ROX RESOURCES LIMITED ABN ANNUAL REPORT

Transcription

1 ROX RESOURCES LIMITED ABN ANNUAL REPORT 2006

2 CONTENTS Page No CORPORATE DIRECTORY 1 HIGHLIGHTS 2 CHAIRMAN S REVIEW 3 PHA LUANG LEAD-ZINC-SILVER PROJECT, LAOS 4 DIRECTORS REPORT 13 CORPORATE GOVERNANCE 24 FINANCIAL STATEMENTS Income Statement 27 Balance Sheet 28 Cash Flow Statement 29 Statement of Changes in Equity 30 Notes to and Forming Part of the Financial Statements 31 Directors' Declaration 57 Independent Audit Report to the Members of Rox Resources Limited 58 SCHEDULE OF MINING TENEMENTS 60 OTHER INFORMATION 61 i

3 CORPORATE DIRECTORY Directors: Dr Alistair Cowden Non-Executive Chairman Mr Ian Mulholland Managing Director Mr Michael Blakiston Non-Executive Director Company Secretary: Mr Brett D Dickson Stock Exchange: Australian Stock Exchange Limited Company Code: RXL (Fully Paid Shares) Issued Capital: 56,375,333 Fully paid ordinary shares 5,250, cent, 31 January 2009 options 800, cent, 30 April 2007 options 4,000, cent, 2007 options 2,500, cent, 12 July 2009 options Bankers: Westpac Banking Corporation 40 St George s Terrace Perth WA 6000 Auditor: Ernst & Young Ernst & Young Building 11 Mounts Bay Road Perth WA 6000 Investor Relations: Porter Novelli The Courtyard, 33 Broadway Nedlands WA 6009, Western Australia Telephone: (08) Facsimile: (08) Telephone: (08) Facsimile: (08) Solicitor: Blakiston & Crabb 1202 Hay Street West Perth WA 6005 Telephone: (08) Facsimile: (08) For shareholder information contact: Share Registry: Computershare Registry Services Pty Ltd Level 2, Reserve Bank Building 45 St Georges Terrace Perth WA 6000 Telephone: (08) Facsimile: (08) For information on your company contact: Principal & Registered Office: Ground Floor 1 Altona Street West Perth WA 6005 Telephone: (08) Facsimile: (08) Web: 1

4 HIGHLIGHTS ACHIEVEMENTS FOR 2006 LAOS LEAD & ZINC Discovery of significant lead-zinc sulphide mineralisation in drilling at the Nam Yen prospect, including: 33 metres at 11.4% combined Pb+Zn, 19 g/t Ag, from 4 metres, 27 metres at 10.5% combined Pb+Zn, 23 g/t Ag, from 3 metres, and 19 metres at 8.6% combined Pb+Zn, 10 g/t Ag from 17 metres. Intersection of significant oxide mineralisation at the Bon Noi prospect, 9 metres at 8.3% combined Pb+Zn, 25 g/t Ag, from 3 metres, indicating potential for sulphide mineralisation at depth. A total of 20 prospects with Pb/Zn mineralisation identified. SOUTH AFRICA DIAMONDS Assembly of a quality portfolio of alluvial and kimberlite diamond projects. Divestment to Paramount Mining Limited, a dedicated diamond explorer, for up to 6 million shares in Paramount, representing 13% of its current issued share capital. MENZIES GOLD Divestment to Regal Resources Limited for $600,000 and 3 million shares in Regal. CAPITAL RAISINGS Two capital raisings totalling 23.3 million shares to raise $6.3 million before costs. Funds to be used primarily for further exploration of the company s Laos project. INCREASE IN MARKET CAPITALISATION 326% increase in market capitalisation from $4.8 million to $15.8 million (1 July 2005 to 30 June 2006). 2

5 CHAIRMAN S REVIEW Dear Fellow Shareholders, It gives me great pleasure to present Rox s Annual Report for The past year has been one of major transformation and achievement for the Company. Shortly I will retire as Chairman to concentrate on other duties, and hand the reins over to my highly respected colleague Mr Jeff Gresham. I am sad to be leaving Rox, but know I leave the company in a strong position, with an exciting project in Laos and cash of $5.5 million. In addition Rox will have a share portfolio valued at approximately $1 million once recently announced transactions are finalised. As a fellow shareholder I am excited about the company s future. Our initial work in Laos suggests we have discovered what may be a new district of lead-zinc mineralisation. Our joint venture gives us a 60% interest in the sulphide zone of a granted Mining Concession Area at Pha Luang, 180 kilometres north of the Lao capital Vientiane. Drilling has intersected economic grades of leadzinc up to 33 metres thick and the mineralized zone is currently open in all directions. We have twenty other prospects on the property and the company is currently investigating these with a view to ranking prospects for drilling. Several large, high-grade soil geochemical anomalies have already been outlined which present immediate drill targets for further mineralisation. As a result of our increasing focus on Laos, the Company decided to divest its other projects. The sale of the Menzies gold project has returned $600,000 and 3 million shares in Regal Resources Limited. The sale of the diamond projects in South Africa to Paramount Resources Limited, a dedicated diamond exploration company will result in the issue of up to 6 million Paramount shares to Rox. These strategic holdings in ASXlisted companies gives Rox the opportunity to further benefit from success with the diamond and gold projects through the endeavours of the new owners. The company was successful in raising the capital it needed to pursue its projects through two share placements, both managed by Bell Potter Securities in Melbourne. The Company now has a strong cash position of $5.5 million permitting it to aggressively advance its interests in Laos. The success of the company over the past year can be judged from the 326% increase in market capitalisation from $4.8 million to $15.8 million and an 87% share price increase from $0.15 to $0.28 (with a peak closing price of $0.52). For these results I would like to thank our hard working team, and we now look forward to another exciting year ahead. Alistair Cowden Chairman 3

