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Registered Officesecond Floor24 Outram streetWEsT PERTh WA 6005Ph: (08) 9481 1211Fax: (08) 9481 1233

DirectorsKim Robinson Executive chairmanJoe Treacy Executive directormark Ashley Non-Executive director (chairman Audit committee)Ross hutton Non-Executive director (Audit committee)John (shad) Linley Non–Executive director (Audit committee)

The Full Board constitutes the Remuneration and Nomination committees.

Company Secretarydavid Peterson

AuditorsWhK horwathLevel 6 256 st georges Terrace PERTh WA 6000

Share Registrarsecurity Transfer Registrars Pty Ltd770 canning highwayAPPLEcROss

WA 6153

Legal AdviserNeil Fearisminter EllisonLevel 49, central Park152-158 st georges TcePERTh WA 6000

BankersNational Australia Bank Ltd1234 hay streetWEsT PERTh WA 6005

Stock Exchange ListingKagara Ltd’s fully paid ordinary shares are quoted on the AsX Ltd.

ASX CodeKZL

Annual General MeetingThe 26th Annual general meeting of the company will be held at celtic club, 1st Floor, 48 Ord street, West Perth at 11.00am Friday 7 November 2008.

Website Visit our web site which is updated regularly at:www.kagara.com.au

Email: [email protected]

K A G A R A 2 0 0 8 A N N U A L R E P O R T

2 HiGHLiGHTs

4 CHAiRmAN’s LETTER

6 FiNANCiAL REviEw

8 OPERATiONs REviEw

18 DiRECTORs’ REPORT

30 CORPORATE GOvERNANCE sTATEmENT

41 FiNANCiAL sTATEmENTs

75 DiRECTORs’ DECLARATiON

76 iNDEPENDENT AUDiT REPORT

78 AUDiTOR’s iNDEPENDENCE DECLARATiON

79 ADDiTiONAL AsX iNFORmATiON

1 Kagara Limited Annual Report 2008

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• NetprofitAfteR tAx Of

A$65 MILLION.

• eBitDA Of A$131 MILLION.

• SAleSreveNueOf A$302 MILLION.

• MetAlproDuctioN fOR the

yeAR tOtALLed 40,940 tONNes Of

cONtAINed zINc, 9,359 tONNes Of

cONtAINed LeAd ANd 26,326 tONNes

Of cONtAINed cOppeR.

• cAShMArgiN fROM the Mt GARNet

ANd thALANGA cOppeR pLANts

Of Us$1.78 peR pOUNd Of pAyAbLe

cOppeR.

• cAShMArgiN fROM the Mt GARNet

pOLyMetALLIc pLANt Of Us$0.55 peR

pOUNd Of pAyAbLe zINc.

• cAShoNhAND pLUs ReceIvAbLes Of

A$71 MILLION At yeAR eNd.

• MuNgANAtreAtMeNtplANt

cONstRUctION cOMMeNced.

• MtgArNetdecLINedcOMMeNced.

• louNgelizArD INItIAL ResOURce

Of 5.7 MILLION tONNes At 1.08%

NIcKeL (INcLUdING 263,000 tONNes At

6.4% NIcKeL.)

• reDDoMeGOLd INteRsectION Of

63.4 MetRes At 3.14 G/t GOLd.

• ADMirAlBAyINItIAL ResOURce Of

72 MILLION tONNes At 3.1% zINc,

2.9% LeAd, 18 G/t sILveR ANd

11% bARIUM.

• victoriAINItIAL ResOURce Of

3.4 MILLION tONNes At 5.1% zINc

ANd 1% cOppeR.

2 Kagara Limited Annual Report 2008 3 Kagara Limited Annual Report 2008

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dear shareholder,

In spite of significantly lower zinc and copper prices, and

increasing costs, the year has been a very successful one for

Kagara. A net profit after tax of A$65 million was achieved

based on earnings before tax, amortization and depreciation

(ebItdA) of A$131 million. Although input costs increased,

cash costs for zinc remained at Us$0.55 per pound of

payable zinc produced and for copper reduced to Us$1.45

per pound of payable copper produced. the lower profit was

largely a result of a stronger Australian dollar which, over

the year averaged 15 percent higher than the previous year.

several significant development projects were advanced

during the year. the most important of these was the

continued development of the Mungana decline. this

decline will serve the dual purpose of firstly extracting the

very high grade Mungana base metal deposit and secondly

evaluating the 43 million tonne Mungana gold-copper-silver-

molybdenum deposit. construction of the treatment plant

to process the Mungana base metal commenced during the

year and is due for completion in March 2009, at which

point Kagara’s zinc production will more than double to

in excess of 100,000 tonnes annually. copper production

will also increase by more than 35% to between 35,000

and 40,000 tonnes in the 2008-2009 year a result.

the Mt Garnet decline and the extension of the dry River

south decline down plunge to the dry River south deeps

resource also commenced. As an environmental initiative

an IxeW plant was also installed at thalanga and is now

producing copper metal from mine water on site.

exploration was again very successful with an increase in

resources net of depletion recorded for the year. the most

important additions to Kagara’s inventory in North Queensland

were an initial resource of 3.44 million tonnes grading 1.0%

copper and 5.1% zinc at victoria and extensions to the

high grade Waterloo deposit which now contains 464,000

tonnes grading 15.5% zinc, 2.9% copper 2.2% lead, 76

grams per tonnes silver and 1.39 grams per tonne gold. In

Western Australia, an initial inferred resource of 72 million

C h a i r m a n ’ s l e t t e r

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tonnes grading 6.1% lead plus zinc was announced for

the Admiral bay deposit and an initial indicated resource

of 5.719 million tonnes grading 1.08% nickel including

263,000 tonnes grading 6.4% nickel was announced for

the Lounge Lizard deposit. several gold intersections of

up to 63.45 metres grading 3.14 grams per tonne gold at

Red dome, up to 69.00 metres at 2.44 grams per tonne

gold from grade control drilling underground at Mungana

and a developing gold-copper system beneath the victoria

deposit offer an exciting development option for the future.

Kagara is on a strong growth path with an extraordinary

pipeline of exploration and development projects

backed by an outstanding team of employees and

contractors. With these complementary assets, we

can look forward to a long and productive future. In

light of a refocus on growth at the present time, your

directors have decided not to distribute a dividend for

the 2007/08 year. these funds will be primarily directed

towards completing the Mungana development which

will underwrite strong cash flows going forward.

I thank all our shareholders for their continued support

and look forward to meeting you at the company’s twenty

sixth AGM to be held on friday 7 November 2008.

yours faithfully,

KIM RObINsON

EXECUTIVE CHAIRMAN

15 september 2008

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At Year End

eQUITY

during the financial year 1.4 million unlisted employee

options were converted in ordinary shares in the company

raising $5.8 million and increasing issued capital to

216,399,775 shares. As at 30 june 2008 unlisted options

totalled 14.6 million exercisable between $6.00 and $6.50

with expiry dates between 30 june 2009 and 30 june 2010.

eXPLOraTION & deVeLOPMeNT

exploration expenditure for the financial year totalled

$54.9 million (2006: $27.0 million), which is inclusive of

$14.4 million for the Mungana exploration decline and

$22.2 million for the Admiral bay drilling programme.

FINaNCe

during the financial year, the company refinanced its

corporate banking facilities from Investec bank (Australia)

Limited to National Australia bank Ltd. the new financing

arrangements include a corporate cash facility of $100

million, a lease facility of $40 million and a guarantee

facility of $25 million. the additional financing lines

have been put in place to accommodate the company’s

growth plans including new project developments and

corporate working capital purposes. As at 30 june 2008,

$79.0 million of the corporate cash facility, $22.0 million

of performance bonds under the guarantee facility and

$21 million under the lease facility were drawn down.

HedGING

Forward Sales Contracts

As at 30 june 2008, 4,750 tonnes of copper

was hedged at A$8,981 per tonne.

Options – Copper

the company has a hedging program in place covering

30,000 tonnes of copper maturing in 30 equal instalments

of 1,000 tonnes per month to december 2010. the

hedge program is a zero cost stepped cap collar

arrangement having a floor price of Us $1.30 per pound

of copper with a cascading ceiling price of Us $2.90 for

2008, Us $2.36 for 2009 and Us $1.81 for 2010.

Foreign exchange Contracts

during the financial year Kagara closed out Us$68.8

million of foreign exchange contracts at a flat exchange

rate of Us$0.6993 with expiry dates from january

2009 to december 2010. the total realised gain was

$19.9M and will be received by Kagara in 24 equal

monthly instalments of $828,187 from january 2009.

INVeSTMeNTS

during the financial year, the company increased its

investment in Metallica Minerals Ltd to 18.19% and also

acquired a 19.79% interest in Glengarry Resources Ltd.

reSULTS

the 2008 financial result for Kagara Ltd was A$65.0 million

compared to a profit of A$89.8 million in the previous

financial year. the result was impacted by lower zinc prices

and an appreciating Australian dollar against the United

states dollar. this was partially offset by the increase in

copper production to record levels following a full year

contribution from the thalanga copper treatment plant.

sales revenue from zinc, lead and copper concentrates

increased by 5% for the financial year to $302.3M (2007:

$287.5M). during the financial year the average zinc price

of Us$1.10 per pound of payable zinc was realised from

polymetallic operations (2007: Us$1.64) and the average

copper price of Us$3.24 per pound of payable copper

was realised from the Mt Garnet copper circuit (2007:

Us$3.33). the thalanga plant produced an average copper

price of Us$3.23 per pound of payable copper (2007:

Us$3.18) and the average Us exchange rate realised

during the financial year was $0.90 (2007: $0.79).

the cash operating cost for the Mt Garnet polymetallic

plant after by-product credits for the financial year was

Us$0.55 per pound of payable zinc (2007: Us$0.55) and

Us$1.37 per pound of payable copper (2007: Us$1.58)

for the Mt Garnet copper circuit. the cash operating cost

from the thalanga copper plant was $1.49 per pound

of payable copper (2007: Us$1.39). depreciation and

amortisation charges for the financial year was $28.2 million

(2007: $18.1 million) and employee options expensed

for the period was $5.2 million (2007: $9.1 million).

FINaNCIaL POSITION

the Group’s net asset position as at 30 june 2008 was

$236 million, an increase of 15% from the previous

financial year. cash on hand as at 30 june 2008 was

$15.8 million (2007: $14.3 million) and receivables

were $55.3 million (2007: $59.3 million).

during the financial year operating cash flows increased by

5% to $116 million (2007: $111 million) as the company

benefited from higher copper revenues. cash flows used in

investing activities increased by 36% to $147 million (2007:

$108 million) as a result of increased exploration activities at

the Admiral bay project and Mungana exploration decline.

capital expenditure on underground development activities

at Mt Garnet, balcooma and Mungana also increased during

the period along with investments in listed mining companies

of Metallica Minerals Ltd and Glengarry Resources Ltd.

the 2008 year saw the benefit of Kagara’s decision in

2006 to increase copper production and to diversify away

from zinc as the main revenue driver. copper production

increased by 44% over the previous year resulting in copper

revenue accounting for over two thirds of the total sales

revenue from operations. the increase in copper production

was due to the thalanga copper plant operating for the

full year compared to 2007 when it was undergoing

commissioning and only contributed 5 months of production.

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PrOdUCTION

the 2008 year saw the benefit of Kagara’s decision in 2006

to increase copper production and to diversify away from

zinc as the main revenue driver. during the past 12 months

Kagara produced 26,329 tonnes of copper in concentrate,

40,940 tonnes of zinc in concentrate and 9,359 tonnes of

lead in concentrate. the 44% increase in copper production

over the previous year has resulted in copper revenue

accounting for 75% of the total revenue from operations.

the increase in copper production was as a result of

the thalanga plant operating for the full year compared

to 2007 when it was undergoing commissioning and

only contributed 5 months of production. All plants

performed very well over the year with recoveries

increasing across all metals. zinc recoveries averaged

91.5% (up from 87.1% last year) and average copper

recoveries across the Mt. Garnet and thalanga plants

increased to 94.2% compared to 85.2% in 2007.

At thalanga, a trial program using an ion exchange

electrowinning (IxeW) plant to extract copper metal from

mine waters was undertaken. the aim of the trial was

to clean up the mine waters prior to release from site. A

side benefit of the IxeW plan is that it produces plus 99%

metallic copper which covers a significant portion of its

operating cost. A full scale plant has now been installed.

production of polymetallic ore from balcooma was sourced

predominantly from the dry River south underground mine

with lesser production from the balcooma polymetallic pit

and the balcooma underground mine. the balcooma open pit

copper mine continued to supply ore to both copper plants

at Mt Garnet and thalanga. All open pit mining equipment is

dry hired from eMxecO and the change to owner operator

at the beginning of the year resulted in a 20% increase in

tonnes moved, much higher equipment availability rates and

greater flexibility in mining practice. As part of the plan to

minimize production disruptions from road closures during

the wet season large stockpiles of ore were built up at all

plants. At Mt Garnet open pit mining commenced and it was

originally planned to “batch” process Mt Garnet ore over

the wet season to lessen the dependence on ore trucked

from balcooma. however following some excellent internal

metallurgical research it was found that Mt Garnet ore could

be blended with the balcooma and dry River south ores. this

has allowed steady state production to be achieved and has

contributed to the higher recoveries attained. conversely

the blended feed has a lower lead grade which is the reason

for the slight drop in lead production at Mt Garnet.

MT GarNeT POLYMeTIC PLaNT

PRODUCTiON REsULTs sEPTEmbER DECEmbER mARCH JUNE totAlQuarter

2007Quarter

2007Quarter

2008Quarter

20082007/08

ORE TREATEd

Ore treated (tonnes) 137,913 120,995 127,618 133,474 520,000

zinc grade (%) 10.5 8.5 8.2 7.3 8.6

Lead grade (%) 3.8 2.4 2.3 1.5 2.5

copper grade (%) 1.0 0.9 0.9 1.0 1.0

silver grade (g/t) 46 54 59 29 47

Gold grade (g/t) 0.5 0.5 0.5 0.4 0.5

ZINC CONCENTRATE

production (tonnes) 25,999 18,423 18,662 17,221 80,305

Grade (% zinc) 52.1 50.5 51.0 49.7 51.0

contained zinc (tonnes) 13,549 9,299 9,524 8,568 40,940

zinc Recovery (%) 93.7 90.7 90.9 90.5 91.5

LEAd CONCENTRATE


Grade (% Lead) 71.1 67.4 66.2 68.8 68.8

contained lead (tonnes) 3,977 2,173 2,049 1,160 9,359

contained silver (tonnes) 4.4 2.2 2.1 2.1 10.8

contained gold (kg) 18.3 9.4 8.3 3.2 39.2

Lead recovery (%) 76.0 73.3 69.6 67.5 71.6

COppER CONCENTRATE


Grade (% copper) 28.0 27.4 25.5 22.3 25.6

contained copper (tonnes) 1,071 844 737 984 3,636



copper recovery (%) 77.0 75.2 68.4 72.5 73.6

REVENUE

(Us $/lb of payable zinc) 1.39 1.02 1.00 0.97 1.10

CAsH COsT


CAsH OpERATINg MARgIN


8 Kagara Limited Annual Report 2008 9 Kagara Limited Annual Report 20088 Kagara Limited Annual Report 2008

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MT GarNeT COPPer PLaNT

PRODUCTiON REsULTs sEPTEmbER DECEmbER mARCH JUNE totAl

Quarter2007

Quarter2007

Quarter2008

Quarter2008

2007/08

ORE TREATEd


copper grade (%) 2.5 2.9 3.4 3.2 3.1

silver grade (g/t) 14 13 16 11 13

Gold grade (g/t) 0.4 0.3 0.4 0.3 0.3

COppER CONCENTRATE


Grade (% copper) 27.0 25.4 26.2 25.5 25.8

contained copper (tonnes) 492 1,679 2,338 2,755 7,264



copper recovery (%) 88.7 92.5 94.1 93.6 93.5

REVENUE

(Us $/lb of payable copper) 3.60 3.01 3.22 3.12 3.24

CAsH COsT




THaLaNGa COPPer PLaNT

PRODUCTiON REsULTs sEPTEmbER DECEmbER mARCH JUNE totAl

Quarter2007

Quarter2007

Quarter2008

Quarter2008

2007/08

ORE TREATEd


copper grade (%) 2.7 3.2 4.0 3.2 3.2

COppER CONCENTRATE


Grade (% copper) 24.6 24.6 25.3 24.0 24.5

contained copper (tonnes) 2,890 4,433 2,842 5,261 15,426

copper recovery (%) 94.3 92.8 96.6 94.9 94.9

REVENUE


CAsH COsT

(Us $/per lb of payable copper) 1.62 1.36 1.69 1.29 1.49



deVeLOPMeNT

As part of the development of the Mungana mine a

240 man accommodation village was established on the

outskirts of the town of chillagoe. environmental and

regulatory approvals were granted and construction of

the Mungana concentrator commenced on May 21 2008.

the plant is scheduled for completion by March 2009

with commissioning in April 2009. All major components

have been acquired and major contracts awarded and the

project is on schedule to be completed within the budget

of A$80 million dollars. total development metres for the

Mungana decline for the 12 month period was 2,697.5

metres and at year end the decline was located 2,769.4

metres from the portal at a vertical depth of approximately

400 metres. cross cuts to the orebody have been

developed on several levels and the next three months

will see the mining of approximately 50,000 tonnes of

development ore. Underground diamond drilling to help

design slope outlines for the mining of the base metal

lenses at Mungana is also providing valuable information

on the distribution and grade of the surrounding

porphyry hosted gold mineralisation. some of the better

intersections include 69 metres at 2.44 grams per tonne

gold and 62.30 metres at 2.72 gram per tonne gold.

At balcooma the exploration decline to access the dry

River south extension is well underway with production

anticipated for september 2009. the development

declines for the balcooma polymetallic orebody and the

balcooma copper deposits have encountered development

ore and stoping of the balcooma copper deposit is

planned to commence in the september quarter of 2009.

At Mt. Garnet the open pit was completed in

june 2008 and a portal for the development

of the Mt. Garnet underground orebody

commenced in March 2008 and development ore

will become available from february 2009.


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At Waterloo exploration upgraded the inferred resource

from 244,000 tonnes to an indicated and inferred resource

of 464,000 tonnes grading 15.5% zinc, 2.9% copper, 2.2%

lead 76 grams per tonne silver and 1.39 grams

per tonne gold.

All resources are detailed in the Reserves & Resources table

on pages 16 and 17.

Chillagoe

the victoria deposit, which was first discovered 2 years

ago after a shallow drilling program, was the subject

of an intense drilling campaign which resulted in the

announcement of an inferred resource of 3.44 million tones

at 5.1% zinc, 1.0% copper, 22 grams per tonne silver and

0.14 grams per tone gold. the resource is open along strike

to the south east and at depth. two significant parallel

lodes, Morrisons and triantular, were also intersected during

drilling, and the resource base is expected to increase

significantly once the results of this drilling are collated.

In addition to the zinc resource, deeper drilling has

outlined porphyry style copper-gold-molybdenum-zinc

mineralisation and an inferred resource of 1.63 million

tones at 0.6 gram per tonne gold, 0.3% copper and

2.3% zinc has been outlined. this resource is open in

all directions and the potentials demonstrated by hole

976 which returned intersections of 6.95 metres at 0.7

grams per tonne gold and 10.35 metres at 0.42 grams

per tonne gold and 0.8% copper. deeper drilling of

the porphyry style mineralisation is planned for later

in the year. the victoria porphyry mineralisation has a

similar geochemical signature to both the Red dome and

Mungana ore bodies and has significant potential.

At Red dome drilling for the extensions to the previously

mined Red dome copper gold porphyry has also been very

encouraging. the drilling was aimed at testing beneath and

along strike of hole 937 which has been reported previously

and which intersected 36.70 metres at 2.41 grams per

tonne gold and 0.19% copper. the first two holes from

the current program have been completed and the third is

underway. hole 937W4 intersected 63.45 metres at 3.14

grams per tonne gold including a higher grade zone of

41.00 metres grading 4.62 grams per tonne gold. hole

937W5 drilled above and to the west intersected 85.20

metres at 1.60 grams per tonne gold from 959.80 metres

including two high grade zones of 22.60 metres at 2.15

grams per tonne gold and 15.50 metres at 2.97 grams per

tonne gold. the gold mineralisation is vertically dipping

and is open along strike and at depth and further drilling

will determine the extent of the gold mineralisation. the

drilling program is designed to outline a target resource

of 50 million tones, which if located, would be developed

in tandem with the Mungana gold copper ore body.

eXPLOraTION

exploration during the year was again very successful with

resources inclusive of reserves increasing by 21% to 1.5

million tonnes of zinc, by 9% to 347,000 tonnes of copper,

by 9% to 40.7 million ounces of silver and by 3% to 1.7

million ounces of gold. Lead resources were down by 4% to

239,000 tonnes. In 2009-2010 zinc production is expected

to more than double from the current rate of 40,000 tonnes.

