20-F 1 d525087d20f.htm FORM 20-F Form 20-F
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 20-F

 

 

 

¨ Registration statement pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934

or

 

x Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended June 30, 2011

or

 

¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

or

 

¨ Shell company report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number: 033-51752

 

 

ALLIED GOLD MINING LIMITED

(Exact Name of Registrant as Specified in its Charter)

 

 

N/A

(Translation of registrant’s name into English)

England and Wales

(Jurisdiction of incorporation or organization)

Level 10, 432 St Kilda Road

Melbourne, Victoria 3004, Australia

(Address of registrant’s registered office)

Garth Campbell-Cowan

Level 10, 432 St Kilda Road

Melbourne, Victoria 3004, Australia

Tel. +61 3 8660 1905, Fax. +61 3 8660 1999, e-mail: garth.campbell-cowan@stbarbara.com.au

(Name, Telephone, E-Mail and/or Facsimile number and Address of Company Contact Person)

 

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Name of Each Exchange On Which Registered

None  

 

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:

Ordinary Shares

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

 

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

1,198,537,554 Ordinary Shares as of June 30, 2011

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ¨    No  x

Note—checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer  ¨                Accelerated Filer  x                Non-accelerated filer  ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP  ¨

    

International Financial Reporting Standards as issued

by the International Accounting Standards Board  x

   Other  ¨

If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow    Item 17  x    Item 18  ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

 

 

 


Table of Contents

TABLE OF CONTENTS

 

EXPLANATORY NOTE

     1  

CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

     1  

DEFINITIONS

       2  

ITEM 1.

 

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

     3  

ITEM 2.

 

OFFER STATISTICS AND EXPECTED TIMETABLE

     3  

ITEM 3.

 

KEY INFORMATION

     3  

ITEM 4.

 

INFORMATION ON THE COMPANY

     18  

ITEM 4A.

 

UNRESOLVED STAFF COMMENTS

     38  

ITEM 5.

 

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

     38  

ITEM 6.

 

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

     43  

ITEM 7.

 

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

     60  

ITEM 8.

 

FINANCIAL INFORMATION

     60  

ITEM 9.

 

THE OFFER AND LISTING

     60  

ITEM 10.

 

ADDITIONAL INFORMATION

     61  

ITEM 11.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     68  

ITEM 12.

 

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

     70  

ITEM 13.

 

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

     70  

ITEM 14.

 

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

     70  

ITEM 15.

 

CONTROLS AND PROCEDURES

     70  

ITEM 16A.

 

AUDIT COMMITTEE FINANCIAL EXPERT

     73  

ITEM 16B.

 

CODE OF ETHICS

     74  

ITEM 16C.

 

PRINCIPAL ACCOUNTANT FEES AND SERVICES

     75  

ITEM 16D.

 

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

     75  

ITEM 16E.

 

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

     75  

ITEM 16F.

 

CHANGE IN CERTIFYING ACCOUNTANT

     75  

ITEM 16G.

 

CORPORATE GOVERNANCE

     75  

ITEM 16H.

 

MINE SAFETY DISCLOSURES

     84  

ITEM 17.

 

FINANCIAL STATEMENTS

     84  

ITEM 18.

 

FINANCIAL STATEMENTS

     150   

ITEM 19.

 

EXHIBITS

     150   


Table of Contents

EXPLANATORY NOTE

In June 2011, the Allied Gold group completed a restructuring, the Restructuring, with Allied Gold Mining PLC, a company organized under the laws of England and Wales, becoming the parent holding company of Allied Gold Limited. As a result of the Restructuring, we changed our fiscal year end to December 31 from June 30. We are filing this annual report for the year ended June 30, 2011 in connection with our anticipated deregistration in compliance with Rule 12h-6 of the Exchange Act.

On September 7, 2012, St Barbara Limited, or St Barbara, a company organized under the laws of the Commonwealth of Australia, acquired Allied Gold Mining PLC pursuant to a scheme of arrangement, the Scheme of Arrangement, resulting in Allied Gold Mining PLC becoming a wholly-owned subsidiary of St Barbara Limited. Prior to and in order to facilitate the acquisition by St Barbara, shareholders of Allied Gold Mining PLC, acting by special resolution, approved a reduction in capital of Allied Gold Mining PLC on August 14, 2012. As a result, Allied Gold Mining PLC was re-registered on September 7, 2012 as Allied Gold Mining Limited and continues to do business under that name. References to “Allied Gold”, the “Group”, “we”, “our” and “us” in this annual report, as context dictates, are to (a) Allied Gold Mining Limited and its subsidiaries subsequent to the acquisition by St Barbara, (b) Allied Gold Mining PLC and its subsidiaries prior to the acquisition by St Barbara, but following the Restructuring, and (c) Allied Gold Limited and its subsidiaries prior to the Restructuring. References to the “Company” are to Allied Gold Limited, Allied Gold Mining PLC or Allied Gold Mining Limited, as context dictates.

CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

This report contains certain forward-looking statements with respect to our financial condition, results of operations and business. These statements are forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. The words “intend”, “project”, “anticipate”, “estimate”, “plan”, “believes”, “expects”, “may”, “should”, “will”, or similar expressions, commonly identify such forward-looking statements.

Examples of forward-looking statements in this report include those regarding estimated ore reserves, anticipated production or construction dates, costs, outputs and productive lives of assets or similar factors. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors set forth in this document that are beyond our control. For example, future ore reserves will be based in part on market prices that may vary significantly from current levels. These may materially affect the timing and feasibility of particular developments. Other factors include the ability to produce and transport products profitably, demand for our products, changes to the assumptions regarding the recoverable value of our tangible and intangible assets, the effect of foreign currency exchange rates on market prices and operating costs, and activities by governmental authorities, such as changes in taxation or regulation, and political uncertainty.

In light of these risks, uncertainties and assumptions, actual results could be materially different from projected future results expressed or implied by these forward-looking statements which speak only as to the date of this report. Except as required by applicable regulations or by law, we do not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events. We cannot guarantee that our forward-looking statements will not differ materially from actual results.

 

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DEFINITIONS

 

AIFRS    means the Australian equivalents to International Financial Reporting Standards.
ASX    means the Australian Stock Exchange.
ASG    means Australian Solomons Gold Limited.
AUD” or “A$    means Australian dollar.
BDO    means BDO Audit (WA) Pty Ltd.
Exchange Act    means the U.S. Securities Exchange Act of 1934, as amended.
GBP    means the British pound sterling.
Gold Ridge” or “Gold Ridge Project    means the 100% owned gold mining operation which is located on Guadalcanal Island in the Solomon Islands.
GRML    means Gold Ridge Mining Limited.
IFRS    means the International Financial Reporting Standards.
km2    means square kilometers.
LSE    means the London Stock Exchange PLC.
Main Market    means the LSE’s main market for listed securities.
Mt    means million tonnes.
Mtpa    means million tonnes per annum.
Official List    means the premium listing segment of the LSE.
Ordinary Shares    means the ordinary shares of Allied Gold Mining PLC (or Allied Gold Mining Limited, as applicable).
PNG    means Papua New Guinea.
SAG    means semi-autogenous grinding.
Securities Act    means the U.S. Securities Act of 1933, as amended.
SEC    means the U.S. Securities and Exchange Commission.
SIG    means Solomons Island Government.
Simberi” or “Simberi Project    means the 100% owned gold mining operations located on Simberi Island, the northernmost island of the Tabar Islands Group, in the New Ireland Province of eastern Papua New Guinea.
TSX    means the Toronto Stock Exchange.
US$    means U.S. dollars.

 

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PART I

 

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

 

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

 

ITEM 3. KEY INFORMATION

 

A. Selected Financial Data

On June 30, 2011, Allied Gold Limited successfully implemented the Restructuring, whereby Allied Gold Mining PLC, a company incorporated in England and Wales, became the parent holding company of Allied Gold Limited and its subsidiaries. Pursuant to the Restructuring, Allied Gold Limited’s shares and options on issue as of June 30, 2011 were exchanged on a six for one basis for Allied Gold Mining PLC shares and options. Allied Gold Mining PLC was admitted to the premium listing segment, the Official List, of the London Stock Exchange PLC, or LSE, and commenced trading on the LSE’s main market for listed securities, the Main Market, on June 30, 2011.

While this annual report on Form 20-F for the year ended June 30, 2011 is filed under the name of Allied Gold Mining Limited, the financial information presented relates to the predecessor entity, Allied Gold Limited. The consolidated financial statements are presented in Australian dollars and have been prepared in accordance with AIFRS. The consolidated financial statements and notes for Allied Gold Limited comply with IFRS, as adopted by the International Accounting Standards Board, or IASB.

The selected historical data presented below has been derived from the financial statements of Allied Gold Limited, which were audited by BDO.

The following table summarizes certain financial information and should be read in conjunction with “Item 5 – Operating and Financial Review and Prospects.” We have not declared a dividend during each of the years ended June 30, 2007 through 2011, inclusive. There were significant fluctuations in revenues and net income (loss) between the years stated in the table below. For the reasons set forth herein, the information shown below may not be indicative of our future results of operations.

 

     Year Ended
June  30,

2007
AUD
    Year Ended
June  30,

2008
AUD
(restated)1
    Year Ended
June  30,

2009
AUD
(restated)1
    Year Ended
June  30,

2010
AUD
     Year ended
June  30,

2011
AUD
 

Income statement data:

           

Revenues

     —          23,393,798        77,467,668        67,555,369         84,391,962   

Net profit /(loss) after tax

     (1,880,611     (12,224,827     (7,071,651     10,228,815         6,607,129   

Net profit / (loss) per share (basic and diluted)- cents

     (1.10     (3.46     (1.65     1.31         0.61   

 

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     Year Ended
June  30,

2007
AUD
     Year Ended
June  30,

2008
AUD
(restated)1
     Year Ended
June  30,

2009
AUD
(restated)1
     Year Ended
June  30,

2010
AUD
     Year ended
June  30,

2011
AUD
 

Balance sheet data

              

Total assets

     113,583,799         155,281,480         196,533,484         431,658,286         598,158,477   

Net assets

     101,995,798         100,699,783         146,875,193         371,065,151         470,941,737   

Shares on issue (value)

     105,794,580         133,686,704         173,098,363         369,525,183         459,170,409   

Shares on issue (number)

     337,649,110         377,005,725         472,643,276         1,040,132,142         1,198,537,554   

Dividends paid or declared

     Nil         Nil         Nil         Nil         Nil   

 

1 

Previously disclosed financial information for the years ended June 30, 2008 and June 30, 2009 has been restated as a consequence of a change in accounting policy to comply with amendments to the International Financial Reporting Standards – refer to Item 8.A.2 for more information.

Exchange Rates

Solely for informational purposes, this Form 20-F contains translations of certain Australian dollar amounts into or from U.S. dollars at a specified rate. These translations should not be construed as a representation that the Australian dollar amounts represented in the U.S. dollar amounts indicated, could be converted into or from U.S. dollars at the rate indicated. The following table sets forth, for the financial periods indicated, certain information concerning the Noon Buying Rate for Australian dollars expressed in U.S. dollars per A$1.00 as follows:

Exchange Rates for Australian Dollar to U.S. Dollar for the Five Most Recent Financial Years

 

Period

   High      Low      Period End      Average  

12 months ended June 30, 2007

     0.849         0.742         0.849         0.786   

12 months ended June 30, 2008

     0.963         0.791         0.959         0.897   

12 months ended June 30, 2009

     0.979         0.601         0.806         0.747   

12 months ended June 30, 2010

     0.937         0.775         0.848         0.882   

12 months ended June 30, 2011

     1.097         0.838         1.073         0.991   

Exchange Rates for Australian Dollar to U.S. Dollar for the Previous Six Months

 

Period

   High      Low      Period End      Average  

January 1, 2011 to January 31, 2011

     1.020         0.987         0.992         0.994   

February 1, 2011 to February 28, 2011

     1.018         0.998         1.016         1.009   

March 1, 2011 to March 31, 2011

     1.036         0.982         1.033         1.010   

April 1, 2011 to April 30, 2011

     1.094         1.035         1.090         1.055   

May 1, 2011 to May 31, 2011

     1.097         1.050         1.071         1.068   

June 1, 2011 to June 30, 2011

     1.074         1.044         1.073         0.991   

Latest Practicable Date

As of June 29, 2011, the Australian dollar expressed in U.S. dollars per A$1.00 was US$1.0673.

 

B. Capitalization and Indebtedness

Not applicable.

 

C. Reasons for the Offer and Proceeds

Not applicable.

 

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D. Risk Factors

An investment in Allied Gold and the Ordinary Shares is subject to risks and uncertainties. The occurrence of any one or more of these risks or uncertainties could have a material adverse effect on the value of any investment in Allied Gold and the business, prospects, financial position, financial condition or operating results of the Company. Prospective investors should carefully consider the information presented in this report, including the following risk factors, which are not an exhaustive list of all risk factors associated with an investment in Allied Gold or the Ordinary Shares or in connection with the operations of the Group.

RISKS RELATING TO OUR OPERATIONS

We currently operate only two mines, which account for all of our ore reserves.

We currently have only two operating gold mines, Simberi and Gold Ridge, in Papua New Guinea, or PNG, and Solomon Islands, respectively. Any event leading to a reduction in production or closure of either mine may have a material adverse effect on our financial performance and results of operations.

Simberi and Gold Ridge account for all of our ore reserves and the potential for the future generation of revenue. Any adverse development affecting the progress of Simberi or Gold Ridge may have a material adverse effect on our financial performance and results of operations. These developments include, but are not limited to, unusual and unexpected geologic formations, seismic activity, rock bursts, cave-ins, flooding and other conditions involved in the drilling and removal of material, any of which could result in damage to, or destruction of, mines and other producing facilities, damage to life or property, environmental damage, hiring suitable personnel and engineering contractors, or securing supply agreements on commercially suitable terms.

Our mining operations have a limited operating history.

We have a limited history of mining operations on which to base assessment of our future expected performance, and there can be no assurance that we will earn significant revenues or achieve significant profitability, which in turn could impact on our ability to sustain operations or obtain any additional funds we may require. The costs, timing and complexities of mine construction and development are increased by the remote location of our mining properties. In addition, delays in the commencement of mineral production often occur. Accordingly, our actual results may be subject to greater variability than would be the case for a company with a longer history of mining operations and it could be more difficult to predict our future operating costs and results of operations accurately. Other factors mentioned in this section entitled “D. Risk Factors” may also prevent us from successfully operating our mining projects.

We depend on our key personnel. If we are unable to attract and retain key personnel, our business may be materially adversely affected.

The success of our operations and activities is dependent to a significant extent upon the contributions of a number of our management and our highly skilled team of contractors. There can be no certainty that the services of such key personnel will continue to be available to us. Factors critical to retaining our present staff and attracting and recruiting additionally highly qualified personnel include, inter alia, our ability to provide competitive compensation arrangements. If we are not successful in retaining or attracting highly qualified individuals in key management positions or highly skilled contractors, our business may be materially adversely affected. Investors must be willing to rely to a significant extent on management’s discretion and judgment, as well as the expertise and competence of outside contractors. We do not have in place formal programs for succession of management and training of management, nor do we hold key person insurance on these individuals.

Furthermore, as a result of the shortage of higher education in certain of the jurisdictions in which we operate, we may find it difficult to acquire the qualified or trained and skilled labor upon which we are dependent. To the extent that we are unable to recruit and retain such skilled labor this could result in a decrease in our production or delays in the development of projects, which in turn could have a material adverse effect on our results of operations and financial condition.

We are reliant on a certain level of expatriate expertise to ensure efficient operations and management. We depend on government approval of work permits for expatriate positions and if this were to be refused, our management and operations would be adversely affected.

 

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Currency fluctuations may affect the costs that we incur in our operations and may also impact on our revenue.

Our revenue from gold sales is received in U.S. dollars, while a significant portion of our operating expenses will be incurred in Australian dollars, PNG Kina, or PGK, Solomon Islands dollar, or SBD, and other foreign currencies. From time to time, we will borrow funds and will incur capital expenditures that may be denominated in foreign currencies other than the U.S. dollar. The appreciation of non-U.S. dollar currencies in which we transact could materially and adversely affect our profitability, results of operations and financial position. As we generate revenues and incur operating expenses, we will be exposed to currency translation risk on those revenues to the extent not mitigated by costs based on the U.S. dollar and to the extent we do not seek to hedge our currency exposure in the financial markets.

We have a history of operating losses and there can be no assurance that we will be profitable in the future.

Our operations have not consistently generated an operating profit after tax, and there can be no assurance that we can achieve or sustain profitability on a quarterly or annual basis in the future. Our operations and projects are subject to the risks and competition inherent in the establishment of a mining enterprise. There can be no assurance that future operations will be profitable. We may not achieve our business objectives and the failure to achieve such goals would have an adverse impact on us.

Insofar as certain Directors hold similar positions with other mineral resource companies, conflicts may arise between the obligations of these Directors to us and to such other mineral resource companies.

Certain Directors are, and may continue to be, involved in the mining and mineral exploration industry through their direct and indirect participation in corporations, partnerships or joint ventures, which are potential competitors of ours. Situations may arise in connection with potential acquisitions in investments where the other interests of these directors and officers may conflict with our interests. Directors with conflicts of interest will be subject to and will follow the procedures set out in applicable corporate and securities legislation, regulations, rules and policies.

For a list of the positions that each of the Directors holds with other companies and partnerships, please refer to “Item 6.A. – Directors and Senior Management”.

Estimates and assumptions used in preparing our consolidated financial statements and actual amounts could differ.

Preparation of the consolidated financial statements requires us to use estimates and assumptions. Accounting for estimates requires us to use our judgment to determine the amount to be recorded on our financial statements in connection with these estimates. On an ongoing basis, we re-evaluate our estimates and assumptions. However, the actual amounts could differ from those based on estimates and assumptions.

We have experienced problems with our internal controls over financial reporting. If we fail to develop and maintain an effective system of internal controls, we may be unable to accurately report our financial results or prevent fraud, which could harm our business and result in the loss of investor confidence in our financial reporting.

Effective internal controls are necessary for us to provide accurate and timely financial reports and effectively prevent fraud. We discovered in the past, and may in the future discover, areas of our internal controls involving deficiencies, significant deficiencies or material weaknesses that have required or will require improvements in our procedures on the preparation, review, approval and disclosure of financial reports. For example, we have not filed annual financial statements with the SEC since the fiscal year ended June 30, 2009.

We are subject to reporting obligations under the U.S. securities laws. The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include a management report on such company’s internal control over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s internal control over financial reporting. In addition, an independent registered public accounting firm must attest to and report on management’s assessment of the effectiveness of a company’s internal control over financial reporting. Our management may conclude that our internal control over our financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may still decline to attest to our management’s assessment or may issue a report that is qualified if it is not satisfied with our controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently than we do.

 

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If we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to provide accurate financial statements, which could cause us to fail to meet our reporting obligations or provide accurate financial statements.

Actual capital costs, operating costs and economic returns for Simberi and Gold Ridge may differ significantly from those that we have anticipated, and there are no assurances that any future development activities will result in profitable mining operations.

The capital costs for Simberi and Gold Ridge may be significantly higher than anticipated. Gold Ridge does not have an extensive operating history upon which we can base estimates of future operating costs. Decisions about the development of this and other mineral properties will ultimately be based upon feasibility studies. Feasibility studies derive estimates of cash operating costs based upon, among other things:

 

 

anticipated tonnage, grades and metallurgical characteristics of the ore to be mined and processed;

 

 

anticipated recovery rates of gold and other metals from the ore;

 

 

cash operating costs of comparable facilities and equipment; and

 

 

anticipated climatic conditions.

Cash operating costs, production and economic returns, and other estimates contained in studies or estimates prepared by or for us may differ significantly from those anticipated by our current studies and estimates, and there can be no assurance that our actual operating costs will not be higher than currently anticipated.

Power stoppages and fluctuations and disruptions in electrical power could adversely affect our results of operations and our financial condition.

Our mining operations are heavily reliant on the availability of electricity. If we were to experience a major power failure, or any other interruption in our electricity supplies, gold production could continue for only a limited time, if at all. Such disruptions to our power supplies could have an adverse effect on our results of operations and financial condition.

The cost of electricity, particularly self-generated, can be unstable. An increase in power costs will make production more costly and alternative power sources may not be available.

Both Simberi and Gold Ridge rely on self-generation of electricity by diesel power generators located on site. The self-generation of electricity by diesel power generators is expensive, and the cost of such self-generation can fluctuate rapidly and significantly depending on the market price of diesel fuel. We are currently planning to convert the electricity generation system at Simberi to operate on heavy fuel oil, with the aim of reducing power generation costs. As with other mining sector inputs, we have historically been exposed to energy cost inflation. Any renewed increases in energy costs will adversely affect our results of operations or financial condition.

The profitability of operations and the cash flows generated by these operations are significantly affected by the fluctuations in the price, cost and supply of inputs.

Fuel, power and consumables, including diesel, steel, chemical reagents, explosives and tires, form a relatively large part of our operating costs. The cost of these consumables is impacted to varying degrees by fluctuations in the price of oil, exchange rates and the availability of supplies.

Such fluctuations have a significant impact on our operating costs and capital expenditure estimates and, in the absence of other economic fluctuations, could result in significant changes in the total expenditure estimates for mining projects, new and existing, and could even render certain projects non-viable.

Our success may depend on our social and environmental performance.

Our ability to operate successfully will likely depend on our ability to develop, operate and close mines in a manner that is consistent with the health, safety and well-being of our employees, the protection of the environment, and the creation of long-term economic and social opportunities in the communities in which we operate. We seek to promote improvements in health and safety, environmental performance and community relations. However, our ability to operate could be adversely impacted by accidents or events detrimental (or perceived to be detrimental) to the health, safety and well-being of our employees, the environment or the communities in which we operate.

 

 

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Our business depends on good relations with our employees. A breakdown in these relations and/or restrictive labor and employment laws could have a material adverse impact on us.

Although management believes that labor relations with our employees are good, there can be no assurance that a work slowdown or a work stoppage will not occur at any of our operating units or exploration prospects. Future work slowdowns, stoppages, disputes with employee unions, or other labor-related developments or disputes could result in a decrease in our production levels and adverse publicity and/or increased costs, which could have a material adverse effect on our business, results of operations and financial condition. To assist with labor relations in the Solomon Islands, we have in place a collective labor agreement covering approximately 35% of our workforce in that jurisdiction.

We depend on a variety of information technology systems.

We depend on a variety of information technology and software systems for our operations, including management reporting and accounting systems. Failures or significant disruptions to our information technology systems could prevent us from conducting our operations efficiently. Were we to experience a significant security breakdown or other disruption to our information technology systems, sensitive information could be compromised and our operations could be disrupted, which could harm our relationship with suppliers or customers, or otherwise have a material adverse effect on our business, revenues, financial condition, results of operations or prospects.

In addition, our ability to operate our business depends on our ability to protect the information technology systems that we operate from the intrusion of third parties who may attempt to enter our systems through the internet or otherwise. Third parties may attempt to gain access to our systems, and we cannot be certain that we will be able to protect our systems from such attacks. If such attacks occur, some of the problems we may encounter include theft or destruction of our data, including commercial, financial and product information. In addition, disgruntled employees may cause similar damage to, or take similar actions with respect to, our information technology systems to which they have authorized or unauthorized access. If such an attack occurs or damage is inflicted, it could have a material adverse effect on our business, revenues, financial condition, results of operations or prospects or the trading price of the our shares.

Our current strategy may not develop as anticipated.

We regularly monitor potential investment opportunities in the gold mining industry. If we do not acquire and successfully integrate additional gold mining operations, we may not be able to maintain our production levels. If we do acquire additional gold mining operations, the acquisition and integration of new businesses will pose significant risks to our operations. These risks include the difficulty of integrating the operations and personnel of the acquired business, problems with minority shareholders in acquired companies and their material subsidiaries, the potential disruption of current business, the assumption of liabilities, including in relation to tax and environmental matters, relating to the acquired assets or businesses, the possibility that warranty protection from, or indemnification agreements with, the sellers of those assets may be unenforceable or insufficient to cover potential tax or other liabilities, the difficulty of implementing effective management, financial and accounting systems and controls over acquired businesses, the imposition and maintenance of common standards, controls, procedures and policies, and the impairment of relationships with employees and counterparties as a result of difficulties arising out of integration.

Furthermore, even if we successfully integrate new businesses, expected synergies and cost savings may not materialize, resulting in lower than expected profit margins. The value of any business that we acquire or invest in may be less than the amount we pay for it if, for example, there is a decline in the price of gold or ore reserves estimates. When making acquisitions, it may not be possible for us to conduct a detailed investigation of the nature or title of the assets being acquired, for example, due to time constraints in making the decision. We may also become responsible for additional liabilities or obligations not foreseen at the time of an acquisition. As a result, unforeseen expenditures may arise which may have a material adverse effect on our business, revenues, financial condition, results of operations or prospects.

 

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RISKS RELATING TO THE GOLD MINING INDUSTRY GENERALLY

The business of mining metals involves a number of risks and hazards, many of which are outside our control.

To maintain future gold production beyond the life of the current reserves or to increase production materially through mining new deposits, we need to extend our mineral base through geological exploration, which may result in adverse environmental consequences for our operations. Our mining operations are subject to all the hazards and risks normally encountered in the exploration for and development and production of precious metals, including unusual and unexpected geologic formations, seismic activity, rock bursts, cave-ins, flooding, variations in grade, deposit size, density and other geological problems, hydrological conditions, metallurgical and other processing problems, mechanical equipment performance problems, the unavailability of materials and equipment including fuel, labor force disruptions, unanticipated transportation costs, unanticipated regulatory changes, unanticipated or significant changes in the costs of supplies including, but not limited to, petroleum, and adverse weather conditions and other conditions involved in the drilling and removal of material, any of which could result in damage to, or destruction of, mines and other producing facilities, damage to life or property, environmental damage, business interruption and delays in mining, asset write-downs, monetary losses, and possible legal liability, and may result in actual production differing, potentially materially, from estimates of production, including those contained in this report, whether expressly or by implication. Should any of these risks and hazards affect any of our proposed mining operations, it may cause the cost of production to increase to a point where it would no longer be economic to produce gold from our mineral reserves, which would have a material and adverse effect on our financial condition, results of operation, and cash flows.

