VATUKOULA GOLD MINES ANNUAL REPORT AIM: VGM

Transcription

1 VATUKOULA GOLD MINES ANNUAL REPORT 2010 AIM: VGM

2 RAMPING UP MINING AND EXPLORATION TO SECURE LONG-LIFE GOLD PRODUCTION ORE PROCESSED (TONNES) 441,924 GOLD RECOVERED (OUNCES) 59,658 CASH COSTS (US$/OZ) 860 TURNOVER ( M) 40.4 GROSS PROFIT ( M) 12.3

3 Operational and Financial Highlights 04 Valuable Reserves 06 Market Outlook 08 Chairman s Statement 10 Chief Executive s Review 12 Finance Director s Report 18 Financial Statements 22

4 OPERATIONAL AND FINANCIAL HIGHLIGHTS 2009/2010 Q1 August Exploration Programmes Underway: Vatukoula Gold Mines steps up activities to define additional resources. A surface exploration programme aims to define open pit oxide resources; the underground exploration programme seeks to delineate extensions of current reserves and resources. October EGM Passes the Proposed Placing; Additional Equipment Ordered: Shareholders agree to the proposed placing of 750 million new ordinary shares at 1.2 pence per share. Proceeds will be utilised along with free cash flow to increase the mine s capital development programme. Orders are placed for 12 pieces of underground haulage equipment. Q4 July Additional Placement Raises 7.4 Million to Fund Exploration Programme: VGM places 400 million ordinary shares at a price of 1.85p per share, which represents 9.8% of the company s enlarged issued share capital. The proceeds enable the company to carry out an initial twoyear exploration programme at the mine site and at other special prospecting licenses covering the Tavua Caldera mining area. 04 VATUKOULA GOLD MINES ANNUAL REPORT 2010

5 Q2 January First Independently Assessed Mineral Reserve and Mineral Resources: Combined Proven and Probable Mineral Reserves are estimated at 1.9 million tons of ore, grading 10.9 g/t; underground combined Measured and Indicated Mineral Resources are stated to be 8.3 million tons, grading 10.5 g/t. Published drilling results confirm that VGM has identified multiple mineralised structures. Q3 May Profitability at Vatukoula Confirmed: Results for the first half year are published: turnover for the six months rose to 16.5 million; the gross margin increased to 7.5 million and the volume of gold shipped increased to 24,092 ounces. VATUKOULA GOLD MINES ANNUAL REPORT

6 VALUABLE RESERVES Location The Vatukoula Gold Mine is located on the larger of Fiji s two main islands, Viti Levu, in the South Pacific Ocean. The license area covers 7,549 hectares on the north of the island, 9 km south of Tavua and within a collapsed caldera (the Tavua Basin). Geology The mine is located amid the basaltic rocks of the Tavua Basin, except for the R1 area, which is hosted in the younger Turtle Pool Formation. Mineralisation is hosted within quartz carbonate veins and is typically seen as flatmakes, steep shears and shatter zones. The main ore bodies are the Prince/Dolphin flatmake, Matanagata flatmake, 2000N flatmake and 166N flatmake. In addition to flatmake mineralisation there is the R1 area and Steep Structures that relate to the flatmakes. TOTAL MINERAL RESERVE (M/oz) 0.83 TOTAL MINERAL RESOURCE (M/oz) 3.9 Labasa Vanua Levu Buca Nabouwalu Lautoka Ba Tavua VATUKOULA GOLD MINE Nadi Sigatoka Viti Levu Suva Nausor SOUTH PACIFIC OCEAN 06 VATUKOULA GOLD MINES ANNUAL REPORT 2010

7 Reserves and Resources (as at 31 August 2010) Category Tonnes (Mt) Grade (g/t Au) Contained Gold (M/oz) Mineral Reserves Proven Probable Total Mineral Reserve Change from 31 August (3.3) 0.15 Mineral Resources Underground Measured Indicated Inferred Tailings Measured Indicated Inferred Change from 31 August 2009 (2.2) 0.2 (0.4) Notes The following notes highlight the assumptions used to estimate the Mineral Reserve estimate: The Mineral Reserve includes that part of the Mineral Resource that can be economically mined and includes allowed dilution A gold price of US$950/oz Cut-off grade of 4.6 g/t Au The following notes highlight assumptions used to generate the underground Mineral Resource estimate: An Intercept width times gold grade cut-off off 4 metre grams per tonne ( m.g/t Au ) and a gold grade cut-off of 2 g/t were applied to the resource models to obtain the estimated Mineral Resources The Mineral Resource models were depleted for to August 2010 The Mineral Resource models use geological and assay data available at 30 March 2010 Samples are prepared and analysed by fire assay using a 25 gram charge at the on site Vatukoula laboratory The mineralised envelope was defined using geological logging and assay information from diamond drillholes using a nominal lower cut-off grade of 1 m.g/t Au Extrapolation of the interpreted mineralised zone was limited to 50m between section lines and 225m at the end of each section In situ density data were available from drillhole sampling. Densities were assigned to each modelled orebodies based on the average results from all available samples The estimation method used 3D wireframe and block modelling projected to a 2D plane, with ordinary kriging interpolation. A grade variable (the product of the intercept width and grade) was estimated using modelled semi-variograms and geostatistical analysis to determine kriging search parameters. The intercept width was estimated separately and the grade back calculated Grade capping was applied in calculating the variable grade Figures in the above table may not add correctly due to rounding The increase of 0.15 Moz in Mineral Reserve tonnage and contained gold can be mainly attributed to the modelling of additional structures and an increase in Probable Mineral Reserves due to increasing drilling density in some areas when compared to the 2009 ore structures. Some additional dilution was allowed for in development areas as result of operational reviews. This had the effect of reducing the overall grade. In the previous Mineral Resource assessment for the year ended 2009, several structures were included under the category of Other Structures and Other Flatmakes. These were previously estimated in 2006 and were not assessed in This year part of these deposits were re-assessed and re-modelled and as a result there was a net decrease in Mineral Resource of 0.4 Moz. Future modelling of the remaining deposits may yield additional mineral resources. However until this is completed it was thought prudent to exclude these from the current estimate. VATUKOULA GOLD MINES ANNUAL REPORT

8 MARKET OUTLOOK The price of gold has increased substantially over the last decade and medium and long-term outlooks remain generally positive in Prices began to rise significantly in 2001 and the gold spot price reached US$976 per ounce in Subsequent price rises were largely a result of the global financial crisis and resultant concerns about the currency stability; investors were reminded of gold s utility as a haven from financial turmoil. According to the World Gold Council (WGC), the price of gold rose during the year under review, from US$955 per ounce in August 2009 to US$1,246/ounce in August Analysts expect prices to remain at historically GOLD PRICE, AUGUST 2010 (US$/OZ) 1,246 GLOBAL GOLD MINED IN Q (T) 702 high levels for the foreseeable future, although a slight fall may occur in the short-term (the trough is estimated at around US$1,153/ounce). In the longer term, the consensus view is that prices will probably rise again in the years ahead and may well reach US$1,500/ounce. Demand The WGC attributes the growth in global demand for gold in 2010 (compared to 2009 figures) to three primary demand fundamentals: 1. Consumer Evidence suggests that the higher trading price of gold has not hindered consumer demand in the large Asian Markets. India experienced the highest growth in jewellery demand posting an increase of 36%. In China, the jewellery market accounted continued to grow. Rises in personal wealth, the result of economic growth and urbanisation, are expected to drive further demand. China ranks second in world annual consumer demand, after India. At the end of October 2010, China s net consumer demand gold totalled 549 tonnes, a 21 per cent increase over the previous year. 10 Year Gold Prices (US$/oz) VGM AIM Share Price: (GBP) /2009 7/2009 1/2010 7/2010 1/ VATUKOULA GOLD MINES ANNUAL REPORT 2010

9 2. Industrial The electronics sector is the largest industrial driver for gold. Industrial sector demand, including that used in dentistry, registered a 12 per cent year-on-year increase in the quarter ending October Particular growth was seen in the electronics industry (up 26 per cent year on year). Gold demand for electronic applications totalled 222 tonnes for the nine months ending October Other significant demand drivers include medicine, nanotechnology, aerospace, dentistry and engineering. New sources of demand are likely to emerge in the future; potential large-scale uses include medical diagnostics, water purification and solar cells. 3. Investment Concerns over sovereign fiscal imbalances, currency volatility, quantitative easing and inflation have combined in recent years to increase investment flows into the gold market. This (added to the perceived shortcomings of a broad investment product spectrum during and in the wake of the global financial crisis) increased the appeal of gold as a stable and valueadding investment product. As supplies of recycled gold have been relatively buoyant for several consecutive quarters, there is some evidence that near-market supplies in these traditional markets are becoming exhausted and that a fresh surge in the price would be required to generate another significant wave of selling-back. Summary VGM views the latest Q report by WGC as a positive outlook for gold demand over the near- and medium- terms. Supply and demand fundamentals, coupled with continuing sovereign debt, currency related volatility and shortcomings in investment returns available to consumers, provide a healthy environment for gold to continue to trade at levels above the US$1,000/ounce level, considerably higher than the mine s existing production costs of US$860/ounce and its target cash cost production level of US$655/ounce. Evidence of the increasing attractiveness of gold to the investor community can be seen in the quarter ended October 2010 identifiable investments in the precious metal. Investments totalled tonnes for the quarter (worth the equivalent of US$11.1 billion). Investments in gold backed Exchange Traded Funds (ETFs) in the quarter stood at 38.7 tonnes. Supply Gold supply in for the quarter ended October 2010 totalled 1,028 tonnes, 18 per cent above year-earlier levels. Mine production output rose 3 per cent (to 702 tonnes); recycled gold supply increased by 41 per cent. Production increases at some mines (such as Boddington, Australia, and Cortez Hills, USA) were offset by declines elsewhere (particularly in Peru and Indonesia). The supply of recycled gold remained at elevated levels in comparison to long-term averages, 41 per cent up year-on-year at tonnes. This growth reflects (1) an increasing contribution from Western consumers and (2) traditional gold markets where gold recycling activity is well established, such as in India and the Middle East. VATUKOULA GOLD MINES ANNUAL REPORT

10 CHAIRMAN S STATEMENT Several years ago central bankers referred to gold as the barbaric relic of the monetary system and laughed at General De Gaulle s attempt to resuscitate it as part of a reserve currency system; they are not laughing now. The popular view that gold has appreciated in value by 30 per cent this year should be viewed in the context of the fact that the US dollar, the euro and the British pound have all depreciated over the same period. The Chinese remain key to supporting the gold price appreciation and were not prepared to see gold drop out of the monetary system, given they are the largest creditors for the United States of America and coincidentally the biggest producers of gold in the world. This resulted in the Chinese central bank purchasing gold and also actively encouraging own citizens to buy gold during the year. According to Shanghai Gold Exchange, China produced a total of 340 tonnes of gold during the year and imported another 209 tonnes over the course of the year has been a year of consolidation for Vatukoula Gold Mines. Production at the mine has risen steadily to reflect the investment in plant and machinery made over the course of the year. Looking forward, 2011 will see the first exploration programme that the mine has seen in almost twenty years. Given that historically, the best place to look for gold is close to existing gold mining operations and as large parts of the Tavua caldera remain largely unexplored, we are hopeful of finding new resources. During the course of the year, the Board has publicised the rejuvenation of the Vatukoula mine and focused on the fact that operations have turned the corner given the increasing production profile. The quality of the exploration acreage should become apparent as the programme progresses over the next few years. Similar to previous years, I would like to thank all the team who have helped run both the company and the mine. The fruits of their success are now being recognised by the investment community and I and many others are proud to be shareholders in Vatukoula Gold Mines. 10 VATUKOULA GOLD MINES ANNUAL REPORT 2010 Colin Orr-Ewing Executive Chairman 28 February 2011

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12 CHIEF EXECUTIVE S REVIEW During the past year we have continued to build upon the tremendous progress made following the re-opening of the Vatukoula Gold Mine in April 2008 and the first pouring of gold in November Investments made in the mining fleet are now beginning to deliver significant improvements in the amount of ore we can process and, with dewatering of the lower mine levels now complete and under control, conditions underground to support mine operations are enhancing the performance of our front-line mining teams. We have adopted a strong focus on short and long-term mine planning, with the implementation on site of advanced geological and mine planning software to support the company s technical capability. With our mining and operational teams now bedded into a strong and focused working and shift pattern, the company is positioned to achieve the stated production targets of 100,000 ounces of gold per annum. Key Performance Indicators Years ended 31 August Production statistics Underground ore processed 188, ,417 Average ore head grade (g/t Au) Surface ore processed 32, ,507 Average ore head grade (g/t Au) Process recovery rate (%) Gold recovered (oz) 33,757 59,658 Gold produced (oz) 33,426 56,214 Cash costs Cash cost per ounce recovered (US$/oz) Cash cost per ounce produced (US$/oz) VATUKOULA GOLD MINES ANNUAL REPORT 2010

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14 Underground production for the year increased gradually as part of the mine s sustainable production plan. Initially, production from underground was in the region of 13 thousand tonnes per month, increasing to over 22 thousand tonnes by the end of the year. 14 VATUKOULA GOLD MINES ANNUAL REPORT 2010

