EX-99.1 2 o40669exv99w1.htm EX-99.1 exv99w1
Exhibit 99.1
FORM 51-102F4
BUSINESS ACQUISITION REPORT
The Business Acquisition Report (“BAR”) has been amended to (i) conform with the requirements of United States securities laws relating to the reconciliation of financial statements incorporated by reference into the Corporation’s registration statement to be filed with the United States Securities Exchange Commission and (ii) make certain adjustments as described below. This BAR replaces the BAR filed on May 7, 2008 by Northgate Minerals Corporation.
The changes to the previously filed BAR include:
  1.   A reconciliation to United States (“US”) generally accepted accounting principles (“GAAP”) of the Corporation’s pro forma consolidated financial statements has been prepared and included as a supplementary note. The supplementary note reconciles the measurement differences between Canadian and US GAAP as they apply to the pro forma consolidated financial statements (see page 164).
 
  2.   Amended (i) audited consolidated financial statements of Perseverance and auditor’s report for the year ended June 30, 2007 to state that the financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) (see page 6) and (ii) interim financial statements of Perseverance for the period ended December 31, 2007 to state that the financial statements have been prepared in accordance with IFRS as issued by the IASB (see page 124).
 
  3.   An adjustment to the reconciliation from International Financial Reporting Standards as issued by the International Accounting Standards Board to Canadian GAAP of Perseverance’s Financial Statements for the year ended June 30, 2007 and the six months ended December 31, 2007 (see pages 74 and 141).
 
  4.   An adjustment to the unaudited Canadian GAAP pro forma consolidated financial statements of Northgate Minerals Corporation (see page 155).

 


 

FORM 51-102F4
BUSINESS ACQUISITION REPORT
Item 1 — Identity of Company
1.1   Name and Address of Company
 
    The name and address of the principal office in Canada of Northgate Minerals Corporation (“Northgate” or the “Company”) is as follows:
 
    Northgate Minerals Corporation
Suite 406
815 Hornby Street
Vancouver, British Columbia
V6Z 2E6
 
1.2   Executive Officer
 
    The name and business telephone number of the executive officer of the company who is knowledgeable about the significant acquisition and this report are as follows:
 
    Ken Stowe, President and Chief Executive Officer, Northgate Minerals Corporation
Tel. (416) 216 — 2772
 
    or
 
    Jon Douglas, Senior Vice President and Chief Financial Officer, Northgate Minerals Corporation
Tel. (416) 216 — 2774
Item 2 — Details of the Acquisition
2.1   Nature of Business Acquired
 
    Perseverance is an Australian based gold producer and explorer. The company owns and operates gold mines at Fosterville and Stawell in Victoria, Australia and has extensive exploration tenements covering of 7,700 km2 along major trends within the world-class Victorian goldfields. Gold production at Perseverance’s two mines in the year ended June 30, 2007 aggregated 189,000 ounces.
 
    The ordinary shares of Perseverance were listed on the Australian Securities Exchange (“ASX”) trading under the symbol “PSV”. Perseverance applied for termination of the official quotation of Perseverance shares on the ASX and was removed from the official list on March 27, 2008.

 


 

    The principal and registered office of Perseverance is located at 117 Wills Street, Bendigo, Victoria 3550.
 
2.2   Date of Acquisition
 
    On February 18, 2008, a wholly-owned subsidiary of Northgate acquired all of the issued and outstanding securities and existing debt of Perseverance Corporation Ltd.
(“Perseverance”) for cash consideration (the “Merger”), pursuant to the Schemes of Arrangement contemplated by the merger implementation agreement (“MIA”) entered into between Northgate and Perseverance on October 28, 2007.
 
2.3   Consideration
 
    Each Perseverance ordinary share was acquired for A$0.20 cash per ordinary share. Perseverance warrants (referred to in Australia as options) were purchased for A$0.08 per warrant and subsequently cancelled, and convertible subordinated notes of Perseverance were acquired for A$100,000 per note (the face value) plus any interest accrued thereon and subsequently cancelled.
 
    In addition, Northgate assumed all of Perseverance’s existing debt from a major financial institution in Australia (the “Bank”) amounting to US$30.6million (A$33.5million), together with extending an additional bridging facility of up to US$22.8million (A$25.0million). Northgate also acquired the Bank’s exposure to Perseverance’s gold hedges, a value of approximately US$43.8million (A$48.0million) at the time of the MIA. Subsequent to closing, Northgate closed out the hedge position.
 
2.4   Effect on Financial Position
 
    The Merger has created a mid-tier gold producer with three producing gold mines in politically favourable mining jurisdictions, operating under the name “Northgate Minerals Corporation”. Northgate does not at present have any plans or proposals for material changes in its business affairs or the affairs of Perseverance following the Merger which would have a significant effect on Northgate’s results of operations and financial position, taken as a whole. In connection with the Merger, Northgate prepared the unaudited pro forma condensed and consolidated financial statements referred to in Item 3 below, which show the effect of the acquisition and related transactions on the results of operations and financials position of Northgate.
 
2.5   Prior Valuations
 
    No valuation opinions were required.
 
2.6   Parties to Transaction
 
    The transaction was not with an informed person, associate or affiliate of Northgate.

 


 

2.7   Date of Report
 
    This report is dated as of the 16th day of May, 2008.
Item 3 — Financial Statement
    The financial statements required to be included with this report pursuant to Part 8 of National Instrument 51-102 are attached hereto and are as follows:
 
    Schedule A
 
    The audited consolidated financial statements of Perseverance for the years ended June 30, 2007 and June 30, 2006 including the notes thereto and the auditors’ reports thereon. A reconciliation to Canadian generally accepted accounting principles (“GAAP”) has been prepared for the year ended June 30, 2007.
 
    The consolidated financial statements of Perseverance for the years ended June 30, 2007 and 2006 have been audited by Ernst and Young. The Canadian GAAP reconciliation for the year ended June 30, 2007 is unaudited.
 
    Schedule B
 
    The consolidated interim financial statements of Perseverance for the six month periods ended December 31, 2007 and December 31, 2006 including the notes thereto. A reconciliation to Canadian GAAP has been prepared for the six month period ended December 31, 2007.
 
    The interim consolidated financial statements of Perseverance for the six months ending December 31, 2007 and 2006 are unaudited. The Canadian GAAP reconciliation for the six months ended December 31, 2007 is unaudited.
 
    Schedule C
 
    Unaudited pro forma consolidated financial statements of Northgate which include: (i) the unaudited pro forma consolidated balance sheet as at December 31, 2007; and (ii) the unaudited pro forma consolidated statement of operations for the year ended December 31, 2007.
 
    Schedule D
 
    In addition to the requirements pursuant to Part 8 of National Instrument 51-102, the Company has included in a supplementary note to the unaudited pro forma consolidated financial statements a reconciliation of the pro forma consolidated financial statements to United States GAAP. The supplementary note is unaudited.

 


 

SCHEDULE “A”
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF
PERSEVERANCE CORPORATION LIMITED
FOR THE YEARS ENDED JUNE 30, 2007 AND JUNE 30, 2006
AND
A RECONCILIATION OF PERSEVERANCE CORPORATION LIMITED FINANCIAL
STATEMENTS FOR THE YEAR ENDED JUNE 30 2007 TO CANADIAN GAAP

 


 

Annual Financial Report
Financial year ended 30 June 2007
 
PERSEVERANCE CORPORATION
LIMITED
ABN 13 010 650 049
ANNUAL FINANCIAL REPORT
FOR THE YEAR ENDED
30 JUNE 2007

 


 

Annual Financial Report
Financial year ended 30 June 2007
 
Directors’ Report
The Board of Directors present their report together with the financial statements of Perseverance Corporation Limited (“the Company”) and the consolidated financial statements of the consolidated entity being the Company and its controlled entities (“Perseverance”) for the year ended 30 June 2007.
DIRECTORS
The names and details of the Directors in office during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated.
PETER MACPHAIL (EXECUTIVE DIRECTOR) (APPOINTED 18 FEBRUARY 2008)
KENNETH G STOWE (EXECUTIVE DIRECTOR) (APPOINTED 18 FEBRUARY 2008)
JOHN CHARLES QUINN (NON-EXECUTIVE CHAIRMAN) (RETIRED 14 NOVEMBER 2007)
Mr Quinn has had a career of over 30 years in the industry, including Managing Director of Newmont Australia Limited and Newcrest Mining Limited. During Mr Quinn’s tenure as Managing Director at Newcrest, he formulated and implemented the strategies that led to the discovery and development of the Cadia, Ridgeway, Gosowong and the Telfer “I” Series orebodies. Mr Quinn was also Chairman of the Newmont Indonesian subsidiaries that discovered the Mesel and Batu Hijau orebodies. Mr Quinn is also Chairman of King Solomon Mines Limited, a company listed on the Australian Stock Exchange.
BRIAN MARSHALL PHILLIPS (NON-EXECUTIVE DEPUTY CHAIRMAN) (APPOINTED 24 JANUARY 2007) (RESIGNED 18 FEBRUARY 2008)
Mr Phillips has extensive mining industry experience in operational and management roles. Mr Phillips was Chairman of Leviathan Resources Limited prior to its takeover by Perseverance in 2006. He was a director of MPI Mines Limited from 1992 and Managing Director from October 2002 until the takeover of MPI by LionOre in 2004. Mr Phillips graduated as a mining engineer from the Western Australian School of Mines in Kalgoorlie in 1966. He worked for 16 years for Gold Fields Group in Tasmania, the United Kingdom and Western Australia. Mr Phillips joined Metals Exploration Limited in 1981 and served as a director of Metals Exploration, North Kalgurli Mines Limited and Gold Mines of Kalgoorlie Limited. Prior to joining MPI, Mr Phillips ran a privately owned mining services company. He is a former non-executive director of the Australian Gold Council and past president of the Victorian Minerals and Energy Council.
During the past three years Mr Phillips has also served as a director of the following other companies listed on the Australian Stock Exchange:
    Indophil Resources NL (a)
 
    Tawana Resources NL (a)
 
    Sally Malay Mining Ltd (a)
(a) Denotes current directorship.
CHRISTOPHER LINDEN ROBERTS (NON-EXECUTIVE DIRECTOR) (RESIGNED 18 FEBRUARY 2008)
Mr Roberts is a geologist with over 30 years experience in exploration throughout Australia, initially with BHP but subsequently in senior positions with a number of other companies. Mr Roberts is a Corporate Member of the Australasian Institute of Mining and Metallurgy and a member of the Australian Institute of Geoscientists.
During the past three years Mr Roberts has also served as a director of the following other companies listed on the Australian Stock Exchange:
    Republic Gold Limited
 
    Plentex Limited (a)
(a) Denotes current directorship.
ROBERT JOHN FLEW (NON-EXECUTIVE DIRECTOR) (APPOINTED 24 JANUARY 2007) (RESIGNED 18 FEBRUARY 2008)
Mr Flew has over 30 years experience in senior operating, finance and management roles in the resources industry. Mr Flew held a number of senior positions at BHP, including roles in the Copper and Coal divisions and head office roles in investor relations, company secretarial and corporate development over a 15 year period. Mr Flew was a non-executive director of Leviathan Resources Limited prior to its takeover by Perseverance in 2006.
During the past three years Mr Flew has also served as a director of the following other companies listed on the Australian Stock Exchange:
    Geodynamics Limited (a)
 
    Astron Limited (a)
 
    MPI Mines Limited
 
    Bass Strait Oil Company Limited
(a) Denotes current directorship.

2


 

Annual Financial Report
Financial year ended 30 June 2007
 
GRAEME JOHN SLOAN (MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER) (RESIGNED 10 AUGUST 2007)
Mr Sloan was appointed Managing Director and Chief Executive Officer on 15 June 2005. He is a mining engineer with over 30 years professional experience in Australian and overseas mining operations. Mr Sloan was formerly Executive Manager of Development for the Fosterville Gold Project. Mr Sloan is also a Corporate Member of the Australasian Institute of Mining and Metallurgy. Mr Sloan resigned as a director of Perseverance with effect from 10 August 2007.
RODNEY JOHN ROBINSON (NON-EXECUTIVE DIRECTOR) (RESIGNED 27 AUGUST 2007)
Mr Robinson is a metallurgist and has had a career of over 30 years in the industry. Mr Robinson was formerly the Managing Director of Ashton Mining Limited and worked for companies such as Newmont, Aberfoyle and WMC. Mr Robinson is a Fellow of the Australasian Institute of Mining and Metallurgy. Mr Robinson is also a non-executive director of Poseidon Scientific Instruments Limited, the Chairman of the Board of Management of the Prince Henry’s Institute of Medical Research and Chairman of Monash Health Precinct Limited. Mr Robinson resigned as a director of Perseverance with effect from 27 August 2007.
During the past three years Mr Robinson has also served as a director of the following other companies listed on the Australian Stock Exchange:
    Boom Logistics Limited (a)
 
    Global Mining Investments Limited (a)
(a) Denotes current directorship.
ROBIN JOHN GEORGE (NON-EXECUTIVE DIRECTOR) (RESIGNED 6 AUGUST 2007)
Dr George is a geologist and has had a career of over 30 years in the industry. Dr George was Executive Director — Exploration and Mining at Acacia Resources Limited and prior to that he was General Manager of Shell’s Australian Metals Division. Dr George is a Fellow of the Australasian Institute of Mining and Metallurgy. Dr George resigned as a director of Perseverance with effect from 6 August 2007.
During the past three years Dr George has also served as a director of the following other companies listed on the Australian Stock Exchange:
    Leviathan Resources Limited
 
    MPI Mines Limited
RONALD GREGORY MELGAARD (NON-EXECUTIVE DIRECTOR) (RESIGNED 27 APRIL 2007)
Mr Melgaard is Managing Director of and via his family company is a major shareholder in Palmaris Capital PLC. He is also Chairman of ICW Power PLC, a London based manufacturer of sophisticated power systems, and is a Director of Electrometals Technologies Limited an Australian Stock Exchange listed supplier of electrowinning technology and Chairman of Eclipse 3/4 Venture Capital Trust PLC. Prior to his involvement with Palmaris and ICW Power, Mr Melgaard was Deputy Chairman and subsequently Chief Executive of Gestetner Holdings PLC. Mr Melgaard was a founding Director of and significant shareholder in AFP Investment Corporation Limited, an Australian based international investment firm. Mr Melgaard has degrees in science and economics from Monash University and an MBA from Stanford University. Mr Melgaard resigned as a director of Perseverance with effect from 24 April 2007.
PETER MACPHAIL (EXECUTIVE DIRECTOR) (APPOINTED 18 FEBRUARY 2008)
KENNETH G STOWE (EXECUTIVE DIRECTOR) (APPOINTED 18 FEBRUARY 2008)
COMPANY SECRETARY
Mr Martin Bouwmeester was the Company Secretary of Perseverance Corporation Limited until he resigned from the position on 31 August 2007. Mr. Bouwmeester is a Certified Practicing Accountant and an Affiliate member of Chartered Secretaries Australia.
Mr Bruce Paterson was appointed Company Secretary of Perseverance Corporation Limited on 31 August 2007. Mr Paterson is a lawyer and spent over 15 years with Newcrest Mining in a range of senior management roles, including Company Secretary and Commercial Manager, International. For the past 10 years he has provided his substantial secretarial, legal and commercial experience on a consultancy basis, primarily in the mineral resources and energy sectors, both throughout Australia and internationally.
RESULTS FOR THE YEAR
The loss of the consolidated entity for the financial year after income tax was $19,739,170 [2006 loss: $59,025,746].

3


 

Annual Financial Report
Financial year ended 30 June 2007
 
PRINCIPAL ACTIVITIES
The principal activities of the consolidated entity during the course of the financial year were gold mining and exploration. There was no change in the nature of the consolidated entity’s activities during the year.
DIVIDENDS
The Directors do not recommend the payment of a dividend for this financial year. No dividend has been declared or paid by the Company since the end of the previous financial year.
STATE OF AFFAIRS
In the opinion of the Directors, there were no significant changes in the state of the consolidated entity that occurred during the financial year under review not otherwise disclosed in this report or the consolidated financial statements.
OPERATING AND FINANCIAL REVIEW
1. FOSTERVILLE GOLD MINE
Operations
The Fosterville operation produced 76,706 ounces of gold for the year ended 30 June 2007. Gold production was lower than planned for the year due to a higher proportion of lower grade open pit ore processed. Recovery improved to 78% with the flash flotation plant having the expected positive effect. The processing plant performed to expectation given the lower grade mill feed. The BIOX® circuit performed well, achieving throughput and oxidation rates in excess of design for sustained periods.
Open pit mining continued with production from the Ellesmere pit completed and production commencing from the Harrier pit. Further open pit opportunities are being assessed.
Underground development continued and stope ore production commenced in January 2007. Development of the Falcon ore body in preparation for stoping was substantially complete by year-end and development of the Phoenix ore body was underway. Underground mine production ramped up over the second half of the year and replaced open pit ore as the primary source of mill feed by year-end.
2. STAWELL GOLD MINE
Operations
The Stawell operation produced 112,486 ounces for the year. Recovery was 91% and included processing of low grade oxide ore. The treatment plant continued to perform well on variable feed from the various underground and surface ore sources. The plant is mechanically reliable and the issues associated with an ageing plant are well managed.
Underground operations continued to show the benefits of productivity and management improvement initiatives implemented towards the end of the previous year. Production was mainly from the GG5 Upper, GG1 and GG2 mining areas. Development into the GG3 and GG5 Lower ore bodies commenced with the first GG3 stoping areas ready by the end of the year.

4


 

Annual Financial Report
Financial year ended 30 June 2007
 
3. FINANCIAL POSITION
Perseverance recorded a net loss of $19.7 million after tax for the year ended 30 June 2007. This compares to a net loss of $59.0 million after tax for the previous year. The financial results for the current year included consolidation of Leviathan Resources Limited following the acquisition of that company on 4 December 2006.
Perseverance recorded a gross profit from operations of $50.6 million compared with $26.5 million in the previous year.
Perseverance’s loss before income tax expense, finance cost, movement in the fair value of derivatives and impairment was $14.3 million compared to $9.0 million in 2006. The net loss for the current year included substantially higher administration and corporate expenses largely as a result of the takeover of Leviathan Resources Limited and as a result of exploration expenses more than doubling to $8.6 million. Pursuant to Perseverance’s accounting policy, all exploration costs are expensed as incurred.
Another significant factor in the loss for the year is the depreciation and amortisation (D&A) charge of $45.4 million. D&A charges for the current financial year included $18.2 million relating to the Stawell operation which was acquired as part of the Leviathan takeover. Perseverance amortises major plant and equipment and underground infrastructure over reserve ounces.
A non-cash impairment charge of $13.9 million was booked against the carrying value of the Fosterville assets following a review of the life of mine plan. No impairment charge was required to be booked against the carrying value of the Stawell assets. Impairment assessment is required under the AIFRS standards based upon discounted forecast cash flows from each of the operating assets and reflects the underlying risks and assumptions associated with the life of mine plan.
A $10.7 million hedge accounting benefit was recorded reflecting the changes in the mark to market value of Perseverance’s gold forward sales entered into as a requirement of the bank financing of the Fosterville Gold Mine. As at 30 June 2007, the Group had 181,035 ounces of flat forward sale contracts at A$626 per ounce. The marked-to-market value of the hedge book as at 30 June 2007 was negative $35.6 million.
On 9 October 2006, the Company announced an off-market takeover offer to acquire all shares in Leviathan Resources Limited. Perseverance’s financial results for the twelve months ended 30 June 2007 include the acquisition of Leviathan on 4 December 2006 when the Company obtained control. At that date, the Company allocated the cost of acquisition of Leviathan by recognizing the identifiable assets, liabilities and contingent liabilities at their fair value. Included in the allocation, the Company booked a deferred tax liability of $10.7 million and goodwill of $8.2 million. During the twelve months ended 30 June 2007 Perseverance recognised an income tax benefit of $2.7 million relating to amortisation of the deferred tax liability.
Cash flow from operations totalled $36.3 million compared to $15.6 million last year. During the year cash payments of $42.3 million (2006: $12.4 million) were made for development activities and $10.3 million (2006: $9.2 million) for property, plant and equipment. Net financing activities provided cash of $2.7 million (2006: $27.3 million).
At the end of the year Perseverance had cash available of $11.4 million (2006: $18.4 million) and an undrawn financing facility of $1.9 million of a total facility of $25 million.
Refer to Note 13 for total movements in contributed equity during the year.
LIKELY DEVELOPMENTS AND EXPECTED RESULTS
Other than as referred to in this report, further information on the likely developments in the operations of the consolidated entity and the expected results of those operations would, in the opinion of the Directors, be speculative and would be likely to result in unreasonable prejudice to one or more entities in the consolidated entity.
EVENTS SUBSEQUENT TO BALANCE DATE
There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company, to affect the operations of the consolidated entity, the results of those operations or the state of affairs of the consolidated entity in subsequent financial years except for those matters referred to below:
On 12 July 2007, the Company announced that it had completed a $26.5 million placement to institutional and sophisticated investors. The placement involved the issue of approximately 177 million fully paid ordinary shares at $0.15 per share with one attaching option per share issued. The options have an exercise price of $0.15 and a term to expiry of 31 August 2009. Upon exercise, each option will entitle the holder to receive one fully paid ordinary share. A General Meeting of shareholders held on 24 August 2007 approved the issue of the shares and options. As a result of settlement of the first tranche of the placement on 19 July 2007, the conversion price of the Convertible Notes was adjusted from $0.442 to $0.415 pursuant to the Terms and Conditions of the Convertible Notes as set out in the Offering Circular dated 19 December 2005. As a result of settlement of the second tranche of the placement on 30 August 2007, the conversion price of the Convertible Notes was further adjusted from $0.415 to $0.365 pursuant to the Terms and Conditions of the Convertible Notes as set out in the Offering Circular dated 19 December 2005.
Dr. Robin George tendered his resignation as a director of the Company effective 6 August 2007.
Mr Graeme Sloan tendered his resigned as Managing Director and Chief Executive Officer of the Company effective 10 August 2007.

