Pan African Resources PLC
Annual Report 2008

Plain-text annual report

contents the year at a glance ..............................................................................................................2 focus areas and competitive advantage ..................................................................3 geographic location ............................................................................................................4 corporate profile and strategy ....................................................................................5 chairman’s statement ...........................................................................................................6 chief executive officer’s report ...................................................................................8 mining operations: barberton mines (pty) ltd .....................................................14 groWth proJects: amira, eagle’s nest and thomas victory-hill, barberton, south africa ...................................................................................................17 groWth proJects: manica, mozambique ...................................................................18 groWth proJects: bogoin and dekoa, central african republic .............19 groWth proJects: akrokerri, kyereboso and u&n, ghana ............................20 gross in situ mineral resource and mineral reserve statement for the enlarged group ....................................................................................................21 directors ....................................................................................................................................23 corporate governance .....................................................................................................25 directors’ report ..................................................................................................................30 statement of directors’ responsibilities ..............................................................33 independent auditors’ report to the members of pan african resources plc ...........................................................................................................................34 consolidated and company income statements ...............................................35 consolidated and company balance sheets .........................................................36 consolidated and company cash floW statements .........................................38 consolidated and company statement of recognised income and expense .........................................................................................................................................39 consolidated and company notes to the financial statements ............ 40 notice of annual general meeting ..........................................................................68 form of proxy ................................................................................................................insert contact details ......................................................................................................................71 note to shareholders on 31 July 2007 pan african resources plc (‘pan african’, the ‘company’ or ‘group’) acquired 74% of barberton mines (pty) limited (‘barberton’ or ‘barberton mines’) in a share-for-share transaction. ifrs3 ‘business combinations’ defines the acquirer in a business combination as the entity that obtains control. accordingly, the combination was accounted for as a reverse. as a consequence of applying reverse acquisition accounting, the results of the group at 30 June 2008 comprise the results of pan african for the 11 months ended 30 June 2008 and the 12 months ended 30 June 2008 of barberton mines. the comparative figures for the group are those of barberton mines for the 12 months to 30 June 2007. in terms of comparing pan african’s position before the acquisition of barberton mines reference is made on pages 3, 7 and 9 to pan african’s financial position before and after the acquisition which does not treat the transaction as a reverse as per ifrs 3. this is done to allow management to highlight the benefits of the transaction as set out in the readmission document of 31 July 2007. the year at a glance h s a c g n M o c e B I e V I t I s o P g n I K c a r t t s a F h t W o r g F o s t c e J o r P acquisition of producing gold mine July 2007 the acquisition of a 74% shareholding in barberton mines, mpumalanga, south africa was completed and barberton had its first full year under the management of pan african resources plc. power supply in south africa February 2008 in line with the requirements placed on the mining industry, barberton initiated a 10% elective power saving plan. through careful planning the adverse effects of the power crisis in south africa was by and large ameliorated. mining conventions signed in the central african republic February and April 2008 mining conventions were signed with the government of the central african republic (‘car’) for the bogoin and dekoa gold exploration projects. resource upgrade at the manica gold project in mozambique March 2008 the resource at manica was increased by 29.75 %, from 1.311moz to 1.701moz. the pre-feasibility study is ongoing and has been delayed as a result of the mining optimisation. the company expects the process to be complete by the end of the next financial year. I r U o F o g n n e h t g n e r t s appointment of executive chairman October 2007 pan african welcomed keith spencer to the board as the new executive chairman. keith replaced colin bird who held a non-executive chairman position within the group. M a e t appointment of financial director February 2008 in line with the undertaking given to shareholders on the completion of the acquisition of barberton mines, maritz smith was appointed as the executive financial director for pan african. appointment of an independent, non-executive director June 2008 John hopwood was appointed to the board of directors in the role of an independent, non-executive director. John brings a great deal of experience to the board from both a mining and financial persepective, being a non-executive director of gold fields and a previous partner of deloitte. • D preservation and growth of capital. a e h a • • acquisition of further cash generative mining assets. use strategic partnerships to grow mineable reserve base. e h t r a e y 2 FocUs areas anD coMPetItIVe aDVantage FocUs areas oUr coMPetItIVe aDVantage caPItal generatIVe • • • revenue: £39.3 million ebitda: £13.9 million attributable profit: £ 5.5 million costs • • • production cost: £25.2 million total cash cost: us$ 476/oz industry average: us$ 750/oz sKIlleD PeoPle • • • broad skill base and technical depth mining and metallurgy expertise coupled with exploration experience team of 1,491 people sUstaInaBle groWth • • • geographical and political risk diversification organic growth: capital expenditure of £3.0 million at barberton mines acquisitive growth – 4 projects at a cost of £3.2 million during the last 18 months strategIc PartnershIPs • • • metorex limited (53.95% shareholder): first right of refusal on any gold project developed pangea exploration (pty) limited (4.14% shareholder): first right of refusal on any gold project developed shanduka resources (26% black economic empowered (‘bee’) owner of barberton mines) 3 geograPhIc locatIon 4 corPorate ProFIle anD strategy Pan african’s strategy is to continue building and growing a profitable gold mining business. the group has an exciting pipeline of projects, in addition to its barberton gold mine in mpumalanga, south africa, which produces approximately 100,000oz of gold per annum. the group’s growth projects are divided between on-mine and off-mine, as detailed below: on-mine * 1. thomas victory-hill 2. amira 3. eagles nest off-mine ** 1. manica, mozambique (completing pre-feasibility study) 2. bogoin, central african republic (advanced - drilling) 3. dekoa, central african republic (early stage - soil sampling) 4. akrokerri, ghana (advanced - drilling) 5. kyereboso, ghana (advanced - drilling) 6. u&n, ghana (early stage - soil sampling) * on-mine: projects on or around current mining areas ** off-mine: projects not close to any mining infrastructure 5 chaIrMan’s stateMent Keith spencer the group has run for the past eleven months as both a mining and an exploration entity, having bedded down the acquisition of barberton mines, creating an emerging mid-tier gold mining company. the reverse acquisition of barberton mines brought in metorex limited as a major shareholder and this, together with the previous association with pangea exploration, has formed an exciting mix of mining and exploration skills to take the company forward. barberton had a good year, buoyed by the gold price. the profits from these operations were ploughed back into the group’s exploration efforts in mozambique, the central african republic (‘car’) and ghana. exploration drilling at manica in mozambique has been completed, and a variety of studies are underway on that property to determine if there is a viable opportunity for a mine, while taking into consideration the location, infrastructure and fiscal regime. efforts in the car were stepped up with the soil sampling at both properties, bogoin and dekoa being completed. reverse circulation (‘rc’) drilling has commenced in earnest at bogoin, to test the anomalies which were identified, and in the coming year it is hoped initial drilling will be completed on both properties. this phase of drilling has been designed to narrow down potential targets in what we believe to be a highly prospective greenstone belt. during the year, a mining convention for bogoin was successfully signed with the government of the car. 6 “the golD MarKet haD a sPectacUlar year” in ghana, a well-known gold province, earn-in agreements have been concluded on two properties, namely: kyereboso and u&n. the group acquired a 90% stake on the third property, akrokerri, on 27 june 2007. due to the nature of these agreements, the plan is to move fast to either prove a viable ore reserve, or to return them to their original vendors. the mining operations at barberton’s three mines, new consort, sheba and fairview, continued satisfactorily. revenue was enhanced by not only the gold price, but also the retreatment of the old dump which emanated from the roasting process terminated in the 1980’s, known as the calcine dump. costs, although well managed by the operations, were up sharply on the tail of the increased fuel and steel prices. since year end the calcine retreatment process has come to an end; however, this drop in revenue will, to an extent, be offset by the fact that, the group is now totally unhedged. the barberton area has been a productive gold mining area for the 130 years. during that time, at regular intervals, major pay shoots have been discovered. in this philosophy, keeping with is underway to make further discoveries, as well as to explore areas which were initially mined on surface but not followed underground. a concerted effort the exploration projects remain robust, and will be managed with the cashflows from the barberton operations. chaIrMan’s stateMent electricity supply in south africa, where the barberton operations are situated, remains a concern. the mines are involved in a process to reduce their demand, in line with all other south african consumers, and will continue to engage with eskom, the electricity distributor, to minimise downtime due to planned outages. the operations have their own generators to keep essential services in the gold treatment plant operational. the gold market in south african rand terms had a spectacular year, riding somewhat on the back of the increasing oil price. however, post the year end, we have seen a collapse in World economies and, although the fundamentals for gold still remain sound in these turbulent times, and the price remains strong in south african rand, gold remains a safe haven, and newly mined gold volumes are dropping worldwide, which in the longer term must be positive for the market. in the world-wide collapse stock markets and commodities will have a knock-on effect on the group. We, like all other mid-tier producers and explorers, will have to adapt to the new circumstances and must review our exploration programmes going forward. times like the world is experiencing at the moment also bring with them opportunities for Joint ventures (‘Jvs’) and mergers with other gold exploration companies, and pan african is currently well positioned to take advantage of these opportunities. going forward, the group will endeavour to preserve capital and judiciously evaluate projects so that it weathers these tough times, emerging stronger in better years to come. during the year, nathan steinberg resigned as the financial director and was replaced by maritz smith. i would like to thank nathan for his tireless efforts in looking after the finances of the company, and welcome maritz. John hopwood also joined the board as a non-executive director, and brings with him years of experience in the gold mining industry. he will be a great asset to the group. my sincere thanks go to my fellow directors, and to Jan nelson, our ceo, and his team for their efforts during the past year. kc spencer chairman 24 november 2008 graph showing Pan african’s audited profit / loss status for 18 months to 31 March 2006 and 15 months to 30 June 2007, before the acquisition of Barberton Mines and post acquisition for 12 months to 30 June 2008 GBP (000) 6,000 5,000 4,000 3,000 2,000 1,000 0 (1,000) Acquisition of Barberton Mines 18 Months to 31 March 2006 15 Months to 30 June 2007 12 Months to 30 June 2008 7 chIeF execUtIVe oFFIcer’s rePort “We haVe sUccessFUlly transForMeD the coMPany to a ProFItaBle golD MInIng BUsIness WIth a strong Balance sheet anD an exPerIenceD ManageMent teaM alloWIng Us to realIse FUrther oPPortUnItIes to groW at a tIMe When access to caPItal resoUrces Is lIMIteD” Jan nelson MInIng ProFIt eBItDa 283% 141% total cash costs heaDlIne earnIngs Per share 8 2.37% 49% chIeF execUtIVe oFFIcer’s rePort during the year ended 30 June 2008, the group successfully completed the acquisition of barberton mines in south africa, effective 31 July 2007 which transformed the company from a junior gold explorer to an emerging mid-tier gold producer. the company also invested significant capital and human resources to advance its portfolio of growth projects. reVIeW oF strategIc oBJectIVes before a review of operation results it would be prudent to review the strategic objectives that were envisaged by the board as a result of the acquisition of barberton mines (as set out in the re-admission document or pre-listing statement dated 31 July 2007). a summary comparing intended objectives to those achieved are listed in the table below: strategic objective achieved result turn group from loss-making position to profitable attributable profit of £5.5 million (12 months ended 30 June 2008) from loss of £922,450 (15 months ended 30 June 2007) establish the group as a producer 100,000oz/annum of gold fund all operational activity in-house £3.0million spent on capital expenditure * fund and accelerate exploration activity £3.1million spent on exploration * acquire a mining skills base skills base increased to 1,491 employees provide capital to grow exploration activity in ghana acquired rights to three properties in ghana initiate £1.0 million exploration programme on the mine £1.0 million allocated over two years and exploration programme started 1 2 3 4 5 6 7 * this relates to fixed asset additions and capitalised exploration costs 9 chIeF execUtIVe oFFIcer’s rePort ebitda for the period under review was £13.9 million, which incorporates 12 months of barberton mines and 11 months of pan african (as the transaction only became effective on 31 July 2007, one month into the financial year reported on). aVerage golD PrIce receIVeD (Us$/oZ) coMPareD to total cash costs (Us$/oZ) 1200 1000 gloBal MarKets anD golD PrIce at the time of the barberton transaction the board of directors believed that a slow-down in funding for exploration companies was imminent and therefore the group had to transform itself so as to fund its ongoing activities itself. the group changed its strategic focus from gold exploration gold mining. to to this effect pan african acquired barberton mines, generated which sufficient capital, to and accelerate grow the exploration this portfolio. was achieved in a market where access to capital became increasingly difficult and most exploration activity slowed down or even stopped. Cost - US$/oz 7 0 0 2 r e b m e t p e S 7 0 0 2 r e b o t c O 7 0 0 2 t s u g u A 7 0 0 2 y l u J 200 600 800 400 0 7 0 0 2 r e b m e v o N the increase in inflation in the united states and the sub-prime crisis resulted in gold being a safer haven than the us dollar, which pointed to a rally in the gold price. a gold price of us$750 was forecast for the period under review with an actual average for the period of us$823/oz. the positive outlook envisaged by the directors was realised and is reflected in the results presented in this report. saFety anD traInIng While the group conducts its activities for the safety of its employees and runs approved training programmes through training centres located at its mining operations, we regret to report that two fatal accidents occurred during the past 12 months. both accidents were at the sheba operation; one accident involved a contractor on 20 september 2007 and the other an employee of the mine on 19 february 2008. our sincere condolences are extended to the families of the deceased. FInancIal PerForMance gross revenue from gold sales amounted to £39.3 million, total cost of production amounted to £25 million, the cost of the tax bill amounted to £4.4 million and other expenses amounted to £2 million. 10 the ebitda includes a hedging loss of £2.2 representing million 10,696oz of gold sold at a hedging price of us$451/oz. no further hedges have been entered into on gold sales after 30 June 2008 and the group is now fully leveraged to the gold price. 7 0 0 2 r e b m e c e D 8 0 0 2 y r a u n a J M 8 0 0 2 h c r a 8 0 0 2 y a M 8 0 0 2 e n u J 8 0 0 2 l i r p A 8 0 0 2 y r a u r b e F ebitda resulted in an attributable profit a of £5.5 million, significant turn-around from the loss of £0.922 million the 15 for months ended 30 June 2007 posted by pan african for the previous reporting period. this reflects the impact of the acquisition of barberton mines on the cash position of the group. Average Gold Price (US$) cash operating profit at barberton increased to £11.24 million (fy07: £5.73 million – which was attributable to metorex limited) despite an increase in the cost of production of 16.37% to £25,16 million (fy07: £21,62 million). the higher costs were linked to increases in the prices of consumables and an increase in salaries and wages. the increase in mining profit was the result of a 9,000oz increase in production (mainly from surface sources) and the spot gold price moving 28.59% higher at us$823/oz (fy07: us$640/oz) than the previous year. the average us$:zar exchange rate was 1.39% weaker at zar7,30 (fy07: zar7,20) which also played a role in terms of revenue received in south african rands. effective zar gold price was 29.86% higher at zar187,000/kg compared to the previous year (fy07: zar144,000/kg). income tax as per the consolidated income statement has increased by 276% for the group from £1.16 million to £4.37 million as a result of an increase in the profit margin, which results in a higher tax rate being applied to the mine. chIeF execUtIVe oFFIcer’s rePort £21 million is reflected as goodwill in the consolidated balance sheets (fy07: £nil), which is a direct result of the reverse take over and is attributable to the combination of pan african and barberton. basic headline earnings per share improved from 0.35 pence reported in 2007 to 0.52 pence for the current reporting period. oPeratIng PerForMance the barberton mining operations (which include the fairview, sheba, and new consort mines) produced 99,078oz of gold, an improvement of 10% on the previous year (fy07: 90,022oz). total underground production however decreased by 8.43% to 82,436oz from the previous year (fy07: 90,022) and was the calcine dump retreatment supplemented by operation on surface. underground production was down as a result of a 4.56% decrease in volume to 315,305t (fy07: 330,367t) and decrease in grade of 3.26% to 8.9g/t (fy07: 9.2g/t). been developed and 7,167m drilled on five major projects to address this issue (these projects are discussed on page 17). to date good progress has been made on these projects which should ensure an increase in underground production in the coming year. groWth ProJects as at 30 JUne 2008 geological work on the Manica gold project in Mozambique continued on the fairbride prospect area. Work comprised exploration drilling and ore body outline drilling on both the fairbride east and West ore bodies. drilling results confirmed ore body continuation in both dip and strike extension down to a depth of 350m below surface. resource remodelling was completed during april 2008 defining a total resource of 1.701moz (11.45mt @ 4.6g/t). Work on the pre- feasibility study is ongoing and has been delayed as a result of mining optimisation. the company expects this process to be complete before the end of the next caPItal anD exPloratIon exPenDItUre For the PerIoD exPresseD as a % oF the total oF £6.2 MIllIon anD accoMPanyIng Metres oF DrIllIng coMPleteD the surface r e t r e a t m e n t o p e r a t i o n p r o d u c e d 13,513oz of gold at a total cash cost of u s $ 2 9 1 / o z . total mine cash costs increased m a r g i n a l l y to by 2.37% u s $ 4 7 6 / o z to compared previous year (f y0 7 : $ 4 6 5 / oz). the slight increases in total cost despite s i g n i f i c a n t increases in c o n s u m a b l e s , steel, such as and chemicals power, coming effect into underlines the group’s ability to successfully manage costs. Barberton 7,167m 49% the decrease in underground production is a concern and as a result the group spent £3.0 million on ore replacement and growth projects at barberton mines. for the period under review a total of 1,145.3m have total: £6,199,292* 19,936m 21% 19% 10,262m 11% 3,569m Manica Ghana CAR financial period. the Bogoin at gold project in the african central republic (‘car’) the 8,200m rotary air blast (‘rab’) drilling programme completed was leading the to narrowing down of the soil geochemical anomaly. a widely- spaced 29,062m reverse circulation (‘rc’) programme has commenced over an area in excess of 800km² to test the geochemical anomalies identified. as at 30 June 2008, 2,062 m of rc drilling has been completed. the group successfully signed a mining convention with the government of the central african republic for the Dekoa prospecting area. subsequent geological work identified several large soil geochemical anomalies at dekoa. 