RNS Number : 5072E
Leyshon Resources Limited
29 September 2008
For the complete PDF version of Leyshon's Financial report, please refer to the company's website: www.leyshonresources.com
LEYSHON RESOURCES LIMITED
ABN 75 010 482 274
FINANCIAL REPORT
FOR THE FINANCIAL YEAR ENDED
30 JUNE 2008
CORPORATE DIRECTORY
Directors Share Register
John Fletcher - Non-Executive UK
Chairman Computershare Investor
Paul Atherley - Managing Services plc
Director 2nd Floor, Vintners Place
Richard Seville - 68 Upper Thames Street
Non-Executive Director London
Stacey Apostolou - Executive EC4V 3BJ
Director United Kingdom
Company Secretary Australia
Stacey Apostolou Computershare Investor
Services Pty Ltd
Level 2, Reserve Bank Building
Principal and Registered 45 St Georges Terrace
Offices Perth WA 6000
China Australia
Suite 2502, Tower D, Telephone: 1300 557 010
China International Trade International: +618 9323
Centre 2000
6A Jianguomenwai Avenue Facsimile: +618 9323 2033
Chaoyang District
Beijing 100022
China Solicitors
Telephone: +86 10 8567 9405 Jun He Law Offices - Beijing
Facsimile: +86 10 8567 9410 Hardy Bowen Solicitors - Perth
Australia Stock Exchange Listings
36 Outram Street Alternative Investment Market
West Perth WA 6005 London Stock Exchange
Telephone: +618 9321 0077 10 Paternoster Square
Fasimile: +618 9322 4073 London EC4M 7LS
Auditor Australian Stock Exchange
Deloitte Touche Tohmatsu Home Branch - Perth
2 The Esplanade
Perth WA 6000
Bankers
Bank of China - Beijing
Bank of New Zealand AIM and ASX Code
LRL
Compliance with ASX Corporate Governance Recommendations
The Company's Corporate Governance Statement has been made publicly available on its website at www.leyshonresources.com.
During the 2008 financial year, the Company complied with the ASX Principles and Recommendations other than in relation to the matters
specified below:
Recommendation Ref Notification of Explanation for Departure
Departure
2.1 Only two independent The Board believes that
directors the individuals on the
Board can make, and do
make, quality and
independent judgments in
the best interests of the
Company on all relevant
issues. Directors having
a conflict of interest in
relation to a particular
item of business must
absent themselves from
the Board meeting before
commencement of
discussion on the topic.
There are two independent
non-executive directors
and the Board considers
that the Company is not
currently of a size, nor
are its affairs of such
complexity to justify the
expense of the
appointment of additional
independent Non-Executive
Directors.
2.4 A separate The Board considers that
Nomination Committee the Company is not
has not been formed. currently of a size to
justify the formation of
a nomination committee.
The Board as a whole
undertakes the process of
reviewing the skill base
and experience of
existing Directors to
enable identification or
attributes required in
new Directors. Where
appropriate independent
consultants are engaged
to identify possible new
candidates for the Board.
4.2 The Audit Committee There are only two
only has only 2 independent non-executive
members. directors and as such
both sit on the audit
committee. The Board
considers that the
Company is not currently
of a size, nor are its
affairs of such
complexity to justify the
expense of the
appointment of additional
independent Non-Executive
Directors.
DIRECTORS' REPORT
The Directors of Leyshon Resources Limited present their report on the Consolidated Entity consisting of Leyshon Resources Limited ("the
Company" or "Leyshon Resources") and the entities it controlled at the end of, or during, the financial year ended 30 June 2008
("Consolidated Entity").
DIRECTORS
The following persons were Directors of the Company during the financial year and up to the date of this report:
John W S Fletcher
Paul C Atherley
Stacey Apostolou
Richard P Seville
INFORMATION ON DIRECTORS
John WS Fletcher CBE
Non-Executive Chairman from date of appointment 7 April 2006
Member of the Audit Committee and Chairman of the Remuneration Committee
Mr Fletcher served as an Executive and main Board Director of the Trafalgar Group ("Trafalgar") for more than 20 years, which at the
time was one of the UK's largest industrial groups. Following the acquisition of Trafalgar by Kvaerner ASA ("Kvaerner"), he became Chairman
and President of Kvaerner's engineering and construction worldwide operations.
In 1996, he was awarded the title of CBE (Commander of the British Empire) for his contribution to British industry. He was a member of
the international advisory team to the Beijing Mayor in 1998 and has previously held the position of Executive Vice Chairman of the
Construction Supervision Committee for the National Stadium for the Beijing 2008 Olympics.
Mr Fletcher is based in Hong Kong and is a director and shareholder of Somerley Group Limited ("Somerley"), a corporate advisory firm
which has been operating for more than 20 years. Somerley advises both Chinese and international groups from its Hong Kong and Beijing
offices on access to capital via the Hong Kong Stock Exchange and via foreign direct investment. Mr Fletcher continues to maintain his
well-established industry, government and financial connections in London.
During the three year period to the end of the financial year, Mr Fletcher has held directorships in Pacific Energy Limited (August 1996
- September 2007) and KTL Limited (December 2004 - December 2007).
Paul C Atherley
Managing Director
Qualifications - BSc (Hons), MappSC, MBA, MAusIMM, ARSM
Mr Atherley graduated in mining engineering from the Royal School of Mines, Imperial College in 1982 and has over 25 years industry
operating experience including periods with British Coal in the UK and Mount Isa Mines Ltd in Australia. He was an Executive Director of the
Investment Bank arm of HSBC Australia where he undertook a range of advisory roles in the resources sector. In August 2004 he retired from
the position of Managing Director of an ASX and AIM listed mining company, a position he held since the company's flotation in 1994. During
this period he completed a number of acquisitions and financings of resource projects in Australia, South-East Asia, Africa and Western
Europe.
Mr Atherley was appointed a Director of Leyshon Resources on 4 May 2004. During the three year period to the end of the financial year,
Mr Atherley has not held a directorship in any other listed company.
Stacey Apostolou
Executive Director and Company Secretary from date of appointment 7 April 2006
Qualifications - B Bus, CPA
Ms Apostolou has been employed with the Company since August 2005 initially in the role of Manager - Corporate. She has previously acted
as Finance Director to an ASX/AIM listed company, has held company secretarial roles for publicly listed companies within the mining and
exploration industry and has over 18 years relevant industry experience. Ms Apostolou has been responsible for the corporate, treasury,
finance, accounting and administration functions for these companies.
During the three year period to the end of the financial year, Ms Apostolou has not held a directorship in any other listed company.
Richard Seville
Non-Executive Director from date of appointment 1 February 2007
Chairman of the Audit Committee and Member of the Remuneration Committee
Qualifications - BSC (Hon), MEngSc, MAusIMM, MAICD, ARSM
Mr Seville is a mining geologist and geotechnical engineer with 25 years experience covering exploration, mine development and mine
operations in gold, base metals and coal projects in Australia, Africa and Asia. Mr Seville also has significant corporate experience and
held the roles of operations director and/or managing director for ASX/AIM listed companies since 1994.
During the three year period to the end of the financial year, Mr Seville has held directorships in Renison Consolidated Mines NL and
Northern Energy Corporation Ltd (both of these roles ceasing in November 2006) and Orocobre Limited (November 2007 - present)
PRINCIPAL ACTIVITIES
The principal activities of the Consolidated Entity during the year consisted of gold and other minerals exploration. There was no
significant change in the nature of those activities during the financial year.
CONSOLIDATED RESULTS
2008 2007
$ $
Loss of the Consolidated Entity before income tax (10,411,177) (10,081,813)
Income tax - -
Net loss attributable to members of Leyshon (10,411,177) (10,081,813)
Resources Limited
REVIEW OF OPERATIONS
The Company's strategy is to rapidly bring the Zheng Guang project into production and to aggressively explore the brownfields and
regional potential of the licence areas.
The Company will look to grow and diversify through acquisition and possibly project development opportunities both in China and
elsewhere.
The Company has no stated commodity orientation, but is heavily focused on gold, the high value base metals, uranium and coal.
The Company will at all times be responsive to other growth or value creation opportunities which it believes are in shareholders'
interest. In particular it will be responsive to corporate proposals which crystallize shareholder wealth.
During the financial year the Company focused the majority of its resources on the exploration and project development of the Zheng
Guang gold project.
Independent consultancy Hellman and Schofield Pty Ltd of Australia reported a revised estimate incorporating the 43,500 metre 2007 drill
programme. Resources were estimated by Multiple Indicator Kriging including block support correction to give tonnage and grade estimates at
open pit mining selectivity, and are reported above gold equivalent cut-off grades.
The following table presents the 2008 resource estimates at a range of cut-off grades. The figures in the table have been rounded and
may exhibit rounding errors. Preliminary studies suggest that a 0.5g/t gold equivalent is a likely approximate lower operating cut-off
grade.
Zheng Guang April 2008 Resource Estimates
Cut-off Au Equiv. g/t Resource Tonnes Au Zn Ag
Category ( (g/ (%) (g/
Millio t) t)
n)
0.3 Measured 9.25 1.28 0.39 4.84
Indicated 12.2 1.04 0.33 3.96
Measured + Indicated 21.5 1.14 0.36 4.34
Inferred 23 0.7 0.2 3.2
Total 44 0.9 0.3 3.7
0.5 Measured 7.16 1.57 0.47 5.70
Indicated 8.91 1.32 0.41 4.78
Measured + Indicated 16.1 1.43 0.44 5.19
Inferred 14 1.0 0.3 4.2
Total 30 1.2 0.4 4.7
0.7 Measured 5.73 1.86 0.54 6.49
Indicated 6.81 1.59 0.48 5.52
Measured + Indicated 12.5 1.71 0.51 5.96
Inferred 9.7 1.2 0.4 5.1
Total 22 1.5 0.5 5.6
0.9 Measured 4.70 2.15 0.60 7.23
Indicated 5.36 1.87 0.55 6.22
Measured + Indicated 10.1 2.00 0.57 6.69
Inferred 6.9 1.5 0.4 5.9
Total 17 1.8 0.5 6.4
Gold equivalent cut-offs were used to allow the value of zinc and silver to be taken into account as part of the estimation process.
This was based on 1% Zn and 1g/t Ag being equivalent to 0.67 g/t Au and 0.018g/t Au respectively. These ratios were calculated at a gold
price of US$930/oz and metallurgical recovery of 87.3%, and silver price of US$17/oz and metallurgical recovery of 84%, and zinc price of
US$2250/tonne and recovery of 84% with payments at 47.5% of recovered zinc metal to allow for smelting, refining and transport charges.
The 2008 exploration program has targeted strike extensions to the Main Ore Zone and sought to identify drill targets on two large
copper gold anomalies.
Project Status
A number of the approvals for Zheng Guang have now been received with Environmental Approval being awarded in late June. Project
Registration and issue of the Mining Licence are all expected in 2009.
