This Explanatory Statement has been prepared to provide information which the Directors believe to be material to Shareholders in deciding whether or not to pass the Resolutions which are the subject of the business of the Meeting.
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Financial statements and reports
In accordance with the Constitution, the business of the Meeting will include receipt and consideration of the annual financial report of the Company for the financial year ended 30 June 2015, together with the declaration of the directors, the directors' report, the Remuneration Report and the auditor's report.
The Company will not provide a hard copy of the Company's annual financial report to Shareholders unless specifically requested to do so. The Company's annual financial report is available on its website at www.gryphonminerals.com.au.
While no resolution is required in relation to this item, Shareholders will be given the opportunity to ask questions and make comments on the financial statements and reports.
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Resolution 1: Adoption of the Remuneration Report
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General
The Corporations Act requires that at a listed company's annual general meeting, a resolution that its remuneration report be adopted must be put to the shareholders. The remuneration report sets out a company's remuneration arrangements for the directors and senior management of the company. The remuneration report is part of the directors' report contained in the annual financial report of the company for a financial year.
You should note, your vote on the adoption of the Remuneration Report is advisory only and does not bind the Company or the Directors. However, the Board will take the outcome of the vote into consideration when reviewing the remuneration practices and policies of the Company.
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Voting consequences
Under the Corporations Act, if 25% or more of votes that are cast are voted against the adoption of a company's remuneration report at two consecutive annual general meetings, shareholders of the company will be required to vote at the second of those meetings on a resolution ('Spill Resolution').
If more than 50% of votes cast are in favour of the Spill Resolution, the company must convene a shareholder meeting within 90 days at which all of the Directors (other than the Managing Director) must go up for re-election. At the Company's previous annual general meeting the votes cast against the remuneration report considered at that meeting were less than 25%. Accordingly, a Spill Resolution is not relevant for this Meeting.
The Chair will give Shareholders a reasonable opportunity to ask questions about or to make comments on the Remuneration Report at the Meeting.
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Background
To preserve the Company's cash position, the Board has spent a considerable amount of time focusing on its remuneration framework and policy reflecting on past feedback from stakeholders and significant cost reduction measures.
Your Directors recognise that the Company's performance and ultimate success in project delivery depends very much on its ability to attract and retain highly skilled, qualified and motivated people in an increasingly competitive remuneration market. At the same time, remuneration practices must be transparent to shareholders and be fair and competitive taking into account the nature and size of the organisation and its current stage of development.
The Company's remuneration framework provides a mix of fixed and variable 'at risk' remuneration and a blend of short and long-term incentives. Full details of the remuneration framework are provided in the Remuneration Report.
Your Directors would like to point out several cost reduction remuneration initiatives that the Company has implemented which they believe are relevant to Shareholders in considering their vote on the 2015 Remuneration Report:
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no additional fees were paid to non-executive Directors for memberships of a board committee;
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continued salary freeze on the base salaries of all executives (third consecutive year);
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the short term incentive plan remained suspended (second consecutive year); and
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no long term incentives were issued during the 2015 financial year.
Your Directors would like to point out further cost reduction remuneration initiatives the Company has implemented for the financial year ended 30 June 2016:
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as at 1 July 2015 all non-executive Directors have agreed to a voluntary 25% reduction in fees. This is their second voluntary fee reduction in the past 2 years totalling 40% in reductions;
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as at 1 July 2015 the Managing Director has agreed to a voluntary reduction in his base salary of 10%. This is the Managing Director's second voluntary fee reduction in the past 2 years totalling 28% in reductions; and
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as at 1 October 2015 all other key management personnel agreed to receive 10% of their base salary in shares, rather than cash.
The Board unanimously recommend that Shareholders vote in favour of Resolution 1.
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Resolution 2: Re-election of director - Mr Mel Ashton
Clause 11.3 of the Constitution requires that at the Company's annual general meeting in every year, one-third of the Directors for the time being, or, if their number is not three nor a multiple of three, then the number nearest one-third and any other Director not in such one-third who has held office for three years or more (except the Managing Director) must retire from office.
