Solaria Energía y Medio Ambiente
Annual Report 2017

Plain-text annual report

ABN: 38 108 779 7 82 A N N UA L R E P O R T F O R T H E Y E A R E N D E D 30 J U N E 20 17 20 17 Key Financial Points » Revenue of $227.5 million » Net profit after tax of $2.0 million » EBITDA (excluding significant items1) of $70.0 million » Fourth straight year of EBITDA margin growth » Cash flow from operations of $64.0 million » Cash and bullion at 30 June 2017 of $69.1 million » No bank debt 1 EBITDA (excluding significant items) is an unaudited, non IFRS measure Key Operational Points » Full year gold sales of 137,000 ounces at an average sale price of A$1,654/oz and an AISC of A$1,359/oz » Production focussed on core Mount Monger ore sources including Daisy Complex, Maxwells, Cock-eyed Bob, Majestic and stockpiles » Investment in exploration of $13.2 million » Successful exploration and development program is delivering significant returns and transitioning Mount Monger to longer life operations with increased production visibility » Operations commencing in FY2018 include: » Cock-eyed Bob Underground (re-commencing Q1 FY2018) » Harry’s Hill Open Pit (commencing Q4 FY2018) YEAR IN REVIEW F Y 20 17 Imperial/Majestic Randalls Mill Harry’s Hill Daisy Complex Maxwells Cock-eyed Bob 2 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 ANNUAL REPORTDELIVERING TODAY, DEVELOPING FOR TOMORROW AND DISCOVERING FOR THE FUTURE Produced ≈ 1 million ounces from Mount Monger over 10 years DELIVERING DEVELOPING DISCOVERING Providing production visibility from longer life mining centres Cash, bullion and listed investments ≈A$81 million FY2018 guidance 135koz - 145koz Successful sustain & growth exploration programs SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 3 ANNUAL REPORTCORPORATE DIRECTORY Directors David Quinlivan Non-executive Chairman Luke Tonkin Managing Director Les Davis Non-executive Director Kelvin Flynn Non-executive Director Brian Kennedy Non-executive Director Company Secretary David Berg Principal Office Suite 4, Level 3, South Shore Centre 85 South Perth Esplanade South Perth WA 6151 +61 8 6313 3800 +61 8 6313 3888 Tel: Fax: Email: contact@silverlakeresources.com.au Registered Office Suite 4, Level 3, South Shore Centre 85 South Perth Esplanade South Perth WA 6151 Share Register Security Transfer Australia Pty Ltd 770 Canning Highway Applecross WA 6153 Auditors KPMG 235 St George’s Terrace Perth WA 6000 Internet Address www.silverlakeresources.com.au ABN: 38 108 779 782 ASX Code: SLR 4 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 ANNUAL REPORT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 PAGE 6 8 13 18 24 43 44 45 50 51 52 53 54 81 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 5 ANNUAL REPORTDEAR FELLOW SHAREHOLDER, This year Silver Lake celebrates its 10-year anniversary, having produced more than 1 million ounces of gold. The journey over this time has included both highlights and challenges. One constant during this period however has been production from the Company’s core Mount Monger asset, which has repeatedly demonstrated its position as a highly endowed gold camp with numerous opportunities for growth and demonstrable cash generation. The industry is experiencing a better Australian dollar gold price with improving investor sentiment however the Company remains focused on its stated strategy, which has resulted in a financial turnaround driven by strong cashflow generation. Given the volatility of the A$ gold price the Company hedged an additional 80,000 ounces of gold for FY2019 and FY2020 production at an average forward price of A$1,720/oz, taking the total hedge book to 142,000 ounces at an average forward price of A$1,700/oz. The Board believes that it is prudent to capitalise on high and rarely sustained A$ gold prices to safeguard returns from capital investment in future projects such as those in the Aldiss area. improved production The strong balance sheet position and visibility places Silver Lake in a stronger operating and financial position. To build on this momentum, the Company has renewed its external focus, comparing organic growth potential and external opportunities. Operating and Financial Highlights Returning to the Company’s performance for the last year, we would like to highlight the following: » Gold refined and sold 137,000 ounces (up 3%) » Average realised gold price A$1,654/oz (up 5%) » All in sustaining cost of A$1,359/oz (up 6%) » Profit for the year of $2.0 million (down 54%) » EBITDA before significant items of $70.0 million (up 23%) » Cash flow from operations of $64.0 million (up 16%) » Year-end cash, bullion and investments of $81.5 million (up 72%) » No bank debt » 20% increase in Ore Reserves focused on shareholder In FY2017 the Company continued to deliver on its strategy of focusing its human and investment capital on the Mount Monger Camp to develop and mine lower cost production sources and undertake a significant exploration program return. Measures implemented to deliver consistent cash generative ounces, together with the restructuring of the cost base to match the mine profile, have proved successful and generated FY2017 gold sales of 137,000 ounces. This, together with a relatively strong gold price and proceeds from the sale of non-core assets boosted the cash and bullion position by 62% to $69.1 million. This strong operating position allows the Company to internally fund low capital intensity projects that will transition Mount Monger to longer life operations with increased production visibility. The significant investment in exploration over the last 2 years has allowed the Company to develop an aspirational production profile for the next 4 years. Along with the Majestic and Maxwells mines brought into production in FY2017, a further two mines will be brought into production in the coming year (Cock-eyed Bob and Harry’s Hill). Development of these mines is consistent with our strategy of introducing new, lower cost sources into the mine plan that have rapid development and production profiles given their proximity to existing infrastructure. The Mount Belches area will become an increasingly important part of the Mount Monger Camp with the two shallow, high grade underground Maxwells and Cock-eyed Bob mines remaining open along strike and at depth. The Aldiss centre will comprise multiple open pit mines, providing feed to the Randalls mill in FY2019, FY2020 and FY2021. The development of the Aldiss mining centre will diversify production across 4 geological centres within the Mount Monger Camp. In FY2017 the Company maintained its Mineral Resource balance at Mount Monger of 3.3 million ounces of gold and increased its Ore Reserve by 20% to 466,000 ounces, despite having mined 148,000 ounces during the year. It is important to note that Mount Monger has produced ≈ 1,000,000 ounces of gold over the last 10 years whilst never having more than a 3-4 year Reserve backed mine life, demonstrating the Company’s strong track record of replacing Reserve life. 6 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 CHAIRMAN & MANAGING DIRECTORS REPORTCore Asset Strategy The Company successfully executed key transactions as part of its strategy to crystallise value from its non-core assets, including: » Sale of the Tuckabianna processing facility and the Company’s interest in the Cue Project Joint Venture for a combined consideration of $10 million; and » Sale of the Great Southern Project for $5 million. Not only have these transactions strengthened the balance sheet, they also reduce the Company’s financial commitment in the Murchison and Great Southern, allowing Silver Lake to focus on its core operations. Outlook In FY2018, Silver Lake will take the next steps of transitioning the Mount Monger Camp towards longer life ore sources with higher operating margins. Accordingly, the Company has set the following key objectives for the next twelve months: » Achieve production of 135,000 to 145,000 ounces of gold » Pursue increased productivity and reduction in costs » Finalise development of the Cock-eyed Bob, Imperial and Maxwells mines within time and budget » Complete infrastructure required for the Company’s fourth mining centre - Aldiss » Target both sustaining and growth prospects within the Daisy Complex, Mount Belches and Aldiss areas to leverage off existing mine development and infrastructure 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. It is through their commitment that we have achieved this financial turnaround. 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 Luke Tonkin Managing Director Balance Sheet The Mount Monger Camp generated operating cash flows of $64 million in FY2017. This strong result, together with prudent cost and cash flow management and an appropriate gold hedging strategy has further strengthened the Company’s Balance Sheet. At 30 June 2017, the Company had no bank debt, held $69.1 million in cash and bullion and had liquid investments in ASX listed entities with a market value of $12.4 million. The increase in cash flow generation from Mount Monger allowed the Company to fund: » The FY2017 exploration program of $13.2 million; and » Development expenditure relating to the Imperial/Majestic and Maxwells projects totalling $18.5 million The strong cash position will allow the Company to internally fund the recommencement of the Cock-eyed Bob underground mine (maximum cash drawdown of $11 million) and development of the Aldiss mining centre (drawdown of $10.7 million) in FY2018. This drawdown will result in a slight decrease in the cash balance over the first half of FY2018, after which the Cock-eyed Bob mine is forecast to be cash-flow positive. Exploration The FY2017 exploration work programs completed by Silver Lake successfully extended and upgraded the gold Reserves at the current mining operations and advanced development projects with near- term open pit and underground mining potential. The exploration programs also confirmed the strong potential for new resource growth along the mineralised trends in the Daisy Complex and Mount Belches mining centres. Key exploration highlights included: » Resource upgrade and decision to recommence mining at Cock-eyed Bob » Significant extensions and upgrades to existing gold lodes in the Daisy Complex underground mine » Discovery of two new lodes at the Daisy Complex (Lode 56 and Lode 57) » New lodes identified north of the North Fault at the Daisy Complex, demonstrating the discovery potential of this large, inadequately tested area proximal to the current underground development » Step-out drilling from surface at Daisy North intersected a high-grade structure, confirming significant extensions to Daisy Complex lodes along one of the strong geochemical trends identified by the regional aircore drilling programs » Drilling at Santa supported the potential for a new underground mine. The successful exploration and development program has resulted in bringing new ore sources into the FY2017 production schedule including the Imperial/Majestic and Maxwells projects, both of which are expected to increase the Company’s margins over their life. Following on from this exploration success, a FY2018 exploration budget of $11.8 million has been approved by the Board. The exploration focus for FY2018 remains on gold within the three major mining centres (Daisy Complex, Mount Belches and Aldiss) with greater than two thirds of the total budget amount allocated to direct “in ground” drilling and assaying costs in these areas. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 7 CHAIRMAN & MANAGING DIRECTORS REPORT MOUNT MONGER – A FOCUSSED OPERATING STRATEGY Mining Centre Objective Target Daisy Complex Extension of defined and new lodes along strike to leverage off extensive underground infrastructure, step out drilling at Daisy North S E H C L E B T N U O M Maxwells Resource conversion, depth and strike extension of multiple lodes Cock-eyed Bob Increase drill intensity below 1218 (260m BGL) mining level to enhance ore body knowledge and long term potential at depth Maintain 3 year visibility + game-changing repeat systems Maintain 3 year reserve + production & increase life extension Maintain 3 year visibility + long term mine plan Imperial/Majestic Resource conversion and assessment of strike and underground potential Maintain 3 year visibility Aldiss Establish new mining centre, convert Resources and add to existing Resources Maintain 3 year visibility “Looking forward to FY2018, Silver Lake will take the next steps of transitioning the Mount Monger Camp towards longer life ore sources with increased visibility” 8 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 PROJECT REPORT MOUNT MONGER GOLD CAMP Kanowna Belle THE GOLDEN MILE Kalgoorlie Imperial Majestic Gold Reserves (koz): Gold Resources (koz): Reserve Grade (Au g/t): FY17A Au production (koz): FY18G Au production (koz): 57 218 3.2 54.6 56.8 40km I 0 20 Aldiss Gold Reserves (koz): Gold Resources (koz): Reserve Grade (Au g/t): FY17A Au production (koz): FY18G Au production (koz): 115 494 2.4 0 1.5 R A I L W A Y ! Imperial Majestic RAILWAY ! Fingals Daisy Milano ! Randalls Mill ! ! ! Santa ! Rumbles Maxwells Cock-eyed Bob ! ! Karonie ! Harrys Hill Randalls Mill Capacity (Mtpa): 1.3 FY17A 1.3 Mt 135.8 koz @ 93% recovery : : FY18G 1.3Mt 135koz - 145koz @ 92% recovery ! French Kiss Mount Belches Gold Reserves (koz): Gold Resources (koz): Reserve Grade (Au g/t): FY17A Au production (koz): FY18G Au production (koz): 152 1,149 5.3 26.4 41.3 Kambalda Daisy Complex Gold Reserves (koz): Gold Resources (koz): Reserve Grade (Au g/t): FY17A Au production (koz): FY18G Au production (koz): R A I L W A Y LOC_RegDiggersDealers_A4_201707_12_01.mxd 87 735 7.3 67.0 56.0 Figure 1: Mount Monger Gold Camp. » Located 50km southeast of Kalgoorlie, Western Australia » Mount Monger is a highly endowed gold camp with multiple mines and a history of replacing reserve life » Silver Lake has produced ≈1 million ounces from Mount Monger since FY2008 whilst never having more than a 3 - 4 year Reserve backed life of mine » Currently three established mining centres feeding the central 1.3Mtpa Randall’s mill » FY2017 gold sales 137koz » FY2018 guidance 135-145koz with increased contribution from high grade shallow underground mines (Maxwells, Cock-eyed Bob) » Four distinct geological districts host our mines » Interpretation of geological data and mine planning that honours the geology across the varying mining centres » Installed infrastructure provides significant leverage for exploration success » Continue to invest at Mount Monger to provide production visibility – FY2018 exploration expenditure ≈$12 million SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 