Exhibit 16.1
 
 EMPEROR MINES LIMITED
 
 Financial Report for the years ended 30 June 2005 and 30 June 2004
  (Presented in Australian Dollars)
 
 Contents
 
 Page
 
 
 Statements of financial performance
 2
 
 
 Statements of financial position
 3
 
 
 Statements of cash flows
 4
 
 
 Notes to the financial statements
 5-54
 
 
 Directors’ declaration
 55
 
 
 Report of Independent Registered Public Accounting Firm
 56


Emperor Mines Limited Statement of Financial Performance For the years ended 30 June 2005 and 30 June 2004 (In Australian Dollars)
  
 
   Notes
 2005
 $'000
      
 
     66,345
     (1,524)
     64,821
     473
   Revenue from ordinary activities
  65,294
     (4,295)
     (39,188)
     (22,340)
     (318)
     (1,792)
 (1,888)
 (1,665)
   (4,664)
   Earnings/(loss) before interest expense, tax, depreciation and amortisation
  
 (7,303)
       (103)
     (10,909)
     (15,248)
   (Loss) from ordinary activities before income tax
 
 (33,563)
     (171)
   (Loss) from ordinary activities after tax expense
  
 (33,734)
     Net exchange differences on translation of financial report of foreign controlled entity
  (1,811)
   Total changes in equity other than those resulting from transactions with owners as owners
 
  
 (35,545)
      $
   
   (0.23)
     (0.23)
   The above Statements of Financial Performance should be read in conjunction with the accompanying Notes.


Emperor Mines Limited
 
 Statement of Financial Position As at 30 June 2005 and 30 June 2004 (In Australian Dollars)
  Notes
 2005
 $'000
    
 
    
    3,733
    3,210
    7,413
    643
    183
    15,182
    
    
    3,195
    140
    49,066
    398
    417
    4,388
    57,604
    
    72,786
    
    11,278
    16,318
    204
    1,459
    29,259
    
    500
    152
    7
    2,127
    8,542
    4,388
    15,716
  Total liabilities
  44,975
   
 
  Net assets
  27,811
  Contributed Equity
   163,011
    (22,243)
    (112,957)
  Total equity
  27,811
      The above Statements of Financial Position should be read in conjunction with the accompanying Notes.


Emperor Mines LimitedStatement of Cash Flows For the years ended 30 June 2005 and 30 June 2004 (In Australian Dollars)
  
   Notes
 2005
 $'000
  
   
 Receipts from customers (inclusive of goods and services tax)
  66,561
   Payments to suppliers and employees (inclusive of goods and services tax)
  
 (69,473)
       404
     -
     (51)
     (233)
   Net cash (outflow)/inflow from operating activities
  (2,792)
          (12,171)
    (318)
     38
   Net cash (outflow) from investing activities
  (12,451)
        19,811
    -
    399
     (2,442)
     (22)
     (54)
   Net cash inflow from financing activities
  17,692
        Net increase/(decrease) in cash held
  2,449
    1,327
     (43)
   Cash at the end of the financial year
  3,733
   The above Statements of Cash Flows should be read in conjunction with the accompanying Notes.


Emperor Mines Limited
 
 
 Notes to the Financial Statements for the years ended 30 June 2005 and 30 June 2004 (In Australian Dollars unless otherwise stated)
  1.
 Summary of significant accounting policies
 This general purpose financial report has been prepared in accordance with Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board and Urgent Issues Group Consensus Views.  All amounts in this financial report are presented in Australian dollars unless otherwise specifically noted.
 
 It is prepared in accordance with the historical cost convention, except for certain assets which, as noted, are at valuation. Unless otherwise stated, the accounting policies adopted are consistent with those of the previous year.   The financial report has been prepared on a going concern basis but at the date of this report there remains a significant uncertainty about the  Consolidated entity’s ability to continue as a going concern. This matter is discussed in Note 1(w). (a)  Principles of consolidationThe consolidated financial statements incorporate the assets and liabilities of all entities controlled by Emperor Mines Limited ("Company" or "parent entity") as at 30 June 2005 and 30 June 2004, and the results of all controlled entities for the years ended 30 June 2005, 2004 and 2003 (un-audited). Emperor Mines Limited and its controlled entities together are referred to in this financial report as the consolidated entity. The effects of all transactions between entities in the consolidated entity are eliminated in full.
  Where control of an entity is obtained during a financial year, its results are included in the consolidated statement of financial performance from the date on which control commences. Where control of an entity ceases during a financial year its results are included for that part of the year during which control existed. (b)  Income taxThe consolidated entity adopts the income statement liability method of tax effect accounting. Income tax expense is calculated on operating  profit adjusted for permanent differences between taxable and accounting income.  The tax effect of timing differences, which arise from items being brought to account in different periods for income tax and accounting purposes, is carried forward in the statement of financial position as a future income tax benefit or a provision for deferred income tax.  Future income tax benefits are not brought to account unless realisation of the asset is assured beyond reasonable doubt, or if relating to tax losses when realisation is virtually certain. To the extent that dividends are proposed by controlled entities incorporated overseas, the consolidated entity has provided for withholding tax.  A provision is also made for the withholding tax on the balance of unremitted profits that eventually will be remitted to the Company. Capital gains tax, if applicable, is provided for in establishing period income tax expense when as asset is sold.  As of 1 July 2003 Emperor Mines Limited and its wholly-owned Australian controlled entities are part of a tax consolidation group. (c)  Foreign currency translation(i)  Transactions Foreign currency transactions are initially translated into Australian currency at the rate of exchange ruling at the dates of the transactions. At balance sheet date amounts payable and receivable in foreign currencies are translated to Australian currency at rates of exchange current at that date and resulting exchange differences are brought to account in the statement of financial performance in the year in which the exchange rates change. (ii) Foreign controlled entities As the foreign controlled entities are self sustaining, their assets and liabilities are translated into Australian currency at rates of exchange ruling at balance date, while revenues and expenses are translated at the average of rates ruling during the year and equity items at historical rates. Exchange differences arising on translation are taken directly to the foreign currency translation reserve.


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   1.     Summary of significant accounting policies (continued) (d)  DerivativesThe consolidated entity is exposed to changes in interest rates, foreign exchange rates and community prices from its activities.  The consolidated entity uses the following derivative financial instruments to hedge these risks:  interest rate swaps and futures commodity price contracts.  Derivative financial instruments are not held for speculative purposes. (i)
 Anticipated transactions
 When anticipated purchase or sale transactions have been hedged, actual purchases or sales which occur during the designated hedged period are accounted for as having been hedged until the amounts of those transactions in the designated period are fully allocated against the hedged amounts. If the hedged transaction is not expected to occur as originally designated, or if the hedge is no longer expected to be effective, any previously deferred gains or losses are recognised as revenue or expense immediately. If the hedging transaction is terminated prior to its maturity date and the hedge transaction is still expected to occur as designated, deferral of any gains and losses which appear prior to termination continue to be deferred and are included in the measurement of the hedge transaction when it occurs. In circumstances where a hedging transaction is terminated prior to maturity because the hedged transaction is no longer expected to occur as designated, any previously deferred gains and losses are recognised in the statement of financial performance on the date of  termination. Where a hedge is redesignated as a hedge of another transaction, gains or losses arising on the hedge prior to its redesignation are only deferred where the original anticipated transaction is still expected to occur as designated.  When the original anticipated transaction is no longer expected to occur as designated, any gains or losses relating to the hedge instrument are included in the statement of financial performance for the period. Gains or losses that arise prior to and upon maturity of transactions entered into under hedge rollover strategies are deferred and included in the measurement of the hedged transaction if the transaction is still expected to occur as designated.  If the transaction is no longer expected to occur as designated, the gains or losses are recognised immediately in the statement of financial performance.(ii)  Commodity price hedging Hedging is undertaken in order to minimise the potential for erosion of margin from unfavourable movements in commodity prices. Gains or costs arising at the time of entering into such hedging transactions are brought to account in the statement of financial performance over the life of the hedge. The  net  amounts receivable or payable under commodity contracts  and the associated deferred gains or losses  are recorded in the statement of financial position from the date of inception of the hedge transaction.  Refer Note 26. (iii) Interest rates swaps The amounts receivable or payable under interest rate swaps are not recorded in the statement of financial position until the hedge transaction occurs.


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   1.  
  Summary of significant accounting policies (continued) (e)  Revenue recognitionAmounts are recognised as sales revenue when, there has been a passing of risk to the customer, and: (i)
            Other revenues earned by the Consolidated entity are recognised on the following basis:
 (i)
        (f)  
  Trade and other receivablesTrade and other receivables are carried at  amounts due less an estimate made for doubtful receivables based on a review of all outstanding amounts at year end. (g)  
  Inventories
 (i)
     convert them to bullion, and is valued at the lower of cost and net realisable value.  The cost of GIC and ore stock pile is measured on a First in First out (FIFO) basis and includes raw materials, direct labour, depreciation, amortisation and other direct costs.  Net realisable value is the estimate of the selling price in the ordinary course of business, less the costs of completion and selling expenses.
 At the year end the GIC and ore stock pile was valued at net realisable value. (h)  Recoverable amount of non-current assetsThe carrying amounts of non-current assets other than exploration and evaluation expenditure carried forward, are reviewed to determine whether they are in excess of their recoverable amount at reporting date. The recoverable amount of non-current asset is the net amount expected to be recovered through the net cash inflows and outflows arising from its continued use and subsequent disposal.  Where the carrying amount of a non-current asset is greater than its recoverable amount the asset is written down to its recoverable amount. Where net cash inflows are derived from a group of assets working together, recoverable amount is determined on the basis of the relevant group of assets. The decrement in the carrying amount is recognised as an expense in the net profit or loss in the reporting period in which the recoverable amount write-down occurs.  The expected net cash flows included in determining recoverable amounts of non-current assets are discounted to their present values using a market-determined, risk-adjusted discount rate. The discount rate used in 2005 was 9%.


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   1.  
  Summary of significant accounting policies (continued) (i)  
  Property, plant and equipmentAll assets acquired are initially recorded at their cost of acquisition at the date of acquisition, being fair value of consideration provided plus incidental costs directly attributable to the acquisition. All property, plant and equipment assets have limited useful lives and are depreciated, with the exception of freehold land.  Depreciation is on a straight line basis over their estimated useful lives, taking into account estimated residual values, with the exception of plant and equipment with a deemed useful life equal to the life of the mine.  In this case depreciation uses a units of production basis, charged proportional to current delineated mineable product of the operation.  Estimates of remaining useful lives used for depreciation of assets which are not expected to last the life of the mine are as follows: Mine Buildings   Major spares purchased specifically for particular plant are  capitalised and depreciated on the same basis as the plant to which they relate. (j)   
  Mine properties and developmentMine properties and development represent the accumulation of all exploration, evaluation and development expenditure incurred by or on behalf of the entity in relation to areas of interest in which mining of a mineral resource has commenced or expected to be commenced. Mine development expenditure incurred by or on behalf of the entity is accumulated separately for each area of interest in which economically recoverable reserves have been identified to the satisfaction of the directors.  Such expenditure comprises net direct costs and appropriate portion of related overhead expenditure having a specific nexus with the development property. When further development expenditure is incurred in respect of a mine property after the commencement of production, such expenditure is carried forward as part of the mine property only when substantial future economic benefits are thereby established, otherwise such expenditure is classified as part of the cost of production. No amortisation is provided until they are reclassified as “Mine properties and development” following a decision to commence mining. Amortisation of costs is provided on the unit-of-production method with separate calculations being made for each mineral resource.  The unit-of-production basis results in an amortisation charge proportional to depletion over the expected life of the operations.   The net carrying value of each mine property and development is reviewed regularly and, to the extent to which this value exceeds its recoverable amount, that excess is either fully provided against or written off in the financial year in which this is determined. Depreciation cost associated with heavy vehicles working on capital development is included in mine properties and development expenditure. Revision of accounting estimatesFrom 1 July 2004, the estimated total life of the mine for the purpose of amortisation and depreciation calculation has been extended from 10 to 15 years. The net effect of the change in the current financial year was a  decrease  the amortisation and depreciation expense of the consolidated entity of $1,150,000. The amortisation and depreciation to be expensed in the future years will be calculated based on a 15 year mine life.