11 * this relates to fixed asset additions and capitalised exploration costs chIeF execUtIVe oFFIcer’s rePort includes; detailed geological field mapping, stream sediment sampling as well as a comprehensive soil- sampling programme. should the results of this work prove positive, a drilling programme will follow. groWth ProJects - Post Balance sheet UPDate in the car, the company has completed its first phase drilling programme of the bogoin exploration licence area and is currently compiling the results of the drilling. Work will commence in q2 of the financial period on taking bulk soil and rock samples on the targets identified at the dekoa exploration licence area. in ghana, all the necessary drilling to evaluate the akrokerri and kyereboso prospects has been completed. the company is currently busy with geological modelling to decide whether to initiate the second phase of drilling or terminate exploration activity. on the u&n property the company has completed its first phase of soil sampling and several anomalies have been identified. the company is currently reviewing its geological programme for this project moving forward. MInIng rIghts conVersIon barberton mines is able to mine on fairview, new consort and sheba mines and operate in terms of existing mining licences (ml28/2003, ml30/2003 and ml29/2003), which have been issued in terms of section 9(1) of the minerals act of south africa. these licences are valid until 26 october 2009 for fairview and new consort and 26 october 2013 for sheba. the mining licences represent old order rights in terms of the mineral and petroleum resources development act (mprda) of south africa, which have to be converted to new order rights. this process involves submitting an application for renewal of the licences in which (a) a mines Work programme (mWp), (b) social and labour plan (slp) and (c) environmental management programme (emp) together with (d) black economic empowerment (bee) plan must be included. all the necessary documentation was submitted to the department of minerals and energy (dme) in south africa. no issues are expected and the group expects the conversion process to take place within the next 12 months. in the event that the conversion is not granted prior to the expiry of the fairview and new consort licences, the validity of the licences is not affected until the final decision from the minister on conversion. View from sheba Mine and main vertical shaft an infill soil-sampling programme was completed for the akrokerri gold project in ghana and 7,600 m of core drilling has been completed to define possible extensions to the historical akrokerri underground mine workings. as at 30 June 2008, 2,978m of drilling has been completed. laboratory results have been received. a 7,400 m rc drilling programme was initiated at the Kyereboso gold project in ghana to test the proposed mineralisation model. as at 30 June 2008, 3,600 m of drilling has been completed. pan african concluded an earn-in agreement to acquire 85% of an exploration property, the U&n property in ghana from the u&n company limited. the u&n property lies approximately 45km southwest of the town of kumasi. pan african can earn-in 40% of the project by spending not less than £145,928 on a soil sampling programme phase. should the group wish to continue work after this phase, it must spend no less than £150,960 to earn a further 45%. on completion of the bfs (‘bankable feasibility study’) the group may, at it’s election, acquire the remaining 15% at a cost based on the net present value (‘npv’) of the asset. all available historical exploration and geological information at the amira, eagle’s nest and thomas Victory hill gold projects at Barberton in south africa were collated into a spatially referenced database. this database has been used to define several exploration targets. a comprehensive airborne geophysical survey of the project will be completed to further refine these targets. planned fieldwork for the area during the remainder of 2008 and into the first half of 2009, 12 chIeF execUtIVe oFFIcer’s rePort pan african is no exception to the above crisis and it is important that shareholders understand that, in the opinion of the directors, the current share performance is driven by a global crisis based on emotion that is distinct from the fundamentals of the business. the FUtUre remaining cash positive and strengthening the balance sheet will remain a key objective for the board moving forward, as a result both mining and exploration activities will be monitored on a continuous basis to ensure this goal is achieved. as a result, the group might from time to time change its commitment to certain of the growth projects currently underway. i would like to thank my fellow directors and especially our chairman, keith spencer, for his wise counsel and guidance. i would again like to give credit to our exploration teams in the field and our management team. the general manager, casper strydom and his management team deserve a special word of production congratulations performance. last but not to our shareholders for their support and patience. outstanding least, thanks for an Jp nelson chief executive officer 24 november 2008 resoUrce anD reserVe Base the total resource for the group increased in gold content by 100% to 3.105moz (17.30mt @ 5.78g/t) from the previous reporting period (fy07: 1,550moz: 16,28mt @ 2.9g/t)*. this increase was the result of an upgrade in the resource at the manica gold project in mozambique, which contributed 5% of the increase in the inventory as well as the additional ounces gained through the acquisition of barberton mines, which contributed the remaining 39% of the increased inventory. no resource or reserve is reported for any of the other growth projects. during the period under review, the resource in gold content at barberton has also been increased by 3.16% to 1.903moz (7.907mt @ 7.46g/t) compared to 1.845moz (8.54mt @ 6.72g/t) at the date of acquisition. What is extremely encouraging is the increase in the gross in situ grade of 11% to 7.46g/t. the group, as a result of the acquisition of barberton mines, is able to state a reserve for the first time of 495koz (2.16mt @ 7.13g/t). geostatistical modelling has successfully been applied at barberton mines and an upgrade in the total resource is due in the new financial year. other DeVeloPMents the group reviewed 15 projects during the period under review as potential acquisition targets. none of the projects fulfilled the criteria of (a) high quality and (b) low cost base parameters with (c) significant growth potential. the group continues to review projects to grow the mineable reserve base. Post Balance sheet eVents – gloBal MarKet MeltDoWn post the period under review world financial markets have been plunged into crisis as a result of the sub-prime home-loan lending crisis in the united states. as a result hedge funds liquidated their positions across their investment portfolio in order to maintain liquidity, retail shareholders sold shares at a discount to repay loans and institutional shareholders lost their appetite for any new investment. the net result was that share prices dropped severely as most junior exploration companies lost between 50% to 75% of their market capitalisation. this sell-off was not selectively based on the underlying fundamentals of the businesses but on panic – generally companies with better underlying fundamentals which had higher share prices were sold first – in effect being punished even more so for doing the right thing than companies with no cash-flow or future prospects. * these figures reflect a comparison of pan african before the acquisition of barberton mines and the new enlarged group. 13 MInIng oPeratIons BarBerton soUth aFrIca Project holding pan african completed the acquisition of 74% of barberton mines (pty) ltd from metorex limited in a reverse takeover. shanduka resources holds the remaining 26% as the black economic empowerment (bee) partner. is situated introduction barberton mines in the mpumalanga province of south africa, approximately 370km east of Johannesburg and comprises of three operating mines: fairview, new consort and sheba. the three mines situated in the barberton greenstone belt, have been in operation since 1886. the three mines have produced close to 8moz or 73% of the total 11moz of gold produced from the barberton greenstone belt. Mining Progress Fairview • fairview produced 142,125 tons at a head grade of 7.9g/t development of the ramp system continues below 60 level to access the main reef complex (‘mrc’) reef. this ramp will take mining to 62 level. • • new consort • • • new consort produced 74,153 tons at a head of grade 8.5g/t the east and west orebodies have been drilled and evaluated. the headgears, inclines and infrastructure at both declines have been completed and shaft sinking has commenced. • • • 14 sheba • sheba produced 99,027 tons at a head grade of 10.7g/t decline to access the zwartkoppies (‘zk’) reef below 35 level has commenced the headgear section is complete and a winder is being installed re-equipping of the southwell adit, inter-levels and incline shaft complete, and necessary development was done to access a reserve block of reef. BarBerton ProDUctIon taBle tons milled headgrade overall recovery production: underground production: calcine dump gold sold average price: spot average price: hedge total cash cost usd/oz sold capital expenditure exchange rate - average exchange rate - closing (t) (g/t) (%) (oz) (oz) (oz) (usd/oz) (usd/oz) (usd/oz) (£) (zar/£) (zar/£) * 2008 **2007 **2006 **2005 **2004 315,305 330,367 313,779 316,094 349,219 8.9 91 82,436 13,513 99,078 823 451 476 9.2 92 10.7 92 11.1 92 10.4 91 90,022 99,281 103,847 106,258 - - - - 89,572 99,924 102,914 106,773 640 415 465 528 438 429 433 511 427 397 455 340 2,901,792 1,637,359 1,091,965 1,021,041 1,054,288 14,68 15,56 13,95 14,18 n/a n/a n/a n/a n/a n/a * 74% of the 2008 results are attributable to the equity shareholders of pan african. ** results shown from 2004 to 2007 were attributable to metorex limited (previous owners of barberton mines). reserVe rePlaceMent ProJects anD DeVeloPMent Metres coMPleteD For the PerIoD Project name sheba - southwell adit Metres Developed: sheba - 335 zk decline sheba - edwin bray to thomas and Joe’s luck area consort - 45 level exploration drive consort - 50 level declines fairview - 60/62 level development fairview - 3 shaft deepening 75.0m 126.0m 101.0m 140.0m 163.3m 540.0m project recently commenced 15 BarBerton exPenDItUre ProDUctIon cost BreaKDoWn 2008 total: £25,163,675 2007 total: £21,623,538 7% 9% 48% 24% 12% 7% 21% 28% 44% Electricity Production Cost Dump Reclamation Salaries & Wages Other caPItal exPenDItUre oF BarBerton MInes (excludes surface exploration programme) 3,500 3,000 2,500 2,000 GBP (000) 1,500 1,000 500 0 2004 2005 2006 2007 2008 * 2004 to 2007 was attributable to Metorex limited (previous owners of Barberton Mines) 16 groWth ProJects aMIra, eagle’s nest anD thoMas VIctory-hIll BarBerton, soUth aFrIca Project holding the amira, eagles nest and thomas victory-hill exploration projects fall within a prospecting licence which has been granted to barberton mines and is contiguous with the mine lease area. pan african has initiated a £1 million exploration programme on the property of which 74% of any gold discovered will be attributable to the group. Project Progress all the geological data in the project area has been collated and the group plans to initiate a soil and stream sediment sampling programme. 17 groWth ProJects ManIca MoZaMBIQUe • • the cost of the total exploration project to date equates to us$1,79/oz as at 30 June 2008. during the year under review the resource of the project was upgraded twice. the first time in september 2007 when it was increased by 18% from 1.311moz to 1.550moz. the second upgrade in april 2008 was an increase of 10% from 1.550moz to 1.701moz (11.45mt@4.6g/t). Project holding the manica project in mozambique is held by a local company, explorator limitada which is a wholly-owned subsidiary of pan african. Project Progress • • • • • Work on the pre-feasibility study is ongoing but has been delayed due to the fact that the company is considering different mining and extraction methods. as a result the company only expects to complete the process by the end of the next financial period. drilling and orebody outline on both the fairbride east and west orebodies was completed. the results of these programmes showed that there is a continuation of the mineralisation along strike and to depth. 19,936m of drilling has been completed as at 30 June 2008. during the year under review £1.4 million was spent on drilling and the pre-feasibility study as at 30 June 2008. 18 groWth ProJects BogoIn anD DeKoa central aFrIcan rePUBlIc Mining conventions signed a mining convention for each of the two projects was signed with the government of the central african republic. both of these conventions run for a period of 25 years each, which means that pan african has exclusive right on both until 2033. the state has provided a number of concessions and exemptions in respect of taxes, duties and administrative provisions to the benefit of the Jv. in return, the Jv will pay the state a total of £352,240 for each convention, with the first payment of £100,640 having been made upon signature. should the properties reach the mining stage the state will hold a 10% free-carry. Project holding the bogoin and dekoa projects in the car are held by a local subsidiary, or oubangui sa. the shareholding of the local subsidiary is a 50:50 Jv between pan african and cargold limited. pan african also fulfils the role of project manager. Project Progress • • • the dekoa project, the larger of the two licence areas, revealed six major gold-in-soil anomalies with an interpreted strike length of 25km. these anomalies were discovered through a regional stream sediment sampling programme. at the bogoin project the 8,200m of rotary air blast programme was completed, which lead to a narrowing-down of the soil geochemical anomaly. a widely spaced 29,062m of reverse circulation (‘rc’) drilling programme has commenced and to date 2,062m has been completed. 19 groWth ProJects aKroKerrI, KyereBoso anD U&n ghana Project holding three projects were acquired in ghana during the year under review: akrokerri, kyereboso and u&n. pan african’s stake in the kyereboso and u&n projects were acquired by way of earn-in agreement. the group can earn-in a maximum of 85% in the u&n and 90% in the kyereboso projects upon completing a certain amount of exploration expenditure and work. in the previous financial year, on 27 June 2007, the group acquired 90% of the akrokerri project, covering an area of 46.8km2. the akrokerri licence is contiguous with the largest gold producing mine in ghana, namely the obuasi gold mine which has to date produced approximately 40moz of gold. Project Progress • • • • • the induced polarization geophysical programme was completed at akrokerri. the dipole-dipole geophysical programme was completed at akrokerri. 7,600m of core drilling was completed at akrokerri. 7,400m of core drilling was completed at kyereboso. as at 30 June 2008, no work had commenced on the u&n proprety. 20 gross in situ MIneral resoUrce anD MIneral reserVe stateMent For the enlargeD groUP total classification tons grade (g/t) Proved gold (kg) oz classification tons grade (g/t) gold (kg) oz Measured fairview new consort sheba 937,400 120,900 401,200 5.51 7.98 8.65 5,200 167,200 fairview 1,000 32,200 new consort 3,500 112,500 sheba total Proved 1,459,500 6.65 9,700 311,900 total Measured outside sections manica fairview new consort sheba Probable 392,100 158,500 151,000 8.92 7.02 7.33 3,500 112,500 fairview 1,100 1,100 35,400 new consort 35,400 sheba outside sections manica total Probable 701,600 8.12 5,700 183,300 total Indicated 1,722,300 309,000 356,800 507,900 2,420,000 5,316,000 Indicated 435,400 126,800 492,300 1,252,300 4,162,000 6,468,800 Inferred • • barberton mines inventory stated at a cut-off of 3g/t manica inventory stated at a cut-off of 1g/t fairview new consort sheba outside sections manica total Inferred 378,600 203,200 162,600 1,960,400 4,872,000 7,576,800 total Proven and Probable 2,161,100 7.13 15,400 495,200 total Mineral 19,361,600 resource 8.18 11.40 13.80 4.79 5.53 7.20 12.29 11.72 7.49 4.49 3.76 4.92 17.71 10.49 7.21 4.13 4.89 5.53 5.78 14,100 453,300 3,500 4,900 2,400 112,500 157,500 77,200 13,400 430,800 38,300 1,231,300 5,400 1,500 3,700 5,600 173,600 48,200 119,000 180,000 15,600 501,600 31,800 1,022,400 6,700 2,100 1,200 8,100 215,400 67,500 38,600 260,400 23,800 765,200 41,900 1,347,100 112,000 3,600,800 tons grade (g/t) gold (kg) oz Measured attrIBUtaBle (74% oF BarBerton anD 100% oF ManIca) classification classification grade gold tons oz (g/t) (kg) Proved fairview new consort sheba 693,700 89,500 296,900 5.51 7.98 8.65 3,800 122,200 fairview 700 2,600 22,500 new consort 83,600 sheba total Proved 1,080,100 6.65 7,100 228,300 total Measured outside sections manica 1,274,500 228,700 264,000 375,800 2,420,000 4,563,000 Probable Indicated fairview new consort sheba 290,100 117,300 111,700 8.92 7.02 7.33 2,600 83,600 fairview 800 800 25,700 new consort 25,700 sheba outside sections manica total Probable 519,100 8.12 4,200 135,000 total Indicated • • martin bevelander, group consulting geologist for pan african, is south african council for natural scientific professions (‘sacnasp’) accredited and was responsible for validating the borehole intersections. the resource statement is south african mineral resource code (‘samrec’) compliant and has been verified. note: as disclosed on page 18, the pre-feasibility study on manica has not yet been completed and accordingly the resources of manica are not yet classified as proven and probable. fairview new consort sheba outside sections manica total Inferred 322,200 93,800 364,300 926,700 4,162,000 5,869,000 Inferred 280,200 150,400 120,300 1,450,700 4,872,000 6,873,600 total Proven and Probable 1,599,200 7.13 11,300 363,300 total Mineral 17,305,600 resource 8.18 11.40 13.80 4.79 5.53 7.20 12.29 11.72 7.49 4.49 3.76 4.92 17.71 10.49 7.21 4.13 4.89 5.53 5.78 10,400 334,400 2,600 3,600 1,800 83,600 115,700 57,900 13,400 430,800 31,800 1,022,400 4,000 1,000 2,700 4,200 128,600 32,200 86,800 135,000 15,600 501,600 27,500 884,200 5,000 1,600 900 160,800 51,400 28,900 6,000 192,900 23,800 765,200 37,300 1,199,200 96,600 3,105,800 the Resource numbers in the Mineral Resource and Mineral Reserve table above have been rounded to reflect the appropriate level of confidence and as a result rounding errors may occur. 