Annual Report For the year ended 30 June 2013 CONTENTS CORPORATE INFORMATION...............................................................................................3 CHAIRMAN’S STATEMENT .................................................................................................4 OPERATIONS REPORT ..........................................................................................................5 INTERESTS IN TENEMENTS ..............................................................................................27 RISKS AND UNCERTAINTIES ............................................................................................28 FINANCIAL REVIEW ...........................................................................................................32 DIRECTORS AND COMPANY SECRETARY ....................................................................35 DIRECTORS' REPORT ..........................................................................................................37 INDEPENDENT AUDITOR'S REPORT ...............................................................................42 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ................................44 CONSOLIDATED AND COMPANY STATEMENTS OF FINANCIAL POSITION .........45 CONSOLIDATED AND COMPANY STATEMENTS OF CHANGES IN EQUITY..........46 CONSOLIDATED AND COMPANY STATEMENTS OF CASH FLOWS.........................48 NOTES TO THE FINANCIAL STATEMENTS ....................................................................49 CORPORATE INFORMATION DIRECTORS Brian Moller (Non-Executive Chairman) – appointed 28 February 2013 Cameron Wenck (Non-Executive Chairman) – resigned 28 February 2013 Malcolm Norris (CEO and Managing Director) – resigned 22 February 2013 Alan Martin (CEO and Managing Director) – appointed CEO 10 May 2013 and appointed Managing Director 8 October 2013 Nicholas Mather (Executive Director) Dr Robert Weinberg (Non-Executive Director) John Bovard (Non-Executive Director) COMPANY SECRETARY Karl Schlobohm REGISTERED OFFICE 10 Dominion Street, London EC2M 2EE United Kingdom Registered Number 5449516 AUSTRALIAN OFFICE Level 27, 111 Eagle St Brisbane QLD 4000 Phone: + 61 7 3303 0660 Fax: +61 7 3303 0681 Email: info@solgold.com.au Web Site: www.solgold.com.au AUDITOR BDO LLP 55 Baker Street London W1U 7EU United Kingdom NOMINATED ADVISOR RFC Corporate Finance Ltd Level 14, 19-31 Pitt Street Sydney NSW 2000, Australia BROKER SP Angel Corporate Finance LLP Prince Frederick House 35-39 Maddox Street London W1S 2PP United Kingdom BANKERS Macquarie Bank Ltd (Brisbane Branch) 345 Queen Street, Brisbane QLD 4000 Australia UK SOLICITORS Fox Williams 10 Dominion Street London EC2M 2EE United Kingdom AUSTRALIAN SOLICITORS Hopgood Ganim Level 8, Waterfront Place 1 Eagle Street, Brisbane QLD 4000, Australia REGISTRARS Computershare Investor Services plc The Pavilions, Bridgwater Road Bristol BS99 7NH United Kingdom SolGold plc annual report for the year ended 30 June 2013 3 CHAIRMAN’S STATEMENT Dear Fellow Shareholder, On behalf of the Board of Directors of SolGold, I take pleasure in presenting the Annual Report for 2013. During the year, the Company has continued to focus the majority of its efforts on the exploration of Cascabel, its 50% owned flagship copper gold porphyry project in Ecuador, culminating in the First Phase drilling campaign that commenced in September 2013 following the tireless efforts of all involved in obtaining the necessary Governmental drilling clearances and permits. SolGold holds a 50% interest, and can earn up to 85% interest, in Exploraciones Novomining S.A. (“ENSA”), an Ecuadorean registered company, which holds 100% of the Cascabel concession in northern Ecuador. Cornerstone Capital Resources Inc. (“Cornerstone”) currently holds the other 50% of ENSA. SolGold has recently exercised its rights to acquire a further 35% of ENSA to take its interest to 85%. The Cascabel project is located in north-western Ecuador in an under-explored northern section of the richly endowed Andean Copper Belt. World class deposits located within this belt include the 982 million tonnes at 0.89% Cu Junin copper project located some 60 km to the southwest of Cascabel, the 3.3 billion tonne at 0.36% Cu Cobre Panama deposit located to the north in Panama and the 905 million tonnes at 0.92 g/t Au La Colosa porphyry deposit located to the north in Colombia, containing 26 million ounces of gold. The Alpala Prospect exhibits surface mineralisation and alteration patterns indicative of a porphyry copper gold system and has a similar footprint to large porphyry systems around the world. As reported during the October to December quarter of 2013, drilling results from the Alpala Prospect to date have been highly encouraging, and the First Phase drilling program is set to be expanded from the initial 5 holes (for 2,500 metres) to a total of 11 holes (for 6,600 metres). SolGold is working closely with its JV partner Cornerstone Capital Resources in managing the operational and logistical aspects of the Cascabel Project. In May 2013 we were extremely pleased to welcome Mr Alan Martin to SolGold as its CEO, and to the Board as Managing Director in October 2013. Alan came to SolGold with more than 20 years of technical, commercial and financial investment experience in the Australian resources industry. Alan was prior to the SolGold leadership role, Global Funder Manager for Colonial First State’s Global Resources Fund. He has a strong passion for exploration and considerable financial experience which will continue to stand the Company in good stead for the future. SolGold has a number of other smaller projects in its portfolio, including in Australia and in the Solomon Islands, and these are either being advanced or joint ventured. The Company continues to receive proposals to participate in new projects and a number are actively being assessed. If any of these proposals represent a high quality gold-copper opportunity, they will be pursued vigorously. SolGold’s continued aim is to advance a portfolio of exploration assets and deliver shareholder growth through the discovery of gold and copper deposits. On behalf of the Board, I would like to thank you for your support of the Company and I look forward to bringing you further news as our exploration efforts continue. Brian Moller SolGold plc annual report for the year ended 30 June 2013 4 OPERATIONS REPORT * As at 30 June 2013 SolGold had a 30% interest in ENSA. On 28 August 2013 SolGold satisfied conditions to increase its interest to 50% and on 16 December exercised its right to increase its interest to 85% Figure 1 – SolGold Corporate Structure Corporate Strategy The Company’s corporate strategy is to: Create substantial wealth for its shareholders by exploring, discovering and defining large inventories of, but not limited to, copper and gold metal resources. Target regions with world class deposits. Target grass roots level exploration opportunities to enable low cost entry into projects. Adopt a disciplined and systematic approach to exploration. Primary focus on copper and gold. Maximise shareholder funds on “in the ground” exploration expenditure as a proportion of the total budget to generate high-quality results and provide shareholders with “bang for buck”. Secure additional exploration projects by the application for new tenements and/or farm-in style agreements. On-going review of potentially ‘value accretive’ opportunities that are presented to the company from time to time. Respect for the Communities and Environment in which we operate. Strong focus on Health and Safety for our employees and contractors. SolGold has a commitment to Corporate Social Responsibility and has active community programs in its areas of exploration. SolGold also has a commitment to environmental responsibility and undertakes, as appropriate, environmental baseline studies and rehabilitation programs as part of its exploration programs. SolGold plc annual report for the year ended 30 June 2013 5 Figure 2 - SolGold areas of interest. Exploration Strategy The company’s exploration strategy includes the following elements: Capitalise on the company’s track record of success in the discovery of mineral resources. Detailed due diligence of project opportunities. A disciplined approach to the evaluation of projects to produce exploration datasets that may include all or some of the following exploration activity: geological mapping, stream, soil and rock chip sampling geochemistry, geophysical surveying (magnetics, radiometrics and Induced Polarisation techniques). Generation of drill targets to test ore deposit models based on exploration datasets. Drill testing targets to define economic mineral resources that the company can take to feasibility study stage. SolGold has a track record of experience at both management and board levels to define and develop mineral resources from discovery through to feasibility and development. Table 1 – SolGold exploration projects Project Cascabel JV Rannes Mt Perry Normanby Cracow West Westwood Lonesome Fauro Kuma Lower Koloula Malakuna Location Ecuador Queensland, Australia Queensland, Australia Queensland, Australia Queensland, Australia Queensland, Australia Queensland, Australia Solomon Islands Solomon Islands Solomon Islands Solomon Islands Style Copper Gold Porphyry Disseminated and Vein Gold Porphyry and Vein Gold Gold Copper Porphyry Epithermal Gold Gold Copper Porphyry and PGE Layered Gabbros Epithermal Gold Epithermal Gold and Gold Copper Porphyry Copper Gold Porphyry Copper Gold Porphyry Copper Gold Porphyry Ownership JV, SolGold earning in 100% owned 100% owned 100% owned 100% owned 100% owned 100% owned 100% owned 100% owned 100% owned 100% owned SolGold plc annual report for the year ended 30 June 2013 6 ECUADOR Cascabel Project (Earning 85% interest) Location: Ownership: SolGold owns 50% of ENSA and has exercised its right to increase its interest to 85% Tenement Area: Primary Targets: 180 km north of the capital Quito, Ecuador 100% Exploraciones Novomining S.A (ENSA). 50 km2 Porphyry copper-gold plus low- and high-sulphidation epithermal deposits The Cascabel concession is geographically located in northwest Ecuador in the province of Imbabura, situated 180 km by road north of the capital city of Quito and 24 km west-southwest of the city of Tulcan that is located on the border of Ecuador with Colombia. Northern Ecuador lies within the relatively under-explored northern section of the richly endowed Andean Copper Belt, which extends from Chile in the south to Colombia to the north and then north-west into Panama. In this northern-most sector of the Andean trend, some of the major deposits include the 982 million tonnes at 0.89% Cu Junin copper project located some 60 km to the south-west of Cascabel, the 905 million tonnes at 0.92 g/t Au La Colosa porphyry deposit located to the north in Colombia and the 3.3 billion tonne at 0.36% Cu Cobre Panama deposit located to the north in Panama and containing 26 million ounces of gold. Figure 3: Tectonic setting of the Cascabel property in northern Ecuador, located above the eastward subducted extension of the Carnegie Ridge. The location of major porphyry Cu-Au +/ Mo and epithermal Au deposits are shown in yellow. The Cascabel concession area is rugged with steep-sided hills at elevations of 1,000 metres to 2,000 metres. Climate is tropical- savannah and vegetation is tropical forest with a well-developed soil horizon. A first-order paved highway provides year round access and crosses the north-east corner of the concession (Figure 4). A gravel road in good condition provides access to the village of Santa Cecilia located in the centre of the concession. SolGold plc annual report for the year ended 30 June 2013 7 Figure 4: Location of the Cascabel concession, the nearby giant Junin porphyry deposit and infrastructure in the northwest part of Ecuador. At 30 June 2013 SolGold held a 30% interest in Exploraciones Novomining S.A. (“ENSA”), an Ecuadorean registered company, which holds 100% of the Cascabel concession in northern Ecuador. On 28 August 2013 SolGold satisfied conditions and increased its holding in ENSA to a 50% interest, and on 16 December 2013 exercised its right to increase its interest to an 85% interest. Cornerstone Capital Resources Inc. (“Cornerstone”) will hold the other 15% of ENSA. The Cascabel concession contains an early-stage exploration prospect that indicates the potential for a large tonnage copper-gold porphyry system. The geology of the Cascabel region has similarities to the Maricunga Belt in Chile and to the recently recognised gold porphyry belt in west-central Columbia that is centred on the recently discovered La Colosa gold porphyry. These porphyry systems are Miocene age and are associated with diorite and quartz diorite stocks with porphyritic textures. The project is located in the Cordillera Occidental of the Ecuadorian Andes, within a north northeast trending structural zone parallel to the principal fault Pallatanga situated along the eastern margin. Basement rocks consist of ocean floor basalts and sediments of Cretaceous age. High-level batholiths of Miocene age and associated granite, granodiorite and diorite bodies of Late Miocene age intrude volcanic and sedimentary rocks of Cretaceous to Tertiary age. Upper Miocene age stocks are associated with the principal porphyry and epithermal deposits located in the district (Figure 5). SolGold plc annual report for the year ended 30 June 2013 8 Figure 5: Regional geology of northern Ecuador, showing the north-east trending array of Miocene-age batholiths and intrusions associated with mineralisation at Cascabel, Junin, Cuellaje, Buenos Aires and Chical. Early regional mineral exploration surveys in Ecuador were funded by government agencies and consisted of geological mapping, rock and silt sampling. The World Bank supported Prodeminca, a non-profit mineral exploration organisation setup by Ecuador in 1988 to attract foreign investment into the mining sector. The British Geological Survey funded regional surveys during the 1970’s and 1980’s to provide the geological framework to identify potential areas of mineralisation worthy of more detailed evaluation. The early survey work led to the discovery of several porphyry deposits, of which the most significant is the giant Junin copper- molybdenum porphyry. Junin is located approximately 60 km SSW of Cascabel, and has a reported inferred tonnage of 982 Mt at a grade of 0.89 % copper and 0.04 % molybdenum. It is hosted by quartz granodiorite porphyry of late Miocene age, which intrudes the Apuela batholith. Mineralisation consists mainly of bornite, chalcopyrite and molybdenite as disseminations and associated with quartz veins and quartz stockworks related to phyllic – potassic hydrothermal alteration. The first documented report of work at Cascabel was carried out by Santa Barbara Copper and Gold SA during 2008. Stream silt surveys and prospecting indicated the presence of a copper-gold porphyry system. Cornerstone Ecuador SA carried out prospecting, regional geological mapping and a heavy mineral stream sediment survey during June and July 2011 with the discovery of numerous gold mineralised zones. A 4 km by 5 km area was highlighted for follow-up work. On the 24th July 2012, SolGold Plc entered into a definitive option agreement with Cornerstone Capital Resources Inc. to acquire up to an 85% interest in the Cascabel copper-gold property in Ecuador. Exploration survey work was initiated by Cornerstone during May 2012 under the proposed terms of the option agreement with SolGold and continued through 2012 and 2013 under the technical guidance of SolGold. Regional survey works in 2012 included: Stream silt sampling. Rock chip sampling. Geological mapping to complete reconnaissance coverage throughout the concession. Orientation soil sampling (3 lines). Soil sampling over an approximate 20 km2 area at a sample spacing of 200m x 100m and 100m x 100m. Regional TerraSpec spectral sampling program conducted on soil samples. Channel sampling at Quebrada Moran, Quebrada Tandayama and Quebrada America. A combined helimagnetic and radiometric survey over the concession area. Aerial photographic data was acquired and a DEM (digital elevation model) generated over the concession area. SolGold plc annual report for the year ended 30 June 2013 9 This work generated five key areas of interest (Figure 6): 1) Quebrada Alpala – Outcropping porphyry Cu-Au mineralisation. 2) Quebrada Moran - Outcropping porphyry Cu-Au mineralisation overprinted by polymetallic veins. 3) Quebrada Tandayama and Quebrada America - Outcropping porphyry Cu-Au mineralisation. 4) Aguinaga – Extensive soil Cu-Au-Mo anomalism (porphyry Cu-Au prospect). 5) Rio Cachaco – Low- to intermediate sulphidation Au-Ag-basemetal veins systems. Figure 6: RTP (Reduce-To-Pole) magnetic image over the Cascabel concession and showing five principal target areas at 1. Alpala, 2. Quebrada Moran, 3. Quebradas Tandayama and America, 4. Aguinaga and 5. Rio Cachaco. Regional exploration activity in 2013 focused in the southern part of the concession area in the vicinity of the Alpala porphyry copper-gold prospect. Principal programs included: Channel sampling at Quebrada Alpala (576 samples). 3D modelling of magnetic imagery. Completion of an Environmental Impact Study and subsequent issuance of the environmental license on the 27th August that allowed the central part of the concession area to progress from Early Stage to Advanced Stage Exploration status, enabling diamond drilling to commence at the Alpala prospect. Establishment of the Alpala field camp and the Rocafuerte field office. Commencement of Stage 1 drill program at Alpala on 1st September, being 5 holes for 2500 metres. Completion of diamond drill holes CSD-13-001, 002, 003 and 004 with drill hole CSD-13-005 in progress at Alpala (Stage 1 drill program). On-going activities include planning for a Stage 2 drill program and planning for an electrical 3D IP (Induced Polarization) survey covering an area of approximately 9 km2 over the Alpala region. SolGold plc annual report for the year ended 30 June 2013 10 Channel sampling at Alpala was conducted between December 2012 and April 2013. A total of 576 samples were collected along linear channels cut into bedrock (using a rock saw) from along the sides of Alpala Creek and from adjacent tributaries that flow into Alpala Creek. The trenching covered an area of approximately 0.3 km2 and was centred on outcrops of mineralised and sheeted quartz veins that were assayed in 2012 at 4m grading 0.99 % Cu and 3.3 g/t Au. The follow-up channel sampling yielded a large number of significant intersections at surface (Figure 7). These included: 45.64m @ 0.59 % Cu, 0.81 g/t Au TR46 56.93m @ 0.34 % Cu, 1.16 g/t Au TR56A TR56B 34.35m @ 0.46 % Cu, 0.19 g/t Au TR57 45.50m @ 0.25 % Cu, 0.46 g/t Au TR64D 61.03m @ 0.19 % Cu, 0.18 g/t Au 6.97m @ 1.07 % Cu, 0.45 g/t Au TR73D Figure 7: Location of channel samples collected between December 2012 and April 2013, channel intersections, plus the location of planned Stage 1 holes (black drill traces) and completed Stage 1 holes (red drill traces). Four regions of the helimagnetic data acquired in late 2012 were modelled with 3D inversion methods by Chris Moore of Moore Geophysics in January 2013. The models were created over the northern, central and southern parts of the concession. Refinements to the southern (Alpala) magnetic model were made in May 2012. Magnetic data from the southern sectors (Alpala region) were visualised with 3D imaging software. The models identified a magnetic complex below the mapped zone of argillic alteration at Alpala (i.e. below the ‘lithocap’). The magnetic basement around this magnetic complex is at approximately 2 kilometres depth. The magnetic complex in detail comprises a series of convex-shaped areas that culminate in a magnetic apophysis (Figures 8 and 9). Several of these magnetic protuberances may represent the cupola region of a larger batholith at depth and are targets for porphyry copper-gold mineralisation. SolGold plc annual report for the year ended 30 June 2013 11 Figure 10 shows a schematic NE-SW cross-section through the magnetic model while Figure 11 shows a NW-SE slice through the magnetic model. Drill targets for porphyry copper-gold mineralisation have been developed around the interpreted cupola positions around the carapace of an interpreted deep magnetic batholith. Figure 8: Two surfaces of equal magnetic susceptibility in the Alpala 3D inversion model (view looking towards the north-east) and location of completed, current and planned drill holes at Alpala. Figure 9: Plan view of the Alpala 3D inversion magnetic model, showing completed, current and planned drill holes and cross- sections A1-A2 (schematic section) and B1-B2 (to scale model slice) across the magnetic model (Figures 10 and 11 below). SolGold plc annual report for the year ended 30 June 2013 12 Figure 10: NE-SW cross-section through the Alpala magnetic complex, showing interpreted batholith and cupola positions that are being targeted for porphyry copper-gold mineralisation (cross-section location is shown in Figure 9 above). Figure 11: NW-SE long-section through the Alpala magnetic complex, showing interpreted batholith and cupola positions that are being targeted for porphyry copper-gold mineralisation (cross-section location is shown in Figure 9 above). SolGold commenced a Stage 1 diamond drill program on the 1st September 2013. The first five drill holes were all collared within the confines of the area of channel sampling at Alpala. To date four holes were completed and a fifth drill hole is underway (Figure 7). Drill hole CSD-13-001, the first hole to test the Alpala Prospect at the Cascabel Project, intersected coherent porphyry copper mineralisation across two zones, a stockwork zone in the upper part of the hole and a strongly sheeted quartz vein zone in the lower part of the hole. A bulked intersection of 302m grading 0.39% Cu and 0.48 g/t Au (Table 2) was obtained from CSD-13-001, and contained higher grade intervals including 100m grading 0.65 % Cu and 1.00 g/t Au (Figure 11). Drill hole CSD-13-002 was centred in the area of mineralised channel samples at Alpala and drilled to test the extension of porphyry stockwork mineralisation at depth to the east of hole CSD-13-001. The hole intersected a number of zones of visible copper- sulphide