6085 kg ar 2003 a/wproduction was 154,484 ounces of gold and 484,170 ounces of silver. cash costs of...

101 Finance

annual report

ANNUALreport2003

Kingsgate annual report

Highlights

ContentsHighlights IFC & p1

Chairman’s and Managing Director’s review p3

Finance p5

Operations p7

Mineral Resources and Ore Reserves p9

Exploration and business development p10

Sustainability p12

People and culture p16

Corporate governance p19

Directors’ report p26

Consolidated statements p33

Corporate and shareholder information p43

THE 2002/2003 YEARreflects the first full year of operation at the Chatree gold mine in Thailand.

PRODUCTION was154,484 ounces of gold and 484,170ounces of silver.

CASH COSTS of US$94 and total costs of US$143 per ounceplace Chatree as one of the lowest costproducers in the world.

NET PROFIT after taxincreased by 43% to $47.3 million,equivalent to 65.4 centsearnings per share.

DECLARATION of a finaldividend of 12.5 centsbrings total dividendsfor 2002/2003 to 25cents per share.

CASH GENERATION was strong and debtfacilities were reduced by $19.9 million.

ORE RESERVESincreased to 1 millionounces of gold followingexploration success at Prospect A. Anextension to the H orebody was alsodiscovered.

A PLANT EXPANSION is in progress to increase throughput by 50% to 1.8 milliontonnes per annum.

OBJECTIVES Kingsgate’s objective is to be asignificant international gold producer throughdelivering profitable and sustainable growth forour shareholders, for our employees and forthe communities where we operate.

p2 Kingsgate annual report

Who we are

The CompanyKingsgate Consolidated Limited is a successful Australian gold mining and exploration company. Through its wholly-owned Thai subsidiary Akara Mining Limited, it owns andoperates Thailand’s only modern goldmine. The mine has low cash costs, isfinancially strong and is the principalcontributor to Kingsgate’s earnings.

Kingsgate is publicly owned and itsshares are traded on the AustralianStock Exchange under the code KCN.The company is also listed on severalEuropean stock exchanges includingFrankfurt, Stuttgart and Berlin-Bremen.

The VisionKingsgate’s vision is to own, develop and operate high quality mineralresource projects. We are continuallyassessing new opportunities.

The strength of our relationships, our experience in Asia and our operating expertise will provide theopportunities for growth.

p3Kingsgate annual report

The past year has been very successful for Kingsgateas the company has continued to develop as asignificant and profitable gold producer, with improvedgrowth potential. The results reflect the first full yearof operation and have been particularly pleasing withsolid profits, complemented by strong gold productionand good exploration success. This excellentperformance has enabled the Directors to declare a total dividend for the year of 25 cents per share, of which 12.5 cents was paid as an interim dividendand 12.5 cents is a final dividend.

Total production at Chatree for the year was 154,484ounces of gold and 484,170 ounces of silver at a totalcash cost of US$94 per ounce and total productioncost of US$143 per ounce of gold. These resultsplace Chatree as one of the lowest cost operations inthe world. Gold production represents a 69% increaseon the previous year, when the plant operated for onlyseven months following commissioning. Chatreebenefited from a plant upgrade during this year thatadded three new CIL tanks and plant throughputachieved was above design capacity. The profitcontribution from Chatree resulted from good goldgrades, higher plant throughput, reduced unit costsand an improvement in realised gold price.

The strong operational performance has resulted inKingsgate achieving a net profit after tax of $47.3million, which is an improvement of 43% on the netprofit of $33.0 million achieved in the previous year.Total income of $94.6 million reflects a full year ofoperation at Chatree, compared with seven months in the previous year when the plant was beingcommissioned. Costs have increased in line with

a full year’s throughput and a higher mining strip ratio.The company is not subject to income tax in Thailandand there is no withholding tax on dividends remittedto Australia. Earnings per share of 65.4 cents have increased by 35% on the 48.5 cents recorded in 2001/02.

Operating cash generation exceeded $56.9 millionand $12.9 million was reinvested in the businessthrough exploration, development and plantexpenditure. Repayments on the company’s financing facility amounted to $19.9 million anddividend payments of $19.9 million were made to shareholders. The company had outstandingborrowings of $18.7 million (US$12.5 million) at the end of June 2003 and was in a net cash position of $10.2 million after cash at bank of $28.9 million is included.

An expansion to the Chatree plant was approvedduring the year and is currently under construction.The expansion will increase throughput byapproximately 50% to 1.8 million tonnes per year andis designed to maintain production levels in view offorecast declining ore grades. The expansion will costUS$8.1 million and is scheduled to be commissionedduring January 2004.

The company continued with its exploration activitiesduring the year and announced the first ore reservefor Prospect A, which is located approximately 1 kilometre from the Chatree mill. The identified OreReserve is 402,400 ounces of gold and raised thetotal company Ore Reserves to just under 1 millionounces of gold at June 2003. Significant explorationresults were also encountered in an extension to the H orebody. The extension is open along strike anddown dip and drilling is continuing. Mine plans arebeing developed to gain early access to this depositfor processing in the second half of calendar 2003.

The company is accelerating the exploration effortnear the mine site and in the region, which isconsidered to be highly prospective. Additional

Chairman’s and Managing Directors’ review


exploration licences have been applied for andKingsgate now controls approximately 1,200 squarekilometres of land along the geological structure. Theexploration budget and land acquisition program areunder review to ensure that appropriate commitmentsare made in this prospective region. The company isalso considering growth opportunities in other areas.

Kingsgate continued with its sustainability effortsduring the year and is a signatory to the AustralianMinerals Industry Code for EnvironmentalManagement. The first annual Sustainability Reporthas been issued in accordance with the Code. The company’s aim in environmental management and safety is to improve performance continuouslythrough implementation of appropriate managementprograms. Community relations near the mine site and engagement with other stakeholders remain anongoing commitment of the company.

Under the exemption granted to the company tooperate in Thailand, a majority interest in the Chatreeoperation must be owned by Thai nationals within 5 years of commencing production. The company is considering various options to achieve thisrequirement within the required timeframe. The final option adopted will be based on generatingthe maximum financial return to the company, while endeavouring to maintain management control of the operation.

Chairman’s and Managing Directors’ review

During the year, Mike Diemar retired as CEO andManaging Director of the company and the Boardexpresses its gratitude for his efforts in bringing theChatree deposit into production. Steve Reid joined theBoard as Managing Director and CEO in March 2003,having previously held the position of General ManagerBusiness Development.

The Directors would like to thank all employees fortheir efforts during the past year. That the companywas able to improve the efficiency of the operationsand generate these levels of production and profits is a notable achievement.

The Directors are confident that Kingsgate is well-positioned to progress its strategy for profitablegrowth with opportunities carefully monitored andevaluated. The outlook for next year is positive andcurrent expectations are for anticipated goldproduction of 125,000 ounces of gold at a cash cost of US$145 per ounce. Improvements to theseprojected outcomes are being targeted through a focus on cost and production initiatives and bypursuing short-term contributions from exploration,such as the H orebody extension.

Ross Smyth-Kirk Steve ReidChairman Managing Director

and CEO


Group earningsThe net profit after tax for the year was $47.3 millionand represents a 43% increase on the profit of $33.0million achieved in the previous year. The profit is equivalent to US$27.6 million and is in excess of the forecast of US$25.0 million indicated earlier in the year. The financial performance of the company represents the first full year of operation at the Chatree mine following commissioning of the operation in November 2001.

Gold production for the year was 154,484 ounces at a total cost of US$143 per ounce. Total revenueamounted to $94.6 million and is an increase of 67%over the previous year. The increased revenue resultsfrom higher production and an average realised priceof US$335 per ounce. While the average spot priceduring the year increased to US$332 per ounce,deliveries of gold into hedge positions resulted in the company achieving additional revenue ofapproximately $0.8 million.

The company continued with its focus on costmanagement and achieved unit cash costs ofproduction of US$94 per ounce, among the lowest in the industry. Procurement of supplies and servicesis increasingly being sourced within Thailand atinternationally competitive prices. With the benefit of the hedge program, the company achieved amargin of US$241 per ounce above its cash costsand a margin of US$192 per ounce above itsproduction costs.

The weighted average earnings per share for the yearamounted to 65.4 cents compared with 48.5 centsachieved in the previous year.

Group cash flowThe strong operational performance during the year isreflected in the net operating cash flow which totalled$56.9 million. Net investing cash flows for property,plant, equipment and exploration were $12.9 millionand included $7.5 million on exploration activities.Further funds were applied to providers of finance,through debt repayments of $19.9 million and toshareholders by dividend payments of $19.9 million.

The debt outstanding for the group at 30 June 2003was $18.7 million and is scheduled to be repaid in fullby September 2004. Cash on hand was $28.9 million,leaving a net cash balance on hand of $10.2 million.

Financial positionShareholders’ equity at 30 June was $73.3 million and represents an increase of 76% on the previousyear. The increase reflects principally the net profitgenerated during the year after allowance of $19.9million in dividend payments.

Income taxThe company’s operation is located in Thailand and operates under approvals from the Royal ThaiBoard of Investment. Benefits obtained under theapproval include an exemption from corporate income tax for eight years, with a reduction of 50% of the standard rate available for five years thereafter.In addition, there are no withholding taxes applicable on dividends remitted to Australia during the initialexemption period.

