DRAGON MINING ANNOUNCES 2013 RESULTS

Transcription

1 DRAGON MINING ANNOUNCES 2013 RESULTS 28 FEBRUARY 2014 Dragon Mining Limited (ASX:DRA) announces its audited financial results for the full year ending 31 December 2013, which include a reported Net Loss after tax of $15.8 million, compared to $4.3 million in the 2012 financial year. The 2013 result was dominated by the effects of lower gold prices, which were partially offset by significantly higher production, movements in exchange rates and higher operating depreciation and costs resulting from the predominately underground mining during the year at both the Svartliden Production Centre and the Vammala Production Centre. Notable features of the results for the financial year include: Sales revenue for the year of $85.9 million (FY12: $79.0 million) on the back of significantly higher gold production which offset lower gold prices. Total gold production of 64,482 ounces (FY12: 54,328 ounces) Average C1 cash cost of US$ 1,013 1 per ounce (2012: USD 1,093/oz) Gross profit from operations of $6.3 million (FY12: $16.9 million) due to higher cash costs and significantly increased depreciation charges arising from the operation of the underground mines in Sweden and Finland for a full year. Impairment charges amounting to $15.4m (FY12: Nil) resulting from the lower gold price prevailing at year end. Foreign exchange gains amounting to $ million (FY12: million) arising from the devaluation of the Australian dollar. The primary contributor to the gain was the revaluation of intercompany equity loans to the Finland subsidiary which is not eliminated on consolidation Total exploration expenditure of $6.2 million (FY12: $13.1 million) Cash and cash equivalents of $5.9 million (FY12 $5.5 million) plus trade receivables of $9.7 million (FY million) versus payable of $5.9 million (FY12 $9.6 million) Net Current Asset surplus over net Current Liabilities of $20.1 million (FY12:$13.9 million) mainly due to increased stockpile inventory (FY13 $17.5 million, FY12 $13.8 million) and a reduction in accounts payable (reflecting the completion of mining at the Svartliden Production Centre). The Group marginally increased its cash holdings over the year on the back of the increased production and the previously announced actions to preserve cash. The completion of open pit mining and underground mining at Svartliden Production Centre resulted in an increase in stockpiles, which will be the feed for the Svartliden mill during Following the requisitioned general meeting on 7 February 2014, the new Board is focussed on additional cost cutting measures in order to further improve the financial sustainability of the Group. Actions to date include the commencement of a review of operating and corporate cost structures and a previously announced reduction in Director s fees. Further information in respect of the results of the operating and cost review will be released in due course. Arthur Dew Chairman 1 - The Company has adopted the C1 cash cost definitions as set out by MackenzieWood (formerly Brook Hunt). Page 1

2 Results for announcement to the market for the year ended 31 December 2013 Revenues from ordinary activities (2013: $85.9 million, 2012:$79.0 million) Increase from previous corresponding period 8.7% Loss from ordinary activities after tax (2013: 15.8 million, 2012:$4.2 million,) Increase in loss from previous corresponding period 276.2% Loss from ordinary activities after tax attributable to members (2013: 15.8 million 2012:$4.2 million) Increase in loss from previous corresponding period 276.2% Franked amount Distributions Amount per Amount per Security per Franked Amount per Security Current Period: Interim distribution Final Distribution Nil Nil N/A N/A Previous Corresponding Period: Interim distribution Final distribution Nil Nil N/A N/A Record date for determining entitlements to the interim distribution N/A Page 2

3 ABN FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013

4 DIRECTORS REPORT Your Directors submit their report on the consolidated entity (referred to hereafter as Dragon Mining or the Group ) consisting of Dragon Mining Limited and the entities it controlled at the end of or during the year ended 31 December Directors The names and details of the Company s Directors in office during the period and until the date of this report are as follows. Directors were in office for the entire period unless otherwise stated. Names, qualifications, experience and special responsibilities Mr Arthur George Dew (Appointed 7 February 2014) B.A, L.L.B Non-Executive Chairman Mr Dew is a non-practising Barrister with a broad range of corporate and business experience and has served as a Director, and in some instances Chairman of the Board of Directors, of a number of publicly listed companies in Australia, Hong Kong and elsewhere. He is Chairman and Non-Executive Director of Allied Group Limited, a Hong Kong listed company. Mr Dew is also Chairman and Non-Executive Director of Hong Kong listed companies, Allied Properties (H.K) Limited and Allied Overseas Limited (resigned 27 January 2014) and is a Non-Executive Director of SHK Hong Kong Industries Limited. He is a Non-Executive Director of ASX listed companies Eurogold Pty Ltd (which is the Company s largest shareholder) and Tanami Gold NL. Mr Dew is a member of the Audit and Risk Management Committee. Mr Brett Robert Smith (Appointed 7 February 2014) B.Eng, MBA, M.A Executive Director Mr Smith has participated in the development of a number of mining and mineral processing projects including coal, iron ore, base and precious metals. He has also managed engineering and construction companies in Australia and internationally. Mr Smith has served on boards of both private and public mining and exploration companies. With over 30 years international experience in the engineering and construction businesses he has significant experience in managing organisational change, project development and execution. Peter Lynton Gunzburg BComm Non-Executive Director Mr Gunzburg was appointed a Non-Executive Director on 8 February Mr Gunzburg has over 20 years experience as a stockbroker. He has a Commerce Degree from the University of Western Australia and has previously been a Director of Resolute Limited, the Australian Stock Exchange Limited, Eyres Reed Limited and CIBC World Markets Australia Limited. Mr Gunzburg has been Executive Chairman of Eurogold Limited since September He is a Non-Executive Director of Fleetwood Corporation Limited and Non-Executive Chairman of PieNetworks Limited, both of which are ASX listed. Mr Gunzburg is Chairman of the Audit and Risk Management Committee. Dr Markku Juhani Mäkelä Prof PhD Non-Executive Director Professor Mäkelä was appointed a Non-Executive Director on 13 November He majored in geology and mineralogy at the University of Helsinki and has over 40 years experience from a variety of scientific, operational and administrative activities in the economic geological and mining sector in Finland and globally, latest as a Director of the Geological Survey of Finland (GTK) until his retirement in October Prior to joining GTK in 1994, Dr. Mäkelä spent six years as a Technical Manager and Alternate Director of the UN Revolving Fund for Natural Resources Exploration and he remains a member of the UN Committee on Energy and Natural Resources for Development. He is a Non-Executive Director of Kopy Goldfields AB (appointed June 2010) which is listed on Nasdaq OMX First North in Sweden. Mr Mäkelä is a member of the Audit and Risk Management Committee. 1

