,500. In November 2006 2,090,000 options above were exercised raising A$2,090,000 (US$1,637,328) in contributed equity and at the time of exercise the shares had a market value of A$14,880,800. In December 2006 590,000 options above were exercised raising A$590,000 (US$463,928) in contributed equity and at the time of exercise the shares had a market value of A$4,708,200. In April 2007 275,000 options above were exercised raising A$275,000 (US$222,217) in contributed equity and at the time of exercise the shares had a market value of A$2,655,500. In June 2007 25,000 options above were exercised raising A$25,000 (US$20,625) in contributed equity and at the time of exercise the shares had a market value of A$206,500. Paladin Energy Ltd 117 notes to the consolidated financial statements for the year ended 30 June 2008 Note 21. Contributed Equity and Reserves (continued) (c) Issued options (continued) In September 2007 250,000 options above were exercised raising A$250,000 (US$204,713) in contributed equity and at the time of exercise the shares had a market value of A$1,450,000. In November 2007 50,000 options above were exercised raising A$50,000 (US$46,139) in contributed equity and at the time of exercise the shares had a market value of A$358,500. In November 2007 3,270,000 options above were exercised raising A$3,270,000 (US$3,017,468) in contributed equity and at the time of exercise the shares had a market value of A$22,236,000. (ii) Exercisable at A$1.00, on or before 20 December 2007 (granted 20 December 2004) Balance at 1 July Exercised during year Number of Options 2007 2008 7,000,000 (7,000,000) 10,250,000 (3,250,000) Balance at 30 June - 7,000,000 Vest on positive outcome for LHUP Bankable Feasibility Study together with completion of acceptable project funding. Vesting conditions were met by 30 June 2006. In October 2006 3,250,000 options above were exercised raising A$3,250,000 (US$2,546,084) in contributed equity and at the time of exercise the shares had a market value of A$16,737,500. In December 2007 7,000,000 options above were exercised raising A$7,000,000 (US$6,196,116) in contributed equity and at the time of exercise the shares had a market value of -A$43,120,000 (iii) Exercisable at A$1.25, on or before 30 November 2007 (granted 30 November 2004) Balance at 1 July Exercised during year Balance at 30 June Number of Options 2007 2008 - 1,300,000 - (1,300,000) - - Vest on positive outcome for LHUP Bankable Feasibility Study together with completion of acceptable project funding. Vesting conditions were met by 30 June 2006. In July 2006 300,000 options above were exercised raising A$375,000 (US$293,779) in contributed equity and at the time of exercise the shares had a market value of A$1,248,000. In November 2006 1,000,000 options above were exercised raising A$1,250,000 (US$979,263) in contributed equity and at the time of exercise the shares had a market value of A$7,120,000. (iv) Exercisable at A$1.50, on or before 15 July 2008 (granted 15 July 2005) Balance at 1 July Exercised during year Balance at 30 June 118 Annual Report 2008 Number of Options 2007 2008 190,000 (190,000) 200,000 (10,000) - 190,000 Note 21. Contributed Equity and Reserves (continued) (c) Issued options (continued) Vest on positive outcome for LHUP Bankable Feasibility Study together with completion of acceptable project funding. Vesting conditions were met by 30 June 2006. In September 2006 6,000 options above were exercised raising A$9,000 (US$7,051) in contributed equity and at the time of exercise the shares had a market value of A$26,400. In November 2006 4,000 options above were exercised raising A$6,000 (US$4,700) in contributed equity and at the time of exercise the shares had a market value of A$27,000. In April 2008 100,000 options above were exercised raising A$150,000 (US$137,183) in contributed equity and at the time of exercise the shares had a market value of A$430,000. In June 2008 90,000 options above were exercised raising A$135,000 (US$128,976) in contributed equity and at the time of exercise the shares had a market value of A$536,400. Number of Options 2007 2008 (v) Exercisable at A$2.80, on or before 13 January 2009 (granted 13 January 2006 to 16 February 2006) (900,000 vest 13 January 2007 and 1,950,000 vest 13 January 2008). Balance at 1 July Exercised during year Balance at 30 June 2,820,000 (300,000) 2,850,000 (30,000) 2,520,000 2,820,000 In January 2007 30,000 options above were exercised raising A$84,000 (US$66,217) in contributed equity and at the time of exercise the shares had a market value of A$261,000. In April 2008 94,600 options above were exercised raising A$264,880 (US$242,247) in contributed equity and at the time of exercise the shares had a market value of A$406,780. In June 2008 205,400 options above were exercised raising A$575,120 (US$549,455) in contributed equity and at the time of exercise the shares had a market value of A$1,224,184. (vi) Exercisable at A$5.50, on or before 28 April 2009 (granted 27 April 2006) (782,500 vest 31 October 2007 and 782,500 vest 31 October 2008). Balance at 1 July Balance at 30 June Number of Options 2007 2008 1,565,000 1,565,000 1,565,000 1,565,000 (vii) Exercised at A$5.50 on or before 5 July 2009 (granted 5 July 2006 to 20 July 2006) (700,000 vest 5 January 2008 and 700,000 vest 5 January 2009). Balance at 1 July Granted during year Balance at 30 June 1,400,000 - - 1,400,000 1,400,000 1,400,000 (viii) Exercisable at A$8.77 on or before 1 February 2012 (granted 1 February 2007) (2,733,670 vest 1 February 2010) Balance at 1 July Granted during year Balance at 30 June 2,733,670 - - 2,733,670 2,733,670 2,733,670 Paladin Energy Ltd 119 notes to the consolidated financial statements for the year ended 30 June 2008 Note 21. Contributed Equity and Reserves (continued) (c) Issued options (continued) (ix) Exercisable at A$8.77 on or before 29 June 2012 (granted 29 June 2007) (400,000 vest 29 June 2010) Balance at 1 July Granted during year Lapsed during year Balance at 30 June (x) Exercisable at A$4.50 on or before 29 Jan 2013 (granted 29 Jan 2008) (8,541,620 vest 29 Jan 2011) Balance at 1 July Granted during year Lapsed during year Balance at 30 June (xi) Exercisable at A$5.37 on or before 15 Feb 2011(granted 15 Feb 2008) (700,000 vest 15 Feb 2009) Balance at 1 July Granted during year Balance at 30 June (xii) Exercisable at A$5.37 on or before 15 Feb 2013 (granted 15 Feb 2008) (525,000 vest 15 Feb 2011) Balance at 1 July Granted during year Lapsed during year Balance at 30 June (xiii) Exercisable at A$4.59 on or before 18 April 2013 (granted 18 April 2008) (1,075,000 vest 18 April 2011) Balance at 1 July Granted during year Balance at 30 June (xiv) Exercisable at A$5.27 on or before 18 June 2013 (granted 18 June 2008) (450,000 vest 18 June 2011) Balance at 1 July Granted during year Balance at 30 June Number of Options 2007 2008 400,000 - - 400,000 (400,000) - - 400,000 - - 8,541,620 - (408,212) - 8,133,402 - - - - 700,000 - 700,000 - - - 525,000 - (25,000) 500,000 - - - 1,075,000 - 1,075,000 - - - 450,000 - 450,000 - 120 Annual Report 2008 Note 21. Contributed Equity and Reserves (continued) (d) Reserves Listed option application reserve US$M Share based payments reserve US$M Available for sale reserve Convertible Acquisition Total Foreign bond non- currency translation distributable reserve US$M reserve US$M reserve US$M US$M US$M CONSOLIDATED At 1 July 2006 Net unrealised movement on available -for-sale investments Share based payments Functional currency transition adjustment Foreign currency translation Convertible bonds – equity component Acquisition of Summit Resources Ltd - - - - - - Income tax - 0.1 5.0 3.4 (3.4) - - - - - - 4.4 - 37.5 - - - - 3.7 0.3 3.2 30.0 - - - - - (12.4) - - - 37.8 - (11.3) Net unrealised movement on available -for-sale investments Share based payments Foreign currency translation Convertible bonds – equity component Income tax - - - - - - 8.1 - - - At 30 June 2008 0.1 17.8 (44.6) - - - 7.0 124.6 - - - - 13.4 7.5 - - 17.8 (5.4) - - - - - - 5.1 37.5 4.4 3.7 33.5 37.8 14.9 - 14.9 (23.7) - - - - - (44.6) 8.1 131.6 17.8 8.0 At 30 June 2007 0.1 9.7 31.7 30.3 26.5 14.9 113.2 154.9 38.9 14.9 234.1 Paladin Energy Ltd 121 notes to the consolidated financial statements for the year ended 30 June 2008 Note 21. Contributed Equity and Reserves (continued) (d) Reserves (continued) Listed option Share based application payments reserve US$M reserve US$M Available for sale reserve US$M Convertible bond non- distributable reserve US$M Foreign currency translation reserve US$M Total US$M PARENT At 1 July 2006 Functional currency transition adjustment Foreign