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   1.    Summary of significant accounting policies (continued) (k)  ExplorationExploration and evaluation expenditure is accumulated  separately for each area of interest.  Such expenditure comprises net direct costs and an appropriate portion of related overhead expenditure, but does not include general overheads or administrative expenditure not having a specific nexus with a particular area of interest. Each area of interest is limited to a size related to a known or probable mineral resource capable of supporting a mining operation.  Exploration expenditure for each area of interest, other than that acquired from the purchase of another mining company, is carried forward as an asset provided that one of the following conditions is met: (i)  (ii)  reasonable assessment of the existence or otherwise of recoverable mineral resources, and active and significant operations in relation to the area are continuing.
 Exploration expenditure which fails to meet at least one of the conditions outlined above is written off. Exploration expenditure on areas of interest outside of the Vatukoula region are fully provided for. Expenditure is not carried forward in respect of any area of interest/mineral resource unless the consolidated entity’s rights of tenure to that area of interest is current. (l)  Leased non-current assetsA distinction is made between finance leases which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to ownership of leased non-current assets, and operating leases under which the lessor effectively retains substantially all such risks and benefits. Finance leases are capitalised.  A lease asset and liability are established at the present value of minimum lease payments.  Lease payments are allocated between the principal component of the lease liability and the interest expense. The lease asset is depreciated on a straight line basis over the shorter of the lease term or the life of the asset.  Lease assets held at the reporting date are being depreciated over a period not exceeding 5 years. (m)  CashCash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash in hand, deposits held at call with banks, and investments in money market instruments, net of bank overdrafts. In the balance sheet, bank overdrafts are included in borrowings in current liabilities. (n)  Trade and other creditorsThese amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year and which are unpaid.   (o)  Interest bearing liabilitiesLoans are carried at their principal amounts which represent the value of future cash flows associated with servicing debt.  Interest expense is accrued at the contracted rate. (p)  Deferred costsDeferred costs relate to ancillary costs incurred in connection with arrangement of ANZ Bank loan facility. The deferred costs are amortised from the commencement of the first loan drawdown (February 2003) over the life of the loan (final repayment due October 2008). The amortisation of deferred cost is recognised as borrowing costs. (q)  Maintenance and repairsThe costs of maintenance, repair costs and minor renewals are charged as expenses as incurred, except where they relate to the replacement of a component of an asset, in which case the costs are capitalised and depreciated in accordance with Note 1(k).


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   1.  
  Summary of significant accounting policies (continued) (r)  
  Employee entitlements
 (i) Wages and salaries, annual leave and sick leave
 Liabilities for wages, salaries, annual leave and sick leave and other employee benefits are measured at their nominal amounts, using the remuneration rates expected to be paid when these liabilities are settled.
 (ii) Long service leave
 A liability for long service leave is recognised, and is measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using interest rates on national government guaranteed securities with terms to maturity that match, as closely as possible, the estimated future cash outflows.
 (iii) Superannuation
 Superannuation contributions are provided on the basis as described in Note 31. (s)  Borrowing costsBorrowing costs are recognised as expenses in the period in which they are incurred, except where they are included in the cost of qualifying assets. Qualifying assets are assets which take more than 12 months to get ready for their intended use or sale.  In these circumstances, borrowing costs are capitalised to the cost of the assets.  Where funds are borrowed specifically for the acquisition, construction or production of a qualifying asset, the amount of borrowing costs capitalised is those incurred in relation to that borrowing.  Where funds are borrowed generally, borrowing costs are capitalised using a weighted average capitalisation rate. Exploration and evaluation expenditure carried forward relating to areas of interest which have not reached a stage permitting reliable assessment of economic benefits are not qualifying assets. Borrowing costs includes:
 ·
  ·
  ·
  ·
  Where interest rates are hedged or swapped, the borrowing costs are recognised net of any effect of the hedge or swap. (t)  Earnings per shareBasic earnings per share is determined by dividing net profit after income tax attributable to members of the Company by the weighted average number of ordinary shares outstanding during the financial year, adjusted for the bonus element in the Company’s rights issue. Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares adjusted for the bonus element in the Company’s rights issue.


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   1.   
  Summary of significant accounting policies (continued) (u)  
  Rehabilitation and restoration costsExpenditures relating to ongoing rehabilitation and restoration programs, including for exploration areas on non-freehold land, are provided for or charged to costs of production as incurred. A provision for future rehabilitation and restoration relating to mine closure is accrued based on the estimated mine life. (v)  
  Royalties and other mining impostsAd valorem royalties and other mining imposts are accrued and charged against earnings when the liability from production or sale of the mineral crystallises.   (w)  
  Going concernThe financial  report has been prepared on the basis of going concern.  This basis presumes that funds will be available to finance future operations and that the realisation of assets and settlement of liabilities will occur in the normal course of business.  Despite the consolidated entity suffering recurring losses from operations and having a working capital deficit of $14,077,000 as at 30 June 2005 the directors believe that the consolidated entity will be able to fund future operations through revised strategic plans and additional funding sourced from DRD Gold Limited (“DRD Gold”), ANZ bank and intended share placements. Revised strategic plansThe revised strategic plan has been approved by the Emperor Board with the intention to return Emperor to positive cashflows from operations.  This plan includes the following initiatives:
 ·
 Changes to work practices and shift rosters which are expected to reduce problems associated with absenteeism, increase fleet utilisation and reduce power consumption;
 ·
  ·
  Additional fundingSubsequent to 30 June 2005 Emperor finalised a $10,000,000 convertible loan facility  with its major shareholder, DRD Gold.  As at 13 December 2005 Emperor has fully drawn down the $10,000,000 facility (refer Note 37(a) for more information regarding this facility). As a part of the proposed transaction between Emperor and DRD (Offshore) Limited (“DRD  Offshore”), as described in Note 37(c), and in addition to the current loan arrangements ANZ Bank has provided Emperor with a term sheet to establish a new US$42,000,000 loan facility.  This facility is expected to fund the cash consideration payable to DRD Offshore and provide additional working capital.  Details of the proposed terms included in ANZ Bank’s term sheet are described in Note 37(f). On 5 December 2005 Emperor placed $8,800,000 of new shares with institutional investors and private shareholders.  This placement forms part of Emperor’s intention to raise US$15,000,000 through the placement of new shares following relevant approvals of the sale and purchase transaction with DRD Offshore as described in Note 37(c). On 12 December 2005 the ANZ Bank and Emperor concluded a standstill agreement that has deferred repayment of Emperor’s existing loan to 30 November 2006.  The terms and conditions of this standstill are detailed in Note 19. The Board acknowledges that until such time as  the  sale and purchase  transaction with DRD Offshore  receives unconditional approval from all relevant parties,  the new ANZ Bank loan facility is negotiated, the placement of new Emperor shares is completed and  Emperor satisfies all conditions of the ANZ standstill agreement there remains uncertainty as to whether Emperor will continue as a going concern and, therefore, whether it will realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report. The financial report has been prepared on the basis of going concern.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   2.  Segment informationThe consolidated entity operates primarily in one business segment being gold mining.  The consolidated entity’s business segment operates in Fiji, with Australia being the home country of the parent company:
 
 
 Fiji*
 Australia
 Other
 countries
 TOTAL
 
 
 
 
 
 2005 ($'000)
         65,294
     (33,734)
     72,786
     44,975
     12,171
     
 2004 ($'000)
    
     65,427
     (4,930)
     96,567
     53,022
   
 22,556
     
 2003 Un-audited ($'000)
    
     61,190
     (15,629)
     89,730
     41,335
   
 21,185
 *includes unrealised provision for hedging re-structure of $1,524,000 (2004 $2,155,000, 2003 $4,864,000)
 With the exception of Fiji no other individual country contributed more than 10% of consolidated revenues and consolidated assets.


Emperor Mines Limited
 
 
 Notes to the Financial Statements for the years ended 30 June 2005 and 30 June 2004 (In Australian Dollars unless otherwise stated)
  
 
 
    
 2005
 $'000
     3. Revenue
 
   Revenue from operating activities
 
    66,345
    (1,524)
  
 64,821
   Revenue from outside the operating activities
 
    409
    38
    26
    -
    473
   Revenue from ordinary activities
 65,294
   4. Profit/(loss) from ordinary activities
  (Loss) from ordinary activities before income tax expense includes the following specific net gains and expenses:
 
   (a) Net gains and expenses
 
 
 
  -
     -
   (b) Expenses
 
     81,264
    
 
    
 136
    
 4,926
    37
     5,099
    Plant and equipment under finance leases
 
     5,924
    
 32
     5,956
    
     11,055
    (279)
    10,776
    133
    10,909
    
    
    281
    37
    318
    1,843
    
    
    51
    952
    166
    (1,066)
    -
    103


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
    
 
    
 2005
 $'000
     4.     Profit/(loss) from ordinary activities
 (continued)
 
    47
    
    2,460
    
    
    1,768
    333
    2,101
    
   Minimum lease payments Sub-lease
 104
    (26)
    78
   (c) Individually significant expenses included
 in profit from ordinary activities
 During the year the consolidated entity has written down its mining asset (Mine properties  and development) by $15,248,000 to its recoverable amount of $12,708,000.  The Board resolved this as a result of recent poor performance, continuing high oil prices and the mine’s discounted cash-flow model supporting the value of the related asset.
 5.
 Income tax
 
   (a) The aggregate amount of income tax attributable to the financial year differs from the amount calculated on the operating (loss). The differences are reconciled as follows:
 
    (33,563)
   
    (10,069)
    
    61
    -
    (78)
    308
    10,328
    (378)
    (1)
   Aggregate income tax expense
 171


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
     
   2005
 $'000
     5.
 Income tax (continued)
 
   (b) The directors estimate that the potential future income tax benefit at 30 June 2005 in respect of tax losses and timing differences not brought to account is
 56,795
   Gross tax losses of $91,635,000 as at 30 June 2005 expire as follows Year of expiry
 Gross tax loss
  $'000
       TOTAL
  This benefit for tax losses will only be obtained if: (i)
 the consolidated entity derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions for the losses to be realised, and
  the consolidated entity continues to comply with the conditions for deductibility  imposed by tax legislation, and
  no changes in tax legislation adversely affect the consolidated entity in realising the benefit from the deductions for the losses.
  6.
 Cash assets
 
   Cash at bank and on hand – current
 3,733
    
    3,195
    
   Cash at the end of the financial year as shown in the statement of cash flows is as follows:
 
 
    3,733
    -
   3,733
   Restricted cash at bank  The funds held as restricted cash include the following:  (i)
  the Bank can make withdrawals from the funds to meet reparation costs in the event of loss or damage to mine assets which are subject to the consolidated entity’s self insurance policy.
 (ii)
  The deposits are bearing floating interest rates between 1.00% and 5.70% (2004 –1.00% and 5.48%).
 
  2005
 $'000
  
 7.
 Current assets – Receivables
 
   742
   2,542
   (74)
   3,210
  Other debtors are carried at notional amounts and are normally settled on 30 days terms. Other debtors, net of provisions, approximate net fair value.  Other debtors are non interest bearing.


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   
  2005
 $'000
   
 8.
 Current assets – Inventories
 
   4,542
   -
   2,871
   7,413
  
 9.
 Current assets – Other
 
   643
  10.
 Current assets-Deferred costs
  183
  11.
 Non-current assets Inventories
  140
  12.
 Non-current assets – Property, plant  and equipment
 Land and building
    1,833
   1,906
   (563)
   1,343
   3,176
  Plant and equipment
 
   45,866
   (12,944)
  32,922
   348
   (88)
   260
   33,182
   36,358
  Mine properties and development
 
   -
   -
     12,708
   -
  Total mine properties and development, property, plant and equipment
 49,066


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   12.
 Non-current assets – Property, plant and equipment (continued)
 Reconciliation - 2005Reconciliation of the carrying value for each class of property, plant and equipment is set out below:
 
 Freehold
 Land
 
 $'000
 Mine
 buildings
 
 $'000
 Plant and
 equipment
 
 $'000
 Leased
 plant and
 equipment
 $’000
 Mine prop.
 and dev.
 
 $'000
 Exploration
 
 $’000
 Total
 
 $'000
 Carrying amount at 1 July 2004
        Additions
        Disposals
        Transfers
        Expenditure Written off/ Impairment
      Depreciation/ Amortisation  (Note 4)
     Exchange differences on translation of self sustaining foreign operation
      Carrying amount at 30 June 2005
 
 1,833
 
 1,343
 32,922
 
 260
 12,708
 
 -
 
 49,066
 Reconciliation - 2004Reconciliation of the carrying value for each class of property, plant and equipment is set out below:
 
 Freehold
 Land
 
 $'000
 Mine
 buildings
 
 $'000
 Plant and
 equipment
 
 $'000
 Leased
 plant and
 equipment
 $’000
 Mine prop.
 and dev.
 