minerals within diorite intrusives and volcanic country-rock, extending from near surface to near the bottom of the hole. Visible fine-grained and coarse-grained bornite and/or chalcopyrite were observed in these intervals. The hole yielded a shallow intersection of 18m length grading 0.33% Cu, 0.41 g/t Au (from 6m depth) and a long and deeper intersection of 292m length grading 0.37% Cu, 0.30 g/t Au (from 126m depth) (see Figure 12). The Company’s current interpretation is that the northwest-striking zone of porphyry copper-gold mineralisation encountered in Alpala Creek is structurally-controlled and may be rooted at depth - either directly below or along structural strike - to the margin of a larger body of mineralisation which is the principal conceptual target in the Alpala region. SolGold plc annual report for the year ended 30 June 2013 13 Figure 12: Cross section showing copper and gold grades for entire drill hole CSD-13-001 and CSD-13-002. The interpreted northwest-trending zone of structurally-controlled mineralisation (dashed black lines) is being targeted at depth with current drill- hole CSD-13-005. HoleID CSD-13-001 DepthFrom 16 DepthTo 318 Interval (m) 302 Cu_% 0.39 Au_g/t 0.48 CSD-13-001 Includes Includes CSD-13-001 CSD-13-001 CSD-13-001 Includes Includes CSD-13-002 CSD-13-002 Includes Includes 16 50 100 128 188 222 226 232 6 126 130 184 120 84 118 160 212 322 284 248 24 418 140 226 104 34 18 32 24 100 58 16 18 292 10 42 0.37 0.46 0.38 0.17 0.32 0.65 0.96 1.87 0.33 0.37 0.91 0.5 0.38 0.50 0.73 0.09 0.06 1.00 1.67 3.25 0.41 0.30 0.44 0.68 Table 2: Significant intersection encountered in drill holes CSD-13-001 and CSD-13-002 at the Alpala prospect. SolGold plc annual report for the year ended 30 June 2013 14 Drill hole CSD-13-003 was collared south of holes CSD-13-001 and CSD-13-002 (Figure 7) and drilled at 60 degrees inclination towards 110 degrees azimuth to test a broad and variable magnetic anomaly that lies east of the area of trenching at Alpala. The hole was terminated at 751.33m depth near the margins of this modelled magnetic body. Hole CSD-13-003 intersected long runs of variably weak but very persistent chalcopyrite and molybdenite mineralisation, with minor visible chalcopyrite encountered from 76 metres to 751.33 metres (end-of-hole). Visible chalcopyrite was more pronounced at 590 metres to 690 metres down hole. Visible molybdenite was most apparent from 283 metres to 635 metres. An eastward trend of slowly increasing stockwork veining in hole CSD-13-003 is consistent with the hole drilling obliquely through the marginal halo of a porphyry system whose centre may be located to the northwest or southeast. Following completion of the Stage 1 drill program at Alpala, SolGold plans to transition to a Stage 2 drill program which will comprise an additional seven deep diamond drill holes to test a range of high quality magnetic, geochemical and conceptual regional targets around Alpala in an attempt to quantify the potential scale of the Alpala mineralising system in as short a time frame as possible. Figure 13: Plan view of RTP (Reduced-To-Pole) magnetics, showing the extent of Stage 1 drill program holes (black hole traces) and Stage 2 drill program holes (yellow hole traces). Environmental and social management programs in 2013 have expanded and built on the programs initially established in 2012. Local concerns regarding mining and exploration relate primarily to issues of water use and management. The Cascabel property is situated within the boundaries of three communities. The main community of Santa Cecilia located in the central part of the concession is very supportive. SolGold and partner Cornerstone are continuing to build strong community relations with the three main communities at Cascabel. SolGold plc annual report for the year ended 30 June 2013 15 QUEENSLAND - AUSTRALIA Figure 14: Location of tenements held by SolGold in Queensland, Australia. Mount Perry (100% SolGold) Location: Ownership: Tenement Area: tenement consolidation areas). Primary Targets: 130km north-west of Gympie, Queensland, Australia 100% owned 89 granted sub-blocks (circa 277km2) and 103 application sub-blocks (circa 336km2; primarily High grade, lode gold deposits and possible gold porphyry deposits The Mt Perry Goldfield is located four hours by road from Brisbane and is host to more than 60 named and numerous other unnamed historical mines and workings (see Figure 15). The area lies adjacent to Evolution’s 100kozpa Mt Rawdon Gold Mine which lies at the intersection of two major geological fault structures; the Mt Bania and Darling Lineaments. Current published resources at Mt Rawdon stand at 36.7 million tonnes at 0.87g/t gold for 1 million ounces, and historical production has been approximately 1 million ounces. SolGold plc annual report for the year ended 30 June 2013 16 Figure 15 – An Overview of the Mt Perry project highlighting the prospects (defined by Au soil anomalies), the Mt Rawdon mine (a 2 million ounce Au deposit) and the major regional structures. SolGold’s exploration has focussed along the Augustine-New Moonta trend (which is a similar orientation to the Darling lineament) and the Chinamans-Reagans trend, which has a similar orientation as the Mt Bania and Mt Perry fault. SolGold’s exploration at Mt Perry has focussed along two mineralised structural zones (The Augustine-New Moonta trend and the Chinamans-Reagans trend (see Figure 15). The structural orientations of these are similar to the major structures that host the Mt Rawdon gold mine. The ‘Augustine-New Moonta trend’ extends over a 20km long north-east trending corridor from Augustine in the south-west to the New Moonta mines in the north-east (see Figure 15). Sulphide-mineralised breccia bodies with variable gold, silver, base metals and with occurrences of uranium characterise the Augustine- New Moonta trend. The second target zone is the ‘Chinamans- Reagans trend’. This target zone is characterised by copper-molybdenum porphyries with gold and zinc anomalous halos in the south of the project area, and it merges with the 7km long and strongly mineralised Chinaman’s Creek – Reid’s Creek – Spring Creek – Reagan’s target immediately to the north. Extensive airborne magnetic and electromagnetic surveys have been conducted over the Mt Perry Project area, together with detailed soil sampling, rock chip sampling and geological mapping surveys. This has been followed by drilling programs that conducted first pass reconnaissance drilling on numerous targets. Exploration at Mt Perry has identified several high grade vein- style targets and lower grade, high-tonnage porphyry-style gold targets. SolGold plc annual report for the year ended 30 June 2013 17 During 2013 a detailed review of the Mt Perry project was carried out. The aim of the review was to evaluate the geological potential of the seven main prospects to establish the geological resource potential for the region. The report concluded that the prospects have a combined potential to host between 200,000 ozs (base case) and 700,000 ozs (geological potential) of gold. A significant amount of the tenement remains unexplored, leaving the potential for unrecognised prospects to be discovered within the area. Currently SolGold is seeking a JV partner to continue exploration at Mt Perry. Figure 16 – Augustine North long-section displaying an interpreted high-grade shoot dipping to the north-east. Figure 17 – Chinamans Creek North cross-section displaying interpreted Au and As lodes through the SW lode (Caledonian Reef) and Middle lode. SolGold plc annual report for the year ended 30 June 2013 18 Figure 18 – Spring Pig cross section, displaying interpreted Au and As lodes. Figure 19– Bania lode long-section, showing gram-metre values over the approximate 400m strike length of drill testing. SolGold plc annual report for the year ended 30 June 2013 19 Normanby Project (100% SolGold) Location: Ownership: Tenement Area: 120km north-west of Mackay, Queensland, Australia 100% owned 171 granted sub-blocks (circa 550 km2) and 100 application sub-blocks (circa 321 km2 which are Primary Targets: Cu-Au porphyry deposits and batholith associated gold vein deposits primarily consolidation areas). The Normanby Project is located at the southern margin of eastern Australia’s densest cluster of million ounce gold deposits, the nearest of which is the Mt. Carlton Au-Ag mine, located 40km to the northwest of Normanby. SolGold’s exploration to date has primarily focussed around the Normanby Goldfield, a collection of 70 historical workings. Work programs have included extensive stream sediment, soil and rock chip sampling, an airborne magnetic survey and 50 drill holes totalling 1523 metres in length. The most significant intersections were at the Mt Flat Top prospect and included an intersection of 42m grading 1.16 g/t gold and 34m grading 1.22 g/t gold. The mineralisation has the geological features of a porphyry copper system with a high gold to copper ratio. A second phase of drilling may be carried out to test the lateral and vertical extension of this potential porphyry target. Regional-scale stream sediment and rock chip sampling has identified numerous anomalous areas, including the Mt Crompton breccia pipe. No field exploration was conducted in 2013 at Normanby as SolGold is seeking expressions of interest to joint venture the Normanby project. Figure 20: Mt Flat Top cross-section, displaying Au (colour histograms) and Cu (black line) assay grades. Rannes Project (100% SolGold) Location: Ownership: Tenement: 140km west of Gladstone, Queensland, Australia 100% owned 209 granted sub-blocks (circa 655km 2) and 203 application sub-blocks (circa 651.5 km2) which are Primary Targets: Disseminated and vein gold and silver deposits primarily consolidation areas). SolGold’s principal targets at the Rannes project are structurally-controlled, low-sulphidation epithermal gold-silver deposits. Thirteen prospects have been identified within the Permian-aged Camboon Volcanics, with the majority lying along north-north- west trending fault zones. Exploration by SolGold has included tenement wide stream sediment, soil and rock chip sampling surveys. A detailed airborne magnetic survey has also been flown and recently re-interpreted to enhance the structural model development of the belt. At a prospect scale, exploration methods have included a 3-D IP (Induced Polarisation) survey, geological mapping, and trenching all contributing to additional drill targets being defined at several prospects. SolGold plc annual report for the year ended 30 June 2013 20 A total of 473 holes have been drilled at the Rannes project for a total of 58,887m. The majority of this drilling has been focussed at the Kauffmans prospect (151 holes) and the Crunchie prospect (90 holes), while lower metreage drill programs have occurred at the Shilo, Cracklin Rosie, Porcupine, Brother, Spring Creek and Police Camp Creek prospects. Based on these drilling programs, the current combined indicated and inferred resource estimate stands at 12.23 million tonnes at 0.6 g/t gold and 23.18 g/t silver; for 237,240 ozs Au and 9,105,072ozs Ag (23rd May 2012). Table 3 lists the current resource estimates at the five main prospects. These estimates are based on gold to silver ratio of 1:50 and a 0.5 g/t Au equivalent cut-off. Mineral resources estimates were completed by Hellman & Schofield Pty Ltd, and by H&S Consulting Pty. Ltd., independent geological consultancies. The most recent resource estimate includes resources in both Indicated and Inferred categories for reporting under the JORC Code for Reporting of Mineral Resources and Ore Reserves. Figure 21: An overview of the Rannes project displaying the main prospects, soil gold anomalies and a simplified geology map. Indicated and inferred gold resources exist at Kauffmans and Crunchie, while untested prospect targets exist at Woolein, Bojangles and Longfellow. AuEq Cut off Category M Tonnes Au g/t Ag g/t Au ozs Ag ozs Kauffmans Crunchie Cracklin' Porcupine Brother 0.5 0.5 0.5 0.5 0.5 Indicated Inferred Indicated Inferred Inferred Inferred Inferred TOTAL (All Prospects) 1.58 3.49 2.4 3.2 0.43 0.57 0.57 12.24 0.79 0.74 0.46 0.49 0.59 0.5 0.6 0.63 10.3 8.9 42.4 39.8 5.6 7.5 1.1 34.80 40,304 83,060 35,833 49,797 8,023 9,202 11,021 237,240 522,074 999,278 3,310,000 4,040,000 76,145 137,085 204,90 9,105,072 AuEq ozs 1:50 Au:Ag 50,729 103,092 102,100 130,676 9,544 11,941 11,434 419,516 Table 3 – Resource estimates at Kauffmans, Crunchie, Cracklin, Porcupine and Brother as of the 23rd May 2012. Note the gold equivalent values are based on a ratio of 1:50 (Au:Ag). SolGold plc annual report for the year ended 30 June 2013 21 During 2013 a detailed review of the Rannes prospects was carried out. The aim of this review was to evaluate the geological potential of the project. The report concluded the following: 1. The resources at Kauffmans and Crunchie, at the current gold price, will require further higher grade zones to enhance the prospects economic viability. 2. Numerous untested prospects exist within the project (Longfellow, Woolein and Bojangles). The geological potential of 3. these prospects has been estimated to be 50,000 ozs of gold. Potentially deeper targets exist at Rannes but no geophysical technique, to date, has effectively identified target mineralisation. Currently SolGold is seeking a JV partner to continue exploration at Rannes. Cracow West Project (100% SolGold) Location: Ownership: Tenement: Primary Targets: 260km west-north-west of Gympie, Queensland, Australia 100% owned 47 granted sub-blocks (circa 146 km2) and 30 application sub-blocks (circa 93.16 km2) Low-sulphidation epithermal Au-Ag deposits Cracow West is located 15km to the north-west of Evolution Mining’s Cracow gold mine (approximately 1.5 million ounces of gold). Gold mineralisation at the mine is associated with Permian-aged, low-sulphidation, epithermal quartz veins which have been emplaced along north-west and north-north-west trending fault zones. SolGold’s initial exploration concept was to explore for a similar deposit to Cracow gold mine but a recent review of the regional geology suggests that the anomalism seen at Cracow West may be associated with a later phase of Triassic intrusions, suggesting a later mineralisation event. SolGold’s exploration at Cracow West has included stream sediment, soil and rock chip sampling. This has identified three significant prospects; Dawson Park, Kambrook and Theodore Bends. A ‘SAM’ survey (sub-audio magnetotellurics) has also been completed over the Kambrook and Dawson Park prospect. This has identified a potential buried target at Dawson Park, which coincides with a distinct soil tellurium anomaly at surface. Figure 22: A conceptual geological cross-section through the Cracow West project and the surrounding area. The age of the intrusions interpreted below Dawson Park and Theodore has been interpreted to be Late Permian to Early Triassic. Westwood Project (100% SolGold) Location: Ownership: Tenement: Primary Targets: Au porphyry and disseminated PGE (platinum group elements) in layered gabbro intrusions 50km south-west of Rockhampton, Queensland, Australia 100% owned 63 granted sub-blocks (circa 198 km2) SolGold are currently reviewing two prospects at Westwood. These include: The Westwood prospect, which is a layered gabbro intrusion enriched in PGE’s, Cu and Au. The area has had some historic exploration by BHP and Glengarry Resources that was focussed in a small proportion of the intrusion. SolGold’s exploration concept is to screen the rest of the intrusion with soil sampling to locate untested PGE-bearing horizons within the layered gabbro. The Fred Creek prospect is located in the north of the tenement. SolGold has carried out a small soil sampling program and a brief field investigation. Historic drilling by BHP included assay results of 33m grading 0.97 g/t Au from 12m depth (the hole ended in mineralisation) and 43m grading 0.52 g/t Au from 2m depth. The principal target is a gold porphyry system. SolGold plc annual report for the year ended 30 June 2013 22 Lonesome Project (100% SolGold) Location: Ownership: Tenement: Primary Targets: 200km west of Bundaberg, Queensland, Australia 100% owned 43 granted sub-blocks (circa 134 km2) Epithermal Au-Ag and Cu-Au porphyry deposits The tenement is situated 61km north of the Cracow Au-Ag mine. The geological setting of Lonesome is similar to that of the Cracow gold mine, with the principal target being a low-sulphidation epithermal system. SolGold have yet to carry out work at the Lonesome project. SOLOMON ISLANDS Figure 23: Location of exploration licenses held by SolGold in the Solomon Islands. Fauro Island Project (100% SolGold) Location: Ownership: Tenement Area: Primary Targets: 380km northwest of the capital Honiara, Solomon Islands 100% owned 30 km2 Epithermal gold and copper-gold Porphyry deposits The Fauro Prospecting Licence (PL 12/09) was granted to Australian Resource Management (ARM, a 100% owned subsidiary company) on 20th November 2009. The project lies 82km south-east of the giant ‘Panguna’ copper gold porphyry deposit on Bougainville Island in neighbouring Papua New Guinea. SolGold interprets the geology of the Fauro Project to be favourable for the discovery of epithermal gold and porphyry copper gold deposits similar to those within other parts of the belt. The Fauro property was acquired following concept development in 2007-2008 that targeted environments with demonstrated gold mineralisation within a Lihir-style volcanic caldera setting. The key prospects are Ballyorlo, Kiovakase, Meriguna and Ballteara (see Figure 24). Available datasets across the project include airborne magnetics, airborne EM, electrical IP, surface geochemistry (BLEGS, soils, rock chips), geological mapping, trenching and diamond drilling. Geochemical highlights include rock chips with assays up to 169 g/t Au at Kiovakase (with visible free gold) and up to 173 g/t Au from Meriguna. Trench results and drilling results are summarised in Figure 24. SolGold plc annual report for the year ended 30 June 2013 23 No field exploration was conducted during 2013 at Fauro as SolGold is seeking expressions of interest to joint venture the project. Figure 24: An overview of the Fauro prospects and the significant intersects to data. The base map comprises RTP (Reduced-To- Pole) magnetic imagery. Guadalcanal Joint Venture The Guadalcanal Joint Venture between SolGold and Newmont was terminated as of 5th May 2013. SolGold has entered into an agreement with Gold Ridge Mining Limited, who may secure suitable tenure over the Sutakiki, Central, Koloula and Mbetilonga tenements. SolGold have retained the Kuma project from the joint venture area. Kuma Project (100% SolGold) Location: Ownership: Tenement Area: Primary Targets: 37km south-east of the capital Honiara, Solomon Islands 100% owned 43 km2 Copper gold porphyry deposits The Kuma project lies just to the south-west of a series of major NW-SE-trending arc-parallel faults. These faults are associated with numerous Cu and Au anomalies, including the Sutakiki prospect and the Mbetilonga prospect (formerly part of the Guadalcanal Joint Venture). At Kuma, the surface geology is dominated by a 4km by 1km lithocap. This extensive zone of argillic and advanced argillic alteration is caused by hydrothermal fluids that emanate from the top of porphyry copper-gold mineralising systems, and thus provides a buried porphyry copper (gold) target for SolGold. Exploration completed at Kuma under the previous Guadalcanal Joint Venture between SolGold and Newmont included extensive geochemical sampling (BLEG, rock chip and channel samples), geological mapping, a magnetic survey and an electromagnetic survey. Figure 25 shows the outline of the mapped lithocap and also highlights magnetic highs which may represent the apex of porphyry stocks. SolGold plc annual report for the year ended 30 June 2013 24 Figure 25: An overview of the Kuma tenement. The principal target is a ‘lithocap’ 4km by 1km in area. The outlines define the mapped alteration as follows: yellow=argillic, orange=advanced argillic and red=silica. The magnetic high anomalies that are labelled A, B, C and D are additional targets on the prospecting licence area. Lower Koloula Project (100% SolGold) Location: Ownership: Tenement Area: Primary Targets: 20km south-east of the capital Honiara, Solomon Islands 100% owned 20 km2 Copper-gold porphyry The Lower Koloula tenement (PL 01/10) lies along the southern ‘weather coast’ of Guadalcanal. The Lower Koloula area has geology dominated by intrusions of the Koloula Igneous Complex, with over eight phases of intrusions mapped at surface. Exploration to date has included geochemical surveys (BLEG, soil and rock chip sampling), an airborne magnetic survey and geological mapping. These work programs have identified two main areas of interest; the Big Frog prospect and the Pepechichi prospect. The most significant prospect is Big Frog, an area of multiple intrusive rock types that include five phases of tonalite and three phases of diorite and quartz diorite. This intrusive complex is defined by coincident Cu, Au and Mo soil anomalies that collectively span an area approaching a square kilometre. These soil anomalies are open to the west and southwest beneath alluvial deposits of the Koloula River. Outcrops of porphyry stockwork veins (predominantly B-veins) at surface occur near central to the Big Frog prospect, confirm the presence of a porphyry system at Big Frog, and corroborate the Cu-Au-Mo association in soil samples from the region. Also extensively observed at Big Frog are north-west-trending zones of argillic and advanced argillic alteration. Other highlights at Big Frog include a rock chip sample grading 2.47 g/t Au, 100 g/t Ag and >0.1 % Cu. Pepechichi is currently defined by a Cu-Au soil anomaly. SolGold plc annual report for the year ended 30 June 2013 25 Figure 26: RTP magnetic image over the Lower Koloula license area. Besides the Big Frog prospect and the area adjoining the southwest margin of Big Frog, other areas of interest are labelled 1-8. The three extensive and strong magnetic high anomalies are likely to be shallow outcropping areas of the Koloula Diorite. Areas of anomalous Cu and Au soil geochemistry at Big Frog lie south- west of the magnetic high labelled ‘1’. Magnetic lows appear to lie along structures, the clearest example being the northeast- trending