Finance


Risk managementThe company actively manages its exposure tomovements in the gold price and foreign currencyexchange rates through the use of hedginginstruments. The principal objective in managingrevenue risk is to minimise the downward priceexposure associated with volatile markets whileendeavouring as far as possible to preserve theopportunity to participate in upward price movements.The company constantly monitors the gold marketand hedge book to actively manage value. Financialinstruments used by the company include forwards,puts and calls, of which a number have down and outbarrier levels. A restructure of the hedge book wasundertaken on 8 July 2003 and reduced commitmentsby 14 % to 356,400 ounces of gold.

As of 8 July, the company has 425,800 ounces ofprice protecting and 356,400 ounces of price limitingpositions. The price limiting positions representapproximately 35% of the total ore reserves at 30June 2003. The mark to market valuation of thesepositions as at 30 June 2003 was an unrealized lossof $8.5 million, calculated by reference to the yearend gold spot price and exchange rate. This valuationis not an estimate of future hedging results as this willdepend on market conditions at the time of delivery.The company is managing the hedge book with a viewto providing greater spot price exposure in a risinggold price environment.

DividendsDividend policy is to pay out between one quarter and one half of profit after tax by means of dividends to shareholders, subject to cash requirements and the financial position of the company.

A final dividend of 15.0 cents per share was paid toshareholders during the year relating to the 2001/02year. In addition, an interim dividend for 2002/03 of12.5 cents per share was paid to shareholders in April2003. In view of the company’s strong operationalperformance during the year and the favourableoutlook, the Directors have declared a final dividend of 12.5 cents per share, payable on 1 October 2003.This brings the total dividend declared for the year to25 cents per share.

Finance


7 Finance

Operations THE CHATREE MINEperformed strongly in its first full year of operation. Gold production of

154,484 ounces wasachieved at a cash cost

of US$94 per ounce.Mine production was

escalated to meetincreased throughput

and waste strippingrequirements.

Process throughput was 32% above design capacity.

The excellent safety and environmental

performance continued.


Mining activities continued in Tawan pit throughout the year and commenced in the smaller Chantra pit inlate 2002. Total production was 638,000 bank cubicmetres (BCM) of ore and 1,758,000 BCM of waste.

Chatree entered into a new four year contract with the mining contractor, which commenced on 1 July 2003. This has enabled the contractor to invest in the equipment needed to expand the miningoperations and results in a reduction in unit rates for the company.

Additional mining equipment was mobilised to site to cater for higher plant throughput and increasingvolumes of waste. The mining fleet is now comprisedof new CAT 735 haul trucks and CAT 330 excavatorsand is adequate to maintain the ore feed to the mill asthe stripping ratio and plant capacity increase duringthe forthcoming year.

Production increased from 120,000 BCM per monthat the start of the year to 320,000 BCM per month at year end. It is anticipated that the annual miningrate will increase to more than 5 million BCM in thenew year. This quantity includes 2.0 million tonnes of ore, of which 1.5 million tonnes of ore will beprocessed during the year with the balance of the lowgrade added to the existing ore stockpiles.

The Chatree process plant continued to perform well and at throughput rates significantly in excess of design. The Stage I plant has a design capacity of 1 million tonnes per annum, however 1.32 milliontonnes were milled during the year.

These increased throughput rates resulted in areduction in Carbon-In-Leach (CIL) residence time.Consequently, in order to maintain gold recovery at an acceptable level, three CIL tanks were added to the original circuit of seven tanks. This constructioncommenced in August 2002 and the new tanks andservices were commissioned in December 2002.Gold recovery in excess of 90% was achievedthroughout the year despite the increased throughput.

In the latter half of 2002, site personnel began workon identifying the optimum milling capacity for theplant. The initial feasibility study had anticipated a Stage II milling capacity of 1.5 million tonnes perannum, however the new study indicated that 1.8 million tonnes per annum was appropriate. Thiswill be achieved by the addition of a new SAG mill andconversion of the existing SAG mill to ball mill duty.Two new CIL tanks will be installed in addition toexpanded cyanide reduction capacity and services tosupport this increased throughput. Construction workcommenced in April 2003 with commissioning of thenew mill to be carried out in January 2004. The cost of the plant expansion is estimated at US$8.1 million.

In 2002/2003, safety performance was far superiorto similar gold operations in Australia. More than 2.0 million hours were achieved without a lost timeinjury and the Lost Time Injury Frequency Ratio (LTIFR)was 1.1. This is significantly better than the industryaverage of 6.0 for Australian open cut mines (MineralsCouncil of Australia statistics). The 2 million hourrecord ended in January 2003 when a contractexploration driller injured his foot.

Operations

Ore Reserves as at 30 June 2003

Source Category Tonnes (M) Grade Contained Ounces Gold (g/t) Silver (g/t) Gold (kOz) Silver(kOz)

Tawan (CH) Proved 3.9 2.5 11 317 1,3381.0g/t cut-off grade Probable 2.7 2.4 10 209 849

Sub total 6.5 2.5 10 525 2,186Chantra (D) Proved 0.7 2.2 13 47 2781.0g/t cut-off grade Probable 0.0 1.3 9 0 1

Sub total 0.7 2.2 13 47 279Khao Mo (A Pit) Proved 4.3 1.8 19 244 2,5860.7g/t cutoff grade Probable 3.1 1.6 17 157 1,668

Sub total 7.4 1.7 18 401 4,254Total from pits Proved 8.8 1.8 15 607 4,202

Probable 5.7 2.0 14 366 2,517Total 14.6 2.1 14 973 6,719

Stockpiles 0.2 2.2 17 14 111Total including stockpiles 14.8 2.1 14 987 6,830


Information in this report that relates to resources and reserves was previouslyreported to ASX with permission of the nominated Competent Persons.

Information in this report which relates to geology, drilling and mineralisation isbased on information compiled by Ron James and Mike Garman, employees of the Kingsgate Group, who are Competent Persons under the meaning of theJORC Code with respect to the mineralisation being reported on. Both have given their consent for the Public Reporting of these statements concerning geology,drilling and mineralisation.

Criteria for remaining Ore Reserves– Pit designs optimised at USD300/ounce gold

for CH and D Pits– A Pit design based on USD330/ounce gold

Mineral Resources as at 30 June 2003 (>0.7 g/t Au)

Source Resources Tonnes (Mt) GradeGold (g/t) Silver (g/t)

On lease Measured 7.73 2.06 9.37Indicated 6.04 1.86 8.03Inferred 2.77 1.90 8.47

Sub total 16.54 1.96 8.73Prospect A Measured 5.30 1.61 16.85

Indicated 4.30 1.50 14.81Inferred 3.00 1.46 15.00

Sub total 12.60 1.54 15.71Total 29.14 1.78 11.75

Mineral Resourcesand Ore Reserves


Exploration and business development

AFTER adding 402,000ounces of gold in OreReserves at Prospect A, a strategic review of theexploration program wascarried out with a view torefocusing activities anddelivering immediatecontribution, replacement of reserves and futurecompany growth.


ExplorationProspect A is located one kilometre north of theexisting mining operation and was the focus ofexploration activities throughout most of the year. The mineralisation at Prospect A consists of lowsulphidation epithermal quartz carbonate stockworksand fault breccia fill similar to that at Chatree.

The company drilled over 250 holes, totalling morethan 26,000 metres and an ore reserve containing402,400 ounces was defined at Prospect A. Furtherdrilling is required to complete the infilling and toobtain a better understanding of the geology and the controls on the mineralisation.

Following the release of the Prospect A ore reserve, a strategic review of the exploration program wascarried out in the latter half of the year, with a view torefocusing activities and targeting specific outcomes.The review identified 3 components of the explorationprogram that will be pursued.

In the short term, targets that provide an immediatecontribution to the mill feed are being sought. As there is a certain lead-time associated with thepermitting of new discoveries, this activity will bynecessity be located within the existing mining lease.

In the medium term, the objective is to extend the lifeof the project by replacing those reserves depleted by mining and processing. Exploration targets in thiscategory are close to the mine-site and are covered by exploration tenements. The targets includeProspect A, for which Mining Lease Applications have been lodged.

In the long term, the future growth of the company is dependent upon the discovery of new deposits that may not necessarily be in the immediate vicinity of Chatree. These potential deposits are likely to be identified using the knowledge and understandinggained by mining the Chatree orebodies.

Immediate success was achieved in each componentof the new program.

At Prospect H in the Tawan Pit, the ore delineation was previously thought to end, but a high-gradeextension was discovered along strike in a south-westerly direction. Further drilling is required to definethe extent of this new discovery, but it will contributeto mill feed in the meantime.

In prospects surrounding the mining lease, severalsuccessful intersections were returned from drilling in Prospects A-East, B and K. These results werereported in the June 2003 quarterly report. Drilling is continuing to define the extent of these zones.

In its regional exploration, Kingsgate scaled up its efforts to reflect the long term prospectivity of the region and increased its exploration tenementholdings to approximately 1,200 square kilometres.Appropriate resourcing of the new program alsocommenced with the hiring of additional geologistsand preparation for geophysical surveying.

Consistent with its revised exploration programmeand on the back of its recent exploration successes,Kingsgate is pleased to announce the appointment of Dr Marcus Tomkinson to the newly createdcorporate position of General Manager Exploration.Following recent positions with AurionGold andNormandy, Dr Tomkinson brings the depth ofknowledge and expertise that is required to pursue the significant exploration potential of the tenementholdings in Thailand and to contribute to the growth of the company in other geographic regions.