15 Underground Production The Vatukoula ore bodies have world-class mineral potential, but present planning challenges. The Vatukoula deposit is known to be geologically complex, and contains narrow ore bodies with variable grade. As a result, the year saw some erratic grades delivered to the mill, which effected our cash cost per ounce on a quarterly basis. It is management s objective to introduce greater flexibility into the operations at the mine. An underground mine has numerous challenges, including geological conditions, safety, ventilation, distance from infrastructure and grade, amongst others. However, the presence of numerous ore-bodies, dispersed over a wide area, provides an opportunity for mining flexibility. Mine planning currently targets in the region of twelve operating stopes at any one time, with an additional eight ready and prepared for mining. This should provide for almost any eventuality in the mining area. Should the grade decrease to an uneconomic grade, then production mining can be stopped and production transferred to a new stope. Underground production for the year increased gradually as part of the mine s sustainable production plan. Initially, production from underground was in the region of 13 thousand tonnes per month, increasing to over 22 thousand tonnes by the end of the year. Overall underground operations produced over 243 thousand tonnes at an average grade of 7.43 grams per tonne, recovering 48,741 ounces during the year. The erratic grade delivered as a result of underground operations has been a feature of this year s production. Our delivered grades from the mine, as recorded at the processing plant, have varied from four grams per tonne to over 20 grams per tonne on a daily average. In the early part of the year, this was the result of our accelerated development program and a relatively small proportion of underground ore from the stoping areas. Surface Production Our oxide circuit has performed exceptionally well. Recoveries for the year were 10,917 ounces of gold produced from just over 198 thousand tonnes of material at a grade of 1.75 grams gold per tonne. During the year we undertook surface exploration to uncover additional, close to surface oxide material, which provided additional ore at a higher grade to the mill. Although the oxide production was seen as a stopgap measure as we were developing our underground operations, the project has proven to be very successful. Mine geologists are undertaking surface exploration to identify additional oxide material. Should sufficient oxide material be identified, management will investigate opportunities to produce from this source over and above the underground sulphide production. Development Over the course of the second half of this year and continuing in to the 2011 financial year, the development of the mine has been a major focus for the Company. Previously our underground mining operations were restricted by the lack of availability of new mining areas which was further compounded by the absence of suitable mine planning drill locations. Mine planning aids development work and eliminates the mining of unprofitable areas as potential mining areas are drilled before mining is initiated. A major effort was undertaken by the mining crews to accelerate the development to catch-up during the year. I am pleased to report that this initiative has proven to be very successful. We have not yet caught up fully, but we can see light at the end of the tunnel. Toward the end of the year, we initiated the repair of the Philip Shaft between levels 16 and 18. The shaft was damaged following mining of the shaft pillar by previous operators. The existing shaft support was removed and a new support was installed. Some of the shaft furniture has been replaced. Since year-end, the lower sections of the shaft have been inspected and refurbished as required. The mine is now able to use the hoists in the Philip Shaft to level 18. Exploration We determined that to ensure both sustainable production at our target rate in the long term and whilst also driving growth we would need to embark on an extensive exploration programme over the coming years. With this in mind, we have developed an exploration programme which focuses on three main targets / types of deposit. The first of the targets are potential extensions along strike and down-dip of existing ore bodies. The second set of targets lie within our mining leases and special prospecting license and are typical oxide deposits which could be suitable to open pit mining operations. The third and final target group are all on the special prospecting licenses, which have been identified as highly prospective based on both historic drill holes and shallow surface mining. People The workforce at Vatukoula currently comprises 924 individuals on a permanent and casual basis. Of our labour force, 43% are employed in underground operations, over and above the underground technical service personnel. As we increase our underground production there will also be an increase in our workforce; however, we do not envisage the workforce increasing to over 1,000 individuals. Productivity should increase as the new individuals add to the production base. We do not expect significant additions to the service or administration roles. Safety Operations undertaken in the year under review have resulted in a Lost Time Incident (LTI) accident frequency rate of 20, which is extremely commendable in the highrisk environment of a working gold mine. Safety in the work place is regarded as an operational priority at all times. We insist that all of our employees work according to stringent safety practices and are working towards our target of achieving an LTI rate of zero accidents. VATUKOULA GOLD MINES ANNUAL REPORT

16 At Vatukoula, we are focused on the establishment of long-term sustainable mining operations. We believe that, to achieve sustained underground production, we need to establish the required development and associated infrastructure. Corporate Towards the end of the year, we undertook a 7.4 million financing process, which was placed with some of our institutional supporters and the proceeds from this process have used to initiate our exploration program. We are excited about Vatukoula now entering the next phase in its development, as we had previously taken the decision to not commit significant funds to an exploration program whilst the mine was not at a steady state of production. Government Relations I would like to take this opportunity to thank the Government of Fiji and the Right Honourable Minister for Lands & Mineral Resource for support received during our build-up period. Community In December 2009, we agreed to the new deed as part of the initial purchase agreement with the Government of Fiji. We provided F$1,500,000 to the fund that provides assistance in retraining and relocating individuals that were affected by the closure of the mine in Vatukoula Gold Mines has nominated a number of individuals to the management committee of the fund. 16 VATUKOULA GOLD MINES ANNUAL REPORT 2010

17 Our current mine planning sees the undertaking of accelerated development during first half of the year, to ensure the mine is placed in the long-term operating position that we require for sustained production at the production rates we are targeting. We currently forecast the accelerated development to be complete by the middle of the next financial year (ending 31 August 2011). During the year we have also undertaken the construction and upgrading of a number of houses on the property. This has involved the employment of numerous local labourers. Where practical, we have used the services of local groups to undertake any local procurement as required. Post-Period Developments and Outlook At Vatukoula, we are focused on the establishment of long-term sustainable mining operations. We believe that, to achieve sustained underground production, we need to establish the required development and associated infrastructure. Summary The Vatukoula mining, engineering and management teams are now working as a strong, co-ordinated unit and one that is set to achieve very positive results for shareholders over both the short- and long-term. With continued investments in particular focusing on exploration through the drilling program, we continue to build value on a sustainable basis. We are looking forward to the results from the highly prospective site within our tenure and remain focused on the continued growth of Vatukoula. David Karl Paxton Chief Executive Officer 28 February 2011 VATUKOULA GOLD MINES ANNUAL REPORT

18 FINANCE DIRECTOR S REPORT Vatukoula Gold Mines successfully ramped up its operational and financial performance in Building on the great progress made during the previous fiscal year, your Company is pleased to report substantial improvements in our operating profits and cash flow. This has been achieved through a combination of output increase, falling production costs and a higher average gold price received. Total revenue for the Group increased to 40.4 million (2009: 18.8 million) Net profits after tax increased to 4.5 million (2009: loss of 9.4 million) Revenue Total revenue for the Group increased to 40.4 million, which compares very favourably to 18.8 million in the previous financial year and 3.8 million in This figure was achieved as a direct consequence of our stated goal, to step up production to an eventual target rate of 100,000 ounces of gold per annum. Output increased substantially with 59,658 ounces of gold, recovered from 441,924 tonnes of ore (2009: 33,757 ounces of gold from 220,439 tonnes of ore). Of the 59,659 ounces recovered 56,214 ounces were poured and smelted during the period. Gross Profit and Unit Costs Overall, there was a significant improvement in the company s gross profit, which rose from 1.4 million in 2009 to 12.3 million in the current period. This reflected the higher levels of gold production and higher gold prices Financial Highlights Years ended 31 August 2008* Revenue 3,817 18,837 40,354 Gross (loss)/margin (624) 1,408 12,322 Operating (loss)/profit (4,371) (9,991) 3,809 Net (loss)/profit before taxation (4,068) (9,906) 3,685 Net cash (used)/generated in operating activities (7,540) (4,235) 3,708 Net cash inflow/(outflow) 2,213 (1,258) 11,431 *represents production from 1st April 2008 when the Company acquired the Vatukoula Gold Mine in Fiji 18 VATUKOULA GOLD MINES ANNUAL REPORT 2010

19 achieved during the year. In addition higher production volumes from open pit sources and more efficiencies led to a decrease in unit costs on a per tonne and per ounce basis. On 10 January 2011, the Company announced in its operational update a re-assessment of its ore development expenditure. As a result the Company has re-assessed its ore development expenditure that was capitalised and reported in its operational update. The effect of this re-assessment on cash costs per ounce is outlined below. Reconciliation of Unit Costs Years ended 31 August Mining ( 000) 12,793 17,949 Processing ( 000) 2,927 7,471 Overheads ( 000) 1,705 2,611 Royalties ( 000) 560 1,215 Administration costs ( 000) 2,052 1,589 Cash costs of production ( 000) 20,037 30,837 GBP / US$ foreign exchange rate Gold produced (ounces) 33,426 56,214 Tonnes processed 220, ,924 Cash cost per ounce produced (US$/oz) Cash cost per tonnes (US$/t) Year ended 31 August 2010 Previously announced Cash costs of production ( 000) 30,837 30,837 Mining development capitalised ( 000) - (5,485) Operating cash costs of production ( 000) 30,837 26,352 GBP / US$ foreign exchange rate Gold produced (ounces) 56,214 56,214 Gold recovered (ounces) 59,658 59,658 Cash cost per ounce produced (US$/oz) Cash cost per ounce recovered (US$/oz) VATUKOULA GOLD MINES ANNUAL REPORT

20 The increase in capital expenditure reflects part of the additional investment required to increase production levels to our stated target of 100,000 ounces per annum. CASH POSITION ( M) 12.8 NET CASH GENERATED FROM OPERATIONAL ACTIVITIES ( M) 3.7 Depreciation and Amortisation Depreciation and amortisation in the year under review increased to 5.2 million (2009: 3.9 million). The majority of this expense ( 3 million) comes from the amortisation of intangible assets, including mining rights, while depreciation and amortisation of mine properties and property, plant and equipment totalled 2.2 million. This increase is an inevitable outcome of the increase in mining operations, as the amortisation rates on the mining rights and the mine properties and development are based on a unit of production basis. Profit After Tax Net profits after tax increased to 4.5 million (2009: loss of 9.4 million). The majority of this increase is attributable to the increase in production as mentioned previously. Part of the increase can be attributable to an increase in non cash foreign exchange gains which were 2.2 million (2009: 1.0 million). 20 VATUKOULA GOLD MINES ANNUAL REPORT 2010

21 During the year there was a charge of several other non cash items which included inventory obsolescence, rehabilitation charges, provision for doubtful debts and share based payments. In total these amounted to 1.1 million (2009: 4.4 million). Cash Flow and Liquidity I am pleased to report that your Company generated net cash of 3.7 million (2009: used 4.2 million) from its operational activities. After investing 9.9 million (2009: 1.7 million) in capital expenditure during the year the cash out flows before financing were 6.2 million (2009: 5.9 million). During the year the Company raised gross proceeds of 18.6 million cash and cash equivalents strengthening our cash position to 12.8 million, compared with 1.1 million in August Capital Expenditure During the year the Group s capital expenditure increased to 9.9 million during the year (2009: 1.7 million). This reflected and investment of 6 million in plant property and equipment (2009: 1.2 million) and 3.9 million of expenditure on mines property and development (2009: 0.4 million). The increase in capital expenditure reflects part of the additional investment required to increase production levels to our stated target of 100,000 ounce per annum. In summary, the year under review has been one of rapid development at the Vatukoula Gold Mine in Fiji and has vindicated the Company s strategy of rolling out an extensive capital expenditure programme to build operational capacity in the near-term. This capital expenditure programme is continuing at the mine, through infrastructure improvement and geological exploration a combination that we believe will ensure Vatukoula s ability to remain cost efficient on a long-life basis. We do not at this stage recommend a payment of a dividend. Kiran Morzaria Finance Director 28 February 2011 VATUKOULA GOLD MINES ANNUAL REPORT

22 Contents Board of Directors 23 Directors Report 24 Corporate Governance Statement 27 Independent Auditor s Report 28 Consolidated Statement of Comprehensive Income 29 Consolidated Statement of Financial Position 30 Company Statement of Financial Position 31 Consolidated Statement of Changes in Shareholders Equity 32 Company Statement of Changes in Shareholders Equity 33 Consolidated Statement of Cash Flows 34 Company Statement of Cash Flows 35 Notes to the Financial Statements 36 Notes 66 Corporate Directory Secretary Laytons Secretaries Limited Carmelite 50 Victoria Embankment London, EC4Y 0LS Registered office 5th Floor Carmelite 50 Victoria Embankment Blackfriars London, EC4Y 0LS Nominated Adviser to the Company WH Ireland Limited 24 Martin Lane London, EC4R 0DR Brokers to the Company WH Ireland Limited 24 Martin Lane London, EC4R 0DR Auditors Mazars LLP Tower Bridge House St Katharine s Way London, E1W 1DD Solicitors Laytons Carmelite 50 Victoria Embankment London, EC4Y 0LS Registrars Capita IRG plc Bourne House 34 Beckenham Road Beckenham Kent, BR3 4T 22 VATUKOULA GOLD MINES ANNUAL REPORT 2010

23 Board of Directors For the year ended 31 August 2010 I C Orr-Ewing Executive Chairman, age 69 Mr Orr-Ewing has been involved in the natural resources sector for 36 years. His experience covers both the oil and mining industries and he has been a director of UK and Canadian oil companies and Irish and Canadian mining companies. Currently Mr Orr-Ewing also advises a fund management company on its natural resources portfolios. He began his career as an investment manager for the Shell Pension Fund in London after completing his education as a Chartered Accountant. Mr Orr-Ewing also has extensive experience in international financial affairs. He was deeply involved in the oil industry from 1971 through to 1987 with numerous companies in the North Sea, Libya, Nigeria and Algeria. Mr Orr-Ewing has also served as a director for a number of oil and gas exploration and development companies. He is a graduate of Oxford University in geography and geology. D K Paxton Chief Executive Officer (CEO), age 56 Mr Paxton is a professional engineer with over 36 years experience in the mining industry, starting with mine production at Goldfields of South Africa, and then time at their head office and culminating with 24 years as a mining analyst. As a mining analyst he has worked for a number of Canadian and UK stockbrokers, most recently Religare Hichens, Harrison Plc. He is a director of India Minerals Plc, Adit Investments Ltd, Sahara Mines Ltd, Far North Platinum Ltd and Mining and Dining Club Ltd. K C Morzaria Finance Director, age 36 Mr Morzaria holds a Bachelor of Engineering (Industrial Geology) from the Camborne School of Mines and an MBA (Finance) from CASS Business School. He has 11 years of experience in the mineral resource industry covering gold and diamonds. Mr Morzaria spent his first four years in exploration, mining and civil engineering working for Highland Gold, Firestone Diamonds and CL Associates. He was appointed Finance Director of Vatukoula Gold Mines Plc in 2004 and since then has been overseeing the development of its mining and exploration projects in Fiji, Sierra Leone and Brazil. D A Lenigas Executive Director, age 49 Mr. Lenigas has 25 years of experience in the gold, diamond, coal and base metals industries. David is a Mining Engineer with a Bachelor of Applied Science (Mining Engineering - with distinction). He is Chairman of Lonrho Plc, Lonzim Plc, Leni Gas & Oil Plc, Solo Oil Plc, and is also a non-executive director of Rare Earth Minerals. J I Stalker Non-executive Director, age 56 Mr. Stalker was the Chief Executive Officer of UraMin, a London- and Toronto-listed uranium company from July 2005 until its acquisition by Areva in August 2007 for US$2.5 billion. He has over 30 years of mining experience in Europe, Africa and Australia and has worked his way up from operational roles in base and precious metals companies to senior project development and director positions with some of the largest mining companies in the world. J F Kearney Non-executive Director, age 59 Mr Kearney is the Chairman and President of Canadian Zinc Corporation with over 30 years experience in the mining industry worldwide. With degrees in law, economics and business administration, he has a strong background in corporate development, finance and managing public companies, primarily in the mining field. J A MacPherson Non-executive Director, age 66 Mr MacPherson is a Director of and founding chairman of Canadian Zinc Corporation. He has been active in public markets, corporate finance and corporate development for over 30 years. During this time he has led the strategic development of several successful ventures, primarily in the fields of mining and oil and gas. Throughout his career he has served as director of many private and public corporations listed on the Toronto, AMEX and London Stock Exchanges. VATUKOULA GOLD MINES ANNUAL REPORT