6 PHA LUANG LEAD-ZINC-SILVER PROJECT, LAOS INTRODUCTION Rox Resources Limited ( Rox ) is exploring the Pha Luang lead-zinc project in Laos, where high grade drill intercepts of lead and zinc have been made at the Nam Yen prospect. In September 2005 Rox exercised its option to acquire a 60% interest in the sulphide portion of the Pha Luang lead-zinc mine which lies 180 km north of Vientiane, the capital city of the Lao People s Democratic Republic (Laos). A joint venture has been formed with local Lao company First Pacific Mining Co Lao Ltd (23%) and Thai company, Triple Nine Mining Co Ltd (17%). Application for a foreign investment licence has been made to the Lao Government to incorporate a joint venture company in Laos. The Pha Luang project is situated close to the main north-south bitumen highway through Laos, and is adjacent to power lines, water supplies and established towns. Relief in the area is moderate to extreme, however road access to the top of the range has been established in two different locations. There is abundant water for process needs, and there is ample suitable ground for establishment of mine infrastructure. The town of Vangvieng is 20 km south of the mine area. The lateral, along strike and across strike extent of the lead-zinc-silver oxide and sulphide outcrops at Pha Luang, and the intensity and widths of surface mineralisation, suggest that this area could potentially host a district of significant lead-zinc-silver deposits. Location Map 4

7 PHA LUANG LEAD-ZINC-SILVER PROJECT, LAOS Laos is a rapidly growing economy on the Indo-China peninsula, located close to markets in Thailand, China and Vietnam. Several Australian mining companies are enjoying outstanding success operating in Laos, where the government is actively encouraging foreign investment in mining and exploration. The Lao People s Democratic Republic (Lao PDR) is located on the Indo-China Peninsula, is bordered by Thailand, Myanmar, China, Vietnam and Cambodia, and covers an area of 237,000 km 2 (similar in size to the State of Victoria). After many changes to its political system, political stability was achieved in 1975 when the Lao PDR was established by independence party The Pathet Lao. Laos has promoted economic liberalisation since 1986 with a shift from a planned economy towards a free market system. The result was a shift towards a market-based economy which guarantees, amongst other things, the right for each Lao citizen to own private property and provides protection for both domestic and foreign investment. In 1997 Laos was admitted to the Association of South East Asian Nations (ASEAN) and is in the process of joining the World Trade Organisation (WTO). The 50 th anniversary of the establishment of diplomatic relations between Australia and Laos was celebrated in 2002 and Australia enjoys a positive reputation in Laos both as a result of this long unbroken relationship and a high profile development cooperation programme. EXPLORATION RESULTS Rock Sampling Rock chip samples taken by Rox of zinc oxide mineralisation have graded up to 51% zinc. Samples from mixed lead-zinc oxide-carbonate mineralisation graded up to 32% lead and 24% zinc, and samples of galena (lead sulphide) have assayed up to 80% lead and 490 g/t silver. Further outcrops of oxides and sulphides have been discovered during geological mapping, and over 20 prospects have now been defined over the Mining Concession Area. It is anticipated that as more exploration work is completed, more mineralised outcrops will be identified. 5

8 PHA LUANG LEAD-ZINC-SILVER PROJECT, LAOS Prospect Locations Selected Rock Chip sample results include: Zinc % Lead % Silver ppm Pha Jom Pha Sod Bon Noi Pha Luang 2/ Nam Yen Pha Daeng

9 PHA LUANG LEAD-ZINC-SILVER PROJECT, LAOS Soil Sampling Soil sampling has been undertaken over a relatively limited area of the Mining Concession Area with excellent results. Large soil anomalies over 2% combined lead + zinc have been delineated. These results indicate that mineralisation is potentially widespread, and based on geologic and geochemical evidence the company believes that a district of Mississippi Valley Type (MVT) lead-zinc mineralisation may exist at Pha Luang. Soil anomalies have been outlined at the following prospects, Bon Noi, Switchback, Pha Luang, Nam Yen and Pha Daeng, and present immediate drilling targets. Soil sampling will continue during the field season to extend the coverage. Soil Sampling Results 7

10 PHA LUANG LEAD-ZINC-SILVER PROJECT, LAOS Geology Interpretation of the regional geology from satellite imagery has detected a number of tectonic zones and thrust faults, with large (several kilometres) offsets apparent. For example, the Pha Luang limestone shows an offset of 10km along a NW-SE direction (Tectonic Zone D). Such large scale structures are believed to be very important in the genesis and localisation of MVT lead-zinc mineralisation. MVT lead-zinc deposits are well known from all continents around the world and form when material from limestone reefs is buried with other sedimentary rocks (siltstones and sandstones) in large sedimentary basins. As the basins sag under the weight of accumulated sedimentation, extremely high pressures are 8