Maitland

during the year Kagara reached agreement with Glengarry

Resources Ltd to purchase the Maitland copper and

molybdenum deposit for A$6.5m. the agreement received

Glengarry shareholder approval at a general meeting

held on 9 september. the deposit has an indicated and

inferred resource of 1.5 million tonnes grading 1.5%

copper including 115,000 tonnes at 0.17% molybdenum

and is open at depth. Kagara, subject to regulatory

approval, will develop a satellite operation at Maitland

and truck ore to the thalanga mill for processing.

Thalanga

exploration at thalanga was conducted on the vomacka,

West 45 and Waterloo deposits. the vomacka and West 45

polymetallic deposits are scheduled to be processed during

calendar year 2010. during the year new resources were

calculated using data generated from infill and metallurgical

drilling. In addition, mining studies including open pit and

underground optimization, environmental and metallurgical

testwork were undertaken. the new inferred resource at

vomacka is 602,000 tonnes at 2.4% copper, 2.3% lead,

8.9% zinc, and 70 grams per tonne gold. the new West

45 inferred resource has increased to 532,000 tonnes at

0.5% copper, 3.0% lead, 7.2% zinc, 48 grams per tonne

silver and 0.26 grams per tonne gold. combined these

resources contain approximately 40% more copper, 25%

more lead and 20% more zinc than previous estimates.

e x p L O R At I O N d U R I N G t h e y e A R WA s A G A I N v e Ry s U c c e s s f U L W I t h R e s O U R c e s

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$ 3 5 M I L L I O N h A s b e e N s p e N t O v e R t h e pA s t 1 8 M O N t h s At A d M I R A L b Ay

A N d c O N f I R M e d A d M I R A L b Ay A s A d e p O s I t O f W O R L d s I G N I f I c A N c e .

admiral Bay

An initial resource estimate for the Admiral bay deposit

containing an Inferred resource of 72 million tonnes at a

grade of 3.1% zinc, 2.9% lead, 18 grams per tonne silver

and 11% barium reported at a nominal 2% zinc equivalent

cutoff was announced on 22 August 2008. this is a subset

of a larger Inferred resource containing 97 million tonnes

at a grade of 2.4% zinc (2.3 million tonnes of zinc), 2.9%

lead (2.8 million tonnes of lead), 16 grams per tonne

silver (48 million ounces of silver) and 16% barium also

reported at a nominal 2% zinc equivalent cutoff. the model

has been restricted to a 2.1 kilometre section of an 18

kilometre strike length of known mineralisation and the

resource remains open to the east and west along strike.

the resource has been calculated by coffey Mining pty Ltd

using an inverse distance squared estimation method.

$35 million has been spent over the past 18 months at

Admiral bay and confirmed Admiral bay as a deposit of

world significance. the resource remains open to the west

where the closest drill hole is located 2 kilometres along

strike and which encountered a 13 metre intersection

grading 4.3% zinc, 3.1% lead, 29 g/t silver and 9%

barium in hole ss3 (see attached plan) and to the

east where hole ss17 encountered 25 metres grading

4.5% zinc, 0.8% lead, 23 g/t silver and 3% barium.

Intersections of up to 20 metres at 8.3% zinc, 4.9%

lead, 36 g/t silver and 21 % barium in hole AbRd1 from

within the resource, have demonstrated the potential

for higher grade zones within the overall resource.

scoping studies using the resource grades and

contemplating a 10 million tonne per year underground

operation have shown that the operation has the potential

to produce 300,000 tonnes of zinc, 250,000 tonnes of lead

and 4.5 million ounces of silver annually. Metallurgical test

work has shown that coarse grained very high quality lead

and zinc concentrates will be produced at recoveries in

excess of 95% into very high quality concentrates. the cost

of production is expected to be in the lowest quartile of

cash costs worldwide. Metallurgical test work is continuing

on the recoverability of barite to a saleable

product and it is expected that a proportion

of the 2 million tonnes of barite processed

annually will be recovered which will further

reduce the cash cost of production.

A number of development options are

currently being considered for taking the

project forward. drilling over the past

12 months has shown that defining a

reserve from surface drilling is currently

cost prohibitive and an exploration shaft

with 2.5 kilometres of lateral development

will be required to bring the project to a

bankable status. At present, a diamond

drilling program to obtain geotechnical

information in preparation for the sinking

of a shaft is nearing completion.

Forrestania Nickel (Lounge Lizard)

the Lounge Lizard project was purchased

from Lionore Mining in November 2006 for

$25 million dollars. drilling commenced at

july 2007 and an initial inferred resource

5.719 million tones grading 1.08% nickel

which was announced on 9 july 2008

included a high grade basal accumulation

of nickel sulphide indicated resource of

263,000 tonnes grading 6.4% nickel. the

resource remains open at depth, along strike

and several holes at shallower depths have

been excluded until infill drilling has been

completed down plunge of Western Areas’

drill hold ffd193W4W2 which intersected

13.30 metres grading 8.40% nickel.

With the success of the drilling program

to date, a second diamond drill rig has

been contracted to accelerate the pace

of resource definition at Lounge Lizard,

as well as testing the numerous high

quality regional exploration targets

along the Western belt at forrestania.

Lounge Lizard has now advanced to the stage where it represents a potentially low cost and low risk underground development

option with a very short development lead time, which will continue to grow in stature as drilling progresses. the Western

Areas’ flying fox decline has now progressed to a vertical depth of approximately 600 metres and is expected to be adjacent to

the Lounge Lizard deposit in december, 2009. Kagara has the right to use the decline to extract reserves from Lounge Lizard,

subject to the decline having sufficient haulage capacity and Kagara reimbursing a component of the decline capital cost. this

capital cost reimbursement will be abased on a pro rata a calculation of nickel reserves identified on the respective tenements.


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reSerVeS aNd reSOUrCeS TaBLe

ZiNC REsERvE TAbLE

dEpOsIT NOTEs CATEgORY TONNEs Zn % Cu % pb % Ag g/t Au g/t

Mt Garnet Underground probable 898,306 7.6 0.3 15

dry River south Underground proven 318,000 7.2 1.3 2.6 64 0.68

balcooma Underground probable 87,000 6.0 0.5 3.4 36 0.30

Mungana probable 1,350,000 11.8 2.0 1.1 124 1.00

King vol probable 1,317,000 11.2 0.7 0.8 36

TOTAL ZiNC REsERvE 3,970,306 10.2 1.1 0.9 63 0.40

COPPER REsERvEs TAbLE

dEpOsIT CATEgORY TONNEs Zn % Cu % pb % Ag g/t Au g/t

balcooma Open cut probable 1,167,000 0.2 3.2 0.1 15 0.34

balcooma Underground probable 958,621 0.2 3.1 - 11 0.19

TOTAL COPPER REsERvE 2,125,621 0.2 3.1 0.1 13 0.27

ZiNC REsOURCEs TAbLE (EXCLUDiNG REsERvEs)

dEpOsIT CATEgORY TONNEs Zn % Cu % pb % Ag g/t Au g/t

Mt Garnet underground Indicated 544,000 6.7 0.4 0.1 18

Mt Garnet underground Inferred 136,000 8.6 0.4 0.4 49

balcooma Upper Lens Indicated 69,000 11.5 0.9 3.9 35 0.29

balcooma Lens 2 Indicated 616,000 6.1 1.1 2.7 39 0.41

balcooma Lens 2 Inferred 10,000 7.8 0.9 3.6 36 0.35

balcooma Lens 1 sth Indicated 153,000 4.8 1.5 3.3 31 0.39

dry River south Inferred 560,000 6.4 0.9 2.3 59 0.63

Monte video Inferred 720,000 7.7 0.5 7

King vol Inferred 1,969,000 14.0 0.8 1.1 43

Mungana base Metal Indicated 230,000 13.3 2.5 5.1 173 1.21

Mungana base Metal Inferred 180,000 16.5 1.7 0.0 108 0.70

vomaka Oxide Inferred 90,000 6.5 3.3 1.9 57 0.66

vomaka transitional Inferred 230,000 9.8 2.7 2.4 79 0.84

vomaka primary Inferred 282,000 9.0 1.8 2.3 70 0.62

West 45 Inferred 532,000 7.2 0.5 3.0 48 0.26

Orient Indicated 194,000 12.0 1.0 2.9 55 0.20

Orient Inferred 72,000 15.0 0.8 3.3 68 0.20

Waterloo Indicated 307,000 18.4 3.4 2.4 83 1.71

Waterloo Inferred 157,000 9.7 1.8 1.9 64 0.75

victoria Main Inferred 2,890,000 4.8 0.9 16 0.16

victoria south Inferred 550,000 6.6 1.3 55 0.05

TOTAL ZiNC REsOURCEs 10,491,000 9.2 1.2 1.2 43 0.30

ZiNC REsOURCEs TAbLE (EXCLUDiNG REsERvEs) ADmiRAL bAY

dEpOsIT CATEgORY TONNEs Zn% Cu% pb% Ag g/t Ba%

Admiral bay Indicated 96,700,000 2.4 2.9 15 16.0

TOTAL ZiNC REsOURCEs 96,700,000 2.4 2.9 15 16.0

GOLD REsOURCEs TAbLE (EXCLUDiNG REsERvEs)

dEpOsIT CATEgORY TONNEs Zn Cu pb Ag Au

GOLd

Red dome Inferred 8,500,000 0.4 13 1.61

Mungana Upper Gold Resource Inferred 45,200,000 0.3 0.1 0.1 7 0.70

victoria Main Au-cu Inferred 1,630,000 0.3 0.3 4 0.60

surveyor 1 eastMeasured/

Indicated 119,000 - - 11.4 158 2.41

Lead oxide proven 58,600 11.9 125

Gold stockpile 36,000 2.78

TOTAL GOLD REsOURCEs 55,543,600 0.3 0.2 0.1 8 0.84

COPPER REsOURCEs TAbLE (EXCLUDiNG REsERvEs)

dEpOsIT CATEgORY TONNEs Zn% Cu% pb% Ag g/t Au g/t

Mungana copper Indicated 90,000 0.8 6.4 8.7 713 1.83

balcooma Upper Lens Indicated 79,000 1.1 2.3 0.2 7 0.20

balcooma Main Lens Indicated 169,000 0.1 3.0 0.1 14 0.30

Lens 2 cu Indicated 150,000 0.5 2.8 0.2 22 0.47

Lens 1 cu Upper Indicated 75,000 0.3 6.5 0.1 32 0.80

Lens 1 cu Upper Inferred 119,000 0.4 5.2 0.2 35 1.00

Lens 1 cu Mid Indicated 22,000 0.9 3.6 0.1 19 0.40

Lens 1 cu Mid Inferred 38,000 0.2 3.7 0.0 17 0.30

TOTAL COPPER REsOURCEs 742,000 0.5 4.1 1.2 105 0.68

NiCKEL REsOURCEs TAbLE

dEpOsIT CATEgORY TONNEs Ni% Cu% pb% Ag g/t Au g/t

Lounge Lizard Indicated 5,456,000 0.8

Lounge Lizard Indicated 263,000 6.4

TOTAL NiCKEL REsOURCE 5,719,000 1.1 - - - -

TOTAL REsERvEs & REsOURCEs 175,291,527

This report, so far as it pertains to ore and mineralisation, is based on information compiled by and as reported upon

by Mr Joe Treacy, Mr Ian Hodkinson, Mr Andrew Beaton and Mr Stephen Jones, all full time employees of Kagara

Ltd, Ms Peta Libby, an employee of Digirock Pty Ltd, Mr Ingvar Kirchner, an employee of Coffey Mining Ltd and

Mr Andrew Milne, an employee of Geocraft Pty Ltd, who are members of the Australian Institute of Geoscientists

or the Australasian Institute of Mining and Metallurgy and have over five years experience which is relevant to

the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to

qualify as a Competent person as defined in the 2004 Edition of the ‘Australasian Code for Reporting of Exploration

Results, Mineral Resources and Ore Reserves’. Messrs Treacy, Hodkinson, Beaton, Jones and Milne all consent to the

inclusion in the report of the matters based on his information in the form and context in which it appears.


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d i r e C t o r s ’ r e p o r t

Mark john Ashley, 51 b.App sc (Geology) – executive director (Appointed 15 june 1999)

Mr Ashley is a management accountant with

over 25 years experience in the natural resource

industry. Mr Ashley has held senior positions

with cluff Resource plc (executive director),

Normandy Mining (General Manager), forrestania

Gold NL (finance director), the LionOre group

(ceO) and most recently as managing director

of Apex Minerals Ltd. Mr Ashley has an

intimate knowledge of project financing and

resource-based corporate transactions both

internationally and in Australia and is chairman

of the company’s Audit committee. during the

past three years Mr Ashley has also served as a

director of the following other listed companies:

executive director of LionOre Mining •International Ltd (May 2005 to May 2006)

Non – executive director of terra Gold •Mining Ltd (March 2004 to March 2006)

Managing director of Apex Minerals Ltd •(April 2006 to date)

Non-executive director of tianshan •Goldfields Ltd (April 2006 to date)

Non-executive director of Metallica •Minerals Ltd (November 2006 to date)

Ross clive hutton, 60 b.eng (Mining) – Non-executive director (Appointed 23 july 2003)

Mr hutton has over 30 years experience in the

mining industry having graduated from the

University of Queensland in 1971 with a degree in

mining engineering. he has held senior positions

in national and international companies in the

areas of mining, smelting and project development.

previously, Mr hutton held the position of vice

president UsA Operations with pasminco. More

recently, as a consultant, Mr hutton conducted

feasibility studies on mining projects in Iran and

acted as construction superintendent for Kagara

on the Mt Garnet zinc project. he is a member

of the company’s Audit committee. during

the past three years Mr hutton has not served

as a director of any other listed companies.

dr john (shad) Linley, 62 b.sc (honours), dr of philosophy

dr Linley, until recently was ceO of sun Metals

Group Queensland and prior to that, he was former

director of the centre for strategic Industrial and

Resource development in Queensland. during his

term at the centre, he was involved in developing

a comprehensive gas strategy together with an

assessment of the long term future of the coal

industry in Queensland. formerly, he held several

executive positions in fluor engineers and prior to

that he was vice president of texasgulf Australia.

he is a member of the company’s Audit committee.

during the past three years dr Linley has also served

as a director of the following listed companies.

Non-executive director of carbon •energy Ltd (july 2008 – to date)

Non-executive director of Marathon •Resources Ltd (june 2008 – to date)

COMPaNY SeCreTarY

david William peterson, 60 bA (Acctg), cpA, fcIs

Mr peterson has been the company secretary of

the company since 1989. he was also company

secretary of forrestania Gold NL for eleven

years to 1998 and has extensive experience

in company secretarial & administration of

listed exploration and mining companies.

All directors were in office for the entire period.

dIreCTOrS

Kim Robinson, 57 b.sc (Geology) – executive chairman (Appointed 28 september 1981)

Mr Robinson is a founding director of Kagara. Mr Robinson

graduated from the University of Western Australia in 1973

with a degree in Geology and has over 30 years experience in

the minerals exploration and mining industries, including 10

years as executive chairman of forrestania Gold NL. during

his time at forrestania, Mr Robinson played a key role in the

discovery and development of the bounty Gold Mine, the

development of the Mt Mcclure Gold Mine and the discovery

of the Maggie hays and emily Ann nickel sulphide deposits.

during the past three years Mr Robinson has also served

as a director of the following other listed companies:

Non – executive chairman of carbon energy Ltd •(september 1992 to date)

Non – executive director of terra Gold Mining Ltd •(March 2004 to March 2006)

Non – executive chairman of Apex Minerals Ltd (April •2006 to date)

joseph Allen treacy, 53 b.App sc (Geology) – executive director (Appointed 15 june 1999)

Mr treacy has over 30 years experience as a geologist

specialising in gold, base metals and industrial minerals

exploration in Australia and overseas. he was appointed a

director of Kagara in 1999 and together with fellow director

Kim Robinson, was responsible for Kagara’s North Queensland

copper and zinc strategy. he is a member of the Australasian

Institute of Mining and Metallurgy and the Australian Institute

of Geoscientists. during the past three years Mr treacy has

not served as a director of any other listed companies.

the board of directors has pleasure in submitting its report in respect of the financial year

ended 30 june 2008. the names and details of the directors and company secretary of Kagara

Limited (Kagara) in office at the date of this report or at any time during the financial year are:


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c O N c e N t R At e p R O d U c t I O N f R O M t h e M t G A R N e t p O Ly M e tA L L I c p L A N t, M t G A R N e t

c O p p e R p L A N t A N d t h A L A N G A c O p p e R p L A N t WA s 2 6 , 3 2 6 t O N N e s O f c O N tA I N e d

c O p p e R , 4 0 , 9 4 0 t O N N e s O f c O N tA I N e d z I N c A N d 9 , 3 5 9 t O N N e s O f c O N tA I N e d L e A d .

Number of Securities Held

At the date of this report, the relevant interests of the directors in the shares and options of the company are:

sHAREs OPTiONs

direct Indirect direct Indirect

K Robinson 12,486,270 5,704,260 500,000 -

j A treacy 500,000 2,817,025 500,000 -

M j Ashley - 249,000 500,000 -

R c hutton - - 500,000 -

j G Linley - - 500,000 -

directors’ Meetings

there were 8 directors’ meetings (including meetings of committees and directors) held during the

financial year and the following table sets out the number of meetings attended by each director:

bOARD mEETiNGsREmUNERATiON COmmiTTEE & NOmiNATiON COmmiTTEE

mEETiNGsAUDiT COmmiTTEE mEETiNGs

Held Attended Held Attended Held Attended

K Robinson 8 8 1 1 - -

j A treacy 8 8 1 1 - -

M j Ashley 8 8 1 1 4 4

R c hutton 8 8 1 1 4 4

j G Linley 8 8 1 1 4 4

As at the date of this report, the company had an Audit committee of the board of directors with

the independent members of the committee being Mr M j Ashley (chairman), Mr R c hutton and

Mr j G Linley. the full board constitutes the Remuneration and Nomination committees.

Principal activities

the principal activities of the consolidated entity

during the financial year were mineral exploration,

development and mineral production. there were

no significant changes in the nature of the principal

activities that occurred during the financial year.

Operating result

the consolidated profit of the consolidated entity

after providing for income tax for the financial

year was $65,026,138 (2007 $89,820,897).

dividends

dividends paid to members during the

financial year were as follows:

2008 2007

$’000 $’000

final ordinary dividend for the year ended 30 june 2007 of 12 cents (2006: 10 cents) per fully paid share paid on the 17 October 2007

25,863 20,755

25,863 20,755

reVIew OF OPeraTIONS

the consolidated entity recorded a Net profit after

tax of $65.0 million for the financial year ended 30

june 2008 compared to a profit of $89.8 million in the

previous financial year. the lower profit was largely a

result of a stronger Australian dollar and lower zinc

prices. Major highlights for the financial year included:

Production

Ore mined and processed for the year was from the •balcooma and Mt Garnet open pits and underground mining at dry River south and balcooma.

concentrate production from the Mt Garnet polymetallic •plant, Mt Garnet copper plant and thalanga copper plant was 26,326 tonnes of contained copper, 40,940 tonnes of contained zinc and 9,359 tonnes of contained lead.

polymetallic cash operating costs after by-product credits •for the financial year was Us$0.55 per pound of payable zinc produced against an average realised zinc price of Us$1.10 per pound of payable zinc.

copper cash operating costs after by-product credits for •the financial year from the Mt Garnet copper circuit was Us$1.37 per pound of payable copper produced against an average realised copper price of Us$3.24 per pound of payable copper.

copper cash operating costs after by-product credits for •the financial year from the thalanga copper circuit was Us$1.49 per pound of payable copper produced against an average realised copper price of Us$3.23 per pound of payable copper.

development

several development projects were advanced during •the financial year including the commencement of construction of the company’s fourth treatment plant at Mungana. commissioning of the new plant is scheduled for April 2009.

development commenced during the financial year on •the Mt Garnet underground deposit and dry River south deeps resource.

