RNS Number:3479J
Leyshon Resources Limited
22 September 2006
LEYSHON RESOURCES LIMITED
FINAL RESULTS FOR THE YEAR ENDED 30 JUNE 2006
REVIEW OF OPERATIONS
Leyshon Resources' strategy is to identify resource opportunities in the under
developed and rapidly emerging Chinese resources sector to which it can invest
capital and apply technology in the form of the latest geological and commercial
applications.
Leyshon Resources is pioneering the exploration and development of gold projects
in the mineral rich province of Heilongjiang in northeast China. Bordering
Russia's Amur Province, the area has produced over 20 million ounce of gold
mainly from alluvial sources.
During the financial year the Company focused the majority of its resources on
the exploration and project development of the Zheng Guang gold project.
Following last year's successful 4,500 metre diamond drilling programme, a
12,100 metre follow up drilling programme was completed during the year. This
was designed to delineate the projects immediate resource potential.
An inferred recoverable resource estimate of 930,000 ounces of gold, 64,000
tonnes zinc and 2.6 million ounces of silver was calculated at a 0.5 gpt gold
cut off grade. The resource has been calculated on over 16,000 metres of
drilling and within 250 metres of surface.
A 30,000 metre combined diamond and reverse circulation drilling programme
commenced prior to year end. The programme is designed to test the extension of
the known mineralisation, delineate the economically significant shallow oxide
resources and is expected to increase the overall resource estimate.
In April 2006, a 20 year agreement was executed with partner, the Qiqihar
Brigade of the Heilongjiang Bureau of Geology and Mineral Resources ("Qiqihar
Brigade"). The agreement is an important milestone for Leyshon Resources in
China as it sets out the terms under which the joint venture company, Black
Dragon Mining Company limited ("Black Dragon"), will explore, finance and
develop Zheng Guang.
The significant terms of the new agreement are that the Company will complete
its earn in obligations for a 70% interest in Black Dragon by funding continued
exploration and development expenditure and by making payments of A$5.3 million
to the Qiqihar Brigade (refer Note 19). The Qiqihar Brigade will hold a 30%
participating interest. The Company will provide financing for the project's
development on normal commercial terms with a repayment schedule ranking ahead
of any profit distribution to parties.
Black Dragon will complete the application for additional Exploration Licences
surrounding Zheng Guang which will increase the joint ventures' land holding to
over the 200km2.
Corporate and Financial Position
Trading in the Company's securities commenced on the London Stock Exchange's
Alternative Investment Market on 26 October 2005.
A placement of 17,713,333 ordinary shares was made to London institutional
investors on 21 June 2006 raising approximately $6.2 million. This has provided
the Consolidated Entity with sufficient funding for its current drilling
programme.
Business Strategies and Prospects
The Consolidated Entity continues to evaluate a number of acquisition and
development opportunities both within China and its neighbouring countries,
taking advantage of its operating base in Beijing and knowledge gained from
working in that country over the past 2 years.
A mine development study on Zheng Guang, which is being run in parallel with the
current drilling programme, will put a sharper focus on production options and
costs. A revised resource estimate will also be produced following completion of
the current drilling programme.
DIVIDENDS
No interim or final dividend has been declared in respect to the financial year
ended 30 June 2006 (2005: nil).
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
Other than as disclosed below, there were no significant changes in the state of
affairs of the Company during the year.
* On 21 June 2006 a placement of 17,713,333 ordinary fully paid shares at
15 pence was made to institutional clients of Mirabaud Securities Limited in
London to raise $6,177,155 (after costs).
SUBSEQUENT EVENTS
Other than as disclosed below, as at the date of this report there are no
matters or circumstances which have arisen since 30 June 2006 that have
significantly affected or may significantly affect:
a) the operations, in financial years subsequent to 30 June 2006, of the
Consolidated Entity constituted by Leyshon Resources Limited and the entities it
controls from time to time;
b) the results of those operations; or
c) the state of affairs, in financial years subsequent to 30 June 2006, of the
Consolidated Entity.
Issue of options
On 29 July 2006, 600,000 options were issued with an exercise price of 18 pence
and an expiry date of 30 June 2008. As the options were deemed to be granted on
7 June 2006, the value of the options has been included in the financial
statements at 30 June 2006 as a share based payment and share issue cost as they
were issued to Mirabaud Securities Limited as part consideration for undertaking
the share placement undertaken by the Company in June 2006.
LIKELY DEVELOPMENTS
As discussed above, the Consolidated Entity is currently conducting a 30,000
metre drilling programme at the Zheng Guang Gold Project. In parallel with the
drilling programme, a mine development study is also underway which will give an
indication of production options and costs as well as upgrading the existing
resource estimate.
The Consolidated Entity also intends to continue pursuing new business
opportunities in China and surrounding areas.
All of the Consolidated Entity's current proposed activities are inherently
risky and the Board is unable to provide certainty that any or all of these
activities will be achieved. In the opinion of the Directors, any further
disclosure of information regarding likely developments in the operations of the
Consolidated Entity and the expected results of these operations in subsequent
financial years may prejudice the interests of the Consolidated Entity and
accordingly, has not been disclosed.
ENVIRONMENTAL REGULATIONS
The Consolidated Entity's operations are subject to various environmental laws
and regulations under the relevant government's legislation. Full compliance
with these laws and regulations is regarded as a minimum standard for all
operations to achieve.
Instances of environmental non-compliance by an operation are identified either
by external compliance audits or inspections by relevant government authorities.
There have been no significant known breaches by the Consolidated Entity during
the financial year. However, the Consolidated Entity has been advised by Newmont
Australia Limited ("Newmont") that a potential breach of environmental
regulations may have occurred during the year at the Mt Leyshon mine site.
Pursuant to an agreement between Newmont and Leyshon Resources, Newmont is
currently responsible for and must pay for the cost of the rehabilitation and
management of environmental issues in respect to the Mt Leyshon mine site. The
Environmental Protection Authority in Queensland has previously acknowledged the
arrangement between Leyshon Resources and Newmont. As a result, Leyshon
Resources has no liability in relation to the incident and as such there is no
material risk to the Consolidated Entity.
PREFERENCE SHARES
During the year ended 30 June 2004, 1,000 Converting Preference Shares (CPS)
were issued as part consideration for the acquisition of 100% of China Metals
Pty Ltd.
Upon the satisfaction of various milestones the CPS are convertible into a
maximum of 10,000,000 ordinary shares (see Note 14(e)).
INCOME STATEMENT
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2006
Consolidated Company
Note 2006 2005 2006 2005
$ $ $ $
Revenue 2 349,677 816,115 343,925 459,616
Other income 2 180,000 37,739 180,000 -
Exploration
expenses (5,069,701) (2,830,386) (120,336) (605,132)
Corporate and
administration
expenses (1,089,145) (886,571) (914,566) (882,955)
Business
development
expenses (1,542,461) (721,823) (1,037,255) (413,779)
Finance costs (1,077) - (493) -
Share of net loss
of joint venture
accounted for using
the equity method - (203,957) - -
Write down to
recoverable amount
of non-current
assets 9 - - (2,110) (2,108,617)
Loss on sale of
non-current assets - - - (39,053)
Loss on
deconsolidation of
Echelon Resources
Limited - (39,053) - -
-------- -------- -------- --------
Loss before income
tax (7,172,707) (3,827,936) (1,550,835) (3,589,920)
Income tax 3 - 180,000 - -
-------- -------- -------- --------
Loss for the year (7,172,707) (3,647,936) (1,550,835) (3,589,920)
Loss attributable
to minority
interest - 208,177 - -
-------- -------- -------- --------
Loss attributable
to members of
Leyshon Resources
Limited (7,172,707) (3,439,759) (1,550,835) (3,589,920)
======== ======== ======== ========
Earnings Per Share
Basic loss per
share (cents per
share) 17 (5.4) (2.8)
Diluted loss per
share (cents per
share) 17 (5.4) (2.8)
BALANCE SHEET
AS AT 30 JUNE 2006
Consolidated Company
Note 2006 2005 2006 2005
$ $ $ $
ASSETS
Current Assets
Cash and cash
equivalents 26(a) 8,434,899 9,488,951 8,170,702 8,943,184
Trade and
other
receivables 6 119,476 53,185 113,453 7,054
Other 7 68,781 - 68,781 -
--------- -------- -------- --------
Total Current
Assets 8,623,156 9,542,136 8,352,936 8,950,238
--------- -------- -------- --------
Non-Current
Assets
Trade and
other
receivables 6 - - 9,202,981 3,714,933
Other
financial
assets at fair
value through
profit or loss 8 495,001 - 495,001 -
Other
financial
assets 9 31,000 349,442 9,165,629 9,472,130
Property,
plant and
equipment 10 9,786 11,447 5,828 4,023
Exploration
and evaluation
expenditure 11 12,722,473 12,722,473 - -
--------- -------- -------- --------
Total
Non-Current
Assets 13,258,260 13,083,362 18,869,439 13,191,086
--------- -------- -------- --------
TOTAL ASSETS 21,881,416 22,625,498 27,222,375 22,141,324
--------- -------- -------- --------
LIABILITIES
Current
Liabilities
Trade and
other payables 12 390,232 414,025 249,016 78,169
Provisions 13 40,241 28,303 27,078 -
--------- -------- -------- --------
Total Current
Liabilities 430,473 442,328 276,094 78,169
--------- -------- -------- --------
Non-Current
Liabilities
Deferred tax
liabilities 3 3,604,688 3,604,688 - -
--------- -------- -------- --------
Total
Non-Current
Liabilities 3,604,688 3,604,688 - -
--------- -------- -------- --------
TOTAL
LIABILITIES 4,035,161 4,047,016 276,094 78,169
--------- -------- -------- --------
NET ASSETS 17,846,255 18,578,482 26,946,281 22,063,155
========= ======== ======== ========
EQUITY
Issued capital 14 34,866,587 28,689,432 34,866,587 28,689,432
Reserves 15 4,806,573 4,605,204 4,802,010 4,605,204
Accumulated
losses 16 (21,946,791) (14,834,084) (12,722,316) (11,231,481)
--------- -------- -------- --------
Parent entity
interest 17,726,369 18,460,552 26,946,281 22,063,155
Minority
interest 119,886 117,930 - -
--------- -------- -------- --------
TOTAL EQUITY 17,846,255 18,578,482 26,946,281 22,063,155
========= ======== ======== ========
CASH FLOW STATEMENT
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2006
Consolidated Company
Note 2006 2005 2006 2005
$ $ $ $
CASH FLOWS FROM OPERATING
ACTIVITIES
Payments to
suppliers and
employees (7,797,354) (2,688,426) (2,011,807) (1,075,349)
Receipts from
customers 48,458 20,403 48,458 -
Interest
received 349,677 464,917 343,925 459,616
Interest paid (1,077) - (493) -
--------- --------- --------- ---------
Net cash flows
used in
operating
activities 26(b) (7,400,296) (2,203,106) (1,619,917) (615,733)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES
Payments for
property, plant
and equipment (7,584) (7,781) (7,584) (4,303)
Amounts advanced
to related
parties - - (5,488,048) (2,389,035)
Repayments
received from
related parties - - - 111,226
Acquisition
costs of
controlled
entities - - (2,110) (3,618)
Joint venture
exploration
expenditure - (291,367) - -
Payment for
security bonds - (5,000) - (5,000)
Refund of
security bonds 51,501 - 51,501 -
Additional
investment in
controlled
entity - - - (2,000,000)
Cash
relinquished on
de-merger of
subsidiary - (2,000,000) - -
--------- --------- --------- ---------
Net cash flows
from/(used in)
investing
activities 43,917 (2,304,148) (5,446,241) (4,290,730)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from
issues of shares 6,630,896 7,203,319 6,630,896 7,203,319
Share issue
costs (331,545) (170,646) (331,545) (170,646)
--------- --------- --------- ---------
Net cash flows
from financing
activities 6,299,351 7,032,673 6,299,351 7,032,673
--------- --------- --------- ---------
NET
(DECREASE)/INCRE
ASE IN CASH AND
CASH EQUIVALENTS (1,057,028) 2,525,419 (766,807) 2,126,210
Cash and cash
equivalents at
the beginning of
the year 9,488,951 6,963,532 8,943,184 6,816,974
Effects of
exchange rate
changes on cash
and cash
equivalents 2,976 - (5,675) -
--------- --------- --------- ---------
CASH AND CASH
EQUIVALENTS AT
THE END OF THE
YEAR 26(a) 8,434,899 9,488,951 8,170,702 8,943,184
===== ========= ====== ==========
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2006
1. Summary of significant accounting policies
The principal accounting policies adopted in the preparation of the financial
report are set out below. These policies have been consistently applied to all
the periods presented, unless otherwise stated. The financial report includes
separate financial statements for Leyshon Resources Limited as an individual
entity and the consolidated entity consisting of Leyshon Resources Limited and
its subsidiaries.
