Incorporated in England and Wales with Registered Number annual report. For the year ending 30 June 2008

Transcription

1 Incorporated in England and Wales with Registered Number annual report 08

2 Corporate Directory Directors David F Quinlivan Paul G Mazak James T Hamilton Faroek Basrewan Company Secretaries Stephen F Ronaldson Russell P Hardwick Registrar Share Registries Limited Suite E, First Floor 9 Lion and Lamb Yard Farnham, Surrey GU9 7LL United Kingdom Bankers HSBC Bank Plc 94 Kensington High Street London W8 4SH United Kingdom Australian Office Suite 1, 346 Barker Road Subiaco WA 6008 Australia Nominated Adviser Blue Oar Securities Plc 30 Old Broad Street London EC2N 1HT United Kingdom Solicitors Ronaldsons Solicitors 55 Gower Street London WC1E 6HQ United Kingdom Registered Office 55 Gower Street London WC1E 6HQ United Kingdom Brokers Midas Investment Management Limited Arthur House Chorlton Street Manchester M1 3FH United Kingdom Indonesian Office Wisma Kosgoro Building 18th Floor, Jl M H Thamrin 53 Jakarta Pusat Republic of Indonesia Auditors BDO Stoy Hayward LLP 55 Baker Street London W1U 7EU United Kingdom Public & Investor Relations Pelham Public Relations 1 Cornhill London EC3V 3ND United Kingdom 02 Churchill Mining PLC Annual Report 2008

3 Contents Corporate Directory 2 Highlights and Achievements 4 Chairman s Statement 6 Review of Operations and Finance 9 Board of Directors 17 Directors Report 19 Corporate Governance Statement 23 Statement of Directors Responsibilities 25 Independent Auditor s Report 26 Consolidated Income Statement 28 Balance Sheet 29 Statement of Changes in Equity 30 Cash Flow Statement 32 Notes to the Financial Statements 33 Churchill Mining PLC Annual Report

4 Highlights & Achievements Operational East Kutai Coal Project (75%), Indonesia Initial 250Mt JORC-Code compliant thermal coal resource defined ahead of schedule, with an upgraded overall resource target of at least 500 million tonnes established. Continued success with in-fill drilling underpins upgraded coal reserve target of 150 million tonnes. New 33m thick coal seam intersected within the RTM block, highlighting the substantial exploration upside within the East Kutai tenements. Positive Scoping Study completed confirming potential to fast-track production with the first stage of production commencing at the end of Under this staged approach, production will commence at 2-3Mtpa while a larger scale 14 20Mtpa project is developed. Full Feasibility Study commences in conjunction with mine-pit drilling. Project financing and coal off-take and joint venture discussions underway with a number of parties. New 200km 2 strategic tenement block secured in an area immediately abutting the current drill area at East Kutai, with the potential to underpin and further significantly increase the overall exploration target. Corporate Full year profit of 398,562 or pence per Ordinary Share. 10 million share placement completed to institutional investors, enabling the Company to accelerate its drilling programme at East Kutai. Successful divestment of an 80% interest in the South Woodie Woodie Manganese Project into a new Australian Securities Exchange (ASX) listed company, Spitfire Resources Ltd. 04 Churchill Mining PLC Annual Report 2008

5 East Kutai Coal Resource Reaches billion tonnes Subsequent to the 2008 reporting period, Churchill Mining Plc announced a significant increase in the JORC Code compliant coal resource for the East Kutai Project in September 2008 to billion tonnes substantially larger than the Company s initial target of 500 million tonnes. Although subsequent to the end of the Financial Year, it warrants inclusion in this report due to the sheer size of the deposit which also has significant upside, considering that only 20% of the coal target area has been drilled to date. The updated resource comprises a Measured Resource of 118Mt (up from 44Mt), an Indicated Resource of 322Mt (up from 73Mt) and an Inferred Resource of 972Mt (up from 133Mt). The near-term objective at East Kutai is to convert these resources into a Mining Reserve capable of sustaining a commercial mining operation, which is targeted for the end of The Company has a minimum coal reserve target of 150Mt and it is expected that ongoing drilling will enable the Company to achieve, and eventually surpass this figure. The upgraded resource estimate was derived from a drilling programme totalling 19,662 metres, including 6,874 metres of open hole drilling and 12,788 metres of coring in 131 drill hole locations. The drilling programme focused on the Northern and Southern areas of the RTM block, one of four target blocks at East Kutai totaling 35,000ha. A very small portion of the coal resource number is also derived from along the edge of the new Investama Resources block to the west of RTM. Churchill Mining PLC Annual Report

6 Chairman s Statement The capital raised was also earmarked to fund various mining and logistical scoping studies, assisting Churchill to confirm the project s optimum extraction, product transport and financial parameters, and to fund ongoing in-fill drilling. Dear Shareholder, I am pleased to present the Company s 2008 Annual Report and Financial Statements following another year of outstanding exploration success, resource development and project enhancement at our portfolio of coal and coal bed methane projects in Indonesia. By far the most significant progress was achieved at our flagship East Kutai Coal Project ( EKCP ), located approximately 110km west of Sangatta in the province of East Kutai, Indonesia, which is rapidly emerging as a world-class coal asset. After acquiring a 75% stake in the EKCP in 2007, Churchill Mining Plc ( Churchill ) made rapid progress during the year in the delineation of a very large, sub-bituminous thermal coal resource. Such was our confidence in the scale of the EKCP discovery that, in November 2007, the Company completed a 10 million equity placement to institutional investors to fund a major exploration programme. The original objective of this campaign was to define approximately 100 million tonnes in reserves and 400 million tonnes in resources by the end of calendar The first JORC-Code compliant resource for the EKCP was delivered in April 2008, significantly ahead of our original timetable. An initial resource comprising 250 million tonnes was calculated by our independent geological consultants, comprising a Measured Resource of 44 million tonnes, an Indicated Resource of 73 million tonnes and an Inferred Resource of 133 million tonnes. Significantly, this exceeded our initial target of 100 million tonnes by 150%, with the resource displaying commercial quality characteristics rated as medium calorific values with low ash and sulphur content. Subsequent to the 2008 reporting period, Churchill again announced a significant increase in the JORC-Code compliant coal resource at the EKCP. In September 2008 we lifted the resource to billion tonnes substantially larger than the Company s initial target of 500 million tonnes. Although this result was subsequent to the end of the Financial Year, it warrants inclusion in this report due to the massive size of the deposit which also has significant upside, considering that only 20% of the coal target area has been drilled to date. The latest updated resource comprises a Measured Resource of 118Mt (up from 44Mt), an Indicated Resource of 322Mt (up from 73Mt) and an Inferred Resource of 972Mt (up from 133Mt). The near-term objective at East Kutai is to convert these resources into a Mining Reserve capable of sustaining a commercial mining operation, which is targeted for the end of Churchill Mining PLC Annual Report 2008

7 With a field team comprising over 200 personnel in place, we are continuing intensive in-fill and extension drilling programmes at East Kutai. During the year, the Company appointed Trans Tek Engineering to undertake a Scoping Study on the East Kutai Project. This was completed and delivered ahead of schedule in June, with very positive results. The study concluded that the EKCP can be developed utilising a staged approach, with initial production commencing at 2-3Mtpa, approximately 12 months ahead of our original schedule, while infrastructure capable of handling a much larger 14 20Mtpa project is constructed over time. The Scoping Study also detailed various alternatives for mine development, infrastructure and ore transportation, providing a strong foundation to initiate project financing discussions with a number of investment banks and potential joint venture partners specialising in the coal sector. On the strength of these results, your Board made the decision to move immediately to a Full Feasibility Study on the project, in conjunction with ongoing drilling. Churchill s second Indonesian project, the Sendawar Coal Bed Methane Project, is of significant strategic value to the Company given the rapidly increasing cost of energy inputs. The area sits in a coal basin with potential to host more than 5 trillion cubic feet (Tcf ) of gas. In September 2007 Churchill (70%), together with our joint venture partner, PT Ridlatama Mining Utama (30%), was granted a Coal Bed Methane Licence ( CBM Licence ) for the project the first of its kind to be granted by the Indonesian Government through direct appointment. No vendor payment was required by Churchill to acquire the licence. The CBM Licence has given Churchill access to a substantial oil and gas database including seismic information and well details. This information is now being interpreted under a joint evaluation study. The Company has initiated discussions regarding the CBM Project with a number of major international oil, gas and CBM companies for the provision of technical assistance, off-take agreements and possible financial assistance. Given the increasing focus on our Indonesian coal and coal bed methane projects, we decided late last year to divest an 80% interest in the South Woodie Woodie Manganese Project in the Pilbara region of Western Australia to Spitfire Resources Limited ( Spitfire ). Spitfire successfully listed on the Australian Securities Exchange ( ASX ) in December 2007 via an oversubscribed A$6 million Initial Public Offering. Churchill Mining PLC Annual Report

