Swedish Logistic Property
Annual Report 2008

Plain-text annual report

A n n u a l R e p o r t 2 0 0 8 C o r p o r a t e d i r e c t o r y Directors T M McConnachie R D Rossiter L M Carroll Dr A P Ruiters J Cooke Company Secretary M J Langoulant Managing Director Non-executive Chairman Financial Director Non-executive Director Non-executive Director Principal registered office in Australia Suite 2, 5 Ord Street • West Perth, Western Australia, 6005 • Australia Telephone: Facsimile: (08) 9324 2955 (08) 9324 2977 Registrar Computershare Investor Services Pty Limited • Reserve Bank Building • Level 2, 45 St George’s Terrace Perth, Western Australia, 6000 • Australia Auditors HLB Mann Judd • Chartered Accountants • 15 Rheola Street • West Perth, Western Australia, 6005 • Australia Solicitors Clayton Utz • QV1, 250 St George’s Terrace • Perth, Western Australia, 6000 • Australia Nominated advisor and broker Ambrian Partners Limited • 2nd Floor, Angel Court • London, EC2R 7HP • United Kingdom Stock exchange listings Sylvania Resources Limited is listed on the Australian Stock Exchange (Shares : SLV) and on the AIM sub-market of the London Stock Exchange (Shares : SLV) Website address www.sylvaniaresources.com C o n t e n t s 2 4 6 12 14 28 30 33 34 36 37 38 40 41 83 85 Vision and highlights Corporate profile Review by the Chairman and Managing Director Key management personnel Directors’ Report Auditor’s independence declaration Corporate governance statement Directors’ declaration Independent auditor’s report Income statements Balance sheets Statements of changes in equity Cash flow statements Notes to the Financial Statements Additional information for listed public companies Glossary of terms Sylvania Resources Annual Report 2008 Page 1 V i s i o n Sylvania’s vision is to become the pre-eminent, South African mid-tier PGM producer as measured by its stakeholders, using its metallurgical and engineering expertise to acquire and develop low-risk tailings and shallow mining assets. H i g h l i g h t s • PGM production reaches 16,690oz (3E+Au) - reflects successful ramp-up at Millsell and Steelpoort plants; • Sylvania Dump Operations (SDO) produces 14,224oz, 85% of total production - Feed grade averages 2.26g/t - Recovery rate is 40% • Low cost PGM producer - Average site cash cost of A$408/oz • Underlying earnings before interest and tax (EBIT) totals A$14.3million • Net profit after tax and minority interest totals A$9.9million • Well placed for further growth - - - strong cash balance of A$43.6million good prospects for further surface resources near-surface exploration pipeline Syl vani a Reso urces - Qu ar terly p rodu ct i o n o f 3 E+Au (ounce s) 7 000 6 000 5 000 4 000 3 000 2 000 1 000 - Jun 2007 Sept 2007 Dec 2007 Mar 2008 Jun 2008 Sylvania Resources Annual Report 2008 Page 2 Sylvania Resources Annual Report 2008 Page 3 C o r p o r a t e p r o f i l e Sylvania Resources Limited is a fast-growing platinum group metals (PGMs) producer with tailings retreatment operations and shallow mining exploration interests located in South Africa’s PGM-rich Bushveld Igneous Complex. Well-resourced in respect of both metallurgical and engineering expertise, the company’s medium-term focus on surface tailings retreatment and shallow mining in the longer term, positions it strongly as a low-risk, low-cost and high- margin PGM producer compared with its underground peers. Sylvania’s tailings retreatment business has: • a 74% interest in Sylvania Dump Operations (SDO), which, in terms of a service and supply agreement with Samancor Chrome (Pty) Limited (Samancor Chrome), treats chrome tailings from Samancor Chrome’s mines on the Western and Eastern Limbs of the Bushveld Igneous Complex to recover PGMs; • a 25% interest in the Chrome Tailings Retreatment Project (CTRP) at Kroondal on the Western Limb, managed by Aquarius Platinum Limited, which treats the Xstrata and Beyer chrome tailings to recover PGMs. To service Sylvania’s Samancor Chrome agreement, two plants – Millsell and Steelpoort – became fully operational during the 2007-2008 financial year. Process improvement projects at involving the addition of bead mills and extra both plants, cleaner flotation cells, are under way. Construction of two additional plants, Lannex and Mooinooi, is under way, with commissioning and ramp-up of production at both scheduled to begin in the first quarter of 2009. In terms of an addendum to the Samancor Chrome agreement, a right has been secured to treat an estimated annual 300,000t of run of mine (ROM) from Samancor Chrome’s Broken Hill, Spitzkop and Buffelsfontein East chrome mines to win PGMs. ROM from Broken Hill and Spitzkop will report to the Lannex plant for treatment and those from Buffelsfontein East to the Mooinooi plant. Sylvania’s near-surface mining exploration interests comprise: • The Everest North UG2 exploration project on the eastern limb, which has a measured resource of 5.1Mt at 4.7g/t. In terms of an agreement, notice has been served on Aquarius Platinum (South Africa) (Pty) Ltd (AQPSA) that the project is viable and Sylvania intends to mine the property. At the same time, discussions are progressing with Eastern Platinum Limited for a possible joint venture in respect of Vygenhoek and Mareesburg; • The Harriet’s Wish, Cracouw and Aurora exploration project is situated on the Northern Limb of the Bushveld Igneous Complex.The company is reviewing its options and an announcement will be made in due course; • A stake in ASX-listed Great Australian Resources Limited (GAR), which has the near-surface Merensky Reef platinum/nickel exploration project, Mooiplats. Long-term Environmental Benefits The nature of Sylvania’s business makes it less dependent on, and demanding of, scarce national resources, such as power and water. In addition, its deposition of retreated tailings is to the highest and most modern standards, with consequent long-term benefits for the environment. The company is committed to the spirit and intent of South Africa’s Mining Charter. Its chosen black economic empowerment (BEE) partner, Ehlobo Metals (Pty) Limited, headed by former South African Director-General of the Department of Trade and Industry, Alistair Ruiters, owns 26% of the Sylvania Dump Operations. Sylvania is listed on the Australian Securities Exchange Limited (ASX: SLV) and was recently admitted to the S&P/ASX300 Index. It is also listed on the AIM Market of the London Stock Exchange (AIM: SLV). The company has some 180,012,273 shares on issue and numbers amongst its top shareholders Audley Capital, JP Morgan, Credit Suisse, Henderson Global and JO Hambro. Sylvania Resources Annual Report 2008 Page 4 Sylvania Resources Annual Report 2008 Page 4 SOUTH AFRICA Bushveld Complex Johannesburg Cape Town O p e r a t i o n s a n d p r o j e c t s Harriet’s Wish/Cracouw Northern Limb SOUTH AFRICA Western Limb Thabazimbi Great Australian Resources Bela Bela Mooinooi Rustenburg Brits Polokwane Eastern Limb Groblersdal CTRP Millsell Pretoria Johannesburg Witbank Steelpoort Lannex Everest North Chrome tailings Near-surface exploration Sylvania Resources Annual Report 2008 Page 5 R e v i e w b y t h e C h a i r m a n a n d M a n a g i n g D i r e c t o r O v e r v i e w We are very pleased to be able to reflect on an outstanding year that has seen your company make low-risk, high-margin, enormous strides towards fulfilment of its objective to become a fast-growing, cash-generative producer of PGMs from surface and near-surface sources at the world’s premier PGM address, South Africa’s Bushveld Igneous Complex. During the year, two plants within our newly created Sylvania Dump Operations Division (SDO) – Millsell and Steelpoort – became fully operational and construction of two others – Lannex and Mooinooi – got under way. S a f e t y , h e a l t h a n d t h e e n v i r o n m e n t Concurrently with production ramp-up at Millsell and Steelpoort and the start of construction at Lannex and Mooinooi, we have paid considerable attention to safety, health and environmental (SHE) management. A focus has been appropriate training in these critical areas for a new workforce, all of whom are new to the Company, indeed many of whom are new to the mining environment. While accidents have been few and far between and in the lowest quartile of the industry, SDO’s Lost Time Injury Frequency Rate (LTIFR) averaged 3.37 for the year under review. A LTIFR of less than 0.50 has been set as a short-term target. The Disabling Injury Frequency Rate (DIFR) for the year was nil and the Lost Time Injury Frequency all were of a minor nature requiring Rate was 1.00. Three environmental incidents were recorded, minimal remediation. The Chromite Tailings Retreatment Plant – 25% owned by Sylvania and operated by AQPSA – recorded a DIFR of 5.62 for the year, due to the first injury since operations began. In terms of the environment, in pursuing our core business of tailings retreatment, we are destined to make a positive, permanent environmental impact of major proportion in the longer term, particularly in respect of air quality and water utilisation. Of the total waste material recovered and re-treated from old, de-commissioned tailings dumps, 30% is removed permanently as chromite and PGM product.The remaining 70% waste is re-deposited in new tailings dumps, constructed, managed and rehabilitated to the highest modern standards, with strict adherence to all regulatory requirements. During the year, an independent audit of rehabilitation funding for SDO’s current operations was conducted.This indicated a current total obligation of A$355,158 and that this amount is currently fully funded. M a r k e t s In the year under review, markets for our PGM products – platinum (58% of total production), palladium (27%) and rhodium (15%) – were firm, resulting in an average basket price received of US$2,626/oz. Uncertainty regarding future Southern African PGM supplies persisted for much of Sylvania’s financial year, fuelled particularly in the second half by speculation on the possible negative impact on South African producers of continuing electricity restrictions imposed by power utility Eskom. Some volatility in the PGM markets has been experienced post our financial year-end due generally to tougher economic conditions in key western markets, and more specifically to lower automotive and jewellery consumption in Sylvania Resources Annual Report 2008 Page 6 Richard Rossiter Non-Executive Chairman these markets. However, we believe the fundamentals for PGMs are likely to remain strong due to increasing automotive and industrial consumption particularly in emerging markets and continuing lower-than-anticipated supplies from South Africa. F i n a n c i a l a n d o p e r a t i n g p e r f o r m a n c e Sylvania had an outstanding year, delivering on its objectives and establishing itself as a highly profitable PGM producer in South Africa. The commissioning and ramp-up of the first two tailings retreatment facilities (Millsell and Steelpoort) exceeded expectations and yielded profits within the first month of start up. Significant progress was also achieved with the ongoing construction of our next two tailings retreatment facilities (Lannex and Mooinooi), the feasibility study for the hard rock mine Everest North and growing our exploration portfolio. Our underlying earnings before interest and tax (EBIT) rose significantly to A$14.3million, as did our net operating cash flows (A$11.9million) and net profit after tax and minority interest (A$9.9million), reflecting the ramp up in PGM production and strong PGM market conditions. Our low costs, high operating margins, strong cash flows and balance sheet (A$43.6million cash at 30 June 2008) underpin our ability to fund our future growth and pursue other options as they may arise. Total PGM production for the year totalled 16,690oz (3E+Au), reflecting the successful commissioning and ramp up of the Millsell and Steelpoort plants. Revenue totalled A$32.8million. Attributable pre-tax profit totalled A$17.0million after accounting for a negative exchange rate variance of A$4.6million and a reduction of A$2.6million in the value of the company’s equity investments to take account of the general downturn in international markets. Sylvania Dump Operations In its inaugural year, SDO – comprising the Millsell and Steelpoort plants – produced 14,224oz, 85% of Sylvania’s total production for the year, from total plant throughput of 507,262t. Reflective of progress made towards full operation at both plants during the year, the average head grade for the year was 2.26 grams per ton (g/t) and recovery was 40%. A robust average basket price for our products of US$2,626/oz and effective cash cost reduction – the average site cash cost for the year was A$408/oz – contributed to a gross cash margin for the year of 65%. The first slurry was processed at the Millsell plant during June 2007. Commissioning progressed well and the plant’s first PGM concentrate was sold during July 2007. Capital expenditure on Millsell totalled A$7.1million. Construction of the integrated chrome washing and PGM recovery plant at Steelpoort was completed early in the year under review at a cost of A$6.5million. Commissioning took one month and the first PGM concentrate was sold in September 2007. A range of process improvement projects at Millsell and Steelpoort is nearing completion at a capital cost of A$4.0million. An extra cleaner flotation cell installed at Millsell is delivering the expected process improvements and commissioning of a similar installation at Steelpoort is almost concluded. Bead mills at both plants, held up by late delivery of components, became operational during October 2008. Sylvania Resources Annual Report 2008 Page 7 Terry McConnachie Managing Director R e v i e w b y t h e C h a i r m a n a n d M a n a g i n g D i r e c t o r ( c o n t i n u e d ) It is pleasing to note that, due to Sylvania’s generally lower-risk profile, the surface retreatment operations remained virtually immune to ‘load-shedding’ power outages by State utility Eskom during the year, and to growing skills shortages and stricter imposition of penalties for safety infringements experienced by the South African resources sector as a whole. During the year, an addendum to the Services and Supply Agreement with Samancor Chrome was signed, in terms of which additional rights were secured to treat all ROM from Samancor Chrome’s Broken Hill, Spitzkop and Buffelsfontein East mines for the life of those mines. Construction is in progress on two new SDO plants, Lannex and Mooinooi. Commissioning and the start of production ramp-up at both are scheduled for the first quarter of calendar 2009. The A$18.4million Lannex PGM plant feed will be 23,000tpm from a feed consisting of tailings, current arisings and ROM from Samancor Chrome’s Broken Hill and Spitzkop mining operations. Following a capital construction project planning review during it was decided to postpone the the fourth quarter, construction of the Elandsdrift chrome feed plant originally intended to treat Elandsdrift chrome tailings, pending the outcome of an environmental impact assessment of an opencast mining operation based on the M1 surface outcrops at the Elandsdrift mine. In this way, the economy of scale of processing both dump and opencast material can be achieved by increasing feed to the plant. The chrome concentrator plant at the Mooinooi mine purchased from Samancor Chrome in February 2008 is being expanded and upgraded at a cost of A$13.2million to create a plant equal in size and of similar modular design to the Lannex plant. The Mooinooi plant will treat those chrome tailings for which rights have been secured as well as ROM feed from its Buffelsfontein East section. Negotiations are under way with Lonmin to acquire additional feed. PGM plant feed is planned to be 21,000tpm. Synergies with the Lannex plant suggest that the Mooinooi plant can be fast-tracked. Delaying the Elandsdrift plant in favour of the larger Mooinooi plant is expected to result in a faster build-up in SDO production than initially planned. Should an opencast mining operation at Elandsdrift prove to be unviable, and plans for the Elandsdrift plant abandoned as a consequence, the Elandsdrift tailings will be transported to the Mooinooi plant for treatment. Chromite Tailings Retreatment Plant (CTRP) CTRP’s production for the year increased by 33% to 9,849oz (2,466oz attributable to Sylvania).While total plant throughput rose by 51% to 274,000t and the average head grade was steady at 4.2g/t, recoveries declined by 4% to 27%. Revenue more than doubled to A$20.1million (A$5.0million attributable to Sylvania), reflecting higher production and an average PGM basket price 31% higher at US$2,224/oz. Cash operating costs increased by 12% to A$353/oz, and the cash margin rose to 83% from 77%. G r o w t h Our strategy is to build strong cash generative businesses that can fund our future growth in the PGM sector.We continue to expand our existing low risk chrome tailings retreatment business while accelerating our move into shallow mining projects. During the year we expanded our base case PGM production forecast by around 30-40% through a combination of improved metallurgical recoveries and additional agreements, with Samancor Chrome, to treat ROM for PGMs. Importantly, we have further strengthened our strategic relationship and agreements with Samancor Chrome during the year. On the exploration front, we continued to progress our Everest North project and expand our portfolio via strategic acquisitions. In addition, we continue to assess merger and acquisition opportunities in the Bushveld Igneous Complex and elsewhere as industry consolidation gathers pace. We remain encouraged by the range of high-growth opportunities in the pipeline. Everest North Discussions are continuing with AQPSA on options for an equitable joint venture in respect of the Everest North project. If agreement cannot be reached in the short term however, Sylvania will proceed independently with plans to develop an opencast PGM mine at Everest North, in accordance with its binding contract with AQPSA. Work preparatory to an application to the Department of Minerals and Energy for a mining right has been substantially completed. Sylvania and Eastern Platinum are continuing meantime with negotiations on an Everest North joint venture based on combining the former’s Vygenhoek farm and the latter’s contiguous Mareesburg farm. Towards year-end, a further off-take agreement was finalised. In terms of this, concentrate from the Steelpoort and Lannex plants will be delivered to the smelter, together with concentrate produced from the Tweefontein tailings. Exploration During the year, Sylvania acquired an interest in Great Australian Resources Limited (GAR), a company listed on the Australian Stock Exchange. Sylvania Resources Annual Report 2008 Page 8 Sylvania Resources Annual Report 2008 Page 9 R e v i e w b y t h e C h a i r m a n a n d M a n a g i n g D i r e c t o r ( c o n t i n u e d ) GAR has the near-surface Merensky Reef platinum/nickel exploration project, Mooiplats, on the Eastern Limb of the Bushveld Igneous Complex. Also during the year, Sylvania acquired the Northern Limb near-surface prospects, Harriet’s Wish, Cracouw and Aurora from Rustenburg Platinum Mines Limited (RPM), a subsidiary of Anglo Platinum Limited. Sylvania is currently considering its options regarding these prospects, which contains PGMs with associated base metals. C o r p o r a t e m a t t e r s A significant development during the year was a restructuring of Sylvania’s executive management structure to achieve better focus on the company’s core business activities and delivery on growth objectives. The finance and administration team has been suitably strengthened with qualified and experienced people. We have spent some time in devising attractive remuneration and incentive schemes to ensure we attract and retain the qualified and experienced people we need to continue our growth trajectory into the future. Corporate communications have been a further focus of attention with the appointment of Russell and Associates to improve investor relations in particular, and it is pleasing to report that four institutions were publishing research on the company by year-end. B o a r d c h a n g e s There have been a number of board changes. Early in the year, Richard Rossiter joined as Non-Executive Chairman, Louis Carroll as Financial Director and Dr Alistair Ruiters as a Non- executive Director. After year-end, John Cooke was appointed as a Non-Executive Director and Chairman of the Audit Committee. These changes have ensured that the company is ASX compliant. Ed Nealon, Melissa Sturgess and Dr Evan Kirby resigned from the board but continue to provide consulting services to the company. A c k n o w l e d g e m e n t s We are grateful to fellow board members past and present, to executive management and to employees who have contributed towards Sylvania’s exciting yet very demanding development and growth achievements during the year. Whilst plant construction, commissioning and fine-tuning have been a major focus, much energy and expertise has been given to identifying and pursuing growth opportunities, honing the company’s financial and reporting systems, health, safety and environmental management corporate governance structures and customer and investor relations. procedures, L o o k i n g a h e a d In the short term