Kingsgate holds a small exploration tenementapplication on the Wynberg property near Cloncurry in Queensland, which has been stalled since 1998because of the Native Title legislation in that state.During the year, impediments to the processing of the application were lifted and the process towardsgranting of the exploration permit commenced. The company is reviewing its position in regard to this property.

Business development Kingsgate is actively seeking to expand its operationalbase beyond the Chatree operation through theacquisition of appropriate, value-adding properties or companies.

Numerous evaluations have been carried out in thisregard and will continue.

Exploration and businessdevelopment


Sustainability

KINGSGATE believes that its ongoing successwill be measured on thebasis of the three pillars of sustainability, beingeconomic achievement,environmental performanceand social contribution and responsibility.


Kingsgate is committed to best practiceenvironmental management and has demonstrated this commitment by:

– Becoming a signatory to the Australian Minerals Industry Code for EnvironmentalManagement (2000).

– Implementing an Environmental ManagementSystem (EMS) based on ISO 14001, theinternational standard for such systems.

– Implementing world best practice in cyanidedestruction after extracting gold.

– Constructing a Tailings Storage Facility thatincorporates leading design features.

– Carrying out an extensive range of internal and independent external environmental auditing programs.

A safe and enjoyable working environment is aminimum requirement for all business activitiesconducted by the company. Kingsgate actively instills a culture of open communication and safe work practices into all employees through thedevelopment of site specific policies, codes,procedures and training.

Environmental Management System (EMS)Kingsgate delivers best practice environmentalmanagement at the Chatree gold mine through theimplementation of an Environmental ManagementSystem (EMS) based on ISO 14001, the internationalstandard for such systems. It describes controlstrategies for potential environmental impacts, while enabling continual improvement and theimplementation of best practice environmentalmanagement. It documents the organisationalstructure, responsibilities, practices, processes and resources for implementing and maintainingenvironmental management.

The operator of the mine is Akara Mining Limited, a wholly owned subsidiary of Kingsgate. Akara iscommitted to, and responsible for, environmentalconsiderations at all stages of Chatree gold mineplanning, from project initiation to decommissioning.

Initial environmental aspects and impacts relevant to Chatree were identified through an extensiveenvironmental impact assessment process. Thecontinual refinement of aspects and impacts isachieved by implementing a risk assessment andmanagement program, which is based on theAustralian Standard (AS/NZS 4360:1999) for riskmanagement. The program is delivered through

workshops to review and rank risks, interviews withkey personnel, and review by Kingsgate and AkaraMining Limited management.

Environmental Management Plan (EMP)A site specific Environmental Management Plan has been developed for Chatree. The EMP facilitatescompliance with relevant licenses, legislation and targets for operations at the site and wasimplemented during the first year of production. The plan was updated in 2003 to meet the needs of the processing plant expansion.

Specific procedures exist to aid the implementation of the EMP, such as revegetation trial procedures for the tailings storage facility and waste rockemplacement trials. A site specific environmentalmonitoring manual also exists to help the localenvironmental team monitor the performance of environmental management programs.

Responsibilities, objectives and targetsThe implementation and overall management ofenvironmental issues at Chatree is undertaken by the on-site environmental team under the supervisionof the General Manager and with the assistance of environmental consultants. Objectives and targetsare set to ensure compliance with licence conditionsand to drive continuous improvement of environmentalmanagement at the mine. Targets are set by localmanagement in consultation with senior managementfrom Kingsgate and Akara Mining Limited. Review ofobjectives and targets is conducted on an annualbasis upon completion of the Chatree environmentalmonitoring report.

Monthly reports are provided to the Chatree GeneralManager and the Kingsgate Board of Directors to ensure regular review and assessment of potential environmental impacts and environmentalmanagement strategies. Further checks and balances are employed by the Kingsgate Board bycommissioning an annual independent externalenvironmental audit of the Chatree operations.

Environmental trainingAkara Mining Limited is committed to active, effectiveand dynamic employee workplace training and self-advancement programs to ensure the highestpossible standards in environmental management.Training involves a combination of in-houseenvironmental awareness workshops for all personnel, ongoing training on-site of environmentalpersonnel by local and foreign consultants, and off-site training for environmental personnel atconferences and workshops.

Sustainability

Sustainability


Continuous improvement programsContinuous improvement is driven by a corporate and staff awareness of environmental responsibilities.Identification of areas where improvement can occuris carried out through a corporate and site basedmonthly and annual review of environmentalmonitoring results and environmental managementprograms. Where an immediate response is required,management directives are made to the appropriatedepartment. Longer term improvement programs are documented in an annual site environmentalimprovement plan.

Environmental auditing and reviewEnvironmental reviews and independent auditing areregarded by Kingsgate as key feedback and qualitycontrol mechanisms that facilitate continualimprovement of environmental managementprograms and systems.

The first major review of the environmentalmanagement program was conducted duringDecember 2002, when results from the first full year of monitoring were analysed in the first annualenvironmental monitoring report. The reviewconsisted of an assessment of compliance withlicence requirements and the practicality, relevanceand performance of specific environmentalmanagement strategies. The information obtainedfrom the review is used to set targets for the followingyear and where necessary to make adjustments to the environmental management program. This type of review will be conducted on an annualbasis at the end of each calendar year.

Other mechanisms for environmental performanceassessment are through:

– Internal and external environmental audits.

– Monthly review of environmental monitoring resultsby the Chatree environmental management team.Results of the review are reported to the KingsgateBoard of Directors in the monthly report.

– Environmental incident reporting.

– Communication with stakeholders and maintenanceof a complaints register.

Environmental auditing of Chatree is conducted toassess compliance with licence conditions, relevantlegislation, EMS objectives and best practiceenvironmental management. The auditing program is based on regular internal and externalenvironmental audits.

5 Sustainability


Sustainability

The first review of the Chatree EMS was undertakenduring 2003 to ensure suitability and effectiveness of the system. Subsequent reviews will be conductedon an annual basis, with planned improvements to be included in annual site environmentalimprovement plans.

As a further commitment to world’s best practice,external accreditation of the EMS will be sought during late 2003. This will represent anothersignificant milestone for the mine on top of the already accredited Quality Assurance System underthe ISO 9001.

The environmental audit program is summarised in the table below.

Environmental audit program for the Chatree gold mine

Audit type Audit scope Auditor Frequency

Internal environmental Compliance with Chatree Environmental Quarterly and annuallyaudit environmental Coordinator

management objectives and plans

External environmental Compliance with license Independent Australian Annualcompliance audit conditions, applicable environmental consultant

laws in Thailand and the Chatree gold mine Environmental Policy

Minerals Council Compliance with the Code Independent Australian Annualof Australia for Environmental environmental consultant

ManagementISO 14001 Compliance of the External certification Late 2003, certification audit Chatree gold mine EMS body then as required to

with ISO 14001 meet certification


People and culture

PEOPLE Only through our people can we achieve our goal of developing and operating high qualitymineral resource projects. We will employ and retainhighly skilled people and are committed to theircontinued development, safety and well-being.

CULTURE As aforeign company,working in Asiarequires respectfor other cultures,the developmentof beneficialrelationships,technicalexcellence and a long-termperspective.


PeopleKingsgate believes that good, open, harmoniousrelationships in the workplace are conducive to highlevels of employee satisfaction, productivity andquality workmanship. To facilitate such relationships,several employee relations policies are implementedat the Chatree gold mine, including the Open Door Policy, Employee Relations Policy, EmployeeCommittee Policy, Regular Meetings Policy and theHarassment Policy. In recognition of these policiesand its work with employees, the Chatree minerecently received the 2003 Prime Minister’s ‘BestPractice Award for Employee Welfare’ for theproduction and construction industry.

Chatree management encourages participation inemployee functions and provides support for a localsoccer competition on the soccer pitch built by themine. A tennis court with lights has also been built by the mine and is available for use by the employeesand members of the local community. The Chatreegold mine Social Club also runs employee functionswith money raised from recycling. Where possible,local community members are employed and localcontractors are commissioned to undertake work at Chatree or exploration on the company’sexploration tenements.

Safety performanceAll staff and contractors undergo the Site Safety &Environment Induction before working at Chatree. The induction introduces new staff and contractors to their responsibilities regarding the environment andsafety for themselves and others while working at thesite. All employees are re-inducted on an annual basisand undergo further training in relation to their specificoccupations on the site. Visitors to the mine undergo a separate induction that covers all relevant aspectsof the environment and safety.

Emergency responseChatree management advocates a pro-activeapproach to managing emergencies. This isdemonstrated by the formation of an EmergencyResponse Unit which is represented by members of each department at the mine, who are trained in the relevant procedures. The skills developed within the Unit are made available to the localcommunities through co-ordination with theappropriate provincial authorities.

Training and developmentKingsgate recognises the important role an ongoingenvironmental training program plays in continuousimprovement. As such, an extensive environmentaltraining program has been developed andimplemented at Chatree.

The environmental training program is in itsdevelopmental stages, but has two main components.The first is a training program for the on-siteenvironmental team. Ongoing training is provided byenvironmental consultants through scheduled sitevisits, review of outputs and regular contact throughvarious communication channels. Additionally, in 2003 the environmental team has undergoneextensive on-site training for the implementation of the Environmental Management System under ISO 14001 by a local consultant. The EnvironmentalCoordinator also attended an environmentalconference in Australia during 2003 as part of herprofessional development.