11 PHA LUANG LEAD-ZINC-SILVER PROJECT, LAOS formed and the basin develops large and small scale faults and fractures as the brittle rocks break apart. Lead-zinc bearing brines are produced as a result of the high pressures and these migrate to faults or fractures where the pressure is lower and where sulphide minerals can precipitate. A significant amount of faulting and fracturing has occurred at Pha Luang, and almost all of the known prospects are associated with some structural feature. Another key indicator is the clay alteration that can be seen in the satellite imagery that is usually associated with large mineralising systems. Average grade of MVT deposits above 5 million tonnes in size from the database of worldwide deposits is 8.5% Pb+Zn. The best known example of MVT deposits in Australia is the Lennard Shelf, which hosted 40 million tonnes at better than 10% combined lead-zinc; Rox s target is for similar or better. Pha Luang Geology 9

12 PHA LUANG LEAD-ZINC-SILVER PROJECT, LAOS DRILLING RESULTS Drilling at Pha Luang has taken place at only two of prospects, with the most significant results obtained so far from the Nam Yen prospect. A zone of lead-zinc mineralisation has been identified over an area of 75 x 150 metres and up to 33 metres thick, with the limits still untested. Selected intercepts are listed below. PLR008: PLR010: PLR015: PLR016: PLR023: PLR025: 4 metres at 26.2% Pb+Zn, 23 g/t Ag 8 metres at 8.7% Pb+Zn, 14 g/t Ag 33 metres at 11.4% Pb+Zn, 19 g/t Ag 27 metres at 10.5% Pb+Zn, 23 g/t Ag 5 metres at 7.8% Pb+Zn, 17 g/t Ag 19 metres at 8.6% Pb+Zn, 36 g/t Ag A drill plan and schematic cross-section is shown below. Nam Yen Drill Plan The mineralised zone outcrop coincides with a strong soil anomaly, as shown in the top part of the diagram. Outcropping lead sulphide occurs to the east of the identified mineralised zone, and it is not closed off to the west or south either. 10

13 PHA LUANG LEAD-ZINC-SILVER PROJECT, LAOS Nam Yen Drill Cross Section The mineralisation at Nam Yen comprises galena (lead sulphide) and sphalerite (zinc sulphide) which form in the matrix of a limestone breccia. In zones where the breccia fragments are small (several centimetres), the matrix can form zones up to cm wide, and relatively high lead-zinc grades result. In zones where the breccia fragments are large (up to several metres), or packed close together, there is less room for sulphide minerals and the grades are lower. Recent diamond drilling (holes PLD ) indicate that some structural complications (e.g. faults) may be present. These may be important in the localisation and hosting of mineralisation. The company plans to continue drilling in the next field season seeking to extend the mineralisation in all directions and to understand its geological controls better. A programme of approximately 2,000 metres of drilling is envisaged. Drilling at the Bon Noi prospect intersected mainly oxide mineralisation, although the presence of lead sulphide suggests that sulphide mineralisation may be close by. The best result from drilling in the past year was PLR025, 9 metres at 8.3% Pb+Zn, 25 g/t Ag. At the Switchback prospect outcropping lead sulphide is coincident with a large 500 x 300 metre lead-zinc soil anomaly was targeted by 2 drillholes. Values from soil samples taken from the Switchback area were 11

14 PHA LUANG LEAD-ZINC-SILVER PROJECT, LAOS exceptionally high, ranging up to 5.5% Pb, 14.4% Zn and 71 ppm Ag. The drilling intersected pyritic sulphide and anomalous lead and zinc. More drilling is certainly warranted at both of these prospects as the geological controls on mineralisation are becoming better understood. WORK PLANS The Company is planning an aggressive exploration programme for the field season from October 2006 to June This will involve up to 7,000 metres of RC and diamond drilling to further extend the mineralisation at Nam Yen and to test another 4 strong prospects. Extensive soil sampling and geological mapping will continue to identify new targets, while geophysical surveys are under consideration should current test work indicate their applicability. Road and track construction for drill access are an important component of the work programme. New ground totalling 300 km 2 has been applied for both north and south of Pha Luang to cover potential extensions of mineralisation along the limestone sequence. These applications are currently under consideration by the Laos Government. 12

15 DIRECTORS REPORT Your Directors present their report on the Company for the year ended 30 June DIRECTORS The names and details of the Company s directors in office during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated. Names, Qualifications, Experience and Special Responsibilities Dr Alistair Cowden (appointed Non-Executive Chairman 27/11/2003, retires 30/9/06 - B.Sc. (Hons), Ph.D, MAusIMM, MAIG Dr Cowden has over 25 years experience as a geologist and mining company executive in Australia, Africa, Europe and New Zealand. He has been involved with major projects and discoveries such as Nimbus silver-zinc, Sunrise Dam mine, Kanowna Belle gold mine, Magnetic Minerals Dongara mineral sands project, Syerston nickel - cobalt laterite deposit, Hartley platinum mine, St Ives gold mine and Kambalda nickel mines. Dr Cowden has a B.Sc (Hons), Geology from the University of Edinburgh and a PhD in Geology from the University of London. He is currently Managing Director of Vulcan Resources Limited and is retiring from Rox to concentrate on this role. During the last three years he also served on the board of Australis Aquaculture Limited. Mr Jeff Gresham (appointed Non-Executive Chairman effective 1/10/ B.Sc. (Hons), MAusIMM, MGSA, MAICD Mr Gresham is a geologist with a distinguished industry career of varied exploration, operational and corporate experience both in Australia and internationally spanning 38 years. Most recently he was Managing Director of Titan Resources, an active nickel explorer in Western Australia, and roles prior to that have included Managing Director of gold miner Wiluna Mines Limited, General Manager Exploration for Homestake Gold of Australia, and several senior executive roles with Western Mining Corporation (WMC). During his career spanning 19 years with WMC he held a number of senior and corporate positions most notably Chief Geologist of the Kambalda Nickel Operations between 1981 and 1985 and Executive Vice President Exploration for WMC s Canadian subsidiary Westminster Canada Ltd between 1988 and Mr Gresham s extensive professional experience covers numerous mineral deposit types and he has authored a number of professional papers on the Kambalda nickel deposits and the Olympic Dam copperuranium deposit, and has a B.Sc (Hons) degree from the Victoria University, Wellington, New Zealand. 13