Our ore reserves are only estimates.

Like any mining company, our financial condition depends on our ore reserves. The ore reserves stated in this report represent the amount of gold that we estimated, as of January 1, 2011, could be economically and legally extracted or produced at the time of the ore reserve determination. Ore reserves estimates of mining companies are inherently imprecise and depend to some extent on statistical inferences drawn from limited drilling and other testing, which may ultimately prove unreliable. Such estimates should not be interpreted as an assurance of the profitability of our operations in the future. Until ore reserves are actually mined and processed, the quantity of ore mineral reserve grades must be considered as estimates only. In addition, the quantity of ore reserves may vary depending on, among other things, metal prices and currency exchange rates. Any material change in the quantity of ore reserves, grade or stripping ratio may affect the economic viability of our properties. Declines in market prices of gold could render the mining of our deposits uneconomic. In addition, there can be no assurance that gold recoveries or other metal recoveries in small scale laboratory tests will be duplicated in larger scale tests under on-site conditions or during production. Results of drilling, metallurgical testing and production and the evaluation of mine plans subsequent to the date of any estimate may require revision of such estimate. The volume and grade of ore reserves mined and processed and recovery rates may not be the same as currently anticipated. Any material reductions in estimates of ore reserves, or of our ability to extract these ore reserves, could have a material adverse effect on our results of operations and financial condition. Also, a reduction in estimated ore reserves could require material write-downs in investment in the affected mining property and increased amortization, reclamation and closure charges. Alternatively, if our ore reserves exceed current forecasts, it cannot be assured that we will be able to develop the production capacity to exploit commercially those ore reserves.

We may not achieve our production estimates.

We prepare estimates of future production for particular operations. No assurance can be given that future estimates will be achieved. Our production may vary from estimates for a variety of reasons, including actual ore mined varying from estimates of grade, tonnage and other characteristics. Short-term operating factors may also be relevant such as those relating to the ore reserves, revisions to mine plans and risks associated with mining, such as inclement weather conditions, water availability and unexpected labor shortages or strikes.

If we fail to acquire or find and develop additional ore reserves, our ore reserves and production will decline from their current levels over time.

Except to the extent that we conduct successful exploration and development activities or acquire further properties/licenses containing reserves or both, our reserves will decline as gold is produced.

The life-of-mine estimates included in this annual report in respect of Simberi and Gold Ridge may not be achieved. Our ability to maintain or increase our annual production of gold in the future will be dependent in significant part on our ability to bring new mines into production and to expand mineral reserves at existing mines. Both Simberi and Gold Ridge have a remaining life of over nine years from December 31, 2011, based only on proven and probable ore reserves.

 

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Feasibility studies may be used to determine the economic viability of a deposit. Many factors are involved in the determination of the economic viability of a deposit, including the achievement of satisfactory ore reserve estimates, the level of estimated metallurgical recoveries, capital and operating cost estimates and the estimate of future gold prices. Capital and operating cost estimates are based upon many factors, including anticipated tonnage and grades of ore to be mined and processed, the configuration of the ore body, ground and mining conditions, expected recovery rates of the gold from the ore, anticipated environmental and regulatory compliance costs and mining consumables and capital equipment costs. Each of these factors involves uncertainties and as a result we cannot give assurance that our development or exploration projects will become operating mines. If a mine is developed, actual operating results may differ from those anticipated, thereby impacting on the economic viability of the project.

We may experience delays in receiving permits, licenses, consents or other regulatory approvals.

Our business depends on the continuing validity of some of our licenses, the renewal of our licenses, and our compliance with the terms of our licenses. The legal and regulatory basis for the licensing requirements is subject to frequent change, which increases the risk that we may be found non-compliant.

The business of mineral exploration, project development, mining and processing is subject to various national and local laws and plans relating to: permitting and maintenance of title, environmental consents, taxation, employee relations, heritage/historic matters, health and safety, royalties, land acquisition, and other matters. There is a risk that the necessary permits, consents, authorizations and agreements to implement planned exploration, project development, or mining may not be obtained under conditions or within time frames that make such plans economic, that applicable laws, regulations or the governing authorities will change or that such changes will result in additional material expenditures or time delays.

Our leases may not be renewed at all or may be renewed only on terms and/or conditions which are unacceptable or impractical to us.

Our leases are due to expire on the following dates:

 

 

ML 136 (Simberi), December 2, 2018;

 

 

GRML Mining Lease (Gold Ridge), March 11, 2022; and

 

 

SPL 194 (Gold Ridge) is an exclusive prospecting license which has no fixed expiry date, but which will expire upon the “commencement of preliminary works” as defined in the assignment agreement dated May 12, 2005 pursuant to which the license was granted to us.

Renewal of these licenses is outside of our control, and such renewal cannot be guaranteed. Further, renewal may only be granted on terms or subject to conditions that are commercially or operationally unacceptable or impractical to us. Should this occur, this could have a material adverse effect on our business, prospects, financial condition and results of operations.

In particular, EL609 held by us in relation to Simberi has an expiry of May 5, 2013, and, at the date of the filing of this report, is the subject of an application for renewal for an additional two-year term, which has not yet been processed, failing which our rights to EL609 may be forfeited. Although we have no reason to believe that EL609 will not be renewed for an additional two-year term, there can be no assurance that this will be the case.

Any failure to renew EL609 may have a material adverse effect on the market price of the Ordinary Shares due to the loss of any perceived exploration upside, but will have no effect on our current production or operations. Pending its renewal, EL609 is held over on a statutory basis in favor of the license holder, Nord Australex Nominees (PNG) Ltd.

Our properties are subject to environmental risks.

Mining operations have inherent risks and liabilities associated with pollution of the environment and the disposal of waste products occurring as a result of mineral exploration and production. Environmental hazards may exist on the properties on which we hold interests, which hazards are unknown to us at present and which may have been caused by previous or existing owners or operators of the properties. Reclamation costs are uncertain and planned expenditures may differ from the actual expenditures required.

 

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We are subject to significant environmental regulations.

Our operations involve the use of environmentally hazardous materials as well as the discharge of materials and contaminants into the environment, disturbance of land, and other environmental concerns. Our activities are subject to significant environmental regulations promulgated by relevant governmental authorities and other agencies periodically. Environmental legislation generally provides for the remediation of mining sites which may require significant capital expenditure. These laws and regulations, as interpreted by relevant agencies and courts, impose increasingly stringent environmental protection standards regarding, among other things, air emissions, wastewater storage, treatment and discharges, the use and handling of hazardous or toxic materials, waste disposal practices and remediation of environmental contamination. The costs of complying with these laws and regulations, including participation in assessments and remediation of sites, could be significant. In addition, these standards can create the risk of substantial environmental liabilities, including liabilities associated with divested assets and past activities. Environmental matters cannot be predicted with certainty, and amounts required to establish and maintain adequate provision for environmental liabilities may be significant, especially in light of potential changes in environmental conditions or the discovery of previously unknown environmental conditions, the risk of governmental orders to carry out compliance on certain sites not initially included in remediation in progress, and our potential liability to remediate sites for which provisions have not been previously established. Such future developments could result in increased environmental costs and liabilities that could have a material adverse effect on our business, assets, financial position and results of operations.

Our insurance coverage does not cover all of our potential losses, liabilities and damages related to our business and certain risks are uninsured or uninsurable.

Our business is subject to a number of risks and hazards generally, including adverse environmental conditions, industrial accidents, labor disputes or slowdowns, unusual or unexpected geological conditions, ground or slope failures, cave-ins, changes in the regulatory environment or laws, and natural phenomena such as inclement weather conditions, floods and earthquakes. Such occurrences could result in damage to mineral properties or production facilities, personal injury or death, environmental damage to our properties or the properties of others, delays in development or mining, monetary losses and possible legal liability.

Although we maintain insurance to protect against certain risks in such amounts as we consider to be reasonable, our insurance will not cover all the potential risks associated with our operations. We may also be unable to maintain insurance to cover these risks at economically feasible premiums. Insurance coverage may not continue to be available or may not be adequate to cover any resulting liability. Moreover, insurance against risks such as environmental pollution or other hazards as a result of exploration and production is not generally available to us or to other companies in the mining industry on acceptable terms. We might also become subject to liability for pollution or other hazards which may not be insured against or which we may elect not to insure against because of premium costs or other reasons. Losses from these events may cause us to incur significant costs that could have a material adverse effect on our financial performance and results of operations.

Our business requires substantial capital expenditure and lead times to operation, which in the longer term may require external financing that may not be available.

The mining business is capital intensive, and the development and exploration of gold and the acquisition of the related machinery and equipment require substantial capital expenditure and lead times until such machinery and equipment is operational. Further exploration and development in the future may be dependent upon our ability to obtain financing through the raising of additional equity or debt financing or other means.

We may from time to time need to raise funds through the issuance of equity securities or the issuance of debt instruments or other securities convertible into Ordinary Shares in order to finance future operations and developments. Our ability to secure debt or equity financing in amounts sufficient to meet our financial needs could be adversely affected by many factors beyond our control, including, but not limited to, economic conditions in Melanesia and the state of the banking sector. Any additional equity financing may be dilutive to existing shareholders, and debt financing, if available, may involve restrictions on financing and operating activities. There can be no assurance that additional funding we require will be made available to us and, if such funding is available, that it will be offered on reasonable terms. If we are unable to obtain additional financing as needed, we may be required to reduce the scope of our operations or anticipated expansion, which may have a material adverse effect on our business, revenues, financial condition, results of operations or prospects.

 

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Increased competition could adversely affect our ability to attract the necessary capital funding or acquire suitable producing properties or prospects for mineral exploration in the future.

Competition in the gold exploration, mining and production business is intense and could adversely affect our ability to develop our properties. We compete with numerous individuals and companies, including major mining companies, many of which have greater financial and operational resources than us. There is a high degree of competition for the discovery and acquisition of properties considered to have commercial potential. We compete with other mining companies for the acquisition of mineral claims, leases and other mineral interests as well as for the recruitment and retention of qualified employees and other personnel. The intensity of competition, combined with the cyclicality and unpredictability of the gold market, results in significant variations in economic performance, which may lead to a change in our strategy.

Further, the recent marked increase in activity in the global mining industry has led to excess demand for key production inputs, such as heavy vehicles, chemicals and specialist contractors, resulting in unavailability of, or long lead times for, plant, equipment and services and/or material increases in the prices at which such inputs can be obtained. As a result, we may be unable to continue to source such inputs on commercially acceptable terms, or at all, or may experience significant delays in doing so, any of which could have a material adverse effect on our ability to develop Simberi and/or Gold Ridge on schedule, within budget, or at all, and on our business, costs, results of operations and overall financial condition.

Precious metal exploration projects may not be successful and are highly speculative in nature.

The exploration for, and development of, precious metals involves significant risks which even a combination of careful evaluation, experience and knowledge cannot eliminate. While the discovery of a precious metal deposit may result in substantial rewards, few properties which are explored are ultimately profitable. Major expenses may be required to locate and establish mineral reserves, to develop metallurgical processes and to construct mining and processing facilities at a particular site. Whether a precious metal deposit will be commercially viable depends on a number of factors, some of which are: the particular attributes of the deposit, such as size, grade and proximity to infrastructure; metal prices which are highly cyclical; and government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of precious metals and environmental protection. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in us not receiving an adequate return on invested capital. There is no certainty that the expenditures we made towards the search and evaluation of precious metal deposits will result in discoveries of commercial quantities of such metals.

Land reclamation requirements for exploration properties may be burdensome and may divert funds from our exploration programs.

Although variable, depending on location and the governing authority, land reclamation requirements are generally imposed on mineral exploration companies, as well as companies with mining operations, in order to minimize long term effects of land disturbance. Reclamation may include requirements to control dispersion of potentially deleterious effluents and to reasonably re-establish pre-disturbance land forms and vegetation. In order to carry out reclamation obligations imposed on us in connection with our mineral exploration, we must allocate financial resources that might otherwise be spent on further exploration programs.

Gold price volatility may affect our future production, profitability, financial position and financial condition.

We derive substantially all of our revenues from the sale of gold. We generally sell our products on the spot market at market prices. Accordingly, our financial results largely depend on the price of gold. The gold market is cyclical and sensitive to changes in general economic conditions, and may be subject to significant volatility. The development and success of Simberi and Gold Ridge will be primarily dependent on the future price of gold. Gold prices are subject to significant fluctuation and are affected by a number of factors which are beyond our control.

Such factors include, but are not limited to, interest rates, exchange rates, inflation or deflation, fluctuation in the value of the U.S. dollar and foreign currencies, global and regional supply and demand, and the political and economic conditions of major gold-producing countries throughout the world. The price of gold and other base and precious metals has fluctuated widely in recent years, and future serious price declines could cause continued development of, and commercial production from, our properties to be impracticable or uneconomic. Depending on the price of gold and other base metals, projected cash flow from planned mining operations may not be sufficient, and we could be forced to discontinue development and may lose our interest in, or may be forced to sell, some of our properties. Future production from our mining properties is dependent on gold prices that are adequate to make these properties

 

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economically viable. Furthermore, reserve calculations and life-of-mine plans using significantly lower gold prices could result in material write-downs of our investment in mining properties and increased amortization, reclamation and closure charges. In addition to adversely affecting our mineral reserve estimates and our financial condition, declining commodity prices can impact operations by requiring a reassessment of the feasibility of a particular project. Such a reassessment may be the result of a management decision or may be required under financing arrangements related to a particular project. Even if the project is ultimately determined to be economically viable, the need to conduct such a reassessment may cause substantial delays or may interrupt operations until the reassessment can be completed.

Our operations are subject to extensive governmental and environmental regulations, which could cause us to incur costs that adversely affect our results of operations.

Our mining facilities and operations are subject to a significant number of laws and government regulations, concerning taxation, the employment of expatriates, labor standards, mine safety, land use, environmental protection and historic and cultural preservation. We must comply with requirements regarding exploration operations, public safety, employee health and safety, use of explosives and other hazardous materials, air quality, water pollution, noxious odor, noise and dust controls, reclamation, solid waste, hazardous waste and wildlife as well as laws protecting the rights of other property owners and the public.

Any failure on our part to comply with these laws, regulations, and requirements with respect to our properties and/or operations could result in us being subject to substantial penalties, fees and expenses, significant delays in our operations or even the complete shutdown of our operations. Contravention of these laws and regulations could also lead to the imposition of criminal sanctions. The costs associated with compliance with government regulations may ultimately be material and adversely affect our results of operations and financial condition.

We are subject to extensive licensing and other legal and regulatory requirements, non-compliance with which may result in material adverse consequences for us.

Our current and future operations are subject to exploration, development, exploitation and mining licenses, leases, licenses, concessions and regulatory consents and approvals, collectively, the Authorizations, from the government and regulatory authorities in the territories in which we operate.

While the Directors believe that we have obtained all Authorizations that are material in the context of our business as it is now conducted, there can be no assurance that we have every necessary or desirable Authorization, that the Authorizations required to carry on our operations will not change or that we will be able to successfully enforce our current Authorizations, or that we will obtain any additional Authorizations that may be required in the future. Certain Authorizations may, or may in the future, contain onerous conditions with which we may not be able to comply or on terms which include PNG or SIG participation, which may impact on our results, operations, or financial conditions or prospects. A failure to comply with an obligation in an Authorization may result in adverse consequences for us, including the termination of that Authorization.

There can also be no assurance that any existing or future Authorizations will be renewed following their expiry or that the terms of any such renewed Authorizations will be renewed following their expiry or that the terms of any such renewed Authorizations will be commercially acceptable. Obtaining new permits and rights or renewals of existing permits and rights can be a complex and time-consuming process and we cannot guarantee whether any necessary permits or rights will be obtained on acceptable terms, in a timely manner, or at all. The costs and delays associated with obtaining necessary permits or rights (or renewals thereof) could stop, delay or restrict our operations and any planned development. Conditions may be imposed on such Authorizations that may affect the viability of operations at Simberi or Gold Ridge, including payment and any other obligations.

Failure to obtain, renew, enforce or comply with one or more Authorizations could have a material adverse effect on our business, results of operations and prospects.

We may face the risk of litigation in connection with our business and/or other activities.

We may from time to time face the risk of litigation in connection with our business and/or other activities. Recovery may be sought against us for large and/or indeterminate amounts and the existence and scope of liabilities may remain unknown for substantial periods of time. A substantial legal liability and/or an adverse ruling could have a material adverse effect on our business, results of operation and/or financial condition.

 

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Global economic conditions could adversely affect the profitability of our operations.

Our operations and performance depend significantly on worldwide economic conditions. The recent turmoil affecting the banking system and financial markets has resulted in major financial institutions consolidating or going out of business, the tightening of credit markets, significantly lower liquidity in most financial markets, and extreme volatility in fixed income, credit, currency, commodities and equity markets. In addition, general economic indicators have deteriorated, including declining consumer sentiment, increased unemployment and declining or negative economic growth and uncertainty regarding corporate earnings.

These disruptions in the financial markets and the global economic downturn may have follow-on material adverse effects on our business, results of operations and financial condition. For example:

 

 

the insolvency of key suppliers could result in a supply chain break-down;

 

 

the reduced creditworthiness and possible insolvency of key customers for concentrate could result in lower sales and revenue;

 

 

the absence of available credit may make it more difficult for us to obtain, or may increase the cost of obtaining, financing for our operations and capital expenditures; and

 

 

the market value of the Ordinary Shares may become volatile.

Adverse publicity from consumer and environmental groups could have an adverse effect on our reputation and financial position.

There is an increasing level of consumer awareness relating to the effect of mining exploration and production on its surroundings, communities and the environment. Consumer and environmental groups therefore exist to encourage participants in the mining industry to employ practices which minimize any adverse impact that mining may have on communities, workers and the environment and also to lobby governments for the introduction of additional environmental and social policies, regulation and legislation. While we seek to operate in a socially responsible manner, changes to governmental policy and adverse publicity generated by such consumer groups, which either relate to the gold mining industry as a whole or to us in particular, could have an adverse effect on our reputation and financial position.

RISKS RELATING TO THE TERRITORIES IN WHICH WE OPERATE

Emerging markets such as those in which we currently operate are subject to greater risks than more developed markets and any material adverse effect on the economies of such markets could disrupt our business.

Generally, investment in companies with a significant proportion of their assets located in emerging markets is only suitable for sophisticated investors who fully appreciate the significance of the risks involved in, and are familiar with, investing in such companies. Emerging markets such as those in which we currently operate are subject to rapid change, and the information set forth in this report may become out of date relatively quickly. Moreover, financial turmoil in any emerging market country tends to adversely affect prices in equity markets of all emerging market countries as investors move their money to more stable, developed markets. In the event that there is an economic crisis in any of the jurisdictions in which we operate, we may face severe difficulties in the operation of our business and the value of our assets in such jurisdictions may decrease, resulting in a material adverse effect on our financial condition.

Exchange control regimes in PNG and the Solomon Islands may prevent us from converting funds into foreign currencies to meet obligations or pay dividends.

Both PNG and the Solomon Islands retain certain controls on foreign exchange transactions. Although these regulations have been substantially relaxed in both jurisdictions as the PNG and Solomon Islands central banks move to a more liberal foreign exchange regime, there remains a risk that if we were to hold PGK or SBD we may not be able to convert these funds into foreign currency when required to meet our obligations or to pay dividends to Shareholders outside PNG or the Solomon Islands without the appropriate authority’s prior approval.

We currently have in place approvals that permit us to operate foreign currency bank accounts and hold and exchange currencies in accordance with our business and liquidity requirements. Should the central bank in either PNG

 

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or the Solomon Islands alter our existing foreign exchange approvals, there is a risk that we may be forced to hold PGK or SBD and that we may not be able convert these funds into foreign currency when required to meet our obligations outside PNG or the Solomon Islands without the appropriate authority’s prior approval.

Our current and proposed exploration and mining activities are in PNG and the Solomon Islands. Investments and operations in PNG and the Solomon Islands are subject to numerous risks associated with operating in those jurisdictions.

We are conducting our exploration and development activities predominantly in PNG and the Solomon Islands, and as such our foreign mining investments are subject to the risks normally associated with the conduct of business in foreign countries. The occurrence of one or more of these risks could have a material adverse effect on our profitability or the viability of our affected foreign operations, which could have a material adverse effect on our future cash flows, earnings, results of operations and financial condition. Risks may include, among others, labor disputes, invalidation of governmental orders and permits, uncertain political and economic environments, sovereign risk, war (including in neighboring states), civil disturbances and terrorist actions, arbitrary changes in laws or policies of particular countries, the failure of foreign parties to honor contractual relations, corruption, foreign taxation, delays in obtaining or the inability to obtain necessary governmental permits, opposition to mining from environmental or other non-governmental organizations, limitations on foreign ownership, limitations on the repatriation of earnings, limitations on gold exports, instability due to economic under-development, inadequate infrastructure and increased financing costs. In addition, the enforcement by us of our legal rights to exploit our properties may not be recognized by the governments of PNG or the Solomon Islands or by the court systems in those jurisdictions. These risks may limit or disrupt our operations, restrict the movement of funds or result in the deprivation of contractual rights or the taking of property by nationalization or expropriation without fair compensation.

The possibility that the current, or future, governments of PNG or the Solomon Islands may adopt substantially different policies in respect of foreign development and ownership of mineral resources, take arbitrary action which might halt production, extend to the re-nationalization of private assets or the cancellation of contracts, the cancellation of mining and exploration rights and/or changes in taxation treatment cannot be ruled out, the happening of any of which could result in a material and adverse effect on our results of operations and financial condition.

The successful development and operation of our assets depends on adequate infrastructure.

Our principal operations are located in remote areas that are difficult to access, some of which have harsh climates, resulting in technical challenges and logistical challenges for conducting both geological exploration and mining. Reliable roads, bridges, power sources and water supplies are important determinants which affect capital and operating costs and our ability to maintain expected levels of progress with our exploration activities. Unusual weather or other natural phenomena, sabotage or government or other interference in the maintenance or provision of such infrastructure could impact on the development of our projects and effective supply chain management, increase exploration costs or delay the transportation of supplies, equipment or machinery to our projects. Any such issues in respect of our supply chain and/or infrastructure supporting our projects could materially and adversely affect our business, results of operations, financial condition and prospects.

Communications infrastructure at our projects is primarily comprised of satellite links provided by a third party service provider, Pactel International Pty Ltd. Communication by means of satellite link is subject to service interruptions caused by, among other factors, climatic conditions, solar activity and equipment failure. Such communications outages can, in certain cases, be predicted but can also happen without warning. Prolonged communications black-outs may disrupt our operations at Simberi and Gold Ridge and affect our ability to continue to efficiently explore and develop those properties.

There is a possibility of shipping delays and storage capacity problems at Port Moresby, Lae and other wharves through which we may need to ship goods. There are presently problems with port congestion in Port Moresby, and delays could have a material effect on our operations and our financial performance. However, to date, we have not experienced any material problems.

Our Gold Ridge operations are heavily dependent on air transport for personnel, smaller freight and gold dore. We have sought to ensure reliance in air transport services by contracting an air transport provider with a substantial fleet of common aircraft of mature design. A risk remains that if this service provider does not operate for any reason, due to a limited number of alternative providers, air transport disruptions may occur.

 

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Operational failures, the impact of climatic conditions and other unscheduled interruptions could have a material adverse impact on the financial performance of our operations.

The achievement of our operational targets will be subject to the completion of planned operational goals on time and according to budget, and will be dependent on the effective support of our personnel, systems, procedures and controls. Any failure of these may result in delays in the achievement of operational targets with a consequent material adverse impact on our business, operations and financial performance.

The location of our assets means that geological activity and climatic conditions may have an impact on operations and, in particular, severe weather could disrupt operations, including the delivery of supplies, equipment and fuel. Both PNG and the Solomon Islands experience severe volcanic activity and frequent seismological activity, such as earthquakes, tremors and tsunamis. It is, therefore, possible that exploration and extraction activity levels may fall or cease completely as a result of such meteorological and/or geological factors.

The countries in which we operate are susceptible to seasonal rains and rainfall caused by tropical cyclones. Such rains, if heavy and sustained, could limit our mining operations and further hinder the supply of resources to such assets resulting in a material adverse effect on gold exploration during such periods.

Unscheduled interruptions in our operations due to mechanical or other failures or industrial relations related issues or problems or issues with the supply of goods or services may occur and could have a material adverse impact on the financial performance of those operations.

External perceptions of PNG and the Solomon Islands may adversely affect the market price of securities of companies operating in PNG and the Solomon Islands, including the Ordinary Shares, and increase our cost of capital.

External perceptions of PNG and the Solomon Islands with respect to political and economic instability and civil unrest may have an adverse effect on the market value of securities of issuers operating in PNG and the Solomon Islands, including the Ordinary Shares. This could adversely affect the market price of the Ordinary Shares, and could also make it more difficult for us to gain access to the capital markets and finance our operations in the future on acceptable terms or at all and otherwise have a material adverse effect on our business.

The legal systems of PNG and the Solomon Islands are less developed than those of other jurisdictions and may offer less certainty as to judicial outcome or less effective forms of redress.

PNG and the Solomon Islands have less developed legal systems than those of other jurisdictions, such as Australia, the United Kingdom, and the United States, which may result in risks such as:

 

 

potential difficulties in obtaining effective legal redress in the courts of PNG and/or the Solomon Islands, whether in respect of a breach of law or regulation, or in an ownership dispute;

 

 

a higher degree of discretion on the part of governmental authorities;

 

 

a lack of judicial or administrative guidance on interpreting applicable rules and regulations;

 

 

inconsistencies or conflicts between and within various laws, regulations, decrees, orders and resolutions; or

 

 

the relative inexperience of the judiciary and courts in such matters.

The commitments of local business people, government officials and agencies and the judicial system to abide by legal requirements and negotiated agreements may be more uncertain, creating particular concerns with respect to licenses and agreements for business. These may be susceptible to revision or cancellation and legal redress may be uncertain or delayed.

Civil unrest in PNG and/or the Solomon Islands may disrupt our operations in those territories.

There have been instances of civil unrest and insurrection within PNG and the Solomon Islands in the past. Although the Directors believe that the risk of future civil insurrection on Simberi Island, the Tabar Islands in general or on Guadalcanal Island is unlikely, there can be no assurance that the people of those regions will not disrupt operations at our mine sites in the future.

