Mining Limited Annual Report 2012

Transcription

1 Mining Limited Annual Report

2 Axiom Mining Limited is an Australian mining and exploration company focused on tapping into the significant resource potential within the mineral-rich Pacific Rim. Our Company now has a strong footprint in the Asia Pacific region, having built an enviable portfolio of diversified exploration tenements in the Solomon Islands, Vietnam and Australia over the last couple of years this includes the world-class Isabel Nickel Deposit. Our success in doing this has been largely underpinned by our dedication to forging strong bonds and relationships with the local communities and governments where we operate. This bottom-up business approach produces results, differentiates us from industry peers and has seen us come up trumps against mining industry majors. Through our diversified asset portfolio, our Board and management team are intently focused on delivering results that exceed expectations, outperform industry norms and maximise shareholder value. We believe that our Company has the building blocks to become a significant long-term and profitable mineral producer in the Asia Pacific region. Axiom s Transformation 02 Chairman s Report 04 CEO s Report 06 Board of Directors & Management 10 Community Report 12 Review of Projects 16 Tenement Schedule 28 Corporate Governance 30 Directors Report 36 Directors Declaration 39 Independent Audit Report 40 Income Statements 42 Statements of Comprehensive Income 42 Balance Sheets 43 Statements of Changes in Equity 44 Cash Flow Statements 46 Notes to the Financial Statements 47 ASX Additional Information 74 Corporate Directory 76 Axiom Mining Limited

3 Solomon Islands Vietnam Queensland Page 16 Page 20 Page 24 Annual Report 01

4 Axiom s Transformation since Relisted on the Australian Stock Exchange (in November) 2010 Axiom underwent a dramatic corporate and operational transformation, emerging as a new-look entity, free from issues of the past and focused on creating a successful future. Appointment of a new Board and management team New offices established in Sydney and Vietnam Extensive drilling campaign undertaken at North Queensland operations Submission of Licence applications in Vietnam Focus on relationship building with local community, government and landowners in the region of the Isabel Nickel Deposit, Solomon Islands Key objectives achieved across the Asia Pacific portfolio, setting the wheels in motion for future successes. Prospecting Licence and 50 year land lease granted in the Solomon Islands Partnerships forged with local landowners Joint Venturing opportunities (AxiomKB) Commencement of High Court battle with Sumitomo over the highly sought after Isabel Nickel Deposit Mineral Exploration Licence granted in Vietnam and exploration program commenced Significant drilling results received for Cardross project in Queensland Appointment of senior geological teams at all portfolio assets North Queensland the Solomon Islands and Vietnam 02 Axiom Mining Limited

5 Exploration successes and portfolio expansion setting the platform for imminent business transformation. SOLOMON ISLANDS Success at the Court of Appeal with a ruling passed to set aside adverse rulings against AxiomKB Ltd Two new tenements secured Itina and Arosi Early exploration at Itina and Arosi projects identified favourable geology Strong progress with community outreach strategy Axiom continues to strengthen local relationships and gain further acceptance from landowners, local businesses and the local community VIETNAM Encouraging results received from exploration program: Sampling on Me Xi prospect revealed highest gold grades encountered to date 82.6 g/t Au Trenching completed over the Me Xi and Khe Fia prospects Diamond drilling two holes intersected gold mineralisation Rock chip sampling on Xa Loi returned high grade gold results of up to 16.2 g/t Appointment of highly experienced Exploration Manager with proven track record for gold exploration and discovery in Vietnam QUEENSLAND Significant intersections intercepted at Cardross results confirmed potential continuity of Cu-Au mineralisation over strike length of 1,600m at shallow depths Continuous high-grade intersections from RC and Diamond drilling programs confirmed massive sulphide mineralisation JV partner completed shallow drill program significant Cu-Au results encountered within the oxide mineralisation zone overlying the massive sulphide zones at the Cardross ML Appointment of highly experienced Exploration Manager for Australian operations Application lodged for consolidation of all exploration permits in Chillagoe, providing extended sites for future mining infrastructure. Annual Report 03

6 Chairman s Report Stephen Williams Chairman The legal battle over our flagship Isabel Nickel Deposit in the Solomons Islands and the ongoing volatility of the global economic climate made quite a challenging period for Axiom. However, I am pleased to report that these obstacles did not deter us in the pursuit of our overall Company objectives. We exploited the difficult conditions to our advantage and focused on building a solid foundation for the business. This has now set the stage for the Company to undergo a significant transformation in After approximately 18 months of protracted litigation with a subsidiary of Sumitomo Metal Mining Co., Ltd (Sumitomo) over the Isabel Nickel Deposit in the Solomon Islands, it was a big step forward for us when the Court of Appeal decided to expunge the adverse rulings against our subsidiary, Axiom KB Limited. Instead, it was directed that all outstanding issues would be determined through an expedited trial in We hope that the trial will finally bring favourable closure to the dispute and we look forward to vindicating our rights over this world-class project. While the global mining industry faced challenges and uncertainty in, in fact in some areas it was contracting, I am pleased to say that Axiom has continued to swim against the tide. Our business grew in with new projects added to our portfolio and additional personnel coming on-board. We successfully secured two new assets in the Solomon Islands a move that has the potential to add significant shareholder value and further cements our position as an emerging force in the South Pacific region. Our expanding operations in the Solomon Islands, coupled with our assets in Vietnam and Australia, mean that we now have an enviable, diversified asset portfolio, in terms of both geographical location and from a commodity class perspective. Encouragingly, we also have a pipeline of projects to maintain strong long-term growth momentum. It has been a successful period for our Australian assets. Both our drilling program on the Cardross Mining Lease and collaborative work with a nearby producer have put us well on track to deliver a maiden JORC Resource Estimate for this copper-gold prospect in A Joint Venture agreement, a tenement consolidation application and several key technical appointments have also accelerated the progression of our Queensland tenement portfolio towards becoming a commercial reality. Overall, Axiom has managed to achieve a number of significant milestones in, including the strategic and timely expansion of our asset base, the raising of additional capital and encouraging progress across our exploration programs. 04 Axiom Mining Limited

7 Our strong and established presence in the local community has placed us in good stead and we now are one of the largest tenement holders of premium prospective land in the Solomon Islands. I am confident that the dedication, focus and motivation of our management team played a key role in our achievements. While thoroughly managing the litigation process in the Solomon Islands and continuing to build local community relations in the region, the management team remained focused on delivering shareholder value through our other major projects in Queensland and Vietnam. As legal cases can be costly exercises, we ensured that sufficient capital was available to allocate to the continued development of these other projects. Axiom s geologists reviewing an XRF analysis of a sample As I mentioned earlier, it is reassuring for shareholders to know that all this was achieved despite the storm clouds relating to the litigation challenge and the volatility of global capital markets in. During the year, we also hired several high quality key personnel to join our team and manage our exploration programs in Queensland and Vietnam. I am pleased with the progress we have made in and am looking forward to the exciting prospects in store for Axiom in The New Year is shaping up to be a transformational period for the Company and we expect the associated benefits will accrue to our shareholders accordingly. On behalf of the Board, we thank you for your continued support and I look forward to overseeing your Company s developments in Annual Report 05

8 CEO s Report Ryan Mount Chief Executive Officer At Axiom, our ultimate goal is to tap into the plentiful resource potential in the Asia Pacific region, and with our impressive portfolio of diversified assets in the Solomon Islands, Vietnam and Australia, we are well positioned to do just that. A key driver of our success to date has been our ability to develop strong relationships, with both the local communities and governments where we operate. These relationships are truly invaluable and now underpin our whole business and operational strategy. We strongly believe in this community-based approach and we have the runs on the board to prove it works. A stand-out business strategy: Focus on proactive community relations Our approach to operations, across all of our projects, is strategically driven by community relations. Our key philosophy is to create shared values and a shared vision with local communities ultimately, we strive to balance and align the goals and expectations of the local community with those of our corporate strategy. We pride ourselves on this community-based business strategy it differentiates us from our competitors, and to date, it has enabled us to achieve some significant milestones. The following are some of the fundamentals of our strategy: Collaborating and communicating with the local community to create shared values and a shared vision. By considering both the small and large details, we are 100% focused on building and maintaining strong community relations. Our strong local relationships enable us to expedite, achieve and maintain acceptances and approvals to progress our operations in an effective and efficient manner. Our operations are designed to have minimal social and environmental impacts on the local community. Our management team includes some of the best local talents in the regions where we operate. Not only does this provide us with local expertise, but also unparalleled knowledge of local business practice. Operational Overview Projects Solomon Islands: Located within the Pacific Rim of Fire, the Solomon Islands are an archipelago of islands which are mineral-rich, but mostly undeveloped. Our defence of the High Court challenge by Sumitomo is obviously our number one priority at the moment. As such, we have continued to devote the appropriate resources into the proceedings that will help to secure the Isabel Nickel Project as our flagship asset. While it has been a protracted process to date, I am pleased to report that we finished on a very strong note, having received a favourable outcome from the Court of Appeal. The panel of three judges, who sit on the highest court of the land, set aside the previous rulings which were adverse to Axiom. 06 Axiom Mining Limited

9 A key driver of our success to date has been our ability to develop strong relationships, with both the local communities and governments in which we operate. Acquiring these new tenements has significantly increased our footprint in the Solomon Islands and internally, they are generating a lot of excitement amongst our geology team. Axiom s geological team during technical training session The Court of Appeal also ruled that the whole matter be dealt with in a trial by the High Court, which is due to begin in August We remain confident of achieving a favourable overall outcome in the trial and finally claiming our rights over the Isabel Nickel Deposit. These tenement acquisitions were also a real coup for us because we faced intense competition from mining majors for these projects. It is clear to us that our community-based strategy, our inclusive philosophy and our attitude that respects local culture and way of life are looked upon favourably by the local community and have been the differentiating factors separating us from our industry peers. We strongly believe that this mutual respect between Axiom and the local community has been, and remains the key to our ongoing progress and success in the region. I also note that we are progressively building our technical and management team in the Solomon Islands as well as training our enthusiastic workforce. Despite the ongoing legal proceedings, we remained vigilant in our pursuit of new opportunities in the Solomon Islands region and managed to successfully secure two extensive and highly prospective tenement holdings the Arosi and Itina projects. Annual Report 07

10 CEO s Report 2013 promises to be a transformational year for Axiom. Our Board and management team are intently focused on delivering results that exceed expectations, outperform industry norms and maximise shareholder value. Vietnam: Long neglected from a mining perspective, Vietnam is one of the most geologically gifted, fastest-growing and most stable jurisdictions in Asia. We continue to explore our Vietnamese tenement holdings for large gold-bearing hydrothermal or porphyry systems and I am pleased to report that early exploration results have been encouraging at our Quang Tri Project. Exploration activities in the past year included an extensive sampling and mapping program, which incorporated the identification and mapping of the prospective anomalous zones within our tenement holding, as well as a trenching and drilling program. The outcomes of these activities have greatly added to our understanding of the geology of the area and its mineralisation processes, as well as reinforced its high prospectivity for gold and silver. Our geological team is now well-equipped with greater geological insight ahead of the next exploration phase, which is scheduled for the coming dry season. During the year, the Axiom team was also delighted to welcome Mr Le Van Hai on-board as Exploration Manager of our Vietnam projects. Hai is a highly experienced and reputable geologist with a background associated with Vietnam s largest gold discoveries to date. We are thrilled to have Mr Hai join our team, and I must note that he has already made a significant difference to our technical capabilities in Vietnam. Queensland: JORC Resource expected in 2013 We had a successful year with exploration activities at our Queensland operations, with 75% of drill holes intersecting high-grade copper-gold mineralisation on the Cardross Mining Lease. Essentially, both Reverse Circulation (RC) and Diamond drilling programs encountered continuous high-grade copper intersections, which notably also included significant intercepts of massive sulphides. We believe that the overall strike length of this mineralisation could be up to 1600m and within the Cardross Mining Lease boundaries. Importantly, we are now working towards securing a maiden JORC Resource for the project in In addition, we also entered into a Joint Venture agreement with Solomons Copper Australia Pty Ltd a well-established neighbouring mining company who we engaged to drill 99 percussion holes on our Cardross Mining Lease to test the near surface oxide zone for potential commercial extraction. The results of this drilling program were encouraging, and prompted us to consider broadening our agreement to include other deposits discussions are underway. Importantly for us, Solomons Copper Australia Pty Ltd also operates an established processing plant nearby with excess capacity and a technical team familiar with the local geological landscape. I look forward to providing further updates on the Cardross project in 2013, including a maiden Resource Estimate. We have also submitted a request to the government to consolidate our tenement portfolio, as well have a potential area approved for mining infrastructure development at the Cardross Project. We reasonably expect news on our application this year. During, we also appointed Mr Tom Saunders as Exploration Manager for our Queensland operations. Tom s local knowledge, expertise and accomplishments, which include the discovery, development and working knowledge of prominent mining operations nearby, has already added significant value to our projects. 08 Axiom Mining Limited

11 Director - Mr Neil Stuart and the geological team in session at our annual conference Corporate Throughout the year the challenge for us was to access, prioritise and adequately allocate our limited pool of funds to our ventures. It was imperative that we closely scrutinised the funding required for the legal case (this can be quite costly), because at the same time we needed to be able to deploy appropriate capital towards growth of the business. Effectively, our operations were funded through a series of private placement of shares, the exercise of options and the fulfilment of convertible notes. Importantly, we maintained the ability to fund all of our operations despite the increasing difficulty to access funds from capital markets. At times this created volatility in our share price but our ability to strategically read ahead and move quickly saw us finish the year in far better financial position. Our unique and strong mix of operational, technical, legal and financial skill sets, both in the management team and the Board, have enabled the Company to advance its projects and deal effectively with the litigation proceedings in parallel. Of note this year has been the advice of our Non-Executive Directors which included Mr Stephen Williams regular involvement in the Solomon Islands. Looking Forward was a challenging year for our Company, with legal issues and the tough global economic climate impacting on our progress. Against a difficult backdrop, we still made encouraging steps forward and we are well poised to make significant in-roads into all of our projects in With a clearly defined strategy in place and a highly experienced technical team on-board, the platform is set for our Company to evolve into a significant mining player in the Asia Pacific region. In anticipation of a heightened level of activity across all our projects, coupled with the need to be able to continue to attract quality technical personnel, we have decided to relocate our head office from Sydney to Brisbane. Essentially, it makes geographical sense for us to be located closer to all of our projects. I am pleased to say that the key members of our senior management team are making the move to Brisbane, which to me shows the high level of dedication and confidence they have in the Company and its future promises to be a transformational year for Axiom. Our Board and management team are intently focused on delivering results that exceed expectations, outperform industry norms and maximise shareholder value. Securing our rights over the Isabel Nickel Deposit is a key goal for the coming year so too is achieving exploration success in Vietnam and converting our Queensland prospects into commercial assets. Accomplishing these will allow our Company to capitalise on other opportunities in the regions we operate with strong local relationships already in place and an entrenched community-based approach to operations; we are in a great position to do exactly that. Annual Report 09

12 Board of Directors & Management Directors Mr Stephen Williams Mr Ryan Mount Mr Neil Stuart Non-Executive Chairman Chief Executive Officer Non-Executive Director and Managing Director Stephen was appointed Chairman of Axiom Mining in July Since then, he has overseen the implementation of best practice in corporate governance and has also ensured that the expertise of the Board has been channelled to the appropriate areas of the business. He has played an integral role overseeing Axiom s recent business development in the Solomon Islands and is also Chairman of Axiom KB Limited Axiom s 80%-owned subsidiary company in the Solomon Islands. Stephen is a corporate lawyer by profession and is an experienced director and chairman of public companies from IPO through to maturity. He is also currently a Non-Executive Director of Prime Ag Australia Limited. Ryan joined the Axiom Board as a Director in April Following his appointment, he led the crucial restructure of the Company an exercise which saw Axiom gain full control of its assets, define a clear strategic direction, appoint new Board and management team members and establish a new head office in Sydney. This turnaround allowed Axiom to re-list on the ASX in December 2009 as a properly capitalised and fully operational company. In mid-2010, Ryan accepted the Board s offer of the CEO position. Since his appointment, Ryan has been relentless in driving and refining Axiom s operations, and as a result, key components of the business plan have been achieved ahead of schedule and clear operational targets have been established. Ryan has also played an integral role in securing the Isabel Nickel Deposit in the Solomon Islands and he is also the CEO and a Director of Axiom KB Limited. Ryan has an extensive background in Australian and international financial markets, as well as corporate advisory. Neil joined the Axiom Board as a Director in March Since then, he has provided the Company with exceptional technical advice and has played an important role in developing Axiom s prospects. Neil has a reputation as one of Australia s best exploration geologists and has an extensive mining background that includes leadership in the discovery of a number of world class mineral deposits. He acquired the Cerro Negro Epithermal Gold Deposit, which formed Andean Resources. This deposit has potential resources of 9.5 million ounces of gold and received a $3.4 billion takeover bid by Gold Corp. Neil also founded Orocobre Limited and acquired the Oloroz Lithium Deposit this is now in mine development at a cost of $100 million. Neil is a Fellow of the Australasian Institute of Mining and Metallurgy and a Member of the Australian Institute of Geoscientists. He is also Chairman of Bowen Energy Limited and a Director of Overseas and General Limited. 10 Axiom Mining Limited