Acquisition of the Maitland copper and molybdenum •deposit in North Queensland from Glengarry Resources Ltd, subject to Glengarry gaining shareholder approval.

exploration

Increases in resources, net of depletion, was recorded for •the financial year.

Initial nickel resources outlined at Lounge Lizard and a •new base metal discovery at the victoria project in North Queensland.

Corporate

cash on hand plus receivables increased to $71.1 million •at financial year end.

Investments of 19.8% in Glengarry Resources Ltd and •18.2% in Metallica Minerals Ltd.


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At the date of this report directors and Key Management personnel of the consolidated entity held the following unlisted options

NAmE GRANT DATE DETAiLs

K Robinson 23 November 2006 500,000 options exercisable at $6.00 per share on or before 30 june 2009

j A treacy 23 November 2006 500,000 options exercisable at $6.00 per share on or before 30 june 2009

M j Ashley 23 November 2006 500,000 options exercisable at $6.00 per share on or before 30 june 2009

j G Linley 23 November 2006 500,000 options exercisable at $6.00 per share on or before 30 june 2009

R c hutton 23 November 2006 500,000 options exercisable at $6.00 per share on or before 30 june 2009

f L Garofalo 23 August 2006 250,000 options exercisable at $6.00 per share on or before 30 june 2009

d W peterson 23 August 2006 250,000 options exercisable at $6.00 per share on or before 30 june 2009

events Subsequent to Balance date

In the directors’ opinion, no other events or circumstances

have arisen since the end of the financial year that have

significantly affected or may significantly affect the

operations of the consolidated entity, the results of those

operations, or the state of affairs of the consolidated entity

in financial years subsequent to this financial year that have

not been otherwise disclosed in these financial statements.

Significant Changes in the State of affairs

No significant change in the state of affairs of the

consolidated entity occurred during the financial year other

than that already referred to elsewhere in this report.

Likely developments

the consolidated entity intends to continue its current

mining operations and mineral exploration in Australia.

Likely developments are included elsewhere in this

report and will depend upon the success of the current

exploration and mining operations. At this stage, the

expected results of these operations have not been

disclosed as the directors believe, on reasonable grounds,

that the inclusion of such information would result in

unreasonable prejudice to the consolidated entity.

Share Options Granted to directors and executives

during the financial year no options were granted

to executive or Non executive directors of the

company under the company’s esOp.

Share Options Under Issue

At the date of this report, there are 14,620,000 unlisted options outstanding, detailed as follows:

GRANT DATE DATE OF EXPiRY EXERCisE PRiCE NUmbER UNDER OPTiON

23 August 2006 30 june 2009 $6.00 500,000

23 November 2006 30 june 2009 $6.00 2,500,000

20 April 2007 30 june 2009 $6.50 4,220,000

17 March 2008 30 june 2010 $6.00 7,400,000

14,620,000

No person entitled to exercise an option had or has any right by virtue of the option to participate in any share issue of any other

body corporate. the following ordinary shares of Kagara Limited were issued by virtue of the exercise of unlisted options during

the financial year:

GRANT DATE DATE OF EXPiRY EXERCisE PRiCE NUmbER OF OPTiONs EXERCisED

24 december 2003 31 december 2007 $1.20 12,500

25 August 2005 31 december 2007 $1.50 300,000

1 May 2006 30 june 2008 $5.00 610,000

19 july 2006 30 june 2008 $5.00 450,000

1,372,500

No amounts are unpaid on any of the shares. the shares issued on the exercise of the options mentioned above are fully paid.

remuneration report

the chairman reviews the remuneration packages

of all directors and Key Management personnel

of the consolidated entity on an annual basis and

makes recommendations to the Review committee/

board. Remuneration packages are reviewed with due

regard to performance, competitive rates prevailing

in the industry and any other relevant factors.

Remuneration levels of the directors and the Key

Management personnel are set by reference to other

similar sized mining and exploration companies with similar

risk profiles and are set to attract and retain executives

capable of managing the consolidated entity’s operations

Remuneration of Non – executive directors is determined by

the board within the maximum approved by shareholders

from time to time. the board undertakes an annual review

of its performance against goals set at the start of the

year. No bonuses are paid to Non – executive directors.

reVIew OF OPeraTIONS (CONTINUed)


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(a) details of specified directors and Executives (Audited)

the following persons were directors of the

consolidated entity during the financial year:

(i) executive directors

Mr K Robinson executive chairman

Mr jA treacy executive director

(ii) Non-executive Independent directors

Mr Mj Ashley Non-executive Independent director

Mr Rc hutton Non-executive Independent director

Mr j Linley Non-executive Independent director

(iii) Other Key Management personnel

the following persons also have authority and

responsibility for planning, directing and controlling

the activities of the consolidated entity, directly

or indirectly during the financial year:

Mr dW peterson company secretary

Mr GW collins Operations Manager

Mr fL Garofalo chief financial Officer

Mr Ij Morrison exploration Manager

All of the above persons were also Key

Management personnel during the previous

financial year ended 30 june 2007.

(b) principles used to determine the nature and amount of remuneration (Audited)

the consolidated entity’s executive remuneration

framework aligns executive remuneration with the

achievement of strategic objectives and conforms with

market best practice. the board of directors ensures

that the executive remuneration is competitive and

reasonable, acceptable to shareholders, transparent

and aligns remuneration with performance.

(i) Non-executive directors

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 of

directors, with independent advice received from

remuneration consultants to ensure that Non-

executive directors’ fees are in line with the market.

Non-executive directors’ fees are determined in

accordance with the aggregate Non-executive

directors’ fee limit as approved by shareholders. the

maximum aggregate currently stands at $500,000.

there are no retirement allowances for Non-executive

directors.

(ii) executives

the executive pay and reward framework includes

the payment of base pay, superannuation and long

term incentives through the issue of options under

the company’s esOp. Information on employee

options granted under the company’s esOp is

detailed in Note 39 to the financial statements.

the base pay of executives is inclusive of statutory

superannuation and is structured as a total

employment package which may be delivered as a

mix of cash and prescribed non-financial benefits at

the executives’ discretion, without creating undue

cost for the consolidated entity. benefits received

include car allowances and health insurance. external

remuneration consultants provide analysis and advice

to ensure that the base pay is set to reflect the

market for a comparable role.

(c) details of remuneration of specified directors and Key Management personnel (Audited)

details of the nature and amount of each element of the remuneration for each director and each of

the Key Management personnel of the consolidated entity are set out in the following tables:

specified directors of Kagara Ltd:

sPECiFiED DiRECTORs

2008

sALARY & FEEs $

NON-mONETARY bENEFiTs $

bONUs $

sUPERANNUATiON$

OPTiONs $

TOTAL RENUmERATiON bY OPTiONs %

TOTAL $

K Robinson 701,871 - - 13,129 - - 715,000

j A treacy 400,000 50,000 - 100,000 - - 550,000

M j Ashley 30,000 30,000 - 16,300 - - 76,300

R c hutton 22,500 - - 53,800 - - 76,300

j G Linley 70,000 - - 6,300 - - 76,300

Total 1,224,371 80,000 - 189,529 - - 1,493,900

sPECiFiED DiRECTORs

2007

sALARY & FEEs $


bONUssUPERANNUATiON

$OPTiONs

$

TOTAL RENUmERATiON bY OPTiONs %

TOTAL $

K Robinson 637,314 - - 12,686 782,500 55 1,432,500

j A treacy 344,887 50,000 - 105,113 782,500 61 1,282,500

M j Ashley - 30,000 - 24,500 782,500 93 837,000

R c hutton 37,500 - - 17,000 782,500 93 837,000

j G Linley - - - 54,500 782,500 93 837,000

TOTAL 1,019,701 80,000 - 213,799 3,912,500 - 5,226,000

Key Management personnel of Kagara Ltd:

KEY mANAGEmENT

PERsONNEL 2008

sALARY & FEEs $


bONUs $

sUPERANNUATiON$

OPTiONs $

TOTAL REmUNERATiON bY OPTiONs %

TOTAL $

G W collins 296,196 30,000 - 73,804 - - 400,000

f L Garofalo 326,871 30,000 - 13,129 - - 370,000

d W peterson 200,000 - - 100,000 - - 300,000

I j Morrison 231,175 - - 100,000 - - 331,175

Total 1,054,242 60,000 - 286,933 - - 1,401,175


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KEY mANAGEmENT

PERsONNEL 2007

sALARY & FEEs $


bONUs $

sUPERANNUATiON $

OPTiONs $TOTAL

REmUNERATiON bY OPTiONs %

TOTAL $

G W collins 245,314 30,000 - 32,686 123,800 29 431,800

f L Garofalo 277,314 31,216 - 12,686 391,250 55 712,466

d W peterson 149,888 1,653 - 105,112 391,250 61 647,903

I j Morrison 99,888 - - 105,112 123,800 38 328,800

Total 772,404 62,869 - 255,596 1,030,100 - 2,120,969

(d) Service agreements (audited)

Remuneration for the executive directors are formalised in

service agreements and include base pay, superannuation

and long term incentives through the issue of options.

each of these agreements do not have a fixed term and

have a termination benefit payable on early termination

by the company, other than for gross misconduct,

equal to six months of base salary. there are no other

bonus arrangements in place for executive directors.

Remuneration for Key Management personnel are formalised

in service agreements and include base pay, superannuation

and long term incentives through the issue of options.

each of these agreements do not have a fixed term and

have a termination benefit payable on early termination

by the company, other than for gross misconduct,

equal to three months of base salary. there are no other

bonus arrangements in place for specified executives.

the remuneration of executive directors and Key

Management personnel is reviewed annually and is

set to reflect the market for a comparable role.

(e) Share based compensation – options (audited)

the consolidated entity did not grant options as

equity compensation benefits to any directors or Key

Management personnel during the 2008 financial year.

(f) Option holdings of Specified directors and executives (audited)

the numbers of options over ordinary shares vested and exercisable in the consolidated entity held by each

director of Kagara Ltd and the Key Management personnel of the consolidated entity are set out below:

sPECiFiED DiRECTORs 2008

bALANCE As AT 1/7/07

GRANTED As REmUNERATiON

OPTiONs EXERCisED

OTHER CHANGEsbALANCE As AT

30/6/08

K Robinson 500,000 - - - 500,000

j A treacy 500,000 - - - 500,000

M j Ashley 500,000 - - - 500,000

R c hutton 500,000 - - - 500,000

j G Linley 500,000 - - - 500,000

2,500,000 - - - 2,500,000

KEY mANAGEmENT

PERsONNEL 2008



OPTiONs EXERCisED

OTHER CHANGEsbALANCE As AT

30/6/08

G W collins 100,000 - (100,000) - -

f L Garofalo 250,000 - - - 250,000

d W peterson 250,000 - - - 250,000

I j Morrison 250,000 - (150,000) (100,000) -

Total 850,000 - (250,000) (100,000) 500,000

(g) Shareholdings in Kagara Ltd of Specified directors and Key Management Personnel (audited)

the numbers of shares in the consolidated entity held by each director of Kagara Ltd and the Key Management personnel are

set out below:

sPECiFiED DiRECTORs 2008



OPTiONs EXERCisED

OTHER NET CHANGEs *


K Robinson 17,790,530 - - 400,000 18,190,530

j A treacy 3,316,865 - - 160 3,317,025

M j Ashley 469,000 - - (220,000) 249,000

R c hutton - - - - -

j G Linley - - - - -

Total 21,576,395 - - 180,160 21,756,555

Key Management personnel of Kagara Ltd (continued)


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KEY mANAGEmENT

PERsONNEL 2008



OPTiONs EXERCisED

OTHER NET CHANGEs *


G W collins 75,000 - 75,000

f L Garofalo 250,000 - - - 250,000

d W peterson 1,135,231 - - 334,000 1,469,231

I j Morrison 230,000 - 150,000 - 380,000

Total 1,690,231 - 150,000 334,000 2,174,231

* Other Net changes refers to shares bought or sold during the financial year.

Non-audit Services

the auditor did not provide any non-auditor services

during the financial year ended 30 june 2008. the board

of directors, in accordance with advice from the audit

committee, is satisfied that the provision of non-audit

services in the 2008 financial year were compatible

with the general standard of independence for auditors

imposed by the corporations Act 2001. the directors

are satisfied that the services disclosed in note 31 did

not compromise the external auditor’s independence for

the following reason: the nature of the services provided

did not compromise the general principles relating to

auditor independence in accordance with Apes 110:

code of ethics for professional Accountants set by the

Accounting professional and ethical standards board.

A copy of the auditor’s independence declaration

as required under section 307c of the corporations

Act 2001 is set out separately in this report.

environmental regulations

the consolidated entity’s operations are subject to various

commonwealth and state laws governing the protection of

the environment in areas such as air and water quality, waste

emission and disposal, environmental impact assessments,

mine rehabilitation and access to and use of ground water.

In particular, some operations are required to be licensed to

conduct certain activities under the environmental protection

legislation of the state in which they operate and such

licenses include requirements specific to the subject site.

so far as the directors are aware, there have been no

material breaches of the consolidated entity’s licenses and

all mining and exploration activities have been undertaken

in compliance with the relevant environmental regulations.

Insurance of Officers

during the financial year, the consolidated entity paid

a premium to insure the directors and Officers of the

consolidated entity against liabilities incurred by such an

officer to the extent permitted by the corporations Act

2001. the Officers of the consolidated entity covered by the

insurance policy include any person acting in the course of

duties for the consolidated entity who is or was a director,

secretary or executive Officer as well as senior executive

staff. the contract of insurance prohibits disclosure of the

nature of the liability and the amount of the premium.

the consolidated entity has not otherwise during

or since the end of the financial year indemnified

or agreed to indemnify an officer or auditor of the

consolidated entity or any related body corporate against

a liability incurred as such an officer or auditor.

Proceedings on Behalf of the Company

No person has applied for leave of court to bring

proceedings on behalf of the consolidated entity or

intervene in any proceedings to which the company is a

party for the purpose of taking responsibility on behalf

of the consolidated entity for all or any part of those

proceedings. the consolidated entity was not a party

to any such proceedings during the financial year.

auditor’s Independence declaration

the auditor’s independence declaration for the year

ended 30 june 2008 has been received and can

be found on page 78 of the annual report.

rounding of amounts

the company is a company of the kind referred to in the

Australian securities and Investments commission class

Order 98/100. Amounts shown in the financial statements

and this directors’ report have been rounded off to the

nearest one thousand dollars, except where otherwise

required, in accordance with that class order. this report

has been made in accordance with a resolution of directors

pursuant to section 298(2) of the corporations Act 2001.

K RObINsON

EXECUTIVE CHAIRMAN

perth, Western Australia

20 August 2008


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this statement reports on Kagara’s key governance framework, principles and practices

as at 20 August 2008. these principles and practices are reviewed regularly and revised

as appropriate to reflect changes in law and best practice in corporate governance.

C o r p o r a t e g o v e r n a n C e s t a t e m e n t

aSX PrINCIPLeS OF GOOd COrPOraTe GOVerNaNCe

Kagara, as a listed entity, must comply with the

corporations Act 2001 (cwtth) (“corporation Act”), the

Australian securities exchange Limited (“Asx”) Listing

Rules (“Asx Listing Rules”) and other Australian laws.

Asx Listing Rule 4.10.3 requires Asx listed companies

to report on the extent to which they have followed the

principles of Good corporate Governance and best practice

Recommendations (“Asx principles”) released by the

Asx corporate Governance council. the Asx principles

require the board to consider carefully the development

and adoption of appropriate corporate governance

policies and practices founded on the Asx principles.

COMPLIaNCe wITH aSX PrINCIPLeS OF GOOd COrPOraTe GOVerNaNCe

details of the company’s compliance with the Asx

principles are set out below. A checklist cross referencing

the Asx principles to the relevant section of this

statement and the Remuneration Report is provided

on pages 39 and 40 of this report and published on

the company’s website at www.kagara.com.au.

As detailed in this corporate Governance statement,

Kagara considers that its governance practices comply

with the Asx principles, subject to the qualifications

noted in the compliance statement relating to

Asx principle Recommendations 2.2 and 2.3.

1 THe BOard OF dIreCTOrS

(a) Board composition and expertise

the board has an expansive range of relevant

industry experience, financial and other skills

and expertise to meet its objectives.

the current board composition comprises three

independent non executive directors and two

executive directors. details on each non executive

director’s background including experience, knowledge

and skills and their status as an independent

director are set out in the directors Report.

the board considers that the non executive directors

collectively bring the range of skills, knowledge

and experience necessary to direct the company.

In assessing the composition of the board, the

directors have regard to the following policies:

the ceO should be a full time employee of the •company;

the majority of the board should comprise directors •who are both non executive and independent; and

the board should represent a broad range of •qualifications, experience and expertise considered of benefit to the company

(b) Board role and responsibilities

the roles and responsibilities of the board are

formalised in the board charter. the board charter

defines in detail the matters that are reserved for

the board and its committees, and those that the

board has delegated to management. the central

role of the board is to oversee and approve the

company’s strategic direction, to select and appoint

a ceO, to oversee the company’s management and

business activities and report to shareholders.

In addition to matters required by law to be

approved by the board, the following powers

are reserved to the board for decision:

strategy – providing strategic oversight and •approving strategic plans and initiatives;

board performance and composition – evaluating •the performance of non executive directors, and

determining the size and composition of the board as well as recommending to shareholders the appointment and removal of directors;

Leadership selection – evaluating the performance •of, and selection of, the ceO and those executives reporting directly to the ceO;

corporate responsibility – considering the •social, safety, ethical and environmental impacts of Kagara’s activities, and setting policy and monitoring compliance with safety, corporate and social policies and practices;

financial performance – approving Kagara’s •annual operating plans and budget, monitoring management, financial and operational performance;

financial reports to shareholders – approving annual •and half year reports and disclosures to the market that contain, or relate to, financial projections, statements as to future financial performance or changes to the policy or strategy of the company; and

establishing procedures – ensuring that the board is •in a position to exercise its power and to discharge its responsibilities as set out in the board charter;

the board also recognises its responsibilities

to Kagara’s employees, the communities and

environments within which Kagara operates

and, where relevant, other stakeholders.

Responsibility for management of Kagara’s

business activities is delegated to the ceO

who is accountable to the board.

the board charter is available in the corporate

governance section of Kagara’s website.

(c) Chairman

the chairman is responsible for leadership of the

board, for the efficient organisation and conduct

of the board’s function and for the promotion of

relations between board members and between

board and management that are open, cordial

and conducive to productive cooperation.

the current chairman is Kim Robinson. he has been a

director and the chairman of the board since inception.


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(d) director’s independence

the board has approved a policy on independence

of directors, a copy of which is available in the

corporate governance section of Kagara’s website.

the policy provides that the independence of a director

will be assessed by determining whether the director is

independent of management and free of any business or

other relationship that could materially interfere with, or

could reasonably be perceived to materially interfere with,

the exercise of their unfettered and independent judgement.

the test of whether a relationship or business is material

is based on the nature of the relationship or business

and on the circumstances and activities of the director.

Materiality is considered from the perspective of Kagara,

the persons or organisations with which the director

has an affiliation and from the perspective of the

director. Materiality thresholds are considered by the

board from time to time. the board considers that;

A material customer is a customer of Kagara which •accounts for more than 5 per cent of Kagara’s consolidated gross revenue;

A supplier is material if Kagara accounts for more than 5 •per cent of the supplier’s consolidated gross revenue;

A substantial shareholder of Kagara is someone who •holds greater than 5 per cents of the voting capital of Kagara; and

In the event that one or more of these thresholds

is exceeded, the board then focuses on whether

or not in their view that impacts materially on

the independent judgement of the director.

On appointment, each director is required to provide

information for the chairman to assess and confirm their

independence as part of their consent to act as a director.

the chairman has considered the associations of each of the

non executive directors in office at the date and considers

that all non executive directors are considered independent.