21 resoUrce groWth (gross in situ) oz (000) 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Acquisition of Barberton Mines 26 July 2005 13 October 2005 2 February 2006 20 June 2006 10 September 2007 10 March 2008 Manica Barberton 22 DIrectors From left to right: John hopwood, Maritz smith, rob still, charles needham, simon Malone and Jan nelson (ceo) In the centre: Keith spencer (chairman) execUtIVe DIrectors keith cousens spencer bsc eng (mining) executive chairman member: investment and technical committee keith cousens spencer (58) is a qualified mining engineer with 35 years of practical mining experience. in 1984, keith was appointed as general manager of greenside colliery and in 1986 moved to kloof gold mine as general manager. in 1989, he was appointed as consulting engineer for gold fields of south africa limited (‘gfsa’) to the following mines: doornfontein gold mine, driefontein consolidated gold mine, greenside colliery and tsumeb base metals mine. he also served as managing director of driefontein consolidated, chairman and managing director of deelkraal gold mine, and as a board member of all gold mines belonging to gfsa. in 1999, keith joined metorex limited first as a private consultant and after 2 years as a permanent member of the executive managing the Wakefield coal operations, o’okiep copper company, barberton gold mines, and metmin manganese mine. in 2001, keith became the operations director for the metorex group. keith has managed some of the largest gold mines in the world and this expertise will now be available to the pan african team. Jan petrus nelson bsc. (hons) chief executive officer member: investment and technical committee after obtaining his honours degree in geology, Jan nelson (38) embarked on a career in gold exploration and mining in south africa, zimbabwe and tanzania. he has over 17 years’ experience and, within this period, held positions in mine management and operations with harmony gold mining company limited, hunter dickenson and gold fields limited. he also has experience in dealing with institutional analysts, institutional investors as well as shareholders. maritz smith b.com (hons) financial director maritz smith (32) is an employee and alternate director of metorex limited. he obtained a bcom (hons) accounting degree from the university of Johannesburg in 1998 and after completing his articles with deloitte in 2001, he qualified as a chartered accountant. mr smith remained with deloitte until 2002 when he joined the metorex group as group accountant. after three years, mr smith was promoted to chief financial officer of metorex limited in 2005, the position he retains today. 23 DIrectors non-execUtIVe DIrectors robert george still b.com (hons), cta non executive member: remuneration committee member: audit committee rob still (56) has over 23 years’ experience in mining, specialising in mining finance. he started his career as a chartered accountant, becoming a partner of ernst and Whinney before leaving in 1986 to co-found rhombus exploration limited. since then he has been involved in the mining industry world-wide and has held executive and non-executive directorships in companies listed in south africa, australia, canada and the uk. he has participated in the evaluation and development of several new mining projects including rhovan, ticor titanium, pangea gold fields limited, southern mining corporation limited (corridor sands), great basin gold limited (burnstone) and zimbabwe platinum mines limited. mr still was the chief executive of pangea diamondfields plc until 30 June 2008, and is currently the deputy chairman of the aim-quoted company. mr still holds the position of deputy chairman for metorex limited. anthony simon malone b.sc., mbl, saimm, pr.eng. non executive chairman: investment and technical committee simon malone (65) is a mining engineer with a business degree who has been involved in the mining and exploration sector throughout his career. his expertise lies in the identification, evaluation and development of mining assets and interface between corporate and operational management. he was initially employed by Jci limited, thereafter chapman Wood and griswald in canada before returning to south africa where he founded metorex in 1975. charles denby stockton needham non executive member: remuneration committee chairman: audit committee charles needham (55) is the chief executive officer of metorex limited and has been the financial director of metorex for the past 21 years, prior to which he spent six years with an auditing firm. he has been involved in the mining sector his entire career and has specific expertise in financing, financial reporting, management reporting, hedging and company matters. John gavin hopwood independent, non executive director member: remuneration committee member: audit committee John hopwood (55) was appointed a director in may 2008. he is also a director of gold fields limited and a member of the board of trustees of the new africa mining fund and chairman of the fund’s investment committee. previous experience includes being a director and head of mergers and acquisitions division at ernst & young corporate finance, south africa, and he was an executive director of gold fields of south africa limited from January 1992 to september 1998. 24 corPorate goVernance although not required to as an aim company, the directors have provided corporate governance disclosures similar to those required of a company listed on the main board of the london stock exchange. coMMIttees pan african is governed by a board of directors assisted by following committees: audit committee, remuneration committee, investment and technical committee. the corporate governance is managed and monitored by the board. the roles of chairman and group chief executive are separate, with a clear division of responsibilities to ensure a balance of authority between them. these positions are held by mr keith spencer and mr Jan nelson, respectively. the board meets quarterly and is responsible for preparing financial statements, monitoring executive management, and providing direction to the group’s activities, as well as establishing overall group policy and providing input on strategic matters. following the barberton acquisition and the group’s secondary listing on the alternative exchange of the Jse limited (‘altx’), metorex was entitled to appoint one director to the board of pan african for every 10 percent of the issued share capital it holds. three directors were appointed to the board during the year under review. currently, the board consists of three executive directors and four non-executive directors. the board believes the non-executive directors bring a wealth of experience to the group and a range of skills appropriate to facilitate the next stage of the group’s growth, funding, including discovering, acquiring, developing and operating gold projects in africa. the board has also considered the guidance published by the institute of chartered accountants in england and Wales (commonly known as the turnbull report) concerning the internal control requirements of the combined code. in line with best practice, the group regularly reviews and manages key business risks in addition to managing financial risks the group faces in the operation of its business. accoUntaBIlIty anD control the board of directors acknowledges its continued accountability in retaining full and effective control over the group, reviewing strategy, planning operational and financial performance, considering acquisitions, disposals and major capital expenditure, managing stakeholder communications as well as other material matters reserved for its decisions. the group’s articles of association allow provision for decision-making between board meetings, by way of written resolutions. internal control is an integral part of the group’s corporate governance. the directors aim to reduce risk, fraud or loss in a cost-effective manner by setting standards for management to implement systems of internal control. these systems and standards include the proper delegation of responsibilities within a defined framework, accounting procedures as well as an adequate segregation of duties. employees are expected to adhere to the highest ethical standards to guarantee that sound business practices are conducted in a manner that will be beyond criticism under reasonable circumstances. Undergound miner, Barberton Mines rIsK ManageMent the group does not have a formalised risk committee; rather the group’s internal financial and operational control systems are assessed during the full quarterly board meetings. a comprehensive assessment of risks the group faces has been completed. in addition to general risks it shares with all companies, such as currency risk and foreign exchange controls; insurance cover, economic, political, judicial, administrative or regulatory factors, the group has identified several risks specifically related to the business it undertakes listed below: • • cost of production, particularly input costs such as steel and chemicals supply of power and load-shedding 25 corPorate goVernance • • • • • • • • • gold theft and security of employees volatility of the gold price and the buying or selling of gold bullion held by central banks or other dealers preserving black economic empowerment (‘bee’) shareholding laws governing mineral rights and environmental regulation exploration and extraction risks project development risks human resources: dependence on key personnel, the south african skills exodus and increasing cost of labour hiv/aids mining elsewhere in africa (country risk) licences and regulatory environments these risks are regularly monitored. during the financial year under review, no incidents have indicated to the board a breakdown of the internal control and systems. a material breakdown is defined as a critical weakness in process of financial systems which could result in a material loss, contingency, or uncertainty requiring disclosure in the published annual financial statements. the executive directors and determines BoarD coMMIttees the remuneration committee reviews the performance of their remuneration and the basis of their service agreements with due regard to the interests of shareholders. the remuneration committee also determines the payment of any bonuses to executive directors and the grant of options to employees, including executive directors, under the company’s share option scheme. the remuneration committee comprises charles needham (chairman) and rob still. after the financial year-end John hopwood, appointed in June 2008, was appointed to this committee. the audit committee is responsible for ensuring that the financial performance, position and prospects of the group are properly monitored, controlled and reported on and for meeting the auditors and reviewing their reports relating to accounts and internal controls. the audit committee comprises charles needham (chairman) and rob still. after 30 June 2008, John hopwood was appointed to this committee. simon malone (chairman), rob still, keith spencer and Jan nelson make up the investment and technical committee. this committee reviews all potential new acquisitions to ensure that they conform to the group’s growth strategy and vision. the committee meets on a quarterly basis. the executive directors, namely; keith spencer (chairman), Jan nelson (chief executive officer) and maritz smith (financial director) review both 26 the mining operations and the exploration projects on a formal basis each month. this includes a detailed review of the technical and financial parameters, as well as capital requirements and expenditure. all parameters are measured against the strategic plans and any variations are discussed and action plans are put in place to rectify such deviations. Female miner, Barberton Mines coMPany secretary the company secretary is appointed by the board. all directors have access to the advice and services of the company secretary, who is responsible to the board for ensuring compliance with procedures and regulations of a statutory nature. furthermore, all directors are entitled to seek independent professional advice concerning the affairs of the group at the company’s expense, should they believe that course of action would be in the best interests of the group. noMInateD aDVIser anD BroKer during the year under review, ambrian capital acted as the nominated adviser (nomad) and broker to the group under the aim rules. the duty of the nomad and broker is to advise the group on compliance with the aim rules and continuing obligations as an aim- quoted company. after the financial year-end, rbc capital markets was appointed as the group’s nomad and broker. corPorate goVernance is committed to creating sUstaInaBIlIty pan african long-term shareholder value by embracing opportunities and managing risk. as a corporate citizen the group recognises it must be concerned not only with financial returns but also with the broader impact of its activities on other stakeholder constituencies, the environment, and particularly the health and safety of its employees. interaction with stakeholder groups is fundamental to a sustainable business model, as are the group’s social responsibility initiatives. to and engagement communication sustainability and encourages staKeholDer coMMUnIcatIon is stakeholder important the principles of transparent, honest, reliable and accessible reporting. pan african considers the following to be its key stakeholders: shareholders, investors, analysts and the media; government bodies and regulators; business partners and suppliers; employees and contractors; and the communities where we operate or are exploring. any material changes to the group’s structure, project updates and any other information which may affect the share price is disseminated simultaneously via the london and Jse limited news services, the local media and the group’s website. all necessary measures are taken to ensure that unbiased, timely and relevant communication disseminated is in line with the listing and regulatory environments in which we operate. operating and financial performance-related information is released in the same manner. the group makes presentations to investors and analysts, meets regularly with current and potential institutional shareholders and investment analysts, and attends conferences and investor days. the executive directors are available at all times to address any concerns or queries regarding the group and its performance and employs independent investor and media relations professionals in the uk and south africa to assist its strategic communications requirements. other stakeholders are engaged directly correspondence, meetings and any appropriate forum. through in addition, employees at barberton mines receive a monthly newsletter and briefings as and when necessary about information important to the group and their health and safety. BlacK econoMIc eMPoWerMent black economic empowerment (‘bee’) in the mining sector in south africa is dealt with in the mineral and petroleum resources development act (mprda). it states that one of the objects of the mprda is to substantially and meaningfully expand opportunities for historically disadvantaged persons to enter the mineral and petroleum industries and to benefit from the exploitation of the nation’s mineral and petroleum resources. a mining charter was adopted in october 2002 to deal with the specifics of bee in mining, and it refers to targets of 15% of equity or attributable units of production vesting in historically disadvantaged south africans (‘hdsa’) in a particular mining project within 5 years of the start of the mprda (2002) and 26% within 10 years. the mining charter was unclear on how new applications for licences should be made with regard to bee, and so a clarification document was issued by the department of minerals and energy. this document states that if mining rights were held privately, for those to be converted to new order mining rights, the hdsa requirement is a minimum of 26%, and if the rights were state held, the hdsa requirement is 51%. for all applications made after may 2005, the hdsa requirement is 26%. shanduka has not been locked in indefinitely with regard to hdsa required shareholders, this could require the group to take remedial action if required by the dme in south africa should the shanduka shareholding diminish. The nature and extent of such remedial action is not known at present, if required at all, and therefore could present a future risk. saFety, health anD enVIronMent safety barberton mines is an iso sans 9001:2000 certified company and its employees, sub-contractors and suppliers, and all others under its managerial control. employees have a right to work in a safe environment and effective management of occupational health and safety is a prime group objective. barberton mines is committed to the following key principles and objectives: is committed to the safety of • preventing occupational accidents and diseases and other work related adverse health effects by the 27 corPorate goVernance • • • • • • • • • • and that adoption of a ‘total compliance’ approach complying with all relevant legal requirements pertaining to occupational health and safety as a minimum standard ensuring that all its operations have appropriate policies, procedures and facilities so that such standards can be achieved integrating occupational health and safety into the group’s overall management structure and business performance ensuring employee employees representatives are consulted and participate actively at all levels of the occupational health and safety process implementing and sustaining a programme of general awareness and training so as to ensure that both management and workers remain competent to carry out duties and responsibilities assigned to them informing workers of their rights and ensuring that they understand their rights. allocating reasonable resources to implement and perpetuate the occupational health and safety system co-operating with all health and safety agencies implementing a system of audit and review to enhance continual improvement in performance of the occupational health and safety system and conducting regular reviews of conformance at board level implementing a risk assessment process that will effect appropriate risk management and assessment through elimination, reduction or control risk assessments enable barberton to measure safety performance with the goal of achieving zero harm to all employees, sub-contractors and suppliers and are conducted in terms of section 11 of the mine health and safety act (29 of 1996) and is managed by an appointed risk assessment officer. these include the baseline, issue base and continues risk assessment. achievements for the 2007-2008 financial year: a 42.50% improvement has been recorded for lost-time injuries compared to the previous financial year resulting in a 45% improvement in the lost day injury frequency rate. Fairview Gold Mine fairview achieved 1 500 000 fatality-free shifts as at June 2008 – the last fatal accident was recorded on 20 march 2003. sheba Mine: sheba achieved 451,655 september 2007. unfortunately, there were two fatal accidents recorded during 2008, the details are as follows: fatality-free shifts as at 28 • • on 20/09/2007 a contractor slipped and fell climbing a travelling way. 19/02/2008 a rock struck an employee who fell whilst installing mechanical props. in both these cases, the outcome of a dme inquiry into these fatal accidents negated the management team of any wrongdoing. new Consort Mine: new consort achieved 883,624 fatality-free shifts as at June 2008 – the last fatal accident was recorded on 18 march 2002. pan african has established the following three-year targets for occupational safety: • • • to achieve and maintain a physical audit rating of not less than 90 % and a lost-time injury frequency rate of below five throughout the mine to improve the mine’s safety record by 10% in 2009, 5% in 2010 and 5% in 2011 to achieve a 20% improvement in a 3-year period to have zero fatalities in terms of the rest of the enlarged group, the group employs contractors who run their own health and safety programmes. and medical health barberton mines is fully compliant with the health programme required by the dme in occupational surveillance programmes. hygiene the mines have appointed a full-time occupational hygienist to monitor and manage reporting systems; equipped an occupational health centre and employs a full-time occupational health nurse and a part- time medical practitioner. tuberculoses and hiv-aids programmes are managed by the health centre. in terms of the rest of the enlarged group, employees belong to their own medical scheme and are responsible for their own health. the group does however belong to international sos assistance (pty) ltd, a company focused on evacuating expatriates to their country of origin should a medical emergency arise. environment the environmental programme managed by barberton is based on the environmental monitoring programme (‘emp’) approved by the department of mineral and energy (‘dme’), while the water and air- monitoring programme follows the requirements of the department of Water affairs and forestry (‘dWaf’) and the department of environmental affairs and tourism (‘deat’). both are managed by an internal environmental department. corPorate goVernance current projects include: • • • clean-up of the old slimes dams in the flood plains of the noordkaap river. the removal of rock by the private crushers for road construction and building is progressing well and all major rock stockpiles should be removed by 2010. a full re-assessment of the current environmental impact by mining activities is in progress. in terms of the enlarged group, the exploration projects are run according to the legal requirements of each country in terms of environmental rehabilitation. corPorate socIal InVestMent production exploring, developing and operating in africa, often in the midst of very poor communities, means pan african is in a position to have an impact on the sustainability of local economic development (led), not just through job creation or procurement opportunities, but more directly through the provision of support for social upliftment. in south africa, for instance, we are committed to funding support for community and social projects through the barberton transformation trust. the trust focuses on health and education by financing hiv/aids, tuberculosis and malaria projects and sponsoring and assisting maths and science education and bursaries. investment the trust also plays an important role in providing capital investment in led enterprise development projects in the region. it is an investment vehicle sustainable previously for capital in the enterprises and disadvantaged person-owned community that can supply goods and services to barberton mines, other mines in the region, as well as the local community on an independent basis. the aim is to invest in enterprise projects that can become independent from barberton mines over the next five years by providing scarce entrepreneurial start-up capital and the development of opportunities for hdsa’s in procurement activities of the mine. • • • • • among the other projects barberton’s trust funds: soup kitchen for orphans and the elderly three on-site primary schools ambulance and first-aid services life skills centre small-scale commercial and community vegetable garden Jewellery beneficiation centre • Water return Project at new consort, Barberton corPorate resPonsIBIlIty groWth proJects pan african employs mostly local people to manage their exploration projects and supplies training, equipment and other support from the head office. a mentoring programme involves members of the corporate team going to site and mentoring the local management teams. Mozambique pan african has initiated projects to assist the local community by drilling water holes and providing pumps; donated money to build a market place after consulting with members of the community to support their needs and has sponsored two masters degree students at the university of mozambique. Central African Republic the company has donated money to a country-wide programme for the transportation of teachers to and from their various schools. pan african has also built a new school in bogoin, providing all books and equipment; has established a feeding programme, a training programme and drilled water holes with pumps for members of the local communities where it is drilling. Ghana pan african has extended its policy into ghana and has hired only local ghanaian contractors. 