6f442ea5accf0ed956e28a.pdf
KalNorth Gold Mines Limited and Controlled Entities
ACN 100 405 954
Financial Report
For the year ended 30 June 2015
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CONTENTS
Corporate Particulars
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1
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Directors' Report
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2
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Financial Report
Consolidated
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Statement of Profit or Loss
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and
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Other
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Comprehensive Income 15
Consolidated Statement of Financial Position 16
Consolidated Statement of Changes in Equity 17
Consolidated Statement of Cash Flows 18
Notes to the Financial Statements 19
Directors' Declaration 42
Auditors' Independence Declaration 43
Independent Auditors' Report 44
CORPORATE PARTICULARS
Directors Mr Jiajun Hu Mr Lijun Yang
Mr Yuanguang Yang
Chairman Executive Director
Non-Executive Director
Company Secretary
Mr Lijun Yang
Registered Office and Principal Place of Business
224 Dugan Street
Kalgoorlie, Western Australia 6430
Share Registry Advanced Share Registry Limited
110 Stirling Highway
Perth WA 6009
Auditor RSM Bird Cameron Partners 8 St Georges Terrace
Perth WA 6000
Solicitor Steinepreis Paganin 16 Milligan St
Perth WA 6000
Stock Exchange Listing
Australian Securities Exchange (ASX: KGM)
Company Websitewww.kalnorthgoldmines.com
The Directors of KalNorth Gold Mines Limited ('the Company') present their financial report on the consolidated entity, being the company and its controlled entities, for the financial year ended 30 June 2015.
Directors
The names of directors in office at any time during or since the end of the financial year are listed hereunder. Directors have been in office since the start of the financial year to the date of this report unless otherwise stated.
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Jiajun Hu
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Non-executive Chairman
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Lijun Yang
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Executive Director
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Yuanguang Yang
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Non-executive Director (appointed 28 August 2014)
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Brendan Peter Connell
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Former non-executive Chairman (resigned 28 August 2014)
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Information on Directors
JIAJUN HU
Non-Executive Chairman (appointed Chairman 14 April 2015)
Mr. Jiajun Hu acts as Regional Business Executive of Cross-Strait Common Development Fund Co., Ltd (hereinafter referred to as 'Cross-Strait'). Currently, Cross-Strait, with its global headquarters in Hong Kong, is the largest shareholder in the Company.
He is responsible for supervising and administrating the investment projects of Cross-Strait in Oceania and he directly reports to the managing director of Cross-Strait and has gained significant experience in international investment, financial accounting, commercial contract negotiation and contract dispute negotiation through corporate transactions in North America, Africa, Asia and Oceania.
He has a Bachelor's Degree in Business Studies in 2008 from the Australian National University majoring in finance and accounting. Mr. Hu has specialized knowledge of financial transaction market and investment capital market, and is familiar with Chinese business and capital market operation. Mr. Hu is fluent in both English and Chinese
Mr Hu has held no other directorships of other public companies within the last three years. Interest in shares and options: nil
LIJUN YANG
Executive Director
Mr Yang is a geologist with more than 10 years working experience at various Chinese and Australian gold operations. He received his Master's Degree in Exploration Mineralogy from the China University of Geosciences in 2012 and developed new methodologies to explore for gold mineralisation using the typomorphic properties of minerals. He commenced working for KalNorth as a Project Evaluation Geologist in August 2013 and was appointed to the Board in November 2013 as an Executive Director. Mr Yang is multi-lingual (Chinese & English).
He is a member of the Australian Institute of Geoscientists ('AIG') and the Society of Economic Geologists ('SEG').
Mr Yang has held no other directorships of other public companies within the last three years. Interest in shares and options: 31,400 ordinary fully paid shares
Information on Directors (Cont'd)
YUANGUANG YANG
Non-Executive Director (Appointed 28 August 2014)
Mr. Yang is a Hong Kong CPA (practising) and currently operates a CPA firm in Hong Kong with business focus in markets of Hong Kong, Mainland China, Australia and New Zealand. Mr. Yang is also a Chartered Accountant in Australia and New Zealand.
He has over 15 years' experience in audit and assurance, global tax planning, corporate advisory, family business and M & A business and also worked with the Industrial and Commercial Bank of China for several years before running his CPA business.
Mr Yang resides in Hong Kong and is an authorised officer of South Victory Global Limited, a major lender to and shareholder in the Company.
