FOR THE YEAR ENDED 30 JUNE 2019 CORPORATE DIRECTORY D I R E C T O R S D AV I D Q U I N L I VA N Non-executive Chairman LU K E T O N K I N Managing Director P E T E R A L E X A N D E R Non-executive Director L E S D AV I S Non-executive Director K E LV I N F LY N N Non-executive Director C O M PA N Y S E C R E TA RY David Berg P R I N C I PA L O F F I C E Suite 4, Level 3, South Shore Centre 85 South Perth Esplanade South Perth WA 6151 Tel: Fax: +61 8 6313 3800 +61 8 6313 3888 Email: contact@silverlakeresources.com.au R E G I S T E R E D O F F I C E Suite 4, Level 3, South Shore Centre 85 South Perth Esplanade South Perth WA 6151 S H A R E R E G I S T RY Computershare Investor Services Pty Ltd Level 11, 172 St Georges Terrace Perth WA 6000 Telephone: 1300 850 505 (within Australia) Telephone: +613 8 9415 400 (outside Australia) A U D I T O R S KPMG 235 St George’s Terrace Perth WA 6000 I N T E R N E T A D D R E S S www.silverlakeresources.com.au A B N 38 108 779 782 A S X C O D E SLR TABLE OF CONTENTS Chairman & Managing Director’s Report Project Report Exploration Report Resources & Reserves Report Directors’ Report Directors’ Declaration Auditor’s Independence Declaration Independent Audit Report Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements ASX Additional Information 2 3 8 14 20 40 41 42 48 49 50 51 52 81 D E A R F E L LO W S H A R E H O L D E R, The FY19 financial year was another year in which Silver Lake continued to execute our strategy of maximising the value of our established asset base through investment in exploration and the creation of new opportunities to compete for capital. In addition to our organic exploration opportunities at our established and wholly owned operations we broadened our exposure to greenfield exploration opportunities through investments in Encounter Resources and Sarama Resources. Both companies have significant landholdings in established mining provinces with proven mineral endowments. Silver Lake looks forward to working with both companies as their respective exploration programs advance. Following on from the acquisition of Doray Minerals and subsequent to year end we announced a recommended takeover offer for Egan Street Resources Limited (“EganStreet”). The acquisition of EganStreet will allow Silver Lake to consolidate an additional JORC Resource of 454,000 ounces and JORC Reserve of 200,000 ounces at the Rothsay Gold Project and provide a near term development opportunity to introduce a new high- grade ore source to an upgraded Deflector processing facility, whilst simultaneously benefiting EganStreet shareholders by de- risking the technical, development, construction, production and financing challenges this project presents. FY20 sales guidance is 215,000 to 230,000 ounces with the AISC expected to average A$1,375-A$1,450 per ounce for the full year. FY20 sales guidance is 215,000 to 230,000 ounces with the AISC expected to average A$1,375-A$1,450 per ounce The company will continue to invest in exploration with $18 million budgeted across the group and will focus on for the full year. The company will continue to invest in exploration with $18 million budgeted across the group advancing high priority targets at Mount Monger through to and will focus on advancing high priority targets at Mount Monger through to an investment decision and an investment decision and defining Resource extensions and defining Resource extensions and additional near mine Resources at Deflector. additional near mine Resources at Deflector. FY20 sales guidance is 215,000 to 230,000 ounces with the AISC expected to average A$1,375-A$1,450 per ounce for the full year. The company will continue to invest in exploration with $18 million budgeted across the group and will focus on advancing high priority targets at Mount Monger through to an investment decision and defining Resource extensions and additional near mine Resources at Deflector. Our strong balance sheet and cash flow generation positions the Our strong balance sheet and cash flow generation positions the Company to rapidly progress the pipeline of Company to rapidly progress the pipeline of advanced exploration advanced exploration targets and continue to refresh the pipeline of opportunities to compete for capital at targets and continue to refresh the pipeline of opportunities to compete for capital at Mount Monger, Deflector and externally Mount Monger, Deflector and externally as we continue to build on the success and momentum generated in as we continue to build on the success and momentum FY19. generated in FY19. Our strong balance sheet and cash flow generation positions the Company to rapidly progress the pipeline of advanced exploration targets and continue to refresh the pipeline of opportunities to compete for capital at Mount Monger, Deflector and externally as we continue to build on the success and momentum generated in FY19. On behalf of the Board we would like to thank the Company’s employees for their hard work and commitment over the past 12 months, and without whom, the achievements of the past year would not have been possible. On behalf of the Board we would like to thank the Company’s employees for their hard work and commitment On behalf of the Board we would like to thank the Company’s employees for their hard work and commitment over the past over the past 12 months, and without whom, the achievements of the past year would not have been possible. 12 months, and without whom, the achievements of the past We would also like to acknowledge our suppliers, contractors and shareholders who continue to support our year would not have been possible. strategy of delivering today, developing for tomorrow and discovering for the future. We would also like to acknowledge our suppliers, contractors and shareholders who continue to support our strategy of delivering today, developing for tomorrow and discovering for the future. We would also like to acknowledge our suppliers, contractors and shareholders who continue to support our strategy of delivering today, developing for tomorrow and discovering for the future. David Quinlivan Non-Executive Chairman David Quinlivan David Quinlivan Non-Executive Chairman Non-Executive Chairman Luke Tonkin Luke Tonkin Managing Director Managing Director Luke Tonkin Managing Director In September 2018, we announced the nil-premium acquisition of Doray Minerals and the Scheme of Arrangement was implemented in April 2019. The immediate impact of the acquisition was clear in the fourth quarter of FY19 with a production rate in excess of 200,000 ounces per annum established and subsequent FY20 sales guidance of 215,000 to 230,000 ounces gold equivalent, a 30% increase on FY19 sales. In addition to the growth and diversification of Silver Lake’s production base, we have also experienced a rerating of our securities throughout FY19 which lends market support to the successful deployment of the Company’s strategy. Silver Lake’s gold production increased 6% to 166,695 ounces gold equivalent with gold sales of 171,322 ounces up 13% on FY18 at an AISC of A$1,367 per ounce. FY19 production and sales include a 3 month contribution from Deflector, following completion of the acquisition of Doray Minerals in April 2019. For FY19 Silver Lake reported underlying NPAT of A$16.7 million, operating cash flow A$80 million and pleasingly after capital investment and exploration we were able to continue to build on our enviable record of cash generation with our year end cash and bullion balance increasing A$25 million to A$131.7 million whilst maintaining our debt free balance sheet. Our investment in exploration continued to deliver results translating in Ore Reserves increasing after accounting for FY19 mine production at both operations. At Mount Monger, Ore Reserves increased 24% after FY19 mine production to 492,000 ounces and pleasingly, the impact of our significant investment in exploration over the past three years has become evident with a maiden Ore Reserve declared at Santa and initial Mineral Resources declared at Tank South and the inclusion of the Easter Hollows lodes in Inferred Mineral Resources at the Daisy Complex for the first time. These new Resources provide the opportunity to upgrade Inferred Mineral Resources to Indicated Resources and ultimately Reserves. Importantly, these targets are located on granted Mining Leases and will benefit from Mount Monger’s established mine, services and processing infrastructure. At Deflector, Ore Reserves increased 75% net of FY19 mine production to 343,000 ounces, with the entire Ore Reserve within the current 600m strike footprint. Beyond the Ore Reserve and Mineral Resource drilling has extended mineralisation 300m immediately to the south of the 30 June 2019 Mineral Resource limits and mineralisation remains open. Deflector Ore Reserves and Mineral Resources have grown to the highest level in Deflector’s history which has significantly de-risked Silver Lake’s investment in acquiring Deflector and increased confidence in the potential to add further value and returns to our shareholders over the years to come. 2 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 CHAIRMAN & MANAGING DIRECTOR’S REPORT M O U N T M O N G E R O P E R AT I O N Figure 1: Location of Mount Monger Mining Centres and the centralised Randalls Mill. › › › › › › › Located 50km southeast of Kalgoorlie, Western Australia Established gold camp with a 10 year history with >1.2 million ounces produced and an enviable track record of cash generation Silver Lake has invested to establish larger, longer life Mining Centres with increased production transparency and multiple high-grade ore sources Three independent Mining Centres now feed the central 1.3Mtpa Randall’s mill FY19 gold sales of 141koz and FY20 gold sales guidance of 120 -130koz History of Reserve replacement and discovery Proven mineralised corridors present significant potential for extensions and new discoveries to further leverage our established infrastructure SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 3 PROJECT REPORT 1. D A I S Y M I N I N G C E N T R E Figure 2: Schematic view of Daisy Complex › › › › Located 19km from the Randalls mill 2019 Ore Resource of 1.2 Moz including Ore Reserve of 87koz Proven operating model of progressive infill and extensional drilling program to complement mine development schedule and Reserve replacement year on year Daisy Complex positioned to develop new, shallow mining areas adjacent to existing mine infrastructure » » Down plunge drilling at Haoma West demonstrates extensions of mineralisation beyond Ore Reserves Continued exploration success at Easter Hollows has created competing areas for FY20 underground drilling resources and allocation of capital, relative to down plunge drilling of current mining areas 4 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 PROJECT REPORT 2. M O U N T B E L C H E S M I N I N G C E N T R E Figure 3: Mount Belches Mining Centre › › › › Located 18km from the Randalls mill 2019 Ore Resource of 1.2 Moz including Ore Reserve of 190koz The Mount Belches Mining Centre is a fully serviced, independent Mining Centre currently comprising the shallow, high-grade Maxwells and Cock-eyed Bob underground mines Maxwells, building output and bottom line contribution » » Established as a consistent high-grade production source Down plunge and strike extensions to multiple lodes identified and being progressively tested › Cock-eyed Bob, delivering our strategy to maximise cashflow » » Resource model has typically under called mined grade Drilling has intersected mineralisation below the current mine plan presenting the opportunity to extend the Life of Mine › Santa provides potential for third shallow underground mine » Surface drilling program in progress to validate preliminary mine evaluation work and allow for a production decision to be made in FY20 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 5 PROJECT REPORT 3. A L D I S S M I N I N G C E N T R E Figure 4: Oblique plan view highlighting SAT Trend deposits, Harry’s Hill and Karonie pits and area of recent ground magnetics survey › › › › › › Located 55km from the Randalls mill Resources of 578koz including Reserve of 146koz Three proximal open pits, Harry’s Hill, French Kiss and Karonie South, currently included in the mine plan Discovery of any additional Mineral Resources will leverage from newly established infrastructure Spice, Atriedes and Tank have resources of 48koz, with drilling restricted to ~60m below surface New high-grade discovery at Tank South with infill exploration drilling expected to commence in early FY20 6 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 PROJECT REPORT D E F L E C T O R O P E R AT I O N Figure 5: Deflector Operation › › › › › › › Shallow, narrow vein, high-grade gold and copper underground mine located 350km north of Perth, Western Australia Production at the mine commenced in May 2016 and became a Silver Lake operation following the completion of the merger with Doray on 5 April 2019 FY19 gold sales of 85koz and FY20 gold sales guidance of 95 - 100Koz gold equivalent FY19 Ore Reserves of 343,000 ounces gold and Mineral Resources of 826,000 ounces are the highest in Deflector’s history and all located within the 600m mine strike footprint ROM build in FY20 has the project mill constrained for the first time allowing for assessment of value creation opportunities to optimise the mill Mineralisation remains open in multiple directions and drilling will continue to target extension and repetitions as drill platform access is improved Opportunity to upgrade milling infrastructure to include a CIL circuit to broaden available ore sources through regional exploration success and acquisition to both extend LOM options and enhance recoveries SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 7 PROJECT REPORT E X P LO R AT I O N F Y19 H I G H L I G H T S The FY19 exploration work programs completed by Silver Lake focused on established operations Mount Monger and Deflector. Work programs successfully targeted Reserve conversion, extensions to Mineral Resources and discovered new mineralisation within our proven mineralised corridors and outstanding results were reported at both operations. Key exploration highlights (previously reported) included: › › › › › 75% increase in Deflector Ore Reserve net of FY19 mine production to 343,000 ounces » Drilling extended mineralisation 300m immediately to the south of the 30 June 2019 Mineral Resource limits Mount Monger Ore Reserves increased 24% net of FY19 mine production Maiden Ore Reserve at Santa Maiden Mineral Resource estimate at Tank South Inclusion of the Easter Hollows lodes in the Daisy Complex Mineral Resource for the first time Drilling in the shadow of Daisy 8 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 EXPLORATION REPORT Daisy Complex – high-grade drilling results confirm the potential of Easter Hollows Diamond drilling was completed during FY19 to assess the continuity of mineralisation within the Easter Hollows lodes which culminated in the inclusion of the Easter Hollows lodes in the Daisy Complex Mineral Resource Estimate for the first time. The Easter Hollows target zone comprises multiple “Daisy style” lodes located up to 450m to the west of existing workings at the Daisy Complex. Mineralisation along the Easter Hollows area has been intersected over a 1,000m plunge from surface and has the potential to provide a new mining front for the Daisy Complex, higher in the mine elevation and accessible by lateral development from existing underground infrastructure. These Easter Hollows lodes are parallel to the most productive areas of the mine. Host rocks and mineralisation are consistent with the highest grade lodes in the Daisy Complex including, quartz veining, galena and visible gold. Figure 6: Easter Hollows target relative to major Daisy structures SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 9 EXPLORATION REPORT Santa – a third, shallow, high-grade underground mine in the making1 A maiden Ore Reserve of 29,000 ounces has been declared for the Santa underground. Santa is located ~4km from Maxwells and will leverage the established Mining Centre infrastructure with study work approaching completion for an investment decision to be considered in 1H FY20. The maiden Ore Reserve is focused on the levels beneath the open pit floor, with drilling ongoing and subsequent conversion to Reserves and life extensions considered likely given the broader Santa Mineral Resource base and the experience with the existing BIF hosted mines at Mount Belches. Figure 7: Santa West Lode long section showing assay results highlight and historical drilling intersections >5.0 g/t Au 1. This information is extracted from the ASX release “Reserve growth reshapes Silver Lake’s portfolio” released to the ASX on 27 August 2019 and available to view on www.silverlakeresources.com.au 10 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 EXPLORATION REPORT Aldiss – Thick, high-grade intersections at Tank South herald a new discovery A maiden Inferred Mineral Resource was declared at Tank South on the SAT trend at the Aldiss Mining Centre in August 20192. Drilling discovered high-grade mineralisation in December 2018, follow up drilling intersected further high-grade mineralisation over a strike length of 120m and supported the outline of an initial Inferred Mineral Resource of 71,000 ounces (662kt @ 3.6 g/t). Work in FY20 will focus on testing for extensions of the high-grade structures (incorporating updated geological information of post mineralisation faults) and infilling the Inferred Resource to evaluate the potential of Tank South to provide an additional near term high-grade ore source to the Randalls mill. Figure 8: Tank South vertical long section The SAT trend, which contains some small Mineral Resources, is open for 2km to the south of Tank and for 1km to the north of Spice. The mineralised strike of the Aldiss Mining Centre extends for 7km and is located within Silver Lake’s Mining Lease. The spectacular high-grade discovery at Tank South highlights a significant exploration opportunity for Silver Lake at the Aldiss Mining Centre given historical reconnaissance drilling along the SAT Trend is sporadic and relatively shallow. Figure 9: Regional vertical long section looking west, highlighting the limited, shallow drilling between deposits along the SAT Trend from Karonie to Tank South 2. This information is extracted from the ASX release “Reserve growth reshapes Silver Lake’s portfolio” released to the ASX on 27 August 2019 and available to view on www.silverlakeresources.com.au SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 11 EXPLORATION REPORT Deflector – In-mine drilling has delivered Ore Reserve conversion Drilling during FY19 confirmed the presence of Deflector style mineralisation at established mining widths and grade immediately to the west and south of the 2019 Mineral Resource envelope, extending for 300m south and remains open. This area will be the subject of further RC and diamond drilling throughout FY20 to infill the identified 300m zone and extend mineralisation beyond known limits which has excellent potential for further Mineral Resource growth. Figure 10: Deflector 2019 Mineral Resource Estimate by lode, highlighting southern extension target 12 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 EXPLORATION REPORT Known mineralisation at Spanish Galleon and King Solomon (historical mine) are priority regional targets with work programs included in the FY20 exploration budget. These targets have potential to emerge as near mine competing high-grade ore sources for the Deflector plant to further enhance and extend the Deflector LOM outside of the immediate Deflector mine corridor. Figure 11: Deflector regional exploration targets SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 13 EXPLORATION REPORT C O M PA N Y S U M M A RY A S AT 30 J U N E 2019 Group Mineral Resources are estimated at: 39.3 Mt @ 4.2 g/t Au for 5.3 Moz of contained gold; and 2.3 Mt @ 0.6% Cu for 14,100 tonnes of copper Group Ore Reserves are estimated at: 7.1 Mt @ 3.7 g/t Au for 0.84 Moz of contained gold; and 2.0 Mt @ 0.3% Cu for 5,500 tonnes of copper M I N E R A L R E S O U R C E S TAT E M E N T A S AT 30 J U N E 2019 The Company’s total Measured, Indicated and Inferred Mineral Resources at 30 June 2019 are 39.3 million tonnes (Mt) @ 4.2 grams per tonne of gold (g/t Au) containing 5.29 million ounces of gold (Moz Au), including 2.3 Mt @ 0.6 percent copper (% Cu) containing 14,100 tonnes of copper (CuT). The Mineral Resources as at 30 June 2019 are estimated after allowing for depletion during FY2019. The total Group Mineral Resource is a 43% increase on 30 June 2018. The step change reflects the addition of Mineral Resources from Deflector and the Andy Well and Gnaweeda projects following the completion of the acquisition of Doray Minerals in April 2019. 