13 Management - Additional Appointments Axiom s management team is a select group of industry professionals with extensive experience and proven track records for mineral discovery and developing major mines around the world from start to finish. Our team members share in Axiom s philosophy, placing importance on efficiency, speed, safety and acceptance of the local cultures and customs of the areas where our operations are based. A key characteristic of our senior managers is their experience and ability to develop effective strategies to transfer knowledge and teach skills to the local workforces, particularly in the Solomon Islands and Vietnam. In doing so, we have built strong local community and government relationships, and these have subsequently played an instrumental role in the development and expansion of our portfolio of assets. Our management team also comprises some of the best local talents of the regions where we operate. Recruiting local expertise gives our Company unparalleled knowledge of local culture, land rights, government policy and business practice. New appointments to the Axiom management team in include Tom Saunders and Le Van Hai. Mr Tom Saunders Exploration Manager, Australia Tom joined Axiom in and led the successful exploration program on the Cardross Mining Lease. He has over 35 years of experience in the Australian and Asia-Pacific mining industry a career which has included roles from the majors through to small companies. He has also been involved with a number of significant mineral discoveries, including Kagara s King Vol Sulphide Deposit in the Chillagoe region (adjacent to Axiom s projects). Tom is highly experienced at progressing projects from exploration stage through to feasibility and then on to development and production phase. Tom was also a former Director of the mining and petroleum operations unit within the Queensland Government. Mr Le Van Hai Exploration Manager, Vietnam Hai has over 27 years of experience in the Vietnamese mining industry. He has a proven track record of gold exploration and discovery in Vietnam and was instrumental in the discovery and development of Vietnam s current two largest gold mines: the Bong Mieu and Phuoc Son mines. Prior to joining Axiom, he was Exploration Manager at Olympus Pacific Minerals Inc, spending 19 years with the Company. He has also held the positions of Chief Geologist and Deputy Director of Bong Mieu Gold Mining Company. Hai is a member of the Australasian Institute of Mining and Metallurgy (AusIMM) and the Australian Institute of Geoscientists (AIG). Annual Report 11

14 Community Report We are committed to integrating into the local communities in which we operate respecting their land, culture and ownership rights and sharing with them the rewards of economic development. We are also 100% committed to minimising our impact on the surrounding native environment. It is this attitude and philosophy which sets Axiom apart from our mining industry peers. We aim to BUILD Robust and profitable mining operations, strong community and government relations, a better local economy and skilled workforce. We aim to SHARE Our knowledge, skills, resources and the economic rewards of our mining operations. We aim to PROTECT The land, the natural environment and the rights of local landowners. 12 Axiom Mining Limited

15 Community activities in the Solomon Islands Our commitment and passion for local community involvement is the key differentiator that sets us apart from our industry peers. The following are some examples of how our build, share, protect approach came to fruition in. Strengthening eduction on Isabel Axiom has become the major financial sponsor of the Senior Secondary School in Buala, Solomon Islands. The school was developed as a joint initiative by the Church, Provincial Government and the Isabel House of Chiefs and is designed to further the education of the local Isabel community s eager young students. Some of these students may eventually be employed to work on, or manage Isabel s biggest ever development and Axiom s flagship project The Isabel Nickel Deposit. Developing and training the local workforce In addition to deploying our Australian technical personnel to lead the exploration programs on the Arosi and Itina projects, we have recruited a number of local geologists to work in our teams. We have also employed new local staff members to work in our Honiara office. The internships involved a week-long induction program in our Honiara office, which was then followed by on-site experience at the Arosi Project in Makira. We also flew our senior Solomon Islands geologists to Brisbane for our annual week-long conference. Here, they were involved in training sessions that focused on the latest exploration technology. Sourcing supplies locally We buy our supplies locally whenever and wherever possible. We know that this goes a long way in helping to bolster the local economy. In return, the business owners have gone, and continue to go out of their way to support and protect our interests. In some cases we have helped to develop cottage industries to supply Axiom. The benefits of this are mutual it is greatly appreciated by the local community and it also ensures that we have ongoing supply of resources at competitive prices. In conjunction with the Ministry of Mines, Energy and Rural Electrification, we offered internships to six geology students from the University of the South Pacific (USP) and the University of Papua New Guinea (UPNG). Annual Report 13

16 Community Report Our respect for the land, the people, their culture and their traditions is of the highest level and we are always eager to learn more about the local way of life. Supporting woman in financial literacy Isabel is a defined matriarchal society and as such, we continue to encourage and support the development of women s involvement in the decision making process by providing financial literacy workshops. We understand that these skills are essential for landowners when having to deal with a substantial growth in per-capita-wealth on the development of the Isabel Nickel Project. The Axiom National Rugby 7 s Competition Supporting national sports In, we became the major sponsor of the U-19s National Rugby Squad, as well as the National Rugby 7s competition. We know that some of the future stars of Rugby reside here in the Solomon Islands and we want to help them realise and achieve their true potential. When Axiom pledged their support to the Solomon Islands Rugby Union Federation (SIRUF), Chairman of SIRUF Mr Frank Wickham, made the following statement: SIRUF are very grateful for the continued support by Axiom, in particular their support to the National U-19 team. These boys are the future of the game here and Axiom has provided them valuable experience and the opportunity to shine on the international stage. It has been very special for all of us to have Axiom involved. The little things that make a difference We believe that our commitment and passion for local community involvement is the key differentiator that sets us apart from our industry peers. Our employees aspire to not only help the local community, but also to be a true part of the community structure. It is now common place to see Axiom employees and their families participating in local events, outside of work hours. This genuine participation in the community has further strengthened our ability to operate smoothly within the country. Where possible, we help out in the community. Whether it be offering transport from Isabel Island to the capital on-board our boats, using our crafts for emergency purposes or using our accommodation facilities in the capital or at other sites around Solomon Islands, our staff are only more than willing to assist. Our respect for the land, the people, their culture and their traditions is of the highest level and we are always eager to learn more about the local way of life. Participating in, and sponsoring local events and festivals is a great way for us to gain this knowledge and become more appreciative of the local culture, so these are initiatives that we like to get involved with. We find that little things like this go a long way in forging strong community ties. 14 Axiom Mining Limited

17 When I joined the Company in, I was overwhelmed by the level of hospitality offered by the Axiom team. They showed me great respect and were genuinely concerned about me and my career. My first week was spent training in an Australian laboratory this included XRF training in Brisbane. To me, this was clear evidence that Axiom is genuinely committed to helping Solomon Islanders. I am now in my second year with Axiom Mining and I would like to thank the Company for the heartwarming support I have received from them so far. William Angisiramo, Geological Chemist Annual Report 15

18 Review of Projects Solomon Islands Axiom is now one the largest tenement holders of premium prospective land in the Solomon Islands. The Solomon Islands archipelago represents a double chain of islands that span 1,300km in a western area of the Pacific Ocean. Both chains follow a north-west/south-east alignment and in total, comprise nearly 1,000 islands. Within the group, lies the nation of the Solomon Islands, as well as the islands of Bougainville and Lihir, which actually fall under Papua New Guinea jurisdiction. The Solomon Islands archipelago forms part of an arc that represents a line of very specific volcanic rocks known as the Andesite Line. This circumscribes the Pacific Ocean in a clockwise direction, from New Zealand to Chile 1, and is commonly known as the Pacific Rim of Fire. This area is considered fertile ground for large tonnage gold and copper deposits for example Gold Ridge, Lihir and Bouganville. The location of the Solomon Islands archipelago, being bounded by these major tectonic plate boundaries, has not only resulted in the presence of favourable geological structures, but also rock types which are conducive to hosting large tonnage gold-copper massive sulphide systems and nickel-cobalt deposits. Axiom Mining has three major projects located within the Solomon Islands archipelago: 1. The Isabel Nickel Deposit on Santa Isabel and San Jorge Islands (subject to legal challenge) 2. The Arosi copper-gold project in the Makira Province 3. The Itina copper-gold project on Guadacanal (See project locations above in Figure 1.) 1. The world-class Isabel Nickel Deposits on Santa Isabel and San Jorge Islands The Isabel Nickel Project is considered to be one of the largest nickel-laterite deposits in the Pacific. The project has previously been extensively explored and developed by mining and engineering industry leaders, International Nickel Company Limited (INCO) and Kaiser Engineering (Kaiser). Extensive testing of the Kolosori deposit was conducted by INCO from the 1960s to 1970s. During this time, INCO completed a substantial amount of work across both deposits with the intention of bringing them both into production. Work included: 4,409 test pits, 1,484 Gemco Power Auger holes, 394 Hand Auger holes, 121 Banks Drill holes, 43 Winkie Diamond Core holes and a Feasibility Study. 16 Axiom Mining Limited

19 Santa Isabel ISLAND Bungusule LOI (Under litigation) Ni-Co San Jorge ISLAND Kolosori TENEMENT (Under litigation) Ni-Co Malaita Guadalcanal Itina Tenement Guadalcanal Cu-Au Arosi Tenement Makira Province Cu-Au San CRISTOBAL Figure 1. Solomon Islands Project Locations The INCO estimations of the resource figures for the deposits are non-jorc compliant, having been calculated prior to the inception of the JORC code. The Kaiser report calculation did not include the full lateritic profile of the deposits. Therefore there is a substantial upside potential for tonnage because the saprolite zone at depth was not included in the calculation. The project also has several other attractive development characteristics, including: The Kolosori Resort on Isabel Island The project was reignited by Kaiser Engineering in Kaiser excavated an additional 34 new test pits across the deposits in order to evaluate the historical work and directly compare results with the 43 INCO pits. Kaiser s subsequent report highlighted several tangible opportunities, including: The deposit being classified into a high iron limonite zone at the surface and a low iron saprolite zone at depth. The total thickness of the saprolite was not accurately tested at depth due to the limitations of equipment and the overall depth of these pits. This is important because the saprolite zone in these styles of deposits have the highest Ni-Co grade. Estimates of resources (non-jorc code compliant) dating back to 1970s had been made and subsequently validated by Kaiser Engineering this included the manipulation of cut-off grades to increase tonnage. The main area of nickel-cobalt mineralisation is free from human habitation. Mineralisation occurs from the surface. The deposit is very close to the shore line, thereby allowing easy seaborne access to regional processing hubs. A deep water area adjoining Isabel Island will form an ideal loading facility and harbour. Mining via a Direct Shipment of Ore (DSO) approach has the benefits of minimising impacts on the environment, as well as significantly reducing the immediate and overall capital requirements. Ultimately, a DSO approach will function to enhance and accelerate the generation of significant cash flows. This is due to the much shorter time frame involved with the DSO process, as compared to the time required to build a conventional high pressure acid leaching process plant (HPAL) or using alternative process methods. Currently, Axiom remains in a legal dispute with Sumitomo over the Isabel Nickel Deposit. Once free of this litigation, Axiom will aim to accelerate exploration activities and the feasibility study in order to progress the project towards production as soon as possible. Annual Report 17

20 Review of Projects Solomon Islands 2. The Arosi Project on Makira Island Axiom was granted a Prospecting Licence for the Arosi Project on 12 June. The project area covers 218km 2 of land on the Makira Island. Work completed by Axiom to date on the Arosi project, includes theoretical geological modelling, reconnaissance geology, camp construction, rock chip and soil sampling. 3. The Itina Project on Guadalcanal The Itina Project was acquired in July and covers a substantial area of 554km 2 on the island of Guadacanal. The tenements within the Itina Project are adjacent to the world-class Gold Ridge Mine. Activities completed to date include: reconnaissance geology, camp construction, theoretical geological exploration modelling and rock chip and soil sampling. Importantly, the theoretical geological exploration model completed for the project has the same characteristics as the mineralisation of the nearby Gold Ridge Mine. Similarities include: Epithermal, low sulphide, gold mineralisation hosted in the Suta Volcanics and Breccias Mineralisation focused on fault jogs associated with the Malengo fault zone (a major structural control within the Gold Ridge mineralised system) Potential porphyry copper mineralisation associated with zones of intense argillaceous and silica sericite alteration Rock chip sample from Arosi Field reconnaissance has confirmed the presence of a caldera this is typically favourable to gold and copper occurrences. Rock chip samples were collected and analysed by Fire Assay during the reconnaissance geology phase. To date, the highest grades attained are 0.58 g/t Au, 2.1% Cu, 316 ppm Pb and 3.85% Zn. These signatures provide evidence of a potential polymetallic volcanic-hosted massive sulphide (VHMS) deposit occurring within the Arosi tenement that is, Pb-Ag-Zn leaching from the surrounding oceanic and volcanic sediments and the Cu-Au metal being sourced from a deep plume associated with the magnetite-rich microgranite host. Handheld XRF analysis of rock chips has produced grades of up to 14 g/t Au. Rock chip samples were analysed by Fire Assay during the reconnaissance geology phase for other metals, with up to 9.4 ppm Ag, 375 ppm Pb and 4771 ppm Zn. Limited pathfinder assaying has indicated that three of the samples returned greater than 10 ppm molybdenum (maximum 24.7 ppm Mo). Although early in the exploration phase, these results, particularly the molybdenum pathfinding result, supports the low sulphidation epithermal porphyry theory. References 1 Neall. V.E., Trewick.S.A The age and origin of the Pacific islands: a geological overview, Philosophical Transactions of the Royal Society of Biological Sciences. XRF analysers are now being utilised to efficiently test the vast land mass. 18 Axiom Mining Limited

21 I believe that Axiom makes a great effort towards our community on Isabel and we actually see what they, as a Company, stand for with our people and community. We still remain in full support of Axiom and we feel very privileged to have a share and a joint venture with the Company. Dunstan Arimana, Isabel landowner (far right) Annual Report 19

22 Review of Projects Vietnam Vietnam is one of the most geologically prospective, fastest-growing and most stable jurisdictions in Asia. We continue to explore our tenements in Vietnam for large, gold-bearing hydrothermal or porphyry systems. Our understanding of the geological setting and the mineralisation processes of the area is growing and we are ready to tackle the next stage of exploration. The Quang Tri Gold Project Axiom holds a granted Mineral Exploration Licence (MEL) covering 23km 2 in the north-central region of Vietnam. The MEL is located within the prospective Truong Son Fold Belt (TSFB) an area of mineralisation that plays host to a multitude of world-class goldcopper-silver deposits, including Sepon (2.1Mt Cu, 4.8Moz Au), Phu Bia (1.6Mt Cu, 4.5Moz Au, 34Moz Ag) and the producing gold mines of Phuoc Son and Bong Mieu. The Company is currently exploring and evaluating three primary targets for economic gold mineralisation the Me Xi Prospect, the Xa Loi Prospect and the Khe Fia Prospect. These prospects were subjected to high levels of artisanal mining activity prior to the granting of Axiom s MEL a clear indication of the prospectivity of the area. The geology of the area is characterised by an Ordovician-Silurian sedimentary rock package consisting mainly of fine-grained sandstone, siltstone and shale. These sedimentary rocks were intruded by Permian-Triassic intrusives of the Que Son complex, including porphyritic diorite, andesite and basaltic andesite dykes. Silica-sericite, sericite-chlorite and argillaceous (kaolinite) alteration were identified in all drill holes associated with the sheared zones. These types of alteration are also present in the deposits of the other nearby mines mentioned above. This consistency is a strong indicator of the potential for gold mineralisation in Axiom s area. Exploration Exploration activity in consisted of regional prospecting (including stream and soil pan concentrate surveys), target definition (including trenching and channel sampling), anomaly follow-up (including m of diamond drilling in five holes) and prospect evaluation. Prospecting work and target definition were conducted over the whole property area, while diamond drilling was restricted to the Me Xi Prospect. Gold mineralisation discovered at the Me Xi and Xa Loi prospects to date, indicates hydrothermal, epithermalmesothermal style gold mineralisation, hosted by eastwest trending shears and developed in the Ordovician- Silurian sandstones. 20 Axiom Mining Limited

