Report. Incorporated in England and Wales with Registered Number

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1 Annual Report 09 Incorporated in England and Wales with Registered Number

2 Section Corporate title Directory Directors David F Quinlivan Paul G Mazak Faroek Basrewan Jan A Castro Solicitors Ronaldsons LLP 55 Gower Street London WC1E 6HQ United Kingdom Company Secretaries Stephen F Ronaldson Russell P Hardwick Registrar Share Registrars Ltd Suite E, First Floor 9 Lion and Lamb Yard Farnham, Surrey GU9 7LL United Kingdom Bankers HSBC Bank Plc 92 Kensington High Street London W8 4SH United Kingdom Australian Office Suite 1, 346 Barker Road Subiaco WA 6008 Australia Nominated Adviser Astaire Securities Plc 30 Old Broad Street London EC2N 1HT United Kingdom Registered Office 55 Gower Street London WC1E 6HQ United Kingdom Brokers Midas Investment Management Ltd Arthur House Chorlton Street Manchester M1 3FH United Kingdom Indonesian Office PT Indonesia Coal Development Wisma Kosgoro Building 18th Floor, Jl M H Thamrin 53 Jakarta Pusat Republic of Indonesia Auditors BDO LLP 55 Baker Street London W1U 7EU United Kingdom Public & Investor Relations Pelham Public Relations 1 Cornhill London EC3V 3ND United Kingdom section title 2 Churchill Mining PLC Annual Report

3 Contents Corporate Directory 2 Highlights & Achievements 4 Chairman s Statement 6 Review of Operations & Finance 9 Board of Directors 17 Directors Report 18 Corporate Governance Statement 23 Statement of Directors Responsibilities 25 Independent Auditor s Report 26 Financial Statements 27 Consolidated Income Statement 28 Balance Sheet 29 Statement of Changes in Equity 30 Cash Flow Statement 32 Notes to the Financial Statements 33 Annual Report Churchill Mining PLC 3

4 Highlights & Achievements Operational East Kutai Coal Project (75%) Indonesia (EKCP) EKCP JORC-Code compliant resource of approximately 2.5 billion tonnes was significantly expanded from 1.4 billion tonnes; An additional 618 million tonnes undergoing additional assessment to further increase the global resource to in excess of 3 billion tonnes; Mining permits secured from the Indonesian Government and project licences changed to reflect new Indonesian Mining Legislation; Numerous project design and engineering milestones completed; Feasibility Study nearing completion with results due in December ; Project financing discussions commenced with various finance institutions and potential joint venture partners; and Discussions in place for potential off-take agreements with power companies such as PT Cirebon Electric Power. Sendawar Coal Bed Methane (70%) Indonesia Discussions ongoing with international oil, gas and Coal Bed Methane companies for the provision of technical assistance, off-take agreements and potential joint ventures. South Woodie Woodie Manganese (20%) Australia Highlights & Achievements ASX-listed Spitfire Resources Ltd ( Churchill CHL 24.75% owner) confirms the interception of manganese at the Tally- Ho prospect at South Woodie Woodie in Western Australia, with an initial JORC compliant resource delineated. 4 Churchill Mining PLC Annual Report

5 Section title Corporate Breaking News In March, the Company announced the appointment of Mr. Jan Alex Castro as a Non Executive Director, who brings with him a wealth of experience and expertise in financing for mining and natural resources companies globally. In May, the Company successfully raised GBP 5 million through the placing of 10,000,000 new shares at 50p per share with predominantly institutional investors. The placing was oversubscribed and the 50p placing price did not reflect a discount to the prevailing share price at the time. Financial At press time Churchill Mining announced an initial JORC Probable In-Situ Reserve of 956 million tonnes for the East Kutai Coal Project. The Reserve was based on using a low cumulative strip ratio of 3.6:1. EKCP JORC Probable In-Situ Reserve in tonnes 956,000,000 EKCP JORC-Code compliant resource in tonnes 2,481,000,000 In line with expectations, the full year loss was US$14,089,527 or US$ per ordinary share primarily reflecting investment into EKCP. The Company currently has a strong cash position, with cash reserves at the end of June totalling US$10.9 million to continue development work at the EKCP. EKCP tonnes undergoing additional assesment 618,000,000 Cash reserves at the end of June in US$ $10,903,000 New shares at 50p per share 10,000,000 GBP capital successfully raised 5,000,000 Highlights & Achievements (Cont.) Annual Report Churchill Mining PLC 5

6 Chairman s Statement Dear Shareholder, I am pleased to present Churchill s Annual Report and Financial Statements following another year of outstanding exploration success and project enhancement. As you are no doubt aware, Churchill operates a portfolio of energy projects in Indonesia and our principal property is the world-class East Kutai Coal Project (EKCP)....Churchill has been able to add value to the EKCP by increasing the project s coal resource from a zero base to the currently identified resource of approximately 2.5 billion tonnes in less than two years Prior to describing in a little more detail the exploration and project development work that has been completed by your company during the past year, it is first worth briefly reflecting on just how quickly Churchill has been able to add value to the EKCP by increasing the project s coal resource from a zero base to the currently identified resource of approximately 2.5 billion tonnes in less than two years. It is also worth noting that all exploration and project enhancement work undertaken to date on the EKCP has been carried out within budget which has in turn lead to an impressively low resource definition cost per tonne. At the time of writing, a JORC compliant resource of approximately 2.5 billion tonnes of coal has been defined at the EKCP (Churchill 75%). More importantly, however, is the fact that the Company s independent technical advisors, SMGC Consultants, have recently confirmed that 1.3 billion tonnes of the EKCP resource can now be categorised into the JORC Measured and Indicated categories, considerably increasing confidence in the resource. This upgrade of a large fraction of the anticipated tonnage at EKCP, along with the other developments that have occurred over the past year is all reflected in Churchill s maiden reserve statement. In addition to progressing resource definition work at EKCP, I am also pleased to advise that Churchill has made significant strides in other key areas such as infrastructure planning over the past year to bring the resource closer to production. Chairman s Statement 6 Churchill Mining PLC Annual Report

7 Key items completed or in progress at the time of writing include: 80% completion of the design engineering and infrastructure program for the EKCP; Discussions with potential suppliers of key long-lead items already initiated; Completion of a survey of the conveyor system route from the mine to the proposed port site; Selection and preparation of a proposed port site, including the completion of a bathymetric survey of the sea bed at the proposed port site to better understand berth design possibilities; Initiation of priority pre-development work such as pit design, pit geotechnical work and infrastructure planning; and Ongoing detailed coal testing and verification, with plans in place to extract a bulk coal sample from the future mine pit to understand the handling and performance characteristics of the coal. Churchill s management anticipates that the progress outlined above will result in the finalisation of a project feasibility study by the end of the calendar year. Given the accomplishments of the past year and in anticipation of a positive feasibility study, Churchill has formed a solid platform from which to prepare for the next phase of growth and development at the EKCP. For this reason, the Company has initiated a review of the three most likely means of financing the EKCP project, namely: A standalone strategy based on financing the project through a combination of equity and project debt; A joint venture with a strategic partner combined with project financing; and The outright sale of part of the project once its true value can be demonstrated through the feasibility study. Churchill s second Indonesian project, the Sendawar CBM Project, with potentially more than 5 trillion cubic feet of gas, retains its strategic value. The Company has initiated discussions regarding the eventual development of this project with international oil, gas and CBM companies for the provision of technical assistance, off-take agreements and potential joint ventures. With the recent passage of the Indonesian Bill on Mineral and Coal Mining in Jakarta, the Company s management has proactively consulted with professional advisors to ensure we are in compliance with the new legislation. The Company has updated its mining licenses in accordance with the new legislation and our proactive steps to address this legal change has only enhanced our ability to expedite development of the EKCP. Finally, in the context of continuing to add value to the EKCP going forward, we believe that the strategic location of the EKCP, in close proximity to Asian endmarkets and the clean-burning nature of this coal, with its comparatively low ash and sulphur content by global standards, will result in EKCP coal being a sought after commodity. Chairman s Statement (CONT.) Annual Report Churchill Mining PLC 7

8 Chairman s Statement (Cont.) Reflecting the Company s focus on its Indonesian assets, Churchill divested most of its interest in the South Woodie Woodie Manganese Project in Western Australia, though it retains a 20% direct equity investment in the project, as well as at the time of writing 24.75% (30 June : 28.8%) interest in Spitfire Resources, the ASX-listed company that purchased the Company s stake. Despite the difficult and unpredictable circumstances over the past year resulting from the global financial crisis and related recessions, our belief in coal and CBM remains unshaken. While prices have dropped worldwide for all types of thermal coal, they remain in most cases above historical averages. In addition, the International Energy Agency ( IEA ) has recently predicted that world coal consumption will grow at an average of 2.6% per year in the period , with the contribution of coal as a percentage of global power generation reaching 46% in Churchill, as an emerging coal producer with a world-class coal resource located in the backyard of energy-hungry nations such as India, China, South Korea and Japan, is well-positioned to benefit from these trends. In conclusion, I would like to thank my fellow board members, Managing Director Paul Mazak and Non Executive Directors Faroek Basrewan and Jan Castro for their contributions to Churchill over the past year. I would also like to thank Founding Director Mr James Hamilton (who resigned during the year) for his efforts since the Company listed in Finally, on behalf of the Board, I would like to thank all of our Shareholders for their continuing support. The Company sees the upcoming 12 months as potentially the most rewarding in Churchill s history. David Quinlivan Chairman Churchill Mining Plc Chairman s Statement (CONT.) 8 Churchill Mining PLC Annual Report

9 Review of Operations & Finance Overview During the past year, Churchill Mining Plc ( Churchill ) has made great strides in driving its main project, the East Kutai Coal Project ( EKCP ) which it controls with its Indonesian partners (CHL 75%), towards full resource definition. Churchill regards the EKCP as a highly strategic asset, ideally located in relation to core energy consuming markets EKCP has a JORC resource of approximately 2.5 billion tonnes of coal, which was recently expanded from an initial resource of 1.4 billion tonnes. Its coal is clean-burning by global standards, being comparatively low in ash and sulphur, and the resource will benefit from its close proximity to Asian end-markets once it is in production. Churchill s independent technical advisors, SMGC Consultants, recently confirmed that 1.33 billion tonnes of the EKCP JORC resource can now be categorised into the JORC Measured and Indicated categories. In addition, there are 1.14 billion tonnes of coal in the JORC Inferred category. This upgrade of a large component of the anticipated tonnage at EKCP, along with the other developments described below that have occurred over the past year, is all reflected in Churchill s maiden reserve statement. With the task of full JORC resource definition finished, the Company will increase its focus on future mining scenarios and examining the optimum way in which it can generate positive cashflows and create Shareholder value. Review of Operations & Finance Annual Report Churchill Mining PLC 9

10 Review of Operations & Finance (cont.) EAST KUTAI COAL PROJECT YEAR IN REVIEW The EKCP continues to be Churchill s flagship project and is the focus of most of its operations and investment to date. Churchill regards the EKCP as a highly strategic asset, ideally located in relation to core energy consuming markets and in the context of rising demand for energy resources such as high quality thermal coal. In May 2007, Churchill reached a Joint Venture Agreement with PT Techno Coal Utama giving the Company a 75% interest in the EKCP, which covered an area of approximately 575km² (made up of four blocks) situated 110km west from the main population centre of Sangatta. In April, the Company acquired a 75% interest in an additional 200km² of coal tenements immediately abutting the western boundary of the EKCP, and in particular, adjacent to the current area of intensive drilling and resource calculation work being carried out by the Company. Churchill, along with its Indonesian partners, has focussed over the last year on the successful completion of the following milestones in order to best position the EKCP for production: a) Upgrade of Resources and Reserves Review of Operations & Finance (CONT.) The main focus of the year was to continue the intensive drilling to upgrade the resource and reserve of the EKCP and to confirm its world-class size. The drilling programme was undertaken with a mix of open hole and core drilling, utilising three drilling rigs and 200 support personnel. Drilling initially focused on the Northern and Southern areas of the RTM block. Total drilling completed to date is approximately 46,000 metres resulting in the upgrading of the resource to approximately 2.5 billion tonnes and the confirmation of the deposit s medium calorific coal with low sulphur and low ash content. The new JORC resource figure of approximately 2.5 billion tonnes has exceeded the Company s initial 500 million tonne target by close to 500%. Churchill has so far defined a coal system 18 kilometres long and approximately 3 kilometres wide. To date, only 30% of the EKCP area has been drilled and the existing resource remains open along strike. 10 Churchill Mining PLC Annual Report