A Director who retires by rotation under clause 11.3 of the Constitution is eligible for re-election.
The Directors to retire at an annual general meeting must be those who have been longest in office since their last election, but, as between persons who became Directors on the same day, those to retire must (unless they otherwise agree among themselves) be determined by lot.
Mr Mel Ashton, the Director longest in office since his last election, retires by rotation and seeks re- election.
Mr Mel Ashton holds a Bachelor of Commerce degree from the University of Western Australia, is a fellow of Chartered Accountants Australia and New Zealand and a fellow of the Australian Institute of Company Directors. Mr Ashton has over 30 years' experience in corporate reconstruction, risk management and governance. He is currently the Chairman for Empired Ltd and Venture Minerals Ltd and recently held the position of President of Chartered Accountants Australia and New Zealand.
Mr Ashton has served as Chairman of the Company for over 10 years. In order to meet the changes to independence criteria set out in the 3rd edition of the ASX Corporate Governance Council Principles and Recommendations the Board performs a review of Mr Ashton's independence status every six months to determine whether his tenure with the Company has impacted his independence. The Board has determined that Mr Ashton continues to be independent.
The Board is of the opinion that Mr Ashton continues to provide an invaluable contribution to Board activities and unanimously recommend that shareholders vote in favour of Resolution 2.
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Resolution 3: Issue of Performance Rights to Related Party - Mr Stephen Parsons
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General
The Company has agreed, subject to obtaining Shareholder approval, to issue up to 5,097,414 Performance Rights to the Managing Director of the Company, Mr Stephen Parsons (or his nominee/s) on the terms and conditions set out below.
The 5,097,414 Performance Rights will be issued in two separate equal tranches of 2,548,707 to be issued on the same date, but with each tranche having a different Performance Hurdle as set out below:
Tranche 1: Will vest upon the Board resolving to commence construction of the Banfora Gold Project on or before 30 September 2017.
Tranche 2: Will vest upon first gold pour being achieved at the Banfora Gold Project in Burkina Faso on or before 30 September 2018.
In addition, the Performance Rights will automatically vest in the event of a change of control of the Company and at the discretion of the Board which is exercisable in the circumstances set out in Annexure A.
The issue of the Performance Rights will be granted, subject to shareholder approval, under the Gryphon Minerals Limited - Equity Incentive Plan approved by Shareholders on 20 November 2012. See Annexure A for further details regarding the terms and conditions of the Performance Rights.
The Company's remuneration policy for long-term incentives is discussed in detail in the Company's 2015 annual report. In summary the following principles apply for grants of long-term incentives:
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the grants are made annually , and subject to a maximum percentage threshold amount of fixed remuneration (being currently set at 75% for the Managing Director); and
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vesting is subject to performance measured against longer term internal and external performance measures.
The Company believes that the issue of Performance Rights is appropriate to align the creation of shareholder value and remuneration whilst minimising cash outflows.
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Background
Over the past two years the Company has implemented significant cost reduction measures to conserve the company's strong cash position.
Mr Parsons has personally contributed to these cost reduction measures by:
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agreeing to a voluntary reduction of base salary by 28% over the past two years;
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voluntarily waiving 50% of his accrued 2013 Financial Year short term incentive ($325,000); and
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deferring the remaining 50% of his accrued 2013 Financial Year short term incentive until first gold pour at the Banfora Gold Project, or if there is a change of control of the Company, or cessation of Mr Parsons employment with the Company.
The Directors believe the issue of Performance Rights to Mr Parsons is reasonable given:
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the increased workload and commitment to the Company that Mr Parsons has demonstrated through the voluntary reduction of his base salary and deferral of the 2013 Financial Year short term incentive payments;
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the value of these Performance Rights at the date of this Notice is within the thresholds set out in the revised remuneration framework as adopted by the Company in July 2012 which received overwhelming endorsement from shareholders (a 98% 'for' vote) at the Company's 2012 annual general meeting;
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the strategy to increase the 'at risk' component of Mr Parsons remuneration;
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the strategy to align the creation of shareholder value and remuneration; and
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to conserve the Company's cash position.
