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ANNUAL REPORT 2008
Phoenix Copper Limited
ABN 67 127 446 271
PHOENIX COPPER LIMITED ANNUAL REPORT 2008
CORPORATE DIRECTORY
Australian Business Number 67 127 446 271
Country of Incorporation Australia
Board of Directors Graham Spurling Paul Dowd Peter Watson
Chairman Managing Director Non‐executive Director
Company Secretary Peta Marshman
Principal Administrative Office Level 1, 135 Fullarton Rd Rose Park SA 5067 Telephone: Facsimile:
+61 (8) 8364 3188 +61 (8) 8364 4288
Registered Office Level 1 135 Fullarton Rd Rose Park SA 5067 Telephone: Facsimile: Contact: Website:
+61 (8) 8364 3188 +61 (8) 8364 4288 [email protected]
Share Registry Computershare Level 5, 115 Grenfell Street Adelaide SA 5000 Telephone (within Australia): Telephone (outside Australia):
1300 305 232 +61 (3) 9415 4657
Auditors Deloitte Touche Tohmatsu 11 Waymouth Street Adelaide SA 5000
ASX The Company's fully paid ordinary shares (except for those classified by
ASX as restricted securities and currently held in escrow) are quoted on ASX. The ASX code is PNX.
PHOENIX COPPER LIMITED ANNUAL REPORT 2008
CONTENTS
CHAIRMAN’S LETTER ............................................................................................................... 2
EXPLORATION REPORT ............................................................................................................ 3
MINERAL RESOURCES AND ORE RESERVES .............................................................................13
CORPORATE GOVERNANCE STATEMENT ................................................................................27
AUDITOR’S INDEPENDENCE DECLARATION.............................................................................32
FINANCIAL STATEMENTS ........................................................................................................33
INDEPENDENT AUDIT REPORT................................................................................................63
SCHEDULE OF TENEMENTS .....................................................................................................65
ADDITIONAL SHAREHOLDER INFORMATION...........................................................................66
GLOSSARY ..............................................................................................................................69
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
EXPLORATION REPORT
Highlights • The assembly of an experienced and highly qualified exploration team led by Chief Geologist, Mark Manly
• The purchase of a Niton X Ray Fluorescence Analyser
• Commencement of in‐field exploration and detailed soil analyses
• The establishment of an Exploration base, with all necessary facilities for work and accommodation, in the town of Burra
• Planned IP Survey and RAB Drilling
• The purchase of Vulcan ‐ a specialist GIS (Geographic Information System).
Overview While Phoenix Copper’s planned exploration program is in its initial stages and progress is necessarily considered and time consuming, there have already been some important achievements. The first is our continuing formation of important relationships with local landowners. The second is the commencement of soil analyses in the Burra area and the final relates to putting together an experienced and highly skilled exploration team headed by Chief Geologist, Mark Manly (formerly of Perilya).
Mark has many years of experience but the biggest asset that he brings to Phoenix Copper is his work in pioneering the development of the Niton XRF Analyser for field exploration. The team now includes a Senior Geologist in Aaron Steinert (formerly of Penrice), an experienced Field Supervisor in Peter Cleary (formerly of the New Zealand Antarctic Survey and Perilya), a Field Assistant and a Data Entry Clerk.
Community relations are vitally important to the Company. Phoenix Copper has been working closely with the local councils, since before it was listed in February, to ensure that there has been a consistent flow of information to the community. The most critical issue for the Company has been landholder liaison. The Company’s tenement areas contain over a thousand landholdings and Phoenix Copper is committed to investing the necessary time to achieve a long‐term, cooperative relationship with the owners of these holdings. This is an important process and doing it right first time will be extremely beneficial to the Company. There has been a determined effort to visit and explain Phoenix Copper’s planned exploration programs to as many of the major landholders as possible within the initially targeted areas. As from the beginning of August there have been twenty‐two Notices of Entry documents hand delivered by Chief Geologist, Mark Manly in order to help explain their purpose and immediately answer any important questions. Twenty‐two Land Access Compensation Agreements (LACA’s) have also been prepared.
Most of the other major landholders are awaiting the outcome of ongoing negotiations between the district’s largest landholder and Phoenix Copper over the finer points of the LACA. These negotiations will have a positive outcome and they will help form a template agreement for all pertinent landholders. This will ensure that the critical issue of land access is managed for the immediate future and allow the Company to efficiently pursue its initial exploration programs.
Establishment of Field Office and Exploration Base Phoenix Copper’s field office and exploration base has been established and is now operative. As reported in the Company’s March Quarterly Report Phoenix Copper has obtained a lease on the historic Butterworth Mill, located within the town of Burra. This 3 storey facility provides ample space for work, storage and accommodation. The Company’s Field Supervisor has now taken up residence and the field office is fully functional. A large shed located on the property will be used to cut and store drill core, thereby ensuring all of the Company’s field exploration needs are met in this one facility. This allows the Company to save valuable exploration dollars on storage and accommodation that would have had to be spent had this facility not been obtained.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
Soil Analyses Some regional and limited detailed local geophysical survey information is available for much of the Company’s tenement areas however there is a paucity of relevant soil analysis, in areas where the cover is relatively thin. The
initial primary focus has therefore been to undertake a detailed and densely spaced program of soil analyses over much of the tenement areas. This exploration has been, and will continue to be, significantly aided by the use of the Company’s new Niton XRF soil sampling device. This device, which our Chief Geologist helped to pioneer for field exploration during his time with Perilya, is a great leap forward for mineral exploration. The Niton has been programmed to provide soil analysis for minor concentrations of 34 elements including Pb, Cu, Ni, Ag, Bi, As, Zn and U. The analyses are immediately available to the Geologist, negating countless hours involved in collecting and bagging soil samples for dispatch to a laboratory for testing, and the many weeks of delay for those results to be received – all contributing to a substantial reduction of costs.
The Niton is allowing Phoenix Copper to be efficient and cost‐effective in its initial exploration work. The immediate results that it offers allow the geologist to respond to anomalous values and lessen the intervals between samples in order to get a better perspective of possible mineralisation and therefore drilling targets. The Company intends to utilise the Niton where cover is appropriate and determine indicator elements from a selective ‘blanket cover’ of samples from its tenement areas. The Niton XRF has been a valuable investment and will continue to prove very useful in drill target identification.
Planned IP Survey & RAB Drilling Programme The Company is also working towards two further exploration processes in the coming months. The first will be an IP (Induced Polarisation) Survey, which will focus on the Company’s Mongolata Project, more specifically along strike from the historical gold workings. This will give a more detailed knowledge of the geology of this important project and, coupled with the Niton sampling work, allow the exploration team to identify drill targets. This will be followed by an initial phase of RAB (Rotary Air Blast) Drilling at both the Burra and Mongolata Projects. This RAB Drilling will test the northern and southern extensions of known mineralised zones along with any highly anomalous targets derived from the Niton soil sampling and IP Survey.
Tenement Details Phoenix Copper has seven tenements covering an area of more than 1,500 km2 in the historically significant and highly prospective Burra and Yorke Peninsula regions of South Australia.
EL No EL Name Registered Holder Area sq km
Application/ Grant Date
Expiry DateAnnual/Term Expenditure
Commitment $
3161 Burra Central Phoenix Copper Limited 84 27/01/2004 26/01/2009185,000: between 27/01/04 & 26/01/09
3604 Burra West Phoenix Copper Limited 86 25/07/2006 24/07/2009120,000: between 25/7/06 & 24/7/09
3716 Burra North Phoenix Copper Limited 300 6/03/2007 5/03/2009 120,000: between 6/03/07 & 5/03/09
3164 Mongolata Phoenix Copper Limited 283 13/02/2004 12/02/200955,000: between 13/02/04 & 12/02/09
3686 Spalding Phoenix Copper Limited 157 2/01/2007 1/01/2009 90,000: between 2/1/07 & 1/1/09
4031 Minlaton Wellington Exploration Pty Ltd 547 21/01/2008 20/01/2009 85,000
4032 Mount Bryan Wellington Exploration Pty Ltd 116 21/01/2008 20/01/2009 40,000
Figure 1: Chief Geologist – Mark Manly Conducting Soil Analysis
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
Digitising & Compilation of Monster Mine Data Phoenix Copper has also purchased Vulcan – a 3D geological modelling, surveying and mine planning software package. Vulcan’s tools for advanced 3D spatial information, modelling, visualisation and analysis will be used on data currently being collated from all mining, drilling and geological records and images from the previous exploration and mining phases that took place at the Historic Monster Mine at Burra. Vulcan will also be used to model the vast amounts of data from the Company’s intensive Niton soil and rock chip sampling programs. An example of the kind of data being entered can be seen in Figure 2 and an initial 3D model complete with mineralisation and structures should be available by early November. This information will then provide drill targets along the Kingston Fault, both north and south of the old workings. In particular, the drill target programme will be intended to test for extension of oxide/carbonate mineralisation, but also deeper drilling to test the system for mineralised sulphides, likely to have been the original source of the Monster Mine. The historic Monster Mine was gazetted as a reserve, exempt from the Mining Act, in 1988, but the Kingston Fault remains prospective for extensions, beyond the reserve.
Figure 2: Old Cross Section of Monster Mine
Individual Tenement Exploration
EL 3161
Figure 3: Burra and Mongolata Projects
Soil analysis has begun at the Grove Prospect, an area that occurs on the triple junction of EL 3161, EL 3604 and EL 3716 (see Figure 3). This area is prospective for Cu and is one of the main targets within Phoenix Copper’s Burra Project. This prospect is a primary drill target and has been a prominent target since the Company began researching the exploration and mining history of this region.
Soil analysis will continue once crops in the area have been taken off and Phoenix Copper anticipates that after this initial phase of Niton sampling has been completed, the results will reinforce its view of the area’s prospectivity and help to fine tune a detailed drilling programme.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
EL 3604
The initial phase of soil sampling using the Niton XRF on EL 3604 is now complete with 2065 analyses of soils and 291 analyses of standards being taken. This has provided a reasonably comprehensive first pass grid over the tenement and has highlighted areas of interest or “hot spots” which are to be considered for infill soil sampling programs and drill targets (see Figure 4). These “hot spots” are samples which have returned anomalous copper results, higher than 300 parts per million (ppm) and / or anomalous levels of other indicator metals (Mo, Ba, Th, Mn, Pb, Zn Fe and As).
Figure 4: Concentrations in Soil at EL 3604
Burra West Mine
The highlights of this initial soil sampling program on EL3604 have been:
1) the confirmation of the potential that exists around the Burra West Mine both along strike on the host dolomite and on the East West orientated shear (which is dominantly under cover) and on the intersection plane of the shear and the dolomite; and
2) the identification of Cu, Pb, Zn, Mo, Ba, Th and Mn as regional indicators for potential hosts rocks
to Cu mineralisation and Cu As, Fe, Ba, and Pb as local indicators of mineralisation within a host sequence.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
A follow up, infill sampling program around these “hot spots” will be conducted, however, the first priority is to complete this initial soil sampling phase on all tenements. This will generate a broader number of options for prioritisation for drilling. Figure 4 shows the molybdenum concentration in soils around the Burra West Mine and clearly highlights the large accumulation of high values of Mo in the centre of the diagram coincidental with the old Burra West Mine. The anomalous values extend significantly beyond the old mine boundary indicating that potential exists along strike for the discovery of more Cu mineralisation. These and other anomalous zones require follow up soil sampling and drilling.
Figure 5: Fe Concentrations in Soils around the Burra West Mine
Figure 5 is a detailed plan view of Fe concentration in soil analysis around the Burra West Mine.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
EL 3164
Niton Sampling has only recently begun on the Mongolata Project, which has been designated as an exploration priority and lies over EL 3164 and EL 3716. This is the first step of the planned exploration, which also includes an IP Survey and a first pass RAB drilling program as mentioned earlier in this report. The initial sampling process is an orientation program aimed at identifying the best unit within the regolith profile to analyse and identify an indicator element suite for gold mineralisation, which is the primary target of this project.
Indicator elements are those that occur wherever the targeted element also occurs, thus identifying those minerals or elements associated with gold mineralisation at Mongolata.
Figure 6: As concentrations in soils at Mongolata
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
Figure 7: Ba Concentrations in Soil at Mongolata
Preliminary results indicate that Arsenic and Barium are associated with or in close proximity to the gold mineralisation at Mongolata (see Figures 6 and 7) however these are weak associations and more work is required here. Once this orientation program is complete Niton sampling will ensue and the results will be used in conjunction with the results of the planned IP Survey to finalise the planned RAB drill‐hole programme. Phoenix Copper anticipates that this activity will be completed during the fourth quarter, calendar 2008.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
EL 3716
As mentioned previously, sampling has begun on EL 3716 at both the Grove Prospect (part of the Burra Project) and the Mongolata Project. Detailed sampling at the Grove Prospect will happen after crops are taken off around December and the area remains a prime drilling target for the Company.
A similar orientation sampling program to that being undertaken at Mongolata has started at the Mullaby prospect on EL3716. Mullaby is a gold prospect and in the same host rock ‐ the Cox Sandstone, as mineralisation at Mongolata. Thus it would be expected that Arsenic and Barium would be the indicator minerals here however on the first pass it seems the most interesting altered quartz veined outcrop areas are coincidental with zones enriched in Iron and Manganese (see Figure 8).
Figure 8: Fe & (similar) Mn concentrations in soils at Mullaby
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
Figure 9: Photo shows staff with property owner observing Malachite and Azurite in spoil, around the old Ardincarple workings at Spalding. An apparent gossan can
be seen in top left side of photo.
EL 3686 Spalding
Site visits have been undertaken and Landholders in the northern portion of the tenement have been given Notices of Entry, LACA’s and a copy of their rights as Landholders.
Of particular interest is the Ardicarple Mine and gossanous outcrops on the same property owned by Troy Morgan about 500m to the north east.
The terrain is excellent for Niton sampling as much is outcropping.
EL 4032 Mt Bryan
Significant Landholders have been served Notices of Entry (see Figure 10) and Niton sampling is planned but as yet no field work has been undertaken on this tenement.
