Red 5 Limited
2018
Annual Report
Corporate Profile
Red 5 Limited (ABN 73 068 647 610) is an Australian-based
gold producer with established mining projects located in the
Eastern Goldfields of Western Australia and the Mindanao
region of the Philippines, with a combined 2.7Moz JORC
Resource inventory across these two projects and a strong
exploration and resource growth pipeline.
The Company is listed on the Australian Securities Exchange
(Ticker: RED) with around 3,700 shareholders and has a strong
institutional shareholder base.
Following the successful acquisitions of the operating Darlot
Gold Mine and the nearby King of the Hills (KOTH) Gold Project
in October 2017, Red 5 has progressed a production ramp-up at
these operations and delivered a substantial increase in Mineral
Resources and Ore Reserves with clear visibility to increase
mine life further through the conversion of additional Mineral
Resources to Ore Reserves, new discoveries and potential
bolt-on acquisitions in the region. To this end, Red 5 is pursuing
a substantial exploration campaign both at Darlot and KOTH.
Through its Philippine-affiliated company Greenstone
Resources Corporation, the Red 5 Group holds an interest in
the Siana Gold Project, located on the island of Mindanao in the
Philippines, which is held under a Mineral Production Sharing
Agreement (MPSA). Mining operations at the Siana Gold Project
are currently suspended pending an improvement in operating
conditions in the Philippines. The Siana Gold Project comprises
an open pit and underground mine, CIL process plant and
1.1Moz JORC Resource inventory.
The Group’s second principal asset in the Philippines is the
Mapawa MPSA, located 20 kms north of Siana, which has the
potential to be developed as a satellite source of ore feed for
the Siana processing plant. Mapawa hosts a known gold
porphyry system with numerous high-grade gold occurrences
throughout the project area.
Our Vision
“Our vision is to be a successful multi-
operational exploration and mining company,
providing benefits to all stakeholders, through
the consistent application of technical
excellence and responsible and sustainable
industry practices.”
Contents
Chairman’s Address
Managing Director’s Review
Resources & Reserves Statement
Tenement Schedule
Financial Statements
Directors’ Report
Statement of Profit or Loss and
Other Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
Declaration by Directors
Independent Auditor’s Report
Statement of Shareholders
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Corporate Directory
IBC
Red 5 Limited 2018 Annual Report
2018 Highlights
Year in Review
WEST AUSTRALIAN GOLD OPERATIONS
Overview
• Acquisition of the Darlot Gold Mine and the King of the Hills
(KOTH) Gold Project completed in October 2017.
•
•
The Darlot CIL mill is the cornerstone of Red 5’s Eastern
Goldfields consolidation strategy, with the ore sourced
from the Darlot and KOTH underground mines and
potentially other future ore sources in the region.
The ramp-up of gold production commenced with a strong
performance from the Darlot mill and the start of
underground mining and ramp-up of production at KOTH.
• Gold production for FY2018 (during production ramp-up) of
48,259oz, recovered from a total of 458,835 tonnes of ore
processed at an average head grade of 3.5g/t Au.
SIANA GOLD PROJECT, PHILIPPINES
•
•
The Group continued to maintain environmental and
regulatory compliance at the Siana Gold Project during the
year following the suspension of open pit mining activities
and underground development in April 2017.
Following the end of the financial year, Red 5’s Philippine-
affiliated company, Greenstone Resources Corporation,
was issued with a Clearance and Notice to Proceed from
the Philippines Mines and Geoscience Bureau (MGB) to
construct and operate Tailings Storage Facility 6 (TSF 6)
at the Siana Gold Project. Greenstone Resources is
evaluating its preferred plan and options for the Siana Gold
Project, including a revised mining strategy for the Siana
open pit mine and required funding for the potential future
recommencement of operations.
Mining and Processing
• Strong operating performance at the Darlot underground
mine, with the introduction of a flexible mining strategy to
accommodate multiple underground orebodies and
“right-sizing” of mining equipment.
• New mine design completed to facilitate quick access to
the newly-delineated high-grade Oval West deposit, with
development commencing towards the end of FY2018 to
provide access to high-grade ore stopes.
• De-bottlenecking initiatives at the Darlot processing plant
resulted in the achievement of steady-state throughput of
~1.0Mtpa (compared to nameplate 830ktpa).
Exploration and Resource Development
• Multi-pronged exploration and resource definition
programs commenced at Darlot and KOTH, including
targeting immediate extensions of the Oval deposit at
Darlot, along strike of and below current workings.
• Outstanding results from the Oval drilling program resulted
in an updated JORC 2012 Indicated and Inferred Resource
for the Oval deposit.
FINANCIAL RESULTS
•
Total gold sales of 47,286 ounces for $77.1 million for
FY2018.
• Net loss after tax of $11.9 million for the 12 months to 30
June 2018.
• Agreement reached for the sale of the Company’s royalty
entitlement from the Mt Cattlin mine in Western Australia
for a total consideration of $11 million.
“Within the space of nine months, Red 5 has
established itself as a new Australian gold miner
– producing 48,259oz in its first three operational
quarters of ramp-up of production, implementing a
successful new mining strategy at Darlot, commencing
underground mining at King of the Hills and updating
the JORC Resource across both mines”
– Red 5 Chairman, Kevin Dundo
Darlot Gold Mine processing plant
Red 5 Limited 2018 Annual Report
1
Message to Shareholders
from the Chairman
Dear Shareholders
I am pleased to report on what has been a busy, positive and
rewarding year for Red 5.
Following the dual-acquisition of the Darlot and King of the Hills
gold mines in Western Australia in October 2017, we completed a
smooth ownership transition and integration of the Darlot
operation and workforce into the Red 5 Group. The speed,
efficiency and professionalism of this process – which
necessitated a rapid scale-up of our administrative systems – is a
credit to our management and operations team.
Within the space of nine months, Red 5 has established itself as
a new Australian gold miner – producing 48,259oz in its first three
operational quarters of ramp-up of production, implementing a
successful new flexible mining strategy at Darlot, commencing
underground mining at King of the Hills with ore trucked for
processing at the Darlot mill, updating the JORC Resource
estimates across both mines to 1.6Moz and declaring a
combined 307,000oz Ore Reserve.
Our operational strategy is to maintain the Darlot processing
plant at full production capacity with ore from Darlot and KOTH,
while pursuing opportunities to grow both mine life and
production through Resource conversion, new discoveries and
potential bolt-on acquisitions in the region.
The strong performance of the Darlot mill – which achieved
steady-state throughput of ~1Mtpa during the year – is the
cornerstone to this strategy. The continued efficient operation of
this centrally located treatment facility, combined with a rising
grade profile at Darlot as we access the new high-grade Oval
mining sector, will assist in maximising production, improve
recoveries and drive down unit operating costs.
Like many highly-endowed WA gold projects, both Darlot and
KOTH are extensive, multi-million-ounce gold systems which
offer opportunities for Resource and Reserve growth as a result
of sustained and focused exploration. To that end, we embarked
on an aggressive and multi-pronged exploration effort during the
year which has already yielded tangible results.
Near-mine extensional drilling in the Oval sector (one of the main
high-grade ore sources at Darlot) returned outstanding results
immediately along strike and down-plunge from current mining
areas, leading to an updated Resource estimate for this area.
New mine development is already being put in place to access
this high-grade zone, which will be a significant contributor to our
production profile over the next two years.
Our exploration team has also defined multiple near-surface
targets, some of which represent shallow oxide resource targets,
while others could emerge as genuine exploration “game-
changers”.
In the meantime, our strategy of preserving the value of the Siana
Gold Project in the Philippines has proved to be a prudent one. In
early August 2018, Red 5 Philippine-affiliated company,
Greenstone Resources Corporation, received a long-awaited
clearance to proceed with construction and operation of an
interim Tailings Storage Facility 6 (TSF6). Greenstone Resources
is actively evaluating plans for a possible future restart of mining
and production at Siana and options to maximise the inherent
value of the in-situ gold inventory and high-quality infrastructure.
Subsequent to the end of the reporting period, we announced
the appointment of Steve Tombs to the Board as a non-executive
director following his retirement from his executive role as
General Manager Operations for the Group. Steve played a key
role in the successful implementation of our Eastern Goldfields
strategy, and we look forward to his ongoing contribution as a
member of the Board.
In conclusion, I would like to acknowledge the significant effort
and hard work during the year of all of our staff and contractors,
both in the Philippines and Australia, led by our Managing
Director, Mark Williams.
It is thanks to their tireless efforts – and particularly the hard work
and commitment of the mining, processing and operational
teams at Darlot and KOTH over the course of the year – that the
Red 5 Group moves into the new financial year in a strong
position, with valuable mining assets, an extensive gold inventory
and a strong growth pipeline.
I would also like to thank you, our valued shareholders, for your
ongoing support.
Kevin Dundo
Chairman
25 September 2018
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Red 5 Limited 2018 Annual Report
Message to Shareholders
from the Managing Director
After completing the landmark acquisitions of the Darlot and King
of the Hills (KOTH) gold mines in early October 2017, Red 5 made
a strong start as a Western Australian gold producer during the
2018 financial year.
The start of underground mining at King of the Hills in January
2018 marked the beginning of an important transitional period,
with the Group making a significant investment in both mine
development and exploration as we progressively ramp-up the
combined Darlot and KOTH operations, with KOTH ore mining
expected to reach full capacity within the September Quarter
2018.
This production outlook for the 2019 financial year is supported
by a strong commitment to exploration on several fronts,
including underground exploration at Darlot and KOTH. These
programs have already generated encouraging results to date.
While we continue to focus on optimising and growing our
Western Australian gold operations, the Red 5 Group also retains
its interest in the Siana Gold Project in the Philippines, where the
recent receipt of a key regulatory clearance for the Siana Gold
Project could pave the way for a potential restart of mining
operations in the future and options to maximise the inherent
value of the Philippine asset base.
EASTERN GOLDFIELDS, WESTERN
AUSTRALIA
As outlined in last year’s annual report, Red 5 has embarked on a
major new growth strategy in the Eastern Goldfields region of
Western Australia following the successful acquisition of the
operating Darlot Gold Mine from a wholly-owned subsidiary of
South African-based gold producer Gold Fields Limited (Gold
Fields) (JSE, NYSE: GFI) and the advanced King of the Hills Gold
Project from West Australian gold producer Saracen Mineral
Holdings Limited (Saracen) (ASX: SAR).
These acquisitions, which were completed on 2 October 2017,
have provided Red 5 with an extensive strategic footprint in the
world-class Leonora-Leinster mineral district of Western
Australia, with the ability to leverage this position by pursuing a
regional consolidation strategy based around the Darlot mill as a
central processing hub.
With the completion of the acquisition of the Darlot mining
operation, the ownership transition and integration of the
operation and existing workforce were completed by the end of
2017. Underground mining commenced at King of the Hills in
early 2018 and the major focus during the year was on the
ramp-up of the combined operations to achieve steady-state
commercial production.
The Company’s Stage 1 development plan is to maximise
throughput at the Darlot mill over an initial 3-4 year period by
processing ore from both the Darlot and KOTH underground
mining operations. Stage 2 will centre on increasing the
Company’s Reserve base in the Eastern Goldfields through
regional exploration within the tenement footprint acquired under
the Darlot and KOTH transactions, as well as assessing
additional development opportunities within the region.
To this end, Red 5 acquired the prospective Ockerburry Hill
tenement EL36/865 from global gold miner AngloGold Ashanti
during the year. This strategically located tenement is located
20km from Darlot and offers potential for new discoveries and
brings Red 5’s tenement footprint in the Goldfields to 36,489ha.
Figure 1: Darlot and King of the Hills Project locations, showing historical production
from key gold deposits in the region.
Red 5 Limited 2018 Annual Report
3
Message to Shareholders
from the Managing Director (continued)
WEST AUSTRALIAN
GOLD OPERATIONS
Production summary
A total of 48,259 ounces of gold was
recovered for the 12 months to 30
June 2018 with ore sourced
predominantly from the Darlot Gold
Mine and a growing contribution from
the King of the Hills satellite
underground mine towards the end of
the reporting period.
A summary of key production
statistics for FY18 is provided below:
FY 2018
402,271t
3.42g/t
458,835t
3.50g/t
93.5%
48,259oz
47,286oz
Mined tonnes
Mined grade
Tonnes milled
Average head grade
Recovery
Gold recovered
Gold sales
Processing
The performance of the
processing plant at Darlot
supports Red 5’s aim to fully utilise
mill capacity to reduce unit operating
costs. The processing plant
performed strongly during the period
and gold recoveries were generally in
line with expectations.
The mill achieved an average
throughput of 115tph in the June 2018
Quarter, resulting in a record of
78,611 tonnes being milled for the
month of June 2018. Daily mill
throughputs in excess of 130tph have
also been achieved on a sustained
basis, resulting in a new Darlot record
for 24-hour milled tonnes of 3,249t in
June 2018, equating to an annual
throughput rate in excess of 1.1Mtpa,
compared to nameplate of 0.83Mtpa.
Mining activities
A key part of Red 5’s Stage 1
development plan for Darlot is to
mine a number of different areas in
the upper and mid-levels of the mine
which had previously been
considered to have been sterilised.
Figure 2: Plan view of the Darlot lodes showing location of key mining and development areas.
This program delivered promising early results, with stopes in the first three extensions to
existing mining areas (Marsh, Walters and Bradman) exceeding expectations in terms of
mined tonnages and grade (see Figure 2).
Ore was sourced from multiple working areas during the reporting period including the higher
grade Oval orebody, located within the Centenary underground mining area at Darlot.
Remnant mining in the Marsh, Walters and Bradman areas continued during the year,
producing high to mid-grade ore supplementing material from the primary Oval orebody.
Ore drive development commenced during the year on the Oval 655 and Oval 723 ore drives
(see Figure 3), with bulk stoping of the new ore zone scheduled to commence in October
2018. Oval West is expected to become an important source of high-grade ore feed for the
Darlot operation over the next two years.
Figure 3: New mine design for the Oval mining area.
4
Red 5 Limited 2018 Annual Report
Message to Shareholders
from the Managing Director (continued)
Three new Volvo A45G articulated trucks
were mobilised to Darlot during the
reporting period under a 36-month
lease-to-buy arrangement (see Figure 4).
This represented the first significant capital
investment ($2.3 million) at Darlot for
several years.
Figure 4: New mining equipment at Darlot.
Figure 5: Long Section view looking east of the King of the Hills Deposit, illustrating the current pit, the North Mine underground workings and the proposed mine design for the King of
the Hills mining areas.
KING OF THE HILLS PROJECT
Mining activities
The underground mining contract was awarded to experienced underground
mining contractors, Pit n Portal Mining Services. The contract is a standard
fixed and variable three-year mining contract. Underground mining
commenced at KOTH in early January 2018, with initial production coming
from the northern end of the mine in a continuation of the historical
operations of St Barbara (2011-2015) and Saracen (2016) (Figure 5). Saracen
had suspended operations in January 2017, leaving broken ore in stopes
and development headings in ore, providing an inventory that allowed a
rapid production re-start for Red 5 in 2018.
The ramp-up of production progressed well during the reporting period, with
the KOTH underground mine contributing 8,962 ounces for the year to the
Company’s production profile.
Airleg mining has been undertaken to access narrow, high-grade
mineralised veins at KOTH, together with development of 3m by 3m drives to
access additional bays for stoping. Production from these veins contributed
a total of 3,780 ounces towards production from KOTH during the reporting
period. Based on the success of these narrow vein mining techniques, over
170 mineralised veins are currently being remodelled.
Figure 6: (Top) Aggo lode cross-cutting in the C5145 DP with values
returning grades of 0.5m @ 35.7g/t Au. (Above) Kaiser –
W5000 Airleg Face returning grades of 1.8m @ 21.0g/t Au.
5
Red 5 Limited 2018 Annual Report
Message to Shareholders
from the Managing Director (continued)
EXPLORATION AND RESOURCE
DEVELOPMENT
Darlot Gold Mine – Initial JORC 2012 Mineral
Resource
Red 5 completed an extensive review of the previously reported
SAMREC estimates for the Darlot mine completed by the
previous owner and reported a maiden JORC 2012 for Darlot in
December 2017. A further update was reported in August 2018
with the Darlot resource and reserve further increased to a
Mineral Resource of 6.2Mt @ 4.8g/t Au for 949koz of contained
gold with the updated Ore Reserve of 1.92Mt @ 3.5g/t Au for
219koz of contained gold (including stockpiles).
A resource estimate for King of the Hills was also reported
following underground drilling that commenced in January 2018,
with a Mineral Resource of 3.89Mt @ 5.3g/t Au for 658koz of
contained gold and a maiden Ore Reserve of 0.71Mt @ 3.9g/t Au
for 88koz of contained gold.
Darlot exploration
The presence of numerous ore grade intercepts over multiple
prospect areas combined with potential to both extend existing
deposits and discover new deposits, presents a significant
exploration opportunity. This is supported by a vast drilling and
exploration database, including comprehensive cutting-edge 3D
seismic studies, structural modelling, geophysical surveys and
geochemical fingerprinting based on historical drill chips and
field mapping.
Exploration activities during the reporting period were prioritised
around:
• Near-mine extensional opportunities of existing deposits and
mining areas;
• Surface targets offering the potential for significant new
discoveries and repetitions of the Darlot and Centenary
orebodies;
• Targets generated by the 3D seismic surveys completed over
the Darlot tenements last year; and
• Potential open pit oxide targets associated with a series of
small historical pre-JORC 2012 resources.
Oval diamond drilling
The Oval workings are located at the bottom of the Oval structure
which is part of the Centenary underground mining area at Darlot
(Figures 8 and 9). The Oval workings commenced production in
February 2017, with this sector of the mine representing a main
source of high-grade ore feed to the Darlot plant.
An underground diamond drilling program commenced in
January 2018 targeting the Oval structure, located along strike
from the current Oval underground workings, with further holes
targeting down dip of the Oval resource after completion of these
holes.
Figure 7: DDH1 drilling at KOTH for metallurgical heap leach samples.
Initial development activities at KOTH focused on establishing
and extending the central decline and towards the new southern
orebodies, initially targeting the Riverrun and Theon lodes. This
development also intersected and exposed two other potential
ore sources in the Gilly and Aggo Lodes.
Sterilisation drilling for the Regal decline intersected ore, resulting
in an 80m extension to the mining region and redesign of the
decline and take-off position on the Link Drive. Development of
this decline commenced during the June 2018 Quarter following
dewatering of the Link Drive and re-establishment of services.
A new Sandvik DD321 jumbo was mobilised to KOTH, which
will allow for a reduction in the widths of ore development to
3.8 metres thereby reducing dilution.
Recent exploration drilling at King of the Hills has delivered an
important breakthrough in the Company’s understanding of the
structure and controls of gold mineralisation in the region. The
drilling has confirmed the presence of a significant gold-bearing
zone of tension veins and stockworks located close to an existing
mining area. It has also demonstrated that drilling in a northerly/
southerly direction in the region of the granitoid/ultramafic
contact is optimal for picking up these vein stockworks, which
would be missed by drilling perpendicular to the contact.
Heap leach amenability test work was undertaken on ore
samples from the KOTH project, with positive initial results
indicating the potential for heap leaching of lower grade ores
from both the underground and ore which can be accessed via
a cut-back on the historical open pit. Preliminary Intermittent
Bottle Roll (IBR) test work indicates >70% gold recovery is
achievable at typical heap leach operating conditions.
Second stage column test work is currently underway.
6
Red 5 Limited 2018 Annual Report
Message to Shareholders
from the Managing Director (continued)
Figure 8: Location of the Oval Mining Area within the Darlot Gold Mine.
Figure 9: Drilling at the Oval long section looking to the SSE.
Red 5 Limited 2018 Annual Report
7
Message to Shareholders
from the Managing Director (continued)
Drilling identified two prominent shoots below the 655m level with
good mineralisation being developed along the contact along the
lower portion of the magnetic dolerite and the Oval Fault with
another shoot being developed proximal to the Gardner Fault
with the shoot following the intersection trend between the
Gardner Fault and the magnetic dolerite with mineralisation
generally being maintained within the magnetic dolerite.
Oval Resource and Reserve update
Following the successful near-mine drilling program, Red 5
completed an updated Indicated and Inferred Mineral Resource
estimate for the Oval mining area. Ore drive development is
already underway, with bulk stoping of the new ore zone
scheduled to commence in October 2018. Oval West is expected
to become an important source of high-grade ore feed for the
Darlot operation over the next two years.
around Waikato South, with the aim to test the continuity of
mineralisation along the southern portion of the Waikato
structural corridor.
Encouraging initial assays were received from this program,
demonstrating good continuity of mineralisation along strike,
highlighting the potential of the Waikato South orebody and
indicating potential to expand the historical resource along strike
between the Waikato and Waikato South prospects (see Figure 10).
The Waikato South historical resource remains open to the
north-west, the north-east and at depth, and offers potential
extensional opportunities outside and below the current scoping
study open pits.
Deep diamond drilling
Red 5 undertook a
near-mine and regional
deep diamond drilling
program at Darlot
targeting new discoveries
that could be developed
as satellite open pit and/or
underground mines to
supplement ore feed to
the Darlot mill. Deep holes
were completed at:
• The Aurora target,
located approximately
1km south-east of the
Centenary mine at
Darlot;
• The Waikato – IP
Lords/Oval mine
corridor targeting a
strong 1.5km-long IP
chargeability zone
located 2km southwest
of the Darlot mine; and
• The Waikato Thrust
target, located 2km
from the Darlot mill.
Drilling across the Waikato
Trend was also completed,
comprising 122 RC holes
drilled for a total of
6,254m. The program was
designed to in-fill drill at
20m x 20m spacing within
open pit shells developed
from previous 80m x 40m
spaced exploration drilling
Figure 10: Plan view of the high definition magnetics showing the Waikato and Waikato South open pit prospects located along the Waikato
Magnetic Structural Trend showing historical and latest drilling.
Figure 11: Plan view showing close-up of the Waikato South Prospect along potential pit optimisations generated from the SRK review from historic
modelling (pre JORC 2012).
8
Red 5 Limited 2018 Annual Report
Message to Shareholders
from the Managing Director (continued)
Darlot – key underground
targets
A second Barminco (LM1300)
underground drill rig arrived at
Darlot in June 2018 and will be
utilised to focus on near-mine
targets and 3D seismic targets.
Key initial targets for the FY19
year include Lords High
Amplitude, Lords Northern
Extension (CDA Lords Felsics),
Oval North West and Oval
Flattening (see Figure 12).