(a) Basis of preparation of financial report
This general purpose financial report has been prepared in accordance with
Australian equivalents to International Financial Reporting Standards (AIFRSs),
other authoritative pronouncements of the Australian Accounting Standards Board,
Urgent Issues Group Interpretations and the Corporations Act 2001.
Compliance with IFRSs
Australian Accounting Standards include AIFRSs. Compliance with AIFRSs ensures
that the consolidated financial statements and notes of Leyshon Resources
Limited comply with International Financial Reporting Standards (IFRSs). The
parent entity financial statements and notes also comply with IFRSs except that
it has elected to apply the relief provided to parent entities in respect of
certain disclosure requirements contained in AASB 132 Financial Instruments:
Presentation and Disclosure.
Application of AASB 1 First-time Adoption of Australian Equivalents to
International Financial Reporting Standards
These financial statements are the first Leyshon Resources Limited financial
statements to be prepared in accordance with AIFRSs. AASB 1 First-time Adoption
of Australian Equivalents to International Financial Reporting Standards has
been applied in preparing these financial statements.
Financial statements of Leyshon Resources Limited until 30 June 2005 had been
prepared in accordance with previous Australian Generally Accepted Accounting
Principles (AGAAP). AGAAP differs in certain respects from AIFRS. When preparing
Leyshon Resources Limited 2006 financial statements, management has amended
certain accounting, valuation and consolidation methods applied in the AGAAP
financial statements to comply with AIFRSs. With the exception of financial
instruments, the comparative figures in respect of 2005 were restated to reflect
these adjustments. The Group has taken the exemption available under AASB 1 to
only apply AASB 132 Financial Instruments: Disclosure and Presentation and AASB
139 Financial Instruments: Recognition and Measurement from 1 July 2005.
Reconciliations and descriptions of the effect of transition from previous AGAAP
to AIFRSs on the Group's and the Company's equity and its net income are given
in note 28.
Historical cost convention
These financial statements have been prepared under the historical cost
convention, except for the revaluation of certain non-current assets and
financial instruments. Cost is based on the fair values of the consideration
given in exchange for assets.
Critical accounting estimates
In the application of AIFRSs management is required to make judgments, estimates
and assumptions about carrying values of assets and liabilities that are not
readily apparent from other sources. The estimates and associated assumptions
are based on historical experience and various other factors that are believed
to be reasonable under the circumstances, the results of which form the basis of
making the judgments. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of the revision and future periods if the revision affects both current and
future periods.
Judgements made by management in the application of AIFRSs that have significant
effects on the financial statements and estimates with a significant risk of
material adjustments in the next year are disclosed, where applicable, in the
relevant notes to the financial statements.
(b) Principles of Consolidation
The consolidated financial statements incorporate the assets and liabilities of
all subsidiaries of Leyshon Resources Limited ("company" or "parent entity") as
at 30 June 2006 and the results of all subsidiaries for the year then ended.
Leyshon Resources Limited and its subsidiaries together are referred to as the
Group or the Consolidated Entity. A list of subsidiaries is provided in Note 22.
Subsidiaries are all those entities (including special purpose entities) over
which the Group has the power to govern the financial and operating policies so
as to obtain benefits from their activities, generally accompanying a
shareholding of more than one-half of the voting rights. The existence and
effect of potential voting rights that are currently exercisable or convertible
are considered when assessing whether the Group controls another entity.
Subsidiaries are fully consolidated from the date on which control is
transferred to the Group. They are de-consolidated from the date that control
ceases.
The purchase method of accounting is used to account for the acquisition of
subsidiaries by the Group (refer to note 1(h)). Subsequent to initial
recognition, investments in subsidiaries are measured at cost in the Company's
financial statements.
Intercompany transactions and balances, and unrealised gains on transactions
between Group companies, are eliminated. Unrealised losses are also eliminated
unless the transaction provides evidence of the impairment of the asset
transferred. Accounting policies of subsidiaries have been changed where
necessary to ensure consistency with the policies adopted by the Group.
Minority interests in the results and equity of subsidiaries are shown
separately in the consolidated income statement and balance sheet respectively.
(c) Segment Reporting
A business segment is a group of assets and operations engaged in providing
products or services that are subject to risks and returns that are different to
those of other business segments. A geographical segment is engaged in providing
products or services within a particular economic environment and is subject to
risks and returns that are different from those of segments operating in other
economic environments.
(d) Foreign Currency Translation
(i) Functional and presentation currency
Items included in the financial statements of each of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates ("the functional currency"). The consolidated financial
statements are presented in Australian dollars, which is the Company's
functional and presentation currency. Refer to note 1(d)(iv) for details of a
change in the functional currency of a subsidiary.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency using
the exchange rates prevailing at the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement of such transactions and from the
translation at period-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the income statement.
(iii) Group companies
The results and financial position of all the Group entities (none of which has
the currency of a hyperinflationary economy) that have a functional currency
different from the presentation currency are translated into the presentation
currency as follows:
* Assets and liabilities for each balance sheet presented are translated
at the closing rate at the date of that balance sheet;
* Income and expenses for each income statement are translated at average
exchange rates (unless this is not a reasonable approximation of the
cumulative effect of the rates prevailing on the transaction dates, in which
case income and expenses are translated at the dates of the transactions);
and
* All resulting exchange differences are recognised as a separate
component of equity in the foreign currency translation reserve.
Where a foreign operation is sold or borrowings repaid, a proportionate share of
such exchange differences are recognised in the income statement as part of the
gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
(iv) Change in functional currency of Black Dragon Mining Company Limited
During the financial period, all outstanding approvals in respect of the Zheng
Guang Gold Project were received, including the Exploration Licence being
transferred to Black Dragon Mining Company Limited and the Business Licence
being renewed. Prior to these approvals, the operations of Black Dragon were
conducted through its holding company, China Metals Pty Ltd, primarily in
Australian dollars and accordingly it was accounted for in Australian dollars.
Subsequent to receipt of these approvals, the operations of Black Dragon have
been separated from the holding company and conducted in China, through bank
accounts held in United States dollars and Chinese Renminbi, with payments being
made primarily in Chinese Renminbi. Accordingly, the functional currency of
Black Dragon has been changed to Chinese Renminbi and the accounts of this
subsidiary are now being prepared in this currency.
(e) Revenue Recognition
Revenue is measured at the fair value of the consideration received or
receivable. The following specific recognition criteria must also be met before
revenue is recognised:
Interest
Interest is recognised on a time proportionate basis that takes into account the
effective yield on the financial asset.
Consulting fee
Consulting fees are recognised by reference to the stage of completion of the
contract.
(f) Income Tax
The income tax expense or income for the period is the tax payable on the
current period's taxable income based on the national income tax rate for each
jurisdiction adjusted by changes in deferred tax assets and liabilities
attributable to temporary differences between the tax bases of assets and
liabilities and their carrying amounts in the financial statements, and to
unused tax losses.
Deferred tax assets and liabilities are recognised for temporary differences at
the tax rates expected to apply when the assets are recovered or liabilities are
settled, based on those tax rates which are enacted or substantively enacted for
each jurisdiction. The relevant tax rates are applied to the cumulative amounts
of deductible and taxable temporary differences to measure the deferred tax
asset or liability. An exception is made for certain temporary differences
arising from the initial recognition of an asset or a liability. No deferred tax
asset or liability is recognised in relation to these temporary differences if
they arose in a transaction, other than a business combination, that at the time
of the transaction did not affect either accounting profit or taxable profit or
loss.
Deferred tax assets are recognised for deductible temporary differences and
unused tax losses only if it is probable that future taxable amounts will be
available to utilise those temporary differences and losses.
Current and deferred tax balances attributable to amounts recognised directly in
equity are also recognised directly in equity.
Leyshon Resources Limited and its wholly owned Australian controlled entities
have not implemented the tax consolidation legislation.
(g) Operating Leased Assets
Leases are classified at their inception as either operating or finance leases
based on the economic substance of the agreement so as to reflect the risks and
benefits incidental to ownership.
Operating leased assets, where the lessor effectively retains substantially all
of the risks and benefits of ownership of the leased item, are not capitalised
and rental payments are expensed to the income statement over the lease term on
a straight line basis except where another systematic basis is more
representative of the time pattern in which economic benefits from the leased
asset are consumed.
