2006 Annual Report St Barbara Limited Kununurra Broome Pt Hedland Newman 200km Carnarvon Plutonic Scorpion-Scorpayle Mercator (SBM 20.6%) Jundee Wiluna Meekatharra Mt Keith Lake Wells Cosmos Bronzewing Leinster Leonora Thunderbox Hill 50 �������� Laverton Geraldton Granny Smith ������ Sunrise Dam Saracen (SBM 19.9%) Kanowna Belle Southern Cross Kalgoorlie Kambalda ����������� St Ives PERTH Norseman Forrestania Bunbury Ravensthorpe SBM Land Holding Esperance Gold Deposit Nickel Deposit Albany Table of Contents Chairman’s Letter. 2 Managing Director’s Review . 3 Reserves & Resources Statement . 6 Operations . 8 Development . 9 Exploration . 10 Environment . 14 Safety and Community . 16 Finance . 18 Corporate Governance . 20 1 Directors’ Report . 24 Declaration of Auditor Independence. 40 Income Statements for the year ended 30 June 2006 . 41 Balance Sheets as at 30 June 2006 . 42 Statements of Changes of Equity for the year ended 30 June 2006 . 43 Cash Flow Statements for the year ended 30 June 2006 . 44 Notes to the Financial Statements for the year ended 30 June 2006 . 46 Directors’ Declaration . 92 Independent Audit Report to the Members . 93 Statement of Shareholders as at 13 September 2006 . 96 Corporate Directory . 100 Chairman’s Letter Colin Wise Chairman Dear Shareholder The resurgence of St Barbara continued during the 2006 The development of Company activities has led to growth financial year. At year-end, the Company was in a sound of the management team, in number and depth. St Barbara financial position, had an expanded management team in is actively engaging with government, local communities, place or in the course of being recruited, was producing indigenous groups and land owners in relation to these gold from Southern Cross Operations at the annual rate of activities and future planning. All levels of the organisation 165,000 ounces, and held a strong land position on which from the Board of Directors down, maintain a vital interest in to base future exploration – both in the vicinity of Company the safety of all employees and contractors and in enhancing operations, and greenfields. the environment in which the Company is operating. The former Sons of Gwalia gold assets have been rejuvenated, During 2006 the composition of the Board is undergoing with the Company advancing its objective of establishing change. In February we welcomed Doug Bailey as a long-life mines for Gwalia Deeps at Leonora and Marvel Loch non-executive director. In August Mark Wheatley resigned as 2 at Southern Cross. The resource at Tarmoola is also in the a non-executive director to take up a CEO role with another feasibility phase. resources company. In September Richard Knight announced his retirement as a Director, to take effect in December 2006. The rising gold price enhanced the Company’s progress. The We thank Mark and Richard for their contributions and wish average price received during the year was A$694/oz. Cash them well. Replacement non executive directors are now flows generated by Southern Cross gold production funded being sought. exploration activities and mine development at Gwalia Deeps. Strong market conditions provided an opportunity History demonstrates that buoyant gold price environments to divest the Meekatharra and South Laverton projects on do not last indefinitely. The strong financial position of favourable terms. the Company provides a springboard for our planned acceleration of the development of two potentially long life Finance for the March 2005 purchase of the Sons of Gwalia gold operations – Gwalia Deeps at Leonora and Marvel Loch gold division (provided by a A$7 million convertible note at Southern Cross. We also plan to spend A$20.2 million issued to Resource Capital Fund III LP), was converted to on exploration during the 2007 financial year - a significant equity in March 2006, enabling the Company to retire all amount for a company of St Barbara’s current size. secured borrowings. We have commenced the 2007 year with continued energy In May 2006, with the gold price rising to A$924/oz, and with and commitment to develop St Barbara into a significant strong demand for our shares, a placement of 99 million Australian gold producer and explorer. shares was made at 60¢/share, raising a net A$57 million. A number of significant international and local institutions are now shareholders. Their presence on the register represents an important recognition of St Barbara’s improved standing as a mid-sized gold mining company. The Company is now Colin Wise included in Standard & Poors ASX300 Index. Chairman The improvement in the Company’s standing and the current 29 September 2006 opportunities for growth, reflect well on the hard work and achievements of Eduard Eshuys, his management team and St Barbara’s workforce. Particular mention is made of the successful integration into the new St Barbara culture of Sons of Gwalia personnel who joined the Company last year. Managing Director’s Review Eduard Eshuys Managing Director & CEO St