King of the Hills
exploration
Diamond drilling commenced
at KOTH in January 2018, with
the aim of improving geological
confidence along strike and
down-dip of multiple lodes in
the North and Central mining
areas, and in-filling and
extending the current Resource
model.
Results were encouraging,
delivering high grades over
narrow intervals, which is
consistent with high-grade
narrow vein structures
observed over certain areas of
the KOTH project. Visible gold
was observed in drill core from
several locations (see Figure
13), with drilling also
intersecting several new lodes
that had not been previously
modelled.
Ockerburry Hill project
Figure 12. Key underground drilling targets at Darlot.
Figure 13: Visible gold (circled red) returned from exploration drilling at the Riverrun area (Hole KHRD0028), KOTH.
During the year Red 5 acquired the Ockerburry Hill exploration
licence (EL36/865), located 20km west of Darlot, from AngloGold
Ashanti Australia Ltd.
The tenement covers a highly prospective part of the Yandal
Greenstone Belt and includes the Ockerburry Fault System and
other interpreted mineralised structures. Encouraging historical
drilling results have been returned from two key exploration
targets – the Dingo Ridge Prospect (previously drilled by WMC,
Goldfields and Aragon Resources) and the Spargos Prospect
(previously drilled by Homestake).
SIANA GOLD PROJECT, PHILIPPINES
Through its Philippine-affiliated company Greenstone Resources
Corporation, the Red 5 Group holds an interest in the Siana Gold
Project, located on the island of Mindanao in the Philippines,
which is held under a Mineral Production Sharing Agreement
(MPSA). Mining operations at the Siana Project are currently
suspended, pending an improvement in operating conditions in
the Philippines.
Ongoing activities at the Siana project during the year included
ongoing dewatering of the open pit, infrastructure maintenance,
monitoring of geotechnical issues and pit wall stability and
community and government relations activities. A gold shipment
comprising 2,939oz was completed in October 2017 from gold
recovered from the processing of medium-low grade stockpiles
at Siana.
Red 5 Limited 2018 Annual Report
9
Message to Shareholders
from the Managing Director (continued)
Subsequent to the end of the reporting period, Greenstone
Resources was issued with a Clearance and Notice to Proceed
from the Philippines Mines and Geoscience Bureau (MGB) to
construct and operate Tailings Storage Facility 6 (TSF6) at Siana.
The Philippines Environmental Management Bureau has also
amended the co-ordinates of the Environmental Compliance
Certificate for the Siana Gold Project to include the proposed
area of TSF6, which will allow construction and operation of TSF
6 to proceed, subject to the completion of standard local
construction permitting requirements. TSF 6, which is the initial
tailings storage facility planned for Siana, has an expected
capacity of 1 million tonnes of tailings.
Greenstone Resources is evaluating its preferred plan and
options for the Siana Gold Project, including a revised mining
strategy for the Siana open pit mine and required funding for the
potential future recommencement of operations. An important
part of these considerations will be the current Philippine
Government’s mining policy.
Exploration activities – Mapawa Project
Two diamond drill-holes at the Mapawa Project were completed
to comply with licence commitments and to progress ongoing
Feasibility Studies on a potential future open pit development at
the Mapawa project, as a supplementary satellite source of ore
feed to the Siana operations.
CORPORATE
Takeover Bid for Bullseye Mining Limited
On 19 February 2018, Red 5 announced a conditional off-market
takeover bid for all of shares in Bullseye Mining Limited. Bullseye
is an unlisted public company whose Western Australian-based
gold portfolio includes the Laverton Project, located ~30km to
the north of the Darlot Gold Mine. The proposed transaction is
consistent with Red 5’s Eastern Goldfields consolidation strategy,
given the proximity of the Laverton Project to the centrally
located processing facility at Darlot.
Bullseye shareholders are being offered one fully paid ordinary
share in Red 5 for every five Bullseye shares they hold. Further
details of the transaction are outlined in the Bidders Statement
lodged with ASX on 17 April 2018. The offer currently remains
open until 16 November 2018.
Sale of Mt Cattlin royalty
During the period, the Company entered into an agreement for
the sale of its royalty entitlement from the Mt Cattlin mine in
Western Australia to Canadian royalty company, Lithium Royalty
Corporation (LRC). Red 5 owned the right to receive a royalty of
$1.50 per tonne of ore processed from the Mt Cattlin mine which
is owned and operated by ASX-listed Galaxy Resources Limited
(Galaxy Resources). The sale consideration comprised $11
million which was received in July 2018.
Cash balance
The Group’s cash balance, including bullion on hand at the end
of June 2018 was $12.9 million. A gold loan facility of 5,015
ounces for net proceeds of approximately $8.2 million was
entered into in September 2018.
Summary and outlook
The past year has been an exceptionally active period for Red 5,
with the Company completing the Darlot and KOTH acquisitions,
successfully integrating these new mines and operational teams
into the Red 5 Group, and embarking on exploration and
development programs to advance the Company’s Eastern
Goldfields consolidation and growth strategy.
The reported increases in the Mineral Resources and Ore
Reserves base will generate significant production growth, with a
clear mine life visibility of at least three years and significant
opportunities for further Resource and Reserve expansion.
Ongoing operational and cost efficiency programmes are
continuing aimed at reducing operating costs.
In parallel with our activities in the Eastern Goldfields, careful
consideration is being given to the next steps to maximise the
value of the Group’s investment in the Siana Gold Project in the
Philippines, in light of the receipt of clearance for the construction
and operation of a new tailings storage facility.
We move into FY2019 with a positive outlook. Our gold
operations in the Eastern Goldfields are now approaching
steady-state production, we have an expanding Reserve base to
underpin initial mine life, we have a pipeline of brownfields and
greenfields exploration targets to be progressively tested over
the coming months, and we are now in a position to consider the
best options to deliver value from our significant asset base in the
Philippines.
This is a great result by the Red 5 team and I would like to
sincerely acknowledge the outstanding efforts of our entire team
of staff and contractors in delivering this impressive outcome. I
would also like to acknowledge the strong ongoing support of our
shareholders.
This is an exciting period for Red 5, and we can all look to the
future with great drive and enthusiasm.
Mark Williams
Managing Director
25 September 2018
10
Red 5 Limited 2018 Annual Report
Resources & Reserves Statement
Mineral Resources and Ore Reserves
WESTERN AUSTRALIAN GOLD OPERATIONS
During the 2018 financial year, Red 5 acquired the Darlot Gold
Mine from Gold Fields Australia and the King of the Hills project
from Saracen Mineral Holdings, with both projects located in the
Eastern Goldfields of Western Australia. The underground
operations from the two mines provide feed for the Darlot
processing plant with the ore mined from King of the Hills being
transported by road trains to Darlot.
In December 2017, Red 5 reported maiden JORC 2012 mineral
resources and ore reserve estimates for the Darlot mine. In
August 2018, the Darlot resource and reserve estimates were
further updated. The King of the Hills resource and ore reserve
estimates were also updated in August 2018 following
underground drilling programmes which commenced in
January 2018.
DARLOT GOLD MINE JORC 2012 UNDERGROUND RESOURCE AND RESERVE AS AT 30 JUNE 2018
Darlot Mineral Resource as at 30 June 2018
Estimate
Classification
Cut Off Au
(g/t)
Tonnes
(kt)
30 June 2018
JORC 2012
21 December 2017
JORC 2012
difference
Measured
Indicated
Inferred
UG broken stocks
ROM stockpile
Total
Measured
Indicated
Inferred
UG broken stocks
ROM stockpile
Total
Measured
Indicated
Inferred
UG broken stocks
ROM stockpile
Total
Darlot Ore Reserve as at 30 June 2018
Estimate
Classification
30 June 2018
JORC 2012
21 December 2017
JORC 2012
difference
Proved
Probable
UG broken stocks
ROM stockpile
Total
Proved
Probable
UG broken stocks
ROM stockpile
Total
Proved
Probable
UG broken stocks
ROM stockpile
Total
2.0
2.0
2.0
Variable
Variable
Variable
2.0
2.0
2.0
Variable
Variable
Variable
0.0
0.0
0.0
Variable
Variable
Variable
7
4,122
2,080
20
20
6,249
7
3,904
2,086
24
13
6,035
-
218
-6
-4
7
214
Au
g/t
10.1
5.1
4.0
2.0
2.3
4.7
10.1
4.9
4.1
4.4
3.8
4.6
-
0.2
-0.1
-2.4
-1.5
0.1
Contained Au
(koz)
2.0
677
269
1.4
1.8
951
2.0
615
278
3.4
1.6
900
-
62
-9
-2
-
51
Cut Off Au
(g/t)
Tonnes
(kt)
Au
g/t
Contained Au
(koz)
Recovered Au
metal (koz)
2.4
2.4
Variable
Variable
Variable
-
2.4
Variable
Variable
Variable
2.4
0.0
Variable
Variable
Variable
10
1,870
20
20
1,920
-
1,000
24
13
1,037
10
870
-4
7
883
3.9
3.6
2.0
2.3
3.5
-
4.0
4.4
3.8
3.8
3.9
-0.4
-2.4
-1.5
-0.3
1
215
1
2
219
-
132
3
2
137
1
83
-2
-
82
1
202
1
2
206
-
124
3
2
129
1
78
-2
-
77
Red 5 Limited 2018 Annual Report
11
Mineral Resources and Ore Reserves (continued)
KING OF THE HILLS JORC 2012 UNDERGROUND RESOURCE AND RESERVE AS AT 30 JUNE 2018
KOTH Mineral Resource as at 30 June 2018
Estimate
Classification
Cut Off Au
(g/t)
Tonnes
(kt)
Au
g/t
Contained Au
(koz)
30 June 2018
JORC 2012
2 August 2017
JORC 2012
difference
Measured
Indicated
Inferred
ROM stockpile
Total
Measured
Indicated
Inferred
ROM stockpile
Total
Measured
Indicated
Inferred
ROM stockpile
Total
-
2.0
2.0
Variable
Variable
-
2.0
2.0
-
Variable
0.0
0.0
0.0
Variable
Variable
-
2,535
1,358
11
3,904
-
1,109
1,601
-
2,710
-
1,426
-243
11
1,194
-
5.3
5.2
1.6
5.2
-
5.1
4.3
-
4.6
-
0.2
0.9
1.6
0.6
-
432
226
0.6
659
-
183
219
-
402
-
249
7
1
257
KOTH Ore Reserve as at 30 June 2018
Estimate
Classification
30 June 2018
JORC 2012
Proved
Probable
ROM stockpile
Total
Cut Off Au
(g/t)
Tonnes
(kt)
-
2.4
Variable
Variable
-
710
10
720
Au
g/t
-
3.9
1.9
3.8
Contained Au
(koz)
Recovered Au
metal (koz)
-
88
1
89
-
82
1
83
Ore Reserves for the King of the Hills mine are a maiden release for Red 5.
PHILIPPINE OPERATIONS
SIANA GOLD PROJECT
An annual review and update to the Mineral Resource and Ore Reserve estimates for the year ended 30 June 2018 has been
undertaken, with no resultant change from the figures quoted at 30 June 2017.
Open pit mining operations at the Siana project were suspended in April 2017 due to ongoing uncertainty regarding regulatory and
government mining policy in the Philippines. Pending completion of standard local permitting requirements and construction of a new
Tailings Storage Facility (TSF) and in compliance with JORC 2012 reporting criteria, no JORC 2012 Reserve estimate for the Siana open
pit is reported as at 30 June 2018. The underground Reserve is not impacted by the unavailability of surface tailings storage capacity,
as the underground development is based on cemented tailings produced through the Siana processing plant being back-filled into
stoped-out areas. The non-reporting of an open pit Reserve does not impact the reporting of the remaining Siana open pit and
underground resources.
The underground Probable Reserve as at 30 June 2018 is 3.01Mt @ 4.1 g/t gold for 396koz of contained gold, which underpins the
planned development of an underground mine directly below the existing open pit to extract 0.5Mt of ore per annum for processing
through the existing Siana processing plant.
12
Red 5 Limited 2018 Annual Report
Mineral Resources and Ore Reserves (continued)
SIANA JORC 2012 OPEN PIT MINERAL RESOURCE AND ORE RESERVE AS AT 30 JUNE 2018
Siana Open Pit Mineral Resource as at 30 June 2018
Estimate
Classification
30 June 2018
JORC 2012
Indicated
Inferred
ROM stockpile
Total
Cut Off Au
(g/t)
Tonnes
(kt)
0.7
0.7
0.7
0.7
650
30
290
970
Au
g/t
3.7
2.8
1.1
2.9
Ag
g/t
7.9
1.2
6.6
7.3
Contained
Au (koz)
Contained
Ag (koz)
77
3
10
90
164
1
61
226
There have been no changes to the Siana Open Pit Mineral Resource as reported at 30 June 2017.
The reporting methodology for the Open Pit Indicated and Inferred Resource only reports material within the pit design as at July 2016
at a 0.7 g/t gold cut-off grade. All indicated and inferred material below the design pit has been reported within the JORC 2012
underground resource model at a 2.4 g/t gold cut-off grade.
Siana Open Pit Ore Reserve as at 30 June 2018
Estimate
Classification
30 June 2018
JORC 2012
Probable 1
ROM stockpile
Total
Cut Off Au
(g/t)
Tonnes
(kt)
-
0.7
0.7
-
290
290
Au
g/t
-
1.1
1.1
Ag
g/t
-
6.6
6.6
Contained
Au (koz)
Contained
Ag (koz)
-
10
10
-
61
61
1 No JORC 2012 Open Pit Reserve is reported as at 30 June 2018 for the Siana project, pending construction of a new TSF.
There have been no changes to the Siana Open Pit Reserve as reported at 30 June 2017.
SIANA JORC 2012 UNDERGROUND MINERAL RESOURCE AND ORE RESERVE AS AT 30 JUNE 2018
Siana Underground Mineral Resource as at 30 June 2018
Estimate
Classification
30 June 2018
JORC 2012
Indicated
Inferred
Total
Cut Off Au
(g/t)
Tonnes
(kt)
2.4
2.4
2.4
3,400
500
3,900
Au
g/t
5.2
9.3
5.7
Ag
g/t
7.2
11.2
7.7
Contained
Au (koz)
Contained
Ag (koz)
566
153
719
779
186
964
There have been no changes to the Siana Underground Mineral Resources as reported at 30 June 2017.
Siana Underground Ore Reserve as at 30 June 2018
Estimate
Classification
30 June 2018
JORC 2012
Probable
Total
Cut Off Au
(g/t)
Tonnes
(kt)
2.4
2.4
3,010
3,010
Au
g/t
4.1
4.1
Ag
g/t
6.7
6.7
Contained
Au (koz)
Contained
Ag (koz)
396
396
644
644
There have been no changes to the Siana Underground Ore Reserve as reported at 30 June 2017.
MAPAWA JORC 2012 OPEN PIT MINERAL RESOURCE
Mapawa JORC 2012 Resource as at 30 June 2018
Estimate
Classification
30 June 2018
JORC 2012
Indicated
Inferred
Total
Cut Off Au
(g/t)
Tonnes
(kt)
0.7
0.7
0.7
3,270
5,560
8,830
Au
g/t
1.0
1.0
1.0
Ag
g/t
3.5
2.5
2.9
Contained
Au (koz)
Contained
Ag (koz)
103
185
289
371
438
809
There have been no changes to the Mapawa Open Pit Mineral Resources as reported at 30 June 2017.
Red 5 Limited 2018 Annual Report
13
Mineral Resources and Ore Reserves (continued)
Competent Person’s Statement for JORC 2012
Resource and Reserve
Mineral Resource
Mr Byron Dumpleton, confirms that he is the Competent Person for the
Mineral Resources summarised in this report and Mr Dumpleton has
read and understood the requirements of the 2012 Edition of the
Australasian Code for Reporting of Exploration Results, Mineral
Resources and Ore Reserves (JORC Code, 2012 Edition). Mr Dumpleton
is a Competent Person as defined by the JORC Code, 2012 Edition,
having five years’ experience that is relevant to the style of mineralisation
and type of deposit described in this report and to the activity for which
he is accepting responsibility. Mr Dumpleton is a Member of the
Australian Institute of Geoscientists, No. 1598. Mr Dumpleton is a full
time employee of Red 5 Limited. Mr Dumpleton has reviewed this
report and consents to the inclusion of the matters based on his
supporting information in the form and context in which it appears.
Mr Dumpleton verifies that the Exploration Results and Mineral
Resource estimate section of this report is based on and fairly and
accurately reflects in the form and context in which it appears, the
information in his supporting documentation relating to Open Pit and
Underground Mineral Resource estimates.
Ore Reserve
Mr Steve Tombs confirms that he is the Competent Person for the
underground and open pit Ore Reserve estimates summarised in this
report and Mr Tombs has read and understood the requirements of the
2012 Edition of the Australasian Code for Reporting of Exploration
Results, Mineral Resources and Ore Reserves (JORC Code, 2012 Edition).
Mr Tombs is a Competent Person as defined by the JORC Code, 2012
Edition, having five years’ experience that is relevant to the style of
mineralisation and type of deposit described in the report and to the
activity for which he is accepting responsibility. Mr Tombs is a Fellow
of the Australasian Institute of Mining and Metallurgy, No. 105785.
Mr Tombs is a non-executive director of Red 5. Mr Tombs has reviewed
this report and consents to the inclusion of the matters based on his
supporting information in the form and context in which it appears.
Mr Tombs verifies that the Ore Reserve section of this report is based
on and fairly and accurately reflects in the form and context in which it
appears, the information in his supporting documentation relating to
the Ore Reserves.
Governance and internal controls
Mineral Resources and Ore Reserves are estimated either by
suitably qualified consultants or internal personnel in accordance
with the applicable JORC Code and using industry standard
techniques and internal guidelines for the estimation and reporting
of Mineral Resources and Ore Reserves. All data is collected in
accordance with applicable JORC Code requirements. Ore
Reserve estimates are based on pre-feasibility or feasibility
studies which consider all material factors.
The estimates and supporting data and documentation are
reviewed by qualified Competent Persons (including estimation
methodology, sampling, analytical and test data).
General notes on Mineral Resources and Ore Reserves
Mineral Resources are quoted as inclusive of Ore Reserves and Ore Reserves are
quoted as inclusive of Mineral Resources. Discrepancy in summation may occur due
to rounding. All ROM stocks and underground stocks quoted are classified as
Indicated material and as a Probable reserve. Figures take into account mining
depletion as at 30 June 2018.
Notes on Darlot Underground JORC 2012 Mineral Resources
and Ore Reserves
Mineral Resources:
1. The updated JORC 2012 Underground Reserve expected marginal cut off will
range between <2.0 to 2.3 g/t Au.
2.
The Darlot Resource figures quoted are the sum of the Centenary, Pederson,
Pederson South, Lords South Lower, Oval and Burswood underground mine
working areas.
4. Most of the Mineral Resources are currently being mined, and the Burswood
deposit is situated adjacent to current underground workings and mine
development has commenced to target this deposit.
Ore Reserves:
1. Gold price of A$1,650 used in the calculations of the Darlot Ore Reserves.
2. Current processing recoveries at the Darlot processing plant range between
93% to 94% for Au.
3. No Inferred Resources have been used in the derivation of the Ore Reserve
estimate.
4.
External dilution of 20% has been applied.
Notes on KOTH Underground JORC 2012 Mineral Resources
and Ore Reserves
Mineral Resources:
1. The updated JORC 2012 Underground Reserve expected mining cut off is 2.0
g/t Au.
2. ROM stocks are reported as Indicated material.
Ore Reserves:
1. Gold price of A$1,650 used in the calculations of the Darlot Ore Reserves.
2. Current processing recoveries at the Darlot processing plant range between
93% to 94% for Au.
3. No Inferred Resources have been used in the derivation of the Ore Reserve
estimate.
4.
External dilution of 20% has been applied.
Notes on Siana Open Pit JORC 2012 Mineral Resources and Ore
Reserves
1.
The Open Pit Resource has only been reported above the June 2016 stage 4 pit
design.
2.
The resource gold cut-off is based on the Open Pit Ore Reserve marginal cut-off
grade of 0.7 g/t gold whilst operating which was based on a gold price of
US$1,200/oz and silver price of US15/oz, along with a PHP:USD exchange rate
of 47:1.
3.
The Open Pit resource model has been lithologically defined and is suitable for
bulk mining evaluation and not suited for “narrow vein” mine evaluation.
4. Within the open pit resource block model a 15% upgrade factor on gold values
above 1.2 g/t has been applied. Actual mill reconciliation is closer to 25%. As a
result, the variance between the upgrade factor and mill reconciliation has been
used as a de facto dilution factor. The Siana Open Pit Ore Reserve was mined
using conventional open pit mining methods using top hammer drill rigs, CAT 40
tonne articulated Dump Trucks and 85 tonne class hydraulic excavators. The
same conventional open pit methods will be used upon recommencement of
open pit mining operations.
5. ROM material ounces quoted in the open pit reserve table are based on
contained metal. Processing recoveries of 85% for gold and 40% for silver are
used mine and financial planning.
6.
Following the suspension of mining operations at the Siana project and pending
construction of a new TSF, no JORC 2012 Open Pit Reserve statement has been
reported as at 30 June 2018.
14
Red 5 Limited 2018 Annual Report
Mineral Resources and Ore Reserves (continued)
Notes on Siana Underground JORC 2012 Mineral Resources
and Ore Reserves
1.
The resource for this model has only been reported below the Stage 4 Final
Open Pit (-130m level) for the June 2016 figures.
Notes on Mapawa JORC 2012 Mineral Resources
1.
The Mapawa LSY deposit was independently estimated by geological
consultants, Optiro Pty Ltd
2.
The figures take into account historic mining depletion.
2.
3.
The Underground Mineral Resource estimate was prepared by Mining One Pty
Ltd.
For grade estimation, the updated Siana underground resource has been
constrained based on the geological interpretation which coincides with a
nominal 1.0 g/t Au threshold grade. Zones of internal waste within some zones
graded less than 1.0 g/t Au over a nominal two metres length and were
interpreted and estimated separately.
4.
The Siana Underground Resource model is suitable for underground mining
evaluation below the Stage 4 final open pit.
5. Reserves have been reported below the Stage 4 Final Pit (-130m level) as at
March 2016 design.
6. No Inferred Resources have been used in the derivation of the Ore Reserve
estimate. A cut-off grade of 2.4 g/t Au has been applied for the underground
ore reserves.
7. Reserve ounces quoted are based on contained metal. Processing recoveries of
89% for gold and 45% for silver are used mine and financial planning.