11 d) Successful Capital Raising At the beginning of the period, the JORC resource measured billion tonnes for the EKCP. This consisted of the following: 118Mt measured resource 322Mt indicated resource 972Mt inferred resource billion tonnes JORC resource By the end of the year, this had been upgraded to approximately 2.5 billion tonnes in the following categories: 556Mt measured resource 777Mt indicated resource 1,148Mt inferred resource billion tonnes JORC resource A further 618Mt is to undergo additional work to bring it into inferred status. In May, Churchill successfully completed a capital raise in the amount of 5 million. This money was raised through the placing of 10,000,000 new shares at 50p per share with institutional investors. The placing was oversubscribed and the 50p placing price did not reflect a discount to the prevailing share price at the time. The new capital will be used to advance the development of the EKCP and for general working funds. The placing represents 12.9% of the issued share capital. The new shares were admitted to trading on the AIM market of the London Stock Exchange on 3 June. e) Prospective Customers Churchill also announced during the year that its fully owned subsidiary, PT Indonesia Coal Development (ICD), has been selected as a prospective thermal coal supplier to Indonesia s PT Cirebon Electric Power (CEP), which is building a 660 megawatt power plant in West Java and is due to start operations in b) Mining Permits The securing of the mining permits from the Indonesian Government for the EKCP was critical this year. Subsequent to the passing of the Indonesian Bill on Mineral and Coal Mining in Jakarta and after taking time and professional advice to understand the future ramifications of this new legislation, the Company completed the change of its Exploration KPs (Kuasa Pertambangan) into IUP Exploitation (Izin Usaha Pertambangan) Mining Business Licences. c) Design and Engineering of the EKCP A number of the engineering and exploration milestones have been achieved during the year. This year has seen great progress in pre-development work such as pit design, pit geotechnical work and mine and infrastructure planning for the EKCP. During the quarter to 30 June, the Company continued to complete detailed engineering plans for the mine, the haulage route, the multi-flight conveyor system and the port. Concurrently, the Company has completed a detailed field survey of the haulage and conveyor routes and begun land acquisition negotiations. Approximately 80% of the engineering feasibility work is complete and finalisation of the feasibility study is expected by the end of. ONGOING EKCP WORK Due to the large size of the deposit, Churchill has focused its mine and infrastructure planning to create a bulk mining operation producing up to 20 million tonnes of coal per annum. Geotechnical drilling in the north of the RTM block has already been completed to measure rock competency for future open pit mining. Geotechnical drilling is also underway in the southern area of the block. Further holes will soon be drilled to sterilise an area near the middle of the resource envelope, which has been identified as the location for the coal processing plant. A detailed coal testing and verification programme is underway which includes laboratory work both in Indonesia and Australia. Review of Operations & Finance (CONT.) Annual Report Churchill Mining PLC 11

12 Review of Operations & Finance (cont.) FEASIBILITY STUDY Following from the scoping study conducted last year, a detailed feasibility study is expected to be completed by the end of the year. At the date of this report, the following milestones to be completed were as follows: Review of Operations & Finance (CONT.) Milestones to date include: Obtaining Indonesian Governmental approvals and licenses to mine at the EKCP under the new mining law Resource drilling LIDAR topographical surveys to aid pit design and determine JORC categories Securing ground tenure around the primary port target area Hydrological survey Port Bathymetrics Survey JORC Resource Large Diameter Sampling Analysis of optimum coal transport routes from EKCP to the coast JORC Reserve Statement Project feasibility study 400kg Bulk Sampling for Coal quality testing 4 of 6 completed Pit Design to produce preliminary mining plans Engineering design for the coal production mining area (ROM) Hydrographical surveys to determine future shipping considerations Preliminary engineering work for transportation, conveyor systems, barge port, mine stockyard, power plant and power distribution networks Pinjam Pakai (Forestry licence) Analysis of Coal for Power Station requirements River Bathymetric Survey for Fast track start of mining Geotechnical Investigation on mine stockyard, over land conveyor route and port Status: Completed Completed Completed Heads of agreement signed Completed Completed Completed Completed Completed Completed 80% Completed Near completion Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Excitingly, this feasibility work is being conducted at a time of rising energy and commodities demand. 40% of the world s energy is fuelled by coal. From demand for thermal coal is expected to grow worldwide and it is this strong demand, particularly from emerging markets such as China, India and Indonesia, that forms the centre piece of Churchill s business plan. 12 Churchill Mining PLC Annual Report

13 PROJECT FINANCING OPTIONS In parallel with the ongoing feasibility work described above and in anticipation of a positive feasibility study, Churchill and its Indonesian partners, have initiated a review of three primary means of financing the EKCP: A stand-alone strategy based on financing the Project through a combination of equity and Project debt; A joint venture with a strategic partner combined with Project financing; and The part sale of the Project once its true value can be demonstrated through the feasibility study. The size and the prospects of the EKCP have already captured the interest of a number of Groups that have either come to the site to conduct due diligence or made non-binding offers for the Project. Churchill can give no assurance on whether this will lead to a firm offer or whether any potential offer will be to the satisfaction of Churchill. The Company also continues to have ongoing discussions with a number of investment and project financing institutions. Review of Operations & Finance (CONT.) Annual Report Churchill Mining PLC 13

14 Review of Operations & Finance (cont.) CHURCHILL S OTHER ASSETS In addition to the EKCP, Churchill has maintained a 70% interest in the Sendawar CBM Project in East Kalimantan along with its Indonesian partner RMU which owns the remaining 30%. The CBM Project covers more than 800 square kilometres of prospective ground in close proximity to the operating coal mines and with potentially more than 5 trillion cubic feet of natural gas. Churchill and RMU have initiated discussions regarding the eventual development of this project with international oil, gas and CBM companies for the provision of technical assistance, off-take agreements and potential joint ventures. Churchill recently divested most of its interest in the South Woodie Woodie Manganese Project in Western Australia, though it retains a 20% direct equity investment in the project, as well as a 24.75% interest in Spitfire Resources, the ASX-listed Company that purchased the Company s stake. This divestment was in line with Churchill s strategy to focus on Indonesian coal production while retaining exposure to these promising manganese tenements. Review of Operations & Finance (CONT.) 14 Churchill Mining PLC Annual Report

15 CORPORATE FINANCIAL SUMMARY The loss for the year was US$14,089,527 or 20.76c per ordinary share (: profit US$794,537 or 1.42c per ordinary share). In this financial reporting period, the Company s functional currency changed from Pounds Sterling to United States Dollars. Concurrent with this change in functional currency, the Group adopted the United States Dollar as its presentation currency. During the year, the Company committed approximately US$7.5 million to exploration and evaluation expenditure, mainly at the flagship East Kutai Coal Project. This reflects the ramp up in exploration and drilling which has resulted in the release of the significantly increased JORC compliant resource at the project. Significant expenditure items during the period include: Impairment of the original carrying cost for the Sendawar CBM project for the amount of US$5,715,365. During the year, following the award of the Joint Evaluation Agreement in respect of CBM, there was no further use for the KP coal exploration licences purchased in 2006 and they were allowed to lapse. The capitalised costs are no longer validly supported as the original capital cost in no way benefits the advancement of the CBM project and therefore these costs were impaired during the year; Impact in the 2nd half of by the unprecedented and significant decline in the Pound Sterling against the United States Dollar combined with the change in functional currency to USD, with the Group booking a foreign exchange loss of US$3,534,000 for the full year; and Loss on fair value of its investment in Spitfire Resources Limited for the amount of US$1,115,256 which is a reflection of the decline in world markets and the quoted prices of Spitfire shares and options on the Australian Securities Exchange (ASX). The balance of operating expenditure is in line with the Company s stage of pre-development and includes increasing its project and technical staff resources in Indonesia during the year. In May Churchill completed a 5 million capital raising through a share placement, which will allow the Company to continue with its feasibility study and accelerate its development programme at the East Kutai Coal Project. The Group s balance sheet at 30 June and comparatives at 30 June are summarised as follows: Non-current assets 19,067 19,308 Current assets 11,075 16,314 Total assets 30,142 35,622 Current liabilities Non-current liabilities 27 9 Total Liabilities Net assets 29,526 35,086 Non-current assets did not move significantly during the year as the investment into exploration at the East Kutai Coal Project was offset by the impairment in the carrying value of the Sendawar project and investment in Spitfire Resources Limited. The reduction in current assets resulted from the cash invested into exploration and evaluation expenditure, administrative overheads and the impact of the decline in the Pound Sterling compared to the United States Dollar. Churchill s overall financial position remains strong and the Company has the necessary cash resources, totalling USD 10.9 million at the end of June, to continue to develop the East Kutai Coal Project. In summary, Churchill remains committed to its core value of creating Shareholder value. The next year will be an exciting one for the Company as the East Kutai Coal Project accelerates toward production. Paul G Mazak Managing Director Churchill Mining Plc Review of Operations & Finance (CONT.) Annual Report Churchill Mining PLC 15

16 Review of Operations & Finance (cont.) Competent Person s Statement The information in this Report relating to Exploration Results, Mineral Resources or Ore Reserves and technical matters is based on information compiled by Mark Manners who is a Member of the Australasian Institute of Mining and Metallurgy. Mr Manners is employed as a Principal Geologist by SMG Consultants Pty Ltd and has over 20 years experience in exploration and mining of coal deposits. Mr Manner s consents to the inclusion in the Report of the information as presented. He has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the type of activity described to qualify as a competent person as defined in the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. In accordance with the AIM Guidelines, Mark Manners is the qualified person that has reviewed the technical information contained in this Annual Report. Review of Operations & Finance (CONT.) 16 Churchill Mining PLC Annual Report

17 Board of Directors David F Quinlivan (aged 54) Non Executive Chairman Mr Quinlivan is a Mining Engineer and Principal of Borden Mining Services. With almost 30 years experience on projects throughout the world, Mr Quinlivan is familiar with all aspects of resources developments from grass roots exploration through to bankable feasibility reviews and detailed mining programmes. He is currently Chief Executive Officer of Mt Gibson Mining Limited a mid-tier iron ore producer in Australia. Mr Quinlivan is a Fellow of the Australian Institute of Mining and Metallurgy, Fellow of the Financial Services Institute of Australia, Member of the Mining Industry Consultants Association and Member of the Institute of Arbitrators & Mediators Australia. He is also a Non Executive Director of ASX-listed gold producer Avoca Resources Ltd. Mr Quinlivan is responsible for board performance and bringing technical excellence to Churchill Mining Plc. Paul G Mazak (aged 51) Managing Director Mr. Mazak is a business development specialist and Managing Director of Hastings and Associates Pty Ltd for the past 20 years. Responsible for leading and managing financial, investment, consulting and governmental teams across the globe, Mr. Mazak has an intimate knowledge of business practice in many parts of Asia, Africa and Europe. Faroek Basrewan (aged 64) Non Executive Director Mr Basrewan specialises in dealing with the various levels of Indonesian central, provincial and local government. A graduate in law from Indonesian Christian University, Mr Basrewan has had a long and distinguished career in general mediation and dispute resolution, government and regulatory relations within Indonesia. Mr Basrewan has distinguished himself in service to Indonesia as Special Staff to the Minister of Defence and has carried out various assignments for the Indonesian Government over many years. He was the Special Assistant to the first democratically elected Indonesian President, Abdul Rachman Wahid (Gustur). He is currently Special Advisor and Special Assistant to Dr Alwi Shihab, the Indonesian President s Envoy to the Middle East. Jan A Castro (aged 41) Non Executive Director (Appointed 20 March ) Mr. Castro is the Managing Director of Pala Investments AG, the exclusive advisor to a US$1.0 billion investment company focused on the mining and natural resources sector. As a long-term partner, Pala leverages its extensive mining and natural resources sector experience to provide strategic advice and innovative financing solutions. Due to his in-depth knowledge of the mining business, Mr. Mazak specialises in securing projects for listed companies. In this regard, he was responsible for the creation and management of the successfully bidding B.Vijakumar Diamond mining consortium, which sought to develop the world-class Madhya Pradesh diamond property in India. In addition, Mr. Mazak sourced the mine assets and was part of the reconstruction team of ASX-listed Majestic Resources NL, where he served as a Director between 2001 and Mr. Mazak has been Managing Director of Churchill Mining Plc since 2005 and is responsible for project procurement of the coal and gas assets in Indonesia for the Company. In 2007, Mr. Mazak relocated to Jakarta to manage the business and projects of Churchill Mining in Indonesia. Prior to founding Pala in July 2006, Mr. Castro was Senior Vice President of Investments and Corporate Affairs for Mechel OAO, a NYSE-listed company and one of Russia s largest coal companies, where his primary responsibilities covered mergers and acquisitions, non-core asset disposals and investor and public relations. He was also responsible for Mechel s IPO in Mr. Castro received his J.D. and B.A. from Columbia University. Board of Directors Annual Report Churchill Mining PLC 17