5


 

Annual Financial Report
Financial year ended 30 June 2007
 
Mr John Robinson tendered his resignation as a director of the Company effective 27 August 2007.
Mr. Peter MacPhail was appointed as a director of the Company effective 18 February 2008.
Mr. Kenneth Stowe was appointed as a director of the Company effective 18 February 2008.
Mr. Jozsef Patarica was appointed as a director of the Company effective 18 February 2008.
Mr. Robert Flew tendered his resignation as a director of the Company effective 18 February 2008.
Mr. Brian Phillips tendered his resignation as a director of the Company effective 18 February 2008.
Mr. Chris Roberts tendered his resignation as a director of the Company effective 18 February 2008.
Mr. Jozsef Patarica tendered his resignation as a director of the Company effective 16 April 2008.
Perseverance Corporation Limited (“Perseverance”) announced on 29 October 2007 that it had entered into a Merger Implementation Agreement that provided for the acquisition of Perseverance by Northgate Minerals Corporation (“Northgate”). The transaction was implemented by Schemes of Arrangement (“Schemes”) between Perseverance and its shareholders and optionholders, and a resolution of holders of the Company’s convertible subordinated notes to approve the early redemption of those notes. The Perseverance Directors unanimously recommend that, in the absence of a superior proposal being received, shareholders and optionholders vote in favour of the Schemes. No such superior proposal emerged.
Subsequent to the announcement, Deloitte Corporate Finance Pty Ltd was appointed as the Independent Expert and concluded that the Schemes are fair and reasonable and, therefore, in the shareholders’ and optionholders’ best interests.
On 17 December 2007, the holders of the Company’s convertible subordinated notes passed the extraordinary resolution for the early redemption of those notes, in the event that the Schemes are implemented. The Scheme Booklet, outlining the details of the Schemes, the Directors’ unanimous recommendation in respect of the Schemes and including the Independent Expert’s Report was dispatched to shareholders and optionholders on 19 December 2007.
Shareholders voted in favour of the Share Scheme at the Share Scheme Meeting and optionholders voted in favour of the Option Scheme at Option Scheme Meeting, both held on 18 January 2008. On 1 February 2008, the Supreme Court of Victoria made orders approving the Share Scheme and Option Scheme between Perseverance and its shareholders and optionholders, respectively, pursuant to section 411(4)(b) of the Corporations Act 2001 (Cth).
Under the Schemes, Northgate, through its wholly-owned subsidiary, Northgate Australian Ventures Corporation Pty Ltd (“NAVCO”), acquired all of the outstanding Shares in Perseverance. The Share Scheme became Effective on 4 February 2008, and holders of Shares as at the Record Date (11 February 2008 7:00pm), received $0.20 for each Share held. NAVCO dispatched the Scheme Consideration within five Business Days after the Implementation Date which was 18 February 2008.
The underground operations at Fosterville were interrupted on the 20 December 2007 following an incident when 11 underground personnel were evacuated and briefly hospitalized after being affected by fumes. All personnel have now returned to normal duties. Underground mining activities were further effected when access to the Falcon Phoenix sections of the mine by damage to the portal area caused during a storm event. Underground operations resumed on the 29 December 2007. Workcover investigations are continuing subsequent to period end, and no fines or penalties have been determined.
All liabilities for 30 June 2007 convertible notes outstanding have been repaid to Noteholders, and contracts for all derivative financial instruments held at 30 June 2007 have been either delivered into or terminated. Funding for these activities was obtained by a mix of related company borrowings and equity injections into Perseverance Corporation Limited from Northgate Minerals Corporation.
OPTIONS AND PERFORMANCE RIGHTS
The Company granted 389,000 performance rights during the year to Mr Graeme Sloan after approval was obtained at its Annual General Meeting held on 15 November 2006. These performance rights lapsed upon Mr Sloan’s resignation on 10 August 2007.
Unissued shares
As at the date of this report, there were 9,800,000 unissued ordinary shares under options and 344,000 unissued ordinary shares under performance rights.
Shares issued as a result of the exercise of options
During the financial year, employees, executives and directors have exercised options to acquire 475,000 fully paid shares in Perseverance at a weighted average exercise price of $0.135.

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Annual Financial Report
Financial year ended 30 June 2007
 
All options and performance rights granted are over ordinary fully paid shares of the Company.
Further details of the number of options and option holder rights and the number of performance rights and performance holder rights are disclosed in Notes 13, 18 and 25.
DIRECTORS’ MEETINGS
During the year the Company held 18 meetings of Directors. The attendance of Directors at meetings of the Board were as follows.
                 
    DIRECTORS’ MEETINGS
DIRECTOR   ATTENDED   MAXIMUM POSSIBLE
J. C. Quinn
    18       18  
B. M. Phillips
    6       6  
C. L. Roberts
    14       18  
R. J. Robinson
    17       18  
R. J. Flew
    6       6  
G. J. Sloan
    18       18  
R. J. George
    16       18  
R. G. Melgaard
    15       15  
COMMITTEE MEMBERSHIP
The Company has separate committees for audit and remuneration.
During the year the Company held 3 Audit Committee meetings. The current composition of the committee is Mr R.J. Flew, Mr J.C. Quinn and Mr B.M. Philips. Mr R.J. Flew is the Chairman of the Audit Committee.
Details of the Remuneration Committee are disclosed in the Remuneration Report.
REMUNERATION REPORT
This report outlines the remuneration arrangements in place for directors and executives of the Company.
Remuneration philosophy
The Company embodies the following principles in its remuneration framework:
    Ensure external competitiveness;
 
    Ensure internal equity;
 
    Seek independent external advice.
Remuneration committee
The Company has an established Remuneration Committee. The role of the Remuneration Committee is to advise the Board on matters relating to the remuneration of the directors and senior executives and employees of the Company.
It is the Board’s intention that the Committee comprise at least two members and that one of the Committee members be an independent non-executive director. The current composition of the committee is Mr J.C. Quinn and Mr B.M. Phillips. Mr Philips is the Chairman of the Remuneration Committee.
The Remuneration Committee is responsible for making recommendations to the Board regarding the remuneration framework for directors, including in relation to;
  (1)   the level of fees payable to each non-executive director within the maximum aggregate level of remuneration approved by shareholders;
 
  (2)   any changes to the maximum aggregate level of remuneration approved by shareholders;
 
  (3)   the manner in which fees may be taken; and
 
  (4)   any other applicable arrangements, including for example, fees in relation to retirement benefits, payments of fees for special exertions, director expense claims and ad hoc Committee fees.
The Remuneration Committee is also responsible for reviewing, determining and approving remuneration arrangements for the Chief Executive Officer and senior executives. In fulfilling this role, the Remuneration Committee will have regard to the Company’s Remuneration Policy to ensure that the structure of the remuneration package:

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Annual Financial Report
Financial year ended 30 June 2007
 
  (1)   is market related and appropriate for the responsibilities of the role;
 
  (2)   recognises and rewards performance; and
 
  (3)   provides incentive and motivation for that person, as part of management, to pursue the long term growth and success of the Company within an appropriate control framework.
During the year the Company held 3 Remuneration Committee meetings. All these meetings were attended by Mr J.C. Quinn, and Mr R.J. Robinson and one meeting was attended by Mr B.M. Phillips.
Remuneration structure
Non-executive director remuneration
Non-executive director fees are determined by reference to external survey data, taking account of the Company’s relative size and business complexity. No additional payments are made for serving on Board Committees. In addition, no equity incentives are offered and no retirement benefits are payable to any non-executive director.
The maximum aggregate sum for non-executive director remuneration of $400,000 was approved by share holders at the 2003 Annual General Meeting.
The remuneration details of non-executive directors are shown in the table below.
Executive director remuneration
The former Managing Director, Graeme Sloan was the only executive director on the Company’s Board. Mr Sloan’s remuneration package comprised a base fixed annual remuneration (FAR) of $350,000 per annum. FAR comprises salary, superannuation and the cash value of all fringe benefits. In addition, Mr Sloan was entitled to short-term cash incentives (STCI) of up to 35% of Mr Sloan’s FAR and long-term incentives (LTI) of up to 35% of Mr Sloan’s FAR in the form of performance rights. Entitlement to STCI and LTI was based upon achievement of performance targets set by the Board annually. LTI was subject to shareholder approval at the Company’s Annual General Meetings. In the financial year ended 30 June 2007, (prior to the takeover of Leviathan Resources Limited), the Board agreed that the STCI be based on two parameters related to the performance of the Fosterville Gold Mine:
1. Operating Performance — 80% of STI be allocated to output and cash cost parameters. Budget forecasts for the year were 100,000 ounces at a cash cost of A$481 per ounce cash cost. For the purpose of this exercise, a spot gold price of A$750 per ounce was used to generate an operating margin of $27.05 million [target]. Mr Sloan was entitled to half of the Operating Performance component of the incentive if the actual operating margin met target. Mr Sloan would have been entitled to additional incentive at the rate of 4% of FAR for each percentage point that actual operating margin at $750 gold price exceeded target up to a maximum by 10 percentage points. No STI would have been awarded if target was not achieved.
2. Safety Performance — 20% of the incentive was allocated to safety performance. Site safety performance was measured by the LTI frequency rate for the year calculated in accordance with the Western Australian DoIR method. The Company currently compiles LTI data and industry LTI frequency rates are available from the Western Australian DoIR for the Gold Mining Industry. If Perseverance’s LTI performance bettered WA industry averages by 25%, Mr Sloan would have been entitled to 100% of this component, scaling down to zero at WA industry averages. No incentive would be earned in the event of a fatality during the year.
At the Company’s Annual General Meeting held on 15 November 2006, approval to amend the terms of employment between the Company and Mr Sloan was obtained from shareholders. In the event that Mr Sloan, in his role as Managing Director and Chief Executive Officer, was either made redundant or was offered a lesser role as a consequence of a reorganisation of the Company of any form, he would have been entitled to compensation in an amount equal to one year of his fixed annual remuneration (“Benefit”).
In the event that Mr Sloan’s employment was not formally terminated following the occurrence of one of the events noted above, he would have been entitled, for a period of not more than one month following such event, to resign from his employment and receive the Benefit. If Mr Sloan chose not to resign within this one month period, his rights to the Benefit would lapse and, in the subsequent event of his termination or resignation, his entitlements would be determined under law. The Benefit would be in lieu of any other claim which Mr Sloan may have for loss of office.
The remuneration details of Mr Sloan and key management personnel are detailed below.
Both operating performance and safety performance have been chosen as parameters consistent with the overall objectives of the Company. Specifically, the operating margin and LTI frequency rate have been assessed as appropriate measures to reflect these parameters.
Executive remuneration
The Remuneration Committee is responsible for reviewing and recommending to the Board the compensation arrangements for executives. The Remuneration Committee assesses the appropriateness of the nature and amount of emoluments of such executives on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high

8


 

Annual Financial Report
Financial year ended 30 June 2007
 
quality executive team. Executives remuneration packages may comprise a base fixed annual remuneration (FAR), short-term cash incentives (STCI) and long-term incentives (LTI) in the form of performance rights. FAR comprises salary, superannuation and the cash value of all fringe benefits and executives are given the opportunity to receive their FAR emolument in a variety of forms including cash and fringe benefits such as motor vehicles. Entitlement to STCI and LTI will be based upon achievement of performance targets set by the Board annually. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for Perseverance.
Salary adjustments are based on individual performance. A measure of performance is extracted from the performance reviews and used in the salary review process.
Emoluments of Directors and Executives
                                                                 
            SHORT     POST     LONG                      
            TERM     EMPLOYMENT     TERM                      
                                    SHARE BASED             VALUE OF SBP     % SBP  
            SALARY     NON     SUPER-     PAYMENTS             AS % OF     PERFORMANCE  
            & FEES     MONETARY     ANNUATION     (SBP)     TOTAL     REMUNERATION     RELATED  
            $     $     $     $     $                  
 
Directors
                                                               
J.C. Quinn (a)
    2007       111,750                   22,023       133,773       16       100  
 
    2006       157,999                   22,023       180,022       12       100  
G.J. Sloan (b)
    2007       307,339       15,000       27,661       15,834       365,834       4       100  
 
    2006       279,816       15,000       25,183       27,534       347,533       8       100  
C.L. Roberts
    2007       44,833                   11,686       56,519       36       100  
 
    2006       40,000                   22,482       62,482       36       100  
R.J. George (g)
    2007       41,131             3,702             44,833              
 
    2006       36,697             3,303             40,000              
R.J. Robinson (h)
    2007       41,131             3,702             44,833              
 
    2006       36,697             3,303             40,000              
R.G. Melgaard (f)
    2007       35,750                         35,750              
 
    2006       36,697             3,303             40,000              
R.J. Flew (e)
    2007       20,523             1,847             22,370              
 
    2006                                            
B.M. Phillips (d)
    2007       24,312             2,188             26,500              
 
    2006                                            
 
Executives
                                                               
M. Mitchell (c)
    2007       146,433       15,000       13,160             174,593              
 
    2006                                            
M.W. Bouwmeester (c)
    2007       202,294       15,000       18,206       15,959       251,459       6       100  
 
    2006       152,319       15,000       13,709       10,135       191,163       5       100  
J.M.J. Patarica (c)
    2007       197,477       15,000       17,773       7,583       237,833       3       100  
 
    2006       160,420       15,000       14,438       3,838       193,696       2       100  
 
(a)   Mr J.C. Quinn is Non-Executive Chairman of the Company. For the 6 months ended 31 December 2005, at the request of the Company’s Board, Mr Quinn was engaged by the Company to undertake duties in addition to his role as Non-Executive Chairman of the Company. Mr Quinn’s Short Term remuneration during this period was $18,000 per month. From 1 January 2006, Mr Quinn’s Short Term remuneration reverted to Non-Executive Chairman fees only.
 
(b)   Mr G.J. Sloan was Managing Director and Chief Executive Officer of the Company until his resignation on 10 August 2007.
 
(c)   Mr M.W. Bouwmeester was Chief Financial Officer and Company Secretary of the Company until he resigned from these positions on 31 August 2007. Mr J.M.J. Patarica was appointed Deputy Operations Manager on 5 July 2005 and was appointed Operations Manager on 1 November 2005. Mr M. Mitchell was appointed Chief Operating Officer on 1 January 2007 and was appointed Executive General Manager on 10 August 2007. There are no other employees that participate in the executive management of the consolidated entity.
 
(d)   Mr Phillips was appointed as a director of Perseverance with effect from 24 January 2007.
 
(e)   Mr Flew was appointed as a director of Perseverance with effect from 24 January 2007.
 
(f)   Mr Melgaard resigned as a director of Perseverance with effect from 24 April 2007.
 
(g)   Dr George resigned as a director of Perseverance with effect from 6 August 2007.
 
(h)   Mr Robinson resigned as a director of Perseverance with effect from 27 August 2007.

9


 

Annual Financial Report
Financial year ended 30 June 2007
 
 
(i)   The Company uses the fair value measurement provisions of AASB 2 “Share-based Payment” prospectively for all options granted to directors and relevant executives, which were granted subsequent to 7 November 2002, and have not vested as at 1 July 2004. The fair value of such grants is being amortised and disclosed as part of director and executive emoluments on a straight-line basis over the vesting period. The fair value of the options is calculated at the date of grant using a Binomial model and allocated to each reporting period evenly over the period from grant date to vesting date. The value disclosed is the portion of the fair value of the options allocated to this reporting period.
Performance rights granted by Perseverance as part of remuneration
                                                                         
                                                            TOTAL VALUE OF        
                            VALUE OF     VALUE OF     VALUE OF     VALUE OF     RIGHTS     %  
                    VALUE OF     RIGHTS     RIGHTS     RIGHTS     RIGHTS     GRANTED,     REMUNERATION  
                    RIGHTS AT     GRANTED     EXCERCISED     VESTED     LAPSED     EXERCISED AND     CONSISTING OF  
    GRANT     GRANT     GRANT     DURING     DURING THE     DURING     DURING     LAPSED DURING     RIGHTS FOR  
    DATE     NUMBER     DATE     THE YEAR     YEAR     THE YEAR     THE YEAR     THE YEAR     THE YEAR  
 
Directors
                                                                       
 
                                                                       
G.J. Sloan (a)
  21 Dec 2006     389,000     $ 0.22     $ 85,580                       $ 85,580       23 %
 
(a)   Performance rights are exercisable when the vesting conditions are met, and expire 30 November 2016. On 10 August 2007, Mr Sloan resigned as a director of the Company, at which time the performance rights lapsed.
The fair value of performance rights is estimated as at the grant date using a valuation based on management’s assessment of the probability of the performance right condition being achieved. A probability factor of 0.6 has been applied against the share price at the date of granting the options to derive the fair value calculated.
Employee superannuation
Perseverance currently contributes the 9% superannuation guarantee amount for all employees as required by existing superannuation legislation.
Perseverance offers choice of superannuation fund and does not require employees to join a specific superannuation fund, unless required by existing Australian Workplace Agreements.
CORPORATE GOVERNANCE STATEMENT
In recognising the need for the highest standard of corporate behaviour and accountability, the Directors of the Company support and, except as disclosed, have adhered to the principles of corporate governance. The Company’s corporate governance statement is on page 12.
DIRECTORS’ SHAREHOLDINGS
At the date of this report, the interests of the Directors in the shares of the Company are:
                                 
DIRECTOR   SHARES     UNLISTED OPTIONS  
    DIRECT     INDIRECT     DIRECT     INDIRECT  
J.C. Quinn
    1,506,257       1,282,353       5,000,000 (a)      
C.L. Roberts
    200,000       217,840       600,000 (b)      
R.J. Flew
          100,750              
B. M. Phillips
    117,345                    
 
(a)   Of the 5,000,000 options issued to Mr J.C. Quinn, 2,818,332 options can be exercised to take up ordinary shares in the company at 9 cents per share at any time on or before 8 February 2011, and 2,181,668 options can be exercised to take up ordinary shares in the company at 9 cents per share at any time on or before 10 March 2011.
 
(b)   These options were granted under the Perseverance Employee Option Plan. Further details of the number of options and option holder rights are disclosed in Notes 18 and 25 to the financial statements.
DIRECTORS’ INTERESTS AND BENEFITS
No Director of the Company has received or become entitled to receive a benefit (other than a benefit included in the aggregate amount of remuneration received or due and receivable by Directors shown in the consolidated financial report) by reason of a contract made by the Company, its controlled entities or a related body corporate with the Director or with a firm of which he is a member, or with a company in which he has a substantial financial interest, except for payment to Mr C.L. Roberts for the provision of accommodation facilities in the Fosterville area. Payments for the year totalled $14,788 (2006: $11,756).