23 Laos QUANG BINH Au-Cu Quang Tri Au-Cu Thailand Vietnam Cambodia Figure 2. Vietnam Project Locations LK4-MX: g/t Au LK11-MX: g/t Au Rockchip assays up to 8.36 g/t Au The three primary targets for economic gold mineralisation at Quang Tri: 1. Me Xi Prospect Rockchip assays up to g/t Au Xa Loi Figure 3. Quang Tri MEL prospects Location Core logging in Quang Tri Me Xi Khe Fia Samples assayed up to 82.6 g/t Au The Me Xi Prospect is located in the central portion of the Quang Tri MEL. Since late, surface and artisanal miner s tunnels, mapping, rock chip sampling, channel sampling and trenching activity have all contributed to the successful delineation of several mineralised gold structures at Me Xi. Gold mineralisation, with coincident anomalous arsenic and controlled by east-west trending shears, has developed in the Ordovician-Silurian aged sedimentary rock package based on the work done so far. The major shear zone identified to date is approximately 500m in strike length and varies between one and five metres in width. Results are highlighted as follows: To date, the highest gold grade encountered is 82.6 g/t Au from quartz sulphide vein material Trenching returned positive results, including 0.93 g/t Au and 1.61 g/t Au, representing a continuous zone of gold mineralisation Five diamond holes totaling 546.1m, with two holes intersecting a mineralised zone: 1.57 g/t Au from 95m (LK4-MX) 2.04 g/t Au from 56m (LK11-MX) 2. Xa Loi Prospect Within the property area, several north-west trending fold hinges have been identified from surface geological mapping and structural interpretation. These, along with the east-west trending mineralised structures, suggest the possibility that the gold mineralisation is similar to that of the Ordovician sequences in Eastern Australia and Bendigo to Stawell in Victoria. The Xa Loi Prospect is located immediately to the west of the Me Xi Prospect. Previous investigation by the General Department of Geology and Minerals, together with further exploration by Axiom, have identified two parallel gold mineralised zones, varying from m in length and 3-7m in width. Annual Report 21

24 CEO s Review Report of Projects Vietnam 22 Axiom Mining Limited

25 Axiom intends to intensify exploration activities in Vietnam in the early part of Vietnam summary In summary, the geometry of the mineralised multigenerational quartz veining zones, coupled with the intensive silica-sericite, sericite-chlorite and argillaceous alteration at Me Xi and Xa Loi, is indicative of a porphyry copper-gold system at a high level of erosion. The recent drill and trench assay results, together with the discovery of a potential host source rock at Xa Loi and Me Xi, reinforces the potential that both of these prospect areas host large hydrothermal gold or porphyry copper-gold deposits. Drilling at Me Xi The identified zones consist of quartz (with sulphides) and sheared and altered sandstone. High-grade gold results, from rock chips targeting the gold mineralised zone, returned up to 16.2 g/t Au. The mineralised zones at Xa Loi display slightly different characteristics to those at Me Xi. Notably, there is a greater concentration of quartz sulphide veins and the veins contain higher sulphide content. There are also a higher proportion of graphitic shales within the host sediments this reflects a significant change in the structural environment that hosts the mineralisation. 3. Khe Fia Prospect Plans for 2013 The program for the three prospects is designed to achieve greater clarity over the structural geology and to determine the geometry and extent of the potential dilation zones. This will help to pinpoint the locations of the quartz veins, and to ultimately identify the areas of sizeable tonnage and high-grade gold mineralisation. Axiom intends to intensify exploration activities in the early part of This will involve: Soil ridge and spur sampling and mapping to locate sub-surface expressions of the mineralised structures, as well as strike extensions Trenching to sample the sub-surface mineralised zones Mapping and sampling to confirm and identify the gold mineralisation grades and styles, including definition of the controlling structures and identification of the fault and shear zones Diamond drilling to test the gold mineralised zones The Khe Fia Prospect is located east of the Me Xi Prospect. Work to date indicates that the Khe Fia Prospect may have the same style of mineralisation as the Me Xi Prospect sulphide quartz vein/veinlet zones hosted by shears. Rock chip samples have assayed up to 8.36 g/t Au. Annual Report 23

26 Review of Projects Queensland On track to deliver a maiden JORC Resource Estimate for the Cardross Copper-Gold Project in With eight exploration permits and eight mining leases in its portfolio, Axiom holds a strategic tenement position in the Chillagoe region of North Queensland. Leveraging in-house technical expertise, we are focused on identifying, exploring and developing low-grade and large tonnage copper-gold-silver deposits that are typical of the Chillagoe region and local geological setting. We have also engaged in joint ventures and are examining further strategic partnership opportunities to add value to our projects. The Cardross Copper-Gold-Silver Project The Cardross Mining Lease (ML) and Exploration Permits for Minerals (EPM) are located west of Chillagoe and are accessible via the Burke Development Road and a number of station tracks. The Axiom drilling program consisted of the following: 3 deep diamond core holes 3 shallow diamond core metallurgical holes, with completed assays 10 reverse circulation (RC) percussion holes Overall, 75% of assayed holes intersected significant copper, gold and silver mineralisation Significant intersections include: 2.68% Cu, 0.12 g/t Au, 47.5 ppm Ag from 38m (CA12RC06) 2.44% Cu from 39.4m (CA12DD04) 1.15% Cu, 0.65 g/t Au, 16.3 ppm Ag from 77m (CA12RC01) 1.11% Cu, 0.31 g/t Au, 9.05 ppm Ag from 44m (CA12RC07) Note: Further intersections are detailed in Table 1. To date, Axiom has completed a range of drilling programs at the Cardross ML to increase the confidence for ore resource modelling. The Company has also tested areas at depth to the north of the Chieftan Mine, as well as conducted shallow drilling on the northern half of the mining lease. 24 Axiom Mining Limited

27 Cardross Cu-Au-Ag ok Mines Cu Porphyry Au Mount MOLLOy Cu-Zn Split Rock Au-Cu White HILLS Au-Ag Mountain MAID Au-Cu Pinevale Cu-Au Queensland Figure 4. Queensland Project Locations These results confirm the presence of material copper-sulphide mineralisation, with significant gold and silver credits, at shallow depths in the northern half of the Cardross ML. They also complement the RC results, which were derived from the initial northern sulphide zone: 1.01% Cu, 0.29 g/t Au, 13.9 ppm Ag from 55m (CA11RC04) 2.03% Cu, 0.4 g/t Au, 41.6 ppm Ag from 118m (CA11RC05) 2.30% Cu from 119m (CA11RC24) 1.67% Cu, 0.10 g/t Au, 27 ppm Ag from 69m (CA11RC09) 2.30% Cu, 0.32 g/t Au, 35 ppm Ag from 119m (CA11RC17) The mineralised zones characterise probable low waste strip ratios. These assay results will be combined with ongoing assaying, assay verification and metallurgical test work to form a new comprehensive results database. Once all this is completed, modelling can commence for a maiden Resource Calculation in Joint Venture with Solomons Copper Australia Pty Ltd at Cardross During the year, an agreement was reached with Solomons Copper Australia Pty Ltd to assess the potential of the Cardross shallow copper-gold oxide mineralisation to be mined. It was agreed for this process to take place at the nearby Solomons Copper Australia s heap-leach treatment facility, located approximately 17km from the Cardross ML. In consultation with Axiom technical staff, Solomons Copper Australia Pty Ltd designed and implemented a series of drill holes to assess the copper and gold oxide potential a program that consisted of 99 vertical airtrack percussion holes. Drilling at Cardross Significant shallow gold and copper assay results were encountered within the oxide zone, immediately overlying the previously outlined massive sulphide zones: Specific copper highlights include: 19m of 1.17 % Cu from 3.00m (CA12AT012) 18m of 0.74 % Cu from 6.50m (CA12AT011) 11m of 1.21 % Cu from 4.75m (CA12AT013) Specific gold highlights include: 7m of 1.67 g/t Au from of 6.50m (CA12AT011) 2m of 4.81 g/t Au from of 3.00m (CA12AT070) 4m of 1.60 g/t Au from of 13.50m (CA12AT070) 4m of 1.66 g/t Au from of 6.50m (CA12AT080) Annual Report 25

28 Review of Projects Queensland Table 1. Further intersections Hole ID CA12DD01 CA12DD04 CA12DD05 CA12DD06 CA12RC01 From (m) To (m) Width (m) Cu (%) Au (g/t) Ag (g/t) inc inc inc inc inc inc inc inc CA12RC NSI CA12RC04 CA12RC06 CA12RC07 CA12RC08 CA12RC09 CA12RC inc inc inc inc NSI inc Axiom Mining Limited

29 Of the 99 shallow airtrack drill holes, 51 returned mineralised copper-gold intersects. The shallow drill holes also assisted Axiom to interpret the sulphide mineralisation and establish the base of oxidation throughout the Cardross ML this will provide additional information for progressing towards a Resource Estimate. Advancing other projects within the Chillagoe region The Chillagoe region of North Queensland is well known for the extensive and prolific deposits of copper, gold, and silver of the Silurian to Permo- Carboniferous age. Axiom s tenement package lies within the Proterozoic Dargalong Inlier, west of the major north-west trending Palmerville Fault System at Chillagoe, North Queensland. Proterozoic muscovite schist and gneiss are the oldest rocks in the area and occur throughout the tenements. These metamorphic rocks are extensively intruded by both Late Ordovician to Early Silurian granite systems and later Permo- Carboniferous felsic dykes. This provides a favourable setting for economic mineralisation. The principal targets that Axiom has identified within the tenement package are prospective for both goldhosted intrusive granite systems (Mountain Maid) and shear-hosted copper-gold-silver in the metamorphics (Cardross). There is also strong potential for epithermalstyle gold, associated with altered porphyritic intrusives and dyke swarms (Porphyry). Furthermore, Axiom is well placed with additional advanced projects to the north and east of Chillagoe. These projects at OK Mines and Mount Molloy are targeting massive sulphide deposits, hosted in basaltic sequences. The Company has been advancing additional projects within the Chillagoe region, as well as evaluating other opportunities in the northern regions of Australia. Axiom maintains exploration in Australia as an ongoing focus and has conducted a review and standardisation of past exploration data from many areas. Axiom has also submitted a new application to consolidate all of the Exploration Leases into a new single EPM. Plans for 2013 Our advanced project planning for the 2013 field season is focused on: Progression of the detailed geological, assaying, metallurgical and engineering data on the Cardross Project to generate a maiden Resource Statement Drill testing of extensions to the higher grade zones at Mountain Maid, as well as additional scoping studies Comprehensive ongoing evaluation of all current Axiom exploration tenures utilising the XRF analysers, geophysical data and geological mapping extensions to areas of known mineralisation such as Mountain Maid, Split Rock and Cardross will be initially targeted, followed by systematic testing of all other prospects Approaching the cost-effective acquisition of other high-value, prospective exploration projects both through in-house development and/or via strategic alliances Disclaimer Statements in this document that are forwardlooking and involve numerous risks and uncertainties that could cause actual results to differ materially from expected results are based on the Company s current beliefs and assumptions regarding a large number of factors affecting its business. There can be no assurance that (i) the Company has correctly measured or identified all of the factors affecting its business or their extent or likely impact; (ii) the publicly available information with respect to these factors on which the Company s analysis is based is complete or accurate; (iii) the Company s analysis is correct; or (iv) the Company s strategy, which is based in part on this analysis, will be successful. Competent Person s Statement Geological information presented in this document is based on exploration results compiled by Mr Eamonn Dare. Mr Dare is a member of the Australasian Institute of Mining and Metallurgy and has sufficient experience relevant to the styles of mineralisation and types of deposits under consideration and to the activity, which he is undertaking to qualify as Competent Person in accordance with Clause 8 of the JORC Code. Mr Dare is a full time employee of Axiom Mining Ltd and consents to inclusion in this document of the matters based on his information in the form and context in which it appears. Annual Report 27

30 Tenement Schedule Table 2. Tenement Schedule Project/Tenement Area (km 2 ) Axiom Interest Notes SOLOMON ISLANDS QUEENSLAND VIETNAM Kolosori, Isabel PL-74/ % Injunction Bungusule, Isabel LOI M % Application & Injunction Arosi, Makira PL-06/ % Itina, Guadalcanal PL-78/ % Cardross ML % EPM % EPM % EPM % EPM % EPM Application % Consolidation of 4 EPM s Jessica EPM % OK Mines ML % Renewal Application ML % Renewal Application ML % Renewal Application ML % Renewal Application ML % Renewal Application EPM % Renewal Application Eden Vale EPM Application % Application Mt Molloy ML % EPM % White Hills EPM % Pinevale ML % Renewal Application Quang Binh MEL % Renewal Application Pu Sam Cap MEL % Free Carried MEL % Free Carried Quang Tri MEL % 28 Axiom Mining Limited

31 Tables of contents Corporate Governance Financial Report The Board and its Responsibilities 30 Independence 30 Nomination and Remuneration Committee 31 Audit, Risk and Compliance Committee 31 Review of Board Performance 31 Diversity 31 Securities Trading Disclosure 31 Continuous Disclosure 32 Identification and Management of Business Risk 32 Ethical Standards 32 Shareholder Communication 32 Risk Factors 32 Business Risks 32 General Risks 35 Directors Report 36 Directors Declaration 39 Independent Audit Report 40 Income Statements 42 Statements of Comprehensive Income 42 Balance Sheets 43 Statements of Changes in Equity 44 Cash Flow Statements 46 Notes to the Financial Statements Company Information Significant Accounting Policies Geographical Information Income Tax Loss Per Share Other Receivables Intercompany Receivables Investments in Subsidiaries Property, Plant and Equipment Mineral Exploration Expenditure Trade and Other Payables Borrowings Provisions and Contingent Liabilities Capital and Reserves Note to Cash Flow Statements Short Term Employee Benefits and Superannuation Commitments Commitments Auditor s Remuneration Director and Executive Disclosures Financial Risk Management and Fair Values Subsequent Events Significant Accounting Estimates and Judgements Possible Impact of Amendments, New Standards and Interpretations Issued but not yet Effective for the year ended 30 September 73 ASX Additional Information 74 Corporate Directory 76 Annual Report 29

32 Corporate Governance The Board of Directors of Axiom Mining Limited ( the Company ) is responsible for the corporate governance of the group. The Board guides and monitors the business and affairs of the Company on behalf of shareholders by whom it is elected and to whom it is accountable. Accordingly, the Board has adopted a Corporate Governance Charter, guided by the ASX Corporate Governance Council s Revised Corporate Governance Principle and Recommendations. In accordance with the Council s recommendations, this section contains specific information, and reports on the Company s adoption of the Council s best practice recommendations on an exception basis. Disclosure is made of any recommendations that have not been adopted by the Company, together with the reasons why they have not been adopted. The Company s corporate governance principles and policies are therefore structured as follows: Principle 1 Principle 2 Principle 3 Principle 4 Principle 5 Principle 6 Principle 7 Principle 8 Principle 9 Lay solid foundations for management oversight Structure the Board to add value Promote ethical and responsible decision making Safeguard integrity in financial reporting Make timely and balanced disclosure Respect the rights of Shareholders Recognise and manage risk Encourage enhanced performance Remunerate fairly and responsibly Principle 10 Recognise the legitimate interests of shareholders The corporate governance practices of the Company are compliant with the Council s best practice recommendations to the extent that they are relevant to the Company s business activities and the stage of its development as a listed exploration and mining company. The Board will consider on an ongoing basis its corporate governance procedures and whether they are sufficient given the Company s operations and size. The Board and its Responsibilities The Board is of a size which is satisfactory for its current stage of development and it schedules formal quarterly board meetings and other meetings as and when required having regard to the relevant business activities. For the purposes of the proper performance of their duties, Directors are entitled to seek independent professional advice at the Company s expense subject to having first advised the Chairman of the necessity to do so. The Directors stand for re-election by shareholders in accordance with the requirements of the Articles of Association on a three-year rotational basis. Independence Given the size and scope of the Company s operations the Board considers that it is appropriately structured to discharge its duties in a manner that is in the best interests of the Company and its shareholders from both a long-term strategic and day to day operations perspective, and to achieve the objectives of the Company. Furthermore, mechanisms are in place to ensure the integrity of the financial accounts. The Board will continue to monitor the effectiveness of its structure and will make any changes as are deemed desirable as the Company continues to grow. The Board notes that neither Mr Williams nor Mr Stuart are current or past executives of the Company, are not substantial shareholders and are therefore considered to be independent. Having regard to the Company s need to engage legal services to protect its Prospecting Licence in the Solomon Islands the Company has retained Kemp Strang Lawyers in Sydney in which Mr Williams was a partner until 31 December and is now a consultant to the firm. He has not and does not, personally supervise or undertake the legal work associated with this litigation. The remaining Board members do not consider that Mr Williams independence is affected by virtue of these matters. 30 Axiom Mining Limited