8 Chairman s Statement (continued) commodity classes in the foreseeable future. Given this outlook, we will continue to actively pursue our current projects in Indonesia, as well as actively assessing further opportunities within this sector. Coal prices continued to strengthen during the reporting year, with spot prices at year end for Indonesian thermal coal similar to the specification of the East Kutai Project selling at up to US$85/tonne. With the current market financial volatility at the time of writing, the markets have seen offtake pricing on longer term contracts at between US$60 to US$70/tonne. Subject to continued exploration success, we expect to be in a position to make a development decision at East Kutai in 2009 and believe this will pave the way for a substantial re-rating of Churchill as a nearterm producing coal company. Churchill has retained a 35.64% interest in Spitfire as well as a 20% direct equity stake in the South Woodie Woodie Project, providing continued exposure to this asset at a particularly strong period in the manganese price cycle. Churchill will also be entitled to production royalties from the project should a mine be developed in the future. The small profit for the 12 month period, 398,562 or pence per Ordinary Share, was a result of normal operating expenditure offset by the gains realised by the successful divestment of the South Woodie Woodie project and fair value gains on listed options in Spitfire Resources Limited based on the closing price at 30 June. Churchill s overall financial position remains strong and the Company has the necessary cash resources, totalling 8.08 million at the end of June 2008, to conduct its exploration work at the East Kutai Coal project and progress the Sendawar CBM opportunity. Summary & Outlook In a year of extreme volatility on world financial and equity markets, I am pleased to report that Churchill has maintained its momentum and focus with the creation of shareholder wealth our number one priority. The global demand for energy shows no signs of subsiding and with this in mind we see coal and coal bed methane as some of the best performing I would like to take this opportunity to thank our Indonesian-based Directors Managing Director, Paul Mazak, and Non Executive Director, Faroek Basrewan for their focused efforts throughout the year, especially in the rapid definition of such a large resource which has far exceeded our initial expectations. James Hamilton moved to a non executive position on the Churchill Board during the year in order to focus on his role as Managing Director of Spitfire Resources. Spitfire has made excellent progress in its first year as a listed company, delivering positive news from the South Woodie Woodie Manganese Project, securing a niche thermal coal project in Tasmania and attracting the Norwegian-based group Tinfos AS to its share register. Finally, on behalf of the Board I would like to thank all of our shareholders for their continuing support. It is our strong belief that the outlook for Churchill has never been better since our listing in 2005, and we anticipate another landmark year ahead for the Company as we progress towards mine development and production. David Quinlivan Chairman Churchill Mining Plc 08 Churchill Mining PLC Annual Report 2008

9 Review of Operations & Finance Overview Churchill Mining Plc ( Churchill ) listed on the Alternative Investment Market (AIM) of the London Stock Exchange in April 2005 and is committed to growing shareholder value by become a leading minerals explorer and future miner at a time of accelerating commodities demand. Churchill's business plan is to leverage off the strong growth in demand currently being experienced in China and India for commodities which are used as feedstock in the ever expanding energy industries. The execution of this business plan was instigated with the acquisition of the Sendawar gas project, located in East Kalimantan, Indonesia, along with the purchase of a 75% interest in the East Kutai Coal Project from PT Techno Coal Utama Prima in 2007 a high-quality thermal coal project which has now become the Company s key focus. During the year, the decision was made to divest an 80% interest in the South Woodie Woodie Manganese Project in Western Australia to Spitfire Resources Limited a new company which successfully listed on the Australian Securities Exchange on 12 December This decision was made in the interests of repositioning the Company as a focused Indonesian coal exploration and production Company, while retaining a significant interest in the promising manganese tenements in Western Australia. Churchill's management continues to assess further opportunities in southern Asia to acquire quality projects consistent with the Company's business plan. Churchill Mining PLC Annual Report

10 Review of Operations & Finance (continued) Following the completion of the 10 million capital raising in November 2007, exploration was significantly accelerated with in-fill drilling commencing on 250m centres across a 10km by 4km high priority zone. A total programme comprising 65,000m of drilling was planned, with an initial objective of delineating 100Mt in reserves and 400Mt in resources by the end of The new drilling programme was undertaken with a mix of open hole and core drilling, utilising three drilling rigs and 200 support personnel. The programme is being managed by Jakarta-based consultants PT GMT, led by ex-pat Australian, Brett Gunter. East Kutai Coal Project Background In May 2007, Churchill reached agreement to purchase a 75% interest in the East Kutai Coal Project from PT Techno Coal Utama. This followed on from an exclusivity agreement which was signed in March 2007 and subsequent due diligence carried out by Churchill. The original East Kutai Coal Project (EKCP) area covered an area of approximately 575km² (made up of four blocks) situated 110km west from the main population centre of Sangatta. In April this year, 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. The newly extended East Kutai Coal Project now covers an area of approximately 775km². Year In Review The main focus of the year was intensive exploration and resource development to confirm the potential of the East Kutai Project as a discovery of medium calorific coal of world-class size. Drilling initially commenced on 500m spaced centres to a depth of between 100m and 150m, rapidly defining a large north/west-south/east trending coal corridor. Initial 250Mt JORC Resource In April 2008, Churchill released its first JORC Code compliant Mineral Resource statement for the East Kutai Project significantly ahead of schedule. The 250Mt JORC coal resource, which is set out below, exceeded the Company s initial target of 100Mt by 150%: Measured Resource Indicated Resource Inferred Resource Total Resources 44Mt 73Mt 133Mt 250Mt Churchill s drilling programme and exploration data was modeled by SMG Consultants under the direction of Senior Geologist, Mr Stephen Barber. The Company has contracted two ground survey teams to complete an additional topographical survey which will also work towards moving the Inferred and Indicated JORC resources of the current 250Mt, into the Measured category and then into Mining Reserve after completion of Feasibility Studies. As a result of the success of its ongoing drilling programmes, the Company upgraded its overall project initial coal reserve target by 50% from 100Mt to 150Mt, and established an overall resource target of 500Mt by the end of Ongoing Exploration Subsequent to the end of the Financial Year, continued drilling to the south, within the RTM block, intersected a very thick coal seam with the best intercept being 33.86m in thickness in drill hole RTM-098. This follows up previously reported seam intercepts of up to 25m in thickness in the same area. 10 Churchill Mining PLC Annual Report 2008

11 The extent of this seam is yet to be defined, but remains open to the south. Further drilling will delineate the extensions of the seam in this area during the balance of the calendar year. In addition, access into the main areas defined as the reserve target area, which includes the targeted first pit area, is close to being established. Heavy earth moving equipment is currently working to open access, which will allow rapid drill rig deployment into the target area. Topographic surveys also continue into previously un-surveyed areas where drilling has been completed to allow accurate resource modeling of the seams. At the time of writing, an updated JORC resource was completed by independent coal experts SMGC and a summary of the results released to the market. The update (released in September 2008) announced that the EKCP resource had grown dramatically to billion tonnes. The Company has deployed its three rigs to concentrate on an intensive drilling programme covering an area approximately 6km by 2km with the potential to form part of the project s first mine pit. The mine pit target drilling is in an area that includes part of the new strategic exploration tenure secured during the year. This phase of the drilling programme will also include the aerial survey of the resource area in order to convert the inferred resource to the measured category. Churchill Mining PLC Annual Report

12 Review of Operations & Finance (continued) New Strategic Tenements Secured With the success of its resource development programme at the East Kutai Project, the Company moved to further increase its strategic position in the region by securing a 75% interest in an additional 200km 2 of tenements immediately abutting the western boundary of its existing tenure. In April 2008, Churchill completed an agreement with the vendors, the Investmine Group of Indonesia, to secure this interest for an Indonesian Rupiah cash payment equivalent to US$1.55 million and a possible future issue of two million Churchill shares. The shares can be issued should Churchill prove up a minimum JORC compliant Measured Resource of 100 million tonnes of coal. The vendor cash payment was paid from savings that Churchill has made on its original exploration budget at East Kutai, due to the consistency of the coal seams being drilled. Following on from geological observations by the Company that the coal seams at East Kutai continued to the west, Churchill completed extensive technical and legal due diligence on the new area, including pilot drilling to confirm the continuity of the coal seams into the new tenements. Interpretation of the coal seams currently being drilled in the coal resource target area clearly show them crossing the western boundary of the block with the lower coal package moving closer to the surface to the west, in particular the number 14 seam, which is consistent in thickness. Due diligence drilling in the new area has confirmed this geological interpretation with IR-001 intersecting coal between metres (at a depth of 7.63 metres) and IR-002 between metres (at a depth of 8.05 metres). Moreover, there is an indication from the current drilling that additional seams may also occur beneath the number 14 seam and that these should extend into the new concession area and come closer to the surface in the west. As these coal seams are merely extensions to the known coal seams, the quality of the coal is expected to be the same as that presently being drilled. The addition of the new tenements has the potential over time to substantially increase Churchill s overall resource target at East Kutai. East Kutai Project Scoping Study During the year, Churchill appointed the Australian- Canadian owned Trans-Tek Engineering, to undertake a broadly-based Scoping Study of the East Kutai Project, considering all aspects of possible mining facilities, transportation infrastructure to port, shiploading and port facilities. The Scoping Study was completed in June, ahead of schedule, and with very positive results, paving the way for the immediate commencement of a Full Feasibility Study. Importantly, the Scoping Study concluded that the development schedule for the East Kutai Project can be brought forward by 12 months to the end of 2009 through a staged approach. 12 Churchill Mining PLC Annual Report 2008

13 infrastructure capable of handling up to 14-20Mtpa of production is constructed over time. The study detailed various alternatives for mine development, crushing and stockpiling at site, transporting the coal from site to port and the port facilities and port location. After taking into consideration the likely long-term price rise in diesel and other costs associated with the total road haulage option, the Scoping Study concluded that a combination of haulage road and conveyor is the most profitable means for the final transportation system from mine to port. Following on from the Scoping Study, the Company has entered into commercial discussions and negotiations with several international engineering companies for final infrastructure design, pricing and construction project management. Production Timeline Following the early completion of the Scoping Study for the EKCP, the Company is currently undertaking a Feasibility Study which will target first stage production at East Kutai towards the end of This is approximately 12 months ahead of the previously planned start date and represents a substantial cash flow opportunity for the Company. Under this staged development scenario, production would commence at 2-3Mtpa in late 2009, generating early cash flow while the full Project Financing In November 2007, Churchill completed a 10 million equity placement to institutional investors to fund a 65,000m drilling programme. Subsequent to this, and based upon the results of the Scoping Study (and subject to confirmation of the mining reserve, final mine design, detailed engineering and pricing) Churchill is in a strong position to secure funding for the upcoming development of the project. Detailed discussions regarding project funding have commenced with a number of investment banks and potential joint venture partners specialising in the coal sector. In addition to this, negotiations with a number of parties regarding additional coal off-take agreements have also commenced. Given the commercial sensitivities surrounding these negotiations, the Company is not in a position to go into a detailed account of the projected costs and profits from the Scoping Study at this time. Infrastructure & Personnel All exploration camps and facilities are in place and the Company now has a field team of over 200 personnel including 12 geologists, drilling contractor staff, community liaison and local development officers, logistical support and locally sourced non-skilled personnel working on the project. Churchill Mining PLC Annual Report