Figure 10: Major Landholdings superimposed on Burra Tenements – shows areas in respect of
which Notice of Entry has been given. Mt Bryan is the North West tenement, above.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
EL 4031 Minlaton
A PhD student at University of Tasmania’s Centre for Ore Deposit Studies has been engaged and is conducting a data evaluation and compilation to accompany the previous examination by the Independent Geologist, engaged for the original IPO prospectus. A0 plans of Gravity, Magnetics, Cu concentration in geochemical sampling and a base plan have been provided to assist this evaluation. The area is prospective for IOCGU mineralisation.
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Figure 11: Southern Yorke Peninsula – Geology Map – Areas A & B of EL 4031 Minlaton superimposed
PHOENIX COPPER LIMITED ANNUAL REPORT 2008
MINERAL RESOURCES AND ORE RESERVES
AS AT 30 JUNE 2008
After review Phoenix Copper concludes that, at this initial stage of exploration, there are no areas in the total tenement holdings that host either reserves or resources as defined by the JORC Code.
DISCLAIMER (Niton XRF)
While Phoenix Copper believes the Niton estimates of mineral concentrations in soil analyses is indicative of the actual mineral concentrations in soils, the Company makes it clear that the Niton results are not based on formal assays and are an estimate only of the mineral grades. COMPETENT PERSON’S STATEMENT
The information in this report that relates to Exploration Results, Mineral Resources or Ore Reserves is based on information compiled by Mark Manly who is a member of the Australasian Institute of Mining and Metallurgy. Mark Manly is a full‐time employee of the Company. Mark Manly has sufficient 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'. Mark Manly consents 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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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
DIRECTORS’ REPORT The directors of Phoenix Copper Limited (“Phoenix Copper” or the “Company”) present their report for the period from incorporation on 7 September 2007 to 30 June 2008 (the “Period”).
Directors
The names and details of the Company’s directors in office during the Period are as follows. Graham Spurling, Chairman A decorated former Major in the Australian Army Reserve, Graham Spurling has a Bachelor of Technology and Mechanical Engineering from the University of Adelaide and a Masters in Automotive Engineering from the Chrysler Institute in Detroit (USA). He received the Melbourne Business School Award in 1995 for International Business and received the Centenary of Federation Medal Award for Service to Industry. Most notably Graham Spurling spent seven years as Managing Director and CEO of Mitsubishi Motors Australia in Adelaide before moving to the United States to become President and CEO of GNB Technologies in Atlanta then President and CEO of Pacific Dunlop Holdings (USA) Inc. Graham Spurling is currently a Director of Dexion Limited and Sun Energy Limited and Chairman of the Catholic Archdiocese of Adelaide Finance Council. In the three years immediately prior to 30 June 2008 Graham Spurling held the following directorships of other listed companies for the following periods:
Non‐executive director, Dexion Limited since 19 February 2004. Non‐executive director, Sun Energy Limited since 14 February 2008.
Appointed: 27 September 2007 Paul Dowd, Managing Director Paul Dowd has over 40 years experience in the mining industry, in Australia and many overseas countries. This experience includes executive management roles, including, Vice President of Newmont Mining Corporation’s Australian and New Zealand Operations and Managing Director of Newmont Australia Limited and as a senior public servant – head of the resources and petroleum department in the Kennett Government of Victoria. He is currently Chairman of the Board of the SA Mineral Resources & Heavy Engineering Skills Centre, Chairman of the SA Resources Infrastructure Committee, Council Member of the PB Australia Pacific Advisory Board, Chairman of Adelaide Resources Ltd and non‐executive Director of Buka Gold Ltd and Regis Resources NL. Paul Dowd is also a board member of the Sustainable Minerals Institute, the University of Queensland and a member of the Mineral Resources Sector Advisory Council of the CSIRO. In the three years immediately prior to 30 June 2008 Paul Dowd held the following directorships of other listed companies for the following periods:
Non‐executive director, Buka Gold Limited since 1 June 2006; President, Newmont Australia Investment Limited from 1 January 2005 to 30 April 2006; Director, Newmont Australia Holdings Pty Limited from 1 January 2005 to 30 April 2006; Managing Director, Newmont Australia Limited from 1 January 2005 to 30 April 2006; Vice President, Australian and New Zealand Operations, Newmont Mining Corporation from 1 January 2005
to 30 April 2006; Non‐executive Chairman, Adelaide Resources Ltd since 14 August 2006; and Non‐executive Director, Regis Resources NL since 31 July 2006.
Appointed: 27 September 2007
Peter Watson, Non‐executive Director Peter Watson studied Law at Melbourne University and graduated with honours. He has practiced law for 38 years, specialising in commercial, corporate, resources and trade practices law. He is admitted to practice in South Australia, New South Wales, Victoria and Western Australia as well as the High Court of Australia. For over 20 years Peter Watson was a partner in the national law firm now known as Deacons. During that time he established, and for 4 years managed, its Perth office. He also managed its Melbourne office for 2 years. In 1996 Peter Watson joined
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
Andersen Legal as its first Melbourne partner and in 1999 was recruited by Normandy Mining Limited as its group legal counsel and a group executive. Following the takeover of Normandy by Newmont Mining Corporation Peter Watson returned to private practice and founded the successful boutique law firm Watsons Lawyers. Peter Watson is a member of the board of trustees of the Bethlehem Griffiths Research Foundation (a medical research charitable foundation) and a director of a number of private investment companies associated with his clients. In the three years immediately prior to 30 June 2008 Peter Watson held the following directorships of other listed companies for the following periods:
Non‐executive director, Gladstone Pacific Nickel Limited from 31 March 2003 to 8 December 2007. Appointed: 7 September 2007 Peta Marshman Peta Marshman is a lawyer and company secretary. At the time she was a director of Phoenix Copper she was working as a solicitor at Watsons Lawyers. She is currently the company secretary of two listed companies including Phoenix Copper and two unlisted companies. Appointed: 7 September 2007 Resigned: 27 September 2007 In the three years immediately prior to 30 June 2008 Peta Marshman did not hold any directorships of other listed companies. Greg English Greg is a qualified mining engineer and lawyer. He is currently a partner of Watsons Lawyers and specialises in mining, commercial and securities law. He is also a qualified mining engineer, with experience on a wide variety of mining projects for MIM Limited, Kalgoorlie Consolidated Gold Mines and Normandy Mining Limited. In the three years immediately prior to 30 June 2008 Greg held the following directorships of other listed companies for the following periods:
Non‐executive director, Archer Exploration Limited since 9 May 2007; and Non‐executive director, Gawler Resources Ltd from 6 June 2006 to 4 December 2006;
Appointed: 7 September 2007 Resigned: 27 September 2007 Company Secretary
Peta Marshman Peta Marshman was appointed Company Secretary on 7 September 2007. She is a qualified lawyer and also has a bachelor of economics. She is currently the company secretary of two listed companies including Phoenix Copper and two unlisted companies. Interests in the Shares and Options of the Company
As at the date of this Report, the interests of the directors in the shares and options of the Company are as follows: Graham Spurling, Chairman Graham Spurling has a direct interest in 500,000 unlisted Options exercisable at $0.25 any time on or before 11 February 2013 and in 375,000 Shares. He has an indirect interest in a further 131,344 Shares.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
Paul Dowd, Managing Director Paul Dowd has an indirect interest in:
350,000 Shares; 500,000 unlisted Options exercisable at $0.25 any time on or before 11 February 2013; and 1,500,000 Performance Shares, the terms of which are set out in the Remuneration Report.
Peter Watson, Non‐Executive Director Peter Watson has a direct interest in:
4,475,000 Shares; and 500,000 unlisted Options exercisable at $0.25 any time on or before 11 February 2013.
Dividends and Distributions
No dividends or distributions were paid to members during the Period and none were recommended or declared for payment.
Principal Activities
The principal activities of the Group during the Period included establishment of infrastructure and facilities in Burra, as the principal base for exploration activities in the Burra/Spalding area. Additionally, the Group employed members of the exploration team and established relationships through discussions and information sessions with land owners and council members, as well as initiating soil analyses over several of the tenements in the Burra/Spalding area. During the period from its admission to the official list of ASX to 30 June 2008 Phoenix Copper used the cash and assets in a form readily convertible to cash that it had at the time of admission in a way consistent with its business objectives described in the Prospectus dated 20 November 2007.
Review of Operations The Company is not yet producing. A review of the Group’s exploration activities during the Period is presented in the Exploration Report included in this Annual Report. Significant Changes in the State Of Affairs
There have been no significant changes in the state of affairs of the Group during the Period other than;
• the raising of $490,000 in Seed Capital; • the acquiring of the Company’s subsidiary, Wellington Exploration; • the completion of an IPO raising $6.7million; • a successful listing on the ASX on 11 February 2008; • the acquisition of the Company’s seven tenement areas; and • the carrying out of the activities described in the Exploration Report to the extent carried out in the Period.
Significant Events Subsequent to Balance Date
There have been no matters or circumstances that have arisen since 30 June 2008 that have significantly affected or may significantly affect:
the Group’s operations in future financial years; the results of those operations in future financial years; or the Group’s state of affairs in future financial years,
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
other than the carrying out of the activities described in the Exploration Report to the extent carried out subsequent to 30 June 2008. Likely Developments and Expected Results
The Group expects to continue its exploration activities within the current tenement areas and its primary focus will be the discovery of copper and gold mineralisation within these areas however the rock types may also be prospective for phosphate, uranium and other base metals. While exploration work has been necessarily limited to conducting soil analyses as well as appraisal of existing geological, geophysical and some geochemical data, it is expected that this data will be sufficient to determine drilling programmes to test areas shown to be geologically and structurally anomalous. The first of such drilling programmes is expected to commence prior to the 2008 calendar year end. Environment Regulation and Performance
The Group continues to meet all environmental obligations across its tenements. No reportable incidents occurred during the Period. Options
During the Period and to the date of this Directors’ Report, the Company issued and allotted the following Options:
• 500,000 unlisted, restricted Options exercisable at $0.25 and expiring at 5pm Adelaide time on 11 February 2013 to Graham Spurling, Paul Dowd and Peter Watson respectively (totalling 1.5 million), as compensation for acting as a director without other remuneration in the period until the Company was listed on ASX (these Options will be held in escrow until 12 February 2010);
• 4,500,000 unlisted, restricted Options exercisable at $0.25 and expiring on 25 January 2013 to the vendors of the Company’s tenements (these Options will be held in escrow until 25 January 2009);
• 1,000,000 unlisted, restricted Options exercisable at $0.25 expiring at 5pm Adelaide time on 25 January 2013 to the sponsoring broker of the Company’s IPO (these Options will be held in escrow until 12 February 2010); and
• 750,000 unlisted Options, 250,000 exercisable at $0.25 not before 12 February 2009 and not after 18 June 2013, 500,000 exercisable at $0.25 not before 12 February 2009 and not after 11 September 2013, to an employee as an incentive under the Company’s Employee Share Option Plan.
As at the date of this Report, the Company has only these Options on issue. The Company has agreed to issue to an employee as an incentive under the Company’s Employee Share Option Plan, if the employee remains employed by the Company on 10 March 2009, a further 750,000 Options exercisable, at a price to be determined by the Board at the time of issue, at any time up to the date that is five years after the date the Board resolves to issue them. No Shares have been issued during or since the end of the Period as a result of the exercise of an Option. During the Period and to the date of this Directors’ Report, the Company issued and allotted the following Performance Shares:
• 1,500,000 unlisted Performance Shares which automatically convert (in tranches of 500,000 shares each) to ordinary shares, when Shares trade for 5 consecutive ASX trading days at or above 40 cents, 60 cents and 80 cents respectively.
No Shares have been issued during or since the end of the Period as a result of the conversion of Performance Shares. Option holders and Performance Share holders do not have any right, by virtue of Options or Performance Shares, to participate in new issues of Shares offered to Shareholders.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
Indemnification and Insurance of Directors and Officers The Company entered into a Deed of Access, Insurance and Indemnity with each of the Directors on 12 November 2007. Under the terms of these Deeds, the Company has undertaken, subject to restrictions in the Corporations Act, to:
• indemnify each Director in certain circumstances; • advance money to a Director for the payment of any legal costs incurred by a Director in defending legal
proceedings before the outcome of those proceedings is known (subject to an obligation by the Director to repay any money advanced if the costs become costs in respect of which the Director is not entitled to be indemnified under the Deed);
• maintain Directors’ and Officers’ insurance cover (if available) in favour of each Director whilst they remain a director of Phoenix Copper and for a run out period after ceasing to be such a director; and
• provide each Director with access to Board papers and other documents provided or available to the Director as an officer of Phoenix Copper.
From 29 November 2007 the Company has had in place and paid premiums for insurance policies indemnifying Directors and officers of the Company against certain liabilities incurred in the conduct of business or in the discharge of their duties as Directors or officers. The contracts of insurance contain confidentiality provisions that preclude disclosure of the premium paid, however Phoenix Copper has Directors’ and Officers’ Liability insurance cover with CGU which has a $10 million limit of liability. Directors’ attendance at Meetings
Fifteen Board meetings were held during the Period. Graham Spurling and Paul Dowd attended all of those meetings. Peter Watson attended fourteen of those meetings (being ineligible to attend one meeting due to a personal pecuniary interest in the subject matter dealt with at that meeting, namely the purchase by the Company of Wellington Exploration). The previous two Directors, Peta Marshman and Greg English, attended the one Board Meeting held while they were Directors. No Audit Committee meetings were held during the Period. Auditors’ Independence Declaration
The auditor’s independence declaration is included on page 32. Non‐Audit Services
The following non‐audit services were provided to the Group by the Group’s auditor, Deloitte Touche Tohmatsu, during the Period: Non‐audit service Amount Paid Preparation of an Investigating Accountant’s Report for inclusion in the Company’s Prospectus dated 20 November 2007 $23,650.00 The directors are satisfied that the provision of non‐audit services, during the Period, by the auditor (or by another person or firm on the auditor’s behalf) is compatible with the general standard of independence for auditors imposed by the Corporations Act. The directors are of the opinion that the services as disclosed above do not compromise the external auditor’s independence for the following reasons:
• all non‐audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor, and
• none of the services undermine the general principles relating to auditor independence as set out in Code of Conduct APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional & Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision‐making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
REMUNERATION REPORT This Report outlines the remuneration arrangements in place for directors and senior management of the Company and its wholly owned subsidiary, Wellington Exploration.