10


 

Annual Financial Report
Financial year ended 30 June 2007
 
ENVIRONMENTAL REGULATION
The operations of the Consolidated Entity in Australia are subject to environmental regulation under the laws of the Commonwealth and the States in which those operations are conducted.
Each mining operation is subject to particular environmental regulation specific to the activities undertaken at that site as part of the licence or approval for that operation. There are also broad industry environmental laws that apply to all mining operations and other operations of the Consolidated Entity. The environmental laws and regulations generally address the potential impact of the Consolidated Entity’s activities in the areas of water and air quality, noise, surface disturbance and the impact upon flora and fauna.
The Executive General Manager reports to the Board on all environmental and health and safety incidents. The Directors are not aware of any environmental matter that would have a materially adverse impact on the overall business of the Consolidated Entity.
TAX CONSOLIDATION
Effective from 1 July 2002, for the purposes of income taxation, the Company and its 100% owned subsidiaries formed a tax consolidated group. Members of the group have not yet entered into a tax funding agreement to allocate income tax expense to the wholly-owned subsidiaries on a pro-rata basis. A tax sharing agreement provides for allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. At the balance date, the possibility of such default is remote. The head entity of the tax consolidated group is Perseverance Corporation Limited. On 21 February 2007 Leviathan Resources Limited and its controlled entities entered the consolidated group of Perseverance Corporation Limited.
NON-AUDIT SERVICES
The following non-audit services were provided by the Company’s auditor, Ernst & Young. The directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act. The nature and scope of each type of non-audit service provided is such that auditor independence is not compromised.
Ernst & Young received or are due to receive the following amounts for the provision of non-audit services:
         
Tax compliance and financial due diligence services
  $ 168,500  
Risk Management Framework assistance
  $ 33,800  
Acquisition accounting assistance
  $ 27,000  
AUDITORS INDEPENDENCE DECLARATION
A declaration of independence has been provided by Perseverance’s auditors, Ernst & Young, and is attached to the Directors’ Report.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
During the year the Company paid an insurance premium of $55,000 in respect of a contract insuring each of the Directors named earlier in this report and each full-time executive officer, Director and Secretary of group entities, against all liabilities and expenses arising as a result of work performed in their respective capacities, to the extent permitted by law.
This report has been made in accordance with a resolution of Directors
Signed this 14th day of May 2008.
-s- Peter MacPhail
Peter MacPhail
Director

11


 

(ERNST & YOUNG LOGO)
Auditor’s Independence Declaration to the Directors of Perseverance Corporation Limited
In relation to our audit of the financial report of Perseverance Corporation Limited for the financial year ended 30 June 2007, to the best of our knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct.
-s- Ernst & Young
Ernst & Young
14 May 2008

 


 

Annual Financial Report
Financial year ended 30 June 2007

 
Corporate Governance Statement
A summary of the Company’s corporate governance practices is set out below. The charters and policies referred to below were adopted by the Board of Directors in June 2005. Further information is available in the Corporate Governance section of the Company’s website www.perseverance.com.au
BOARD OF DIRECTORS AT 30 JUNE 2007
The Board of Directors of Perseverance Corporation Limited is responsible for the corporate governance of the Company. The Board Charter is available on the Company’s website.
The Board guides and monitors the business of the Company on behalf of the shareholders, by whom they are elected and to whom they are accountable. The Board seeks to meet the legitimate expectations of shareholders, while discharging its regulatory obligations and ethical responsibilities.
The key role of the Board is strategy development and the review and approval of plans and budgets. In addition, the Board is responsible for identifying areas of significant business risk and ensuring policies and procedures are in place to adequately manage those risks.
The Board at 30 June 2007 comprised four Directors, all of whom are non-executive Directors.
Non-executive Directors
At 30 June 2007, the Company’s non-executive Directors were John Quinn, Brian Phillips, Chris Roberts, and Robert Flew. The non-executive Directors’ qualifications, experience, dates of appointment and details of other listed company directorships are set out in the Directors’ Report and in the Corporate section of the website.
Chairman
At 30 June 2007 John Quinn was the Chairman of the Company. The Company’s policy on the “Role of the Chairman” is posted on the website.
Independence
Three of the four non-executive Directors at 30 June 2007 are independent as defined by the ASXCGC Best Practice Recommendations; Non-executive Chairman John Quinn is not considered to be independent until three years after he ceased to be Executive Chairman of the Company, which occurred in June 2005. The Company does not comply with Best Practice Recommendations 2.1 or 2.2, which recommend that a majority of the Board, including the Chairman, be independent directors.
Managing Director, Chief Executive Officer and Executive General Manager
Graeme Sloan was appointed as a Director in January 2004, was appointed Managing Director and CEO in June 2005 and resigned as a director of the Company on 10 August 2007.
Mark Mitchell was appointed Executive General Manager on 10 August 2007, and has subsequently resigned.
The Company’s policy on the “Role of the CEO” is posted on the website. The Board reviews and provides feedback on the CEO’s performance, and is responsible for the appointment and removal of the CEO.
AUDIT COMMITTEE AT 30 JUNE 2007
The Audit Committee shall comprise at least three Non-executive Directors, as set out in the Audit Committee Charter posted on the website.
Present members of the Committee are Robert Flew (Chairman of the Audit Committee), Brian Phillips and John Quinn.
The purpose of the Audit Committee is to assist the Board with the Company’s financial reporting, internal control structure, risk management systems and other functions. Its primary responsibility is to oversee the Company’s financial reporting process and report the results of its activities to the Board. The Committee is also responsible for making recommendations to the Board on the appointment, removal and remuneration of the auditors, and monitoring their effectiveness and independence.
The Audit Committee meets in order to:
    review and approve plans for the annual audit;
 
    review and approve the half-year financial report;
 
    update the plans for the annual audit; and

12


 

Annual Financial Report
Financial year ended 30 June 2007

 
    review and approve the annual financial report.
The Audit Committee discusses with senior management and the auditors, and reports to the Board, on the adequacy and effectiveness of the accounting and financial controls, including the Company’s policies and procedures to assess, monitor and manage business risk, and legal and ethical compliance programs (including the Company’s Code of Conduct).
In fulfilling its responsibilities the Committee receives regular reports from senior management and the auditors. The Committee ensures there are clear lines of communication between the Committee, the auditors and management. The auditor attends the Annual General Meeting of the Company to answer questions about the audit.
The Committee has authority, in carrying out its duties, to seek information from any employee, and to obtain external legal or other independent professional advice. The Committee requires the persons performing the CEO and CFO functions to sign off on the Company’s financial reports and the soundness of the Company’s risk management and internal compliance and control systems.
The Committee reports to the Board after each Committee meeting and Audit Committee minutes are provided to all Directors.
REMUNERATION COMMITTEE AT 30 JUNE 2007
The Remuneration Committee consists of John Quinn and Brian Phillips. The main tasks of the Committee are to review the performance of the CEO and senior management, and to review in line with best practice the Company’s remuneration levels and employee incentive plans. The incentive plans presently consist of an Employee Option Plan and a Performance Rights Plan, last approved by shareholders at the 2004 Annual General Meeting.
Non-executive Directors receive no retirement benefits in addition to statutory entitlements.
The Committee generally meets twice each year and reports to the Board after each Committee meeting, with Remuneration Committee minutes provided to all Directors.
The Company’s Remuneration Committee Charter is posted on the website.
NOMINATION POLICY AT 30 JUNE 2007
The Board believed at 30 June 2007 that a Nomination Committee is not warranted by a company the size of the Company. The Company does not comply with Best Practice Recommendation 2.4, which recommends that the Company have a Nomination Committee.
The Board’s Nomination Policy aims to preserve a mix of relevant skills and experience on the Board and sets out the procedure for the appointment of Non-executive Directors.
The Company’s Nomination Policy is posted on the website.
BOARD PERFORMANCE REVIEW POLICY AT 30 JUNE 2007
The Board periodically reviews its own performance and that of its committees. The Board’s Performance Review Policy is posted on the website.
INDEPENDENT ADVICE POLICY AT 30 JUNE 2007
Directors have the right, in connection with the discharge of their responsibilities, to seek independent professional advice at the Company’s expense. Prior approval of the Chairman is required.
The Company’s Independent Advice Policy is posted on the website.
CONTINUOUS DISCLOSURE POLICY AT 30 JUNE 2007
The Company keeps the market fully informed by releasing to ASX all information concerning the Company and its activities that a reasonable person would expect to have a material effect on the price of the Company’s securities.
Information disclosed to ASX is posted on the website. When analysts are briefed on aspects of the Company’s operations, the material to be used in the presentation must have previously been released to the ASX and posted on the website.
The Company’s Continuous Disclosure Policy is posted on the website.

13


 

Annual Financial Report
Financial year ended 30 June 2007

 
SHARE TRADING POLICY AT 30 JUNE 2007
The Companies Share Trading Policy prohibits trading in Company securities by Directors, employees and the Company’s consultants or advisers while in possession of price-sensitive information. The Chairman (in the case of trading by Directors), CEO or Company Secretary must be notified beforehand of proposed trading in Company securities.
The Company’s Share Trading Policy is posted on the website.
CODE OF CONDUCT AT 30 JUNE 2007
The Board has adopted a Code of Conduct that seeks to foster high standards of ethics and accountability among Company employees and Directors. The Code sets out guidelines on a variety of matters, including occupational health and safety, the environment, equal employment opportunity, harassment and discrimination, confidentiality, insider trading, privacy, continuous disclosure, use of Company property, gifts, information technology and conflicts of interests.
The Company’s Code of Conduct is posted on the website.

14


 

Annual Financial Report
Financial year ended 30 June 2007

 
Balance Sheet
AS AT 30 JUNE 2007
                                         
            CONSOLIDATED     THE COMPANY  
    NOTES     2007 ($)     2006 ($)     2007 ($)     2006 ($)  
 
 
                                       
CURRENT ASSETS
                                       
Cash and cash equivalents
    21 (b)     11,418,840       18,370,653       38,680       10,961,468  
Trade and other receivables
    3       5,361,005       3,463,925       1,474,988       672,424  
Inventories
    4       13,508,031       7,260,969              
Derivatives
    28             35,146              
 
                               
TOTAL CURRENT ASSETS
            30,287,876       29,130,693       1,513,668       11,633,892  
 
                               
 
                                       
NON-CURRENT ASSETS
                                       
Intangible assets
    6       24,281,447                    
Goodwill
    6       8,214,537                    
Receivables
    3                   42,103,133       32,724,855  
Other financial assets
    5                   52,971,894       202  
Property, plant & equipment
    7       97,554,151       87,720,289       9,420        
Mining properties
    8       30,664,979       12,518,928              
 
                               
TOTAL NON-CURRENT ASSETS
            160,715,114       100,239,217       95,084,447       32,725,057  
 
                               
TOTAL ASSETS
            191,002,990       129,369,910       96,598,115       44,358,949  
 
                               
 
                                       
CURRENT LIABILITIES
                                       
Trade and other payables
    9       26,906,988       12,462,189       19,890,793        
Interest bearing loans and borrowings
    10       4,826,280       6,307,029              
Provisions
    12       4,361,784       507,258              
Derivatives
    28       35,620,978       50,289,959              
 
                               
TOTAL CURRENT LIABILITIES
            71,716,030       69,566,435       19,890,793        
 
                               
 
                                       
NON-CURRENT LIABILITIES
                                       
Interest bearing loans and borrowings
    10       24,465,750       12,500,000              
Convertible notes
    11       34,743,835       34,365,425       34,743,835       34,372,172  
Provisions
    12       9,192,230       3,080,711              
Deferred tax liability
    16       7,981,629                    
 
                               
TOTAL NON-CURRENT LIABILITIES
            76,383,444       49,946,136       34,743,835       34,372,172  
 
                               
TOTAL LIABILITIES
            148,099,474       119,512,571       54,634,628       34,372,172  
 
                               
NET ASSETS
            42,903,516       9,857,339       41,963,487       9,986,777  
 
                               
 
                                       
EQUITY
                                       
Issued capital
    13       175,290,844       122,864,228       175,290,844       122,864,228  
Reserves
    14       1,847,980       1,489,247       1,847,980       1,489,247  
Retained losses
    14       (134,235,308 )     (114,496,136 )     (135,175,337 )     (114,366,698 )
 
                               
TOTAL EQUITY
            42,903,516       9,857,339       41,963,487       9,986,777  
 
                               
The accompanying notes form an integral part of this Balance Sheet.

15


 

Annual Financial Report
Financial year ended 30 June 2007

 
Income Statement
YEAR ENDED 30 JUNE 2007
                                         
            CONSOLIDATED     THE COMPANY  
    NOTES     2007 ($)     2006 ($)     2007 ($)     2006 ($)  
 
 
                                       
Revenues
                                       
Sales revenue
    2       115,857,494       62,884,572              
Other revenue
    2       1,362,265       1,061,936       331,312       607,313  
 
                               
Total revenue
            117,219,759       63,946,508       331,312       607,313  
 
                               
 
                                       
Expenses
                                       
Treatment expenses
            (24,872,137 )     (16,910,278 )            
Underground mining expenses
            (19,851,875 )                  
Surface mining expenses
            (8,528,309 )     (14,803,506 )            
Mine geology expenses
            (7,493,431 )     (1,711,428 )            
Engineering & maintenance expenses
            (5,827,307 )     (4,051,463 )            
 
                               
Cost of sales
    2       (66,573,059 )     (37,476,675 )            
 
                               
 
                                       
Gross profit
            50,646,700       26,469,833       331,312       607,313  
 
                               
 
                                       
Sustainability expenses
            (932,505 )     (910,072 )            
Administration & corporate expenses
            (7,678,979 )     (3,992,017 )     (1,585,739 )     (1,350,501 )
Employee benefits
    2       (1,662,498 )     (364,534 )     (79,043 )     (38,908 )
Exploration expenses
            (8,616,456 )     (3,846,503 )            
Depreciation and amortisation
    2       (45,362,478 )     (26,403,222 )     (404 )      
Other (expenses)/income
    2       (688,566 )     9,124       (16,356,573 )     (79,074,611 )
 
                                       
 
                               
Loss before income tax expense, finance costs and movement in fair value of derivatives and impairment
            (14,294,782 )     (9,037,391 )     (17,690,447 )     (79,856,707 )
 
                               
 
                                       
Finance costs
    2       (4,928,985 )     (3,645,895 )     (3,118,192 )     (179,146 )
Benefit/ (loss) movement in fair value of derivatives
    2       10,677,226       (46,342,460 )            
Impairment of property, plant & equipment & mining development
    2b       (13,880,000 )                  
 
                                       
 
                               
 
                                       
Loss before income tax expense
            (22,426,541 )     (59,025,746 )     (20,808,639 )     (80,035,853 )
 
                                       
Income tax benefit
    16       2,687,371                    
 
                                       
 
                               
Net loss attributable to members of Perseverance Corporation Limited
    14       (19,739,170 )     (59,025,746 )     (20,808,639 )     (80,035,853 )
 
                               
 
                                       
Earnings per share (cents per share)
                                       
- basic for profit/(loss) for the year attributable to equity shareholders of the parent
    15       (3.08 )     (10.31 )                
 
                                   
-  diluted for profit/(loss) for the year attributable to equity shareholders of the parent
    15       (3.08 )     (10.31 )                
 
                                   
The accompanying notes form an integral part of this Income Statement.

16


 

Annual Financial Report
Financial year ended 30 June 2007
 
Cash Flow Statement
YEAR ENDED 30 JUNE 2007
                                         
            CONSOLIDATED     THE COMPANY  
    NOTES     2007 ($)     2006 ($)     2007 ($)     2006 ($)  
 
            INFLOWS/     INFLOWS/     INFLOWS/     INFLOWS/  
        (OUTFLOWS)     (OUTFLOWS)     (OUTFLOWS)     (OUTFLOWS)  
 
CASH FLOWS FROM OPERATING ACTIVITIES:
                                       
Receipts from customers (inclusive of GST)
            105,531,918       61,292,303             38,598  
Payments to suppliers and employees (inclusive of GST)
            (76,702,308 )     (48,577,579 )     (10,410,501 )     (4,828,879 )
GST received from Australian Tax Office
            11,287,492       5,762,539       7,971,235       5,762,539  
Interest received
            740,180       684,426       331,312       607,313  
Interest paid
            (4,597,382 )     (3,515,293 )     (2,875,910 )     (1,434,890 )
 
                               
NET CASH FLOWS FROM /(USED IN) OPERATING ACTIVITIES:
    21       36,259,900       15,646,396       (4,983,864 )     144,681  
 
                               
 
                                       
CASH FLOWS FROM INVESTING ACTIVITIES:
                                       
Payments for development activities
            (42,283,142 )     (12,398,915 )            
Payments for property, plant & equipment
            (10,258,392 )     (9,169,136 )     (9,824 )      
Payments for exploration activities
            (8,616,456 )     (3,846,503 )            
Net cash from acquisition in subsidiary
    27       15,658,018                    
Cost incurred on acquisition of subsidiary
            (607,199 )           (607,199 )        
Receipts from sale of property, plant & equipment
            9,306                    
Proceeds from sales of subsidiary/ investment
            208,683                    
 
                               
NET CASH FLOWS USED IN INVESTING ACTIVITIES:
            (45,889,182 )     (25,414,554 )     (617,023 )      
 
                               
 
                                       
CASH FLOWS FROM FINANCING ACTIVITIES:
                                       
Net proceeds from issues of shares
            62,122       221,135       62,122       221,135  
Security deposits received
                  5,000             5,000  
Net proceeds from convertible note issue
                  34,365,425             34,365,425  
Advances of borrowings
            23,125,000       6,200,000       371,995        
Repayment of borrowings
            (18,371,258 )     (13,523,014 )     (5,756,018 )      
Advances to related entities
                              (24,168,386 )
Principal repayment of finance leases
            (2,138,395 )     385              
 
                               
NET CASH FLOWS FROM FINANCING ACTIVITIES:
            2,677,469       27,268,931       (5,321,901 )     10,423,174  
 
                               
NET INCREASE/ (DECREASE) IN CASH AND CASH EQUIVALENTS HELD
            (6,951,813 )     17,500,773       (10,922,788 )     10,567,855  
Cash and cash equivalents at the beginning of the financial year
            18,370,653       869,880       10,961,468       393,613  
 
                               
 
                                       
CASH AND CASH EQUIVALENTS AT THE END OF THE FINANCIAL YEAR
    21       11,418,840       18,370,653       38,680       10,961,468  
 
                               
The accompanying notes form an integral part of this statement of cash flows.

17


 

Annual Financial Report
Financial year ended 30 June 2007
 
Statement of Changes in Equity
YEAR ENDED 30 JUNE 2007
                                             
    Attributable to equity holders of the parent  
 
                      Reserves          
 
                      Convertible                
    Issued     Retained       Notes -     Other          
    Capital     Earnings       Equity     Reserves       Total Equity  
Consolidated   ($)     ($)       ($)     ($)       ($)  
             
At 1 July 2005
    122,643,094       (51,551,291 )             224,340         71,316,143  
             
Application of AASB 132 and AASB 139
          (3,919,099 )                     (3,919,099 )
             
Net income/(loss) recognised directly in equity
          (3,919,099 )                     (3,919,099 )
             
Loss for the period
          (59,025,746 )                     (59,025,746 )
             
Total recognised income/(loss) for the period
          (62,944,845 )                     (62,944,845 )
             
Equity transactions:
                                           
Exercise of options
    221,134                             221,134  
Issue — convertible notes — equity component
                  951,113               951,113  
Cost of share-based payment
                        313,794         313,794  
             
Total equity transactions
    221,134               951,113       313,794         1,486,041  
             
At 30 June 2006
    122,864,228       (114,496,138 )       951,113       538,134         9,857,339  
             
Net income recognised directly in equity:
                                           
Loss for the period
          (19,739,170 )                     (19,739,170 )
             
Total recognised income for the year
          (19,739,170 )                     (19,739,170 )
             
Equity transactions:
                                           
Equity issued on acquisition of Leviathan Resources Limited
    52,364,494                             52,364,494  
Exercise of options
    62,122                             62,122  
Cost of share-based payment
                        358,733         358,733  
             
Total equity transactions
    52,426,616                     358,733         52,785,349  
             
At 30 June 2007 attributable to members
    175,290,844       (134,235,308 )       951,113       896,867         42,903,516  
             
Total Equity as at 30 June 2007
    175,290,844       (134,235,308 )       951,113       896,867         42,903,516  
             

18


 

Annual Financial Report
Financial year ended 30 June 2007
 
Statement of Changes in Equity
YEAR ENDED 30 JUNE 2007
                                             
    Attributable to equity holders of the parent  
 
                      Reserves          
 
                      Convertible                
                      Notes -     Other          
    Issued Capital     Retained Earnings       Equity     Reserves       Total Equity  
Parent   ($)     ($)       ($)     ($)       ($)  
             
At 1 July 2005
    122,643,094       (34,330,845 )             224,340         88,536,589  
             
Application of AASB 132 and AASB 139
                                 
             
Net income recognised directly in equity
                                 
             
Loss for the period
          (80,035,853 )                     (80,035,853 )
             
Total recognised income for the period
          (80,035,853 )                     (80,035,853 )
             
Exercise of options
    221,134                             221,134  
Issue — convertible notes — equity component
                  951,113               951,113  
Cost of share-based payment
                        313,794         313,794  
             
Total equity transactions
    221,134               951,113       313,794         1,486,041  
             
At 30 June 2006
    122,864,228       (114,366,698 )       951,113       538,134         9,986,777  
Net income recognised directly in equity
                                           
Loss for the period
          (20,808,639 )                     (20,808,639 )
             
Total recognised income for the year
          (20,808,639 )                     (20,808,639 )
             
Equity transactions:
                                           
Equity issued on acquisition of Leviathan Resources Limited
    52,364,494                             52,364,494  
Exercise of options
    62,122                             62,122  
Cost of share-based payment
                        358,733         358,733  
             
Total equity transactions
    52,426,616                     896,867         52,785,349  
             
At 30 June 2007
    175,290,844       (135,175,337 )       951,113       896,867         41,963,487  
             

19


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
1. Summary of Significant Accounting Policies
CORPORATE INFORMATION
The financial report of Perseverance Corporation Limited (the Company) for the year ended 30 June 2007 was authorised for issue in accordance with a resolution of the directors on 14 May 2008.
Perseverance Corporation Limited (the parent) is a company limited by shares incorporated in Australia.
The nature of the operations and principal activities of the Group are described in the Directors’ Report.
BASIS OF PREPARATION
(A) Basis of Preparation
The consolidated financial report is a general purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, applicable Accounting Standards and other mandatory professional reporting requirements.
The financial report has been prepared on a historical cost basis except for:
    the carrying values of derivatives which are adjusted to record changes in the fair values attributable to the financial instrument, and
 
    the assets acquired and the liabilities and contingent liabilities assumed at acquisition at fair value based on the purchase method of accounting outlined in 1(c) below.
The financial report is presented in Australian dollars.
(B) Statement of Compliance
Except for the amendments to AASB 101 Presentation of Financial Statements, Australian Accounting Standards and Interpretations that have been issued at 30 June 2007 or amended but are not yet effective have not been adopted by the Group for the annual report period ending 30 June 2007. These are outlined in the table below.
                     