Mr. Yang has held no other directorships of other public companies within the last three years. Interest in shares and options: nil
BRENDAN PETER CONNELL
Resigned 28 August 2014
Company Secretary
Mr Lijun Yang
Appointed 29 August 2014
Mr James Church Resigned 29 August 2014
Principal Activities
The consolidated entity's principal activity during the year was gold exploration on the Lindsays, Kalpini and Kurnalpi projects near Kalgoorlie, Western Australia.
Operating Results and Financial Performance
The operating loss after income tax of the consolidated entity for the year ended 30 June 2015 was
$774,451 (2014: loss $10,763,483).
The operating loss for the year was impacted by the following key items:
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Exploration expenditure of $0.79 million (2014: $0.80 million) across all project areas and immediately written-off to the profit and loss.
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No impairment charge for the further write-down of past exploration expenditures in the current year (2014: $10.1 million).
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Interest expense of $0.56 million (2014: $0.73 million) on the secured and unsecured loans.
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Profit on the sale of the Mt. Jewell project of $0.9 million (2014: nil).
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A tax refund of $0.53 million with respect to the 2014 financial year and supported by a tax incentive submission based upon the R&D activities and development of new mining knowledge relating to mine design and mining methodologies at the Lindsays mine (2014: $2.40 million).
In addition to the sources of funding referred to above, the company also raised $350,000 via the completion of a convertible note issue.
Operating Results and Financial Performance (Cont'd)
As at 30 June 2015 the company had $238,640 (2014: $128,867) in cash reserves and an aggregate of
$4,764,557 (2014: $4,891,788) in secured/unsecured loans and convertible notes (and accrued interest payable).
At 30 June 2015, the consolidated entity had net assets of $1,764,199 (2014: $1,513,157).
Review of Operations
The company has four core gold exploration projects each located within 90 kilometres of Kalgoorlie in the Eastern Goldfields of Western Australia. Each project hosts a gold resource within a package of semi contiguous tenements that are located close to existing infrastructure and operating gold plants that could provide options for milling with any future development proposal. The past year, with improvement in the financial capacity of the company resulted in the first exploration programs being initiated and completed in over two years on three of the four project areas. The company's strategy has and continues to focus on seeking to realise value from existing resource assets by improving the value whilst at the same time rationalising the large tenement portfolio to reduce the commitment costs to keep tenure in good standing.
During the year field based work programs included diamond drilling, ground based gravity surveys and prospecting. Desktop work comprising resource estimation, geophysical data compilation and geophysical interpretation resulted in the announcement of a new gold resource at Lindsays and the definition of several high quality gold targets at Kurnalpi that require further evaluation. In particular the geological interpretation and targeting exercise at Kurnalpi has supported the company's view of the project being a favourable area for significant gold mineralisation and provided a foundation for ongoing exploration.
Lindsays Project (100% KGM)
The Lindsays Project is located approximately 65km to the north east of Kalgoorlie and contains the Lindsays mine site which continues to remain under suspension since August 2013. During the past year three RC precollared diamond drill holes were completed at Lindsays successfully targeting the narrow flat dipping Parrot Feathers lode below the Stage 2 pit which hosts the Parrot Feathers lode to improve understanding of the lode geometry and grade in an area previously evaluated with reverse circulation drilling. The Parrot Feathers lode is exposed along the entire length of the Stage 2 open pit and the recent and historical drilling has shown the lode to have good continuity both along strike and down dip. All three holes intersected the mineralised quartz vein in the expected position
The results of these drill holes were combined with the relogging and reinterpretation of existing drilling to refine the geological model and support a resource estimate of the Parrot Feathers lode. The company elected to focus on re-modelling and estimating the Parrot Feathers lode as it was exposed at the base of the suspended stage 2 pit, contained higher grade intercepts from previous drilling than other zones at Lindsays and had exhibited down dip continuity to some 250m from surface. Furthermore the Stage 2 open pit provided a sound option from which to develop an underground mining operation. The company engaged Ravensgate Mining Industry Consultants ('Ravensgate) to complete the mineral resource estimate to JORC 2012 standard.
The more robust geological model and improved grade distribution within the Parrot Feathers lode gives further confidence to consider underground development from the base of the stage 2 open pit. The company has commenced and is well advanced with an initial scoping study and preliminary economic evaluation to develop the Parrot Feathers lode via underground mining. The company continues to progress negotiations with parties interested in a tribute type of underground mining development of the Parrot Feathers lode.