5 DIRECTORS REPORT (continued) Peter George Cordin (Resigned 7 February 2014) BE, MIEAust, FAusIMM (CP) Chairman Mr Cordin was appointed Managing Director on 20 March 2006 and subsequently Executive Chairman on 4 March On 1 June 2012 Mr Cordin stepped down as an executive of Dragon Mining, but remained as Non-Executive Chairman until his resignation on 7 February He has direct experience in the construction and management of diamond and gold operations in Australia and Indonesia as well as the development of resource projects in Kazakhstan and New Caledonia. He is a Non-Executive Director of Coal of Africa Limited (appointed December 1997) and Vital Metals Limited (appointed September 2009). Kjell Emil Larsson (Resigned 7 February 2014) MSc in Mining Engineering. Mr Larsson was appointed Managing Director of Dragon Mining Limited on 1 June 2012 having previously been the Chief Operations Officer. On 7 February 2014, Mr Larsson resigned as Director, remaining as Acting Chief Executive Officer. Mr Larsson has over 30 years of experience in the mining industry where he has held senior management and executive roles in Sweden and Canada. Prior to joining Dragon Mining, Mr Larsson served as CEO of Lappland Goldminers AB from January 2009 to 30 September Previous roles include Vice President of Mining at Lundin Mining Corp as well as senior executive positions in Boliden, a major Nordic mining and refining company. Christian Russenberger (Removed 7 February 2014) BBA Non-Executive Director Mr Russenberger was appointed a Non-Executive Director on 18 November 2009 and removed by shareholders on 7 February Mr Russenberger is Principal and Director of 2004 founded CR Innovations AG, Baar, Switzerland, which is specialised in strategic and financial consulting to private and public microcap companies. Prior to his current position he worked with Finter Bank in Zurich, Switzerland ( ) as a relationship manager and analyst. Before joining Finter Bank, he worked in Zurich as an analyst with Anlage-und Kreditbank AKB ( ) and Bank Leu AG ( ). He also served as a member of the board of directors of Swiss company Mobility Cooperative ( ). Mr Russenberger holds a Bachelor of Science Administration, SIB Juventus Zürich, Zürich. He is currently a Non-Executive Director of Providence Resources Inc., a company listed on the Over The Counter market in the United States of America. Toivo Tapani Järvinen (Resigned 31 December 2013) Lic. Tech Non-Executive Director Mr Järvinen was appointed a Non-Executive Director on 22 December Mr Järvinen was employed by the Outokumpu Group from 1985 until October 2006 and was a member of the Outokumpu Group Executive Committee ( ) and President of Outokumpu Technology Oy ( ). Until his retirement on 31 December 2009, he was President and CEO of Outotec Oyj (appointed October 2006), a publicly listed company on the OMX Nordic Exchange Helsinki. Mr Järvinen is also a senior advisor to VTT, the Technical Research Centre of Finland. Mr Järvinen is a Board member of Normet Oy (appointed March 2007), Okmetic Oyj, a publicly listed company on the OMX Nordic Exchange Helsinki (appointed March 2008), Konecranes Plc, a publicly listed company on the NASDAQ OMX Helsinki (appointed March 2009), Outotec Oyj, a publicly listed company on the OMX Nordic Exchange Helsinki (appointed March 2010), Mustavaaran Kaivos Oy (appointed September 2011), Chairman of the Board of Talvivaara Mining Company Plc, a publicly listed company on the OMX Nordic Exchange Helsinki and London Stock Exchange (appointed April 2010), Chairman of the Board of the Finnish-Latin American Trade Association (appointed November 2003). Mr Järvinen was formerly a Board Member of International Copper Association Ltd (October 1995 to December 2009) and the Association of Finnish Steel & Metal Producers (December 2006 to December 2009). Chairman of the Cleantech Finland Business Forum (appointed September 2009) and Chairman of the Industry Council of Technology Academy of Finland (appointed October 2009). 2

