ALBIDON
LIMITED Albidon Annual
ANNUAL Report 2008 REPORT From exploration to operation 2008 Corporate Directory
Directors Share Register AIM Nominated Advisor R. Potts - Chairman Computershare Investor RFC Corporate Finance Limited J. Shaw - Deputy-Chairman Services Pty Limited Level 8, 250 St Georges Terrace D. Rogers - Managing Director 452 Johnston Street Perth, WA 6000 Australia P. Chapman Abbotsford, Victoria 3067, Australia AIM Broker V. Chitalu Albidon Limited shares are listed on the Numis Securities Limited A. Cooke Australian Stock Exchange (ASX) and the London Stock Exchange Building C. De Guingand Alternative Investment Market (AIM) of the 5th Floor, 10 Paternoster Square Company Secretary London Stock Exchange London EC4M 7LT United Kingdom N. Day Solicitors ASX Broker and Corporate Advisor Registered Offi ce Blakiston & Crabb RBC Capital Markets 3/F Barclays House 1202 Hay Street Level 46, 2 Park Street Wickhams Cay West Perth, WA 6005, Australia Sydney, NSW 2000 Australia Road Town, Tortola British Virgin Islands Auditors AIM Code: ALD Ernst & Young ASX Code: ALB Principal Place of Business 11 Mounts Bay Road Level 1, 62 Colin Street Perth, WA 6000, Australia West Perth, WA 6005, Australia Website www.albidon.com ARBN 107 288 755 Contents
02 Letter From The Chairman 04 Managing Director’s Report 06 Strategy and Objectives 07 The East Africa Nickel Belt 08 Munali Nickel Project, Zambia 17 Uranium Projects, Zambia 20 Botswana Nickel Projects 22 Tanzania Nickel Projects 26 Tunisia Zinc Projects 29 Financial Report 79 Corporate Governance Report 84 Additional Shareholder Information 87 Tenement Schedule
1 ALBIDON LIMITED ANNUAL REPORT 2008
Letter from the Chairman Once again I am pleased to report that this has been a great year for Albidon as we progress towards our goal of being a nickel producer while continuing substantial programmes aimed at maintaining a pipeline of new development projects.
The Munali Project has made The joint venture with BHP Billiton I am very proud to have worked with the considerable progress during the year, at Songea in Tanzania has defi ned Albidon team and I wish Dale and John, and by the time you read this message, a number of quality new nickel drill the board, and the Albidon team all the the project is expected to be producing targets, while in Tunisia the joint venture very best for the future. nickel concentrate. with Zinifex has yielded encouraging results in the form of high grade zinc The Enterprise Mine at Munali came drill intersections. into production three months ahead of schedule and within the revised capital Albidon’s joint venture with African cost estimate. Energy Resources Limited to explore and exploit the uranium prospects on This result is due to a sustained effort our tenements in Zambia has resulted by the entire team and the ongoing in a positive Pre-Feasibility Study Dick Potts assistance of the relevant Zambian for consideration by the boards of Chairman government departments and local both companies. community. Albidon is now one of a very rare breed - a new greenfi elds I have been the Chairman of Albidon nickel mining company. Limited for over four years and with the commencement of production at Munali The Company’s exploration programmes and the encouraging results from the have made signifi cant progress this year ongoing exploration programme, it is with very encouraging results from our now time for me to stand down and 100% owned Sunnyside nickel project hand over to a new Chairman who will in Botswana. lead Albidon through the next phase of its growth and development. To this end John Shaw joined the board in February 2008 and will take over as Non-Executive Chairman after I resign at the AGM on 29th May 2008.
2 3 ALBIDON LIMITED ANNUAL REPORT 2008
Managing Director’s Report Dear Shareholder, In the past year Albidon has largely completed the transformation from junior explorer to nickel mining company. The Company is now poised to join the ranks of an exclusive group, an independent producer of high quality nickel concentrates from a new greenfi elds mining project.
Highlights of 2007 include: • Completion of a positive Specifi cally, the upgrading of the newly Pre-Feasibility Study on the Njame completed mill to increase production • Development of the underground and Gwabe uranium deposits in and the application of Dense Media access at the Enterprise Mine, Zambia by our joint venture partner Separation techniques (DMS) will be with ore intersected two months African Energy Resources. reviewed, along with a Scoping Study for ahead of schedule. the development of the Voyager deposit • Confi rmation of several new • By the date of this report construction to the north of the Enterprise Mine. mineralised uranium prospects in of the Munali concentrator was Substantial exploration programmes will both the Chirundu and Kariba Valley approximately 95% complete, with be maintained in the coming year with joint ventures in Zambia, with drilling fi rst concentrate production on track the aim of further increasing the nickel anticipated in 2008. for April 2008, several months ahead resource base at Munali. of schedule. • Discovery of nickel sulphide Community development activities mineralisation at the Sunnyside • Establishment of Munali site in the broader district around Munali prospect within the Company’s large infrastructure has been largely were expanded during 2007, with tenement package to the south of completed, including site access an acceleration of the Relocation Selebi-Phikwe, Africa’s premier nickel roads, grid power and standby Action Plan, expansion of the Malaria mining district. facilities, water supply, offi ce Rollback programme, assistance with accommodation, storage and other • Confi rmation of high priority new education facilities and emergency buildings to support the mining nickel targets for drilling at the relief initiatives. Additional initiatives operations. Songea joint venture with BHP Billiton will be implemented in the coming year, in Tanzania. including the establishment of a mobile • Completion of project fi nancing, clinic to improve the health of the local including up to $80 million in senior • Drilling success with Zinifex on community in the Munali district. debt from Barclays Capital and the the Nefza JV in Tunisia, with the European Investment Bank, $20 intersection of high grade zinc The development of the Munali Project million in subordinated debt from mineralisation in the historical provides Albidon with a powerful offtake partner Jinchuan Group Bou Aouane mining district. platform for growth of the Company, in addition to our equity funding by utilising our cash fl ow and unique The team established in 2006 to from shareholders. positioning in Africa. The period ahead develop the Munali Project was further will see an increased effort directed • Hedging contracts have been strengthened during the year with at evaluating growth options through concluded on very attractive terms the appointment of several highly alliances and possible merger activity. (average $10.71/lb) for approximately experienced construction, mining, 25% of the expected nickel production processing and commercial personnel On the exploration front, the recent from Munali over the period from June to facilitate the development of the discovery of nickel mineralisation 2009 to June 2013. The hedging project. A strong emphasis has been at Albidon’s Sunnyside project in locks in strong operating margins maintained on recruiting an optimal Botswana, combined with the new drill while providing approximately 75% blend of Zambian staff and expatriates. targets generated by JV partner BHP exposure to cash nickel prices. Billiton at Songea in Tanzania once With fi rst concentrate production at again demonstrate the potential that • An initial resource estimate was Munali expected two months ahead of is being unlocked on the Company’s prepared for the Voyager deposit schedule early in the second quarter of extensive tenement holdings in Africa. at Munali, which holds the potential 2008, a substantial effort through the It is anticipated that drilling and other to expand production rates and/or coming year will be directed towards activities on these projects will be project life that is currently based optimising the mining and concentrator accelerated in the coming year. on only the Enterprise deposit. fl ow sheet. Opportunities will be examined for expansion of production, while at the same time assessing process improvements to increase metal recoveries.
4 In uranium, our efforts in 2007 were I welcome Mr. John Shaw to our Board I believe the quality and scope of rewarded with a positive Pre-Feasibility of Directors as Chairman-elect and Albidon’s projects, combined with Study completed by JV partner African would like to acknowledge and thank our talented and dedicated team, will Energy Resources on the Njame and our outgoing Chairman, Mr. Richard continue to deliver positive results for Gwabe deposits in Zambia. At the Potts for his efforts and direction over Shareholders during the coming year. time of this report the boards of both the past four years. companies are reviewing the way On behalf of the Board of Directors forward for these projects. and myself, I would like to thank our The Company’s only project in North shareholders for your ongoing support, Africa also received a boost during the which has placed the Company in a year with high grade zinc mineralisation strong position for growth. I also thank being intersected at Nefza by our joint the entire Albidon team for its hard work venture partner Zinifex, who is funding and commitment in advancing all our Dale Rogers and operating the project. Additional projects throughout the past year. Managing Director drilling is planned for 2008.
5 ALBIDON OPERATIONS REVIEW Objectives Albidon’s key objective is to maximise return and value for shareholders. The Company intends to achieve this by operating responsibly in the interests of all stakeholders and building a profi table mining company with continued commitment to exploration.
Strategy Our strategy is to continue to create value through project development, exploration, including joint venture partnerships and strategic investments.
The Company will continue to exploit its competitive Growth will also be achieved through expansion advantage in nickel across Africa, without being of operations and exploration. We are currently constrained by it. We will look to take advantage of looking at expansion plans for Munali, including good quality investments and opportunities providing expansion of the plant and current resources and further diversifi cation by geography and commodity. reserves. In exploration we continue to work on programmes focused in the most promising Maintaining a strong project pipeline is essential areas of our substantial African tenement holdings. to achieving organic growth of the Company. Evaluation of opportunities will include merger We continue to derive strategic advantage from our and acquisition activity given our current proprietary geoscientifi c database and place priority transformation into a producer. Albidon will seek on utilising the latest exploration technology. opportunities for project acquisitions or corporate In addition, we continue to work with our joint mergers which will provide investment in cost venture partners and are looking for new partners competitive projects. which fi t with our strategic growth plans.
6 The East Africa 1 Nickel Belt 2 Recent discoveries and improved geological models have highlighted the nickel and platinum potential of several areas within southern and eastern Africa. These have resulted from the recognition of extensive mafi c-ultramafi c intrusion complexes typical of those that contain nickel sulphide mineralisation elsewhere in the world. Albidon has established a large tenement holding in this important geological province, which is termed the East Africa Nickel Belt and extends for 1. Nefza Zn-Pb and Cu-Au Project, Tunisia over 2,000 km throughout eastern and 2. Haffouz Zn Project, Tunisia southern Africa. The Company believes 3. Luwumbu PGM Ni Project, this region has potential for further 3 Tanzania 4 discovery of large nickel deposits, yet 4. Songea Ni-PGM Project, is relatively unexplored by comparison Tanzania 6 with other parts of the world with 5. Mpemba Ni-PGM Project, 5 similar geology. Malawi 6. Munali Nickel Project, Zambia 7 Historically high nickel prices, the 7. Maitengue Ni Project, discovery and development of the Botswana 8 Munali Project and the recently 8. Sunnyside Ni Project, Botswana announced doubling of the mineral resource at Xstrata’s Kabanga deposit Albidon project locations in Africa to over 1.3 million tonnes of contained nickel, has led to increased competitor activity in this region. Albidon, through its large tenement holdings, proprietary databases and operational experience is well positioned to remain at the forefront of this exploration drive. Kabanga Nickel A number of Albidon’s nickel prospects Deposit Lake Victoria Goldfi eld illustrate the benefi ts of this strategic 1,200,000 tonnes of Ni metal Mibango Ni-PGM positioning. For example: the Company’s (Barrick-Xstrata) (IMX-Lonmin) recent delineation of new nickel Luwumbu PGM-Ni geochemical anomalies and conductor IMX-Albidon targets in highly prospective geology at EAST AFRICA NICKEL BELT Songea in Tanzania; and recent drilling 3 Tanzania confi rmation of the discovery of nickel sulphide mineralisation at Sunnyside Zambia 4 in Botswana. Copperbelt
Malawi Songea Ni-PGM Munali Ni Mine Albidon - BHP Billiton JV
5 6
Zambia UraniumMalawi Albidon - African Energy JV Maitengwe Ni Albidon - IAMGOLD JV 7 Selebi-Phikwe Nickel District Sunnyside Ni 1,300,000 tonnes of Ni metal (BCL) Botswana 8 Bushveld Platinum Province Witwatersprand Goldfi eld
Albidon project locations in the East Africa Nickel Belt
7 ALBIDON OPERATIONS REVIEW Zambia Projects Munali Nickel Project, Uranium Exploration Projects
Munali Nickel Project local communities in Zambia, as well • The permanent water supply to the as Albidon’s project partners. concentrator is complete and has The Munali nickel deposit is located been tested; approximately 60km south of Lusaka The following paragraphs summarise in southern Zambia. The project is the progress on key elements of • 4 MVA diesel power generator sets well served by road, rail and power project construction, as well as the are currently on site supporting Relocation Action Plan (‘RAP’), through infrastructure as well as water supplies. construction, with the long term the course of 2007. This section of Munali is 100% owned by Albidon. dedicated sub-station currently the report also includes an indicative The project currently comprises two in testing phase; and timetable for completion of the Munali deposits, the Enterprise deposit, Nickel Project. also referred to as the Munali Phase • The underground support infrastructure is in place. 1 project, and the Voyager deposit. Site Infrastructure Development of the Enterprise nickel Construction of site infrastructure was Mine Development deposit commenced in September commenced at Munali and substantial As at the date of this report 2006 following a positive Bankable progress was made during the year. (31 March 2008) the Enterprise Feasibility Study (‘BFS’) and receipt of Key developments include the decline has advanced to the fi rst and the necessary government permits and establishment of the following major approvals. The project is scheduled for infrastructure components: second sublevels of the orebody, commissioning in April 2008. with the ore being intersected two • Road construction and perimeter months ahead of schedule. It is clear fencing are complete; The Enterprise project will produce from the underground exposures that approximately 10,000 - 10,500 pa of • Construction of accommodation there is potential for mining additional nickel in concentrate from a 1,200,000 blocks, offi ces, stores and security mineralisation in the hangingwall. tpa underground mining operation buildings are close to completion; A major campaign is planned for 2008 involving straightforward extraction to defi ne the extent of hangingwall methods and conventional processing • Construction of the concentrator, technology. Enterprise forms the initial tailings facility and supporting ground ore and to assess the economics of part of the Munali growth strategy, works are progressing on schedule extracting it. targeted to economically exploit the and due for completion in April 2008; other identifi ed lower grade nickel deposits at Munali through the effective application of additional process technology such as Dense Media Separation (‘DMS’). The Munali Project is one of only a very few new nickel sulphide developments planned worldwide in the next few years. The project will deliver a high quality bulk concentrate into a market characterised by strong demand and limited supply. Munali is expected to be low on the cost curve of nickel producers, with a fi nal direct cash operating cost of approximately US$3 per pound of nickel in concentrate. A highlight of 2007 was the Offi cial Ground-Breaking Ceremony for the Munali project by His Excellency Levy Mwanawasa SC, the President of Zambia in the company of many distinguished guests from the diplomatic, political, commercial and 8 PROJECT OUTLOOK
Over the next ten years, the Munali Project will deliver high quality nickel concentrate into a market characterised by strong demand and a limited supply.
9 ALBIDON OPERATIONS REVIEW - ZAMBIA PROJECTS
All underground equipment is currently of commissioning by mid-2008 it is Mineral Resources for Enterprise on site or on its way to site. This will expected that optimisation of the project and Voyager Nickel Deposits complete the equipment ramp up and expansion of production will be a Drilling was continued throughout required for fi rst stope ore production in major focus for the Munali team. 2007 with the objective of providing June 2008 and a sustainable production The Enterprise mine is an underground better detail of the mining reserve at rate of 1.2 mtpa by the end of 2008. operation accessed via a 25m deep Enterprise for the start-up of production, The initial project, Munali phase 1, ‘boxcut’ excavation leading to a nominal and also to provide an initial resource is based solely on the Indicated portion 5.0m x 5.5m twin decline at a gradient estimate for the Voyager deposit which of the Enterprise Resource which is of 1 in 7. The mine design utilises is located some 600m to the north of located at the southeast corner of highly mechanised up-hole benching and Enterprise. Current published Indicated the Munali Intrusion. The present long-hole open stope mining methods, and Inferred Resources for the deposits project design does not rely on, but resulting in effi cient ore extraction and at a revised cutoff grade of 0.6% Ni are can be modifi ed to accommodate, low mining costs. as follows: possible future production from the These mining methods allow for Inferred Resource portion of the Enterprise Deposit: mining from the top down which Enterprise Deposit. 9.1Mt @ 1.23% Ni, 0.2% Cu, 0.07% Co, maximises early production of ore. 0.6g/t Pd, 0.3 g/t Pt. From the outset, mine design and Cleaning and hauling methods are planning have been undertaken to also highly mechanised with applied Voyager Deposit: allow maximum fl exibility in project tele-remote loading techniques 1.2Mt @ 0.9% Ni, 0.1% Cu, 0.05% Co, development, in particular expansion of in support of the drive for zero 0.7g/t Pd, 0.4g/t Pt. mine production. Following completion tolerance on safety. The principal Total Resource: mining contractor is Byrnecut Mining 10.3Mt @ 1.2% Ni, 0.2% Cu, 0.07% Co, International Limited, a group that is 0.6g/t Pd, 0.3g/t Pt. highly experienced in these mining methods and operating in Africa.
10 ALBIDON OPERATIONS REVIEW - ZAMBIA PROJECTS
This amounts to a current metal Construction of the Munali concentrator The objective is to increase the inventory at Munali of 123,500 tonnes is being directed by GRD Minproc mineable resource and annual of Ni and 246,800 ounces of platinum and as at the time of this report the production output, and to maximise group metals (‘PGM’). Over 70% of this construction of the overall process plant metal recoveries. total resource has been classifi ed in the was 95% complete. All major equipment Indicative specifi cations for nickel Indicated Resource category under the items have been delivered to site in concentrate product from the Enterprise JORC Code. preparation for fi nal assembly, including Deposit are as follows: the ball mills, crusher components, Revised long term commodity price fl otation cells, concentrate fi lter and assumptions have lowered the cut-off Ni: 13%; Cu: 2%; Co: 0.7%; Pt: 1.9g/t; prefabricated pipes and platework. from 0.7% to 0.6% Ni. and Pd: 7.9g/t. It is anticipated that fi rst concentrate Construction of Munali Concentrator will be produced in the second quarter In addition, the concentrate is free The ore will be processed through a of 2008. Following an initial ramp-up of deleterious element impurities and conventional fl otation concentrator, period through 2008, production will also has low MgO content and a high comprising a simple crushing and comprise approximately 10,000 to Fe/MgO ratio, features that are grinding circuit, rougher, scavenger 10,500 tonnes of Ni, 1,650 tonnes of particularly attractive for operators of and cleaner fl otation cells, followed Cu, more than 480 tonnes of Co and fl ash-furnace type nickel smelters. by concentrate and tailings thickeners, 18,000 ounces of PGM in concentrate Offtake partner Jinchuan Group is producing a high grade nickel, copper, per annum. currently assessing the feasibility of cobalt and PGM concentrate for Scoping studies are underway to assess building a smelter in southern Africa sale to the Jinchuan Group of China the potential for further improvements and if this eventuates there may be for smelting. to the process fl ow circuit. These scope to further optimise the project studies include: mining at lower cutoff by increasing metal recoveries and grade and head grade of ore; and concentrate tonnages by reducing the optimisation of material fl ow. grade of metals in concentrate.
11 ALBIDON OPERATIONS REVIEW - ZAMBIA PROJECTS
Key Milestones and Forward Programme
2006 2007 2008 Milestones Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Regulatory approvals Feasibility study Concentrator design Procurement of long lead time items Construction management contract awarded Engineering, procurement and design of major items Mining contractor mobilisation to site Structural steelwork and platework fabrication Procurement and delivery of ball mills to site
Mill & process plant construction
First ore production from development areas First ore into concentrator
Completed Ahead of Schedule
Capital Costs Offtake Agreement Project Funding Albidon has successfully managed the An Offtake Agreement was signed in The Munali project is being funded by construction of the Munali Nickel Project December 2006 with Jinchuan Group, a mix of debt and equity as follows: to be delivered ahead of time and with China’s largest producer of nickel, Equity funding: US$40 million was a capital cost increase of ~25% realised cobalt and platinum group metals and raised from Albidon shareholders, for the project to date when compared a major producer of copper. The offtake US$15 million from Jinchuan Group and to the estimate developed in the arrangements include substantial US$10 million from ZCCM Investment Bankable Feasibility Study in 2006. project funding commitments from Holdings plc. Jinchuan, as detailed below. The increase in costs is attributable Debt fi nancing: up to US$80 million to the continuing escalation of costs of senior debt is being provided by in the mining industry worldwide. Barclays Capital and the European Cost increases cover all facets of Investment Bank as joint lead arrangers the project, including raw materials, for the project. The Jinchuan Group will equipment, labour, power and fuel. provide an additional US$20 million in This area of cost management will subordinated debt. receive close attention through 2008 and beyond.
12 13 ALBIDON OPERATIONS REVIEW - ZAMBIA PROJECTS
Environmental Management at Munali resettlement of members of the Phase 3 is scheduled to start in The Munali Project is being constructed Munali community that formerly mid-April 2008 and the company has and operated in accordance with the occupied areas that will be physically decided to train and employ the local Equator Principles and the conditions affected by the operations. community as the RAP construction team. The programme is fully supported and guidelines approved by the Planning for, and implementation of the by the community, the traditional Environmental Council of Zambia. RAP has involved continuous close leaders, local and central government. The Environmental Management Plan consultation with the local community (“EMP”) is currently in draft format and its representatives. The Company The community development programme and is scheduled to be submitted for particularly wishes to acknowledge the is also scheduled to start early in approval in April 2008. Environmental high level of support and cooperation it 2008 and will include the HIV/AIDS programmes are already in place in has received from the Munali community awareness and prevention programme support of the EMP and environmental and the people throughout the Southern and the Malaria Rollback programme, audits have been conducted with Province of Zambia. already implemented in December satisfactory results. 2007. Initiatives such as a mobile clinic Phase 2 of the RAP program is in conjunction with the government unit Relocation and Community now complete and an additional and the construction of a skills training Development Plan 18 households are in the process of centre are scheduled in the programme. The Relocation Action Plan (‘RAP’) is being re-located. Phase 2 included the a key component of the overall Munali establishment of road infrastructure, During the recent fl oods in the Southern project. The RAP is the result of a water boreholes, a local brick factory, Province region, the Company assisted detailed Social Impact Assessment cement brick houses and preparing the fl ood victims in local communities undertaken as part of the Bankable maize and other product fi elds in through the provision of food and Feasibility Study and it has as its support of the traditional culture other needs. primary objective the comfortable of the surrounding community.
14 ALBIDON OPERATIONS REVIEW - ZAMBIA PROJECTS
Long-section looking west to illustrate the underground mining blocks and decline access at Enterprise (left) and Voyager (to the right).
Malaria Rollback Programme Munali Growth Strategy The application of Dense Media The Malaria Rollback programme started A number of initiatives have commenced Separation (DMS) at Munali is currently in October 2007 with the assistance to investigate options for the future being investigated through a Scoping of government support groups and growth of Munali. Study. Preliminary testwork shows that has focused mainly on the following Munali Enterprise ore performs well A Scoping Study is underway to examine initiatives to date: when subjected to DMS. The use of the development options for the Voyager DMS process will potentially allow the • Spraying of houses and buildings deposit which could either increase profi table processing of lower grade on site and community villages the annual production rate at Munali or nickel ores, thereby increasing overall against mosquitos to a radius of alternatively could extend the life contained nickel tonnes. The application 25 kilometers; of the project beyond 10 years. of a lower cut off grade will require a Additional drilling will be undertaken in • Providing free testing to all re-focus on the exploration potential of 2008 with the objective of locating more employees, contractors and the Munali Intrusion. ore between Enterprise and Voyager and the community; and down-dip of both deposits. This exploration refocus will include the • Providing free anti-malaria treatment Enterprise Mine and Voyager resource, The Company has recently approved to employees, contractors and the as well as targets to the north of an upgrade to the concentrator to community through the establishment Voyager such as Intrepid (previously increase production from the project of a mobile clinic taking the service known as the North West Target) and to 10,000 - 10,500 tonnes of nickel to the villages. Defi ant. Enterprise, Voyager and Intrepid in concentrate per annum. The will be subject to additional drilling This effort has reduced the level concentrator capacity will be upgraded programmes in 2008 to update of recorded malaria cases and the to 1,200,000 tpa. Capital costs for the resource defi nition. programme is scheduled to continue the upgrade are estimated at US$2.5 with the input and support of local million and the upgrade will be funded leaders and government. from cash reserves.