33 Nomination and Remuneration Committee The full Board considers those matters that would usually be the responsibility of a nomination committee. The Board considers that no efficiencies or other benefits would be gained by establishing a separate nomination committee at this stage of the development of the Company. Audit, Risk and Compliance Committee The composition of the Board is not suitable for the formation of separate sub-committees and these responsibilities are undertaken by the whole Board. The Company has developed an audit review process whereby Directors meet with the external auditor bi-annually and with management responsible for the finance functions of the Company as required to ensure the highest possible degree of the integrity of the Company s financial operations to prepare the relevant Financial Statements for the Company. The Board, acting in this role, has the primary responsibility to: 1. Oversee the existence and maintenance of internal controls and accounting systems; 2. Oversee the management of risk within the Company; 3. Oversee the financial reporting process; 4. Review the half year and full financial year Financial Statements and recommend them for approval by the Directors; 5. Review the performance of the external auditors and existing audit arrangements; 6. Ensure compliance with laws, regulations and other statutory or professional requirements and the Company s governance policies set out in the Corporate Governance Charter; 7. Recognise and respect the rights of shareholders and its obligations to all legitimate stakeholders. Review of Board Performance There is currently no formal process for performance evaluation of the Board, individual Directors or Chief Executive Officer. The Board has considered this aspect of governance over the past year and more recently, but considers that until the commencement of its mining operations was more imminent the matter would be deferred until the 2013 calendar year when the resolution of the Solomon Islands litigation is clearer and the timing of its mining operations more certain. Diversity The Company has reviewed the new recommendations on diversity introduced by the ASX Corporate Governance Council on 30 June As far as practical, given the current size, scope and requirements of the Company s operations in the locations in which it operates, the Company is committed to putting these recommendations into practice. Given the multinational scope of its operations, the Company will consider not only gender, but also ethnicity and cultural background in reporting its diversity performance. Securities Trading Disclosure The purpose of the Company s securities dealing policy is to create awareness of the legal prohibition on dealing in securities of the Company. The policy also aims to ensure that the Company s reputation and those of its employees and Directors is not adversely impacted by perceptions of dealing in the Company s securities at inappropriate times. It is the duty of each person to seek to avoid any such dealing at a time when persons are prohibited from dealing in the Company s securities and in any event each person is required to inform the Chairman before they intend dealing in the Company s securities and secure his consent to do so, unless it is proposed to do so in a period when it is otherwise permitted and the market is fully informed. A copy of the Trading Policy was released to the ASX on 24 December 2010 and is also available on the Company s website. Annual Report 31

34 Corporate Governance Continuous Disclosure The Company must comply with the continuous disclosure requirements of the ASX Listing Rules and Corporation Act, which requires it to disclose to the ASX any information concerning the Company that a reasonable person would expect to have a material effect on the price or value of the Company s securities unless certain exemptions from the requirements apply. To ensure it meets its continuous disclosure obligations, the Board itself, through the Chief Executive Officer, is responsible for determining and approving all continuous disclosure matters. Identification and Management of Business Risk The Board is responsible to identify, monitor and reduce the significant areas of potential business and legal risk of the Company. The Board continually reviews the risks associated with its exploration activities and also reviews and monitors the parameters under which such risks will be managed. Ethical Standards The Board recognises the need for Directors and employees to observe the highest standards of behaviour and business ethics when engaging in corporate activity especially in developing jurisdictions. The Company officers and employees are required to act in accordance with the law and with the highest ethical standards and in compliance with Australian and the laws of each country in which it operates. In addition to the Trading Policy, on joining the Board, the Directors are required to sign a director s disclosure statement. This sets out their obligations regarding disclosure of dealing in the Company s securities. Each quarter at formal Board meetings or other meetings when convened Directors are required to make disclosures of any matters which may have altered or where any matter to be discussed by the Board might give rise to a conflict of interest. Where a conflict of interest may arise the relevant Director(s) may be asked to leave the meeting to ensure full and frank discussion of the matter(s) under consideration for determination. Shareholder Communication The Board strives to ensure that shareholders are provided with sufficient information on a continual basis to assess the activities and performance of the Company and its Directors to enable shareholders to make well informed investment decisions. Information is communicated to shareholders through: quarterly, half-yearly and audited annual financial reports; annual and other general meetings convened for shareholder review and where necessary approval of Board proposals; continuous disclosure of material changes to the ASX for open access to the public, as set out in the Company s continuous disclosure policy; and the Company s website at where all ASX announcements, notices and financial reports are published as soon as possible after release to the ASX. The auditor is invited to attend the Annual General Meeting of shareholders. Risk Factors There are a number of risk factors that may affect the financial performance of the Company and the value of an investment in shares issued in the Company. While some of these risks can be minimised, some are outside the control of the Company. There are also specific risks associated with the Company s business and investment in the mineral exploration and mining industry and in the jurisdictions in which it operates including but not limited to sovereign risks. Business Risks Exploration The business of mineral exploration, project development and mining, by its nature, contains elements of significant risk with no guarantee of success. There is no assurance that exploration on any of the Company s projects described in this report, or on any other projects that may be acquired, will result in the discovery of a mineral deposit. If there is a discovery, it may not prove to be economically viable to exploit the discovery. 32 Axiom Mining Limited

35 General Mineral Operation Risks The business of the Company may be disrupted by a variety of risks and hazards, which are beyond the control of the Company, including sovereign or political risks, environmental hazards, industrial accidents, technical failures, labour disputes, unusual or unexpected rock formations, severe seismic activity, flooding and extended interruptions due to inclement or hazardous weather conditions, fire, explosions, customs and port delays. These risks and hazards could also result in damage to or destruction of mining facilities, personal injury, environmental damage, business interruption, monetary losses and possible legal liability. Development Capital Costs Should the Company be successful with exploration, the capital cost of the Company s future mine development could vary with changes in a variety of factors, including exchange rates which affect imported capital equipment prices, geological and technical conditions encountered during drilling and mine development, and the construction of new production facilities. A substantial development cost overrun could have a material adverse effect on the Company. At the current stage of development of the Company s operations, mine development and production related risks are low but this is expected to change over the next one to two years. Resource Estimates In this report and in future reporting by the Company, references to reserves and resources and their classifications, are in accordance with the Australasian Code for Reporting of Mineral Resources and Ore Reserves ( JORC Code ). Estimates are expressions of judgement based on knowledge, experience and industry practice. Estimates, which were valid when made, may change significantly when new information becomes available. In addition, resource estimates are necessarily imprecise and depend to some extent on interpretations, which may ultimately prove to be inaccurate. Should the Company encounter mineralisation different from that predicted by past drilling, sampling and similar examination, resource estimates may have to be adjusted. This adjustment could affect development and mining plans, which could adversely impact the Company. Title Rights There is no guarantee that any tenement applications or conversions in which the Company has a current or potential interest will be granted. Tenement applications may require the Company to commence negotiations with relevant government body, minister or official, landholder, and, in Australia, Vietnam and Solomon Islands, indigenous representative bodies to gain access to the underlying land. There is no guarantee that such negotiations will be successful or that having been successful the Company will not be challenged by third parties as it is currently in the Solomon Islands. Also, due to its exploration activities in Queensland, the Company must observe its duty of care under Aboriginal Cultural Heritage Act 2003 (Qld) to ensure that its activities do not harm Aboriginal cultural heritage. Price Volatility Most of the Company s revenues from any successful exploration and mine development will ultimately be derived from sale of metals. Consequently, the Company s expected earnings will be closely related to metal prices. Metal prices fluctuate and are affected by numerous factors beyond the control of the Company. These factors include world demand, forward selling by producers, and production cost levels in major metal-producing regions. Metal prices may also be affected by macro-economic factors such as expectations regarding inflation, interest rates, and global and regional demand for and supply of metals as well as global economic conditions. These factors may have an adverse effect on the Company s exploration, development and production activity as well as its ability to fund these activities. The Company will consider developing a suitable hedging strategy as and when appropriate. Annual Report 33

36 Corporate Governance Funding Requirements The Company s exploration and mining activities will require significant expenditure. The Company s ability to effectively implement its business strategy over time may depend in part on its ability to raise additional funds, either in the form of debt or equity. Any additional equity funding may dilute holdings of shareholders and any debt financing, if available, may involve restrictive covenants, which may limit the Company s operations and business strategy. Whilst the Board constantly reviews its capital requirements and expenditure there can be no assurance that the Company will be able to raise additional funding or that such funding will be on favourable terms. If adequate funds are not available on acceptable terms, the Company may not be able to take advantage of opportunities or otherwise respond to competitive pressures. This may have a material adverse effect on the Company s activities and the price of its shares. Dependence on Key Personnel The Company s success depends to a significant extent on key management personnel, as well as other management and technical personnel including those employed on a contractual basis. The loss of the services of certain personnel could have an adverse effect on the Company and its operations. The Board has implemented a long term incentive plan for senior management and Directors through a Performance Rights Plan which aligns the employee with the success of the Company and shareholder returns. Otherwise the Board is satisfied that the Company remunerates fairly and responsibly and where necessary independent remuneration advice is obtained. Dependence on Third Party Contractors The Company will be contracting third parties to provide surface exploration services and equipment in relation to its exploration activities. Failure or termination of a contract with those third parties at any time may result in significant delays in the Company s exploration program that may have a material effect on the Company. The Company will mitigate these risks through the use of multiple suppliers where feasible and by actively managing its supplier relationships and procurement policies. Environmental Regulations The Company s operations and projects are subject to the law and regulations of the jurisdictions in which it operates relating to environmental matters, including discharge of hazardous waste and materials. Although the Company endeavours to comply in all material respects with all applicable environmental laws and regulations, there are risks inherent in its activities, such as spills, leakages or other unforeseen circumstances, which could expose the Company to liability. The Company may require, and has obtained or will obtain, approvals from all relevant authorities to undertake prescribed exploration or mining activities. Failure to maintain such approvals may prevent the Company from undertaking such activities. The Company is unable to predict the effect of additional environmental laws and regulations which may be adopted in the future, including whether such laws or regulations would materially increase the Company s cost of doing business or affect its operations in any area. There can be no assurance that the implementation of new environmental laws and regulations or stricter enforcement policies would not oblige the Company to incur expenses and investments which could have a material adverse effect on the Company s business, financial condition or operational results. The cost and complexity of complying with applicable environmental laws and regulations in any relevant jurisdiction may prevent the Company from being able to develop mineral deposits. Insurance The Company intends to maintain adequate insurance over its operations within ranges of coverage that the Company understands to be consistent with industry practice and having regard to the nature of activities being conducted. However, insurance of all risks with mineral exploration, project development and production is not always possible. Accordingly, the Company may not be insured against all possible losses, either because of unavailability of cover or because the premiums may be excessive relative to benefits that would accrue. 34 Axiom Mining Limited

37 Sovereign Risk and Foreign Operations There are risks associated with operating internationally. There can be no guarantee that the government regulations in Australia, Hong Kong, Vietnam or Solomon Islands, in particular in relation to foreign investment, repatriation of foreign currency, taxation and the regulation of the mineral exploration and mining industry, will not be amended in the future to the detriment of the Company s business. Costs of compliance with laws and regulations in Australia, Hong Kong, Vietnam and Solomon Islands may vary from current estimates. The Company undertakes its activities in Vietnam and in Solomon Islands in conjunction with other local partners. There can be no guarantee that the Company will be able to enter into commercially satisfactory arrangements with other local partners for any future operations in Vietnam and/or Solomon Islands. The Company is incorporated in Hong Kong: changes in Hong Kong laws may have an adverse effect on non-hong Kong holders of shares. Reporting requirements of the Company in Hong Kong may impose onerous obligations on the Company. The Company also currently operates in Vietnam. Vietnam s economy is undergoing a transition from a planned to a more market-oriented economy. Although in recent years the Vietnamese government has implemented economic reforms and reduced state ownership, a substantial portion of productive assets in Vietnam are still owned by the government. In addition, the Vietnamese government continues to exercise significant control over Vietnam s economic growth through allocation of resources, control of foreign currency denominated obligations, setting of monetary policy and providing preferential treatment to particular industries or companies. The Company s future earnings could be affected if the Vietnamese government was to reverse recent trends and impose restrictions on the Company s business. Currency and Exchange Rate Risk Movements in currency exchange rates can be volatile. The Company s expenditure obligations for exploration in Vietnam are incurred predominantly in US dollars (USD) and Vietnamese dong (VND), in the Solomon Islands in Solomon Bolona dollars (SBD) and in Australia in Australian dollars (AUD). Currency risk may result in an exchange rate loss or gain to the Company, depending on the value movement between currencies. The Company has prepared its accounts denominated in AUD. For ASX reporting purposes, quarterly statements and accounts are provided in AUD. The return on equity and any dividends for Australian Shareholders may be exposed to fluctuations and volatility of the exchange rates among USD, AUD, SBD, and VND. General Risks Economic Conditions General economic conditions may affect interest rates, inflation rates and other economic variables. Movements in these factors may benefit or adversely affect the Company. Movement in general economic conditions may also affect companies with which the Company conducts its business, which may also affect the Company s earnings. Changes to Laws and Regulations The introduction of new policies, legislation or amendments to existing policies or legislation by governments or the interpretation of those laws as noted above could impact adversely on the assets, operations and ultimately financial performance of the Company. The Solomon Islands economy and political environment remains fragile. The Company is currently involved in litigation in respect of the Prospecting Licence it was granted on Isabel Island and whilst the Company is confident that its rights will be upheld, this cannot be guaranteed. Annual Report 35

38 Directors Report The Directors of the Company during the year and to the date of this report are: Name of Director Stephen R Williams Ryan Mount Neil F Stuart Special Responsibilities Non-Executive Chairman Executive Director and Chief Executive Officer Non-Executive Director As announced to the ASX on 14 March, the Company entered into a Share Purchase and Convertible Security Agreement dated 13 March (Funding Agreement) with Bergen Global Opportunity Fund, LP (Bergen). On 27 November, the Company and Bergen agreed to terminate the Funding Agreement by mutual consent and release each other from all further obligations under the Funding Agreement. Operating and Financial Review Results of Operations The consolidated loss from ordinary activities of the Company and its controlled entities for the year ended 30 September after income tax was 5,669,246 (: 8,133,138). The net loss of the Company for the year after income tax was 8,355,350 (: 14,794,754). Events Subsequent to Period Ended 30 September On 19 October, the Company announced a placement of shares at 0.03 each with a one for four attaching option to raise a total fund of 1,750,000. The attaching options have an exercise price of $0.03 and an expiry date of 30 September ,366,710 options have been exercised since reporting date raising 1,084,916 and resulting in the issue of a further 110,366,710 shares. 100,000 performance rights have been exercised since reporting date resulting in the issue of 100,000 shares. On 23 October, the Company s subsidiary, Axiom KB Limited, appeared in the Court of Appeal in Solomon Islands in respect of an appeal against the ruling on the preliminary questions in the High Court. The Court of Appeal expunged the High Court s answers to the preliminary questions and ordered that the whole matter proceed to an expedited trial. It was recently brought to the Company s attention by ASIC on the application of the Company for relief from certain requirements under sections 708AA (which provides for rights issues without disclosure under Part 6D.2 of the Corporations Act 2001 (Cth) (Corporations Act)) and 713 (which provides for the issue of a transaction specific prospectus with limited disclosures) of the Corporations Act and under Class Order 09/425 (which provides for share purchase plans without disclosure under Part 6D.2 of the Corporations Act), following suspension in trading of the Company s securities in August, that as a result of a previous suspension in trading of the Company s shares in excess of 5 trading days, the Company is unable to issue Cleansing Statements at the current time. Company Secretary As the Company is incorporated in Hong Kong it is a requirement under the Hong Kong Companies Ordinance to have a resident Company Secretary and Boacoh Secretarial Limited of Hong Kong act as Company Secretary for the Company. Boacoh Secretarial Limited is a Company owned by the partners of Boase Cohen & Collins Solicitors. Accountant and Local Agent As Axiom is registered in Australia it is required to appoint a Local Agent for receipt of notices from both the Australia Securities Exchange Limited and the Australian Securities and Investment Commission. Ms Valerie Valdez was appointed as Local Agent and Chief Financial Officer on 5 March. Principal Activities The principal activities of the Company and the Group during the year were mineral exploration and assessment of potential mining acquisition opportunities in Australia, Vietnam and Solomon Islands. No significant change in these activities occurred during the year. Property, Plant and Equipment Movements in property, plant and equipment of the Group are set out in Note 9 to the consolidated financial statements. Risk Management The Board of Directors is responsible for ensuring that risks, and also opportunities are identified on a timely basis and that activities are aligned with risks and opportunities identified with the Board of Directors. The Company believes that it is crucial for all Board members to be part of this process, and as such the Board of Directors has not established a separate risk management committee. 36 Axiom Mining Limited