The detailed engineering design being undertaken by the Changchun Design Institute is currently around 90% complete and is undergoing a
final design review which is expected to be completed in November. Final engineering design is scheduled for completion in February 2009.
The final design review will independently review the block model, prepare a final detail mine design, review the process route and capital
cost estimates.
The project benefits from being located in a well established coal and copper mining community with excellent infrastructure including a
rail connection to the national network, grid power, water and a range of mining contractor services.
The Company remains fully engaged in China with its Managing Director and Chief Operating Officer based in the main operating office in
Beijing. Its policy of full engagement with the local community is bearing fruit as negotiations with local farmers and other affected
parties for land acquisition and access are well advanced and progressing well.
Business Strategies and Prospects
The Consolidated Entity continues to progress the various studies and approvals required to enable it to proceed with construction at
the Zheng Guang project in 2009.
DIVIDENDS
No interim or final dividend has been declared in respect to the financial year ended 30 June 2008 (2007: 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.
* A total of 2,500,000 ordinary fully paid shares were issued following the exercise of options.
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 2008
that have significantly affected or may significantly affect:
* the operations, in financial years subsequent to 30 June 2008, of the Consolidated Entity constituted by Leyshon Resources Limited
and the entities it controls from time to time;
* the results of those operations; or
* the state of affairs, in financial years subsequent to 30 June 2008, of the Consolidated Entity.
LIKELY DEVELOPMENTS
As discussed above, the Consolidated Entity is making progress towards the development of Zheng Guang and is working through the
necessary studies and approvals to achieve this.
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.
On the 15 and 16 January 2008 and again on or about 15 February 2008, the Mt Leyshon mine site received a significant amount of rainfall
which resulted in runoff to the receiving environment. As a consequence of this runoff, the Company (as the leaseholder) and Newmont Mining
Services Pty Ltd (as manager of the mine site) were issued with Environmental Protection Orders by the Queensland Environmental Protection
Agency to secure compliance with the environmental authority over the Mt Leyshon leases.
Pursuant to an agreement between the Company and Newmont Australia Limited ("Newmont"), Newmont is responsible for all environmental
obligations in respect of the Mt Leyshon leases in perpetuity regardless of changes to those obligations arising from changes to regulatory
requirements and has indemnified the Company to that effect.
Accordingly, the Company has no net liability in relation to the incident and as such there is no material risk to the Consolidated
Entity.
OPTIONS
During the year the following options were issued/expired:
* On 4 December 2007, 4,000,000 options with an expiry date of 30 November 2010 and exercisable at $0.70 were issued;
* On 8 April 2008, 750,000 options with an expiry date of 30 June 2011 and exercisable at $0.70 were issued; and
* On 30 June 2008, 600,000 unlisted options at an exercise price of 18 pence lapsed in accordance with their terms and conditions.
These options were originally issued to Mirabaud Securities as part consideration for undertaking the share placement undertaken by the
Company in June 2006.
Unissued ordinary shares of Leyshon Resources under option at the date of this report are as follows:
Unlisted Options
* 700,000 options at an exercise price of $0.40 each that expire on 30 November 2009;
* 550,000 options at an exercise price of $0.55 each that expire on 30 November 2009;
* 4,000,000 options at an exercise price of $0.70 each that expire on 30 November 2010; and
* 750,000 options at an exercise price of $0.70 each that expire on 30 June 2011.
No option holder has any right under the options to participate in any other share issue of the Company or any other entity. Each option
is for one ordinary share of the Company.
During the financial year 2,500,000 shares were issued as a result of the exercise of options, raising $875,000 net of share issue
costs. Since 30 June 2008, no shares have been issued as a result of the exercise of options.
INSURANCE OF OFFICERS AND AUDITORS
During the financial year, the Company paid a premium in respect of a contract insuring the directors of the Company, the company
secretary and all executive officers of the Company and of any related body corporate against a liability incurred as such a director,
secretary or executive officer to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the
nature of the liability and the amount of the premium.
The Company has not otherwise, during the financial year, indemnified or agreed to indemnify an officer or auditor of the Company or of
any related body corporate against a liability incurred as such an officer or an auditor.
MEETINGS OF DIRECTORS
The following table sets out the number of meetings of the Company's directors held during the financial year ended 30 June 2008, and
the number of meetings attended by each director.
Board Meetings Audit Committee Remuneration Committee Meetings
Meetings
Held Attended Held Attended Held Attended
Directors
John WS Fletcher 6 6 2 2 1 1
Paul C Atherley 6 6 - - - -
Stacey Apostolou 6 6 - - - -
Richard Seville 6 6 2 2 1 1
INFORMATION ON DIRECTORS' INTERESTS IN SECURITIES OF LEYSHON RESOURCES
Interest in Securities
at the date of this Report
Ordinary Shares Options
John WS Fletcher 2,202,824 1,000,000
Paul C Atherley 29,000,000 -
Stacey Apostolou 100,000 2,000,000
Richard Seville - 1,000,000
REMUNERATION REPORT (AUDITED)
This remuneration report which forms part of the directors' report, sets out information about the remuneration of Leyshon Resources
Limited's directors and its senior management for the financial year ended 30 June 2008. The prescribed details for each person covered by
this report are detailed below.
Director and Senior Management Details
The following persons acted as directors of Leyshon Resources Limited during or since the end of the financial year:
* John WS Fletcher (Chairman)
* Paul C Atherley (Managing Director)
* Stacey Apostolou (Executive Director and Company Secretary)
* Richard P Seville (Non Executive Director)
The term 'senior management' is used in this remuneration report to refer to the following persons. Except as noted, the named persons
held their current position for the whole of the financial year and since the end of the financial year:
* Vic McLaglen - Chief Operating Officer, Leyshon Resources Limited
* Dong Ping Ye - Project Development Manager, China Metals Pty Ltd
* Peter Niu - Financial Controller, Leyshon Resources Limited (appointed 17 March 2008)
There were no other group executives or Company executives during the year.
Remuneration policies
Executive remuneration
The Company's remuneration policy for executive directors and senior management is designed to promote superior performance and long
term commitment to the Company. Remuneration packages are set at levels that are intended to attract and retain executives capable of
managing the Company's operations. Executives receive a base remuneration which is market related, together with an element of performance
based remuneration.
Overall remuneration policies are subject to the discretion of the Board and will be adapted to reflect competitive market and business
conditions where it is in the interests of the Company and shareholders to do so. Within this framework, the remuneration committee
(established 9 May 2007) considers remuneration policies and practices generally, and determines specific remuneration packages and other
terms of employment for executive directors and senior executive management.
Executive remuneration and other terms of employment are reviewed annually by the committee having regard to performance, relevant
comparative information and expert advice.
The objective of any short term incentives is to link achievement of the Company's operational targets with the remuneration received by
executives charged with meeting those targets. The objective of long term incentives is to reward executives in a manner which aligns this
element of their remuneration with the creation of shareholder wealth.
The committee's remuneration policies are designed to align executive's remuneration with shareholders' interests and to retain
appropriately qualified executive talent for the benefit of the Company. The main principles of the policies are that:
* reward reflects the competitive market in which the Company operates;
* individual reward should be linked to performance criteria; and
* executives should be rewarded for both financial and non-financial performance.
REMUNERATION REPORT (cont'd)
The structure of remuneration packages for executive directors and other senior executive management consists of the following:
* salary - executive directors and senior executives receive a fixed sum base salary payable monthly in cash;
* short term incentives - through eligibility to participate in performance bonus plans;
* long term incentives - executive directors are eligible to participate in share option schemes with the prior approval of
shareholders. Senior management may also participate in employee share option schemes, with any option issues generally being made in
accordance with thresholds set in plans approved by shareholders. The Board however, considers it appropriate to retain the flexibility to
issue options to senior management outside of approved employee option plans and in the event that no employee option plan exists; and
* other benefits - executive directors and senior management, where applicable, are eligible to participate in superannuation
schemes.
Non-executive directors' remuneration
In accordance with current corporate governance practices, the structure for the remuneration of non-executive directors and senior
management is separate and distinct. Shareholders approve the maximum aggregate remuneration for non-executive directors. The remuneration
committee recommends the actual payments to directors and the Board is responsible for ratifying any recommendations, as appropriate. The
maximum aggregate remuneration approved for non-executive directors is currently $250,000 which does not include any share based payments.
The Board approves any consultancy arrangements for non-executive directors who provide services outside of and in addition to their duties
as non-executive directors.
Non-executive directors are entitled to statutory superannuation benefits if applicable. At the current stage of the Company's
development, non-executive directors may also be entitled to participate in equity based remuneration schemes.
All directors are entitled to have their indemnity insurance paid by the Company.
Relationship between the remuneration policy and Company performance
The table below sets out summary information about the Consolidated Entity's earnings and movements in shareholder wealth for the five
years to June 2008:
30 June 2008 30 June 2007 30 June 2006 30 June 2005 30 June 2004(1)
$ $ $ $ $
Revenue 1,048,177 628,530 349,677 816,115 486,300
Net loss before tax (10,411,177) (10,081,813) (7,172,707) (3,827,936) (1,163,306)
Net loss after tax (10,411,177) (10,081,813) (7,172,707) (3,647,936) (1,163,306)
Share price at start of year 0.6250 0.3150 0.2600 0.2971 0.0760
Share price at end of year 0.5000 0.6250 0.3150 0.2600 0.2971
Dividend paid - - - - -
Basic loss per share (cents) (4.8) (5.8) (5.4) (2.8) (1.2)
Diluted loss per share (cents) (4.8) (5.8) (5.4) (2.8) (1.2)
* Leyshon Resources Limited adopted the Australian equivalents to International Financial Reporting Standards with effect from 1
July 2004, which resulted in various changes to its accounting policies from that date. The results for the year ended 30 June 2004 are
reported in accordance with Leyshon Resources Limited's previous accounting policies as permitted under Australian accounting standards as
applicable at that time.
REMUNERATION REPORT (cont'd)
There is no relationship between the remuneration for key management personnel and the Company's financial performance.
Service Agreements
Non Executive Directors
Mr Fletcher
The Company has entered into a service agreement with Mr Fletcher whereby he is paid a fee of A$90,000 per annum in his capacity as
Chairman. Mr Fletcher is entitled to receive reimbursement for out of pocket expenses incurred whilst on Company business. The agreement is
for no fixed term, does not provide for the payment of termination benefits and may be terminated by either party by providing 90 days
written notice. Mr Fletcher was granted incentive options during the financial year as detailed on page 15 of this report.
Mr Seville
The Company has entered into a service agreement with Mr Seville whereby he is paid a fee of A$50,000 per annum in his capacity as
Non-Executive Director. Mr Seville is entitled to receive reimbursement for out of pocket expenses incurred whilst on Company business. The
agreement is for no fixed term, does not provide for the payment of termination benefits and may be terminated by either party by providing
90 days written notice. Mr Seville was granted incentive options during the financial year as detailed on page 15 of this report.