14 Review of Operations & Finance (continued) Churchill also moved to expand its technical competence by appointing John Clayton as Technical Director for the East Kutai Coal Project. Highly experienced with 38 years in the mining industry, Mr Clayton was previously Project Manager on the Banpu Coal Port Expansion at Bontang in Indonesia and Project Manager at PT Suprabari Minerals, where he set up the expansion phase and development of a new coal mine in Central Kalimantan. Sendawar Coal Bed Methane Project Background The Sendawar Coal Bed Methane project in East Kalimantan, Indonesia was acquired by Churchill in April 2006 after several months of due diligence, and was Churchill's first coal target. The tenement area is located in the established coal production region of East Kalimantan now thought to contain sufficient deep resources to be a Coal Bed Methane (CBM) proposition. In September 2007, Churchill (70%) was granted a Coal Bed Methane licence ( CBM Licence ) for the project along with joint venture partner PT Ridlatama Mining Utama (30%) the first of its kind to be granted by the Indonesian Government through direct appointment. The CBM licence has given Churchill access to a substantial oil and gas database including seismic information and well details. This information is now being interpreted under a joint evaluation study. Project Update At the time of writing, Indonesia s CBM regulations have not yet been completed or issued and Churchill will only be in a position to commit to signing a PSC, subject to completion of technical due diligence, once the new regulations have been formalised and considered workable by Churchill. To that end, Churchill, along with the major national and international energy companies targeting CBM in Indonesia, is a founding member of the Indonesian Association for Unconventional Gas and Oil (AUGI). AUGI has recently been recognised by BPmigas, the Indonesian Government authority responsible for the CBM regulations, as the only industry body permitted an input into the drafting of the CBM regulations. 14 Churchill Mining PLC Annual Report 2008

15 South Woodie Woodie Manganese Project Background The South Woodie Woodie Project area is located in the highly prospective East Pilbara Manganese Province in Western Australia, about 1,200km north east of Perth and some 50km south of the Woodie Woodie Manganese Mining Centre. Although manganese was first discovered in the Project Area at Enacheddong Creek in 1977, there was no systematic exploration of the area until Churchill (through its subsidiary Planet Mining Limited) acquired the rights to 80% of the property in 2004 and subsequently 100% in Since that time, Churchill has undertaken various exploration programmes aimed at identifying new targets for manganese mineralisation. Divestment to Spitfire Resources Given Churchill s increasing focus on its Indonesian coal and coal bed methane projects, the Company decided to divest its 80% interest in the project to Australian company Spitfire Resources Limited ( Spitfire ). Spitfire has the option to purchase the remaining equity in the project for AUD$3 million after spending AUD$1.5 million on exploration. Spitfire successfully listed on the Australian Securities Exchange ( ASX ) via a A$6 million Initial Public Offering (IPO) in December The transaction allows Churchill to focus purely on its East Kutai and Sendawar Projects in Indonesia while retaining a substantial stake in Spitfire. The consideration to Churchill for the acquisition of the 80% interest in the South Woodie Woodie Project was 25 million new ordinary shares in Spitfire, making Churchill Spitfire s largest shareholder currently with a 35.64% shareholding. Churchill will also be entitled to retain a manganese production royalty should a mine be developed. The production royalty is price indexed so as to ensure Churchill retains substantial leverage to any future mining cash flow. In March 2008, Spitfire announced that it had secured the strategic support of the diversified Norwegian-based industrial, trading and metals & alloys group, Tinfos AS, as its new major shareholder via a share placement. Churchill Mining PLC Annual Report

16 Review of Operations & Finance (continued) Corporate Principal Risks and Uncertainties There are risks associated with the exploration 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 risks, which even a combination of careful evaluation and knowledge may not eliminate; 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; The Group has operations in Indonesia where there may be a number of associated risks over which it will have no control. These may include economic, social or political instability, terrorism, currency instability, changes of laws affecting foreign ownership, government participation, taxation and exploration licensing; and Some or all of the exploration 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. Financial Summary The profit for the year was 398,562 (2007: loss 1,108,467). The operating profit for the year was a result of normal operating expenditure offset by the gains realised by the successful divestment of the South Woodie Woodie Project and the fair value of listed options in Spitfire Resources Limited based on the closing price at 30 June The balance of operating expenditure is in line with the Company s stage of development as an explorer and the Company continues to seek to minimise administration expenditure where possible. During the year, the Company committed approximately 2.4 million to exploration and evaluation expenditure including US$1.55 million for the acquisition of a 75% indirect interest in an additional 200km² of coal tenements immediately abutting the western boundary of the EKCP. The acquisition of the 75% interest also requires a contingent future issue of two million Churchill shares should Churchill prove up a minimum 100Mt JORC compliant measured coal resource on these new tenements. Churchill s overall financial position remains strong and the Company has the necessary cash resources, totalling 8.08 million at the end of June 2008, to conduct its exploration work at the East Kutai Coal Project and progress the Sendawar CBM opportunity. During the year, the Company completed a 10 million share placement which will allow the Company to accelerate its drilling programme at the East Kutai Coal Project and begin mining scoping studies. In summary, Churchill remains committed to its core value of creating shareholder wealth. Given Churchill s commodity mix, the almost unprecedented current global demand for coal, and the significant amounts of exploration dollars due to be expensed at its direct and indirectly owned projects, the outlook for Churchill has never been better since listing in Paul G Mazak Managing Director Churchill Mining Plc 16 Churchill Mining PLC Annual Report 2008

17 Board of Directors David F Quinlivan (aged 53) 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 50) 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. 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 worldclass 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. Churchill Mining PLC Annual Report

18 Board of Directors (continued) James T Hamilton (aged 40) Non Executive Director Mr Hamilton has more than 15 years experience in the international resources sector, as a journalist, and for the past four years, in senior roles with listed mining companies. A former award-winning Financial Journalist specialising in the global resource sector, Mr Hamilton travelled extensively analysing exploration projects, mines and management teams across a variety of mineral commodities, including precious metals, base metals, diamonds, energy minerals and industrial minerals. He is the former Editor of Australian technical mining journal Australia s Mining Monthly, Editor of dedicated mining investment magazine ResourceStocks and the founder of global mining information news service, MiningNews.net. In 2005 Mr Hamilton was appointed Joint Managing Director of AIM-listed Company, Churchill Mining Plc, and has helped grow the Company from concept into a successful explorer. He now serves as a Non Executive Director of Churchill Mining. In 2007 he was appointed as Managing Director of Spitfire Resources which completed a successful listing on the Australian Securities Exchange following the spin-off of the manganese exploration assets previously held by Churchill Mining. Faroek Basrewan (aged 63) 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. 18 Churchill Mining PLC Annual Report 2008

19 Directors Report 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 and the Sendawar CBM project and to acquire further projects and investments in the mining sector. During the year, the Company s 100% controlled subsidiary Planet Mining Pty Ltd reached agreement to sell 80% of the South Woodie Woodie Manganese Project to an Australian company Spitfire Resources Ltd ( Spitfire ). Spitfire will have the option to purchase the remaining equity in the project after spending AUD$1.5 million on exploration within 18 months. Spitfire listed on the Australian Stock Exchange via an AUD$6 million Initial Public Offering in December The disposal has allowed Churchill to focus purely on its Sendawar and East Kutai coal projects in Indonesia whilst retaining a substantial stake in Spitfire. 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, including principle risks and uncertainties. 2. Results and Dividends Profit on ordinary activities of the Group after taxation amounted to 398,562 (2007 loss: 1,108,467). The Directors do not recommend the payment of a dividend. 3. Financial Instruments Details of the use of financial instruments by the Company and its subsidiary undertakings are contained in Note 23 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. 4. 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 business unit in Indonesia which is staffed by regional employees. 5. 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. 6. Key Performance Indicators The Group s key financial performance indicators are the maximisation of mineral resources and minimisation of operational and administration expenses. The Directors regularly monitor available cash flow to meet exploration expenditure activity. Its key non-financial performance indicators are the optimum deployment of its existing resources to achieve the maximum mineral resource targets. The Directors regularly monitor the technical results of the exploration activity and review the subsequent JORC statements. Further analysis in relation to key performance indicators and resources targets are included in the Chairman s Statement and Review of Operations and Finance. Churchill Mining PLC Annual Report

20 Directors Report (continued) 7. 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. 8. 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. 9. Directors The following have been Directors of the Company since the start of the financial year ended 30 June 2008: David F Quinlivan James T Hamilton Paul G Mazak Melissa J Sturgess (Resigned 1 October 2007) Faroek Basrewan (Appointed 3 October 2007) Directors Interests in Options The Directors who held office at 30 June 2008 had, at that time, the following beneficial interests in share options of the Company: Share Options Date of grant Number of options Balance at 30/06/2008 Option exercise price (pence) Expiry date David F Quinlivan 15 April , ,000 20p 15 April April , ,140 35p 18 April May , ,000 35p 23 May March ,200,000 1,200,000 12p 28 March May , ,000 75p 9 May 2013 James T Hamilton 15 April , ,000 20p 15 April April , ,914 35p 18 April May ,157,100 1,157,100 35p 23 May March ,400,000 2,400,000 12p 28 March May , ,000 75p 9 May 2013 Paul G Mazak 15 April , ,000 20p 15 April April , ,914 35p 18 April May ,157,100 1,157,100 35p 23 May March ,400,000 2,400,000 12p 28 March May ,150,000 1,150,000 75p 9 May 2013 Faroek Basrewan 9 May , ,000 75p 9 May 2013 Total 12,547,168 12,547,168 The market price of the Company s shares on 30 June 2008 was 65p and the range of closing prices during the year was 34.83p to 76.5p. 20 Churchill Mining PLC Annual Report 2008