18 Directors Report For the year ending 30 June 1. The Directors are pleased to present their Report and the audited consolidated financial statements of the Company and its subsidiaries for the period ended 30 June. PRINCIPAL ACTIVITIES AND BUSINESS REVIEW The principal activities of the Group during the year were to continue to develop the Indonesian coal assets being the East Kutai Coal Project ( EKCP ) and the Sendawar CBM project and to acquire further projects and investments in the mining sector. The EKCP continues to be Churchill s flagship project and has been the focus of most of the operations during the year EMPLOYMENT PRACTICES The Group and Company are equal opportunity employers, with recruitment, remuneration and career progression not influenced by race, gender, marital status or disability. The Group and Company promote workforce diversity and have a subsidiary in Indonesia which is staffed by mainly local Indonesian employees. HEALTH, SAFETY AND ENVIRONMENT The Group and Company are committed to effective Health, Safety and Environment practices, which benefit its employees, contractors and the community within which the Group conducts its operations. 2. The information that fulfils the requirements of the business review can be found in the Chairman s Statement and the Operating Review, which are incorporated into this Report. These statements provide an analysis of the development and future of the Company. Principle risks and uncertainties are detailed in point 13. RESULTS AND DIVIDENDS Loss on ordinary activities of the Group after taxation amounted to $14,089,527 ( Profit: $794,537). The Directors do not recommend the payment of a dividend POLITICAL CONTRIBUTIONS AND CHARITABLE DONATIONS During the current and prior period there were no charitable or political donations. KEY PERFORMANCE INDICATORS The Group s key financial performance indicators are designed to achieve the maximisation of mineral resources and minimisation of operational and administration expenses. The Directors regularly monitor available cash flow to meet exploration expenditure activity. 3. FINANCIAL INSTRUMENTS Details of the use of financial instruments by the Company and its subsidiary undertakings are contained in Note 24 of the financial statements, together with an indication of the risks that the Group are exposed to and the risk management objectives that are in place. Its key non-financial performance indicators are designed to achieve the optimum deployment of its existing resources to achieve the maximum mineral resource targets. The targets for the Group are to reach a JORC Resource of 500 million tonnes of Coal and a JORC Reserve of 100 million Tonnes of Coal. The Directors regularly monitor the technical results of the exploration activity and review the subsequent JORC statements. Directors Report 18 Churchill Mining PLC Annual Report

19 As detailed in the Review of Operations Report, the new global resources figure achieved of approximately 2.5 billion tonnes has exceeded the Company s initial 500 million tonne target by more than 500%. Further analysis in relation to the key performance indicators for resources and reserve targets are included in the Chairman s Statement and the year in review in the Review of Operations and Finance. 8. CORPORATE STRUCTURE Churchill Mining Plc is a company limited by shares that is incorporated and domiciled in England and Wales. The Company has the following subsidiaries: Planet Mining Pty Ltd Australia (100%) PT Indonesia Coal Development Indonesia (100%) Note: 5% of PT Indonesia Coal Development is owned by Planet Mining Pty Ltd. 9. FUTURE DEVELOPMENTS Likely developments in the operations of the Group have been included in the Review of Operations and Finance and Chairman s Statement which are incorporated into this Report. 10. DIRECTORS The following have been Directors of the Company since the start of or during the financial year ended 30 June : David F Quinlivan James T Hamilton (Resigned 17 April ) Paul G Mazak Faroek Basrewan Jan Castro (Appointed 20 March ) Directors Report (CONT.) Annual Report Churchill Mining PLC 19

20 Directors Report (cont.) For the year ending 30 June Directors Interests in Options The Directors who held office at 30 June had, at that time, the following beneficial interests in share options of the Company: Share Options Date of grant Number of options Balance at 30 June Option exercise price Expiry date David F Quinlivan 15 April , ,000 20p ($0.33) 15 April April , ,140 35p ($0.58) 18 April May , ,000 35p ($0.58) 23 May March ,200,000 1,200,000 12p ($0.20) 28 March May 450, ,000 75p ($1.24) 9 May 2013 Paul G Mazak 15 April , ,000 20p ($0.33) 15 April April , ,914 35p ($0.58) 18 April May ,157,100 1,157,100 35p ($0.58) 23 May March ,400,000 2,400,000 12p ($0.20) 28 March May 1,150,000 1,150,000 75p ($1.24) 9 May 2013 Faroek Basrewan 9 May 450, ,000 75p ($1.24) 9 May 2013 Total 8,099,154 8,099,154 The market price on the AIM market of the Company s shares on 30 June was 53.2p ($0.88) and the range of closing prices during the year was 20.5p ($0.34) to 70.2p ($1.16). Re-election of Directors The Articles of Association require one third of the Directors who are subject to retirement by rotation to retire and submit themselves for re-election each year. 11. ANNUAL GENERAL MEETING Details of the Company s forthcoming Annual General Meeting are set out in a separate circular that will be sent to all Shareholders with the Annual Report and Accounts. 12. SUPPLIER PAYMENT POLICY Directors Report (CONT.) The Company policy, in relation to all of its suppliers, is to negotiate its terms of payment when agreeing the terms of the transactions, to ensure that those suppliers are made aware of the terms of payment and to abide by those terms provided that it is satisfied that the supplier has provided the goods or services in accordance with the agreed terms and conditions. The Group does not follow any universal code or standard on payment practice but subsidiary companies are expected to establish payment terms consistent with local procedures, custom and practice. Trade Payables of the Group at 30 June represent 19 days purchases (: 42 days). 20 Churchill Mining PLC Annual Report

21 13. PRINCIPLE RISKS & UNCERTAINTIES 14. DIRECTORS INDEMNITY PROVISIONS There are risks associated with the exploration and mining industry. The Board regularly reviews the risks to which the Group is exposed and endeavours to minimise these risks as far as possible. The following summary, which is not exhaustive, outlines some of the risks and uncertainties facing the Group at its present stage of development: The exploration for and development of mineral deposits involves technical risks, which even a combination of careful evaluation and knowledge may not eliminate; There can be no assurance that the Group s projects will be fully developed in accordance with the current plans. Future development work and financial returns arising may be adversely affected by factors outside the control of the Group; The Group s future success is substantially dependant on the continued services and performance of its key personnel. The Company s aim is to ensure that key personnel are rewarded for their contribution to the Group and are motivated to enhance the return to Shareholders; There is underlying commodity price risk associated with the Company s exploration activities. The Group endeavours to make what it considers to be prudent assumptions for all relevant commodity Project investment decisions; and The Group has operations in Indonesia where there may be a number of associated risks over which it will have no control. Indonesia is a developing country and the Directors consider it encouraging this year that a New Mining Law has been promulgated. Significantly when the implementing regulations are issued, it is anticipated that foreign entities will be able to hold a direct shareholding interest in an Indonesian Company that holds a mineral license rather than having to hold their interests indirectly. Other potential risks in Indonesia could include economic, social or political instability, terrorism, currency instability, government participation, taxation and exploration licensing and some or all of the exploration and exploitation licences issued in respect of the Group s Projects may be subject to conditions which, if not satisfied, may lead to revocation of such licences, or possible change in license conditions All of the current Directors benefited from qualifying third party indemnity insurance in place during the year ended 30 June and as at the date of approval of the financial statements. POST BALANCE SHEET EVENTS On 29 July the Company issued 75,000 shares at an issue price of 20p ($0.33), pursuant to the exercise of share options. On 26 August the Company announced that Measured & Indicated JORC Resources at the East Kutai Coal Project ( EKCP ) exceeds 1.3 billion tonnes. On 1 October the Company issued 25,000 shares at an issue price of 20p ($0.32) pursuant to the exercise of share options. GOING CONCERN The Directors confirm that, after making enquiries, they have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing these accounts. Directors Report (CONT.) Annual Report Churchill Mining PLC 21

22 Directors Report (cont.) For the year ending 30 June 17. AUDITORS BDO LLP has indicated its willingness to accept appointment as auditors of the Group for the year ending 30 June A resolution proposing their reappointment is contained in the Notice of Annual General Meeting and will be put to the Shareholders at the Annual General Meeting. 18. DIRECTORS STATEMENT AS TO DISCLOSURE OF INFORMATION TO AUDITORS Each of the Directors, who were all members of the Board at the time of approving the Annual Report, confirms that having made enquiries of fellow Directors: So far as the Directors are aware, there is no relevant information of which the Company s Auditors are unaware; and They have taken all the steps that ought to have been taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Company s Auditors are aware of that information. By Order of the Board Paul G Mazak Managing Director Churchill Mining Plc 21 October Directors Report (CONT.) 22 Churchill Mining PLC Annual Report

23 Corporate Governance Statement For the year ending 30 June The Company s shares are traded on the AIM market of the London Stock Exchange and the Company is not therefore required to report on compliance with the Combined Code appended to the listing rules. However, the Company recognises the importance of, and is committed to high standards of Corporate Governance. During the year the Board adopted a Corporate Governance Manual that details the Corporate Governance principles and practices in place. The Board comprises the Non Executive Chairman, Managing Director, and two Non Executive Directors. The Board is satisfied that, having considered the background and current circumstances of each of the Non Executive Directors, there are no relationships or other matters which could affect their respective judgement in carrying out their duties. Accordingly, the Non Executive Directors are considered by the Board to be independent of management. All of the Directors bring judgement to bear on issues affecting the Group and all have full and timely access to information necessary to enable them to discharge their duties. David Quinlivan is the senior independent Non Executive Director. The Non Executive Directors have disclosed to the Chairman and the Company Secretary their significant commitments other than their Directorship of the Company. All Directors have access to the Company Secretary and may take independent professional advice at the Company s expense. The Company does not make any provision for training of new Directors. Following changes arising under the Companies Act 2006, the Board has a process for reporting and managing any conflicts of interests held by Directors. Under the Company s articles of association, the Board has the authority to approve any potential conflicts. Board Meetings During the year ended 30 June, nine Board meetings were held. The Directors who were members of the Board during the year attended as follows: Board of Directors Meetings entitled to attend Attendance David F Quinlivan 9 9 James T Hamilton (resigned 17 April ) 7 7 Paul G Mazak 9 9 Faroek Basrewan 9 9 Jan A Castro (appointed 20 March ) 3 3 A formal schedule of matters specifically reserved for the Board is in place. The Board receives detailed proposal papers in advance of meetings, together with management presentations to facilitate proper consideration and debate of matters brought before it. The Board is primarily responsible for the strategic direction of the Group. Major strategic initiatives involving significant cost or perceived risk are only undertaken following their full evaluation by the Board. Matters of an operational nature are delegated to the Managing Director. Internal Control & Audit The board is responsible for establishing and maintaining the Group s system of internal financial controls. Internal financial control systems have been designed to meet the needs of the Group at its current stage of development. The Financial Controller and Company Secretary conducts an annual review of the internal controls and reports to the risk and audit committee. The Directors have reviewed the effectiveness of the procedures presently in place and consider that they are still appropriate for the nature and scale of the operations of the Group. Due to the relatively small size of the Group s operations, it is not considered economically viable or necessary to employ Internal Auditors. Corporate Governance Statement Annual Report Churchill Mining PLC 23

24 Corporate Governance Statement (cont.) For the year ending 30 June Audit Committee Chaired by David Quinlivan, the Committee comprises Mr Quinlivan and Mr Castro. The Audit Committee is responsible for ensuring that appropriate financial reporting procedures are properly maintained and reported on and where required meet with the Group s Auditors and review their Reports on the accounts and the Group s internal controls. The Committee also reviews the performance of the Group s auditors to ensure an independent, objective, professional and cost-effective relationship is maintained. As well as reviewing the Company s published financial results, the Committee reviews the Group s corporate governance processes (including risk analysis), accounting policies and procedures, reporting to the Board on any control issues identified. The Audit Committee meets twice per year to review the interim and annual financial statements and to consider any other associated matters. The Auditors have unrestricted access to the Chairman of the Audit Committee. Remuneration Committee The Remuneration Committee consists of two independent Non Executive Directors and is chaired by David Quinlivan. The Committee s aim is to ensure that Executive Directors and key management are rewarded for their contribution to the Group and are motivated to enhance the return to Shareholders. The Remuneration Committee is responsible for reviewing the performance of Executive Directors, setting their remuneration, considering the grant of options under any share option scheme and, in particular the price per share and the application of performance standards which may apply to any such grant. The Remuneration Committee meets on an as required basis. Shareholder Relations Communications with Shareholders is undertaken through face-to-face meetings, general news releases and the release of interim and full-year results. The Company s website ( facilitates the publication of results and the posting of news regarding the Group and its developments. Corporate Governance Statement (cont.) The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group, for safeguarding the assets, for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the preparation of the Directors Report. 24 Churchill Mining PLC Annual Report

25 Statement of Directors Responsibilities The Directors are responsible for preparing the Annual Report and the financial statements in accordance with the Companies Act The Directors are required to prepare financial statements for the Group in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. The Directors have chosen to prepare financial statements for the Company in accordance with IFRS. The Directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market. International Accounting Standard 1 requires that the financial statements present fairly for each financial period the Group s financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board s Framework for the preparation and presentation of financial statements. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable International Financial Reporting Standards. A fair presentation also requires the Directors to: Select suitable accounting policies and apply them consistently; Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; Provide additional disclosures when compliance with specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, and any other events and conditions on the entity s financial position and financial performance; and Prepare the accounts on a going concern basis unless it is inappropriate to presume that the Group will continue in business. Financial information is published on the Company s website. The maintenance and integrity of this website is the responsibility of the Directors; the work carried out by the Auditors does not involve consideration of these matters and, accordingly, the Auditors accept no responsibility for any changes that may occur to the financial statements after they are initially presented on the website. It should be noted that legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. We have audited the financial statements of Churchill Mining Plc for the year ended 30 June which comprise the consolidated income statement, the consolidated and company balance sheet, the consolidated and company statement of changes in equity, the consolidated and company cash flow statement and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act This report is made solely to the Company s members, as a body, in accordance with sections 495 and 496 of the Companies Act Our audit work has been undertaken so that we might state to the Company s members those matters we are required to state to them in an Auditor s Report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company s members as a body, for our audit work, for this Report, or for the opinions we have formed. Statement of Directors Responsibilities Annual Report Churchill Mining PLC 25

