Gold Mines of Sardinia Limited
A.C.N. 009 234 851
Gold Mines of Sardinia LimitedA.C.N. 009 234 851
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2000 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of accounting The financial statements have been prepared in accordance with the historical cost convention. The financial report is a general purpose financial report which has been prepared in accordance with the requirements of the Corporations Law which includes applicable Accounting Standards. Other mandatory professional reporting requirements (Urgent Issues Group Consensus Views) have also been complied with. The accounting policies adopted are consistent with those of the previous financial year. Principles of consolidation The consolidated accounts are those of the consolidated entity, comprising Gold Mines of Sardinia Limited (GMS) and all entities which GMS controlled from time to time during the year and at balance date. Information from the financial statements of subsidiaries is included from the date the parent company obtains control until such time as control ceases. Where there is loss of control of a subsidiary, the consolidated financial statements include the results for the part of the reporting period during which the parent company has control. Subsidiary acquisitions are accounted for using the purchase method of accounting. The financial statements of subsidiaries are prepared for the same reporting period as the parent entity, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies which may exist. All inter-company balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered. (c) Cash For the purpose of the Statement of Cash Flows, cash includes cash on hand and in banks, and money market investments readily convertible to cash within 2 working days, net of outstanding bank overdrafts. Cash on hand and in banks and money market investments are stated at the lower of cost and net realisable value. (d) Recoverable Amount Non-current assets are not carried at an amount above their recoverable amount, and where carrying values exceed this recoverable amount assets are written down. In determining the recoverable amount, the expected net cash flows have not been discounted to their present value. (e) Foreign currencies Translation of foreign currency transactions Transactions in foreign currencies of entities within the consolidated entity are converted to the local currency at the rate of exchange ruling at the date of the transaction. Amounts payable to and by the entities within the consolidated entity that are outstanding at the balance date and are denominated in foreign currencies have been converted to local currency using rates of exchange ruling at the end of the financial year. Except for certain specific hedges and hedges of foreign currency operations, all resulting exchange differences arising on settlement or re-statement are brought to account in determining the profit or loss for the financial year, and transaction costs, premiums and discount on forward currency contracts are deferred and amortised over the life of the contract. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2000 (Continued) (e) Foreign currencies (continued) Specific hedges Where a purchase or sale is specifically hedged, exchange gains or losses on the hedging transaction arising up to the date of purchase or sale and costs, premiums and discounts relative to the hedging transaction are included with the purchase or sale. Exchange gains and losses arising on the hedge transaction after that date are taken to the profit and loss statement. Translation of financial reports for overseas operations All overseas operations are deemed integrated as each is financially and operationally dependent on the Company. The financial reports of overseas operations are translated using the temporal rate method and any exchange differences are to be taken directly to the profit and loss account. (f) Plant and equipment Cost and valuation Items of plant and equipment comprising a class of non-current asset are carried at cost. Depreciation Depreciation is provided on a straight line or production basis on all plant and equipment. Major depreciation periods are: 2000 1999 Leasehold improvements: the lease term the lease term Plant and equipment: 5 to 15 years 5 to 15 years Furtei Processing plant: on production basis on production basis over life of mine over life of mine (g) Exploration, evaluation, development and construction costs Costs carried forward Costs incurred arising from exploration and evaluation activities are carried forward, provided such costs are expected to be recouped through successful development, or by sale, or where exploration and evaluation activities have not at balance date reached a stage to allow a reasonable assessment regarding the existence of economically recoverable reserves. Costs carried forward in respect of an area of interest that is abandoned are written off in the year in which the