2019 Gold Mineral Resource Estimate Measured & Indicated Inferred Total Tonnes Grade Ounces Tonnes Grade Ounces Tonnes Grade Ounces (000’s) g/t (000’s) (000’s) (g/t) (000’s) (000’s) (g/t) (000’s) Deflector Daisy Complex Mount Belches Aldiss Mount Monger other 1,602 1,202 7,082 5,430 5,555 Total Mount Monger 19,269 Andy Well Gnaweeda Group total 1,190 2,043 24,103 12.4 15.1 3.5 2.1 2.4 3.5 9.7 2.2 4.3 636 584 789 368 412 662 1,036 3,466 3,285 3,968 2,153 11,755 371 146 628 2,196 3,308 15,241 9.0 18.0 3.3 2.0 2.8 4.1 6.6 1.8 4.0 191 599 368 211 356 2,264 2,238 10,548 8,715 9,523 1,534 31,024 134 124 1,818 4,239 1,983 39,345 11.4 16.4 3.4 2.1 2.5 3.7 8.6 2.0 4.2 828 1,183 1,157 578 768 3,688 505 271 5,291 2019 Copper Mineral Resource Estimate Measured & Indicated Inferred Total Tonnes Grade Tonnes Tonnes Grade Tonnes Tonnes Grade Tonnes (000’s) 1,602 1,602 % 0.8 0.8 (t’s) (000’s) 12,073 12,073 662 662 (%) 0.3 0.3 (t’s) (000’s) 2,065 2,065 2,264 2,264 (%) 0.6 0.6 (t’s) 14,138 14,138 Deflector Group total 14 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 RESOURCES & RESERVES REPORT Measured Mineral Resources Indicated Mineral Resources Inferred Mineral Resources Total Mineral Resources June 2019 Tonnes (‘000s) Grade (g/t Au) Ounces (Au ‘000s) Tonnes (‘000s) Grade (g/t Au) Ounces (Au ‘000s) Tonnes (‘000s) Grade (g/t Au) Ounces (Au ‘000s) Tonnes (‘000s) Grade (g/t Au) Ounces (Au ‘000s) Aldiss Mining Centre French Kiss Harrys Hill Italia/Argonaut Karonie Spice Tank South Tank/Atriedes Sub Total Andy Well Andy Well Sub Total - - - - - - - - - - - - - - - - 127 127 13.7 13.7 Daisy Mining Centre Costello - - Daisy Complex 103 27.8 Fingals Hammer & Tap Lorna Doone Mirror/Magic Wombola Dam Wombola Pit Sub Total Deflector Deflector Sub Total Gnaweeda Turnberry Sub Total - - - 507 13 - 623 452 452 - - Imperial/Majestic Mining Centre Imperial Majestic Sub Total - - - Mount Belches Mining Centre - - - 2.6 3.2 - 6.8 - - - - - - 4.9 5.1 - - - 798 307 - - Randalls Mining Centre Anomaly A Cock-eyed Bob Maxwells Rumbles Santa Sub Total Lucky Bay Randalls Dam Sub Total Stockpile Total Gold Mineral Resources 1,105 4.9 175 13 - 13 1,145 4.6 - 4.6 1.4 2 - 2 51 - - - - - - - 646 1,094 409 2,967 78 - 236 - 5,430 56 56 - 92 - - - 43 1 - 1,063 1,063 - 1,099 131 - 686 549 164 47 136 2,676 2.7 2.6 1.4 2.0 2.4 - 1.4 2.1 9.2 9.2 - 13.9 2.7 - 2.0 2.5 2.6 3.1 7.1 - - - - - - 125 2,043 2,043 504 1,673 2,177 232 485 50 1,239 - - 351 3,670 5,977 34 107 141 2.2 2.2 2.7 2.6 2.7 1.9 4.6 4.9 2.2 2.6 3.2 4.8 2.1 2.8 55 90 19 188 6 - 11 368 315 315 808 417 - 770 64 622 604 3,285 628 628 1.7 2.4 - 1.3 1.3 3.6 1.5 2.0 6.6 6.6 45 32 - 31 3 71 29 1,454 1,511 409 3,737 142 622 840 211 8,715 134 134 1,818 1,818 2.1 2.5 1.4 1.8 1.9 3.6 1.5 2.1 8.6 8.6 100 122 19 219 9 71 39 579 505 505 - 111 492 1,036 4.0 18.0 14 111 4.0 14 599 2,238 16.4 1,183 11 - 44 45 14 5 1,043 350 641 663 120 20 611 3,984 440 440 146 146 44 142 186 14 72 197 24 307 614 5 7 13 662 662 2,196 2,196 216 790 1,006 44 490 745 851 1,336 3,466 8 6 14 2.3 2.4 3.5 3.6 3.0 4.0 6.9 9.0 9.0 1.8 1.8 2.0 2.3 2.2 1.4 3.4 4.5 2.2 3.4 3.3 7.2 1.2 4.6 77 27 72 77 12 3 1,174 350 1,327 1,719 297 67 881 7,283 2.3 2.4 2.7 3.0 2.8 3.3 7.0 88 27 116 165 27 7 1,628 191 191 124 124 14 58 72 2 53 4,239 4,239 720 2,463 3,183 276 1,773 107 2,291 59 1,202 147 368 5,006 10,548 2 0 2 55 113 168 1,145 826 826 271 271 58 200 258 16 250 354 83 454 1,157 9 7 16 51 2.0 2.0 2.5 2.5 2.5 1.8 4.4 4.8 2.2 2.8 3.4 5.1 2.1 3.0 1.4 13.4 13.4 195 195 1,132 1,132 12.1 12.1 2,246 2,246 11.4 11.4 3,464 5.5 615 20,639 4.1 2,693 15,241 4.0 1,983 39,345 4.2 5,291 Table 1: Gold Mineral Resources at 30 June 2019 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 15 RESOURCES & RESERVES REPORT Measured Mineral Resources Indicated Mineral Resources Inferred Mineral Resources Total Mineral Resources Tonnes (‘000s) Grade (% Cu) Copper (Tonnes) Tonnes (‘000s) Grade (% Cu) Copper (Tonnes) Tonnes (‘000s) Grade (% Cu) Copper (Tonnes) Tonnes (‘000s) Grade (% Cu) Copper (Tonnes) 452 452 1.3% 5,900 1,132 0.5% 6,100 1.3% 5,900 1,132 0.5% 6,100 662 662 0.3% 2,100 2,246 0.6% 14,100 0.3% 2,100 2,246 0.6% 14,100 June 2019 Deflector Deflector Sub Total Stockpile 17 0.3% 100 - 0.0% - - 0.0% - 17 0.3% 100 Total Copper Mineral Resources 469 1.3% 6,000 1,132 0.5% 6,100 662 0.3% 2,100 2,264 0.6% 14,100 Table 1a: Copper Mineral Resources at 30 June 2019 O R E R E S E R V E S TAT E M E N T A S AT 30 J U N E 2019 The total Proved and Probable Gold Ore Reserves at 30 June 2019 are 7.08 Mt @ 3.7 g/t Au containing 0.84 Moz Au, including 2.0 Mt @ 0.3 % Cu containing 5,500 CuT. The Ore Reserves at 30 June 2019 are estimated after allowing for depletion over FY2019. Ore Reserves were estimated using a gold price of A$ 1,800 / oz, apart from the Daisy Complex Ore Reserve and Majestic Ore Reserve using A$1,650 / oz, Harrys Hill Ore Reserve using A$1,700 / oz, French Kiss Ore Reserve using A$1,600 / oz and Karonie Ore Reserve using A$2,000 / oz. The total 2019 Group Ore Reserve is a 58% increase on 30 June 2018. The step change reflects the addition of Ore Reserves from the Deflector following the completion of the acquisition of Doray Minerals in April 2019. Deflector Daisy Complex (UG) Mount Belches (UG) Aldiss (OP) Imperial/Majestic Stockpiles Total Mount Monger Group total 2019 Group Gold Ore Reserves Proved Probable Total Tonnes (000’s) Grade g/t Ounces (000’s) Tonnes (000’s) Grade (g/t) Ounces (000’s) Tonnes Grade Ounces 778 41 349 - - 1,127 1,517 2,295 6.1 6.7 5.8 - - 1.4 2.6 3.8 151 1,211 9 65 - - 49 123 274 277 754 2,369 169 - 3,569 4,780 4.9 8.8 5.2 1.9 3.8 - 3.2 3.7 191 78 125 146 21 - 370 561 1,989 318 1,103 2,369 169 1,127 5,086 5.4 8.5 5.3 1.9 3.8 1.4 3.0 7,075 3.7 343 87 190 146 21 49 492 835 2019 Group Copper Ore Reserves Proved Probable Total Deflector Group total Tonnes (000’s) 778 778 Grade Tonnes Tonnes Grade Tonnes Tonnes Grade Tonnes % 0.4 0.4 (000’s) 3,396 3,396 1,211 1,211 (%) 0.2 0.2 (000’s) 2,110 2,110 1,989 1,989 (%) 0.3 0.3 5,506 5,506 16 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 RESOURCES & RESERVES REPORT Proved Ore Reserves Probable Ore Reserves Total Ore Reserves Tonnes (‘000s) Grade (g/t Au) Ounces (Au ‘000s) Tonnes (‘000s) Grade (g/t Au) Ounces (Au ‘000s) Tonnes (‘000s) Grade (g/t Au) Ounces (Au ‘000s) - - - - 41 41 - 761 761 - - 242 107 - 349 1,145 2,295 - - - - 6.7 6.7 - 6.1 6.1 - - 5.7 5.9 - 5.8 1.4 3.7 - - - - 9 9 - 150 150 - - 44 20 - 65 51 177 568 1,620 2,366 277 277 140 1,071 1,211 169 169 143 354 257 754 - 274 4,776 3.6 2.4 1.6 1.9 8.8 8.8 3.1 5.2 4.9 3.8 3.8 6.2 6.0 3.5 5.2 - 3.7 21 43 82 177 568 1,620 146 2,366 78 78 14 177 191 21 21 28 68 29 318 318 140 1,831 1,971 169 169 385 462 257 125 1,103 - 1,145 561 7,072 3.6 2.4 1.6 1.9 8.5 8.5 3.1 5.6 5.4 3.8 3.8 5.9 6.0 3.5 5.3 1.4 3.7 21 43 82 146 87 87 14 327 341 21 21 73 88 29 190 51 835 June 2019 Aldiss Mining Centre French Kiss Harrys Hill Karonie Sub Total Daisy Mining Centre Daisy Complex Sub Total Deflector Deflector OP Deflector UG Sub Total Imperial/Majestic Mining Centre Majestic Sub Total Mount Belches Mining Centre Cock-eyed Bob Maxwells Santa Sub Total Stockpile Total Gold Ore Reserves Table 2: Gold Ore Reserves at 30 June 2019 June 2019 Deflector Deflector OP Deflector UG Sub Total Stockpile Total Copper Ore Reserves Proved Ore Reserves Probable Ore Reserves Total Ore Reserves Tonnes (‘000s) Grade (% Cu) Copper (Tonnes) Tonnes (‘000s) Grade (% Cu) Copper (Tonnes) Tonnes (‘000s) Grade (% Cu) Copper (Tonnes) - 761 761 17 778 0.0% 0.4% 0.4% 0.3% 0.4% - 140 3,300 1,071 3,300 1,211 100 - 3,400 1,211 0.3% 0.2% 0.2% 0.0% 0.2% 400 140 1,700 1,831 2,100 1,971 - 17 2,100 1,989 0.3% 0.3% 0.3% 0.3% 0.3% 400 5,000 5,500 100 5,500 Table 2a: Copper Ore Reserves at 30 June 2019 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 17 RESOURCES & RESERVES REPORT Notes to Tables 1, 1a, 2 and 2a: 1. Mineral Resources are reported inclusive of Ore Reserves. 2. Data is rounded to thousands of tonnes, thousands of ounces gold, and hundreds of tonnes copper. Discrepancies in totals may occur due to rounding. 3. The “Daisy Complex” comprises the following zones: Daisy Milano, Haoma, Haoma West, Lower Prospect, Easter Hollows, Daisy North, Dinnie Reggio and Christmas Flats. 4. The following Mineral Resource and Ore Reserve estimates are produced in accordance with the 2012 Edition of the Australian Code for Reporting of Mineral Resources and Ore Reserves (the 2012 JORC Code): Deflector, Andy Well, Turnberry, Daisy Complex, Lorna Doone, Wombola Dam, Majestic, Imperial, Maxwells, Santa, Cock-eyed Bob/Anomaly A, Lucky Bay, Mirror/Magic, Rumbles, Karonie, Harrys Hill, French Kiss, Spice, Tank/Artredies, and Tank South. The remaining Mineral Resource and Ore Reserve estimates were first prepared and disclosed under the 2004 edition of the JORC Code and have not been updated since to comply with the 2012 JORC Code on the basis that the information has not materially changed since it was last reported. M I N E R A L R E S O U R C E A N D O R E R E S E R V E G O V E R N A N C E A N D I N T E R N A L C O N T R O L S Silver Lake ensures that the Mineral Resource and Ore Reserve estimates quoted are subject to governance arrangements and internal controls activated at a site level and at the corporate level. Internal reviews of Mineral Resource and Ore Reserve estimation procedures and results are carried out through a technical review team which is comprised of highly competent and qualified professionals. These reviews have not identified any material issues. The Company has finalised its governance framework in relation to the Mineral Resource and Ore Reserve estimates in line with the conduct of its business. Silver Lake reports its Mineral Resources and Ore Reserves on an annual basis in accordance with the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’ (the JORC Code) 2012 Edition (except where stated). Mineral Resources are quoted inclusive of Ore Reserves. Competent Persons named by Silver Lake are Members or Fellows of the Australasian Institute of Mining and Metallurgy and/or the Australian Institute of Geoscientists and qualify as Competent Persons as defined in the JORC Code. The Mineral Resources and Ore Reserves statements are based upon, and fairly represent, information and supporting documentation prepared by the Competent Persons named below. The Mineral Resources statement as a whole, as presented in this Annual Report, has been approved by Antony Shepherd a Competent Person who is a member of The Australasian Institute of Mining and Metallurgy. The Ore Reserves statement as a whole, as presented in this Annual Report, has been approved by Sam Larritt a Competent Person who is a member of The Australasian Institute of Mining and Metallurgy. C O M P E T E N T P E R S O N’S S TAT E M E N T The information in the Annual Report to which this statement is attached that relates to the Mineral Resources for the Daisy Complex, Majestic, Imperial, Maxwells, Cock-eyed Bob, Anomaly A, Mirror/Magic, Tank South and Karonie deposits is based upon information compiled by Aslam Awan, a Competent Person who is a member of The Australasian Institute of Mining and Metallurgy. Mr Awan is a full-time employee of the Company. Mr Awan has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr Awan consents to the inclusion in the report of matters based on his information in the form and context in which it appears. The information in the Annual Report to which this statement is attached that relates to the Mineral Resources for the Deflector, Andy Well and Turnberry deposits is based upon information compiled by Karen Wellman, a Competent Person who is a member of The Australasian Institute of Mining and Metallurgy. Mrs Wellman is a full-time employee of the Company. Mrs Wellman has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mrs Wellman consents to the inclusion in the report of matters based on her information in the form and context in which it appears. The information in the Annual Report to which this statement is attached that relates to the Mineral Resources for the Santa and Harrys Hill deposits is based upon information compiled by Matthew Karl, a Competent Person who is a member of The Australasian Institute of Mining and Metallurgy. Mr Karl is an employee of Mining Plus Pty Ltd. Mr Karl has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr Karl consents to the inclusion in the report of matters based on his information in the form and context in which it appears. The information in the Annual Report to which this statement is attached that relates to Ore Reserves is based upon information compiled by Sam Larritt, a Competent Person who is a member of The Australasian Institute of Mining and Metallurgy. Mr Larritt is a full-time employee of the Company. Mr Larritt has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr Larritt consents to the inclusion in the report of matters based on his information in the form and context in which it appears. 18 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 RESOURCES & RESERVES REPORT All other information in the Annual Report to which this statement is attached relating to Exploration Results and Mineral Resources is based on information compiled by Antony Shepherd, a Competent Person who is a member of The Australasian Institute of Mining and Metallurgy. Mr Shepherd is a full-time employee of the Company. Mr Shepherd has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr Shepherd consents to the inclusion in the report of matters based on his information in the form and context in which it appears. F O R WA R D LO O K I N G S TAT E M E N T S This report may contain forward looking statements that are subject to risk factors associated with gold exploration, mining and production businesses. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a variety of variables and changes in underlying assumptions which could cause actual results or trends to differ materially, including but not limited to price fluctuations, actual demand, currency fluctuations, drilling and production results, Reserve estimations, loss of market, industry competition, environmental risks, physical risks, legislative, fiscal and regulatory changes, economic and financial market conditions in various countries and regions, political risks, project delay or advancement, approvals and cost estimates. Forward-looking statements, including projections, forecasts and estimates, are provided as a general guide only and should not be relied on as an indication or guarantee of future performance and involve known and unknown risks, uncertainties and other factors, many of which are outside the control of Silver Lake. Past performance is not necessarily a guide to future performance and no representation or warranty is made as to the likelihood of achievement or reasonableness of any forward looking statements or other forecast. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 19 RESOURCES & RESERVES REPORT The directors submit their report, together with the consolidated financial statements of the Group comprising Silver Lake Resources Limited (the Company or Silver Lake) and its subsidiaries for the year ended 30 June 2019. P E T E R A L E X A N D E R ASS APPL Geol Non-executive Director Appointed 5 April 2019 D I R E C T O R S The directors of the Company at any time during or since the end of the financial year were: D AV I D Q U I N L I VA N BApp Sci, Min Eng, Grad Dip Fin Serv, FAusImm, FFINSA, MMICA Non-executive Chairman Appointed Non-executive Director on 25 June 2015 and Chairman on 30 September 2015 Mr Quinlivan is a Mining Engineer with significant mining and executive leadership experience having 11 years of service at WMC Resources Ltd, followed by a number of high-profile mining development positions. Since 1989, Mr Quinlivan has served as Principal of Borden Mining Services, a mining consulting services firm, where he has worked on multiple mining projects in various capacities. He is currently Managing Director of Ora Banda Mining Limited and Chairman of Churchill Mining PLC and previously served as Chief Executive Officer of Sons of Gwalia Ltd (post appointment of administrators), Chief Operating Officer of Mount Gibson Iron Ltd and President and Chief Executive Officer of Alacer Gold Corporation. Mr Quinlivan has held no other Directorships in public listed companies in the last three years. LU K E T O N K I N BEng, Min Eng, MAusImm Managing Director Appointed 14 October 2013 Mr Tonkin is a Mining Engineering graduate of the Western Australian School of Mines and his extensive operations and management career spans over 30 years within the minerals and mining industry. He is a past Chairman of the Western Australian School of Mines Advisory Board. Mr Tonkin has held senior management roles at WMC Resources Ltd, Sons of Gwalia Ltd and was Managing Director of Mount Gibson Iron Ltd for 7 years and Chief Executive Officer and Managing Director of Reed Resources Ltd. Mr Tonkin joined the Company in October 2013 as Director of Operations and was appointed as Managing Director on 20 November 2014. Mr Tonkin has held no other Directorships in public listed companies in the last three years. 20 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 Mr Alexander is a geologist and has over 30 years’ experience in mineral exploration and mining in Australia and overseas. Mr Alexander was Managing Director and Chief Executive Officer of Dominion Mining Limited from 1997 until his retirement in January 2008, at which time he continued as a Non-executive Director until the takeover by Kingsgate Consolidated in 2010. Mr Alexander managed the start-up and operation of Dominion’s Challenger gold mine in South Australia and, under Mr Alexander’s management, Dominion won the Gold Mining Journal’s “Gold Miner of the Year” three years in succession. Mr Alexander was a Non-executive Director and former Chairman of Doray Minerals Limited and was appointed to the Silver Lake Board following the Company’s merger with Doray Minerals Limited. He is currently a Non-executive Director of Kingsgate Consolidated Limited and was previously Non-executive Chairman of Caravel Minerals Limited (resigned 23 May 2018). L E S D AV I S MSc (Min Econs) Non-executive Director Appointed 25 May 2007 Mr Davis has over 35 years’ industry experience including 17 years’ hands-on experience in mine development and narrow vein mining. Mr Davis’ career incorporates 13 years’ senior management experience including roles as Mine Manager, Technical Services Manager, Concentrator Manager, Resident Manager and General Manager Expansion Projects with organisations including WMC Resources Ltd, Reliance Mining Ltd and Consolidated Minerals Ltd. Mr Davis ceased as Managing Director on 20 November 2014 and was subsequently appointed as Non-executive Director. Mr Davis is a Non-executive Director of Black Cat Syndicate Limited. Mr Davis has held no other Directorships in public listed companies in the last three years. K E LV I N F LY N N B.Com, CA Non-executive Director Appointed 24 February 2016 Mr Flynn is a qualified Chartered Accountant with over 28 years’ experience in investment banking and corporate advisory roles including private equity and special situations investments in the mining and resources sector. He has held various leadership positions in Australia and Asia, having previously held the position of Executive Director/Vice President with Goldman Sachs and Managing Director of Alvarez & Marsal in Asia. He has worked in complex financial workouts, turnaround advisory and interim management. He is the Managing Director of the specialist alternative funds manager Harvis, which focuses on investments in the real estate and real assets sectors. Mr Flynn is currently a Director of privately held Global Advanced Metals Pty Ltd and a Non-executive Director of Mineral Resources Limited. Mr Flynn has held no other Directorships in public listed companies in the last three years. DIRECTORS’ REPORT L E I G H J U N K Dip Surv, Grad Dip Min Eng, MSc Min Econ Non-executive Director Appointed 5 April 2019; Resigned 12 July 2019 Mr Junk is a Mining Engineer with 25 years’ experience, and held senior positions in several Western Australian mining companies including WMC Resources, Pilbara Manganese and Mincor Operations. In 2000 Mr Junk started the private mining company Donegal Resources Pty Ltd, which was successful in purchasing and recommissioning several Nickel operations around Kambalda W.A. Donegal Resources was later sold to Canadian company Brilliant Mining Corp during the Nickel boom in late 2006. Over the next 10 years Mr Junk was a Director of several public companies in the Mining and Financial sectors in Australia and Canada. Mr Junk was previously Managing Director of Doray Minerals Limited and was appointed to the Silver Lake Board following the Company’s merger with Doray Minerals Limited. B R I A N K E N N E D Y Cert Gen Eng Non-executive Director Appointed 20 April 2004; Resigned 23 October 2018 Mr Kennedy has operated a successful resource consultancy for over 30 years and has worked in the coal, iron ore, nickel, gold and fertiliser industries. During this time Mr Kennedy managed large-scale mining operations such as Kambalda and Mount Keith on behalf of WMC Resources Ltd. More recently Mr Kennedy was Senior Vice President at Anglo Gold Ashanti Limited. Mr Kennedy held no other Directorships in public listed companies in the last three years. C O M PA N Y S E C R E TA RY D AV I D B E R G LLB BComm (General Management), FGIS, FCIS Appointed 4 September 2014 Mr Berg has worked both in the resources industry and as a lawyer in private practice, advising on corporate governance, M&A, capital raisings, commercial contracts and litigation. Mr Berg has previously held company secretarial and senior legal positions with Mount Gibson Iron Limited and Ascot Resources Limited and legal roles with Atlas Iron Limited and the Griffin Group. Prior to this Mr Berg worked in the corporate and resources groups of Herbert Smith Freehills and King & Wood Mallesons. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 21 DIRECTORS’ REPORT C O M M I T T E E M E M B E R S H I P As at the date of this report, the Board has an Audit Committee and a Nomination & Remuneration Committee. Those members acting on the committees of the Board during the year were: Audit Committee Kelvin Flynn (Chairman) Les Davis David Quinlivan Term Full Year Full Year Full Year Nomination & Remuneration Committee (NRC) Les Davis (Chairman) Kelvin Flynn David Quinlivan Term Full Year Full Year Full Year D I R E C T O R S’ M E E T I N G S The number of Directors meetings (including committee meetings) held during the year and the number of meetings attended by each Director are as follows: Directors’ Meetings Audit Committee Nomination & Remuneration Committee Held Attended Held Attended Held Attended 11 11 4 11 11 4 4 11 11 4 10 9 4 3 2 - - 2 2 - - 2 - - 2 2 - - 3 - - 3 3 - - 3 - - 3 3 - - David Quinlivan Luke Tonkin Peter Alexander2 Les Davis Kelvin Flynn Leigh Junk2 Brian Kennedy1 1Resigned 23 October 2018 2Appointed 5 April 2019 D I R E C T O R S’ I N T E R E S T S The relevant interest of each Director in the share capital as notified by the Directors to the Australian Securities Exchange in accordance with s205G(1) of the Corporations Act 2001, at the date of this report is as follows: Name of Director Fully Paid Ordinary Shares Unlisted Performance Rights David Quinlivan Luke Tonkin Peter Alexander Les Davis Kelvin Flynn - 1,458,117 18,165 1,000,000 - - 3,017,389 - - - 22 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 DIRECTORS’ REPORT P R I N C I PA L A C T I V I T I E S The principal activities of the Group during the year were exploration, mine development, mine operations and the sale of gold and gold/copper concentrate in Australia. O P E R AT I N G O V E R V I E W On 5 April 2019, Silver Lake and Doray Minerals Limited (Doray) merged to create a multi-asset, mid-tier gold company operating in the Eastern Goldfields and Murchison districts of Western Australia. Commentary and results in this report include Doray operations from the merger date. The Group currently has 5 mines and 2 processing facilities in operation across its Deflector and Mount Monger operations with significant potential for organic growth from its portfolio of highly endowed and prospective tenement holdings. G R O U P F I N A N C I A L O V E R V I E W The Group recorded a net profit after tax for the year of $6.5 million (FY18: $16.2 million) and an EBITDA (before significant items) of $80.2 million (FY18: $85.3 million). This resulted in an EBITDA margin for the year of 27% (FY18: 33%). A reconciliation between the statutory profit after tax and the Group’s EBITDA is tabled below and in the opinion of the Board, provides useful information to assess the underlying operating performance of the Group. The lower profit result in FY19 is attributed to: › › › Expenditure associated with the Doray merger including business combination and stamp duty adjustments totalling $10.2 million a 12% decrease in feed grade, largely driven by the processing of lower grade stockpiles in the first half of the year prior to the introduction of higher grade open pit feed from Harrys Hill in the second half An increase in ore stockpiles during the year, the profit margin on which will be recognised in future periods as the stockpiles are processed. Revenue for the year totalled $301.5 million from the sale of 171,322 ounces of gold equivalent1 at an average realised gold sale price of A$1,754/oz compared with revenue of $255.6 million from 151,250 ounces (@ A$1,684/oz) in FY18. The increase in revenue reflects the increase in realised gold price and the contribution of the Deflector Operation from its acquisition date. Cost of sales increased to $272.1 million in the period (FY18: $225.9 million) reflecting the inclusion of costs associated with the Deflector Operation from the acquisition date. The All-In Sustaining Cost (AISC) for the period of A$1,367/oz (FY18: A$1,289/oz) was consistent with the Company’s forecast and reflected elevated costs in the first half of the financial year as a result of treatment of lower grade stockpiles prior to the introduction of higher grade Harrys Hill material in the second half. The AISC reduced to A$1,216/oz in 4Q FY19, following the acquisition of Doray and contribution from its Deflector Operation. Operating cash flow for the period was $71.8 million resulting in a 30 June 2019 cash and bullion balance of $130.7 million. The cash and bullion balance excludes $4.5 million of gold in circuit and concentrate on hand, and listed investments of $6.6 million. Key cash flow movements for the year included: › › › Net cash inflow from operations of $71.8 million Net cash acquired as part of the Doray transaction of $13.3 million Exploration and capital spend of $57.7 million 1All gold equivalency calculations assume a gold price of A$1,800/oz, copper price of A$8,400/t and a 10% payability reduction for treatment and refining charges E B I T D A (E X C LU D I N G S I G N I F I C A N T I T E M S) The reconciliation between the statutory profit after tax and the Group’s EBITDA (excluding significant items) is outlined in the table below: Reconciliation of Statutory Profit after Tax to EBITDA (excluding significant items) - unaudited Statutory profit after tax: Adjustments for: Depreciation and amortisation Net finance costs (includes change in value of listed investments) Business combination adjustments Other EBITDA (excluding significant items)* *Non-IFRS measure 30 June 2019 30 June 2018 $’000 6,500 60,653 2,084 10,169 788 80,194 $’000 16,186 64,858 4,242 - - 85,286 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 23 DIRECTORS’ REPORT O V E R V I E W O F T H E M O U N T M O N G E R O P E R AT I O N Figure 1: Location of Mount Monger Mining Centres and the centralised Randalls Mill. The Mount Monger Operation is located approximately 50km southeast of Kalgoorlie and is a highly endowed gold camp with an established track record of gold production. Through exploration and development over the past three years Mount Monger has transitioned to larger, longer life Mining Centres which has delivered multiple high-grade ore sources and increased production transparency. The three independent and self-sufficient Mining Centres at Mount Monger are the Daisy, Mount Belches and Aldiss Mining Centres. These Mining Centres feed the centrally located 1.3Mtpa Randall’s mill. Mining Ore mined from the Mount Monger Operation totalled 1,419,100 tonnes at a grade of 3.5 g/t Au for 158,549 contained ounces (FY18: 1,269,722 tonnes at a grade of 4.2 g/t Au for 171,616 contained ounces). FY19 production was sourced from the Daisy Complex, Cock-eyed Bob and Maxwells underground mines and the Harrys Hill open pit mine. The Daisy Complex produced 298,357 tonnes at 5.7 g/t for 54,706 contained ounces, with production sourced from the Haoma West and Lower Prospect areas. A significant exploration program will be conducted in 1H FY20 to follow up previous intersections of high- grade “Daisy” style mineralisation at Easter Hollows which has the potential to introduce a new, shallow mining front higher in the Daisy Complex mine elevation. The Mount Belches Mining Centre produced 376,153 tonnes at 4.7 g/t for 57,170 ounces from the Maxwells and Cock-eyed Bob underground mines. Both mines are now established as consistent production sources and have both infill and extensional exploration potential. The Company will benefit from its installed services and infrastructure at Mount Belches as it targets a third shallow underground mine at Santa, which is hosted within the BIF lodes seen at Maxwells and Cock-eyed Bob. Open pit production during the year focused on Harrys Hill, the first mine in the newly established Aldiss Mining Centre. FY19 production at Harrys Hill totalled 744,590 tonnes at 2.0 g/t Au for 46,673 contained ounces (FY18: 670,605 tonnes at 2.7 g/t Au for 58,787 contained ounces from the Imperial/Majestic open pits). Mining operations in 1H FY19 were focused on development of Aldiss as a standalone Mining Centre with construction of a 36km haul road, administration offices, 80-man camp, power and communications infrastructure. Operations in the second half of the year were focused on ramping up mining activity at Harrys Hill as a higher grade ore source to replace lower grade stockpile feed. Open pit mining activities in FY20 will focus on completing Harrys Hill whilst mining at French Kiss will also commence and progressively ramp up from 2Q FY20. Processing Gold ore from the Mount Monger Operation is transported to the Randalls Gold Processing Facility, located 65 km south east of Kalgoorlie. Mill feed during the period was sourced from the Daisy Complex, Cock-eyed Bob and Maxwells underground mines, the Harrys Hill open pit mine and open pit stockpiles. Ore milled for the period totalled 1,229,195 tonnes at a blended grade of 3.7 g/t Au for 136,767 recovered ounces. The 13% reduction on FY18 production reflects a 12% decrease in feed grade, largely driven by the processing of lower grade stockpiles in the first half of the year prior to the introduction of higher grade open pit feed from Harrys Hill in the second half. Mining and production statistics for the Mount Monger Operation for the year are detailed in Table 1 and Table 2. 24 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 DIRECTORS’ REPORT O V E R V I E W O F T H E D E F L E C T O R O P E R AT I O N Figure 2: Location of the Deflector Mining Operation. The Deflector Operation is in the Southern Murchison region of Western Australia and is a shallow, narrow vein, high-grade gold and copper underground mine. Production at the mine commenced in May 2016 and became a Silver Lake operation following the completion of the merger with Doray on 5 April 2019. Mining Physical and financial results from Deflector have been included in the consolidated Group result from the acquisition date of 5 April 2019. Deflector mine production for the period from 5 April 2019 was 175,647 tonnes at 5.6 g/t gold and 0.49% copper. Production was sourced from the Link, Central and Western Lodes, with ~54% of mined ore tonnes sourced from stoping. Processing Deflector mill throughput was 158,467 tonnes at an average gold grade of 5.9 g/t and copper grade of 0.4%. Gold recovery to bullion was 67% with total gold recovery of 91.3% and copper recovery of 92.5%. Gold production for the period from 5 April 2019 was 27,514 ounces gold with copper production of 575 tonnes. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 25 DIRECTORS’ REPORT G R O U P M I N I N G A N D P R O D U C T I O N S TAT I S T I C S Mount Monger Mining Underground Ore mined Mined grade Contained gold Open Pit Ore mined Mined grade Contained gold Deflector Mining Underground Ore mined Mined grade Contained gold Copper grade Contained copper Group Mining Total ore mined Mined grade Contained gold Copper grade Contained copper Table 1 Units Tonnes g/t Au Oz Tonnes g/t Au Oz Tonnes g/t Au Oz % Tonnes Tonnes g/t Au Oz % Tonnes FY19 FY18 674,510 5.2 111,876 744,590 2.0 46,673 175,647 5.7 31,902 0.5% 864 1,594,747 3.7 190,451 0.5% 864 599,117 5.9 112,829 670,605 2.7 58,787 - - - - - 1,269,722 4.2 171,616 - - 26 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 DIRECTORS’ REPORT Mount Monger Processing Ore milled Head grade Recovery Gold produced Gold sold Deflector Processing Ore milled Gold grade Copper grade Gold recovery Copper recovery Gold produced Gold sold Copper recovered Copper sold Group Processing Ore milled Gold grade Copper grade Gold produced Gold sold Copper recovered Copper sold Table 2 Units Tonnes g/t Au % Oz Oz Tonnes g/t Au % % % Oz Oz Tonnes Tonnes Tonnes g/t Au % Oz Oz Tonnes Tonnes FY19 1,229,195 3.7 95 136,767 141,006 158,467 5.9 0.4% 91.3% 92.4% 27,514 27,837 575 590 FY19 1,387,662 3.9 0.4% 164,281 168,843 575 590 FY18 1,256,120 4.2 92 157,936 151,250 - - - - - - - - FY18 1,256,120 4.2 - 157,936 151,250 - - SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 27 DIRECTORS’ REPORT E X P LO R AT I O N Significant exploration success was reported at both the Mount Monger and Deflector operations during the year. The results continue to enhance the Group’s embedded options to leverage proven mineralised corridors proximal to established mine and processing infrastructure which have the potential to deliver production, cash margin growth and mine life extensions. Exploration expenditure during the year totalled $14.9 million and included: › › › › › Underground resource definition diamond drilling at the Daisy Complex, Maxwells and Cock-eyed Bob Underground exploration drilling targeting the new Easter Hollows lode at Daisy Complex Surface exploration drilling at the Aldiss, Mount Belches and Daisy Mining Centres, targeting Cock-eyed Bob, Santa and SAT trend areas Resource definition drilling at the Aldiss Mining Centre, targeting the Karonie South open pit deposit Surface and underground exploration at Deflector which extended “Deflector” style mineralisation to the south and west beyond the current Mineral Resource envelope. Highlights from the exploration program included: › › › › › Spectacular gold intersections (including 17.0m @ 24.7 g/t Au) highlighted a new discovery at Tank South located along the SAT trend at Aldiss Drilling at Easter Hollows continued to intersect “Daisy Style” mineralisation including 0.45m @ 526 g/t Au and 1.64m @ 18.7 g/t Au Surface diamond drilling at the Santa project returned a significant number of high grade drill results including 29.8m @ 5.44 g/t. The ability to benefit from installed above-ground support services and maintenance infrastructure at Mount Belches provides potential for a near-term and low capital mine Drilling at Deflector extended the high-grade mineralisation footprint outside the current Mineral Resource areas (including 5.5m @ 18.4 g/t Au & 0.1% Cu, 1.0m @ 89.4 g/t Au & 2.0% Cu, 0.3m @ 239 g/t & 2.4% Cu) Deflector in-mine drilling increased the confidence in continuity of mineralisation within Inferred Mineral Resource blocks with the potential to upgrade the confidence classification of these areas. S T R AT E G Y The Group’s short to medium term strategy is to maximise returns to shareholders. This will be achieved by: › › › Maximising the value of the established asset base; Investing in exploration to target extensions to known resources and the discovery of new deposits within proven mineralised corridors and proximal to existing infrastructure; and Creating new opportunities to compete for capital. Exploration success has embedded a pipeline of high value, near-term projects at Mount Monger including Easter Hollows, Santa and Tank, all of which have the potential to produce sustainable higher margin ounces over the next 12-24 months. The ability to consider multiple development options is the result of the deliberate operating and investment strategy over the past three years at Mount Monger. This strategy has established three independent Mining Centres and diversified the sources of high-grade feed to the Randalls mill. Mining activity at Deflector commenced in FY17 and FY20 will mark the first time the Deflector operation has been mill constrained which allows for the assessment of value creation opportunities to optimise the flowsheet and minimise mine dilution to the mill. In addition to in-mine exploration opportunities which are prevalent in an early stage underground mine, the FY20 exploration focus will be on infilling and extending mineralisation identified by the successful FY19 exploration program which extended Deflector style mineralisation to the south and west beyond the current Mineral Resource envelope. The southern extent of Deflector, which remains open, has the potential to add to the current 4 year base case Deflector mining schedule which is supported by Measured and Indicated Mineral Resources. Key risks associated with delivering on the Group’s strategy include: › › › › price and demand for gold - it is difficult to accurately predict future demand and gold price movements and such movements may adversely impact on the Group’s profit margins, future development and planned future production exchange rates – the Group is exposed to the Australian dollar currency risk on gold sales, which are denominated in US dollars. Therefore, revenue will be affected by movements in the US dollar gold price or movement in the Australian Dollar exchange rate (against the US dollar) Reserves and Resources - the Mineral Resources and Ore Reserves for the Group’s assets are estimates only and no assurance can be given that they will be realised operations - the Group’s operations are subject to operating risks that could result in decreased production, increased costs and reduced revenues. Operational difficulties may impact the amount of gold produced, delay deliveries or increase the cost of mining for varying lengths of time › exploration success – no assurance can be given that exploration expenditure will result in future profitable operating mines. 28 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 DIRECTORS’ REPORT D I V I D E N D S No dividend has been paid or declared by the Company up to the date of this report. S I G N I F I C A N T C H A N G E S I N T H E S TAT E O F A F FA I R S Other than as disclosed elsewhere in this report, there have been no material events that have occurred between the reporting date and the date of signing this report. L I K E LY D E V E LO P M E N T S The Company will continue to pursue maximising free cashflow and increasing operating margins from its Mount Monger and Deflector operations. This will include directing exploration expenditure to high priority, cash generating projects. E N V I R O N M E N TA L R E G U L AT I O N S A N D P E R F O R M A N C E The Company’s operations hold licences issued by the relevant regulatory authorities. These licences specify limits and regulate the management associated with the operations of the Company. At the date of this report the Company is not aware of any significant breach of those environmental requirements. I N D E M N I F I C AT I O N A N D I N S U R A N C E O F D I R E C T O R S A N D O F F I C E R S The Company has agreed to indemnify the current Directors and Officers against any liability that may arise from their position as Directors and Officers of the Company except where the liability arises out of the improper use of position, or committing of any criminal, dishonest, fraudulent or malicious act. During the financial year the Company has paid Directors’ & Officers’ insurance premiums in respect of liability of any current and future Officers, and senior executives of the Company. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. Silver Lake has not provided any insurance or indemnity to the auditor of the Company. P R O C E E D I N G S O N B E H A L F O F T H E C O M PA N Y At the date of this report there are no leave applications or proceedings brought on behalf of the Group under section 237 of the Corporations Act 2001. C O R P O R AT E G O V E R N A N C E In recognising the need for appropriate standards of corporate behaviour and accountability, the Directors of Silver Lake have adhered to the principles of good corporate governance. The Company’s corporate governance policies are located on the Company’s website. S U B S E Q U E N T E V E N T S In July 2019 the Company announced that it had entered into an off market takeover bid for Egan Street Resources Limited (EGA) pursuant to which Silver Lake will acquire all of the issued and outstanding ordinary shares of EGA. Under the terms of the takeover bid, each EGA shareholder will receive 0.27 Silver Lake shares for every EGA share held, which on the announcement date, implied a $52 million total transaction enterprise value. The EGA Board of Directors have recommended that their shareholders accept the offer in the absence of a superior proposal. The takeover bid is subject to a number of customary conditions including the acceptance by EGA shareholders. Full details of the offer can be found in the ASX announcement “Silver Lake Recommended Takeover Offer for Egan” dated 30 July 2019. No other events have arisen in the interval between the end of the financial year and the date of this report of a material and unusual nature likely, in the opinion of the Directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 29 DIRECTORS’ REPORT R E M U N E R AT I O N R E P O RT – A U D I T E D This report outlines the remuneration arrangements in place for both Executives and Non-executive Directors of Silver Lake Resources Limited. C O N T E N T S: 1. Basis of preparation 2. Key management personnel (KMP) 3. Remuneration snapshot 4. Remuneration governance 5. 6. FY19 Executive remuneration FY19 Non-executive director (NED) remuneration 7. KMP Shareholdings 1. B A S I S O F P R E PA R AT I O N This remuneration report has been prepared and audited in accordance with the requirements of the Corporations Act 2001 and the applicable accounting standards. All references to dollars in this remuneration report are to Australian Dollars unless otherwise specified. 2. K E Y M A N A G E M E N T P E R S O N N E L Key management personnel (KMP) comprise those persons with authority and responsibility for planning, directing and controlling the activities of the Company. This includes the Executives and Non-executive directors (NEDs) of the Company. In this report, ‘Executives’ refers to individuals identified as KMP, excluding NEDs. A list of all NEDS and Executives for FY19 is set out below: Name Position Term as KMP David Quinlivan Non-executive Chairman Luke Tonkin Managing Director Peter Alexander1 Non-executive Director Les Davis Non-executive Director Kelvin Flynn Non-executive Director Leigh Junk1,3 Non-executive Director Brian Kennedy2 Non-executive Director David Berg General Counsel & Company Secretary Diniz Cardoso Chief Financial Officer Steven Harvey General Manager Mount Monger Operations Antony Shepherd Exploration & Geology Manager 1Appointed to the Board following the merger with Doray Minerals Limited 2Resigned on 23 October 2018 3Resigned on 12 July 2019 3. R E M U N E R AT I O N S N A P S H O T FY19 Remuneration in review Full year Full year Part year Full year Full year Part year Part year Full year Full year Full year Full year During the year the Company continued its focus on delivering new ore sources that sustain and enhance margins to drive shareholder returns. Highlights for the year from this strategy included: › › › › › production of 166,695 ounces gold equivalent, a 6% increase on FY18; cash & bullion increased 24% to $130.7 million at 30 June with no debt; commenced production at Harrys Hill - the first mine within the newly established Aldiss Mining Centre; completed the acquisition of Doray Minerals Limited on 5 April 2019; and strong results from the FY19 exploration campaign with near term targets that have the potential to enhance the production and margin profile of the Group. 30 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 DIRECTORS’ REPORT Further information on the link between company performance and KMP remuneration can be found in section 5(g). The Board believes that the Company’s remuneration framework is aligned with market practice and that Executive remuneration in FY19 was reasonable, having regard to the performance of the Company, the platform established for ongoing performance improvement and the experience of the Executives. The following changes to the remuneration structure were made during the year: Remuneration element Details Fixed remuneration No change to fixed remuneration structure. Short-term incentive (STI) During the year the NRC conducted a review of the variable components of KMP remuneration to ensure these remain competitive against peer companies to assist with the retention and attraction of key talent. The review resulted in an amendment to the STI opportunity for Executives (other than the Managing Director) with the revised STI opportunity increasing from a maximum 30% of base salary to 50% of total fixed remuneration (TFR). STI awards under this new policy will be paid to Executives in line with their performance against set targets. Further information on STI payments is included in Section 5(c) of this report. Long-term incentive (LTI) As part of the above review, the NRC also adjusted the LTI opportunity for KMP as follows: › › Managing Director - maximum LTI opportunity amended from 75% of base salary to 100% of TFR Other Executives - maximum LTI opportunity amended from 30% of base salary to 100% of TFR LTI awards under this new policy were made to Executives during FY19, with 1,233,645 performance rights granted to the Managing Director and a further 1,689,590 performance rights granted to other KMP’s. These performance rights were granted on the terms approved by shareholders at the 2018 AGM and described in Section 5(d) of this report. 4. R E M U N E R AT I O N G O V E R N A N C E a. Board and Nomination & Remuneration Committee responsibility The Nomination & Remuneration Committee is a subcommittee of the Board. It assists the Board to ensure that the Company develops and implements remuneration policies and practices that are appropriate for a company of the nature, size and standing of the Company. The Nomination & Remuneration Committee is responsible for making recommendations to the Board on: › › › the remuneration arrangements (including base pay, performance targets, bonuses, equity awards, superannuation, retirement rights, termination payments) for senior Executives; the remuneration of Non-executive Directors; and the establishment of employee incentive and equity-based plans and the number and terms of any incentives proposed to be issued to Executives pursuant to those plans, including any vesting criteria. b. Remuneration principles The Company’s remuneration strategy and structure is reviewed by the Board and the Nomination & Remuneration Committee for business appropriateness and market suitability on an ongoing basis. KMP are remunerated and rewarded in accordance with the Company’s remuneration policies (outlined in further detail below). c. Engagement of remuneration consultants During the period, the Company did not engage remuneration consultants to provide a “remuneration recommendation” (as that term is defined in the Corporations Act 2001), however independent advice was received when the current remuneration framework was established. This advice was in respect of remuneration reporting and general advice in respect of market practice for long term incentive plans. In addition, the Nomination & Remuneration Committee benchmark KMP remuneration annually using external independent industry reports and data to ensure that remuneration levels are competitive and meet the objectives of the Company. d. 2018 AGM voting outcome and comments The Company received more than 94% votes in favour of the adoption of its Remuneration Report for the 2018 financial year. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 31 DIRECTORS’ REPORT 5. F Y19 E X E C U T I V E R E M U N E R AT I O N a. Executive remuneration strategy and policy In determining Executive remuneration, the Board aims to ensure that remuneration practices are: › › › › competitive and reasonable, enabling the Company to attract and retain high calibre talent; aligned to the Company’s strategic and business objectives and the creation of shareholder value; transparent and easily understood; and acceptable to shareholders. The Company’s approach to remuneration ensures that remuneration is competitive, performance-focused, clearly links appropriate reward with desired business performance, and is simple to administer and understand by Executives and shareholders. In line with the remuneration policy, remuneration levels are reviewed annually to ensure alignment to the market and the Company’s stated objectives. The Company’s reward structure provides for a combination of fixed and variable pay with the following components: › › Fixed remuneration in the form of base salary, superannuation and benefits; Variable remuneration in the form of short-term incentives (STI) and long-term incentives (LTI). The table below provides a summary of the structure of executive remuneration: Fixed Remuneration Variable Remuneration › › › Base salary Superannuation Other benefits › › STI (Cash Bonuses) LTI (Performance Rights) In accordance with the Company’s objective to ensure that executive remuneration is aligned to Company performance, a portion of Executives’ remuneration is placed “at risk”. The relative proportion of target FY19 total remuneration packages split between the fixed and variable remuneration is shown below: Target remuneration mix Target LTI 40% Fixed Remuneration 40% Target STI 20% b. Fixed remuneration Fixed remuneration is set at a level that is aligned to market benchmarks and reflective of Executives’ skills, experience, responsibilities and performance. When positioning base pay, the Company presently aims to position aggregate fixed remuneration at approximately the 50th percentile of the industry benchmark AON McDonald Report (an independent, industry recognised report on the gold and mining industry). This is to ensure that the Company’s remuneration arrangements remain competitive against peer companies to assist with the retention and attraction of key talent. Executive remuneration is benchmarked annually to ASX-listed companies of similar size (by market capitalisation), revenue base, employee numbers and complexity. Specific reference is also made to peer companies within the mining and exploration sectors. 32 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 DIRECTORS’ REPORT Individuals Executives’ base salaries for the 2019 financial year were: Executive Luke Tonkin David Berg Diniz Cardoso Steven Harvey Antony Shepherd Base Salary FY191 Base Salary FY181 Movement $665,600 $298,900 $317,200 $300,000 $260,400 $640,000 $291,300 $304,500 - $253,750 4% 3% 4% Note2 3% 1Base Salary as at 30 June of each respective year 2Steven Harvey classified as a KMP from 1 July 2018 following his appointment as General Manager Mount Monger Operations c. Short-term incentive (STI) arrangements The purpose of the STI plan is to link the achievement of key Company targets with the remuneration received by those Executives charged with meeting those targets. The STI plan provides eligible employees with the opportunity to earn a cash bonus if certain financial hurdles and agreed key performance indicators (KPIs) are achieved. The Board has determined that the Company must be cash-flow positive from normal operating and sustaining capital activities (excluding enhancement activities) for the applicable performance period, for any STI to be paid. All Executives are eligible to participate in the STI plan with awards capped at 100% of the target opportunity. The target opportunity for KMP is 50% of TFR. Each year the Nomination & Remuneration Committee, in conjunction with the Board, set KPI targets for Executives. Ordinarily, the KPIs would include measures relating to the Group and the individual, and include environmental, health & safety, financial, production, exploration, business development and company performance measures. FY19 Performance against STI measures A summary of the KPI targets set for FY19 and their respective weightings is as follows: KPI* Weighting Measure 1. Safety/Environment 2. Production 3. Costs 4. Cash generation 5. Exploration & Resource Development 6. Business Development 7. Company Performance *Not all of the above KPIs were assigned to all Executives 13% 35% 16% 8% 8% 10% 10% › › › Lagging EH&S indicators Environmental management effectiveness Safety management effectiveness Production from each operating site versus FY19 Stretch Target Costs for each cost centre versus FY19 Stretch Target Free cash flow from operations versus FY19 Stretch Target Execution and success of FY19 Exploration Strategy Execution and success of Business Development Strategy TSR performance against comparator group SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 33 DIRECTORS’ REPORT In assessing KMP performance against the KPI targets during the year, the Committee considered the following achievements against objectives set at the start of the year: › › › › › › › › › › achieving OH&S objectives; achieving environmental objectives; achieving FY19 sales guidance; exceeding the targeted end of year cash and bullion balance; successful completion of the Doray Minerals transaction; commencement of production at Harrys Hill - the first mine within the newly established Aldiss Mining Centre; successful targeted and phased exploration strategy resulting in an extension to the life of mine of the Mount Monger Operation; managing a transparent, effective hedging strategy to secure future revenue streams; delivery of positive exploration results from infill and extensional resource definition drilling to allow further mines to enter production in future periods; and Company TSR performance against the comparator group. Based on the above assessment, STI payments for FY19 to Executives were as follows: Executive Luke Tonkin David Berg Diniz Cardoso Steven Harvey Antony Shepherd Maximum STI opportunity 50% of TFR 50% of TFR 50% of TFR 50% of TFR 50% of TFR % STI awarded STI awarded 80.5% 80.5% 80.5% 43.6% 80.5% $300,000 $133,210 $139,772 $71,613 $114,748 d. Long-term incentive (LTI) arrangements The Board has established the Employee Incentive Plan (Incentive Plan) as a means for motivating senior employees to pursue the long term growth and success of the Company. The Incentive Plan provides the Company with the flexibility to issue incentives in the form of either options or performance rights which may ultimately vest and be converted into shares on exercise, subject to satisfaction of any relevant vesting conditions. The Incentive Plan was approved by shareholders at the 2018 AGM. Key features of the Incentive Plan Under the terms of the Incentive Plan, the Board may determine which employees are eligible to participate. The number of Performance Rights awarded is calculated by dividing an employees’ maximum LTI opportunity by the 20 day VWAP of the Company shares as traded on the ASX up to 30 June of each respective year. Performance Rights which are granted will not vest (and therefore will lapse) unless a hurdle, based on relative total shareholder return (TSR), has been satisfied. TSR measures the growth for a financial year in the price of shares plus dividends paid. The NRC believes that a single hurdle is appropriate as it is transparent, simple to administer and directly links Executive remuneration to the Company’s share price relative to its peers. Relative TSR will be measured by comparing the Company’s TSR with that of a comparator group of companies over the respective 3 year vesting period. The TSR metric measures the share price movement and dividends over this period for both the Company and the comparator group. The Performance Rights will vest based on the Company’s relative TSR ranking on the relevant vesting date as follows: Relative TSR Performance Less than 50th percentile Vesting Outcome 0% vesting Between the 50th percentile and 75th percentile Pro rata straight line from 50% to 100% At or above the 75th percentile 100% vesting Relative TSR performance is calculated at a single point in time and is not subject to re-testing. The comparator group of companies for Performance Rights on issue is listed in the table on page 35. At the discretion of the Board, the composition of the comparator group may change from time to time. Performance rights granted under the Incentive Plan will have no exercise price. Unless the Board in its absolute discretion determines otherwise, all unvested performance rights will lapse 30 days following the cessation of employment. The Board will take into account the circumstances surrounding the cessation of employment before deciding whether to make any such determination. 34 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 DIRECTORS’ REPORT FY19 LTI outcomes During the year the Company issued 2,923,235 Performance Rights to KMP in respect of the LTI component of their FY19 remuneration. The quantum of Performance Rights issued was determined by reference to the 20 day VWAP to 30 June 2018 of $0.58. Executive Luke Tonkin David Berg Diniz Cardoso Steven Harvey Antony Shepherd Maximum LTI opportunity Number of Performance Rights granted during FY19 Fair value per Performance Right* 100% of TFR 100% of TFR 100% of TFR 100% of TFR 100% of TFR 1,233,645 548,968 573,844 88,574 478,204 $0.439 $0.439 $0.439 $0.439 $0.439 *Independently valued using a hybrid share option pricing model Performance Rights During the year the Company issued 4,059,807 Performance Rights to employees (including 2,923,235 Performance Rights to KMP) in respect of the LTI component of their FY19 remuneration. Key Management Person Balance at 1 July 2018 Granted in FY19 Converted Lapsed Balance at 30 June 2019 Vested & exercisable at 30 June 2019 Luke Tonkin David Berg Diniz Cardoso Steven Harvey 4,322,073 1,233,645 (2,243,883) (294,446) 3,017,389 773,225 722,484 548,968 (373,980) 573,844 (311,152) - 88,574 - (49,075) (40,830) - 899,138 944,346 88,574 859,899 171,079 183,299 - Antony Shepherd 708,775 478,204 (359,021) (47,112) 780,846 146,640 Total 6,526,557 2,923,235 (3,288,036) (431,463) 5,730,293 1,360,917 The total expense recognised in the Statement of Profit or Loss for all Executives’ Performance Rights for the period ended 30 June 2019 was $825,523. Details of the performance rights currently on issue are summarised in the following table: Number of performance rights Exercise price Grant date Vesting period ASX Comparator Group FY17 Award FY18 Award FY19 Award 1,627,8561 $0.00 1 July 2016 1,750,594 $0.00 1 July 2017 4,059,807 $0.00 1 July 2018 1 July 2016 –30 June 2019 1 July 2017 – 30 June 2020 1 July 2018 – 30 June 2021 EVN; GOR; IGO; KCN; MML; NST; OGC; RMS; RRL; SAR; SBM; TAM AQG; BDR; EVN; MML; MOY; NCM; NST; OGC; PRU; RMS; RRL; RSG; SAR; SBM; TRY; WGX AQG; DCN; EVN; MML; MOY; NCM; NST; OGC; PRU; RMS; RRL; RSG; SAR; SBM; WGX Valuation at grant date Underlying 20 day VWAP Volatility Risk free rate Expected dividends FY17 Award FY18 Award FY19 Award $0.247 $0.491 20% 1.52% - $0.257 $0.481 20% 1.94% - $0.439 $0.581 70% 2.07% - Note 1: On completion of the vesting period 83% of the FY17 Performance Rights (1,627,856 rights) had vested in accordance with the relative TSR hurdle attached to them. This included 1,360,917 rights awarded to KMP’s The fair value of the performance rights was measured using a hybrid employee share option pricing model (correlation simulation and Monte Carlo model) and was calculated by independent consultants. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 35 DIRECTORS’ REPORT e. Service agreements A summary of the key terms of service agreements for Executives in FY19 is set out below. There is no fixed term for Executive service agreements and all Executives are entitled to participate in the Company’s STI and LTI plans. The Company may terminate service agreements immediately for cause, in which case the Executive is not entitled to any payment other than the value of fixed remuneration and accrued leave entitlements up to the termination date. Name Luke Tonkin David Berg Diniz Cardoso Steven Harvey Antony Shepherd Term of Agreement Notice Period by Executive Notice Period by Silver Lake Termination Payment Open Open Open Open Open 6 months 6 months 6 months 9 weeks 3 months 6 months 6 months 6 months 12 months TFR 6 months TFR 6 months TFR 9 weeks As per Legislation 3 months 6 months TFR f. Executive remuneration paid Fixed Remuneration Variable Remuneration Salary & Fees Other Benefits1 Superannuation STI Cash Payments Options/ Rights2 $ $ $ $ $ Performance Related Remuneration % Total $ Executive Luke Tonkin Diniz Cardoso Year 2019 2018 2019 2018 683,123 647,981 304,265 286,707 Antony Shepherd 2019 245,789 David Berg Steve Harvey 2018 2019 2018 2019 2018 255,143 284,354 285,391 297,774 - 72,908 69,943 24,155 23,337 19,903 19,447 23,042 22,325 23,077 - 25,000 300,000 330,464 1,411,495 24,884 270,700 243,013 1,256,521 25,000 139,772 115,101 608,293 24,247 77,300 39,811 451,402 24,580 114,748 95,415 500,435 24,010 64,500 35,455 398,555 25,000 133,210 109,760 575,366 24,392 28,500 - 74,000 39,863 445,971 71,613 12,961 433,925 - - - Total 2019 1,815,305 163,085 128,080 759,343 663,701 3,529,514 2018 1,475,222 135,052 97,533 486,500 358,142 2,552,449 1Represents contractual entitlements (including termination and retirement benefits), annual leave and long service leave entitlements, measured on an accrual basis 2These are accounting adjustments and have not actually been paid during the year g. Link between company performance, shareholder wealth generation and remuneration The Nomination & Remuneration Committee considers a number of criteria to assess the performance of the Company. Criteria used in this assessment include maximising of cash flows, managing risk, using a stronger balance sheet to undertake cash accretive investments in core assets, execution of development projects, exploration success as well as the following metrics in respect of the current and previous financial years. Cash and bullion ($m) Profit/(loss) after tax ($m) Cash from operating activities ($m) Closing share price at 30 June *Includes impairments on inventories and other non-current assets 2019 130.7 6.5 71.8 $1.26 2018 105.7 16.2 80.8 $0.60 2017 2016 69.1 2.0 64.0 42.6 4.4 55.0 $0.47 $0.52 2015 28.9 (94.0)* 29.5 $0.14 The Company’s remuneration practices reflect the achievement of certain of the Company’s and KMP’s performance objectives. The Company’s overall objective has been to maximise cash flow, increase operating margins and crystallise value from its non-core assets. 36 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 45 41 42 26 24 25 42 26 19 - 40 33 DIRECTORS’ REPORT 6. F Y19 N O N-E X E C U T I V E D I R E C T O R (N E D) R E M U N E R AT I O N a. NED remuneration policy The Company’s policy is to remunerate NEDs at market rates (for comparable ASX listed companies) for time, commitment and responsibilities. Fees for NEDs are not linked to the performance of the Company. It is ensured that: a. fees paid to NEDs are within the aggregate amount approved by shareholders at the Company’s Annual General Meeting; b. NEDs are remunerated by way of fees (in the form of cash and superannuation benefits); c. NEDs are not provided with retirement benefits other than statutory superannuation entitlements; and d. NEDs are not entitled to participate in equity-based remuneration schemes designed for executives without due consideration and appropriate disclosure to the Company’s shareholders. Fees paid to NEDs cover all activities associated with their role on the Board and any sub-committees. No additional fees are paid to NEDs for being a Chair or Member of a sub-committee. However, NEDs are entitled to fees or other amounts as the Board determines where they perform special duties or otherwise perform extra services on behalf of the Company. They may also be reimbursed for out of pocket expenses incurred as a result of their Directorships. b. NED fee pool and fees The Company’s Constitution provides that the NEDs may collectively be paid, as remuneration for their services, a fixed sum not exceeding the aggregate maximum from time to time determined by the Company in a general meeting. Directors’ fees payable in aggregate to the NEDs of the Company is currently capped at $1,000,000 per annum. FY19 NED fees NED David Quinlivan Peter Alexander Les Davis Kelvin Flynn Leigh Junk3 Brian Kennedy4 Fees FY191 Fees FY181 Movement $173,750 $26,538 $115,000 $115,000 $26,538 $38,480 $173,750 - - Refer Note2 $115,000 $115,000 - - - Refer Note2 $115,000 - 1Fees excluding superannuation as at 30 June of each respective year 2Appointed to the Board on 5 April 2019 following the Company’s merger with Doray Minerals Limited 3Mr Junk resigned from the Board on 12 July 2019 4Mr Kennedy resigned from the Board on 23 October 2018 There were no changes to NED fees during the current financial year. Subsequent to year end, Mr Quinlivan’s fee increased to $200,000 per annum. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 37 DIRECTORS’ REPORT c. NED fees paid Details of the remuneration of each NED for the year ended 30 June 2019 is set out in the following table: Short Term Base Emolument $ Post-employment Superannuation benefits $ David Quinlivan 2019 Non-executive Chairman 2018 Peter Alexander Non-executive Director Les Davis Non-executive Director Kelvin Flynn Non-executive Director Leigh Junk Non-executive Director Brian Kennedy Non-executive Director Total 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 7. K M P S H A R E H O L D I N G S 173,750 173,750 26,538 - 115,000 115,000 115,000 115,000 26,538 - 38,480 115,000 495,306 518,750 16,506 16,506 2,521 - 10,925 10,925 10,925 10,925 2,521 - 3,656 10,925 47,054 49,281 Total $ 190,256 190,256 29,059 - 125,925 125,925 125,925 125,925 29,059 - 42,136 125,925 542,360 568,031 Balance at 1 July 2018 Acquired Other Conversion of Performance Rights Key Management Person David Quinlivan Luke Tonkin Peter Alexander1 Les Davis Kelvin Flynn Leigh Junk1 Brian Kennedy2 David Berg Diniz Cardoso Steven Harvey Antony Shepherd Total - 270,000 - 1,000,000 - - 4,790,746 10,416 500,000 - - 6,571,162 - - - - - - - - - - - - - - 18,165 - - 3,792,320 (4,790,746) - - - - Balance at 30 June 2019 - Sold - - 2,243,883 (1,055,766) 1,458,117 - - - - - 373,980 311,152 - - - - - - - - - 18,165 1,000,000 - 3,792,320 - 384,396 811,152 - 359,021 (168,000) 191,021 (980,261) 3,288,036 (1,223,766) 7,655,171 1Mr Alexander and Mr Junk were appointed to the Board on 5 April 2019 following the Company’s merger with Doray Minerals Limited. Shareholdings on the merger date are disclosed as “Other” in the table 2Mr Kennedy resigned from the Board on 23 October 2018. The balance disclosed as “Other” represents his final interest in the Company on this date A U D I T O R’S I N D E P E N D E N C E Section 307C of the Corporations Act 2001 requires Silver Lake’s auditors, KPMG, to provide the Directors with an Independence Declaration in relation to the audit of the financial report for the year ended 30 June 2019. This Independence Declaration is attached to the Directors’ Report and forms a part of the Directors’ Report. 38 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 DIRECTORS’ REPORT N O N-A U D I T S E R V I C E S During the year KPMG, the Group’s auditor, has performed certain other services in addition to the audit and review of the financial statements. The Board is satisfied that the provision of non-audit services is compatible with, and did not compromise the general standard of independence for auditors imposed by the Corporations Act 2001 for the following reasons: › › all non-audit services were subject to the corporate governance procedures adopted by the Group and have been reviewed by the Audit Committee to ensure they do not impact the integrity and objectivity of the auditor; and Directors’ Declaration the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they do not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Group, acting as an advocate for the Group or jointly sharing risk and rewards. 1. In the opinion of the Directors: a) the consolidated financial statements and notes of the Group and the Remuneration Report in the Details of the amounts paid to the auditor of the Group, KPMG, for audit and non-audit services provided during the year are set out below: Directors’ Report are in accordance with the Corporations Act 2001 including: i) Giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its performance for the year then ended; and Audit services ii) Complying with Australian Accounting Standards and Corporations Regulations 2001; Audit and review of financial statements 240,000 b) the financial statements also comply with International Financial Reporting Standards as disclosed 2019 $ 2,500 Other audit services in Note 1; Non-audit services c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when Taxation services they become due and payable; and 50,115 Accounting advisory services Total paid d) there are reasonable grounds to believe that the Company and the Group entity identified in Note 35 will be able to meet any obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee between the Company and that Group entity pursuant to ASIC Corporations (wholly owned companies) Instruments 2016/785. 