29 DIrectors’ rePort the directors present their annual report and the audited financial statements for the 12 month period ended 30 June 2008. of securing the services of its executive directors and senior employees, the retention of their services cannot be guaranteed. PrIncIPal actIVItIes the group’s principal activity during the period was that of mineral exploitation and exploration. a full review of the activity of the business and of future prospects are contained in the chief executive officer’s report which accompanies these financial statements, with financial and non-financial key performance indicators shown below. Key PerForMance InDIcators the group produces management reports on a monthly basis that highlight several key performance indicators (‘kpis’) from a corporate, operational and mangement perspective to assess the financial position of the group. these are highlighted in table 1 on page 32. resUlts anD DIVIDenDs the results the in consolidated income statements on page 35. a detailed discussion of these results can be found on page 10. the period are disclosed for the directors do not recommend payment of a dividend. PolIcy For PayMent oF creDItors it is the company’s policy to settle all agreed transactions within the terms established with suppliers. rIsK ManageMent the key business risks to which the company is exposed are as follows: general exploration and extraction risks - there is no certainty that there will be commercially recoverable reserves in licence areas where the group is currently in the early stages of exploration. Project development risks - any failure to effectively manage the company’s growth and development could have a material adverse effect on the company’s business, financial conditions and results. operational risks - the company’s targets are subject to the completion of planned operational goals on time and within set budgets. any failure to meet these goals, in particular through the disruption of the supply of goods and services to the company’s operational locations, could have an adverse effect on financial performance. Dependence on key personnel - whilst the company has entered into contractual arrangements with the aim 30 regulatory risks - there is no guarantee that applications for mining licences will be granted where minerals are discovered, or of the terms of any such licence. although the directors believe that all current activities are being carried out in accordance with applicable rules or regulations, there can be no guarantee that new rules or regulations or changes in the application of exisiting legislation will not limit or curtail exploration, production or development. the board considers and reviews these risks on a strategic and day-to-day basis in order to minimise any potential exposure. Financial risks - the major balances and financial risks to which the group is exposed and the controls in place to minimise those risks are disclosed in note 29. Internal control the board is responsible for maintaining a sound system of internal controls to safeguard shareholders’ investment and group assets. the directors monitor the operation of internal controls. the objective of the system is to safeguard group assets, ensure proper accounting records are maintained and that the financial information used within the business and for publication is reliable. any such system of internal control can only provide reasonable but not absolute assurance against material mis-statement or loss. internal financial control procedures undertaken by the board include: • • • review of monthly financial reports and monitoring performance. prior approval of all including all major investment decisions. review and debate of treasury policy. significant expenditure the board has reviewed the operation and effectiveness of the company’s system of internal control for the financial period and the period up to the date of approval of the financial statements. goIng concern the board confirms that the business is a going concern and has reviewed its working capital requirements in conjunction with its future funding capabilities for the next 12 months and has found them to be adequate. the enlarged group is largely debt free and has a profit margin of approximately 40% after capital and depreciation at barberton mines. should the need arise the group can stop most exploration and capital activities DIrectors’ rePort and as a result the group does not currently envisage needing to raise any capital from external sources in the market for the next 12 months. this confirmation is given and should be interpreted in accordance with the provisions of s234za of the companies act 1985. DIrectors the following were directors during the period under review: deloitte & touche llp have expressed their willingness to continue in office as auditors and a resolution to reappoint them will be proposed at the forthcoming annual general meeting. by order of the board, Jan nelson chief executive officer 24 november 2008 mr J p nelson mr r g still mr k c spencer (appointed 8 october 2007) mr a s malone (appointed 27 July 2007) mr c d s needham (appointed 27 July 2007) mr m smith (appointed 21 february 2008) mr J g hopwood (appointed 2 June 2008) mr c bird (resigned 10 october 2007) dr h J blignault (retired 18 January 2008) mr n a steinberg (resigned 21 february 2008) aUDItors deloitte & touche llp has been appointed as auditors. each of the persons who is a director at the date of approval of this annual report confirms that: • • so far as the director is aware, there is no relevant audit information of which the company’s auditors are unaware; and the director has taken all the steps that he/she ought to have taken as a director in order to make himself/ herself aware of any relevant audit information and to establish that the company’s auditors are aware of that information. 31 DIrectors’ rePort e x p l o r a t i o n m d r i l l e d r e s o u r c e d e f i n i t i o n 1 . 5 m o z 3 . 4 m o z c o s t / m e f f i c i e n c y u s $ 1 0 0 / m u s $ 1 1 0 / m r e s o u r c e b a s e s u s t a i n a b i l i t y 3 , 1 0 5 m o z 1 . 5 5 0 m o z 1 2 6 % 1 0 0 % 9 % g o o d g o o d g o o d a c q u i s i t i o n b a r b e r t o n m n e s i p l a n n n g i e f f i c i e n c y p r o c e d u r e s a c c e l e r a t e d e x p l o r a t i o n 32 M i n i n g b e e % t o t a l r e c o v e r y g / t t o n s t a x i m n n g i t i t l e g o l d s a l e s q u a l i t y v o l u m e f a t a l a c c i d e n t s s a f e t y 2 6 % 2 9 1 % 8 . 9 g / t 3 1 5 k t 0 % 0 9 2 % 9 . 2 g / t 3 3 0 k t 2 0 0 % v e r y p o o r s a f e t y a u d i t a n d r e v i e w o f 1 0 0 % g o o d l i c e n c e i n g o o d s t a n d i n g 1 . 0 9 % m a r g i n a l – 3 . 2 6 % m o d e r a t e l o w e r g r a d e s a t f a i r v i e w i m n e 4 . 5 5 % m o d e r a t e r e s u l t o f f l e x i b i l i t y i s s u e s f o r m u l a c o r p o r a t e c a p i t a l e x p e n d i t u r e g r o w t h £ 2 . 9 m i l l i o n £ 1 . 6 3 m i l l i o n 1 5 0 % g o o d f a s t t r a c k i n g m n e i c a p i t a l a n d e x p l o r a t i o n g o l d s o l d r e v e n u e 9 9 , 0 7 8 o z 8 9 , 5 7 2 o z 1 0 . 6 1 % g o o d r e s u l t o f c a l c i n e d u m p p r o j e c t t a b l e 1 - k e y p e r f o r m a n c e i n d i c a t o r s ( k p i ’ s ) l e v e l K P I M e a s u r a b l e u s $ / o z c o s t s 4 7 6 2 0 0 8 2 0 0 7 % c h a n g e a c h i e v e m e n t c o m m e n t 4 6 5 2 . 3 7 % g o o d m a r g i n a l i n c r e a s e s e f f e c t i v e t a x r a t e 3 6 % 2 9 % 2 4 . 1 4 % p o o r h i g h e r r e v e n u e - h i g h e r t a x stateMent oF DIrectors’ resPonsIBIlItIes the directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. company law requires the directors to prepare financial statements for each financial year. the directors are required by the ias regulation to prepare the group financial statements under ifrss (ifrss) as adopted by the european union and have also elected to prepare the parent company financial statements in accordance with ifrss as adopted by the european union. the financial statements are also required by law to be properly prepared in accordance with the companies act 1985 and article 4 of the ias regulation. international accounting standard 1 requires that financial statements present fairly for each financial year the company’s financial position, financial performance and cash flows. this requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the international accounting standards board’s ‘framework for the preparation and presentation of financial statements’. in virtually all circumstances, a fair presentation will be achieved by compliance with all applicable ifrss. however, directors are also required to: • • • properly select and apply accounting policies; present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and provide additional disclosures when compliance with the specific requirements in ifrss are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance. the directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the companies act 1985. they are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. by order of the board J p nelson m smith chief executive officer financial director 24 november 2008 24 november 2008 33 InDePenDent aUDItors’ rePort to the MeMBers oF Pan aFrIcan resoUrces Plc We read the other information contained in the annual report, as described in the contents section, and consider whether it is consistent with the audited financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. our responsibilities do not extend to any further information outside the annual report. BasIs oF aUDIt oPInIon We conducted our audit in accordance with international standards on auditing (uk and ireland) issued by the auditing practices board. an audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. it also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group's and company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. in forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. oPInIon in our opinion • • • the financial statements give a true and fair view, in accordance with ifrss as adopted by the european union, of the state of the group's and the parent company's affairs as at 30 June 2008 and of the group's and company’s profit for the year then ended; the financial statements have been properly prepared in accordance with the companies act 1985 and, as regards the group financial statements, article 4 of the ias regulation; and the information given in the directors' report is consistent with the financial statements. deloitte & touche llp chartered accountants and registered auditors london, uk 24 november 2008 We have audited the group and parent company financial statements (the ''financial statements'') of pan african resources plc for the year ended 30 June 2008 which comprise the consolidated and company income statements, the consolidated and company balance sheets, the consolidated and company cash flow statements, the consolidated and company statement of recognised income and expenses and the related notes 1 to 38. these financial statements have been prepared under the accounting policies set out therein. this report is made solely to the company’s members, as a body, in accordance with section 235 of the companies act 1985. our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. to the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. resPectIVe resPonsIBIlItIes oF DIrectors anD aUDItors the directors' responsibilities for preparing the annual report and the financial statements in accordance with applicable law and international financial reporting standards (ifrss) as adopted by the european union are set out in the statement of directors' responsibilities. our responsibility is to audit the financial statements regulatory relevant in accordance with requirements and international standards on auditing (uk and ireland). legal and We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements have been properly prepared in accordance with the companies act 1985 and, as regards the group financial statements, article 4 of the ias regulation. We also report to you whether in our opinion the information given in the directors' report is consistent with the financial statements. the information given in the directors' report includes that specific information presented in the chief executive officer’s report that is cross referred from the business review section of the directors' report. in addition we report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and other transactions is not disclosed. 34 consolIDateD anD coMPany IncoMe stateMents For the year enDeD 30 JUne 2008 group £ company £ year ended 30 June 2008 year ended 30 June 2007 year ended 30 June 2008 notes 15 months ended 30 June 2007 revenue gold sales gross revenue realisation costs on-mine revenue cost of production depreciation mining profit other (expenses)/income finance income finance costs profit/(loss) before taxation income tax expense profit/(loss) for the period attributable to: equity holders of the parent minority interests 5 16 8 9 9 10 13 4 39,254,557 26,684,796 39,254,557 26,684,796 (106,277) (60,783) 39,148,280 26,624,013 (25,163,675) (21,623,538) (1,965,872) (1,865,997) 12,018,733 3,134,478 – – – – – – – – – – – – – – (273,786) 803,561 (14,491) (1,362,960) 217,288 49,018 39,349 37,195 (17,006) (35,893) – – 11,945,229 3,951,164 24,858 (1,325,765) (4,366,543) (1,156,590) – – 7,578,686 2,794,574 24,858 (1,325,765) 5,460,067 2,067,985 24,858 (1,325,765) 2,118,619 726,589 – – 7,578,686 2,794,574 24,858 (1,325,765) From continuing operations: basic earnings per share (pence) diluted earnings per share (pence) 14 14 0.52 0.51 0.35 0.35 – – – – as the acquisition of barberton mines in the year, represented a reverse acquisition, the year ended 30 June 2008 group income statement includes 11 months of par and 12 months of barberton mines. the group’s comparatives are those of barberton mines. 35 consolIDateD anD coMPany Balance sheets at 30 JUne 2008 assets non-current assets property, plant and equipment intangible asset other than goodwill goodwill investments rehabilitation trust fund current assets inventories trade and other receivables receivables from other group companies cash and cash equivalents group £ company £ notes 2008 2007 2008 2007 16 17 18 19 20 21 22 23 20,069,814 20,731,502 21,670 12,837,045 21,000,714 – – – – – – – 34,223,594 3,069,705 1,739,522 1,743,648 – – 55,647,095 22,475,150 34,245,264 3,069,705 377,974 125,498 – – 2,972,776 2,185,552 310,193 3,640,646 – – 10,270,252 5,419,489 422,416 1,455,587 8,770,239 2,733,466 12,036,032 – 326,797 3,967,443 total assets 64,417,334 25,208,616 46,281,296 7,037,148 eQUIty anD lIaBIlItIes capital and reserves share capital share premium account preference share capital and premium hedging and translation reserve retained earnings share option reserve merger reserve equity attributable to equity holders of parent minority interest total equity non-current liabilities borrowings long-term provisions deferred tax liabilities current liabilities trade and other payables borrowings short-term provisions derivative financial instruments current tax liabilities 24,25 10,998,664 4,180,032 10,998,664 4,180,032 24 24 24 24 24 24 24 26 27 28 26 27 29 37,267,475 4,076,769 37,267,475 4,076,769 – 5,578,175 (1,118,262) (1,041,234) – – – – 9,946,021 4,485,954 (4,073,273) (4,098,131) 285,312 128,360 491,320 296,162 (10,705,308) (6,189,702) 1,560,000 1,560,000 46,673,902 11,218,354 46,244,186 6,014,832 3,694,869 1,576,250 – – 50,368,771 12,794,604 46,244,186 6,014,832 16,822 115,665 2,219,954 2,284,142 5,201,245 5,526,973 7,438,021 7,926,780 – – – – – – – – 2,754,795 1,926,944 37,110 1,022,316 89,269 711,085 170,017 711,903 - 1,092,232 3,055,393 586,136 – – – – – – – – 6,610,542 4,487,232 37,110 1,022,316 total equity and liabilities 64,417,334 25,208,616 46,281,296 7,037,148 36 the financial statements were approved by the board of directors and authorised for issue on 24 november 2008. they were signed on its behalf by: J p nelson chief executive officer 24 november 2008 m smith financial director 24 november 2008 37 consolIDateD anD coMPany cash FloW stateMents For the year enDeD 30 JUne 2008 group £ company £ notes 2008 2007 2008 2007 net cash FroM/(UseD In) oPeratIng actIVItIes 37 11,239,529 5,728,021 2,092,178 (381,921) InVestIng actIVItIes dividends received additions to property, plant and equipment additions to intangibles proceeds on disposal of property, plant and equipment loans to subsidiaries funding of rehabilitation trust fund cash acquired with subsidiary net cash UseD In InVestIng actIVItIes FInancIng actIVItIes preference dividends paid borrowings raised borrowings repaid redemption of preference share capital shares issued net cash (UseD In)/FroM FInancIng actIVItIes net Increase/(Decrease) In cash anD cash eQUIValents cash and cash equivalents at the beginning of the period effect of foreign exchange rate changes – – (3,031,659) (1,552,258) (2,652,270) – 473,085 (21,670) – – – – – – 17,302 – – – (2,199,795) (1,233,025) 4,126 (119,156) 226,164 – – – (5,453,639) (1,654,112) (1,748,380) – – (645,161) 167,661 (179,591) (174,577) – (2,939,068) – – – – – – – – – – – 784,624 – 784,624 67,091 (605,033) (3,591,145) 784,624 201,082 6,390,923 482,769 1,128,422 (1,547,855) 422,416 (1,393,849) (27,590) (32,763) 326,797 1,874,652 368 – cash anD cash eQUIValents at the enD oF the PerIoD 5,419,489 422,416 1,455,587 326,797 38 consolIDateD anD coMPany stateMent oF recognIseD IncoMe anD exPense For the year enDeD 30 JUne 2008 profit for the year/period group £ company £ year ended 30 June 2008 7,578,686 year ended 30 June 2007 2,794,574 year ended 30 June 2008 24,858 15 months ended 30 June 2007 (1,325,765) exchange differences on translation of foreign operations (77,028) 2,700,177 – – total recognised income and expense for the year/period 7,501,658 5,494,751 24,858 (1,325,765) attributable to: equity holders of the parent minority interests 5,383,039 4,768,162 24,858 (1,325,765) 2,118,619 726,589 – – 7,501,658 5,494,751 24,858 (1,325,765) 39 consolIDateD anD coMPany notes to the FInancIal stateMents For the year enDeD 30 JUne 2008 1. general InForMatIon pan african is a company incorporated in england and Wales under the companies act 1985. the company’s has a primary listing on the alternative investment market (‘aim’) of the london stock exchange and a secondary listing on the alternative exchange (‘altx’), a division of the Jse limited. the nature of the group’s operations and its principal activities are set out in the