 

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Sporadic outbreaks of tribal fighting in PNG are a normal occurrence, especially near Port Moresby and in the Highlands Provinces (particularly the Southern and Western Highlands and Enga Provinces). There have also been outbreaks of violence and looting against local Asian-owned businesses in Port Moresby, Mount Hagen and several other population centers across PNG.

In late 1998, the Solomon Islands entered into a period of prolonged ethnic tension, known as the “tensions”. The tensions included a paramilitary coup in June 2000 and a change of government. Peace was brokered through what is known as the Townsville Peace Accord in October 2000. However, following the signing of the Peace Accord there was a breakdown in law and order accompanied by a severe economic recession. During this period many overseas investors withdrew from the Solomon Islands.

In July 2003, the Regional Assistance Mission to the Solomon Islands, or RAMSI, at the invitation of the SIG, intervened in the continuing tensions. RAMSI is led by Australia but has components from PNG and other pacific nations. Following the withdrawal of RAMSI there is a risk that the Solomon Islands could experience a renewed outbreak of ethnic violence and widespread lawlessness. If this were to happen, our operations at Gold Ridge may be disrupted.

Political instability in PNG and/or the Solomon Islands may disrupt our operations in those territories.

Our mining operations are subject to political, economic and other uncertainties, including the risk of civil rebellion, expropriation, nationalization, renegotiation or nullification of existing contracts, mining licenses and permits or other agreements, changes in laws or taxation policies, currency exchange restrictions, changing political conditions and international monetary fluctuations. Future PNG or Solomons Islands government actions concerning the economy or the operation and regulation of nationally important facilities such as mines could have a significant effect on the company. No assurances can be given that our operation will not be adversely affected by future developments in PNG or the Solomon Islands.

Fiscal and tax policy in PNG can be uncertain and subject to sudden changes. For example, the PNG government imposed and later replaced a 4% mining levy and 15% withholding tax on interest in 1998 and 1999. In addition to the PNG national government, PNG has a system of 19 provincial level governments, which are funded almost entirely by direct grants from the PNG national government. In the past, there have been disagreements between the PNG national government and the provincial level governments of PNG, primarily in relation to power sharing and revenue arrangements.

Land ownership disputes in PNG and/or the Solomon Islands may disrupt our operations in those territories.

Since 1978, the PNG government has maintained a policy of holding an equity participation option of up to 30% in mining projects located in PNG. This equity has been purchased on a historical or sunk cost basis. In 1992, the previous PNG government announced a decision to increase the PNG government’s equity interest in an existing gold project at Porgera and renegotiated that interest from 10% to 25%. Although the other joint venture partners in the Porgera project resisted this move, a price was ultimately negotiated and accepted by all parties. We are not aware of any current intention on the part of the PNG government to seek equity participation in our PNG projects. No assurance can be given that the PNG government will not seek to acquire equity in the Simberi or other Tabar Islands properties in the future. In the past the PNG government has taken equity only in major mining projects of national significance.

Approximately 97% of land in PNG is held under a land tenure system, the nature and terms of which vary considerably throughout the country. In general, land held under such tenure is almost entirely communally owned and cannot be alienated other than through being acquired by the State. The extent of land which has been acquired by the State is quite limited. Simberi Gold Company Limited, or SGCL, and Nord Australex Nominees (PNG) Limited hold two State Leases, a Mining Lease and an Exploration license. The land comprised in the State Leases has been acquired in the past by the State (or its predecessors) from the customary owners. Once the State has acquired land, the original customary ‘traditional’ landowners should have no further claims in respect of it and leases from the State over such land should be inviolable. However, at various times ‘traditional’ landowners have exercised considerable pressure by way of demands for additional compensation for land previously acquired by the State and legal challenges against the acquisition process. There have been isolated instances of threatened violence against holders of State leases. In 1993, the settlers growing oil palm on the Kavugara Land Settlement Scheme, which is about 40 kilometers from Kimbe on the Talasea Peninsula, were evacuated under threats of violence from the “traditional” landowners and most of the settlers left the area.

 

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Title to most land in PNG has not been recorded or registered and there has been little surveying. As a result, title to land (in Western legal terms) is often unclear. Disputes over land ownership are common, especially in the context of resource developments. Identifying all the affected landowners, and structuring compensation arrangements that are both fair and acceptable to all of them, can be difficult. We believe that the satisfactory resolution of local landowner concerns is essential to the development and operation of a mine in PNG and believe that we enjoy sound relationships with the affected landowners. We have always been committed to spending considerable time, effort and expense in order to resolve landowner issues relating to the Simberi operation, but there can be no assurance that disruptions arising out of landowner dissatisfaction will not occur.

As is the case in the United Kingdom, the PNG government has limited powers under various statutes to acquire private property compulsorily if it is required for public purposes. Furthermore, the PNG National Parliament, in exercise of its sovereign power, could enact legislation to expropriate specific private property. While there are constitutional protections against the unjust acquisition of property owned by PNG citizens, no such protection is afforded to foreign enterprises. The risk remains that this power could be exercised against us and there can be no assurance that any compensation would reflect what we considered to be the market value of the relevant assets.

As is the case in PNG, the vast majority of land in the Solomon Islands is held by tribes under various customary land tenure systems that can vary from province to province. Customary land disputes are common particularly where logging and other commercial operations are concerned. The land contained within the Gold Ridge Mining Lease is registered under the Land and Titles Act and, as a result, the owners of the registered interests or estates in the land have the protection afforded to them by the Land and Titles Act. However, no assurance can be given that complaints from landowners will not occur but, as stated above, we recognize the importance to the operation of maintaining good relationships with the affected landowners and of resolving issues that may, from time to time, arise.

 

ITEM 4. INFORMATION ON THE COMPANY

 

A. History and Development of the Company

Historically, our operations were comprised of the gold mining business of Allied Gold Limited and its subsidiaries. Allied Gold Limited was incorporated under the Australian Corporations Act as a public company limited by shares on May 26, 2003. Allied Gold Limited was listed on the Australian Stock Exchange on December 8, 2003, admitted for trading on the AIM, a market operated by the LSE, on May 2, 2006, and admitted for trading on the Toronto Stock Exchange on November 17, 2009. Allied Gold Limited was delisted following the Restructuring, and Allied Gold Mining PLC commenced trading on the Main Market of the LSE on June 30, 2011. Shares of Allied Gold Mining PLC were subsequently delisted following the Scheme of Arrangement, pursuant to which Allied Gold was acquired by St Barbara Limited. As of the date of this report, Allied Gold is 100% owned by St Barbara. Our registered office is located at Level 10, 432 St Kilda Road, Melbourne, Victoria 3004, Australia; telephone +61 3 8660 1900; facsimile +61 3 8660 1999.

Our major assets are:

 

 

Our 100% owned Simberi Project, which is located on Simberi Island, the northernmost island of the Tabar Islands Group, in the New Ireland Province of eastern PNG. We acquired our interest in the Simberi Project in November 2004.

 

 

Our 100% owned Gold Ridge Project, which is located on Guadalcanal Island in the Solomon Islands. We acquired our interest in the Gold Ridge Project as a consequence of our acquisition of 100% of Australian Solomons Gold Limited in the year ended June 30, 2010.

Detailed information about each of these projects is provided elsewhere in this report.

Company History

 

 

In 2006, an Optimized Feasibility Study, or OFS, and the Amendment to the OFS were completed, confirming that an economic and technically viable gold oxide mining project could be developed on Simberi Island. On the basis of these studies, we decided to proceed with mine development in 2006 and awarded contracts for the design and construction of a processing plant capable of processing 2.2 Mtpa on Simberi Island together with associated ancillaries including power, water, tailings disposal and infrastructure including a wharf and a camp.

 

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As a result of proceeding with our decision to mine, we concluded an agreement with Simberi in 2006 pursuant to which we purchased Simberi’s outstanding 12.5% free carried interest in the Simberi Project.

 

 

In March 2007, we commenced the operation of our landing barge “LCT Lady Geraldine”, minimizing delivery times for the delivery of materials to Simberi Island.

 

 

In May 2007, we received approval from the PNG Mineral Resources Authority to extend the term of ML 136 for an additional term of 10 years ending on December 2, 2018.

 

 

In July 2007, we put in place 170,000 ounces of hedging as part of our Simberi project financing. The majority of the hedging had been utilized or repaid prior to December 31, 2009 at which time 37,512 ounces of hedging remained. On February 26, 2010, Allied Gold Limited extinguished the last 37,512 ounces of its gold hedging program, giving the Group full price participation in all future production from the Simberi gold mine in PNG Guinea.

 

 

Dry commissioning activities of our processing plant commenced in December 2007. The Simberi Project commenced production in February 2008. In May 2008, we successfully commissioned our state of the art Ropecon® aerial rope conveyor.

 

 

In March 2008, we signed a letter of intent with Barrick (PNG) Exploration Ltd., a subsidiary of Barrick Gold Corporation, or Barrick, to enter into a A$20.0 million farm-in agreement with respect to Allied Gold’s exploration license on Tatau and Big Tabar Islands. At the time of entering into the Barrick Letter of Intent, Barrick subscribed for and purchased A$15.0 million of fully paid ordinary shares in Allied Gold at a price of A$0.85 per share. In March 2010, we negotiated Barrick (PNG)’s withdrawal from the joint venture agreement over Tatau and Big Tabar Islands and consequently reassumed management of exploration in the entire area of permit EL609.

 

 

In 2009, we announced an increase of 437,000 ounces to our ore reserve, extending the remaining mine life for the Simberi Project to over ten years.

 

 

In 2009, we commissioned a study to evaluate the process engineering options for the expansion of the existing Simberi oxide ore processing plant to a capacity of 3.5 Mtpa to increase production to 100,000 ounces per year, and also commenced a sulphide pre-feasibility study with a view to underpinning an expansion of our production profile by up to an additional 100,000 ounces per year. The expansion is expected to commence in June 2013.

 

 

In June 2009, we produced our 100,000th ounce of gold at the Simberi Project since commencing production.

 

 

On September 17, 2009, we announced our offer to acquire the shares of ASG. On February 23, 2010, Allied completed the compulsory acquisition of the ASG shares that it did not already own. As a consequence of this, Allied moved to 100% ownership of ASG and fully acquired Gold Ridge. ASG was delisted from the TSX at the close on January 28, 2010 and has ceased being a reporting issuer.

 

 

On November 12, 2009, Allied Gold Limited listed on the TSX as part of a successful capital raising completed during December 2009. A total of A$159 million was raised from existing and new institutional shareholders with Allied Gold Limited preserving its blue chip share register. The primary purpose of the funding was to redevelop the Gold Ridge mine in the Solomon Islands.

 

 

In December 2009, a controlled entity of Allied Gold Limited commenced legal action against Intermet Engineers (Pty) Ltd, or Intermet, and a director of Intermet in respect of breaches of a contract entered into between the controlled entity and Intermet whereby Intermet was contracted to design, procure and manage the construction of gold processing and related facilities for the Simberi Oxide Gold Project. As at the date of this report, the legal action with Intermet is in the process of being settled. The draft deed of settlement has been prepared, where Intermet will pay to us a sum of A$1,375,000 and we will pay Intermet a sum of A$325,000.

 

 

A$150 million refurbishment and redevelopment of the Gold Ridge project was approved and official ceremonies to mark the commencement of the redevelopment project were held in March 2010. An EPC lump sum contract for A$64.3 million was awarded to GR Engineering Services for refurbishment and expansion of the processing plant and ancillaries.

 

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In June 2010, we secured a US$35 million debt facility with the International Finance Corporation. The facility was drawn down in the September 2010 quarter. The 5-year facility had no principal repayments before November 2011 and no gold hedging required. Funds drawn down under the facility were applied to the funding of the redevelopment of the Gold Ridge Project.

 

 

In November 2010, having lain dormant for almost a decade, mining recommenced at two of the four open pit deposits at Gold Ridge. Following the A$150 million refurbishment, whereby the processing plant’s capacity was increased from 2.0 Mtpa to 2.5 Mtpa, first gold was poured in March 2011.

 

 

In April 2011, we successfully completed an equity fundraising, raising gross proceeds of A$93.8 million, which were applied to retire existing debt facilities, replace diesel fuel electricity generation at Simberi with heavy fuel oil, expand Simberi production, and provide working capital for exploration and other corporate purposes.

 

 

On June 30, 2011, Allied Gold Limited successfully implemented the Schemes of Arrangement whereby Allied Gold Mining PLC, a company incorporated in England and Wales, became the holding company of Allied Gold Limited and its subsidiaries. Under the Schemes of Arrangement, Allied Gold Limited’s shares and options on issue as of June 30 2011 were exchanged on a six for one basis for Allied Gold Mining PLC shares and options. Allied Gold Mining PLC was admitted to the Official List of the LSE and commenced trading on the LSE’s Main Market on June 30, 2011.

 

 

On December 30, 2011, we entered into a 3-year US$80 million hedge-free gold prepayment facility. The facility was drawn down on January 3, 2012 and was used to repay our US$55 million in financing facilities provided by the International Finance Corporation and the Bank of South Pacific with the balance of the funds providing substantial liquidity for the Group as we complete existing capital expenditure projects. The 3-year loan is repayable in physical gold and the number of ounces to be provided is linked to the prevailing gold price. The notional repayment obligation over the three years is 66,240 ounces with a reference price of US$1,500. There is no explicit interest rate stated in the facility due to the physical delivery mechanism of the loan and the monthly amortization of the outstanding balance. The minimum ounces repayable over the term of the facility (principal and interest) is 56,304 ounces and the maximum ounces repayable over the three year period is 76,176 ounces.

 

 

On June 29, 2012, St Barbara Limited announced an offer to acquire all of the shares in Allied Gold Mining PLC pursuant to a court-approved scheme of arrangement. The offer was recommended to shareholders of Allied Gold Mining PLC by its Board of Directors, or the Board, in the absence of a superior offer. On September 7, 2012, St Barbara Limited became the sole shareholder of Allied Gold Mining PLC and acquired the entire issued and to be issued ordinary share capital of Allied Gold for A$1.025 in cash and 0.8 St Barbara Limited ordinary shares for each Allied Gold share.

 

 

Following the acquisition by St Barbara Limited, Allied Gold Mining PLC delisted from the TSX on September 7, 2012, the LSE on September 10, 2012 and the ASX on October 9, 2012, and now operates under the name Allied Gold Mining Limited.

ASG Acquisition

On September 16, 2009, we announced a take-over bid, or the ASG Offer, to acquire all of the issued and outstanding ordinary shares, or the ASG Shares, of ASG on the basis of 0.85 of an ordinary share of Allied Gold for every one ASG Share. The ASG Offer was made pursuant to a take-over bid implementation agreement dated September 16, 2009 between Allied Gold and ASG.

On November 9, 2009, we announced that all of the conditions of the ASG Offer had been satisfied or waived and that we had taken up 63,694,013 ASG Shares deposited under the ASG Offer, representing 49.08% of the issued and outstanding ASG shares, in consideration for which we issued an aggregate of 54,139,911 ordinary shares of Allied Gold to the holders of such ASG Shares.

On November 25, 2009, we announced that at the annual general meeting of ASG on November 24, 2009, Mr. Mark Caruso, the Executive Chairman and Chief Executive Officer of Allied Gold, and Mr. Frank Terranova, the Chief Financial Officer of Allied Gold, had been elected to the board of directors of ASG. Mr. Peter Secker, an independent member of the board of ASG was re-elected as a director. Messrs Stephen Everett, John Bovard, Ian Burvill, T. Sean Harvey, and Hank Tuten withdrew their nominations for re-election as directors of ASG.

 

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On January 13, 2010, we issued compulsory acquisition notices to the remaining shareholders of ASG. The remaining shareholders had until February 13 to take action to challenge the compulsory acquisition of their shares. On February 23, 2010, we issued 4,022,832 of our own shares to complete the compulsory acquisition of the ASG shares that we did not already own. As a consequence of this, we moved to 100% ownership of ASG. All employee options, agent options and warrants issued by ASG had been forfeited or redeemed by February 28, 2010.

In total, Allied Gold Limited took up 129,811,607 ASG Shares deposited under the ASG Offer, representing 100% of the issued and outstanding ASG Shares, in consideration for which we issued an aggregate of 110,339,866 ordinary shares of Allied Gold to the holders of such ASG Shares.

ASG was delisted from the TSX at the close on January 28, 2010 following our successful take-over bid for ASG and ceased being a reporting issuer.

Detailed information regarding the accounting for the acquisition of ASG is provided in Note 31 to our consolidated financial statements for the three years ended June 30, 2011, 2010 and 2009.

Capital and Investment Expenditures

In the three-year period from July 1, 2009 to June 30, 2011, we have invested significantly in:

 

 

The development of the Simberi Project through the construction of mine related infrastructure, a gold oxide processing plant and expenditure on exploration activities that were focused on identifying and proving additional reserves and securing resources to support the ongoing development of the Simberi Project including the planned development of a sulphide plant.

 

 

The redevelopment of the Gold Ridge Project subsequent to our acquisition of ASG during the 2010 financial year.

The table below provides a summary of our principal capital expenditures over the three year period to June 30, 2011:

 

     Year Ended
June 30,  2009
AUD
     Year Ended
June 30,  2010
AUD
     Year Ended
June 30,  2011
AUD
 

Simberi Project

        

Expenditure on development of mine infrastructure and oxide processing plant, including purchases of plant and equipment

     23,452,353         24,848,186         7,617,981   

Exploration and evaluation expenditure

     708,957         9,544,311        
8,242,082
  

Gold Ridge Project

        

Expenditure on development of mine infrastructure and oxide processing plant, including purchases of plant and equipment

     —           34,251,367         129,043,758   

There were no significant divestitures of our assets during the three year period. As described in Item 4A above, during the year ended June 30, 2010 we acquired a 100% ownership interest in ASG through a public takeover offer.

 

B. Business Overview

 

1. General

The principal activities of Allied Gold in the three years ended June 30, 2011 were:

 

 

The mining, processing and exploration for gold through the development and commissioning of our wholly owned Simberi Project located in PNG.

 

 

The acquisition and redevelopment of our wholly owned Gold Ridge Project located on Guadalcanal Island in the Solomon Islands.

 

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2. Principal Markets in which the Company Competes

Our principal operating assets as of June 30, 2011 were a 100% ownership interest in the Simberi Project in PNG and the Gold Ridge Project in the Solomon Islands. Gold produced by these projects is sold in the international commodities markets.

 

3. Seasonality of the Company’s Main Business

Our main business of exploring for, producing and selling gold is not subject to significant seasonal variations.

 

4. Availability of Raw Materials

The raw materials used by us in the production of gold are primarily ore mined, chemical reagents such as cyanide, lime, caustic soda, hydrochloric acid and carbon, and diesel. Ore mined is sourced from Simberi Island and the Gold Ridge mine on Guadalcanal Island, reagents are sourced primarily from Australia and Europe, and diesel is purchased from PNG and Solomon Islands suppliers. We do not have in place long term supply contracts for our raw materials and, as such, the price paid for those materials is subject to market fluctuations. With the exception of diesel, prices of raw materials have not demonstrated significant price volatility. The raw material prices for diesel are determined based on the price of oil in international commodities markets and has demonstrated significant price volatility over the three year period ended June 30, 2011.

 

5. Description of Marketing Channels

We sell the gold we produce in the international commodities markets. Prior to February 26, 2010, gold available for sale was sold predominantly through either our existing hedge book at a fixed price of US$700 per ounce or at the prevailing spot price denominated in U.S. dollars. On February 26, 2010, we terminated our hedge book through the pre-delivery of physical gold into the outstanding hedge book. Subsequent to February 26, 2010, all gold sales were made at the prevailing spot price.

Historically, the counterparties for spot sales have been an Australian gold refinery or Australian financial institutions of good standing. Following the termination of our hedge book, we do not have in place any long term contracts for the sale of gold and sells primarily into the spot market.

 

6. Dependency on Patents, Licenses, Contracts of Processes

Our success and/or profitability is not dependent on any patents, licenses, contracts or processes.

 

7. Basis of Any Statements made by the Company Regarding its Competitive Position

We have not made any statements regarding our competitive position in this report.

 

8. Material Effects of Government Regulation on the Company

We are subject to the laws of the various jurisdictions in which we operates. The legal systems in PNG and Solomon Islands in which jurisdictions our principal assets are located, are less developed than the legal systems of Australia and the United States. The potential risks associated with the PNG and Solomon Islands legal systems are described in Item 3.D. of this report.

We have not experienced any material adverse effects arising from the operation of government regulation in any of the jurisdictions in which we operate.

 

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C. Organizational Structure

Allied Gold Limited is the parent entity of the Allied Gold Limited group of companies. Set out below is the corporate structure of the Allied Gold Limited group of companies as of June 30, 2011. Allied Gold Mining PLC, now Allied Gold Mining Limited, controls, directly or indirectly, 100% of the voting capital of all entities presented in the structure (which are incorporated under the laws of the jurisdictions noted below).

 

LOGO

 

D. Property, Plant and Equipment

Simberi Project

Area and Location

Allied Gold’s Simberi Project is located on Simberi Island in the Tabar Islands Group. The Tabar Islands are situated in the New Ireland Province of PNG at approximately latitude 2.5° South and longitude 152° East. The four sparsely inhabited islands of the Tabar Group are located 130 kilometers east of the capital city of New Ireland Province, Kavieng, and 80 kilometers north-west of the Lihir Island site of the world class Ladolan gold deposit. The southern-most island in the group, Tabar Island, lies approximately 30 kilometers north of mainland New Ireland. Simberi Island is the northern-most island of the Tabar Group and measures approximately ten kilometers east-west and eight kilometers north-south.

The Simberi Project comprises:

 

 

an open-pit mining operation with an associated gold processing plant, located within the 2,560 hectares Mining Lease ML136 on the eastern side of Simberi Island; and

 

 

a larger 69 graticular sub-block/233 km2 Exploration License, EL609, covering the remainder of Simberi Island and most of the adjacent Tatau and Big Tabar Islands to the south.

Title

The Simberi Project is operated by the Simberi Gold Company, a wholly owned subsidiary of Nord Pacific Limited which is, in turn, a wholly owned subsidiary of Allied Gold Limited.

Mining Leases, or MLs, in PNG are issued by the Mineral Resources Authority, or MRA, on behalf of the National Government. The ML conditions address surface rights such as lost land, trees, vegetation and surface water with compensation due to the lease owner. Alluvial gold rights belong to the citizens of PNG and the landowner.

 

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The lease was conferred on December 3, 1996 for a term of 12 years. On May 4, 2007 the MRA granted the Simberi Gold Company an extension on ML 136 for a term of ten years commencing December 3, 2008 and ending December 2, 2018.

The lease is subject to the following conditions:

 

 

The Lessee must follow an approved proposal. A proposal has been submitted and approved.

 

 

The Lessee must comply with the Mining (Safety) Act.

 

 

The Lessee must comply with conditions imposed by the Department of Environment and Conservation and by conditions set out by the Bureau of Water Resources.

 

 

The Lessee must provide the Department of Mining and Petroleum, now the MRA, with six monthly reports on exploration and monthly production figures.

 

 

The Lessee may not use the land without the consent of the State for other purposes than for which the Lease was granted.

 

 

The Lessee must not interfere with the cultural use of the land without permission and will accommodate traditional uses subject to efficient and safe mining practices.

 

 

The Lessee shall compensate the owners of private land which is located within the Mining Lease to a level at least within accordance of the Act.

 

 

The Lessee shall provide the Department of Mining and Petroleum with a Closure Plan and Schedule at least one year before shutdown.

 

 

The Lessee shall stockpile all topsoil, where practical, to be used for re-vegetation purposes.

 

 

The Lessee shall submit the open pit mine plan to the Chief Inspector of Mines six weeks before start of mining operations.

 

 

The Lessee shall submit to the Chief Inspector of Mines all mine plant plans and details, for the mine construction phase and later.

The conditions of the Approved Mining Proposal were:

 

 

That gold production should have commenced by December 31, 1998. This date was extended to December 31, 2006 and then again to June 3, 2008. First gold was poured in February 2008.

 

 

The Lessee shall provide an alternative water supply to any village whose normal water supply is impacted by the development. This condition has been addressed by the installation of rainwater tanks, piped spring water and bores installed with hand pumps in a number of the affected areas.

 

 

The Lessee shall maintain all drainage channels from the mining areas to minimize flood impacts on village areas.

Royalties

A Memorandum of Agreement dated November 21, 1996 details the relationship between the National Government, Provincial Government, Simberi Landowners Association, Tabar Community Government and Simberi Gold Company. Normally the holder of a Mining Lease must pay the PNG government a 2% royalty on the free-on-board value of the product if exported without smelting or refining.

However, under the Memorandum of Agreement, or MOA, all of the royalty is being returned to the landowners whereby 60% goes to Simberi Island, 15% each goes to Tabar and Tatau islanders and 10% to the Central New Ireland Local Level Government. The New Ireland Provincial Government has the right under the MOA to review the royalty distribution if the gold production exceeds 100,000 ounces in any one or more years.

 

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Environment

Historically, there has been no large scale mining and the previous alluvial workings have had no significant impact. There are no pre-existing environmental liabilities.

Prior to construction Simberi must implement an Environmental Management and Monitoring Program, or EMMP. Nord Pacific Limited submitted a draft EMMP in May 1999 and an amendment to the EMMP (now known as the EMP) addressing changes to the previous scope, prepared by Nord Pacific Limited’s consultants, was submitted in July 2003.

A baseline environmental survey was undertaken in June 2003 and two further supplementary environmental baseline studies were completed in March 2004 and December 2004. During the environmental baseline studies, a network of monitoring stations was established to support the ongoing collection of data.

A feasibility study conducted in 2005 addresses the environmental impacts associated with:

 

 

open cut mining operations and haul roads;

 

 

ore processing operations;

 

 

pipeline and power line corridors;

 

 

deep sea tailings placement; and

 

 

project infrastructure.

The mitigating engineering measures incorporated into the designs are also described.