(e) directors’ retirement and re-election

Kagara’s constitution states that at each annual general

meeting (“AGM”) one third of its directors (excluding the

managing director and any director appointed to fill a

casual vacancy) and any director who has held office for

three or more years since their last election must retire.

Any director appointed to fill a casual vacancy since

the date of the previous AGM must submit themselves

to the shareholders for election at the next AGM.

directors who retire as required may offer themselves

for re-election by shareholders at the next AGM.

Reappointment of directors retiring by rotation

or filling a casual vacancy is not automatic.

(f) Board succession planning

the board in conjunction with the Remuneration and

Nominations committees reviews the size and composition of

the board and the mix of existing and desired competencies

across members from time to time. criteria considered by

the directors when evaluating prospective candidates are

contained in the board’s charter and more fully detailed in a

procedure for selection and Appointment of New directors.

(g) Board performance evaluation

the board undertakes ongoing self-assessment and a

review of performance of the board, committees and

individual directors annually. the chairman of the board

is responsible for determining the process for evaluating

board performance. the chairman’s performance is

reviewed each year by the other members of the board.

(h) Nominations and appointment of new directors

Recommendations for nomination of new directors

are considered by the Remuneration and Nominations

committees and approved by the board as a whole.

the Remuneration and Nominations committees

review director appointments having regard to the

candidate’s commercial experience, skills and other

qualities. external consultants may be used from time

to time to access a wide base of potential directors.

(i) Professional advice

directors may, in carrying out their company related

duties, seek external professional advice.

If external professional advice is sought a director

is entitled to reimbursement of all reasonable costs

where such a request for advice is approved by the

chairman. In the case of a request by the chairman,

approval is required by a least two other directors.

(j) Conflicts of interest

directors are required to disclose any actual or potential

conflict of material personal interests on appointment as a

director and are required to keep these disclosures up to date.

In the event that there is, or may be, a conflict between the

personal or other interests of a director, then the director

with an actual or potential conflict of interest in relation to

a matter before the board does not receive the board papers

relating to that matter. When the matter comes before

the board for discussion, the director withdraws from the

meeting for the period the matter is considered and takes

no part in the discussion or decision making process.

(k) Terms of appointment, induction training and continuing education

All new directors are provided with a formal letter of

appointment setting out the key terms and conditions of the

appointment, including duties, rights and responsibilities,

the time commitment envisaged and the board’s

expectations regarding their obligations to the company.

(l) directors’ remuneration

details of remuneration paid to directors (executive and

non executive) are set out in the Remuneration Report.

(m) Board meetings

the chairman sets the agenda for each meeting

in conjunction with the company secretary. Any

director may request additional matters be added

to the agenda. Members of senior management

attend meetings of the board by invitation.

copies of board papers are circulated in advance

of the meetings in either electronic or hard copy

form. directors are entitled to request additional

information where they consider the information is

necessary to support informed decision making.

the board works to an agenda encompassing periodic

reviews of Kagara’s operations, recurring statutory

obligations, business approvals, strategy and other

responsibilities identified in the board charter.

particulars of the number of meetings of the board

of directors of Kagara and each board committee of

directors held and attended by each director during the

12 months ended 30 june 2008 are set out below.

(n) Company secretary

the company secretary is david peterson. Mr. peterson

joined Kagara in december 1989 with responsibility

for management and delivery of company secretary,

legal and governance advice and support to the Kagara

board, executive and business. Mr. peterson is a qualified

chartered secretary (fcIs) with over 20 years experience.

Responsibilities for the secretarial function include providing

advice to directors and executives on corporate governance

and regulatory matters, recording minutes of director’s

meetings, development Kagara’s corporate governance

framework and giving effect to the board’s decisions. All

directors have access to advice from the company secretary.


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2 BOard COMMITTeeS

(a) Board committees and membership

the board has established three committees to assist in

the discharge of its responsibilities. these are the:

Audit committee•

Remuneration committee: and•

Nominations committee•

the charters of all board committees detailing the

roles and duties of each are available in the corporate

governance section of Kagara’s website. All board

committee charters are reviewed at least annually.

At the date of this report the membership of each

board committee is listed below the executive directors

attend the Audit committee meetings by invitation. All

papers considered by the committees are available on

request to directors who are not on that committee.

following each committee meeting, generally at the next

board meeting, the board is given a verbal update by

the chairman of each committee. In addition, minutes of

all committee meetings are available to all directors.

the company secretary provides secretarial

services for each committee.

NUmbER OF bOARD AND COmmiTTEE mEETiNGs HELD AND ATTENDED iN 2007/2008

BOARd MEETINgs BOARd COMMITTEE MEETINgs

AUdIt cOMMItteeReMUNeRAtION

cOMMItteeNOMINAtIONs cOMMIttee

A b A b A b A b

Kim Robinson 8 8 - - 1 1 1 1

joe treacy 8 8 - - 1 1 1 1

Mark Ashley 8 8 4 4 1 1 1 1

Ross hutton 8 8 4 4 1 1 1 1

john Linley 8 8 4 4 1 1 1 1

A = Number of meeting attendedb = Number of meetings held during the time the director held office or was a member of the relevant committee during the year.

BOARd COMMITTEE MEMBERsHIp As AT 20 AUgUsT 2008

AUdIT COMMITTEE REMUNERATION COMMITTEE NOMINATIONs COMMITTEEMark Ashley (chairman)Ross huttonjohn Linley

(a) executive committee

Kim Robinson (chairman)

Kim Robinson (chairman)

joe treacy

john Linley

Mark Ashley

Ross hutton

joe treacy

(b) Non-executive committee

Mark Ashley (chairman)

john Linley

Ross hutton

(b) audit Committee

the role of the Audit committee is to assist the board

to meet its oversight responsibilities in relation to the

company’s financial reporting, internal control structure,

corporate governance policies and practices, financial

and operational risk management procedures and the

internal and external audit function. In doing so, it

is the committee’s responsibility to maintain free and

open communication between the committee and the

external auditors and the management of Kagara.

the Audit committee is required to have a minimum of three

members composed of independent non executive directors.

the external auditors, the cfO and the financial

controller attend committee meetings by invitation.

the committee meets at least four times per year.

during the year the committee approved a plan to

implement an improved risk management framework

across the Kagara group of companies.

(c) remuneration and Nominations committees

the roles of the Remuneration and Nominations

committees are to assist the board by reviewing and

approving Kagara’s remuneration policies and practices

and the appointment of non executive directors to the

board. the committee’s responsibilities include:

Assess the necessary and desirable competencies of •board members;

Reviewing board succession plans and board •performance;

Reviewing the performance and company’s remuneration •framework, which is used to attract, retain and motivate employees to achieve operational excellence and create value for shareholders;

Reviewing the performance and remuneration packages •for the executive directors and senior executives, to establish rewards, which are fair and responsible, having regard to the financial results of the group, individual performance and general remuneration conditions;

Independent remuneration consultants are engaged

by the Remuneration and Nominations committees

to ensure that Kagara’s remuneration and reward

practices are consistent with market practice.

the committees meet at least twice per year.

3 aUdIT GOVerNaNCe aNd INdePeNdeNCe

(a) approach to audit and governance

the board is committed to the basic principles that:

Kagara’s financial reports represent a true and fair view;•

Kagara’s accounting practices are comprehensive, •relevant and comply with applicable accounting standards and policies; and

the external auditor is independent and serves •shareholders’ interests.

(b) external auditor relationship

Kagara’s independent external auditor is WhK

horwath (WhK). WhK was appointed by

shareholders at the 2007 annual general meeting

in accordance with the corporations Act.

the board requires rotation of the audit partner at least

every five years, prohibits the reinvolvement of a previous

audit partner in the audit service for two years following

their rotation, and provides that a former partner of the

audit firm, or member of the audit team, may only be

recruited into a position as a director or senior employee

of Kagara after the expiry of at least two years.

furthermore, the Audit committee oversees detailed external

auditor guidelines covering the terms of engagement

of Kagara’s external auditor. the guidelines include

provisions directed to maintaining the independence

of the external auditor and in assessing whether the

provision of any non-audit services by the external

auditor that may be proposed is appropriate.

the external auditor guidelines contain a set of

controls which address threats to the independence

of the external auditor including, in particular, any

threat which may arise by reason of self interest,

self review, advocacy, familiarity or intimidation.

the external auditor guidelines classify a range

of non-audit services which are considered not

acceptable for provision by the external auditor.


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(c) attendance of auditor at the aGM

Kagara’s external auditor attends the AGM and is

available to answer questions from shareholders on;

the conduct of the audit;•

the preparation and content of the auditor report;•

the accounting policies adopted by Kagara in relation to •the preparation of the financial statements; and

the independence of the auditor in relation to the •conduct of the audit.

4 CONTrOLLING aNd MaNaGING rISK

(a) approach to risk management

the board and senior executives are responsible

for overseeing the implementation of the

company’s Risk Management policy.

the company’s approach to risk management is

based on the systematic identification, assessment,

monitoring and management of material risks

to the business. this framework is based on the

Australian standards for Risk Management.

during the year, the Audit committee in conjunction

with management commenced a review of the

company’s risk management framework systems

and approved a new risk management plan. the risk

management plan is focused on reviewing Kagara’s

risk management policies and practices for managing

strategic operational, compliance and financial risks.

the executive management team is responsible for

implementation of the board approved risk management

strategy and developing policies, processes and procedures

to identify risks and mitigation strategies in Kagara’s activities

and provide, at the end of each six monthly period a formal

statement to the board confirming the effectiveness of the

company’s management of its material business risks.

(b) Material risks

In implementing its risk management system, the

company identified risks at a strategic and corporate

level, and risks to its Queensland operations and its

Queensland and West Australian exploration programs.

A number of material risks emerged, including:

declining metal prices•

Rising exchange rates•

Increased input costs•

Unavailability of shipping•

Loss of tenements•

(c) CeO and CFO assurance

the board receives monthly reports about the financial

condition and operational results of Kagara and its controlled

entities. the ceO and cfO provide, at the end of each six

monthly period, a formal statement to the board confirming

that the company’s financial reports present a true and

fair view, in all material respects, and the group’s financial

condition and operational results have been prepared in

accordance with the relevant accounting standards.

the statement also confirms the integrity of the company’s

financial statements and notes to the financial statements

and notes to the financial statements, is founded on a

sound system of risk management and internal compliance

and control which implements the policies approved

by the board, and that Kagara’s risk management

and internal compliance and control systems, to the

extent they relate to financial reporting, are operating

efficiently and effectively in all material respects.

A copy of the company’s Risk Management policy is available

on the corporate Governance section of Kagara’s website.

5 PrOMOTING eTHICaL aNd reSPONSIBLe BeHaVIOUr

(a) Codes of conduct

the board has approved a code of conduct for

directors and code of conduct for employees which

describes the standards of ethical behaviour that

directors and employees are required to maintain.

compliance with the code of conduct by directors and

employees will also assist Kagara in effectively managing

its operating risks and meeting its legal and compliance

obligations, as well as enhancing Kagara’s corporate

reputation.

the code of conduct describes Kagara’s requirements on

matters such as confidentially, conflicts of interest, sound

employment practices, compliance with laws and regulations

and the protection and proper use of Kagara’s assets.

A copy of each code of conduct is available in the in

the corporate governance section of Kagara’s website.

(b) Concern reporting and whistleblowing

the board has approved a Whistleblower policy which

documents Kagara’s commitment to maintaining an open

working environment in which employees are able to report

instances of unsafe work practices, unethical, unlawful or

undesirable conduct without fear of intimidation or reprisal.

A copy of the Whistleblower policy is available in the

corporate governance section of Kagara’s website.

(c) Share trading policy

Kagara’s share trading policy is binding on all directors

and employees. this policy provides a brief summary of

the law on insider trading and other relevant laws, sets

out the restrictions on dealing in securities by people

who work for, or are associated with Kagara and is

intended to assist in maintaining market confidence in

the integrity of dealings in the company’s securities.

the policy stipulates that the only appropriate time for a

director or employee to deal in the company’s securities

is when he or she is not in possession of ‘price sensitive

information’ that is not generally available to the share

market. A director wishing to deal in the company’s

securities may only do so after first having advised the

chairman of his or her intention. A senior executive wishing

to deal must first notify the company secretary. confirmation

of any dealing must also be given by the director or senior

executive within two business days after the dealing. In

the case of other employees, contractors, consultants

and advisers, there is no notification requirement.

directors and senior executives’ dealings in the company’s

securities are also subject to specified blackout periods.

Which are set out in the company’s share trading policy or

as otherwise determined by the board from time to time.

A copy of the company’s share trading policy is available

on the corporate governance section of Kagara’s website.

6 reMUNeraTION FraMewOrK

details of Kagara’s remuneration framework are included

in the Remuneration Report.

7 COrPOraTe reSPONSIBILITY aNd SUSTaINaBILITY

Kagara aims to produce positive outcomes for all

stakeholders in managing its business and to maximise

financial, social and environmental value from our activities.

In practice this means having a commitment to transparency,

fair dealing, responsible treatment of employees and

customers and positive links into the community.

sustainable and responsible business practices with

Kagara are viewed as an important long term driver

of performance and shareholder value. through such

practices Kagara seeks to reduce operational and

reputation risk and enhance operational efficiency

while contributing to a more sustainable society.

Kagara accepts that the responsibilities on the board and

management, which flow from this approach, go beyond

strict legal and financial obligations. In particular, the Kagara

board seek to take a practical and broad view of directors’

fiduciary duties, in line with stakeholders’ expectations.


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8 CONTINUOUS dISCLOSUre

Kagara is committed to maintaining a level of disclosure

that meets the highest standards and provides all

investors with timely and equal access to information.

Kagara’s continuous disclosure policy reinforces

Kagara’s commitment to Asx continuous disclosure

requirements and outline management’s accountabilities

and the processes to be followed for ensuring

compliance. the policy also describes Kagara’s

guiding principles for market communications.

A copy of the continuous disclosure policy is available on

the corporate governance section of Kagara’s website.

9 SHareHOLder COMMUNICaTIONS aNd ParTICIPaTION

Kagara’s is committed to giving all shareholders

comprehensive, timely and equal access to information

about its activities so that they can make informed

decisions. similarly, prospective new investors are entitled

to be able to make informed investment decisions

when considering the purchase of shares in Kagara.

A wide range of communication approaches are

employed including direct communications with

shareholders and presentations to shareholders at

the company’s Annual General Meeting. publication

of all relevant company information, including the

company’s Annual Report is in the Investor Information

section of Kagara’s website at www.kagara.com.au.

Kagara’s shareholder communication policy provides

that the company will communicate effectively

with its shareholders and give shareholders ready

access to balanced and understandable Information

about Kagara. the way it does this includes;

ensuring that financial reports are prepared in accordance •with applicable laws and industry best practice;

ensuring the disclosure of full and timely information •about Kagara’s activities in accordance with the general and continuous disclosure principles of the Asx Listing Rules and the corporations Act 2001. this includes reporting on a quarterly basis the activities and prospects of the company;

the chairman reporting to shareholders at the company’s •Annual General Meeting;

placing all Asx announcements (including quarterly •reports and financial reports) on Kagara’s website as soon as practicable following release; and

ensuring that reports, notices of meeting and other •shareholder communications are prepared in a clear and concise manner.

A copy of the company’s shareholder communication

policy is available on the corporate governance

section of Kagara’s website.

aSX PrINCIPLeS COMPLIaNCe STaTeMeNT

AsX CORPORATE GOvERNANCE COUNCiL’s bEsT PRACTiCE RECOmmENDATiONs

REFERENCE (1) COmPLiANCE

pRINCIpLE 1: LAY sOLId fOUNdATIONs fOR MANAgEMENT ANd OVERsIgHT

1.1 formalise and disclose the functions reserved to the board and those delegated to management 1b comply

1.2 disclose the process for evaluating the performance of senior executives 1b,2c comply

1.3 provide the information indicated in the Guide to reporting on principle 1 1b,2c comply

pRINCIpLE 2: sTRUCTURE THE BOARd TO Add VALUE

2.1 A majority of the board should be independent directors 1a,1d comply

2.2 the chairperson should be an independent director (2) 1a, 1c does Not comply

2.3 the roles of chairperson and chief executive officer should not be exercised by the same individual (2) 1a,1b does Not comply

2.4 the board should establish a nomination committee 1h, 2c comply

2.5 disclose the process for evaluating the performance of the board, its committees and individual directors 1b,1g,1h,2c comply

2.6 provide the information indicated in Guide to reporting on principle 2

1a, 1e, 1i, 1mdirectors’ Report comply

pRINCIpLE 3: pROMOTE ETHICAL ANd REspONsIBLE dECIsION-MAKINg

3.1 establish a code of conduct and disclose the code or a summary of the code as to the:

practices necessary to maintain confidence in the company’s •integrity; and

practices necessary to take into account their legal •obligations and the reasonable expectations of their stakeholders

Responsibility and accountability of individuals for reporting •and investigating reports of unethical practices 5a, 5b comply

3.2 establish and disclose the policy concerning trading in company securities by directors, officers and employees 1j, 5c comply

3.3 provide the information indicated in the Guide to reporting on principle 3 5a, 5b, 5c comply

pRINCIpLE 4: sAfEgUARd INTEgRITY IN fINANCIAL REpORTINg

4.1 the board should establish an audit committee 2b comply

4.2 structure the audit committee so that it consists of:

Only non executive directors•

A majority of independent directors•

An independent chairperson who is not chairperson of the •board

At least three members•

2a, 2b

2a, 2b

2a

2a ,2b

4.3 the audit committee should have a formal charter 2a, 2b comply

4.4 provide the information indicated in Guide to reporting on principle 4

2a, 3bdirectors’ Report comply

Asx principles compliance statement is continued on next page.


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ASX CORPORATE GOVERNANCE COUNCIL’S BEST PRACTICE RECOMMENDATIONS

REFERENCE (1) COMPLIANCE

PrinciPle 5: Make tiMely and balanced disclosure

5.1 Establish written policies and procedures designed to ensure compliance with ASX Listing Rules disclosure requirements and to ensure accountability at a senior management level for that compliance and disclose those policies or a summary of those policies 8 Comply

5.2 Provide the information indicated in the Guide to reporting on Principle 5 8 Comply

PrinciPle 6: resPect the rights of shareholders

6.1 Design and disclose a communications strategy to promote effective communication with shareholders and encourage effective participation at general meetings 8,9 Comply

6.2 Provide the information indicated in the Guide to reporting on Principle 6 9 Comply

PrinciPle 7: recognise and Manage risk

7.1 Establish policies on risk oversight and management of material business risks and disclose a summary of those policies 2b, 4a, 4b Comply

7.2 Require management to design and implement the risk management and internal control system to manage the Company’s material business risks and report to it on whether those risks are being managed effectively. The Board should disclose that management has reported to it as to the effectiveness of the Company’s management of its material business risks 4a Comply

7.3 Disclose whether it has received assurance from the chief executive officer (or equivalent) and the chief financial officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks 4b Comply

7.4 Companies should provide the information indicated in the Guide to reporting on Principle 7 4 Comply

PrinciPle 8: reMunerate fairly and resPonsibly

8.1 Establish a remuneration committee 2b Comply

8.2 Clearly distinguish the structure of non executive directors’ remuneration from that of executives

Remuneration Report

8.3 Provide the information indicated in Guide to reporting on Principle 8

2c, 6Remuneration Report

Directors’ Report

Comply

Note:

The default reference refers to the relevant sections of this Corporate Governance Statement. Reference to the Directors (1) Report and the Remuneration Report is shown where applicable.