6 DIRECTORS REPORT (continued) Company Secretary Austin John Vance James (Resigned 31 December 2013) LLB, CSA (cert) Mr James was appointed Company Secretary on 3 December He is a corporate governance specialist with extensive experience in all aspects of secretarial and governance services. He was previously Company Secretary of APA Group for over 8 years with experience in a number of ASX listed entities. Prior experience includes 13 years of tax and commercial experience in The Australian Gas Light Company. Shannon Coates (Appointed 19 December 2013) LLB, CSA (cert), GAICD Ms Coates has over 18 years experience in corporate law and compliance. She is currently named company secretary to a number of public companies listed on ASX and AIM, and has provided company secretarial and corporate advisory services to boards and various committees across a variety of industries, including financial services, resources, manufacturing and technology. Interests in the Shares and Options of the Company and Related Bodies Corporate As at the date of this report, the relevant interests of the Directors in the shares of the Company are: Ordinary Shares Options Direct Indirect Direct Indirect AG Dew 1 * - 21,623, BR Smith PL Gunzburg 1 * 21,700, MJ Mäkelä PG Cordin 2-472, ,000 - KE Larsson 3-50, ,000 - TT Järvinen C Russenberger 4-55, *Mr Gunzburg and Mr Dew are Directors of ASX listed Eurogold Limited which owns 10,562,592 ordinary shares and Mr Gunzburg is a Director of Brinkley Mining PLC (100% owned by Eurogold Limited) which owns 11,061,078 ordinary shares. 76,440 ordinary shares are held indirectly by Mr Gunzburg in Supergun Pty Ltd <Bricklanding Super A/C>. Mr Dew is also a Director of Allied Properties (HK) Limited, which via its wholly owned subsidiary Allied Property Resources Limited, indirectly holds a 36.48% interest in Eurogold Limited. 2. As at the date of Mr Cordin s resignation on 7 February ,000 options lapsed unexercised. 3. As at the date of Mr Larsson s resignation as director on 7 February As at the date of Mr Russenberger s removal on 7 February

7 DIRECTORS REPORT (CONTINUED) Nature of Operations and Principal Activities The Group comprises Dragon Mining Limited, the parent entity, plus its subsidiaries as set out in Note 20. Of these subsidiaries, the operating entities are Dragon Mining (Sweden) AB in Sweden and Dragon Mining Oy in Finland. The Group operates gold mines and processing facilities in Sweden and Finland. In Sweden the processing operation is known as the Svartliden Production Centre, consisting of a 300,000tpa Carbon in Leach (CIL) processing plant and the Svartliden Gold Mine (mining completed in 2013). In Finland, the Vammala Production Centre consists of a converted 300,000tpa nickel flotation plant, plus the Orivesi Gold Mine and the Jokisivu Gold Mine. One limitation of the Vammala production plant is that it is set up to produce a concentrate as a suitable feed stock for a nearby smelter. In meeting these requirements we are sacrificing gold recovery. In 2014/15 the Group will investigate the processing of the Vammala concentrate at Svartliden thus extending the life of Svartliden, reducing the cash cost of production and improving recovery. Annual production from these production centres is in the range of 50,000 to 65,000 ounces of gold depending on the grade of ore feed. The Group additionally conducts exploration activities in the Nordic region focussed on the PGM group metals. The principal activities of entities within the Group during the period were: Gold mining in Sweden and Finland; and Exploration, evaluation and development of gold projects in the Nordic countries. There have been no significant changes in the nature of those activities during the period. Dividends No dividend has been paid or declared since the commencement of the period and no dividends have been recommended by the Directors. Likely Developments and Expected Results The possible developments in the operations of the Group and the expected results of those operations in the coming year are as follows: Significant emphasis will be made on improving the safety performance of the operation in Finland. This is a priority of the new Board; Continued production of gold from stockpiles at the Svartliden Production Centre in Svartliden, Sweden; Continued production of gold concentrate at the Vammala Production Centre from ore mined at the Orivesi and Jokisivu Gold Mines in Finland; Review the mining methodologies and equipment used in Finland to improve head grades and lower the cost of production; Investigating the processing of concentrate from the Vammala Production Centre at the Svartliden Production Centre, extending the life of the Svartliden operation, improving recovery and reducing the cash cost of production across the group; Further development of the Kuusamo Gold Mine Project, with a focus on finalising the Environmental Impact Assessment; and Limited gold exploration activities. 4