directors report on page 32. the financial statements are presented in pounds sterling. foreign operations are included in accordance with the policies set out below. the individual financial statements of each group company are presented in the currency of the primary economic environment in which it operates. for the purpose of the consolidated financial statements, the results and financial position of each group company are expressed in pounds sterling. the financial statements have been prepared on the going concern basis. the financial statements have also been prepared in accordance with ifrs adopted by the european union and therefore the group financial statements comply with article 4 of the eu ias regulation. as a result of the reverse takeover of barberton mines mentioned below, the group accounts have been prepared as a combination of barberton’s accounts using ifrs. 2. accoUntIng PolIcIes Basis of preparation and general information the annual financial statements have been prepared under the historical- cost basis, except for certain financial instruments which are stated at fair value, and in accordance with international financial reporting standards. the principal accounting policies are set out below and are consistent in all material respects with those applied in the previous year; except where otherwise indicated. for all periods up to and including the year 30 June 2007, the company prepared its financial statements in accordance with the united kingdom generally accepted accounting practice (uk gaap). these financial statements, for the year ended 30 June 2008, are the first that the company has prepared in accordance with ifrs as adopted by the european union (eu). the financial statements have also been prepared in accordance with the international financial reporting interpretations committee (ifric) interpretations and with those parts of the companies act 1985 applicable to companies reporting under ifrs. as a result of the conversion from uk gaap to ifrs, no adjustments have been required to be made to the comparatives for the year ended 30 June 2007, or the balance sheet at the transition date of 1 July 2006. reverse acquisition on 31 July 2007 the company acquired 74% of barberton mines (pty) limited (‘barberton’) in a share-for-share transaction. ifrs3 ‘business combinations’ defines the acquirer in a business combination as the entity that obtains control. accordingly, the combination was accounted for as a reverse acquisiton. as a consequence of applying reverse acquisition accounting, the results of the group at 30 June 2008 comprise the results of pan african resources for the 11 months ended 30 June 2008 and the 12 months ended 30 June 2008 of barberton mines. the comparative figures for the group are those of barberton mines for the 12 months to 30 June 2007. new accounting policies adopted IFrs 7 – Financial Instruments: Disclosure in the current year, the group has adopted ifrs 7 financial instruments: disclosure which is effective for annual reporting periods beginning on or after 1 January 2007. the impact of the adoption of ifrs 7 has resulted in increased disclosure relating to the significance of financial instruments on the group’s financial position and performance and the nature and extent of risks arising from these financial instruments to which the group is exposed during the period and at year-end and the manner in which the group manages these risks. 40 new and revised International Financial reporting standards not yet adopted at the date of authorisation of these financial statements, the following standards and interpretations which have not been applied in these financial statements were in issue but not yet effective: ifrs 8 operating segments ifric 11 ifrs 2 – group and treasury share transactions ifric 12 service concession arrangements ifric 14 ias 19—the limit on a defined benefit asset, ifrs3 minimum funding requirements and their interaction business combinations (revised) the directors anticipate that the adoption of these standards and interpretations in future periods will have no material impact on the financial statements of the group except for additional segment disclosures when ifrs 8 comes into effect for periods commencing on or after 1 January 2009. Basis of consolidation the consolidated financial statements incorporate the financial statements of the company and entities controlled by the company (its subsidiaries) to 30 June each year. control is achieved where the company has the power to govern the financial and operating policies of an investee enterprise so as to obtain benefits from its activities. on acquisition, the assets and liabilities of a subsidiary are measured at their fair values at the date of exchange of assets given, liabilities incurred or assumed and equity instruments issued by the group in exchange for control of the acquiree plus any costs directly attributable to the business combination. the interest of minority shareholders is stated at the minority’s proportion of the fair values of the assets and liabilities recognised. the results of the subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. inter-company transactions and balances between group entities are eliminated on consolidation. Business combinations acquisitions of subsidiaries and businesses are accounted for using the purchase method. the cost of the business combinations is measured as the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. the acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions, for recognition under ifrs 3 business combinations are recognised at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classified as held-for-sale in accordance with ifrs 5 non-current assets held-for-sale and discontinued operations, which are recognised and measured at fair value less costs-to-sell. goodwill arising on acquisition are recognised as an asset, and initially measured at cost, being the excess of the cost of the business combination over the group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. if, after reassessment, the group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss. the interest of minority shareholders in the acquiree is initially measured at the minority’s proportion of net fair value of the assets, liabilities and contingent liabilities recognised. Property, plant and equipment mining assets mining assets, including mine development costs and mine plant facilities, are recorded at cost of acquisition less provision for impairment and accumulated depreciation. consolIDateD anD coMPany notes to the FInancIal stateMents For the year enDeD 30 JUne 2008 expenditure incurred to develop new ore bodies, to define mineralisation in existing ore bodies, to establish or expand productive capacity and expenditure designed to maintain productive capacities, are capitalised until commercial levels of production are achieved. mineral and surface rights mineral and surface rights are recorded at cost of acquisition less provision for impairment and accumulated depreciation. land land is shown at cost and is not depreciated. gain or loss on disposal or retirement of assets the gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. Depreciation depreciation of mining assets and mineral and surface rights mining assets, mine development costs, mineral and surface rights and plant mine facilities are depreciated over the life of the mines to their residual values using the units-of-production method based on estimated proved and probable ore reserves or where impractical, directors’ estimates subject to a maximum life of mine of 20 years. the assets of the underlying mines are depreciated over the following periods: barberton mines 12 years other mining plant and equipment is depreciated on the straight-line basis over the shorter of the life of the mine or their estimated useful lives. Depreciation of non-mining assets buildings and other non-mining assets are recorded at cost and depreciated on the straight-line basis over their expected useful lives, which vary between 4 to 10 years. Mining exploration expenditure on exploration activities is capitalised until the viability of the mining venture has been proven. if the mining venture is subsequently considered non-viable the expenditure is charged against income as and when that fact becomes known. Impairment (except for goodwill) at each balance sheet date, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. if any such indication exists both the value in use and the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the group estimates the recoverable amount of the cash- generating unit to which the asset belongs. impairment losses are immediately recognised as an expense. a reversal of an impairment loss is recognised immediately in the income statement, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. goodwill goodwill arising on consolidation represents the excess of the cost of acquisition over the group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary, associate or jointly controlled entity at the date of acquisition. goodwill is initially recognised as an asset at cost and is subsequently measured at cost less accumulated impairment losses. for the purpose of impairment testing, goodwill is allocated to each of the group’s cash generating units (‘cgu’) expected to benefit from the synergies of the combination. cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. if the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. an impairment loss recognised for goodwill is not reversed in a subsequent period. on disposal of a subsidiary, associate or jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. the group’s policy for goodwill arising on the acquisition of a subsidiary is described above. taxation the charge for current tax is based on the results for the year as adjusted for items which are non-deductible or disallowed. it is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit. in principle, deferred tax liabilities are recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilised. such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than a business combination) of other assets and liabilities in a transaction, which affects neither tax nor accounting profit. deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date. the measurement of deferred tax liabilities and asset reflects the tax consequences that would follow from the manner in which the group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. deferred tax is charged or credited to the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also recorded within equity, or where they arise from the initial accounting for a business combination. in a business combination, the tax effect is taken into account in calculating goodwill or in determining the excess of the acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of the business combination. the carrying amount of deferred tax assets are reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or parts of the asset to be recovered. Provisions provisions are recognised when the group has a legal or constructive obligation resulting from past events and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. the amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. 41 consolIDateD anD coMPany notes to the FInancIal stateMents For the year enDeD 30 JUne 2008 When some or all of the economic benefits required to settle a provision are expected to be received from a third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. Foreign currencies transactions in currencies other than the functional currency of the relevant subsidiary are initially recorded at the rates of exchange ruling on the dates of the transactions. monetary assets and liabilities denominated in such currencies are retranslated at the rates ruling at the balance sheet date. profits and losses arising on exchange are dealt with in the income statement. in order to hedge its exposure to foreign exchange risks, the group may enter into forward contracts (see note 29 for details of the group’s accounting policies in respect of such derivative financial instruments). on consolidation, the assets and liabilities of the group’s foreign operations are translated into pounds sterling at exchange rates ruling at the balance sheet date. income and expense items are translated at the average exchange rates for the period. exchange differences arising from the translation of foreign operations are classified as equity and are recognised as income or expenses in the period in which the operation is disposed of. translation differences on foreign loans to subsidiaries which are classified as equity loans are accounted for as non-distributable reserves. goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the reporting entity and are recorded using the exchange rate at the date of the transaction. consumable stores and product inventories consumable stores are valued at the lower of cost, determined on a weighted average basis, and estimated net realisable value. net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. obsolete and slow-moving consumable stores are identified and are written down to their economic or realisable values. product inventories are valued at the lower of cost, determined on a weighted-average basis, and net realisable value. costs include direct mining costs and mine overheads. retirement benefits payments to defined contribution retirement benefit plans are charged as an expense as they fall due. payments made to state-managed schemes are dealt with as defined contribution plans where the group’s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit plan. Post-retirement benefits other than pension certain companies within the group provide retirement benefits by way of medical-aid schemes for employees. charges to the income statement are based on an accrual basis. the estimated cost for retiree health-care is accrued during the participants’ actual service periods, up to the date they become eligible for full benefits. equity participation plan equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 33. the fair value determined at the grant date of the equity-settled share- based payments is expensed on a straight-line basis over the vesting period, based on the group’s estimate of equity instruments that will eventually vest. at each balance sheet date, the group revises its estimate of the number of equity instruments expected to vest. the impact of the revision of the original estimates, if any, is recognised in profit or loss over the 42 remaining vesting period, with a corresponding adjustment to the equity- settled employee benefits reserve. Provision for environmental rehabilitation costs long-term environmental obligations are based on barberton mines (pty) ltd environmental plans, in compliance with current environmental and regulatory requirements. full provision is made based on the net present value of the estimated cost of restoring the environmental disturbance that has occurred up to the balance sheet date. increases due to additional environmental disturbances are capitalised and amortised over the remaining lives of the mines. the estimated cost of rehabilitation is reviewed annually and adjusted as appropriate for changes in legislation or technology. cost estimates are not reduced by the potential proceeds from the sale of assets or from plant clean-up at closure. Provision for closure costs the group provides for closure costs other than rehabilitation costs when the directors have prepared a detailed plan for closure of the particular operation, the remaining life of which is such that significant changes to the plan are unlikely; and the directors have raised a valid expectation in those affected that it will carry out the closure by starting to implement that plan or announcing its main features to those affected by it. revenue recognition revenue represents the value of minerals sold, excluding value-added tax and is recognised when goods are delivered and risk and reward has passed, and is measured at the fair value of the consideration received or receivable. interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rates applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount. dividend income from investments is recognised when the shareholders’ rights to receive payment have been established. revenue is recognised when the buyer takes title, provided: (a) it is probable that delivery will be made; (b) the item is on hand, identified and ready for delivery to the buyer at the time the sale is recognised; (c) the buyer specifically acknowledges the deferred delivery instruc- tions; and (d) the usual payment terms apply. Investment investments are recognised and derecognised on trade date where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value. fixed asset investments in subsidiaries are shown at cost less provision for impairment. loans and receivables trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classed as loans and receivables. loans and receivables are measured at amortised cost using the effective interest method, less an impairment. interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. consolIDateD anD coMPany notes to the FInancIal stateMents For the year enDeD 30 JUne 2008 Impairment of financial assets financial assets, other than those at fair value through profit and loss (‘fvtpl’), are assessed for indicators of impairment at each balance sheet date. financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been negatively impacted. Derecognition of financial assets the group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. if the group neither transfers nor retains substantially all the risks and rewards of ownerships and continues to control the transferred asset, the group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. if the group retains substantially all the risks and rewards of ownership of a transferred financial asset, the group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. Financial liabilities and equity instruments issued by the group classification as debt or equity debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement. equity instruments an equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. equity instruments issued by the group are recorded at the proceeds received, net of direct issue costs. Financial liabilities financial liabilities are classified as either financial liabilities fvtpl or “other financial liabilities”. Financial liabilities at FVtPl financial liabilities are classified as at fvtpl where the financial liability is either held for trading or it is designated as at fvtpl. a financial liability is classified as held for trading if: • • • it has been incurred principally for the purpose of repurchasing in the near future; or it is part of an identified portfolio of financial instruments that the group manages together and has a recent actual pattern of short- term profit-taking; or it is a derivative that is not designated and effective as a hedging instrument. a financial liability other than a financial liability held for trading may be designated as at fvtpl upon initial recognition if: • • • such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the group’s strategy, and documented information about the grouping is provided internally on that basis; or risk management or investment it forms part of a contract containing one or more embedded derivatives, and ias 39 Financial instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at fvtpl. financial liabilities at fvtpl are stated at fair value, with any resultant gain or loss recognised in profit or loss. the net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability. other financial liabilities other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest recognised on an effective yield basis. the effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. the effective interest rate is the rate that discounts the estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. Derecognition of financial liabilities the group derecognises financial liabilities when, and only when, the group’s obligations are discharged, cancelled or they expire. Derivative financial instruments in the ordinary course of its operations, the group enters into a variety of derivative financial instruments to manage its exposure to commodity prices, volatility of interest rates and foreign exchange rate risk. derivatives are initially recognised at cost at the date a derivative contract is entered into and are subsequently re-measured to their fair value at each balance sheet date. the resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. a derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. other derivatives are presented as current assets or current liabilities. hedge accounting the group designates certain hedging instruments, which include derivatives, embedded derivatives and non-derivatives in respect of foreign currency risk, as either fair value hedges, cash flow hedges, or hedges of net investments in foreign operations. hedges of foreign exchange risk or firm commitments are accounted for as cash flow hedges. at the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. furthermore, at