Review of Operations (Cont'd)
Kurnalpi Project (100% KGM)
The company's wholly owned Kurnalpi project is located some 90km to the east of Kalgoorlie and covers approximately 100km2 centered on the historical Kurnalpi townsite. Kurnalpi was the site of a major alluvial gold rush in the late 1890's, was exploited in the mid 1980's by modern alluvial mining and continues to yield gold nuggets to this day over a wide area by prospectors who work the company's ground under agreement. Numerous small historical gold workings are located throughout the Kurnalpi area but a primary source to the extensive alluvial gold areas is yet to be located. The company considers the Kurnalpi Project to have the core geological, geophysical, geochemical and structural characteristics that are required to host major Archaean orogenic lode gold deposits, and has initiated work to progress exploration over this high priority area.
In March 2015 the company engaged Core Geophysics to commence a geophysical interpretation of the Kurnalpi area using all available open file company and Government aeromagnetic data sets that were merged to create a seamless mosaic over the wider area surrounding the interpretation block. The purpose of the interpretation was to deliver both a significantly improved geological and structural framework of Kurnalpi, but also a range of ranked target areas considered prospective for gold mineralisation that would assist the prioritisation and focusing of future exploration. On 20 July 2015 the company reported the completion of the interpretation and targeting compilation with the delivery of an advanced geological and structural interpretation map of the Kurnalpi District at a 1:25000 scale. In addition a range of targets were identified from the interpretation that are considered prospective for gold mineralisation and five top tier targets were selected after field inspection. These high priority targets have been selected for follow up evaluation by drilling, mapping and geophysical surveys in 2016.
Prospecting for surface gold by independent individuals under agreement with the company over most of the Kurnalpi tenements continued throughout the year. This activity whilst being at no cost to the company provides small revenue from a share of the gold nuggets won, but most importantly the expenditure for the work undertaken on each tenement by the prospectors is additional to that by the company to support the annual commitment required to maintain the tenements in good standing. The geological information obtained from the location and texture of the nuggets in the surface weathering profile also provides data that can contribute to targeting the source of this alluvial gold. The company plans to initiate detailed research into the source of the gold nuggets at Kurnalpi in 2016 with the aim of providing vectors to the primary source or sources.
Kalpini Project (100%KGM)
The company's wholly owned Kalpini project is located some 60km to the north east of Kalgoorlie and 23km east of the Lindsays gold project. The project consists of three tenements one of which is a mining lease centered on the historical Atlas gold workings which were operating in the early 1900's, but also the smaller nearby Camelia and Gambia prospects. Substantial reverse circulation (RC) and minor diamond drilling by the company at Kalpini during the period 2009-2012 supported the delineation of a mineral resource estimate (JORC 2004 Compliant) of 4.6Mt @1.7g/t Au for 255, 600oz (refer ASX announcement dated 24 October 2012). The resource is covered by a single granted Mining Lease and is linked to Saracen Mineral Holdings (ASX:SAR) Carosue Dam haul and access road 5.5km to the north by a granted miscellaneous license, which can be used as a future haul road route if required.
The company resumed exploration at Kalpini in April 2015 and completed a five hole programme of infill reverse circulation (RC) precollared diamond holes along the Gambia-Camelia Trend. An aggregate 508m was drilled in five holes, four of which were new holes, the fifth being a re-entry of a hole drilled in 2012 (KPDD009-012, KPRCD371). The programme was specifically designed to provide further geological and structural controls on the flat dipping mineralisation to support future upgrading of the resource estimate to JORC 2012 compliance. Each of the holes intersected the narrow mineralised lodes, the best intercept being 1.45m from 117.55m at 15.2g/t Au in hole KPRCD371. The assay results received coupled with the structural data interpreted from the drill core confirm the flat dipping high grade nature of the lodes at Gambia and Camelia with the information providing confidence in the current geological interpretation .
The April 2015 drilling campaign at Kalpini is part of the company's strategy to realize value from its existing resource base through development. The information from the drilling will be incorporated into the Kalpini resource model to aid in refining the model and supporting reporting to JORC 2012 compliance. Resource modelling and targeting for additional styles of gold mineralisation at Kalpini will be pursued in 2016.
Review of Operations (Cont'd)
Spargoville Project (100% KGM)
The Spargoville Project is located approximately 50km to the south west of Kalgoorlie and 30km west of Kambalda and consists of 16 semi-contiguous tenements over a 25km north and south strike. The Lady Allison gold resource, located on a Mining Lease is the core asset in the tenement portfolio with an inferred resource estimate of 2.13Mt at 1.3g/t Au. Work completed during the year consisted of rehabilitation of the drill sites for drilling completed during 2014.