(h) Acquisition of Assets
The purchase method of accounting is used to account for all acquisitions of
assets (including business combinations) regardless of whether equity
instruments or other assets are acquired. Cost is measured as the fair value of
the assets given, shares issued or liabilities incurred or assumed at the date
of exchange plus costs directly attributable to the acquisition. Where equity
instruments are issued in an acquisition, the value of the instruments is their
published market price as at the date of exchange unless, in rare circumstances,
it can be demonstrated that the published price at the date of exchange is an
unreliable indicator of fair value and that other evidence and valuation methods
provide a more reliable measure of fair value. Transaction costs arising on the
issue of equity instruments are recognised directly in equity.
Identifiable assets acquired and liabilities and contingent liabilities assumed
in a business combination are measured initially at their fair values at the
acquisition date, irrespective of the extent of any minority interest. The
excess of the cost of acquisition over the fair value of the Group's share of
the identifiable net assets acquired is recorded as goodwill. If the cost of
acquisition is less than the fair value of the net assets of the subsidiary
acquired, the difference is recognised directly in the income statement, but
only after a reassessment of the identification and measurement of the net
assets acquired.
Where settlement of any part of cash consideration is deferred, the amounts
payable in the future are discounted to their present value as at the date of
exchange. The discount rate used is the entity's incremental borrowing rate,
being the rate at which a similar borrowing could be obtained from an
independent financier under comparable terms and conditions.
(i) Impairment of Assets
Assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. An impairment loss is
recognised for the amount by which the asset's carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an asset's fair
value less costs to sell and value in use. For the purposes of assessing
impairment where an asset does not generate cash flows that are independent from
other assets, assets are grouped at the lowest levels for which there are
separately identifiable cash flows (cash generating units).
(j) Cash and Cash Equivalents
"Cash and cash equivalents" includes cash on hand, deposits held at call with
financial institutions, other 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, and bank overdrafts. Bank overdrafts are
shown within borrowings in current liabilities on the balance sheet.
(k) Receivables
Trade and other receivables are recognised initially at fair value and
subsequently measured at amortised cost less provision for doubtful debts. Trade
receivables are due for settlement no more than 30 days from the date of
recognition.
(l) Other Financial Assets
From 1 July 2004 to 30 June 2005
The Group has taken the exemption available under AASB 1 to apply AASB 132 and
AASB 139 only from 1 July 2005. The Group has applied previous AGAAP to the
comparative information on financial instruments within the scope of AASB 132
and AASB 139. For further information on previous AGAAP refer to the annual
report for the year ended 30 June 2005.
Adjustments on transition date: 1 July 2005
The nature of the main adjustments to make this information comply with AASB 132
and AASB 139 are that, with the exception of loans and receivables which are
measured at amortised cost (refer below), fair value is the measurement basis.
At the date of transition (1 July 2005) changes to carrying amounts are taken to
retained earnings (see the Statement of Changes in Equity).
From 1 July 2005
The Group classifies its investments in the following categories: financial
assets at fair value through profit or loss, loans and receivables,
held-to-maturity investments, and available-for-sale financial assets. The
classification depends on the purpose for which the investments were acquired.
(i) Financial assets at fair value through profit or loss
This category has two sub-categories: financial assets held for trading, and
those designated at fair value through profit or loss on initial recognition.
Derivatives are also categorised as held for trading unless they are designated
as hedges. Assets in this category are classified as current assets if they are
either held for trading or are expected to be realised within twelve months of
the balance sheet date.
(ii) Available-for-sale financial assets
Certain financial assets notes held by the consolidated entity are classified as
available for sale and are stated at fair value. Gains and losses arising from
changes in fair value are recognised directly in the available for sale
revaluation reserve, until the investment is disposed of or is determined to be
impaired, at which time the cumulative gain or loss previously recognised in the
available for sale revaluation reserve is included in profit or loss for the
period.
(iii) Loans and receivables
Trade receivables, loans and other receivables are recorded at amortised costs
less impairment.
(m) Fair value estimation
The fair value of financial assets and financial liabilities must be estimated
for recognition and measurement.
The fair value of financial instruments traded in active markets (such as
publicly traded derivatives, and trading and available-for-sale securities) is
based on quoted market prices at the balance sheet date. The quoted market price
used for financial assets held by the Group is the current bid price; the
appropriate quoted market price for financial liabilities is the current ask
price.
(n) Property, Plant and Equipment
Plant and equipment is stated at historical cost less depreciation. Historical
cost includes expenditure that is directly attributable to the acquisition of
the items.
Subsequent costs are included in the asset's carrying amount or recognised as a
separate asset, as appropriate, only when it is probable that future economic
benefits associated with the item will flow to the Group and the cost of the
item can be measured reliably. All other repairs and maintenance are charged to
the income statement during the financial period in which they are incurred.
Plant and equipment are depreciated at rates based upon their expected useful
lives as follows.
Life Method
Plant and Equipment 2 - 15 years Diminishing value
The assets' residual values and useful lives are reviewed, and adjusted if
appropriate, at each balance sheet date.
An asset's carrying amount is written down immediately to its recoverable amount
if the asset's carrying amount is greater than its estimated recoverable amount
(note 1(i)). Gains and losses on disposals are determined by comparing proceeds
with carrying amount. These are included in the income statement.
(o) Payables
These amounts represent liabilities for goods and services provided to the Group
prior to the end of the financial period which are unpaid. The amounts are
unsecured and are usually paid within 30 days of recognition.
(p) Employee Benefits
Liabilities for wages and salaries, including non-monetary benefits, annual
leave, accumulating sick leave and long service leave expected to be settled
within twelve months of the reporting date are recognised in provisions in
respect of employees' services up to the reporting date and 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 measured
at the rates paid or payable.
The liability for long service leave not expected to be settled within 12 months
is recognised in the provision for employee benefits and measured as the present
value of expected future payments to be made in respect of services provided by
employees up to the reporting date. Consideration is given to expected future
wage and salary levels, experience of employee departures and periods of
service. Expected future payments are discounted using market yields at the
reporting date on national government bonds with terms to maturity and currency
that match, as closely as possible, the estimated future cash outflows.
Contributions to the defined contribution superannuation fund are recognised as
an expense as they become payable. Prepaid contributions are recognised as an
asset to the extent that a cash refund or a reduction in future payments is
available.
Accounting Standard AASB 119 Employee Benefits (December 2004) has been issued
by the AASB but has not been adopted by the Consolidated Entity as it is not
effective until annual reporting periods beginning on or after 1 January 2006.
The Consolidated Entity will adopt the revised Accounting Standard from 1 July
2006. Application of the revised Accounting Standard will have no impact on the
Consolidated Entity's financial position and results in the period of initial
application.
(q) Issued Capital
Issued and paid up capital is recognised at the fair value of the consideration
received by the Company.
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.
(r) Dividends
Provision is made for the amount of any dividend declared on or before the end
of the year but not distributed at balance date.
(s) Earnings per Share (EPS)
Basic earnings per share is calculated by dividing the consolidated profit/
(loss) attributable to equity holders of the company, excluding any costs of
servicing equity other than ordinary shares, by the weighted average number of
ordinary shares outstanding during the year, adjusted for bonus elements in
ordinary shares issued during the year.
Diluted earnings per share adjusts the figures used in the determination of
basic earnings per share to take into account the after income tax effect of
interest and other financing costs associated with dilutive potential ordinary
shares and the weighted average number of shares assumed to have been issued for
no consideration in relation to dilutive potential ordinary shares.
(t) Exploration and evaluation expenditure
Exploration and evaluation expenditure encompasses expenditures incurred by the
Group in connection with the exploration for and evaluation of mineral resources
before the technical feasibility and commercial viability of extracting a
mineral resource are demonstrable.
Exploration and evaluation expenditure incurred by the Group is accumulated for
each area of interest and recorded as an asset if:
(1) the rights to tenure of the area of interest are current; and
(2) at least one of the following conditions is also met:
(i) the exploration and evaluation expenditures are expected to be recouped
through successful development and exploitation of the area of interest,
or alternatively, by its sale; and/or
(ii) exploration and evaluation activities in the area of interest have not
at the reporting date reached a stage which permits a reasonable
assessment of the existence or otherwise of economically recoverable
reserves, and active and significant operations in, or in relation to,
the area of interest are continuing.
For each area of interest, expenditure incurred in the acquisition of rights to
explore is capitalised, classified as tangible or intangible, and recognised as
an exploration and evaluation asset. Exploration and evaluation assets are
measured at cost at recognition. Exploration and evaluation expenditure incurred
by the Group subsequent to acquisition of the rights to explore is expensed as
incurred.
Capitalised exploration costs are reviewed at each reporting date to establish
whether an indication of impairment exists. If any such indication exists, the
recoverable amount of the capitalised exploration costs is estimated to
determine the extent of the impairment loss (if any). Where an impairment loss
subsequently reverses, the carrying amount of the asset is increased to the
revised estimate of its recoverable amount, but only to the extent that the
increased carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognised for the asset in previous
years.
Where a decision is made to proceed with development, accumulated expenditure is
tested for impairment and transferred to development properties, and then
amortised over the life of the reserves associated with the area of interest
once mining operations have commenced.
Recoverability of the carrying amount of the exploration and evaluation assets
is dependent on successful development and commercial exploitation, or
alternatively, sale of the respective areas of interest.
(u) Goods and Services Tax
Revenues, expenses and assets are recognised net of the amount of GST except:
* where 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 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
components of cash flows arising from investing and financing activities, which
are recoverable from, or payable to, the taxation authority 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.
(v) Share Based Payments
Share based payments may be provided to directors, employees, consultants and
other advisors.
For share options granted before 7 November 2002 and /or after 7 November 2002
but vested before 1 January 2005 no expense is recognised. The shares are
recognised when the options are exercised and the proceeds received allocated to
share capital.
For share options granted after 7 November 2002 and vested after 1 January 2005,
the following treatment is adopted:
The fair value of options granted is recognised as an expense with a
corresponding increase in equity. The fair value is measured at grant date and
recognised over the period during which the holders become unconditionally
entitled to the options.
The fair value at grant date is independently determined using a Black-Scholes
option pricing model that takes into account the exercise price, the term of the
option, 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.
The fair value of the options granted excludes the impact of any non-market
vesting conditions. Non-market vesting conditions are included in assumptions
about the number of options that are expected to become exercisable. At each
balance sheet date, the entity revises its estimate of the number of options
that are expected to become exercisable. The expense recognised each period
takes into account the most recent estimate.