9 PROJECT REPORT1. Daisy Complex Mining Centre Christmas Flats Dinnie Riggio Stanley Haoma Spinifex t f a h S n o i t a l i t n e V Western Make Rosemary Daisy Milano Costello Lorna Doone Haoma West Lower Prospect Current depth of mine development ~ 900 metres 0 500m Figure 2: Schematic view of Daisy Complex. » Located 19km from the Randalls Mill » Daisy Complex remains an asset of significant scale in its peer group » Reliable base load asset of the Mount Monger Camp » Life to date >800,000 ounces mined » Average annual production of 70koz at AISC of ≈A$1,050/oz since Silver Lake’s acquisition in FY2008 » 1,500 ounces per vertical metre mined since FY2009 » Proven mine planning and exploration methodology » Nature of the geology will limit “JORC” Reserves » Replace Reserve year on year » Exploration program has sustained profitable gold feed to the mill » Lode 56 discovered Q1 FY2017 » Multiple lodes located north of the North Fault » Highly prospective northern corridor near surface » Majority of strike exploration focused on shallow <200m drilling 10 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 PROJECT REPORT 2. Mount Belches Mining Centre Maxwells Underground Mine 0 100m N Maxwells Open Pit 1400 Elev 1400 Elev N 0 0 6 0 1 N 0 0 8 0 1 N 0 0 0 1 1 N 0 0 2 1 1 1200 Elev Lsec_Maxwells_A4_201704_25_01 LEGEND Actual Underground Development to June 2017 Planned Development and Stoping (July 2017 to June 2018) Planned Development and Stoping (July 2018 to June 2019) Current Pit Outline N N 0 Cartography : H.Tran 0 0 0 4 4 1 1 1 1 N 0 0 6 1 1 1200 Elev Figure 3: Maxwells Underground Mine showing development to date and planned areas of development and stoping. CEB Long Section 0 LEGEND June Quarter Drilling Results Previously Reported Drill Hole Intersection Current Underground Development CEB Lode Area 1.25m @ 2.58 g/t Au O P E N O P E N 200m N Surface 2.15m @ 11.82 g/t Au 0.75m @ 15.08 g/t Au OPEN 0.49m @ 10.20 g/t Au 1.0m @ 10.95 g/t Au 0.85m @ 4.89 g/t Au 4.2m @ 15.37 g/t Au 3.7m @ 7.90 g/t Au 1.15m @ 17.48 g/t Au LSec_CEB_A4_201707_05_01 2.35m @ 4.26 g/t Au 10.35m @ 11.17 g/t Au 0.75m @ 25.98 g/t Au Figure 4: Long section showing the Cock-eyed Bob underground project and drilling highlights. » The Mount Belches mining centre is located 18km from the Randalls Mill and currently comprises the Maxwells and Cock-eyed Bob underground mines » Targeting three underground mines producing >70,000 oz per annum » Maxwells - building output and bottom line contribution » Excellent discovery cost of A$13/oz » First underground production in Q2 FY2017 and 3-year Reserve backed outlook » Multiple high-grade gold lodes which remain open at depth and along strike » Cock-eyed Bob - delivering our strategy to maximise cashflow » Exploration program delivered a 30% increase in ounces and 38% grade uplift between the 1330 and 1218 levels following cessation of mining at the 1330 level in Q2 2017 » First development ore Q1 FY2018 with stoping to commence in Q3 FY2018 » Drilling intersected mineralisation below current mine plan potentially extends the life of mine » Santa Area - open pit mining activities completed in Q1 FY2017 with exploration drilling supporting the potential for a new underground mine SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 11 PROJECT REPORT 3. Imperial/Majestic Mining Centre » Located 33km north north-west of the Randalls Mill » Mining from the Majestic open pit commenced July 2016 and will continue until Q2 FY2018 » Ore production from the Imperial open pit is scheduled from Q2 FY2018 » Resource conversion providing opportunity for life of mine extension » FY2018 drilling below existing open pits to explore the potential for future underground mines 4. Aldiss Mining Centre 457543 461543 456139 457139 465543 458139 469543 459139 SEE INSET M28/0043 INSET Karonie South M28/0043 Karonie South Harry’s Hill Harry’s Hill L25/0046 L25/0055 M28/0208 0 2 8 6 6 5 6 0 2 8 5 6 5 6 0 2 8 4 6 5 6 0 2 8 3 6 5 6 Harry’s Hill L 2 5/0 0 4 6 5 5 0 5/0 2 L 456139 M28/0208 457139 458139 459139 Figure 5: Proposed Aldiss Mining Centre. » Located 57km from the Randalls Mill » Aldiss camp is host to ≈500,000 ounces L28/0055 » Multiple open pit ore sources and identified targets » Harry’s Hill, French Kiss, Karonie South, Spice, Tank, Atriedes, Main Zone » Targeting 130,000 – 150,000 ounces production over FY2019-FY2021 » Harry’s Hill construction scheduled to commence in December 2017 » Clearing and pre-strip Q4 FY2018 » Ore processing Q1 FY2019 » Mine ≈90,000 ounces @ 2.2g/t » French Kiss commencing Q3 FY2020 » Further Resource to Reserve conversion over the next 2 years French Kiss 0 4 9 7 6 5 6 0 4 9 3 6 5 6 0 4 9 9 5 5 6 0 4 9 5 5 5 6 0 4 9 1 5 5 6 0 4 9 7 4 5 6 12 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 ASX_LocHH_A4_201707_13_01 457543 461543 0 465543 2.5 5km 469543 M28/0171 M28/0289 0 4 9 7 6 5 6 0 4 9 3 6 5 6 0 2 8 6 6 5 6 0 2 8 5 6 5 6 0 2 8 4 6 5 6 0 4 9 9 5 5 6 0 2 8 3 6 5 6 0 2 8 2 6 5 6 0 4 9 5 5 5 6 0 4 9 1 5 5 6 0 4 9 7 4 5 6 0 4 9 3 4 5 6 PROJECT REPORT EXPLORATION Mount Monger Camp – FY2017 Highlights The FY2017 exploration work programs completed by Silver Lake successfully extended and upgraded the gold Reserves at the current mining operations, advanced development projects with near-term open pit and underground mining potential, and confirmed the strong potential for new resource growth along the mineralised trends in the Mount Monger and Mount Belches mining centres. Key exploration highlights (previously reported) included: » Resource upgrade and decision to recommence mining at Cock-eyed Bob » Significant extensions and upgrades to existing gold lodes in the Daisy Complex underground mine » Discovery of two new lodes at Daisy: Lode 56 and Lode 57 » New lodes identified north of the North Fault at the Daisy Complex, demonstrating the discovery potential of this large, inadequately tested area proximal to the current underground development » Drilling at Santa supported the potential for a new underground mine » Step-out drilling from surface at Daisy North intersected a high-grade structure, confirming extensions to Daisy Complex lodes along one of the strong geochemical trends identified by the regional aircore drilling programs 360000 YA R RI 380000 400000 420000 440000 460000 0 10 20km BULONG KALGOORLIE M O U N T M O N G E R Wombola Dam Croesus Pit LEGEND Daisy Area S Imperial Majestic E V I T S Randalls Mount Belches Aldiss Imperial Majestic TRANS ACCESS Daisy Complex Lorna Doone Spinifex Santa Rumbles Maxwells Salt Creek Randalls Mill Cockeyed Bob Lucky Bay Harrys Hill Karonie French Kiss 0 0 0 0 0 6 6 0 0 0 0 8 5 6 0 0 0 0 6 5 6 0 0 0 0 4 5 6 0 0 0 0 0 6 6 0 0 0 0 8 5 6 0 0 0 0 6 5 6 0 0 0 0 4 5 6 360000 380000 400000 420000 440000 460000 Figure 6: Mount Monger Camp regional location plan. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 13 EXPLORATION REPORT Cock-eyed Bob - Resource Development Drilling1 The Cock-eyed Bob (CEB) underground mine is on target to recommence mining development and production in Q1 FY2018. A multi- phase diamond drilling program was completed in FY2017, aiming to upgrade existing Inferred Resources to Indicated Resources, and target resource extensions. Diamond drilling targeted the high-grade shoots within the CEB lodes up to 200 metres below the current underground workings, aiming to generate sufficient economic mining blocks to justify a long-term mining plan. Strongly mineralised footwall and hanging wall intersections were characterised by abundant arsenopyrite, with multiple occurrences of visible gold in both lodes. Spectacular assays included 2.25 metres @ 30.06 g/t Au in CEBD068, and 10.85 metres @ 9.25 g/t Au in CEBD069. The exploration drilling programs have resulted in a significant increase and upgrade to the CEB Mineral Resource estimate, detailed in the ASX announcement released on 2 June 2017. CEB now hosts a Mineral Resource totalling 1.42 million tonnes at 5.8 g/t Au for a total of 266,000 ounces of gold, including 578,000 tonnes at 5.4 g/t Au for 100,000 ounces of gold in the Indicated category, representing 38% of the Total Mineral Resource. Category Measured Indicated Inferred Total Tonnes 123,000 578,000 723,000 1,424,000 Table 1 - CEB Resource April 2017 (2.0g/t Au Cut-off). Grade Contained Ounces 4.3 5.4 6.4 5.8 17,000 100,000 149,000 266,000 The significant increase in Mineral Resources is attributed to the higher grades within the three main CEB mineralised BIF units intersected by the recent drilling, which confirmed high-grade shoots extend at least 200 metres below the current underground workings. Additional underground diamond drilling program was completed subsequent to the April 2017 Mineral Resource upgrade. Twelve drill holes intersected the mineralised CEB banded iron formation units, demonstrating the potential for additional resource upgrades and extensions. Assay highlights included (Figure 4): » 4.2 metres at 15.37 g/t Au, » 3.7 metres at 7.90 g/t Au, » 10.4 metres at 11.17 g/t Au, and » 2.2 metres at 11.82 g/t Au. The CEB high-grade lodes remain open at depth and along strike to the north and south. These potential depth extensions and repetitions to the CEB deposit will be the target of ongoing exploration drilling programs once development and mining recommences in FY2018. 1 This information is extracted from the report entitled “June 2017 Quarterly Activities Report” released to the ASX on 21 July 2017 and available to view on www.silverlakeresources.com.au 14 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 EXPLORATION REPORTStanley (Lode 31) and Daisy North Exploration Target1 The Daisy North exploration target is located approximately 300 metres along strike to the north of the Daisy Complex mine workings, and is the direct strike extension of the Stanley Lodes in the Daisy mining area. Previous exploration drilling had identified a strong anomalous trend in the near surface aircore drilling, and the deeper down plunge mineralisation potential along this trend was confirmed by the surface diamond drilling in early FY2017. Diamond drilling confirmed the mineralised structures previously intersected in the target area, interpreted to be a significant step-out extension to the north from the Haoma and Stanley lodes in the Daisy Complex. Visible gold was logged in drill holes 17DNRD009 and 17DNRD014. The visible gold was associated with the sheared porphyry contacts and quartz veining with similar mineralisation style to the Daisy lodes. Assay highlights included (Figure 7): » 2.0 metres at 31.0 g/t Au, » 1.39 metres at 13.86 g/t Au, and » 1.0 metres at 33.54 g/t Au. These strong results demonstrate the strike continuity of high grade mineralisation between the Stanley lodes and the Caledonia exploration prospect to the north. In addition to the Daisy North surface drilling, a program of infill resource definition diamond drilling from underground was completed in the Stanley lodes during FY2017. The drilling successfully intersected the mineralised lode in all eight drill holes, including high grade mineralised quartz veins and visible gold in STA40037, STA40039 and STA40041, which intersected three separate veins with visible gold. Assay highlights included (Figure 7): » 2.0 metres at 21.95 g/t Au, » 0.2 metres at 35.9 g/t Au, » 0.29 metres at 98.5 g/t Au, and » 1.18 metres at 68.34 g/t Au. The success of the underground and surface diamond drilling into the Stanley and Daisy North lodes during FY2017 highlights the potential for near-term underground development along this zone, located proximal to the current Daisy mine workings, and adding a new mining front in the upper areas of the Daisy Complex mine. The FY2018 exploration budget includes infill and extensional drilling along the Stanley and Daisy North target zone. DAISY NORTH LONG SECTION 0 Elev 1 9 5 0 0 N Underground Development 1 9 7 5 0 N 2 0 0 0 0 N NSurface 0 Elev 0.87m @ 5.09 g/t Au 1.00m @ 4.59 g/t Au 2.0m @ 31.00 g/t Au -250 Elev DAISY NORTH EXPLORATION TARGET 1.39m @ 13.86 g/t Au -250 Elev STANLEY LODE 1.0m @ 33.54 g/t Au T L U A F H T R O N 1.0m @ 1.22 g/t Au O P E N 0.20m @ 1.19 g/t Au N E P O Assays Pending 0.29m @ 98.50 g/t Au and 1.18m @ 68.34 g/t Au 0 125m -500 Elev LSec_DaisyN_WM_201707_02_01 N 0 0 5 9 1 2.05m @ 5.13 g/t Au 2.0m @ 21.95 g/t Au N 0 5 7 9 1 Figure 7: Long section showing Stanley Lode and Daisy North exploration drilling target area. 0.30m @ 3.03 g/t Au 0.25m @ 2.77 g/t Au 0.2m @ 35.90 g/t Au Legend ! June Quarter Drilling Results ! Previously Reported Drilling Intersection Stanley Lode Area N 0 0 0 0 2 -500 Elev TRAN 1 This information is extracted from the report entitled “June 2017 Quarterly Activities Report” released to the ASX on 21 July 2017 and available to view on www.silverlakeresources.com.au SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 15 EXPLORATION REPORT Mount Monger Regional Exploration - Aircore Drilling Program2 A core component of the FY2017 exploration strategy is surface exploration drilling in the Daisy Complex area, focussing on discovery of new gold deposits and growth of the known resource zones. This exploration is drill testing highly prospective, near-term gold targets at Mount Monger, proximal to existing mine and processing infrastructure. Exploration targets are within known gold deposit trends that were identified by geological studies, and have been validated by the aircore and follow-up RC and diamond drilling exploration programs. Target zones are hosted by extensions to existing mineralised structures within preferential stratigraphic units, supported by broad spaced historical drilling results, surface geochemical anomalies and magnetic trends. The current surface exploration aircore drilling program extends and infills the strong gold trends highlighted by the FY2016 and FY2017 program with close-spaced drill holes along drill lines designed to intersect the quartz vein structures, bedrock alteration and geochemical traces of Daisy-style high grade lodes. Aircore drill holes completed in FY2017 that intersected the gold trends have logged zones of broad haematite alteration in the oxide horizon, and vein quartz with sericite–albite alteration in the fresh rock. Encouraging assay results have been returned, highlighted by 3.0 metres at 5,678 ppb Au in 17MMAC170 and 3.0 metres at 2,428 ppb Au in 17MMAC076. The aircore drilling results have continued to demonstrate the success of the regional surface exploration targeting strategy implemented by the Company in FY2017. Several highly anomalous gold trends have been identified. Initial RC drilling along the Lorna North trend was completed in FY2017. The Lorna North gold trend is located immediately north of the Lorna Doone and Spinifex deposits. RC drill holes tested the potential for oxide resources over 550 metres strike length along the gold trend. 