Where this report refers to the ‘Grant Date’ of Shares or Options, the date mentioned is the date on which those Shares or Options were agreed to be issued (whether conditionally or otherwise) or, if later, the date on which key terms of the Shares or Options (eg subscription or exercise price) were determined. Director and senior management details The following persons acted as directors of the Company during or since the end of the Period: Graham Spurling (Chairman) appointed 27 September 2007 Paul Dowd (Managing Director) appointed 27 September 2007 Peter Watson (Non‐executive director) appointed 7 September 2007 Peta Marshman (Non‐executive director) appointed 7 September 2007 and resigned 27 September 2007 Greg English (Non‐executive director) appointed 7 September 2007 and resigned 27 September 2007
The term “senior management” is used in this remuneration report to refer to the following persons: Mark Manly (Chief Geologist) appointed 10 March 2008 Peta Marshman (Company Secretary) appointed 7 September 2007
Relationship between the remuneration policy and company performance The Company was incorporated on 7 September 2007 and listed on the ASX on 11 February 2008 and therefore only information for the Period is disclosed. The tables below set out summary information about the consolidated entity's earnings and movements in shareholder wealth to 30 June 2008. 30 June 2008 Revenue $182,009 Net loss before tax $406,350 Net loss after tax $518,354
30 June 2008 Share price on listing on ASX $0.20 Share price at end of the Period $0.12 Basic earnings per share $(0.017) Diluted earnings per share $(0.017)
No dividends have been declared during the 10 months ended 30 June 2008 and the directors do not recommend the payment of a dividend in respect of the 10 months ended 30 June 2008. There is no link between the company’s performance and the setting of remuneration except as discussed below in relation to the Managing Director’s Performance Shares and Options for Directors and certain executives.
Remuneration Philosophy The performance of the Group depends on the quality of its Directors and executives and therefore the Group must attract, motivate and retain appropriately qualified industry personnel. The Group embodies the following principles in its remuneration framework:
• provide competitive rewards to attract and retain high calibre executives, directors and employees;
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
• link executive rewards to Shareholder value (by the granting of Performance Shares or Options);
• link reward with the strategic goals and performance of the Company; and
• ensure total remuneration is competitive by market standards.
The Company does not currently have a policy concerning Directors and employees who receive part of their remuneration in securities of the Company, trading in derivatives that limit their exposure to losses resulting from Share price decreases. Remuneration Policy During the Period, the Company did not have a separately established remuneration committee. The full Board acts as the Company’s remuneration committee. The Board is responsible for determining and reviewing remuneration arrangements for the non‐executive Directors, the Managing Director and senior management. The Board assesses the appropriateness of the nature and amount of remuneration of such persons on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from retention of a high quality Board and executive team. External advice on remuneration matters will be sought whenever the Board deems it necessary. The remuneration of the non‐executive Directors and company secretary is not dependent on the satisfaction of a performance condition. The Managing Director has an indirect interest in Performance Shares and Options, the terms of which are set out below. The non‐executive Directors and the Chief Geologist have interests in Options, the terms of which are set out below.
Non‐Executive Director Remuneration The Board seeks to set remuneration of non‐executive Directors at a level which provides the Company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost which is appropriate at this stage of the Company’s development. As Chairman, Graham Spurling is entitled to receive $75,000 per annum and Peter Watson is entitled to receive $40,000 per annum from the date the Company listed on ASX. These Directors also received Options (as set out below) to compensate them for acting as Directors in the period prior to the Company’s listing on the ASX. In addition, non‐executive Directors are entitled to be paid reasonable travelling, accommodation and other expenses incurred as a consequence of their attendance at meetings of Directors and otherwise in the execution of their duties as Directors. Non‐executive Directors are also entitled to additional remuneration for extra services or special exertions, in accordance with the Company’s Constitution. Summary details of remuneration for non‐executive Directors are given in the table below. Their remuneration is not dependent on the satisfaction of a performance condition. The maximum aggregate remuneration of non‐executive Directors, other than for extra services or special exertions, is presently set at $500,000 per annum.
Managing Director Remuneration The Company aims to reward the Managing Director with a level and mix of remuneration commensurate with his position and responsibilities within the Company to:
• align the interests of the Managing Director with those of Shareholders;
• link reward with the strategic goals and performance of the Company; and
• ensure total remuneration is competitive by market standards.
The Company has entered into an employment contract with the Managing Director. Paul Dowd is employed part time and is expected to devote approximately 2.5 days per week on average to his role as Managing Director of the Company. He is entitled to 20 days unpaid annual leave and 10 days unpaid sick leave per annum.
Unless the Board resolves otherwise, Paul Dowd is entitled to receive fees, from the date the Company listed on ASX, of $2,000 per day (exclusive of GST but inclusive of superannuation), pro‐rata for part days of less than 8 hours. He is
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
also entitled to reimbursement of expenses and additional remuneration for extra services or special exertions, in accordance with the Company’s Constitution.
Paul Dowd’s employment with the Company may be terminated upon 3 months written notice, or on summary notice if he:
• is charged with any criminal offence or is guilty of any other conduct which, in the reasonable opinion of the Board, is prejudicial to the interests of the Company;
• is negligent in the performance of his duties;
• is incapacitated from performing his duties as Managing Director by illness or injury for a period of 2 consecutive months;
• materially breaches any term of his contract of employment and this is not remedied within 14 days of notice of the breach to him by the Company;
• materially contravenes any share dealing code relating to Shares; or
• is the subject of, or causes the Company to be the subject of, a material penalty or serious reprimand imposed by any regulatory authority.
1,500,000 Performance Shares were issued to the Managing Director’s nominee on 11 February 2008. The Performance Shares:
confer on the holder the right to receive notices of general meetings and financial reports and accounts of Phoenix Copper that are circulated to Shareholders;
confer on the holder the right to attend general meetings of shareholders of Phoenix Copper; do not entitle the holder to vote on any resolutions proposed at a general meeting of Shareholders; do not entitle the holder to any dividends; do not confer on the holder any right to participate in the surplus profits or assets of Phoenix Copper upon
winding up of Phoenix Copper; are not transferable; and will not be quoted on ASX or any other stock exchange.
If at any time the issued capital of Phoenix Copper is reorganised, a Performance Share may be treated in accordance with the ASX Listing Rules at the time of reorganisation. 500,000 of the Performance Shares will automatically convert into one (1) Share each on each of the following events occurring:
• Shares trading for 5 consecutive ASX trading days at $0.40 or greater; • Shares trading for 5 consecutive ASX trading days at $0.60 or greater; • Shares trading for 5 consecutive ASX trading days at $0.80 or greater.
Upon conversion of a Performance Share, Phoenix Copper will issue the holder with a new holding statement for the relevant number of Shares. The Shares into which Performance Shares will convert will rank equally in all respects with existing Shares. Within seven days after conversion Phoenix Copper must apply for official quotation on ASX of the Shares arising from conversion. As at the date of this Report none of the Performance Shares have converted. Any Performance Shares which have not otherwise converted to Shares by 11 February 2013, or the date which is 6 months after the date on which Paul Dowd ceases to be employed by Phoenix Copper, shall automatically convert in total to one Share.
The Managing Director also received Options (as set out below) to compensate him for acting as Managing Director in the period prior to the Company’s listing on the ASX.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
Company Secretary Remuneration During the period 7 September 2007 to 18 January 2008 the Company paid Watsons Lawyers $24,620 (exclusive of GST) for Peta Marshman’s company secretary services. During the period 19 January 2008 to 30 June 2008 Peta Marshman provided company secretary services to the Company and Wellington Exploration as a contractor. During the period 19 January 2008 to 30 June 2008 the Company paid Peta Marshman $9,010 (exclusive of GST) for her services. The Company Secretary has a direct interest in 100,000 Shares that are escrowed until 12 February 2010.
Chief Geologist Remuneration Mark Manly was appointed Chief Geologist of Phoenix Copper on 10 March 2008, on a full time basis. Mark Manly’s current salary is $210,000 per annum inclusive of the government mandated superannuation contributions. He is entitled to 20 days paid annual leave and 10 days paid sick leave per annum. As part of Mark Manly’s employment package, he was issued or will be issued with the following options:
• 250,000 options issued on 19 June 2008, exercisable at $0.25 not before 12 February 2009 and not after 18 June 2013;
• 500,000 options issued on 12 September 2008 exercisable at $0.25 not before 12 February 2009 and not after 11 September 2013; and
• 750,000 options to be issued as soon as reasonably possible after 10 March 2009 exercisable at a price to be determined by the Board at the time of issue at any time up to the date that is 5 years from and including the date on which the Company grants the options, subject to Mark Manly remaining an employee of the Company on 10 March 2009.
Mark Manly’s employment with the Company may be terminated upon 1 month’s written notice, or on summary notice if he:
• is charged with any criminal offence or is guilty of any other conduct which, in the reasonable opinion of the Board, is prejudicial to the interests of the Company;
• is negligent in the performance of his duties; • is incapacitated from performing his duties as Chief Geologist by illness or injury for a period of 2
consecutive months; • materially breaches any term of his contract of employment and this is not remedied within 14 days of
notice of the breach to him by the Company; • materially contravenes any share dealing code relating to Shares; or • is the subject of, or causes the Company to be the subject of, a material penalty or serious reprimand
imposed by any regulatory authority.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
Remuneration of directors and senior management Directors’ remuneration (all amounts are paid or payable) Short term
employment benefits
Post Employment Equity
Salary & Fees Superannuation Options Performance
Shares Total % of total
remuneration that consists of equity
Graham Spurling $7,692 $21,154 $32,400 ‐ $61,246 52.9%
Paul Dowd $68,005 ‐ $32,400 $126,185 $226,590 70.0%
Peter Watson $15,385 ‐ $32,400 ‐ $47,785 67.8%
Peta Marshman, resigned 27 September 2007
‐ ‐ ‐ ‐ ‐
‐
Greg English, resigned 27 September 2007
‐ ‐ ‐ ‐ ‐
‐
Senior management remuneration Primary
Benefits Post Employment Equity
Salary & Fees Superannuation Options Total % of total
remuneration that consists of
equity
Mark Manly $59,280 $5,335 $30,814 $95,429 32.3%
Peta Marshman $9,010 ‐ ‐ $9,010 ‐
Other than the amounts disclosed in the column for equity, all other amounts are fixed as part of the executive’s remuneration. Other than the Performance Shares, and Options to be issued to the Chief Geologist, all other securities issued are not subject to performance conditions. The Directors have decided that the exclusion of performance conditions on Options issued to Directors is appropriate after consideration of industry practice and the fact that Options issued to Directors were issued to compensate them for acting as Directors in the period prior to the Company’s listing on ASX without other remuneration. In relation to the Performance Shares the performance condition attached has been chosen as the key measure by the Directors as they considered it to be the most reflective key performance for the Group. In relation to the Options to be issued to the Chief Geologist the performance condition attached has been chosen as the Directors considered it to be an appropriate measure to reflect the performance of the Group. No Director or senior management person appointed during the Period received a payment as part of his or her consideration for agreeing to hold the position.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
Share‐based payments granted as compensation during the 10 months ended 30 June 2008 Employee share option plan
The Company operates an ownership‐based scheme for employees. In accordance with the plan, the Directors may, at their discretion, grant Options to eligible participants. As part of the terms of his employment the Company agreed to grant Mark Manly a total of 1,500,000 Options. 250,000 of these Options were issued on 19 June 2008 at an exercise price of $0.25 each, that exercise price being determined by the Directors by resolution on 28 April 2008. 500,000 of these Options were issued on 12 September 2008 at an exercise price of $0.25 each, that exercise price being determined by the Directors by resolution on 26 August 2008. The remaining 750,000 Options will, if Mr Manly remains an employee of the Company on 10 March 2009, be issued on or about that date at an exercise price the Directors will determine at that time. Each Option converts into one ordinary share of Phoenix Copper on exercise. No amounts are paid or payable by the recipient on receipt of the Option. The Options carry neither rights to dividends nor voting rights. Options may be exercised at any time up to the date that is five years from and including the date they were or are issued. The Options already issued cannot be exercised before 12 February 2009. Director Options
On 4 October 2007 the Board resolved to issue 1,500,000 Options to Directors (500,000 Options each) at an exercise price of $0.25 each. This was considered reasonable remuneration by the Board for the Directors (section 211 of the Corporations Act). Each Option converts into one ordinary share of Phoenix Copper on exercise. No amounts were paid or payable by the recipient on receipt of the Option. The Options carry neither rights to dividends nor voting rights. Options may be exercised at any time up to 5pm Adelaide time on 11 February 2013 (subject to restriction requirements under the ASX Listing Rules). Managing Director Performance Shares
On 4 October 2007 the company conditionally agreed to issue 1,500,000 Performance Shares to Paul Dowd or his nominee. These were issued on listing (11 February 2008) to a nominee of Paul Dowd. The only right attaching to the Performance Shares is that they automatically convert (in tranches of 500,000 shares each) to ordinary shares, when Phoenix Copper shares trade for 5 consecutive ASX trading days at or above 40 cents, 60 cents and 80 cents respectively. If they do not convert within 5 years of 11 February 2008, or within 6 months of the date Paul Dowd ceases to be employed by the Company, they will automatically convert in total to one Share. Summary of Options and Performance Shares
During the 10 months ended 30 June 2008, the following Options were on issue: Options series Grant Date Expiry date Grant Date fair value Vesting date
Issued 29 October 2007 4 October 2007 11 February 2013 $0.0648 11 February 2008
Issued 19 June 2008 28 April 2008 18 June 2013 $0.0336 18 June 2008
During the 10 months ended 30 June 2008, the following Performance Shares were in existence:
Grant Date Expiry date Grant Date fair value Vesting date
Managing Director Performance Shares 4 October 2007 11 February 2013 $0.084 11 February 2008
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
The following grants of share‐based payment compensation to Directors and senior management relate to the 10 months ended 30 June 2008.