21 Directors Report (continued) 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. 10. 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. 11. Supplier Payment Policy 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 2008 represent 42 days purchases (2007: 34 days). 12. Directors Indemnity Provisions All of the current Directors benefited from qualifying third party indemnity insurance in place during the year ended 30 June Post Balance Sheet Events On 4 July 2008 the Company issued 200,000 shares at an issue price of 12p, 200,000 shares at an issue price of 20p and 100,000 shares at an issue price of 35p, pursuant to the exercise of share options. On 8 August 2008 the Company issued 690,914 shares at an issue price of 35p pursuant to the exercise of share options. On 5 September 2008 the Company announced it has now defined billion tonnes of JORC compliant resource, in various categories, in the original exploration concessions at the East Kutai Coal Project ( EKCP ). Since 30 June, the world markets have been extremely volatile resulting in the fair value of the Group s financial assets and investment in associates (Spitfire Resources Limited) at the date of this report reducing by approximately 1,320, 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. 15. Auditors BDO Stoy Hayward 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. Churchill Mining PLC Annual Report

22 Directors Report (continued) 16. 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 24 October Churchill Mining PLC Annual Report 2008

23 Corporate Governance Statement 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. 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 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. During the year ended 30 June 2008, 12 Board meetings were held. The Directors who were members of the Board during the year attended as follows: Board of Directors Meetings Attendance David F Quinlivan James T Hamilton Paul G Mazak Faroek Basrawan 11 9 Melissa Sturgess 1 1 Internal Audit Due to the size of the Group, it is not economically viable or considered necessary to employ Internal Auditors. Audit Committee Chaired by David Quinlivan, the Committee comprises Mr Quinlivan and Mr Hamilton. 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. It also reviews the performance of the Group s auditors to ensure an independent, objective, professional and costeffective 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. Churchill Mining PLC Annual Report

24 Corporate Governance Statement (continued) Remuneration Committee The Remuneration Committee consists of the independent Non Executive Directors and is chaired by David Quinlivan. The Committee s aim is to ensure that Executive Directors 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. 24 Churchill Mining PLC Annual Report 2008

25 Statement of Directors Responsibilities 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. 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. 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. Churchill Mining PLC Annual Report

26 Independent Auditor s Report to the Shareholders of Churchill Mining Plc Independent Auditor's Report to the shareholders of Churchill Mining Plc We have audited the Group and parent company financial statements (the ''financial statements'') of Churchill Mining Plc for the year ended 30 June 2008 which comprise the Consolidated Income Statement, the Consolidated and Company Balance Sheets, the Consolidated and Company Cash Flow Statements, the Consolidated and Company Statements of Changes in Equity and the related notes. These financial statements have been prepared under the accounting policies set out therein. Respective responsibilities of Directors and Auditors The Directors' responsibilities for preparing the Annual Report and financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the statement of Directors' responsibilities. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and have been properly prepared in accordance with the Companies Act 1985 and whether the information given in the Directors Report is consistent with those financial statements. We also report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding Directors' remuneration and other transactions is not disclosed. We read the other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only the Chairman s Report, the Review of Operations and Finance, the Directors Report, the Corporate Governance Statement, and the Statement of Directors Responsibilities. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Our report has been prepared pursuant to the requirements of the Companies Act 1985 and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of the Companies Act 1985 or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability. Basis of Audit Opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group's and Company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. 26 Churchill Mining PLC Annual Report 2008

27 Independent Auditor s Report (continued) to the Shareholders of Churchill Mining Plc Opinion In our opinion: The Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the Group's affairs as at 30 June 2008 and of its profit for the year then ended; The parent company financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union as applied in accordance with the provisions of the Companies Act 1985, of the state of the parent company's affairs as at 30 June 2008; The financial statements have been properly prepared in accordance with the Companies Act 1985; and The information given in the Directors Report is consistent with the financial statements. BDO Stoy Hayward LLP Chartered Accountants and Registered Auditors 55 Baker St London W1U 7EU United Kingdom 24 October 2008 Churchill Mining PLC Annual Report

28 Consolidated Income Statement Continuing operations Note Revenue - - Cost of Sales - - Gross profit/(loss) - - Other Administrative expenses (1,297,843) (838,717) Impairment of exploration costs (453,851) (234,813) Total administrative expenses (1,751,694) (1,073,530) Loss from operations 3 (1,751,694) (1,073,530) Fair value gain on investments 2 421,837 - Finance income 2 257, ,035 Finance expenses 3 (2,156) (943) Deemed profit on disposal of associate 9 31,370 - Share of operating loss of associate 9 (104,121) - Loss on ordinary activities before taxation (1,147,238) (932,438) Income tax expense Loss on ordinary activities after taxation from continuing operations (1,147,238) (932,438) Profit/(Loss) from discontinued operations 6 1,545,800 (176,029) Profit/(Loss) for the period attributable to equity shareholders of the parent 398,562 (1,108,467) Profit/(Loss) per share Basic profit/(loss) per share (Pence) (2.486) Diluted profit/(loss) per share (Pence) (2.486) Loss per share Continuing Operations Basic loss per share (Pence) 7 (2.044) (2.092) Diluted loss per share (Pence) 7 (2.044) (2.092) 28 Churchill Mining PLC Annual Report 2008

29 Balance Sheet As at 30 June 2008 Consolidated Company Note ASSETS Current assets Cash and cash equivalents 8,088,225 2,415,189 7,823,312 1,859,649 Trade and other receivables , ,895 39,254 2,594,663 Total current assets 8,377,583 2,611,084 7,862,566 4,454,312 Non-current assets Property, plant and equipment ,569 49,550 37,804 - Intangible assets 13 6,802,433 5,336, , ,055 Other financial assets , Investment in subsidiaries ,515,718 2,946,301 Investments in associates 9 2,106, Total non-current assets 9,491,370 5,385,867 9,663,577 3,056,356 TOTAL ASSETS 17,868,953 7,996,951 17,526,143 7,510,668 LIABILITIES Current Liabilities Trade and other payables , , ,144 51,427 Loans and borrowings 18 7,299 6, Total current liabilities 264, , ,144 51,427 Non-current liabilities Loans and borrowings 18 4,686 12, Total non-current liabilities 4,686 12, TOTAL LIABILITIES 269, , ,144 51,427 NET ASSETS 17,599,852 7,459,241 17,418,999 7,459,241 CAPITAL AND RESERVES ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY Share capital , , , ,800 Share premium reserve 20 15,301,048 6,200,382 15,301,048 6,200,382 Merger reserve 20 3,425,000 3,425,000 3,425,000 3,425,000 Other reserves 20 1,156, ,435 1,029, ,033 Retained losses (2,942,814) (3,341,376) (2,997,084) (3,372,974) TOTAL EQUITY 17,599,852 7,459,241 17,418,999 7,459,241 The financial statements were approved and authorised for issue by the Board of Directors on 24 October 2008 and were signed on its behalf by: Paul G Mazak Director Churchill Mining PLC Annual Report

30 Statement of Changes in Equity Consolidated Equity settled share options Share Capital Share premium reserve Merger reserve Retained losses Foreign exchange reserve reserve Total Equity Changes in equity for period to 30 June 2007 Balance at start of the year 445,800 6,200,382 3,425,000 (2,232,909) - 545,033 8,383,306 Loss for the year (1,108,467) - - (1,108,467) Exchange differences on translation of foreign operations (31,598) - (31,598) Total recognised income and expense for the year (1,108,467) (31,598) - (1,140,065) Recognition of share based payments , ,000 Balance at 30 June ,800 6,200,382 3,425,000 (3,341,376) (31,598) 761,033 7,459,241 Changes in equity for period to 30 June 2008 Balance at start of the year 445,800 6,200,382 3,425,000 (3,341,376) (31,598) 761,033 7,459,241 Profit for the year , ,562 Exchange differences on translation of foreign operations , ,181 Total recognised income and expense for the year , , ,743 Recognition of share based payments ,384 61,384 Issue of shares 214,318 9,998, ,213,150 Share issue expenses - (898,166) ,500 (690,666) Balance at 30 June ,118 15,301,048 3,425,000 (2,942,814) 126,583 1,029,917 17,599,852 Net expense recognised directly in equity for the year is 158,181 (2007: 31,598) The accompanying notes form part of these financial statements. 30 Churchill Mining PLC Annual Report 2008

31 Statement of Changes in Equity (continued) Company Equity settled share options Share Capital Share premium reserve Merger reserve Retained losses reserve Total Equity Changes in equity for period to 30 June 2007 Balance at start of the year 445,800 6,200,382 3,425,000 (1,833,499) 545,033 8,782,716 Loss for the year (1,539,475) - (1,539,475) Total recognised income and expense for the year (1,539,475) - (1,539,475) Recognition of share based payments , ,000 Balance at 30 June ,800 6,200,382 3,425,000 (3,372,974) 761,033 7,459,241 Changes in equity for period to 30 June 2008 Balance at start of the year 445,800 6,200,382 3,425,000 (3,372,974) 761,033 7,459,241 Profit for the year , ,890 Total recognised income and expense for the year , ,890 Recognition of share based payments ,384 61,384 Issue of shares 214,318 9,998, ,213,150 Share issue expenses - (898,166) ,500 (690,666) Balance at 30 June ,118 15,301,048 3,425,000 (2,997,084) 1,029,917 17,418,999 The accompanying notes form part of these financial statements. Churchill Mining PLC Annual Report

32 Cash Flow Statement Consolidated Company Note Cash flows from operating activities 22 (1,325,600) (923,853) (865,144) (279,911) Interest paid (2,156) (943) - - Net cash flows from operating activities (1,327,756) (924,796) (865,144) (279,911) Cash flows from investing activities Finance Income 269, , , ,749 Payments for exploration assets (1,170,598) (125,389) - - Payments for exploration and evaluation (1,470,749) (1,717,526) - (106,880) Payments for investment in subsidiaries (595,379) Acquisition of property, plant and equipment (49,130) (42,278) (3,777) - Acquisitions of options in associate (40,175) Advances to subsidiaries - - (2,893,271) (2,197,589) Cash flows from investing activities (2,461,227) (1,702,869) (2,640,019) (2,738,099) Cash flows from financing activities Proceeds from issue of share capital 10,213,150-10,213,150 - Share issue expenses paid (690,666) (150,000) (690,666) (150,000) Proceeds from borrowings , Repayments of borrowings (7,740) Cash flows from/(used in) financing activities 9,515,677 (131,208) 9,522,484 (150,000) Net increase/(decrease) in cash and cash equivalents 5,726,694 (2,758,873) 6,017,321 (3,168,010) Cash and cash equivalents at beginning of year 2,415,189 5,229,499 1,859,649 5,083,096 Effect of foreign exchange rate differences (53,658) (55,437) (53,658) (55,437) Cash and cash equivalents at 30 June ,088,225 2,415,189 7,823,312 1,859, Churchill Mining PLC Annual Report 2008

