1
Exhibit 15.4
EMPEROR MINES LIMITED
Unaudited Financial Report for the period ended 6 April 2006 and
years ended 30 June 2005 and 30 June 2004
(Presented in Australian Dollars)
Contents
Page
Statements of financial performance
2
Statements of financial position
3
Statements of cash flows
4
Notes to the financial statements
5-37
2
Emperor Mines Limited
Unaudited Statement of Financial Performance
For the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars)
Unaudited Statement of Financial Performance
For the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars)
Period
ended 6
April
Notes
2006
$'000
2005
$'000
2004
$'000
Revenue from operating activities
38,952
66,345 66,716
Provision for hedging redesignation
22
(1,157)
(1,524) (2,155)
37,795
64,821 64,561
Revenue from outside operating activities
157
473 866
Revenue from ordinary activities
3
37,952
65,294 65,427
Changes in inventories of finished goods and work in progress
832
(4,295) 3,923
Raw materials and consumables used
(31,651)
(39,188) (33,217)
Employee expenses
(16,385)
(22,340) (22,301)
Exploration 4
(88)
(318) (159)
Administrative expenses
(2,433)
(1,792) (1,888)
Other expenses from ordinary activities
(7,325)
(4,664) (5,181)
Earnings/(loss) before interest expense, tax, depreciation and
amortisation
amortisation
(19,098)
(7,303) 6,604
Borrowing costs
4
(2,536)
(103) (166)
Depreciation, amortisation and rehabilitation expense
4
(6,191)
(10,909) (11,350)
Loss on derivative instruments
(44,809)
- -
Impairment of mine assets
4
(1,900)
(15,248) -
(Loss) from ordinary activities before income tax
(74,534)
(33,563) (4,912)
Income tax (expense)
5
(753)
(171) (18)
(Loss) from ordinary activities after tax expense
(75,287)
(33,734) (4,930)
Net exchange differences on translation of financial report of
foreign controlled entity
foreign controlled entity
-
(1,811) 63
Total changes in equity other than those resulting from
transactions with owners as owners
transactions with owners as owners
25
(75,287)
(35,545) (4,867)
$ $
Basic loss per share
35
(0.45)
(0.23) (0.04)
Diluted loss per share
35
(0.45)
(0.23) (0.04)
The above Unaudited Statements of Financial Performance should be read in conjunction with the accompanying Notes.
3
Emperor Mines Limited
Unaudited Statement of Financial Position
As at 30 June 2005 and 30 June 2004
(In Australian Dollars)
As at 30 June 2005 and 30 June 2004
(In Australian Dollars)
Notes
2005
$'000
2004
$'000
Current assets
Cash assets
6
3,733
3,658
Receivables
7
3,210
3,396
Inventories
8
7,413
11,768
Other
9
643
303
Deferred debt issue costs
10
183
187
Total current assets
15,182
19,312
Non-current assets
Restricted cash
6
3,195
3,594
Inventories
11
140
140
Property, plant and equipment
12
49,066
65,365
Deferred tax assets
13
398
340
Deferred debt issue costs
14
417
624
Unrealised commodity loss
26
4,388
7,192
Total non-current assets
57,604
77,255
Total assets
72,786
96,567
Current liabilities
Payables
15
11,278
13,501
Interest bearing liabilities
16
16,318
5,067
Current tax liabilities
204
206
Provisions
17
1,459
1,600
Total current liabilities
29,259
20,374
Non-current liabilities
Payables
18
500
-
Interest bearing liabilities
19
152
16,995
Deferred tax liabilities
20
7
9
Provisions
21
2,127
1,433
Provision for hedging redesignation
22
8,542
7,019
Unrealised commodity loss payable to counter party
26
4,388
7,192
Total non-current liabilities
15,716
32,648
Total liabilities
44,975
53,022
Net assets
27,811
43,545
Contributed Equity
23
163,011
143,200
Foreign currency translation reserve
24
(22,243)
(20,432)
Accumulated losses
24
(112,957)
(79,223)
Total equity
25
27,811
43,545
The above Unaudited
Statements of Financial Position should be read in conjunction with the accompanying Notes.
4
Emperor Mines Limited
Unaudited Statement of Cash Flows
For the period ended 6 April 2006 and the years ended 30 June 2005 and 30 June 2004
(In Australian Dollars)
Unaudited Statement of Cash Flows
For the period ended 6 April 2006 and the years ended 30 June 2005 and 30 June 2004
(In Australian Dollars)
Notes
2006
$'000
2005
$'000
2004
$'000
Receipts from customers
(inclusive of goods and services tax)
(inclusive of goods and services tax)
39,857
66,561 65,974
Payments to suppliers and employees (inclusive of goods and
services tax)
services tax)
(54,700)
(69,473)
(59,913)
Interest received
146
404 324
Settlement of legal action
-
- 432
Borrowing costs
(2,536)
(51) (208)
Income tax paid
(587)
(233) (435)
Net cash (outflow)/inflow from operating activities
35
(17,820)
(2,792) 6,174
Payments for property, plant and equipment
(10,573) (12,171) (21,473)
Payments made for exploration
-
(318) (412)
Proceeds from sale of property, plant and equipment
-
38 50
Net cash (outflow) from investing activities
(10,573) (12,451) (21,835)
Proceeds from issues of shares, net of transaction costs
14,647
19,811 17
Proceeds from borrowings
-
- 5,199
(Payments for)/ proceeds from restricted cash
(100)
399 1,331
Repayment of long term loan
-
(2,442) -
Payments for loan related fees
12,249
(22) (31)
Repayment of capital lease liabilities
-
(54) (76)
Net cash inflow from financing activities
26,796
17,692 6,440
Net (decrease)/ increase in cash held
(1,597)
2,449 (9,221)
Cash at the beginning of the financial year
3,733
1,327 10,311
Effects of exchange rate changes on cash
(43) 237
Cash at the end of the period
6
2,136
3,733 1,327
The above Unaudited
Statements of Cash Flows should be read in conjunction with the accompanying Notes.
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
5
1.
Summary of significant accounting policies
This general purpose financial report has been prepared in accordance with Accounting Standards, other
authoritative pronouncements of the Australian Accounting Standards Board and Urgent Issues Group Consensus
Views. All amounts in this financial report are presented in Australian dollars unless otherwise specifically noted.
It is prepared in accordance with the historical cost convention, except for certain assets which, as noted, are at
valuation. Unless otherwise stated, the accounting policies adopted are consistent with those of the previous year.
The financial report has been prepared on a going concern basis but at the date of this report there remains a
significant uncertainty about the Consolidated entity’s ability to continue as a going concern. This matter is
discussed in Note 1(w).
(a) Principles of consolidation
The consolidated financial statements incorporate the assets and liabilities of all entities controlled by Emperor
Mines Limited ("Company" or "parent entity") as at 30 June 2005 and 30 June 2004, and the results of all controlled
entities for the period ended 6 April 2006 and years ended 30 June 2005 and 2004. Emperor Mines Limited and its
controlled entities together are referred to in this financial report as the consolidated entity. The effects of all
transactions between entities in the consolidated entity are eliminated in full.
Where control of an entity is obtained during a financial year, its results are included in the consolidated statement
of financial performance from the date on which control commences. Where control of an entity ceases during a
financial year its results are included for that part of the year during which control existed.
(b) Income tax
The consolidated entity adopts the income statement liability method of tax effect accounting.
Income tax expense is calculated on operating profit adjusted for permanent differences between taxable and
accounting income. The tax effect of timing differences, which arise from items being brought to account in
different periods for income tax and accounting purposes, is carried forward in the statement of financial position as
a future income tax benefit or a provision for deferred income tax. Future income tax benefits are not brought to
account unless realisation of the asset is assured beyond reasonable doubt, or if relating to tax losses when
realisation is virtually certain.
To the extent that dividends are proposed by controlled entities incorporated overseas, the consolidated entity has
provided for withholding tax. A provision is also made for the withholding tax on the balance of unremitted profits
that eventually will be remitted to the Company.
Capital gains tax, if applicable, is provided for in establishing period income tax expense when as asset is sold.
As of 1 July 2003 Emperor Mines Limited and its wholly-owned Australian controlled entities are part of a tax
consolidation group.
(c) Foreign currency translation
(i) Transactions
Foreign currency transactions are initially translated into Australian currency at the rate of exchange ruling at the
dates of the transactions. At balance sheet date amounts payable and receivable in foreign currencies are translated
to Australian currency at rates of exchange current at that date and resulting exchange differences are brought to
account in the statement of financial performance in the year in which the exchange rates change.
(ii) Foreign controlled entities
As the foreign controlled entities are self sustaining, their assets and liabilities are translated into Australian
currency at rates of exchange ruling at balance date, while revenues and expenses are translated at the average of
rates ruling during the year and equity items at historical rates. Exchange differences arising on translation are taken
directly to the foreign currency translation reserve.
valuation. Unless otherwise stated, the accounting policies adopted are consistent with those of the previous year.
The financial report has been prepared on a going concern basis but at the date of this report there remains a
significant uncertainty about the Consolidated entity’s ability to continue as a going concern. This matter is
discussed in Note 1(w).
(a) Principles of consolidation
The consolidated financial statements incorporate the assets and liabilities of all entities controlled by Emperor
Mines Limited ("Company" or "parent entity") as at 30 June 2005 and 30 June 2004, and the results of all controlled
entities for the period ended 6 April 2006 and years ended 30 June 2005 and 2004. Emperor Mines Limited and its
controlled entities together are referred to in this financial report as the consolidated entity. The effects of all
transactions between entities in the consolidated entity are eliminated in full.
Where control of an entity is obtained during a financial year, its results are included in the consolidated statement
of financial performance from the date on which control commences. Where control of an entity ceases during a
financial year its results are included for that part of the year during which control existed.
(b) Income tax
The consolidated entity adopts the income statement liability method of tax effect accounting.
Income tax expense is calculated on operating profit adjusted for permanent differences between taxable and
accounting income. The tax effect of timing differences, which arise from items being brought to account in
different periods for income tax and accounting purposes, is carried forward in the statement of financial position as
a future income tax benefit or a provision for deferred income tax. Future income tax benefits are not brought to
account unless realisation of the asset is assured beyond reasonable doubt, or if relating to tax losses when
realisation is virtually certain.
To the extent that dividends are proposed by controlled entities incorporated overseas, the consolidated entity has
provided for withholding tax. A provision is also made for the withholding tax on the balance of unremitted profits
that eventually will be remitted to the Company.
Capital gains tax, if applicable, is provided for in establishing period income tax expense when as asset is sold.
As of 1 July 2003 Emperor Mines Limited and its wholly-owned Australian controlled entities are part of a tax
consolidation group.
(c) Foreign currency translation
(i) Transactions
Foreign currency transactions are initially translated into Australian currency at the rate of exchange ruling at the
dates of the transactions. At balance sheet date amounts payable and receivable in foreign currencies are translated
to Australian currency at rates of exchange current at that date and resulting exchange differences are brought to
account in the statement of financial performance in the year in which the exchange rates change.
(ii) Foreign controlled entities
As the foreign controlled entities are self sustaining, their assets and liabilities are translated into Australian
currency at rates of exchange ruling at balance date, while revenues and expenses are translated at the average of
rates ruling during the year and equity items at historical rates. Exchange differences arising on translation are taken
directly to the foreign currency translation reserve.
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
6
1. Summary of significant accounting policies (continued)
(d) Derivatives
The consolidated entity is exposed to changes in interest rates, foreign exchange rates and community prices from
its activities. The consolidated entity uses the following derivative financial instruments to hedge these risks:
interest rate swaps and futures commodity price contracts. Derivative financial instruments are not held for
speculative purposes.
(i) Anticipated transactions
When anticipated purchase or sale transactions have been hedged, actual purchases or sales which occur during the
designated hedged period are accounted for as having been hedged until the amounts of those transactions in the
designated period are fully allocated against the hedged amounts.
If the hedged transaction is not expected to occur as originally designated, or if the hedge is no longer expected to be
effective, any previously deferred gains or losses are recognised as revenue or expense immediately.
If the hedging transaction is terminated prior to its maturity date and the hedge transaction is still expected to occur
as designated, deferral of any gains and losses which appear prior to termination continue to be deferred and are
included in the measurement of the hedge transaction when it occurs.
In circumstances where a hedging transaction is terminated prior to maturity because the hedged transaction is no
longer expected to occur as designated , any previously deferred gains and losses are recognised in the statement of
financial performance on the date of termination.
Where a hedge is redesignated as a hedge of another transaction, gains or losses arising on the hedge prior to its
redesignation are only deferred where the original anticipated transaction is still expected to occur as designated.