we remain focused on delivering our next two tailings retreatment plants – Lannex and Mooinooi – by early 2009. We expect SDO production to stabilise at around 6,500oz for the first two quarters of the new financial year and then to start rising again as the two new plants are commissioned and their ramp-up gets under way. We believe we are firmly on track to attain our stated production goal of 70,000 PGMoz (3E+Au) by 2010. In the medium to longer term, we are committed to deploying our healthy cashflows into value-adding projects – both surface and near-surface – that will ensure the company’s continued growth well into the future. We are confident that – notwithstanding price volatility in the PGM market at the time of writing – the fundamental outlook for our basket of products remains strong, and will continue to support our self-funding growth objectives. T M McConnachie Managing Director Richard Rossiter Non-executive Chairman Sylvania Resources Annual Report 2008 Page 10 R e s o u r c e b a s e Tailings dump estimates Tonnes 4E Grade (g/t) Dump estimated ore Processed Balance Eastern Bushveld Tweefontein Lannex Steelpoort Doornbosch Montrose Groothoek Onverwacht Mooihoek Western Bushveld Waterkloof Buffelsfontein Elandsdrift Total Millsell Total Mooinooi* Total 909,120 1,222,590 341,789 83,256 165,150 157,990 12,215 7,776 248,065 165,721 316,265 973,100 1,593,000 6,196,037 – – 115,740 – – – – – – – – 310,316 – 426,056 909,120 1,222,590 226,049 83,256 165,150 157,990 12,215 7,776 248,065 165,721 316,265 662,784 1,593,000 5,769,981 4.6 3.0 2.6 9.1 4.8 5.1 9.4 5.0 1.1 1.1 2.0 2.0 1.2 * Subject to final negotiations on terms and price with interested parties. Sylvania Resources Annual Report 2008 Page 11 K e y m a n a g e m e n t p e r s o n n e l Zoran Marinkovic – Director of Sylvania Metals (Pty) Ltd BSc (Chem Eng), University of Belgrade Zoran Marinkovic, who is from Serbia (formerly Yugoslavia), has worked in a number of industries, including the petrochemical, shipping and mining sectors in Europe. Among the senior positions he has held are those of site director and special adviser for Mostec Limited, where he was based at a shipyard in the Ukraine; production director at the High Density PolyEthylene Plant (HDPE) at the Petrochemical Complex of Pancevo in Yugoslavia; and, most recently, co-owner and director of ABM International Limited, a Belgrade-based company trading in chrome and other metals on the European and Russian markets as well as undertaking research and consulting in the area of chromium waste and tailings. Since January 2006, Zoran has been responsible for developing and controlling chromium and PGM projects in terms of Sylvania’s contract with Samancor Chrome. He is currently working on extending the existing contract with new projects that will expand Sylvania’s supply of PGM base material. Phil Carter – General Manager: Capital Projects BSc (Mining Eng), University of the Witwatersrand Phil Carter, who holds a Mine Manager’s Certificate of Competency, has been in the mining industry for 30 years. At different stages of his career he has worked for De Beers, AngloGold and SA Chrome and he has experience at a senior management level in diamond, deep-level gold and chrome mines. His particular field of expertise is in mine and project management. At SA Chrome, he started the Horizon Chrome mine as a greenfields project and was responsible for the design, construction and management of the chrome concentrator plant, as well as the opencast and underground mines. The project was completed to full production in 18 months. well as parts for the steel industry. During his career he has held the positions of production manager, production director and operating director. At one stage he managed up to three factories at the same time. Most recently he was managing director of his own consulting company, Metsult (Pty) Ltd. Gerbrand’s achievements include turning around an aluminium casthouse from 100,000 to 200,000 tonnes a year while reducing costs to reach world benchmark figures; turning around a ceramics/plastics company which consistently delivered a return on investment of 40%; and developing world-class, high-purity vanadium chemicals. Johan Meyer – General Manager: Business Development BEng (Mech) (Hons), University of Stellenbosch; GDE (Indus Eng), University of Witwatersrand Johan Meyer started his career in the mining industry as a project engineer, working first for Rio Tinto and afterwards for Anglo American and Gold Fields. He then moved into the manufacturing industry where he held several senior management positions. He has extensive knowledge of business start-up as he was a key member of the team that led an aluminium company through an expansion in which the business quadrupled in size. During this period, he acquired a sound understanding of base metals and metals trading as it relates to the London Metal Exchange. After joining Sylvania, Johan designed and constructed the first two plants which are now operating at design capacity. Currently, he is heading growth projects for the group, focusing on the re-treatment of chrome and platinum. He is also responsible for all commercial aspects of the business. At Sylvania, Phil is heading up the development of the Everest North mine project and the Capital Construction expansion programme. Christo de Vos – Internal Legal Adviser BComm, University of the Free State; LLB, Unisa Gerbrand Haasbroek – General Manager: Operations BEng (Metallurgy) Hons, University of Pretoria Gerbrand Haasbroek has broad experience across the mining industry in the fields of coal, iron ore, vanadium, magnesite and aluminium. He has also been involved in the manufacturing of products in the clay, ceramic, enamel and plastics sectors as Christo De Vos is admitted as an attorney, notary and conveyancer in South Africa. He was a senior partner at Wessels & Smith, a law firm in Welkom, South Africa for 28 years, specialising in commercial and mining law, trust law, estate planning and tax law, before being appointed by Sylvania Resources Limited as legal and commercial executive adviser. Sylvania Resources Annual Report 2008 Page 12 Christo has vast experience in black empowerment transactions, and acts as a trustee for several black empowerment trusts and employee incentive schemes. Dr Peter Cox – Strategic Planner BSc (Mining Eng) University of the Witwatersrand; MSc, PhD (Mining Eng) Harrington; Dip (Civil Eng), University of Natal Dr Peter Cox started his career in the mining industry 30 years ago as a learner surveyor. After studying mining engineering as a JCI bursar, he worked for that company in various positions at gold and platinum mines, ending as a senior section manager. Peter joined a privately owned mining and exploration company, Severin Southern Sphere Mining, as consulting engineer and general manager. Since mid-1991 he has been the managing director of Goldline Global Consulting (Pty) Ltd, an engineering consulting company which serves the mining industry worldwide. Peter holds a Mine Surveyor’s and a Mine Manager’s Cer tificate of Competency. He has a number of including being the youngest achievements to his name, certificated surveyor in South African mining history and designing the country’s narrow reef opencast mining method. Esther Johnson – Financial Manager BCompt (Hons) Unisa, CA (SA) in Esther Johnson started her career in finance in 1986, and has research and academic, the gained experience conservation, health and fast-moving consumer goods (FMCG) sectors. She was Director of Finance for Africa at Conservation International, reporting directly to the head office in Washington, before she joined The Careways Group as Chief Financial Officer. Esther was also a director of companies at the Council for Scientific and Industrial the Research (CSIR), where she was commercialising of intellectual property. involved in Ben Kruger – Management Accountant NHD (Cost and Management Accounting), Technikon RSA Ben Kruger has spent 17 years in the field of cost and financial accounting, working in the mining, manufacturing, printing and services industries. His responsibilities have included general accounting, finance, project accounting and costing.While employed by De Beers and Gold Fields, he was exposed to opencast, shallow underground and deep-level mining. This experience included his involvement in a feasibility study for Gold Fields’ South Deep mine. He joined Sylvania in October 2007. Sylvania Resources Annual Report 2008 Page 13 D i r e c t o r s ’ r e p o r t Your directors present their report on the consolidated entity consisting of Sylvania Resources Limited and the entities it controlled at the end of or during the financial year ended In order to comply with the provisions of the 30 June 2008. Corporations Act 2001, the directors report as follows: Directors T M McConnachie was a director of the Company during the whole of the financial year and up to the date of this report. The following persons were appointed as directors on 15 August 2007 and all continue in office at the date of this report: R D Rossiter Dr A P Ruiters L M Carroll The following persons were directors from the beginning of the financial year until their resignation on 15 August 2007: E F G Nealon M J Sturgess K S Huntly Dr E Kirby was a director from the beginning of the financial year until his resignation on 18 August 2008. J Cooke was appointed as a director on 18 August 2008. I n f o r m a t i o n o n d i r e c t o r s T M McConnachie – Managing Director Age 53 Experience and expertise Mr McConnachie has over 25 years of experience in mining, benefication of ferroalloys and precious metals. He was the founder of Merafe Resources Limited (formerly South African Chrome & Alloys Limited), a successful chrome mining company, black empowered and listed on the Johannesburg Stock Exchange with assets worth in excess of a billion rand ($350m). He is well known for identifying mining opportunities and has started many new green-field operations in gold, manganese, aluminium, graphite and tantalite. He has been CEO of a number of mining, mining services and smelting companies in South Africa. Other current directorships Director of Dwyka Resources Limited (since 2007). Former directorships in the last three years None. Special responsibilities Managing Director Sylvania Resources Annual Report 2008 Page 14 R Rossiter – Non-Executive Chairman BSc (Hons) MSc – Age 51 Experience and expertise Mr Rossiter was appointed in August 2007 and acts as Non- Executive Chairman. He leads the Board in implementing its strategy of becoming a significant PGMs producer. He began his career as a geologist with General Mining Union Corporation in South Africa. He subsequently qualified in mine management and held various production management and business development roles. He later joined the financial sector as a mining analyst and then moved to Australia where he later was responsible for corporate advisory, mergers and acquisitions and divestments. Other current directorships Morning Star Holdings (Australia) Limited Former directorships in the last three years None. Special responsibilities Chairman of the Board. L M Carroll – Financial Director B Com, MAP, H. Dip. Corporate Law, H. Dip. Property Management, Dip Business Management – Age 62 Experience and expertise Mr Carroll was appointed in August 2007 and acts as Financial Director having worked for the Company previously in its South African operations, principally in developing and structuring financial reporting and systems. He has over 40 years experience in the Resources industry and has served as executive and non-executive director on a number of private and publicly listed companies. He also served as COO in an oil and gas listed company. Other current directorships None Special responsibilities Financial Director. Dr A P Ruiters – Non-Executive Director BA (Hons), PhD (D.Phil) – Age 43 Experience and expertise Dr Ruiters was appointed in August 2007 and joined the Board as non-executive director and provides guidance on project procurement, development and funding. Dr Ruiters is one of the founders of Ehlobo Holdings Limited, the Company’s Black Economic Empowerment Partner in its tailings retreatment projects in South Africa. Dr Ruiters joined the Public Service in May 1994, after completing a PHD at Oxford University. He has held numerous positions in both the private and public sector, including that of Special Advisor to Trevor Manuel, South Africa’s first Competition Commissioner and Director General of the DTI. Other current directorships None. Former directorships in the last three years None Special responsibilities Non-Executive Director with special portfolio:Transformation. J Cooke – Non-Executive Director FCA, ACIS – Age 64 Experience and expertise Mr John Cooke was appointed in August 2008 and has 40 years experience in accounting, auditing, taxation and administration of public companies involved in natural resources. He continues as a Chartered Accountant in practice. He is a fellow of the Institute of Chartered Accountants in Australia and an associate of the Institute of Chartered Secretaries and Administrators. Other current directorships None. Former directorships in the last three years None Special responsibilities Chairman of the audit committee. C o m p a n y S e c r e t a r y The Company Secretary is M J Langoulant, B.Com, CA. Mr Langoulant was appointed to the position of Company Secretary in February 2005. Mr Langoulant operates a corporate consulting business that specialises in public company corporate secretarial/administration and fundraising. After 10 years with large international accounting firms he has acted as CFO, Company Secretary and Non-Executive Director with a number of publicly listed companies. I n t e r e s t s i n s h a r e s a n d o p t i o n s P r i n c i p a l a c t i v i t i e s The principal activity of the Group during the financial year was investment in mineral exploration and mineral treatment projects. As new mineral treatment plants become operational, focus will be concentrated on operations. D i v i d e n d s No dividend has been paid or declared since the start of the financial year and the directors do not recommend the payment of a dividend in respect of the financial year. R e v i e w o f o p e r a t i o n s Information on the operations of the Group is set out in the review of operations and activities on pages 6 to 11 of this annual report. O p e r a t i n g r e s u l t f o r t h e y e a r The consolidated profit of the Group for the year after income interest was A$9,862,186 tax expense and minority (2007: consolidated loss A$11,116,675). Operational highlights during the year included: • Operations at Millsell and Steelpoort plants started during the year; • Production from these plants was 14,224 PGM ounces; • CTRP contribution was 2,466 PGM ounces; • Construction of the Lannex and Mooinooi plants commenced. Financial results: • The average 3E+Au basket price was US$2,626/oz; • Revenue from ordinary activities for the year rose from A$0.4million in 2007 to A$32.8million; • The cash balance at 30 June 2008 was A$43.6million; • Consolidated earnings per share for the year ended 30 June 2008 – 5.64 cents 2008 T M McConnachie R D Rossiter L M Carroll A P Ruiters 2007 T M McConnachie R D Rossiter L M Carroll Dr E Kirby Common shares – 500,000 – – – 32,000 – 764,300 Options exercisable at A$0.50 500,000 – – – 500,000 – – – Options exercisable at A$0.75 – – 200,000 – – – 200,000 – Options exercisable at A$2.89 – – – 200,000 Sylvania Resources Annual Report 2008 Page 15 D i r e c t o r s ’ r e p o r t ( c o n t i n u e d ) S i g n i f i c a n t c h a n g e s i n t h e s t a t e o f a f f a i r s L i k e l y d e v e l o p m e n t s a n d e x p e c t e d r e s u l t s There have been no other significant changes in the state of affairs of the Group to the date of this report other than the matters explained in the review of the Chairman and the Managing Director. M a t t e r s s u b s e q u e n t t o t h e e n d o f t h e f i n a n c i a l y e a r On 22 August 2008, 950,000 ordinary shares were issued in terms of the Company’s employee share plan at an issue price of $1.63 per share. In addition 3,383,000 options in terms of the Company’s employee option plan were issued to employees and consultants of the Company that are exercisable at $1.63 each on or before 30 June 2011. There has not been any other matter or circumstance that has arisen after balance date that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations or the state of affairs of the Group in future financial periods. Additional comments on expected results of certain operations of the Group are included in the review of operations and activities. E n v i r o n m e n t a l l e g i s l a t i o n The Group is subject to significant environmental legal regulations in respect to its exploration and evaluation activities in South Africa. There have been no known breaches of these regulations and principles by the Group. M e e t i n g s o f d i r e c t o r s During the financial year there were 13 formal directors’ meetings. All other matters that required formal Board resolutions were dealt with via written circular resolutions. In addition, the directors met on an informal basis at regular intervals during the year to discuss the Group’s affairs. The number of meetings of the Company’s Board of Directors attended by each director were: Board meetings Audit Committee meetings Number of meetings eligible to attend Number of meetings attended Number of meetings eligible to attend Number of meetings attended T M McConnachie R D Rossiter (appointed 15 August 2007) L M Carroll (appointed 15 August 2007) Dr A P Ruiters (appointed 15 August 2007) J Cooke (appointed 18 August 2008) Dr E Kirby (resigned 18 August 2008) E F G Nealon (resigned 15 August 2007) M J Sturgess (resigned 15 August 2007) K S Huntly (resigned 15 August 2007) 13 11 11 11 – 13 2 2 2 13 11 11 9 – 10 2 2 1 – 2 2 – – – – – – – 2 2 – – – – – – R e m u n e r a t i o n R e p o r t ( A u d i t e d ) A - Principles used to determine the nature and amount of remuneration Details of directors’ and executives’ remuneration are set out under the following main headings : A - Principles used to determine the nature and amount of remuneration; B - Details of remuneration; C - Consultancy agreements; D - Share-based compensation. The objective of the Company’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aims to align executive reward with the creation of value for shareholders. The key criteria for good reward governance practices adopted by the Board are : • Competitiveness and reasonableness; • Acceptability to shareholders; • Performance incentives; • Transparency; • Capital management. Sylvania Resources Annual Report 2008 Page 16 The framework provides a mix of fixed fee, consultancy agreement based remuneration and share based incentives. The broad remuneration policy for determining the nature and amount of emoluments of Board members and senior executives of the Company is governed by a Board Remuneration Committee. The Remuneration committee acts in accordance with a written Remuneration Committee Charter. The Remuneration Committee’s aim is to ensure the remuneration packages properly reflect directors’ and executives’ duties and responsibilities. The Committee assesses the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention and motivation of a high quality Board and executive team. The current remuneration policy adopted is that no element of any director/executive package be directly related to the Company’s financial performance. The Remuneration Committee is currently investigating this policy and will make recommendations to the Board for the 2009 financial year. Indeed there are no elements of any director or executive remuneration that are dependent upon the satisfaction of any specific condition. The overall remuneration policy framework however is structured in an endeavour to advance/create shareholder wealth. This policy has not changed over the past five financial years. N o n - e x e c u t i v e d i r e c t o r s Fees and payments to non-executive directors reflect the demands which are made on, and the responsibilities of, the directors. Non-executive directors’ fees and payments are reviewed annually by the Board and are intended to be in line with the market. Directors are not present at any discussions relating to determination of their own remuneration. D i r e c t o r s ’ f e e s Some of the directors perform at least some executive or consultancy services. However, each of the directors receives a separate fixed fee for their services as directors, as the Board considers it important to distinguish between the executive and non-executive roles held by those individuals. The maximum aggregate remuneration for the directors was last determined at the Annual General Meeting held on 30 November 2005, when shareholders approved an aggregate remuneration of $300,000 per year. The amount of aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst directors is reviewed annually. The Board considers advice from external shareholders as well as the fees paid to non-executive directors of comparable companies when undertaking the annual review process. Sylvania Resources Annual Report 2008 Page 17 D i r e c t o r s ’ r e p o r t ( c o n t i n u e d ) R e t i r e m e n t a l l o w a n c e s f o r d i r e c t