Tenement Schedule
as at 21 September 2018
WESTERN AUSTRALIA
Project
Darlot Gold Mine
King of the Hills Project
Tenement number
E36/0865, E37/1247, E37/1268, E37/1269, E37/1296, E37/1297, E37/1298, L37/0109,
L37/0110, L37/0118, L37/0206, L37/0207, L37/0223, L37/0224, L37/230, L37/0237,
M37/0155, M37/0252, M37/0373, M37/0417, M37/0418, M37/0419, M37/0420, M37/0584,
M37/0592, M37/0608, M37/0667, M37/0774, M37/0775, M37/1217, P37/8698, P37/8699,
P37/8700, P37/8701, P37/8716, P37/8788, P37/8789
L37/0231, L37/238, E36/0941, E36/0944, E36/0945, E37/1350, E37/1352, P36/1879
M37/0552, M37/0631, M37/0709, M37/1045
M37/0246, M37/0265, M37/0320, M37/0343, M37/0345, M37/0393, M37/0776
M37/0421, M37/0632
L37/0211, M37/0021, M37/0067, M37/0076, M37/0090, M37/0179, M37/0201, M37/0222,
M37/0248, M37/0330, M37/0394, M37/0407, M37/0410, M37/0416, M37/0429, M37/0449,
M37/0451, M37/0457, M37/0496, M37/0529, M37/0544, M37/0547, M37/0548, M37/0551,
M37/0570, M37/0571, M37/0572, M37/0573, M37/0574, M37/0905, M37/1050, M37/1051,
M37/1081, M37/1105, M37/1165, P37/8391, P37/8392, P37/8393, P37/8394
P37/9157, P37/9160, P37/9161
Montague Project
M57/429, M57/485, E57/793
Red 5 interest
100%
100% (Applications pending)
49%
83.5%
100% with portion of tenements
at 49% via agreement
100%
100% (Applications pending)
25% free carried
PHILIPPINES
Project
Tenement number
Registered holder
Equity interest
Siana Gold Project
MPSA 184-2002-XIII
Mapawa Gold Project
MPSA 280-2009-XIII
APSA 46-XIII
Abbreviations
M: Mining Lease
P: Prospecting Licence
E: Exploration Licence
L: Miscellaneous Licence
Greenstone
Greenstone
Greenstone
Red 5
40%
40%
40%
Other
SHIC 60%
SHIC 60%
SHIC 60%
Greenstone: Greenstone Resources Corporation
SHIC: Surigao Holdings and Investments Corporation
MPSA: Mineral Production Sharing Agreement
APSA: Application for MPSA
Red 5 Limited 2018 Annual Report
15
Directors’ Report
for the year ended 30 June 2018
The Directors of Red 5 Limited (“Red 5”, “Company” or “parent
entity”) present their report on the results and state of affairs of
Red 5 and its subsidiaries (“the Group” or the “consolidated
entity”) for the financial year ended 30 June 2018.
Production summary
A total of 48,259 ounces of gold was recovered for the 2018
financial year from the Australian operation (2017: 41,370 - Siana).
DIRECTORS
The names of the Directors of Red 5 in office during the course of
the financial year and at the date of this report are as follows:
Kevin Anthony Dundo
Mark James Williams
Ian Keith Macpherson
John Colin Loosemore
Steven Lloyd Tombs (appointed on 1 August 2018)
Unless otherwise indicated, all Directors held their position as a
Director throughout the entire financial year and up to the date of
this report.
Subsequent to the year end, the General Manager Operations,
Steve Tombs, retired from the Group’s executive management
team on 31 July 2018, and was appointed as a non-executive
director effective from 1 August 2018.
PRINCIPAL ACTIVITIES
The principal activities of the Group during the course of the
financial year were gold mining and production and mineral
exploration.
458,835 tonnes of ore were processed for the year (2017: 587,461
– Siana project). The average head grade was 3.5 g/t Au and
average recovery was 94% for the year.
Summary of Australian production:
Mined tonnes
Mined grade
Tonnes milled
Average head grade
Recovery
Gold recovered
Gold sales
Gold sales
Units
t
g/t
t
g/t
%
oz
oz
2017/18
402,271
3.42
458,835
3.50
93.5
48,259
47,286
Gold sales for the reporting period totalled A$77.1 million (2017:
A$68.5 million – Siana project) which excludes $13.7 million of
sales from the King of the Hills operation which have been offset
against mine development costs. 47,286 ounces (2017: 41,296 –
Siana project) were sold at an average price received of
US$1,315 per ounce (2017: US$1,260 – Siana project).
OPERATING AND FINANCIAL REVIEW
Financial Summary
The net loss of the consolidated entity after income tax was
$11.9 million (2017: Loss of $110.2 million, inclusive of a non-cash
impairment charge on property plant and equipment and mine
properties for the Siana Gold Project of $99.8 million).
Project description
Darlot Mining Company Pty Ltd and the King of the Hills gold
projects were acquired by the Group on 2 October 2017. Darlot
gold mine is located approximately 900 kilometres north-east of
Perth in Western Australia and the King of the Hills gold project is
located approximately 80 kilometres south of the Darlot mine.
Subsequent to the end of the financial year the Company’s
Philippine-affiliated company Greenstone Resources Corporation
(GRC), was issued a Clearance and Notice to Proceed from the
Philippines Mines and Geoscience Bureau (MGB) to construct
and operate Tailings Storage Facility 6 (TSF 6) at the Siana Gold
Project in the Philippines.
The Philippines Environmental Management Bureau has
also amended the co-ordinates of Greenstone Resources’
Environmental Compliance Certificate for the Siana Gold Project
to include the proposed area of TSF 6, which will allow construction
and operation of TSF 6 to proceed, subject to the completion of
standard local construction permitting requirements. TSF 6,
which is the initial tailings storage facility planned for Siana, has
an expected capacity of 1 million tonnes of tailings.
The consolidated entity recorded an operating loss before tax of
$13.8 million (2017: Loss of $10.3 million).
Financial Summary
Sale proceeds
Cost of goods sold
Gross profit/(loss) from operations
Other income
Exploration
Administration and other expenses
Net profit/(loss) before tax
and impairment
Year ended
30 June 2018 30 June 2017
A$M
68.5
A$M
77.1
(80.4)
(3.3)
13.9
(5.6)
(19.4)
(71.7)
(3.2)
1.0
(1.5)
(6.6)
(14.4)
(10.3)(1)
(1) Before impairment of $99.8 million. Refer to Note 12 for additional detail.
DIVIDENDS
No amounts were paid by way of dividend since the end of the
previous financial year (2017: Nil). At the time of this report the
Directors do not recommend the payment of a dividend.
16
Red 5 Limited 2018 Annual Report
Directors’ Report (continued)
OPTIONS GRANTED OVER SHARES
No options were granted during or since the end of the financial
year. No person entitled to exercise the options has any right by
virtue of the option to participate in any share issue of Red 5 or
any other corporation.
This facility was drawn down in September 2018 for net proceeds
of approximately A$8.2 million and, together with cash-flow from
existing operations will be used to advance development at
Darlot and King of the Hills, maintain ongoing exploration
momentum at both mines and for general working capital
purposes.
LIKELY DEVELOPMENTS
In the opinion of the Directors there is no information available as
at the date of this report on any likely developments which may
materially affect the operations of the Group other than detailed
in the subsequent events and the expected results of those
operations.
INFORMATION ON DIRECTORS
Kevin Dundo
(Non-Executive Chairman)
B.Com, LLB, FCPA
A Non-Executive Director since March 2010 and Chairman
since November 2013. Mr Dundo practices as a lawyer and
specialises in commercial and corporate areas with experience
in the mining sector, the service industry and the financial
services industry. Mr Dundo is a member of the remuneration
and nomination committee, the audit committee and the health,
safety, environment and community committee.
Other current public listed company directorships:
Imdex Limited (since January 2004) and Cash Converters
International Limited (since February 2015).
Mark Williams
(Managing Director)
Dip CSM Mining, GAICD
A Non-Executive Director from January 2014 and Managing
Director since April 2014. Mr Williams was previously General
Manager of the Tampakan Copper-Gold Project in the southern
Philippines from 2007 to 2013. He has over 20 years of mining
experience operating within a diverse range of open cut,
underground, quarrying and civil engineering environments
across the developed markets of Australia, United Kingdom and
New Zealand as well as the emerging markets of Philippines,
Vietnam, Thailand and South Pacific.
Mr Williams has not held directorships in any other listed
companies in the last 3 years.
PERFORMANCE RIGHTS
At the date of this report, there were 15,643,200 performance
rights convertible into ordinary fully paid shares.
- Vesting date: 30 June 2020
(subject to performance conditions)
Number
15,643,200
15,643,200
EVENTS SUbSEqUENT TO THE END OF
THE FINANCIAL YEAR
Royalty sale
In June 2018 the Company entered into an agreement for the sale
of the Company’s royalty entitlement from the Mt Cattlin mine in
Western Australia to Canadian royalty company, Lithium Royalty
Corporation. At year end the sale of the royalty was recognised,
as all material conditions to the Sale and Purchase Agreement
had been satisfied. The total consideration for the transaction of
$11 million was received in July 2018.
Siana Gold Project approval
Subsequent to the end of the financial year the Company’s
Philippine-affiliated company Greenstone Resources Corporation
(GRC), was issued a Clearance and Notice to Proceed from the
Philippines Mines and Geoscience Bureau (MGB) to construct
and operate Tailings Storage Facility 6 (TSF 6) at the Siana Gold
Project in the Philippines.
The Philippines Environmental Management Bureau has also
amended the co-ordinates of Greenstone Resources’
Environmental Compliance Certificate for the Siana Gold Project
to include the proposed area of TSF 6, which will allow
construction and operation of TSF 6 to proceed, subject to the
completion of standard local construction permitting
requirements. TSF 6, which is the initial tailings storage facility
planned for Siana, has an expected capacity of 1 million tonnes
of tailings.
Gold loan facility
In September 2018 the Company entered into a gold loan facility
of 5,015 ounces with Malaysian-based investment fund, Asian
Investment Management Services Ltd (AIMSL). The gold loan
facility was for the provision by AIMSL to the Company of a gold
loan of 5,015 gold ounces available in one tranche. The facility
has a term of 12 months and is secured by a security interest in
Red 5’s Australian operating subsidiary companies on a limited
recourse basis.
Red 5 Limited 2018 Annual Report
17
Directors’ Report (continued)
INFORMATION ON COMPANY SECRETARY
Frank Campagna
B.Bus (Acc), CPA
Company Secretary of Red 5 since June 2002. Mr Campagna
is a Certified Practicing Accountant with over 25 years’
experience as Company Secretary, Chief Financial Officer and
Commercial Manager for listed resources and industrial
companies. He presently operates a corporate consultancy
practice which provides corporate secretarial and advisory
services to both listed and unlisted companies.
Details of Directors’ interests in the securities of Red 5 as at the
date of this report are as follows:
Director
K Dundo
M Williams
I Macpherson
C Loosemore
S Tombs
Fully paid
shares
1,430,409
5,009,294
459,957
6,824,212
2,000,667
Options
–
–
–
–
–
Performance
Rights
–
5,616,400
–
–
–
MEETINGS OF DIRECTORS
The number of meetings of the Board of Directors of Red 5 and
of each Board committee held during the year ended 30 June
2018 and the number of meetings attended by each Director
whilst in office are as follows:
Board
meetings
Audit
committee
Remuneration
committee
d
e
d
n
e
t
t
a
r
e
b
m
u
N
9
9
9
9
l
d
e
h
r
e
b
m
u
N
9
9
9
9
d
e
d
n
e
t
t
a
r
e
b
m
u
N
2
–
2
1
d
e
d
n
e
t
t
a
r
e
b
m
u
N
2
–
2
2
l
d
e
h
r
e
b
m
u
N
2
–
2
2
l
d
e
h
r
e
b
m
u
N
2
–
2
2
K Dundo
M Williams
I Macpherson
C Loosemore
Ian Macpherson
(Non-Executive Director)
B.Comm, CA
A Non-Executive Director since April 2014. Mr Macpherson is a
chartered accountant with over 35 years’ experience in the
provision of financial and corporate advisory services. He was
a former partner at Arthur Anderson & Co managing a specialist
practice providing corporate and financial advice to the mining
and mineral exploration industry. Mr Macpherson established
Ord Partners in 1990 (later to become Ord Nexia) and has
specialised in the area of corporate advice with particular
emphasis on capital structuring, equity and debt raising,
corporate affairs and Stock Exchange compliance for publicly
listed companies. Mr Macpherson is Chairman of the audit
committee and the remuneration and nomination committee.
Other current directorships:
RBR Group Ltd (since October 2010).
Former directorships in the last 3 years:
Avita Medical Limited (March 2008-January 2016).
Colin Loosemore
(Non-Executive Director)
B.Sc.Hons., M.Sc., DIC., FAusIMM
A Non-Executive Director since December 2014. Mr Loosemore
is a geologist with over 40 years’ experience in multi-commodity
exploration including over 30 years as a director of public
exploration companies within Australia and overseas.
He graduated from London University in 1970 and the Royal
School of Mines in 1977. Mr Loosemore was most recently
Managing Director of Archipelago Resources plc where he
oversaw development of the Toka Tindung Gold Mine in
Sulawesi, Indonesia. Mr Loosemore is a member of the
remuneration and nomination committee and the audit
committee and is Chairman of the health, safety, environment
and community committee.
Mr Loosemore has not held directorships in any other listed
companies in the last 3 years.
Steve Tombs
(Non-Executive Director) Appointed 1 August 2018
B.Sc.Hons., FAusIMM
A Non-Executive Director since August 2018. Mr Tombs is a
Mining Engineer with over 40 years’ experience in the mining
industry in Australia and overseas. Mr Tombs graduated from
Nottingham University in 1976 and was previously Red 5’s
General Manager Operations at Darlot and the Underground
Project Manager at Siana. Mr Tombs previously held Senior
Management positions at AngloGold Ashanti, Placer Dome
and Newcrest in the Eastern Goldfields.
Mr Tombs has not held directorships in any other public
companies in the last 3 years.
18
Red 5 Limited 2018 Annual Report
Directors’ Report (continued)
REMUNERATION REPORT (AUDITED)
This report sets out the current remuneration arrangements for
Directors and executives of Red 5. For the purposes of this
report, key management personnel (KMP) are defined as those
persons having authority and responsibility for planning, directing
and controlling major activities of the consolidated entity,
including any Director (whether Executive or Non-Executive)
of Red 5.
The structure of remuneration packages for the Managing
Director and other senior executives comprises:
• a fixed sum base salary plus superannuation benefits;
• short term incentives linked to annual planning and longer
term objectives; and
• long term incentives through participation in performance
based equity plans, with the prior approval of shareholders to
the extent required.
The proportion of fixed and variable remuneration is established
for the Managing Director and senior executives by the
remuneration committee and is linked to both relevant market
practices and the degree to which the Board intends participants
to focus on short and long term outcomes.
The objective of short term incentives is to link achievement of
Red 5’s annual targets for outcomes linked to Red 5’s strategy, or
which clearly build shareholder value, with the remuneration
received by executives charged with meeting those targets. The
short term incentive is an “at risk” component of remuneration for
key management personnel and is payable based on
performance against key performance indicators set at the
beginning of each financial year. Targets are intended to be
challenging but achievable and may or may not be linked to
budget, depending on whether or not the budget is viewed by the
Board as meeting this definition.
The objective of long term incentives is to promote alignment
between executives and shareholders through the holding of
equity. As such, long term incentives are only granted to
executives who are able to directly influence the generation of
shareholder wealth, or who are in a position to contribute to
shareholder wealth creation.
As the operations of the Group expand, the Board continues to
progressively develop remuneration policies and practices that
appropriately link remuneration to company performance and
shareholder wealth, given the circumstances of Red 5 at the time.
This includes a long term incentive scheme whereby
Performance Rights will be granted with a measurement period
of three years with vesting conditions comprising TSR and
agreed operational measures including gold production and
strategic targets. The TSR measure is subject to a positive TSR
gate and that other measures are subject to a production or
financial gate. The Group’s Total Shareholder Return (TSR) is
measured as a percentile ranking compared to the S&P/ASX All
Ordinaries Gold Index.
Principles used to determine the nature and amount
of remuneration
Directors and executives remuneration
Red 5’s remuneration policies are designed to align executives’
remuneration with shareholders’ interests and to retain
appropriately qualified executive talent for the benefit of Red 5.
The main principles of the policy are:
• fixed remuneration should be set around the middle of the
relevant market data, at P50/50th percentile;
• reward reflects the competitive market in which Red 5
operates;
• for executives, individual reward should be linked to
performance criteria through variable remuneration, and
–
–
at target, which is intended to be a challenging but
achievable performance, the combination of fixed
remuneration and the outcomes of variable remuneration
should position Total Remuneration Packages between
P50 and P75 of the market,
variable remuneration should generally be offered in the
form of separate short (1 year) and long term (3 year)
incentives; and
• Non-Executive Directors should not receive remuneration
related to performance or participate in any executive
incentive plan.
Overall remuneration policies are determined by the Board
and are adapted to reflect competitive market and business
conditions. Within this framework, the remuneration committee
considers remuneration policies and practices generally, and
determines specific remuneration packages and other terms of
employment for the Managing Director and senior executives.
Executive remuneration and other terms of employment are
reviewed annually by the committee having regard to
performance, relevant comparative information and
expert advice.
Red 5’s remuneration policy for the Managing Director and senior
executives is designed to promote superior performance and
long term commitment to Red 5, while building sustainable
shareholder value. Remuneration packages are set at levels that
are intended to attract and retain executives capable of
managing Red 5’s operations. The Managing Director and senior
executives receive a base remuneration which is market related,
together with performance based remuneration linked to the
achievement of pre-determined milestones and targets.
Red 5 Limited 2018 Annual Report
19
Directors’ Report (continued)
Non-Executive Directors are not entitled to participate in
performance based remuneration schemes. However, the Board
proposes to seek annual shareholder reapproval for a Non-
Executive Directors’ share plan, under which Non-Executive
Directors can elect to receive a portion of their existing Directors
fees in shares in Red 5. All Directors are entitled to have
premiums on indemnity insurance paid by Red 5. During the
financial year, Red 5 paid premiums of $204,283 (2017: $202,369)
to insure the Directors and other officers of the consolidated
entity. The liabilities insured are for costs and expenses that may
be incurred in defending civil or criminal proceedings that may be
brought against the officers in their capacity as officers of entities
in the consolidated entity.
Share-based compensation
The Board has adopted the Red 5 Employee Share Option Plan
(ESOP) and a Rights Plan. The primary purposes of these plans
are to increase the motivation of employees, promote the
retention of employees, align employee interests with those of
Red 5 and its shareholders and to reward employees who
contribute to the growth of Red 5. The Red 5 Rights Plan is
appropriately utilised for offers of both deferred short term
incentives (Service and Deferred Rights) and long term incentives
(Performance Rights). Specific performance hurdles or vesting
schedules are determined by the Board at the time of grant under
the ESOP or Rights Plan in the case of LTI, and are aligned with
the stage of development and operations of the Group and
market conditions and practices.
Red 5’s share trading policy prohibits key management personnel
that are granted share-based payments as part of their
remuneration, from entering into other arrangements that limit
their exposure to losses that would result from share price
decreases. Entering into such arrangements is also prohibited
by law.
Performance incentives may be offered to the Managing Director
and senior executives through the operation of incentive
schemes. The short term incentive is offered annually, set as a
percentage of annual salary, payment of which is conditional
upon the achievement of agreed key performance indicators
(KPIs) for each executive, which comprise a combination of
agreed milestones and financial measures. These milestones are
selected from group, functional/unit and individual level
objectives, each weighted to reflect their relative importance and
each with targets linked to the Board’s expectations and with
threshold, target and stretch levels set where possible (some
KPIs are binary and are either achieved or not achieved). The
KPIs comprise financial and non-financial objectives and include
out-performance against the annual operating budget, health and
safety targets and specific operations-related milestones.
Measures chosen directly align the individual’s reward to the KPIs
of the group and to its strategy and performance. The plan also
has a financial gate to ensure that no performance bonus is
payable when it would be inappropriate or unaffordable to do so.
Any award under the STI for the Managing Director is subject to
deferral at a rate of 50% of the award, to be delivered in the form
of Service or Deferred Rights, subject to shareholder approval, if
required. The Service and Deferred Rights are intended to
prevent the equity being sold for a period of 12 to 24 months
(respectively). The purpose of deferral is to manage the risk of
short-termism inherent in setting short term objectives, to
promote sustainable value creation and to build further alignment
with shareholders.
Non-Executive Directors’ remuneration
In accordance with current corporate governance practices, the
structure for the remuneration of Non-Executive Directors and
senior executives is separate and distinct. Shareholders approve
the maximum aggregate remuneration payable to Non-Executive
Directors, with the current approved limit being $500,000 per
annum. The remuneration committee recommends the actual
payments to Directors and the Board is responsible for ratifying
any recommendations. The current fee policy is as follows:
• the Chair receives fees of $120,000 per annum plus
superannuation;
• Non-Executive Directors receive $90,000 per annum plus
superannuation;
• Chairs of Board committees receive:
–
–
$10,000 per annum plus superannuation for the audit
committee, and
$5,000 per annum plus superannuation for other
committees;
• committee members are not paid any additional fee;
• Non-Executive Directors are entitled to statutory
superannuation benefits; and
• the Board approves any consultancy arrangements for
Non-Executive Directors who provide services outside of and
in addition to their duties as Non-Executive Directors.
20
Red 5 Limited 2018 Annual Report
Directors’ Report (continued)
Group performance
The following table summarises key measures of Group performance for FY18 and the previous four financial years.
2018
$
2017
$
2016
$
2015
$
2014
$
(14,387,213)
(110,124,206)
24,787,481
(60,304,510)
(6,935,115)
–
$0.08
–
$0.033
–
$0.074
–
$0.096
–
$0.09
Profit/(Loss) before income tax
attributable to owners of the company
Dividends paid
Share price at 30 June
Details of remuneration
The following table discloses details of the nature and amount of each element of the remuneration paid to key management personnel
including the Directors of Red 5 for the year ended 30 June 2018.
2018
Name
Executive director
M Williams
Non-executive directors
K Dundo
I Macpherson
C Loosemore
Executives
J Tasovac
S Tombs
Total
Salary or
directors
fees
$
455,634(1)
90,000
78,750
71,250
265,000 (6)
248,750 (7)
1,209,384
Short term
Expenses
$
Bonus
$
Termination
benefits
$
Super-
annuation
$
Annual and
long service
leave
$
Share based
payments
$
Total
$
–
–
–
–
–
–
–
265,602
–
–
–
118,045
127,883
511,530
–
–
–
–
–
–
–
25,000
20,115
73,636 (2)
839,987
10,688
9,500
8,550
25,092
24,344
103,174
–
–
–
22,500 (3)
21,250 (4)
18,750 (5)
123,188
109,500
98,550
22,197
16,172
58,484
41,962
45,458
472,296
462,607
223,556
2,106,128
(1)
Includes salary, superannuation contributions above concessional cap.