16 DIRECTORS REPORT Mr Ian Mulholland (appointed Managing Director 27/11/ B.Sc. (Hons), M.Sc. FAusIMM, FAIG, FSEG Mr Mulholland is a geologist with over 25 years broad experience in a number of commodity groups including gold, silver, copper, lead, zinc, uranium, nickel and kaolin in the exploration and mining industry. He has managed activities from grass roots exploration to advanced resource definition, feasibility studies and mining operations for major companies such as WMC and Esso, medium sized companies, Otter Gold and Aurora Gold and junior companies, Archaean Gold, Summit Resources and Conquest Mining. Ian s strength is in bringing resources to economic fruition and his experience is particularly appropriate for his role with Rox. Mr Mulholland was Development Manager for Archaean Gold, managing the Nimbus silver-zinc project prefeasibility study prior to Archaean s take-over. He was then Exploration Manager for Anaconda Nickel Limited, managing their extensive tenement and exploration portfolio, with particular emphasis on resource and project management from exploration through development to the production stage adding some 1.3 billion tonnes to the resource available to Anaconda. Mr Mulholland has a B.Sc. (Hons), Geology from the University of Sydney and a M.Sc. in Geology from the James Cook University of North Queensland. He is a Fellow of the AusIMM, the AIG, and the Society of Economic Geologists. Mr Michael Blakiston (appointed Non-Executive Director 27/11/2003) - B.Juris. LLB Mr Blakiston is a practicing solicitor with legal experience in the resources sector. Mr Blakiston holds the degrees of Bachelor of Jurisprudence and Bachelor of Laws from the University of Western Australia and is a partner of the corporate and resource law firm, Blakiston & Crabb. Mr Blakiston has been practicing law for over 25 years. Mr Blakiston is also a director of Platinum Australia Ltd, Colltech Australia Limited, Vulcan Resources Limited, Aurora Oil & Gas Limited, Australian Development Capital Ltd and alternate director of Alcaston Mining NL. During the last three years Mr Blakiston has also served on the boards of Antares Energy Ltd, Black Range Minerals Limited, GFB Ltd, Southern Amity Ltd and Ranger Minerals Ltd. Mr Blakiston has extensive commercial experience both in advisory and directorial capacities having been involved in project assessment, structuring and financing, joint ventures and strategic alliances in the resource industry. In addition, Mr Blakiston has experience in initial public offerings, takeovers and mergers, corporate and project fundraisings (either with debt or equity), construction, offtake and sales contracts. COMPANY SECRETARY Mr Brett Dickson - B.Bus, CPA Mr Dickson has over 20 years experience in the financial management of companies, principally companies in early stage development of its resource or product, and offers broad financial management 14

17 DIRECTORS REPORT skills. He has been Chief Financial Officer for a number of successful resource companies listed on the ASX. He has had close involvement with the financing and development of a number of Greenfield resources in the oil and gas and mineral sectors. Mr Dickson is a Certified Practising Accountant with a Bachelors Degree in Economics and Finance from Curtin University. Interest in the Share and Options of the Company As at the date of this report, the interest of the directors in the shares and options of Rox Resources Limited were: Ordinary Shares Options A Cowden 2,620,000 1,250,000 I Mulholland 1,400,000 3,000,000 M Blakiston 1,197,857 1,000,000 LOSS PER SHARE Basic earnings (Loss) per share Diluted earnings (Loss) per share (6.1 cents) (6.1 cents) DIVIDENDS No amounts have been paid or declared by way of dividend of the Company since the date of incorporation and the Directors do not recommend the payment of any dividend. CORPORATE INFORMATION Corporate Structure Rox Resources Limited is a company limited by shares which is incorporated and domiciled in Australia. During the year the Company acquired Rox (Laos) Pty Ltd as a 100% controlled entity. The group comprising Rox Resources Limited and Rox (Laos) Pty Ltd is not considered to be a reporting entity as Rox (Laos) Pty Ltd has not traded, therefore consolidated accounts have not been prepared. Nature of Operations and Principal Activities The principal activity of the Company during the year was the continued exploration of its Pha Luang leadzinc deposit in Laos and the realisation of value from the Company s other mineral assets. 15