During the 10 months ended 30 June 2008
Name Number granted Number vested % of grant vested % of grant forfeited
Graham Spurling Director’s Options 500,000 500,000 100% ‐
Paul Dowd Director’s Options 500,000 500,000 100% ‐
Peter Watson Director’s Options 500,000 500,000 100% ‐
Paul Dowd Managing Director’s Performance Shares 1,500,000 1,500,000 100% ‐
Mark Manly Employee Share Options
Issued 19 June 2008 250,000 250,000 100% ‐
No Options have been exercised by Directors or senior management during the 10 months ended 30 June 2008. The following table summarises the value of Options granted, exercised or lapsed during the 10 months ended 30 June 2008 that relates to Directors and senior management.
Name Value of options granted at
Grant Date Value of options exercised at
the exercise date Value of options lapsed at
the lapsed date
Graham Spurling $32,400 ‐ ‐
Paul Dowd $32,400 ‐ ‐
Peter Watson $32,400 ‐ ‐
Mark Manly $8,400 ‐ ‐
Value of options – basis of calculation
• Value of Options granted at Grant Date is calculated by multiplying the fair value of Options at Grant Date by the number of options granted during the Period;
• Value of Options exercised at exercise date is calculated by multiplying the fair value of Options at the time they are exercised (calculated as the difference between exercise price and the Australian Stock Exchange last sale price on the day that the options were exercised) by the number of Options exercised during the Period; and
• Value of Options lapsed at the lapsed date is calculated by multiplying the fair value of Options at the time they lapsed multiplied by the number of Options lapsed during the Period.
On 12 September 2008 the Company issued 500,000 Options to Mark Manly at an exercise price of $0.25 each with an expiry date of 11 September 2013. The Company will issue a further 750,000 Options to Mark Manly if he remains an employee of the Company on 10 March 2009, on or about that date an exercise price will be determined by the Directors. These Options have been valued by the use of the Monte Carlo Model resulting in an estimated fair value of $0.0411 and $0.0436 respectively. As these Options had not been granted by 30 June 2008 they are excluded from the tables above. The total value of Options included in compensation for the Period is calculated in accordance with Accounting Standard AASB 2 “Share‐based Payment”. Options granted or agreed to be granted (in the case of Mark Manly’s 500,000 and 750,000 Options) during the Period are recognised in compensation over their vesting period.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
The following table summarises the value of Performance Shares granted, exercised or lapsed during the 10 months ended 30 June 2008 that relates to Directors and senior management.
Name Value of Performance Shares
granted at Grant Date Value of Performance Shares
converted Value of Performance Shares lapsed at the lapsed date
Paul Dowd $126,185 ‐ ‐
Value of Performance Shares – basis of calculation
• Value of Performance Shares granted at Grant Date is calculated by multiplying the fair value of Performance Shares at Grant Date by the number of Performance Shares granted during the Period;
• Value of Performance Shares exercised at exercise date is calculated by multiplying the fair value of Performance Shares at time they are converted (calculated as the ASX last sale price on the day that the Performance Shares were converted) by the number of Performance Shares converted during the Period; and
• Value of Performance Shares lapsed at the lapsed date is calculated at the value of one Share at that date (calculated at the ASX last sale price on the lapse date).
The total value of Performance Shares included in compensation for the Period is calculated in accordance with Accounting Standard AASB 2 “Share‐based Payment”. Performance Shares granted during the Period are recognised in compensation over their vesting period. Signed on 25 September 2008 in accordance with a resolution of the Board. Paul J Dowd Managing Director
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
CORPORATE GOVERNANCE STATEMENT
The Board has adopted a Corporate Governance Charter (Charter), which includes a code of conduct, an audit committee charter, a shareholder communication policy and a securities dealing policy. The Charter is available on the Company’s website. The Company’s corporate governance principles and policies and this corporate governance statement are structured with reference to the ASX Corporate Governance Principles and Recommendations, 2nd edition, August 2007 (Principles and Recommendations).
Functions of the Board The names, term of office, skills, experience and expertise of the Directors in office at the date of this Annual Report are set out at the beginning of the Directors’ Report. The Board is responsible for the corporate governance of the Company. The Board’s primary responsibility is to Shareholders but it must also have regard for the interests of other stakeholders and the broader community.
The most important responsibilities of the Board include:
• Providing oversight and strategic direction to the Company;
• Appointing, removing and monitoring the performance of the Chairman, Managing Director, senior executives, managers, senior consultants and the Company Secretary;
• Reviewing, approving and monitoring the progress of budgets, financial plans, acquisitions, divestments and major capital expenditure;
• Approving and monitoring financial performance and financial reporting including approval of the annual and half‐year reports;
• Reviewing and approving business plans and monitoring the achievement of the Company’s strategic goals and objectives;
• Approving remuneration of Directors, senior executives, managers and senior consultants;
• Liaising with the Company’s auditors;
• Reporting to Shareholders and ensuring that all regulatory requirements are met;
• Evaluating the Board’s performance and recommending the appointment and removal of Directors;
• Identifying and managing material business and legal risks; and
• Improving and protecting the reputation of the Company.
Non‐executive Directors do not have responsibility for the day‐to‐day management of the Company’s business, which is the responsibility of the Managing Director. The retirement by rotation of Directors is governed by the Company’s constitution, the Corporations Act and the ASX Listing Rules. According to clause 2.5 of the Company’s constitution one third of the Directors retire from office at the end of each annual general meeting. A retiring Director remains in office until the end of the meeting and will be eligible for re‐election at the meeting. The Directors to retire by rotation at an annual general meeting are those Directors who have been longest in office since their last election. According to rule 6.1(9) of the Company’s constitution the Managing Director is not subject to retirement by rotation and is not to be taken into account in determining the rotation of retirement of Directors. Any other executive Directors are subject to retirement by rotation.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
Directors have the right in connection with their duties and responsibilities, to seek independent professional advice at the Company’s expense where prior written or email approval has been obtained from the Chairman. Such approval will not be unreasonably withheld. The Company’s constitution states that subject to the Corporations Act, the Company may give a person a benefit in connection with a Director's retirement from the Board or managerial office in the Company.
Review of Performance The performance of the Managing Director is monitored by the non‐executive Directors. A formal performance review of the Managing Director did not occur during the Period. The performance of the Company’s chief geologist is monitored by the Managing Director. Wellington Exploration does not have any senior executives. There is currently no formal process for performance evaluation of the Board or individual directors. No formal performance evaluation of the Board, the Audit Committee or individual Directors took place during the Period. Audit Committee
The Company’s Audit Committee has 2 members, namely Peter Watson (chairman) and Graham Spurling. The qualifications of these two Directors are set out at the beginning of the Directors’ Report. The Audit Committee’s responsibilities include:
• establishing risk management controls and procedures and regularly testing the effectiveness of these controls and procedures;
• reviewing the Company’s annual reports and half year reports;
• reviewing the performance of the external auditors;
• evaluating the adequacy and effectiveness of the Company’s accounting policies through ongoing communication with management, the Company’s accountants and external auditors;
• ensuring that the Company’s financial reports comply with the accounting standards and the law;
• reviewing, at least twice annually, the Company’s risk management controls and performance with the Company’s external auditors and ensuring the review process and recommendations are recorded and signed by the chairman of the Audit Committee and the auditors; and
• investigating any matters raised by the external auditors.
The Audit Committee discharges its responsibilities by making recommendations to the Board. The Audit Committee does not have any executive powers to commit the Board or management to implement its recommendations. No Audit Committee meetings were held during the Period. The Company’s auditor was appointed by the Directors in accordance with section 327A of the Corporations Act. Risk Management While the Audit Committee will be involved in establishing risk management controls and procedures and regularly testing the effectiveness of these controls and procedures, the Board is ultimately responsible for:
• identifying and managing areas of significant business risk;
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
• ensuring that arrangements are in place to adequately manage these risks; and
• evaluating the effectiveness of and compliance with the Charter.
Recognised areas of risk include financial, legal, reputation, operation and strategic risks. Management has reported to the Board as to the effectiveness of the Company’s management of its material business risks. Controls for the management of risk have been determined and the following are some examples of those controls.
Financial Risk Primary controls include:‐
• the Managing Director or, within established limits, the Assistant to the Managing Director, personally reviews and authorises all payments, including invoices and expense claims. This control is only practical whilst the Company continues to operate at the current level of activity and expenditure.
• Electronic banking systems are employed and the Company is reliant upon National Australia Bank Limited’s
(the Company’s bank), processes and systems to detect, eliminate and hold the Company free of liability and/or loss resulting from fraud relating to failure of its electronic systems and safeguards.
• Specified authority levels for expenditure and payment approvals have been set and dual signatories are required for draw down from the Company’s Investment Accounts in which the majority of the Company’s funds are held. The Managing Director, or in his absence any other Director, has sole cheque signature authority on the Company’s Management Account to which funds drawn from the Company’s Investment Accounts are transferred. In the absence of any Directors the Chief Geologist and Assistant to the Managing Director can authorise Management Account cheques by being co‐signatories, however neither of them can authorise cheques as sole signatory.
Legal & Reputational Risk Primary controls include:‐
• Establishing appropriate principles of engagement with relevant Landowners, Councillors and other stakeholders in the areas in which the Company operates.
• All employees are required to be counselled in the Company’s Code of Conduct and Ethics.
• All employees are encouraged to discuss with the Managing Director, prior to making decisions where the
employee has concerns relating to the application of the Company’s Code of Conduct and Ethics.
Operations & Asset Risk Primary controls include:‐
• Engagement of an experienced contracted Tenement Manager to ensure that reporting and expenditure obligations are met.
• A risk assessment has been conducted to identify fire, accident and other hazards relating to the Company’s
field office and head office accommodation. Additional controls and safeguards have been installed.
• PLBs (Personnel Locator Beacons) and satellite phones have been purchased for field personnel to ensure they can be located at any time, in any circumstance.
Other controls will be regularly considered as part of a continuous improvement for risk management.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
The Board has received assurance from the Managing Director 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.
Departures from the Principles and Recommendations In accordance with ASX Listing Rule 4.10.3, this Corporate Governance Statement discloses the extent to which the Company has followed the Principles and Recommendations by detailing the Principles and Recommendations that have not been adopted by the Company and the reasons why they have not been adopted. With the exception of the departures detailed below, the corporate governance practices of Phoenix Copper were compliant with the Principles and Recommendations throughout the Period.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
Recommendation Notification of Departure Explanation for Departure 2.1 A majority of the Board should
be independent directors. The majority of the Board is not currently independent. There are currently 3 board members, two of whom are not independent. The Managing Director, Paul Dowd, is not independent by virtue of the fact that he is an executive. Peter Watson is not independent by virtue of the fact that he has within the last 3 years been a principal of a material professional adviser to the Company, namely Watsons Lawyers and is a substantial shareholder.
Phoenix Copper considers industry experience and specific expertise to be important attributes of its Board members and has therefore chosen to retain Peter Watson. If a fourth board member is appointed, independence will be an important factor in choosing that member. The Board is conscious of the need for independence and ensures that directors who have interests in specific transactions or matters do not participate in any part of a Board meeting which considers those transactions or matters.
2.4 The board should establish a nomination committee.
The Phoenix Copper Board has not established a nomination committee.
The Phoenix Copper Board considers that a separate nomination committee is not necessary for the Company given its current size and complexity. The full Board is responsible for the duties and responsibilities typically delegated to a nomination committee.
4.2 The audit committee should be structured so that it: consists only of non‐executive directors; consists of a majority of independent directors; is chaired by an independent chair, who is not chair of the board has at least 3 members
Phoenix Copper’s Audit Committee has 2 members not 3, does not consist of a majority of independent directors and is not chaired by an independent chair.
The Charter states that the Audit Committee should be structured so that it consists only of non‐executive directors. Where the Board comprises only three members the audit committee will consist of two non‐executive Directors. Where the Board comprises more than three members the Audit Committee will consist of at least three members. For the Audit Committee to consist only of non‐executive directors it could not consist of a majority of independent directors because Peter Watson is not an independent director as he has been and remains a principal of material professional advisor to the Company and is a substantial shareholder. For the chairman of the audit committee to be a non‐executive director who is not chair of the Board, he could not be an independent director.
7.1 Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies.
Phoenix Copper has not established a formal policy for the oversight and management of material business risks.
The Charter states that while the Audit Committee will be involved in establishing risk management controls and procedures and regularly testing the effectiveness of these controls and procedures, the Board is ultimately responsible for:
(a) identifying and managing areas of significant business risk;
(b) ensuring that arrangements are in place to adequately manage these risks; and
(c) evaluating the effectiveness of and compliance with the Charter.