The Simberi Project has the following objectives with respect to the environment:

 

Issue

  

Objective

Waste Dumps    Elimination of all waste dumps through adoption of bulk mining techniques at the Samat, Botlu and Pigiput deposits. Waste generation at the Sorowar and Pigibo deposits will be placed within the mining voids.
Open Pits    Progressive rehabilitation of the pits to minimize soil erosion and complete re-vegetation.
Pipelines    Provision of engineering safeguards in the design of pipelines.
Access/Haul Roads    Minimization of soil erosion and dust generation.
Processing Plant    Minimize dust generation from crusher and conveyors, containment of chemicals and reagents, comply with air quality and water quality regulations.
Stormwater    Stormwater management of open pits, mine infrastructure and processing plant, minimization of soil erosion, collection of runoff for use in processing in preference to other supplies, installation of silt curtains at mouth of streams most likely to be affected by the project where practical installation and operation can be obtained.
Deep Sea Tailings    Provision of a proven and accepted tailings disposal method, conservative design parameters and compliance with environmental permit conditions.

A letter on February 24, 2004 from the Acting Secretary for the Department of Environment and Conservation confirms that the Environmental Plan Approval for the Simberi Oxide Gold Project that was issued on December 30, 1996 under the Environmental Planning Act 1978 is valid and deemed to be an Environmental (Waste Discharge) Permit for the purposes of the Environment Act 2000.

 

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It also notes that the Department of Environment and Conservation is processing the amendment application which was submitted due to the changes in the mine plan and engineering concept.

A further update to the EMP was prepared and submitted in conjunction with the Optimized Feasibility Study and is under consideration by the Department of Environment and Conservation.

Required Permits

To commence mining in PNG the operator needs a granted Mining Lease and an Environmental Permit.

We hold Water Extraction Permit WE-L3 (15), issued and commencing December 30, 1996 and expiring December 31, 2053, allowing us to extract water from water sources within ML 136 for mining purposes. We also hold Mining Waste Discharge permit WD-L3(36), issued and commencing December 30, 1996 and expiring December 31, 2053.

As part of this process we were required to submit a waste management plan. This plan covers the management and disposal of domestic and industrial wastes.

Surface Rights

From the PNG Mining Act (1992) the granting of ML 136 to Allied confers the following rights:

 

1) A Mining Lease authorizes the holder, in accordance with the Mining (Safety) Act (Chapter l95A) and any conditions to which the mining lease is subject, to:

 

  a) enter and occupy the land over which the mining lease was granted for the purpose of mining the minerals on that land and carry on such operations and undertake such works as may be necessary or expedient for that purpose;

 

  b) construct a treatment plant on that land and treat any mineral derived from mining operations, whether on that land or elsewhere, and construct any other facilities required for treatment including waste dumps and tailings dams;

 

  c) take and remove rock, earth, soil and minerals from the land, with or without treatment;

 

  d) take and divert water situated on or flowing through such land and use it for any purpose necessary for his mining or treatment operations subject to and in accordance with the Water Resources Act (Chapter 205); and

 

  e) do all other things necessary or expedient for the undertaking of mining or treatment operations on that land.

 

2) Subject to the Act, the holder of a mining lease:

 

  a) is entitled to the exclusive occupancy for mining and mining purposes of the land in respect of which the mining lease was granted; and

 

  b) owns all minerals lawfully mined from that land.

The granting of EL609 to Allied confers the following rights:

 

1) An exploration license authorizes the holder, in accordance with any conditions to which it may be subject, to:

 

  a) enter and occupy the land which comprises the exploration license for the purpose of carrying out exploration for minerals on that land;

 

  b) subject to Section 162, extract, remove and dispose of such quantity of rock earth, soil or minerals as may be permitted by the approved program;

 

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  c) take and divert water situated on or flowing through such land and use it for any purpose necessary for his exploration activities subject to and in accordance with the provisions of the Water Resources Act (Chapter 205); and

 

  d) do all other things necessary or expedient for the undertaking of exploration on the land.

 

2) The holder of an exploration license is entitled to the exclusive occupancy for exploration purposes of the land in respect of which the exploration license was granted.

Access

Site personnel work rotating rosters and, as Simberi is not serviced by regular passenger services, charter flights are used to transport company personnel from various locations in PNG, including Port Moresby, Rabaul and Kavieng. A company-built airstrip, located at the southern end of Simberi Island, can accommodate aircraft up to the size of a Bombardier Dash 8 (18.6 tonne, 56 seat twin turboprop).

The company also operates a loading barge, the Lady Geraldine, ferrying bulk supplies to the island on a regular schedule from the mainland towns of Lae in Morobe Province and Rabaul in the New Britain Province. The Lady Geraldine’s capacity is supplemented, as required, by privately owned barges chartered from Lae and Rabaul.

The wharf, processing plant, offices and camp accommodation are located at Pigiput Bay on Simberi Island. Material is brought to the processing plant by either 40 tonne articulated dump trucks along the haul road or a suspended aerial conveying system. An island ring road provides access to all parts of the island and the many hamlets inhabited by the islanders along the coast.

With the exception of several small portions of land purchased by locals and two plantation leases held by Allied Gold, most of Simberi Island is held as communal land, owned by various clans. The mineral deposits relevant to this report occur on this communal land. Compensation agreements have been negotiated with each clan within the proposed mining area for loss and disruption caused by mining activities. Title to the deposits and mineralization rests with the National Government, which then grants rights to development through the issue of mining leases.

The two long term plantation leases, referred to as Pigiput and Pikung Plantations, are located within ML 136 on Simberi Island. Both leases are fully controlled by Allied Gold and valid for 99 years from the grant date (Pigiput, June 13, 1985 and Pikung, January 1, 1938). This land is not subject to communal claims from landowners.

The wharf, processing plant, offices and camp accommodation are all located within the 203 hectares Pigiput Plantation Lease and the project’s airstrip is located fully within the limits of the 140 hectares Pikung Plantation Lease.

Physiography

The Tabar Group islands are fringed by coral reefs and, with the exception of low-lying and sandy Mapua Island, have rugged and hilly interiors typically up to 300 meters in elevation on Simberi Island and up to 600 meters on Big Tabar Island. Flat coastal areas may extend up to several kilometers inland.

Simberi Island, where the known gold deposits occur, is approximately nine kilometers in diameter and comprises a central rugged volcanic core of Pliocene age which rises to over 300 meters in height. The volcanic core is flanked by Pliocene to Pleistocene raised limestone reefs. The reefs are surrounded by Quaternary deposits including lower level raised coral reefs, alluvium and present day fringing coral reefs.

The central part of Simberi Island is deeply dissected, a result of the prevailing high rainfall tropical climate, giving rise to sharp ridges and incised valleys. Features such as volcanic craters or caldera structures cannot be pinpointed with any degree of certainty.

The Pliocene to Pleistocene raised limestone reefs form a broken ring of bluffs around the outermost flanks of the central volcanic terrain. These limestone bluffs are topographic highs that rise to elevations of between 180 meters to 210 meters. The more recent Quaternary reef complexes and alluvial sediments form a flat lying coastal strip.

The vegetation of the Tabar Group of islands varies greatly. Coconut plantations grow notably on Simberi Island and village gardens are tended along the low-lying coastal fringe. Secondary and tertiary forest growth generally covers the hinterland and dense primary rainforest is more restricted to the interior.

 

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Climate

The Tabar Group is located approximately 3° south of the equator, making for a generally humid and wet environment. The islands, however, are not affected by tropical cyclones, being well north of the Southern Cyclone Belt that extends from 10°S to 20°S. Rainfall shows no real seasonal pattern and is distributed throughout the year with a not so distinct wetter period from October through to April. Mean annual rainfall is about 3,000 millimeters, with monthly totals typically varying from about 30 millimeters to 600 millimeters. This range is consistent with data collected at Lihir Island, 80 kilometers to the south-east. There is a no well-defined relationship between elevations, however rainfall can vary from the coast to the interior. Close to sea level, the winds are generally light; with monthly wind speed usually less than 5 knots. Two wind seasons occur during the year, and vary in duration from year to year. Generally, prevailing winds are from the south-east from May to October, while from November to April, they are mainly from the north-west.

History

There is evidence of very limited alluvial gold workings, probably dating from the 1920s, to the north of Sorowar in Matanabol Creek and at Tugi Tugi on Tatau Island.

Prior to systematic exploration being applied in 1981, earlier exploration consisted of reconnaissance surveys searching for copper by Conzinc Rio Tinto and Broken Hill Propriety Ltd.

Nord Pacific Limited acquired an exploration license over the Tabar Islands Group in 1981 at which time modern reconnaissance exploration on Simberi Island indentified gold mineralization. In 1982 a joint venture was established between Kennecott Exploration (Kennecott), Nord Resources and Niugini Mining Ltd, with Kennecott as the operator. The Tabar Joint Venture, Kennecott Explorations (Australia) Ltd (61.6%), Nord Pacific Limited (30%) and Niugini Mining Ltd (8.4%), was formed in 1982 to explore for gold mineralization in Prospecting Authority PA 609-1, on the Tabar Island Group.

Reconnaissance geochemical exploration and geological mapping by Kennecott identified anomalous gold over a large area of eastern Simberi Island. Within this area, there were several prospects with evidence of higher grade and coherent mineralization. These prospects were systematically aircore and diamond drilled between 1983 and 1990, initially testing both oxidized and sulphidic gold mineralization, but later concentrating on the oxide material with a view to testing the viability of a low-cost open-cut mining operation.

In 1993, Nord Pacific Limited re-acquired the interests of both Kennecott and Niugini Mining. Subsequently Nord Pacific Limited continued exploration and in 1996 commissioned a feasibility study. The study demonstrated favorable project economics and culminated in the grant of a Mining Lease (ML 136) to Nord Pacific Limited in December 1996. This study included a detailed review of deposit geology and mineralization, data acquisition methods, data validation and mineral resource estimation methodology. Resource estimates of the Sorowar, Pigiput, Samat South, Samat North and Samat East deposits were reported. The project became uneconomic with the decline in the gold price in early 1997.

In 1997, an extensive drilling program tested extensions to Sorowar and two additional deposits, Botlu and Pigibo. In 1998, the oxide resources at Sorowar were re-estimated using the larger drill database and new estimates were made for the Botlu and Pigibo deposits. The program was successful in almost doubling known resources but a desktop update of the feasibility study carried out in 1999 indicated that the low gold price still precluded development.

In 2002, Nord Pacific Limited entered into two joint ventures with PGM Ventures Corporation (PGM), a Canadian public company. The first venture was known as the Simberi Mining Joint Venture (SMJV) and covered development of the gold resources within ML 136. The second was Tabar Exploration Joint Venture and covered exploration within Exploration License 609 over the remaining areas in the Tabar Group.

The Simberi Oxide Gold Project is wholly contained within ML 136, which was issued in December 1996 to Simberi Gold Company Limited, a wholly owned PNG subsidiary of Nord Pacific Limited. In January 2003, PGM announced an agreement to vend its interest in the Simberi Project into another Canadian public company, Alive International Inc. This transaction resulted in Alive International becoming a 60% owned subsidiary of PGM.

On November 15, 2004, Allied Gold Limited entered into an agreement with Simberi Gold Corporation to acquire its interests in the Tabar Islands Gold Project. Under the terms of the Agreement, Allied Gold moved to an 87.5% interest (ML136) in the Simberi Mining Joint Venture, which was joint venture between Nord Pacific Limited and Simberi Gold Corporation, and a 100% interest in EL609 which covers the remainder of the Tabar Island Group. In

 

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October 2005, agreement was reached with Simberi Gold Corporation for Allied Gold to purchase the remaining 12.5% free carried interest in the Simberi Oxide Gold Project. Accordingly, Allied Gold now controls a 100% interest in ML136.

We also currently hold title to the 233 km2 Exploration License EL609 comprising three blocks A, B and C. EL609 Block A covers the remainder of Simberi Island not included in ML136. Blocks B and C cover the islands of Tatar and Tabar respectively.

Under the PNG Mining Act (1992), an Exploration License may be granted for up to two years and is renewable, subject to the holder reporting on and satisfying prescribed expenditure requirements on approved exploration activities. Documentation for the renewal of Exploration EL609 is currently under review by the PNG Mining Advisory Board. EL609 Blocks B and C were subject to a Letter of Intent, signed with Barrick (PNG) Exploration Ltd in March 2008, through till February 28, 2010 during which time Barrick (PNG) managed all exploration activity. We negotiated a deal allowing Barrick (PNG)’s withdrawal from the terms of the Letter of Intent and have since reassumed management of exploration in the entire area of permit EL609.

Geological setting

Simberi Island is the oldest and northernmost island of the Tabar Island group. It forms part of a silica-poor, potassium-rich alkaline volcanic Pliocene-Pleistocene island arc to the immediate north of New Ireland, PNG. This island arc includes the Lihir, Feni and Tanga Island groups that lie to the south-east of the Tabar Group.

The island arc was distorted by a complex underlying subduction system causing the islands to form along north-south tension gashes. It is inferred that these deep-seated structures have controlled the location of porphyry intrusives derived from re-melting of the oceanic crust following reversal of subduction coupled with epithermal alteration and associated mineralization.

Simberi Island itself is approximately nine kilometers in diameter and is the smallest of the three islands forming the Tabar Island Group. The rugged central part of the island contains volcanic and intrusive rocks in an area about six kilometers in diameter, rising to over 300 meters elevation. The volcanic edifice is partially encircled by raised bioclastic reefal limestone.

The interpreted geological history of the island is that of a volcano-intrusive center in an ocean island arc setting in which the alteration and epithermal gold mineralization, driven by porphyritic igneous bodies intruded below, was emplaced in the waning stages of volcanism.

The currently known gold prospects on Simberi Island are located in the eastern half of the island, within the central volcanic core and are contained within a sub-cropping epithermal alteration system extending 4 kilometers north-south and two kilometers east-west. The host rocks for the mineralization comprise altered andesitic lava flows or intrusives (porphyries), volcanoclastics and tuffs.

Mineralization

Gold mineralization does not appear to be closely associated with any particular lithology. Where recognized, the main primary control of gold mineralization is steeply dipping fracture systems, in places associated with milled breccia dykes (diatremes). Particularly high grades are associated with diatreme-country rock contact zones. Gold mineralization is generally associated with sulphides or iron oxides occurring within all variety of hydraulic fractures, such as simple fracture infills, single vein coatings and crackle brecciation in the more competent andesite units and broad disseminations in the naturally porous volcanoclastic rocks.

In the Oxidized zone, the gold is predominantly associated with iron oxides after sulphides, with higher grades occurring with rare vuggy and chalcedonic quartz.

The Sulphide zone mineralization includes refractory gold hosted by pyrite or marcasite and scarcer arsenopyrite at depth. Trace element analyzes indicate the pyrite is arsenean.

Exploration

The Tabar Island Group has been extensively explored by a number of operators since the discovery of in situ gold in 1981. Exploration in ML 136 is focused around the identified deposits of Sorowar, Pigiput, Pigibo, Botlu, Pigicow, Bekou and Samat. In addition to these, there are a number of smaller prospects yet to be properly defined. Exploration uses a combination of channel sampling, reverse circulation and diamond core drilling.

 

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In addition to ML 136, we also hold Exploration Lease 609 covering most of the rest of the Tabar Island Group. EL609 is also being actively explored.

Drilling

Simberi has been explored and developed using channel sampling, reverse circulation drilling and diamond core drilling. A summary of the drilling history is provided in the following table:

 

Deposit

   Number of Holes      Total Meters  

Adora

     37         2,407.92   

Bekou

     71         2,889.05   

Botlu

     163         14,233.15   

Kekenminda

     6         621.00   

Patan

     21         1,417.00   

Pigibo

     147         16,640.80   

Pigicow

     141         6,946.00   

Pigiput

     329         55,438.34   

Plant

     43         1,322.30   

Samat

     429         29,234.05   

Sorowar

     696         69,444.85   
  

 

 

    

 

 

 

Total

     2,083         200,594.46   
  

 

 

    

 

 

 

In addition to drilling, various operators have undertaken surface channel sampling. A total of 14,804 samples, each representing approximately five meters of channel, were collected and analyzed and the results stored in the Allied database. The samples have an average grade of 0.52 g/t Au. Some of the channel sampling were used in the estimation of resources done by Minstat Pty Ltd (Botlu and Samat). No channel samples were used in the estimation of Sorowar, Pigiput, Pigibo, Pigicow or Bekou.

Mining

The current mine plan consists of the open pit mining of oxide deposits. The Samat oxide pits have been depleted. Ore is currently being extracted principally from the Sorowar pit.

The Simberi mining operation is a conventional load and haul operation using a mixed fleet of owner equipment. Ore from the Sorowar pit is transported to the processing plant by an aerial conveying system, whereas ore from other deposits are delivered to the processing plant by haul truck. As of June 30, 2011, just over 100,00 tonnes of ore per month is being mined.

Processing

The processing plant was commissioned in February 2008 and was designed to treat a nominal 2.0 Mtpa of ore and produce approximately 75,000 ounces per annum of gold. The processing plant is a conventional carbon-in-leach system, whereby ore is drawn through a mineral sizer onto a conveyor, which transports the ore into a scrubbing and ball-mill circuit. The resulting process slurry then gravitates down a six tank carbon-in-leach circuit for leaching and absorption of gold. Conventional gold recovery is effectuated through carbon stripping and electrowinning, with the electrowinning and smelting taking place in a separate, purpose-built gold room. Tailings material is pumped to a tailing mix tank before gravitating into the ocean through a deep sea tailings placement system.

We have commenced a debottlenecking program of work to increase processing plant capacity and improve recovery. This includes investigating the feasibility of increasing the capacity of our operation to treat 3.5 Mtpa. Sensitivity analysis has been run to test NPV against gold price, head grade, capital cost and operating cost for each throughput case.

 

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Expansion and Development Plans

Oxide expansion

During the 2012 calendar year, we expect to undertake incremental expansion of the processing plant to lift processing capacity to 3.5 Mtpa, to increase gold production to approximately 100,000 ounces per annum. A SAG Mill has been ordered and is being shipped to the site. Contracts for two additional leach tanks have been awarded, and a tendering for a tailings thickener has been completed. At 3.5 Mtpa the Simberi oxide circuit will treat 34.5 million tonnes at a grade of 1.02 g/t Au with a process recovery of ~90% producing one Moz over approximately ten years. Further potential for significant oxide tonnages has been identified around the existing Sorowar and Pigibo deposits. The western side of Simberi island will also undergo exploration for suspected covered (ash) gold mineralized targets over the next 12 to 18 months. The company has made allowance for future expansion of the oxide plant up to 5.0 Mtpa design pending definition of additional oxide reserves.

Sulphide pre-feasibility

During the twelve months ended June 30, 2011, exploration drilling and work was undertaken as part of pre-feasibility study to mine the significant sulphide ore reserves at Simberi. In September 2010, we announced the key findings of the study which point to an additional 100,000 ounces per annum decade-long production. The indicative capital cost (including contingency) of a sulphide circuit is US$200 million (+/- 20%) with a single stage roaster treating 1.5 Mtpa at an ore grade of 2.4 g/t Au.

A formal investment decision will be subject to a bankable feasibility study due in the 2012 calendar year followed by a two year development timeframe. This takes into account a minimum three to five years to process the significant existing Pigiput oxide cap before accessing the first tonnages of sulphide ores and to allow 12 to 18 months of exploration at the Sorowar, Samat and Botlu oxide pits which have not been subject to intense drilling for sulphides. Identification of additional resources provides an opportunity to optimize the sulphide roaster and oxide processing plant and correctly scale throughput for the next 10 to 15 years.

Planned exploration activities

While Simberi has sufficient oxide resources for the next decade, opportunities exist to increase both the oxide and sulphide resources. In the year ending June 30, 2012, we plan to undertake the following exploration activities in relation to the Simberi Project:

 

 

We budgeted A$8 million to undertake 20,000 meters of diamond core and 40,000 meters of reverse circulation drilling on Simberi Island. This drilling will target pit edge oxides at the Sorowar deposit and underlying sulphide mineralization at Pigiput and Sorowar, as well as testing the possible link between the Samat North and Samat East deposits.

 

 

On Tatau Island a number of areas of have been highlighted for exploration in the year ahead including Mt Letam, Mt Tiro, Siro, Pepewo and Talik. Drilling is expected to commence at Mt Letam in the December quarter of 2010.

 

 

The Banesa prospect remains under explored and an IP geophysical survey is planned to help determine the next round of targets.

Gold Ridge Project

Area

The Gold Ridge Project is located on Guadalcanal, one of the five larger islands that comprise the South Pacific Nation of Solomon Islands. The project, located at Latitude 9º 35’ south, Longitude 160º 08’ east (UTM coordinates 8,935,000N – 618,000E), lies approximately 30 kilometers south east of the capital Honiara.

Gold Ridge consists of a Mining Lease (No. 1/1997) that covers an area of 30 km2 and surrounding this is a Special Prospecting license (SPL 194) that covers an area of 130 km2.

 

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Ownership

The Mining Lease was granted on March 12, 1997 and is valid for 25 years, with an option to renew for a further 10 years under the Mines and Minerals Act 1990. The Mining Lease is administered via a mining agreement signed on March 7, 1997 between the SIG, GRML, Ross Mining (Solomon Islands) Limited and Ross Mining N.L. This agreement was then assigned to ASG under an assignment agreement signed between the SIG and ASG dated May 12, 2005.

The Prospecting License was initially granted on September 21, 1995 for a period of three years and expired on September 21, 1998. This was subsequently renewed for two years with minor relinquishments and would have expired by September 21, 2000. This license can be renewed (subject to surface access rights agreements being entered into with landowners) for a further two years once the force majeure currently in force is lifted.

Additionally, there are four separate MOUs signed with the following groups, the Guadalcanal Province, The Ngalimbiu Community, the Obo Community and the Chavuchavu Tribe.

ASG acquired the property under an agreement with the American Home Insurance Company dated December 20, 2004, whereby ASG acquired the assets of JV Mine (Australia) Pty Ltd, which controlled the assets of GRML. In turn, we acquired Gold Ridge through our acquisition of ASG in February 2010.

Significant agreements

There are six agreements relating to the Gold Ridge Mine, which are listed below.

 

Agreement

  

Parties to the agreement

  

Comments

Gold Ridge Mining Agreement Solomon Islands, March 7, 1997    SIG, Ross Mining (Solomon Islands) Limited, GRML and Ross Mining N.L.    Main enabling agreement, Defines royalties, financial, mining and environmental obligations
Agreement Relating to the Development of the Gold Ridge Mine between Ross Mining (Solomon Islands) Limited and GRML and Gold Ridge Community and Landowners Council, October 4, 1996    Ross Mining (SI) Limited, GRML and Gold Ridge Community and Landowners Council    An agreement covering aspects of the relocation exercise and compensation to affected landowners.
Agreement Relating to the Development of the Gold Ridge Mine Between the Government of Solomon Islands and the Gold Ridge Community and Landowners Council, October 4, 1996    SIG and Gold Ridge Community and Landowners Council    An agreement covering aspects of the relocation village, royalty distribution and distribution formula.
Assignment Agreement for Gold Ridge Mining Agreement Solomon Islands, May 12, 2005    SIG, Ross Mining (Solomon Islands) Limited and GRML and Solomon Islands Mining N.L. (formerly Ross Mining N.L.) and Australian Solomons Gold Pty Ltd.    An agreement assigning the main enabling agreement to Australian Solomons Gold Pty Ltd.
Agreement between GRML and the Kolobisi Tailings Dam Association, May 31, 2006    GRML and Kolobisi Tailings Dam Association    An agreement covering additional compensation and social infrastructure benefits to the landowners of the tailings dam area.
Agreement between GRML and the Metapono Downstream Association, May 31, 2006    GRML and Metapono Downstream Association    An agreement covering additional compensation and social infrastructure benefits to the landowners of the downstream communities.
Agreement Between GRML and Gold Ridge Community and Landowners Council, May 31, 2006    GRML and Gold Ridge Community and Landowners Council    An agreement covering additional compensation, relocation housing benefits and social infrastructure benefits to the landowners of the Gold Ridge area.

 

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The following is a summary of the main terms of the Gold Ridge Mining Agreement:

 

 

Gross Royalty Payment of 1.5% on all production, of which 1.2% is held by the landowners and 0.3% is held by the Guadalcanal Provincial Government.

 

 

Export duty of 1.5% of gross value of all production payable to the SIG.

 

 

Corporate Income Tax – not to exceed 35%. Standard deductions apply.

 

 

Additional Profits Tax of 30% on net cash receipts (gross income less income tax and exploration, development, and production expenses) that are greater than a 25% rate of return.

Mineralization

Gold mineralization at Gold Ridge is related mainly to alteration and veining and to a lesser extent lithology. Early quartz-pyrite-gold mineralization is overprinted by later carbonate-base metal sulphide-gold and epithermal quartz-gold-arsenic mineralization. The Gold Ridge deposits are quartz and arsenic poor relative to typical low sulphidation epithermal systems. Sulphide mineralogy is dominated by pyrite-marcasite with progressively lesser amounts of arsenopyrite, sphalerite, galena and chalcopyrite. Gold appears to be present as electrum in association with pyrite; coarse gold is common, particularly in oxide zones and has often been observed in quartz-carbonate veins particularly where base metal sulphides are present. Veins are not usually abundant even within gold mineralized zones and generally of millimeter scale up to one or two centimeters. Very rarely, multi-phase veins of ten centimeter thickness or greater have been observed.

Of the controls on mineralization, alteration relationships are the most significant; high intensity alteration usually correlates with strong mineralization. Most of the economic gold mineralization relates to argillic alteration associated with pervasive low order silica-pyrite occurrences. High grade mineralization is most frequently observed in zones of strong silica-pyrite and intense argillic alteration. Unaltered, or weakly propylitic altered zones are seldom economically mineralized.

Although alteration assemblages are similar throughout Gold Ridge, the relative abundance and intensity of alteration is different for each deposit. Valehaichichi hosts the most intense and concentrated argillic and silica-pyrite alteration. Propylitic alteration survived at Kupers and Dawsons where argillic and silica-pyrite alteration is less intense.

Primary porosity of shallow dipping, clast supported lithologies was an important factor in the lateral dispersion of gold mineralizing fluids away from subvertical, narrow fissures that provided the conduits. A combination of compressional and strike-slip deformation produced most of the moderate to shallow dipping fractures and veins. Shallow dipping lithological controls as well as moderate to shallow dipping fractures and veins combine to impart a strong subhorizontal distribution to gold mineralization.