26 Independent Auditor s Report To the Members of Churchill Mining PLC Respective responsibilities of Directors and Auditors As explained more fully in the Statement of Directors Responsibilities, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s (APB s) Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group s and the Parent Company s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. Opinion on financial statements In our opinion: The financial statements give a true and fair view of the state of the Group s and the Parent Company s affairs as at 30 June and of the Group s loss for the year then ended; The Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; The Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and The financial statements have been prepared in accordance with the requirements of the Companies Act Opinion on other matters prescribed by the Companies Act 2006 In our opinion, the information given in the Directors Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: Independent Auditor s Report Adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or The Parent Company financial statements are not in agreement with the accounting records and returns; or Certain disclosures of Directors remuneration specified by law are not made; or We have not received all the information and explanations we require for our audit. Anne Sayers (Senior Statutory Auditor) For and on behalf of BDO LLP, Statutory Auditor London United Kingdom 21 October BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). 26 Churchill Mining PLC Annual Report

27 Financial Statements 27

28 Consolidated Income Statement For the year ended 30 June Note Continuing operations Revenue - - Cost of Sales - - Gross profit/(loss) - - Other operating income - - Other administrative expenses (3,544) (2,565) Impairment of exploration assets (5,715) (905) Total administrative expenses 3 (9,259) (3,470) Loss from operations (9,259) (3,470) Finance income Financial statements Finance expenses interest 3 (2) (4) Finance expenses foreign exchange losses 3 (3,534) (23) Total finance expenses (3,536) (27) Fair value (loss)/gain on options held in associate (624) 841 Impairment on investments in associate (491) - Deemed profit on disposal of associate 9-63 Deemed loss on disposal of associate 9 (111) - Share of operating loss of associate 9 (329) (207) Loss before taxation (14,090) (2,287) Income tax expense Loss after taxation from continuing operations (14,090) (2,287) Profit from discontinued operations 6-3,082 (Loss)/Profit for the period attributable to equity Shareholders of the parent (14,090) 795 (Loss)/Earnings per share for (loss)/profit attributable to the ordinary equity holders of the company (Loss)/Earnings per share Basic (loss)/profit per share (cents) 7 (20.76c) 1.42c Diluted (loss)/profit per share (cents) 7 (20.76c) 1.24c (Loss)/Earnings per share for (loss)/profit from continuing operations attributable to the ordinary equity holders of the company (Loss)/Earnings per share Continuing Operations Basic loss per share (cents) 7 (20.76c) (4.07c) Diluted loss per share (cents) 7 (20.76c) (4.07c) 28 Churchill Mining PLC Annual Report

29 Balance Sheet As at 30 June Company Number: Consolidated Company Note ASSETS Current assets Cash and cash equivalents 10,903 16,124 10,452 15,596 Trade and other receivables Total current assets 11,075 16,314 10,514 15,674 Non-current assets Property, plant and equipment Trade and other receivables Intangible assets 13 15,422 13, Other financial assets Investment in subsidiaries ,082 18,970 Investments in associates 9 2,515 4, Total non-current assets 19,067 19,308 28,379 19,265 TOTAL ASSETS 30,142 35,622 38,893 34,939 LIABILITIES Current Liabilities Trade and other payables Loans and borrowings Total current liabilities Non-current liabilities Provisions Loans and borrowings Total non-current liabilities TOTAL LIABILITIES NET ASSETS 29,526 35,086 38,755 34,725 CAPITAL AND RESERVES ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY Share capital 21 1,507 1,316 1,507 1,316 Share premium reserve 21 39,147 30,503 39,147 30,503 Merger reserve 21 6,828 6,828 6,828 6,828 Other reserves 21 2,000 2,305 2,667 2,053 Retained losses (19,956) (5,866) (11,394) (5,975) TOTAL EQUITY 29,526 35,086 38,755 34,725 The financial statements were approved and authorised for issue by the Board of Directors on 21 October and were signed on its behalf by: financial statements (cont.) Paul G Mazak Director Annual Report Churchill Mining PLC 29

30 Statement of Changes in Equity For the year ended 30 June Consolidated Share Capital Share premium reserve Merger reserve Retained losses Foreign exchange reserve Equity settled share options reserve Total Equity Changes in equity for period to 30 June Balance at start of the year ,361 6,828 (6,661) (63) 1,517 14,871 Profit for the year Exchange differences on translation of foreign operations Total recognised income and expense for the year ,110 Recognition of share based payments Issue of shares , ,360 Share issue expenses - (1,791) (1,377) Balance at 30 June 1,316 30,503 6,828 (5,866) 252 2,053 35,086 Changes in equity for period to 30 June Balance at start of the year 1,316 30,503 6,828 (5,866) 252 2,053 35,086 Loss for the year (14,090) - - (14,090) Exchange differences on translation of foreign operations (919) - (919) Total recognised income and expense for the year (14,090) (919) - (15,009) Recognition of share based payments Issue of shares 191 8, ,006 Share issue expenses - (171) (171) Balance at 30 June 1,507 39,147 6,828 (19,956) (667) 2,667 29,526 Financial statements Net expense recognised directly in equity for the year is -$918,840 (: $315,335 gain). The accompanying notes form part of these financial statements. 30 Churchill Mining PLC Annual Report

31 Statement of Changes in Equity For the year ended 30 June Company Share Capital Share premium reserve Merger reserve Retained losses Equity settled share options reserve Total Equity Changes in equity for period to 30 June Balance at start of the year ,361 6,828 (6,724) 1,517 14,871 Profit for the year Total recognised income and expense for the year Recognition of share based payments Issue of shares , ,360 Share issue expenses - (1,791) (1,377) Balance at 30 June 1,316 30,503 6,828 (5,975) 2,053 34,725 Changes in equity for period to 30 June Balance at start of the year 1,316 30,503 6,828 (5,975) 2,053 34,725 Loss for the year (5,419) - (5,419) Total recognised income and expense for the year (5,419) - (5,419) Recognition of share based payments Issue of shares 191 8, ,006 Share issue expenses - (171) (171) Balance at 30 June 1,507 39,147 6,828 (11,394) 2,667 38,755 financial statements (cont.) Annual Report Churchill Mining PLC 31

32 Cash Flow Statement For the year ended 30 June The accompanying notes form part of these financial statements. Consolidated Company Note Cash flows used in operating activities 23 (3,471) (2,643) (1,721) (1,725) Interest paid (2) (4) - - Net cash used in operating activities (3,473) (2,647) (1,721) (1,725) Cash flows used in investing activities Finance Income Payments for exploration assets - (2,333) - - Payments for exploration and evaluation (7,306) (2,933) - - Acquisition of property, plant and equipment (108) (98) (92) (7) Acquisitions of options in associate - (80) - - Repayment of advances to subsidiaries Advances to subsidiaries - - (9,152) (5,768) Cash flows used in investing activities (7,133) (4,907) (8,902) (5,263) Cash flows from financing activities Proceeds from issue of share capital 9,006 20,360 9,005 20,360 Share issue expenses paid (171) (1,377) (171) (1,377) Proceeds from borrowings Repayments of borrowings (15) (15) - - Cash flows from financing activities 8,820 18,970 8,834 18,983 Net (decrease)/increase in cash and cash equivalents (1,786) 11,416 (1,789) 11,995 Cash and cash equivalents at beginning of year 16,124 4,815 15,596 3,707 Effect of foreign exchange rate differences (3,435) (107) (3,355) (106) Cash and cash equivalents at 30 June 10,903 16,124 10,452 15,596 Financial statements 32 Churchill Mining PLC Annual Report

33 For the year ending 30 June NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES IAS 8 requires that management shall use its judgement in developing and applying accounting policies that result in information which is relevant to the economic decision-making needs of users; that are reliable, free from bias, prudent, complete and represent faithfully the financial position, financial performance and cash flows of the entity. BASIS OF PREPARATION The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. All amounts presented are in thousands of US dollars () unless otherwise stated. These financial statements have been prepared on the basis of a going concern and in line with International Financial Reporting Standards (IFRS) and IFRIC interpretations issued by the International Accounting Standards Board (IASB) adopted by the European Union and in accordance with applicable United Kingdom Law. The adoption of all of the new and revised Standards and Interpretations issued by the IASB and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to the operations and effective for annual reporting periods beginning on 1 July are reflected in these financial statements. The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and factors that are believed to be reasonable under the circumstances, the results of which form the basis of making 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 only affects that period or in the period of revision and future periods if the revision affects both current and future periods. Effective 1 July, the Company s functional currency changed from pounds sterling to the US dollar ( US$ ). This change was made due to significant balances being denominated in US$ and the Directors considered the US$ to most faithfully represent the economic effects of the underlying transactions, events and conditions in the Company. Concurrent with this change in functional currency, the Group adopted the US$ as its presentation currency. In accordance with International Accounting Standards, this change in functional currency has been accounted for prospectively by translating all items using the pounds sterling/us$ exchange spot rate on that date, being US$ : 1. In the Parent Company accounts the resulting translated amounts for non monetary items at this date have been treated as their historic cost. Additionally the comparatives for the year ended 30 June have been translated at this rate. For the purposes of changing the Group s presentation currency, the change in presentation currency for the comparatives for the year ended 30 June has been applied retrospectively and using a translation rate of US$ : 1 and US$0.9611:AU$1. There is no material difference between the average exchange rate for the period and the translation rate used. Notes to the Financial Statements Annual Report Churchill Mining PLC 33

34 For the year ending 30 June Changes in accounting policies The IASB and IFRIC have issued the following standards and interpretations: There were no amendments to published standards and interpretations to existing standards effective in the year adopted by the Group. Standards, interpretations and amendments to published standards effective in the year but which are not relevant to the Group: International Accounting Standards (IAS/IFRS) Effective date (periods beginning on or after) IFRIC 12 Service concession arrangements 1 Jan IFRIC 14 IAS 19 The limit on a defined benefit asset, minimum funding requirements and their interaction 1 Jan IFRIC 13 Customer loyalty programmes 1 Jul IAS 39/IFRS 7 Reclassification of financial instruments 1 Jul IAS 39/IFRS 7* Reclassification of financial instruments Effective date and transition 1 Jul Standards, interpretations and amendments, which are effective for reporting periods beginning after the date of these financial statements: International Accounting Standards (IAS/IFRS) IFRIC 16 Hedges of a Net Investment in a Foreign Operation IAS 1 Amendment Presentation of financial statements: a revised presentation Effective date (periods beginning on or after) 1 Oct 1 Jan IAS 23 Amendment Borrowing costs 1 Jan IAS 32 and 1 Amendments Puttable financial instruments and obligations arising on Liquidation IFRS 1* First-time adoption of international accounting standards 1 Jan 1 Jan IFRS 2 Amendment Vesting conditions and cancellations 1 Jan IFRS 2 Amendment Share-based payment: vesting conditions and cancellations IFRS 7* Amendment Improving Disclosures about Financial Instruments 1 Jan 1 Jan IFRS 8 Operating Segments 1 Jan IFRS 1 and IAS 27 Amendments Cost of an Investment in a subsidiary, jointly controlled entity or associate 1 Jan IFRIC 15 Agreements for the Construction of Real Estate 1 Jan IFRIC 9 and IAS 39 Amendments Embedded derivatives 30 Jun IAS 27 Amendment Consolidated and separate financial statements 1 Jul 34 Churchill Mining PLC Annual Report

35 For the year ending 30 June International Accounting Standards (IAS/IFRS) Effective date (periods beginning on or after) IAS 39 Amendment Recognition and measurement: eligible hedged items 1 Jul IFRS 3 Revised Business combinations 1 Jul IFRIC 17* Distributions of non-cash assets to owners 1 Jul IFRIC 18* Transfers of assets from customers 1 Jul IFRS 1* Additional exemptions for first-time adopters 1 Jan 2010 IFRS 2* Amendment Group cash-settled share based payment transactions Improvements to IFRSs () 1 Jan Jan IAS 32* Amendment Classification of Rights Issue 1 Feb 2010 Except for the adoption of IFRS 3 Revised and the adoption of IAS 23 the above standards, interpretations and amendments will not significantly affect the Group s results or financial position, although the adoption of IFRS 8 may affect note disclosures. Items marked * had not yet been endorsed by the European Union at the date that these financial statements were approved and authorised for issue by the Board. SIGNIFICANT ACCOUNTING POLICIES Revenue Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for any mineral products and services provided in the normal course of business, net of discounts, VAT and other sales related taxes to third party customers. Interest income is accrued on a time basis, by reference to the principal outstanding at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset s net carrying amount. Basis of consolidation Where the Company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The consolidated financial statements present the results of the Company and its subsidiaries ( the Group ) as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full. As a consolidated Group income statement is published, an income statement for the Parent Company is omitted from the Group financial statements by virtue of Section 408 of the Companies Act Annual Report Churchill Mining PLC 35