When the original anticipated transaction is no longer expected to occur as designated, any gains or losses relating to
the hedge instrument are included in the statement of financial performance for the period.
Gains or losses that arise prior to and upon maturity of transactions entered into under hedge rollover strategies are
deferred and included in the measurement of the hedged transaction if the transaction is still expected to occur as
designated. If the transaction is no longer expected to occur as designated, the gains or losses are recognised
immediately in the statement of financial performance.
(ii) Commodity price hedging
Hedging is undertaken in order to minimise the potential for erosion of margin from unfavourable movements in
commodity prices. Gains or costs arising at the time of entering into such hedging transactions are brought to account
in the statement of financial performance over the life of the hedge.
The net amounts receivable or payable under commodity contracts and the associated deferred gains or losses are
recorded in the statement of financial position from the date of inception of the hedge transaction. Refer Note 26.
(iii) Interest rates swaps
The amounts receivable or payable under interest rate swaps are not recorded in the statement of financial position until
the hedge transaction occurs.
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
7
1. Summary of significant accounting policies (continued)
(e) Revenue recognition
Amounts are recognised as sales revenue when, there has been a passing of risk to the customer, and:
(i)
the product is in a form suitable for delivery and no further processing is required by, or on behalf, of the
producer;
(ii)
the quantity and quality of the product can be determined with reasonable accuracy;
(iii)
the product has been dispatched to the customer and is no longer under the physical control of the
producer; and
(iv)
the selling price can be determined with reasonable accuracy. Sales revenue represents the net proceeds
receivable from the customer.
Other revenues earned by the Consolidated entity are recognised on the following basis:
(i)
(i)
interest income as it accrues taking into account the effective yield on the asset;
(ii)
dividend income when the shareholder’s right to receive payment is established;
(iii)
sale of non-current assets at the date control of the goods passes to the buyer, usually when an
unconditional contract of sale is signed; and
(iv) sub-lease rental income on a straight line basis over the term of the lease.
(f) Trade and other receivables
Trade and other receivables are carried at amounts due less an estimate made for doubtful receivables based on a
review of all outstanding amounts at year end.
(g) Inventories
(i)
Bullion in transit for sale is valued lower of cost or net realisable value.
(ii)
Consumable stores are valued at weighted average cost after providing for obsolescence.
(iii)
Gold in Circuit (“GIC”) and ore stock pile, consists of stocks on which further processing is required to
convert them to bullion, and is valued at the lower of cost and net realisable value. The cost of GIC and ore
stock pile is measured on a First in First out (FIFO) basis and includes raw materials, direct labour,
depreciation, amortisation and other direct costs. Net realisable value is the estimate of the selling price in the
ordinary course of business, less the costs of completion and selling expenses.
stock pile is measured on a First in First out (FIFO) basis and includes raw materials, direct labour,
depreciation, amortisation and other direct costs. Net realisable value is the estimate of the selling price in the
ordinary course of business, less the costs of completion and selling expenses.
At the year end the GIC and ore stock pile was valued at net realisable value.
(h) Recoverable amount of non-current assets
The carrying amounts of non-current assets other than exploration and evaluation expenditure carried forward are
reviewed to determine whether they are in excess of their recoverable amount at reporting date.
The recoverable amount of non-current asset is the net amount expected to be recovered through the net cash
inflows and outflows arising from its continued use and subsequent disposal.
Where the carrying amount of a non-current asset is greater than its recoverable amount the asset is written down to
its recoverable amount. Where net cash inflows are derived from a group of assets working together, recoverable
amount is determined on the basis of the relevant group of assets. The decrement in the carrying amount is
recognised as an expense in the net profit or loss in the reporting period in which the recoverable amount write-
down occurs.
The expected net cash flows included in determining recovera ble amounts of non-current assets are discounted to
their present values using a market-determined, risk-adjusted discount rate.
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
8
1. Summary of significant accounting policies (continued)
(i) Property, plant and equipment
All assets acquired are initially recorded at their cost of acquisition at the date of acquisition, being fair value of
consideration provided plus incidental costs directly attributable to the acquisition.
All property, plant and equipment assets have limited useful lives and are depreciated, with the exception of
freehold land. Depreciation is on a straight line basis over their estimated useful lives, taking into account estimated
residual values, with the exception of plant and equipment with a deemed useful life equal to the life of the mine. In
this case depreciation uses a units of production basis, charged proportional to current delineated mineable product
of the operation.
Estimates of remaining useful lives used for depreciation of assets which are not expected to last the life of the mine
are as follows:
Mine Buildings 10 years
Plant and Equipment 5-15 years
Major spares purchased specifically for particular plant are capitalised and depreciated on the same basis as the
plant to which they relate.
(j) Mine properties and development
Mine properties and development represent the accumulation of all exploration, evaluation and development
expenditure incurred by or on behalf of the entity in relation to areas of interest in which mining of a mineral
resource has commenced or expected to be commenced.
Mine development expenditure incurred by or on behalf of the entity is accumulated separately for each area of
interest in which economically recoverable reserves have been identified to the satisfaction of the directors. Such
expenditure comprises net direct costs and appropriate portion of related overhead expenditure having a specific
nexus with the development property.
When further development expenditure is incurred in respect of a mine property after the commencement of
production, such expenditure is carried forward as part of the mine property only when substantial future economic
benefits are thereby established , otherwise such expenditure is classified as part of the cost of production.
No amortisation is provided until they are reclassified as “Mine properties and development” following a decision to
commence mining.
Amortisation of costs is provided on the unit-of-production method with separate calculations being made for each
mineral resource. The unit-of-production basis results in an amortisation charge proportional to depletion over the
expected life of the operations.
The net carrying value of each mine property and development is reviewed regularly and, to the extent to which this
value exceeds its recoverable amount that excess is either fully provided against or written off in the financial year
in which this is determined.
Depreciation cost associated with heavy vehicles working on capital development is included in mine properties and
development expenditure.
Revision of accounting estimates
From 1 July 2004, the estimated total life of the mine for the purpose of amortisation and depreciation calculation has
been extended from 10 to 15 years. The net effect of the change in the 2005 financial year was a decrease the
amortisation and depreciation expense of the consolidated entity of $1,150,000. The amortisation and depreciation to
be expensed in the future years will be calculated based on a 15 year mine life.
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
9
1. Summary of significant accounting policies (continued)
(k) Exploration
Exploration and evaluation expenditure is accumulated separately for each area of interest. Such expenditure
comprises net direct costs and an appropriate portion of related overhead expenditure, but does not include general
overheads or administrative expenditure not having a specific nexus with a particular area of interest.
Each area of interest is limited to a size related to a known or probable mineral resource capable of supporting a
mining operation. Exploration expenditure for each area of interest, other than that acquired from the purchase of
another mining company, is carried forward as an asset provided that one of the following conditions is met:
(i) such costs are expected to be recouped through successful development and exploitation of the Vatukoula
area of interest, or
(ii) exploration activities in the Vatukoula area of interest have not yet reached a stage which permits a
reasonable assessment of the existence or otherwise of recoverable mineral resources, and active and
significant operations in relation to the area are continuing.
Exploration expenditure which fails to meet at least one of the conditions outlined above is written off. Exploration
expenditure on areas of interest outside of the Vatukoula region are fully provided for. Expenditure is not carried
forward in respect of any area of interest/mineral resource unless the consolidated entity’s rights of tenure to that
area of interest is current.
(l) Leased non-current assets
A distinction is made between finance leases which effectively transfer from the lessor to the lessee substantially all the
risks and benefits incidental to ownership of leased non-current assets, and operating leases under which the lessor
effectively retains substantially all such risks and benefits.
Finance leases are capitalised. A lease asset and liability are established at the present value of minimum lease
payments. Lease payments are allocated between the principal component of the lease liability and the interest
expense.
The lease asset is depreciated on a straight line basis over the shorter of the lease term or the life of the asset. Lease
assets held at the reporting date are being depreciated over a period not exceeding 5 years.
(m) Cash
Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and
cash equivalents comprise cash in hand, deposits held at call with banks, and investments in money market
instruments, net of bank overdrafts. In the balance sheet, bank overdrafts are included in borrowings in current
liabilities.
(n) Trade and other creditors
These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the
financial year and which are unpaid.
(o) Interest bearing liabilities
Loans are carried at their principal amounts which represent the value of future cash flows associated with servicing
debt. Interest expense is accrued at the contracted rate.
(p) Deferred costs
Deferred costs relate to ancillary costs incurred in connection with arrangement of ANZ Bank loan facility. The
deferred costs are amortised from the commencement of the first loan drawdown (February 2003) over the life of
the loan (final repayment due October 2008). The amortisation of deferred cost is recognised as borrowing costs.
(q) Maintenance and repairs
The costs of maintenance, repair costs and minor renewals are charged as expenses as incurred, except where they
relate to the replacement of a component of an asset, in which case the costs are capitalised and depreciated in
accordance with Note 1(k).
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
10
1. Summary of significant accounting policies (continued)
(r) Employee entitlements
(i)
Wages and salaries, annual leave and sick leave
Liabilities for wages, salaries, annual leave and sick leave and other employee benefits are measured at their
nominal amounts, using the remuneration rates expected to be paid when these liabilities are settled.
(ii)
nominal amounts, using the remuneration rates expected to be paid when these liabilities are settled.
(ii)
Long service leave
A liability for long service leave is recognised, and is measured as the present value of expected future payments to
be made in respect of services provided by employees up to the reporting date. Consideration is given to expected
future wage and salary levels, experience of employee departures and periods of service. Expected future payments
are discounted using interest rates on national government guaranteed securities with terms to maturity that match,
as closely as possible, the estimated future cash outflows.
(iii) Superannuation
Superannuation contributions are provided on the basis as described in Note 31.
(s) Borrowing costs
Borrowing costs are recognised as expenses in the period in which they are incurred, except where they are included
in the cost of qualifying assets.
Qualifying assets are assets which take more than 12 months to get ready for their intended use or sale. In these
circumstances, borrowing costs are capitalised to the cost of the assets. Where funds are borrowed specifically for
the acquisition, construction or production of a qualifying asset, the amount of borrowing costs capitalised is those
incurred in relation to that borrowing. Where funds are borrowed generally, borrowing costs are capitalised using a
weighted average capitalisation rate.
Exploration and evaluation expenditure carried forward relating to areas of interest which have not reached a stage
permitting reliable assessment of economic benefits are not qualifying assets.
Borrowing costs includes:
be made in respect of services provided by employees up to the reporting date. Consideration is given to expected
future wage and salary levels, experience of employee departures and periods of service. Expected future payments
are discounted using interest rates on national government guaranteed securities with terms to maturity that match,
as closely as possible, the estimated future cash outflows.
(iii) Superannuation
Superannuation contributions are provided on the basis as described in Note 31.
(s) Borrowing costs
Borrowing costs are recognised as expenses in the period in which they are incurred, except where they are included
in the cost of qualifying assets.
Qualifying assets are assets which take more than 12 months to get ready for their intended use or sale. In these
circumstances, borrowing costs are capitalised to the cost of the assets. Where funds are borrowed specifically for
the acquisition, construction or production of a qualifying asset, the amount of borrowing costs capitalised is those
incurred in relation to that borrowing. Where funds are borrowed generally, borrowing costs are capitalised using a
weighted average capitalisation rate.
Exploration and evaluation expenditure carried forward relating to areas of interest which have not reached a stage
permitting reliable assessment of economic benefits are not qualifying assets.
Borrowing costs includes:
• interest;
• foreign exchange differences, net of the effect of hedges of borrowings;
• amortisation of ancillary costs incurred in connection with arrangement of the borrowing; and
• finance lease charges.
Where interest rates are hedged or swapped, the borrowing costs are recognised net of any effect of the hedge or swap.
(t) Earnings per share
Basic earnings per share is determined by dividing net profit after income tax attributable to members of the
Company by the weighted average number of ordinary shares outstanding during the financial year, adjusted for the
bonus element in the Company’s rights issue.
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into
account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary
shares and the weighted average number of shares assumed to have been issued for no consideration in relation to
dilutive potential ordinary shares adjusted for the bonus element in the Company’s rights issue.
Where interest rates are hedged or swapped, the borrowing costs are recognised net of any effect of the hedge or swap.
(t) Earnings per share
Basic earnings per share is determined by dividing net profit after income tax attributable to members of the
Company by the weighted average number of ordinary shares outstanding during the financial year, adjusted for the
bonus element in the Company’s rights issue.
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into
account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary
shares and the weighted average number of shares assumed to have been issued for no consideration in relation to
dilutive potential ordinary shares adjusted for the bonus element in the Company’s rights issue.