In addition, the Company has entered into a consultancy arrangement with Richard Seville & Associates Pty Ltd in relation to the
provision of technical services by Mr Seville at the rate of A$1,600 per day. The consultancy agreement was for an initial term to 31
December 2007 and thereafter until terminated. The consultancy can be terminated by either party providing three months written notice.
Executive Directors
Mr Atherley
The service agreement in place with Mr Atherley during the financial year contains the following key provisions:
* Entered into with effect from 1 July 2006 for a rolling twelve month term as Managing Director;
* May be terminated by the Company by providing no more than three months notice;
* May be terminated by Mr Atherley by providing at least six months notice;
* If Mr Atherley is removed as a director of the Company by shareholders, or as the managing director of the Company, then the
Company will be deemed to have terminated the contract;
* Base salary of $450,000 per annum with effect from 1 January 2008 ($350,000 prior to 1 January 2008);
* A discretionary cash bonus of up to $500,000 per annum is payable based on, in the Board's view, the contribution of Mr Atherley
towards the Company's achievement of its overall objectives being the development of the Zheng Guang project. Mr Atherley was granted a
bonus of $75,000 on 18 February 2008 representing approximately 16% of his total remuneration. The bonus was 100% performance related and no
bonus was forfeited;
* No amount is payable in the event of termination for neglect of duty or gross misconduct; and
* If Mr Atherley's contract is terminated, other than for neglect of duty or gross misconduct, then the Company shall pay to Mr
Atherley a Termination Payment. The Termination Payment shall be the aggregate of the contract rate that would be payable for the period
commencing when the contract terminates and ending at the end of the contract term. In the event that the Termination Payment exceeds the
amount calculated in accordance with section 200F of the Corporations Act or Chapter 10.19 of the ASX Listing Rules, then the Termination
Payment will be reduced by such amount as is necessary so as to not exceed the amount permitted.
REMUNERATION REPORT (cont'd)
Ms Apostolou
The service agreement in place with Ms Apostolou during the financial year contains the following key provisions:
* Entered into with effect from 1 July 2006 for no defined period;
* May be terminated by the Company or Ms Apostolou by providing three months notice. No payment, other than for notice, is payable
upon termination;
* Base salary of $250,000 per annum inclusive of superannuation, with effect from 1 January 2008 ($160,000 plus superannuation prior
to 1 January 2008);
* A cash bonus is payable based on, in the Board's view, the contribution of Ms Apostolou towards the Company's achievement of its
overall objectives being the development of the Zheng Guang project. Ms Apostolou was granted and paid her maximum bonus of $75,000 on 18
February 2008, representing approximately 8% of her total remuneration. The bonus was 100% performance related; and
* Ms Apostolou was granted incentive options as detailed on page 15 of this report.
Senior Management
Mr McLaglen
The service agreement in place with Mr McLaglen during the financial year contains the following key provisions:
* Entered into with effect from 16 January 2006 for no defined period;
* May be terminated by the Company or Mr McLaglen by providing three months notice. No payment, other than for notice, is payable
upon termination;
* Base salary of $400,000 per annum with effect from 1 January 2008 ($300,000 prior to 1 January 2008);
* A cash bonus is payable based on, in the Board's view, the contribution of Mr McLaglen towards the Company's achievement of its
overall objectives being the development of the Zheng Guang project. Mr McLaglen was granted and paid his maximum bonus of $100,000 on 18
February 2008, representing approximately 16% of his total remuneration. The bonus was 100% performance related; and
* Mr McLaglen was granted incentive options as detailed on page 14 of this report.
Dr Dong Ping Ye
The service agreement in place with Dr Dong Ping Ye during the financial year contains the following key provisions:
* Entered into with effect from 7 May 2007 for no defined period;
* May be terminated by the Company or Dr Dong Ping Ye by providing three months notice. No payment, other than for notice, is
payable upon termination;
* Base salary of $300,000 per annum with effect from 1 January 2008 ($250,000 prior to 1 January 2008);
* May become entitled to receive incentive options in the Company at a price to be determined by the Board at the time of issue. Dr
Dong Ping Ye was granted options as detailed on page 15 of this report; and
* A cash bonus is payable based on, in the Board's view, the contribution of Dr Dong Ping Ye towards the Company's achievement of
its overall objectives being the development of the Zheng Guang project. Dr Dong Ping Ye was granted and paid his maximum bonus of $75,000
on 18 February 2008, representing approximately 15% of his total remuneration. The bonus was 100% performance related.
REMUNERATION REPORT (cont'd)
Mr Niu
The service agreement in place with Mr Niu during the financial year contains the following key provisions:
* Entered into with effect from 17 March 2008 for no defined period;
* May be terminated by the Company or Mr Niu by providing three months notice. No payment, other than for notice, is payable upon
termination;
* Base salary of RMB1,400,000 per annum;
* May become entitled to receive incentive options in the Company at a price to be determined by the Board at the time of issue;
and
* May become entitled to receive a cash bonus at the discretion of the Board.
Details of Remuneration
The emoluments (paid or payable) of each Director and the executive officers for the financial year ended 30 June 2008 are as follows:
Short-term employee benefits Post-employment Termination Benefits Share Based Payment
Salary & fees Bonus Other(2) Super-annuation Options issued Total
$ $
$
$ $ $
$
Directors
John WS Fletcher 90,000 - - - - 305,000 395,000
Paul C Atherley 400,000 75,000 7,289 - - - 482,289
Stacey Apostolou 194,679 75,000 3,665 17,521 - 610,000 900,865
Richard Seville 105,940 - - - - 305,000 410,940
Group executives
Vic McLaglen 321,665 100,000 - - - 185,350 607,015
Dong Ping Ye 275,000 75,000 - - - 153,173 503,173
Peter Niu(1) 62,664 - - - - - 62,664
(1) Commenced employment 17 March 2008.
(2) Represents incremental increases in the value of unused annual leave as a result of salary increases.
REMUNERATION REPORT (cont'd)
The emoluments (paid or payable) of each Director and the executive officers for the financial year ended 30 June 2007 are as follows:
Short-term employee benefits Post-employment Termination Benefits Share Based Payment
Salary & fees Bonus Other Super-annuation Options issued Total
(7) (6)
$ $
$ $
$ $ $
Directors
John WS Fletcher 90,000 - - - - - 90,000
Paul C Atherley 350,000 150,000 - - - - 500,000
Robert Bigland(1) 52,775 - - - - - 52,775
Stacey Apostolou 160,000 75,000 - 14,400 - - 249,400
Richard Seville(2) 20,833 - - - - - 20,833
Group executives
Vic McLaglen 300,000 75,000 - - - 325,921 700,921
Dong Ping Ye (3) 38,043 - - - - - 38,043
Malcolm wilson(4) 121,249 - - 48,000 18,921 57,450 245,620
Jian Hua Sang(5) 16,129 - 15,000 - - - 31,129
(1) Ceased as a director 18 April 2007.
(2) Commenced as a director 1 February 2007.
(3) Commenced employment 7 May 2007.
(4) Ceased employment 12 March 2007.
(5) Ceased employment 20 July 2006.
(6) Represents relocation payment payable upon cessation of contract.
(7) Discretionary bonuses were paid as the Company progressed towards achieving its objective of developing the Zheng Guang project.
No bonuses were forfeited during the year.
Share-based Compensation
* Following shareholder approval, on 12 December 2006, 1,900,000 Options were issued as follows: 1,100,000 options of which 550,000
are exercisable at $0.40 each on or before 30 November 2009, with a fair value at grant date of $0.383 per option and 550,000 exercisable at
$0.55 on or before 30 November 2009, with a fair value at grant date of $0.337 per option were granted to Vic McLaglen (Chief Operating
Officer - Leyshon Resources Limited) as part of his remuneration package with a total value of $511,272. 550,000 of these options vested on
15 May 2007 and the remaining 550,000 vested on 15 November 2007. In the current financial year, 31% of Mr McLaglen's total remuneration was
comprised of the value of options. The value of options allocated to remuneration for the year ended 30 June 2008 was $185,350 (2007: $325
921). None of the options were exercised or lapsed during the year. The remaining 800,000 options were granted to Malcolm Wilson (Senior
Geologist - China Metals Pty Ltd). Mr Wilson's employment with China Metals Pty Ltd ceased on 12 March 2007 and as a consequence these options lapsed in the prior financial year.
REMUNERATION REPORT (cont'd)
* Following shareholder approval, on 4 December 2007, 4,000,000 Options were issued as follows:
* 1,000,000 incentive options exercisable at $0.70 each on or before 30 November 2010, with a fair value at grant date of $0.305 per
option, were granted to John Fletcher (Non Executive Chairman - Leyshon Resources Limited) as part of his remuneration package with a total
value of $305,000. The options vested immediately. In the current financial year, 77% of Mr Fletcher's total remuneration was comprised of
the value of options. The value of options allocated to remuneration for the year ended 30 June 2008 was $305,000 (2007: Nil). None of the
options were exercised or lapsed during the year;
* 1,000,000 incentive options exercisable at $0.70 each on or before 30 November 2010, with a fair value at grant date of $0.305 per
option, were granted to Richard Seville (Non Executive Director - Leyshon Resources Limited) as part of his remuneration package with a
total value of $305,000. The options vested immediately. In the current financial year, 74% of Mr Seville's total remuneration was
comprised of the value of options. The value of options allocated to remuneration for the year ended 30 June 2008 was $305,000 (2007: Nil).
None of the options were exercised or lapsed during the year; and
* 2,000,000 incentive options exercisable at $0.70 each on or before 30 November 2010, with a fair value at grant date of $0.305 per
option, were granted to Stacey Apostolou (Finance Director - Leyshon Resources Limited) as part of her remuneration package with a total
value of $610,000. The options vested immediately. In the current financial year, 68% of Ms Apostolou's total remuneration was comprised of
the value of options. The value of options allocated to remuneration for the year ended 30 June 2008 was $610,000 (2007: Nil). None of the
options were exercised or lapsed during the year.
* On 8 April 2008, 750,000 incentive options exercisable at $0.70 each on or before 30 June 2011, with a fair value at grant date of
$0.204 per option, were granted to Dong Ping Ye (Project Development Manager - China Metals Pty Ltd) as part of his remuneration package
with a total value of $153,173. 350,000 options vested immediately with the remaining 400,000 options vesting on 7 May 2008. In the
current financial year, 30% of Dr Dong Ping Ye's total remuneration was comprised of the value of options. The value of options allocated to
remuneration for the year ended 30 June 2008 was $153,173 (2007: Nil). None of the options were exercised or lapsed during the year.
The grant of share options is not directly linked to previously determined performance milestones or hurdles as the current stage of the
Group's activities make it difficult to determine effective and appropriate key performance indicators and milestones. No options were
forfeited during the year.
There is currently no Board policy in relation to the person granted the option limiting his or her exposure to risk in relation to the
securities as the options are issued in addition to their separate remuneration package.
NON-AUDIT SERVICES
The Directors are satisfied that the provision of non-audit services during the year by the auditor (or by another person or firm on the
auditor's behalf) is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Audit
Committee assesses the provision of non-audit services by the auditors to ensure that the auditor independence requirements of the
Corporations Act 2001 in relation to the audit are met.
Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are outlined in note 4
to the financial statements.
AUDITOR'S INDEPENDENCE DECLARATION
Section 307C of the Corporations Act 2001 requires our auditors, Deloitte Touche Tohmatsu, to provide the directors of Leyshon Resources
with an Independence Declaration in relation to the audit of the attached Financial Statements. This Independence Declaration is included in
this Financial Report at page 17 and forms part of this Directors' Report.
Signed in accordance with a resolution of the Board of Directors.
On behalf of the Directors
Paul Atherley
Managing Director
Beijing, China
26 September 2008
Competent Persons Statements
The information in this report that relates mineral resource estimation is based on work completed by Mr Jonathon Abbott who is a full
time employee of Hellman and Schofield Pty Ltd and a member of the Australasian Institute of Mining and Metallurgy. Mr Abbott has sufficient
experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is
undertaking to qualify as a Competent Person as defined in the 2004 Edition of the 'Australasian Code for Reporting of Exploration Results,
Mineral Resources and Ore Reserves' and as a Qualified Person as defined in the AIM Rules. Mr Abbott consents to the inclusion in the report
of the matters based on his information in the form and context in which it appears.
The exploration data on which the Mineral Resource estimate is based has been compiled by Mr Irvine Hay who is a member of the
Australian Institute of Mining and Metallurgy. Mr Hay is a fulltime employee of CSA Australia Pty Ltd a consultancy which provides
geological services to Leyshon and has sufficient experience which is relevant to the style of mineralisation and type of deposit under
consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the
'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves.' Mr Hay consents to the inclusion in the report
of the matters based on his information in the form and context in which it appears.
Calculation of metal equivalents have been compiled by Mr Richard Seville who is a member of the Australian Institute of Mining and
Metallurgy. Mr Seville is a Director of Leyshon Resources Limited and has sufficient experience which is relevant to the style of
mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as
defined in the 2004 Edition of the 'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves.' Mr Seville
consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.
http://www.rns-pdf.londonstockexchange.com/rns/5072E_-2008-9-28.pdf
DIRECTORS' DECLARATION
The directors declare that:
(a) in the directors' opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when
they become due and payable;
(b) in the directors' opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001,
including compliance with accounting standards and giving a true and fair view of the financial position and performance of the consolidated
entity; and
(c) the directors have been given the declarations required by s.295A of the Corporations Act 2001.
Signed in accordance with a resolution of the directors made pursuant to s.295(5) of the Corporations Act 2001.
On behalf of the Directors
Paul Atherley
Managing Director
Beijing, China
26 September 2008
INCOME STATEMENT
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2008
Consolidated Company
Note 2008 2007 2008 2007
$ $ $ $
Revenue 2 1,048,631 628,530 880,475 627,227
Other income 2 20,995 1,567,500 19,910 1,567,500
Exploration expenses (5,026,168) (7,807,002) (493,489) (445,887)
Corporate and administration (2,736,200) (2,319,519) (2,386,000) (2,086,538)
expenses
Business development expenses (503,678) (417,587) (491,296) (421,157)
Finance costs - (2,958) - (2,958)
Foreign exchange losses (1,656,234) (1,347,406) (1,654,400) (1,349,122)
Share based payments (1,558,523) (383,371) (1,558,523) (383,371)
Write down to recoverable - - - (2,110)
amount of non-current assets
Loss before income tax (10,411,177) (10,081,813) (5,683,323) (2,496,416)
Income tax 3 - - - -
(10,411,177) (10,081,813) (5,683,323) (2,496,416)
Loss attributable to members
of Leyshon Resources Limited
Earnings Per Share
Basic loss per share (cents 17 (4.8) (5.8)
per share)
Diluted loss per share (cents 17 (4.8) (5.8)
per share)
The above Income Statement should be read in conjunction with the accompanying notes.
BALANCE SHEET
AS AT 30 JUNE 2008
Consolidated Company
Note 2008 2007 2008 2007
$ $ $ $
ASSETS
Current Assets
Cash and cash equivalents 25(a) 9,399,324 22,096,750 9,025,187 21,834,974
Trade and other receivables 5 116,140 103,703 74,042 96,349
Other 6 65,127 57,836 13,498 15,670
Total Current Assets 9,580,591 22,258,289 9,112,727 21,946,993
Non-Current Assets
Trade and other receivables 5 - - 27,784,809 18,128,832
Other financial assets at fair 7 1 1 1 1
value through profit or loss
Other financial assets 8 2,613,103 703,658 9,149,628 9,149,628
Property, plant and equipment 9 26,352 16,618 5,543 4,426
Exploration and evaluation 10 - - - -
expenditure
Development properties 11 16,324,326 13,031,994 - -
Total Non-Current Assets 18,963,782 13,752,271 36,939,981 27,282,887
TOTAL ASSETS 28,544,373 36,010,560 46,052,708 49,229,880
LIABILITIES
Current Liabilities
Trade and other payables 12 1,074,585 285,142 272,812 254,199
Provisions 13 120,947 63,929 120,135 59,024
Total Current Liabilities 1,195,532 349,071 392,947 313,223
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 4,800,220 3,953,759 392,947 313,223
NET ASSETS 23,744,153 32,056,801 45,659,761 48,916,657
EQUITY
Issued capital 14 64,507,082 63,139,928 64,507,082 63,139,928
Reserves 15 1,556,966 825,592 2,054,734 995,461
Accumulated losses 16 (42,319,895) (31,908,718) (20,902,055) (15,218,732)
TOTAL EQUITY 23,744,153 32,056,801 45,659,761 48,916,657
The above Balance Sheet should be read in conjunction with the accompanying notes.
STATEMENT OF CHANGES IN EQUITY
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2008
Consolidated Company
2008 2007 2008 2007
$ $ $ $
Issued Capital
Issued and paid up capital - at the beginning of the year 63,139,928 34,866,587 63,139,928 34,866,587
Transactions with equity holders in their capacity as equity
holders:
Contributions of equity 867,904 24,083,421 867,904 24,083,421
Transfer from employee benefits reserve 499,250 464,920 499,250 464,920
Transfer from option premium reserve - 3,725,000 - 3,725,000
1,367,154 28,273,341 1,367,154 28,273,341
Issued and paid up capital - at the end of the year 64,507,082 63,139,928 64,507,082 63,139,928
Employee Benefit Reserve
Balance at the beginning of the year 882,620 964,169 882,620 964,169
Employee benefit expense - Share options 1,558,523 383,371 1,558,523 383,371
Exercise of options (499,250) (464,920) (499,250) (464,920)
Balance at the end of the year 1,941,893 882,620 1,941,893 882,620
Foreign Currency Translation Reserve
Balance at the beginning of the year (169,869) 4,563 - -
Exchange differences on translation of foreign operations (327,899) (174,432) - -
attributable to members of Leyshon Resources Limited
Balance at the end of the year (497,768) (169,869) - -
Option Premium Reserve
Balance at beginning of the year 112,841 3,837,841 112,841 3,837,841
Exercise of options - (3,725,000) - (3,725,000)
112,841 112,841 112,841 112,841
Balance at end of year
STATEMENT OF CHANGES IN EQUITY
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2008 (CONTINUED)
Consolidated Company
2008 2007 2008 2007
$ $ $ $
Accumulated Losses
Accumulated losses at the beginning of the year (31,908,718) (21,826,905) (15,218,732) (12,722,316)
Loss for the year attributable to members of Leyshon (10,411,177) (10,081,813) (5,683,323) (2,496,416)
Resources Limited
Accumulated losses at the end of the year (42,319,895) (31,908,718) (20,902,055) (15,218,732)
Net income recognised directly in equity:
Exchange differences on translation of foreign operations
- Members of parent entity (327,899) (174,432) - -
(327,899) (174,432) - -
Loss for the year
- Members of parent entity (10,411,177) (10,081,813) (5,683,323) (2,496,416)
Total recognised income and expense for the year (10,739,076) (10,256,245)
attributable to members of parent entity
(5,683,323) (2,496,416)
The above Statement of Changes in Equity should be read in conjunction with the accompanying notes. CASH FLOW STATEMENT
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2008
Consolidated Company
Note 2008 2007 2008 2007
$ $ $ $
CASH FLOWS FROM OPERATING
ACTIVITIES
Payments to suppliers and (8,244,467) (10,640,178) (3,262,863) (2,767,205)
employees
Interest received 904,928 540,898 900,385 540,898
Interest paid - (2,958) - (2,958)
Net cash flows used in 25(b) (7,339,539) (10,102,238) (2,362,478) (2,229,265)
operating activities
CASH FLOWS FROM INVESTING
ACTIVITIES
Payments for property, plant (27,444) (17,269) (4,836) (2,219)
and equipment
Amounts advanced to related - - (9,655,977) (8,925,851)
parties
Loan to joint venture partner (1,738,899) (732,444) - -
Development expenditure (2,803,214) (309,521) - -
Refund of security bonds - 16,000 - 16,000
Net proceeds on sale of - 2,062,500 - 2,062,500
investment
Net cash flows (used in)/from (4,569,557) 1,019,266 (9,660,813) (6,849,570)
investing activities
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from issues of shares 875,000 25,185,571 875,000 25,185,571
Share issue costs (7,096) (1,093,342) (7,096) (1,093,342)
Net cash flows from financing 867,904 24,092,229 867,904 24,092,229
activities
NET (DECREASE)/INCREASE IN (11,041,192) 15,009,257 (11,155,387) 15,013,394
CASH AND CASH EQUIVALENTS
Cash and cash equivalents at 22,096,750 8,434,899 21,834,974 8,170,702
the beginning of the year
Effects of exchange rate (1,656,234) (1,347,406) (1,654,400) (1,349,122)
changes on cash and cash
equivalents
CASH AND CASH EQUIVALENTS AT 25(a) 9,399,324 22,096,750 9,025,187 21,834,974
THE END OF THE YEAR
The above Cash Flow Statement should be read in conjunction with the accompanying notes.
Statement of compliance
The financial report is a general purpose financial report which has been prepared in accordance with the Corporations Act 2001,
Accounting Standards and Interpretations, and complies with other requirements of the law. The financial report includes the separate
financial statements of the Company and the consolidated financial statements of the Group.
Accounting Standards include Australian equivalents to International Financial Reporting Standards ('A-IFRS'). Compliance with A-IFRS
ensures that the financial statements and notes of the Company and the Group comply with International Financial Reporting Standards
('IFRS').
The financial statements were authorised for issue by the directors on 26 September 2008.
Basis of preparation
The financial report has been prepared on the basis of historical cost, 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. All amounts are presented in
Australian dollars, unless otherwise noted.
Adoption of new and revised Accounting Standards
In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting
Standards Board (the AASB) that are relevant to its operations and effective for the current annual reporting period. Details of the impact
of the adoption of these new accounting standards are set out in the individual accounting policy notes set out below. The Group has also
adopted the following Standards as listed below which only impacted on the Group's financial statements with respect to disclosure.