36 For the year ending 30 June Business combinations The consolidated financial statements incorporate the results of the business combinations using the acquisition method of accounting. In the consolidated balance sheet, the acquiree s identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated income statement from the date on which control is obtained. Associates Where the Group has the power to participate in (but not control) the financial and operating policy decisions of another entity, it is classified as an associate. Associates are initially recognised in the consolidated balance sheet at cost. The Group s share of post-acquisition profits and losses is recognised in the consolidated income statement, except that losses in excess of the Group s investment in the associate are not recognised unless there is an obligation to make good those losses. Profits and losses arising on transactions between the Group and its associates are recognised only to the extent of unrelated investors interests in the associate. The investor s share in the associate s profits and losses resulting from these transactions is eliminated against the carrying value of the associate. Any premium paid for an associate above the fair value of the Group s share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the associate. The carrying amount of investment in an associate is subject to impairment in the same way as goodwill arising on a business combination described below. Jointly controlled assets Jointly controlled assets are arrangements in which the Group holds an interest on a long term basis which are jointly controlled by the Group and one or more venturers under a contractual arrangement. The Group s exploration, development and production activities are generally conducted jointly with other companies in this way. Since these arrangements do not constitute entities in their own right, the consolidated financial statements reflect the relevant proportion of costs, revenues, assets and liabilities applicable to the Group s interests. Foreign currency Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which they operate (the functional currency ) are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the balance sheet date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in the income statement. On consolidation, the results of overseas operations are translated into US$ at rates approximating to those when the transactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the balance sheet date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised directly in equity (the foreign exchange reserve ). Exchange differences recognised in the income statement of group entities separate financial statements on the translation of long-term monetary items forming part of the Group s net investment in the overseas operation concerned are reclassified to the foreign exchange reserve if the item is denominated in the functional currency of the Company or the overseas operation concerned. On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are transferred to the consolidated income statement as part of the profit or loss on disposal. 36 Churchill Mining PLC Annual Report

37 For the year ending 30 June Financial instruments Financial assets and financial liabilities are recognised when the Group and Company becomes party to the contractual provisions of the instrument. Financial assets are de-recognised when the contractual right to the cash flow expires or when substantially all the risks and rewards of ownership are transferred. Financial liabilities are de-recognised when the obligations specified in the contract are either discharged or cancelled. Financial assets The Group and Company classifies its financial assets into one of the following categories, depending on the purpose for which the asset was acquired. The Group s and Company s accounting policy for each category is as follows: (i) Fair value through profit or loss: This category comprises only in-the-money derivatives. They are carried in the balance sheet at fair value with changes in fair value recognised in the income statement. (ii) Loans and receivables: These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They incorporate various types of contractual monetary assets, such as advances made to affiliated entities and the provision of goods and services to customers which give rise to trade receivables. They are carried at cost less any provision for impairment. Financial liabilities The Group s financial liabilities consist of trade payables and other short-term monetary liabilities, which are initially stated at fair value and subsequently at their amortised cost. Share-based payments Where share options are awarded to Directors and employees, the fair value of the options at the date of grant is charged to the income statement immediately or over the vesting period if applicable. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition. Where equity instruments are granted to persons other than employees, the income statement is charged with the fair value of goods and services received or where this is not possible at the fair value of the equity instruments granted. Fair value is measured by use of an option pricing model. The expected life used in the model has been adjusted, based on management s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. When the Company grants options over its shares to employees of subsidiaries, the fair value at grant date is recognised as an increase in the investments in subsidiaries, with a corresponding increase in equity over the vesting period of the grant. Annual Report Churchill Mining PLC 37

38 For the year ending 30 June Taxation Income tax on the profit or loss from ordinary activities includes current and deferred tax. Churchill Mining Plc has been confirmed to be an Australian tax resident by the relevant Taxation authorities. Current tax is based on the profit or loss from ordinary activities adjusted for items that are non-assessable or disallowed and is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Income tax is charged or credited to the income statement, except when the tax relates to items credited or charged directly to equity, in which case the tax is also dealt with in equity. Exploration, evaluation and development expenditure In line with IFRS 6 Exploration for and Evaluation of Mineral Resources, exploration and evaluation expenditure has been capitalised as an intangible asset in respect of each area of interest. This expenditure includes: Acquisition of rights to explore; Topographical, geological, geochemical and geophysical studies; Exploratory drilling; Trenching; Sampling; and Activities in relation to evaluating the technical feasibility and commercial viability of extracting a mineral resource. These costs are carried forward only if they relate to an area of interest for which rights of tenure are current. Capitalisation of exploration and evaluation expenditure commences on the acquisition of a right to explore a specific area or evaluate a mineral resource, either by means of the acquisition of an exploration licence or an option to a mineral right and ceases either on the acquisition of a mining lease or mineral production right in respect of that specific area or mineral resource or the making of a decision by management of the Group as to the technical feasibility or economic viability of conducting mining operations in that specific area or extracting the mineral resource being evaluated. Where it is decided by management of the Group that it is not technically feasible or economically viable to conduct mining operations in a specific area or to extract the mineral resource being evaluated, then capitalised exploration and evaluation expenditure attributable to the exploration and evaluation of that specific area or mineral resource, as the case may be, capitalised up to the date of making such a decision, is written off and any further exploration and evaluation expenditure incurred in respect thereof is charged to profit or loss as and when incurred. Management reviews the levels of capitalised exploration and evaluation expenditure for each area of interest on a regular basis and where deemed appropriate either continues to carry forward costs or impair expenditure based on management estimates of recoverable values for each area of interest. Tangible assets used exclusively in activities in respect of the exploration for and evaluation of mineral resources are classified as property, plant and equipment. Depreciation charges reflecting the consumption of these assets in carrying out such activities are included in exploration and evaluation expenditure. 38 Churchill Mining PLC Annual Report

39 For the year ending 30 June Property, plant and equipment Items of property, plant and equipment are initially recognised at cost. As well as the purchase price, cost includes directly attributable costs and the estimated present value of any future costs of dismantling and removing items if applicable. The corresponding liability is recognised within provisions. Depreciation is provided on all items of property and equipment to write off the carrying value of items over their expected useful economic lives as follows: Leasehold Improvements Furniture and Fixtures Office equipment Motor Vehicles - 5 years - 3 years - 3 years - 8 years Discontinued operations A discontinued operation is a component of the Group s business that represents a separate major line of business or geographical area of operations that has been disposed of or is held for sale, or is a subsidiary acquired exclusively with a view to resale. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. When an operation is classified as a discontinued operation, the comparative income statement is re-presented as if the operation had been discontinued from the start of the comparative period. Deferred taxation Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the balance sheet differs to its tax base, except for differences arising on: The initial recognition of goodwill; The initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and Investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future. Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised. The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered). Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either: The same taxable Group Company; or Different Group entities which intend either to settle current tax assets and liabilities on a net basis or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered. Annual Report Churchill Mining PLC 39

40 For the year ending 30 June Tax consolidation The Company and its 100% controlled entities have formed a tax consolidation Group. Members of the tax consolidated Group intend to enter into a tax sharing arrangement which will allow for the allocation of income tax expense to the wholly controlled entities on a pro rata basis. The arrangement will provide for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. The head entity of the tax consolidated Group is Churchill Mining Plc. Leased assets Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Group (a finance lease ), the asset is treated as if it had been purchased outright. The amount initially recognised as an asset is the lower of the fair value of the leased property and the present value of the minimum lease payments payable over the term of the lease. The corresponding lease commitment is shown as a liability. Lease payments are analysed between capital and interest. The interest element is charged to the consolidated income statement over the period of the lease and is calculated so that it represents a constant proportion of the lease liability. The capital element reduces the balance owed to the lessor. Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group (an operating lease ), the total rentals payable under the lease are charged to the consolidated income statement on a straight-line basis over the lease term. The aggregate benefit of lease incentives is recognised as a reduction of the rental expense over the lease term on a straight-line basis. The land and buildings elements of property leases are considered separately for the purposes of lease classification. Goodwill Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the consolidated income statement. Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the consolidated income statement. Impairment of non-financial assets including goodwill Impairment tests on intangible assets and tangible assets with indefinite useful economic lives are undertaken annually on 30 June. Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down accordingly. Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the asset s cash-generating unit (i.e. the lowest level group of assets in which the asset belongs for which there are separately identifiable cash flows). Impairment charges are included within administration expenses on the face of the income statement, except to the extent that they reverse gains previously recognised in the statement of changes in equity. 40 Churchill Mining PLC Annual Report

41 For the year ending 30 June Segment reporting A business segment is a distinguishable component of an enterprise that is engaged in providing an individual product or service or a group of related products or services and that is subject to risks and returns that are different from those of other business segments. A geographical segment is a distinguishable component of an enterprise that is engaged in providing products or services within a particular geographical economic environment and that is subject to risks and returns that are different from those of components operating in other geographical environments. Intangible assets Intangible assets consist of mining exploration leases, mineral production rights, exploration licences and capitalised exploration and evaluation expenditure and certain costs incurred to bring mining leases to the condition necessary for such leases to be capable of operating in the manner intended by the management of the Group. Intangible assets are recognised on business combinations if they are separable from the acquired entity or give rise to other contractual or legal rights. The amounts ascribed to such intangibles are arrived at by using appropriate valuation techniques. Amortisation is calculated so as to write off the cost of an intangible asset over the useful economic life of that asset. The useful life of mineral rights and related capitalised exploration and evaluation costs is not determined until a mining lease or mineral production right is acquired. Mining rights and exploration costs are allocated and capitalised to the specific area of interest where they are considered to have an enduring benefit and are carried as intangible assets until such time as it is determined that there are economically exploitable reserves/resources within each area of interest. Amortisation is effected on a straight line or units of production basis with effect from the date on which commercial production activities commence. Investments In its separate financial statements, the Company recognises its investments in subsidiaries at cost less any provision for impairment. Cash and cash equivalents Cash comprises bank and cash deposits at variable interest rates. Any interest earned is accrued monthly and classified as interest income. Cash equivalents comprise short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Employee Benefits Provision is made for the Company s liability for employee benefits arising from services rendered by employees to balance sheet date. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on costs. Employee benefits payable later than one year have been measured at the present value of the estimated future cash flows to be made for those benefits. Annual Report Churchill Mining PLC 41

42 For the year ending 30 June Key sources of estimation uncertainty The Group makes estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experiences and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may deviate from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows: Exploration and evaluation costs are capitalised as intangible assets and are assessed for impairment when circumstances suggest that the carrying amount may exceed the recoverable value thereof. This assessment involves judgement as to the likely future commerciality of the asset and when such commerciality should be determined as well as future revenues and costs pertaining to the utilisation of the mining lease or mineral production rights to which such capitalised costs relate and the discount rate to be applied to such future revenues and costs in order to determine a recoverable value; While conducting an impairment review of its assets, the Group exercises judgement in making assumptions about future commodity prices, mineral reserves/resources and future development and production costs. By their nature, impairment reviews include significant estimates regarding future financial resources and commercial and technical feasibility to enable the successful realisation of the exploration expenditure. Changes in the estimates used can result in significant charges to the income statement; and Employee, corporate advisory and consulting services received, and the corresponding increase in equity, are measured by reference to the fair value of the equity instruments at the date of grant, excluding the impact of any non market vesting conditions. The fair value of share options is estimated by using an option pricing model, on the date of grant based on certain assumptions. Those assumptions are described in the Notes to the accounts and include, among others, the dividend growth rate, expected volatility, expected life of the options and number of options expected to vest. More details including carrying values are disclosed in the Notes to the accounts. Recoverable Value Added Tax ( VAT ) Indonesia Generally, Indonesian VAT on exploration and administration costs is not recoverable until the commencement of commercial mining services operations. Subject to the implementation of the new Mining Law in Indonesia and the operating structure of the Group, the Directors anticipate that the VAT debtor of $804,830 (: $387,395) will be recovered. However, if the Group s Indonesian projects do not proceed to production, some or all of the VAT may be not be recoverable. No provision has been made in the Group accounts for any potential non-recovery of VAT. 42 Churchill Mining PLC Annual Report

43 For the year ending 30 June NOTE 2: FINANCIAL AND OTHER INCOME Consolidated Finance income Bank Interest Total finance income NOTE 3: LOSS FROM OPERATIONS Consolidated Loss on ordinary activities before tax includes the following expense items: Administrative expenses Consulting & professional fees 996 1,322 Depreciation & amortisation Employee salaries and benefits Occupancy costs Operating lease expense Travel expenses Other administrative costs Impairment of exploration costs 5, Equity settled share based payment expense ,259 3,470 Finance costs Bank interest 2 4 Foreign exchange losses 3, Total administrative and finance expenses 12,795 3,497 During the year the following fees were paid or payable for services provided by the Auditors of the parent entity and subsidiaries: Fees payable to the Company s Auditor for the audit of the Company s annual and interim accounts Fees payable to the associates of the Company s Auditor for other services The audit of the subsidiaries pursuant to legislation Total Annual Report Churchill Mining PLC 43

44 For the year ending 30 June NOTE 4: SALARIES Note Consolidated Staff costs (including Directors fees) comprise: Employee salaries and benefits Superannuation/pension costs 9 5 Directors fees and benefits Share-based payments , Number Number Average number of employees (including Directors) The majority of staffing for the exploration projects are provided by external contractors. Directors remuneration and Other Key Management disclosures Directors short term benefits Directors fees and benefits Consulting fees Sub-Total Directors long term benefits Share based payments (options) Total Director Remuneration 1, Other Key management short term benefits Consulting fees Key management salaries Sub-Total Key management long term benefits Share based payments (options) Total Other Key Management Remuneration Total Director and Key Management Remuneration 1,867 1,125 The amounts set out above include emoluments for the highest paid Director as follows: Short term benefits Long term benefits (share based payments) Total No Directors or key management exercised any share options during either year. The Company provides Directors & Officers liability insurance at a cost of $25,932 (: $29,827). This cost is not included in the above table. 44 Churchill Mining PLC Annual Report