series of magnetic lows that encapsulate the magnetic low feature labelled ‘6’. Malukuna Project (100% SolGold) The Malukuna project is located 23km south-east of the capital Honiara, Solomon Islands and comprises of one tenement that covers an area of 36 km2. The project is relatively new to the SolGold portfolio and has yet to have systematic exploration work carried out on it. SolGold is completing a detailed review of its tenements in the Solomon Islands with a view of recommending exploration activities in 2014. Qualified Person: Information in this report relating to the exploration results is based on data reviewed by Dr Bruce Rohrlach (BSc (Hons), PhD), the GM Exploration of the Company. Dr Rohrlach is a Member of the Australasian Institute of Mining and Metallurgy who has in excess of 25 years’ experience in mineral exploration and is a Qualified Person under the AIM Rules. Dr Rohrlach consents to the inclusion of the information in the form and context in which it appears. The data in this report that relates to Mineral Resources using the Ordinary Kriging (OK) method is based on information evaluated by Mr Simon Tear who is a Member of The Australasian Institute of Mining and Metallurgy (MAusIMM) and who has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the “JORC Code and guidelines”). Mr Tear is a full-time employee of H&S Consultants Pty Ltd and he consents to the inclusion in the report of the Mineral Resource in the form and context in which they appear. SolGold plc annual report for the year ended 30 June 2013 26 INTERESTS IN TENEMENTS EPM EPM Name Principal Holder Project Expiry Queensland 14279 14280 14283 17362 18494 11343 16456 17354 18280 18032 18035 15779 15803 16420 17079 17937 18743 18744 18760 19243 19348 19349 19639 19466 19467 19469 25245 25300 19410 Mount Perry North Mount Perry South Mount Perry Reid Creek Spring Creek Normanby Gold Acapulco Mining Pty Ltd Acapulco Mining Pty Ltd Acapulco Mining Pty Ltd Acapulco Mining Pty Ltd Acapulco Mining Pty Ltd Acapulco Mining Pty Ltd Normanby extended Acapulco Mining Pty Ltd Clarke Range Normanby South Cracow West Tim Shay Cooper Cooper Extended Dee Valley Banana North Goovigen Woolein Pinnacles West Westwood Lonesome Black Plains Mt Cooper Acapulco Mining Pty Ltd Acapulco Mining Pty Ltd Central Minerals Pty Ltd Central Minerals Pty Ltd Central Minerals Pty Ltd Central Minerals Pty Ltd Central Minerals Pty Ltd Central Minerals Pty Ltd Central Minerals Pty Ltd Central Minerals Pty Ltd Central Minerals Pty Ltd Central Minerals Pty Ltd Central Minerals Pty Ltd Central Minerals Pty Ltd Central Minerals Pty Ltd Goovigen Consolidated Central Minerals Pty Ltd Cattle Creek North Cattle Creek South Dawson Gap Central Minerals Pty Ltd Central Minerals Pty Ltd Central Minerals Pty Ltd Mt Perry Consolidated Central Minerals Pty Ltd Cooper Consolidated Central Minerals Pty Ltd Normanby Consolidated Acapulco Mining Pty Ltd Mt Perry Mt Perry Mt Perry Mt Perry Mt Perry Normanby Normanby Normanby Normanby Cracow West Cracow West Rannes Rannes Rannes Rannes Rannes Rannes Rannes Rannes Rannes Rannes Rannes Rannes Cracow West Cracow West Cracow West Mt Perry Rannes Normanby Kuma Fauro Malukuna Lower Koloula 24/Jan/14 ** 03/Mar/15 23/May/15 16/Sep/15 23/Jan/14 12/Sep/15 23/Aug/12 27/Feb/16 18/Apr/14 11/Oct/14 03/Nov/15 20/Dec/11 28/Jan/14 20/Sep/12 19/Jan/14 20/Oct/12 11/Oct/13 11/Oct/15 22/Jan/15 22/Jan/15 02/Aug/15 20/Nov/15 n/a n/a n/a n/a n/a n/a n/a ** ** ** ** ** ** ** ** * * * * * * * 11/Apr/15 04/Feb/15 14/Jul/13 14/Jul/13 26/Apr/35 *** *** Solomon Islands PL 08/06 Kuma PL 12/09 Fauro PL 02/01 Malukuna Lower Koloula PL 01/10 Ecuador 402288 Australian Resources Management Pty Ltd Australian Resources Management Pty Ltd Guadalcanal Exploration Pty Ltd Guadalcanal Exploration Pty Ltd Cascabel Cornerstone (through subsidiaries CESA and ENSA) Cascabel * EPM Applications have been lodged. Expiry dates determined at time of EPM grant. ** Renewal Applications have been lodged, the Company sees no reason as to why these tenements will not be renewed in the near future. *** Application for renewal of the PL, for a period of 2 years, has been lodged, the Company sees no reason as to why these tenements will not be renewed in the near future. . SolGold plc annual report for the year ended 30 June 2013 27 RISKS AND UNCERTAINTIES The Directors consider that the factors and risks described below are the most significant. Funding Risks The Group’s ability to effectively implement its business strategy over time may depend in part on its ability to raise additional funds and/or its ability to generate revenue from its projects. The need for and amount of any additional funds required is currently unknown and will depend on numerous factors related to the Group’s current and future activities. If required, the Group would seek additional funds, through equity, debt or joint venture financing. There can be no assurance that any such equity, debt or joint venture financing will be available to the Group in a timely manner, on favourable terms, or at all. Any additional equity financing will dilute current shareholdings, and debt financing, if available, may involve restrictions on further financing and operating activities. If adequate funds are not available on acceptable terms, the Group may not be able to take advantage of opportunities or otherwise respond to competitive pressures, as well as possibly resulting in the delay or indefinite postponement of the Group’s activities. General Exploration and Extraction risks There is no certainty that the Company will identify commercially mineable reserves in the Tenements. The exploration for, and development of, mineral deposits involves significant uncertainties and the Company’s operations will be subject to all of the hazards and risks normally encountered in such activities, particularly given the terrain and nature of the activities being undertaken. Although precautions to minimise risks will be taken, even a combination of careful evaluation, experience and knowledge may not eliminate all of the hazards and risks. The targets identified by the Company’s personnel and consultants, are based on current experience and modelling and all available data. There is no guarantee that surface sample grades of any metal or mineral taken in the past will persist below the surface of the ground. Furthermore, there can be no guarantee that the estimates of quantities and grades of gold and minerals disclosed will be available for extraction and sale. Reserve and resource estimates are expressions of judgement based on knowledge, experience and industry practice. Estimates which were valid when originally calculated may alter significantly when new information or techniques become available. In addition, by their very nature, resource estimates are imprecise and depend to some extent on interpretations, which may prove to be inaccurate. Title Risk SolGold’s tenements are subject to various conditions, obligations and regulations. If applications for title or renewal are required this can be at the discretion of the relevant government minister or officials. If approval is refused, SolGold will suffer a loss of the opportunity to undertake further exploration, or development, of the tenement. SolGold currently knows of no reason to believe that current applications will not be approved, granted or renewed. Some of the properties may be subject to prior unregistered agreements or transfers or native or indigenous peoples’ land claims and title may be affected by undetected defects. No assurance can be given that title defects do not exist. If a title defect does exist, it is possible that SolGold may lose all or a portion of the property to which the title defects relates. Native Title Risk The effect of the Native Title Act 1993 (Cth) (“NTA”) is that existing and new tenements held by SolGold in Australia may be affected by native title claims and procedures. SolGold has not undertaken the historical, legal or anthropological research and investigations at the date of this report that would be required to form an opinion as to whether any existing or future claim for native title could be upheld over a particular parcel of land covered by a tenement. There is a potential risk that a determination could be made that native title exists in relation to land the subject of a tenement held or to be held by SolGold which may affect the operation of SolGold’s business and development activities. In the event that it is determined that native title does exist or a native title claim is registered, SolGold may need to comply with procedures under the NTA in order to carry out its operations or to be granted any additional rights such as a Mining Lease. Such procedures may take considerable time, involve the negotiation of significant agreements, involve a requirement to negotiate for access rights, and require the payment of compensation to those persons holding or claiming native title in the land which is the subject of a tenement. The administration and determination of native title issues may have a material adverse impact on the position of SolGold in terms of its cash flows, financial performance, business development, ability to pay dividends and share price. SolGold plc annual report for the year ended 30 June 2013 28 Volatility of Commodity Prices SolGold’s possible future revenues will probably be derived mainly from Gold and Copper and/or from royalties gained from potential joint ventures or from mineral projects sold. Also, during operations by SolGold, the revenues used will be dependent on the terms of any agreement for the activities. Consequently, SolGold’s potential future earnings could be closely related to the price of either of these commodities. Gold and Copper prices fluctuate and are affected by numerous industry factors, many of which are beyond the control of SolGold. Such factors include, but are not limited to, demand for CDIs, technological advancements, forward selling by producers, production cost levels in major producing regions, macroeconomic factors, inflation, interest rates, currency exchange rates and global and regional demand for, and supply of, Gold and Copper. If the market price of Gold and Copper sold by SolGold were to fall below the costs of production and remain at such a level for any sustained period, SolGold would experience losses and could have to curtail or suspend some or all of its proposed mining activities. In such circumstances, SolGold would also have to assess the economic impact of any sustained lower commodity prices on recoverability. Project Development Risks If the Company discovers a potentially economic resource or reserve, there is no assurance that the Company will be able to develop a mine thereon, or otherwise commercially exploit such resource or reserve. Further, there can be no assurance that the Company will be able to manage effectively the expansion of its operations or that the Company’s current personnel, systems, procedures and controls will be adequate to support the Company’s operations as operations expand. Any failure of management to manage effectively the Company’s growth and development could have a material adverse effect on the Company’s business, financial condition and results of operations. There is no certainty that all or, indeed, any of the elements of the Company’s current strategy will develop as anticipated. Currency Fluctuations The future value of the Ordinary Shares may fluctuate in accordance with movements in the foreign currency exchange rates. For example, it is common practice in the mining industry for mineral production revenue to be denominated in USD, although some but not all of the costs of exploration production will be incurred in USD and not all of the ore or metal obtained from the Tenements will be sold in USD denominated transactions. Land Access Risk Land access is critical for exploration and evaluation to succeed. In all cases the acquisition of prospective tenements is a competitive business, in which propriety knowledge or information is critical and the ability to negotiate satisfactory commercial arrangements with other parties is often essential. Access to land for exploration purposes can be affected by land ownership, including private (freehold) land, pastoral lease and native title land or claims under the Native Title Act 1993 (Cth). Immediate access to land in the areas of activities cannot in all cases be guaranteed. SolGold may be required to seek consent of land holders or other persons or groups with an interest in real property encompassed by, or adjacent to, SolGold’s tenements. Compensation may be required to be paid by SolGold to land holders so that SolGold may carry out exploration and/or mining activities. Where applicable, agreements with indigenous groups have to be in place before a mineral tenement can be granted. Rights to mineral tenements carry with them various obligations in regard to minimum expenditure levels and responsibilities in respect of the environment and safety. Failure to observe these requirements could prejudice the right to maintain title to a given area. In the case of mining and exploration operations in Solomon Islands, there is a complex land tenure structure and while the Tenements and those Access Agreements entered into between Australian Resource Management (ARM) Pty Ltd (“ARM”) and Honiara Holdings Pty. Ltd. and various landowners entitle it to explore for the duration of the term of each PL, the existing legislative framework only provides for limited forms of negotiation between the landowners/community leaders on the one hand and mining companies on the other. It is also incumbent on the Director of Mines and the mining tenement holder to identify which landowners and community leaders they need to negotiate with. SolGold does not guarantee that the identifications made to date and upon which the Access Agreements are currently based may not be contested. As a consequence there may be unexpected difficulties experienced in progressing a promising resource into a commercial mining operation. SolGold has also procured Access Agreements for areas within the Tenements. Whilst SolGold believes that it is entitled to rely upon the same to conduct exploration within these areas, no assurance can be given that there may not be some future challenge to SolGold’s ability to do so. SolGold plc annual report for the year ended 30 June 2013 29 Land Access Risk (continued) Whilst SolGold has the Access Agreements with landowners covering the majority of the prospective areas identified by SolGold within the Tenements, its ability to carry out exploration in the residual areas will require additional access agreements to be entered into. The ability of SolGold to secure the benefits of all the Access Agreements is dependent upon, inter alia, the contracting parties’ willingness to perform and discharge their obligations thereunder. There may be legal and commercial limitations in respect of enforcement of contractual rights. Additionally, SolGold will not be permitted to explore in areas nominated by the landowners as reserved or protected areas in the Solomon Islands under section 4(2) of the Mining Act. Whilst SolGold is actively seeking to liaise with landowners to identify relevant reserved or protected areas, some considerable uncertainty exists as to the precise location of these areas, the identification of which requires the input of the indigenous population. The inability of SolGold to identify these areas, or a claim by landowners that reserved or protected areas exist over areas identified by SolGold as prospective, may have a material adverse effect on the ability of SolGold to conduct its exploration programme in the manner identified in this document. Government policy, impassable or difficult access as a result of the terrain, seasonal climatic effects or inclement weather can also adversely impact SolGold’s activities. Geopolitical, regulatory and sovereign risk The availability and rights to explore and mine, as well as industry profitability generally, can be affected by changes in government policy that are beyond the control of SolGold. SolGold’s exploration tenements are located in Ecuador, the Solomon Islands and Australia and are subject to the risks associated with operating both in domestic and foreign jurisdictions. As the Solomon Islands and Ecuador are developing countries, their legal and political systems are emerging when compared to those in operation in Australia and the United Kingdom. Such risks include, but are not limited to: economic, social or political instability or change; hyperinflation, currency non-convertibility or instability; changes of law affecting foreign ownership, government participation, taxation, working conditions, rates of exchange, exchange control, exploration licensing, export duties, resource rent taxes, repatriation of capital, environmental protection, mine safety, labour relations; government control over mineral properties or government regulations that require the employment of local staff or contractors or require other benefits to be provided to local residents; delays and declines in the standard and effective operation of SolGold’s activities, unforeseen and un-budgeted costs, and/or threats to occupational health and safety as a consequence of geopolitical, regulatory and sovereign risk. Queensland The Queensland Minister for Natural Resources, Mines and Energy conducts reviews from time to time of policies relating to the granting and administration of mining tenements. At present, SolGold is not aware of any proposed changes to policy that would affect its tenements. In Queensland, the Aboriginal Cultural Heritage Act 2003 and the Torres Strait Islander Cultural Heritage Act 2003 (which commenced on 16 April 2004) impose duties of care which require persons, including SolGold, to take all reasonable and practical measures to avoid damaging or destroying Aboriginal cultural heritage. This obligation applies across the State and requires SolGold to develop suitable internal procedures to discharge its duty of care in order to avoid exposure to substantial financial penalties if its activities damage items of cultural significance. Under this legislation, indigenous people can exercise control over land with respect to cultural heritage without necessarily having established the connection element (as required under native title law). This creates a potential risk that the tenement holder may have to deal with several indigenous individuals or corporations, where no native title has been established, to identify and manage cultural heritage issues. This could result in tenement holders requiring lengthy lead times to manage cultural heritage for their projects. Changing attitudes to environmental, land care, cultural heritage and indigenous land rights’ issues, together with the nature of the political process, provide the possibility for future policy changes. There is a risk that such changes may affect SolGold’s exploration plans or, indeed, its rights and/or obligations with respect to the tenements. Solomon Islands The Solomon Islands minerals board may from time to time amend and review its policies on mining and exploration in the Solomon Islands. Any such changes in Government policy may affect the ability of SolGold to conduct and undertake mining and exploration in the Solomon Islands. SolGold plc annual report for the year ended 30 June 2013 30 Geopolitical, regulatory and sovereign risk (continued) Ecuador SolGold’s Cascabel project in Ecuador may be exposed to potentially adverse risks associated with the evolving rules and laws governing mining expansion and development in that jurisdiction. Additionally, SolGold’s operations may be detrimentally affected in the event that the Ecuadorian government were to default on its foreign debt obligations or become subject to wider global economic and investment uncertainty. SolGold is not aware of any current material changes in legislative, regulatory and public policy initiatives in Ecuador however any future or proposed changes may adversely affect the Cascabel project or SolGold’s ability to operate successfully in Ecuador. Under the current legislative regime, a mining corporation and the Ecuadorian Government must enter into an exploitation contract prior to exploitation of natural resources. There is no certainty that SolGold will be able to successfully enter into an exploitation contract, or enter into one on commercially favourable terms, and such a scenario may adversely impact on the Cascabel project or render it uneconomical. SolGold plc annual report for the year ended 30 June 2013 31 FINANCIAL REVIEW The Company achieved several milestones during the financial year ended 30 June 2013. These included: The appointment of Alan Martin as Chief Executive Officer of SolGold and its subsidiaries effective 10 May 2013; Earning a 30% interest in Exploraciones Novomining S.A. and completing a successful exploration program in the southern part of the Cascabel concession. Subsequent to year end, on 28 August 2013 SolGold satisfied conditions to increase its interest in ENSA to 50% and on 16 December exercised its right to increase its interest to 85%; and The completion of successful raisings totalling approximately $9.15 million during the year from institutional and professional investors. Results The Group incurred a loss of $29,895,902 for the year, including the impairment and write off of exploration expenses during the year of $27.3 million. The Group considered it necessary to make a provision for impairment of $24,734,063 as it relates to the deferred exploration assets of the Rannes and Fauro projects. A decision was also made to expense $2,566,578 for exploration expenditure associated with other tenements that were dropped during the year. A detailed assessment of the carrying values of deferred exploration costs is provided in Note 25. Statement of Financial Position As at 30 June 2013, the Group had net assets of approximately $18.8 million, a decrease of approximately $21 million over the previous financial year. This decrease was largely associated with the exploration write off and impairment charge of $27.3 million recognised over the Groups’ exploration assets, and annual operating expenses of approximately $2.6 million, offset by the completion of $8.8 million in placements net of costs. The