The Company does not comply with Principle Recommendations 2.2 and 2.3 as the Chairman and CEO roles are conducted (2) by the same person (Kim Robinson). The Board considers that given its size, no other benefits will be gained by separating these roles.

f i n a n c i a l s t a t e m e n t s

f O R T h E y E A R E N D E D 3 0 J u N E 2 0 0 8


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Income statement for the year ended 30 June 2008

NOTES CONSOLIDATED KAGARA LTD

2008 $’000

2007 $’000

2008 $’000

2007 $’000

Sales revenue 2(a) 302,267 287,570 302,267 287,570

Cost of sales 3(a) (199,403) (142,649) (194,835) (140,464)

Gross profit 102,864 144,921 107,432 147,106

other revenue 2(b) 7,122 2,249 7,107 2,239

other expenses 3(b) (8,496) (11,820) (8,478) (11,810)

finance costs 3(c) (7,031) (3,403) (7,031) (3,403)

Profit before income tax 94,459 131,947 99,030 134,132

Income tax expense 4 (29,433) (42,126) (30,282) (42,768)

Profit after income tax 65,026 89,821 68,748 91,364

net profit attributable to members of Kagara Ltd 65,026 89,821 68,748 91,364

Earnings pEr sharE attributablE to ordinary Equity holdEr

Cents Cents

Basic earnings per share (cents per share) 37 30.14 43.71

diluted earnings per share (cents per share) 37 30.14 40.73

BaLance sheet as at 30 June 2008


2008 $’000

2007 $’000

2008 $’000

2007 $’000

CurrEnt assEts

Cash and cash equivalents 5 15,812 14,340 15,811 14,337

trade and other receivables 6 55,324 59,288 53,942 58,607

available for sale financial assets 7 13,312 15,610 13,312 15,610

Inventories 8 24,381 15,215 22,045 13,792

derivative financial instruments 9 14,632 8,237 14,632 8,237

other current assets 10 2,597 - 2,597 -

total Current assets 126,058 112,690 122,339 110,583

non-CurrEnt assEts

trade and other receivables 11 274 261 127,293 74,879

Plant and equipment 12 120,194 82,589 59,592 50,250

Mine properties 13 130,162 107,704 130,162 107,704

development 14 73,628 3,419 16,385 3,019

Capitalised exploration and evaluation 15 85,219 80,112 44,098 21,122

deferred tax assets 4 38,317 26,121 38,160 26,075


other non-current assets 16 1,050 1,050 1,050 1,050

total non-Current assets 463,594 317,517 431,490 300,360

total assEts 589,652 430,207 553,829 410,943

CurrEnt liabilitiEs

trade and other payables 17 52,127 39,246 36,292 33,567

Interest-bearing liabilities 18 10,858 22,940 10,858 22,940

Provisions 19 2,732 1,847 2,383 1,652


Current tax liabilities 4 2,067 9,156 2,067 9,156

other current liabilities 20 191 122 167 116

total Current liabilities 105,879 96,149 89,671 90,269

non-CurrEnt liabilitiEs

trade and other payables 21 - 881 - 881

Interest-bearing liabilities 22 89,201 6,944 89,201 6,944

deferred tax liabilities 4 84,054 57,989 59,208 43,054

Provisions 23 11,417 8,449 11,375 8,446


other non-current liabilities 24 52 75 49 75

total non-Current liabilities 248,217 127,621 223,326 112,683

total liabilitiEs 354,096 223,770 312,997 202,952

nEt assEts 235,556 206,437 240,832 207,991

Equity

Contributed equity 25 117,225 109,611 117,225 109,611

reserves 26 (33,191) (15,534) (33,191) (15,534)

retained profit 27 151,522 112,360 156,798 113,914

total Equity 235,556 206,437 240,832 207,991

the above income statement should be read in conjunction with the accompanying notes. the above balance sheet should be read in conjunction with the accompanying notes.

42 Kagara Limited annual report 2008 43 Kagara Limited annual report 2008

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statement of recoGnIsed Income and eXPense for the year ended 30 June 2008NOTES CONSOLIDATED KAGARA LTD

2008$’000

2007$’000

2008$’000

2007$’000

total equity at the beginning of the year 206,437 91,093 207,991 91,104

employee share options 26 3,510 7,674 3,510 7,674

Change in fair value of cash flow hedges, net of tax 26 (12,987) 213 (12,987) 213

Change in fair value of available-for-sale investments, net of tax 26 (8,134) 9,313 (8,134) 9,313

net income recognised directly in equity 188,826 108,293 190,380 108,304

Profit for the year 65,026 89,821 68,748 91,364

total recognised income and expense for the year 253,852 198,114 259,128 199,668

transactions with equity holders in their capacity as equity holders

Issue of shares to employees 25 7,447 9,836 7,447 9,836

Shares issued during the year, net of tax 25 120 19,242 120 19,242

dividends provided for or paid for 28 (25,863) (20,755) (25,863) (20,755)

total Equity at thE End of thE yEar 235,556 206,437 240,832 207,991

statement of cash fLoWs for the year ended 30 June 2008NOTES CONSOLIDATED KAGARA LTD

2008 $’000

2007 $’000

2008 $’000

2007 $’000

Cash flows from opErating aCtivitiEs

Cash receipts in the course of operations 306,607 248,592 306,591 248,592

Cash payments in the course of operations (170,457) (125,595) (174,191) (125,595)

Interest received 653 465 653 465

Borrowing costs (6,908) (3,280) (6,414) (3,280)

Income tax paid (13,625) (8,907) (13,625) (8,907)

nEt Cash from opErating aCtivitiEs 35(b) 116,270 111,275 113,014 111,275

Cash flows from invEsting aCtivitiEs

Payments for plant and equipment (31,127) (29,850) (12,568) (3,598)

Payments for exploration and evaluation (49,072) (21,648) (23,023) (7,897)

Payments for mine development expenses (57,510) (28,040) (49,373) (28,040)

Loans to controlled entities - - (49,486) (66,483)

acquisition of exploration tenement - (26,479) - -

Payments for investments (9,322) (846) (9,322) (846)

Cash outflow for short term deposits (12) (1,164) (13) (1,164)

nEt Cash usEd in invEsting aCtivitiEs (147,043) (108,027) (143,785) (108,028)

Cash flows from finanCing aCtivitiEs

Proceeds from issues of ordinary shares 5,862 8,417 5,862 8,417

Proceeds from borrowings 63,980 15,000 63,980 15,000

repayments of borrowings (11,734) (7,131) (11,734) (7,131)

dividends paid to shareholders (25,863) (20,755) (25,863) (20,755)

nEt Cash (usEd in) /from finanCing aCtivitiEs 32,245 (4,469) 32,245 (4,469)

net increase / (decrease) in cash held 1,472 (1,221) 1,474 (1,222)

Cash at the beginning of the financial year 14,340 15,561 14,337 15,559

Cash at thE End of thE finanCial yEar 35(a) 15,812 14,340 15,811 14,337

the above statements should be read in conjunction with the accompanying notes.

1. statement of sIGnIfIcant accountInG PoLIcIes

the principal accounting policies adopted in the preparation of the financial statements are set out below. these policies have

been consistently applied to all the years presented, unless otherwise stated. the financial statements include separate financial

statements for Kagara Ltd as a parent entity and the consolidated entity consisting of Kagara Ltd and its subsidiaries.

a) Basis of Preparation

this general purpose financial report has been prepared in accordance with australian accounting Standards, other authoritative

pronouncements of the australian accounting Standards Board, australian accounting Interpretations and the Corporations act

2001.

australian accounting Standards set out accounting policies that aaSB has concluded would result in the financial report

containing relevant and reliable information about transactions, events and conditions to which they apply. Compliance with

australian accounting Standards ensures that the financial statements and notes also comply with International financial

reporting Standards. Material accounting policies adopted in the preparation of this financial report are presented below. they

have been consistently applied unless otherwise stated.

Historical cost convention

the financial statements have been prepared on an accrual basis and are based on historical cost convention, as modified by the

revaluation of available-for-sale investments and financial assets and liabilities including derivative financial instruments.

Critical accounting estimates

the preparation of financial statements in conformity with aIfrS requires the use of certain critical accounting estimates. It also

requires management to exercise its judgement in the process of applying the Consolidated entity’s accounting policies. the areas

involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial

statements, are disclosed separately in the notes of these financial statements where relevant.

b) Principals of consolidation

Subsidiaries

the consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Kagara Ltd (“parent entity”) as at

30 June 2008 and the results of all subsidiaries for the year then ended. Kagara Ltd and its subsidiaries together are referred to in

these financial statements as the Consolidated entity.

Subsidiaries are all those entities over which the Consolidated entity has the power to govern the financial and operating policies,

generally accompanying a shareholding of more than one-half of the voting rights. the existence and effect of potential voting

rights that are currently exercisable or convertible are considered when assessing whether the Consolidated entity controls

another entity.

Subsidiaries are consolidated from the date on which control is transferred to the Consolidated entity. they are de-consolidated

from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between

consolidated companies are eliminated. unrealised losses are also eliminated unless the transaction provides evidence of the

impairment of the asset transferred.

the financial statements of the subsidiaries are prepared for the same reporting period as the parent entity. accounting policies

of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Consolidated entity.

c) Income tax

the income tax expense for the period is the tax payable on the current period’s taxable income based on the national income tax

rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences.

deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of

assets and liabilities and their carrying amounts in the consolidated financial statements. deferred income tax is determined using

tax rates (and laws) that have been enacted or substantially enacted by the reporting date and are expected to apply when the

related deferred income tax assets is realised or the deferred income tax liability is settled.

deferred tax assets are recognised for deductible temporary differences only if it is probable that the taxable amounts will be

available to utilise those temporary differences.

deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of

investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences

and it is probable that the differences will not reverse in the foreseeable future.

44 Kagara Limited annual report 2008 45 Kagara Limited annual report 200844 Kagara Limited annual report 2008

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the depreciable amount of all fixed assets including buildings, but excluding freehold land, is depreciated on a straight-line basis

or units of production over their useful lives to the Consolidated entity commencing from the time the asset is held ready for use.

the expected useful lives used in the calculation of depreciation are as follows:

Processing Plant 10 years

Buildings 10 - 40 years

Plant and equipment 4 - 10 years

Motor Vehicles 3 - 10 years

furniture and fittings 5 - 10 years

the assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

an assets’ carrying amount is written down immediately to its recoverable amount if the assets’ carrying amount is greater than

it’s estimated recoverable amount (note 1(k)).

Gains and losses on disposals are determined by comparing proceeds with the carrying amount. these are included in the income

statement when revalued assets are sold, it is the Consolidated entity’s policy to transfer the amounts included in other reserves

in respect of those assets to retained earnings.

i) exploration and evaluation expenditure

exploration and evaluation expenditure is carried forward as an asset where:

such costs are expected to be recouped through successful development and exploitation of the area of interest or, by its sale; •or

exploration activities in the area of interest have not yet reached a stage which permits a reasonable assessment of the •existence or otherwise of economically recoverable reserves and active and significant operations in relation to the area are continued.

accumulated costs in relation to an abandoned area are written off in full in the year in which the decision to abandon the area

is made. a regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward

costs in relation to that area of interest. When production commences, the accumulated costs for the relevant area of interest are

amortised over the life of the area according to the rate of depletion of the economically recoverable reserves.

j) mine Properties

Mine properties represent the acquisition costs and/or accumulation of exploration, evaluation and development expenditure

in respect of areas of interest in which mining has commenced. When further development expenditure is incurred in respect

of 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.

amortisation is provided on a unit of production basis so as to write off the cost in proportion to the depletion of the proven and

probable mineral reserves.

the net carrying value of each area of interest is reviewed regularly and to the extent to which this value exceeds its recoverable

amount (based on the higher of the net present value of estimated future net cash flows and its estimated sale value), that excess

is fully provided for in the financial year in which this is determined.

k) Impairment of assets

at each reporting date the Consolidated entity reviews the carrying value of its tangible and intangible assets for impairment.

an impairment loss is recognised for the amount by which the assets’ carrying amount exceeds its recoverable amount.

the recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. for the purpose of assessing

impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows which are largely

independent of the cash flows from other assets or groups of assets (cash-generating units). non-financial assets other than

goodwill that suffered an impairment are reviewed for possible reversal on the impairment at each reporting date.

deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities.

Current tax assets and liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on

a net basis, or to realise the assets and settle the liability simultaneously.

Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity.

Tax consolidation legislation

Kagara Ltd and its wholly-owned australian controlled entities have implemented the tax consolidation legislation.

the head entity, Kagara Ltd, and the controlled entities in the tax consolidated group account for their own current and deferred

amounts. these tax amounts are measured as if each entity in the tax consolidated group continues to be a stand alone tax payer

in its own right.

assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable

from or payable to other entities in the Consolidated entity.

any difference between amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as

a contribution to (or distribution from) wholly-owned tax consolidated entities.

d) Goods and services tax

revenues, expenses and assets are recognised net of the amount of associated GSt, unless the GSt incurred is not recoverable

from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense.

receivables and payables are stated inclusive of the amount of GSt receivable or payable. the net amount of GSt recoverable

from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet.

Cash flows are presented on a gross basis. the GSt components of cash flows arising from investing or financing activities which

are recoverable from, or payable to the taxation authority, are presented as operating cash flow.

e) cash and cash equivalents

for cash flow statement presentation purposes, cash and cash equivalents include cash on hand, deposits held at call with

financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily

convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

f) Inventories

raw materials and stores, work in progress and finished goods are stated at the lower of cost and net realised value. the costs

of mining stocks include direct material, direct labour, transportation costs and a proportion of variable and fixed overhead costs

relating to mining activities. net realisable Value is the amount to be obtained from the sale of the item of inventory in the

normal course of the business, less any anticipated selling costs to be incurred prior to its sale.

Inventories of consumable supplies and spare parts expected to be used in production are valued at weighted average cost.

obsolete or damaged inventories are valued at net realisable Value. a regular and ongoing review is undertaken to establish the

extent of surplus items and a provision is made for any potential loss on their disposal.

g) trade receivables and other receivables

trade receivables and other receivables are recorded at fair value based on estimated amounts due less any impairment losses.

an impairment loss is established when there is evidence that the Consolidated entity will not be able to collect all amounts due

according to the original term of receivables.

h) Plant and equipment

all Property, Plant and equipment is stated at historical cost less accumulated depreciation. historical cost includes expenditure

that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is

probable that future economic benefits associated with the item will flow to the Consolidated entity and the cost of the item can

be measured reliably. all other repairs and maintenance are charged to the income statement during the financial period in which

they are incurred.


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m) restoration and rehabilitation expenditure

the Consolidated entity is obligated to dismantle, remove, restore and rehabilitate certain items of property, plant and

equipment. under aaSB 116 Property, Plant and equipment, the cost of an item of property, plant and equipment includes the

initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for

which an entity incurs either when the item is acquired, or as a consequence to having used the item during a particular period.

In conjunction with this standard, aaSB 137 Provisions, Contingent Liabilities, and Contingent assets contains requirements

on how to measure decommissioning, restoration and similar liabilities. under aaSB 137 an entity is required to recognise as a

provision the best estimate of the present value of the expenditure required to settle the obligation at the Balance Sheet position

date. the present value of the costs should be measured using a current market-discount rate. as the value of the provision

represents the discounted value of the present obligation to restore, dismantle and rehabilitate, the increase in carrying amount

of the provision due to the passage of time is recognised as a borrowing cost in the Income Statement.

n) foreign currency transactions

the consolidated financial statements are presented in australian dollars which is Kagara Ltd’s functional and presentation

currency.

foreign currency transactions are translated to australian dollars using the exchange rate prevailing at the date of the

transaction. foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year

end exchange rates of monetary assets and liabilities dominated in foreign currencies are recognised in the income statement,

except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges.

o) trade and other Payables

these amounts represent liabilities for goods and services provided to the Consolidated entity prior to the end of the financial

year which are unpaid. these amounts are unsecured, non interest bearing and are usually paid within 30 days of recognition.

p) employee Benefits

(i) Wages and salaries, annual leave and sick leave

Liabilities for wages and salaries, including non - monetary benefits, annual leave and accumulating sick leave expected to be

settled within 12 months of the reporting date are recognised in other payables in respect of employees’ services up to the

reporting date and are measured at the amounts expected to be paid when the liabilities are settled.

(ii) Long service leave

the liability for long service leave is recognised in the provision for employee benefits and measured as the present value of

expected future payments to be made in respect of services provided by employees up to the reporting date using the projected

unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and

periods of service. expected future payments are discounted using markets yields at the reporting date on national government

bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.

(iii) Share-based payments

Share-based compensation benefits are provided to employees via the Kagara Ltd employee Share option Plan (eSoP).

the fair value of options granted under the Kagara Ltd eSoP is recognised as an employee benefit expense with a corresponding

increase in equity. the fair value is measured at grant date and recognised over the period during which the employees become

unconditionally entitled to the options.

the fair value at grant date is independently determined using Black-Scholes option pricing model that takes into account the

exercise price, the term of the option, the impact of dilution, the non-tradeable nature of the option, the expected dividend yield

and the risk-free interest rate for the term of the option.

upon the exercise of options, the balance of the share-based payments reserve relating to those options is transferred to

share capital.

at each reporting date, the Consolidated entity revises its estimate of the number of options that are expected to become

excisable. the employee benefit expense recognised each period takes into account the most recent estimate. the impact of

the revision to original estimates, if any, is recognised in the income statement with a corresponding adjustment to equity.

l) financial assets

Classification

the Consolidated entity classifies its investments in the following categories: financial assets at fair value through profit or

loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets. the classification depends on

the purpose for which the investments were acquired. Management determines the classification of its investments at initial

recognition and, in the case of assets classified as held-to-maturity, re-evaluates this designation at each reporting date.

(i) Financial assets at fair value through profit or loss

financial assets at fair value through profit or loss are financial assets held for trading. a financial asset is classified in this

category acquired principally for the purpose of selling in the short term. derivatives are classified as held for trading unless they

are designated as hedges. assets in this category are classified as current assets.

(ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active

market. they are included in current assets, except for those with maturities greater than 12 months after the balance sheet date

which are classified as non-current assets. Loans and receivables are included in trade and other receivables in the balance sheet

(notes 6 and 11).

(iii) Available-for-sale financial assets

available-for-sale financial assets, comprising principally marketable equity securities, are non-derivatives that are either

designated in this category or not classified in any of the other category. they are included in non-current assets unless

management intends to dispose of the investment within 12 months of the balance sheet date.

recognition and derecognition

regular purchases and sales on financial assets are recognised on trade-date - the date on which the Consolidated entity commits

to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not

carried at fair value through profit or loss. financial assets carried at fair value through profit or loss are initially recognised as

fair value and transaction costs are expensed in the income statement. financial assets are derecognised when the rights to

receive cash flows from the financial assets have expired or have been transferred and the Consolidated entity has transferred

substantially all the risks and rewards of ownership.

When securities classified as available-for-sale are sold, the accumulated fair value adjustments recognised in equity are included

in the income statement.

Subsequent measurement

Loans and receivables are carried at their amortised cost using the effective interest method.

fair value

the fair value of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for

unlisted securities), the Consolidated entity establishes fair value by using valuation techniques. these include the use of recent

arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and

option pricing models making maximum use of market inputs and relying as little as possible on entity-specific inputs.

Impairment

the Consolidated entity assesses at each balance date whether there is objective evidence that a financial asset or group of

financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the

fair value of a security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for

available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current

fair value, less any impairment loss on the financial asset previously recognised in the profit or loss – is removed from equity and

recognised in the income statement. Impairment losses recognised in the income statement on equity instruments classified as

available-for-sale are not reversed through the income statement.


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the fair values of various derivative financial instruments used for hedging purposes are disclosed in note 9. Movements in the

hedging reserve in shareholders’ equity are shown in note 26. the full fair value of a hedging derivative is classified as a non-

current asset or liability when the remaining maturity of the hedged item is more than 12 months; it is classified as a current

asset or liability when the remaining maturity of the hedged item is less than 12 months. trading derivatives are classified as a

current asset or liability.

the Consolidated entity documents at the inception of the transaction the relationship between hedging instruments and

hedging items, as well as its risk management objective and strategy for undertaking various hedge transactions. the

Consolidated entity also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives

that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or

cash flow of hedged items.

(i) Cash flow hedge

the effective portion of changes in the fair value of derivatives that are designated and qualify as a cash flow hedge is recognised

in equity in the hedging reserve. the gain or loss relating to the ineffective portion is recognised immediately in the income

statement.

amounts accumulated in equity are transferred to the income statement in the periods when the hedged item will affect profit or

loss (for instance when the forecast sale that is hedged takes place). the gain or loss relating to the effective portion of forward

foreign exchange contracts hedging export sale is recognised in the income statement within ‘sales’.

When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting,

any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is

no longer expected to occur. the cumulative gain or loss that was reported in equity is immediately transferred to the income

statement.

(ii) Derivatives that do not qualify for hedge accounting

Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that

does not qualify for hedge accounting are recognised immediately in the income statement.

v) contributed equity

ordinary shares are classified as equity (note 25).