In December 2012 the company announced the execution of a farm-out agreement with Mithril Resources Limited ('Mithril' & ASX: MTH) for exploration over the Spargoville Project. During 2014 Mithril earned a 20% interest in the tenements after having completed the stage 1 expenditure of $0.32 million and made an election to proceed toward earning an additional 60% interest (stage 2 commitment). On 11 March 2015 Mithril notified the company of its withdrawal from the Spargoville Farm-In and Joint Venture with an effective date of 11 May 2015. Mithril also elected to return its 20% interest to KalNorth for no consideration, and from the effective date KalNorth resumed 100% ownership of the project.
The Spargoville Project is not considered a priority for exploration in 2016 and the company will likely seek other interested parties for joint venture or outright sale.
Significant Changes in the State of Affairs
There was a reduction to the consolidated entity's resource and reserve base after adjustments to the Lindsays resource were made in the course of compiling the Parrot Feathers lode, and the removal of the Mt. Jewell resource and reserve following the divestment of the project. No changes were made to the other resources or reserves.
Except for the matters mentioned in the Review of Operations above, there have been no significant changes in the state of affairs of the consolidated entity during the current year.
Dividends Paid or Recommended
The Directors do not recommend the payment of a dividend and no dividends have been paid or declared since the end of the last financial year.
Significant Events after the Reporting Date
Since the end of the financial year and to the date of this report no matter or circumstance has arisen which has significantly affected, or may significantly affect, the operations of the consolidated entity, the results of those operations or the state of affairs of the consolidated entity in subsequent financial years other than the matters referred to below.
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On 31 August 2015 and 11 September 2015, binding agreements were entered into with Renergy Pty Ltd, South Victory Global Limited, Smarter Group (Australia) Pty Ltd and Mr John McKinstry, as a result of which principal amounts and all outstanding interest (accruing up to the date immediately prior to the date of issue of shares by the Company) owed to these parties will be settled by issue of shares at an issue price of $0.01 each. At 30 June 2015, the principal and interest amounts due to these parties amounted to $4.35 million.
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On 15 September 2015, a convertible note facility agreement has been entered into with the Company's largest shareholder, Cross-Strait, under the terms of which the Company will be able to draw down up to $2 million. As at the date of the financial report $0.3m was received from Cross- Strait. Cross-Strait will have the right to convert all or part of the amounts drawn down under the facility into shares in the Company at an issue price of $0.01 per share. The facility will have a maturity date of 30 April 2017.
Significant Events after the Reporting Date (Cont'd)
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On 29 July 2015, the Company issued a prospectus for a non-renounceable entitlement offer of shares at $0.01 each. The rights offer has closed, however the issue of shares has not been completed as the Company is required to give applicants an opportunity to withdraw their applications on or before 16 October 2015. On 27 August 2015, the Company announced acceptances have been received for 44,730,803 shares. Assuming no material applications for the rights offer are withdrawn, an amount of approximately $0.4 million is expected to be raised when the Company completes the rights issue on 19 October 2015.
The completion of the transactions referred to in (a) and (b) above is subject to shareholder and other regulatory approvals which must be obtained by 30 November 2015 (unless the parties agree to an extension).
Likely Developments and Expected Results
The company intends to remain focused on adding value through ongoing exploration activities at its main projects and may seek alliance partners to fast track development of existing resource assets.
Environmental Issues
The consolidated entity is subject to significant environmental regulation in respect of its exploration activities.
The consolidated entity aims to ensure the appropriate standard of environmental care is achieved and, in doing so, comply with all environmental legislation. The directors of the consolidated entity are not aware of any breach of environmental legislation for the year under review.
Meetings of Directors
During the financial year 13 meetings of Directors were held. Attendances by each Director during the year were as follows:
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Directors' Meetings
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Number of meetings eligible to attend
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Number attended
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Lijun Yang
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13
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13
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Jiajun Hu
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13
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13
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Yuanguang Yang
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10
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9
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Brendon Connell (resigned 28/8/2014)
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3
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3
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¹There were no Audit or Remuneration Committee meetings held, with all matters dealt with by the Board as a whole.
Options
At the date of this report, there were no unissued ordinary shares of KalNorth Gold Mines Limited under option (2014: 25,000,000).
During the year ended 30 June 2015 and to the date of this report, no shares were issued on the exercise of options (2014: nil).
Risk Management
The Board is responsible for ensuring that risks and opportunities are identified in a timely manner and that activities are aligned with the risks and opportunities identified by the Board.
Risk Management (Cont'd)
The consolidated entity believes that it is crucial for all Board members to be a part of this process and, as such, the Board has not established a separate risk management committee, but considers these matters at Board meetings.