24 Directors Report The directors are pleased to present this year s annual report together with the consolidated and company financial statements for the year ended 31 August Principal activities The principal activity of the Group was the operation of the Vatukoula Gold Mine in Fiji. The principal activity of the Company was that of a holding Company for its subsidiary undertakings, which are set out in Note 15 of the financial statements. Results and dividends The profit on ordinary activities of the Group for the year ended 31 August 2010, after taxation was 4,523,049 (2009: loss of 9,381,476). The directors do not recommend the payment of a dividend. Business review A review of the current and future development of the Group s business is given in the Chairman s statement and the Review by the Chief Executive on pages 10 to 17. Given the nature of business and industry the key performance indicators are based on operational objectives set at the beginning of the year. Performance in relation to these is highlighted in the Review by the Chief Executive on pages 12 to 17. Financial key performance indicators are based on the budget as set out at the beginning of the year. Performance against these indicators is highlighted in the Review by Finance Director on pages 18 to 21. Post balance sheet events At the date these financial statements were approved, being 28 February 2011, the directors were not aware of any significant post balance sheet events other than those set out in Note 31 of the financial statements. Future developments A review of our future developments is given in the Review by the Chief Executive on pages 12 to 17. Financial risk management The Group s operations expose it to financial risks that include liquidity risk, interest rate and foreign exchange risk. The Group does not use derivative financial instruments to manage any of these risks nor is hedge accounting applied. The Group depends on the Vatukoula mine for a substantial portion of its revenue and cash flow and, therefore, the Group s business will be harmed if Vatukoula s revenues are adversely affected. Given the size of the Group, the directors have not delegated the responsibility of monitoring financial risk management to a subcommittee of the board. The Group s finance department implements the policies set by the Board of Directors. Liquidity risk The Group actively manages its working finance to ensure the Group has sufficient funds for operations and planned expansion. As referred to in Note 3 of the financial statements, it is for this reason that the directors believe it is appropriate to prepare the financial statements on a going concern basis. Interest rate cash flow risk Interest bearing assets are only cash balances that earn interest at a floating rate. The Group does not have any variable rate debt and therefore it is not exposed to interest rate cash flow risk on its debt. Foreign exchange risk The Group principally operates in Fiji and Brazil. The board has assessed its exposure and it does not currently consider the risk of exposure to these currencies to be material. As such the directors do not currently consider it necessary to enter into forward exchange contracts. This situation is monitored on a regular basis. Credit risk Credit risk is the risk of financial loss to the Group if a customer or counter party to a financial instrument, fails to meet its contractual obligations, and arises principally from the Group s receivables from customers. The Group has credit risk management policies in place and exposures to credit risk are monitored on an ongoing basis. Management generally adopts conservative strategies and a tight control on credit policy. Principal risks and uncertainties The Board annually reviews the key risks facing the business together with making assessment of the controls for managing these risks where possible. The principal risks and uncertainties facing the Group are as follows: Geological: Geological factors might influence the ability of the Group to extract gold from the Vatukoula mine. These include, in particular, the flooding of mine workings which would hinder the ability to mine. 24 VATUKOULA GOLD MINES ANNUAL REPORT 2010

25 Director s Report Market: The Group s business is impacted by the general risks associated with the gold market. Profitability is affected by factors beyond the Group s control, such as fall in the market price of gold. Licenses, leases and consents: The group s extraction and processing activities are subject to the grant and continuation of appropriate licenses, leases, permits and planning permissions. Inventory Valuations: Valuations of gold stockpiles, gold in circuit and gold within the fine ore bin requires estimations of the amount contained in, and the recovery rates from, the various work in progress gold circuits. These estimations are based on analysis of samples and prior experience. A judgement is also required when the gold in circuit will be recovered and what gold price should be applied in calculating the net realisable value. Directors insurance The Company has taken out an insurance policy to indemnify the directors and officers of the Company against liability when acting for the Group. Directors The following directors have held office during the year: I C Orr-Ewing D K Paxton K C Morzaria D A Lenigas J I Stalker J F Kearney J A MacPherson Directors interests On 8 November 2010 the Ordinary Shares in the Company were consolidated on the basis of one new ordinary share of 5p for every 50 existing ordinary shares of 0.1p. Therefore, the number of ordinary shares have decreased and the value of each Ordinary Share increased, such that, disregarding market price movements the aggregate value and interest of each Director has remained the same. Warrants and Options over ordinary shares were similarly consolidated. For illustrative purposes the directors interests are shown post the consolidation of ordinary shares at 8 November 2010 only. Since the 8 November 2010 there has been not been any change in directors or family interests. Directors interests, including family interests in the ordinary shares, were as follows: Directors interests, including family interests in the ordinary shares, were as follows: Beneficial Holding 17 February August August 2009 I C Orr-Ewing* 452,683 22,634,154 22,634,154 D K Paxton 100,000 5,000,000 5,000,000 K Morzaria 35,940 1,797,000 1,797,000 D A Lenigas 20,000 1,000,000 1,000,000 J I Stalker J F Kearney J A MacPherson * of which 10,555,367 (2009: 10,555,367) are held beneficially (prior to consolidation). Directors also hold options over ordinary shares as follows: Number of Options 17 February August August 2009 I C Orr-Ewing 300,000 15,000,000 13,500,000 D K Paxton 1,000,000 50,000,000 50,000,000 K C Morzaria 700,000 35,000,000 18,500,000 D A Lenigas 700,000 35,000,000 33,500,000 J I Stalker 700,000 35,000,000 30,000,000 J F Kearney 400,000 20,000,000 - J A MacPherson 400,000 20,000,000 - VATUKOULA GOLD MINES ANNUAL REPORT

26 Directors Report (continued) Substantial shareholdings As at 17 February 2011 the following had notified the Company of disclosable interests of 3% or more in the nominal value of the Company s shares: Ordinary shares of 5 p % Canaccord Nominees Limited * 12,663, Roy Nominees Limited 7,547, Pension Financial Services Inc 7,232, Barclayshare Nominees Limited 3,819, State Street Nominees Limited 3,214, TD Waterhouse Nominees (EUROPE) 3,182, Total 37,659, * These shares are held by Canaccord Nominees Limited on behalf of and for the benefit of Canadian Zinc Corporation. Policy on payment of creditors The Company seeks to maintain good terms with all of its trading partners. In particular, it is the Company s policy to agree appropriate terms and conditions for its transactions with suppliers and, provided the supplier has complied with its obligations, to abide by the terms of payment agreed. Trade creditor days of the Group for the year ended 31 August 2010 were 56 days (2009: 80 days). Going concern After making enquiries, the directors have formed a judgement at the time of approving the financial statements, that there is a reasonable expectation that the Company and the Group as a whole have adequate resources to continue in operational existence for the foreseeable future. For this reason the directors have adopted the going concern basis in preparing the financial statements. Auditors In accordance with Section 489 of the Companies Act 2006, a resolution proposing that Mazars LLP be re-appointed will be put to the forthcoming Annual General Meeting. Directors responsibilities in the preparation of financial statements The directors are responsible for preparing the annual report and the financial statements in accordance with EU endorsed International Financial Reporting Standards ( IFRS ), interpretations from the International Financial Reporting Interpretations Committee ( IFRIC ) and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. Company law requires directors to prepare financial statements for each financial period which give a true and fair view of the state of affairs of the Company and the Group and of the profit and loss for that period. In preparing the financial statements, directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable, comparable, understandable and prudent; ensure the financial statements comply with IFRS; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business. The directors are responsible for keeping proper books of account which disclose with reasonable accuracy at any time the financial position of the Company and the Group and to enable them to ensure that the financial statements comply with the Companies Act The directors are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.the directors are also responsible for the maintenance and integrity of the Group s website on the internet. However, information is accessible in many different countries where legislation governing preparation and documentation of financial statements may differ from that applicable in the United Kingdom. Disclosure of information to auditors So far as each person who was a director at the date of approving the report is aware, there is no relevant audit information, being information needed by the auditor in connection with preparing the report, of which the auditors are unaware. Having made enquiries of fellow directors, each director has taken all the steps that he is obliged to have taken as a director in order to have made himself aware of any relevant audit information and to establish that the company s auditors are aware of that information. On behalf of the Board On behalf of the Board K C Morzaria Director 28 February VATUKOULA GOLD MINES ANNUAL REPORT 2010

27 Corporate Governance Statement Compliance with the Combined Code The directors recognise the value of the Combined Code on Corporate Governance that was issued in 2008 by the Financial Reporting Council and whilst under AIM rules full compliance is not required, the directors believe that the Company applies the recommendations insofar as is practicable and appropriate for a public company of its size. Board of Directors The board of directors comprises four executive directors, one of whom is the Chairman, and three non-executive directors. The directors are of the opinion that the board comprises a suitable balance and that the recommendations of the Combined Code have been implemented to an appropriate level. The board, through the Chief Executive Officer and the Finance Director in particular, maintains regular contact with its advisers and public relations consultants in order to ensure that the board develops an understanding of the views of major shareholders about the company. Board Meetings In addition to ad hoc meetings arranged to discuss particular transactions and events and the AGM, the full board met five times during the year ending August The board is responsible for formulating, reviewing and approving the Company's strategy, financial activities and operating performance. Day to day management is devolved to the executive directors who are charged with consulting the board on all significant financial and operational matters. Consequently decisions are made promptly and following consultation amongst the directors concerned where necessary and appropriate. All necessary information is supplied to the directors on a timely basis to enable them to discharge their duties effectively, and all directors have access to independent professional advice, at the company's expense, as and when required. The Chief Executive Officer is available to meet with institutional shareholders to discuss any issues and concerns regarding the Group's governance. The non-executive directors can also attend meetings with major shareholders if requested. The participation of both private and institutional investors at the Annual General Meeting is welcomed by the board. Internal controls The directors acknowledge their responsibility for the Company's and the Group's systems of internal control, which are designed to safeguard the assets of the Group and ensure the reliability of financial information for both internal use and external publication. Overall control is ensured by a regular detailed reporting system covering both technical progress of a project and the state of the group's financial affairs. The board has put in place procedures for identifying, evaluating and managing any significant risks that face the group. Any system of internal control can provide only reasonable, and not absolute, assurance that material financial irregularities will be detected or that the risk of failure to achieve business objectives is eliminated. The directors, having reviewed the effectiveness of the system of internal financial, operational and compliance controls and risk management, consider that the system of internal control operated effectively throughout the financial year and up to the date the financial statements were signed. Committees Each of the following committees has its own terms of reference. Audit Committee The Audit Committee comprises the non-executive directors. Its terms of reference indicate at least two regular meetings per year. The audit committee has met twice during the year. The Audit Committee's primary responsibilities are to review the effectiveness of the company's systems of internal control, to review with the external auditors the nature and scope of their audit and the results of the audit, and to evaluate and select external auditors. Remuneration Committee The Remuneration Committee comprises the non-executive directors. It plans to meet at least twice in each year. The Remuneration Committee has met once during the year. The Company's policy is to remunerate senior executives fairly in such a manner as to facilitate the recruitment, retention and motivation of staff. The Remuneration Committee agrees with the board a framework for the remuneration of the chairman, the executive directors and the senior management of the company. The principal objective of the Committee is to ensure that members of the executive management of the Company are provided incentives to encourage enhanced performance and are, in a fair and responsible manner, rewarded for their individual contributions to the success of the Company. Non-executive fees are considered and agreed by the board as a whole. VATUKOULA GOLD MINES ANNUAL REPORT

28 Independent Auditor s Report To the Members of Vatukoula Gold Mine Plc We have audited the financial statements of Vatukoula Gold Mines Plc for the year ended 31 August 2010 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated and Company statements of Financial Position, the Consolidated and Company Statement of Cash Flows, the Consolidated and Company Statements of Changes in Equity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRS) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act Respective responsibilities of directors and auditors As explained more fully Directors Responsibilities Statement set out on page 26, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s (APB s) Ethical Standards for Auditors. This report, including our opinion, has been prepared for and only for the company s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act Our audit work has been undertaken so that we might state to the company s members those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company s members as a body for our audit work, for this report, or for the opinions we have formed. Scope of the audit of the financial statements A description of an audit of financial statements is provided on the APB s website at Opinion on the financial statements In our opinion: the financial statements give a true and fair view of the state of the group s and the parent company s affairs as at 31 August 2010 and of the group s profit for the year then ended; the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act Opinion on other matter prescribed by the Companies Act 2006 In our opinion, the information given in the Directors Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. Richard Karmel (Senior statutory auditor) For and on behalf of Mazars LLP, Chartered Accountants (Statutory auditor) Tower Bridge House St Katharine's Way London E1W 1DD Date: 28 February 2011 Note: The maintenance and integrity of the Vatukoula Gold Mines Plc website is the responsibility of the directors. The work carried out by the auditors does not involve consideration of these matters and accordingly the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were originally presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 28 VATUKOULA GOLD MINES ANNUAL REPORT 2010

29 Consolidated Statement of Comprehensive Income For the year ended 31 August 2010 Note Turnover 4 40,354 18,837 Cost of sales 5 (28,032) (17,429) Gross profit 4 12,322 1,408 Operating Expenses Gold Duty (1,216) (560) Administrative expenses (3,229) (3,515) Foreign exchange gains 2, Depreciation and amortisation (5,187) (3,903) Underlying operating profit / (loss) 4,872 (5,595) Impairment of available for sale investments - (400) Inventory obsolescence (381) - Rehabilitation charge (17) (193) Provision for doubtful debt 18 - (2,712) Share based payments (665) (1,091) Operating profit / (loss) 6 3,809 (9,991) Interest receivable and other income Interest payable and similar charges 8 (163) (45) Net profit / (loss) before taxation 3,685 (9,906) Taxation Profit / (loss) for the period 4,523 (9,381) Attributable to: 4,523 (9,381) Owners of the Parent - - Non Controlling interest 4,523 (9,381) Other Comprehensive Income and (expenses) Currency translation differences (332) (210) Total comprehensive income and (expenses) for the period 4,191 (9,591) Attributable to: Owners of the Parent 4,191 (9,591) Non Controlling interest - - Total comprehensive income and (expenses) for the period 4,191 (9,591) Earnings / (loss) per share Pence Pence Basic (0.43) Diluted (0.43) All activities relate to continuing operations. The notes on pages 36 to 65 form an integral part of these financial statements VATUKOULA GOLD MINES ANNUAL REPORT