Issued and paid up capital is recognised at the fair value of the consideration received by the Consolidated entity. any transaction

costs arising on the issue of ordinary shares are recognised directly in equity as a deduction, net of tax, from the proceeds.

w) earnings per share

(i) Basic earnings per share

Basic earnings per share is calculated by dividing net profit after income tax attributable to equity holders of the company,

excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares

outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year.

(ii) Diluted earnings per share

diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the

after 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.

x) rounding of amounts

the Consolidated entity is of a kind referred to in Class order 98/100, issued by the australian Securities & Investments

Commission, relating to the “rounding off” of amounts in the financial report. amounts in the financial report have been

rounded off in accordance with that Class order to the nearest thousand dollars, or in certain cases, to the nearest dollar.

q) Interest Bearing Liabilities

all loans are measured at the principal amount and interest expense is recognised on an accrual basis.

r) Leases

Leases of property, plant and equipment where the controlled entity has substantially all the risks and rewards of the ownership

are classified as finance leases. finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased

property and the present value of the minimum lease payments. the corresponding rental obligations, net of finance charges,

are included in either long term or short term payables. each lease payment is allocated the liability and finance cost. the finance

cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the

remaining balance of the liability for each period. the property, plant and equipment acquired under finance leases is depreciated

over the shorter of the asset’s useful life and the lease term.

Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Consolidated entity as

lessee are classified as operating leases. Payments made under operating leasing (net of any incentives received from the lessor)

are charged to the income statement on a straight-line basis over the period of the lease.

s) Provisions

Provisions for legal claims are recognised when: the Consolidated entity has a present legal or constructive obligation as a result

of past events; it is more probable than not that an outflow of resources will be required to settle the obligation; and the amount

has been reliably estimated. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by

considering the class of obligations as a whole. a provision is recognised even if the likelihood of an outflow with respect to any

one item included in the same class of obligations may be small.

Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present

obligation at the balance sheet date. the discount rate used to determine the present value reflects current market assessments

of the time value of money and the risks specific to the liability. the increase in the provision due to the passage of time is

recognised as an interest expense.

t) revenue recognition

revenue is measured at the fair value of the consideration received or receivable. amounts disclosed as revenue are net of

hedging where applicable.

Sales revenue comprises revenue earned from the provision of products to entities outside the company. Sales revenue is

recognised when the product is shipped and:

risk has been passed to the customer;•

the product is in a form suitable for delivery;•

the quantity of the product can be determined with reasonable accuracy;•

the product has been despatched to the customer and is no longer under the physical control of the company;•

the selling price can be determined with reasonable accuracy.•

Concentrate sales revenue represents gross proceeds receivable from the customer. Concentrate sales are initially recognised

at estimated sales value when the product is shipped. adjustments are made for variations in metal price, assay, weight and

currency between the time of shipment and the time of final settlement of sale proceeds.

Interest income is recognised as it accrues at an interest rate applicable to the financial asset.

u) derivatives

derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured

to their fair value. the method of recognising the resulting gain or loss depends on whether the derivative is designated as a

hedging instrument, and if so, the nature of the item being hedged.


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CONSOLIDATED KAGARA LTD

2. revenue2008

$’0002007

$’0002008

$’0002007

$’000

(a) rEvEnuE

revenue from sale of goods 302,267 287,570 302,267 287,570

total revenues 302,267 287,570 302,267 287,570

(b) othEr rEvEnuE

net realised and unrealised gains from closeout of fX and base metal contracts 6,277 1,774 6,277 1,774

Interest received from other corporations 652 465 652 465

other revenue 193 10 178 -

total other revenue 7,122 2,249 7,107 2,239

total rEvEnuEs 309,389 289,819 309,374 289,809

3. eXPenses and Losses / (GaIns)(a) Cost of salEs

Production costs 158,084 113,657 158,084 113,657

depreciation - plant and equipment 14,647 9,630 10,079 7,445

amortisation of mining properties 13,603 8,463 13,603 8,463

royalties - mining 13,069 10,899 13,069 10,899

total Cost of salEs 199,403 142,649 194,835 140,464

(b) othEr ExpEnsEs

exploration expenditure written-off 1,117 - 1,117 -

administration 1,561 2,546 1,544 2,536

depreciation - plant and equipment 111 65 110 65

rental expense relating to operating leases 170 126 170 126

Share based payments expense 5,238 9,095 5,238 9,095

Written down value of non-current assets sold 299 (12) 299 (12)

total othEr ExpEnsEs 8,496 11,820 8,478 11,810

(c) finanCE Costs

Interest expense – other persons/corporations 7,031 3,403 7,031 3,403

total finanCE Cost 7,031 3,403 7,031 3,403

y) Borrowing costs

Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to

complete and prepare the asset for its intended use or sale. other borrowing costs are expensed.

z) dividends

Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the

entity, on or before the end of the financial year but not distributed at balance date.

(aa) critical accounting estimates and Judgments

the directors evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best

available current information. estimates assume a reasonable expectation of future events and are based on current trends and

economic data, obtained both externally and within the group.

(i) Estimation for the provision for rehabilitation and dismantling

Provision for rehabilitation and dismantling property, plant and equipment is estimated taking into consideration facts and

circumstances available at the balance sheet date. this estimate is based on the expenditure required to undertake the

rehabilitation and dismantling, taking into consideration time value at money.

(ii) Impairment of property, plant and equipment, deferred exploration and development expenditure and mine properties

the consolidated entity reviews for impairment of property, plant and equipment, deferred exploration and development

expenditure and mine properties in accordance with the applicable accounting policies stated in note 1(o) to 1(s). With the

exception of deferred exploration, the recoverable amount of these assets has been determined based on higher of the assets’

fair value less value in use. these calculations require the use of estimates and judgements.

(iii) Income taxes

Judgment is required in determining the provision for income taxes. the Consolidated entity recognises liabilities of anticipated

tax based on estimates of taxes due. Where the final tax outcome of these matters is different from the amounts that

were initially recognised, such differences will impact the income tax and deferred tax provisions in the year in which such

determination is made.

other areas of judgment are:

determination of ore reserves.•

deferred mining expenditure and capitalisation of underground development costs.•

capitalisation and impairment of exploration and evaluation costs.•

recoverability of deferred tax assets.•

units of production method of depreciation.•


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bALANCE ShEET INCOmE STATEmENT

4. Income taX (contInued)2008

$’0002007

$’0002008

$’0002007

$’000

deferred income tax at 30 June relates to the following:

ConsolidatEd

Deferred Tax Liabilities

depreciation of plant and equipment - (342) - (456)

amortisation of exploration, production and development costs (70,816) (47,594) 21,201 28,965

deferred foreign exchange gains and losses - 210 (210) (410)

deferred gain on revalued investments - (2,753) - -

deferred gain on hedged commodity contracts (8,814) (7,350) - 388

accrued expenses / income (4,424) (160) 2,463 169

(84,054) (57,989)

ConsolidatEd

Deferred Tax Assets

depreciation of plant & equipment 2,419 - (1,196) -

Borrowing costs 175 71 158 73

deferred foreign exchange gains and losses 220 - (220) -

equity raising costs charged directly to equity - 46 - -

Business related costs 13 7 8 (2)

Provisions for employee entitlements 1,116 935 (180) (568)

deferred gain on revalued investments 733 - - -

Losses available for offset against future taxable income - - - 1,991

Provision for rehabilitation 3,202 2,213 (429) (1,615)

deferred loss on hedged commodity contracts 30,420 22,836 (548) (1,067)

other 19 13 (13)

Gross deferred income tax assets 38,317 26,121

deferred tax income / (expense) 21,047 27,455

deferred income tax at 30 June relates to the following:

parEnt

Deferred Tax Liabilities

depreciation of plant and equipment - (507) - (291)

amortisation of exploration, production and development costs (45,972) (32,493) 11,427 17,443

deferred foreign exchange gains and losses - 210 (210) (410)

deferred gain on revalued investments - (2,753) - -

deferred gain on hedged commodity contracts (8,814) (7,350) - 388

accrued expenses / income (4,422) (161) 2,463 169

(59,208) (43,054)

parEnt

Deferred Tax Assets

depreciation of plant & equipment 2,388 - (853) -

Borrowing costs 175 72 158 73

deferred foreign exchange gains and losses 220 - (220) -

equity raising costs charged directly to equity - 46 - -

Business related costs 14 7 7 (2)

Provisions for employee entitlements 990 888 (56) (521)

Losses available for offset against future taxable income 733 - - 1,991


4. Income taX 2008 $’000

2007 $’000

2008 $’000

2007 $’000

the major components of income tax expense are:

inComE tax statEmEnt

Current income tax charge 8,478 14,671 18,633 26,623

adjustment in respect of current income tax of previous year (91) - (91) -

deferred income tax

relation to origination and reversal of temporary differences 21,046 27,455 11,740 16,145

Income tax expense reported in the income statement 29,433 42,126 30,282 42,768

amounts ChargEd or CrEditEd dirECtly to Equity

deferred Income tax related to items charged or credited directly to equity

recognition of commodity hedge contracts 5,566 91 5,566 91

net gain on revaluation of investments 3,486 2,576 3,486 2,576

Movement in capital raising costs charged directly to equity (46) 58 (46) 58

Income tax expense reported in equity 9,006 2,725 9,006 2,725

a reconciliation between tax expense and the product of accounting profit before income tax multiplied by the Group’s applicable income tax rate as follows:

accounting profit before tax 94,459 131,947 99,030 134,132

accounting profit before income tax 94,459 131,947 99,030 134,132

tax at the australian tax rate of 30% (2007:30%) 28,338 39,584 29,709 40,239

adjustment in respect of current income tax of previous years (91) - (91) -

non deductible amortisation on exploration tenements 353 227 353 227

deduction of capital raising costs charged directly to equity (46) (58) (46) (58)

realised foreign exchange gains (394) (425) (394) (425)

expenditure not allowable for income tax purposes 1,575 2,751 1,576 2,751

adjustment to recognise prior year tax balances not previously recognised (302) - (825) -

other - 47 - 34

income tax Expense reported in the Consolidated income 29,433 42,126 30,282 42,768


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7. current assets - avaILaBLe for saLe fInancIaL assets

2008$’000

2007$’000

2008$’000

2007$’000

Listed securities at fair value

ordinary shares 13,312 12,073 13,312 12,073

unlisted securities at fair value - - - -

options - 3,537 - 3,537

13,312 15,610 13,312 15,610

movement in listed securities

Balance at beginning 1 July 2007 15,610 2,874 15,610 2,874

acquisition of listed securities 7,521 846 7,521 846

Conversion of options to shares 1,800 - 1,800 -

revaluations surplus/(deficit) transfer to equity (11,619) 11,890 (11,619) 11,890

balanCE at 30 JunE 2008 13,312 15,610 13,312 15,610

8. current assets - InventorIesMaterials and supplies - at cost 6,035 4,595 3,699 3,172

Work in progress (broken ore) - at cost 16,567 10,553 16,567 10,553

finished goods (concentrates awaiting shipment) - at cost 1,779 67 1,779 67

total invEntoriEs at lowEr of Cost and nEt rEalisablE valuE 24,381 15,215 22,045 13,792

there were no write downs on inventory to net realisable value during the period ending 30 June 2008.

9. derIvatIve fInancIaL InstrumentsCurrEnt assEts

forward contracts – cash flow hedge 14,632 8,237 14,632 8,237

total CurrEnt dErivativE finanCial instrumEnts assEts 14,632 8,237 14,632 8,237

non CurrEnt assEts


total non CurrEnt dErivativE finanCial instrumEnts assEts 14,750 16,261 14,750 16,261

CurrEnt liabilitiEs

forward contracts - cash flow hedge 37,904 22,838 37,904 22,838

total CurrEnt dErivativE finanCial instrumEnts liabilitiEs 37,904 22,838 37,904 22,838

non CurrEnt liabilitiEs


total non CurrEnt dErivativE finanCial instrumEnts liabilitiEs 63,493 53,283 63,493 53,283

the Consolidated entity is party to derivative financial instruments in the normal course of business in order to hedge exposure

to fluctuations in foreign exchange rates and to the movements in the price of zinc, copper and lead. the portion of the gain or

loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity. When the cash flows

occur, the consolidated entity adjusts the initial measurement of the component recognised in the balance sheet by the related

amount deferred in equity.

bALANCE ShEET INCOmE STATEmENT

DEfERRED INCOmE TAx (CONTINuED)2008

$’0002007

$’0002008

$’0002007

$’000

Provision for rehabilitation 3,202 2,213 (428) (1,615)

deferred loss on hedged commodity contracts 30,419 22,836 (548) (1,067)

other 19 13 (13)

gross dEfErrEd inComE tax assEts 38,160 26,075

dEfErrEd tax inComE / (ExpEnsE) 11,740 16,145


CurrEnt tax liabilitiEs2008

$’0002007

$’0002008

$’0002007

$’000

Current income tax liability 2,067 9,156 2,067 9,156

2,067 9,156 2,067 9,156

tax consolidation

Kagara Ltd and its 100% owned australian resident subsidiaries have formed a tax consolidated group with effect from 1 July

2003. Kagara Ltd is the head entity of the tax consolidated group.

tax effect accounting by members of the tax consolidated group

Members of the tax consolidated group have agreed to enter into a tax funding arrangement. under the tax funding

arrangement, the allocation of current taxes to members of the tax consolidated group has been completed using the “separate

tax payer within group” approach in accordance with uIG 1052, while deferred taxes have been allocated to members of the tax

consolidated group in accordance with the principles of aaSB 112 Income Taxes.

5. current assets - cash and cash equIvaLentsCash on hand and at Bank 689 7,880 688 7,877

deposits at call 15,123 6,460 15,123 6,460

15,812 14,340 15,811 14,337

the Consolidated entity’s exposure to interest rate risk is discussed in note 29.

6. current assets - trade and other receIvaBLestrade debtors 50,635 57,701 50,635 57,701

other 4,689 1,587 3,307 906

55,324 59,288 53,942 58,607

a) Impaired receivables and receivables past due

the average credit period on Sales is within 15 days. no interest is charged on trade receivables. the trade and current

receivables do not contain impaired assets or past due not impaired. Based on the credit history of these debtors, it is expected

that these amounts will be received when due.

b) foreign exchange and interest rate risk and credit risk

Information about the Consolidated entities exposure to foreign currency risk, interest rate risk and credit risk in relation to trade

and other receivables is provided in note 29.

c) fair value

due to the short term nature of these receivables, their carrying amount is assumed to approximate their fair value.


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12. non-current assets - PLant and equIPment (contInued)

2008$’000

2007$’000

2008$’000

2007$’000

land and buildings

at cost 16,385 8,404 8,052 7,646

Less provision for amortisation (3,030) (1,398) (2,263) (1,392)

total land and buildings 13,355 7,006 5,789 6,254

total writtEn down amount 120,194 82,589 59,592 50,250

reconciliations

reconciliations of the carrying amounts of each class of plant and equipment at the beginning and end of the current financial

year are set out below:

plant and EquipmEnt

opening carrying amount 73,954 47,292 43,012 44,238

additions 42,885 34,945 18,485 5,052

disposals (404) - (852) -

depreciation (12,064) (8,283) (8,536) (6,278)

Closing Carrying amount 104,371 73,954 52,109 43,012

offiCE furniturE and fixturEs

opening carrying amount 194 77 98 38

additions 22 149 22 81

disposals - - - -

depreciation (50) (32) (36) (21)

Closing Carrying amount 166 194 84 98

motor vEhiClEs

opening carrying amount 1,435 1,022 886 1,014

additions 1,778 920 1,337 212

disposals (23) - - -

depreciation (888) (507) (613) (340)

Closing Carrying amount 2,302 1,435 1,610 886

land and buildings

opening carrying amount 7,006 4,566 6,254 4,566

additions 7,981 3,184 405 2,426

disposals - - - -

depreciation (1,632) (744) (870) (738)

Closing Carrying amount 13,355 7,006 5,789 6,254

(a) asset in the course of construction

the carrying amount of assets disclosed above include the following expenditure recognised in relation to property, plant and

equipment which is in the course of construction:

Mungana Processing Plant 14,960 4,016 - -

total assets in the course of construction 14,960 4,016 - -

the majority of the Consolidated entity’s revenue is determined in united States dollars. In order to protect against exchange rate

movement the Consolidated entity has entered into forward exchange contracts to sell uS dollars.

Kagara Ltd hedges lead and copper production on a shipment by shipment basis using forward sales contracts. as at 30 June

2008, 4,750 tonnes of copper was hedged at $8,981 per tonne.

a hedging program covering 30,000 tonnes of copper has been entered into, this program, which matures in 30 equal

instalments until december 2010. this is a zero stepped cap collar arrangement having a floor price of uS$1.30 per pound of

copper with a cascading ceiling price of uS$3.49 per pound of copper for calendar year 2007, uS$2.90 for 2008, uS$2.36 for

2009 and uS$1.81 for 2010.


10. current assets - other2008

$’0002007

$’0002008

$’000 2007$’000

Prepayments 2,597 - 2,597 -

2,597 - 2,597 -

11. non-current assets - trade and other receIvaBLes

Security deposits 274 261 122 108

Loans to controlled entities (note 34c) - - 127,171 74,771

274 261 127,293 74,879

none of the non-current trade and other receivables are impaired or past due but not impaired. the carrying amount of the

trade and other receivables approximate their fair value. Information about the consolidated and parent entity’s risk exposure is

provided in note 29.

12. non-current assets - PLant and equIPmentplant and EquipmEnt

at cost 99,490 68,138 57,338 44,864

Less provision for depreciation (19,171) (13,798) (19,131) (12,857)

80,319 54,340 38,207 32,007

under finance leases 35,643 24,717 19,990 15,034

Less provision for depreciation (11,591) (5,103) (6,088) (4,029)

24,052 19,614 13,902 11,005

total plant and EquipmEnt 104,371 73,954 52,109 43,012

offiCE furniturE and fixturEs

at cost 288 266 181 159

Less provision for depreciation (122) (72) (97) (61)

total offiCE furniturE and fixturEs 166 194 84 98

motor vEhiClEs

at cost 1,615 607 1,412 483

Less provision for depreciation (901) (377) (797) (367)

714 230 615 116

under finance leases 2,616 1,903 1,696 1,300

Less provision for depreciation (1,028) (698) (701) (530)

1,588 1,205 995 770

total motor vEhiClEs 2,302 1,435 1,610 886


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18. current LIaBILItIes – Interest-BearInG LIaBILItIes

2008$’000

2007$’000

2008$’000

2007$’000

sECurEd

Corporate facility (a) - 15,000 - 15,000

hire Purchase Liability (b) 10,858 7,940 10,858 7,940

10,858 22,940 10,858 22,940

the Corporate facility is held with national australia Bank Ltd. the facility limit is $100 million secured as a fixed and (a) floating charge of the consolidated entities assets. the facility comprises of two cash advance facilities each of $50 million. the interest rate is variable based on BBSy plus a margin. the margin for cash advance facility one and two are 0.75% and 0.80% respectively.

hire Purchase Liabilities are secured by charges over each respective asset. the interest rate ranges from 7.01% to 9.09%. (b) refer to note 32(b) for details on timing and amount of future hire Purchase payments.

Interest rate risk exposure, fair value disclosure and security disclosures are detailed in note 29.(c)

19. current LIaBILItIes - ProvIsIons

employee entitlements (note 39b) 2,732 1,847 2,383 1,652

2,732 1,847 2,383 1,652

movEmEnt in provisions

Movements in each class of provisions at the beginning and end of the current financial year are set out below.