* AASB 101 'Presentation of Financial Statements (revised October 2006)
* AASB 7 'Financial Instruments: Disclosures'
At the date of authorisation of the financial report, the Standards and Interpretations listed below were in issue but not yet
effective.
Initial application of the following Standards will not effect any of the amounts recognised in the financial report, but will change
the disclosures presently made in relation to the Group and the Company's financial report:
Standard / Interpretation Effective for annual Expected to be
reporting periods initially applied in
beginning on or the financial year
after: ending:
1 January 2009 30 June 2010
AASB 8 'Operating Segments'
1 January 2009
AASB 101 'Presentation of 30 June 2010
Financial Statements' (revised
September 2007)
Initial application of the following standards is not expected to have any material impact on the financial report of the Group and
Company.
Standard / Interpretation Effective for annual Expected to be
reporting periods initially applied in
beginning on or the financial year
after: ending:
AASB 123 'Borrowing Costs' 1 January 2009 30 June 2010
(revised), AASB 2007-6
'Amendments to Australian
Accounting Standards arising
from AASB 123'
30 June 2010
AASB 3 'Business Combinations' AASB 3 (business
(2008), AASB 127 'Consolidated combinations
and Separate Financial occurring after the
Statements' and AASB 2008-3 beginning of annual
'Amendments to Australian reporting periods
Accounting Standards arising beginning 1 July
from AASB 3 and AASB 127' 2009), AASB 127 and
AASB 2008-3 (1 July
2009)
1 January 2009 30 June 2010
AASB 2008-1 'Amendments to
Australian Accounting Standard
- Share-based Payments:
Vesting Conditions and
Cancellations'
1 January 2009 30 June 2010
AASB 2008-2 'Amendments to
Australian Accounting
Standards - Puttable Financial
Instruments and Obligations
arising on Liquidation'
1 January 2008 30 June 2009
AASB Interpretation 12
'Service Concession
Arrangements', AASB
Interpretation 4 'Determining
whether an Arrangement
contains a Lease' (revised),
AASB Interpretation 129
'Service Concession
Arrangements: Disclosure'
(revised), AASB 2007-2
'Amendments to Australian
Accounting Standards arising
from AASB Interpretation 12'
1 January 2008 30 June 2009
AASB Interpretation 13
'Customer Loyalty Programmes'
1 January 2008 30 June 2009
AASB Interpretation 14 'AASB
119 - The Limit on a Defined
Benefit Asset, Minimum Funding
Requirements and their
Interaction'
The potential effect of the initial application of the expected issue of an Australian equivalent accounting standard to the following
Standard has not yet been determined:
Standard / Interpretation Effective for annual Expected to be
reporting periods initially applied in
beginning on or the financial year
after: ending:
AASB 2008-5 'Amendments to 1 January 2009 30 June 2010
Australian Accounting
Standards arising from the
Annual Improvements Process'
1 July 2009 30 June 2010
AASB 2008-6 'Further
Amendments to Australian
Accounting Standards arising
from the Annual Improvements
Process'
1 January 2009 30 June 2010
AASB 2008-7 'Amendments to
Australian Accounting
Standards - Cost of an
Investment in a Subsidiary,
Jointly Controlled Entity or
Associate'
1 July 2009 30 June 2010
AASB 2008-8 'Amendments to
Australian Accounting
Standards - Eligible Hedged
Items'
1 January 2009 30 June 2010
AASB Interpretation 15
'Agreements for the
Construction of Real Estate'
1 January 2009 30 June 2010
AASB Interpretation 16 'Hedges
of a Net Investment in a
Foreign Operation'
The director's note that the impact of the initial application of the other Standards and Interpretations not adopted is not yet known
or is not reasonably estimable. These Standards and Interpretations will be first applied in the financial report of the Group that relates
to the annual reporting period beginning on or after the effective date of each pronouncement.
Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group's accounting policies, which are described in Note 1, 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
circumstance, 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.
Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date,
that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial
year:
Development Properties
Development properties represent those costs which are either directly incurred or have been transferred from Exploration and Evaluation
expenditure following a decision to develop. These costs will then be amortised over the life of the reserves associated with the area of
interest once mining operations have commenced. Recoverability of the carrying amount of Development properties is dependent on successful
development and commercial exploitation, or alternatively, sale of the areas of interest.
Significant accounting policies
The following significant accounting policies have been adopted in the preparation and presentation of the financial report:
(a) Going Concern Basis
The financial report has been prepared on the going concern basis, which contemplates the continuity of normal business activity and the
realisation of assets and the settlement of liabilities in the normal course of business.
The Company and Consolidated Entity have incurred a net loss after tax for the year ended 30 June 2008 of $5,683,323 and $10,411,177
respectively and experienced net cash outflows from operating activities of $2,362,478 and $7,339,539 respectively. As at 30 June 2008 the
Company and Consolidated Entity had positive net current assets of $8,719,780 and $8,385,059 respectively.
The Company will need to raise additional capital in the next 12 months to meet forecast costs in relation to the development and
construction of Zheng Guang, exploration and on-going operations. The ability of the Company to raise future capital will be impacted by the
market conditions existing at that time.
(b) Basis of Consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its
subsidiaries) as at 30 June 2008 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 21.
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) Joint Venture Arrangements
The Group accounts for its interests in jointly controlled entities with proportionate consolidation. Proportionate consolidation is a
method of accounting whereby the Group's share of each of the assets, liabilities, income and expenses of its jointly controlled entities is
reported on a line-by-line basis in the consolidated entity's financial statements. The Group considers that proportionate consolidation
provides users of the financial report with reliable and relevant information.
Given that the Group's main asset is its 70% interest in Black Dragon Mining Company Limited, proportionate consolidation enables the
Group to present its share of the assets, liabilities, income and expenses on the face of the balance sheet and income statement.
(d) 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.
(e) 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
Following receipt of the necessary approvals during 2006, the operations of Black Dragon have been separated from China Metals 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 is Chinese Renminbi and the accounts of Black Dragon are prepared in this
currency.
(f) 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.
(g) 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.
(h) 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.
(i) 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.
(j) 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).
(k) 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.
(l) 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.
(m) Other Financial Assets
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) Loans and receivables
Trade receivables, loans and other receivables are recorded at amortised costs less impairment.
(n) 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.
(o) 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(h)). Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are
included in the income statement.
(p) 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.
(q) 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.
(r) 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.
(s) 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.
(t) 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.
(u) 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.
(v) Development Expenditure
Development expenditure represents the costs incurred in preparing mines for production. The costs are carried forward to the extent
that these costs are expected to be recouped through the successful exploitation of the Company's mining properties and then amortised over
the life of the reserves associated with the area of interest once mining operations have commenced.
Development expenditure is reviewed at each reporting date to establish whether an indication of impairment exists. If any such
indication exists, the recoverable amount of the development expenditure 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.
(w) 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.
(x) Share Based Payments
Share based payments may be provided to directors, employees, consultants and other advisors.
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 reserve relating to those options is transferred to share capital.
Consolidated Company
2008 2007 2008 2007
2. LOSS FROM OPERATIONS $ $ $ $
(a) Revenue
Revenue from continuing
operations consisted of the
following items:
Interest received/receivable 1,048,631 628,530 880,475 627,227
Total revenue from continuing 1,048,631 628,530 880,475 627,227
operations
(b) Loss before income tax
Loss before income tax has been arrived at after crediting the following
gains from continuing operations:
Fair value gains/(losses) on other financial assets - (495,000) - (495,000)
at fair value through profit or loss - held for
trading
Gain on disposal of investments - 2,062,500 - 2,062,500
Sundry income 20,995 - 19,910 -
Total other income 20,995 1,567,500 19,910 1,567,500
Loss before income tax has been arrived at after
charging the following losses and expenses:
Depreciation and amortisation 17,710 9,168 3,720 3,912
- plant and equipment
Net movement in provisions for
- employee entitlements 57,019 23,688 61,112 31,946
- write-down to recoverable amount of
investments
- - - 2,120
Foreign exchange loss 1,656,234 1,347,406 1,654,400 1,349,122
Rental expense relating to operating leases (minimum 120,796 68,902 - -
lease payments)
Loss on write down of plant and equipment - 1,269 - 1,269
1
Equity settled share based payments 1,558,523 383,371 1,558,523 383,371
1
Interest expense - 2,958 - 2,958
Post-employment benefits 33,748 75,091 21,796 25,650
-
3. income tax
Income tax expense
Current tax - - - -
Deferred tax - - - -
- - - -
Consolidated Company
2008 2007 2008 2007
3. INCOME TAX (cont'd) $ $ $ $
Numerical reconciliation of income tax expense to prima facie tax payable
Loss from continuing (10,411,177) (10,081,813) (5,683,324) (2,496,416)
operations before income tax
expense
(3,123,353) (3,024,544) (1,704,997) (748,925)
Tax at the Australian tax rate
of 30% (2007: 30%)
Tax effect of amounts which
are not deductible in
calculating taxable income:
Share based payments 467,557 115,011 467,557 115,011
Provisions against investments - - - 633
Other non-deductible 2,155,824 2,871,599 791,756 553,883
expenditure
(499,972) (37,935) (445,684) (79,398)
Tax losses not brought to 499,972 37,935 445,684 79,398
account
Income tax expense - - - -
Deferred tax liabilities
The balance comprises temporary differences
attributable to:
Fair value adjustments on acquisition of subsidiary 3,604,688 3,604,688 - -
(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 since been transferred to development properties which has been carried forward in respect of this
asset.
Movements
Opening balance at 1 July 3,604,688 3,604,688 - -
Charged/(credited) to the income 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 9,143,789 8,643,817 8,905,239 8,459,555
9,143,789 8,643,817 8,905,239 8,459,555
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.
Consolidated Company
2008 2007 2008 2007
4. REMUNERATION OF AUDITORS $ $ $ $
Auditor of the parent entity
Audit Services 48,450 40,750 48,450 40,750
Fees paid to Deloitte Touche Tohmatsu
- Audit and review of the financial
reports and other audit work
Other non-audit services 7,540 - 7,540 -
- Taxation advice
Total remuneration 55,990 40,750 55,990 40,750
5. TRADE AND OTHER RECEIVABLES
Current
Amounts owing by
- other persons 116,140 103,703 74,042 96,349
Non-Current
Amounts owing by
- controlled entities (a) - - 27,784,809 18,128,832
(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. The loan is non-interest bearing and repayable in AUD. At the time of this report no terms for repayment have been set.