Upon the exercise of options, the balance of the option premium reserve relating
to those options is transferred to share capital.
Consolidated Company
2006 2005 2006 2005
2. PROFIT/(LOSS) FROM OPERATIONS $ $ $ $
(a) Revenue
Revenue from continuing operations
consisted of the following items:
Interest received/receivable 349,677 464,917 343,925 459,616
Consulting fees - 59,831 - -
Charges to joint ventures (i) - 291,367 - -
-------- -------- -------- --------
Total revenue from continuing
operations 349,677 816,115 343,925 459,616
-------- -------- -------- --------
(b) Loss before income tax
Loss before income tax has been
arrived at after crediting the
following gains from continuing
operations:
Fair value gains on other financial
assets at fair value through profit
or loss 180,000 - 180,000 -
Foreign exchange gain - 37,739 - -
-------- -------- -------- --------
Total other income 180,000 37,739 180,000 -
-------- -------- -------- --------
Loss before income tax has been
arrived at after charging the
following losses and expenses:
Depreciation and amortisation 9,245 8,253 5,779 2,220
- plant and equipment
Net movement in provisions for 11,938 19,019 27,078 -
- employee entitlements - - 2,110 2,108,617
- write-down to recoverable amount 46,131 - - -
of
investments
- doubtful debt
Loss on sale of non-current assets -
exploration projects - - - 39,053
Loss on deconsolidation of Echelon
Resources Limited - 39,053 - -
Foreign exchange loss 31,205 - 5,675 -
Rental expense relating to operating
leases (minimum lease payments) 64,353 62,160 - -
Equity settled share based payments 83,965 880,204 83,965 880,204
Interest expense 1,077 - 493 -
Post-employment benefits - defined
contribution plans 31,911 23,625 8,286 8,636
Write-back of doubtful debt - - - (45,674)
======== ======== ======== ========
(i) The Consolidated Entity incurs costs in accordance with the joint venture
agreement. Amounts attributable to the joint venture are invoiced to the
joint venture and recorded as revenue. No profit is made on these
transactions. The Consolidated Entity does not receive cash for these
charges as the amount is applied to the Consolidated Entity's expenditure
requirements in accordance with the joint venture agreement.
The amount included as revenue in 2005 is for the period to 31 October
2004 as only amounts from 1 November 2004 are eliminated as intercompany
transactions (see Note 24(e)).
Consolidated Company
2006 2005 2006 2005
$ $ $ $
The accounts include the following revenue and expense items:
Revenue from joint ventures - 291,367 - -
Costs incurred in accordance with the
joint venture - (291,367) - -
agreement --------- -------- -------- -------
Net gain/(loss) - - - -
========= ======== ======== =======
3. income tax
Income tax expense
Current tax - - - -
Deferred tax - (180,000) - -
-------- -------- -------- --------
- (180,000) - -
-------- -------- -------- --------
Numerical reconciliation of income tax expense to prima facie tax payable
Loss from continuing
operations before income
tax expense (7,172,707) (3,827,936) (1,550,835) (3,589,920)
Tax at the Australian
tax rate of 30% (2005:
30%) (2,151,812) (1,148,381) (465,250) (1,076,976)
Tax effect of amounts which
are not deductible in
calculating taxable income:
Exploration asset
expensed - 180,000 - -
Share based payments 25,190 264,061 25,190 264,061
Provisions against
investments - - 633 632,585
Other non-deductible
expenditure 1,836,875 33,754 315,965 29,874
-------- -------- -------- --------
(289,747) (670,566) (123,462) (150,456)
Tax losses not brought
to account 289,747 490,566 123,462 150,456
-------- -------- -------- --------
Income tax expense - (180,000) - -
======== ======== ======== ========
Deferred tax liabilities
The balance comprises temporary
differences attributable to:
Fair value adjustments on acquisition
of 3,604,688 3,604,688 - -
subsidiary (i) -------- -------- -------- --------
3,604,688 3,604,688 - -
-------- -------- -------- --------
(i) The deferred tax liability arises upon adoption of the balance sheet method
required by AASB 112 Income Taxes. Although this does not represent a cash
liability payable by the controlled entity, nonetheless the adoption of AASB 112
requires that it be brought to account. On the basis that the controlled entity
receives revenue in the future from its operations in China, it will receive an
income tax benefit to its Income Statement representing the amortization of the
deferred tax liability in line with the amortization of the Exploration and
Evaluation expenditure which has been carried forward in respect of this asset.
Consolidated Company
2006 2005 2006 2005
$ $ $ $
Movements
Opening balance at 1 July 3,604,688 3,784,688 - -
Charged/(credited) to the income - (180,000) - -
statement -------- -------- -------- --------
Closing balance at 30 June 3,604,688 3,604,688 - -
-------- -------- -------- --------
Unrecognised Deferred Tax Balances
The following deferred tax assets have not been brought to account as assets:
Tax losses - revenue 7,300,212 6,334,390 6,629,468 6,217,928
-------- -------- -------- --------
7,300,212 6,334,390 6,629,468 6,217,928
-------- -------- -------- --------
Tax Consolidations
Legislation to allow groups, comprising a parent entity and its Australian
resident wholly-owned entities, to elect to consolidate and be treated as a
single entity for income tax purposes was substantively enacted on 21 October
2002. The Company and its wholly owned Australian resident entities are
eligible to consolidate for tax purposes under this legislation.
The Board has not yet resolved to consolidate eligible entities within the
Consolidated Entity for tax purposes. The Board will review this position
annually, before lodging of that year's income tax return.
4. KEY MANAGEMENT PERSONNEL COMPENSATION
Details of Key Management Personnel and Compensation
The key management personnel of the Consolidated Entity during the year were as
follows. Unless otherwise specified each person has held their position for the
full financial year.
* John WS Fletcher (Chairman, Non-executive) - appointed 7 April 2006
* Paul C Atherley (Managing Director)
* Stacey Apostolou (Executive Director and Company Secretary) -
appointed 7 April 2006
* Robert Bigland (Non-executive Director) - appointed 7 April 2006
* Ian P Middlemas (Chairman, Executive Director) - resigned 7 April 2006
* Mark L Pearce (Non-executive Director and Company Secretary) - resigned
7 April 2006
* Gary R Pearce (Non-executive Director) - resigned 28 September 2005
* Greg Jones Chief Operating Officer, China Metals Pty Ltd - from 1 July
to 16 December 2005
* Vic McLaglen Chief Operating Officer, Leyshon Resources Limited - from 1
February 2006
* Jian Hua Sang Chief Representative - China, China Metals Pty Ltd
* Malcom Wilson Senior Exploration Geologist, China Metals Pty Ltd
Details of the compensation of key management personnel of the Consolidated
Entity and Company are set out below.
Short term employee Post-employment Share based
benefits benefits payments
Cash salary Bonus Other Super-annuation Equity Total
&fees (1) benefits settled
options
$ $ $ $ $ $
Mr John
Fletcher 2006 22,500 - - - - 22,500
Mr Robert
Bigland 2006 11,614 - - - - 11,614
Ms Stacey
Apostolou 2006 84,278 - - 7,585 - 91,863
Mr Ian
Middlemas 2006 25,000 - - - - 25,000
2005 90,000 - - - - 90,000
Mr Paul
Atherley 2006 250,000 50,000 40,526 - - 340,526
2005 239,614 - 20,433 7,286 - 267,333
Mr Gary Pearce 2006 3,750 - - 337 - 4,087
2005 15,000 - - 1,350 - 16,350
Mr Mark Pearce 2006 11,250 - - - - 11,250
2005 15,000 - - - - 15,000
Mr Greg Jones 2006 125,000 - - 11,250 39,299 175,549
2005 238,991 - 21,509 393,201 653,701
Mr Vic
McLaglen 2006 135,447 - - - - 135,447
Mr Jian Hua
Sang 2006 300,000 - 15,157 - - 315,157
Mr Malcolm
Wilson 2006 137,500 - - 12,375 - 149,875
-------- ------ ------- ---------- -------- -------
Total
Remuneration -
Key Management
Personnel 2006 1,106,339 50,000 55,683 31,547 39,299 1,282,868
======== ====== ======= ========== ======== =======
Total
Remuneration -
Key Management
Personnel 2005 598,605 - 20,433 30,145 393,201 1,042,384
======== ====== ======= ========== ======== =======
Notes
(1) This includes the relocation costs, and assistance with living expenses
(primarily rental and medical) provided to executive directors residing in
China. In relation to Mr Sang, it relates to relocation costs only.
During the financial year, no remuneration was paid in the form of a termination
benefit or other long term benefit to key management personnel.
Principles used to determine the nature and amount of remuneration
The Board is responsible for determining the nature and amount of emoluments
packages applicable to the Board members and senior executives of the
Consolidated Entity. The Board's remuneration policy is to ensure the
remuneration package properly reflects the person's duties and responsibilities.
Remuneration is aimed at being competitive in attracting, motivating and
retaining people of the highest quality.
The remuneration policy, setting the terms and conditions for the executive
directors and other executives (if applicable) has been developed by the Board
taking into account market conditions and comparable salary levels for companies
of a similar size and operating in similar sectors.
The Board's policy is currently to remunerate non-executive directors at
competitive market rates for comparable companies based on time commitment and
responsibilities. The Board determines payments to the non-executive directors
and reviews their remuneration annually, primarily based on the nature and size
of the Company's operations and also including market practice, duties and
accountability. Independent external advice is sought when required. The maximum
aggregate amount of fees that can be paid to non-executive directors is subject
to approval by shareholders at a General Meeting. Fees for non-executive
directors are not linked to the performance of the Consolidated Entity. However,
to align directors' interests with shareholder interests, the directors are
encouraged to hold shares in the Company.
When required by legislation, Directors and executives receive superannuation
guarantee contributions, which is currently 9% and do not receive any other
retirement benefit. From time to time, some individuals, however, have chosen to
sacrifice part of their salary to increase payments towards superannuation.
All remuneration, other than options, paid to directors and executives is valued
at cost to the company and expensed.
Director and executive remuneration has historically been primarily structured
around a fixed base remuneration (salary) and superannuation, however following
the acquisition of China Metals Pty Ltd in May 2004, the nature of the
Consolidated Entity's operations changed and a variable element has been
introduced. In the 2005 financial year, the Chief Operating Officer of China
Metals Pty Ltd was provided with 2,500,000 options, the vesting of which was
conditional upon length of service. This condition has been met and the options
have now fully vested.