only interest-bearing debt incurred by the Group includes minor leasing facilities totalling $23,576 secured over the leased assets. Cash Flow Our cash expenditure for the year was approximately $8.1 million, including the repayment of borrowings. Cash of approximately $8.6 million was received from the issue of securities. Accordingly, the net cash inflow of the Company for the year was approximately $0.4 million. Cash of approximately $5.2 million was invested by the Group on exploration expenditure during the year. Post Balance Sheet Events On 15 July 2013, the Company issued 7,500,000 options to its Chief Geologist. The options consist of three tranches with varying exercise prices and vesting conditions which are dependent on the Company’s share price. The options expire on 15 July 2016. On 15 July 2013, a total of 1,584,000 employee options exercisable at 50p were forfeited due to employees ceasing employment with the Company. On 6 September 2013, the Company issued an additional 700,000 shares at £0.13 pursuant to the achievement of certain employment related milestones on the conversion of the Convertible Redeemable Preference Shares. On 24 September 2013, the Company issued 7,320,000 options to contractors and staff. The options consist of three tranches with varying exercise prices and vesting conditions which are dependent on the Company’s share price. The options expire on 24 September 2016. On 25 September 2013, the Company issued an additional 49,840,967 shares at £0.075 to raise $6.4 million pursuant to a private placement to progress its exploration and project development efforts across its portfolio of projects in the Solomon Islands, Ecuador and Queensland, Australia. The Directors are not aware of any other significant changes in the state of affairs of the Group or events after the balance date that would have a material impact on the consolidated financial statements. SolGold plc annual report for the year ended 30 June 2013 32 Outlook The exploration programs for 2014 will focus on Cascabel along with finding joint venture partners for the Group’s Fauro, Rannes, Normanby, and Mt Perry projects. Discussions on the future exploration program at each of the projects is detailed in the Operations Report. Financial Controls and Risk Management The Board regularly reviews the risks to which the Group is exposed and ensures through Board Committees and regular reporting that these risks are managed and minimised as far as possible. The Audit Committee is responsible for the implementation and review of the Group’s internal financial controls and financial risk management systems. Nominated Advisors and Brokers RFC Corporate Finance Limited (“RFC”) and SP Angel Corporate Finance LLP act as Nominated Advisor and Broker to the Company respectively. Equity Since the date of the last Annual Report, the Company has issued the following equities: On 17 July 2012, the Company issued 33,333,333 shares at £0.04 to raise $2 million pursuant to a private placement to progress its exploration and project development efforts across its portfolio of projects in the Solomon Islands, Ecuador and Queensland, Australia. On 23 July 2012, the Company issued a total of 10,700 Convertible Redeemable Preference Shares (CRPS) to certain executive employees subsequent to the approvals granted by shareholders at the Company’s AGM on 28 June 2012. On 28 September 2012, the Company issued 3,000,000 options to the underwriter of the private placement raising $3 million on 9 October 2012. For accounting purposes the options were issued on 28 September 2012 and following approval at the Annual General Meeting held on 19 August 2013 and formally allotted on 6 September 2013. The options vested on 19 August 2013, are exercisable at 6 pence each, and expire 19 August 2014. On 9 October 2012, the Company issued 55,555,556 shares at £0.035 to raise $3 million pursuant to a private placement to progress its exploration and project development efforts across its portfolio of projects in the Solomon Islands, Ecuador and Queensland, Australia. On 12 October 2012, the Company issued an additional 21,972,143 shares at £0.035 to raise $1.14 million pursuant to a private placement to progress its exploration and project development efforts across its portfolio of projects in the Solomon Islands, Ecuador and Queensland, Australia. On 8 April 2013, the Company issued an additional 119,801,376 shares at £0.015 to raise $2.6 million pursuant to a private placement to progress its exploration and project development efforts across its portfolio of projects in the Solomon Islands, Ecuador and Queensland, Australia. On 10 May 2013, the Company issued 16,000,000 options to the Chief Executive Officer as part of his remuneration arrangements. For accounting purposes the options were issued on 28 September 2012 and following approval at the Annual General Meeting held on 19 August 2013 and formally allotted on 6 September 2013. The options consist of three tranches with varying exercise prices and vesting conditions which are dependent on the Company’s share price. The options expire on 6 September 2017. On 14 June 2013, the Company issued an additional 8,200,000 shares at £0.03 to raise $0.4 million pursuant to a private placement to progress its exploration and project development efforts across its portfolio of projects in the Solomon Islands, Ecuador and Queensland, Australia. On 28 June 2013, the Company issued an additional 1,110,000 shares at £0.038 as a result of the conversion of Convertible Redeemable Preference Shares (CRPS) to ordinary shares. On 15 July 2013, the Company issued 7,500,000 options to its Chief Geologist. The options consist of three tranches with varying exercise prices and vesting conditions which are dependent on the Company’s share price. The options expire on 15 July 2016. SolGold plc annual report for the year ended 30 June 2013 33 On 6 September 2013, the Company issued an additional 700,000 shares at £0.13 pursuant to the achievement of certain employment related milestones, including under the CRPS. On 24 September 2013, the Company issued 7,320,000 options to contractors and staff. The options consist of three tranches with varying exercise prices and vesting conditions which are dependent on the Company’s share price. The options expire on 24 September 2016. On 25 September 2013, the Company issued an additional 49,840,967 shares at £0.075 to raise $6.4 million pursuant to a private placement to progress its exploration and project development efforts across its portfolio of projects in the Solomon Islands, Ecuador and Queensland, Australia. At year end the Company had a total of 553,354,342 shares and 28,372,000 options on issue. As at the date of this report, the Company had a total of 603,895,309 shares and 41,608,000 options on issue. SolGold plc annual report for the year ended 30 June 2013 34 DIRECTORS AND COMPANY SECRETARY The Board consists of two Executive Directors and three Non-Executive Directors. Alan Martin (Managing Director and Chief Executive Officer) Alan Martin (52), appointed Chief Executive Officer 10 May 2013 and appointed Managing Director 8 October 2013, brings to SolGold more than 20 years of technical, commercial and financial investment experience in the Australian resources industry. He has a strong passion for exploration and considerable financial experience. Alan graduated from Lakehead University, in Ontario, Canada. After completing an Honours Bachelor of Science Degree (Geology major) in 1985, he moved to Australia and joined Delta Gold NL as an exploration geologist with a focus on gold and base metal projects. In 1992, he entered the Australian investment industry as a mining analyst at Westpac Investment Management and has worked with major Australian financial institutions over the last 20 years. Alan was particularly successful during his tenure at IAG Asset Management from 2005 to 2008, delivering outstanding investment recommendations of major and junior mining stocks. Over the last 3 years at Colonial First State Global Asset Management, he has specialised in junior mining and exploration companies with particular focus on identifying the exploration projects that enable junior companies to create exceptional shareholder value. investment returns from his successful Alan also has direct corporate experience in leading exploration ventures. In 1995, he was a founding director of Austminex NL, a private exploration company which raised $8 million in an IPO in 2000. Nicholas Mather (Executive Director) Nicholas Mather (56), appointed 11 May 2005, graduated in 1979 from the University of Queensland with a B.Sc. (Hons, Geology). He has over 25 years’ experience in exploration and resource company management in a variety of countries. His career has taken him to numerous countries exploring for precious and base metals and fossil fuels. Nicholas Mather has focused his attention on the identification of and investment in large resource exploration projects. He was Managing Director of BeMaX Resources NL (an ASX-listed company) from 1997 until 2000 and instrumental in the discovery of the world class Ginkgo mineral sand deposit in the Murray Basin in 1998. As an executive Director of Arrow Energy NL (also ASX- listed) until his resignation in 2004, Nicholas Mather drove the acquisition and business development of Arrow’s large Surat Basin Coal Bed Methane project in south-east Queensland. He was managing Director of Auralia Resources NL, a junior gold explorer, before its USD23 million merger with Ross Mining NL in 1995. He was a non-executive Director of Ballarat Goldfields NL until 2004, having assisted that company in its recapitalisation and re-quotation on the ASX in 2003. Nicholas Mather is Chief Executive of DGR Global Limited and non-executive Director of ASX-listed companies Armour Energy Limited, AusNiCo Limited, Navaho Gold Limited, Orbis Gold Limited and Lakes Oil NL. Brian Moller (Non-Executive Chairman) Brian Moller (54), appointed 11 May 2005, is a corporate partner in the Brisbane-based law firm Hopgood Ganim Lawyers, the Australian solicitors to the Company. He was admitted as a solicitor in 1981 and has been a partner at Hopgood Ganim since 1983. He practices almost exclusively in the corporate area with an emphasis on capital raising, mergers and acquisitions. Brian Moller holds an LLB Hons from the University of Queensland and is a member of the Australian Mining and Petroleum Law Association. Brian Moller acts for many publicly-listed resource and industrial companies and brings a wealth of experience and expertise to the board, particularly in the corporate regulatory and governance areas. He is a non-executive Director of ASX listed DGR Global Limited, Navaho Gold Limited and Platina Resources Limited, and the non-executive Chairman of ASX-listed AusNiCo Limited. SolGold plc annual report for the year ended 30 June 2013 35 Dr Robert Weinberg (Non-Executive Director) Rob Weinberg (66), appointed 22 November 2005, gained his doctorate in geology from Oxford University in 1973. He has more than 35 years’ experience of the international mining industry and is an independent mining research analyst and consultant. He is a Fellow of the Geological Society of London and also a Fellow of the Institute of Materials, Minerals and Mining. Prior to his current activities he was Managing Director, Institutional Investment at the World Gold Council. Previously he was a Director of the investment banking division at Deutsche Bank in London after having been head of the global mining research team at SG Warburg Securities. He has also held senior positions within Société Générale and was head of the mining team at James Capel & Co. He was formerly marketing manager of the gold and uranium division of Anglo American Corporation of South Africa Ltd. Dr Weinberg is a non-executive Director of the ASX listed Kasbah Resources Limited, Medusa Mining Limited, which is a company listed on the ASX and LSE and of Chaarat Gold Holdings Limited, a company listed on AIM. John Bovard (Non-Executive Director) John Bovard (68), appointed 2 November 2009, is a civil engineer with over 40 years’ experience in mining, heavy construction, project development and corporate management throughout Australia. His career to date has included roles as CEO of public companies and both Executive and Non-Executive Directorships. He holds a Bachelors Degree in Civil Engineering, is a Fellow of the Australasian Institute of Mining and Metallurgy, and a Fellow of the Australian Institute of Company Directors. Mr Bovard is currently the Non-Executive Chairman of the ASX-listed Mt Isa Metals Limited and Australian Pacific Coal Limited Mr Bovard is currently the Non-Executive Chairman of ASX listed Orbis Gold Ltd and a Non-Executive Director of Austin Mining Ltd (ASX). Other recent board roles board have included Non-Executive Director and interim CEO of Australian Solomons Gold (ASX), Non-Executive Chairman of Axiom Mining (ASX), Managing Director of Danae Resources (ASX) and Greenwich Resources (LSE). He was President and CEO of Asia Pacific Resources Ltd (TSX) for four years developing a large potash resource in Thailand He was Project Manager for the $800 million Phosphate Hill fertiliser project in Qld for WMC. Other previous project experience includes Project Manager of the Porgera mine in PNG, CEO of the SuperPit expansion of Kalgoorlie and General Manager of the Ok Tedi mine in PNG. Mr Bovard currently also provides corporate advisory and management advice as a consultant to limited range of selected client companies in the resources sector. COMPANY SECRETARY Karl Schlobohm (Company Secretary) Karl Schlobohm (45) has over twenty (20) years’ experience in the accounting profession across a wide range of businesses and industries. He has previously been contracted into CFO roles with ASX-listed resource companies Discovery Metals Limited and Meridian Minerals Limited, and as Company Secretary of ASX-listed Linc Energy Limited, Agenix Limited, Discovery Metals Limited and Global Seafood Australia Limited. Mr Schlobohm is a Chartered Accountant and holds Bachelor Degrees in Commerce and in Economics, and a Masters Degree in Taxation. Mr Schlobohm is also contracted to act as the Company Secretary of the ASX-listed DGR Global Limited, Navaho Gold Limited, AusNiCo Limited and Armour Energy Limited. SolGold plc annual report for the year ended 30 June 2013 36 DIRECTORS' REPORT The Directors present their annual report and audited financial statements for the year ended 30 June 2013. PRINCIPAL ACTIVITIES The principal activities of SolGold plc (the “Company”) and its subsidiaries (together “SolGold” or the “Group”) are gold and mineral exploration in Ecuador, the Solomon Islands, and Queensland, Australia. Details of the Group’s activities, together with a description of the principal risks and uncertainties facing the Group, and the development of the business, are given in the Operations Report. Effective 14 May 2012 the Company changed its name from Solomon Gold plc to SolGold plc. The principal activity of the Company is that of a holding company. BUSINESS REVIEW A detailed review of the Group’s business and future developments is set out in the Operations Report and Financial Review. The principal risks and uncertainties facing the Group at its present stage of development are given under Risks and Uncertainties. LAND AND BUILDINGS The Directors are of the view that the book value and market value of land and buildings are not materially different. The land and buildings were acquired during 2007 and no independent valuation has been obtained since its acquisition. GOING CONCERN In common with many exploration companies, the Company raises finance for its exploration and appraisal activities in discrete tranches. The Group and the Company has not generated revenues from operations. As such, the Group’s and Company’s ability to continue to adopt the going concern assumption will depend upon a number of matters including the successful capital raisings in the future of necessary funding and the successful exploration and subsequent exploitation of the Group’s tenements. In the absence of these matters being successful, the current working capital levels will not be sufficient to bring the Company’s projects into full development and production and, in due course further financing will be required. Subsequent to the year end, the Company successfully completed a placement on 25 September 2013 raising a total of $6.4 million. This means that the company should have sufficient capital to fund and progress its exploration and project development efforts across its portfolio of projects in the Solomon Islands, Ecuador and Queensland, Australia. It should be noted that the current working capital levels will not be sufficient to bring the Company’s projects into full development and production and, in due course, further funding will be required. In the event that the Company is unable to secure further finance either through third parties or capital raising, it may not be able to fully develop its projects. CURRENCY The functional and presentational currency is Australian dollars (“A$”) and all amounts presented in the Directors’ Report and financial statements are presented in Australian dollars unless otherwise indicated. RESULTS The Group’s consolidated loss for the period was $29,895,902 (2012: $22,505,208). CHANGES IN SHARE CAPITAL DURING 2013 A statement of changes in the share capital of the Company is set out in Note 17 to the financial statements. SolGold plc annual report for the year ended 30 June 2013 37 KEY PERFORMANCE INDICATORS Given the stage of the Group's operations, the Board regards the maintenance of tenure and land access arrangements, maintenance of operation capabilities and the continued collection of exploration data in order to advance the prospectivity of the project areas to be the key performance indicators in measuring the Group's success. The review of the business with reference to key performance indicators is set out in the Operations Report and Financial Review. DIVIDENDS PAID OR RECOMMENDED The Directors do not recommend the payment of a dividend. FINANCIAL INSTRUMENTS The Company does not undertake financial instrument transactions that are speculative or unrelated to the Company’s or Group's activities. The Company’s financial instruments consist mainly of deposits with banks, accounts payable, and loans to subsidiaries. Further details of financial risk management objectives and policies, and exposure of the group to financial risks are provided in Note 21 to the financial statements. POLICY AND PRACTICE ON PAYMENT OF CREDITORS The Group policy on the payment of creditors is to settle bills in accordance with the terms agreed with suppliers. At the year-end there were 29 days (2012: 27 days) worth of purchases in Group trade creditors and 25 days (2012: 41 days) worth of purchases in Company trade creditors. DIRECTORS AND DIRECTORS’ INTERESTS The Directors who held office during the period were as follows: Malcolm Norris Alan Martin Cameron Wenck Nicholas Mather Brian Moller Robert Weinberg John Bovard CEO & Managing Director (resigned 7 February 2013) CEO & Managing Director (appointed CEO 10 May 2013 and appointed Managing Director 8 October 2013) Non-Executive Chairman (resigned 28 February 2013) Executive Director Non-Executive Chairman (appointed Chairman 28 February 2013) Non-Executive Director Non-Executive Director The Company has a Directors’ and Officers’ Liability insurance policy with Chartis Australia Insurance Limited for all its Directors. The Directors who held office at the end of the financial year held direct and indirect interests in the ordinary shares and unlisted options of the Company as shown in the tables below. Shares held Nicholas Mather Brian Moller Robert Weinberg John Bovard At 30 June 2013 62,521,748 1,811,720 2,055,530 3,103,958 At 30 June 2012 39,001,319 1,158,017 738,287 591,365 No options were issued to Directors during the year (2012: 1,200,000). SolGold plc annual report for the year ended 30 June 2013 38 Share options held Cameron Wenck Malcolm Norris Nicholas Mather Brian Moller Robert Weinberg John Bovard MAJOR SHAREHOLDERS At 30 June 2013 At 30 June 2012 Option Price - - 4,200,000 880,000 880,000 880,000 1,100,000 1,200,000 1,200,000 880,000 880,000 880,000 50p 14p - 28p 6p - 50p 50p 50p 50p Exercise Period 31/05/12 -31/05/14 28/06/13 – 28/06/15 31/05/12 -31/05/14 31/05/12 -31/05/14 31/05/12 -31/05/14 31/05/12 -31/05/14 The following parties represented the top 10 shareholders visible on the Company’s Register in the Company as at 3 December 2013. Major Shareholders Tenstar Trading Limited Pershing Nominees LimitedBarclayshare Nominees Limited TD Direct Investing Nominees (Europe) Limited HSDL Nominees Limited Samuel Holdings Pty Ltd Pershing Nominees Limited HSBC Client Holdings Nominee (UK) Limited <731504> Hargreaves Lansdown (Nominees) Limited W B Nominees Limited CORPORATE GOVERNANCE Number of Shares 85,308,855 61,105,731 49,675,448 45,213,851 30,864,088 24,951,225 19,976,409 19,085,952 18,204,368 15,013,385 % of Issued Capital 14.13 10.12 8.23 7.49 5.11 4.13 3.31 3.16 3.01 2.49 In formulating the Company’s corporate governance procedures the Board of Directors takes due regard of the principles of good governance set out in the UK Corporate Governance Code issued by the Financial Reporting Council in June 2010 (as appended to the Listing Rules of the Financial Services Authority) so far as is practicable for a company of SolGold’s size. The Board of SolGold plc is made up of two Executive Directors and three Non-executive Directors. Up until his resignation, Cameron Wenck chaired the Board and subsequently by Brian Moller. Nicholas Mather is an Executive Director and Alan Martin is the Company’s Chief Executive Officer. Alan Martin was appointed as Managing Director on 8 October 2013. It is the Board’s policy to maintain independence by having at least half of the Board comprising Non-executive Directors who are free from any material business or other relationship with the Group. The structure of the Board ensures that no one individual or group is able to dominate the decision making process. The Board ordinarily meets on a monthly basis providing effective leadership and overall control and direction of the Group’s affairs through the schedule of matters reserved for its decision. This