Scotgold Resources
Annual Report 2012

Plain-text annual report

ABN 42 127 042 773 contents Section page 01 company Information 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 chairmans letter Review of operations directors’ Report corporate governance Statement Auditor’s Independence declaration Statement of comprehensive Income Statement of Financial position Statement of changes in equity Statement of cash Flows Notes to the Financial Statements directors’ declaration Independent Auditor’s Report Shareholder details Interest in exploration leases company Information - Scotland photographs contained in this Annual Report are for illustration purposes only and are not necessarily assets of the company. Scotgold ANNuAl RepoRt I 2012 01 02 03 17 25 37 38 39 40 41 42 62 63 65 67 68 Company Information 01 ABN Directors Secretary Registered Office Share Registry Auditor Bankers 42 127 042 773 John Bentley Chris Sangster Phillip Jackson Shane Sadleir Peter Newcomb 24 Colin Street West Perth, WA 6005 Telephone: Facsimile: Email: Executive Chairman CEO / Managing Director Non-Executive Director Non-Executive Director +61 8 9222 5850 +61 8 9222 5810 sgz@scotgoldresources.com Computershare Investor Services Pty Ltd Level 2, Reserve Bank Building 45 St Georges Terrace Perth, WA 6000 Telephone: Facsimile: +61 8 9323 2000 +61 8 9323 2033 HLB Mann Judd Level 4, 130 Stirling Street Perth, WA 6000 Telephone: Facsimile: Bankwest 54 Adelaide Street Fremantle, WA 6160 +61 8 9227 7500 +61 8 9227 7533 Securities Exchange Listing Scotgold Resources Limited Shares are listed on the Australian Securities Exchange and on the AIM board of the London Stock Exchange. The home exchange is Perth, Western Australia ASX Code AIM Code Shares Shares SGZ SGZ Website www.scotgoldresources.com COMPANY INFORMATION 1 02 Chairman’s Letter Dear Shareholders The year under review has been an extraordinarily testing one for the global financial markets with the result that the gold price has maintained a level above $1,500 per ounce albeit down from the high of $1,895 per ounce set in September last year. Importantly for Scotgold which will incur operating costs in sterling, the sterling price of gold has largely maintained a level above £1,000 per ounce. The strength in the gold price has however not translated into stronger stock prices for gold producers and explorers although Scotgold has performed relatively well as the Company is now poised to become a producer having received planning permission from its governing authority, the Loch Lomond and Trossachs National Park. As the Operating Review details, permission was received with a unanimous vote in favour of development from the Board of the National Park following an intensive process of dialogue and detailed planning undertaken in collaboration with the National Park’s executive. Since receiving planning approval we have been concentrating on increasing the confidence level in the gold and silver resource through infill drilling of the Cononish ore body. Specifically, the intention is to convert a further 10,000 ounces from inferred to measured and indicated resources in order to provide greater debt capacity thereby limiting the level of equity financing which must be undertaken to provide development funding. We have recently succeeded in bringing in RMB Resources, a specialist mining finance bank, as the prospective provider of debt finance to the project. In the first instance they have provided a loan of £1.18m structured as a convertible loan and they have accepted the mandate to provide a prepayment facility which it is intended may provide approximately 50% of the capital required for the project. The endorsement of a bank of RMB Resources’ standing in the mining industry is a significant step forward for Scotgold in bringing Scotland’s first commercial gold mine into production. We remain confident that the year to come will see the start of development operations leading to first production of gold in late 2013 / early 2014. John Bentley Chairman 2 2 SCOTGOLD ANNuAL REPORT I 2012 Review of Operations 03 ABOUT SCOTGOLD Australian Securities Exchange Listed Scotgold Resources Limited (ASX:SGZ) was established in 2007 and listed on the ASX in January 2008 after raising $A4.9M through an IPO, with the objective of advancing the Cononish Gold and Silver Project in Scotland’s Grampian Highlands to a production decision and to explore the highly prospective tenements comprising the Grampian Gold Project for additional deposits. Scotgold has focused initially on the development of the Cononish Gold and Silver Project and has identified resources (estimated in accordance with the JORC Code) in the Measured, Indicated and Inferred categories (see later for breakdown) of 163,000 oz of gold and 596,000oz of silver (at 3.5g/t gold cut-off). An application for planning permission for the project was submitted in January 2010 and was narrowly refused by the National Parks Board in August 2010. Based on further discussions with the Planning Authority, the Company indicated its intention to re-apply for permission in December 2010 and submitted a revised application in July 2011. On 13th October 2011, the Director of Planning issued a report to the Parks Board recommending approval of the application and at a special meeting on 25th October 2011, the Board unanimously approved the application subject to the conclusion of various legal agreements and agreement on a number of outstanding conditions. These were successfully concluded and on 15th February 2012, the Parks Board issued the Decision Letter granting planning permission for the development. The Crown Estate Commissioners unconditional grant of the Crown Lease was confirmed in May 2012. Production of gold and silver is expected to begin in late 2013 / early 2014 subject to financing, based on the positive outcome of the updated Cononish Development Study carried out in Q1 2012 by AMC Consultants uK Limited (AMC) which used a long term gold price of uS$1,100/oz. The Grampian Gold Project comprises Crown Option agreements of some 4,300km2 surrounding the Cononish deposit and covers some of the most prospective areas of the Dalradian geological sequence in the uK. This sequence extends westward from the uK to the eastern seaboard of Canada and the Appalachian belt in the uS, and eastward into Sweden and Norway, has been identified by the British Geological Survey as being highly prospective for both significant gold and base metal deposits. On a more local scale, the Dalradian sequence extends to the south west from Scotland into the north of Ireland where it hosts other gold deposits at Cavancaw (399,800 oz of gold) which has been operating as an open cut mine since 2006, Curraghinalt (2,700,000 oz of gold), and at Clontibret (1,030,000 oz of gold). On acquisition of the Cononish Gold and Silver Project, Scotgold accessed significant amounts of historic exploration information over the Grampian Gold Project area. This information has been assimilated into a GIS database and forms the basis for ongoing exploration activities which include regional stream sediment sampling, rock chip sampling over the area and diamond drilling (both shallow surface and deeper drilling) at identified key prospects. The company’s shares were admitted to trading on the AIM market of the London Stock Exchange in February 2010. REVIEW OF OPERATIONS 3 3 03 Review of Operations Scotgold’s Grampian Gold Project licence area in relation to regional geology and structures, gold deposits and operating gold mines in Scotland and Ireland. CONONISH GOLD AND SILVER PROJECT PLANNING Scotgold submitted an application for planning permission for the Cononish Gold and Silver project in January 2010 after the requisite consultation processes which drew widespread local support. In August 2010, after a recommendation for refusal by the Director of Planning at the National Parks, the Parks Board narrowly upheld this recommendation at a special Board meeting. Subsequent to the decision, Scotgold’s directors met on several occasions with senior representatives of the Parks Authority and based on the results of these meetings, Scotgold started the process of re-application in December 2010. During April 2011 the Company announced that it had accepted an offer of a Regional Selective Assistance (RSA) grant from economic development agency, Scottish Enterprise, of up to £600,000 for the establishment of mine facilities and job creation, conditional on the firm obtaining planning permission and subject to meeting certain conditions relating to capital expenditure and job creation. Scotgold submitted its revised application for planning permission for the Cononish Gold and Silver project on 17th July 2011 and was again encouraged by the widespread support registered from a range of national and local organisations as well as individuals including local residents, politicians, academia and Scottish based jewellers. The revised application incorporated a significant reduction in the scale of the Tailings Management Facility (afforded by a commitment to underground disposal, post the creation of a suitable underground void) and a revised form for this Facility, in order to minimize the visual impact on the landscape. The application also incorporated more detailed restoration techniques and a number of additional measures aimed at mitigating possible impacts of the development. 4 SCOTGOLD ANNuAL REPORT I 2012 Review of Operations 03 At the closure of the ‘formal’ consultation period in September 2011, the Scottish Environment Protection Agency (SEPA) (as previously) raised no objection to the application and although Scottish Natural Heritage (SNH) raised a ‘technical’ objection regarding mitigatory works proposed by Scotgold as part of the Greater Cononish Glen Management Plan, indicated in their response, that it was capable of being resolved through the application of suitable conditions. The objection was subsequently withdrawn prior to the Board meeting. On 13th October 2011, the Director of Planning issued a report recommending approval of the application and this recommendation for approval was upheld unanimously by the National Parks Board at a special board meeting on 24th / 25th October 2011 subject to the conclusion of a number of legal agreements and finalisation of outstanding conditions. These were concluded on 13th February 2012 when the National Parks Authority issued the Decision Letter formally granting planning permission. The Company continues to work towards purifying the suspensive conditions required to be met prior to the commencement of development. Subsequent to the issue of the Decision Letter, and the expiry of the requisite judicial review period of three months, the Crown Estate confirmed the unconditional grant of the mining lease on 15th May 2012. PROJECT STUDIES AND FINANCING In late 2008, Scotgold commissioned Australian Mining Consultants (AMC) to conduct a scoping study on the Cononish Gold and Silver Project. A summary of the study can be found on the company’s website (Cononish Scoping Study confirms economic viability – 17th February 2009). In December 2011, Scotgold commissioned Australian Mining Consultants uK Ltd (“AMC”) to conduct the Cononish Project Development Study with updated input from Scotgold’s processing, tailings and environmental consultants and the company. Results from the study were released on 17th April 2012. A seven year life of mine is currently estimated inclusive of a one year pre production period and total recovered production to doré and concentrate over the project life is estimated to be 131,600 ounces of gold and 465,000 ounces of silver. Resources considered in the study are shown in Tables 2 and 3 and include Inferred Resources. A conventional gravity / flotation concentrator is planned which will treat 72,000 tpa. It is intended that about 25% of gold will be recovered by gravity for smelting on site to a doré bar with the balance of the gold reporting to a sulphide rich concentrate which will be treated through a third party facility remote from the site. The overall recovery from the processing plant is predicted at 93% for Au and 90% for Ag to doré and concentrate and recovered production (to doré and concentrate) is estimated at 21,000 ounces of gold and 74,700 ounces of silver annually. REVIEW OF OPERATIONS 5 03 Review of Operations Preproduction project expenditure is estimated at £22.3M, with a further sustaining and deferred capital cost of £2.4M over the life of the project, including an overall 15% contingency allowance. Overall operating costs (exclusive of smelter, transport and royalty charges) amount to approximately £90 / t with an average operating cash cost (including smelter, transport and royalty charges) of uS$575 / £360 / oz Au equivalent. Operating costs are estimated with an overall 16% contingency allowance. The results from the study demonstrate a robust project at a base case gold price of uS$1,100 per ounce, with very attractive returns at current spot gold prices. Key project financial parameters are shown in Table 1 below using a base case gold price of uS$1,100 / oz and the then current (NY close 13/4/2012) spot prices. Table 1 - Financial Highlights Gold Price $ / oz uS$ : £ exchange rate used Gold Price £ / oz Total Pre Production Costs Net Present Value (at 10% discount ) Free Cashflow Unit uS$ £ £ A$ £ A$ £ A$ Pre Tax Internal Rate of Return Average Operating cash cost Payback from start of production % uS$/oz Au eq Months Spot Gold ($) Base Case Gold $1,655 1.60 £1,039 £22.3M $34.1M £40.5M $61.9M £65.9M $100.7M 62.5% 624 18 $1,100 1.60 £687 £22.3M $34.1M £10.6M $16.2M £23.4M $35.7M 25.4% 575 31 At base case prices, the project generates £23.4M pre tax free cashflow with a pre tax Net Present Value (using a discount rate of 10%) of £10.6M and a pre tax internal rate of return (IRR) of 25.4%. At the then current spot prices (13/04/2012), the project is highly cash generative with £65.9M pre tax free cashflow over the life of the project, a pre tax IRR above 60% and payback initial investment within 18 months of the commencement of production. Base Case average operating costs are estimated to be uS$575 per ounce Au equivalent after commissioning of the project. Notes: 1. Average operating cash cost is calculated from total operating (non capital) costs (including smelter, transport, royalty costs) divided by recovered Au equivalent ozs – see Note 2 2. Au equivalent ozs. Gold equivalent ozs are calculated: Recovered gold ozs + (Recovered silver ounces / 55) where the number 55 represents the ratio of base gold price used to silver price used. This ratio was calculated using base case prices of US$1100/ oz Au and US$20 / oz Ag 6 SCOTGOLD ANNuAL REPORT I 2012 Review of Operations 03 5 Year Spot Gold in British Pound vs US Dollars 1018.88 GBP +688.04 (+207.97%) (Change calculation is from the start of the chart) 1599.00 USD +942.70 (+143.64%) 1400 1200 1000 800 600 400 200 . z o r e p B P G n i e c i r P 2500 2000 1500 1000 500 . z o r e p D S U n i e c i r P 0 Nov07 Apr08 Oct08 M ar09 Sep09 M ar10 Aug10 Jan11 Jul11 Jan12 Jun12 The Company has recently concluded a pre development funding agreement with RMB Resources (“RMB”) for a £1.18m financing. This Facility provides funds to allow Scotgold to take the Cononish gold project through to its final development decision. In particular the Facility enables Scotgold to continue infill drilling at Cononish (see Resources) with a view to improving confidence in that part of the resource that will be mined in the early years of the mine life thereby enhancing the debt capacity of the project. The Facility is a convertible loan structured as a secured corporate loan facility with share options which provides for RMB to acquire