(2) Relates to performance rights granted in the current financial year.
(3) Mr Kevin Dundo was issued 487,013 ordinary shares at a deemed issue price of 4.62 cents in lieu of his September 2017 quarter’s Directors fees.
(4) Mr Ian Macpherson was issued 459,957 ordinary shares at a deemed issue price of 4.62 cents in lieu of his September 2017 quarter’s Directors fees.
(5) Mr Colin Loosemore was issued 405,844 ordinary shares at a deemed issue price of 4.62 cents in lieu of his September 2017 quarter’s Directors fees.
(6)
Includes salary and superannuation contributions above the concessional cap from 15 August 2017 when Mr Tasovac was appointed as Chief Financial Officer.
(7)
Includes salary and superannuation contributions above the concessional cap from 1 October 2017 when Mr Tombs was appointed as General Manager Operations
for Darlot Mining Company Pty Ltd.
Short term incentive bonus component of remuneration based on achievement of group and specific role related operational targets for
the year ended 30 June 2018 including achievement of core EBITDA targets, completion of the acquisition of the Darlot and King of the
Hills gold mines, the achievement of gold production and cost targets for the financial year and individual effectiveness. The amount
vested represents 90% of the available target bonus with the balance being forfeited due to performance criteria not being met. The
financial gate of a minimum level of gold production based on a challenging work plan and operating budget was exceeded. 50% of the
performance bonus is payable in share rights for Mr Williams and Mr Tasovac, with the issue of share rights to Mr Williams subject to
shareholder approval.
Red 5 Limited 2018 Annual Report
21
Directors’ Report (continued)
2017
Name
Executive director
M Williams
Non-executive directors
K Dundo
I Macpherson
C Loosemore
Executives
J Mobilia
D Jerdin
Total
Salary or
directors
fees
$
457,750 (1)
67,500
85,000
56,250
307,500 (5)
283,121
1,257,121
Short term
Expenses
$
Bonus
$
Termination
benefits
$
Super-
annuation
$
Annual and
long service
leave
$
Share based
payments
$
Total
$
–
–
–
–
–
14,509 (7)
14,509
–
–
–
–
–
–
–
–
125,000 (6)
–
125,000
100,000
–
100,000
35,000
11,538
188,400 (2)
692,688
8,550
8,075
7,125
35,000
–
93,750
–
–
–
7,500
–
22,500 (3)
–
18,750 (4)
98,550
93,075
82,125
–
–
575,000
297,630
19,038
229,650
1,839,068
(1)
Includes salary, superannuation contributions above concessional cap.
(2) Relates to performance rights expense, deferred and service rights relating to the prior financial year and granted in the current financial year. No short term incentive
bonus was awarded for the year ended 30 June 2017 as the financial gate was not met.
(3) Mr Kevin Dundo was issued 707,547 ordinary shares at a deemed issue price of 3.18 cents in satisfaction of his March 2017 quarter’s Directors fees.
(4) Mr Colin Loosemore was issued 589,623 ordinary shares at a deemed issue price of 3.18 cents in satisfaction of his March 2017 quarter’s Directors fees.
(5)
Includes salary, superannuation contributions above the concessional cap and on termination.
(6) Short term incentive bonus relating to prior financial year based on achievement of group and specific role related operational targets for the year ended 30 June 2016.
(7) Reimbursement of travel expenses as per terms of employment agreement.
The relative proportions of remuneration that are linked to performance and those that are fixed are as follows:
Executive directors
M Williams
Non-executive directors
K Dundo
I Macpherson
C Loosemore
Executives
J Tasovac
S Tombs
Fixed
At risk – short term incentives
At risk – long term incentives
2018
60%
100%
100%
100%
66%
63%
2017
73%
100%
100%
100%
–
–
2018
31%
–
–
–
25%
27%
2017
23%
–
–
–
–
–
2018
9%
–
–
–
9%
10%
2017
4%
–
–
–
–
–
Options granted to key management personnel
No options over ordinary shares were granted during the year to executive officers of Red 5 as part of their remuneration.
No shares were issued during the year as a result of the exercise of options granted as part of remuneration. There were no alterations
to the terms and conditions of options granted as remuneration since their grant date. There were no forfeitures during the period.
22
Red 5 Limited 2018 Annual Report
Directors’ Report (continued)
Share holdings of key management personnel
The numbers of shares in Red 5 held during the financial year by key management personnel, including personally-related entities are
set out below.
2018
M Williams
K Dundo
I Macpherson
C Loosemore
Total
Balance at
1 July 2017
3,078,485
707,547
–
4,813,776
8,599,808
Received during the year
through the issue of shares
Purchases during the year
as part of rights issue
Balance at
30 June 2018
678,485
487,013 (1)
459,957(2)
405,844(3)
2,031,299
1,252,324
235,849
–
1,604,592
3,092,765
5,009,294
1,430,409
459,957
6,824,212
13,723,872
(1) Mr Kevin Dundo was issued 487,013 ordinary shares at a deemed issue price of 4.62 cents in lieu of his September 2017 quarter’s Directors fees pursuant to the
Non-Executive Directors Share Plan (NED Share Plan) as approved by shareholders.
(2) Mr Ian Macpherson was issued 459,957 ordinary shares at a deemed issue price of 4.62 cents in lieu of his September 2017 quarter’s Directors fees pursuant to the
NED Share Plan.
(3) Mr Colin Loosemore was issued 405,844 ordinary shares at a deemed issue price of 4.62 cents in lieu of his September 2017 quarter’s Directors fees pursuant to the
NED Share Plan.
Shares issued, Service and Deferred Rights
Managing Director Service Rights
Non Executive Director Shares (1)
Non Executive Director Shares (2)
Non Executive Director Shares (3)
Grant date
Vesting date
22-Nov-16
5-Oct-17
5-Oct-17
5-Oct-17
11-Aug-17
5-Oct-17
5-Oct-17
5-Oct-17
Fair value
at grant date
78,840
22,500
21,250
18,750
Granted/
issued
678,485
487,013
459,957
405,844
Exercised
(678,485)
(487,013)
(459,957)
(405,844)
(1) Mr Kevin Dundo was issued 487,013 ordinary shares at a deemed issue price of 4.62 cents in lieu of his September 2017 quarter’s Directors fees pursuant to the
Non-Executive Directors Share Plan (NED Share Plan) as approved by shareholders.
(2) Mr Ian Macpherson was issued 459,957 ordinary shares at a deemed issue price of 4.62 cents in lieu of his September 2017 quarter’s Directors fees pursuant to the
NED Share Plan.
(3) Mr Colin Loosemore was issued 405,844 ordinary shares at a deemed issue price of 4.62 cents in lieu of his September 2017 quarter’s Directors fees pursuant to the
NED Share Plan.
Share based payments expense for shares issued, service and deferred rights was $215,456 (2017: $198,930).
Performance Rights held by key management personnel
The number of performance rights in Red 5 held during the financial year by key management personnel are set out below.
Tranche A
Tranche B
Tranche C
Tranche D
Number of performance rights
Value per right
Valuation per tranche
Grant date
Commencement date
Vesting date
Condition criteria
6,313,400
$0.049
$309,357
20 September 2017
1 July 2017
30 June 2020
TSR ranking relative to TSR
of S&P/ASX All Ordinaries
Gold Total Return Index
100%
TSR > Index
TSR +20%
TSR > Index
TSR +10%
TSR < or
equal to
Index TSR
50%
nil
2,525,360
$0.056
$141,420
20 September 2017
1 July 2017
30 June 2020
Growth in the Company’s
ore reserves
2,525,360
$0.056
$141,420
20 September 2017
1 July 2017
30 June 2020
Operating costs as % of
budgeted operating costs
1,262,680
$0.056
$70,710
20 September 2017
1 July 2017
30 June 2020
Safety compliance
Stretch:
35%
Target:
20%
Threshold:
15%
100%
50%
25%
Stretch:
80%
Target:
90%
Threshold:
95%
100%
All criteria to be met:
50%
25%
– No fatalities
– Implement a Company-
wide safety management
system
– Year on year improvement
in safety performance
< 15%
nil
> 95%
nil
Red 5 Limited 2018 Annual Report
23
Directors’ Report (continued)
Service agreements
Steve Tombs – General Manager Operations
The terms of employment for Executive Directors and Key
Management Personnel are formalised in service agreements.
Major provisions of the agreements are set out below.
Mark Williams – Managing Director
Term of agreement: no defined period.
Remuneration: base salary of $450,000 per annum plus
statutory superannuation contributions.
Performance bonus: short term incentive bonus determined as
a percentage of annual salary and based on the achievement of
pre-determined milestones which are selected from group,
functional and individual level objectives, each weighted to
reflect their relative importance. One half of any performance
bonus is payable in cash and one half is to be satisfied by the
issue of Share Rights which are subject to service or escrow
conditions.
Equity compensation: entitlement to be granted indeterminate
rights which can be delivered in either cash or shares. The
rights will be granted annually with a measurement period of
three years with vesting conditions comprising outperformance
against TSR and agreed operational measures including gold
production targets.
Termination provisions: termination by the Company (other
than for unsatisfactory performance, gross misconduct or long
term incapacity) upon giving 12 months’ notice or payment in
lieu of notice and by Mr Williams giving 3 months’ notice.
John Tasovac – Chief Financial Officer
(commenced employment on 15 August 2017)
Term of agreement: no defined period.
Remuneration: base salary of $300,000 per annum plus
statutory superannuation contributions.
Performance bonus: short term incentive bonus determined as
a percentage of annual salary and based on the achievement of
pre-determined milestones which are selected from group,
functional and individual level objectives, each weighted to
reflect their relative importance.
Equity compensation: entitlement to participate in the ESOP or
PR Plan with performance hurdles or vesting schedules
determined at time of grant.
Termination provisions: termination by the Company (other than
for unsatisfactory performance, gross misconduct or long term
incapacity) upon giving 6 months’ notice or payment in lieu of
notice.
Term of agreement: no defined period.
Remuneration: base salary of $325,000 per annum plus
statutory superannuation contributions.
Performance bonus: short term incentive bonus determined as
a percentage of annual salary and based on the achievement of
pre-determined milestones which are selected from group,
functional and individual level objectives, each weighted to
reflect their relative importance.
Equity compensation: entitlement to participate in the ESOP or
PR Plan with performance hurdles or vesting schedules
determined at time of grant
Termination provisions: termination by the Company (other than
for unsatisfactory performance, gross misconduct or long term
incapacity) upon giving 6 months’ notice or payment in lieu of
notice. Subsequent to the end of the reporting period Steve
Tombs announced his retirement and ceased to be an employee.
He has taken up a position as a non-executive director from
1 August 2018.
Other transactions with Directors
Consulting fees of $28,800 were paid to Ian Macpherson, a
non-executive Director of the Company, for the provision of
financial advisory and corporate support services during the
period in relation to the acquisition of Darlot and King of the Hills.
The consultancy agreement concluded on 15 September 2017.
There were no other transactions during the year between the
consolidated entity and Directors or their Director-related entities.
Services from remuneration consultants
During the financial year, the Remuneration Committee engaged
Godfrey Remuneration Group (GRG) as independent
remuneration consultants to provide a market benchmarking
report on chief executive officer remuneration levels and a review
of short term and long term incentive schemes for senior
executives and plan documents. Remuneration
recommendations were provided to the Remuneration
Committee as an input into the decision making process.
The Remuneration Committee considered the recommendations
in conjunction with other factors in making its remuneration
determinations. The Remuneration Committee is satisfied that
the advice received from GRG is free from undue influence from
the KMP to whom the remuneration recommendations apply, as
GRG were engaged by and reported directly to the Chair of the
Remuneration Committee with no involvement by the KMP.
GRG also made the required independence declarations in their
reports, which indicated that the consultant viewed the advice as
free from undue influence from the KMP that were the subject of
the advice. The fee for this service was $24,700.
End of Audited Remuneration Report.
24
Red 5 Limited 2018 Annual Report
Directors’ Report (continued)
NON-AUDIT SERVICES
ENVIRONMENTAL REGULATIONS
During the year, Red 5’s external auditors, KPMG, have provided
other services in addition to their statutory audit function. Non
audit services provided by the external auditors comprised
$544,200 (2017: $30,188) for non audit services. Further details
of remuneration of the auditors are set out in Note 22.
The Board has considered the non-audit services provided
during the year and is satisfied that the provision of those
services is compatible with the general standard of
independence for auditors imposed by the Corporations Act and
did not compromise the auditor independence requirements of
the Corporations Act, for the following reasons:
• All non-audit services were subject to the corporate
governance guidelines adopted by Red 5;
• Non-audit services have been reviewed by the audit
committee to ensure that they do not impact the impartiality
or objectivity of the auditor; and
• The non-audit services provided do not undermine the
general principles relating to auditor independence as set out
in APES 110 Code of Ethics for Professional Accountants, as
they did not involve reviewing or auditing the auditor’s own
work, acting in a management or decision making capacity,
acting as an advocate for Red 5 or jointly sharing economic
risks and rewards.
A copy of the auditor’s independence declaration as required
under section 307C of the Corporations Act is included
immediately following the Directors’ Report and forms part of the
Directors’ Report.
The consolidated entity is subject to significant environmental
regulation in respect to its mineral exploration activities. These
obligations are regulated under relevant government authorities
within Australia and Philippines. The consolidated entity is a
party to exploration and development licences and has beneficial
interests in Mineral Production Sharing Agreements. Generally,
these licences and agreements specify the environmental
regulations applicable to exploration and mining operations in the
respective jurisdictions. The consolidated entity aims to ensure
that it complies with the identified regulatory requirements in
each jurisdiction in which it operates.
Compliance with environmental obligations is monitored by the
Board of Directors. No environmental breaches have been
notified to the consolidated entity by any government agency
during the year ended 30 June 2018.
Signed in accordance with a resolution of the Directors.
Kevin Dundo
Chairman
Perth, Western Australia
21 September 2018
Red 5 Limited 2018 Annual Report
25
Auditor’s Independence Declaration
Lead Auditor’s Independence Declaration under
Lead Auditor’s Independence Declaration under
Section 307C of the Corporations Act 2001
Section 307C of the Corporations Act 2001
To the Directors of Red 5 Limited
To the Directors of Red 5 Limited
I declare that, to the best of my knowledge and belief, in relation to the audit of Red 5 Limited for the
financial year ended 30 June 2017 there have been:
i.
no contraventions of the auditor independence requirements as set out in the Corporations Act
2001 in relation to the audit; and
I declare that, to the best of my knowledge and belief, in relation to the audit of Red 5 Limited for the financial year ended 30
June 2018 there have been:
no contraventions of any applicable code of professional conduct in relation to the audit.
ii.
i.
no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation
to the audit; and
ii. no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
Brent Steedman
Partner
KPMG
Perth
28 September 2017
R Gambitta
Partner
Perth
21 September 2018
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
26
Red 5 Limited 2018 Annual Report
Statement of Profit or Loss and
Other Comprehensive Income
for the year ended 30 June 2018
CONSOLIDATED
Revenue
Cost of sales
Gross profit/(loss) from operations
Other income
Administration and other expenses
Care and maintenance
Exploration expense
Impairment expense
Operating profit/(loss)
Finance income
Finance expenses
Net financing income
Profit/(loss) before tax
Income tax benefit/(expense)
Note
5
5
5
5
13
5
5
5
6
2018
$
77,149,429
(80,487,906)
(3,338,477)
13,872,892
(11,992,903)
(6,079,136)
(5,559,594)
-
2017
$
68,515,762
(71,696,241)
(3,180,479)
1,048,177
(6,660,446)
-
(1,551,203)
(99,799,920)
(13,097,218)
(110,143,871)
46,874
(1,336,869)
(1,289,995)
24,539
(4,874)
19,665
(14,387,213)
(110,124,206)
2,459,639
(78,989)
Net profit/(loss) after tax for the year
(11,927,574)
(110,203,195)
Other comprehensive income/(loss)
Items that may be reclassified subsequently to profit or loss:
Movement in foreign currency translation reserve
Re-measurement of defined retirement benefit
Effective portion of changes in fair value of cashflow hedges
(760,883)
78,333
497,966
(12,247,948)
252,429
-
Total comprehensive income/(loss) for the year
(12,112,158)
(122,198,714)
Net profit/(loss) after tax attributable to:
- Non-controlling interest
- Owners of the Company
Total comprehensive income/(loss) attributable to:
- Non-controlling interest
- Owners of the Company
Basic and diluted profit/(loss) per share (cents per share)
27
The accompanying notes form part of these financial statements.
(294,522)
(11,633,052)
(11,927,574)
(312,783)
(11,799,375)
(12,112,158)
Cents
(1.07)
(2,644,877)
(107,558,318)
(110,203,195)
(2,938,827)
(119,259,887)
(122,198,714)
Cents
(14.11)
Red 5 Limited 2018 Annual Report
27
Statement of Financial Position
as at 30 June 2018
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Other financial assets
Inventories
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Trade and other receivables
Property, plant and equipment
Intangible assets
Mine development
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
Income tax payable
Employee benefits
Provisions
Finance lease liabilities
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Trade and other payables
Employee benefits
Provisions
Deferred tax liability
Finance lease liabilities
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Contributed equity
Other equity
Reserves
Accumulated losses
Note
7
8
30
9
8
10
11
12
14
15
16
17
18
14
16
17
6
18
19
19
20
TOTAL EQUITY ATTRIBUTABLE TO EQUITY
HOLDERS OF THE COMPANY
Non-controlling interest
TOTAL EQUITY
The accompanying notes form part of these financial statements.
28
Red 5 Limited 2018 Annual Report
CONSOLIDATED
2018
$
7,148,401
21,023,209
761,679
16,656,227
2017
$
5,393,463
9,298,003
-
13,915,306
45,589,516
28,606,772
1,637,280
78,980,717
30,723,465
16,340,809
3,702,594
42,489,004
-
4,291,715
127,682,271
50,483,313
173,271,787
79,090,085
38,971,154
739,121
5,218,185
1,116,104
1,077,448
4,694,572
-
118,396
1,116,104
-
47,122,012
5,929,072
5,503,646
349,465
31,575,769
6,069,001
1,400,597
-
10,981
3,692,206
-
-
44,898,478
3,703,187
92,020,490
9,632,259
81,251,297
69,457,826
260,364,664
930,285
21,806,876
(197,868,185)
236,674,602
930,285
21,836,580
(186,314,081)
85,233,640
(3,982,343)
73,127,386
(3,669,560)
81,251,297
69,457,826
Statement of Changes in Equity
for the year ended 30 June 2018
ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT ENTITY
Issued
capital
Other
equity (2)
Accumulated
losses
Other
reserves (1)
$
$
$
$
Non
controlling
interest
$
Total
$
236,554,512
930,285
(78,853,150)
33,525,976
(730,733) 191,426,890
-
-
-
-
-
-
-
-
-
-
-
-
-
(107,558,318)
-
(2,644,877)
(110,203,195)
-
(11,701,569)
(293,950)
(11,995,519)
(107,558,318)
(11,701,569)
(2,938,827)
(122,198,714)
-
-
-
-
30,720
78,840
97,387
(97,387)
-
-
-
-
120,090
30,720
78,840
-
236,674,602
930,285
(186,314,081) 21,836,580
(3,669,560)
69,457,826
CONSOLIDATED
Balance at 1 July 2016
Net loss
Other comprehensive income for the year
Total comprehensive income for the year
Share based payments
Issue of service rights expense
Expired performance rights
– transfers from reserves
Balance at 30 June 2017
Shares issued during the year
120,090
Balance at 1 July 2017
236,674,602
930,285
(186,314,081)
21,836,580
(3,669,560)
69,457,826
Net loss
Other comprehensive loss for the year
Total comprehensive loss for the year
Shares issued during the year
Share based payments
-
-
-
62,500
-
Service rights converted to ordinary shares
78,840
Expired performance rights
– transfer from reserves
Rights issue
Shares issued on acquisition of Darlot &
King of the Hills
Share issue expenses
Balance at 30 June 2018
-
12,741,752
11,000,000
(193,030)
-
-
-
-
-
-
-
-
-
-
(11,633,052)
-
(294,522)
(11,927,574)
-
(166,321)
(18,261)
(184,582)
(11,633,052)
(166,321)
(312,783)
(12,112,156)
-
-
-
-
317,465
(78,840)
78,948
(102,008)
-
-
-
-
-
-
-
-
-
-
-
-
-
62,500
317,465
-
(23,060)
12,741,752
11,000,000
(193,030)
260,364,664
930,285
(197,868,185)
21,806,876
(3,982,343)
81,251,297
(1) Other reserves represent foreign currency translation reserve, hedging reserve, defined retirement benefit, and the share based payment reserve. Refer note 20.
(2) Refer to note 20 for further explanation.
The accompanying notes form part of these financial statements
Red 5 Limited 2018 Annual Report
29
Statement of Cash Flows
for the year ended 30 June 2018
Cash flows from operating activities
Receipts from sale of gold
Royalties received
Payments to suppliers and employees
Payments for exploration and evaluation
Payments for property and income taxes
Interest received
Interest paid
Sundry receipts
Note
CONSOLIDATED
2018
$
78,415,614
2,329,733
(58,425,038)
(4,127,877)
-
46,133
(38,726)
795,922
2017
$
61,802,852
-
(57,391,957)
(1,551,203)
(1,712,161)
24,539
(4,874)
548,177
Net cash from / (used in) operating activities
26
18,995,761
1,715,373
Cash flows from investing activities
Payments for property, plant, equipment and intangibles
Payments for mine development
Receipts from sales offset against mine development
Payments for acquisition of King of the Hills assets
Payments for acquisition of Darlot
(4,115,524)
(25,586,573)
13,718,264
(7,000,000)
(6,742,265)
(8,093,780)
(5,320,595)
-
-
-
Net cash used in investing activities
(29,726,098)
(13,414,375)
Cash flows from financing activities
Proceeds from issue of shares
Payments for share issue transaction costs
Payments of finance lease liabilities
Net cash used in financing activities
12,741,752
(193,031)
(561,147)
11,987,574
-
-
-
-
Net increase/(decrease) in cash held
1,257,237
(11,699,002)
Cash at the beginning of the financial year
Effect of exchange rate fluctuations on cash held
5,393,463
497,701
18,189,210
(1,096,745)
Cash at the end of the financial year
7
7,148,401
5,393,463
The accompanying notes form part of these financial statements.