8.1 The board should establish a
remuneration committee. The Phoenix Copper Board has not established a remuneration committee
At this early stage of the Company’s development the full Board acts as the Company’s remuneration committee.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
FINANCIAL STATEMENTS
FOR THE PERIOD 7 SEPTEMBER 2007
TO 30 JUNE 2008
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
INCOME STATEMENT FOR THE PERIOD 7 SEPTEMBER 2007 TO 30 JUNE 2008 Consolidated Company
2008 2008 Note $ $ Revenue 3(a) 182,009 182,009 Employee benefits expense 3(b) (313,616) (313,616) Depreciation expense (10,927) (10,927) Secretarial, professional and consultancy (146,814) (146,814) Occupancy costs (34,099) (34,099) Insurance costs (21,625) (21,625) Share register maintenance (3,782) (3,782) Communication costs (9,024) (9,024) Promotion and advertising (6,927) (6,927) Audit fees (15,000) (15,000) Other expenses (26,545) (26,545) Loss before income tax (406,350) (406,350) Income tax expense 4 (112,004) (112,004) Loss for the Period (518,354) (518,354) Earnings per share: Cents Basic earnings per share 5 (1.72) Diluted earnings per share 5 (1.72)
The above income statement should be read in conjunction with the accompanying notes
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
BALANCE SHEET AS AT 30 JUNE 2008 Consolidated Company
2008 2008 Note $ $ CURRENT ASSETS Cash and cash equivalents 6 5,903,635 5,903,535 Trade and other receivables 7 125,047 125,047 Other current assets 8 17,668 17,668 TOTAL CURRENT ASSETS 6,046,350 6,046,250 NON‐CURRENT ASSETS Plant and equipment 9 185,645 185,645 Other receivables 10 ‐ 6,667 Other financial assets 11 ‐ 4,000 Exploration and evaluation expenditure 12 1,473,247 1,462,680 TOTAL NON‐CURRENT ASSETS 1,658,892 1,658,992 TOTAL ASSETS 7,705,242 7,705,242 CURRENT LIABILITIES Trade and other payables 14 111,856 111,856 Provisions 15 6,765 6,765 TOTAL CURRENT LIABILITIES 118,621 118,621 TOTAL LIABILITIES 118,621 118,621 NET ASSETS 7,586,621 7,586,621 EQUITY Issued capital 16 7,622,811 7,622,811 Reserves 17 482,164 482,164 Accumulated losses 18 (518,354) (518,354) TOTAL EQUITY 7,586,621 7,586,621
The above balance sheet should be read in conjunction with the accompanying notes
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD 7 SEPTEMBER 2007 TO 30 JUNE 2008
Consolidated Company
Share Share
PerformanceCapital Retained Capital Performance Retained
Ordinary Shares Reserves Earnings Total Ordinary Shares Reserves Earnings Total
$ $ $ $ $ $ $ $ $ $
Shares on Incorporation 20 ‐ ‐ ‐ 20 20 ‐ ‐ ‐ 20
Shares issued to Subscribers and Promoters 4,480 ‐ ‐ ‐ 4,480 4,480 ‐ ‐ ‐ 4,480
Shares issued as Seed Capital 490,000 ‐ ‐ ‐ 490,000 490,000 ‐ ‐ ‐ 490,000
Shares issued pursuant to Initial Public Offering 6,715,100 ‐ ‐ ‐ 6,715,100 6,715,100 ‐ ‐ ‐ 6,715,100
Shares issued upon acquisition of Wellington Exploration Pty Ltd 4,000 ‐ ‐ ‐ 4,000 4,000 ‐ ‐ ‐ 4,000
Shares issued pursuant to sale and purchase agreements in relation to tenements 900,000 ‐ ‐ ‐ 900,000 900,000 ‐ ‐ ‐ 900,000
Shares issued to Brokers as part of fee for acting as sponsoring broker 400,000 ‐ ‐ ‐ 400,000 400,000 ‐ ‐ ‐ 400,000
Share Issue costs (1,128,978) ‐ ‐ ‐ (1,128,978) (1,128,978) ‐ ‐ ‐ (1,128,978)
Applicable income tax 112,004 ‐ ‐ ‐ 112,004 112,004 ‐ ‐ ‐ 112,004
Performance Shares issued to Managing Director ‐ 126,185 ‐ ‐ 126,185 ‐ 126,185 ‐ ‐ 126,185
Options issued ‐ ‐ 482,164 ‐ 482,164 ‐ ‐ 482,164 ‐ 482,164
Loss for the Period ‐ ‐ ‐ (518,354) (518,354) ‐ ‐ ‐ (518,354) (518,354)
Balance at 30 June 2008 7,496,626 126,185 482,164 (518,354) 7,586,621 7,496,626 126,185 482,164 (518,354) 7,586,621
The above statement of changes in equity should be read in conjunction with the accompanying notes
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
CASH FLOW STATEMENT FOR THE PERIOD 7 SEPTEMBER 2007 TO 30 JUNE 2008 Consolidated Company 2008 2008 Note $ $ CASH FLOWS FROM OPERATING ACTIVITIES
Payments to suppliers and employees (289,664) (289,664) Interest received 124,346 124,346
NET CASH USED IN OPERATING ACTIVITIES 6 (165,318) (165,318) CASH FLOWS FROM INVESTING ACTIVITIES
Payments for exploration activities (279,297) (272,730) Purchase of plant and equipment (196,572) (196,572) Loan to wholly‐owned subsidiaries ‐ (6,667)
NET CASH USED IN INVESTING ACTIVITIES (475,869) (475,969) CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares 7,209,600 7,209,600 Transaction costs of share issues (664,778) (664,778)
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,544,822 6,544,822
Net increase in cash and cash equivalents 5,903,635 5,903,535 Cash at the beginning of the Period ‐ ‐
CASH AT THE END OF THE PERIOD 6 5,903,635 5,903,535
The above cash flow statement should be read in conjunction with the accompanying notes
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD 7 SEPTEMBER 2007 TO 30 JUNE 2008 1. SIGNIFICANT ACCOUNTING POLICIES Statement of compliance
The financial report is a general purpose financial report which has been prepared in accordance with the Corporations Act, Accounting Standards and Interpretations, and complies with other requirements of the law. The financial report includes separate financial statements of Phoenix Copper (referred to as ‘the Company’ in these financial statements) and the consolidated financial statements of the Group. Accounting Standards include Australian equivalents to International Financial Reporting Standards (“A‐IFRS”). Compliance with A‐IFRS ensures that the financial statements and notes of the Company and the Group comply with International Financial Reporting Standards (“IFRS”). The financial statements were authorised for issue by the directors on 25 September 2008. Basis of preparation The financial report has been prepared on the basis of historical cost. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are presented in Australian dollars. In the application of A‐IFRS management is required to make judgments, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstance, the results of which form the basis of making the judgments. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The following significant accounting policies have been adopted in the preparation and presentation of the financial report: (a) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities (including special purposes entities) controlled by the Company (its subsidiaries) (referred to as ‘the Group’ in these financial statements). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the Period are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All intra‐Group transactions, balances, income and expenses are eliminated in full on consolidation. In the separate financial statements of the Company, intra‐Group transactions (‘common control transactions’) are generally accounted for by reference to the existing (consolidated) book value of the items. Where the transaction value of common control transactions differ from their consolidated book value, the difference is recognised as a contribution by or distribution to equity participants by the transacting entities. (b) Cash and cash equivalents Cash and cash equivalents comprise cash on hand, cash in banks and bank deposits.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
(c) Exploration and Evaluation Expenditure Exploration and evaluation expenditures in relation to each separate area of interest are recognised as an exploration and evaluation asset in the period in which they are incurred where the following conditions are satisfied: i) the rights to tenure of the area of interest are current; and ii) at least one of the following conditions is also met:
• the exploration and evaluation expenditures are expected to be recouped through successful development and exploration of the area of interest, or alternatively, by its sale; or
• exploration and evaluation activities in the area of interest have not at the reporting date reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in, or in relation to, the area of interest are continuing.
Exploration and evaluation assets are initially measured at cost and include acquisition of rights to explore, costs of studies, exploration drilling, trenching and sampling and associated activities. General and administrative costs are included in the measurement of exploration and evaluation costs only where they relate directly to operational activities in a particular area of interest. Exploration and evaluation assets are assessed for impairment when facts and circumstances (as defined in AASB 6 “Exploration for and Evaluation of Mineral Resources”) suggest that the carrying amount of exploration and evaluation assets may exceed its recoverable amount. The recoverable amount of the exploration and evaluation assets (or the cash‐generating unit(s) to which they have been allocated, being no larger than the relevant area of interest) is estimated to determine the extent of the impairment loss (if any). Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in previous periods. Where a decision is made to proceed with development in respect of a particular area of interest, the relevant exploration and evaluation asset is tested for impairment, reclassified to development properties, and then amortised over the life of the reserves associated with the area of interest once mining operations have commenced. (d) Employee benefits A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave when it is probable that settlement will be required and they are capable of being measured reliably. Liabilities recognised in respect of employee benefits expected to be settled within 12 months, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Liabilities recognised in respect of employee benefits which are not expected to be settled within 12 months are measured as the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to reporting date. Contributions to accumulated benefit superannuation plans are expensed when incurred. (e) Financial assets
Investments are recognised and derecognised on trade date where purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, net of transaction costs. Subsequent to initial recognition, investments in subsidiaries are measured at cost in the Company’s financial statements.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period. Income is recognised on an effective interest rate basis for debt instruments. Receivables
Trade receivables and other receivables are recorded at amortised cost using the effective interest rate method less impairment. Impairment of financial assets
Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that as a result of one or more events that occurred after the initial recognition of the financial asset the estimated future cash flows of the investment have been impacted. For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of financial assets including uncollectible trade receivables is reduced by the impairment loss through the use of an allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. (f) Financial instruments issued by the Company Debt and equity instruments
Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangement. An equity instrument is any contract that evidences a residual interest in the assets of a Group after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs. Other financial liabilities
Other financial liabilities are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. (g) Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except: i) where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of
the cost of acquisition of an asset or as part of an item of expense or: ii) for receivables and payables which are recognised inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
Cash flows are included in the cash flow statement on a gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows. (h) Impairment of assets (other than exploration and evaluation) At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash‐generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre‐tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash‐generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash‐generating unit) is reduced to its recoverable amount. An impairment loss is recognised in profit or loss immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash‐generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash‐generating unit) in prior periods. A reversal of an impairment loss is recognised in profit or loss immediately. (i) Income tax Current tax
Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss for the Period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by reporting date. Current tax for current and prior periods is recognised as a liability (or asset) to the extent that it is unpaid (or refundable). Deferred tax
Deferred tax is accounted for using the comprehensive balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax base of those items. In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities (other than as a result of a business combination) which affects neither taxable income nor accounting profit. When the deductible temporary difference is associated with a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets reflects the tax
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group and Company intends to settle its current tax assets and liabilities on a net basis. (j) Plant and Equipment Plant and equipment and equipment under finance lease are stated at cost less accumulated depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the item. In the event that settlement of all or part of the purchase consideration is deferred, cost is determined by discounting the amounts payable in the future to their present value as at the date of acquisition. Depreciation is provided on plant and equipment. Depreciation is calculated on a straight line basis so as to write off the net cost of each asset over its expected useful life to its estimated residual value. The estimated useful lives, residual values and depreciation method are reviewed at the end of each annual reporting period. The following estimated useful lives are used in the calculation of deprecation:
• Plant and equipment 3‐10 years (k) Revenue recognition Interest revenue
Interest revenue is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount. (l) Share‐based payments Equity‐settled share‐based payments are measured at fair value at the grant date ((where this report refers to the ‘grant date’ of shares or options, the date mentioned is the date on which those Shares or Options were agreed to be issued (whether conditionally or otherwise) or, if later, the date on which key terms of the Shares or Options (e.g. subscription or exercise price) were determined)). Fair value is measured by use of the Black‐Scholes model, Monte Carlo model or the use of another bionomial model, depending on the type of Share or Option issued. The fair value determined at the grant date of the equity‐settled share‐based payments is expensed on a straight‐line basis over the vesting period, based on the Group’s estimate of Shares that will eventually vest. Equity‐settled share‐based payment transactions with other parties are measured at the fair value of the goods and services received, except where the fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the Group obtains the goods or the counterparty renders the service. (m) Comparative amounts The Company was incorporated on 7 September 2007 therefore no comparatives are shown. The current period covers the period from incorporation to 30 June 2008 (the “Period”). (n) Adoption of new and revised accounting standards In the Period, the Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to its operations and effective for the Period. Various Standards and Interpretations were on issue but were not yet effective at the date of authorisation of the financial report. The issue of these Standards and Interpretations do not affect the Group’s present policies and
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
operations. The Directors anticipate that the adoption of these Standards and Interpretations in future periods will not materially affect the amounts recognised in the financial statements of the Group and the Company but may change the disclosure presently made in the financial statements of the Group or the Company.
2. SEGMENT INFORMATION The Group operates in the minerals exploration industry in South Australia.
3. REVENUE AND EXPENSES Consolidated Company 2008 2008 $ $
(a) Revenue Interest revenue on bank deposits 182,009 182,009 182,009 182,009
(b) Employees benefits expense Wages, salaries, directors fees and other remuneration expenses 52,652 52,652 Change in annual leave provision 6,765 6,765 Share‐based payments expense 254,199 254,199 313,616 313,616
4. INCOME TAX (a) Income tax recognised in profit or loss
Tax expense/(income) comprises: ‐ ‐ Current tax expense in respect of the Period
Deferred tax expense/(income) relating to the origination and reversal of temporary differences and tax losses 112,004 112,004
112,004 112,004 The prima facie income tax benefit on pre‐tax accounting loss from operations reconciles to the income tax expense in the financial statements as follows:
Loss from continuing operations (406,350) (406,350)
Income tax benefit calculated at 30% (121,905) (121,905)
Effect of share based payments 76,260 76,260 Effect of expenses that are not deductible in determining taxable profit 5,983 6,103
11,299 11,299 Temporary differences not recognised as a deferred tax asset
Tax losses not recognised as a deferred tax asset 140,367 140,247
Income tax expense 112,004 112,004
The tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits under Australian tax law. There has been no change in the corporate tax rate since incorporation.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
Consolidated Company 2008 2008 $ $
(b) Recognised tax assets and liabilities Deferred tax assets and liabilities are attributable to the following:
Trade and other receivables (17,299) (17,299) Exploration and evaluation expenditure (32,699) (30,819) Trade and other payables 9,269 9,269 Employee provisions 2,030 2,030 Share issue costs 255,547 255,547 216,848 218,728 Temporary difference not recognised (218,728) (218,728) Tax losses recognised 1,880 ‐
‐ ‐
(c) Unrecognised tax assets Deferred tax assets have not been recognised in respect of the following:
Temporary differences 218,728 218,728
Tax losses 140,367 140,247
359,095 358,975 Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profit will be available against which the Group and the Company can utilise the benefits. (d) Movement in recognised deferred tax balances
Balance on incorporation ‐ ‐ Recognised in equity 112,004 112,004 Recognised in income (112,004) (112,004) Closing balance ‐ ‐
5. EARNINGS PER SHARE 2008 Cents per Share Basic earnings per share – from continuing operations (1.72) Diluted earnings per share – from continuing operations (1.72)
Basic and Diluted Earnings per share The earnings and weighted average number of ordinary shares used in the calculation of basic and diluted earnings per share are as follows:
2008 $ Earnings/(loss) (518,354)
Earnings used in the calculation of basic and diluted earnings per share agree directly to net loss attributable to members of the parent entity in the income statement.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
2008 Number Weighted average number of ordinary shares 30,073,434
The weighted average number of ordinary shares used in the calculation of diluted earnings per share is the same as the number used in the calculation of basic earnings per share, as Options and Performance Shares are not considered dilutive.