Scotgold shares at a cost equal to the value of the loan if all the options are exercised. The strike price for the RMB options is £0.045. The Facility will be repaid on the earlier of the date that equity or debt funds are available or 31 December 2013. The annual interest rate for the Facility will be Libor plus 5%. The Facility was arranged by RMB and is provided by RMB Australia Holdings Limited. RMB’s investment committee approved the Facility subject to the satisfactory completion of legal due diligence which was concluded on 27th July 2012. In addition to the Facility agreement, Scotgold has agreed to mandate RMB to arrange a gold pre payment facility to fund the development of the Cononish gold project. Scotgold has also agreed to mandate LN Metals International Ltd to market the gold-in-pyrite concentrate which will be produced at Cononish to end consumers. The company intends to proceed to a development decision as soon as possible and an indicative milestones for the project are shown below. REVIEW OF OPERATIONS 7 03 Review of Operations Indicative Key Milestones for Project Development • October 2012 January 2013 • • First quarter of 2013 • Second quarter of 2013 Infill drilling completed Finalised Development Study incorporating updated Resource Estimate Finalisation of financing arrangements Commencement of project development Subject to the successful outcome of these project milestones, Scotgold anticipates first gold production in late 2013 / early 2014. RESOURCES In May 2008, Scotgold released the first Mineral Resource Statement on the Cononish gold-silver deposit reported in accordance with the JORC code, prepared by Snowden Mining Industry Consultants (“Snowden”). The Measured, Indicated and Inferred Mineral Resource categories totalled 154,000 ounces of gold and 589,000 ounces of silver (using 3.5 g/t gold cut-off). Snowden subsequently noted “based on our experience of the Cononish vein system, we believe that there is an Exploration Target around the mine of between 0.5 Mt to 1.0 Mt at a grade of between 10 g/t Au to 15 g/t Au for up to 320,000 oz Au. Much of this potential is based on the along strike and down dip extensions of the Cononish vein, but there are indications that other reefs are present in the area too. At this stage, such figures are highly conceptual and there is no guarantee that further exploration will define additional resources.” During 2009, the Company identified additional, high grade gold mineralisation in and around the Cononish gold and silver project, following a thorough search of historic data generated by previous exploration companies. As a result of these further investigations and exploration by Scotgold during 2008 - 2009, Snowden was asked in late 2009 to undertake an update on the Cononish resource. The revised resource for Cononish is shown below. Table 2 - Cononish Main Vein Gold Mineral Resources (reported at a 3.5 g/t Au cut-off). Reported using the 2004 JORC Code (JORC, 2004). Tonnages and contained ounces rounded to the nearest 1,000 t or 1,000 oz. Grade rounded to the nearest 0.1 g/t Au. The Inferred Resource grade is reported with a grade range to indicate the likely upside due to the information effect. Classification Tonnes (t) Measured Indicated Inferred 53,000 73,000 311,000 Grade (g/t) Gold 17.9 10.2 10.8 (10 – 16) Ounces (oz) Gold 31,000 24,000 108,000 Scotgold Note: Incorporating the grade range, the Inferred Mineral Resource is estimated to lie between 100,000 oz Au and 160,000 oz Au. It should be noted that any upside may not exist or it may only be present in a portion of the resource. 8 SCOTGOLD ANNuAL REPORT I 2012 Review of Operations 03 Table 3 - Cononish Main Vein Silver Mineral Resources (reported at a 3.5 g/t Au cut-off). Reported using the 2004 JORC Code (JORC, 2004). Tonnages and contained ounces rounded to the nearest 1,000 t or 1,000 oz. Classification Tonnes (t) Measured Indicated Inferred 53,000 73,000 285,000 Grade (g/t) Silver 75.0 43.1 40.1 Ounces (oz) Silver 128,000 101,000 367,000 This gives a total metal inventory of 163,000 oz Au and 596,000 oz Ag. Snowden noted that there is resource potential in the eastern adit zone and that the estimation of additional Mineral Resources are likely once further drilling is complete. Scotgold conducted an initial phase of infill drilling in October 2009. The drilling program also targeted mineralisation to the east of the previously defined resource envelope (the eastern extension), specifically the potential down dip continuation of the mineralisation encountered in trenches (up to 16.12 g/t Au over 2.10 metres) surface drill holes (up to 73.10 g/t Au over 1.77 metres) and underground holes (up to 12.35 g/t Au over 1.49 metres). A limited program of short AQ size diamond drill holes was also conducted from within the Cononish adit to test for possible extensions to the identified mineralisation in the eastern part of the adit outside the existing resource, in particular a ‘parasitic’ 1.6 metre-wide quartz vein where high grades (up to 119.9 g/t gold and 97.2g/t silver) have been reported from historic assays and also possible ‘off adit’ intersections on the Cononish vein. Results from the initial phase of the infill program were released in July 2010 are shown in Table 4 below. Table 4 - 2010 Infill Drilling Results. Hole Con 09 01 Con 10 02 Con 10 02a Con 10 05 including From (m) 103.95 103.00 126.90 67.24 79.15 To (m) 106.00 104.50 127.25 83.75 83.00 Downhole intersection (m) 2.05 1.50 0.35 11.04 3.85 Est. true thickness (m) 1.98 1.41 0.31 6.16 2.15 Au g/t 9.84 15.82 0.39 5.09 14.82 Comment Ag g/t 41.6 Main Vein intersection 52.5 Main Vein intersection 42.4 Main Vein Sheared, dyke 22.8 Mineralised intersection 55.5 Main vein intersection Results from the eastern extension program possibly indicated a westerly plunging payshoot extending beyond the eastern boundary of the previously defined JORC resource, delineated by surface holes EA 01, 02 and 03, underneath the eastern extension. Further drilling to define this area is hampered by extreme topography and will be followed up by underground drilling during mine development. Scotgold commenced a further phase of infill drilling at Cononish in January 2012. This program is designed to increase the debt capacity for the Project by demonstrating with increased certainty the presence and continuity in the high grade ore in the section that will be the first to be mined. The holes reported below represent the first three holes from an eight hole initial program of 1,020 metres. REVIEW OF OPERATIONS 9 03 Review of Operations Table 5 - 2012 Infill Drilling Results Hole CF 12 - 01 CF 12 - 02 CF 12 - 03 From (m) 112.46 105.05 125.00 To (m) 114.77 107.67 130.43 Downhole intersection (m) 2.31 2.62 5.43 Est. true thickness (m) 2.00 2.42 3.34 Au g/t 13.95 14.21 27.21 Comment Ag g/t 47.6 Main Vein intersection 39.7 Main Vein intersection 44.1 Main Vein Intersection A further phase comprising 5 holes (approximately 500m) to be drilled to the west of the existing Indicated resource has been commenced and a subsequent phase of 5 holes (800m) above the East Raise is being investigated. On completion of the program, the results will be incorporated into a revised Resource Estimate. Scotgold believes that there is potential to define further resources close to the Cononish mine, subject to appropriate studies. The extensive gold-in-soil anomalies, mineralisation associated with outcrops and trenching and geophysical anomalies in close proximity to Cononish clearly warrant further follow up during the development stage. Recent infill drilling results. 10 SCOTGOLD ANNuAL REPORT I 2012 Review of Operations 03 GRAMPIAN GOLD PROJECT The Company continues to actively pursue exploration activities on its substantial land position outside the National Park. It is noted that 85% of the area currently under option to Scotgold is located outside the National Park. Regional fieldwork including ongoing stream sediment sampling continues over the Grampian Gold Project area and a total of 716 samples taken to date. Initial results have been received and interpretation is on-going to determine areas for future follow up. The company plans to conduct an airborne geophysical survey over the central portion of the Cononish Glen Orchy option area though clearance from civil aviation authorities to fly the proposed configuration remains as yet ungranted. In addition to ongoing regional exploration, the Company focused on the Beinn udlaidh River Vein and the Sron Garbh mafic intrusive prospects. Beinn Udlaidh River Vein. The River Vein area is located 5km northwest of the Cononish gold and silver deposit and outside the boundaries of the Loch Lomond and Trossachs National Park. Outcrop is confined to rivers and burns due to extensive glacial till cover which is, in many places, deeper than 10 metres throughout Glen Orchy. Previous exploration in this area by Ennex International plc in the 1980s identified high grade boulders, up to 358.9 g/t Au, and which are now thought to be linked to the recently identified veins. Initial mapping and outcrop sampling in the River Orchy by Scotgold in 2010, following up previous results returned exceptional values of 383.2 g/t Au, 321.5 g/t Au and 197.3 g/t Au in rock chip samples from the River Vein area. High grade values were also recorded from rock chip samples at two additional new veins located upstream of the River Vein including 171.8 g/t Au, 59.0 g/t Au and 1.89 g/t Au. Subsequent detailed mapping and sampling over the ‘River Vein’ area defined a quartz sulphide vein rich in gold as well as several aplitic fracture zones, rich in molybdenum. The gold bearing vein has now been traced from its discovery location, northwest, across the river to the bank for a distance of 30 metres, where it disappears under several meters of glacial till. The narrow molybdenum bearing fractures are currently only exposed in the river bed before disappearing under glacial till. They trend approximately northeast – southwest and are spaced at 1 – 5 metre intervals. The aplitic margins containing the molybdenum mineralisation vary from 1cm to 20cms wide. Seven samples (from twenty) of the aplitic fractures reported values of molybdenum in excess 500g/t and were submitted for re-assay at a higher upper calibration limit – all seven samples returned in excess of 1000 ppm (0.1%) Mo. In order to quantify the extent and grade of both the gold vein and molybdenite fractures, a program of four diamond drill holes was laid out, two targeting the gold vein and two targeting the molybdenum fractures. REVIEW OF OPERATIONS 11 03 Review of Operations A total of 800m drilling was completed and significant results from the initial two holes are shown below. RV01: 9.7g/t Au, 13.3g/t Ag, 0.6% Pb, 2.1% Zn over 40cms (intersection width) - 70 metres below surface; and 3.5g/t Au, >200g/t Ag, 1.4%Pb, 100ppm Mo and 34g/t Te over 52 cms (intersection width) - 88 metres below surface. RV02: 4.39g/t Au, >200g/t Ag, 1.8% Pb, 167ppm Mo, 43g/t Te over 40cms (intersection width) – 87 metres below surface The drilling results indicate at least two possible gold and silver bearing structures. Geochemical characteristics are similar to the Cononish gold/silver vein, with high silver values and elevated levels of lead, zinc and tellurium. Four narrow molybdenum fractures with values exceeding 0.01% Mo were also intersected in the second hole, RV02. The intersection widths of the gold bearing sturcutures, while narrow, demonstrate continuity of the River Vein structure sampled on surface. The host sequences are a mixture of psammites and semi-pelites which appear more favourable for vein formation and continuity in other Dalradian gold occurrences. Follow up work to further determine the extent of the mineralisation is planned. 12 SCOTGOLD ANNuAL REPORT I 2012 Review of Operations 03 Map of River Vein Prospect showing latest drilling, mapping and rock chip sampling results. REVIEW OF OPERATIONS 13 03 Review of Operations Sron Garbh The Sron Garbh mafic intrusive complex is situated 2km from Tyndrum, outside the border of the National Park and about 5 km northeast of the Cononish gold and silver deposit. During 2011, Scotgold mapped the complex and identified a number of differing rock types including ‘gabbroic / appinitic’ and dioritic ‘phases’. Confirmatory rock chip sampling in the vicinity of a high Cu – Ni sulphide occurrence previously sampled, returned a highly anomalous value of 0.18g/t Au, 4.3 g/t Ag, 0.82% Cu, 0.21%Ni and 0.03% Co. The sample was re-assayed for Platinum and Palladium and returned values of 1.14g/t Pt and 0.79g/t Pd. An initial AQ diamond core program was undertaken to examine and sample the differing igneous rock types found near surface within the complex. Fifteen AQ diamond drillholes were completed and selected results are shown below. Selected results best intercepts include • SQ AQ 16 - 0.22g/t Au, 0.78g/t Pd, 0.58g/t Pt, 0.75% Cu, 0.18% Ni and 0.01% Co over 2 metres • SQ AQ 15 - 0.08g/t Au, 0.43g/t Pd, 0.35g/t Pt, 0.58%Cu, 0.17% Ni and 0.02% Co over 1.25 metres • SQ AQ 26 - 0.11g/t Au, 0.31g/t Pd, 0.37g/t Pt, 0.65% Cu, 0.21% Ni and 0.04% Co over 1 metre • SQ AQ 28 - 0.03g/t Au, 0.29g/t Pd, 0.25g/t Pt, 0.17% Cu, 0.12% Ni and 0.03% Co over 1.5 metres • SQ AQ 21 - 0.15g/t Au over 20 metres • SQ AQ 22 - 0.12g/t Au over 22.5 metres Drilling has intersected highly anomalous grades of Gold, Platinum, Palladium, Copper Nickel and Cobalt, in and close to the ‘Gabbroic / Appinitic’ zone which appears to form an outer annular ring to the complex. Mineralisation of pyrrhotite, minor chalcopyrite and pentlandite is seen to be contained in ‘sulphide blebs’ in a ‘leopard rock’ textured zone. These characteristics are diagnostic of the world - wide ‘magmatic Cu – Ni – PGE – Au’ group of deposits associated with mafic / ultramafic intrusives such as Aguablanca in Spain, certain parts of the Sudbury mines in Ontario, Canada; Voisey’s Bay in Labrador Canada and Lac des Isles in Quebec, Canada. Such deposits occur as sulphide concentrations (massive through to disseminated sulphides) associated with a variety of mafic and ultramafic magmatic rocks. Dr Dave Holwell of the university of Leicester’s Department of Geology and contributing author to the recent Society of Economic Geologists publication “Magmatic Ni – Cu – PGE deposits” visited the site and has reviewed the current results. He commented: “This is most certainly an exciting discovery. The mineralisation at Sron Gharbh has the characteristics of a classic magmatic Cu-Ni sulphide deposit with elevated precious metals. The ratios of sulphur and selenium indicate that the magma has been contaminated by sulphur-bearing crustal rocks – a key factor in 14 SCOTGOLD ANNuAL REPORT I 2012 Review of Operations 03 helping to generate deposits of this kind. Intriguingly, the geochemical signatures show that the sulphides cannot have gained their high precious metal contents without the presence of a much larger magmatic system than is current exposed. If this has been preserved beneath the current surface (as a larger intrusion or conduit system), it could represent a potential host for massive sulphide mineralization at depth.” In addition to the Cu – Ni – PGE – Au mineralization associated with the gabbroic / appinitic rim, a separate low grade but wide zone of gold mineralisation occurs associated with quartz veinlets in the ‘iron rich’ dioritic core of the complex. This mineralisation possibly represents a later or earlier phase to the intrusion which in its own right, warrants further follow up. A further phase of drilling is planned to further determine the extent of the complex. Gold/copper in soil anomaly contour, selected rock chip and selected AQ drillhole results. REVIEW OF OPERATIONS 15 03 Review of Operations Competent Persons Statement: The information in this report that relates to Exploration Results is based on information compiled by Mr David Catterall. Pr Sci Nat, who is a member of the South African Council for Natural Scientific Professions. Mr Catterall is employed as a consultant to Scotgold Resources Ltd. Mr Catterall has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr Catterall consents to the inclusion in the report of the matters based on his information in the form and context in which it appears. The Information in this report that relates to Mineral Resources is based on resource estimates compiled by EurGeol Dr S C Dominy FAusIMM (CP), FGS (CGeol), FIMMM (CEng), FAIG (RPGeo), Executive Consultant with Snowden based in the Ballarat, Australia Office. Dr. Dominy has sufficient experience that is relevant to the style of deposit under consideration and to the activity which he is undertaking to qualify as Competent Person as defined in the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore reserves. Dr Dominy consents to the inclusion in the report of the matters based on this information in the form and context in which it appears. 