8 DIRECTORS REPORT (CONTINUED) Results The net loss after tax of the Group for the year ended 31 December 2013 was $ million (2012: loss of $4.263 million). Key elements of the result include: Exploration Expenditure $6.263 million (2012: million) which was significantly reduced as a result of cash preservation actions due to the lower gold prices prevailing in Impairment charges amounting to $15.4 million (2012: Nil) resulting from the lower gold price prevailing at year end. Foreign exchange gains amounting to $ million (2012: million) mainly arising from the devaluation of the Australian dollar. The primary contributor to the gain was the revaluation of intercompany equity loans to the Finland subsidiary which is not eliminated on consolidation Capitalised exploration expenditure written off amounting to $1.943 million (2012: Nil) in respect of areas below and around the Jokisivu and Orivesi gold mines in Southern Finland. This write off was undertaken given the impairment charges applied to the Vammala Production Centre in Tax expense of A$1.569 million (2012: million) stemming from the Swedish subsidiary Dragon Mining (Sweden) AB. The reduction in taxable profit is due to lower gold prices plus increased depreciation charges associated with the completion of open pit and underground mining at the Svartliden Gold Mine. For the year ended 31 December 2013, revenue from operations amounted to $ million (2012: $79.0 million) and cost of sales was $ million (2012: $62.1 million). The increase in revenue was attributable to significantly higher production plus a weaker Australian dollar offsetting the fall in the gold prices. Within Cost of Sales production costs increased to $ million (2012: million) reflecting higher levels of underground mining and throughput at the Vammala Production Centre, plus the operation of open pit and underground operations at the Svartliden Production Centre. Depreciation charges increased to $ million (2012 : million) as a result of depreciation charges on capitalised mine properties relating to the Svartliden underground mining operation (production commenced late in Q and was completed in Q4 2013) and the effect of a full year of underground production at both Orivesi Gold Mine and Jokisivu Gold Mine. In 2013, the fall in the gold price caused a number of deferrals of, and reduction in, activities as the Group sought to preserve cash balances. The focus of Company was to ensure that cash reserves were maintained. This focus resulted in limited exploration drilling (which continued for much of the year), lower capital expenditures and reduced discretionary expenditures. A key milestone for the Company was the public release of the Kuusamo Gold Project Environmental Impact Assessment ( EIA ), which is a key step towards completion of the EIA and progression towards an application for an Environmental Permit. Financial Position As at 31 December 2013 the Company had net assets of $ million (2012: $50.7 million) and an excess of current assets over current liabilities of $ million (2012: $13.9 million). The significant reduction in net assets is primarily attributable to the increased loss for the year together with the movement in the foreign currency translation reserve on translation of subsidiary accounts. Key movements on the statement of Financial Position include: An increase in total current assets to $ million (2012: $ million) due to an increase in stockpile inventories. This increase is primarily because of the higher mining rate at Svartliden Production Centre in early 2013, when open pit and underground operations were operating simultaneously; Reduction in non-current assets due to impairment and depreciation charges as discussed earlier; Reduction in trade accounts payable to $5.919 million (2012: million) due to completion of mining at Svartliden Production Centre; An increase in rehabilitation and restoration provisions of $6.9m; and No derivative amounts as the derivative program completed in Q

9 DIRECTORS REPORT (CONTINUED) Review of Operations Operations In 2013, gold production was 64,482 ounces (2012: 54,328 ounces) which was a significant improvement on the prior year on the back of better than expected grades and throughput from the Production Centres. This improvement was due to actions focussing on achieving higher grades and also higher throughput and recoveries at the mills. The table below details the production and C1 cash costs for each of the Production Centres. Description Svartliden, Sweden Vammala, Finland Gold Production (Ounces) 35,750 32,337 28,732 21,991 C1 Cash Cost ,253 1,439 (US$ per ounce) 1 Tonnes Milled 324, , , ,675 (tonnes) Gold Grade (g/t) The Company has adopted the C1 cash cost definitions as set out by MackenzieWood (formerly Brook Hunt). C1 cash costs are defined as the direct cash cost through to refined gold, after allowing for co/by product revenue. It excludes depreciation, interest charges, royalties and all other indirect costs (eg regional exploration, corporate overheads, strike costs) divided by gold produced. C1 Cash Cost, which is non-ifrs information, is a widely used industry standard term. C1 cash cost information has been extracted from the financial statements. For an analysis of total cost of sales refer to note 2 to the financial statements. Where used, the information has not been subject to audit by the Group s external auditors. The improved gold production and associated cash costs were a result of the higher throughput at Vammala Production Centre, the increased gold grades at both Vammala Production Centre and Svartliden Production Centre as well as an increase in recovery. Advanced Projects The Company continued to advance activities on its key projects, Orivesi, Jokisivu and Kuusamo with 15, metres of drilling completed on these projects over the course of the year, despite a slowing of exploration activities in Results from underground diamond core drilling at the Orivesi Gold Mine continued to return a series of encouraging intercepts including g/t gold, g/t gold, g/t gold and g/t gold, which have further improved confidence in the geological model with results demonstrating the continuation of the Kutema lode system with depth, at widths and grades commensurate with the existing model. Promising results were received from an underground exploration diamond core program which targeted areas to the north of the known lode systems at Orivesi in the search for new mineralised lodes, improving the geological knowledge of this under-explored area. Underground diamond core drilling resumed at the Jokisivu Gold Mine, targeting the depth continuations of the Kujankallio Main Zone and Hinge Zone. Encouraging results from these programs, which support the continuation of the lode structures with depth, has provided information that has led to the development of a better understanding of the nature and extent of gold mineralisation at Jokisivu. Drilling at the Kuusamo Mine Project that targeted the northern and central portions of the Juomasuo deposit confirmed the strike and depth extensions of a number of previously identified lodes and located new mineralised zones. In addition to the drilling, advancement was also made on the metallurgical and environmental studies. Further metallurgical test work was completed on composite drill core samples from the Juomasuo deposit. The program returned very encouraging gold recoveries from flotation and cyanide leach test work. The Environmental Impact Assessment Report for the Kuusamo Mine Project was released on 11 December 2013 to start a three month public hearing period, whilst work on the second and final year of the radiological baseline study advanced. 6