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
11
1. Summary of significant accounting policies (continued)
(u) Rehabilitation and restoration costs
Expenditures relating to ongoing rehabilitation and restoration programs, including for exploration areas on non-
freehold land, are provided for or charged to costs of production as incurred. A provision for future rehabilitation and
restoration relating to mine closure is accrued based on the estimated mine life.
(v) Royalties and other mining imposts
Ad valorem royalties and other mining imposts are accrued and charged against earnings when the liability from
production or sale of the mineral crystallises.
(w) Going concern
The financial report has been prepared on the basis of going concern. This basis presumes that funds will be
available to finance future operations and that the realisation of assets and settlement of liabilities will occur in the
normal course of business. Despite the consolidated entity suffering recurring losses from operations and having a
working capital deficit of $14,077,000 as at 30 June 2005 the directors believe that the consolidated entity will be
able to fund future operations through revised strategic plans and additional funding sourced from DRD Gold
Limited (“DRD Gold”), ANZ bank and intended share placements.
Revised strategic plans
The revised strategic plan has been approved by the Emperor Board with the intention to return Emperor to positive
cashflows from operations. This plan includes the following initiatives:
�� Changes to work practices and shift rosters which are expected to reduce problems associated with
absenteeism, increase fleet utilisation and reduce power consumption;
• Increase development expenditure and reduce dilution of ore grades by better control of mining heights; and
• Acceleration of the heavy vehicle rebuild program.
Additional funding
Subsequent to 30 June 2005 Emperor finalised a $10,000,000 convertible loan facility with its major shareholder,
DRD Gold. As at 13 December 2005 Emperor has fully drawn down the $10,000,000 facility (refer Note 37(a) for
more information regarding this facility).
As a part of the proposed transaction between Emperor and DRD (Offshore) Limited (“DRD Offshore”), as
described in Note 37(c), and in addition to the current loan arrangements ANZ Bank has provided Emperor with a
term sheet to establish a new US$42,000,000 loan facility. This facility is expected to fund the cash consideration
payable to DRD Offshore and provide additional working capital. Details of the proposed terms included in ANZ
Bank’s term sheet are described in Note 37(f).
On 5 December 2005 Emperor placed $8,800,000 of new shares with institutional investors and private
shar eholders. This placement forms part of Emperor’s intention to raise US$15,000,000 through the placement of
new shares following relevant approvals of the sale and purchase transaction with DRD Offshore as described in
Note 37(c).
On 12 December 2005 the ANZ Bank and Emperor concluded a standstill agreement that has deferred repayment of
Emperor’s existing loan to 30 November 2006. The terms and conditions of this standstill are detailed in Note 19.
The Board acknowledges that until such time as the sale and purchase transaction with DRD Offshore receives
unconditional approval from all relevant parties, the new ANZ Bank loan facility is negotiated, the placement of
new Emperor shares is completed and Emperor satisfies all conditions of the ANZ standstill agreement there
remains uncertainty as to whether Emperor will continue as a going concern and, therefore, whether it will realise its
assets and extinguish its liabilities in the normal course of b usiness and at the amounts stated in the financial report.
The financial report has been prepared on the basis of going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
12
2. Segment information
The consolidated entity operates primarily in one business segment being gold mining. The consolidated entity’s
business segment operates in Fiji, with Australia being the home country of the parent company:
Fiji* Australia
Other
countries TOTAL
6 April 2006 ($’000)
Revenue 37,804
148
-
37,952
Segment Result
(69,034)
(6,367)
114
75,287
2005 ($'000)
Revenue 64,853
440
1
65,294
Segment Result
(34,325)
448
143
(33,734)
Total Assets
69,852
2,827
107
72,786
Total Liabilities
43,667
1,306
2
44,975
Acquisition of property, plant and equipment
12,164
7
0
12,171
2004 ($'000)
Revenue 65,049
377
1
65,427
Segment Result
(5,325)
249
146
(4,930)
Total Assets
92,688
3,763
116
96,567
Total Liabilities
52,218
802
2
53,022
Acquisition of property, plant and equipment
22,548
8 -
22,556
*includes unrealised (loss)provision for hedging re-structure of $1,157,000 (2005:($1,524,000), 2004: ($2,155,000))
With the exception of Fiji no other individual country contributed more than 10% of consolidated revenues and
consolidated assets.
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
13
Period
ended 6
April
2006
$'000
2005
$'000
2004
$'000
3. Revenue
Revenue from operating activities
Gold sales
38,952
66,345 66,716
Less Provision for hedge redesignation
(1,157)
(1,524) (2,155)
37,795
64,821 64,561
Revenue from outside the operating activities
Interest received
145
409 324
Sale of non-current assets
12
38 50
Sub-lease rentals
-
26 60
Settlement of legal action
-
- 432
157
473 866
Revenue from ordinary activities
37,952
65,294 65,427
4. Loss from ordinary activities
Loss from ordinary activities before income tax expense
includes the following specific net gains and expenses:
includes the following specific net gains and expenses:
(a) Net gains and expenses
Net gains on disposal of property, plant and equipment
-
- 6
Other foreign exchange gain
2
- 4
(b) Expenses
Cost of goods sold
65,145
81,264 68,125
Depreciation
Buildings
65
136 141
Plant and equipment
3,850
4,926 4,780
Insurance spares
32
37 53
Total depreciation
3,947
5,099 4,974
Amortisation
Mine property and development
2,318
5,924 7,096
Plant and equipment under finance leases
42
32 58
Total amortisation
2,360
5,956 7,154
Total depreciation and amortisation
6,307
11,055 12,128
Less depreciation capitalised (Note 40)
(177)
(279) (778)
Total depreciation and amortisation
6,130
10,776 11,350
Mine Rehabilitation
61
133 -
Total Depreciation, amortisation and rehabilitation expense
6,191
10,909 11,350
Exploration and evaluation expenditure written off
Vatukoula
54
281 117
Tuvatu
34
37 42
88
318 159
Write down of inventories to net realisable value
-
1,843 -
Borrowing costs
Interest on ANZ working capital facility
-
51
30
Interest and finance charges paid/payable
892
952 883
Deferred borrowing cost amortisation
136
166 187
Exchange loss/(gain) on foreign currency borrowings
1,024
(1,066) (834)
DRD Gold Convertible note loan
484
- -
Amount capitalised
-
- (100)
Borrowing cost expensed
2,536
103 166
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
14
Period
ended 6
April
2006
$'000
2005
$'000
2004
$'000
4. Profit/(loss) from ordinary activities
(continued)
Net loss on disposal of property, plant and equipment
-
47 190
Provisions
Employee entitlements
1,620
2,460 2,094
Government taxes
Gold tax
1,191
1,768 1,949
Import duty on fuel
-
333 2,013
Total government taxes
1,191
2,101 3,962
Rental expense relating to operating leases
Minimum lease payments
329
104 32
Sub-lease
-
(26) (15)
Total rental expense relating to operating leases
329
78 17
(c) Individually significant expenses included
in profit from ordinary activities
During the nine months the consolidated entity has written down its mining asset (Mine properties and
development) associated with Smith shaft ($5,800,000) following decision to stop mining due to non-economic
grades. Philip shaft’s portion of impairment change made during the June 2005, was reversed out for $3,900,000
following the consolidated entity’s decision to increase production at Philip shaft.
5. Income tax
(a) The aggregate amount of income tax attributable to the financial
year differs from the amount calculated on the operating (loss). The
differences are reconciled as follows:
year differs from the amount calculated on the operating (loss). The
differences are reconciled as follows:
(Loss) from ordinary activities before income tax expense
(74,537)
(33,563) (4,912)
Income tax calculated @ 30%
(22,361)
(10,069)
(1,474)
Tax effect of permanent differences:
Non deductible expenses
2,364
61
75
Export profit deductions
-
-
(83)
Equity raising costs
(52)
(78)
(43)
Sundry items
149
308
66
Deferred tax assets not brought to account (valuation allowance)
20,838
10,328
1,647
Effect of different tax rates on overseas income
(185)
(378)
(107)
Under/(over) provision in previous year
-
(1)
(63)
Aggregate income tax expense
753
171
18
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
15
Period
ended 6
April
2006
$'000
2005
$'000
2004
$'000
5.
Income tax (continued)
(b) The directors estimate that the potential future income tax
benefit at 6 April 2006 in respect of tax losses and timing
differences not brought to account is
benefit at 6 April 2006 in respect of tax losses and timing
differences not brought to account is
65,486
56,795
47,404
Gross tax losses of $119,599,000 as at 6 April 2006 expire as follows
Year of expiry
Gross tax loss
$’000
2010 40,172
2011 44,974
2013 10,201
24,252
TOTAL 119,599
2011 44,974
2013 10,201
24,252
TOTAL 119,599
This benefit for tax losses will only be obtained if:
(i)
the consolidated entity derives future assessable income of a nature and of an amount sufficient to enable
the benefit from the deductions for the losses to be realised, and
the benefit from the deductions for the losses to be realised, and
(ii)
the consolidated entity continues to comply with the conditions for deductibility
imposed by tax legislation, and
imposed by tax legislation, and
(iii)
no changes in tax legislation adversely affect the consolidated entity in realising the benefit from the
deductions for the losses.
deductions for the losses.
6. Cash assets
2005
$'000
2004
$'000
Cash at bank and on hand – current
3,733
3,658
Restricted cash at bank – non-current
3,195
3,594
Cash at the end of the financial year as shown in the statement of cash flows is
as follows:
as follows:
Cash at bank and on hand
3,733
3,658
Less: Bank overdraft (Note 16)
-
(2,331)
Balances per statement of cash flows
3,733
1,327
Restricted cash at bank
The funds held as restricted cash include the following:
(i)
An amount of US$1,700,000 was held at balance date as insurance reserve account with ANZ Bank where
the Bank can make withdrawals from the funds to meet reparation costs in the event of loss or damage to
mine assets which are subject to the consolidated entity’s self insurance policy.
mine assets which are subject to the consolidated entity’s self insurance policy.
(ii)
Cash deposits held as security.
The deposits are bearing floating interest rates between 1.00% and 5.70% (2004 –1.00% and 5.48%).
7.
Current assets – Receivables
2005
$'000
2004
$'000
Trade debtors
742
1,480
Other debtors
2,542
2,003
Less: Provision for doubtful debts
(74)
(87)
Total Receivables
3,210
3,396
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
16
Other debtors are carried at notional amounts and are normally settled on 30 days terms. Other debtors, net of
provisions, approximate net fair value. Other debtors are non interest bearing.
2005
$'000
2004
$'000
8.
Current assets – Inventories
Consumable stores - at cost less provision
4,542
4,378
Gold in circuit - at cost
-
7,390
Gold in circuit - at net realisable value
2,871
-
7,413
11,768
9.
Current assets – Other
Prepayments
643
303
10. Current assets-Deferred costs
Deferred borrowing costs
183
187
11. Non-current assets – Inventories
Consumable stores - at cost less provision
140
140
12.
Non-current assets – Property, plant
and equipment
and equipment
Land and building
Freehold land-at cost
Freehold land-at cost
1,833
1,909
Building on freehold land-at cost
1,906
1,460
Less accumulated depreciation
(563)
(447)
1,343
1,013
Total land and buildings
3,176
2,922
Plant and equipment
Plant and equipment-at cost
Plant and equipment-at cost
45,866
44,836
Less: Accumulated amortisation
(12,944)
(8,925)
32,922
35,911
Plant and equipment under finance lease
348
164
Less: Accumulated amortisation
(88)
(59)
260
105
Total plant and equipment
33,182
36,016
Total property, plant and equipment
36,358
38,938
Mine properties and development
Mine properties and development- at cost
Mine properties and development- at cost
-
46,870
Less: Accumulated amortisation
- (20,680)
Mine properties and development- at recoverable amount
12,708
-
12,708
26,190
Exploration property- at cost
-
237
Total mine properties and development, property, plant and
equipment 49,066
equipment 49,066
65,365
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
17
12. Non-current assets – Property, plant and equipment (continued)
Reconciliation - 2005
Reconciliation of the carrying value for each class of property, plant and equipment is set out below:
Freehold
Land
$'000
Mine
buildings
$'000
Plant and
equipment
$'000
Leased
plant and
equipment
$’000
Mine prop.
and dev.