6. OTHER ASSETS
Current
Prepayments 65,127 57,836 13,498 15,670
7. OTHER FINANCIAL ASSETS AT FAIR
VALUE THROUGH PROFIT OR LOSS
Non-current
Shares in other entities 1 1 1 1
8. OTHER FINANCIAL ASSETS
Consolidated Company
2008 2007 2008 2007
$ $ $ $
Non-current
Investments - controlled
entities (Note 21)
- At cost - - 11,947,474 11,947,474
- Recoverable amount write down - - (2,812,845) (2,812,845)
provision
Total Investments - controlled - - 9,134,629 9,134,629
entities
Security deposits 20,847 14,999 14,999 14,999
Loans to other entities (1) 2,592,256 688,659 - -
2,613,103 703,658 9,149,628 9,149,628
(1) This represents money paid on behalf of the Consolidated Entity's joint venture partner, Qiqiha'er Brigade ("Qiqiha'er Brigade") of
the Heilongjiang Bureau of Geology and Mineral Resources, in accordance with the joint venture agreement entered into in April 2006. The
loan to the Qiqiha'er Brigade commenced accruing in September 2006 when the Consolidated Entity had satisfied its expenditure commitment for
a 70% interest in Black Dragon Mining Company Limited. The loan is to be interest bearing and repayable from surplus cashflow from the Zheng
Guang project once it is in operation. At financial year end, interest has been accrued on the loan at the People's Bank of China rate.
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.
9. PROPERTY, PLANT AND EQUIPMENT
Plant & equipment
At cost 71,636 44,192 20,339 15,502
Accumulated depreciation (45,284) (27,574) (14,796) (11,076)
Total plant and equipment (Note 9(a)) 26,352 16,618 5,543 4,426
(a) Reconciliation
Plant and Equipment
Carrying amount at beginning of year 16,618 9,786 4,426 5,828
Additions 27,444 17,269 4,837 3,779
Disposals - (1,269) - (1,269)
Depreciation expense (17,710) (9,168) (3,720) (3,912)
Total plant & equipment 26,352 16,618 5,543 4,426
Consolidated Company
2008 2007 2008 2007
$ $ $ $
10. EXPLORATION AND EVALUATION
EXPENDITURE
Balance brought forward - 12,722,473 - -
Transferred to development properties - (12,722,473) - -
Closing balance - - - -
11. DEVELOPMENT PROPERTIES
Balance brought forward 13,031,994 - - -
Transferred from exploration and evaluation
expenditure - 12,722,473 - -
Development expenditure incurred 3,292,332 309,521 - -
Closing balance (i) 16,324,326 13,031,994 - -
* The value of the development properties is dependent upon the successful development or alternatively sale, of the respective
tenements.
12. TRADE AND OTHER PAYABLES
Trade creditors and accruals 1,074,585 285,142 272,812 254,199
(unsecured)
13. PROVISIONS
Employee benefits 120,947 63,929 120,135 59,024
14. ISSUED CAPITAL
(a) Issued and paid up capital
218,110,891 (2007: 64,507,082 63,139,928 64,507,082 63,139,928
215,610,891) fully paid
ordinary shares
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.
14. ISSUED CAPITAL (cont'd)
(b) Movements in share capital during the past two years were as follows (Consolidated Entity and Company):-
Date Details Ordinary Shares Preference Ordinary Shares Preference Shares Total
(Number) Shares ($) ($) ($)
(Number)
1/07/06 Opening Balance 149,179,891 1,000 34,666,587 200,000 34,866,587
14/12/06 Conversion of 10,000,000 (1,000) 200,000 (200,000) 34,866,587
preference shares
(i)
18/12/06 Issue of shares (ii) 23,786,984 - 13,081,860 - 47,948,447
4/1/07 Exercise of options 500,000 - 142,400 - 47,416,947
(iv)
Share issue costs - - (1,412) - 47,415,535
29/1/07 Issue of shares 13,944,016 - 7,764,911 - 55,180,446
(iii)
Share issue costs - - (411,557) - 54,768,889
19/3/07 Exercise of options 100,000 - 35,000 - 54,803,889
(iv)
Transfer from - - 16,210 - 54,820,099
employee benefits
reserve
26/3/07 Exercise of options 1,000,000 - 284,800 - 55,104,899
(iv)
Transfer from - - 173,000 - 55,277,899
employee benefits
reserve
Share issue costs - - (2,199) - 55,275,700
8/5/07 Exercise of options 1,500,000 - 427,200 - 55,702,900
(iv)
Transfer from - 259,500 - 55,962,400
employee benefits
reserve
11/5/07 Exercise of options 500,000 - 142,400 - 56,104,800
(iv)
21/5/07 Exercise of options 100,000 - 35,000 - 56,139,800
(iv)
Transfer from - - 16,210 - 56,156,010
employee benefits
reserve
Share issue costs - (4,272) - 56,151,738
29/6/07 Exercise of options 15,000,000 - 3,272,000 - 59,423,738
(iv)
Transfer from option - - 3,725,000 - 63,148,738
premium reserve
Share issue costs - (8,810) - 63,139,928
30/06/07 Closing Balance 215,610,891 - 63,139,928 - 63,139,928
9/10/07 Exercise of options 100,000 - 35,000 - 63,174,928
(iv)
Transfer from - - 16,210 - 63,191,138
employee benefits
reserve
22/11/07 Exercise of options 300,000 - 105,000 63,296,138
(iv)
Transfer from - - 48,630 - 63,344,768
employee benefits
reserve
11/12/07 Exercise of options 1,100,000 - 385,000 - 63,729,768
(iv)
Transfer from - - 225,310 - 63,955,078
employee benefits
reserve
18/12/07 Exercise of options 1,000,000 - 350,000 - 64,305,078
(iv)
Transfer from - - 209,100 - 64,514,178
employee benefits
reserve
Share issue costs - - (7,096) - 64,507,082
30/06/08 Closing Balance 218,110,891 - 64,507,082 - 64,507,082
14. ISSUED CAPITAL (cont'd)
Note
* On 14 December 2006, 1,000 preference shares converted into 10,000,000 ordinary shares in accordance with their terms;
* On 18 December 2006, the Company issued 23,786,984 shares at 22 pence per share at an exchange rate of 0.40;
* On 29 January 2007, the Company issued 13,944,016 shares at 22 pence per share at an exchange rate of 0.395; and
* The Company issued shares resulting from the exercise of options as follows:
Date Number Exercise Price
4/1/07 500,000 $0.2848
19/3/07 100,000 $0.35
26/3/07 1,000,000 $0.2848
8/5/07 1,500,000 $0.2848
11/5/07 500,000 $0.2848
21/5/07 100,000 $0.35
29/6/07 10,000,000 $0.1848
29/6/07 5,000,000 $0.2848
9/10/07 100,000 $0.35
22/11/07 300,000 $0.35
11/12/07 1,100,000 $0.35
18/12/07 1,000,000 $0.35
Consolidated Company
2008 2007 2008 2007
15. RESERVES $ $ $ $
Employee benefits reserve 1,941,893 882,620 1,941,893 882,620
Foreign currency translation (497,768) (169,869) - -
reserve
Option premium reserve 112,841 112,841 112,841 112,841
1,556,966 825,592 2,054,734 995,461
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 who are paid through
the issue of options in the Company.
Details of the options that comprise the employee benefits reserve are as follows:
700,000 (2007: 700,000) $0.40 options 268,100 268,100 268,100 268,100
550,000 (2007: 550,000) $0.55 options 115,271 115,271 115,271 115,271
Nil (2007: 2,500,000) $0.35 options - 499,249 - 499,249
4,750,000 (2007: Nil) $0.70 options 1,558,522 - 1,558,522 -
1,941,893 882,620 1,941,893 882,620
15. RESERVES (cont'd)
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(c). 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:
Consolidated Company
2008 2007 2008 2007
$ $ $ $
Nil (2007: 600,000) 18 pence options (i) 112,841 112,841 112,841 112,841
112,841 112,841 112,841 112,841
* 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. The options expired on 30 June 2008.
16. ACCUMULATED LOSSES
(31,908,718) (21,826,905) (15,218,732) (12,722,316)
Balance at the beginning of
the financial year
Net loss attributable to (10,411,177) (10,081,813) (5,683,323) (2,496,416)
members of Leyshon Resources
Balance at the end of the (42,319,895) (31,908,718) (20,902,055) (15,218,732)
financial year
Adjusted franking account balance (tax paid 6,913,764 6,913,764 6,913,764 6,913,764
basis)
17. EARNINGS PER SHARE
Consolidated Entity
2008 2007
$ $
Basic loss per share (cents per share) (4.8) (5.8)
Dilutive loss per share (cents per share) (4.8) (5.8)
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
2008 2007
$ $
Net loss used in calculating basic earnings per (10,411,177) (10,081,813)
share
Earnings used in calculating basic and diluted (10,411,177) (10,081,813)
earnings per share
17. EARNINGS PER SHARE (cont'd)
Number of Number of
Shares shares
2008 2007
Weighted average number of ordinary shares used in 217,015,001 174,108,374
calculating basic earnings per share
Effect of dilutive securities - -
Adjusted weighted average number of ordinary shares 217,015,001 174,108,374
and potential ordinary shares used in calculating
diluted earnings per share
(a) Conversions, calls, subscriptions or issues after 30 June 2008
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 used in the calculation of diluted earnings per share:
Number of Number of
potential potential
shares shares
2008 2007
Options - 35 cents exercise price - 2,500,000
Options - 18 pence exercise price - 600,000
Options - 40 cents exercise price 700,000 700,000
Options - 55 cents exercise price 550,000 550,000
Options - 70 cents exercise price 4,750,000 -
18. DIVIDENDS PAID OR PROVIDED FOR
No dividends have been paid or provided for during the year.