includes the approval of the budget and business plan, major capital expenditure, acquisitions and disposals, risk management policies and the approval of the financial statements. Formal agendas, papers and reports are sent to the Directors in a timely manner, prior to Board meetings. The Board also receives summary financial and operational reports before each Board meeting. The Board delegates certain of its responsibilities to management, who have clearly defined terms of reference. All Directors have access to the advice and services of the Company Secretary, who is responsible for ensuring that all Board procedures are followed. Any Director may take independent professional advice at the Company’s expense in the furtherance of his duties. One third of the Directors retire from office at every Annual General Meeting of the Company. In general, those Directors who have held office the longest time since their election are required to retire. A retiring Director may be re-elected and a Director appointed by the Board may also be elected, though in the latter case the Director’s period of prior appointment by the Board will not be taken into account for the purposes of rotation. The Audit Committee, which meets not less than twice a year, is responsible for ensuring that the financial performance, position and prospects of the Group are properly monitored as well as liaising with the Company’s auditor to discuss accounts and the Group’s internal controls. The Committee is comprised of the entire Board of Directors. The Audit Committee has reviewed the systems in place and considers these to be appropriate. SolGold plc annual report for the year ended 30 June 2013 39 The Remuneration Committee meets at least once a year and is responsible for making decisions on Directors’ and key management’s remuneration packages. The Committee is comprised of the entire Board of Directors. The remuneration of the non-executive Directors is determined by the executive Directors who consider it essential, notwithstanding the small size of the Company and the fact that it is not yet revenue earning, to recruit and retain individuals of the highest calibre for that role. Consequently they believe that it is in the interests of shareholders that non-executive Directors should be provided with share options in addition to the level of fees considered affordable. The number of such options currently amounts to 2,640,000 in total, or just under 0.44% of the current issued share capital, and in the opinion of the executive Directors is not of sufficient magnitude as to affect their independence. The Board attaches importance to maintaining good relationships with all its shareholders and ensures that all price sensitive information is released to all shareholders at the same time, in accordance with London Stock Exchange rules. The Company’s principal communication with its investors is through the Annual General Meeting and through the annual report and accounts and the interim statement. The 2013 Annual General Meeting will provide an opportunity for the Chairman and/or Chief Executive Officer to present to the shareholders a report on current operations and developments and will enable the shareholders to question and express their views about the Company’s business. A separate resolution will be proposed on each substantially separate issue, including the receipt of the financial statements and shareholders will be entitled to vote either in person or by proxy. A Health, Safety, Environment and Community Committee (HSEC Committee) is responsible for the overall health, safety and environmental performance of the Company and its operations and its relationship with the local community in Ecuador, Solomon Islands and Queensland, the Committee is comprised of the entire Board of Directors. EXECUTIVE REMUNERATION STRATEGY Remuneration of Executive Directors is established by reference to the remuneration of executives of equivalent status both in terms of the level of responsibility of the position and by reference to their job qualifications and skills. The Remuneration Committee will also have regard to the terms which may be required to attract an executive of equivalent experience to join the Board from another company. Such packages include performance related bonuses and the grant of share options. POLITICAL AND CHARITABLE CONTRIBUTIONS The Group made no political or charitable donations in the year (2012: A$ nil). AUDITOR A resolution for the appointment of the Company’s auditor will be proposed at the forthcoming Annual General Meeting. SUBSEQUENT EVENTS The Directors are not aware of any significant changes in the state of affairs of the Company after the balance date that is not covered in this report. SolGold plc annual report for the year ended 30 June 2013 40 DIRECTORS’ RESPONSIBILITIES STATEMENT The directors are responsible for preparing the directors’ report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the Group and Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and company and of the profit or loss of the group for that period. The directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market. In preparing these financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; make judgements and accounting estimates that are reasonable and prudent; state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Website publication The directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the company's website is the responsibility of the directors. The directors' responsibility also extends to the ongoing integrity of the financial statements contained therein. DISCLOSURE OF AUDIT INFORMATION In the case of each person who are Directors of the Company at the date when this report is approved: So far as they are individually aware, there is no relevant audit information of which the Company’s auditor is unaware; and Each of the Directors has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company’s auditor is aware of the information. This report was approved by the board on 18 December 2013 and signed on its behalf. Karl Schlobohm Company Secretary Lvl 27, 111 Eagle St Brisbane QLD 4000 Australia SolGold plc annual report for the year ended 30 June 2013 41 INDEPENDENT AUDITOR'S REPORT To the members of SolGold PLC We have audited the financial statements of SolGold Plc for the year ended 30 June 2013 which comprise the consolidated statement of comprehensive income, the consolidated and company statements of financial position, the consolidated and company statements of changes in equity, the consolidated and company statements of cash flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the statement of directors’ responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council’s (FRC’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of www.frc.org.uk/auditscopeukprivate. scope the of an audit of financial statements is provided on the FRC’s website at Opinion on financial statements In our opinion: the financial statements give a true and fair view of the state of the group’s and the parent company’s affairs as at 30 June 2013 and of the group’s loss for the year then ended; the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Emphasis of matter - going concern and availability of project finance In forming our opinion, which is not modified, we have considered the adequacy of the disclosures made in note 1(b) to the financial statements concerning the group’s and the company’s ability to continue as a going concern and the requirement for the group to raise further funding if it is to bring its exploration projects into the development stage. As explained in note 1(b), the company raises finance for the group’s exploration and appraisal activities in discrete tranches, and will need to raise further funds to continue with its planned exploration programme and subsequent exploitation of its tenements and to provide working capital. The future of the group depends on the ability of the company to raise such finance. This indicates the existence of a material uncertainty which may cast significant doubt about the company’s and the group’s ability to continue as a going concern. If the company is unable to secure such additional funding to develop its projects further, this may have a consequential impact on the carrying value of the related exploration assets and the investment of the parent company in its subsidiaries. The financial statements do not include the adjustments that would result if the group and company were unable to continue as a going concern. SolGold plc annual report for the year ended 30 June 2013 42 Opinion on other matters prescribed by the Companies Act 2006 In our opinion the information given in the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. David Pomfret (senior statutory auditor) For and on behalf of BDO LLP, statutory auditor London United Kingdom Date: 18 December 2013 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). SolGold plc annual report for the year ended 30 June 2013 43 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 30 June 2013 Revenue Cost of sales Gross profit Other income Expenses Exploration costs written-off Administrative Operating loss Share of associate profits Finance income Finance costs Loss before income tax Income tax expense Loss for the year Other comprehensive income Change in fair value of available-for-sale financial assets Total comprehensive income for the year Loss for the year attributable to: Owners of the parent company Non-controlling interest Total comprehensive income for the year attributable to: Owners of the parent company Non-controlling interest Notes Group 2013 $ - - - - (27,300,641) (2,631,766) (29,932,407) 29,775 7,448 (718) (29,895,902) - (29,895,902) 12 6 6 3 7 10b Group 2012 $ - - - 468 (18,606,445) (4,122,328) (22,728,305) - 223,097 - (22,505,208) - (22,505,208) 10,390 (29,885,512) - (22,505,208) (29,895,902) - (29,895,902) (22,505,057) (151) (22,505,208) (29,885,512) - (29,885,512) (22,505,057) (151) (22,505,208) Earnings per share Basic earnings per share Diluted earnings per share 8 8 Cents per share Cents per share (6.9) (6.9) (7.7) (7.7) The above statement of comprehensive income should be read in conjunction with the accompanying notes. SolGold plc annual report for the year ended 30 June 2013 44 CONSOLIDATED AND COMPANY STATEMENTS OF FINANCIAL POSITION As at 30 June 2013 Registered Number 5449516 Assets Property, plant and equipment Intangible assets Investment in subsidiaries Investment in associates Investment in available for sale securities Loans receivable and other non-current assets Total non-current assets Other receivables and prepayments Cash and cash equivalents Total current assets Total assets Equity Share capital Share premium Other reserves Accumulated loss Non-controlling interest Total equity Liabilities Finance lease liabilities Total non-current liabilities Finance lease liabilities Trade and other payables Total current liabilities Total liabilities Total equity and liabilities Notes 11 12 9 10(a) 10(b) 13 15 16 17 17 18 18 19 Group 2013 $ 167,130 14,578,178 - 2,769,647 458,510 92,893 18,066,358 311,088 880,424 1,191,512 19,257,870 Group 2012 $ 297,677 40,255,104 - - - 98,413 40,651,194 469,062 440,623 909,685 41,560,879 Company 2013 $ 22,700 29,209 15,361,177 2,769,647 458,510 5,569 18,646,812 272,745 826,768 1,099,513 19,746,325 Company 2012 $ 27,065 222,208 41,726,237 - - 7,569 41,983,079 250,803 343,736 594,539 42,577,618 9,361,755 66,418,526 3,233,263 (60,209,103) - 18,804,441 5,791,534 61,216,133 3,145,297 (30,325,921) (46,183) 39,780,860 9,361,755 66,418,526 3,233,263 (59,610,996) - 19,402,548 5,791,534 61,216,133 3,145,297 (28,491,681) - 41,661,283 14,428 14,428 9,148 429,853 439,001 453,429 19,257,870 80,498 80,498 52,362 1,647,159 1,699,521 1,780,019 41,560,879 - - - 343,777 343,777 343,777 19,746,325 - - - 916,335 916,335 916,335 42,577,618 The above consolidated and company statements of financial position should be read in conjunction with the accompanying notes. The financial statements were approved and authorised for issue by the Board and were signed in its behalf on 18 December 2013. Alan Martin Director SolGold plc annual report for the year ended 30 June 2013 45 CONSOLIDATED AND COMPANY STATEMENTS OF CHANGES IN EQUITY For the year ended 30 June 2013 Consolidated statement of changes in equity Notes Share capital Share premium 17 17 $ $ 5,365,926 - - - 425,608 - - - 5,791,534 - - - 3,551,968 - - - - 18,253 58,402,290 - - - 3,003,414 (189,571) - - 61,216,133 - - - 5,596,692 (394,299) - - - - Available- for-sale financial assets reserve $ - - - - - - - - - - 10,390 10,390 - - - - - - - Share option reserve $ 1,116,380 - - - - - 2,028,917 - 3,145,297 - - - - 74,461 30,477 (27,362) - - Convertible Redeemable Preference Share reserve Accumulated loss Non- controlling interests Total $ $ $ $ - - - - - - - - - - - - - - - 77,156 (77,156) - (7,820,864) (22,505,057) - (22,505,057) - - - - (30,325,921) (29,895,902) - (29,895,902) - - - - - 58,903 - (151) - (151) - - - (46,032) (46,183) - - - - - 57,063,732 (22,505,208) - (22,505,208) 3,429,022 (189,571) 2,028,917 (46,032) 39,780,860 (29,895,902) 10,390 (29,885,512) 9,148,660 (319,838) - - - - 30,477 (27,362) 77,156 - - 9,361,755 - 66,418,526 17 10,390 - 3,222,873 (46,183) (60,209,103) - 46,183 - - 18,804,441 Balance at 30 June 2011 Loss for the year Other comprehensive income Total comprehensive income for the year New share capital subscribed Share issue costs Value of shares and options issued to Directors, employees and consultants Non-controlling interest in subsidiary acquired Balance at 30 June 2012 Loss for the year Other comprehensive income Total comprehensive income for the year New share capital subscribed Share issue costs Value of share options issued to Directors, employees and consultants Value of share options forfeited during the year Value of performance shares issued to employees Conversion of preference shares to ordinary shares Disposal of non-controlling interest in subsidiary acquired Balance at 30 June 2013 The above statement of changes in equity should be read in conjunction with the accompanying notes. SolGold plc annual report for the year ended 30 June 2013 46 CONSOLIDATED AND COMPANY STATEMENTS OF CHANGES IN EQUITY (CONTINUED) For the year ended 30 June 2013 Company statement of changes in equity Notes Share capital $ Share premium $ Available- for-sale financial assets $ 17 17 5,365,926 - - - 425,608 - - 5,791,534 - - - 3,551,968 - 58,402,290 - - - 3,003,414 (189,571) - 61,216,133 - - - 5,596,692 (394,299) - - - - - - - - - - - - - - - 10,390 10,390 - - - - - Share option reserve $ 1,116,380 - - - - - 2,028,917 3,145,297 - - - - 74,461 30,477 (27,362) Accumulated loss $ Total $ Convertible Redeemable Preference Share reserve $ - - - - - - - - - - - - - - - (6,456,536) (22,035,145) - (22,035,145) - - - (28,491,681) (31,178,218) - (31,178,218) - - 58,428,060 (22,035,145) - (22,035,145) 3,429,022 (189,571) 2,028,917 41,661,283 (31,178,218) 10,390 (31,167,828) 9,148,660 (319,838) - - - 30,477 (27,362) 77,156 18,253 9,361,755 - 66,418,526 17 - 10,390 - 3,222,873 (77,156) - 58,903 (59,610,996) - 19,402,548 - 77,156 Balance at 30 June 2011 Loss for the year Other comprehensive income Total comprehensive income for the year New share capital subscribed Share issue costs Value of shares and options issued to Directors, employees and consultants Balance at 30 June 2012 Loss for the year Other comprehensive income Total comprehensive income for the year New share capital subscribed Share issue costs Value of shares and options issued to Directors, employees and consultants Value of share options forfeited during the year Value of performance shares issued to employees Conversion of performance shares to ordinary shares Balance at 30 June 2013 The above statement of changes in equity should be read in conjunction with the accompanying notes. SolGold plc annual report for the year ended 30 June 2013 47 CONSOLIDATED AND COMPANY STATEMENTS OF CASH FLOWS For the year ended 30 June 2013 Cash flows from operating activities Operating loss Depreciation Share based payment expense Write-off of exploration expenditure Loss on sale of property, plant and equipment Impairment of investments in subsidiaries (Increase) decrease in other receivables and prepayments Increase (decrease) in trade and other payables Net cash outflow from operating activities Cash flows from investing activities Interest received Interest paid Security deposit (payments)/refunds (Acquisition)/Disposal of property, plant and equipment Proceeds from the sale of property, plant and equipment Acquisition of exploration and evaluation assets Acquisition of subsidiaries (net of cash) Investment in available for sale securities Investment in associates Loans advanced to third parties Loans advanced to subsidiaries Net cash outflow from investing activities Cash flows from financing activities Proceeds from the issue of ordinary share capital Payment of issue costs Repayment of borrowings Net cash inflow from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of period Cash and cash equivalents at end of period Notes Group 2013 $ Group 2012 $ Company 2013 $ Company 2012 $ (29,932,407) 62,550 80,271 27,300,641 2,244 - (22,728,305) 77,457 1,345,410 18,606,445 - - (31,178,218) 9,075 80,271 - - 28,651,475 (22,233,466) 8,850 1,345,410 - - 18,311,066 157,974 (102,555) (21,942) 115,255 402,284 (2,006,714) 544,842 (2,256,706) (84,196) (2,543,545) 292,170 (2,183,692) 7,448 (718) 5,520 223,097 - - 5,988 (690) 2,000 221,297 - (4,710) (18,413) (4,710) (15,037) 72,707 - - - 24 (2,822,260) 1 (448,120) (2,517,664) - - (5,707,797) (12,249,212) 5,853 - - - - (12,038,675) (29,209) - (448,120) (2,517,664) - (2,254,043) (5,237,029) (222,208) - - (211,256) (11,853,287) (12,080,491) 8,575,084 (311,488) (109,284) 8,154,312 3,429,022 (189,571) (47,197) 3,192,254 8,575,084 (311,488) - 8,263,596 3,429,022 (189,571) - 3,239,451 439,801 (11,103,127) 483,032 (11,024,732) 16 440,623 880,424 11,543,750 440,623 343,736 826,768 11,368,468 343,736 The above statements of cash flows should be read in conjunction with the accompanying notes. SolGold plc annual report for the year ended 30 June 2013 48 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2013 NOTE 1 ACCOUNTING POLICIES The Company is a public limited company incorporated in England and Wales and is listed on the AIM market of the London Stock Exchange. (a) Statement of compliance The consolidated financial statements and company financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) and their interpretations issued by the International Accounting Standards Board (IASB), as adopted by the European Union. They have also been prepared in accordance with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The accounting policies set out below have been applied consistently throughout these consolidated financial statements. (b) Basis of preparation of financial statements, going concern and availability of project finance The consolidated financial statements are presented in Australian dollars (“A$”), rounded to the nearest dollar. The Company was incorporated on 11 May 2005. The Group has elected, from incorporation, to prepare annual consolidated financial statements in accordance with IFRS. A separate statement of comprehensive income for the parent company has not been presented as permitted by section 408 of the Companies Act 2006. The financial statements have been prepared on a going concern basis which contemplates the continuity of normal business activities and the realisation of assets and discharge of liabilities in the ordinary course of business. The Company has not generated revenues from operations. In common with many exploration companies, the Company raises finance for its exploration and appraisal activities in discrete tranches. At the reporting date, the Group had a net current asset position of $752,511, compared with a net current liability position in 2012 of $789,836. As such, the Company’s ability to continue to adopt the going concern assumption will depend upon a number of matters including the successful raising in the future of necessary funding for the successful exploration and subsequent exploitation of the Company’s tenements and to provide working capital. Subsequent to year end, the Company successfully completed a placement on 25 September 2013, raising a total of $6.4 million. This means that the Company should have sufficient capital to fund and progress its exploration and project development efforts across its portfolio of projects in the Solomon Islands, Ecuador and Queensland, Australia. It should be noted that the current working capital levels will not be sufficient to bring the Company’s projects into full development and production and, in due course, further funding will be required. In the event that the Company is unable to secure further finance either through third parties or capital raisings, it may not be able to fully develop its projects and this may have a consequential impact on the carrying value of the related exploration assets and the investment of the parent company in its subsidiaries. In the absence of these matters being successful, there exists a material uncertainty that may cast significant doubt on the entity’s ability to continue as a going concern, and therefore, it may be unable to realise its assets and discharge its liabilities in the ordinary course of business. (c) Basis of consolidation (i) Subsidiaries The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 30 June each year. Control is recognised where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies into line with those used by the Group. Non-controlling interests are allocated their share of net profit after tax in the statement of comprehensive income and presented within equity in the consolidated statement of financial position, separately from the equity of the owners of the parent. (ii) Associates Associates are all entities over which the Group has significant influence but not control or joint control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for in the consolidated financial statements using the equity method of accounting, after initially being recognised at cost. The Group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition. SolGold plc annual report for the year ended 30 June 2013 49 