$'000
Exploration
$’000
Total
$'000
Carrying amount at 1 July 2004
1,909
1,013
35,911
105
26,190
237
65,365
Additions
-
509
3,387
191
8,166
155
12,408
Disposals
-
(3)
(102)
-
-
-
(105)
Transfers
-
-
-
-
227
(227)
-
Expenditure Written off/
Impairment
Impairment
-
-
-
- (15,248)
(155) (15,403)
Depreciation/
Amortisation (Note 4)
Amortisation (Note 4)
-
(136)
(4,926)
(32)
(5,924)
- (11,018)
Exchange differences on translation
of self sustaining foreign operation
of self sustaining foreign operation
(76)
(40)
(1,348)
(4)
(703)
(10) (2,181)
Carrying amount at 30 June 2005
1,833
1,343
32,922
260
12,708
-
49,066
Reconciliation - 2004
Reconciliation of the carrying value for each class of property, plant and equipment is set out below:
Freehold
Land
$'000
Mine
buildings
$'000
Plant and
equipment
$'000
Leased
plant and
equipment
$’000
Mine prop.
and dev.
$'000
Exploration
$’000
Total
$'000
Carrying amount at 1 July 2003
1,909
1,125
30,925
273
20,837
-
55,069
Additions
-
39
9,972
-
12,545
254
22,810
Disposals
-
(7)
(214)
(13)
-
-
(234)
Transfers
-
-
94
(94)
17
(17)
-
Depreciation/Amortisation
(Note 4)
(Note 4)
-
(141)
(4,780)
(58)
(7,096)
- (12,075)
Exchange differences on translation
of self sustaining foreign operation
of self sustaining foreign operation
-
(3)
(86)
(3)
(113)
-
(205)
Carrying amount at 30 June 2004
1,909
1,013
35,911
105
26,190
237
65,365
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
18
2005
$'000
2004
$'000
13.
Non-current assets – Deferred tax assets
Future income tax benefit of parent
398
340
14. Non-current assets – Deferred cost
Deferred borrowing costs
417
624
15. Current liabilities – Payables
Trade creditors
9,786
11,553
Other creditors and accruals
1,492
1,948
11,278
13,501
16. Current liabilities – Interest bearing
liabilities Secured
Bank overdraft
-
2,331
Bank loan (Note 19)
16,231
2,694
Lease liabilities (Note 30)
87
42
16,318
5,067
Details of the security relating to each of the secured liabilities are set out in Note 19.
17. Current liabilities – Provisions
17. Current liabilities – Provisions
Employee entitlements (Note 31)
1,166
1,350
Other
293
250
1,459
1,600
18.
Non- current liabilities - Payables
Loan restructure fees
500
-
Relates to restructure fees payable in September 2006 to ANZ Bank.
19.
Non-current liabilities – Interest bearing liabilities (secured)
Secured
Bank loan
Bank loan
-
16,942
Lease liabilities (Note 30)
152
53
Total secured non-current interest bearing
liabilities
liabilities
152
16,995
Financing arrangements
Unrestricted access was available at balance
date to the following lines of credit:
Bank overdraft
date to the following lines of credit:
Bank overdraft
-
3,603
Bank loan
-
21,032
Total facilities
-
24,635
Used at balance date
16,231
21,967
Unused at balance date
-
2,668
16,231
24,635
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
19
19.
Non-current liabilities – Interest bearing liabilities (secured) (continued)
The loan from ANZ Banking Group Limited (“ANZ Bank”), used by the consolidated entity to fund its Phase 2
Capital Expansion Project relating to infrastructure, development and underground fleet replacement, is secured by
Emperor Gold Mining Company Limited as follows:
(i) a first registered deed of charge over all present and future assets and undertakings of the controlled entity
other than excluded assets (SPL’s 1283, 1296, 1418, 1360, 1411 and CX 626 and all the shares in Tuvatu
Gold Mining Company Limited);
(ii) a first registered mortgage over all freehold and leasehold land;
(iii) a first registered mortgage over Special Site Rights (SSR) 6, 7, 8 and Special Mining Leases (SPL 54, 55
and 56); and
(iv) a first registered Bill of Sale over its motor vehicles.
The interest rate relating to the loan is based on the London Inter Bank Offered Rate (LIBOR) plus a margin of
2.5% and the principle covenants include the requirement for:
(i)
The consolidated entity to retain an Insurance Buffer Amount of $5,000,000 (2004: $5,000,000) in
immediately available cash (including an Insurance Reserve Amount of US$1,700,000); and
immediately available cash (including an Insurance Reserve Amount of US$1,700,000); and
(ii)
Emperor Mines Limited to unconditionally and irrevocably guarantee the obligations of Emperor Gold
Mining Company (Fiji), a controlled entity, until completion of the Phase 2 Capital Expansion Project. On
completion, additional financial covenants would be implemented. As at 12 December 2005 Emperor had
not achieved completion and the guarantee over Emperor Gold Mine Limited’s (Fiji) obligations remains
in place.
Mining Company (Fiji), a controlled entity, until completion of the Phase 2 Capital Expansion Project. On
completion, additional financial covenants would be implemented. As at 12 December 2005 Emperor had
not achieved completion and the guarantee over Emperor Gold Mine Limited’s (Fiji) obligations remains
in place.
In relation to the existing financial arrangements and original loan covenants Emperor has entered a Standstill
agreement with ANZ Bank that postpones all principal repayments until 30 November 2006.
This standstill is conditional on the transaction with DRD Offshore Limited (as described on Note 37 (c) )
proceeding in accordance with a predetermined timetable that will include shareholder approval by 14 February
2006, regulatory approval by 28 February 2006 and completion by 6 April 2006. In addition, ANZ must be
provided with reports in May 2006, July 2006 and September 2006 that satisfy ANZ that Emperor is moving
towards obtaining additional fundraising from share placements.
The standstill agreement also allows ANZ Bank to conduct a formal review of all Vatukoula loan facilities on 30
November 2006 and if it is not satisfied with the results of that review thos e facilities shall be repayable within 90
days.
Due to the conditional nature of the waivers granted in the standstill agreement by the ANZ Bank the non-current
portion of the ANZ Bank debt amounting to $11,600,000 has been reclassified as a current liability rather than non-
current, resulting in the total loan balance of $16,231,000 being classified as current.
The overdraft facility negotiated with the ANZ Bank in 2004 of FJD$8,000,000 ($6,400,000) was available as a
general overdraft facility. Upon completion of the Company’s rights issue in November 2004, the amounts drawn
down against the facility of $2,800,000 were repaid and the facility extinguished.
Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default.
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
20
2005
$'000
2004
$'000
20.
Non-current liabilities – Deferred
tax liabilities
tax liabilities
Provision for deferred income tax
7
9
21.
Non-current liabilities – Provisions
Employee entitlements (Note 31)
861
633
Withholding tax liabilities
1,135
800
Mine rehabilitation
131
-
2,127
1,433
22.
Provision for hedging redesignation
Provision for hedging redesignation
8,542
7,019
Following Emperor’s hedge book redesignation during the June 2003 year, in accordance with the consolidated
entity’s accounting policy a provision for hedging redesignation was recorded in relation to each of the financial
years upon which the redesignation has an impact. The provision for hedging redesignation reflected in the
Consolidated Statement of Financial Performance in the amount of $1,524,000 is a non cash unrealised loss in
respect of 18,800 ounces (18,800 x $81 dollars per ounce) that were originally planned for delivery during the 2005
financial year which were rescheduled for delivery in later periods in line with loan facility requirements.
The provision for hedging redesignation reflected in the Consolidated Statement of Financial Position in the amount
of $8,543,000 represents an unrealised loss in respect of 105,390 ou nces at $81 per ounce had the gold price
remained at $627/oz. As this provision relates to an unrealised loss, it will be reversed over a 7 year period
corresponding to the period of the redesignation. The table below shows the net movement in ounces as a result of
the redesignation and the corresponding provisions recorded and reversed in future years. Over a 7 year period this
adjustment has a net zero effect.
Financial Year ending
30 June
Ounces (deferred)/
additional
Unrealised
(loss)/gain
$’000
Provision cum.
Balance
$’000
2003 (60,010)
(4,864)
(4,864)
2004 (26,580)
(2,155)
(7,019)
2005 (18,800)
(1,524)
(8,543)
2006 (19,020)
(1,541)
(10,084)
2007 45,155
3,660
(6,424)
2008 66,380
5,380
(1,044)
2009 12,875
1,044
-
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
21
2005
$000
$000
2004
$000
$000
23. Contributed equity
(a) Share capital
Ordinary Shares Fully paid
163,011
143,200
(b) Movements in ordinary share capital
Date Details
Notes
Number of
shares
Issue
price
price
$'000
1 July 02
Balance
98,374,132
132,523
2 July 02
Share placement
(e) 12,500,000 $0.81 10,125
18 Aug 02
Share purchase plan
(f)
1,246,113
$0.77
960
13 June 03 Exercise of 2001 options
(d)
91,667
$0.34
31
11,116
Less: Transaction cost
arising on share issues
arising on share issues
(456)
30 June 03 Balance
112,211,912
143,183
22 Sept 03
Exercise of 2001 options
(d)
50,000
$0.34
17
30 June 04 Balance
112,261,912
143,200
1 July 04
Exercise of 2001 options
(d)
308,333
$0.34
105
1 July 04
Exercise of 2001 options
(d)
500,000
$0.30
150
1 July 04
Exercise of 2001 options
(d)
116,666
$0.62
72
15 Nov 04
Rights Issue
44,578,668
$0.45
20,061
20,388
Less: Rights issue cost
(577)
30 June 05 Balance
157,765,579
163,011
(c) Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in
proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary
shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to
one vote.
At 30 June 2005 all ordinary shares were fully paid.
(d) Share options
During the period 924,999 (2004:50,000) shares were issued by the Company as a result of exercise of options.
Outstanding options are detailed in Note 27.
(e) Share placement
In July 2002, the Company arranged a placement of 12,500,000 shares at 81cents per share raising $10,125,000.
The shares were placed with institutional clients of BNP Paribas Equities, both overseas and in Australia.
(f) Share purchase plan
In July 2002 the Company undertook a Share Purchase Plan (“SPP”) to provide eligible shareholders with the
opportunity to participate in a further capital raising associated with the Phase 2 expansion plan. The price for the
SPP was set at 77 cents, representing a 15% discount to the weighted average traded price of the Company’s shares
for the 5 trading days ended 21 June 2002. As a result, the Company was successful in raising some $960,000.
proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary
shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to
one vote.
At 30 June 2005 all ordinary shares were fully paid.
(d) Share options
During the period 924,999 (2004:50,000) shares were issued by the Company as a result of exercise of options.
Outstanding options are detailed in Note 27.
(e) Share placement
In July 2002, the Company arranged a placement of 12,500,000 shares at 81cents per share raising $10,125,000.
The shares were placed with institutional clients of BNP Paribas Equities, both overseas and in Australia.
(f) Share purchase plan
In July 2002 the Company undertook a Share Purchase Plan (“SPP”) to provide eligible shareholders with the
opportunity to participate in a further capital raising associated with the Phase 2 expansion plan. The price for the
SPP was set at 77 cents, representing a 15% discount to the weighted average traded price of the Company’s shares
for the 5 trading days ended 21 June 2002. As a result, the Company was successful in raising some $960,000.
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
22
2005
$'000
2004
$'000
24.
Reserves and Accumulated losses
(a) Reserves:
Foreign currency translation reserve
(22,243) (20,432)
Movements:
Foreign currency translation reserve
Balance at beginning of year
Balance at beginning of year
(20,432) (20,495)
Net exchange differences on translation
of foreign controlled entity
of foreign controlled entity
(1,811)
63
Balance at end of year
(22,243) (20,432)
(b)
Accumulated losses
Accumulated losses at beginning of
year
year
(79,223) (74,293)
Net (loss) attributable to members of
Emperor Mines Limited
Emperor Mines Limited
(33,734)
(4,930)
Accumulated losses at end of year
(112,957) (79,223)
(c)
Nature and purpose of reserves
Foreign currency translation reserve
Exchange differences arising on translation of the foreign controlled entity, Emperor Gold Mining Company
Limited, Jubilee Mining Company Limited, Koula Mining Company Limited are taken to the foreign
currency translation reserve, as described in accounting policy Note 1(c)(ii).
Limited, Jubilee Mining Company Limited, Koula Mining Company Limited are taken to the foreign
currency translation reserve, as described in accounting policy Note 1(c)(ii).
2005
$'000
2004
$'000
25. Equity
Total equity at the beginning of the
financial year
Total equity at the beginning of the
financial year
43,545
48,395
Total changes in equity recognised in the
statement of financial performance
statement of financial performance
(35,545)
(4,867)
Transactions with owners as owners:
Contribution of equity, net of
transaction fees
transaction fees
23(b)
19,811
17
Total equity at the end of the financial
year
year
27,811
43,545
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
23
26. Financial instruments
The consolidated entity is party to derivative financial instruments in the normal course of business in order to
hedge exposure to fluctuation in interest rates and gold price.