currency translation Convertible bonds – equity component Income tax Net unrealised movement on available -for-sale investments Share based payments 0.1 - - - - - - At 30 June 2007 0.1 Foreign currency translation Convertible bonds – equity component Income tax Net unrealised movement on available -for-sale investments Share based payments - - - - - At 30 June 2008 0.1 Nature and purpose of reserves Listed option application reserve 5.0 - 0.3 - - - 4.4 9.7 - - - - 8.1 17.8 - - 1.7 - (5.6) 18.6 - 14.7 4.7 - 8.5 (28.4) - - - - 37.8 (11.3) - - 26.5 - 17.8 (5.4) - - (0.5) 38.9 (3.1) 2.0 3.1 - - - - - - - - - - - - 3.1 2.0 37.8 (16.9) 18.6 4.4 51.0 4.7 17.8 3.1 (28.4) 8.1 56.3 This reserve consists of proceeds from the issue of listed options, net of expenses of issue. These listed options expired unexercised and no restriction exists for the distribution of this reserve. Share based payments reserve This reserve is used to record the value of equity benefits provided to Directors, employees and consultants as part of their remuneration. Refer to Note 29 for further details on share based payments. Available-for-sale reserve This reserve records the fair value changes on the available-for-sale financial assets as set out in Note 10(b). Foreign currency translation reserve This reserve is used to record exchange differences arising on translation of the group entities that do not have a functional currency of United States dollars and have been translated into United States dollars for presentation purposes, as described in Note 2(f). Convertible bond non-distributable reserve This reserve records the equity portion of the convertible bonds issued on 15 December 2006 and on 11 March 2008, as described in Note 19. Acquisition reserve This reserve recognises the difference in value of investments in Summit Resources Ltd, at the share price on the date control was obtained (27 April 2007), and the share price on the date of acquisitions after the date of control. 122 Annual Report 2008 Note 22. Minority Interests Minority interests comprise: Share capital Opening accumulated losses Reserves Current period loss Total minority interests Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M 11.0 (6.9) 204.9 (1.2) 207.8 11.0 (6.5) 180.7 (0.4) 184.8 - - - - - - - - - - The minority interests recognised during the year relate to the 18.1% interest in Summit Resources Ltd not acquired from the takeover bid that closed on 1 June 2007. No minority interests have been reflected for the 15% of Paladin (Africa) Ltd to which the Government of Malawi is entitled as this company is in a net liability position as a consequence of the policy to expense previous exploration and evaluation expenditure prior to the decision made to proceed to development. Note 23. Financial Instruments (a) Financial risk management objectives & policies The Group’s management of financial risk is aimed at ensuring net cash flows are sufficient to: • • Meet all its financial commitments and; Maintain the capacity to fund corporate growth activities The Group monitors its forecast financial position on a regular basis. Market, liquidity and credit risk (including foreign exchange, commodity price and interest rate risk) arise in the normal course of the Group’s business. These risks are managed under Board approved directives which underpin treasury practices and processes. The Group’s principal financial instruments, comprise interest bearing debt, US treasury bills (a negotiable US government security with a maturity of less than one year that pays no periodic interest, but yields the difference between its par value and its discounted purchase price), cash and short-term deposits. Other financial instruments include trade receivables and trade payables, which arise directly from operations. The Group’s forecast financial risk position with respect to key financial objectives and compliance with treasury practice are regularly reported to the Board. (b) Market risk (i) Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures. Foreign exchange risk arises from future commitments, assets and liabilities that are denominated in a currency that is not the Group’s functional currency. The Group’s borrowings and deposits are largely denominated in US dollars. Currently there are no foreign exchange hedge programmes in place, however, the Group treasury function manages the purchase of foreign currency to meet operational requirements. Paladin Energy Ltd 123 notes to the consolidated financial statements for the year ended 30 June 2008 Note 23. Financial Instruments (continued) (b) Market risk (continued) (i) Foreign exchange risk (continued) The financial instruments exposed to movements in the US dollar / Australian dollar are as follows: Financial assets Cash and cash equivalents Trade and other receivables Financial and other assets Financial liabilities Trade and other payables Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M 6.9 4.0 42.7 53.6 6.8 6.8 10.7 3.9 59.9 1.5 9.3 26.1 74.5 36.9 6.1 6.1 3.2 3.2 0.4 3.3 33.6 37.3 2.9 2.9 The financial instruments exposed to movements in the US dollar/Namibian dollar are as follows: Financial assets Cash and cash equivalents Trade and other receivables Financial and other assets Financial liabilities Trade and other payables 3.2 6.2 - 9.4 8.5 8.5 2.4 4.3 - 6.7 5.7 5.7 - - - - - - - - - - - - The following table summarises the sensitivity of financial instruments held at balance date to movements in the exchange rate of the Australian dollar to the US dollar and the Namibian dollar to the US dollar, with all other variables held constant. The 5% sensitivity is based on reasonably possible changes, over a financial year, using the observed range of actual historical rates for the preceding 5 year period. Impact on Profit Impact on Equity Parent Entity Consolidated 2008 2008 2007 2007 US$M US$M US$M US$M US$M US$M US$M US$M Parent Entity 2007 2008 Consolidated 2007 2008 Post – Tax gain/(loss) USD/AUD +5% USD/AUD -5% Post – Tax gain/(loss) USD/NAD +5% USD/NAD -5% (0.8) (1.1) (1.1) (1.1) (0.7) (1.1) 0.9 1.2 1.2 1.3 0.8 1.3 - - - - - - - - - - - - - - - - - - - - 124 Annual Report 2008 Note 23. Financial Instruments (continued) (b) Market risk (continued) (ii) Interest rate risk Interest rate risk is the risk that the Group’s financial position will be adversely affected by movements in interest rates that will increase the cost of floating rate debt or opportunity losses that may arise on fixed rate borrowings in a falling interest rate environment. Interest rate risk on cash and short-term deposits is not considered to be a material risk due to the short-term nature of these financial instruments. The Group’s main interest rate risk arises from long-term debt. Floating rate debt exposes the Group to cash flow interest rate risk and fixed rate debt exposes the Group to fair value interest rate risk. All other financial assets and liabilities in the form of receivables, investments in shares, payables and provisions, are non interest bearing. The Group currently does not engage in any hedging or derivative transactions to manage interest rate risk. The financial instruments exposed to movements in interest rates are as follows: Financial assets Cash and cash equivalents Trade and other receivables Financial liabilities Interest- bearing liabilities Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M 337.5 - 337.5 66.3 66.3 182.8 - 182.8 66.6 66.6 317.4 106.1 423.5 - - - - 169.7 47.2 216.9 The following table summarises the sensitivity of the fair value of financial instruments held at balance sheet date, following a movement to LIBOR, with all other variables held constant. The 1% sensitivity is based on reasonably possible changes over a financial year, using the observed range of actual historical rates for the preceding 5 year period. The sensitivity analysis below excludes impact on borrowing costs arising from interest bearing liabilities as these are capitalised as part of long-term qualifying development projects. Post-Tax Gain/(Loss) LIBOR +1% LIBOR -1% Impact on Profit Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M 1.8 (1.8) 0.8 (0.8) 3.0 (3.0) 1.5 (1.5) Paladin Energy Ltd 125 notes to the consolidated financial statements for the year ended 30 June 2008 Note 23. Financial Instruments (continued) (b) Market risk (continued) (iii) Market price risk Price risk is the risk that the Group’s financial position will be adversely affected by movements in the market value of its available-for-sale financial assets. The financial instruments exposed to movements in market value are as follows: Financial assets Other financial