16 SCOTGOLD ANNuAL REPORT I 2012 Directors’ Report 04 Your Directors submit their report on the consolidated entity consisting of Scotgold Resources Limited and its controlled entities (“Scotgold”) for the financial year ended 30 June 2012. DIRECTORS The following persons were Directors of Scotgold Resources Limited during the whole of the financial year and up to the date of this report unless otherwise stated; John Bentley Chris Sangster Phillip Jackson Shane Sadleir Executive Chairman Chief Executive Officer Non Executive Director Non Executive Director 17/02/2009 17/10/2007 14/08/2007 12/03/2009 present present present present In office from In office to PARTICULARS OF DIRECTORS AND COMPANY SECRETARY John Bentley Executive Chairman B.Tech (Hons) Brunel University Qualifications and experience Mr Bentley has over 40 years of experience in the natural resources sector. He was Managing Director of Gencor’s Brazilian mining company, Sao Bento Mineracao, from 1988 to 1993 when he became Chief Executive of Engen’s Exploration & Production division. In 1996 he was instrumental in floating Energy Africa Ltd on the Johannesburg stock exchange and became Chief Executive for the following five years building it into one of the leading African independent oil and gas companies. More recently Mr Bentley was Executive Chairman of FirstAfrica Oil plc and a Non-Executive director of Adastra Minerals Ltd. He currently serves on the board of a number of resource companies including as Chairman of Faroe Petroleum plc, Deputy Chairman of Wentworth Resources Ltd and Non-Executive Director of Resaca Exploitation Inc, Kea Petroleum plc and SacOil Holdings Ltd. Mr Bentley holds a degree in Metallurgy from Brunel university. Interest in Shares and Options Fully Paid Shares 1,462,500 Special Responsibilities Overall strategic guidance and uK Capital markets. Directorships held in ASX listed entities None DIRECTORS’ REPORT 17 04 Directors’ Report Christopher Sangster CEO / Managing Director BSc (Hons), ARSM, GDE Qualifications and experience Mr Sangster is a mining engineer with over 30 years experience in the mining industry. He has a BSc Hons in Mining Engineering from the Royal School of Mines, Imperial College in London and a GDE in Mineral Economics from the university of Witwatersrand. He currently lives close to the Company’s exploration licences at Comrie in Scotland with his wife and family. Mr Sangster’s career covers extensive production and technical experience at senior levels in both junior and multi-national companies in gold, diamonds and base metals in Africa, uK and Canada and covers a wide range of mining applications. Between 1996 and 1999 Mr Sangster was General Manger for Caledonia Mining Corporation for the Cononish Gold Project and a Director of Fynegold Exploration, where he was responsible for all aspects of the project including feasibility study preparation, project due diligence, finance negotiations, exploration initiatives and planning permission applications. After 1999, Mr Sangster moved to the Zambian Copperbelt with Anglo American Plc / KCM Plc where he attained the position of Vice President Mining Services and in 2005 joined Australian Mining Consultants as a Principal Mining Engineer. More recently, Mr Sangster was employed as General Manager for AIM – listed company European Diamonds Plc. Interest in Shares and Option Fully Paid Shares 6,438,250 Special Responsibilities Mr Sangster is the CEO / Managing Director and is responsible for the day to day running of the company. Directorships held in listed entities None Phillip Jackson Non-executive director BJuris LLB MBA FAICD Qualifications and experience Mr Jackson is a barrister and solicitor with over 25 years legal and international corporate experience, especially in the areas of commercial and contract law; mining law and corporate structuring. He has worked extensively in the Middle East, Asia and the united States of America. In Australia, he was formerly a managing legal counsel for Western Mining Corporation, and in private practice specialized in small to medium resource companies. Mr Jackson was Managing Region Legal Counsel: Asia-Pacific for Baker Hughes Incorporated for 13 years. He is now Legal Manager for a major international oil and gas company. He has been a director of a number of Australian public companies, particularly mining companies. He has been Chairman of Aurora Minerals Limited since it listed in 2004 and Desert Energy Limited, since it listed in August 2007. 18 SCOTGOLD ANNuAL REPORT I 2012 Directors’ Report 04 His experience includes management, finance, accounting and human resources. Interest in Shares and Options Fully Paid Shares 2,187,500 Special Responsibilities Mr Jackson is Chairman of the Audit Committee and is responsible for legal matters. Directorships held in listed entities Company Name Aurora Minerals Limited Desert Energy Limited Appointed 24 September 2003 12 December 2006 Shane Sadleir Non-Executive Director BSc (Hons), FAusIMM Mr Sadleir is a soil scientist and geologist with over 30 years experience in exploration, mining and environmental aspects of the mining industry. He graduated with a BSc (Hons) from the university of Western Australia in 1974 after specialising in the mineralogy and geochemistry of Darling Range bauxite deposits. After initially gaining extensive mining and exploration experience in bauxite and gold deposits in Western Australia, Mr Sadleir has continued to be involved in the exploration for gold, uranium, nickel, base metals, bauxite and mineral sands in Australia and overseas for much of his career. He also has over eleven years experience in the environmental impact assessment of major industrial, mining and land use projects and the remediation of contaminated sites in Western Australia working for the Environmental Protection Authority. In addition to being on the Board of Scotgold Resources, Mr Sadleir is a Non-Executive Director of Robust Resources Limited. Interest in Shares and Options Fully Paid Shares 14,603,48 Special Responsibilities Mr Sadleir is responsible for Investor and Public Relations. Directorships held in listed entities Company Name Robust Resources Limited Appointed 3 October 2008 DIRECTORS’ REPORT 19 04 Directors’ Report Peter Newcomb Company Secretary FCA (ICAEW) Qualifications and experience Mr Newcomb is a Fellow of the Institute of Chartered Accountants in England and Wales and a member of the Institute of Chartered Accountants in Australia, with over thirty five years professional and commercial experience. He has worked in a number of industries and locations including London, Scotland, Singapore and Perth. The majority of his experience over the last fifteen years has been in the Resources industry in Western Australia. Mr Newcomb is also Finance Director and Company Secretary of Taruga Gold Limited and Company Secretary of Athena Resources Limited. OPERATING AND FINANCIAL REVIEW A review of the operations of the consolidated entity during the financial year is contained in the Review of Operations section of this Annual Report. The Company’s strategy in Scotland continues to focus on advancing the 100% owned Cononish Gold and Silver Project to production whilst continuing to explore its large, highly prospective land position around Cononish and elsewhere in Scotland which extends to some 4,300km2. PRINCIPLE ACTIVITIES The principal activity of the consolidated entity during the year was mineral exploration in Scotland. Operating Results Consolidated loss after income tax for the financial year is $1,265,173. Financial Position At 30 June 2012 the Company has cash reserves of $72,615. Dividends No dividends were paid during the year and no recommendation is made as to dividends. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS In the opinion of the Directors, there were no significant changes in the state of affairs of the consolidated entity that occurred during the financial year under review not otherwise disclosed in this report or in the consolidated accounts. MATTERS SUBSEQUENT TO THE END OF FINANCIAL YEAR On 2nd July 2012 the company announced that an agreement had been reached with RMB Resources for a £1.18m financing facility. This facility is a convertible loan structured as a secured corporate loan with share options which provides for RMB to acquire 26,222,222 Scotgold shares at £0.045. During July 2012 the company drew down loan funding of $1.7 million which is expected be to sufficient to fund the company into early 2013. 20 SCOTGOLD ANNuAL REPORT I 2012 Directors’ Report 04 LIKELY DEVELOPMENTS AND EXPECTED RESULTS The Company intends to continue its exploration activities with a view to the commencement of mining operations as soon as possible. Further information on likely developments in the operations of the consolidated entity and the expected results of operations have not been included in this report because the Directors believe it would be likely to result in unreasonable prejudice to the Company. MEETINGS OF DIRECTORS The following table sets out the number of meetings of the Company’s Directors held during the year ended 30th June 2012, and the number of meetings attended by each Director. These meetings included matters relating to the Remuneration and Nomination Committees of the Company. Number eligible to attend 2 2 2 2 Number attended 2 2 2 2 John Bentley Chris Sangster Phillip Jackson Shane Sadleir AUDIT COMMITTEE The Audit Committee is comprised of Mr Jackson who chaired one meeting of the audit committee during the year ended 30 June 2012. REMUNERATION REPORT (audited) This report details the nature and amount of remuneration for each director and executive of Scotgold Resources Limited. The information provided in the remuneration report includes remuneration disclosures that are required under Accounting Standards AASB 124 “Related Party Disclosures”. These disclosures have been transferred from the financial report and have been audited. Remunerations policy The board policy is to remunerate Directors at market rates for time, commitment and responsibilities. The Board determines payment to the Directors and reviews their remuneration annually, based on market practice, duties and accountability. Independent external advice is sought when required. The maximum aggregate amount of Directors’ fees that can be paid is subject to approval by shareholders in general meeting, from time to time. Fees for Non-Executive Directors are not linked to the performance of the consolidated entity. However, to align Directors’ interests with shareholders interests, the Directors are encouraged to hold securities in the company. The company’s aim is to remunerate at a level that will attract and retain high-calibre Directors and employees. Company officers and Directors are remunerated to a level consistent with size of the Company. All remuneration paid to directors and executives is valued at the cost to the company and expensed. DIRECTORS’ REPORT 21 04 Directors’ Report Performance-based remuneration The company does not pay any performance-based component of salaries. Details of remuneration for year ended 30 June 2012 (audited) Directors’ Remuneration No salaries, commissions, bonuses or superannuation were paid or payable to Directors during the year. Remuneration was by way of fees paid monthly in respect of invoices issued to the Company by the Directors or Companies associated with the Directors in accordance with agreements between the Company and those entities. Details of the agreements are set out below. Agreements in respect of cash remuneration of Directors: Executive Directors Chris Sangster is on a contract dated 28th January 2009 which provides for a fixed salary and benefits, with a termination period of 6 months. John Bentley (through Ptarmigan Natural Resources Ltd) is on a contract dated 17th February 2009 which provides for a fixed fee, with a termination period of 6 months. In both cases the remuneration is reviewed annually. At the date of this report the annual remuneration for Chris Sangster is £132,000 and for John Bentley is £66,000. In the event of a termination of contract giving less notice than provided for in these contracts, the remaining notice period will be paid in full. Non-Executive Directors The Company’s constitution provides that the Non-Executive Directors may collectively be paid as remuneration for their services a fixed sum not exceeding the aggregate sum determined by a general meeting. The aggregate remuneration has been set at an amount of $300,000 per annum. A Director may be paid fees or other amounts as the Directors determine where a Director performs special duties or otherwise performs services outside the scope of the ordinary duties of a Director. A Director may also be reimbursed for out of pocket expenses incurred as a result of their directorship or any special duties. Executive Directors may be paid on commercial terms as the Directors see fit. 22 SCOTGOLD ANNuAL REPORT I 2012 Directors’ Report 04 The total remuneration paid to Directors and Executives is summarised below: Director/Secretary Associated Company Year ended 30 June 2011 Fees Consultancy Total John Bentley Chris Sangster Phillip Jackson Edmond Edwards Shane Sadleir Adam Davey Peter Newcomb Ptarmigan Natural Resources Ltd Holihox Pty Ltd Tied Nominees Pty Ltd Mineral Products Holdings Pty Ltd Shenton Park Investments Pty Ltd Symbios Pty Ltd 54,000 - 27,000 31,500 29,000 9,000 - 150,500 - 206,750 - 10,000 28,400 - 144,500 389,650 54,000 206,750 27,000 41,500 57,400 9,000 144,500 540,150 Year ended 30 June 2012 Fees Consultancy Total John Bentley Chris Sangster Phillip Jackson Shane Sadleir Peter Newcomb Ptarmigan Natural Resources Ltd Holihox Pty Ltd Mineral Products Holdings Pty Ltd Symbios Pty Ltd 24,000 - 42,000 42,000 - 108,000 68,250 297,244 - - 166,050 531,544 92,250 297,244 42,000 42,000 166,050 639,544 The consolidated entity does not have any full time Executive officers, other than the Managing Director Chris Sangster. There were no performance related payments made during the year. ENVIRONMENTAL ISSUES The consolidated entity has conducted exploration activities on mineral tenements. The right to conduct these activities is granted subject to environmental conditions and requirements. The consolidated entity aims to ensure a high standard of environmental care is achieved and, as a minimum, to comply with relevant environmental regulations. There have been no known breaches of any of the environmental conditions. INDEMNIFICATION OF DIRECTORS During the financial year, the Company has not given an indemnity or entered into an agreement to indemnify any of the Directors. AUDITOR HLB Mann Judd continues in office in accordance with section 327 of the Corporations Act 2001. NON-AUDIT SERVICES There were no non-audit services provided during the current year by our auditors, HLB Mann Judd. DIRECTORS’ REPORT 23 04 Directors’ Report AUDITOR’S INDEPENDENCE DECLARATION The auditor’s independence declaration has been received for the year ended 30 June 2012 and forms part of the Directors’ report. PROCEEDINGS ON BEHALF OF COMPANY No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year. Signed in accordance with a resolution of the Directors. CHRIS SANGSTER Managing Director Dated at Tyndrum, Scotland, this 30th day of August, 2012. 