30
Red 5 Limited 2018 Annual Report
Notes to the Financial Statements
for the year ended 30 June 2018
1. REPORTING ENTITY
Red 5 Limited (the “Company”) is a for profit company domiciled
in Australia. The address of the Company’s registered office is
Level 2 35 Ventnor Avenue, West Perth, Western Australia. The
consolidated financial statements of the Company as at and for
the year ended 30 June 2018 comprise the Company and its
subsidiaries, associates and jointly controlled entities (together
referred to as the “Group” and individually as “Group entities”).
The Group is primarily involved in the exploration and mining
of gold.
2. bASIS OF PREPARATION
2.1 Statement of compliance
The consolidated financial statements are general purpose
financial statements which have been prepared in accordance
with Australian Accounting Standards (AASBs) adopted by the
Australian Accounting Standards Board (AASB) and the
Corporations Act 2001. The consolidated financial statements
comply with International Financial Reporting Standards (IFRSs)
adopted by the International Accounting Standards Board (IASB).
The consolidated financial statements were authorised for issue
by the Board of Directors on 21 September 2018.
2.2 Going Concern
The financial report has been prepared on the going concern
basis, which contemplates the continuity of normal business
activity and the realisation of assets and the settlement of
liabilities in the normal course of business.
As disclosed in the financial statements, the Group recorded an
operating loss after tax of $11.9 million and net cash outflows
from operating and investing activities of $10.7 million for the year
ended 30 June 2018 and at balance date, had net working capital
deficit of $1.5 million.
Management have prepared a cash flow forecast for the next
twelve months. Key assumptions in the cashflow forecast
include:
• Continued suspension of mining operations at the Siana Gold
Project;
• Net cash inflows being generated from the Darlot Gold Mine
and King of the Hill Gold Project;
• Scheduled repayments of deferred consideration (refer note
14) either through a combination of funds from the gold loan
as detailed in the subsequent event note and operations.
The Directors have a reasonable expectation that the cash flow
forecasts will be achieved. The Directors believe the Group will
be able to continue as a going concern and recognise that:
• Mining operations at the Siana Gold Project are currently
suspended which has substantially reduced cash outflows;
• As at 30 June 2018 the Company had $12.9 million in cash
and gold bullion held in its metal account;
• The Darlot Gold Mine and King of the Hills Gold Project are
expected to provide positive cash flow generation for the
Company;
• The Company has entered into a gold loan facility for
$8.2 million which was drawn down in September 2018
and expires in September 2019 (refer note 28).
The Company has prepared a cashflow forecast for 12 month
period ending 30 September 2019 which anticipates the group is
able to pay its debts as and when they fall due during that period.
The cashflow forecast is underpinned by key assumptions
including gold production, A$ gold price and operating costs of
production. The forecast gold production is the critical
assumption as production is expected to continue to increase as
the King of the Hills project progresses through the development
phase, and with higher levels of production expected at Darlot as
higher grade areas are mined. If required, the Group has the
ability to curtail certain expenditure or raise additional funding
through debt or equity or a combination of both.
2.3 Basis of measurement
The consolidated financial statements have been prepared on the
historical cost basis, except for share based payments. Share
based payments are measured at fair value. The methods used
to measure fair values of share based payments are discussed
further in the Note 4.13. Rehabilitation provisions are based on
net present value and are discussed in Note 4.15.
2.4 Functional and presentation currency
These consolidated financial statements are presented in
Australian dollars, which is the Company’s functional currency.
2.5 Use of estimates and judgements
The preparation of the consolidated financial statements in
conformity with IFRSs requires management to make
judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of
assets, liabilities, income and expenses. Actual results may differ
from these estimates.
Estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimates are revised and in any future
periods affected. The areas involving a higher degree of
judgements or complexity, or areas where assumptions and
estimates are significant to the financial statements are disclosed
further in Note 4.20.
3. REMOVAL OF PARENT ENTITY
FINANCIAL STATEMENTS
The Group has applied amendments to the Corporations Act 2001
that remove the requirement for the Group to lodge parent entity
financial statements. Parent entity financial statements have been
replaced by the specific parent entity disclosures in Note 33.
Red 5 Limited 2018 Annual Report
31
Notes to the Financial Statements (continued)
4. SIGNIFICANT ACCOUNTING POLICIES
4.4 Property, plant and equipment
The accounting policies set out below have been applied
consistently to all periods presented in these financial
statements, and have been applied consistently by the
consolidated entity. No additional standards or amendments
have been early adopted in the current year.
Property, plant and equipment include land, buildings, plant and
equipment, and fixtures and fittings. All assets acquired are
initially recorded at their cost of acquisition, being the fair value of
the consideration provided plus incidental costs directly
attributable to the acquisition.
4.1 Principles of consolidation
The consolidated financial report incorporates the assets and
liabilities of all entities controlled by the Company as at 30 June
2018 and the results of all controlled entities for the year then
ended. The Company and its controlled entities together are
referred to in this financial report as the consolidated entity.
The financial statements of controlled entities are prepared for
the same reporting period as the parent entity, using consistent
accounting policies. Intra-group balances and transactions, and
any unrealised income and expenses arising from intra-group
transactions are eliminated in preparing the consolidated
financial statements.
Where control of an entity is obtained during a financial period,
its results are included only from the date upon which control
commences. Where control of an entity ceases during a financial
period, its results are included for that part of the period during
which control existed. Non-controlling interests in equity and
results of the entities which are controlled by the consolidated
entity are shown as a separate item in the consolidated financial
statements.
4.2 Revenue recognition
Revenue is recognised to the extent that it is probable that the
economic benefit will flow to the consolidated entity and the
revenue can be reliably measured. The following specific
recognition criteria must be met before revenue is recognised:
Gold and silver sales
Revenue from the sale of gold and silver is measured at fair value
of the consideration received or receivable. Revenue is
recognised when the significant risks and rewards of ownership
have transferred to the buyer upon receipt of doré in the gold
room. Income received by the consolidated entity for silver sales
is deducted from the cost of sales.
4.3 Finance income and expenses
Finance income comprises interest income on funds invested.
Interest income is recognised as it accrues, using the effective
interest rate method. Finance expenses comprise interest
expense on borrowings and amortisation of loan borrowing
costs. Loan borrowing costs are amortised using the effective
interest rate method.
Land and buildings are measured at cost less accumulated
depreciation on the buildings. Buildings are depreciated on a
straightline basis over the life of mine.
Plant and equipment is measured at cost less accumulated
depreciation and any accumulated impairment losses. Items of
plant and equipment are depreciated using a combination of the
straight line and diminishing value methods commencing from
the time they are installed and ready for use, or in respect of
internally constructed assets, from the date the asset is
completed and ready for use. Depreciation of the processing
plant is based on life of mine. The expected useful lives of plant
and equipment are between 3 and 13 years. Depreciation
methods, useful lives and residual values are reviewed at each
reporting date and adjusted if appropriate.
Fixtures and fittings include office equipment and computer
hardware and is depreciated on a straight-line basis over their
expected useful lives between 3 and 13 years.
4.5
Intangible assets
Intangible assets other than goodwill, are initially recorded at
their cost of acquisition, being the fair value of the consideration
provided plus incidental costs directly attributable to the
acquisition. Capitalised software is amortised on a straight-line
basis over three years commencing when it is available for use.
Mineral rights acquired is amortised over the life of mine.
4.6
Inventories
Gold in circuit, bullion on hand and ore stockpiles are physically
measured or estimated and valued at the lower of cost and net
realisable value. Cost represents the weighted average cost and
comprises direct material, labour and an appropriate portion of
fixed and variable production overhead expenditure on the basis
of normal operating capacity, including depreciation and
amortisation incurred in converting materials to finished
products.
Inventories of consumable supplies and spare parts expected to
be used in production are valued at the lower of cost and net
realisable value. Any provision for obsolescence or damage is
determined by reference to specific stock items identified. The
carrying value of those items identified, if any, is written down to
net realisable value.
32
Red 5 Limited 2018 Annual Report
Notes to the Financial Statements (continued)
4.7 Exploration and evaluation expenditure
Exploration and evaluation expenditure incurred is accumulated
at cost in respect of each identifiable area of interest. Costs
incurred in respect of generative, broad scale exploration
activities are expensed in the period in which they are incurred.
Costs incurred for each area of interest where a resource or
reserve, estimated in accordance with JORC guidelines has been
identified, are capitalised. The costs are only carried forward to
the extent they are expected to be recouped through the
successful development of the area, or where further work is to
be performed to provide additional information.
When production commences, the accumulated costs for the
relevant area of interest will be amortised over the life of the area
according to the rate of depletion of reserves. A regular review is
undertaken of each area of interest to determine the
appropriateness of continuing to carry forward costs in relation to
that area of interest.
Accumulated costs in relation to an abandoned area will be
written off in full to the Statement of Profit or Loss and Other
Comprehensive Income in the year in which the decision to
abandon the area is made.
4.8 Mine Development
Pre-production
Costs incurred in the development of a mine before production
commences are capitalised as part of the mine development
costs. Mine development costs are deferred until production
commences, at which time they are amortised over the
productive life of the project on a unit-of-production basis, based
on reserves.
Post-production
Costs incurred in the development of a mine after production
commences are capitalised as part of the mine development
costs and are amortised over the productive life of the project on
a unit-of-production basis, based on reserves.
Deferred waste mining costs
In the production phase all costs associated with waste removal
are capitalised and amortised over the productive life of the open
pit on a unit-of-production basis based on reserves and current
mine schedule.
4.9
Impairment
At each reporting date, the consolidated entity reviews and tests
the carrying value of assets when events or changes in
circumstances indicate that the carrying amount may not be
recoverable. Where an indicator of impairment exists, the
consolidated entity makes a formal estimate of recoverable
amount. Where the carrying amount of an asset exceeds its
recoverable amount the asset is considered impaired and is
written down to its recoverable amount. Impairment losses are
recognised in the Statement of Profit or Loss and Other
Comprehensive Income unless the asset has previously been
revalued, in which case the impairment loss is recognised as a
reversal to the extent of that previous revaluation with any excess
recognised through the Statement of Profit or Loss and Other
Comprehensive Income.
Calculation of recoverable amount
Recoverable amount is the greater of fair value less costs of
disposal and value in use. It is determined for an individual asset,
unless it does not generate cash inflows that are largely
independent of those from other assets or groups of assets, in
which case, the recoverable amount is determined for the
cash-generating unit to which the asset belongs. The estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset.
4.10 Income tax
Income tax expense comprises current and deferred tax. Income
tax expense is recognised in profit or loss except to the extent
that it relates to items recognised directly in equity, in which case
it is recognised in equity.
Current tax is the expected tax payable on the taxable income for
the year, using tax rates enacted or substantively enacted at
reporting date, and any adjustment to tax payable in respect of
previous years. Deferred income tax is provided using the
balance sheet liability method on all temporary differences at the
balance sheet date between the tax bases of assets and liabilities
and their carrying amounts for financial reporting purposes.
Deferred income tax assets are recognised for all deductible
temporary differences, carry forward of unused tax assets and
unused tax losses, to the extent that it is probable that taxable
profit will be available against which the deductible temporary
differences, and the carry-forward of unused tax assets and
unused tax losses can be utilised. A deferred income tax asset is
not recognised where the deferred income tax asset relating to
the deductible temporary difference arises from the initial
recognition of an asset or liability in a transaction that is not a
business combination and, at the time of the transaction, affects
neither the accounting profit nor taxable profit or loss.
The carrying amount of deferred income tax assets is reviewed at
each balance date and reduced to the extent it is no longer
probable that sufficient taxable profit will be available to allow all
or part of the deferred income tax to be utilised. Deferred income
tax assets and liabilities are measured at the tax rates that are
expected to apply to the year when the asset is realised or the
liability is settled, based on tax rates (and tax laws) that have been
enacted at the balance date. Income taxes relating to items
recognised directly in equity are recognised in equity and not in
the Statement of Profit or Loss and Other Comprehensive Income.
Red 5 Limited 2018 Annual Report
33
Notes to the Financial Statements (continued)
4.11 Financial instruments
Non-derivative financial instruments
Non-derivative financial instruments comprise investments in
equity and debt securities, trade and other receivables, cash and
cash equivalents, loans and borrowings and trade and other
creditors. Non-derivative financial instruments are recognised
initially at fair value plus any directly attributable transaction
costs. Subsequent to initial recognition, non-derivative financial
instruments are measured as described below.
Trade and other receivables are carried at amortised cost. Trade
receivables are non-interest bearing. Loans and borrowings are
measured at amortised cost using the effective interest method,
less any impairment losses. Liabilities for trade creditors and
other amounts are carried at amortised cost. Trade payables are
non-interest bearing and are normally settled on 30 day terms.
For the purposes of the statement of cash flows, cash includes
deposits at call which are readily convertible to cash on hand and
which are used in the cash management function on a day to day
basis, net of outstanding bank overdrafts.
Derivative financial instruments
Derivatives financial instruments are recognised initially at fair
value; any attributable transaction costs are recognised in profit
and loss as incurred. Subsequent to initial recognition,
derivatives are measured at fair-value.
Cashflow hedges
When a derivative is designated as a cash flow hedging
instrument, the effective portion of changes in the fair value of the
derivative is recognised in other comprehensive income and
accumulated in the hedging reserve. Any ineffective portion of
changes in the fair value of the derivative is recognised
immediately in profit or loss.
4.12 Employee benefits
Provision for employee entitlements represents the amount which
the consolidated entity has a present obligation to pay resulting
from employees’ service provided up to the balance date.
Liabilities arising in respect of employee benefits expected to be
settled within twelve months of the balance date are measured at
their nominal amounts based on remuneration rates which are
expected to be paid when the liability is settled. All other
employee benefit liabilities are measured at the present value of
the estimated future cash outflow to be made in respect of
services provided by employees up to the balance date.
Obligations for contributions to defined contribution
superannuation funds are recognised as an expense in the
Statement of Profit or Loss and Other Comprehensive Income
as incurred.
4.13 Share based payments
The consolidated entity may provide benefits to employees
(including Directors) and other parties as necessary in the form of
share-based payments, whereby employees render services in
exchange for shares or rights over shares (“equity settled
transactions”).
The cost of these equity settled transactions with employees is
measured by reference to the fair value at the date they are
granted. The value is determined using a Black-Scholes model
or equivalent valuation technique. The cost of equity settled
transactions is recognised, together with a corresponding
increase in equity, over the period in which the performance
conditions are fulfilled, ending on the date on which the relevant
employees become fully entitled to the award (“vesting date”).
The cumulative expense recognised for equity settled
transactions at each reporting date until vesting date reflects the
extent to which the vesting period has expired and the number of
awards that, in the opinion of the Directors, will ultimately vest.
No adjustment is made for the likelihood of market performance
conditions being met as the effect of these conditions is included
in the determination of fair value at grant date. No expense is
recognised for awards that do not ultimately vest, except for
awards where vesting is conditional upon a market condition.
Where an equity-settled award is cancelled, it is treated as if it
had vested on the date of cancellation, and any expense not yet
recognised for the award is recognised immediately. However, if
a new award is substituted for the cancelled award, and
designated as a replacement award on the date that it is granted,
the cancelled and new award are treated as if they were a
modification of the original award.
4.14 Foreign currency
Foreign currency transactions
Transactions in foreign currencies are translated at the foreign
exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the
statement of financial position date are translated to Australian
dollars at the foreign exchange rate ruling at that date. Foreign
exchange differences arising on translation are recognised in the
Statement of Profit or Loss and Other Comprehensive Income.
Non-monetary assets and liabilities that are measured in terms of
historical cost in a foreign currency are translated using the
exchange rate at the date of the transaction. Non-monetary
assets and liabilities denominated in foreign currencies that are
stated at fair value are translated to Australian dollars at foreign
exchange rates ruling at the dates the fair value was determined.
34
Red 5 Limited 2018 Annual Report
Notes to the Financial Statements (continued)
The following significant exchange rates have been applied.
4.17 Earnings per share
Average Rate
Year-End Spot Rate
2018
$
39.88
0.77
2017
$
37.04
0.75
2018
$
39.35
0.74
2017
$
38.77
0.77
AUD
Peso
USD
Financial statements of foreign operations
Each entity in the consolidated entity determines its functional
currency, being the currency of the primary economic
environment in which the entity operates, reflecting the
underlying transactions, events and conditions that are relevant
to the entity. The functional currency of the Australian entities is
the Australian dollar and the functional currency of the Philippine
entities is the Philippine Peso. The assets and liabilities of foreign
operations, including goodwill and fair value adjustments arising
on consolidation, are translated from the entity’s functional
currency to the consolidated entity’s presentation currency of
Australian dollars at foreign exchange rates ruling at reporting
date. The revenues and expenses of foreign operations are
translated to Australian dollars at the exchange rates
approximating the exchange rates ruling at the date of the
transactions. Foreign exchange differences arising on translation
are recognised directly in a separate component of equity.
4.15 Rehabilitation costs
Full provision for rehabilitation costs is made based on the net
present value of the estimated cost of restoring the environmental
disturbance that has occurred up to the balance date. Increases
due to additional environmental disturbances are capitalised and
amortised over the remaining lives of the operations where they
have future economic benefit, else they are expensed. These
increases are accounted for on a net present value basis.
Annual increases in the provision relating to the change in the net
present value of the provision and inflationary increases are
accounted for in the Statement of Profit and Loss as an interest
expense. The estimated costs of rehabilitation are reviewed
annually and adjusted as appropriate for changes in legislation,
technology or other circumstances.
4.16 Provisions
A provision is recognised in the Statement of Financial Position
when the consolidated entity has a present legal or constructive
obligation as a result of a past event and it is probable that an
outflow of economic benefits will be required to settle the
obligation. Provisions are determined by discounting the
expected future cash flows at the pre-tax rate that reflects
current market assessments of the time value of money and
where appropriate, the risk specific to the liability.
Basic earnings per share is determined by dividing net operating
results after income tax attributable to members of the parent
entity, excluding any costs of servicing equity other than ordinary
shares, by the weighted average number of ordinary shares
outstanding during the financial year.
Diluted earnings per share adjusts the figures used in the
determination of basic earnings per share to take into account the
after income tax effect of interest and other financing costs
associated with dilutive potential ordinary shares and the
weighted average number of shares assumed to have been
issued for no consideration in relation to potential ordinary shares.
4.18 Leases
Assets held under finance leases are recognised as a finance
lease obligation at the present value of the minimum lease
payments. Lease payments are apportioned between finance
charges and reduction of the lease obligation to achieve a
constant rate of interest on the remaining liability. Finance
charges are recorded as a finance expense to profit and loss,
unless they are attributable to qualifying assets, in which case
they are capitalised.
4.19 Business combinations
The Group accounts for business combinations using the
acquisition method when control is transferred to the Group. The
consideration transferred in the acquisition is generally measured
at fair value, as are the identifiable net assets acquired. Any
goodwill that arises is tested annually for impairment. Any gain on
a bargain purchase is recognised in profit or loss immediately.
Transaction costs are expensed as incurred, except if related to
the issue of debt or equity securities.
The consideration transferred does not include amounts related
to the settlement of pre-existing relationships. Such amounts are
generally recognised in profit or loss.
Any contingent consideration is measured at fair value at the date
of acquisition. If an obligation to pay contingent consideration
that meets the definition of a financial instrument is classified as
equity, then it is not remeasured and settlement is accounted for
within equity. Otherwise, other contingent consideration is
remeasured at fair value at each reporting date and subsequent
changes in the fair value of the contingent consideration are
recognised in profit or loss.
Red 5 Limited 2018 Annual Report
35
Notes to the Financial Statements (continued)
4.20 Accounting estimates and judgements
The selection and disclosure of the consolidated entity’s critical
accounting policies and estimates and the application of these
policies, estimates and judgements is the responsibility of the
Board of Directors. The estimates and judgements that may have
a significant impact on the carrying amount of assets and
liabilities are discussed below.
A change in any, or a combination, of the three key assumptions
used to determine the provisions could have a material impact to
the carrying value of the provision. In the case of provisions for
assets which remain in use, adjustments to the carrying value of
the provision are offset by a change in the carrying value of the
related asset. Where the provisions are for assets no longer in
use or for obligations arising from the production process, the
adjustment is reflected directly in the Statement of Profit or Loss.
Impairment of Assets
At each reporting date, the group makes an assessment for
impairment of all assets if there has been an impairment indicator
by evaluating conditions specific to the Group and to the
particular assets that may lead to impairment. The recoverable
amount of Property, Plant & Equipment and Mine Development
Expenditure relating to the Siana gold project is determined as
the higher of value-in-use and fair value less costs of disposal.
Value-in-use is generally determined as the present value of the
estimated future cash flows. Present values are determined using
a risk adjusted discount rate appropriate to the risks inherent in
the asset.
Given the nature of the Group’s mining activities, future changes
in assumptions upon which these estimates are based may give
rise to a material adjustment to the carrying value. This could
lead to the recognition of impairment losses in the future. The
inter-relationship of the significant assumptions upon which
estimated future cash flows are based is such that it is
impracticable to disclose the extent of the possible effects of a
change in a key assumption in isolation.
Future cash flow estimates are based on expected production
volumes and grades, gold price and exchange rate estimates,
budgeted and forecasted development levels and operating
costs. Management is required to make these estimates and
assumptions which are subject to risk and uncertainty. As a
result there is a possibility that changes in circumstances may
alter these projections, which could impact on the recoverable
amount of the assets. In such circumstances, some or all of the
carrying value of the assets may be impaired. Impairment losses
are recognised in the Statement of Profit or Loss unless the asset
has previously been revalued.
Rehabilitation and mine closure provisions
As set out in Note 4.15, this provision represents the discounted
value of the present obligation to restore, dismantle and
rehabilitate certain items of property, plant and equipment. The
discounted value reflects a combination of the Group’s
assessment of the costs of performing the work required, the
timing of the cash flows and the discount rate.
Reserves and resources
The Group determines and reports ore reserves under the
Australian Code for Reporting of Exploration Results, Mineral
Resources and Ore Reserves Code (“JORC”) as revised
December 2012 JORC for underground reserves and the JORC
2012 edition for open pit reserves. The JORC code requires the
use of reasonable investment assumptions to calculate reserves.
Reserves determined in this way are taken into account in the
calculation of depreciation of mining plant and equipment (refer
to note 10), amortisation of capitalised development expenditure
(refer to note 12), and impairment relating to these assets.