2008$’000

2008$’000

Carrying amount at 1 July 2007 1,847 1,652

amounts incurred and charged 885 731

Carrying amount at 30 June 2008 2,732 2,383

20. current LIaBILItIes - other employee entitlements 191 122 167 116

191 122 167 116

21. non-current LIaBILItIes - PayaBLes other creditors and accruals - 881 - 881

- 881 - 881

22. non-current LIaBILItIes – Interest-BearInG LIaBILItIessECurEd

Corporate facility (note 18(a)) 78,980 - 78,980 -

hire Purchase Liabilities (note 18(b)) 10,221 6,944 10,221 6,944

89,201 6,944 89,201 6,944


13. non-current assets – mIne ProPertIes 2008$’000

2007$’000

2008 $’000

2007 $’000

Cost

opening balance 133,558 89,799 133,558 89,799

expenditure incurred 36,061 38,750 36,254 38,750

transfer from development - 5,009 - 5,009

Closing balanCE 169,619 133,558 169,812 133,558

aCCumulatEd dEprECiation

opening balance (25,854) (17,391) (25,854) (17,391)

amortisation for the year (13,603) (8,463) (13,796) (8,463)

Closing balance (39,457) (25,854) (39,650) (25,854)

net book value 130,162 107,704 130,162 107,704

Included in the mine properties are the following capitalised borrowing costs:

Costs brought forward 1,011 1,257 1,011 1,257

Costs incurred during the year 879 - 879 -

amortised during the year (510) (246) (510) (246)

1,380 1,011 1,380 1,011

14. non-current assets - deveLoPment

opening balance 3,419 5,451 3,019 5,051


transfer to mine properties - (5,009) - (5,009)

transfer from exploration and evaluation 48,706 - - -

Closing balanCE 73,628 3,419 16,385 3,019

15. non-current assets – caPItaLIsed eXPLoratIon and evaLuatIon

opening balance 80,112 26,317 21,122 9,501


acquisition of exploration tenements - 26,767 - -

transfer to development (48,706) - - -

expenditure written off (1,117) - (1,117) -

Closing balanCE 85,219 80,112 44,098 21,122

16. non-current assets – other

Prepayments 1,050 1,050 1,050 1,050

1,050 1,050 1,050 1,050

17. current LIaBILItIes – trade and other PayaBLes

trade creditors 25,678 15,779 14,175 11,292

other creditors and accruals 26,449 23,467 22,117 22,275

52,127 39,246 36,292 33,567


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(c) share options

Information relating to the Kagara employee option Plan, is detailed in note 39(a).

(d) terms and conditions of contributed equity

ordinary shares have the right to receive dividends as declared and, in the event of the winding up of the Company, to participate

in the proceeds from the sale of all surplus assets in proportion to the number of and amounts of shares held. ordinary shares

entitle their holder to one vote, either in person or by proxy, at a meeting of the Company.

(e) capital risk management

the consolidated entity’s and the parent entity’s objectives when managing capital is to safeguard their ability to continue as a

going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders and to maintain

an optimal capital structure to reduce the cost of capital.

Management effectively manage the consolidated entities capital by assessing the financial risks and adjusting its capital structure

in response to changes in these risks and in the market. these responses include the management of debt levels, distributions to

shareholders and share issues. there have been no changes in the strategy adopted by management to control the capital of the

consolidated entity since the prior year.

the gearing ratios for the year ended 30 June 2008 and 30 June 2007 are as follows:


(e) capital risk management2008

$’0002007

$’0002008

$’0002007

$’000

total borrowings 17,18,21,22 152,186 70,011 136,351 64,332

Less cash and cash equivalents 5 (15,812) (14,340) (15,811) (14,337)

net debt 136,374 55,671 120,540 49,995

total equity 235,556 206,437 240,832 207,991

total capital 371,930 262,108 361,372 257,986

Gearing ratio 36% 21% 33% 19%

26. reservesavailable-for-sale investment revaluation reserve, net of tax (i) 1,593 9,727 1,593 9,727

Share based payment reserve, net of tax (ii) 12,697 9,187 12,697 9,187

hedge reserve, net of tax (iii) (47,538) (34,551) (47,538) (34,551)

Capital profits reserve (iv) 57 57 57 57

other - 46 - 46

(33,191) (15,534) (33,191) (15,534)

nature and purpose of reserve

(i) Available-for-sale Investment Revaluation Reserve

Changes in the fair value and exchange differences arising on translation of investments, such as equities, classified as available-

for-sale financial assets, are taken to the available-for-sale investments revaluation reserve. amounts are recognised in the profit

and loss when the associated assets are sold or impaired.

available-for-Sale revaluation reserve

Balance at beginning of financial year 9,727 518 9,727 518

revaluation – gross (8,082) 11,785 (8,082) 11,785

Conversion of options to shares (3,538) - (3,538) -

deferred tax 3,486 (2,576) 3,486 (2,576)

balanCE at End of finanCial yEar 1,593 9,727 1,593 9,727


23. non-current LIaBILItIes - ProvIsIons 2008$’000

2007$’000

2008 $’000

2007 $’000

Provision for rehabilitation 10,675 7,376 10,675 7,376

employee entitlement (note 39(b)) 742 1,073 700 1,070

11,417 8,449 11,375 8,446

Movements In Provisions CONSOLIDATED KAGARA LTD

Movements in each class of provisions at the beginning and end of the current financial year are set out below.

2008$’000

2008$’000

Provision For Rehabilitation


amounts incurred and charged 3,299 3,299

Carrying amount at 30 June 2008 10,675 10,675

Provision For Employee Entitlement


additional provisions recognised - -

unused amounts reversed (331) (370)

Carrying amount at 30 June 2008 742 700

Provision For Rehabilitation

a provision has been recognised for the costs to be incurred for the restoration of the mining site used for the exploration of

zinc, lead and copper. It is anticipated that the mine will require restoration within 10 years. a discount rate adjusted to reflect

the risk inherent in the mining operation has been applied.

Provision For Long-Term Employee Benefits

a provision has been recognised for employee entitlement relating to long service leave. In calculating the present value of future

cash flows in respect to long service leave, the probability of long service leave being taken is based on historical data.

the measurement and recognition criterion relating to employee benefits has been included in note 1(p) of this report.

24. non-current LIaBILItIes – otheremployee entitlements 52 75 49 75

52 75 49 75

25. contrIButed equIty(a) issued and paid up capital

216,399,775 ordinary shares fully paid 117,225 109,611 117,225 109,611

117,225 109,611 117,225 109,611

(b) movements in contributed equity for the year

2008 NumbER Of

ShARES$’000

2007 NumbER Of

ShARES$’000

Beginning of the financial year 215,008,437 109,611 195,791,718 80,476

Issued during the 2008 financial year

employee option conversions to ordinary shares (i)• 1,372,500 7,494

sundry other shares issued (ii)• 18,838 120

Issued during the 2007 financial year

employee option conversions to ordinary shares• 4,267,500 9,836

other options exercised• 2,169,404 14,361

conversion of notes• 12,779,815 4,938

End of the financial year 216,399,775 117,225 215,008,437 109,611

during the year 1.4 million options (2007: 4.3 million) were exercised at prices ranging from $1.20 to $5.00. (i) refer to note 39(a).

during the year Kagara allotted 18,838 shares to the australian Prospectors and Miners hall of fame at $6.37 per share.(ii)


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28. dIvIdends (contInued)

the above amounts represent the balance of the franking account as at the financial year, adjusted for:

franking credits that will arise from payment of the amount of the provision for income tax(a)

franking debits that will arise from the payment of dividends recognised as a liability at the reporting date, and (b)

franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date.(c)

29. fInancIaL rIsk manaGement

the Consolidated entity’s activities expose it to market risk (including currency risk, commodity price risk, interest rate risk

and investment risk), credit risk and liquidity risk. the Consolidated entity’s overall risk management program focuses on

the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the

Consolidated entity. the Consolidated entity uses derivative financial instruments such as foreign exchange contracts and

commodity contracts to hedge certain risk exposures. the Consolidated entity’s financial instruments consist mainly of deposits

with banks, short-term investments, accounts receivable and payable loans to and from subsidiaries, leases, working capital

facility and derivatives.

the Board meet on a regular basis to analyse financial risk exposure and to evaluate treasury management strategies in the

context of the most recent economic conditions and forecasts. the overall risk management strategy seeks to assist the

consolidated group in meeting its financial targets, whilst minimising potential adverse effects on financial performance.

risk management policies include the use of hedging derivative instruments, credit risk policies and future cash flow

requirements.

(a) market risk

(i) Foreign exchange risk

Generally, forward contract and options are used to manage foreign exchange risk. the Consolidated entity’s currency exposure

based on the information provided to key management is mainly in cash and cash equivalents and forward exchange contracts

which is disclosed in notes 5 and 9.

foreign exchange risk arises from future commercial transactions and recognised assets and liabilities that are denominated in a

currency that is not the entity’s functional currency. the Consolidated entity has exposure to foreign exchange risk due to its sale

revenue being derived in united States dollars.

external foreign exchange contracts are designated at a Consolidated entity level as hedges of foreign exchange risk on revenue.

at 30 June 2008, had the australia dollar weakened/strengthened by 10% against these foreign currencies with all other

variables held constant, the consolidated entity’s pre-tax profit for the year would have been $6.6 million higher/lower (2007:

$6.5 million higher/lower), mainly as a result of foreign exchange gains/losses on translation of cash and cash equivalents.

receivables and payables denominated in foreign currencies. equity would have been $6.6 million higher/lower (2007: $6.5

million) had the australian dollar weakened/strengthened by 10% against theses foreign currencies, arising mainly from cash and

cash equivalents, interest bearing loans, receivables and payable denominated in foreign currencies.

(ii) Commodity risk price

the Consolidated entity is exposed to commodity price risk arising from revenue derived from sales of zinc, copper and lead

concentrates. the risk is managed through contractual arrangements with customers and use of derivative instruments such as

forward and option contracts. at 30 June 2008, had the commodity prices weakened/strengthened by 5% with all other variables

held constant, the consolidated entity’s pre-tax profit for the year would have been $17.7 million higher/lower (2007: $18.2

million higher/lower), mainly as a result of movement in zinc, copper and lead prices. equity would have been $17.7 million

higher/lower (2007: $18.2 million higher/lower) had the commodity prices weakened/strengthened by 5%, arising mainly as a

result of the movement in zinc, copper and lead prices.

(iii) Interest rate risk exposure

Interest rate risk arises as a result of the repricing of investments and borrowings and is affected by the length of the repricing

period.


2008 $’000

2007 $’000

2008 $’000

2007 $’000

26. reserves (contInued)

ii) Share-based Payments Reserve

the share-based payments reserve is used to recognise the fair value of options issued but not exercised.

Share Based Payment reserve

Balance at beginning of financial year 9,187 1,512 9,187 1,512

employee share plan expense 4,810 9,526 4,810 9,526

transfer to share capital (options exercised) (1,300) (1,851) (1,300) (1,851)

balanCE at End of finanCial yEar 12,697 9,187 12,697 9,187

(iii) Hedging Reserve – cash flow hedge

the hedging reserve is used to record gains or losses on hedging instruments used in a cash flow hedge that are recognised

directly in equity, as described in note 1(u). amounts are recognised in profit and loss when the associated hedge transaction

affects profit and loss.

hedge reserve

Balance at beginning of financial year (34,551) (34,764) (34,551) (34,764)

revaluation - gross (18,553) 304 (18,553) 304

deferred tax 5,566 (91) 5,566 (91)

balanCE at End of finanCial yEar (47,538) (34,551) (47,538) (34,551)

(iv) Capital Profit Reserve

the capital profit reserve is used to accumulate realised capital profit.

Capital profit reserve

Balance at beginning of financial year 57 57 57 57

Incurred during the year - - - -

balanCE at End of finanCial yEar 57 57 57 57

27. retaIned ProfItsBalance at the beginning of the year 112,360 43,294 113,914 43,305

dividend provided or paid for (25,864) (20,755) (25,864) (20,755)

net profit attributable to members of Kagara Ltd 65,026 89,821 68,748 91,364

balanCE at thE End of finanCial yEar 151,522 112,360 156,798 113,914

28. dIvIdends

(a) ordinary shares

final dividend for the year ended 30 June 2007 of 12 cents (2006: 10 cents) per fully paid share paid on the 17 october 2007

fully franked based on tax paid at 30% 25,863 20,755 25,863 20,755

25,863 20,755 25,863 20,755

(b) franked dividends

franking credits available for subsequent financial years based on tax paid of 30% 8,097 8,254 8,097 8,254

8,097 8,254 8,097 8,254


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29. fInancIaL rIsk manaGement (contInued)

(b) credit risk exposures

Credit risk refers to the risk that a counter party will default on its contractual obligations resulting in a financial loss to the

group. Credit risk is managed on a consolidated entity basis. Credit risk arises from cash and cash equivalents, and deposits with

banks and financial institutions, as well as credit exposures to trade customers, including outstanding receivables and committed

transactions.

the Consolidated entity has no significant concentrations of credit risk. the Consolidated entity has policies in place to ensure

that sales of products are made to customers with an appropriate credit history. all potential customers are rated for credit

worthiness taking into account their size, market position and financial standing. derivative counterparties and cash transactions

are limited to high credit quality financial institutions. the Consolidated entity has policies that limit the amount of credit

exposure to any one financial institution.

the age analysis to trade receivables past due but not impaired is disclosed in note 6. the carrying amount of trade receivables

individually determined to be impaired and the movement in the related allowance for impairment are also disclosed in note 9.

(c) Liquidity risk

Prudent liquidity risk management implies maintaining at all times sufficient cash, liquid investments and committed credit

facilities to meet the Consolidated entities commitments as they arise.

Liquidity risk management covers daily, short-term and long-term needs. the appropriate levels of liquidity are determined by

both the nature of the Consolidated entity’s business and its risk profile.

to the extent the Consolidated entity has liabilities on its cash flow hedges; the Consolidated entity expects to produce sufficient

copper from its copper operations to deliver into its committed hedge contracts.

(d) fair value estimation

the fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure

purposes.

the fair value of financial instruments traded in active markets (such as available for sale investments) are based on quoted

market prices at the reporting date. the quoted market price used for financial assets held by the consolidated entity is the

current bid price.

derivative contracts classified as held for trading are fair valued by comparing the contracted rate to the current market rate for a

contract with the same remaining period to maturity.

the carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values due

to their short-term nature.

29. fInancIaL rIsk manaGement (contInued)

the significance of the risks to the consolidated entity is dependant on a number of factors including:

interest rates and the currencies that the borrowings are drawn;•

level of cash, liquid investments and borrowings and their term;•

maturity dates of investments and borrowings;•

proportion of investments and borrowings that are fixed rate or floating rate.•

the Consolidated entity’s exposure to interest rate risk and the effective interest rates of financial assets and financial liabilities at

the balance date, are as follows:

AS AT 30 JuNE 2008fLOATING INTEREST

mATuRING IN:NON INTEREST

bEARINGTOTAL

WEIGhTED AvERAGE INTEREST

RATE

1 yr or less$’000

over 1 to 5 yrs$’000 $’000 $’000

finanCial assEts

Cash and cash equivalents 15,812 - - 15,812 1.52%

trade and other receivables 40 - 55,558 55,598 8.40%

derivative financial instruments - - 29,382 29,382 -

total finanCial assEts 15,852 - 84,940 100,792

finanCial liabilitiEs

trade and other payables - - 52,127 52,127 -

Interest bearing liabilities 10,858 89,201 - 100,059 8.41%


total finanCial liabilitiEs 10,858 89,201 153,524 253,583

AS AT 30 JuNE 2007fLOATING INTEREST

mATuRING IN:NON INTEREST

bEARINGTOTAL

WEIGhTED AvERAGE INTEREST

RATE

1 yr or less$’000

over 1 to 5 yrs$’000 $’000 $’000

finanCial assEts

Cash and cash equivalents 14,340 - - 14,340 5.85%

trade and other receivables 40 - 59,509 59,549 6.45%


total finanCial assEts 14,380 - 84,007 98,387

finanCial liabilitiEs - - - -

trade and other payables - - 40,127 40,127 -

Interest bearing liabilities 22,940 6,944 - 29,884 7.84%


total finanCial liabilitiEs 22,940 6,944 116,246 146,130

at 30 June 2008, if interest rates had changed by -/+ 50 bases points from the weighted average year end rates with all other

variables held constant, pre-tax profit for the year would have been $0.4 million higher/lower (2007:$0.1 million higher/lower),

mainly as a result of higher/lower interest from interest bearing liabilities. equity would have been $0.4 million higher/lower

(2007: $0.1 million higher/lower) mainly as a result of an increase/decrease from interest bearing liabilities.

(iv) Investment Risk

at 30 June 2008 if the australian share prices changed by 5% with all other variables held constant there would be no affect on

the pre-tax profit as all movements is recorded in equity. equity would have been $0.67 million higher/lower (2007: $0.6 million

higher/lower).


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d) contingent liabilities (continued)

DATE REGISTERED

NATIvE TITLE AppLICATION TENEmENTS

22/04/05 Gudjala People ePM 10582, ML 10137, ML 1531

22/04/05 Warrungu People 2 ePM 16024

22/04/05 Gugu Badhun People 2 ePM 13229, ePM 14107, ePM 9323, ML 1393, ML 30156

28/05/01 Bar-Barrum People 2ePM 13272, ePM 14626, ePM 16022, ePM 16024, ePM 16072, ML 20005, ML 20105, ML 4043, ML 4044

28/05/01 Bar-Barrum People 3

ePM 13272, ePM 14626, ePM 16022, ePM 16024, ePM 16072, ML 20005, ML 20007, ML 20104, ML 20105, ML 4042, ML 4043, ML 4044, ML 4130, ML 7110

12/12/02 Bar-Barrum People 4 ePM 12902, ePM 13272

03/07/00 Ballardong Wad6181-98e77/1399, e77/272, M77/467, M77/468, M77/544, M77/99, P74/282, P74/283, P74/284, P74/285, P77/3007, P77/3008

08/09/04 Karajarri Wad6100-98 e04/1610, M4/244, M4/249

tenements that may have appeared in this list previously but do so no longer have nIL native title Claims registered

within there area.

It is not possible at this time to quantify the financial impact (if any) that these applications may have on the Consolidated entity.

33. Investments In controLLed entItIes

the consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance

with the accounting policies described in note 1(b).

NAmE Of CONTROLLED ENTITy

ENTITy hOLDING ThE INvESTmENT

bOOK vALuE Of INvESTmENT OWNERShIp INTEREST

2008$

2007$

2008%

2007%

Mungana Pty Ltd Kagara Ltd 1 1 100 100

Kagara Copper Pty Ltd Kagara Ltd 1 1 100 100

Kagara nickel Pty Ltd Kagara Ltd 1 1 100 100

the above controlled entities are incorporated in australia. the controlled entities have the same financial year end reporting date

as the parent entity. the proportion of ownership interest is equal to the proportion of voting power held.

34. reLated Party dIscLosures

a) Parent entity

Kagara Ltd is the ultimate australian parent entity of the Consolidated entity. Kagara Ltd is a Company limited by shares that is

incorporated and domiciled in australia.

b) key management personnel

disclosures relating to key management personnel are set out in the director’s report.

c) controlled entities - wholly owned

Interest in controlled entities are set out in note 33.

a controlled entity made payments and received funds on behalf of Kagara Ltd by way of inter-company loan accounts. the loan

is unsecured, bears no interest and is repayable on demand; however, demand for repayment is not expected in the next twelve

months. aggregate amounts receivable from the wholly owned controlled entity by the Company are set out in note 11.

d) transactions with director related entities

there were no transactions with director related entities during the 2008 financial year.


2008$’000

2007$’000

2008$’000

2007$’000

30. dIrectors and eXecutIves dIscLosure details of the directors and Key Management Personnel are provided in the “remuneration report” contained within the

directors’ report.

31. audItors’ remuneratIonaudit and review of the financial reports 95 72 95 72

tax compliance services - 83 - 83

95 155 95 155

32. commItments and contInGent LIaBILItIes

a) exploration commitments

the Consolidated entity has established minimum exploration commitments as follows:

not later than one year 3,927 3,601 1,251 1,803

Later than one year but not later than five years 11,356 10,011 1,550 2,488

15,283 13,612 2,801 4,291

this expenditure will only be incurred should the Consolidated entity retain its existing level of interest in its various exploration

areas.

b) hire purchase liabilities

Commitments in relation to non cancellable hire purchase liabilities are payable as follows:

no later than one year 12,249 8,961 12,249 8,961

Later than one year but not later than five years 11,602 7,883 11,602 7,883

23,851 16,844 23,851 16,844

Less: future finance charges (2,772) (1,960) (2,772) (1,960)

21,079 14,884 21,079 14,884

representing hire Purchase Liabilities

Current (note 18) 10,858 7,940 10,858 7,940

non-current (note 22) 10,221 6,944 10,221 6,944

21,079 14,884 21,079 14,884

hire purchase agreements are entered into as a means of funding the acquisition of items of plant and equipment. repayments

are fixed and have no escalation clauses. no hire purchase arrangements create restrictions on any other financing arrangements.

c) capital commitments

as at 30 June 2008 Kagara Ltd has capital commitments of $33.7 million. these commitments relate to the construction of the

Mungana Processing Plant. this capital expenditure was contracted at the reporting date but not recognised as a liability in the

balance sheet and will be payable within one year.

d) contingent liabilities

(i) to the best of the Consolidated entity’s knowledge, no native title applications have been registered under the native title act

1993 (Cth) over any land included within the boundaries of the Mining tenements other than those listed below.