o r s Apart from superannuation payments paid on base director fees, there are no retirement allowances for directors. E x e c u t i v e p a y The executive pay and reward framework has the following components: • Base pay and benefits such as superannuation; • Short-term performance incentives; • Long-term incentives through participation in the Employee Share and Option Plan. B a s e p a y E m p l o y e e s h a r e a n d o p t i o n p l a n To ensure that the Company has appropriate mechanisms in place to continue to attract and retain the services of suitable directors and employees, the Company has established the Share Plan and the Option Plan, which were approved by the shareholders on 30 November 2005 at the Company’s Annual General Meeting. The number of ordinary shares or options may be offered to a participant is entirely within the discretion of the Board. The Company does not intend to offer more than 6,000,000 securities (being a combination of ordinary shares under the Share Plan and options under the Option Plan) under the current plans, which represented approximately 4.1% of the ordinary shares in issue at the time of approval. All executives are either full time employees or consultants that currently receive a fixed monthly retainer as agreed with the Company. The provision of consultancy services has been formalised in individual Consultancy Agreements. B - Principles used to determine the nature and amount of remuneration B e n e f i t s Apart from superannuation paid on directors’ fees and executive salaries there are no additional benefits to executives. S h o r t t e r m i n c e n t i v e s There are no current short term incentive remuneration arrangements, however the remuneration committee is currently reviewing this as an incentive for employees and have proposals to be submitted to the Board of Directors. The key management personnel of the Group are the directors of the Company and those executives that report directly to the Chief Executive Officer. The executives are : • M J Langoulant – Company Secretary; • J Meyer – General Manager: Business Development; • Z Marinkovic – Director, Sylvania Metals (Pty) Limited; • P R Carter – General Manager: Capital Projects; • G Haasbroek – General Manager: Operations; • Dr P J Cox – Strategic Planner; • C De Vos – Internal Legal Advisor. Sylvania Resources Annual Report 2008 Page 18 Table 1: Key management personnel 2008 2008 Name Directors T M McConnachie R D Rossiter L M Carroll Dr A P Ruiters Dr E Kirby E F G Nealon M J Sturgess K S Huntly M J Langoulant J Meyer Z Marinkovic C De Vos P R Carter G Haasbroek P J Cox Total Cash salary/ consulting fees $ 229,028 224,003 154,602 – 172,920 24,484 11,203 69,077 54,000 173,565 183,422 154,600 182,428 149,962 180,083 Key management personnel Primary benefits Post- employment benefits Share-based payment Options as % of total remuneration Total Bonus $ 38,341 – 28,756 – – – – – – 28,756 22,695 28,987 28,755 24,736 28,756 Directors’ fees $ Super- annuation $ 35,000 30,733 30,733 30,733 35,000 4,411 4,411 4,411 – – – – – – – – 2,766 – – 3,150 397 397 – – – – – – – – Equity shares / options $ 56,872 117,114 26,364 46,846 16,359 16,359 16,359 28,436 5,453 26,364 – 26,364 26,364 49,002 46,845 $ 359,241 374,616 240,455 77,579 227,429 45,651 32,370 101,924 59,453 228,685 206,117 209,951 237,547 223,700 255,684 15.8% 31.3% 11.0% 60.4% 7.2% 35.8% 50.5% 27.9% 9.2% 11.5% – 12.6% 11.1% 21.9% 18.3% 17.5% 1,963,377 229,782 175,432 6,710 505,101 2,880,402 Sylvania Resources Annual Report 2008 Page 19 D i r e c t o r s ’ r e p o r t ( c o n t i n u e d ) Table 2: Key management personnel 2007 Primary benefits Cash salary and consulting fees $ Post- employment benefits Share-based payment Options as % of total remuneration Total Super- annuation $ Equity shares / options $ $ 2007 Name Directors T M McConnachie R D Rossiter Dr E Kirby L M Carroll Dr A P Ruiters E F G Nealon M J Sturgess K S Huntly G M Button Key management personnel M J Langoulant R A Jarvis M L Burchnall J Meyer Z Marinkovic C De Vos P R Carter Total 274,602 – 200,004 158,074 – 198,000 99,600 81,512 120,000 51,000 77,095 158,786 171,626 149,285 113,043 169,565 Bonus $ 35,000 – 35,000 – – 35,000 35,000 35,000 34,137 – – – – – – – – – 3,150 – – 3,150 3,150 – 3,072 – 3,158 14,291 – – – – 183,880 493,482 – 60,620 34,685 – 60,620 60,620 91,941 60,620 20,206 17,899 8,949 34,685 65,968 34,685 34,685 – 298,774 192,759 – 296,770 198,370 208,453 217,829 71,206 98,152 182,026 206,311 215,253 147,728 204,250 37.7% – 20.3% 18.0% – 20.4% 30.6% 44.1% 27.8% 28.4% 18.2% 4.9% 16.8% 30.6% 23.5% 17.0% 25.4% 2,022,192 209,137 29,971 770,063 3,031,363 L M Carroll was appointed as a director of Sylvania South Africa (Pty) Limited on 10 October 2007. Before this appointment he was a Financial Officer of Sylvania South Africa (Pty) Limited, a wholly owned subsidiary of the Company. Amounts shown above include Mr Carroll’s remuneration during the reporting period in this capacity. Sylvania Resources Annual Report 2008 Page 20 Option holding of key management personnel (Consolidated) 2008 Name Directors Balance at start of year Granted during year Exercised during year Other changes during year Balance at end of the year Vested and exercisable at the end of the year T M McConnachie 500,000 – Dr A P Ruiters L M Carroll K S Huntly Key management personnel J Meyer C De Vos P R Carter – 200,000 200,000 250,000 200,000 200,000 200,000 – – – – – G Haasbroek – 200,000 – – – (250,000) (100,000) (100,000) – – – – – – – – – – 500,000 200,000 200,000 – 100,000 100,000 200,000 200,000 500,000 – 100,000 – – – 100,000 – 2007 Name Directors Balance at start of year Granted during year Exercised during year Other changes during year Balance at end of the year Vested and exercisable at the end of the year T M McConnachie 500,000 – L M Carroll K S Huntly – 200,000 250,000 – Key management personnel J Meyer Z Marinkovic C De Vos P R Carter – – – – 200,000 200,000 200,000 200,000 – – – – (200,000) – – – – – – – – – 500,000 200,000 250,000 200,000 – 200,000 200,000 250,000 – 125,000 – – – – Sylvania Resources Annual Report 2008 Page 21 D i r e c t o r s ’ r e p o r t ( c o n t i n u e d ) S h a r e h o l d i n g o f k e y m a n a g e m e n t p e r s o n n e l ( C o n s o l i d a t e d ) The number of shares in the company held during the year by each director of the company and key management personnel of the Group, including their personally related parties, are set out below : 2008 Name Directors R D Rossiter Dr E Kirby E F G Nealon G M Button M J Sturgess Balance at start of year 32,000 764,300 750,000 750,000 752,600 Key management personnel M J Langoulant 350,000 Issued share and option plan 500,000 – – – – – Other changes during year Balance at end of the year – (375,000) (750,000) (750,000) (750,000) 532,000 389,300 - - 2,600 (100,000) 250,000 2007 Name Directors R D Rossiter Dr E Kirby E F G Nealon G M Button M J Sturgess K S Huntly Key management personnel M J Langoulant R A Jarvis M L Burchnall Balance at start of year Issued share and option plan Other changes during year Balance at end of the year 32,000 764,300 750,000 1,250,000 815,000 – 350,000 – – – – – – – – – 200,000 100,000 – – – (500,000) (62,400) – – – – 32,000 764,300 750,000 750,000 752,600 – 350,000 200,000 100,000 Sylvania Resources Annual Report 2008 Page 22 C - C o n s u l t a n c y a g r e e m e n t s Formal Consultancy Agreements are made with the Company and all of its directors. The details of the Managing Director’s Consultancy Agreement are summarised below: E n g a g e m e n t The Company engages the Consultant to provide the Company with the consultancy services during the term, on and subject to the terms of the Agreement, and the Consultant accepts the engagement. Te r m The initial term of the engagement commences on 14 June 2006 and continues for two years, unless that period is extended or terminated in accordance with the following summarised terms: • Extension of term Following the completion of the term indicated above, if the parties agree, the engagement will be extended for rolling periods of one year thereafter; • Termination by Company The Company may immediately terminate the Agreement by giving written notice to the Consultant; notice in writing for a period of 6 months or the Company paying 6 months consultancy fee in lieu of notice. R e m u n e r a t i o n In consideration for the consultancy services, the Company will pay the consultancy fee to the Consultant in monthly instalments in arrears at the end of each month. In addition, the Company may, if the Board (following a recommendation by the Remuneration Committee) so resolves, offer to the securities in Consultant or the nominated executive, accordance with the Company’s share or option incentive plan. D - S h a r e - b a s e d c o m p e n s a t i o n E m p l o y e e O p t i o n P l a n Options are granted under the Employee Share and Option Plan (the “plan”) which was approved by shareholders at the 2005 Annual General Meeting. Participants of the plan are determined by the Board and can be employees and directors of, or consultants to, the Company or a controlled entity. The Board considers length of service, seniority, responsibilities, potential contribution and any other relevant matters in determining eligibility of potential participants. The Board has sole responsibility to determine the number of options and terms and conditions of options granted to any participant. • Entitlements on Termination Upon termination of the Agreement the Consultant (pursuant to additional clauses) is entitled to the consultancy fee up to and including the date of termination. Options are granted under the plan for no consideration. Options are granted for a three year period and 50% of each tranche vests and are exercisable on each anniversary of the grant date. • Termination by notice by Company or Consultant The Agreement may be terminated without cause by either the Company or the Consultant upon giving the other party The terms and conditions of each grant of options affecting remuneration in the previous, this or future reporting periods are as follows : Grant date Expiry date Exercise price Value per option at grant date 20 April 2006 30 June 2009 17 October 2006 30 June 2010 17 March 2008 30 June 2011 17 March 2008 30 June 2012 $0.50 $0.75 $2.89 $2.67 Options granted under the plan carry no dividend or voting rights. $0.56 $0.33 $1.08 $1.14 Date exercisable 50% after 21 Apr 2007 50% after 21 Apr 2008 50% after 18 Oct 2007 50% after 18 Oct 2008 50% after 18 Mar 2009 50% after 18 Mar 2010 50% after 18 Mar 2009 50% after 18 Mar 2010 When exercisable, each option is convertible into one ordinary share. The exercise price of options is based on the weighted average price at which the Company’s shares are traded on the Australian Stock Exchange during the five trading days immediately before the options are granted. Sylvania Resources Annual Report 2008 Page 23 D i r e c t o r s ’ r e p o r t ( c o n t i n u e d ) Details of options over ordinary shares in the Company provided as remuneration to each director of the Company and each of the key management personnel of the Group are set out below. Further information on the options is set out in note 20 to the financial statements. T M McConnachie R D Rossiter L M Carroll J Meyer Z Marinkovic P R Carter K S Huntly A P Ruiters Number of shares granted during the year Number of shares vested during the year 2008 – – – – – – – 200,000 2007 – – 200,000 200,000 200,000 200,000 – – 2008 – – 100,000 100,000 – 100,000 – – 2007 250,000 – – – 200,000 – 125,000 – The assessed fair value at grant date of options granted to individuals is allocated equally over the period from grant date to vesting date, and the amount is included in the remuneration tables above. Fair values at grant date are independently determined using a Black and Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. (i) Options are granted for no consideration, have a three year life, and 50% of each tranche vests and is exercisable on each anniversary of the date of grant. (ii) share price at grant date (iii) expected price volatility of the Company’s shares (iv) expected dividend yield (v) risk-free interest rate Options granted at $2.89 per share Options granted at $2.67 per share $2.80 63.33% Nil 6.39% $2.80 63.33% Nil 6.39% The expected price volatility is based on the historic The issue price for the shares issued under the plan are not volatility (based on the remaining life of the options), less than the weighted average share price for the last five adjusted for any expected changes to future volatility due to trading days immediately preceding the offer to the participant. publicly available information. E m p l o y e e S h a r e P l a n An Employee Incentive Share Plan was approved at the 2007 Annual General Meeting. The Company’s existing share plan, which was approved by shareholders on 30 November 2005, has expired. A participant who is invited to subscribe for shares under the plan may also be invited to apply for a loan up to the amount payable in respect of the shares accepted by the participant. These loans are to be made on the following terms: • Applied directly against the issue price of the shares to be acquired under the plan; • For a term to be determined by the Board; Participants of the plan are determined by the Board and can be employees and directors of, or consultants to, the Company or a controlled entity. The Board considers length of service, seniority, • Repayable to the extent of the lesser of the issue price of the relevant shares issued, less any cash dividends applied against the outstanding principal, and the last market sale responsibilities, potential contribution and any other relevant price of the shares on the date of repayment of the loan; matters in determining eligibility of potential participants. • The loan must be repaid in full prior to expiry of the loan; Sylvania Resources Annual Report 2008 Page 24 • The Company will have a lien over the shares in respect of which a loan is outstanding; • Shares issued under the plan are not transferable while a loan amount in respect of those shares remains payable; and • Shares issued under the share plan will not be quoted on a publicly traded stock market while a loan amount in respect of those shares remains payable. The market value of the option implicit in the share issued under the plan (funded by way of a loan on the conditions noted above), measured using the Black and Scholes option pricing model, is recognised in the financial statements as equity benefits reserve and as employee benefit costs over the period the shares vest. Details of employee shares affecting remuneration in the previous, this or future reporting periods are as follows: Grant date Issue price Fair value of option implicit in share at grant date 21 December 2005 20 December 2006 17 March 2008 17 March 2008 $0.50 $0.90 $2.89 $2.67 $0.17 $0.23 $1.08 $1.14 Vesting period 50% after 21 Dec 2006 50% after 21 Dec 2007 50% after 20 Dec 2007 50% after 20 Dec 2008 50% after 18 Mar 2009 50% after 18 Mar 2010 50% after 18 Mar 2009 50% after 18 Mar 2010 Details of ordinary shares in the Company provided as remuneration to each director of the Company and each of the key management personnel of the Group are set out below. Further information on the shares is set out in note 27 to the financial statements. E F G Nealon G M Button Dr E Kirby M J Sturgess M J Langoulant R A Jarvis M L Burchnall R D Rossiter Number of shares granted during the year Number of shares vested during the year 2008 – – – – – – – 500,000 2007 – – – – – 200,000 100,000 – 2008 750,000 – – – 250,000 100,000 50,000 – 2007 375,000 375,000 375,000 375,000 125,000 – – – S h a r e s u n d e r o p t i o n At the date of this report, the only unissued shares of the Company under option were those issued under the share option plan. Outstanding share options at the date of this report are as follows : Grant date 20 April 2006 17 October 2006 17 March 2008 17 March 2008 Date of expiry Exercise price Number of options 30 June 2009 30 June 2010 30 June 2011 30 June 2011 $0.50 $0.75 $2.89 $2.67 500,000 600,000 400,000 600,000 No option holder has any right under the options to participate in any other share issue of the Company or any controlled entity. S h a r e s i s s u e d o n t h e e x e r c i s e o f o p t i o n s The following ordinary shares of the Company were issued during or since the end of the year ended 30 June 2008 on the exercise of options granted under the share option plan. No amounts are unpaid on any of the shares issued upon the exercise of options. Sylvania Resources Annual Report 2008 Page 25 D i r e c t o r s ’ r e p o r t ( c o n t i n u e d ) Issuing entity Sylvania Resources Limited Sylvania Resources Limited Number of shares issued 250,000 250,000 Class Ordinary Ordinary Amount paid for shares $0.50 $0.75 I n d e m n i f i c a t i o n a n d i n s u r a n c e o f d i r e c t o r s a n d o f f i c e r s During the year the Company paid premiums in respect of a contract insuring all directors and officers of the Company against liabilities incurred as directors or officers to the extent permitted by the Corporations Act 2001. Due to confidentiality clauses in the contract the amount of the premium has not been disclosed. The Company has no insurance policy in place that indemnifies the Company’s auditors. P r o c e e d i n g s o n b e h a l f o f t h e c o m p a n y No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of the Corporations Act 2001. A u d i t o r i n d e p e n d e n c e a n d n o n - a u d i t s e r v i c e s Section 307C of the Corporations Act 2001 requires our auditors, HLB Mann Judd, to provide the directors of the Company with an Independence Declaration in relation to the audit of the annual report. This Independence Declarations is set out on page 28 and forms part of this directors’ report for the year ended 30 June 2008. The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise with the Company and/or the consolidated entity is important. During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices or other auditors: Sylvania Resources Annual Report 2008 Page 26 * The Auditors of the parent entity is HLB Mann Judd Assurance services HLB Mann Judd Australian firm: Audit and review of financial statements Non-HLB Mann Judd firm (LA Gambale) Total remuneration for audit services Taxation and advisory services HLB Mann Judd Australian firm: Non-HLB Mann Judd firm (LA Gambale) Total remuneration for taxation services Other HLB Mann Judd Australian firm: Non-HLB Mann Judd firm (LA Gambale) Total remuneration for taxation and advisory services Total auditors’ remuneration Consolidated 2008 $ 40,000 59,501 99,501 – 739 739 – 3,726 3,726 103,966 The audit committee has considered the position and is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of the non-audit service provided means that auditor independence was not compromised. Signed in accordance with a resolution of the directors. TM McConnachie Managing Director Johannesburg, South Africa 30 September 2008 Sylvania Resources Annual Report 2008 Page 27 Sylvania Resources Annual Report 2008 Page 28 Sylvania Resources Annual Report 2008 Page 29 C o r p o r a t e g o v e r n a n c e s t a t e m e n t In accordance with the ASX Corporate Governance Council's Principles of Good Corporate Governance and Best Practice Recommendations ("ASX Principles and Recommendations")1, Sylvania Resources Limited ("Company") has made it a priority to adopt systems of control and accountability as the basis for the administration of corporate governance. Some of these policies and procedures are summarised in this statement. Commensurate with the spirit of the ASX Principles and Recommendations, the Company has followed each recommendation where the Board has considered the recommendation to be an appropriate benchmark for corporate governance practices, taking into account factors such as the size of the Company and the Board, resources available and activities of the Company. Where, after due consideration, the Company's corporate governance practices depart from the ASX Principles and Recommendations, the Board has offered full disclosure of the nature of and reason for the adoption of its own practice. The Company has undertaken a review of its governance documentation as a consequence of the revision to the ASX Principles and Recommendations.The Company will be reporting against the revised ASX Principles and Recommendations in its next annual report. Further information about the Company's corporate governance practices is set out on the Company's website at www.sylvaniaresources.com. In accordance with the ASX Principles and Recommendations, information published on the Company's website includes charters (for the Board and its committees), the Company's code of conduct and other policies and procedures relating to the Board and its responsibilities. E x p l a n a t i o n s f o r d e p a r t u r e s f r o m b e s t p r a c t i c e r e c o m m e n d a t i o n s During the Company's 2008 financial year ("Reporting Period") the Company has followed with each of the ASX Principles and Recommendations, other than in relation to the matters specified below. Principles 1 to 9 Recommendations: Notification of departure: Explanation for departure: Principle 2 Recommendation: Notification of departure: Explanation for departure: Principle 2 Recommendation: Notification of departure: Explanation for departure: 1.1, 2.5, 3.3, 4.5, 5.2, 6.2, 7.3, 8.1 and 9.5 Specific material was not regularly updated on the Company's website, in accordance with the ASX Principles and Recommendations. Although the Company had in place corporate governance documentation, the recommended website disclosure had not been updated to reflect certain changes. However, shortly after the completion of the Reporting Period and a review of its governance structure the Company now has full website disclosure in accordance with the ASX Principles and Recommendations. 