The Board has a number of mechanisms in place to ensure that management's objectives and activities are aligned with the risks identified by the Board. These include Board approval of a strategic plan which encompasses strategy statements designed to meet stakeholders needs and manage business risk, and implementation of Board approved operating plans and budgets and the monitoring thereof.
Remuneration Report (Audited)
This report outlines the remuneration arrangements in place for Directors and executives of the consolidated entity.
Remuneration Policy
The remuneration policy of KalNorth Gold Mines Limited has been designed to align Director and executive objectives with shareholder and business objectives by providing a fixed remuneration component and offering specific long-term incentives based on key performance areas affecting the consolidated entity's ability to attract and retain the best Directors and executives to run and manage the consolidated entity.
The Board's policy for determining the nature and amount of remuneration for Board members and senior executives of the consolidated entity is as follows:
The remuneration policy setting out the terms and conditions for executive directors and other senior executives was developed by the Board. All executives receive a base salary (which is based on factors such as the length of service and experience) and superannuation. The Board reviews executive packages annually by reference to the consolidated entity's performance, executive performance, and comparable information from industry sectors and other listed companies in similar industries.
The Board may exercise discretion in relation to approving incentives, bonuses, and options. The policy is designed to attract the highest calibre of executives and reward them for performance that results in long- term growth in shareholder wealth.
All remuneration paid to Directors and executives is valued at the cost to the consolidated entity and expensed.
Executives are also entitled to participate in the employee share and option arrangements. Shares given to Directors and executives are valued as the difference between the market price of those shares and the amount paid by the Director or executive. Options are valued using the Black-Scholes methodology.
Performance-Based Remuneration
The consolidated entity currently has no compulsory performance-based remuneration component built into Director and executive remuneration packages. However, performance-based bonuses may be awarded from time to time at the discretion of the Board, and this will be dependent on individual performance linked to the consolidated entity's strategic objectives for that period.
In the current year, no bonuses were paid or declared. Non-Executive Director Remuneration
The Board seeks to set aggregate remuneration at a level that provides the Company with the ability to attract and retain Directors of the highest calibre, whilst incurring a cost that is acceptable to shareholders.
The Board considers the fees paid to non-executive Directors of comparable companies when undertaking the annual review process. Independent advice is obtained when considered necessary to confirm that remuneration is in line with market practice. Each Director may receive a fee for being a Director of the Company.
Remuneration Report (Cont'd)
Non-executive Directors may also receive performance rights (subject to shareholder approval) as it is considered an appropriate method of providing sufficient reward whilst maintaining cash reserves.
Relationship between Remuneration Policy and Consolidated Entity Performance
The remuneration policy has been tailored to increase goal congruence between shareholders and Directors and executives. From time to time, this is facilitated through the issue of options to the majority of directors and executives to encourage the alignment of personal and shareholder interests. The consolidated entity believes this policy will be effective in increasing shareholder wealth.
Key management personnel service agreements
Details of the key conditions of service agreements for key management personnel are as follows:
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Commencement Date
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Notice Period Base Salary
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Base Salary
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Termination Payments Provided
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Lijun Yang
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01/08/2013
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1 month
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$80,0001
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Wade Johnson
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24/03/2014
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1 month
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$150,0001
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¹Entitled to statutory superannuation contributions
There are no other agreements with key management personnel.
KalNorth Gold Mines Limited and Controlled Entities
For the year ended 30 June 2015
DIRECTORS' REPORT
Remuneration Report (Cont'd)
Remuneration Details for the Year Ended 30 June 2015
(a) Key management personnel compensation:
2015 Short-term benefits Post-employment benefits Share-based payment
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Salary, fees
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Non- Cash
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Non-monetary
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Super-
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Retirement
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Options
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Others
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Total
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and leave
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bonus
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benefits
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annuation
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benefits
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Name
$ $ $
$ $
$ $ $
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Directors
Lijun Yang
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80,000
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- - 7,600
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- - - 87,600
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Jiajun Hu
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54,166
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- - 7,521
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- - - 61,687
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Yuanguang Yang1
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23,753
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- - -
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- - - 23,753
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Brendan Peter Connell2
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-
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- - -
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- - - -
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Other key management personnel
Wade Johnson3
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183,491
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- - 19,967
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- - 26,689
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230,148
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Total
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341,410
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- - 35,088
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- - 26,689
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403,188
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1 Mr. Yuanguang Yang was appointed 28 August 2014.
2 Mr. Connell resigned on 28 August 2014.
3 Mr Johnson received an additional $33,491 in salary in lieu of forgoing a portion of his accrued annual leave entitlements.
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