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VATUKOULAGOLD MINESANNUAL REPORT2010AIM: VGMwww.vgmplc.com

RAMPING UPMINING AND EXPLORATIONTO SECURELONG-LIFE GOLDPRODUCTION

ORE PROCESSED (TONNES)

441,924GOLD RECOVERED (OUNCES)

59,658CASH COSTS (US$/OZ)

860TURNOVER (£M)

£40.4GROSS PROFIT (£M)

12.3

Operational and Financial Highlights 04Valuable Reserves 06 Market Outlook 08Chairman’s Statement 10Chief Executive’s Review 12Finance Director’s Report 18Financial Statements 22

04 VATUKOULA GOLD MINES ANNUAL REPORT 2010

OPERATIONALAND FINANCIALHIGHLIGHTS

Q12009/2010

AugustExploration Programmes Underway: Vatukoula GoldMines steps up activities to define additional resources. Asurface exploration programme aims to define open pitoxide resources; the underground exploration programmeseeks to delineate extensions of current reserves andresources.

OctoberEGM Passes the Proposed Placing; AdditionalEquipment Ordered: Shareholders agree to the proposedplacing of 750 million new ordinary shares at 1.2 pence pershare. Proceeds will be utilised along with free cash flow toincrease the mine’s capital development programme.Orders are placed for 12 pieces of underground haulageequipment.

Q4JulyAdditional Placement Raises £7.4 Million to FundExploration Programme: VGM places 400 million ordinaryshares at a price of 1.85p per share, which represents9.8% of the company’s enlarged issued share capital. Theproceeds enable the company to carry out an initial two-year exploration programme at the mine site and at otherspecial prospecting licenses covering the Tavua Calderamining area.

VATUKOULA GOLD MINES ANNUAL REPORT 2010 05

Q2JanuaryFirst Independently Assessed Mineral Reserve andMineral Resources: Combined Proven and ProbableMineral Reserves are estimated at 1.9 million tons of ore,grading 10.9 g/t; underground combined Measured andIndicated Mineral Resources are stated to be 8.3 milliontons, grading 10.5 g/t. Published drilling results confirmthat VGM has identified multiple mineralised structures.

Q3MayProfitability at Vatukoula Confirmed: Results for thefirst half year are published: turnover for the six monthsrose to £16.5 million; the gross margin increased to £7.5million and the volume of gold shipped increased to24,092 ounces.


VALUABLE RESERVES

SOUTH PACIFICOCEAN

Buca

Suva

Labasa

Lautoka

Nabouwalu

Tavua

NausorSigatoka

Nadi

Ba

Viti Levu

Vanua Levu

VATUKOULA GOLD MINE

LocationThe Vatukoula Gold Mine is located on the larger of Fiji’stwo main islands, Viti Levu, in the South Pacific Ocean.The license area covers 7,549 hectares on the north ofthe island, 9 km south of Tavua and within a collapsedcaldera (the Tavua Basin).

GeologyThe mine is located amid the basaltic rocks of the TavuaBasin, except for the R1 area, which is hosted in theyounger Turtle Pool Formation. Mineralisation is hostedwithin quartz carbonate veins and is typically seen asflatmakes, steep shears and shatter zones. The mainore bodies are the Prince/Dolphin flatmake, Matanagataflatmake, 2000N flatmake and 166N flatmake. Inaddition to flatmake mineralisation there is the R1 areaand Steep Structures that relate to the flatmakes.

TOTAL MINERAL RESERVE (M/oz)

0.83TOTAL MINERAL RESOURCE (M/oz)

3.9


Reserves and Resources (as at 31 August 2010)

Category Tonnes (Mt) Grade (g/t Au) Contained Gold (M/oz)

Mineral ReservesProven 0.6 10.4 0.19Probable 2.8 7.0 0.64Total Mineral Reserve 3.4 7.6 0.83Change from 31 August 2009 1.5 (3.3) 0.15

Mineral ResourcesUndergroundMeasured 3.3 11.0 1.18Indicated 3.3 10.9 1.17Inferred 4.2 9.9 1.34

TailingsMeasured 4.5 1.5 0.22Indicated 0.7 1.3 0.03Inferred - - -Change from 31 August 2009 (2.2) 0.2 (0.4)

NotesThe following notes highlight the assumptions used to estimate the Mineral Reserve estimate:

• The Mineral Reserve includes that part of the Mineral Resource that can be economically mined and includes allowed dilution• A gold price of US$950/oz• Cut-off grade of 4.6 g/t Au

The following notes highlight assumptions used to generate the underground Mineral Resource estimate:

• An Intercept width times gold grade cut-off off 4 metre grams per tonne (“m.g/t Au”) and a gold grade cut-off of 2 g/t were applied to the resource models to obtain the estimated Mineral Resources

• The Mineral Resource models were depleted for to August 2010• The Mineral Resource models use geological and assay data available at 30 March 2010• Samples are prepared and analysed by fire assay using a 25 gram charge at the on site Vatukoula laboratory• The mineralised envelope was defined using geological logging and assay information from diamond drillholes using a nominal lower cut-off grade of

1 m.g/t Au• Extrapolation of the interpreted mineralised zone was limited to 50m between section lines and 225m at the end of each section• In situ density data were available from drillhole sampling. Densities were assigned to each modelled orebodies based on the average results from all

available samples• The estimation method used 3D wireframe and block modelling projected to a 2D plane, with ordinary kriging interpolation. A grade variable (the product

of the intercept width and grade) was estimated using modelled semi-variograms and geostatistical analysis to determine kriging search parameters. Theintercept width was estimated separately and the grade back calculated

• Grade capping was applied in calculating the variable grade• Figures in the above table may not add correctly due to rounding

The increase of 0.15 Moz in Mineral Reserve tonnage and contained gold can be mainly attributed to the modelling ofadditional structures and an increase in Probable Mineral Reserves due to increasing drilling density in some areas whencompared to the 2009 ore structures. Some additional dilution was allowed for in development areas as result ofoperational reviews. This had the effect of reducing the overall grade.

In the previous Mineral Resource assessment for the year ended 2009, several structures were included under the categoryof “Other Structures” and “Other Flatmakes”. These were previously estimated in 2006 and were not assessed in 2009. Thisyear part of these deposits were re-assessed and re-modelled and as a result there was a net decrease in Mineral Resourceof 0.4 Moz. Future modelling of the remaining deposits may yield additional mineral resources. However until this iscompleted it was thought prudent to exclude these from the current estimate.


Prices began to rise significantly in 2001 and the goldspot price reached US$976 per ounce in 2008.Subsequent price rises were largely a result of theglobal financial crisis and resultant concerns about thecurrency stability; investors were reminded of gold’sutility as a haven from financial turmoil.

According to the World Gold Council (WGC), the price ofgold rose during the year under review, from US$955per ounce in August 2009 to US$1,246/ounce in August2010. Analysts expect prices to remain at historically

high levels for the foreseeable future, although a slightfall may occur in the short-term (the trough is estimatedat around US$1,153/ounce). In the longer term, theconsensus view is that prices will probably rise again inthe years ahead and may well reach US$1,500/ounce.

DemandThe WGC attributes the growth in global demand forgold in 2010 (compared to 2009 figures) to threeprimary demand fundamentals:

1. Consumer Evidence suggests that the higher trading price of goldhas not hindered consumer demand in the large AsianMarkets. India experienced the highest growth injewellery demand posting an increase of 36%. In China,the jewellery market accounted continued to grow.Rises in personal wealth, the result of economic growthand urbanisation, are expected to drive further demand.

China ranks second in world annual consumer demand,after India. At the end of October 2010, China’s netconsumer demand gold totalled 549 tonnes, a 21 percent increase over the previous year.

MARKETOUTLOOK

The price of gold hasincreased substantially overthe last decade and mediumand long-term outlooksremain generally positive in 2011.

2002 2004 2006 2008 2010

1600

1400

1200

1000

800

600

400

200

025

7/20091/2009 1/2010 7/2010 1/20110

225

250

200

175

150

125

100

75

50

GOLD PRICE, AUGUST 2010 (US$/OZ)

1,246GLOBAL GOLD MINED IN Q3 2010 (T)

70210 Year Gold Prices (US$/oz) VGM AIM Share Price: 2009-2011 (GBP)


2. IndustrialThe electronics sector is the largest industrial driver forgold. Industrial sector demand, including that used indentistry, registered a 12 per cent year-on-year increasein the quarter ending October 2010. Particular growthwas seen in the electronics industry (up 26 per cent yearon year).