45 For the year ending 30 June NOTE 5: TAXATION ON LOSS FROM ORDINARY ACTIVITIES Consolidated Major components of income tax expense for the years ended 30 June and are: Current tax expense - - Deferred tax expense - - Total Tax expense - - A reconciliation of income tax expense applicable to accounting loss before income tax at the statutory income tax rate to income tax expense at the Company s effective income tax rate for the years ended 30 June and is as follows: Accounting Loss before income tax from continuing operations (14,090) (2,287) Profit/(Loss) before tax from discontinued operations - 3,082 Accounting loss before income tax (14,090) 795 At the statutory income tax rate of 30% (4,227) 238 Effects of: Non-deductible expenses Temporary differences and tax losses not brought to account as a deferred tax asset 3,915 1,594 Less: Non assessable items - (1,859) Capital raising costs (26) (82) Income tax expense - - Effective income tax rate of 0% 0% 0% Annual Report Churchill Mining PLC 45

46 For the year ending 30 June NOTE 6: DISCONTINUED OPERATIONS In the prior year, in October 2007, a Group subsidiary Planet Mining Pty Ltd ( Planet ) agreed to sell an 80% interest in the South Woodie Woodie Project to Spitfire Resources Limited which subsequently listed on the Australian Securities Exchange in December Planet s sale of 80% of the project is deemed to be a discontinuing operation as it represents a separate major line of business and geographical area. The disposal was completed during the period when Spitfire Resources Limited was a 100% subsidiary of Planet Mining Pty Ltd which resulted in no taxation impact on the Group. At the time of the Report, Planet Mining Pty Ltd holds 25.51% of the issued capital of Spitfire Resources Limited. The post-tax gain on discontinued operations was determined as follows: Consideration received: 25,000,000 fully paid shares in Spitfire Resources Limited. The value of these shares was taken to be AUD$0.20 per share based on the prospectus and initial public offering of Spitfire s shares on the Australian Securities Exchange. Group interest in net assets of Spitfire Resources Limited after disposal 4,044 Pre-disposal carrying values Exploration and evaluation expenditure (881) Current assets (310) Current liabilities 502 Pre-tax gain on disposal of discontinued operation 3,355 Income tax expense - Total gain on disposal of discontinued operation 3,355 There were no cash flows associated with the disposal. Result of discontinued operations Bank interest - 18 Other income - 11 Expenses other than finance costs - (302) Tax expense - - Gain from selling discontinued operations after tax - 3,355 Profit for the period - 3,082 Basic earnings per share (cents) c Diluted earnings per share (cents) c Weighted average number of shares used in the calculation of basic earnings per share for discontinued operations - 44,935,266 Weighted average number of shares used in the calculation of diluted earnings per share for discontinued operations - 52,753, Churchill Mining PLC Annual Report

47 For the year ending 30 June The cash flow statement includes the following amounts relating to discontinued operations: Operating activities - (162) Investing activities - (217) Net cash (used in) discontinued operations - (379) NOTE 7: (LOSS)/EARNINGS PER SHARE Consolidated Continuing operations (14,090) (2,287) Discontinued operations - 3,082 (Loss)/profit attributable to ordinary Shareholders (14,090) 795 Weighted average number of shares used in the calculation of basic (loss)/earnings per share Number Number 67,860,344 56,118,847 Weighted average number of shares used in the calculation of diluted loss per share 74,114,293 63,950,902 Cents Cents Total (loss)/earnings per share Basic (loss)/earnings per share (20.76c) 1.42c Diluted (loss)/earnings per share (20.76c) 1.24c Loss per share continuing operations Basic loss per share (20.76c) (4.07c) Diluted loss per share (20.76c) (4.07c) For continuing operations the effect of all potential ordinary shares arising from the exercise of options going forward is considered to be anti-dilutive. 3,350,000 (: 3,100,000) potential ordinary shares have been excluded from the above calculation as they are anti-dilutive. NOTE 8: PROFIT FOR THE FINANCIAL YEAR The Company has taken advantage of the exemption as allowed by Section 408 of the Companies Act 2006 and has not presented its own income statement in these financial statements. The Company loss for the year was $5,418,979 (: Profit $749,340). Annual Report Churchill Mining PLC 47

48 For the year ending 30 June NOTE 9: INVESTMENTS IN ASSOCIATES The following entity meets the definition of an associate and has been equity accounted in the consolidated financial statements. As at 1 July 2007 the Group controlled 100% of the issued capital of Spitfire Resources Limited ( Spitfire ). During the prior year, the Group s investment in Spitfire was diluted to 40.98% and then to 35.64% at year-end by additional equity issues by Spitfire. During the current year, the Group s investment in Spitfire was diluted from 35.64% to 28.80% by further additional equity issues by Spitfire. Name Country of incorporation Reporting Date Proportion of voting rights held at 30 June Spitfire Resources Limited Australia 30 June 28.80% Balance at beginning of year 4,199 - Initial investment/consideration received - 4,044 Deemed (loss)/profit on disposal of associate (111) 63 Share of loss of associate (329) (207) Impairment to fair value (491) - Effect of movement in exchange rates (753) 299 Total carrying value at the end of the year 2,515 4,199 Spitfire Resources Limited ( Spitfire ) shares are listed on the Australian Securities Exchange ( ASX ) and are classified as a listed investment. The fair value of the investment using the closing prices at 30 June was $2,514,908 (: $4,199,040) based on a closing price of A$0.125 (US$0.10) (: A$0.225 (US$0.22)). The ordinary shares held in Spitfire are held under a lock-in (escrow) agreement until 12 December. The share of associates loss recognised during the period is $328,361 (: $207,566). Summary of audited financial statements of associates at 30 June and converted from AU$ to US$ at the closing rate are as follows: Total assets 11,019 12,362 Total liabilities Equity 10,860 12,006 Revenues Loss (1,041) (747) Included in the total assets of Spitfire Resources Limited is cash balances of $3,841,167 (: $5,329,991). 48 Churchill Mining PLC Annual Report

49 For the year ending 30 June NOTE 10: SEGMENT INFORMATION Based on risks and returns, the Directors consider that the primary reporting format is by business segment. The Directors consider that there have been two business segments, being exploration of coal in Indonesia and exploration of Coal Bed Methane (CBM) in Indonesia. The Company also has corporate and administration costs incurred by its Australian office including costs relating to the AIM listing in the United Kingdom. The secondary reporting format is by geographical analysis. The operations are based in two main geographical areas, being the Australia corporate office and Indonesia, which is considered to be the same as the primary reporting format. Segment assets and capital expenditure are allocated based on where the assets are located. Consolidated Loss for the year Assets Liabilities Capital Expenditure Depreciation Australia Corporate office (6,924) 10, Indonesia Exploration CBM/Coal (5,715) 1, Indonesia Exploration Coal (1,380) 15, ,442 - (14,019) 27, , Investments in Associates (329) 2, (14,348) 30, , Interest Revenue Corporate office Interest Expense Corporate office (2) Total (14,090) 30, , During the year the following significant non-cash items were included in the loss for the year: Impairment of exploration costs $5,715,365 (: $904,756) all of which is included in the Indonesia CBM/Coal Exploration segment above; and Share options expense of $583,957 and $29,649 (: $122,369) have been included within Australia Corporate office and Indonesia Exploration Coal segments, respectively. Consolidated Loss for the year Assets Liabilities Capital Expenditure Depreciation Australia Corporate office (1,119) 17, Australia Exploration manganese (Discontinued) 3, Indonesia Exploration Coal (1,469) 14, , , , Investments in Associates (208) 4, , , Interest Revenue Corporate office Interest Expense Corporate office (4) Total , , Annual Report Churchill Mining PLC 49

50 For the year ending 30 June NOTE 11: TRADE AND OTHER RECEIVABLES Consolidated Company Current Trade receivables Prepayments and other receivables Non Current VAT receivable In the comparative information, a VAT receivable of $387,395, which was previously included under current other receivables, has been reclassified in the current financial statements as a non-current receivable. The reclassification is as a result of a change in the expected recovery period of the VAT receivable to being greater than one year from the balance sheet date. The Directors anticipate that subject to the implementation of the new Mining Law in Indonesia and the operating structure of the Group, the VAT debtor of $804,830 (: $387,395) will be recovered when the Group commences commercial mining services operations. However, if the Group s exploration projects do not proceed to production, some or all of the VAT may not be recoverable. No provision has been made in the Group accounts for any potential non-recovery of VAT. The Group s exposure to credit and currency risk related to trade and other receivables is disclosed in Note Churchill Mining PLC Annual Report

51 For the year ending 30 June NOTE 12: PROPERTY, PLANT AND EQUIPMENT Consolidated Company Plant and Equipment owned Cost Balance at start of year Additions Balance at end of year Accumulated Depreciation Balance at start of year Depreciation expense for the year Effects of movements in exchange rates (6) (2) - - Balance at end of year Net book value at end of year Plant and Equipment Leased Assets Cost Balance at start and end of year Accumulated Depreciation Balance at start of year Depreciation expense for the year Balance at end of year Net book value at end of year Total Cost Balance at start of year Additions Balance at end of year Accumulated Depreciation Balance at start of year Depreciation expense for the year Effect of movements in exchange rates (6) (2) - - Balance at end of year Net book value at end of year Net book value at start of year Annual Report Churchill Mining PLC 51

52 For the year ending 30 June NOTE 13: INTANGIBLE ASSETS Consolidated Company Exploration and evaluation assets Capitalised exploration expenditure: Balance at start of year 4,981 3, Additions 7,572 3, Impairment of exploration costs - (905) - - Discontinued operations - (639) - - Balance at end of year 12,553 4, Exploration and evaluation assets Cost of acquisition: Balance at start of year 8,579 7, Additions 5 1, Impairment (5,715) Discontinued operations - (242) - - Balance at end of year 2,869 8, Goodwill Cost: Balance at start of year Impairment of Goodwill (1) Balance at end of year Total Cost: Balance at start of year 13,561 10, Additions 7,577 4, Impairment of exploration costs of acquisition (5,715) Impairment of exploration and evaluation assets - (905) - - Discontinued operations - (881) - - Impairment of Goodwill (1) Balance at end of year 15,422 13, During the year, the Group impaired the original carrying cost for the Sendawar CBM Project for the amount of US$5,715,365. Following the award of the Joint Evaluation Agreement in respect of CBM, there was no further use for the KP coal exploration licences purchased in 2006 and they were allowed to lapse. The capitalised costs are no longer validly supported as the original capital cost in no way benefits the advancement of the CBM project and therefore these costs were impaired during the year. 52 Churchill Mining PLC Annual Report

53 For the year ending 30 June This amount reflects the original cost of the initial KP exploration licenses, prior to the granting of the new joint evaluation license by direct appointment in September The Group has a 75% interest in the East Kutai Coal Project ( EKCP ). Under the terms of the co-operation and investors agreements for EKCP with its Indonesian partners, the Group is responsible for arranging and co-ordinating all aspects of the project until completion of a Bankable Feasibility Study. The Group has a 70% interest in the Sendawar CBM project ( Sendawar ). Under the terms of the agreements for Sendawar with its Indonesian partners, the Group is responsible for arranging and co-ordinating all aspects of the project until it decides to commit to signing a 70% interest in a Production Sharing Contract, once new regulations have been formalised and are considered workable by the Group. The Group retains a 20% interest in the South Woodie Woodie Manganese Project. The Group is free-carried on its 20% interest until a decision to mine is made in relation to the project. Exploration and Evaluation Expenditure Consolidated Assets Liabilities Income Expense Operating cash flows Investing cash flows South Woodie Woodie Project Sendawar/CBM Project 1, ,715 - (150) East Kutai Project 13, (7,156) Goodwill , ,716 - (7,306) Exploration and Evaluation Expenditure Consolidated Assets Liabilities Income Expense Operating cash flows Investing cash flows South Woodie Woodie Project (241) Sendawar CBM Project 7, (905) - (1,005) East Kutai Project 6, (4,020) Goodwill , (905) - (5,266) The value of the Company s interest in exploration and evaluation expenditure is dependent upon: The continuance of the Company s rights to tenure of the areas of interest; The results of possible future exploration; and The recovery of costs through successful development and exploitation of the areas of interest, or alternatively, by their sale. Annual Report Churchill Mining PLC 53