Near surface supergene mineralization style is characterised by strongly kaolinitic and often strongly ferruginous saprolite or highly weathered volcaniclastics. With increasing depth, iron oxides are restricted to fracture coatings. Lower limits of oxidation extend up to 40 meters (vertical depth) within fracture zones. The thickness of the supergene enriched zone usually varies from 0 to 20 meters.

Pervasive propylitic alteration is characterised by a chlorite-quartz-carbonate assemblage. Hornblende is altered to dark green chlorite with minor quartz and calcite, while plagioclase changes to a fine mixture of smectite and chlorite. Quartz occurs in the ground mass within areas of chlorite-carbonate alteration, together with common grains of unaltered primary magnetite.

Argillic alteration within the GRV is characterised by pervasive carbonate-micaceous clay (illite-smectite)-pyrite+titanite ranging to micaceous clay + carbonate-pyrite assemblages. Argillic alteration overprinted the earlier and more widespread propylitic alteration event. Argillic alteration is host to narrow alteration zones of strongly developed

 

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micaceous clay ± kaolinite-pyrite, kaolinite-pyrite-silica, kaolinite-micaceous clay, and kaolinite carbonate. These zones often host higher gold grades as do veinlets of carbonate-pyrite and quartz-carbonate-sulphide. Abundant kaolinite frequently forms part of the argillic-carbonate alteration assemblage or with carbonate and pyrite as narrow, intensively altered zones. Pyrite usually takes the form of coarse euhedral grains or aggregations disseminated throughout the micaceous clay altered volcaniclastics.

Silica-pyrite alteration within the GRV is a quartz-illite-pyrite-carbonate mineral assemblage. Silica-pyrite alteration usually occurs as matrix infill in conjunction with the formation of dark grey reaction rims around adjacent clasts. Matrix replacement by semi-massive pyrite and kaolinite occurs in some areas of intense silica-pyrite alteration.

Permits Required

The Gold Ridge Project was fully permitted and operated for 22 months until its closure in June 2000. As part of the project acquisition by ASG, the SIG agreed to hold all permits in suspension pending recommencement of operations. Accordingly, we commenced operations under the same permits and approvals as were originally granted, including a Mining Lease that still has 22 years to run and with a further 10 year extension available. ASG also had a Special Prospecting license (SPL 194) surrounding the Mining Lease.

The Gold Ridge Project has an existing TSF. Once the water currently captured is discharged, the TSF will have sufficient capacity for approximately four years’ operation. The cost of expansion, to provide sufficient capacity for over seven years’ operation is allowed for in the estimate of sustaining capital. The geotechnical stability of the TSF has been independently assessed and remains stable in all aspects.

Access

Gold Ridge is linked to Honiara by 40 kilometers of road. The road, to the east of Honiara, crosses several low capacity bridges (maximum 20 tonnes), before turning due south, on to the project road. Heavy construction equipment will need to be landed on the beach at Tetere Bay, to avoid these bridges and the access road will be upgraded substantially. The project includes a fuel storage site located on the coast at Tetere Bay, some 20 kilometers north of the project.

Honiara has a fully serviced international airport and deep sea port, both legacies of the American occupation during the Second World War. The airline Air Freight flies twice weekly to Brisbane, Australia.

Climate and Physiography

The mine area is located on the lower northern slopes of Mount Chaunapaho in the central ranges of Guadalcanal Island. The project area is extremely rugged, with very steep gradients and is heavily forested. The area has a north-south aspect and an approximate average elevation of 550 meters. The gold deposits are situated in the Chovohio and Charivungo river catchments in the headwaters of the Matepono River. Both these rivers have steep gradients with a combined catchment area of 17.4 km2 above their confluence. The river system falls from 1200 meters (Chovohio) and 800 meters (Charivungo) to the sea in 20 kilometers.

The climate is hot and humid with a temperature range of 22°C to 33°C with relative humidity between 72 and 92%. There is little seasonal variation in temperature but the period from November to March generally experiences higher humidity and rainfall. The only long term Meteorological records available for Guadalcanal are from Henderson Airport about 20 kilometers from the mine. It is estimated that the area near the processing plant and open pits near the Gold Ridge summit receives about 2.4 times more rainfall than Henderson Airport. This indicates an average annual rainfall at site of 4,100 millimeters. Rainfall is typically intense, causing rapid and significant surface runoff.

Before the development of the Gold Ridge Mine, the mine area had been extensively disturbed by humans through subsistence gardening, logging, gold panning and settlement. Heavy logging in the Chovohio River catchment occurred in 1974 and again during the last few years up to 1997.

History

In 1568, the Spanish explorer, Sr Alvaro de Mendana recorded the presence of alluvial gold at the mouth of the Matepono River, downstream from the Gold Ridge area. Gold was again discovered in the Gold Ridge catchment in 1931 by the Botanist, Kajewski, in the Matepono and Balasuna rivers and some of their tributaries. Gold was traced to soils and bedrock at Gold Ridge in 1936 by H.J. Ault who identified deposits of alluvial and eluvial gold in the gullies and hillsides.

 

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In 1939, a prospecting license was granted to the Balasuna Syndicate who constructed numerous pits, adits and hydraulic sluicing systems at Gold Ridge until all operations were halted by the Japanese invasion in 1942. Attempts to restart the operation after the war ended were unsuccessful and the Balasuna Syndicate lease lapsed in 1949.

During the period from 1950 to 1972, regional and prospect mapping and sampling was carried out by the British Solomon Islands Geological Survey in a number of field campaigns. This work identified the Gold Ridge area as hosting epithermal style gold mineralization.

CRA Exploration Ltd (CRAE) was granted a Prospecting License in 1974 following a tender process. Work carried out by CRAE included re-sampling of old trenches and pits and also involved augering and detailed mapping of mineralized areas. Five diamond drill holes totalling 496 meters were completed but resulted in low tenor gold grades considered too limited to support a mining operation. Following the withdrawal of CRAE the SIG renewed calls for tenders for exploration of Gold Ridge in 1982.

Amoco Minerals Solomons Ltd successfully tendered for Gold Ridge SPL130 in 1983 and completed almost 3,000 meters of diamond drilling. Cyprus Minerals Solomons Ltd farmed into the project and finally purchased 100% from Amoco in 1985. In the following year they drilled over 10,000 meters of diamond drilling for gold mineralization in previously defined and new soil auger geochemical anomalies. Cyprus entered into a joint venture with Arimco NL in August 1986 completing close to 43,000 meters of drilling in the following four years. Two feasibility studies were commissioned by the joint venture, one in 1990, the other in 1992, with some 56,000 meters of drilling data available in the assay database. Gold Resources were estimated using only diamond drilling results (about 32,000 meters or 57% of the available data) and at relatively high cut off grades (up to 1.5 g/t Au). Contained gold in these estimates ranged between 300,000-500,000 ounces, well below the deposits real potential due to overly conservative assumptions. The joint venture pulled out of the project in 1992 having spent in excess of US$13 million.

Gold Ridge was again tendered by the SIG in 1994 with Saracen Minerals Ltd being the successful bidder. Saracen recalculated the gold resources using a cut-off grade of 1.0 g/t Au and estimated a resource of close to one million of ounces gold.

Saracen sold their entire metals property portfolio, which included gold prospects in Australia, Vanuatu and Solomon Islands (Gold Ridge) to Ross Mining in March 1995 after deciding to refocus on their core business, petroleum exploration.

At the time of the Ross Mining purchase the project was held entirely as Customary Land, a complex system of collective ownership, by the Bahomea people of Gold Ridge. Access and other agreements shortly after acquisition enabled the evaluation of Gold Ridge Special Prospecting License 185. In June 1995 an evaluation program commenced that included diamond core and reverse circulation drilling and a metallurgical appraisal of the Gold Ridge ore types. After a cumulative total of about 32,000 meters of drilling, a feasibility study was completed in 1996. Construction of the 2.0 Mtpa open cut mine started in 1997 with mining commencing in August 1998.

The project was shut down in June 2000 as a result of escalating civil unrest on the Solomon Islands. During the 22 months that the mine was actively operating, the total gold production amounted to approximately 210,000 ounces.

One month prior to shutdown, Delta Gold Pty Ltd took over Ross Mining, and was the legal owner at the time of shutdown. Subsequently Delta merged with Goldfields to form Aurion Gold, which was taken over by Placer Dome Asia Pacific. Eventually the ownership of the project passed on to American Home Insurance Group when the political risk insurance money was paid out.

In 2004, the project was tendered by American Home Insurance Group. The tender was won by ASG, a consortium of private investors, in November 2004.

In February 2010, Allied Gold Limited acquired 100% ownership of the Gold Ridge Project through its acquisition of ASG. An A$150 million refurbishment and expansion was undertaken, increasing the capacity of the existing processing plant from 2.0 Mtpa to 2.5 Mtpa. First gold was produced from the refurbished plant in March 2011.

 

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Geological Setting

The Solomon Islands form part of the Circum-Pacific “Ring of Fire” containing active volcanoes and are located above an active subduction zone. Gold Ridge is located within the central part of Guadalcanal Island which lies between the North Solomon Plate and the San Cristobal Trench. Rock-types occurring on Guadalcanal range from ultramafic to diorite intrusives, felsic to mafic and marine sedimentary rocks to fluvial sediments.

The Gold Ridge deposits are hosted by the Lower Pliocene Gold Ridge Volcanics (GRV) — a distinctive, 800 meters thick, shallow dipping volcaniclastic facies at the base of the more widely distributed Toni Formation. The GRV are restricted to a small fault-bounded basin at a stepover in the Melango-Chovohio structure, which is an arc-normal fault interpreted to have formed as a transfer fault structure. The shape, position and structural setting of the GRV suggest it formed as a pull-apart basin above a jog in the Melango-Chovohio transfer structure during strike-slip reactivation.

The abundance of andesite clasts in the GRV indicates proximity to a now buried and eroded andesitic volcanic centre. The GRV facies consist mainly of conglomeratic material, clastic breccias and minor amounts of inter-bedded siltstones and gritty sandstones, in a series of poorly defined, upward fining cycles of volcaniclastic debris. The sequence is poorly sorted and characterized by lateral and vertical facies variations.

Overall, the GRV sequences are not significantly disrupted by faulting. Surface mapping and core orientation measurements have been interpreted as indicating broad, open folding caused by compressional tectonics.

The four Gold Ridge deposits are low-sulphidation intrusion related epithermal gold deposits and as such display many similarities with other Pacific Rim intrusion related epithermal gold deposits. Other examples of this type of deposit include Waihi in the north Island of New Zealand, the Lihir Gold deposit on Lihir Island in PNG and the Las Crucitas Gold deposit in Costa Rica.

The Gold Ridge deposits are typical low sulphidation epithermal gold in style. The four currently defined deposits from south to north (Dawsons, Kupers, Namachamata and Valehaichichi) stretch over approximately five km2 astride the north-northeast to northeast trending Melango Fault.

A substantial part of the resource at Gold Ridge occurs within the supergene zone of the deposit. Higher grade gold mineralization is directly related to quartz-carbonate vein in-fill and associated clay-pyrite-silica alteration. Silicification intensity at Gold Ridge is weak and is associated with only minor quartz veining. The deposits are open at depth and potential exists for copper-gold porphyry style mineralization below epithermal deposits.

Exploration

At Gold Ridge, exploration core drilling commenced in April 2011. Drilling is initially targeting the Charivunga Mineralized Zone, between the Namachamata and Kupers deposits, where previous operators produced significant down hole intercepts in core holes. Work is progressing on haul road access to Kupers pit. Resettlement housing is due for completion in the December 2011 quarter which will result in the entire mine area cleared by the end of the 2011 calendar year.

Mining

The current mine plan consists of the open pit mining of four oxide deposits named, north to south, Valehaichichi, Namachamata, Kupers and Dawsons.

Similar to Simberi, the Gold Ridge mining operation is a conventional drill, blast load and haul operation using a mixed fleet of owner equipment. The mine fleet consists mainly of 40 tonne to 75 tonne articulated dump trucks loaded by 85 tonne and 100 tonne excavators. The ore is transported to the run-of-mine stockpile located at the processing plant. Having lain dormant for almost a decade, mining recommenced at two of the four pits during November 2010.

Processing

Following the A$150 million refurbishment, whereby the processing plant’s capacity was increased from 2.0 Mtpa to 2.5 Mtpa, first gold was poured in March 2011. As with Simberi, the processing plant is a conventional carbon-in-leach system.

 

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Mined ore is loaded into the front end of the processing plant from the run-of-mine stockpile and fed via an apron feeder into a vibrating scalpel screen, which then separates the ore into two size fractions. Oversized material reports to a single toggle jaw crusher. Scalped (undersized) material and crushed material feed into a single SAG mill via a 950 meter overland conveyor. The SAG mill operates in closed circuit with a classification circuit. A portion of the coarse product from the classification circuit is bled off into a single concentrator for recovery of gold through the associated gravity circuit. Finely ground ore reports directly into two carbon-in-leach circuits, with each circuit consisting of five tanks for leach and adsorption. Carbon is extracted from the front tanks for elution and carbon re-generation. Gold Ridge utilizes a thickener in the circuits to obtain return water, thus reducing reliance on fresh water for processing purposes. Conventional electrowinning and smelting take place in a separate, designated gold room. The tailings from the gold recovery process gravitate to a tailings storage facility located approximately four kilometers way.

Ore Reserves as of June 30, 2011

For the purposes of this report, estimates of ore reserves have been prepared in accordance with the SEC’s Industry Guide 7 under the Securities Act and the following definitions:

 

 

An “Ore Reserve” means that part of a mineral deposit that can be economically and legally extracted or produced at the time of the reserves determination. To establish this, studies appropriate to the type of mineral deposit involved have been carried out to estimate the quantity, grade and value of the ore mineral(s) present. In addition, technical studies have been completed to determine realistic assumptions for the extraction of the minerals including estimates of mining, processing, economic, marketing, legal, environmental, social and governmental factors. The degree of these studies is sufficient to demonstrate the technical and economic feasibility of the project and depends on whether or not the project is an extension of an existing project or operation. The estimates of minerals to be produced include allowances for ore losses and the treatment of un-mineralized materials which may occur as part of the mining and processing activities. Ore Reserves are sub-divided in order of increasing confidence into Probable Ore Reserves and Proven Ore Reserves as defined below.

 

 

The term “economically”, as used in the definition of reserves, implies that profitable extraction or production under defined investment assumptions has been established through the creation of a mining plan, processing plan and cash flow model. The assumptions made must be reasonable, including costs and operating conditions that will prevail during the life of the project.

 

 

Ore reserves presented in accordance with SEC Industry Guide 7 do not exceed the quantities that, it is estimated, could be extracted economically if future prices were to be in line with the average of historical prices for the three years to June 30, 2011, or contracted prices where applicable. For this purpose, contracted prices are applied only to future sales volumes for which the price is predetermined by an existing contract; and the average of historical prices is applied to expected sales volumes in excess of such amounts. Moreover, reported ore reserve estimates have not been increased above the levels expected to be economic based on our own long term price assumptions.

 

 

The term “legally”, as used in the definition of reserves, does not imply that all permits needed for mining and processing have been obtained or that other legal issues have been completely resolved. However, for reserves to exist, there is reasonable assurance of the issuance of these permits or resolution of legal issues. Reasonable assurance means that, based on applicable laws and regulations, the issuance of permits or resolution of legal issues necessary for mining and processing at a particular deposit will be accomplished in the ordinary course and in a timeframe consistent with our current mine plans.

 

 

The term “proven reserves” means reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling; and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well established. Proven reserves represent that part of an ore body for which there exists the highest level of confidence in data regarding its geology, physical characteristics, chemical composition and probable processing requirements.

 

 

The term “probable reserves” means reserves for which quantity and grade and/or quality are computed from information similar to that used for proven reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation. This means that probable reserves generally have a wider drill hole spacing than for proven reserves.

 

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The amount of proven and probable reserves shown below does not necessarily represent the amount of material currently scheduled for extraction, because the amount scheduled for extraction may be derived from a life of mine plan predicated on prices and other assumptions which are different to those used in the life of mine plan prepared in accordance with Industry Guide 7.

 

 

The estimated ore reserve figures in the following tables are as of January 1, 2011. Metric units are used throughout. The figures used to calculate Allied Gold’s reserves are often more precise than the rounded numbers shown in the tables, hence small differences might result if the calculations are repeated using the tabulated figures.

Simberi Ore Reserves

The focus for much of the 2009 and 2010 calendar years was upon drilling associated with defining ore reserves for the Simberi sulphide pre-feasibility study. A total of 86 diamond drill holes for 21,100 meters and 29 reverse circulation holes for 5,000 meters were drilled during the 2009 and 2010 calendar years.

Most of the activity was focused at Pigiput/Pigibo, where 65 holes were drilled predominantly in sets of multiple radiating holes due to topographical constraints.

In September 2010, we announced an approximate 155% increase in Proven and Probable Reserves at Simberi to 2.13 Moz; of this, the gold contained in oxide/transitional ores and sulphide ore is almost evenly split.

 

Simberi Ore Reserves (as of January 1, 2011)

 
     Mt      g/t Au      koz1  

Proven

     11.64         1.06         395   

Probable

     33.20         1.61         1,716   
  

 

 

    

 

 

    

 

 

 

Total Reserves

     44.84         1.46         2,112   
  

 

 

    

 

 

    

 

 

 

 

1 

“koz” = thousand ounces

Gold Ridge Ore Reserves

In July 2010, we announced a 135 koz increase in Gold Ridge reserves extending the life of the mine by at least a year, to a minimum of nine years. These additional reserves resulted from the application of a higher hold price and refinement of the resource model. Accordingly, the new ore reserves stand at 1.28 Moz (23.2 Mt at 17.1 g/t Au).

 

Gold Ridge Ore Reserves (as of January 1, 2011)

 
     Mt      g/t Au      koz  

Proven

     —           —           —     

Probable

     23.2         1.71         1,275   
  

 

 

    

 

 

    

 

 

 

Total Reserves

     23.2         1.71         1,275   
  

 

 

    

 

 

    

 

 

 

 

ITEM 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

 

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

A Operating Results

Twelve months ended June 30, 2011 as compared to the previous twelve months ended June 30, 2010

The tables below summarize the key financial and operating statistics for Allied Gold’s mining and processing activities for the twelve months ended June 30, 2011, the 2011 Year, as compared to the twelve months ended June 30, 2010, the 2010 Year:

 

Key financial statistic (AUD)

   2011 Year     2010 Year  

Sales revenue

     84,391,962        67,555,369   

Gross margin/(loss)

     15,553,593        (2,734,171

Corporate expenses

     (13,494,850     (14,773,680

Share based remuneration

     1,203,840        (6,828,559

Financial expenses

     (2,096,967     (5,996,122

Other expenses /(income)

     5,441,513        40,561,347   
  

 

 

   

 

 

 

Profit/(loss) for the period

     6,607,129        10,228,815   
  

 

 

   

 

 

 

 

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Key financial statistic (AUD)

   2011 Year     2010 Year  

Cashflow from operations

     21,202,522        (20,509,398

Cashflow from investing activities

     (159,308,907     (63,800,604

Cashflow from financing activities

     132,559,482        148,677,057   
  

 

 

   

 

 

 

Net cash inflows/(outflows)

     (5,546,903     64,367,055   
  

 

 

   

 

 

 

 

Key operating statistic

   Unit of measure    2011 Year      2010 Year  

Simberi

        

Waste mined

   tonnes      2,033,355         634,296   

Ore mined

   tonnes      2,278,664         1,981,500   

Ore processed

   tonnes      2,085,626         1,949,650   

Grade

   g/t Au      1.11         1.18   

Recovery

   %      89.2         87.9   

Gold produced

   ounces      66,125         64,327   

Gold sold

   ounces      64,595         63,980   

Gold Ridge

        

Waste mined

   tonnes      1,655,917         —     

Ore mined

   tonnes      460,321         —     

Ore processed

   tonnes      471,676         —     

Grade

   g/t Au      1.21         —     

Recovery

   %      64.6         —     

Gold produced

   ounces      12,074         —     

Gold sold

   ounces      6,276         —     

Allied Gold reported revenue of A$84.4 million and a net profit after tax of A$6.6 million compared with revenue of A$67.6 million and a net profit of A$10.2 million for the year ended June 30, 2010.

The results for the 2011 Year as compared to 2010 Year reflect the following:

 

   

Gold sales of 64,595 ounces in the 2011 Year were at an average realized price of A$1,384 per ounce compared to gold sales of 63,980 ounces in the 2010 Year, which were at an average realized price of A$1,136 per ounce. The increased revenue for the 2011 Year reflects this higher average realized gold price.

 

   

Cost of sales of A$68.8 million for the 2011 Year equates to A$776 per ounce of gold sold compared to the 2010 Year costs of sales of A$70.3 million, or A$823 per ounce. Other variance relates to increases resulting from fuel and power generation expenditure, which related to higher world crude oil prices and additional depreciation and amortisation reflecting the investment by the Group in plant property and equipment, including mobile equipment under finance leases.

 

     2011 Year     2010 Year  
Cost of sales comprise:    (AUD)  

Employee expenses

     10,100,882        8,455,037   

Stores and other consumables

     11,036,200        11,350,294   

Fuel, power and water

     11,080,325        8,952,548   

Maintenance

     8,249,501        9,298,148   

Other

     17,104,936        15,593,304   
  

 

 

   

 

 

 
     57,571,844        53,649,331   

Depreciation and amortisation charges

     16,188,206        13,087,125   

Changes in inventories and work in progress

     (6,933,617     1,900,873   
  

 

 

   

 

 

 
     66,826,433        68,637,329   

Royalties

     2,011,936        1,652,211   
  

 

 

   

 

 

 
     68,838,369        70,289,540   
  

 

 

   

 

 

 

 

   

The 2010 Year results include A$36.6 million as a gain on acquisition in relation to the purchase of ASG. ASG was the ultimate parent entity of the group that owned the Gold Ridge project prior to purchase by Allied Gold Limited. This was offset by a higher financial expense of A$5.9 million in the 2010 Year compared to A$2.1 million in the 2011 Year relating to A$2.9 million of finance leases which were terminated in the 2010 Year.

 

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Twelve months ended June 30, 2010 as compared to the previous twelve months ended June 30, 2009

The tables below summarize the key financial and operating statistics for Allied Gold’s mining and processing activities for the 2010 Year as compared to the twelve months ended June 30, 2009, the 2009 Year:

 

Key financial statistic (AUD)

   2010 Year     2009  Year
(restated)
 

Sales revenue

     67,555,369        77,467,668   

Gross margin

     (2,734,171     11,031,019   

Corporate expenses

     (14,773,680     (7,545,907

Share based remuneration

     (6,828,559     (4,130,120

Financial expenses

     (5,996,122     (3,396,437

Other expenses /(income)

     40,561,347        5,340,236   
  

 

 

   

 

 

 

Profit/(loss) for the period

     10,228,815        (7,071,651
  

 

 

   

 

 

 

 

Key financial statistic (AUD)

   2010 Year     2009  Year
(restated)
 

Cashflow from operations

     (20,509,398     21,563,200   

Cashflow from investing activities

     (63,800,604     (24,402,510

Cashflow from financing activities

     148,677,057        22,963,380   
  

 

 

   

 

 

 

Net cashflow

     64,367,055        20,124,070   
  

 

 

   

 

 

 

 

Key operating statistic

   Unit of measure    2010 Year      2009 Year  

Simberi

        

Waste mined

   tonnes      634,296         199,746   

Ore mined

   tonnes      1,981,500         1,708,765   

Ore processed

   tonnes      1,949,650         1,654,149   

Grade

   g/t Au      1.18         1.64   

Recovery

   %      87.9         83.2   

Gold produced

   ounces      64,327         72,609   

Gold sold

   ounces      63,980         69,886   

Allied Gold reported revenue of A$67,555,369 and a net profit of A$10,228,815 or 1.31 cents per share for the 2010 Year, compared with revenue of A$77,467,668 and a net loss of A$(7,071,651) or (1.65) cents per share for the 2009 Year. The prior period loss of A$(7,071,651) has been restated for the effect of a change in accounting policy in relation to cashflow hedges. The change in policy resulted from a change in accounting standards. The nature and impact of the change in accounting policy is more fully described in Note 3(j) to the financial statements.

The results for the 2010 Year as compared to the 2009 Year reflect the following:

 

 

Gold production of 64,327 ounces in the 2010 Year represented a decrease of approximately 18% compared to gold production of 72,609 ounces in the 2009 Year. The lower level of production was due to a number of factors including:

 

   

Thirteen lost days of production as a result of an illegal cease work order which directly impacted gold production in December 2009 and January 2010 and eight days lost production resulting from a structural mechanical failure of Scrubber Trommel processing equipment at the Simberi operations during the March 2010 quarter.

 

   

The results for the 2010 Year as compared to the 2009 Year also reflect a lower level of production due to unseasonal weather conditions which directly impacted production. During the first quarter of the 2010 Year, abnormally high rainfall limited gold production due to the inability to sequentially access the Sorowar mining area in accordance with the budgeted mine plan which resulted in the delivery of an overall lower run of mine head grade of 1.03 g/t Au to the processing plant. As previously disclosed, mitigation strategies have been initiated to counter the impact of excessive rainfall in future periods.

 

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Gold sales of 63,980 ounces in the 2010 Year were at an average realized price of A$1,136 per ounce (US$999 per ounce) before hedge related accounting adjustments and represented a decrease of approximately 8% from gold sales of 69,886 ounces in the 2009 Year which were at an average realized price of A$1,086 per ounce (US$783 per ounce). Revenue from gold sales decreased by A$9,912,299 or approximately 13% due primarily to the lower volume of gold sold.

 

 

While mining and processing volumes for the 2010 Year exceeded the volumes achieved in the 2009 Year, lower mine head grade of 1.18 g/t Au in the 2010 Year compared to 1.64 g/t Au in the 2009 Year resulted in lower gold being produced from a higher processing plant throughput. The improved mining and processing throughput was principally as a result of our ongoing debottlenecking and optimization initiatives. Management continues to assess and adjust mine planning and mining fleet requirements going forward. In particular, additional mining equipment has been mobilized to site to allow for a more flexible utilization and concentration of mining equipment during periods of dry weather, and all weather access roads to Sorowar and Pigiput mining areas are being constructed.