(i) Interest rate swap
Bank loans of the consolidated entity currently bear an average variable rate of 4.93%. In order to minimise
fluctuation in interest rates, 70% of the loan has been hedged by entering into interest rate swap contracts under
which the Company is obliged to receive interest at variable rates and pay interest at fixed rates until October 2008.
The contracts are settled on a net basis and the net amount receivable or payable at the reporting date is included in
the term loan. The following table sets out the fair values of interest rate swaps.
fluctuation in interest rates, 70% of the loan has been hedged by entering into interest rate swap contracts under
which the Company is obliged to receive interest at variable rates and pay interest at fixed rates until October 2008.
The contracts are settled on a net basis and the net amount receivable or payable at the reporting date is included in
the term loan. The following table sets out the fair values of interest rate swaps.
2005
$'000
2004
$'000
Fair value of interest rate swap-(payable)
(302)
(200)
The fixed interest rate payable on the hedged 70% of the loan was 4.34% (2004: 2.18%) and the average variable
rate received was 2.32% (2004: 1.11%).
(ii) Commodity contracts
As part of the loan facility requirements, the consolidated entity’s forward gold under sales contracts was
redesignation to align with the period of loan facility. At 30 June 2005 the consolidated entity was committed to
delivering 221,815 ounces of gold under forward sales contracts at an average price of $599 per ounce by 31
December 2008.
redesignation to align with the period of loan facility. At 30 June 2005 the consolidated entity was committed to
delivering 221,815 ounces of gold under forward sales contracts at an average price of $599 per ounce by 31
December 2008.
Maturity
Date
Date
Ounces to be delivered
Exercise price
2005 2004 2005
$
2004
$
2003-2004 - - - 599
2004-2005 - 66,340 - 599
2005-2006 66,120 66,120 599 599
2006-2007 66,440 66,440 599 599
2007-2008 66,380 66,380 599 599
2008-2009 12,875 12,875 599 599
211,815 278,155
2004-2005 - 66,340 - 599
2005-2006 66,120 66,120 599 599
2006-2007 66,440 66,440 599 599
2007-2008 66,380 66,380 599 599
2008-2009 12,875 12,875 599 599
211,815 278,155
Mark-to-market position of Commodity contracts
2005
$'000
2004
$'000
Unrealised commodity loss
4,388
7,192
Unrealised commodity loss payable to
counter party
counter party
4,388
7,192
At 30 June 2005, the net unrealised mark-to-market loss on the total open commodity position of 211,815 ounces
was $4,388,000 based on an A$ gold price of $573 per ounce (June 2004: $7,192,000 loss based on A$ gold price of
$569).
(iii) Credit risk
The credit exposure of derivatives is represented by the net fair values of the contracts disclosed. The consolidated
entity has a credit risk in relation to derivative financial instruments in the event of non-performance by counter
parties. To counter this risk, financial instruments are only entered into with counter parties with high credit ratings.
Emperor delivers its gold to AGR Matthey (Australia), who refines the gold and then sells the gold on to third
parties. All proceeds are received within a week of delivery. The concentration of credit risk in Australia is
mitigated by the reputable nature of the sales agent and their customers and the settlement of proceeds within 6
days.
entity has a credit risk in relation to derivative financial instruments in the event of non-performance by counter
parties. To counter this risk, financial instruments are only entered into with counter parties with high credit ratings.
Emperor delivers its gold to AGR Matthey (Australia), who refines the gold and then sells the gold on to third
parties. All proceeds are received within a week of delivery. The concentration of credit risk in Australia is
mitigated by the reputable nature of the sales agent and their customers and the settlement of proceeds within 6
days.
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
24
26.
Financial instruments (continued)
(iv) Interest rate risk exposure
The consolidated entity’s exposure to interest rate risk and the effective weighted average interest rate for each class
of financial assets and financial liabilities is set out in the table below.
of financial assets and financial liabilities is set out in the table below.
Fixed Interest
Maturing in:
Floating
Interest
rate 1
Year
or less
1 Year to
5 years
Non-
Interest
Bearing
Bearing
Total
Notes
$’000 $’000 $’000 $’000 $’000
2005
Financial assets
Financial assets
Cash 6
6,884
-
-
44
6,928
Receivables 7
-
-
-
3,210
3,210
6,884
-
-
3,254
10,138
Weighted average interest rate
4.71%
Financial liabilities
Bank
loan
16
16,231
- - -
16,231
Payables 15,
18
-
-
-
11,778
11,778
Lease liabilities
16, 19
-
87
152
-
239
Interest Rate Swap*
(11,393)
3,255
8,138 -
-
4,838
3,342
8,290
11,778
28,248
Weighted average interest rate
4.93%
4.43%
4.43%
2004
Financial assets
Financial assets
Cash 6
7,247
-
-
5
7,252
Receivables 7
-
-
-
3,396
3,396
7,247
-
-
3,401
10,648
Weighted average interest rate
4.14%
Financial liabilities
Bank
overdraft 16
2,331
- - -
2,331
Bank loan
16, 19
19,636
-
-
-
19,636
Payables 15,
18
-
-
-
13,501
13,501
Lease liabilities
16, 19
-
42
53
-
95
Interest Rate Swap*
(16,773)
4,233
12,540 -
-
5,194 4,275 12,593 13,501 35,563
Weighted average interest rate
4.72%
2.36%
2.36%
*Notional principal amount
The net fair value of monetary financial assets and financial liabilities of the consolidated entity approximates their
carrying values.
carrying values.
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
25
27. Contingent liabilities
At 30 June 2005, the consolidated entity had contingent liabilities in respect of bank and other guarantees and other
matters arising in the ordinary course of business amounted to $718,000 (2004 $659,000) to third parties.
The consolidated entity is a defendant in various legal actions and the outcome of such actions are not expected to
give rise to any significant loss not already provided for in the financial statements.
28. Commitments for expenditure
Capital Commitments
2005
$'000
2004
$'000
Commitments for the acquisition of plant and
equipment contracted for at the reporting date
but not recognised as liabilities payable:
Within 1 year
equipment contracted for at the reporting date
but not recognised as liabilities payable:
Within 1 year
799
803
Exploration Commitments
In order to maintain current rights of tenure to
exploration and mining tenements, the consolidated
entity has the following discretionary exploration
expenditure requirements up until expiry of the leases.
These obligations, which are subject to renegotiation
upon expiry of the leases, are not provided for in the
financial statements and are payable:
In order to maintain current rights of tenure to
exploration and mining tenements, the consolidated
entity has the following discretionary exploration
expenditure requirements up until expiry of the leases.
These obligations, which are subject to renegotiation
upon expiry of the leases, are not provided for in the
financial statements and are payable:
Within 1 year
165
558
Finance Leases
Commitments in relation to finance leases are
payable as follows:
Within 1 year
Commitments in relation to finance leases are
payable as follows:
Within 1 year
100
48
Later than 1 year but not later than 5 years
166
55
Minimum lease payments
266
103
Less: Future finance charges
(27)
(8)
Recognised as a liability
239
95
Representing lease liabilities:
Current (Note 16)
Current (Note 16)
87
42
Non-current (Note 19)
152
53
239
95
The weighted average interest rate implicit in the leases is 8.8% (2004 − 8.4%).
Operating leases
Commitments for minimum lease payments in
relation to non-cancellable operating leases are
payable as follows:
Within one year
Commitments for minimum lease payments in
relation to non-cancellable operating leases are
payable as follows:
Within one year
83
32
Later than one year but not later than 5 years
309
-
Commitments not recognised in the financial
statements
statements
392
32
Future minimum lease payments expected to be
received in relation to non-cancellable sub-
leases of operating leases not recognised in the
financial statements
78
15
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
26
29. Employee benefits
Superannuation Fund
The consolidated entity has a legal obligation to contribute to relevant superannuation plans. In Fiji, the funds are
remitted to the Fiji National Provident Fund (a defined contribution retirement fund), a National regulatory body
and a trustee managed employee super fund for expatriate employees. In Australia, Superannuation Guarantee (SG)
contributions are made to employee nominated trustee-administrated funds. These plans are generally funded by
contributions from employees and by the consolidated entity, taking account of the statutory requirements of the
relevant countries.
30. Related parties
Directors and specified executives
Disclosures relating to directors and specified executives are set out in Note 27.
Other related parties
Since becoming a major shareholder in July 2004, DRD Gold have provided Emperor with mining and technical
support on cost plus 10% relocation allowance. The aggregate amounts included in determination of loss from
ordinary activities before income tax that resulted from transaction with each class of other related parties:
Other related parties
Since becoming a major shareholder in July 2004, DRD Gold have provided Emperor with mining and technical
support on cost plus 10% relocation allowance. The aggregate amounts included in determination of loss from
ordinary activities before income tax that resulted from transaction with each class of other related parties:
2006
$000
$000
2005
$000
$000
2004
$000
$000
Professional services
- 150 -
Mine-Technical Services
- 177 -
Reimbursement of Expenses
- 220
-
Sublease Income
- 10
-
The aggregate amounts payable to each
class of other related parties:
2005
$000
$000
2004
$000
$000
DRD Gold
169
-
I Murray and R Johnson, non executive directors of the Company are Chief Financial and Corporate Development
officer of DRD Gold and Divisional Director DRD Gold Australasia respectively, are not compensated by the
Company or any of its subsidiaries.
31.
Investments in controlled entities
Name of entity
Country of
incorporation
Equity holding
2005
2004
%
%
Emperor Gold Mining Company
Limited
Limited
Fiji
100
100
Jubilee Mining Company Limited
Fiji
100
100
Koula Mining Company Limited
Fiji
100
100
Tuvatu Gold Mining Company
Limited
Limited
Fiji
100
100
Sovereign Insurance Company
Limited
Limited
Vanuatu
100
100
Emperor Finance Limited
Australia
100
100
Emperor Australia Pty Limited
Australia
100
100
(i)
All holdings are in the ordinary share capital of the undertaking concerned.
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
27
32.
Interest in joint venture
The consolidated entity’s 49% interest in a joint venture of South Pacific Infrastructure Pty Limited, incorporated on
5 January 2000, for the purpose of pursuing the development of infrastructure projects in the South Pacific was
disposed of during the 2005 year. There has been no financial implication as a result of this disposal
33. Reconciliation of operating loss from ordinary activities after income tax to net cashflows from
operating activities
2006
2005 2004
$000
$000
$000
Operating loss after income tax
(75,287) (33,734)
(4,930)
Depreciation and amortisation
8,414
10,739
11,297
Exploration and evaluation expenditure
written off against
written off against
-
318
159
Net loss on sale of non-current assets
-
47
184
Non Cash borrowing cost
-
(157)
37
Impairment of mine assets
1,900
15,248
-
Net exchange rate difference
6,105
43
(237)
Deferred tax provision
3
(60)
(235)
Change in operating assets and liabilities:
- Decrease/(increase) in receivables
- Decrease/(increase) in receivables
2,509
186
(802)
- (Increase)/decrease in inventories
(1.231)
4,355
(3,466)
- (Increase)/decrease in other operating
assets
-
(129)
77
- Increase/(decrease)/ in trade creditors
40,021
(2,222)
1,990
- (Decrease)/increase in other operating
liabilities
(254)
2,576
2,282
- Decrease in provision for income tax
-
(2)
(182)
Net cash flow provided by/(used in)
operating activities
operating activities
(17,820)
(2,792)
6,174
34. Non-cash financing and investing
activities
activities
2005
2004
$000
$000
Acquisition of light vehicles by means of
finance lease
finance lease
191
-
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
28
35. Earnings per share
2006
$
2005
$
2004
$
Basic loss per share
(0.45)
(0.23) (0.04)
Diluted loss per share
(0.45)
(0.23) (0.04)
2006
Shares
2005
Shares
2004
Shares
Weighted average number of ordinary
shares used as the denominator in
calculating basic earnings per share.
shares used as the denominator in
calculating basic earnings per share.
168,076,690 143,879,606 118,956,338
Weighted average number of ordinary
shares and potential ordinary shares used
as the denominator in calculating diluted
earnings per share.
shares and potential ordinary shares used
as the denominator in calculating diluted
earnings per share.
168,076,690 143,879,606 118,956,338
2006
$'000
2005
$'000
2004
$'000
Earnings used in calculating:
Basic loss per share
(75,287)
(33,734) (4,930)
Diluted loss per share
(75,287)
(33,734) (4,930)
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
29
36.
U.S. Generally Accepted Accounting Principles disclosures
The consolidated financial statements of Emperor Mines limited are prepared in accordance with Australia’s
Generally Accepted Accounting Principles (“AGAAP”). Certain significant differences exist between AGAAP and
U.S. generally accepted accounting principles (“U.S. GAAP”). The significant differences between AGAAP and
U.S. GAAP as they relate to the consolidated entity are presented throughout this note.