15 ALBIDON OPERATIONS REVIEW - ZAMBIA PROJECTS
Exploration for Additional Nickel Resources in the Munali Project As mentioned above, drilling continued at Enterprise and Voyager in 2007 and was successful in increasing the confi dence in the Enterprise resource and in providing an initial resource estimate for the Voyager deposit. This programme will be continued in 2008 with the objective of locating additional ore between these two deposits and also down-dip. Drilling will also be directed at assessing the resource potential of the Intrepid and Defi ant target areas in the northern part of the Munali Intrusion, based on the fact that the geological setting of the mineralisation intersected along the southwestern side of the Munali Intrusion is consistent, with the same controls on nickel sulphides over the entire length of the intrusion (over 2.5km). The exploration programme for 2008 will include ground electromagnetic surveys aimed at locating new zones of mineralisation to the north of the Munali Geologic cross section of Munali showing mineralisation Intrusion, based on structural geological work that suggests the Intrusion may plunge in a northerly direction. Exploration drilling in the northwest portion of the Munali Intrusion near the Intrepid and Defi ant exploration targets indicates a north-western plunge to the Munali intrusion. Ground EM is planned to cover the potential extension of the Munali intrusion to the northwest. Ongoing drilling and scoping work are planned for the Intrepid Target as potential sources of additional ore for the Munali plant. Revised mapping at Munali has updated the geologic map of the Munali Gabbro.
Zambia Regional Nickel-Copper Exploration An evaluation of the Munali Fault Zone was initiated in the second quarter of 2006, commencing with an electromagnetic (VTEM) survey on a 60km corridor along the fault. This survey identifi ed a number of conductive targets which were systematically evaluated through reconnaissance geological mapping Geological map of the Munali Gabbro showing Enterprise, Voyager, Intredpid and Defi ant and, where warranted, by geochemical
16 ALBIDON OPERATIONS REVIEW - ZAMBIA PROJECTS
the Company), who are both members of The Australasian Institute of Mining and Metallurgy. Mike Dunbar and John Schloderer both have suffi cient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person under the 2004 Edition of the Australasian Code for reporting of Exploration Results, Mineral Resources and Ore Reserves. Mike Dunbar and John Schloderer consent to the inclusion of the data in the form and context in which it appears.
Uranium Projects
Albidon and African Energy Resources Limited have entered into an agreement for the exploration and development of a number of uranium prospects that have been identifi ed on Albidon’s tenements in Zambia. Under the Agreement A$500,000 was spent by African Energy within two years to maintain an option to enter a Joint Location of major regional faults and the stream sediment geochemical Venture on one or more project areas, surveys on the Munali Project following which African Energy has, to date, nominated three projects for farm-in, the Chirundu, Kariba Valley and soil sampling. The results generally Drainages with copper values greater Luano Valley Joint Ventures. indicated prospectivity for sediment than 50ppm copper are clustered in hosted copper mineralisation rather than the Chikani and Luwanya areas. This African Energy may earn a 30% interest for mafi c to ultrarmafi c hosted nickel. is the current focus of ongoing fi eld in each of these project areas selected work. Anomalous drainages were fi eld by it for farm-in by expending A$1 million These programmes led the Company to checked and locations for grid soil on the selected project area, and may focus exploration efforts in the Chikani sampling were selected in the Chikani then proceed to earn a 70% interest by area, approximately 25km to the south and Luwanya areas. Approximately drilling up a JORC Indicated Resource of Munali. Three reconnaissance 2,400 soil samples were collected in and completing a Pre-Feasibility Study. diamond drill holes drilled in 2006 late 2007 and the results are currently African Energy has earned an initial 30% identifi ed a zone of approximately 35m being evaluated. This will form the basis interest in the Chirundu Joint Venture drilled width containing sulphide bearing for the evaluation of drill targets and is still earning a 30% interest in the black shales with copper bearing in 2008. Kariba Valley and Luano Valley JVs. sulphides. This appears to be the source of the copper anomalism in the The Australasian Code for Reporting stream and soil sampling. Ongoing work of Exploration Results, Mineral Resources Chirundu Joint Venture is focused on evaluating the potential and Ore Reserves (the ‘JORC Code’) sets out for sediment hosted copper style minimum standards, recommendations and guidelines for Public Reporting in Australasia The key projects comprising the targets similar to the Copperbelt. of Exploration Results, Mineral Resources and Chirundu JV are the Njame and Gwabe Further interpretation of regional data Ore Reserves. The information contained in uranium deposits, located approximately led to the recognition of three additional this report has been presented in accordance 80km south-east of Lusaka, the capital with the JORC Code and references to major fault structures, as well as the of Zambia. African Energy Resources “Indicated”, “Inferred Resources” and south-easterly continuation of the “Probable Ore Reserves” are to those has earned an initial 30% equity Munali Fault. An extensive programme terms as defi ned in the JORC Code. interest in the project and is earning of stream sediment sampling to Information in this report relating to a 70% equity interest by completing evaluate these four structures was exploration results and mineral resources the Chirundu Pre-Feasibility Study for commenced in 2006 and completed is based on data compiled by Mike Dunbar possible development of the Njame in 2007 with 1,575 stream sediment (a consultant to the Company and full time and Gwabe deposits. samples collected during the employee of the Mitchell River Group) 2007 survey. and John Schloderer (an employee of
17 ALBIDON OPERATIONS REVIEW - ZAMBIA PROJECTS
Location of Chirundu, Kariba Valley and Luano Valley JV Projects Location of the Chirundu JV Project showing Gwabe and Njame showing known uranium occurences uranium deposits
Njame Uranium Deposit Drilling in 2007 has enabled an updated estimate for the Njame deposit. The total Inferred Resource is now
8.8Mt @ 340 ppm U3O8 for 3,000t
U3O8 (6.6 Mlb). This resource is concentrated in the Njame North deposit, with contributions from the Njame East and Njame Central deposits shown in the table.
Gwabe Deposit Based on drilling completed in 2007 a resource estimate has been completed for the Gwabe project: Inferred Resource of 4.2 Mt @ 267ppm U3O8 for 2.5 Mlb of contained U O (1,120 tonnes) at 3 8 Interpreted geological cross section of the Njame uranium deposit a 100ppm lower cut-off grade. The resource estimate methodology and classifi cation complies with the JORC Code and has been independently reviewed by Coffey Mining Pty Ltd. Deposit Inferred Resource Contained U3O8 The Gwabe uranium deposit is located Njame North 6.5 Mt @ 355 ppm U O 2,300t (5.1 Mlb) in Karoo-aged sediments and is 20km 3 8 Njame East 1.1 Mt @ 340 ppm U O 375t (0.8 Mlb) along strike from the Njame deposit. 3 8 Uranium mineralization at Gwabe is Njame Central 1.2 Mt @ 270 ppm U3O8 325t (0.7 Mlb) hosted in oxidized, coarse grained Njame Total 8.8 Mt @ 340 ppm U O 3,000t (6.6 Mlb) sandstones, grits and pebble 3 8
18 ALBIDON OPERATIONS REVIEW - ZAMBIA PROJECTS
Namakande Prospect Reconnaissance geological mapping, geochemical sampling, rock-chip sampling and gamma-ray scintillometer surveys were completed over a number of previously identifi ed ground radiometric anomalies at Namakande. Uranium mineralisation has been confi rmed at 5 out of 6 targets, with
peak values up to 1,150 ppm U3O8 in rock samples and up to 326 ppm
U3O8 in soil samples. Additional soil sampling and geological validation will be undertaken in 2008, with drilling as warranted. Interpreted geological cross section of the Gwabe uranium deposit Luano Valley conglomerates which overlie a non- Chisebuka Prospect Joint Venture mineralised, reduced silty-shale horizon. Rock-chip sampling in 2007 confi rmed The mineralisation dips gently to the the presence of high-grade uranium African Energy Resources formally south-east and is located close to the mineralisation at surface with 11 of 46 nominated a third joint venture project surface, at between 3m and 29m depth. samples exceeding 100ppm U3O8. with Albidon Limited in November 2007. A programme of RC drilling on a nominal The Luano Valley JV includes parts of The Albidon-African Energy Resources 400m x 100m grid was undertaken two large scale prospecting licenses Joint Venture is currently evaluating to test these anomalies. Signifi cant owned by Albidon containing Karoo the potential for economically viable assays are listed in the table below. sediments located in central Zambia. mining and uranium processing at the Exploration will commence in 2008. Njame and Gwabe deposits as part of Mineralisation at Chisebuka occurs in the Chirundu Pre-Feasibility Study. With two parallel zones over at least 800m Information in this report relating to the increased Inferred Resource at of strike in the northern zone and at exploration results and mineral resources is based on data compiled by Frazer Tabeart Njame, the total Inferred Resource for least 400m in the southern zone within coarse-grained sandstones interpreted (an employee and Managing Director of the Chirundu project is now 4,120t U O African Energy Resources Limited), who is a 3 8 to be part of the Karoo-aged Escarpment (9.1 Mlb U3O8). The Pre-Feasibility Study member of The Australasian Institute of Mining is expected to be fi nalised by the end of Grit Formation that hosts the Njame and Metallurgy. Frazer Tabeart has suffi cient the fi rst quarter of 2008, with a and Gwabe uranium deposits. Both experience which is relevant to the style of mineralisation and type of deposit under decision to proceed to a full Bankable zones remain open along strike to the northeast. Drilling at Chisebuka consideration and to the activity which he is Feasibility Study (BFS) in the second undertaking to qualify as a Competent Person quarter. The Pre-Feasibility Study is is expected to recommence in the under the 2004 Edition of the Australasian second or third quarter of 2008. based on mining a number of deposits Code for reporting of Exploration Results, The Chisebuka uranium prospect is Mineral Resources and Ore Reserves. Frazer and trucking uranium-loaded resin from situated 75 km to the south-west Tabeart consents to the inclusion of the data these to a central processing plant. of the Njame uranium deposit. in the form and context in which it appears. Kariba Valley Signifi cant uranium assays from Chisebuka drilling: CHI007 7m @ 445 ppm U O from 11m Joint Venture 3 8 including 2m @ 762 ppm U3O8 from 11m Exploration continued at the Chisebuka and 2m @ 642 ppm U3O8 from 16m and Namakande uranium prospects CHI004 2m @ 740 ppm U3O8 from 66m in the Kariba Valley JV, in addition to CHI026 7m @ 465 ppm U O from 57m an initial reconnaissance programme 3 8 CHI025 7m @ 260 ppm U O from 92m covering an extensive area to the south- 3 8 west of the Munyumbwe and Chisebuka CHI024 7m @ 208 ppm U3O8 from 60m uranium prospects. This area was CHI031 11m @ 175 ppm U O from 60m evaluated through airborne radiometric 3 8 CHI015 4m @ 228 ppm U O from 76m surveying in November 2007. 3 8
19 ALBIDON OPERATIONS REVIEW Botswana Projects Selebi-Phikwe Nickel Project
Selebi-Phikwe Nickel Project The main target in this project is the Selebi-Phikwe style of massive nickel sulphide mineralisation, and gabbro- hosted mineralisation such as Phoenix and Selkirk in the Tati district near Francistown, north-eastern Botswana. The Selebi-Phikwe Project comprises 21 contiguous Prospecting Licences (PLs) covering approximately 11,262 sq km in the eastern part of the Central District of Botswana. The Project covers prospective ground to the south of the Selebi-Phikwe Nickel Mining District and includes several Ni-Cu occurrences. These include the Lipadi Hill, Sunnyside and Kgwedi nickel prospects.
Exploration has targeted both massive Location map of the Selebi-Phikwe Nickel Project in Botswana sulphide and disseminated styles of nickel mineralisation. Ground geophysics was completed on all the prospects with ground EM over the Sunnyside and Lipadi prospects and IP over Sunnyside and Kgwedi. Grid-based soil sampling was also completed over the Sunnyside and the Kgwedi targets with historical soil data available over Lipadi. The Sunnyside and Kgwedi prospects are located close to the Sunnyside Shear Zone which is a major geological structure located in the southern part of the Selebi-Phikwe tenement package. This zone extends for many tens of kilometres. Because this structure contains a number of known nickel sulphide occurrences, two large areas along the Sunnyside Shear Zone were selected for an airborne electromagnetic (VTEM) survey in addition to selected coverage over the Lipadi prospect. Approximately 4,300 line kilometres Location of Sunnyside drill holes on interpreted EM conductors were fl own. The survey was completed
20 ALBIDON OPERATIONS REVIEW - BOTSWANA PROJECTS
in March 2008 and data processing is under way. Drilling is planned in 2008 on targets generated from interpretation of the airborne survey. The ground EM survey at Sunnyside identifi ed a 600m x 400m strong conductor within an IP anomaly that extends for approximately 1.7 km and is coincident with anomalous copper and nickel values in soils. A 16-hole drill program was initiated in December 2007 and 6 drillholes have been completed to date, with assays pending. Matrix sulphides and metre-scale intervals of massive sulphides were intersected in drillholes ALB-002 and ALB-004. A portable XRF analyser confi rmed the visual identifi cation of nickel sulphide in the drillcore and assay results are pending. A substantial drilling programme will be continued in 2008 if the nickel assays from the initial drillholes are confi rmed to be signifi cant. The Lipadi Hill prospect in the eastern part of the Botswana tenement package was last explored in the 1970’s and yielded signifi cant nickel intercepts in drilling and trenching. A ground EM survey has been completed and an IP survey is underway on this target. Drilling at Lipadi is planned for 2008. The third priority target within the Selebi-Phikwe tenement package is the Kgwedi nickel prospect. Ground IP was completed at Kgwedi and an east-west trending IP target was identifi ed extending for approximately 1600m. Four reconnaissance drillholes are planned as an initial test of the Kgwedi prospect in 2008.
21 ALBIDON OPERATIONS REVIEW Tanzania Projects Songea Nickel Project, Luwumbu Platinum - Nickel Project
Songea Nickel Project The Songea Project is located in southwest Tanzania and forms part of the Albidon-BHP Billiton Exploration Cooperation Agreement. BHP Billiton has nominated fi ve Prospecting Licences, covering 838 sq km, as a Target under the terms of the Exploration Cooperation Agreement, and can proceed to earn a 30% interest in the project by completing expenditure of at least US$5 million. Additional Prospecting Licences in Albidon’s Tanzania portfolio will be evaluated by the Company’s geologists in 2008. A systematic stream sediment geochemical survey undertaken by an Albidon-BHP Billiton team led to the identifi cation of signifi cant nickel and copper anomalies in three areas within the Songea Project Area (Kitai South, Mabinga Prospect, Liparamba Prospect), Albidon project locations in southern Tanzania with peak values of up to 582 ppm Ni and up to 176 ppm Cu. A VTEM airborne electromagnetic survey covering the Songea Project in southwest Tanzania was completed by BHP Billiton in late 2007. The survey totalled 3,016 line kilometres covering 414 sq km over several prospective mafi c-ultramafi c intrusion complexes. The survey was undertaken to follow up the signifi cant Ni and Cu anomalies identifi ed in the previous stream sediment geochemical sampling. The VTEM survey has delineated a number of conductor anomalies at both the Liparamba and Mbinga Prospect areas. Of these, the high priority late-time EM conductor targets at the Liparamba and Mbinga Prospects are located mostly within or near the contacts of the prospective intrusion rocks covered by the EM survey. Several of the EM conductors are coincident with nickel and copper geochemical anomalies defi ned by soil and/or drainage geochemical sampling. Liparamba EM targets on magnetics with the interpreted contact of the target intrusion
22 PROJECT OUTLOOK
Albidon’s large portfolio of nickel projects in Botswana and Tanzania continues to deliver high quality drill targets.
23 ALBIDON OPERATIONS REVIEW - TANZANIA PROJECTS
Mbinga EM targets on magnetics with the interpreted contact of the target intrusion
At Liparamba one of the conductors The geology of both the Liparamba Detailed soil geochemical sampling will is coincident with a geochemical and Mbinga prospect areas is highly be undertaken over all the priority EM anomaly defi ned by assay values prospective. The Liparamba target is conductor targets and to extend the of up to 3,500ppm Ni (0.35% Ni) a noritic intrusion, with a diameter small areas covered to date. in soil samples. of several kilometres. Mineralogical This work will be accompanied by studies have confi rmed the presence detailed analysis and interpretation of At Mbinga, one group of conductor of the nickel sulphide mineral the EM data, and these two datasets targets is closely associated with pentlandite within gabbro-norite and will then be combined with the aim of a Ni-Cu soil geochemical anomaly olivine gabbro rocks close to the defi ning drill targets. It is anticipated located within an embayment at southwestern contact of the intrusion. that drilling will commence in mid-2008. the eastern contact of the Mbinga Intrusion. The Mbinga prospect area is interpreted Luwumbu Platinum- to represent a multi-chamber Several of the Ni-Cu anomalies norite-troctolite intrusion measuring Nickel Project are accompanied by Co, Pt and 9km x 6km in size. Nickel sulphide Pd anomalies, supporting the The Luwumbu Project is situated in the has also been confi rmed in outcrop interpretation that the Ni-Cu anomalies Livingstone Mountains of southwest samples near the eastern embayment refl ect nickel sulphide mineralisation. Tanzania and is owned 90% by IMX area at Mbinga. The soil geochemical sampling areas, Resources (formerly Goldstream Mining which have been limited to date, The geology of the norite and troctolite NL) and 10% by Albidon. In June 2003 will now be extended on the basis rocks at Mbinga-Liparamba is similar an agreement was signed whereby of the latest results. to that at Vale Inco’s large nickel Lonmin plc had the right to earn a 70% sulphide orebody at Voisey’s Bay interest in the project by sole funding in eastern Canada. a Feasibility Study on an Indicated Mineral Resource.
24 ALBIDON OPERATIONS REVIEW - TANZANIA PROJECTS
On February 15, 2008 Lonmin approval by the IMX Resources-Albidon the Nkenja area, which comprises announced their withdrawal from the joint venture company, Tausi Mining Pty a relatively small portion of the Luwumbu Farm-in Agreement effective Ltd, will be to: tenements. Despite the outstanding 31 March 2008. Lonmin had until 31 intersection from the 2005 drill • Evaluate in more detail the enormous March 2009 to complete an indicated hole NDH014 of 16.14m @ 5.36g/t volume of data generated from the resource to earn a 51% interest in 2PGM+Au (Pt+Pd+Au) including diamond drilling and auger sampling the Luwumbu tenements. Lonmin’s 1.67m @ 26.82g/t 2PGM+Au, the gathered over the past fi ve years in withdrawal at this stage means it has substantial drilling program at Nkenja the Nkenja area in the northern part not earned an interest and the rights to in the last two fi eld seasons has of the project; the Luwumbu tenements remain with failed to locate further economic IMX Resources (ASX:IXR) 90% • Review the potential of the northern, mineralisation. and Albidon Limited 10% central and southern portions of the The Luwumbu area contains a tenement area for metals other than Exploration for Platinum Group Metals number of mafi c and ultramafi c PGM; and (“PGM”) has been carried out by Lonmin intrusions, potential host rocks for at Luwumbu since 2003. It is believed • Depending on the results of the initial nickel and platinum deposits, in a that the Luwumbu tenements have review, further geological fi eldwork, zone that is at least 160km in length. potential for other metals including sampling and airborne geophysics This area of southwest Tanzania has nickel, but with the Lonmin-funded may be contemplated. the most extensive outcrop of rocks exploration being essentially PGM interpreted to form part of the same The work undertaken by Lonmin during focussed, little targeting of other geological province as the host rocks to the period it was funding the project metals has occurred. The planned the large Kabanga nickel deposit in the focused almost entirely on PGM’s in programme for 2008, subject to northwest of the country.
25 ALBIDON OPERATIONS REVIEW Tunisia Projects Nefza Zinc-lead and Gold-copper Projects, Haffouz Zinc Projects.
Joint Venture with Zinifex Limited Albidon and Zinifex signed an option and joint venture agreement in December 2006 for the exploration and development of the Company’s projects in Tunisia. The joint venture agreement involves: Zinifex making a staged series of cash payments totalling US$1 million; a minimum initial exploration expenditure commitment of US$1.3 million within 12 months; expenditure of an additional $6 million to earn a 51% interest; and, expenditure of a further US$5 million to earn a 70% interest, at which time Albidon may elect to fund its 30% interest. The Nefza Project is located in north-western Tunisia between the Atlas Mountains and the Mediterranean Sea. The project is covered by an Exploration Permit over an area of 3,069 sq km about 80 km to the west of Tunis and is served by excellent infrastructure. The licence contains large areas of carbonate rocks containing signifi cant zinc-lead prospects that supported substantial past mining operations, and a series of volcanic and intrusive Location of Nefza and Haffouz Zinc Projects, Tunisia rocks that are associated with signifi cant gold-copper mineralisation.
Signifi cant drill intersections for the Sidi Bou Aouane and El Haouaria Prospects. Hole From (m) To (m) Width (m) Pb % Zn % Cut-Off Zn% BADD003 5.00 41.00 36.00 0.16 3.69 0.50 Including 15.00 29.50 14.50 0.37 8.01 1.50 and 21.40 29.50 8.10 0.60 11.70 2.00 BADD006 99.00 155.70 56.70 1.05 1.58 0.50 Including 99.00 120.35 21.35 1.72 2.36 1.50 EHDD001 128.40 146.40 18.00 0.78 2.30 0.50
Notes: BADD003 includes complete core loss (from 20.5-21.4m and from 29.4-33m) which is assigned zero grade.
26 ALBIDON OPERATIONS REVIEW - TUNISIA PROJECTS
From mid 2005, Albidon embarked on an evaluation of the zinc-lead potential of the Nefza licence area with the aim of prioritising targets for geophysical surveys and drill testing. The key results of work to date are: • Recognition of the potential for large ‘carbonate-replacement’ zinc deposits of similar character to the large Jinding deposit in Yunnan, China (approx. 140Mt @ 8% Zn, 1.5% Pb). • Substantial amounts of near-surface mineralisation remain at some of the old zinc mines, most signifi cantly at Bou Aouane. • Extensive Zn-Pb anomalies defi ned by stream sediment and soil sampling, identifying target areas related to major structures in zones extending from known deposits. High priority target areas and other zinc prospects within the Nefza Project Fieldwork in 2007 focused on geophysical surveys (IP and gravity) along the main prospect trends with additional detailed mapping and geochemical sampling. Eleven drillholes were completed at Bou Aouane and one drillhole at El Haouria. The objective of the drilling programme was to confi rm the thickness and grade of zinc mineralisation reported in previous drilling at Khatkhadha and to provide reconnaissance drill coverage of the adjoining area. The programme was directed towards locating zinc mineralisation where grade is controlled by a favourable combination of fault structures and geology. Drill hole BADD003 was drilled within the reported Khatkhadha mineralisation and intersected 5.5m at 3.9% Zn and 0.1% Pb from 15m down hole, and 8.1m @ 11.7% Zn and 0.6% Pb from 21.4m down hole. These intervals are Khatkhadha mineralised area, old mine workings and drill holes at the separated by 1.4m of core loss (see Bou Aouane Zinc Prospect. table). The drill results support the
27 ALBIDON OPERATIONS REVIEW - TUNISIA PROJECTS
reports of a remnant mineralised body Haffouz Zinc Projects The sulphide target at Jebel Touila was at Khatkhadha. The mineralisation is tested by 546.3m of drilling during near-surface and may be accessed by The Haffouz Projects are located in 2005, down-plunge of old mine workings an open pit were a suffi cient resource central Tunisia, about 200 km by in the axial zone of a fault-controlled defi ned. Additional drilling is planned road from Tunis. The projects are fold-structure. TOD002 intersected 4m within the Khatkhadha mineralised located within the Haffouz permit at 6.5% Zn and 1.1% Pb from 171.6m area in 2008. application area covering 434 sq km. including 0.8m at 26.4% Zn and 4.8% The application area contains carbonate Zn. The follow-up hole was abandoned Drill hole BADD006 intersected 56.7m rocks hosting signifi cant Zn-Pb oxide due to poor ground conditions, but @ 1.6% Zn and 1.1% Pb (from 99m), and sulphide mineralisation which the results confi rmed the existence of including 21.3 m @ 2.4% Zn and supported old mining operations at high-grade stratabound-replacement 1.7% Pb. This confi rms that zinc-lead Jebel Trozza, Jebel Touila and Loridga. zinc mineralisation of an economically mineralisation at Bou Aouane is laterally attractive style. extensive. Further drilling would be The permit has signifi cant potential for required to assess the thickness, secondary zinc-oxide mineralisation, Exploration work is planned to grade and continuity of the system. comparable to the Skorpion deposit recommence in 2008 with completion in Namibia and the Mae Sod deposit of geophysical surveys (IP and gravity) Drilling at the EL Haouaria prospect in Thailand. At Jebel Trozza, previous and additional geochemical sampling commenced in late 2007 and one drilling carried out by Albidon in 2002 and mapping to defi ne drill targets. hole was completed. EHDD001 intersected signifi cant zinc oxide intersected 11.35m (135.65-146.4) mineralisation, with a best result @ 2.3% Zn. There appears to have of 6.08m @ 17% Zn (although core been little exploration away from the recovery was only 2.38m for this outcropping mineralisation that was section of the drill hole). mined at El Haouaria. The style and As a follow up, 432.2m of drilling was setting of mineralisation (‘stratabound’) completed in 2005 to test the near- are similar to Bou Aouane and hold surface zinc oxide potential north of the the potential for discovery of more previous drilling. Signifi cant zinc oxide substantial and higher grade resources mineralisation was intersected than recorded in the historical reports. in the target position, with a best Continued drilling is planned on the result of 2.65m at 7.7% Zn from Nefza licence for 2008 to test the Sidi 59.9m in JTD006. Driss, Gantra, Bou Aouane and El Haouaria prospects.