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2013 NOTE 1 ACCOUNTING POLICIES (continued) (c) Basis of consolidation (continued) The Group’s share of its associates’ post-acquisition profits or losses is recognised in profit or loss and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income where applicable. The cumulative post- acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates reduce the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. (iii) Transactions eliminated on consolidation Intra-group balances and any unrealised gains and losses or income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. (d) Foreign currency The Company’s functional and presentation currency is Australian dollars (A$). The exchange rates at 30 June 2013 were £0.6002/A$1.0, US$0.9218/A$1.0 and SBD$6.8688/A$1.0). June 2012: £0.6505/A$1.0, US$1.0159/A$1.0 SBD$6.6372/A$1.0 (30 and Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the year-end are translated into Australian dollars at the foreign exchange rate ruling at that date. Any resultant foreign exchange currency translation amount is taken to the profit and loss. The functional currency of the subsidiaries in Australia is considered to be Australian Dollars (A$). The functional currency of the subsidiaries in Solomon Islands is considered to be Solomon Islands Dollars (SBD$). The assets and liabilities of the entities are translated to the group presentation currency at rates of exchange ruling at the balance sheet date. Income and expense items are translated at average rates for the period. Any exchange differences are taken directly to reserves. On disposal of an entity, cumulative deferred exchange differences are recognised in the income statement as part of the profit or loss on sale. (e) Property, plant and equipment (i) Owned assets Items of property, plant and equipment are stated at cost less accumulated depreciation (see below) and impairment losses (see accounting policy i below). (ii) Subsequent costs The Group recognises in the carrying amount of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if it is probable that the future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other costs are recognised in the statement of comprehensive income as an expense as incurred. (iii) Depreciation Depreciation is charged to the statement of comprehensive income on a straight-line basis over the estimated useful lives of each item of property, plant and equipment. The estimated useful lives of all categories of assets are: Office Equipment Furniture and Fittings Motor Vehicles Plant and Equipment Land and Buildings 3 years 5 years 5 years 5 years 12 years The residual values and useful lives are assessed annually. Gains and losses on disposal are determined by comparing proceeds with carrying amounts and are included in the statement of comprehensive income. SolGold plc annual report for the year ended 30 June 2013 50 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2013 NOTE 1 ACCOUNTING POLICIES (Continued) (f) Intangible assets Deferred exploration and evaluation costs Costs incurred in relation to the acquisition of, or application for, a tenement area are capitalised where there is a reasonable expectation that the tenement will be acquired or granted. Where the Company is unsuccessful in acquiring or being granted a tenement area, any such costs are immediately expensed. All other costs incurred prior to obtaining the legal right to undertake exploration and evaluation activities on a project are written- off as incurred. Exploration and evaluation costs arising following the acquisition of an exploration licence are capitalised on a project-by-project basis, pending determination of the technical feasibility and commercial viability of the project. Costs incurred include appropriate technical and administrative overheads. Deferred exploration costs are carried at historical cost less any impairment losses recognised. If an exploration project is successful, the related expenditures will be transferred to mining assets and amortised over the estimated life of the ore reserves on a unit of production basis. The recoverability of deferred exploration and evaluation costs is dependent upon the discovery of economically recoverable ore reserves, the ability of the Group to obtain the necessary financing to complete the development of ore reserves and future profitable production or proceeds from the disposal thereof. (g) Loans receivables, other receivables and prepayments Loans receivables, other receivables and prepayments are not interest bearing and are stated at their nominal amount less provision for impairment. (h) Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the statement of financial position. (i) Impairment Whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable the asset is reviewed for impairment. An asset’s carrying value is written down to its estimated recoverable amount (being the higher of the fair value less costs to sell and value in use) if that is less than the asset’s carrying amount. Impairment reviews for deferred exploration and evaluation costs are carried out on a project-by-project basis, with each project representing a potential single cash generating unit. An impairment review is undertaken when indicators of impairment arise, typically when one of the following circumstances apply: Unexpected geological occurrences that render the resource uneconomic; Title to the asset is compromised; Variations in metal prices that render the project uneconomic; and Variations in the currency of operation. (j) Share capital The Company’s ordinary shares are classified as equity. SolGold plc annual report for the year ended 30 June 2013 51 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2013 NOTE 1 ACCOUNTING POLICIES (Continued) (k) Employee benefits (i) Share based payment transactions Certain Group employees are rewarded with share based instruments. Shares may also be issued to third parties as consideration for goods or services. Shares are recorded at their market value at the time of their issue. Option instruments are stated at fair value at the date of grant and this is expensed on a straight line basis over the estimated vesting period. The latter is based on the Group’s estimate of shares that will eventually vest. The fair value of an option instrument is estimated using the Black-Scholes valuation model. The estimated life used in the model represents management’s best estimate of the effects of non- transferability, exercise restrictions and behavioural considerations. (ii) Retirement benefits The Group operates a defined contribution pension scheme. Contributions payable for the year are charged to the statement of comprehensive income. (l) Provisions Provisions are recognised when the Group has a legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. (m) Trade and other payables Trade and other payables are not interest bearing and are stated at their nominal value. The effect of discounting is immaterial. (n) Revenue During the exploration phase, any revenue generated from incidental sales is treated as a contribution towards previously incurred costs and offset accordingly. (o) Other income Other income is recognised in the statement of comprehensive income as it accrues. (p) Financing costs and income (i) Financing costs Financing costs comprise interest payable on borrowings calculated using the effective interest rate method. (ii) Finance income Interest income is recognised in the statement of comprehensive income as it accrues, using the effective interest method. (q) Taxation Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. SolGold plc annual report for the year ended 30 June 2013 52 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2013 NOTE 1 ACCOUNTING POLICIES (Continued) (r) Segment reporting The Group determines and presents operating segments based on information that is internally provided to the Board of Directors, who are the Group’s chief operating decision makers. 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. An operating segment’s operating results and asset position are reviewed regularly by the Board to make decisions about resources to be allocated to the segment and assess its performance, for which discrete financial information is available. Segment results that are reported to the Board include items directly attributable to a segment, as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate office assets, head office expenses, and income tax assets and liabilities. (s) Business Combinations Business combinations occur where an acquirer obtains control over one or more businesses and results in the consolidation of its assets and liabilities. Business combinations are accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The acquisition method requires that for each business combination one of the combining entities must be identified as the acquirer (i.e. parent entity). The business combination will be accounted for as at the acquisition date, which is the date that control over the acquiree is obtained by the parent entity. At this date, the parent shall recognise, in the consolidated accounts, and subject to certain limited exceptions, the fair value of the identifiable assets acquired and liabilities assumed. In addition, contingent liabilities of the acquiree will be recognised where a present obligation has been incurred and its fair value can be reliably measured. The acquisition may result in the recognition of goodwill or a gain from a bargain purchase. The method adopted for the measurement of goodwill will impact on the measurement of any non-controlling interest to be recognised in the acquiree where less than 100% ownership interest is held in the acquiree. The acquisition date fair value of the consideration transferred for a business combination plus the acquisition date fair value of any previously held equity interest shall form the cost of the investment in the separate financial statements. Consideration may comprise the sum of the assets transferred by the acquirer, liabilities incurred by the acquirer to the former owners of the acquiree and the equity interests issued by the acquirer. Fair value uplifts in the value of pre-existing equity holdings on acquisition are taken to the statement of comprehensive income. Where changes in the value of such equity holdings had previously been recognised in other comprehensive income, such amounts are recycled to profit or loss. Included in the measurement of consideration transferred is any asset or liability resulting from a contingent consideration arrangement. Any obligation incurred relating to contingent consideration is classified as either a financial liability or equity instrument, depending upon the nature of the arrangement. Rights to refunds of consideration previously paid are recognised as a receivable. Subsequent to initial recognition, contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or a liability is remeasured at each reporting period to fair value through the statement of comprehensive income unless the change in value can be identified as existing at acquisition date. All transaction costs incurred in relation to the business combination are expensed to the statement of comprehensive income. (t) Project Financing / Farm-outs The Group, from time to time, enters into funding arrangements with third parties in order to progress specific projects. The Group accounts for the related exploration costs in line with the terms of the specific agreement. Costs incurred by SolGold plc are recognised as intangible assets within the financial statements. Costs incurred by third parties are not recognised by SolGold plc. SolGold plc annual report for the year ended 30 June 2013 53 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2013 NOTE 1 ACCOUNTING POLICIES (Continued) (u) Leases Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership are transferred to entities in the Group, are classified as finance leases. Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses on a straight-line basis over the period of the lease. (v) Financial Instruments Recognition and Initial Measurement Financial instruments, incorporating financial assets and financial liabilities, are recognised when the entity becomes a party to the contractual provisions of the instrument. Trade date accounting is adopted for financial assets that are delivered within timeframes established by marketplace convention. Financial instruments are initially measured at fair value plus transactions costs where the instrument is not classified as at fair value through profit or loss. Transaction costs related to instruments classified as at fair value through profit or loss are expensed to profit or loss immediately. Financial instruments are classified and measured as set out below. Classification and Subsequent Measurement (i) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost using the effective interest rate method. (ii) (iii) (iv) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are classified as held for trading unless they are designated as hedges. Assets in this category are classified as current assets. These assets are measured at fair value with gains or losses recognised in the profit or loss. Available-for-sale financial assets Available-for-sale financial assets comprise investments in listed and unlisted entities and non-derivatives that are either designated in this category or not classified in any other categories. After initial recognition, these investments are measured at fair value with gains or losses recognised in other comprehensive income. Financial liabilities Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost using the effective interest rate method. Fair value Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value of all other financial assets and liabilities, where appropriate, including recent arm’s length transactions, reference to similar instruments and option pricing models. Derecognition Financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognized where the related obligations are either discharged, cancelled or expire. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit of loss. SolGold plc annual report for the year ended 30 June 2013 54 NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 June 2013 Note 1: Summary of Significant Accounting Policies (continued) Accounting Policies (continued) (v) Financial Instruments (continued) Impairment of financial assets An assessment is made at each balance date to determine whether there is objective evidence that a specific financial asset or a group of financial assets may be impaired. If such evidence exists, the estimated recoverable amount of that asset is determined from available information such as quoted market prices or by calculating the net present value of future anticipated cash flows. In estimating these cash flows, management makes judgements about a counter-party's financial situation and the net realisable value of any underlying collateral. Impairment losses are recognised in the profit or loss. Impairment losses on assets measured at amortised cost using the effective interest rate method are calculated by comparing the carrying value of the asset with the present value of estimated future cash flows at the original effective interest rate. Where there is objective evidence that an available for sale financial asset is impaired (such as a significant or prolonged decline in the fair value of an available for sale financial asset) the cumulative loss that has been recognised in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment. When a subsequent event reduces the impairment of an available for sale debt security the impairment loss is reversed through profit or loss. When a subsequent event reduces the impairment of an available for sale equity instrument the fair value increased is recognised in other comprehensive income. (w) Accounting policies for the Company The accounting policies applied to the Company are consistent with those adopted by the Group with the exception of the following: (i) Company statement of comprehensive income As permitted by Section 408 of the Companies Act 2006, the statement of comprehensive income of the Company has not been separately presented in these financial statements. The Company’s loss for the year was $31,178,218 (2012: $22,035,145). (ii) Subsidiary investments Investments in subsidiary undertakings are stated at cost less impairment losses. (x) Changes in accounting policies Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the accounting periods commencing 1 July 2012 but are not applicable to the group and had no impact on these financial statements. The Group has not adopted any standards or interpretations in advance of the required implementation dates. It is not expected that adoption of standards or interpretations which have been issued by the International Accounting Standards Board but have not been adopted will have a material impact on the financial statements. SolGold plc annual report for the year ended 30 June 2013 55 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2013 NOTE 2 SEGMENT REPORTING The group determines and separately reports operating segments based on information that is internally provided to the Board of Directors, who are the Group’s chief operating decision makers. The Group has outlined below the separately reportable operating segments, having regard to the quantitative threshold tests provided in IFRS 8, namely that the relative revenue, asset or profit / (loss) position of the operating segment equates to 10% or more of the Group’s respective total. The Group reports information to the Board of Directors along company lines. That is, the financial position of SolGold and each of its subsidiary companies is reported discreetly, together with an aggregated Group total. Accordingly, each company within the Group that meets or exceeds the threshold tests outlined above is separately disclosed below. The financial information of the subsidiaries that do not exceed the thresholds outlined above, and are therefore not reported separately, are aggregated as Other Subsidiaries. 30 June 2013 SolGold ARM Central Minerals Acapulco Mining Solomon Operations Honiara Holdings Guadalcanal Exploration Consolidation / Elimination Total 30 June 2012 SolGold ARM Central Minerals Acapulco Mining Solomon Operations Honiara Holdings Guadalcanal Exploration Consolidation / Elimination Total Finance Income $ 5,988 507 118 835 Total Income $ 5,988 507 118 835 - - - - - - - - Loss for the year $ (31,178,218) (12,893,152) (8,582,984) (16,750) (12) (998,381) Assets Liabilities $ 37,993,519 1,485,034 3,582,305 5,837,534 29,758 3,122 $ 318,681 32,689,251 13,068,993 3,612,378 81,457 956,044 (12,363) 1,127,428 1,186,126 23,785,958 (40,834,726) (51,459,501) Share Based Payments $ 80,271 - - - Depreciation $ 9,522 21,073 23,382 8,573 - - - - - - - - 7,448 7,448 (29,895,902) 19,257,870 453,429 80,271 62,550 Finance Income $ 221,297 381 302 1,116 Total Income $ 221,765 381 302 1,116 Loss for the year $ (22,035,145) (18,225,172) (479,350) (76,256) 1 - - - 1 - - - (131) (69) (151) Assets Liabilities $ 42,682,244 13,901,046 11,321,143 5,616,786 29,770 854,030 989,209 $ 916,335 32,316,738 12,224,848 3,374,880 81,457 804,099 1,035,544 Share Based Payments $ 1,345,410 - - - Depreciation $ 8,850 25,445 32,187 10,975 - - - - - - - - 18,311,066 (33,833,349) (48,973,882) 223,097 223,565 (22,505,208) 41,560,879 1,780,019 1,345,410 77,457 Honiara Holdings Pty Ltd and Guadalcanal Exploration Pty Ltd joined the Group on 17 February 2012 and 18 April 2012 respectively. Geographical information Non-current assets UK Australia Solomon Islands Ecuador The Group had no revenue during the year. 2013 $ - 12,860,582 2,611,879 2,593,897 2012 $ - 26,526,703 13,902,283 222,208 SolGold plc annual report for the year ended 30 June 2013 56 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2013 NOTE 3 LOSS BEFORE TAX Loss is stated after charging (crediting) Auditors’ remuneration: Fees payable to the company’s auditor for the audit of the company’s annual accounts Fees payable to the company’s auditor and its associates for other services: Other assurance related services Tax services Depreciation Foreign exchange losses Share based payments NOTE 4 STAFF NUMBERS AND COSTS Corporate finance and administration Technical Group 2013 $ Group 2012 $ 55,000 37,000 - 62,550 9,205 80,271 40,500 4,944 - 77,457 28,983 1,345,410 Group 2013 Group 2012 Company 2013 Company 2012 7 4 11 9 8 17 7 4 11 9 3 12 The aggregate payroll costs of these persons were as follows: Wages and salaries Contributions to defined contribution plans Share based payments Total staff costs Group 2013 $ 1,218,074 93,532 80,271 1,391,877 Group 2012 $ 1,651,378 61,346 1,345,410 3,058,134 Company 2013 $ 1,218,074 93,532 80,271 1,391,877 Company 2012 $ 787,584 61,346 1,345,410 2,194,340 Included within total staff costs is $648,712 (2012: $1,893,719) which has been capitalised as part of deferred exploration costs. SolGold plc annual report for the year ended 30 June 2013 57 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2013 NOTE 5 REMUNERATION OF KEY MANAGEMENT PERSONNEL 2013 Directors Malcolm Norris Cameron Wenck Nicholas Mather Brian Moller Robert Weinberg John Bovard Non-Directors TOTAL 2012 Directors Malcolm Norris Cameron Wenck Nicholas Mather Brian Moller Robert Weinberg John Bovard Non-Directors TOTAL 1 Share based payments issued. Basic Annual Salary $ Other Benefits1 $ Pensions $ Total Remuneration $ 291,288 52,883 146,250 47,917 47,917 47,917 526,746 1,160,918 Basic Annual Salary $ 219,760 70,000 183,333 50,000 50,000 50,000 281,684 904,777 12,508 - - - - - 18,717 31,225 25,380 - - - - - 42,337 67,717 329,176 52,883 146,250 47,917 47,917 47,917 587,800 1,259,860 Other Benefits1 $ Pensions $ Total Remuneration $ 12,508 - - - - - 7,342 19,850 19,778 - - - - - 15,777 35,555 252,046 70,000 183,333 50,000 50,000 50,000 304,803 960,182 During the year no directors exercised options granted under the employee share option plan (2012: nil) During the year, employer’s social security costs of $67,717 (2012: $35,555) were paid in respect of remuneration for key management personnel. NOTE 6 FINANCE INCOME AND COSTS Interest income Finance income Interest cost – convertible note Finance costs Group 2013 $ 7,448 7,448 - (718) Group 2012 $ 223,097 