Changes in reported reserves may affect the Group’s financial
results and financial position in a number of ways, including:
• Asset carrying values may be impacted due to changes in
estimated cash flows;
• Depreciation and amortisation charged in the statement of
profit or loss and other comprehensive income may change
where such charges are calculated using the units of
production basis;
• Deferred waste amortisation, based on estimates of reserve to
waste ratios;
• Decommissioning, site restoration and environmental
provisions may change where changes in estimated reserves
alter expectations about the timing or cost of these activities.
Going Concern
A key assumption underlying the preparation of the financial
statements is that the Group will continue as a going concern.
An entity is a going concern when it is considered to be able
to pay its debts as and when they are due, and to continue in
operation without any intention or necessity to liquidate or
otherwise wind up its operations. A significant amount of
judgement has been required in assessing whether the Group
is a going concern, as set out in note 2.2.
36
Red 5 Limited 2018 Annual Report
Notes to the Financial Statements (continued)
4.21 New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been published that are not effective for the 30 June 2018 reporting period.
The Group does not intend to early adopt any of the new standards or interpretations.
IFRS 15 Revenue from Contracts with Customers (effective from 1 January 2018)
AASB 15 establishes a model to account for revenue arising from contracts with customers. Revenue is recognised at an amount that
reflects the consideration to which an entity expects to be entitled when control of the goods or services passes to the customer.
The Group has assessed the potential impact its consolidated financial statements resulting from the application of AASB15 and
determined that it has no material impact.
AASB 9 Financial Instruments (effective from 1 January 2018)
AASB 9 Financial Instruments – published in July 2014, replaces the existing guidance in IAS 39 Financial Instruments:
Recognition and Measurement. AASB 9 includes revised guidance on the classification and measurement of financial instruments,
including a new expected credit loss model for calculating impairment of financial assets, and the new general hedge accounting
instruments from IAS39. AASB 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption
permitted.
The Group has assessed the potential impact its consolidated financial statements resulting from the application of AASB9 and
determined that it has no material impact.
IFRS 16 Leases (effective 1 January 2019)
AASB 16 will result in leases being recognised on the Balance Sheet as the distinction between operating and finance leases is
removed. The standard will primarily affect the accounting for the Group’s operating leases which will require the present value of
the leases captured by the standard being recognised as right to use assets and lease liabilities on the balance sheet. The Group
has not assessed the potential impact its consolidated financial statements resulting from the application of AASB16.
The Group plans to adopt the new standard during the 30 June 2020 reporting period.
5. REVENUE AND EXPENSES
(a) Other income
Gain on sale of Mt Cattlin royalty
Royalty income
Other income
(b) Cost of Sales
Employee benefit expenses
External services
Depreciation and amortisation
Materials and consumables used
Fuel and utilities
Movement in stock
Other costs of sales
Excise tax and custom duties
CONSOLIDATED
2018
$
11,000,000
2,050,407
822,485
13,872,892
(22,282,408)
(19,069,956)
(13,255,437)
(10,922,785)
(8,193,654)
(4,683,573)
(1,738,274)
(341,819)
(80,487,906)
2017
$
-
1,000,938
47,239
1,048,177
(6,571,945)
(17,124,200)
(24,500,351)
(10,421,940)
(9,168,996)
3,723,968
(6,132,426)
(1,500,351)
(71,696,241)
Red 5 Limited 2018 Annual Report
37
Notes to the Financial Statements (continued)
5. REVENUE AND EXPENSES (continued)
CONSOLIDATED
(c) Administration and other expenses
Employee and consultancy expenses
VAT receivable impairment
Stamp duty on acquisitions
Acquisition related costs
Regulatory expenses
Legal fees
Gold Fields management fees
Royalties expense
Property tax expense
Occupancy costs
Depreciation
Superannuation contributions
Foreign exchange (losses)/gains
Other administration overheads
(d) Care and maintenance (1)
External services
Fuel and utilities
Employee benefit expenses
Other costs
Excise tax and custom duties
Materials and consumables used
Movement in stock
2018
$
(4,098,578)
(1,994,363)
(845,596)
(691,216)
(506,084)
(443,611)
(425,124)
(303,222)
(260,951)
(228,545)
(139,520)
(115,370)
(7,961)
(1,932,762)
(11,992,903)
(1,881,397)
(1,493,627)
(1,302,457)
(625,464)
(578,656)
(422,663)
225,128
(6,079,136)
2017
$
(3,024,838)
(26)
-
-
(279,549)
(217,587)
-
(693,338)
(1,633,173)
(284,803)
(10,238)
(159,486)
88,539
(445,947)
(6,660,446)
-
-
-
-
-
-
-
-
(1) Siana care and maintenance costs for the current year. During the prior year Siana’s costs were reflected
in (b) and (c) above as production costs while operations were wound down in the course of the 2017 financial year.
(e) Impairment
Property,plant and equipment (note 10)
Mine development (note 12)
(f) Financing income/(expenses)
Interest income
Unwinding of discount on rehabilitation provision
Unwinding of discount on deferred consideration on acquisitions (refer note 31)
Realised losses on settlement of gold hedges
Interest expense
-
-
-
(29,407,159)
(70,392,761)
(99,799,920)
46,874
46,874
(497,109)
(453,501)
(287,241)
(99,018)
(1,336,869)
24,539
24,539
-
-
-
(4,874)
(4,874)
(1,289,995)
19,665
38
Red 5 Limited 2018 Annual Report
Notes to the Financial Statements (continued)
6.
INCOME TAX (Prima Facie)
Current income tax
Current income tax charge
Deferred income tax
Income tax expense
CONSOLIDATED
2018
$
2017
$
(739,121)
(78,989)
3,198,760
-
2,459,639
(78,989)
A reconciliation between income tax expense and the numerical profit/(loss)
before income tax at the applicable income tax rate is as follows:
Profit/(Loss) before income tax
(14,387,213)
(110,124,206)
At statutory income tax rate of 30% (2017: 30%)
(4,316,164)
(33,037,262)
Items not allowable for income tax purposes:
Non-deductible expenses
Utilisation of carry forward tax losses not brought to account
Current year deferred tax not brought to account
Income tax expense
Tax losses and temporary differences not brought to account
(tax effected)
Deductible temporary differences
Tax losses
729,990
(1,650,379)
5,236,552
2,459,639
3,761,115
-
29,197,158
(78,989)
43,033,653
13,599,522
46,801,056
9,435,699
Potential deferred tax assets attributable to tax losses and deductable temporary differences have not been brought to account
at 30 June 2018. The Directors do not believe it is appropriate to regard realisation of the deferred tax assets at this point in time
because (i) it is not probable that future Australian taxable profits will be available against which the Group can use the benefits
there from or (ii) uncertainty with respect to recoverability in the Philippines.
Movement in deferred tax balances:
Property, plant and equipment
Intangible assets
Inventories
Provisions and employee benefits
Finance leases
Net balance
at 1 July 2017
$
Acquired in business
combination(1)
$
Recognised in
profit or loss
$
Net balance
at 30 June 2018
$
-
-
-
-
-
-
(11,176,620)
(1,213,099)
(2,308,273)
5,430,231
-
(9,267,761)
2,550,323
9,537
338,165
347,077
(46,342)
3,198,760
(8,626,297)
(1,203,562)
(1,970,108)
5,777,308
(46,342)
(6,069,001)
(1) Deferred tax arising on acquisition of Darlot Mining Company Pty Ltd (refer note 31).
7. CASH AND CASH EqUIVALENTS
Cash at bank
Cash on hand
Red 5 Limited 2018 Annual Report
CONSOLIDATED
2018
$
7,147,804
597
7,148,401
2017
$
5,393,069
394
5,393,463
39
Notes to the Financial Statements (continued)
8. TRADE AND OTHER RECEIVAbLES
CONSOLIDATED
2018
$
2017
$
Current assets
Sundry debtors (1)
Trade debtors
GST receivable
Prepayments
Interest receivable
Non-current assets
VAT receivable
Security deposit
11,649,312
5,889,446
1,756,180
1,725,991
2,280
21,023,209
1,452,397
184,883
1,637,280
(1) Sundry debtors includes the amount receivable of $11,000,000 for the sale of the Mt Cattlin royalty received in July 2018.
9. INVENTORY
Consumables
Run of mine stockpiles
Gold in circuit
Gold bullion (1)
(1) During the year ended 30 June 2018 no gold was held on hand.
10. PROPERTY, PLANT AND EqUIPMENT
10,605,056
3,222,496
2,828,675
-
16,656,227
857,780
7,709,386
51,534
677,022
2,281
9,298,003
3,567,711
134,883
3,702,594
4,553,011
2,462,402
1,532,681
5,367,212
13,915,306
Land and
buildings
$
Plant and
equipment
$
Fixtures and
fittings
$
Under
construction
$
Total
$
Cost
Balance at 1 July 2016
Additions
Impairment
Effect of movements in exchange rates
Balance at 30 June 2017
2,482,875
281,032
-
(255,981)
2,507,926
83,552,394
9,134,115
(418,576)
(8,512,986)
83,754,947
1,749,080
67,130
-
(156,562)
1,659,648
Balance at 1 July 2017
2,507,926
83,754,947
1,659,648
-
-
-
-
-
87,784,349
9,482,277
(418,576)
(8,925,529)
87,922,521
87,922,521
Acquired through business combinations
and asset acquisition (note 31)
Additions
Disposals
Effect of movements in exchange rates
Balance at 30 June 2018
Accumulated depreciation
Balance at 1 July 2016
Depreciation for the period
Impairment
Effect of movements in exchange rates
Balance at 30 June 2017
10,149,500
223,272
-
(36,452)
12,844,246
32,570,566
2,577,378
-
(1,219,724)
117,683,167
24,500
479,839
(58,105)
(21,601)
2,084,281
127,694
2,865,758
-
(4,813)
2,988,639
42,872,260
6,146,247
(58,105)
(1,282,590)
135,600,333
1,070,960
272,890
-
(118,611)
1,225,239
10,367,206
4,281,509
29,407,159
(1,257,841)
42,798,033
1,390,264
88,800
-
(68,819)
1,410,245
-
-
-
-
-
12,828,430
4,643,199
29,407,159
(1,445,271)
45,433,517
40
Red 5 Limited 2018 Annual Report
Notes to the Financial Statements (continued)
10. PROPERTY, PLANT AND EqUIPMENT (continued)
Balance at 1 July 2017
Depreciation for the period
Disposals
Effect of movements in exchange rates
Balance at 30 June 2018
Carrying amounts
At 1 July 2016
At 30 June 2017
At 30 June 2018
11. INTANGIbLE ASSETS
Land and
buildings
$
1,225,239
994,420
-
(13,128)
2,206,531
Plant and
equipment
$
42,798,033
10,742,095
-
(630,090)
52,910,038
Fixtures and
fittings
$
Under
construction
$
Total
$
1,410,245
166,368
(58,095)
(15,471)
1,503,047
-
-
-
-
45,433,517
11,902,883
(58,095)
(658,689)
56,619,616
1,411,915
1,282,687
10,637,715
73,185,188
40,956,914
64,773,129
358,816
249,403
581,234
-
-
2,988,639
74,955,919
42,489,004
78,980,717
Cost
Balance at 1 July 2017
Acquired through business combinations and asset acquisition(1)
(refer note 31)
Additions
Balance at 30 June 2018
Accumulated depreciation
Balance at 1 July 2017
Amortisation
Balance at 30 June 2018
Mineral Rights
$
Software
$
Total
$
-
-
-
31,267,350
-
31,267,350
-
948,189
948,189
31,267,350
948,189
32,215,539
-
(1,472,066)
(1,472,066)
-
(20,008)
(20,008)
-
(1,492,074)
(1,492,074)
Carrying amount at 30 June 2018
29,795,284
928,181
30,723,465
(1) Mineral rights of $4,773,646 were acquired through the acquisition of Darlot Mining Company Pty Ltd and $26,493,704 through the acquisition of assets of
the King of the Hills project (refer note 31).
12. MINE DEVELOPMENT
(a) Mine Development
Opening balance
Development expenditure incurred in current year (1)
Foreign currency translation adjustment
Closing balance
Accumulated amortisation
Opening balance
Amortisation for the year
Impairment (2)
Foreign currency translation adjustment
Closing balance
CONSOLIDATED
2018
$
2017
$
102,879,591
12,151,523
(1,518,629)
113,512,485
98,587,876
-
-
(1,416,200)
97,171,676
111,569,528
5,223,807
(13,913,744)
102,879,591
42,554,875
2,926,234
65,625,288
(12,518,521)
98,587,876
Mine development net book value
16,340,809
4,291,715
Red 5 Limited 2018 Annual Report
41
Notes to the Financial Statements (continued)
12. MINE DEVELOPMENT (continued)
(b) Deferred Mining Waste Costs
Opening balance
Deferred waste mining expenditure incurred during the year
Foreign currency translation adjustment
Closing balance
Accumulated amortisation
Opening balance
Amortisation for the period
Impairment (2)
Foreign currency translation adjustment
Closing balance
CONSOLIDATED
2018
$
64,538,070
-
(963,875)
63,574,195
64,538,070
-
-
(963,875)
63,574,195
2017
$
71,611,128
-
(7,073,058)
64,538,070
48,792,665
16,941,156
4,767,473
(5,963,224)
64,538,070
Deferred mining waste costs net book value
-
-
Total development net book value
16,340,809
4,291,715
(1) Mine development expenditure has been offset by $13,718,264 of gold sales received and $3,007,616 in processing costs incurred from the King of the Hills
project while still in development phase.
(2) During the previous period, following a review of impairment indicators required under the Accounting Standard AASB136, Impairment of Assets, an
impairment expense was recorded for the period in relation to the Siana gold project. During the current year, no impairment of assets was deemed necessary
after reviewing the impairment indicators in terms of AASB136.
13. EXPLORATION AND EVALUATION EXPENDITURE
Exploration and evaluation costs expensed
5,559,594
1,551,203
CONSOLIDATED
2018
$
2017
$
14. TRADE AND OTHER PAYAbLES
Current
Trade creditors (1)
Accruals
Other creditors
Deferred consideration relating to acquisitions (refer note 31)
Non-current
Deferred consideration relating to acquisitions (refer note 31)
(1)
Increase in trade creditors mainly reflects the acquisition of Darlot and King of the Hills operations
15. INCOME TAX PAYAbLE
Income tax payable
42
Red 5 Limited 2018 Annual Report
25,169,340
6,573,788
2,832,906
4,395,120
38,971,154
5,503,646
5,503,646
739,121
739,121
3,233,767
741,936
718,870
-
4,694,572
-
-
-
-
Notes to the Financial Statements (continued)
16. EMPLOYEE bENEFITS
Provision for annual leave
Provision for long-service leave
Provision for bonuses
Current
Non-current (Long service leave)
CONSOLIDATED
2018
$
1,749,626
1,842,890
1,975,134
5,567,650
5,218,185
349,465
5,567,650
2017
$
110,270
10,981
8,125
129,377
118,396
10,981
129,377
(1) Employee benefits provision has increased following the acquisition of Darlot Mining Company Pty Ltd (refer note 31) by an amount of $3,488,128.
17. PROVISIONS
Rehabilitation
provision (1)
$
MCC final
acquisition (2)
$
Documentary
stamp duty (3)
$
Withholding
tax (2)
$
Other
provisions
$
Total
$
Opening balance
1,879,264
1,116,104
1,308,501
504,441
-
4,808,310
Assumed from a business com-
bination and asset acquisition
Provisions made
Provisions utilised
Unwinding of discount
Foreign currency translation
adjustment
Closing balance
27,338,826
-
(135,553)
497,312
-
-
-
-
-
-
(124,587)
-
-
-
-
-
200,178
133,387
-
-
27,539,004
133,387
(260,140)
497,312
(6,666)
29,573,183
-
1,116,104
(19,334)
1,164,580
-
504,441
-
333,565
(26,000)
32,691,873
Current
Non-current
(1) Rehabilitation provision
CONSOLIDATED
2018
$
1,116,104
31,575,769
32,691,873
2017
$
1,116,104
3,692,206
4,808,310
The mining entities within the Group are required by law to undertake rehabilitation as part of their ongoing operations. The rehabilitation provision represents
the present value of rehabilitation costs, which are expected to be incurred when the rehabilitation work following the cessation of operations is expected to be
completed.
(2) MCC final acquisition provision
Provision for expected tax liability arising from the acquisition of Merrill Crow Corporation’s (MCC) holding of Siana Gold Project in 2010.
(3) Documentary stamp duty provision
Provision for documentary stamp duty on cash advances to Philippines subsidiaries.
Red 5 Limited 2018 Annual Report
43
Notes to the Financial Statements (continued)
18. FINANCE LEASE LIAbILITIES
Finance leases include obligations of the Company under vehicle finance leases and equipment hire leases. They expire between
31 December 2018 and 28 February 2020 and bear interest between 6% and 6.75%. Ownership of the vehicles and equipment
will revert to the Company at the end of the leases at no additional cost. The Company’s obligations under the finance leases are
secured by the lessor’s title to the leased assets. The fair value of the finance lease liabilities approximates their carrying values.
The following schedule outlines the total minimum loan payments due for the finance lease obligations over their remaining terms.
Finance lease liabilities are payable as follows:
Less than one year
Between one and five years
More than five years
Current
Non-current
Future minimum
lease payments
2018
$
1,199,957
1,493,137
-
2,693,094
1,199,957
1,493,137
2,693,094
Interest
2018
$
122,509
92,540
-
215,049
122,509
92,540
215,049
Present value of
minimum lease
payments
Present value of
minimum lease
payments
2018
$
1,077,448
1,400,597
-
2,478,045
1,077,448
1,400,597
2,478,045
2017
$
-
-
-
-
-
-
-
CONSOLIDATED
2018
$
2017
$
19. CONTRIbUTED EqUITY
(a) Share capital
1,240,693,011 (2017: 763,826,663) ordinary fully paid shares
260,364,664
236,674,602
(b) Movements in ordinary share capital
On issue at 1 July
Shares issued on acquisition of Darlot
and King of the Hills
Rights issue
Shares issued to directors
Service rights vested
Share issue costs
On issue at 30 June
CONSOLIDATED 2018
$
Shares
CONSOLIDATED 2017
Shares
$
763,826,663
236,674,602
761,851,008
236,554,512
220,000,000
11,000,000
-
-
254,835,049
1,352,814
678,485
-
1,240,693,011
12,741,752
62,500
78,840
(193,030)
260,364,664
-
1,975,655
-
-
763,826,663
-
120,090
-
-
236,674,602
Ordinary shares entitle the holder to participate in dividends and proceeds on the winding up of the parent entity in proportion to
the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in
person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote.
(c) Other Equity
Opening balance 1 July 2017
Balance 30 June 2018 (i)
Shares
581,428
581,428
$
930,285
930,285
(i) Red 5 has provided for 581,428 shares to be issued at a value of $930,285 to settle the outstanding tax liability in relation to the acquisition of Merrill Crowe
Corporation (MCC) in a previous financial year.
44
Red 5 Limited 2018 Annual Report
Notes to the Financial Statements (continued)
20. RESERVES
Foreign currency translation reserve
Defined retirement benefit
Share based payment reserve
Hedging reserve
CONSOLIDATED
2018
$
20,873,985
140,522
294,403
497,966
21,806,876
2017
$
21,614,725
64,069
157,786
-
21,836,580
Foreign currency translation reserve
The foreign currency translation reserve comprises foreign exchange differences arising from the translation of the financial
statements of foreign operations where the functional currency is different to the presentation currency of the reporting entity.
Defined retirement benefit
The reserve relates to retirement benefits in the Philippines. The movement in the reserve arises from the re-measurement of
liabilities resulting from a change in assumptions used in an actuarial report calculation.
Share based payment reserve
The share based payment reserve arises on the granting and vesting of equity instruments. Refer to Note 29 for further details.
Hedging reserve
The hedging reserve comprises of the effective portion of the cumulative net change in the fair value of hedging instruments used
in cash flow hedges pending subsequent recognition in profit or loss.
(a) Movement in performance rights
Opening balance 1 July 2017
Expense relating to rights issued during the period (1)
Issue of performance rights during the period (2)
Balance 30 June 2018
CONSOLIDATED
2018
Rights
2017
Rights
6,000,000
(6,000,000)
18,243,200
18,243,200
12,000,000
(6,000,000)
-
6,000,000
(1) 6,000,000 performance rights lapsed during the period due to performance vesting conditions not being achieved.
(2) During the year 5,616,400 performance rights were issued to the managing director and 12,626,800 to senior management.
21. RELATED PARTIES
The following were key management personnel of the consolidated entity at any time during the reporting period and unless
otherwise indicated, were key management personnel for the entire reporting period:
Executive directors
Mark Williams – Managing Director
Non-executive directors
Kevin Dundo
Ian Macpherson
Colin Loosemore
Other executives
John Tasovac – Chief Financial Officer
Steve Tombs – General Manager Operations
Red 5 Limited 2018 Annual Report
45
Notes to the Financial Statements (continued)
21. RELATED PARTIES (continued)
Compensation of key management personnel
A summary of the compensation of key management personnel is as follows:
Key management personnel
Short term benefits
Post-employment benefits
Long term benefits
Share based payments
CONSOLIDATED
2018
$
1,720,914
103,174
58,484
223,556
2,106,128
2017
$
1,496,630
93,750
19,038
229,650
1,839,068
Loans to key management personnel
There were no loans to key management personnel during the period.
Other transactions with directors
Consulting fees of $28,800 were paid to Ian Macpherson, a non-executive Director of the Company, for the provision of financial
advisory and corporate support services during the period in relation to the acquisition of Darlot and King of the Hills. The
consultancy agreement concluded on 15 September 2017.
There were no other transactions during the year between the consolidated entity and Directors or their Director-related entities.
Transactions with related parties in the wholly owned group
During the financial year, unsecured loan advances were made between the parent entity and its controlled entities. All such
loans were interest free. Intra entity loan balances have been eliminated in the financial report of the consolidated entity. The
ownership interests in related parties in the wholly owned group are set out in Note 25.