 

 

As a direct consequence of achieving nameplate activity, but at a reduced head grade, the lower gold production had an adverse impact on cash costs. In particular, costs increased to A$823 per ounce (US$701 per ounce) for the 2010 Year, compared to A$651 per ounce (US$490 per ounce) for the 2009 Year. As production returns to normalized levels, a corresponding reduction in costs will occur throughout future periods.

 

 

An increase in corporate expenses from A$7,545,907 in the 2009 Year to A$14,773,680 in the 2010 Year. The increase in corporate expenses during this period was primarily the result of expenditure of approximately A$1.8 million incurred in relation to the acquisition of ASG which we were required to expense through the income statement pursuant to a change in accounting standards that became operative from July 1, 2009. In addition, corporate costs for the 2010 Year reflect the establishment of the corporate support and infrastructure necessary to support the expanded Group following the acquisition of ASG and the implementation of proposed capital expansion projects following the successful capital raising. During the 2010 Year costs, including legal costs, were incurred in relation to the Intermet litigation and in relation to the listing of Allied Gold Limited on the TSX.

 

 

In the 2010 Year, we recorded a gain of A$36,666,786 in relation to the acquisition of ASG. This gain represents the excess of the fair value of net assets acquired over the consideration paid by us to complete the acquisition. Our accounting for the acquisition is considered in more detail elsewhere in this analysis.

 

 

In the 2010 Year we incurred share based remuneration expense of A$6,828,559 in relation to options issued to Directors and employees compared to A$4,130,120 in the 2009 Year.

 

 

During the 2010 Year we realized gains of A$1,006,313 on the sale of shareholdings in listed companies. In the 2009 Year, we recorded an impairment loss of A$1,214,402 in relation to shareholdings in various listed companies, the value of which had declined significantly following a general decline in global equity markets during that period.

 

 

Included in finance costs for the 2010 Year is a loss of A$2,891,037 on the termination of a finance lease that had been entered into with Minesite Constructions, a related party. The loss represents the difference between the amount paid to extinguish the liability under the agreement and the carrying value of the liability at the time of the termination of the agreement.

 

 

Pursuant to a US$25 million financing facility we utilized for the construction of the Simberi Project, we were required by our lenders to enter into a hedging program to provide comfort to our lenders of the cash flows going forward. Subsequently in March 2009, Allied Gold repaid the entire project financing facility. In February 2010 we settled our remaining hedge obligations totaling 37,512 ounces of gold through the pre delivery of gold into those hedging contracts. The payback for the retirement of the hedge book is approximately 6 months based on current gold prices. For accounting purposes the “Effective Hedge” component of the mark to market amounting to US$9.5 million is recorded in the Hedge Reserve in equity and will remain in equity and be recognized when the forecast transactions that they were hedging are recognized in the income statement. The “Ineffective Hedge” component of the mark to market per the above table had been recognized directly in the income statement progressively up to, and including, February 26, 2010.

 

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The Effective Hedge component of the mark to market will be amortized to the income statement over the following timeframe:

 

Quarter ending

   Hedging loss to be amortized to income statement
US$
 

March 31, 2010

     2,292,734   

June 30, 2010

     2,347,902   

September 30, 2010

     2,738,137   

December 31, 2010

     2,167,794   
  

 

 

 
     9,546,567   
  

 

 

 

 

 

In the 2010 Year, Allied Gold reported a net increase in cash and cash equivalents of A$64,995,412 compared to a net increase of A$20,124,070 in cash and cash equivalents in the 2009 Year. The increased cash flow generation in the 2010 Year was primarily due to:

 

   

Proceeds from equity raisings of A$149,609,605 (net of capital raising costs) in the 2010 Year compared to A$39,808,621 in the 2009 Year.

 

   

Cash used by operating activities of A$(20,509,398) in the 2010 Year compared to cash generated from operating activities of A$21,563,200 in the 2009 Year due to:

 

   

Lower realized AUD gold revenue in the 2010 Year due to lower volumes of gold sold as identified above.

 

   

Increased cash costs incurred per ounce of production due to lower head grades in the 2010 Year.

 

   

During the 2010 Year we made net payments of A$(17,826,546) relating to the close out of our gold hedging commitments; in the 2009 Year we generated cash of A$5,122,882 from a restructuring of our hedge book.

 

   

A significant increase in corporate costs during the 2010 Year as discussed above.

 

   

Cash used by investing activities increased from A$(24,402,510) in the 2009 Year to A$(63,800,604) in the 2010 Year due primarily to:

 

   

Expenditure of A$52,105,472 on property, plant and equipment in relation to (i) debottlenecking and optimization initiatives on Simberi Island of A$4.2 million (ii) A$5.4 million on the upgrade of the Simberi mobile equipment fleet (iii) other capital Simberi capital expenditure of A$8.3 million and (iv) capital expenditure on the Gold Ridge redevelopment project of A$34.2 million including A$19.1 million for the purchase of mobile equipment.

 

   

During the 2010 Year exploration and evaluation expenditure totaling A$(9,544,311) was incurred compared to A$(708,957) in the 2009 Year. Expenditure in the 2010 Year includes payment of a A$2,500,000 deposit on the purchase of Barrick’s interest and A$7.1 on the ongoing Sulphide Feasibility Study being undertaken on Simberi Island.

 

   

Expenditure of A$(6,915,672) was incurred during the year on development expenditure compared to A$(7,205,878) in the 2009 Year. This expenditure related primarily to activities undertaken on ML136 on Simberi.

 

B Liquidity and capital resources

Cash position as of June 30, 2011

Our cash position as of June 30, 2011 was A$78,101,134 in available cash and cash equivalents, compared with A$85,525,391 as of June 30, 2010. The increase was as a result of the equity raising undertaken by us in April 2011. We intend to use the remaining net proceeds from the equity raising for the redevelopment of the Gold Ridge Project in the Solomon Islands which we acquired through our acquisition of ASG and the planned expansion of the Simberi Project to an annual processing capacity of 3.5 Mtpa from the current 2.0 Mtpa.

 

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Finance Activities, Liquidity and Capital Resources

Cash and cash flows for the twelve months ended June 30, 2011 as compared to the previous twelve months ended June 30, 2010.

We reported a net decrease in cash and cash equivalents of A$5.5 million compared to a net increase in cash and cash equivalents of A$64.4 million in the previous twelve months ended June 30, 2010. The cash movements during this period were primarily due to:

 

 

Cash generated from operating activities of A$21.2 million compared to cash outflow in the previous twelve months ended June 30, 2010 of A$20.5 million attributed to:

 

   

Receipts from gold sales were A$23.9 million higher due to:

 

   

higher average gold price realized; and

 

   

realized hedge losses relating to the previous twelve months ended June 30, 2010 of A$17.8 million relating to the close out of our gold hedging commitments.

 

 

Proceeds from equity raisings of A$93.8 million and proceeds from borrowings of A$49 million compared to A$159.5 million in the previous twelve months ended June 30, 2010.

 

 

Cash used by investing activities increased from A$63.8 million in the previous twelve months ended June 30, 2010 to A$159.3 million in the current period due primarily to capital expenditure on property, plant and equipment in relation to Gold Ridge Project.

 

C Research and development, patents and licenses etc.

Not applicable.

 

D Trend information

Not applicable.

 

E Off balance sheet arrangements

Not applicable.

 

F Tabular disclosure of contractual obligations

Set out below are the remaining contractual maturities of our contractual obligations as of June 30, 2011:

 

     Total      Less than
1 year
     1 to 2 years      2 to 5 years      More than
5 years
 

Borrowings

     41,914,196         41,914,196            —           —     

Finance lease liabilities

     22,340,680         9,734,737         8,410,146         4,195,797      

Operating lease obligations

     3,143,172         1,529,330         1,613,842         —           —     

Purchase obligations

     22,411,747         22,411,747         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     89,809,795         75,590,010         10,023,988         4,195,797         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

A. Directors and Senior Management

On September 7, 2012, St Barbara completed its acquisition of Allied Gold, at which time all board members and senior management of Allied Gold resigned, and a board nominated by St Barbara was appointed.

 

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Directors

The following table sets out the names of the directors and senior management of Allied Gold, positions held by them with the Company, the date on which they commenced their positions, and the date of expiry of their terms. The table also indicates changes in key management personnel of the Company as a consequence of its acquisition by St Barbara.

 

Name

  

Position

   Appointed    Term Expired

 

Timothy J. Lehany

  

 

Managing Director &

Chief Executive Officer

  

 

September 7, 2012

  

 

(1)

Garth Campbell-Cowan    Executive Director & Chief Financial Officer    September 7, 2012    (1)
Ross Kennedy    Executive Director & Executive General Manager – Corporate Services and Company Secretary    September 7, 2012    (1)
Mark V. Caruso(2)   

Executive Chairman &

Chief Executive Officer

(Allied Gold Limited)

   May 26, 2003    June 30, 2011
Frank Terranova(2)   

Executive Director &

Chief Financial Officer

(Allied Gold Limited)

   December 10, 2009    June 30, 2011
Anthony Lowrie(3)    Non-Executive Director    March 9, 2007    September 7, 2012
Montague House(3)(4)    Non-Executive Director    March 4, 2009    September 7, 2012
T. Sean Harvey    Non-Executive Director    March 11, 2010    September 7, 2012

Notes:

 

(1) 

Each director’s term of office expires at the later of the third annual general meeting of shareholders of Allied Gold Mining PLC or three years following that director’s last election or appointment. One third of the directors must retire at each annual general meeting. Retiring directors are eligible for re-election.

(2) 

Mr. Mark V. Caruso was appointed Non-Executive Chairman on June 30, 2011, with his term expiring on September 7, 2012. Mr. Frank Terranova was appointed Managing Director and Chief Executive Officer on June 30, 2011, with his term expiring on September 7, 2012.

(3) 

Member of the Remuneration and Nomination Committee as of June 30, 2011.

(4) 

Member of the Audit, Compliance and Risk Committee as of June 30, 2011.

Biographical information for each member of the Board of Directors, including their principal occupations for the last five years, is set forth below.

Mr. Timothy J. Lehany was appointed Managing Director and Chief Executive Officer on September 7, 2012. Mr. Lehany is a mining engineer with over 25 years of extensive operating experience with a number of mining companies, including Newcrest Mining Ltd and WMC Ltd. His roles covered gold, base metal and nickel mines. Immediately prior to his joining St Barbara Limited in 2009, Mr. Lehany was Executive General Manager Operations at Newcrest Mining Ltd for ten years. Mr. Lehany is a Member of the Australian Institute of Mining and Metallurgy.

Mr. Garth Campbell-Cowan was appointed Executive Director and Chief Financial Officer of Allied Gold Mining PLC on September 7, 2012. With over 25 years’ experience, Mr. Campbell-Cowan is responsible for finance, treasury, taxation, reporting and business analysis, corporate planning and capital management. He has repositioned the finance team to focus on developing financial reporting systems and controls to assist with our growth. He has also established a treasury function. Prior to joining St Barbara in 2006, he was Director of Corporate Accounting at Telstra and has held finance leadership roles with WMC and Newcrest Mining.

Mr. Ross J. Kennedy was appointed Executive Director and Company Secretary on September 7, 2012. Mr. Kennedy has more than 25 years’ experience as a public company secretary and has held a number of public company directorships in resources and technology companies. He has extensive experience in corporate management, including risk management, corporate governance, finance, accounting, commercial negotiations, takeovers, legal contracts, land management, human resources, statutory compliance and public reporting. Mr. Kennedy joined St Barbara in 2004, and currently serves as the Executive General Manager of Corporate Services and Company Secretary

 

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Mr. Mark V. Caruso was Director and Executive Chairman of Allied Gold Limited from May 26, 2003 to September 7, 2012 (with the exception of a period between January 2008 and October 2008, during which Mr. Caruso resigned his position as Chief Executive Officer as Allied Gold appointed another individual to that position; following this individual’s resignation in October 2008, Mr. Caruso resumed the position of Chief Executive Officer of the Company). Mr. Caruso has also served as Managing Director of Mine Site Construction Services since February 1991 and as a director and Chief Executive Officer of Mineral Commodities from September 2000 until May 2009. Mr. Caruso is also a director of Simto Australia Pty Ltd. which is involved in mining, earthmoving, and civil engineering construction earthworks. Former directorships of public listed companies in the last three years are CI Resources Limited (October 2003 until May 2007) and ORT Limited (August 2003 until August 2005).

Mr. Frank Terranova was Director and Chief Financial Officer of Allied Gold Limited from May 2008 to September 7, 2012. He is a chartered accountant with extensive experience in corporate finance and financial risk management predominantly within the mining and manufacturing industries. He has held many positions with various ASX-listed corporations. From November 2007 until April 2008, Mr. Terranova was a self-employed finance consultant. He served as Chief Financial Officer of Queensland Cotton Limited from December 2004 until October 2007. From October 2002 until December 2004, Mr. Terranova served as a consultant to Novabank Pty Ltd., and prior thereto he was treasurer of Normandy Mining/Newmont (Australia) from April 2000 until October 2002.

Mr. Anthony Lowrie was Non-Executive Director of Allied Gold Limited from March 9, 2007 to September 7, 2012. Mr. Lowrie has considerable corporate and finance experience. He was Chairman of ABN AMRO Asia Securities Limited having originally been a partner of Hoare Govett Ltd, which he joined in 1973. Mr. Lowrie is currently a director of Kenmare Resources PLC and the Edinburgh Dragon Trust Ltd. His former directorships include JD Wetherspoon PLC, ABN AMRO Bank Limited, Dragon Oil plc, Quadrise Fuels International Ltd. and the Thai Euro Fund. Mr. Lowrie was a member of the Remuneration and Nomination Committee.

Mr. Montague House was Non-Executive Director of Allied Gold Limited from March 4, 2009 to September 7, 2012. Mr. House is a member of the Australian Institute of Company Directors and was previously a Member of Parliament in Western Australia from February 1986 until February 2005. Mr. House was elected as Deputy Leader of the National Party in 1988. He is also the Chairman of Landcorp Western Australia and a director of Latent Petroleum. He is a former Chairman of Landgate Western Australia. Mr. House was a member of the Audit, Compliance and Risk Committee and Chairman of the Remuneration and Nomination Committee.

Mr. T. Sean Harvey was Non-Executive Director of Allied Gold Limited from March 11, 2010 to September 7, 2012. Mr. Harvey has over 11 years investment banking and merchant banking experience, primarily focused on the mining sector. For the last ten years, he has held senior executive and board positions with various mining companies. He is currently Non-Executive Chairman of Andina Minerals Inc. and Victoria Gold Corporation and Non-Executive Director of Perseus Mining Limited and Polaris Geothermal Inc. Mr. Harvey was formerly Non-Executive Director of Moto Goldmines Limited and Nord Resources Corp. Mr. Harvey was the Chairman of the Audit, Risk and Compliance Committee.

Senior Management

Biographical information for each member of Allied Gold management, other than for Mr. Tim Lehany, Mr. Garth Campbell-Cowan, Mr. Ross Kennedy, Mr. Mark Caruso and Mr. Frank Terranova, whose biographical information is set out above, is set forth below. No member of our management is subject to a non-competition or non-disclosure agreement with the Company.

On September 7, 2012, St Barbara Limited completed its acquisition of Allied Gold Mining PLC, at which time all senior management of Allied Gold Mining PLC resigned, and were replaced by Mr. Tim Lehany, Mr. Garth Campbell-Cowan and Mr. Ross Kennedy.

Mr. Peter Torre was Company Secretary of Allied Gold Limited until September 7, 2012. Mr. Torre is the principal of the corporate advisory firm Torre Corporate, which provides corporate secretarial services to a range of listed companies. Prior to establishing Torre Corporate in July 2003, Mr. Torre was a partner of an internationally affiliated firm of Chartered Accountants working within its Corporate Services Division for over nine years where he also held the position of Chairman of the National Corporate Services Committee. Mr. Torre holds a Bachelor of Business, is a Chartered Accountant, a Chartered Secretary and is a member of the Institute of Company Directors.

Mr. Ross Hastings was Manager of Resource and Development of Allied Gold Limited until September 7, 2012. Mr. Hastings is a geologist with over 20 years international experience working in the minerals industry with a majority

 

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of that time working in PNG, at Ok Tedi copper mine in the roles of Geotechnical Superintendent and the Manager Mining, and at the Misima gold mine as Chief Geologist. Since 1996, Mr. Hastings has been involved in the Simberi Project where his roles have included management of exploration and the feasibility and pre-development studies for mine construction.

Mr. Peter DuPlessis was Manager of Simberi Operations of Allied Gold Limited until September 7, 2012. Mr. DuPlessis is a qualified Mine Surveyor and Mine Manager with over 35 years’ experience in deep and shallow mining. Mr. DuPlessis has held senior management positions at a number of mining companies.

 

B. Compensation

Details regarding the compensation arrangements for our directors and members of our administrative, supervisory or management bodies are set out under the following main headings:

 

 

Principles used to determine the nature and amount of remuneration

 

 

Details of remuneration

 

 

Service Agreements

 

 

Share-based compensation

 

 

Additional Information

The information provided under these sections has been audited as required by section 308(3C) of the Corporations Act 2001.

Principles used to determine the nature and amount of remuneration

The objective of our remuneration framework is to attract and retain executives of sufficient calibre to facilitate the efficient and effective management of our operations and to ensure that executive remuneration is competitive and appropriate for the results delivered. The Board reviews the remuneration packages of all directors and executive officers on an annual basis and makes recommendations regarding the structure and value of those packages.

Remuneration packages are reviewed with due regard to competitiveness, performance, alignment with shareholders’ interests, capital management and other relevant factors. The remuneration framework provides a mix of fixed and at risk compensation.

The remuneration framework is aligned to shareholders’ interests through:

 

 

incentive payments, having as a core component growth in shareholder wealth, through growth in share price;

 

 

incentive payments focusing on the production of gold, a key non-financial driver of economic profit; and

 

 

attracting and retaining high calibre executives.

The Board has established a Remuneration and Nomination Committee which provides advice on remuneration and incentive policies and practices and specific recommendations on remuneration packages and other terms of employment for executive directors, other senior executives and Non-Executive Directors. The executive directors are not present for any discussions relating to determination of their own remuneration.

Non-executive directors

Fees payable to Non-Executive Directors reflect the demands which are made on, and the responsibilities of, the individual director. Non-executive directors’ fees and payments are reviewed annually by the Board. During the period one non-executive director received share options in accordance with a resolution approved by shareholders at the company’s Annual General Meeting held on November 11, 2009.

 

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The current base remuneration for non-executive directors of A$80,000 per annum was last reviewed with effect from January 1, 2010. Directors receive an additional A$10,000 per annum for each Board sub-committee on which they serve as Chairman. Other directors serving on Board sub-committees receive an additional A$5,000 per annum for each sub-committee to which they are appointed. Current sub-committees of the Board are the Audit, Risk and Compliance Committee and the Remuneration and Nominations Committee.

Non-executive directors’ fees are determined within an aggregate directors’ fee pool limit. The fee pool limit for the current year of A$500,000 was approved by shareholders at the Annual General Meeting on November 28, 2008. On June 30, 2011 the fee pool limited was superseded by the constitution of the new holding company of Allied Gold Limited and its subsidiaries, Allied Gold Mining PLC. The new pool limit allows for aggregate fees of GBP£2 million.

Executive pay

Executives are offered a competitive base pay that consists of fixed components plus incentive payments that are payable at the Board’s discretion. Base pay for senior executives is reviewed annually to ensure each executive’s pay is competitive with the market.

The executive remuneration framework has three components:

 

 

base pay and benefits, including superannuation;

 

 

short term cash based incentives available to nominated executives based on KPIs and by board discretion; and

 

 

long term incentives through participation in the Employee Option Plan.

Base pay

Total base pay, including superannuation, can be structured as a total employment package which may be delivered as a combination of cash and prescribed non-financial benefits at the individual executive’s discretion. Base pay for executives is reviewed annually to ensure market competitiveness or any change in the executive’s role and responsibilities. There are no guaranteed base pay increases included in any executive remuneration contracts.

Employee Option Plan

The Allied Gold Limited employee option plan was re-approved by shareholders at the Annual General Meeting on November 28, 2008. The plan is designed to provide long term incentives for senior employees to deliver long term shareholder returns.

On June 30, 2011, Allied Gold Limited successfully implemented the Schemes of Arrangement whereby Allied Gold Mining PLC, a company incorporated in England and Wales, became the holding company of Allied Gold Limited and its subsidiaries. Under the Schemes of Arrangement, Allied Gold Limited’s shares and options on issue as of June 30, 2011 were exchanged on a six for one basis for Allied Gold Mining PLC shares and options.

Given the implementation of the new corporate structure occurred on the balance date, all shares and options holdings have been transferred to Allied Gold Mining PLC. All disclosures of shares and options in the report reflect this change.

Details of Remuneration

The key management personnel of the Group are the directors of Allied Gold Mining PLC and those executives that report directly to the Managing Director as follows. Unless otherwise noted, the key management personnel listed below have all resigned as of the date of St Barbara’s acquisition of Allied Gold Mining PLC:

 

 

Mr. Drew Anwyll, General Manager, Gold Ridge Operations (resigned June 30, 2011)

 

 

Mr. Phil Davies, Group Exploration Manager

 

 

Mr. Peter DuPlessis, General Manager, Simberi Operations

 

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Mr. Ross Hastings, General Manager Resource Development

 

 

Mr. Stephen Kelly, Chief Financial Officer1

 

 

Mr. Peter Torre, Company Secretary

 

 

Mr. Peter Williams, Group General Manager, Operations (appointed April 2011, resigned August 18, 2011)

 

1 

Mr. Kelly was an employee in the prior period but did not meet the definition of key management personnel. He was appointed to the position of Chief Financial Officer on June 30, 2011.

Details of the remuneration of directors and the key management personnel are set out in the following tables.

 

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Key management personnel of the Group and other executives of the Company and the Group-year ended June 30, 2011

 

Name

  Short-term     Long-term           Proportion  of
remuneration
performance
related
%
    Value of  options
as a proportion
of remuneration
%
 
  Cash salary and
fees7
A$
    STI cash
bonus
A$
    Total
A$
    Post
employment
benefits
A$
    Share based
payments - options
A$
    Total
A$
     

Non-executive directors

               

T. Sean Harvey

    90,833        —          90,833        —          48,660        139,493        35     35

Montague House

    94,167        —          94,167        —          —          94,167        —          —     

Anthony Lowrie

    85,833        —          85,833        —          —          85,833        —          —     

Gregory Steemson

    90,000        —          90,000        —          —          90,000        —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

Sub-total Non-executive directors

    360,833        —          360,833        —          48,660        409,493       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

Executive directors

               

Mark V. Caruso2,3

    796,145        200,000        996,145        51,750        (835,000 )8      212,895        n/a        n/a   

Frank Terranova1,2,3

    385,000        250,000        635,000        57,150        (417,500 )8      274,650        n/a        n/a   

Other key management personnel

               

Drew Anwyll1,2,4

    320,000        —          320,000        24,000        —          344,000        —          —     

Phil Davies2

    219,893        —          219,893        19,790        —          239,683        —          —     

Peter DuPlessis1,2

    304,856        44,000        348,856        31,397        —          380,253        12     —     

Ross Hastings1,2

    300,000        100,000        400,000        36,000        —          436,000        23     —     

Stephen Kelly1,2,5

    183,486        100,000        283,486        25,514        —          309,000        32     —     

Peter Torre2

    120,000        100,000        220,000        —          —          220,000        45     —     

Peter Williams2,6

    71,794        —          71,794        6,461        —          78,255        —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

Sub-total executive directors and key management personnel

    2,701,174        794,000        3,495,174        252,062        (1,252,500     2,494,736       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

Total directors and key management personnel

    3,062,007        794,000        3,856,007        252,062        (1,203,840     2,904,229       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

1

Denotes one of the five highest paid executives of the Group, as required to be disclosed under the Corporations Act 2001.

2 

Denotes an executive of the Company, as required to be disclosed under the Corporations Act 2001.

3 

On June 30, 2011, Mr. Terranova was appointed Managing Director and CEO, while founding Chairman, Mr. Caruso, moved to a non-executive position.

4 

Mr. Anwyll resigned June 30, 2011. Mr. Darren Gibcus was appointed General Manager, Gold Ridge Operations on July 11, 2011 but is not included in this report as his appointment was subsequent to year-end.

5 

Mr. Kelly was an employee in the prior period but did not meet the definition of key management personnel. Mr. Kelly was appointed to the position of Chief Financial Officer on June 30, 2011. Mr. Kelly’s remuneration is shown for the full year.

6 

Mr. Williams was appointed Group General Manager, Operations, in April 2011 and resigned August 18, 2011.

7

Salaries, fees and benefits includes gross salary and fees, fringe benefits, allowances and leave entitlements. The Company has also paid insurance premiums in respect of Directors’ and Officers’ Liability Insurance which is not reflected in the above table as there is no appropriate basis for allocation.

8

During the period, 5,000,000 options held by Mr. Caruso and 2,500,000 options held by Mr. Terranova lapsed due to failure to satisfy the vesting condition. The value of these options was shown as remuneration in the prior year and has been reversed in the current period as no benefit was obtained by the employees.