A bonus of $50,000 was granted to Mr Atherley on 26 October 2005 and paid during
the financial year based on the listing of the Company on the Alternative
Investment Market of the London Stock Exchange. The performance indicators for
the coming financial year are in the process of being finalised. Furthermore to
encourage the establishment of an executive level office in Beijing, China, the
Managing Director has received limited assistance from the Company for living
expenses (primarily rental assistance).
Service Agreements
Service agreements have been entered into with Mr Fletcher and Mr Bigland which
have no fixed term, no termination benefits payable and which may be terminated
by the Director at any time by the provision of written notice to the Company.
A service agreement with Mr Atherley in relation to the current financial year
contains the following key provisions:
* Entered into on 1 July 2005 for a rolling twelve month term as Managing
Director;
* May be terminated on two month's notice from either party;
* If termination is due to a substantial change in duties, Mr Atherley is
entitled to a termination payment equal to one year's salary;
* Base salary of $250,000 per annum;
* Bonus of up to $50,000 per annum payable upon certain key performance
indicators being achieved; and
* Accommodation and medical expenses to be met by the Company whilst Mr
Atherley is based in Beijing.
Consolidated Company
2006 2005 2006 2005
5. $ $ $ $
REMUNERATION
OF AUDITORS
Auditor of the
parent -------- -------- -------- --------
entity
Audit Services 33,000 28,500 33,000 28,500
Fees paid to
Deloitte
Touche
Tohmatsu
- Audit and
review of the -------- -------- -------- --------
financial
reports and
other audit
work
Total 33,000 28,500 33,000 28,500
remuneration -------- -------- -------- --------
for audit
services
Other - 15,000 - 15,000
Assurance
Services
Fees paid to - 3,750 - 3,750
Deloitte
Touche
Tohmatsu
- AIFRS
accounting
services
- Other
assurance -------- -------- -------- --------
services
Total
remuneration for - 18,750 - 18,750
other assurance -------- -------- -------- --------
services
Total
remuneration 33,000 47,250 33,000 47,250
for assurance ======== ======== ======== ========
services
Other auditors
of
subsidiaries
Audit of 680 - - -
financial -------- -------- -------- --------
reports
680 - - -
======== ======== ======== ========
Note Consolidated Company
2006 2005 2006 2005
6. TRADE AND OTHER $ $ $ $
RECEIVABLES
Current
Amounts owing by
- other persons 165,607 53,185 113,453 7,054
-------- -------- -------- --------
165,607 53,185 113,453 7,054
-------- -------- -------- --------
Allowance for doubtful debts (46,131) - - -
- other persons
-------- -------- -------- --------
119,476 53,185 113,453 7,054
======== ======== ======== ========
Non-Current
Amounts owing by
- controlled entities 6(a) - - 9,202,981 3,714,933
======== ======== ======== ========
6(a): Recovery of the non-current amount owing by controlled entities is
dependent upon the discovery of commercially viable reserves and the successful
development or alternatively sale, of the respective tenements which comprise
the underlying assets of the controlled entity. Refer to note 11(i) for further
details regarding the tenements and recoverability.
7. OTHER ASSETS
Current
Prepayments 68,781 - 68,781 -
======== ======== ======== ========
8. OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Non-current
Shares in other entities (i) 1 - 1 -
Unlisted options in other entities (i)(ii) 495,000 - 495,000 -
-------- -------- -------- --------
495,001 - 495,001 -
======== ======== ======== ========
(i) Designated as a financial asset at fair value through profit or loss from
1 July 2005.
(ii) This represents the value of 2,500,000 options (exercise price of $0.20
each which expire on 31 December 2007) received from Echelon Resources
Limited ("Echelon") as consideration for assets sold to Echelon. Details
in respect to the fair value of the options at the year end are contained
in Note 27(c).
Consolidated Company
2006 2005 2006 2005
9. OTHER FINANCIAL ASSETS $ $ $ $
Non-current
Shares in other entities - 1 - 1
Unlisted options in other
entities (Note 9(a)) - 255,000 - 255,000
-------- -------- -------- --------
Total Investments - other
entities - 255,001 - 255,001
-------- -------- -------- --------
Investments - controlled
entities (Note 22)
- At cost - - 11,945,356 11,943,246
- Recoverable amount write down
provision - - (2,810,727) (2,808,617)
-------- -------- -------- --------
Total Investments - controlled
entities - - 9,134,629 9,134,629
-------- -------- -------- --------
Security deposits 31,000 94,441 31,000 82,500
-------- -------- -------- --------
31,000 349,442 9,165,629 9,472,130
======== ======== ======== ========
Each reporting period, the recoverable amount of all non-current assets is
assessed. Where the carrying amount of a non-current asset is greater than its
recoverable amount, the asset is written down to its recoverable amount. The
recoverable amount of the asset has been based on its fair value less costs to
sell. The recoverable amount write down represents the excess of the carrying
amount over the recoverable amount as determined by the directors.
(a) Unlisted options held in unrelated unlisted entities
This represents the value of 2,500,000 options (exercise price of $0.20 each
which expire on 31 December 2007) received from Echelon Resources Limited
("Echelon") as consideration for assets sold to Echelon. Designated as a
financial asset at fair value through profit or loss from 1 July 2005. Refer
note 8.
10. PROPERTY, PLANT AND EQUIPMENT
Plant & equipment
At cost 29,922 22,338 14,722 7,138
Accumulated depreciation (20,136) (10,891) (8,894) (3,115)
-------- -------- -------- --------
Total plant and equipment (Note10(a)) 9,786 11,447 5,828 4,023
======== ======== ======== ========
(a) Reconciliation
Plant and Equipment
Carrying amount at beginning of year 11,447 11,919 4,023 1,940
Additions 7,584 7,781 7,584 4,303
Depreciation expense (9,245) (8,253) (5,779) (2,220)
-------- -------- -------- --------
Total plant & equipment 9,786 11,447 5,828 4,023
-------- -------- -------- --------
Consolidated Company
2006 2005 2006 2005
11. EXPLORATION AND EVALUATION $ $ $ $
EXPENDITURE
Balance brought forward 12,722,473 12,909,679 - 294,053
Exploration assets relinquished
on
demerger of Echelon Resources - (294,053) - (294,053)
Limited/sold (see Note 26(c))
Exploration interest acquired - 706,847 - -
Exploration assets expensed - (600,000) - -
-------- -------- -------- --------
Closing balance (i) 12,722,473 12,722,473 - -
======== ======== ======== ========
(i) The value of the exploration interests is dependent upon the discovery of
commercially viable reserves and the successful development or
alternatively sale, of the respective tenements. The Consolidated Entity's
exploration properties may at some future time be subject to claims by
indigenous people. In the event of any such claim being made, the
Consolidated Entity's exploration properties or areas within the tenements
may be subject to exploration and/or mining restrictions or compensations.
This may impact on the commercial viability and/or carrying value of the
respective tenements.
12. TRADE AND OTHER PAYABLES
Trade creditors and accruals
(unsecured) 390,232 414,025 249,016 78,169
======== ======== ======== ========
13. PROVISIONS
Employee benefits 40,241 28,303 27,078 -
======== ======== ======== ========
14. ISSUED CAPITAL
(a) Issued and paid up capital
149,179,891 (2005:
131,466,558) fully paid
ordinary shares 34,666,587 28,489,432 34,666,587 28,489,432
1,000 (2005: 1,000)
fully paid preference
shares (1) 200,000 200,000 200,000 200,000
-------- -------- -------- --------
Total 34,866,587 28,689,432 34,866,587 28,689,432
======== ======== ======== ========
Changes to the then Corporations Law abolished the authorised capital and par
value concept in relation to share capital from 1 July 1998. Therefore, the
Company does not have a limited amount of authorised capital and issued shares
do not have a par value.
(1) Preference shareholders are entitled to receive a dividend which is fixed at
5% of the Issue Price of each preference share. Dividends on preference shares
will rank in priority to dividends on ordinary shares. The preference shares are
not redeemable. The preference shares will convert into ordinary shares as
follows: a) if the Effective Date occurs prior to 31 March 2007 then on the
basis of 10,000 ordinary shares for each preference share; and b) if the
Effective Date has not occurred by 31 March 2007, then on the basis of 1
ordinary share for each preference share. The preference shares will
automatically convert to ordinary shares within 15 business days of: i) in the
case of a) above, the Effective Date and ii) in the case of b) above 31 March
2007.
(b) Movements in share capital during the past two years were as follows
(Consolidated and Company):-
Date Details Ordinary Preference Ordinary Preference Total
Shares Shares Shares Shares
(Number) (Number) ($) ($) ($)
01/07/ Opening 111,467,398 1,000 23,456,759 200,000 23,656,759
04 Balance
24/12/ Placement 15,999,160 - 5,599,706 - 5,599,706
04 (i)
Foreign - - 203,613 - 203,613
exchange
gain on
placement
Capital - - (125,000) - (125,000)
raising
costs
04/02/ Issue of 4,000,000 - 1,400,000 - 1,400,000
05 shares (ii)
Capital - - (45,646) - (45,646)
raising
costs
02/03/ Return of - - (2,000,000) - (2,000,000)
05 capital --------- -------- -------- -------- --------
(iii)
30/06/ Closing 131,466,558 1,000 28,489,432 200,000 28,689,432
05 Balance
21/06/ Issues of 17,713,333 - 6,630,896 - 6,630,896
06 shares (iv)
Capital - - (453,741) - (453,741)
raising --------- -------- -------- -------- --------
costs
30/06/ Closing 149,179,891 1,000 34,666,587 200,000 34,866,587
06 Balance --------- -------- -------- -------- --------
Note
(i) Following shareholder approval, on 24 December 2004, the Company issued
15,999,160 shares to London institutional investors at $0.35 per share
raising $5,599,706. An exchange gain of $203,613 was recorded in equity as
a result of this transaction;
(ii) Following shareholder approval, on 4 February 2005 the Company issued
4,000,000 fully paid shares at 35 cents each;
(iii) Following shareholder approval, the Consolidated Entity successfully
completed the demerger of its Australian mining assets, via the listing of
Echelon Resources Limited ("Echelon") on 3 May 2005. Pursuant to the
demerger plan, Leyshon Resources contributed $2.0 million to Echelon in
return for 10,112,877 shares in Echelon. These shares were then transferred
to eligible shareholders of Leyshon Resources, by way of return of capital,
on the basis of one Echelon share for every 13 Leyshon Resources shares
held; and
(iv) On 21 June 2006, the Company issued 17,713,333 shares at 15 pence per share
at an exchange rate of 0.4007.