28 ALBIDON LIMITED Financial Report for the year ended 31 December 2007
29 Contents
Directors’ report 31 Auditor’s independence declaration 40 Consolidated income statement 42 Consolidated balance sheet 43 Consolidated cash fl ow statement 44 Consolidated statement of changes in shareholder’s equity 45 Notes to the fi nancial statements 46 1. General information 46 2. Summary of signifi cant accounting policies 46 3. Financial risk management 52 4. Critical accounting judgements and key sources of estimation uncertainty 58 5. Segment information 60 6. Revenue and expenses 61 7. Income tax expense 62 8. Loss per share 63 9. Trade and other receivables 63 10. Inventories 64 11. Other fi nancial assets 64 12. Prepayments 64 13. Cash and cash equivalents 64 14. Plant and equipment 65 15. Mine properties and exploration expenditure 66 16. Trade and other payables 67 17. Other fi nancial liabilities 67 18. Provisions 67 19. Share capital and reserves 68 20. Share based payments 69 21. Interest in joint ventures 72 22. Investments in subsidiaries 73 23. Available for sale investments 73 24. Commitments 74 25. Related party transactions 75 26. Contingent assets and liabilities 76 27. Events after the balance sheet date 76 Directors’ declaration 77 Independent auditor’s report 78
30 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Directors’ Report Your Directors present their report on the Consolidated Entity consisting of Albidon Limited and the entities it controlled at the end of, or during, the year ended 31 December 2007.
Directors Mr. John Shaw More recently Mr. Rogers was a Non-Executive Deputy Chairman member of the Reliance Mining team The names and details of the BSc (Geological Engineering), FAusIMM, that successfully developed the Beta- Company’s directors in offi ce during the MCIM, FAICD, MAIME (Age: 68) Hunt nickel project, culminating in the fi nancial year and until the date of this – Appointed 28 February 2008 takeover of Reliance by Consolidated report are as follows. Directors were John Shaw has over 40 years Minerals, completed a due diligence and in offi ce for this entire period unless experience in exploration, development provided advice to Avoca Resources for otherwise stated. and operations of open cut and their purchase of the Higginsville Project underground mines. He previously in Western Australia and completed the Mr. Richard (Dick) Potts was Vice President of the Australian scoping study for Albidon on the Munali Non-Executive Chairman operations of Placer Dome Asia Pacifi c Nickel Project. ARSM, Bsc Mining Engineering, FIMM, Limited and Managing Director of FAusIMM, CEng (Age: 63) Kidston Gold Mines. His responsibilities Mr. Alasdair Cooke Mr. Potts has 42 years experience included operations at Kidston, Big Bell, Executive Director in the minerals industry and has Granny Smith, Osborne and Misima. BSc (Hons) University of Western Australia worked in Zambia, South Africa, (Age: 43) Mr. Shaw is a former Chairman of Oman, UK and Australia. He is a Mr. Cooke is a founding director and Gallery Gold Limited, Lodestone mining engineer by profession and shareholder of the company. He is a Exploration Limited, Tri Origin Minerals has had broad experience across the qualifi ed geologist with 20 years of Limited and Zimbabwe Platinum Mines minerals spectrum from exploration to experience in the resources industry Limited, and was involved with the fi nished product. He has held senior throughout Australia and internationally development of the Mupane Gold management or consulting positions including eight years spent with BHP Mine in NE Botswana. Mr. Shaw is with a number of mining companies Minerals Business Development Group a non-executive Director of IAMgold including Rio Tinto, Pasminco and and over ten years managing public Corporation and Discovery Metals Ltd. Mount Isa Mines. He is currently a resource companies. non-executive Director of Copper Strike Mr. Dale Rogers Limited, Mintails Limited, Indophil NL Mr. Cooke is a founding partner of Managing Director and Riversdale Mining Limited. the Mitchell River Group, which over B.Eng. (Hons) Mining (Age: 44) the past eight years has established Mr. Potts’ experience includes overall Mr. Rogers is a mining engineer a number of successful resource management responsibility for a by profession with over 20 years companies, including ASX listed Sally large integrated base metal mine- experience in both underground and Malay Mining Ltd. (operating the Sally concentrator-smelter facility and open pit mining, processing and Malay and Lanfranchi nickel projects in extensive involvement in due diligences, smelting operations. Mr. Rogers has a Australia), ASX listed Mirabela Nickel operational reviews, technical reviews broad range of experience in the base Ltd. (developing the Santa Rita Nickel and feasibility studies. He has also metals, gold and diamond industries. Project in Brazil) and ASX listed African worked in the area of business Energy Resources Ltd. (developing development with responsibility for His experience has included uranium projects in Africa). Mr. Cooke is strategic and business planning, mine management roles at WMC Resources’ a former director of Sally Malay Mining to market optimisation, logistics and (now BHP Billiton’s) operations in Ltd. and is also currently an executive major project management. Kambalda, Kalgoorlie, Mt. Keith and director for African Energy Resources their Kalgoorlie smelter in Western Mr. Potts spent the formative part of Ltd., Energy Ventures Ltd., Exco Australia. Subsequent to this Mr. his life in Zambia and South Africa Resources Ltd. and Oval Biofuels Ltd. Rogers was responsible for the and has a good understanding of the management of several gold mining requirements to bring projects into operations. In 2002 he formed his operation in southern Africa. own consulting group to provide advice on mining operations, management services, feasibility studies, due diligence and acquisitions.
31 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Directors’ Report (continued)
Mr. Paul Chapman In 1982 he formed his own consultancy Mr. Michael Brook Executive Director Mineral Commerce Services Pty Ltd. Non-Executive Director BComm, ACA, Grad. Dip. Tax, CFTP(Snr), (MCS). MCS advises on the marketing BSc (Hons) Uni. of Wales (Mining Geology) MAICD, SA Fin (Age: 49) and logistic aspects of projects MAusIMM, MIMM, Chartered Eng. (UK) (Age: 49) – Appointed 18 April 2007 involving base metals (including nickel, – Resigned 24 May 2007 Mr. Chapman is a chartered accountant copper, zinc and cobalt), phosphate Mr. Brook is a geologist who has with over 20 years resource industry rock, fertilizers, iron, chrome and worked in Australia, North America experience gained in Australia and manganese ores. MCS manages and Africa. He was employed by Mt. the US. He has worked in a number of the shipment of nickel concentrates Isa Mines Limited (MIM) (now Xstrata) commodity businesses including gold, for several companies and Mr. De from 1982 to 1992 including the nickel, manganese, bauxite/alumina Guingand has extensive knowledge of position of Chief Geologist at MIM’s and oil/gas. nickel processes and refi ned nickel copper mining operations and he also products. Mr. De Guingand is currently worked as part of a project team on Mr. Chapman has held executive roles non-executive chairman of Sally Malay the Ernest Henry deposit. After Mount in public companies of various sizes. He Mining Limited. Isa, Mr. Brook worked for 9 years as is non-executive chairman of ASX listed a resources analyst with institutional uranium explorer Encounter Resources Mr. Valentine Chitalu broking fi rm JB Were & Son, specialising Ltd., gold and copper explorer Rex Non-Executive Director in the research of emerging resource Minerals Ltd. and gold producer Silver MPhil, BAcc, FCCA (Age: 43) companies. Lake Resources Ltd. His main focus – Appointed 18 April 2007 will be on commercial management and In 2001 Mr. Brook joined AFL Mr. Chitalu is a Zambian with a 20-year business development. Management and is now an executive career in the fi elds of private equity, director of AFL Management Limited, privatisation, merchant banking, Mr. Christopher John the company that supplies investment corporate fi nance, accounting, auditing, Gilbert De Guingand advice and management services to development economics, capital Non-Executive Director AFL, Albidon’s largest shareholder. markets and business development FCPA. Principal, Mineral Commerce Services Pty Ltd. (Age: 75) in transitional economies. He has Mr. Brook resigned as a Director of the previously held positions with CDC Company on 24 May 2007. Mr. De Guingand has had a long Capital Partners London and Zambia career in the mining industry, having offi ces, Zambia Privatisation Agency and been involved in fi nancial or marketing KPMG Peat Marwick, London offi ce. roles as an executive, trader, director or consultant. He has held senior Mr. Chitalu has a signifi cant interest management positions in fi nance and in private sector development in Africa marketing of non-ferrous metals and and is extensively networked in East iron ore for CRA and Metals Exploration and Southern Africa. He is currently a Limited (now QNI) for over 20 years. non-executive director of African Energy Resources Ltd. and has been Chairman of Albidon’s wholly owned subsidiary Albidon Zambia Limited since 2005.
32 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Mr. Craig Burton Dr. Donal Windrim Non-Executive Director Executive Director Bjuris, LLB University of Western Australia MICD BSc (Hons) Trinity College Dublin, PhD Australian (Age: 44) - Resigned 15 May 2007 National University (Age: 50) – Resigned 31 October 2007 Mr. Burton has extensive business experience in venture capital. He has Dr. Windrim has 25 years’ experience a track record of providing fi nancial and in the international mineral exploration corporate backing to start up projects and mining industry, principally in and technical teams, with a particular Australia and Africa. He has conducted interest in the resources and energy exploration for a range of base metals, sectors. principally nickel, in North and South America, Europe, India, Africa and Over the last 16 years Mr. Burton Australia. He has previously held has been a co-founder, substantial technical or management positions shareholder and director of sixteen with Elf Aquitaine and BHP Minerals public listings of new projects. The International (now BHP Billiton Limited). projects include the nickel, copper- Dr Windrim was until recently a director gold, oil and gas, mining services, of African Energy Resources Ltd. agribusiness and renewable energy sectors. The public listings include the Dr. Windrim’s efforts in the past Australian Stock Exchange, London AIM eight years have been directed at market and the Toronto Stock Exchange. generating and developing mineral exploration projects based on his Mr. Burton is a principal of Verona extensive knowledge of the geology and Capital, a private venture capital group. prospectivity of the regions of Africa He is currently a director of Mirabela targeted by Albidon. This work combined Nickel Limited, Wildhorse Energy with the Company’s exploration Limited, Exco Resources Ltd, Capital database formed the basis of the Drilling Limited, Rewards Group Limited, Company’s current projects. Matra Petroleum plc and Livingstone Petroleum Ltd. He is a member of Dr. Windrim resigned as a Director the Australian Institute of Company of the Company on 31 October 2007 Directors. however he continues to be involved with Albidon as a consultant, providing Mr. Burton resigned as a Director of the advice on exploration strategy and Company on 15 May 2007. business development.
33 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Director and Committee Meetings
The number of Directors’ meetings and number of meetings attended by each of the Directors of the Company during the fi nancial year are:
Director A B Mr. Richard Potts 9 9 Mr. Dale Rogers 9 9 Mr. Craig Burton 1 2 Mr. Alasdair Cooke 9 9 Dr. Donal Windrim 6 6 Mr. Christopher De Guingand 8 9 Mr. Paul Chapman 7 7 Mr. Valentine Chitalu 6 7 Mr. Michael Brook 1 2
A Number of meetings attended B Number of meetings held during that time the Director held offi ce during the year
The number of Audit Committee meetings and number of meetings attended by its members during the fi nancial year are: Member A B Mr. Christopher De Guingand 3 3 Mr. Craig Burton 1 1 Mr. Valentine Chitalu 1 1 Mr. Nicholas Day 3 3
A Number of meetings attended B Number of meeting held during that time the Director held offi ce during the year
The number of Remuneration Committee meetings and number of meetings attended by its members during the fi nancial year are: Member A B Mr. Craig Burton 3 3 Mr. Christopher De Guingand 3 3 Mr. Michael Brook 3 3 Mr. Richard Potts 3 3 Mr. Nicholas Day 6 6
A Number of meetings attended B Number of meetings held during that time the Director held offi ce during the year
34 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Review and Results of Operations
Principal Activities In May 2007 the European Investment This funding from Jinchuan, ZCCM-IH Bank and Barclays Capital formally and Barclays fulfi lled the remaining The principal activity of the Consolidated approved a senior debt fi nance funding required for development of Entity during the period was the facility of up to US$60 million for the the Munali Nickel Project in Zambia exploration, evaluation and development Munali Project. and ensures, going forward, Albidon of mineral interests. retains suffi cient funds for exploration, In August 2007 the Company increased drilling programmes and The operating loss after income tax for announced the appointment of Mr. Eben business development activities. the twelve months ended 31 December Swanepoel as Chief Executive Offi cer of 2007 was US$2,205,075 Albidon Zambia Limited reporting to the In December 2007 the Company (2006 US$2,667,634). Managing Director of Albidon Limited. announced an initial Inferred Resource Mr. Swanepoel will be responsible for estimate of 1.2Mt @ 0.9% Ni and 1.1g/t Group Highlights building the Munali implementation of platinum group metals (“PGM”) had (i) Munali Nickel Project team and delivering the project on been completed for the Voyager deposit schedule and on budget. at Munali. The Voyager deposit contains In February 2007 a power supply 11,500 tonnes of Ni and 43,800 agreement was signed between Albidon In October 2007 the Company ounces of PGM. The total Indicated and and ZESCO Limited (the Zambian state announced the engagement of Byrnecut Inferred Resource for the Munali Project energy company) to cover the total Mining International Limited as the has now been increased to 10.3Mt @ power requirements of the Munali mining contractor for the Munali 1.2% Ni and 0.9g/t for 123,500 tonnes Project for a ten-year period. Nickel Project. Byrnecut will expedite of Ni and 286,800 ounces of PGM. underground mine development at In April 2007, the Company entered into Munali to reach initial production in In January 2008 the Company forward contracts for 9,020 tonnes of mid 2008. announced that the main ore zone nickel over the period from June 2009 at the Munali Nickel Project had to December 2013. The level of hedging In November 2007 the Company been intercepted in the underground represents approximately 15% of the announced that following a detailed development, two months ahead of Munali Project’s expected payable nickel review of the Munali project, costs schedule. Following a review of the from production. through to positive cash fl ow were construction schedule for the Munali expected to increase by approximately The formal ground-breaking ceremony to concentrator the forecast date for fi rst 24% to US$124m. launch the Munali Project was held on ore into the mill was brought forward 3 April 2007, at which His Excellency In December 2007 the Company to mid-April 2008. the President of Zambia, Levy Patrick completed a placement with Jinchuan Mwanawasa SC, was guest of honour. Group Limited (“Jinchuan”) and ZCCM (ii) Exploration Projects Investments Holdings plc (“ZCCM-IH”) In September 2007 the board of In April 2007 fi nancing agreements were to raise US$25 million at a price of joint venture partner African Energy signed with the Jinchuan Group Limited US$2.95 (AU$3.35/£1.45) per share. Resources Ltd. approved a of China to provide US$20 million in The Company also secured a further Pre-feasibility study to evaluate the subordinated debt funding for the US$20 million in fi nancing from Barclays commercial development of uranium Munali Project and 4,190,992 new Capital (“Barclays”) on the same terms mineralisation at the Njame deposit and ordinary shares were issued to as the initial tranche of senior debt Gwabe prospect in the Chirundu project, Jinchuan at AU$1.55 per share to funding. 400,000 unlisted options Zambia. Albidon currently owns a 70% raise US$5 million. exercisable at AU$2.81 expiring on or interest in the Chirundu project. before 1 February 2011 were allocated In December 2007 the Company to Barclays in part consideration for the announced initial assay results from fi nancing arrangements. RC drilling at the Chisebuka Uranium Project had confi rmed the presence of signifi cant grades and thicknesses of near-surface uranium mineralisation.
35 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Review and Results of Operations (continued)
In December 2007 an initial resource On 23 April 2007, 350,000 unlisted On 13 July 2007, 200,000 unlisted estimate by joint venture partner African options (exercisable at AU$2.60 on or options exercisable at AU$2.80 Energy Resources Ltd. was completed before 20 May 2010) were allocated to expiring on or before 12 July 2010 for the Gwabe uranium deposit in the key personnel on the Munali Project in were allocated to key personnel. Chirundu joint venture project. Inferred Zambia. On 26 July 2007, 300,000 unlisted Resource of 4.2 million tonnes at In May 2007, 698,000 unlisted options options exercisable at AU$2.97 267ppm U O (– 100 ppm U O cut-off) 3 8 3 8 were exercised at AU$0.60 each expiring on or before 27 July 2010 for 1,120 tonnes of U O (2.5 Mlb 3 8 for total proceeds of AU$418,800 were allocated to key personnel. U O ). 3 8 (US$341,000). On 3 August 2007 the Company The Njame Deposit contains an In May 2007, 50,000 unlisted options announced that it had satisfi ed all additional 8.8 Mt @ 340ppm U O for 3 8 (exercisable at AU$1.05 on or before material conditions precedent required 3,000 tonnes of U O (6.6 Mlb (U O ), 3 8 3 8 30 June 2009) lapsed due to the for initial drawdown by Senior Lenders bringing the project total to 4,120t termination of an employee contract under the facility agreement and (9.1 Mlb) of U O . The Pre-Feasibility 3 8 in accordance with the terms and that fi rst drawdown on the Jinchuan Study for the Chirundu uranium project conditions of the unlisted options given subordinated loan had taken place. was due for completion at the end of to employees. the fi rst quarter 2008. On 22 August 2007, 600,000 unlisted On 15 May 2007 Mr. Craig Burton options exercisable at AU$2.23 expiring An the Songea nickel project in Tanzania resigned as a Director of the Company. on or before 1 September 2010 were a number of high priority targets were allocated to key personnel. defi ned by coincident geophysical and On 24 May 2007 Mr. Michael Brook geochemical anomalies within highly resigned as a Director of the Company. On 31 October 2007 Dr. Donal Windrim prospective geology. Joint venture resigned as a Director of the Company. On 29 May 2007, Messrs Chapman and partner BHP Billiton is currently sole- He continues to be involved with the Chitalu were allocated 200,000 unlisted funding the exploration programme Company as a consultant, providing options each (exercisable at AU$2.60 and plans to commence drilling in the advice on exploration strategy and new on or before 20 May 2010). second quarter of 2008. business development. On 29 May 2007, 150,000 unlisted In Tunisia, drilling at Khatkhadha in the On 30 November 2007, options (exercisable at AU$1.70 on historic Bou Aouane zinc mining area or before 1 December 2009) were • 295,000 unlisted options exercisable intersected a best result of 8.1m @ allocated to key personnel. at AU$3.22 expiring on or before 11.7% Zn. Additional drilling is planned 1 November 2009 were allocated for 2008. On 29 May 2007, 1,200,000 unlisted to key personnel. options (exercisable at AU$2.10 on (iii) Corporate Activities or before 27 February 2010) were • 350,000 unlisted options exercisable In February 2007, 250,000 unlisted allocated to Mr. Dale Rogers. at AU$2.88 expiring on or before options were exercised at AU$0.60 31 December 2010 were allocated In June 2007, 1,250,000 unlisted each for total proceeds of AU$150,000 to key personnel. options were exercised at AU$0.60 (US$118,000). each for total proceeds of AU$750,000 • 100,000 unlisted options exercisable In April 2007, 600,000 unlisted (US$628,000). at AU$2.97 expiring on or before options were exercised at AU$0.60 31 December 2010 were allocated On 21 June 2007, Mr. Dale Rogers each for total proceeds of AU$360,000 to key personnel. was issued with 400,000 shares at a (US$296,000). purchase price of AU$0.75 each. • 400,000 unlisted options exercisable On 18 April 2007 Mr. Valentine Chitalu at AU$3.22 expiring on or before On 13 July 2007, 250,000 unlisted was appointed as Non-Executive 1 December 2011 were allocated options exercisable at AU$3.14 expiring Director, and Mr. Paul Chapman as to key personnel. on or before 27 July 2010 and 50,000 Executive Director to the board of unlisted options exercisable at AU$2.60 The Company advised that, subject Albidon Limited. expiring on or before 20 May 2010 were to Shareholder approval, Mr. Dale allocated to key personnel. Rogers, Managing Director, would be allocated 500,000 unlisted options exercisable at AU$3.22 expiring on or before 1 December 2011.
36 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
On 21 December 2007, 400,000 (iv) Signifi cant events after the unlisted options exercisable at AU$2.81 balance date expiring on or before 1 February 2011 In January 2008, as part of the funding were allocated to Barclays Capital. arrangements negotiated in December In December 2007, 2007, the Company received a second instalment of US$5 million from ZCCM • 258,900 unlisted options were Investments Holdings plc (“ZCCM-IH”) exercised at AU$0.60 each for to complete the transaction whereby total proceeds of AU$155,300 the Company issued 3,389,831 shares (US$135,900). at AU$3.35/US$2.95 cents each to • 250,000 unlisted options were ZCCM-IH to raise US$10 million. exercised at AU$0.75 each for In February 2008 the Company total proceeds of AU$187,500 completed the fi nal issue of 5,084,746 (US$164,700). shares at AU$3.35/US$2.95 cents • 50,000 unlisted options (exercisable each to the Jinchuan Group to raise at AU$2.60 on or before 20 US$15 million. May 2010) lapsed due to the In February 2008, as part of the funding termination of an employee contract arrangements negotiated in December in accordance with the terms and 2007, the Company forward hedged conditions of the unlisted options 2,274 tonnes of nickel in addition to given to employees. its original 9,020 tonnes hedged in • 50,000 unlisted options (exercisable April 2007. Total nickel now hedged at AU$1.05 on or before 30 June is 11,294 tonnes which represents 2009) lapsed due to the termination approximately 25% of the nickel in of contract in accordance with the concentrate expected to be produced terms and conditions of the unlisted from the Munali Nickel Project over the options given to contractors. hedging period. On 25 February 2008, 100,000 unlisted options exercisable at AU$3.25 expiring on or before 1 February 2011 were allocated to key personnel. On 17 March 2008, the Company advised that subject to Shareholder approval, Mr. John Shaw, Deputy Chairman, would be allocated 300,000 unlisted options exercisable at AU$3.47 expiring on or before 30 June 2011.