15 significant gold intersections were returned with gold grades greater than 1 g/t, with best results highlighted by (Figure 8): » 6 metres @ 2.66 g/t Au in 17LNRC015, and » 2 metres @ 3.33g/t Au in 17LNRC005. Compilation and analysis of the Lorna North RC results is continuing. Follow up RC and diamond drilling work programs will target the Leslie West and other priority aircore drilling gold trends during FY2018. Figure 8: Plan showing the Lorna North gold trend with RC drilling highlights. 2 This information is extracted from the report entitled “March 2017 Quarterly Activities Report” released to the ASX on 21 April 2017 and available to view on www.silverlakeresources.com.au 16 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 EXPLORATION REPORTMount Monger Camp – FY2018 Exploration Strategy Following the completion of the FY2017 exploration work programs, the Silver Lake exploration team has compiled and updated the detailed geology and prospectivity of the Mount Monger Camp, building on the recent successful exploration results from the area. This review has confirmed highly prospective exploration targets. A comprehensive exploration strategy has been adopted and the Company has set the FY2018 exploration budget at A$12 million. Exploration continues to focus on the highest ranked gold targets proximal to existing mine and processing infrastructure. The FY2018 exploration strategy builds on the two core components of the successful FY2017 work programs: » Definition of new, high value resource ounces from near-mine exploration drilling » Resource development drilling – extending and converting ounces into the mine plan to replace depletion The exploration focus for FY2018 remains on gold at the Mount Monger Camp, targeting the Mount Monger, Mount Belches and Aldiss mining centres. The major components of the FY2018 Exploration budget include: » Near-term Resource Definition drilling to sustain Daisy Complex, Maxwells, CEB and Aldiss production » Strategic Project Development drilling to deliver potential new mining operations at Karonie, Karonie South and Imperial/Majestic underground » Exploration and resource growth work programs for longer-term production at Daisy Repeats and Daisy South, Mount Belches and Aldiss At least two thirds of the total exploration budget is allocated to direct “in ground” drilling and assaying costs. An experienced exploration team is in place with surface and underground drilling contractors mobilising to commence the planned exploration programme in Q1 FY2018. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 17 EXPLORATION REPORTCOMPANY SUMMARY AT 30 JUNE 2017 Total Mineral Resources are estimated at: 29.2 Mt @ 3.5 g/t Au for 3.35 Moz of contained gold, comprising: » Mount Monger Operation: 28.1 Mt @ 3.6 g/t Au for 3.29 Moz of contained gold » Murchison Operation: 1.0 Mt @ 1.9 g/t Au for 0.06 Moz of contained gold Total Ore Reserves are estimated at: 4.1 Mt @ 3.5 g/t Au for 0.47 Moz of contained gold, comprising: » Mount Monger Operation: 4.15 Mt @ 3.5 g/t Au for 0.47 Moz of contained gold MINERAL RESOURCE STATEMENT AS AT 30 JUNE 2017 The Company’s total Measured, Indicated and Inferred Mineral Resources as at 30 June 2017 are 29.2 million tonnes (Mt) @ 3.5 grams per tonne of gold (g/t Au) containing 3.35 million ounces of gold (Moz) (refer Tables 1, 2). The previous publicly reported estimate of Mineral Resources was 54.8 Mt @ 2.8 g/t Au containing 4.9 Moz of gold as at 30 June 2016. The Mineral Resources as at 30 June 2017 are estimated after including Silver Lake’s exploration success and allowing for mining depletion from the Mount Monger Operation, and the sale of the Great Southern and Tuckabianna mining tenements during the 2017 financial year. Measured Resources Indicated Resources Inferred Resources Total Resources June 2016 June 2017 Ore tonnes Grade g/t Total Oz Au Ore tonnes Grade g/t Total Oz Au 1,068,000 3.9 135,000 1,398,000 29,724,000 2.4 2,301,000 13,194,000 23,993,000 3.2 2,482,000 14,579,000 4.8 3.3 3.5 215,000 1,439,000 1,702,000 54,785,000 2.8 4,919,000 29,171,000 3.5 3,357,000 Table 1: Total Silver Lake Gold Mineral Resource as of 30 June 2017. 18 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 RESOURCES & RESERVES REPORT Measured Resources Indicated Resources Inferred Resources Total Resources Deposit Ore tonnes ‘000s Grade g/t Total Oz Au ‘000s Ore tonnes ‘000s Grade g/t Total Oz Au ‘000s Ore tonnes ‘000s Grade g/t Total Oz Au ‘000s Ore tonnes ‘000s Grade g/t Total Oz Au ‘000s Daisy Milano Complex 52 52.6 88 455 20.1 294 973 15.8 495 1,479 18.4 877 Fingals Costello Lorna Doone Magic/Mirror Wombola Pit Wombola Dam Hammer & Tap - - - - - - - - - 171 2.7 15 - 13 - - 3.2 - - 1 - 131 2.7 11 1,043 - 44 32 5 14 - 111 641 1,428 20 120 350 2.3 4.0 3.5 4.6 4.0 3.0 2.4 77 14 1,174 111 72 1,327 210 1,913 3 12 27 67 297 350 2.3 4.0 2.7 4.2 3.3 2.8 2.4 88 14 116 257 7 27 27 Total Daisy Area 236 13.7 104 1,795 400 4,686 6.0 910 6,718 6.5 1,414 - - 686 2.0 313 47 3.1 3.1 164 2.6 - - 6.9 2.0 3.9 Majestic Imperial Total Imperial/Majestic Maxwells Santa Area Cock-eyed Bob Lucky Bay Rumbles Anomaly A Randalls Dam Main Zone (Karonie) Harry's Hill French Kiss Spice Tank/Atriedes Italia/Argonaut Total Aldiss Total Stockpiles 377 2.9 35 1,263 - 377 99 - 254 13 - - - 2.9 6.6 4.5 4.6 - - - - 436 35 1,699 2.5 21 995 - 3,095 37 706 2 - - - 34 351 158 107 5.6 2.2 6.2 4.8 2.2 2.7 2.1 560 340 1.7 1.5 30 2,200 16 776 900 1.6 46 2,976 778 222 2,510 142 515 8 5.4 2.5 5.8 7.2 134 1,872 203 5,605 95 1,474 2 55 851 2.2 59 1,202 73 6 1.7 1.2 4 0 231 113 83 54 137 178 5 24 14 7 2.1 2.8 2.3 5.5 2.4 5.8 5.1 2.2 2.4 2.1 147 70 218 333 425 274 9 83 18 7 - - - - - - - - - - - - - - - 668 1,855 646 78 236 409 2.4 2.5 2.7 2.4 1.4 1.4 52 1,644 149 55 6 11 19 448 808 64 604 - 1.8 2.4 1.7 1.3 1.5 3,892 2.3 291 3,568 1.8 203 7,459 419 1.2 17 - - - - - - 419 93 2,311 1.9 34 2,303 2.5 45 1,454 3 29 - 142 840 409 2.1 1.9 1.5 1.4 2.1 1.2 145 183 100 9 39 19 494 17 Total Mount Belches 366 5.1 60 5,445 3.4 592 4,742 3.3 497 10,552 3.4 1,149 Total Mount Monger 1,398 4.8 215 12,832 3.4 1,420 13,895 3.7 1,657 28,124 3.6 3,292 Lena Leviticus Numbers Break of Day Total Moyagee Hollandaire Rapier South Total Eelya Total Murchison Total Silver Lake - - - - - - - - - - - - - - - - - - - - - - - - - - - 173 2.0 11 336 - - - - - - - - - 17 111 134 173 2.0 11 598 189 1.4 - 189 363 - 1.4 1.7 8 - 8 18 69 86 1.8 6.0 2.5 1.9 2.1 1.1 2.2 1.9 19 509 3 9 8 40 1 5 5 17 111 134 771 207 69 276 1.9 6.0 2.5 1.9 2.0 1.3 2.2 1.5 1.9 30 3 9 8 51 9 5 14 64 19 684 2.0 45 1,047 1,398 4.8 215 13,194 3.3 1,439 14,579 3.5 1,702 29,171 3.5 3,357 Table 2: Mount Monger Operation Gold Mineral Resource as at 30 June 2017. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 19 RESOURCES & RESERVES REPORTe r O e r O e r O t i n U l a t o T s 0 0 0 ‘ t n e m e r c n I e d a r G s e n n o t t i n U s 0 0 0 ‘ l a t o T s 0 0 0 ‘ t n e m e r c n I e d a r G s e n n o t t i n U s 0 0 0 ‘ l a t o T s 0 0 0 ‘ t n e m e r c n I e d a r G s e n n o t t i n U s 0 0 0 ‘ l a t o T s 0 0 0 ‘ t n e m e r c n I e d a r G e r O s e n n o t s 0 0 0 ‘ e r i a d n a l l o H - n o s i h c r u M s e c r u o s e R l a t o T s e c r u o s e R d e r r e f n I s e c r u o s e R d e t a c d n I i s e c r u o s e R d e r u s a e M 7 1 0 2 e n u J z o t 0 0 2 6 1 g A t / g u C % . 9 5 0 . 2 1 6 0 , 1 5 0 8 z o t 4 4 1 g A t / g u C % 7 . 4 4 . 1 1 9 2 9 4 z o t 6 5 1 5 1 g A t / g u C % 3 . 6 0 . 2 0 7 7 6 5 7 z o t - - - - - - - - . 7 1 0 2 e n u J 0 3 t a s a e c r u o s e R l a r e n M i r e v l i l S d n a s a t e M e s a B e k a L r e v l i S : l 3 e b a T r e v l i S r e p p o C 20 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 RESOURCES & RESERVES REPORT ORE RESERVES STATEMENT AS AT 30 JUNE 2017 The Company’s total Proved and Probable Gold Ore Reserve as at 30 June 2017 are 4.1 million tonnes (Mt) @ 3.5 grams per tonne of gold (g/t Au) containing 0.5 million ounces of gold (Moz) (refer tables 4, 5). The previous publicly reported estimate of Gold Ore Reserves was 11.2 Mt @ 2.3 g/t Au containing 0.8 Moz of gold as at 30 June 2016. The Ore Reserves as at 30 June 2017 are estimated after including Silver Lake’s exploration success and allowing for mining depletion from the Mount Monger Operation, and the sale of the Great Southern and Tuckabianna mining tenements during the 2017 financial year. All Ore Reserves were estimated using a gold price of A$ 1,500 / oz, apart from the French Kiss, Cock-eyed Bob and Maxwells Ore Reserves using A$1,600 / oz, and the Harry’s Hill Ore Reserve using A$1,700 / oz. Proved Reserve Probable Reserve Total Reserves June 2016 Grade g/t Total Oz Au Ore tonnes June 2017 Grade g/t 2.1 2.3 2.3 52,000 518,000 779,000 3,629,000 830,000 4,147,000 2.3 3.7 3.5 Ore tonnes 764,000 10,401,000 11,165,000 Total Oz Au 38,000 429,000 466,000 Table 4: Total Silver Lake Gold Mineral Reserve as of 30 June 2017. June 2017 Proved Reserves Probable Reserves Total Reserves Daisy Milano Complex (UG) Mirror/Magic (UG) Total Daisy Majestic (OP) Imperial (OP) Total Imperial/Majestic Maxwells (UG) Santa Area (OP) Cock-eyed Bob (UG) Total Mount Belches Harry's Hill (OP) French Kiss (OP) Total Aldiss Total Stockpiles Total Mount Monger Operation Ore tonnes ‘000s Grade g/t Total Oz Au ‘000s Ore tonnes ‘000s Grade g/t Total Oz Au ‘000s Ore tonnes ‘000s Grade g/t Total Oz Au ‘000s 49 - 8.0 - 49 8.0 - - - - - - 47 5.2 - 2 50 - - - 419 518 - 4.5 5.1 - - - 1.2 2.3 13 - 13 - - - 8 - - 8 - - - 322 417 739 314 247 562 458 - 379 7.1 2.9 4.7 2.5 4.0 3.2 4.7 - 6.1 74 39 372 417 113 788 25 32 57 69 - 314 247 562 506 - 75 381 837 5.3 143 887 1,263 228 2.2 3.5 90 1,263 26 228 1,491 2.4 115 1,491 17 - - - 419 7.3 2.9 5.0 2.5 4.0 3.2 4.7 - 6.1 5.3 2.2 3.5 2.4 1.2 87 39 125 25 32 57 76 - 75 152 90 26 115 17 38 3,629 3.7 429 4,147 3.5 466 Table 5: Silver Lake Gold Ore Reserves as of 30 June 2017. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 21 RESOURCES & RESERVES REPORT t i n U l a t o T s 0 0 0 ‘ t n e m e r c n I e d a r G e r O s e n n o t s 0 0 0 ‘ t i n U l a t o T s 0 0 0 ‘ t n e m e r c n I e d a r G e r O s e n n o t s 0 0 0 ‘ t i n U l a t o T s 0 0 0 ‘ t n e m e r c n I e d a r G e r O s e n n o t s 0 0 0 ‘ s e v r e s e R l a t o T s e v r e s e R e b a b o r P l s e v r e s e R d e v o r P 7 1 0 2 e n u J z o t 1 6 6 g A t / g u C % 2 . 8 3 . 3 0 3 2 7 7 1 z o t 1 6 6 g A t / g u C % 2 . 8 3 . 3 0 3 2 7 7 1 z o t - - - - - - - - e r i a d n a l l o H - n o s i h c r u M r e v l i S r e p p o C . 7 1 0 2 e n u J 0 3 t a s a s e v r e s e R e r O r e v l i S d n a l a t e M e s a B e k a L r e v l i S : l 6 e b a T . l s t a F s a m t s i r h C d n a o g g e R e n n D i i i , t c e p s o r P r e w o L , t s e W a m o a H , a m o a H , o n a l i M y s a D i : s e n o z g n w o i l l o f e h t s e s i r p m o c ” x e p m o C y s a D l i “ e h T . 3 . i g n d n u o r o t e u d r u c c o y a m s a t o l t n i i s e c n a p e r c s D i . s e c n u o f o s d n a s u o h t d n a s e n n o t f o s d n a s u o h t o t d e d n u o r s i a t a D . 2 . s e v r e s e R e r O f i o e v s u c n l i d e t r o p e r e r a s e c r u o s e R l a r e n M i . 1 : 6 , 5 , 3 , 2 s e l b a T o t s e t o N 22 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 s e v r e s e R e r O d n a s e c r u o s e R l a r e n M i f o g n i t r o p e R r o f e d o C n a i l a r t s u A e h t f o n o i t i d E 2 1 0 2 e h t h t i w e c n a d r o c c a n i d e c u d o r p e r a s e t a m i t s e e v r e s e R e r O d n a e c r u o s e R l i a r e n M g n w o i l l o f e h T . 4 t o n e v a h d n a e d o C C R O J e h t f o n o i t i d e 4 0 0 2 e h t i l r e d n u d e s o c s d d n a d e r a p e r p t s r fi e r e w s e t a m i t s e e v r e s e R e r O d n a e c r u o s e R l i i a r e n M g n n a m e r e h T i . i s e d e r t r A / k n a T , i e c p S , i s s K h c n e r F . d e t r o p e r t s a l s a w t i i e c n s d e g n a h c y l l a i r e t a m t o n s a h n o i t a m r o n f i e h t t a h i t s s a b e h t n o e d o C C R O J 2 1 0 2 e h t h t i l w y p m o c o i t e c n s d e t a d p u n e e b , l l i ’ H s y r r a H i , ) e n o r a K ( e n o Z n a M s e b m u R l i , , y a B y k c u L , b o B d e y e - k c o C , a e r A a t n a S , s l l e w x a M , l a i r e p m I , , j l c i t s e a M m a D a o b m o W e n o o D a n r o L , , l x e p m o C y s a D i : ) e d o C C R O J 2 1 0 2 e h t ( ) e r i a d n a l l o H , l a y e E , e e g a y o M g n s i r p m o c ( i j t c e o r P n o s h c r u M e h i t m o r f s e v r e s e R e r O d n a s e c r u o s e R l i l a r e n M s a t e M e s a B d n a d o G o l t e t a e r l t a h t 6 d n a 5 , , 3 2 s e b a T n l i n o i t a m r o n f i e h T . 5 e h t n i y t i u q e l l i a d e t s e v d s a h e k a L r e v l i S , 7 1 0 2 e n u J 0 3 o t t n e u q e s b u S . 7 1 0 2 e n u J 0 3 t a s a s e v r e s e R e r O d n a s e c r u o s e R l i a r e n M e h t f o n o l i t r o p o r p e b a t u b i r t t a e k a L r e v l i S % 0 4 e h t s i j . t c e o r P n o s h c r u M i . l e v e l e t a r o p r o c e h t t a d n a l e v e l e t i s a t a d e t a v i t c a s o r t n o c l l a n r e t n i d n a s t n e m e g n a r r a e c n a n r e v o g o t j t c e b u s e r a d e t o u q s e t a m i t s e e v r e s e R e r O d n a e c r u o s e R l i a r e n M e h t t a h t s e r u s n e e k a L r e v l i S s l o r t n o C l a n r e t n I d n a e c n a n r e v o G e v r e s e R e r O d n a e c r u o s e R l a r e n i M d e fi i l a u q d n a t n e t e p m o c y h g h l i f o d e s i r p m o c s i i h c h w m a e t i w e v e r l i a c n h c e t a h g u o r h t t u o d e i r r a c e r a s t l u s e r d n a s e r u d e c o r p n o i t a m i t s e e v r e s e R e r O d n a e c r u o s e R l a r e n M i f o s w e v e r i l a n r e t n I h t i w e n i l n i s e t a m i t s e e v r e s e R e r O d n a e c r u o s e R l i a r e n M e h t o t n o l i t a e r n i k r o w e m a r f e c n a n r e v o g s t i d e s i l a n fi s a h y n a p m o C e h T . s e u s s i l a i r e t a m y n a d e fi i t n e d i t o n e v a h s w e v e r e s e h T i . i l s a n o s s e o r p f ’ s e v r e s e R e r O d n a s e c r u o s e R l , i a r e n M s t l u s e R n o i t a r o p x E l f o g n i t r o p e R r o f i e d o C n a s a a r t s u A l ‘ e h t h t i w e c n a d r o c c a n i i s s a b l a u n n a n a n o s e v r e s e R e r O d n a s e c r u o s e R l i a r e n M s t i s t r o p e r e k a L r e v l i S . i s s e n s u b s t i f o t c u d n o c e h t d n a g n n M i i f o e t u t i t s n I i l n a s a a r t s u A e h t f o s w o l l e F r o s r e b m e M e r a e k a L r e v l i S y b d e m a n s n o s r e P t n e t e p m o C . s e v r e s e R e r O f i o e v s u c n l i d e t o u q e r a s e c r u o s e R l i a r e n M n o . i t i d E 2 1 0 2 ) e d o C C R O J e h t ( d n a , n o p u d e s a b e r a s t n e m e t a t s s e v r e s e R e r O d n a s e c r u o s e R l i a r e n M e h T . e d o C C R O J e h t n i d e n fi e d s a s n o s r e P t n e t e p m o C s a y f i l a u q d n a s t s i t i n e c s o e G f o e t u t i t s n I n a i l a r t s u A e h t r o / d n a y g r u l l a t e M i s h t n i d e t n e s e r p s a , l e o h w a s a s t n e m e t a t s s e v r e s e R e r O d n a s e c r u o s e R l . i l a r e n M e h T w o e b d e m a n s n o s r e P t n e t e p m o C e h t y b d e r a p e r p n o i t a t n e m u c o d g n i t r o p p u s d n a n o i t a m r o n f i , t n e s e r p e r y l r i a f . y g r u l l a t e M d n a g n n M i i f o e t u t i t s n I i l n a s a a r t s u A e h T f o r e b m e m a s i o h w n o s r e P t n e t e p m o C a d r e h p e h S y n o n A y b d e v o r p p a n e e b e v a h t , t r o p e R l a u n n A RESOURCES & RESERVES REPORT COMPETENT PERSON’S STATEMENT The information in the Annual Report to which this statement is attached that relates to the Mineral Resources for the Daisy Milano Complex, and the Lorna Doone, Wombola Dam, Majestic, Imperial, Maxwells, Santa Area, Cock-eyed Bob, Lucky Bay, Rumbles, Main Zone (Karonie), Harry’s Hill, French Kiss, Spice, and Tank/Artredies deposits is based upon, and fairly represents, information compiled by Matthew Karl, a Competent Person who is a member of The Australasian Institute of Mining and Metallurgy. Mr Karl is a full-time employee of the Company. 