2.1: A majority of the board should be independent directors. The board does not have a majority of independent directors. Currently the board comprises five directors of which two are considered independent. During the Reporting Period, there were substantial changes to the Board. Three new appointments were made and consideration was given to, among other things, the Company’s development as a South African platinum producer.The operational focus of the Company being increasingly South African based, the Company appointed appropriate Board members to enhance the areas of strategy, development and finance.The Board is aware of the importance of independence and shortly after the completion of the Reporting Period made a further appointment of an independent director.The Board therefore considers that its present composition is suitable given the Company’s circumstances. 2.2: The chairperson should be an independent director. For a portion of the reporting period, the chair was not an independent director. From the beginning of the Reporting Period until 15 August 2007, the Board did not have an independent Chair. However, as a result of the compositional changes to the Board, as discussed above, Mr Rossiter, an independent director, was appointed Chair and therefore, for the majority of the Reporting Period the Company followed the recommendation. 1 A copy of the ASX Principles and Recommendations is set out on the Company’s website under the Section entitled "Corporate Governance". Sylvania Resources Annual Report 2008 Page 30 Principles 2 Recommendations: Notification of departure: Explanation for departure: Principle 4 Recommendation: Notification of departure: Principles 9 Recommendations: Notification of departure: Explanation for departure: 2.4: The board should establish a Nomination Committee The full board performs the role of a Nomination Committee. The full Board considers those matters that would usually be the responsibility of a nomination committee. The Board considers that no efficiencies or other benefits would be gained by establishing a separate committee. The Board has adopted a Nomination Committee Charter to assist it with its function as a nomination committee. 4.3: Structure the Audit Committee so that it consists only of non-executive directors, a majority of independent directors and an independent chairperson, who is not chairperson to the board. The composition of the Board was not suitable for the formation of an Audit Committee in accordance with the recommendation. However, shortly after the Reporting Period, Mr Cooke was appointed to the Board and as Chairman of the Audit Committee. Mr Cooke's qualifications and experience enabled him to bring expertise and independence to the Audit Committee and as a consequence the Company now follows the recommendation. 9.2: The board should establish a Remuneration Committee The full board performs the role of a Remuneration Committee. The full Board considers those matters that would usually be the responsibility of a remuneration committee. The Board considers that no efficiencies or other benefits would be gained by establishing a separate committee. The Board has adopted a Remuneration Committee Charter to assist it with its function as a remuneration committee. N o m i n a t i o n C o m m i t t e e The full Board, in its capacity as the Nomination Committee, held one meeting during the Reporting Period. All Board members attended the meeting. A u d i t C o m m i t t e e During the Reporting Period, the Audit Committee composition changed.The following table identifies those directors who were or are members of the Audit Committee and shows their attendance at committee meetings: Name 1 July 2007 – 15 August 2007 M J Sturgess (independent Chair) K S Huntly (independent) Dr E Kirby 15 August 2007 – 29 July 2008 R Rossiter (independent Chair) L M Carroll No. of meetings attended No. of meetings held – – – 2 2 – – – 2 2 The changes to the Board composition following the end of the Reporting Period allowed the Company to form an Audit Committee in accordance with the ASX Principles and Recommendations recommended structure. Currently the Audit Committee comprises J Cooke (independent Chair), Richard Rossiter (independent) and Alistair Ruiters. Details of each of the director's qualifications are set out in the Director's Report. Of the current Audit Committee members, all possess industry knowledge and consider themselves to be financially literate. Mr Cooke is a Chartered Accountant and therefore brings financial expertise to the Audit Committee. Sylvania Resources Annual Report 2008 Page 31 C o r p o r a t e g o v e r n a n c e s t a t e m e n t ( c o n t i n u e d ) R e m u n e r a t i o n C o m m i t t e e Details of remuneration, including the Company’s policy on remuneration, are contained in the “Remuneration Report” which forms of part of the Directors’ Report. The full Board, in its capacity as the Remuneration Committee, held one meeting during the Reporting Period. All Board members attended the meeting. O t h e r Skills, experience, expertise and term of office of each director A profile of each director containing the skills, experience, expertise and term of office of each director is set out in the Directors' Report. Identification of independent directors In considering the independence of directors, the Board refers to the criteria for independence as set out in Box 2.1 of the ASX Principles and Recommendations ("Independence Criteria"). To the extent that it is necessary for the Board to consider issues of materiality, the Board refers to the thresholds for qualitative and quantitative materiality as adopted by the Board and contained in the Board Charter, which is disclosed in full on the Company’s website. Applying the Independence Criteria, the independent directors of the Company are Richard Rossiter and John Cooke. In the interest of disclosure, through his consultancy company, Richard Rossiter provides expertise and know-how in relation to the Company's business, which services are provided at normal commercial rates. The Board does not consider however, the contractual relationship Mr Rossiter has with the Company to be material. Further, Mr Rossiter does not consider the contract to be material to himself personally. Statement concerning availability of independent professional advice If a director considers it necessary to obtain independent professional advice to properly discharge the responsibility of his/her office as a director, then, provided the director first obtains approval for incurring such expense from the chairperson, the Company will pay the reasonable expenses associated with obtaining such advice. Confirmation whether performance evaluation of the board and its members has taken place and how conducted During the Reporting Period an informal evaluation of the overall structure and composition of the Board was carried out.The evaluation process comprised round table discussions. Given the Company's future objectives, compositional changes were considered necessary, particularly considering the Company’s development as a South African platinum producer. Further, through informal internal procedures, the senior executives were evaluated by the Managing Director. Existence and terms of any schemes for retirement benefits for non-executive directors There are no termination or retirement benefits for non-executive directors. Sylvania Resources Annual Report 2008 Page 32 D i r e c t o r s ’ d e c l a r a t i o n 1. In the opinion of the directors : (a) the financial statements and notes of the Company and of the consolidated entity are in accordance with the Corporations Act 2001 including : (i) giving a true and fair view of the Company’s and consolidated entity’s financial position as at 30 June 2008 and of their performance for the year then ended; and (ii) complying with Accounting Standards and Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. This declaration has been made after receiving the declarations required to be made to the directors in accordance with Section 295A of the Corporations Act 2001 for the financial year ended 30 June 2008. This declaration is signed in accordance with a resolution of the Board of Directors. T M McConnachie Managing Director Johannesburg, South Africa 30 September 2008 Sylvania Resources Annual Report 2008 Page 33 Sylvania Resources Annual Report 2008 Page 34 Sylvania Resources Annual Report 2008 Page 35 I n c o m e s t a t e m e n t s For the year ended 30 June 2008 Revenue from continuing operations Other income Share of net profit of jointly controlled entity accounted for using the equity method Raw materials and consumables used Depreciation Finance costs Foreign exchange loss Project generation costs Impairment of available-for-sale financial assets Impairment of loans to subsidiary Share based payment expense Other expenses Consolidated Parent entity Notes 2008 $ 2007 $ 2008 $ 2007 $ 2(a) 2(b) 24 2(c) 2(c) 2(c) 2(c) 2(c) 2(c) 2(c) 32,789,608 2,260,834 389,402 2,156,481 – 4,274,929 – 2,291,330 5,021,508 (7,632,258) (1,505,716) (12,847) (4,594,987) – (2,567,345) – (673,815) (6,051,324) 1,649,511 (608,769) (405,645) (6,082) (2,657,846) (5,546,000) – – (795,177) (5,644,442) – – (8,848) – (4,594,987) – (2,567,345) 2,916,291 (673,815) (2,730,850) – – (12,155) – (2,654,795) (5,546,000) – (2,451,453) (795,177) (2,998,057) Profit / (loss) before income tax expense 17,033,658 (11,468,567) (3,384,625) (12,166,307) Income tax (expense) / benefit 3 (5,346,659) 351,892 – – Profit / (loss) after income tax expense from continuing operations 11,686,999 (11,116,675) (3,384,625) (12,166,307) Net profit / (loss) for the year 11,686,999 (11,116,675) (3,384,625) (12,166,307) Profit attributable to minority interest (1,824,813) – – – Net profit attributable to members of the parent 9,862,186 (11,116,675) (3,384,625) (12,166,307) Earnings / (loss) per share for profit / (loss) from continuing operations attributable to the ordinary equity holders of the Company: Basic earnings / (loss) per share Diluted earnings / (loss) per share 4 4 2008 Cents 2007 Cents 5.64 5.57 (7.59) (7.59) The above income statements should be read in conjunction with the accompanying notes. Sylvania Resources Annual Report 2008 Page 36 B a l a n c e s h e e t s For the year ended 30 June 2008 Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Total current assets Non-current assets Available-for-sale financial assets Investments accounted for using the equity method Other financial assets Deferred exploration expenditure Property, plant & equipment Deferred tax asset Total non-current assets Total assets Current liabilities Trade and other payables Borrowings Current tax liability Total current liabilities Non-current liabilities Borrowings Deferred tax liability Provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Consolidated Parent entity Notes 2008 $ 2007 $ 2008 $ 2007 $ 6 7 8 9 24 11 12 13 3 14 15 3 15 3 16 43,623,564 15,886,145 227,440 56,225,793 838,747 – 32,938,264 743,690 – 51,760,438 92,188 – 59,737,149 57,064,540 33,681,954 51,852,626 2,252,098 4,404,466 – 1,728,310 29,578,317 – 1,516,290 4,692,320 – 1,322,596 15,864,198 470,440 2,252,098 – 50,329,422 – 22,009 – 1,516,290 – 25,966,119 – 24,203 – 37,963,191 23,865,844 52,603,529 27,506,612 97,700,340 80,930,384 86,285,483 79,359,238 2,654,108 78,074 1,024,695 3,295,481 21,988 – 3,756,877 3,317,469 170,544 – – 170,544 731,299 – – 731,299 251,298 3,543,998 355,158 4,150,454 91,055 – – 91,055 – – – – – – – – 7,907,331 3,408,524 170,544 731,299 89,793,009 77,521,860 86,114,939 78,627,939 17 18 19 117,274,097 (12,458,835) (16,847,066) 105,950,221 (1,719,109) (26,709,252) 117,274,097 989,100 (32,148,258) 105,950,221 1,441,351 (28,763,633) Capital and reserves attributable to equity holders of Sylvania Resources Limited Minority interest 87,968,196 1,824,813 77,521,860 – 86,114,939 – 78,627,939 – Total equity 89,793,009 77,521,860 86,114,939 78,627,939 The above balance sheets should be read in conjunction with the accompanying notes. Sylvania Resources Annual Report 2008 Page 37 $ – – – – – – – – – – – – – – – Total equity $ 12,837,339 150,000 25,000 – 80,849,412 (4,389,720) (11,116,675) 795,177 507,240 (2,135,913) 77,521,860 77,521,860 8,760,000 275,000 1,614,500 – (57,632) 11,686,999 673,815 (394,058) (10,287,475) S t a t e m e n t s o f c h a n g e s i n e q u i t y For the year ended 30 June 2008 Consolidated Issued capital Accumulated losses Reserves Minority equity interests $ $ $ Balance as at 1 July 2006 Shares issued during the year: Options exercised Employee share plan loan repaid – proceeds Share based payment reserve transferred to contributed equity Placement Less: Capital raising costs Loss for the period Share based compensation reserve Net gains revaluation reserve Currency translation differences 29,242,204 (15,592,577) (812,288) 150,000 25,000 73,325 80,849,412 (4,389,720) – – – – – – – – – – – (11,116,675) – – – (73,325) – – – 795,177 507,240 (2,135,913) Balance at 30 June 2007 105,950,221 (26,709,252) (1,719,109) 105,950,221 (26,709,252) (1,719,109) Balance as at 1 July 2007 Shares issued during the year: Shares issued Options exercised Employee share plan loan repaid – proceeds Share based payment reserve transferred to contributed equity Less: Capital raising costs Profit for the period Share based compensation reserve Net gains revaluation reserve Currency translation differences 8,760,000 275,000 1,614,500 732,008 (57,632) – – – – – – – – – – – – 9,862,186 – – – (732,008) – – 673,815 (394,058) (10,287,475) – – 1,824,813 – – – Balance at 30 June 2008 117,274,097 (16,847,066) (12,458,835) 1,824,813 89,793,009 Sylvania Resources Annual Report 2008 Page 38 Parent entity Issued capital Accumulated losses Reserves Minority equity interests Balance as at 1 July 2006 Shares issued during the year: Options exercised Employee share plan loan repaid – proceeds Share based payment reserve transferred to contributed equity Placement Less: Capital raising costs Loss for the period Share based compensation reserve Net gains revaluation reserve $ $ $ 29,242,204 (16,597,326) 212,259 150,000 25,000 73,325 80,849,412 (4,389,720) – – – – – – – – (12,166,307) – – – – (73,325) – – – 795,177 507,240 Balance at 30 June 2007 105,950,221 (28,763,633) 1,441,351 Balance at 1 July 2007 Shares issued during the year: Shares issued Options exercised Employee share plan loan repaid – proceeds Share based payment reserve transferred to contributed equity Less: Capital raising costs Profit for the period Share based compensation reserve Net gains revaluation reserve 105,950,221 (28,763,633) 1,441,351 8,760,000 275,000 1,614,500 732,008 (57,632) – – – – – – – – (3,384,625) – – – – – (732,008) – – 673,815 (394,058) Balance at 30 June 2008 117,274,097 (32,148,258) 989,100 The above statements of changes in equity should be read in conjunction with the accompanying notes. $ – – – – – – – – – – – – – – – – – – – – Total equity $ 12,857,137 150,000 25,000 – 80,849,412 (4,389,720) (12,166,307) 795,177 507,240 78,627,939 78,627,939 8,760,000 275,000 1,614,500 – (57,632) (3,384,625) 673,815 (394,058) 86,114,939 Sylvania Resources Annual Report 2008 Page 39 C a s h f l o w s t a t e m e n t s For the year ended 30 June 2008 Consolidated Parent entity Notes 2008 $ 2007 $ 2008 $ 2007 $ Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Other revenue 26,158,124 (18,508,729) 2,323,557 560,826 1,978,172 (8,479,793) 1,082,727 2,263,560 – (3,443,842) 1,942,134 101,822 – (3,360,808) 985,494 2,975 Net cash inflow / (outflow) from operating activities 22 10,533,778 (3,155,334) (1,399,886) (2,372,339) Cash flows from investing activities Payments for property, plant and equipment Payments for available-for-sale financial assets Payments for exploration and evaluation Payments for mineral rights Loans to related parties Loans to subsidiaries Proceeds from sale of plant and equipment Proceeds from sale of available-for-sale financial assets Repayment of loan from related party (12,085,962) (4,715,559) (375,006) (303,474) (1,314,311) – – 345,000 – (16,618,770) (574,877) (875,019) – 921,933 – 1,233,163 591,098 114,731 (12,162) (4,715,559) – – – (10,201,448) – 345,000 – (55,132) (574,877) – – (4,000) (20,568,221) 34,500 591,098 212,560 Net cash (outflow) from investing activities (18,449,312) (15,207,741) (14,584,169) (20,364,072) Cash flows from financing activities Proceeds from issue of shares Capital raising costs 1,814,500 (57,632) 75,478,412 (4,177,444) 1,814,500 (57,632) 75,478,412 (4,177,444) Net cash inflow from financing activities 1,756,868 71,300,968 1,756,868 71,300,968 Net (decrease) / increase in cash held (6,158,666) 52,937,893 (14,227,187) 48,564,557 Foreign exchange movement (6,443,563) (2,657,846) (4,594,987) (2,654,795) Cash at the beginning of the financial year 56,225,793 5,945,746 51,760,438 5,850,676 Cash at the end of the financial year 6 43,623,564 56,225,793 32,938,264 51,760,438 The above cash flow statement should be read in conjunction with the accompanying notes. Sylvania Resources Annual Report 2008 Page 40 N o t e s t o t h e f i n a n c i a l s t a t e m e n t s For the year ended 30 June 2008 1 . (a) S i g n i f i c a n t a c c o u n t i n g p o l i c i e s Basis of preparation The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Accounting Standards and Interpretations and complies with other requirements of the law.The financial report has also been prepared on a historical cost basis, except for available-for-sale investments, which have been measured at fair value.The Company is a listed public company incorporated and domiciled in Australia, and operating in South Africa.The financial statements are presented in Australian dollars and were authorised for issue by the directors on 30 September 2008. (b) Adoption of new and revised standards Changes in Accounting Policies on Initial Application of Accounting Standards In the year ended 30 June 2008, the Group has adopted all of the new and revised standards and interpretations issued by the AASB that are relevant to its operations and effective for annual reporting periods beginning on or after 1 July 2007. Details of the impact of the adoption of these new accounting standards are set out in the individual accounting policy notes set out below.The Group has also adopted the following Standards as listed below which only impacted on the Group's financial statements with respect to disclosure: • AASB 101 'Presentation of Financial Instruments' (revised October 2006); • AASB 7 'Financial Instruments: Disclosures'; The Group has also reviewed all new Standards and Interpretations that have been issued but are not yet effective for the year ended 30 June 2008. As a result of this review the Directors have determined that there is no impact, material or otherwise, of the new and revised Standards and Interpretations on its business and, therefore, no change necessary to Group accounting policies. (c) Statement of compliance The financial report was authorised by the Board of directors for issue on 30 September 2008. The financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards (AIFRS). (d) Basis of consolidation The consolidated financial statements comprise the financial statements of Sylvania Resources Limited and its subsidiaries as at 30 June each year (the Group). The financial statements of the subsidiaries are prepared for the same reporting period as the parent Company, using consistent accounting policies. In preparing the consolidated financial statements, all intercompany balances and transactions, income and expenses and profit and losses resulting from intra-group transactions have been eliminated in full. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Control exists where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. (e) Significant accounting judgements estimates and assumptions The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events.The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are: (i) Share-based payment transactions The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted.The fair value is determined by using a Black and Scholes model, using the assumptions detailed in Note 20. Sylvania Resources Annual Report 2008 Page 41 N o t e s t o t h e f i n a n c i a l s t a t e m e n t s ( c o n t i n u e d ) For the year ended 30 June 2008 1 . (e) (ii) S i g n i f i c a n t a c c o u n t i n g p o l i c i e s ( c o n t i n u e d ) Significant accounting judgements estimates and assumptions (continued) Provision for restoration and rehabilitation and dismantling plant and equipment Provision for restoration and rehabilitation and dismantling plant and equipment is estimated taking into account estimates of expenditure based on information available at the balance sheet date.The estimate is based on the expenditure required to undertake the rehabilitation and dismantling, after taking into account the time value of money. (f) Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured.The following specific recognition criteria must also be met before revenue is recognised: (i) Sale of goods Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Risks and rewards of ownership are considered passed to the buyer at the time of delivery of the goods to the customer. (ii) Interest income Interest revenue is recognised on a time proportionate basis that takes into account the effective yield on the financial asset. (g) Borrowing costs Borrowing costs are recognised as an expense when incurred except those that relate to the acquisition, construction or production of qualifying assets where the borrowing cost is added to the cost of those assets until such time as the assets are substantially ready for their intended use or sale. (h) Leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases are initially recognised at their fair value or, if lower, the present value of the minimum lease payments, each determined at the inception of the lease.The corresponding liability to the lesser is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the general policy on borrowing costs – refer Note 1(g). Operating lease payments are recognised as an expense on a straight line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. (i) Cash and cash equivalents Cash comprises cash at bank and in hand. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet. For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. Sylvania Resources Annual Report 2008 Page 42 1 . S i g n i f i c a n t a c c o u n t i n g p o l i c i e s ( c o n t i n u e d ) Trade and other receivables (j) Trade receivables are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. An allowance for doubtful debts is made when there is objective evidence that the Group will not be able to collect the debts. Bad debts are written off when identified. Foreign currency translation (k) Both the functional and presentation currency of the Company and its Australian controlled entity is Australian dollars. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All exchange differences in the parent Company's financial report are taken to profit or loss with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity.These are taken directly to equity until the disposal of the net investment, at which time they are recognised in profit or loss. Tax charges and credits attributable to exchange differences on those borrowings are also recognised in equity. The functional currency of the foreign operations is South African Rand (ZAR). As at the reporting date the assets and liabilities of these subsidiaries are translated into the presentation currency of the Company at the rate of exchange ruling at the balance sheet date and their income statements are translated at the weighted average exchange rate for the year. The exchange differences arising on the translation are taken directly to a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in profit or loss. Interest in jointly controlled entities (l) The Group's interests in jointly controlled subsidiaries are brought to account using the equity method of accounting in the consolidated financial statements.The parent entity's interests in jointly controlled entities are brought to account using the cost method. Where the Group acquires an interest in a jointly controlled entity, the acquisition cost is amortised on a basis consistent with the method of amortisation used by the jointly controlled entity in respect to assets to which the acquisition costs relate. Income tax (m) Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities.The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date. Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences except: • when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or • when the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Sylvania Resources Annual Report 2008 Page 43 N o t e s t o t h e f i n a n c i a l s t a t e m e n t s ( c o n t i n u e d ) For the year ended 30 June 2008 1 . S i g n i f i c a n t a c c o u n t i n g p o l i c i e s ( c o n t i n u e d ) Income tax (continued) (m) Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised, except: • when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or • when the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Income taxes relating to items recognised directly in equity are recognised in equity and not in profit or loss. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. Other taxes (n) Revenues, expenses and assets are recognised net of the amount of GST except: • when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • receivables and payables, which are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet. Cash flows are included in the Cash Flow Statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authorities are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. Property, plant and equipment (o) The costs of acquiring mining properties are capitalised in the balance sheet as incurred. Mining properties are, upon commencement of production, amortised over the remaining life of respective assets on a unit of production basis.The net carrying amounts of mining properties are reviewed for impairment either individually or at the cash-generating unit level when events and changes in circumstances indicate that the carrying amount may not be recoverable.To the extent to which these values exceed their recoverable amounts, that excess is fully provided for in the financial year in which this is determined. Plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Such cost includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts is incurred. Similarly, when each major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement only if it is eligible for capitalisation. Sylvania Resources Annual Report 2008 Page 44 1 . S i g n i f i c a n t a c c o u n t i n g p o l i c i e s ( c o n t i n u e d ) Property, plant and equipment (continued) (o) Depreciation is calculated on a straight-line basis over the estimated useful life of the assets as follows: Plant and equipment – 10% to 37% Furniture and fittings – 7.5% The assets' residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year end. The useful lives of plant have been reviewed and subsequently changed from 5 years to 10 years. (i) Impairment The carrying values of plant and equipment are reviewed for impairment at each reporting date, with recoverable amount being estimated when events or changes in circumstances indicate that the carrying value may be impaired. The recoverable amount of plant and equipment is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, recoverable amount is determined for the cash- generating unit to which the asset belongs, unless the asset's value in use can be estimated to be close to its fair value. Impairment exists when the carrying value of an asset or cash-generating units exceeds its estimated recoverable amount. The asset or cash-generating unit is then written down to its recoverable amount. For plant and equipment, impairment losses are recognised in the income statement in the cost of sales line item. (ii) Revaluations Where applicable, fair value is determined by reference to market-based evidence, which is the amount for which the assets could be exchanged between a knowledgeable willing buyer and a knowledgeable willing seller in an arm's length transaction as at the valuation date. Any revaluation increment is credited to the asset revaluation reserve included in the equity section of the balance sheet, except to the extent that it reverses a revaluation decrease of the same asset previously recognised in profit or loss, in which case the increase is recognised in profit or loss. Any revaluation decrease is recognised in profit or loss, except that a decrease offsetting a previous revaluation increase for the same asset is debited directly to the asset revaluation reserve to the extent of the credit balance existing in the revaluation reserve for that asset. An annual transfer from the asset revaluation reserve to retained earnings is made for the difference between depreciation based on the re-valued carrying amounts of the assets and depreciation based on the assets' original costs. Additionally, any accumulated depreciation as at the revaluation date is eliminated against the gross carrying amounts of the assets and the net amounts are restated to the re-valued amounts of the assets. Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings. (iii) De-recognition and disposal An item of plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the year the asset is derecognised. Sylvania Resources Annual Report 2008 Page 45 N o t e s t o t h e f i n a n c i a l s t a t e m e n t s ( c o n t i n u e d ) For the year ended 30 June 2008 1 . S i g n i f i c a n t a c c o u n t i n g p o l i c i e s ( c o n t i n u e d ) Investments and other financial assets (p) Financial assets in the scope of AASB 139 Financial Instruments: Recognition and Measurement are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale investments, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transactions costs.The Group determines the classification of its financial assets after initial recognition and, when allowed and appropriate, re-evaluates this designation at each financial year end. (i) (ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process. Available-for-sale investments Available-for-sale investments are those non-derivative financial assets that are designated as available-for-sale or are not classified in any other category. After initial recognition available-for sale investments are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is recognised in profit or loss. The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. For investments with no active market, fair value is determined using valuation techniques. Such techniques include using recent arm's length market transactions; reference to the current market value of another instrument that is substantially the same; discounted cash flow analysis and option pricing models. Impairment of assets (q) The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset's recoverable amount. An asset's recoverable amount is the higher of its fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets and the asset's value in use cannot be estimated to be close to its fair value. In such cases the asset is tested for impairment as part of the cash- generating unit to which it belongs. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset or cash-generating unit is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses relating to continuing operations are recognised in those expense categories consistent with the function of the impaired asset unless the asset is carried at re-valued amount (in which case the impairment loss is treated as a revaluation decrease). An assessment is also made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset's revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. Trade and other payables (r) Trade payables and other payables are carried at amortised costs and represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. Sylvania Resources Annual Report 2008 Page 46 1 . (s) S i g n i f i c a n t a c c o u n t i n g p o l i c i e s ( c o n t i n u e d ) Provisions Where applicable, provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.The expense relating to any provision is presented in the income statement net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a borrowing cost. (t) Employee leave benefits Wages, salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees' services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable. (u) Share-based payment transactions Equity settled transactions The Group provides benefits to employees and consultants (including senior executives) of the Group in the form of share-based payments, whereby employees render services in exchange for shares or rights over shares (equity-settled transactions). The cost of these equity-settled transactions with employees and consultants is measured by reference to the fair value of the equity instruments at the date at which they are granted.The fair value is determined by using the Black and Scholes model. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of the Company (market conditions) if applicable. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the vesting period). The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the Group's best estimate of the number of equity instruments that will ultimately vest. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date.The income statement charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is only conditional upon a market condition. If the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any modification that increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee, as measured at the date of modification. Sylvania Resources Annual Report 2008 Page 47 N o t e s t o t h e f i n a n c i a l s t a t e m e n t s ( c o n t i n u e d ) For the year ended 30 June 2008 1 . S i g n i f i c a n t a c c o u n t i n g p o l i c i e s ( c o n t i n u e d ) Share-based payment transactions (continued) (u) Equity settled transactions (continued) If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph. The dilutive effect of outstanding shares and options issued is reflected as additional share dilution in the computation of earnings per share (see Note 4). Issued capital (v) Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Earnings per share (w) Basic earnings per share is calculated as net profit attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares. Diluted earnings per share are calculated as net profit attributable to members of the parent, adjusted for: • Costs of servicing equity (other than dividends) and preference share dividends; • The after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and • Other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares, divided by the weighted average number of ordinary shares and dilutive potential ordinary shares. Inventories (x) Inventories are valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and condition is accounted for as follows: Raw materials – purchase cost on a first-in, first-out basis; and Finished goods and work-in-progress – cost of direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity but excluding borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. Interest-bearing loans and borrowings (y) All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the liabilities are derecognised. Sylvania Resources Annual Report 2008 Page 48 1 . S i g n i f i c a n t a c c o u n t i n g p o l i c i e s ( c o n t i n u e d ) Provision for restoration and rehabilitation (z) A provision for restoration and rehabilitation is recognised when there is a present obligation as a result of development activities undertaken, it is probable that an outflow of economic benefits will be required to settle the obligation, and the amount of the provision can be measured reliably.The estimated future obligations include the costs of abandoning sites, removing facilities and restoring the affected areas. The provision for future restoration costs is the best estimate of the present value of the expenditure required to settle the restoration obligation at the reporting date. Future restoration costs are reviewed annually and any changes in the estimate are reflected in the present value of the restoration provision at each reporting date. The initial estimate of the restoration and rehabilitation provision is capitalised into the cost of the related asset and amortised on the same basis as the related asset, unless the present obligation arises from the production of inventory in the period, in which case the amount is included in the cost of production for the period. Changes in the estimate of the provision for restoration and rehabilitation are treated in the same manner, except that the unwinding of the effect of discounting on the provision is recognised as a finance cost rather than being capitalised into the cost of the related asset. Exploration and evaluation expenditure (aa) The Group's policy with respect to exploration and evaluation expenditure is to use the “area of interest” method. Under this method, exploration and evaluation costs are carried forward on the following basis: (i) (ii) Each area of interest is considered separately when deciding whether and to what extent to carry forward or write off exploration and evaluation costs; Exploration and evaluation costs related to an area of interest are carried forward provided that rights to tenure of the area of interest are current and provided further that one of the following conditions are met: • such costs are expected to be recouped through successful development and exploration of the area of interest or alternatively, by its sale; • exploration and/or evaluation activities in the area of interest have not yet reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves and active and significant operations in relation to the area are continuing. Exploration and evaluation costs accumulated in respect to each particular area of interest include only net direct expenditure. (iii) The carrying values of exploration and evaluation costs are reviewed by directors where results of exploration and/or evaluation of an area of interest are sufficiently advanced to permit a reasonable estimate of the costs expected to be recouped through successful development and exploitation of the area of interest or by its sale. Expenditure in excess of this estimate is written off to the income statement in the year in which the review occurs. Sylvania Resources Annual Report 2008 Page 49 N o t e s t o t h e f i n a n c i a l s t a t e m e n t s ( c o n t i n u e d ) For the year ended 30 June 2008 Consolidated Parent entity 2008 $ 2007 $ 2008 $ 2007 $ 32,789,608 389,402 – – 2,729,211 – (5,508) – (503,267) – 40,398 1,112,982 350,000 (85) 7,500 291,098 – 394,986 2,347,788 – (5,508) – (503,267) 2,435,916 – 1,015,748 – (85) – 291,098 984,569 – 2,260,834 2,156,481 4,274,929 2,291,330 1,298,940 1,505,716 12,847 4,594,987 281,837 – 2,567,345 – 673,815 18,565 1,123,316 405,645 6,082 2,657,846 – 5,546,000 – – 795,177 – 839,437 8,848 – 4,594,987 134,997 – 2,567,345 (2,916,291) 673,815 18,565 955,383 12,155 – 2,654,795 – 5,546,000 – 2,451,453 795,177 – 10,954,052 10,534,066 5,921,703 12,414,963 1,332,607 (1,572,628) 141,709 (534,826) (36,729) 53,556 (42,340) 53,556 2 . R e v e n u e a n d e x p e n s e s Revenue from continuing operations (a) Sales revenue Sale of goods Other income (b) Interest received Sale of mining tenements Net gain / (loss) on disposal of non-current asset Tenement option funds Net capital gain / (loss) on sale of available-for-sale financial assets Administration recovery Management fee received Expenses (c) Profit / (loss) from ordinary activities before income tax expense includes the following specific expenses: Consulting Depreciation Finance costs Foreign exchange loss Operating lease payments Project generation costs Impairment of available-for-sale financial asset Impairment of loans to subsidiaries Share based payments expense Superannuation expense 3 . I n c o m e t a x Major components of tax expense for the years ended 30 June 2008 and 2007 Income statement Current income tax Current income tax charge Adjustments in respect of current income tax of previous year Sylvania Resources Annual Report 2008 Page 50 3 . I n c o m e t a x ( c o n t i n u e d ) Deferred income tax Relating to origination and reversal of temporary differences Tax losses not previously recognised now brought to account Current year tax losses not recognised in the current period Income tax expense/ (benefit) reported in the income statement Unrecognised deferred tax balances Unrecognised deferred tax assets/losses Unrecognised deferred tax assets/capital losses Unrecognised deferred tax assets/temporary differences Consolidated Parent entity 2008 $ 2007 $ 2008 $ 2007 $ 3,336,967 379,333 (1,661,665) (266,353) 47,102 – – – 666,712 787,847 1,562,296 747,623 5,346,659 (351,892) – – 1,197,060 611,624 1,985,797 455,608 1,144,410 611,624 1,243,780 455,608 2,650,113 1,155,670 2,650,113 1,155,670 Net unrecognised deferred tax assets 4,458,797 3,597,075 4,406,147 2,855,058 Reconciliation to income tax benefit on accounting loss Accounting profit/(loss) Tax expense (revenue) at statutory rate of 30% Sundry non-deductable expenses – Impairment of loan – Share based payments – Non-deductable foreign expenditure – Other Over provision of tax in prior year Benefit of tax losses and timing differences not brought to account 17,033,658 (11,468,567) (3,384,625) (12,166,307) 5,110,098 (3,440,571) (1,015,388) (3,649,891) – 202,145 178,683 (808,865) (49,216) – 238,553 2,015,269 (6,547) 53,556 (874,887) 202,145 178,683 1,978 (54,827) 735,436 238,553 2,015,269 (140,546) 53,556 713,814 787,848 1,562,296 747,623 Income tax expense/(benefit) 5,346,659 (351,892) – – Deferred tax asset The balance comprises temporary differences attributable to: Amounts recognised in profit and loss Unredeemed capital expenditure Current year tax loss Other Unrealised foreign exchange loss Set off against deferred tax liability – 2,463,176 33,121 23,048 130,772 – 4,906,233 372,514 – 9,076 – – – – 130,772 2,650,117 (2,650,117) 5,287,823 (4,817,383) 130,772 (130,772) – 470,440 – – – – – 9,076 9,076 (9,076) – Sylvania Resources Annual Report 2008 Page 51 N o t e s t o t h e f i n a n c i a l s t a t e m e n t s ( c o n t i n u e d ) For the year ended 30 June 2008 Consolidated Parent entity 2008 $ 2007 $ 2008 $ 2007 $ 3 . I n c o m e t a x ( c o n t i n u e d ) Deferred tax liability The balance comprises temporary differences attributable to: Amounts recognised in profit and loss – – – – Plant, mining and equipment Deferred exploration expenditure Accrued interest Set off against deferred tax assets 5,738,533 324,810 130,772 6,194,115 (2,650,117) 3,543,998 4,808,306 – 9,077 4,817,383 (4,817,383) – – (130,772) (130,772) 130,772 – – – – 9,077 9,077 (9,077) – At 30 June 2008, there is no recognised or unrecognised deferred income tax liability for taxes that would be payable on the unremitted earnings of certain of the Group's subsidiaries, associate or joint venture, as the Group has no liability for additional taxation should such amounts be remitted. Tax consolidation Sylvania Resources Limited and its 100% owned Australian resident controlled entity have formed a tax consolidated group with effect from 1 July 2003. Sylvania Resources Limited is the head entity of the tax consolidated group. Members of the group have entered into a tax sharing arrangement in order to allocate income tax expense to the wholly owned controlled entity on a pro rata basis. In addition the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. At the balance date, the possibility of default is remote. Consolidated 2008 Cents per share 2007 5.64 5.57 (7.59) (7.59) 4 . E a r n i n g s p e r s h a r e Basic loss per share – cents per share Diluted earnings / (loss) per share Sylvania Resources Annual Report 2008 Page 52 Consolidated 2008 $ 2007 $ 4 . E a r n i n g s p e r s h a r e ( c o n t i n u e d ) Reconciliations of earnings /(loss) used in calculating earnings / (loss) per share Profit / (loss) attributable to the ordinary equity holders of the company used in calculating basic earnings / (loss) per share 9,862,186 (11,116,675) Profit / (loss) attributable to the ordinary equity holders of the company used in calculating diluted earnings / (loss) per share 9,862,186 (11,116,675) Weighted average number of shares used as the denominator Weighted average number of ordinary shares used as the denominator in calculating basic earnings / (loss) per share 174,879,972 146,497,424 Adjustment for calculation of diluted earnings per share 2,260,882 – Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings / (loss) per share 177,140,854 146,497,424 5 . S e g m e n t R e p o r t i n g Segment information The Group's primary segment reporting format is geographical segments. Geographical segments The following table presents revenue, results and certain asset and liability information regarding geographical segments for the years ended 30 June 2008 and 2007. Consolidated 2008 Continuing operations South Africa Australia Inter-segment eliminations Total operations $ $ $ $ Segment revenue Sale of goods Other revenue Share of net profit from jointly controlled entity accounted for on an equity basis – 4,274,929 32,789,608 2,813,342 – (4,827,437) 32,789,608 2,260,834 – 5,021,508 – 5,021,508 Consolidated revenue 4,274,929 40,624,458 (4,827,437) 40,071,950 Sylvania Resources Annual Report 2008 Page 53 N o t e s t o t h e f i n a n c i a l s t a t e m e n t s ( c o n t i n u e d ) For the year ended 30 June 2008 5 . S e g m e n t R e p o r t i n g ( c o n t i n u e d ) 2008 Segment results Profit before tax Income tax expense Profit for the year Segment assets and liabilities Segment assets Segment liabilities Other segment information Depreciation and amortisation Finance costs Foreign exchange losses Impairment of available-for-sale financial asset Impairment of loans to subsidiaries Management fees Share based payment expenses Investment in jointly controlled entity Continuing operations South Africa Australia Inter-segment eliminations Total operations $ $ $ $ (3,384,625) – 13,025,713 (2,817,253) 7,392,570 (2,529,406) 17,033,658 (5,346,659) (3,384,625) 10,208,460 4,863,164 11,686,999 86,285,483 170,544 11,441,046 5,933,349 (26,189) 1,803,438 97,700,340 7,907,331 8,848 – 4,594,987 2,567,345 (2,916,291) (2,435,916) 673,815 – 1,496,868 12,847 9,995,707 – – 2,749,070 – 4,404,466 – – (9,995,707) – 2,916,291 (313,154) – – 1,505,716 12,847 4,594,987 2,567,345 – – 673,815 4,404,466 2007 $ $ $ $ Segment revenue Sale of goods Other revenue Share of net profit from jointly controlled entity accounted for on an equity basis – 2,648,830 389,402 524,005 – (1,016,354) 389,402 2,156,481 – 1,649,511 – 1,649,511 Consolidated revenue 2,648,830 2,562,918 (1,016,354) 4,195,394 Segment results Profit for the year Segment assets and liabilities Segment assets Segment liabilities (11,805,883) (3,901,724) 4,590,932 (11,116,675) 79,359,238 731,299 27,066,826 31,542,714 (25,495,680) (28,865,489) 80,930,384 3,408,524 Sylvania Resources Annual Report 2008 Page 54 6 . C a s h a n d c a s h e q u i v a l e n t s Cash at bank and on hand Short term deposits Consolidated Parent entity 2008 $ 2007 $ 2008 $ 2007 $ 11,873,179 31,750,385 46,635,252 9,590,541 1,187,879 31,750,385 46,108,863 5,651,575 43,623,564 56,225,793 32,938,264 51,760,438 Reconciliation to cash flow statement (a) The above figures agree to cash at the end of the financial year as shown in the cash flow statement 43,623,564 56,225,793 32,938,264 51,760,438 Cash at bank and on hand (b) These are bearing interest rates of between 4.25% and 6.5% (2007: 4.75% and 5.75%). Deposits at call (c) The deposits are bearing floating interest rates between 5.75% and 6.85% (2007: 5.99% and 5.20%).These deposits have a maturity between 30 and 90 days. Cash balances not available for use (d) As at 30 June 2007, an amount of A$99,997 was held in trust with Phillip Silver Sweidan Inc (Attorneys, Notaries and Conveyancers) based in Johannesburg.The amount was lodged as a security deposit against a claim that has been made against the Company by an external creditor. On 13 July 2007 the matter was settled in full and final settlement of all claims which either party may have against the other. In terms of the settlement, an amount of A$49,949 was refunded to the Company and the balance together with all interest accrued from the investment of the A$99,897 deposit was paid out to Latilla Mineral Marketing (BOP) (Pty) Limited. Each party being liable for their own legal costs. As at 30 June 2007, an amount of A$1,281,921 was held on behalf of a related party and is included in the cash at bank and on hand balance above. Funds were relinquished during the current financial year. 7 . T r a d e a n d o t h e r r e c e i v a b l e s Trade receivable Other receivables Prepayments No trade receivables are past their contractual terms at 30 June 2008. 14,602,935 1,257,520 25,690 15,886,145 391,434 424,058 23,255 838,747 – 738,312 5,378 743,690 – 82,462 9,726 92,188 Sylvania Resources Annual Report 2008 Page 55 N o t e s t o t h e f i n a n c i a l s t a t e m e n t s ( c o n t i n u e d ) For the year ended 30 June 2008 Consolidated Parent entity 2008 $ 2007 $ 2008 $ 2007 $ 34,109 193,331 227,440 – – – – – – – – – 2,252,098 – 1,365,380 150,910 1,972,435 279,663 1,365,380 150,910 2,252,098 1,516,290 2,252,098 1,516,290 4,404,466 4,692,320 – – – – – – – – – – – – – – – – – – 1,500,004 (1,500,004) 1,500,004 (1,500,004) – – – – 50,329,422 – 28,882,410 (2,916,291) 50,329,422 25,966,119 50,329,422 25,966,119 8 . I n v e n t o r i e s Finished goods stock Stores and materials Finished stock Concentrate in holding tank awaiting despatch. Store materials Strategic spares held in stock for engineering breakdowns. 9 . A v a i l a b l e f o r S a l e F i n a n c i a l A s s e t s At fair value Listed shares Listed options Available for sale financial assets consist of investments in ordinary shares and options, and therefore have no fixed maturity date or coupon rate. 1 0 . I n v e s t m e n t s a c c o u n t e d f o r u s i n g t h e e q u i t y m e t h o d Interest in jointly controlled entity (refer to note 24) 1 1 . O t h e r f i n a n c i a l a s s e t s Investments in subsidiaries Investment in subsidiaries (refer to note 28) Impairment of investment in subsidiaries Loans carried at amortised cost Non interest-bearing loans Loans receivable from subsidiaries (refer to note 28) Impairment of loan to subsidiaries Total other financial assets Sylvania Resources Annual Report 2008 Page 56 1 2 . D e f e r r e d e x p l o r a t i o n e x p e n d i t u r e Consolidated 2008 Balance at beginning of financial year Foreign currency movements Direct expenditure for the year Expenditure written off Balance at end of financial year 2007 Balance at beginning of financial year Foreign currency movements Direct expenditure for the year Expenditure written off Balance at end of financial year Mineral rights Deferred exploration expenditure $ $ Total $ 333,600 (68,800) 303,474 – 988,996 (203,966) 375,006 – 1,322,596 (272,766) 678,480 – 568,274 1,160,036 1,728,310 $ $ $ 490,693 7,968 (165,061) – – (64,214) 1,053,210 – 490,693 (56,246) 888,149 – 333,600 998,996 1,322,596 Ultimate recovery of exploration and evaluation expenditure carried forward is dependent upon the recoupment of costs through successful development and commercial exploitation, or alternatively, by sale of the respective areas. 1 3 . P r o p e r t y , p l a n t a n d e q u i p m e n t Con- struction in progress Plant and equip- ment Mining property Equip- ment Lease- hold improve- ments Computer equip- ment and software Furniture and fittings Office equip- ment Motor vehicles Total Consolidated 2008 $ $ $ At 1 July 2007 Cost or fair value Accumulated depreciation – 12,447,457 – – 3,481,592 (337,678) Net book value – 12,447,457 3,143,914 $ – – – $ – – – $ $ $ $ $ 42,114 (10,881) 36,048 (5,628) 43,176 (12,254) 224,811 16,275,198 (411,000) (44,559) 31,233 30,420 30,922 180,252 15,864,198 Year ended 30 June 2008 Opening net book value Exchange differences Additions Disposals Relocations between asset classes Depreciation charge At 30 June 2008 Cost or fair value Accumulated depreciation – 12,447,457 (2,410,776) 7,650,203 – (74,658) 8,760,000 – 3,143,914 (3,001,150) 3,829,674 – – (41,200) 276,276 – – (5,616) 41,629 – 31,233 (12,319) 55,556 – 30,420 (9,869) 32,751 (5,508) 30,922 (5,661) 29,356 – 180,252 15,864,198 (5,626,126) (64,877) 176,024 20,851,469 (5,508) – – (10,875,379) 10,875,379 (1,400,938) – – – (15,119) – (5,735) – (19,738) – (8,241) – (13,128) – (42,817) – (1,505,716) 8,685,342 6,811,505 13,446,879 219,957 30,278 54,732 39,553 41,489 248,582 29,578,317 8,685,342 – 6,811,505 15,185,495 (1,738,616) – 235,076 (15,119) 36,013 (5,735) 85,351 (30,619) 53,422 (13,869) 66,871 (25,382) 335,958 31,495,033 (1,916,716) (87,376) 8,685,342 6,811,505 13,446,879 219,957 30,278 54,732 39,553 41,489 248,582 29,578,317 Sylvania Resources Annual Report 2008 Page 57 N o t e s t o t h e f i n a n c i a l s t a t e m e n t s ( c o n t i n u e d ) For the year ended 30 June 2008 1 3 . P r o p e r t y , p l a n t a n d e q u i p m e n t ( c o n t i n u e d ) Consolidated 2007 At 1 July 2006 Cost or fair value Accumulated depreciation Net book value Year ended 30 June 2007 Opening net book value Exchange differences Additions Disposals Relocations between asset classes Depreciation charge At 30 June 2007 Cost or fair value Accumulated depreciation Parent 2008 At 1 July 2007 Cost or fair value Accumulated depreciation Net book value Year ended 30 June 2008 Opening net book value Exchange differences Additions Disposals Relocations between asset classes Depreciation charge At 30 June 2008 Cost or fair value Accumulated depreciation Con- struction in progress $ 1,271,554 – 1,271,554 Mining property $ – – – 1,271,554 – – (145,753) – 15,993,601 (1,190,353) – $ – – – – – – – – – (3,481,592) – 3,481,592 (337,678) – 12,447,457 3,143,914 – 12,447,457 – – 3,481,592 (337,678) – 12,447,457 3,143,914 Plant and equip- ment Equip- ment Lease- hold improve- ments Computer equip- ment and software Furniture and fittings Office equip- ment Motor vehicles Total $ – – – – – – – – – – – – – $ – – – – – – – – – – – – – $ $ $ $ $ 14,570 (1,207) 11,558 (866) 20,807 (3,282) 90,910 – 1,409,399 (5,355) 13,363 10,692 17,525 90,910 1,404,044 13,363 (1,598) 33,113 (3,971) – (9,674) 10,692 (933) 25,423 – – (4,762) 17,525 (732) 23,101 – 1,404,044 90,910 (10,419) (159,435) 178,905 16,254,143 (1,228,909) (34,585) – (8,972) – (44,559) – (405,645) 31,233 30,420 30,922 180,252 15,864,198 42,114 (10,881) 36,048 (5,628) 43,176 (12,254) 224,811 16,275,198 (411,000) (44,559) 31,233 30,420 30,922 180,252 15,864,198 Con- struction in progress Plant and equip- ment Mining property Equip- ment Lease- hold improve- ments Computer equip- ment and software Furniture and fittings Office equip- ment Motor vehicles $ – – – – – – – – – – – – – $ – – – – – – – – – – – – – $ – – – – – – – – – – – – – $ – – – – – – – – – – – – – $ – – – – – – – – – – – – – $ $ $ 4,151 (1,296) 6,365 (410) 24,176 (8,783) 2,855 5,955 15,393 2,855 – 1,781 – – (1,300) 3,336 5,932 (2,596) 3,336 5,955 – – (5,508) – (447) – – – – 15,393 – 10,381 – – (7,101) 18,673 34,557 (15,884) 18,673 $ – – – – – – – – – – – – – Total $ 34,692 (10,489) 24,203 24,203 – 12,162 (5,508) – (8,848) 22,009 40,489 (18,480) 22,009 Sylvania Resources Annual Report 2008 Page 58 1 3 . P r o p e r t y , p l a n t a n d e q u i p m e n t ( c o n t i n u e d ) Con- struction in progress Plant and equip- ment Mining property Equip- ment Lease- hold improve- ments Computer equip- ment and software Furniture and fittings Office equip- ment Motor vehicles Parent 2007 At 1 July 2006 Cost or fair value Accumulated depreciation Net book value Year ended 30 June 2007 Opening net book value Exchange differences Additions Disposals Relocations between asset classes Depreciation charge At 30 June 2007 Cost or fair value Accumulated depreciation $ – – – – – – – – – – – – – $ – – – – – – – – – – – – – $ – – – – – – – – – – – – – $ – – – – – – – – – – – – – $ – – – – – – – – – – – – – $ $ $ 2,217 (107) 2,110 2,590 (29) 13,677 (2,537) 2,561 11,140 $ – – – – – Total $ 18,484 (2,673) 15,811 15,811 – – (12,155) 24,203 34,692 (10,489) 24,203 2,110 – 1,934 – – (1,189) 2,561 11,140 – – 3,775 10,499 38,924 55,132 – (34,585) (34,585) – – (381) – (6,246) – (4,339) 2,855 5,955 15,393 4,151 (1,296) 6,365 (410) 24,176 (8,783) 2,855 5,955 15,393 – – – – Leased assets (a) Equipment and motor vehicles include the following amounts where the Group is a lessee under a finance lease: Equipment Cost Accumulated Depreciation Foreign exchange differences Motor vehicles Cost Accumulated Depreciation Foreign exchange differences Consolidated Parent entity 2008 $ 2007 $ 2008 $ 2007 $ 106,251 (3,542) – 102,709 233,384 (33,808) – 199,576 – – – – – – – – – – – – – – – – – – – – – – – – Sylvania Resources Annual Report 2008 Page 59 N o t e s t o t h e f i n a n c i a l s t a t e m e n t s ( c o n t i n u e d ) For the year ended 30 June 2008 Consolidated Parent entity 2008 $ 2007 $ 2008 $ 2007 $ 1 3 . P r o p e r t y, p l a n t a n d e q u i p m e n t ( c o n t i n u e d ) Non-current assets pledged as security (b) Leased assets are pledged as security for the related finance lease liability. No other non-current assets are pledged as security for any liabilities. Change in useful lives (c) The useful life of plant has been revised from 5 years in 2007 to 10 years in 2008. 1 4 . T r a d e a n d o t h e r p a y a b l e s Trade payables Other payables 1 5 . B o r r o w i n g s Secured Current liabilities Payable within one year (Refer to Note 23) Non-current liabilities Payable within 1-5 years (Refer to Note 23) 1 6 . P r o v i s i o n s Provision for rehabilitation Movement in provision Balance at beginning of financial year Arising during the year Balance at end of financial year 1,405,985 1,248,123 1,677,754 1,617,727 2,654,108 3,295,481 127,157 43,387 170,544 571,213 160,086 731,299 78,074 21,988 251,298 91,055 355,158 – 355,158 355,158 – – – – – – – – – – – – – – – – Provision is made for close down, restoration and for environmental rehabilitation costs (which include the dismantling and demolition of infrastructure, removal of residual materials and remediation of disturbed areas) in the financial period when the related environmental disturbance occurs, based on the estimated future costs using information available at the balance sheet date. Rehabilitation is performed and paid for on an on-going basis as mining properties are depleted.The majority of the rehabilitation will be undertaken progressively over the life of the mine during the depletion of each respective mining property. It is expected that the life of each mine could very between 5 and 50 years. Sylvania Resources Annual Report 2008 Page 60 1 7 . I s s u e d c a p i t a l Share Capital (a) Ordinary shares Ordinary shares fully paid Employee share plan shares Consolidated and parent Consolidated and parent 2008 No of shares 2007 No of shares 2008 $ 2007 $ 178,584,273 1,428,000 171,929,273 4,100,000 117,274,097 – 105,950,221 – 180,012,273 176,029,273 117,274,097 105,950,221 Holders of ordinary shares are entitled to receive dividends as declared from time and are entitled to one vote per share at shareholders' meetings. In the event of winding up of the parent entity, ordinary shareholders rank after all creditors and are fully entitled to any proceeds on liquidation. (b) Movements in ordinary share capital Date Details Number of shares Issue price $ 1 July 2007 27 August 2007 31 August 2007 03 September 2007 02 November 2007 16 November 2007 21 December 2007 31 December 2007 30 January 2008 25 February 2008 29 February 2008 17 March 2008 17 March 2008 Opening balance Exercise of 2006 options Proceeds received Transfer from share-based payment reserve Employee share plan loan – proceeds received Transfer from share-based payment reserve Employee share plan loan – proceeds received Transfer from share-based payment reserve Exercise of 2007 options: Proceeds received Transfer from share-based payment reserve Employee share plan loan – proceeds received Transfer from share-based payment reserve Employee share plan loan – proceeds received Transfer from share-based payment reserve Exercise of 2006 options: Proceeds received Transfer from share-based payment reserve Employee share plan loan – proceeds received Transfer from share-based payment reserve Employee share plan loan – proceeds received Transfer from share-based payment reserve Employee share plan loan – proceeds received Transfer from share-based payment reserve Exercise of 2007 options: Proceeds received Transfer from share-based payment reserve Placement in lieu of services rendered Less:Transaction costs arising on share issue 171,929,273 105,950,221 125,000 200,000 750,000 100,000 375,000 800,000 125,000 500,000 30,000 550,000 100,000 3,000,000 $0.50 – $0.50 – $0.50 – $0.75 – $0.50 – $0.50 – $0.50 – $0.50 – $0.90 – $0.50 $0.75 – $2.92 62,500 70,463 100,000 29,429 375,000 110,358 75,000 32,983 187,500 55,179 400,000 146,417 62,500 70,463 250,000 82,541 27,000 6,808 275,000 94,383 75,000 32,984 8,760,000 (57,632) On issue at the end of the year 178,584,273 117,274,097 Sylvania Resources Annual Report 2008 Page 61 N o t e s t o t h e f i n a n c i a l s t a t e m e n t s ( c o n t i n u e d ) For the year ended 30 June 2008 1 7 . I s s u e d c a p i t a l ( c o n t i n u e d ) (c) Movements in Employee Share Plan Shares issued with Limited Recourse Employee Loans Date Details Number of shares Issue price 1 July 2007 On issue at beginning of the year 4,100,000 31 August 2007 Employee share plan loan repaid – shares transferred to ordinary share capital (200,000) 3 September 2007 Employee share plan loan repaid – shares transferred to ordinary share capital (750,000) 16 November 2007 Employee share plan loan repaid – shares transferred to ordinary share capital (375,000) 21 December 2007 Employee share plan loan repaid – shares transferred to ordinary share capital (800,000) 30 January 2008 Employee share plan loan repaid – shares transferred to ordinary share capital (500.000) 25 February 2008 Employee share plan loan repaid – shares transferred to ordinary share capital (30,000) 29 February 2008 Employee share plan loan repaid – shares transferred to ordinary share capital (550,000) 17 March 2008 Employee Share Plan issue 17 March 2008 Employee Share Plan issue On issue at the end of the year 33,000 500,000 1,428,000 $0.50 $0.50 $0.50 $0.50 $0.50 $0.90 $0.50 $2.67 $2.89 Information relating to the employee share plan, including details of shares issued under the plan, is set out in note 20. Share options Employee option plan options exercisable (refer note 20) – at $0.50 per share on or before 20 June 2008 – at $0.75 per share on or before 30 June 2010 – at $2.89 per share on or before 30 June 2011 – at $2.67 per share on or before 30 June 2011 Number of options 2008 2007 500,000 600,000 400,000 600,000 750,000 800,000 – – 2,100,000 1,550,000 Information relating to the employee option plan, including details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the financial year, is set out in note 20. Sylvania Resources Annual Report 2008 Page 62 1 8 . R e s e r v e s Consolidated At 30 June 2006 Unrealised gain / (loss) on available-for-sale financial assets Currency translation differences Share