30 Consolidated Statement of Financial Position As at 31 August 2010 Note Assets Non current assets Intangible assets 12 33,688 36,542 Property, plant and equipment 13 20,723 13,017 Mine properties and development 16 4, Available for sale investments Total non-current assets 58,834 50,150 Current assets Inventories 17 6,030 4,681 Trade and other receivables 18 5,151 1,843 Cash and cash equivalents 19 12,849 1,086 Total current assets 24,030 7,611 Total assets 82,864 57,761 Current liabilities Trade and other payables 21 4,308 3,822 Provisions 22 1,539 1,615 Borrowings Total current liabilities 5,892 5,437 Non current liabilities Provisions 22 4,726 1,869 Convertible loan Borrowings Deferred tax liability 30 9,394 10,232 Total non-current liabilities 14,457 12,603 Shareholders equity Share Capital 20 4,031 2,686 Share premium account 20 69,699 53,076 Merger reserve 2,167 2,167 Foreign exchange reserve Other reserves 1,592 1,237 Accumulated losses (15,378) (20,181) Total shareholders equity 62,515 39,721 Total liabilities and shareholders equity 82,864 57,761 Approved by the Board and authorised for issue on 28 February 2011 and signed on behalf of the Board of Directors by: K C Morzaria Director 28 February 2011 The notes on pages 36 to 65 form an integral part of these financial statements 30 VATUKOULA GOLD MINES ANNUAL REPORT 2010

31 Company Statement of Financial Position As at 31 August 2010 Note Assets Non current assets Investment in subsidiary companies 15 37,679 37,679 Property, plant and equipment Total non-current assets 37,929 37,929 Current assets Trade and other receivables 18 14,748 8,846 Cash and cash equivalents 19 10, Total current assets 25,200 9,284 Total assets 63,129 47,213 Current liabilities Trade and other payables Non current liabilities Convertible loan Shareholders Equity Share Capital 4,031 2,686 Share premium account 69,699 53,076 Other reserves 1,592 1,237 Accumulated losses (12,843) (10,520) Total shareholders equity 62,479 46,479 Total liabilities and shareholders equity 63,129 47,213 Approved by the Board and authorised for issue on 28 February 2011 and signed on behalf of the Board of Directors by: K C Morzaria Director 28 February 2011 The notes on pages 36 to 65 form an integral part of these financial statements VATUKOULA GOLD MINES ANNUAL REPORT

32 Consolidated Statement of Changes in Shareholders Equity As at 31 August 2010 Ordinary Foreign share Share Merger exchange Other Accumulated capital premium reserve reserve reserves losses Total Balance at 1 Sep ,686 53,076 2, ,237 (20,181) 39,721 Profit for the year ,523 4,523 Other comprehensive income Currency translation differences (332) - - (332) Total comprehensive income 2,686 53,076 2, ,237 (16,658) 43,912 Issue of shares 1,324 17, ,610 Cost of share issue - (872) (872) Share option expired (280) Convertible loan (30) Share based payment Balance at 31 Aug ,031 69,699 2, ,592 (15,378) 62,515 Ordinary Foreign share Share Merger exchange Other Accumulated capital premium reserve reserve reserves losses Total Balance at 1 Sep ,902 49,427 2, (9,830) 44,781 Loss for the year (9,381) (9,381) Other comprehensive income Currency translation differences (210) - - (210) Total comprehensive income 1,902 49,427 2, (19,211) 35,189 Issue of shares 834 4, ,004 Cost of share issue - (521) (521) Share option expired (80) 80 - Share reduction (50) Adjustment for unpaid shares (1,100) (1,100) Convertible loan Share based payment ,091-1,091 Balance at 31 Aug ,686 53,076 2, ,237 (20,181) 39,721 Share premium: The share premium reserve represents the consideration that has been received in excess of the nominal value of shares on issue of new ordinary share capital. Merger reserve: The merger reserve represent shares that have been issued at a premium to their nominal value on acquisition of another company. Foreign exchange reserves: The Foreign exchange reserves represent the exchange gains or losses resulting form translating foreign currency amounts to the reporting currency during the consolidation of the accounts of the Company. Other reserves: The other reserves represents the increases and decreases in the amounts recognised in the previous and current periods relating to share based payment and convertible loan note transactions. Accumulated losses: The accumulated losses represent profits and losses retained in previous and current period The notes on pages 36 to 65 form an integral part of these financial statements 32 VATUKOULA GOLD MINES ANNUAL REPORT 2010

33 Company Statement of Changes in Shareholders Equity As at 31 August 2010 Ordinary share Share Other Accumulated capital premium reserves losses Total Balance at 1 Sep ,686 53,076 1,237 (10,520) 46,479 Loss for the year (2,603) (2,603) Total comprehensive income 2,686 53,076 1,237 (13,123) (43,876) Issue of shares 1,324 17, ,610 Cost of share issue - (872) - - (872) Convertible loan (30) Share option expired - - (280) Share based payments Balance at 31 Aug ,031 69,699 1,592 (12,843) 62,479 Ordinary share Share Other Accumulated capital premium reserves losses Total Balance at 1 Sep ,902 49, (5,804) 45,693 Loss for the year (3,746) (3,746) Total comprehensive income 1,902 49, (9,550) 41,947 Issue of shares 834 4, ,004 Cost of share issue - (521) - - (521) Convertible loan Share reduction (50) Share option expired - - (80) 80 - Adjustment for unpaid shares (1,100) (1,100) Share based payments - - 1,091-1,091 Balance at 31 Aug ,686 53,076 1,237 (10,520) 46,479 Share premium: The share premium reserve represents the consideration that has been received in excess of the nominal value of shares on issue of new ordinary share capital. Other reserves: The other reserves represents the increases and decreases in the amounts recognised in the previous and current periods relating to share based payment and convertible loan note transactions. Accumulated losses: The accumulated losses represent profits and losses retained in previous and current period. The notes on pages 36 to 65 form an integral part of these financial statements VATUKOULA GOLD MINES ANNUAL REPORT

34 Consolidated Statement of Cash Flows For the year ended 31 August 2010 Note Cash flow from operating activities Operating profit/(loss) for the period 6 3,809 (9,991) Adjustments for: Share based payments ,091 Depreciation and amortisation 5,187 3,903 Foreign exchange gains (2,182) 97 Impairment of investments Loss on disposal of property, plant and equipment Allowance for inventory obsolescence Provision for bad debts - 2,112 Provision for rehabilitation trust deed Net operating income/(loss) before changes in working capital 7,877 (1,862) (Increase) /decrease in inventories 17 (1,348) (1,318) (Increase) / decrease in receivables 18 (3,307) 111 Increase / (decrease) in payables (1,069) Net cash generated / (used) in operating activities 3,708 (4,138) Cash flow from investing activities Purchase of property, plant and equipment 13 (6,038) (1,237) Payments for mine properties and development 16 (3,887) (439) Interest received Net cash used in investing activities (9,886) (1,666) Cash flows before financing (6,178) (5,901) Cash flows from financing activities Proceeds from issuance of shares 20 18,609 5,004 Cost of issue of shares (872) (521) Interest paid (179) (45) Proceeds from / (repayment of) convertible loan note (Repayment)/proceeds from borrowings (281) Net cash generated from financing activities 17,609 4,643 Net (Increase)/decrease in cash and cash equivalents 11,431 (1,258) Cash and cash equivalents at beginning of the year 19 1,086 2,249 Effect of foreign exchange on cash and cash equivalents Cash and cash equivalents at end of the year 19 12,849 1,086 The notes on pages 36 to 65 form an integral part of these financial statements 34 VATUKOULA GOLD MINES ANNUAL REPORT 2010

35 Company Statement of Cash Flows For the year ended 31 August 2010 Note Cash flow from operating activities Operating loss for the period (2,540) (3,745) Adjustment for: Investment written off - 1,543 Impairment Share based payment ,091 Net operating loss before changes in working capital (1,875) (502) (Increase) in receivables 18 (5,903) (1,157) Increase/(decrease) in payables (14) Net cash used in operating activities (7,692) (1,673) Investing activities Purchase of investments - (3,804) Interest received 36 7 Purchase of property, plant and equipment - (250) Net cash used in investing activities 36 (4,047) Cash flows before financing (7,656) (5,720) Cash flows from financing activities Proceeds from issuance of shares 20 18,609 5,004 Costs of issue of shares (872) (521) Proceeds from / (repayment of) convertible loan note (Repayment) / proceeds from borrowings - - Finance expense (68) (30) Net cash generated from financing activities 17,670 4,938 Net (increase)/decrease in cash and cash equivalents 10,014 (782) Cash and cash equivalents at beginning of the year ,220 Cash and cash equivalents at end of the year 19 10, The notes on pages 36 to 65 form an integral part of these financial statements VATUKOULA GOLD MINES ANNUAL REPORT

36 Notes to the Financial Statements For the year ended 31 August General information Vatukoula Gold Mines Plc is registered in England and Wales under number The Company is governed by its articles of association and the principal statute governing the Company is the Companies Act The Company s registered office is situated at 5th floor, Carmelite, Victoria Embankment, Blackfriars, London, EC4Y 0LS. The company is listed on the AIM market of the London Stock Exchange. The nature of the Group s and Company s operations and principal activities are set out in the Directors Report on page Basis of preparation The principal accounting policies adopted by the Group and Company in the preparation of the financial statements are set out below. The Board has reviewed the accounting policies set out in the financial statements and considers them to be most appropriate to the Group s business. These financial statements are presented in sterling. The functional currency of the Group is the Fijian dollar (F$) as it effects the majority of its costs. Revenues are in US dollars. Given that the Fijian dollar is not widely used as a reporting currency and that the parent company is listed in the United Kingdom it is deemed appropriate for the presentation currency to be in sterling. Statement of Compliance with IFRS The Group s and Company s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS and IFRIC interpretations) as adopted by the European Union. New accounting standards The group has adopted IFRS 8: Operating segments. The effect of this standard is to disclose information concerning the group s reporting segments however adoption of this standard did not materially change the analysis of the group s results and performance. The group and company adopted IAS 1 (revised): Presentation of financial statements. The effect of this standard is purely presentational. The Group will apply the revised IFRS 3: Business Combinations to all business combinations entered into on or after 1 July The key features of the revised IFRS 3 include the requirement for acquisition related costs to be expensed and not included in the purchase price; and contingent consideration to be recognised at fair value or the acquisition date (with subsequent changes recognised in the profit and loss account and not as a change in goodwill). The standard also changes the treatment of non-controlling interests with an option to recognise these at fair value as at the acquisition date and a requirement for previously held non-controlling interests to be fair valued as at the date of control is obtained, with gains and losses recognised in profit or loss. The revised standard has not had an impact on the 2009 / 2010 financial statements. IAS 27: Consolidated and separate financial statements (Revised) became effective during the year. IAS 27 revised no longer restricts the allocation to non-controlling interests of losses incurred by a subsidiary to the amount of non-controlling equity investments of the subsidiary. A partial disposed of equity investment in a subsidiary that does not result in a loss of control will be accounted for as an equity transaction and will have no impact on goodwill nor will it give rise to any gain or loss. Where there is a loss of control of a subsidiary, any retained interest will have be re-measured to fair value, which will impact the gain or loss recognised on disposal. The revised standard has not had an impact on 2009 / 2010 financial statements. The group and the company have not applied the following IFRS, IAS and IFRICs that are applicable and have been issued but are not yet effective. New/Revised International Financial Reporting Standards Issued Effective Date IFRS 2 Share-based Payment June 2009 Annual periods Amendments relating to group cash-settled share-based payment beginning on or transactions after 1 January 2010 IFRS 7 Financial Instruments: Disclosures October 2010 Annual periods Amendments enhancing disclosures about transfers of financial assets beginning on or after 1 July 2011 IFRS 9 Financial Instruments Original issue Annual periods Classification and Measurement November 2009 beginning on or after 1 January 2013 Revised International Accounting Standards Revised Effective Date IAS 12 Income Taxes December 2010 Annual periods Limited scope amendment (recovery of underlying assets) beginning on or after 1 January 2012 IAS 24 Related Party Disclosures November 2009 Annual periods Revised definition of related parties beginning on or after 1 January 2011 IAS 32 Financial Instruments: Presentation 2009 Annual periods Amendments relating to classification of rights issues beginning on or after 1 February VATUKOULA GOLD MINES ANNUAL REPORT 2010

37 In addition to the above, there are a number of minor adjustments to various standards which are part of the IASB s annual improvement project published in April 2009 and May These amendments are not expected to have significant impact on the group s accounts and are effective for financial years beginning on or after 1 January 2010 and 1 January 2011 respectively. There have been no other new or revised International Financial Reporting Standards, International Accounting Standards or Interpretations that are in effect since that last annual report that have a material impact on the financial statements. 3. Summary of significant accounting policies (a) Basis of consolidation The consolidated financial information incorporates the financial statements of the Company and its subsidiaries (the Group ). Control is achieved where the Group has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. 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 profit or loss. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by the Group. (b) Going concern The financial information has been prepared assuming the Company and the Group will continue as a going concern. Under the going concern assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading or seeking protection from creditors pursuant to laws or regulations. In assessing whether the going concern assumption is appropriate, management takes into account all available information for the foreseeable future, in particular for the twelve months from the date of approval of the financial statements. Should the Company or the Group be unable to continue trading, adjustments would have to be made to reduce the value of the assets to their recoverable amounts, to provide for further liabilities which might arise, and to classify fixed assets as current. (c) Business combinations The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of the assets given, liabilities incurred or assumed and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair value at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non Current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell. Where there is a difference between the Group s interest in the net fair value of the acquiree s identifiable assets, liabilities and contingent liabilities and the cost of the business combination, any excess cost is recognised in the statement of financial position as goodwill and any excess net fair value is recognised immediately in the profit or loss as negative goodwill on acquisition of subsidiary. The interest of minority shareholders in the acquiree is initially measured at the minority s proportion of the net fair value of the assets, liabilities and contingent liabilities recognised. (d) Significant accounting judgements, estimates and assumptions The preparation of financial statements requires the application of estimates and assumptions on future events, which affects assets and liabilities at the balance sheet date and income and expenditure for the period. 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. The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are: 1. Share-based payment transactions (see note 20) The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined using the Black-Scholes model. 2. Income taxes (see note 9) The Group is subject to income taxes in the United Kingdom, Fiji and Brazil. Significant judgment is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax provisions in the period in which such determination is made. VATUKOULA GOLD MINES ANNUAL REPORT