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36. non-cash InvestInG and fInancInG actIvItIes

2008 $’000

2007 $’000

2008 $’000

2007 $’000

(a) non-cash financing and investing activities

during the financial year, the Consolidated entity acquired plant and equipment with an aggregate fair value of $17.5 million

(2007: $10.1 million) by means of hire purchase finance. these transactions are not reflected in the Statement of Cash flow.

(b) facility arrangements

unrestricted access was available at balance date to the following lines of credit:

Secured Bank Loan facility (working capital facility) 100,000 25,000 100,000 25,000

Less draw down portion (78,980) (15,000) (78,980) (15,000)

Performance Bonds (i) 25,000 16,000 25,000 16,000


hire Purchase facility 39,650 16,209 39,650 16,209


Chattel Mortgage - 2,693 - 2,693

Less draw down portion - (634) - (634)

42,378 12,522 42,378 12,522

the Performance Bonds are secured by a fixed and floating charge over the assets of the Consolidated entity and an (i) annual performance bond fee is charged at market rates.

37. earnInGs Per share

classification of securities as ordinary shares

the following securities have been classified as ordinary shares and included in basic earnings per share:

(a) Ordinary shares

classification of securities as potential ordinary shares

the following securities have been classified as potential ordinary shares and included in diluted earnings per share only:

(a) Options

as at 30 June 2008, the options on issue had an exercise price in excess of the market price and are therefore anti-dilutive.

CONSOLIDATED

2008$

2007$

earnings reconciliation

net profit used in the calculation of basic and diluted earnings per share 65,026,138 89,820,897

NumbER Of ShARES

NumbER Of ShARES

Weighted average number of ordinary shares used in the calculation of basic earnings per share 215,768,035 205,478,130

Weighted average number of options & notes - 15,051,954

wEightEd avEragE numbEr of ordinary sharEs usEd in thE CalCulation of dilutEd Earnings pEr sharE 215,768,035 220,530,084

38. seGment rePortInG

the Consolidated entity operates within one business and geographical segment, being the mineral exploration, development

and extraction industry within australia.


35. statement of cash fLoWs2008

$’0002007

$’0002008

$’000 2007

$’000

(a) reconciliation of cash

for the purpose of the statement of cashflows, cash includes cash on hand, cash at bank and short term deposits at call. Cash balance comprises:

Cash on hand and at bank 1,472 7,880 688 7,877

deposits at call 14,340 6,460 15,123 6,460

Closing cash balance 15,812 14,340 15,811 14,337

(b) reconciliation of net profit after income tax to net cash flows from/(used in) operations

net profit after income tax 65,026 89,821 68,748 91,364

add/(less) non cash items:

depreciation 14,758 9,695 10,178 7,510

amortisation of mining properties 12,740 8,463 12,740 8,463

Provision for restoration and rehabilitation 1,430 532 1,430 532

(Profit)/loss on sale of property, plant & equipment 299 (12) 299 (12)

exploration overhead recoveries (3,862) (3,070) (3,862) (3,070)

exploration expenditure written off 1,117 - 1,117 -

net foreign exchange differences 4,107 (1,868) 4,104 (1,868)

Provision/(reversal) for employee entitlements 600 1,894 385 1,894

fair value adjustment to derivatives 5,686 2,263 5,686 2,264

non cash employee expense – share based payment 5,238 9,095 5,238 9,095

Change in operating assets and liabilities:

(Increase)/decrease in receivables 6,777 (41,889) 7,076 (41,879)

(Increase)/decrease in inventories (9,166) (2,345) (8,253) (2,345)

(Increase)/decrease in deferred tax assets (12,195) (6,031) (12,086) (6,031)

(Increase)/decrease in prepayments (2,597) 152 (2,597) 152

(Increase)/decrease in accrued income (1,169) - (1,169) -

(decrease)/increase in creditors 5,966 7,455 2,574 7,445

(decrease)/increase in provisions (7,090) 4,943 (7,090) 4,942

(decrease)/increase in income tax 1,079 (2,725) 11,728 (2,084)

(decrease)/increase in deferred tax liability 26,065 37,032 16,155 37,032

(decrease)/increase in accrued expenses 1,461 (2,130) 613 (2,129)

nEt Cash providEd by opErating aCtivitiEs 116,270 111,275 113,014 111,275


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39. emPLoyee entItLements (contInued)

consolidated and parent entity - 2007

GRANT DATE

ExpIRy DATE

ExERCISE pRICE

bALANCE AT START Of ThE yEAR

GRANTED DuRING

ThE yEAR

ExERCISED DuRING

ThE yEAR

fORfEITED DuRING

ThE yEAR

bALANCE AT END Of ThE yEAR

vEST AND

ExERCISAbLEAT ThE END

Of ThE yEAR

NumbER NumbER NumbER NumbER NumbER NumbER

24-dec-03 31-dec-07 $1.20 225,000 - (212,500) - 12,500 12,500

25-nov-04 31-dec-07 $1.50 1,500,000 - (1,500,000) - - -

25-aug-05 31-dec-07 $1.50 975,000 - (655,000) - 320,000 320,000

08-dec-05 30-Jun-08 $2.00 1,500,000 - (1,500,000) - - -

01-May-06 30-Jun-08 $5.00 2,940,000 - (220,000) (220,000) 2,500,000 2,500,000

19-Jul-06 30-Jun-08 $5.00 - 1,070,000 (180,000) (75,000) 815,000 815,000

23-aug-06 30-Jun-09 $6.00 - 500,000 - - 500,000 500,000

23-nov-06 30-Jun-09 $6.00 - 2,500,000 - - 2,500,000 2,500,000

20-apr-07 30-Jun-09 $6.50 - 4,820,000 - (20,000) 4,800,000 -

total 7,140,000 8,890,000 (4,267,500) (315,000) 11,447,500 6,647,500

Weighted average exercise Price $3.04 $6.15 $1.99 $5.10 $5.79 $5.28

no options expired during the periods covered by the above tables.


b) employee entitlements2008

$’0002007

$’0002008

$’0002007

$’000

the aggregate employee entitlement is comprised of:

Provisions (current) 2,732 1,847 2,383 1,652

Provisions (non current) 742 1,073 700 1,070

Provision - other (current) 191 122 167 116

Provision - other (non current) 52 75 49 75

3,717 3,117 3,299 2,913

number of Employees:

number of employees at year end 486 298 370 248

40. events suBsequent to BaLance date

In the directors’ opinion, no other events or circumstances have arisen since the end of the financial year that have significantly

affected or may significantly affect the operations of the Consolidated entity, the results of those operations, or the state of

affairs of the Consolidated entity in financial years subsequent to this financial year that have not been otherwise disclosed in

these financial statements.

41. chanGe In accountInG PoLIcy

the following australian accounting Standards have been issued or amended and are applicable to Kagara Ltd and its

consolidated group but are not yet effective. they have not been adopted in preparation of the financial statements at

reporting date.

39. emPLoyee entItLements

a) employee share option plan

an employee Share option Plan has been established where by Kagara may grant options over ordinary shares of Kagara to

executive directors and staff of the Consolidated entity who have been continuously employed by Kagara. the options are issued

for nil consideration, and are granted at the discretion of the directors. the options cannot be transferred, are not quoted on

the aSX and carry no dividend or voting rights. options are exercisable at any time, (after any applicable escrow period) whilst

the holder is employed by Kagara and each option is convertible into one ordinary share. the market value of shares under these

options at 30 June 2008 was $4.60 (30 June 2007: $6.38).

fair Value of options Granted

the assessed fair value at grant date of options is allotted equally over the period from grant date to vesting date. fair value at

grant date is independently determined using the Black-Scholes option pricing model that takes into account the exercise price,

the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradable nature of the option, the

share price at grant date, expected price volatility of the underlying share, the expected dividend yield and the risk-free interest

rate for the term of the option.

Set out below are summaries of options granted under the plan:

consolidated and parent entity - 2008

GRANT DATE

ExpIRy DATE

ExERCISE pRICE

bALANCE AT START Of ThE yEAR

GRANTED DuRING

ThE yEAR

ExERCISED DuRING ThE

yEAR

fORfEITED DuRING ThE

yEAR

bALANCE AT END Of ThE yEAR

vEST AND ExERCISAbLE AT ThE END

Of ThE yEAR

NumbER NumbER NumbER NumbER NumbER NumbER

24-dec-03 31-dec-07 $1.20 12,500 - (12,500) - - -

25-aug-05 31-dec-07 $1.50 320,000 - (300,000) (20,000) - -

1-May-06 30-Jun-08 $5.00 2,500,000 - (610,000) (1,890,000) - -

19-Jul-06 30-Jun-08 $5.00 815,000 - (450,000) (365,000) - -

23-aug-06 30-Jun-09 $6.00 500,000 - - - 500,000 500,000

23-nov-06 30-Jun-09 $6.00 2,500,000 - - - 2,500,000 2,500,000

20-apr-07 30-Jun-09 $6.50 4,800,000 - - (580,000) 4,220,000 4,220,000

17-Mar-08 30-Jun-10 $6.00 - 7,720,000 - (320,000) 7,400,000 -

total 11,447,500 7,720,000 (1,372,500) (3,175,000) 14,620,000 7,220,000

Weighted average exercise Price $5.79 $6.00 $4.20 $5.35 $6.14 $6.29

In relation to the options granted during the year, the weighted average fair value of the options granted was $0.802. this price

was calculated by using a Black and Scholes option pricing model applying the following inputs:

Weighted average exercise price $6.00

Weighted average life of the option 2.29 yrs

underlying share price $4.20

expected share price volatility 49%

risk free interest rate 7.35%

historical volatility has been the basis for determining expected share price volatility as it is assumed that this is indicative of

future tender, which may not eventuate.


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dIrectors’ decLaratIon

In accordance with a resolution of the directors of Kagara Ltd, I state that:

In the opinion of the directors:

the financial statements and notes of the Company and of the Consolidated entity are in accordance with the (a) Corporations act 2001, including:

(i). Giving a true and fair view of the Company’s and Consolidated entity’s financial position as at 30 June 2008 and of their performance for the year ended on that date; and

(ii). Complying with accounting Standards and Corporations regulations 2001 and other mandatory professional reporting requirements and;

there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due (b) and payable and;

the remuneration disclosures set out on pages 6 to 9 of the director’s report comply with accounting Standard aaSB 124 (c) related Party disclosures and the Corporations regulations 2001 and;

this declaration has been made after receiving the declarations made by the Chief financial officer and executive (d) Chairman to the directors in accordance with section 295a of the Corporations act 2001 for the financial year ending 30 June 2008.

on behalf of the Board.

K roBInSon ExECutivE Chairman

Perth, 20 august 2008

41. chanGe In accountInG PoLIcy (contInued)

AASb AmENDmENT

STANDARDS AffECTED OuTLINE Of AmENDmENTAppLICATION DATE Of STANDARD

AppLICATION DATE fOR GROup

aaSB 2007-3 amendments to australian accounting Standards

aaSB 5 non-current assets held for Sale and discontinued operations

the disclosure requirements of aaSB 114: Segment reporting have been replaced due to the issuing of aaSB 8: Segment reporting in february 2007. these amendments will involve changes to segment reporting disclosures within the financial report. however, it is anticipated there will be on direct impact on recognition and measurement criteria amounts included in the financial report.

1 Jan 2009 1 Jul 2009

aaSB 6 exploration for and evaluation of Mineral

aaSB 102 Inventories

aaSB 107 Cash flow Statements

aaSB 119 employee Benefits

aaSB 127 Consolidated and Separate financial Statements

aaSB 134 Interim financial reporting

aaSB 136 Impairment of assets

aaSB 8 operating Segments

aaSB 114 Segment reporting as above. 1 Jan 2009 1 Jul 2009


aaSB 1 first time adoption of aIfrS

the revised aaSB 123: Borrowing Costs issued in June 2007 has removed the option to expense all borrowing costs. this amendment will require the capitalisation of all borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset. however, there will be no direct impact to the amounts included in the financial group as they already capitalise borrowing costs related to qualifying assets.

1 Jan 2009 1 Jul 2009

aaSB 101 Presentation of financial Statements

aaSB 107 Cash flow Statements

aaSB 116 Property, Plant and equipment

aaSB 138 Intangible assets

aaSB 123 Borrowing Costs

aaSB 123 Borrowing Costs as above. 1 Jan 2009 1 Jul 2009


aaSB 101 Presentation of financial Statements

the revised aaSB 101: Presentation of financial Statements issued in September 2007 requires the presentation of a statement of comprehensive income and makes changes to the statement of changes in equity.

1 Jan 2009 1 Jul 2009

aaSB 101 aaSB 101 Presentation of financial Statements

as above. 1 Jan 2009 1 Jul 2009

d i r e c t o r s ’ d e c l a r a t i o n


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INDEPENDENT AUDIT REPORT TO THE MEMBERS OF KAGARA LIMITED

Report on Financial Report We have audited the accompanying financial report of Kagara Ltd (the company) and Kagara Ltd and its controlled Entities (the consolidated entity), which comprises the balance sheet as at 30 June 2008, and the income statement, statement of recognised income and expense and cash flow statement for the year ended on that date, a summary of significant accounting policies and other explanatory notes and the directorsí declaration of the consolidated entity comprising the company and the entities it controlled at the yearí s end or from time to time during the financial year.

Directorsí Responsibility for the Financial Report The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal control relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note1, the directors also state, in accordance with Accounting Standard AASB 101: Presentation of Financial Statements, that compliance with the Australian equivalents to International Financial Reporting Standards (IFRS) ensures that the financial report, comprising the financial statements and notes, complies with IFRS.

Auditorí s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditorí s judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entityí s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entityí s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.

Total Financial Solutions

Horwath refers to Horwath International Association, a Swiss verein. Each member of the Association is a separate and independent legal entity.

Member Horwath International WHK Horwath Perth Audit Partnership ABN 96 844 819 235 Level 6, 256 St Georges Terrace Perth WA 6000 Australia GPO Box P1213 Perth WA 6844 Australia Telephone +61 8 9481 1448 Facsimile +61 8 9481 0152 Email [email protected] www.whkhorwath.com.au A WHK Group firm

i n d e p e n d e n t a u d i t r e p o r t

Auditorí s Opinion In our opinion, the financial report of Kagara Ltd is in accordance with the Corporations Act 2001 including:

(a) (i) giving a true and fair view of the companyí s and consolidated entityí s financial position as at 30 June 2008 and of their performance for the year ended on that date; and

(ii) complying with Australian Accounting Standards (including Australian Accounting Interpretations) and the Corporations Regulations 2001.

(b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1 of the financial report.

Report on the Remuneration Report We have audited the Remuneration Report included in pages 7 to 9 of the directorsí report for the year ended 30 June 2008. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

Auditorí s Opinion In our opinion the Remuneration Report of Kagara Ltd for the year ended 30 June 2008, complies with section 300A of the Corporations Act 2001.

WHK HORWATH PERTH AUDIT PARTNERSHIP

CYRUS PATELL Principal

Perth, WA

Dated this 20th day of August 2008


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AUDITORí S INDEPENDENCE DECLARATION

In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of Kagara Limited and its controlled entities for the year ended 30 June 2008, I declare that, to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the

audit; and

(b) no contraventions of any applicable code of professional conduct in relation to the audit. WHK HORWATH PERTH AUDIT PARTNERSHIP

CYRUS PATELL Principal

Perth, WA

Dated this 20th day of August 2008

Total Financial Solutions

Horwath refers to Horwath International Association, a Swiss verein. Each member of the Association is a separate and independent legal entity.

Member Horwath International WHK Horwath Perth Audit Partnership ABN 96 844 819 235 Level 6, 256 St Georges Terrace Perth WA 6000 Australia GPO Box P1213 Perth WA 6844 Australia Telephone +61 8 9481 1448 Facsimile +61 8 9481 0152 Email [email protected] www.whkhorwath.com.au A WHK Group firm

1. numBers of hoLders of equIty securItIes:

(a) ordinary share capital

216,399,775 fully paid ordinary shares are held by 10,422 individual shareholders.•

(b) unlisted options

7,400,000 unlisted options exercisable at $6.00 each and expiring 30 June 2010 held by employees;•

3,000,000 unlisted options exercisable at $6.00 each expiring 30 June 2009 held by executive directors and •Senior executives;

4,220,000 unlisted options exercisable at $6.50 each and expiring 30 June 2009 held by employees.•

(c) distribution of holders of equity securities

fuLLy pAID ORDINARy ShARES

uNLISTED OpTIONS

1-1,000 3,329 -

1,001-5,000 4,906 -

5,001-10,000 1,207 -

10,001-100,000 868 581

100,001-and over 112 7

total 10,422 588

holdings less than a marketable parcel 331

(d) substantial shareholders

those shareholders who have lodged a notice under S671B of the Corporations act 2001, with the Company during the financial

year and to date, advising of a substantial shareholding or a change in substantial shareholding, are as follows:

DATE LODGED ShARES

CBa 17 august 2007 12,802,680

CBa 31 January 2008 11,193,862

CBa 29 february 2008 10,724,560

CBa 29 July 2008 11,265,165

the percentage of a notified holding may vary from the register of members because shareholders are only required to advise

the Company when there has been a notifiable change under the Corporations act 2001. a notifiable change is one that is an

increase or decrease greater than 1% of the shares in that class.

(e) other Information

the voting rights attached to the ordinary shares are governed by the Constitution. on a show of hands every person present (1) who is a Member or representative of a Member shall have one vote and on a poll, every Member present in person or by proxy or by attorney or duly authorised representative shall have one vote for each share held. none of the options have any voting rights.

the name of the Company Secretary is david Peterson.(2)

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the address of the principal registered office in australia is:(3)

Second floor

24 outram Street

WeSt Perth Wa 6005

telephone +61 8 9481 1211

facsimile +61 8 9481 1233

the register of securities is held at:(4)

Security transfer registrars Pty Ltd

770 Canning highway

aPPLeCroSS Wa 6153

Securities exchange Listing: Quotation has been granted for the ordinary shares of the Company on all member exchanges of (5) the australian Securities exchange Limited and trade under the symbol KZL.

directors’ interest in share capital is disclosed in the directors report.(6)

2. tWenty LarGest sharehoLders:

NumbER pERCENTAGE

1. Korea Zinc Company 30,560,890 14.1%

2. Mr Kim robinson 18,265,530 8.4%

3. Colonial first State - Growth australia 9,021,080 4.2%

4. aMP Capital Investors 7,402,520 3.4%

5. Perennial Value Mgt 7,325,551 3.4%

6. Pictet & Cie 5,797,527 2.7%

7. JPMorgan asset Mgt 4,692,429 2.2%

8. Barclays Global Investors 4,484,082 2.1%

9. orion asset Mgt 4,223,456 2.0%

10. Portfolio Partners 3,781,703 1.7%

11. InVeSCo australia 3,475,177 1.6%

12. Mr Joseph treacy 3,316,865 1.5%

13. deans Knight Capital Mgt 3,137,925 1.5%

14. Blackrock Investment Mgt 2,728,100 1.3%

15. Vanguard Investments australia 2,467,807 1.1%

16. Mr rodney W rutherford 2,460,577 1.1%

17. Goldman Sachs JBWere asset Mgt 2,262,744 1.0%

18. State Street Global advisors 2,148,347 1.0%

19. universities Superannuation Scheme 2,098,638 1.0%

20. dimensional fund advisors 2,048,549 0.9%

total 121,699,497 56.2%

2. restrIcted securItIes

nil.

a d d i t i o n a l s e c u r i t i e s e x c h a n g e i n f o r m a t i o n a S at 1 5 S e P t e M B e r 2 0 0 8

80 Kagara Limited annual report 2008

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d for personal use only - australian securities exchange2008/10/09 · t 8 (abn 36 008 988 583)...

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