Generally Accepted Accounting Principles (“AGAAP”). Certain significant differences exist between AGAAP and
U.S. generally accepted accounting principles (“U.S. GAAP”). The significant differences between AGAAP and
U.S. GAAP as they relate to the consolidated entity are presented throughout this note.
Reconciliation to U.S. GAAP
The following is a summary of the adjustments to net loss for the years ended 30 June 2005 and 2004 that would be
required if U.S. GAAP had been applied instead of AGAAP.
required if U.S. GAAP had been applied instead of AGAAP.
2006
$000
$000
2005
$000
$000
2004
$000
$000
Reconciliation of net loss – U.S. GAAP
Net loss as reported under AGAAP
(75,287)
(33,734)
(4,930)
(deduct)/add
Adjustments required to accord with U.S. GAAP:
Exploration expenditure
(a)
-
-
(232)
Mine properties development – capitalisation and amortisation
(b)
(1,322)
(111)
(290)
Plant and equipment – unit-of-production amortisation
(c)
(891)
(1,382)
(966)
Impairment of mine assets
(d)
(2,547)
15,248
-
Borrowing costs
(e)
-
434
Restoration and rehabilitation costs
(g)
174
(2)
(82)
Fair value accounting for derivatives
(h)
2,253
4,280
(12,764)
Deferred taxes
(i)
(262)
(77)
(43)
Share based payments
(k)
(296)
-
-
Total adjustment
(2,891)
17,956
(13,943)
Net loss under U.S. GAAP
(78,178)
(15,778)
(18,873)
The following is a summarised income statement prepared in accordance with US GAAP.
Consolidated Income Statement – U.S. GAAP
2006 2005 2004
$’000 $'000 $'000
Net sales
38,602
66,345 67,610
Operating costs
Cost of sales
58,719
74,391 63,325
Depreciation, amortisation and rehabilitation expense
2,538
8,818 7,424
Administrative expenses
10,281
1,792 1,888
Fair value accounting for derivatives (gain) loss
43,372
(2,756) 14,919
Net foreign exchange gain
-
(1,066) (834)
Total operating costs
114,910
81,179 86,722
Operating loss
(76,308)
(14,834) (19,112)
Other income (expense)
Other income
4,411
64 542
Interest income
-
409 324
Interest expense
(5,266)
(1,169) (566)
Total other income (expense)
9,677
(696) 300
Loss before tax
(77,163)
(15,530) (18,812)
Tax expense
(1,105)
248 61
Net loss under U.S. GAAP
(78,178)
(15,778) (18,873)
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
30
36.
U.S. Generally Accepted Accounting Principles disclosures (continued)
Consolidated Income Statement – U.S. GAAP
2006 2005 2004
Dollars Dollars Dollars
Earnings per share – U.S. GAAP
Basic loss per share – continuing operations
(a)
(0.47)
(0.11)
(0.16)
Diluted loss per share – continuing operations
(b)
(0.47) (0.11) (0.16)
(a) Based on the weighted average number of shares on issue for the period (refer note 35).
(b) Based on the weighted average number of shares on issue for the period, adjusted to reflect the
impact of the conversion of all dilutive potential ordinary shares to ordinary shares (refer note 35).
(b) Based on the weighted average number of shares on issue for the period, adjusted to reflect the
impact of the conversion of all dilutive potential ordinary shares to ordinary shares (refer note 35).
In accordance with FAS 128, the number of common shares used in computing EPS has been adjusted retroactively
for the bonus element of the Emperor rights issue in 2005. This adjustment affects both 2005 and all prior periods
presented.
The following reconciliation of comprehensive income reports changes in shareholders’ equity excluding those
resulting from investments by shareholders and distributions to shareholders.
2005
$000
$000
2004
$000
$000
Reconciliation of comprehensive income – U.S. GAAP
Total changes in equity other than those resulting from transactions with
owners under AGAAP
owners under AGAAP
(35,545)
(4,867)
Adjustments to reflect comprehensive income in accordance with
U.S. GAAP, net of income tax:
Total U.S. GAAP adjustments to net loss per above
U.S. GAAP, net of income tax:
Total U.S. GAAP adjustments to net loss per above
reconciliation 17,956 (13,943)
Change in foreign currency translation reserve attributable to
U.S. GAAP adjustments
(389)
(499)
Comprehensive income – under U.S. GAAP
(17,978)
(19,309)
The following is a summary of the adjustments to shareholders’ equity as at 30 June 2005 and 30 June 2004 that
would be required if U.S. GAAP had been applied instead of AGAAP.
would be required if U.S. GAAP had been applied instead of AGAAP.
2005
$000
$000
2004
$000
$000
Reconciliation of shareholders’ equity
Shareholders’ equity under AGAAP
27,811
43,545
add/(deduct)
Adjustment required to accord with U.S. GAAP:
Exploration expenditure
(234)
(234)
Mine properties development – capitalisation and amortisation
31
142
Plant and equipment – unit-of-production amortisation
(10,017)
(8,635)
Impairment of mine assets
15,248
-
Borrowing costs
434
434
Restoration and rehabilitation costs
(1,153)
(1,150)
Fair value accounting for derivatives
4,703
423
Foreign currency translation reserve
(389)
(499)
Deferred taxes
251
154
Total adjustment
8,874
(9,365)
Shareholders’ equity under U.S. GAAP
36,685
34,180
The following are the variations in the balance sheet as at 30 June 2005 and 30 June 2004 that would be required if
U.S. GAAP had been applied instead of AGAAP.
The column headed ‘Unadjusted’ represents a U.S. GAAP format presentation of the assets, liabilities and
shareholders’ equity which have been measured in accordance with AGAAP. The column headed ‘Adjustments’
represents the allocation of those measurement differences (presented in the ‘Reconciliation of shareholders’
equity’), which are required to derive a balance sheet in accordance with U.S. GAAP.
shareholders’ equity which have been measured in accordance with AGAAP. The column headed ‘Adjustments’
represents the allocation of those measurement differences (presented in the ‘Reconciliation of shareholders’
equity’), which are required to derive a balance sheet in accordance with U.S. GAAP.
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
31
36. U.S. Generally Accepted Accounting Principles disclosures (continued)
Balance Sheet – U.S. GAAP
AGAAP 30
June 2005
Adjustments
30 June 2005
U.S.
GAAP
30
June 2005
AGAAP 30
June 2004
Adjustments
30 June 2004
U.S.
GAAP
30
June 2004
$'000 $'000 $'000 $'000 $'000 $'000
Current assets
Cash assets
3,733
3,733 3,658
3,658
Receivables
3,210
3,210 3,396
3,396
Inventories
7,413
7,413 11,768
11,768
Other
643
643 303
303
Deferred costs
183
183
187
187
Deferred tax asset
-
232 232
- 191 191
Total current assets
15,182
232 15,414 19,312
191 19,503
Non-current assets
Inventories
140
140 140
140
Property, plant and equipment
49,066
5,840 54,906 65,365 (8,036) 57,329
Deferred tax assets
398
11 409 340 (46) 294
Deferred costs
417
417 624
624
Restricted cash
3,195
3,195 3,594
3,594
Unrealised commodity loss
4,388
(4,388) -
7,192
(7,192) -
Total non-current assets
57,604
1,463 59,067 77,255
(15,274) 61,981
Total assets
72,786
1,695 74,481 96,567
(15,083) 81,484
Current liabilities
Payables
11,278
11,278 13,501
13,501
Interest bearing liabilities
16,318
16,318 5,067
5,067
Current tax liabilities
204
204 206
206
Provisions
1,459
1,459 1,600
1,600
Total current liabilities
29,259
29,259 20,374
20,374
Non-current liabilities
Payables
500
500 - - -
Interest bearing liabilities
152
152 16,995
- 16,995
Deferred tax liabilities
7
(7) - 9
(9) -
Provisions
2,127
1,068 3,195 1,433 1,110 2,543
Provision for hedging
redesignation
redesignation
8,542
(8,542) -
7,019
(7,019) -
Fair value of hedges
4,690 4,690
7,392 7,392
Unrealised commodity loss payable to
counter party
counter party
4,388
(4,388) -
7,192
(7,192) -
Total non-current liabilities
15,716
(7,179) 8,537 32,648 (5,718) 26,930
Total liabilities
44,975
(7,179) 37,796 53,022 (5,718) 47,304
Net assets
27,811 8,874 36,685 43,545 (9,365) 34,180
Contributed Equity
163,011
385 163,396 143,200
212 143,412
Reserves
(22,243)
(389) (22,632) (20,432)
(499) (20,931)
Accumulated losses
(112,957)
8,878 (104,079) (79,223) (9,078) (88,301)
Total equity
27,811
8,874 36,685 43,545 (9,365) 34,180
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
32
36. U.S. Generally Accepted Accounting Principles disclosures (continued)
The Emperor Mines Limited Statement of Consolidated Cash Flows has been prepared in accordance with AGAAP
accounting standard AASB1026, the objectives and principles of which are similar to those set out in U.S. GAAP
accounting standard SFAS 95 ‘Statement of Cash Flows’. The principal differences between the standards relate to
the classification of items within the cash flow statement as well as the definition of cash and cash equivalents.
accounting standard AASB1026, the objectives and principles of which are similar to those set out in U.S. GAAP
accounting standard SFAS 95 ‘Statement of Cash Flows’. The principal differences between the standards relate to
the classification of items within the cash flow statement as well as the definition of cash and cash equivalents.
The statement below shows the adjustments to be made to the AGAAP cash flow statement to reclassify it to
comply with U.S. GAAP for the two years ended 30 June 2005:
comply with U.S. GAAP for the two years ended 30 June 2005:
2006
$'000
2005
$'000
2004
$'000
Reconciliation of Cash Flows – U.S. GAAP
Net cash (outflow)/inflow from operating activities in accordance
with AGAAP
with AGAAP
(17,820) (2,792) 6,174
Exploration
expenditure
- (318) (412)
Net cash (used in) provided by operating activities in accordance
with U.S. GAAP
with U.S. GAAP
(17,820) (3,110) 5,762
Capital
expenditures
(10,573) (12,171) (21,473)
Acquisitions and disposals
-
38
50
Net cash used in investing activities in accordance with U.S.
GAAP
GAAP
(10,573) (12,133) (21,423)
Proceeds from issuance of ordinary shares
14,647
19,811
17
Increase in interest bearing liabilities
-
(2,442)
5,199
Borrowings under bank overdraft facility
(2,331)
2,331
Proceeds from movement in restricted cash
(100) 399
1,331
Other
(76)
(107)
Net cash provided by financing activities in accordance with U.S.
GAAP
GAAP
15,361 8,771
Exchange translation effects
(43)
237
Net increase in cash and cash equivalents in accordance with U.S.
GAAP
GAAP
75 (6,653)
Cash at beginning of year
3,658
10,311
Cash and cash equivalents at end of year
3,733 3,658
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
33
36. U.S. Generally Accepted Accounting Principles disclosures (continued)
US GAAP adjustments
(a) Exploration expenditure
Under AGAAP, Emperor Mines Limited capitalises exploration expenditure provided that one of the following
conditions is met:
(iii)
conditions is met:
(iii)
such costs are expected to be recouped through successful development and exploitation of the Vatukoula
area of interest, or
(iv)
exploration activities in the Vatukoula area of interest have not yet reached a stage which permits a
reasonable assessment of the existence or otherwise of recoverable mineral resources, and active and
significant operations in relation to the area are continuing.
significant operations in relation to the area are continuing.
Exploration expenditure which fails to meet at least one of the conditions outlined above is written off. Exploration
expenditure on areas of interest outside of the Vatukoula region is fully provided for. Expenditure is not carried
forward in respect of any area of interest/mineral resource unless the consolidated entity’s rights of tenure to that
area of interest are current.
Under U.S. GAAP, exploration costs are expensed as incurred, unless a final feasibility study indicates the existence
of commercially recoverable reserves. Exploration balances capitalised by the consolidated entity under AGAAP
have been expensed for U.S. GAAP.
(b) Mine properties development – capitalisation and amortisation
Under AGAAP, mine development expenditure incurred by or on behalf of the entity is accumulated separately for
each area of interest in which economically recoverable reserves have been identified to the satisfaction of the
directors. Such expenditure comprises net direct costs and appropriate portion of related overhead expenditure
having a specific nexus with the development property. When further development expenditure is incurred in
respect of a mine property after the commencement of production, such expenditure is carried forward as part of the
mine property only when substantial future economic benefits are thereby established, otherwise such expenditure is
classified as part of the cost of production.