            Application date of   Impact on Group   Application
Reference   Title   Summary   standard*   financial report   date for Group
AASB 2005-10
  Amendments to Australian Accounting Standards [AASB 132, AASB 101, AASB 114, AASB 117, AASB 133, AASB 139, AASB 1, AASB 4, AASB 1023 & AASB 1038]   Amendments arise from the release in August 2005 of AASB 7 Financial Instruments: Disclosures.   1 January 2007   AASB 7 is a disclosure standard and so will have no direct impact on the amounts included in the Group’s financial statements. However, the amendments will result in changes to the financial instrument disclosures included in the Group’s financial report.   1 July 2007
AASB 2007-1
  Amendments to Australian Accounting Standards arising from AASB Interpretation 11 [AASB 2]   Amending standard issued as a consequence of AASB Interpretation 11 Interim Financial Reporting and Impairment.   1 March 2007   This is consistent with the Group’s existing accounting policies for share-based payments so will have no impact.   1 July 2007

20


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
(B) Statement of Compliance (Continued)
                     
            Application date of   Impact on Group   Application
Reference   Title   Summary   standard*   financial report   date for Group
AASB 2007-2
  Amendments to Australian Accounting Standards arising from AASB Interpretation 12 [AASB 1, AASB 117, AASB 118, AASB 120, AASB 121, AASB 127, AASB 131 & AASB 139]   Amending standard issued as a consequence of AASB Interpretation 12 Service Concession Arrangements.   1 January 2007   As the Group currently has no service concession arrangements or public-private-partnerships (PPP), it is expected that this Interpretation will have no impact on its financial report.   1 July 2007
AASB 2007-3
  Amendments to Australian Accounting Standards arising from AASB 8 [AASB 5, AASB 6, AASB 102, AASB 107, AASB 119, AASB 127, AASB 134, AASB 136, AASB 1023 & AASB 1038]   Amending standard issued as a consequence of AASB 8 Operating Segments.   1 January
2009
  AASB 8 is a disclosure standard so will have no direct impact on the amounts included in the Group’s financial statements. However the new standard is expected to have an impact on the Group’s segment disclosures as segment information based on management reports are more detailed than those currently reported under AASB 114.   1 July 2009
AASB 7
  Financial Instruments:
Disclosures
  New standard replacing disclosure requirements of AASB 132.   1 January 2007   Refer to AASB 2005-10 above.   1 July 2007
AASB 8
  Operating Segments   This new standard will replace AASB 114 Segment Reporting and adopts a management approach to segment reporting.   1 January 2009   Refer to AASB 2007-3 above.   1 July 2009

21


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
(B) Statement of Compliance (Continued)
                     
            Application date of   Impact on Group   Application
Reference   Title   Summary   standard*   financial report   date for Group
AASB Interpretation
10
  Interim Financial Reporting and Impairment   Addresses an inconsistency between AASB 134 Interim Financial Reporting and the impairment requirements relating to goodwill in AASB 136 Impairment of Assets and equity instruments classified as available for sale in AASB 139 Financial Instruments:   1 November 2006   The prohibitions on reversing impairment losses in AASB 136 and AASB 139 to take precedence over the more general statement in AASB 134 is not expected to have any impact on the Group’s financial report.   1 July 2007
 
      Recognition and Measurement.            
AASB Interpretation
11
  Group and Treasury Share Transactions   Specifies that a share-based payment transaction in which an entity receives services as consideration for its own equity instruments shall be accounted for as equity-settled.   1 March 2007   Refer to AASB 2007-1 above.   1 July 2007
AASB Interpretation
12
  Service Concession
Arrangements
  Clarifies how operators recognise the infrastructure as a financial asset and/or an intangible asset — not as property, plant and equipment.   1 January 2007   Refer to AASB 2007-2 above.   1 July 2007
 
*   designates the beginning of the applicable annual reporting period
The financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS also ensures compliance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
(C) Summary of Significant Accounting Policies
(I) Basis of consolidation
The consolidated financial statements comprise the financial statements of Perseverance Corporation Limited and its subsidiaries as at 30 June each year (the Group).
Subsidiaries are all those entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies so as to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether a group controls another entity.
The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group.
The acquisition of subsidiaries is accounted for using the purchase method of accounting. The purchase method of accounting involves allocating the cost of the business combinations to the fair value of the assets acquired and the liabilities and contingent liabilities assumed at the date of acquisition.
In preparing the consolidated financial statements, all intercompany balances and transactions, income and expenses and profit and losses resulting from intra-group transactions have been eliminated in full.

22


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
(C) Summary of Significant Accounting Policies (Continued)
(II) Business combinations
The purchase method of accounting is used to account for all business combinations regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the combination. Where equity instruments are issued in a business combination, the fair value of the instruments is their published market prices as at the date of exchange unless, in rare circumstances, it can be demonstrated that the published price at the date of exchange is an unreliable indicator of fair value and that other evidence and valuation methods provide a more reliable measure of fair value. Transaction costs arising on the issue of equity instruments are recognised directly in equity.
Except for non-current assets or disposal groups classified as held for sale (which are measured at fair value less costs to sell), all identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of the business combination over the net fair value of the Group’s share of the identifiable net assets acquired is recognised as goodwill. If the cost of acquisition is less than the Group’s share of the net fair value of the identifiable net assets of the subsidiary, the difference is recognised as a gain in the income statement, but only after a reassessment of the identification and measurement of the net assets acquired.
Where settlement of any part of the consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.
(III) Interest in a jointly controlled operation
The Group has an interest in a joint venture that is a jointly controlled operation. A joint venture is a contractual arrangement whereby two or more parties undertake and economic activity that is subject to joint control. A jointly controlled operation involves use of assets and other resources of the venturers rather than establishment of a separate entity. The Group recognises its interest in the jointly controlled operation by recognising its interest in the assets and the liabilities of the joint venture. The Group also recognises the expenses that it incurs and its share of the income that it earns from the sale of goods or services by the jointly controlled operation.
The Group’s interest in its joint venture operations is accounted for by recognising the Group’s assets it controls and liabilities it incurs from the joint venture, as well as expenses incurred by the Group and the Group’s share of income that it earns from the sale of product by the joint venture, in the consolidated financial statements.
(IV) Mineral exploration, evaluation and development expenditure
Exploration, evaluation and development expenditure incurred by the Group is accumulated for each separate area of interest. Accumulated exploration, evaluation and development expenditure on areas of interest are carried forward where costs are expected to be recouped through successful development and exploitation of the area of interest or, alternatively, by its sale. Where exploration and/or evaluation activities in the area of interest have not yet reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in relation to the area are continuing, the costs may be carried forward or expensed.
Expenditure on areas that have been abandoned, or considered to be of no value, is written off or expensed. For those areas in which extraction of ore has commenced, accumulated costs are amortised over the expected gold reserves written off on a unit of gold production basis. Estimates of gold reserves are revised annually.

23


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
(C) Summary of Significant Accounting Policies (Continued)
(V) Mine property, plant and equipment
Plant, equipment, land and buildings are stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is calculated either on a units of production or a straight-line basis over the estimated useful life of the asset as follows:
         
    LIFE   METHOD
 
Buildings on mining leases
  10 years   Straight line
Motor vehicles
  4 years   Straight line
Office equipment
  5 years   Straight line
Plant and equipment — mining operations
  7 years   Units of Production
Mining properties
  7 years   Units of Production
Plant and equipment — other
  5 years   Straight line
Specifically, pre-stripping costs, and mining costs associated with accessing the ore, are progressively capitalised as such expenditure is incurred, and amortised over the life of the surface pit or underground region to which such costs relate on a units of production basis.
Land is carried at cost.
Mining properties consists of assets in development (including underground mine development) and deferred mining costs associated with capitalised pre-stripping activity and other costs associated with accessing the ore body and preparation for production operations. When development costs meet phase completion criteria, these costs are transferred to property, plant and equipment.
Disposal
An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal.
Any gain or loss arising on de-recognition of the assets (calculated as the difference between the net disposal proceeds and the carrying amount of the assets) is included in profit or loss in the year the asset is derecognised.
Impairment
The carrying values of plant and equipment are reviewed for impairment at each balance sheet date when events or changes in circumstances indicate the carrying value may not be recoverable. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Plant and associated infrastructure are assessed on a Fosterville Gold Mine cash generating unit basis and a Stawell Gold Mine cash generating unit basis.
If an indication of impairment exists, and where the carrying values exceed the estimated recoverable amount, the assets of the cash-generating unit are written down to their recoverable amount.
The recoverable amount of plant and equipment is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre tax real discount rate that reflects current market assessments of the Company’s cost of capital and the risks specific to the asset.
Land is assessed for impairment at each balance sheet date when events or changes in circumstances indicate the carrying value may not be recoverable. For property, plant and equipment, impairment losses are recognised in the income statement as a separate expense item.
(VI) Finance Costs
Finance costs are recognised as an expense when incurred. Finance costs include costs associated with the unwinding of discounted non current liabilities.
(VII) Research and development
Research costs are expensed as incurred. No development costs other than those relating to mining properties and infrastructure are capitalised.

24


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
(C) Summary of Significant Accounting Policies (Continued)
(VIII) Inventory
Work in progress
Work in progress, including ore stock, is valued at the lower of average cost and net realisable value. Cost represents the weighted average cost and includes direct attributable costs associated with bringing ore to the processing plant and ore in circuit.
Net Realisable Value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.
Deferred Mining
Deferred Mining costs associated with the mining of ore once it has been accessed are progressively capitalised as expenditure is incurred, and amortised over the life of the surface pit or underground region to which such costs relate on a units of production basis.
Stores
Stores represent consumable supplies and maintenance spares and are valued at the lower of cost and net realisable value on a first in first out basis.
(IX) Trade and other receivables
Trade receivables are recognised and carried at original income amount less an allowance for any uncollectible amounts. Proceeds from gold sales are generally received within 11 trading days.
An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified.
(X) Trade and other payables
Trade payables and other payables are carried at amortised cost. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days of recognition.
(XI) Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. Bank overdrafts are included within interest-bearing loans and borrowings in current liabilities on the balance sheet.
(XII) Interest-bearing loans and borrowings
All loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with the borrowing.
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement.
Gains and losses are recognised in the income statement when the liabilities are derecognised and as well as through the amortisation process.

25


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
(C) Summary of Significant Accounting Policies (Continued)
(XIII) Convertible notes
The component of the convertible notes that exhibits characteristics of a liability is recognised as a liability in the balance sheet, net of issue costs.
On the issue of the convertible notes the fair value of the liability component is determined using a market rate for an equivalent non-convertible bond and this amount is carried as a long-term liability on the amortised cost basis until extinguished on conversion or redemption. The increase in the liability due to the passage of time is recognised as a finance (interest) cost.
The remainder of the proceeds are allocated to the conversion option that is recognised and included in shareholders equity as a convertible note reserve, net of transaction costs. The carrying amount of the conversion option is not remeasured in subsequent years.
The corresponding interest on convertible notes is expensed to the income statement.
Issue costs are apportioned between the liability and equity components of the convertible note based on the same allocation of proceeds to the liability and equity components when the instruments are first recognised.
(XIV) Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
Where discounting is used, the increase in the provision due to passage of time is recognised as a finance (interest) cost.
Employee Provisions
Provision has been made in the financial statements for benefits accruing to employees in relation to annual leave and long service leave. All on-costs, including payroll tax, workers’ compensation premiums and superannuation are included in the determination of provisions.
Provision for annual leave and the current portion of long service leave are measured at their nominal amounts based on remuneration rates which are expected to be paid when the liability is settled. The non-current portion of the long service leave provision is measured at the present value of estimated future cash flows. The present value of future cash outflows reflect estimated increases in entitlement costs and discount rates based on government issued securities.
Restoration and Rehabilitation Provisions
Costs of rehabilitation work, including reclamation, plant closure and monitoring is provided for on the basis of the present value of estimated future rehabilitation expenditures. When a constructive obligation to rehabilitate is identified or revised, a corresponding asset is recognised on the same basis as the determination of the provision. The asset recognised is amortised to the profit and loss account progressively on a units of production basis. A charge is also made to the profit or loss account for the interest component, representing the unwinding of the present value of the provision account.

26


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
(C) Summary of Significant Accounting Policies (Continued)
(XV) Share-based payment transactions
The Group provides benefits to employees and executive directors through the Perseverance Employee Performance Rights Plan and the Perseverance Employee Share Option Plan, which provides benefits to certain employees in exchange for services.
The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined with reference to a valuation performed under the binomial method.
In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of Perseverance Corporation Limited (‘market conditions’).
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘vesting period’).
The cumulative expense recognised for equity-settled transactions at each reporting date until vesting reflects (i) the extent to which the vesting period has expired and (ii) the number of awards that, in the opinion of the directors of the Group, will ultimately vest. This opinion is formed based on the best available information at balance date. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date.
If the terms of an equity-settled award are modified, as a minimum an expense is recognized as if the terms had not been modified. In addition, an expense is recognized for any modification that increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee, as measured at the date of modification.
If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognized for the award is recognized immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph.
The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share.
(XVI) Leases
The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.
Assets acquired under finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at inception of the lease at the fair value of the leased property, or if lower, the present value of the minimum lease payment and amortised over the life of the relevant lease or, where ownership is likely to be obtained on expiration of the lease, over the expected useful life of the asset. Lease payments are allocated between interest expense and reduction in the lease liability.
Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term.
Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance (interest) charges are charged directly against income.
Operating lease assets are not capitalised and rental payments are charged against operating profit in the period in which they are incurred.

27


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
(C) Summary of Significant Accounting Policies (Continued)
(XVII) Revenue recognition
Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:
Sales of gold
Gold sales revenue is recognised as the bars are delivered from the mine site. It is at this point where the risks and rewards of ownership are considered passed, and the transaction costs can be measured reliably.
Interest
Revenue is recognised when the Group controls the right to receive interest payments.
(XVIII) Income tax
Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current period’s taxable income. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.
Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognised for all taxable temporary differences except:
    When the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or
 
    When the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax assets and unused tax losses can be utilised, except:
    where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
 
    In respect of deductible temporary differences associated with investments in subsidiaries, associates and interest in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and the taxable profit will be available against which the temporary differences can be utilised.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.
Income taxes relating to items recognised directly in equity are recognised in equity and not in the income statement.
Deferred tax assets and liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.

28


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
(C) Summary of Significant Accounting Policies (Continued)
(XIX) Other taxes
Revenues, expenses and assets are recognised net of the amount of GST except:
    Where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
 
    Receivables and payables are stated with the amount of GST included.
The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.
Cash flows are included in the Cash Flow Statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.
(XX) De-recognition of financial assets and financial liabilities
(i) Financial assets
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when:
    The right to receive cash flows from the asset have expired;
 
    The Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a ‘pass-through’ arrangement; or
 
    The Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Group has transferred its right to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration received that the Group could be required to repay.
When continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group may repurchase, except that in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, the extent of the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.
(ii) Financial liabilities
A financial liability is de-recognised when the obligation under the liability is discharged or cancelled or expires.
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a de-recognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in profit or loss.

29


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
(C) Summary of Significant Accounting Policies (Continued)
(XXI) Derivative financial instruments
The Group uses derivative financial instruments such as gold commodity flat forward contracts and interest rate swaps to hedge and manage its risks associated with gold price and interest rate fluctuations. Such derivative financial instruments are stated at fair value on the date on which a derivative contract is entered into and are subsequently remeasured to fair value. Any gains or losses from changes in the fair value of derivatives, except for those that qualify as cash flow hedges (if applicable) are taken directly to net profit or loss for the year.
The fair value of gold commodity flat forward contracts are calculated by reference to quotes from external counterparties using standard valuation techniques based on movements in the forward gold price applicable to the contracts held.
The Group enters into interest rate swap agreements which are used to convert the variable interest rate of its short term borrowings to medium term fixed interest rates. The swaps are entered into with the objective of reducing the risk to the Group of rising interest rates.
For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken directly to the income statement.
(XXII) Investments and other financial assets
Financial assets in the scope of AASB 139 Financial Instruments: Recognition and Measurement are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale financial assets. When financial assets are recognised initially, they are measure at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Group determines the classification of its financial assets after initial recognition and when allowed and appropriate, re-evaluates the designation at each financial year-end.
All regular way purchases and sales of financial assets are recognised on the trade date, i.e. the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets under contracts that require delivery of the assets within the period established generally by regulation or convention in the market place.
Loans and receivables including loan notes and loans to key management personnel are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process.
The fair values of investments that are actively traded in organised financial markets are determined by reference to quoted market bid prices at the close of business on the balance sheet date. For investments with no active market, fair values are determined using valuation techniques. Such techniques include: using recent arm’s length market transactions; reference to the current market value of another instrument that is substantially the same; discounted cash flow analysis and option pricing models making as much use of available and supportable market data as possible and keeping judgemental inputs to a minimum.
(XXIII) Contributed Equity
Ordinary shares are classified as equity. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received.
(XXIV) Earnings per share (EPS)
Basic EPS is calculated as net profit attributable to members, adjusted to exclude costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element.
Diluted EPS is calculated as net profit attributable to members, adjusted for:
    costs of servicing equity (other than dividends);
 
    the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and
 
    other non-discretionary changes in revenues or expenses during the period which would result from the dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element.

30


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
(C) Summary of Significant Accounting Policies (Continued)
(XXV) Goodwill and intangibles
Goodwill
Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities.
Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.
For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated:
    represents the lowest level within the Group at which the goodwill is monitored for internal management purposes; and
 
    is not larger than a segment based on either the Group’s primary or the Group’s secondary reporting format determined in accordance with AASB 114 Segment Reporting.
Intangibles
Intangible assets acquired separately or in a business combination are initially measured at cost. The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs and mining properties, are not capitalised and expenditure is charged against profits in the year in which the expenditure is incurred.
Intangible assets with finite lives are amortised over the useful life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, which is a change in accounting estimate. The amortisation expense on intangible assets with finite lives is recognised in profit or loss in the expense category consistent with the function of the intangible asset.
A summary of the policies applied to the Group’s intangible assets is as follows:
         
    Mining Rights   Exploration Rights
Useful life
  Stawell Gold Mine reserves   Length of tenure over exploration licenses
Amortisation method used
  Units of Production   Straight line
Impairment Testing
  Annually or more frequently when an indication of impairment exists   Annually or more frequently when an indication of impairment exists
(XXVI) Significant accounting judgements, estimates and assumptions
(i) Significant accounting judgements
No specific accounting judgements are noted which have a significant impact on the financial statements other than the Company’s assessment of the forecast service period of its employees for long service leave determination purposes.
(ii) Significant accounting estimates and assumptions
Estimation of recoverable amount of assets
The Company determines the recoverable amount of mining properties and property, plant and equipment based on estimation of future gold prices, plant recovery rates and gold reserve estimates. An impairment loss of $13.88m was recognised in the 2007 year on the basis of estimates disclosed in Note 2(a).
Rehabilitation cost estimate
The Company has estimated future rehabilitation costs based on external and internal cost assessments.

31


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
(C) Summary of Significant Accounting Policies (Continued)
Fair Value of net assets on acquisition of a business
The group determines the fair value of net assets acquired based on valuations performed by external parties and internal assessments. Equity
The Group measures the cost of equity-settled transactions by reference to the fair value of equity instruments measured at grant date. The fair value is determined using a binomial model using the assumptions detailed in Note 25.
Impairment testing of goodwill and intangible assets
The Company’s goodwill and intangible (mining right and exploration right) balances have arisen from the acquisition of Leviathan Resources Limited and have been allocated fully to the Stawell Gold Mine cash generating unit for impairment testing purposes. Based on the assumptions in note 2(a), there is no impairment of these balances at 30 June 2007. The assumption with the greatest degree of sensitivity to impact these calculations is the gold price per ounce. An assumption of A$800 per ounce has been applied to these calculations at 30 June 2007. Each A$1 movement in the gold price has approximately a $280,000 impact on the total forecast cashflows of the Stawell Gold Mine.