39 The Board of Directors has a number of mechanisms in place to ensure that management s objectives and activities are aligned with risks identified by the Board of Directors. These include the following; Board approval of a strategic plan, which encompasses strategy statements designed to meet shareholders needs and manage business risks. Implementation of Board approved operating plans and budgets and Board monitoring of progress against these budgets. The Board of Directors will on a regular basis, identify likely risks and ways to mitigate such risks. Changes in the State of Affairs No changes to the state of affairs of the Group have occurred during the financial year. Dividends The Board of Directors do not recommend the payment of any dividend for the year. Share Capital During the year the Company issued 662,796,186 ordinary shares via placements, on exercise of performance rights, conversion of convertible shares and as payment for services. Details of the movements in share capital of the Company during the year are set out in Note 14(a) to the consolidated financial statements. Share Options and Performance Rights During the year no options of the Company to acquire ordinary shares were exercised. During the year, 63,730,581 options were issued and 31,000,002 expired. Under the Directors and Executives Performance Rights Plan (approved by shareholders on 30 July 2010), 10 million performance rights were exercised by Directors during the year, resulting in the issue of the same number of ordinary shares in the Company to those Directors. A further 100,000 performance rights were issued to employees and 1.5 million performance rights lapsed during the year. Likely Developments and Expected Results In the opinion of the Directors it may prejudice the interests of the Company to provide additional information in relation to the future developments and business strategies of the operations of the Company and the expected results of those operations in subsequent financial years. Environmental Regulation The Group is subject to significant environmental regulation in respect to its exploration activities. The Group aims to ensure the appropriate standard of environmental care is achieved, and in doing so, that it is aware of and is in compliance with all environmental legislation. The Directors of the Company are not aware of any breach of environmental legislation for the year under review. Indemnification of Officers and Auditors During the financial year, the Company has paid an insurance premium in respect of a contract insuring against liability of Directors and officers against claims brought against them individually or jointly while performing services for the Company, and against expenses relating thereto, in accordance with the Company s constitution. In accordance with commercial practice, the insurance prohibits disclosure of the amount of the premium and the nature and the amount of the liability covered. Directors Meetings During the year the Company held 4 meetings of Directors. The attendance of Directors at meetings of the Board of Directors were: Directors Meetings Directors A B Stephen R Williams 4 4 Ryan Mount 4 4 Neil F Stuart 4 4 Notes: A Number of meetings attended. B Number of meetings held during the time the Director held office during the year. Annual Report 37

40 Directors Report Directors Interest in Shares Except as disclosed in Note 19 to the financial statements, at no time during the year was the Company or any of its subsidiaries a party to any arrangement to enable the Directors of the Company to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate. Directors Interests in Contracts Except as disclosed in Note 19 to the financial statements, no contracts of significance to which the Company or any of its subsidiaries was a party, and in which Directors of the Company had a material interest, subsisted at the end of the year or at any time during the year. Auditors The Group s financial statements have been audited by Baker Tilly Hong Kong Limited Certified Public Accountants, who retire and being eligible offer themselves for re-appointment. Rothsay Chartered Accountants Sydney has also provided auditing services to the Company. Signed in accordance with a resolution of the Board of Directors. Stephen R Williams Chairman Dated at Sydney this 28 th November 38 Axiom Mining Limited

41 Directors Declaration The Directors of the Company declare that: The audited financial statements and notes and the additional disclosures included in the Directors report designated of the Company and of the consolidated entity have been prepared in accordance with the Hong Kong Companies Ordinance, including: i. giving a true and fair view of the Company s and consolidated entity s financial position as at 30 September and of their performance, for the year ended on that date; and ii. complying with applicable accounting standards; and iii. there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. This declaration is made in accordance with a resolution of the Board of Directors. Stephen R Williams Chairman Dated at Sydney this 28 th day of November Annual Report 39

42 Independent Audit Report to the members of Axiom Mining Limited Independent auditor s report to the shareholders of Axiom Mining Limited (Incorporated in Hong Kong with limited liability) We have audited the consolidated financial statements of Axiom Mining Limited (the company ) set out on pages 42 to 73, which comprise the consolidated and company balance sheets as at 30 September, and the consolidated and company income statements, the consolidated and company statements of comprehensive income, the consolidated and company statements of changes in equity, and the consolidated and company cash flow statements for the year then ended, and a summary of significant accounting policies and other explanatory information. Directors Responsibility for the Consolidated Financial Statements The directors of the company are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board and the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on the consolidated financial statements based on our audit. This report is made solely to you, as a body, in accordance with section 141 of the Hong Kong Companies Ordinance, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with International Standards on Auditing issued by International Federation of Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and true and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 40 Axiom Mining Limited

43 Independent auditor s report to the shareholders of Axiom Mining Limited (continued) (Incorporated in Hong Kong with limited liability) Opinion In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the company and of the group as at 30 September and of the company s and the group s loss and cash flows for the year then ended in accordance with International Financial Reporting Standards and have been properly prepared in accordance with the Hong Kong Companies Ordinance. Without qualifying our opinion, we draw attention to Note 2(b) to the consolidated financial statements which indicates that if the group and the company are unable to raise additional equity or are unable to farm out or dispose of its exploration assets, there is significant uncertainty as to whether the group and the company can continue as a going concern. Other Matter The group entered into a lease over land in Solomon Islands in the year ended 30 September. The directors recognised the lease as finance lease in the consolidated financial statements for the year ended 30 September. We expressed a qualified opinion on the consolidated financial statements for the year ended 30 September on the basis that the group s records available to us indicated that the lease should be an operating lease. During our audit on the consolidated financial statements for the year ended 30 September, additional information is made available to us by the group which substantiates the treatment as a finance lease. Accordingly, the comparative figures in these consolidated financial statements are fairly stated and our opinion on the consolidated financial statements for the year ended 30 September is not qualified in this respect. Baker Tilly Hong Kong Limited Certified Public Accountants Hong Kong, 28 November Andrew David Ross Practising certificate number P01183 Annual Report 41

44 Income Statements for the year ended 30 September (Expressed in Australian dollars) Group Company Note Revenue Interest income 2,484 22,930 2,436 22,930 Sundry income 17,378 11,844 9,421 Total revenue from ordinary activities 19,862 34,774 2,436 32,351 Depreciation and amortisation 9 (63,215) (62,432) (1,272) (22,500) Salaries, Directors and employee benefits expense (1,962,955) (988,403) (1,713,760) (893,250) Superannuation (149,869) (58,845) (146,819) (58,845) ASX fees (50,840) (58,597) (50,840) (58,597) Audit fees (71,584) (12,275) (53,751) (12,275) Provision for non-recovery of intercompany receivables 7 (3,793,275) (6,444,170) Impairment loss on investments in subsidiaries (141) (4,974,493) Exploration costs 10 (4,402,411) (34,196) Foreign exchange gain/(loss) 652 (65,276) 3,230 (65,276) Administration, accounting, secretarial and other costs (2,736,407) (1,348,468) (2,076,642) (1,174,317) Rent and occupancy costs (186,160) (128,150) (57,001) (46,131) Share based payments 14(b)(v) (441,190) (1,043,055) (441,190) (1,043,055) Interest expense (27,540) (26,325) Loss before income tax (5,669,246) (8,133,138) (8,355,350) (14,794,754) Income tax 4 Loss for the year (5,669,246) (8,133,138) (8,355,350) (14,794,754) Attributable to: Owners of the Company (4,910,746) (8,133,138) (8,355,350) (14,794,754) Non-controlling interests (758,500) (5,669,246) (8,133,138) (8,355,350) (14,794,754) Loss per share (cent) Basic and diluted 5 (0.40) (0.83) Statements of Comprehensive Income for the year ended 30 September (Expressed in Australian dollars) Group Company Note Loss for the year (5,669,246) (8,133,138) (8,355,350) (14,794,754) Other comprehensive (loss)/income for the year Exchange differences on translation of financial statements of overseas subsidiaries, net of tax (329,142) 404, ,838 Total comprehensive loss for the year (5,998,388) (7,728,722) (8,355,350) (14,611,916) Attributable to: Owners of the Company (5,239,888) (7,728,722) (8,355,350) (14,611,916) Non-controlling interests (758,500) (5,998,388) (7,728,722) (8,355,350) (14,611,916) The Notes on pages 47 to 73 form part of these financial statements. 42 Axiom Mining Limited

45 Balance Sheets as at 30 September (Expressed in Australian dollars) Group Company Note Current assets Cash and cash equivalents 808,596 54, ,527 20,650 Other receivables 6 369, ,131 93,850 54,389 Total current assets 1,178, , ,377 75,039 Non-current assets Intercompany receivables 7 Investments in subsidiaries 8 Property, plant and equipment 9 1,873,528 1,610,752 4,044 Mineral exploration expenditure 10 23,045,514 20,573, , ,182 Total non-current assets 24,919,042 22,183, , ,182 Total assets 26,097,247 22,552,955 1,408, ,221 Current liabilities Trade and other payables 11 2,350,423 1,013,695 1,983, ,920 Borrowings ,855 1,000, ,855 1,000,000 Capitalised lease liabilities 9 123, ,358 Provisions , , , ,954 Total current liabilities 2,768,981 2,434,007 2,277,216 2,078,874 Non-current liabilities Capitalised lease liabilities 9 1,470,156 1,184,840 Total non-current liabilities 1,470,156 1,184,840 Total liabilities 4,239,137 3,618,847 2,277,216 2,078,874 NET ASSETS/(LIABILITIES) 21,858,110 18,934,108 (868,613) (1,435,653) CAPITAL AND RESERVES Share capital 14(a) 17,353,837 10,884,864 17,353,837 10,884,864 Reserves 14(b) 49,880,811 47,756,536 34,896,178 32,442,761 Accumulated losses (44,618,038) (39,707,292) (53,118,628) (44,763,278) Equity attributable to owners of the Company 22,616,610 18,934,108 (868,613) (1,435,653) Non-controlling interests (758,500) TOTAL EQUITY/(DEFICIT) 21,858,110 18,934,108 (868,613) (1,435,653) Approved and authorised for issue by the Board of Directors on 28 November. Stephen R Williams Director Ryan Mount Director The Notes on pages 47 to 73 form part of these financial statements. Annual Report 43

46 Statements of Changes in Equity for the year ended 30 September (Expressed in Australian dollars) Share capital Share Exchange premium reserve Share based payment reserve Group Asset revaluation Accumulated reserve losses Attributable to owners of the Company Noncontrolling interests Total At 1 October 2010 (restated) 9,185,045 28,871,056 (1,054,242) 303,852 15,114,285 (31,945,221) 20,474,775 20,474,775 Shares issued during the year 1,648,540 3,496,460 5,145,000 5,145,000 Equity-settled share-based settlement 1,043,055 1,043,055 1,043,055 Shares issued as payment for services 30, ,775 (165,500) Exercise and lapse of performance rights 20, ,446 (854,067) 371,067 Loss for the year (8,133,138) (8,133,138) (8,133,138) Other comprehensive income 404, , ,416 At 30 September 10,884,864 32,964,737 (649,826) 327,340 15,114,285 (39,707,292) 18,934,108 18,934,108 At 1 October 10,884,864 32,964,737 (649,826) 327,340 15,114,285 (39,707,292) 18,934,108 18,934,108 Shares issued during the year 6,312,751 2,168,449 8,481,200 8,481,200 Equity-settled share-based settlement 469,990 (28,800) 441, ,190 Shares issued as payment for services 54,368 86,649 (141,017) Exercise and lapse of performance rights 101, ,146 (268,800) 28,800 Loss for the year (4,910,746) (4,910,746) (758,500) (5,669,246) Other comprehensive loss (329,142) (329,142) (329,142) At 30 September 17,353,837 35,357,981 (978,968) 387,513 15,114,285 (44,618,038) 22,616,610 (758,500) 21,858,110 The Notes on pages 47 to 73 form part of these financial statements. 44 Axiom Mining Limited

47 Company Share capital Share premium Exchange reserve Share based payment reserve Asset revaluation reserve Accumulated losses Total At 1 October 2010 (restated) 9,185,045 28,871,056 (1,116,048) 303,852 83,894 (30,339,591) 6,988,208 Shares issued during the year 1,648,540 3,496,460 5,145,000 Equity-settled share-based settlement 1,043,055 1,043,055 Shares issued as payment for services 30, ,775 (165,500) Exercise and lapse of performance rights 20, ,446 (854,067) 371,067 Loss for the year (14,794,754) (14,794,754) Other comprehensive income 182, ,838 At 30 September 10,884,864 32,964,737 (933,210) 327,340 83,894 (44,763,278) (1,435,653) At 1 October 10,884,864 32,964,737 (933,210) 327,340 83,894 (44,763,278) (1,435,653) Shares issued during the year 6,312,751 2,168,449 8,481,200 Equity-settled share-based settlement 469,990 (28,800) 441,190 Shares issued as payment for services 54,368 86,649 (141,017) Exercise and lapse of performance rights 101, ,146 (268,800) 28,800 Loss for the year (8,355,350) (8,355,350) At 30 September 17,353,837 35,357,981 (933,210) 387,513 83,894 (53,118,628) (868,613) The Notes on pages 47 to 73 form part of these financial statements. Annual Report 45

48 Cash Flow Statements for the year ended 30 September (Expressed in Australian dollars) Group Company Note Cash Flows from Operating Activities Payments to suppliers and employees (5,137,458) (6,943,732) (4,154,699) (2,407,473) Interest received 2,484 22,930 2,436 22,930 Sundry income 17,378 11,844 9,421 Net cash used in operating activities 15(a) (5,117,596) (6,908,958) (4,152,263) (2,375,122) Cash Flows from Investing Activities Purchase of property, plant and equipment (325,991) (115,177) (5,316) Mineral exploration expenditure (2,472,448) Loans to subsidiaries (3,793,274) (4,675,959) Net cash used in investing activities (2,798,439) (115,177) (3,798,590) (4,675,959) Cash Flows from Financing Activities Interest paid (27,540) (26,325) Proceeds from issue of ordinary shares 8,751,200 5,145,000 8,751,200 5,145,000 Proceeds from non-interest bearing borrowings (52,145) 1,000,000 (52,145) 1,000,000 Net cash generated from financing activities 8,671,515 6,145,000 8,672,730 6,145,000 Net increase/(decrease) in cash and cash equivalents 755,480 (879,135) 721,877 (906,081) Cash and cash equivalents at 1 October / , ,809 20, ,861 Effect of exchange rate changes (890) 308, ,870 Cash and cash equivalents at 30 September / 808,596 54, ,527 20,650 The Notes on pages 47 to 73 form part of these financial statements. 46 Axiom Mining Limited

49 Notes to the Financial Statements Expressed in Australian dollars 1. Company Information Axiom Mining Limited (the Company ) is a Company incorporated in Hong Kong and has its registered office and principal place of business at Dominion Centre, Queen s Road East, Hong Kong and Level 11, 1 Chifley Square, Sydney, Australia respectively. The Company s shares are listed on the Australian Securities Exchange. The Company and its subsidiaries (the Group ) is principally engaged in mineral exploration in Australia, Solomon Islands and Vietnam. 2. Significant Accounting Policies a. Statement of Compliance The financial statements constitute a general-purpose financial report, which have been prepared in accordance with Australian Accounting Standards (AASBs) (including Australian Accounting Interpretations) adopted by the Australian Accounting Standards Board (AASB) and the Hong Kong Companies Ordinance. The financial statements also comply with International Financial Reporting Standards (IFRSs) and interpretations adopted by the International Accounting Standards Board ( IASB ). A summary of the significant accounting policies adopted by the Group is set out below. The IASB has issued certain new and revised IFRSs that are first effective or available for early adoption for the current accounting period of the Group and of the Company. There have been no significant changes to the accounting policies applied in these financial statements as a result of these developments. The Group has not applied any new standard or implementation that is not yet effective for the current accounting period (see Note 23). b. Basis of Preparation of the Financial Statements The financial statements have been prepared under the historical cost basis except that the property, plant and equipment are stated at their revalued amount, being the fair value at the date of revaluation as explained in the accounting policy set out in Note 2(d). The financial statements are presented in Australian dollars ( ) which is also the functional currency of the Company. The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Judgements made by management in the application of IFRSs that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are disclosed in Note 22. In preparing the financial statements, the Directors consider that the going concern basis for preparation of the financial statements for the Group and the Company is appropriate and recognise that additional funding is required to ensure that the Group and the Company can continue its operations for the next twelve months. This basis has been determined after consideration of the following factors: the 7.5 million funding agreement with Bergen Global Opportunity Fund, LP announced on 14 March. The agreement with Bergen provides the Group and the Company with 300,000 per month in capital over 24 months in exchange for shares in the Company; the ability to raise additional share capital by share placements, options or a rights issue; the ability to farm out all or part of its exploration projects; and the ability to sell particular exploration projects. Accordingly, the Directors are confident in the ability of the Group and the Company to successfully secure sufficient cash inflows to enable it to continue as a going concern and that it is appropriate to adopt that basis of accounting in the preparation of the financial statements. Annual Report 47