24 SCOTGOLD ANNuAL REPORT I 2012 Corporate Governance Statement 05 The Board of Directors of Scotgold Resources Limited is responsible for the corporate governance of the Company. The Board guides and monitors the business and affairs of Scotgold Resources Limited on behalf of the shareholders by whom they are elected and to whom they are accountable. This statement reports on Scotgold Resources Limited’s key governance principles and practices. 1. COMPLIANCE WITH BEST PRACTICE RECOMMENDATIONS The Company, as a listed entity, must comply with the Corporations Act 2001 and the Australian Securities Exchange Limited (ASX) Listing Rules. The ASX Listing Rules require the Company to report on the extent to which it has followed the Corporate Governance Recommendations published by the ASX Corporate Governance Council (ASXCGC). Where a recommendation has not been followed, that fact is disclosed, together with the reasons for the departure. The table below summaries the Company’s compliance with the Corporate Governance Council’s Recommendations: ASX Corporate Governance Council Recommendations Reference Comply 1 1.1 1.2 1.3 2 2.1 2.2 2.3 2.4 2.5 2.6 Lay solid foundations for management and oversight Establish the functions reserved to the board and those delegated to senior executives and disclose those functions. 2(a) Disclose the process for evaluating the performance of senior executives. Provide the information indicated in the Guide to reporting on principle 1. 2(h), 3(b), Remuneration Report 2(a), 2(h), 3(b), Structure the board to add value A majority of the board should be independent directors. The chair should be an independent director. The roles of chair and chief executive officer should not be exercised by the same individual. The Board should establish a nomination committee. Disclose the process for evaluating the performance of the board, its committees and individual directors. Provide the information indicated in the Guide to reporting on principle 2. 2(e) 2(c), 2(e) 2(b), 2(c) 2(d) 2(h) 2(b), 2(c), 2(d), 2(e), 2(h) Yes Yes Yes Yes Yes Yes No Yes Yes CORPORATE GOVERNANCE STATEMENT 25 05 Corporate Governance Statement ASX Corporate Governance Council Recommendations Reference Comply 3 Promote ethical and responsible decision-making Establish a code of conduct and disclose the code or a summary as to: • the practices necessary to maintain confidence in the company’s integrity; • the practices necessary to take into account the company’s legal obligations and the reasonable expectations of its stakeholders; and • the responsibility and accountability of individuals for reporting and investigating reports of unethical practices 4(a) Yes 3.1 3.2 3.3 3.4 3.5 4 4.1 4.2 4.3 4.4 Establish a policy concerning diversity and disclose the policy or a summary of that policy. The policy should include requirements for the board to establish measurable objectives for achieving gender diversity for the board to assess annually both the objectives and progress in achieving them. Disclose in each annual report the measurable objectives for achieving gender diversity set by the board in accordance with the diversity policy and progress towards achieving them. Disclose in each annual report the proportion of women employees in the whole organisation, women in senior executive positions and women on the board. 4(c) 4(c) 4(c) Provide the information indicated in the Guide to reporting on principle 3. 4(a), 4(c) Safeguard integrity in financial reporting The Board should establish an audit committee. The audit committee should be structured so that it: • consists only of non-executive directors; • consists of a majority of independent directors; • is chaired by an independent chair, who is not chair of the Board; and • has at least three members. 3(a) 3(a) The audit committee should have a formal charter Provide the information indicated in the Guide to reporting on principle 4. 3(a) 3(a) 5 Make timely and balanced disclosure Establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at senior executive level for that compliance and disclose those policies or a summary of those policies. Provide the information indicated in the Guide to reporting on principle 5. 5(a), 5(b) 5(a), 5(b) 5.1 5.2 26 SCOTGOLD ANNuAL REPORT I 2012 No No No Yes Yes No Yes Yes Yes Yes Corporate Governance Statement 05 ASX Corporate Governance Council Recommendations Reference Comply 6 Respect the rights of shareholders Design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose the policy or a summary of that policy. 5(a), 5(b) Provide the information indicated in the Guide to reporting on principle 6. 5(a), 5(b) Recognise and manage risk Establish policies for the oversight and management of material business risks and disclose a summary of those policies. 6(a) Yes Yes Yes The Board should require management to design and implement the risk management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively. The Board should disclose that management has reported to it as to the effectiveness of the company’s management of its material business risks. The Board should disclose whether it had received assurance from the chief executive officer and the chief financial officer that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. 6(a), 6(b), 6(d) Yes 6(c) Yes Provide the information indicated in the Guide to reporting on principle 7. 6(a), 6(b), 6(c), 6(d) Yes Remunerate fairly and responsibly The Board should establish a remuneration committee. The remuneration committee should be structured so that it: • consist of a majority of independent directors • is chaired by the independent chairman • has at least three members 3(c) Clearly distinguish the structure on non-executive directors’ remuneration from that of executive directors and senior executives. 3(c), Remuneration Report Provide the information indicated in the Guide to reporting on principle 8. 3(c), No No Yes Yes 6.1 6.2 7 7.1 7.2 7.3 7.4 8 8.1 8.2 8.3 8.4 CORPORATE GOVERNANCE STATEMENT 27 05 Corporate Governance Statement 2. THE BOARD OF DIRECTORS 2(a) Roles and Responsibilities of the Board The Board is accountable to the shareholders and investors for the overall performance of the Company and takes responsibility for monitoring the Company’s business and affairs and setting its strategic direction, establishing and overseeing the Company’s financial position. The Board is responsible for: • Appointing, evaluating, rewarding and if necessary the removal of the Chief Executive Officer (“CEO”) and senior management; • Development of corporate objectives and strategy with management and approving plans, new investments, major capital and operating expenditures and major funding activities proposed by management; • Monitoring actual performance against defined performance expectations and reviewing operating information to understand at all times the state of the health of the Company; • Overseeing the management of business risks, safety and occupational health, environmental issues and community development; • Satisfying itself that the financial statements of the Company fairly and accurately set out the financial position and financial performance of the Company for the period under review; • Satisfying itself that there are appropriate reporting systems and controls in place to assure the Board that proper operational, financial, compliance, risk management and internal control process are in place and functioning appropriately; • Approving and monitoring financial and other reporting; • Assuring itself that appropriate audit arrangements are in place; • Ensuring that the Company acts legally and responsibly on all matters and assuring itself that the Company has adopted a Code of Conduct and that the Company practice is consistent with that Code; and other policies; and • eporting to and advising shareholders. • Other than as specifically reserved to the Board, responsibility for the day-to-day management of the Company’s business activities is delegated to the Chief Executive Officer and Executive Management. 2 (b) Board Composition The Directors determine the composition of the Board employing the following principles: • the Board, in accordance with the Company’s constitution must comprise a minimum of three Directors; • the roles of the Chairman of the Board and of the Chief Executive Officer should be exercised by different individuals; • the majority of the Board should comprise Directors who are non-executive; • the Board should represent a broad range of qualifications, experience and expertise considered of benefit to the Company; and • the Board must be structured in such a way that it has a proper understanding of, and competency in, the current and emerging issues facing the Company, and can effectively review management’s decisions. 28 SCOTGOLD ANNuAL REPORT I 2012 Corporate Governance Statement 05 The Board is currently comprised of two Non-Executive Directors and two Executive Directors. The skills, experience, expertise, qualifications and terms of office of each director in office at the date of the annual report is included in the Directors’ Report. The Company’s constitution requires one-third of the Directors (or the next lowest whole number) to retire by rotation at each Annual General Meeting (AGM). The Directors to retire at each AGM are those who have been longest in office since their last election. Where Directors have served for equal periods, they may agree amongst themselves or determine by lot who will retire. A Director must retire in any event at the third AGM since he or she was last elected or re-elected. Retiring Directors may offer themselves for re-election. A Director appointed as an additional or casual Director by the Board will hold office until the next AGM when they may be re-elected. The Chief Executive Officer is not subject to retirement by rotation and, along with any Director appointed as an additional or casual Director, is not to be taken into account in determining the number of Directors required to retire by rotation. 2(c) Chairman and Chief Executive Officer The Chairman is responsible for: • leadership of the Board; • the efficient organisation and conduct of the Board’s functions; • the promotion of constructive and respectful relations between Board members and between the Board and management; • contributing to the briefing of Directors in relation to issues arising at Board meetings; • facilitating the effective contribution of all Board members; and • committing the time necessary to effectively discharge the role of the Chairman. The Chief Executive Officer is responsible for: • implementing the Company’s strategies and policies; and • the day-to-day management of the Company’s business activities 2(d) Nomination Committee The Company does not comply with ASX Recommendation 2.4. The Company is not of a relevant size to consider formation of a nomination committee to deal with the selection and appointment of new Directors and as such a nomination committee has not been formed. Nominations of new Directors are considered by the full Board in accordance with the Company’s “Selection of New Directors Policy”. 2(e) Independent Directors The Company recognises that independent Directors are important in assuring shareholders that the Board is properly fulfilling its role and is diligent in holding senior management accountable for its performance. The Board assesses each of the directors against specific criteria to decide whether they are in a position to exercise independent judgment. CORPORATE GOVERNANCE STATEMENT 29 05 Corporate Governance Statement Directors of Scotgold Resources Limited are considered to be independent when they are independent of management and free from any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the exercise of their unfettered and independent judgement. In making this assessment, the Board considers all relevant facts and circumstances. Relationships that the Board will take into consideration when assessing independence are whether a Director: • is a substantial shareholder of the Company or an officer of, or otherwise associated directly with, a substantial shareholder of the Company; • is employed, or has previously been employed in an executive capacity by the Company or another Company member, and there has not been a period of at least three years between ceasing such employment and serving on the Board; • has within the last three years been a principal of a material professional advisor or a material consultant to the Company or another Company member, or an employee materially associated with the service provided; • is a material supplier or customer of the Company or other Company member, or an officer of or otherwise associated directly or indirectly with a material supplier or customer; or • has a material contractual relationship with the Company or another Company member other than as a Director. The Board currently includes one independent non-executive Director. In accordance with the definition of independence above, and the materiality thresholds set, the following Directors of Scotgold Resources Limited are considered to be independent: Name Phillip Jackson Position Non Executive Director The term in office held by each director in office at the date of this report is as follows: John Bentley Chris Sangster Phillip Jackson Shane Sadleir In office since 17/02/2009 17/10/2007 14/08/2007 12/03/2009 2(f) Avoidance of conflicts of interest by a Director In order to ensure that any interests of a Director in a particular matter to be considered by the Board are known by each Director, each Director is required by the Company to disclose any relationships, duties or interests held that may give rise to a potential conflict. Directors are required to adhere strictly to constraints on their participation and voting in relation to any matters in which they may have an interest. 30 SCOTGOLD ANNuAL REPORT I 2012 Corporate Governance Statement 05 2(g) Board access to information and independent advice. Directors are able to access members of the management team at any time to request relevant information. There are procedures in place, agreed by the Board, to enable Directors, in furtherance of their duties, to seek independent professional advice at the company’s expense. 2(h) Review of Board performance The performance of the Board is reviewed regularly by the Chairman. The Chairman conducts performance evaluations which involve an assessment of each Board member’s performance against specific and measurable qualitative and quantitative performance criteria. The performance criteria against which directors and executives are assessed is aligned with the financial and non-financial objectives of Scotgold Resources Limited. Directors whose performance is consistently unsatisfactory may be asked to retire. 