the inception of the hedge and on an ongoing basis, the group documents whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes in fair values or cash flows of the hedged item. note 29 sets out details of the fair values of the derivative instruments used for hedging purposes. movements in the hedging reserve in equity are also detailed in the statement of changes in equity. Fair value hedge changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss immediately, together with any changes in the fair value of the hedged item that are attributable to the hedged risk. the change in the fair value of the hedging instrument and the change in the hedged item attributable to the hedged risk are recognised in the line of the income statement relating to the hedged item. hedge accounting is discontinued when the group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. the adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised to profit or loss from that date. 43 consolIDateD anD coMPany notes to the FInancIal stateMents For the year enDeD 30 JUne 2008 these projections are reviewed by the board and adjusted from time to time. the current life of mine has been independently aduited by srk in a competent persons report (‘cpr’) on barberton, dated 4 July 2007, and is available on the company’s website at www.panafricanresources.com estimates made of legal or constructive obligations resulting in the raising of provisions, and the expected date of probable outflow of economic benefits to assess whether the provision should be discounted; estimates of mineral resources and ore reserves in accordance with the samrec code (2000) for south african properties. such estimates relate to the category for the resource (measured, indicated or inferred), the quantum and the grade. estimates of the carrying value of goodwill are limited to the estimates of mineral resource; and estimates of the fair value of assets at acquisition are made in accordance with ifrs and take into account the replacement value of assets, in particular, intagibles related to exploration. • • • • cash flow hedge the effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are deferred in equity. the gain or loss relating to the ineffective portion is recognised immediately in profit or loss, and is included in the “other gains and losses” line of the income statement. amounts deferred in equity are recycled in profit or loss in the periods when the hedged item is recognised in profit or loss, in the same line of the income statement as the recognised hedged item. however, when the forecast transaction that is hedged results in the recognition of a non- financial asset or a non-financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability. hedge accounting is discontinued when the group revokes the hedging relationships, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. any cumulative gain or loss deferred in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was deferred in equity is recognised immediately in profit or loss. cash and cash equivalents cash and cash equivalents comprise cash-on-hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Joint Ventures Joint ventures (‘Jvs’) are consolidated on a proportianate basis according to the level of ownership held by the group. 3. crItIcal accoUntIng estIMates anD JUDgeMents in preparing the annual financial statements in terms of ifrs, the group’s management is required to make certain judgements, estimates and assumptions that may materially affect reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reported year and the related disclosures. the estimates and judgements are based on historical experience, current and expected future economic conditions and other factors. actual results may differ from these estimates. Judgements made by management the following judgements, apart from those involving estimates (as mentioned below) have been made by management in the process of applying the group’s accounting policies that have the most significant effect on the amounts recognised in the financial statements: • in determining provisions including the present obligation of and decommissioning estimates made environmental rehabilitation; • • estimates made in determining the recoverable amount of assets where there is an indication that an asset may be impaired, this includes the estimation of cash flows and the discount rates used; estimates made in determining the life of the mines; the life of mine is determined from development plans based on mine management’s estimates and includes total mineral reserve and a portion of the mineral resource. these plans are updated on an annual basis and take into consideration the actual current cost of extraction, as well as certain forward projects. 44 consolIDateD anD coMPany notes to the FInancIal stateMents For the year enDeD 30 JUne 2008 4. reVenUe an analysis of the group’s revenue is as follows: group £ company £ year ended 30 June 2008 year ended 30 June 2007 year ended 30 June 2008 15 months ended 30 June 2007 39,254,557 26,684,796 – – 217,288 49,018 39,349 37,195 group £ company £ year ended 30 June 2008 year ended 30 June 2007 year ended 30 June 2008 15 months ended 30 June 2007 (3,941,764) (4,189,422) (11,440,555) (9,444,599) (4,135,470) (2,718,663) (3,662,348) (3,378,598) (1,983,538) (1,892,256) (25,163,675) (21,623,538) - - - - - - - - - - - - sale of goods finance income 5. cost oF ProDUctIon mining salaries and wages processing engineering and technical administration 6. segMental analysIs Primary segment for management purposes, the group is currently organised into two reporting divisions – exploration and gold mining. these divisions are the basis on which the group reports its primary segment information. revenue Mining profit Depreciation assets liabilities before depreciation £ % £ % £ % £ % £ % 2008 exploration – – – – – – 35,146,917 gold mining 39,254,557 100% 13,984,605 100% 1,965,872 100% 28,269,703 – – – – – – 21,000,714 24% 44% 32% – – 14,048,563 100% – – goodwill group 2007 exploration 39,254,557 100% 13,984,605 100% 1,965,872 100% 64,417,334 100% 14,048,563 100% – – – – – – – – – – gold mining 26,684,796 100% 5,000,474 100% 1,865,997 100% 25,208,616 100% 12,414,013 100% group 26,684,796 100% 5,000,474 100% 1,865,997 100% 25,208,616 100% 12,414,013 100% 45 consolIDateD anD coMPany notes to the FInancIal stateMents For the year enDeD 30 JUne 2008 6. segMental analysIs (contInUeD) secondary segment total sales by customer location Depreciation assets liabilities capital additions £ % £ % £ % £ % £ % 2008 south africa 39,254,557 100% 1,965,872 100% 28,269,703 44% 13,533,982 96% 2,751,735 91% other* goodwill 2007 south africa other* – – – – – – – 15,146,917 24% 514,581 4% 279,924 9% – 21,000,714 32% – – – – 39,254,557 100% 1,965,872 100% 64,417,334 100% 14,048,563 100% 3,031,659 100% 26,684,796 100% 1,865,997 100% 25,208,616 100% 12,414,013 100% 1,552,258 100% – – – – – – – – – – 26,684,796 100% 1,865,997 100% 25,208,616 100% 12,414,013 100% 1,552,258 100% * Other includes all the Exploration locations. 7. oPeratIng leases at the balance sheet date, the group had outstanding commitments under non-cancellable operating leases mainly in respect of office equipment, security cameras, building rentals and compressors, which fall due as follows: group £ company £ year ended 30 June 2008 year ended 30 June 2007 year ended 30 June 2008 15 months ended 30 June 2007 Within one year years 2 to 5 123,733 287,750 411,483 111,857 348,718 460,575 minimum lease payments under operating leases recognised as an expense in the year: 104,956 109,844 – – – – – – – – operating lease payments represent rentals payable by the group for certain of its office equipment and underground equipment. leases are negotiated for an average term of three to five years. 46 consolIDateD anD coMPany notes to the FInancIal stateMents For the year enDeD 30 JUne 2008 8. other (exPenses)/IncoMe dividends received - subsidiaries foreign exchange loss exploration costs investments written off dump retreatment rebate sundry other 9. FInance IncoMe/(costs) interest received - bank interest paid - bank 10. ProFIt/(loss) For the PerIoD profit/(loss) for the year has been arrived at after charging: management fee - metorex - shanduka share option expense exploration expenditure depreciation impairment staff costs group £ company £ year ended 30 June 2008 year ended 30 June 2007 year ended 30 June 2008 15 months ended 30 June 2007 – – – – – – – – – 777,898 473,085 (74,791) – – – – – (75,009) (4,800) – (273,786) 25,663 (412,785) (1,283,151) (273,786) 803,561 (14,491) (1,362,960) group £ company £ year ended 30 June 2008 year ended 30 June 2007 year ended 30 June 2008 15 months ended 30 June 2007 217,288 49,018 39,349 37,195 (17,006) (35,893) – – 200,282 13,125 39,349 37,195 group £ company £ year ended 30 June 2008 year ended 30 June 2007 year ended 30 June 2008 15 months ended 30 June 2007 348,924 343,161 50,819 156,952 47,934 35,844 22,274 183,962 1,965,872 1,865,997 – – – – 195,158 – – – – – 222,206 75,009 – – 11,440,555 9,444,599 242,187 162,231 47 consolIDateD anD coMPany notes to the FInancIal stateMents For the year enDeD 30 JUne 2008 11. aUDItors’ reMUneratIon the analysis of auditors’ remuneration is as follows: group £ company £ year ended 30 June 2008 year ended 30 June 2007 year ended 30 June 2008 15 months ended 30 June 2007 fees payable to the company’s auditors for the audit of the company’s annual accounts 10,000 21,750 10,000 10,000 fees payable to the company’s auditors and their associates for other services to the group The audit of the consolidated financial statements - the audit of the company’s subsidiaries pursuant to legislation total audit fees - corporate finance services relating to the report- ing accounting work for the acquisition total non audit fees 30,000 22,086 62,086 80,000 80,000 – – – – – – 21,750 10,000 10,000 – – – – – – 12. staFF costs group company the average number of employees were: corporate mining exploration their aggregate remuneration comprised: Wages and salaries social security costs other pension costs year ended 30 June 2008 year ended 30 June 2007 year ended 30 June 2008 15 months ended 30 June 2007 number number 5 1,548 3 1,556 7 1,477 7 1,491 £ 1 – 1 2 2 – 2 4 £ 10,467,253 8,544,643 242,187 162,231 – – 973,302 899,956 – – – – 11,440,555 9,444,599 242,187 162,231 * all company staff costs have been allocated to the various exploration projects. 48 consolIDateD anD coMPany notes to the FInancIal stateMents For the year enDeD 30 JUne 2008 13. IncoMe tax exPense group £ company £ year ended 30 June 2008 year ended 30 June 2007 year ended 30 June 2008 15 months ended 30 June 2007 south african normal taxation - current year deferred taxation (see note 28) - current year 4,192,231 611,892 174,312 544,698 total taxation charge - continuing operations 4,366,543 1,156,590 – – – – – – profit/(loss) before taxation - continuing operations 11,945,229 3,951,164 24,858 (1,325,765) taxation at the domestic taxation rate of 28% (2007: 29%) (uk 2008: 28.75%; 2007:29.75%) non-deductible expenses taxation rate differentials on non-mining income (utilisation)/creation of tax losses 3,344,664 1,145,838 7,174 (394,415) 10,759 10,752 1,369,523 (358,403) – – – – – – (7,174) 394,415 taxation expense for the year 4,366,543 1,156,590 unredeemed capital expenditure/assessable tax loss available and recognised in deferred taxation – 382,005 – – % – – % effective taxation rates statutory rate tax rate differentials on non-mining income non-deductible expenses utilisation/creation of tax losses effective taxation rate % 28.00% 11.47% 0.09% (3.0%) 28.09% % 29.00% 28.75% 29.75% – 0.27% – – – – – (28.75%) (29.75%) 29.27% – – there are no significant unrecognised timing differences associated with undistributed profits of overseas subsidiaries. south african mining tax on mining income is determined according to a formula which takes into account the profit and revenue from mining operations. south african mining taxable income is determined after the deduction of all mining capital expenditure, with the proviso that this cannot result in an assessed loss. capital expenditure amounts not deducted are carried forward as unredeemed capital expenditure to be deducted from future mining income. 14. earnIngs Per share earnings per share (‘ePs’) eps is based on the group’s net profit for the year attributable to equity holders of the parent, divided by the weighted average number of shares in issue during the year. from continuing operations basic eps share options diluted eps 2008 Weighted average number of shares net profit 2007 Weighted average number of shares earnings per share (pence) earnings per share net profit (pence) 5,460,067 1,043,789,285 0.52 2,067,985 593,740,476 0.35 – 30,000,000 (0.01) – – – 5,460,067 1,073,789,285 0.51 2,067,985 593,740,476 0.35 49 consolIDateD anD coMPany notes to the FInancIal stateMents For the year enDeD 30 JUne 2008 14. earnIngs Per share (contInUeD) headline earnings per share headline earnings per share is based on the group’s headline earnings divided by the weighted average number of shares in issue during the year. reconciliation between earnings and headline earnings from continuing operations 2008 net profit shares earnings per share net profit (pence) 2007 shares earnings per share (pence) headline earnings per share 5,460,067 1,043,789,285 0.52 2,067,985 593,740,476 0.35 share options – 30,000,000 (0.01) – – – diluted headline earnings per share 5,460,067 1,073,789,285 0.51 2,067,985 593,740,476 0.35 headline earnings per share is required to be disclosed in terms of the listing requirements of the Jse limited. no reconciliation is performed as earnings per share is the same as headline earnings per share. 15. DIVIDenDs in view of the funding requirements of the new projects and the exploration projects, no dividend is declared for the 12 months ended 30 June 2008 (2007 - nil). 16. ProPerty, Plant anD eQUIPMent groUP cost land * Mineral rights Building and Infrastructure Plant and Machinery shafts exploration other total at 1 July 2006 8,034 5,445,913 1,534,009 7,632,623 13,583,183 additions disposals foreign currency translation – – – – – – 776,444 802,745 (30,487) – reserve (600) (407,045) (114,656) (592,191) (1,029,051) Balance at 30 June 2007 7,434 5,038,868 1,419,134 7,786,389 13,357,096 – – – – – – 28,203,762 – – – – 1,579,189 (30,487) (2,143,543) 27,608,921 additions – – – 794,283 1,687,964 269,488 279,924 3,031,659 foreign currency translation reserve (659) (446,941) (125,676) (690,642) (1,184,755) – – (2,448,673) Balance at 30 June 2008 6,775 4,591,927 1,293,458 7,890,030 13,860,305 269,488 279,924 28,191,907 50 consolIDateD anD coMPany notes to the FInancIal stateMents For the year enDeD 30 JUne 2008 16. ProPerty, Plant anD eQUIPMent (contInUeD) accUMUlateD DePrecIatIon land * Mineral rights Building and Infrastructure Plant and Machinery shafts exploration other total at 1 July 2006 (1,094,576) (306,539) (1,471,705) (2,552,855) charge for the year – (334,994) (94,500) (556,102) (880,401) foreign currency translation reserve Balance at 30 June 2007 charge for the year foreign currency translation reserve – – – – 75,636 21,182 141,029 176,406 (1,353,934) (379,857) (1,886,778) (3,256,850) (323,994) (91,280) (581,804 ) (968,794) 138,806 38,855 200,259 343,278 Balance at 30 June 2008 – (1,539,122) (432,282) (2,268,323) (3,882,366) – – – – – – – – – – – (5,425,675) (1,865,997) 414,253 (6,877,419) (1,965,872) 721,198 – (8,122,093) carryIng aMoUnt at 30 June 2007 at 30 June 2008 coMPany cost Balance at 30 June 2007 additions Balance at 30 June 2008 accUMUlateD DePrecIatIon Balance at 30 June 2007 Balance at 30 June 2008 carryIng aMoUnt at 30 June 2007 at 30 June 2008 7,434 3,684,934 1,039,496 5,899,611 10,100,246 – – 20,731,502 6,775 3,052,805 861,176 5,621,707 9,977,939 269,488 279,924 20,069,814 land Mineral rights Building and Infrastructure Plant and Machinery shafts exploration other total – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 21,670 21,670 21,670 21,670 – – – – – – 21,670 21,670 * details of land are maintained in a register at the company’s registered office, which may be insepected by a member or their duly authorised agents. the group reviews the residual values used for purposes of depreciation calculations annually. 51 consolIDateD anD coMPany notes to the FInancIal stateMents For the year enDeD 30 JUne 2008 17. IntangIBle asset other than gooDWIll exploration balance at 1 July 2007 acquired (note 34) additions exploration expenditure purchase of 20% of manica balance at 30 June 2008 18. gooDWIll group £ company £ 2008 2007 2008 2007 – 6,588,340 – 2,652,270 3,596,435 12,837,045 – – – – – – goodwill acquired in a business combination is allocated at acquisition to the cash-generating units (cgus) that are expected to benefit from that business combination. goodwill is allocated as follows: arising on reverse acquisition of barberton mines (note 34) balance at 1 July 2007 additonal amount recognised from business combination of barberton mines Balance at 30 June 2008 group £ company £ 2008 2007 2008 2007 21,000,714 21,000,714 - 21,000,714 21,000,714 - - - - - - - - - - – – – - - - - - the group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. the recoverable amounts of the cgus are determined from value-in-use calculations. the key assumptions for the value-in-use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period. management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the cgus. the growth rates are based on industry growth forecasts. changes in selling prices and direct costs are based on past practices and expectations of future changes in the market (refer to note 34). the group prepares cash-flow forecasts derived from the most recent financial budgets approved by management for the next five years and extrapolates cash flows for the following five years based on an estimated growth rate. this rate does not exceed the average long-term growth rate for the relevant markets. 52 consolIDateD anD coMPany notes to the FInancIal stateMents For the year enDeD 30 JUne 2008 19. InVestMents investments company £ 2008 2007 34,223,594 3,069,705 34,223,594 3,069,705 at 30 June 2008 the company held the following shares in subsidiary undertakings: country of Incorporation south africa Principal activity mining Proportion of capital held by country carrying amount 74% 31,010,450 name of Undertaking barberton mines (pty) ltd or oubangui sa explorator limitada central african republic exploration mozambique exploration exploration par-african resources (ghana) limited ghana mistral resource development corporation limited brampton capital overseas limited viking internet limited british virgin isles british virgin isles exploration exploration england and Wales dormant 50% 100% 100% 100% 100% 100% 30,827 88,972 23,640 584,704 2,485,000 1 metorex limited is the ultimate controlling company of par. the metorex group is the only group of which par is a member. metorex is listed and incorporated in south africa and their financial statements are publicly available. 20. rehaBIlItatIon trUst FUnD group £ funds held in trust fund (refer to note 27) 2008 2007 2008 1,739,522 1,743,648 1,739,522 1,743,648 company 2007 £ - - company 2007 £ - - group £ 2008 2007 2008 377,974 377,974 125,498 125,498 21. InVentorIes consumable stores - - - - 53 consolIDateD anD coMPany notes to the FInancIal stateMents For the year enDeD 30 JUne 2008 22. traDe anD other receIVaBles trade receivables other receivables and prepayments amounts owed by subsidiaries group £ company £ 2008 2007 2008 2007 2,630,863 1,123,664 310,193 – 341,913 1,061,888 – – – – 292,159 3,348,487 2,972,776 2,185,552 310,193 3,640,646 there are no amounts owing that are past due and not impaired. the average credit period is 18 days (2007: 15 days). no interest is charged on trade receivables. before accepting any new customers, the group uses a credit bureau or performs a credit assessment to assess the potential customers’ credit limit and credit quality. the fair value of trade receivables is not materially different from the carrying value presented. no receivables have been pledged as security. 23. cash anD cash eQUIValents cash and cash equivalents comprise cash held by the group and short-term bank deposits with an original maturity of three months or less. the carrying amount of these assets approximates their fair value cash and cash equivalents credit facilities group £ company £ 2008 2007 2008 2007 5,419,489 422,416 1,455,587 326,797 the group has the following credit facilities at 30 June 2008: overdraft facility asset finance facility guarantee credit card 2,570,694 106,091 192,802 8,676 564,181 437,240 - - 2,878,263 1,001,421 - - - - - - - - - - the overdraft facility is unsecured and the asset finance facility is secured. 