Gold demand for electronic applications totalled 222tonnes for the nine months ending October 2010. Othersignificant demand drivers include medicine,nanotechnology, aerospace, dentistry and engineering.New sources of demand are likely to emerge in thefuture; potential large-scale uses include medicaldiagnostics, water purification and solar cells.

3. InvestmentConcerns over sovereign fiscal imbalances, currencyvolatility, quantitative easing and inflation havecombined in recent years to increase investment flowsinto the gold market. This (added to the perceivedshortcomings of a broad investment product spectrumduring and in the wake of the global financial crisis)increased the appeal of gold as a stable and value-adding investment product.

Evidence of the increasing attractiveness of gold to theinvestor community can be seen in the quarter endedOctober 2010 identifiable investments in the preciousmetal. Investments totalled 281.8 tonnes for the quarter(worth the equivalent of US$11.1 billion). Investments ingold backed Exchange Traded Funds (ETFs) in thequarter stood at 38.7 tonnes.

SupplyGold supply in for the quarter ended October 2010totalled 1,028 tonnes, 18 per cent above year-earlierlevels. Mine production output rose 3 per cent (to 702tonnes); recycled gold supply increased by 41 per cent.Production increases at some mines (such asBoddington, Australia, and Cortez Hills, USA) wereoffset by declines elsewhere (particularly in Peru andIndonesia).

The supply of recycled gold remained at elevated levelsin comparison to long-term averages, 41 per cent upyear-on-year at 417.7 tonnes. This growth reflects (1) anincreasing contribution from Western consumers and (2)traditional gold markets where gold recycling activity iswell established, such as in India and the Middle East.

As supplies of recycled gold have been relativelybuoyant for several consecutive quarters, there is someevidence that near-market supplies in these traditionalmarkets are becoming exhausted and that a fresh surgein the price would be required to generate anothersignificant wave of selling-back.

SummaryVGM views the latest Q3 2010 report by WGC as apositive outlook for gold demand over the near- andmedium- terms. Supply and demand fundamentals,coupled with continuing sovereign debt, currencyrelated volatility and shortcomings in investment returnsavailable to consumers, provide a healthy environmentfor gold to continue to trade at levels above theUS$1,000/ounce level, considerably higher than themine’s existing production costs of US$860/ounce andits target cash cost production level of US$655/ounce.


CHAIRMAN’SSTATEMENT

The popular view that gold has appreciated in value by 30per cent this year should be viewed in the context of thefact that the US dollar, the euro and the British pound haveall depreciated over the same period. The Chinese remainkey to supporting the gold price appreciation and were notprepared to see gold drop out of the monetary system,given they are the largest creditors for the United States ofAmerica and coincidentally the biggest producers of goldin the world. This resulted in the Chinese central bankpurchasing gold and also actively encouraging owncitizens to buy gold during the year. According toShanghai Gold Exchange, China produced a total of 340tonnes of gold during the year and imported another 209tonnes over the course of the year.

2010 has been a year of consolidation for Vatukoula GoldMines. Production at the mine has risen steadily to reflectthe investment in plant and machinery made over thecourse of the year. Looking forward, 2011 will see the firstexploration programme that the mine has seen in almosttwenty years. Given that historically, the best place to lookfor gold is close to existing gold mining operations and aslarge parts of the Tavua caldera remain largely unexplored,we are hopeful of finding new resources.

During the course of the year, the Board has publicised therejuvenation of the Vatukoula mine and focused on the factthat operations have turned the corner given theincreasing production profile. The quality of the explorationacreage should become apparent as the programmeprogresses over the next few years.

Similar to previous years, I would like to thank all the teamwho have helped run both the company and the mine. Thefruits of their success are now being recognised by theinvestment community and I and many others are proud tobe shareholders in Vatukoula Gold Mines.

Colin Orr-EwingExecutive Chairman28 February 2011

Several years ago centralbankers referred to gold as thebarbaric relic of the monetarysystem and laughed atGeneral De Gaulle’s attempt toresuscitate it as part of areserve currency system; theyare not laughing now.


CHIEF EXECUTIVE’SREVIEW

Investments made in the mining fleet are now beginningto deliver significant improvements in the amount of orewe can process and, with dewatering of the lower minelevels now complete and under control, conditionsunderground to support mine operations are enhancingthe performance of our front-line mining teams.