33 Notes to the Financial Statements 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. These financial statements have been prepared on the basis of a going concern and in line with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (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 IFRIC of the IASB that are relevant to the operations and effective for annual reporting periods beginning on 1 July 2007 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. Changes in accounting policies (a) New standards, amendments to published standards and interpretations to existing standards effective in the year ended 30 June 2008 and adopted by the Group: IFRS 7, Financial Instruments: disclosures and a complementary amendment to IAS 1, Presentation of Financial Statements capital disclosures (effective for accounting periods beginning on or after 1 January 2007). IFRS 7 introduces new requirements aimed at improving the disclosure of information about financial instruments. It requires the disclosure of qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk. Where those risks are deemed to be material to the Group it requires disclosures based on the information used by key management. It replaces the disclosure requirements in IAS 32 Financial Instruments: disclosure and presentation. It is applicable to all entities that report under IFRS. The amendment to IAS 1 introduces disclosures about the level and management of an entity's capital. The Group has applied IFRS 7 and the amendment to IAS 1 to the accounts for the period beginning on 1 January IFRIC 8, Scope of IFRS 2 (effective for accounting periods beginning on or after 1 May 2006). IFRIC 8 requires consideration of transactions involving the issue or grant of equity instruments to establish whether or not they fall within the scope of IFRS 2. It applies to situations where the identifiable consideration received is or appears to be less than the fair value of the equity instruments issued. There was no impact on the Group's accounts from its adoption. IFRIC 9, Reassessment of embedded derivatives (effective for accounting periods beginning on or after 1 June 2006). IFRIC 9 requires an assessment of whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative when an entity becomes a party to the contract. Subsequent reassessment is prohibited unless there is a change in the terms of the contract that significantly modifies the cash flows that otherwise would be required under the contract, in which case reassessment is required. There was no impact on the Group's accounts from its adoption. Churchill Mining PLC Annual Report

34 Notes to the Financial Statements (continued) NOTE 1: Statement of Significant Accounting Policies (continued) IFRIC 10, Interim Financial Reporting and Impairment (effective for accounting periods beginning on or after 1 November 2006). IFRIC 10 prohibits impairment losses recognised in an interim period on goodwill and investments in equity instruments and on financial assets carried at cost to be reversed at a subsequent balance sheet date. There was no impact on the Group's accounts from its adoption. IFRIC 11, IFRS 2 Group and Treasury Share Transactions (effective for accounting periods beginning on or after 1 March 2007). IFRIC 11 requires share-based payment transactions in which an entity receives services as consideration for its own equity instruments to be accounted for as equity settled. This applies regardless of whether the entity chooses or is required to buy those equity instruments from another party to satisfy its obligations to its employees under the share-based payment arrangement. It also applies regardless of whether: (a) the employee's rights to the entity's equity instruments were granted by the entity itself or by its shareholder(s); or (b) the share-based payment arrangement was settled by the entity itself or by its shareholder(s). Management already adopts the key principles of IFRIC 11. (b) Standards, amendments and interpretations to published standards not yet effective Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the Group's accounting periods beginning on or after 1 January 2008 or later periods and which the Group has decided not to adopt early. These are: IFRS 8, Operating Segments (effective for accounting periods beginning on or after 1 January 2009). This standard sets out requirements for the disclosure of information about an entity's operating segments and also about the entity's products and services, the geographical areas in which it operates, and its major customers. It replaces IAS 14, Segmental Reporting. The Group is currently reviewing the impact of this standard for the accounting periods beginning on 1 July As this is a disclosure standard it will not have any impact on the results or net assets of the Group. IAS 23, Borrowing Costs (revised) (effective for accounting periods beginning on or after 1 January 2009). The revised IAS 23 is still to be endorsed by the EU. The main change from the previous version is the removal of the option of immediately recognising as an expense borrowing costs that relate to qualifying assets, broadly being assets that take a substantial period of time to get ready for use or sale. The Group is currently assessing its impact on the financial statements. IFRIC 12, Service Concession Arrangements (effective for accounting periods beginning on or after 1 January 2008). IFRIC 12 is still to be endorsed by the EU. IFRIC 12 gives guidance on the accounting by operators for public-toprivate service concession arrangements. IFRIC 12 is not relevant to the Group's operations due to absence of such arrangements. IFRIC 13, Customer Loyalty Programmes (effective for accounting periods beginning on or after 1 July 2008). IFRIC 13 is still to be endorsed by the EU. IFRIC 13 addresses sales transactions in which the entities grant their customers award credits that, subject to meeting any further qualifying conditions, the customers can redeem in future for free or discounted goods or services. There is no impact on the Group s accounts. IFRIC 14, IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (effective for accounting periods beginning on or after 1 January 2008). IFRIC 14 is still to be endorsed by the EU. IFRIC 14 clarifies when refunds or reductions in future contributions should be regarded as available in accordance with paragraph 58 of IAS 19, how a minimum funding requirement might affect the availability of reductions in future contributions and when a minimum funding requirement might give rise to a liability. There is no impact on the Group s accounts. 34 Churchill Mining PLC Annual Report 2008

35 Notes to the Financial Statements (continued) NOTE 1: Statement of Significant Accounting Policies (continued) Revised IFRS 3, Business Combinations and complementary amendments to IAS 27, Consolidated and separate financial statements (both effective for accounting periods beginning on or after 1 July 2009). This revised standard and amendments is still to be endorsed by the EU. The revised IFRS 3 and amendments to IAS 27 arise from a joint project with the Financial Accounting Standards Board (FASB), the US standards setter, and result in IFRS being largely converged with the related, recently issued, US requirements. There are certain very significant changes to the requirements of IFRS, and options available, if accounting for business combinations. Management is currently assessing the impact of IFRS 3 and amendments to IAS 27 on the accounts. Amendment to IFRS 2, Share-based payments: vesting conditions and cancellations (effective for accounting periods beginning on or after 1 January 2009). This amendment is still to be endorsed by the EU. The amendment to IFRS 2 is of particular relevance to companies that operate employee shares save schemes. This is because it results in an immediate acceleration of the IFRS 2 expense that would otherwise have been recognised in future periods should an employee decide to stop contributing to the savings plan, as well as a potential revision to the fair value of the awards granted to factor in the probability of employees withdrawing from such a plan. Management already adopts the key principles of the amendments to IRFS 2. Amendments to IAS 39 and IFRS 7: reclassification of financial instruments (effective for accounting periods beginning on or after 1 July 2008). These amendments allow reclassification of certain assets previously included at fair value through the profit and loss and add certain disclosure requirements. The amendments are not expected to affect the Group. No other IFRSs issued and adopted but not yet effective are expected to have an impact on the Group s financial statements. 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 230 of the Companies Act 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. Churchill Mining PLC Annual Report

36 Notes to the Financial Statements (continued) NOTE 1: Statement of Significant Accounting Policies (continued) 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 above. 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 similarly recognised immediately in the income statement. On consolidation, the results of overseas operations are translated into sterling 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 Group 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. Financial instruments Financial assets and financial liabilities are recognised when the 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 classifies its financial assets into one of the following categories, depending on the purpose for which the asset was acquired. The Group 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. 36 Churchill Mining PLC Annual Report 2008

37 Notes to the Financial Statements (continued) NOTE 1: Statement of Significant Accounting Policies (continued) (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. 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. Churchill Mining PLC Annual Report

38 Notes to the Financial Statements (continued) NOTE 1: Statement of Significant Accounting Policies (continued) 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. 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 substantially 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. 38 Churchill Mining PLC Annual Report 2008

39 Notes to the Financial Statements (continued) NOTE 1: Statement of Significant Accounting Policies (continued) 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. 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. Churchill Mining PLC Annual Report

40 Notes to the Financial Statements (continued) NOTE 1: Statement of Significant Accounting Policies (continued) 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. 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. 40 Churchill Mining PLC Annual Report 2008

41 Notes to the Financial Statements (continued) NOTE 2: Financial and Other Income Consolidated Finance income Bank Interest 257, ,035 Fair value gain on listed share options 421,837 - Deemed profit on disposal of associate 31,370 - Total Financial income 710, ,035 NOTE 3: LOSS FROM OPERATIONS Loss on ordinary activities before tax includes the following expense items: Administrative expenses Consulting & professional fees 663, ,640 Depreciation & amortisation 9,784 4,928 Employee salaries and benefits 129, ,640 Occupancy costs 23,265 15,888 Travel expenses 141, ,238 Foreign currency loss 25,612 55,347 Other administrative costs 244,025 95,036 Impairment of exploration costs 453, ,813 Equity settled share based payment expense 61, ,000 1,751,694 1,073,530 Finance costs Interest 2, Total Expenses 1,753,850 1,074,473 During the year the following fees were paid or payable for services provided by the auditors of the parent entity and subsidiaries. The non-audit services were in relation to taxation services provided to the parent entity and subsidiaries. Fees payable to the Company s Auditor for the audit of the Company s annual accounts 27,510 24,000 Fees payable to the associates of the Company s Auditor for other services The audit of the subsidiaries pursuant to legislation 6,434 10,091 Tax services - 2,034 Total 33,944 36,125 Churchill Mining PLC Annual Report