As such the Directors (excluding Mr Parsons) unanimously recommend shareholders vote in favour of Resolution 3.
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Section 208 of the Corporations Act
Section 208 of the Corporations Act states that a public company cannot give a 'financial benefit' (including an issue of shares or rights) to a 'related party' of the Company unless one of the exceptions set out in section 210 to 216 of the Corporations Act apply, or the holders of ordinary securities have approved the giving of the financial benefit to the related party in a general meeting.
As a Director, Mr Stephen Parsons is a related party of the Company within the meaning specified under section 228 of the Corporations Act. Further, the provision of the Performance Rights constitutes a financial benefit within the meaning of section 229 of the Corporations Act. Accordingly, Shareholder approval is sought under section 208 of the Corporations Act to permit issue of the Performance Rights under Resolution 3 to Mr Stephen Parsons as a related party of the Company.
As required by section 219 of the Corporations Act, the following information is provided in relation to Resolution 3:
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The related party to whom the financial benefit is to be given Mr Stephen Parsons (or his nominee/s).
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The nature of the financial benefit
The issue of up to 5,097,414 Performance Rights to Mr Stephen Parsons. The Performance Rights will be issued on the terms set out in Annexure A.
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Valuation of the financial benefit
The Company engaged Stantons International to prepare independent valuations of the Performance Rights. Using the Market Valuation methodology, Stantons International has calculated the estimated value of each Performance Right to be $0.058 per Performance Share, or an aggregate value of $295,650.
The following variables and assumptions were used in the valuation:
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A Company share price of $0.058 (closing market price on ASX on 13 October 2015).
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Expiry date of 25 November 2018.
The valuation shown is indicative only and as a result of fluctuating share prices will vary between the date of this Notice of Meeting and when the Performance Rights are issued (if approved).
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Current remuneration and security interests
As at the date of this Notice Mr Parsons' annual salary (including 9.5% compulsory superannuation) was $394,200.
As at the date of this Notice Mr Parsons directly and indirectly held the following security interests in the Company:
7,036,310 Shares;
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3,333,333 Share Appreciation Rights with an exercise price of $0.235; and
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218,530 Share Appreciation Rights with an exercise price of $0.87.
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Dilution
The number of Performance Rights issued equals the number of Shares that may be issued upon vesting and/or exercise of the Performance Rights. The maximum number of Shares that may be issued on the exercise of the Performance Rights is 5,097,414.
If all of the Performance Rights issued under this Resolution were converted into Shares, and no other Shares were issued by the Company, the shareholding of existing Shareholders would, based on the current issued capital of the Company, be diluted by approximately 1.27%.
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Accounting
The Company's adoption of Australian equivalents to International Financial Reporting Standards for reporting periods means that, under AASB2 Share-based Payment, equity-based compensation (such as the Performance Rights under this Resolution) will be recognised as an expense in respect of the services received.
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Trading history
As at the date of the Notice, the Company had 401,290,987 Shares on issue. The highest and lowest market sale price in the Company during the twelve months immediately preceding the date of the Notice was $0.135 on 15 October 2014 and $0.044 on 5 December 2014. The closing market sale price of the Company's Shares on ASX on 13 October 2015 was $0.058.
As at the date of this Notice, the Company had 6,499,841 share appreciation rights on issue. There were no other equity based securities on issue as at the date of this Notice.
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Terms of the securities
The terms of the Performance Rights are set out in Annexure A.
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Opportunity costs to the Company
The Directors do not consider that there are any opportunity costs to the Company or benefits foregone by the Company in issuing the Performance Rights.