37 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Remuneration Report The remuneration report outlines the remuneration arrangements which were in place during the year, and remain in place as at the date of this report.
Remuneration Policy (i) Executive Directors (ii) Non-Executive Directors The remuneration of Albidon Limited’s Albidon Limited’s Non-Executive Albidon Limited aims to ensure that the Executive Directors comprises some Directors are remunerated with a cash level and composition of remuneration or all of the following elements: fi xed fee. There is currently no scheme to of its Directors and Executives is salary; short term incentive bonus provide performance based bonuses suffi cient and reasonable for the sector based on performance; long term or retirement benefi ts to Non-Executive in which the Company operates. Albidon incentive share and/or option scheme; Directors. Non-Executive Directors Limited has adopted a remuneration and other benefi ts including employment typically do not participate in equity policy to attract and retain talented and insurances and superannuation or option schemes of the Company, motivated personnel in order to achieve contributions. In relation to the payment however given Albidon Limited’s enhanced performance of the Company. of bonuses, share options and other size, focused nature of business and A Remuneration Committee has incentive amounts, discretion is shareholding structure, issues been implemented to report all exercised by the Board having regard of share options to Non-Executive proposed arrangements to the Board. to the overall performance of the Directors have previously been, and The Board is responsible for determining Company and of the relevant individual may in the future be, approved by and reviewing compensation during the period. shareholders to enhance overall arrangements for the Directors shareholder wealth creation. and the Executive team.
The details of Directors’ remuneration for the year are as follows: US$ Directors Cash Super- Directors Shares Options Total Salary annuation Fees Non-Executive Chairman Mr. Richard Potts - - 65,250 - - 65,250 Non-Executive Mr. Michael Brook - - 10,004 - - 10,004 Mr. Christopher De Guingand - - 43,918 - - 43,918 Mr. Craig Burton - - 12,548 - - 12,548 Mr. Valentine Chitalu - - 37,644 - 107,481 145,125 Executive Mr. Dale Rogers 286,933 16,789 - 799,717 792,965 1,896,404 Dr. Donal Windrim 221,962 19,977 - - - 241,939 Mr. Alasdair Cooke 52,597 4,734 35,553 - - 92,884 Mr. Paul Chapman 89,355 9,189 23,005 - 86,186 207,735
Options At the date of this report, the number of options over un-issued ordinary shares of the Company, held by each Director of the Company is as follows: Director Options Exercise Price (AU$) Expiry Date Mr. Dale Rogers 1,200,000 0.75 1 December 2008 1,200,000 2.10 27 February 2010 Mr. Valentine Chitalu 100,000 1.05 30 June 2009 200,000 2.60 20 May 2010 Mr. Paul Chapman 200,000 2.60 20 May 2010
38 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Directors’ Interests
The relevant interest of each Director in the share capital, as notifi ed by the Directors to the Australian Stock Exchange and AIM market of the London Stock Exchange, at the date of this report is as follows: Director Ordinary Shares Mr. Richard Potts 530,000 Mr. Dale Rogers 350,000 Mr. Alasdair Cooke 5,000,000 Mr. Christopher De Guingand 400,000 Mr. Paul Chapman - Mr. Valentine Chitalu - Mr. John Shaw - (i) Alasdair Cooke directly and through director related entities, owned 5,000,000 shares. (ii) Richard Potts directly and through a superannuation fund owned 530,000 shares. (iii) Christopher De Guingand directly and through director related entities, owned 400,000 shares. (iv) Dale Rogers directly owned 350,000 shares.
Likely Developments and Expected Results The Company will pursue activities consistent with its corporate objective and those of its joint venture partners. Further information about likely developments in the operations of the Company and the expected results of those operations in the future fi nancial years has not been included in this report because disclosure would be likely to result in unreasonable prejudice to the Company. Environmental Regulation and Performance The Group holds licences issued by the relevant environmental protection authorities of the various countries in which the Group operates. There have been no signifi cant known breaches of the Consolidated Entity’s licence conditions. Share Options
Unissued Shares As at the date of this report, there were 7,301,100 unissued ordinary shares under options (7,003,100 at the reporting date). Option holders do not have any right, by virtue of the option, to participate in any share issue of the Company or any related body corporate.
Shares issued as a result of the exercise of options During the fi nancial year, option holders have exercised options to acquire 3,306,900 fully paid ordinary shares in Albidon Limited at a weighted average exercise price of AU$0.61 per share. Indemnifi cation and Insurance of Directors and Offi cers The Company has paid a premium and other charges for a Directors and Offi cers Liability policy for the benefi t of the Directors, Secretary and Executive Offi cers of the Company. The policy prohibits the disclosure of the nature of liability insured and the amount of premium paid.
39 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Auditor’s Independence Declaration The directors have received the following declaration from the auditor of Albidon Limited.
Auditor’s Independence Declaration to the Directors of Albidon Limited In relation to our audit of the fi nancial report of Albidon Limited for the year ended 31 December 2007, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements or any applicable code of professional conduct.
Ernst & Young
V W Tidy Partner, Perth, 31 March 2008
40 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Capital Structure as at 31 March 2008
Shares Total Shares 164,642,469
Share Options
Unlisted options (expiring 30 Jun 2008 AU$0.75) 150,000 Unlisted options (expiring 30 Jun 2008 AU$0.60) 56,100 Unlisted options (expiring 1 Dec 2008 AU$0.75) 1,200,000 Unlisted options (expiring 30 Jun 2009 AU$1.05) 500,000 Unlisted options (expiring 20 May 2010 AU$2.60) 350,000 Unlisted options (expiring 27 Feb 2010 AU$2.10) 1,200,000 Unlisted options (expiring 1 Dec 2009 AU$1.70) 150,000 Unlisted options (expiring 20 May 2010 AU$2.60) 400,000 Unlisted options (expiring 27 Jul 2010 AU$3.14) 250,000 Unlisted options (expiring 12 Jul 2010 AU$2.80) 200,000 Unlisted options (expiring 27 Jul 2010 AU$2.97) 300,000 Unlisted options (expiring 1 Sep 2010 AU$2.23) 600,000 Unlisted options (expiring 1 Nov 2009 AU$3.22) 295,000 Unlisted options (expiring 1 Dec 2011 AU$3.22) 400,000 Unlisted options (expiring 31 Dec 2010 AU$2.88) 350,000 Unlisted options (expiring 31 Dec 2010 AU$2.97) 100,000 Unlisted options (expiring 1 Feb 2011 AU$2.81) 400,000 Unlisted options (expiring 1 Feb 2011 AU$3.25) 100,000 Total Options 7,0 01,100
This report is made in accordance with a resolution of the Directors.
Dale Rogers Managing Director Perth 31 March 2008
41 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Consolidated income statement
2007 2006 Notes US$ US$ Continuing Operations Revenue 6(a) 1,326,638 732,557 Other income 6(b) 2,886,159 1,187,845 Staff costs 6(c) (4,946,944) (1,573,431) Depreciation and amortisation (110,362) (38,940) Exploration & evaluation expenditure (395,942) (1,588,001) Other expenses 6(d) (964,624) (1,387,664) Loss before income tax (2,205,075) (2,667,634) Income tax expense 7(a) - - Loss for the year (2,205,075) (2,667,634)
Loss attributable to equity holders of the parent (2,205,075) (2,667,634)
Loss per share (expressed in US cents per share) - basic 8 (1.44) (2.46) - diluted 8 (1.44) (2.46)
The accompanying notes form part of the Financial Report.
42 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Consolidated balance sheet
2007 2006 Notes US$ US$ Assets Current assets Trade and other receivables 9 4,175,383 826,626 Inventories 10 106,912 - Other fi nancial assets 11 254,415 401,758 Prepayments 12 698,257 129,384 Cash and cash equivalents 13 16,365,129 38,276,017 Total current assets 21,600,096 39,633,785 Non-current assets Plant and equipment 14 51,206,397 266,734 Mine properties & development 15 51,510,067 20,841,917 Deferred tax asset 7(d) 3,790,608 - Total non–current assets 106,507,072 21,108,651 Total assets 128,107,168 60,742,436 Liabilities Current liabilities Trade and other payables 16 18,321,041 1,579,575 Other fi nancial liabilities 17 76,749 - Provisions 18(a) 366,592 97,461 Total current liabilities 18,764,382 1,677,036 Non-current liabilities Interest bearing loans and borrowings 3(e) 33,733,809 - Financial derivative liabilities 3(f) 15,162,431 - Provisions 18(b) 445,598 - Total non-current liabilities 49,341,838 - Total liabilities 68,106,220 1,677,036
Net assets 60,000,948 59,065,400
Equity Capital and reserves attributable to the Company’s equity holders Issued capital 19 1,560,659 1,481,680 Share premium reserve 19 75,450,585 67,793,071 Capital raising costs 19 (3,275,182) (3,234,599) Share capital 73,736,062 66,040,152 Share capital to be issued 27(i) 5,000,000 - Option premium reserve 20 2,828,746 1,017,471 Hedging reserve 3(f) (11,366,562) - Accumulated loss (10,197,298) (7,992,223) Total shareholders’ equity 60,000,948 59,065,400
The accompanying notes form part of the Financial Report.
43 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Consolidated cash fl ow statement
2007 2006 US$ US$ Cash fl ows from/(used in) operating activities Payment to suppliers (1,707,092) (3,319,433) Payment to employees (1,864,190) (726,963) Interest and other revenue received 1,592,425 736,580 Net cash fl ows used in operating activities (1,978,857) (3,309,816)
Cash fl ows from/(used in) investing activities Purchase of property, plant and equipment, and mine development (63,275,156) (203,269) Borrowing and transaction costs (3,554,040) - Payment to suppliers (exploration) (4,293,728) (11,782,959) Repayments from other entities 404,282 419,600 Net cash fl ows used in investing activities (70,718,642) (11,566,628)
Cash fl ows from/(used in) fi nancing activities Proceeds from issue of ordinary shares 11,936,775 45,837,797 Share issue transaction costs (40,582) (1,603,963) Proceeds from loans 36,000,000 - Net cash fl ows from fi nancing activities 47,896,193 44,233,834 Net (decrease)/increase in cash and cash equivalents (24,801,306) 29,357,390
Effects of exchange rate changes 2,890,418 1,183,822 Cash and equivalents at beginning of the period 38,276,017 7,734,805 Cash and equivalents at end of the period 16,365,129 38,276,017
44 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Consolidated statement of changes in shareholders’ equity
For the year ended 31 December 2007 Option Hedging Capital Issued Share Premium Derivative Raising Shares to Accumulated Capital Premium Reserve Reserve Costs be issued (Loss) Total US$ US$ US$ US$ US$ US$ US$ US$ At 1 January 2007 1,481,680 67,793,071 1,017,471 - (3,234,599) - (7,992,223) 59,065,400 Fair value of hedging adjustment net of tax - - - (11,366,562) - - - (11,366,562) Total income and expense for the period recognised in equity - - - (11,366,562) - - - (11,366,562) Net loss from ordinary activities ------(2,205,075) (2,205,075) Total income and expense for the year - - - (11,366,562) - - (2,205,075) (13,571,637) Shares issued 45,910 5,207,004 - - (30,331) - - 5,222,583 Shares to be issued - - - - - 5,000,000 - 5,000,000 Share based payments - 799,717 1,811,275 - - - - 2,610,992 Exercise of options 33,069 1,650,793 - - (10,252) - - 1,673,610 At 31 December 2007 1,560,659 75,450,585 2,828,746 (11,366,562) (3,275,182) 5,000,000 (10,197,298) 60,000,948
For the year ended 31 December 2006 Option Hedging Capital Issued Share Premium Derivative Raising Shares to Accumulated Capital Premium Reserve Reserve Costs be issued (Loss) Total US$ US$ US$ US$ US$ US$ US$ US$ At 1 January 2006 893,680 22,543,274 455,882 - (1,630,637) - (5,324,589) 16,937,610 Fair value of hedging adjustment net of tax ------Total income and expense for the period recognised in equity ------Net loss from ordinary activities ------(2,667,634) (2,667,634) Total income and expense for the year ------(2,667,634) (2,667,634) Shares issued 536,500 44,232,176 - - (1,603,962) - - 43,164,714 Share based payments - - 561,589 - - - - 561,589 Exercise of options 51,500 1,017,621 - - - - - 1,069,121 At 31 December 2006 1,481,680 67,793,071 1,017,471 - (3,234,599) - (7,992,223) 59,065,400
45 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Notes to the Financial Statements
1. General information year ended 31 December 2007, are using consistent accounting policies. not expected to result in signifi cant Adjustments are made to bring into line The consolidated fi nancial statements accounting policy changes. any dissimilar accounting policies that of Albidon Limited for the year ended may exist. All inter-company balances (i) Changes in accounting policies 31 December 2007 were authorised for and transactions, including unrealised issue in accordance with a resolution of The accounting policies adopted are profi ts arising from intra-group the Directors dated 31 March 2008. consistent with those of the previous transactions, have been eliminated fi nancial year, except for the adoption Albidon Limited (“the Company”) is a in full. of amending standards mandatory for Company incorporated in the British annual periods beginning on or after Subsidiaries are consolidated from the Virgin Islands, on 11 April 2000 1 January 2007. date on which control is transferred to whose shares are publicly traded. the Group and cease to be consolidated Its registered place of business is (ii) Adoption of new International from the date on which control is Level 1, 62 Colin Street, West Perth, Financial Reporting Standards transferred out of the Group. All Western Australia 6005. The Group has reviewed the following subsidiaries have been owned by the The principal activities of the Company new and revised standards in light of Group since their date of incorporation. and its subsidiaries (“the Group”) are the Group’s existing accounting policies: c) Foreign currency translation described in note 5. • IFRIC 7 Applying the Restatement Initial recognition of a foreign currency Approach under IAS 29 Financial The Group had two hundred and ninety transaction is recorded in the functional Reporting in Hyperinfl ationary three employees as at 31 December currency at the spot rate at the Economies 2007 (fi fteen employees as at 31 date of the transaction. Monetary December 2006). • IFRIC 8 Scope of IFRS2 assets and liabilities denominated in • IFRIC 9 Reassessment of foreign currencies are translated to 2. Summary of Embedded Derivatives the functional currency at the rate of signifi cant • IFRIC 10 Interim Financial Reporting exchange ruling at the balance sheet and Impairment date. All exchange differences are taken accounting policies to the income statement. Non-monetary No material differences arose between a) Basis of preparation items that are measured in terms of the above standards and the Group’s historical cost in a foreign currency are The consolidated fi nancial statements existing accounting policies. translated using the exchange rates as of Albidon Limited and all its at the date of the original transactions. subsidiaries contained in this report In addition the Group has adopted IFRS 7 Financial Instruments: have been prepared in accordance with d) Exploration and evaluation Disclosures which is effective for annual the International Financial Reporting expenditure Standards (“IFRS”) in effect as at reporting periods beginning on or after Exploration and evaluation costs, balance date. 1 January 2007, and the consequential amendments to IAS 1 Presentation of including the costs of acquiring The functional currency of the Company Financial Statements. licences, are capitalised as exploration and each of the subsidiaries is US and evaluation assets on an area of dollars. This represents the currency The adoption of these standards has interest basis. of the primary economic environment only affected method of disclosure in Exploration and evaluation assets are in which the Company and each of the the Financial Statements. There has only recognised if the rights of the area subsidiaries operates. been no effect on the income statement or the balance sheet of the Group. of interest are current and either: The consolidated fi nancial statements (i) the expenditures are expected to have been prepared on a historical b) Basis of consolidation be recouped through successful cost basis, except for available-for-sale The consolidated fi nancial statements development and exploitation or fi nancial assets and derivative fi nancial comprise the fi nancial statements of sale of the area of interest; or instruments which are measured at Albidon Limited and its subsidiaries fair value. for the year ended 31 December (ii) activities in the area of interest have not at the reporting date, Recently issued or amended 2007. The fi nancial statements of reached a stage which permits International Accounting Standards not subsidiaries are prepared for the same a reasonable assessment of yet effective and not adopted for the reporting period as the parent Company, the existence or otherwise 46 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
of economically recoverable g) Trade and other receivables j) Taxes reserves and active and signifi cant Trade receivables are recognised (i) Income tax operations in, or in relation to, the initially at fair value and subsequently Current tax assets and liabilities for the area of interest are continuing. measured at amortised cost using current and prior periods are measured Costs incurred before the Group has the effective interest method, less at the amount to be recovered from or obtained the legal rights to explore an allowance for impairment. paid to the taxation authorities. The tax an area are recognised in the income The ability to collect trade receivables rates and tax laws used to compute the statement. is reviewed on an ongoing basis at an amount are those that are enacted or substantively enacted by the balance All capitalised exploration and operating unit level. Individual debts sheet date. evaluation expenditure is monitored that are known to be uncollectible for indications of impairment on a are written off when identifi ed. An Deferred income tax is provided, using cash generating unit basis. The cash impairment provision is recognised the liability method, on all temporary generating unit shall not be larger than when there is objective evidence that differences at the balance sheet date the area of interest. If suffi cient data the Group will not be able to collect between the tax bases of assets and exists to determine technical feasibility the receivable. Financial diffi culties liabilities and their carrying amounts for and commercial viability, and facts and of the debtor or default payments fi nancial reporting purposes. circumstances suggest that the carrying are considered objective evidence Deferred income tax liabilities are amount exceeds the recoverable of impairment. The amount of the recognised for all taxable temporary amount, the capitalised expenditure impairment loss is the receivable differences except where: which is not expected to be recovered carrying amount compared to the is charged to the income statement. present value of estimated future • the deferred income tax liability arises cash fl ows, discounted at the original from goodwill recognised or the initial e) Mine properties and development effective interest rate. recognition of an asset or liability in Once the technical feasibility and a transaction that is not a business h) Trade and other payables commercial viability of the extraction of combination and, at the time of mineral resources in an area of interest Liabilities for trade creditors and other the transaction, affects neither the are demonstrable, exploration and payables are carried at cost, which is accounting profi t nor taxable profi t evaluation assets attributable to that the fair value of the consideration to or loss; and area of interest are fi rst tested be paid in the future for goods and • in respect of taxable temporary for impairment and then reclassifi ed services received, whether or not billed differences associated with from exploration and evaluation to the Group. investments in subsidiaries, expenditure to mine property and i) Revenue associates and interests in joint development assets. Revenue is recognised to the extent that ventures, the timing of the reversal The carrying amounts of mine properties it is probable that the economic benefi ts of the temporary difference can be and development are depreciated, will fl ow to the Group and the revenue controlled and it is probable that the following the commencement of can be reliably measured. The following temporary difference will not reverse production, to their estimated residual specifi c recognition criteria must also be in the foreseeable future. value over the estimated useful lives of met before revenue is recognised: Deferred income tax assets are the specifi c assets concerned, or the recognised for all deductible temporary estimated life of the associated mine Interest differences, carry-forward of unused tax or mineral lease, if shorter. Revenue is recognised as the interest assets and unused tax losses, to the accrues (using the effective interest extent that it is probable that taxable f) Cash and cash equivalents rate method, that is the rate that profi t will be available against which For the purposes of the consolidated directly discounts estimated future cash the deductible temporary differences, cash fl ow statement, cash and cash receipts through the expected life of carry-forward of unused tax assets and equivalents consist of cash at bank the fi nancial asset) to the net carrying unused tax losses can be recognised and in hand and short-term deposits amount of the fi nancial asset. except where: with an original maturity of three months or less, net of outstanding • the deferred income tax asset relating bank overdrafts. to the deductible temporary difference arises from the initial recognition of
47 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Notes to the Financial Statements (continued)
an asset or liability on a transaction (ii) Goods and Services Tax and m) Other fi nancial assets that is not a business combination Value Added Tax The Group classifi es its fi nancial assets and, at the time of the transaction, Revenues, expenses and assets are in the following categories: loans and affects neither the accounting profi t recognised net of the amount of goods receivables, and available for sale. The nor taxable profi t or loss; and and services tax (GST) and value added classifi cation depends on the purpose • in respect of deductible temporary tax (VAT), except where the amount of for which the fi nancial assets were differences associated with GST/VAT incurred is not recoverable acquired. Management determines the investments in subsidiaries, from the relevant tax authority. In classifi cation of its fi nancial assets at associates and interests in joint these circumstances the GST/VAT is initial recognition. recognised as a part of the cost of ventures, deferred income tax (i) Loans and receivables assets are only recognised to the acquisition of the asset or as part of an Loans and receivables are non extent that it is probable that the item of the expense. derivative fi nancial assets with fi xed temporary differences will reverse in Receivables and payables are stated or determinable payments that are not the foreseeable future and taxable with the amount of GST/VAT included. quoted in an active market. They arise profi t will be available against which The net amount of GST/VAT recoverable when the Group provides money, goods the temporary difference can be from, or payable to, the taxation or services directly to a debtor with no recognised authority is included as a current asset intention of selling the receivable. Such The carrying amount of deferred income or liability in the balance sheet. assets are carried at the amortised cost tax assets is reviewed at each balance using the effective interest method. k) Interest in joint ventures sheet date and reduced to the extent Gains and losses are recognised in that it is no longer probable that The Group’s interest in its joint ventures the income statement when the loans suffi cient taxable profi t will be available is accounted for by proportionate and receivables are de-recognised or to allow all or part of the deferred consolidation, which involves impaired. They are included in current income tax asset to be recognised. recognising a proportionate share of the assets, except for those with maturities joint ventures’ assets, liabilities, income greater than 12 months after the Unrecognised deferred income tax and expenses with similar items in the balance sheet date which are classifi ed assets are reassessed at each balance consolidated fi nancial statements on a as non-current assets. Loans and sheet date and are recognised to the line-by-line basis. receivables are included in receivables extent that it has become probable in the balance sheet. that future taxable profi t will allow the l) Impairment of assets deferred tax asset to be recovered. Assets that have an indefi nite useful (ii) Available-for-sale fi nancial assets Deferred income tax assets and life are not subject to amortisation and Available-for-sale fi nancial assets, liabilities are measured at the tax rates are tested annually for impairment. comprising principally marketable equity that apply to the period when the asset Assets that are subject to amortisation securities, are non-derivatives that are is recognised or the liability is settled, are reviewed for impairment whenever either designated in this category or not based on tax rates (and tax laws) that events or changes in circumstances classifi ed in any of the other categories. have been enacted or substantively indicate that the carrying amount may They are included in non-current assets enacted at the balance sheet date. not be recoverable. An impairment loss unless management intends to dispose is recognised for the amount by which of the investment within 12 months of Income tax relating to items recognised the asset’s carrying amount exceeds its the balance sheet date. directly in equity is recognised in equity recoverable amount. The recoverable Regular purchases and sales of and not in the income statement. amount is the higher of an asset’s fair fi nancial assets are recognised on value less costs to sell and value in Deferred tax assets and deferred the trade-date – the date on which use. For the purposes of assessing tax liabilities are offset, if a legally the Group commits to purchase or impairment, assets are grouped at enforceable right exists to set off sell the asset. Investments are the lowest levels for which there are current tax assets against current tax initially recognised at fair value plus separately identifi able cash fl ows liabilities and the deferred taxes relate transaction costs. Financial assets are (cash generating units). to the same taxable entity and the same derecognised when the rights to receive taxation authority. cash fl ows from the investments have expired or have been transferred and the Group has transferred substantially
48 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
all risks and rewards of ownership. o) Borrowing costs maturity or until the hedge is closed Available-for-sale fi nancial assets are Borrowing costs incurred for the out. A minimum of 30 data points is subsequently carried at fair value construction of any qualifying asset used for regression analysis and if the with gains or losses recognised as a are capitalised during the period of testing falls within the 80:125 range, separate component of equity until the time that is required to complete and the hedge is considered highly effective investment is derecognised or until the prepare the asset for its intended use and continues to be designated as a investment is determined to be impaired or sale. Other borrowing costs are cash fl ow hedge. at which time the cumulative gains or expensed. The capitalisation rate used Hedges that meet the strict criteria for losses previously reported in equity are to determine the amount of borrowing hedge accounting are accounted for as recognised in the income statement. costs to be capitalised is the weighted follows: average interest rate applicable to the n) Borrowings entity’s outstanding borrowings during Cash fl ow hedges are hedges of the Borrowings are initially recognised at fair the year. Group’s exposure to variability in cash value, net of transaction costs incurred. fl ows that is attributable to a particular Borrowings are subsequently measured p) Derivative fi nancial instruments risk associated with a recognised asset at amortised cost. Any difference and hedging or liability or a highly probable forecast between the proceeds (net The Group uses derivative fi nancial transaction and that could affect profi t of transaction costs) and the instruments to provide an economic or loss. The effective portion of the gain redemption amount is recognised in the hedge of exposures to nickel prices. or loss on the hedging instrument is income statement over the period of the Such derivative fi nancial instruments recognised directly in equity, while the borrowings using the effective interest are initially recognised at fair value on ineffective portion is recognised in the method. Fees paid on the establishment the date on which a derivative contract income statement. of loan facilities, which are not an is entered into and are subsequently re- Amounts taken to equity are transferred incremental cost relating to the actual measured to fair value. Derivatives are to the income statement when the draw-down of the facility, are recognised carried as assets when their fair value hedged transaction affects profi t or as prepayments and amortised on a is positive and as liabilities when their loss, such as when hedged income straight-line basis over the term of fair value is negative. or expenses are recognised or when the facility. At the inception of a hedge relationship, a forecast sale or purchase occurs. Borrowings are removed from the the Group formally designates and When the hedged item is the cost of balance sheet when the obligation documents the hedge relationship a non-fi nancial asset or liability, the specifi ed in the contract is discharged, to which the Group wishes to apply amounts taken to equity are transferred cancelled or expired. The difference hedge accounting and the risk to the initial carrying amount of the non- between the carrying amount of management objectives and strategies fi nancial asset or liability. a fi nancial liability that has been for undertaking the hedge. The If the forecast transaction is no extinguished or transferred to documentation includes identifi cation longer expected to occur, amounts another party and the consideration of the hedging instrument, the hedged previously recognised in equity are paid, including any non-cash assets item or transaction, the nature of the transferred to the income statement. transferred or liabilities assumed, risk being hedged and how the entity If the hedging instrument expires is recognised in other income or will assess the hedging instrument’s or is sold, terminated or exercised other expenses. effectiveness in offsetting the exposure without replacement or rollover, or if Borrowings are classifi ed as current to changes in the hedged item’s fair its designation as a hedge is revoked, liabilities unless the Group has an values or cash fl ows attributable to the amounts previously recognised in equity unconditional right to defer settlement hedged risk. Such hedges are expected remain in equity until the forecast of the liability for at least 12 months to be highly effective in achieving transaction occurs. If the related after the balance sheet date. offsetting changes in fair values or transaction is not expected to occur, cash fl ows. the amount is taken to the income Testing to ensure that a hedge is statement. effective on both a retrospective and prospective basis is undertaken at each fi nancial reporting period (at least semi- annually) from inception until contract
49 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Notes to the Financial Statements (continued)
q) Segment information For an asset that does not generate the income statement on a prospective Revenues and expenses are attributable largely independent cash infl ows, the basis over the remaining life of the to geographical areas based on the recoverable amount is determined for operation. location of the assets producing or the cash generating unit to which the t) Provisions incurring those revenues and expenses. asset belongs. Provisions are recognised when the An item of property, plant and r) Property, plant and equipment Group has a present obligation (legal equipment is derecognised upon or constructive) as a result of a past Plant and equipment is stated at cost disposal or when no future economic event, it is probable that an outfl ow of less accumulated depreciation and benefi ts are expected to arise from the resources embodying economic benefi ts any impairment in value. Such cost continued use of the asset. Any gain will be required to settle the obligation includes the cost of replacing parts that or loss arising on de-recognition of the and a reliable estimate can be made of are eligible for capitalisation when the asset (calculated as the difference the amount of the obligation. Where the cost of replacing the parts is incurred. between the net disposal proceeds Group expects some or all of a provision Similarly, when each major inspection and the carrying amount of the item) is to be reimbursed, for example under an is performed, its cost is recognised in included in the income statement in the insurance contract, the reimbursement the carrying amount of the plant and year the item is derecognised. equipment as a replacement only if it is recognised as a separate asset but is eligible for capitalisation. All other The assets residual values, useful only when the reimbursement is virtually repairs and maintenance are recognised lives and methods are reviewed, and certain of being received. The expense in the income statement as incurred. adjusted if appropriate, at each fi nancial relating to any provision is presented year end. in the income statement net of any Depreciation is calculated on a straight reimbursement. line basis over the shorter of the useful s) Provisions for decommissioning life of the asset or the life of mine. and restoration costs If the effect of the time value of money is material, provisions are determined The estimated useful lives of the assets The Group is required to decommission by discounting the expected future used in the calculation are as follows: and rehabilitate mines and processing cash fl ows at a pre-tax rate that refl ects sites at the end of their producing lives Plant and equipment - over 2.5 to current market assessments of the time to a condition acceptable to the relevant 10 years value of money and where appropriate, authorities. the risks specifi c to the liability. Where Motor vehicles - over 4 years The expected cost of any approved discounting is used, the increase in the decommissioning or rehabilitation provision due to the passage of time is The carrying value of items of plant and programme, discounted to its net recognised as a borrowing cost. equipment are reviewed for impairment present value, is provided when the either annually or when events or related environmental disturbance u) Share-based payment transactions changes in circumstances indicate the occurs. The cost is capitalised when it Employees (including Directors) of the carrying value may not be recoverable gives rise to future benefi ts, whether Group receive remuneration in the form (whichever is earlier). If any such the rehabilitation activity is expected to of share-based payment transactions, indication exists and where the carrying occur over the life of the operation or whereby employees render services values of an asset exceed its estimated at the time of closure. The capitalised in exchange for shares or rights over recoverable amount, the asset is cost is amortised over the life of the shares (‘equity-settled transactions’). considered impaired and is written down operation and the increase in the net to its recoverable amount. The cost of equity-settled transactions present value of the provision for the with employees is measured by The recoverable amount of plant and expected cost is included in fi nancing reference to the fair value at the date at equipment is the greater of net selling expenses. Expected decommissioning which they are granted. The fair value is price and value in use. In assessing and rehabilitation costs are based on determined by an external valuer using value in use, the estimated future cash the discounted value of the estimated the Binomial model, further details of fl ows are discounted to their present future cost of detailed plans prepared which are given in note 20. In valuing value using a pre-tax discount rate that for each site. Where there is a change equity-settled transactions, no account refl ects current market assessment of in the expected decommissioning and is taken of any performance conditions, the time value of money and the risks restoration costs, the value of the other than a condition linked to the specifi c to the asset. provision and any related asset are price of the shares of Albidon Limited adjusted and the effect is recognised in (‘market conditions’).