decision to abandon is made. Amortisation Costs on productive areas are amortised over the life of the interest to which such costs relate on the production output basis. Restoration costs Restoration costs that are expected to be incurred are provided for as a part of the exploration, evaluation, development, construction or production phases that give rise to the need for restoration. Accordingly, these costs are recognised gradually over the life of the facility as these phases occur. The costs include obligations relating to reclamation, waste site closure, plant closure, plant removal and other costs associated with the restoration of the site. These estimates of the restoration obligations are based on anticipated technology and legal requirements and future costs, which have not been discounted to their present value. Any changes in the estimates area are adjusted on a retrospective basis. In determining the restoration obligations, the entity has assumed no significant changes will occur in relevant legislation in relation to restoration of such mineral mines, in the future. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2000 (Continued) (h) Employee Entitlements Provision is made for employee entitlement benefits accumulated as a result of employees rendering services up to the reporting date. These benefits include wages and salaries, annual leave, sick leave and long service leave. Liabilities arising in respect of wages and salaries, annual leave, sick leave and any other employee entitlements expected to be settled within twelve months of the reporting date are measured at the nominal amounts. All other employee entitlement liabilities are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the reporting date. In determining the present value of future cash outflows, the interest rates attaching to government guaranteed securities which have terms to maturity approximating the terms of the related liability are used. Employee entitlements expenses and revenues arising in respect of the following categories: wages and salaries, non-monetary benefits, annual leave, long service leave, sick leave and other leave entitlements; and other types of employee entitlements are charged against profits on a net basis in their respective categories. (i) Inventories Inventories of consumable supplies and spare parts are valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and condition are accounted for on a first-in-first-out basis. (j) Gold in Circuit Gold is valued at the lower of cost and net realisable value using market price at year end or where applicable a forward contract price. Gold in circuit includes gold in circuit and gold contained in stockpiled ore as determined by production records. The cost of gold in circuit includes the cost of direct materials, labour and variable and fixed overheads relating to mining activities. (k) Revenue Recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: Sale of Gold Revenue from production of gold is recognised when all of the following recognition criteria have been met: the product is in a form suitable for delivery and no further processing is required by or on behalf of the consolidated entity; the quantity and quality of the product can be determined with reasonable accuracy; the selling price can be determined with reasonable accuracy; the product has been despatched to a refiner and is no longer under the physical control of the consolidated entity. Interest Control of a right to receive consideration for the provision of, or investment in, assets has been attained. (l) Gold Bullion In accordance with the policy on revenue recognition, gold bullion is taken up as a sale when it is delivered to a gold refinery. Gold bullion held at the refinery at the end of the year is valued at net realisable value which is either the market price ruling on that date or the forward rate where gold has subsequently been delivered and the revenue realised. Gold bullion is shown as a receivable in the financial statements. Bullion includes gold poured within three days of the end of the year. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2000 (Continued) (m) Comparative Information Where necessary, comparative figures have been adjusted to conform with changes in presentation in 2000. Investments All non-current investments are carried at the lower of cost and recoverable amount. Income Tax Tax-effect accounting is applied using the liability method whereby income tax is regarded as an expense and is calculated on the accounting profit after allowing for permanent differences. To the extent timing differences occur between the time items are recognised in the accounts and when items are taken into account in determining taxable income, the net related taxation benefit or liability, calculated at current rates, is disclosed as a future income tax benefit or a provision for deferred income tax. The net future income tax benefit relating to tax losses and timing differences is