38 Notes to the Financial Statements For the year ended 31 August 2010 (Continued) 3. Intangible assets (see note 12) Amortisation Intangible assets (other than goodwill) are amortised over their useful lives. Useful lives are based on management s estimates of the period that the assets will generate revenue, which are periodically reviewed for continued appropriateness. Due to the long lives of assets, changes to the estimates used can result in significant variances in the carrying value. The Group assesses the impairment of intangible assets subject to amortisation or depreciation whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered important that could trigger an impairment review include the following: significant underperformance relative to historical or projected future operating results; significant changes in the manner of the use of the acquired assets or the strategy for the overall business; and significant negative industry or economic trends. The complexity of the estimation process and issues related to the assumptions, risks and uncertainties inherent in the application of the Group s accounting estimates in relation to intangible assets affect the amounts reported in the financial statements, especially the estimates of the expected useful economic lives and the carrying values of those assets. If business conditions were different, or if different assumptions were used in the application of this and other accounting estimates, it is likely that materially different amounts could be reported in the Group s financial statements. Allocation The Group recognises intangible assets acquired as part of business combinations at fair value at the date of acquisition and a valuation is subsequently allocated to each intangible asset acquired. The determination of these fair values is based upon management s judgment and includes assumptions on the timing and amount of future incremental cash flows generated by the assets and the selection of an appropriate cost of capital. If these assumptions were to change there would be a material impact to the Group s financial statements. 4. Allowance for doubtful debts (see note 18) Each receivable balance is assessed to determine recoverability. Provisions are made for those debtors where evidence indicates that recoverability is doubtful. Amounts are written off when they are deemed irrecoverable. Any changes to estimates made in relation to debtors recoverability may result in immaterially different amounts being reported by the Group s financial statements. 5. Mineral Resources and Reserves Quantification of mineral resources requires a judgment on the reasonable prospects for eventual economic extraction. Quantification of ore reserves requires a judgement on whether mineral resources are economically mineable. These judgments are based on assessment of mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors involved, in accordance with the Canadian Institute of Mining, Metallurgy and Petroleum s definition standards on mineral resources and mineral reserves. These factors are a source of uncertainty and changes could result in an increase or decrease in mineral resources and ore reserves. This would in turn affect certain amounts in the financial statements such as amortisation, closure provisions which are calculated on a projected life of mine figures. 6. Inventory Valuations Valuations of gold stockpiles, gold in circuit and gold within the fine ore bin requires estimations of the amount contained in, and the recovery rates from, the various work in progress gold circuits. These estimations are based on analysis of samples and prior experience. A judgement is also applied when the gold in circuit will be recovered and what gold price should be applied in calculating the net realisable value; these are both sources of uncertainty. 7. Mine Rehabilitation Provisions Such provisions require a judgement on likely future obligations, based on assessment of technical, legal and economic factors. The ultimate cost of environmental remediation is in certain and cost estimates can vary in response to many factors, including changes in the relevant legal requirements, the emergence of new restoration techniques and changes to the life of mine. 8. Provisions and Contingent Liabilities Judgements are made as to whether a past event has led to a liability that should be recognised in the financial statements or disclosed as a contingent liability. Quantifying any such liability often involves judgements and estimations. These judgements are based on a number of factors including the nature of the claim or dispute, the legal process and potential amount payable, legal advice received, previous experience and the probability of a loss being realised. Several of these factors are a source of estimation uncertainty. (e) Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and revenue can be reliably measured. The following specific recognition criteria must be met before revenue is recognised: 38 VATUKOULA GOLD MINES ANNUAL REPORT 2010

39 Bullion sales The product is in a saleable form and therefore the quantity and value can be determined with reasonable accuracy; The product has been received by the refinery and is no longer under the physical control of the Group; The selling price can be measured reliably; It is probable that the economic benefits associated with the transaction will flow to the Group; and The costs incurred, or to be incurred, can be measured reliably. Finance revenue Interest revenue is recognised as interest accrues using the effective interest rate method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. (f) Turnover and Segmental Analysis The Group has adopted IFRS 8 which is required for all annual reports and interim financial statements starting 1 January 2009 or later. Implementation of IFRS 8 has not changed the Group s policy in measuring the amounts included in the turnover and segmental analysis reporting. However the presentation of the turnover and segmental analysis has changed in 2010 compared to The reportable segments identified make up all of the Group s external revenue, which is derived primarily from the sale of gold. The reportable segments are an aggregation of the operating segments within the Group as prescribed by IFRS 8. The reportable segments are based on the Group s management structures and the consequent reporting to the Chief Operating Decision Maker, the Board of Directors. Our sector results are attributable to the gold production, exploration and corporate costs. These reportable segments also correspond to geographical locations such that each reportable segment is in a separate geographic location,ie; head office UK, gold mining Fiji, other activities Brazil. Income and expenses included in profit for the year are allocated directly or indirectly to the reportable segments. Expenses allocated as either directly or indirectly attributable comprise: cost of sales, gold duty and administrative expenses. Non-current segment assets comprise the non-current assets used directly for segment operations, including intangible assets, property plant and equipment and mine properties and development. Current segment assets comprise the current assets used directly for segment operations, including inventories, trade receivables, other receivables and pre-payments. Inter-company balances comprise arms length transactions between operating segments making up the reportable segments. These balances are eliminated to arrive at the figures in the consolidated accounts. (g) The Company s investments in subsidiaries In its separate financial statements the Company recognises its investments in subsidiaries at cost, less any impairment for permanent diminution in value. (h) Foreign currency The presentational functional currency of the Group is Sterling ( ). Each entity in the Group determines it own functional currency and items included in the financial statements of each entity are measured using that functional currency. The assets and liabilities of these subsidiaries are translated into the presentation currency of Vatukoula Gold Mines Plc at the rate of exchange ruling at the reporting date and their income statements are translated at the average exchange rate for the year. The exchange differences arising on the translation are taken directly to a separate component of equity. All other differences arising on translation are included in the profit or loss except for exchange differences arising on nonmonetary assets and liabilities where the changes in fair values are recognised directly in equity. 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. Exchange differences recognised in profit or loss of Group entities separate financial statements on the translation of long-term monetary items forming part of the Group s net investment in the overseas operation concerned are reclassified to the foreign exchange reserve. On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are transferred to the income statement as part of the profit or loss. (i) Goodwill on consolidation Goodwill arising on the acquisition of a subsidiary or jointly controlled entity represents the excess of the cost of acquisition over the Group s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary or jointly controlled entity recognised at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. VATUKOULA GOLD MINES ANNUAL REPORT

40 Notes to the Financial Statements For the year ended 31 August 2010 (Continued) For the purpose of impairment testing, goodwill is allocated to each of the Group s cash-generating units expected to benefit from synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cashgenerating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in subsequent periods. (j) Inventories Ore stock, consisting of stocks on which further processing is required to convert them to trading stocks, is valued at the lower of cost and net realisable value. Cost is calculated using a weighted average cost model, where inventories are valued at the weighted average cost of the closing inventory. Net realisable value is estimated selling price less the estimated costs necessary to make the sale. Other inventories include: (i) Stores, comprising plant spares and consumable stores, are valued on the basis of weighted average cost after providing for obsolescence. (ii) Work in progress is valued on the basis of first in first out and includes direct costs, depreciation and amortisation. (iii) Insurance spares are stated at the lower of cost and net realisable value. Gold in circuit Gold in circuit is valued at the lower of cost and net realisable value. Cost comprises direct material, labour and transportation expenditure incurred in getting inventories to their existing location and condition, together with an appropriate portion of fixed and variable overhead expenditure based on weighted average costs incurred during the period in which such inventories were produced. Net realisable value is the amount anticipated to be realised from the sale of inventory in the normal course of business less any anticipated costs to be incurred prior to its sale. (k) Intangible assets Acquired intangible assets which consist of mining rights are valued at cost less accumulated amortisation. Amortisation is calculated using the units of production method which is calculated over the life span of the mine. The assets residual value and useful lives are reviewed and adjusted if appropriate, at each reporting date. An asset s carrying value is written down immediately to its recoverable value if the asset s carrying amount is greater than its listed recoverable amount. (l) Property Plant and Equipment Property Plant and Equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is provided on all tangible assets to write down the cost less estimated residual value of each asset over its useful economic life on a units of production method basis at the following annual rate: Freehold land Plant and machinery Motor vehicles Fixtures, fittings and equipment Not depreciated Over 3-10 years Over 3 years Over 4 years The depreciation charge for each period is recognised in the income statement. Subsequent expenditure relating to an item of property, plant and equipment is capitalised when it is probable that future economic benefits from the use of the asset will be increased. All other subsequent expenditure is recognised as an expense in the period in which it is incurred. Repairs and maintenance which neither materially add to the value of assets nor appreciably prolong their useful lives are charged against income. The gain or loss arising from the de-recognition of any items of property, plant and equipment is included in the profit or loss when the item is de-recognised. The gain or loss arising from the de-recognition of an item of property, plant and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item. The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. (m) Mining and exploration expenditure The Group applies the full cost method of accounting for exploration and evaluation costs, having regard to the requirements of IFRS 6 Exploration for and Evaluation of Mineral Resources. All costs associated with mining development and investment are capitalised on a project by project basis pending determination of the feasibility of the project. Such expenditure comprises appropriate technical and administrative expenses but not general overheads. 40 VATUKOULA GOLD MINES ANNUAL REPORT 2010

41 Such exploration and evaluation costs are capitalised provided that the Group s rights to tenure are current and one of the following conditions is met; (i) such costs are expected to be recouped through successful development and exploitation of the area of interest or alternatively by its sale; or (ii) the activities have not reached a stage which permits a reasonable assessment of whether or not economically recoverable resources exist; or (iii) active and significant operations in relation to the area are continuing. When an area of interest is abandoned or the directors decide that it is not commercial, any exploration and evaluation costs previously capitalised in respect of that area are written off to profit or loss. Impairment assessments are carried out regularly by the directors. Exploration and evaluation assets are assessed for impairment when facts and circumstances suggest that the carrying amount may exceed its recoverable amount. Such indicators include the point at which a determination is made as to whether or not commercial reserves exist. The recoverability of capitalised mining costs and mining interests is dependent upon the discovery of economically recoverable reserves, the ability of the Company to obtain necessary financing to complete the development of reserves and future profitable production or proceeds from the disposition of recoverable reserves. Mine properties and development ( MPD ) This represents the accumulated exploration, evaluation, development and acquisition expenditure in relation to areas of interest in which economically recoverable reserves exist. Development costs that can be capitalised fall into the following categories: Initial Capital Development This includes, but is not restricted to the following: Shaft sinking Station (plant) development & Underground workshops Pump station and dams Ore and waste pass systems Primary Capital Development This is the development carried out on each level in the exploration and exploitation of a mining area or orebody. It includes, but is not restricted to the following: Cross cuts, haulages and drives to the orebody Initial rises on the orebody to effect the first holing s to facilitate production Main airways Secondary Capital Development This is the development carried out within an area in which the primary development has been completed and which is critical to the continued operation of the mine or mining area. It includes, but is not restricted to the following: Airways crosscuts and drives Pump stations The capitalised value of mine properties is amortised on a life of mine basis. The life of mine has been calculated on a units of production method based on economically recoverable reserves and resources. The amortisation for the period is calculated using the following: Recovered gold ounces during the period Economically recoverable reserves and resources at the start of the period * Net book value to date plus costs capitalised during the period The net carrying value of a mine assets is reviewed regularly and, to the extent to which this amount exceeds its recoverable amount (based on the higher of estimated future net cash flows and the mine s asset s current realisable value) that excess is fully provided against in the financial year in which this is determined. (n) Provision for mine rehabilitation A provision for rehabilitation is initially recognised at the present value of expected future cash flows when there exists a constructive obligation for the entity to undertake rehabilitation at the mine site. The increase in the provision for rehabilitation relating to the unwinding of the discount and the depreciation of the rehabilitation asset are recorded within profit or loss. VATUKOULA GOLD MINES ANNUAL REPORT

42 Notes to the Financial Statements For the year ended 31 August 2010 (Continued) (o) Impairment of intangible and tangible assets excluding goodwill The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset s recoverable amount. An asset s recoverable amount is the higher of the asset s or cash-generating unit s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets and the asset s value in use cannot be estimated to be close to its fair value. In such cases the asset is tested for impairment as part of the cash-generating unit to which it belongs. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset or cash-generating unit is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risk specific to the asset. Impairment losses of continuing operations are recognised in those expense categories consistent with the function of the impaired asset unless the asset is carried at a revalued amount (in which case the impairment is treated as a revaluation decrease). An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated, a previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss unless the asset is carried at a revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. (p) Financial instruments Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instruments and on a trade date basis. A financial asset is derecognised when the Group s contractual rights to future cash flows from the financial asset expire or when the Group transfers the contractual rights to future cash flows to a third party. A financial liability is derecognised only when the liability is extinguished. (i) Trade and other receivables and other assets Trade and other receivables and other assets are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in the income statement when there is objective evidence that the asset is impaired. (ii) Cash and cash equivalents For purposes of the consolidated balance sheet and consolidated statement of cash flows, the Group considers all highly liquid investments which are readily convertible into known amounts of cash and have a maturity of three months or less when acquired to be cash equivalents. Cash and cash equivalents comprise cash in bank and in hand, and short term deposits with an original maturity of three months or less, net of any outstanding bank overdrafts, all of which are available for use by the Company unless otherwise stated. Cash and cash equivalents are measured at fair value, based on the relevant exchange rates at balance sheet date. (iii) Investments Investments included as financial assets are valued at fair value and are held as available for sale. When available for sale assets are considered to be impaired, cumulative gains or losses previously recognised in equity are reclassified to the profit or loss in the period. (iv) Financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. The Group s financial liabilities include trade and other payables, bank loans, other borrowings, convertible loans and obligations under finance leases. All financial liabilities, except for derivatives, are recognised initially at their fair value plus transaction costs that are directly attributable to the acquisition or issue of the financial liability and subsequently measured at amortised cost, using the effective interest method, unless the effect of discounting would be insignificant, in which case they are stated at cost. (v) Other financial liabilities Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. (vi) Bank borrowings Interest-bearing bank loans and overdrafts are recorded at the proceeds received net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis to the profit and loss account using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. 42 VATUKOULA GOLD MINES ANNUAL REPORT 2010