54 For the year ending 30 June NOTE 14: OTHER FINANCIAL ASSETS Consolidated Company Non-current investments Listed options designated at fair value through profit and loss During the prior period, an associate Spitfire Resources Ltd undertook a pro-rata, non-renounceable entitlements issue of options to Shareholders on a one-for-three basis (one option for every three ordinary shares held) at an issue price of AU$0.01 per option. The options have an exercise price of AU$0.20 cents per option and expire on 30 June Planet Mining Pty Ltd took up its entitlement in full for the amount AU$83,333. The fair value of the options at 30 June was $100,597 (: $921,028). NOTE 15: INVESTMENT IN SUBSIDIARIES The principal subsidiaries of Churchill Mining Plc, all of which have been included in these consolidated financial statements, are as follows: Name Country of Incorporation Proportion of ownership interest Planet Mining Proprietary Ltd Australia 100% PT Indonesia Coal Development Indonesia 100% Churchill Mining Plc owns 95% of the shares in PT Indonesia Coal Development with the balance (5%) held by Planet Mining Pty Ltd. Movements of investments in subsidiaries during the period are: Company Investment in subsidiaries Loans to subsidiaries current assets Opening Balance - 5,108 Re-classified to Non-current assets - (5,108) Total loans to subsidiaries current assets - - Loans to subsidiaries non-current assets Opening Balance 10,876 - Loans to subsidiaries 9,112 5,768 Re-classified from current assets - 5,108 Total loans to subsidiaries non-current assets 19,988 10,876 Equity investment in subsidiaries Opening Balance 8,094 5,873 Reversal of impairment - 2,221 Total equity investment in subsidiaries 8,094 8,094 Total investment in subsidiaries 28,082 18,970 The intercompany loans are unsecured, non interest bearing and repayable on demand. 54 Churchill Mining PLC Annual Report

55 For the year ending 30 June NOTE 16: DEFERRED TAX Consolidated Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Exploration expenditure Interest receivable 10 6 Trade and other payables (15) - Unrealised foreign exchange gain - 3 Tax losses (39) (58) Net tax (assets) liabilities - - Unrecognised deferred tax assets and liabilities Deferred tax assets have not been recognised in respect of the following: Tax losses domestic 2, Tax losses foreign 1, Accrued expenditure Unrealised foreign exchange loss 10 7 Capital raisings costs Potential unrecognised tax benefit at 30% 4,323 2,164 No amounts of deferred tax assets or liabilities have been charged/(credited) to the consolidated income statement or reserves. The deductible temporary differences and domestic tax losses do not expire under current tax legislation. Foreign tax losses expire after 5 years. Deferred tax assets have not been recognised in respect of these items because at this point in the Group s development it is not virtually certain that future taxable profits will be available against which the Company can utilise the benefits of tax losses. The Group has not offset deferred tax assets across different jurisdictions. Foreign tax losses in relation to the Indonesian subsidiary PT Indonesia Coal Development expire as follows: Financial Year Expire (year) 2005/ / / ,644 / ,313 Annual Report Churchill Mining PLC 55

56 For the year ending 30 June NOTE 17: TRADE AND OTHER PAYABLES Consolidated Company Current Trade payables Accruals and other payables The Group s exposure to credit and currency risk related to trade and other payables is disclosed in Note 24. NOTE 18: LOANS AND BORROWINGS Consolidated Company Current Lease motor vehicle hire purchase Non-current Lease motor vehicle hire purchase NOTE 19: PROVISIONS Consolidated Company Non-current Employee benefits The provision relates to the estimated liability for post employment benefits as of 30 June for PT Indonesia Coal Development. 56 Churchill Mining PLC Annual Report

57 For the year ending 30 June NOTE 20: COMMITMENTS Consolidated Company Operating lease commitments The total future aggregate minimum lease payments under non-cancellable operating leases: Within one year Within two to five years The above amount relates to a property lease for: Suite 1, 346 Barker Road, Subiaco which is a non-cancellable lease with a 36 month term expiring on 31 May 2011 with rent payable monthly in advance; and Wisma Kosgoro Building, Jakarta which is a non-cancellable lease with a 24 month term expiring on 31 January 2010 with rent payable monthly in advance. Finance lease commitments The minimum lease repayments on the finance lease are as follows: Within one year Within two to five years Finance charges (1) (4) - - Net obligations The liabilities incurred as a result of the lease vehicles from PT Dipo Star Finance Tbk are secured by the related leased assets. Engineering commitments Within one year During April the subsidiary PT Indonesia Coal Development engaged PT Transtek Engineering to provide engineering services with respect to the EKCP. The Group has committed to an expenditure of $340,152 post year-end. This amount is not included in these financial statements. Consultant compensation commitments Key management personnel Commitments under non-cancellable consulting contracts not provided for in the financial statements and payable: Within one year Within two to five years - 1,218-1, , ,030 Annual Report Churchill Mining PLC 57

58 For the year ending 30 June NOTE 21: SHARE CAPITAL, SHARE PREMIUM AND RESERVES Company Company Number Number Allotted, called up and fully paid At start of year 66,011,800 44,580,000 1, Additions 11,326,714 21,431, At end of year 77,338,514 66,011,800 1,507 1,316 Date Details Allotted, called up and fully paid Number Share premium 01/07/2007 Opening balance 1 July ,580, ,360 03/08/2007 Conversion of 20p per share (cash) 96, /10/2007 Conversion of options at 12p per share (cash) 200, /11/2007 Conversion of options at 12p per share (cash) 200, /12/2007 Conversion of options at 12p per share (cash) 200, /12/2007 Placement at 50p per share (cash) 20,000, ,536 15/12/2007 Expenses on placement at 50p per share (cash) - - (1,377) 15/12/2007 Expenses on placement at 50p per share (non-cash) - - (414) 10/03/ Conversion of options at 12p per share (cash) 200, /04/ Conversion of options at 12p per share (cash) 200, /04/ Conversion of options at 25p per share (cash) 135, /04/ Conversion of options at 20p per share (cash) 100, /05/ Conversion of options at 20p per share (cash) 100, /06/ Closing balance 30 June 66,011,800 1,316 30,503 01/07/ Opening balance 1 July 66,011,800 1,316 30,503 07/07/ Conversion of 12p per share 200, /07/ Conversion of 20p per share 200, /07/ Conversion of 35p per share 100, /08/ Conversion of 35p per share 690, /04/ Conversion of 35p per share 135, /05/ Share issue costs - - (16) 01/06/ Share issue costs - - (62) 04/06/ 50p per share 10,000, ,097 04/06/ Share issue costs - - (92) 30/06/ Closing balance 30 June 77,338,514 1,507 39, Churchill Mining PLC Annual Report

59 For the year ending 30 June Other Reserves Date Details Merger Reserve Foreign exchange reserve Other Reserves Equity settled share options reserve Total other reserves 01/07/2007 Opening balance at 1 July ,828 (63) 1,517 1,454 30/06/ Exchange differences on translation of foreign operations /06/ Recognition of share based payments /06/ Closing balance at 30 June 6, ,053 2,305 01/07/ Opening balance at 1 July 6, ,053 2,305 30/06/ Exchange differences on translation of foreign operations - (919) - (919) 30/06/ Recognition of share based payments /06/ Closing balance at 30 June 6,828 (667) 2,667 2,000 Merger Reserve The merger reserve arose due to the availability of merger relief in connection with the acquisition of PT Indonesia Coal Development by a share for share exchange and represents the difference between the fair value of consideration given for the shares and the nominal value of those instruments. Annual Report Churchill Mining PLC 59

60 For the year ending 30 June NOTE 22: SHARE BASED PAYMENTS Share options The Company has issued share options, some of which have vested immediately on grant and others with vesting periods. The options are not traded in the market. Share options are exercisable for ordinary shares which rank equally with existing ordinary shares. Exercise price Grant date Outstanding at start of year Granted during the year Exercised during the year Outstanding at end of year Final exercise date 20p ($0.40) 15/04/2005 1,296,000 - (296,000) 1,000,000 15/04/ p ($0.70) 22/03/ ,800 - (135,800) - 15/04/ 35p ($0.70) 18/04/ , ,200 18/04/ p ($0.70) 10/05/ , ,800 10/05/ 35p ($0.70) 23/05/2006 3,864, ,864,200 23/05/ p ($0.24) 28/03/2007 8,000,000 - (1,000,000) 7,000,000 28/03/ p ($1.00) 17/12/ , ,000 17/12/ p ($1.20) 17/12/ , ,000 17/12/ p ($1.40) 17/12/ , ,000 17/12/ p ($1.60) 17/12/ , ,000 17/12/ p ($1.50) 09/05/ - 3,100,000-3,100,000 09/05/2013 Total 14,000,000 4,100,000 (1,431,800) 16,668,200 20p ($0.33) 15/04/2005 1,000,000 - (200,000) 800,000 15/04/ p ($0.58) 18/04/ ,200 - (140,914) 427,286 18/04/ p ($0.58) 10/05/ ,800 - (135,800) - 10/05/ 35p ($0.58) 23/05/2006 3,864,200 - (650,000) 3,214,200 23/05/ p ($0.20) 28/03/2007 7,000,000 - (200,000) 6,800,000 28/03/ p ($0.83) 17/12/ , ,000 17/12/ p ($0.99) 17/12/ , ,000 17/12/ p ($1.16) 17/12/ , ,000 17/12/ p ($1.32) 17/12/ , ,000 17/12/ p ($1.24) 09/05/ 3,100, ,100,000 09/05/2013 Total 16,668,200 - (1,326,714) 15,341, Churchill Mining PLC Annual Report

61 For the year ending 30 June Weighted average exercise price Number Weighted average exercise price Number Outstanding at beginning of year 34p ($0.68) 16,668,200 20p ($0.40) 14,000,000 Granted during year p ($1.46) 4,100,000 Exercised during year 29p ($0.48) (1,326,714) 15p ($0.30) (1,431,800) Lapsed during year Outstanding at end of year 34p ($0.56) 15,341,486 34p ($0.68) 16,668,200 Exercisable at end of year 24p ($0.39) 12,241,486 21p ($0.42) 12,568,200 The weighted average share price during the year was 40p ($0.67) (: 58p ($1.16)). Fair value The fair value of the share options granted have been independently valued using the Black Scholes model that takes into account factors such as the option life, the volatility of share price and expected early exercise of share options. Grant Date 17 December December December December May Share price at date of grant 56p ($1.13) 56p ($1.13) 56p ($1.13) 56p ($1.13) 66p ($1.29) Exercise price 50p ($1.00) 60p ($1.21) 70p ($1.41) 80p ($1.61) 75p ($1.47) Volatility of share price 60% 60% 60% 60% 60% Option life (average) 2.65 years 2.65 years 2.65 years 2.65 years 2.65 years Dividend yield 0% 0% 0% 0% 0% Risk-free investment rate 4.5% 4.5% 4.5% 4.5% 4.5% Fair value 25.1p ($0.51) 21.8p ($0.44) 19.2p ($0.39) 16.9p ($0.34) 24.5p ($0.48) Number of options 250, , , ,000 3,100,000 Volatility has been based on the following: The annualised volatility of the Company s shares since floatation on the AIM market; and The volatility of comparable listed Companies that are considered to be most comparable to Churchill based on historical share price information dating back to July Equity settled share based payment expense Grant Date Number of Options Directors and employee expenses 9 May 3,100,000 Vesting conditions / Expense /2010 Total Expense The options vest over 24 months from the date of issue ,140 Total ,140 Based on the above fair value, the employee expense arising from share options issued to Directors, employees and suppliers was $613,649 (: $122,369). Annual Report Churchill Mining PLC 61

62 For the year ending 30 June NOTE 23: NOTES TO THE CASH FLOW STATEMENT Consolidated Company Reconciliation of (loss)/profit after tax to cash from operating activities (Loss)/profit after tax (14,090) 795 (5,419) 749 Share option expense Depreciation expense Impairment expense 5, (2,220) Loss on exchange rates 3, , Gain on disposal of subsidiary - (3,355) - - Fair value (loss)/gain on options held in associate 624 (841) - - Impairment on investment in associate Deemed profit on disposal of associate 111 (62) - - Interest revenue in investing activities (260) (537) (250) (512) Share of associate loss Decrease/(increase) in accounts receivable (400) (192) 15 (20) (Decrease)/increase in payables (199) 152 (76) 25 Cash flow from operating activities (3,471) (2,643) (1,721) (1,725) Reconciliation of cash and cash equivalents Cash and cash equivalents at the end of the year as shown in the Cash Flow Statement is reconciled to the related items in the Balance Sheet as follows: Cash and cash equivalents 10,903 16,124 10,452 15, Churchill Mining PLC Annual Report

63 For the year ending 30 June NOTE 24: FINANCIAL INSTRUMENTS Significant accounting policies Details of the significant accounting policies in respect of financial instruments are disclosed in Note 1 of the financial statements. Financial risk management The Board seeks to minimise its exposure to financial risk by reviewing and agreeing policies for managing each financial risk and monitoring them on a regular basis. No formal policies have been put in place in order to hedge the Group and Company s activities to the exposure to currency risk or interest risk, however as the Group enters commercial production this may be considered. No derivatives or hedges were entered into during the period. General objectives, policies and processes The Board has overall responsibility for the determination of the Group and Company s risk management objectives and polices and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group s finance function. The Board receives regular reports from the Group Financial Controller through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. The Group is exposed through its operations to the following financial risks: Liquidity risk; Credit risk; Cashflow interest rate risk; Foreign exchange risk; and Price risk. The overall objective of the Board is to set polices that seek to reduce risk as far as possible without unduly affecting the Group and Company s competitiveness and flexibility. There have been no substantive changes in the Group and Company s exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note. Further details regarding these policies are set out below: Principal financial instruments The principal financial instruments used by the Group and Company, from which financial instrument risk arises are as follows: Loans and receivables; Trade and other receivables; Cash and cash equivalents; Short term investments; Trade and other payables; and Finance leases. Annual Report Churchill Mining PLC 63