50 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
At each subsequent reporting date until result of the modifi cation, as measured as operating leases. Operating lease vesting, the cumulative charge to the at the date of modifi cation. payments are recognised as an expense income statement is the product of: in the income statement on a straight- Where an equity-settled award is line basis over the lease term. (i) the grant date fair value of cancelled, it is treated as if it had the award; vested on the date of cancellation, w) Contributed equity and any expense not yet recognised for (ii) the current best estimate of the Issued and paid up capital is recognised the award is recognised immediately. number of awards that will vest, at the fair value of the consideration However, if a new award is substituted taking into account such factors received by the Company and is split for the cancelled award, and designated as the likelihood of employee between issued capital (par value) and as a replacement award on the date turnover during the vesting period share premium reserve. Any transaction that is granted, the cancelled and new and the likelihood of non-market costs arising on the issue of ordinary awards are treated as if they were a performance conditions being met; shares are recognised directly in modifi cation of the original award, as and equity as a reduction of the share described in the previous paragraph. proceeds received. (iii) the expired portion of the The dilutive effect of outstanding vesting period. options is refl ected as additional share x) Employee benefi ts The charge to the income statement dilution in the computation of earnings/ Provision is made for employee benefi ts for the period is the cumulative loss per share (see note 8). accumulated as a result of employees amount as calculated above less the rendering services up to the reporting amounts already charged in previous v) Leases date. These benefi ts include wages and periods. There is a corresponding entry The determination of whether an salaries and annual leave. Employee to equity. The cost of equity-settled arrangement is or contains a lease benefi ts expenses are recognised in transactions is recognised, together is based on the substance of the income statement on a net basis with a corresponding increase in equity, the arrangement and requires an in their respective categories. over the years in which the performance assessment of whether the fulfi lment Contributions made by the Group to conditions are fulfi lled, ending on the of the arrangement is dependent on the employee superannuation funds are date on which the relevant employees use of a specifi c asset or assets and charged as an expense when incurred. become fully entitled to the award the arrangement conveys a right to use (‘vesting date”). The cumulative the asset. y) Earnings per share expense recognised for equity-settled Finance leases, which transfer to the Basic earnings per share (“EPS”) is transactions at each reporting date until Group substantially all the risks and calculated by dividing the net profi t the vesting date refl ects the extent to benefi ts incidental to ownership of attributable to members of the parent which the vesting period has expired the leased item, are capitalised at the entity for the reporting period, after and the number of awards that, in the inception of the lease at the fair value excluding any costs of servicing opinion of the Directors of the Group of the leased property or, if lower, equity (other than ordinary shares at that date, will ultimately vest. at the present value of the minimum and converting preferences shares as No expense is recognised for awards lease payments. Lease payments ordinary shares for EPS calculation that do no ultimately vest, except for are apportioned between the fi nance purposes), by the weighted average awards where vesting is conditional charges and reduction of the lease number of ordinary shares of the upon a market condition, which are liability so as to achieve a constant rate Company, adjusted for any bonus issue. treated as vesting irrespective of of interest on the remaining balance Diluted EPS is calculated by dividing whether or not the market condition of the liability. Finance charges are the basic EPS earnings, adjusted by is satisfi ed, provided that all other charged directly against income. the after tax effect of fi nancing costs performance conditions are satisfi ed. Capitalised leased assets are associated with dilutive potential Where the terms of an equity-settled depreciated over the shorter of the ordinary shares and the effect on award are modifi ed, as a minimum an estimated useful life of the asset or the revenues and expenses of conversion expense is recognised as if the terms lease term. to ordinary shares associated with had not been modifi ed. In addition, an dilutive potential ordinary shares, by the Leases where the lessor retains expense is recognised for any increase weighted average number of ordinary substantially all the risks and benefi ts in the value of the transaction as a shares and dilutive potential ordinary of ownership of the asset are classifi ed shares adjusted for any bonus issue. 51 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Notes to the Financial Statements (continued)
3. Financial risk management
(a) Financial risk management objectives and policies The Group’s overall risk management programme focuses on the unpredictability of fi nancial markets and seeks to minimise potential adverse effects and ensure that net cash fl ows are suffi cient to support the delivery of the Group’s fi nancial targets whilst protecting future fi nancial security. The Group continually monitors and tests its forecast fi nancial position against these objectives and in general will undertake hedging activity only when necessary to ensure the objectives are achieved. The Group’s activities expose it to a variety of fi nancial risks; market, credit and liquidity. These risks are managed under Board approved directives through the Finance Committee. The Groups principal fi nancial instruments, other than derivatives, comprise interest-bearing debt, cash and short term deposits. Other fi nancial instruments include trade receivables and trade payables, which arise directly from operations. It is, and has been throughout the period under review, Group policy that no speculative trading in fi nancial instruments be undertaken.
(b) Market risk (i) Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Zambian kwacha and the Australian dollar. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities that are denominated in a currency that is not the entity’s functional currency. The risk is measured by regularly monitoring, forecasting and performing sensitivity analysis on the Group’s fi nancial position. The fi nancial instruments denominated in Zambian kwachas and Australian dollars are as follows:
Zambian kwacha Australian dollar 2007 2006 2007 2006 ZMK 000’s ZMK 000’s AU$ AU$ Financial assets Cash & cash equivalents 2,438,215 638,713 663,233 33,314,841 Trade receivables 12,260,367 2,274,111 414,552 361,036 14,698,582 2,912,824 1,077,785 33,675,877 Financial liabilities Trade payables 6,118,382 213,953 1,655,340 741,847 6,118,382 213,953 1,655,340 741,847 Net exposure 8,580,200 2,698,871 (577,555) 32,934,030
52 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
(b) Market risk (continued) (i) Foreign exchange risk (continued) The following table summarises the sensitivity of fi nancial instruments held at the balance sheet date to movements in the exchange rate of the Zambian kwacha and Australian dollar to the US dollar, with all other variables held constant. The 5% sensitivity is based on reasonably possible changes, over a fi nancial year, using the observed range of actual historical rates for the preceding fi ve year period.
Impact on profi t Impact on equity 2007 2006 2007 2006 US$ US$ US$ US$ Post-tax gain/(loss) ZMK/USD +5% 110 29 - - ZMK/USD -5% (110) (29) - - AUD/USD +5% (17,702) 908,704 - - AUD/USD -5% 17,702 (908,704) - -
The Group has not entered into forward foreign exchange contracts. Natural hedges are utilised wherever possible to offset foreign currency liabilities.
(ii) Commodity price risk The Group’s future revenue forecasts are exposed to commodity price fl uctuations, in particular nickel prices. A hedging programme was placed in April 2007 in conjunction with the terms of the debt funding agreement for the Munali project. The Group entered into forward contracts for 9,020 tonnes of nickel over the period from June 2009 to December 2013. The level of hedging represents approximately 15% of the Munali project’s expected payable nickel from production. The following table summarises the sensitivity of the fair value of the fi nancial instruments held at balance sheet date to movement in the price of nickel with all other variables held constant. The 10% sensitivity is based on reasonably possible changes, over a fi nancial year, using the observed range of actual historical prices for the preceding fi ve year period.
Impact on profi t Impact on equity 2007 2006 2007 2006 US$ US$ US$ US$ Post-tax gain/(loss) Nickel forward price +10% (74,350) - (19,999,839) - Nickel forward price -10% 95,514 - 19,999,839 -
(iii) Interest rate risk The Group’s main interest rate risk arises from long-term borrowings in relation to the Munali project. Borrowings issued at variable rates expose the Group to cash fl ow interest rate risk. Interest rate risk on cash and short term deposits is not considered to be a material risk due to the short term nature of these fi nancial instruments. During 2007 and 2006, the Group’s borrowings at variable rate were denominated in US Dollars. The Group analyses its interest rate exposure on a dynamic basis and where appropriate simulates various scenarios taking into consideration refi nancing, renewal of existing positions, alternative fi nancing and hedging options.
53 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Notes to the Financial Statements (continued)
(iii) Interest rate risk (continued) The fi nancial instruments exposed to interest rate risk are as follows: 2007 2006 US$ US$ Financial liabilities Interest bearing loans and borrowings (36,469,472) - (36,469,472) -
As all these borrowings are related to a long-term qualifying development project, the Munali operation, the interest costs are capitalised in accordance with the policy outlined in note 2(o). Therefore the impact on Group profi t is nil.
The effective interest rates on fi nancial assets and liabilities as at 31 December 2007 were as follows: 2007 Weighted Fixed Floating Non-interest average interest rate interest rate bearing Total Notes interest rate US$ US$ US$ US$ Financial assets Cash assets 13 3.17% - 16,365,129 - 16,365,129 Security deposits 5.78% - 254,141 - 254,141 Current receivables 9 - - 4,175,383 4,175,383 Other fi nancial assets 11 - 274 - 274 - 16,619,544 4,175,383 20,794,927 Financial liabilities Payables 16 - - 18,321,041 18,321,041 Interest bearing loans and borrowings 3(e) 8.43% - 33,733,809 - 33,733,809 Other fi nancial liabilities - - 76,749 76,749 - 33,733,809 18,397,790 52,131,599
The effective interest rates on fi nancial assets and liabilities as at 31 December 2006 were as follows: 2006 Weighted Fixed Floating Non-interest average interest rate interest rate bearing Total Notes interest rate US$ US$ US$ US$ Financial assets Cash assets 13 5.14% - 38,276,017 - 38,276,017 Security deposits 5.63% - 181,539 11,388 192,927 Current receivables 9 - - 826,626 826,626 Loans to other entities 11 7.00% 208,830 - - 208,830 208,830 38,457,556 838,014 39,504,400 Financial liabilities Payables 16 - - 1,579,575 1,579,575 - - 1,579,575 1,579,575
54 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
(c) Liquidity risk The Group’s liquidity position is managed to ensure that suffi cient funds are available to meet its fi nancial commitments in a timely and cost effective manner. Management monitors rolling forecasts of the Group’s liquidity reserve on the basis of expected cash fl ow. The table below refl ects a balanced view of cash infl ows and outfl ows and shows the implied risk based on those values. Loan obligations, trade payables and other fi nancial liabilities originate from the fi nancing of assets used in the Group’s ongoing operations. These assets are considered in the Group’s overall liquidity risk. Management continually reviews the Group liquidity position including cash fl ow forecasts to determine the forecast liquidity position and maintain appropriate liquidity levels. Note 3(e) details the repayment obligations in respect of the amount of the facilities and derivatives utilised.
Year ended 31 December 2007 < 6 6-12 1-5 > 5 months months years years Total US$ US$ US$ US$ US$ Financial assets Cash and cash equivalents 16,365,129 - - - 16,365,129 Trade and other receivables 4,175,383 - - - 4,175,383 Other fi nancial assets - 254,415 - - 254,415 20,540,512 254,415 - - 20,794,927 Financial liabilities Trade and other payables 18,321,041 - - - 18,321,041 Interest bearing loans and borrowings - - 30,144,000 6,325,472 36,469,472 Financial derivative liabilities - - 15,162,431 - 15,162,431 Other fi nancial liabilities 76,749 - - - 76,749 18,397,790 - 45,306,431 6,325,472 70,029,693 Net maturity 2,142,722 254,415 (45,306,431) (6,325,472) (49,234,766)
Year ended 31 December 2006 < 6 6-12 1-5 > 5 months months years years Total US$ US$ US$ US$ US$ Financial assets Cash and cash equivalents 38,276,017 - - - 38,276,017 Trade and other receivables 826,626 - - - 826,626 Other fi nancial assets - 401,758 - - 401,758 39,102,643 401,758 - - 39,504,401 Financial liabilities Trade and other payables 1,579,575 - - - 1,579,575 Interest bearing loans and borrowings - - - - - Financial derivative liabilities - - - - - Other fi nancial liabilities - - - - - 1,579,575 - - - 1,579,575 Net maturity 37,523,068 401,758 - - 37,924,826
55 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Notes to the Financial Statements (continued)
(d) Credit risk The Group’s maximum exposure to credit risk at the reporting date in relation to each class of recognised fi nancial assets is the carrying amount of those assets as indicated in the consolidated balance sheet. The Group does not have any signifi cant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics.
(e) Financing facilities
Secured loans 2007 2007 2007 2006 Facility Unused Used Used US$ US$ US$ US$ Non-current Senior debt facility (i) 60,000,000 44,000,000 16,000,000 - Subordinated debt facility (ii) 24,480,000 4,010,528 20,469,472 - 84,480,000 48,010,528 36,469,472 - Less: transaction costs - - (2,735,663) - 84,480,000 48,010,528 33,733,809 -
(i) The Group has arranged a senior debt facility of up to US$60 million with the European Investment Bank and Barclays Capital to partially fund the development of the Munali project. The funding is secured against the assets of the project and the loans are repayable over scheduled instalments to December 2013. Interest rates are variable based on the London Inter-bank Offered Rate (LIBOR). Interest is paid quarterly. The facilities are subject to various covenants and a negative pledge restricting the amount of future secured borrowings. Neither the covenants nor the negative pledge have been breached at any time during the reporting period. (ii) A subordinated debt facility of US$20 million plus accruing interest has been arranged with Jinchuan Group Limited in conjunction with the senior debt facility. The funding is secured against the assets of the project and the loan is repayable over scheduled instalments to June 2014. Interest rates are variable based on LIBOR with interest paid at the end of the drawdown period. The facilities are subject to various covenants and a negative pledge restricting the amount of future secured borrowings. Neither the covenants nor the negative pledge have been breached at any time during the reporting period.
In the event of a default the Common Terms Agreement relating to the funding of the Munali project gives precedent to the senior debt over the subordinated debt. Repayment obligations in respect of the amount of facilities utilised are as follows: 2007 2006 US$ US$ Due No later than one year - - Later than one year but no later than two years 6,606,000 - Later than two years but no later than three years 7,846,000 - Later than three years but no later than four years 7,846,000 - Later than four years but no later than fi ve years 7,846,000 - Later than fi ve years 6,325,472 - 36,469,472 -
56 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
(f) Derivative instruments Commodity prices The Group’s future revenues are exposed to commodity prices, particularly LME nickel prices. The Group may from time to time enter into commodity price derivative instruments to manage this exposure.
Notional Fair value Instrument amount Rate Expiry Hedge type 2007 2006 $US $US Nickel forward sale Sell Receive Cash fl ow hedge - Manages 1,148t US$11.92 - 12.01/lb 2009 risk from anticipated 3,587,877 - 1,968t US$11.79 - 11.91/lb 2010 production from the 1,282,637 - 1,968t US$11.66 - 11.78/lb 2011 Munali project (3,577,626) - 1,968t US$11.52 - 11.64/lb 2012 (7,065,204) - 1,968t US$11.39 - 11.51/lb 2013 (9,390,115) - (15,162,431) -
Hedging reserve The hedging reserve represents hedging gains and losses recognised on the effective portion of cash fl ow hedges. The cumulative deferred gain or loss on the hedge is recognised in profi t or loss when the hedged transaction impacts the profi t or loss, or is included as a basis adjustment to the non-fi nancial hedged item, consistent with the applicable accounting policy.
2007 2006 US$ US$ Balance at beginning of the year - - Loss recognised on cash fl ow hedges: Forward sale of nickel (15,162,431) - Income tax related to loss recognised in equity 3,790,608 - Transferred to profi t and loss: Ineffective portion on cash fl ow hedges 5,261 - Income tax related to amounts transferred to profi t and loss - - Balance at end of the year (11,366,562) -
(g) Fair values The Directors have performed a review of the fi nancial assets and liabilities as at 31 December 2007 and have concluded that the fair value of those assets and liabilities are not materially different to book values. The methods and assumptions used to estimate the fair value of fi nancial instruments were: (i) Cash The carrying amount is fair value due to the liquid nature of these assets. (ii) Receivables/payables Due to the short term nature of these fi nancial rights and obligations, their carrying values are estimated to represent their fair values. (iii) Other fi nancial liabilities and derivative fi nancial instruments Fair value is established by using market accepted valuation techniques. (iv) Interest bearing liabilities As the liabilities carry variable interest rate, the carrying amount is the fair value.