3. THE BOARD COMMITTEES 3(a) Audit Committee The audit committee is comprised of one independent non-executive director, Mr Jackson who chaired one meeting of the audit committee between commencement of the financial year and the date of this report. The role and responsibilities of the Audit Committee are summarised below. The Audit Committee is responsible for reviewing the integrity of the Company’s financial reporting and overseeing the independence of the external auditors. The Board sets aside time to deal with issues and responsibilities usually delegated to the Audit Committee to ensure the integrity of the financial statements of the Company and the independence of the auditor. The Board reviews the audited annual and half-year financial statements and any reports which accompany published financial statements and recommends their approval to the members. The Board also reviews annually the appointment of the external auditor, their independence and their fees. The Board is also responsible for establishing policies on risk oversight and management. The Company has not formed a separate Risk Management Committee due to the size and scale of its operations. 3(b) External Auditors The Company’s policy is to appoint external auditors who clearly demonstrate quality and independence. The performance of the external auditor is reviewed annually and applications for tender of external audit services are requested as deemed appropriate, taking into consideration assessment of performance, existing value and tender costs. It is HLB Mann Judd’s policy to rotate engagement Partners on listed companies at least every five years. An analysis of fees paid to the external auditors, including a break-down of fees for non-audit services, is provided in the notes to the financial statements in the Annual Report. There were no non-audit services provided by the auditors during the year. CORPORATE GOVERNANCE STATEMENT 31 05 Corporate Governance Statement There is no indemnity provided by the company to the auditor in respect of any potential liability to third parties. The external auditor is requested to attend the annual general meeting and be available to answer shareholder questions about the conduct of the audit and preparation and content of the audit report. 3(c) Remuneration Committee The role of a Remuneration Committee is to assist the Board in fulfilling its responsibilities in respect of establishing appropriate remuneration levels and incentive policies for employees. The Board has not established a separate Remuneration Committee due to the size and scale of its operations. This does not comply with Recommendation 8.1 however the Board as a whole takes responsibility for such issues. The responsibilities include setting policies for senior officers remuneration, setting the terms and conditions for the CEO, reviewing and making recommendations to the Board on the Company’s incentive schemes and superannuation arrangements, reviewing the remuneration of both executive and non-executive directors and undertaking reviews of the CEO’s performance. The Company has structured the remuneration of its senior executive, where applicable, such that it comprises a fixed salary, statutory superannuation and participation in the Company’s employee share option plan. The Company believes that by remunerating senior executives in this manner it rewards them for performance and aligns their interests with those of shareholders and increases the Company’s performance. Non-executive directors are paid their fees out of the maximum aggregate amount approved by shareholders for non-executive director remuneration. The Company does not adhere to Recommendation 8.2 Box 8.2 ‘Non-executive directors should not receive options or bonus payments’. The Company may, in the future, granted options to non-executive directors. The Board is of the view that options (for both executive and non-executive directors) are a cost effective benefit for small companies such as Scotgold Resources Limited that seek to conserve cash reserves. They also provide an incentive that ultimately benefits both shareholders and the optionholders, as optionholders will only benefit if the market value of the underlying shares exceeds the option strike price. ultimately, shareholders will make that determination. The remuneration received by directors and executives in the current period is contained in the “Remuneration Report” within the Directors’ Report of the Annual Report. 4. ETHICAL RESPONSIBLE DECISION MAKING 4(a) Code of Ethics and Conduct The Board endeavours to ensure that the Directors, officers and employees of the Company act with integrity and observe the highest standards of behaviour and business ethics in relation to their corporate activities. The “Code of Conduct” sets out the principles, practices, and standards of personal behaviour the Company expects people to adopt in their daily business activities. 32 SCOTGOLD ANNuAL REPORT I 2012 Corporate Governance Statement 05 All Directors, officers and employees are required to comply with the Code of Conduct. Senior managers are expected to ensure that employees, contractors, consultants, agents and partners under their supervision are aware of the Company’s expectations as set out in the Code of Conduct. All Directors, officers and employees are expected to: • comply with the law; • act in the best interests of the Company; • be responsible and accountable for their actions; and • observe the ethical principles of fairness, honesty and truthfulness, including prompt disclosure of potential conflicts. 4(b) Policy concerning trading in Company securities The Company’s “Dealings in Company Shares and Options Policy” applies to all Directors, officers and employees. This policy sets out the restrictions on dealing in securities by people who work for, or are associated with the Company and is intended to assist in maintaining market confidence in the integrity of dealings in the Company’s securities. The policy stipulates that the only appropriate time for a Director, officer or employee to deal in the Company’s securities is when they are not in possession of price sensitive information that is not generally available to the market. As a matter of practice, Company shares may only be dealt with by Directors and officers of the Company under the following guidelines: • no trading is permitted in the period of 14 days preceding release of each quarterly report, half-yearly report and annual financial report of the Company or for a period of 2 trading days after the release of such report; • guidelines are to be considered complementary to and not replace the various sections of the Corporations Act 2001 dealing with insider trading; and • prior approval of the Chairman, or in his absence, the approval of two directors is required prior to any trading being undertaken. 4(c) Policy concerning gender diversity Scotgold is committed to establishing a policy concerning diversity and disclosure of the policy. The policy will include requirements for the board to establish measurable objectives for achieving gender diversity and for the Board to assess annually the objectives and report in the Annual Report. As a company with a small market capitalisation, the company has a small board. The company has no established policy in relation to gender diversity at present but is aware of the principle and will be alert for opportunities when board changes are contemplated. Given the size of the company and the limited number of employees, reporting the numbers of employees by gender is not regarded as a meaningful statistic. CORPORATE GOVERNANCE STATEMENT 33 05 Corporate Governance Statement 5. TIMELY AND BALANCED DISCLOSURE 5(a) Shareholder communication The Company believes that all shareholders should have equal and timely access to material information about the Company including its financial situation, performance, ownership and governance. The Company’s “ASX Disclosure Policy” encourages effective communication with its shareholders by requiring that Company announcements: • be factual and subject to internal vetting and authorisation before issue; • be made in a timely manner; • not omit material information; • be expressed in a clear and objective manner to allow investors to assess the impact of the information when making investment decisions; • be in compliance with ASX Listing Rules continuous disclosure requirements; and • be placed on the Company’s website promptly following release. Shareholders are encouraged to participate in general meetings. Copies of addresses by the Chairman or Chief Executive Officer are disclosed to the market and posted on the Company’s website. The Company’s external auditor attends the Company’s annual general meeting to answer shareholder questions about the conduct of the audit, the preparation and content of the audit report, the accounting policies adopted by the Company and the independence of the auditor in relation to the conduct of the audit. 5(b) Continuous disclosure policy The Company is committed to ensuring that shareholders and the market are provided with full and timely information and that all stakeholders have equal opportunities to receive externally available information issued by the Company. The Company’s “ASX Disclosure Policy” described in 5(a) reinforces the Company’s commitment to continuous disclosure and outline management’s accountabilities and the processes to be followed for ensuring compliance. The policy also contains guidelines on information that may be price sensitive. The Company Secretary has been nominated as the person responsible for communications with the ASX. This role includes responsibility for ensuring compliance with the continuous disclosure requirements with the ASX Listing Rules and overseeing and coordinating information disclosure to the ASX. 6. RECOGNISING AND MANAGING RISK The Board is responsible for ensuring there are adequate policies in relation to risk management, compliance and internal control systems. The Company’s policies are designed to ensure strategic, operational, legal, reputation and financial risks are identified, assessed, effectively and efficiently managed and monitored to enable achievement of the Company’s business objectives. A written policy in relation to risk oversight and management has been established (“Risk Management and Internal Control Policy”). Considerable importance is placed on maintaining a strong control environment. There is an organisation structure with clearly drawn responsibilities. 34 SCOTGOLD ANNuAL REPORT I 2012 Corporate Governance Statement 05 6(a) Board oversight of the risk management system The Board is responsible for approving and overseeing the risk management system. The Board reviews, at least annually, the effectiveness of the implementation of the risk management controls and procedures. The principle aim of the system of internal control is the management of business risks, with a view to enhancing the value of shareholders’ investments and safeguarding assets. Although no system of internal control can provide absolute assurance that the business risks will be fully mitigated, the internal control systems have been designed to meet the Company’s specific needs and the risks to which it is exposed. Annually, the Board is responsible for identifying the risks facing the Company, assessing the risks and ensuring that there are controls for these risks, which are to be designed to ensure that any identified risk is reduced to an acceptable level. The Board is also responsible for identifying and monitoring areas of significant business risk. Internal control measures currently adopted by the Board include: • at least quarterly reporting to the Board in respect of operations and the Company’s financial position, with a comparison of actual results against budget; and • regular reports to the Board by appropriate members of the management team and/or independent advisers, outlining the nature of particular risks and highlighting measures which are either in place or can be adopted to manage or mitigate those risks. 6(b) Risk management roles and responsibilities The Board is responsible for approving and reviewing the Company’s risk management strategy and policy. Executive management is responsible for implementing the Board approved risk management strategy and developing policies, controls, processes and procedures to identify and manage risks in all of the Company’s activities. The Board is responsible for satisfying itself that management has developed and implemented a sound system of risk management and internal control. 6(c) Chief Executive Officer and Chief Financial Officer Certification The Chief Executive Officer and Chief Financial Officer, or equivalent, provide to the Board written certification that in all material respects: • the Company’s financial statements present a true and fair view of the Company’s financial condition and operational results and are in accordance with relevant accounting standards; • the statement given to the Board on the integrity of the Company’s financial statements is founded on a sound system of risk management and internal compliance and controls which implements the policies adopted by the Board; and • the Company’s risk management an internal compliance and control system is operating efficiently and effectively in all material respects. CORPORATE GOVERNANCE STATEMENT 35 05 Corporate Governance Statement 6(d) Internal review and risk evaluation Assurance is provided to the Board by executive management on the adequacy and effectiveness of management controls for risk on a regular basis. 7. OTHER INFORMATION Further information relating to the company’s corporate governance practices and policies has been made publicly available on the company’s web site at www.scotgoldresources.com 36 SCOTGOLD ANNuAL REPORT I 2012 Auditor’s Independence Declaration 06 AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the financial report of Scotgold Resources Limited for the year ended 30 June 2012, I declare that to the best of my knowledge and belief, there have been no contraventions of: a) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) any applicable code of professional conduct in relation to the audit. N G NEILL Partner, HLB Mann Judd Perth, Western Australia 30 August 2012 HLB Mann Judd (WA Partnership) ABN 22 193 232 714 Level 4 130 Stirling Street Perth 6000 PO Box 8124 Perth BC 6849 Western Australia. Telephone +61 (08) 9227 7500. Fax +61 (08) 9227 7533. Email: hlb@hlbwa.com.au. Website: http://www.hlb.com.au Liability limited by a scheme approved under Professional Standards Legislation HLB Mann Judd (WA Partnership) is a member of International, a world-wide organisation of accounting firms and business advisers AuDITOR’S INDEPENDENCE DECLARATION 37 07 Statement of Comprehensive Income for the year ended 30 June 2012 Financial Position as at 30 June 2012 Revenue Administration costs Depreciation and loss on disposal of fixed assets Employee and consultant costs Listing and share registry costs Legal fees Office and communication costs Other expenses LOSS BEFORE INCOME TAX EXPENSE Income tax benefit LOSS FOR THE YEAR Other Comprehensive Income Notes 2 3 4 CONSOLIDATED 2012 $ 29,124 (393,551) (25,165) (407,100) (135,796) (185,046) (152,547) (69,643) 2011 $ 33,880 (389,734) (38,448) (236,864) (147,974) (5,715) (163,441) (76,209) (1,339,724) (1,033,505) 74,551 123,039 (1,265,173) (910,466) Exchange loss on translation of foreign subsidiaries (1,662) (44,370) Comprehensive result for the year Basic loss per share (cents per share) (1,266,835) (954,836) 22 0.67 0.67 These financial statements should be read in conjunction with the accompanying notes. 