18 DIRECTORS REPORT Results from Operations During the period the Company recorded a loss from operations of $2,343,249 (2005: loss of $1,589,085). While this is an increase over the previous year the Company has a sound capital structure and is in an excellent position to progress its mineral properties. At 30 June 2006 the Company had cash on hand of $4.294 million with a further $1.43 million raised from the issue of shares during July Employees At 30 June 2006 the Company had one employee (2005: 2 employees). Review of Operations A review of operations of the Company is set out elsewhere in this report. SIGNIFICANT CHANGES IN STATE OF AFFAIRS Total contributed equity increased to $8,439,777 from $4,626,327, an increase of $3,813,450. This movement was achieved through the issue of 17,170,000 shares at an average of $0.22 each. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR On 5 July 2006 the Company issued 6,933,333 shares at $0.35 each to raise $2,426,667 ($1,000,000 of which had been prepaid in June 2006) and on 12 July 2006 the Company issued 2,500,000 options exercisable at $0.675 each which expire on 12 July 2009 as part consideration for support in a capital raising. On 11 August 2006 the Company completed the sale of its Menzies Project to Regal Resources Limited for $550,000 cash, of which $200,000 was deferred for six months, and 3,000,000 fully paid shares in Regal Resources Limited. On 15 August 2006 the Company reached agreement to sell its South African diamond projects to Paramount Mining Corporation for $30,000 cash and up to 6 million Paramount Mining Corporation shares. No other matter or circumstance has arisen since the end of the financial year which significantly affected or may significantly affect the operations of the Company, the results of those operations or the state of affairs of the Company in subsequent financial periods. ENVIRONMENTAL ISSUES The Company carries out mineral exploration at its various projects which are subject to environmental regulations under both Commonwealth and State legislation. During the financial year there has been no significant breach of these regulations. 16

19 DIRECTORS REPORT REMUNERATION REPORT This report outlines the remuneration arrangements in place for directors and executives of Rox Resources Limited (the Company). Remuneration Philosophy The performance of the Company depends upon the quality of its directors and executives. To prosper, the Company must attract, motivate and retain highly skilled directors and executives. To this end, the Company embodies the following principles in its remuneration framework: Provide competitive rewards to attract high calibre executives Link executive rewards to shareholder value Encouragement for directors to sacrifice a portion of their fees to acquire shares in the Company at market price Remuneration Committee The full Board acts as the Remuneration Committee and is responsible for determining and reviewing compensation arrangements for the directors, the Managing Director (MD) and the senior management team. The Board assesses the appropriateness of the nature and amount of remuneration of directors and senior managers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality board and executive team. Remuneration Structure In accordance with best practice corporate governance, the structure of non-executive director and senior manager remuneration is separate and distinct. 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 Constitution and the 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. The latest determination was in 2004 when shareholders approved an aggregate remuneration of $150,000 per year. 17

20 DIRECTORS REPORT 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 the fees paid to non-executive directors of comparable companies when undertaking the annual review process. Each director receives a fee for being a director of the Company. No additional fees are paid for each board committee on which a director sits. Non-executive directors have long been encouraged by the Board to hold shares in the Company (purchased by the director on market). It is considered good governance for directors to have a stake in the Company whose board he or she sits. In addition long term incentives in the form of options may be awarded to non-executive directors, subject to shareholder approval, in a manner which aligns this element of remuneration with the creation of shareholder wealth. At the date of this report no long term incentive options have been issued to non-executive directors. The remuneration of non-executive directors for the year ending 30/6/06 is detailed later in this report. Senior Manager and Executive Director Remuneration Objective The Company aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the Company and so as to: reward executives for company and individual performance against targets set by reference to appropriate benchmarks; align the interests of executives with those of shareholders; link reward with the strategic goals and performance of the Company; and ensure total remuneration is competitive by market standards. Structure In determining the level and make-up of executive remuneration, the Board Committee engaged an external consultant to provide independent advice detailing market levels of remuneration for comparable executive roles. Remuneration consists of the following key elements: Fixed Remuneration Variable Remuneration Long Term Incentive ( LTI ) 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 and the process consists of a review of individual performance, relevant comparative remuneration in the market and, where appropriate, external advice on policies and practices. 18

21 DIRECTORS REPORT Structure Senior managers are given the opportunity to receive their fixed (primary) remuneration in a variety of forms including cash and fringe benefits such as motor vehicles and expense payments plans. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the Company. The fixed remuneration component of the most highly remunerated senior managers is detailed later in this report. Variable Remuneration Long Term Incentive ( LTI ) Objective The objective of the LTI plan is to reward senior managers in a manner which aligns this element of remuneration with the creation of shareholder wealth. As such LTI grants are only made to executives who are able to influence the generation of shareholder wealth and thus have a direct impact on the Company s performance. Structure LTI grants to executives are delivered in the form of options. The options, when issued to executives, will not be exercisable for a price less than the then current market price of the Company s shares and the Company may use a number of measures as the performance hurdle for the long term incentive plan. At the date of this report no LTI grants have been made to any executive. Employment Contracts The Managing Director, Mr Mulholland is employed under contract. The current employment contract commenced on 27 April 2004 and terminates on 27 April 2007, at which time the Company may chose to commence negotiation to enter into a new employment contract with Mr Mulholland. Under the terms of the present contact: Mr Mulholland may resign from his position and thus terminate this contract by giving three months written notice. The Company may terminate this employment agreement by providing three months written notice. On termination on notice by the Company, the Company will pay Mr Mulholland an amount equal to the fixed component of his remuneration for the remainder of the term of the contract. The Company may terminate the contract at any time without notice if serious misconduct has occurred. Where termination with cause occurs, the MD is only entitled to that portion of remuneration which is fixed, and only up to the date of termination. On termination with cause any unvested options will immediately be forfeited. 19