42 Notes to the Financial Statements (continued) NOTE 4: Salaries Consolidated Company Note Staff costs (including Directors fees) comprise: Employee salaries and benefits 80,742 59,446 18,081 - Superannuation/pension costs 2,553 1, Directors Fees 71,174 60,000 71,174 60,000 Share-based payments 20 61, ,000 58, , , , , ,000 Number Number Number Number Average number of employees (including Directors) The majority of staffing for the exploration projects are provided by external contractors Directors and Key Management personnel emoluments Directors short term benefits Directors fees 71,174 60,000 Consulting fees 328, ,855 Sub-Total 400, ,855 Directors long term benefits Share based payments (options) 49, ,400 Sub-Total 49, ,400 Total Director Emoluments 449, ,255 Key management short term benefits Consulting fees 108,138 40,800 Sub-Total 108,138 40,800 Key management long term benefits Share based payments (options) 6,931 10,800 Sub-Total 6,931 10,800 Total Management Emoluments 115,069 51,600 Total Directors and Key Management Emoluments 564, ,855 The amounts set out above include emoluments for the highest paid Director as follows: Short term benefits 218, ,190 Long term benefits 22,772 64,800 Total 240, ,990 No Directors or key management exercised any share options during the year. The Company provides Directors' & Officers' liability insurance at a cost of 14,962 (2007: 11,497). This cost is not included in the above table. 42 Churchill Mining PLC Annual Report 2008

43 Notes to the Financial Statements (continued) NOTE 5: Taxation on Loss From Ordinary Activities Consolidated Major components of income tax expense for the years ended 30 June 2008 and 2007 are: Current tax expense - - Deferred tax expense - - Total Tax expense - - A reconciliation of income tax expense applicable to accounting profit 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 2008 and 2007 is as follows: Accounting Loss before income tax from continuing operations (1,147,238) (932,438) Profit/(Loss) before tax from discontinued operations 1,545,800 (176,029) Accounting loss before income tax 398,562 (1,108,467) At the statutory income tax rate of 30% 119,569 (332,540) Effects of: Non-deductible expenses 54,485 69,778 Temporary differences and tax losses not brought to account as a deferred tax asset 799, ,762 Less: Non assessable items (932,876) - Capital raising costs (40,937) - Income tax expense - - Effective income tax rate of 0% 0% 0% During the period the Company received a ruling from the Australian Taxation Office confirming that the Company is an Australian resident for taxation purposes. Churchill Mining PLC Annual Report

44 Notes to the Financial Statements (continued) NOTE 6: Discontinued Operations 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 35.64% 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 2,028,546 Pre-disposal carrying values Exploration and evaluation expenditure (442,004) Current assets (155,618) Current liabilities 251,912 Pre-tax gain on disposal of discontinued operation 1,682,836 Income tax expense - Total gain on disposal of discontinued operation 1,682,836 There were no cash flows associated with the disposal Result of discontinued operations Bank interest 9,068 16,881 Other income 5,243 - Expenses other than finance costs (151,347) (192,910) Tax expense - - Gain from selling discontinued operations after tax 1,682,836 - Profit/(Loss) for the year 1,545,800 (176,029) Basic earnings/(loss) per share (pence) (0.395) Diluted earnings/(loss) per share (pence) (0.395) Weighted average number of shares used in the calculation of basic earnings/(loss) per share for discontinued operations 44,935,266 44,580,000 Weighted average number of shares used in the calculation of diluted earnings/(loss) per share for discontinued operations 52,753,887 44,580,000 The cash flow statement includes the following amounts relating to discontinued operations: Operating activities (81,065) (188,887) Investing activities (108,957) (150,241) Financing activities - 597,261 Net cash (used in)/from discontinued operations (190,022) 258, Churchill Mining PLC Annual Report 2008

45 Notes to the Financial Statements (continued) NOTE 7: Earnings/(Loss) Per Share Consolidated Continuing operations (1,147,238) (932,438) Discontinued operations 1,545,800 (176,029) Loss attributable to ordinary shareholders 398,562 (1,108,467) Number Number Weighted average number of shares used in the calculation of basic loss per share 56,118,847 44,580,000 Weighted average number of shares used in the calculation of diluted loss per share 63,950,902 44,580,000 pence pence Total earnings/(loss) per share Basic earnings/(loss) per share (2.486) Diluted earnings/(loss) per share (2.486) Loss per share continuing operations Basic loss per share (2.044) (2.092) Diluted loss per share (2.044) (2.092) For continuing operations the effect of all potential ordinary shares arising from the exercise of options going forward is considered to be anti-dilutive. 12,702,447 (2007:13,864,200) 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 allowed under section 230 of the Companies Act 1985 and has not presented its own income statement in these financial statements. The Company profit for the year was 375,890 (2007 Loss: 1,539,476). Churchill Mining PLC Annual Report

46 Notes to the Financial Statements (continued) 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 period the Group s investment in Spitfire was diluted to 40.98% and then 35.64% by additional equity issues by Spitfire. Country Reporting Proportion of voting rights Name of incorporation Date held at 30 June 2008 Spitfire Resources Limited Australia 30 June % Balance at beginning of year - Initial investment/consideration received 2,184,706 Deemed profit on disposal of associate 31,370 Share of loss of associate (104,121) Effect of movement in exchange rates (5,600) Total carrying value 2,106, 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 2008 was 2,711,814. 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 104,121. Summary of audited financial statements of associates at 30 June 2008 and converted from AUD to GBP at the closing rate are as follows: 2008 Total assets 6,201,387 Total liabilities 178,874 Equity 6,022,514 Revenues 125,263 Loss (372,455) 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 the discontinued operations of Planet Mining Pty Ltd being the exploration for manganese (in Australia). 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 three main geographical areas, being the Australia corporate office, Australia exploration (discontinued) 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. 46 Churchill Mining PLC Annual Report 2008

47 Notes to the Financial Statements (continued) NOTE 10: Segment Information (continued) Profit/(Loss) on Capital ordinary activities Assets Liabilities Expenditure Depreciation Consolidated 2008 Australia Corporate office (571,124) 8,588, ,278 78,587 4,608 Australia Exploration Manganese (Discontinued) 1,545, ,747 - Indonesia Exploration Coal (736,431) 7,174, ,823 1,965,761 9, ,245 15,762, ,101 2,165,095 13,784 Investments in Associates (104,121) 2,106, ,124 17,868, ,101 2,165,095 13,784 Interest Revenue 266, Interest Expense (2,156) Total 398,562 17,868, ,101 2,165,095 13,784 Profit/(Loss) on Capital ordinary activities Assets Liabilities Expenditure Depreciation Consolidated 2007 Australia Corporate office (538,434) 1,892,120 51, Australia Exploration manganese (285,360) 794,988 59, ,920 3,639 Indonesia Exploration Coal (442,646) 5,309, ,783 1,834,261 4,928 (1,266,440) 7,996, ,710 2,018,181 8,567 Interest Revenue 158, Interest Expense (943) Total (1,108,467) 7,996, ,710 2,018,181 8,567 NOTE 11: Trade and Other Receivables Consolidated Company Current Trade receivables 1,578 54,350-3,838 Prepayments and other receivables 287, ,545 39,254 28,368 Intercompany loans ,562,457 Total 289, ,895 39,254 2,594,663 The Group s exposure to credit and currency risk related to trade and other receivables are disclosed in Note 23. Churchill Mining PLC Annual Report

48 Notes to the Financial Statements (continued) NOTE 12: Property, Plant and Equipment Consolidated Company Property, Plant and Equipment Cost Balance at start of year 34,780 18, Additions 43,072 16,368 38,412 - Balance at end of year 77,852 34,780 38,412 - Accumulated Depreciation Balance at start of year 9,930 2, Depreciation expense for the year 8,508 7, Effects of movements in exchange rates (928) Balance at end of year 17,510 9, Net book value at end of the year 60,342 24,850 37,804 - Leased Assets Cost Balance at start of year 25, Additions 40,691 25, Balance at end of year 66,601 25, Accumulated Depreciation Balance at start of year 1, Depreciation expense for the year 5,276 1, Effects of movements in exchange rates (112) Balance at end of year 6,374 1, Net book value at end of the year 60,227 24, Total Property, Plant and Equipment Cost Balance at start of year 60,690 18, Additions 83,763 42,278 38,412 - Balance at end of year 144,453 60,690 38,412 - Accumulated Depreciation Balance at start of year 11,140 2, Depreciation expense for the year 13,784 8, Effect of movements in exchange rates (1,040) Balance at end of year 23,884 11, Net book value at end of the year 120,569 49,550 37,804 - Net book value at start of the year 49,550 15, Churchill Mining PLC Annual Report 2008

49 Notes to the Financial Statements (continued) NOTE 13: Intangible Assets Consolidated Company Exploration and evaluation assets Capitalised exploration expenditure: Balance at start of year 1,707, ,426-17,777 Additions 1,565,621 1,738, ,879 Impairment of exploration costs (453,851) (234,813) - - Discontinued operations (320,727) Transfer to subsidiary (124,656) Balance at end of year 2,498,710 1,707, Exploration and evaluation assets Cost: Balance at start of year 3,628,384 3,124, , ,055 Additions 796, , Discontinued operations (121,277) Transfer to subsidiary (91,000) Balance at end of year 4,303,457 3,628, , ,055 Goodwill Cost: Balance at start and end of year Total Cost: Balance at start of year 5,336,317 3,329, , ,832 Additions 2,361,971 2,241, ,879 Impairment of exploration costs (453,851) (234,813) - - Discontinued operations (442,004) Transfer to subsidiary (215,656) Balance at end of year 6,802,433 5,336, , ,055 During the period the Group identified expenditure of 453,851 in relation to the Sendawar CBM Project that was impaired during the period in accordance with the Group Accounting Policy for Exploration and Evaluation Assets. This amount is included in the income statement. This amount arose due to management assessment and evaluation of the exploration programme and costs incurred in relation to the licence area and the attributed value to the CBM Project. The Directors believe the carrying amount of the CBM Project does not exceed its estimated recoverable value. Churchill Mining PLC Annual Report