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 underground Ore Reserves at the Daisy Milano Complex is based upon, and fairly represents, information compiled by Gavin Ward, a Competent Person who is a member of The Australasian Institute of Mining and Metallurgy. Mr Ward is a full-time employee of the Company. Mr Ward 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 Ward 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 at Majestic, Imperial, Harry’s Hill, French Kiss, Maxwells and Cock-eyed Bob is based upon, and fairly represents, 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. All other information in the Annual Report to which this statement is attached relating to Exploration Results, Mineral Resources and Ore Reserves is based on, and fairly represents 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. FORWARD LOOKING STATEMENTS 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 2017 23 RESOURCES & RESERVES REPORTThe directors submit their report for the year ended 30 June 2017. DIRECTORS The directors of the Company at any time during or since the end of the financial year are: David Quinlivan 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 a number of mining projects in various capacities. He has served as Chief Executive Officer of Sons of Gwalia Ltd (post appointment of administrators), Chief Operating Officer of Mount Gibson Iron Ltd, President and Chief Executive Officer of Alacer Gold Corporation and Chairman of Churchill Mining PLC. Mr Quinlivan has held no other Directorships in public listed companies in the last three years. Luke Tonkin 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 more recently 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. Les Davis 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 has held no other Directorships in public listed companies in the last three years. Kelvin Flynn B.Com, CA Non-executive Director Appointed 24 February 2016 Mr Flynn is a qualified Chartered Accountant with 26 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 Sirona Capital, which focusses 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 was also a Non-executive Director of Mutiny Gold Ltd from 31 March 2014 to 31 January 2015 until its successful merger with Doray Minerals Ltd. Brian Kennedy Cert Gen Eng Non-executive Director Appointed 20 April 2004 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 was a founding shareholder and Director of Reliance Mining Ltd, before its takeover by Consolidated Minerals Ltd. Mr Kennedy has held no other Directorships in public listed companies in the last three years. COMPANY SECRETARY David Berg LLB BComm (General Management) 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. 24 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 DIRECTORS’ REPORTCOMMITTEE MEMBERSHIP 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 Kelvin Flynn (Chairman) Les Davis David Quinlivan Term Full Year Full Year Full Year DIRECTORS’ MEETINGS Nomination & Remuneration Term Les Davis (Chairman) Brian Kennedy David Quinlivan Full Year Full Year Full Year The number of Directors meetings (including committee meetings) held during the year and the number of meetings attended by each Director are as follows: David Quinlivan Luke Tonkin Les Davis Kelvin Flynn Brian Kennedy Directors’ Meetings Audit Committee Nomination & Remuneration Committee A 10 10 10 10 9 B 10 10 10 10 10 A 2 - 2 2 - B 2 - 2 2 - A 2 - 2 - 2 B 2 - 2 - 2 A – Number of meetings attended B – Number of meetings held during the time the Director held office or was a member of the committee during the year DIRECTORS’ INTERESTS 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 David Quinlivan Luke Tonkin Les Davis Kelvin Flynn Brian Kennedy Fully Paid Ordinary Shares Unlisted Options Unlisted Performance Rights - - 1,000,000 - 4,790,746 - 2,000,000 - - - - 3,398,228 - - - SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 25 DIRECTORS’ REPORTPRINCIPAL ACTIVITIES The principal activities of the Group during the course of the financial year were gold mining and processing from the Mount Monger Camp, gold exploration and evaluation of projects. CORPORATE STRUCTURE Silver Lake is a company limited by shares and is domiciled and registered in Australia. OPERATING OVERVIEW Silver Lake is an all-Australian, ASX listed gold producing and exploration company operating in the Eastern Goldfields district of Western Australia. Silver Lake’s land position in Western Australia covers highly prospective, under explored tenements containing gold and silver. Group Financial Overview In FY2017 Silver Lake achieved its gold sales guidance and delivered on its strategy of focusing its human and investment capital on the Mount Monger Camp to develop lower cost production sources and undertake a significant exploration program focused on shareholder return. Measures implemented at Mount Monger to deliver consistent cash generative ounces, together with the restructuring of the cost base to match the mine profile, proved successful and generated FY2017 gold sales of 137,000 ounces (FY2016: 132,400 ounces). Non-core assets in the Murchison and Great Southern were divested, allowing Silver Lake to focus on high value exploration and development in the highly endowed Mount Monger Camp. A total of $18,527,000 was invested developing the Maxwells underground mine and Imperial/Majestic open pits, with $13,150,000 spent on exploration, all internally funded by cash reserves. The Group recorded a net profit after tax for the period of $2,032,000 (2016: profit of $4,413,000) and generated operating cash flow of $63,995,000 (2016: $54,992,000). A reconciliation between the statutory profit after tax and the Group’s underlying operating results is tabled on page 28. This reconciliation is an unaudited non-IFRS measure that, in the opinion of the Board, provides useful information to assess the operating performance of the Group. As noted in the table, the Group’s EBITDA (before significant items) was $70,008,000 for the period (2016: $56,749,000). The increase in EBITDA (excluding significant items) compared with the previous corresponding period is primarily due to: » a 3% increase in gold sales from the Mount Monger Camp (137,000 ounces compared with 132,400 ounces in FY2016) primarily due to an increase in open pit production following commencement of the Majestic open pit mine in FY2017 which contributed 54,606 ounces of gold in the period; » a 5% increase in throughput at the Randalls Mill (1.30mt processed compared with 1.24mt in FY2016); » a 5% increase in the average realised gold price (A$1,654/oz compared with A$1,580/oz). Overview of Operations Mount Monger Camp A number of new ore sources were introduced at the Mount Monger Camp in FY2017 including the Maxwells underground mine and Imperial/Majestic open pits, with mining activities also occurring at the Daisy Complex and Cock-eyed Bob (CEB) underground mines. Mining at the Santa Area open pits concluded in Q1 FY2017. In total, the mines contributed 1,306,508 tonnes of ore at 3.5g/t for 148,244 contained ounces. All processing occurred at the centralised Randalls Gold Processing Facility with 1,300,152 tonnes processed at a blended grade of 3.5g/t for 135,837 recovered ounces. Ore stockpiles at year end totalled 419,000 tonnes containing 17,000 ounces of gold. The FY2017 exploration work programs completed by Silver Lake successfully extended and upgraded the gold reserves at the current mining operations, advanced development projects with near-term open pit and underground mining potential, and confirmed the strong potential for new resource growth along the mineralised trends in the Daisy Complex and Mount Belches mining centres. Key exploration highlights included: » Resource upgrade and decision to recommence mining at Cock-eyed Bob » Significant extensions and upgrades to existing gold lodes in the Daisy Complex underground mine » Discovery of two new lodes at the Daisy Complex (Lode 56 and Lode 57) » New lodes identified north of the North Fault at the Daisy Complex, demonstrating the discovery potential of this large, inadequately tested area proximal to the current underground development » Drilling at Santa supported the potential for a new underground mine. Step-out drilling from surface at Daisy North intersected a high-grade structure, confirming significant extensions to Daisy Complex lodes along one of the strong geochemical trends identified by the regional aircore drilling programs. Mining and production statistics for the Mount Monger Camp for the year ended 30 June 2017 are detailed in Table 1 and Table 2. 26 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 DIRECTORS’ REPORTMurchison Operation In June 2017, the Company agreed to sell its Murchison assets to a wholly owned subsidiary of Westgold Resources Limited (ASX: WGX) for a total consideration of approximately $10 million. The sale assets comprised: » the Tuckabianna gold processing facility and underlying mining tenure (Tuckabianna Assets); and » the Company’s 40% joint venture interest in the Cue Joint Venture (JV Interest). The purchase price payable for the Tuckabianna Assets was a cash consideration of $6 million and 1,250,000 fully paid ordinary shares in Westgold. Completion of this part of the transaction occurred on 30 June 2017. The sale and purchase of the JV Interest was subject to the Company’s joint venture partner, Musgrave Minerals Limited (ASX:MGV), not exercising its pre-emptive right to purchase the JV Interest on equivalent terms. Subsequent to year end, Musgrave exercised the pre- emptive right and, as such, Silver Lake proceeded to complete the transaction with Musgrave on equivalent terms to those previously agreed with Westgold for a cash consideration of $1.5 million, with completion occurring in August 2017. The Company has now divested its entire interest in the Murchison region. Great Southern Project In July 2016 ACH Minerals Pty Ltd (“ACH”) exercised its option to purchase the Great Southern Project (“Project”) from Silver Lake for a cash consideration of $5 million. The acquisition covers Silver Lake’s entire tenure in the Great Southern, as well as all mining information, the Ravensthorpe Camp lease and freehold properties held by the Company in the region. Completion of the transaction and receipt of the proceeds occurred in August 2016. Gold Mining and Production Statistics Mount Monger - Mining Units FY2017 FY2016 Underground Ore mined Mined grade Contained gold in ore Open Pit Ore mined Mined grade Contained gold in ore Total ore mined Mined grade Contained gold in ore Table 1 Mount Monger - Processing Ore Milled Head grade Contained gold in ore Recovery Gold produced Gold sold Table 2 Tonnes g/t Au Oz Tonnes g/t Au Oz Tonnes g/t Au Oz Units Tonnes g/t Au Oz % Oz Oz 412,736 6.3 84,134 893,772 2.2 64,110 1,306,508 3.5 148,244 FY2017 1,300,152 3.5 145,661 93% 135,837 137,000 419,465 6.4 85,741 866,731 2.0 55,424 1,286,196 3.4 141,165 FY2016 1,236,600 3.5 137,605 95% 131,109 132,400 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 27 DIRECTORS’ REPORT Exploration During the year a total of $13.2 million was spent on exploration primarily on, or in close proximity to, the Daisy Complex and Mount Belches areas. The exploration was focused on highly prospective, near-term gold targets at Mount Monger, proximal to existing mine and processing infrastructure. Mount Monger is a highly endowed gold field with a large portfolio of exploration targets, which requires exploration expenditure be deployed efficiently and effectively. Accordingly, all exploration targets at Mount Monger are assessed and ranked according to their technical strengths, potential economic return, the probability that the target will become a production source and the priority given to the exploration target having regard to the Company’s operating strategy. Following on from the Company’s successful FY2017 exploration program, a FY2018 exploration budget of $11.8 million has been approved by the Board. The planned exploration continues the focus at the Mount Monger camp, including near-term resource definition and project development opportunities at the Daisy Complex, Maxwells and Cock-eyed Bob underground mines and the Imperial/Majestic and Aldiss mining centres, as well as regional exploration targets across the Daisy Complex and Mount Belches mining centres. STRATEGY The Group’s short to medium term strategy is to maximise cash flow and increase operating margins from its core Mount Monger Camp. This will be achieved by: » a relentless drive to reduce costs and increase productivity; » the introduction of new, lower cost ore sources into the production schedule and subsequent ramp up of production from the Cock-eyed Bob and Maxwells underground mines and the Imperial/Majestic and Aldiss open pits; » executing the exploration strategy by directing expenditure to highly prospective priority targets in the Mount Monger area. Key risks in being able to deliver on the Group’s strategy include: » price and demand for gold - it is difficult to accurately predict future dem 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 gold mining 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; and » exploration success – no assurance can be given that exploration expenditure will result in future profitable operating mines. REVIEW OF FINANCIAL CONDITION The Group recorded an after-tax profit for the financial period of $2,032,000 (2016: profit of $4,413,000). This profit includes a number of significant items that, in the opinion of the directors, need adjustment to enable shareholders to obtain an understanding of the results from operations. The Group’s earnings before interest, tax, depreciation and amortisation (EBITDA) excluding these significant items are outlined in the table below: Reconciliation of Statutory Profit after Tax to EBITDA (excluding significant items) - unaudited Statutory profit after tax for the year: Adjustments for: Depreciation and amortisation Non-current asset impairments Other EBITDA (excluding significant items) * * Non-IFRS measure 30 June 2017 $’000 30 June 2016 $’000 2,032 4,413 65,874 4,661 (2,559) 70,008 45,386 2,825 4,125 56,749 At the end of the financial year the Group had $61,196,000 in cash (2016: $38,643,000), $7,807,000 in gold bullion (2016: $3,836,000) and bonds receivable of $146,000 (2016: $146,000). In addition, the Group had $12,386,000 in ASX listed investments at year end (2016: $4,806,000). 