Consolidated Company
2006 2005 2006 2005
15. RESERVES $ $ $ $
Employee benefits reserve 964,169 880,204 964,169 880,204
Foreign currency translation
reserve 4,563 - - -
Option premium reserve 3,837,841 3,725,000 3,837,841 3,725,000
-------- -------- -------- --------
4,806,573 4,605,204 4,802,010 4,605,204
-------- -------- -------- --------
Movement in reserves
The movement in each of the reserves has been set out in the Statement of
Changes in Equity.
Nature and purpose of reserves
Employee benefits reserve
The employee benefits reserve is used to recognise the fair value of services
provided to the Company by employees which are paid through the issue of options
in the Company.
Details of the options that comprise the employee benefits reserve are as
follows:
3,500,000 (2005: 3,500,000) $0.30
options 432,500 393,201 432,500 393,201
2,700,000 (2005: 2,700,000) $0.35
options 531,669 487,003 531,669 487,003
-------- -------- -------- --------
964,169 880,204 964,169 880,204
-------- -------- -------- --------
Foreign currency translation reserve
Exchange differences arising on translation of the foreign controlled entity are
taken to the foreign currency translation reserve as described in note 1(d). The
accumulated exchange difference is recognised in profit and loss when the net
investment is disposed of.
Option premium reserve
The option premium reserve is used to recognise the fair value of options issued
in connection with acquisitions or services provided to the Company by
individuals other than employees.
Details of the options that comprise the option premium reserve are as follows:
10,000,000 (2005: 10,000,000)
$0.20 options (i) 2,630,000 2,630,000 2,630,000 2,630,000
5,000,000 (2005: 5,000,000)
$0.30 options (i) 1,095,000 1,095,000 1,095,000 1,095,000
600,000 (2005: nil) 18 pence
options (ii) 112,841 - 112,841 -
-------- -------- -------- --------
3,837,841 3,725,000 3,837,841 3,725,000
-------- -------- -------- --------
i) Following shareholder approval on 4 May 2004 the Company completed the
acquisition of a 100% interest in China Metals Pty Ltd. Options issued
comprised 10,000,000 $0.20 options and 5,000,000 $0.30 options;
ii) 600,000 options were issued to Mirabaud Securities with an exercise price
of 18 pence as part consideration for undertaking the share placement
undertaken by the Company in June 2006.
Consolidated Company
2006 2005 2006 2005
16. ACCUMULATED LOSSES $ $ $ $
Balance at the
beginning of
the financial
year (14,834,084) (11,394,325) (11,231,481) (7,641,561)
Adjustments on
adoption of
accounting
policies
specified by
AASB 132 and
AASB 139 60,000 - 60,000 -
--------- --------- --------- ---------
Restated
balance at
beginning of
financial year (14,774,084) (11,394,325) (11,171,481) (7,641,561)
Net loss
attributable to
members of
Leyshon
Resources (7,172,707) (3,439,759) (1,550,835) (3,589,920)
--------- --------- --------- ---------
Balance at the
end of the
financial year (21,946,791) (14,834,084) (12,722,316) (11,231,481)
========= ========= ========= =========
Adjusted
franking
account balance
(tax paid
basis) 6,913,764 6,913,764 6,913,764 6,913,764
========= ========= ========= =========
17. EARNINGS PER SHARE
The following reflects the earnings and average number of ordinary shares and
potential ordinary shares used in the calculations of basic and diluted earnings
per share:
Consolidated Entity
2006 2005
$ $
Net loss (7,172,707) (3,647,936)
Net loss attributable to minority interest - 208,177
----------- ----------
Net loss used in calculating basic earnings per
share (7,172,707) (3,439,759)
Adjustments - -
----------- ----------
Earnings used in calculating basic and diluted
earnings per share (7,172,707) (3,439,759)
=========== ==========
Number of Number of
Shares shares
2006 2005
Weighted average number of ordinary shares used in
calculating basic earnings per share 131,951,855 121,362,853
Effect of dilutive securities - -
----------- ----------
Adjusted weighted average number of ordinary
shares and potential ordinary shares used in
calculating diluted earnings per share 131,951,855 121,362,853
=========== ==========
(a) Conversions, calls, subscriptions or issues after 30 June 2006
Aside from the issue on 29 July 2006 of 600,000 options which are not dilutive,
there have been no conversions to, calls of, or subscriptions for ordinary
shares or issues of potential ordinary shares since the reporting date and
before the completion of this financial report.
(b) Non-dilutive securities
The following potential ordinary shares are not dilutive as they would decrease
the loss per share and are therefore excluded from the weighted average number
of ordinary shares and potential ordinary shares used in the calculation of
diluted earnings per share:
Number of Number of Number of Number of
securities securities potential potential
shares shares
2006 2005 2006 2005
Converting Preference
Shares 1,000 1,000 10,000,000 10,000,000
Options - 20 cents
exercise price (Note 15) 10,000,000 10,000,000 10,000,000 10,000,000
Options - 30 cents
exercise price (Note 15) 8,500,000 8,500,000 8,500,000 8,500,000
Options - 35 cents
exercise price (Note 15) 2,700,000 2,700,000 2,700,000 2,700,000
18. DIVIDENDS PAID OR PROVIDED FOR
No dividends have been paid or provided for during the year.
Consolidated Company
2006 2005 2006 2005
19. COMMITMENTS FOR EXPENDITURE $ $ $ $
Exploration Expenditure
Not longer than 1 year 4,202,975 2,641,161 - 59,375
Longer than 1 year and not longer than
5 1,143,827 3,107,471 - -
years
Longer than 5 years - - - -
-------- -------- -------- --------
5,346,802 5,748,632 - 59,375
======== ======== ======== ========
20. LEASE COMMITMENTS
Operating leases
Leasing arrangements
The operating lease relates to the lease of a managed office in China. The
current lease was entered into on 20 April 2006 for a period of two years. The
Consolidated Entity does not have an option to acquire the leased asset at the
expiry of the lease period.
Non-cancellable operating leases
Not longer than 1 year 27,873 38,140 - -
Longer than 1 year and not longer than 5 23,228 - - -
years
Longer than 5 years - - - -
-------- -------- -------- --------
51,101 38,140 - -
======== ======== ======== ========
21. CONTINGENT LIABILITIES
Historical fixed and floating charge
In June 1987 the Company entered into a joint venture agreement ("JVA") with two
other parties. Pursuant to the JVA, a registered cross charge was entered into
with the parties to the JVA to secure payment obligations under a joint venture.
The joint venture no longer operates but the charge remains registered. The
charge was granted in favour of two parties, one of which is deregistered, the
other liquidated. The Company does not believe that there is any liability
outstanding under the charge, however due to the administrative difficulty in
removing the charge resulting from the counter-parties being deregistered, the
charge may continue to be registered.
22. SUBSIDIARIES
Name of Entity Country of Class of Equity
Incorporation Shares Holding
2006 2005
Parent Entity % %
Leyshon Resources Australia
Limited
Controlled Entities
China Metals Pty
Ltd (i) Australia Ordinary 100 100
Black Dragon
Mining Company
Limited (ii)
(iv) China Ordinary 70 70
Leyshon Red
Dragon Limited
(ii) British Virgin Ordinary 100 100
Islands
Leyshon
Resources (Coal)
Pty Ltd (i) Australia Ordinary 100 100
Leyshon Coal
Limited (iii) British Virgin Ordinary 100 100
Islands
Leyshon JDK plc
(i) United Kingdom Ordinary 100 100
Note
(i) Interest held by Leyshon Resources;
(ii) Interest held by China Metals Pty Ltd;
(iii) Interest held by Leyshon Resources (Coal) Pty Ltd; and
(iv) On 1 November 2004, the Consolidated Entity gained control over the
decision making of financial and operating policies of Black Dragon
Mining Company Limited ("Black Dragon"). Accordingly, from this date,
Black Dragon has been treated as a controlled entity and is no longer
accounted for using the equity method.
23. SEGMENT INFORMATION
The Consolidated Entity operates in one business segment, being the exploration
of gold and other minerals, in the following geographical segments:
Geographical Australia China Consolidated
Segment
2006 2005 2006 2005 2006 2005
$ $ $ $ $ $
Revenue
Other
revenue/ 523,925 459,616 5,752 394,238 529,677 853,854
income ---------- ---------- ---------- ----------- ---------- -----------
Total
segment 523,925 459,616 5,752 394,238 529,677 853,854
revenue/
income
Unallocated - -
revenue ---------- -----------
Total
consolidated
revenue/ 529,677 853,854
income ========== ===========
Results
Segment (1,550,835) (1,484,920) (5,621,872) (2,343,016) (7,172,707) (3,827,936)
result ---------- ---------- ---------- ----------- ---------- -----------
Unallocated - -
expenses ---------- -----------
Loss before
income tax (7,172,707) (3,827,936)
Income tax
(expense)/
bene - 180,000
fit ---------- -----------
Net loss (7,172,707) (3,647,936)
========== ===========
Assets
Segment 8,389,764 9,291,762 13,491,652 13,333,736 21,881,416 22,625,498
assets ---------- ---------- ---------- ----------- ---------- -----------
Unallocated - -
assets ---------- -----------
Total 21,881,416 22,625,498
assets ========== ===========
Liabilities
Segment
liabilities 276,093 78,169 3,759,068 3,968,847 4,035,161 4,047,016
---------- ---------- ---------- ----------- ---------- -----------
Unallocated - -
liabilities ---------- -----------
Total
liabilities 4,035,161 4,047,016
========== ===========
Other
---------- ---------- ---------- ----------- ---------- -----------
Share of net
loss of
joint - - - (203,957) - (203,957)
venture ---------- ---------- ---------- ----------- ---------- -----------
entity
accounted
for
under the
equity
method
Acquisition
of 7,584 4,303 - 710,325 7,584 714,628
non-current ---------- ---------- ---------- ----------- ---------- -----------
assets
Depreciation 5,779 2,220 3,466 6,033 9,245 8,253
of segment ---------- ---------- ---------- ----------- ---------- -----------
assets
Share based 83,965 880,204 - - 83,965 880,204
payments ---------- ---------- ---------- ----------- ---------- -----------
24. RELATED PARTY DISCLOSURES
(a) Equity interests in related parties
Equity interests in subsidiaries
Details of the percentage of ordinary shares held in subsidiaries are disclosed
in Note 22 to the financial statements.
(b) Key management personnel compensation
Details of key management personnel compensation are disclosed in Note 4 to the
financial statements.