not carried forward as an asset unless the benefit is virtually certain of being realised. The income tax expense for the year is calculated using the 34% tax rate (1999: 36%). Leases Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership. Contingent rentals are recognised as an expense in the financial year in which they are incurred. Operating Leases The minimum lease payments of operating leases, where the lessor effectively retains substantially all of the risks and benefits of ownership of the leased item, are recognised as an expense on a straight line basis. Finance Leases Leases which effectively transfer substantially all of the risks and benefits incidental to ownership of the leased item to the group are capitalised at the present value of the minimum lease payments and disclosed as plant and equipment under lease. A lease liability of equal value is also recognised. Capitalised lease assets are depreciated over the shorter of the estimated useful life of the assets and the lease term. Minimum lease payments are allocated between interest expense and reduction of the lease liability with the interest expense calculated using the interest rate implicit in the lease and charged directly to profit and loss. Earnings per share Basic earnings per share is determined by dividing the operating loss after tax by the weighted average number of ordinary shares outstanding during the financial year. Diluted earnings per share is determined by dividing the operating loss after tax adjusted for the effect of earnings on potential ordinary shares, by the weighted average number of ordinary shares (both issued and potentially dilutive) outstanding during the financial year. Trade and other receivables Trade receivables are recognised and carried at original invoice amount less a provision for any uncollectable debts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred. Receivables from related parties are recognised and carried at the nominal amount due. Interest is taken up as income on an accrual basis. Bills of exchange and promissory notes are measured at the lower of cost and net realisable value. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2000 (Continued) Trade and other payables Liabilities for trade creditors and other amounts are carried at cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the consolidated entity. Payables to related parties are carried at the principal amount. Interest, when charged by the lender, is recognised as an expense on an accrual basis. Deferred cash settlements are recognised at the present value of the outstanding consideration payable on the acquisition of an asset discounted at prevailing commercial borrowing rates. Loans and borrowings All loans are measured at the principal amount. Interest is charged as an expense as it accrues. Finance lease liability is determined in accordance with the requirements of AASB 1008: Leases. Share capital Ordinary share capital is recognised at the fair value of the consideration received by the Company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received. Derivative financial instruments Forward Exchange Contracts The consolidated entity enters into forward exchange contracts where it agrees to sell specified amounts of foreign currencies in the future at a predetermined exchange rate. The objective is to match the contract with anticipated future cash flows from sales and purchases in foreign currencies, to protect the consolidated entity against the possibility of loss from future exchange rate fluctuations. The forward exchange contracts are usually for no longer than 12 months. Forward exchange contracts are recognised at the date the contract is entered. Exchange gains or losses on forward exchange contracts are charged to the profit and loss expect those relating to hedges or specific commitments which are deferred and included in the measurement of the sale or purchase. Provisions - other Other provisions are provided when it is likely that an obligation exists at the reporting date. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2000 (Continued)
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2000 (Continued)
The future income tax benefit will only be obtained if the consolidated entity: (i) derives future assessable income of a nature and of an amount sufficient to enable the benefit to be realised; (ii) continues to comply with the conditions for deductibility imposed by the law; and (iii) no changes in tax legislation adversely affect the consolidated entity in realising the benefit. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2000 (Continued)
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2000 (Continued)
There would be $1,171,932 of capital gains tax payable if these assets were sold at their market value at the reporting date. (c) Investment in controlled entities comprises:-