223,097 - - SolGold plc annual report for the year ended 30 June 2013 58 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2013 NOTE 7 INCOME TAX EXPENSE Factors affecting the tax charge for the current period The tax credit for the period is lower than the credit resulting from the application of the standard rate of corporation tax in Australia of 30% (2012: 30%) being applied to the loss before tax arising during the year. The differences are explained below. Tax reconciliation Loss before tax Tax at 30% (2012: 30%) Effects at 30% (2012: 30%) of: Short term temporary differences Non-deductible expenses Tax losses carried forward Tax on loss Factors that may affect future tax charges Group 2013 $ Group 2012 $ (29,895,902) (8,968,771) (22,505,208) (6,751,562) 7,740,809 21,505 1,206,457 - 3,492,330 480,116 2,779,116 - The Group has carried forward tax losses of approximately $39.0 million (2012: $35.0 million). These losses may be deductible against future taxable income dependent upon the on-going satisfaction by the relevant Group company of various tax integrity measures applicable in the jurisdiction where the tax loss has been incurred. The jurisdictions in which tax losses have been incurred include Australia and the Solomon Islands. NOTE 8 LOSS PER SHARE The calculation of basic loss per ordinary share on total operations is based on losses $29,895,902 (2012: $22,505,208) and the weighted average number of ordinary shares outstanding of 430,235,731 (2012: 293,763,384). There is no difference between the diluted loss per share and the basic loss per share presented as the share options in issue during the period and prior period were not considered dilutive. At 30 June 2013 there were 28,372,000 share options in issue (2012: 12,972,000). NOTE 9 INVESTMENTS IN SUBSIDIARY UNDERTAKINGS Country of incorporation and operation Principal activity SolGold plc’s effective interest 2013 2012 Australian Resources Management (ARM) Pty Ltd Acapulco Mining Pty Ltd Central Minerals Pty Ltd Solomon Operations Ltd Honiara Holdings Pty Ltd Guadalcanal Exploration Pty Ltd Australia Australia Australia Solomon Islands Australia Australia Exploration Exploration Exploration Exploration Exploration Exploration 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% - SolGold plc annual report for the year ended 30 June 2013 59 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2013 NOTE 9 INVESTMENTS IN SUBSIDIARY UNDERTAKINGS (continued) Cost Balance at 30 June 2011 Acquisitions and advances in the year Balance at 30 June 2012 Acquisitions and advances in the year Balance at 30 June 2013 Amortisation and impairment losses Balance at 30 June 2011 Provision for impairment Balance at 30 June 2012 Provision for impairment Balance at 30 June 2013 Carrying amounts Balance at 30 June 2011 Balance at 30 June 2012 Balance at 30 June 2013 Shares $ Investment in subsidiary undertakings Loans $ Total $ 11,085,656 50,000 11,135,656 1 11,135,657 - - - (5,016,948) (5,016,948) 11,085,656 11,135,656 6,118,709 34,916,212 13,985,435 48,901,647 2,286,414 51,188,061 - (18,311,066) (18,311,066) (23,634,527) (41,945,593) 34,916,212 30,590,581 9,242,468 46,001,868 14,035,435 60,037,303 2,286,415 62,323,718 - (18,311,066) (18,311,066) (28,651,475) (46,962,541) 46,001,868 41,726,237 15,361,177 The write-down of the deferred exploration and evaluation costs associated with certain projects in Queensland and the Solomon Islands lead to the Company recording a provision for impairment of $23,634,527 on the loans receivable from Australian Resource Management (ARM) Pty Ltd, Central Minerals Pty Ltd and Honiara Holdings Pty Ltd. Details of all loans within the group made during the year are set out below: Cost Total investment in subsidiaries by the Company at 30 June 2011 Advances in the period from SolGold plc to ARM Pty Ltd Advances in the period from SolGold plc to Acapulco Mining Pty Ltd Advances in the period from SolGold plc to Central Minerals Pty Ltd Acquisition and advances during the period to Honiara Holdings Pty Ltd Acquisition and advances during the period to Guadalcanal Exploration Pty Ltd Total investment in subsidiaries by the Company at 30 June 2012 Advances in the period from SolGold plc to ARM Pty Ltd Advances in the period from SolGold plc to Acapulco Mining Pty Ltd Advances in the period from SolGold plc to Central Minerals Pty Ltd Advances during the period to Honiara Holdings Pty Ltd Acquisition and advances during the period to Guadalcanal Exploration Pty Ltd Total investment in subsidiaries by the Company at 30 June 2013 Shares $ Loans $ Total $ 11,085,656 - 34,916,212 5,724,967 46,001,868 5,724,967 - - 648,151 648,151 5,919,046 5,919,046 50,000 650,556 700,556 - 1,042,715 1,042,715 11,135,656 - 48,901,647 509,183 60,037,303 509,183 - - - 1 308,334 308,334 1,311,769 79,394 1,311,769 79,394 77,734 77,735 11,135,657 51,188,061 62,323,718 SolGold plc annual report for the year ended 30 June 2013 60 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2013 NOTE 10 INVESTMENTS (a) Investments accounted for using the equity method Name Country of incorporation Principle Activity Shares Ownership Interest Carrying Amount Exploraciones Novomining S.A. Ecuador Mineral Exploration ORD (i) Movements during the year in equity accounted investments Balance at beginning of year Carrying value of investment on transfer of intangible assets Fair value of investment on initial recognition Share of associates profits after income tax Balance at end of year (ii) Summarised financial information of associates 2013 % 30% 2012 % -% 2013 $ 2012 $ 2,769,647 2,769,647 2012 $ 2013 $ - 222,208 2,517,664 29,775 2,769,647 - - - - - - The Group's share of the results of its associates and its aggregated assets (including goodwill) and liabilities are as follows: Ownership interest % Assets $ Liabilities Revenues $ $ Profit $ 2013 Exploraciones Novomining S.A. 2012 Exploraciones Novomining S.A. 30% -% 77,114 69,785 39,938 29,775 - - - - (b) Investments accounted for as available for sale assets Movements in available for sale financial assets Opening balance at 1 July Additions Fair Value adjustment through other comprehensive income 2013 $ 2012 $ - 448,120 10,390 458,510 - - - - Available for sale financial assets comprise an investment in the ordinary issued capital of Cornerstone Capital Resources Inc, listed on the Toronto Stock Exchange (“TSX”) and an investment in the ordinary issued capital of AusNiCo Ltd, a company listed on the Australian Securities Exchange. SolGold plc annual report for the year ended 30 June 2013 61 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2013 NOTE 11 PROPERTY, PLANT AND EQUIPMENT Group Land and Buildings $ Plant and Equipment $ Cost Balance 30 June 2011 Additions Balance 30 June 2012 Additions Disposals Balance 30 June 2013 Depreciation and impairment losses Balance 30 June 2011 Depreciation charge for the year Balance 30 June 2012 Depreciation charge for the year Disposals Balance 30 June 2013 Carrying amounts At 30 June 2011 At 30 June 2012 At 30 June 2013 208,144 - 208,144 - - 208,144 (76,260) (17,322) (93,582) (17,321) - (110,903) 131,884 114,562 97,241 Motor Vehicles $ 267,722 - 267,722 - (147,207) 120,515 95,989 2,500 98,489 - - 98,489 (60,579) (11,141) (71,720) (8,276) - (79,996) (88,644) (41,348) (129,992) (28,302) 74,499 (83,795) 35,410 26,769 18,493 179,078 137,730 36,720 Office Equipment $ Furniture & Fittings $ Total Company $ $ 61,270 11,132 72,402 3,030 - 75,432 (52,833) (5,161) (57,994) (7,696) - (65,690) 8,437 14,408 9,742 14,711 4,782 19,493 1,680 - 21,173 647,836 18,414 666,250 4,710 (147,207) 523,753 (12,800) (2,485) (15,285) (955) - (16,240) (291,116) (77,457) (368,573) (62,550) 74,500 (356,623) 30,187 15,037 45,224 4,710 - 49,934 (9,309) (8,850) (18,159) (9,075) - (27,234) 1,910 4,206 4,933 356,720 297,677 167,130 20,878 27,065 22,700 The net book value of assets pledged as security for lease finance is $21,073 (2012: $137,730). SolGold plc annual report for the year ended 30 June 2013 62 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2013 NOTE 12 INTANGIBLE ASSETS Cost Balance 30 June 2011 Additions – expenditure Additions – business combinations Disposals Balance 30 June 2012 Additions – expenditure Transfer to equity accounted investments Disposals Balance 30 June 2013 Impairment losses Balance at 30 June 2011 Impairment charge Balance 30 June 2012 Impairment charge Balance 30 June 2013 Carrying amounts At 30 June 2011 At 30 June 2012 At 30 June 2013 Impairment loss Deferred Group exploration costs $ Deferred Company exploration costs $ 45,566,793 12,422,506 1,718,703 - 59,708,002 1,623,715 - 61,331,717 (846,453) (18,606,445) (19,452,898) (27,300,641) (46,753,539) 44,720,340 40,255,104 14,578,178 - 222,208 - - 222,208 29,209 (222,208) - 29,209 - - - - - - 222,208 29,209 The Group considered it necessary to make a provision for impairment of $24,734,063 as it relates to the deferred exploration assets of the Rannes and Fauro projects. A decision was made to expense $2,566,578 (2012: $653,721) for exploration expenditure associated with other tenements that were dropped during the year. A detailed assessment of the carrying values of deferred exploration costs is provided in Note 25. NOTE 13 LOAN RECEIVABLES AND OTHER NONCURRENT ASSETS Loans receivables Security bonds Group 2013 $ - 92,893 92,893 Group 2012 $ - 98,413 98,413 Company 2013 $ - 5,569 5,569 Company 2012 $ - 7,569 7,569 Security bonds relate to cash security held against office premises, Lvl 27, 111 Eagle St, Brisbane, Queensland Australia and cash security held by Queensland Department of Natural Resources and Mines against Queensland exploration tenements held by the Group. SolGold plc annual report for the year ended 30 June 2013 63 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2013 NOTE 14 DEFERRED TAXATION Recognised deferred tax assets Deferred tax assets: Tax losses Deferred tax liabilities: Temporary timing differences arising on intangible assets Net deferred taxes Unrecognised deferred tax assets Group 2013 $ Group 2012 $ Company 2013 $ Company 2012 $ 3,724,771 5,021,142 (3,724,771 - (5,021,142) - - - - - - - Deferred tax assets have not been recognised in respect of the following amounts. Deferred tax has been calculated at the expected future rate of corporation tax of 30%. Temporary differences Tax losses Group 2013 $ 7,796,272 11,699,667 19,495,939 Group 2012 $ 1,693,992 10,505,233 12,199,225 Company 2013 $ 326,481 11,699,667 12,026,148 Company 2012 $ 267,017 2,406,783 2,673,800 The deferred tax asset in respect of these items has not been recognised as future taxable profit is not anticipated within the foreseeable future. NOTE 15 OTHER RECEIVABLES AND PREPAYMENTS Other receivables Prepayments NOTE 16 CASH AND CASH EQUIVALENTS Cash at bank Call deposits Cash and cash equivalents in the statement of cash flows Group 2013 $ 289,088 22,000 311,088 Group 2013 $ 880,424 - Group 2012 $ 285,484 183,578 469,062 Company 2013 $ 250,745 22,000 272,745 Company 2012 $ 67,225 183,578 250,803 Group 2012 $ 440,623 - Company 2013 $ 826,768 - Company 2012 $ 343,736 - 880,424 440,623 826,768 343,736 SolGold plc annual report for the year ended 30 June 2013 64 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2013 NOTE 17 CAPITAL AND RESERVES (a) Authorised Share Capital At 1 July 2011 – Ordinary shares Creation of additional shares of £0.01 each on 28 June 2012 At 30 June 2012 – Ordinary shares At 1 July 2012 – Ordinary shares Creation of additional shares At 30 June 2013 – Ordinary shares (b) Changes in Issued Share Capital and Share Premium Ordinary shares of 1p each at 30 June 2011 Shares issued at $0.12 – placement 6 March 2012 Share issue costs charged to share premium account Ordinary shares of 1p at 30 June 2012 Ordinary shares of 1p each at 30 June 2012 Shares issued at £0.04 – placement 17 July 2012 Share issue costs charged to share premium account Shares issued at £0.035 – placement 3 October 2012 Share issue costs charged to share premium account Shares issued at £0.035 – placement 12 October 2012 Share issue costs charged to share premium account Shares issued at £0.015 – placement 8 April 2013 Share issue costs charged to share premium account Shares issued at £0.03 – placement 14 June 2013 Shares issued at £0.038 – Conversion of convertible redeemable preference shares 28 June 2013 Ordinary shares of 1p at 30 June 2013 Potential issues of ordinary shares 2012 No. of Shares 500,000,000 120,000,000 620,000,000 2013 No. of Shares 620,000,000 - 620,000,000 2012 Nominal Value £ 5,000,000 1,200,000 6,200,000 2013 Nominal Value £ 6,200,000 - 6,200,000 No. of Shares 284,623,489 28,758,445 - 313,381,934 No. of Shares 313,381,934 33,333,333 - 55,555,556 - 21,972,143 - 119,801,376 - 8,200,000 1,110,000 553,354,342 Nominal Value $ 5,365,926 425,608 - 5,791,534 Nominal Value $ 5,791,534 500,000 - 857,167 - 325,188 - 1,736,281 - 133,332 18,253 9,361,755 Share Premium $ 58,402,290 3,003,414 (189,571) 61,216,133 Share Premium $ 61,216,133 1,500,000 (24,128) 2,142,833 (302,465) 819,094 (1,175) 868,097 (66,531) 266,668 Total $ 63,768,216 3,429,022 (189,571) 67,007,667 Total $ 67,007,667 2,000,000 (24,128) 3,000,000 (302,465) 1,144,282 (1,175) 2,604,378 (66,531) 400,000 - 66,418,526 18,253 75,780,281 At 30 June 2013 the Company had 28,372,000 options outstanding for the issue of ordinary shares, as follows: Options Share options are granted to employees under the company’s Employee Share Option Plan (“ESOP”). The employee share option plan is designed to align participants’ interests with those of shareholders.. When a participant ceases employment prior to the vesting of their share options, the share options are forfeited after 90 days unless cessation of employment is due to termination for cause, whereupon they are forfeited immediately. The Company prohibits key management personnel from entering into arrangements to protect the value of unvested ESOP awards. The contractual life of each option granted is generally three (3) years. There are no cash settlement alternatives. Each option can be exercised from vesting date to expiry date for one share with the exercise price payable in cash. SolGold plc annual report for the year ended 30 June 2013 65 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2013 NOTE 17 CAPITAL AND RESERVES (continued) Options (continued) Date of grant Exercisable from Exercisable to Exercise prices Number granted 28 April 2014 £0.50 5,324,000 Number at 30 June 2013 4,532,000 29 April 2011 31 May 2011 28 June 2012* 28 June 2012* 28 September 2012** 10 May 2013*** 10 May 2013*** 10 May 2013*** Longer of 12 months from grant or when the 30 day volume weighted average price (“VWAP”) of the company share price reaches £0.50. Longer of 12 months from grant or when the 30 day VWAP of the company share price reaches £0.50. 12 months from date of grant 12 months from date of grant Exercisable immediately and will expire 12 months from allotment date When the Company’s share price has traded at a minimum of £0.20 on a 30 day VWAP basis When the Company’s share price has traded at a minimum of £0.40 on a 30 day VWAP basis When the Company’s share price has traded at a minimum of £0.80 on a 30 day VWAP basis 30 May 2014 £0.50 5,940,000 3,840,000 23 July 2015 23 July 2015 19 August 2014 £0.14 £0.28 £0.06 1,250,000 1,250,000 500,000 500,000 3,000,000 3,000,000 6 September 2017 £0.14 3,000,000 3,000,000 6 September 2017 £0.28 5,000,000 5,000,000 6 September 2017 £0.50 8,000,000 8,000,000 * The options were granted for accounting purposes on 28 June 2012, following approval at the AGM and formally issued on 23 July 2012. ** The options were granted for accounting purposes 28 September 2012, following approval at the Annual General Meeting held on 19 August 2013 and formally allotted on 6 September 2013. ***The options were granted for accounting purposes on 10 May 2013, following approval at the Annual General Meeting held on 19 August 2013 and formally allotted on 6 September 2013. 32,764,000 28,372,000 SolGold plc annual report for the year ended 30 June 2013 66 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2013 NOTE 17 CAPITAL AND RESERVES (continued) Convertible Redeemable Preference Shares Convertible redeemable preference shares are granted under the Company’s Employee Share Plan, which is designed to enable the Company to secure and retain skilled and experienced personnel on appropriately incentivised terms. A convertible redeemable preference share (“CRPS”) will be issued at 1p each. Each CRPS will entitle the identified employees upon achievement of certain performance criteria, to convert the CRPS into one ordinary share, and such employees will in addition be entitled to subscribe for further ordinary shares, granting the employees, in total (following conversion and exercise of the subscription rights), 1000 ordinary shares per converted CRPS. The performance criteria in each instance have been structured to focus on performance in areas including project operational deliverable, share price and corporate performance, and are aligned with delivering shareholder growth. A total of 10,700 CRPS were granted following approval at the AGM on 28 June 2012 and formally issued on 23 July 2012. The CRPS have an issue price of 1p each and the underlying ordinary shares had a price of 3.30p each, calculated as the volume weighted average trade price of each ordinary share for the 5 trading days immediately prior to the day upon which the CRPS were issued. The issue of CRPS has been treated as an option grant in accordance with IFRS 2, Share Based Payments. In line with IFRS 2, Share Based Payments, the related expense for the CRPS is recorded from the date of grant through to when the performance criteria have been met. Convertible Redeemable Preference Shares Opening balance Granted during the year Converted to ordinary shares during the year Cancelled during the period Closing balance 2013 Number of CRPS 2012 Number of CRPS - 10,700 (1,410) (9,290) - - - - - - During the year, 1,410 CRPS' were issued on meeting certain performance milestones and subsequently, the remaining CRPS’ were cancelled. Warrants There were no warrants outstanding as at 30 June 2013. Share options issued On 28 September 2012, the company entered into an agreement to grant 3,000,000 unlisted options to Mather Investments (Qld) Pty Ltd (as Trustee), an entity associated with Nicholas Mather, a director of SolGold, pursuant to an Underwriting Agreement in connection with the Company’s successful placement of AUD$3,000,000. The Options are exercisable at £0.06 each, and will expire 12 months from their allotment date. The allotment date was 19 August 2013, the date at which approval was obtained by shareholders at the AGM. On 10 May 2013, the company entered into an agreement to grant 16,000,000 unlisted options to Alan Martin on his appointment as Chief Executive Officer. The share options were approved at the Annual General Meeting held on 19 August 2013 and formally allotted on 6 September 2013. The terms of the share options are as follows: 3 million Options exercisable at £0.14, vesting once the Company’s share price has traded at a minimum of £0.20 on a 30 day VWAP basis; 5 million Options exercisable at £0.28, vesting once the Company’s share price has traded at a minimum of £0.40 on a 30 day VWAP basis; and 8 million Options exercisable at £0.50, vesting once the Company’s share price has traded at a minimum of £0.80 on a 30 day VWAP basis. SolGold plc annual report for the year ended 30 June 2013 67 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2013 NOTE 17 CAPITAL AND RESERVES (continued) Dividends The Directors do not recommend the payment of a dividend. Capital Management Given the nature of the group’s current activities the entity will remain dependant on equity funding in the short to medium term until such time as the group becomes self-financing from the commercial production of mineral resources. NOTE 18 FINANCE LEASE LIABILITIES Group 2013 $ Group 2012 $ Company 2013 $ Company 2012 $ Minimum lease payments - - - - Due within one year Between one and two years Between two and five Later than five years Total minimum lease payments Future finance charges - Lease liability - - Current Liability due within one year Non-current liability due between one and five years 11,084 11,084 4,619 - 26,787 (3,211) 23,576 9,148 14,428 63,552 40,759 49,723 - 154,034 (21,174) 132,860 52,362 80,498 Lease liabilities are secured over the assets to which they relate. NOTE 19 TRADE AND OTHER CURRENT PAYABLES - - - - - - - - - - - - - - - - Group 2013 $ 158,107 160,941 110,805 429,853 Group 2012 $ 1,290,584 220,342 136,233 1,647,159 Company 2013 $ Company 2012 $ 149,013 89,359 105,405 343,777 725,160 60,342 130,833 916,335 Current Trade payables Other payables Accrued expenses NOTE 20 EMPLOYEE BENEFITS Share-based payments The number and weighted average exercise price of share options are as follows: Outstanding at the beginning of the period Lapsed during the period Granted during the period Exercised during the period Outstanding at the end of the period Exercisable at the end of the period Weighted average exercise price 2013 £0.45 £0.38 £0.36 - £0.37 £0.21 Number of options 2013 12,972,000 (3,600,000) 16,000,000 - 25,372,000 1,000,000 Weighted average exercise price 2012 £0.50 £0.50 £0.21 - £0.45 - Number of options 2012 11,264,000 (792,000) 2,500,000 - 12,972,000 - The options outstanding at 30 June 2013 have an exercise price of £0.14 - £0.50 (2012: £0.14 - £0.50) and a weighted average contractual life of 2.81 years (2012: 2.08 years). SolGold plc annual report for the year ended 30 June 2013 68 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2013 NOTE 20 EMPLOYEE BENEFITS (continued) Share-based payments (continued) Share options held by Directors are as follows: Share options held Malcolm Norris At 30 June 2013 - At 30 June 2012 600,000 Option Price 14p Nicholas Mather Cameron Wenck Brian Moller Robert Weinberg John Bovard - 1,200,000 - 880,000 880,000 880,000 600,000 1,200,000 1,100,000 880,000 880,000 880,000 28p 50p 50p 50p 50p 50p Exercise Period 28/06/13 – 28/06/15 28/06/13 – 28/06/15 31/05/12 – 30/05/14 31/05/12 – 30/05/14 31/05/12 – 30/05/14 31/05/12 – 30/05/14 31/05/12 – 30/05/14 The total number of options outstanding at year end is as follows: Share options held at 30 June 2013 Share options held at 30 June 2012 Option price Exercise periods 4,532,000 3,840,000 