28 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 DIRECTORS’ REPORT DIVIDENDS No dividend has been paid or declared by the Company up to the date of this report. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS There have been no material events that have occurred between the reporting date and the date of signing this report. LIKELY DEVELOPMENTS The Company will continue to pursue maximising free cashflow and increasing operating margins from its core Mount Monger Camp. This will include directing exploration expenditure to high impact, cash generating projects. ENVIRONMENTAL REGULATIONS AND PERFORMANCE 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 breach of those environmental requirements. EMPLOYEES The consolidated entity had 152 employees as at 30 June 2017 (2016: 159). In addition, Silver Lake also engages contractors and consultants as required. INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS 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 conduct involving a lack of good faith. 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. PROCEEDINGS ON BEHALF OF THE COMPANY 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. CORPORATE GOVERNANCE In recognising the need for appropriate standards of corporate behavior 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. SUBSEQUENT EVENTS There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event 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 2017 29 DIRECTORS’ REPORTREMUNERATION REPORT - AUDITED This report outlines the remuneration arrangements in place for both Executives and Non-executive Directors of Silver Lake Resources Limited. Contents: 1. Basis of preparation 2. Key management personnel (KMP) 3. Remuneration snapshot 4. Remuneration governance 5. FY2017 Executive remuneration 6. FY2017 Non-executive director (NED) remuneration 1. Basis of preparation 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. Key Management Personnel 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 and the Chairman. A list of all NEDS and Executives for FY2017 is set out below: Name Position David Quinlivan Chairman Luke Tonkin Managing Director Les Davis Non-executive Director Kelvin Flynn Non-executive Director Brian Kennedy Non-executive Director David Berg General Counsel & Company Secretary Diniz Cardoso Chief Financial Officer Matthew O’Hara General Manager Mount Monger Operations Antony Shepherd Exploration & Geology Manager Term as KMP Full year Full year Full year Full year Full year Full year Full year Full year Full year There have been no changes to KMP since the end of the reporting period up to the date on which the financial report was authorised for issue. 30 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 DIRECTORS’ REPORTREMUNERATION REPORT - AUDITED 3. Remuneration snapshot a. FY2017 Remuneration in review 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 the commencement of mining at the Maxwells underground and Majestic/Imperial open pit mines, strong results from the expanded exploration campaign and the inclusion of the Cock-eyed Bob, Harry’s Hill and French Kiss projects in the Life of Mine plan. 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 FY2017 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 Effective 1 February 2017, Non-executive Director fees increased by 36% with the Non-executive Chairman’s fee increasing 14% to bring annual fees in line with the 50th percentile of the industry benchmarking report. This includes fees associated with roles on sub-committees (the Company does not pay separate committee fees). Short-term incentive (STI) STI payments were made to Executives during the period 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) In FY2017, 859,899 performance rights were granted to Mr Luke Tonkin and a further 673,930 performance rights were granted to KMP’s on the terms approved by shareholders at the 2015 AGM and described further in this report. b. Key changes to remuneration for FY2018 No significant changes are anticipated to the Executive remuneration framework for FY2018. 4. Remuneration governance 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: a) the remuneration arrangements (including base pay, performance targets, bonuses, equity awards, superannuation, retirement rights, termination payments) for senior Executives; b) the remuneration of Non-executive Directors; and c) 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 salaries annually using external independent industry reports and data to ensure that remuneration levels are competitive and meet the objectives of the Company. d. 2016 AGM voting outcome and comments The Company received more than 95% “yes” votes from its shareholders on its Remuneration Report for the 2016 financial year. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 31 DIRECTORS’ REPORTREMUNERATION REPORT - AUDITED FY2017 Executive remuneration 5. 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; » short-term incentives (STI); and » long-term incentives (LTI). 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 FY2017 total remuneration packages split between the fixed and variable remuneration is shown below: Target remuneration mix Executive Managing Director Other Executives b. Fixed remuneration Fixed remuneration Target STI Target LTI 45% 62% 22% 19% 33% 19% 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 the 50th percentile of the industry benchmarking report. 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. 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. 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 financial, production, safety and risk measures. 32 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 DIRECTORS’ REPORTREMUNERATION REPORT - AUDITED For FY2017 the KPIs chosen aligned remuneration with performance and the overall objectives of the Company and included: » achievement of the FY2017 budget with particular emphasis on safety, cost management, production and cashflow; » development of a strategic exploration plan with prioritised targets and milestones; » development of base case and contingency business plans under different assumptions; and » execution of specified commercial strategies, including crystallising value from non-core assets. Not all of the above KPIs were assigned to all Executives. FY2017 STI outcomes Executive Luke Tonkin (Managing Director) David Berg (General Counsel & Company Secretary) Diniz Cardoso (Chief Financial Officer) Matthew O’Hara (General Manager Mount Monger Operations) Antony Shepherd (Exploration & Geology Manager) # STI not paid is forfeited d. Long-term incentive (LTI) arrangements Maximum STI opportunity 50% of base salary 30% of base salary 30% of base salary 30% of base salary 30% of base salary % STI paid# STI paid 82% 82% 82% 55% 82% $241,359 $70,182 $73,361 $47,468 $61,134 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 2015 AGM. FY2017 LTI outcomes Executive Luke Tonkin (Managing Director) David Berg (General Counsel & Joint Company Secretary) Diniz Cardoso (Chief Financial Officer) Matthew O’Hara (General Manager Mount Monger Operations) Antony Shepherd (Exploration & Geology Manager) * Independently valued using a hybrid share option pricing model Maximum LTI opportunity 75% of base salary 30% of base salary 30% of base salary 30% of base salary 30% of base salary Number of Performance Rights granted during FY2017 Fair value per Performance Right * 859,899 (75% of base salary) 171,079 (30% of base salary) 183,299 (30% of base salary) 172,912 (30% of base salary) 146,640 (30% of base salary) $0.247 $0.247 $0.247 $0.247 $0.247 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 33 DIRECTORS’ REPORTREMUNERATION REPORT - AUDITED During the year the Company issued 1,533,829 Performance Rights to Executives (including 859,899 Performance Rights to Mr Tonkin) in respect of the LTI component of their FY2017 remuneration. These Performance Rights were approved at the 2015 AGM and were issued in September 2016. The number of Performance Rights awarded to each Executive was calculated by dividing the maximum LTI opportunity by the 20 day VWAP of the Company shares as traded on the ASX up to 30 June 2016. The Performance Rights for all Executives will not vest (and the underlying shares will not be issued) 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 notionally reinvested in shares. 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, which for the current award is the period 1 July 2016 to 30 June 2019. 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 vesting date (30 June 2019) 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 all Performance Rights on issue are as follows: Evolution Mining Ltd; Medusa Mining Ltd; OceanaGold Corporation; Doray Minerals Ltd; Northern Star Resources Ltd; Ramelius Resources Ltd; Kingsgate Consolidated Ltd; Gold Road Resources Ltd; Regis Resources Ltd; Independence Group NL; St Barbara Ltd; Saracen Mineral Holdings Ltd and Tanami Gold NL. At the discretion of the Board, the composition of the comparator group may change from time to time. 34 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 DIRECTORS’ REPORTREMUNERATION REPORT - AUDITED e. Service agreements A summary of the key terms of service agreements for Executives in FY2017 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 Term of Agreement Total Fixed Remuneration Notice Period by Executive Notice Period by Silver Lake Termination Payment Luke Tonkin (Managing Director) Open Diniz Cardoso (Chief Financial Officer) Open Antony Shepherd (Exploration & Geology Manager) Open David Berg (General Counsel & Company Secretary) Open Matthew O’Hara (General Manager Mount Monger Operations) Open 6 months 6 months 6 months 6 months 3 months 3 months 6 months 6 months 12 months Total Fixed Remuneration 6 months Total Fixed Remuneration 6 months Total Fixed Remuneration 6 month Total Fixed Remuneration 2 months 2 months As per Legislation $592,200 plus 12% superannuation STI equivalent to 50% of base salary LTI equivalent to 75% of base salary $300,000 plus 9.5% superannuation STI equivalent to 30% of base salary LTI equivalent to 30% of base salary $250,000 plus 9.5% superannuation STI equivalent to 30% of base salary LTI equivalent to 30% of base salary $287,000 plus 9.5% superannuation STI equivalent to 30% of base salary LTI equivalent to 30% of base salary $290,000 plus 9.5% superannuation STI equivalent to 30% of base salary LTI equivalent to 30% of base salary SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 35 DIRECTORS’ REPORT REMUNERATION REPORT - AUDITED f. Executive remuneration paid Short Term Post- employment Other Base Emolument $ STI/Bonus Payments $ Total Benefits $ Superannuation Benefits $ Options/ Performance Right $ (A) Other Benefits $ Total $ Proportion of remuneration performance related % Luke Tonkin Managing Director 2017 607,895 241,359 849,254 2016 552,971 262,688 815,659 35,282 35,282 176,929 32,405 1,093,870 256,406 41,144 1,148,491 38 45 22 19 23 22 23 23 16 20 - 7 28 28 2017 300,000 73,361 373,361 28,500 23,774 8,062 433,697 2016 52,952 15,131 68,083 6,154 449 5,322 80,008 2017 247,307 61,134 308,441 23,494 22,091 8,294 362,320 2016 240,000 66,960 306,960 28,500 10,018 6,450 351,928 2017 289,284 70,182 359,466 24,065 24,521 3,660 411,712 2016 282,153 78,120 360,273 21,539 10,435 1,063 393,310 Diniz Cardoso (B) Chief Financial Officer Antony Shepherd Exploration & Geology Manager David Berg General Counsel & Company Secretary Matthew O’Hara General Manager Mount Monger Camp 2017 288,115 47,468 335,583 2016 283,000 78,957 361,957 27,371 30,685 14,236 10,157 387,347 - - (2,053) 390,589 - - Peter Armstrong (C) Chief Financial Officer 2017 - 2016 250,204 - - - - 250,204 28,968 33,199 191,253 503,624 Total Total 2017 1,732,601 493,504 2,226,105 138,712 261,551 62,578 2,688,946 2016 1,661,280 501,856 2,163,136 151,128 310,507 243,179 2,867,950 (A) Represents contractual entitlements (including termination and retirement benefits), annual leave and long service leave entitlements, measured on an accrual basis. (B) Mr Cardoso met the definition of Key Management Personnel from 8 April 2016 following his appointment as Chief Financial Officer. Remuneration in the table above is from the date of his appointment. (C) Mr Armstrong ceased to meet the definition of Key Management Personnel on 8 April 2016 following his resignation from the Company. Remuneration in the table above is up to the date of resignation. 36 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 DIRECTORS’ REPORT REMUNERATION REPORT - AUDITED 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 indices in respect of the current and previous financial years. Cash and bullion ($m) Profit/(loss) after tax attributable to shareholders ($m) Cash from operating activities ($m) Closing share price at 30 June * Includes impairments on inventories and other non-current assets 2017 69.1 2.0 64.0 $0.47 2016 42.6 4.4 55.0 $0.52 2015 28.9 2014 32.2 2013 19.2 (94.0)* (170.4)* (319.3)* 29.5 $0.14 24.5 $0.51 53.9 $0.59 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 at its core Mount Monger Camp and crystalise value from its non-core assets. In assessing KMP performance 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; » meeting FY2017 sales guidance; » 16% increase in cash flow from operations; » exceeding the targeted end of year cash and bullion balance; » successful targeted and phased exploration strategy; » successful development of both the Maxwells underground mine and the Imperial/Majestic open pits; » implementing and 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 » crystallising value from non-core assets including the sale of the Murchison and Great Southern projects. 