307,615 15,000 2018 $ 112,824 2,500 28,129 - 143,453 R O U N D I N G O F F 2. This declaration has been made after receiving the declarations required to be made to the Directors in accordance with s295A of the Corporations Act 2001 from the Managing Director and Chief Financial Officer for the financial year ended 30 June 2019. The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 and in accordance with that Instrument, all financial information has been rounded off to the nearest thousand dollars, unless otherwise stated. The declaration is signed in accordance with a resolution of the Board of Directors. The Directors’ Report is signed in accordance with a resolution of the Directors. Luke Tonkin Luke Tonkin Managing Director Managing Director 27 August 2019 27 August 2019 28 | P a g e SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 39 DIRECTORS’ REPORT Directors’ Declaration 1. In the opinion of the Directors: DIRECTORS’ DECLARATION a) the consolidated financial statements and notes of the Group and the Remuneration Report in the Directors’ Report are in accordance with the Corporations Act 2001 including: i) Giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its performance for the year then ended; and ii) Complying with Australian Accounting Standards and Corporations Regulations 2001; In the opinion of the Directors: 1. a. b) the financial statements also comply with International Financial Reporting Standards as disclosed the consolidated financial statements and notes of the Group and the Remuneration Report in the Directors’ Report are in accordance with the Corporations Act 2001 including: in Note 1; i. c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when Giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its performance for the year then ended; and they become due and payable; and ii. Complying with Australian Accounting Standards and Corporations Regulations 2001; c. d) there are reasonable grounds to believe that the Company and the Group entity identified in Note the financial statements also comply with International Financial Reporting Standards as disclosed in Note 1; b. 35 will be able to meet any obligations or liabilities to which they are or may become subject to by there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due virtue of the Deed of Cross Guarantee between the Company and that Group entity pursuant to ASIC and payable; and Corporations (wholly owned companies) Instruments 2016/785. there are reasonable grounds to believe that the Company and the Group entity identified in Note 35 will be able to meet any obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee between the Company and that Group entity pursuant to ASIC Corporations (wholly owned companies) Instruments 2016/785. 2. This declaration has been made after receiving the declarations required to be made to the Directors in accordance with s295A of the Corporations Act 2001 from the Managing Director and Chief Financial Officer for the financial year ended 30 June 2019. 2. This declaration has been made after receiving the declarations required to be made to the Directors in accordance with s295A of the Corporations Act 2001 from the Managing Director and Chief Financial Officer for the financial year ended 30 June 2019. d. The declaration is signed in accordance with a resolution of the Board of Directors. The declaration is signed in accordance with a resolution of the Board of Directors. Luke Tonkin Luke Tonkin Managing Director Managing Director 27 August 2019 27 August 2019 28 | P a g e 40 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 AUDITOR’S INDEPENDENCE DECLARATION Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of Silver Lake Resources Limited I declare that, to the best of my knowledge and belief, in relation to the audit of Silver Lake Resources Limited for the financial year ended 30 June 2019 there have been: i. ii. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. KPMG Derek Meates Partner Perth 27 August 2019 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 41 Independent Auditor’s Report To the shareholders of Silver Lake Resources Limited Report on the audit of the Financial Report Opinion We have audited the Financial Report of Silver Lake Resources Limited (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including: • Giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its financial performance for the year ended on that date; and • Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion The Financial Report comprises: • Consolidated statement of financial position as at 30 June 2019 • Consolidated statement of profit or loss and other comprehensive income, Consolidated statement of changes in equity, and Consolidated statement of cash flows for the year then ended • Notes including a summary of significant accounting policies • Directors’ Declaration. The Group consists of the Company and the entities it controlled at the year-end or from time to time during the financial year. We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code. Key Audit Matters The Key Audit Matters we identified are: • • Acquisition of Doray Minerals Limited; and Value of Goodwill. Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current period. These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. 42 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 INDEPENDENT AUDIT REPORT Acquisition of Doray Minerals Limited ($260.615 million) Refer to Note 3 to the financial report The key audit matter How the matter was addressed in our audit The Group’s acquisition of Doray Minerals Limited (Doray) on 5 April 2019 for total consideration of $260.615 million represents a significant transaction for the Group. This was a key audit matter due to the: • • Size of the acquisition having a pervasive impact on the financial statements; and Significant judgements made by the Group relating to the purchase price allocation (PPA). The Group engaged an external expert to assist in performing a valuation report on the identification and measurement of acquired assets and liabilities. We focussed on the significant assumptions the Group applied in their assessment of the allocation of purchase consideration to property, plant and equipment, mineral interests, the rehabilitation provision and goodwill. For mineral interests significant assumptions applied in the determination of fair value included: • Forecast sales, production output, production costs and capital expenditure Forecast gold prices • • Discount rate • • Life of mineral reserves Resource multiples applied and resource conversion factors. For property, plant and equipment this included the methodology applied to each class of assets and the useful lives of assets acquired. For rehabilitation this included the quantum and expected timing of rehabilitation expenditure which is planned to occur several years into the future, and the associated inflation and discounting of costs in the present value calculation of the provision. The Group used external and internal experts when assessing their obligations for restoration and rehabilitation activities and associated estimates of future costs. Our procedures included: • We read the Scheme of Arrangement related to the acquisition to understand the structure, key terms and conditions, and nature of purchase consideration. Using this, we evaluated the accounting treatment of the purchase consideration and transaction costs against the criteria in the accounting standards. • We assessed the scope, competence and objectivity of the Group’s external expert involved in estimating the PPA. • We read the external valuation report and worked with our valuation specialists to assess and challenge the key assumptions used in the PPA. We challenged the Group’s approach and methodology to valuing the identified property, plant and equipment, mineral interest and goodwill by comparing to accepted industry practice and the requirements of the accounting standards. Valuation of mineral interest • We assessed key assumptions (including forecast sales, production output, production costs and capital expenditure) using Doray’s past performance, their underlying mine plans and our industry experience. • We compared forecast commodity prices to published views of market commentators on future trends. • Working with our valuation specialists, we independently developed a discount rate range considered comparable, using publicly available market data for comparable entities. • We assessed the scope, competence and objectivity of the Group’s external expert involved in the estimation process of mineral reserves. • We compared the life of mineral reserves in the valuation to the Reserves statement for consistency, in particular to application across production assumptions. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 43 INDEPENDENT AUDIT REPORT These conditions and associated complex acquisition accounting required significant audit effort and greater involvement by senior team members and our valuation specialists. • We assessed the reasonableness of resource multiples applied by comparing them to recent transactions. We compared the resource conversion factors to historical resource conversion. Valuation of property, plant and equipment • Working with our valuation specialists, we assessed the valuation methodologies applied to each class of property, plant and equipment, and assessed the useful lives of a sample of assets acquired, against Doray’s underlying mine plan and using our industry experience. Rehabilitation provision • • • • Assessed the scope, competence and objectivity of the Group’s external and internal experts involved in the estimation process. Evaluated the Group’s determination of future required activities, their timing and associated cost estimates by obtaining the latest third party expert reports as well as internal and external underlying documentation and comparing this to our understanding of Doray’s operations. Assessing the planned timing of restoration and rehabilitation activities through comparison to mine plans and reserve and resource statements. Compared inflation rate and discount rate assumptions in the Group’s provision determination to current market data, including economic forecasts. • We assessed the Group’s disclosures of the quantitative and qualitative considerations in relation to the business acquisition, by comparing these disclosures to our understanding of the acquisition and the requirements of the accounting standards. 44 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 INDEPENDENT AUDIT REPORT Value of Goodwill ($90.695 million) Refer to Note 3 and Note 18 to the financial report The key audit matter How the matter was addressed in our audit As disclosed in Note 3 to the financial report, the Group made a significant acquisition of Doray Minerals Limited (Doray) during the year which resulted in the recognition of $90.695 million of goodwill. Our procedures included: • We considered the appropriateness of the Group’s use of the fair value less costs of disposal methodology against the requirements in the accounting standards. A key audit matter for us was the Group’s testing of goodwill, given the size of the balance (being 16% of total assets). We focussed on the significant forward-looking assumptions the Group applied in their fair value less costs of disposal models, including: • Forecast sales, production output, production costs and capital expenditure Forecast gold prices • • Discount rate, and • Life of mineral reserves. The Doray acquisition also necessitated our consideration of the Group’s allocation of goodwill to the CGUs to which they belong based on the management and monitoring of the business and the requirements of the accounting standards. We involved valuation specialists to supplement our senior audit team members in assessing this key audit matter. • Using our valuation specialists, we assessed the integrity of the fair value less costs of disposal model used, including the accuracy of the underlying calculation formulas. • We evaluated the sensitivity of the valuation of goodwill by considering reasonably possible changes to the key assumptions, such as forecast gold prices, forecast production costs and the discount rate. We did this to identify those assumptions at higher risk of bias or inconsistency in application and to focus our further procedures. • We assessed the accuracy of previous Group budgets by comparing to actual results to determine the reasonability of forecasts incorporated in the model. We noted previous trends and evaluated their impact on current forecasts including sensitivities. • We compared the forecast cash flows contained in the fair value less costs of disposal models to Board approved forecasts. • We assessed key assumptions underlying the discounted cash flows in the fair value less costs of disposal methodology (including forecast sales, production output, production costs and capital expenditure) using our knowledge of the Group, their past performance, and our industry experience. • We compared forecast commodity prices to published views of market commentators on future trends. • We assessed the scope, competence and objectivity of the Group’s external expert involved in the estimation process of mineral reserves. • We compared the life of mineral reserves in the model to the Reserves statement for consistency, in particular to application across production assumptions. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 45 INDEPENDENT AUDIT REPORT • Working with our valuation specialists, we independently developed a discount rate range considered comparable, using publicly available market data for comparable entities. • We analysed the impact of the acquisition of Doray during the year on the Group’s internal reporting to assess the Group’s monitoring and management of activities, and the allocation of goodwill to CGUs. We also assessed the basis and methodology of allocating goodwill against the requirements of the accounting standards. • We assessed the disclosures in the financial report and against the requirements of the accounting standards. Other Information Other Information is financial and non-financial information in Silver Lake Resources Limited annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information. The Other Information we obtained prior to the date of this Auditor’s Report was the Director’s Report. The Chairman and Managing Director’s Report, Project Report, Exploration Report, Reserves & Resources report and ASX additional information are expected to be made available to us after the date of the Auditor’s Report. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: • • • Preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001. Implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. Assessing the Group and Company’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so. 46 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 INDEPENDENT AUDIT REPORT Auditor’s responsibilities for the audit of the Financial Report Our objective is: • • To obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and To issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf This description forms part of our Auditor’s Report. Report on the Remuneration Report Opinion Directors’ responsibilities In our opinion, the Remuneration Report of Silver Lake Resources Limited for the year ended 30 June 2019, complies with Section 300A of the Corporations Act 2001. The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibilities We have audited the Remuneration Report included in Directors’ report for the year ended 30 June 2019. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Derek Meates Partner Perth 27 August 2019 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 47 INDEPENDENT AUDIT REPORT CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Revenue Cost of sales Gross profit Other income Profit on sale of assets Exploration expensed Administrative expenses Results from operating activities Finance income Finance expenses Net finance costs Profit before income tax Income tax expense Profit for the year Total comprehensive profit for the year Basic profit per share Diluted profit per share 30 June 2019 $’000 301,514 (272,085) 29,429 - 153 (2,355) (18,643) 8,584 1,221 (3,305) (2,084) 6,500 - 6,500 30 June 2018 $’000 255,573 (225,863) 29,710 186 30 (2,663) (6,835) 20,428 580 (4,822) (4,242) 16,186 - 16,186 6,500 16,186 Cents Per Share Cents Per Share 1.12 1.11 3.21 3.16 Notes 4 5 15 6 8 9 10 10 The Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes to these consolidated financial statements. 48 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 FOR THE YEAR ENDED 30 JUNE 2019 CONSOLIDATED STATEMENT OF FINANCIAL POSITION A S AT 30 J U N E 2019 30 June 2019 $’000 125,073 4,497 49,661 630 30 June 2018 $’000 97,959 2,067 27,740 150 179,861 127,916 1,868 217,600 75,950 6,591 90,695 392,704 572,565 53,650 284 3,722 57,656 431 40,260 40,691 98,347 1,868 79,588 37,366 8,140 - 126,962 254,878 30,033 - 2,013 32,046 - 16,450 16,450 48,496 474,218 206,382 960,075 2,475 (488,332) 474,218 699,564 1,650 (494,832) 206,382 Notes 11 13 14 14 15 16 17 3,18 19 20 21 20 23 24 25 Current assets Cash and cash equivalents Trade and other receivables Inventories Prepayments Total current assets Non-current assets Inventories Exploration evaluation and development expenditure Property, plant and equipment Investments Goodwill Total non-current assets Total assets Current liabilities Trade and other payables Finance lease Employee benefits Total current liabilities Non-current liabilities Finance lease Rehabilitation and restoration provision Total non-current liabilities Total liabilities Net assets Equity Share capital Reserves Accumulated losses Total equity The Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes to these consolidated financial statements. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 49 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Share Capital Share Based Payment Reserve Accumulated Losses Balance at 1 July 2017 Notes $’000 699,564 $’000 1,220 $’000 (511,018) 189,766 Total Equity $’000 Total comprehensive profit for the year Transactions with owners, recorded directly in equity Equity settled share based payments 25 Balance at 30 June 2018 - - 699,564 - 16,186 16,186 430 1,650 - 430 (494,832) 206,382 Share Capital Share Based Payment Reserve Accumulated Losses Balance at 1 July 2018 Total comprehensive profit for the year Transactions with owners, recorded directly in equity Issue of securities (net of costs) Equity settled share based payments Balance at 30 June 2019 Notes 24 25 $’000 699,564 - 260,511 - 960,075 $’000 1,650 - - 825 2,475 Total Equity $’000 $’000 (494,832) 206,382 6,500 6,500 - - 260,511 825 (488,332) 474,218 The Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes to these consolidated financial statements. 50 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 FOR THE YEAR ENDED 30 JUNE 2019 CONSOLIDATED STATEMENT OF CASH FLOWS 30 June 2019 $’000 302,148 (230,318) 71,830 1,221 (8,084) 13,333 47 (2,906) 1,314 (49,605) (44,680) - (36) (36) 27,114 97,959 125,073 30 June 2018 $’000 262,950 (182,147) 80,803 580 (10,009) - 30 (498) 1,500 (33,440) (41,837) (2,125) (78) (2,203) 36,763 61,196 97,959 Notes 12 8 16 3 17 11 Cash flows from operating activities Receipts from sales Payments to suppliers and employees Net cash from operating activities Cash flow from investing activities Interest received Acquisition of plant and equipment Cash from acquisition of subsidiary Proceeds from sale of plant and equipment Acquisition of investments Proceeds from divestments Payments for exploration, evaluation and development Net cash used in investing activities Cash flows from financing activities Stamp duty paid Interest paid Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 1 July Cash and cash equivalents at 30 June The Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes to the consolidated financial statements. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 51 FOR THE YEAR ENDED 30 JUNE 2019 1. B A S I S O F P R E PA R AT I O N Silver Lake Resources Limited (“Silver Lake” or “the Company”) is a for profit entity domiciled in Australia. The consolidated financial statements of the Company as at and for the year ended 30 June 2019 comprise the Company and its subsidiaries (together referred to as “the Group” and individually as “Group Entities”). The consolidated financial statements were approved by the Board of Directors on 27 August 2019. The financial report is a general purpose financial report which: › › › has been prepared in accordance with Australian Accounting Standards (“AASBs”) (including Australian Accounting interpretations) adopted by the Australian Accounting Standards Board (“AASB”) and the Corporations Act 2001; complies with International Financial Reporting Standards (“IFRSs”) and interpretations adopted by the International Accounting Standards Board (“IASB”); has been presented on the historical cost basis except for the following items in the statement of financial position: » » » » » investments which have been measured at fair value. equity settled share based payment arrangements have been measured at fair value. inventories which have been measured at the lower of cost and net realisable value. exploration, evaluation and development assets which have been measured at recoverable value where impairments have been recognised assets and liabilities acquired as part of the merger with Doray Minerals Limited, which have been measured at fair value (refer Note 3). The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from contracts with customers from 1 July 2018 with neither standard having a material effect on the Group’s financial statements. Due to the transition methods chosen by the Group in applying these standards, comparative information has not been restated to reflect the requirements of the new standards. Other than the adoption of new standards, there have been no material changes to accounting policies for the periods presented in these consolidated financial statements. Significant accounting policies specific to one note are included in that note. Accounting policies determined non-significant are not included in the financial statements. The accounting policies have been applied consistently to all periods presented and by all Group entities. Certain comparative disclosures have been reclassified to conform to the current year’s presentation. The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 and in accordance with that Instrument, all financial information has been rounded off to the nearest thousand dollars, unless otherwise stated. A. F U N C T I O N A L A N D P R E S E N TAT I O N C U R R E N C Y These consolidated financial statements are prepared in Australian dollars, which is the functional currency of the Company and its subsidiaries. B. U S E O F J U D G E M E N T S A N D E S T I M AT E S The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities, income and expenses. Judgements and estimates which are material to the financial report are found in the following notes: › › › › › › › Note 3 Acquisition of Subsidiary – fair value of the consideration transferred, and fair value of the assets acquired and liabilities assumed, measured on a provisional basis Note 9 Income Tax – recognition of deferred tax assets Note 15 Exploration, evaluation and development expenditure carried forward – consideration of impairment triggers and recognition of impairment losses Note 15 Amortisation of development expenditure – estimation of future mineable inventory and future development expenditure when calculating units of production amortisation Note 15 Reserves and Resources – estimating reserves and resources Note 18 Impairment testing of goodwill – key assumptions underlying recoverable amounts Note 23 Closure and rehabilitation – measurement of provision based on key assumptions 52 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2019 C. B A S I S F O R C O N S O L I D AT I O N The consolidated financial statements comprise the financial statements of the Group. A list of controlled entities (subsidiaries) at year end is disclosed in Note 30. The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. D. M E A S U R E M E N T O F FA I R VA LU E A number of the Group’s accounting policies and disclosures require the determination of fair value for both financial and non-financial assets and liabilities. Fair Value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reflects its non-performance risk. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. When measuring the fair value of an asset or a liability, the Group uses observable market data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows: › › › Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) Level 3: inputs for the asset or liability that are not based on observable market data. If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. 2. S E G M E N T R E P O RT I N G The accounting policies used by the Company in reporting segments are in accordance with the measurement principles of the Australian Accounting Standards. Subsequent to the Company’s merger with Doray Minerals Limited on 5 April 2019, management has determined that the Group has the following reportable segments, namely: i. Mount Monger Operation ii. Deflector Operation The Group’s segments are both located in Western Australia, with the Mount Monger Operation producing gold bullion and Deflector producing gold bullion and gold-copper concentrate. Financial information for the reportable segments for the year ended 30 June 2019 is as follows: Revenues EBITDA (excluding significant items)1 Mount Monger Deflector3 Unallocated2 $’000 246,929 67,968 $’000 54,585 22,013 $’000 - (9,787) Total $’000 301,514 80,194 Capital expenditure 42,761 2,714 14,948 60,423 1A reconciliation between the statutory profit after tax and the Group’s EBITDA (excluding significant items) is tabled on page 23 2Unallocated items comprise exploration expenditure and corporate costs 3Deflector information reported is from the merger date of 5 April 2019 Comparative information for FY18 is not disclosed as the Group only had one reportable segment, the Mount Monger Operation. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 53 FOR THE YEAR ENDED 30 JUNE 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. A C Q U I S I T I O N O F S U B S I D I A RY On 5 April 2019 the Group obtained control of Doray Minerals Limited (“Doray”) by acquiring 100 percent of the shares and voting interests in that company. The merger created a new multi-asset, mid-tier gold producer with the financial strength to become a leading growth focused gold company. Since acquisition date, Doray contributed revenue of $54.585 million and profit after transaction costs of $1.359 million to the Group’s results. If the acquisition had occurred on 1 July 2018, management estimates that Doray would have contributed revenue of $170.114 million and profit after tax of $9.98 million to the Group’s annual results. In determining these amounts, management has assumed that the fair value adjustments, determined provisionally, that arose on the date of acquisition would have been the same if the acquisition had occurred on 1 July 2018. The Group incurred acquisition-related costs of $8.675 million on fees associated with the merger, including legal fees, estimated stamp duty and due diligence costs. These costs have been included in the Statement of Profit and Loss under administrative expenses. The following summarises the consideration transferred, and the fair value of assets and liabilities acquired at the acquisition date: Consideration transferred Equity Instruments Issued (310,209,934 fully paid ordinary shares) $’000 260,615 The fair value of the fully paid ordinary shares issued was based on the share price of the Company at 5 April 2019 of $0.84 per share, being the date of acquisition. Identifiable assets acquired and liabilities assumed Cash and cash equivalents Trade and other receivables Prepayments Inventories Property plant and equipment Exploration, evaluation and development expenditure Other assets Trade and other payables Employee provisions Interest bearing liabilities Rehabilitation provision Total net identifiable assets Goodwill recognised Total consideration transferred Fair value of identifiable net assets Goodwill Notes 16 15 23 $’000 13,333 2,677 763 15,629 42,205 136,359 357 (16,683) (1,004) (1,294) (22,422) 169,920 $’000 260,615 (169,920) 90,695 The value of assets acquired and liabilities assumed has been measured on a provisional basis. If new information is obtained within one year of the date of acquisition about facts and circumstances that existed at the date of acquisition, then the accounting for the acquisition will be revised. 54 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2019 A C C O U N T I N G P O L I C I E S Business combinations The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities. 4. R E V E N U E Revenue from contracts with customers Gold sales Copper Silver sales Total 30 June 2019 $’000 296,112 4,762 640 301,514 30 June 2018 $’000 254,662 - 911 255,573 Included in current year gold sales is 98,692 ounces of gold sold (at an average price of A$1,715/ounce) under various hedge programs. At 30 June 2019, the Company has a total of 141,350 ounces of gold left to be delivered under these programs over the next 2 years at an average price of A$1,768/ounce. A C C O U N T I N G P O L I C I E S Gold bullion sales The Group has applied AASB 15 Revenue from contracts with customers from 1 July 2018 with adoption of the standard not having a material effect on the Group’s financial statements. Due to the transition methods chosen by the Group in applying these standards, comparative information has not been restated to reflect the requirements of the new standards. Under AASB 15, revenue is recognised when a customer obtains control of the goods or services. Determining the timing of the transfer of control requires judgement. With the sale of gold bullion, this occurs when physical bullion, from a contracted sale, is transferred from the Company’s account into the account of the buyer. Revenue from the sale of goods is measured at the fair value of the consideration received or receivable. Revenue is recognised when the significant risk and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably and the amount of revenue can be measured reliably. Concentrate sales Under AASB 15, revenue is recognised upon receipt of the bill of lading when the concentrate is delivered for shipment. Contract terms for concentrate sales allow for a final price adjustment after the date of sale, based on average market prices and final assays in the period after the concentrate is sold. Average market prices are derived from independently published data with material adjustments between the provisional and final price separately disclosed as other revenue. This typically occurs between 60-80 days after the initial date of sale. Gold forward contracts The Group uses derivative financial instruments such as gold forward contracts to manage the risks associated with commodity price. The sale of gold under such hedge instruments is accounted for using the ‘own use exemption’ under AASB 9 Financial Instruments and as such all hedge revenue is recognised in the Statement of Profit or Loss and no fair value adjustments are subsequently made to sales yet to be delivered under the hedging program. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 55 FOR THE YEAR ENDED 30 JUNE 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 5. C O S T O F S A L E S Mining and processing costs Amortisation Depreciation Salaries and on-costs Royalties A C C O U N T I N G P O L I C I E S Mining and processing costs Notes 15 16 30 June 30 June 2019 $’000 169,590 48,996 11,657 31,169 10,673 272,085 2018 $’000 133,787 53,964 10,894 18,591 8,627 225,863 This includes all costs related to mining, milling and site administration, net of costs capitalised to mine development and production stripping. This category also includes movements in the cost of inventory and any net realisable value write downs. Amortisation The Group applies the units of production method for amortisation of its mine properties, which results in an amortisation charge proportional to the depletion of the anticipated remaining life of mine production. These calculations require the use of estimates and assumptions in relation to reserves and resources, metallurgy and the complexity of future capital development requirements. These estimates and assumptions are reviewed annually and changes to these estimates and assumptions may impact the amortisation charge in the Statement of Profit or Loss and asset carrying values. The Group uses ounces mined over mineable inventory as its basis for depletion of mine properties. In the absence of reserves, the Group believes this is the best measure as evidenced by historical conversion of resources to reserves. The Group applies applicable factoring rates when adopting the units of production method to reflect the risk of conversion from the inferred and indicated categories to mineable inventory. Depreciation Depreciation is calculated on either a reducing balance basis or on a straight-line basis over the estimated useful life of each part of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful life while processing plants are depreciated on the life of the mine basis. Capital work in progress is not depreciated until it is ready for use. Depreciation methods, useful lives and residual values are reassessed at each reporting date. The estimated useful lives for the current and comparative period are as follows: Buildings Haul roads Plant and equipment Office furniture and equipment Motor vehicles Capital work in progress is not depreciated until it is ready for use. Period 7-10 Years 3-5 Years 3-10 Years 3-15 Years 3-5 Years 56 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2019 6. A D M I N I S T R AT I O N E X P E N S E S Salaries and on-costs Consultants and contractors Professional fees Travel and accommodation Rental expense Business combination expense (Note 3) Share based payments Other corporate costs Total 7. P E R S O N N E L E X P E N S E S Wages and salaries Other associated personnel expenses Superannuation contributions Total 8. F I N A N C E I N C O M E A N D E X P E N S E S Interest income Finance income Change in fair value of listed investments (Note 17) Interest expense on interest bearing liabilities Finance costs Net finance costs A C C O U N T I N G P O L I C I E S 30 June 30 June 2019 $’000 5,695 1,389 612 99 371 8,676 825 976 18,643 2018 $’000 4,823 1,102 190 138 122 - 430 30 6,835 30 June 30 June 2019 $’000 33,497 1,466 2,924 37,887 2018 $’000 21,932 1,118 1,909 24,959 30 June 30 June 2019 $’000 1,221 1,221 (3,269) (36) (3,305) (2,084) 2018 $’000 580 580 (4,744) (78) (4,822) (4,242) Interest income comprises bank interest on funds invested and is recognised as it accrues, using the effective interest method. Finance expenses comprise interest expense on borrowings, unwinding of the discount on provisions and change in the value of investments measured at fair value through the profit and loss. All borrowing costs are recognised in the Statement of Profit or Loss using the effective interest method in the period in which they are incurred except borrowing costs that are directly attributable to the acquisition, construction and production of a qualifying asset that necessarily takes a substantial period to get ready for its intended use or sale. In this case, borrowing costs are capitalised as part of the qualifying asset. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 57 FOR THE YEAR ENDED 30 JUNE 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 9. TA X E S A. I N C O M E TA X Current tax expense Current income tax loss Adjustment for prior years Deferred income tax expense Origination and reversal of temporary differences Income tax expense reported in profit or loss Numerical reconciliation between tax expenses and pre-tax profit Profit before tax Income tax using the corporation tax rate of 30% Movement due to non-deductible items Adjustment for prior years Changes in unrecognised temporary differences Income tax expense reported in profit or loss B. D E F E R R E D TA X A S S E T S A N D L I A B I L I T I E S Deferred tax assets and liabilities are attributable to the following: Deferred tax assets/(liabilities) Receivables Inventories Exploration, evaluation and mining assets Property, plant and equipment Accrued expenses Provisions Share issue costs Tax losses Less deferred tax asset not recognised Net deferred tax assets 58 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 30 June 2019 $’000 - (50) (50) 50 - 30 June 2019 $’000 6,500 1,950 (4,221) (50) 2,321 - 30 June 2019 $’000 2,017 (3,419) (11,643) 4,819 975 12,291 3 162,235 167,278 (167,278) - 30 June 2018 $’000 (359) (5,504) (5,863) 5,863 - 30 June 2018 $’000 16,186 4,856 (1,141) (5,504) 1,789 - 30 June 2018 $’000 2,017 (1,732) 6,521 4,735 481 5,077 6 129,156 146,261 (146,261) - NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2019 A C C O U N T I N G P O L I C I E S Income tax Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Tax consolidation The Company and its wholly-owned entities are part of a tax-consolidated group. As a consequence, all members of the tax- consolidated group are taxed as a single entity (Silver Lake Resources Limited is the head entity within the tax-consolidation group). Current tax expense/benefit, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using the ‘separate taxpayer within the group’ approach by reference to the carrying amounts of assets and liabilities in the separate financial statements of each entity and the tax values applying under tax consolidation. Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses of the subsidiaries are assumed by the head entity in the tax-consolidated group and are recognised by the Company as amounts payable/(receivable) to/(from) other entities in the tax- consolidated group. Any differences between these amounts are recognised by the Company as an equity contribution or distribution. The Company recognises deferred tax assets arising from unused tax losses of the tax-consolidated group to the extent that it is probable that the future taxable profits of the tax-consolidated group will be available against which the asset can be utilised. Any subsequent period adjustments to deferred tax assets arising from unused tax losses as a result of revised assessments of the probability of recoverability is recognised by the head entity only. Tax losses At 30 June 2019 the Company has $540,784,000 (2018: $430,521,000 loss) of tax losses that are available for offset against future taxable profits of the Company. The Group has not recorded these carry forward tax losses that equate to an unrecognised deferred tax asset at 30 June 2019 of $162,000,000 (2018: $129,156,000). Tax losses carried forward include $62,320,000 of losses transferred into Silver Lake following the merger with Doray Minerals Limited. The rate at which these losses can be utilised by the Group is restricted by an available fraction, which is calculated by reference to the relevant market value of the Silver Lake and Doray tax consolidated groups. The potential benefit of carried forward tax losses will only be obtained if taxable profits are derived of a nature and, of an amount sufficient to enable the benefit from the deductions to be realised or the benefit can be utilised by the Group provided that: i. ii. the provisions of deductibility imposed by law are complied with; and no change in tax legislation adversely affects the realisation of the benefit from the deductions. In accordance with the Group’s accounting policies for deferred taxes, a deferred tax asset is recognised for unrecognised tax losses only if it is probable that future taxable profits will be available to utilise those losses. Determination of future taxable profits requires estimates and assumptions as to future events and circumstances, in particular, whether successful development and commercial exploitation, or alternatively sale, of the respective areas of interest will be achieved. This includes estimates and judgments about commodity prices, ore resources, exchange rates, future capital requirements, future operational performance and the timing of estimated cash flows. Changes in these estimates and assumptions could impact on the amount and probability of estimated taxable profits and accordingly the recoverability of deferred tax assets. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 59 FOR THE YEAR ENDED 30 JUNE 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 10. E A R N I N G S P E R S H A R E Profit used in calculating basic and diluted EPS Weighted average number of ordinary shares used in calculating basic earnings per share Effect of dilution Weighted average number of ordinary shares used in calculating diluted earnings per share 30 June 30 June 2019 $’000 6,500 2018 $’000 16,186 Number of Shares Number of shares 580,836,639 503,827,000 5,388,008 8,379,000 586,224,647 512,206,000 A C C O U N T I N G P O L I C I E S Basic EPS is calculated as profit attributable to ordinary shareholders of the Company divided by the weighted average number of ordinary shares. Diluted EPS is determined by adjusting the profit attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, including performance rights granted to employees. 11. C A S H A N D C A S H E Q U I VA L E N T S Cash at bank A C C O U N T I N G P O L I C I E S 30 June 2019 $’000 125,073 30 June 2018 $’000 97,959 Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less. The Group ensures that as far as possible it maintains excess cash and cash equivalents in short-term high interest bearing deposits. The Group’s exposure to interest rate risk and a sensitivity analysis of financial assets and liabilities are disclosed in Note 26. 60 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2019 12. RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES Cash flow from operating activities Profit after tax Adjustments for: Depreciation Amortisation Share based payments Write off of investment Net finance cost (Profit)/loss from the sale of non-current assets Operating profit before changes in working capital and provisions Change in trade and other receivables Change in inventories Change in prepayments and other assets Change in trade and other payables Change in other liabilities Total 13. T R A D E A N D O T H E R R E C E I VA B L E S Current Trade receivables GST receivable Provision for doubtful debts Total 30 June 2019 $’000 30 June 2018 $’000 6,500 16,186 11,657 48,996 825 38 2,084 (153) 69,947 247 (6,292) 284 7,433 211 71,830 30 June 2019 $’000 9,122 2,098 (6,723) 4,497 10,894 53,964 430 - 4,242 (30) 85,686 7,464 (8,803) (38) (2,922) (584) 80,803 30 June 2018 $’000 7,367 1,423 (6,723) 2,067 The Group’s exposure to interest rate risk and a sensitivity analysis of financial assets and liabilities are disclosed in Note 26. A C C O U N T I N G P O L I C I E S Trade receivables are recognised initially at the value of the invoice sent to the counterparty and subsequently at the amounts considered recoverable (amortised cost). Where there is evidence that the receivable is not recoverable, it is impaired with a corresponding change to the profit or loss statement. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 61 FOR THE YEAR ENDED 30 JUNE 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 14. I N V E N T O R I E S Current Materials and supplies Ore stocks Gold in circuit Concentrate on hand Bullion on hand Non-Current Ore stocks Total 30 June 2019 $’000 30 June 2018 $’000 11,398 28,115 3,192 1,302 5,654 49,661 1,868 51,529 5,780 9,214 5,114 - 7,632 27,740 1,868 29,608 At the reporting date the Group carried out an impairment review of inventory and assessed that all inventory was carried at the lower of cost and net realisable value and that no impairment was required. A C C O U N T I N G P O L I C I E S Inventory Ore stockpiles, concentrate on hand, gold in circuit and gold bullion are physically measured or estimated and valued at the lower of cost and net realisable value. The cost comprises direct materials, labour and transportation expenditure in bringing such inventories to their existing location and condition, together with an appropriate portion of fixed and variable overhead expenditure based on weighted cost incurred during the period in which such inventories were produced. Net realisable value is the estimated selling price in the ordinary course of business less estimated cost of completion and the estimated cost necessary to perform the sale. Inventories of consumable supplies and spare parts that are expected to be used in production are valued at cost. Obsolete or damaged inventories of such items are valued at net realisable value. Consumables and spare parts are valued at the lower of cost and net realisable value. Any provision for obsolescence is determined by reference to specific stock items identified. Bullion on hand Bullion on hand comprises gold that has been delivered to the Perth Mint prior to period end but which has not yet been delivered into a sale contract. 62 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2019 15. E X P LO R AT I O N, E VA LU AT I O N A N D D E V E LO P M E N T E X P E N D I T U R E During the year ended 30 June 2019 the Group incurred and capitalised the following on exploration, evaluation and development expenditure: Exploration and evaluation phase Cost brought forward Acquired in a business combination (Note 3) Expenditure during the year Transferred to development phase Expensed during period Balance at 30 June Development phase Cost brought forward Transfer from exploration and evaluation phase Expenditure during the year Transferred to production phase Balance at 30 June Production phase Cost brought forward Transfer from development phase Acquired in a business combination (Note 3) Expenditure during the year Rehabilitation provision adjustment Amortisation expense Balance at 30 June Total A C C O U N T I N G P O L I C I E S Exploration and evaluation expenditure 30 June 30 June 2019 $’000 17,263 24,687 11,476 - (2,355) 51,071 2018 $’000 15,018 - 7,642 (2,734) (2,663) 17,263 30 June 30 June 2019 $’000 10,004 - - (4,814) 5,190 2018 $’000 8,886 2,734 1,118 (2,734) 10,004 30 June 30 June 2019 $’000 52,321 4,814 111,672 40,863 665 (48,996) 161,339 217,600 2018 $’000 75,158 2,734 - 27,343 1,050 (53,964) 52,321 79,588 Exploration and evaluation expenditures are those expenditures incurred in connection with the exploration for and evaluation of minerals resources before the technical feasibility and commercial viability of extracting a mineral resource are demonstrable. Expenditure incurred on activities that precede exploration and evaluation of mineral resources, including all expenditure incurred prior to securing legal rights to explore an area, is expensed as incurred. Exploration and evaluation expenditure incurred is accumulated in respect of each identifiable area of interest. An ‘area of interest’ is an individual geological area which is considered to constitute a favourable environment for the presence of a mineral deposit or has been proved to contain such a deposit. These costs are carried forward only if they relate to an area of interest for which rights of tenure are current and in respect of which: › › such costs are expected to be recouped through successful development and exploitation or from sale of the area; and exploration and evaluation activities in the area have not, at balance date, reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable resources, and active and significant operations in, or relating to, this area are continuing. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 63 FOR THE YEAR ENDED 30 JUNE 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to the area of interest. If costs do not meet the criteria noted above, they are written off in full against the profit and loss statement. Exploration and evaluation assets are transferred to Development Phase assets once technical feasibility and commercial viability of an area of interest is demonstrable. Exploration and evaluation assets are tested for impairment, and any impairment loss is recognised, prior to being reclassified. Impairment testing of exploration and evaluation assets Exploration and evaluation assets are assessed for impairment if sufficient data exists to determine technical feasibility and commercial viability or facts and circumstances suggest that the carrying amount exceeds the recoverable amount. Exploration and evaluation assets are tested for impairment when any of the following facts and circumstances exist: › › › › the term of exploration licence in the specific area of interest has expired during the reporting period or will expire in the near future, and is not expected to be renewed; substantive expenditure on further exploration and evaluation of mineral resources in the specific area are not budgeted or planned; exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resource and the decision was made to discontinue such activities in the specific area; or sufficient data exists to indicate that, although development in the specific area of interest is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale. When a potential impairment is indicated, an assessment is performed for each cash generating unit which is no larger than the area of interest. Impairment testing of assets in the development or production phase The carrying amounts of assets in the development or production phase are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs of disposal (FVLCD). In assessing FVLCD, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”). An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the Statement of Profit or Loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro-rata basis. Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. An impairment loss in respect of goodwill is not reversed. Long term development and production phase assets that relate to unmined resources are assessed in light of current economic conditions. Assumptions on the economic returns on and timing of specific production options may impact on the timing of development of these assets. The carrying values of these assets are assessed where an indicator of impairment exists using a fair value less cost to sell technique. This is done based on implied market values against their existing resource and reserve base and an assessment on the likelihood of recoverability from the successful development or sale of the asset. The implied market values are calculated based on recent comparable transactions within Australia converted to a value per ounce. This is considered to be a Level 3 valuation technique. Exploration expenditure commitments Exploration expenditure commitments represent tenement rentals and minimum spend requirements that are required to be met under the relevant legislation should the Group wish to retain tenure on all its current tenements. Mine properties and mining assets Mine properties represent the acquisition cost and/or accumulated exploration, evaluation and development expenditure in respect of areas of interest in which mining has commenced. Mine development costs are deferred until commercial production commences. When commercial production is achieved mine development is transferred to mine properties, at which time it is amortised on a unit of production basis based on ounces mined over the total estimated resources related to this area of interest. Significant factors considered in determining the technical feasibility and commercial viability of the project are the completion of a feasibility study, the existence of sufficient resources to proceed with development and approval by the board of Directors to proceed with development of the project. Underground development expenditure incurred in respect of mine development after the commencement of production is carried forward as part of mine development only when substantial future economic benefits are expected, otherwise this expenditure is expensed as incurred. 64 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2019 Deferred stripping costs Stripping is the process of removing overburden and waste materials from surface mining operations to access the ore. Stripping costs are capitalised during the development of a mine and are subsequently amortised over the life of mine on a units of production basis, where the unit of account is ounces of gold mined. Stripping costs capitalised at year end are included in the Production phase in Note 15. Reserves and Resources Resources are estimates of the amount of gold product that can be economically extracted from the Group’s mine properties. In order to calculate resources, estimates and assumptions are required about a range of geological, technical and economic factors, including quantities, grades, production techniques, recovery rates, production costs, future capital requirements, short and long term commodity prices and exchange rates. Estimating the quantity and/or grade of resources requires the size, shape and depth of ore bodies to be determined by analysing geological data. This process may require complex and difficult geological judgments and calculations to interpret the data. The Group determines and reports ore resources under the Australian Code of Reporting for Mineral Resource and Ore Reserves (2004 and 2012), known as the JORC Code. The JORC Code requires the use of reasonable assumptions to calculate resources. Due to the fact that economic assumptions used to estimate resources change from period to period, and geological data is generated during the course of operations, estimates of resources may change from period to period. Changes in reported resources may affect the Group’s financial results and financial position in a number of ways, including: › › › › asset carrying values may be impacted due to changes in estimates of future cash flows amortisation charged in the Statement of Profit or Loss may change where such charges are calculated using the units of production basis decommissioning, site restoration and environmental provisions may change due to changes in estimated resources after expectations about the timing or costs of these activities change recognition of deferred tax assets, including tax losses. 16. P R O P E RT Y, P L A N T A N D E Q U I P M E N T Balance 1 July 2017 Additions Transfers Depreciation expense Balance 30 June 2018 Balance 1 July 2018 Additions Acquisition of subsidiary Transfers Depreciation expense Disposals At 30 June 2019 Note 5 3 5 Land & Building Plant & Equipment Capital Work In Total Progress $’000 1,512 - 1,524 (302) 2,734 2,734 - 8,013 2,124 (1,255) (23) 11,593 $’000 35,736 - 5,281 (10,592) 30,425 30,425 119 32,028 7,687 (10,402) (25) 59,832 $’000 1,003 10,009 (6,805) - 4,207 4,207 7,965 2,164 (9,811) - - 4,525 $’000 38,251 10,009 - (10,894) 37,366 37,366 8,084 42,205 - (11,657) (48) 75,950 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 65 FOR THE YEAR ENDED 30 JUNE 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS A C C O U N T I N G P O L I C I E S Items of plant and equipment are stated at their cost less accumulated depreciation and impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. 17. I N V E S T M E N T S Investments in listed entities – at fair value Movements as follows: Balance at 1 July Acquisitions Disposals Change in fair value Balance at 30 June A C C O U N T I N G P O L I C I E S 30 June 30 June 2019 $’000 6,591 8,140 2,906 (1,186) (3,269) 6,591 2018 $’000 8,140 12,386 498 - (4,744) 8,140 Financial assets at fair value through profit or loss Financial assets designated at fair value through profit or loss comprise investments in equity securities. A financial asset is classified at fair value through profit or loss if it is classified as held-for-trading or is designated as such on initial recognition. Financial assets are designated at fair value through profit or loss if the Group manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Group’s documented risk management or investment strategy. Attributable transaction costs are recognised in profit or loss as incurred. Financial assets are measured at fair value and changes are recognised in the profit or loss. The fair values of investments in equity securities are determined with reference to their quoted ASX closing price at balance date. 66 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2019 18. G O O D W I L L Goodwill of $90.695 million was recorded following the Company’s merger with Doray Minerals Limited on 5 April 2019 (refer Note 3). The goodwill was attributable to both financial synergies (as a result of the creation of a mid-tier gold company with two complementary gold camps increasing market presence and liquidity) and operating synergies (expected to be achieved from integrating Doray into the Group’s existing mining operations). Impairment testing As goodwill does not generate cash flows independently of other assets, its carrying value was apportioned to the Group’s two operating CGUs as part of the 30 June impairment testing review. The allocation was made based on the relative market values of the Silver Lake and Doray entities at the date of the merger as follows: › › Mount Monger Operation 68% ($61.673 m) Deflector Operation 32% ($29.022 m) In assessing whether each CGU (including its share of goodwill) has been impaired, its carrying amount is compared with its recoverable amount. In accordance with the Group’s accounting policy, recoverable amount is assessed as the higher of fair value less costs of disposal (FVLCD) and value in use. The Group has adopted FVLCD in its assessment, using discounted cash flows. The key assumptions in addition to the life of mine plans used in the discounted cash flow valuation are the gold price, the Australian dollar exchange rate against the US dollar and the discount rate. Gold price and AUD:USD exchange rate assumptions are estimated by management, with reference to external market forecasts, and updated at least annually. For this review, the forecast gold price was estimated at US$1,326–US$1,428/oz. and the forecast exchange rate of US$0.69 to US$0.75 per A$1.00, based on a forward curve over the life of the mines. Significant changes to either the forecast gold price or the forecast exchange rate may have an impact on the carrying value of the CGU in future periods. A discount rate of 8% was applied to the post tax cash flows expressed in nominal terms. The discount rate was derived from the Group’s post tax weighted average cost of capital (WACC), with appropriate adjustments made to reflect the risks specific to the CGU. The impairment testing carried out at 30 June 2019 using these assumptions resulted in a nil impairment charge. An impairment would be recognised against the Deflector Operation CGU if the consensus A$ Gold price decreased by 5% or life of mine costs increased by 5%. A C C O U N T I N G P O L I C I E S Goodwill arising on acquisition of subsidiaries is measured at cost less accumulated impairment losses. At each reporting date, the Group tests goodwill for impairment. Where the asset does not generate cash inflows independent from other assets and its value in use cannot be estimated to be close to its fair value, the asset is tested for impairment as part of the cash generating unit (CGU) to which it belongs. The Group considers each of its two segments (Mount Monger and Deflector) to be a separate CGU. If the carrying amount of an asset or CGU exceeds its recoverable amount, the carrying amount is reduced to the recoverable amount and an impairment loss recognised in the Statement of Profit or Loss. The recoverable amount of an asset or CGU is determined as the higher of its fair value less costs of disposal or value in use. 19. T R A D E A N D O T H E R PAYA B L E S Trade payables Other payables Total 30 June 30 June 2019 $’000 39,053 14,597 53,650 2018 $’000 26,426 3,607 30,033 The Group’s exposure to liquidity risk and a sensitivity analysis of financial assets and liabilities are disclosed in Note 26. A C C O U N T I N G P O L I C I E S Trade payables are recognised at the value of the invoice received from a supplier. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and generally paid between 30-45 days of recognition. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 67 FOR THE YEAR ENDED 30 JUNE 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 20. F I N A N C E L E A S E S Current Finance leases Non-current Finance leases Total 30 June 2019 $’000 30 June 2018 $’000 284 431 715 - - - A C C O U N T I N G P O L I C I E S Leases of fixed assets, where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership that is transferred to the Company, are classified as finance leases. Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred. Lease incentives under operating leases are recognised as a liability and amortised on a straight- line basis over the life of the lease term. 21. E M P LOY E E B E N E F I T S Current Liability for annual leave Liability for long service leave Total A C C O U N T I N G P O L I C I E S i. Defined Contribution Superannuation Funds 30 June 2019 $’000 2,872 850 3,722 30 June 2018 $’000 1,540 473 2,013 Obligations for contributions to defined contribution superannuation funds are recognised as an expense in profit or loss when they are incurred. ii. Other Long-Term Employee Benefits The Group’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods plus related on costs. The benefit is discounted to determine its present value using a discount rate that equals the yield at the reporting date on Australian corporate bonds that have maturity dates approximating the terms of the Group’s obligations. iii. Short-Term Benefits Liabilities for employee benefits for wages, salaries, annual leave and sick leave represent present obligations resulting from employees’ services provided to reporting date and are calculated at undiscounted amounts based on remuneration wage and salary rates that the Group expects to pay as at reporting date including related on-costs. 68 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2019 22. S H A R E B A S E D PAY M E N T S P E R F O R M A N C E R I G H T S (E Q U I T Y S E T T L E D) Performance rights have been issued to the Managing Director and other eligible employees in accordance with long term incentive plans approved by shareholders. Movements in performance rights are summarised as follows: Balance at 1 July 2018 Granted in FY19 Converted Lapsed Balance at 30 June 2019 Vested & exercisable at 30 June 2019 Total 8,379,331 4,059,807 (4,014,708) (986,173) 7,438,257 1,627,856 Details of the performance rights currently on issue are summarised in the following table: Number of performance rights Exercise price Grant date Vesting period ASX Comparator Group FY17 Award FY18 Award FY19 Award 1,627,8561 $0.00 1 July 2016 1,750,594 $0.00 1 July 2017 4,059,807 $0.00 1 July 2018 1 July 2016 – 30 June 2019 1 July 2017 – 30 June 2020 1 July 2018 – 30 June 2021 EVN; GOR; IGO; KCN; MML; NST; OGC; RMS; RRL; SAR; SBM; TAM AQG; BDR; EVN; MML; MOY; NCM; NST; OGC; PRU; RMS; RRL; RSG; SAR; SBM; TRY; WGX AQG; DCN; EVN; MML; MOY; NCM; NST; OGC; PRU; RMS; RRL; RSG; SAR; SBM; WGX Valuation at grant date Underlying 20 day VWAP Volatility Risk free rate Expected dividends FY17 Award FY18 Award FY19 Award $0.247 $0.491 20% 1.52% - $0.257 $0.481 20% 1.94% - $0.439 $0.581 70% 2.07% - Note 1: On completion of the vesting period 83% of the FY17 Performance Rights (1,627,856 rights) had vested in accordance with the relative TSR hurdle attached to them. This included 1,360,917 rights awarded to KMP’s. The fair value of the performance rights was measured using a hybrid employee share option pricing model (correlation simulation and Monte Carlo model) and was calculated by independent consultants. The total expense recognised in the Statement of Profit or Loss for all performance rights for the period ended 30 June 2019 was $825,000 (2018: $430,000). A C C O U N T I N G P O L I C I E S Share-based payment transactions The grant-date fair value of equity-settled share based payment awards granted to employees is generally recognised as an expense, with a corresponding increase in equity, over the vesting period of the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. For share based payment awards with non-vesting conditions, the grant-date fair value of the share- based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 69 FOR THE YEAR ENDED 30 JUNE 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 23. P R O V I S I O N S Closure and rehabilitation Opening balance at 1 July Provision acquired on acquisition of subsidiary (Note 3) Adjustment to provisions during the year Rehabilitation spend Closing balance at 30 June Current provision Non-current provision Closing balance at 30 June 30 June 2019 $’000 30 June 2018 $’000 16,450 22,422 1,388 - 40,260 - 40,260 40,260 16,122 - 1,050 (722) 16,450 - 16,450 16,450 At year end a review of the Group’s closure and rehabilitation provision was undertaken using updated cost assumptions and life of mine plans. As a result of this review the provision was increased by $1,388,000 (2018: $1,050,000). A C C O U N T I N G P O L I C I E S Provisions A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a discount rate that reflects current market assessments of the time value of money and, when appropriate, the risks specific to the liability. Closure and rehabilitation The mining, extraction and processing activities of the Group normally give rise to obligations for site closure or rehabilitation. The extent of work required, and the associated costs are dependent on the requirements of relevant authorities and the Group’s environmental policies. Provisions for the cost of each closure and rehabilitation program are recognised when the Group has a present obligation and it is probable that rehabilitation/restoration costs will be incurred at a future date, which generally arises at the time that environmental disturbance occurs. When the extent of disturbance increases over the life of an operation, the provision is increased accordingly. Costs included in the provision encompass all closure and rehabilitation activity expected to occur progressively over the life of the operation and at the time of closure, in connection with disturbances, as at the reporting date. The timing of the actual closure and rehabilitation expenditure is dependent upon a number of factors such as the life and nature of the asset, the operating licence conditions and the environment in which the mine operates. Expenditure may occur before and after closure and can continue for an extended period of time dependent on closure and rehabilitation requirements. Closure and rehabilitation provisions are measured at the expected value of future cash flows, discounted to their present value. Significant judgements and estimates are involved in forming expectations of future activities and the amount and timing of the associated cash flows. When provisions for closure and rehabilitation are initially recognised, to the extent that it is probable that future economic benefits associated with the rehabilitation, decommissioning and restoration expenditure will flow in the entity, the corresponding cost is capitalised as an asset. The capitalised cost of closure and rehabilitation activities is recognised in exploration evaluation and mine properties and is amortised accordingly. The value of the provision is progressively increased over time as the effect of discounting unwinds, creating an expense recognised in finance expenses. Closure and rehabilitation provisions are also adjusted for changes in estimates. Those adjustments are accounted for as a change in the corresponding capitalised cost, except where a reduction in the provision is greater than the unamortised capitalised cost of the related assets, where it is probable that future economic benefits will flow to the entity, in which case the capitalised cost is reduced to nil and the remaining adjustment is recognised in the Statement of Profit or Loss. 70 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2019 Adjustments to the estimated amount and timing of future closure and rehabilitation cash flows are a normal occurrence in light of the significant judgements and estimates involved. Factors influencing those changes include: › › › › › revisions to estimated reserves, resources and lives of operations; regulatory requirements and environmental management strategies; changes in the estimated costs of anticipated activities, including the effects of inflation and movements in foreign exchange rates; movements in interest rates affecting the discount rate applied; and the timing of cash flows. At each reporting date, the rehabilitation and restoration provision is remeasured to reflect any of these changes. 24. S H A R E C A P I TA L Movements in issued capital Balance as at 1 July 2017 Movement in the period* Balance as at 30 June 2018 Movement in the period* Issue of share capital (note 3) Costs associated with issue of shares Balance as at 30 June 2019 Number $’000 503,707,646 239,868 503,947,514 4,014,708 310,209,934 - 818,172,156 699,564 - 699,564 - 260,615 (104) 960,075 *Movement relates to the vesting of performance rights issued for nil consideration. A C C O U N T I N G P O L I C Y Issued capital 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. 25. R E S E R V E S Movement in share based payment reserve Balance as at 1 July Equity settled share based payment expense Balance as at 30 June 30 June 2019 $’000 1,650 825 2,475 30 June 2018 $’000 1,220 430 1,650 26. F I N A N C I A L R I S K M A N A G E M E N T A. O V E R V I E W This note presents information about the Group’s exposure to credit, liquidity and market risks, the objectives, policies and processes for measuring and managing risk, and the management of capital. The Board regularly reviews the use of derivatives and opportunities for their use within the Group. Exposure limits are reviewed by management on a continuous basis. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. The Board has overall responsibility for the establishment and oversight of the risk management framework. Management monitors and manages the financial risks relating to the operations of the Group through regular reviews of the risks. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 71 FOR THE YEAR ENDED 30 JUNE 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS B. C R E D I T R I S K Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group’s receivables from customers. Presently, the Group undertakes gold mining, exploration and evaluation activities exclusively in Australia. At the balance sheet date, there were no significant concentrations of credit risk. i. Cash and cash equivalents The Group limits its exposure to credit risk by only investing in liquid securities and only with major Australian financial institutions. ii. Trade and other receivables The Group’s trade and other receivables relate to gold and concentrate sales, GST refunds and rental income. At 30 June 2019, a provision for doubtful debts of $6,723,000 (2018: $6,723,000) has been recorded against rental income receivable as a result of a debtor being placed in liquidation in a prior year. This receivable is therefore not reflected in the trade and other receivables balance in Note 26(c). The Group has determined that its credit risk exposure on all other trade receivables is low, as customers are considered to be reliable and have short contractual payment terms. Management does not expect any of these counterparties to fail to meet their obligations. iii. Exposure to credit risk The carrying amount of the Group’s financial assets represents the maximum credit exposure. The Group’s maximum exposure to credit risk at the reporting date was: Trade and other receivables Cash and cash equivalents Total C. L I Q U I D I T Y R I S K Carrying Amount 2019 $’000 4,497 125,073 129,570 2018 $’000 2,067 97,959 100,026 Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group manages liquidity risk by maintaining adequate cash reserves from funds generated from operations and by continuously monitoring forecast and actual cash flows. To mitigate large fluctuations in the USD:AUD exchange rate as well as the USD denominated gold price, the Company has entered into hedging programmes whereby future bullion sales are hedged at a predetermined AUD gold price. At 30 June 2019, the Company has a total of 141,350 ounces to be delivered under these hedges over the next 24 months at an average of A$1,758/oz. The sale of gold under these hedges is accounted for using the ‘own use exemption’ under AASB 9 Financial Instruments and as such all hedge revenue is recognised in the Statement of Profit or Loss and no mark to market valuation is performed on undelivered ounces. The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements: Carrying Amount $’000 Contractual Cash Flows $’000 12 Months or Less $’000 > 12 Months $’000 53,650 715 54,365 30,033 30,033 53,650 759 54,409 30,033 30,033 53,650 355 54,005 30,033 30,033 - 404 404 - - 30 June 2019 Trade and other payables Finance leases Total Trade and other payables Total *The carrying value at balance date approximates fair value 72 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2019 D. M A R K E T R I S K Market risk is the risk that changes in market prices, such as commodity prices, foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, whilst optimising the return. i. Commodity risk The Group’s exposure to commodity price risk arises largely from Australian dollar gold price fluctuations. The Group’s exposure to movements in the gold price is managed through the use of Australian dollar gold forward contracts. The gold forward sale contracts do not meet the criteria of financial instruments for accounting purposes on the basis that they meet the normal purchase/sale exemption because physical gold will be delivered into the contract. Further information relating to these forward sale contracts is included in note 4. No sensitivity analysis is provided for these contracts as they are outside the scope of AASB 9 Financial Instruments. ii. Interest rate risk The Group is exposed to interest rate risk (primarily on its cash and cash equivalents and its interest-bearing liabilities), which is the risk that a financial instrument’s value will fluctuate as a result of changes in the market interest rates on interest-bearing financial instruments. The Group does not use derivatives to mitigate these exposures. Profile At the reporting date, the interest rate profile of the Group’s interest-bearing financial instruments was: Fixed rate instruments Finance leases Variable rate instruments Cash and cash equivalents Carrying Amount 2019 $’000 2018 $’000 715 - 125,073 97,959 Fair value sensitivity analysis for fixed rate instruments The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss. Therefore, a change in interest rates at the reporting date would not affect profit or loss. Cash flow sensitivity analysis for variable rate instruments A change of 100 basis points in interest rates at the reporting date would have increased/(decreased) equity and profit or loss after tax by $1,250,000 (2018: $980,000). This analysis assumes that all other variables remain constant. iii. Equity price risk Equity investments are long-term investments that have been classified as financial assets at fair value through profit or loss. E. FA I R VA LU E S The carrying value of cash and cash equivalents, trade and other receivables, trade and other payables and interest-bearing liabilities is considered to be a fair approximation of their fair values. The carrying amounts of equity investments are valued at year end at their quoted market price. F. C A P I TA L M A N A G E M E N T The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business through future exploration and development of its projects. There were no changes in the Group’s approach to capital management during the year. Risk management policies and procedures are established with regular monitoring and reporting. 27. C O M M I T M E N T S The Group has $5,137,000 (2018: $2,608,000) of commitments relating to minimum exploration expenditure on its various tenements and $5,440,000 (2018: $3,665,000) of capital commitments at 30 June 2019. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 73 FOR THE YEAR ENDED 30 JUNE 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 28. O P E R AT I N G L E A S E S The Company leases assets for operations including plant and office premises. The leases have an average life of 1 to 4 years. At 30 June 2019, the future minimum lease payments under non-cancellable leases were payable as follows. Less than one year Between one and five years 29. R E L AT E D PA RT I E S A. K E Y M A N A G E M E N T P E R S O N N E L C O M P E N S AT I O N Short-term employee benefits Post-employment benefits Other long-term benefits Total 30 June 2019 $’000 12,390 20,902 33,292 30 June 2019 $ 3,233,039 175,134 663,701 4,071,874 30 June 2018 $’000 8,570 6,500 15,070 30 June 2018 $ 2,615,524 146,814 358,142 3,120,480 B. I N D I V I D U A L D I R E C T O R S A N D E X E C U T I V E S’ C O M P E N S AT I O N D I S C LO S U R E S Information regarding individual Directors and Executive’s compensation and some equity instruments disclosures as permitted by Corporations Regulations 2M.3.03 is provided in the Remuneration Report section of the Directors’ Report. During the current period 2,923,235 performance rights were awarded to key management personnel. See Note 22 and the Remuneration Report for further details of these related party transactions. 74 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2019 30. G R O U P E N T I T I E S The Company controlled the following subsidiaries: Subsidiaries Silver Lake (Integra) Pty Ltd Backlode Pty Ltd Loded Pty Ltd Paylode Pty Ltd Cue Minerals Pty Ltd Great Southern Minerals Pty Ltd Silver Lake (Doray) Pty Ltd Doray Gold Operations Pty Ltd Andy Well Mining Pty Ltd Murchison Resources Pty Ltd Meehan Minerals Pty Ltd Silver Lake (Deflector) Pty Ltd MYG Tenement Holdings SPV Pty Ltd MYG Tenement Holdings Pty Ltd Brandy Hill Iron SPV Pty Ltd Brandy Hill Iron Pty Ltd Central Infrastructure SPV Pty Ltd Central Infrastructure Pty Ltd Deflector Gold SPV Pty Ltd Deflector Gold Pty Ltd Gullewa Gold Project SPV Pty Ltd Gullewa Gold Project Pty Ltd A C C O U N T I N G P O L I C I E S Subsidiaries Country of Incorporation Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 2019 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Ownership Interest 2018 100% 100% 100% 100% 100% 100% - - - - - - - - - - - - - - - - Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. 31. J O I N T O P E R AT I O N S As at 30 June, the Group has the following interests in unincorporated joint operations: Principal Group Interest Joint Operation Activities Joint Operation Parties Peter’s Dam Horse Well JV Exploration SLR/Rubicon Exploration SLR/Alloy Resources 2019 71.8% 49.0% 2018 71.3% - SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 75 FOR THE YEAR ENDED 30 JUNE 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS A C C O U N T I N G P O L I C I E S Joint Operation Arrangements The Group has investments in joint operations, but they are not separate legal entities. They are contractual arrangements between participants for the sharing of costs and outputs and do not in themselves generate revenue and profit. The joint operations are of the type where initially one party contributes tenements with the other party earning a specified percentage by funding exploration activities; thereafter the parties often share exploration and development costs and output in proportion to their ownership of joint operation assets. The joint operations do not hold any assets and accordingly the Group’s share of exploration evaluation and development expenditure is accounted for in accordance with the policy set out in Note 15. 32. A U D I T O R’S R E M U N E R AT I O N Audit services Audit and review of financial statements Other audit services Non-audit Services Taxation services Accounting advisory services Total 30 June 2019 $ 240,000 2,500 50,115 15,000 307,615 30 June 2018 $ 112,824 2,500 28,129 - 143,453 33. S U B S E Q U E N T E V E N T S In July 2019 the Company announced that it had entered into an off market takeover bid for Egan Street Resources Limited (EGA) pursuant to which Silver Lake will acquire all of the issued and outstanding ordinary shares of EGA. Under the terms of the takeover bid, each EGA shareholder will receive 0.27 Silver Lake shares for every EGA share held which on the announcement date implied a $52 million total transaction enterprise value. The EGA Board of Directors have recommended that their shareholders accept the offer in the absence of a superior proposal. Full details of the offer can be found in the ASX announcement “Silver Lake Recommended Takeover Offer for Egan” dated 30 July 2019. No other events have arisen in the interval between the end of the financial year and the date of this report of a material and unusual nature likely, in the opinion of the Directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years. 76 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2019 34. PA R E N T E N T I T Y As at, and throughout the financial year ended 30 June 2019, the parent company of the Group was Silver Lake Resources Limited. Results of the parent entity Profit/(loss) for the year Total comprehensive profit/(loss) for the year Financial position of parent entity at year end Current assets Total assets Current liabilities Total liabilities Total equity of the parent entity comprising of: Share capital Reserves Accumulated losses Total equity 30 June 2019 $’000 1,309 1,309 101,347 486,975 40,900 46,073 960,075 2,475 (521,648) 440,902 30 June 2018 $’000 (1,430) (1,430) 100,721 214,214 31,921 35,957 699,564 1,650 (522,957) 178,257 The parent entity has $2,569,000 (2018: $2,608,000) of commitments relating to minimum exploration expenditure on its various tenements and $4,800,000 (2018: $3,665,000) of capital commitments at financial year end. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 77 FOR THE YEAR ENDED 30 JUNE 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 35. D E E D O F C R O S S G U A R A N T E E The Company and its wholly owned subsidiary Silver Lake (Integra) Pty Ltd have entered into a Deed of Cross Guarantee under which each company guarantees the debts of the other. By entering into the Deed of Cross Guarantee, Silver Lake (Integra) Pty Ltd has been relieved from the Corporations Act 2001 requirement to prepare, audit and lodge a financial report and Directors’ report under ASIC Corporations (wholly owned companies) Instrument 2016/785. The summarised Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2019 along with the Consolidated Statement of Financial Position at 30 June 2019 for the members of the Deed of Cross Guarantee are disclosed in the tables below: Current assets Cash and cash equivalents Trade and other receivables Inventories Prepayments Total current assets Non-current assets Inventories Exploration evaluation and development expenditure Property, plant and equipment Intercompany receivables Investments Total non-current assets Total assets Current liabilities Trade and other payables Employee benefits Total current liabilities Non-current liabilities Rehabilitation and restoration provision Total non-current liabilities Total liabilities Net assets Equity Share capital Reserves Accumulated losses Total equity 78 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 30 June 2019 $’000 97,813 2,317 34,567 87 134,784 1,868 86,875 34,258 6,850 267,042 396,893 531,677 38,602 2,698 41,300 17,586 17,586 58,886 472,791 960,075 2,475 (489,759) 472,791 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2019 Revenue Cost of sales Gross profit Profit on sale of assets Exploration expensed Administrative expenses Results from operating activities Finance income Finance expenses Net finance costs Profit before income tax Income tax expense Profit for the year 30 June 2019 $’000 246,929 (223,594) 23,335 153 (2,355) (13,945) 7,188 1,168 (3,286) (2,118) 5,070 - 5,070 The Consolidated Statement of Profit or Loss and Other Comprehensive Income and Consolidated Statement of Changes in Equity for the year ended 30 June 2018 along with the Consolidated Statement of Financial Position at 30 June 2018 for the members of the Deed of Cross Guarantee are the same as that of the Group. 36. N E W A C C O U N T I N G S TA N D A R D S The Group has for the first time applied AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers with effect from 1 July 2018. Please refer to Note 4 in relation to the impact of adopting AASB 15 Revenue from Contracts with Customers. A A S B 9 F I N A N C I A L I N S T R U M E N T S AASB 9 Financial Instruments, replaces the existing guidance in AASB 139 Financial Instruments: Recognition and Measurement. AASB 9 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from AASB 139. The Group has assessed that the implementation of this standard does not have a material impact on the financial statements. The financial assets held by the group are detailed as follows: › › › Cash and cash equivalents Trade receivables currently held at cost, to be measured at amortised cost under the classification conditions for AASB 9 Investments in equity securities held at fair value through profit and loss The Group applies the simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets. There are no expected lifetime credit losses based on zero historical customer default. Therefore, there is no impact on transition to IFRS 9 for trade receivables. There will be no impact on the Group’s accounting for financial liabilities, as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss and the Group does not have any such liabilities. The new hedge accounting rules under AASB 9 have no impact as the Group is not currently hedge accounting. In accordance with the transition provisions in AASB 9, comparative figures have not been restated. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 79 FOR THE YEAR ENDED 30 JUNE 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS A A S B 16 L E A S E S (N O T Y E T A D O P T E D) AASB 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer (“lessee”) and the supplier (“lessor”). AASB 16 replaces the previous leases Standard, AASB 117 Leases, and related Interpretations. AASB 16 has one model for lessees which will result in almost all leases being included on the Statement of Financial Position. The lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. No significant changes have been included for lessors. The Group is not a lessor. The Group has assessed the estimated impact that initial application of AASB 16 will have on its consolidated financial statements which is described in more detail below. The actual impact of adopting the standard on 1 July 2019 may change because the new accounting policies are subject to change until the Group presents its first consolidated financial statements that include the date of initial application of AASB 16. Management has compiled a list of all potential leases across the Group and reviewed all related contracts in order to identify and account for all leases in terms of AASB 16 across the Group. The nature of expenses related to these leases will now change because the Group will recognise an amortisation and depreciation charge for the right-of-use assets and finance expense in respect of the lease liabilities once the standard is implemented. Previously, the Group recognised operating lease expenses on a straight-line basis over the term of the lease, and recognised assets and liabilities only to the extent that there was a timing difference between actual lease payments and the expense recognised. Based on the information currently available, the Group estimates that it will recognise right-of-use assets and additional lease liabilities in the range of $27 - $32 million at 1 July 2019. The Group plans to apply AASB 16 initially on 1 July 2019, using the modified retrospective approach. Therefore, the cumulative effect of adopting AASB 16 will be recognised as an adjustment to the opening balance of retained earnings at 1 July 2019, with no restatement of comparative information. The Group will elect to recognise the right-of-use assets at an amount equal to the lease liability at 1 July 2019 and plans to apply the following practical expedients for AASB 16: › › › Leases for which the underlying asset is of low value; Arrangements (including mining services contracts) that are subject to grandfathering provisions; and Short term leases. 80 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2019 C O R P O R AT E G O V E R N A N C E S TAT E M E N T The Company’s Corporate Governance Statement can be located on its website www.silverlakeresources.com.au S E C U R I T I E S At 11 September 2019 the Company had 818,940,113 fully paid ordinary shares and 6,374,172 performance rights on issue. D I S T R I B U T I O N O F H O L D E R S 1 1,001 5,001 10,001 100,001 - - - - - Total Holders 1,000 5,000 10,000 100,000 and over Fully Paid Options Rights Ordinary Shares Performance 2,249 5,096 2,276 3,466 388 13,475 - - - - - - - - - 3 8 11 900 holders held less than a marketable parcel (<$500) of fully paid shares. V O T I N G R I G H T S O F S E C U R I T I E S Subject to any rights or restrictions for the time being attached to any class or classes of Shares (at present there is only one class of Shares), at meetings of Shareholders of Silver Lake: a. b. c. each Shareholder entitled to vote in person or by proxy, attorney or representative; on a show of hands, every person present who is a Shareholder or a proxy, attorney or representative of a Shareholder has one vote; and on a poll, every person present who is a Shareholder or a proxy, attorney or representative of a Shareholder, in respect of each Share held by him or in respect of which he is appointed a proxy, attorney or representative, has one vote for the Share, but in respect of partly paid Shares, shall have such number of votes as bears the same proportion which the amount paid (not credited) is of the total amounts paid and payable (excluding amounts credited). Options and performance rights do not carry any voting rights. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 81 ASX ADDITIONAL INFORMATION S U B S TA N T I A L S H A R E H O L D E R S As at 11 September 2019 the substantial holders disclosed to the company were: Registered Holder Bank of New York Mellon SA/NV Beneficial Owner Number of Percentage of Shares Issued Shares Ruffer LLP (on behalf of CF Ruffer Gold Fund) 77,555,876 9.48% HSBC Nominees Aus Ltd; Citicorp Nominees Ltd; National Nominees Ltd; JP Morgan Nominees Aust Ltd Paradice Investment Management 56,538,472 6.91% HSBC Custody Nominees (Australia) Limited; Morgan Stanley Australia Securities (Nominee) Pty Limited; Citibank N A Hong Kong; JP Morgan Chase Bank NA; JPMorgan (UK); National Custodian Services Bank of New York Mellon as custodian for Van Eck Vectors Junior Gold Miners ETF Mitsubishi UFJ Financial Group 53,655,861 6.56% Van Eck Vectors Junior Gold Miners ETF (GDXJ) and Van Eck Vectors UCITS ETF (UCTGDXJ) 47,804,665 5.84% T O P 20 H O L D E R S O F Q U O T E D S E C U R I T I E S Holder Name Number Held Percentage HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED J P MORGAN NOMINEES AUSTRALIA PTY LIMITED CITICORP NOMINEES PTY LIMITED NATIONAL NOMINEES LIMITED 199,935,874 189,131,674 88,089,638 42,192,889 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED14,425,091 1. 2. 3. 4. 5. 6. 7. 8. 9. BNP PARIBAS NOMS PTY LTD BNP PARIBAS NOMINEES PTY LTD BRIKEN NOMINEES PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA 10. CS THIRD NOMINEES PTY LIMITED 11. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2 12. JOLEE CORPORATION PTY LTD 13. BNP PARIBAS NOMINEES PTY LTD 14. STL SUPER PTY LTD 15. HATHOR INVESTMENTS PTY LTD 16. NETWEALTH INVESTMENTS LIMITED 17. STONE PONEYS NOMINEES PTY LTD 18. PORTA GROUP PTY LTD 19. NATIONAL NOMINEES LIMITED 20. DR SHERIFF SELIM + MRS AMANI SELIM 82 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 24.41% 23.09% 10.76% 5.15% 1.76% 0.97% 0.79% 0.56% 0.55% 0.51% 0.49% 0.46% 0.28% 0.25% 0.18% 0.18% 0.17% 0.16% 0.16% 0.16% 7,978,715 6,486,184 4,599,891 4,517,663 4,179,969 4,028,572 3,751,688 2,280,697 2,031,600 1,500,000 1,473,403 1,400,000 1,350,000 1,347,810 1,306,537 582,007,895 71.07% ASX ADDITIONAL INFORMATION This page has been left blank intentionally. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 83 This page has been left blank intentionally. 84 | SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 This page has been left blank intentionally. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2019 | 85 Suite 4, Level 3 South Shore Centre 85 South Perth Esplanade South Perth WA 6151 www.silverlakeresources.com.au