Consolidated Company 2008 2008 $ $
6. CASH AND CASH EQUIVALENTS Cash at bank and in hand 786,737 786,637 Short‐term deposits 5,116,898 5,116,898 5,903,635 5,903,535
Cash at bank earns interest at floating rates based on daily bank deposit rates. Short‐term deposits are made for varying periods of between one day and twelve months, depending on the immediate cash requirements of the Group, and earn interest at the respective short‐term deposit rates.
Reconciliation to Cash Flow Statement For the purposes of the Cash Flow Statement, cash and cash equivalents comprise the following at 30 June: Cash at banks and in hand 786,737 786,637 Short‐term deposits 5,116,898 5,116,898 5,903,635 5,903,535 Reconciliation of net loss after tax to net cash flows from operations Net Loss (518,354) (518,354) Adjustments for non‐cash items: Depreciation 10,927 10,927 Income tax expense 112,004 112,004 Share options expensed 254,199 254,199 Changes in assets and liabilities Change in trade and other receivables (67,384) (67,384) Change in interest receivable (57,662) (57,662) Change in prepayments (17,668) (17,668) Change in trade and other payables 111,856 111,856 Change in employee provisions 6,765 6,765 Net cash used in operating activities (165,318) (165,318)
Non‐cash investing and financing activities For details of non‐cash transactions refer to notes 13 and 23.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
Consolidated Company 2008 2008 $ $
7. TRADE AND OTHER RECEIVABLES Accrued interest 57,663 57,663 Goods & Services Tax receivable 67,384 67,384 125,047 125,047
8. OTHER CURRENT ASSETS Prepayments 17,668 17,668 17,668 17,668
9. PLANT AND EQUIPMENT Gross Carrying Amount Balance at 7 September 2007 ‐ ‐ Additions 196,572 196,572 Balance at 30 June 2008 196,572 196,572 Accumulated Depreciation Balance at 7 September 2007 ‐ ‐ Depreciation for the Period 10,927 10,927 10,927 10,927 Total net book value as at 30 June 2008 185,645 185,645
There was no depreciation during the Period that was capitalised as part of the cost of the asset.
10. OTHER RECEIVABLES (NON‐CURRENT) Amount due from wholly‐owned subsidiary ‐ 6,667 ‐ 6,667
11. OTHER FINANCIAL ASSETS
Investment in subsidiary at cost (refer to note 21) ‐ 4,000 ‐ 4,000
12. EXPLORATION AND EVALUATION EXPENDITURE Exploration, evaluation and development costs carried forward in respect of mining areas of interest Exploration and evaluation expenditure 1,473,247 1,462,680
1,473,247 1,462,680 The ultimate recoupment of costs carried forward for exploration and evaluation expenditure is dependent on the successful development and commercial exploitation or sale of the respective mining areas.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
13. SHARE BASED PAYMENTS Employee Share Option Plan The Company has established the Error! Not a valid link. Employee Share Option Plan. The Plan is designed to: • provide eligible participants with an ownership interest in the Company; • provide additional incentives for eligible participants; and • reward participants for past performance. A summary of the Plan is set out below. (a) General
The Plan relates to the grant of Options. The Board may from time to time, in its absolute discretion, offer to grant Options to eligible participants under the Plan. Each Option will be issued for no consideration and will carry the right, in favour of the Option holder, to subscribe for one Share. (b) Eligible Participants
Full‐time and part‐time employees of, and contractors or employees of contractors to, the Company or any of its related bodies corporate will be entitled to participate in the Plan. Eligible Participants must have been in continuous employment with, or contractor to the Company, or any of its related bodies corporate, or an employee of such a contractor, for at least 12 months prior to the issue, unless otherwise determined by the Board (c) Restriction on issues under the Plan
The Board will not offer or issue Options under the Plan if the total number of Shares the subject of Options, when aggregated with:
• the number of Options to be granted; • the number of Shares which would be issued if all current Options granted under any employee
incentive scheme of the Company or any of its related bodies corporate, including the Plan, were exercised;
• the number of Shares which have been issued as a result of the exercise of Options granted under any employee incentive scheme of the Company or any of its related bodies corporate, including the Plan, where the Options were granted during the 5 preceding years; and
• all other Shares issued pursuant to any employee incentive scheme of the Company or any of its related bodies corporate, including the Plan, during the preceding five years,
would exceed 5% of the total number of issued Shares at the time of the proposed offer.
(d) Option Terms
Options issued under the Plan:
• will not be quoted on ASX;
• will be exercisable for one Share each at an exercise price to be determined by the Board when it resolves to offer the Options, which must not be less than the market value of the Shares at that time, as determined under the Plan; and
• will only be transferable with the approval of the Board.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
The Shares issued on the exercise of an Option will rank equally with the other Shares on issue, and the Company will apply to ASX for quotation of those Shares. (e) Lapse of Options
Unless the Board determines otherwise, Options shall lapse on the earlier of:
• the expiry date of the Option, which is the period of 5 years from and including the date from when the Options are issued;
• a determination by the Directors that the Option holder has acted fraudulently, dishonestly or in breach of their obligations to the Company or any of its related bodies corporate; and
• 30 days after an Option holder ceases to be an Eligible Participant for any reason other than retirement, permanent disability, redundancy or death.
(f) Participation in Future Issues
There are no participating rights or entitlements inherent in the Options and Option holders will not be entitled to participate in new issues of capital offered to Shareholders during the currency of the Options. However, the Company will ensure that for the purposes of determining entitlements to any such issue, the record date will be at least 7 business days after the issue is announced. This will give Option holders the opportunity to exercise their Options prior to the date for determining entitlements to participate in any such issue. If the Company makes a pro rata issue of securities (except a bonus issue or issue in lieu, or satisfaction, of dividends or by way of dividend reinvestment) to the holders of Shares the exercise price of the Options shall be adjusted in accordance with the formula in the ASX Listing Rules. If a bonus issue of Shares is made to Shareholders (except an issue in lieu, or satisfaction, of dividends or by way of dividend reinvestment), the number of Shares over which an Option is exercisable will be increased by the number of Shares which the Option holder would have received if the Option had been exercised prior to the record date for the bonus issue. (g) Reorganisation
The terms upon which Options will be granted will not prevent them being reorganised as required by the ASX Listing Rules on the reorganisation of the capital of Phoenix Copper. (h) Management of the Plan
The Board may appoint, for the proper administration and management of the Plan, such persons as it considers desirable and may delegate such authorities as may be necessary or desirable for the administration and management of the Plan. The Board may amend the Rules, subject to the requirements of the ASX Listing Rules, and provided that where an amendment affects the accrued rights or entitlements of an Option holder, the written consent of the Option holder is obtained. The Board may terminate the Plan, or suspend its operation for any period it considers desirable, at any time that it considers appropriate. The following share based payments where in existence in respect of the Employee Share Option Plan during the 10 months ended 30 June 2008:
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
(i) Options granted under the plan
Exercise price Fair value at grant date Number Grant Date Expiry date $ $ Vesting Date 19 June 2008 250,000 28/04/2008 18/06/2013 0.25 0.0336 18/06/2008
The Options were priced using a Black‐Scholes model using the following inputs:
Inputs into the model Grant Date share price $0.11 Exercise price $0.25 Expected volatility (i) 60% Option life 5 years Dividend yield 0 Risk‐free interest rate 6.32% Discount Factor (ii) 20%
(i) A volatility percentage of 60% was used based on the average of like companies’ share price movement over a
12 month period as the Company was listed on 11 February 2008. (ii) A discount factor of 20% was applied to account for the lack of marketability of the options. The following reconciles the outstanding Options granted under the Employee Share Option Plan for the 10 months ending 30 June 2008:
2008
Number of Options
Weighted average exercise price
$
Balance on Incorporation 0 0 Granted during the Period 250,000 0.25 Forfeited during the Period 0 0 Exercised during the Period 0 0 Expired during the Period 0 0 Balance at end of the Period (i) 250,000 0.25
(i) Balance at end of the Period The Options outstanding at the end of the Period had an exercise price of $0.25, and a weighted average remaining contractual life of 1,877 days.
On 12 September 2008 the Company issued 500,000 Options to Mark Manly at an exercise price of $0.25 each with an expiry date of 11 September 2013. The Company will issue a further 750,000 Options to Mark Manly if he remains an employee of the Company on 10 March 2009, on or about that date an exercise price will be determined by the Directors. These Options have been valued by the use of the Monte Carlo Model resulting in an estimated fair value of $0.0411 and $0.0436 respectively. As these Options had not been granted by 30 June 2008 they are excluded from the tables above.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
The Monte Carlo Model used the following inputs:
500,000 Options
750,000 Options
Estimated Grant Date Share Price $0.15 $0.15 Estimated Exercise Price $0.25 $0.25 Expected Volatility (i) 60% 60% Option Life 5 years 5 years Dividend Yield ‐ ‐ Discount Factor (ii) 20% 20% Risk Free Rate 5.81% 5.81%
(i) A volatility percentage of 60% was used based on the average of like companies’ share price movement over a 12 month period as the Company was listed on 11 February 2008.
(ii) A discount factor of 20% was applied to account for the lack of marketability of the options.
Directors, Vendors and Underwriters Options
These Options were issued to Directors and to Avanti Resources Pty Limited, Mr Matthew Reilly, Marathon Resources Limited and Taylor Collison Limited, and : • will expire on 11 February 2013 for Directors and 25 January 2013 for Vendors and Underwriters and can be
exercised at any time during that period (subject to restriction requirements under the ASX Listing Rules);
• will not be quoted on ASX or any other stock exchange;
• will be exercisable for one Share each at $0.25 each; and
• will be freely transferable (subject to restriction requirements under the ASX Listing Rules).
The Shares issued on the exercise of an Option will rank equally with the other Shares on issue, and the Company will apply to ASX for quotation of those Shares. There are no participating rights or entitlements inherent in the Options and holders will not be entitled to participate in new issues of capital offered to Shareholders during the currency of the Options. However, the Company will ensure that, for the purposes of determining entitlements to any such issue, the record date will be at least 7 business days after the issue is announced. This will give Option holders the opportunity to exercise their Options prior to the date for determining entitlements to participate in any such issue. If the Company makes a pro rata issue of securities (except a bonus issue) to the holders of Shares the exercise price of the Options shall be adjusted in accordance with the formula in the ASX Listing Rules. If a bonus issue of Shares is made pro rata to Shareholders, the number of Shares issued on exercise of each Option will include the number of bonus Shares that would have been issued if the Option had been exercised prior to the record date for the bonus issue. No adjustment will be made to the exercise price per Share of the Option. If there is a reorganisation of the capital of the Company, the rights attaching to the Options may be varied as required by the ASX Listing Rules. The following share‐based payment arrangements in respect of Directors, Vendors and Underwriters Options were in existence during the 10 months ended 30 June 2008:
Exercise price Fair value at grant date
Options series Number Grant Date Expiry date $ $ Vesting date (1) Directors Options 1,500,000 4/10/2007 11/02/2013 0.25 0.0648 11/02/2008 (2) Reilly Options 2,000,000 19/10/2007 25/01/2013 0.25 0.0642 25/01/2008 (3) Avanti Options 1,750,000 16/10/2007 25/01/2013 0.25 0.0648 25/01/2008 (4) Marathon Options 750,000 9/11/2007 25/01/2013 0.25 0.0642 25/01/2008 (5) Taylor Collison Options 1,000,000 9/11/2007 25/01/2013 0.25 0.0642 25/01/2008
The weighted average fair value of the share options granted during the Period is $0.0645
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
The Options were priced using a Black‐Scholes Model and using the following inputs:
Option series
Inputs into the model Series 1 Series 2 Series 3 Series 4 Series 5 Grant date share price (i) $0.20 $0.20 $0.20 $0.20 $0.20 Exercise price $0.25 $0.25 $0.25 $0.25 $0.25 Expected volatility (ii) 60% 60% 60% 60% 60% Option life 5 years 5 years 5 years 5 years 5 years Dividend yield 0 0 0 0 0 Discount Factor (iii) 40% 40% 40% 40% 40% Risk‐free interest rate 6.42% 6.41% 6.54% 6.41% 6.41%
(i) A price of $0.20 was used as this is the issue price of the Company's shares under the prospectus. (ii) A volatility percentage of 60% was used based on the average of like companies’ share price movement over a
12 month period as the Company had not been listed at the date of issue.
(iii) A discount factor of 40% was applied to account for the lack of marketability of the options and the fact that the Company was yet to list on the ASX.
The following reconciles the outstanding Options granted to the Directors, Vendors and Underwriters for the 10 months ended 30 June 2008:
2008
Number of Options Weighted average exercise
price $
Balance on incorporation 0 0 Granted during the Period 7,000,000 0.25 Forfeited during the Period 0 0 Exercised during the Period 0 0 Expired during the Period 0 0 Balance at end of the Period (i) 7,000,000 0.25 Exercisable at end of the Period 7,000,000 0.25
(i) Balance at end of the Period The Options outstanding at the end of the Period had an exercise price of $0.25 and a weighted average remaining contractual life of 1,933 days.