assets Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M 41.7 60.3 26.6 34.1 No impact on profit as movement in the market price is taken to the reserve. The following table summarises the sensitivity of financial instruments held at balance date to movements in the market price of available-for-sale financial instruments, with all other variables held constant the 10% sensitivity is based on reasonable possible changes, over a financial year, using the observed range of actual historical prices for 2008 and 2007. Post-Tax Gain/(Loss) Market price +10% Market price -10% (c) Liquidity risk Impact on Equity Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M 4.1 (4.1) 6.5 (6.5) 2.5 (2.5) 3.4 (3.4) The liquidity position of the Group is managed to ensure sufficient liquid funds are available to meet our financial commitments in a timely and cost effective manner. The Group Treasury Function continually reviews our liquidity position including cash flow forecasts to determine the forecast liquidity position and maintain appropriate liquidity levels. Notes 23 (e) and (f) detail the repayment obligations in respect of the amount of the facilities. The ageing of payables at the reporting date was as follows: 2008 CONSOLIDATED Trade and other payables Loans and borrowings Interest payable Total payables PARENT ENTITY Trade and other payables Loans and borrowings Interest payable Total payables 126 Annual Report 2008 Total US$M 41.4 641.3 145.3 828.0 7.5 575.0 131.4 713.9 Payables ageing analysis 6-12 mths US$M 1-5 years US$M 6 mths US$M 41.4 5.6 16.3 63.3 7.5 - 13.7 21.2 - 6.6 16.1 22.7 - - 13.7 13.7 - 629.1 112.9 742.0 - 575.0 104.0 679.0 >5 year US$M - - - - - - - - Note 23. Financial Instruments (continued) (c) Liquidity risk (continued) 2007 CONSOLIDATED Trade and other payables Loans and borrowings Interest payable Total payables PARENT ENTITY Trade and other payables Loans and borrowings Interest payable Total payables Total US$M 13.8 316.6 81.4 411.8 2.8 250.0 61.6 314.4 Payables ageing analysis 6-12 mths US$M 1-5 years US$M 6 mths US$M 13.8 - 8.7 22.5 2.8 - 5.6 8.4 - 4.6 8.4 - 307.7 64.3 13.0 372.0 - - 5.6 5.6 - 250.0 50.4 300.4 >5 year US$M - 4.3 - 4.3 - - - (d) Credit risk Credit risk is the risk that a contracting entity will not complete its obligation under a financial instrument that will result in a financial loss to the Group. The carrying amount of financial assets represents the maximum credit exposure. The Group trades only with recognised, credit worthy third parties. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. The maximum exposure to credit risk at the reporting date was as follows: Current Trade receivables Other receivables – controlled entities Other receivables – other entities Non Current Unsecured loans to wholly owned group Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M 28.7 - 5.2 33.9 - 33.9 3.3 - 2.4 5.7 - 5.7 - - 9.0 9.0 - 9.0 - - 1.9 1.9 - 1.9 Paladin Energy Ltd 127 notes to the consolidated financial statements for the year ended 30 June 2008 Note 23. Financial Instruments (continued) (d) Credit risk (continued) The ageing of receivables at the reporting date was as follows: 2008 CONSOLIDATED Trade receivables Other receivables Total receivables PARENT ENTITY Other receivables Unsecured loans to wholly owned group Total receivables 2007 CONSOLIDATED Trade receivables Other receivables Total receivables PARENT ENTITY Other receivables Total US$M 28.7 5.2 33.9 9.0 - 9.0 3.3 2.4 5.7 1.9 Unsecured loans to wholly owned group - Total receivables 1.9 (e) Financing facilities Bonds Unsecured convertible bonds Receivables ageing analysis 6-12 mths US$M 1-5 years US$M 6 mths US$M 28.7 5.2 33.9 9.0 - 9.0 3.3 2.4 5.7 1.9 - 1.9 - - - - - - - - - - - - - - - - - - - - - - - - >5 year US$M - - - - - - - - - - - - On 15 December 2006, the Company issued US$250 million in convertible bonds with an underlying coupon rate of 4.5%, maturity 15 December 2011 and a conversion price of US$7.685 for Company shares. On 11 March 2008, the Company issued US$325 million in convertible bonds with an underlying coupon rate of 5.0%, maturity 11 March 2013 and a conversion price of US$6.59 for Company shares. Secured bank loan During the year ended 30 June 2006 the Consolidated Entity completed project finance facilities amounting to US$71 million for construction of the LHUP. The financing has been provided by Société Générale Australia Branch (as lead arranger), Nedbank Capital and Standard Bank Plc and consists of a 7 year Project Finance Facility of US$65 million and a Standby Cost Overrun Facility of US$6 million. The Project Finance Facility bears interest at the London Interbank Offered Rate (LIBOR) plus 3.5% up to and including practical completion of the project, and the interest cost reduces to LIBOR plus 2.5% after practical completion. No requirement for political risk insurance exists under the terms of the Project Finance Facility. The facilities are secured with fixed and floating charges over the assets of Langer Heinrich Uranium (Pty) Ltd and its immediate holding companies. Paladin Energy Ltd has provided a project completion guarantee as part of the facilities. At 30 June 2008 US$66.3 million (2007: US$66.6 million) had been drawn of the project finance facilities leaving available facilities of US$Nil (2007: US$4.4 million). A principal repayment of US$4.6 million was paid during the year. 128 Annual Report 2008 Note 23. Financial Instruments (continued) (e) Financing facilities (continued) In disclosing the convertible bonds in the Consolidated Financial Statements, the Company has accounted for them in accordance with Australian Accounting Standards. Under these standards the convertible bonds are treated as both a liability (underlying bond) and an equity instrument (conversion rights into Company shares). Financing facilities available At reporting date, the following financing facilities had been negotiated and were available: Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M Total facilities: Unsecured convertible bonds Secured bank loans Facilities used at reporting date Unsecured convertible bonds Secured bank loans Facilities unused at reporting date Secured bank loans Total facilities Facilities used at reporting date Facilities unused at reporting date Repayment obligations in respect of the amount of the facilities utilised are as follows: Due: No later than one year Later than one year but not later than two years Later than two years but not later than three Later than three years but not later than four Later than four years but not later than five Later than five years Total 575.0 66.3 641.3 575.0 66.3 641.3 - - 641.3 - 641.3 12.2 14.2 15.2 266.2 333.5 - 641.3 250.0 71.0 321.0 250.0 66.6 316.6 4.4 4.4 316.6 4.4 321.0 5.6 12.2 14.2 15.2 266.2 3.2 316.6 575.0 - 575.0 575.0 - 575.0 - - 575.0 - 575.0 - - - 250.0 325.0 - 575.0 250.0 - 250.0 250.0 - 250.0 - - 250.0 - 250.0 - - - - 250.0 - 250.0 Paladin Energy Ltd 129 notes to the consolidated financial statements for the year ended 30 June 2008 Note 23. Financial Instruments (continued) (f) Receivables & payables The fair value of financial assets must be estimated for recognition and measurement or for disclosure purposes. The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and available-for-sale securities) is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Group is the current bid price. The fair value of financial instruments that are not traded in an active market (for example, unlisted securities) is determined using valuation techniques. Such techniques include using recent arm’s length market transactions and net asset values and by an external valuer using a binomial model. The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. (g) Capital management The Group treasury function is responsible for our capital management. This involves the use of corporate forecasting models which facilitates analysis of the Group’s financial position including cash flow forecasts to determine the future capital management requirements. Group treasury monitors gearing and compliances with various contractual financial covenants. The gearing ratio as at balance date is 19%. The company’s project finance facility is subject to various financial undertakings including a negative pledge, debt service coverage ratio, loan life coverage ratio and project life coverage ratio. At the time of reporting, the company was in compliance with all of the facility’s financial undertakings. (h) Fair value of financial assets and financial liabilities The fair value representing the mark to market of a financial asset or a financial liability is the amount