32


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
2. REVENUE AND EXPENSES
                                 
    CONSOLIDATED     THE COMPANY  
    2007 ($)     2006 ($)     2007 ($)     2006 ($)  
 
 
                               
REVENUES
                               
Sales Revenues
                               
Gold sales
    115,857,494       62,884,572              
 
                       
 
                               
Other Revenues
                               
Interest received from other persons
    740,180       684,426       331,312       607,313  
Other
    622,085       377,510              
 
                       
Total other revenues
    1,362,265       1,061,936       331,312       607,313  
 
                       
Total revenues
    117,219,759       63,946,508       331,312       607,313  
 
                       
 
                               
Cost of sales (i)
    66,573,059       37,476,675              
 
                       
 
                               
EXPENSES
                               
 
                               
Employee Benefits
                               
Employee superannuation expense
    1,662,498       364,534       79,043       38,908  
 
                               
Depreciation and Amortisation
                               
Depreciation of:
                               
Buildings
    228,168       105,030              
Plant & equipment
    16,502,448       12,208,451       404        
 
                       
Total depreciation
    16,730,616       12,313,481       404        
 
                       
 
                               
Amortisation of rehabilitation costs
    293,442       245,047              
Amortisation of mining property
                               
- Development phase
    6,678,541       1,340,157              
- Deferred mining
    21,659,879       12,504,537              
 
                       
Total amortisation
    28,631,862       14,089,741              
 
                       
 
                               
Total depreciation and amortisation
    45,362,478       26,403,222       404        
 
                       
 
                               
Finance Costs
                               
Interest paid or payable to :
                               
Other unrelated persons
    4,337,049       3,293,972       2,875,910        
Restoration provision interest unwinding
    245,230       122,691              
Convertible notes interest unwinding
    118,559       56,187       118,559       56,187  
Share based payments expense (ii)
    123,723       122,959       123,723       122,959  
Employee benefits interest unwinding
    104,424       50,086              
 
                       
Total finance costs
    4,928,985       3,645,895       3,118,192       179,146  
 
                       
 
(i)   Cost of sales comprises underground mining, surface mining, mine geology, treatment, engineering and maintenance expenses.
 
(ii)   Share based payments expense comprises costs associated with the granting of options to the ANZ Bank pursuant to the terms of the debt facility disclosed in Note 10.

33


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
2. PROFIT AND LOSS ITEMS (CONTINUED)
                                 
    CONSOLIDATED     THE COMPANY  
    2007 ($)     2006 ($)     2007 ($)     2006 ($)  
 
(Benefit)/loss on movement in fair value of derivatives
                               
Gold forwards
    (10,685,125 )     46,327,845              
Interest rate swaps
    7,899       14,615              
 
                       
 
    (10,677,226 )     46,342,460              
 
                       
 
                               
OTHER EXPENSE ITEMS
                               
Provision for non-recovery of related party receivables
                16,121,563       78,883,776  
Provision for employee entitlements
    608,869       47,886              
Provision/(credit) for restoration and rehabilitation
    (175,903 )     (247,845 )            
Net loss on disposal of property, plant and equipment
    20,590                    
Expense from recognition of
    235,010       190,835       235,010       190,835  
employee related share based payment expenses
                               
 
                               
 
                       
 
    688,566       (9,124 )     16,356,573       79,074,611  
 
                       
(a) Impairment tests for Fosterville Gold Mine and Stawell Gold Mine
The Perseverance Group comprises two separate cash-generating units (CGU) for impairment testing purposes as follows:
  Fosterville Gold Mine; and
 
  Stawell Gold Mine.
Fosterville Gold Mine
The recoverable amount of the Fosterville Gold Mine assets has been determined based on a value in use calculation using cash flow projections based on a life of mine which extends to 2014 and a gold price of $A800 per ounce. The discount rate applied to cash flow projections is a pre-tax real discount rate of 10%. Cash flow projections have no inflationary impact built in. The discount rate has been determined with reference to the Company’s weighted average cost of capital (WACC) adjusted for risks specific to the Fosterville CGU.
Stawell Gold Mine
The recoverable amount of the Stawell Gold Mine assets has been determined based on a value in use calculation using cash flow projections based on a life of mine which extends to 2010 and a gold price of $A800 per ounce. The discount rate applied to cash flow projections is a pre-tax real discount rate of 9%. Cash flow projections have no inflationary impact built in. The discount rate has been determined with reference to the Company’s WACC adjusted for risks specific to the Stawell CGU.
(b) Impairment charge
The impairment charge of $13.88 million arose relating to the Fosterville Gold Mine CGU following a review of the life of mine plan. The Company has impaired the Fosterville assets within the CGU based on a pro-rata allocation to development assets and plant and equipment as follows:
                                 
Impairment charge
                               
Property plant & equipment
    10,410,000                    
Mining properties
    3,470,000                    
 
                       
Total impairment charge
    13,880,000                    
 
                       

34


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
(b) Impairment charge (Continued)
                                 
    CONSOLIDATED     THE COMPANY  
    2007 ($)     2006 ($)     2007 ($)     2006 ($)  
 
Key assumptions
  (i)   All future gold is sold at A$800 per ounce.
 
  (ii)   The discount rate is the weighted average cost of capital which reflects site and industry specific risks and cost of debt and equity.
 
  (iii)   The financials used are real figures and ignore inflationary impacts.
 
  (iv)   Gold produced of 828,627 ounces for Fosterville mine.
 
  (v)   Gold recovery rates increasing progressively to 90%.
 
  (vi)   Cash costs per ounce average A$511 over the remaining life of mine.
     These assumptions differ to the value in use calculations performed in prior periods to reflect changes in circumstances.
3. RECEIVABLES
                                 
CURRENT                                
Trade debtors (a)
    5,321,582       3,237,104       1,474,988       672,424  
Prepayments
    39,423       226,821              
 
                       
 
    5,361,005       3,463,925       1,474,988       672,424  
 
                       
 
(a)   Trade debtors are non-interest bearing.
                                 
NON-CURRENT                                
Amounts owing by controlled entities
                159,875,561       133,873,524  
Less provision for non-recovery
                (117,772,428 )     (101,148,669 )
 
                       
 
                42,103,133       32,724,855  
 
                       
4. INVENTORIES
                                 
ROM pad and circuit stocks
    6,562,481       3,401,230              
Deferred mining
    563,470       2,067,872              
Stores
    6,097,673       1,791,867              
Finished goods
    284,407                    
 
                       
 
    13,508,031       7,260,969              
 
                       
5. OTHER FINANCIAL ASSETS
                                 
Unlisted shares in controlled entities (refer Note 27)
                52,971,894       202  
 
                       

35


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
6. INTANGIBLE ASSETS
                                 
    CONSOLIDATED     THE COMPANY  
    2007 ($)     2006 ($)     2007 ($)     2006 ($)  
 
MINING RIGHTS
                               
Year ended 30 June 2007
                               
Opening net book amount
                       
Acquisitions of subsidiary*
    28,800,000                    
Amortisation charge**
    (7,258,777 )                  
 
                       
Closing net book amount
    21,541,223                    
 
                       
 
*   Refer to note 27.
 
**   Amortisation of $7,258,777 (2006: $Nil) is included in depreciation and amortisation expense in the income statement.
                                 
EXPLORATION RIGHTS
                               
Year ended 30 June 2007
                               
Opening net book amount
                       
Acquisitions of subsidiary*
    3,500,000                    
Amortisation charge**
    (759,776 )                  
 
                       
Closing net book amount
    2,740,224                    
 
                       
 
*   Refer to note 27.
 
**   Amortisation of $759,776 (2006: $Nil) is included in depreciation and amortisation expense in the income statement.
Mining and exploration rights
Mining and exploration rights have been acquired through business combinations and are carried at cost less accumulated amortisation
                                 
GOODWILL
                               
Year ended 30 June 2007
                               
Opening net book amount
                       
Acquisitions of subsidiary
    8,214,537                    
Impairment charge
                       
 
                       
Closing net book amount
    8,214,537                    
 
                       
Goodwill
After initial recognition, goodwill acquired in a business combination is measured at cost less any accumulated impairment losses. Goodwill is not amortised but is subject to impairment testing on an annual basis or whenever there is an indication of impairment.

36


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
7. PROPERTY, PLANT & EQUIPMENT
                                 
    CONSOLIDATED     THE COMPANY  
    2007 ($)     2006 ($)     2007 ($)     2006 ($)  
 
 
                               
LAND AND BUILDINGS
                               
Opening balance at cost
    3,008,465       2,070,575              
Additions
    2,382,306       937,890              
 
                       
Closing balance
    5,390,771       3,008,465              
 
                       
 
                               
Accumulated depreciation
                               
Opening balance
    338,471       233,441              
Depreciation for the year
    228,168       105,030              
 
                       
Closing balance
    566,639       338,471              
 
                       
 
                               
Net book value
    4,824,131       2,669,994              
 
                       
 
                               
PLANT & EQUIPMENT UNDER LEASE
                               
Opening balance at cost
    106,094       85,305              
Additions
    7,442,605       20,789              
 
                       
Closing balance (a)
    7,548,699       106,094              
 
                       
Accumulated depreciation
                               
Opening balance
    51,310       25,513              
Depreciation for the year
    1,995,575       25,797              
 
                       
Closing balance
    2,046,885       51,310              
 
                       
 
                               
Net book value
    5,501,814       54,784              
 
                       
 
(a) Assets under lease are pledged as security for the associated lease liabilities.
                                 
             
PLANT & EQUIPMENT
                               
Opening balance at cost
    100,684,500       80,718,943              
Additions
    27,381,299       8,210,457       9,824        
Transfer from production development
          11,755,100              
Disposal — written off
    (94,993 )                    
 
                       
Closing balance
    127,970,806       100,684,500       9,824        
 
                       
Accumulated depreciation
                               
Opening balance
    15,688,988       3,261,288              
Depreciation for the year
    14,643,613       12,427,700       404        
 
                       
Closing balance
    30,332,601       15,688,988       404        
 
                       
 
                               
Net book value
    97,638,205       84,995,512       9,420        
 
                       
Total non-current property, plant and equipment, net
    107,964,150       87,720,289              
 
                               
Less impairment related to property plant and equipment
    (10,410,000 )                  
 
                               
Net book value post impairment
    97,554,151       87,720,289       9,420        
 
                       

37


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
8. MINING PROPERTIES
                                 
    CONSOLIDATED     THE COMPANY  
    2007 ($)     2006 ($)     2007 ($)     2006 ($)  
 
 
                               
Eploration, evaluation and development costs carried forward in respect of mining areas of interest
                               
Production phase — development
                               
Balance at beginning of year
    6,546,477       14,683,969              
Additions
    22,957,157       3,617,608              
Transfer to plant and equipment
          (11,755,100 )            
 
                       
Closing balance
    29,503,634       6,546,477              
 
                       
 
                               
Less amortisation
                               
Balance at beginning of year
    2,928,869       2,928,869              
Additions
    6,678,541                    
 
                       
Closing balance
    9,607,410       2,928,869              
 
                       
 
                               
Net book value — development
    19,896,224       3,617,608              
 
                       
 
                               
Production phase — deferred mining
                               
Balance at beginning of year
    22,753,783       13,972,476              
Additions
    19,326,280       8,781,307              
 
                       
Closing balance
    42,080,063       22,753,783              
 
                       
 
                               
Less amortisation
                               
Balance at beginning of year
    13,852,462       7,768              
Amortisation for the year
    13,988,845       13,844,694              
 
                       
Closing balance
    27,841,307       13,852,462              
 
                       
 
                               
Net book value — deferred mining
    14,238,756       8,901,321              
 
                       
 
                               
Exploration & evaluation phase
                               
Balance at beginning of year
                       
Additions
    8,616,456       3,846,503              
Written off
    (8,616,456 )     (3,846,503 )            
 
                       
Closing balance
                       
 
                       
Total mining properties, exploration, evaluation & development
                               
 
    34,134,979       12,518,928              
 
                               
Less impairment related to Mining Properties
    (3,470,000 )                  
 
                               
Net book value post impairment
    30,664,979       12,518,928              
 
                       
The ultimate recoupment of the value of mining properties in the exploration phase is dependent upon the successful development and commercial exploitation, or alternatively sale of the respective areas of interest. All exploration expenditure incurred in the twelve month period ended 30 June 2007 was written off on the basis that there was no certainty that such costs could be recouped through successful development of the areas under assessment.

38


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
9. PAYABLES
                                 
    CONSOLIDATED     THE COMPANY  
    2007 ($)     2006 ($)     2007 ($)     2006 ($)  
 
 
                               
CURRENT
                               
Trade Creditors — unsecured (a)
    26,906,988       12,462,189       294,047        
Intercompany payables (b)
                19,596,746        
 
                       
Trade and other payables
    26,906,988       12,462,189       19,890,793        
 
                       
 
(a)   Trade creditors are non-interest bearing and are normally settled on 30 day terms.
 
(b)   The intercompany loan is payable to Leviathan Resources Limited.
10. INTEREST BEARING LIABILITIES AND BORROWINGS
                                 
CURRENT — SECURED
                               
Bank loan (a)
          6,250,000              
Finance lease liabilities (b)
    4,826,280       57,029              
 
                               
 
    4,826,280       6,307,029              
 
                               
 
                               
NON CURRENT — SECURED
                               
 
                               
Bank loan (a)
    23,125,000       12,500,000              
Finance lease liability (b)
    1,340,750                    
 
                               
 
    24,465,750       12,500,000              
 
                               
 
(a)   Bank loan represents amounts that the consolidated entity has drawn down on its $25,000,000 debt facility which was agreed on 28 May 2007. The loan is secured by a fixed and floating charge over the assets of Perseverance Exploration Pty Ltd and Stawell Gold Mines Pty Ltd and is guaranteed by Perseverance Corporation Limited. Total assets with a carrying amount of $127,842,000 (2006: $116,851,000) of Perseverance Exploration Pty Ltd and Stawell Gold Mines Pty Ltd are pledged as security for the Bank loan specified above. Interest is paid on the loan each six months.
 
  Pursuant to the terms of a $10,000,000 extension to a prior debt facility entered into with ANZ Bank, the Company granted 3,000,000 options to ANZ Bank on 21 June 2005. Exercise price 34.5c, granted 25 May 2005 (price at grant date 27c), Vesting 21 June 2005, Expiring on 21 June 2008.
 
(b)   Finance leases have an average lease term of 3 years. The average discount rate implicit in the leases is 7.3% (2006: 7.3%). Secured lease liabilities are secured by a charge over the leased assets.
Financing facilities available
At reporting date, the following financing facilities had been negotiated and were available:
                                 
Total bank loan facilities
    25,000,000       18,750,000              
Bank loan facilities used at reporting date
    23,125,000       18,750,000              
 
                       
Bank loan facilities unused at reporting date
    1,875,000                    
 
                       

39


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
11. CONVERTIBLE NOTE
                                 
    CONSOLIDATED     THE COMPANY  
    2007 ($)     2006 ($)     2007 ($)     2006 ($)  
 
 
                               
Convertible note
    34,743,835       34,365,425       34,743,835       34,372,172  
 
                       
On 29 December 2005, the Company announced that it had completed an offering of $30 million subordinated convertible notes due in December 2012 (the “Convertible Notes”). The seven year Convertible Notes carry a coupon of 6.75% per annum payable semi-annually in arrears with the redemption value at maturity the principal amount. The conversion price was set at $0.442 (see below regarding changes to the conversion price), at 30% premium to the closing share price of Perseverance Corporation Limited shares on the Australian Stock Exchange on 30 November 2005. On 27 February 2006 the Company announced that Barclays Capital, the book runner for the Convertible Notes, had exercised its option to acquire the remaining $7 million principal amount of the Notes on the same terms as the $30 million offering. The exercise of the option brought the total amount of gross proceeds from the offering to $37 million.
At 30 June 2007, there remains 370 $100,000 ($37 Million) notes on issue. The holder of each note has the right to convert notes to fully paid shares at any time between 20 April 2006 and 10 December 2012 at a conversion price referred to in the paragraph below. Unless previously redeemed, converted, or purchased and cancelled, the convertible notes are to be redeemed on 20 December 2012 at their principal amount of $37 million. When the convertible notes were issued, the prevailing market interest rate for similar debt without conversion option was higher than the coupon rate at which the notes were issued.
On 12 July 2007, the Company announced that it had completed a $26.5 million placement to institutional and sophisticated investors. The placement involves the issue of approximately 177 million fully paid ordinary shares at $0.15 per share with one attaching option per share issued. The options have an exercise price of $0.15 and a term to expiry of 31 August 2009. Upon exercise, each option will entitle the holder to receive one fully paid ordinary share. A General Meeting of shareholders held on 24 August 2007 approved the issue of the shares and options. As a result of settlement of the first tranche of the placement (on 19 July 2007), the conversion price of the Convertible Notes was adjusted from $0.442 to $0.415 pursuant to the Terms and Conditions of the Convertible Notes as set out in the Offering Circular dated 19 December 2005. As a result of settlement of the second tranche of the placement on 30 August 2007, the conversion price of the Convertible Notes was further adjusted from $0.415 to $0.365 pursuant to the Terms and Conditions of the Convertible Notes as set out in the Offering Circular dated 19 December 2005.
12. PROVISIONS
                                 
CURRENT
                               
Rehabilitation (a)
    250,270       75,000              
Employee benefits
    4,111,514       432,258              
 
                       
 
    4,361,784       507,258              
 
                       
NON-CURRENT
                               
Rehabilitation (a)
    8,458,344       3,000,591              
Employee benefits
    733,886       80,120              
 
                       
 
    9,192,230       3,080,711              
 
                       
At balance date, the Consolidated Entity employed 336 personnel (2006: 85).
(a) Provision for rehabilitation
A provision for rehabilitation is recognised in relation to the mining activities for costs such as reclamation, plant closure and other costs associated with the restoration of a mining site. Estimates of the rehabilitation obligations are based on anticipated technology, legal requirements and future costs, which have been discounted to their present value. In determining the restoration provision, the entity has assumed no significant changes will occur in the relevant Federal and State legislation in relation to restoration of such mines in the future.

40


 

Annual Financial Report
Financial year ended 30 June 2007

 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
12. PROVISIONS (CONTINUED)
                                 
    CONSOLIDATED     THE COMPANY  
    2007 ($)     2006 ($)     2007 ($)     2006 ($)  
 
 
                               
Movement in provisions
                               
 
                               
Rehabilitation
                               
Carrying amount at beginning
    3,075,591       3,323,436              
Additional provision
    5,459,873       (245,047 )            
Amounts utilised during the year
    (72,080 )     (125,489 )            
Unwinding of discount
    245,230       122,691              
 
                       
Carrying amount at end
    8,708,614       3,075,591              
 
                       
 
                               
Employee Benefits
                               
Carrying amount at beginning
    512,378       464,493              
Additional provision
    4,228,598       (2,201 )            
Unwinding of discount
    104,424       50,086              
 
                       
Carrying amount at end
    4,845,400       512,378              
 
                       
 
                               
13. CONTRIBUTED EQUITY
                               
 
                               
712,809,830 (2006: 572,696,179) 
                               
Ordinary fully paid shares
    175,290,844       122,864,228       175,290,844       122,864,228  
 
                       
Total contributed equity
    175,290,844       122,864,228       175,290,844       122,864,228  
 
                       
MOVEMENTS IN SHARES ON ISSUE
                                 
    2007 NUMBER     2007 ($)     2006 NUMBER     2006 ($)  
Beginning of financial year
    572,696,179       122,864,228       571,641,479       122,643,094  
Issued during the year (a)
    139,638,446       52,364,494              
Employee option plan (b)
    475,000       64,125       1,054,700       221,134  
Less transaction costs
          (2,003 )            
 
                       
End of financial year
    712,809,625       175,290,844       572,696,179       122,864,228  
 
                       
 
(a) Contributed equity issued
During the year ended 30 June 2007, the parent entity issued 139,638,446 ordinary fully paid shares in relation to the takeover of Leviathan Resources Limited. The acquisition was effective 4 December 2006.
(b) Employee option plan
(i) Options excercised during the year ended 30 June 2007
The following table lists ordinary fully paid shares that have been issued by the parent entity as a result of the exercise of vested options by employees of the Company.