The second component was initiated during 2003 andinvolves environmental training given to employeesand contractors. The program relates to promotingstaff awareness of the Chatree EnvironmentalManagement System, as well as providing training on the specific environmental management needs oftheir department. This includes cyanide safety trainingand emergency response plan training.

This process of training and follow-up assessmentencourages an ongoing staff commitment toenvironmental performance, which will invariably lead to continual improvement of environmentalmanagement. The target is to achieve training of allstaff and contractors working on the Chatree goldmine. This has been achieved for cyanide safetytraining and emergency response training.

People and culture


CommunityChatree has a positive social impact on the local and regional community. It provides a range ofopportunities for direct and indirect employment,increased access to health and education,construction of roads and water deliveryinfrastructure, sporting infrastructure, and financialcontributions to local communities through religiouscentres and sporting events.

Kingsgate recognises the important role of religion inthe local community and provides support to assistwith religious programs and for up-keep of temples.

The relationship with the local community is perceivedby Kingsgate to be the responsibility of all employees.This is reinforced in the Chatree gold mine Code ofConduct, which is provided to all employees andcontractors upon commencing employment.

The principal responsibility for communityrelationships is held with the Personnel and Co-ordination Superintendent. The Superintendent is theprimary point of contact for all stakeholderconsultation and liaison at a local and regional level.Where appropriate, he is joined by staff from theChatree gold mine, including the EnvironmentalCoordinator. Networking with the local communityincludes the facilitation of meetings and socialfunctions with community leaders, where the purposeof the function is to provide a forum where communityissues can be heard.

Kingsgate aims to continue stakeholder engagementand seek input from the community regardinginitiatives for social and community issues.

People and culture


19 Finance

Corporate governance

KINGSGATE believes that theadoption of good corporate

governance practices will not only assist it in competing

globally, but will also facilitate the achievement of shareholder value and

promote investor confidence.

Name Appointed Non-executive Independent Retiring in 2003 Seeking re-election

in 2003Ross Smyth-Kirk 1994 Yes Yes No NoSteve Reid 2003 No No Yes YesJohn Falconer 1995 Yes Yes No NoPeter McAleer 2000 Yes Yes Yes YesJohn Shaw 2000 Yes Yes No No


This Corporate Governance statement outlines the key components of Kingsgate’sgovernance framework.

ShareholdersShareholders play an important part in the governanceof the group by electing the Board, whose task it is to govern on their behalf. In carrying out this role, the Board recognises that shareholders must receivetimely and relevant information of the higheststandard. The Board oversees the protocols forinvestor and media relations with a view to facilitatingan efficient, competitive and informed market.

Kingsgate is a publicly listed entity on the AustralianStock Exchange and is subject to continuousdisclosure obligations. In general terms, theseobligations require the company to notify the marketimmediately of any information which a reasonableperson would expect to have a material effect on, orlead to a substantial movement in, the price or valueof its securities.

In order to meet these objectives and satisfyregulatory requirements, the Board providesinformation to shareholders and the market in several ways:

– Significant announcements are released directly to the market via the Australian Stock Exchange and are placed on the company web site.

– The Kingsgate web site (www.kingsgate.com.au)contains further information about the group and its activities, including Annual, Interim and QuarterlyReports, and media presentations.

– From time to time, investment briefings areconducted in order to promote a betterunderstanding of the group.

– Site visits are also arranged to give those who advise investors a better understanding of the group’s operating facilities and exploration prospects.

– The Annual General Meeting provides an opportunity for the Board to communicate withinvestors directly.

Composition of the Board of DirectorsUnder the Corporations Act 2001, the minimumnumber of Directors the company must have is three,two of whom must ordinarily reside in Australia.

The Board currently has five members – four non-executive Directors, including the Chairman, and one executive Director, Steve Reid.

Since the previous annual report, Steve Reid wasappointed as Managing Director, replacing MikeDiemar, who resigned on 14 February 2003.

The names of the Directors in office and their relevant details are outlined in the table above.

The qualifications of the current Directors are as follows:

Ross Smyth-KirkB Com, CPA, ASIA Age: 56Ross Smyth-Kirk was a founding Director of the formerleading investment management company, ClaytonRobard Management Limited and has had extensiveexperience over a number of years in investmentmanagement including a close involvement with theminerals and mining sectors. He was appointed to theBoard on 29 November 1994 and has been a Directorof a number of companies over the past 25 years.

ResponsibilitiesChairman of the Board, member of the AuditCommittee and Chairman of the RemunerationCommittee and Nomination Committee.



John FalconerFCA, ASIAAge: 55John Falconer is a Fellow of the Institute of CharteredAccountants in Australia and an Associate of theSecurities Institute of Australia. He is principal ofCarbone Falconer & Co, a firm of CharteredAccountants practising in Sydney, whose client baseincludes small publicly listed companies as well as anumber of successful family businesses.

ResponsibilitiesCompany Secretary, Chairman of the Audit Committeeand member of the Remuneration Committee andNomination Committee.

John ShawBSc, F AusIMM, MCIM, FAICD, AIMEAge: 63John Shaw, a geological engineer, was formerly aDirector of AurionGold Limited and was Chairman ofZimbabwe Platinum Mines Limited until March 2001.He has more than forty years experience in fourcountries in building and operating both open cut andunderground mines for gold, silver, tungsten andcopper. He is Chairman of Lodestone ExplorationLimited and was, until his retirement three years ago,Vice-President of Australian Operations for PlacerDome Asia Pacific as well as Managing Director ofKidston Gold Mines Limited.

ResponsibilitiesMember of the Audit Committee, RemunerationCommittee and Nomination Committee.

Peter McAleerB Com (Hons), B L (Kings Inns – Dublin – Ireland)Age: 60Peter McAleer is Chairman of Westmag Limited and a Director of Kenmare Resources Plc (Ireland).Previously, he was a Director and Chief ExecutiveOfficer of Equatorial Mining Limited and a Director ofMineral El Tesoro (Chile). He has been an ExecutiveDirector of Whim Creek Consolidated NL, AustwhimResources NL and The Northgate Group of Companies(Canada). He has been involved in the discovery,and/or successful development, of over 10 base and precious metal deposits in Europe, Australia,South America and North America.

ResponsibilitiesMember of the Remuneration Committee andNomination Committee.

Steve ReidBAppSc Min Eng, F AusIMM, MCIM, AIMEAge: 47Steve Reid was appointed to the Board as ManagingDirector and Chief Executive Officer on 25 March 2003,having previously been General Manager BusinessDevelopment. Steve is a mining engineer with 26 yearsexperience in the operating and business aspects of themining industry in Australia and overseas, including PNG,Indonesia, Philippines, Canada and South Africa. He wasformerly responsible for operations at Newcrest MiningLimited, prior to which he spent 12 years with PlacerDome Inc. He has held senior management positions in themining industry, principally in the gold and copper sector.

ResponsibilitiesManaging Director and CEO.

Corporategovernance


Directors have a broad range of business, financial, technical and international experience. This experience gives the Directors the range of skills, knowledge, and experience necessary togovern the group, including an understanding of the health, safety, environmental and community-related issues that it faces.

Directors are not appointed for a fixed term but aresubject to re-election by shareholders, at least everythree years, in accordance with the Constitution of the company. Shareholders are also required to ratify,at the next annual general meeting, the appointmentof any Director appointed throughout the year to fill a vacancy. At the 2003 Annual General Meeting,shareholders will be asked to ratify the appointment of Mr Steve Reid, who was appointed in March 2003.The Managing Director is not subject to re-election by rotation.

The Board’s Nomination Committee is responsible forconsidering the re-nomination of retiring Directors,having regard to the contribution of their skills andexperience to the desired composition of the Board.

Independence of non-executive DirectorsThe Board has considered the independence of thefour non-executive Directors and considers all of themto be independent.

It is noted that Ross Smyth-Kirk is a substantialshareholder in the company. However, he has neverbeen an employee, nor does he participate in anexecutive capacity in the affairs of the company. It is also noted that John Falconer has, in the past,provided management services to the companythrough his firm, although these are not considered to be material in nature. As such, the Board considersall non-executive Directors to be independent ofmanagement and free from any business or otherrelationships that could materially interfere with theexercise of their independent judgment.

Role of the BoardThe company’s Board of Directors is accountable toshareholders for the proper and prudent investmentand preservation of shareholder funds. The roles ofChairman and Chief Executive Officer are separatedand clearly defined. The Chairman leads the Board and is responsible for ensuring the effectiveness ofgovernance practices. He is also responsible for theconduct of Board and shareholder meetings.

Responsibility for the operations of the company isdelegated to the Chief Executive Officer who managesthe company within the policies set by the Board ofDirectors. The levels of authority for management arealso documented.

The Board has also delegated some of itsresponsibilities to committees. Directors have the right, in connection with their duties andresponsibilities as Directors, to seek independentprofessional advice at the company’s expense. Prior written approval of the Chairman is required,which will not be unreasonably withheld. A copy of the advice is to be provided to all Directors.

There are a number of matters that the Board isspecifically responsible for. These include setting thestrategic direction of the company, the appointment of key senior executives, approval of the financialaccounts and environmental reports, approval offinancial policies and the budget, and overall review of operating results, risk management, remunerationlevels, succession planning and significant capitalexpenditure. The Board is also responsible forappointment of the external auditors.

Board meetingsThere are 11 scheduled Board meetings each yearwith further ad hoc meetings held as and whenrequired. The Board combines a visit to the Chatreegold mine with a Board meeting on approximatelythree occasions each year. Individual Directors areencouraged to visit the mine at their discretion.