22 DIRECTORS REPORT Relationship of rewards to performance Currently there are no specific performance conditions in relation to remuneration, however the stock price for options, when awarded, is not less than the then current market price of the Company s shares traded on Australian Stock Exchange. As a result a reward is only provided to option holders if there is an increase in the Company s share price. This provides for a direct correlation between an increase in shareholder wealth and rewards to option holders. Directors and Executive Remuneration for the Year Ended 30 June 2006 Details of the nature and amount of each element of the emolument of each director and executive of the Company are as follows: Short-Term Salary & Fees $ Short-Term Other 2 $ Post Employment Superannuation $ Share-Based Payments Total DIRECTORS M Blakiston 1 22,500 30, ,200 2, ,700 32,700 A Cowden 35,000 35, ,150 3, ,150 38,150 I Mulholland 183, , ,513 16, , ,993 EXECUTIVES B Dickson ,000 90, ,000 90, Chatsworth Stirling Pty Ltd and Emerald Corporation Pty Ltd trading as Black Swan Consulting, companies in which Mr Blakiston is a shareholder and director, received fees totalling $8,000 and $16,000 respectively for corporate advice. In addition Blakiston & Crabb, an entity of which Mr Blakiston is a partner, received fees totalling $38,294 for legal advice. 2. Mr Dickson did not receive any executive remuneration. Coolform Investments Pty Ltd, a company in which Mr Dickson is a director and shareholder, received fees totalling $90,000 for the provision of services. DIRECTORS MEETINGS The number of meetings of directors (including meetings of committees of directors) held during the year and the number of meetings attended by each director were as follows: Directors Normal Meetings Directors Audit Meetings Number of meetings held: 11 2 Number of meetings attended: A Cowden 11 2 M Blakiston 10 2 I Mulholland

23 DIRECTORS REPORT Committee Membership As at the date of this report, the Company does not have separately constituted Audit, Nomination and Remuneration Committees. The full board acts as those committees under specific charters. INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS The Company has made an agreement to indemnify all the directors of the Company against all losses or liabilities incurred by each director in their capacity as directors of the Company. The Company did not make any payments for premiums for directors and officers insurance during the financial year. LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS Likely developments in the operations of the Company and the expected results of those operations in future financial years have not been included in this report as the directors believe, on reasonable grounds, that the inclusion of such information would be likely to result in unreasonable prejudice to the Company. SHARE OPTIONS At the date of this report and at the reporting date there were 12,550,000 unissued shares under options. During the year 400,000 options lapsed. Refer to note 15 of the Financial Statements for further details on options outstanding. Option holders do not have any right, by virtue of the option, to participate in any share issue of the Company or any related body corporate or in the interest issue of any other registered scheme. AUDITOR INDEPENDENCE AND NON-AUDIT SERVICES Section 307C of the Corporations Act 2001 requires the Company s auditors to provide the directors of Rox Resources Limited with an Independence Declaration in relation to the audit of the full-year financial report. This report has been received and is attached to the Directors Report. The following non-audit services were provided by the entity s auditor, Ernst & Young. The directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act. The nature and scope of each type of non-audit services provided means that auditor independence was not compromised. Ernst & Young received or are due to receive the following amounts for the provision of non-audit services: Tax compliance services $2,189 21

24 DIRECTORS REPORT Signed in accordance with a resolution of the directors. A. COWDEN Chairman Perth, 29 September

25 AUDITORS INDEPENDENCE DECLARATION 23

26 CORPORATE GOVERNANCE Since the introduction of the ASX Corporate Governance Council's Principles of Good Corporate Governance and Best Practice Recommendations ("ASX Principles and Recommendations"), Rox Resources Limited ("Company") has made it a priority to adopt systems of control and accountability as the basis for the administration of corporate governance. Some of these policies and procedures are summarised in this report. Commensurate with the spirit of the ASX Principles and Recommendations, the Company has followed each recommendation where the Board has considered the recommendation to be an appropriate benchmark for corporate governance practices, taking into account factors such as the size of the Company and the Board, resources available and activities of the Company. Where, after due consideration, the Company's corporate governance practices depart from the ASX Principles and Recommendations, the Board has offered full disclosure of the nature of, and reason for, the adoption of its own practice. Further information about the Company's corporate governance practices is set out on the Company's website at In accordance with the ASX Principles and Recommendations, information published on the Company's website includes charters (for the board and its sub-committees), the Company's code of conduct and other policies and procedures relating to the Board and its responsibilities. EXPLANATIONS FOR DEPARTURES FROM BEST PRACTICE RECOMMENDATIONS Principles 2 & 9 Recommendations 2.4 and 9.2: The Board should establish a Nomination Committee and a Remuneration Committee Notification of Departure There is no separate nomination or remuneration committee. Explanation for Departure The full Board considers those matters that would usually be the responsibility of a nomination committee or remuneration committee. The composition of the Board does not make the establishment of separate committees practicable and the Board considers that no efficiencies or other benefits would be gained by doing so. The Board has adopted respective Nomination and Remuneration Charters, which it applies when convening as the relevant committee. Principle 4 Recommendation 4.2: The Board should establish an Audit Committee Recommendation: 4.3: Structure of the Audit Committee Notification of Departure A separate audit committee has not been formed. Explanation for Departure The composition of the Board is not suitable for the formation of an audit sub-committee, and neither would this be considered necessary to ensure integrity in financial reporting. The Board has adopted, and applies, an Audit Committee Charter, and the independent directors are available to meet separately with the external auditor should this be considered necessary. 24