at which the asset could be exchanged or liability settled in a current transaction between willing parties after allowing for transaction costs. The fair values of cash and cash equivalents, trade and other receivables and trade and other payables approximate to their carrying values, as a result of their short maturity or because they carry floating rates of interest. The fair value of financial instruments traded in active markets such as publicly traded available-for-sale securities and the convertible bonds are based on quoted market prices at the balance sheet date. The quoted market price used for financial instruments held by the Group is the current bid price. The fair value of financial instruments that are not traded in an active market such as unlisted securities is determined using valuation techniques. Such techniques include using recent arm’s length market transactions, net asset values and by an external valuer using a binomial model. All financial assets and liabilities where the fair value does not approximate to the carrying value are as follows: Consolidated / Parent Entity 2008 US$M 2007 US$M Carrying amount Fair value Carrying amount Fair value Convertible bonds 532.1 637.9 216.3 304.9 (i) Commodity price risk Uranium is not traded in any significant volume on global commodity exchanges. The Consolidated Entity has customer sales contracts in place for 7.7Mlb for delivery over the period 2007 to 2012. The contracted selling price is determined by a formula which references common industry published prices for spot and term contracts and is subject to an escalating floor price and also escalating ceiling prices. Uranium purchased by the trading entity, Paladin Nuclear Limited, is valued at US$31.8m at the lower of cost and net realisable value in accordance with our accounting policy for inventories. 130 Annual Report 2008 Note 24. Key Management Personnel (a) Details of Key Management Personnel (i) Directors Mr Rick Crabb Chairman (Non-executive) Mr John Borshoff Managing Director Mr Sean Llewelyn Director (Non-executive) Mr George Pirie Director (Non-executive) (Resigned 9 July 2007) Mr Ian Noble Director (Non-executive) Mr Donald Shumka Director (Non-executive) (Appointed 9 July 2007) (ii) Executives Ms Gillian Swaby Company Secretary Mr Ron Chamberlain Chief Financial Officer (Resigned 18 July 2008) Mr Ross Glossop Chief Financial Officer (Appointed 18 July 2008) Mr Wyatt Buck General Manager – Production & Langer Heinrich Operations Mr James Eggins General Manager – Sales and Contract Administration Mr Dustin Garrow Executive General Manager – Marketing Mr David Marsh General Manager – Technical Project Development Mr Brendan O’Hara General Manager – Special Projects & Risk Mr Simon Solomons Executive General Manager – Operations Development (Appointed 12th January 2008) Mr Andrew Morgan General Manager – Project Construction (Appointed 1 July 2007) Mr Ed Becker General Manager – Geology & Exploration (Promoted 1 January 2008) Ms Cathy Gupanis General Manager – Sustainable Development (Appointed 1 May 2008) Mr Greg Walker General Manager – International Affairs (Appointed 7 January 2008) (b) Compensation of Key Management Personnel: compensation by category Short-term Post employment Share-based payment Consolidated Parent Entity 2008 US$’000 2007 US$’000 2008 US$’000 2007 US$’000 5,911 158 7,162 7,998 81 4,665 5,553 121 6,627 7,710 81 3,774 13,231 12,744 12,301 11,565 Paladin Energy Ltd 131 notes to the consolidated financial statements for the year ended 30 June 2008 Note 24. Key Management Personnel (c) Option Holdings of Key Management Personnel (Consolidated and Parent Entity) Balance at beginning of period 01 Jul 07 Remuneration Exercised Other # Balance at end of Options Net Change period Granted as Vested/ 30 Jun 08 Exercisable Exercisable Not vested/ Not 30 June 2008 Directors Mr Rick Crabb 3,250,000 - (3,250,000) Mr John Borshoff 5,250,000 1,250,000 (3,750,000) Executives Ms Gillian Swaby 2,825,000 258,785 (2,750,000) Mr Ron Chamberlain 235,700 100,545 (200,000) Mr Wyatt Buck 1,150,000 201,533 Mr James Eggins 750,000 146,698 Mr Dustin Garrow 678,570 266,199 Mr David Marsh 1,100,000 140,654 Mr Brendan O’Hara 1,031,400 216,480 Mr Simon Solomons Mr Andrew Morgan Mr Eduard Becker Ms Cathy Gupanis Mr Greg Walker Mr Ross Glossop - - - - - - 600,000 235,296 208,925 25,000 450,000 450,000 - - - - - - - - - - - - - - - - - - - - - - 2,750,000 - - - 2,750,000 333,785 136,245 - - 333,785 136,245 1,351,533 1,000,000 351,533 896,698 650,000 246,698 944,769 600,000 344,769 1,240,654 500,000 740,654 1,247,880 500,000 747,880 600,000 - 600,000 450,000 685,296 150,000 535,296 47,050 255,975 175,000 200,000 - - 450,000 450,000 - - - - 255,975 200,000 450,000 450,000 Total 16,270,670 4,550,115 (9,950,000) 672,050 11,542,835 3,144,769 8,398,066 # Relates to holdings prior to appointment as a Key Management Personnel Balance at beginning of period Granted as 01 Jul 06 Remuneration Exercised Balance at end of Options Net Change period Other Vested/ 30 Jun 07 Exercisable Exercisable Not vested/ Not 30 June 2007 Directors Mr Rick Crabb 3,250,000 - Mr John Borshoff 3,750,000 1,500,000 - - Executives Mr Garnet Halliday 3,000,000 - (3,000,000) Ms Gillian Swaby 2,750,000 75,000 - Mr Ron Chamberlain 1,000,000 35,700 (800,000) Mr Wyatt Buck 1,000,000 150,000 - Mr James Eggins 1,000,000 100,000 (350,000) Mr Dustin Garrow 1,000,000 78,570 (400,000) Mr David Marsh 1,000,000 100,000 Mr Brendan O’Hara - 1,031,400 - - - - - - - - - - - - 3,250,000 3,250,000 - 5,250,000 3,750,000 1,500,000 - - - 2,825,000 2,750,000 75,000 235,700 - 235,700 1,150,000 500,000 650,000 750,000 678,570 1,100,000 1,031,400 - - 750,000 678,570 - 1,100,000 - 1,031,400 Total 17,750,000 3,070,670 (4,550,000) - 16,270,670 10,250,000 6,020,670 132 Annual Report 2008 Note 24. Key Management Personnel (continued) (d) Shareholdings of Key Management Personnel (Consolidated and Parent Entity) Shares held in Paladin Energy Ltd (number) 30 June 2008 Directors Mr Rick Crabb Mr John Borshoff Mr Ian Noble Executives Ms Gillian Swaby Mr Ron Chamberlain Mr Wyatt Buck Mr James Eggins Mr David Marsh Mr Simon Solomons Mr Eduard Becker Total Balance 01 Jul 07 Remuneration Granted as On Exercise Net Change of Options Other Balance 30 June 08 8,964,746 18,091,394 16,000 10,216,140 400,000 - 325,000 9,050 - - 38,022,330 - - - - - - - - - - - 3,250,000 (6,633,218)(1) 5,581,528 3,750,000 (250,000) 21,591,394 - 5,000 21,000 2,750,000 200,000 (7,875,000)(1) - 5,091,140 600,000 16,350 16,350 (75,000) 250,000 2,700 1,000 11,750 1,000 550,000 550,000 - - - - - 9,950,000 (14,258,168) 33,714,162 (1) Between 11 and 14 April 2008, a secured creditor of Lift Capital Pty Limited in the exercise of (purported) rights, sold 6,383,218 and 7,875,000 ordinary shares on behalf of Mr Rick Crabb and his associates and Ms Gillian Swaby respectively. No consideration was received by Mr Rick Crabb or his associates or Ms Swaby from this involuntary sale. Legal action for the recovery of these shares which were sold without their consent or authority is being pursued. No other Key Management Personnel held shares during the year ended 30 June 2008. Mr Eduard Becker commenced as a Key Management Person on 1 January 2008 and as such this fact has been reflected in the net change other column. 30 June 2007 Directors Mr Rick Crabb Mr John Borshoff Mr Ian Noble Executives Mr Garnet Halliday Ms Gillian Swaby Mr Ron Chamberlain Mr James Eggins Mr Dustin Garrow Mr David Marsh Total Balance 01 Jul 06 Remuneration Granted as On Exercise Net Change of Options Other Balance 30 June 07 8,964,746 18,091,394 16,000 125,000 10,216,140 - 25,000 - - 37,438,280 - - - - - - - - - - - - - - - - 8,964,746 18,091,394 16,000 3,000,000 (3,125,000) - - 800,000 350,000 400,000 - - 10,216,140 (400,000) (50,000) (400,000) 9,050 400,000 325,000 - 9,050 4,550,000 (3,965,950) 38,022,330 No other Key Management Personnel held shares during the year ended 30 June 2007. Mr Garnet Halliday deceased on 8 March 2007 and as such is no longer required to be disclosed in the above table and this fact has been reflected in the net change other column. All equity transactions with Key Management Personnel other than those arising from the exercise of remuneration options have been entered into under terms and conditions no more favourable than those the Consolidated Entity would have adopted if dealing at arm’s length. Paladin Energy Ltd 133 notes to the consolidated financial statements for the year ended 30 June 2008 Note 24. Key Management Personnel (continued) (e) Other Transactions and Balances with Key Management Personnel Fees paid in the