(c) Key management personnel equity holdings
Fully paid ordinary shares of Leyshon Resources
Balance at Purchases Received Other Sales Balance at
the start on changes the end of
of the exercise (i) the year
year of
options
2006
Mr Ian
Middlemas 42,291,611 - - (42,291,611) - -
Mr Paul
Atherley 10,000,000 - - - - 10,000,000
Mr Gary Pearce 1,000,000 - - (1,000,000) - -
Mr Mark Pearce 200,000 - - (200,000) - -
Mr John
Fletcher - - - 1,202,824 - 1,202,824
Mr Robert
Bigland - - - 411,000 - 411,000
Ms Stacey
Apostolou - - - 300,000 - 300,000
2005
Mr Ian Middlemas 42,291,611 - - - - 42,291,611
Mr Paul Atherley 10,000,000 - - - - 10,000,000
Mr Gary Pearce 1,000,000 - - - - 1,000,000
Mr Mark Pearce 200,000 - - - - 200,000
(i) Includes adjustment in balance for key management personnel who have
resigned or were appointed during the financial year.
Options exercisable @ $0.20 or $0.30 (as appropriate) each on or before 30 June
2007
Balance at Granted as Exercised Other Balance at Vested Vested and
the start of remuneration changes the end of during the exercisable
the year (i) the year year at the end
(ii) of the
year
2006
Mr Paul
Atherley
- 10,000,000 - - - 10,000,000 - 10,000,000
$0.20
Options
Mr Paul
Atherley
- 5,000,000 - - - 5,000,000 - 5,000,000
$0.30
Options
Mr Greg
Jones
-
$0.30 2,500,000 - - (2,500,000) - 1,500,000 -
Options
2005
Mr Paul
Atherley 10,000,000 - - - 10,000,000 - 10,000,000
-
$0.20
Options
Mr Paul
Atherley 5,000,000 - - - 5,000,000 - 5,000,000
-
$0.30
Options
Mr Greg
Jones -
- 2,500,000 - - 2,500,000 1,000,000 1,000,000
$0.30
Options
(i) Includes reduction in balance for key management personnel who have resigned
during the financial year.
(ii) All options referred to had vested and were exerciseable at 1 July 2005.
Preference shares convertible into 10,000 ordinary fully paid shares each
Balance at Purchases Received on Other Sales Balance at
the start of exercise of changes the end of
the year options the year
(i)
2006
Mr Paul
Atherley 500 - - - - 500
Ms Stacey
Apostolou - - - 50 - 50
Mr Jian
Hua - - - 450 - 450
Sang
2005
Mr Paul Atherley 500 - - - - 500
(i) Includes adjustment in balance for key management personnel who have been
appointed during the financial year.
(d) Other transactions with key management personnel (and their related parties)
of Leyshon Resources
Apollo Group Pty Ltd, a company of which Mr Mark Pearce is a Director and
beneficial shareholder, was paid $118,250 (2005: $117,000) for the provision of
serviced office facilities and administration services during the year. The
amount was based on a monthly retainer due and payable in arrears and was able
to be terminated by either party with one month's notice. These amounts are
included in corporate and administrative expenses for the year. This arrangement
was terminated during the financial year. In the year ended 30 June 2005, a
further $25,000 was paid to Apollo Group Pty Ltd by Echelon Resources Limited (a
former subsidiary of Leyshon Resources) for services provided in respect to the
demerger and listing of Echelon Resources Limited.
(e) Transactions with other related parties
Transactions between Leyshon and its subsidiaries
Inter-company Account
Leyshon provides working capital to its controlled entities. Transactions
between Leyshon and other controlled entities in the wholly owned group during
the financial year ended 30 June 2006 consisted of:
(i) Working capital advanced by Leyshon;
(ii) Working capital repaid to Leyshon; and
(iii) Provision of services by Leyshon to its controlled entities.
The above transactions were made interest free with no fixed terms for the
repayment of principal on the working capital advanced by Leyshon.
At balance date amounts receivable from controlled entities totalled $9,202,981
(2005: $3,714,933).
Transactions involving other related parties
The Consolidated Entity incurs costs relating to Black Dragon in accordance with
the joint venture agreement. Prior to 1 July 2005, amounts attributable to the
joint venture were invoiced to the joint venture and recorded as revenue in the
accounts of China Metals Pty Ltd ("China Metals"). No profit was made on these
transactions. From 1 November 2004 (the date of obtaining control of and
consolidating Black Dragon), on consolidation the revenue and expense amounts
are eliminated. The amount incurred by China Metals and recharged to Black
Dragon from 1 November 2004 to 30 June 2005 was $686,522.
(f) Parent entities
The parent entity in the consolidated entity and the ultimate parent entity is
Leyshon Resources Limited.
25. SUBSEQUENT EVENTS AFTER BALANCE DATE
Other than as noted below, there were no significant events occurring after
balance date requiring disclosure in the financial statements.
Issue of options
On 29 July 2006, 600,000 options were issued with an exercise price of 18 pence
and an expiry date of 30 June 2008. As the options were granted on 7 June 2006
as part consideration for the share issue, the value has been included in the
financial statements at 30 June 2006 as a share based payment and share issue
cost.
26. notes to the CASH FLOW STATEMENT
(a) Reconciliation of cash and cash equivalents
Cash and cash equivalents at the end of the financial year as shown in the cash
flow statement is reconciled to the related items in the balance sheet as
follows:
Consolidated Company
2006 2005 2006 2005
$ $ $ $
Cash and cash equivalents 8,434,899 9,488,951 8,170,702 8,943,184
========= ======== ======== ========
(b) Reconciliation of loss for the year to net cash provided (used) by operating
activities
Loss for the year (7,172,707) (3,647,936) (1,550,835) (3,589,920)
Depreciation and
amortisation 9,245 8,253 5,779 2,220
Write-back of doubtful
debt - - - (45,674)
Increase in provision
for doubtful debt 46,131 - - -
Increase in provision
for employee
entitlements 11,938 19,019 27,078 -
Write down to
recoverable amount of
investments - - 2,110 2,108,617
Exploration asset
expensed - 600,000 - -
Share of joint venture
entity's loss - 203,957 - -
Loss on sale of
non-current assets - - - 39,053
Loss on deconsolidation
of Echelon Resources
Limited - 39,053 - -
Exchange differences (2,976) - 5,675
Fair value gain on
financial instruments (180,000) - (180,000) -
Share based payment
expense 83,965 880,204 83,965 880,204
(Increase)/decrease in
other assets (169,264) (39,060) (175,181) (2,332)
(Decrease)/increase in
payables (26,628) (86,596) 161,492 (7,901)
(Decrease) in deferred
tax liability - (180,000) - -
-------- -------- -------- --------
Net cash provided (used)
by operating activities (7,400,296) (2,203,106) (1,619,917) (615,733)
======== ======== ======== ========
(c) Non cash transactions
30 June 2006
Grant of options
During the financial year, the Company entered into an agreement for and
completed a share placement. Consideration provided to the placement company
included a cash component and the grant of 600,000 options in the Company which
have an exercise price of 18 pence and an expiry date of 30 June 2008. The
Directors have sought advice on the value of these options and based on that
advice have determined the value of each option to be GBP0.075 (refer Note 27
(d)), resulting in total consideration arising from the options of $112,841. The
option premium reserve has been increased by this value and the transaction has
been recorded as a share issue cost in share capital.
30 June 2005
Charges to joint ventures
As set out in Note 2(i), the Consolidated Entity incurs costs in accordance with
the joint venture agreement. Amounts attributable to the joint venture are
invoiced to the joint venture and recorded as revenue. The Consolidated Entity
does not receive cash for these revenue charges as the amount is applied to the
Consolidated Entity's expenditure requirements in accordance with the joint
venture agreement.
Obtaining control over Black Dragon Mining Company Limited
On 1 November 2004, the Consolidated Entity gained control over the decision
making of financial and operating policies of Black Dragon Mining Company
Limited ("Black Dragon"). Accordingly, from this date, Black Dragon has been
treated as a controlled entity and is no longer accounted for using the equity
method.
Black Dragon is involved in exploration for minerals and all costs associated
with these activities are expensed as incurred. As a result, Black Dragon had a
net asset value of nil as at 1 November 2004. Details of the acquisition are as
follows:
$
Consideration, being:
Equity accounted carrying value of investment as at acquisition date 380,738
---------
Fair value of identifiable net assets of controlled entity acquired Nil
Fair value of exploration interests arising on acquisition 380,738
---------
Net assets acquired as at 1 November 2004 380,738
=========
There were no cash transactions or balances arising from or relating to this
gain of control.
Sale of non-current assets
On 28 January 2005 shareholders approved the demerger of the Consolidated
Entity's Australian Mining Assets into Echelon Resources Limited ("Echelon").
The assets were sold to Echelon as at 28 February 2005. Consideration for the
sale of the assets was 2,500,000 Unlisted Options in Echelon Resources Limited.
The Directors have sought advice on the value of these options and based on that
advice have determined the value of each option to be $0.102, resulting in total
consideration of $255,000. The carrying value of the assets disposed was
$294,053 and accordingly the Company has recorded a loss of $39,053 on this
transaction. Details of the impact on consolidation of the demerger of Echelon
are provided below.
Demerger of Subsidiary - Echelon Resources Limited
Following shareholder approval on 28 January 2005, the Consolidated Entity
successfully completed the de-merger of its Australian mining assets by the
listing of Echelon Resources Limited on 26 April 2005.
The consolidated carrying amount of the assets and liabilities demerged is as
follows:
Net assets relinquished at 26 April 2005 $
Cash 2,000,000
Evaluation and exploration expenditure 294,053
---------
Total assets 2,294,053
---------
Net assets relinquished at date of demerger 2,294,053
---------
Value of shares received upon demerger (Refer return of capital
below) (2,000,000)
Value of options recognised upon demerger (255,000)
---------
Value of securities received/recognised on demerger (2,255,000)
---------
Loss on demerger of subsidiary 39,053
=========
Return of capital
On 2 March 2005, the Company effected a return of capital by distributing shares
acquired in Echelon Resources Limited to its shareholders on the basis of one
Echelon share for every thirteen Leyshon Resources shares held. This has
resulted in a reduction in issued capital of $2,000,000.
27. FINANCIAL INSTRUMENTS
Details of the significant accounting policies and methods adopted, including
the criteria for recognition, the basis for measurement and the basis on which
revenues and expenses are recognised in respect of each class of financial
asset, financial liability and equity instrument are disclosed in Note 1 to the
financial statements.
The Consolidated Entity's activities expose it primarily to the financial risks
of changes in foreign currency exchange rates and interest rates. The
Consolidated Entity does not enter into derivative financial instruments.
(a) Interest rate risk
The Consolidated Entity is exposed to floating interest rates on the cash
balance and other financial assets. The effective weighted average interest rate
for each class of financial assets and liabilities is set out below.