57 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Notes to the Financial Statements (continued)
4. Critical accounting where it is considered more mineral resources and ore reserves likely than not that they will be in accordance with the Albidon judgements and recovered, which is dependent Limited policy for the Reporting key sources of on the generation of suffi cient of Mineral Resources and Ore future taxable profi ts. Deferred tax Reserves. This policy requires that estimation liabilities arising from temporary the Australian Code for Reporting uncertainty differences in investments, caused of Exploration Results, Mineral principally by retained earnings Resources and Ore Reserves 2004 In the application of the Group’s held in foreign tax jurisdictions, are (the ‘JORC code’) be used as a accounting policies the directors are recognised unless repatriation of minimum standard. The information required to make judgements, estimates retained earnings can be controlled on mineral resources and ore and assumptions about the carrying and are not expected to occur in the reserves were prepared by or under amounts of assets and liabilities that foreseeable future. the supervision of Competent are not readily apparent from other Persons as defi ned in the JORC sources. The estimates and associated Assumptions about the generation code. The amounts presented are assumptions are based on historical of future taxable profi ts and based on the mineral resources and experience and other factors that are repatriation of retained earnings ore reserves determined under the considered to be relevant. Actual results depend on management’s estimates JORC code. may differ from these estimates. of future cash fl ows. These depend on estimates of future There are numerous uncertainties The estimates and underlying production and sales volumes, inherent in estimating mineral assumptions are reviewed on an operating costs, restoration costs, resources and ore reserves and ongoing basis. Revisions to accounting capital expenditure, dividends assumptions that are valid at the estimates are recognised in the period and other capital management time of estimation may change in which the estimate is revised if the transactions. Judgements are also signifi cantly when new information revision affects only that period, or in required about the application becomes available. Changes in the the period of the revision and future of income tax legislation. These forecast prices of commodities, periods if the revision affects both judgements and assumptions are exchange rates, production costs current and future periods. subject to risk and uncertainty, or recovery rates may change The following are the critical judgements hence there is a possibility that the economic status of reserves and estimations (see below), that the changes in circumstances will alter and may, ultimately, result in the directors have made in the process expectations, which may impact the reserves being restated. of applying the entity’s accounting amount of deferred tax assets and policies and that have the most deferred tax liabilities recognised on (ii) Signifi cant accounting estimates signifi cant effect on the amounts the balance sheet and the amount and assumptions recognised in fi nancial statements. of other tax losses and temporary (a) Impairment of capitalised differences not yet recognised. In exploration and evaluation (i) Signifi cant accounting judgements such circumstances, some or all of expenditure (a) Taxation the carrying amounts of recognised The future recoverability of deferred tax assets and liabilities The Group’s accounting policy for capitalised exploration and may require adjustment, resulting in taxation requires management’s evaluation expenditure is dependent a corresponding credit or charge to judgement as to the types of on a number of factors, including the income statement. arrangements considered to be whether the Group decides to exploit a tax on income in contrast to (b) Determination of mineral resources the related lease itself or, if not, an operating cost. Judgement and ore reserves whether it successfully recovers the is also required in assessing related exploration and evaluation The determination of reserves whether deferred tax assets and asset through sale. impacts the accounting for asset certain deferred tax liabilities are carrying values, depreciation Factors that could impact the future recognised on the balance sheet. and amortisation rates, deferred recoverability include the level of Deferred tax assets, including those stripping costs and provisions for reserves and resources, future arising from un-recouped tax losses, decommissioning and restoration. technological changes, which could capital losses and temporary Albidon Limited estimates its impact the cost of mining, future differences, are recognised only
58 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
legal changes (including changes (c) Impairment of property, The ultimate cost of to environmental restoration plant and equipment decommissioning and restoration obligations) and changes to Property, plant and equipment is is uncertain and costs can vary in commodity prices. reviewed for impairment if there response to many factors including changes to the relevant legal To the extent that capitalised is any indication that the carrying requirements, the emergence of new exploration and evaluation amount may not be recoverable. restoration techniques or experience expenditure is determined not to be Where a review for impairment is at other mine sites. The expected recoverable in the future, profi ts and conducted, the recoverable amount timing of expenditure can also net assets will be reduced in the is assessed by reference to the change, for example in response to period in which this determination is higher of ‘value in use’ (being the changes in reserves or to production made. In addition, exploration and net present value of expected future rates. evaluation expenditure is capitalised cash fl ows of the relevant cash if activities in the area of interest generating unit) and ‘fair value Changes to any of the estimates have not yet reached a stage that less costs to sell’. In determining could result in signifi cant changes permits a reasonable assessment value in use, future cash fl ows are to the level of provisioning required, of the existence or otherwise of based on: which would in turn impact future economically recoverable reserves. • estimates of the quantities of ore fi nancial results To the extent it is determined in reserves and mineral resources (e) Fair value of derivatives and other the future that this capitalised for which there is a high degree fi nancial instruments expenditure should be written of confi dence of economic The directors use their judgement off, profi ts and net assets will be extraction; reduced in the period in which this in selecting an appropriate valuation • future production levels; determination is made. technique for derivative fi nancial • future commodity prices; and instruments. Assumptions are made (b) Impairment of capitalised mine • future cash costs of production based on quoted market rates development expenditure and capital expenditure. adjusted for specifi c features The future recoverability of of the instrument. capitalised mine development Variations to the expected future (f) Share-based payment transactions expenditure is dependent on a cash fl ows, and the timing thereof, number of factors, including the could result in signifi cant changes The cost of equity-settled level of proved, probable and to any impairment losses transactions with employees is inferred mineral resources, future recognised, if any, which could in measured by reference to the fair technological changes that could turn impact future fi nancial results. value at the date at which they are granted. The fair value is impact the cost of mining, future (d) Provisions for decommissioning determined by an external valuer legal changes (including changes and restoration costs to environmental restoration using the Binomial model, further Decommissioning and restoration obligations) and changes to details of which are given in costs are a normal consequence commodity prices. note 20. In valuing equity-settled of mining, and the majority of transactions, no account is taken of To the extent that capitalised this expenditure is incurred any performance conditions, other mine development expenditure is at the end of a mine’s life. In than a condition linked to the price determined not to be recoverable determining an appropriate level of the shares of Albidon Limited in the future, profi ts and net assets of provision consideration is given (‘market conditions’). will be reduced in the period in to the expected future costs to which this determination is made. be incurred, the timing of these The accounting estimates and expected future costs (largely assumptions relating to equity- dependent on the life of the mine), settled share-based payments would and the estimated future level have no impact on the carrying of infl ation. amounts of assets and liabilities within the next annual reporting period but may impact expenses and equity.
59 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Notes to the Financial Statements (continued)
5. Segment information The Group operates in one principal area of activity, namely exploration and development of base metal tenements, and two principal geographical areas, namely Australia (head offi ce) and Africa (operations).
Geographical segments Australia Africa Consolidated Year to 31 December 2007 US$ US$ US$ Revenue Other 1,326,638 - 1,326,638 Result Segment result (3,466,819) 1,261,744 (2,205,075)
(Loss)/profi t before related income tax expense (3,466,819) 1,261,744 (2,205,075) Income tax expense - - - Net (loss)/profi t (3,466,819) 1,261,744 (2,205,075)
Assets and liabilities Segment assets 9,440,831 118,666,337 128,107,168 Segment liabilities 1,449,637 66,656,583 68,106,220
Other segment information Capital expenditures Mining assets - 81,549,145 81,549,145 Administration assets 169,903 - 169,903 Non-cash expenses Depreciation (48,222) (62,140) (110,362) Share-based payments expense (2,610,993) - (2,610,993) Unrealised/realised foreign exchange gains/(losses) 1,154,922 1,481,237 2,636,159
Geographical segments Australia Africa Consolidated Year to 31 December 2007 US$ US$ US$ Revenue Other 732,557 - 732,557 Result Segment result (518,966) (2,148,668) (2,667,634)
(Loss) before related income tax expense (518,966) (2,148,668) (2,667,634) Income tax expense - - - Net (loss) (518,966) (2,148,668) (2,667,634)
Assets and liabilities Segment assets 38,157,287 22,585,149 60,742,436 Segment liabilities 796,393 880,643 1,677,036
Other segment information Capital expenditures Mining assets - 11,776,153 11,776,153 Administration assets 124,740 - 124,740 Non-cash expenses Depreciation (28,017) (10,923) (38,940) Share-based payments expense (561,589) - (561,589) Unrealised/realised foreign exchange gains/(losses) 1,705,845 (522,023) 1,183,822
60 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
6. Revenue and expenses 2007 2006 US$ US$ (a) Revenue Interest on bank balances 1,320,466 702,716 Interest on loans to related parties 6,172 29,841 1,326,638 732,557 (b) Other income Foreign exchange gain 2,636,159 1,183,822 Other 250,000 4,023 2,886,159 1,187,845 (c) Staff costs Salaries and personnel expenses 2,084,377 886,759 Superannuation expenses 104,264 54,538 Share based payments 2,610,993 561,589 Consultant expenses 147,310 70,545 4,946,944 1,573,431 (d) Other expenses Advisory and audit fees 158,078 324,541 Travel expenses 248,382 235,007 Printing, stationery and advertising expenses 140,298 199,174 Occupancy and insurance expenses 133,301 186,905 Information technology and communications expenses 151,800 171,032 Company secretarial expenses 86,771 121,156 General administration expenses 40,733 149,849 Movement in fair value of ineffective portion of hedging derivatives 5,261 - 964,624 1,387,664
61 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Notes to the Financial Statements (continued)
7. Income tax expense 2007 2006 US$ US$ (a) Income tax expense Current tax - - Deferred tax - relating to origination and reversal of temporary differences - - Income tax expense - -
(b) Amounts charged or credited directly to equity 3,790,608 -
(c) Numerical reconciliation between tax expense recognised in the income statement and tax expenses calculated per the statutory income tax rate Accounting loss before income tax (2,205,075) (2,667,634)
At the Group’s statutory income tax rate (661,523) (800,290) Foreign tax rate adjustment (27,405) 23,036 Share options expenses 783,298 168,477 Foreign exchange gains and other translation adjustments (785,147) (355,147) Unrecognised tax losses 690,777 963,924 Income tax expense - -
(d) Recognised deferred tax assets and liabilities 2007 2006 Current tax Deferred tax Current tax Deferred tax US$ US$ US$ US$ Opening balance - - - - Charged to income - - - - Charged to equity - 3,790,608 - - Closing balance - 3,790,608 - -
Tax expense in income statement - -
Amounts recognised in the balance sheet - Deferred tax asset 3,790,608 - - Deferred tax liability - - 3,790,608 -
2007 2006 US$ US$ Deferred tax at 31 December relates to: Deferred tax assets - Tax losses 3,790,608 - Gross deferred tax assets 3,790,608 -
Set off deferred tax assets - - Net deferred tax assets 3,790,608 -
62 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
8. Loss per share
(i) Basic Basic loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares on issue during the year.
(ii) Diluted Diluted loss per share amounts are calculated by dividing the net loss attributable to ordinary shareholders by the weighted number of ordinary shares outstanding during the year adjusted for the effects of dilutive options. The following table refl ects the income and share data used in the basic and diluted earnings per share computations:
2007 2006 US$ US$ Basic Loss attributable to equity holders of the Company (2,205,075) (2,667,634) Weighted average number of ordinary shares in issue 153,207,438 108,453,205 Basic loss per share (US cents per share) (1.44) (2.46) Diluted Loss used to determine diluted loss per share (2,205,075) (2,667,634) Weighted average number of ordinary shares for diluted loss per share 153,207,438 108,453,205 Diluted loss per share (US cents per share) (1.44) (2.46)
Weighted average number of ordinary shares for basic loss per share 153,207,438 108,453,205 Effect of dilution - share options - - Weighted average number of ordinary shares adjusted for the effects of dilution 153,207,438 108,453,205
Since the reporting date and before the completion of these fi nancial statements the following transactions occurred: In January 2008, the Company issued 3,389,831 shares at AU$3.35/US$2.95 cents each to ZCCM Investments Holdings plc. In February 2008 the Company issued 5,084,746 shares at AU$3.35/US$2.95 cents each to the Jinchuan Group Limited. On 25 February 2008, 100,000 unlisted options exercisable at AU$3.25 expiring on or before 1 February 2011 were allocated to key personnel. On 17 March 2008, the Company advised that subject to Shareholder approval Mr. John Shaw, Deputy Chairman, would be allocated 300,000 unlisted options exercisable at AU$3.47 expiring on or before 30 June 2011. Share options are considered as anti-dilutive as their inclusion would reduce the loss per share.
9. Trade and other receivables 2007 2006 Notes US$ US$ Trade receivables 809,006 30,049 GST/VAT receivables 3,321,530 679,440 Related entity receivables 25 44,847 117,137 4,175,383 826,626
Trade and other receivables are non-interest bearing and have repayment terms within one year.
63 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Notes to the Financial Statements (continued)
10. Inventories 2007 2006 US$ US$ Stores and materials - at cost 106,912 - Work in progress - at cost - - Finished goods - at cost - - Finished goods - at net realisable value - - 106,912 -
Stores and materials consist of consumable stores and are valued at weighted average cost.
11. Other fi nancial assets 2007 2006 Notes US$ US$ Security and term deposits 254,141 192,652 Loan to other entities (i) 25 - 208,830 Other 274 276 254,415 401,758
(i) The loan to Mr. Brian Rudd (acting for the Capital Drilling group) represented the balance loaned for the purchase of a Schramm 685 drilling rig. The rig was being used at the Company’s Munali site in Zambia. This rig was owned and operated by Mr. Rudd and held under trust by Albidon Zambia Limited. The loan bore an interest rate of 7%. The loan was repaid during 2007.
12. Prepayments 2007 2006 US$ US$ Prepayments 698,257 129,384
13. Cash and cash equivalents 2007 2006 US$ US$ Bank balances 16,328,589 38,245,672 Other cash and cash equivalents 36,540 30,345 16,365,129 38,276,017 Weighted average interest rate 3.17% 5.14%
Committed undrawn borrowing facilities 48,010,528 -
64 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
14. Plant and equipment
(a) Reconciliation of carrying amounts at the beginning and end of the period
Assets under Plant and Motor construction equipment vehicles Total US$ US$ US$ US$
At 1 January 2007, net of accumulated depreciation - 256,905 9,829 266,734 Additions 49,242,594 182,985 41,924 49,467,503 Reclassifi ed from mine properties and development 1,582,522 - - 1,582,522 Depreciation charge for the period - (103,978) (6,384) (110,362) At 31 December 2007, net of accumulated depreciation 50,825,116 335,912 45,369 51,206,397 at 31 December 2007 Cost 50,825,116 490,290 63,387 51,378,793 Accumulated depreciation - (154,378) (18,018) (172,396) Net carrying amount 50,825,116 335,912 45,369 51,206,397
Assets under Plant and Motor construction equipment vehicles Total US$ US$ US$ US$ At 1 January 2006, net of accumulated depreciation - 87,204 15,200 102,404 Additions - 200,544 - 200,544 Depreciation charge for the period - (30,843) (5,371) (36,214) At 31 December 2006, net of accumulated depreciation - 256,905 9,829 266,734 at 31 December 2006 Cost - 307,305 21,463 328,768 Accumulated depreciation - (50,400) (11,634) (62,034) Net carrying amount - 256,905 9,829 266,734
Contractual commitments (see note 24) for the acquisition of property, plant and equipment at 31 December 2007 were US$15,057,500 (2006: US$4,136,925).
(b) Property, plant and equipment pledged as security for liabilities Property, plant and equipment with a carrying value of US$50,864,320 (2006 nil) is pledged as security for non-current liabilities as disclosed in note 3(e).
65 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Notes to the Financial Statements (continued)
15. Mine properties and exploration expenditure
(a) Mine properties and development 2007 2006 US$ US$ Mine properties and development - pre-production
Opening at beginning of the period 20,841,917 - Transferred from exploration and evaluation expenditure - 15,664,158 Pre-production exploration 4,293,728 1,827,852 Additions 27,956,944 3,349,907 Reclassifi ed to plant and equipment (1,582,522) - Closing at end of the period 51,510,067 20,841,917
Mine properties and development expenditure relates to the Munali project. The Munali nickel deposit is located approximately 60km south of Lusaka in southern Zambia. The project is served by road, rail and power infrastructure as well as water supplies. The deposit was discovered in 1969 and was held by a number of owners prior to its acquisition by the Group in September 2002. The tenement covers an area of 737 sq km. In accordance with the Company’s policy for exploration and evaluation expenditures, once the technical feasibility and commercial viability of the extraction of mineral resources in an area of interest are demonstrable, exploration and evaluation assets attributable to that area of interest are fi rst tested for impairment and then reclassifi ed from exploration and evaluation expenditure to mine property and development.
(b) Mine properties and development pledged as security for liabilities Mine properties and development with a carrying value of US$51,064,069 (2006 nil) are pledged as securities for non-current liabilities as disclosed in note 3(e).
(c) Borrowing costs capitalised In 2007 borrowing costs of US$903,713 were capitalised to mine properties and development (2006: nil).
16. Trade and other payables 2007 2006 US$ US$ Trade and other payables 12,511,244 1,179,717 Accrued expenses 5,809,797 399,858 18,321,041 1,579,575
Trade payable and accruals are non-interest bearing and have repayment terms within one year.
66 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
17. Other fi nancial liabilities 2007 2006 US$ US$ Zinifex Limited imprest account 76,749 - 76,749 -
Under the terms of the Tunisian joint venture agreement with Zinifex Limited (see note 21), Zinifex have various cash expenditure commitments. These cash expenditures are processed through Albidon’s payment systems on an imprest basis whereby Zinifex provide cash ahead of the occurrence of the expenditure. The above balance represents funding in the account at the balance sheet date in relation to future expenditure on the Tunisian joint venture.
18. Provisions
(a) Current 2007 2006 US$ US$ Employee entitlements and salaries 366,592 97,461 366,592 97,461
Employee entitlements relate to annual leave amounts outstanding at 31 December. Employees are entitled to four weeks annual leave per year.
(b) Non current 2007 2006 US$ US$ Provision for restoration 445,598 - 445,598 - Movement in the provisions recognised in the balance sheet are as follows Opening provision - - Movement during the year 445,598 - Provisions as at 31 December 445,598 -
The Group has recognised a provision for restoration related to the anticipated future costs of decommissioning and restoring mining and processing facilities at the Munali operations. These costs are subject to potentially signifi cant uncertainties (see note 4 (ii) (d)). The costs are expected to be incurred at the end of Munali’s mine life.
67 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Notes to the Financial Statements (continued)
19. Share capital and reserves
(a) Ordinary shares
Authorised Issued, called up and fully paid Number US$ Number US$ Ordinary shares of US$0.01 each 5,000,000,000 50,000,000 156,065,892 73,736,062
Balance 31 December 2005 89,368,000 21,806,317 Issued through private placement 14,150,000 9,857,385 Capital raising costs - (343,535) Issued to African Lion on exercise of options 5,000,000 1,000,000 Issued through private placement 39,500,000 34,911,291 Capital raising costs - (1,260,428) Issued to contractor on exercise of options 150,000 69,120 Balance 31 December 2006 148,168,000 66,040,150 Issued through private placement (i) 4,190,992 5,000,000 Capital raising costs - (28,280) Issued to employees and contractors on exercise of options 3,306,900 1,683,862 Capital raising costs - (10,252) Issued to Mr. Dale Rogers (ii) 400,000 1,052,632 Capital raising costs - (2,050) Balance 31 December 2007 156,065,892 73,736,062 Shares to be issued (iii) 5,000,000 78,736,062
Represented by: Capital Share Share raising Capital premium costs Total US$ US$ US$ US$ 1,560,659 75,450,585 (3,275,182) 73,736,062
(i) On 12 April 2007, the Company issued 4,190,992 shares to Jinchuan Group Ltd. through a placement at AU$1.55/ US$1.19 per share. (ii) On 21 June 2007, following Shareholder approval, Mr. Dale Rogers was issued with 400,000 shares at a purchase price of AU$0.75 each. The closing market price on that day was AU$3.11. (iii) In December 2007 the Company completed a placement with ZCCM Investments Holdings plc (“ZCCM-IH”) to raise US$10 million at a price of US$2.95 (AU$3.35/£1.45) per share. As part of the conditions of the placement ZCCM-IH agreed to pay in two equal instalments of US$5 million in December 2007 and January 2008. Both these instalments were received and the shares were issued on 31 January 2008. Ordinary shares have the right to receive dividends as declared and in the event of a winding up of the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of, and amounts paid up on, shares held.
68 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
(b) Options Information relating to details of options issued, exercised and lapsed during the fi nancial year and options outstanding at the end of the fi nancial year is set out in Note 20.
(c) Capital management The Company’s Capital Management policy and objectives are consistent with previous periods. When managing capital, management’s objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to shareholders and benefi ts for other stakeholders. Management also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity. Management are constantly adjusting the capital structure to take advantage of favourable costs of capital or high returns on assets. As the market is constantly changing, management may change the amount of dividends to be paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Company did not pay a dividend during 2007, nor has any dividend been proposed up to the reporting date. The Group is not subject to any externally imposed capital requirements. The Company issued shares subsequent to the year end as disclosed in Note 27(i). Management has no current plans to issue further shares on the market.
(d) Nature and purpose of reserves Share premium reserve The share premium reserve represents the premium received compared to par value for shares issued. Option premium reserve The option premium reserve is used to record the value of option based payments provided to employees, contractors and others. Refer to note 20 for further details. Hedging reserve The hedging reserve represents hedging gains and losses recognised on the effective portion of cash fl ow hedges. The cumulative deferred gain or loss on the hedge is recognised in the income statement when the hedged transaction impacts the profi t or loss, or is included as a basis adjustment to the non-fi nancial hedged item, consistent with the applicable accounting policy.
20. Share based payments The option premium reserve is used to record the options issued as share based payments in accordance with the accounting policy set out in Note 2(u).