The overseas controlled entity carries on business in the country of incorporation (i) The controlled entity is audited by a member firm of Ernst and Young International (ii) Controlled entities which meet the definition of a small proprietary limited Company as set out in the Corporations Law. Ernst & Young has not issued separate audit opinions with respect to these entities.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2000 (Continued)
The ultimate recoupment of costs carried forward for exploration and evaluation phases is dependent on the successful development and commercial exploitation or sale of respective mining areas. Amortisation of the costs carried forward for the development phase is being charged in line with production at the Furtei site.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2000 (Continued) Terms and conditions relating to the above financial instruments: trade liabilities are normally settled on 30 day terms (ii) details of the terms and conditions of related party payables are set out in note 17.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2000 (Continued)
Shares issued during the year On 22 March 2000 an overseas placement was performed under the directors 15% facility resulting in 22,222,222 new shares being issued at a price of £0.18 per share. A$9,985,396, net of commission, was raised from this placement. This facility was reinstated at the Annual General Meeting held on 31 May 2000. Following shareholder approval on 31 May 2000, 17,334,396 ordinary fully paid shares were allotted on 14 June 2000 to Homestake Mining Company of California in exchange for 6,500,000 ordinary shares in Navan Mining. The number of shares was calculated by reference to the average of the daily closing prices of the shares of the Company and Navan on the London Stock Exchange for the period from 27 March 2000 to 18 April 2000, being 20.38p and 54.35p respectively. During the year 100,000 options were exercised for a net consideration of $36,000. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2000 (Continued) Share Options During the year the following unlisted options were allotted: 2,250,000 options exercisable at 43c on or before May 31, 2005 200,000 options exercisable at 39c on or before August 8, 2005 At balance date the following unlisted options to acquire ordinary shares were outstanding. 2,575,000 options exercisable at 36c on or before October 28, 2001 505,000 options exercisable at 36c on or before November 29, 2001 250,000 options exercisable at 28c on or before January 28, 2002 310,000 options exercisable at 39c on or before March 14, 2002 555,000 options exercisable at 44c on or before January 15, 2003 1,900,000 options exercisable at 54c on or before February 26, 2003 1,200,000 options exercisable at 52c on or before April 24, 2003 325,000 options exercisable at 42c on or before October 30, 2003. 100,000 options exercisable at 61c on or before April 22, 2004. 250,000 options exercisable at 43c on or before May 31,2005. 200,000 options exercisable at 39c on or before August 8, 2005. Subsequent to year end, the following options were allotted: 950,000 options exercisable at 33c on or before February 1, 2006. 690,000 options exercisable at 38c on or before March 1, 2006. During the year or since year end, the following options were lapsed: 2,000,000 options exercisable at 43c on or before May 31, 2005 150,000 options exercisable at 44c on or before January 15, 2003 50,000 options exercisable at 36c on or before November 29, 2001 600,000 options exercisable at 52c on or before April 24, 2003 200,000 options exercisable at 42c on or before October 30, 2003
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2000 (Continued)
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2000 (Continued)
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2000 (Continued) The number of directors of Gold Mines of Sardinia Limited whose income (including superannuation contributions and payments to companies in which the directors have financial interests) falls within the following bands:
In the opinion of directors remuneration paid to directors is considered reasonable. Executives Remuneration There are no executives, other than executive directors.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2000 (Continued) NOTE 16. SEGMENT INFORMATION
The consolidated entity operates predominantly in the mining industry in Italy and the investment industry in Australia. The Australian assets represent the holding of investments in entities with direct interests in Sardinia Gold Mining S.p.A and the holding of an investment in Navan Recourses plc. The mining activities comprise the exploration for and development of gold mines in Italy. NOTE 17. RELATED PARTY DISCLOSURES (a) The directors of Gold Mines of Sardinia Limited during the year were: J. Pither (appointed 21 December 2000) J C Morris J Chappell G.M. Johnston P. J. Newton (resigned 31 May 2000) P. Hambro (resigned 12 December 2000) V. Gori (resigned 12 December 2000) R. Agnew (resigned 12 December 2000) NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2000 (Continued) (b) The following related party disclosures occurred during the year ended 31 December 2000:- Transactions with directors of the Company - (i) Pursuant to an Employee Share Plan in 1987, an amount of $259,069 was advanced to Mr D Franks, a former director of the Company. This loan which bears no interest is not repayable until Mr Franks sells the shares. At balance date the amount due to the Company was $259,069 against which a provision for non recovery of $259,069 (Year ended 31 December 1999: $259,069) has been raised. The directors believe it prudent to maintain the provision. (ii) An amount of $13,500 (Year ended 31.12.99: $17,626) was paid to Nalmor Pty Ltd, a company in which Dr. J Chappell has a financial interest, for geological services rendered to the consolidated entity. The amounts incurred were based upon normal commercial terms and conditions. (iii) An amount of $222,291 (Year ended 31.12.99: $166,717) was paid to Davidson Management Pty Ltd, a company in which Mr. G. Johnston has a financial interest, for management services rendered to the consolidated entity. The amounts incurred were based upon normal commercial terms and conditions. (v) An amount of $197,972 (Year ended 31.12.99: $16,146) was paid to Peter Hambro Plc, a company in which Mr Hambro has a financial interest, for management services rendered to the consolidated entity. The amounts incurred were based upon normal commercial terms and conditions. Transactions with other related parties - (i) From inception and including the current period the Company has provided loans to its controlled entities totalling $46,761,146 (Year ended 31 December 1999: $45,066,382). $14,695,520 (Year ended 31 December 1999: $9,292,314) has been provided for by the Company as non recoverable. The loans bear no interest and have no fixed repayment date. (c) Gold Mines of Sardinia Limited is the ultimate Australian holding Company. (d) Shares of entities within the consolidated entity of which directors of the reporting entity and their director related entities have an interest as at 31 December 2000. Movements are as a result of on market transactions except for unlisted options which were issued pursuant to a shareholders meeting on June 17, 1996 and subsequently amended on February 26, 1998.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2000 (Continued) NOTE 18. EARNINGS PER SHARE
NOTE 19. FINANCIAL INSTRUMENTS (a) Terms, conditions and accounting policies The consolidated entity’s accounting policies, including the terms and conditions of each class of financial asset, financial liability and equity instrument, both recognised and unrecognised at the balance date, are as follows:
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2000 (Continued) NOTE 19. FINANCIAL INSTRUMENTS (continued)
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2000 (Continued) NOTE 19. FINANCIAL INSTRUMENTS (continued) Historical interest rate risk (31 December 2000)
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2000 (Continued) NOTE 19. FINANCIAL INSTRUMENTS (continued) (b) Historical interest rate risk (31 December 1999)
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2000 (Continued) NOTE 19. FINANCIAL INSTRUMENTS (continued) (d) Hedging instruments The consolidated entity enters into financial transactions for the purpose of hedging and managing its exposure to foreign currencies and commodities price fluctuations. Hedging is undertaken against specific future commitments only, by way of forward exchange contracts and gold forward contracts. It is the consolidated entity’s policy not to recognise forward exchange contracts in its financial statements. As at 31 December 2000 the consolidated entity had no forward exchange contracts in place. As at 31 December 2000 the consolidated entity had a commodity contract, as described in Note 19(a) (iv), in place whereby it agreed to sell 372.39 oz at an average price of US$280/oz. (e) Net fair values All financial assets and liabilities have been recognised at the balance date at their net fair values, except for the following:
The following methods and assumptions are used to determine the net fair values of financial assets and liabilities: Recognised financial instruments: Cash. Cash equivalents and short-term investments The carrying amount approximates fair value because of their short time to maturity. Trade receivables and payables The carrying amount approximates fair value. Short term borrowings The carrying amount approximates fair value because of their short time to maturity. Long term borrowings The fair values of long term borrowings are estimated using discounted cash flow analysis, based on current incremental borrowing rates for similar types of borrowing arrangements. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2000 (Continued) NOTE 19. FINANCIAL INSTRUMENTS (continued) Non current investments For financial instruments traded in organised financial markets, fair value is the current quoted market bid price for an asset or offer price for a liability, adjusted for transaction costs necessary to realise the asset or settle the liability. Unrecognised financial instruments: Foreign exchange contracts The fair values of forward exchange contracts is determined as the recognised gain or loss at balance date calculated by reference to current forward exchange rates for contracts with similar maturity profiles. Commodity contracts The fair values of commodity contracts is determined as the recognised gain or loss at balance date calculated by reference to current contracts with similar profiles. (f) Credit risk exposure The consolidated entity’s exposure to credit risk at balance date in relation to each class of recognised financial asset is the carrying amount of those assets as indicated in the balance sheet. In relation to unrecognised financial assets, credit risk arises from the potential failure of counterparties to meet their obligations under the contract or arrangement. Credit risk on off-balance sheet foreign exchange and commodities contracts is minimised as counterparties are recognised financial intermediaries. At balance date the consolidated entity’s maximum credit risk exposure in relation to these is as follows: (i) forward exchange contracts - Nil. (1999: US1,900,000 (AUS$4,413,331)). (ii) forward commodities contracts - US$104,269 (AUS$186,628) (1999: US$8,824,946 (AUS$13,430,142)). NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2000 (Continued)
(c) Operating leases have an average lease term of two years. Assets which are the subject of operating leases include office premises. NOTE 21. CONTINGENT LIABILITIES In December 1996, the Company, Mediterranean Gold Mines Pty Ltd (MGM) and Euro Mining Pty Ltd (EM) entered into certain agreements as part of the conditions precedent to NM Rothschild & Sons Limited (NMR) agreeing to provide Financial Facilities to Sardinia Gold Mining SpA (SGM): A Corporate Overdraft Facility from NM Rothschild & Sons (Australia) Ltd, entered into on 28 January 1999, was used to retire SGM’s debt amounting to US$3.65m and to provide working capital for the Group. The Facility, which was due to expire on 31 December 2000, was extended and is now due to expire on 30 April 2001 and is secured by: First ranking fixed and floating charge over the Company; Unsecured Guarantee for all amounts outstanding under the Overdraft given by SGM; Share mortgage over the Company’s share holding in Mediterranean Gold Mines Pty Ltd (MGM) and Euro Mining Pty Ltd (EM) and over MGM’s and EM’s shareholding in SGM; First ranking charge over the SGM Proceeds Account. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 1999 (Continued) NOTE 21. CONTINGENT LIABILITIES (continued) SGM has been granted a 3.1 billion Lire facility (A$2,644,658) from Banca di Sassari, 1 billion against IVA, 1 billion against the final 20% tranche of the Law 221 grant, supported by a guarantee from Gold Mines of Sardinia Limited for an amount of 1.5 billion Lire (A$11,307,258), and 1.1 billion against a government grant under special Law 752/1982. The consolidated entity has entered into an agreement with certain directors granting them a termination benefit under a service agreement. The consolidated entity is currently in litigation with San Martino S.r.l., a company which produces and markets mineral water from an area within Pedra Canarza, one of the consolidated entity’s exploration concession areas near Osilo. San Martino alleges that it has suffered loss, attributable in part to a temporary suspension of its operations, as a consequence of a SGM exploration drill hole intersecting a mineral water source. San Martino have consequently made a claim for 19 billion Lire (A$16.5 million) against the consolidated entity. Lawyers acting on behalf of the consolidated entity have reviewed the claim made by San Martino and the consolidated entity is disputing the claim. On 12 September 2000 the Company received official notification that Sardinia Gold Mining SpA (SGM) the Italian operating subsidiary of Gold Mines of Sardinia Limited, was notified by the Sassari office of the Ministry of the Environment and Cultural Heritage that it has exercised its right of veto over the permission issued by the Autonomous Region of Sardinia, granting SGM authority to commence trial mining activities at Osilo. The notification included details of SGM's right of appeal to the Regional Administrative Tribunal and to the Head of State. The Company appealed the decision to the Regional Administrative Tribunal ("Tribunal"). The final hearing took place on 14 February 2001. The decision of the Tribunal is pending. Based upon legal advice received the directors feel confident that they will be successful in their appeal. However, should the appeal not be successful, the ability of SGM to recover the carrying value of the Osilo deferred exploration cost totalling A$13.7m may be significantly impaired by such circumstances.