41


 

Annual Financial Report
Financial year ended 30 June 2007

 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
13. CONTRIBUTED EQUITY (Continued)
                         
Date   Ordinary fully paid shares issued     Exercise price per share   Amount raised  
 
22 January 2007
    200,000     13.5 cents   $ 27,000  
27 February 2007
    25,000     13.5 cents   $ 3,375  
23 April 2007
    50,000     13.5 cents   $ 6,750  
07 May 2007
    200,000     13.5 cents   $ 27,000  
 
Total
    475,000     Average 13.5 cents   $ 64,125  
 
Refer to Note 25 for further information in relation to the Employee Option Plan.
(b) Performance rights plan
(i) Performance rights granted during the year ended 30 June 2007
On 21 December 2006, the parent entity granted 389,000 performance rights to Mr Graeme Sloan under the terms of the Perseverance Performance Rights Plan. Subsequent to the year end Mr. Sloan resigned from the Company and these rights lapsed.
(ii) Performance rights granted during the year ended 30 June 2006
On 3 January 2006, the parent entity granted 492,000 performance rights to employees of the Company under the terms of the Perseverance Performance Rights Plan.
On 14 November 2005, the parent entity granted 200,000 performance rights to Mr Graeme Sloan under the terms of the Perseverance Performance Rights Plan. Subsequent to the year end Mr. Sloan resigned from the Company and these rights lapsed.
(c) Terms and conditions of contributed equity
Ordinary shares have the right to receive dividends as declared and, in the event of winding up 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. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the company.
14. ACCUMULATED LOSSES AND RESERVES
(a) Accumulated losses
                                 
    CONSOLIDATED   THE COMPANY
    2007 ($)     2006 ($)     2007 ($)     2006 ($)  
 
 
                               
Accumulated losses at the beginning of the financial year
    (114,496,138 )     (51,551,291 )     (114,366,698 )     (34,330,845 )
Application of AASB 132 and AASB139
          (3,919,099 )            
Net (loss)/profit attributable to members of Perseverance Corporation Limited
    (19,739,170 )     (59,025,746 )     (20,808,639 )     (80,035,853 )
 
                       
Accumulated losses at the end of the financial year
    (134,235,308 )     (114,496,136 )     (135,175,337 )     (114,366,698 )
 
                       
(b) Reserves
Nature and purpose of reserves
Convertible Note Reserve
This reserve is used to recognise the equity component of Convertible Notes. Refer Note 11 for details of Convertible Notes on issue, and recognition of the debt component of the Notes.

42


 

Annual Financial Report
Financial year ended 30 June 2007

 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
14. ACCUMULATED LOSSES AND RESERVES (Continued)
Share Based Payment Reserve
This reserve is used to record the value of equity benefits provided to directors, employees, and external parties.
                                                   
    Consolidated       Parent  
            Share Based                   Share Based      
    Convertible Note     Payment     Total       Convertible     Payment     Total  
    Reserve     Reserve     Reserves       Note Reserve     Reserve     Reserves  
    $     $     $       $     $     $  
           
At the 1 July 2005
          224,340       224,340               224,340       224,340  
           
Issue of convertible notes
    951,113             951,113         951,113             951,113  
Share based payments
          313,794       313,794               313,794       313,794  
           
At 30 June 2006
    951,113       538,134       1,489,247         951,113       538,134       1,489,247  
           
Issue of convertible notes
                                     
Share based payments
          358,733       358,733               358,733       358,733  
           
At 30 June 2007
    951,113       896,867       1,847,980         951,113       896,867       1,847,980  
           
15. EARNINGS PER SHARE
The following reflects the income and share data used in the calculations of basic and diluted earnings per share:
                 
    2007   2006
Earnings used in calculating basic and diluted earnings per share
    (19,739,170 )     (59,025,746 )
 
               
Weighted average number of ordinary shares used in calculating basic earnings per share
    641,587,216       572,377,125  
 
               
Potential ordinary shares
               
- share options and performance rights
    12,733,000       13,872,000  
Potential ordinary shares
               
- convertible notes
    87,058,823       87,058,823  

43


 

Annual Financial Report
Financial year ended 30 June 2007

 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
16. INCOME TAX
(a) Current and deferred tax benefit
The major components of income tax benefit are:
                                 
    CONSOLIDATED     THE COMPANY  
    2007 ($)     2006 ($)     2007 ($)     2006 ($)  
 
Income Statement
                               
Current income tax
                               
Current income tax charge
                       
Adjustments in respect of current income tax of previous years
                       
Deferred income tax
                               
Relating to origination and reversal of temporary differences
    (2,687,371 )                  
           
Income tax benefit as reported in the income statement
    (2,687,371 )                  
           
(b) Reconciliation between aggregate tax benefit recognised in the income statement and tax benefit calculated per the statutory income tax rate
A reconciliation between tax benefit and the product of accounting profit before income tax multiplied by the Group’s applicable income tax rate is as follows:
                                 
Accounting profit/(loss) before income tax
    (22,426,541 )     (59,025,746 )     (20,808,639 )     (80,035,853 )
 
                       
Prima facie income tax expense/(benefit) calculated at 30% (2006: 30%)
    (6,727,962 )     (17,707,724 )     (6,242,591 )     (24,010,756 )
Incremental research and development deduction
    (378,000 )     (345,036 )            
Equity settled share based payments
    107,620       94,138       107,620       94,138  
Non-deductible items
          75,500              
 
                               
Unrecognised deferred tax assets attributable to temporary differences and tax losses not brought to account
    4,310,971       17,883,122       6,134,971       23,916,618  
 
                       
Total Income Tax Expense/(Benefit)
    (2,687,371 )                  
 
                       

44


 

Annual Financial Report
Financial year ended 30 June 2007

 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
16. INCOME TAX (Continued)
(c) Recognised deferred tax assets and liabilities
Deferred income tax at 30 June 2007 relates to the following:
                                 
    BALANCE SHEET     INCOME STATEMENT  
    2007 ($)     2006 ($)     2007 ($)     2006 ($)  
CONSOLIDATED
                               
Deferred tax liabilities
         
Inventory
                189,000        
 
                               
Intangibles — Mining and exploration rights
    (7,389,628 )           2,300,371        
Acquisition of property, plant and equipment (tax difference)
    (592,001 )           198,000        
 
                       
Gross deferred tax liabilities
    (7,981,629 )           2,687,371        
 
                       
 
                               
Set-off of deferred tax assets
                           
 
                           
Net deferred tax liabilities
    (7,981,629 )                      
 
                       
 
                               
 
                       
Deferred tax income/(expense)
                    2,687,371       2,687,371  
PARENT
No deferred tax assets or liabilities were recognised for the parent company in 2007 or 2006.
(d) Tax losses
Companies within the economic entity have estimated unconfirmed unrecouped income tax losses of approximately $53,551,929 (2006: $44,101,622) available to offset against future years’ taxable income. The benefit of these losses of $16,065,579 (2006: $13,230,486) has not been brought to account as it is not currently considered probable that taxable income will be available against which the tax losses can be utilised.
(e) Tax consolidation
Effective from 1 July 2002, for the purposes of income taxation, the Company and its 100% owned subsidiaries formed a tax consolidated group. Members of the group have entered into a tax sharing arrangement in order to allocate income tax expense to the wholly-owned subsidiaries on a pro-rata basis. In addition, there is provision for allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. At the balance date, the possibility of such default is remote. The head entity of the tax consolidated group is Perseverance Corporation Limited.
During the year to 30 June 2007, the Company acquired 100% of the shares in Leviathan Resources Limited (“Leviathan”). As a result of this, Leviathan and its wholly owned subsidiaries joined the Perseverance tax consolidated group. A consequence of the Leviathan entities joining the Perseverance tax consolidated group is that the tax value of each of the Leviathan entities’ assets is reset at the time that the entities join the tax consolidated group. The calculation of the tax value of the assets is a complex calculation which is undertaken in accordance with Australian income tax law. At the date of these accounts, high-level calculations have been undertaken to determine the indicative outcome of resetting of the tax values. Further work will be undertaken to confirm and finalise the tax values of the Leviathan assets.
Tax effect accounting by members of the tax consolidated group
At 30 June 2007 a tax funding arrangement had not been finalised in respect of allocation of funds to the parent entity. As no tax is payable by any entity within the Perseverance tax consolidated group at 30 June 2007, the outstanding tax funding agreement has not had any impact on the allocation methodology or the treatment of tax balances within the group.

45


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
17. PARTICULARS IN RELATION TO CONTROLLED ENTITIES
The consolidated financial statements at 30 June 2007 include the following controlled entities. The financial years of all controlled entities are the same as that of the parent entity.
                                         
    PLACE OF     INTEREST     INVESTMENT CARRYING VALUE  
NAME   INCORPORATION     2007 (%)     2006 (%)     2007 ($)     2006 ($)  
 
Perseverance Corporation Limited
  Australia                                
Controlled Entities:
                                       
Perseverance Mining Pty Limited
  Australia     100       100       200       200  
Perseverance Exploration Pty Limited
  Australia     100       100       2       2  
Perseverance of North America Inc.
  USA     100       100              
Leviathan Resources Pty Ltd
  Australia     100             52,971,692        
Stawell Gold Mines Pty Ltd
  Australia     100             2        
Coolgardie Mining Company Pty Ltd
  Australia     100             2        
Coolgardie Operations Pty Ltd
  Australia     100             2        
 
                                   
 
                            52,971,900       202  
 
                                   
18. DIRECTOR AND EXECUTIVE DISCLOSURES
(a) Details of directors and key management personnel
         
Directors       Executives
J.C. Quinn
  Non-Executive Chairman   M. Mitchell (g)
G.J. Sloan (a)
  Managing Director   J.M.J. Patarica (g)
B.M. Phillips (b)
  Non-Executive Director   M.W. Bouwmeester (h)
C.L. Roberts
  Non-Executive Director    
R.J. Flew (c)
  Non-Executive Director    
R.G. Melgaard (d)
  Non-Executive Director    
R.J. George (e)
  Non-Executive Director    
R.J. Robinson (f)
  Non-Executive Director    
 
a.   Mr Sloan was Managing Director and Chief Executive Officer of the Company until his resignation on 10 August 2007.
 
b.   Mr Phillips was appointed as a director of Perseverance with effect from 24 January 2007.
 
c.   Mr Flew was appointed as a director of Perseverance with effect from 24 January 2007.
 
d.   Mr Melgaard resigned as a director of Perseverance with effect from 24 April 2007.
 
e.   Dr George resigned as a director of Perseverance with effect from 6 August 2007.
 
f.   Mr Robinson resigned as a director of Perseverance with effect from 27 August 2007.
 
g.   Mr M. Mitchell was appointed Chief Operations Officer on 1 January 2007 and was appointed Executive General Manager on 10 August 2007. Mr J.M.J. Patarica was appointed Deputy Operations Manager on 5 July 2005 and was appointed Operations Manager on 1 November 2005.
 
h.   Mr M.W. Bouwmeester was Chief Financial Officer and Company Secretary of the Company until he resigned from these roles on 31 August 2007.
(b) Remuneration of specified directors and specified executives
Compensation by category —key management personnel
                                 
    CONSOLIDATED     PARENT  
     
    2007 ($)     2006 ($)     2007 ($)     2006 ($)  
Short — term
    1,321,212       948,948       1,090,962       606,209  
Post employment
          59,936             31,789  
Share based payment
    73,085       86,012       65,502       72,039  
     
 
    1,394,297       1,094,896       1,156,464       710,037  
     

46


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
18. DIRECTOR AND EXECUTIVE DISCLOSURES (Continued)
Perseverance has applied the exemption under Regulation2M.6.04 of the Corporations Act which allows the transfer of remuneration disclosures required by AASB 124 Related Party Disclosures out of the financial report and into the Remuneration Report contained within the Directors Report. These disclosures are designated as audited within the Directors Report.
(c) Remuneration options and performance rights: Granted and vested during the year
(i) Options
                                                         
                            TERMS & CONDITIONS FOR EACH GRANT  
                                                    LAST  
                            VALUE PER     EXERCISE     FIRST     EXERCISE/  
    VESTED     GRANTED             OPTION AT     PRICE PER     EXERCISE     EXPIRY  
30 JUNE 2007   NUMBER     NUMBER     GRANT DATE     GRANT DATE     OPTION     DATE     DATE  
 
Specified executives
                                                       
M. Mitchell
                                         
M.W. Bouwmeester
                                         
J.M.J. Patarica
                                         
 
Total
                                         
 
                                                         
                            TERMS & CONDITIONS FOR EACH GRANT  
                                                    LAST  
                            VALUE PER     EXERCISE     FIRST     EXERCISE/  
    VESTED     GRANTED             OPTION AT     PRICE PER     EXERCISE     EXPIRY  
30 JUNE 2006   NUMBER     NUMBER     GRANT DATE     GRANT DATE     OPTION     DATE     DATE  
 
Specified executives
                                                       
M.W. Bouwmeester
    250,000                                      
J.M.J. Patarica
    100,000                                      
 
Total
    350,000                                      
 
(ii) Performance Rights
                                                         
                            TERMS & CONDITIONS FOR EACH GRANT  
                            VALUE PER                     LAST  
                            PERFORMANCE     EXERCISE     FIRST     EXERCISE/  
    VESTED     GRANTED             RIGHT AT     PRICE PER     EXERCISE     EXPIRY  
30 JUNE 2007   NUMBER     NUMBER     GRANT DATE     GRANT DATE     SHARE     DATE     DATE  
 
Specified directors
                                                       
G.J. Sloan (a)
          389,000     21 November 2006     $ 0.22     Nil       (a )   31 October 2015
 
Total
          389,000                                
 
(a)   The performance rights may be exercised on or after 30 November 2008 if, as at 5pm on 29 November 2008, the market value of the underlying shares has increased by at least 20% to their market value at the date the performance rights were granted. For the purposes of this calculation, the 20% hurdle will be adjusted by a percentage equal to the percentage difference in the gold price above or below $US580.00 as at 29 November 2008 and rounded to the nearest cent, not exceeding a 15% adjustment. Subsequent to year end Mr Sloan resigned and these performance rights lapsed at that time.

47


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
18. DIRECTOR AND EXECUTIVE DISCLOSURES (Continued)
                                                         
                            TERMS & CONDITIONS FOR EACH GRANT  
                            VALUE PER                     LAST  
                            PERFORMANCE     EXERCISE     FIRST     EXERCISE/  
    VESTED     GRANTED             RIGHT AT     PRICE PER     EXERCISE     EXPIRY  
30 JUNE 2006   NUMBER     NUMBER     GRANT DATE     GRANT DATE     SHARE     DATE     DATE  
 
Specified directors
                                                       
G.J. Sloan (a)
          200,000     16 November 2005     $ 0.216       Nil       (a)     31 October 2015  
 
Total
          200,000                                
 
 
                                                       
Specified executives
                                                       
M.W. Bouwmeester (b)
          120,000     3 January 2006     $ 0.192       Nil       (b)     31 December 2015  
J.M.J. Patarica (b)
          120,000     3 January 2006     $ 0.192       Nil       (b)     31 December 2015  
 
Total
          240,000                                
 
(a)   The performance rights may be exercised on or after 31 October 2007 if, as at 5pm on 30 October 2007, the market value of the underlying shares has increased by at least 20% to their market value at the date the performance rights were granted and the director remained in that capacity at the exercise date. For the purposes of this calculation, the 20% hurdle will be adjusted by a percentage equal to the percentage difference in the gold price above or below $US440.00 as at 30 October 2007 and rounded to the nearest cent, not exceeding a 15% adjustment. Subsequent to year end Mr Sloan resigned and these performance rights lapsed at that time.
(b)   The performance rights may be exercised on or after 31 December 2008 if, as at 5pm on 30 December 2008, the market value of the underlying shares has increased by at least 20% to their market value on the last trading day of December 2005, adjusted for gold price movements. For the purposes of this calculation, the 20% hurdle will be adjusted by a percentage equal to the percentage difference in the gold price above or below $AUD670.00 as at 31 December 2008 and rounded to the nearest cent, not exceeding a 15% adjustment.
Refer to Note 25(c) for details of the valuation of these performance rights at grant date.
(d) Option holdings and performance right holdings of specified Directors and specified executives
(i) Options
                                                                 
                                    BALANCE        
    BALANCE                             AT END        
    AT                     NET     OF        
    BEGINNING     GRANTED AS     OPTIONS     CHANGE     PERIOD     VESTED AT 30 JUNE 2007  
    OF PERIOD     REMUNERATION     EXERCISED     OTHER     30 JUNE             NOT        
30 JUNE 2007   1 JULY 2006     (2007)     (2007)     (2007)     2007     TOTAL     EXERCISABLE     EXERCISABLE  
 
Specified directors
                                                               
J.C. Quinn
    5,000,000                         5,000,000       5,000,000             5,000,000  
G.J. Sloan (a)
    2,000,000                         2,000,000       2,000,000             2,000,000  
B.M. Phillips
                                               
C.L. Roberts
    1,000,000             400,000             600,000       600,000             600,000  
R.J. George
                                               
R.J. Robinson
                                               
R.G. Melgaard
                                               
R.J. Flew
                                               
 
Totals
    8,000,000             400,000             7,600,000       7,600,000             7,600,000  
 
 
                                                               
Specified executives
                                                               
M. Mitchell
                                               
M.W. Bouwmeester
    500,000                         500,000       500,000             500,000  
J.M.J. Patarica
    200,000                         200,000       200,000             200,000  
 
Totals
    700,000                         700,000       700,000             700,000  
 

48


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
18. DIRECTOR AND EXECUTIVE DISCLOSURES (CONTINUED)
(i) Options (Continued)
                                                                 
                                    BALANCE        
    BALANCE                             AT END        
    AT                             OF        
    BEGINNING     GRANTED AS     OPTIONS     NET CHANGE     PERIOD     VESTED AT 30 JUNE 2006  
    OF PERIOD     REMUNERATION     EXERCISED     OTHER     30 JUNE             NOT        
30 JUNE 2006   1 JULY 2005     (2006)     (2006)     (2006)     2006     TOTAL     EXERCISABLE     EXERCISABLE  
 
Specified directors
                                                               
J.C. Quinn
    5,000,000                         5,000,000       5,000,000             5,000,000  
G.J. Sloan (a)
    2,600,000                         2,600,000       2,600,000       600,000       2,000,000  
C.L. Roberts
    1,000,000                         1,000,000       1,000,000             1,000,000  
R.J. George
                                               
R.J. Robinson
                                               
R.G. Melgaard
                                               
 
Totals
    8,600,000                         8,600,000       8,600,000       600,000       8,000,000  
 
 
                                                               
Specified executives
                                                               
M.W. Bouwmeester
    500,000                         500,000       500,000             500,000  
J.M.J. Patarica
    200,000                         200,000       200,000             200,000  
 
Totals
    700,000                         700,000       700,000             700,000  
 
(ii) Performance Rights
                                                                 
                                    BALANCE        
    BALANCE                             AT END        
    AT             PERFORMANCE     NET     OF        
    BEGINNING     GRANTED AS     RIGHTS     CHANGE     PERIOD     VESTED AT 30 JUNE 2007  
    OF PERIOD     REMUNERATION     EXERCISED     OTHER     30 JUNE             NOT        
30 JUNE 2007   1 JULY 2006     (2007)     (2007)     (2007)     2007     TOTAL     EXERCISABLE     EXERCISABLE  
 
Specified directors
                                                               
J.C. Quinn
                                               
G.J. Sloan (a)
    400,000       389,000             (200,000 )     589,000       589,000       589,000        
B.M. Phillips
                                               
C.L. Roberts
                                               
R.J. George
                                               
R.J. Robinson
                                               
R.G. Melgaard
                                               
 
Totals
    400,000       389,000             (200,000 )     589,000       589,000       589,000        
 
 
                                                               
Specified executives
                                                               
M. Mitchell
                                               
M.W. Bouwmeester
    120,000                         120,000       120,000       120,000        
J.M.J. Patarica
    120,000                         120,000       120,000       120,000        
 
Totals
    240,000                         240,000       240,000       240,000        
 
 
(a)   Mr Sloan resigned subsequent to the year-end and as a consequence his performance rights lapsed immediately and his options lapsed on 9 September 2007.