normal course of business in 2008 for company secretarial services totalling US$380,034 (2007: US$235,878) were paid/payable (balance outstanding at 30 June 2008 and included in trade creditors US$Nil (2007: US$24,594)) to a company of which Ms Gillian Swaby is a director and shareholder. All amounts are excluding GST. Fees paid in the normal course of business in 2008 for marketing consulting services totalling US$Nil (2007: US$130,571) were paid/payable (balance outstanding at 30 June 2008 and included in trade creditors US$Nil (2007: US$Nil)) to a company of which Mr Dustin Garrow is a director and shareholder. Amounts recognised at the reporting date in relation to other transactions: Consolidated / Parent Entity Liabilities Current liabilities Trade and other payables Expenses Other expenses 2008 US$000 2007 US$000 - 25 380 366 Note 25. Auditors’ Remuneration The auditor of the Paladin Energy Ltd Group is Ernst & Young. Consolidated Parent Entity 2008 US$000 2007 US$000 2008 US$000 2007 US$000 Amounts received or due and receivable by Ernst & Young (Australia) for: • Audit or review of the financial report of the entity and any other entity in the consolidated Group • Other assurance services: Compilation report Convertible bonds comfort letter • Taxation services: Tax compliance services International tax consulting Tax advice on mergers and acquisitions Other tax advice Sub-total Amounts received or due and receivable by related practices of Ernst & Young (Australia) for: • Audit or review of the financial report of subsidiaries • Other assurance services: Malawi Development Agreement • Taxation services: Tax compliance services International tax consulting Amounts received or due and receivable by non Ernst & Young audit firms for: • Audit or review of the financial report of subsidiaries • Taxation services: Tax compliance services • Other Non- Audit Services 480 255 419 206 3 - 99 27 171 10 790 23 5 18 - 836 - 17 52 69 12 53 - 109 25 23 477 18 3 8 2 3 - 99 27 171 10 729 - - - - 12 53 - 109 25 23 428 - - - - 508 729 428 17 1 - 18 - - - - - - - - 134 Annual Report 2008 Note 26. Commitments and Contingencies There were no outstanding commitments or contingencies, which are not disclosed in the Financial Report of the Consolidated Entity and the Company as at 30 June 2008 other than: (a) Tenements Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M Commitments for tenements contracted for at the reporting date but not recognised as liabilities, payable: Within one year Later than one year but not later than 5 years - More than 5 years Total tenements commitment 2.6 - 2.6 2.6 - - 2.6 - - - - - - - - These include commitments relating to tenement lease rentals and, the minimum expenditure requirements of the Namibia, Malawi, Western Australian, South Australian, Northern Territory and Queensland Mines Departments attaching to the tenements and are subject to re-negotiation upon expiry of the exploration leases or when application for a mining licence is made. These are necessary in order to maintain the tenements in which the Consolidated Entity and other parties are involved. All parties are committed to meet the conditions under which the tenements were granted in accordance with the relevant mining legislation in Namibia, Malawi and Australia. (b) Mine construction commitments Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M Commitments for mine construction contracted for at the reporting date but not recognised as liabilities, payable: Within one year Later than one year but not later than 5 years - More than 5 years Total mine construction 61.0 - 61.0 9.3 - - 9.3 - - - - - - - - These commitments in 2008 relate to mine construction in Malawi and Stage II at the LHUP (2007: Malawi). (c) Operating lease commitments The Group has entered into various property leases relating to rental of offices and residential accommodation. These non-cancellable leases have remaining terms of between 1 and 3 years. All leases include a clause to enable upward revision of rental charge on an annual basis according to prevailing market conditions. Future minimum rentals payable under non-cancellable operating leases as at 30 June are as follows: Within one year Later than one year but not later than 5 years More than 5 years Total operating lease commitment Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M 0.4 3.3 2.7 6.4 0.2 0.3 - 0.5 0.2 3.2 2.7 6.1 0.2 0.3 - 0.5 Paladin Energy Ltd 135 notes to the consolidated financial statements for the year ended 30 June 2008 Note 26. Commitments and Contingencies (continued) (d) Acquisition costs The Consolidated Entity acquired a call option on 19 June 1998 in relation to the purchase of the Oobagooma Uranium Project and, in turn, granted a put option to the original holder of the Project. Both the call and put options have an exercise price of A$0.75 million (US$0.7 million) and are subject to the Department of Minerals & Energy granting tenements comprising 2 exploration licence applications. The A$0.75 million (US$0.7 million) is payable by the Consolidated 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 the tenements are granted. In relation to the Manyingee Uranium Project, the re-negotiated acquisition terms provide for a payment of A$0.75 million (US$0.7 million) by the Consolidated Entity to the vendors when all project development approvals are further obtained. (e) Bank guarantees As at 30 June 2008 the Group has outstanding US$57,630 (A$60,000) (2007: US$50,906 / A$60,000) as a current guarantee provided by a bank for the corporate office lease. (f) Legal actions (i) Mount Isa Uranium Joint Venture On the 3 August 2007 the Company’s wholly owned subsidiary, MIU entered into a settlement agreement with respect to proceedings which had been commenced by Summit Resources (Aust) Pty Ltd (which had, by the time of the settlement, become ultimately 81.9% owned by the Company) against MIU and the unrelated entity, Resolute Pty Ltd (Summit Proceedings). The Summit Proceedings related to alleged breaches of confidentiality provisions in the Mount Isa Uranium Project joint venture agreement. If successful, Summit Resources (Aust) Pty Ltd would be entitled to the transfer of MIU’s 50% interest in the Mount Isa Uranium Project joint venture for 85% of its market value. Areva NC (Australia) Pty Ltd (Areva), being a 10.01% shareholder of the parent company of Summit Resources (Aust) Pty Ltd subsequently applied to the Supreme Court of Western Australia for, relevantly, orders under Section 237 of the Corporations Act 2001 to be granted leave to intervene in and effectively re-open the Summit Proceedings, notwithstanding the settlement. The Areva intervention proceedings are ongoing and are listed for a trial commencing on 1 December 2008. The Company does not expect the Areva intervention proceedings to be successful. In any event, even if the Summit Proceedings are re-opened as a consequence of the Areva intervention proceedings, Company has always remained confident that the Summit Proceedings could be successfully defended. Further, the Company has the benefit of an indemnity from Resolute Mining Ltd (the parent of Resolute Pty Ltd) and an ultimate 81.9% interest in Summit Resources (Aust) Pty Ltd. As a consequence, a change in the ownership of the 50% interest in the Mount Isa Uranium joint venture from MIU to Summit Resources (Aust) Pty Ltd would not be of significance to the Company. (ii) Kayelekera Uranium Project, Malawi – Civil Societies’ Action All six Malawian Civil Society Organisations that commenced legal proceedings against Paladin Africa Ltd and the Government of Malawi have settled their action on a positive and amicable basis. The legal proceedings were formally withdrawn during the quarter ended 31 December 2007. 