 $'000
 Exploration
 
 $’000
 Total
 
 $'000
 Carrying amount at 1 July 2003
        Additions
        Disposals
        Transfers
        Depreciation/Amortisation  (Note 4)
     Exchange differences on translation of self sustaining foreign operation
        Carrying amount at 30 June 2004
 1,909
 1,013
 35,911
 105
 26,190
 237
 65,365


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   
  
   2005
 $'000
  
 13.
 Non-current assets – Deferred tax assets
  398
  14.     
  Non-current assets – Deferred cost
  417
  15.  Current liabilities – Payables
  9,786
   1,492
   11,278
  16.  Current liabilities – Interest bearing
 liabilities Secured
  -
   16,231
   87
   16,318
  Details of the security relating to each of the secured liabilities are set out in Note 19. 17.  Current liabilities – Provisions
  1,166
   293
   1,459
  
 18.
 Non- current liabilities - Payables
 
   500
  Relates to restructure fees payable in September 2006 to ANZ Bank. 19.
 Non-current liabilities – Interest bearing liabilities (secured)
 Secured
 
   -
   152
  Total secured non-current interest bearing liabilities
 152
  Financing arrangements
 Unrestricted access was available at balance   date to the following lines of credit:
 
   
   -
   -
   -
   
   
   16,231
   -
   16,231


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   19.
 Non-current liabilities – Interest bearing liabilities (secured) (continued)
 The loan from  ANZ Banking Group Limited (“ANZ Bank”), used by the consolidated entity  to fund its Phase 2 Capital Expansion Project relating to infrastructure, development and underground fleet replacement, is secured by Emperor Gold Mining Company Limited as follows: (i)
 a first registered deed of charge over all present and future assets and undertakings of the controlled entity other than excluded assets (SPL’s 1283, 1296, 1418, 1360, 1411 and CX 626 and all the shares in Tuvatu Gold Mining Company Limited);
    a first registered mortgage over Special Site Rights (SSR)  6, 7, 8 and Special Mining Leases (SPL 54, 55 and 56); and
   The interest rate relating to the loan  is based on the London Inter Bank Offered Rate (LIBOR) plus a margin of 2.5% and the principle covenants include the requirement for:  (i)
 The consolidated entity to retain an Insurance Buffer Amount of  $5,000,000 (2004:  $5,000,000) in immediately available cash (including an Insurance Reserve Amount of US$1,700,000); and
  Emperor Mines Limited to unconditionally and irrevocably guarantee the obligations of  Emperor Gold Mining Company (Fiji), a controlled entity, until completion of the Phase 2 Capital Expansion Project.  On completion, additional financial covenants would be implemented.  As at 12 December 2005 Emperor had not achieved completion and the guarantee over Emperor Gold Mine Limited’s (Fiji) obligations remains in place.
 In relation to the existing financial arrangements and original loan covenants Emperor has  entered a Standstill agreement with ANZ Bank that postpones all principal repayments until 30 November 2006.   This standstill is conditional on the transaction with DRD Offshore Limited (as described on Note 37 (c) ) proceeding in accordance with a predetermined timetable that will include shareholder approval by 14 February 2006, regulatory approval by 28 February 2006 and completion by 31 March 2006.  In addition, ANZ must be provided with reports in May 2006, July 2006 and September 2006 that satisfy ANZ that Emperor is moving towards obtaining additional fundraising from share placements.  The standstill agreement also allows ANZ Bank to conduct a formal review of all Vatukoula loan facilities on 30 November 2006 and if it is not satisfied with the results of that review those facilities shall be repayable within 90 days.   Due to the conditional nature of the waivers granted in the standstill agreement by the ANZ Bank the non-current portion of the ANZ Bank debt amounting to $11,600,000 has been reclassified as a current liability rather than non-current, resulting in the total loan balance of $16,231,000 being classified as current.  The overdraft facility  negotiated with  the  ANZ Bank in 2004 of FJD$8,000,000 ($6,400,000) was available as a general overdraft facility. Upon completion of the Company’s rights issue in November 2004, the amounts drawn down against the facility of $2,800,000 were repaid and the facility extinguished. Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default.


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
     2005
 $'000
  
 20.
 Non-current liabilities – Deferred tax liabilities
    7
  21.
 Non-current liabilities – Provisions
 
  861
   1,135
   131
   2,127
  22.
 Provision for hedging redesignation
 
    8,542
  Following Emperor’s hedge book  redesignation during the June 2003 year,  in accordance with the consolidated entity’s accounting policy a provision for hedging  redesignation was recorded in relation to each of the financial years upon which the  redesignation has an impact. The provision for hedging  redesignation reflected in the Consolidated Statement of Financial Performance in the amount of $1,524,000 is a non  cash unrealised loss in respect of 18,800 ounces (18,800 x $81 dollars per ounce) that were originally planned for delivery during the 2005 financial year which were rescheduled for delivery in later periods in line with loan facility requirements. The provision for hedging redesignation reflected in the Consolidated Statement of Financial Position in the amount of $8,543,000 represents an unrealised loss in respect of 105,390 ounces at $81 per ounce had the gold price remained at $627/oz. As this provision relates to an unrealised loss, it will be reversed over a 7 year period corresponding to the period of the redesignation. The table below shows the net movement in ounces as a result of the redesignation and the corresponding provisions recorded and reversed in future years. Over a 7 year period this adjustment has a net zero effect.
                   2005
 (18,800)
 (1,524)
 (8,543)


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   
 
 
 
 
 2005 $000
  2004 $000
  2003 $000
 23.
 Contributed equity
 
   (a)
 Share capital
 
 
   
 Ordinary Shares Fully paid
 163,011
    (b)  Movements in ordinary share capital
 Date
 Details
 Notes
 Number of
 shares
 Issue price
 $'000
 1 July 02
                             Less: Transaction cost
            arising on share issues
                                                          157,765,579
 
 163,011
 (c) Ordinary shares
 Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held.  On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. At 30 June 2005 all ordinary shares were fully paid. (d) Share optionsDuring the financial year 924,999 (2004- 50,000 and 2003 – 91,667) shares were issued by the Company as a result of exercise of options.   Outstanding options are detailed in Note 27. (e) Share placementIn July 2002, the Company arranged a placement of 12,500,000 shares at 81cents per share raising $10,125,000.  The shares were placed with institutional clients of BNP Paribas Equities, both overseas and in Australia. (f) Share purchase planIn July 2002 the Company undertook a Share Purchase Plan (“SPP”) to provide eligible shareholders with the opportunity to participate in a further capital raising associated with the Phase 2 expansion plan.  The price for the SPP was set at 77 cents, representing a 15% discount to the weighted average traded price of the Company’s shares for the 5 trading days ended 21 June 2002.  As a result, the Company was successful in raising some $960,000.


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
     
   2005
 $'000
     24.
 Reserves and Accumulated losses
 
   (a)
 Reserves
 
    (22,243)
  Movements:
 
   Foreign currency translation reserve Balance at beginning of year
 (20,432)
   Net exchange differences on translation of foreign controlled entity
 (1,811)
    Balance at end of year
 (22,243)
 (b)
 Accumulated losses
 Accumulated losses at beginning of year
 (79,223)
  Net (loss) attributable to members of Emperor Mines Limited
 (33,734)
  Accumulated losses at end of year
 (112,957)
  (c)
 Nature and purpose of reserves
 Foreign currency translation reserve
 Exchange differences arising on translation of the foreign controlled entity, Emperor Gold Mining Company Limited, Jubilee Mining Company Limited, Koula Mining Company Limited are taken to the foreign currency translation reserve, as described in accounting policy Note 1(c)(ii).
 
  
   2005
 $'000
     25.
 Equity
 
   Total equity at the beginning of the financial year
 
 43,545
   Total changes in equity recognised in the statement of financial performance
  (35,545)
    
   Contribution of equity, net of transaction fees
   19,811
   Total equity at the end of the financial year
  27,811


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   26.
 Financial instruments
 The  consolidated entity is party to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuation in interest rates and gold price.
 (i) Interest rate swap
 Bank loans of the consolidated entity currently bear an average variable rate of  4.93%. In order to minimise fluctuation in interest rates, 70% of the loan has been hedged by entering into interest rate swap contracts under which the Company is obliged to receive interest at variable rates and pay interest at fixed rates until October 2008.  The contracts are settled on a net basis and the net amount receivable or payable at the reporting date is included in the term loan. The following table sets out the fair values of interest rate swaps.
  
   2005
 $'000
     Fair value of interest rate swap-(payable)
 
 (302)
   The fixed interest rate payable on the hedged 70% of the loan was 4.34% (2004: 2.18%) and the average variable rate received was 2.32% (2004: 1.11%).
 (ii) Commodity contracts
 As part of the loan facility requirements, the  consolidated entity’s  forward gold under sales contracts was redesignation to align with the period of loan facility. At 30 June 2005 the consolidated entity  was committed to delivering 221,815 ounces of gold under forward sales contracts at an average price of $599 per ounce  by 31 December 2008.
 Maturity Date
 Ounces to be delivered
 Exercise price
 
 2005
 2004
 2005
 $
 2004
 $
                                   Mark-to-market position of Commodity contracts
 
 
  
 2005
 $'000
     
  4,388
  Unrealised commodity loss payable to counter party
 4,388
  At 30 June 2005, the net unrealised mark-to-market loss on the total open commodity position of 211,815 ounces was $4,388,000 based on an A$ gold price of $573 per ounce (June 2004: $7,192,000 loss based on A$ gold price of $569).  (iii)  Credit riskThe credit exposure of derivatives is represented by the net fair values of the contracts disclosed. The consolidated entity  has a credit risk in relation to derivative financial instruments in the event of non-performance by counter parties. To counter this risk, financial instruments are only entered into with counter parties with high credit ratings. Emperor delivers its gold to AGR Matthey (Australia), who refines the gold and then sells the gold on to third parties.  All proceeds are received within a week of delivery.  The concentration of credit risk in Australia is mitigated by the reputable nature of the sales agent and their customers and the settlement of proceeds within 6 days.


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   26.
 Financial instruments (continued)
 (iv)
 Interest rate risk exposure
 The consolidated entity’s exposure to interest rate risk and the effective weighted average interest rate for each class of financial assets and financial liabilities is set out in the table below.
 
 
 Fixed Interest
 Maturing in:
 
 
 Floating
 Interest
 rate
 1 Year
 or less
 1 Year to
 5 years
 Non-
 Interest
 Bearing
 Total
 
 Notes
 $’000
 $’000
 $’000
 $’000
 $’000
 2005 Financial assets
 
 
 
 
 
 Cash
 6
 6,884
 -
 -
 44
 6,928
 Receivables
 7
 -
 -
 -
 3,210
 3,210
 
 
 6,884
 -
 -
 3,254
 10,138
 Weighted average interest rate
 4.71%
 
 
 
 
 
 
 
 
 
 
 Financial liabilities
 
 
 
 
 
 Bank loan
 16
 16,231
 -
 -
 -
 16,231
 Payables
 15, 18
 -
 -
 -
 11,778
 11,778
 Lease liabilities
 16, 19
 -
 87
 152
 -
 239
 Interest Rate Swap*
 
 (11,393)
 3,255
 8,138
 -
 -
 
 
 4,838
 3,342
 8,290
 11,778
 28,248
 Weighted average interest rate
 4.93%
 4.43%
 4.43%
 
 
 
 2004 Financial assets
 
 
 
 
 
 Cash
 6
 7,247
 -
 -
 5
 7,252
 Receivables
 7
 -
 -
 -
 3,396
 3,396
 
 
 7,247
 -
 -
 3,401
 10,648
 Weighted average interest rate
 4.14%
 
 
 
 
 
 
 
 
 
 
 Financial liabilities
 
 
 
 
 
 Bank overdraft
 16
 2,331
 -
 -
 -
 2,331
 Bank loan
 16, 19
 19,636
 -
 -
 -
 19,636
 Payables
 15, 18
 -
 -
 -
 13,501
 13,501
 Lease liabilities
 16, 19
 -
 42
 53
 -
 95
 Interest Rate Swap*
 
 (16,773)
 4,233
 12,540
 -
 -
 
 
 5,194
 4,275
 12,593
 13,501
 35,563
 Weighted average interest rate
 4.72%
 2.36%
 2.36%
 
 
 *Notional principal amount
 The net fair value of monetary financial assets and financial liabilities of the consolidated entity approximates their carrying values.