22. REMUNERATION OF AUDITOR
Amounts paid or due and payable to the auditor for:
Auditing and reviewing financial reports
– KPMG Australia
– overseas KPMG firms
Taxation advisory services – KPMG Australia
– overseas KPMG firms
Other advisory services – KPMG Australia fees paid
on completion of royalty sale
CONSOLIDATED
2018
$
2017
$
163,277
34,017
151,034
8,366
384,800
741,494
92,380
29,664
20,039
7,491
2,658
152,232
46
Red 5 Limited 2018 Annual Report
Notes to the Financial Statements (continued)
23. EXPENDITURE COMMITMENTS
Commitments in relation to capital expenditure commitments
are payable as follows:
- not later than one year
Commitments in relation to operating lease expenditure
commitments are payable as follows:
- not later than one year
- later than one year but not later than two years
- later than two years but not later than five years
Commitments in relation to contractual expenditure
commitments are payable as follows:
- not later than one year
Commitments in relation to tenement expenditure
commitments are payable as follows:
- not later than one year
- later than one year but not later than two years
CONSOLIDATED
2018
$
2017
$
672,822
672,822
371,805
61,375
-
433,180
5,984,176
5,984,176
4,005,135
63,396
4,068,531
182,225
182,225
357,460
149,710
61,753
568,923
131,673
131,673
-
-
-
24. SEGMENT INFORMATION
The Group is managed primarily on the basis of its production, development and exploration assets in both Australia and the
Philippines. Operating segments are therefore determined on the same basis.
During the year with the acquisition of Darlot Mining Company Pty Ltd and King of the Hills, both Australian operations, a new
operating segment was added for Australia (refer note 31). The prior year comparatives include the previously reported segments
only.
Unless otherwise stated, all amounts reported to the Board of Directors as the chief decision maker with respect to operating
segments are determined in accordance with accounting policies that are consistent to those adopted in the consolidated annual
financial statements of the Group.
Red 5 Limited 2018 Annual Report
47
Notes to the Financial Statements (continued)
24. SEGMENT INFORMATION (continued)
(i) Segment performance
Year ended 30 June 2018
External revenue (3)
Segment result
Included within segment result:
Other income
Sale of Mt Cattlin royalty
Interest income
Finance costs
Exploration costs expensed
VAT receivable impairment
Depreciation and amortisation
Year ended 30 June 2017
External revenue (3)
Segment result
Included within segment result:
Other income
Interest income
Interest expenses
Exploration costs expensed
Provision for doubtful debts
Impairment
Depreciation and amortisation
Inventory write down
(ii) Segment assets
As at 30 June 2018
Segment assets
Additions to non-current assets:
Plant and equipment expenditure
Intangible assets
Development expenditure
As at 30 June 2017
Segment assets
Additions to non-current assets:
Deferred waste expenditure
Plant and equipment expenditure
Development expenditure
(iii) Segment liabilities
As at 30 June 2018
Segment liabilities
As at 30 June 2017
Segment liabilities
Australia(1)
$
Philippines
$
Other (2)
$
Total
$
66,756,930
66,756,930
10,392,499
10,392,499
-
-
77,149,429
77,149,429
(11,296,331)
(7,743,128)
4,652,246
(14,387,213)
381,996
-
26,972
(574,786)
(5,200,196)
-
(12,633,504)
-
-
-
-
-
-
-
-
-
-
-
415,996
-
10,575
(15,191)
(359,398)
(1,994,363)
(751,476)
68,515,762
68,515,762
2,074,900
11,000,000
9,327
(746,892)
-
-
(9,977)
2,872,892
11,000,000
46,874
(1,336,869)
(5,559,594)
(1,994,363)
(13,394,957)
-
-
68,515,762
68,515,762
105,875,137
(4,328,058)
(110,203,195)
47,239
20,289
-
(1,551,203)
(26)
(99,799,920)
(24,503,296)
(3,255,513)
1,000,938
4,250
(4,874)
-
-
-
(7,293)
-
1,048,177
24,539
(4,874)
(1,551,203)
(26)
(99,799,920)
(24,510,589)
(3,255,513)
99,265,860
60,997,918
13,008,009
173,271,787
48,576,622
31,997,649
12,042,638
423,553
-
108,885
18,330
217,890
-
49,018,507
32,215,539
12,151,523
-
-
-
-
76,797,519
2,292,566
79,090,085
-
9,482,277
5,223,807
-
-
-
-
9,482,277
5,223,807
72,924,962
7,486,764
11,608,765
92,020,490
-
7,928,483
1,703,776
9,632,259
(1) Australian segment consists of the Darlot Mining Company Pty Ltd and the King of the Hills gold project.
(2)
Includes corporate costs of the group. The segment liability includes the deferred consideration payable to the sellers relating to the acquisitions of Darlot and
King of the Hills (refer note 31).
(3) Revenue is attributable to one customer only.
48
Red 5 Limited 2018 Annual Report
Notes to the Financial Statements (continued)
25. INVESTMENTS IN CONTROLLED ENTITIES
Name of controlled entities
Country of incorporation
Class of shares
Bremer Resources Pty Ltd
Estuary Resources Pty Ltd
Greenstone Resources (WA) Pty Ltd
Oakborough Pty Ltd
Opus Resources Pty Ltd
Red 5 Philippines Pty Ltd
Red 5 Mapawa Pty Ltd
Red 5 Dayano Pty Ltd
Darlot Mining Company Pty Ltd
Bremer Binaliw Corporation
Red 5 Mapawa Incorporated
Red 5 Dayano Incorporated
Red 5 Asia Incorporated
Greenstone Resources Corporation (i)
Surigao Holdings and Investments
Corporation (i)
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Philippines
Philippines
Philippines
Philippines
Philippines
Philippines
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Equity holding
2018
%
100
100
100
100
100
100
100
100
100
100
100
100
100
40
40
2017
%
100
100
100
100
100
100
100
100
-
100
100
100
100
40
40
(i) The Company holds a 40% direct interest in Greenstone Resources Corporation (GRC) and a 40% interest in Surigao Holdings and Investments Corporation
(SHIC) voting stock. Agreements are in place which deals with the relationship between Red 5 and other shareholders of these entities. In accordance with
Australian accounting standard, AASB 10 Consolidated Financial Statements, Red 5 has consolidated these companies in these financial statements.
26. RECONCILIATION OF NET CASH FLOWS
FROM OPERATING ACTIVITIES
Operating profit/(loss) after income tax
(11,927,574)
(110,203,195)
CONSOLIDATED
2018
$
2017
$
Amortisation and depreciation
VAT receivable impairment
Tax benefit
Share based payment
Finance expenses
Unrealised exchange loss/(gain)
Impairment expense
Loss on disposal of property plant and equipment
Provision for stock obsolescence
Doubtful debt expenses
Changes in operating assets and liabilities
(Increase)/decrease in inventories
(Increase)/decrease in receivables
Increase/(decrease) in payables
Increase/(decrease) in income tax payable
Increase/(decrease) in provisions
Net cash inflow/(outflow) from operating activities
13,394,957
1,994,363
(2,459,639)
356,796
792,885
7,961
-
-
-
-
5,954,438
(12,405,710)
21,675,623
-
1,611,661
18,995,761
24,510,589
-
-
229,650
-
(88,539)
99,799,920
418,576
221,030
26
(4,621,610)
(1,663,820)
(3,939,147)
(2,752,893)
(195,214)
1,715,373
Red 5 Limited 2018 Annual Report
49
Notes to the Financial Statements (continued)
27. EARNINGS PER SHARE
Issued ordinary shares at commencement of financial year
Effect of shares issued 6 December 2016
Effect of shares issued 2 May 2017
Effect of shares issued 11 August 2017
Effect of shares issued 2 October 2017
Effect of shares issued 5 October 2017
Weighted average number of ordinary shares for the financial year
2018
Number
2017
Number
763,826,663
-
-
602,272
353,849,680
997,005
1,119,275,620
761,851,008
383,733
212,651
-
-
-
762,447,392
The potential ordinary shares existing as at balance date are not dilutive, therefore dilutive earnings per share is equal to basic
earnings per share.
28. SUbSEqUENT EVENTS
Royalty sale
In June 2018 the Company entered into an agreement for the sale of the Company’s royalty entitlement from the Mt Cattlin mine in
Western Australia to Canadian royalty company, Lithium Royalty Corporation. At year end the sale of the royalty was recognised as
all material conditions to the Sale and Purchase Agreement had been satisfied. The total consideration for the transaction of $11
million was received in July 2018.
Siana Gold Project approval
Subsequent to the end of the financial year the Company’s Philippine-affiliated company Greenstone Resources Corporation
(GRC), was issued a Clearance and Notice to Proceed from the Philippines Mines and Geoscience Bureau (MGB) to construct and
operate Tailings Storage Facility 6 (TSF 6) at the Siana Gold Project in the Philippines.
The Philippines Environmental Management Bureau has also amended the co-ordinates of Greenstone Resources’ Environmental
Compliance Certificate for the Siana Gold Project to include the proposed area of TSF 6, which will allow construction and
operation of TSF 6 to proceed, subject to the completion of standard local construction permitting requirements. TSF 6, which is
the initial tailings storage facility planned for Siana, has an expected capacity of 1 million tonnes of tailings.
Gold loan facility
In September 2018 the Company entered into a gold loan facility of 5,015 ounces with Malaysian-based investment fund, Asian
Investment Management Services Ltd (AIMSL). The gold loan facility was for the provision by AIMSL to the Company of a gold loan
of 5,015 gold ounces available in one tranche. The facility has a term of 12 months and is secured by a security interest in Red 5’s
Australian operating subsidiary companies on a limited recourse basis.
This facility was drawn down in September 2018 for net proceeds of approximately A$8.2 million and, together with cash-flow from
existing operations will be used to advance development at Darlot and King of the Hills, maintain ongoing exploration momentum
at both mines and for general working capital purposes.
50
Red 5 Limited 2018 Annual Report
Notes to the Financial Statements (continued)
29. SHARE bASED PAYMENT ARRANGEMENT
Performance rights granted during the period
Performance rights were granted to the Managing Director and to Senior Management during the year. The rights of both offers
are split into four tranches based on different performance conditions measured over a period commencing 1 July 2017 to the
vesting date which is 30 June 2020 if the conditions are met. Details of the performance rights are summarised below:
(a) Managing Director
Number of
performance rights
Fair value per right
Valuation per tranche
Condition criteria
Tranche A
2,956,000
Tranche B
1,182,400
Tranche C
1,182,400
Tranche D
295,600
$0.037
$109,372
TSR ranking relative to
TSR of S&P/ASX All
Ordinaries Gold Total
Return Index
$0.042
$49,661
Growth in the
Company’s ore reserves
$0.042
$49,661
Operating costs as %
of budgeted operating
costs
$0.042
$12,415
Safety compliance
TSR > Index
TSR +20%
TSR > Index
TSR +10%
TSR < or equal
to Index TSR
100% Stretch: 35% 100% Stretch: 80% 100% All criteria to be met:
50% Target: 20%
50% Target: 90%
50%
nil
Threshold:
15%
< 15%
25% Threshold:
95%
> 95%
nil
25%
nil
– No fatalities
– Implement a
Company-wide safety
management system
– Year on year
improvement in safety
performance
The table below details the terms and conditions of the grant and the assumptions used in estimating fair value:
Grant date
20 September 2017
Value of the underlying security at grant date
$0.05
Exercise price
Dividend yield
Risk free rate
Volatility
Performance period (years)
Commencement of measurement period
Vest date
Remaining performance period (years)
(b) Senior Management
nil
nil
2.15%
85%
3.00
1 July 2017
30 June 2020
2.78
Number of
performance rights
Fair value per right
Valuation per tranche
Condition criteria
Tranche A
6,313,400
Tranche B
2,525,360
Tranche C
2,525,360
Tranche D
1,262,680
$0.049
$309,357
TSR ranking relative to
TSR of S&P/ASX All
Ordinaries Gold Total
Return Index
$0.056
$141,420
Growth in the
Company’s ore reserves
$0.056
$141,420
Operating costs as %
of budgeted operating
costs
$0.056
$70,710
Safety compliance
TSR > Index
TSR +20%
TSR > Index
TSR +10%
TSR < or equal
to Index TSR
100% Stretch: 35% 100% Stretch: 80% 100% All criteria to be met:
50% Target: 20%
50% Target: 90%
50%
nil
Threshold:
15%
< 15%
25% Threshold:
95%
> 95%
nil
25%
nil
Red 5 Limited 2018 Annual Report
– No fatalities
– Implement a
Company-wide safety
management system
– Year on year
improvement in safety
performance
51
Notes to the Financial Statements (continued)
29. SHARE bASED PAYMENT ARRANGEMENT (continued)
The table below details the terms and conditions of the grant and the assumptions used in estimating fair value:
Grant date
23 March 2018
Value of the underlying security at grant date
$0.064
Exercise price
Dividend yield
Risk free rate
Volatility
Performance period (years)
Commencement of measurement period
Vest date
Remaining performance period (years)
nil
nil
2.02%
80%
3.00
1 July 2017
30 June 2020
2.27
In addition, vesting of both offers of performance rights is also conditional on the following being exceeded:
1. A positive Company TSR for the measurement period; and
2. 80% of budgeted gold production by 30 June 2018.
The fair value at grant date of Tranche A which have market based performance conditions, was estimated using a Monte Carlo
simulation. The fair value at grant date of Tranches B, C and D, which have market and non market based performance
conditions, were valued using a single share price barrier model incorporating a Monte Carlo simulation.
Information about the Performance Rights outstanding at year end
The following unvested Performance Rights were outstanding at year end:
The following unvested performance rights were outstanding at year end:
Balance at the start of the year
Granted during the year
Vested during the year
Expired during the year
Balance at the end of the year
CONSOLIDATED
2018
Number
6,000,000
18,243,200
-
(6,000,000)
18,243,200
2017
Number
12,000,000
-
-
(6,000,000)
6,000,000
Share based payments expense for the year in relation to the performance rights was $317,465 (2017: $30,720).
Shares issued, Service and Deferred Rights
Grant date
Vesting date
Managing Director Service Rights
Non-Executive Director Shares (1)
Non-Executive Director Shares (1)
Non-Executive Director Shares (1)
22 Nov 16
5 Oct 17
5 Oct 17
5 Oct 17
11 Aug 17
5 Oct 17
5 Oct 17
5 Oct 17
Fair value at
grant date
78,485
22,500
18,750
21,250
Granted /
issued
678,485
487,013
405,844
459,957
Exercised
(678,485)
(487,031)
(405,844)
(459,957)
(1)
In accordance with the Non-Executive Directors Share Plan approved by shareholders, Mr Kevin Dundo was issued 487,013 ordinary shares, Mr Colin
Loosemore was issued 405,844 ordinary shares and Mr Ian Macpherson was issued 459,957 ordinary shares at a deemed issue price of 4.62 cents in lieu of
the September 2017 quarter’s Directors fees.
Share based payments expense for shares issued, service and deferred rights was $215,456 (2017: $198,930). The fair value is based
on observable market share price.
52
Red 5 Limited 2018 Annual Report
Notes to the Financial Statements (continued)
30. FINANCIAL RISK MANAGEMENT
Overview
This note presents information about the consolidated entity’s exposure to credit, liquidity and market risks, their objectives,
policies and processes for measuring and managing risk, and the management of capital.
The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework.
Management monitors and manages the financial risks relating to the operations of the consolidated entity through regular
reviews of the risks.
Credit risk
Credit risk is the risk of financial loss to the consolidated entity if a customer or counterparty to a financial instrument fails to meet
its contractual obligations, and arises principally from the consolidated entity receivables from customers and investment
securities. For the company it arises from receivables due from subsidiaries.
Presently, the consolidated entity undertakes exploration, mining and gold production activities.
The Group sells gold to one customer in Australia and has managed its exposure to credit risk by analysing the creditworthiness
of the customer.
Cash and cash equivalents
The consolidated entity limits its exposure to credit risk by only investing in liquid securities and only with counterparties that
have an acceptable credit rating. Any excess cash and cash equivalents are maintained in short term deposits with more than
one major Australian commercial bank at interest rates maturing over 30 to 120 day rolling periods.
Trade and other receivables
The Group’s trade and other receivables relate mainly to gold sales and sales tax refunds. The Group has determined that its
exposure to trade receivable credit risk is low, given that it sells gold bullion to a single reputable refiner with short contractual
payment terms and sales tax refunds are due from Government tax bodies namely the Australian Tax Office and the Philippines
Bureau of Internal Revenue.
Exposure to credit risk
The carrying amount of the consolidated entity’s financial assets represents the maximum credit exposure.
The maximum exposure to credit risk at the reporting date was:
Trade and other receivables
Cash and cash equivalents
Non-current receivables
Liquidity risk
CONSOLIDATED
Carrying Amount
2018
$
21,023,209
7,148,401
1,637,280
2017
$
9,298,003
5,393,463
3,702,594
Liquidity risk is the risk that the consolidated entity will not be able to meet its financial obligations as they fall due. The
consolidated entity approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to
meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking
damage to the consolidated entity.
The consolidated entity manages liquidity risk by maintaining adequate cash reserves from funds raised in the market and by
continuously monitoring forecast and actual cash flows.
Red 5 Limited 2018 Annual Report
53
Notes to the Financial Statements (continued)
30. FINANCIAL RISK MANAGEMENT (continued)
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact
of netting agreements:
CONSOLIDATED
30 June 2018
Trade and other payables
Finance lease liabilities
30 June 2017
Trade and other payables
Market risk
Carrying
amount
Contractual
cash flows
6 months
or less
6-12
months
More than
1 year
44,474,800
2,478,045
46,952,845
(44,474,800)
(2,693,094)
(47,167,894)
(38,971,154)
(620,229)
(39,591,383)
-
(579,728)
(579,728)
(5,503,646)
(1,493,137)
(6,996,783)
4,694,572
4,694,572
(4,694,572)
(4,694,572)
(4,694,572)
(4,694,572)
-
-
-
-
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect
the consolidated entity income or the value of its holdings of financial instruments. Changes in the market gold price will affect
the derivative valuation at each reporting date. The objective of market risk management is to manage and control market risk
exposures within acceptable parameters, while optimising the return. The consolidated entity enters into derivative financial
instruments to hedge such transactions.
Hedge accounting
The Group’s risk management policy is to hedge between 25 to 70% of gold sales in local currency over a rolling 24 month
period.
At 30 June 2018 the Group held gold forward contracts to hedge the exposure of future gold sales. The following table sets out
the current hedge position and fair value as at 30 June 2018:
No. of contracts
19
Currency risk
Gold sold
24,500 oz
0-6 months
$761,679
Maturity
7-12 months
-
More than 1 year
-
The consolidated entity is exposed to currency risk on investments and purchases that are denominated in a currency other than
the respective functional currencies of the subsidiaries within the consolidated entity being Australian Dollar (A$) and Philippine
Pesos. The currencies in which these transactions primarily are denominated are United States dollars (US$).
The consolidated entity has not entered into any derivative financial instruments to hedge such transactions. The Company’s
investments in its subsidiaries are not hedged as those currency positions are considered to be long term in nature.
Exposure to currency risk
The consolidated entity’s exposure to US$ foreign currency risk at balance date was as follows, based on notional amounts:
Cash
Trade debtors
Trade payables
Gross balance sheet exposure
CONSOLIDATED
Carrying Amount
2018
A$
1,265,136
3,264,296
(70,208)
4,459,224
2017
A$
3,098,291
6,938,448
(191,321)
9,845,418
54
Red 5 Limited 2018 Annual Report
Notes to the Financial Statements (continued)
30. FINANCIAL RISK MANAGEMENT (continued)
Sensitivity analysis
A 10 per cent strengthening of the Australian dollar against the United States dollar on the 30 June 2018 would have increased/
(decreased) profit or loss by the amounts shown below. This analysis assumes that all other variables remain constant.
The analysis was performed on the same basis for 2017.
30 June 2018 – US$
30 June 2017 – US$
CONSOLIDATED
Profit or Loss
A$
(445,922)
(984,542)
A 10 per cent weakening of the Australian dollar against the above currencies at 30 June 2018 would have had the equal but
opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.
Interest rate risk
The consolidated entity is exposed to interest rate risk, primarily on its cash and cash equivalents which is the risk that a financial
instrument’s value will fluctuate as a result of changes in the market interest rates on interest-bearing financial instruments. The
consolidated entity does not use derivatives to mitigate these exposures.
The consolidated entity adopts a policy of ensuring that as far as possible it maintains excess cash and cash equivalents in short
term deposits with more than one counterparty at interest rates maturing over 90 day rolling periods. At the reporting date the
interest rate profile of the consolidated entity and the Company’s interest-bearing financial instruments were:
Variable rate instruments
Cash and cash equivalents(i)
Security deposits
(i) Amount excludes non-interest bearing bank accounts.
CONSOLIDATED
Carrying Amount
2018
$
3,499,974
184,883
3,684,857
2017
$
4,879,745
134,883
5,014,628
Cash flow sensitivity analysis for variable rate instruments
A change of 100 basis points in interest rates at the reporting date would have increased/(decreased) equity and profit or loss by
the amounts shown below. This analysis assumes that all other variables remain constant. The analysis was performed on the
same basis for 2017.
CONSOLIDATED
Profit or loss
Equity
100bp increase
$
100bp decrease
$
100bp increase
$
100bp decrease
$
30 June 2018
Variable rate instruments
30 June 2017
Variable rate instruments
Net fair values
36,849
(36,849)
36,849
(36,849)
50,146
(50,146)
50,146
(50,146)
The carrying value of financial assets and liabilities equates their fair value.
Red 5 Limited 2018 Annual Report
55
Notes to the Financial Statements (continued)
30. FINANCIAL RISK MANAGEMENT (continued)
Capital management
The consolidated entity’s objective when managing capital is to safeguard its ability to continue as a going concern, so as to maintain
a strong capital base sufficient to maintain future exploration and development of its projects. In order to maintain or adjust the
capital structure, the consolidated entity may return capital to shareholders, issue new shares or sell assets to reduce debt.
Risk management is facilitated by regular monitoring and reporting by the board and key management personnel.
Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
31. ACqUISITIONS
(a) Acquisition of Darlot Mining Company Pty Ltd
On 2 October 2017 the Group acquired 100% of the shares of Darlot Mining Company Pty Ltd (Darlot) from a subsidiary of Gold
Fields Limited.
The acquisition provides the company with immediate production and cash-flow, an extensive strategic footprint in the Leonora-
Leinster mineral district of Western Australia and the ability to leverage this position by pursuing a regional consolidation strategy
aimed at establishing the Darlot mill as a central processing hub.
The Company has determined that the acquisition of Darlot was a business combination in accordance with AASB 3, Business
Combinations, and as such has accounted for it in accordance with this standard using the acquisition method with the
Company’s wholly owned subsidiary Opus Resources Pty Limited being the acquirer. The Company incurred transaction costs of
$474,965 relating to the acquisition. Transaction costs are expensed in accordance with AASB 3, Business Combinations.
In the nine months to 30 June 2018, Darlot contributed revenue of $66,613,710 and loss after tax of $12,743,369 to the Group’s
results. If the acquisition had occurred on 1 July 2017, management estimates that consolidated revenue would have been
$100.8 million and consolidated loss for the year would have been $12.4 million. In determining these amounts, management has
assumed that the fair value adjustments, determined provisionally, that arose on the date of acquisition would have been the
same if the acquisition had occurred on 1 July 2017.