54 consolIDateD anD coMPany notes to the FInancIal stateMents For the year enDeD 30 JUne 2008 24. stateMent oF changes In eQUIty groUP share share Preference hedging and retained share option Merger Minority total capital Premium share translation earnings reserve reserve Interest account capital and reserve premium Balance at 1 July 2006 4,180,032 4,076,769 8,422,793 (3,741,411) 2,895,683 92,516 (6,189,702) 1,017,403 10,754,0823 issue of shares acquisition of par redemption of shares current year movement profit for the year dividends (pre-acquisiton) share-based payment - charge for the year – – – – – – – – – – – – (2,844,618) – – – 2,700,177 – – – – – – – – – – – – – 2,067,985 – (477,714) – – 35,844 – – – – – – – – – – – – – – – – – – (2,844,618) – 2,700,177 726,589 2,794,574 (167,742) (645,456) – 35,844 Balance at 30 June 2007 4,180,032 4,076,769 5,578,175 (1,041,234) 4,485,954 128,360 (6,189,702) 1,576,250 12,794,604 issue of shares 6,818,632 33,190,706 – redemption of shares current year movement profit for the year share-based payment - charge for the year current year merger reserve – – – – – – (5,578,175) – – – – – – – – – – (77,028) – – – – 5,460,067 – – – – – – – – 156,952 – – – – – – 40,009,338 – (5,578,175) – (77,028) 2,118,619 7,578,686 – 156,952 – (4,515,606) – (4,515,606) Balance at 30 June 2008 10,998,664 37,267,475 – (1,118,262) 9,946,021 285,312 (10,705,308) 3,694,869 50,368,771 coMPany share share Preference hedging retained share option Merger total capital Premium share and earnings reserve reserve account capital and translation premium reserve Balance at 1 april 2006 4,077,532 3,978,178 issue of shares loss for the year share-based payment - charge for the year 102,500 98,591 – – – – Balance at 30 June 2007 4,180,032 4,076,769 issue of shares profit for the year share-based payment - charge for the year 6,818,632 33,190,706 – – – – Balance at 30 June 2008 10,998,664 37,267,475 – – – – – – – – – – (2,772,366) 73,956 1,485,000 6,842,300 – – – (1,325,765) – – 201,091 (1,325,765) – – 222,206 75,000 297,206 – (4,098,131) 296,162 1,560,000 6,014,832 – – – – 24,858 – – – 195,158 – 40,009,338 – – 24,858 195,158 – (4,073,273) 491,320 1,560,000 46,244,186 55 consolIDateD anD coMPany notes to the FInancIal stateMents For the year enDeD 30 JUne 2008 25. share caPItal authorised 2,000,000,000 (2007: 1,000,000,000) ordinary shares of £0.01 each Issued and fully paid up 1,099,866,438 (2007: 418,003,235) ordinary shares of £0.01 each group £ company £ 2008 2007 2008 2007 20,000,000 10,000,000 20,000,000 10,000,000 10,998,664 4,180,032 10,998,664 4,180,032 the following issue of shares were made during the year: a) 28,122,727 ordinary shares were issued at 2.79p per share under the terms of the share option agreement b) 60,000,000 ordinary shares were issued at 6p on 27 July 2007 for a 20% share in Manica purchased from Pangea Exploration (Pty) Ltd c) 593,740,476 ordinary shares were issued at 6p in 31 July 2007 in terms of the reverse acquisition of Barberton Mines (Pty) Ltd 26. BorroWIngs amount due within 12 months amount due for settlement after 12 months total borrowings group £ company £ 2008 2007 2008 2007 89,269 16,822 106,091 170,017 115,665 285,682 – – – – – – borrowings represent instalment finance loans and are secured by plant and equipment with a net book value of £249, 786 and bear interest at south african prime less 1.5% and are repayable in periods that vary from 5 to 16 months. 27. ProVIsIons groUP balance at 1 July 2006 provided during the year utilised during the year Balance at 30 June 2007 provided during the year utilised during the year foreign currency translation reserve Balance at 30 June 2008 long term provisions current provisions 56 Post- retirement Benefits rehabilitation leave pay and bonuses total 164,663 2,018,676 645,950 2,829,289 – 117,200 229,350 346,550 (16,397) 148,266 – 2,135,876 (163,397) 711,903 (179,794) 2,996,045 – 205,822 229,352 435,174 (13,307) (11,969) 122,990 (62,968) (163,398) (239,673) (181,766) 2,096,964 (66,772) 711,085 (260,507) 2,931,039 122,990 2,096,964 – 2,219,954 – – 711,085 711,085 122,990 2,096,964 711,085 2,931,039 consolIDateD anD coMPany notes to the FInancIal stateMents For the year enDeD 30 JUne 2008 27. ProVIsIons (contInUeD) coMPany there are no provisions in the company. Post retirement benefits - refer to note 30 rehabilitation trust fund the group is exposed to environmental liabilities relating to its mining operations. estimates of the cost of environmental and other remedial work such as reclamation costs, close down and restoration and pollution control are made on an annual basis, based on the estimated life of the mine, following which payments are made to a rehabilitation trust set up as required by the minerals act and regulations. this represents the net present value of the best estimate of the expenditure required to settle the obligation to rehabilitate environmental disturbances caused by mining operations. these costs are expected to be incurred over a period in excess of 20 years. leave pay the provision for leave pay is provided for, based on the total cost of employment of employees and the amount of leave days owing to them. 28. DeFerreD tax Deferred tax liabilities property, plant and equipment provisions net deferred tax liabilities group £ company £ 2008 2007 2008 2007 5,541,169 5,903,155 (339,924) (376,182) 5,201,245 5,526,973 – – – – – – group £ 2008 2007 company £ 2008 2007 reconciliation of deferred tax liabilities net deferred tax liabilities at the beginning of the year 5,526,973 4,991,104 deferred tax charge for the year translation difference net deferred tax liabilities at end of the year 174,312 (500,040) 544,698 (8,829) 5,201,245 5,526,973 – – – – – – – – 57 consolIDateD anD coMPany notes to the FInancIal stateMents For the year enDeD 30 JUne 2008 29. FInancIal InstrUMents the group manages its capital to ensure that the group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balances. the group's overall strategy remains unchanged from 2007. group £ company £ 2008 2007 2008 2007 106,091 285,682 – – (5,419,489) (422,416) (1,455,587) (326,979) (5,313,398) (136,733) (1,455,587) (326,979) 50,368,771 12,794,603 46,244,186 6,014,832 (11%) (1%) (3%) (5%) 5,419,489 422,416 1,455,587 326,797 2,972,776 2,185,552 310,193 3,640,646 – – – – 2,860,886 2,212,626 37,110 1,022,306 – 1,092,232 – – capital risk Management interest-bearing debt cash and cash equivalents net interest-bearing debt equity net debt to equity ratio (%) categories of Financial Instruments Financial assets cash and cash equivalents receivables derivative instruments Financial liabilities amortised cost derivative instruments Financial risk Management objectives the group seeks to minimise the effects of these risks by using derivative financial instruments to hedge risk exposures where appropriate. the use of financial derivatives is governed by the group’s policies approved by the board of directors, which provide written principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excess liquidity. compliance with the policies and exposure limits is reviewed on a continuous basis. the group does not enter into or trade financial instruments, including derivative financial instruments, for speculative use. credit risk credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the group. the group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as means of mitigating the risk. the group's credit risk is primarily attributable to its trade receivables. the amounts presented in the balance sheet are net of allowances for doubtful receivables of £267 (2007:£nil), estimated by the group's management based on the current economic environment. the credit risk on liquid funds is limited because the counterparties are dealt with in accordance with the group’s credit policy. the group has no amounts from major customers that represent more than 5% of the trade receivables balance for the individual companies. the group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. the group defines counterparties as having similar characteristics if they are related entities. 58 consolIDateD anD coMPany notes to the FInancIal stateMents For the year enDeD 30 JUne 2008 29. FInancIal InstrUMents (continued) Market risk the group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and the gold price. Where appropriate, the group enters into a variety of derivative financial instruments to manage its exposure to foreign currency risk and the commodity price risk. market risk exposures are measured using sensitivity analysis. Foreign currency and commodity price risk the group undertakes certain transactions in foreign currencies. hence, exposures to exchange rate fluctuation arise. exchange rate exposures are managed within approved policy parameters. the group may enter into forward contracts to hedge their exposure to fluctuations in gold prices and exchange rates on specific transactions. the contracts are matched with anticipated future cash flows from gold sales. currency risk currency pound sterling / rand Foreign currency sensitivity closing rate average rate 15.56 14.68 Impact of 10% currency movement on profit/loss 696,188 the pounds sterling carrying amount of the group's foreign currency denominated monetary assets and liabilities at balance sheet date is as follows: 2008 assets liabilities 2007 assets liabilities Denominated in south african rand £ £ total 6,129,852 2,262,413 8,392,265 2,321,740 433,055 2,754,795 2,607,968 1,926,944 – – 2,607,968 1,926,944 Fair value of financial instruments gains and losses on instruments for hedging are not recognised until the exposure that is being hedged is itself recognised. commodity hedges - on balance sheet group and company unrecognised gains and losses on instruments used for hedging at year end are: 59 consolIDateD anD coMPany notes to the FInancIal stateMents For the year enDeD 30 JUne 2008 29. FInancIal InstrUMents (continued) 2008 gold 2007 gold Maturity Volume ave forward rate Fair value loss – – – – 6 months 333 kg r102 245 / kg 1,092,244 Interest rate and liquidity risk fluctuations in the interest rates impact on the value of short-term investment and financing activities, giving rise to interest rate risk. in the ordinary course of business, the group receives cash proceeds from its operations and is required to fund working capital and capital expenditure requirements. the cash is managed to ensure that surplus funds are invested to maximise returns whilst ensuring that capital is safeguarded to the maximum extent by only investing with reputable financial institutions. contractual arrangements for committed borrowing facilities are maintained with several banking counterparties to meet the group’s normal and contingent funding. Interest rate risk the group is exposed to interest rate risk as entities within the group borrow funds at both fixed and floating interest rates. Interest rate sensitivity based on the minor long term liability balances on the balance sheet, an interest rate sensitivity is not performed as the interest rate exposure to the group is minimal. liquidity risk ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the management of the group's short term funding and liquidity management requirements. the group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowings facilities by continually monitoring forecast and actual cash flows and matching maturity profiles of financial assets and liabilities. the group has access to financing facilities, of which the total unused portion is £2.9 million (2007: £1.0 million) (refer to note 23). the group expects to meets its other obligations from operating cash flows and proceeds of maturing financial assets. liquidity risk analysis the following table indicates the group's remaining contractual maturity from its financial liabilities: Weighted average interest rate % less than 12 months 1 - 5 years total groUP 2008 trade payables long term liabilities short term liabilities 60 – 2,754,795 – 2,754,795 14% 14% – 16,822 89,269 – 16,822 89,269 consolIDateD anD coMPany notes to the FInancIal stateMents For the year enDeD 30 JUne 2008 29. FInancIal InstrUMents (continued) 2007 trade payables long term liabilities short term liabilities coMPany 2008 trade payables 2007 trade payables Weighted average interest rate % less than 12 months 1 - 5 years total – 1,926,944 – 14% 14% – 115,665 170,017 – 1,926,944 115,665 170,017 Weighted average interest rate % less than 12 months total – 433,050 433,050 – 1,026,493 1,026,493 Fair value of financial instruments the directors consider that the carrying amounts of financial assets and liabilities recorded approximate their fair values. 30. Post retIreMent BeneFIt InForMatIon all full time employees are required to be members of either the barberton retirement fund, metorex pension fund, sentinel retirement fund or mine Workers provident fund. these are defined contribution funds are registered under and governed by the pension act, 1956 as amended. the assets of the scheme are held separately from those of the company in funds and they are in the control of the trustees. the total costs charged to the income statement of £655,381 represent employer contributions payable to the schemes by the company at rates specified in the rules of the scheme. the calculation of the provision for post retirement medical benefits is performed internally by management using the south african revenue services life expectancy tables as the benefits payable are a fixed amount per pensioner. 61 consolIDateD anD coMPany notes to the FInancIal stateMents For the year enDeD 30 JUne 2008 31. coMMItMents, contIngent lIaBIlItIes anD gUarantees groUP commitments the group had outstanding open orders on open votes contracted for at year-end of £139,147 (2007: £49,950). contingent liabilities the group had a contingent liability of £nil (2007: £9,068) for repairs carried out by the patcon sales (proprietary) limited under guarantees. guarantees the group had guarantees of £192,802 (2007:£215 054) favourable to eskom, and £1,285 (2007: £nil) favourable to the department of mineral affairs at year end. coMPany there were no commitments, contingent liabilities and guarantees for the company for the year ended 30 June 2008 (2007: £nil) 32. DIrectors’ eMolUMents executive directors emoluments company contributions share options total non-executive directors emoluments total total remuneration Individual directors' emoluments executive mr k c spencer * ◊ mr J nelson mr n steinberg † mr m smith * ◊ total 2008 £ 2007 £ 88,715 – 510,000 598,715 38,750 38,750 637,465 74,571 – ‡87,636 162,207 30,000 30,000 192,207 share option profit £ Basic salary Bonuses £ £ share option expense £ company contributions 2008 total 2007 total £ £ £ – – – 510,000 78,000 10,715 – – – – – – 510,000 78,000 10,715 – – – – – – – 88,715 162,207 – – – – 88,715 162,207 ‡ for the 15 months ended 30 June 2007. * mr k c spencer and mr m smith were appointed during the current year. ◊ mr k c spencer, mr m smith, mr a s malone and mr c d s needham are directors of metorex limited, therefore no remuneration is paid to them directly. a management fee is charged to par by metorex limited. refer to the metorex limited annual report for 30 June 2008 for detail on their remuneration. † mr n steinberg resigned during the year. nathan steinberg is a partner in munslows, a firm of chartered certified accountants. that firm charged fees of £30,000 (2007: £17,625). 62 consolIDateD anD coMPany notes to the FInancIal stateMents For the year enDeD 30 JUne 2008 32. DIrectors’ eMolUMents (contInUeD) non-executive Directors non-executive directors consist of mr r g still, dr h blignault, mr a s malone ◊, mr c d s needham ◊ and mr J hopwood. dr h blignault and mr n a steinberg resigned during the current year. non-executive directors are entitled to £15,000 (2007:£13,750) per annum for services rendered. 2008 share options mr k c spencer mr J nelson mr n steinberg mr r g still dr h blignault mr J hopwood mr a s malone mr c d s needham mr m smith total total options 1 July 2007 options granted options exercised – 3,000,000 – 18,000,000 5,200,000 4,000,000 – – – – – (12,000,000)* – – – 1,000,000 – – – – – – – – – – 27,200,000 4,000,000 – (12,000,000) * the market price at date of exercise was 6p (9,000,000) and 7p (3,000,000) 2007 share options mr k c spencer mr J nelson mr n steinberg mr r g still dr h blignault mr a s malone mr c d s needham total total options 1 July 2006 – 18,000,000 5,200,000 4,000,000 5,000,000 – – 32,200,000 options granted options exercised – – – – (5,000,000) – – – – – – – – – – average option price (pence) 6.2 2.0 2.8 2.5 – 6.2 – – – average option price cents – 2.0 2.8 2.5 2.0 – – total options 30 June 2008 3,000,000 6,000,000 5,200,000 4,000,000 – 1,000,000 – – – 19,200,000 total options 30 June 2007 – 18,000,000 5,200,000 4,000,000 – – – (5,000,000) 27,200,000 Directors’ interests in shares as at 30 June 2008, none of the directors held any shares in the capital of pan african, other than mr a s malone, who held 1,289,230 ordinary shares (2007: nil). there have been no changes to these holdings since the year end. substantial shareholdings pan african is aware of the following substantial interests in the group’s issued share capital as at 31 october 2008: Percentage of issued share capital number of ordinary shares metorex ltd brait s.a. pangea exploration (pty) ltd bmo nesbitt burns sunvest corporation ltd 593,740,476 69,326,975 45,601,534 34,300,000 33,200,000 53.95% 6.30% 4.14% 3.12% 3.02% 63 consolIDateD anD coMPany notes to the FInancIal stateMents For the year enDeD 30 JUne 2008 33. share BaseD oPtIons on 1 september 2005, the company established a share option programme that entitles all employees, officers, directors and qualifying consultants and its subsidiaries to purchase shares in the company. in accordance with these programmes, options are exercisable at the market price of the shares at the date of the grant. directors determine to whom options are granted. the exercise of options granted to senior employees is at the approval of the board having regard to the grantee’s fulfillment of obligations to the group, achievement of targets and conduct of duties. in the event of the grantee’s ceasing to hold employment or office, the options will lapse unless exercised within 30 days. options may be exercised over a period of 3 years, calculated from the first anniversary of teh date of granting the option and in 3 equal tranches, subject to the directors discretion. a maximum of 12.25% of the authorised share capital of par are available under the scheme. the number and weighted average exercise price of share options is as follows: 30 June 2008 30 June 2007 Weighted average exercise price number of options Weighted average exercise price number of options outstanding at 1 July granted during the period exercised during the period lapsed in period outstanding and exercisable at 30 June 3.40p 6.50p 2.70p nil 57,822,727 17,122,273 (26,500,000) (1,500,000) 4.70p 46,945,000 3.15p 5.50p 4.00p nil 3.40p 54,000,000 7,000,000 (1,677,273) (1,500,000) 57,822,727 the fair value of services received for share options granted is based on the fair value of share options granted, measured using a black scholes model, with the following inputs: options granted during the year number of option option price £ Fair Value 16 august 2007 2 June 2008 total share price exercise price expected volatility expected life risk-free interest rate 6,500,000 10,622,273 17,122,273 0.065 0.062 – 2008 0.062 0.070 72.39% 1-3 years 5.31% 422,500 658,581 1,081,081 2007 3.5 3.75 71.98% 3-4 years 4.0% the group does not expect to pay any dividends during the contractual life of the share options. the volatility of the group’s share price on each date of grant was calculated as the average of volatilities of share prices of the group on the corresponding dates. the volatility of share price of the group was calculated as the average of annualised standard deviations of daily continuously compounded returns on the group’s stock, calculated over 1,2 and 3 years back from the date of grant. therefore, volatility of the group’s share prices was calculated over the period commensurate with the expected life of the options under consideration, giving more weight to more recent historical data to account for volatility persistance. there are no market conditions attached to the exercise of the share options. the group recognised total expenses of £156,952 (2007: £35,844) related to equity settled share-based payment transactions 64 consolIDateD anD coMPany notes to the FInancIal stateMents For the year enDeD 30 JUne 2008 34. acQUIsItIons effective 27 July 2007, the company acquired 74% of barberton mines (pty) ltd, for £35.6 million satisfied by the issue of 593,740,476 new shares at 6p per share. the transaction constituted a reverse takover in terms of ifrs 3: business combinations. accordingly, barberton has been treated for accounting purposes as acquiring pan african, the current year results incorporate a full year of barberton and 11 months of pan african and prior year comparatives represent the results of barberton for 12 months prior to the transaction. ifrs 3 also requires the cost of the transaction to represent the fair value of pan african immediately prior to the deal being £25.7 million. the fair value of the acquired net assets of pan african amounted to £5.9 million at acquisition, which gave rise to the recognition of goodwill amounting to £19.8 million, which is to be tested for impairment on an annual basis against the net asset value of the new pan african group. in addition, transaction costs of £1.2 million formed part of the cost of acquisition and allocated to goodwill. the net loss from pan african since the date of acquisition was £1.9 million. 