10 DIRECTORS REPORT (continued) Review of Operations (continued) Exploration In 2013 Dragon Mining and Agnico Eagle Mines Limited ( Agnico Eagle ) executed the Hanhimaa Earn-In Agreement, whereby Agnico Eagle could earn up to 70% interest in the Hanhimaa Gold Project in northern Finland, with the staged expenditure of 9 million. Agnico Eagle completed two phases of diamond core drilling during 2013 targeting five areas. Further drilling was completed at the Far East target, east of the Svartliden Gold Mine yielding modest results. No further work has subsequently been undertaken in this area following the receipt of a ruling from the County Administration Board in relation to activities in this area. A decision is pending for the appeal lodged with the Environmental Court in relation to this ruling by Dragon Mining. Dragon Mining exercised its right in accordance with the Harpsund Farm-in and Joint Venture Agreement to acquire 60% interest in the Exploration Permits, Harpsund nr 1 and Brokojan nr 2. A ruling from the County Administration Board pertaining to activities on these Exploration Permits was received and appealed to the Environmental Court by Dragon Mining. Significant Changes in the State of Affairs There have been no significant changes in the state of affairs of the Group other than those listed above. Significant Events after the Balance Date Change of Directors Eurogold Ltd, a major shareholder, requisitioned a General Meeting of the Company on 7 February 2014 for the purpose of removing several directors from the Board and appointing new Directors. On 7 February 2014, prior to the General Meeting, Messrs Cordin and Larsson resigned from the Board. At the General Meeting Mr Russenberger was removed as a Director and Messrs Dew and Smith were elected to the Board. As a result of his resignation, 600,000 options issued to Mr PG Cordin lapsed unexercised. Other than as noted above there have been no significant events that have occurred from 31 December 2013 to the date of this report. Environmental Regulation The Group s operations are subject to environmental regulations under statutory legislation in relation to its exploration and mining activities. Management monitors compliance with environmental regulations. Svartliden Production Centre, Sweden The legal process concerning alleged breaches of the existing permit conditions continued during the year. In June 2013, the court ruled in favour of the Swedish subsidiary. The State Prosecutor has now appealed one of the two the decisions and a court date is set for April 10 and 11, Vammala Production Centre, Finland In 2011, Finnish environmental authorities requested that the Company investigate nickel releases from the tailings dam area. Seepage water was surveyed and sampled for nickel and discussions with the Finnish authorities continue. In the event that preventative or corrective measures are required, the Company will be responsible for carrying out the plan. However, according to investigations carried out by external specialists, nickel releases are not attributable to mining activities undertaken by the Company. 7

11 DIRECTORS REPORT (continued) Share Options Unissued Shares As at the date of this report there are 2,174,000 unissued ordinary shares in respect of which options are outstanding. These options do not entitle the holders to participate in any share issue of the Company or any other body corporate. Number of Options Balance at the beginning of the period 2,754,000 Share options issued from 1 Jan 2013 to the date of this report 400,000 Share options cancelled/lapsed from 1 Jan 2013 to the date of this report (980,000) Total number of options outstanding as at the date of this report 2,174,000 Refer to the Remuneration Report and notes 17 and 25 for further details of Company options. No options were exercised during the year. Indemnification and Insurance of Directors and Officers The Company provides Directors and Officers liability insurance covering all the Directors of Dragon Mining against liability in their role as Directors of the Company, except where: the liability arises out of conduct involving a wilful breach of duty; or there has been a contravention of Sections 232(5) or (6) of the Corporations Act The Directors have not included details of the nature of the liabilities covered or the amount of the premium paid in respect of this insurance, as such disclosure is prohibited under the terms of the contract. Directors Meetings The number of Directors and Board Committee meetings held and the number of meetings attended by each of the Directors of the Company during the year ended 31 December 2013 was: Board Audit and Risk Management Remuneration and Nomination 7 Held Attended Held Attended Held Attended A Dew B Smith PG Cordin PL Gunzburg TT Järvinen MJ Mäkelä C Russenberger K Larsson Notes: 1. Appointed 7 February Appointed 7 February Resigned 7 February Resigned 31 December Ceased 7 February Resigned 7 February The Remuneration and Nomination Committee was suspended on 14 February 2014 following the reduction in the size of the Board from 7 February The full Board will undertake the duties of the Committee, in accordance with its Charter. 8

12 DIRECTORS REPORT (continued) Remuneration Report (Audited) This remuneration report for the year ended 31 December 2013 outlines the remuneration arrangements of the Company and the Group in accordance with the requirements of the Corporations Act 2011 (the Act) and its regulations. This information has been audited as required by section 308(3C) of the Act. For the purposes of this report, key management personnel ( KMP ) of the Group are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, including any director (whether executive or otherwise) of the parent company. Details of Key Management Personnel (1 January 2013 to 31 December 2013) Directors PG Cordin 1 KE Larsson 2 Chairman (Non-Executive) Managing Director TT Järvinen 3 Director (Non-Executive) (Resigned 31 December 2013) MJ Mäkelä C Russenberger 4 PL Gunzburg Director (Non-Executive) Director (Non-Executive) Director (Non-Executive) Executives NM Edwards Chief Geologist MSC Cheng Chief Financial Officer JD Stewart 5 General Manager - Operations Sweden HO Pöyry General Manager - Operations Finland (Retired 30 June 2013) Notes: 1. Resigned 7 February Resigned as Director 7 February Resigned 31 December Removed 7 February From 1 July 2013 Mr JD Stewart ceased to be Managing Director of the Company s wholly owned subsidiary, Dragon Mining (Sweden) AB and is accordingly no longer considered to fit the definition of Key Management Personnel. The role of Managing Director, Dragon Mining (Sweden) AB, was assumed by Mr K Larsson. Information for Mr JD Stewart is only reported for the six months ended 30 June Changes since the end of the reporting period Eurogold Limited, a major shareholder, requisitioned a General Meeting of the Company which was held on 7 February 2014 for the purpose of removing directors from the Board and appointing new Directors. On 7 February 2014, prior to the General Meeting, Messrs Cordin and Larsson resigned from the Board. Mr Larsson remained with the Company as Acting CEO. At the General Meeting, Mr Russenberger was removed as a Director and Messrs Dew and Smith were elected to the Board. Mr Dew was appointed Non-Executive Chairman. On 24 February 2014, Mr Smith was appointed an Executive Director of the Company. Mr Smith is entitled to $1,500 per day (plus superannuation) plus reasonable expenses during the performance of the operating and structure review occurring during February Other than as noted above, there were no changes to Directors or key management personnel after reporting date and prior to the date when the financial report was authorised for issue. Payments to persons before taking office There were no payments to persons before taking office. 9