500,000 500,000 3,000,000 3,000,000 5,000,000 8,000,000 5,324,000 5,148,000 1,250,000 1,250,000 - - - - £0.50 £0.50 £0.14 £0.28 £0.06 £0.14 £0.28 £0.50 29/04/12 – 28/04/14 31/05/12 – 30/05/14 28/06/13 – 28/06/15 28/06/13 – 28/06/15 6/09/13 – 19/08/14 Vesting from 30 day VWAP of 20p to 06/09/2017 Vesting from 30 day VWAP of 40p to 06/09/2017 Vesting from 30 day VWAP of 80p to 6/09/2017 28,372,000 12,972,000 The fair value of services received in return for share options granted is measured by reference to the fair value of share options granted. This estimate is based on either a Black-Scholes model or Monte Carlo Simulation considering the effects of the vesting conditions, expected exercise period and the dividend policy of the Company. SolGold plc annual report for the year ended 30 June 2013 69 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2013 NOTE 20 EMPLOYEE BENEFITS (continued) Share-based payments (continued) Fair value of share options and assumptions 2012 Fair value at issue date Exercise price Expected volatility Option life Expected dividends Risk-free interest rate (short-term) £0.28 Options 28 June 2012 £0.14 Options 28 June 2012 £0.0137 £0.28 102.9% £0.0199 £0.14 102.9% 3.00 years 3.00 years 0.00% 0.79% 0.00% 0.79% Valuation methodology Black Scholes Black Scholes Fair value of share options and assumptions 2013 Fair value at issue date Exercise price Expected volatility Option life Expected dividends Risk-free interest rate (short-term) Valuation methodology £0.50 Options 10 May 2013 £0.28 Options 10 May 2013 £0.14 Options 10 May 2013 £0.06 Options 28 September 2013 £0.00000 £0.50 127.46% 4.00 years 0.00% 0.91% £0.00003 $0.28 127.46% 4.00 years 0.00% 0.91% £0.00014 £0.14 127.46% 4.00 years 0.00% 0.91% £0.022 £0.06 127.46% 1.00 years 0.00% 0.68% Monte Carlo Monte Carlo Monte Carlo Black Scholes The calculation of the volatility of the share price was based on the Company’s daily closing share price over the two-year period prior to the date the options were issued. NOTE 21 FINANCIAL INSTRUMENTS (GROUP AND COMPANY) If required, the Board of Directors determines the degree to which it is appropriate to use financial instruments, commodity contracts or other hedging contracts or techniques to mitigate risks. The main risks for which such instruments may be appropriate are foreign currency risk and liquidity risk, each of which is discussed below. The main credit risk is the non-collection of loans and other receivables which include, refunds and tenement security deposits. There were no overdue receivables at year end. There have been no changes in financial risks from the previous year. During the year ended 30 June 2013 no trading in commodity contracts was undertaken. Foreign currency risk The Group has potential currency exposures in respect of items denominated in foreign currencies comprising: Transactional exposure in respect of operating costs, capital expenditures and, to a lesser extent, sales incurred in currencies other than the functional currency of operations which require funds to be maintained in currencies other than the functional currency of operation; and Translational exposures in respect of investments in overseas operations which have functional currencies other than Australian dollars. SolGold plc annual report for the year ended 30 June 2013 70 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2013 NOTE 21 FINANCIAL INSTRUMENTS (GROUP AND COMPANY) (continued) Currency risk in respect of non-functional currency expenditure is reviewed by the Board. The table below shows the extent to which Group companies have monetary assets and liabilities in currencies other than the Group functional currency. Foreign exchange differences on retranslation of such assets and liabilities are taken to the statement of comprehensive income. Solomon Island dollar (SBD) Group 2013 $ 13,366 Group 2012 $ (25,463) The main currency exposure relates to the effect of re-translation of the Group’s assets and liabilities in Solomon Island dollar (SBD). A 10% change in the SBD/A$ exchange rate would give rise to a change of approximately $1,337 (2012: $2,546) in the Group net assets and reported earnings. In respect of other monetary assets and liabilities held in currencies other than Australian dollars, the Group ensures that the net exposure is kept to an acceptable level, by buying or selling foreign currencies at spot rates where necessary to address short-term imbalances. The company did not have any monetary assets and liabilities in currencies other than the company functional currency. Credit Risk The Group is exposed to credit risk primarily on the financial institutions with which it holds cash and cash deposits. At 30 June 2013, the Group had $844,939 in cash accounts with Macquarie Bank Limited in Australia, $21,680 in cash accounts with the ANZ Bank in Australia, $438 in cash accounts with Westpac Bank in Australia, $11,556 in cash accounts with the ANZ Bank in Honiara, Solomon Islands, and $1,810 in cash accounts with Westpac Banking Corporation in Honiara, Solomon Islands. Including other receivables, the maximum exposure to credit risk at the reporting date was $1,191,512 (2012: $909,685). Liquidity risks The Group and Company raises funds as required on the basis of budgeted expenditure for the next 12 to 24 months, dependent on a number of prevailing factors. Funds are generally raised in capital markets from a variety of eligible private, corporate and fund investors, or from interested third parties (including other exploration and mining companies) which may be interested in earning an interest in the project. The success or otherwise of such capital raisings is dependent upon a variety of factors including general equities and metals market sentiment, macro-economic outlook, project prospectivity, operational risks and other factors from time to time. When funds are sought, the Group balances the costs and benefits of equity financing. When funds are received they are deposited with banks of high standing in order to obtain market interest rates. The Group deals with banks with high credit ratings assigned by international credit rating agencies. Funds are provided to local sites weekly, based on the sites’ forecast expenditure. The maturity profile of the Group’s non-current financial liabilities is disclosed in note 18. Interest rate risks The group’s and company’s policy is to retain its surplus funds on the most advantageous term of deposit available up to twelve month’s maximum duration. The increase/decrease of 2% in interest rates will impact the group’s income statement by a gain/loss of $17,608 and the company’s income statement by $16,535. The group considers that a 2% +/- movement interest rates represent reasonable possible changes. Fair values In the Directors’ opinion there is no material difference between the book value and fair value of any of the Group’s and Company’s financial instruments. The classes of financial instruments are the same as the line items included on the face of the statement of financial position and have been analysed in more detail in notes to the accounts. All the group’s financial assets are categorised as loans and receivables and all financial liabilities are measured at amortised cost. SolGold plc annual report for the year ended 30 June 2013 71 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2013 NOTE 22 COMMITMENTS The Company also has certain obligations to expend minimum amounts on exploration in tenement areas. These obligations may be varied from time to time and are expected to be fulfilled in the normal course of operations of the Company. The combined commitments of the Group related to its granted tenement interests are as follows: Location Ecuador Solomon Islands Queensland Up to 12 Months 13 Months to 5 Years Later than 5 Years 410,000 1,141,250 1,455,917 3,007,167 - 853,819 973,083 1,826,902 - - - - To keep tenements in good standing, work programs should meet certain minimum expenditure requirements. If the minimum expenditure requirements are not met, the Company has the option to negotiate new terms or relinquish the tenements. The Company also has the ability to meet expenditure requirements by joint venture or farm in agreements. NOTE 23 RELATED PARTIES (a) Group Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. a) Transactions with Directors and Director-Related Entities (i) (ii) (iii) (iv) The Company had a commercial agreement with Samuel Capital Ltd (“Samuel”) for the engagement of Nicholas Mather as directorof the Company. For the year ended 30 June 2013 $143,750 was paid or payable to Samuel (2012: $183,333). These amounts are included in Note 5 (Remuneration of Key Management Personnel). The total amount outstanding at year end is $11,250 (2012: $37,500). The Company has a long-standing commercial arrangement with DGR Global Ltd, an entity associated with Nicholas Mather (Director) and Brian Moller (Director), for the provision of various services, whereby DGR Global provides resources and services including the provision of its administration and exploration staff, its premises (for the purposes of conducting the Company’s business operations), use of existing office furniture, equipment and certain stationery, together with general telephone, reception and other office facilities (‘‘Services’’). In consideration for the provision of the Services, the Company shall reimburse DGR Global for any expenses incurred by it in providing the Services. For the year ended 30 June 2013 $330,000 was paid or payable to DGR Global (2012: $378,000) for the provision of administration, management and office facilities to the Company during the year. The total amount outstanding at year end was $nil (2012: $nil). Mr Brian Moller (a Director), is a partner in the Australian firm Hopgood Ganim lawyers. For the year ended 30 June 2013, Hopgood Ganim were paid $362,086 (2012: $208,016) for the provision of legal services to the Company. The services were based on normal commercial terms and conditions. The total amount outstanding at year end was $18,988 (2012: $81,968). Sterling Mining Group, an entity associated with Mr John Bovard (a Director), for the prior year ended 30 June 2012, was paid $11,900 (2013: $nil) for Mr Bovard’s consultancy services to the company. The services were based on normal commercial terms and conditions. b) Share and Option transactions of Directors are shown under Notes 5 and 20. (b) Company The Company has related party relationships with its subsidiaries (see note 9), Directors and other key personnel (see Note 20). SolGold plc annual report for the year ended 30 June 2013 72 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2013 NOTE 23 RELATED PARTIES (continued) Subsidiaries The Company has an investment in subsidiaries balance of $20,378,125 (2012: $41,726,237). The transactions during the year have been included in Note 9. As the Company does not expect repayment of this amount and will not call payment until the subsidiary can adequately pay it out of working capital, this amount has been included in the carrying amount of the investment in the Parent Entity’s statement of financial position. (c) Controlling party In the Directors’ opinion there is no ultimate controlling party. NOTE 24 ACQUISITIONS Honiara Holdings Pty Ltd On 17 February 2012, SolGold plc acquired 100% of the capital of Honiara Holdings Pty Ltd, an Australian company with exploration assets in the Solomon Islands for cash consideration of $1. The Company has also converted debt to equity of $49,999. In accordance with IFRS 3, this transaction has been treated as an asset acquisition. The following table shows the assets acquired, liabilities assumed and the purchase consideration at acquisition date. Identifiable assets and liabilities Cash Intangible Assets - exploration expenditure Trade creditors Unsecured loans Less: Non-controlling interest Identifiable assets acquired and liabilities assumed Guadalcanal Exploration Pty Ltd Acquiree’s carrying amount $ 1,071 750,346 (4,860) (751,029) (4,472) Fair Value $ 1,071 754,818 (4,860) (751,029) - - - On 18 April 2012, SolGold plc entered into a “Put and Call Option Agreement” with Guadalcanal Exploration Pty Ltd. Under the “Put and Call Option Agreement”, SolGold can elect to purchase the shares of Guadalcanal Exploration Pty Ltd at any time during the option period, resulting in SolGold having the potential to govern the financial and operating policies of Guadalcanal Exploration Pty Ltd. The following table shows the assets acquired and liabilities assumed at acquisition date. Identifiable assets and liabilities Cash Intangible assets - exploration expenditure Other assets Trade creditors Unsecured loans Less: Non-controlling interest Identifiable assets acquired and liabilities assumed Acquiree’s carrying amount $ 4,782 963,885 2,000 (5,760) (1,010,939) (46,032) Fair Value $ 4,782 963,885 2,000 (5,760) (1,010,939) (46,032) 46,032 - On 30 June 2013, SolGold exercised its rights under the “Put and Call Option Agreement” and acquired the shares of Guadalcanal Exploration Pty Ltd.. SolGold plc annual report for the year ended 30 June 2013 73 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2013 NOTE 25 ACCOUNTING ESTIMATES AND JUDGEMENTS Key sources of estimation uncertainty The key elements of the Statement of Financial Position that rely on the business judgment of the Directors as related to their carrying value include the capitalised exploration expenditure, and the business combination (also largely reflected in the consolidated carrying value of exploration expenditure). The Directors have carried out an assessment of the carrying values of deferred exploration costs and any required impairment. Cascabel Joint Venture Under the terms of the JV venture agreement, SolGold has met the agreed expenditure commitments and has earned a 50% participating interest in Exploraciones Novomining S.A. (“ENSA”) at the date of this report (30% at 30 June 2013), and has exercised its right to increase its interest to 85%. Cornerstone Capital Resources Inc. will hold the other 15% of ENSA. ENSA is an Ecuadorean registered company which holds 100% of the Cascabel concession. Exploration on the Cascabel concession has included: geological mapping, stream silt sampling, soil sampling, orientation soil sampling, rock chip sampling, channel sampling, Terraspec spectral sampling, a helimagnetic survey (which has been modelled in 3D), a radiometric survey, petrography and drilling. The regional exploration has identified five main prospects: Quebrada Alpala, Quebrada Moran, Quebrada’s Tandayama and America, Rio Cachaco and Aguinaga. The most significant of these is the Alpala prospect where five drill holes, totalling 2500m in length, have been drilled to date. There has also been significant work in relationship to fulfil SolGold’s social and environmental commitments. This has included, an Environmental Impact Study required for advanced stage exploration (drilling), a community relations program, the construction of a nursery (for rehabilitation), construction of the Alpala field camp to provided suitable living conditions for field staff and the establishment of the Rocafuerte field office. The aggregate carrying value of $2.59 million is considered to be unimpaired. Guadalcanal Joint Venture In 2012, Newmont Ventures Limited informed SolGold that it is resigning as manager and ceased funding the JV. Consequently, this resulted in an impairment assessment over all the tenement areas comprising the JV and an impairment charge of $17.95 million being recognised during the year ended 30 June 2012. On 5 June 2013, the Guadalcanal Joint Venture between SolGold and Newmont was terminated by mutual consent. A termination agreement has been executed by both parties, formally bringing the relationship to an end. SolGold 100% owned Projects Kuma PL 08/06 SolGold has retained the Kuma PL 08/06 prospect and has a 100% ownership. The project is at an early stage of exploration, which has included: geological mapping, rock chip sampling, stream sediment sampling and an airborne magnetic. This has identified a lithocap, which are often found above mineralised porphyry complexes. This buried target has the potential to deliver exploration success. There is currently insufficient exploration data to estimate the potential prospectivity of the tenement. The prospecting licence (PL 08-06) was renewed for a further term of two years commencing from 11th April 2013. The carrying value of $0.1 million is considered to be unimpaired. Florida PL 57/07 Exploration on Florida was at an early stage and work had identified prospective rocks hosting significant nickel anomalies. During the year a decision was made to relinquish the tenement. Accordingly, the carrying value of $0.63 million is considered to be impaired and an impairment charge of $0.63 million was recognised during the year ended 30 June 2013. SolGold plc annual report for the year ended 30 June 2013 74 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2013 NOTE 25 ACCOUNTING ESTIMATES AND JUDGEMENTS (continued) Fauro PL 12/09 Exploration on the island of Fauro is at an early stage and the airborne surveying, mapping and sampling phase of the program of testing of the key targets has resulted in the identification of extensive mineralised complexes which show potential to yield significant gold and copper occurrences. Initial drilling commenced and has defined several gold-copper targets. The company is actively seeking a JV partner to pursue drilling of gold-copper targets defined in the 2011/12 exploration program. As no JV partner has been found to date, the carrying value of $12.82 million is considered to be impaired and an impairment charge of $11.82 million was recognised during the year ended 30 June 2013. Lower Koloula PL 01/10 Exploration on the Lower Koloula tenement is at a very early stage. Work has included stream sediment sampling, rock chip sampling, soil sampling, an airborne magnetic survey and geological mapping. Two anomalous prospects: Big Frog and Pepechichi have been identified from the geochemical surveys, while further potential targets have been interpreted from the magnetic data. The carrying value of $0.63 million is considered to be unimpaired. Malakuna PL 02/10 Exploration on the Malakuna tenement is at a very early stage. An interpretation of the magnetic data has identified numerous potential targets and is waiting to be followed up with geochemical surveys and geological mapping. The carrying value of $0.19 million is considered to be unimpaired. Acapulco Mining Projects Acapulco has nine granted tenements and two applications across Queensland. The granted tenements comprise of 260 sub- blocks (circa 826km2) and 203 sub-block (circa 657km2) applications. Extensive airborne magnetic and electromagnetic surveys have been conducted over some of the tenements, together with detailed stream sediment sampling, soil sampling, rock chip sampling and geological mapping programs. Furthermore, since May 2006 a total of 283 holes, equivalent to 24,377.8m have been drilled on the tenements. The objective is to step-out from areas of known gold mineralisation so that resources can be defined and enlarged, with the objective of defining a maiden resource. The Company is seeking a joint venture partner to further progress these projects. The aggregated carrying value of $8.88 million is considered to be unimpaired. Central Minerals Projects Central Minerals comprises of twelve granted tenements and five applications. The granted tenements comprise of 337 sub-blocks (circa 1055km2) and 233 sub-block applications (circa 745km2). Extensive airborne magnetic surveys have been conducted over the area, together with detailed soil and rock chip sampling, trenching, mapping programs and an induced polarisation geophysical survey. Since October 2007, a total of 473 holes, equivalent to 58,886.62m, have been drilled on the tenements. On 23 May 2012, SolGold announced an updated Indicated and Inferred resource estimate at Rannes of 12.23 million tonnes at 0.6g/t gold and 23.18g/t silver; for 237,240ozs Au and 9,105,072ozs Ag (using a gold to silver ratio of 1:50 and a 0.5g/t Au equivalent cut-off) Several other prospects exist that contain known gold mineralisation that has not yet been included in the resource estimate. Drilling of these prospects maybe followed-up. The Central Minerals projects have a carrying value of $16.81 million at 30 June 2013. Substantive expenditure on further exploration for and evaluation of mineral resources at the Central Minerals projects is neither budgeted nor planned and accordingly, the tenements were assessed for impairment, resulting in an impairment charge of $13.11 million being recognised during the year ended 30 June 2013. SolGold plc annual report for the year ended 30 June 2013 75 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2013 NOTE 26 CONTINGENT ASSETS AND LIABILITIES There are no contingent assets and liabilities at 30 June 2013 (2012: none). NOTE 27 SUBSEQUENT EVENTS On 15 July 2013, the Company issued 7,500,000 options to its Chief Geologist. The options consist of three tranches with varying exercise prices and vesting conditions which are dependent on the Company’s share price. The options expire on 15 July 2016. On 15 July 2013, a total of 1,584,000 employee options exercisable at 50p were forfeited due to employees ceasing employment with the Company. On 6 September 2013, the Company issued an additional 700,000 shares at £0.13 pursuant to the achievement of certain employment related milestones, including under the CPRS. On 24 September 2013, the Company issued 7,320,000 options to contractors and staff. The options consist of three tranches with varying exercise prices and vesting conditions which are dependent on the Company’s share price. The options expire on 24 September 2016. On 25 September 2013, the Company issued an additional 49,840,967 shares at £0.075 to raise $6.4 million pursuant to a private placement to progress its exploration and project development efforts across its portfolio of projects in the Solomon Islands, Ecuador and Queensland, Australia. The Directors are not aware of any other significant changes in the state of affairs of the Group or events after the balance date that would have a material impact on the consolidated financial statements. SolGold plc annual report for the year ended 30 June 2013 76