Corporategovernance


The Board receives monthly reports on the group’sactivities and undertakes a full review of them whensetting the annual budgets and approving strategicplans for future years. In addition, the Board receivesspecific reports and presentations on items of specialinterest either on a regular basis or as requested.Briefings by senior management are a requirement at Board meetings.

Audit CommitteeThe Board has established an Audit Committee, whichis comprised entirely of independent Non-ExecutiveDirectors. The Committee is chaired by John Falconer,the other members being Ross Smyth-Kirk and John Shaw.

All other members of the Board are invited to attendthe Audit Committee meetings. In addition, the ChiefFinancial Officer and the partner responsible for thecompany’s external audit attend the meetings.

The Audit Committee’s primary functions are to:

– Review the financial information provided by theBoard to shareholders and other parties and ensurethat it is true and fair and complies with relevantaccounting standards;

– Ensure that corporate risk management policies and internal controls are in place and are maintainedin accordance with appropriate standards andstatutory requirements;

– Oversee and evaluate the quality of the auditsconducted by the external auditors;

– Provide for open communication between theexternal auditors and the Board for the exchange of views and information; and

– Recommend to the Board the nomination andremuneration of the external auditors and ensuretheir independence and integrity.

As appropriate, the Committee reports to the Board on all matters relating to the company’sfinancial affairs.

The Board has adopted a policy relating to auditorindependence. The policy requires the externalauditors to confirm that they have maintained theirindependence in accordance with the CorporationsAct 2001 and the rules of professional accountingbodies. The policy also specifies obligations regardingemployment relationships, financial relationships and provision of non-audit services by the auditors. In particular, management consultancy, IT implementation and specialist internal audit workwill not be performed by the external auditor.

Nomination CommitteeThe Nomination Committee is comprised ofindependent non-executive Directors, with RossSmyth-Kirk as Chairman and John Falconer, John Shaw and Peter McAleer as members.

The Nomination Committee supports and advises the Board in fulfilling its responsibility to ensure that itcomprises individuals who are best able to dischargethe responsibilities of Directors, having regard to thelaw and the highest standards of governance, by:

– Assessing the skills required on the Board;

– Reviewing the structure, size and composition of the Board;

– From time to time assessing the extent to which the required skills are represented on the Board and ensuring appropriate succession planning is in place;

– Establishing processes for the review of theperformance of individual Directors and the Board as a whole; and

– Establishing processes for the identification ofsuitable candidates for appointment to the Board.

Corporategovernance



When a Board vacancy exists or where it is consideredthat a Director with particular skills or experience isrequired, the Board selects a panel of candidates withthe appropriate expertise and experience from whichthe most suitable candidate is appointed on merit.This ensures that the Board continues to have anappropriate balance of skills and experience.

Remuneration CommitteeThe Remuneration Committee is comprised ofindependent non-executive Directors, with RossSmyth-Kirk as Chairman and John Falconer, John Shawand Peter McAleer as members. The Committee hasthe right to seek any information it considersnecessary to fulfil its duties, including the right toobtain appropriate external advice at the group’sexpense.

The Remuneration Committee supports and advisesthe Board in fulfilling its responsibilities toshareholders by:

– Recommending to the Board, with the ChiefExecutive Officer, an appropriate executiveremuneration policy;

– Determining the remuneration of executive Directors;

– Reviewing and approving the remuneration of thosereporting directly to the Chief Executive Officer, and other senior executives, as appropriate; and

– Reviewing all equity-based plans for approval by the Board.

Share ownership and dealingDirectors and Officers who wish to buy or sellcompany shares are required to notify the Chairmanprior to dealing in such shares. Directors and Officersare prohibited from short-term trading of thecompany’s shares or trading shares while inpossession of price sensitive information. Subject to the foregoing, Directors and Officers may buy orsell shares in the company in the four week periodfollowing significant announcements by the company,including the release of the quarterly report, halfyearly results, the preliminary annual results and the lodgment of the annual report. At all other times the Board must receive prior notice of transactions, which are subject to Board veto.

Any dealings in Kingsgate shares are reported to the Board at its next meeting. The Australian StockExchange is notified of any share dealing by Directorswithin the applicable time limit of 5 days.

Internal control and risk managementThe Board has overall responsibility for the group’ssystems of internal control. These systems aredesigned to ensure effective and efficient operations,including financial reporting and compliance with lawsand regulations, with a view to managing the risk offailure to achieve business objectives. It must berecognised that internal control systems can provideonly reasonable and not absolute assurance againstthe risk of material loss.

Areas of operational and financial risks are regularlyreviewed by the Board and appropriate riskmanagement strategies considered. The risk, controland reporting profiles are evaluated and presented tothe Board, together with a risk improvement programdesigned to improve controls and better manage theoverall level of risk. The company has implementedISO 9001: 2000 on Quality Control and isimplementing ISO 14001 on Environmental mattersand ISO 18001 on Occupational Health and Safety.

p24

Corporategovernance

Kingsgate actively manages its exposure tomovements in the gold price and foreign currencyexchange rates through the use of hedginginstruments. The principal objective in managingrevenue risk is to minimise the downward priceexposure associated with volatile markets whileendeavouring as far as possible to preserve theopportunity to participate in upward price movements.

Regular reports are provided to the Board in the areasof financial exposures, health, safety andenvironmental matters.

Kingsgate also operates a company-wide riskmanagement program which provides a systematicapproach to assessing and addressing its risks. Thisprogram complements and strengthens other existingrisk management initiatives. It aims to improve thecompany’s bottom line through reduced loss andbetter management of retained risk, and throughreduced insurance premiums. Major proposalssubmitted to the Board for consideration must beaccompanied by a comprehensive risk assessmentand management’s proposed mitigation strategies.

Social and environmental responsibilityKingsgate is committed to meeting high standards ofcompliance with respect to its health, safety,environmental and community responsibilities asthese are integral to the way in which the groupconducts its business.

Kingsgate is subject to significant environmentalregulation with respect to its exploration and miningactivities and is a signatory to the Australian MineralsIndustry Code for Environmental Management. Thecompany has continued the process of developingeffective Environmental Management Systems (EMS)aligned with ISO 14001.

Reviews of the company’s environmental performancehave included:

– External regulatory inspections at the operating site and exploration areas;

– Internal area inspections at these operations; and

– An annual review of these sites by an externalconsultant.

In accordance with the Code, a Sustainability Report is issued by the group on an annual basiscovering the areas of health, safety, environmentaland community responsibilities, with the first reportcompleted in 2003.

Kingsgate Code of ConductThe group has established a Code of Conduct which provides an ethical and legal framework for all employees in the conduct of Kingsgate’s business.The Code of Conduct defines how Kingsgate relates to its customers, employees, shareholders and thecommunity in which it operates.

The underlying principles of the Code are the values of integrity, respect, trust and openness. The Codeprovides clear directions on conducting businessinternationally, interacting with governments,communities and business partners and generalworkplace behaviour. The Code provides a commonbehavioural framework for all employees in thecontext of a wide range of ethical and legal issues.Employees are encouraged to take responsibility fortheir actions, achieve high performance, deliver oncommitments and earn the trust of those with whomthey interact.

The group has also adopted the Code of Conduct for Chief Financial Officers developed by the Group of 100.

Kingsgate annual report p25


Directors’ report

DIRECTORS’ REPORTfor the year ended

30 June 2003.


Steve Reid was appointed as Managing Director andCEO on 25 March 2003 and Mike Diemar resigned as a Director on 14 February 2003.

Information on Directors is contained on pages 20 to 22 of this Annual Report.

Principal activitiesDuring the year the principal continuing activity ofKingsgate Consolidated Limited was mineralexploration and mining. There have been no othersignificant changes in the principal activities of thecompany during the financial year.

Directors’ report

Your Directors present their report on theconsolidated entity consisting of KingsgateConsolidated Limited and the entities it controlled atthe end of, or during the year ended 30 June 2003.

DirectorsThe following persons were Directors of KingsgateConsolidated Limited during the whole of the financialyear and up to the date of this report:

Ross Smyth-Kirk(Chairman)John Falconer(Company Secretary)John ShawPeter McAleer

DividendsDividends paid to members during the financial year were as follows:

2003 2002($’000) ($’000)

Final dividend for the year ended 30 June 2002 of 10,820 –15 cents (2002-nil) per share paid on 28 October 2002Interim dividend of 12.5 cents (2002-nil) per share 9,107 –paid on 3 April 2003Total dividend payment 19,927 –

In addition, since the end of the financial year, the Directors have recommended the payment of a final dividend of $9,109,000 (12.5 cents per share) to be paid on 1 October 2003 in respect of the year ended 30 June 2003.


Except for the above, no other matter orcircumstance has arisen since 30 June 2003 that hassignificantly affected, or may significantly affect:

A. The consolidated entity’s operations in futurefinancial years, or

B. The results of those operations in future financialyears, or

C. The consolidated entity’s state of affairs in futurefinancial years.

Likely developments and expected results of operations The likely developments of the consolidated entity in the subsequent financial year include thecontinuation of mining operations at the Chatree Gold Mine, a plant expansion to increase throughputand further mineral exploration.

Additional comments on expected results of certain of the operations of the consolidated entity areincluded in this report under the review of operations.