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The intended use of the funds raised
There will be no funds raised in connection with the issue of the Performance Rights under this Resolution as the Performance Rights are to be issued without payment of cash consideration.
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Di rector's i nterests
Mr Stephen Parsons has a material personal interest in the outcome of Resolution 3 as the recipient of the Performance Rights. No other Director has a material personal interest in the outcome of Resolution 3.
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Di rector's recom m endati ons
The recommendation of the Directors and the reasons for that recommendation are as follows:
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each Director (other than the abstaining Director Mr Stephen Parsons) recommends that Shareholders vote in favour of Resolution 3; and
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each of the Directors making the recommendation to vote in favour of Resolution 3 considers that the Resolution is in the best interests of the Company as recognition of Mr Stephen Parsons' continued contribution to the Company's progress to date and to further incentivise his ongoing performance and commitment to the Company.
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Other information
Other than as set out in the Explanatory Statement, there is no further information that is known to the Company or any of the Directors which Shareholders would reasonably require in order to decide whether or not it is in the Company's best interests to pass Resolution 3.
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ASX Listing Rule 10.14
ASX Listing Rule 10.14 also requires shareholder approval to be obtained where an entity issues, or agrees to issue, securities under an employee incentive scheme to a director of the entity, an associate of the director, or a person whose relationship with the entity, director or associate of the director is, in ASX's opinion, such that approval should be obtained.
As the issue of the these Performance Rights involves the issue of securities under an employee incentive scheme to a Director, Shareholder approval pursuant to ASX Listing Rule 10.14 is required.
The issue of the Performance Rights under Resolution 3 will not affect the capacity of the Company to issue securities in the next 12 months under Listing Rule 7.1, as those Performance Rights (once approved by Shareholders and issued) will be excluded from the calculations under Listing Rule 7.1.
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Shareholder approval (Listing Rule 10.14)
As required by Listing Rule 10.15, the following information is provided in relation to Resolution 3:
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The maximum number of Performance Rights to be issued to Mr Parsons (or his nominee/s) is 5,097,414;
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The Performance Rights will be issued for nil cash consideration and no consideration will be payable upon the vesting of the Performance Rights or the subsequent issue of Shares (if any). Accordingly, no funds will be raised from the issue or vesting of the Performance Rights;
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Since last approval under the scheme, Mr Parsons being the only person referred to in Listing Rule 10.14 who received securities under the scheme, received the following number of securities:
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10,874,124 Share Appreciation Rights at no acquisition price (of which 7,322,261 have lapsed or expired)
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344,435 Performance Rights at no acquisition price (of which 258,326 have lapsed or expired)
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As at the date of this Notice, Mr Parsons is the only person declared by the Board to be eligible to be issued Performance Rights under the Plan that is covered by ASX Listing Rule 10.14 (i.e. a Director, an associate of the Director, or a person whose relationship with the Company, Director or associate of the Director is, in ASX's opinion, such that approval should be obtained);
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A voting exclusion statement for Resolution 3 has been included in the Notice of Meeting preceding this Explanatory Statement;
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As the Performance Rights will be issued for nil cash consideration and no consideration will be payable upon the vesting of the Performance Rights or the subsequent issue of Shares (if any), no loan will be provided by the Company to Mr Parsons in relation to the issue of the Performance Rights;
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Details of any securities issued under the employee incentive scheme will be published in each annual report of the entity relating to a period in which securities have been issued, and that approval for the issue of securities was obtained under Listing Rule 10.14.
Any additional persons who become entitled to participate in the employee incentive scheme after the resolution was approved and who were not named in the notice of meeting will not participate until approval is obtained under Listing Rule 10.14;
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It is expected that the 5,097,414 Performance Rights will be issued to Mr Parsons (or his nominee) as soon as practicable after Shareholder approval is obtained and in any event no later than 1 month after the date of the Meeting (or such later date as permitted by any ASX waiver or modification of the ASX Listing Rules); and
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The terms of the Performance Rights are set out in Annexure A.