49


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
18. DIRECTORS’ AND EXECUTIVES’ DISCLOSURES (CONTINUED)
(ii) Performance Rights
                                                                 
                                    BALANCE        
    BALANCE                             AT END        
    AT             PERFORMANCE     NET     OF        
    BEGINNING     GRANTED AS     RIGHTS     CHANGE     PERIOD     VESTED AT 30 JUNE 2006  
    OF PERIOD     REMUNERATION     EXERCISED     OTHER     30 JUNE             NOT        
30 JUNE 2006   1 JULY 2005     (2006)     (2006)     (2006)     2006     TOTAL     EXERCISABLE     EXERCISABLE  
 
Specified directors
                                                               
J.C. Quinn
                                               
G.J. Sloan
    200,000       200,000                   400,000       400,000       400,000        
B.M. Phillips
                                               
C.L. Roberts
                                               
R.J. George
                                               
R.J. Robinson
                                               
R.G. Melgaard
                                               
 
Totals
    200,000       200,000                   400,000       400,000       400,000        
 
 
                                                               
Specified executives
                                                               
M.W. Bouwmeester
          120,000                   120,000       120,000       120,000        
J.M.J. Patarica
          120,000                   120,000       120,000       120,000        
 
Totals
          240,000                   240,000       240,000       240,000        
 

50


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
18. DIRECTORS’ AND EXECUTIVES’ DISCLOSURES (CONTINUED)
(e) Shareholdings of specified Directors and specified executives
                                                 
    BALANCE     GRANTED AS     ON EXERCISE                    
    1 JULY     REMUNERATION     OF OPTIONS     PURCHASES     SALES     BALANCE  
30 JUNE 2007   2006     (2007)     (2007)     (2007)     (2007)     30 JUNE 2007  
 
Specified directors
                                               
J.C. Quinn
    2,743,248                   45,362             2,788,610  
G.J. Sloan
                                   
B. M. Phillips
    N/a                               117,348  
C.L. Roberts
    417,840             400,000             400,000       417,840  
R.J. George
                      51,000             51,000  
R.J. Robinson
    517,857                               517,857  
R. J. Flew
    N/a                               100,750  
R.G. Melgaard
    57,233,745                             Note (a)
 
Totals
    60,912,330             400,000       96,362       400,000       3,993,405  
 
 
(a)   Mr. Melgaard resigned as a director on 24 April 2007 and is no longer a related party.
Specified executives
None of the specified executives held shares in the Company during 2007.
                                         
    BALANCE     GRANTED AS     ON EXERCISE              
    1 JULY     REMUNERATION     OF OPTIONS     SALES     BALANCE  
30 JUNE 2006   2005     (2006)     (2006)     (2006)     30 JUNE 2006  
 
Specified directors
                                       
J.C. Quinn
    2,743,248                         2,743,248  
G.J. Sloan
                             
C.L. Roberts
    489,497                   71,657       417,840  
R.J. George
                             
R.J. Robinson
    (a )                       517,857  
R.G. Melgaard (b)
    57,233,745                         57,233,745  
 
Totals
    60,466,490                   71,657       60,912,330  
 
 
                                       
Specified executives
                                       
M.W. Bouwmeester
    17,857                   17,857        
J.M.J. Patarica
                             
 
Totals
    17,857                   17,857        
 
 
(a)   A total 517,857 shares were held by Mr Robinson’s spouse until 1 December 2005. Mr Robinson did not have a relevant interest in these shares. On 1 December 2005 the shares were transferred into an entity in which Mr. Robinson has a relevant interest.
 
(b)   A total of 57,233,745 shares are held by Palmaris Capital PLC. Mr Melgaard is a director of Palmaris Capital PLC.
 
(c)   Shareholdings detailed above include both direct and indirect holdings.

51


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
19. RELATED PARTY DISCLOSURE
(a) Directors
The following persons held the position of Director of the company during all of the past financial year, unless otherwise stated:
     
J.C. Quinn
  Non-Executive Chairman
G.J. Sloan (a)
  Managing Director
B.M. Phillips (b)
  Non-Executive Director
C.L. Roberts
  Non-Executive Director
R.J. Flew (c)
  Non-Executive Director
R.G. Melgaard (d)
  Non-Executive Director
R.J. George (e)
  Non-Executive Director
R.J. Robinson (f)
  Non-Executive Director
 
(a)   Mr G.J. Sloan was Managing Director and Chief Executive Officer of the Company until his resignation on 10 August 2007.
 
(b)   Mr Phillips was appointed as a director of Perseverance with effect from 24 January 2007.
 
(c)   Mr Flew was appointed as a director of Perseverance with effect from 24 January 2007.
 
(d)   Mr Melgaard resigned as a director of Perseverance with effect from 24 April 2007.
 
(e)   Dr George resigned as a director of Perseverance with effect from 6 August 2007.
 
(f)   Mr. Robinson resigned as a director of Perseverance with effect from 27 August 2007.
Transactions entered into during the year with the Directors of the Company and their Director related entities are within normal customer and employee relationships, on terms and conditions no more favourable to those available to other customers or employees.
Mr C.L. Roberts provided accommodation facilities in the Fosterville area to the consolidated entity. Payments for the year totalled $14,788 (2006: $11,756).
(b) Transactions with related parties in the wholly owned group
During the year loans were advanced and repayments received on short term intercompany accounts by the parent entity with related parties in the wholly owned Group. These transactions were undertaken on an interest free basis and are eliminated on consolidation.
(c) Ownership interests
The ownership interests in related parties in the wholly owned Group are set out in Note 17.
(d) Amounts due to and receivable from related parties in the wholly owned group
These amounts are set out in the respective notes to the financial statements. At 30 June 2007, Perseverance Corporation Limited had an amount of $159,875,561 receivable from its subsidiary companies, Perseverance Exploration Pty Ltd, Perseverance Mining Pty Ltd, Stawell Gold Mine Pty Ltd and Leviathan Resources Limited. At 30 June 2007, a provision for non-recovery of $117,772,428 has been applied against these amounts owing.
(e) Ultimate controlling entity
The ultimate controlling entity of the consolidated entity in Australia is Perseverance Corporation Limited.
20. FINANCIAL REPORTING BY SEGMENTS
The Economic Entity operates entirely in the mineral exploration, development and production business which is the sole business segment of the economic entity. The economic entity’s operations are all in a single geographic segment, Australia.

52


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
21. RECONCILIATION OF CASH FLOWS
(a) Reconciliation of net cash provided by operating activities to operating loss after income tax
                                 
    CONSOLIDATED     THE COMPANY  
    2007 ($)     2006 ($)     2007 ($)     2006 ($)  
 
 
                               
OPERATING LOSS AFTER INCOME TAX
    (19,739,170 )     (59,025,746 )     (20,808,639 )     (80,035,853 )
NON CASH ITEMS:
                               
Depreciation & amortisation
    45,362,478       26,403,222       404        
Payments for exploration activities
    8,616,456       3,846,503              
Provision for debtor non-recovery
                16,121,563       78,883,776  
Share based payments
    358,733       313,794       358,733       313,794  
Derivatives — interest rate swaps
          7,869       (6,664 )     (6,747 )
Loss on sale of property, plant & equipment
    20,590                    
Impairment of property, plant & equipment and mining development
    13,880,000                    
Derivatives — gold forwards
    (14,640,498 )     46,327,845              
CHANGES IN ASSETS AND LIABILITIES:
                               
(Decrease)/increase in payables
    4,653,802       (2,275,495 )     294,047        
Increase in convertible note reserve
          951,158             951,113  
(Decrease)/increase in provisions
    1,069,051       (199,960,845 )            
Decrease/(increase) in receivables
    566,955       (1,969,780 )     (943,308 )     38,597  
Decrease/(increase) in inventories
    (1,201,126 )     1,267,031              
Increase/(decrease) in deferred tax liability
    (2,687,371 )                  
 
                       
NET CASH FLOW FROM OPERATING ACTIVITIES
    36,259,900       15,646,396       (4,983,864 )     144,681  
 
                       
 
                               
(b) Reconciliation of cash
                               
 
                               
For the purposes of the Statement of Cash Flows, cash includes cash at bank and short term deposits at call. Cash at the end of the financial year as shown in the Statement of Cash Flows is reconciled to the related items in the Balance Sheet as follows:
 
                               
Cash and cash equivalents
    11,418,840       18,370,653       38,680       10,961,468  
 
                       
 
                               
Cash deposits at banks are earning interest at current bank deposit rates. The year average rate was 5.95% (2006: 5.1%).
 
                               
(c) Financing facilities available
 
                               
At reporting date, the following financing facilities had been negotiated and were available:
 
                               
Facilities used at reporting date
    23,125,000       18,750,000              
Facilities unused at reporting date
    1,875,000                    
Total facilities
    25,000,000       18,750,000              
 
                       
(d) Non-cash financing activities — finance lease transactions
During the financial year the consolidated entity acquired plant and equipment with an aggregate fair value of $Nil (2006: $Nil), by means of finance leases. As part of the acquisition of Leviathan Resources Limited, plant and equipment under lease with a fair value of $7,980,000 was acquired through the issue of the Company’s shares to Leviathan shareholders.

53


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
22. JOINT VENTURES
     The economic entity has interests in the following unincorporated joint ventures:
             
    PRINCIPAL ACTIVITY   PERCENTAGE INTERESTS (a)   OTHER PARTICIPANT
 
Cornella East
  Exploration   49%   New Holland Mining NL
Nagambie
  Exploration   (b)   Panaegis Gold Mines
Credo
  Exploration   (c)   Monarch Gold Mining
Johnstone Range
  Exploration   (d)   Polaris Metals
Evanstown
  Exploration   (e)   Polaris Metals
Goldsworthy
  Exploration   (f)   Polaris Metals
 
(a)   The joint ventures are not separate legal entities. The joint ventures are contractual arrangements between the participants for the sharing of costs and outputs and do not, in themselves, generate revenue and profit. The net contribution of any joint venture activities to the operating profit before income tax is $nil (2006: $nil). Net assets for joint ventures at 30 June 2007 are $nil (2006; $nil).
 
(b)   Subject to earn-in of 51% upon the joint venture partner meeting certain expenditure levels.
 
(c)   Subject to earn-in of 60% upon the joint venture partner meeting certain expenditure levels.
 
(d)   Subject to earn-in of 70% upon the joint venture partner meeting certain expenditure levels.
 
(e)   Subject to earn-in of 70% upon the joint venture partner meeting certain expenditure levels.
 
(f)   Subject to earn-in of 70% upon the joint venture partner meeting certain expenditure levels.
23. COMMITMENTS
(a) Exploration expenditure
The economic entity has undertaken:
  to perform at least a minimum of approximately $3,965,430 (2006: $1,710,200) on exploration works including joint ventures and/or to expend minimum amounts of money on such works in designated exploration areas within the next year, and
 
  to restore and rehabilitate sites once exploration and/or production activities in those areas have been completed.
Exploration expenditure contracted for is payable as follows:
                                 
    CONSOLIDATED     THE COMPANY  
    2007 ($)     2006 ($)     2007 ($)     2006 ($)  
 
 
                               
Not later than one year
    3,965,430       1,710,200              
 
                       
 
                               
(b) Capital expenditure
                               
 
                               
Estimated capital expenditure contracted for at reporting date, but not provided for, payable:
                               
Not later than one year
    829,325       328,506              
 
                       

54


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
23. COMMITMENTS (Continued)
(c) Lease expenditure
                                 
    CONSOLIDATED     THE COMPANY  
    2007 ($)     2006 ($)     2007 ($)     2006 ($)  
 
 
                               
Finance leases:
                               
Not later than one year
    5,141,590       59,629              
Later than one year and not later than five years
    1,405,430                    
 
                       
Total minimum lease repayments
    6,547,020       59,629              
Future finance charges
    (379,990 )     (2,600 )            
 
                       
Present value of lease liability
    6,167,030       57,029              
 
                       
 
                               
Current liability
    4,826,280       57,029              
Non-current liability
    1,340,750                    
 
                       
 
    6,167,030       57,029              
 
                       
 
                               
24. REMUNERATION OF AUDITORS 
                               
 
                               
Remuneration received, or due and receivable, by the auditor of the parent entity and its affiliates for:
 
                               
- Audit or review of the financial statements (a)
    216,580       111,100              
- Other services (b)
    229,300       83,500              
 
(a)   This includes amounts paid or payable to the auditor of the parent entity for the audit of the full year financial report, and the review of the half year financial report.
 
(b)   Other services primarily comprised taxation compliance and assurance related services.
 
(c)   All fees to the auditor of the parent entity were borne by a related entity.

55


 

Annual Financial Report
Financial year ended 30 June 2007

 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
25. EMPLOYEE BENEFITS AND SUPERANNUATION COMMITMENTS
(a) Employee benefits
The aggregate employee benefit liability is comprised of:
                                         
            CONSOLIDATED     THE COMPANY  
            2007 ($)     2006 ($)     2007 ($)     2006 ($)  
         
Provisions (current)
  Note 12     4,111,514       432,258              
Provisions (non-current)
  Note 12     733,886       80,120              
 
                               
 
            4,845,400       512,378              
 
                               
(b) Employee share incentive plan
An Employee Option Plan has been established where Perseverance Corporation Limited may at the discretion of the Board, grant options over the ordinary shares of Perseverance Corporation Limited to any employee of the consolidated entity, or an associated company or other such person as the Board determines. The options are granted in accordance with guidelines established by the Directors and the Board retains the final discretion on the issue of the options. The Board will determine the exercise price of the options granted under the Employee Option Plan and will have the discretion to establish performance or other conditions that must be met before the options can be exercised. The term of the options will be 10 years, or such shorter period determined by the Board. The options cannot be transferred and will not be quoted on the ASX. All employees are eligible for this plan.
Information with respect to the number of options granted under the employee share incentive scheme is as follows:
                                 
    2007     2006  
            WEIGHTED
AVERAGE
            WEIGHTED
AVERAGE
 
    NUMBER OF     EXERCISE     NUMBER OF     EXERCISE  
    OPTIONS     PRICE     OPTIONS     PRICE  
 
Balance at beginning of year
    5,025,000     $ 0.222       6,229,700     $ 0.222  
- granted
                       
- forfeited
    (750,000 )   $ 0.346       (150,000 )   $ 0.310  
- exercised
    (475,000 )   $ 0.135       (1,054,700 )   $ 0.210  
- expired
                       
 
                       
Balance at end of year
    3,800,000     $ 0.208       5,025,000     $ 0.222  
 
                       
Exercisable at end of year
    3,800,000     $ 0.208       4,425,000     $ 0.211  
 
                       

56


 

Annual Financial Report
Financial year ended 30 June 2007

 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
25. EMPLOYEE BENEFITS AND SUPERANNUATION COMMITMENTS (CONTINUED)
(i) Options held at the beginning of the reporting period:
                                 
                            WEIGHTED AVERAGE  
NUMBER OF OPTIONS   GRANT DATE     VESTING DATE     EXPIRY DATE     EXERCISE PRICE  
 
2,000,000
  25 November 2002     (a )   25 November 2012   $ 0.20  
1,425,000
  20 November 2002     (b )   20 November 2007   $ 0.135  
800,000
  4 February 2004     (c )   4 February 2009   $ 0.31  
200,000
  4 March 2004     (d )   4 March 2009   $ 0.31  
600,000
  21 December 2004     (e )   30 November 2009   $ 0.355  
 
                       
5,025,000
                       
 
                       
(a) The Options were granted subject to the following vesting conditions:
  (i)   The first 50% of the Options will vest upon the announcement by the Company to Australian Stock Exchange of a decision to commence the construction of facilities to mine and treat sulphide mineralisation from the Fosterville mineral leases.
 
  (ii)   The balance of the Options will vest upon the announcement by the Company to the Australian Stock Exchange of the completion of construction and commissioning of facilities to mine and treat sulphide mineralisation from the Fosterville mineral leases.
(b) The Options were granted subject to the following vesting conditions:
  (i)   The first 50% of the Options will vest upon the earlier of an announcement by the Company to Australian Stock Exchange of a decision to commence the construction of facilities to mine and treat sulphide mineralisation from the Fosterville mineral leases and 30 September 2004.
  (ii)   The balance of the Options will vest upon the earlier of an announcement by the Company to the Australian Stock Exchange of the completion of construction and commissioning of facilities to mine and treat sulphide mineralisation from the Fosterville mineral leases and 30 September 2005.
(c) The Options were granted subject to the following vesting conditions:
  (i)   The first 50% of the Options will vest on 4 February 2005.
 
  (ii)   The balance of the Options will vest on 4 February 2006.
(d) The Options were granted subject to the following vesting conditions:
  (i)   The first 50% of the Options will vest on 4 March 2005.
 
  (ii)   The balance of the Options will vest on 4 March 2006.
(e) The options may be exercised on or after 30 November 2006 if, as at 5pm on 29 November 2006, the market value of the underlying shares has increased by at least 25% to their market value at the date the options were granted. For the purposes of this calculation, the 25% hurdle will be adjusted by a percentage equal to the percentage difference in the gold price above or below $US400.00 as at 29 November 2006 and rounded to the nearest cent, not exceeding a 15% adjustment.
(ii) Options exercised and forfeited during the reporting period:
The table below summarises information about options exercised during the year:
                                                                 
                            WEIGHTED                             FAIR  
NUMBER                           AVERAGE     PROCEEDS     NUMBER OF             VALUE OF  
OF   GRANT     EXERCISE   EXPIRY   EXERCISE     FROM     SHARES     ISSUE     SHARES  
OPTIONS   DATE     DATE   DATE   PRICE     SHARES     ISSUED     DATE     ISSUED  
 
200,000
  20 November 2002   13 January 2007   20 November 2007   $ 0.135     $ 27,000       200,000     22 January 2007   $ 0.355  
25,000
  20 November 2002   27 February 2007   20 November 2007   $ 0.135     $ 3,375       25,000     27 February 2007   $ 0.425  
50,000
  20 November 2002   13 April 2007   20 November 2007   $ 0.135     $ 6,750       50,000     23 April 2007   $ 0.385  
200,000
  20 November 2002   4 May 2007   20 November 2007   $ 0.135     $ 27,000       200,000     7 May 2007   $ 0.36  
 
                                               
475,000
                          $ 64,125       475,000              
 
                                               
During the year 150,000 options were forfeited relating to the tranche granted on 4 February 2004 and 600,000 options were forfeited relating to the tranche granted on 21 December 2004.

57


 

Annual Financial Report
Financial year ended 30 June 2007

 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
25. EMPLOYEE BENEFITS AND SUPERANNUATION COMMITMENTS (CONTINUED)
The fair value of the equity-settled share options granted is estimated as at the date of grant using a binomial model taking into account the terms and conditions upon which the options were granted.
The following table lists the inputs to the model used for option valuation:
                                 
    2007     2006     2005     PRE-2005  
 
Expected volatility (%)
                56-78       56-78  
Risk-free interest rate (%)
                5.46       5.46  
Expected life of option/right (years)
                5       1-6  
Option exercise price ($)
              $ 0.355     $ 0.135-$0.355  
Weighted average share price at grant date ($)
              $ 0.36     $ 0.14-$0.40  
The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.
(c) Performance rights plan
A Performance Rights Plan has been established where Perseverance Corporation Limited may at the discretion of the Board, grant performance rights over the ordinary shares of Perseverance Corporation Limited to any employee of the consolidated entity, or an associated company or other such person as the Board determines. The performance rights are granted in accordance with guidelines established by the Directors and the Board retains the final discretion on the issue of the performance rights. No amount will be payable upon exercise of the performance right unless the Board determines otherwise. The Board will have the discretion to establish performance or other conditions that must be met before the performance rights can be exercised. The term of the performance rights is determined by the Board. The performance rights cannot be transferred. All employees are eligible for this plan.
Information with respect to the number of Rights granted under the performance rights plan is as follows:
                                 
    2007     2006  
            WEIGHTED
AVERAGE
            WEIGHTED
AVERAGE
 
    NUMBER OF     EXERCISE     NUMBER OF     EXERCISE  
    RIGHTS     PRICE     RIGHTS     PRICE  
 
Balance at beginning of year
    847,000     $ 0.286       200,000     $ 0.216  
- granted
    389,000     $ 0.22       692,000     $ 0.308  
- forfeited
    (303,000 )           (45,000 )      
- exercised
                       
- expired
                       
 
                       
Balance at end of year
    933,000     $ 0.258       847,000     $ 0.286  
 
                       
Exercisable at end of year
                       
 
                       
The outstanding balance of Rights as at 30 June 2007 is represented by:
    200,000 rights over ordinary shares exercisable on or after 31 October 2007 if, as at 5pm on 30 October 2007, the market value of the underlying shares has increased by at least 20% to their market value at the date the performance rights were granted. For the purposes of this calculation, the 20% hurdle will be adjusted by a percentage equal to the percentage difference in the gold price above or below $US440.00 as at 30 October 2007 and rounded to the nearest cent, not exceeding a 15% adjustment.
 
    344,000 rights over ordinary shares exercisable on or after 31 December 2008 if, as at 5pm on 30 December 2008, the market value of the underlying shares has increased by at least 20% to their market value on the last trading day of December 2005. For the purposes of this calculation, the 20% hurdle will be adjusted by a percentage equal to the percentage difference in the gold price above or below $AUD670.00 as at 31 December 2008 and rounded to the nearest cent, not exceeding a 15% adjustment.
 
    389,000 rights over ordinary shares exercisable on or after 30 November 2008 if, as at 5pm on 29 November 2008, the market value of the underlying shares has increased by at least 20% to their market value at the date the performance rights were granted. For the purposes of this calculation, the 20% hurdle will be adjusted by a percentage equal to the percentage difference in the gold price above or below $US580.00 as at 29 November 2008 and rounded to the nearest cent, not exceeding a 15% adjustment.
The weighted average remaining contractual life of the Rights outstanding as at 30 June 2007 is between 1 and 2 years. (2006; 1 and 3 years).
The weighted average fair value of Rights granted during the year was $0.22 (2006: $0.19).