50 Notes to the Consolidated Financial Statements Expressed in Australian dollars 2. Significant Accounting Policies (continued) c. Basis of Consolidation The consolidated financial statements include the financial statements of the Company and its subsidiaries made up to 30 September each year. Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances and transactions and any unrealised profits arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment. Non-controlling interests represent the equity in a subsidiary not attributable directly or indirectly to the Company, and in respect of which the Group has not agreed any additional terms with the holders of those interests which would result in the Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. For each business combination, the Group can elect to measure any non-controlling interests either at fair value or at their proportionate share of the subsidiary s net identifiable assets. Non-controlling interests are presented in the consolidated balance sheet within equity, separately from equity attributable to the owners of the Company. Non-controlling interests in the results of the Group are presented on the face of the consolidated income statement and the consolidated statement of comprehensive income as an allocation of the total profit or loss and total comprehensive income for the year between non-controlling interests and the equity shareholders of the Company. d. Property, Plant and Equipment Property, plant and equipment are stated in the balance sheet at cost or revaluation less accumulated depreciation and impairment losses (see Note 2(g)(iii)). Gains or losses arising from the retirement or disposal of an item of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in profit or loss on the date of retirement or disposal. Any related revaluation surplus is transferred from the revaluation reserve to accumulated losses. Depreciation is calculated to write off the cost or revaluation of items of property, plant and equipment, less their estimated residual value, if any, using the straight line method over their estimated useful lives. The principal annual rates used for this purpose are as follows: Leasehold property over the lease term Plant and equipment 20% 33% Both the useful life of an asset and its residual value, if any, are reviewed annually. e. Mineral Exploration Expenditure Mineral exploration expenditure comprise costs which are directly attributable to: researching and analysing existing exploration data; conducting geological studies, exploratory drilling and sampling; examining and testing extraction and treatment methods; and compiling prefeasibility and feasibility studies. Mineral exploration expenses also includes the costs incurred in the entry premiums paid to gain access to areas of interest and amounts payable to third parties to acquire interests in existing projects. Mineral exploration expenditure is capitalised if the project is technically and commercially feasible and the Group has sufficient resources and the intention to complete the project. If a project does not prove viable, all irrecoverable costs associated with the project are expensed in profit or loss. Capitalised exploration and evaluation expenditures are stated in the statement of financial position at cost less accumulated amortisation and impairment losses (see Note 2(g)(ii)) In the Company s balance sheet, an investment in a subsidiary are stated at cost less any impairment losses (see Note 2(g)(iii)), unless the investment is classified as held for sale (or included in a disposal Group that is classified as held for sale). 48 Axiom Mining Limited

51 f. Leases An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Group determines that the arrangement conveys a right to a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement regardless of whether the arrangement takes the legal form of a lease. Assets that are held by the Group under leases which transfer to the Group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the Group are classified as operating leases. Where the Group has the use of assets held under operating leases, payments made under the leases are charged to profit or loss in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognised in profit or loss as an integral part of the aggregate net lease payments made. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred. g. Impairment of Assets i. Impairment of investments in equity securities and trade and other receivables Investments in equity securities and other current and non-current receivables that are stated at cost or amortised cost are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. Objective evidence of impairment includes observable data that comes to the attention of the Group about one or more of the following loss events: significant financial difficulty of the debtor; a breach of contract, such as a default or delinquency in interest or principal payments; it becoming probable that the debtor will enter bankruptcy or other financial reorganisation; and significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor. If any such evidence exists, any impairment loss is determined and recognised as follows: For unquoted equity securities carried at cost, the impairment loss is measured as the difference between the carrying amount of the financial asset and the estimated future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of discounting is material. Impairment losses for equity securities carried at costs are not reversed. For trade and other current receivables, the impairment loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the financial asset s original effective interest rate (i.e. the effective interest rate computed at initial recognition of these assets), where the effect of discounting is material. This assessment is made collectively where financial assets carried at amortised cost share similar risk characteristics, such as similar past due status, and have not been individually assessed as impaired. Future cash flows for financial assets which are assessed for impairment collectively are based on historical loss experience for assets with credit risk characteristics similar to the collective Group. If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognised, the impairment loss is reversed through profit or loss. A reversal of an impairment loss shall not result in the asset s carrying amount exceeding that which would have been determined had no impairment loss been recognised in prior years. Impairment losses are written off against the corresponding assets directly, except for impairment losses recognised in respect of trade and other receivables, whose recovery is considered doubtful but not remote. In this case, the impairment losses for doubtful debts are recorded using an allowance account. When the Group is satisfied that recovery is remote, the amount considered irrecoverable is written off against trade and other receivables directly and any amounts held in the allowance account relating to that debt are reversed. Subsequent recoveries of amounts previously charged to the allowance account are reversed against the allowance account. Other changes in the allowance account and subsequent recoveries of amounts previously written off directly are recognised in profit or loss. Annual Report 49

52 Notes to the Consolidated Financial Statements Expressed in Australian dollars 2. Significant Accounting Policies (continued) ii. Impairment of mineral exploration expenditure The carrying amount of the mineral exploration expenditure is reviewed annually and adjusted for impairment whenever one of the following events or changes in circumstances indicates that the carrying amount may not be recoverable: The period for which the Group has the right to explore in the specific area has expired during the period or will expire in the near future, and is not expected to be renewed; Substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted nor planned. Exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the Group has decided to discontinue such activities in the specific area; or Sufficient data exists to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the mineral exploration expenditure is unlikely to be recovered in full from successful development or by sale. An impairment loss is recognised in profit or loss whenever the carrying amount of an asset exceeds its recoverable amount. iii. Impairment of other assets Internal and external sources of information are reviewed at each balance sheet date to identify indications that the following assets may be impaired or an impairment loss previously recognised no longer exists or may have decreased: property, plant and equipment; and investments in subsidiaries. If any such indication exists, the asset s recoverable amount is estimated. Calculation of recoverable amount The recoverable amount of an asset is the greater of its net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest Group of assets that generates cash inflows independently (i.e. a cash-generating unit). Recognition of impairment losses An impairment loss is recognised in profit or loss whenever the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated to reduce the carrying amount of assets in the unit (or Group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs to sell, or value in use, if determinable. Reversal of impairment losses An impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. A reversal of an impairment loss is limited to the asset s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognised. h. Other Receivables Other receivables are initially recognised at fair value and thereafter stated at amortised cost less allowance for impairment of doubtful debts (see Note 2(g)(i)), except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less allowance for impairment of doubtful debts. i. Trade and Other Payables Trade and other payables are initially recognised at fair value and are subsequently stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost. 50 Axiom Mining Limited

53 j. Cash and Cash Equivalents Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. Bank overdrafts that are repayable on demand and form an integral part of the Group s cash management are also included as a component of cash and cash equivalents for the purpose of the cash flow statement. k. Employee Benefits Salaries, annual bonuses, paid annual leave, contributions to defined contribution retirement plans and the cost of non-monetary benefits are accrued in the year in which the associated services are rendered by employees. Where payment or settlement is defined and the effect would be material, these amounts are stated at their present values. Superannuation is paid in accordance with applicable local government legislation. l. Share-Based Payments The fair value of share options granted to employees is recognised as an employee cost with a corresponding increase in a reserve within equity. The fair value of shares granted to service providers is recognised as an expense. The fair value is measured at grant date using the binomial lattice model, taking into account the terms and conditions upon which the options were granted. Where the employees have to meet vesting conditions before becoming unconditionally entitled to the options, the total estimated fair value of the options is spread over the vesting period, taking into account the probability that the options will vest. During the vesting period, the number of share options that is expected to vest is reviewed. Any adjustment to the cumulative fair value recognised in prior years is charged/credited to the profit or loss for the year of the review, unless the original employee expenses qualify for recognition as an asset, with a corresponding adjustment to the reserve. On vesting date, the amount recognised as an expense is adjusted to reflect the actual number of options that vest (with a corresponding adjustment to the reserve) except where forfeiture is only due to not achieving vesting conditions that relate to the market price of the Company s shares. The equity amount is recognised in the reserve until either the option is exercised (when it is transferred to the share premium account) or the option expires (when it is released directly to accumulated losses). m. Income Tax Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in profit or loss except to the extent that they relate to items recognised in other comprehensive income or directly in equity, in which case the relevant amount is taken to other comprehensive income or directly to equity, respectively. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits. Apart from differences which arise on initial recognition of assets and liabilities, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. The amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities are not discounted. n. Goods and Services Tax (GST) Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expenses. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as a current asset or liability in the balance sheet. Cash flows are included in the cash flow statement on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the taxation authority are classified as operating cash flows. Annual Report 51

54 Notes to the Consolidated Financial Statements Expressed in Australian dollars 2. Significant Accounting Policies (continued) o. Provisions and Contingent Liabilities Provisions are recognised for liabilities of uncertain timing or amount when the Group or the Company has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation. Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote. p. Revenue Recognition Provided that it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in profit or loss as follows: Interest income is recognised as it accrues using the effective interest method. Sundry income is recognised at the fair value of the consideration received or receivable. q. Translation of Foreign Currencies Foreign currency transactions during the year are translated at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the balance sheet date. Exchange gains and losses are recognised in profit or loss. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transaction dates. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated using the foreign exchange rates ruling at the dates the fair value was determined. The results of foreign operations are translated into Australian dollars at the exchange rates approximating the foreign exchange rates ruling at the dates of the transactions. Balance sheet items are translated into Australian dollars at the foreign exchange rates ruling at the balance sheet date. The resulting exchange differences are recognised directly in other comprehensive income and accumulated separately in equity in the exchange reserve. On disposal of a foreign operation, the cumulative amount of the exchange differences recognised in equity which relate to that foreign operation is included in the calculation of the profit or loss on disposal. r. Related Parties a. A person or a close member of that person s family is related to the Group if that person: i. has control or joint control over the Group; ii. has significant influence over the Group; or iii. is a member of the key management personnel of the Group or of the Group s parent. b. An entity is related to the Group if any of the following conditions applies: i. The entity and the Group are members of the same Group (which means that each parent, subsidiary and fellow subsidiary is related to the others). ii. One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a Group of which the other entity is a member). iii. Both entities are joint ventures of the same third party. iv. One entity is a joint venture of a third entity and the other entity is an associate of the third entity. v. The entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group. vi. The entity is controlled or jointly controlled by a person identified in (A). vii. A person identified in (A)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity). Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity. 52 Axiom Mining Limited

55 s. Earnings Per Share The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to owners of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted EPS is determined by adjusting the profit or loss attributable to owners and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to. t. Segmental Reporting Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the financial information provided regularly to the Group s most senior executive management for the purposes of allocated resources to, and assessing the performance of, the Group s various lines of business and geographical locations. Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the type or class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory environment. Operating segments which are not individually material may be aggregated if they share a majority of these criteria. u. Convertible Notes Convertible notes which do not contain an equity component are accounted for as follows: At initial recognition the derivative component of the convertible notes is measured at fair value and presented as part of derivative financial instruments (see Note 2(v)). Any excess of proceeds over the amount initially recognised as the derivative component is recognised as the liability component. Transaction costs that relate to the issue of the convertible note are allocated to the liability and derivative components in proportion to the allocation of proceeds. The portion of the transaction costs relating the liability component is recognised initially as part of the liability. The portion relating to the derivative component is recognised immediately in profit or loss. The derivative component is subsequently re-measured in accordance with Note 2(v). The liability component is subsequently carried at amortised cost. The interest expense recognised in profit or loss on the liability component is calculated using the effective interest method. If the note is converted, the carrying amounts of the derivative and liability components are transferred to share capital and share premium as consideration for the shares issued. If the note is redeemed, any difference between the amount paid and the carrying amounts of both components is recognised in profit or loss. v. Derivative Financial Instruments Derivative financial instruments are recognised initially at fair value. At the end of each reporting period the fair value is remeasured. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss. 3. Geographical Information The Group is principally engaged only in mineral exploration in Vietnam, Australia and the Solomon Islands and as such has only one reportable business segment. The following table sets out the geographical location of the Group s specified non-current assets. Specified non-current assets include property, plant and equipment, leasehold property and capitalised exploration costs. Australia Group Group Vietnam Solomon Islands Total Australia Vietnam Solomon Islands Specified Net Assets 21,649, ,604 2,790,385 24,919,042 20,573,066 4,829 1,605,923 22,183,818 Total Revenue 11,054 8,808 19,862 34,774 34,774 Total Annual Report 53

56 Notes to the Consolidated Financial Statements Expressed in Australian dollars 4. Income Tax a. Income Tax Expense Provision for Hong Kong Profits Tax is deemed unnecessary as the Group does not have any business carried out in Hong Kong and is therefore not subject to Hong Kong taxation. The prima facie tax, using tax rates applicable in Vietnam, Solomon Islands and Australia, on the operation does not differ from the income tax provided in the consolidated financial statements. b. Deferred Tax Deferred tax asset arising from tax losses are not brought to account at balance sheet date as realisation of the benefit is not regarded as virtually certain. No provision for deferred taxation has been made as there were no material temporary differences at the balance sheet date. The benefit for tax losses will only be obtained if: i. Future assessable income is derived of a nature and of an amount sufficient to enable the benefit to be realised; ii. The conditions for deductibility imposed by tax legislation continue to be complied with; and iii. No changes in tax legislation adversely affect the Group in realising the benefit. 5. Loss Per Share a. Basic Loss Per Share The calculation of basic loss per share is based on the loss attributable to owners of the Company of 4,910,746 (: 8,133,138) and the weighted average number of 1,232,015,808 ordinary shares (: 978,012,462 shares) in issue during the year, calculated as follows: Weighted average number of ordinary shares Issued ordinary shares at 1 October (Note 14(a)) 1,057,776, ,918,339 Effect of placement of shares 116,162,024 43,240,530 Effect of shares issued as payment for services 2,796,249 1,402,740 Effect of issues to employees 102, ,575 Effect of issues under share purchase plan and conversion of convertible notes 51,479,452 39,178,114 Effect of exercise of performance rights 3,698,630 6,156,164 Weighted average number of ordinary shares at 30 September 1,232,015, ,012,462 b. Diluted Loss Per Share The diluted loss per share is the same as the basic loss per share as the exercise of the share option and the conversion of convertible notes would result in a decrease in loss per share. 6. Other Receivables Group Company Other receivables 369, ,131 93,850 54,389 Terms and Conditions Other receivables comprise sundry debtors and prepayments. 54 Axiom Mining Limited

57 Sundry debtors are non-interest bearing and have repayment terms between 30 to 90 days. 7. Intercompany Receivables Intercompany receivables are non-interest bearing and have no fixed terms of repayment. At 30 September, the Company had a gross intercompany receivable of 10,308,838 (: 6,515,563). A provision has been made against the whole of this amount as the subsidiary companies currently have no ability to repay the amounts. 8. Investments in Subsidiaries Group Company Unlisted shares, at cost 4,999,959 4,979,959 Less: Provision for impairment loss (4,999,959) (4,979,959) As at 30 September, the Directors determined all investments in the subsidiaries of $4,999,959 (: $4,979,959) to be impaired Details of the subsidiaries are as follows: Percentage of equity interest held by the Group Investment cost Name of subsidiaries Place of incorporation % % Axiom Vietnam JSC Vietnam Axiom Nickel Pty Ltd Australia Axiom Nickel (SI) Ltd Solomon Islands Axiom KB Ltd Solomon Islands Azzu Mining Ltd. British Virgin Islands Guadalcanal Resources Limited Solomon Islands 93 20,000 Laos Resources Ltd. British Virgin Islands Ozmin Resources Pty Ltd Australia ,974,493 4,974,493 South Pacific Minerals Limited Solomon Islands 100 Vietnam Resources Corporation Pty Ltd. Australia ,382 5,382 Vietnam Resources Corporation (VN Holdings) Pty Ltd. Australia Vietnam Resources Corporation (QB) Pty Ltd. Australia VRC Quangtri Pty Ltd. Australia ,999,959 4,979,959 A 93% stake in Guadalcanal Resources Limited, which is dormant, was acquired on 25 June and South Pacific Minerals Limited was formed on 16 March in relation to the Guadalcanal and Makira projects respectively. Annual Report 55

58 Notes to the Consolidated Financial Statements Expressed in Australian dollars The principal activity of Axiom Vietnam JSC, Axiom KB Ltd and Ozmin Resources Pty Ltd is mineral exploration. Azzu Mining Ltd, Laos Resources Ltd and Guadalcanal Resources Ltd are dormant, and the other companies are intermediary holding companies. The companies shown above are audited or reviewed by firms other than Baker Tilly Hong Kong Limited. 9. Property, Plant and Equipment Group Leasehold Leasehold improvements Plant & Equipment Total Cost/revaluation At 1 October ,491 61,491 Additions 1,501, ,373 1,673,184 Disposals (61,491) (61,491) At 30 September and 1 October 1,501, ,373 1,673,184 Additions 151, , ,991 At 30 September 1,501, , ,425 1,999,175 Accumulated depreciation and amortisation At 1 October ,963 56,963 Provided for the year 17,521 44,911 62,432 Written back on disposals (56,963) (56,963) At 30 September and 1 October 17,521 44,911 62,432 Provided for the year 30,036 33,179 63,215 At 30 September 47,557 78, ,647 Net carrying amount At 30 September 1,454, , ,335 1,873,528 At 30 September 1,484, ,462 1,610, Axiom Mining Limited