The Options are subject to restriction requirements under the ASX Listing Rules. Managing Director’s Performance Shares 1,500,000 Performance Shares have been issued to PJ & BA Dowd Investments Pty Ltd <Super Fund A/C>, as nominee of the Managing Director. The Performance Shares: • confer on the holder the right to receive notices of general meetings and financial reports and accounts of
the Company that are circulated to Shareholders;
• confer on the holder the right to attend general meetings of Shareholders;
• do not entitle the holder to vote on any resolutions proposed at a general meeting of Shareholders;
• do not entitle the holder to any dividends;
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
• do not confer on the holder any right to participate in the surplus profits or assets of the Company upon winding up;
• are not transferable; and
• will not be quoted on ASX or any other stock exchange.
If at any time the issued capital of the Company is reorganised, a Performance Share may be treated in accordance with the ASX Listing Rules at the time of reorganisation.
500,000 of the Performance Shares will automatically convert into one (1) Share each on each of the following events occurring: a) Shares trading for 5 consecutive ASX trading days at $0.40 or greater; b) Shares trading for 5 consecutive ASX trading days at $0.60 or greater; c) Shares trading for 5 consecutive ASX trading days at $0.80 or greater. The Shares into which Performance Shares will convert will rank equally in all respects with existing Shares. Upon conversion of Performance Shares into Shares, the Company must within seven (7) days after the conversion, apply for the official quotation of the Shares arising from the conversion on ASX.
Any Performance Shares which have not otherwise converted to Shares by the date which is the 5th Anniversary of the date of issue of the Performance Shares, or the date which is 6 months after the date on which Mr Dowd ceases to be employed by Phoenix Copper, shall automatically convert in total to one Share. The following share‐based payment arrangements were in existence in respect of Performance Shares during the 10 months ended 30 June 2008:
Fair value at grant date
Performance Share series Number Grant date Expiry date $ Vesting date Managing Director's Performance Shares 1,500,000 4/10/2007 11/02/2013 0.084 11/02/2008
The Performance Shares were priced using a Monte Carlo model using the following inputs:
Grant date share price (i) $0.20 Exercise price ‐ Expected volatility (ii) 60% Performance Share life 5 years Dividend yield ‐ Discount factor (iii) 40% Risk free interest rate 6.18%
(i) A price of $0.20 was used as this is the issue price of the Shares under the prospectus.
(ii) A volatility percentage of 60% was used based on the average of like companies’ share price movement over a 12 month period as the Company had not been listed at the date of issue.
(iii) A discount factor of 40% was applied to account for the lack of marketability of the Performance Shares and the fact that the Company was yet to list on the ASX.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
The following reconciles the outstanding Performance Shares granted to the Managing Director’s nominee for the 10 months ended 30 June 2008:
2008
Number of Performance Options
Weighted average exercise price
$
Balance on incorporation 0 0 1,500,000 0 Granted during the Period
Forfeited during the Period 0 0 0 0 Exercised during the Period 0 0 Expired during the Period
Balance at end of the Period (i) 1,500,000 0
i) Balance at end of Period
The Performance Shares outstanding at the end of the Period have an exercise price of $nil, and a weighted average remaining contractual life of 1,957 days.
Consolidated Company 2008 2008 $ $
14. TRADE AND OTHER PAYABLES (CURRENT)
Trade payables (i) 4,990 4,990 Accrued expenses 70,770 70,770 Other payables 36,096 36,096 111,856 111,856
(i) Trade payables are non‐interest bearing and are normally settled on 60‐day terms.
15. PROVISIONS (CURRENT)
Annual Leave 6,765 6,765 6,765 6,765
16. ISSUED CAPITAL 53,475,500 fully paid Ordinary shares 7,496,626 7,496,626 1,500,000 Performance Shares 126,185 126,185 7,622,811 7,622,811
Changes to the then Corporations Law abolished the authorised capital and par value concept in relation to share capital from 1 July 1998. Therefore, the Company does not have a limited amount of authorised capital and issued shares do not have a par value.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
2008 Number $ Fully paid ordinary shares Shares issued on incorporation 20,000 20 Shares issued to Subscribers and Promoters 4,480,000 4,480
4,900,000 490,000 Shares issued as Seed Capital Shares issued pursuant to Initial Public Offering 33,575,500 6,715,100 Shares issued upon acquisition of Wellington Exploration Pty Ltd 4,000,000 4,000 Shares issued pursuant to sale and purchase agreements in relation to tenements 4,500,000 900,000 Shares issued to Brokers as part of fee for acting as sponsoring broker 2,000,000 400,000 Shares issue costs (1,128,978) Applicable income tax 112,004 53,475,500 7,496,626 Performance Shares Performance Shares issued to Managing Director 1,500,000 126,185 Balance at end of the Period 1,500,000 126,185
Only fully paid ordinary shares carry one vote per share and carry the right to dividends. Refer to note 13 “Managing Director’s Performance Shares” for rights attaching to Performance Shares.
Consolidated Company 2008 2008 $ $
17. RESERVES
Option reserve Balance on incorporation ‐ ‐ Issue of Options to directors 97,200 97,200 Issue of Options to employees and officers under Employee Share Option Plan 30,814 30,814 Issue of Options to sponsoring broker 64,200 64,200 Issue of Options to Vendors of tenements purchased by the Company 289,950 289,950 Balance at end of the Period 482,164 482,164
Share‐option reserve This reserve is used to record the value of Options issued. Refer to note 13 for further details of these Options.
18. ACCUMULATED LOSSES
Balance on incorporation ‐ ‐ Net loss attributable to members of the parent entity (518,354) (518,354) Balance at end of the Period (518,354) (518,354)
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
Consolidated Company 2008 2008 $ $
19. COMMITMENTS FOR EXPENDITURE Operating Leases
Not longer than 1 year 21,120 21,120 Between 1 and 2 years 70,467 70,467 Longer than 2 years and not longer than 5 years ‐ ‐ 91,587 91,587
The above operating leases relate to premises.
Exploration Expenditure The Group and the Company have certain obligations to perform exploration work and expend minimum amounts of money on such works on mineral exploration tenements. The terms of current and future joint ventures, the grant or relinquishment of licences, and changes to licence areas at renewal or expiry, and changes to statutory expenditure commitments will alter the expenditure commitments of the Group and the Company. Total expenditure commitments at balance date in respect of minimum expenditure requirements not provided for in the financial statements are approximately:
Exploration commitments Not longer than 1 year 152,532 152,532 Between 1 and 2 years ‐ ‐ Longer than 2 years and not longer than 5 years ‐ ‐
152,532 152,532 The Company expects to renew all of its mineral exploration tenements on their respective expiry dates. (a) Reilly Tenement Acquisition Agreement
By the Reilly Tenement Acquisition Agreement dated 19 October 2007 between the Company and Matthew Reilly, as amended by deed dated 19 November 2007 (RTAA), the Company agreed to purchase from Mr Reilly mineral exploration licence EL 3161. The outstanding commitments pursuant to this agreement are; • the issue and allotment to Mr Reilly of 800,000 Shares and 800,000 Options upon grant of an Exploration
Licence over some or all of the area within EL 3161 reserved from the operation of the Mining Act 1971 (SA), comprising the area, and immediately surrounding, of the historic Burra Mine and the historic Burra Smelter, as gazetted in March 1988;
• the payment of $100,000 upon commencement of processing of any tailings, waste residues, waste rock, spoiled leach materials and other materials located on the surface of the land the subject matter of EL 3161 or derived from that land by or on behalf of the Company;
• the payment of $200,000 upon the Company announcing an ore reserve, prepared in accordance with the JORC Code, on EL 3161 of at least 15,000 tonnes of contained copper; and
• the payment of a retainer of $20,000 per year, payable on the anniversary of completion of the sale and
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
purchase of EL 3161, for a period of four years (to an aggregate total value of $80,000), for the provision of services by Mr Reilly to the Company.
(b) Joint Venture with Australian Field Services Pty Limited
The Eastern portion of EL 3164 (acquired by the Company from Marathon Resources Limited on 25 January 2008) is subject to a contractual joint venture with Australian Field Services Pty Ltd (ACN 008 207 896) (AFS). The Joint Venture is constituted by a letter agreement dated 8 October 2007 between Marathon Resources Limited and AFS and a Deed of Assignment, Assumption and Variation dated 9 November 2007 between the Company, Marathon Resources and AFS. AFS is earning a 90% interest in the joint venture by spending $180,000 within 3 years; of which $60,000 must be spent within the first year. Once AFS has earned a 90% interest, the Company will have a 10% free carried interest up to a decision to mine following a feasibility study. The Company has granted AFS an option to purchase this 10% interest for $60,000. The Option may be exercised by AFS until 12 February 2009. AFS is the manager of the Joint Venture and is responsible for the design and execution of exploration programmes while it is the sole contributor to joint venture expenditure and thereafter, if and for so long as its joint venture interest is 51% or more. Each party may withdraw from the Joint Venture at any time but AFS may only exercise its right to withdraw after spending a minimum of $60,000 on joint venture expenditure in the first 12 months. (c) Royalty agreements
The Company has granted the following royalties:
• to Mr Matthew Reilly a royalty calculated at 6% of the aggregate net revenue in respect of all metals derived from EL 3161;
• to Avanti Resources Pty Ltd a royalty calculated as 2.5% of the net smelter return on all metals derived from
EL 3604, EL 3716 and EL 3686.
• to Marathon Resources Limited a royalty calculated as a 2.5% net smelter return on all metals derived from the Western Portion of EL 3164.
20. CONTINGENT LIABILITIES Employment Contracts The Company has entered into employment contracts with Paul Dowd (Managing Director) and Mark Manly (Chief Geologist). The Company can terminate these employment contracts with three months and one months notice respectively. As at 30 June 2008, the Group and the Company had a contingent liability in relation to these employment contracts of $82,500. Native Title Native title claims exist over some tenements in South Australia in which the Group and the Company have interests. The Group and the Company are unable to determine the prospects for success or otherwise of the claims and, in any event, whether or not and to what extent the claims or future claims may significantly affect the Group and the Company or its projects.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
21. SUBSIDIARIES
Ownership interest
2008 Name of entity
Country of incorporation
% Parent entity Phoenix Copper Limited Australia Subsidiary Wellington Exploration Pty Ltd Australia 100
22. FINANCIAL INSTRUMENTS Capital risk management The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders. The capital structure of the Group consists of cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and accumulated losses as disclosed in notes 16, 17 and 18 respectively. Proceeds from share issues are used to maintain and expand the Group’s exploration activities and fund operating costs. The Group’s exploration activities are monitored to ensure that adequate funds are available. Categories of financial instruments Consolidated Company 2008 2008 $ $ FINANCIAL ASSETS
Cash and cash equivalents 5,903,635 5,903,535 Loans and receivables 125,047 131,714
FINANCIAL LIABILITIES
Payables 111,856 111,856 Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from activities. The Group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The credit risk on liquid funds is limited because the counterparties are banks with high credit‐ratings assigned by international credit‐rating agencies. The carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the Group’s maximum exposure to credit risk.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
Interest rate sensitivity analysis At reporting date, if interest rates had been 50 basis points higher or lower and all other variables were held constant, the Group’s: • net profit would increase or decrease by $29,518 which is mainly attributable to the Group’s exposure to
interest rates on its variable bank deposits. Liquidity risk management Ultimate responsibility for liquidity risk management rests with the Board, which has built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long‐term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves. Liquidity and interest risk tables The following table details the Company’s and the Group’s remaining contractual maturity for its non‐derivative financial liabilities. The table below has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. Consolidated & Company
Weighted average effective interest rate
% Less than 1 year
$ 2008
‐ 111,856 Non‐interest bearing The following table details the Company’s and the Group’s expected maturity for its non‐derivative financial assets. The table below has been drawn up based on the undiscounted contractual maturities of the financial assets including interest that will be earned on those assets except where the Company/Group anticipates that the cash flow will occur in a different period. Consolidated & Company
Weighted average effective interest rate
% Less than 1 year
$ 2008
7.58 5,961,198 Variable interest rate
23. KEY MANAGEMENT PERSONNEL COMPENSATION Details of key management personnel The Directors and other members of key management personnel of the Group during or since the end of the Period were: Graham Spurling (Chairman) appointed 27/9/07 Paul Dowd (Managing Director) appointed 27/9/07 Peter Watson (Non‐Executive Director) appointed 7/9/07 Greg English (Non‐Executive Director) appointed 7/9/07, resigned 27/9/07 Peta Marshman (Non‐Executive Director) appointed 7/9/07, resigned 27/9/07 (Company Secretary) appointed 7/9/07 Mark Manly (Chief Geologist) appointed 10/03/08
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
The aggregate compensation made to Directors and other members of key management personnel of the Company and the Group is set out below:
Consolidated Company 2008 2008 $ $ Short‐term employee benefits 150,372 150,372 Post‐employment benefits 26,489 26,489 Share‐based payment 254,199 254,199 431,060 431,060
24. RELATED PARTY TRANSACTIONS (a) Equity interests in related parties Equity interests in subsidiaries
Details of the percentage of ordinary shares held in subsidiaries are disclosed in note 21. (b) Transactions with key management personnel Key management personnel compensation
Details of key management personnel compensation are disclosed in the Directors Report under Remuneration Report and in note 23. Key management personnel equity holdings Fully paid Ordinary Shares
30 June 2008 Balance at
Incorporation No
On Exercise of Options
No
Net Change Other No
Balance 30 Jun 08
No
Directors Graham Spurling ‐ ‐ 506,334 506,334 Paul Dowd ‐ ‐ 350,000 350,000 Peter Watson 10,000 ‐ 4,465,000 4,475,000 Peta Marshman (resigned 27/09/07) ‐ ‐ 100,000 100,000 Greg English (resigned 27/09/07) 10,000 ‐ 4,030,000 4,040,000 Other Key Management Personnel Mark Manly ‐ ‐ ‐ ‐
Performance Shares
30 June 2008 Balance at
Incorporation No
On Exercise of Options
No
Net Change Other No
Balance 30 Jun 08
No
Directors Paul Dowd ‐ ‐ 1,500,000 1,500,000
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
Options
30 June 2008 Balance on
Incorporation Granted as
remuneration Options Exercised
Net change other
Balance at
30 June 2008
Balance vested at 30 June 2008
Vested not exercisable
Vested and
exercisable
Options vested during the
Period
No No No No No No No No No Directors Graham Spurling ‐ 500,000 ‐ ‐ 500,000 500,000 500,000 ‐ 500,000 Paul Dowd ‐ 500,000 ‐ ‐ 500,000 500,000 500,000 ‐ 500,000 Peter Watson ‐ 500,000 ‐ ‐ 500,000 500,000 500,000 ‐ 500,000 Peta Marshman (resigned 27/09/07)
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Greg English (resigned 27/09/07)
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Other Key Management Personnel
Mark Manly ‐ 250,000 ‐ ‐ 250,000 250,000 250,000 ‐ 250,000 During the Period no Options were exercised by key management personnel. Other transactions
During the Period the Group and the Company entered into the following transactions:
• The appointment of the son of a Director, (Peter Watson) as the Assistant to the Managing Director. The amount paid as salary was $21,697 for the Period.