Further information on likely developments in the operations of the consolidated entity and the expected results of operations have not been included in this report because the Directors believe it would be likely to result in unreasonable prejudice to the consolidated entity.

Directors’ report

Review of operations and resultsA review of Kingsgate Consolidated Limited’soperations and the results for the financial year ended 30 June 2003 is set out on pages 3 to 8 of this Annual Report.

Earnings per share

2003 2002cents cents

Basic earnings per share 65.4 48.5Diluted earnings per share 65.3 45.9

Significant change in the state of affairsThere were no significant changes in the state ofaffairs of the consolidated entity that occurred duringthe financial year not otherwise disclosed in this reportor the consolidated financial statements.

Matters subsequent to the end of the financial yearOn 20 August 2003, the Directors of the consolidatedentity declared an unfranked final dividend of 12.5cents per share to be paid on 1 October 2003.

On 8 July 2003, Kingsgate completed a restructure of the company’s hedge book, availing itself of thefavourable Australian dollar gold price and interestrates. Hedge commitments have been reduced by14%, from 414,000 ounces to 356,400 ounces ofgold with the strike prices on committed ouncesreduced marginally.

Directors’ attendance at meetings (1 July 2002 to 30 June 2003)

Appointed Independent Board Audit CommitteeHeld1 Attended Held Attended

Ross Smyth-Kirk 1994 Yes 12 12 2 2Steve Reid2 2003 No 4 4 – –John Falconer 1995 Yes 12 12 2 2Peter McAleer 2000 Yes 12 12 – –John Shaw 2000 Yes 12 12 – –Mike Diemar3 7 7 – –

1 Reflects the number of meetings held during the time the Director held office during the year.2 Steve Reid was appointed to the Board on 25 March 2003.3 Mike Diemar resigned as a Director on 14 February 2003.


Directors’ attendance at meetings (1 July 2002 to 30 June 2003)During the financial year, 12 Board meetings and 2 Audit Committee meetings were held. The table opposite shows information on Boardmembers and their attendance (including attendance by telecommunication) at Board and Audit Committee meetings during the year.

Directors’ shareholdings in KingsgateDirectors’ shareholdings in Kingsgate at the date of this report are as follows:

Options SharesRoss Smyth-Kirk 150,000 4,093,932Steve Reid 167,000 –John Falconer – 144,333Peter McAleer 100,000 280,000John Shaw – 111,666

The Directors have no beneficial interests in any of Kingsgate’s subsidiaries. Of the options issued to Steve Reid, 150,000 are subject to shareholderapproval at the Annual General Meeting.

Non-executive Directors’ feesThe aggregate remuneration of Directors is set byshareholders in general meeting, in accordance with the Constitution of the company, with individualDirector’s remuneration determined by the Boardwithin the aggregate total. In determining the level of fees, data from surveys undertaken by outsideconsultants is taken into account. The aggregateamount of Directors’ fees approved by shareholders in November 2000 is $150,000.

Fees paid to any executive while serving on a non-group company Board are paid to the benefit of the company.

Kingsgate Employee Option PlanShareholder approval was obtained at the AnnualGeneral Meeting in November 2001 for theestablishment of the Employee Option Plan 2001.

The Option Plan provides a remuneration elementdesigned to enable the company to attract and retainkey employees and ensures that their interests arealigned with those of shareholders. The Option Planprovides for the issue of 2,500,000 options toemployees and contractors of the company tosubscribe for up to 2,500,000 ordinary shares of the company. Options will lapse if not exercised by the expiry date, which is 3 years from date of issue. A similar employee plan for 500,000 options wasestablished in 1998.

There have been 1,347,000 options issued toemployees to date in accordance with the aboveplans. Of these, 117,000 options issued toemployees remained outstanding at 30 June 2003,representing less than 0.2% of the total shares onissue. All options under the 1998 plan have beenissued and unissued options under the 2001 plan at 30 June 2003 amount to 1,653,000.

Issue of options during the financial yearShareholder approval was obtained at the AnnualGeneral Meeting in November 2001 for the issue ofshare options to Directors. There were 250,000options issued to Directors that remained outstandingat 30 June 2003, representing approximately 0.4% of the total shares on issue. A further 150,000options with an exercise price of $3.74 per sharehave been issued to the Managing Director and aresubject to shareholder approval at the annual generalmeeting in October 2003.

Directors’ report

Shares under optionUnissued shares of the company under option at thedate of this report are set out in the table below.

No option holder has the right under the options toparticipate in any other share issue of the company or of any other entity.

Shares issued on the exercise of optionsThe following ordinary shares of KingsgateConsolidated Limited were issued during the yearended 30 June 2003 on the exercise of optionsgranted under the Kingsgate Consolidated LimitedEmployee Option Plan. No further shares have beenissued since that date. No amounts are unpaid on anyof the shares.

Date options Issue price Number of granted of shares shares issued23 December 1999 $0.81 43,0007 May 2002 $2.21 964,00011 July 2002 $2.66 13,000

1,020,000

There were 200,000 options exercised by Directorsduring the financial year and at 30 June 2003,Directors’ options outstanding were 250,000 at a strike price of $1.48.

Directors’ and officers’ emolumentsThe company's policy for determining the nature andamount of emoluments of Board members and seniorexecutives of the company is set by the Board’sRemuneration Committee. The Committee makesrecommendations to the Board concerning theremuneration of executive and non-executive Directorshaving regard to the company's stage of development,remuneration in the industry and performance.


ASIC guidelines require that a valuation of optionsissued to executives under the company’s incentiveplans be provided. Given the share trading restrictionsapplied internally to employees, no single method ofvaluation is considered appropriate. Kingsgate hasused an option pricing model which takes account offactors such as the option exercise price, the currentlevel and volatility of the underlying share price and the time to maturity of the option.

Full details of the Employee Option Plan are disclosedin the Share Option Plan rules which were approved byshareholders in November 2001, a copy of which canbe obtained from the company.

Share options granted to Directors and the most highly remunerated officersOptions over unissued ordinary shares of KingsgateConsolidated Limited granted during or since the end of the financial year to any of the Directors or the5 most highly remunerated officers of the company as part of their remuneration were as follows:

Directors Options grantedMr S Reid 150,000Other executives of Kingsgate Consolidated Limited Options grantedMr S Reid 30,000Mr N Lenahan 50,000

The options issued to other executives were grantedunder the Kingsgate Consolidated Limited EmployeeOption Plan.

Options issued to employees during the year were55,000 at a strike price of $2.66 and 50,000 at astrike price of $4.44 per share.

Directors’ report

Unissued shares of the company under option at the date of this report

Date options granted Expiry date Exercise price Number of optionsof shares outstanding

28 November 2001 28 November 2004 $1.48 250,0007 May 2002 7 May 2005 $2.21 25,00011 July 2002 11 July 2005 $2.66 42,0005 February 2003 5 February 2006 $4.44 50,0001 April 2003 1 April 2008 $3.74 150,000

517,000


Directors’ report

Directors ($)

Parent Entity Salary Director's fees Superannuation Other benefits Options TotalMr M Diemar 320,000 – 26,266 15,810 – 362,076Mr R Smyth-Kirk – 60,000 5,400 – – 65,400Mr J Shaw – 40,000 3,600 – – 43,600Mr S Reid 81,875 - 5,625 – 8,677 96,177

Other executives of the company ($)

Salary Motor vehicle Superannuation Other benefits Options TotalMr S Reid 144,375 – 16,875 – 11,433 172,683Mr N Lenahan 95,000 – 17,500 5,270 12,873 130,643

Other executive of the consolidated entity ($)

Salary Motor vehicle Superannuation Other benefits TotalMr S Udompornwirat 100,947 1,634 6,057 577 109,215

‘Other executives’ are officers who are involved in, concerned in, or who take part in, the management of the affairs of the consolidated entity.

The emoluments of each Director are shown in thetable below. In addition, the following amounts werepaid to Directors’ related entities: Accounting,secretarial and taxation service fees of $40,000(2002 – $35,000) were paid or payable to Carbone

Falconer & Co, Chartered Accountants, of which John Falconer is the principal. Consulting fees of$40,000 (2002 – $35,000) were paid or payable toNorwest Mining Consultants Ltd, of which P McAleer is an officer and Director.


Directors’ interest in contractsNo material contracts involving Directors’ interestswere entered into since the end of the previousfinancial year or existed at the end of the financial year other than the transactions detailed in the note to the accounts.

Insurance of officersDuring the financial year, the company paid premiumsto insure Directors and officers of the company. The contracts include a prohibition on disclosure ofthe premium paid and nature of the liabilities coveredunder the policy.

Environmental regulationsThe company is subject to environmental regulationwith respect to its gold mining operations in Thailand.For the year ended 30 June 2003, the consolidatedentity has operated within all Thai environmental laws and there were no known contraventions at thedate of this report. The performance in respect ofenvironmental regulations is discussed on pages 13 to 15 of this annual report and the company alsoissues a Sustainability Report.

Proceedings on behalf of the companyNo person has applied to the Court under section 237of the Corporations Act 2001 for leave to bringproceedings on behalf of the company, or to intervenein any proceedings to which the company is a party,for the purpose of taking responsibility on behalf of thecompany for all or part of those proceedings.

Directors’ report

No proceedings have been brought or intervened in on behalf of the company with leave of the Court under section 237 of the Corporations Act 2001.