43 (vii) Trade payables, provisions and other payables Trade and other payables are not interest-bearing and are stated at cost. Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligations, and a reliable estimate of the amount can be made. Provision has been made in the financial statements for benefits accruing in respect of sick leave, annual leave, and long service leave. (q) Financing costs and interest income Financing costs comprise interest payable on borrowings and finance lease payments and interest income which is calculated using the effective interest rate method. (r) Impairment of financial assets At each reporting date, the Group assesses whether there is objective evidence that financial assets, other than those at fair value through profit or loss, are impaired. The impairment loss of financial assets carried at amortised cost is measured as the difference between the assets carrying amount and the present value of estimated future cash flows discounted at the financial asset s original effective interest rate. (s) Share Capital Ordinary shares are recorded at nominal value and proceeds received in excess of nominal value of shares issued, if any, are accounted for as share premium. Both ordinary shares and share premium are classified as equity. Costs incurred directly to the issue of shares are accounted for as a deduction from share premium, otherwise they are charged to the income statement. (t) Taxation Tax on profit or loss for the period comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided on temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. (u) Share-based payments The Company operates a share option scheme for granting share options, for the purpose of providing incentives and rewards to eligible employees of the Group. The cost of share options granted is measured by reference to the fair value at the date at which they are granted. It is recognised together with a corresponding increase in equity, over the vesting period. The cumulative expense recognised at each reporting date until the end of the vesting period reflects the extent to which the vesting period has expired and the number of shares that in the opinion of the directors of the Group at that date will ultimately vest. (v) Compound Financial Instruments Compound financial instruments issued by the group comprise convertible loan notes that can be converted to share capital at the option of the holder, and the number of shares to be issued does not vary with changes in their fair value. The liability component of a compound financial instrument is recognised initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognised initially at the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component of a financial instrument is measured at amortised cost using the effective interest method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition except on conversion or expiry. Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period. (w) Contingent liabilities and contingent assets A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that an outflow of economic resources will be required or the amount of obligation cannot be measured reliably. VATUKOULA GOLD MINES ANNUAL REPORT

44 Notes to the Financial Statements For the year ended 31 August 2010 (Continued) A contingent liability is not recognised but is disclosed in the notes to the accounts. When a change in the probability of an outflow occurs so that the outflow is probable, it will then be recognised as a provision. A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain events not wholly within the control of the Group. Contingent assets are not recognised but are disclosed in the notes to the accounts when an inflow of economic benefits is probable. When an inflow is virtually certain, an asset is recognised. (x) Leased assets Operating lease: Operating lease rentals are included in the determination of the operating profit or loss for the year in accordance with the contracted lease payment agreement. (y) Employee benefits (i) Defined contribution plan Obligations for contributions to the Fiji National Provident Fund are recognised as an expense in profit or loss as they are due. (ii) Short-term benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed in profit or loss as the related service is provided. (iii) Long-term employee benefits Obligations in respect of long-term employee benefits such as long service leave is the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. (iv) Termination benefits Termination benefits are recognised as an expense when the Group is demonstrably committed, without realistic probability of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised as an expense if the company has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be measured reliably. 44 VATUKOULA GOLD MINES ANNUAL REPORT 2010

45 4. Turnover and Segmental Analysis All turnover in the Group in the current and prior year is derived from the sales to the one customer, which is included in the Gold mining segment Head Gold Other Office mining Activity Total Turnover - 40,354-40,354 Mining - (17,949) - (17,949) Processing - (7,471) - (7,471) Overheads - (2,612) - (2,612) Cost of sales - (28,032) - (28,032) Gross Profits - 12,322-12,322 Gold duty - (1,216) - (1,216) Administrative Expenses (1,487) (1,589) (153) (3,229) Foreign exchange gains/(losses) - 2,182-2,182 Depreciation and Amortisation (2,994) (2,158) (35) (5,187) Underlying operating Profit / (loss) (4,481) 9,540 (188) 4,872 Inventory Obsolescence - (381) - (381) Rehabilitation charge - (17) - (17) Provision for doubtful debt Share based payments (665) - - (665) Operating profit / (loss) (5,146) 9,142 (188) 3,809 Interest receivable and other income Interest payable and similar charges (100) (54) (9) (163) Net profit / (loss) before taxation (5,209) 9,091 (197) 3,685 Taxation Profit / (loss) for the period (4,371) 9,091 (197) 4,523 Other Segment Items Additions to plant, property and equipment - 9, ,248 Additions to mine properties and development - 3,887-3,887 Current assets 10,597 13, ,030 Non currents assets 33,797 24, ,834 Current liabilities 318 5, ,893 Non current liabilities 9,725 4,732-14,457 VATUKOULA GOLD MINES ANNUAL REPORT

46 Notes to the Financial Statements For the year ended 31 August 2010 (Continued) 4. Turnover and Segmental Analysis (continued) 2009 Head Gold Other Office mining Activity Total Turnover - 18, ,837 Mining - (12,793) - (12,793) Processing - (2,927) - (2,927) Overheads - (1,705) (4) (1,709) Cost of sales - (17,425) (4) (17,429) Gross Profits - 1, ,408 Gold duty - (560) - (560) Administrative Expenses (1,243) (1,077) (220) (2,540) Depreciation and Amortisation (1,872) (2,187) 156 (3,903) Underlying operating Profit / (loss) (3,115) (2,450) (30) (5,595) Impairment of investments (400) - - (400) Inventory Obsolescence Rehabilitation charge - (193) - (193) Provision for doubtful debt (500) (2,212) - (2,712) Share based payments (1,091) - - (1,091) Operating (loss) (5,106) (4,855) (30) (9,991) Interest receivable and other income Interest payable and similar charges (30) (1) (14) (45) Net profit / (loss) before taxation (5,091) (4,856) 41 (9,906) Taxation Profit / (loss) for the period (4,566) (4,856) 41 (9,381) Other Segment Items Additions to plant, property and equipment Additions to mine properties and development Current assets 555 7, ,611 Non currents assets 36,542 13, ,150 Current liabilities 223 5, ,437 Non current liabilities 10,733 1,869-12, Cost of Sales Group Mining (17,949) (12,337) Metallurgy (7,471) (2,996) Bullion assay (126) (92) Technical Services (122) (143) Resource engineering (656) (316) Supply and security (332) (646) Human resources (979) (766) Safety training and environment (58) (83) Mine general administration (339) (50) (28,032) (17,429) 46 VATUKOULA GOLD MINES ANNUAL REPORT 2010

47 6. Operating Profit / (loss) Group Operating profit is stated after charging: Auditors remuneration Audit services Non-audit services - Taxation 25 6 Non-audit services - Other 2 - Auditors renumeration payable to subsidiary auditors Share based payments expense granted by the Company 665 1,091 Depreciation of property, plant and equipment 1,976 1,170 Amortisation of mining properties and development Amortisation of intangible assets 2,994 1,872 Impairment of available for sales investments Employees The average monthly number of persons (including directors) employed by the Group during the year was: Number Number Productive labour Office and management Employment costs: Wages and salaries 4,347 3,557 Pension ,690 3,813 Directors remuneration: I C Orr-Ewing D K Paxton K C Morzaria D A Lenigas J I Stalker J F Kearney 24 4* J A MacPherson 24 4* *J F Kearney and J A MacPherson were appointed in June 2009 and therefore were only remunerated for two months in that period. Directors remuneration in 2010 solely consisted of salaries, and as at 31 August 2010 (2009: nil) there were no directors accruing benefits under a money pension scheme. During the year the Directors were granted options over 75,000,000 ordinary shares in the Company, these options have an exercise price of between 1.8 and 2 pence and have a term of 5 years. These options have been valued using a Black Scholes options valuation model (see Note 20) and have a total value of 440,334, which has been expensed as part of the share based payments. During the year no options were exercised by the directors. VATUKOULA GOLD MINES ANNUAL REPORT

48 Notes to the Financial Statements For the year ended 31 August 2010 (Continued) 8. Interest receivable/payable and similar charges Other interest receivable and other income: Bank interest Interest and bank charges Interest convertible loan notes Taxation Current taxation - - Deferred taxation (838) (525) Factors affecting tax charge: (838) (525) Profit/(loss) before tax 3,685 (9,906) Tax at 28% (2009: 28.5%) 1,032 (2,873) Effects of: - Non deductible expenses Temporary differences not recognised 465 1,414 - Rate adjustment Tax effect of income not subject to income tax (2,686) - Total tax credit (838) (525) The deferred taxation credit arises on the release of the deferred tax liability. Tax is calculated at 28% (2009: 28.5%), being the effective tax rate for the Group, of the estimated taxable profit for the year. This effective tax rate is based upon the rates prevailing in the respective tax jurisdictions, principally Fiji. 10. Loss for the year The Company s loss for the year dealt within the accounts of Vatukoula Gold Mines Plc was 2,603,706 (2009 3,745,441). As provided by S408 of the Companies Act 2006, no income statement is presented in respect of Vatukoula Gold Mines Plc. 48 VATUKOULA GOLD MINES ANNUAL REPORT 2010

49 11. Earnings per share (a) Basic The calculation of consolidated earnings / (loss) per share is based on the following earnings / (loss) and number of shares: Profit / (loss) after tax 4,523 (9,381) Number Number Basic weighted average ordinary shares in issue during the period 3,576,964,090 2,185,136, Pence Pence Basic earnings per share 0.13 (0.43) Basic earnings / (loss) per share is calculated by dividing the profit for the year from continuing operations of the Group by the weighted average number of ordinary shares in issue during the year. (b) Diluted Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume the conversion of dilutive potential ordinary shares. The Company has two categories of dilutive potential ordinary shares: convertible loan notes and share options / warrants. The convertible debt is assumed to have been converted into ordinary shares, and the net profit is adjusted to eliminate the interest expense less the tax effect. For the share options, a calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the company s shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options Profit / (loss) after tax 4,523 (9,381) Interest expense on convertible loan note (net of tax) 53 - Profit used to determine diluted earnings per share 4,576 (9,381) Number Number Basic weighted average ordinary shares in issue during the period 3,576,964,090 2,185,136,099 Adjustments for: Assumed conversion of convertible loan note 50,355,311 - Share options / warrants 37,783,677 - Diluted weighted average ordinary shares in issue during the period 3,665,103,078 2,185,136, Pence Pence Diluted earnings per share 0.13 (0.43) In the prior year, all potential shares were anti-dilutive as the Group was in a loss making position. As a result diluted loss per share for the year ended 31 August 2009 is disclosed as the same value as basic loss per share. VATUKOULA GOLD MINES ANNUAL REPORT

50 Notes to the Financial Statements For the year ended 31 August 2010 (Continued) 12. Intangible asset Cost Balance as at 1 September 38,414 38,414 Transferred from tangible assets Exchange difference 2 - Balance as at 31 August 38,554 38,414 Amortisation Balance as at 1 September (1,872) - Current charge (2,994) (1,872) Balance as at 31 August (4,866) (1,872) Carrying value 33,688 36,542 The amortisation of the intangible asset is calculated on a unit of production basis, based on forecast production and the total Mineral Reserves. We would expect the intangible asset to be amortised over five years. This rate can vary from year to year and is dependant on the mineral reserves which are reassessed every year. This year the directors carried out an impairment review. As in previous years, this was based on an estimate of discounted future cash flows from the development and operation of the Vatukoula Gold Mine. The directors have used past experience and an assessment of future conditions, together with external sources of information, to determine the assumptions which were adopted in the preparation of a financial model to estimate the cashflows. The recoverable amount of the mine is determined by using a net present value calculation based on the estimated economically recoverable portion of the total Mineral Resource and the life of mine plan. The life of mine plan is currently 12 years. This Mineral Resource is used rather than the Mineral Reserve as the Mineral Reserve will not represent the total recoverable amount from the mine. This is because it excludes ore deposits that are above the economic cut off grade within the Inferred Mineral Resource category. The key assumptions therein are those regarding discount rates, and expected changes to selling prices and direct costs during the period. Management estimates discount rates using post-tax rates that reflect current market assessments of the time value of money and the risks specific to the mine and the rate used was 10%. The production is based on the directors forecast of the mine s maximum output and based on the mine achieving its operating capacity. The directors believe this rate is justified based on the current progress of the mine. A deferred tax liability of 10,757,000 arose in 2008 in respect of the intangible assets recognised on the acquisition in the prior periods. The deferred tax liability is in respect of future taxable profits potentially generated from the exploration of the mining rights (Note 30). 50 VATUKOULA GOLD MINES ANNUAL REPORT 2010

51 13. Property plant and equipment Freehold and Fixtures, leasehold Work in Plant and Motor Mine fittings and land progress machinery Vehicles Assets equipment Total Group Cost As at 1 September ,074 1,176 12, ,773 Additions - 6, , ,248 Transferred on completion - (4,449) 4, Disposals - (17) (13) (30) Transferred to intangible - (138) (138) Exchange difference ,200 At 31 August ,134 2,881 18, , ,053 Accumulated depreciation As at 1 September , ,756 Charge for the year - - 1, ,976 Disposals - (13) (13) (26) Transferred on completion - (87) Exchange difference - (4) At 31 August , ,330 Net book value At 31 August ,134 2,881 13, , ,723 At 31 August ,074 1,072 10, ,017 The Group has one item that has been acquired which is subject to a finance lease (Note 23). It was acquired for 29,035 and has a net book value of 19,867. Freehold and Fixtures, leasehold Work in Plant and Motor fittings and land progress machinery Vehicles equipment Total Group Cost As at 1 September ,089 12, ,989 Additions ,237 Transferred on completion - (37) Disposals - - (453) - - (453) Exchange difference At 31 August ,074 1,175 12, ,773 Accumulated depreciation As at 1 September , ,522 Charge for the year ,170 Disposals - - (120) - - (120) Exchange difference At 31 August , ,756 Net book value At 31 August ,074 1,072 10, ,017 At 31 August ,089 11, ,466 VATUKOULA GOLD MINES ANNUAL REPORT