and option-based payments At 30 June 2007 Unrealised gain / (loss) on available-for-sale financial assets Currency translation differences Share and option-based payments At 30 June 2008 Parent At 30 June 2006 Unrealised gain / (loss) on available-for-sale financial assets Currency translation differences Share and option-based payments At 30 June 2007 Unrealised gain / (loss) on available-for-sale financial assets Currency translation difference Share and option-based payments At 30 June 2008 Nature and purpose of reserves Net unrealised gains reserve This reserve records fair value changes on available for sale investments. Net unrealised gains reserve Equity benefits reserve Currency translation reserve $ $ $ Total $ (812,288) 507,240 325,441 (1,024,547) – – – (2,135,913) (2,135,913) 721,852 – 721,852 1,047,293 (3,160,460) (1,719,109) – – – (394,058) (10,287,475) (10,287,475) (58,193) – (58,193) 989,100 (13,447,935) (12,458,835) $ 325,441 – – 721,852 1,047,293 – – (58,193) 989,100 $ – – – – – – – – – $ 212,259 507,240 – 721,852 1,441,351 (394,058) – (58,193) 989,100 (113,182) 507,240 – – 394,058 (394,058) – – – $ (113,182) 507,240 – – 394,058 (394,058) – – – Foreign currency translation reserve The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign controlled entities. Employee equity benefits reserve This reserve is used to record the value of equity benefits provided to employees, consultants and directors as part of their remuneration. Refer Note 27 Sylvania Resources Annual Report 2008 Page 63 N o t e s t o t h e f i n a n c i a l s t a t e m e n t s ( c o n t i n u e d ) For the year ended 30 June 2008 Consolidated Parent entity 2008 $ 2007 $ 2008 $ 2007 $ (26,709,252) (15,592,577) (28,763,633) (16,597,326) 9,862,186 (11,116,675) (3,384,625) (12,166,307) (16,847,066) (26,709,252) (32,148,258) (28,763,633) 1 9 . A c c u m u l a t e d L o s s e s Balance as at 1 July 2007 Net profit / (loss) for the year Balance as at 30 June 2008 2 0 . S h a r e B a s e d P a y m e n t s (a) Employee Option Plan An employee incentive option plan was approved at the 2007 annual general meeting.The Company's existing option plan, which was approved by shareholders on 30 November 2005, has expired. Participants of the option plan are determined by the Board and can be employees and directors of, or consultants to, the Company or a controlled entity.The Board considers length of service, seniority, responsibilities, potential contribution and any other relevant matters in determining eligibility of potential participants.The Board has sole responsibility to determine the number of options and terms and conditions of options granted to any participant. The options issued under the option plan will be granted free of charge.The exercise price for the options is to be not less than the weighted average share price for the last five trading days immediately preceding the options being offered to the participant. The expiry date of the options will be determined by the Board and will also lapse within one month of the participant ceasing to be a director, employee or consultant of the Company or a controlled entity (subject to certain exceptions).The Board at its discretion may apply certain vesting conditions upon any options issued under the plan. The options can only be exercised after the expiry of the following periods: – after 12 months have lapsed from the acceptance date, in respect of not more than one half of the total number of options; and – after 24 months have lapsed from the acceptance date, in respect to the balance of those options. The options are not transferable without prior written approval from the Board.The options will not be quoted on a publicly traded stock market; however application will be made for ASX/AIM quotation of the shares issued upon the exercise of the options. Sylvania Resources Annual Report 2008 Page 64 2 0 . S h a r e B a s e d P a y m e n t s Set out below are summaries of options granted under the plan: Consolidated and parent entity – 2008 Grant date 20 Apr 2006 17 Oct 2006 17 Mar 2008 17 Mar 2008 Total Expiry date Exercise price Balance at start of the year Granted during the year Exercised during the year Balance at Vested and the end exercisable at end of year of the year Number Number Number Number Number 30 Jun 2009 30 Jun 2010 30 Jun 2011 30 Jun 2011 $0.50 $0.75 $2.89 $2.67 750,000 800,000 – – – – 400,000 600,000 (250,000) (200,000) – – 500,000 600,000 400,000 600,000 500,000 300,000 – – 1,550,000 1,000,000 (450,000) 2,100,000 800,000 Weighted average exercise price $0.63 $2.76 $0.61 $1.65 $0.59 Consolidated and parent entity – 2007 Grant date 20 Apr 2006 17 Oct 2006 Total Expiry date Exercise price Balance at start of the year Granted during the year Exercised during the year Balance at Vested and the end exercisable at end of year of the year Number Number Number Number Number 30 Jun 2009 30 Jun 2010 $0.50 $0.75 750,000 – – 1,000,000 – (200,000) 750,000 800,000 375,000 – 750,000 1,000,000 (200,000) 1,550,000 375,000 Weighted average exercise price $0.50 $0.75 $0.75 $1.65 $0.50 No options were forfeited during the periods covered by the above tables. The weighted average share price at the date of exercise of options during the year ended 30 June 2008 was $2.82 (2007: not applicable). The assessed fair values at grant date at options granted during the year ended 30 June 2008 was $1.09 and $1.14 respectively per option.The fair value at grant date is independently determined using a Black and Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. Sylvania Resources Annual Report 2008 Page 65 N o t e s t o t h e f i n a n c i a l s t a t e m e n t s ( c o n t i n u e d ) For the year ended 30 June 2008 2 0 . S h a r e b a s e d p a y m e n t s ( c o n t i n u e d ) The model inputs for options granted during the year ended 30 June 2008 included: (i) (ii) (iii) (iv) (v) Options are granted for no consideration, have a three year life, and 50% of each tranche vests and is exercisable on each anniversary of the date of grant Share price at grant date Share price volatility of the Company's shares Expected dividend yield Risk-free interest rate Options granted at $2.89 per share Options granted at $2.67 per share $2.80 63.33% Nil 6.39% $2.80 63.33% Nil 6.39% Employee share plan (b) An employee incentive share plan was approved at the 2007 Annual General Meeting.The Company's existing share plan, which was approved by shareholders on 30 November 2005, has expires. Participants of the plan are determined by the Board and can be employees, consultants and directors of, or consultants to, the Company or a controlled entity. The Board considers length of service, seniority, responsibilities, potential contribution and any other relevant matters in determining eligibility of potential participants. The issue price for the shares issued under the plan are not less than the weighted average share price for the last five trading days immediately preceding the offer to the participant. A participant who is invited to subscribe for shares under the plan may also be invited to apply for a loan up to the amount payable in respect of the shares accepted by the participant.These loans are to be made on the following terms: • Applied directly against the issue price of the shares to be acquired under the plan; • For a term to be determined by the Board; • Repayable to the extent of the lesser of the issue price of the relevant shares issued, less any cash dividends applied against the outstanding principal, and the last market sale price of the shares on the date of repayment of the loan; • The loan must be repaid in full prior to expiry of the loan; • The Company will have a lien over the shares in respect of which a loan is outstanding; • Shares issued under the plan are not transferable while a loan amount in respect of those shares remains payable; and • Shares issued under the share plan will not be quoted on a publicly traded stock market while a loan amount in respect of those shares remains payable. The shares can only be transferred or otherwise dealt with until after the expiry of the following periods: • After 12 months have lapsed from the acceptance date, in respect of not more than one half of the total number of shares; and • After 24 months have lapsed from the acceptance date, in respect to the balance of those shares. Sylvania Resources Annual Report 2008 Page 66 2 0 . S h a r e b a s e d p a y m e n t s ( c o n t i n u e d ) All shares issued under the employee share plan with non-recourse loans are considered to be options and are accounted for in accordance with note 1(u). Set out below are summaries of shares issued under the plan: Consolidated and parent entity – 2008 Grant date 21 Dec 2005 20 Dec 2006 17 Mar 2008 17 Mar 2008 Total Expiry date Exercise price Balance at start of the year Granted during the year Exercised during the year Balance at Vested and the end exercisable at end of year of the year Number Number Number Number Number 21 Dec 2009 20 Dec 2010 30 Jun 2011 30 Jun 2001 $0.50 $0.90 $2.89 $2.67 3,800,000 300,000 – – – – 500,000 33,000 (3,175,000) (30,000) – – 625,000 270,000 500,000 33,000 635,000 120,000 – – 4,100,000 533,000 (3,205,000) 1,428,000 755,000 Consolidated and parent entity – 2007 Expiry date Exercise price 21 Dec 2009 20 Dec 2010 $0.50 $0.90 Balance at start of the year Number 3,850,000 – Granted during the year Number – 300,000 Exercised during the year Balance at Vested and the end exercisable at end of year of the year Number (50,000) – Number 3,800,000 300,000 Number 1,925,000 – Grant date 21 Dec 2005 20 Dec 2006 Total Options issued under employee option plan Shares issued under employee share plan 3,850,000 300,000 (50,000) 4,100,000 1,925,000 Consolidated Parent entity 2008 $ 464,641 209,174 673,815 2007 $ 480,529 314,648 795,177 2008 $ 464,641 209,174 673,815 2007 $ 480,529 314,648 795,177 Sylvania Resources Annual Report 2008 Page 67 N o t e s t o t h e f i n a n c i a l s t a t e m e n t s ( c o n t i n u e d ) For the year ended 30 June 2008 Consolidated Parent entity 2008 $ 2007 $ 2008 $ 2007 $ 2 1 . F i n a n c i a l I n s t r u m e n t s Capital risk management (a) The Company has no debt facilities outside of normal creditor trading terms and thus the board does not deem it necessary for a formal Capital Risk Management Charter. Categories of financial instruments (b) Financial assets Loans and receivables Cash and cash equivalents Available for sale financial assets Financial liabilities Financial liabilities 15,886,145 43,623,564 2,252,098 838,747 56,225,793 1,516,290 743,690 32,938,264 2,252,098 92,188 51,760,438 1,516,290 61,761,807 58,580,830 35,934,052 53,368,916 2,983,480 3,408,524 2,983,480 3,408,524 170,544 170,544 731,299 731,299 Financial risk management objectives (c) The Group is exposed to market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. Market risk (d) The Group's activities expose it primarily to the financial risks of changes in foreign currency exchange rates, commodity prices and exchange rates. There has been no change at the reporting date to the Group's exposure to market risks or the manner in which it manages and measures the risk from the previous period. (i) Foreign exchange risk The Group is exposed to foreign exchange risk arising from currency exposures, primarily with respect to the denomination in which metal prices are determined and year end assets and liabilities are converted. Year-end cash balances in British Pounds A variance of 10% on the exchange rate of the Australian Dollar to the British Pound would result in a gain of $2,970,695 (2007: gain of $4,681,574) or a loss of $2,970,695 (2007: loss of $4,681,574) to the parent entity and on a Group level. (ii) Price risk Trade receivables at year-end Commodity prices are set in US Dollars. A variance of 10% in commodity prices or the exchange rate of the US$ to the South African Rand, in which commercial activity is undertaken, will result in a gain of A$1,095,402 or a loss of the same amount on a Group level. Sylvania Resources Annual Report 2008 Page 68 2 1 . F i n a n c i a l I n s t r u m e n t s ( c o n t i n u e d ) (d) (iii) Market risk (continued) Interest rate risk All cash balances attract a floating rate of interest.The unsecured loan to another party does not attract interest. The Group's exposure to interest rate risk arises from long term borrowings, relating to finance leases on motor vehicles and equipment. 30 June 2008 30 June 2007 Weighted average interest rate % Weighted average interest rate % Balance $ Balance $ Cash balances Borrowings (finance leases) 6.71 16.65 43,623,564 329,372 4.77 12.55 32,938,264 113,043 Foreign currency risk management (e) The Group undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate fluctuations arise. The carrying amount of the Group's foreign currency denominated monetary assets and monetary liabilities at the reporting date is as follows: Liabilities Assets 2008 $ 2007 $ 2008 $ 2007 $ Great British Pounds (GBP) South African Rand (ZAR) – (5,933,349) – (2,206,786) 32,677,647 11,441,046 51,497,317 5,951,759 Foreign currency sensitivity analysis (f) The Group is exposed to Great British Pound (GBP) and South African Rand (ZAR) currency fluctuations. The following table details the Group's sensitivity to a 10% increase and decrease in the Australian Dollar (AD) against the relevant foreign currencies. 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management's assessment of the possible change in foreign exchange rates.The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates.The sensitivity analysis includes external loans as well as loans to foreign operations within the Group where the denomination of the loan is in a currency other than the currency of the lender or the borrower. A positive number indicates an increase in profit or loss and other equity where the Australian Dollar strengthens against the respective currency. For a weakening of the Australian Dollar against the respective currency there would be an equal and opposite impact on the profit and other equity and the balances below would be negative. Sylvania Resources Annual Report 2008 Page 69 N o t e s t o t h e f i n a n c i a l s t a t e m e n t s ( c o n t i n u e d ) For the year ended 30 June 2008 2 1 . F i n a n c i a l I n s t r u m e n t s ( c o n t i n u e d ) (f) Foreign currency sensitivity analysis (continued) Profit or loss (i) Other equity GBP Impact Consolidated Company 2008 $ 2007 $ 2008 $ 2007 $ 2,970,695 – 4,681,574 – 2,970,695 – 4,681,574 – (i) This is mainly attributable to the exposure outstanding on GBP cash balances at year end. Profit or loss (i) Other equity ZAR impact Consolidated Company 2008 $ 2007 $ 1,737,440 – (407,535) – 2008 $ – – 2007 $ – – (i) This is mainly attributable to the exposure outstanding on ZAR receivables and payables at year end. Interest rate risk management (g) The Company and the Group are exposed to interest rate risk as entities in the Group maintain funds at both fixed and floating interest rates.The risk is managed by the Group by maintaining an appropriate mix between fixed and floating rate liquid funds. The Company and Group's exposure to interest rate on financial assets and financial liabilities are detailed in the liquidity risk management section of this note. Interest rate risk sensitivity analysis The sensitivity analysis below have been determined based on the exposure to interest rates at the reporting date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period. A 50 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management's assessment of the change in interest rates. At reporting date, if interest rates had been 50 basis points higher or lower and all other variables were held constant, the Group's: • Net profit after tax and equity would increase by approximately $142,358 and decrease by $142,358 (2007: $191,234).This is mainly attributable to the Group's exposure to interest rate fluctuations on cash balances and lease liabilities. Credit risk management (h) Credit risk refers to the risk that a counter party will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral here appropriate, as a means of mitigating the risk of financial loss from defaults.This information is supplied by independent rating agencies where available and, if not available, the Group uses publicly available financial information and its own trading record to rate its major customers. The Group's exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions conducted is spread amongst approved counterparties. The Group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics.The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies. The carrying amount of financial assets recorded in the financial statements, net of any allowance for losses, represents the Group's maximum exposure to credit risk. Sylvania Resources Annual Report 2008 Page 70 2 1 . F i n a n c i a l I n s t r u m e n t s ( c o n t i n u e d ) Liquidity risk management (i) Ultimate responsibility for liquidity risk management rests with the board of directors, who have built an appropriate liquidity risk management framework for the management of the Group's short, medium and long term funding and liquidity management requirements. The following tables detail the Company's and the Group's remaining contractual maturity for its financial liabilities.These are based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay.The table includes both interest and principal cash flows. Consolidated 2008 Non-interest bearing Finance lease liability Variable interest rate instruments Fixed interest rate instruments 2007 Non-interest bearing Finance lease liability Variable interest rate instruments Fixed interest rate instruments Parent 2008 Non-interest bearing Finance lease liability Variable interest rate instruments Fixed interest rate instruments 2007 Non-interest bearing Finance lease liability Variable interest rate instruments Fixed interest rate instruments Weighted average effective interest rate Less than 1 month % – 14.65 – – – % – 12.55 – – – $ – – – – – $ – – – – – 1 – 3 months 3 months – 1 year $ $ 2,654,108 – – – – 121,118 – – 1 – 5 years $ – 307,757 – – 2,654,108 121,118 307,757 $ $ $ 3,295,481 – – – 3,295,481 – 35,205 – – 35,205 – 110,711 – – 110,711 5+ years $ – – – – – $ – – – – – Weighted average effective interest rate Less than 1 month 1 – 3 months 3 months – 1 year 1 – 5 years 5+ years % – – – – – % – – – – – $ – – – – – $ – – – – – $ 170,544 – – – 170,544 $ 731,299 – – – 731,299 $ – – – – – $ – – – – – $ – – – – – $ – – – – – $ – – – – – $ – – – – – Sylvania Resources Annual Report 2008 Page 71 N o t e s t o t h e f i n a n c i a l s t a t e m e n t s ( c o n t i n u e d ) For the year ended 30 June 2008 2 1 . F i n a n c i a l I n s t r u m e n t s ( c o n t i n u e d ) (i) Liquidity risk management (continued) Consolidated 2008 Non-interest bearing Finance lease liability Variable interest rate instruments Fixed interest rate instruments 2007 Non-interest bearing Finance lease liability Variable interest rate instruments Fixed interest rate instruments Consolidated 2008 Non-interest bearing Finance lease liability Variable interest rate instruments Fixed interest rate instruments 2007 Non-interest bearing Finance lease liability Variable interest rate instruments Fixed interest rate instruments Weighted average effective interest rate Less than 1 month 1 – 3 months 3 months – 1 year 1 – 5 years % – – 6.71 – % – – 4.77 – $ $ – – 42,555,925 – 15,886,145 – 1,077,482 – 42,555,925 16,963,627 $ $ – – 50,705,801 – 838,747 – 5,566,437 – 50,705,801 6,405,184 $ – – – – – $ – – – – – $ – – – – – $ – – – – – Weighted average effective interest rate Less than 1 month 1 – 3 months 3 months – 1 year 1 – 5 years % – – 5.82 – % – – 4.77 – $ $ – – 31,870,625 – 743,690 – 1,077,482 – 31,870,625 1,821,172 $ $ – – 46,240,446 – 92,188 – 5,566,437 – 46,240,446 5,658,625 $ – – – – – $ – – – – – $ – – – – – $ – – – – – 5+ years $ 2,252,098 – – – 2,252,098 $ 1,516,290 – – – 1,516,290 5+ years $ 2,252,098 – – – 2,252,098 $ 1,516,290 – – – 1,516,290 Fair value of financial instruments (j) For financial assets and liabilities, the net fair value approximates their carrying value. No financial assets and financial liabilities are readily traded on organised markets in standardised form, other than listed investments.The Company has no financial assets where carrying amount exceeds net fair value at balance sheet date. Sylvania Resources Annual Report 2008 Page 72 Consolidated Parent entity 2008 $ 2007 $ 2008 $ 2007 $ 2 2 . R e c o n c i l i a t i o n o f p r o f i t a f t e r t a x t o n e t c a s h o u t f l o w f r o m o p e r a t i n g a c t i v i t i e s Reconciliation of profit/(loss) from ordinary activities (a) after income tax to net cash inflow / (outflow) from operating activities Profit / (Loss) from ordinary activities Administration fee charged to controlled entities Depreciation Joint venture cash distribution Equity accounted net profit from joint venture Capital (gain) on sale of non-current assets Net (gain) / loss on sale of available-for-sale financial assets Write off of investment Impairment of available for sale assets Diminution in value of loans Net foreign exchange differences Project generation costs Share-based compensation Impairment of loan to controlled entity (Increase)/decrease in prepayments & other debtors (Increase)/decrease in debtors (Increase)/decrease in accrued