Consolidated Company
2008 2007 2008 2007
19. COMMITMENTS FOR $ $ $ $
EXPENDITURE
Exploration Expenditure
Not longer than 1 year - 1,033,478 - -
Longer than 1 year and not longer than 5 years - - - -
Longer than 5 years - - - -
Total Exploration Commitment - 1,033,478 - -
Development Expenditure
Not longer than 1 year 602,031 - - -
Longer than 1 year and not longer than 5 years 651,909 - - -
Longer than 5 years - - - -
Total Development Commitment 1,253,940 - - -
Total Commitments 1,253,940 1,033,478 - -
20. LEASE COMMITMENTS
Operating leases
Leasing arrangements
The operating lease relates to the lease of an office in China. The current lease was entered into on 20 March 2007 for a
period of three years with effect from 1 April 2007. 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 120,894 136,838 - -
Longer than 1 year and not longer than 5 years 80,596 228,063 - -
Longer than 5 years - - - -
201,490 364,901 - -
21. SUBSIDIARIES
Name of Entity Country of Incorporation Class of Shares Equity Holding
2008 2007
Parent Entity % %
Leyshon Resources Limited Australia
Controlled Entities
China Metals Pty Ltd (i) Australia Ordinary 100 100
Leyshon Red Dragon Limited British Virgin Islands Ordinary - 100
(ii)
Leyshon Resources (Coal) Pty Australia Ordinary - 100
Ltd (ii)
Leyshon Coal Limited (ii) British Virgin Islands Ordinary - 100
Leyshon JDK plc (ii) United Kingdom Ordinary - 100
Note
* Interest held by Leyshon Resources Limited;
* These companies were deregistered during the year
22. SEGMENT INFORMATION
The Consolidated Entity operates in one business segment, being the exploration of gold and other minerals, in the following
geographical segments:
Geographical Segment Australia China Consolidated
2008 2007 2008 2007 2008 2007
$ $ $ $ $ $
Revenue
Other revenue/income 19,910 - 1,085 - 20,995 -
Total segment revenue/income 19,910 - 1,085 - 20,995 -
Unallocated revenue 1,048,631 2,196,030
Total consolidated 1,069,626 2,196,030
revenue/income
Results
Segment result (6,563,798) (4,691,143) (4,896,010) (7,586,700) (11,459,808) (12,277,843)
Unallocated expenses - -
Unallocated interest revenue 1,048,631 628,530
Unallocated other income - 1,567,500
Loss before income tax (10,411,177) (10,081,813)
Income tax (expense)/benefit - -
Net loss (10,411,177) (10,081,813)
Assets
Segment assets 9,118,270 21,951,419 19,426,103 14,059,141 28,544,373 36,010,560
Unallocated assets - -
Total assets 28,544,373 36,010,560
Liabilities
Segment liabilities 392,947 313,223 4,407,273 3,640,536 4,800,220 3,953,759
Unallocated liabilities - -
Total liabilities 4,800,220 3,953,759
Other
Acquisition of non-current 4,838 2,219 22,606 15,051 27,444 17,270
assets
Depreciation of segment assets 3,720 3,912 13,990 5,256 17,710 9,168
Share based payments 1,558,523 383,371 - - 1,558,523 383,371
23. 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 21 to the financial statements.
(b) Key management personnel compensation
The directors' and key management personnel of the Consolidated Entity during the year were as follows. Unless otherwise specified each
person held their position for the full financial year.
* John WS Fletcher (Chairman)
* Paul C Atherley (Managing Director)
* Stacey Apostolou (Executive Director and Company Secretary)
* Richard Seville (Non Executive Director)
* Vic McLaglen - Chief Operating Officer, Leyshon Resources Limited
* Dong Ping Ye - Project Development Manager, China Metals Pty Ltd
* Peter Niu - Financial Controller, Leyshon Resources Limited - appointed 17 March 2008
The aggregate compensation made to key management personnel of the Company and the Group is set out below:
Consolidated Company
2008 2007 2008 2007
$ $ $ $
Short-term employee benefits 1,785,902 1,464,029 1,435,902 1,273,608
Post-employment benefits 17,521 62,400 17,521 14,400
Other long-term benefits - - - -
Termination benefits - 18,921 - -
Share-based payment 1,558,523 383,371 1,558,523 383,371
3,361,946 1,928,721 3,011,946 1,671,379
Details of individual key management personnel compensation are disclosed in the Remuneration Report.
(c) Key management personnel equity holdings
Fully paid ordinary shares of Leyshon Resources
Balance at the start of the year Purchases Received on exercise of options Other changes Sales Balance at
the end of the year
(i)
2008
Mr Paul Atherley 30,000,000 - - - (1,000,000)
29,000,000
Mr John Fletcher 2,202,824 - - - -
2,202,824
Ms Stacey Apostolou 800,000 - - - (700,000)
100,000
Mr Richard Seville - - - - -
-
2007
Mr Paul Atherley 10,000,000 - 15,000,000 5,000,000 - 30,000,000
Mr John Fletcher 1,202,824 1,000,000 - - - 2,202,824
Mr Robert Bigland 411,000 - - (411,000) - -
Ms Stacey Apostolou 300,000 - - 500,000 - 800,000
Mr Richard Seville - - - - - -
* 2007 - This includes, with respect to Mr Atherley and Ms Apostolou, the shares issued following conversion of the converting
preference shares and with respect to Mr Bigland, the adjustment following his ceasing to be a director.
23. RELATED PARTY DISCLOSURES (cont'd)
Options exercisable @ $0.70 each on or before 30 November 2010 or 30 June 2011 (as appropriate)
Balance at the start Granted as Exercised Other changes Balance at the end Vested during
the Vested and
of the year remuneration of the year year
exercisable at the
end of the year
2008
Mr John Fletcher - 2010
Options - 1,000,000 - - 1,000,000
1,000,000 1,000,000
Mr Richard Seville - 2010
Options - 1,000,000 - - 1,000,000
1,000,000 1,000,000
Ms Stacey Apostolou - 2010
Options - 2,000,000 - - 2,000,000
2,000,000 2,000,000
Dong Ping Ye -
2011 Options - 750,000 - - 750,000
750,000 750,000
Options exercisable @ $0.1848 or $0.2848 (as appropriate) each on or before 30 June 2007
Balance at the start Granted as Exercised Other changes Balance at the end Vested
during the Vested and
of the year remuneration of the year year
exercisable at the
end of the year
2007
Mr Paul Atherley - $0.1848 10,000,000 - (10,000,000) -
-
Options -
-
Mr Paul Atherley - $0.2848 5,000,000 - (5,000,000) - -
-
Options
-
Options exercisable @ $0.40 or $0.55 (as appropriate) each on or before 30 November 2009
Balance at the start Granted as Exercised Other changes (i) Balance at the end Vested
during the Vested and
of the year remuneration of the year
year exercisable at the
end of the year
2008
Mr Vic McLaglen - $0.40
Options 550,000 - - - 550,000
275,000 550,000
Mr Vic McLaglen- $0.55 Options
550,000 - - - 550,000
275,000 550,000
2007
Mr Vic McLaglen - $0.40 - 550,000 - -
275,000
Options 550,000
275,000
Mr Vic McLaglen- $0.55 Options - 550,000 - - 550,000
275,000
275,000
Mr Malcolm Wilson - $0.40
Options - 475,000 - (475,000) -
150,000 150,000
Mr Malcolm Wilson - $0.55
Options - 325,000 - (325,000) -
- -
(i) Includes reduction in balance for key management personnel who have resigned during the financial year and those options which
lapsed due to the vesting conditions not having been satisfied. The board exercised its discretion on 19 January 2007 to allow 150,000
options exercisable at $0.40 to vest immediately.
23. RELATED PARTY DISCLOSURES (cont'd)
Preference shares convertible into 10,000 ordinary fully paid shares each
Balance at the start Purchases Received on exercise Other changes Sales Balance at the end
of the year of options (i) of the year
2007
Mr Paul Atherley 500 - - (500) - -
Ms Stacey Apostolou 50 - - (50) - -
Mr Jian Hua Sang 450 - - (450) - -
(i) Includes adjustment in balance for key management personnel who have resigned during the financial year and for the conversion of
preference shares.
(d) Other transactions with key management personnel (and their related parties) of Leyshon Resources
Richard Seville & Associates Pty Ltd, a company of which Mr Richard Seville is a director and beneficial shareholder, was paid $43,440
(2007: $41,900) for the provision of technical services. This amount is included in exploration expenses for the year.
Somerley Limited, a company of which Mr John Fletcher is a director and beneficial shareholder, was paid $53,642 (2007: Nil) for the
provision of services with respect to the Company's proposed secondary listing on the Hong Kong Stock Exchange. This amount is included in
business development expenses for the year.
(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 2008 consisted of:
(i) Working capital advanced by Leyshon;
(ii) Working capital repaid to Leyshon; and
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 $27,784,809 (2007: $18,128,832).
(f) Parent entities
The parent entity in the consolidated entity and the ultimate parent entity is Leyshon Resources Limited.
24. SUBSEQUENT EVENTS AFTER BALANCE DATE
There were no significant events occurring after balance date requiring disclosure in the financial statements.
25. 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
2008 2007 2008 2007
$ $ $ $
Cash and cash equivalents 9,399,324 22,096,750 9,025,187 21,834,974
(b) Reconciliation of loss for the year to net cash provided (used) by operating activities
Loss for the year (10,411,177) (10,081,813) (5,683,323) (2,496,416)
Depreciation and amortisation 17,710 9,168 3,720 3,912
Increase in provision for 57,019 23,688 61,112 31,946
employee entitlements
Interest on loan to joint (164,698) - - -
venture partner
Write down to recoverable - - - 2,120
amount of investments
Loss on write down of - 1,269 - 1,269
non-current assets
Exchange differences on cash 1,656,234 1,347,406 1,654,400 1,349,122
balances
Fair value (gain)/loss on - 495,000 - 495,000
financial instruments
Gain on sale of financial - (2,062,500) - (2,062,500)
instruments
Unrealised foreign exchange (327,900) - - -
differences
Share based payment expense 1,558,523 383,371 1,558,523 383,371
(Increase)/decrease in other (25,575) (103,926) 24,480 70,215
assets
(Decrease)/increase in 300,325 (113,901) 18,610 (7,304)
payables
Net cash provided (used) by (7,339,539) (10,102,238) (2,362,478) (2,229,265)
operating activities
(c) Non cash transactions
30 June 2008
During the financial year:
* During the year a total of 2,500,000 options with an exercise date of 31 December 2007 were exercised. An amount of $499,250
relating to these 2,500,000 options exercised had previously been credited to the employee benefit reserve. Subsequent to exercise, issued
capital has been increased by this amount with a similar reduction to the employee benefit reserve;
* On 30 June 2008, 600,000 options with an exercise price of 18 pence expired.
* Grant of options - refer to note 15 and 28.
30 June 2007
During the financial year:
* 1,000 converting preference shares converted into 10,000,000 ordinary shares in accordance with their terms. The converting
preference shares had been carried at $200,000 as part of issued capital and as a result, there was no change to issued capital following
their conversion;
* On each of 19 March 2007 and 21 May 2007, 100,000 options with an exercise date of 31 December 2007 were exercised. An amount of
$32,420 relating to these 200,000 options exercised had previously been credited to the employee benefit reserve. Following exercise, issued
capital has been increased by this amount with a similar reduction to the employee benefit reserve;
25. NOTES TO THE CASH FLOW STATEMENT (cont'd)
* On 26 March 2007 and 8 May 2007, 1,000,000 options and 1,500,000 options with an exercise date of 30 June 2007 were exercised. An
amount of $432,500 relating to these 2,500,000 options exercised had previously been credited to the employee benefit reserve. Following
exercise, issued capital has been increased by this amount with a similar reduction to the employee benefit reserve;
* On 29 June 2007, the 15,000,000 options that had been issued as part consideration for the acquisition of China Metals Pty Ltd
were exercised. The value originally attributed to these options of $3,725,000 had been carried as part of the option premium reserve.
Subsequent to exercise, issued capital has been increased by this amount with a similar reduction to the option premium reserve; and
* Grant of options - refer to note 15.