52 Notes to the Financial Statements For the year ended 31 August 2010 (Continued) Freehold land Total Company Cost As at 1 September 2009 and as at 31 August Net book value At 31 August At 31 August Cost As at 1 September Additions As 31 August Net book value At 31 August At 31 August Available for sale investments Group and Company Cost As at 1 September and as at 31 August Provision for diminution in value As at 1 September and as at 31 August (477) (477) Net book value at 31 August - - Available for sale investments constitute holdings in the following entities: Name of business Country of incorporation Principal activities % held Lesotho Diamonds Corporation Gibraltar Mining 0.5 Cambrian Forestry Products United Kingdom Forestry 0.1 In April 2007, the Company acquired 1,212,121 new ordinary shares in Lesotho Diamond Corporation for 400,000. The company was subsequently renamed Global Diamonds Resources ( GDR ). During the previous financial year operations ceased at the mine due to a lack of funding on the 5 January During this year GDR has gone into liquidation and therefore the Directors of the Company thought it was appropriate to continue to provide fully for this investment. In the year ended 2003, River Diamonds Ltd a wholly owned subsidiary of Vatukoula Gold Mines purchased 77,000 of new ordinary shares in Cambrian Forestry Products. In 2004 the Company provided fully for this investment as it was undergoing restructuring. These investments were initially and subsequently measured at cost. This is because the directors consider that its fair value cannot be measured reliably as the investments are not quoted on an active market. 52 VATUKOULA GOLD MINES ANNUAL REPORT 2010

53 15. Investment in subsidiary companies Company Cost As at 1 September 39,489 35,685 Additions - 3,804 Balance as at 31 August 39,489 39,489 Impairment As at 1 September 1,810 1,410 Current provision Balance as at 31 August 1,810 1,810 Net book value Balance as at 31 August 37,679 37,679 Details of the subsidiaries: Name of subsidiaries Country of incorporation Principal activities % held Viso Gero International Inc BVI Holding company 100 Vatukoula Gold Pty Ltd Australia Holding company 100 Vatukoula Australia Australia Holding company 100 Vatukoula Finance Pty Ltd Australia Holding company 100 Koula Mining Company Fiji Dormant 100 Jubilee Mining Company Fiji Dormant 100 Vatukoula Gold Mine Ltd Fiji Mining 100 River Diamonds UK Ltd England & Wales Holding Company 100 Panguma Diamonds Ltd Sierra Leone Dormant 100 São Carlos Mineração Limitada* Brazil Exploration 100 * The investment in this entity is held by River Diamonds UK Ltd, a 100% owned subsidiary of the Company. 16. Mine properties and development Company Cost Balance as at 1 September 1,604 1,165 Additions 3, Foreign exchange difference Balance as at 31 August 5,650 1,604 Amortisation Balance as at 1 September 1, Current charge Foreign exchange difference (3) - Balance as at 31 August 1,227 1,013 Carrying value Balance as at 31 August 4, During the current year the company invested 3,887,000 (2009: 439,000) in underground capital development, this increase is a result of the increased operational activity. VATUKOULA GOLD MINES ANNUAL REPORT

54 Notes to the Financial Statements For the year ended 31 August 2010 (Continued) 17. Inventories Company Consumables stores 3,720 3,323 Allowances for inventory obsolescence (609) (259) Foreign exchange difference (57) - Total consumables stores 3,054 3,064 Insurance spares Allowances for obselescene (253) (222) Total insurance spares - 12 Gold in circuit and gold stock 2,976 1,605 As at 31 August 6,030 4, Trade and other receivables Group Company Trade receivables 1, Amounts owed by group undertakings ,677 8,525 Other receivables 4,122 2, ,645 2,985 15,248 9,346 Less: Provision for doubtful debts (3,011) (2,712) (500) (500) Prepayments 2,517 1, ,151 1,843 14,748 8,846 Trade receivables are amounts due from the sales of gold. The average credit period taken on sales of goods is two weeks. The provision for doubtful debts includes 2.5 million (2009: 2.5 million) in relation to the prepayments against the claimed tax liabilities of F$ 11.5 million by The Fiji Islands Revenue & Customs Authority. The prepayment ceased in December 2008 and none have been made since this date. However, given the time the court case has been outstanding and that currently there is no date in the court diaries for this matter to be heard it was thought prudent that the Company provide for any prepayments made in relation to this tax assessment. The Fiji Islands Revenue & Customs Authority has recognised the prepayment of the claimed tax liability. The Group does not consider it has a significant concentration of credit risks arising from the trade receivables as no amounts represent more than 5% of the total balance at the balance sheet date. The following table provides an analysis of trade and other receivables that were past due as at 31 August 2010, but not provided for. Subsequent to the year, all trade receivables of over six months have been paid. The Group believe that all the balances are ultimately recoverable. 54 VATUKOULA GOLD MINES ANNUAL REPORT 2010

55 Group Due 0-31 days 1, Past due days Past due days - 2,712 Past due more than 93 days 3, Gross receivables 5,645 2,985 Specific Impairment (3,011) (2,712) 2, Cash and cash equivalents Group Company Cash at banks and in hand 12,849 1,086 10, ,849 1,086 10, At 31 August 2010 management believes that the carrying amount of cash equivalents approximates to fair value because of the short maturity of these financial instruments. 20. Share capital (a) Share capital Group and Company Authorised 4,250,000,000 ordinary shares of 0.1p each (2009: 4,250,000,000 shares of 0.1p each) 4,250,000 4,250,000 Allotted, issued and fully paid 4,081,141,072 ordinary shares of 0.1p each (2009: 2,686,371,072 Ordinary shares of 0.1p each) 4,031,141 2,686,371 (b) Share issues during the period Issue Par Share Value of value value premium Share Share shares issued per share per share per share capital premium for cash Date Shares Shares issued for cash Issue for cash 29/09/ ,000, ,000 1,843,920 1,999,920 Issue for cash 21/10/ ,000, ,000 8,250,000 9,000,000 Exercise of warrants 19/01/ ,000,000 10, , ,000 Exercise of warrants 03/06/ ,436,613 7,437 81,803 89,240 Issue for cash 30/07/ ,000, ,000 7,000,000 7,400,000 1,323,436,613 1,323,437 17,285,723 18,609,160 VATUKOULA GOLD MINES ANNUAL REPORT

56 Notes to the Financial Statements For the year ended 31 August 2010 (Continued) Issue Par Share Value of value value premium Share Share loan note per share per share per share capital premium converted Date Shares Shares issued in relation to the conversion of loan notes Conversion of 12/04/ ,333,333 8,333 91, ,000 loan notes Conversion of 12/04/ , ,500 5,000 loan notes Conversion of 03/06/ ,500,000 12, , ,000 loan notes 21,333,333 21, , ,000 1,344,769,946 1,344,770 17,494,390 18,839,160 The ordinary shares have a par value of 0.1pence per share (2009: 0.1 pence) and are fully paid. These shares carry no right to fixed income or have any preferences or restrictions attached to them. (c) Warrants and options During the year ended 31 August 2010 the following movements occurred on the warrants and options to purchase 0.1p ordinary shares in Vatukoula Gold Mines Plc. The following main conditions apply to all options and warrants currently on issue and granted during the year. Management options vest immediately on grant, however should the grantee resign or be dismissed during prior to the first anniversary of his or her employment the options will cease. Directors options vest immediately and there are no performance conditions associated with the options. Of the warrants on issue and granted during the year, 48,500,000 are associated with the issue of the convertible loan note in the previous year. The remainder of warrants were granted to professional advisors in lieu of services. All the warrants vested immediately on grant. Average Number exercise price Number of Number of Number of of warrants Number of Number of per share options warrants options and options options warrants Exercise price p 1p 1.2p 1.8p 2p 2.5p 6p Total Balance at 1 September ,900, ,500,000 21,300, ,700,000 Granted during the year 2.9 3,000,000 31,462,501 20,000,000 55,000,000-42,092, ,555,386 Exercised during the year (17,436,613) (17,436,613) Expired during the year (21,300,000) - (21,300,000) Balance at 31 August ,900,000 14,025,888 20,000, ,500,000-42,092, ,518,773 Average Number exercise price Number of of warrants Number of per share options and options options Exercise price p 1p 2p 2.5p Total Balance at 1 September ,000,000-22,500,000 27,500,000 Granted during the year ,900, ,500, ,400,000 Exercised during the year Expired during the year 1.3 (5,000,000) - (1,200,000) (6,200,000) Balance at 31 August ,900, ,500,000 21,300, ,700, VATUKOULA GOLD MINES ANNUAL REPORT 2010

57 The options granted during the year to directors, staff and advisors were as follows: On the 26 September ,000,000 options to the mine management in Fiji. Each option carries the right to subscribe for 1 ordinary share of 0.1 pence each in the capital of the Company at a price of 1 pence, exercisable up to five years after the commencement of employment with the Company; and On the 21 October ,212,501 warrants to WH Ireland Limited, Arbuthnot Securities Limited, as part payment of corporate finance advice. Each warrant carries the right to subscribe for 1 ordinary share of 0.1 pence in the capital of the Company at a price of 1.2 pence, exercisable up to 30 March 2011; and On the 5 January ,250,000 warrants to Brant Securities Ltd as part payment of corporate finance advice. Each warrant carries the right to subscribe for 1 ordinary share of 0.1 pence in the capital of the Company at a price of 1.2 pence, exercisable up to 5 July 2011; and On the 30 July ,000,000 options to the mine management in Fiji. Each option carries the right to subscribe for 1 ordinary share of 0.1 pence each in the capital of the Company at a price of 1.2 pence, exercisable up to five years after the commencement of employment with the Company; and On the 28 July ,000,000 options to Directors. Each option carries the right to subscribe for 1 ordinary share of 0.1 pence each in the capital of the Company at a price of 1.8 pence, exercisable up to 28 July 2015; and On the 28 July ,000,000 options to Directors. Each option carries the right to subscribe for 1 ordinary share of 0.1 pence each in the capital of the Company at a price of 2 pence, exercisable up to 28 July 2015; and On the 31 March ,049,809 warrants to WH Ireland Limited, Religare Capital Markets Limited as part payment corporate finance advice associated with the re-admission of the Company to the AIM market in 1 April Each warrant carries the right to subscribe for 1 ordinary share of 0.1 pence in the capital of the Company at a price of 6 pence, exercisable up to 31 March The total share-based payment expense in the year for the Group was 664,554 (2009: 1,090,901), and 419,475,697 options are exercisable at the year end The following tables lists the inputs used for the warrant and option issues which occurred during the year: Grant date 26/09/ /10/ /01/ /07/ /07/ /07/ /03/2010 Dividend yield 0% 0% 0% 0% 0% 0% 0% Expected volatility 37% 63% 60% 38% 38% 38% 58% Risk-free interest rate 1.56% 1.56% 1.56% 1.56% 1.56% 1.56% 1.56% Expected life of options 5 years 1.5 years 1.5 years 5 years 5 years 5 years 1 year Exercise price 1 pence 1.2 pence 1.2 pence 1.2 pence 1.8 pence 2 pence 6 pence Price at grant date 1.34 pence 1.51 pence 1.43 pence 1.87 pence 1.79 pence 1.79 pence 2.03 pence The model used to arrive at the fair value of all the options granted during the year was the Black Scholes option pricing model The weighted average remaining contractual life of the million options outstanding at the balance sheet date is 4 years (2009: 4 years). The weighted average share price during the year was 2.2p (2008: 1p) per share. The expected volatility of the warrants and options reflects the assumption that historical volatility is indicative of future trends, which may not necessarily be the actual outcome. The expected life of the options is based on historical data available at the time of the option issue and is not necessarily indicative of future trends, which may not necessarily be the actual outcome. The share option scheme and the warrants on issue is an equity settled plan and fair value is measured at the grant date of the option. 21. Trade and other payables Group Company Trade creditors 4,103 3, Accruals and deferred income ,308 3, VATUKOULA GOLD MINES ANNUAL REPORT

58 Notes to the Financial Statements For the year ended 31 August 2010 (Continued) 22. Provisions Group Current Employee entitlements Provision for annual leave Provision for redundancy payment 1,011 1,062 Provision for workers compensation Other employee related accruals ,539 1,615 Non current Restoration Provisions for mine rehabilitation 4,220 1,055 Provision for Vatukoula Rehabilitation Trust Fund ,726 1,869 Total 6,265 3,484 Employee Vatukoula related Mine Rehabilitation provisions rehabilitation Trust Fund Total Group Balance at 1 September ,615 1, ,484 Additional provisions 29 3,042-3,178 Used during the year (100) - (296) (396) Exchange difference (5) 123 (12) 106 Balance at 31 August ,539 4, ,265 The Vatukoula Rehabilitation Trust Fund ( VRTF ) was established for the purpose of social assistance for the employees made redundant by the previous mine operator and the local mining community in accordance with the Trust Deed dated 18th December The current portion of the provision for the VRTF represents a provision for redundancy payment of F$ 3,000,000. These redundancy payments are now payable as part of the VRTF. The Group s contribution to the Vatukoula Social Assistance Trust Fund will continue until the 10th March A total of F$ 6 million is payable of which the Group paid F$1.5 million on the 10th March The VRTF is part of the Vatukoula Trust Deed, a binding contract between the Company s wholly owned subsidiary and the Fijian Ministry of Lands and Mineral Resources. Given this the directors believe that there very little uncertainty in relation to the quantum and timing of the provision. The increase in the provision for mine rehabilitation represents changes to an existing mine closure plan. The present value of the estimated cost is capitalised as property, plant and equipment. Over time the discounted liability will be increased for the change in the present value based on the discount rates that reflect the current market assessments and the risks specific to the liability. The provision for Mine Rehabilitation is currently expected to be expensed over the life of mine which is currently twelve years. The life of mine is dependant on the economic viability of extracting the contained Mineral Resources and may vary on a year by year basis dependant on the mining / processing costs and the price of Gold. In addition the quantum of the provision may vary on a year by year basis dependant on the costs associated with executing the Mine Rehabilitation Plan. 58 VATUKOULA GOLD MINES ANNUAL REPORT 2010