Barbara has successfully integrated the gold assets Improving environmental and rehabilitation management acquired from Sons of Gwalia in 2005, and refinanced and introducing a comprehensive data base and the Company through the timely sale of assets and equity management system. raisings. Establishing a land management system to assist access As a consequence, St Barbara has re-established itself as a to additional land at Southern Cross, Leonora and other gold producer and is well placed to look to the future and areas of interest. pursue success in its operations, development, exploration and corporate activities. Establishing the BigGold Study to identify world-class gold deposits in areas adjacent to highly endowed gold geology Success during the year was achieved by: and gold production districts in Australia. Generating a profit after tax of A$6 million. Safety The All Injuries Frequency Rate for the Company of 12.5 Gold operations producing 166,000 ounces at a cash compares with an Industry average of 11.6 and requires 3 cost of A$443/oz and generating a cash surplus of improvement. Safety initiatives are concentrating on A$66.4 million before capital and exploration expenses. observing behaviours and increasing managerial inspections of work areas to raise the profile of safe production. Divestment of Meekatharra and South Laverton assets at a Competency based training is also targeting improvement in the areas of manual handling, hazard identification and job combined profit of A$19.6 million, with the Company now safety analysis and incident investigation. holding a 19.9% interest in Saracen Mineral Holdings Ltd and 20.6% interest in Mercator Gold plc with a combined Environment market value of A$30 million. Re-establishing local fauna where practicable is an important element in rehabilitating former mining sites inherited as Reducing environmental bonds by A$12.2 million. part of the purchase of the Sons of Gwalia gold assets. Increasing reserves by 1 million ounces and replacing the Other ongoing environmental activities include water production during the year with increases at both Gwalia sampling, fauna surveys, energy generation and efficiency Deeps at Leonora and at Southern Cross. programs, pollution prevention, community liaison and environmental education. Raising A$67.2 million of new capital from the exercise of options and a placement of 99 million shares at 60¢. Community The Company is reconnecting with local communities in the Introducing institutional investors on to the share register Leonora and Southern Cross regions, to provide a deeper through the sell down of Resource Capital Fund’s holding understanding of the Company’s plans, listen to issues of to 22.4%. community interest, and promote community interaction. Recruiting experienced technical and financial Meetings have taken place during the year with local professionals to support the operations, development and indigenous groups, shire councils and members of the local exploration activities. An emphasis on recruitment of community. graduates has also occurred. Strategy for Growth Improving safety performance during the course of the Our principal objective is to establish St Barbara as a year with 120 LTI free days as at 30 June 2006. This 1 million ounces per annum producer with a cash cost margin improved performance has continued into the current of at least A$200/oz, and have reserves of 10 million ounces year. by mid 2010, or four years from now. Managing Director’s Review cont 4 Eduard Eshuys and Shane McLeay inspecting Raise Bore machine, 375 level Gwalia Deeps Achieving this growth and time frame will require focus on: Gwalia Deeps Hoover Decline is now at a vertical depth of 500m below surface, on its way to the top of the Deeps at exploration success at Leonora and Southern Cross; 1,100m below surface. This high-speed development of the decline advance (approximately 2,400m per year for continued conversion of resources to reserves; a single heading) should enable the decline to reach the Deeps towards the end of 2007. An increase in gold production to approximately 220,000- 230,000 ounces per annum (and an improvement Steady state production at Gwalia Deeps is projected to related operating costs) at Marvel Loch Underground to be approximately 500,000 tonnes per annum and open pits at the Southern Cross Operations; which at the reserve grade of 9.0g/t will produce 145,000-150,000 ounces per annum, subject to Development of Gwalia Deeps to commence production confirmation in the Final Feasibility Study. during 2008 at a rate of 150,000 ounces per annum; Future production at Tarmoola is being assessed and remains Acquisitions with a gold bias of corporates or assets which subject to confirmation in the Final Feasibility Study. 5 are either producing 150,000 ounces per annum or the equivalent, or have the potential to do so, with cash A number of potential acquisition opportunities have been margins in excess of A$200/oz; and identified and are being analysed.