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   27.
 Director and executive disclosures
 DirectorsThe following persons were directors of Emperor Mines Limited during the financial year. Chairman-non-executiveJ A Wall Executive DirectorsM Wellesley-Wood (Managing Director- appointed on 4 August 2004) G B Starr (resigned as managing Director and CEO on 4 August 2004) M Jacobsen (appointed as a Director on 11 January 2005 and resigned on 31 May 2005)
 Non-executive directors
 D A Ballhausen
 D C Baker (resigned 11 January 2005)
 R M Willcocks
 C D Patterson (Removed on 9 September 2004)
 R Johnson (re-elected 9 September 2004)
 S W G Elliott (Removed on 9 September 2004)
 M Marriott (appointed 6 October 2005)
 I Murray  (appointed 11 January 2005)                                  
  (resigned 6 October 2005)
 Executives (other than directors) with the greatest authority for strategic direction and managementThe following persons were the five executives with the greatest authority for the strategic direction and management of the consolidated entity (“specified executives”) during the financial year.
 Name
 Position
 Employer
 M Marriott
 Chief Operations Officer (starting from 1 June 05)
 DRD Gold-
   
 S O'Connor
 Acting General Manager (starting from 1 May 05)
 
 DRD Gold-
   
 T Woodward
 Manager Technical Services
 Emperor Gold Mining Co. Ltd
 S Solanki
 Financial Controller
 Emperor Australia Pty Ltd.
 T Strydom
 Manager Operations
 Emperor Gold Mining Co. Ltd
 Not all of the above persons were specified executives during the year ended 30 June 2004. T Woodward resigned from Emperor Gold Mining Co. Ltd on 12 August 2005. S Solanki resigned from Emperor Australia Limited on 31 July 2005. From that date he has become a DRD Gold Australasia employee and has been seconded to Emperor.  T Strydom resigned from Emperor Gold Mining Co. Ltd on 31 August 2005. Remuneration of directors and executives Principals used to determine the nature and amount of remuneration The remuneration committee, consisting of three non-executive directors, advises the board on remuneration policies and practices generally taking into account the performance of the  consolidated entity  and, and makes specific recommendations on remuneration packages and other terms of employment for executive directors, other senior executives and non-executive directors.  The objective of the remuneration committee is to ensure reward for performance is competitive and appropriate for the results delivered with  achievement of strategic objectives and the creation of value for shareholders, and conforms with market best practice for delivery of reward. The Board (through remuneration committee) ensures that executive rewards  are appropriate on an industry basis, are structured to meet retention objectives, have reference to suitable production outcomes and satisfy the following criteria for good reward governance practices: •


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   
 27 Director and executive disclosures (continued)
 Non-executive directorsFees and payments to non-executive directors reflect the demands which are made on and the responsibilities of the directors. Non-executive directors' fees and payments are reviewed annually by the Board.  The current  non-executive directors fees are determined within an aggregate directors’ fee limit,  which  was approved by shareholders in November 1999. The maximum current aggregate Non-executive directors’ fee limit stands at $250,000. Retirement allowance for directorsJ A  Wall,  R M  Willcocks and  D A  Ballhausen have retirement benefits in accordance with their letters of appointments. Executive payExecutive remuneration is reviewed annually having regard to performance against mine based production goals set at the start of the year, relevant comparative information and independent expert advice.  The executive pay and reward has four components:
 ·
 base pay and benefits comparable with industry norms and benchmarked against other mining companies within the region
 ·
 short-term performance incentives relating to mine performance - achievement of production outcomes (Key Performance Indicators)
 ·
 long-term incentives through participation in the Share-based compensation-Emperor’s Employees and Directors Incentive Share option Plan. and
 ·
  The combination of these comprises the executive's total remuneration. Base payStructured as a total employment cost package which may be delivered as a mix of cash and salary sacrifice arrangement at the executives’ discretion. Base pay for senior executives is benchmarked against other mining companies within the region and are reviewed annually to ensure executive's pay is competitive with the market. An executives’ pay is also reviewed on promotion.
 
  
 BenefitsExecutives receive benefits including health insurance and car parking.Short term incentives  Key performance indicators (KPI) are measured by the Board for Chief Executive Officer and by the Chief Executive Officer for other senior executives by which the performance of executives can be monitored.  KPI’s are set annually and are structured to reflect the Board’s expectations regarding the performance of the consolidated entity and its operations and activities. Parent level executives KPI’s are awarded based on a number of factors including share price performance and achievement of budgeted total cash cost per ounce.  KPI’s at operations level are set by Chief operations officer based on Board’s expectations. Senior executives at operations level are awarded KPI’s based on achievement of factors such:
 ·
 
 ·
 
 ·
 
 ·


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   
 27 Director and executive disclosures (continued)
 Emperor Mines Employee Option Plan As part of strategy to retain senior employees through long-term incentives share options were issued to employees under the terms of Emperor Mines Limited Employees and Directors Incentive Share Option Plan during the year.  Information on the Emperor Mines option plan is set out in Note 31. Remuneration of directors and executives (continued) Details of remuneration
   
 Directors of Emperor Mines Limited
 2005
 Primary
 Post-employment
 Equity
 
 Name
 Cash
 salary
 and fees
 Cash
 bonus
 Non-
 monetary
 benefits
 Super-
 annuation
 Retirement
 benefits
 Options
 Total
 
 $
 $
 $
 $
 $
 $
 $
                                                 D C Baker ***
                                               Total
        *G B Starr resigned from the position of managing director and chief executive officer and M Wellesley-Wood was appointed as managing director on 4 August 2004. ** C D Patterson and S W G Elliott were removed as directors of the Company and R Johnson was re-elected as a director of the Company at the General Meeting held on 9 September 2004.  *** I Murray was appointed as non-executive directors of the Company 11 January 2005. He resigned on 6 October 2005.  D C Baker resigned as director on 11 January 2005.  ****M Jacobsen was appointed as operations director on 11 January 2005. Before this appointment he was the Company’s Chief operations officer. Amount shown above include all Mr Jacobsen’s remuneration during the period whether as a director or as the Chief operations officer. Amounts received in his position as an executive director amounted to $113,914, made up of cash salary and fees of $92,669, non-monetary benefits of $4,811, superannuation of $8,601 and options of $7,833.   M Jacobsen resigned as director on 31 May 2005.


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   27.
 Director and executive disclosures (continued)
 Remuneration of directors and executives (continued)
 2004
 Primary
 Post-employment
 Equity
 
 Name
 Cash
 salary
 and fees
 Cash
 bonus
 Non-
 monetary
 benefits
 Super-
 annuation
 Retirement
 benefits
 Options
 Total
  $
 $
 $
 $
 $
 $
 $
                                                                 Total
        *As part of GB Starr’s resignation package his post employment benefit was paid out on 4 of August 2004.
 
 Other executives of consolidated entitySpecified executives of consolidated entity
 2005
 Primary
 Post-employment
 Equity
 
 Name
 Cash
 salary
 and fees
 Cash
 bonus
 Non-
 monetary
 benefits
 Super-
 annuation
 Retirement
  benefits
 Options
 Total
  $
 $
 $
 $
 $
 $
 $
 M Marriott
        S O'Connor
        T Woodward
        T Strydom
        S Solanki
        Total
        
 2004
 Primary
 Post-employment
 Equity
 
 Name
 Cash
 salary
 and fees
 Cash
 bonus
 Non-
 monetary
 benefits
 Super-
 annuation
 Retirement
 benefits
 Options
 Total
  $
 $
 $
 $
 $
 $
 $
 M Jacobsen
        F Hart
        S Kenworthy
        T Woodward
        S Solanki
        Total
        Service agreements M Marriott, Chief Operating Officer
 ·
  ·
 Recharged by DRD Gold of the total remuneration package plus 10% relocation allowance for the portion of services provided to Emperor.
 S O'Connor, Mine General Manager
 ·
  ·
 Recharged by DRD Gold of the total remuneration package plus 10% relocation allowance for the portion of services provided to Emperor.


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   27.
 Director and executive disclosures (continued)
 Remuneration of directors and executives (continued)T Woodward, Technical Services Manager
 ·
  ·
  ·
  ·
  T Strydom, Mine Operations Manager
 ·
  ·
  ·
  ·
  S Solanki, Financial Controller
 ·
  ·
  ·
  ·
 Resigned on 31 July 2005, from that date he has become a  DRD Gold Australasia employee and has been seconded to Emperor.
 Share-based compensation-Employees and Directors Incentive Share option Plan The establishment of the Emperor Mines Limited Employees and Directors Incentive  Share Option Plan was approved by shareholders at the 1995 annual general meeting.  Eligible participants of the Plan are employees (as determined by the Board) with not less than six months service and Directors upon appointment. The terms and conditions of each grant of options affecting remuneration in this or future reporting periods are as follows:
 Grant date
 Expiry date
 Exercise price
     29-11-01
 28-11-06
 $0.29
 $0.16
 33% after 30 Nov 02; 33% after 30 Nov 03; 34% after 30 Nov  04.
 31-10-02
 30-10-07
 $0.57
 $0.28
 33% after 1 Nov 03; 33% after 1 Nov 
 04; 34%  after 1 Nov  05.
 02-12-04
 02-12-09
 $0.63
 $0.235
 33% after 2 Dec 05; 33% after 2 Dec 06;
  34%  after 2 Dec 07.
 Options are granted under the plan for no consideration.  Options are granted for a five year period, however may only be exercised as to 33.33% after 1 year of service from the date of grant, as to 66.66% after 2 years of service from the date of grant and 100.00% after 3 years of service from the date of grant.   Options granted under the Plan lapse after 5 years from the date of  grant and after 90 days of the of the holder ceasing to be an eligible participant for any reason. Options granted under the plan carry no dividend or voting rights.  The exercise price of options is determined at the absolute discretion of the Board giving consideration to share price on the day of issue.  Options terms alteredAs per rule 6.8 of Emperor Mines Limited Employees and Directors Incentive Share Option Plan, the exercise price of all the unissued options was altered as a result of the Rights issue in November 2004.


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   27.
 Director and executive disclosures (continued)
 Remuneration of directors and executives (continued) Rule 6.8 requires the exercise price of unissued options be reduced by a calculated theoretical value if the Company carry out Rights issue and
 ·
 makes an offer of  shares pro-rata to all or substantially all shareholders for a subscription price less than the market price and
 ·
  The alteration details are as follows:
 (a)  date of alteration: 12 November 2004 (b)  share price at grant date:$0.63 (c)  the terms of the options immediately prior to alteration
 Option Class
 No of Options
 Exercise price
 Expiry date
 Vesting terms
 EMP-AAD
 225,000
 0.34
 28-Nov-06
 33% after 30 Nov 02; 33% after 30 Nov 03;
   34%  after  30 Nov  04.
 EMP-AAE
 383,333
 0.62
 30-Oct-07
 33% after 1 Nov 03; 33% after 1 Nov 04; 
 34% after  1 Nov  05.
 
 Option Class
 No of Options
 Exercise price
 Expiry date
 Vesting terms
 EMP-AAD
 225,000
 0.29
 28-Nov-06
 33% after 30 Nov 02; 33% after 30 Nov 03; 
 34% after  30 Nov  04.
 EMP-AAE
 383,333
 0.57
 30-Oct-07
 33% after 1 Nov 03; 33% after 1 Nov 04; 
 34% after  1 Nov  05.
 
 Option Class
 Fair value per share
 immediately before
 alternation
 Fair value per share
 immediately after
 alternation
 Difference
 EMP-AAD
 $0.16
 $0.30
 $0.14
 EMP-AAE
 $0.28
 $0.23
 ($0.05)
  Fair value at alternation date are determined using a Black-Scholes option pricing model that takes into account the exercise price, the terms of the option, the vesting and criteria, the impact if dilution, the non-tradable nature of the option, the share price at the alteration date and expected price volatility of the underlying share, the expected divided yield and the risk free interest rate for
 The model inputs for options altered during the year ended 30 June 2005 included:
                     (f) expected volatility of the Company’s shares


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   27.
 Director and executive disclosures (continued)
 Remuneration of directors and executives (continued) Options provided as remunerationDetails of options over ordinary shares in the Company provided as remuneration to each director of Emperor Mines Limited and each of the five specified executives of the consolidated entity are set out below. When exercised, each option is convertible into one ordinary share of Emperor Mines Limited. Further information on the options is set out in Note 31.
       M Jacobsen
    Specified executives of the consolidated entity
 M Marriott
   S O'Connor
   T Woodward
   S Solanki
   T Strydom
   Shares provided on exercise of remuneration options
        G B Starr
    M Jacobsen
    Specified executives of the consolidated entity
 M Marriott
   S O'Connor
   T Woodward
 
  S Solanki
 
  T Strydom
 -
  The amounts paid per ordinary share by each director and executive on the exercise of options at the date of exercise were as follows:
 Exercise date
 Amounts paid per
 share
       No amounts are unpaid on any shares issued on the exercise of options.