Fixed Interest
Maturing
Weighted Variable 1 Year From 1 Non-Interest Total
Average Interest or to 5 Bearing
Effective Rate Less Years
Interest
Rate
2006 $ $ $ $ $
Financial
Assets
Cash and cash
equivalents 4.8% 8,434,899 - - - 8,434,899
Receivables 5.8% 16,000 - - 134,476 150,476
Other
financial
assets - - - 495,001 495,001
-------- ------- ------- -------- --------
8,450,899 - - 629,477 9,080,376
======== ======= ======= ======== ========
Financial
Liabilities
Payables - - - 390,232 390,232
Employee
benefits - - - 40,241 40,241
-------- ------- ------- -------- --------
- - - 430,473 430,473
======== ======= ======= ======== ========
Fixed Interest
Maturing
Weighted Variable 1 Year From 1 Non-Interest Total
Average Interest or to 5 Bearing
Effective Rate Less Years
Interest
Rate
2005 $ $ $ $ $
Financial
Assets
Cash and cash
equivalents 5.2% 9,488,951 - - - 9,488,951
Receivables - - - 53,185 53,185
Other
financial
assets 5.2% 50,000 - - 299,442 349,442
-------- ------- ------- -------- --------
9,538,951 - - 352,627 9,891,578
======== ======= ======= ======== ========
Financial
Liabilities
Payables - - - 414,025 414,025
Employee
benefits - - - 28,303 28,303
-------- ------- ------- -------- --------
- - - 442,328 442,328
======== ======= ======= ======== ========
(b) Credit risk
The Consolidated Entity is exposed to credit related losses in the event of
non-performance by counter parties (banks) with respect to the financial
instruments, however exposures to individual counter parties are limited in
accordance with policy set by the Board.
The credit risk on financial assets which have been recognised on the balance
sheet is generally the carrying amount of the asset.
(c) Net fair value of financial assets and liabilities
Other than as outlined below, the carrying amount of financial assets and
financial liabilities of the Consolidated Entity approximates their net fair
value.
Options over unissued shares in Echelon Resources Limited at 1 July 2005 and 30
June 2006.
At 1 July 2005, the Consolidated Entity adopted AASB 132 and AASB 139. At this
date the Consolidated Entity designated the 2,500,000 unlisted options over
unissued shares in the capital of Echelon Resources Limited to be other
financial assets recorded at fair value through profit or loss. The options were
valued at 1 July 2005 based on the valuation described as at 30 June 2005
(discussed below) and the gain on revaluation of $60,000 was taken to retained
earnings.
The directors again sought advice in respect to the value of the options over
unissued Echelon shares at 30 June 2006, and based on that advice determined the
value of each option as at that date to be $0.198, for a total net fair value of
$495,000. This value has been reflected in the financial statements resulting in
a net gain on revaluation recorded in the income statement during the financial
year of $180,000.
The fair value of each option was estimated on the date of grant using the Black
Scholes Option Valuation Model with the following assumptions:
Assumption Options - $0.20
Underlying Security spot price $0.35
Exercise price $0.20
Dividend rate Nil
Standard deviation of returns (annualised) 75%
Risk free rate 5.8%
Expiration date 31 December 2007
Valuation date 30 June 2006
Options over unissued shares in Echelon Resources Limited at 30 June 2005.
On 26 April 2005, the Consolidated Entity was granted 2,500,000 unlisted options
over unissued shares in the capital of Echelon Resources Limited ("Echelon") as
consideration for the sale of its Australian mining assets. At the date of
granting the value of the options was determined to be $255,000 (see below for
assumptions regarding valuation assumptions). Echelon is listed on the
Australian Stock Exchange and as at 30 June 2005 the value of Echelon's ordinary
shares were $0.31.
The directors sought advice in respect to the value of the options over unissued
Echelon shares, and based on that advice determined the value of each option as
at 30 June 2005 to be $0.126, for a total net fair value of $315,000.
The fair value of each option was estimated on the date of grant using the Black
Scholes Option Valuation Model with the following assumptions:
Assumption Options - $0.20
Underlying Security spot price $0.31
Exercise price $0.20
Dividend rate Nil
Standard deviation of returns (annualised) 70%
Risk free rate 5.15%
Expiration date 31 December 2007
Valuation date 30 June 2005
Using these assumptions, a value of $0.18 was determined, however, as the
options (or share upon their conversion) are subject to the escrow until 3 May
2007, the value was discounted by 30% (based on advice received by the Board) to
arrive at a value of $0.126 per option.
(d) Valuation of Securities
30 June 2006
Advice was sought by the Company in relation to the value of options granted
during the year. Based on this advice, the value of the securities was
calculated as follows:
The fair value of the options was estimated on the date of grant using the
Black-Scholes Option Valuation Model with the following assumptions:
18 pence Options
Dividend yield -
Volatility 75%
Risk-free interest rate 4.66%
Expected life of option 2.06 years
The dividend yield reflects the assumption that the current dividend payout will
remain unchanged. The expected life of the options is based on historical data
and is not necessarily indicative of exercise patterns that may occur. The
expected volatility reflects the assumption that the historical volatility is
indicative of future trends, which may also not necessarily be the actual
outcome.
The resulting weighted average fair values per option for the options issued as
consideration are:
Number of Exercise Grant Vesting Weighted average Weighted average fair
Options price date date fair value value in $A
600,000 18 pence 7 June 7 June 7.5 pence $0.188
2006 2006
30 June 2005
Advice was sought by the Company in relation to the value of options granted
during the year. Based on this advice, the value of the securities was
calculated as follows:
The fair value of each option was estimated on the date of grant using the
Black-Scholes Option Valuation Model with the following assumptions:
$0.30 Options $0.35 Options
Dividend yield - -
Volatility 61% 67.55%
Risk-free interest rate 5.06% 5.34%
Expected life of option 2.97 years 2.9 years
The dividend yield reflects the assumption that the current dividend payout will
remain unchanged. The expected life of the options is based on historical data
and is not necessarily indicative of exercise patterns that may occur. The
expected volatility reflects the assumption that the historical volatility is
indicative of future trends, which may also not necessarily be the actual
outcome.
The resulting weighted average fair values per option for the options issued as
consideration are:
Number of Exercise Expiry Grant Vesting Weighted average
options price date date date fair value
1,000,000 $0.30 30 June 12 July 12 July $0.1730
2007 2004 2004
1,000,000 $0.30 30 June 12 July 1 March $0.1730
2007 2004 2005
1,500,000 $0.30 30 June 12 July 1 September $0.1730
2007 2004 2005
300,000 $0.35 31 December 28 January 12 March $0.1621
2007 2005 2005
400,000 $0.35 31 December 28 January 15 March $0.1621
2007 2005 2005
2,000,000 $0.35 31 December 28 January 28 January $0.2091
2007 2005 2005
28. Explanation of transition to Australian equivalents to IFRSs
(a) Reconciliation of equity reported under previous Australian Generally
Accepted Accounting Principles (AGAAP) to equity under Australian
equivalents to IFRSs (AIFRSs)
CONSOLIDATED
Notes Previous Effect of transition to AIFRS
AGAAP AIFRS
$ $ $
TOTAL EQUITY
(i) At the
date of
transition to
AIFRSs:
1 July 2004 (1) 19,772,122 (3,784,688) 15,987,434
(ii) At the
end of the
last
reporting
period under
previous AGAAP:
30 June 2005 (1),(2) 22,183,170 (3,604,688) 18,578,482
COMPANY
TOTAL EQUITY
(i) At the date of transition to AIFRSs
1 July 2004 19,740,198 - 19,740,198
(ii) At the end of the last reporting
period under previous AGAAP:
30 June 2005 (2) 22,063,155 - 22,063,155
(b) Reconciliation of profit/(loss) under previous Australian Generally Accepted
Accounting Principles (AGAAP) to profit/(loss) under Australian equivalents
to IFRSs (AIFRSs)
CONSOLIDATED
Notes Previous Effect of transition to AIFRS's
AGAAP AIFRS's
$ $ $
PROFIT/(LOSS)
(i)
Reconciliation
of loss for
the year ended
30 June 2005 (1),(2) (2,947,732) (700,204) (3,647,936)
COMPANY
Notes Previous Effect of transition AIFRS's
AGAAP AIFRSs
$ $ $
PROFIT/(LOSS)
(i)
Reconciliation
of loss for
the year ended
30 June 2005 (2) (2,709,716) (880,204) (3,589,920)
(c) Reconciliation of cash flow statement
The adoption of AIFRSs has not resulted in any material adjustments to the cash
flow statement.
(d) Notes to the reconciliations
(1) Income Tax
Under AASB 112 Income Taxes, deferred tax balances are determined using the
balance sheet method which calculates temporary differences based on the
carrying amounts of an entity's assets and liabilities in the balance sheet and
their associated tax bases. In addition, current and deferred taxes attributable
to amounts recognised directly in equity are also recognised directly in equity.
This has resulted in a change to the previous AGAAP accounting policy, under
which deferred tax balances were determined using the income statement method,
items were only tax effected if they were included in the determination of
pre-tax accounting profit or loss and/or taxable income or loss and current and
deferred taxes could not be recognised directly in equity.
Under AIFRSs, the criteria for recognition of carried forward tax losses is
'probable' as compared to the previous 'virtually certain' test. The
Consolidated Entity has carried forward tax losses which have not been
recognised as deferred tax assets as they do not satisfy the 'probable' criteria
under AIFRSs.
Adoption of AASB 112 has resulted in an increase in total consolidated deferred
tax liabilities of $3,604,688 at 30 June 2005, comprised as described below.
A deferred tax liability of $3,784,688 was recognised as at 1 July 2004 relating
to exploration and evaluation expenditure arising from acquisition of a
controlled entity. A reduction of the deferred tax liability was recorded during
the year ended 30 June 2005 for the amount of $180,000 relating to the expensing
of part of the above-mentioned exploration and evaluation expenditure asset.
(2) Share Based Payments
Under AASB 2 Share Based Payments, from 1 July 2004 the Group is required to
recognise an expense for those options that were issued as compensation to
employees and other consultants after 7 November 2002 but that had not vested by
1 January 2005.
This has resulted in a change to the previous AGAAP accounting policy under
which no expense was recognised for equity based compensation.
Adoption of AASB 2 during the year ended 30 June 2005 resulted in the company
and consolidated employee benefits expense (included in exploration expenses)
increasing by $462,004, and company and consolidated corporate and
administration expense increasing by $418,200 with a corresponding increase in
the net movement in the option premium reserve of $880,204.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR LTMTTMMMTBPF
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