Option premium reserve US$ Balance 31 December 2005 455,882 Issued to Directors, employees and contractors 561,589 Balance 31 December 2006 1,017,471 Issued to Directors, employees and contractors 1,811,275 Balance 31 December 2007 2,828,746
69 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Notes to the Financial Statements (continued)
20. Share based payments (continued) Set out below are summaries of options granted in 2007 and 2006: 2007 Balance Vested and Granted Exercised Lapsed at the end exerciseable Exercise Expiry Opening during during the during of the at the end of price Grant date date balance the year year the year year the year AU$0.60 (i) 12/02/2004 30/06/2007 1,850,000 - (1,850,000) - - - AU$0.60 (i) 11/05/2004 30/06/2007 500,000 - (500,000) - - - AU$0.60 (i) 29/03/2005 30/06/2008 300,000 - (198,000) - 102,000 102,000 AU$0.60 (i) 20/07/2005 30/04/2008 300,000 - (300,000) - - - AU$0.60 (i) 11/11/2005 30/06/2007 100,000 - (100,000) - - - AU$0.75 (i) 22/11/2005 30/06/2008 400,000 - (250,000) - 150,000 150,000 AU$0.60 (i) 08/05/2006 30/06/2008 165,000 - (108,900) - 56,100 56,100 AU$0.75 (ii) 13/07/2006 01/12/2008 1,200,000 - - - 1,200,000 800,000 AU$1.05 (i) 19/10/2006 30/06/2009 600,000 - - (100,000) 500,000 200,000 AU$2.60 (iii) 23/04/2007 20/05/2010 - 350,000 - - 350,000 100,000 AU$2.10 (iv) 29/05/2007 27/02/2010 - 1,200,000 - - 1,200,000 200,000 AU$1.70 (v) 29/05/2007 01/12/2009 - 150,000 - - 150,000 75,000 AU$2.60 (i) 29/05/2007 20/05/2010 - 400,000 - - 400,000 - AU$3.14 (i) 13/07/2007 27/07/2010 - 250,000 - - 250,000 - AU$2.60 (v) 13/07/2007 20/05/2010 - 50,000 - (50,000) - - AU$2.80 (i) 13/07/2007 12/07/2010 - 200,000 - - 200,000 - AU$2.97 (i) 26/07/2007 12/07/2010 - 300,000 - - 300,000 - AU$2.23 (i) 22/08/2007 01/09/2010 - 600,000 - - 600,000 - AU$3.22 (v) 30/11/2007 01/11/2009 - 295,000 - - 295,000 - AU$3.22 (v) 30/11/2007 01/12/2011 - 400,000 - - 400,000 - AU$2.88 (i) 30/11/2007 31/12/2010 - 350,000 - - 350,000 - AU$2.97 (v) 30/11/2007 31/12/2010 - 100,000 - - 100,000 - AU$2.81 (vi) 21/12/2007 01/02/2011 - 400,000 - - 400,000 - 5,415,000 5,045,000 (3,306,900) (150,000) 7,003,100 1,683,100 Weighted average exercise price AU$0.67 AU$2.58 AU$0.61 AU$1.53 AU$2.06 AU$1.05
2006 Balance Vested and Granted Exercised Lapsed at the end exerciseable Exercise Expiry Opening during during the during of the at the end of price Grant date date balance the year year the year year the year AU$0.20 (vii) 23/10/2003 30/06/2007 5,000,000 - (5,000,000) - - - AU$0.60 (i) 12/02/2004 30/06/2007 2,000,000 - (150,000) - 1,850,000 1,233,333 AU$0.60 (i) 11/05/2004 30/06/2007 500,000 - - - 500,000 333,333 AU$0.60 (i) 29/03/2005 30/06/2008 300,000 - - - 300,000 200,000 AU$0.60 (i) 20/07/2005 30/04/2008 300,000 - - - 300,000 100,000 AU$0.60 (i) 11/11/2005 30/06/2007 100,000 - - - 100,000 33,333 AU$0.75 (i) 22/11/2005 30/06/2008 400,000 - - - 400,000 133,333 AU$0.60 (i) 08/05/2006 30/06/2008 500,000 - - (335,000) 165,000 - AU$0.75 (ii) 13/07/2006 01/12/2008 - 1,200,000 - - 1,200,000 200,000 AU$1.05 (i) 19/10/2006 30/06/2009 - 600,000 - - 600,000 - 9,100,000 1,800,000 (5,150,000) (335,000) 5,415,000 2,233,333 Weighted average exercise price AU$0.38 AU$0.80 AU$0.21 AU$0.60 AU$0.67 AU$0.61
70 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
20. Share based payments (continued) (i) These options vest in three equal annual tranches, each subject to completion of a full year of service with the Company. (ii) These options vest in six equal tranches, each subject to a different vesting condition as follows: a. 200,000 immediately on issue. b. 200,000 on completion of the Munali Feasibility Study; c. 200,000 on completion of debt and equity fi nancing for the Munali Project; d. 200,000 on the commencement of commercial mining at the Munali Project; e. 200,000 on the fi rst US$50 million of sales or the market capitalisation of the Company reaching AU$150 million; and f. 200,000 on three years of service or the next US$100 million of sales or the market capitalisation of the Company reaching AU$200 million. (iii) These options vest in four equal annual tranches, each subject to completion of a full year of service with the Company. (iv) These options vest in six equal tranches, each subject to a different vesting condition as follows: a. 200,000 to vest on continued employment by Mr. Dale Clark Rogers up to 31 December 2007; b. 200,000 to vest on continued employment by Mr. Dale Clark Rogers up to 31 December 2008; c. 200,000 to vest on continued employment by Mr. Dale Clark Rogers up to 31 December 2009; d. 200,000 to vest on the Mechanical Completion where it occurs on or prior to 31 July 2008; e. 200,000 to vest on the occurrence of Mechanical Completion where it is on budget (within 5% of budgeted development costs for the 2007 and 2008 annual budgets); and f. 200,000 to vest on the occurrence of Economic Completion where it occurs on or prior to 30 June 2009. (v) These options vest in two equal annual tranches, each subject to completion of a full year of service with the Company. (vi) These options vest on a time basis in three equal annual tranches. They were granted to Barclays Capital in relation to the funding arrangements entered into in December 2007. (vii) These options vested at grant date All options granted carry no dividend or voting rights. Upon a takeover bid for the Company all unvested options vest. The Company does not have an Employee Share Plan. The following table lists the inputs to the binomial model used for calculating the option expense for the year ended 31 December 2007 and 2006.
Share price Exercise Risk-free Volatility Useful life Grant date at grant date price interest rate factor (years) Expiry date 08/05/2006 0.68 0.55 5.70% 50% 2.60 30/06/2008 13/07/2006 0.68 1.05 5.70% 50% 2.60 01/12/2008 19/10/2006 1.34 2.60 5.97% 53% 2.69 30/06/2009 23/04/2007 3.10 2.10 6.19% 54% 3.03 20/05/2010 29/05/2007 3.10 1.70 6.22% 54% 2.75 27/02/2010 29/05/2007 3.10 2.60 6.22% 54% 2.50 01/12/2009 29/05/2007 3.10 3.14 6.22% 54% 2.97 20/05/2010 13/07/2007 3.15 2.60 6.22% 56% 3.00 12/07/2010 13/07/2007 3.15 2.80 6.22% 55% 2.85 20/05/2010 13/07/2007 2.86 2.97 6.21% 56% 3.00 12/07/2010 26/07/2007 2.86 2.23 6.21% 55% 3.01 27/07/2010 22/08/2007 2.10 3.22 6.53% 57% 3.03 01/09/2010 30/11/2007 2.65 3.22 5.88% 50% 1.92 01/11/2009 30/11/2007 2.65 2.88 5.88% 50% 4.01 01/12/2011 30/11/2007 2.65 2.97 5.88% 50% 3.08 30/12/2010 30/11/2007 2.65 2.81 5.88% 50% 3.08 30/12/2010 21/12/2007 3.15 2.81 6.02% 49% 3.12 01/02/2011
The expected volatility was determined by using a historical sample of the daily share price movement percentages over the useful life. The resultant expected volatility therefore refl ects the assumption that historical volatility is refl ective of future trends, which may not necessarily be the actual outcome. The weighted average remaining contractual life for the share options outstanding as at 31 December 2007 is 2.25 years (2006: 1.24 years). The weighted average fair value of options granted during the year was AU$1.16 (2006: AU$0.51).
71 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Notes to the Financial Statements (continued)
21. Interest in Having met the initial expenditure Albidon and MM Mining plc requirement of AU$500,000 within 2 In October 2007 Albidon and MM Mining joint ventures years, AFR has elected to enter into plc (‘MMM’) entered into an agreement joint ventures with Albidon on three Albidon and BHP Billiton Limited for the exploration and development of nominated project areas, Chirundu, the Mpemba nickel project in Malawi. Albidon and BHP Billiton Limited (“BHP Kariba and Luano. AFR has earned an Under the agreement MMM will sole- Billiton”), previously WMC Resources equity interest of 30% in the Chirundu fund initial exploration expenditure Exploration Pty Limited, entered into JV and is currently completing a of US$200,000 within 12 months, an agreement in October 2004 for Pre-feasibility Study on a JORC Indicated and may then earn a 75% interest by the exploration and development of a Resource to earn a 70% interest. expending an additional $US1.2 million number of Albidon’s nickel projects in On each of the Kariba and Luano within 4 years. Thereafter Albidon east Africa. joint ventures AFR is funding initial may elect to contribute to project BHP Billiton has elected to proceed to exploration programmes to earn a expenditures in proportion to its 25% the earn-in stage of the agreement in 30% interest. interest or may convert this to a 3% respect of several tenements at Songea NSR royalty. Albidon and Zinifex Limited in Tanzania. Through sole funding of agreed exploration programmes, BHP In December 2006 Albidon and Zinifex Billiton may earn a 30% interest in this Limited (“Zinifex”) entered into an Apart from the balance on the Zinifex project by expending US$5 million, agreement in respect of zinc projects imprest account (see note 17) the inclusive of the amounts expended on in Tunisia. Under the key terms of Group has no recognised assets, the project area during the initial period. the agreement Zinifex will make liabilities, outstanding commitments staged cash payments to Albidon of or contingent liabilities in relation to BHP Billiton may complete a Pre- US$1 million, with an initial payment these joint ventures. feasibility Study (including a JORC of US$250,000, and a minimum Measured Resource) on the Songea commitment of US$1.3 million of project to earn a 70% interest. Albidon expenditure. Zinifex has now completed may then elect to fund its 30% share of this expenditure within the required project expenditures, or may reduce to 12 month period. The US$250,000 a 20% equity interest in return for BHP was received during the year and Billiton funding the fi rst US$10 million is included in other income in the of a Bankable Feasibility Study. income statement. Albidon and Zinifex may earn a 51% interest in the African Energy Resources Limited projects by spending a total of US$6 Albidon Limited and Energy Ventures million on exploration within 3 years, Limited (“EVE”) entered into an and making a further cash payment of agreement in October 2005 for the US$750,000. No interest will be earned exploration and development by Zinifex in the projects until this of a number of uranium and coal time. The minimum initial committed prospects that have been identifi ed expenditure of US$1.3 million is on Albidon’s tenements in Zambia. credited towards the earn-in, however The exploration programme is funded the cash payments of US$1 million are and managed by African Energy not included as project expenditures. Resources Limited (“AFR”), which is Zinifex may earn a total interest of 70% owned as to approximately 70% by EVE. by spending an additional US$5 million within two years. Thereafter Albidon may elect to contribute to project expenditures in proportion to its 30% interest or may sell its interest for cash plus a retained royalty.
72 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
22. Investments in subsidiaries The consolidated fi nancial statements include the fi nancial statements of Albidon Limited and the subsidiaries listed in the following table:
% Equity interest Country of 31 December 31 December incorporation 2007 2007 Albidon Zambia Limited Zambia 100 100 Tumbili Ventures Limited Tanzania 100 100 Albidon Africa Limited British Virgin Islands 100 100 Albidon Malawi Limited Malawi 100 100 Albidon Mocambique Limitada (i) Mozambique 100 100 Albidon Australia Pty Ltd Australia 100 100 Albidon Botswana Pty Ltd Botswana 100 100 Albidon Exploration Limited Zambia 100 100 Albidon (UK) Ltd United Kingdom 100 100
(i) Shares held by subsidiary undertaking.
23. Available for sale investments 2007 2006 US$ US$ At fair value: Investment in Tausi Mining Pty Limited (Luwumbu JV) - -
Albidon owns 10% of equity in Tausi Mining Pty Limited, a company incorporated in Western Australia. The wholly owned subsidiary of Tausi Mining Pty Limited, namely Tausi Minerals Company Limited, holds project tenements in Tanzania. These tenements are subject to a joint venture arrangement (“the Luwumbu joint venture”). The asset is carried at fair value and as such, recorded at nil.
73 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Notes to the Financial Statements (continued)
24. Commitments As at 31 December 2007 the Group had the following commitments:
(a) Albidon tenement commitments: (i) Exploration: Commitment on licenses requiring expenditures within 2 years : US$383,505 Commitment on licenses requiring expenditures within 3 years : US$201,132
(b) Other: At the balance sheet date the following commitments existed in relation to the development of the Munali Project. Not later the 1 year
Commitment $US Plant construction 6,743,300 Flotation cells and thickeners 1,230,700 Mill crusher, feeder and conveyor equipment 1,070,800 Grinding equipment & construction 1,790,900 Insurance spares 959,100 Plant piping 797,300 Power 2,170,700 Reagent plant modules 294,700 Total 15,057,500
These commitments have not been provided for in the fi nancial statements.
74 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
25. Related party In 2005 the Company made a loan of (2006: US$110,166) in respect of US$865,527 to Mr. Brian Rudd (acting services provided to the Company transactions for the Capital Drilling group) for the in the ordinary course of business. The following transactions were carried purchase of a drilling rig, which was At 31 December 2007 the Company out with related parties: paid off during 2007. US$208,830 owed MCS US$1,500 (2006: nil). had been outstanding at 31 December At 31 December 2007 US$198,900 Directors’ interests 2006. US$6,172 interest was charged (2006: US$216,969) was owed to to the loan balance during 2007 Mitchell River Group Pty Ltd., an entity Peregrine Pty Ltd., a mining consulting (2006: US$31,028). The rig is owned associated with Messrs Cooke, Burton fi rm of which Mr. Dale Rogers is a and operated by Brian Rudd and was and Windrim provides offi ce space director, in relation to services provided held under trust by Albidon Zambia and administrative staff, facilities and before Mr. Rogers became a Director Limited. Mr. Rudd and Capital Drilling services to the Company, the costs of the Company. of which are then reimbursed by the are experienced operators of drilling Company. For the year ended 31 services in Africa. The rig has been used All of the above transactions were December 2007, these costs totalled at the Company’s Munali site in Zambia. entered into on normal commercial US$600,130 (2006: US$532,094). The loan bore an interest rate of terms. During the year the Company recharged 7% pa. Mr. Craig Burton has a Directors Mitchell River Group Pty Ltd. the total of 25% equity interest in the Capital US$84,285 (2006: US$35,366) for rent Drilling group. The Directors of the Company during the year, and up to the date of this report, and shared overheads. At 31 December African Energy Resources Ltd., a were as follows: 2007 US$8,240 (2006: US$19,318) uranium exploration fi rm of which was owing to the Company. Dr. Donal Windrim and Mr. Alasdair Dale Rogers Hartree Pty Ltd., a mining consulting Cooke are directors, has been invoiced Craig Burton fi rm of which Mr. Alasdair Cooke for the year ended 31 December 2007 Alasdair Cooke is a director, has received fees of US$133,951 (2007: USD$112,008) Donal Windrim US$25,887 (2006: US$19,671) in in respect of operating costs recovery Michael Brook respect of database access, fi eld provided by the Company in the ordinary Richard (Dick) Potts equipment rental and offi ce cost course of business. At 31 December Christopher De Guingand recovery provided to the Company 2007 US$38,107 (2006: US$97,819) Paul Chapman in the ordinary course of business. was owing to the Company. Valentine Chitalu John Shaw Mineral Commercial Services Pty Ltd. (MCS), a consulting fi rm of which Mr. Chris De Guingand is a director, has received fees of US$51,865
Compensation of key management personnel of the Group 2007 2006 US$ US$ Short term employee benefi ts 878,770 573,097 Post employment pension and medical benefi ts 50,689 35,945 Termination benefi ts - - Share-based payments 1,786,348 325,560 Total compensation paid to key management personnel 2,715,807 934,602
75 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
25. Related party transactions (continued) Directors’ options AU$ Number Exercise price Expiry date Fair value 2006 - Issued to Directors 1,200,000 0.75 01/12/2008 567,000 2006 - Issued to Directors 100,000 1.05 30/06/2009 57,530 2007 - Issued to Directors 1,200,000 2.10 27/02/2010 1,833,325 2007 - Issued to Directors 400,000 2.60 20/05/2010 542,075
Fair value represents the total expense which will be reported in the income statement over the vesting period of the respective options.
26. Contingent assets and liabilities There are no identifi ed contingent assets or liabilities as at balance date or up to the date of this report.
27. Events after the balance sheet date
(i) Share capital issues In January 2008, as part of the funding arrangements negotiated in December 2007, the Company received a second instalment of US$5 million from ZCCM Investments Holdings plc (“ZCCM-IH”) to complete the transaction whereby the Company issued 3,389,831 shares at AU$3.35/US$2.95 cents each to ZCCM-IH to raise US$10 million. The fi rst instalment payment was received in December 2007 and is included as “Share capital to be issued” in the Balance Sheet at 31 December 2007. In addition, in February 2008 the Company completed the fi nal issue of 5,084,746 shares at AU$3.35/US$2.95 cents each to the Jinchuan Group Limited to raise US$15 million. The funds raised will be used to help fund the development of the Munali Nickel Project in Zambia and will also ensure Albidon retains suffi cient funds for exploration, increased drilling and business development activities.
(ii) Hedging As part of the funding arrangements negotiated in December 2007, in February 2008 the Company forward hedged 2,274 tonnes of nickel in addition to its original 9,020 tonnes hedged in April 2007. Total nickel now hedged is 11,294 tonnes which represents approximately 25% of the nickel in concentrate expected to be produced from the Munali Nickel Project over the hedging period. The weighted average hedge prices per year for all of the hedged nickel are:
2009 2010 2011 2012 2013 Average hedge price (US$ per tonne) 28,095 26,328 23,516 21,215 19,383 Nickel tonnes hedged 1,934 2,340 2,340 2,340 2,340
(iii) Options On 25 February 2008, 100,000 unlisted options exercisable at AU$3.25 expiring on or before 1 February 2011 were allocated to the key personnel. On 17 March 2008, the Company advised that subject to Shareholder approval Mr. John Shaw, Deputy Chairman, would be allocated 300,000 unlisted options exercisable at AU$3.47 expiring on or before 30 June 2011.
Apart from the above there has not arisen in the interval between the end of fi nancial period and the date of these fi nancial statements any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company, to affect signifi cantly the operations of the entity, the results of these operations, or the state of affairs of the entity, in future fi nancial periods.
76 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Directors’ Declaration
In accordance with a resolution of the board of Directors of Albidon Limited, I state that: In the opinion of the Directors: a) the fi nancial statements and notes of the Consolidated Entity: i. give a true and fair view of the fi nancial position as at 31 December 2007 and the performance for the year ended on that date of the Consolidated Entity; and ii. comply with International Financial Reporting Standards, b) 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
Dale Rogers Director 31 March 2008
77 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
Independent auditor’s report to the members of Albidon Limited
Independent auditor’s report to the members of Albidon Limited We have audited the accompanying fi nancial report of Albidon Limited and the entities it controlled (the “Group”) during the year ended 31 December 2007, which comprises the consolidated balance sheet as at 31 December 2007 and the consolidated income statement, consolidated statement of changes in equity and cash fl ow statement for the year ended on that date, a summary of signifi cant accounting policies, other explanatory notes and the directors’ declaration.
Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation and fair presentation of the fi nancial report in accordance with International Financial Reporting Standards. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the fi nancial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditor’s Responsibility Our responsibility is to express an opinion on the fi nancial report based on our audit. We conducted our audit in accordance with International Standards on Auditing. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the fi nancial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial report. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the fi nancial report, whether due to fraud or error. In making those risk assessments, we consider internal controls relevant to the entity’s preparation and fair presentation of the fi nancial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the fi nancial report. We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion.
Independence In conducting our audit we have met the independence requirements of Australian and International professional ethical pronouncements.
Auditor’s Opinion In our opinion the consolidated fi nancial report presents fairly, in all material respects, the fi nancial position of the Group as of 31 December 2007, and of its fi nancial performance and cash fl ows for the year then ended in accordance with International Financial Reporting Standards
Ernst & Young
V W Tidy Partner, Perth, 31 March 2008
78 ALBIDON LIMITED ANNUAL REPORT 2008
Corporate Governance Report This statement outlines the main corporate governance practices in place throughout the fi nancial year, which comply with the Australian Stock Exchange (“ASX”) and Alternative Investment Market of the London Stock Exchange (“AIM”), unless otherwise stated.
The Company’s Corporate Governance Board of Directors the Board in pursuing the Company’s Statement is now structured business plan at this relatively early with reference to the Corporate Role of the Board stage of its development are expert Governance Council’s principles and The primary role of the Board of geological, exploration and evaluation recommendations, which are as follows: Directors is the protection and project management skills, project development skills and strong fi scal • Lay solid foundations for management enhancement of long-term management skills. In addition, and oversight. shareholder value. each Director is charged with having • Structure the Board to add value. To fulfi l this role, the Board is a thorough understanding of, and • Promote ethical and responsible responsible for the overall corporate responsibility for, the protection decision making. governance of the Company including of the rights of the Company and formulating its strategic direction, • Safeguard integrity in fi nancial its shareholders. approving and monitoring capital reporting. expenditure, setting remuneration, The Board has these skills and as • Make timely and balanced disclosure. appointing, removing and creating the Company progresses will review • Respect the rights of shareholders. succession policies for Directors the Board composition as and when complimentary skills are required. • Recognise and manage risk. and senior Executives, establishing and monitoring the achievement of • Encourage enhanced performance. The Board presently comprises four management’s goals and ensuring Non-Executive Directors, two Executive • Remunerate fairly and responsibly. the integrity of internal control and Directors and the Managing Director. • Recognise the legitimate interests management information systems. Christopher De Guingand, Richard Potts of stakeholders. It is also responsible for monitoring John Shaw and Valentine Chitalu are fi nancial and other reporting. The Company’s Board of Directors Independent Directors at this time. has reviewed the recommendations. Board processes The Directors meet frequently, both In a limited number of instances, The Board has established a framework formally and informally, to ensure the Company may determine not to for the management of the Company a mutually thorough understanding meet the standard set out in the including, a system of internal control, of the Company’s business and all recommendations, largely due to same a business risk management process the Company’s policies of corporate recommendations being considered by and the establishment of appropriate governance are adhered to. The agenda the Board to be unduly onerous for a ethical standards. for meetings is prepared in conjunction company of this size. with the Chairman, Managing Director The Company is engaged in exploration, and Company Secretary and is evaluation and development of mining circulated in advance. interests. The critical skills required by
The term in offi ce held by each Director in offi ce at the date of the Annual Report is as follows:
Name Term in Offi ce Mr. A Cooke 7 Years Mr. R Potts 5 Years Mr. C De Guingand 5 Years Mr. D Rogers 3 Years Mr. V Chitalu 1 year Mr. P Chapman 1 year Mr. J Shaw 3 months
79 ALBIDON LIMITED ANNUAL REPORT 2008
Corporate Governance Report (continued)
Director education The Board considers that the majority of Factors considered for a new The Company has a formal process the Board is independent in accordance candidate include: to educate new Directors about with Recommendation 2.1. Directors • The skills required for appointment the nature of the business, current having a confl ict of interest in relation to to the Board. a particular item of business must and issues, the corporate strategy and the • How differing skills are represented do absent themselves from the Board expectations of the Company concerning on the Board. the performance of Directors. Directors Meeting before commencement of • Processes for the identifi cation of are given access to and encouraged discussion on the topic. suitable candidates for the Board. to participate in continuing education Recommendation 9 states that • The time commitment required opportunities to update and enhance Non-Executive Directors should not by a Director to effectively their skills and knowledge. receive options or bonus payments. discharge duties. The Company intends to continue its Independent professional advice and policy of awarding options or other • The number of existing Directorships access to company information securities to Non-Executive Directors and other commitments that the Each Director has the right of access to as it considers this to be a reasonable candidate may have. all relevant Company information and to and appropriate method of assisting in • Assessment of the ‘independence’ the Company’s Executives and, subject attracting and retaining suitably skilled of the candidate. to prior consultation with the Chairman, Board members. • The extent to which the appointee is may seek independent professional likely to work constructively with the advice from a suitably qualifi ed advisor Nomination Committee existing Directors and contribute to at the Company’s expense. The Director Recommendation 2.4 requires listed the overall effectiveness of the Board. must consult with an advisor suitably entities to establish a Nomination qualifi ed in the relevant fi eld and obtain Committee. During the period ended The following procedure is followed in the Chairman’s approval of the fee 31 December 2007, the Company selecting and appointing a new Director: payable for the advice before proceeding did not have a separate Nomination • Utilise personal networks or external with the consultation. A copy of the Committee. The duties and consultants to identify potential advice received by the Director is made responsibilities typically delegated candidates. available to all other Board members. to such a committee are considered • Assess appropriateness of candidate to be the responsibility of the full Independence with consideration to the above Board, given the size and nature of the points. Corporate Governance Council Company’s activities. The Board does Recommendation 2.1 requires a not believe that any marked effi ciencies • Determine the terms, conditions, majority of the Board to be Independent or enhancements would be achieved by responsibilities and expectations Directors. The Corporate Governance the creation of a separate Nomination of the new position. Council defi nes independence as Committee. The Board has reviewed its • Non-Executive Directors should be being free from any business or other policy on nominations and incorporates appointed for specifi c terms subject relationship that could materially below its summarised policy. to re-election and to the ASX and AIM interfere with, or could reasonably Listing Rules and Corporations Act be perceived to materially interfere provisions concerning removal of a with, the exercise of unfettered and Director. independent judgement. In accordance • Ultimate decisions about who is with this defi nition four Directors, elected to the Board are to be made Mr. Christopher De Guingand, by the shareholders. Mr. Richard Potts, Mr. John Shaw and Mr. Valentine Chitalu are considered • Ensuring that the new Board member to be independent. is inducted and that they have every opportunity to increase their knowledge about the Company to ensure that they can participate in an effective manner to the Board deliberations.