interest (Increase)/decrease in GST/VAT recoverable (Increase)/decrease in inventories (Increase)/decrease in deferred tax asset (Increase)/decrease in other operating assets Net exchange differences on payment to suppliers and employees Increase/(decrease) in trade creditors Increase/(decrease) in accruals and other creditors Increase/(decrease) in GST/VAT recoverable Increase/(decrease) in group tax clearing Increase/(decrease) in income tax expense 11,686,999 – 1,505,716 3,478,500 (4,282,226) 5,508 503,267 58,687 2,567,345 – 4,594,987 – 673,815 – (327,525) (14,378,302) (405,654) 172,372 (265,575) – – (1,368,165) (160,374) 833,415 340,514 (46,185) 5,346,659 (11,116,675) – 405,645 1,534,253 (1,649,511) (299,915) (291,098) – – – 2,657,846 5,546,000 795,177 – (687,065) – – – – (351,892) – – – 301,901 – – – (3,384,625) (2,435,916) 8,848 – – 5,508 503,267 58,687 2,567,345 – 4,594,987 – 673,815 (2,916,291) (170,848) – – – – – (49,550) – – (855,113) – – – (12,166,307) (984,569) 12,155 – – 85 (291,098) – – (360,424) 2,654,795 5,546,000 795,177 2,451,453 (9,726) – – – – – – – – (19,880) – – – Net cash inflow/(outflow) from operating activities 10,533,778 (3,155,334) (1,399,886) (2,372,339) Non-cash financing and investing activities (b) During the 2008 financial year 3,000,000 shares in the company were issued at a deemed issue price of $2.89 to Portpatrick Inc as consideration for the facilitation to treat all run of mine fines from Samancor Chrome's Broken Hill, Spitzkop and Buffelsfontein East sites, pursuant to the Co-operation Agreement with Portpatrick Inc dated 9 December 2005. Sylvania Resources Annual Report 2008 Page 73 N o t e s t o t h e f i n a n c i a l s t a t e m e n t s ( c o n t i n u e d ) For the year ended 30 June 2008 Consolidated Parent entity 2008 $ 2007 $ 2008 $ 2007 $ 2 3 . C o m m i t m e n t s a n d c o n t i n g e n c i e s Operating lease commitments (a) Office premises The Group entered into commercial lease arrangements during the period to lease its current office premises, both in Perth and Johannesburg. Future minimum lease payments (net of GST) as at 30 June 2008 are as follows: Within 1 year After 1 year but not more than 5 years More than 5 years Office equipment Sylvania South Africa (Pty) Limited entered into a number of lease agreements during the period in respect to office equipment. Future minimum lease payments (net of GST) as at 30 June 2008 are as follows: Within 1 year After 1 year but not more than 5 years More than 5 years Finance lease commitments Motor vehicles Sylvania Metals (Pty) Limited entered into five lease agreements during the period in respect of four motor vehicles and one heavy duty forklift. Future minimum lease payments (net of GST) as at 30 June 2008 are as follows: Within 1 year After 1 year but not more than 5 years More than 5 years Sylvania Resources Annual Report 2008 Page 74 101,137 301,752 – 402,889 80,891 41,937 – 122,828 25,348 – – 25,348 71,892 41,937 – 113,829 10,644 42,505 – 53,149 5,458 12,736 – 18,194 78,074 301,752 – 379,826 21,988 91,055 – 113,043 – – – – – – – – – – – – – – – – 2 3 C o m m i t m e n t s a n d c o n t i n g e n c i e s ( c o n t i n u e d ) Commitments for plant construction At 30 June 2008 commitments were signed for construction of Lannex and Mooinooi plants. Within 1 year After 1 year but not more than 5 years More than 5 years Consolidated Parent entity 2008 $ 2007 $ 2008 $ 2007 $ 6,884,800 – – 6,884,800 – – – – – – – – – – – – Additional costs to complete the plants before 30 June 2009 are estimated to the $25,553,200. (b) (i) (ii) Contingencies Contingent liabilities The parent entity and Group had no contingent liabilities as at 30 June 2008. Contingent assets On 10 January 2007, the directors of the Company signed two Shareholder Agreements (the “Agreements”) with Ehlobo Metals (Pty) Limited (“Ehlobo”).The agreements relate to the Company's subsidiaries, Sylvania Metals (Pty) Limited (“SLV Metals”) and Sylvania Minerals (Pty) Limited (“SLV Minerals”). Under the terms of the agreements, Ehlobo acquired a 26% interest in both SLV Metals and SLV Minerals on the condition that Ehlobo's shareholders will be and thereafter will remain historically disadvantaged South Africans (“HDSA's”) such that SLV Metals and SLV Minerals continue to satisfy the requirements of the South African Legislation and the South African Mining Charter aimed at encouraging the participation of HDSA's in the mining industry in South Africa. Under the terms of the agreements, Ehlobo committed to contribute $8.5million (ZAR64million) towards the initial capital requirements of SLV Metals and SLV Minerals.This amount was estimated to equate to 26% of the initial capital requirements of SLV Metals.The Company having committed to contribute the remaining 74% of the initial capital requirements (which it has done) and to assist Ehlobo to raise its required capital contributions. It was originally anticipated that Ehlobo would have made its initial capital contribution by August 2007. As at the date of this report the Company continues to assist Ehlobo in their endeavours to obtain finance to enable Ehlobo to contribute their committed initial capital. Under the original agreement the Company may at its sole discretion terminate the agreement with Ehlobo's 26% interest in SLV Metals and SLV Minerals being returned to Sylvania should Ehlobo not be able to fund its original commitment as per the agreements. Commercial discussions between Sylvania and Ehlobo have commenced which may result in an amendment/replacement of the mechanism by which Ehlobo meets its initial capital contribution obligations. As a result of the above position the contingent asset, being the initial capital contribution due from Ehlobo amounting to $8.5million (ZAR64million), has not been recognised as a receivable in the Group accounts at 30 June 2008. Sylvania Resources Annual Report 2008 Page 75 N o t e s t o t h e f i n a n c i a l s t a t e m e n t s ( c o n t i n u e d ) For the year ended 30 June 2008 2 4 . I n t e r e s t i n j o i n t v e n t u r e Retained earnings attributable to interest in jointly controlled entity Balance at beginning of financial period Distribution received from jointly controlled entity Share of jointly controlled entity's profit from ordinary activities after income tax Balance at end of financial period Reserves attributable to interest in jointly controlled entity Carrying amount of investment in jointly controlled entity Balance at beginning of the financial period Management fees raised in period Other Distribution received from jointly controlled entity Distribution received in respect of management fees Share of jointly controlled entity's profit from ordinary activities, after income tax Balance at end of financial period Foreign currency translation movements Balance at beginning of financial period Movement during the financial period Balance at end of financial period Share of joint venture entity's results and financial position Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Revenue Expenses Management fees Profit from ordinary activities before income tax Income tax expense Profit from ordinary activities after income tax Sylvania Resources Annual Report 2008 Page 76 Consolidated 2008 $ 2007 $ 1,251,596 (3,478,500) 5,021,508 1,136,338 (1,534,253) 1,649,511 2,794,604 1,251,596 – – – – 5,271,740 – 839,560 (3,478,500) (739,282) 5,021,508 4,761,496 394,986 – (1,534,253) – 1,649,511 6,915,025 5,271,740 (579,420) (1,931,138) (849,423) 270,003 (2,510,558) (579,420) 4,404,467 4,692,320 2,808,520 906,185 2,597,933 1,315,026 3,714,705 3,912,959 407,829 6,019 2,174,959 – 413,848 2,174,959 6,164,053 (1,881,827) 739,282 5,021,508 – 3,512,510 (1,862,999) – 1,649,511 – 5,021,508 1,649,511 2 4 . I n t e r e s t i n j o i n t v e n t u r e ( c o n t i n u e d ) Contingencies and commitments The jointly controlled entity does not have any contingencies or capital commitments. 2 5 . E v e n t s a f t e r t h e b a l a n c e s h e e t d a t e On 22 August 2008 – 950,000 ordinary shares were issued in terms of the Company's employee share plan at an issue price of $1.63 per share. In addition 3,383,000 options in terms of the Company's employee option plan were issued to employees and consultants of the Company that are exercisable at $1.63 each on or before 30 June 2011. There have not been any further matters or circumstances that have arisen after balance date that has significantly affected, or may affect, the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial periods. 2 6 . A u d i t o r s ' r e m u n e r a t i o n The auditors of the parent entity are HLB Mann Judd Assurance services HLB Mann Judd Australian firm: Audit and review of financial statements Related practices of HLB Mann Judd: (HLB Barnett Chown Inc) Non-HLB Mann Judd practice (LA Gambale) Total remuneration for audit services Taxation services HLB Mann Judd Australian firm: Tax compliance services, including review of Company income tax returns Related practices of HLB Mann Judd: (HLB Barnett Chown Inc) Non-HLB Mann Judd practice (LA Gambale) Total remuneration for taxation services Advisory services HLB Mann Judd Australian firm: Services in respect of AIM Listing Other Total remuneration for advisory services Consolidated Parent entity 2008 $ 2007 $ 2008 $ 2007 $ 40,000 63,000 40,000 63,000 – 59,501 99,501 10,663 12,767 86,430 – – – – 40,000 63,000 – – 739 739 – 3,726 3,726 – – – – 25,000 4,750 29,750 – – – – – – – – – – – 25,000 4,750 29,750 92,750 Sylvania Resources Annual Report 2008 Page 77 Total auditors' remuneration 103,966 116,180 40,000 N o t e s t o t h e f i n a n c i a l s t a t e m e n t s ( c o n t i n u e d ) For the year ended 30 June 2008 2 7 . K e y M a n a g e m e n t P e r s o n n e l D i s c l o s u r e Directors (a) The following persons were directors of Sylvania Resources Limited during the financial year: Chairman – non-executive R D Rossiter Executive directors T M McConnachie L M Carroll Non-executive directors Dr AP Ruiters J Cooke Managing Director Financial Director (appointed 15 August 2007) (appointed 18 August 2008) The following persons were directors from the beginning of the financial year until their resignation: E F G Nealon M J Sturgess K S Huntly Dr E Kirby (resigned 15 August 2007) (resigned 15 August 2007) (resigned 15 August 2007) (resigned 18 August 2008) Other key management personnel (b) M J Langoulant J Meyer Z Marinkovic C De Vos P R Carter G Haasbroek (c) Key management personnel compensation Company Secretary General Manager: Business Development Director: Sylvania Metals (Pty) Limited Internal Legal Advisor General Manager: Capital Projects General Manager: Operations Short-term Post employment Share-based payments Consolidated Parent entity 2008 $ 2,368,591 6,710 505,100 2007 $ 2,231,329 29,971 770,063 2008 $ 556,898 3,560 202,130 2007 $ 1,043,622 29,971 289,534 2,880,401 3,031,363 762,588 1,363,127 The Group has applied the exemption available under Corporations Amendments Regulation 2006 to transfer key management personnel remuneration disclosures required by Accounting Standard AASB 124 Related Party Disclosures' paragraphs Aus 25.4 to Aus 25.7.2 to the Remuneration Report section of the Directors' report.These transferred disclosures have been audited. Compensation options: granted under the Employee Option Plan (d) Options provide as remuneration and shares issued on exercise of such options. Details of options provided as remuneration and shares issued on the exercise of such options, together with terms and conditions of the options, can be found in section D of the remuneration report. Sylvania Resources Annual Report 2008 Page 78 2 7 . K e y m a n a g e m e n t d i s c l o s u r e ( c o n t i n u e d ) Compensation shares: issued under the Employee Share Plan (e) Shares provided as remuneration. Details of shares provided as remuneration can be found in section D of the remuneration report. (f) Shares issued on exercise of compensation options 2008 Name K S Huntly J Meyer C De Vos 2007 Name Z Marinkovic (g) Option holding Name 2008 Director T M McConnachie Dr A P Ruiters L M Carroll K S Huntly Key management personnel J Meyer C De Vos P R Carter G Haasbroek Shares issued Number 250,000 100,000 100,000 Shares issued Paid per share (note 20) Unpaid per share (note 20) $ $0.50 $0.75 $0.75 $ – – – Paid per share (note 20) Unpaid per share (note 20) Number $ 200,000 $0.75 $ – Balance at start of the year Granted during the year Exercised during the year Other changes during the year Balance at end of the year Vested and exercisable at end of the year 500,000 – 200,000 250,000 200,000 200,000 200,000 – – 200,000 – – – – – 200,000 – – – (250,000) (100,000) (100,000) – – – – – – – – – – 500,000 200,000 200,000 – 100,000 100,000 200,000 200,000 500,000 – 100,000 – – – 100,000 – Sylvania Resources Annual Report 2008 Page 79 N o t e s t o t h e f i n a n c i a l s t a t e m e n t s ( c o n t i n u e d ) For the year ended 30 June 2008 2 7 . K e y m a n a g e m e n t d i s c l o s u r e ( c o n t i n u e d ) (g) Option holding (continued) Balance at start of the year Granted during the year Exercised during the year Other changes during the year Balance at end of the year Vested and exercisable at end of the year 500,000 – 250,000 – – – – – 200,000 – 200,000 200,000 200,000 200,000 – – – – – – 200,000 – – – – – – – 500,000 200,000 250,000 200,000 200,000 200,000 – 250,000 – 125,000 – – – – Name 2007 Director T M McConnachie L M Carroll K S Huntly Key management personnel J Meyer C De Vos P R Carter Z Marinkovic (Refer to note 27(f)) Shareholding of key management personnel (consolidated) (h) The number of shares in the Company held during the year by each director of the Company and key management personnel of the Group, including their personally related parties, are set out below. Name 2008 Director R D Rossiter Dr E Kirby E F G Nealon G M Button M J Sturgess Key management personnel M J Langoulant 2007 Director R D Rossiter Dr E Kirby E F G Nealon G M Button M J Sturgess K S Huntly Key management personnel M J Langoulant R Jarvis M L Burchnall Sylvania Resources Annual Report 2008 Page 80 Balance at the start of the year Issued under Other changes during the year share and option plan Balance at the end of the year 32,000 764,300 750,000 750,000 752,600 350,000 32,000 764,300 750,000 1,250,000 815,000 – 350,000 – – 500,000 – – – – – (375,000) (750,000) (750,000) (750,000) 532,000 389,300 – – 2,600 – – – – – – – – 200,000 100,000 (100,000) 250,000 – – – (500,000) (62,400) – – – – 32,000 764,300 750,000 750,000 752,600 – 350,000 200,000 100,000 2 7 . K e y m a n a g e m e n t d i s c l o s u r e ( c o n t i n u e d ) All equity transactions with key management personnel other than those arising under the Group's Incentive Option Plan (Note 27(e) have been entered into under terms and conditions no more favourable than those the Group would have adopted if dealing at arm's length). 2 8 . R e l a t e d p a r t y d i s c l o s u r e The consolidated financial statements include the financial statements of Sylvania Resources Limited and the controlled (a) entities listed in the following table: Name of entity Country of incorporation Class of shares Equity Balance at the Holding end of the year Twinloop Nominees (Pty) Ltd Sylvania Holdings Limited Aralon Holdings Limited Sylvania South Africa (Pty) Ltd Sylvania Metals (Pty) Ltd Sylvania Minerals (Pty) Ltd Sylvania Mining (Pty) Ltd Australia Mauritius Mauritius South Africa South Africa South Africa South Africa Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 2008 % 100 100 100 100 74 74 100 2007 % 100 100 100 100 100 100 100 Sylvania Resources Limited is the ultimate Australian parent entity and the ultimate parent of the Group.Transactions between Sylvania Resources Limited and its controlled entities during the year consisted of loan advances by Sylvania Resources Limited. Loans to/from related parties (b) The following table provides detail of advances to/(from) related parties during the year and outstanding balances at balance date: Consolidated Consolidated Parent entity 2008 Maximum balance outstanding $ 150 27,076 2,021 – 174,328 2,648 2,607 208,830 2008 Year end balance $ 150 8,226 2,038 291,280 11,009 368 2,607 2007 Year end balance $ 5,004 5,951 – 166,800 – (1,281,921) – 315,678 (1,104,166) 2008 Year end balance $ 2007 Year end balance $ – – – – – 100 – 100 – – – – – – – – Loans to related parties Alumicor Maritzburg (Pty) Ltd Danyland Mining SA (Pty) Ltd Dwyka Resources Ltd Ehlobo Metals (Pty) Ltd Magnum Tantalite (Pty) Ltd Tameka Shelf Company Four (Pty) Ltd Washington Resources Ltd The nature of these transactions represents payments made in South Africa on behalf of the above companies. Sylvania Resources Annual Report 2008 Page 81 N o t e s t o t h e f i n a n c i a l s t a t e m e n t s ( c o n t i n u e d ) For the year ended 30 June 2008 2 8 . R e l a t e d p a r t y d i s c l o s u r e ( c o n t i n u e d ) No provision for doubtful debts have been raised in relation to any outstanding balances as amounts were either repaid after balance sheet date, or full payment is expected where balances are still outstanding. Terms and conditions All loans were granted on normal commercial terms and conditions and at market rates, except that there are no fixed terms for the repayment of loans between related parties. No interest is charged on these loans as outstanding balances are normally settled within 30 – 60 days. The loan to Ehlobo is a long term loan, and no interest is charged on this loan. Outstanding balances are unsecured and are repayable in cash. Joint venture in which the entity is a venture (c) The Group has a 25% interest in the assets, liabilities and output of an un-incorporated joint venture, CTRP, which operates a chrome tailings retreatment plant at Kroondal in South Africa (2007: 25%). Terms and conditions with related parties Payments made on behalf of related parties are made in arm's length transactions both at normal market prices and on normal commercial terms. Outstanding balances at year-end are unsecured, interest free and settlement occurs in cash. Sylvania Resources Annual Report 2008 Page 82 A d d i t i o n a l i n f o r m a t i o n f o r l i s t e d p u b l i c c o m p a n i e s Shareholder s profile as at 24 September 2008 A I s s u e d c a p i t a l Employee Share Plan The issued share capital figure includes 1,428,000 shares to be allocated to employees under the Company's share incentive plan. Employee Option Plan There are currently 2,100,000 options over ordinary shares in issue held by the directors and employees of the Company. B . D i s t r i b u t i o n o f s h a r e h o l d e r s 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total Total number of fully paid shares on issue 180,962,273 Percentage holding of 20 largest holders 60.55% C . S u b s t a n t i a l s h a r e h o l d e r s Shareholder Audley Capital Advisors LLP Credit Suisse Asset Management Australia Ltd Credit Suisse Asset Management Limited (ODEY) JP Morgan Asset Management U.K. Limited Henderson Global Investors Ltd J O Hambro Capital Management Ltd Number of shareholders 84 162 136 198 112 692 Number of shares Percentage fully paid shares fully paid shares 34,810,332 15,624,787 15,624,784 13,988,300 6,326,200 6,115,560 92,489,963 19.24 8.63 8.63 7.73 3.50 3.38 Sylvania Resources Annual Report 2008 Page 83 A d d i t i o n a l i n f o r m a t i o n f o r l i s t e d p u b l i c c o m p a n i e s ( c o n t i n u e d ) Shareholder s profile as at 24 September 2008 D . Tw e n t y l a r g e s t h o l d e r s o f f u l l y p a i d s h a r e s Shareholder 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Audley Capital Advisors LLP Credit Suisse Asset Management Australia Ltd Credit Suisse Asset Management Limited (ODEY) JP Morgan Asset Management U.K. Limited Henderson Global Investors Ltd J O Hambro Capital Management Ltd DWS Investments Colonial First State Global Asset Management (Core) J O Hambro Investment Management Ltd Majedie Asset Management Ltd New City Investment Managers Ltd Elysian Fund Management Ltd Almondbury (Christopher Robert Rogerson) Baker Steel Capital Managers LLP Standard Bank Jersey Ltd Wilson Asset Management (International) Pty Ltd Kirby (Evan) Deutsche Bank Private Wealth Management Ltd Odey Asset Management LLP Newton Investment Management Ltd 34,810,332 15,624,787 15,624,784 13,988,300 6,326,200 6,115,560 3,343,500 2,970,090 2,414,589 2,050,000 1,700,000 1,000,000 875,000 580,000 500,000 456,187 389,300 300,000 265,300 230,000 109,563,929 19.24 8.63 8.63 7.73 3.50 3.38 1.85 1.64 1.33 1.13 0.94 0.55 0.48 0.32 0.28 0.25 0.22 0.17 0.15 0.13 E . V O T I N G R I G H T S The voting rights attaching to each class of equity securities are set out below: Ordinary shares On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Sylvania Resources Annual Report 2008 Page 84 G l o s s a r y o f t e r m s The following definitions apply throughout the annual financial statements: AIM ASX AUD GBP JSE LSE PGM Alternative Investment Market of the London Stock Exchange Australian Stock Exchange Australian Dollar Great British Pound JSE Limited London Stock Exchange Platinum group metals comprising mainly platinum, palladium, rhodium and gold Sylvania Sylvania Resources Limited, a company incorporated in Australia USD ZAR United States Dollar South African Rand Russell and Associates 1637/08 

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