6. FY2017 NON-EXECUTIVE DIRECTOR (NED) REMUNERATION 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. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 37 DIRECTORS’ REPORTREMUNERATION REPORT - AUDITED 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. FY2017 NED fees » Chairman $173,750 plus 9.5% superannuation » NED $115,000 plus 9.5% superannuation When positioning base pay for NEDs, the Company presently aims to position fees at the 50th percentile of the industry benchmarking report. Effective 1 February 2017, NED fees were increased by 36% to $115,000 per annum, with Chairman fees increasing by 14% to $173,750 per annum. c. NED fees paid Details of the remuneration of each NED for the year ended 30 June 2017 is set out in the following table: David Quinlivan (A) Non-executive Chairman Les Davis Non-executive Director Kelvin Flynn (B) Non-executive Director Brian Kennedy Non-executive Director Paul Chapman (C) Non-executive Chairman David Griffiths (D) Non-executive Director Total Total Short Term Post-employment Base Emolument $ 160,586 129,111 96,522 77,877 96,522 29,656 96,522 77,877 - 42,299 - 29,383 450,152 386,203 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 Superannuation benefits $ 15,256 12,266 9,170 7,398 9,170 2,817 9,170 7,398 - 4,018 - 2,791 42,766 36,688 Total $ 175,842 141,377 105,692 85,275 105,692 32,473 105,692 85,275 - 46,317 - 32,174 492,918 422,891 (A) Mr Quinlivan appointed as NED on 25 June 2015 and Chairman on 30 September 2015 (B) Mr Flynn appointed as NED on 24 February 2016 (C) Mr Chapman resigned as Chairman on 30 September 2015 (D) Mr Griffiths resigned as NED on 20 November 2015 38 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 DIRECTORS’ REPORT REMUNERATION REPORT - AUDITED Movement in Options There were no options granted to KMP during FY2017. The movement, during the reporting period, in the number of options over ordinary shares in the Company held, directly, indirectly or beneficially by KMP, including their related parties, is outlined below: Key Management Personal Luke Tonkin (i) Held at 1 July 2016 2,000,000 (i) Employee options (equity-settled) Granted Exercised Held at 30 June 2017 Vested During The Year Vested & Exercisable at 30 June 2017 - - 2,000,000 1,000,000 2,000,000 On 18 October 2013 the Group granted Mr Luke Tonkin, (at the time Executive Director of Operations), a total of 2,000,000 employee options as part of his employment agreement which were approved by shareholders at the Annual General Meeting on 15 November 2013. The total expense recognised in the Statement of Profit or Loss for these options for the year ended 30 June 2017 was $54,729 (included within the total $176,929 value reflected in the remuneration table in Section 5(f)). Details of the options are summarised in the following table: Number of options Exercise price Issue date Vesting date Expiry date Tranche A 400,000 $0.94 18 October 2013 15 January 2015 18 October 2017 Tranche B 600,000 $1.03 18 October 2013 15 January 2016 18 October 2017 Tranche C 1,000,000 $1.14 18 October 2013 15 January 2017 18 October 2017 The inputs used in the measurement of the fair values at grant date were as follow: Valuation at grant date Share price at grant date Volatility Risk free rate Expected dividends Tranche A Tranche B Tranche C $0.36 $0.67 80% 3.03% - $0.34 $0.67 80% 3.03% - $0.33 $0.67 80% 3.03% - The fair value of the options was measured using a binomial option pricing model. A Black Scholes option pricing model was used to validate the valuation prices calculated by the binomial option pricing model. Whilst there are no performance conditions attached to the exercise of these options, the exercise price of the options was set at a premium (between 40%-70%) to the prevailing share price at date of grant. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 39 DIRECTORS’ REPORTREMUNERATION REPORT - AUDITED Movement in Performance Rights Key Management Person Held at 1 July 2016 Issued in FY2017 Rights Exercised Rights Lapsed Held at 30 June 2017 Vested during the year Vested & exercisable at 30 June 2017 Luke Tonkin David Berg Diniz Cardoso Matthew O’Hara 3,408,932 423,055 351,982 - Antony Shepherd 406,133 859,899 171,079 183,299 172,912 146,640 Total 4,590,102 1,533,829 - - - - - - (870,603) 3,398,228 - - - - 594,134 535,281 172,912 552,773 (870,603) 5,253,328 - - - - - - - - - - - - The total expense recognised in the Statement of Profit or Loss for all Executives’ Performance Rights for the period ended 30 June 2017 was $261,551. Details of the performance rights are summarised in the following table: Number of performance rights* Exercise price Grant date Vesting date Expiry date FY2015 Award FY2016 Award FY2017 Award 870,603** $0.00 2,161,296 $0.00 2,538,329 $0.00 20 Nov 2014 1 July 2015 20 Nov 2015 2,058,334 $0.00 1 July 2016 1 July 2014 – 30 June 2017 1 July 2015 – 30 June 2018 1 July 2015 – 30 June 2018 1 July 2016 – 30 June 2019 1 July 2017 1 July 2018 1 July 2018 1 July 2019 * Represents total performance rights issued, inclusive of awards to other members of management not considered KMP’s. ** Lapsed at 30 June 2017 The inputs used in the measurement of the fair values at grant date were as follow: Valuation at grant date Underlying 20 day VWAP Volatility Risk free rate Expected dividends FY2015 Award FY2016 Award FY2017 Award $0.045 $0.431 20% 2.56% - $0.074 $0.148 22% 2.14% - $0.110 $0.148 22% 2.14% - $0.247 $0.491 20% 1.52% - 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. 40 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 DIRECTORS’ REPORTREMUNERATION REPORT - AUDITED Movement in Shares Key Management Person Held at 1 July 2016 Shares Acquired Shares Exercised Shares Sold Held at 30 June 2017 David Quinlivan Luke Tonkin Les Davis Kelvin Flynn Brian Kennedy David Berg Diniz Cardoso Matthew O’Hara Antony Shepherd Total - - 4,525,294 - 4,790,746 10,416 - - - 9,326,456 - - - - - - - - - - - - - - - - - - - - - - - - (3,525,294) 1,000,000 - - - - - - - 4,790,746 10,416 - - - (3,525,294) 5,801,162 Key Management Person Held at 1 July 2015 Shares Acquired Shares Exercised Shares Sold Other * Held at 30 June 2016 David Quinlivan Luke Tonkin Les Davis Kelvin Flynn Brian Kennedy David Berg Diniz Cardoso Antony Shepherd Peter Armstrong Paul Chapman David Griffiths Total - - 4,525,294 - 4,790,746 10,416 - - 499,959 5,334,294 4,393,671 19,554,380 * Balance reported is the shareholding on the date of resignation - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (499,959) (5,334,294) (4,393,671) - - 4,525,294 - 4,790,746 10,416 - - - - - (10,227,924) 9,326,456 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 41 DIRECTORS’ REPORT AUDITOR’S INDEPENDENCE Section 307C of the Corporations Act 2001 requires Silver Lake’s auditors, KPMG, to provide the Directors of Silver Lake with an Independence Declaration in relation to the audit of the financial report for the year ended 30 June 2017. This Independence Declaration is attached to the Directors’ Report and forms a part of the Directors’ Report. NON-AUDIT SERVICES 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 » 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. Details of the amounts paid to the auditor of the Group, KPMG, and its network firms for audit and non-audit services provided during the year are set out below: Taxation services Audit and review of financial statements Total paid ROUNDING OFF 2017 $ 20,744 167,708 188,452 2016 $ 56,760 161,500 218,260 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 Directors’ Report is signed in accordance with a resolution of the Directors. Luke Tonkin Managing Director 22 August 2017 42 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 DIRECTORS’ REPORT1. In the opinion of the Directors: 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 2017 and of its performance for the year then ended; and ii) Complying with Australian Accounting Standards and Corporations Regulations 2001; b) the financial statements also comply with International Financial Reporting Standards as disclosed in Note 1; c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and d) there are reasonable grounds to believe that the Company and the Group entity identified in Note 34 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 Class Order 98/1418. 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 2017. The declaration is signed in accordance with a resolution of the Board of Directors. Luke Tonkin Managing Director 22 August 2017 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 43 DIRECTORS’ DECLARATION44 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 AUDITOR’S INDEPENDENCE DECLARATIONSILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 45 INDEPENDENT AUDIT REPORT46 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 INDEPENDENT AUDIT REPORTSILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 47 INDEPENDENT AUDIT REPORT48 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 INDEPENDENT AUDIT REPORTSILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 49 INDEPENDENT AUDIT REPORTFOR THE YEAR ENDED 30 JUNE 2017 Revenue Cost of sales Gross profit Other income Profit/(loss) on sale of assets Exploration expenditure Impairment losses 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 Notes 3 4 30 June 2017 $’000 227,491 30 June 2016 $’000 209,497 (216,355) (192,396) 11,136 17,101 - (960) (2,557) (4,661) (7,002) (4,044) 6,550 (474) 6,076 2,032 - 2,032 2,032 3,146 3,118 (3,193) (2,825) (8,878) 8,469 482 (4,538) (4,056) 4,413 - 4,413 4,413 Cents Per Share Cents Per Share 0.40 0.40 0.88 0.87 14 17 5 7 8 9 9 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. 50 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME AS AT 30 JUNE 2017 Current assets Cash and cash equivalents Trade and other receivables Inventories Assets held for sale Prepayments Total current assets Non-current assets Inventories Exploration evaluation and development expenditure Property, plant and equipment Investments Total non-current assets Total assets Current liabilities Trade and other payables Interest bearing liabilities Liabilities held for sale Rehabilitation and restoration provision Employee benefits Total current liabilities Non-current liabilities Interest bearing liabilities Rehabilitation and restoration provision Total non-current liabilities Total liabilities Net assets Equity Share capital Reserves Accumulated losses Total equity 30 June 2017 $’000 30 June 2016 $’000 Notes 10 12 13 17 13 14 15 16 18 19 17 22 20 19 22 23 24 61,196 9,531 18,937 1,500 112 91,276 1,868 99,062 38,251 12,386 151,567 242,843 32,956 2,125 - - 1,874 36,955 - 16,122 16,122 53,077 189,766 38,643 2,317 20,708 10,056 91 71,815 2,052 123,893 50,675 4,806 181,426 253,241 30,914 3,937 5,056 1,158 1,697 42,762 2,125 21,010 23,135 65,897 187,344 699,564 1,220 (511,018) 189,766 699,564 830 (513,050) 187,344 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 2017 51 CONSOLIDATED STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 30 JUNE 2017 Share Capital $’000 Option Reserve $’000 Accumulated Losses $’000 Total Equity $’000 Notes Balance at 1 July 2015 699,564 505 (517,463) 182,606 Total comprehensive profit for the year Transactions with owners, recorded directly in equity Equity settled share based payment 24 Total transactions with owners of the Company Balance at 30 June 2016 - - - 699,564 Share Capital $’000 - 325 325 830 4,413 4,413 - - 325 325 (513,050) 187,344 Option Reserve $’000 Accumulated Losses $’000 Total Equity $’000 Balance at 1 July 2016 699,564 830 (513,050) 187,344 Total comprehensive profit for the year Transactions with owners, recorded directly in equity Equity settled share based payment 24 Total transactions with owners of the Company - - - Balance at 30 June 2017 699,564 - 2,032 2,032 390 390 1,220 - - 390 390 (511,018) 189,766 The Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes to these consolidated financial statements. 52 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2017 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 Proceeds from divestments Exploration, evaluation and development expenditure 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 30 June 2017 $’000 220,319 (156,324) 63,995 662 (6,315) 11,928 (43,306) (37,031) (3,937) (474) (4,411) 22,553 38,643 61,196 Notes 11 7 17 10 30 June 2016 $’000 205,837 (150,845) 54,992 482 (2,562) 3,388 (35,575) (34,267) (3,553) (1,067) (4,620) 16,105 22,538 38,643 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 2017 53 CONSOLIDATED STATEMENT OF CASH FLOWS 1. BASIS OF PREPARATION 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 2017 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 22 August 2017. 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. 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. (a) Functional and Presentation Currency These consolidated financial statements are prepared in Australian dollars, which is the functional currency of the Company and its subsidiaries. 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. (b) Use of Judgements and Estimates 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 8 Income Tax – recognition of deferred tax assets » Note 14 Exploration, evaluation and development expenditure carried forward – consideration of impairment triggers and recognition of impairment losses » Note 14 Amortisation of development expenditure – estimation of future mineable inventory and future development expenditure when calculating units of production amortisation » Note 14 Reserves and Resources- estimating reserves and resources » Note 22 Closure and rehabilitation – measurement of provision based on key assumptions (c) Basis for Consolidation The consolidated financial statements comprise the financial statements of the Group. A list of controlled entities (subsidiaries) at year end is disclosed in Note 29. 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. 54 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(d) Determination of Fair Value 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. (e) Impairment of Non-Financial Assets The carrying amounts of the Group’s non-financial assets, other than inventories, exploration and evaluation expenditure and deferred tax assets, 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 to sell. In assessing value in use, 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. 