Under U.S. GAAP, development costs incurred to develop or expand the capacity of operating mines are capitalised
to th e extent the costs are specific to an area containing proven and probable reserves as defined by SEC’s Industry
Guide 7 definitions. The costs related to areas not associated with proven or probable reserves are expensed as
incurred.
Under AGAAP, Emperor Mines Limited amortises mine properties on the unit-of-production method which
includes future capital expenditure and is based on the total number of ounces included in the Board approved mine
plan at any point in time. The total number of ounces included in the mine plan is generally in excess of proven and
probable reserves but less than available resources. The units-of-production basis under AGAAP results in an
amortization charge proportional to depletion over the mine plan.
U.S. GAAP requires mine properties and development to be amortised over proven and probable reserves as
determined by reference to SEC’s Industry Guide 7, and does not allow the use of future capital expenditure in the
calculation of the amortisation of development expenditure. The units-of-production basis under U.S. GAAP results
in an amortization charge proportional to depletion over the proven and probable reserves.
Emperor Mines Limited has prepared its capitalisation and amortisation for U.S. GAAP as follows:
• The calculation of the U.S. GAAP adjustment is based on proven and probable reserves (excluding remnant
stope pillars, mineralised stope pillars and tailings reserves) determined in accordance with the SEC Industry
Guide 7 based on independent review performed by a geologist specialist.
• An allocation of the development expenditure balance between in-reserve (“IR”) and not in-reserve (“NIR”)
has been based on the number of tonnes mined from an IR area verses a NIR area. This data is readily available
as it is reported annually in the statement of reserves which is prepared under the SEC Industry Guide 7.
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
34
36. U.S. Generally Accepted Accounting Principles disclosures (continued)
• The balance of development expenditure allocated to the IR area is amortised based on units-of-production over
proven and probable reserves only. Only ounces produced from IR areas are used in this calculation; and
• The balance of development expenditure allocated to the NIR area does not have any proven and probable
reserves attached to it. Thus these NIR costs are expensed as incurred, except for the current developed face
existing at period end.
existing at period end.
(c) Plant and equipment – unit-of-production amortisation
Emperor Mines Limited under AGAAP depreciates life of mine assets, included in plant and equipment, on a unit-
of-production basis based on the total number of ounces included in the Board approved mine plan at any point in
time. The total number of ounces included in the mine plan is generally in excess of proven and probable reserves
but less than available resources. The units-of-production basis under AGAAP results in an amortisation charge
proportional to depletion over the mine plan.
U.S. GAAP requires life of mine assets to be amortised over proven and probable reserves and determined by
reference to SEC’s Industry Guide 7. The units-of-production basis under U.S. GAAP results in an amortisation
charge proportional to depletion over the proven and probable reserves.
The calculation of the US GAAP adjustment is based on proven and pr obable reserves (excluding remnant stope
pillars, mineralised stope pillars and tailings reserves) determined in accordance with SEC’s Industry Guide 7.
(d) Impairment of mine assets
Emperor Mines Limited recognised an asset impairment write down under AGAAP of $15.2 million for the 30 June
2005 financial year to the recoverable amount of its mining assets. Under AGAAP to the extent to which the net
carrying value of non-current assets exceeds its recoverable amount that excess is recognised in the statement of
financial performance as an impairment in the financial year in which this is determined. Based on Emperor Mines
Limited’s accounting policy, the expected net cash flows included in determining recoverable amounts of non-
current assets are discounted to their present values.
Under U.S. GAAP when an impairment test is undertaken, the carrying amount of an asset is first measured by
reference to undiscounted cash-flows to assess if it is recoverable. Only if the asset is not recoverable on an
undiscounted ba sis, must the entity measure impairment by comparing the asset’s carrying value to its fair value.
An impairment loss must be recognised in the income statement when an asset’s carrying amount is not recoverable
and exceeds fair value. An impairment loss shall be measured as the amount by which the carrying amount of a
long-lived asset exceeds its fair value.
The mining assets under U.S. GAAP have lower carrying values due to accelerated amortization over proven and
probable reserves and due to more restrictive expense treatment for exploration and development expenditure
compared to AGAAP. Under U.S. GAAP, the consolidated entity has determined the carrying amount of long-lived
assets to be recoverable on an undiscounted basis. Thus the write down recorded in the AGAAP accounts for the
period ended 30 June 2005 has been reversed for U.S. GAAP.
(e) Borrowing costs
Under AGAAP borrowing costs capitalised for the construction of qualifying assets includes a portion of interest
expense, amortisation of ancillary costs incurred in connection with arrangement of borrowings, and foreign
currency exchange gains or losses on foreign denominated borrowings specifically related to funding a project’s
construction.
Under U.S. GAAP, foreign currency exchange gains or losses are not considered in determining the capitalisation of
borrowing costs. The adjustment for U.S. GAAP includes the reversal of exchange gains and losses capitalised
under AGAAP.
Under AGAAP borrowing costs capitalised for the construction of qualifying assets includes a portion of interest
expense, amortisation of ancillary costs incurred in connection with arrangement of borrowings, and foreign
currency exchange gains or losses on foreign denominated borrowings specifically related to funding a project’s
construction.
Under U.S. GAAP, foreign currency exchange gains or losses are not considered in determining the capitalisation of
borrowing costs. The adjustment for U.S. GAAP includes the reversal of exchange gains and losses capitalised
under AGAAP.
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
35
36. U.S. Generally Accepted Accounting Principles disclosures (continued)
(f) Revenue recognition
Under AGAAP revenue is recognised as sales revenue when, there has been a passing of risk to the customer, and:
(i) the product is in a form suitable for delivery and no further processing is required by, or on behalf, of the
producer;
(ii) the quantity and quality of the product can be determined with reasonable accuracy;
(iii) the product has been dispatched to the customer and is no longer under the physical control of the producer (or
property in the product has earlier passed to the customer); and
(iv) the selling price can be determined with reasonable accuracy.
U.S. GAAP requires the following four criteria to be met before revenue is realised or realisable and earned:
(i) Persuasive evidence of an arrangement exists
(ii) Delivery has occurred
(iii) Sellers price is fixed and determinable
(iv) Collection is reasonably assured
Based on the refining agreement with the consolidated entity’s single customer, the criteria is met upon customer
acceptance. This presumes that such contractual customer acceptance provisions are substantive, bargained-for
terms of an arrangement and pricing occurs upon customer acceptance. The outturn generally occurs within 2-4
business days after the delivery of the dore and it is at this point in time that the gold revenue is recognised under
U.S. GAAP.
Although the timing of revenue recognition can differ between U.S. GAAP and AGAAP, no differences existed as
of 30 June 2005 and 30 June 2004. However, at 30 June 2003 the revenue recognition cut-off results in a U.S.
GAAP adjustment to record $910,000 of revenue and cost of sales in financial year ended 30 June 2004 instead of
financi al year ended 30 June 2003.
(g) Restoration and rehabilitation costs
Emperor Mines Limited under AGAAP did not provide for restoration and rehabilitation until the year ended 30
June 2005. Under AGAAP (pre-AIFRS), provisions are recorded for mine site rehabilitation on an incremental basis
during the course of mine life. Provisions, which are determined on an undiscounted basis, include the following
costs: reclamation, plant closure, waste site closure and monitoring activities. These costs have been determined on
the basis of current costs, current legal requirements and current technology. The provision recorded was based on
the incremental approach which is not consistent with the approach taken under U.S. GAAP.
U.S. GAAP principally requires that the asset retirement obligation (“ARO”) be determined when the obligation
first occurred and requires an entity to create an asset and a liability at that date. U.S. GAAP only allows the accrual
of ARO for which there are existing legal obligations associated with the ret irement of a tangible long-lived asset
and the amount of liability can be reasonably estimated.
Existing legal obligations can be established by an agreement between two or more parties, imposed by
governmental units, or assumed through the legal doctrine of promissory estoppels. Emperor’s mining lease
contains a provision to have a deposit with the Directors of Mines for good performance under the Mining Act. The
relevant section of the Mining Act in respect of rehabilitation indicates that “when any mining tenement is
terminated or abandoned for any reason whatsoever, the person whose tenement has been terminated or abandoned
shall, not later than 30 days from the termination or abandonment of the tenements, fill up all shafts, pits, holes and
other excavations or otherwise secure them in a permanent manner so as to prevent persons or livestock
inadvertently entering therein, and shall remove all posts marking out the land the subject of the tenement 8221;. The
U.S. GAAP adjustment made assumes that the provisions of the Mining Act create a legal obligation to restore and
rehabilitate the mine properties and therefore a provision has been recognised. The adjustment for U.S. GAAP
reflects the accretion of the ARO liability and for differences in application under the incremental approach under
AGAAP (pre-AIFRS).
(i) Persuasive evidence of an arrangement exists
(ii) Delivery has occurred
(iii) Sellers price is fixed and determinable
(iv) Collection is reasonably assured
Based on the refining agreement with the consolidated entity’s single customer, the criteria is met upon customer
acceptance. This presumes that such contractual customer acceptance provisions are substantive, bargained-for
terms of an arrangement and pricing occurs upon customer acceptance. The outturn generally occurs within 2-4
business days after the delivery of the dore and it is at this point in time that the gold revenue is recognised under
U.S. GAAP.
Although the timing of revenue recognition can differ between U.S. GAAP and AGAAP, no differences existed as
of 30 June 2005 and 30 June 2004. However, at 30 June 2003 the revenue recognition cut-off results in a U.S.
GAAP adjustment to record $910,000 of revenue and cost of sales in financial year ended 30 June 2004 instead of
financi al year ended 30 June 2003.
(g) Restoration and rehabilitation costs
Emperor Mines Limited under AGAAP did not provide for restoration and rehabilitation until the year ended 30
June 2005. Under AGAAP (pre-AIFRS), provisions are recorded for mine site rehabilitation on an incremental basis
during the course of mine life. Provisions, which are determined on an undiscounted basis, include the following
costs: reclamation, plant closure, waste site closure and monitoring activities. These costs have been determined on
the basis of current costs, current legal requirements and current technology. The provision recorded was based on
the incremental approach which is not consistent with the approach taken under U.S. GAAP.
U.S. GAAP principally requires that the asset retirement obligation (“ARO”) be determined when the obligation
first occurred and requires an entity to create an asset and a liability at that date. U.S. GAAP only allows the accrual
of ARO for which there are existing legal obligations associated with the ret irement of a tangible long-lived asset
and the amount of liability can be reasonably estimated.
Existing legal obligations can be established by an agreement between two or more parties, imposed by
governmental units, or assumed through the legal doctrine of promissory estoppels. Emperor’s mining lease
contains a provision to have a deposit with the Directors of Mines for good performance under the Mining Act. The
relevant section of the Mining Act in respect of rehabilitation indicates that “when any mining tenement is
terminated or abandoned for any reason whatsoever, the person whose tenement has been terminated or abandoned
shall, not later than 30 days from the termination or abandonment of the tenements, fill up all shafts, pits, holes and
other excavations or otherwise secure them in a permanent manner so as to prevent persons or livestock
inadvertently entering therein, and shall remove all posts marking out the land the subject of the tenement 8221;. The
U.S. GAAP adjustment made assumes that the provisions of the Mining Act create a legal obligation to restore and
rehabilitate the mine properties and therefore a provision has been recognised. The adjustment for U.S. GAAP
reflects the accretion of the ARO liability and for differences in application under the incremental approach under
AGAAP (pre-AIFRS).
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
36
36. U.S. Generally Accepted Accounting Principles disclosures (continued)
(h) Fair value accounting for derivatives
Under AGAAP (pre-AIFRS) the consolidated entity deferred the gains and losses from derivatives until the
derivatives were settled or the hedging relationships transpired. The hedge accounting requirements under AGAAP
(pre-AIFRS) are less rigorous than those required under U.S. GAAP.
Due to the extensive record-keeping required to designate and monitor derivative transactions as hedges for U.S.
GAAP, the consolidated entity marks to market its derivatives to the income statement. Management continues to
believe its derivatives are economic hedges although they do not qualify as hedges for U.S. GAAP.
The consolidated entity has undergone a process to identify all derivatives, including potential embedded derivatives.
The consolidated entity’s interest rate swaps and the gold forward contracts meet the definition of a derivative under
U.S. GAAP.
The U.S . GAAP adjustment reflects the reversal of all derivative balances recognised under AGAAP, including the
reversal of the ‘provision for hedging redesignation’. Had U.S. GAAP been applied to derivatives retrospectively, the
‘provision for hedging redesignation’ would not have been recorded. Additionally, the U.S. GAAP adjustment reflects
the fair values of the consolidated entity’s interest rate swaps and the gold forward contracts at fair value on the
balance sheet with changes recorded in the income statement.