We have adopted a strong focus on short and long-termmine planning, with the implementation on site ofadvanced geological and mine planning software tosupport the company’s technical capability.

With our mining and operational teams now beddedinto a strong and focused working and shift pattern, thecompany is positioned to achieve the stated productiontargets of 100,000 ounces of gold per annum.

Key Performance IndicatorsYears ended 31 August 2009 2010

Production statisticsUnderground ore processed 188,421 243,417Average ore head grade (g/t Au) 6.28 7.43Surface ore processed 32,095 198,507Average ore head grade (g/t Au) 1.78 1.75Process recovery rate (%) 85 86Gold recovered (oz) 33,757 59,658Gold produced (oz) 33,426 56,214

Cash costs Cash cost per ounce recovered (US$/oz) 895 810Cash cost per ounce produced (US$/oz) 904 860

During the past year we havecontinued to build upon thetremendous progress madefollowing the re-opening ofthe Vatukoula Gold Mine inApril 2008 and the firstpouring of gold in November 2008.


“Underground productionfor the year increasedgradually as part of themine’s sustainableproduction plan. Initially,production fromunderground was in theregion of 13 thousandtonnes per month,increasing to over 22thousand tonnes by theend of the year.”


Underground ProductionThe Vatukoula ore bodies have world-class mineralpotential, but present planning challenges. TheVatukoula deposit is known to be geologically complex,and contains narrow ore bodies with variable grade. Asa result, the year saw some erratic grades delivered tothe mill, which effected our cash cost per ounce on aquarterly basis.

It is management’s objective to introduce greaterflexibility into the operations at the mine. Anunderground mine has numerous challenges, includinggeological conditions, safety, ventilation, distance frominfrastructure and grade, amongst others. However, thepresence of numerous ore-bodies, dispersed over awide area, provides an opportunity for mining flexibility.Mine planning currently targets in the region of twelveoperating stopes at any one time, with an additionaleight ready and prepared for mining. This shouldprovide for almost any eventuality in the mining area.Should the grade decrease to an uneconomic grade,then production mining can be stopped and productiontransferred to a new stope.

Underground production for the year increasedgradually as part of the mine’s sustainable productionplan. Initially, production from underground was in theregion of 13 thousand tonnes per month, increasing toover 22 thousand tonnes by the end of the year. Overallunderground operations produced over 243 thousandtonnes at an average grade of 7.43 grams per tonne,recovering 48,741 ounces during the year.

The erratic grade delivered as a result of undergroundoperations has been a feature of this year’s production.Our delivered grades from the mine, as recorded at theprocessing plant, have varied from four grams per tonneto over 20 grams per tonne on a daily average. In theearly part of the year, this was the result of ouraccelerated development program and a relatively smallproportion of underground ore from the stoping areas.

Surface ProductionOur oxide circuit has performed exceptionally well.Recoveries for the year were 10,917 ounces of goldproduced from just over 198 thousand tonnes ofmaterial at a grade of 1.75 grams gold per tonne. Duringthe year we undertook surface exploration to uncoveradditional, close to surface oxide material, whichprovided additional ore at a higher grade to the mill.Although the oxide production was seen as a stopgapmeasure as we were developing our undergroundoperations, the project has proven to be verysuccessful. Mine geologists are undertaking surfaceexploration to identify additional oxide material. Shouldsufficient oxide material be identified, management willinvestigate opportunities to produce from this source –over and above the underground sulphide production.

DevelopmentOver the course of the second half of this year andcontinuing in to the 2011 financial year, the developmentof the mine has been a major focus for the Company.Previously our underground mining operations were

restricted by the lack of availability of new mining areaswhich was further compounded by the absence ofsuitable mine planning drill locations. Mine planning aidsdevelopment work and eliminates the mining ofunprofitable areas as potential mining areas are drilledbefore mining is initiated. A major effort was undertakenby the mining crews to accelerate the development tocatch-up during the year. I am pleased to report that thisinitiative has proven to be very successful. We have notyet caught up fully, but we can see light at the end ofthe tunnel.

Toward the end of the year, we initiated the repair of thePhilip Shaft between levels 16 and 18. The shaft wasdamaged following mining of the shaft pillar by previousoperators. The existing shaft support was removed anda new support was installed. Some of the shaft furniturehas been replaced. Since year-end, the lower sectionsof the shaft have been inspected and refurbished asrequired. The mine is now able to use the hoists in thePhilip Shaft to level 18.