136 Annual Report 2008 Note 27. Employee Benefits Provision for annual leave and long service leave aggregate employment benefit liabilities Employee numbers Average number of employees during the financial year Superannuation Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M 1.6 0.9 1.1 0.5 Number Number 47 41 The Company contributes to employees’ superannuation plans in accordance with the requirements of Occupational Superannuation Legislation. Contributions by the Company represent a defined percentage of each employee’s salary. Employee contributions are voluntary. Employee Share Incentive Option Plan Details of the Employee Share Incentive Option Plan for the Company are disclosed in Note 29. Note 28. Related Parties (a) Subsidiaries Interests in subsidiaries are set out in Note 10(a). (b) Ultimate parent The ultimate Parent Entity in the wholly owned Group is Paladin Energy Ltd. (c) Key management personnel Details relating to key management personnel can be found at Note 24. (d) Transactions with subsidiaries Transactions entered into with subsidiaries during the years ended 30 June 2008 and 2007 consisted of: (a) (b) (c) (d) sundry debtors receivable by the Company (Note 7(c)); loans advanced by the Company (Note 7(d)); loans advanced to the Company (Note 17); the payment of interest on the loans advanced by the Company (Note 4(a)). Note 29. Share-Based Payment Plan The share-based payment plans are described below. There have been no cancellations or modifications to any of the plans during 2008 and 2007. (a) Types of share-based payment plans Employee Share Incentive Option Plan (ESOP) On 23 March 2004, the Directors approved the ESOP. Staff eligible to participate in the plan were those who had been continuously employed by the Company for a period of at least one year. Options were granted under the plan for no consideration. Options were granted for a three year period, and 100% of each new tranche became exercisable after one year of the date of grant. Entitlements to the options were vested as soon as they become exercisable and performance conditions had been met. There were no cash settlement alternatives. Options granted under the plan carried no dividend or voting rights. Following implementation of the EXSOP detailed below, no further options will be issued pursuant to the ESOP. Paladin Energy Ltd 137 notes to the consolidated financial statements for the year ended 30 June 2008 Note 29. Share-Based Payment Plan (continued) (a) Types of share-based payment plans (continued) Executive Share Option Plan (EXSOP) On 21 November 2006, the EXSOP was approved by shareholders at the Company’s Annual General Meeting. The number of shares that may be issued under the EXSOP must not exceed 5% of the total number of shares on issue. Share options are granted to employees under the EXSOP which is designed to create a stronger link between increasing shareholder value and employee reward. Under the EXSOP, the exercise price of the options is set at the market price of the shares on the date of grant and performance is measured by comparing the Company’s Total Shareholder Return (‘TSR’) (share price appreciation plus dividends reinvested) with a group of peer companies. The Company’s performance will be measured over three years from the date of grant. To the extent that maximum performance is not achieved under the performance condition, performance will be retested every six months following the first three years until the end of the fourth year. In assessing whether the TSR hurdle for each grant has been met, the Group receives independent data from an external advisor, who provides both the Group’s TSR growth from the commencement of each grant and that of the pre-selected peer group. The peer group chosen for comparison is the resource companies in the S&P/ASX200 Index at the date of grant This peer group reflects the Group’s competitors for capital and talent. The Group’s performance against the hurdle is determined according to Paladin Energy Ltd’s ranking against the peer group TSR growth over the performance period. • • • • when Paladin Energy Ltd is ranked over the 75th percentile, 100% of the share options will vest; for rankings above the 50th and below the 75th percentile, the percentage of options to vest will be pro-rata between 50% and 100%; when Paladin Energy Ltd is ranked at the 50th percentile, 50% of the share options will vest; when Paladin Energy Ltd is ranked below the 50th percentile the share options will not vest. When a participant ceases employment prior to the vesting of their share options, the share options are forfeited unless cessation of employment is due to termination initiated by the Group or death. In the event of a change of control all the awards will vest and may be exercised by the participant. The contractual life of each option granted is five years. There are no cash settlement alternatives. The expense recognised in the Income Statement in relation to share-based payments is disclosed in Note 4(e). (b) Summaries of options granted under ESOP and EXSOP arrangements: The following table illustrates the number (No.) and weighted average exercise prices (WAEP) of and movements in share options issued during the year: Outstanding at the beginning of the year Granted during the year Forfeited during the year Exercised during the year Expired during the year Outstanding at the end of the year Exercisable at the end of the year 2008 No. 19,678,670 11,291,620 (833,218) (11,060,000) 1 - 19,077,072 4,002,500 2008 WAEP A$ 3.18 4.63 6.58 1.06 - 5.12 3.80 2007 No. 24,215,000 4,533,670 - 2007 WAEP A$ 1.52 7.76 - (9,070,000) 2 1.04 - 19,678,670 11,630,000 - 3.18 1.14 1. The weighted average share price at the date of exercise is A$6.31 2. The weighted average share price at the date of exercise is A$6.03 138 Annual Report 2008 Note 29. Share-Based Payment Plan (continued) (b) Summaries of options granted under ESOP and EXSOP arrangements (continued) The outstanding balance as at 30 June 2008 represented by: Date options granted Exercisable Expiry date Exercise price of options Number under option 13 January 2006 13 January 2006 19 January 2006 16 February 2006 16 February 2006 27 April 2006 27 April 2006 5 July 2006 5 July 2006 20 July 2006 20 July 2006 13 January 07 13 January 08 13 January 08 13 January 07 13 January 08 31 October 07 31 October 08 5 January 2008 5 January 2009 5 January 2008 5 January 2009 13 January 2009 13 January 2009 13 January 2009 13 January 2009 13 January 2009 28 April 2009 28 April 2009 5 July 2009 5 July 2009 5 July 2009 5 July 2009 1 February 2007 29 January 2008 1 February 2010 1 February 2012 29 January 2011 29 January 2013 15 February 2008 15 February 2009 15 February 2011 15 February 2008 15 February 2011 15 February 2013 18 April 2008 18 June 2008 Total 18 April 2011 18 June 2011 18 April 2013 18 June 2013 A$2.80 A$2.80 A$2.80 A$2.80 A$2.80 A$5.50 A$5.50 A$5.50 A$5.50 A$5.50 A$5.50 A$8.77 A$4.50 A$5.37 A$5.37 A$4.59 A$5.27 170,000 650,000 600,000 600,000 500,000 782,500 782,500 500,000 500,000 200,000 200,000 2,733,670 8,133,402 700,000 500,000 1,075,000 450,000 19,077,072 Please refer to Outstanding Share Information table in the Management Discussion & Analysis for movements since the year end. (c) Weighted average remaining contractual life The weighted average remaining contractual life for the share options outstanding as at 30 June 2008 is between 1 and 3 years (2007: 1 and 3 years). (d) Range of exercise price The range of exercise prices for options outstanding at the end of the year was A$2.80 – A$8.77 (2007: A$1.00 – A$8.77). (e) Weighted average fair value The weighted average fair value of options granted during the year was A$2.73 (2007: A$4.04). (f) Option pricing model: ESOP and EXSOP The fair value of the equity-settled share options granted under the option plan is estimated as at the date of grant using a binominal model taking into account the terms and conditions upon which the options were granted. Paladin Energy Ltd 139 notes to the consolidated financial statements for the year ended 30 June 2008 Note 29. Share-Based Payment Plan (continued) (f) Option pricing model: ESOP and EXSOP (continued) The following table lists the inputs to the model used for the years ended 30 June 2008 and 30 June 2007: Dividend yield (%) Expected volatility (%) Risk-free interest rate (%) Expected life of option (years) Option exercise price ($) 2008 Nil% 2007 Nil% 66% - 77% 60% - 81% 6.22% - 6.87% 5.81% - 6.44% 1.75 - 5 years 2.5 - 5 years A$4.50 - A$5.37 A$5.50 - A$8.77 Weighted average share price at grant date ($) A$4.64 - A$5.95 A$4.16 - A$9.07 The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other features of options granted were incorporated into the measurement of fair value. The fair value of the cash-settled options is measured at the grant date using the Cox, Ross and Rubinstein Binomial Tree option pricing model taking into account the terms and conditions upon which the instruments were granted. The services received are recognised over the expected vesting period. The Monte Carlo method is used to model the future value of the Company’s shares and the movement of the comparator companies’ Total Shareholder Return on the various vesting dates associated with vesting requirements of the options. Note 30. Interests In Jointly Controlled Assets (a) Joint venture details Mount Isa Uranium Joint Venture The Mount Isa Uranium Joint Venture, which includes the Valhalla and Skal uranium deposits, is