38 SCOTGOLD ANNuAL REPORT I 2012 Comprehensive Income for the year ended 30 June 2012 Statement of Financial Position as at 30 June 2012 08 CuRRENT ASSETS Cash and cash equivalents Trade and other receivables Other current assets Total Current Assets NON CuRRENT ASSETS Trade and other receivables Plant and equipment Mineral exploration and evaluation Total Non Current assets TOTAL ASSETS CuRRENT LIABILITIES Trade and other payables Other current liabilities TOTAL LIABILITIES NET ASSETS EQuITY Issued capital Reserves Accumulated losses TOTAL EQuITY Notes 5 6 7 6 8 9 10 10 12 13 13 CONSOLIDATED 2012 $ 72,615 46,731 20,369 2011 $ 950,668 196,303 20,076 139,715 1,167,047 76,923 170,721 12,084,602 75,586 173,116 10,526,320 12,332,246 10,775,022 12,471,961 11,942,069 227,147 127,243 354,390 297,566 39,844 337,410 12,117,571 11,604,659 16,079,010 (46,032) (3,915,407) 14,299,263 (44,370) (2,650,234) 12,117,571 11,604,659 These financial statements should be read in conjunction with the accompanying notes. STATEMENT OF FINANCIAL POSITION AS AT 30 JuNE 2012 39 Cash Flows for the year ended 30 June 2012 09 Statement of Changes in Equity for the year ended 30 June 2012 CONSOLIDATED Issued Capital Accumulated Losses Foreign Currency Translation Reserve Total Equity Year Ended 30 June 2011 $ $ $ $ Balance 1 July 2010 Share Placements Rights Issue Option exercise Share issue expenses Total comprehensive result for the year As at 30 June 2011 12,324,019 986,000 1,020,005 29,149 (59,910) - 14,299,263 (1,739,768) - - - - (910,466) (2,650,234) - - - - - (44,370) (44,370) 10,584,251 986,000 1,020,005 29,149 (59,910) (954,836) 11,604,659 Year Ended 30 June 2012 $ $ $ $ Balance 1 July 2011 Rights Issue Rights Issue Shortfall allocation Option exercise Share issue expenses Total comprehensive result for the year As at 30 June 2012 14,299,263 1,409,081 203,963 214,747 (48,044) - 16,079,010 (2,650,234) - - - - (1,265,173) (3,915,407) (44,370) - - - - (1,662) (46,032) 11,604,659 1,409,081 203,963 214,747 (48,044) (1,266,835) 12,117,571 These financial statements should be read in conjunction with the accompanying notes. 40 SCOTGOLD ANNuAL REPORT I 2012 Changes in Equity for the year ended 30 June 2012 Statement of Cash Flows for the year ended 30 June 2012 10 CONSOLIDATED Notes 2012 $ 2011 $ CASH FLOWS FROM OPERATING ACTIVITIES Payment to suppliers Interest income received (1,273,624) 28,951 (1,073,130) 32,285 Net Cash Outflow From Operating Activities 18 (1,244,673) (1,040,845) CASH FLOWS FROM INVESTING ACTIVITIES Payments for exploration expenditure Payment for other fixed assets (1,391,102) (22,769) (1,524,816) (11,992) Net Cash Outflow From Investing Activities (1,413,871) (1,536,808) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares and options Share and option issue transaction costs Hire purchase repayments Net Cash Inflow From Financing Activities Net decrease in cash held 1,827,791 (48,044) - 2,035,154 (59,910) (7,284) 1,779,747 1,967,960 (878,797) (609,693) Effect of exchange rate fluctuations on cash and cash equivalents 744 (32,636) Cash and cash equivalents at the beginning of this financial year 950,668 1,592,997 Cash and cash equivalents at the end of this financial year 5 72,615 950,668 These financial statements should be read in conjunction with the accompanying notes. STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JuNE 2012 41 Financial Statements for the year ended 30 June 2012 11 Notes to the Financial Statements for the year ended 30 June 2012 NOTE 1 – STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES Basis of Preparation The financial report is a general purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Accounting Standards and Interpretations and complies with other requirements of the law. Cost is based on the fair values of the consideration given in exchange for assets. The financial report has also been prepared on a historical cost basis. The financial report is presented in Australian dollars. The company is a listed public company, incorporated in Australia and operating in Australia and Scotland. The entity’s principal activity is mineral exploration. The accounting policies detailed below have been consistently applied to all of the years presented unless otherwise stated. The financial statements are for the consolidated entity consisting of Scotgold Resources and its subsidiaries. Reporting Basis and Conventions The financial report has been prepared on the basis of accounting principles applicable to a going concern, which assumes the commercial realisation of the future potential of the Company’s and consolidated entity’s assets and the discharge of their liabilities in the normal course of business. The Board considers that the Company is a going concern and recognises that additional funding is required to ensure that the Company can continue to fund its and the consolidated entity’s operations and further develop their mineral exploration and evaluation assets during the twelve month period from the date of this financial report. Such additional funding as occurred during the year ended 30 June 2012 as disclosed in Note 12, can be derived from either one or a combination of the following: • The placement of securities under the ASX Listing Rule 7.1 or otherwise; • An excluded offer pursuant to the Corporations Act 2001; or • The sale of assets. Accordingly, the Directors believe the Company will obtain sufficient funding to enable it and the consolidated entity to continue as going concerns and that it is appropriate to adopt that basis of accounting in the preparation of the financial report. Additionally, as disclosed in Note 24, the company drew down loan funding of $1.7 million from RMB Resources which is expected to be sufficient to fund the company into early 2013. The financial report has also been prepared on an accruals basis and is based on historical costs modified by the revaluation of selected non-current assets, and financial assets and financial liabilities for which the fair value basis of accounting has been applied. Statement of Compliance The financial report was authorised for issue on 30th August 2012. The financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards (IFRS). 42 SCOTGOLD ANNuAL REPORT I 2012 Financial Statements for the year ended 30 June 2012 Notes to the Financial Statements for the year ended 30 June 2012 11 Adoption of new and revised standards Changes in accounting policies on initial application of Accounting Standards In the year ended 30 June 2012, the Directors has reviewed all of the new and revised Standards and Interpretations issued by the AASB that are relevant to its operations and effective for the current annual reporting period. It has been determined by the Directors that there is no impact, material or otherwise, of the new and revised Standards and Interpretations on its business and, therefore, no change is necessary to consolidated entity accounting policies. The Directors also reviewed all new Standards and Interpretations that have been issued but are not yet effective for the year ended 30 June 2012. As a result of this review the Directors have determined that there is no impact, material or otherwise, of the new and revised Standards and Interpretations on its business and, therefore, no change necessary to consolidated entity accounting policies. Accounting Policies (a) Basis of Consolidation A controlled entity is any entity controlled by Scotgold Resources Limited. Control exists where Scotgold Resources Limited has the capacity to dominate the decision-making in relation to the financial and operating policies of another entity so that the other entity operates with Scotgold Resources Limited to achieve the objectives of Scotgold Resources Limited. All controlled entities have a 30 June financial year-end. All inter-company balances and transactions between entities in the consolidated entity, including any unrealised profit or losses, have been eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistencies with those policies applied by the parent entity. Where controlled entities have entered or left the consolidated entity during the year, their operating results have been included from the date control was obtained or until the date control ceased. (b) Income Tax The charge for current income tax expenses is based on the profit for the year adjusted for any non-assessable or disallowable items. It is calculated using tax rates that have been enacted or are substantively enacted by the balance date. Deferred tax is accounted for using the liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amount in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the statement of comprehensive income except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary difference can be utilised. The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the consolidated entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JuNE 2012 43 Financial Statements for the year ended 30 June 2012 11 Notes to the Financial Statements for the year ended 30 June 2012 (c) Plant and Equipment Each class of plant and equipment is carried at cost less, where applicable, any accumulated depreciation. Plant and equipment are measured on the cost basis less depreciation and impairment losses. The carrying amount of plant and equipment is reviewed annually by Directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows which will be received from the assets employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future consolidated benefits associated with the item will flow to the consolidated entity and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred. Depreciation The depreciable amount of all fixed assets including capitalised lease assets, but excluding computers, is depreciated on a reducing balance commencing from the time the asset is held ready for use. Computers are depreciated on a straight line basis over their useful lives to the consolidated entity commencing from the time the asset is held ready for use. The depreciation rates used for each class of depreciable assets are: Class of Fixed Asset: Depreciation Rate: Plant and Equipment 15 – 50% The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each balance date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the statement of comprehensive income. When revalued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings. (d) Exploration and Evaluation Expenditure Exploration and evaluation expenditure incurred is either written off as incurred or accumulated in respect of each identifiable area of interest. Tenement acquisition costs are initially capitalised. Costs are only carried forward to the extent that they are expected to be recouped through the successful development of the areas, sale of the respective areas of interest or where activities in the area have not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves. Accumulated costs in relation to an abandoned area are written off in full against profit in the year in which the decision to abandon the areas is made. When production commences, the accumulated costs for the relevant area of interest are amortised over the life of the area according to the rate of depletion of the economically recoverable 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. Restoration, rehabilitation and environmental costs necessitated by exploration and evaluation activities are expensed as incurred and treated as exploration and evaluation expenditure. 44 SCOTGOLD ANNuAL REPORT I 2012 Financial Statements for the year ended 30 June 2012 Notes to the Financial Statements for the year ended 30 June 2012 11 (e) Impairment of Assets At each reporting date, the Directors review the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the assets, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the statement of comprehensive income. Where it is not possible to estimate the recoverable amount of an individual asset, the consolidated entity estimates the recoverable amount of the cash-generating unit to which the asset belongs. (f) Provisions Provisions are recognised where there is a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. (g) Cash and Cash Equivalents Cash and cash equivalents includes cash on hand, deposits held at call with banks, other short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. (h) Revenue Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. (i) Goods and Services Tax (GST) and Value Added Tax (VAT) Revenues, expenses and assets are recognised net of the amount of GST or VAT, except where the amount of GST or VAT incurred is not recoverable from the Australian Tax Office. In these circumstances the GST or VAT is recognised as part of the cost of acquisition of the asset or as part of an item of the expenses. Receivables and payables in the statement of financial position are shown inclusive of GST or VAT. (j) Contributed Equity Issued and paid up capital is recognised at the fair value of the consideration received by the Company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received. (k) Comparative Figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. (l) Segment Reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors of Scotgold Resources Limited. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JuNE 2012 45 Financial Statements for the year ended 30 June 2012 11 Notes to the Financial Statements for the year ended 30 June 2012 (m) Critical accounting estimates and judgements The application of accounting policies requires the use of judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. Key Estimates – Impairment The Directors assess impairment at each reporting date by evaluating conditions specific to the consolidated entity that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. Value-in-use calculations performed in assessing recoverable amounts incorporate a number of key estimates. No impairment has been recognised in respect of costs carried forward as exploration assets. The ultimate recoupment of value is dependent on the successful development and commercial exploitation or sale of the respective areas. (n) Share based payments – shares and options The fair value of shares and share options granted is recognised as an expense with a corresponding increase in equity. Fair value is measured at grant date and recognised over the period during which the grantees become unconditionally entitled to the shares or share options. The fair value of share grants at grant date is determined by the share price at that time. The fair value of share options at grant date is determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, any vesting and performance criteria, the share price at grant date, the expected price volatility of the underlying share, the expected dividend yield and the risk free rate for the term of the option. upon the exercise of the option, the balance of the share-based payments reserve relating to the option is transferred to share capital. (o) Foreign currency translation Both the functional and presentation currency of Scotgold Resources Limited and its Australian subsidiaries is Australian dollars. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance date. All exchange differences in the consolidated financial report are taken to profit or loss with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity. These are taken directly to equity until the disposal of the net investment, at which time they are recognised in profit or loss. Tax charges and credits attributable to exchange differences on those borrowings are also recognised in equity. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. 46 SCOTGOLD ANNuAL REPORT I 2012 Financial Statements for the year ended 30 June 2012 Notes to the Financial Statements for the year ended 30 June 2012 11 The functional currency of the foreign operation, Scotgold Resources is Pounds Sterling (£). As at the balance date the assets and liabilities of these subsidiaries are translated into the presentation currency of Scotgold Resources Limited at the rate of exchange ruling at the balance date and income and expense items are translated at the average exchange rate for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. The exchange differences arising on the translation are taken directly to a separate component of equity, being recognised in the foreign currency translation reserve. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in profit or loss. In addition, in relation to the partial disposal of a subsidiary that does not result in the Group losing control over the subsidiary, the proportionate share of accumulated exchange differences are re-attributed to non-controlling interests and are not recognised in profit or loss. For all other partial disposals (i.e. partial disposals of associates or jointly controlled entities that do not result in the Group losing significant influence or joint control), the proportionate share of the accumulated exchange differences is reclassified to profit or loss. NOTE 2 – REVENUE Revenue Interest received Other income Total revenue 2012 $ 29,124 - 29,124 NOTE 3 - LOSS FROM ORDINARY ACTIVITIES BEFORE TAX EXPENSES Expenses Borrowing costs expensed Total borrowing cost expensed Depreciation of non-current assets Plant and Equipment Office furniture and equipment Motor vehicles Total depreciation of non-current assets Profit on disposal of fixed assets - - 22,028 42 7,060 29,130 (3,965) 2011 $ 33,138 742 33,880 251 251 27,636 54 10,685 38,375 73 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JuNE 2012 47 Financial Statements for the year ended 30 June 2012 11 Notes to the Financial Statements for the year ended 30 June 2012 NOTE 4 - INCOME TAX The prima facie tax benefit at 30% on loss from ordinary activities is reconciled to the income tax benefit in the financial statements as follows: Loss from ordinary activities Prima facie income tax benefit at 30% Tax effect of permanent differences Share Issue Costs amortised R & D Tax Offset refund received Other non-deductible expenses Income tax benefit adjusted for permanent differences Deferred tax asset not brought to account INCOME TAX BENEFIT 2012 $ 1,266,835 380,050 66,952 (74,551) (159) 372,292 (297,741) 74,551 2011 $ 954,837 286,451 64,070 (123,039) (5,658) 221,824 (98,785) 123,039 The directors estimate the cumulative unrecognised deferred tax asset attributable to the company and its controlled entity at 30% is as follows: DEFERRED TAX ASSETS Revenue Losses after permanent differences Capital Raising Costs yet to be claimed 824,884 96,558 921,442 558,556 149,099 707,655 The potential deferred tax asset has not been brought to account in the financial report at 30 June 2012 as the Directors do not believe it is appropriate to regard the realisation of the asset as probable. This asset will only be obtained if: (a) The company and its controlled entity derive future assessable income of an amount and type sufficient to enable the benefit from the deductions for the tax losses and the unrecouped exploration expenditure to be realised; (b) The company and its controlled entity continue to comply with the conditions for deductibility imposed by tax legislation; and (c) No changes in tax legislation adversely affect the company and its controlled entity in realising the benefit from the deductions for the tax losses and unrecouped exploration expenditure. Franking Credits No franking credits are available at balance date for the subsequent financial year. 48 SCOTGOLD ANNuAL REPORT I 2012 Financial Statements for the year ended 30 June 2012 Notes to the Financial Statements for the year ended 30 June 2012 11 NOTE 5 – CASH AND CASH EQUIVALENTS Cash at bank and on hand NOTE 6 – TRADE AND OTHER RECEIVABLES Current GST / VAT Receivable ATO Research and Development Offset Other receivables Non Current Bond on Tenement NOTE 7 – OTHER CURRENT ASSETS Prepaid expenses NOTE 8 – PLANT AND EQUIPMENT Plant and equipment Cost Accumulated Depreciation Movement for the year Opening balance Additions Disposals Depreciation expensed Closing balance 2012 $ 2011 $ 72,615 950,668 42,793 - 3,938 46,731 53,932 124,330 18,041 196,303 76,923 75,586 20,369 20,076 349,150 (178,429) 170,721 329,783 (156,667) 173,116 173,116 38,263 (11,528) (29,130) 170,721 199,573 20,261 (8,343) (38,375) 173,116 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JuNE 2012 49 Financial Statements for the year ended 30 June 2012 11 Notes to the Financial Statements for the year ended 30 June 2012 NOTE 9 – MINERAL EXPLORATION AND EVALUATION Opening balance Expenditure during the year Closing balance 2012 $ 10,526,320 1,558,282 12,084,602 2011 $ 8,917,502 1,608,818 10,526,320 The ultimate recoupment of exploration expenditure carried forward is dependent upon successful development and commercial exploitation, or sale of the respective areas. NOTE 10 – TRADE AND OTHER PAYABLES Trade creditors Other accruals NOTE 11 – INTEREST BEARING LIABILITIES Financing Agreements 227,147 127,243 354,390 297,566 39,844 337,410 No overdraft facilities have been formalised at 30 June 2012 and neither the company nor its controlled entity have lines of credit at 30 June 2012. 50 SCOTGOLD ANNuAL REPORT I 2012 Financial Statements for the year ended 30 June 2012 Notes to the Financial Statements for the year ended 30 June 2012 11 NOTE 12 – ISSUED CAPITAL (a) Issued capital 196,249,629 ordinary shares fully paid (2011: 161,304,411) 16,079,010 14,299,263 (b) Movements in ordinary share capital of the Company were as follows: 2012 $ 2011 $ Date Details 11/11/2010 19/01/2011 19/01/2011 14/02/2011 28/02/2011 21/03/2011 27/04/2011 04/08/2011 24/08/2011 26/08/2011 22/09/2011 17/10/2011 03/11/2011 15/11/2011 15/02/2012 02/04/2012 10/04/2012 17/04/2012 30/04/2012 31/05/2012 Balance at 30 June 2010 Rights Issue Placement Options conversion Options conversion Options conversion Options conversion Options conversion Transaction costs arising on share issues Balance at 30 June 2011 Balance at 30 June 2011 Options conversion Options conversion Rights Issue Rights Issue Shortfall allocation Options conversion Options conversion Options conversion Options conversion Options conversion Options conversion Options conversion Options conversion Options conversion Transaction costs arising on share issues Balance at 30 June 2012 Value (cents) No of Shares 117,306,762 29,133,284 14,500,000 15,526 61,166 76,512 65,566 145,595 161,304,411 161,304,411 17,491 7,128 28,181,626 4,079,256 922 270,000 25,721 10,207 253,193 26,937 82,137 1,986,850 3,750 196,249,629 3.5 6.8 8.0 8.0 8.0 8.0 8.0 8.0 8.0 5.0 5.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 $ 12,324,019 1,020,005 986,000 1,242 4,893 6,121 5,245 11,648 (59,910) 14,299,263 14,299,263 1,399 570 1,409,081 203,963 74 21,600 2,058 817 20,255 2,155 6,571 158,948 300 (48,044) 16,079,010 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JuNE 2012 51 Financial Statements for the year ended 30 June 2012 11 Notes to the Financial Statements for the year ended 30 June 2012 (c) Movements in options were as follows: Date Details No of Options Issue Price Value $ 11/11/2010 19/01/2011 19/01/2011 14/02/2011 28/02/2011 21/03/2011 27/04/2011 04/08/2011 24/08/2011 17/10/2011 03/11/2011 15/11/2011 15/02/2012 02/04/2012 10/04/2012 17/04/2012 30/04/2012 31/05/2012 30/04/2012 Balance at 30 June 2010 Rights Issue (free attaching options) Placement (free attaching options) Options conversion Options conversion Options conversion Options conversion Options conversion Balance at 30 June 2011 Balance at 30 June 2011 Options conversion Options conversion Options conversion Options conversion Options conversion Options conversion Options conversion Options conversion Options conversion Options conversion Options conversion Expiry Balance at 30 June 2012 - 14,566,586 7,250,000 (15,526) (61,166) (76,512) (65,566) (145,595) 21,452,221 21,452,221 (17,491) (7,128) (922) (270,000) (25,721) (10,207) (253,193) (26,937) (82,137) (1,986,850) (3,750) (18,767,885) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (d) Voting and dividend rights Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of shares held. At shareholders meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands. 52 SCOTGOLD ANNuAL REPORT I 2012 Financial Statements for the year ended 30 June 2012 Notes to the Financial Statements for the year ended 30 June 2012 11 NOTE 13 – RESERVES AND ACCUMULATED LOSSES Accumulated Losses Foreign Currency Translation Reserve Accumulated Losses Balance at beginning of the year Net Loss from ordinary activities Balance at end of the year Foreign Currency Translation Reserve Balance at beginning of the year Reserve arising on translation of foreign currency subsidiary Balance at end of the year NOTE 14 - COMMITMENTS FOR EXPENDITURE (a) Mineral Tenement Leases 2012 $ 3,915,407 46,032 3,961,439 2011 $ 2,650,234 44,370 2,694,604 2,650,234 1,265,173 3,915,407 1,739,768 910,466 2,650,234 44,370 1,662 46,032 - 44,370 44,370 In order to maintain current rights of tenure to mining tenements, the consolidated entity will be required to outlay in the year ending 30 June 2012 amounts of $58,250 in respect of minimum tenement expenditure requirements and lease rentals. The obligations are not provided for in the financial report and are payable as follows : Not later than one year Later than 1 year but not later than 2 years Later than 2 years but not later than 5 years Minimum expenditure Licence Fee 27,000 27,000 81,000 135,000 31,250 31,250 93,750 156,250 Total 58,250 58,250 174,750 291,250 The Company has a number of avenues available to continue the funding of its current exploration program and as and when decisions are made, the Company will disclose this information to shareholders. NOTE 15 - CONTINGENT LIABILITIES The Company has entered into a donations agreement with the Strathfillan Community Development Trust (”SCDT”) pursuant to which the Company will work with SCDT to provide additional facilities and opportunities for the community served by SCDT and provide funding in respect of the same of up to £350,000. This liability is contingent upon starting the development as defined under the Planning conditions and Decision letter. Scotgold Resources Limited and its controlled entities have no other known material contingent liabilities as at 30 June 2012. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JuNE 2012 53 Financial Statements for the year ended 30 June 2012 11 Notes to the Financial Statements for the year ended 30 June 2012 NOTE 16 - INVESTMENT IN CONTROLLED ENTITY Registered Number Country of Incorporation Interest Held Value of investment Parent Scotgold Resources Limited 42 127 042 773 Australia 100% N/A Subsidiary Scotgold Resources Limited SC 309525 Scotland 100% 5,491,881 Subsidiary of subsidiary Fynegold Exploration Limited SC 084497 Scotland 100% - NOTE 17 - SEGMENT INFORMATION Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors of Scotgold Resources Limited. NOTE 18 - NOTES TO THE STATEMENT OF CASH FLOWS Reconciliation of loss after income tax to net operating cash flows Loss from ordinary activities Depreciation and loss on disposals Movement in assets and liabilities Receivables Other current assets Payables Net cash used in operating activities 2012 $ 2011 $ (1,265,173) (910,466) 25,165 38,448 (1,240,008) (872,018) 141,616 8,738 (155,019) (1,244,673) (141,615) 41,760 (68,972) (1,040,845) 54 SCOTGOLD ANNuAL REPORT I 2012 Financial Statements for the year ended 30 June 2012 Notes to the Financial Statements for the year ended 30 June 2012 11 NOTE 19 - KEY MANAGEMENT PERSONNEL (a) Directors The names and positions of Directors in office at any time during the financial year are: John Bentley Chris Sangster Phillip Jackson Shane Sadleir Executive Chairman Managing Director Non Executive Director Non Executive Director In office from 17/02/2009 17/10/2007 14/08/2007 12/03/2009 In office to present present present present (b) Remuneration Polices Remuneration policies are disclosed in the Remuneration Report which is contained in the Directors’ Report. (c) Directors’ Remuneration No salaries, commissions, bonuses or superannuation were paid or payable to Directors during the year. Remuneration was by way of fees paid monthly in respect of invoices issued to the Company by the Directors or Companies associated with the Directors in accordance with agreements between the Company and those entities. The Directors are entitled to reimbursement of out-of-pocket expenses incurred whilst on company business. The total remuneration paid to directors is summarised below: Director/Secretary Associated Company Year ended 30 June 2011 Fees Consultancy Total John Bentley Chris Sangster Phillip Jackson Edmond Edwards Shane Sadleir Adam Davey Peter Newcomb Ptarmigan Natural Resources Ltd Holihox Pty Ltd Tied Nominees Pty Ltd Mineral Products Holdings Pty Ltd Shenton Park Investments Pty Ltd Symbios Pty Ltd Year ended 30 June 2012 John Bentley Chris Sangster Phillip Jackson Shane Sadleir Peter Newcomb Ptarmigan Natural Resources Ltd Holihox Pty Ltd Mineral Products Holdings Pty Ltd Symbios Pty Ltd 54,000 - 27,000 31,500 29,000 9,000 - 150,500 24,000 - 42,000 42,000 - 108,000 - 206,750 - 10,000 28,400 - 144,500 389,650 68,250 297,244 - - 166,050 531,544 54,000 206,750 27,000 41,500 57,400 9,000 144,500 540,150 92,250 297,244 42,000 42,000 166,050 639,544 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JuNE 2012 55 11 Notes to the Financial Statements for the year ended 30 June 2012 Financial Statements for the year ended 30 June 2012 (d) Shareholding John Bentley Chris Sangster Phillip Jackson Edmond Edwards Shane Sadleir John Bentley Chris Sangster Phillip Jackson Shane Sadleir Balance 30 June 2010 Purchase and Sales Balance at date of resignation Balance 30 June 2011 900,000 4,500,000 1,750,000 1,847,843 11,582,785 20,580,628 225,000 1,125,000 437,500 - 2,895,696 4,683,196 - - - 1,847,843 - 1,847,843 1,125,000 5,625,000 2,187,500 - 14,478,481 23,415,981 Balance 30 June 2011 Purchase and Sales Options exercised Balance 30 June 2012 1,125,000 5,625,000 2,187,500 14,478,481 23,415,981 225,000 532,000 - - 757,000 112,500 281,250 - 125,000 518,750 1,462,500 6,438,250 2,187,500 14,603,481 24,691,731 (e) Aggregate amounts payable to Directors and their personally related entities. Accounts payable (f) Optionholding John Bentley Chris Sangster Phillip Jackson Shane Sadleir Consolidated Entity 2012 $ Consolidated Entity 2011 $ 64,495 16,669 Balance 30 June 2010 Rights Issue Converted during the year Balance 30 June 2011 - - - - - 112,500 562,500 218,750 1,447,848 2,341,598 - - - - - 112,500 562,500 218,750 1,447,848 2,341,598 56 SCOTGOLD ANNuAL REPORT I 2012 Financial Statements for the year ended 30 June 2012 Notes to the Financial Statements for the year ended 30 June 2012 11 John Bentley Chris Sangster Phillip Jackson Shane Sadleir Balance 30 June 2011 Converted during the year Expired during the year Balance 30 June 2012 112,500 562,500 218,750 1,447,848 2,341,598 112,500 281,250 - 125,000 518,750 - 281,250 218,750 1,322,848 1,822,848 - - - - - NOTE 20 - RELATED PARTY INFORMATION Parent Entity 2012 $ Parent Entity 2011 $ Transactions within the Consolidated Entity Aggregate amount receivable within the consolidated entities at balance date Non-current receivables 12,089,670 10,264,890 NOTE 21 - REMUNERATION OF AUDITORS Auditing and reviewing of the financial statements of Scotgold Resources Limited and of its controlled entities. NOTE 22 - LOSS PER SHARE 27,150 27,150 34,150 34,150 2012 Number 2011 Number Weighted average number of ordinary shares outstanding during the year used in the calculation of basic loss per share 189,392,568 142,279,083 There are no potential ordinary shares on issue at the date of this report. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JuNE 2012 57 Financial Statements for the year ended 30 June 2012 11 Notes to the Financial Statements for the year ended 30 June 2012 NOTE 23 - FINANCIAL INSTRUMENTS (a) Financial Risk Management Policies The consolidated entity’s financial instruments consist mainly of deposits with banks, accounts receivable, accounts payable and hire purchase liabilities. The Board’s overall risk management strategy seeks to assist the Group in meeting its financial targets, whilst maintaining potential adverse effects on financial performance. The Group has developed a framework for a risk management policy and internal compliance and control systems that covers the organisational, financial and operational aspects of the group’s affairs. The Chairman is responsible for ensuring the maintenance of, and compliance with, appropriate systems. Financial Risk Exposures and Management The main risks the group is exposed to through its financial instruments are interest rate risk, foreign currency risk and liquidity risk. Interest Rate Risk The consolidated entity’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of change in the market, interest rate and the effective weighted average interest rate on these financial assets, is as follows: Financial Assets Cash at Bank Total Financial Assets Weighted Average Effective Interest Rate 2011 2012 Floating Interest Rate 2011 2012 3.16% 2.70% 72,615 72,615 950,668 950,668 There are no Financial Liabilities subject to interest rate fluctuations. The aggregate net fair values and carrying amounts of financial assets and financial liabilities are disclosed in the statement of financial position and in the notes to and forming part of the financial statements. Interest Rate Sensitivity Analysis The Group has performed a sensitivity analysis relating to its exposure to interest rate risk. This sensitivity analysis demonstrates the effect on the current year results and equity which could result in a change in these risks. 58 SCOTGOLD ANNuAL REPORT I 2012 Financial Statements for the year ended 30 June 2012 Notes to the Financial Statements for the year ended 30 June 2012 11 At 30 June 2012 the effect on the loss and equity as a result of changes in the interest rate with all other variables remaining constant is as follows: Change in Loss • Increase in interest by 2% • Decrease in interest by 2% Change in Equity • Increase in interest by 2% • Decrease in interest by 2% Foreign Currency Risk 2012 $ (18,417) 18,417 18,417 (18,417) 2011 $ (24,524) 24,524 24,524 (24,524) The Group undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate fluctuations arise. The carrying amount of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date is as follows: Currency £ Sterling Foreign currency Liabilities 2012 $ Assets 2012 $ Liabilities 2011 $ Assets 2011 $ 277,457 104,800 185,865 411,530 Other than translational risk the Group has no significant exposure to foreign currency risk at the balance date. Liquidity Risk The group manages liquidity risk by monitoring forecast cash flows. Credit Risk The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date, is the carrying amount net of any provisions for doubtful debts, as disclosed in the statement of financial position and notes to the financial statement. In the case of cash deposited, credit risk is minimised by depositing with recognised financial intermediaries such as banks, subject to Australian Prudential Regulation Authority Supervision. The consolidated entity does not have any material risk exposure to any single debtor or group of debtors under financial instruments entered into by it. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JuNE 2012 59 Financial Statements for the year ended 30 June 2012 11 Notes to the Financial Statements for the year ended 30 June 2012 Capital Management Risk Management controls the capital of the Group in order to maximise the return to shareholders and ensure that the group can fund its operations and continue as a going concern. Management effectively manages the Group’s capital by assessing the Group’s financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include the management of expenditure and debt levels and share and option issues. There have been no changes in the strategy adopted by management to control capital of the Group since the prior year. Net Fair Values For financial assets and liabilities, the net fair value approximates their carrying value. The consolidated entity has no financial assets or liabilities that are readily traded on organised markets at balance date and has no financial assets where the carrying amount exceeds net fair values at balance date. NOTE 24 - MATTERS SUBSEQUENT TO THE END OF FINANCIAL YEAR On 2 July 2012 the company announced that an agreement had been reached with RMB Resources for a £1.18m financing facility. This facility is a convertible loan structured as a secured corporate loan with share options which provides for RMB to acquire 26,222,222 Scotgold shares at £0.045. During July 2012 the company drew down loan funding of $1.7 million which is expected to be sufficient to fund the company into early 2013. 60 SCOTGOLD ANNuAL REPORT I 2012 Financial Statements for the year ended 30 June 2012 Notes to the Financial Statements for the year ended 30 June 2012 11 NOTE 25 - PARENT ENTITY DISCLOSURES Financial Position CURRENT ASSETS Cash and cash equivalents Trade and other receivables Total Current Assets NON CURRENT ASSETS Plant and equipment Investment in subsidiary Loan to subsidiary Total Non Current assets TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Total Current Liabilities TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Accumulated losses TOTAL EQUITY Financial Performance Loss for the year Other comprehensive income Total comprehensive income 2012 $ 29,661 5,255 34,916 2011 $ 604,040 151,477 755,517 7,067 5,491,881 12,089,670 6,473 5,491,881 10,264,890 17,588,618 15,763,244 17,623,534 16,518,761 76,934 76,934 76,934 151,546 151,546 151,546 17,546,600 16,367,215 20,156,501 (2,609,901) 18,376,754 (2,009,539) 17,546,600 16,367,215 600,362 - 600,362 575,287 - 575,287 The parent entity has not entered into any guarantees in relation to debts of its subsidiaries, has no contingent liabilities, and has no commitments for acquisition of property, plant and equipment. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JuNE 2012 61 12 Directors’ Declaration 1. In the opinion of the Directors of Scotgold Resources Limited (the ‘Company’): a. the accompanying financial statements and notes are in accordance with the Corporations Act 2001 including: i. ii. giving a true and fair view of the consolidated entity’s financial position as at 30 June 2012 and of its performance for the year then ended; and complying with Australian Accounting Standards, the Corporations Regulations 2001, professional reporting requirements and other mandatory requirements. there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. the financial statements and notes thereto are in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board. b. c. This declaration has been made after receiving the declarations required to be made to the Directors in accordance with Section 295A of the Corporations Act 2001 for the financial year ended 30 June 2012. This declaration is made in accordance with a resolution of the Board of Directors. CHRIS SANGSTER Managing Director Dated at Tyndrum, Scotland, this 30th day of August, 2012. 62 SCOTGOLD ANNuAL REPORT I 2012 Independent Auditor’s Report 13 INDEPENDENT AUDITOR’S REPORT To the members of Scotgold Resources Limited Report on the Financial Report We have audited the accompanying financial report of Scotgold Resources Limited (“the company”), which comprises the statement of financial position as at 30 June 2012, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration for the consolidated entity. The consolidated entity comprises the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ responsibility for the Financial Report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101: Presentation of Financial Statements, that the consolidated financial report complies with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. Our audit did not involve an analysis of the prudence of business decisions made by directors or management. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. HLB Mann Judd (WA Partnership) ABN 22 193 232 714 Level 4 130 Stirling Street Perth 6000 PO Box 8124 Perth BC 6849 Western Australia. Telephone +61 (08) 9227 7500. Fax +61 (08) 9227 7533. Email: hlb@hlbwa.com.au. Website: http://www.hlb.com.au Liability limited by a scheme approved under Professional Standards Legislation HLB Mann Judd (WA Partnership) is a member of International, a world-wide organisation of accounting firms and business advisers INDEPENDENT AuDITOR’S REPORT 63 13 Independent Auditor’s Report Matters relating to the electronic presentation of the audited financial report This auditor’s report relates to the financial report and remuneration report of Scotgold Resources Limited for the financial year ended 30 June 2012 included on Scotgold Resources Limited’s website. The company’s directors are responsible for the integrity of the Scotgold Resources Limited website. We have not been engaged to report on the integrity of this website. The auditor’s report refers only to the financial report and remuneration report identified in this report. It does not provide an opinion on any other information which may have been hyperlinked to/from the financial report. If users of the financial report are concerned with the inherent risks arising from publication on a website, they are advised to refer to the hard copy of the audited financial report and remuneration report to confirm the information contained in this website version of the financial report. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s Opinion In our opinion: (a) the financial report of Scotgold Resources Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2012 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the Remuneration Report included in the directors’ report for the year ended 30 June 2012. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s Opinion In our opinion, the Remuneration Report of Scotgold Resources Limited for the year ended 30 June 2012 complies with section 300A of the Corporations Act 2001. HLB MANN JUDD Chartered Accountants Perth, Western Australia 30 August 2012 N G NEILL Partner HLB Mann Judd (WA Partnership) ABN 22 193 232 714 Level 4 130 Stirling Street Perth 6000 PO Box 8124 Perth BC 6849 Western Australia. Telephone +61 (08) 9227 7500. Fax +61 (08) 9227 7533. Email: hlb@hlbwa.com.au. Website: http://www.hlb.com.au Liability limited by a scheme approved under Professional Standards Legislation HLB Mann Judd (WA Partnership) is a member of International, a world-wide organisation of accounting firms and business advisers 64 SCOTGOLD ANNuAL REPORT I 2012 Shareholder Details 14 ANALYSIS OF SHAREHOLDING Number of Shareholders 1 1,001 5,001 10,001 100,001 - 1,000 - 5,000 10,000 - 100,000 - or more - ASX 65 88 159 774 188 1,274 AIM 9 30 21 73 56 189 Total 74 118 180 847 244 1,463 Number of Shares 1 1,001 5,001 10,001 100,001 Total on Issue - - - - - 1,000 5,000 10,000 100,000 or more 13,576 314,159 1,341,351 28,591,210 76,825,716 107,086,012 4,728 89,532 166,992 2,563,861 86,338,504 89,163,617 18,304 403,691 1,508,343 31,155,071 163,164,220 196,249,629 Voting Rights Article 16 of the Constitution specifies that on a show of hands every member present in person, by attorney or by proxy shall have : a) b) for every fully paid share held by him one vote for every share which is not fully paid a fraction of the vote equal to the amount paid up on the share over the nominal value of the shares Substantial Shareholders The following substantial shareholders have notified the Company in accordance with Corporation Act 2001. Kenglo One Limited Mr Shane Beatty Sadleir Directors’ Shareholding Shares 15,215,000 14,603,481 % 7.75 7.44 The interest of each director in the share capital of the Company is detailed at Note 19. SHAREHOLDER DETAILS 65 14 Shareholder Details TOP TWENTY SHAREHOLDERS Name Shares % Rank Mr Shane Beatty Sadleir Secure Nominees Limited Giltspur Nominees Limited Barclayshare Nominees Limited HSDL Nominees Limited 14,603,481 7.44% 13,745,000 7.00% 6,550,151 3.34% 6,414,921 3.27% 6,151,874 3.13% TD Direct Investing Nominees (Europe) Limited 5,982,733 3.05% L R Nominees Limited Investor Nominees Limited Tied Nominees Pty Ltd Transact Nominees Limited Hargreaves Lansdown (Nominees) Limited <15942> HSBC Client Holdings Nominee (uK) Limited <731504> Ms Angela Elizabeth Cusack Banquest Pty Limited Hargreaves Lansdown (Nominees) Limited Investor Nominees Limited Ms Dorita Thomson 5,081,368 2.59% 4,217,610 2.15% 4,124,449 2.10% 3,757,805 1.91% 3,699,973 1.89% 3,370,857 1.72% 3,035,000 1.55% 2,503,811 1.28% 2,472,230 1.26% 2,372,946 1.21% 2,087,250 1.06% Robertson Architectural Services Pty Ltd 2,000,000 1.02% Stonydeep Investments Pty Ltd 1,954,692 1.00% Share Nominees Ltd 1,838,113 0.94% 95,964,264 48.9% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 ASX AIM AIM AIM AIM AIM AIM AIM ASX AIM AIM AIM ASX ASX AIM AIM ASX ASX ASX AIM 66 SCOTGOLD ANNuAL REPORT I 2012 Interest in Exploration Leases 15 Scotland Location Cononish Glen Orchy Cononish Glen Orchy Glen Lyon Inverliever Knapdale Ochils Agreement Grant Date Landholder Lease Option Agreement Option Agreement Option Agreement Option Agreement Option Agreement 23 July 2009 5 November 2011 5 November 2011 5 November 2011 5 August 2011 5 August 2011 Area 20 sq km 975 sq km 1,369 sq km 864 sq km 676 sq km 426 sq km Mining Leases in Scotland – general information The mineral rights to gold and silver in most of Britain, including Scotland, are generally held by the Crown, In order to explore for gold and silver, an option agreement is required to be concluded with the Crown which entitles the holder to explore for gold and silver (subject to access agreements with the landowner (see below)) and on the grant of planning permission (and other conditions), to take out a lease for exploitation of these metals. Surface rights (and other minerals rights) are generally held by the landowner with whom access and lease agreements must separately be obtained. Mineral developments in Scotland are governed by the Town and Country Planning (Scotland) Act, with responsibility for planning control exercised by the local Authority. Statutory designations inform as to the appropriate levels of environmental assessment to be carried out. INTEREST IN EXPLORATION LEASES 67 16 Company Information Scotland Exploration Office Nominated Adviser (NOMAD) Share Registry Auditor Solicitors Bankers Media upper Tyndrum Station Tyndrum, Stirlingshire Scotland FK20 8RY Phone +44 (0) 183 840 0306 Westhouse Securities Limited One Angel Court London EC2R 7HJ Phone +44 (0) 207 601 6100 Computershare Investor Sevices PLC The Pavilions Bridgwater Road Bristol BS99 6ZZ Phone +44 (0) 870 703 6300 Scott-Moncrieff Exchange Place 3 Semple Street Edinburgh EH3 8BL Phone +44 (0) 131 473 3500 McClure Naismith 3 Ponton Street Edinburgh EH3 9QQ Phone +44 (0) 131 228 4994 Bank of Scotland Shandwick Place Edinburgh EH11 1YH Phone +44 (0) 870 850 1671 Bankside Consultants 6 Middle Street London EC1A Phone +44 (0) 207 367 8888 68 SCOTGOLD ANNuAL REPORT I 2012 AUSTRALIA 24 colin Street, West perth WeSteRN AuStRAlIA, 6005 p +61 8 9222 5850 F +61 8 9222 5810 e sgz@scotgoldresources.com W scotgoldresources.com SCOTLAND upper tyndrum Station, tyndrum, Stirlingshire, ScotlANd, FK20 8RY p +44 1 838 400 306 e sgz@scotgoldresources.com W scotgoldresources.com ABN 42 127 042 773 

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