58


 

Annual Financial Report
Financial year ended 30 June 2007

 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
25. EMPLOYEE BENEFITS AND SUPERANNUATION COMMITMENTS (CONTINUED)
The fair value of performance rights is estimated as at the grant date using a valuation based on management’s assessment of the probability of the performance right condition being achieved. A probability factor of 0.6 has been applied against the share price at the date of granting the options to derive the fair value calculated.
(d) Superannuation commitments
Perseverance contributes the 9% superannuation guarantee amount as required by existing superannuation legislation to all employees.
Perseverance offers choice of superannuation fund and does not require employees to join a specific superannuation fund, unless required by existing Australian Workplace Agreements.
(e) Retirement benefits
No prescribed benefits were given to a prescribed superannuation fund in connection with the retirement of a person from a prescribed office of the group during the financial year. (2006:$Nil).
(f) Share based payments
Share based payments are applicable to directors, executives, employees, and external parties under the terms of:
    Perseverance share Plan (Note 25(b))
 
    Perseverance Performance Rights Plan (Note 25(c))
 
    Options and Performance Rights granted to directors and executives (Note 18(c))
 
    Options granted to ANZ Bank as part of the debt facility agreement (Note 10(a))
26. CONTINGENT LIABILITIES
The Consolidated Entity has given to the Department of Primary Industries performance guarantees totalling $6,156,210 (2006:$3,614,000). The guarantees are secured by a fixed and floating charge over the assets of Perseverance Exploration Pty Ltd and Stawell Gold Mines Pty Ltd and are guaranteed by Perseverance Corporation Limited.
The Consolidated Entity has given to the Victorian Energy Networks Corporation (VENCorp) an unconditional bank guarantee totalling $304,000. The guarantee will be released upon termination to a Use of System agreement entered into between the Consolidated Entity and VENCorp for connection to the electricity transmission network. The guarantee is secured by a fixed and floating charge over the assets of Perseverance Exploration Pty Ltd and is guaranteed by Perseverance Corporation Limited.
The consolidated entity has been notified by the Native Title Tribunal of a native title claim which covers MIN(A)5177 held by Perseverance Exploration Pty Ltd. The Company drafted an agreement in 1998 that is still being considered by the claimants.
Unsatisfactory progress with the electrical and instrumentation contract relating to the development of the Fosterville Gold Mine resulted in work being transferred to a new electrical and instrumentation contract in January 2005. Perseverance Exploration Pty Ltd is involved in a dispute with the original contractor. The contractor has made claims against the Company and the Company has made counterclaims against the contractor.
The Directors do not consider that there is any significant financial exposure to these matters and hence no provisions have been made.

59


 

Annual Financial Report
Financial year ended 30 June 2007

 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
27. BUSINESS COMBINATION
Acquisition of Leviathan Resources Limited
On 4 December 2006, Perseverance Corporation Limited acquired a controlling interest in the shares of Leviathan Resources Limited, a listed public company based in Australia with principal activities of gold mining and exploration.
The total cost of the combination was $52,971,692 and comprised an issue of equity and costs directly attributable to the combination. The Company issued 139,638,446 ordinary shares with a fair value of $0.375 each, based on the quoted price of Perseverance Corporation Limited at the date of exchange (assessed as the date the controlling interest was acquired i.e. 4 December 2006).
The fair value of the identifiable assets and liabilities of Leviathan Resources Limited as at the date of acquisition were:
         
CONSOLIDATED
    Recognised on  
    acquisition  
    $  
 
 
Property, plant and equipment
    26,692,200  
Investments
    208,416  
Cash and cash equivalents
    15,658,018  
Trade receivables
    1,075,000  
Other receivables
    39,727  
Inventories
    6,385,648  
Mining and exploration rights
    32,300,000  
 
     
 
    82,359,009  
 
     
Trade payables
    (9,787,796 )
Other payables
    (8,248,394 )
Deferred tax liability
    (10,669,000 )
Provision for annual leave
    (1,848,356 )
Provision for long service leave
    (1,703,759 )
Provision for restoration costs
    (5,344,549 )
 
     
 
    (37,601,854 )
 
     
Fair value of identifiable net assets
    44,757,155  
Goodwill arising on acquisition
    8,214,537  
 
     
 
    52,971,692  
 
     
 
       
Cost of the combination:
       
Shares issued, at fair value
    52,364,494  
Direct costs relating to the acquisition
    607,198  
 
     
Total cost of the combination
    52,971,692  
 
     
 
       
The cash outflow on acquisition is as follows:
       
Net cash acquired with the subsidiary
    15,658,018  
Cash paid
    607,198  
 
     
Net consolidated cash outflow
    15,050,820  
 
     
From the date of acquisition, Leviathan Resources Limited reduced the net losses of the Group by $1.5 million.
If the combination had taken place at the beginning of the financial year, the loss for the Group would have increased by $1.8 million and revenue would have increased by $36.0 million.

60


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
28. FINANCIAL INSTRUMENTS
The consolidated entity uses derivative financial instruments in the normal course of business for the purpose of economically hedging its future gold production and sales and managing its interest rate exposures. The derivative financial instruments used by the consolidated entity explained below is the position as at 30 June 2007.
(a) Financial assets and liabilities carried at fair value
All financial assets and financial liabilities held at balance date are carried at net fair value with the exception of the bank loan which is carried at amortised cost. The net fair value of a financial asset or a financial liability is the amount at which the asset could be exchanged, or liability settled in a current transaction between willing parties after allowing for transaction costs.
                                 
    CONSOLIDATED  
    Carrying Value     Fair Value  
    2007 ($)     2006 ($)     2007 ($)     2006 ($)  
 
FINANCIAL ASSETS
                               
Cash assets
    11,418,840       18,370,653       11,418,840       18,370,653  
Trade debtors
    5,321,582       3,237,104       5,321,582       3,237,104  
Other debtors
    39,423       226,821       39,423       226821  
Derivatives — interest rate swaps
          35,146             35,146  
 
                       
 
    16,779,845       21,869,724       16,779,845       21,869,724  
 
                       
 
                               
FINANCIAL LIABILITIES
                               
Trade creditors
    26,906,988       12,462,189       26,906,988       12,462,189  
Bank Loan
    23,125,000       18,750,000       23,125,000       18,750,000  
Derivatives — gold forwards
    35,620,978       50,289,959       35,620,978       50,289,959  
Convertible note
    34,743,835       34,365,425       33,602,167       34,365,425  
Lease commitments
    6,167,030       57,029       6,167,030       57,029  
 
                       
 
    126,563,831       115,924,602       125,422,163       115,924,602  
 
                       
                                 
    THE COMPANY  
    Carrying Value     Fair Value  
    2007 ($)     2006 ($)     2007 ($)     2006 ($)  
 
FINANCIAL ASSETS
                               
Cash assets
    38,680       10,961,468       38,680       10,961,468  
Trade debtors
    1,474,988       672,424       1,474,988       672,424  
 
                       
 
    1,513,668       11,633,892       1,513,668       11,633,892  
 
                       
 
                               
FINANCIAL LIABILITIES
                               
Trade creditors
    294,047             294,047        
 
                       
(b) Credit risk exposure
The credit risk on financial assets of the consolidated entity is generally the carrying amount net of any provisions for doubtful debts. Credit exposure represents the extent of credit related losses that the consolidated entity may be subject to on amounts to be exchanged under the derivatives or to be received from financial assets. The notional amounts of derivatives are not a measure of this exposure. The consolidated entity, while exposed to credit related losses in the event of non-performance by counter parties to financial instruments, does not expect any counter parties to fail to meet their obligations given their high credit ratings.

61


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
28. FINANCIAL INSTRUMENTS (Continued)
(c) Forward gold sales
The consolidated entity may undertake forward hedging of gold by entering into forward sales of gold that guarantees a minimum sale price for gold. Hedging is undertaken to enhance revenue and reduce exposure to unpredictable adverse fluctuations in gold prices.
During the year ended 30 June 2005, Perseverance Exploration Pty Ltd entered into a gold forward sales programme which requires the delivery of 200,000 ounces of gold between 30 June 2005 and 30 June 2009 at an average price of A$619 and 50,000 ounces over the same period at and average price of $614. All facilities were provided by the Australia and New Zealand Investment Bank.
During the year ended 30 June 2007, Perseverance Exploration Pty Ltd rescheduled the gold forward sales programme by extending the delivery period. As a result, the average forward sale price increased to A$626 per ounce. Perseverance Exploration Pty Ltd sold 24,001 ounces (2006: 40,305 ounces) of gold at an average forward gold price of A$626. As at 30 June 2007, the Company had 181,035 ounces of flat forward sale contracts at A$626 per ounce. The mark-to-market of the hedge book at 30 June 2007 was negative $35,620,978. This fair value is reflected as a derivative liability in the balance sheet. The company considers the forward contracts as an economically effective hedge, however has not designated the gold forwards as cashflow hedges in accordance with AASB 139 Financial instruments Recognition, and as such reflects movements in fair value through the Income Statement as such movements occur.
(d) Interest rate risk exposures
The economic entity is exposed to interest rate risk through primary financial assets and liabilities. The following table summarises interest rate risk for the economic entity, together with effective interest rates as at balance date.
                                                         
            FIXED INTEREST RATE                      
            MATURING IN                      
    FLOATING             OVER 1     NON-                
    INTEREST     1 YEAR OR     YEAR TO 5     INTEREST             WEIGHTED  
    RATE     LESS     YEARS     BEARING     TOTAL     AVERAGE INTEREST  
2007   ($)     ($)     ($)     ($)     ($)     RATE  
 
FINANCIAL ASSETS                                           FLOATING     FIXED  
 
 
                                                       
Cash assets
    11,418,840                         11,418,840       5.95 %      
Trade debtors
                      5,321,582       5,321,582              
 
                                             
Totals
    11,418,840                   5,321,582       16,740,422                  
 
                                             
 
FINANCIAL LIABILITIES
                                                       
Trade creditors
                      26,906,988       26,906,988              
Bank loan (b)
                23,125,000             23,125,000       8.0 %      
Convertible note
                34,743,835             34,743,835             6.75 %
Lease commitments
          4,826,280       1,340,750             6,167,030             7.3 %
 
                                             
Totals
          4,826,280       59,209,585       26,906,988       90,942,853                  
 
                                             
Floating interest rates represent the year average rate applicable to the instrument.
From time to time the consolidated entity enters into interest rate swap agreements that are used to convert the variable interest rate of its short-term borrowings to medium-term fixed interest rates. The swaps are entered into with the objective of reducing the risk of rising interest rates. Bank loan represent amounts that the consolidated entity has drawn down on its $25,000,000 debt facility which was agreed on 28 May 2007. Interest is paid on the loan each 6 months and is based on the Bank Bill Swap Rate plus a margin. Both the debt and the associated interest rate swap (if any) have the same critical terms.

62


 

Annual Financial Report
Financial year ended 30 June 2007
 
Notes to the Financial Statements
YEAR ENDED 30 JUNE 2007
28. FINANCIAL INSTRUMENTS (Continued)
                                                         
            FIXED INTEREST RATE                      
    FLOATING     MATURING IN     OVER 1     NON-                
    INTEREST     1 YEAR OR     YEAR TO 5     INTEREST             WEIGHTED  
    RATE     LESS     YEARS     BEARING     TOTAL     AVERAGE INTEREST  
2006   ($)     ($)     ($)     ($)     ($)     RATE  
 
FINANCIAL ASSETS                                           FLOATING     FIXED  
 
Cash assets
    18,370,653                         18,370,653       5.2 %      
Trade debtors
                      3,237,104       3,237,104              
 
                                             
Totals
    18,370,653                   3,237,104       21,607,757                  
 
                                             
 
                                                       
FINANCIAL LIABILITIES
                                                       
Trade creditors
                      12,462,189       12,462,189              
Bank loan (b)
    10,559,400       5,779,800       2,410,800             18,750,000       7.5 %     7.6 %
Convertible note
                34,365,425             34,365,425             6.75 %
Lease commitments
          57,029                   57,029             8.5 %
 
                                             
Totals
    10,559,400       5,836,829       36,776,225       12,462,189       65,634,643                  
 
                                             
29. SUBSEQUENT EVENTS
There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company, to affect the operations of the consolidated entity, the results of those operations or the state of affairs of the consolidated entity in subsequent financial years except for those matters referred to below:
On 12 July 2007, the Company announced that it had completed a $26.5 million placement to institutional and sophisticated investors. The placement involved the issue of approximately 177 million fully paid ordinary shares at $0.15 per share with one attaching option per share issued. The options have an exercise price of $0.15 and a term to expiry of 31 August 2009. Upon exercise, each option will entitle the holder to receive one fully paid ordinary share. A General Meeting of shareholders held on 24 August 2007 approved the issue of the shares and options. As a result of settlement of the first tranche of the placement on 19 July 2007, the conversion price of the Convertible Notes was adjusted from $0.442 to $0.415 pursuant to the Terms and Conditions of the Convertible Notes as set out in the Offering Circular dated 19 December 2005. As a result of settlement of the second tranche of the placement on 30 August 2007, the conversion price of the Convertible Notes was further adjusted from $0.415 to $0.365 pursuant to the Terms and Conditions of the Convertible Notes as set out in the Offering Circular dated 19 December 2005.
Dr. Robin George tendered his resignation as a director of the Company effective 6 August 2007.
Mr Graeme Sloan tendered his resigned as Managing Director and Chief Executive Officer of the Company effective 10 August 2007.
Mr John Robinson tendered his resignation as a director of the Company effective 27 August 2007.
Mr. Peter MacPhail was appointed as a director of the Company effective 18 February 2008.
Mr. Kenneth Stowe was appointed as a director of the Company effective 18 February 2008.
Mr. Jozsef Patarica was appointed as a director of the Company effective 18 February 2008.
Mr. Robert Flew tendered his resignation as a director of the Company effective 18 February 2008.
Mr. Brian Phillips tendered his resignation as a director of the Company effective 18 February 2008.
Mr. Chris Roberts tendered his resignation as a director of the Company effective 18 February 2008.
Mr. Jozsef Patarica tendered his resignation as a director of the Company effective 16 April 2008.

63


 

Annual Financial Report
Financial year ended 30 June 2007
 
Perseverance Corporation Limited (“Perseverance”) announced on 29 October 2007 that it had entered into a Merger Implementation Agreement that provided for the acquisition of Perseverance by Northgate Minerals Corporation (“Northgate”). The transaction was implemented by Schemes of Arrangement (“Schemes”) between Perseverance and its shareholders and optionholders, and a resolution of holders of the Company’s convertible subordinated notes to approve the early redemption of those notes. The Perseverance Directors unanimously recommend that, in the absence of a superior proposal being received, shareholders and optionholders vote in favour of the Schemes. No such superior proposal emerged.
Subsequent to the announcement, Deloitte Corporate Finance Pty Ltd was appointed as the Independent Expert and concluded that the Schemes are fair and reasonable and, therefore, in the shareholders’ and optionholders’ best interests.
On 17 December 2007, the holders of the Company’s convertible subordinated notes passed the extraordinary resolution for the early redemption of those notes, in the event that the Schemes are implemented. The Scheme Booklet, outlining the details of the Schemes, the Directors’ unanimous recommendation in respect of the Schemes and including the Independent Expert’s Report was dispatched to shareholders and optionholders on 19 December 2007.
Shareholders voted in favour of the Share Scheme at the Share Scheme Meeting and optionholders voted in favour of the Option Scheme at Option Scheme Meeting, both held on 18 January 2008. On 1 February 2008, the Supreme Court of Victoria made orders approving the Share Scheme and Option Scheme between Perseverance and its shareholders and optionholders, respectively, pursuant to section 411(4)(b) of the Corporations Act 2001 (Cth).
Under the Schemes, Northgate, through its wholly-owned subsidiary, Northgate Australian Ventures Corporation Pty Ltd (“NAVCO”), acquired all of the outstanding Shares in Perseverance. The Share Scheme became Effective on 4 February 2008, and holders of Shares as at the Record Date (11 February 2008 7:00pm), received $0.20 for each Share held. NAVCO dispatched the Scheme Consideration within five Business Days after the Implementation Date which was 18 February 2008.
The underground operations at Fosterville were interrupted on the 20 December 2007 following an incident when 11 underground personnel were evacuated and briefly hospitalized after being affected by fumes. All personnel have now returned to normal duties. Underground mining activities were further effected when access to the Falcon Phoenix sections of the mine by damage to the portal area caused during a storm event. Underground operations resumed on the 29 December 2007. Workcover investigations are continuing subsequent to period end, and no fines or penalties have been determined.
All liabilities for 30 June 2007 convertible notes outstanding have been repaid to Noteholders, and contracts for all derivative financial instruments held at 30 June 2007 have been either delivered into or terminated. Funding for these activities was obtained by a mix of related company borrowings and equity injections into Perseverance Corporation Limited from Northgate Minerals Corporation.
30. CORPORATE INFORMATION
The financial report of Perseverance for the year ended 30 June 2007 was authorised for issue in accordance with a resolution of the directors on 14 May 2008.
Perseverance Corporation Limited is a company limited by shares incorporated in Australia.. The nature of operations and principal activities of the Group are described in the Directors Report.

64


 

Annual Financial Report
Financial year ended 30 June 2007
 
Directors’ Declaration
In accordance with a resolution of the Directors of Perseverance Corporation Limited, I state that:
(1)   In the opinion of the Directors:
  a)   the financial statements and notes of the company and of the consolidated entity are in accordance with the Corporations Act 2001, including:
  i.   giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2007 and of their performance for the year ended on that date; and
 
  ii.   complying with Australian Accounting Standards, International Financial Reporting Standards as issued by the International Accounting Standards Board and Corporations Regulations 2001; and
  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.
(2)   This declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2007.
On behalf of the Board
(-s- Peter MacPhail)
Peter MacPhail
Director
Melbourne
14 May 2008

65


 

(ERNST & YOUNG LOGO)
Independent auditor’s report to the members of Perseverance Corporation Limited
We have audited the accompanying financial report of Perseverance Corporation Limited, which comprises the balance sheet as at 30 June 2007, and the income statement, statement of changes in equity and cash flow statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year.
The company has disclosed information as required by paragraphs Aus 25.4 to Aus 25.7.2 of Accounting Standard 124 Related Party Disclosures (“remuneration disclosures”), under the heading “Remuneration Report” on pages 6 to 9 of the directors’ report, as permitted by Corporations Regulation 2M.6.04.
Directors’ Responsibility for the Financial Report
The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with the Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial 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. In Note 1, the directors also state that the consolidated financial statements and notes, comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The directors are also responsible for the remuneration disclosures contained in the directors’ report.
Auditor’s Responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. 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 financial report is free from material misstatement and that the remuneration disclosures comply with Accounting Standard AASB 124 Related Party Disclosures.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial 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 financial 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 financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Liability limited by a scheme approved    
under Professional Standards Legislation

 


 

2
(ERNST & YOUNG LOGO)
Independence
In conducting our audit we have met the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is attached to the directors’ report. In addition to our audit of the financial report and the remuneration disclosures, we were engaged to undertake the services disclosed in the notes to the financial statements. The provision of these services has not impaired our independence.
Auditor’s Opinion
In our opinion:
1.   the financial report of Perseverance Corporation Limited is in accordance with the Corporations Act 2001, including:
  (i)   giving a true and fair view of the financial position of Perseverance Corporation Limited and the consolidated entity at 30 June 2007 and of their performance for the year ended on that date; and
 
  (ii)   complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001.
2.   the consolidated financial statements and notes also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board disclosed in Note 1.
3.   the remuneration disclosures that are contained on pages 6 to 9 of the directors’ report comply with Accounting Standard AASB 124 Related Party Disclosures.
(-s- ERNST & YOUNG)
Ernst & Young
Melbourne
14 May 2008

 


 

PERSEVERANCE CORPORATION LIMITED Supplementary Note
Reconciliation to Canadian Generally Accepted Accounting Principles For the
year ended June 30, 2007
(Unaudited)
(All dollar amounts are stated in Australian Dollars unless otherwise indicated.).
Accounting practices under Canadian generally accepted accounting principles (“Canadian GAAP”) and International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board, as they affect Perseverance Corporation Limited (the “Company”), are substantially the same with respects to measurement differences, except for the following:
A. Provision for site closure and reclamation costs
Under IFRS, site closure and reclamation obligations are considered a provision and accounted for in accordance with IAS 37 — Provisions, Contingent Liabilities and Contingent Assets (“IAS 37”). Similar to Canadian GAAP, the cost of the provision is recognized as part of the cost of the asset when it is placed into service and am