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   27.
 Director and executive disclosures (continued)
 The numbers of options over ordinary shares in the Company held during the financial year by each director of Emperor Mines Limited and each of the five specified executives of the consolidated entity are set out below. Remuneration of directors and executives (continued)
  Balance at 1 July 2004
 Granted during the year
 Exercised during the year
 Balance at 30 June 2005
 Vested and exercisable at 30 June 2005
  
            M Jacobsen
       Specified executives of the consolidated entity
 M Marriott
      S O'Connor
      T Woodward
      S Solanki
      T Strydom
      All options vested were exercisable at the end of the year.  2,383,333 options issued were not vested at reporting date. Share holdingsThe numbers of shares in the Company held during the 2005 financial year by each director of Emperor Mines Limited and each of the five specified executives of the consolidated entity, including personally-related entities, are set out below.
               Directors of Emperor Mines Limited Ordinary shares J A Wall
                              M Wellesley-Wood, and I Murray are Chief Executive officer and Chief Financial and Corporate Development officer of DRD Gold respectively. R Johnson is Divisional Director Australasia, of DRD Gold. DRD Gold held 71,511,904 shares in the Company at 30 June 2005 (30 June 2004: 29,413,015).
                Specified executives of the consolidated entity Ordinary Shares
 M Marriott
     S O'Connor
     T Woodward
     S Solanki
     T Strydom
     Loans to directors and executivesNo loans were made to directors of Emperor Mines Limited and five specified executives of the consolidated entity,


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   27.
 Director and executive disclosures (continued)
 Remuneration of directors and executives (continued) Other transactions with directors and specified executives Directors of Emperor Mines LimitedA director and chairman, J A Wall is a director is a shareholder of Jim Wall and Associates Pty Limited. Emperor Mines Limited engaged his services on matters associated with the November 2004 Rights issue and on the financial and operational restructuring package during June 2005.  The fees charged are comparable to similar transactions negotiated in the market. A director, R M Willcocks is a director and shareholder of Dunraven Holding Pty Ltd (formally Elaland Pty Limited). Emperor Mines Limited engaged his services during the year for evaluating financing options available for the proposed new power station at mine site and on matters associated with the November 2005 Rights issue. The fees charged are comparable to similar transactions negotiated in the market. A managing director, M Wellesley-Wood is the CEO of DRD Gold, Emperor’s major shareholder. Emperor Mines Limited reimburses DRD Gold for his services as managing director of Emperor Mines Ltd.  The fees charged are comparable to similar transactions negotiated in the market. Amounts recognised as an expense in respect of the above
    
   2005
   $’000
  Business development
 -
  Power generation project
 15
  Due Diligence fees-Convertible note
 6
  Professional services
 150
  
 171
  Amounts recognised as share issue cost  (Contributed equity)
 Rights issue
 66
  Specified executives of the consolidated entity No other transactions were carried out with specified executives outside the normal employment terms.  28.    Remuneration of auditorsThis financial report prepared for the years ended 30 June 2005 and 30 June 2004 was audited by KPMG Sydney.  KPMG’s audit fees are being reimbursed by the consolidated entity’s major shareholder, DRD Gold Limited.  No taxation or other services have been provided by KPMG to Emperor Mines Limited.29.  Contingent liabilities
 At 30 June 2005, the consolidated entity had contingent liabilities in respect of bank and other guarantees and other matters arising in the ordinary course of business amounted to $718,000 (2004 $659,000) to third parties. The consolidated entity is defendant in various legal actions and the outcome of such actions are not expected to give rise to any significant loss not already provided for in the financial statements.


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   30.
 Commitments for expenditure
 
 
  Capital Commitments
 2005
 $'000
   Commitments for the acquisition of plant and equipment contracted for at the reporting date but not recognised as liabilities payable:
 
   799
  Exploration Commitments
 
  In order to maintain current rights of tenure to exploration and mining tenements, the consolidated entity has the following discretionary exploration expenditure requirements up until expiry of the leases.  These obligations, which are subject to renegotiation upon expiry of the leases, are not provided for in the financial statements and are payable:
   165
   Finance Leases
 
 
 Commitments in relation to finance leases are payable as follows:
 
   100
   166
   266
   (27)
   239
    
   87
   152
   239
    Operating leases
 
  Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows:
 
   83
   309
  Commitments not recognised in the financial statements
 
 392
    
  Future minimum lease payments expected to be received in relation to non-cancellable sub-leases of operating leases not recognised in the financial statements
 
 78


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   31.
 Employee benefits
 
 2005
 $'000
    
  Included in other creditors and accruals-current (Note 15)
 
 563
   Provision for employee entitlements- current (Note 17)
 
 1,166
   Provision for employee entitlements-   Non-current (Note 21)
 
 861
   Aggregate employee benefit and related on-costs liabilities
 
 2,590
   Employee numbers
  2005
  Number of employees at reporting date
 
 1,986
   Employees’ and Directors’ Incentive Share option PlanThe establishment of the Emperor Mines Limited Employees’ and Directors’ Incentive  Share Option Plan was approved by shareholders at the 1995 annual general meeting.   Eligible participants of the Plan are employees (as determined by the Board) with not less than six months service and Directors upon appointment. Options are granted under the plan for no consideration.  Options are granted for a five year period, however may only be exercised as to 33.33% after 1 year of service from the date of grant, as to 66.66% after 2 years of service from the date of grant and 100.00% after 3 years of service from the date of grant.  Options granted under the Plan lapse after 5 years from the date of grant and after 90 days of the of the holder ceasing to be an eligible participant for any reason. The exercise price of options is determined at the absolute discretion of the Board. Options may not be issued under this Plan if, immediately following the issue, the total number of shares which would, on exercise of any such options if they were to be issued by the Company, when aggregated with the number of Shares issued by the Company pursuant to any other Employee Share or Share Option Scheme during the previous five (5) years, would exceed five per cent (5%) of the total number of Shares in the share capital of the Company on issue at the proposed Date of Issue (and disregarding any Shares issued or to be issued to a Director or to an employee situated at the time of the receipt of the offer or invitation outside Australia), or such other number of Options, from time to time, above which number the issue of Options would give rise to a requirement for the Company to prepare and issue a prospectus referable to the proposed issue of Options or Shares on exercise of the Options. Set out below are summaries of options granted under the plan.
 Grant
 date
 Expiry
 date
 Exercise
 price
 
 Balance at
 the start of
 the year
 Issued
 during the
 year
 
 Exercised
 during the
 year
 Lapsed
 during the
 year
 Balance at
 the end of
 the year
 
 
 *
 Number
 Number
 Number
 Number
 Number
 2005
 
 29-11-01
 28-11-06
 $0.30
 500,000
 -
 (500,000)
 -
 -
 29-11-01
 28-11-06
 $0.29
 533,333
 -
 (308,333)
 -
 225,000
 31-10-02
 30-10-07
 $0.57
 500,000
 -
 (116,666)
 (216,667)
 166,667
 02-12-04
 02-12-09
 $0.63
 -
 2,300,000
 -
 -
 2,300,000
 Total
 
 
 
 1,533,333
 2,300,000
 (924,999)
 (216,667)
 2,691,667
 *These exercise prices have been adjusted for the effect of the rights issue as disclosed in Note 27. 2004
 
 29-11-01
 28-11-06
 $0.30
 500,000
 -
 -
 -
 500,000
 29-11-01
 28-11-06
 $0.34
 583,333
 -
 50,000
 -
 533,333
 31-10-02
 30-10-07
 $0.62
 500,000
 -
 -
 -
 500,000
 Total
 
 
 
 1,583,333
 -
 50,000
 -
 1,533,333


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   31.
 Employee benefits (continued)
 Options exercised during the financial year and number of shares issued to employees on the exercise of options.
     2005
 Number
 2004
 Number
   924,999
    -
    924,999
    308,334
  
  
  
 2005
 $
   Aggregate proceeds received from employees on the exercise of options and recognised as issued capital
 327,166
  
  
 
 
 2005 $000
 2004 $000
 Fair value of shares issued to employees on the exercise of options as at their issue date
 723
  Superannuation FundThe consolidated entity has a legal obligation to contribute to relevant superannuation plans. In Fiji, the funds are remitted to the Fiji National Provident Fund (a defined contribution  retirement  fund), a National regulatory body and a trustee managed employee super fund for expatriate employees.  In Australia, Superannuation Guarantee (SG) contributions are made to employee nominated trustee-administrated funds. These plans are generally funded by contributions from employees and by the consolidated entity, taking account of the statutory requirements of the relevant countries. 32.
 Related parties
 Directors and specified executives
 Disclosures relating to directors and specified executives are set out in Note 27. Other related partiesSince becoming a major shareholder in July 2004, DRD Gold have provided Emperor with mining and technical support on cost plus  10% relocation allowance. The aggregate amounts included in determination of loss from ordinary activities before income tax that resulted from transaction with each class of other related parties:
  
 
 Un-audited
  2005 $000
 2004 $000
 2003 $000
  150
    177
    220
     10


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   32.
 Related parties (continued)
 The aggregate amounts payable to each  class of other related parties:
  
     2005 $000
 2004 $000
 2003 $000
  169
   I Murray  and R Johnson, non executive directors of the Company are Chief Financial and Corporate Development officer of  DRD Gold and Divisional Director DRD Gold Australasia respectively,  are not compensated by  the Company or any of its subsidiaries.
 
 33.
 Investments in controlled entities
 Name of entity
 Country of
 incorporation
 Equity holding
 
   
    2005
    %
  Emperor Gold Mining Company Limited
   
 100
     100
    100
  Tuvatu Gold Mining Company Limited
   
 100
   Sovereign Insurance Company Limited
   
 100
     100
    100
      (i)
  34.
 Interest in joint venture
 The consolidated entity’s 49% interest in a joint venture of South Pacific Infrastructure Pty Limited, incorporated on 5 January 2000, for the purpose of pursuing the development of infrastructure projects in the South Pacific was disposed of during the 2005 year. There has been no financial implication as a result of this disposal


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   35.
 Reconciliation of operating loss from ordinary activities after income tax to net cashflows from operating activities
  
   2005
    $000
 $000
 $000
 
 Operating (loss) after income tax
 (33,734)
    10,739
   Exploration and evaluation expenditure written off/provided against
 318
    47
    (157)
    15,248
    43
    (60)
   Change in operating assets and liabilities:
 
    186
    4,355
     (129)
    (2,222)
     2,576
     (2)
   Net cash flow provided by/(used in)   operating activities
 (2,792)
    36.
 Non-cash financing and investing activities
 
     
   2005
    $000
 $000
 $000
  Acquisition of light vehicles by means of finance lease
 
 191
    37.
 Events subsequent to balance date
 (a)
 Financing and operating assistance from DRD Isle of Man
 On 29 August 2005 Emperor shareholders approved a $10,000,000 convertible loan facility to be provided by DRD (Isle of Man) Limited (“DRD Isle of Man”).  DRD Isle of Man is a 100% owned subsidiary of Emperor’s  major shareholder, DRD Gold.  The convertible loan  facility is secured by a first ranking charge over Emperor’s 100% interest in the Tuvatu Gold Prospect in Fiji.  Amounts drawn down under this facility are subject to  an interest charge at a  rate of 9% per annum and the facility is  repayable upon receipt of the  Tuvatu Gold Prospect sale proceeds or by 31 December 2007.  The convertible loan facility is convertible, at DRD Gold’s election, into ordinary fully paid shares of Emperor at a conversion price equal to the lower of  $0.30 per Emperor share or the 45 day volume weighted average price of Emperor shares on Australian Stock Exchange prior to the date of conversion.  As at 13 December 2005 Emperor has fully drawn down this $10,000,000 convertible loan facility. Emperor has also entered into an Operational Support Agreement whereby DRD Gold provides management and technical services to the consolidated entity.