2. SEGMENT REPORTING An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. The Group does not have any operating segments with discrete financial information. The Group does not have any customers, other than the Perth Mint and its bankers, and all the group assets and liabilities are located within Western Australia. The Board of Directors review internal management reports on a monthly basis that are consistent with the information provided in the Statement of Profit or Loss and Other Comprehensive Income, Statement of Financial Position and Statement of Cash Flows. As a result, no reconciliation is required because the information as presented is used by the Board to make strategic decisions. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 55 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS3. REVENUE Gold sales Silver sales Total 30 June 2017 $’000 226,568 923 227,491 30 June 2016 $’000 209,124 373 209,497 Included in current year gold sales is 97,019 ounces of gold sold (at an average price of A$1,654/ounce) under various hedge programs. At 30 June 2017, the Company has a total of 142,291 ounces of gold left to be delivered under these programs. Accounting Policies Gold sales 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. 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 139 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. 4. COST OF SALES Mining and processing costs Amortisation Depreciation Salaries and on-costs Royalties Accounting Policies Mining and processing costs Notes 14 15 30 June 2017 $’000 125,872 55,824 10,050 17,207 7,402 30 June 2016 $’000 124,297 36,063 9,323 15,740 6,973 216,355 192,396 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. 56 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 10 Years 5 Years 3-10 Years 3-15 Years 3-5 Years SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 57 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS5. ADMINISTRATION EXPENSES Salaries and on-costs Consultants and contractors Professional fees Travel and accommodation Rental expense Provision for doubtful debts (Note 12) Other corporate costs Total 6. PERSONNEL EXPENSES Wages and salaries Other associated personnel expenses Superannuation contributions Total 7. FINANCE INCOME AND EXPENSES Interest income Change in fair value of listed investment Finance income Change in fair value of listed investment Interest expense on interest bearing liabilities Unwind of discount on provision Finance costs Net finance costs 30 June 2017 $’000 4,675 665 189 109 653 - 711 7,002 30 June 2017 $’000 20,705 1,315 1,935 23,955 30 June 2017 $’000 662 5,888 6,550 - (474) - (474) 6,076 30 June 2016 $’000 4,574 294 203 121 619 2,929 138 8,878 30 June 2016 $’000 19,945 1,280 1,849 23,074 30 June 2016 $’000 482 - 482 (2,695) (1,067) (776) (4,538) (4,056) Accounting Policies 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 and unwinding of the discount on provisions. 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. 58 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 8. TAXES (a) Income tax 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) Deferred tax assets and liabilities 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 30 June 2017 $’000 (26,752) (12) (26,764) 26,764 - 30 June 2017 $’000 2,032 610 (1,931) (12) 1,333 - 30 June 2016 $’000 (10,089) (2,476) (12,565) 12,565 - 30 June 2016 $’000 4,413 1,323 3,302 (2,476) (2,149) - 30 June 2017 $’000 30 June 2016 $’000 2,017 (1,463) 13,046 1,897 475 4,952 255 123,293 144,472 1,929 (1,606) 15,535 22,884 575 6,372 921 96,529 143,139 (144,472) (143,139) - - SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 59 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Accounting Policies 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 2017 the Company has $410,976,000 (2016: $321,763,000 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 2017 of $123,293,000 (2016: $96,529,000). 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. the provisions of deductibility imposed by law are complied with; and ii. 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 unused 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. 60 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS9. EARNINGS PER SHARE Profit used in calculating basic and diluted EPS 30 June 2017 $’000 2,032 30 June 2016 $’000 4,413 Number of Shares Number of shares Weighted average number of ordinary shares used in calculating basic earnings per share 503,708,000 503,234,000 Effect of dilution 6,758,000 4,707,000 Weighted average number of ordinary shares used in calculating diluted earnings per share 510,466,000 507,941,000 Accounting Policies 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 share options granted to employees. 10. CASH AND CASH EQUIVALENTS Cash at bank 30 June 2017 $’000 61,196 30 June 2016 $’000 38,643 Accounting Policies 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 25. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 61 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 11. RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES Cash flow from operating activities Profit after tax Adjustments for: Depreciation Amortisation Impairment of exploration and development expenditure Share based payments 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 Change in trade and other payables Change in provisions Total 12. TRADE AND OTHER RECEIVABLES Current Trade receivables GST receivable Provision for doubtful debts (Note 25 (b)(ii)) Total 30 June 2017 $’000 30 June 2016 $’000 2,032 4,413 10,050 55,824 4,661 390 (5,888) 960 68,029 (7,401) 1,344 (22) 2,041 4 63,995 30 June 2017 $’000 14,557 1,697 (6,723) 9,531 9,323 36,063 2,825 325 3,471 (3,118) 53,302 2,649 (3,929) (29) 2,915 84 54,992 30 June 2016 $’000 7,386 1,654 (6,723) 2,317 The Group’s exposure to interest rate risk and a sensitivity analysis of financial assets and liabilities are disclosed in Note 25. Accounting Policies 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. 62 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 13. INVENTORIES Current Materials and supplies Ore stocks Gold in circuit Bullion on hand Non-Current Ore stocks Total 30 June 2017 $’000 30 June 2016 $’000 4,882 9,814 3,535 706 18,937 1,868 20,805 5,354 9,103 2,415 3,836 20,708 2,052 22,760 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. Accounting Policies Inventory Inventories of ore, 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. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 63 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 14. EXPLORATION, EVALUATION AND DEVELOPMENT EXPENDITURE During the year ended 30 June 2017 the Group incurred and capitalised the following on exploration, evaluation and development expenditure: 30 June 2017 $’000 14,198 9,538 - - (4,661) - (1,500) (2,557) 15,018 30 June 2017 $’000 45,897 - 1,315 (38,326) 8,886 30 June 2017 $’000 63,798 38,326 33,584 (4,726) - (55,824) 75,158 99,062 30 June 2016 $’000 37,078 10,620 (1,851) (92) (2,825) (16,383) (9,156) (3,193) 14,198 30 June 2016 $’000 41,845 16,383 9,914 (22,245) 45,897 30 June 2016 $’000 64,556 22,245 14,776 (221) (1,495) (36,063) 63,798 123,893 Exploration and evaluation phase Cost brought forward Capitalised during the year Decrease in rehabilitation provision Disposed during the year Impairment Transferred to development phase Transferred to asset held for sale 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 Expenditure during the year Disposed during the year Decrease in rehabilitation provision Amortisation expense Balance at 30 June Total 64 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Accounting Policies Exploration and evaluation expenditure 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. 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 for 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 a 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 CGU 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 to sell. In assessing value in use, 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. 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. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 65 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS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 a 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. 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 tonnes of ore milled. Stripping costs capitalised at year end are included in the Production phase in Note 14. 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; and » recognition of deferred tax assets, including tax losses. 66 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS15. PROPERTY, PLANT AND EQUIPMENT Land & Building Plant & Equipment Haul Roads Motor Vehicles Note $’000 $’000 $’000 $’000 Office Furniture & Equipment $’000 Capital Work In Progress $’000 Total $’000 Cost Balance 1 July 2015 13,908 191,642 3,561 2,504 1,983 524 214,122 Additions Reclassified as held for sale Transfers Disposals - (900) 94 - - - 2,147 - - - - - Balance 30 June 2016 13,102 193,789 3,561 Additions Reclassification of assets Transfers Disposals - - - - - 5,952 (366) (11,421) - - 326 - Balance 30 June 2017 12,736 188,320 3,887 Depreciation Balance at 1 July 2015 Depreciation expense Disposal Balance 30 June 2016 Depreciation expense Disposal 4 4 10,470 139,729 1,780 444 - 7,594 - 712 - 10,914 147,323 2,492 363 (53) 8,531 (1,675) 811 - Balance 30 June 2017 11,224 154,179 3,303 Carrying Amount At 30 June 2015 At 30 June 2016 At 30 June 2017 3,438 2,188 1,512 51,913 46,466 34,141 1,781 1,069 584 - - 231 (385) 2,350 - - 153 (234) 2,269 2,058 320 (327) 2,051 144 (203) 1,991 446 299 278 2,564 - (2,681) - 407 6,315 1,405 (7,124) 2,564 (900) - (385) 215,401 6,315 1,405 - - (12,026) - 209 - 2,192 - - 693 (5) 2,880 1,003 211,094 1,693 253 - 1,946 202 (1) 2,147 290 246 733 - - - - - - - 526 407 1,003 155,730 9,323 (327) 164,726 10,050 (1,932) 172,843 58,394 50,675 38,251 Accounting Policies 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. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 67 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 16. INVESTMENTS Investments in listed entities – at fair value Movements as follows: Balance at 1 July Acquisitions Disposals Change in fair value Balance at 30 June Accounting Policies Financial assets at fair value through profit or loss 30 June 2017 $’000 12,386 4,806 2,300 (608) 5,888 12,386 30 June 2016 $’000 4,806 7,561 75 (135) (2,695) 4,806 Financial assets designated at fair value through profit or loss comprise investments in equity securities. A financial asset is classified as at fair value through profit or loss if it is classified as held-for-trading or is designated at 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 at fair value through profit or loss are measured at fair value and changes therein 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. 17. DISPOSAL OF ASSETS Great Southern Project In August 2016, the Company completed the sale of the Great Southern Project for cash consideration of $5 million. The carrying value of the project comprised $10,401,000 of assets and $5,056,000 of liabilities and resulted in a loss on disposal of $345,000 being included in the current year Statement of Profit or Loss. Murchison Operation In June 2017, the Company agreed to sell its Murchison assets to a wholly owned subsidiary of Westgold Resources Limited (ASX: WGX) for a total consideration of approximately $10 million. The sale assets comprised: » the Tuckabianna gold processing facility and underlying mining tenure (Tuckabianna Assets); and » the Company’s 40% joint venture interest in the Cue Joint Venture (JV Interest). The purchase price payable for the Tuckabianna Assets was a cash consideration of $6 million and 1,250,000 fully paid ordinary shares in Westgold. Completion of this part of the transaction occurred on 30 June 2017. Assets held for sale of $1,500,000 represents the sale of the Cue Project Joint Venture. Completion of this transaction occurred in August 2017 and resulted in an impairment of $4,661,000 being included in the current year Statement of Profit or Loss. Accounting Policies Non-current assets and associated liabilities are classified as held for sale when their carrying amount will be recovered principally through a sale transaction rather than continuing use and a sale is highly probable. Assets designated as held for sale are held at the lower of carrying amount at designation and fair value less costs to sell. 68 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 18. TRADE AND OTHER PAYABLES Trade payables Other payables Total 30 June 2017 $’000 29,354 3,602 32,956 30 June 2016 $’000 26,949 3,965 30,914 The Group’s exposure to liquidity risk and a sensitivity analysis of financial assets and liabilities are disclosed in Note 25. Accounting Policies 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. 19. INTEREST BEARING LIABILITIES Current liability Stamp duty Non-current liability Stamp duty Total 30 June 2017 $’000 30 June 2016 $’000 2,125 2,125 - 2,125 3,937 3,937 2,125 6,062 The stamp duty liability is payable over the next 6 months and incurs interest at the rate of 10.7% per annum. The Group’s exposure to interest rate and liquidity risk arising from these interest-bearing liabilities is disclosed in Note 25. Accounting Policies All borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest-bearing borrowings are subsequently measured at amortised cost using the effective interest method. Fees paid on the establishment of loan facilities that are yield related are included as part of the carrying amount of the borrowings. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 69 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 20. EMPLOYEE BENEFITS Current Liability for annual leave Liability for long service leave Total Accounting Policies (i) Defined Contribution Superannuation Funds 30 June 2017 $’000 1,484 390 1,874 30 June 2016 $’000 1,327 370 1,697 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. 