Rounding of amountsThe company is of a kind referred to in Class Order 98/0100, issued by the Australian Securitiesand Investments Commission, relating to the ‘rounding off’ of amounts in the Directors’ report.Amounts in the Directors’ report have been roundedoff in accordance with that Class Order to the nearest thousand dollars, or in certain cases, to the nearest dollar.

AuditorPricewaterhouseCoopers continues in office inaccordance with section 327 of the Corporations Act 2001.

This report is made in accordance with a resolution of the Directors.

R Smyth-KirkDirector

Sydney28 August 2003


33

Consolidated statements

KINGSGATEachieved earningsof 65.4 cents per share and paid totaldividends for theyear of 25 centsper share.


Consolidatedstatements

Consolidated statement of financial performance For the year ended 30 June 2003

Notes 2003 2002 ($’000) ($’000)

Revenue from ordinary activities 3 94,647 56,506

Changes in inventories of finished goods and work in progress (998) 4,732

Direct costs of mining and processing (23,539) (12,193)

Rehabilitation expenses (392) (151)

Employee benefits expense (3,536) (2,073)

Depreciation and amortisation expenses (13,293) (8,620)

Borrowing costs expense (2,003) (2,566)

Foreign exchange losses (4) (131)

Other expenses from ordinary activities (3,559) (2,092)

Profit from ordinary activities before income tax expense 47,323 33,412

Income tax expense – (390)

Profit from ordinary activities after related income tax expense 47,323 33,022

Net Profit attributable to members of Kingsgate Consolidated Limited 47,323 33,022

Net exchange differences on translation of financial reports (9,039) (361)of foreign controlled entities

Total revenues, expenses and valuation adjustments attributable (9,039) (361)to members of Kingsgate Consolidated Limited recognised directly in equity

Total changes in equity attributable to members of Kingsgate 38,284 32,661Consolidated Limited other than those resulting from transactions with owners as owners

Cents Cents

Basic earnings per share 6 65.4 48.5

Diluted earnings per share 6 65.3 45.9

The above consolidated statement of financial performance should be read in conjunction with the accompanying notes.



Consolidated statement of financial position As at 30 June 2003

2003 2002($’000) ($’000)

Current assets

Cash assets 28,914 25,262

Receivables 8,677 7,502

Inventories 4,190 4,732

Other 1,190 750

Total current assets 42,971 38,246

Non-current assets

Receivables _ 5,643

Mine property, plant and equipment 53,336 57,976

Total non-current assets 53,336 63,619

Total assets 96,307 101,865

Current liabilities

Interest bearing liabilities 17,195 22,224

Payables 3,340 4,003

Provisions 989 11,772

Total current liabilities 21,524 37,999

Non-current liabilities

Interest bearing liabilities 1,499 22,224

Total non-current liabilities 1,499 22,224

Total liabilities 23,023 60,223

Net assets 73,284 41,642

Equity

Parent entity interest

Contributed equity 31,471 28,986

Reserves (8,374) 665

Retained profits 50,187 11,991

Total equity 73,284 41,642

The above consolidated statement of financial position should be read in conjunction with the accompanying notes.



Consolidated statement of cash flows For the year ended 30 June 2003

2003 2002($’000) ($’000)

Cash flows from operating activities

Receipts from customers 94,506 49,264

Payments to suppliers and employees (36,334) (17,982)

Interest received 606 219

Borrowing costs (1,822) (2,564)

Net cash inflow/(outflow) from operating activities 56,956 28,937

Cash flows from investing activities

Payments for exploration (7,512) (1,304)

Payments for mine development – (33,180)

Loans to others (net) – (606)

Payments for property, plant and equipment (5,368) (24)

Net cash (outflow)/inflow from investing activities (12,880) (35,114)

Cash flows from financing activities

Proceeds from issue of shares 2,495 6,799

Share issue costs (10) (374)

Proceeds from borrowings – 35,945

Repayment of borrowings (19,984) (17,561)

Dividends paid (19,927) –

Net cash (outflow)/inflow from financing activities (37,426) 24,809

Net increase/(decrease) in cash held 6,650 18,632

Cash at the beginning of the financial year 25,262 6,279

Effects of exchange rate changes on cash (2,998) 351

Cash at the end of the financial year 28,914 25,262

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.



Notes to the consolidated financial statementsFor the year ended 30 June 2003

Discussion and analysis of:

A. Consolidated statement of financialperformanceRevenue from ordinary activities increased by 67% to$94,647,000 resulting from the first full year ofproduction from the Chatree gold mine (comparedwith seven months in the previous financial year) and ahigher realised gold price.

Direct costs of mining and processing $23,539,000,rehabilitation expenses $392,000, employee benefitsexpense $3,536,000 and depreciation andamortisation expenses $13,293,000 are all higherthan 2002 reflecting the first full year of productionand a higher mining strip ratio at the Chatree goldmine. The mine produced 154,484 ounces of gold in2003 compared to 91,185 ounces in 2002.

Borrowing costs expense of $2,003,000 was areduction from 2002 reflecting the reduction inborrowings outstanding. Other expenses fromordinary activities of $3,559,000 increased from2002 reflecting a higher level of corporate activity.

Income tax expense was nil for the financial year as the group is not currently subject to income tax in Thailand.

B. Consolidated statement of financial position AssetsTotal assets have decreased by 5% to $96,307,000reflecting an increase in depreciation and amortisationexpense of $4,673,000 in 2003 associated with thefirst full year of production together with movementsin foreign currency exchange rates.

LiabilitiesTotal liabilities decreased by 62% to $23,023,000reflecting a $25,754,000 reduction in borrowings and the change in accounting for dividends (note 2) of $10,800,000.

EquityContributed equity increased by $2,485,000 due to new shares being issued following the exercise of options.

Reserves decreased by $9,039,000 resulting from anegative movement in the foreign currency translationreserve due to the appreciation of the Australian dollaraffecting the translation of foreign controlled entities.

Retained profits grew substantially due to thereinvestment of profits not paid as dividends and thechange in accounting for dividends – see commentabove under liabilities and note 2.

C. Consolidated statement of cash flows Cash flows from operating activitiesThe increase in receipts from customers and theincrease in payments to suppliers and employeesreflected the first full year of operations of the Chatree gold mine.

The lower borrowing costs resulted from therepayment of borrowings during the financial year.

Cash flows from investing activitiesWith the Chatree gold mine commencing production inNovember 2001, payments for mine developmentceased and payments for property, plant andequipment in 2003 related to replacement andexpansion capital.

Payments for exploration have increased with thegroup’s scaled up activity and focus on addingresources and reserves to the Chatree gold mine.

Cash flows from financing activitiesThe group’s strong cash flow was utilised to retiredebt $19,984,000 and commence dividenddistributions to shareholders $19,927,000. Proceedsfrom the issue of shares declined as there was a rightsissue in 2002 not repeated in 2003.



Notes to the consolidated financial statements For the year ended 30 June 2003 (continued)

Note 1. Basis of preparation of the concisefinancial reportThis concise financial report relates to theconsolidated entity consisting of KingsgateConsolidated Limited and the entities it controlled atthe end of, or during, the year ended 30 June 2003.The accounting policies adopted are consistent withthose of the previous year, except as described innote 2 below.

The company is of a kind referred to in Class Order98/0100, issued by the Australian Securities andInvestments Commission, relating to the ‘rounding off’of amounts in financial reports. Amounts in theconcise financial report have been rounded off inaccordance with that Class Order to the nearestthousand dollars.

Note 2. DividendsProvision is made for the amount of any dividenddeclared, determined or publicly recommended by the Directors on or before the end of the financial year but not distributed at balance date.

Change in accounting policy for providing fordividendsThe above policy was adopted with effect from 1 July 2002 to comply with AASB 1044: Provisions,Contingent Liabilities and Contingent Assets releasedin October 2001. In previous years, in addition toproviding for the amount of any dividends declared,determined or publicly recommended by the Directorson or before the end of the financial year but notdistributed at balance date, provision was made fordividends to be paid out of retained profits at the end of the financial year where the dividend wasproposed, recommended or declared between theend of the financial year and the completion of thefinancial report.

An adjustment of $10,800,000 was made against the consolidated retained profits at the beginning ofthe financial year to reverse the amount provided at30 June 2002 for the proposed final dividend for thatyear that was recommended by the Directors betweenthe end of that financial year and the completion of the financial report. This reduced the consolidatedcurrent liabilities – provisions and total liabilities at the beginning of the financial year by $10,800,000with corresponding increases in net assets, retainedprofits, total equity and the total dividends providedfor or paid during the current financial year.

The restatements of consolidated retained profits,provisions and total dividends provided for or paidduring the year set out below show the informationthat would have been disclosed had the newaccounting policy always been applied.