 

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Key management personnel of the Group and other executives of the Company and the Group – year ended June 30, 2010

 

Name

  Short-term     Long-term           Proportion  of
remuneration
performance
related
%
    Value of
options as a
proportion
of
remuneration
%
 
  Cash salary and
fees3
A$
    Prior year
salary and  fees
adjustment4
A$
    STI cash
bonus
A$
    Total
A$
    Post-
employment
benefits
A$
    Share based
payments -
options
A$
    Total
A$
     

Non-executive directors

                 

T. Sean Harvey

    28,333        —          —          28,333        —          —          28,333        —          —     

Montague House

    87,500        —          —          87,500        —          270,000        357,500        76     76

Anthony Lowrie

    81,667        —          —          81,667        —          —          81,667        —          —     

Gregory Steemson

    127,500        —          —          127,500        —          —          127,500        —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

Sub-total Non-executive directors

    325,000        —          —          325,000        —          270,000        595,000       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

Executive directors

                 

Mark V. Caruso1,2

    575,000        106,250        225,000        906,250        61,313        4,397,500        5,365,063        86     82

Frank Terranova1,2

    385,000        83,117        —          468,117        42,131        2,198,750        2,708,998        81     81

Other key management personnel

                 

Drew Anwyll2

    64,266        —          —          64,266        4,820        —          69,086        —          —     

Phil Davies1,2

    218,000        —          —          218,000        19,260        30,870        268,130        12     12

Peter DuPlessis1,2

    250,000        —          —          250,000        22,500        —          272,500        —          —     

Ross Hastings1,2

    280,000        —          —          280,000        25,200        88,200        393,400        22     22

Peter Torre2

    105,000        —          —          105,000        —          44,100        149,100        30     30
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

Sub-total executive directors and key management personnel

    1,877,266        189,367        225,000        2,291,633        175,224        6,759,420        9,226,277       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

Total directors and key management personnel

    2,202,266        189,367        225,000        2,616,633        175,224        7,029,420        9,821,277       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

1 Denotes one of the five highest paid executives of the Group, as required to be disclosed under the Corporations Act 2001.
2 Denotes an executive of the Company, as required to be disclosed under the Corporations Act 2001.
3 Salaries, fees and benefits includes gross salary and fees, fringe benefits, professional memberships and subscriptions, allowances and leave entitlements. The Company has also paid insurance premiums in respect of Directors’ and Officers’ Liability Insurance which is not reflected in the above table as there is no appropriate basis for allocation.
4 In the current period the base salaries of Mr. Caruso and Mr. Terranova were adjusted to align with market benchmarks. The adjusted salaries were effective from October 1, 2008. The adjustment amount in the above table represents amounts accrued and paid in the current period for services rendered in the prior period.

 

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Service Agreements

On appointment to the Board, all non-executive directors enter into a service agreement with the relevant group company, in the form of a letter of appointment. The letter summarizes the Board policies and terms, including compensation, relevant to the office of director.

Remuneration and other terms of employment for the Chairman, Managing Director, Chief Financial Officer and other key management personnel are also formalized in contracts of employment. Some of these agreements provide for the provision of performance related bonuses as well as participation in the Employee Share Option Scheme. Other major provisions of the agreements relating to remuneration are set out below.

All contracts with executives may be terminated by either party giving relevant notice.

Mr. Mark V. Caruso, Chairman (formerly Executive Chairman) 1

 

   

No fixed term.

 

   

During the current period, base remuneration of A$575,000 per annum exclusive of superannuation.

Mr. T. Sean Harvey, Non-executive Director

 

   

No fixed term.

 

   

Director’s fees determined based on schedule of fees approved by Remuneration and Nomination Committee. The schedule of fees as of June 30, 2011 is presented above under “Details of Remuneration”.

Mr. Montague House, Non-executive Director

 

   

No fixed term.

 

   

Director’s fees determined based on schedule of fees approved by Remuneration and Nomination Committee. The schedule of fees as of June 30, 2011 is presented above under “Details of Remuneration”.

Mr. Anthony Lowrie, Non-executive Director

 

   

No fixed term.

 

   

Director’s fees determined based on schedule of fees approved by Remuneration and Nomination Committee. The schedule of fees as of June 30, 2011 is presented above under “Details of Remuneration”.

Mr. Gregory H. Steemson, Non-executive Director (resigned August 16, 2011)

 

   

No fixed term.

 

   

Director’s fees determined based on schedule of fees approved by Remuneration and Nomination Committee. The schedule of fees as of June 30, 2011 is presented above under “Details of Remuneration”.

Mr. Peter Torre, Company Secretary

 

   

Three year term commencing October 6, 2008.

 

1 

From July 1, 2011, Mr. Caruso will not be paid a salary but will be paid a Director’s fee of A$250,000 per annum as a non-executive Director and an additional A$200,000 cash bonus for successfully bringing Gold Ridge into production on time.

 

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Total fixed remuneration of A$120,000 per annum effective December 1, 2009.

 

   

Three months’ notice of termination by Company. In the event that appointment is terminated by the Company, entitled to the lesser of three months’ base remuneration or balance of contract term.

 

   

Three months’ notice of termination by Executive. In the event that appointment is terminated by Executive, entitled to three months’ base remuneration plus any amount payable in lieu of notice.

Mr. Frank Terranova, Managing Director (formerly Chief Financial Officer)2

 

   

No fixed term.

 

   

Total fixed remuneration of A$626,750, inclusive of superannuation effective July 1, 2011.

 

   

Entitled to an annual bonus not exceeding 30% of base payments dependent on achievement of specific objectives as determined by the Chairman (formerly Executive Chairman).

 

   

Eight weeks’ notice of termination. On termination by the Company entitled to termination pay of twelve months’ total fixed remuneration.

Mr. Drew Anwyll, General Manager, Gold Ridge Operation (resigned June 30, 2011)

 

   

No fixed term.

 

   

Base annual salary A$320,000 exclusive of superannuation effective May 19, 2010.

 

   

One month’s notice of termination. In the event the company terminates the employment, payment of three month’s salary will be paid.

 

   

Entitled to twelve month’s base salary for termination without cause within the first six months of employment plus payment in lieu of notice where applicable.

 

   

Entitled to six month’s base salary for termination without cause after six months but less than eighteen months of employment, plus payment in lieu of notice where applicable.

 

   

Entitled to six month’s base salary on termination for redundancy, plus payment in lieu of notice where applicable.

 

   

Entitled to an annual bonus not exceeding 30% of base salary payable after one year from commencement, dependent on achievement of agreed KPIs including but not limited to cash costs and ounces of gold produced.

 

   

Entitled to an annual bonus not exceeding 50% of base salary payable annually after two years from commencement, dependent on achievement of agreed KPIs including but not limited to cash costs and ounces of gold produced.

Mr. Phil Davies, Group Exploration Manager

 

   

No fixed term.

 

   

Base annual salary A$265,000 exclusive of 9% superannuation, effective July 1, 2011.

 

   

No bonus clause.

 

   

One month’s notice of termination.

Mr. Peter DuPlessis, General Manager Simberi Operation

 

   

No fixed term.

 

   

Base salary, exclusive of superannuation, was A$300,000 per annum, effective April 18, 2011.

 

   

Entitled to a performance bonus of A$22,000 gross based upon the satisfaction of achieving quarterly key performance indicators, or KPI’s. The KPI’s are as follows:

 

  (a) Average cost of gold per ounce sold for the Quarter is A$600 or less, as calculated by the Chief Financial Officer

 

  (b) The total gold shipped per quarter is a minimum of 21,000 ounces.

 

2 

On June 30, 2011, Mr. Terranova was appointed Managing Director and CEO, while founding Chairman, Mr. Caruso, moved to a non-executive position.

 

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While specific KPIs were not achieved during the period, a discretionary bonus of A$44,000 was approved by the Board and paid during the year.

 

   

In the event the company terminates the employment, payment of three month’s salary will be paid.

Mr. Ross Hastings, General Manager Resource Development

 

   

No fixed term.

 

   

Total fixed remuneration of A$300,000 exclusive of superannuation effective January 1, 2010.

 

   

Entitled to four week’s pay on termination by the company or by the executive.

 

   

On redundancy entitled to termination pay of twelve months total fixed remuneration.

Mr. Stephen Kelly, Chief Financial Officer (appointed June 30, 2011, formerly Group Finance Manager)

 

   

No fixed term.

 

   

Total fixed remuneration of A$335,000 exclusive of superannuation effective July 1, 2011.

 

   

One month’s notice of termination.

 

   

Entitled to twelve months total annual base salary (plus 9% superannuation thereon) for termination without cause if the termination occurs on or before June 30, 2012.

 

   

Entitled to nine months total annual base salary (plus 9% superannuation thereon) for termination without cause if the termination occurs after June 30, 2012 and on or before June 30, 2013.

 

   

Entitled to six months total annual base salary (plus 9% superannuation thereon) for termination without cause if the termination occurs after June 30, 2013.

 

   

Entitled to an annual bonus not exceeding 30% of base salary payable after one year from commencement, dependent on achievement of agreed KPIs.

 

   

Eligible to participate in Long Term Incentive scheme.

Mr. Peter Williams, Group General Manager, Operations (appointed April 2011, resigned August 18, 2011)

 

   

No fixed term.

 

   

Total fixed remuneration of A$350,000 exclusive of superannuation effective April 11, 2011.

 

   

One month’s notice of termination.

 

   

Entitled to an annual bonus not exceeding 30% of base salary payable after one year from commencement, dependent on achievement of agreed KPIs.

 

   

Eligible to participate in Long Term Incentive scheme.

Share Based Compensation

Options

Options were granted under the Allied Gold Employee Option Plan which was re-approved by shareholders at the 2008 Annual General Meeting. All full time employees, part time employees and consultants to the Group were eligible to participate in the plan at the absolute discretion of the Board.

As part of the Option Scheme of Arrangement implemented on June 30, 2011, all outstanding Allied Gold Limited options were transferred to Allied Gold Mining PLC options, the new holding company of Allied Gold Limited and its subsidiaries. Each option is convertible into one ordinary share in Allied Gold Mining PLC when exercised. Allied Gold limited no longer has any options on issue.

The options carry no dividend or voting rights.

No ordinary shares were issued pursuant to the exercise of options by any director in the year ended June 30, 2011.

 

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Details of options over ordinary shares in Allied Gold Limited (transferred to options over the shares of Allied Gold Mining PLC) as provided as remuneration to each director of Allied Gold Limited and each of the key management personnel of the Group are set out below. Further information on the options is set out in Note 27 to the financial statements.

 

    

 

Options granted

     %
vested  in
year
    % forfeited
/ lapsed in
year
    Financial years in
which grant vests
 

Name

   Number      Date         

Non-executive directors

  

T. Sean Harvey

     1,000,000         June 20, 2011         100     —          June 30, 2011   
     500,000         June 20, 2011         —          —          June 30, 2012   

Montague House

     1,000,000         November 11, 2009         —          —          June 30, 2010   
     500,000         November 11, 2009         —          —          June 30, 2012   

Anthony Lowrie

     1,500,000         December 5, 2008         —          —          June 30, 2009   
     500,000         December 5, 2008         —          —          June 30, 2012   

Gregory Steemson

     1,500,000         December 5, 2008         —          —          June 30, 2009   
     500,000         December 5, 2008         —          —          June 30, 2012   

Executive directors

            

Mark V. Caruso

     3,400,000         April 28, 2008         —          —          June 30, 2010   
     11,000,000         December 5, 2008         —          —          June 30, 2009   
     3,000,000         December 5, 2008         —          —          June 30, 2012   
     20,000,000         November 11, 2009         —          —          June 30, 2010   
     5,000,000         November 11, 2009         —          100     June 30, 2011   

Frank Terranova

     5,000,000         December 1, 2008         —          —          June 30, 2009   
     1,250,000         December 1, 2008         —          —          June 30, 2012   
     10,000,000         November 11, 2009         —          —          June 30, 2010   
     2,500,000         November 11, 2009         —          100     June 30, 2011   

Other key management personnel

            

Phil Davies

     700,000         December 29, 2008         —          —          June 30, 2010   
     300,000         December 29, 2008         —          —          June 30, 2012   
     175,000         December 22, 2009         —          —          June 30, 2010   

Peter DuPlessis

     700,000         December 29, 2008         —          —          June 30, 2009   
     300,000         December 29, 2008         —          —          June 30, 2012   

Ross Hastings

     2,750,000         December 1, 2008         —          —          June 30, 2009   
     1,000,000         December 1, 2008         —          —          June 30, 2012   
     500,000         December 22, 2009         —          —          June 30, 2010   

Stephen Kelly

     600,000         December 1, 2008         —          —          June 30, 2009   
     250,000         December 1, 2008         —          —          June 30, 2012   
     250,000         December 22, 2009         —          —          June 30, 2010   

Peter Torre

     1,500,000         December 1, 2008         —          —          June 30, 2009   
     500,000         December 1, 2008         —          —          June 30, 2012   
     250,000         December 22, 2009         —          —          June 30, 2010   

The percentage forfeited in the above table represents the reduction from the maximum number of options available to vest due to performance criteria not being achieved.

The movement during the reporting period, by value, of options over ordinary shares in the Company held by each key management personnel and other executives of the Group is detailed below:

 

Name

   Value options granted
during the year(A)
$
     Value of options  exercised
in the year(B)
$
     Value of options lapsed in
year(C) (D)
$
 

Non-executive directors

        

T. Sean Harvey

     48,660         —           —     

Executive directors

        

Mark V. Caruso

     —           —           835,000   

Frank Terranova

     —           —           417,500   

 

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(A) 

The assessed fair value at grant date of options to the individuals is included in the remuneration tables set out in the remuneration tables under Note 26 to the financial statements included under Item 17. Fair values at grant date are independently determined using the binomial option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. The fair value of all options yet to vest was expensed at the grant date.

(B) 

During the period none of the named executives or key management personnel exercised any options.

(C) 

Options lapsed during the period due to the failure to achieve production conditions (non-market). As the options did not vest, the value represents the original benefit previously recognized in relation to these options.

(D) 

On June 30, 2011, Allied Gold Limited successfully implemented the Schemes of Arrangement whereby Allied Gold Mining PLC became the holding company of Allied Gold Limited and its subsidiaries. Under the Schemes of Arrangement, Allied Gold Limited’s shares and options on issue as of June 30, 2011 were exchanged on a six for one basis to Allied Gold Mining PLC shares and options. Allied Gold Mining PLC was admitted to the Official List of the LSE and commenced trading on the LSE’s Main Market on June 30, 2011.

Where options are subject to vesting conditions, no options will vest if the conditions are not satisfied, hence the minimum value of the option yet to vest is nil. The assessed fair value at grant date of options to the individuals is included in the remuneration tables set out under Note 26 to the financial statements included under “Item 17 – Financial Statements”. Fair values at grant date are independently determined using the binomial option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option.

The model inputs for the options granted during the year ended June 30, 2011 included:

Non-Executive Director Options issued June 6, 2011

During the June quarter, 1,500,000 unlisted options were issued to Mr. Harvey, having received shareholder approval at the extraordinary general meeting on June 6, 2011.

 

     No vesting
conditions
    Vesting
condition1
 

Fair value at grant date

   A$ 0.04424      A$ 0.00884   

Exercise price

   $ 0.50      $ 0.50   

Grant date

     06/06/2011        06/06/2011   

Expiry date

     31/12/2011        31/12/2011   

Share price at grant date

   $ 0.505      $ 0.505   

Expected price volatility of shares

     25     25

Expected dividend yield

     0     0

Risk free interest rate

     4.8     4.8

Probability discount applied in relation to vesting conditions

     0     80

Number of options

     1,000,000        500,000   

 

1 

At the time of issue the vesting condition was that, options may not vest until the ordinary share price of Allied Gold Limited’s shares is greater than A$0.70 on five consecutive days after the date of grant. Under the option scheme approved by shareholders on June 6, 2011 the options will not vest until the ordinary share price of Allied Gold Mining PLC’s shares is greater than £2.56 on five consecutive days after the date of grant.

The basis for valuation is as per the grant date.

 

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Additional information

The table below presents information that summarizes the financial performance of the Group over the most recent four year period:

 

     2011      2010      2009      2008  

Revenue

   A$ 84 million       A$ 68 million       A$ 77 million       A$ 23 million   

Net profit/(loss) after tax

   A$ 6.6 million       A$ 10.3 million       A$ (7.1) million       A$ (9.5) million   

Share price at year end

     n/a       A$ 0.37       A$ 0.41       A$ 0.59   

Number of shares on issue at year end

     1,199 million         1,040 million         473 million         377 million   

As the Group has only recently transitioned into gold production and is continuing the process of establishing a stable operating base, it is considered impractical to provide a meaningful measure of historical Group’s financial performance in relation to executive remuneration.

It is intended that as the Group’s operations stabilise that a more structured performance measurement and reward framework for key management personnel will be designed and implemented in consultation with the Remuneration and Nomination Committee. It is anticipated that such a framework will include the establishment of key performance indicators that align executive remuneration with Group performance and shareholder returns.

 

C. Board Practices

Expiration of Director Appointments

The Company’s Non-executive Directors may not hold office for a continuous period in excess of three years or past the third annual general meeting following their appointment, whichever is longer, without submitting for re-election. Directors are elected or re-elected, as the case may be, by shareholders in a general meeting. Directors may offer themselves for re-election.

A Director appointed by the Directors (e.g., to fill a casual vacancy) will hold office only until the conclusion of the next annual general meeting of Allied Gold, but is eligible for re–election at that meeting.

Director’s Service Contracts

Details of Director’s service contracts and remuneration arrangements are presented in Item 6B of this report.

Audit Committee Disclosure

Pre-Approval Policies and Procedures

The Audit, Compliance and Risk Committee pre-approved all audit and non-audit services to be provided to the Company or its subsidiary entities.

For non-audit services, the pre-approval requirement will be satisfied if such non-audit services are promptly brought to the attention of the Audit, Compliance and Risk Committee prior to the completion of the audit and approved by the Audit, Compliance and Risk Committee, or by one or more of its members to whom authority to grant such approvals has been delegated by the Audit, Compliance and Risk Committee. In addition, the Audit, Compliance and Risk Committee may satisfy the pre-approval requirement by adopting specific and detailed policies and procedures for the engagement of non-audit services, so long as the Audit, Compliance and Risk Committee is informed of each non-audit service and such procedures do not include delegation of the Audit, Compliance and Risk Committee’s responsibilities to management.

 

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Remuneration and Nomination Committee

The purpose of the Remuneration and Nomination Committee is to discharge the Board’s responsibilities relating to the nomination and selection of Directors and the compensation of the Company’s executives and Directors.

The key responsibilities of the Remuneration and Nomination Committee are to:

 

 

Ensure the establishment and maintenance of a formal and transparent procedure for the selection and appointment of new Directors to the Board; and

 

 

establish transparent and coherent remuneration policies and practices, which will enable Allied Minerals to attract, retain and motivate executives and Directors who will create value for shareholders and to fairly and responsibly reward executives.

The Remuneration and Nomination Committee must comprise at least three Non-Executive Directors, two of which must be independent Non-Executive Directors. The Chairman of the Remuneration and Nomination Committee must be an independent Non-Executive Director.

The members of the Remuneration and Nomination Committee as of June 30, 2011 were: Mr. House (Chairman), Mr. Lowrie, and Mr. Steemson.

The remuneration policy which sets out the terms and conditions for the chief executive officer and other senior executives is set out in Item 6.B. of this report.

 

D. Employees

As of June 30, 2011, the Group had 1,545 employees in its operations, as compared to 513 as of June 30, 2010 and 499 as of June 30, 2009. The number of employees included:

As of June 30, 2011

 

Location

   Total  

Simberi Project

     572   

Gold Ridge Project

     783   

Corporate office

     190   
  

 

 

 
     1,545   
  

 

 

 

As of June 30, 2010

 

Location

   Total  

Simberi Project

     341   

Gold Ridge Project

     141   

Corporate office

     31   
  

 

 

 
     513   
  

 

 

 

As of June 30, 2009

 

Location

   Total  

Simberi Project

     346   

Gold Ridge Project

     136   

Corporate office

     17   
  

 

 

 
     499   
  

 

 

 

 

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At the Gold Ridge Project, the workforce has an agreement in place with the Solomons Islands National Union of Workers, which represents all employment sectors in the country. The union can only be involved where more than 50% of the workforce pay union membership fees.

 

E. Share Ownership

Fully paid ordinary shares

On June 30, 2011, Allied Gold Limited successfully implemented the Restructuring, whereby Allied Gold Mining PLC became the holding company of the Group. Pursuant to the Restructuring, Allied Gold Limited’s shares and options on issue as of June 30, 2011 were exchanged on a six for one basis to Allied Gold Mining PLC shares and options. The following table sets out the interests of Directors and key management personnel in Allied Gold Limited’s shares as of June 30, 2011:

 

Name

   Number of
ordinary
shares held
 

Mark V. Caruso

     —     

Gregory Steemson

     —     

Anthony Lowrie

     —     

Montague House

     —     

T. Sean Harvey

     —     

Frank Terranova

     —     

Peter Torre

     —     

Ross Hastings

     —     

Peter DuPlessis

     —     

Drew Anwyll

     —     

Outstanding Options

The following table sets forth the details regarding all incentive awards of options over shares of Allied Gold Limited outstanding for each Director and senior management personnel as of June 30, 2011, including awards granted before the most recently completed financial year. For additional information see Item 6.A. above.

 

Name

   Number of
Securities
Underlying
Unexercised
Options
(#)
     Option
Exercise
Price
(A$)
     Option
Expiration
Date

Mark V. Caruso

     —         $ 0.50       December 31, 2013
     —         $ 0.35       November 30, 2011
     —         $ 0.45       December 31, 2009

Gregory Steemson

     —         $ 0.35       November 30, 2011

Anthony Lowrie

     —         $ 0.35       November 30, 2011

Montague House

     —         $ 0.35       December 31, 2011

Frank Terranova

     —         $ 0.35       October 31, 2011
     —         $ 0.50       December 31, 2013

 

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Name

   Number of
Securities
Underlying
Unexercised
Options
(#)
     Option
Exercise
Price
(A$)
     Option
Expiration
Date

Peter Torre

     —         $ 0.35       November 30, 2011

Ross Hastings

     —         $ 0.35       October 31, 2011

Peter DuPlessis

     —         $ 0.35       October 31, 2011

All options are convertible into one of the Company’s ordinary shares.

Employee Share Option Plan

The Company established an employee incentive option scheme, the Option Plan, for, inter alia, the employees and consultants of the Company or any related entity, together the Eligible Persons. The Option Plan was established to advance the interests of the Company by encouraging stock ownership by Eligible Persons and attracting, motivating and retaining Eligible Participants. The Option Plan is administered by the Board. Under the Option Plan, options to purchase shares may be granted by the Board to Eligible Persons. The Board has the authority, subject to the terms of the Option Plan, to determine the terms, including the limitations, restrictions and conditions, if any, upon such grants and shall take into account the skill, experience, length of service with the Company, remuneration level and such other criteria as the directors consider appropriate in the circumstances. The Option Plan provides that directors are not included as Eligible Persons; the Company has a separate plan on substantially similar terms to the Option Plan for members of the Board, except that shareholders must ratify grants of stock options to directors and that options granted to directors do not generally expire until their original expiry date, regardless as to whether a director resigns or is not re-elected prior to such expiry date.

The Option Plan provides that, subject to any regulatory requirements, the exercise price for any option granted under the Option Plan shall be determined by the Board and shall be no less than any minimum specified by the listing rules of the ASX. All offers of option grants will be made using an “Offer Document” as prescribed by the Option Plan or by applicable regulation. The terms of each grant will be set out in the Offer Document. Options are not assignable. The terms of grant of options may be varied by the Board only in accordance with the rules of the ASX, and requires the consent of the grantee if any such variation would be materially prejudicial to the grantee, other than adjustments to comply with applicable legislation, to correct errors, or to permit the Company to comply with the rules of the ASX or foreign laws or regulatory bodies.

Options are exercisable when the conditions in respect of each grant of options have been satisfied and there is otherwise no prohibition precluding the exercise of such options. Options must be exercised in such minimum numbers as prescribed by the rules of the ASX.

The Board may determine in its discretion the number of options to be granted to an Eligible Person. Options are exercisable during a period established at the time of their grant, such period to be set out in the relevant offer document. Any option not exercised prior to the expiry date will become null and void. Options that are not exercisable at the time an Eligible Person ceases to be an Eligible Person for any reason, including termination of employment for cause or resignation, will be immediately null and void. Options that are exercisable at the time an Eligible Person ceases to be an eligible person for any reason, including termination of employment for cause or resignation, will be exercisable for a period of 60 days after such date of termination or resignation. In the case of death, permanent disability, retirement or redundancy of an Eligible Person, the legal representative of such Eligible Person may exercise any unexercised options which are otherwise eligible to be exercised. In such event, the Board may, in its discretion, permit the exercise of options that are not exercisable at such time and have not otherwise lapsed. In all cases, the Board may determine in its discretion that any options that are not otherwise exercisable, but have not lapsed, may be exercised within any such additional time as determined by the Board.

 

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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

A. Major Shareholders

As of June 30, 2011, we had a total of 495 U.S. record holders comprising 0.1 % of our issued capital. As a result of St Barbara Limited’s acquisition of Allied Gold pursuant to the Scheme of Arrangement on September 7, 2012, Allied Gold is now a wholly-owned subsidiary, with St Barbara Limited as its sole shareholder.

 

B. Related Party Transactions

There are no significant interests of management in transactions involving the Company other than those stated herein or in Note 26 to the financial statements included under Item 17 of this report.

 

C. Interests of Experts and Counsel

Not applicable.

 

ITEM 8. FINANCIAL INFORMATION

 

A. Consolidated Financial Statements and Other Financial Information

Reference is made to “Item 17 — Financial Statements” for the financial statements included in this report.

 

B. Significant Changes

On December 30, 2011, we entered into a 3-year US$80 million hedge-free gold prepayment facility. The facility was drawn down on January 3, 3012 and was used to repay the Company’s US$55 million in financing facilities provided by the International Finance Corporation and the Bank of South Pacific with the balance of the funds providing substantial liquidity for the group as it completes its existing capital expenditure projects. The 3-year loan is repayable in physical gold and the number of ounces to be provided is linked to the prevailing gold price. The notional repayment obligation over the three years is 66,240 ounces with a reference price of US$1500. There is no explicit interest rate stated in the facility due to the physical delivery mechanism of the loan and the monthly amortization of the outstanding balance. The minimum ounces repayable over the term of the facility (principal and interest) is 56,304 ounces and the maximum ounces repayable over the three year period is 76,176 ounces.

On June 29, 2012, St Barbara announced an offer to acquire all of the shares in Allied Gold pursuant to a Scheme of Arrangement. The offer was recommended to shareholders of Allied Gold by the Board of Directors in the absence of a superior offer. On September 7, 2012, St Barbara became the sole shareholder of Allied Gold Mining PLC and acquired the entire issued and to be issued ordinary share capital of Allied Gold for A$1.025 in cash, and 0.8 St Barbara Limited ordinary shares for each Allied Gold share.

Except for the above matters, no matter or circumstance has arisen in the period between June 30, 2011 and the date of this report that has significantly affected, or may significantly affect:

 

  a. The Company’s operations in the future financial years; or

 

  b. The results of those operations in future financial years; or

 

  c. The Company’s state of affairs in future financial years.