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   37.
 Events subsequent to balance date (continued)
 (b)
 Tuvatu Gold Prospect sale agreement
 On 16 November 2005, Emperor agreed to sell its 100% interest in the Tuvatu Gold Prospect to Alcaston Mining NL (“Alcaston”), an unrelated party, for $4,000,000 cash and 38,000,000 Alcaston shares issued at a deemed price of $0.15 per share.   Alcaston will also pay a $10 per ounce royalty to Emperor in respect of gold produced from the Tuvatu Gold Prospect current resource area (as defined in the agreement), up to a maximum of $1,000,000 per annum and a total of $2,000,000. For all gold produced outside the current resource area, an additional royalty of 1% of the value of all gold produced is payable (excluding the first 200,000 ounces of production). This agreement requires Alcaston shareholder approval pursuant to section 611 of the Corporations Act as Emperor’s ownership interest in Alcaston will exceed 20%. Following such approval it is anticipated that Mr. Richard Johnson, an Emperor Director, will join the Board of Alcaston as a non-executive director. (c) Acquisition of DRD Gold’s Papua New Guinea assets
 On 16 November 2005,  Emperor  concluded a sale and purchase agreement  with  DRD Gold, a related party, whereby Emperor acquires 100% of DRD Gold’s wholly owned subsidiary, DRD (Isle of Man) Limited (“DRD Isle of Man”). DRD Isle of Man owns  DRD Gold’s Papua New Guinea assets,  comprising a 20% interest in the Porgera Joint Venture (“Porgera”), a 100% interest in the Tolukuma Gold Mine (“Tolukuma”) and exploration tenements in Papua New Guinea. Before this sale and purchase transaction can occur, DRD Gold must restructure its offshore operations. This involves DRD Isle of Man transferring its 45.33% interest in Emperor and the $10,000,000 convertible loan facility it has extended to Emperor to DRD Gold (Offshore) Limited (“DRD Offshore”).  DRD Gold will then sell DRD Isle of Man to DRD Offshore and DRD Offshore will on-sell DRD Isle of Man to Emperor. The restructuring of DRD Isle of Man is subject, inter alia, to the following conditions precedent:
 ·
  ·
  ·
  The purchase consideration payable by Emperor to DRD Offshore is subject to certain completion adjustments to reflect the change in the capital position of both Emperor and DRD Isle of Man between 1 October 2005, which is the effective date, and completion of the transaction. The purchase consideration will be settled by a combination of new Emperor shares issued to DRD Offshore and cash. The sale and purchase transaction between Emperor and DRD Offshore is subject, inter alia, to the following conditions precedent:
 
 ·
  ·
  ·
  ·
  ·
  ·
 A number of regulatory and banking consents and approvals being obtained in relation to the existing Vatukoula project debt facility from ANZ.
  The independent Directors of Emperor have recommended that shareholders approve the transaction and have commissioned Grant Thornton Corporate Finance to prepare an independent expert’s report on the proposal for Emperor shareholders.  Emperor will circulate a shareholder notice relating to the purchase transaction to all Emperor shareholders by the end of December 2005.


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   (d)
 Intention to undertake a fundraising
 On 17 November 2005, Emperor announced its intention to raise approximately US$15,000,000 through the placement of new shares following shareholder approval of the sale and purchase transaction with DRD Offshore.  On 5 December 2005 Emperor placed $8,800,000 of new shares with institutional investors and private shareholders.  The balance of funds is expected to be raised in early 2006. (e)
 ANZ Bank standstill agreement
 On 12 December 2005 Emperor entered a standstill agreement with ANZ Bank.  Under this agreement the ANZ Bank has agreed to:
 ·
  ·
  ·
 To make available further financial accommodation by way of equipment leasing to Emperor in an aggregate amount up to $4,000,000; and
 ·
  The terms and conditions of this agreement are detailed in Note 19. (f)
 Proposed new ANZ new facility agreement
 In order to fund Emperor’s cash component of the total consideration to be paid to DRD Offshore for the purchase of DRD Isle of Man and provide additional working capital, the ANZ Bank has provided Emperor with a term sheet to establish a new US$42,000,000 facility.  This facility would include a project debt facility and a working capital facility. The project debt facility would be available for drawdown from the date the sale and purchase agreement referred to in Note 37(c) is finalised until 30 June 2007.  For amounts drawn down under the facility Emperor would be required to make interest only payments until 1 January 2007 when scheduled quarterly principle repayments commence.  These repayments would continue until 31 December 2011 (5 years). The Working Capital Facility would be available for general working capital purposes but not for the purpose of meeting interest or principal repayments under the Project Debt Facility.  The Working Capital Facility would be available from the date the sale and purchase agreement referred to in Note 37(c) is finalised and would be renewable annually. As a part of the overall facility, ANZ Bank will require Emperor to
 ·
 Develop and maintain relevant risk management programs to mitigate interest rate, foreign exchange and commodity price movements;
 ·
 Maintain an offshore Debt Service Reserve Account to fund the equivalent of the following 3 months of interest and principal repayments due; and
 ·
  o
  o
  o
  o
  o
   placed in a Lockup Account.  If the Financial Covenant is not restored by the next Calculation Date, then all funds in the Lockup Account and all free cash would be applied to the repayment and permanent reduction of the Project Debt Facility until the Financial Covenants are restored.
  Should amounts be drawn down under this facility prior to 30 June 2006, an additional funding review will be conducted by the ANZ Bank to ensure sufficient funds are available to fund a specific project in relation to the Porgera mine. The terms of the facilities are still being finalised and are subject to a number of conditions, including agreement on security of the facility and completion of the proposed sale and purchase agreement referred to in Note 37(c).


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   38.
 Earnings per share
 
  
    2005
 $
      (0.23)
    (0.23)
     
 
   2005
 Shares
     Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share.
 143,879,606
   Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share.
 143,879,606
     
    2005
 $'000
  $'000
  $'000
 
 
    (33,734)
    (33,734)


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   
 39.
 Impacts of Adopting Australian equivalents to International Financial Reporting Standards
 
 The Australian Accounting Standards Board (AASB) is adopting International Financial Reporting Standards (IFRS) for application to reporting periods beginning on or after 1 January 2005.  The AASB has issued Australian equivalents to IFRS, and the Urgent Issues Group has issued interpretations corresponding to IASB interpretations originated by the International Financial Reporting Interpretations Committee or the former Standing Interpretations Committee.  These Australian equivalents to IFRS are referred to hereafter as AIFRS.  The adoption of AIFRS will be first reflected in the consolidated entity's financial statements for the half-year ending 31 December 2005 and the year ending 30 June 2006. Entities complying with AIFRS for the first time will be required to restate their comparative financial statements to amounts reflecting the application of AIFRS to that comparative period.  Most adjustments required on transition to AIFRS will be made, retrospectively, against opening accumulated losses as at 1 July 2004. The known or reliably estimable impacts on the financial report for the year ended 30 June 2005 had it been prepared using AIFRS are discussed below.  The expected financial effects of adopting AIFRS for the statements of financial performance and the statements of financial position are commented upon below with descriptions of the differences.  No material impacts are expected in relation to the statements of cash flows. Although the adjustments disclosed in this note are based on management's best estimate of expected standards and interpretations, and current facts and circumstances, these may change.  For example, amended or additional standards or interpretations may be issued by the AASB and the IASB. Therefore, until the  consolidated entity prepares its first full AIFRS financial statements, the possibility cannot be excluded that the accompanying disclosures may have to be adjusted. (a) Share Based Payments Under AASB 2 Share-based Payment, from 1 July 2004 the Consolidated entity is required to recognise an expense for those options that were issued to employees under the Emperor Mines Limited Employees and Directors Incentive Share Option Plan. This will result in a change to the current accounting policy.  Currently no expense is recognised for equity-based compensation. The  consolidated entity has utilised the available exemption within AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards for not recognising an adjustment for options issued prior to 7 November 2002 or which had vested prior to 1 January 2005. If the policy required by AASB 2 Share-based Payment had been applied during the year ended 30 June 2005, the share based payment reserve within equity at 30 June 2005 would have been $105,000 and the employee benefit expense for the year ended 30 June 2005 would have been $105,000. The options issued are measured at fair value at the grant date by using the Black-Scholes option pricing model.  There would have been no impact to  accumulated losses at 1 July 2004 as the above adjustments only relate to options which have been granted after that date.


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   39. Impacts of Adopting Australian equivalents to International Financial Reporting Standards (continued) (b) Income Tax Under AASB 112 Income Taxes, deferred tax balances are determined using the balance sheet method which calculates temporary differences based on the carrying amounts of an entity's assets and liabilities in the statement of financial position and their associated tax bases.  In addition, current and deferred taxes attributable to amounts recognised directly in equity are also recognised directly in equity. This will result in a change to the current accounting policy, under which deferred tax balances are determined using the income statement method, items are only tax-effected if they are included in the determination of pre-tax accounting profit or loss and/or taxable income or loss and current and deferred taxes cannot be recognised directly in equity. The consolidated entity does not currently recognise deferred tax balances due to the availability of unrecognised tax losses of $56,931,000 resulting primarily from operating losses of wholly owned subsidiaries. The  consolidated entity continues to examine the tax implications of the transition to AIFRS.  At this stage the consolidated entity is not able to quantify with sufficient reliability to report the impact of AASB 112 Income Taxes, at the date of transition to AIFRS or the impact on the earnings for 2005. (c) Property, Plant and Equipment Under AASB 116 Property, Plant and Equipment, from 1 July 2004 the consolidated entity is required to measure a tangible fixed asset after initial recognition under either of the models listed below: (i) Cost Model After recognition as an asset, an item of property, plant and equipment shall be carried at its cost less any accumulated depreciation and any accumulated impairment losses.   (ii) Revaluation model After recognition as an asset, an item of property, plant and equipment whose fair value can be measured reliably shall be carried at a re-valued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses.  Revaluations should be carried out with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value.   The consolidated entity has elected to utilise the cost model from 1 July 2004.  This is a change from the current accounting policy whereby property, plant and equipment could be re-valued.  However, there will be no impact on the financial statements at 1 July 2004 and for the year ended 30 June 2005 as a result of this change in accounting policy. (d) Effects of Changes in Foreign Exchange Rates On the initial application of AIFRS, the Consolidated entity will elect to apply the exemption in AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards relating to the balance of the foreign currency translation reserve.  The cumulative translation differences for all foreign operations represented in the foreign currency will be deemed to be zero at the date of transition to AIFRS. This will result in the foreign currency translation reserve amounting to $20,432,000 being reclassified against accumulated losses at 1 July 2004. (e) Financial Instruments The consolidated entity will be taking advantage of the exemption available under AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards to apply AASB 132 Financial Instruments: Disclosure and Presentation and ASAB 139 Financial Instruments: Recognition and Measurement only from 1 July 2005.  This allows the  consolidated entity to apply previous Australian generally accepted accounting principles (“Australian GAAP”) to the comparative information of financial instruments within the scope of AASB 132 and AASB 139 for the 30 June 2006 financial report.


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   Under AASB 132, the current classification of financial instruments issued by entities in the  consolidated entity would not change. 39. Impacts of Adopting Australian equivalents to International Financial Reporting Standards (continued) AASB 139 is likely to have the following impacts. (i) Classification and measurement of financial assets and liabilities Under AASB 139, financial assets held by entities in the consolidated entity will be classified as either at fair value through profit or loss, held-to-maturity, available for sale or loans and receivables and, depending on the classification, measured at fair value or amortised cost. Under AASB 139, the following classifications will apply: Loans and receivables and financial liabilities classifications will remain unchanged.  Measurement of these instruments will initially be at fair value with subsequent measurement at amortised cost, using the effective interest method. Debt investments will be classified as held-to-maturity investments.  Measurement of these financial assets will initially be at fair value with subsequent measurement at amortised cost, using the effective interest method. This does not effectively result in a change to the current accounting policy, under which financial assets are carried at the lower of cost and recoverable amount, with changes recognised in the profit or loss.  As a result of the application of the exemption referred to above, there would have been no adjustment  to classification or measurement of financial assets or liabilities from the application of AIFRS during the year ended 30 June 2005.  Changes in classification and measurement will be recognised from 1 July 2005. (ii) Cash flow hedges Forward gold contracts held and accounted for as hedge under the current accounting policy will not qualify for hedge accounting under AASB 139 because the appropriate documentation and other requirements have not been met. Management will separately recognise at fair value all of the contracts, including those entered to cover future cash flows, on the opening balance sheet at 1 July 2005.  The corresponding adjustment will be to the “Cash Flow Hedging Reserve” in equity.  Future movements in the fair value of the forward gold contracts will be recorded in the Statement of Financial Performance.  This will result in a change to the current accounting policy whereby only the portion of the hedge book not accounted for under UIG 25 Redesignation of Hedges, as described below, was accounted for on the Statement of Financial Position and no entries were made to the Statement of Financial Performance.   The “unrealised commodity loss” at 30 June 2005 amounting to $4,388,000 will be transferred to the “Cash Flow Hedging Reserve” account in equity on the 1 July 2005. In addition, the consolidated entity has a current accounting policy whereby the cumulative hedging loss is provided for in each period to coincide with the original anticipated transactions when they take place.  This policy was adopted in 2003 in accordance with UIG 25 as a result of a redesignation which occurred in 2003.  At 30 June 2005, a total of $8,542,000 has been deferred on the balance sheet in a "Provision for Hedge Redesignation" account.  In accordance with AASB 1 and AASB 139, this treatment needs to continue prospectively (i.e. a continuation of the deferral of the hedging losses and the subsequent release of these losses to the Statement of Financial Performance in accordance with the original pattern of hedged transactions).   On 1 July 2005, the existing "Provision for Hedge Redesignation" will be transferred to a “Cash Flow Hedging Reserve” in equity. As a result of the application of the exemption referred to above, there would have been no adjustment to classification or measurement of cash flow hedges from the application of AIFRS during the year ended 30 June 2005. Changes in classification and measurement will be recognised from 1 July 2005.