64 For the year ending 30 June Liquidity risk The Group s and Company s policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. To achieve this aim, it seeks to maintain readily available cash balances to meet expected requirements for a period of at least 60 days. The Group currently has no long term borrowings except for finance leases. Cash forecasts identifying the liquidity requirements of the Group and Company are produced frequently. These are reviewed regularly by management and the Board to ensure that sufficient financial headroom exists for at least a 12 month period. With the Group s significant Indonesian Coal development programme scheduled for 2010 and 2011, the Board is also keen to ensure that there also exists a sufficient reserve to fund the appropriate feasibility studies to identify the required capital to bring the coal reserves into production. The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements: Consolidated Current financial liabilities Carrying amount Contractual cash flows 6 months or less Greater than 6 months Trade and other payables Loans and borrowings Non-current financial liabilities Provisions Loans and borrowings Company Current financial liabilities Carrying amount Contractual cash flows 6 months or less Greater than 6 months Trade and other payables Consolidated Carrying amount Contractual cash flows 6 months or less Greater than 6 months Current financial liabilities Trade and other payables Loans and borrowings Non-current financial liabilities Loans and borrowings Company Current financial liabilities Carrying amount Contractual cash flows 6 months or less Greater than 6 months Trade and other payables Churchill Mining PLC Annual Report

65 For the year ending 30 June Credit risk The credit risk on liquid funds is limited because the counterparties are banks with good credit ratings assigned by international credit rating agencies. The Group made investments and advances into subsidiary companies during the year, recovery of which is dependent on future income generation of those subsidiaries. The Group and Company s maximum exposure to credit risk by class of individual financial instrument is shown in the table below: Consolidated Carrying value Maximum exposure Carrying value Maximum exposure Current assets Cash and cash equivalents 10,903 10,903 16,124 16,124 Trade and other receivables ,075 11,075 16,314 16,314 Company Carrying value Maximum exposure Carrying value Maximum exposure Current assets Cash and cash equivalents 10,452 10,452 15,596 15,596 Trade and other receivables Non-current assets Loans to subsidiaries 19,988 19,988 10,876 10,876 30,502 30,502 26,550 26,550 Annual Report Churchill Mining PLC 65

66 For the year ending 30 June Cash flow interest rate risk The Group and Company is exposed to cash flow interest rate risk from its deposits of cash and cash equivalents with banks. The cash balances maintained by the Group and Company are proactively managed in order to ensure that the maximum level of interest is received for the available funds but without affecting the working capital flexibility the Group and Company require. The majority of the Group funds are currently held in USD which attracts only a minimal interest rate. The Group and Company is not at present exposed to cash flow interest rate risk on borrowings as it has no debt and fixed rate finance leases. No subsidiary company of the Group is permitted to enter into any borrowing facility or lease agreement without prior consent of the Company. Interest rates on financial assets and liabilities The Group and Company s financial assets consist of cash and cash equivalents, loans, listed investments and trade and other receivables. The interest rate profile at 30 June of these assets was as follows: Interest rate risk The Group and Company s exposure to interest rate risk, which is the risk that a financial instrument s value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rate for each class of financial assets and financial liabilities comprises: Consolidated Floating interest rate Fixed interest maturing in 1 year or less Fixed interest maturing over 1 to 5 years Non-interest bearing Total Financial assets Great British Pound ,031 Australian Dollar United States Dollar - 9, ,470 Indonesian Rupiah , ,176 Weighted average interest rate 1.24% 2.43% Financial liabilities Great British Pound Australian Dollar United States Dollar Indonesian Rupiah Weighted average interest rate % Churchill Mining PLC Annual Report

67 For the year ending 30 June Company Floating interest rate Fixed interest maturing in 1 year or less Fixed interest maturing over 1 to 5 years Non-interest bearing Total Financial assets Great British Pound ,031 Australian Dollar United States Dollar - 8,992-19,988 28, ,293-19,988 30,440 Weighted average interest rate 1.61% 2.40% Financial liabilities Great British Pound Australian Dollar United States Dollar Consolidated Floating interest rate Fixed interest maturing in 1 year or less Fixed interest maturing over 1 to 5 years Non-interest bearing Total Financial assets Great British Pound , ,272 Australian Dollar ,556 United States Dollar 74 2, ,250 Indonesian Rupiah ,721-1,110 17,233 Weighted average interest rate 3.68% 4.52% Financial liabilities Great British Pound Australian Dollar United States Dollar Weighted average interest rate % 10.64% - - Annual Report Churchill Mining PLC 67

68 For the year ending 30 June Company Floating interest rate Fixed interest maturing in 1 year or less Fixed interest maturing over 1 to 5 years Non-interest bearing Total Financial assets Great British Pound ,087-10,876 24,070 Australian Dollar United States Dollar - 1, , ,450-10,876 26,471 Weighted average interest rate 4.26% 4.50% Financial liabilities Great British Pound Australian Dollar United States Dollar Categories of financial assets Consolidated Company Current financial assets classified as Loans and receivables Trade and other receivables Cash and cash equivalents 10,903 16,124 10,452 15,596 Total current financial assets 11,075 16,314 10,514 15,674 Non-current financial assets classified as fair value through the profit and loss Listed share options Total non-current financial assets Total financial assets 11,176 17,235 10,514 15,674 The Group is exposed to movements in the fair value of its ASX listed share options in Spitfire Resources Ltd ( Spitfire ) which is dependent on the underlying value of the ordinary shares in Spitfire. 68 Churchill Mining PLC Annual Report

69 For the year ending 30 June Categories of financial liabilities Consolidated Company Trade and other payables Loans and borrowings Total current financial liabilities Non-current financial liabilities measured at amortised cost Provisions Loans and borrowings Total non-current financial liabilities Total financial liabilities At the year end, the Group had a cash balance of $10,903,020 (: $16,123,957) which was made up as follows: Consolidated Company Great British Pound 1,031 13,195 1,031 13,195 United States Dollar 9,298 2,147 8,992 1,958 Australian Dollar Indonesian Rupiah ,903 16,124 10,452 15,596 There is no material difference between the book value and fair value of the Group s cash. The Group and Company received interest for the year as follows: Consolidated Company Interest from bank deposits Continuing operations Discontinuing operations Total interest from bank deposits Annual Report Churchill Mining PLC 69

70 For the year ending 30 June Sensitivity Analysis Interest Rate Risk The Group and Company have performed sensitivity analysis relating to its exposure to their interest rate risk at balance sheet date. The sensitivity analysis demonstrates the effect on the current financial year results and equity which could result from a change in these risks. Interest Rate Sensitivity Analysis At 30 June, the effect on profit and equity as a result of changes in the interest rate, with all other variables remaining constant, would be as follows: Consolidated Company Change in profit Increase in interest rate by 1% Decrease in interest rate by 1% (107) (118) (104) (113) Change in equity Increase in interest rate by 1% Decrease in interest rate by 1% (107) (118) (104) (113) Net Fair Value The carrying value and net fair value of financial assets and liabilities at balance date are: Consolidated Carrying Amount Net Fair Value Carrying Amount Net Fair Value Financial assets Cash and cash equivalents 10,903 10,903 16,124 16,124 Trade and other receivables Listed share options ,176 11,176 17,235 17,235 Financial liabilities Trade and other payables Financial liabilities Provisions Churchill Mining PLC Annual Report

71 For the year ending 30 June Company Carrying Amount Net Fair Value Carrying Amount Net Fair Value Financial assets Cash and cash equivalents 10,452 10,452 15,596 15,596 Trade and other receivables ,514 10,514 15,674 15,674 Financial liabilities Trade and other payables FOREIGN EXCHANGE RISK The Group has two overseas subsidiaries, one being in Australia and the other in Indonesia, whose expenses are mainly denominated in US dollars with some expenses in Australian Dollars & Indonesian Rupiah respectively. Foreign exchange risk is inherent in the Group s activities and is accepted as such. Although its geographical spread reduces the Group s operational risk, the Group s net assets arising from such overseas operations are exposed to currency risk resulting in gains and losses on retranslation into US dollars. No formal policies have been put in place in order to hedge the Group and Company s activities to the exposure to currency risk or interest risk, however as the Group considers entering into commercial production, hedging may be considered. It is the Group s policy to ensure that individual Group entities enter into local transactions in their functional currency wherever possible. The Group considers this policy minimises any unnecessary foreign exchange exposure. In order to monitor the continuing effectiveness of this policy, the Board through their approval of both corporate and capital expenditure budgets, and review of the currency profile of cash balances and management accounts, considers the effectiveness of the policy on an ongoing basis. The following table discloses the exchange rates of the major currencies utilised by the Group: Pounds Sterling Australian Dollar Indonesian Rupiah Foreign currency units to US$1 Average for / ,612 At 30 June ,266 Average for 2007/ ,246 At 30 June ,189 Annual Report Churchill Mining PLC 71

72 For the year ending 30 June Currency exposures & Sensitivity analysis The monetary assets and liabilities of the Group that are not denominated in US Dollars and therefore exposed to currency fluctuations are shown below. The amounts shown represent the US Dollars equivalent of local currency balances. Australian Dollar Pound Sterling Indonesian Rupiah Total US Dollar equivalent of exposed net monetary assets and liabilities At 30 June 3,085 1, ,972 At 30 June 5,588 13, ,313 A 10% strengthening of the US Dollar against the Australian Dollar at 30 June would have reduced losses by $155,462 (: $220,616) and reduced equity by $123,179 (: $438,772). This analysis assumed that all other variables, in particular interest rates, remain constant. A 10% weakening of the US Dollar against the above currency at 30 June would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant. Capital The objective of the Directors is to maximise Shareholder returns and minimise risks by keeping a reasonable balance between debt and equity. To date the Group has minimised risk by being purely equity financed. In managing their capital, the Group and Company s primary objective is to ensure their ability to provide a sufficient return for their equity Shareholders, principally though capital growth. In order to achieve and seek to maximise this return objective, the Group and Company will in the future seek to maintain a gearing ratio that balances risks and returns at an acceptable level while also maintaining a sufficient funding base to enable the Group and Company to meet their working capital and strategic investment needs. In making decisions to adjust their capital structure to achieve these aims, either through new share issues, increases or reductions in debt, or altering a dividend or share buyback policies, the Group considers not only its short term position but also its medium and longer term operational and strategic objectives. Price Risk Price risk relates to the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices largely due to demand and supply factors for commodities. The Group is currently involved in the exploration for coal and should economic resources be delineated then the Group will be exposed to the particular commodity price risk. There are no hedges in place at balance sheet date. 72 Churchill Mining PLC Annual Report

73 For the year ending 30 June NOTE 25: RELATED PARTY TRANSACTIONS The Group had the following material transactions (excluding Directors salaries and fees) with related parties during the year ending 30 June. During the year, the Group paid Direct Invest Group Limited $480,209 (: $405,047) for the consultancy services of Mr Paul Mazak who is a Director of the Company. The amount of $37,125 was owing to Direct Invest Group Limited as at 30 June (: $44,995). During the year, the Group paid Borden Holdings Pty Ltd $16,696 (: $42,830) for the consultancy services of Mr David Quinlivan who is a Director of the Company. There were no amounts owing to Borden Holdings Pty Ltd as at 30 June (: Nil). During the year, the Group paid Goldregis Corporation Pty Ltd $88,806 (: $185,053) for the consultancy services of Mr James Hamilton who was a Director of the Company until April. The amount of $8,910 was owing to Goldregis Corporation Pty Ltd as at 30 June (: $10,818). In June, the Company entered into a lease agreement with Borden Holdings Pty Ltd, a related party of Mr David Quinlivan who is a Director of the Company. The lease is for the office at Suite 1, 346 Barker Road, Subiaco, Western Australia. The lease is for a period of three years with a two year option and the terms of the lease are no more favourable than normal market rates. The terms of the lease were reviewed and approved by the independent Directors. The amount paid for the year ending 30 June was $52,870 (: $5,638). The key management personnel disclosures are included in Note 4 to the financial statements. NOTE 26: CONTINGENT LIABILITIES During April PT Indonesia Coal Development acquired two new licenses as an extension to the East Kutai Coal Project. As part of the purchase price, the parent company Churchill Mining Plc is obliged to issue 2 million shares in Churchill Mining Plc to the vendors of the project upon the delineation of a minimum JORC compliant resource of 100Mt of measured coal resource in the newly acquired extension licences. As at the date of this Report, the Company has not yet reached the 100Mt measured resources in this newly acquired extension licenses and the share issue by Churchill has not yet occurred. Should the Company reach the target and assuming a Churchill share price at 30 June of 53.2p ($0.88) (30 June : 65p (US$1.29)) then the value of the share issue by the Parent Company would have been approximately US$1,760,000 (: US$2,592,740). No amount has been recognised in these financial statements during the period. NOTE 27: POST BALANCE SHEET EVENTS On 29 July the Company issued 75,000 shares at an issue price of 20p ($0.33), pursuant to the exercise of share options. On 26 August the Company announced that Measured & Indicated JORC Resources at the East Kutai Coal Project ( EKCP ) exceeds 1.3 billion tonnes. On 1 October the Company issued 25,000 shares at an issue price of 20p ($0.32) pursuant to the exercise of share options. Annual Report Churchill Mining PLC 73

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76 Incorporated in England and Wales with Registered Number