2003 2002 ($’000) ($’000)

(Restated) (Restated)

Restatement of retained profits

Previously reported retained profits at the end of the previous financial year 11,991 (9,205)

Change in accounting policy for providing for dividends 10,800 –

Restated retained profits at the beginning of the financial year 22,791 (9,205)

Net profit attributable to members of Kingsgate Consolidated Limited 47,323 33,022

Total available for appropriation 70,114 23,817

Transfer to general reserve – (1,026)

Dividends paid (see below) (19,927) –

Restated retained profits at the end of the financial year 50,187 22,791

Restatement of current liabilities – provisions

Previously reported carrying amount at the end of the financial year 989 11,772

Adjustment for change in accounting policy – (10,800)

Restated carrying amount at the end of the financial year 989 972

Restatement of dividends provided for or paid

Previously reported total dividends provided for or paid during the 19,927 10,800financial year

Adjustment for change in accounting policy – (10,800)

Restated total dividends provided for or paid during the financial year 19,927 –

Note 3. Sales revenue

2003 2002($’000) ($’000)

Sales revenue included in revenue from ordinary activities 94,020 54,688



Note 6. Earnings per share

2003 2002 (Cents) (Cents)

Basic earnings per share 65.4 48.5

Diluted earnings per share 65.3 45.9

Weighted average number of shares used as the denominator

2003 2002 (number) (number)

Weighted average number of ordinary shares used as the denominator 72,368,432 68,083,589in calculating basic earnings per share

Weighted average number of ordinary shares and potential ordinary shares 72,521,233 71,903,334used as the denominator in calculating diluted earnings per share


Note 4. Dividends

2003 2002 ($’000) ($’000)

Final unfranked dividend of 15 cents per share paid on 28 October 2002 10,820 10,800recognised as a liability at 30 June 2002 but adjusted against retained profits at the beginning of the financial year on the change in accountingpolicy for providing for dividends (note 2)

Interim unfranked dividend of 12.5 cents per share paid on 17 April 2003 9,107 –

Total dividends provided for or paid 19,927 10,800

Note 5. Events occurring after reporting dateDividendOn 20 August 2003, the Directors of KingsgateConsolidated Limited declared a final unfrankeddividend of 12.5 cents per share. The record date forthe dividend is 3 September 2003 with payment dueon 1 October 2003.

Restructure of hedge bookOn 8 July 2003, a restructure of the consolidatedentity’s gold hedge book was completed. Hedgecommitments were reduced by 14%, from 414,000ounces to 356,400 ounces with the strike prices oncommitted ounces reduced marginally.




Note 7. Segment information

Primary reporting – business segmentsThe consolidated entity operates exclusively in the business segment of gold mining and exploration.

Secondary reporting – geographical segments

2003 2002($’000) ($’000)

Sales to external customers

Asia Pacific 94,647 56,506

Other – –

Total 94,647 56,506

Segment assets

Asia Pacific 96,307 101,865

Other – –

Total 96,307 101,865

Note 8. Full financial reportFurther financial information can be obtained from the full financial report which is available from thecompany, free of charge, on request. A copy may be requested by calling (02) 9223 5273. Alternatively,both the full financial report and the concise financialreport can be accessed via the internet at:www.kingsgate.com.au.

Directors declaration The Directors declare that in their opinion, the concisefinancial report of the consolidated entity for the yearended 30 June 2003 as set out on pages 34 to 41complies with Accounting Standard AASB 1039:Concise Financial Reports.

The financial statements and specific disclosuresincluded in this concise financial report have beenderived from the full financial report for the year ended 30 June 2003.

The concise financial report cannot be expected to provide as full an understanding of the financialperformance, financial position and financing andinvesting activities of the consolidated entity as the full financial report, which as indicated in note 8, is available on request.

This declaration is made in accordance with a resolution of the Directors.

R Smyth-KirkDirector

Sydney28 August 2003

p42


Independent audit report to the members ofKingsgate Consolidated Limited

Audit opinionIn our opinion, the concise financial report ofKingsgate Consolidated Limited for the year ended 30 June 2003 complies with Australian AccountingStandard AASB 1039: Concise Financial Reports.

This opinion must be read in conjunction with the restof our audit report.

Scope

The concise financial report and directors’ responsibilityThe concise financial report comprises the consolidatedstatement of financial position, consolidated statementof financial performance, consolidated statement ofcash flows, discussion and analysis of and notes to thefinancial statements, and the Directors’ declaration forKingsgate Consolidated Limited (the company) for theyear ended 30 June 2003.

The Directors of the company are responsible for thepreparation and presentation of the financial report inaccordance with Australian Accounting StandardAASB 1039: Concise Financial Reports.

Audit approachWe conducted an independent audit of the concisefinancial report in order to express an opinion on it to themembers of the company. Our audit was conducted inaccordance with Australian Auditing Standards, in orderto provide reasonable assurance as to whether theconcise financial report is free of material misstatement.The nature of an audit is influenced by factors such asthe use of professional judgement, selective testing, theinherent limitations of internal control, and the availabilityof persuasive rather than conclusive evidence.Therefore, an audit cannot guarantee that all materialmisstatements have been detected.

We also performed an independent audit of the fullfinancial report of the company for the financial yearended 30 June 2003. Our audit report on the fullfinancial report was signed on 28 August 2003, andwas not subject to any qualification.

In conducting our audit of the concise financial report, we performed procedures to assess whetherin all material respects the concise financial report is presented fairly in accordance with AustralianAccounting Standard AASB 1039: Concise Financial Reports.

We formed our audit opinion on the basis of theseprocedures, which included:

• testing that the information included in the concisefinancial report is consistent with the information in the full financial report; and

• examining, on a test basis, information to provideevidence supporting the amounts, discussion andanalysis, and other disclosures in the concisefinancial report which were not directly derived fromthe full financial report.

When this audit report is included in an Annual Report,our procedures include reading the other informationin the Annual Report to determine whether it containsany material inconsistencies with the financial report.

IndependenceIn conducting our audit, we followed applicableindependence requirements of Australian professional ethical pronouncements and theCorporations Act 2001.

PricewaterhouseCoopers

Peter Buchholz, PartnerSydney, 28 August 2003



Corporate andshareholderinformation

Corporate information

SecretaryJohn Falconer

Registered Office and Principal Business OfficeLevel 17, 33 Bligh Street,Sydney, New South Wales, 2000Tel (02) 9223 5273 Fax (02) 9223 9775Email: [email protected]

Senior ManagementSteve ReidManaging Director and CEONiall LenahanChief Financial OfficerPhil MacIntyreGeneral Manager, Chatree gold mineMarcus TomkinsonGeneral Manager, ExplorationSurapol UdompornwiratVice President, Akara Mining Limited

Share Registry

Security Transfer Registrars Pty. Ltd.770 Canning HighwayApplecross, Western Australia, 6153Tel (08) 9315 0933

Substantial Shareholders Substantial shareholders and their associates whohave notified the company are listed below.

Holder No. of shares held as disclosed in notices to the company

R Smyth-Kirk 4,093,932Gold 2000 Ltd 3,992,295

Distribution of equity securities as at 18 August 2003

Size of Holding Number of Shareholders Number of Option Number of OptionFully paid Ordinary Shares holders Employees Plan holders Directors

1–1,000 529 – –

1,001–5,000 874 – –

5,001–10,000 272 – –

10,001–100,000 324 4 1

100,001 and over 65 – 2

Total 2,064 4 3

73 have less than a marketable parcel of ordinary shares.



20 Largest Shareholders of Quoted Ordinary Shares as at 18 August 2003

No. of shares Percentage

1 National Nominees Limited 12,244,637 16.80%

2 ANZ Nominees Limited 9,957,075 13.66%

3 Arinya Investments Pty Ltd 4,043,600 5.55%

4 Bird Bruce Clayton 3,205,702 4.40%

5 Westpac Custodian Nominees 3,171,660 4.35%

6 Citicorp Nominees Pty Limited 2,852,209 3.91%

7 J P Morgan Nominees Australia 2,130,410 2.92%

8 Gaffwick Pty Limited 1,727,528 2.37%

9 Willow Bend Station P/L 1,400,000 1.92%

10 Sydney Equities Pty Ltd 1,400,000 1.92%

11 HSBC Custody Nominees 1,052,983 1.45%

12 Whinners Pty Ltd 900,052 1.24%

13 Ilwella Pty Limited 891,403 1.22%

14 Commonwealth Custodial Sv 784,792 1.08%

15 Grimwade Frederick 660,000 0.91%

16 Conaught Pty Ltd 583,333 0.80%

17 Komor Christopher 549,999 0.75%

18 Capx Limited 507,500 0.70%

19 Maminda Pty Ltd 432,125 0.59%

20 Bindibango Pty Ltd 410,269 0.56%

Total 48,905,277 67.10%



Unquoted equity securities as at 18 August 2003There were four option holders holding 117,000options under the Kingsgate Consolidated LimitedEmployees option plan.

There were 400,000 options issued to variousDirectors and there were three option holders.

Voting RightsA. Ordinary sharesOn a show of hands every member present at ameeting in person or by proxy shall have one vote and upon a poll each share shall have one vote.

B. OptionsNo voting rights.

Mining leases Mining leases covering the Chatree gold mine were granted by the Thai Ministry of Industry.

EPM application 12409 is held 100% by the company.It is located east of Cloncurry in Queensland andincludes gold mineralisation previously explored by the company.

Kingsgate Tenements HeldAkara Mining Limited: Chatree gold mine, Thailand:100% – flow through interest for gold.

Kingsgate Offices and mine site

Sydney OfficeLevel 1733 Bligh StreetSydney NSW 2000Tel 02 9223 5273Fax 02 9223 9775

Bangkok Office21st Floor Maison Maneeya Building No.1 Phaholyothin 9 Phaholyothin Road Phayathai Bangkok 10400 Thailand Tel (662) 617 0771 Fax (662) 617 0773

Chatree Gold MineNo. 99 Moo 9Khao Chet LukThap KhloPichit 66230ThailandTel (66) 0 5661 4500Fax (66) 0 5661 4190

6085 kg ar 2003 a/wproduction was 154,484 ounces of gold and 484,170 ounces of silver. cash costs of...

Documents