involved in the identification of and exploration for uranium resources in Queensland, Australia. Summit Resources (Australia) Pty Ltd (SRA) is manager and operator, holding a 50% interest. MIU holds the other 50% interest. Paladin Energy Ltd ultimately owns 81.9% of SRA and 100% of MIU. Bigrlyi Uranium Joint Venture The Bigrlyi Uranium Joint Venture is involved in the identification of and exploration for uranium resources in the Northern Territory, Australia. The joint venture is between Energy Metals Ltd 53.74%, Southern Cross Exploration NL 4.2% and Northern Territory Uranium Pty Ltd (NTU) 42.06% (NTU is 100% owned by Paladin Energy Ltd) with Energy Metals Ltd as manager and operator of the joint venture. Other joint ventures The Consolidated Entity also has a number of other interests in joint ventures to explore for uranium and other minerals. The Consolidated Entity’s share of expenditure in respect of these exploration activities is expensed in accordance with the accounting policy stated in Note 2(t) and no revenue is generated. The Consolidated Entity’s share of the assets and liabilities in respect of these joint ventures is not material. (b) Assets utilised in the Mount Isa Joint Venture and Bigrlyi Uranium Joint Venture The Group’s share of the assets utilised in these jointly controlled assets, which are included in the Consolidated Financial Statements, are as follows: Non current assets Exploration and evaluation expenditure Total assets 140 Annual Report 2008 Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M 185.5 185.5 164.0 164.0 - - - - Note 30. Interests In Jointly Controlled Assets (continued) (b) Assets utilised in the Mount Isa Joint Venture and Bigrlyi Uranium Joint Venture (continued) The interests of MIU in the Mount Isa Uranium Joint Venture and of NTU in the Bigrlyi Uranium Joint Venture were acquired on 7 September 2006 and include the allocation of the acquisition value. The interest of SRA in the Mount Isa Uranium Joint Venture was acquired on 27 April 2007 and include the allocation of the acquisition value. (c) Commitments relating to the joint venture Share of tenement commitments (Note 26) (d) Impairment Consolidated Parent Entity 2008 US$M - 2007 US$M - 2008 US$M - 2007 US$M - No assets employed in the jointly controlled assets were impaired during the year (2007: US$Nil). Note 31. Business Combination and Asset Acquisition During the year no significant business combinations were completed. Acquisition of Summit Resources Ltd During the year ended 30 June 2007 Paladin Energy Ltd acquired 81.9% of the issued share capital of Summit Resources Ltd, a public company based in Australia and listed on the Australian Securities Exchange involved in the exploration for uranium resources. Initial recognition of the acquisition of Summit Resources Ltd in the Consolidated Financial Statements for the year ended 30 June 2007 was determined provisionally, according to IFRS 3. The short period between the acquisition date and the preparation of the annual report for the year ended 30 June 2007 only allowed for the completion of provisional fair value measurements required by IFRS 3. The fair value measurements were completed during the year ended 30 June 2008 which did not result in any adjustments. The cost of acquisition has been allocated as follows (provisional vs. final figures): Consolidated Provisional Values Recognised on Acquisition US$M Final Values Recognised on Acquisition US$M Cash and cash equivalents Trade and other receivables Plant and equipment Capitalised exploration and evaluation expenditure Trade and other payables Deferred tax liability Net assets Minority interests Fair value of net identifiable assets acquired Cost of the combination: Shares issued, at fair value Direct costs relating to the acquisition Total cost of the combination 23.2 1.1 1.6 1,402.6 1,428.5 14.2 415.7 429.9 998.6 (181.0) 817.6 813.8 3.8 817.6 23.2 1.1 1.6 1,402.6 1,428.5 14.2 415.7 429.9 998.6 (181.0) 817.6 Paladin Energy Ltd 141 notes to the consolidated financial statements for the year ended 30 June 2008 Note 32. Events After The Balance Sheet Date Since the end of the financial year, the Directors are not aware of any other matter or circumstance not otherwise dealt with in this report or the Financial Statements, that has significantly or may significantly affect the operations of the Consolidated Entity, the results of those operations or the state of affairs of the Consolidated Entity in subsequent years with the exception of the following, the financial effects of which have not been provided for in the 30 June 2008 Financial Report: Allotment of Shares and Issue of Employee Options On 3 July 2008 the Company announced the granting of 450,000 unlisted incentive options, exercisable at A$5.27 vesting after 3 years, subject to performance conditions as outlined in the Executive Share Option Plan, with a 5 year expiry and the allotment of 400,000 fully paid ordinary shares after the exercise of employee options. On 10 September the Company announced the allotment of 100,000 fully paid ordinary shares after the exercise of employee options. Appointment of Mr Ross Glossop On 10 July 2008, the Company announced the appointment of Mr Ross Glossop as Chief Financial Officer (CFO) of the Paladin group of companies. Mr Glossop has over 25 years of experience in the resources industry, where he has held positions in internal audit, treasury, and finance with increasing managerial responsibilities. Increased Holding in Deep Yellow Ltd On 28 July 2008, the Consolidated Entity acquired an additional 12,500,000 shares in Deep Yellow Ltd pursuant to the exercise of 12,500,000 options exercisable at 8.1 Australian cents. The additional investments totalled A$1.0 million (US$1.0 million). After this acquisition the Consolidated Entity now holds 15.30% of Deep Yellow Ltd. Resources Upgrade for Langer Heinrich Uranium Project On the 28 August 2008, the Company announced an updated Mineral Resource estimate for the LHUP. Following the drilling of 717 RC holes for a total of 17,751m in all Details at Langer Heinrich, a new Mineral Resource of 56.4Mt at a grade of 0.06% U3O8 for 32,858t (72.4Mlb) U3O8 in the Measured and Indicated categories and 70.7Mt at a grade of 0.06% U3O8 for 41,557t (91.6Mlb) U3O8 in the Inferred category was estimated. The total resource for Langer Heinrich now stands at some 74,415t (164Mlb) U3O8. The Directors believe a considerable amount of these Inferred Resources will be able to be converted to Measured and Indicated Resource categories following additional drilling in the future. Ore Reserve studies are currently underway and are expected to be completed in the near future. Increased Holding in Summit Resources Ltd On 28 August 2008, the company acquired an additional 3,378,733 shares in Summit Resources Ltd pursuant to a renounceable rights issue and 289,739 shares via subscription for the shortfall of the rights issue. The additional investment totalled A$9.1 million (US$8.6 million). After these acquisitions the Company now holds 81.99% of Summit Resources Ltd. 142 Annual Report 2008 Note 33. Non-Cash Financing and Investment Activities Non-Cash Financing and Investment Activities Issue of shares to acquire 100% of Valhalla Uranium Ltd Issue of shares to acquire 81.9% of Summit Resources Note 34. Earnings Per Share (i) Basic earnings per share Consolidated Parent Entity 2008 US$M 2007 US$M 2008 US$M 2007 US$M - - 151.4 798.9 - - 151.4 798.9 Basic earnings per share are calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the period. (ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. Diluted earnings per share is the same as basic earnings per share in 2008 and 2007 as the Consolidated Entity is in a loss position. The following reflects the income and share data used in the basic and diluted earnings per share computations: Net loss attributable to ordinary equity holders of the Parent from continuing operations Weighted average number of ordinary shares for basic earnings per share Weighted average number of options issuable under the Company Executive Share Option Plan and in relation to the Convertible Bonds that could be potentially dilutive Consolidated 2008 US$M 2007 US$M (36.0) (37.6) 2008 # 2007 # 608,341,416 511,189,193 14,746,269 19,233,595 Paladin Energy Ltd 143 directors’ declaration In accordance with a resolution of the Directors of Paladin Energy Ltd, I state that: 1. In the opinion of the Directors: (a) the financial report and the additional disclosures included in the Directors’ Report designated as audited, of the Company and of the Consolidated Entity are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Company’s and Consolidated Entity’s financial position as at 30 June 2008 and of their performance for the year ended on that date; and (ii) complying with Accounting Standards and Corporation Regulations 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. 