13 DIRECTORS REPORT (continued) Remuneration Report (Audited) (continued) Voting and comments made at the Company s Annual General Meeting held in May 2013 The Remuneration Report was not passed on a show of hands. Dragon Mining was given a first strike at the May 2013 Annual General Meeting, after more than 25% of votes cast were against the motion to adopt the Remuneration Report. In regards to the first strike, the primary issue related to the direction Dragon Mining was undertaking and the need to consider alternative strategies. Dragon Mining s Board had considered these suggestions, and where possible addressed the concerns. Dragon Mining did not, however, amend its overall remuneration policy and this led to the requisition by Eurogold Limited for a shareholder meeting to change the Board. The new Board will review its remuneration policy and determine if the level and structure of its Board and executive remuneration are suitable for the company and its shareholders. On 24 February 2014, the Company announced a reduction in Non-Executive Director remuneration as part of the review of the remuneration policy. Executive remuneration packages are presently being reviewed. Subsequent to the 2012 Annual General Meeting, the Dragon Board did not engage any remuneration consultants to advise on remuneration policy or the level or structure of its executive remuneration. There were no adjustments to pay rates for executives, nor any bonuses paid, during the year. Dragon Mining Remuneration Policy The Board recognises that the Company s performance depends upon the quality of its Directors and executives. To achieve its financial and operating activities, the Company must attract, motivate and retain highly skilled Directors and executives. The Company embodies the following principles in its remuneration framework: provides competitive rewards to attract high calibre executives; structures remuneration at a level that reflects the executive s duties and accountabilities and is competitive within Australia, Sweden and Finland; benchmarks remuneration against appropriate industry groups; and aligns executive incentive rewards with the creation of value for shareholders. There are performance levels that link executives remuneration to Company performance including cash bonuses. In addition, options are used as part of compensation packages to strengthen the alignment of interest between management and shareholders in an effort to enhance shareholder value. Company Performance The table below shows the Company s financial performance over the last five years * Net (loss)/profit after tax (s) (15,835) (4,263) (6,198) 17,994 (7,977) Basic earnings per share (cents) (17.82) (4.95) (8.30) (10.80) Diluted earnings per share (cents) (17.82) (4.95) (8.30) (10.80) Market Capitalisation (s) 11,549 56,858 91, ,365 73,734 Closing Share Price ($) * Adjusted to reflect a 1 for 10 share consolidation that occurred on 5 November Remuneration Arrangements The Board is responsible for determining and reviewing the compensation arrangements for the Chairman, other Directors, CEO and the executive team. The Board sets remuneration policies, strategies and practices for the Board, its Committees, the CEO, the direct reports to the CEO, senior executives and other management as appropriate. Executive remuneration has been reviewed annually having regard to individual and business performance, relevant comparative information and internal and independent external advice. Performance reviews of the senior executives were undertaken during the year. 10

14 DIRECTORS REPORT (continued) Remuneration Report (Audited) (continued) Remuneration Consultants To ensure the Board is fully informed when making remuneration decisions, it can seek external remuneration advice. During 2013, due to the falling gold prices, no remuneration reviews of Key Management Personnel were undertaken and no recommendations were made by the former Remuneration and Nomination Committee. Remuneration Structure In accordance with best practice governance, the structure of Non-Executive director and senior executive remuneration is separate and distinct. The remuneration structure for the executive directors is the same as that of the executive team. Non-Executive Director Remuneration Objective The Board seeks to set aggregate remuneration at a level which provides the Company with the ability to attract and retain Directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders. Structure The Company s constitution and ASX Listing Rules specify that the aggregate remuneration of Non-Executive Directors shall be determined from time to time by a general meeting. An amount not exceeding the amount determined is then divided between the directors as agreed. Non-executive directors fees not exceeding an aggregate of $500,000 per annum were approved by shareholders at the Annual General Meeting in May The amount of aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst directors is reviewed annually. The Board considers advice from external consultants as well as fees paid to Non-Executive Directors of comparable companies when undertaking the annual review process. Each Non-Executive Director receives a fee for being a director of the Company. An additional fee is payable for each board committee on which a Director sits due to the extra workload and responsibilities. Each Non-Executive Director may also receive an equity based component where approval has been received from shareholders in a General Meeting. Non-Executive Directors have share price hurdles in order to exercise their options. During 2006, the Non-Executive directors were issued STIs in the form of options and in order to exercise these options, the volume weighted average share price of Dragon Mining must exceed $2.50 for 5 consecutive days. Executive Directors and Senior Executive Remuneration Objective The Company aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the Company, to ensure total remuneration is competitive by market standards. Structure In determining the level and make-up of executive remuneration, the former Remuneration and Nomination Committee benchmarked each executive position to determine market levels of remuneration for comparable executive roles in the mining industry. It is the Company s policy that employment contracts are in place for Executive Directors. Details of these contracts are outlined later in this report. 11