ExplorationWe determined that to ensure both sustainableproduction at our target rate in the long term and whilstalso driving growth we would need to embark on anextensive exploration programme over the comingyears.

With this in mind, we have developed an explorationprogramme which focuses on three main targets / typesof deposit. The first of the targets are potentialextensions along strike and down-dip of existing orebodies. The second set of targets lie within our miningleases and special prospecting license and are typicaloxide deposits which could be suitable to open pitmining operations. The third and final target group areall on the special prospecting licenses, which have beenidentified as highly prospective based on both historicdrill holes and shallow surface mining.

PeopleThe workforce at Vatukoula currently comprises 924individuals on a permanent and casual basis. Of ourlabour force, 43% are employed in undergroundoperations, over and above the underground technicalservice personnel. As we increase our undergroundproduction there will also be an increase in ourworkforce; however, we do not envisage the workforceincreasing to over 1,000 individuals. Productivity shouldincrease as the new individuals add to the productionbase. We do not expect significant additions to theservice or administration roles.

SafetyOperations undertaken in the year under review haveresulted in a Lost Time Incident (LTI) accident frequencyrate of 20, which is extremely commendable in the high-risk environment of a working gold mine. Safety in thework place is regarded as an operational priority at alltimes. We insist that all of our employees workaccording to stringent safety practices and are workingtowards our target of achieving an LTI rate of zeroaccidents.


CorporateTowards the end of the year, we undertook a £7.4million financing process, which was placed with someof our institutional supporters and the proceeds fromthis process have used to initiate our explorationprogram. We are excited about Vatukoula now enteringthe next phase in its development, as we hadpreviously taken the decision to not commit significantfunds to an exploration program whilst the mine wasnot at a steady state of production.

Government RelationsI would like to take this opportunity to thank theGovernment of Fiji and the Right Honourable Ministerfor Lands & Mineral Resource for support receivedduring our build-up period.

CommunityIn December 2009, we agreed to the new deed as partof the initial purchase agreement with the Governmentof Fiji. We provided F$1,500,000 to the fund thatprovides assistance in retraining and relocatingindividuals that were affected by the closure of themine in 2006. Vatukoula Gold Mines has nominated anumber of individuals to the management committeeof the fund.

“At Vatukoula, we are focused on theestablishment of long-term sustainablemining operations. Webelieve that, to achievesustained undergroundproduction, we need to establish therequired developmentand associatedinfrastructure.”


During the year we have also undertaken theconstruction and upgrading of a number of houses onthe property. This has involved the employment ofnumerous local labourers. Where practical, we haveused the services of local groups to undertake any localprocurement as required.

Post-Period Developmentsand OutlookAt Vatukoula, we are focused on the establishment oflong-term sustainable mining operations. We believethat, to achieve sustained underground production, weneed to establish the required development andassociated infrastructure.

Our current mine planning sees the undertaking ofaccelerated development during first half of the year, toensure the mine is placed in the long-term operatingposition that we require for sustained production at theproduction rates we are targeting. We currently forecastthe accelerated development to be complete by themiddle of the next financial year (ending 31 August2011).

SummaryThe Vatukoula mining, engineering and managementteams are now working as a strong, co-ordinated unitand one that is set to achieve very positive results forshareholders over both the short- and long-term. Withcontinued investments in particular focusing onexploration through the drilling program, we continue tobuild value on a sustainable basis. We are lookingforward to the results from the highly prospective sitewithin our tenure and remain focused on the continuedgrowth of Vatukoula.

David Karl PaxtonChief Executive Officer28 February 2011

Building on the great progress made during the previousfiscal year, your Company is pleased to report substantialimprovements in our operating profits and cash flow. Thishas been achieved through a combination of outputincrease, falling production costs and a higher averagegold price received.

RevenueTotal revenue for the Group increased to £40.4 million,which compares very favourably to £18.8 million in theprevious financial year and £3.8 million in 2008. Thisfigure was achieved as a direct consequence of ourstated goal, to step up production to an eventual targetrate of 100,000 ounces of gold per annum. Outputincreased substantially with 59,658 ounces of gold,recovered from 441,924 tonnes of ore (2009: 33,757ounces of gold from 220,439 tonnes of ore). Of the 59,659ounces recovered 56,214 ounces were poured andsmelted during the period.