• The Company engaged Watson’s Lawyers, an entity in which a Director (Peter Watson) is a partner, to provide legal advice in relation to the Company’s prospectus which was lodged with ASIC on 20 November 2007. In addition the Group engaged Watsons Lawyers to advise on other legal matters and secretarial services. The amount paid in the Period for all of the above services was $145,212.
The above were transacted under normal terms and conditions. (c) Transactions between the Company and its Subsidiary
During the Period, the following transactions occurred between the Company and its subsidiary:
• the Company provided accounting and administration services to its subsidiary for no consideration; and
• the Company advanced funds of $6,667 to fund exploration activities of its subsidiary. All amounts advanced to or payable to the Company’s subsidiary are unsecured and are on interest free terms. Transactions and balances between the Company and to its subsidiary were eliminated in the preparation of consolidated financial statements of the Group. (d) Transactions with related parties
On 7 September 2007 10,000 Shares were issued to an entity associated with Peter Watson for $0.001 each. On 4 October 2007 1,990,000 Shares were issued to an entity associated with Peter Watson for $0.001 each.
On 7 September 2007 10,000 Shares were issued to an entity associated with Greg English for $0.001 each. On 4 October 2007 1,990,000 Shares were issued to an entity associated with Greg English for $0.001 each.
On 4 October 2007 100,000 Shares were issued to Peta Marshman for $0.001 each. Further, 100,000 Shares were issued to Tom Watson, a related party of Peter Watson, for $0.001 each.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
On 29 October 2007 the terms of engagement of Paul Dowd (Managing Director) were agreed to. They include a salary of $2,000 per day (for an expected 2.5 days per week commitment) plus the agreement to issue (upon listing on the ASX) 1,500,000 Performance Shares, details of which appear in Note 13.
On 29 October 2007 the Company purchased 100 shares (being all the issued capital) in Wellington Exploration for $4,000 satisfied by the issue of 4,000,000 Shares. The agreement was unconditional. 2,000,000 Shares were issued to an entity related to Peter Watson and 2,000,000 were issued to an entity related to Greg English.
On 16 November 2007, the Company issued 4,900,000 shares at 10 cents each to raise capital of $490,000. Of the 4,900,000 shares issued 200,000 were issued to an entity related to Paul Dowd, 250,000 were issued to an entity related to Graham Spurling, 250,000 were issued to Peter Watson and 100,000 were issued to an entity related to Greg English.
(e) Parent entity
Phoenix Copper is the ultimate parent entity.
25. AUDITORS REMUNERATION
Consolidated Company 2008 2008 $ $
Remuneration of the auditor of the parent entity for: Auditing or reviewing the financial report 15,000 15,000 Other services (i) 23,650 23,650
38,650 38,650 (i) Other services relates to preparation of investigating Accountant’s Report for inclusion in the Company’s Prospectus dated 20 November 2007. The auditor of the Company is Deloitte Touche Tohmatsu.
26. SUBSEQUENT EVENTS There has not been any matter or circumstance occurring subsequent to the end of the Period that has significantly affected, or may significantly affect, the operations of the consolidated Group, the results of those operations, or the state of affairs of the Group in future financial years.
27. COMPANY STATUS The Company is a public company incorporated and operating in Australia. Its registered office and principal place of business are as follows:
Registered Office Level 1, 135 Fullarton Road ROSE PARK SA 5067 Principal place of business Level 1, 135 Fullarton Road ROSE PARK SA 5067
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
Directors’ Declaration The Directors declare that: (a) in the Directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its
debts as and when they become due and payable; (b) in the Directors’ opinion, the attached financial statements and notes thereto are in accordance with the
Corporations Act 2001, including compliance with accounting standards and give a true and fair view of the financial position and performance of the Company and the consolidated Group; and
(c) the Directors have been given the declarations required by s.295A of the Corporations Act 2001. Signed in accordance with a resolution of the directors made pursuant to s.295(5) of the Corporations Act 2001. On behalf of the Directors Paul J Dowd Managing Director 25 September 2008
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
SCHEDULE OF TENEMENTS
Tenement Details Phoenix Copper has seven tenements covering an area of more than 1,500 km2 in the historically significant and highly prospective Burra and Yorke Peninsula regions of South Australia.
EL No EL Name Registered Holder Area sq km
Application/ Grant Date
Expiry Date%
OwnedAnnual/Term Expenditure Commitment $
3161 Burra Central
Phoenix Copper Limited 84 27/01/2004 26/01/2009
100 185,000: between 27/01/04 & 26/01/09
3604 Burra West Phoenix Copper Limited 86 25/07/2006 24/07/2009
100 120,000: between 25/7/06 & 24/7/09
3716 Burra North Phoenix Copper Limited 300 6/03/2007 5/03/2009
100 120,000: between 6/03/07 & 5/03/09
3164 Mongolata Phoenix Copper Limited 283 13/02/2004 12/02/2009
100 55,000: between 13/02/04 & 12/02/09
3686 Spalding Phoenix Copper Limited 157 2/01/2007 1/01/2009
100 90,000: between 2/1/07 & 1/1/09
4031 Minlaton Wellington Exploration Pty Ltd
547 21/01/2008 20/01/2009
100 85,000
4032 Mount Bryan
Wellington Exploration Pty Ltd
116 21/01/2008 20/01/2009 100 40,000
Tenement Location
PLEASE NOTE THAT THE MOUNT BRYAN TENEMENT IS PART OF THE BURRA PROJECT
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
ADDITIONAL SHAREHOLDER INFORMATION
Shares
The total number of Shares issued as at 10 September 2008 was 53,475,500 held by 472 registered Shareholders. 17,450,000 of these issued Shares are restricted. 4,500,000 are to be held in escrow until 30 January 2009, 1,700,000 are to be held in escrow until 19 November 2008 and 11,250,000 are to be held in escrow until 12 February 2010.
16 Shareholders hold less than a marketable parcel, based on the market price of a Share as at 10 September 2008. Each Share carries one vote per Share without restriction. Performance Shares
As at 10 September 2008 the Company had on issue 1,500,000 Performance Shares, held by 1 holder, the Managing Director’s nominee, PJ & BA Dowd Investments Pty Ltd <Super Fund A/C>. The Performance Shares or the Shares into which they convert are to be held in escrow until 12 February 2010. No voting rights are attached to the Performance Shares. Quoted Options
The Company does not have any quoted Options on issue. Unquoted Options
As at the date of this Annual Report the Company had on issue:
• 1,500,000 unquoted, restricted Options exercisable at $0.25 and expiring at 5pm Adelaide time on 11 February 2013 (these Options will be held in escrow until 12 February 2010) held by 3 holders (each Director holds 500,000 of these Options);
• 5,500,000 unquoted, restricted Options exercisable at $0.25 and expiring at 5pm Adelaide time on 25 January 2013 (4,500,000 of these Options will be held in escrow until 25 January 2009 and 1,000,000 will be held in escrow until 12 February 2010) held by 7 holders (Avanti Resources Pty Ltd <Marlow Family A/C> holds 1,750,000 of these Options and Matthew Reilly holds 1,525,000);
• 250,000 unquoted Options exercisable at $0.25 not before 12 February 2009 and not after 18 June 2013 held by 1 holder; and
• 500,000 unquoted Options exercisable at $0.25 not before 12 February 2009 and not after 11 September 2013 held by 1 holder.
No voting rights are attached to any Options.
Twenty Largest Shareholders
As at 10 September 2008, the twenty largest Shareholders were as shown in the following table and held 61.79% of the Shares.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
Legal Holder Holding %
1 ASIA IMAGE LIMITED 12,500,000 23.38 2 GDE EXPLORATION (SA) PTY LTD <A1 ENGLISH A/C> 4,030,000 7.54
MR PETER JAMES WATSON + MS JUDITH WATSON <SUPER FUND A/C> 4,000,000 7.48 3 TAYCOL NOMINEES PTY LTD 2,500,000 4.68 4 AVANTI RESOURCES PTY LTD <MARLOW FAMILY A/C> 1,750,000 3.27 5 MR MATHEW REILLY 1,525,000 2.85 6 MARATHON RESOURCES LIMITED 750,000 1.40 7 KOMON NOMINEES PTY LTD 600,000 1.12 8 NATIONAL NOMINEES LIMITED 540,000 1.01 9 MR JUSTIN BERNARD SUNMAN FREYTAG <THE JB FREYTAG FAMILY A/C> 500,000 0.94 10 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 500,000 0.94 11 MCENTEE DEVELOPMENTS PTY LTD 500,000 0.94 12 MR DANIEL RONALD WATSON 500,000 0.94 13 MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED 475,000 0.89 14 JOHN EASLING PTY LTD 450,000 0.84 15 CAPE HATTERAS PTY LTD <THE CHAPEL HILL A/C> 410,000 0.77 16 PAN AUSTRALIAN NOMINEES PTY LTD 400,000 0.75 17 MR GRAHAM SPURLING + MRS MARGARET SPURLING <SUPER FUND A/C> 375,000 0.70 18 MRS JUDITH WATSON 375,000 0.70 19 PJ & BA DOWD INVESTMENTS PTY LTD <SUPER FUND A/C> 350,000 0.65 20
Total 33,030,000 61.79 Substantial Shareholders
As at 10 September 2008, the substantial Shareholders as disclosed in substantial holding notices given to the Company are: Holding % Asia Image Limited 12,500,000 23.38 Judith Watson 4,375,000 8.18 Peter James Watson 4,375,000 8.18 GDE Exploration (SA) Pty Ltd and its sole director Gregory David English 4,040,000 7.55 Distribution Schedules
A distribution schedule of the number of Shareholders, by size of holding, as at 10 September 2008 is set out below:
Size of holdings Number of Shareholders 1 – 1000 2 1,001 – 5,000 19 5,001 – 10,000 132 10,001 – 100,000 256 100,001 and over 63 Total 472 A distribution schedule of the number of holders of unquoted, restricted Options exercisable at $0.25 and expiring at 5pm Adelaide time on 11 February 2013, by size of holding, as at 10 September 2008 is set out below:
Size of holdings Number of holders 1 – 1000 0 1,001 – 5,000 0 5,001 – 10,000 0 10,001 – 100,000 0 100,001 and over 3 Total 3
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
A distribution schedule of the number of holders of unquoted, restricted Options exercisable at $0.25 and expiring at 5pm Adelaide time on 25 January 2013, by size of holding, as at 10 September 2008 is set out below:
Size of holdings Number of holders 1 – 1000 0 1,001 – 5,000 0 5,001 – 10,000 0 10,001 – 100,000 0 100,001 and over 7 Total 7 A distribution schedule of the number of holders of unquoted, restricted Options exercisable at $0.25 not before 12 February 2009 and not after 18 June 2013, by size of holding, as at 10 September 2008 is set out below:
Size of holdings Number of holders 1 – 1000 0 1,001 – 5,000 0 5,001 – 10,000 0 10,001 – 100,000 0 100,001 and over 1 Total 1 A distribution schedule of the number of holders of unquoted, restricted Options exercisable at $0.25 not before 12 February 2009 and not after 11 September 2013, by size of holding, as at 12 September 2008 is set out below:
Size of holdings Number of holders 1 – 1000 0 1,001 – 5,000 0 5,001 – 10,000 0 10,001 – 100,000 0 100,001 and over 1 Total 1 A distribution schedule of the number of holders of Performance Shares, by size of holding, as at 10 September 2008 is set out below:
Size of holdings Number of holders 1 – 1000 0 1,001 – 5,000 0 5,001 – 10,000 0 10,001 – 100,000 0 100,001 and over 1 Total 1
There is no current on‐market buy‐back.
Enquiries from Shareholders
Shareholders wishing to record a change of address or other holder details or with queries regarding their Shareholding should contact the Company’s share registry, Computershare, as detailed in the Corporate Directory at the front of this Annual Report. Shareholders with any other query are invited to contact the Company’s registered office as detailed in the Corporate Directory at the front of this Annual Report.
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PHOENIX COPPER LIMITED ANNUAL REPORT 2008
GLOSSARY
ASX means ASX Limited ACN 008 624 691 or the Australian Securities Exchange, as the context requires. ASX Listing Rules means the official listing rules of ASX. Audit Committee means the audit, risk and compliance committee of the Company. Board means the board of directors of the Company. Chairman means the non‐executive chairman of the Company. Corporations Act means Corporations Act 2001 (Cth). Council means ASX Corporate Governance Council. Director means a director of the Company. Exploration License or EL means a mineral exploration licence granted pursuant to the Mining Act. Group means Phoenix Copper and its wholly owned subsidiary, Wellington Exploration. IPO means initial public offering. Mining Act means Mining Act 1971 (SA). Option means an option to subscribe for one unissued Share. Period means 7 September 2007 to 30 June 2008. Phoenix Copper or Company means Phoenix Copper Limited ACN 127 446 271. Share means a fully paid ordinary share in the capital of the Company. Shareholder means the holder of one or more Shares. Wellington Exploration means Wellington Exploration Pty Ltd ACN 127 063 361, the wholly owned subsidiary of the Company.
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