15 DIRECTORS REPORT (continued) Remuneration Report (Audited) (continued) Remuneration consists of the following key elements: Fixed remuneration Variable remuneration o Short term incentives (STI); and o Long term incentives (LTI). The proportion of fixed remuneration and variable remuneration (potential short term and long term incentives) is established for each executive by the Board. Options (LTIs) granted to executives do not have performance conditions attached to them, however the strike price of the options are determined so as to ensure that the options only have value if there is an increase in shareholder wealth over time. Fixed Remuneration Objective The level of fixed remuneration is set so as to provide a base level of remuneration which is both appropriate to the position and is competitive in the market. Fixed remuneration is reviewed annually by the Board. The process consists of a review of the business and individual performance and relevant comparable remuneration in the mining industry. Structure Executives are given the opportunity to receive their fixed remuneration in a variety of forms including cash and fringe benefits such as motor vehicles and expense payment plans. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost to the Company. Variable Remuneration Short Term Incentive (STI) Objective The objective of the STI is to reward performance that exceeds expectation and is linked to the achievement of the Company s performance measures (as set out below) by the executives charged with meeting those targets. The total potential STI available is set at a level that provides sufficient incentive to the executives to achieve the operational targets at a reasonable cost to the Company. Structure Actual STI payments granted to each executive depend on their performance over the preceding year and are determined during the annual performance appraisal process. The performance appraisal process outcomes are at the discretion of the Board and take into account the following factors: performance of business unit; operational performance of a business unit; risk management; health and safety; and leadership/team contribution. These factors were chosen to ensure the STI payments are only granted when value has been created for shareholders and results are consistent with the strategic plans of the Group. The executive has to demonstrate outstanding performance in order to trigger payments under the shortterm incentive scheme. On an annual basis, after consideration of performance against KPIs, the overall performance of the Company and each individual business unit is assessed by the Board. The individual performance of each executive is also assessed and all these measures are taken into account when determining the amount, if any, to be paid to the executive as a short-term incentive. It is solely at the Board s discretion if STI payments are granted to executives, even if an executive demonstrates outstanding performance during the preceding year. In addition, the aggregate of annual STI payments available for executives across the Company is subject to the approval of the Board. Payments are delivered as a cash bonus. There were no cash bonuses recommended or paid in relation to the performance year

16 DIRECTORS REPORT (continued) Remuneration Report (Audited) (continued) Variable Remuneration Long Term Incentive (LTI) Objective The objective of the LTI plan is to reward executives and Directors in a manner which aligns this element of remuneration with the creation of shareholder wealth. As such LTIs are made to executives and Directors who are able to influence the generation of shareholder wealth and thus have an impact on the Company s performance. Structure LTI grants to executives and Directors are delivered in the form of employee share options. These options are generally issued with an exercise price at a premium to the average of Dragon Mining s ordinary share price at the date issued. Award is subject to a three year service condition. Whilst there are no performance conditions on the awards they are issued at a premium to the share price at the date of issue. The Company prohibits Directors or executives from entering into arrangements to protect the value of any Dragon Mining Limited shares or options that the Director or executive has become entitled to as part of his/her remuneration package. This includes entering into contracts to hedge their exposure. LTI Options All executives and directors LTI options operate under the following conditions: On resignation by the executive, any LTI options held that have vested will need to be exercised within 30 days of termination or they will be forfeited. Any LTI options that have not vested will be forfeited. On termination on notice by the Company, any LTI options that have vested, or will vest during the notice period will need to be exercised within 30 days of termination or they will be forfeited. LTI options that have not vested will be forfeited. Shares Issued on Exercise of Remuneration Options No Director or key management personnel exercised remuneration options in the year ended 31 December 2013 or 31 December

17 DIRECTORS REPORT (continued) Remuneration Report (Audited) (continued) Compensation of Key Management Personnel (Consolidated) (For the year ended 31 December 2013) Short Term Benefits Post Employment Benefits Share Based Payments Salary & Fees Cash Bonus Non- Monetary Benefits Superannuation Option Expense $ $ $ (1) $ $ % (6) Directors PG Cordin Dec , ,125 12, Dec ,906 70,000 5,782 20,044 21,590 4 TT Järvinen Dec , Dec , MJ Mäkelä Dec , Dec , C Russenberger Dec , Dec , PL Gunzburg Dec , , Dec , , KE Larsson Dec ,398-21,927 64,394 11,225 2 Dec ,037-15,106 77,986 33,761 6 Executives NM Edwards Dec , ,250 5,820 3 Dec , ,000 16,739 7 J Stewart (2) Dec ,209-4,420 35,596 8,729 5 Dec ,618-8,048 42,495 25,108 8 HO Pöyry (3) Dec , ,555 8,729 3 Dec , ,113 25,108 7 MSC Cheng (4) Dec ,201-33,891 72,604 13,310 4 Dec ,339-2,413 9,840 8,874 7 (1) Non-monetary benefits include, where applicable, the cost to the Company of providing fringe benefits, the fringe benefits tax on those benefits and all other benefits received by the executive. (2) Mr J Stewart stepped down as Managing Director of Dragon Mining (Sweden) AB on 30 June 2013, at which date the role of Managing Director was assumed by Mr K Larsson. Mr J Stewart was considered for inclusion in Key Management Personnel due to his role as President, and accordingly information for Mr J Stewart is provided for the period from 1 January 2013 to 30 June (3) Mr HO Pöyry retired at 30 June 2013 and accordingly information is presented for the period from 1 January 2013 to 30 June Mr K Larsson assumed the role of Managing Director for Dragon Mining Oy from 1 July 2013 (4) Non-monetary benefits for Mr M Cheng consist of rental payments as part of a short term relocation to Sweden. The relocation was terminated as of 31 December (5) In 2013, no performance based remuneration was provided to any key management personnel. (6) Percentage of total remuneration represented by options. 14