 

ITEM 9. THE OFFER AND LISTING

Prior to the Restructuring, Allied Gold Limited’s shares were listed on the TSX under the symbol “ALG”, on the ASX under the symbol “ALD” and until June 30, 2011 on AIM, a market operated by the LSE under the

 

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symbol “AGLD”. Following the Restructuring, Allied Gold Limited’s shares were de-listed from these exchanges, and shares of Allied Gold Mining PLC were listed on the TSX on June 28, 2011, the ASX on July 1, 2011 and on the LSE on June 28, 2011. Allied Gold Mining PLC’s securities were subsequently delisted from the TSX on September 7, 2012, the ASX on October 9, 2012 and the LSE on September 10, 2012, upon its acquisition by St Barbara. As of the date of this report, 100% of Allied Gold’s Ordinary Shares are held by St Barbara and are not publicly traded.

Set out below is information regarding the Company’s share price history on the ASX and LSE for the periods indicated.

Five most recent financial years — annual high and low

 

Year Ended

   ASX
(AUD)
     LSE(1)
(GBP)
 
     High      Low      High      Low  

December 31, 2012(2)

     2.48         1.44         164.50         91.25   

December 31, 2011

     3.73         0.46         230.00         35.50   

June 30, 2011(3)

     3.02         0.31         204.00         19.25   

June 30, 2010

     0.54         0.27         29.25         15.50   

June 30, 2009

     0.60         0.20         30.00         8.75   

June 30, 2008

     1.03         0.37         46.25         15.25   

June 30, 2007

     0.52         0.32         23.75         12.25   
(1) 

Allied Gold Mining PLC’s shares were listed on the LSE Main Market on June 28, 2011. Prior to the Restructuring, Allied Gold Limited’s shares were listed on the LSE’s AIM until June 30, 2011.

(2) 

Allied Gold Mining PLC’s shares were delisted from the ASX on October 9, 2012 and the LSE on September 10, 2012.

(3) 

As of June 30, 2011, the Company changed its fiscal year end date to December 31.

Two most recent financial years and subsequent period — quarterly high and low

 

Quarter Ended

   ASX
(AUD)
     LSE(1)
(GBP)
 
     High      Low      High      Low  

March 31, 2013

     N/A         N/A         N/A         N/A   

December 31, 2012(2)

     N/A         N/A         N/A         N/A   

September 30, 2012

     2.27         2.00         147.00         129.00   

June 30, 2012

     2.30         1.44         140.00         91.25   

March 31, 2012

     2.48         1.56         164.50         105.00   

December 31, 2011

     3.00         2.09         200.80         137.00   

September 30, 2011

     3.73         2.26         230.00         160.00   

June 30, 2011

     3.02         0.46         204.00         301.13   

March 31, 2011

     0.73         0.55         46.88         35.50   

December 31, 2010

     0.69         0.45         44.00         27.25   

September 30, 2010

     0.49         0.31         28.75         19.25   

June 30, 2010

     0.41         0.32         23.25         19.50   

March 31, 2010

     0.34         0.27         20.50         15.50   

December 31, 2009

     0.50         0.32         29.25         17.75   

September 30, 2009

     0.54         0.38         29.25         19.25   
(1) 

Allied Gold Mining PLC’s shares were listed on the LSE Main Market on June 28, 2011. Prior to the Restructuring, Allied Gold Limited’s shares were listed on the LSE’s AIM until June 30, 2011.

(2) 

Allied Gold Mining PLC’s shares were delisted from the ASX on October 9, 2012 and the LSE on September 10, 2012.

Most recent six months — monthly high and low

 

Month Ended

   ASX
(AUD)
     LSE
(GBP)
 
     High      Low      High      Low  

August 31, 2012

     2.27         2.05         145.50         136.00   

July 31, 2012

     2.24         2.00         147.00         129.00   

June 30, 2012

     2.30         1.44         140.00         91.25   

May 31, 2012

     2.15         1.55         129.75         97.00   

April 30, 2012

     1.79         1.65         118.75         109.00   

March 31, 2012

     1.89         1.56         127.20         105.00   

 

ITEM 10. ADDITIONAL INFORMATION

 

A. Share Capital

Not applicable.

 

B. Memorandum and Articles of Association

Allied Gold’s corporate organization and conduct are, together with applicable legal requirements, governed by its articles of association, the Articles. A copy of the Company’s Articles is included as Exhibit 1 to this report. Set forth below is a summary of the principal terms of the Articles.

1. Company Objects & Purposes

Allied Gold is registered as a private company limited by shares under the Companies Act 2006 of the United Kingdom, the Companies Act, and is registered in the United Kingdom with business number 7553802.

 

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The Articles were adopted by shareholders on September 7, 2012. The Articles do not specify Allied Gold’s objects and purposes, and as such, in accordance with Section 31(1) of the Companies Act, the objects of the Company are unrestricted.

2. Directors’ Powers & Qualifications

(a) Interested directors are not counted as participating in the decision making process for quorum and voting process, unless among others, the director’s interest cannot reasonably be regarded as likely to give rise to a conflict or interest, or the conflict of interest arises from a permitted cause, which includes:

 

 

A guarantee by a director in respect of an obligation incurred by or on behalf of the company or its subsidiaries;

 

 

Subscriptions for shares or securities of the company; and

 

 

Arrangements for employee or director benefits, other than special benefits for directors or former directors.

(b) The directors are entitled, pursuant to the Articles, to determine their remuneration for services rendered or undertaken.

(c) The Articles provide that the directors may exercise all powers of the company. However, the Articles do not specifically provide that borrowing powers are exercisable by the directors.

(d) The Articles do not contain any age-limit requirement for the retirement or non-retirement of directors.

(e) The Articles do not contain any share ownership requirements as a qualification to act as a director of the Company.

3. Rights & Restrictions Attaching to Shares

(a) Allied Gold has only one class of shares on issue, i.e. ordinary shares. The rights attached to ordinary shares include the right to dividends in the event that the Company has determined by ordinary resolution to declare dividends, or the directors have decided to pay interim dividends. However, a dividend cannot be declared unless the directors have made a recommendation as to its amount. Dividends may be paid in cash or by the transfer of non-cash assets of equivalent value, including shares or other securities.

If twelve years have passed from the date on which a dividend or other sum became due for payment, and such amount remains unclaimed, the recipient is no longer entitled to that dividend. Such amounts may be invested or made use of by the directors for the benefit of the Company.

(b) A resolution put to the vote of a general meeting must be decided by a show of hands unless a poll is demanded. A poll on a resolution may be demanded by the chairman of the meeting, the directors, two or more persons having the right to vote on the resolution, or persons representing not less than one tenth of the total voting rights of all shareholders having the right to vote on the resolution. Directors may be appointed by ordinary resolution of the Company or by a decision of directors. The Articles do not provide for reelection of directors at staggered intervals and do not permit or require cumulative voting.

(c) Except as described above with respect to dividend distributions by ordinary resolution of the Company, the Articles do not contain any specific rights of shareholders to share in the profits of the Company.

(d) The Articles do not provide any priority rights for shareholders to share in any surplus in the event of liquidation, or exclude any shareholders from sharing in such surplus.

(e) The Articles do not provide for redemption of ordinary shares.

(f) The Articles do not contain any sinking fund provisions.

 

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(g) The Articles provide that all shares, other than those issued to subscribers upon formation of the Company, are to be fully paid up.

(h) There is no provision in the Articles which discriminates against an existing or prospective shareholder as a result of that shareholder owning a substantial number of shares.

4. The Articles may be amended by special resolution of the Company, being a resolution passed by a majority of not less than 75% of the members of the Company, and any members are bound by such alteration, unless it requires such member to subscribe for more than the number of shares currently held by such member or increases the liability of such member to contribute to the Company’s share capital.

5. The Articles do not require the Company to hold an annual general meeting. The directors may call a general meeting of the members of the Company, and must call a general meeting if requested by members holding one-tenth of the voting shares or one-tenth of the voting rights. In accordance with Section 307 of the Companies Act, at least fourteen (14) days’ notice must be provided in order to call a meeting of the members unless consented to in writing by a majority of the members.

6. The Articles provide that if any ordinary shares are issued to any person other than St Barbara Limited or its nominees, such new member will be obliged to transfer all ordinary shares held by such new member to, or as directed by, St Barbara Limited.

7. Except as described above with regard to issuance of shares to new members, the Articles do not contain any provisions that would prevent a change in control of the Company.

8. The Articles do not contain any provision requiring disclosure of shareholder ownership beyond any specified threshold.

 

C. Material Contracts

Except for contracts made in the ordinary course of business, the Company has not entered into any contracts material to the Company since July 1, 2009 that are still in effect as of June 30, 2011.

 

D. Exchange Controls

Australia has largely abolished exchange controls on investment transactions. The Australian dollar is freely convertible into U.S. dollars. All payments and transactions in excess of A$5,000 to non-residents of Australia must be reported to the Australian Cash Transactions Agency, which monitors such transactions, whether they are in the form of cash, dividends or capital profits.

The Foreign Acquisitions and Takeovers Act, or Foreign Acquisitions Act, sets forth limitations on the rights of Australian non-residents to own or vote the ordinary shares of an Australian company. The Foreign Acquisitions Act permits the Commonwealth Treasurer to examine acquisitions and arrangements that could result in foreign persons controlling an Australian business. The Commonwealth Treasurer may prohibit a proposed takeover if it would lead to a change of control of a business where the resultant control would be foreign and therefore considered to be against the national interest. The Foreign Acquisitions Act contains divestiture provisions to ensure it can be enforced, as well as, stringent monetary-penalty provisions for breaches and the making of false or misleading statements.

The Foreign Acquisitions Act requires the prior approval of the Commonwealth Treasurer for certain classes of persons to enter into an agreement to acquire shares of an Australian company, if after the acquisition, such person or corporation would hold a substantial interest in such corporation, as explained herein. The foregoing approval requirement applies to the following classes of persons: (i) any person not ordinarily resident in Australia, (ii) any corporation in which either a natural person not ordinarily resident in Australia or a foreign corporation (as defined in the Foreign Acquisitions Act) holds a substantial interest, and (iii) two or more such persons or corporations which hold an aggregate substantial interest.

 

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The Foreign Acquisitions Act requires foreign persons or foreign-controlled entities to give 40 days’ notice to the Commonwealth Treasurer of a proposal to acquire or increase (or offer to acquire or increase) a single interest of 15% or more of the ownership or voting power of an Australian company. If two or more foreign persons or foreign-controlled entities are acting together, the threshold is 40% in the aggregate.

The Constitution of the Company does not contain any additional limitations on a non-resident’s right to hold or vote the Company’s securities.

 

E. Taxation

The taxation discussion below describes the material Australian income tax and U.S. federal income tax consequences to a U.S. holder (as hereinafter defined) of owning Allied Gold Limited ordinary shares. Accordingly, the following discussion is not relevant to non-U.S. holders of Allied Gold Limited ordinary shares.

The discussion is based on the Australian and U.S. tax laws currently in effect, as well as on the double taxation convention between Australia and the United States, the Australian Treaty. These laws are subject to change, possibly on a retroactive basis. For the purposes of this discussion, a U.S. holder is a beneficial owner of ordinary shares who is, for U.S. federal income tax purposes: (i) a citizen or resident alien of the United States, (ii) a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) that is created or organized under the laws of the United States or any political subdivision thereof, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust (A) if a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of its substantial decisions or (B) that has made a valid election to be treated as a U.S. person for tax purposes.

We recommend that U.S. holders of ordinary shares consult their own tax advisers regarding the Australian and U.S. federal, state and local tax and other tax consequences of owning and disposing of ordinary shares in their particular circumstances.

Shareholdings in Allied Gold Limited

Australia taxation

In this section, references to ‘resident’ and ‘non-resident’ refer to residence status for Australian income tax purposes.

Dividends

Dividends (including other distributions treated as dividends for Australian tax purpose) paid by Allied Gold Limited to a U.S. holder who or which is a resident of Australia, or to a non-resident of Australia whose holding is effectively connected with a permanent establishment in Australia, may be subject to income tax.

Under the Australian Treaty, dividends paid by Allied Gold Limited to a U.S. holder who or which is eligible for treaty benefits and whose holding is not effectively connected with a permanent establishment in Australia or, in the case of a shareholder who performs independent personal services from a ‘fixed base’ situated therein, is not connected with that “fixed base”, may be subject to Australian withholding tax at a rate not exceeding 15% of such gross dividend.

The payment of Australian income tax by an Australian company, such as Allied Gold Limited, generates a franking credit for the company. Broadly, an amount of tax paid by the company flows through to shareholders (as a “franking credit”) when the company pays a dividend which is franked by the company. Fully franked dividends paid to non-resident shareholders are not subject to withholding tax.

Dividends paid to non-residents of Australia are also exempt from withholding tax to the extent to which such dividends are declared by Allied Gold Limited to be conduit foreign income. Conduit foreign income is made up of certain amounts that are earned by Allied Gold Limited that are not subject to tax in Australia, such as dividends remitted to Australia by foreign subsidiaries.

 

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Any part of a dividend paid to a U.S. holder that is not “franked” and is not conduit foreign income will generally be subject to Australian withholding tax unless a specific exemption applies.

Sale of ordinary shares

A U.S. holder who or which is a resident of Australia (other than certain temporary residents) may be liable for income tax on any profit on disposal of ordinary shares or Australian capital gains tax on the disposal of ordinary shares acquired after September 19, 1985.

No income or other tax is payable on any profit on disposal of ordinary shares held by a U.S. holder who or which is a non-resident of Australia except if the profit is of an income nature and sourced in Australia, or the sale is subject to Australian capital gains tax. Under the Australian Treaty, if the profit is sourced in Australia, it will not be taxable in Australia if it represents business profits of an enterprise carried on by a U.S. holder entitled to treaty benefits and the enterprise does not carry on business in Australia through a permanent establishment situated in Australia. Australian capital gains tax will not generally apply to a disposal of the ordinary shares by a U.S. holder who or which is a non-resident of Australia unless the shares have been acquired after September 19, 1985 and:

 

 

the ordinary shares have been used by the U.S. holder in carrying on a trade or business through a permanent establishment in Australia;

 

 

the U.S. holder (together with associates) directly or indirectly owns or owned 10% or more of the issued share capital of Allied Gold Limited at the time of the disposal or throughout a 12-month period during the two years prior to the time of disposal and the underlying value of Allied Gold Limited at the time of disposal is principally derived from taxable Australian real property; or

 

 

the U.S. holder is an individual who elected on becoming a non-resident of Australia to continue to have the ordinary shares subject to Australian capital gains tax.

Certain United States Federal Income Tax Considerations

The following is a general summary of certain material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership, and disposition of our Ordinary Shares. It applied to you only if you hold the Ordinary Shares as capital assets for tax purposes. This section does not apply to you if you are a member of a special class of holders subject to special rules, including:

 

 

a dealer in securities;

 

 

a bank;

 

 

a trader in securities that elects to use mark-to-market method of accounting for securities holdings;

 

 

a tax-exempt organization;

 

 

a person who invests through a pass-through entity, including a partnership;

 

 

a life insurance company;

 

 

a person liable for alternative minimum tax;

 

 

a former citizen or a long-term resident of the United States;

 

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a person that actually or constructively owns 10% or more of our voting stock (including ADSs);

 

 

a person that holds ordinary shares or ADSs as part of a hedge, straddle, constructive sale, conversion transaction or other integrated investment; or

 

 

a U.S. Holder whose functional currency is not the U.S. dollar.

This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder arising from and relating to the acquisition, ownership, and disposition of ordinary shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences to such U.S. Holder, including without limitation specific tax consequences to a U.S. Holder under an applicable tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any U.S. Holder. This summary does not address the U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences to U.S. Holders of the acquisition, ownership, and disposition of Ordinary Shares.

Each prospective U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences relating to the acquisition, ownership, and disposition of Ordinary Shares.

No legal opinion from U.S. legal counsel or ruling from the Internal Revenue Service, IRS, has been requested, or will be obtained, regarding the U.S. federal income tax consequences of the acquisition, ownership, and disposition of ordinary shares. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this summary. In addition, because the authorities on which this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the conclusions described in this summary.

This section is based on the Internal Revenue Code of 1986, as amended, the Code, its legislative history, existing and proposed regulations, published rulings and court decisions all as currently in effect. These laws are subject to change, possibly on a retroactive basis. If a partnership holds the Ordinary Shares, the U.S. federal income tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. Each such partner holding the Ordinary Shares is urged to consult his, her or its own tax advisor.

You are a U.S. Holder if you are a beneficial owner of Ordinary Shares and you are, for U.S. federal income tax purposes:

 

 

an individual who is a citizen or resident of the U.S.;

 

 

a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the U.S., any state thereof or the District of Columbia;

 

 

an estate whose income is subject to U.S. federal income taxation regardless of its source; or

 

 

a trust if (i) a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust or (ii) the trust has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

Taxation of dividends

U.S. Holders. Under the U.S. federal income tax laws, and subject to the passive foreign investment company, or PFIC, rules discussed below, if you are a U.S. Holder, the gross amount of any distribution we pay out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) is subject to U.S. federal income taxation. If you are a noncorporate U.S. holder, dividends paid to you in taxable years beginning before January 1, 2013 that constitute qualified dividend income will be taxable to you at a maximum tax

 

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rate of 15% provided that you hold Ordinary Shares for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meet other holding period requirements. Dividends we pay with respect to the Ordinary Shares will generally be qualified dividend income but there can be no assurance in this regard.

You must generally include any Australian tax withheld from the dividend payment in this gross amount even though you do not in fact receive it. The dividend is taxable to you when the holder receives the dividend, actually or constructively. The dividend will not be eligible for the dividends-received deduction generally allowed to U.S. corporations in respect of dividends received from other U.S. corporations. Distributions in excess of current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, will be treated as a non-taxable return of capital to the extent of your basis in the Ordinary Shares and thereafter as capital gain.

The amount of any dividend paid in foreign currency will equal the U.S. dollar value of the foreign currency received calculated by reference to the exchange rate in effect on the date the dividend is received by the depositary, regardless of whether the foreign currency is converted into U.S. dollars. If the foreign currency received as a dividend is converted into U.S. dollars on the date of receipt, you generally will not be required to recognize foreign currency gain or loss in respect of the dividend income. If the foreign currency received as a dividend is not converted into U.S. dollars on the date of receipt, you will have a basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any gain or loss realized on a subsequent conversion or other disposition of the foreign currency will generally be treated as ordinary income or loss from sources within the United States.

Subject to certain limitations, Australian tax withheld in accordance with the Australian Treaty and paid over to Australia will be creditable against an individual’s U.S. federal income tax liability. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are taxed at the capital gains rate. To the extent a refund of the tax withheld is available to a U.S. Holder under Australian law or under the Australian Treaty, the amount of tax withheld that is refundable will not be eligible for credit against the holder’s U.S. federal income tax liability. A U.S. Holder that does not elect to claim a U.S. foreign tax credit may instead claim a deduction for Australian income tax withheld, but only for a taxable year in which the U.S holder elects to do so with respect to all foreign income taxes paid or accrued in such taxable year.

For foreign tax credit purposes, dividends will be income from sources outside the United States and will generally constitute “passive category income” for purposes of computing the foreign tax credit. In certain circumstances, if you have held Ordinary Shares for less than a specified minimum period during which you are not protected from risk of loss, or are obligated to make payments related to the dividends, you will not be allowed a foreign tax credit for foreign taxes imposed on dividends that we pay. In general, a taxpayer’s ability to use foreign tax credits may be limited and is dependent on the particular circumstances. U.S. Holders should consult their own tax advisers with respect to these matters.

Taxation of capital gains

U.S. Holders. Subject to the PFIC rules discussed below, if you are a U.S. Holder and you sell or otherwise dispose of your Ordinary Shares, you will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference between the U.S. dollar value of the amount that you realize and your tax basis, determined in U.S. dollars, in your Ordinary Shares. Capital gain of a noncorporate U.S. Holder is generally taxed at preferential rates where the property is held for more than one year. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes.

The U.S. dollar value of any foreign currency received upon a sale or other disposition of Ordinary Shares will be calculated by reference to the spot rate in effect on the date of sale or other disposal (or, in the case of a cash basis or electing accrual basis taxpayer, on the settlement date). A U.S. Holder will have a tax basis in the foreign currency received equal to that U.S. dollar amount, and generally will recognise foreign currency gain or loss on a subsequent conversion or other disposal of the foreign currency. This foreign currency gain or loss generally will be treated as U.S. source ordinary income or loss.

 

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Passive Foreign Investment Company Rules

PFIC rules. Based on our expected income and assets, the Ordinary Shares should not be treated as stock of a PFIC for U.S. federal income tax purposes, but this conclusion is a factual determination that is made annually and thus may be subject to change. If we were to be treated as a PFIC, unless a U.S. Holder is permitted to elect and does elect to be taxed annually on a mark-to-market basis with respect to the Ordinary Shares, gain realized on the sale or other disposition of your Ordinary Shares would in general not be treated as capital gain. Instead, if you are a U.S. Holder, you would be treated as if you had realized such gain and certain “excess distributions” ratably over your holding period for the Ordinary Shares and would be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year. With certain exceptions, your Ordinary Shares will be treated as stock in a PFIC if we were a PFIC at any time during your holding period in your Ordinary Shares. Dividends that you receive from us and that are not treated as excess distributions will not be eligible for the special tax rates applicable to qualified dividend income if we are treated as a PFIC with respect to you either in the taxable year of the distribution or the preceding taxable year, but instead will be taxable at rates applicable to ordinary income.

 

F. Dividends and Paying Agents

Not applicable.

 

G. Statements by Experts

Not applicable.

 

H. Documents on Display

Persons having a right of inspection of the Company’s records under the Australian Corporations and Securities Legislation can inspect such records by contacting the Company’s registered office at Level 10, 432 St Kilda Rd, Melbourne VIC 3004.

We are subject to the information requirements of the Exchange Act. Accordingly, periodic reports on Form 6-K and annual reports on Form 20-F should be filed with the SEC. A copy of any document filed can be read at the SEC’s public reference room at 100 F Street, N. E., Washington, D.C. 20549. For further information, please call the SEC at 1-800-SEC-0330. The Company’s SEC filings are also available to the public at the SEC’s web site at: http://www.sec.gov.

 

I. Subsidiary information

Not applicable.

 

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Reference is made to “Item 17— Financial Statements” for the financial statements included in this annual report. Note 30 to those financial statements provides quantitative and qualitative disclosures about our market risk exposures.

In the normal course of its operations, the consolidated entity is exposed to gold price, foreign exchange, interest rate, liquidity, equity price and counterparty risks. In order to manage these risks, the consolidated entity may enter into transactions which make use of both on and off balance sheet derivatives. The consolidated entity does not acquire, hold or issue derivatives for trading purposes.

The consolidated entity’s management of financial risks is aimed at ensuring that net cash flows are sufficient to meet all its financial commitments as and when they fall due and to maintain the capacity to fund its forecast project development and exploration strategy by:

 

 

Safeguarding the consolidated entity’s core earnings stream from its major asset through the effective control and management of financial risk.

 

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Effective and efficient usage of credit facilities through the adoption of reliable liquidity management planning and procedures.

 

 

Ensuring that investment and hedging transactions are undertaken with creditworthy counterparts.

The Executive Committee is responsible for the management of the consolidated entity’s financial risks within Board approved directives.

Gold price risk

Gold price risk is the risk that fluctuations in the price of gold will have an adverse effect on current or future earnings. We may use derivative financial instruments to hedge some of our exposure to fluctuations in gold prices. In order to protect against the impact of falling gold prices, we enter into hedging transactions that provide a minimum price to cover non-discretionary operating expenses, repayments due under the group’s financing facilities and sustaining capital. The majority of our forecast production is unhedged, allowing it to take advantage of increases in gold prices.

Prior to February 26, 2010, call and put options were used by us to manage the gold price risk. On February 26, 2010, we terminated our gold hedging facilities and in the period from February 26, 2010 to June 30, 2010 have maintained an unhedged position in relation to gold price risk. As we did not have any hedging in place as of June 30, 2010, it was fully exposed to gold price risk.

We had nil net forward pricing commitments outstanding against future production as of June 30, 2011.

Foreign exchange risk

Foreign exchange risk arises from future commercial transactions and recognized assets and liabilities denominated in a currency that is not our functional currency. We operate internationally and are exposed to foreign exchange risk arising from various currency exposures primarily with respect to the PGK, the U.S. dollar, the Solomon Island dollar and the British pound sterling. No material programs for hedging foreign exchange risk were implemented by the group in the 2010 or 2011 reporting periods.

Interest rate risk

Our main interest rate risk arises from variable rate interest rates on cash and cash equivalents. No hedging programs were implemented by the Group to manage interest rate risk during the 2010 or 2011 reporting periods.

Equity price risk

We are exposed to equity securities price risk arising from investments classified on the statement of financial position as available for sale. Investments in equity securities are approved by the Board on a case-by-case basis.

The majority of our available for sale equity investments are in junior resource companies listed on the ASX and are included in the S&P/ASX All Ordinaries Gold index.

Credit risk

Credit risk is the risk that a counterparty will not complete its obligations under a financial instrument resulting in a financial loss for the Group. Credit risk is managed at the Group level. We have not generally obtained collateral or other security to support financial instruments subject to credit risk, but adopted a policy of only dealing with credit worthy counterparties. Trade and other receivables mainly comprise banking institutions purchasing gold under normal settlement terms of two working days.

 

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All cash balances are on deposit with the banking institutions that are members of a highly rated major Australian banking group.

Liquidity risk

Our liquidity position is managed to ensure sufficient liquid funds are available to meet our financial obligations in a timely manner. We manage liquidity risk by continuously monitoring forecast and actual cash flows and ensuring that the group has the ability to access required funding.

The tables below analyze our financial liabilities, net settled derivative financial instruments into relevant maturity groupings based on the remaining period to contractual maturity at the reporting date:

Group entity as of June 30, 2011

 

     Total      Less than
1 year
     1 to 2 years      2 to 5 years      More than  5
years
 

Borrowings

     41,914,196         41,914,196            —           —     

Finance lease liabilities

     22,340,680         9,734,737         8,410,146         4,195,797      

Operating lease obligations

     3,143,172         1,529,330         1,613,842         —           —     

Purchase obligations

     22,411,747         22,411,747         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     89,809,795         75,590,010         10,023,988         4,195,797         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

 

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

There have been no defaults, dividend arrearages or delinquencies.

 

ITEM 14.