27 CORPORATE GOVERNANCE NOMINATION COMMITTEE The full Board carries out the role of the nomination committee. The full Board did not officially convene as a nomination committee during the Reporting Period. AUDIT COMMITTEE The full Board carries out the role of the audit committee. In its capacity as the Audit Committee, the Board held two meetings during the Reporting Period and all members attended. The qualifications of each director are set out in the Directors Report. All meet the tests of financial literacy, financial expertise and industry knowledge. REMUNERATION COMMITTEE Company's Remuneration Policies Details of remuneration, including the Company s policy on remuneration, are contained in the Remuneration Report which forms of part of the Directors Report. Names of Remuneration Committee Members and their attendance at Committee Meetings The full Board carries out the roll of the Remuneration Committee. The full Board did not officially convene as a Remuneration Committee during the Reporting Period. OTHER Skills, Experience, Expertise and term of office of each Director A profile of each director containing the skills, experience, expertise and term of office of each director is set out in the Directors' Report. Identification of Independent Directors In considering independence of directors, the Board refers to the criteria for independence as recommended by the ASX. To the extent that it is necessary for the Board to consider issues of materiality, the Board refers to the thresholds for qualitative and quantitative materiality as adopted by the Board and contained in the Statement of Board and Management Functions, which is disclosed in full on the Company s website. The Board considers Dr Cowden and Mr Blakiston to be independent. In the interests of disclosure, Mr Blakiston is a principal of the firm Blakiston & Crabb. Blakiston & Crabb have been the main provider of legal services to the Company. However, this relationship does not cause relevant materiality thresholds to be exceeded from the perspective of either the Company or Mr Blakiston. During the Reporting Period Dr Alistair Cowden had an interest of 8% of the shares in the Company, currently 4.6%, and therefore does not fit within paragraph 1 of the ASX's independence criteria (which 25

28 CORPORATE GOVERNANCE defines a "substantial" shareholding as being in excess of 5%). The Board notes that Dr Cowden's shareholding only marginally exceeded this threshold, and notes that Dr Cowden does not have a controlling share in the Company. For these reasons the Board considers Dr Cowden to be independent. Statement concerning availability of Independent Professional Advice If a director considers it necessary to obtain independent professional advice to properly discharge the responsibility of his/her office as a director, then, provided the director first obtains approval for incurring such expense from the chairperson, the Company will pay the reasonable expenses associated with obtaining such advice. Confirmation whether performance Evaluation of the Board and its members have taken place and how conducted Each year the Board undertakes an evaluation of its own performance during the year. Board members are required to complete a questionnaire regarding individual knowledge, satisfaction, reporting and performance on a range of topics that are responsibilities of the Board. Each director was required to rank performance according to a defined scale for each activity or area. Results of the questionnaires were collated and statistically analysed to rank collective board performance against each topic. Comparative analysis between individual director response and the overall board response was completed. Once the analysis was completed the Chairman reviewed the results with each director. In addition, the Board reviewed and discussed the outcomes of the performance review and implemented a range of initiatives to address significant issues where improvement could be monitored. In addition to the collective review, directors also discussed specific issues where the assessment by directors had been significantly different to the collective mean assessment. These strategies allow the Board's performance to be measured against both measurable and qualitative indicators. The Board reviews the Managing Director and key executive performances annually against the Company's performance objectives and prepares a report to the Remuneration Committee outlining its assessment. Existence and Terms of any Schemes for Retirement Benefits for Non-Executive Directors There are no termination or retirement benefits for non-executive directors. 26

29 INCOME STATEMENT For the Year Ended 30 June 2006 Continuing Operations Notes 2006 ($) 2005 ($) Revenues 3 88, ,774 Depreciation 3(b) (7,380) (6,875) Other expenses 3(c),(d) (2,424,479) (1,715,984) Loss before income tax expense (2,343,249) (1,589,085) Income tax expense Net loss attributable to members of Rox Resources Limited 17 (2,343,249) (1,589,085) Basic loss per share (cents per share) 7 (6.1) (4.9) Diluted loss per share (cents per share) 7 (6.1) (4.9) 27

30 BALANCE SHEET As at 30 June 2006 Notes 2006 ($) Current Assets Cash and cash equivalents 8 4,294,432 1,891,384 Trade and other receivables 9 7,442 - Prepayments 1,014 1,159 Total Current Assets 4,302,888 1,892,543 Non-Current Assets Plant and equipment 10 12,295 16,412 Other financial assets , ,500 Exploration and evaluation 12 1,339,216 1,057,347 Total Non-Current Assets 1,456,011 1,178,259 TOTAL ASSETS 5,758,899 3,070,802 Current Liabilities Trade and other payables 13 1,176,534 88,111 Provisions 14 15,525 9,880 Total Current Liabilities 1,192,059 97,991 TOTAL LIABILITIES 1,192,059 97,991 NET ASSETS 4,566,840 2,972,811 EQUITY Contributed equity 15 8,439,777 4,626,327 Reserves ,828 - Accumulated losses 17 (3,996,765) (1,653,516) TOTAL EQUITY 4,566,840 2,972, ($) 28

31 CASH FLOW STATEMENT For the Year Ended 30 June 2006 Note 2006 ($) CASH FLOWS FROM OPERATING ACTIVITIES Interest received 88, ,774 Payments to suppliers and employees (835,909) (483,587) Expenditure on mineral interests (1,517,389) (950,121) Net cash used in operating activities 8(b) (2,264,688) (1,299,934) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from equipment sales Purchase of equipment (3,264) (9,707) Purchase of mineral tenements - (57,347) Security deposits - (104,500) Net cash used in investing activities (3,264) (171,054) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of ordinary shares 3,880,000 - Share issue costs (209,000) - Payment for shares to be issued 1,000,000 - Net cash provided by financing activities 4,671,000 - Net increase (decrease) in cash and cash equivalents 2,403,048 (1,470,988) Cash and cash equivalents at beginning of period 1,891,384 3,362,372 Cash and cash equivalents at end of period 8(a) 4,294,432 1,891, ($) 29