The following table summarises the fair value of the consideration paid and the preliminary estimates of the fair values of
identified assets acquired and liabilities assumed from Darlot.
Purchase consideration:
Cash
Shares issued (130,000,000 ordinary shares) (1)
Deferred consideration (payable as cash or shares at the seller’s option) (2) (3)
2018
$
6,742,265
6,500,000
5,199,982
18,442,247
(1) The fair value of ordinary shares issued was based on the listed share price of the Company at 2 October 2017 of $0.05 per share.
(2) The deferred consideration payable for the acquisition of Darlot is payable in the future and has been discounted. The amount payable is $5.0 million if the
seller opts to receive cash due in one or two years from the date of acquisition at the vendor’s election.
(3)
If the seller opts to receive shares in Red 5 Ltd, these will be issued at a 15% discount to the volume weighted average price (VWAP) in two years from the
date of acquisition.
56
Red 5 Limited 2018 Annual Report
Notes to the Financial Statements (continued)
31. ACqUISITIONS (continued)
Fair value of net assets acquired:
Assets
Trade and other receivables
Inventory
Property, plant and equipment
Mineral rights
Liabilities
Trade and other payables
Provisions
Employee benefits
Environmental rehabilitation and other provisions
Deferred tax liabilities
Net assets acquired
Goodwill / bargain purchase gain
2018
$
81,175
8,695,359
40,155,560
4,773,646
(7,615,806)
(200,178)
(3,488,128)
(14,691,620)
(9,267,761)
18,442,247
-
Measurement of fair values
The valuation techniques used for measuring the fair value of material assets acquired were as follows:
Inventories – Market comparison technique: the fair value is determined based on the estimated selling price in the ordinary
course of business less the estimated costs of completion and sale, and a reasonable profit margin based on the effort required
to complete and sell the inventories.
Property, plant and equipment – market value technique using and independent valuer: the valuation model considers market
prices for similar items when they are available, and current replacement cost when appropriate. Current replacement cost
reflects adjustments for physical deterioration as well as functional and economic obsolescence.
Mineral rights – market comparison technique: the valuation considers the value of the resource acquired to comparative market
values of similar resources.
Fair values have been measured on a provisional basis
If new information obtained within one year of the date of acquisition about facts and circumstances that existed at the date of
acquisition identifies adjustments to the above amounts, or any additional provisions that existed at the time, then the accounting
for the acquisition will be revised.
(b) Acquisition of King Of The Hills Gold Project
On 2 October 2017 the Group acquired the assets of the King Of The Hills gold project located in the Eastern Goldfields of
Western Australia, from Saracen Minerals Holdings Limited.
The acquisition comprises an operational shaft and underground development together with supporting site infrastructure
adjacent to the Goldfields Highway and mining centre of Leonora. The Company has determined that the acquisition of King Of
The Hills was an asset acquisition.
Red 5 Limited 2018 Annual Report
57
Notes to the Financial Statements (continued)
31. ACqUISITIONS (continued)
The following table summarises the fair value of the consideration paid:
Purchase consideration:
Cash
Shares issued
Deferred consideration (payable as cash or shares at the seller’s option)
Fair value of net assets acquired:
Assets
Property, plant and equipment
Mineral rights
Liabilities
Trade and other payables
Environmental rehabilitation and other provisions
Net assets acquired
Goodwill / bargain purchase gain
2018
$
7,000,000
4,500,000
4,245,283
15,745,283
2,716,700
26,493,704
(817,915)
(12,647,206)
15,745,283
-
32. DEED OF CROSS GUARANTEE
Pursuant to ASIC Corporations (Wholly owned Companies) Instrument 2016/785 the wholly owned subsidiaries listed below are
relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports, and Directors’
reports.
It is a condition of the Instrument that the Company and each of the subsidiaries enter into a Deed of Cross Guarantee. The effect
of the Deed is that the Company guarantees to each creditor payment in full of any debt in the event of winding up of any of the
subsidiaries under certain provisions of the Corporations Act 2001. If a winding up occurs under other provisions of the Act, the
Company will only be liable in the event that after six months any creditor has not been paid in full. The subsidiaries have also
given similar guarantees in the event that the Company is wound up.
The subsidiaries subject to the Deed are:
• Opus Resources Pty Ltd
• Darlot Mining Company Pty Ltd
Opus Resources Pty Ltd and Darlot Mining Company Pty Ltd both became party to the Deed of Cross Guarantee on 30 June 2018.
58
Red 5 Limited 2018 Annual Report
Notes to the Financial Statements (continued)
32. DEED OF CROSS GUARANTEE (continued)
A consolidated statement of comprehensive income and a consolidated statement of financial position, comprising of the
Company and controlled entities which are party to the Deed, after eliminating all transactions between parties to the Deed of
Cross Guarantee, for the year ended 30 June 2018 is set out as follows:
(a) Statement of other comprehensive income
Revenue
Cost of sales
Gross profit/(loss) from operations
Other income
Administration and other expenses
Exploration expense
Operating profit/(loss)
Finance income
Finance expenses
Net financing income
Profit/(loss) before tax
Income tax benefit/(expense)
Net profit/(loss) after tax for the year
Other comprehensive income/(loss)
Items that may be reclassified subsequently to profit or loss:
Gold hedge unrealised gain
Total comprehensive income/(loss) for the year
(b) Statement of financial position
Assets
Cash and cash equivalents
Trade and other receivables
Other financial assets
Inventories
Total current assets
Trade and other receivables
Property, plant and equipment
Intangible assets
Investments
Total non-current assets
Total assets
Liabilities
Trade and other payables
Employee benefits
Provisions
Income tax payable
Finance lease liabilities
Total current liabilities
2018
$
80,331,974
(85,416,690)
(5,084,716)
13,338,005
(16,699,344)
(4,727,541)
(13,173,596)
34,103
(1,071,870)
(1,037,767)
(14,211,363)
2,459,639
(11,751,724)
497,966
(11,253,758)
3,159,373
16,336,552
761,679
10,291,681
30,549,285
83,031,598
33,934,769
4,229,761
658,386
121,854,514
152,403,799
35,080,754
5,214,697
1,271,464
739,121
667,476
42,973,512
Red 5 Limited 2018 Annual Report
59
Notes to the Financial Statements (continued)
32. DEED OF CROSS GUARANTEE (continued)
Trade and other payables
Employee benefits
Provisions
Deferred tax liability
Finance lease liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Other equity
Reserves
Accumulated losses
Total equity
5,503,646
349,465
15,125,662
6,069,001
1,131,216
28,178,990
71,152,502
81,251,297
260,364,664
930,285
792,369
(180,836,021)
81,251,297
33. PARENT ENTITY DISCLOSURES
2018
$
2017
$
(a) Financial position
Assets
Current assets
Non-current assets
Total assets
Liabilities
Current liabilities
Non-current liabilities
Total liabilities
Equity
Contributed equity
Other equity
Reserves
Accumulated losses
Total equity
(b) Financial performance
Profit/(loss) for the year
Other comprehensive income
Total comprehensive profit/(loss) for the period
(c) Financial commitments
Operating lease:
- not later than one year
- later than one year but not later than two years
- later than two years but not later than five years
Total financial commitments
(d) Contingent liabilities
The parent entity did not have any contingent liabilities at 30 June 2018 (2017: $nil).
60
Red 5 Limited 2018 Annual Report
12,491,568
94,384,458
106,876,026
20,121,083
5,503,646
25,624,729
260,364,664
930,285
792,369
(180,836,021)
81,251,297
(11,388,001)
497,966
(10,890,035)
147,178
61,753
-
208,931
2,137,453
68,017,593
70,155,046
1,692,790
10,986
1,703,776
236,674,602
930,285
157,787
(169,311,404)
68,451,270
(123,107,883)
-
(123,107,883)
147,275
149,710
61,753
350,738
Declaration by Directors
The Board of Directors of Red 5 Limited declares that:
(a)
the consolidated financial statements, accompanying notes and the remuneration disclosures that are contained in
the Remuneration Report in the Directors’ Report are in accordance with the Corporations Act 2001, including:
– giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its performance for the
financial year ended on that date; and
– complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the
Corporations Regulations 2001;
(b)
the financial report also complies with International Financial Reporting Standards as disclosed in note 2.1; and
(c)
there are reasonable grounds to believe that the Group will be able to pay its debts as and when they fall due.
The Board of Directors has received the declaration by the Managing Director and Chief Financial Officer required by
Section 295A of the Corporations Act 2001, for the year ended 30 June 2018.
Signed in accordance with a resolution of the directors.
Kevin Dundo
Chairman
Perth, Western Australia
21 September 2018
Red 5 Limited 2018 Annual Report
61
Independent Auditor’s Report
Independent Auditor’s Report
Independent Auditor’s Report
To the shareholders of Red 5 Limited
Report on the audit of the Financial Report
To the shareholders of Red 5 Limited
Opinion
Report on the audit of the Financial Report
We have audited the Financial Report of Red 5
Limited (the Company).
Opinion
In our opinion, the accompanying Financial
Report of the Company is in accordance with the
Corporations Act 2001, including:
We have audited the Financial Report of Red 5 Limited (the Company).
• giving a true and fair view of the Group's
In our opinion, the accompanying Financial Report of the Company is in
accordance with the Corporations Act 2001, including:
financial position as at 30 June 2017 and of
its financial performance for the year ended
on that date; and
• giving a true and fair view of the Group’s financial position as at
complying with Australian Accounting
30 June 2018 and of its financial performance for the year ended
Standards and the Corporations Regulations
on that date; and
2001.
• complying with Australian Accounting Standards and the Corporations
•
Regulations 2001.
Basis for opinion
Basis for opinion
The Financial Report comprises:
• Consolidated statement of financial position
as at 30 June 2017
• Consolidated statement of financial position as at 30 June 2018
• Consolidated statement of profit or loss and
other comprehensive income, Consolidated
The Financial Report comprises:
statement of changes in equity, and
Consolidated statement of cash flows for the
year then ended
income, Consolidated statement of changes in equity, and Consolidated
• Notes including a summary of significant
statement of cash flows for the year then ended
accounting policies
• Consolidated statement of profit or loss and other comprehensive
• Notes including a summary of significant accounting policies
• Directors' Declaration.
• Directors’ Declaration.
The Group consists of the Company and the
entities it controlled at the year end or from time
to time during the financial year.
The Group consists of the Company and the entities it controlled at the
year-end or from time to time during the financial year.
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
to provide a basis for our opinion.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report.
the audit of the Financial Report section of our report.
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical
requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics
Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the Financial Report in Australia.
for Professional Accountants (the Code) that are relevant to our audit of the Financial Report in
We have fulfilled our other ethical responsibilities in accordance with the Code
Australia. We have fulfilled our other ethical responsibilities in accordance with the Code
Key Audit Matters
Key Audit Matters
The Key Audit Matters we identified are:
• Acquisitions; and
The Key Audit Matters we identified are:
• Valuation of Property, plant and equipment
• Going Concern basis of accounting
and Mine development
• Going Concern basis of accounting
Key Audit Matters are those matters that, in our professional
judgement, were of most significance in our audit of the Financial Report
of the current period.
Key Audit Matters are those matters that, in our
professional judgement, were of most
significance in our audit of the Financial Report of
the current period.
These matters were addressed in the context of our audit of the Financial
Report as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
These matters were addressed in the context of
our audit of the Financial Report as a whole, and
in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
62
Red 5 Limited 2018 Annual Report
Independent Auditor’s Report (continued)
Acquisitions
Refer to Note 31 to the Financial Report
The key audit matter
How the matter was addressed in our audit
Acquisitions are a Key Audit Matter due to:
For each acquisition, our procedures included:
• The size of the acquisitions having a pervasive impact on the Group’s
financial statements: the Group made two acquisitions during the year,
being 100% of Darlot Mining Company Pty Ltd and the King of The Hills
Gold Project (KOTH).
• Level of judgement required by us in evaluating whether the acquisitions
were a business combination or an asset acquisition. The difference in
the accounting for the acquisition as a business or an asset is significant
and could impact the recognition and measurement of amounts reported
in the consolidated financial statements.
• The judgement required by us in evaluating the fair value of deferred
consideration and evaluating the Group’s purchase price allocation.
These conditions and associated complex acquisition accounting required
significant audit effort and greater involvement of senior team members.
• Reading the sale and purchase agreements to understand the structure,
key terms and the nature of consideration. Using this information, we
evaluated the accounting treatment of the acquisition.
• Assessing the level of inputs, processes and outputs for both Darlot and
KOTH to compare to the Group’s conclusion that KOTH was an asset
acquisition and Darlot a business combination.
• We involved senior audit team members to assess the accounting
treatment for the transaction. We researched and analysed the
conclusions reached by the Group to accounting interpretations, industry
practice and accounting literature.
• Critically evaluating the model developed by the Group to determine the
fair value of the assets and liabilities acquired in the acquisitions. In
particular, we focused on significant judgements made by the directors in
assessing the fair value of Property, Plant and Equipment, Mineral
Rights, Deferred Tax and Rehabilitation Provisions.
• Critically evaluating the independence and objectivity of experts used in
assessing the fair value of Property, Plant and Equipment and
Rehabilitation Provisions.
• Assessed the Group’s determination of fair value measurement of
deferred consideration. This involved:
– Checking key inputs and assumptions from the Group’s calculation
of deferred consideration to the Sale and Purchase Agreements; and
– Checking the mathematical accuracy of the deferred consideration
liability and the net present value of future expected payment.
• We considered the adequacy of the Group’s disclosures in respect of this
acquisition against the criteria in the accounting standards.
Red 5 Limited 2018 Annual Report
63
Independent Auditor’s Report (continued)
Going concern basis of accounting
Refer to Note 2.2 to the financial report
The key audit matter
The Group’s use of the going concern basis of accounting and the
associated extent of uncertainty is a key audit matter due to the high level
of judgement required by us in evaluating the Group’s assessment of going
concern and the events or conditions that may cast significant doubt on
their ability to continue as a going concern. These are outlined in note 2.2.
The Directors have determined that the use of the going concern basis of
accounting is appropriate in preparing the financial report. Their assessment
of going concern was based on cash flow forecasts. The preparation of
these forecasts incorporated a number of assumptions and significant
judgements and they have concluded that the range of possible outcomes
considered in arriving at this judgement does not give rise to a material
uncertainty casting significant doubt on the Group’s ability to continue as a
going concern.
We critically assessed the levels of uncertainty, as it related to the Group’s
ability to continue as a going concern, within these assumptions and
judgements, focusing on the following:
• The Group’s forecast care and maintenance costs included within the
Group’s cash flow forecasts with respect to the Siana Project.
• Impact of expected gold prices and forecast US Dollar, Philippine Peso
and Australian Dollar foreign exchange rates to cash flows projected.
• The Group’s planned levels of operational and capital expenditures,
grade of resource, ability to increase production, and the ability of the
Group to manage cash outflows within available funding.
• The Group’s ability to raise additional funds from shareholders or other
parties and the projected timing thereof. This included source of funds,
availability of fund type, feasibility and status/progress of securing those
funds.
In assessing this key audit matter, we involved senior audit team members
who understand the Group’s business, the gold industry and the economic
environment it operates in.
Other Information
How the matter was addressed in our audit
Our procedures included, amongst others:
• We analysed the cash flow projections by:
o Evaluating the underlying data used to generate the forecasts. We
specifically looked for their consistency with the Group’s intentions,
and their comparability to past practices. Information was sourced
from mine plans and reserve reports. We tested forecast gold prices
and foreign exchange rates used by management to published views
from market commentators. We also evaluated the consistency of
forecast sales, production volumes and production costs to historical
production information;
o Analysing the impact of reasonably possible changes in projected
cash flows and their timing, to the projected periodic cash positions.
We assessed the resultant impact to the ability of the Group to pay
debts as and when they fall due and continue as a going concern.
The specific areas we focused on were informed from our test results
of the accuracy of previous Group cash flow projections and sensitivity
analysis on key cash flow projection assumptions;
o Assessing the planned levels of operating and capital expenditures for
consistency of relationships and trends to the Group’s historical
results, results since year end, and our understanding of the business,
industry and economic conditions of the Group;
o We held discussions with senior management to understand and
assess options available for additional funding arrangements.
• We evaluated the Group’s going concern disclosures in the financial
report by comparing them to our understanding of the matter, the events
or conditions incorporated into the cash flow projection assessment, the
Group’s plans to address those events or conditions, and accounting
standard requirements.
Other Information is financial and non-financial information in Red 5 Limited’s annual reporting which is provided in addition to the Financial Report and the
Auditor’s Report. The Directors are responsible for the Other Information.
The Other Information we obtained prior to the date of this Auditor’s Report was the Directors’ Report. The Chairman’s Address, Managing Director’s
Review, Resources and Reserves Statement, Additional Information and Corporate Directory are expected to be made available to us after the date of the
Auditor’s Report.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance
conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion.
In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other
Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the
Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report.
64
Red 5 Limited 2018 Annual Report
Independent Auditor’s Report (continued)
Responsibilities of the Directors for the Financial Report
The Directors are responsible for:
• preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
• implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material
misstatement, whether due to fraud or error
• assessing the Group and Company’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate.
This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to
liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Report
Our objective is:
• to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and
• to issue an Auditor’s Report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will
always detect a material misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of the Financial Report.
A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at
http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf
This description forms part of our Auditor’s Report.
Report on the Remuneration Report
Opinion
Directors’ responsibilities
In our opinion, the Remuneration Report of Red 5 Limited for the year
ended 30 June 2018, complies with Section 300A of the Corporations Act
2001.
The Directors of the Company are responsible for the preparation and
presentation of the Remuneration Report in accordance with Section 300A
of the Corporations Act 2001.
Our responsibilities
We have audited the Remuneration Report included in the Directors’ report
for the year ended 30 June 2018.
Our responsibility is to express an opinion on the Remuneration Report,
based on our audit conducted in accordance with Australian Auditing
Standards.
KPMG
R Gambitta
Partner
Perth
21 September 2018
Red 5 Limited 2018 Annual Report
65
Statement of Shareholders
as at 21 September 2018
DISTRIbUTION OF SHARE AND OPTION HOLDERS
Number of Holders
Fully paid shares
1
1,001
5,001
10,001
100,001
–
–
–
–
1,000
5,000
10,000
100,000
and over
Including holdings of less than a marketable parcel
CLASSES OF SHARES AND VOTING RIGHTS
735
800
405
1,242
550
3,732
1,782
Unlisted rights
–
–
–
–
8
8
At meetings of members or classes of members, each member entitled to vote may vote in person or by proxy or attorney. On a show
of hands every holder of ordinary shares present at a meeting in person or by proxy is entitled to one vote, and on a poll, every person
present in person or by proxy has one vote for each ordinary share held.
SUbSTANTIAL SHAREHOLDERS
The following shareholders have lodged a notice of substantial shareholding in the Company.
Shareholder
St Ives Gold Mining Company Pty Ltd
Franklin Resources Inc
Saracen Mineral Holdings Limited
Ruffer LLP
Matchpoint Asia Fund Limited
TWENTY LARGEST HOLDERS OF FULLY PAID SHARES
Shareholder
HSBC Custody Nominees (Australia) Limited
St Ives Gold Mining Company Pty Ltd
Saracen Mineral Holdings Limited
Citicorp Nominees Pty Ltd
McNeil Nominees Pty Ltd
JP Morgan Nominees Australia Limited
HSBC Custody Nominees (Australia) Limited
Gary B Branch Pty Ltd
BNP Paribas Noms Pty Ltd
Bart Superannuation Pty Ltd
Philip & Janet Turner Pty Ltd
Ironside Pty Ltd
John Colin Loosemore & Susan Loosemore
Ilwella Pty Ltd
BNP Paribas Noms Pty Ltd
Ormond Peter Wood
John Broadfoot & Judith Broadfoot
Roger Craig Adams
David Teoh
Neweconomy.Com.Au Nominees Pty Ltd
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
UNqUOTED SECURITIES
The following classes of unquoted securities are on issue:
Security
Performance rights (2020)
Number on issue
15,643,200
CORPORATE GOVERNANCE STATEMENT
Number of shares
246,875,821
181,213,853
130,600,000
104,000,000
63,830,167
Number of shares
299,605,309
246,875,821
130,600,000
80,242,203
65,802,985
43,244,159
30,060,000
11,300,000
9,004,921
8,000,000
6,889,735
6,344,024
5,632,204
5,572,087
5,004,500
4,800,000
4,000,000
4,000,000
3,989,707
3,949,564
974,917,219
%
19.88
14.59
10.52
8.37
5.14
%
24.12
19.88
10.52
6.46
5.30
3.48
2.42
0.91
0.73
0.64
0.55
0.51
0.45
0.45
0.40
0.39
0.32
0.32
0.32
0.32
78.49
Holders of greater than 20% of each class of security
Name of holder
Mark Williams
Number
5,616,400
%
35.90
The Company’s 2018 corporate governance statement can be viewed at http://red5limited.com/corporate-governance-1/.
66
Red 5 Limited 2018 Annual Report
Bankers
National Australia Bank Limited
Auditors
KPMG
solicitors
HopgoodGanim
SyCip Salazar Hernandez & Gatmaitan (Philippines)
stock exchange Listing
Australian Securities Exchange
Trading code: RED
Corporate Directory
Board of Directors
Kevin Dundo (Chairman)
Mark Williams (Managing Director)
Ian Macpherson (Non-Executive Director)
Colin Loosemore (Non-Executive Director)
Steven Tombs (Non-Executive Director)
Company secretary
Frank Campagna
Registered office
Level 2, 35 Ventnor Avenue,
West Perth, Western Australia, 6005
Telephone:
Facsimile:
Email:
Website:
(61-8) 9322 4455
(61-8) 9481 5950
info@red5limited.com
www.red5limited.com
Manila office
Greenstone Resources Corporation
Rm. 507-508, ALPAP II Building
Trade Street, corner Investment Drive
Madrigal Business Park
Ayala, Alabang
Muntinlupa City
Philippines 1780
Telephone:
Facsimile:
(63-2) 807 2790
(63-2) 807 6658
share Registry
Security Transfer Australia Pty Ltd
770 Canning Highway,
Applecross, Western Australia, 6153
Telephone: 1300 992 916
Facsimile:
Email:
Website:
(61-8) 9315 2233
registrar@securitytransfer.com.au
www.securitytransfer.com.au
Red 5 Limited 2018 Annual Report
Red 5 Limited
ABN 73 068 647 610
www.red5limited.com