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   39. Impacts of Adopting Australian equivalents to International Financial Reporting Standards (continued) (f) Rehabilitation Provision AASB 137 Provisions, Contingent Liabilities and Contingent Assets requires that the present value of restoration obligations associated with the mining operations be recognised as a noncurrent liability and the cost of future restoration be capitalised as part of the relevant project.  The capitalised cost is then amortised over the life of the project and the provision is accreted periodically as the discounting of the liability unwinds.  The unwinding of the discount is recorded as interest expense. This differs to the current accounting policy where the  Consolidated entity provides for or charges expenditures related to ongoing rehabilitation and restoration programmes, including exploration areas on non – freehold land, to costs of production as incurred. As a result of this change in accounting policy, the following consolidated entity balances would have been different: At 1 July 2004 on transition to AIFRS, a non–current provision for rehabilitation would be created for approximately $1,100,000 resulting in a net increase in accumulated losses of $1,100,000. Under AIFRS the impact on earnings during the financial year to 30 June 2005 would have been an increase in the rehabilitation expense of $2,000. (g) Revenue RecognitionUnder AASB 118 Revenue, the point of sale will be recognised when the refinery process of the third party has been finalised and the sale transaction to the third party has been completed. This will result in a change to the current accounting policy allowed under AASB 1022 Accounting for the Extractive Industry as revenue is currently recorded at the point in time when the gold is taken off site from the mine by the transportation company. There is no material impact of the above as at 1 July 2004 and no impact on earnings to 30 June 2005. (h) Exploration ExpensesAASB 6 Exploration for and Evaluation of Mineral Resources was issued in December 2004 and replaces AASB 1022 Accounting for the Extractive Industry. The guidance specified by AASB 6 is broadly consistent with the factors used to determine whether or not an entity can continue to recognise its capitalised exploration and evaluation expenditures under AASB 1022.


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   40.
 U.S. Generally Accepted Accounting Principles disclosures
 
  
 
 The consolidated financial statements of Emperor Mines limited are prepared in accordance with Australia’s Generally Accepted Accounting Principles (“AGAAP”). Certain significant differences exist between AGAAP and U.S. generally accepted accounting principles (“U.S. GAAP”).  The significant differences between AGAAP and U.S. GAAP as they relate to the consolidated entity are presented throughout this note.
 
 
 
 Reconciliation to U.S. GAAP
 
 
 
 The following is a summary of the adjustments to net loss for the years ended 30 June 2005 and 2004  that would be required if U.S. GAAP had been applied instead of AGAAP.
 
 
 
   2005$000
 2004$000
 Reconciliation of net loss – U.S. GAAP
      (33,734)
  add/(deduct)
    Adjustments required to accord with U.S. GAAP:
     (a)
    (b)
    (c)
    (d)
    (e)
    (g)
    (h)
    (i)
           
  
 Consolidated Income Statement – U.S. GAAP
 2005
 2004
  $'000
 $'000


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   
  40.
 U.S. Generally Accepted Accounting Principles disclosures (continued)
 
  Consolidated Income Statement – U.S. GAAP
 2005
 2004
  Dollars
 Dollars
 Earnings per share – U.S. GAAP
 
   (a)
 (0.11)
   (b)
 (0.11)
  
 (a)  Based on the weighted average number of shares on issue for the period (refer note 38).  (b)  Based on the weighted average number of shares on issue for the period, adjusted to reflect the
  In accordance with FAS 128, the number of common shares used in computing EPS has been adjusted retroactively for the bonus element of the Emperor rights issue in 2005.  This adjustment affects both 2005 and all prior periods presented. The following reconciliation of comprehensive income reports changes in shareholders’ equity excluding those resulting from investments by shareholders and distributions to shareholders.
 
 
 
  2005$000
 2004$000
 Reconciliation of comprehensive income – U.S. GAAP
   Total changes in equity other than those resulting from transactions with owners under AGAAP
   Adjustments to reflect comprehensive income in accordance with U.S. GAAP, net of income tax:         
  Total U.S. GAAP adjustments to net loss per above
           The following is a summary of the adjustments to shareholders’ equity as at 30 June 2005 and 30 June 2004 that would be required if U.S. GAAP had been applied instead of AGAAP.
 
 
  2005$000
 2004$000
 Reconciliation of shareholders’ equity
      add/(deduct)
   Adjustment required to accord with U.S. GAAP:
                                    The following are the variations in the balance sheet as at 30 June 2005  and 30 June 2004 that would be required if U.S. GAAP had been applied instead of AGAAP.
 
 
 
 The column headed ‘Unadjusted’ represents a U.S. GAAP format presentation of the assets, liabilities and shareholders’ equity which have been measured in accordance with AGAAP. The column headed ‘Adjustments’ represents the allocation of those measurement differences (presented in the ‘Reconciliation of shareholders’ equity’), which are required to derive a balance sheet in accordance with U.S. GAAP.


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   40.
 U.S. Generally Accepted Accounting Principles disclosures (continued)
 
   AGAAP 30
 June 2005
 Adjustments
 30 June 2005
   30
 June 2005
  AGAAP 30
 June 2004
 Adjustments
 30 June 2004
   30
 June 2004
   $'000
 $'000
 $'000
 $'000
 $'000
 $'000
  
       3,733
       3,210
       7,413
       643
       183
       -
       15,182
       
       
       140
       49,066
       398
       417
       3,195
       4,388
       57,604
       
       72,786
       
       11,278
       16,318
       204
       1,459
       29,259
       
       500
       152
       7
       2,127
      Provision for hedging redesignation
 8,542
       
      Unrealised commodity loss payable to counter party
 4,388
       15,716
      Total liabilities
 44,975
      Net assets
 27,811
 8,874
 36,685
 43,545
 (9,365)
 34,180
  163,011
       (22,243)
       (112,957)
      Total equity
 27,811


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   40.
 U.S. Generally Accepted Accounting Principles disclosures (continued)
 
  The Emperor Mines Limited Statement of Consolidated Cash Flows has been prepared in accordance with AGAAP accounting standard AASB1026, the objectives and principles of which are similar to those set out in U.S. GAAP accounting standard SFAS 95 ‘Statement of Cash Flows’. The principal differences between the standards relate to the classification of items within the cash flow statement as well as the definition of cash and cash equivalents.
 
 
 
 The statement below shows the adjustments to be made to the AGAAP cash flow statement to reclassify it to comply with U.S. GAAP for the two years ended 30 June 2005:
 
 
  2005
 $'000
  
 Reconciliation of Cash Flows – U.S. GAAP
   Net cash (outflow)/inflow from operating activities in accordance with AGAAP
      Net cash (used in) provided by operating activities in accordance with U.S. GAAP
 (3,110)
 5,762
       Net cash used in investing activities in accordance with U.S. GAAP
 (12,133)
 (21,423)
                Net cash provided by financing activities in accordance with U.S. GAAP
 15,361
 8,771
    Net increase in cash and cash equivalents in accordance with U.S. GAAP
 75
 (6,653)
    Cash and cash equivalents at end of year
 3,733
 3,658


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   40.
 U.S. Generally Accepted Accounting Principles disclosures (continued)
 
  
 US GAAP adjustments
 
 
 (a)
 
 
 Under AGAAP, Emperor Mines Limited capitalises exploration expenditure provided that one of the following conditions is met: (iii)
     reasonable assessment of the existence or otherwise of recoverable mineral resources, and active and significant operations in relation to the area are continuing.
 Exploration expenditure which fails to meet at least one of the conditions outlined above is written off. Exploration expenditure on areas of interest outside of the Vatukoula region is fully provided for. Expenditure is not carried forward in respect of any area of interest/mineral resource unless the consolidated entity’s rights of tenure to that area of interest are current. Under U.S. GAAP, exploration costs are expensed as incurred, unless a final feasibility study indicates the existence of commercially recoverable reserves. Exploration balances capitalised by the consolidated entity under AGAAP have been expensed for U.S. GAAP.  (b)Mine properties development – capitalisation and amortisation Under AGAAP, mine development expenditure incurred by or on behalf of the entity is accumulated separately for each area of interest in which economically recoverable reserves have been identified to the satisfaction of the directors.  Such expenditure comprises net direct costs and appropriate portion of related overhead expenditure having a specific nexus with the development property.  When further development expenditure is incurred in respect of a mine property after the commencement of production, such expenditure is carried forward as part of the mine property only when substantial future economic benefits are thereby established, otherwise such expenditure is classified as part of the cost of production. Under U.S. GAAP, development costs incurred to develop or expand the capacity of operating mines are capitalised to the extent the costs are specific to an area containing proven and probable reserves as defined by SEC’s Industry Guide 7 definitions.  The costs related to areas not associated with proven or probable reserves are expensed as incurred. Under AGAAP, Emperor Mines Limited amortises mine properties on the unit-of-production method which includes future capital expenditure and is based on the total number of ounces included in the Board approved mine plan at any point in time. The total number of ounces included in the mine plan is generally in excess of proven and probable reserves but less than available resources.  The units-of-production basis under AGAAP results in an amortization charge proportional to depletion over the mine plan. U.S. GAAP requires mine properties and development to be amortised over proven and probable reserves as determined by reference to SEC’s Industry Guide 7, and does not allow the use of future capital expenditure in the calculation of the amortisation of development expenditure.  The units-of-production basis under U.S. GAAP results in an amortization charge proportional to depletion over the proven and probable reserves.  Emperor Mines Limited has prepared its capitalisation and amortisation for U.S. GAAP as follows:
 ·
 The calculation of the U.S. GAAP adjustment is based on proven and probable reserves (excluding remnant stope pillars, mineralised stope pillars and tailings reserves) determined in accordance with the SEC Industry Guide 7 based on independent review performed by a geologist specialist.
 ·
 An allocation of the development expenditure balance between in-reserve (“IR”) and not in-reserve (“NIR”) has been based on the number of tonnes mined from an IR area verses a NIR area. This data is readily available as it is reported annually in the statement of reserves which is prepared under the SEC Industry Guide 7.


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   
 40.
 U.S. Generally Accepted Accounting Principles disclosures (continued)
 
   ·
 The balance of development expenditure allocated to the IR area is amortised based on units-of-production over proven and probable reserves only. Only ounces produced from IR areas are used in this calculation; and
 ·
 The balance of development expenditure allocated to the NIR area does not have any proven and probable reserves attached to it.  Thus these NIR costs are expensed as incurred, except for the current developed face existing at period end.
 (c) Plant and equipment – unit-of-production amortisation
 
 Emperor Mines Limited under AGAAP depreciates life of mine assets, included in plant and equipment, on a unit-of-production basis based on the total number of ounces included in the Board approved mine plan at any point in time. The total number of ounces included in the mine plan is generally in excess of proven and probable reserves but less than available resources.  The units-of-production basis under AGAAP results in an amortisation charge proportional to depletion over the mine plan. U.S. GAAP requires life of mine assets to be amortised over proven and probable reserves and determined by reference to SEC’s Industry Guide 7.  The units-of-production basis under U.S. GAAP results in an amortisation charge proportional to depletion over the proven and probable reserves.   The calculation of the US GAAP adjustment is based on proven and probable reserves (excluding remnant stope pillars, mineralised stope pillars and tailings reserves) determined in accordance with SEC’s Industry Guide 7.  (d) Impairment of mine assets Emperor Mines Limited recognised an asset impairment write down under AGAAP of $15.2 million for the 30 June 2005 financial year to the recoverable amount of its mining assets. Under AGAAP to the extent to which the net carrying value of non-current assets exceeds its recoverable amount that excess is recognised in the statement of financial performance as an impairment in the financial year in which this is determined.  Based on Emperor Mines Limited’s accounting policy, the expected net cash flows included in determining recoverable amounts of non-current assets are discounted to their present values.  Under U.S. GAAP when an impairment test is undertaken, the carrying amount of an asset is first measured by reference to undiscounted cash-flows to assess if it is recoverable. Only if the asset is not recoverable on an undiscounted basis, must the entity measure impairment by comparing the asset’s carrying value to its fair value.  An impairment loss must be recognised in the income statement when an asset’s carrying amount is not recoverable and exceeds fair value. An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value. The mining assets under U.S. GAAP have lower carrying values due to accelerated amortization over proven and probable reserves and due to more restrictive expense treatment for exploration and development expenditure compared to AGAAP.  Under U.S. GAAP, the consolidated entity has determined the carrying amount of long-lived assets to be recoverable on an undiscounted basis.  Thus the write down recorded in the AGAAP accounts for the period ended 30 June 2005 has been reversed for U.S. GAAP.
 