(i) Deferred taxes
Accounting for income taxes under U.S. GAAP is based on a balance sheet approach whereas AGAAP (pre-AIFRS)
focuses on an income statement approach relative to deferred taxes. The U.S. GAAP term “temporary difference” is
more comprehensive than the AGAAP term “timing difference.” U.S. GAAP considers all differences between
financial statement carrying amounts and tax written-down values (referred to as “tax basis” in U.S. GAAP) to be
temporary differences, and deferred tax assets and liabilities are required to be recorded for all temporary differences
(“comprehensive recognition”) with certain defined exceptions. The concept of a timing difference under AGAAP
focuses on current period (that is, income statement) differences arising that impact the calculation of deferred income
tax expense.
Under U.S. GAAP, deferred tax assets and liabili ties shall be classified as current or non-current based on the
classification of the related asset or liability for financial reporting purposes. A deferred tax liability or asset that is not
related to an asset or liability for financial reporting (i.e. loss carryforwards), shall be classified according to the
expected utilization of the tax loss carryforward. All current deferred tax assets and liabilities are netted and reported
as either an asset or liability and all non-current deferred tax assets and liabilities are offset and reported as either a
non-current asset or long-term liability, depending on the net result.
The resulting U.S. GAAP tax adjustments reflects an increase income tax expense by $77,000 and $43,000 for the
years ended 30 June 2005 and 30 June 2004, respectively. Shareholders’ equity is increased (credited) by $251,000
and $154,000 as at 30 June 2005 and 30 June 2004, respectively.
(j) &nbs p; Foreign currency translation reserve
The adjustments recorded under U.S GAAP in the foreign controlled entities, when translated to reporting currency
result in an adjustment to the foreign currency translation reserve. The ‘foreign currency translation reserve’ is more
commonly referred to as the currency translation adjustment under U.S GAAP.
derivatives were settled or the hedging relationships transpired. The hedge accounting requirements under AGAAP
(pre-AIFRS) are less rigorous than those required under U.S. GAAP.
Due to the extensive record-keeping required to designate and monitor derivative transactions as hedges for U.S.
GAAP, the consolidated entity marks to market its derivatives to the income statement. Management continues to
believe its derivatives are economic hedges although they do not qualify as hedges for U.S. GAAP.
The consolidated entity has undergone a process to identify all derivatives, including potential embedded derivatives.
The consolidated entity’s interest rate swaps and the gold forward contracts meet the definition of a derivative under
U.S. GAAP.
The U.S . GAAP adjustment reflects the reversal of all derivative balances recognised under AGAAP, including the
reversal of the ‘provision for hedging redesignation’. Had U.S. GAAP been applied to derivatives retrospectively, the
‘provision for hedging redesignation’ would not have been recorded. Additionally, the U.S. GAAP adjustment reflects
the fair values of the consolidated entity’s interest rate swaps and the gold forward contracts at fair value on the
balance sheet with changes recorded in the income statement.
(i) Deferred taxes
Accounting for income taxes under U.S. GAAP is based on a balance sheet approach whereas AGAAP (pre-AIFRS)
focuses on an income statement approach relative to deferred taxes. The U.S. GAAP term “temporary difference” is
more comprehensive than the AGAAP term “timing difference.” U.S. GAAP considers all differences between
financial statement carrying amounts and tax written-down values (referred to as “tax basis” in U.S. GAAP) to be
temporary differences, and deferred tax assets and liabilities are required to be recorded for all temporary differences
(“comprehensive recognition”) with certain defined exceptions. The concept of a timing difference under AGAAP
focuses on current period (that is, income statement) differences arising that impact the calculation of deferred income
tax expense.
Under U.S. GAAP, deferred tax assets and liabili ties shall be classified as current or non-current based on the
classification of the related asset or liability for financial reporting purposes. A deferred tax liability or asset that is not
related to an asset or liability for financial reporting (i.e. loss carryforwards), shall be classified according to the
expected utilization of the tax loss carryforward. All current deferred tax assets and liabilities are netted and reported
as either an asset or liability and all non-current deferred tax assets and liabilities are offset and reported as either a
non-current asset or long-term liability, depending on the net result.
The resulting U.S. GAAP tax adjustments reflects an increase income tax expense by $77,000 and $43,000 for the
years ended 30 June 2005 and 30 June 2004, respectively. Shareholders’ equity is increased (credited) by $251,000
and $154,000 as at 30 June 2005 and 30 June 2004, respectively.
(j) &nbs p; Foreign currency translation reserve
The adjustments recorded under U.S GAAP in the foreign controlled entities, when translated to reporting currency
result in an adjustment to the foreign currency translation reserve. The ‘foreign currency translation reserve’ is more
commonly referred to as the currency translation adjustment under U.S GAAP.
Emperor Mines Limited
Unaudited Notes to the Financial Statements
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
for the period ended 6 April 2006 and years ended 30 June 2005 and 30 June 2004
(In Australian Dollars unless otherwise stated)
37
36. U.S. Generally Accepted Accounting Principles disclosures (continued)
(k) Impact of recently issued U.S. accounting standards
In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No.151 ‘Inventory Costs, an amendment of ARB No. 43, Chapter 4’ (SFAS 151). SFAS 151 requires
abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) to be excluded from
the costs of inventory and expensed as incurred. As such, the allocation of fixed production overheads to inventory is
to be based on normal capacity of the production facilities. SFAS 151 is applicable for inventory costs incurred during
the financial year beginning after 15 June 2005. The consolidated entity is currently assessing the impact of the
adoption of this standard on its financial statement.
In December 2004, the FASB issued SFAS No. 153 ‘Exchange of Non-monetary Assets – An Amendment of APB
Opinion No.29’ (SFAS 153). SFAS 153 eliminates the exception from fair value measurement for non-monetary
exchanges of similar productive assets and replaces it with an exception for exchanges that do not have commercial
substance. The standard specifies that an exchange of non-monetary assets has commercial substance if the future cash
flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for non-
monetary exchanges occurring in the financial year beginning after 15 June 2005. The consolidated entity is currently
assessing the impact of the adoption of this standard on its financial statements.
In December 2004, the FASB also issued SFAS No. 123 (revised 2004) ‘Share-Based Payment’ (SFAS 123R), which
requires all share-based payments to employees to be measured based on their fair value at grant date. The cost is to be
recognised over the period during which an employee is required to provide service in exchange for the awards or the
requisite service period. SFAS 123R is applicable for the financial year beginning after 15 June 2005. The
consolidated entity will be required to apply SFAS 123R as of 1 July 2005 and intends to use the modified prospective
method, as defined therein. SFAS 123R replaces SFAS 123 and supersedes APB Opinion 25. The consolidated entity
is currently assessing the impact of the adoption of this standard on its financial statements.
In March 2005, the Emerging Issues Task Force of the FASB reached a consensus in Issue No. 04-6 ‘Accounting for
Stripping Costs Incurred During Production in the Mining Industry’ (EITF 04-6) that stripping costs incurred during
the production phase of a mine are variable production costs. As such, stripping costs incurred during the production
phase are treated differently to stripping costs incurred during the development phase, and should be included in the
cost of the inventory produced durin g the period that the stripping costs are incurred. This consensus is applicable for
the financial year beginning after 15 December 2005. The consolidated entity is currently assessing the impact of
adopting EITF 04-6 on its financial statements.
In March 2005, FASB Interpretation No. 47 'Accounting for Conditional Asset Retirement Obligations an
interpretation of FASB Statement No. 143' (FIN 47) was issued. FIN 47 states that a conditional asset retirement
obligation represents an unconditional obligation to perform an asset retirement activity where the timing or method of
settlement are conditional on a future event that may or may not be within the control of the entity. The interpretation
clarifies that an entity is required to recognise a liability for the fair value of a conditional asset retirement obligation, if
the fair value of the liability can be reasonably estimated. Uncertainty about the timing or method of settlement of a
conditional asset retirement o bligation is factored into the measurement of the liability when sufficient information
exists. SFAS 143 acknowledges that in some cases, sufficient information may not be available to reasonably estimate
the fair value of an asset retirement obligation. FIN 47 also clarifies the conditions when an entity would have
sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective for
periods ending after 15 December 2005. The consolidated entity is currently assessing the impact of adopting FIN 47
on its financial statements.
In May 2005, the FASB issued SFAS No. 154 ‘Accounting Changes and Error Corrections’ (SFAS 154) which
replaced APB No.20 ‘Accounting Changes’ and SFAS No. 3 ‘Reporting Accounting Changes in Interim Financial
Statements’. The standard changes the requirements in accounting and disclosure for a change in accounting principle.
Under SFAS 154, voluntary changes in accounting principles are to be reported using retrospective application unless
it is impracticable to do so. The standard is effective for accounting changes and corrections of errors made in the
period beginning after 15 December 2005.
In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No.151 ‘Inventory Costs, an amendment of ARB No. 43, Chapter 4’ (SFAS 151). SFAS 151 requires
abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) to be excluded from
the costs of inventory and expensed as incurred. As such, the allocation of fixed production overheads to inventory is
to be based on normal capacity of the production facilities. SFAS 151 is applicable for inventory costs incurred during
the financial year beginning after 15 June 2005. The consolidated entity is currently assessing the impact of the
adoption of this standard on its financial statement.
In December 2004, the FASB issued SFAS No. 153 ‘Exchange of Non-monetary Assets – An Amendment of APB
Opinion No.29’ (SFAS 153). SFAS 153 eliminates the exception from fair value measurement for non-monetary
exchanges of similar productive assets and replaces it with an exception for exchanges that do not have commercial
substance. The standard specifies that an exchange of non-monetary assets has commercial substance if the future cash
flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for non-
monetary exchanges occurring in the financial year beginning after 15 June 2005. The consolidated entity is currently
assessing the impact of the adoption of this standard on its financial statements.
In December 2004, the FASB also issued SFAS No. 123 (revised 2004) ‘Share-Based Payment’ (SFAS 123R), which
requires all share-based payments to employees to be measured based on their fair value at grant date. The cost is to be
recognised over the period during which an employee is required to provide service in exchange for the awards or the
requisite service period. SFAS 123R is applicable for the financial year beginning after 15 June 2005. The
consolidated entity will be required to apply SFAS 123R as of 1 July 2005 and intends to use the modified prospective
method, as defined therein. SFAS 123R replaces SFAS 123 and supersedes APB Opinion 25. The consolidated entity
is currently assessing the impact of the adoption of this standard on its financial statements.
In March 2005, the Emerging Issues Task Force of the FASB reached a consensus in Issue No. 04-6 ‘Accounting for
Stripping Costs Incurred During Production in the Mining Industry’ (EITF 04-6) that stripping costs incurred during
the production phase of a mine are variable production costs. As such, stripping costs incurred during the production
phase are treated differently to stripping costs incurred during the development phase, and should be included in the
cost of the inventory produced durin g the period that the stripping costs are incurred. This consensus is applicable for
the financial year beginning after 15 December 2005. The consolidated entity is currently assessing the impact of
adopting EITF 04-6 on its financial statements.
In March 2005, FASB Interpretation No. 47 'Accounting for Conditional Asset Retirement Obligations an
interpretation of FASB Statement No. 143' (FIN 47) was issued. FIN 47 states that a conditional asset retirement
obligation represents an unconditional obligation to perform an asset retirement activity where the timing or method of
settlement are conditional on a future event that may or may not be within the control of the entity. The interpretation
clarifies that an entity is required to recognise a liability for the fair value of a conditional asset retirement obligation, if
the fair value of the liability can be reasonably estimated. Uncertainty about the timing or method of settlement of a
conditional asset retirement o bligation is factored into the measurement of the liability when sufficient information
exists. SFAS 143 acknowledges that in some cases, sufficient information may not be available to reasonably estimate
the fair value of an asset retirement obligation. FIN 47 also clarifies the conditions when an entity would have
sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective for
periods ending after 15 December 2005. The consolidated entity is currently assessing the impact of adopting FIN 47
on its financial statements.
In May 2005, the FASB issued SFAS No. 154 ‘Accounting Changes and Error Corrections’ (SFAS 154) which
replaced APB No.20 ‘Accounting Changes’ and SFAS No. 3 ‘Reporting Accounting Changes in Interim Financial
Statements’. The standard changes the requirements in accounting and disclosure for a change in accounting principle.
Under SFAS 154, voluntary changes in accounting principles are to be reported using retrospective application unless
it is impracticable to do so. The standard is effective for accounting changes and corrections of errors made in the
period beginning after 15 December 2005.