26. JOINTLY CONTROLLED ENTITY
The Group is a venturer in the following jointly controlled entity:
Interest
2008 2007
Name of venture Principal activity % %
Black Dragon Mining Company Limited Exploration and development 70 70
The Group's interest in assets employed in the above jointly controlled entity is detailed below. The amounts are included in the
consolidated financial statements under their respective assets categories:
Consolidated
2008 2007
$ $
Current assets
Cash 263,722 234,618
Other 51,628 42,166
Total current assets 315,350 276,784
Non current assets
Other 5,848 -
Development properties 3,157,510 -
Total non current assets 3,163,358 -
Total assets 3,478,708 276,784
27. FINANCIAL RISK MANAGEMENT
Overview
This note presents information about the Company's and Group's exposure to credit, liquidity and market risks, their objectives,
policies and processes for measuring risk, and management of capital.
The Company and the Group does not use any form of derivatives as it is not at a level of exposure that requires the use of derivatives
to hedge its exposure. Exposure limits are reviewed by management on a continuous basis. The Group does not enter into or trade financial
instruments, including derivative financial instruments, for speculative purposes.
The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. Management
monitors and manages the financial risks relating to the operations of the group through regular reviews of the risks.
Significant Accounting Policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of 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.
Net Fair Value
The carrying amount of financial assets and financial liabilities recorded in the financial statements represents their respective net
fair values, determined in accordance with the accounting policies disclosed in Note 1 to the financial statements.
Credit risk
Credit risk refers to the risk that counter-party will default on its contractual obligations resulting in financial loss to the
consolidated entity. The consolidated entity has adopted the policy of only dealing with creditworthy counter-parties and obtaining
sufficient collateral or other security where appropriate, as a means of mitigating the risk of financial loss from defaults. The
consolidated entity measures credit risk on a fair value basis. The consolidated entity does not have any significant credit risk exposure
to any single counter-party.
Cash and cash equivalents
The Group limits its exposure to credit risk by only investing in liquid securities and only with counterparties that have an acceptable
credit rating.
Trade and other equivalents
As the Group operates primarily in exploration activities, it does not have trade receivable and therefore is not exposed to credit risk
in relation to trade receivables.
The Company and Group have established an allowance for impairment that represents their estimate of incurred losses in respect of other
receivables (mainly relates to staff advances and security bonds) and investments. The management does not expect any counterparty to fail
to meet its obligations.
27. FINANCIAL RISK MANAGEMENT (cont'd)
Exposure to credit risk
The carrying amount of the Company and Group's financial assets represents the maximum credit exposure. The Company and Group's maximum
exposure to credit risk at the reporting date was:
Consolidated Company
2008 2007 2008 2007
$ $ $ $
Loans and receivables 2,729,243 807,361 27,873,850 18,240,180
Cash and cash equivalents 9,399,324 22,096,750 9,025,187 21,834,974
12,128,567 22,904,111 36,899,037 40,075,154
Impairment losses
None of the Groups' other receivables are past due (2007: Nil)
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to
managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under
both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.
The Group manages liquidity risk by maintaining adequate cash reserves from funds raised in the market and by continuously monitoring
forecast and actual cash flows. The Group does not have any external borrowings.
The Company will need to raise additional capital in the next 12 months to meet forecast costs in relation to the development and
construction of Zheng Guang, exploration and on-going operations. The decision on how the Company will raise future capital will depend on
the market conditions existing at that time.
The following are the maturities of financial liabilities, including estimated interest payments and excluding the impact of netting
agreements of the Group:
Consolidated Company
2008 2007 2008 2007
$ $ $ $
Less than 6 months 1,074,585 285,142 272,812 254,199
6 months to 1 year - - - -
1 to 5 years - - - -
Over 5 years - - - -
1,074,585 285,142 272,812 254,199
All financial liabilities of the Group and Company are non-interest bearing.
Market Risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the
Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control
market risk exposure within acceptable parameters, while optimising the return. The Group manages market risk by ensuring it only holds
short-term, predominantly fixed interest financial instruments with maturities of less than three months.
27. FINANCIAL RISK MANAGEMENT (cont'd)
Currency Risk
The Group is exposed to currency risk on investments, purchases and borrowings that are denominated in a currency other than the
respective functional currencies of Group entities, which is primarily the Australian Dollar (AUD). The currencies in which these
transactions primarily are dominated are USD and GBP.
The Group has not entered into any derivative financial instruments to hedge such transactions.
The Group's investments in its subsidiaries are not hedged as those currency positions are considered to be long term in nature.
Exposure to Currency Risk
The Group's exposure to foreign currency risk at balance date based on notional amounts was as follows:
30 June 2008 30 June 2007
A$ A$
USD GBP Total USD GBP Total
Financial Assets
Cash and cash equivalents 6,202 9,014,046 9,020,248 2,334,721 15,018,573 17,353,294
Loans and receivables
- - - - - -
Financial Liabilities
Amortised cost (10,435) (9,349) (19,784) (8,030) (11,705) (19,735)
Gross balance sheet exposure
(4,233) 9,004,697 9,000,464 2,326,691 15,006,868 17,333,559
The Company's exposure to foreign currency risk at balance date based on notional amounts was as follows:
30 June 2008 30 June 2007
A$ A$
USD GBP Total USD GBP Total
Financial Assets
Cash and cash equivalents 1,850 9,014,046 9,015,896 2,334,721 15,018,573 17,353,294
Loans and receivables -
- - - - -
Financial Liabilities
Amortised cost - (9,349) (9,349) (8,030) (11,705) (19,735)
Gross balance sheet exposure
1,850 9,004,697 9,006,547 2,326,691 15,006,868 17,333,559
27. FINANCIAL RISK MANAGEMENT (cont'd)
Sensitivity analysis
A 10 percent strengthening of the Australian dollar against the following currencies at 30 June would have increased (decreased) equity
and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain
constant. The analysis is performed on the same basis for 2007.
Consolidated Company
Other Equity Profit or loss Other Equity Profit or loss
30 June 2008 A$ A$ A$ A$
USD - (423) - 185
GBP - 900,470 - 900,470
- 900,047 - 900,655
Consolidated Company
Other Equity Profit or loss Other Equity Profit or loss
30 June 2007 A$ A$ A$ A$
USD - 232,669 - 232,669
GBP - 1,500,687 - 1,500,687
- 1,733,356 - 1,733,356
A 10 percent weakening of the Australian dollar against the above currencies at 30 June would have had an equal but opposite effect on
the above currencies to the amounts shown above, on the basis that all other variables remain constant.
Interest rate risk
The Group is exposed to interest rate risk (primarily on its cash and cash equivalents), which is the risk that a financial instrument's
value will fluctuate as a result of changes in the market interest rates on interest-bearing financial instruments. The Group does not use
derivatives to mitigate these exposures.
The Group adopts a policy of ensuring that as far as possible it maintains excess cash and cash equivalents in short terms deposit at
interest rates maturing over 90 day rolling periods.
27. FINANCIAL RISK MANAGEMENT (cont'd)
Profile
Weighted Average Fixed Interest Rate
Effective Interest
Rate
Variable Interest $ Total
Rate
$
$
$
Consolidated
2008
Financial Assets
Cash and cash equivalents 7.1% 9,399,324 - 9,399,324
Other financial assets 7.3% 2,592,256 - 2,592,256
Financial Liabilities
Financial liabilities - - -
11,991,580 - 11,991,580
2007
Financial Assets
Cash and cash equivalents 5.3% 22,096,750 - 22,096,750
Other financial assets - - - -
Financial Liabilities
Financial liabilities - - - -
22,785,410 - 22,785,410
Company
2008
Financial Assets
Cash and cash equivalents 7.1% 9,025,187 - 9,025,187
Other financial assets - - -
Financial Liabilities
Financial liabilities - - -
9,025,187 - 9,025,187
2007
Financial Assets
Cash and cash equivalents 5.3% 21,834,974 - 21,834,974
Other financial assets - - -
Financial Liabilities
Financial liabilities - - -
21,834,974 - 21,834,974
At the reporting date the interest rate profile of the Group's and the Company's interest-bearing financial instruments was:
27. FINANCIAL RISK MANAGEMENT (cont'd)
Cash flow sensitivity analysis for variable rate instruments
A change of 100 basis points in interest rates at the reporting date would have increased (decreased) equity and profit or loss by the
amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is
performed on the same basis for 2007.
Consolidated Company
Other Equity Profit or loss Other Equity Profit or loss
A$ A$ A$ A$
30 June 2008
Variable rate instruments - 147,765 - 145,293
30 June 2007
Variable rate instruments - 124,069 - 118,345
Commodity Price Risk
The Group is still operating primarily in the evaluation and development phase and accordingly the Group's financial assets and
liabilities are not yet subject to commodity price risk.
Capital Management
The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern and to maintain a
strong capital base sufficient to maintain future exploration and development of its projects. In order to maintain or adjust the capital
structure, the Group may return capital to shareholders, issue new shares or sell assets to reduce debt. The Group's focus has been to raise
sufficient funds through equity to fund exploration and evaluation activities.
There were no changes in the Group's approach to capital management during the year. Risk management policies and procedures are
established with regular monitoring and reporting.
Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
The capital structure of the Group consists of equity attributable to equity holders of the parent, comprising issued capital, reserves
and retained losses as disclosed in Notes 14, 15 and 16 respectively.
28. SHARE BASED PAYMENTS
The Company does not have a formal employee share option plan, however the Board has from time to time granted options to employees and
officers on a discretionary basis as it is considered that this provides a cost-effective and efficient means of remunerating and
incentivising employees. In addition, shareholders have in General Meeting approved the granting of all incentive options to Directors. The
share based payment expenses have been recognised in respect of the fair value of options granted as remuneration.
28. SHARE BASED PAYMENTS (cont'd)
Valuation of Securities
30 June 2008
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 Valuation Model with the following
assumptions:
$0.70 - 2010 Options $0.70 - 2011 Options
Dividend yield - -
Volatility 75% 62%
Risk-free interest rate 6.59% 6.25%
Expected life of option 3 years 3.2 years
Underlying security spot price $0.61 $0.520
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 fair values per option for the options granted are:
Number of Options Exercise price Expiry date Grant date Vesting dates Fair value per
option
4,000,000 $0.70 30 Nov 2010 4 Dec 2007 Vest immediately $0.305
750,000 $0.70 30 Jun 2011 8 Apr 2008 350,000 vest $0.204
immediately and
400,000 on 7 May
2008
30 June 2007
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 Binomial Option Valuation Model with the following
assumptions:
$0.40 Options $0.55 Options
Dividend yield - -
Volatility 75% 75%
Risk-free interest rate 5.97% 5.97%
Expected life of option 3 years 3 years
Underlying security spot price $0.605 $0.605
The resulting fair values per option for the options granted are:
Number of Options Exercise price Expiry date Grant date Vesting dates Fair value per
option
1,025,000 $0.40 30 Nov 2009 12 Dec 2006 50% on each of 15 $0.383
May 2007 and 15 Nov
2007
875,000 $0.55 30 Nov 2009 12 Dec 2006 50% on each of 15 $0.337
May 2007 and 15 Nov
2007
http://www.rns-pdf.londonstockexchange.com/rns/5072E_1-2008-9-28.pdf
This information is provided by RNS
The company news service from the London Stock Exchange
END
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