50 Notes to the Financial Statements (continued) NOTE 13: Intangible Assets (continued) Exploration and Evaluation Operating Investing Expenditure Consolidated Assets Liabilities Income Expense cash flows cash flows 2008 South Woodie Woodie Project 119, (120,747) Sendawar Project 3,655, (453,851) - (504,015) East Kutai Project 3,027, , (2,016,585) Goodwill ,802, ,023 - (453,851) - (2,641,347) Exploration and Evaluation Operating Investing Expenditure Consolidated Assets Liabilities Income Expense cash flows cash flows 2007 South Woodie Woodie Project 471,458 30, (176,608) Sendawar Project 3,605,379 1,276 - (234,813) - (802,285) East Kutai Project 1,259, , (864,022) Goodwill ,336, ,755 - (234,813) - (1,842,915) 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. NOTE 14: Other Financial Assets Consolidated Company Non-current investments Listed options designated at fair value through profit and loss 462, , During the 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 AUD 0.01 per option. The options have an exercise price of AUD 0.20 cents per option and expire on 30 June Planet Mining Pty Ltd took up its entitlement in full for the amount AUD 83,333. The fair value of the options at 30 June 2008 was 462, Churchill Mining PLC Annual Report 2008

51 Notes to the Financial Statements (continued) 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 2,562, ,868 Loans to subsidiaries - 2,197,589 Re-classified to Non-current assets (2,562,457) - Total loans to subsidiaries current assets - 2,562,457 Loans to subsidiaries Non-current assets Opening Balance - - Loans to subsidiaries 2,893,271 - Re-classified from current assets 2,562,457 - Total loans to subsidiaries Non-current assets 5,455,728 - Equity investment in subsidiaries Opening Balance 2,946,301 3,464,611 Equity investments - 595,379 Reversal of impairment/(impairment) 1,113,689 (1,113,689) Total equity investment in subsidiaries 4,059,990 2,946,301 Total Investment in subsidiaries 9,515,718 5,508,758 Churchill Mining PLC Annual Report

52 Notes to the Financial Statements (continued) NOTE 16: Deferred Tax Consolidated Company Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Exploration expenditure 24,503 92, Interest receivable 3,137 4,465 3,317 4,021 Unrealised foreign exchange gain 1, Tax losses (29,106) (97,436) (3,317) (4,021) 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 478,993 89, , ,798 Tax losses foreign 429, , Accrued expenditure 6,504 7,161 5,631 6,600 Unrealised foreign exchange loss 3,319 16,604 3,319 16,604 Share based payments costs 166, ,680 - Depreciable capital expenditure Sundry payables Provision for impairment of subsidiary - 334, ,107 Potential unrecognised tax benefit at 30% 1,085, , , ,109 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. NOTE 17: Trade and Other Payables Consolidated Company Current Trade payables 234, ,567 88,144 51,427 Accruals and other payables 22, ,351 19, , , ,144 51,427 The Group s exposure to credit and currency risk related to trade and other receivables are disclosed in Note Churchill Mining PLC Annual Report 2008

53 Notes to the Financial Statements (continued) NOTE 18: Loans and Borrowings Consolidated Company Current Lease motor vehicle hire purchase 7,299 6, ,299 6, Non-current Lease motor vehicle hire purchase 4,686 12, NOTE 19: Commitments 4,686 12, Operating lease commitments The total future aggregate minimum lease payments commitments under non-cancellable operating leases: Within one year 34,773 13,683 25,407 - Within two to five years 54,161-48,697-88,934 13,683 74,104 - 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 8,524 6, Within two to five years 4,896 16, ,420 23, Finance charges 1,435 4, Net obligations 11,985 18, The liabilities incurred as a result of the lease vehicles from PT Dipo Star Finance Tbk are secured by the related leased assets. Consultant compensation commitments Key management personnel Commitments under non-cancellable consulting contracts not provided for in the financial statements and payable: Within one year 407,316 55, ,316 55,002 Within two to five years 610, ,974-1,018,290 55,002 1,018,290 55,002 Churchill Mining PLC Annual Report

54 Notes to the Financial Statements (continued) NOTE 20: Share Capital, Share Premium and Reserves Company Company Number Number Allotted, called up and fully paid At start of year 44,580,000 44,580, , ,800 Additions 21,431, ,318 - At end of year 66,011,800 44,580, , ,800 Authorised Shares Allotted, called up and fully paid Share premium Date Details Number Number 30/06/2007 Closing balance 30 June ,000,000,000 44,580, ,800 6,200,382 01/07/2007 Opening balance 1 July ,000,000,000 44,580, ,800 6,200,382 03/08/2007 Conversion of options at 20p per share (cash) - 96, ,240 19/10/2007 Conversion of options at 12p per share (cash) - 200,000 2,000 22,000 09/11/2007 Conversion of options at 12p per share (cash) - 200,000 2,000 22,000 14/12/2007 Conversion of options at 12p per share (cash) - 200,000 2,000 22,000 15/12/2007 Placement at 50p per share (cash) - 20,000, ,000 9,800,000 15/12/2007 Expenses on placement at 50p per share (cash) (690,666) 15/12/2007 Expenses on placement at 50p per share (non-cash) (207,500) 10/03/2008 Conversion of options at 12p per share (cash) - 200,000 2,000 22,000 07/04/2008 Conversion of options at 12p per share (cash) - 200,000 2,000 22,000 07/04/2008 Conversion of options at 25p per share (cash) - 135,800 1,358 32,592 16/04/2008 Conversion of options at 20p per share (cash) - 100,000 1,000 19,000 12/05/2008 Conversion of options at 20p per share (cash) - 100,000 1,000 19,000 30/06/2008 Closing balance 30 June ,000,000,000 66,011, ,118 15,301, Churchill Mining PLC Annual Report 2008

55 Notes to the Financial Statements (continued) NOTE 20: Share Capital, Share Premium and Reserves (continued) Other Reserves Other Reserves Date Details Merger Reserve Foreign exchange reserve Equity settled share options reserve Total other reserves 30/06/2007 Closing balance at 30 June ,425,000 (31,598) 761, ,435 01/07/2007 Opening balance at 1 July ,425,000 (31,598) 761, ,435 30/06/2008 Exchange differences on translation of foreign operations - 158, ,181 30/06/2008 Recognition of share based payments , ,884 30/06/2008 Closing balance at 30 June ,425, ,583 1,029,917 1,156,500 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. NOTE 21: 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 (p) Grant date Outstanding at start of year Granted during the year Exercised / lapsed during the year Outstanding at end of year Final exercise date p 15/04/2005 1,296, ,296,000 15/04/ p 22/03/ , ,800 15/04/ p 18/04/ , ,200 18/04/ p 10/05/ , ,800 10/05/ p 23/05/2006 3,864, ,864,200 23/05/ p 28/03/2007 8,000, ,000,000 28/03/2012 Total 14,000, ,000, p 15/04/2005 1,296,000 - (296,000) 1,000,000 15/04/ p 22/03/ ,800 - (135,800) - 15/04/ p 18/04/ , ,200 18/04/ p 10/05/ , ,800 10/05/ p 23/05/2006 3,864, ,864,200 23/05/ p 28/03/2007 8,000,000 - (1,000,000) 7,000,000 28/03/ p 17/12/ , ,000 17/12/ p 17/12/ , ,000 17/12/ p 17/12/ , ,000 17/12/ p 17/12/ , ,000 17/12/ p 09/05/2008-3,100,000-3,100,000 09/05/2013 Total 14,000,000 4,100,000 (1,431,800) 16,668,200 Churchill Mining PLC Annual Report

56 Notes to the Financial Statements (continued) NOTE 21: Share Based Payments (continued) W weighted W weighted average average exercise price Number exercise price Number Outstanding at beginning of the year 20p 13,864,200 20p 14,000,000 Granted during the year 73p 4,100, Exercised during the year 14p (1,296,000) 25p (135,800) Lapsed during the year Outstanding at end of the year 34p 16,668,200 20p 13,864,200 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 17 December 17 December 17 December 9 May Share price at date of grant (p) 56p 56p 56p 56p 66p Exercise price (p) 50p 60p 70p 80p 75p Volatility of share price 60% 60% 60% 60% 60% Option life 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 (p) 25.1p 21.8p 19.2p 16.9p 24.5p Number of options 250, , , ,000 3,100,000 Volatility has been based on the following: The annualised volatility of the Company s share since in 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 Vesting conditions Expense Total Expense 2007/ / /2010 Share issue expenses 17 December ,000, % of the options vest 12 months after the date of issue 207, ,500 Directors and employee expenses 9 May ,100,000 50% of the options vest 12 months after the date of issue with the remainder vesting 24 months after the date of issue 61, , , ,500 Total 268, , , ,000 Based on the above fair value the 2008 employee expense arising from share options issued to Directors, employees and suppliers was 61,384 (2007: 216,000). The 1,000,000 options issued on 17 December 2007 were for the assistance with the placement completed by the Company in November 2007 and are therefore charged to share issue expenses as a component of the Share Premium Reserve. 56 Churchill Mining PLC Annual Report 2008

57 Notes to the Financial Statements (continued) NOTE 22: Notes to the Cash Flow Statement Consolidated Company Reconciliation of profit/(loss) on ordinary activities after tax to cash from operating activities Profit/(Loss) on ordinary activities after tax 398,562 (1,108,467) 375,891 (1,539,476) Share option expense 61, ,000 58, ,000 Depreciation expense 13,784 8, Impairment expense 453, ,813 (1,113,689) 1,113,689 Net exchange differences 68,069 55,437 68,069 55,437 Gain on disposal of subsidiary (1,682,836) Fair value gains on financial assets (421,838) Deemed profit on disposal of associate (31,370) Interest revenue in investing activities (269,425) (182,324) (257,029) (161,749) Share of associate loss 104, Decrease/(Increase) in accounts receivable (96,293) (127,714) (9,878) 10,070 Increase/(decrease) in creditors and accruals 76,391 (20,182) 12,470 26,118 Cash flow from operating activities (1,325,600) (923,853) (865,144) (279,911) 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 8,088,225 2,415,189 7,823,312 1,859,649 NOTE 23: 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. Churchill Mining PLC Annual Report