32 STATEMENT OF CHANGES IN EQUITY For the Year Ended 30 June 2006 Issued Capital $ Share Option Reserve $ Accumulated Losses $ Total $ At 1 July ,626,327 - (64,431) 4,561,896 Loss for the year - - (1,589,085) (1,589,085) Total recognised income and expense for - - (1,589,085) (1,589,085) the year At 30 June ,626,327 - (1,653,516) 2,972,811 At 1 July ,626,327 - (1,653,516) 2,972,811 Loss for the year - - (2,343,249) (2,343,249) Total recognised income and expense for - - (2,343,249) (2,343,249) the year Issue of share capital 4,022,450-4,022,450 Options issued - projects - 123, ,828 Cost of share issue (209,000) - - (209,000) At 30 June ,439, ,828 (3,996,765) 4,566,840 30

33 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the Year Ended 30 June 2006 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTS POLICIES Corporate Information The financial report of Rox Resources Limited (the Company) for the year ended 30 June 2006 was authorised for issue in accordance with a resolution of the directors on 28 September Rox Resources Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian stock exchange. (a) Basis of Preparation The financial report is a general-purposed financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting Standards. The financial report has also been prepared on a historical cost basis. The financial report is presented in Australian dollars. As a result of the uncertainties inherent in business and other activities, certain items in a financial report cannot be measured with precision but can only be estimated. The estimation process involves best estimates based on the latest information available. During the year the Company acquired Rox (Laos) Pty Ltd as a 100% controlled entity. The group comprising Rox Resources Limited and Rox (Laos) Pty Ltd is not considered to be a reporting entity as Rox (Laos) Pty Ltd has not traded, therefore consolidated accounts have not been prepared. (b) Statement of Compliance The financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards (IFRS) This is the first report prepared based on AIFRS and comparatives for the year ended 30 June 2005 have been restated accordingly except for the adoption of AASB 132 Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement. The Company has adopted the exemption under AASB 1 Fist-time Adoption of Australian Equivalents to International Financial Reporting Standards from having to apply AASB 132 and AASB 139 to the comparative period. Reconciliations of AIFRS equity and profit for 30 June 2005 to the balances reported in the 30 June 2005 financial report and at transition to AIFRS are detailed in note 24. Australian accounting standards that have recently been issued or amended but are not yet effective have not been adopted for the annual reporting period ending 30 June AASB Amendment Affected Standard(s) AASB 1: First Time Adoption of IFRS AASB101 Presentation of Financial Statements AASB 124 Related Party Disclosures AASB 139: Financial Instruments: Recognition and Measurement AASB 1: First-time adoption of AIFRS, AASB 139: Financial Instruments: Recognition and Measurement Nature of change to accounting policy No change to accounting policy required. Therefore no impact No change to accounting policy required. Therefore no impact No change to accounting policy required. Therefore no impact Application date of standard* Application date for Company 1 January July January July January July

34 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS For the Year Ended 30 June 2006 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTS POLICIES (cont d) AASB Amendment Affected Standard(s) Nature of change to accounting policy AASB 3: Business Combinations No change to accounting policy required. Therefore no impact AASB 132: Financial Instruments: Disclosure and Presentation AASB 101: Presentation of Financial Statements, AASB 114: Segment Reporting, AASB 117: Leases, AASB 133: Earnings per Share, AASB 139: Financial Instruments: Recognition and Measurement, AASB 1: Firsttime adoption of AIFRS, AASB 4: Insurance Contracts, AASB 1023: General Insurance Contracts and AASB 1038: Life Insurance Contracts AASB 121: The Effects of Change in Foreign Currency Rates New Standard AASB 7: Financial Instruments: Disclosures No change to accounting policy required. Therefore no impact No change to accounting policy required. Therefore no impact No change to accounting policy required. Therefore no impact New Standard AASB 119: Employee Benefits No change to accounting policy required. Therefore no impact 4 UIG 4: Determining whether an arrangement contains a lease No change in accounting policy required. Therefore no impact 8 UIG 8: Scope of AASB 2 No change to accounting policy required. Therefore no impact Application date of standard* Application date for Company 1 January July January July January July January July January July January July May July 2007 * Application date is for the annual reporting periods beginning on or after the date shown in the above table. The following amendments are not applicable to the Company and therefore have no impact. AASB Affected Standard(s) Amendment AASB 139: Financial Instruments: Recognition and Measurement, AASB 132: Financial Instruments: Disclosure and Presentation, AASB 1: First-time adoption of AIFRS, AASB 1023: General Insurance Contracts and AASB 1038: Life Insurance Contracts AASB 4: Insurance Contracts, AASB 1023: General Insurance Contracts, AASB 139: Financial Instruments: Recognition and Measurement and AASB 132: Financial Instruments: Disclosure and Presentation 5 UIG5: Rights to Interests in Decommissioning, Restoration and Environmental Rehabilitation Funds 7 UIG 7: Applying the Restatement Approach under AASB 129: Financial Reporting in Hyperinflationary Economics 9 UIG 9: Reassessment of Embedded Derivates 32