80 ALBIDON LIMITED ANNUAL REPORT 2008
Continuous agreements and or clauses with the • The full texts of notices of meetings Company. Discussions with external and associated explanatory material disclosure policy parties will only occur following an ASX are placed on the Company’s website. and AIM announcement. All written The Company is required to immediately All of the above information is made materials containing new price sensitive inform the ASX and AIM once it available on the Company’s website. information to be used in briefi ng becomes aware of any information Copies of all presentations made by media, investors and analysts will be concerning it that a reasonable person the Company in a public forum are notifi ed to the ASX and AIM prior to the would expect to have a material posted on the website. The majority of commencement of that briefi ng. effect on the price or value of the the information is also e-mailed to all Company’s securities. In reviewing the content of analysts’ shareholders who lodge their e-mail Therefore to meet this obligation the reports and profi t forecasts, the contact details with the Company. Company will correct factual Company undertakes to: The external auditor is requested to inaccuracies or historical matters. • Notify the ASX and AIM immediately attend the Annual General Meeting to when it becomes aware of any Information is communicated to answer any questions concerning the information that a reasonable person shareholders as follows: audit and the auditor’s report. would expect to have a material • The annual report is distributed to all The Board encourages full participation effect on the price and value of the shareholders (unless a shareholder of shareholders at the Annual General Company’s securities, unless that has specifi cally requested not to Meeting to ensure a high level of information is not required to be receive the document), including accountability and identifi cation with disclosed under the listing rules. relevant information about the the Company’s strategy and goals. • Disclose notifi cations to the ASX operations of the Company during the Important issues are presented to the and AIM on the Company website year, changes in the state of affairs shareholders as single resolutions. and details of future developments. following confi rmation of the The shareholders are responsible for The audited annual fi nancial report is publishing of the information by the voting on the appointment of Directors, lodged with the Australian Securities ASX and AIM. approval of the maximum amount of and Investment Commission and the Directors’ fees and the granting of • Not respond to market speculation ASX and AIM. or rumour unless the ASX or AIM options and shares to Directors. considers it necessary due to there • The half-yearly report contains being, or likely to be, a false market summarised fi nancial information Share trading policy in the Company’s securities. and a review of the operations of the The Company has established a policy Company during the period. The Company Secretary is responsible that imposes certain restrictions on The half-year reviewed fi nancial Directors, senior management and other for coordinating the disclosure report is lodged with the Australian requirements. To ensure appropriate employees trading in the Company’s Securities and Investment securities. The policy has been adopted procedure all Directors, offi cers and Commission and the ASX and AIM, employees of the Company coordinate to prevent trading in contravention and sent to any shareholder who of the insider trading provisions disclosures through the Company requests it. Secretary, including: of the Corporations Act 2001, in • Quarterly reports are prepared in particular when Company personnel • Media releases accordance with ASX listing rules. are in possession of price-sensitive • Analyst briefi ngs and information. • Proposed major changes in the presentations and Company which may impact on share In general, trading in the Company’s • The release of reports and ownership rights are submitted to a securities is prohibited: operational results. vote of shareholders. • whilst in possession of unpublished Information that has not been disclosed • All announcements made to the price sensitive information; via ASX and AIM announcement that market and related information are • where offi cers are engaging in the might be considered share price placed on the Company’s website business of active dealing; sensitive will not be discussed with after they are released to the ASX • two months before the release of any external parties, except for third and AIM, including regular updates parties bound by confi dentiality the Company’s half yearly or annual on operations. report to the ASX and AIM
81 ALBIDON LIMITED ANNUAL REPORT 2008
Corporate Governance Report (continued)
• one month before the release of the Remuneration policies Performance Company’s quarterly report to the Remuneration of the Directors are The performance of the Board and ASX and AIM; and formalised in service agreements. key Executives is reviewed regularly • two weeks before lodgement and The Remuneration Committee is against both measurable and during the period that a disclosure responsible for determining and qualitative indicators. The performance document including a prospectus is reviewing compensation arrangements criteria against which Directors and open for applications except to the for the Directors themselves the Executives are assessed is aligned extent that a Director or employee is Managing Director and the with the fi nancial and non-fi nancial applying for securities pursuant Executive team. objectives of the Company. Directors to that disclosure document. whose performance is consistently It is the Company’s objective to provide unsatisfactory may be asked to retire. The Company holds a register of maximum stakeholder benefi t from employees that maintain share holdings the retention of a high quality board Risk management and any sales must be referred to the and Executive team by remunerating Managing Director or Chairman. Directors and key Executives fairly and Oversight of the risk appropriately with reference to relevant management system Confl ict of Interest employment market conditions. The Board takes a proactive approach In accordance with the Corporations To assist in achieving this objective, to risk management. The Board Act and the Company’s constitution the Board links the nature and amount is responsible for oversight of the Directors must keep the Board advised, of Executive Directors’ and offi cers’ processes whereby the risks, and on an ongoing basis, of any interest that emoluments to the Company’s fi nancial also opportunities, are identifi ed on a could potentially confl ict with those of and operational performance. timely basis and that the Company’s the Company. Where the Board believes The expected outcomes of the objectives and activities are aligned with that a signifi cant confl ict exists the remuneration structure are: the risks and opportunities identifi ed by Director concerned does not receive • Retention and motivation of the Board. This oversight encompasses the relevant Board papers and is not key Executives operational, fi nancial reporting and present at the meeting whilst the item compliance risks. • Attraction of quality management is considered. to the Company The Company believes that it is crucial for all Board members to be a part of Remuneration • Performance incentives which allow the process, and as such the Board Executives to share the rewards of and performance has not established a separate risk the success of the Company assessment management committee. Remuneration of Non-Executive The Board oversees the establishment, Remuneration Committee Directors is determined by the Board implementation and annual review with reference to comparable industry Recommendation 9.2 requires listed of the Company’s risk management levels and, specifi cally for Directors’ entities to establish a Remuneration policies as part of the Board approval fees, within the maximum amount Committee. During the year ended process for the strategic plan, which approved by shareholders. 31 December 2007, the Company had encompasses the Company’s vision a separate Remuneration Committee. In relation to the payment of bonuses, and strategy, designed to meet Remuneration Committee members are: options and other incentive payments, stakeholder’s needs and manage discretion is exercised by the Board, business risks. • Christopher De Guingand (Chairman) having regard to the overall performance • Richard Potts of the Company and the performance of • Nicholas Day the individual during the period. There is no scheme to provide retirement benefi ts to Non-Executive Directors.
82 ALBIDON LIMITED ANNUAL REPORT 2008
Internal control framework Recommendation 4.3 requires listed The external audit lead audit partner The Board acknowledges that it is entities to have an Audit Committee is rotated every 7 years and will be responsible for the overall internal consisting of only Non-Executive rotated off during 2011. control framework, but recognises Directors, a majority of independent that no cost effective internal control Directors, an independent Chairman, Ethical standards system will preclude all errors and who is not Chairman of the board and at All Directors and employees are irregularities. To assist in discharging least three members. Recommendation expected to act with the utmost this responsibility, the Board has 4.4 requires the Audit Committee to integrity and objectivity, striving at all instigated an internal control framework have a formal charter. times to enhance the reputation and that deals with: The Company does not currently comply performance of the Company. • Financial reporting - there is a with the Recommendations. During comprehensive budgeting system the year ended 31 December 2007, Health, safety, with an annual budget, updated on the Company had a separate Audit environment a regular basis and approved by the Committee. and heritage Board. Monthly actual results are Audit Committee members are: reported against these budgets. protection policy • Christopher De Guingand (Chairman) The Company is committed to • Investment appraisal - the Company • Valentine Chitalu has clearly defi ned guidelines for compliance with all relevant laws and • Nicholas Day capital expenditure including annual regulations and continual assessment budgets, detailed appraisal and Due to the small size of the Board of its operations to ensure protection of review procedures, levels of authority the Audit Committee consists of two the environment, the community and the and due diligence requirements where Non-Executive Directors both of whom health and safety of its employees. businesses or assets are being are independent. The Chairman of The Company has adopted a policy acquired or divested. the Board is not the Chairman of the and maintains appropriate procedures Audit Committee. • Quality and integrity of personnel - to ensure that all Company activities the Company’s code of conduct is The Audit Committee consists of are carried out in compliance with detailed in an approved induction members with fi nancial expertise and safety regulations, in a culture where manual. Formal appraisals are detailed knowledge and experience of the safety of personnel is paramount conducted annually for all employees. the mineral exploration, evaluation and and which recognises environmental development business. It advises on sustainability and respect for cultural Audit and the establishment and maintenance and heritage issues as essential compliance policy of a framework of internal control and requirements for all its activities. appropriate ethical standards for the Procedures are maintained to The Board imposes stringent management of the Company. govern the activity of employees policies and standards to ensure and contractors to ensure that the compliance with all corporate fi nancial The Audit Committee will meet with objectives of this policy are met. and accounting standards. Where the Company’s external auditors, The Company is committed to working in considered appropriate, the Company’s independent of the Managing Director, accordance with World Bank Standards. external auditors, professional advisors at least twice a year. and management are invited to advise The Managing Director and the Chief the Board on these issues and the Financial Offi cer declared in writing to Board meets quarterly to consider audit the Board that the Company’s fi nancial matters prior to statutory reporting. reports for the year ended 31 December The Company requires that its auditors 2007 present a true and fair view, in must not carry out any other major all material respects, of the Company’s area of service to the Company and fi nancial condition and operational should have expert knowledge of results and are in accordance with both Australian and international relevant accounting standards. This jurisdictions. statement is required annually.
83 ALBIDON LIMITED ANNUAL REPORT 2008
Additional Shareholder Information
Stock exchange listing Albidon Limited shares are listed on the Australian Stock Exchange Limited (‘ASX’) and Alternative Investment Market (‘AIM’) of the London Stock Exchange. The Company’s ASX code is ALB and its AIM code is ALD.
Substantial and Signifi cant Shareholders
Total number of voting shares in Albidon Ltd. in which the substantial and signifi cant shareholders and its associates hold Percentage of Name of ordinary shareholder relevant interests number of voting shares
1 Lion Selection (Group) 33,800,000 20.53% 2 Jinchuan Group, Ltd. 9,275,738 5.63% 3 Donal Windrim 7,500,000 4.56% 4 Commonwealth Bank (Institutional Group) 7,310,023 4.44% 5 BlackRock Advisors (Institutional Group) 5,739,452 3.49% 6 Emerging Markets Management, L.L.C. 5,056,108 3.07% 7 Alasdair Cooke 5,000,000 3.04%
Substantial Shareholding is defi ned under section 671B of the Australian Corporations Act and ASX listing rules, as a relevant interest of not less that 5% of the total votes attached to the voting shares in the company. Signifi cant Shareholding is defi ned in the AIM listing rules as a shareholder of 3% or more of the total votes attached to the voting shares in the company.
Class of shares and voting rights At 31 March 2008 there were 1,294 holders of 162,642,469 ordinary fully paid shares in the Company. The voting rights attaching to the ordinary shares and depositary interests over ordinary shares are: a. Each shareholder is entitled to vote and may vote in person or by proxy, attorney or representative with the exception of depositary interest holders. b. On a show of hands, every person present who is a shareholder or a proxy, attorney or representative of a shareholder has one vote: and c. On a poll, every person present who is a shareholder or proxy, attorney or representative of a shareholder shall, in respect of each fully paid share held by him, or in respect of which he is appointed a proxy, attorney or representative, have one vote for the share. d. While depositary interest holders have the right to vote on a poll (whereupon proxies previously lodged can be counted) they are not able to personally vote on a show of hands. Depositary interest holders wishing to attend personally and vote at a shareholder meeting must convert their depositary interests into certifi cated shares prior to the meeting. The depositary interest holder should contact Computershare in Australia or the United Kingdom in advance to fi nd out how long the conversion process will take.
84 ALBIDON LIMITED ANNUAL REPORT 2008
Distribution of security holders
Number of shares held Number of shareholders Number of option holders
1-1,000 267 - 1,001-5,000 555 - 5,001-10,000 197 - 10,001-100,000 203 15 100,001 and over 72 15 Total 1,294 30
Listing of 20 largest shareholders
Name of ordinary shareholder Number of shares held Percentage of shares held
1 Lion Selection (Group) 33,800,000 20.53% 2 Jinchuan Group, Ltd. 9,275,738 5.63% 3 Donal Windrim 7,500,000 4.56% 4 Commonwealth Bank (Institutional Group) 7,310,023 4.44% 5 BlackRock Advisors (Institutional Group) 5,739,452 3.49% 6 Emerging Markets Management, L.L.C. 5,056,108 3.07% 7 Alasdair Cooke 5,000,000 3.04% 8 Robert Disbrow 4,872,650 2.96% 9 Universal-Investment-Gesellschaft mbH 4,526,562 2.75% 10 Fidelity (Institutional Group) 4,256,734 2.59% 11 RBC (Institutional Group) 4,211,500 2.56% 12 AXA (Institutional Group) 3,964,941 2.41% 13 Genesis Investment Management, LLP 3,524,621 2.14% 14 TD Waterhouse (Broker Group) 3,482,416 2.12% 15 ZCCM Investments Holdings plc 3,389,831 2.06% 16 Millhouse Holdings 2,660,462 1.62% 17 Craig Burton 2,500,000 1.52% 18 Jupiter Asset Mgt (Institutional Group) 2,499,954 1.52% 19 Independent Asset Management Pty. Ltd. 2,400,000 1.46% 20 Standard Life Investments (Institutional Group) 2,000,000 1.21% Total 117,970,972 71.65%
85 ALBIDON LIMITED ANNUAL REPORT 2008
Additional Shareholder Information (continued)
Distribution of security holders
Securities Name of holders Number held Options exercisable at AU$0.75 on or before 30 Jun 2008 Grant Osborne 150,000 Options exercisable at AU$0.60 on or before 30 Jun 2008 David Chapman 56,100 Options exercisable at AU$0.75 on or before 1 Dec 2008 Dale Rogers 1,200,000 Options exercisable at AU$1.05 on or before 30 Jun 2009 Olivia Woodland 150,000 Options exercisable at AU$1.05 on or before 30 Jun 2009 Michael Dunbar 150,000 Options exercisable at AU$1.05 on or before 30 Jun 2009 Valentine Chitalu 100,000 Options exercisable at AU$1.05 on or before 30 Jun 2009 Brian Kennedy 50,000 Options exercisable at AU$1.05 on or before 30 Jun 2009 Sixtus Mulenga 50,000 Options exercisable at AU$2.60 on or before 20 May 2010 Phil Higgins 50,000 Options exercisable at AU$2.60 on or before 20 May 2010 Grant Osborne 100,000 Options exercisable at AU$2.60 on or before 20 May 2010 Nicholas Day 200,000 Options exercisable at AU$2.60 on or before 20 May 2010 Valentine Chitalu 200,000 Options exercisable at AU$2.60 on or before 20 May 2010 Paul Chapman 200,000 Options exercisable at AU$1.70 on or before 1 Dec 2009 Shaun Vokes 50,000 Options exercisable at AU$1.70 on or before 1 Dec 2009 Eamon Byrne 50,000 Options exercisable at AU$1.70 on or before 1 Dec 2009 Davies Simbaya 50,000 Options exercisable at AU$2.10 on or before 27 Feb 2010 Dale Rogers 1,200,000 Options exercisable at AU$2.80 on or before 12 Jul 2010 Colyn Louw 200,000 Options exercisable at AU$3.14 on or before 12 Jul 2010 James Dean 50,000 Options exercisable at AU$2.97 on or before 27 Jul 2010 Berteale Brown 300,000 Options exercisable at AU$2.23 on or before 1 Sep 2010 Eben Swanepoel 600,000 Options exercisable at AU$3.14 on or before 12 Jul 2010 Sonja Felderhof 200,000 Options exercisable at AU$2.88 on or before 30 Dec 2010 Stephen Kerr 100,000 Options exercisable at AU$2.88 on or before 30 Dec 2010 Gerhardus Bezuidenhout 100,000 Options exercisable at AU$2.88 on or before 30 Dec 2010 Rudolf Reyneke 50,000 Options exercisable at AU$2.88 on or before 30 Dec 2010 Jacob Banda 50,000 Options exercisable at AU$2.88 on or before 30 Dec 2010 Hennie Sealie 50,000 Options exercisable at AU$3.22 on or before 1 Nov 2009 Colyn Louw 230,000 Options exercisable at AU$3.22 on or before 1 Nov 2009 Eben Swanepoel 210,000 Options exercisable at AU$3.22 on or before 1 Nov 2009 John Schloderer 105,000 Options exercisable at AU$3.22 on or before 1 Nov 2009 Nicholas Day 100,000 Options exercisable at AU$3.22 on or before 1 Nov 2009 Sixtus Mulenga 50,000 Options exercisable at AU$2.81 on or before 1 Feb 2011 Barclays Capital 400,000 Options exercisable at AU$2.97 on or before 30 Dec 2010 Ken Masogo 50,000 Options exercisable at AU$2.97 on or before 30 Dec 2010 Aliport Ngoma 50,000 Options exercisable at AU$3.25 on or before 1 Feb 2011 Sonja Felderhof 100,000
Cash usage Since the time of listing on ASX, the entity has used its cash and assets in a form readily converted to cash that it had at the time of admission to the offi cial list of ASX in a manner which is consistent with its business objectives.
86 ALBIDON LIMITED ANNUAL REPORT 2008
Tenement schedule
Project Holder Licence number Albidon interest Malawi Bimbili River+ Albidon (Malawi) Limited EPL 130/2003 100%
Zambia Munali Albidon Zambia Ltd. LML.54 100% Masuku Albidon Zambia (Exploration) Ltd. PLLS 193 100% Muvuma Hills Albidon Zambia (Exploration) Ltd. PLLS 199 100% Zimba North Albidon Zambia (Exploration) Ltd. PLLS 183 100% Zimba South Albidon Zambia (Exploration) Ltd. PLLS 183 100% Sinazeze Albidon Zambia (Exploration) Ltd. PL 245 100% Mugoto Albidon Zambia (Exploration) Ltd. PL 250 100% Namwala Albidon Zambia (Exploration) Ltd. PL 248 100% Lunsemfwa Albidon Zambia (Exploration) Ltd. PL 247 100% Chilonga Albidon Zambia (Exploration) Ltd. PL 260 100% Kamoto West Albidon Zambia (Exploration) Ltd. PL 246 100% Kamoto Central Albidon Zambia (Exploration) Ltd. PL 246 100% Kamoto East Albidon Zambia (Exploration) Ltd. PL 246 100%
Tanzania Kitai South++ Tumbili Ventures Ltd. PL 2433/2004 100% Mbinga North++ Tumbili Ventures Ltd. PL 4155/2007 100% Mbinga South++ Tumbili Ventures Ltd. PL 4153/2007 100% Mbinga Central Tumbili Ventures Ltd. PL 4156/2007 100% Mbinga West++ Tumbili Ventures Ltd. PL 4154/2007 100% Mbinga Liparamba++ Tumbili Ventures Ltd. PL 2434/2004 100% Mhangaji Tumbili Ventures Ltd. PL 2435/2004 100% Pitu River East Tumbili Ventures Ltd. PL 2405/2003 100% Pitu River West Tumbili Ventures Ltd. PL 4839/2007 100% Kitai North Tumbili Ventures Ltd. PL 4157/2007 100% Simanjaro Central Tumbili Ventures Ltd. PL 4664/2007 100% Simanjaro East Tumbili Ventures Ltd. PL 4847/2007 100% Mahenge East Tumbili Ventures Ltd. PL 4164/2007 100% Kanoawale South Tumbili Ventures Ltd. PL 4237/2007 100% Luwumbu Tausi Minerals Company Limited PL2337/2003 10% Benefi cial Interest Luwumbu Tausi Minerals Company Limited PL2339/2003 10% Benefi cial Interest Luwumbu Tausi Minerals Company Limited PL2338/2003 10% Benefi cial Interest Luwumbu Tausi Minerals Company Limited PL2340/2003 10% Benefi cial Interest Luwumbu Tausi Minerals Company Limited PL2342/2003 10% Benefi cial Interest Luwumbu Tausi Minerals Company Limited PL2341/2003 10% Benefi cial Interest Luwumbu Tausi Minerals Company Limited R-617 10% Benefi cial Interest Luwumbu Tausi Minerals Company Limited PL2765/2004 10% Benefi cial Interest Luwumbu Tausi Minerals Company Limited PL2766/2004 10% Benefi cial Interest Luwumbu Tausi Minerals Company Limited PL2767/2004 10% Benefi cial Interest Luwumbu Tausi Minerals Company Limited PL2861/2004 10% Benefi cial Interest
87 ALBIDON LIMITED ANNUAL REPORT 2008
Tenement schedule (continued)
Project Holder Licence Number Albidon Interest Tunisia Fernana-Nefza Albidon Tunisia Ltd. N/A 100% Haffouz +++ Zinifex Australia Ltd. N/A 100%
Botswana Tsamaya Albidon (Botswana) Pty Ltd. PL41/2004 100% Ramokgwebane Albidon (Botswana) Pty Ltd. PL89/2007 100% Kolobeng-Otse Albidon (Botswana) Pty Ltd. PL8/2004 100% Taung-Otse Albidon (Botswana) Pty Ltd. PL9/2004 100% Nywane-Otse Albidon (Botswana) Pty Ltd. PL10/2004 100% Tsetsebjwe Albidon (Botswana) Pty Ltd. PL38/2004 100% Topisi Albidon (Botswana) Pty Ltd. PL34/2004 100% Sefophe Albidon (Botswana) Pty Ltd. PL36/2004 100% Moralane Albidon (Botswana) Pty Ltd. PL35/2004 100% Mathathane Albidon (Botswana) Pty Ltd. PL37/2004 100% Baines Drift Albidon (Botswana) Pty Ltd. PL39/2004 100% Chokana Albidon (Botswana) Pty Ltd. PL76/2004 100% Zanzibar Albidon (Botswana) Pty Ltd. PL77/2004 100% Albertina Albidon (Botswana) Pty Ltd. PL78/2004 100% Pilikwe Albidon (Botswana) Pty Ltd. PL79/2004 100% Maunatlala Albidon (Botswana) Pty Ltd. PL21/2005 100% Selophale Albidon (Botswana) Pty Ltd. PL22/2005 100% Susulela River Albidon (Botswana) Pty Ltd. PL23/2005 100% Lerala Albidon (Botswana) Pty Ltd. PL24/2005 100% Gootau Albidon (Botswana) Pty Ltd. PL25/2005 100% Parr’s Halt Albidon (Botswana) Pty Ltd. PL26/2005 100% Shakwe Albidon (Botswana) Pty Ltd. PL27/2005 100% Radisele Albidon (Botswana) Pty Ltd. PL28/2005 100%
+ This tenement is the subject of a Heads of Agreement Joint Venture with MM Mining ++ Subject to BHP Billiton Co-operation Agreement +++ Subject to an earn-in Agreement with Albidon
88 Corporate Directory
Directors Share Register AIM Nominated Advisor R. Potts - Chairman Computershare Investor RFC Corporate Finance Limited J. Shaw - Deputy-Chairman Services Pty Limited Level 8, 250 St Georges Terrace D. Rogers - Managing Director 452 Johnston Street Perth, WA 6000 Australia P. Chapman Abbotsford, Victoria 3067, Australia AIM Broker V. Chitalu Albidon Limited shares are listed on the Numis Securities Limited A. Cooke Australian Stock Exchange (ASX) and the London Stock Exchange Building C. De Guingand Alternative Investment Market (AIM) of the 5th Floor, 10 Paternoster Square Company Secretary London Stock Exchange London EC4M 7LT United Kingdom N. Day Solicitors ASX Broker and Corporate Advisor Registered Offi ce Blakiston & Crabb RBC Capital Markets 3/F Barclays House 1202 Hay Street Level 46, 2 Park Street Wickhams Cay West Perth, WA 6005, Australia Sydney, NSW 2000 Australia Road Town, Tortola British Virgin Islands Auditors AIM Code: ALD Ernst & Young ASX Code: ALB Principal Place of Business 11 Mounts Bay Road Level 1, 62 Colin Street Perth, WA 6000, Australia West Perth, WA 6005, Australia Website www.albidon.com ARBN 107 288 755 ALBIDON
LIMITED Albidon Annual
ANNUAL Report 2008 REPORT From exploration to operation 2008