2008 commodity Date of acquisition Porportion of share acquired cost of acquisition barberton mines (pty) ltd gold 31 July 2007 74% 35,624,429 the major classes of assets and liabilities are as follows: non current assets * current assets total assets non current liabilities current liabilities total liabilities net assets cost of acquisition fair value of par transaction costs total value of par net asset value (as above) goodwill arising on acquisition Impact of the acquisition on the results of the group 6,588,340 520,529 7,108,869 - 1,242,108 1,242,108 5,866,761 25,707,197 1,160,278 26,867,475 (5,866,761) 21,000,714 barberton mines contributed £7,553,828 since acquisition, to the profit of the group for the current year. * no fair value uplift has been allocated to the resources of manica or the group’s other exploration projects as none of these projects have proven and probable reserves assigned to them for the reasons outline on page 21. consequently there is a wide range of uncertainty as to these projects’ underlying fair values at the date of transac- tion and it has been concluded that the most reliable estimate is the historic costs incurred on each project. no other intangible assets arose in connection with the transaction and accordingly all excess purchase consideration arising has been allocated to goodwill as detailed in note 18. 65 consolIDateD anD coMPany notes to the FInancIal stateMents For the year enDeD 30 JUne 2008 35. relateD PartIes the company entered into the follwoing transactions and held year end balances with related parties: pref dividends received from barberton loans to subsidiaries barberton mistral resources or oubangui par-african (ghana) Income statement Balance sheet 2008 £ 2007 £ 2008 £ 2007 £ (473,085) – – – 91,170 8,102,311 1,616,887 transactions between the group and other related parties are disclosed below: mr r g still is a director of pangea exploration (pty) ltd which is owned as to 33% by a trust connected with his family. the exploration expense of £22,274 was made on behalf of pan african by pangea exploration, in respect of the manica project in accordance dated 19 november 2003. the group has reimbursed pangea exploration and the transaction was at arms length. during the year, 60,000,000 ordinary shares were issued at 6p for a 20% share in, purchased from pangea exploration (pty) ltd of which mr r g still is a director the remuneration of the directors who are the only key management personnel of the group is shown in note 32 - directors’ emoluments. 36. Post Balance sheet eVents there are no significant subsequent events between 30 June 2008 and the date of this report. 66 consolIDateD anD coMPany notes to the FInancIal stateMents For the year enDeD 30 JUne 2008 37. reconcIlIatIon oF ProFIt/(loss) BeFore taxatIon to cash generateD By/(UtIlIseD In) oPeratIons group £ company £ year ended 30 June 2008 year ended 30 June 2007 year ended 30 June 2008 15 months ended 30 June 2007 profit/(loss) before taxation 11,945,229 3,951,164 24,858 (1,325,765) adjusted for: dividends received investments written off exploration costs written off share options costs net finance income depreciation operating profit/(loss) before working capital changes Working capital changes (increase)/decrease in inventories (increase)/decrease in trade and other receivables (decrease)/increase in trade and other payables and provisions non cash items cash generated by/(utilised in) operations income taxes paid net finance income 1,925,622 1,903,168 – – 156,952 – – 13,164 37,133 (200,282) (13,125) 1,968,952 1,865,997 (317,276) (473,085) – – 195,158 (39,349) – 264,820 4,800 75,009 222,206 (37,195) – 13,870,851 5,854,332 (292,418) (1,060,945) (1,108,630) (122,733) 2,345,247 641,829 (252,476) (787,224) (504,104) 435,174 11,424 – – (228,132) 3,330,453 (1,367,016) 95,964 (985,206) 641,829 – – – 12,762,221 5,731,600 2,052,829 (419,116) (1,722,974) (16,703) – – 200,282 13,125 39,349 37,195 net cash from/(used in) operating activities 11,239,529 5,728,021 2,092,178 (381,921) 38. transItIon to IFrs the group’s financial statements for the year ended 30 June 2008 have been prepared as a combination of barberton due to the reverse takeover during the period. barberton has historically prepared financial statements under ifrs and so no adjustments are required to the group accounts. the company only accounts have been prepared under ifrs for the first time for the year ended 30 June 2008. the adoption of ifrs has not required any adjustments to the financial statements for the previous year prepared under uk gaap. 67 notIce oF annUal general MeetIng notice is hereby given that the ninth annual general meeting of pan african resources plc will be held at the offices of fasken martineau llp, fourth floor, 17 hanover square, london W1s 1hu on monday, 22 december 2008 at 12h00 (all times stated are united kingdom times unless otherwise stated) to consider and, if thought fit, transact the following business: orDInary BUsIness 1. 2. 3. 4. 5. 6. to receive and adopt the directors’ report, the audited statement of accounts and auditors’ report for the year ended 30 June 2008. to re-elect mr r g still as a director of the company who retires by rotation pursuant to the articles of association of the company. to re-elect mr c d s needham as a director, who retires by rotation pursuant to the articles of association of the company. to re-elect mr J g hopwood as a director, who was appointed during the period. to re-elect mr m smith as a director, who was appointed during the period. to appoint deloitte & touche llp as auditors of the company and to authorise the directors to determine their remuneration. sPecIal BUsIness as special business, to consider and if thought fit, to pass the following resolutions of which resolution 7 will be proposed as an ordinary resolution and resolutions 8, 9 and 10 will be proposed as special resolutions: 7. that the directors be and are hereby generally and unconditionally authorised pursuant to section 80 of the companies act 1985 (‘the act’), in substitution for all previous powers granted to them, to exercise all the powers of the company to allot and make offers to allot relevant securities (within the meaning of section 80(2) of the act) up to an aggregate nominal amount of £8,994,108.38; such authority shall, unless previously revoked or varied by the company in general meeting, expire on the conclusion of the next annual general meeting of the company or on 31 december 2009, whichever is the earlier, provided that the company may, at any time before such expiry, make an offer or enter into an agreement which would or might require relevant securities to be allotted after such expiry and the directors may allot relevant securities pursuant to any such offer or agreement as if the authority conferred hereby had not expired. 8. that the directors be and they are hereby empowered pursuant to section 95 of the companies act 1985 (the “act”), in substitution for all previous powers granted thereunder, to allot equity securities (within the meaning of section 94 of the act) for cash pursuant to the authority granted by resolution 6 above as if section 89(1) of the act did not apply to any such allotment provided that this power shall expire at the conclusion of the next annual general meeting of the company or on 31 december 2009, whichever is the earlier, and such power is limited to the allotment of equity securities: the equity shares where (a) in connection with rights issues to holders of ordinary securities respectively attributable to the interests of such holders are proportionate (as nearly as may be practicable) to the respective numbers of ordinary shares held by them, but subject to such exclusions or other arrangements as the directors may deem necessary or expedient to deal with any fractional entitlements or any legal or practical problems under law of, or the requirements of any regulatory body or any recognised stock exchange in, any territory; (b) up to a maximum aggregate nominal value of £469,450 in connection with the exercise of options granted to various parties (including directors) over an aggregate of 46,945,000 ordinary shares; (c) up to a maximum aggregate nominal value of £1,100,589.16 (being 10 per cent. of the issued share capital of the company as at the date of this notice) in connection with the granting of options by the company granted in accordance with the this document is important and requires your immediate attention. if you are in any doubt about the contents of this document you should consult a person authorised under the financial services and markets act 2000 who specialises in advising on the acquisition of shares and other securities. if you have sold or otherwise transferred all of your shares in pan african resources plc (the “company”), please send this document, together with the accompanying form of proxy to the purchaser or transferee or to the stockbroker, bank or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee. if you have sold only part of your holding of shares in pan african resources plc, please contact your stockbroker, bank or other agent through whom the sale was effected immediately. dematerialised shareholders in south africa who are not own name dematerialised shareholders and who wish to attend the agm should instruct their central securities depository participant (‘csdp’) or broker to issue them with the necessary letter of representation to attend the meeting in person, in the manner stipulated in the custody agreement governing the relationship between such shareholders and their csdp or broker. these instructions must be provided to the csdp or broker by the cut-off time and date advised by the csdp or broker for instructions of this nature. dematerialised shareholders in south africa who are not own name dematerialised shareholders and who cannot attend but who wish to vote at the agm should provide their csdp or broker with their voting instructions, in the manner stipulated in the custody agreement governing the relationship between such shareholders and their csdp or broker. these instructions must be provided to the csdp or broker by the cut-off time and date advised by the csdp or broker for instructions of this nature. 68 notIce oF annUal general MeetIng pan african resources plc share option plan; and; substitution for, and to the exclusion of, the existing articles of association, with immediate effect. (d) up to a maximum aggregate value of £643,046.22 in connection with the exercise of the option to shanduka resources (proprietary) granted limited (“shanduka”) to subscribe for ordinary shares; (e) up to a maximum aggregate value of £2,086,115.79 in connection with the exercise of the option granted to shanduka to require the company to acquire all of shanduka’s 26 per cent. interest in barberton mines (proprietary) limited in consideration of the issue of shares in the company; and (f ) up to a maximum aggregate value of £1,100,589.16 (being approximately 10 per cent. of the issued share capital of the company as at the date of this notice) otherwise than pursuant to paragraphs (a) to (e) above), save that the company may, before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry and the directors may allot equity securities in pursuance of any such offer or agreement as if the authority conferred hereby had not expired. 9. that the company be generally and unconditionally authorised for the purposes of section 166 of the companies act 1985 to make market purchases (as defined in section 163 of that act) of ordinary shares of the company on such terms and in such manner as the directors of the company shall determine provided that: (a) the maximum aggregate number of ordinary shares which may be purchased is 110,058,916 (representing approximately 10 per cent of the issued share capital of the company at 28 november 2008); (b) the minimum price (excluding expenses) which may be paid for each ordinary share is 1p; (c) the maximum price (excluding expenses) which may be paid for any ordinary share does not exceed 5 per cent. above the average closing price of such shares for the five business days on the london stock exchange prior to the date of purchase; and (d) this authority shall expire at the conclusion of the next annual general meeting of the company or on 31 december 2009, whichever is the earlier, unless such authority is renewed prior to that time (except in relation to the purchase of ordinary shares the contract for which was concluded before the expiry of such authority and which might be executed wholly or partly after such expiry). 10. that the articles of association contained in a document produced to the meeting and signed by the chairman for the purposes of identification be approved and adopted as the new articles of association of the company in by order of the board st James’s corporate services limited company secretary 28 november 2008 6 st James’s place london england sW1a 1np exPlanatory notes entitlement to attend and vote 1. pursuant to regulation 41 of the uncertificated securities regulations 2001, the company specifies that only those members registered on the company’s register of members at: 12h00 on saturday, 20 december 2008; or, if the agm is adjourned, at 18h00 on the day two days prior to the adjourned meeting, shall be entitled to attend and vote at the agm. • • appointment of proxies 2. if you are a member of the company at the time set out in note 1 above, you are entitled to appoint a proxy to exercise all or any of your rights to attend, speak and vote at the agm and you should have received a proxy form with this notice of meeting. you can only appoint a proxy using the procedures set out in these notes and the notes to the proxy form. 3. a proxy does not need to be a member of the company but must attend the agm to represent you. details of how to appoint the chairman of the agm or another person as your proxy using the proxy form are set out in the notes to the proxy form. if you wish your proxy to speak on your behalf at the agm you will need to appoint your own choice of proxy (not the chairman) and give your instructions directly to them. 4. you may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different shares. you may not appoint more than one proxy to exercise rights attached to any one share. to appoint more than one proxy, please contact capita registrars or computershare investor services (pty) ltd who will arrange for the appropriate documentation to be provided to you. 5. a vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the resolution. if you either select the “discretionary” option or if no voting indication is given, 69 notIce oF annUal general MeetIng if you submit more than one valid proxy appointment, the appointment received last before the latest time for the receipt of proxies will take precedence. termination of proxy appointments 9. in order to revoke a proxy instruction you will need to inform the company by sending a signed hard copy notice clearly stating your intention to revoke your proxy appointment as above. in the case of a member which is a company, the revocation notice must be executed under its common seal or signed on its behalf by an officer of the company or an attorney for the company. any power of attorney or any other authority under which the revocation notice is signed (or a duly certified copy of such power or authority) must be included with the revocation notice. the revocation notice must be received by capita registrars or computershare investor services (pty) ltd no later than 12h00 on saturday, 20 december 2008. if you attempt to revoke your proxy appointment but the revocation is received after the time specified then, subject to the paragraph directly below, your proxy appointment will remain valid. appointment of a proxy does not preclude you from attending the agm and voting in person. if you have appointed a proxy and attend the agm in person, your proxy appointment will automatically be terminated. Issued shares and total voting rights 10. as at 18h00 on 27 november 2008, the company’s issued share capital comprised 1,100,589,162 ordinary shares of 1p each. each ordinary share carries the right to one vote at a general meeting of the company and, therefore, the total number of voting rights in the company as at 18h00 on 27 november 2008 was 1,100,589,162. Directors interests and documents on display 11. a statement or summary of transactions of directors (and their family interests) in the share capital of the company and copies of their service contracts will be available for inspection at the company’s registered office during normal business hours (saturdays and public holidays excepted) from the date of this notice until the conclusion of the agm and will also be available for inspection at the place of the agm for at least 15 minutes prior to and during the meeting your proxy will vote or abstain from voting at his or her discretion. your proxy will vote (or abstain from voting) as he or she thinks fit in relation to any other matter which is put before the agm. appointment of proxy using hard copy proxy form 6. the notes to the proxy form explain how to direct your proxy how to vote on each resolution or withhold their vote. • • • to appoint a proxy using the proxy form, the form must be: completed and signed; to Capita Registrars at Proxies sent or delivered department, the registry, 34 beckenham road, kent, br3 4tu or computershare investor services (pty) ltd, ground floor, 70 marshall street, Johannesburg 2001, south africa (po box 61051, marshalltown, 2107, Johannesburg, south africa); or received by Capita Registrars or Computershare Investor services (pty) ltd no later than 12h00 on saturday, 20 december 2008. in the case of a member which is a company, the proxy form must be executed under its common seal or signed on its behalf by an officer of the company or an attorney for the company. any power of attorney or any other authority under which the proxy form is signed (or a duly certified copy of such power or authority) must be included with the proxy form. appointment of proxy by joint members 7. in the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted by the most senior holder will be accepted. seniority is determined by the order in which the names of the joint holders appear in the company’s register of members in respect of the joint holding (the first-named being the most senior). changing proxy instructions 8. to change your proxy instructions simply submit a new proxy appointment using the methods set out above. note that the cut-off time for receipt of proxy appointments (see above) also apply in relation to amended instructions; any amended proxy appointment received after the relevant cut-off time will be disregarded. Where you have appointed a proxy using the hard-copy proxy form and would like to change the instructions using another hard-copy proxy form, please contact capita registrars, the registry, proxies department, 34 beckenham road, beckenham, kent br3 4tu or computershare investor services (pty) ltd, ground floor, 70 marshall street, Johannesburg 2001, south africa (po box 61051, marshalltown, 2107, Johannesburg, south africa);. 70 contact DetaIls UnIteD KIngDoM soUth aFrIca registered office, company secretary and investor relations (uk) st James’s corporate services limited 6 st James’s place london sW1a 1np united kingdom tel: +44 (0) 20 7499 3916 fax: +44 (0) 20 7491 1989 email: phil.dexter@corpserv.co.uk corporate office viewpoint house cnr. main street and orchard avenue bordeaux randburg south africa tel: +27 (0) 11 777 7840 fax: +27 (0) 11 777 7843 email: nicole@paf.co.za nominated advisors (nomad) rbc capital markets 71 queen victoria street london ec4v 4de united kingdom tel: +44 (0) 20 7029 7881 fax: +44 (0) 20 7029 7924 email: martin.eales@rbccm.com auditors deloitte & touche llp 2 new street square london ec4 3bz united kingdom tel: +44 (0) 20 7936 3000 fax: +44 (0) 20 7583 1198 www.deloitte.co.uk solicitors fasken martineau llp 17 hanover square london W1s 1hu london united kingdom tel: +44 (0) 20 7917 8500 fax: +44 (0) 20 7917 8555 email: ngordon@fasken.co.uk registrars (uk) capita registrars northern house Woodsome bridge huddersfield hd8 0la tel: from uk - 0871 664 0300 (calls cost 10p per minute plus network charges) tel: outside uk +44 20 8639 399 sponsor (rsa) macquarie first south corporate finance (pty) ltd the place 1 sandton drive south Wing sandown Johannesburg south africa tel: +27 11 (0) 583 2000 fax: +27 11 (0) 583 2161 email: amanda.markman@macquarie.com transfer securities (rsa) computershare investor services (pty) ltd 70 marshall street Johannesburg south africa tel: +27 (0) 11 370 5085 fax: +27 (0) 11 688 5248 email: maree.fourie@computershare.co.za public relations (rsa) fdbeachhead 1st floor lumley house 177 Jan smuts avenue rosebank south africa tel: +27 (0) 11 214 2400 fax: +27 11 (0) 214 2405 email: jennifer.cohen@fd.com postal address po box 2768 pinegowrie 2125 south africa Website www.panafricanresources.com company registration number 3937466 71 

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