59 Company Plant & Equipment Cost At 1 October ,519 Additions 17,972 Disposals (61,491) At 30 September and 1 October Additions 5,316 At 30 September 5,316 Accumulated depreciation and amortisation At 1 October ,991 Provided for the year 22,500 Written back on disposals (61,491) At 30 September and 1 October Provided for the year 1,272 At 30 September 1,272 Net carrying amount At 30 September 4,044 At 30 September Leased Assets Leasehold land comprises land where the Group is a lessee under a finance lease. On 22 February the Group through its subsidiary Axiom KB Limited, entered into a long term lease over land on Santa Isabel Island in the Solomon Islands. As at 30 September, the Group and the Company had obligations under the finance lease as follows: Present value of the minimum lease payments Total minimum lease payments Group Present value of the minimum lease payments Total minimum lease payments Within 1 year 123, , , ,872 After 1 year but within 5 years 389, , , ,489 After 5 years 1,080,809 6,650, ,986 6,688,159 1,470,156 7,265,503 1,184,840 7,299,648 1,593,649 7,419,270 1,320,198 7,452,520 Less: total future interest expenses (5,825,621) (6,132,322) Present value of lease obligations 1,593,649 1,320,198 Annual Report 57

60 Notes to the Consolidated Financial Statements Expressed in Australian dollars 10. Mineral Exploration Expenditure Exploration, evaluation and development costs carried forward in respect of mining areas of interest: Group Company Carrying amount at 1 October 20,573,066 20,568, , ,182 Exploration costs 2,472,448 4,407,295 34,196 Exploration costs expensed (4,402,411) (34,196) Carrying amount at 30 September 23,045,514 20,573, , ,182 Mineral Exploration Projects Axiom Vietnam JSC was granted a Mineral Exploration Licence in the Quang Tri province Vietnam on 28 June to explore for gold, copper and other minerals. Axiom KB Limited has a prospecting licence (Kolosori project) granted on 15 April on Isabel Island in the Solomon Islands to explore for nickel, cobalt and other minerals. Exploration activities are currently subject to a court ordered injunction. South Pacific Minerals Limited was granted a prospecting licence (Arosi project) on 21 June to explore for gold, copper and other minerals in Makira Province, Solomon Islands. Guadalcanal Resources Limited has a prospecting licence (Itina project) to explore for copper, gold, and other minerals. Ozmin Resources Pty Ltd holds 9 exploration permits and 3 mining leases to explore for gold, silver, copper and other minerals. 11. Trade and Other Payables Group Company Trade payables 1,350,423 1,013, , ,920 Prepayment of shares 1,000,000 1,000,000 2,350,423 1,013,695 1,983, ,920 Terms and Conditions Trade and other payables comprise sundry creditors. Sundry creditors have repayment terms between 30 to 90 days. All of the trade and other payables are expected to be settled or recognised as an expense within one year or are repayable on demand. Prepayment of Shares $900,000 of the prepayment of shares relates to funds received from related parties and sophisticated and professional investors for share placements made, but not yet issued. A portion of these shares were issued on 2 October with the balance issued on 19 October upon gaining shareholder approval at the Extraordinary General Meeting (EGM). $100,000 of the prepayment of shares relates to the fifth tranche share prepayment made by Bergen under the funding agreement announced on 14 March. 58 Axiom Mining Limited

61 12. Borrowings Group Company Drawings under convertible notes 70, ,000 70, ,000 Other borrowings 77, ,000 77, , ,855 1,000, ,855 1,000,000 Convertible Notes On 27 April, the Company arranged an unsecured and interest free convertible note facility of 4,000,000. The amount drawn under this facility as at 30 September was 3,300,000. The notes convert into ordinary shares at the election of the note holder: a. On the expiry date, being twelve months from the issue of the note; or b. At any time prior to the expiry date, by service on the issuer of a written notice of conversion of the note given by the note holder; or c. On redemption of the note if the convertible note facility is cancelled by the issuer in accordance with the convertible note facility agreement. The issue price is 0.15 per share with an anti-dilution provision. The notes were repayable within 12 months and extended to 31st December. The Company will also issue options to the note holder on the basis of 1 option for each 4 shares upon conversion of the note. No interest is payable on these notes. On 5th October the Company negotiated and agreed to issue the note holders an additional 75,000,000 options exercisable at $0.02 expiring 27/4/13. One of the Directors whom is a note holder was not party to the additional options. On 14 March, the Company announced the execution of a funding package with the Bergen Global Opportunity Fund, LP. The agreement with Bergen provides the Company with 300,000 per month in capital over 24 months with the capacity to increase to 700,000 per month. During the year, Bergen has injected into the Company 1,300,000 as prepayment for ordinary shares. As at the date of this report 1,200,000 shares has been issued to Bergen. No interest accrued on this loan. Bergen also subscribed to an interest free 300,000 convertible security and a 400,000 additional convertible security with a 24 month term. Of these 700,000 convertible securities, only 70,000 remains to be converted. Other Borrowings On 27 June the Company arranged an unsecured short term loan for 400,000. As at 30 September 100,000 remained unpaid in this facility but the loan had been fully repaid as at the date of this report. No interest accrued on this loan. The Company also arranged another unsecured loan of 100,000 in September. As at the date of this report 75,000 had been repaid with 25,000 still outstanding. No interest accrued on this loan. In addition, the Company has entered into a premium funding arrangement with Macquarie Bank Limited for the Insurance. As at the reporting date the liability is 52,855 payable on a monthly instalment to June. Interest accrued at 6.79% per annum. Annual Report 59

62 Notes to the Consolidated Financial Statements Expressed in Australian dollars 13. Provisions and Contingent Liabilities Group Company Provision for contingent claim 171, ,879 Provision for employee benefits (Note 16) 147, , , , , , , ,954 The contingent liability relates to a claim by an associate of immediate past Chairman, which is disputed by the Company and will be defended together with a counter claim should the claim be pursued. Directors have formed the view that it is not a valid claim and as it has not been pursued it is no longer a contingent liability. 14. Capital and Reserves a. Authorised and Issued Share Capital Group Company Authorised 2,500,000,000 (: 1,500,000,000) ordinary shares of US$0.01 each 24,939,036 15,325,500 24,939,036 15,325,500 Issued and fully paid 1,720,572,899 (: 1,057,776,713) ordinary shares of US$0.01 each 17,353,837 10,884,864 17,353,837 10,884,864 Movements in issued shares: Group Number of shares Number of shares Balance at 1 October 1,057,776,713 10,884, ,918,339 9,185,045 Issue of new shares placement for cash 457,174,757 4,466, ,375,006 1,147,070 Issued as payment for services 5,321,429 51,391 3,000,000 29,221 Issued to employees 300,000 2, ,000 1,504 Share purchase plan 43,333, ,470 Conversion of convertible notes into shares 190,000,000 1,846,046 Exercise of performance rights (Note 19(c)) 10,000, ,854 21,000,000 20,554 Balance at 30 September 1,720,572,899 17,353,837 1,057,776,713 10,884, Axiom Mining Limited

63 On 9 Nov, 3,750,000 ordinary shares of USD0.01 each were issued and allotted at 0.04 per share for cash via private placement announced on 26 August. On 20 Dec, 17,566,667 ordinary shares of USD0.01 each were issued and allotted at 0.03 per share for cash via private placement announced on 2 December. On 21 Dec, 750,000 ordinary shares of USD0.01 each were issued and allotted for nil consideration to consultant for services rendered. On 3 Feb, 3,853,335 ordinary shares of USD0.01 each were issued and allotted at 0.03 per share for cash via private placement announced on 2 December. On 3 Feb, 6,833,332 ordinary shares of USD0.01 each were issued and allotted at 0.03 per share for cash via private placement announced on 2 December. On 14 Feb, 11,540,026 ordinary shares of USD0.01 each were issued and allotted at 0.03 per share for cash under a share purchase plan announced on 2 December. On 15 Mar, 3,571,429 ordinary shares of USD0.01 each were issued and allotted at per share for funding fees under the funding agreement with Bergen announced on 14 March. On 15 Mar, 12,500,001 ordinary shares of USD0.01 each were issued and allotted at 0.03 per share for cash via private placement announced on 14 March. On 23 Mar, 7,333,334 ordinary shares of USD0.01 each were issued and allotted at 0.03 per share for cash via private placement announced on 14 March. On 2 Apr, 90,000,001 ordinary shares of USD0.01 each were issued and allotted at 0.03 per share under a convertible note agreement announced on 27 April. On 2 Apr, 5,080,000 ordinary shares of USD0.01 each were issued and allotted at 0.03 per share for cash via private placement announced on 2 December. On 2 Apr, 10,000,000 ordinary shares of USD0.01 each were issued and allotted for nil consideration under a convertible security agreement announced on 14 March. On 16 Apr, 14,285,714 ordinary shares of USD0.01 each were issued and allotted at per share under the funding agreement with Bergen announced on 14 March. On 16 Apr, 83,333 ordinary shares of USD0.01 each were issued and allotted for nil consideration to consultant for services rendered. On 15 May, 83,333 ordinary shares of USD0.01 each were issued and allotted for nil consideration to consultant for services rendered. On 15 May, 250,000 ordinary shares of USD0.01 each were issued and allotted for nil consideration to employees. On 16 May, 30,769,231 ordinary shares of USD0.01 each were issued and allotted at per share under the funding agreement with Bergen announced on 14 March. On 18 May, 10,000,000 ordinary shares of USD0.01 each were issued and allotted for nil consideration under a performance rights plan announced on 30 July On 15 Jun, 22,222,222 ordinary shares of USD0.01 each were issued and allotted at per share under the funding agreement with Bergen announced on 14 March. On 15 Jun, 83,333 ordinary shares of USD0.01 each were issued and allotted for nil consideration to consultant for services rendered. On 15 Jun, 7,281,552 ordinary shares of USD0.01 each were issued and allotted at 0.01 per share for cash via private placement announced on 21 June. Annual Report 61

64 Notes to the Consolidated Financial Statements Expressed in Australian dollars 14. Capital and Reserves (continued) On 2 Jul, 26,699,029 ordinary shares of USD0.01 each were issued and allotted at 0.01 per share for cash via private placement announced on 21 June. On 2 Jul, 22,222,222 ordinary shares of USD0.01 each were issued and allotted at per share under the funding agreement with Bergen announced on 14 March. On 20 Jul, 83,333 ordinary shares of USD0.01 each were issued and allotted for nil consideration to consultant for services rendered. On 20 Jul, 42,857,143 ordinary shares of USD0.01 each were issued and allotted at per share under the funding agreement with Bergen announced on 14 March. On 1 Aug, 71,666,667 ordinary shares of USD0.01 each were issued and allotted at per share under the funding agreement with Bergen announced on 14 March. On 1 Aug, 50,000 ordinary shares of USD0.01 each were issued and allotted for nil consideration to employees. On 30 Aug, 53,999,998 ordinary shares of USD0.01 each were issued and allotted at per share for cash via private placement. On 30 Aug, 83,333 ordinary shares of USD0.01 each were issued and allotted for nil consideration to consultant for services rendered. On 5 Sep, 99,999,999 ordinary shares of USD0.01 each were issued and allotted at per share under a convertible note agreement announced on 27 April. On 7 Sep, 28,857,142 ordinary shares of USD0.01 each were issued and allotted at per share for cash via private placement. On 19 Sep, 22,857,143 ordinary shares of USD0.01 each were issued and allotted at per share for cash via private placement. On 24 Sep, 83,335 ordinary shares of USD0.01 each were issued and allotted for nil consideration to consultant for services rendered. On 24 Sep, 34,999,999 ordinary shares of USD0.01 each were issued and allotted at per share for cash via private placement. By an ordinary resolution passed at the annual general meeting on 30 March, the Company s authorised ordinary share capital was increased to US$25,000,000 by the creation of an additional 1,000,000,000 ordinary shares of US$0.01 each, ranking pari passu with the existing ordinary shares of the Company in all respects. b. Reserves and Accumulated Losses Group Company Share premium 35,357,981 32,964,737 35,357,981 32,964,737 Asset revaluation reserve 15,114,285 15,114,285 83,894 83,894 Exchange reserve (978,968) (649,826) (933,210) (933,210) Share based payments reserve 387, , , ,340 49,880,811 47,756,536 34,896,178 32,442,761 Accumulated losses (44,618,038) (39,707,292) (53,118,628) (44,763,278) 62 Axiom Mining Limited

65 i. Share premium The share premium contains amounts received as a premium on the issue of shares and options. Movements in share premium: Group Company Balance at 1 October 32,964,737 28,871,056 32,964,737 28,871,056 Premium on issue of ordinary shares 2,168,449 3,496,460 2,168,449 3,496,460 Premium on shares issued to employees and suppliers 86, ,775 86, ,775 Premium on exercise of performance rights 138, , , ,446 Balance at 30 September 35,357,981 32,964,737 35,357,981 32,964,737 ii. Asset revaluation reserve The asset revaluation reserve has been set up and is dealt with in accordance with the accounting policies for property, plant and equipment in Note 2(d) and revaluation of exploration tenements in Note 2(e). Group Company Balance at 30 September 15,114,285 15,114,285 83,894 83,894 iii. Exchange reserve The exchange reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations as well as the effective portion of any foreign exchange differences arising from hedges of the net investment in these foreign operations. The reserve is dealt with in accordance with the accounting policy set out in Note 2(q). This reserve represents the effect of translating opening cash and other balance sheet items to the year-end exchange rate: Group Company Balance at 30 September (978,968) (649,826) (933,210) (933,210) iv. Accumulated losses Group Company Balance at 1 October (39,707,292) (31,945,221) (44,763,278) (30,339,591) Equity-settled share-based transactions (28,800) (28,800) Transfer on lapse of performance rights 28, ,067 28, ,067 Net loss attributable to owners of the Company for the year (4,910,746) (8,133,138) (8,355,350) (14,794,754) Balance at 30 September (44,618,038) (39,707,292) (53,118,628) (44,763,278) Annual Report 63

66 Notes to the Consolidated Financial Statements Expressed in Australian dollars 14. Capital and Reserves (continued) v. Share based payments reserve The share based payments reserve is used to recognise: The grant date fair value of performance rights issued to employees but not exercised. The grant date fair value of shares issue to employees. Group Company Balance at 1 October 327, , , ,852 Shares issued for services (141,017) (165,500) (141,017) (165,500) Exercise of performance rights (240,000) (483,000) (240,000) (483,000) Lapse of performance rights (28,800) (371,067) (28,800) (371,067) Share based payments made in the year 469,990 1,043, ,990 1,043,055 Balance at 30 September 387, , , ,340 c. Distributability of Reserves At 30 September, the aggregate amount of reserves available for distribution to shareholders of the Company was nil (: nil). d. Movements in Unlisted Options on Issue Group and Company Number of options Number of options Balance at 1 October 45,980,002 30,000,000 Issued during the year 63,730,581 15,980,002 Lapsed during the year (31,000,002) Balance at 30 September 78,710,581 45,980,002 The 30,000,000 general options previously granted to Directors, management and staff over ordinary shares expired on 10 November. The 1,000,002 general options over ordinary shares previously granted under the convertible notes facility agreement executed on 27 April and granted on 23 May and 16 June expired on 27 April. 64 Axiom Mining Limited

67 Details of the movements in options are as follows: Grant Date No. of options outstanding as at 1 October Exercise Price Granted during the year Expired during the year No. of options outstanding as at 30 September Directors, Management & Staff ,000,000 #Refer to note (30,000,000) Convertible Note Facility , (500,001) Consultants ,980, ,980,000 Consultants ,000, ,000,000 Convertible Note Facility , (500,001) Consultants ,000, ,000,000 Consultants ,000, ,000,000 Consultants ,750,000 4,750,000 Bergen Agreement ,000,000 10,000,000 Consultants ,000,000 9,000,000 Private Placement US$ ,980,581 33,980,581 Consultants ,000,000 4,000,000 Consultants ,000,000 2,000,000 45,980,002 63,730,581 (31,000,002) 78,710,581 # 30,000,000 options issued 07/11/2006 Exercised within 1 year Exercise Price = Year < Exercised < 2 Years Exercise Price = Year < Exercised < 3 Years Exercise Price = Year < Exercised < 4 Years Exercise Price = Year < Exercised < 5 Years Exercise Price = 0.35 e. Capital Management The Group s primary objectives when managing capital is to safeguard the Group s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, by pricing products and services commensurately with the level of risk and by securing access to finance at a reasonable cost. The Group actively and regularly reviews and manages its capital structure to maintain a balance between the higher shareholder returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements. Annual Report 65