2. This declaration has been made after receiving the declarations required to be made to the Directors in accordance with sections 295A of the Corporations Act 2001 for financial period ending 30 June 2008. On behalf of the Board Mr John Borshoff Managing Director Perth, Western Australia 11 September 2008 144 Annual Report 2008 independent auditor’s report to the members of Paladin Energy Ltd Report on the Financial Report We have audited the accompanying financial report of Paladin Energy Ltd, which comprises the balance sheet as at 30 June 2008, and the income statement, statement of changes in equity and cash flow statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with the Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 2, the directors also state that the financial report, comprising the financial statements and notes, complies with International Financial Reporting Standards as issued by the International Accounting Standards Board. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, we consider internal controls relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit we have met the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report. 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. Auditor’s Opinion In our opinion: 1. the financial report of Paladin Energy Ltd is in accordance with the Corporations Act 2001, including: i ii giving a true and fair view of the financial position of Paladin Energy Ltd and the consolidated entity at 30 June 2008 and of their performance for the year ended on that date; and complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001. 2. the financial report also complies with International Financial Reporting Standards as issued by the International Accounting Standards Board. Paladin Energy Ltd 145 independent auditor’s report to the members of Paladin Energy Ltd Report on the Remuneration Report We have audited the Remuneration Report included in pages 60 to 69 of the directors’ report for the year ended 30 June 2008. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s Opinion In our opinion the Remuneration Report of Paladin Energy Ltd for the year ended 30 June 2008, complies with section 300A of the Corporations Act 2001. Ernst & Young V W Tidy Partner Perth 11 September 2008 146 Annual Report 2008 additional information Pursuant to the Listing Requirements of Australian Securities Exchange Limited as at 11 September 2008: (a) Distribution and number of holders Range 1 1,001 5,001 10,001 - - - - 1,000 5,000 10,000 100,000 100,001 - maximum 296 shareholders hold less than a marketable parcel of shares issued (b) The twenty largest shareholders hold 78.04% of the total shares issued. Holder CDS & Co HSBC Custody Nominees (Australia) Limited National Nominees Limited Cede & Co Citicorp Nominees Pty Limited ANZ Nominees Limited J P Morgan Nominees Australia Limited Aylworth Holdings Pty Ltd UBS Wealth Management Australia Nominee Pty Ltd HSBC Custody Nominees (Australia) Limited-GSE ECSA Ms Gillian Swaby HSBC Custody Nominees (Australia) Limited – A/C 3 Citicorp Nominees Pty Limited HSBC Custody Nominees (Australia) Limited – A/C 2 Merrill Lynch (Australia) Nominees Pty Limited Estate Mr James U Blanchard Iii Mrs Deborah Lakshmi Halliday Cogent Nominees Pty Limited Mr John Borshoff Mr Zaccaria Rossi & Mrs Thelma Rossi No. of Shares 141,456,542 94,965,330 48,050,222 36,431,615 32,982,925 28,783,310 24,298,055 19,486,237 18,814,268 5,111,690 4,000,000 3,887,093 3,597,356 3,372,269 2,788,159 2,777,778 2,500,000 2,335,100 1,725,157 1,701,000 Total Holders 10,001 9,298 1,984 1,469 178 22,930 % 23.04 15.47 7.83 5.93 5.37 4.69 3.96 3.17 3.06 0.83 0.65 0.63 0.59 0.55 0.45 0.45 0.41 0.38 0.28 0.28 (c) Voting rights For all shares, voting rights are one vote per member on a show of hands and one vote per share in a poll. 479,064,106 78.04 Paladin Energy Ltd 147 additional information (d) Tenements held URANIUM PROJECTS Project Tenements Interest % JV Partner/s Operator Note NAMIBIA – AFRICA Langer Heinrich Gawib MALAWI – AFRICA Kayelekera Chilumba Chilongo Mpata Mapambo 1 MLI 1 EPL 1 MLI 1 EPL 1 EPL 1 EPL 1 EPL 100.00% 100.00% 85.00% 85.00% 85.00% 85.00% 85.00% - - - - - - - QUEENSLAND (See Note 2) Isa North 11 EPMs 81.99% (see Note 3) 3 EPMs 3 MDLs (A) (A) 81.90% - 81.99% (see Note 3) NORTHERN TERRITORY Bigrlyi Walbiri Malawiri Minerva 10 ERLs 20 MCs 2 MLs 1 ERL 1 ERL (A) (A) (A) (A) 42.06% ) Energy Metals Limited 42.06% )- Southern Cross Exploration NL 42.06% ) 58.13% Energy Metals Limited 47.96% Energy Metals Limited 12 ERLs (A) 100.00% 1 1 1 1 1 3 3 LHU LHU PAL PAL PAL PAL PAL SRA SRA SRA EME EME EME EME EME NTU Beatrice South Mount Gilruth Angela and Pamela 1 EL 1 EL 1 EL 1 EL (A) (A) (A) (A) 33.33% Afmeco Mining and Exploration Pty Ltd Afmeco 33.33% Afmeco Mining and Exploration Pty Ltd Afmeco 50.00% Cameco Australia Pty Ltd 50.00% Cameco Australia Pty Ltd Cameco Cameco WESTERN AUSTRALIA Manyingee Spinifex Well Oobagooma Ponton 3 MLs 1 EL 100.00% 100.00% 4 ELs (A) 100.00% 1 EL (A) 100.00% - - - - SOUTH AUSTRALIA PEM PEM PEM PEM Petermorra Mt Yerila 1 EL 1 EL 20.00% Quasar Resources Pty Ltd 15.00% Quasar Resources Pty Ltd Quasar Quasar J E Risinger 148 Annual Report 2008 (d) Tenements held (continued) NON-URANIUM PROJECTS Project Tenements Interest % JV Partner/s Operator Note QUEENSLAND (See Note 2) Western Isa Joint Venture Isa South 4 EPMs 81.99% MM Mining Pty Ltd 4 EPMs (A) 81.99% MM Mining Pty Ltd 1 EPM 73.71% MM Mining Pty Ltd Glengarry Resources Limited May Downs Mount Kelly Constance Range 3 EPMs 1 EPM 5 EPMs 1 EPM 81.99% 81.99% 81.99% MM Mining Pty Ltd MM Mining Pty Ltd MM Mining Pty Ltd 0.00% MM Mining Pty Ltd Bowthorn Syndicate 1 EPM (A) 0.00% MM Mining Pty Ltd Bowthorn Syndicate 4 5 5 MMM MMM MMM MMM MMM MMM MMM MMM MMM MMM SOUTH AUSTRALIA Reaphook JV 1 EL 7.50% Perilya Limited Perilya Signature Resources NL Operators EME LHU MIU Energy Metals Limited Langer Heinrich Uranium (Pty) Limited Mount Isa Uranium Pty Ltd MMM MM Mining Pty Ltd Northern Territory Uranium Pty Ltd Paladin (Africa) Limited Paladin Energy Minerals NL Summit Resources (Aust) Pty Ltd NTU PAL PEM SRA Notes Paladin Equity Note 0% 100% 100% 31.25% 100% 85% 100% 81.99% 4 1 2 1. Paladin Energy Ltd currently holds 100% equity in Paladin (Africa) Limited; however 15% equity in that company is to be transferred to the Government of Malawi pursuant to the terms of the Development Agreement for the Kayelekera Uranium Project between the Government of Malawi, Paladin (Africa) Limited and Paladin Energy Minerals NL. 2. Paladin’s interest in these tenements is held by virtue of Paladin Energy Ltd’s 81.99% equity holding in Summit Resources Limited which in turn holds 100% equity interest in Summit Resources (Aust) Pty Ltd and Pacific Mines Limited. 3. The Vallhalla and Skal uranium deposits lie within the Isa North tenement block within defined blocks of land (17 km2 and 10 km2 respectively) subject to the Isa Uranium Joint Venture between Summit Resources (Aust) Pty Ltd (50% and Operator) and Mount Isa Uranium Pty Ltd (50%). Paladin’s interest is an effective 91% deriving from the 50% interest in the Mount Isa Uranium Joint Venture and 41% via Paladin’s 81.99% ownership of Summit Resources Ltd. 4. MM Mining Pty Ltd can earn 80% equity in the Western Isa Joint Venture tenements through expenditure of A$10 million within two years of commencement (10 December 2007). Summit Resources Limited holds 20 million fully paid shares or 31.25% of the issued capital in MM Mining Plc, the UK registered parent of MM Mining Pty Ltd. 5. Pacific Mines Limited can earn 70% equity in the two Constance Range tenements held by the Bowthorn Syndicate through expenditure of A$620,000 over 5 years. Tenement Types EL EPL EPM ERL Exploration Licence (Australia) Exclusive Prospecting Licence (Africa) Exploration Permit for Minerals (Australia) Exploration Retention Licence (Australia) MC ML MLI (A) Mineral Claim (Australia) Mining Lease (Australia) Mining Licence (Africa) Pending Application Langer Heinrich in production and expansion Grand Central, 1st Floor, 26 Railway Road, Subiaco Western Australia 6008 Telephone (+61 8) 9381 4366 Facsimile (+61 8) 9381 4978 Email paladin@paladinresources.com.au www.paladinresources.com.au I i n s g h t C o m m u n c a i t i o n & D e s g n i

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