18 DIRECTORS REPORT (continued) Remuneration Report (Audited) (continued) Details of option holdings of key management personnel at 31 December 2013 are as follows: 2013 Directors Granted as part of remuneration in prior years Granted during the year as compensation (i) Grant date Fair value at grant date of options issued during the year First exercise date of options granted during the year Expiry and last exercise date of options granted during the year Exercise price of options granted during the year Exercised during the year Cancelled / Expired during the year Balance at the end of the year Vested during the year Vested and exercisable at the end of the year $ $ No. No. % PG Cordin iii 600, ,000 60, , % MD Naylor TT Järvinen 100, (100,000) MJ Mäkelä C Russenberger PL Gunzburg Executives NM Edwards 80, ,000 24,000 80, % KE Larsson 150, ,000 01/06/2013 1,563 01/06/ /06/ , , ,000 76% JD Stewart 120, ,000 36, , % HO Pöyry 120, ,000 36, , % MSC Cheng 120, ,000 40,000 80,000 67% TOTAL 1,290, ,000 1, (100,000) 1,590, ,000 1,420,000 (i) For details on the valuation of the options, including models and assumptions used, refer to note 25. The percentage of options granted during the financial year that also vested during the financial year is 67.5% (2012: 56.3%). (ii) There was no intrinsic value attributable to the shares cancelled in the year. (iii) Mr PG Cordin resigned on 7 February 2014 and his options lapsed unexercised. 15

19 DIRECTORS REPORT (CONTINUED) Remuneration Report (Audited) (continued) Employment Contracts. Executives The details of the contracts of Dragon Mining s senior executives named in the remuneration tables (excluding the Managing Director) can be summarised as follows: Most executives have ongoing contracts of no fixed term while some have fixed term contracts of between one and two years; The period of notice required to be given to terminate a contract varies depending upon an executive s contract, with an executive s period of notice to the Company ranging from one to six months and the Company s period of notice to an executive ranging from three to six months or payment in lieu of that notice; Upon termination, executives are entitled to payment of annual and long service leave; and If an executive is retrenched, the executive is entitled to contractual termination payments up to six months, depending on the individual contract. Remuneration of Acting CEO Mr Kjell Larsson was appointed as Chief Operating Officer ( COO ) of Dragon Mining Limited pursuant to a contract dated 28 August On 19 April 2012 the Company s Remuneration and Nomination Committee resolved to promote Mr Larsson to Managing Director of Dragon Mining Limited effective from 1 June His remuneration was resolved to be SEK250,000 per month (excluding Swedish social costs). In addition a further 400,000 options were to be issued in 3 vesting tranches at an exercise price to be determined by the Board. These options were in addition to the existing 150,000 options to be issued pursuant to his original contract as COO. The resolution referred to a proposed 12 month contract with a 3 month termination notice. This resolution was never approved by the Board of Directors or reflected in a written contract of employment. However Dragon Mining Limited has paid Mr Larsson at the proposed rate and Mr Larsson took up the position of Managing Director. Subsequently there was communication between Mr Larsson and the Chairman of the Remuneration Committee as to whether the contract was to be for 12 months or 3 years. No Board decision was ever made. On 18 December 2013, the Board approved the 2014 Budget for the Group incorporating a voluntary 10% reduction in Mr Larsson s remuneration, to SEK225,000 per month (excluding Swedish social costs) from 1 January He has been remunerated at that rate from 1 January This was confirmed by Mr Larsson by written notice dated 10 February Mr Larsson resigned as a Director of Dragon Mining Limited on 7 February 2014 which effectively terminated his position as Managing Director. Since 7 February 2014 Mr Larsson has acted as Acting Chief Executive Officer of Dragon Mining Limited. No contractual arrangement has been negotiated with Mr Larsson in regard to his position as Acting Chief Executive Officer of Dragon Mining Limited. On 24 June 2013 the Board of the Company s subsidiary Dragon Mining Oy met and appointed Mr Larsson as Managing Director of Dragon Mining Oy from 1 July Further, Mr Larsson has been and is acting as Managing Director of Dragon Mining (Sweden) AB from 1 July In the appointments of Mr Larsson as Managing Director of the subsidiary companies, no terms of employment were stipulated and no contracts have been entered into. No payments have been made pursuant to that appointment by Dragon Mining Oy. As Mr Larsson is a Swedish citizen and resident, Dragon Mining (Sweden) AB is the entity that makes payments to Mr Larsson in respect of his remuneration on behalf of his employer Dragon Mining Limited. These payments are subsequently recharged to Dragon Mining Limited. It is not clear as to what notice period, if any, that Mr Larsson may be entitled to in regard to this position as Managing Director of Dragon Mining Oy or Dragon Mining (Sweden) AB appointments. The new Board will subsequent to its review of the Company s operations make a decision regarding Mr Larsson s future with the Company. End of Remuneration Report. 16