59 23. Borrowings Group Current ANZ Banking Group 34 - Finance lease liability Non current Finance lease liability 5 - ANZ Banking Group Loan The loan was taken to facilitate payment of an insurance premium. The loan is repayable by monthly instalments of 35,006 and interest is being charged at the rate of 9.0% per annum. The loan was secured over the master operating lease agreement over motor vehicles. The loan will be repayable in full in September Finance lease liability The finance lease liability is secured by master lease agreement and a charge over leased assets. The finance lease is repayable by monthly instalments of 987 and interest is being charged at the rate of 14% per annum and is fully repayable in January Converible Loans (i) On 22 April 2007, the Group issued a fully redeemable convertible loan note for 100,000 repayable in cash by December 2009, which during the year was extended to the end of March The loan note carries a coupon rate of 1% per annum. This convertible loan note was fully converted into equity on the 12 April 2010, via the issue of 8,833,333 new ordinary shares in the Company. 8,333 was credited to ordinary share capital and 91,667 was credited to share premium. 12,000 has been debited from the equity component upon conversion. (ii) On 26 June 2009, the Group issued a fully redeemable convertible loan note for 485,000 repayable in cash 5 years after the date of grant. The loan note carries a coupon rate of 11% per annum. The loan note will be convertible at 0.01 equating to 48,500,000 shares in Vatukoula Gold Mines Plc. During the year 130,000 of these convertible loan notes were converted to 13,000,000 new ordinary shares in the Company 13,000 was credited to ordinary share capital and 117,000 was credited to share premium. 18,000 has been debited from the equity component upon conversion. The net proceeds from the issue of the convertible loans have been split between the liability element and an equity component as follows: Group and Company Nominal value Equity component (53) (83) Liability component VATUKOULA GOLD MINES ANNUAL REPORT

60 Notes to the Financial Statements For the year ended 31 August 2010 (Continued) (iii) The movement in the liability component of the convertible loan note is as follows: Group and Company Balance at 1 September Conversion of loan notes (230) Unwind discounted present value of liability 22 Principal interest 46 Coupon interest 53 Interest paid (61) Balance at 31 August Financial instruments and risk management objectives and policies The accounting policies for financial instruments have been applied to the line items below: Group Assets per balance sheet Trade and other receivables 5,151 1,843 Cash and cash equivalents 12,849 1,086 18,000 2, Liabilities per balance sheet Trade and other payables 4,308 3,822 Borrowings 45 - Convertible loan notes Other liabilities 5-4,690 4,324 Company Assets per balance sheet Trade and other receivables Cash and cash equivalents 10, , Liabilities per balance sheet Trade and other payables Convertible loan notes Loans and receivables are measured using the amortised cost method. Available for sale financial instruments are initially recognised at fair value and subsequently remeasured to fair value at each year end, with any change in value recognised directly in equity. 60 VATUKOULA GOLD MINES ANNUAL REPORT 2010

61 The Group s activities expose it to a variety of financial risks; currency risk, credit risk, liquidity risk and cash flow interest rate risk. The policies for managing these risks are regularly reviewed and agreed by the Board. It is, and has been throughout the period under review, the Group s policy that no trading in financial instruments should be undertaken. (i) Currency rate risk Loans between companies which are members of the Vatukoula Gold Mines Plc group are made in the operating currency of the lending company. In all other respects, the policy for all group companies is that they only trade in their principal operating currency, except in exceptional circumstances from time to time. The Group s revenue derives from the sale of gold bullion by its Fijian operating subsidiary respectively. Proceeds of gold bullion sales are received in US Dollars. As the group reports in Sterling, reported revenue is affected by the combination of changes in the US Dollar/Fijian Dollar and Sterling/Fijian Dollar rates. The Group s expenses in Fiji and Brazil are incurred in Fiji Dollars and Reals respectively. Any weakening in the Fijian Dollar/Reals would result in a reduction in expenses in Sterling terms, which would be to the Group s advantage. There is an equivalent downside risk to the group of strengthening in the Fijian Dollar/Reals which would increase Brazilian operating expenses in Sterling terms Brazilian Australian Fiji Brazilian Australian Fiji Sterling Real Dollar Dollar Sterling Real Dollar Dollar Class Financial assets Trade receivables ,592 1, Cash and cash equvalents 10, , Financial liabilities Trade payables , ,704 Borrowings Convertible loan notes The following table illustrates the Group s sensitivity to the fluctuation of the major currencies in which it transacts. A 15% increase has been applied to each currency in the table below, representing management s assessment of a reasonably possible change in foreign exchange rates: Financial Assets Impact on profit after tax on 15% increase in Fijian Dollar fx rate against Sterling Impact on profit after tax on 15% decrease in Fijian Dollar fx rate against Sterling (728) (143) Impact on profit after tax on 15% increase in Reals fx rate against Sterling 10 1 Impact on profit after tax on 15% decrease in Reals fx rate against Sterling (10) (1) Financial Liabilities Impact on profit after tax on 15% increase in Fijian Dollar fx rate against Sterling (618) (556) Impact on profit after tax on 15% decrease in Fijian Dollar fx rate against Sterling Impact on profit after tax on 15% increase in Reals fx rate against Sterling (2) (2) Impact on profit after tax on 15% decrease in Reals fx rate against Sterling 2 2 VATUKOULA GOLD MINES ANNUAL REPORT

62 Notes to the Financial Statements For the year ended 31 August 2010 (Continued) (ii) Interest rate risk Interest rate exposure arises mainly from cash holdings. Contractual agreements entered into at floating rates expose the entity to cash flow risk whilst the fixed rate borrowings expose the entity to fair value risk. The table below shows the Group s financial assets and liabilities split by those bearing fixed and floating rates and those that are non-interest bearing Non-interest Non-interest Class/categories Floating rate Fixed rate bearing Floating rate Fixed rate bearing Financial assets Trade receivables - - 2, Other receivables - - 2, ,457 Cash and cash equivalents 12, , Financial liabilities Trade payables - - 4, ,686 Bank overdraft Accruals Borrowings Finance lease liability Convertible loan notes The fair value of all financial instruments is approximately equal to book value due to their short term nature and the fact that they bear interest at floating rates based on the local bank rate. If interest rates had been 1% higher/lower and all other variables held constant, the Group s profit for the year ended 31 August 2010 would increase/decrease by 22,486 (2009: loss would increase/decrease by 10,860). (iii) Credit risk Credit risk arises from trade receivables and cash and cash equivalents. Credit exposure is measured on a Group basis. The Group s maximum exposure to credit risk relating to its financial assets is given in Note 18. (iv) Gold price risk The Group s policy is to sell gold at spot. The Group is exposed to gold price risk through gold price fluctuations. An increase/decrease of 25% in the spot price of gold at 31 August 2010, with all other variables held constant, would have the following impact on the income statement and statement equity at 31 August 2010: Income statement and equity impact Increase/(decrease) % increase in the gold spot price 10,008 25% decrease in the gold spot price (10,008) (v) Liquidity risk Responsibility for liquidity risk management rests with the board of directors, which has established appropriate liquidity risk frameworks for the management of the Group s short, medium and long term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves and by continuously monitoring forecast and actual cash flows and by matching maturity profiles of financial assets and liabilities. The following table details the Group s maturity profiles of its financial assets and liabilities. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principle cash flows. 62 VATUKOULA GOLD MINES ANNUAL REPORT 2010

63 Less than More than Less than More than one year one year one year one year Financial Assets Cash at Bank 12,849-1,086 - Trade and other receivables 5,151-1,843-18,000-2,929 - Financial Liabilities Borrowings Trade and other payables 4,308-11,543 - Convertible loan notes , , (i) Capital risk The Group s objectives when managing capital (defined as net debt plus equity) are to safeguard the Group s ability to continue as a going concern in order to provide returns to shareholders and benefits to other stakeholders, while maintaining a strong credit rating and headroom whilst optimising return to shareholders through an appropriate balance of debt and equity funding. The group manages its capital structure and makes adjustments to it, in light of changes to economic conditions and the strategic objectives of the company. To maintain or adjust the capital structure, the Group may issue new shares or return capital shareholders. No changes were made in the objectives, polices or processes during the year ending August 2009 and August During the year the Group funded the expansion of the operations at the mine predominantly via the issue of equity. The board thought this was the most appropriate means of funding given the stage of development of the Group, and the risks associated with the development of the Vatukoula Gold Mine. 26. Ultimate controlling party There was no ultimate controlling party during the year. 27. Related party transactions Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation. Transactions and balances between related parties are set out below: In order to fund the expansion of the operations at the Vatukoula Gold Mine, during the current year the Company has loaned 5,863,071 (2009: 1,104,315) to the wholly owned Fijian subsidiary Vatukoula Gold Mines Ltd. The total balance as at 31 August 2010 is 13,005,995 (2009: 7,142,924). The loan is interest free and does not have any fixed repayment period. During the current year, the company has loaned Viso Gero International Inc, a wholly owned subsidiary, Nil. In 2009 Viso Gero International Inc repaid the company 818,775 of the inter-company loan reducing the total balance from 2,200,769 to 1,363,014. The total balance as at 31 August 2010 is 1,362,014. The loan is interest free and does not have any fixed repayment period. During the current year, the company has loaned River Diamonds (UK) Limited, a wholly owned subsidiary 308,784 (2009: 115,951). The total balance as at 31 August 2010 is 308,784 (2009 Nil:). Of the balance, the company has written of Nil during the year ended 31 August 2010 (2009: 115,951). The loan is interest free and does not have any fixed repayment period. During the year, the Company paid consultancy fees of 82,083 (2009: 60,000) to Promaco Ltd, a company related to J I Stalker, director of Vatukoula Gold Mines Plc. There were no amounts payable to Promaco Ltd at the year end. During the year, the Company paid consultancy fees of 30,307 (2009: 73,000) to Kimmel Consulting Ltd, a company related to K Morzaria, director of Vatukoula Gold Mines Plc. There were no amounts payable to Kimmel Consulting Ltd at the year end. During the year Canadian Zinc Corporation, a company related to JF Kearney and J A MacPherson exercised its conditional right to acquire further shares in the Company as approved by shareholders on the 10 June Canadian Zinc subscribed for 156,000,000 ordinary shares in the Company. These shares were issued for cash at a price of pence per share. The company deems key management personnel to be the executive directors. Remuneration paid to the executive directors is disclosure in Note 7. VATUKOULA GOLD MINES ANNUAL REPORT

64 Notes to the Financial Statements For the year ended 31 August 2010 (Continued) 28. Commitments a. Details of mining leases and special site rights held by the Group are as follows: (i) On 22 March 2004, the Vatukoula Gold Mines Ltd entered into Special Mining Lease ( SML ) agreements with the Government of Fiji to lease a piece of land in the Province of Ba for the purpose of mining minerals. The terms of the lease agreement is for 20 years ending on 21 March Vatukoula Gold Mine Ltd has three agreements and the details are as follows: Mining lease title Lease number Vatukoula Gold Mines Ltd (formerly known as Westech Gold Ltd) under freehold title 54 Majority of the lease is owned by Nosomo Landowners. The remainder of SML is crown Freehold 55 Vatukoula Gold Mines Ltd (formerly known as Westech Gold Ltd) under freehold title 56 Under the current agreement, rent is payable at the rate of F$49,227 per annum. Currently, rent is payable at a rate of F$750 (2009: F$750) per annum. (ii) The Group has mining bonds and undertakings in favour of the director of Mines and is required to pay the Government of Fiji at the rate of 1% of value of the bond per annum (iii) Total commitments for future SML and SSR lease rentals, which have not been provided for in the financial statements, are as follows: Group Not later than one year Later than one year but not later than two years Later than one year and not later than five years Later than five years Net operating lease liability b) Details of operating leases held by the Group are as follows: (i) The Group has various operating leases with ANZ for motor vehicles. The operating lease is repayable by monthly instalments of F$34,207 (2009: F$34,207). (ii) Total commitments for future motor vehicle lease rentals, which have not been provided for in the financial statements, are as follows: Group Not later than one year Later than one year Later than two years (iii) The operating lease is secured over the master operating lease agreement over motor vehicles. (c) Capital commitments Capital commitments as at 31 August 2010 amounted to 1,187,500 (2009: 11,034,250). These commitments are in relation to projected expenditure on mine properties and development. 29. Contingent liabilities a. The following contingent liabilities are in relation to the Fijian subsidiary. Group Bank guarantee - 34 Immigration bond 3 3 Mining bond - 3 Bankers undertaking VATUKOULA GOLD MINES ANNUAL REPORT 2010

65 b. The Fiji Islands Revenue & Customs Authority ( FIRCA ) has issued taxation assessments against the Group of F$11.5million. The Group does not believe any amounts are payable and is vigorously defending the claim. No amounts have been provided in the accounts in respect of this claim. As at year end, advance tax payment of F$7.9m has been made in relation to this. The government has recognised the prepayment of the claimed tax liability, however given the period of time these debts have been outstanding, the Company has taken a prudent view and provided for the debts (Note 18). c. The Group is a plaintiff in several litigations with respect to potential claims of creditors, workers compensation and industrial action. The directors have assessed the likelihood of these claims becoming payable and consider that this is not likely. Therefore there are no provision or contingent liabilities disclosed for these. 30. Deferred taxation Movements in deferred taxation during the period are as follows: Group Balance at 1 September 10,232 10,757 Utilisation (838) (525) 9,394 10,232 The deferred tax liability was in respect of the intangible assets recognised in the acquisition in a prior period (Note 12). 31. Post balance sheet events Subsequent to the year end, the following significant post balance sheet events occurred: The following exercise of options / warrants occurred: Gross proceed from Date Shares issued Exercise price exercise of options/warrants 5 October ,000, ,000 8 October ,000, , October ,775, , October ,750, , November , , January , , January , ,000 The following loan notes were converted into ordinary shares: Value of loan note Date Shares issued Conversion price exercised 19 October , ,000 3 November , ,000 On the 21 October, The Company proposed to its shareholders a one for fifty basis consolidation of its share capital. This resolution was approved on the 8 November 2010, the ordinary shares were consolidated on the basis of one new ordinary share of 5 pence for every existing ordinary share of 0.1 pence. All outstanding options and warrants were adjusted appropriately to reflect the share consolidation so that in general terms, the options or warrants would be exercisable on the basis of one new ordinary share for each 50 existing ordinary shares subject to the warrant or option and so that the exercise price for each such shares would be 50 times the subscription price for the existing ordinary shares. VATUKOULA GOLD MINES ANNUAL REPORT

66 Notes 66 VATUKOULA GOLD MINES ANNUAL REPORT 2010

67 Printed by Sterling T: +44 (0) Designed and produced by brand:mining T: +44 (0)