(b) Superannuation Commitments Employees contribute to their own plans at various percentages of their wages and salaries and the end benefit is determined by accumulation of contributions and earnings of the fund. The consolidated entity also contributes to these plans, generally at the rate of between 5-9% of gross salaries and wages, depending on their seniority of staff. These contributions are not legally enforceable other than those payable in terms of a ratified award obligation and the Superannuation Guarantee Levy in Australia and as required under the Institute Nazionale Previdenza Sociale law in Italy. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2000 (Continued) (c) Employee Share/Option Plan On June 17, 1996 Shareholders approved the implementation of the Gold Mines of Sardinia Limited Employee Option Plan (Plan), which was subsequently amended on February 26, 1998. All eligible employees may participate in the Employee Option Plan. 'Eligible Employee' means a part time employee, full time employee, consultant, executive director or non-executive director of the Company or an Associated Body Corporate who has been employed by, consulting to, or a director of, the Company or the Associated Body Corporate for not less than six months but does not include a person who acts only as an alternate director. The total number of options issued under the Plan at any time shall not exceed in number that number which is equal to 10% of the total number of issued shares in the class of shares to which the options relate. The shares subscribed for on exercise of the options shall be issued at the higher of 20c and the sum of the market price and 2c. Market price is determined by the weighted average of the sale price of shares traded on the Australian Stock Exchange Limited in the most recent five days preceding the date of issue of the options on which the shares are traded on the ASX. If in the period of one month prior to the date of issue of the options there are less than five days on which the shares have traded on the ASZ, but in that period the shares have traded on the London Stock Exchange, then the weighted average sale price of the sales on the appropriate number of the most recent days on which shares have traded in that month on the LSE will be used. Options issued pursuant to the Plan are capable of being exercised before such date as the directors may determine, provided however that no options will have an exercise period of in excess of five years. Unless otherwise approved by resolution of the directors, no options may be exercised until a period of at least six months has elapsed from the date of issue. The directors may if they consider fit impose in relation to the issue of any options such further restrictions as to the times and dates and manner in which the options or any parcel of options may be exercised. Unless otherwise approved by resolution of directors, options issued pursuant to the Plan may only be exercised while the Eligible Employee remains an Eligible Employee at the time of exercising the option. An option holder may not sell, transfer, assign, give or otherwise dispose of, in equity or in law, the benefit of the options, other than to a spouse, a body corporate in which the Eligible Employee is beneficially entitled to not less than 50% of the issued voting share capital, or a trustee of a family trust established for the benefit of the family of the Eligible Employee, in their capacity as trustee. Full details of the classes and prices that employees are to pay upon exercise of their options are detailed in Note 12. There are currently 38 Eligible Employees who participate in the Plan NOTE 23. OUTSIDE EQUITY INTERESTS
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2000 (Continued) NOTE 24. SUBSEQUENT EVENTS Navan shares: On 13 March 2001, GMS sold 1 million of the 6,500,000 ordinary shares that it holds in Navan Mining (refer note 12). The shares were sold at 98 pence each realising £970,200 (AUS$2.8 million) after selling costs. NOTE 25. RECONCILIATION WITH UNITED KINGDOM GAAP In this Note, Gold Mines of Sardinia Limited is referred to as " the Company " and the " Consolidated Entity " consists of the Company and those controlled entities listed in note 6(b). The Company files its Annual Report with the Alternative Investment Market of the London Stock Exchange Ltd. The consolidated financial accounts of the consolidated entity are prepared in accordance with the Generally Accepted Accounting Principles applicable in Australia (" Australian GAAP") (refer Note 1) and in the United Kingdom ("UK GAAP") with the exception of the recognition of grant income. Under UK GAAP, Statement of Standard accounting Practice 4 requires that grant income should be deferred and recognised in the profit and loss account in the period in which expenditure occurs. This is not in accordance with Australian GAAP which requires grant income to be recognised in the profit and loss account in the period in which the income is received. The adoption of UK GAAP would result in grant income of $1.101 million reducing the current year loss, deferred grant income carried forward in the balance sheet of $3.159 million and an increase in accumulated losses of $4.260 million. Under Australian GAAP, the costs of exploration and development, as disclosed in Note 8, are carried in the balance sheet and are to be amortised once the areas of interest have been brought into commercial production. The financial statements make reference to the uncertainty of the recoverability of these assets. This treatment has been adopted for UK GAAP purposes in compliance with Financial Reporting Standard 11.