68 Notes to the Consolidated Financial Statements Expressed in Australian dollars 15. Note to Cash Flow Statements a. Reconciliation of loss from operations to net cash outflow from operating activities Group Company Loss before income tax (5,669,246) (8,133,138) (8,355,350) (14,794,754) Non-cash items Depreciation and amortisation 63,215 62,432 1,272 22,500 Impairment loss on investments in subsidiaries 141 4,974,493 Provision for non-recovery of intercompany receivables 3,793,275 6,444,170 Write-off of property, plant and equipment 4,528 Foreign exchange loss (27,261) 31,435 26,181 40,076 Share based payments 441,190 1,043, ,190 1,043,055 Changes in assets and liabilities Increase in other receivables (54,478) (225,664) (39,461) (42,086) Increase in intercompany receivables (323,074) Increase in trade and other payables 266, , , ,500 (Decrease)/increase in provisions (137,744) 89,998 (138,796) 89,998 Net cash used in operations (5,117,596) (6,908,958) (4,152,263) (2,375,122) b. Major non-cash items During the year ended 30 September, the Group entered into a finance lease arrangement over land on Santa Isabel Island in the Solomon Islands. The leasehold property recognised in respect of this lease amounts to 1,501, Short Term Employee Benefits and Superannuation Commitments Group Company The aggregate employee benefit liability comprised provisions (current) 147, , , , Axiom Mining Limited

69 17. Commitments a. Expenditure Commitments Estimated capital expenditure required to maintain tenements by the balance sheet date, but not provided for, are payable as follows: Group Company Within 1 year 1,169,380 1,192,417 After 1 year but within 5 years 3,186, ,484 4,355,677 1,637,901 These commitments may be achieved by seeking exemptions, relinquishment or by joint venture arrangements. Subsequent to year end the Group has exceeded its exploration commitments through exploration work. b. Operating Lease Commitments Group Company Within 1 year 144,910 85,200 30,000 After 1 year but within 5 years 1, ,582 85,200 30, Auditor s Remuneration Group Company Amount received or due and received by auditors for: an audit of the financial statements of the Group by Baker Tilly Hong Kong Limited 1,974 12,275 1,974 12,275 audit services by firms other than Baker Tilly Hong Kong Limited 69,610 51,777 71,584 12,275 53,751 12,275 Annual Report 67

70 Notes to the Consolidated Financial Statements Expressed in Australian dollars 19. Director and Executive Disclosures a. Details of specified directors and specified executives i. Specified directors Mr. Stephen R Williams Mr. Ryan Mount Mr. Neil Stuart Non-Executive Chairman Executive Director and Chief Executive Officer Non-Executive Director ii. Specified executives Mr Eamonn Dare Chief Geologist Mr John Bell Chief Financial Officer (resigned 24 February ) Ms Valerie Valdez Chief Financial Officer and Local Agent (appointed 5 March ) b. Remuneration of specified directors and executives The constitution of the Company provides that non-executive Directors may collectively be paid as remuneration for their services a fixed sum not exceeding the aggregate maximum sum per annum from time to time determined by the Company in general meeting currently set at US$300,000. The chairman s fees are determined independently of the fees of the nonexecutive Directors based on comparative roles in the market place. The chairman s fees have been set at 50,000 per annum ( 50,000) and non-executive Directors are remunerated at 35,000 per annum ( 35,000). Directors may be paid fees or other amounts as the Directors determine where a Director performs special duties or otherwise performs service outside the scope of the ordinary duties of a Director. A Director may also be reimbursed for out of pocket expenses incurred in carrying out their duties as a Director. c. Performance rights plan Director, Executive and Employee Performance Rights Plan The establishment of Axiom Mining Limited Director and Executive Performance Right Plan was approved by shareholders at the 30 July 2010 Extraordinary General meeting. The Director and Executive Performance Right Plan provides: appropriate incentives for the Board and management; to align the economic interests of the Board and management with shareholders; to keep the Board and management focused on the long term growth of the Company and to increase shareholder value by achieving certain milestones; Under the plan, participants are granted rights which vest if certain performance conditions are met. Participation in the plan is at the Board s discretion and no individual has a contractual right to participate in the plan or to receive any guaranteed benefits. When exercisable, each right is convertible into one ordinary share for no consideration. 68 Axiom Mining Limited

71 Details of the movements in rights granted are as follows: Grant date No. of rights outstanding as at 1 October Granted during the year Exercised during the year Lapsed during the year No. of rights outstanding as at 30 September Mr Stephen R Williams ,500,000 2,500,000 Mr Ryan Mount ,000,000 (10,000,000) (1,500,000) 31,500,000 Mr Neil Stuart ,000,000 2,000,000 Other employees , , ,000 rights granted and vested on 15 May expire 1 year after grant date. 47,500, ,000 (10,000,000) (1,500,000) 36,100,000 Rights granted on 30 July 2010 as approved by shareholders at the 30 July 2010 Extraordinary General Meeting carry various expiry dates as included in the Notice of Meeting. These vary from 180 days after satisfaction of performance conditions to 180 days after termination of employment. Fair value of rights granted The assessed fair value at grant date of rights granted during the year ended 30 September was (: 0.029). The fair value at grant date is independently determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. The model inputs for options granted during the year ended 30 September included: a. exercise price: nil ( nil) b. grant date: 15 May ( 16 February ) c. share price at grant date: ( 0.029) d. expected price volatility of the Company s shares: 110% ( 110%) e. expected dividend yield: 0% ( 0%) f. risk-free interest rate: 5.48% ( 5.48%) The expected price volatility is based on the historic volatility (based on the remaining life of the rights), adjusted for any expected changes to future volatility due to publicly available information. d. Service agreements The Group has service agreements with the following officers: Ryan Mount, Chief Executive Officer & Executive Director Terms of agreement 3 years commencing 1 April 2010, base salary, inclusive of superannuation of 163,500 to be reviewed annually by the remuneration committee. In addition an amount of 30,000 is payable as Director s fees per annum. Eamonn Dare, Chief Geologist Terms of agreement no fixed term, base salary, inclusive of superannuation of 196,200. Notice period six months. Annual Report 69

72 Notes to the Consolidated Financial Statements Expressed in Australian dollars 19. Director and Executive Disclosures (continued) e. Remuneration of specified Directors and specified executives Primary salary Directors Fees Post employment superannuation Equity share-based payments Specified Directors: Stephen R Williams 50,000 4,500 54,500 50,000 4,500 58, ,267 Ryan Mount 150,000 30,000 16, , , ,000 30,000 15, , ,274 Neil Stuart 40,835 40,835 17,500 47,013 64,513 John McCarthy 120,000 9, , ,100 Total remuneration: 150, ,835 20, , , ,000 97,500 28, ,955 1,179,154 Total Primary salary Post employment superannuation Equity share-based payments Specified executives: Jeff Carter 70,367 70,367 Michael Wells 68,304 6,147 92, ,251 Eamonn Dare 171,923 15, ,396 43,548 3,919 47,467 John Bell 78,491 7,064 85,555 Valerie Valdez 93,517 8, ,933 Total Remuneration: 343,931 30, , ,219 10,066 92, ,085 f. Balances with related parties are disclosed in Note 7. Total 70 Axiom Mining Limited

73 20. Financial Risk Management and Fair Values Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of the Group s business. The Group s exposure to these risks and the financial risk management policies and practices used by the Group are described below are limited by the Group s financial management policies and practices described below. a. Credit Risk The Group s credit risk is primarily attributable to trade and other receivables. Management has a credit policy in place and the exposures to these credit risks are monitored on an ongoing basis. In respect of trade and other receivables, individual credit evaluations are performed on all customers requiring credit over a certain amount. These evaluations focus on the customer s past history of making payments when due and current ability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in which the customer operates. Trade and other receivables are due within 30 days to 90 days from the date of billing. Normally, the Group does not obtain collateral from customers. At the balance sheet date, the Group has no concentration of credit risk. b. Liquidity Risk Individual operating entities within the Group are responsible for their own cash management, including the short term investment of cash surpluses and the raising of loans to cover expected cash demands, subject to approval by the parent Company s Board when the borrowings exceed certain predetermined levels of authority. The Group s policy is to regularly monitor its liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient reserves of cash and readily realisable marketable securities and adequate committed lines of funding from major financial institutions to meet its liquidity requirements in the short and longer term. c. Interest Rate Risk The Group s exposure to interest rate risk and the effective interest rates of financial assets and financial liabilities, both recognised and unrecognised at the balance sheet date, are as follows: Financial instruments Floating interest rate Non interest Bearing Total carrying amount as per the balance sheet Weighted average effective interest rate (i) Financial assets Cash 808,596 54, ,596 54, Trade and other receivables 369, , , ,131 Total financial assets 808,596 54, , ,131 1,178, ,137 (ii) Financial liabilities Trade and other payables 2,350,423 1,013,695 2,350,423 1,013,695 Borrowings 52,855 95,000 1,000, ,855 1,000,000 Capitalised lease liabilities 1,593,649 1,320,198 1,593,649 1,320, Provisions 147, , , ,954 Total financial liabilities 1,646,504 1,320,198 2,592,633 2,298,649 4,239,137 3,618,847 Annual Report 71

74 Notes to the Consolidated Financial Statements Expressed in Australian dollars d. Currency Risk The Group is not exposed to significant foreign currency risk as the majority of the Group s income and expenditure is denominated in Australian dollars. e. Fair Values All financial instruments are carried at amounts not materially different from their fair values as at 30 September and. 21. Subsequent Events On 19 October, the Company announced a placement of shares at 0.03 each with a one for four attaching option to raise a total fund of 1,750,000. The attaching options have an exercise price of $0.03 and an expiry date of 30 September ,366,710 options have been exercised since reporting date raising 1,084,916 and resulting in the issue of a further 110,366,710 shares. 100,000 performance rights have been exercised since reporting date and resulting in the issue of 100,000 shares. On 23 October, the Company s subsidiary, Axiom KB Limited, appeared in the Court of Appeal in Solomons Islands in respect of an appeal against the ruling on the preliminary questions in the High Court. The Court of Appeal expunged the High Court s answers to the preliminary questions and ordered that the whole matter proceed to an expedited trial. It was recently brought to the Company s attention by ASIC on the application of the Company for relief from certain requirements under sections 708AA (which provides for rights issues without disclosure under Part 6D.2 of the Corporations Act 2001 (Cth) (Corporations Act)) and 713 (which provides for the issue of a transaction specific prospectus with limited disclosures) of the Corporations Act and under Class Order 09/425 (which provides for share purchase plans without disclosure under Part 6D.2 of the Corporations Act), following suspension in trading of the Company s securities in August, that as a result of a previous suspension in trading of the Company s shares in excess of 5 trading days, the Company is unable to issue Cleansing Statements at the current time. As announced to the ASX on 14 March, the Company entered into a Share Purchase and Convertible Security Agreement dated 13 March (Funding Agreement) with Bergen Global Opportunity Fund, LP (Bergen). On 27 November, the Company and Bergen agreed to terminate the Funding Agreement by mutual consent and release each other from all further obligations under the Funding Agreement. 22. Significant Accounting Estimates and Judgements Estimates and judgments used in preparing the consolidated financial statements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates may not equal to the related actual results. The estimates and assumptions that have a significant effect on the carrying amounts of assets and liabilities are discussed below: a. Impairment of non-financial assets The Group tests at least annually whether goodwill and other assets that have indefinite useful lives have suffered any impairment. Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its recoverable amount. The recoverable amount of an asset of a cash-generating unit has been determined based on value-in-use calculations. These calculations require the use of estimates. The value-in-use calculations primarily use cash flow projections based on five-year financial budgets approved by management and estimated terminal values at the end of the five-year period. There are a number of assumptions and estimates involved for the presentation of cash flow projections for the period covered by the approved budget and the estimated terminal value. Key assumptions include the expected growth in revenue and operating margin, effective tax rates, growth rates and selection of discount rates, to reflect the risks involved and the earnings multiple that can be realised for the estimated terminal value. Management prepared the financial budgets reflecting actual and prior year performance and market development expectations. Judgement is required to determine key assumptions adopted in the cash flow projections and changes to key assumptions can significantly affect these cash flow projections and therefore the results of the impairment reviews. 72 Axiom Mining Limited

75 b. Useful lives of property, plant and equipment The Directors determine the estimated useful lives and residual values for its property, plant and equipment. The Directors revise the depreciation charge when useful lives are different from previous estimates. Obsolete or nonstrategic assets, that have been abandoned or sold, shall be written off or written down. c. Income tax The Group is subject to income tax in a number of jurisdictions. Significant judgement is required in determining the provision for income tax for each entity in the Group. There are certain transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for potential tax exposures based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the year in which such determination is made. 23. Possible Impact of Amendments, New Standards and Interpretations Issued but not yet Effective for the year ended 30 September Up to the date of issue of these financial statements, the IASB has issued a number of amendments, new standards and interpretations which are not yet effective for the year ended 30 September and which have not been adopted in these financial statements. The Group is in the process of making an assessment of what the impact of these amendments, new standards and new interpretations is expected to be in the period of initial application. So far it has concluded that the adoption of them is unlikely to have a significant impact on the Group s results of operations and financial position. d. Share-based payments The fair value of option granted is measured using Black-scholes option pricing model based on various assumptions on volatility, option life, dividend yield and annual risk-free interest rate, excluding the impact of any non-market vesting conditions, which generally represent the best estimate of the fair values of the share options at date of grant. Annual Report 73

76 ASX Additional Information Analysis of Equity Security Holders Sector Number of shareholders Number of shares Holdings Ranges Holders Total Units % 1-1, , ,001-5, , ,001-10, ,286, , ,000 1,295 62,401, ,001-99,999,999,999 1,443 2,005,708, Totals 3,064 2,069,667, Distribution as Marketable Parcels Holdings Ranges Holders Total Units % Unmarketable (1-23,809) 656 7,332, Marketable (>23,809) 2,408 2,062,335, Totals 3,064 2,069,667, Performance Rights Holdings Ranges Holders Total Units % 1-1, ,001-5, ,001-10, , , ,001-99,999,999, ,000, Totals 3 36,000, Unlisted Options Holdings Ranges Holders Total Units % 1-1, ,001-5, ,001-10, , , , ,001-99,999,999, ,939, Totals 23 76,064, Axiom Mining Limited

77 Top 20 Holdings as at 24 January 2013 Holder Name Balance at % NATIONAL NOMINEES LIMITED 230,262, DRAKE PRIVATE INVESTMENTS LLC 94,871, MR ALAN SHORTALL 87,134, UBS NOMINEES PTY LTD 49,251, NESMEIS INVESTMENT PTY LIMITED <NESMEIS INVESTMENT A/C> 43,775, MR RYAN RICHARD MOUNT 41,250, NESMEIS INVESTMENT PTY LIMITED 34,166, CITICORP NOMINEES PTY LIMITED 28,781, BANTRY HOLDINGS PTY LTD <BANTRY FAMILY A/C> 26,000, MR TOBY CHANDLER 26,000, NEIL GARDYNE INVESTMENTS PTY LTD 25,476, ADMARK INVESTMENTS PTY LTD <JS PINTO SUPER FUND A/C> 24,000, MR DAVID JAMES AZAR 22,142, HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 19,797, MR BRADLEY GAVIN DOWNES 16,999, MR DION MILAN RADICH 16,319, MR BRADLEY DOWNES 15,714, J & BA MCCARTHY SUPERANNUATION PTY LTD <MCCARTHY SUPER FUND A/C> 14,953, MR NEIL FRANCIS STUART 14,693, ABN AMRO CLEARING SYDNEY NOMINEES PTY LTD <CUSTODIAN A/C> 14,654, Totals 846,246, Issued Capital 2,069,667,445 Axiom Mining Limited is incorporated in Hong Kong and is governed by Hong Kong Companies Ordinance with respect to its shareholdings. Accordingly, there are no limitations on the number of securities that may be held by a shareholder, nor are there any equivalent provisions to the takeovers provisions in Chapter 6 of the Australian Corporations Act 2001 (Cth). Annual Report 75

78 Corporate Directory Directors Mr Stephen Williams: Non-Executive Director, Chairman Mr Ryan Mount: Executive Director, Chief Executive Officer Mr Neil Stuart: Non-Executive Director Local Agent: Ryan Mount Company Secretary Boacoh Secretarial Limited Dominion Centre Queens Road East Hong Kong PRC Registered Office Australia Axiom Mining Level 11 1 Chifley Square Sydney NSW 2000 Tel: Fax: Registered Office Hong Kong C/- Boase Cohen & Collins Solicitors Dominion Centre Queens Road East Hong Kong PRC contact@axiom-mining.com Auditors Australia Rothsay Chartered Accountants Level 1, 12 O Connell Street Sydney NSW 2000 Auditors Hong Kong Baker Tilly Hong Kong Limited 2 nd Floor, 625 King s Road North Point Hong Kong Share Registry Boardroom Pty Limited Level 7, 207 Kent Street Sydney NSW 2000 Tel: Fax: enquiries@boardroomlimited.com.au Legal Advisors Kemp Strang Level 17, 175 Pitt Street Sydney NSW 2000 ASX Code: AVQ 76 Axiom Mining Limited

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