70 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 21. SHARE BASED PAYMENTS Employee options (equity-settled) The number of and weighted average exercise prices of share options are as follows: Outstanding at 1 July Forfeited during period Granted during the period Exercised during the period Outstanding at 30 June Exercisable at 30 June Weighted Average Exercise Price 2017 Number of Options 2017 Weighted Average Exercise Price 2016 Number of Options 2016 $1.07 2,000,000 $1.07 2,000,000 - - - - - - - - - - - - $1.07 $0.99 2,000,000 1,000,000 $1.07 $0.94 2,000,000 1,000,000 The total expense recognised in the Statement of Profit or Loss for these options for the year ended 30 June 2017 was $54,729 (2016: $150,275). These options expire on 18 October 2017 if unexcercised. Performance rights (equity settled) 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: Held at 30 June 2016 FY2017 Rights Granted Rights Exercised Rights Lapsed Held at 30 June 2017 Vested during the year Vested & exercisable at 30 June 2017 Total 5,694,329 2,058,334 - (994,704) 6,757,959 - - 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. Details of the valuation and vesting conditions are included in the Remuneration Report. The total expense recognised in the Statement of Profit or Loss for all performance rights for the period ended 30 June 2017 was $390,000 (2016: $325,000). Accounting Policies 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 2017 71 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 22. PROVISIONS Closure and rehabilitation Opening balance at 1 July Adjustment to provisions during the year Disposal of asset Unwind of discount Transferred to liabilities held for sale Rehabilitation spend Closing balance at 30 June Current provision Non-current provision Closing balance at 30 June 30 June 2017 $’000 30 June 2016 $’000 22,168 343 (5,873) - - (516) 16,122 - 16,122 16,122 30,058 (2,718) (264) 776 (5,056) (628) 22,168 1,158 21,010 22,168 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 $343,000 (2016: decreased by $2,718,000). Accounting Policies Provisions A provision is recognised in the balance sheet when the Company 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. 72 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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. 23. SHARE CAPITAL Movements in issued capital Balance as at 1 July 2015 Movement in the period * Balance as at 30 June 2016 Movement in the period Balance as at 30 June 2017 * Movement relates to the vesting of performance rights issued for nil consideration. Accounting Policy Issued capital Number $’000 503,233,971 699,564 473,675 - 503,707,646 699,564 - - 503,707,646 699,564 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. 24. RESERVES Movement in options reserve Balance as at 1 July Equity settled share based payment expense Balance as at June 2017 $’000 830 390 1,220 2016 $’000 505 325 830 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 73 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 25. FINANCIAL RISK MANAGEMENT (a) Overview 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. (b) Credit risk 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 sales, GST refunds and rental income. At 30 June 2017, a provision for doubtful debts of $6,723,000 (2016: $6,723,000) has been recorded against rental income receivable as a result of a debtor being place in liquidation in a prior year. This receivable is therefore not reflected in the trade and other receivables balance in Note 25(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. (c) 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 Carrying Amount 2017 $’000 9,546 61,196 70,742 2016 $’000 2,317 38,643 40,960 74 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (d) Liquidity risk 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 2017, the Company has a total of 142,291 ounces to be delivered under these hedges over the next 36 months at an average of A$1,700/oz. The sale of gold under these hedges is accounted for using the ‘own use exemption’ under AASB 139 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: 30 June 2017 Trade and other payables Stamp duty Total 30 June 2016 Trade and other payables Stamp duty Total Carrying Amount $’000 Contractual Cash Flows $’000 6 Months or Less $’000 32,955 2,125 35,080* 32,955 2,189 35,144 32,955 2,189 35,144 Carrying Amount $’000 Contractual Cash Flows $’000 6 Months or Less $’000 30,914 6,062 36,976* 30,914 6,568 37,482 30,914 2,189 33,103 6-12 Months $’000 - 2,189 2,189 1-2 Years $’000 - 2,190 2,190 * The carrying value at balance date approximates fair value (e) Market risk Market risk is the risk that changes in market prices, such as 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. The Group has exposure to foreign exchange risk on US denominated sales, refer to Note 25(d) for the Group’s strategy for managing this risk. In addition, the Group has exposure to interest rate and equity price risks. (i) 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. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 75 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSProfile At the reporting date, the interest rate profile of the Group’s interest-bearing financial instruments was: Fixed rate instruments Financial liabilities Stamp duty liability Variable rate instruments Financial assets Cash and cash equivalents Carrying Amount 2017 $’000 2016 $’000 (2,125) (6,062) 61,196 38,643 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 $612,000 (2016: $386,000). This analysis assumes that all other variables remain constant. (ii) Equity price risk Equity investments are long-term investments that have been classified as financial assets at fair value through profit or loss. (f) Fair values The carrying value of cash and cash equivalents, trade and other receivable, 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. (g) Capital management 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. 26. COMMITMENTS The Group has $4,048,000 (2016: $4,670,000) of commitments relating to minimum exploration expenditure on its various tenements. 27. OPERATING LEASES The Company leases assets for operations including plant and office premises. The leases have an average life of 1 to 3 years. At 30 June 2017, the future minimum lease payments under non-cancellable leases were payable as follows: Less than one year Between one and five years 2017 $’000 3,527 1,634 5,161 2016 $’000 3,955 4,399 8,354 76 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 28. RELATED PARTIES (a) Key Management Personnel compensation Short-term employee benefits Post-employment benefits Other long term benefits Total 30 June 2017 $’000 2,676 182 324 3,182 30 June 2016 $’000 2,549 188 554 3,291 (b) Individual directors and executives’ compensation disclosures 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 1,533,829 performance rights were awarded to key management personnel. See Note 21 for further details of these related party transactions. 29. GROUP ENTITIES 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 Accounting Policies Subsidiaries Country of Incorporation Australia Australia Australia Australia Australia Australia 2017 100% 100% 100% 100% 100% 100% Ownership Interest 2016 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. SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 77 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 30. JOINT OPERATIONS As at 30 June, the Group has the following interests in unincorporated joint operations: Joint Operation Principal Activities Joint Operation Parties Bandalup Gossan Exploration SLR/Traka Resources Ltd West Tuckabianna Exploration SLR/George Petersons Peter’s Dam Cue Project Exploration SLR/Rubicon Exploration SLR/Musgrave Minerals Ltd Accounting Policies Joint operation arrangements Group Interest 2017 - 90.0% 69.2% 60.0% 2016 80.0% 90.0% 69.2% - 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 14. 31. AUDITOR’S REMUNERATION KPMG: Audit and review of the Company’s financial statements Taxation services Total 32. SUBSEQUENT EVENTS 30 June 2017 $’000 30 June 2016 $’000 168 21 189 162 57 219 There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event 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. 78 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 33. PARENT ENTITY As at, and throughout the financial year ended 30 June 2017, the parent company of the Group was Silver Lake Resources Limited. Results of the parent entity Profit for the year Total comprehensive profit 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 2017 $’000 844 844 72,770 219,504 36,793 40,247 699,564 1,220 (521,527) 179,257 30 June 2016 $’000 1,817 1,817 42,249 231,078 36,548 53,055 699,564 830 (522,372) 178,022 The parent entity has $4,048,000 (2016: $4,670,000) of commitments relating to minimum exploration expenditure on its various tenements. 34. DEED OF CROSS GUARANTEE 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 Class Order 98/1418 (as amended). SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 79 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 35. NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED The standards and interpretations relevant to the Company that have not been early adopted are: (i) AASB 9 Financial Instruments: applicable to annual reporting periods beginning on or after 1 July 2018. AASB 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. The standard includes a single approach for the classification and measurement of financial assets, based on cash flow characteristics and the business model used for the management of the financial instruments. It introduces the expected credit loss model for impairment of financial assets which replaces the incurred loss model under AASB 139. Lastly, the standard amends the rules on hedge accounting to align the accounting treatment with the risk management practices of the Company. The Group’s assessment of the impacts of AASB 9 are set out below: » Classification and measurement: The Group does not expect a material impact to its financial statements on applying the classification and measurement requirements of AASB 9 based on the Group’s current financial assets and liabilities. » Impairment: AASB 9 requires the Group to use an expected credit loss model for its trade and other receivables measured at amortised cost, either on a 12-month or lifetime basis. Given the short-term nature of the Group’s receivables, the Group does not expect these changes to have a material impact. » Hedge accounting: The Group is currently in the process of assessing the impact of this component of the new standard. » Disclosure: The adoption of AASB 9 will require extensive new disclosure, in particular about credit risk and the Group’s plans to implement controls necessary to capture required data. The Group will continue to perform its assessment and monitor further developments. (ii) AASB15 Revenue from Contracts with Customers In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers, which replaced IAS 11 Construction Contracts, IAS 18 Revenue and related interpretations. The AASB issued the Australian equivalent of IFRS 15, being AASB 15, in December 2014. Currently, these standards are effective for annual reporting periods commencing on or after 1 January 2017. Early application is permitted however the IASB and the AASB have proposed a one year deferral to IFRS 15/AASB 15, which if approved, would move the effective date to annual reporting periods commencing on or after 1 July 2018. The core principle of IFRS 15 Revenue from Contracts with Customers is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core principle by applying the following steps: a) identify the contract(s) with a customer b) identify the performance obligations in the contract c) determine the transaction price d) allocate the transaction price to the performance obligations in the contract e) recognise revenue when (or as) the entity satisfies a performance obligation The Group is currently in the process of assessing the impact of the new standard but expects there may be changes to the timing of revenue recognition. This will continue to be assessed in light of the contracts in place at the time the standard is implemented. 80 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCORPORATE GOVERNANCE STATEMENT The Company’s Corporate Governance Statement can be located on its website www.silverlakeresources.com.au SECURITIES At 21 September 2017 the Company had 503,771,434 fully paid ordinary shares, 2,000,000 outstanding options and 8,681,234 performance rights on issue. DISTRIBUTION OF HOLDERS 1 1,001 5,001 10,001 100,001 Total Holders - - - - - 1,000 5,000 10,000 100,000 and over Fully Paid Ordinary Shares Options Performance Rights 1,585 4,438 2,087 3,519 478 12,107 - - - - 1 1 - - - 3 14 17 1,878 holders held less than a marketable parcel (<$500) of fully paid ordinary shares. VOTING RIGHTS OF SECURITIES 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) each Shareholder entitled to vote may vote in person or by proxy, attorney or representative; b) 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 c) on a poll, every person present who is a Shareholder or a proxy, attorney or representative of a Shareholder shall, in respect of each Share held by him, or in respect of which he is appointed a proxy, attorney or representative, have 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 2017 81 ASX ADDITIONAL INFORMATION SUBSTANTIAL SHAREHOLDERS As at 21 September 2017 the substantial holders disclosed to the Company were: Registered Holder Beneficial Owner Number of Shares Percentage of Issued Shares Bank of New York Mellon SA/NV Ruffer LLP (on behalf of CF Ruffer Gold Fund) 30,463,675 Bank of New York Mellon as custodian for Van Eck Vectors Junior Gold Miners ETF Van Eck Associates Corporation (and its associates) 28,244,639 6.05% 5.61% TOP 20 HOLDERS OF QUOTED SECURITIES As at 21 September 2017, the top 20 holders of quoted securities of the Company were: Number Held Percentage 90,960,174 71,258,032 35,016,256 4,858,697 4,715,294 4,412,000 4,000,000 4,000,000 3,854,109 3,045,954 2,675,000 2,660,354 2,131,378 2,082,621 1,682,390 1,500,000 1,500,000 1,400,000 1,346,322 1,346,159 18.06% 14.14% 6.95% 0.96% 0.94% 0.88% 0.79% 0.79% 0.77% 0.60% 0.53% 0.53% 0.42% 0.41% 0.33% 0.30% 0.30% 0.28% 0.27% 0.27% 244,444,740 48.52% Holder Name HSBC CUSTODY NOM AUST LTD J P MORGAN NOM AUST LTD CITICORP NOM PL BNP PARIBAS NOMS PL BRIKEN NOM PL STONE PONEYS NOM PL HATHOR INV PL PORTLEY PL BRISPOT NOM PL HOLT CARL ERIC + L ABN AMRO CLRG SYD NOM PL NATIONAL NOM LTD BNP PARIBAS NOM PL ECAPITAL NOM PL BNP PARIBAS NOM PL GARY B BRANCH PL BANASIK NOLA VERONICA BRAMOR SUPER PL 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 MALAEB JIHAD 20 HSBC CUSTODY NOM AUST LTD 82 SILVER LAKE RESOURCES LIMITED ANNUAL REPORT 2017 ASX ADDITIONAL INFORMATION SUITE 4, LEVEL 3, SOUTH SHORE CENTRE 85 SOUTH PERTH ESPLANADE SOUTH PERTH WA 6151 PH: +61 8 6313 3800 FAX: +61 8 6313 3888 WWW.SILVERLAKERESOURCES.COM.AU 

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