DIRECTORS’ DECLARATION In accordance with a resolution of the directors of Gold Mines of Sardinia Limited I state that:- 1. In the opinion of the directors: the financial statements and notes of the Company and the consolidated entity are in accordance with the Corporations Law, including: giving a true and fair view of the Company’s and consolidated entity’s financial position as at 31 December 2000 and of their performance for the year ended on that date; and complying with Accounting Standards and Corporations Regulations; and there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. On behalf of the Board J C Morris Director Perth, 30 March, 2001
INDEPENDENT AUDIT REPORT To the members of Gold Mines of Sardinia Limited Scope We have audited the financial report of Gold Mines of Sardinia Limited for the financial year ended 31 December 2000, as set out on pages 48 to 81 including the Directors’ Declaration. The financial report includes the financial statements of Gold Mines of Sardinia Limited, and the consolidated financial statements of the consolidated entity comprising the company and the entities it controlled at year's end or from time to time during the financial year. The company’s directors are responsible for the financial report. We have conducted an independent audit of the financial report in order to express an opinion on it to the members of the company. Our audit has been conducted in accordance with Australian Auditing Standards to provide reasonable assurance whether the financial report is free of material misstatement. Our procedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial report, and the evaluation of accounting policies and significant accounting estimates. These procedures have been undertaken to form an opinion whether, in all material respects, the financial report is presented fairly in accordance with Accounting Standards, other mandatory professional reporting requirements and statutory requirements, in Australia, so as to present a view which is consistent with our understanding of the company’s and the consolidated entity’s financial position and performance as represented by the results of their operations and their cash flows. The audit opinion expressed in this report has been formed on the above basis. Audit Opinion In our opinion, the financial report of Gold Mines of Sardinia Limited is in accordance with: (a) the Corporations Law including: (i) giving a true and fair view of the company and the consolidated entity’s financial position as at 31 December 2000 and of their performance for the year ended on that date; and complying with Accounting Standards and the Corporations Regulations; and (b) other mandatory professional reporting requirements. Inherent Uncertainty Regarding the Carrying Value of the Osilo Non-Current Assets Without qualification to the opinion expressed above, attention is drawn to the following matter. As outlined in Note 21, Sardinia Gold Mining SpA ("SGM") the Italian operating subsidiary of Gold Mines of Sardinia Limited, received notification from the Sassari office of the Ministry of the Environment and Cultural Heritage that it has exercised its right of veto over the permission issued by the Autonomous Region of Sardinia, granting SGM authority to commence trial mining activities at Osilo. The Company appealed the decision to the Regional Administrative Tribunal ("Tribunal"). The final hearing took place on 14 February 2001. The decision of the Tribunal is pending at the date of this report. Should the appeal not be successful the ability of SGM to recover the carrying value of the Osilo deferred exploration costs totalling $13.7 million may be significantly impaired by such circumstances. Accordingly, there is significant uncertainty regarding the ultimate recovery of these deferred exploration costs. Ernst & Young GH Meyerowitz Partner Perth, 30 March 2001
SUPPLEMENTARY INFORMATION SHARE DETAILS (at 27 March 2001) Distribution
Directors’ Shareholdings Shares
Substantial Shareholders
Voting Rights No restrictions. On a show of hands every member present in person or by proxy will have one vote and upon a poll each share shall have one vote. SUPPLEMENTARY INFORMATION (Continued) TOP TWENTY SHAREHOLDERS (Australian Register)
SUPPLEMENTARY INFORMATION (Continued) TOP TWENTY SHAREHOLDERS (Australian Register)
SUPPLEMENTARY INFORMATION (Continued) TOP TWENTY SHAREHOLDERS (United Kingdom Register)
SUPPLEMENTARY INFORMATION (Continued) TOP TWENTY SHAREHOLDERS (United Kingdom Register)
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