58 Notes to the Financial Statements (continued) NOTE 23: Financial Instruments (continued) The Group is exposed through its operations to the following financial risks: Liquidity risk; Credit risk; Cashflow interest rate risk; and Foreign exchange 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. 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 2009 and 2010, 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 Carrying Contractual 6 months Greater than amount cash flows or less 6 months 2008 Current financial liabilities Trade and other payables 257, , ,116 - Loans and borrowings 7,299 7,299 3,649 3,650 Non-current financial liabilities Loans and borrowings 4,686 4,686-4, , , ,765 8,336 Company Carrying Contractual 6 months Greater than amount cash flows or less 6 months 2008 Current financial liabilities Trade and other payables 107, , , , , , Churchill Mining PLC Annual Report 2008

59 Notes to the Financial Statements (continued) NOTE 23: Financial Instruments (continued) Consolidated Carrying Contractual 6 months Greater than amount cash flows or less 6 months 2007 Current financial liabilities Trade and other payables 518, , ,918 - Loans and borrowings 6,366 6,366 3,183 3,183 Non-current financial liabilities Loans and borrowings 12,426 12,426-12, , , ,101 15,609 Company Carrying Contractual 6 months Greater than amount cash flows or less 6 months 2007 Current financial liabilities Trade and other payables 51,427 51,427 51,427-51,427 51,427 51,427 - CREDIT RISK The credit risk on liquid funds is limited because the counterparties are banks with 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 Maximum Carrying Maximum value exposure value exposure Current assets Cash and cash equivalents 8,088,225 8,088,225 2,415,189 2,415,189 Trade and other receivables 289, , , ,895 8,377,583 8,377,583 2,611,084 2,611, Company Carrying Maximum Carrying Maximum value exposure value exposure Current assets Cash and cash equivalents 7,823,312 7,823,312 1,859,649 1,859,649 Trade and other receivables 39,254 39,254 2,594,663 2,594,663 Non-current assets Loans to subsidiaries 5,455,728 5,455, ,318,294 13,318,294 4,454,312 4,454,312 Churchill Mining PLC Annual Report

60 Notes to the Financial Statements (continued) NOTE 23: Financial Instruments (continued) 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 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 2008 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: Floating Fixed interest Fixed interest interest maturing in maturing over Non-interest Consolidated rate 1 year or less 1 to 5 years bearing Total 2008 Financial assets Great British pound 53,720 6,565,047-39,253 6,658,020 Australian dollar 33, , , ,951 United States dollar 36,939 1,039, ,951 1,322,780 Indonesian Rupiah 77, , ,763 7,886, ,372 8,839,596 Weighted average interest rate 3.68% 4.52% Financial liabilities Great British pound , ,144 Australian dollar ,134 2,134 United States dollar - 7,299 4, , ,823-7,299 4, , ,101 Weighted average interest rate 10.64% 10.64% 60 Churchill Mining PLC Annual Report 2008

61 Notes to the Financial Statements (continued) NOTE 23: Financial Instruments (continued) Floating Fixed interest Fixed interest interest maturing in maturing over Non-interest Company rate 1 year or less 1 to 5 years bearing Total 2008 Financial assets Great British pound 53,720 6,565,048-5,455,728 12,074,496 Australian dollar 19, , ,217 United States dollar - 982, ,327 72,892 7,750,420-5,455,728 13,279,040 Weighted average interest rate 4.26% 4.50% Financial liabilities Great British pound , ,144 Australian dollar United States dollar , ,144 Floating Fixed interest Fixed interest interest maturing in maturing over Non-interest Consolidated rate 1 year or less 1 to 5 years bearing Total 2007 Financial assets Great British pound 21,015 1,459,743-32,206 1,512,964 Australian dollar 11, ,015-18, ,167 United States dollar 179, , , , ,672 2,203, ,895 2,611,084 Weighted average interest rate 4.37% 4.54% Financial liabilities Great British pound ,427 51,427 Australian dollar ,500 59,500 United States dollar - 6,366 12, , ,783-6,366 12, , ,710 Weighted average interest rate 17.96% 17.96% Churchill Mining PLC Annual Report

62 Notes to the Financial Statements (continued) NOTE 23: Financial Instruments (continued) Floating Fixed interest Fixed interest interest maturing in maturing over Non-interest Company rate 1 year or less 1 to 5 years bearing Total 2007 Financial assets Great British pound 21,015 1,459,743-2,594,663 4,075,421 Australian dollar United States dollar - 378, ,891 21,015 1,838,634-2,594,663 4,454,312 Weighted average interest rate 4.37% 4.54% Financial liabilities Great British pound ,427 51,427 Australian dollar United States dollar ,427 51,427 Categories of financial assets loans and receivables Current financial assets Trade and other receivables 289, ,895 Cash and cash equivalents 8,088,225 2,415,189 Total current financial assets 8,377,583 2,611,084 Non-current financial assets Listed share options 462,013 - Total financial assets 8,839,596 2,611,084 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. Categories of financial liabilities Financial liabilities measured at amortised cost Current financial liabilities Trade and other payables 257, ,918 Loans and borrowings 7,299 6,366 Total current financial liabilities 264, ,284 Non-current financial liabilities Loans and borrowings 4,686 12,426 Total non-current financial liabilities 4,686 12,426 Total financial liabilities 269, , Churchill Mining PLC Annual Report 2008

63 Notes to the Financial Statements (continued) NOTE 23: Financial Instruments (continued) At the year end the Group had a cash balance of 8,088,225 (2007: 2,415,189) which was made up as follows: Consolidated Company Great British pound 6,618,768 1,859,650 6,618,768 1,480,757 United States dollar 1,076, , , ,892 Australian dollar 314, , ,214 - Indonesian rupiah 77,845 57, ,088,225 2,415,189 7,823,312 1,859,649 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 257, ,035 Discontinuing operations 14,461 16,881 Total interest from bank deposits 271, ,916 Sensitivity Analysis Interest Rate Risk The Group and Company has performed sensitivity analysis relating to its exposure to 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 2008, 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% 59,415 35,671 56,539 31,364 Decrease in interest rate by 1% (59,415) (35,671) (56,539) (31,364) Change in equity Increase in interest rate by 1% 59,415 35,671 56,539 31,364 Decrease in interest rate by 1% (59,415) (35,671) (59,539) (31,364) Churchill Mining PLC Annual Report

64 Notes to the Financial Statements (continued) NOTE 23: Financial Instruments (continued) Net Fair Value The carrying value and net fair value of financial assets and liabilities at balance date are: Carrying Net Fair Carrying Net Fair Amount Value Amount Value Financial assets Cash and cash equivalents 8,088,225 8,088,225 2,415,189 2,415,189 Trade and other receivables 289, , , ,895 Listed share options 462, , ,839,596 8,839,596 2,611,084 2,611,084 Financial liabilities Trade and other payables 257, , , ,918 Financial liabilities 7,299 7,299 6,366 6, , , , ,284 FOREIGN EXCHANGE RISK The Group has two overseas subsidiaries, one being in Australia and the other in Indonesia, whose expenses are mainly denominated in Australian dollars, US dollars and 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 Sterling. 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: U us Australian Indonesian dollar dollar rupiah Foreign currency units to 1 UK sterling Average for 2007/ ,531 At 30 June ,336 Average for 2006/ ,574 At 30 June , Churchill Mining PLC Annual Report 2008

65 Notes to the Financial Statements (continued) NOTE 23: Financial Instruments (continued) Currency exposures & sensitivity analysis The monetary assets and liabilities of the Group that are not denominated in Sterling and therefore exposed to currency fluctuations are shown below. The amounts shown represent the Sterling equivalent of local currency balances. Australian US Indonesian dollar dollar rupiah Total UK Sterling equivalent of exposed net monetary assets and liabilities At 30 June ,803, , ,642 4,057,202 At 30 June ,325 (170,337) 316, ,986 A 10 percent strengthening of the Sterling against the Australian Dollar, US Dollar and Indonesian Rupiah currencies at 30 June would have decreased profit by 110,667 (2007: 68,275 increase) and decreased equity by 220,100 (2007: 42,313 increase). This analysis assumed that all other variables, in particular interest rates, remain constant. A 10 percent weakening of the Sterling against the above currencies 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 its capital, the Group and Company s primary objective is to ensure its ability to provide a sufficient return for its 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 its working capital and strategic investment needs. In making decisions to adjust its 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. NOTE 24: 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 Boston Noble Pty Ltd and Direct Invest Group Limited 203,183 for the consultancy services of Mr Paul Mazak who is a Director of the Company. The amount of 22,571 was owing to Direct Invest Group Limited as at 30 June During the year the Group paid Borden Holdings Pty Ltd 21,485 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 During the year the Group paid Boston Noble Pty Ltd and Goldregis Corporation Pty Ltd 92,828 for the consultancy services of Mr James Hamilton who is a Director of the Company. The amount of 5,427 was owing to Goldregis Corporation Pty Ltd as at 30 June In June 2008, 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 2008 was 2,828. The Key Management personnel disclosures are included in Note 4 to the financial statements. A summary of Share options issued to Directors are included in the Directors Report. Churchill Mining PLC Annual Report

66 Notes to the Financial Statements (continued) NOTE 25: Contingent Liabilities During April 2008 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 the 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 2008 of 65p or USD $1.29 then the value of the share issue by the parent company would have been approximately USD2,592,740. No amount has been recognised in these financial statements during the period. NOTE 26: Post Balance Sheet Events On 4 July 2008 the Company issued 200,000 shares at an issue price of 12p, 200,000 shares at an issue price of 20p and 100,000 shares at an issue price of 35p, pursuant to the exercise of share options. On 8 August 2008 the Company issued 690,914 shares at an issue price of 35p pursuant to the exercise of share options. On 5 September 2008 the Company announced it has now defined billion tonnes of JORC compliant resource, in various categories, in the original exploration concessions at the East Kutai Coal Project. Since 30 June, the world markets have been extremely volatile resulting in the fair value of the Group s financial assets and investment in associates (Spitfire Resources Ltd) at the date of this report reducing by approximately 1,320, Churchill Mining PLC Annual Report 2008

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