 
 (e) Borrowing costs Under AGAAP borrowing costs capitalised for the construction of qualifying assets includes a portion of interest expense, amortisation of ancillary costs incurred in connection with arrangement of borrowings, and foreign currency exchange gains or losses on foreign denominated borrowings specifically related to funding a project’s construction.  Under U.S. GAAP, foreign currency exchange gains or losses are not considered in determining the capitalisation of borrowing costs.  The adjustment for U.S. GAAP includes the reversal of exchange gains and losses capitalised under AGAAP.


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   40.
 U.S. Generally Accepted Accounting Principles disclosures (continued)
 
  (f) Revenue recognition Under AGAAP revenue is recognised as sales revenue when, there has been a passing of risk to the customer, and: (i)   
  the product is in a form suitable for delivery and no further processing is required by, or on behalf, of the
  (ii)  
  the quantity and quality of the product can be determined with reasonable accuracy; (iii) 
  the product has been dispatched to the customer and is no longer under the physical control of the producer (or
   
 U.S. GAAP requires the following four criteria to be met before revenue is realised or realisable and earned: (i)  
  Persuasive evidence of an arrangement exists (ii)  Delivery has occurred (iii) Sellers price is fixed and determinable (iv) Collection is reasonably assured Based on the refining agreement with the consolidated entity’s single customer, the criteria is met upon customer acceptance.  This presumes that such contractual customer acceptance provisions are substantive, bargained-for terms of an arrangement and pricing occurs upon customer acceptance.  The outturn generally occurs within 2-4 business days after the delivery of the dore and it is at this point in time that the gold revenue is recognised under U.S. GAAP. Although the timing of revenue recognition can differ between U.S. GAAP and AGAAP, no differences existed as of 30 June 2005 and 30 June 2004.  However, at 30 June 2003 the revenue recognition cut-off results in a U.S. GAAP adjustment to record $910,000 of revenue and cost of sales in financial year ended 30 June 2004 instead of financial year ended 30 June 2003. (g) Restoration and rehabilitation costs
 
 Emperor Mines Limited under AGAAP did not provide for restoration and rehabilitation until the year ended 30 June 2005. Under AGAAP (pre-AIFRS), provisions are recorded for mine site rehabilitation on an incremental basis during the course of mine life.  Provisions, which are determined on an undiscounted basis, include the following costs: reclamation, plant closure, waste site closure and monitoring activities.  These costs have been determined on the basis of current costs, current legal requirements and current technology.  The provision recorded was based on the incremental approach which is not consistent with the approach taken under U.S. GAAP. U.S. GAAP principally requires that the asset retirement obligation (“ARO”) be determined when the obligation first occurred and requires an entity to create an asset and a liability at that date. U.S. GAAP only allows the accrual of ARO for which there are existing legal obligations associated with the retirement of a tangible long-lived asset and the amount of liability can be reasonably estimated.  Existing legal obligations can be established by an agreement between two or more parties, imposed by governmental units, or assumed through the legal doctrine of promissory estoppels.  Emperor’s mining lease contains a provision to have a deposit with the Directors of Mines for good performance under the Mining Act. The relevant section of the Mining Act in respect of rehabilitation indicates that “when any mining tenement is terminated or abandoned for any reason whatsoever, the person whose tenement has been terminated or abandoned shall, not later than 30 days from the termination or abandonment of the tenements, fill up all shafts, pits, holes and other excavations or otherwise secure them in a permanent manner so as to prevent persons or livestock inadvertently entering therein, and shall remove all posts marking out the land the subject of the tenement”. The U.S. GAAP adjustment made assumes that the provisions of the Mining Act create a legal obligation to restore and rehabilitate the mine properties and therefore a provision has been recognised.  The adjustment for U.S. GAAP reflects the accretion of the ARO liability and for differences in application under the incremental approach under AGAAP (pre-AIFRS).


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   40. U.S. Generally Accepted Accounting Principles disclosures (continued)
 
  (h) Fair value accounting for derivatives
 
 Under AGAAP (pre-AIFRS) the consolidated entity deferred the gains and losses from derivatives until the derivatives were settled or the hedging relationships transpired.  The hedge accounting requirements under AGAAP (pre-AIFRS) are less rigorous than those required under U.S. GAAP.   Due to the extensive record-keeping required to designate and monitor derivative transactions as hedges for U.S. GAAP, the consolidated entity marks to market its derivatives to the income statement.  Management continues to believe its derivatives are economic hedges although they do not qualify as hedges for U.S. GAAP.   The consolidated entity has undergone a process to identify all derivatives, including potential embedded derivatives.  The consolidated entity’s interest rate swaps and the gold forward contracts meet the definition of a derivative under U.S. GAAP.   The U.S. GAAP adjustment reflects the reversal of all derivative balances recognised under AGAAP, including the reversal of the ‘provision for hedging redesignation’.  Had U.S. GAAP been applied to derivatives retrospectively, the ‘provision for hedging redesignation’ would not have been recorded.  Additionally, the U.S. GAAP adjustment reflects the fair values of the consolidated entity’s interest rate swaps and the gold forward contracts at fair value on the balance sheet with changes recorded in the income statement. (i) Deferred taxes Accounting for income taxes under U.S. GAAP is based on a balance sheet approach whereas AGAAP (pre-AIFRS) focuses on an income statement approach relative to deferred taxes.  The U.S. GAAP term “temporary difference” is more comprehensive than the AGAAP term “timing difference.”  U.S. GAAP considers all differences between financial statement carrying amounts and tax written-down values (referred to as “tax basis” in U.S. GAAP) to be temporary differences, and deferred tax assets and liabilities are required to be recorded for all temporary differences (“comprehensive recognition”) with certain defined exceptions.  The concept of a timing difference under AGAAP focuses on current period (that is, income statement) differences arising that impact the calculation of deferred income tax expense. Under U.S. GAAP, deferred tax assets and liabilities shall be classified as current or non-current based on the classification of the related asset or liability for financial reporting purposes.  A deferred tax liability or asset that is not related to an asset or liability for financial reporting (i.e. loss carryforwards), shall be classified according to the expected utilization of the tax loss carryforward.  All current deferred tax assets and liabilities are netted and reported as either an asset or liability and all non-current deferred tax assets and liabilities are offset and reported as either a non-current asset or long-term liability, depending on the net result. The resulting U.S. GAAP tax adjustments reflects an increase income tax expense by $77,000 and $43,000 for the years ended 30 June 2005 and 30 June 2004, respectively.  Shareholders’ equity is increased (credited) by $251,000 and $154,000 as at 30 June 2005 and 30 June 2004, respectively. (j) Foreign currency translation reserve The adjustments recorded under U.S GAAP in the foreign controlled entities, when translated to reporting currency result in an adjustment to the foreign currency translation reserve.  The ‘foreign currency translation reserve’ is more commonly referred to as the currency translation adjustment under U.S GAAP.


Emperor Mines Limited
 
 
 
 
 Notes to the Financial Statements  for the year ended 30 June 2005 (In Australian Dollars unless otherwise stated)
   40.
 U.S. Generally Accepted Accounting Principles disclosures (continued)
 
  (k) Impact of recently issued U.S. accounting standards In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No.151 ‘Inventory Costs, an amendment of ARB No. 43, Chapter 4’ (SFAS 151). SFAS 151 requires abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) to be excluded from the costs of inventory and expensed as incurred. As such, the allocation of fixed production overheads to inventory is to be based on normal capacity of the production facilities. SFAS 151 is applicable for inventory costs incurred during the financial year beginning after 15 June 2005.  The consolidated entity is currently assessing the impact of the adoption of this standard on its financial statement. In December 2004, the FASB issued SFAS No. 153 ‘Exchange of Non-monetary Assets – An Amendment of APB Opinion No.29’ (SFAS 153). SFAS 153 eliminates the exception from fair value measurement for non-monetary exchanges of similar productive assets and replaces it with an exception for exchanges that do not have commercial substance. The standard specifies that an exchange of non-monetary assets has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for non-monetary exchanges occurring in the financial year beginning after 15 June 2005.  The consolidated entity is currently assessing the impact of the adoption of this standard on its financial statements. In December 2004, the FASB also issued SFAS No. 123 (revised 2004) ‘Share-Based Payment’ (SFAS 123R), which requires all share-based payments to employees to be measured based on their fair value at grant date. The cost is to be recognised over the period during which an employee is required to provide service in exchange for the awards or the requisite service period. SFAS 123R is applicable for the financial year beginning after 15 June 2005.  The consolidated entity will be required to apply SFAS 123R as of 1 July 2005 and intends to use the modified prospective method, as defined therein.  SFAS 123R replaces SFAS 123 and supersedes APB Opinion 25.  The consolidated entity is currently assessing the impact of the adoption of this standard on its financial statements. In March 2005, the Emerging Issues Task Force of the FASB reached a consensus in Issue No. 04-6 ‘Accounting for Stripping Costs Incurred During Production in the Mining Industry’ (EITF 04-6) that stripping costs incurred during the production phase of a mine are variable production costs. As such, stripping costs incurred during the production phase are treated differently to stripping costs incurred during the development phase, and should be included in the cost of the inventory produced during the period that the stripping costs are incurred. This consensus is applicable for the financial year beginning after 15 December 2005. The consolidated entity is currently assessing the impact of adopting EITF 04-6 on its financial statements. In March 2005, FASB Interpretation No. 47 'Accounting for Conditional Asset Retirement Obligations an interpretation of FASB Statement No. 143' (FIN 47) was issued. FIN 47 states that a conditional asset retirement obligation represents an unconditional obligation to perform an asset retirement activity where the timing or method of settlement are conditional on a future event that may or may not be within the control of the entity. The interpretation clarifies that an entity is required to recognise a liability for the fair value of a conditional asset retirement obligation, if the fair value of the liability can be reasonably estimated. Uncertainty about the timing or method of settlement of a conditional asset retirement obligation is factored into the measurement of the liability when sufficient information exists. SFAS 143 acknowledges that in some cases, sufficient information may not be available to reasonably estimate the fair value of an asset retirement obligation. FIN 47 also clarifies the conditions when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective for periods ending after 15 December 2005. The consolidated entity is currently assessing the impact of adopting FIN 47 on its financial statements. In May 2005, the FASB issued SFAS No. 154 ‘Accounting Changes and Error Corrections’ (SFAS 154) which replaced APB No.20 ‘Accounting Changes’ and SFAS No. 3 ‘Reporting Accounting Changes in Interim Financial Statements’. The standard changes the requirements in accounting and disclosure for a change in accounting principle. Under SFAS 154, voluntary changes in accounting principles are to be reported using retrospective application unless it is impracticable to do so. The standard is effective for accounting changes and corrections of errors made in the period beginning after 15 December 2005.


Emperor Mines Limited Directors’ Declaration In the opinion of the directors of Emperor Mines Limited: 1.
          2.
    Signed in accordance with a resolution of the directors.
  
  /s/ JA Wall
 /s/ M Wellesley-Wood


Report of Independent Registered Public Accounting Firm
  The Board of Directors Emperor Mines Limited:
 We have audited the consolidated statements of financial position of Emperor Mines Limited and subsidiaries as of June 30, 2005 and 2004, and the related consolidated statements of financial performance, and cash flows, for each of the years in the two-year period ended June 30, 2005.  These consolidated financial statements are the responsibility of the  Company’s  directors.  Our responsibility is to express an opinion on these consolidated financial statements, based on our audits, to the directors of the consolidated entity for the purpose of inclusion with DRD Gold Limited’s (“DRD Gold), a major shareholder of Emperor, annual report on Form 20F filed in the United States of America under the
  Securities Act of 1934. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
  (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about
  whether the consolidated financial statements are free of material misstatement.  An audit includes consideration of
  internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
  circumstances, but not for the purpose of expressing an opinion on the effectiveness of the  consolidated entity’s
  internal control over financial reporting.  Accordingly, we express no such opinion. An audit includes examining, on
  a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also
  includes assessing the accounting principles used and significant estimates made by management, as well as
  evaluating the overall  consolidated  financial statement presentation.  We believe that our audits provide a
  reasonable basis for our opinion.
 In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Emperor Mines Limited and its subsidiaries as of June 30, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the two-year period ended June 30, 2005, in conformity with generally accepted accounting principles in Australia.
 Accounting principles generally accepted in Australia vary in certain significant respects from U.S. generally accepted accounting principles.  Information relating to the nature and effect of such differences is presented in Note 40 to the consolidated financial statements.
 The consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1(w) to the consolidated financial statements the Company has suffered recurring losses from operations and has a working capital deficit that raises substantial doubt about its ability to continue as a going concern.  The Director’s plans in regard to this uncertainty are described in Note 1(w).  The consolidated financial statements do not include any adjustments that might result from the outcome of this
  uncertainty.
               /s/ KPMG