Gross Profit and Unit CostsOverall, there was a significant improvement in thecompany’s gross profit, which rose from £1.4 million in2009 to £12.3 million in the current period. This reflectedthe higher levels of gold production and higher gold prices


FINANCE DIRECTOR’SREPORT

Vatukoula Gold Minessuccessfully ramped up itsoperational and financialperformance in 2010.

Financial HighlightsYears ended 31 August

2008* 2009 2010£’000 £’000 £’000

Revenue 3,817 18,837 40,354Gross (loss)/margin (624) 1,408 12,322Operating (loss)/profit (4,371) (9,991) 3,809Net (loss)/profit before taxation (4,068) (9,906) 3,685Net cash (used)/generated in operating activities (7,540) (4,235) 3,708Net cash inflow/(outflow) 2,213 (1,258) 11,431

*represents production from 1st April 2008 when the Company acquired the Vatukoula Gold Mine in Fiji

Total revenue for theGroup increased to£40.4 million (2009:£18.8 million)

Net profits after taxincreased to £4.5million (2009: loss of£9.4 million)


Reconciliation of Unit CostsYears ended 31 August

2009 2010

Mining (£’000) 12,793 17,949Processing (£’000) 2,927 7,471Overheads (£’000) 1,705 2,611Royalties (£’000) 560 1,215Administration costs (£’000) 2,052 1,589Cash costs of production (£’000) 20,037 30,837

GBP / US$ foreign exchange rate 0.66 0.64

Gold produced (ounces) 33,426 56,214Tonnes processed 220,439 441,924

Cash cost per ounce produced (US$/oz) 904 860Cash cost per tonnes (US$/t) 137 109

Year ended 31 PreviouslyAugust 2010 announced

Cash costs of production (£’000) 30,837 30,837

Mining development capitalised (£’000) - (5,485)

Operating cash costs of production (£’000) 30,837 26,352

GBP / US$ foreign exchange rate 0.64 0.64

Gold produced (ounces) 56,214 56,214Gold recovered (ounces) 59,658 59,658

Cash cost per ounce produced (US$/oz) 860 705Cash cost per ounce recovered (US$/oz) 808 664

achieved during the year. In addition higher productionvolumes from open pit sources and more efficiencies ledto a decrease in unit costs on a per tonne and per ouncebasis.

On 10 January 2011, the Company announced in itsoperational update a re-assessment of its oredevelopment expenditure. As a result the Company hasre-assessed its ore development expenditure that wascapitalised and reported in its operational update.

The effect of this re-assessment on cash costs per ounceis outlined below.


Depreciation and AmortisationDepreciation and amortisation in the year under reviewincreased to £5.2 million (2009: £3.9 million). The majorityof this expense (£3 million) comes from the amortisation ofintangible assets, including mining rights, whiledepreciation and amortisation of mine properties andproperty, plant and equipment totalled £2.2 million. Thisincrease is an inevitable outcome of the increase in miningoperations, as the amortisation rates on the mining rightsand the mine properties and development are based on aunit of production basis.

Profit After TaxNet profits after tax increased to £4.5 million (2009: loss of£9.4 million). The majority of this increase is attributable tothe increase in production as mentioned previously. Partof the increase can be attributable to an increase in noncash foreign exchange gains which were £2.2 million(2009: £1.0 million).

CASH POSITION (£M)

12.8NET CASH GENERATED FROMOPERATIONAL ACTIVITIES (£M)

3.7

“The increase in capitalexpenditure reflectspart of the additionalinvestment required toincrease productionlevels to our statedtarget of 100,000ounces per annum.”


During the year there was a charge of several other noncash items which included inventory obsolescence,rehabilitation charges, provision for doubtful debts andshare based payments. In total these amounted to £1.1million (2009: £4.4 million).

Cash Flow and LiquidityI am pleased to report that your Company generated netcash of £3.7 million (2009: used £4.2 million) from itsoperational activities. After investing £9.9 million (2009:£1.7 million) in capital expenditure during the year thecash out flows before financing were £6.2 million (2009:£5.9 million).

During the year the Company raised gross proceeds of£18.6 million cash and cash equivalents strengthening ourcash position to £12.8 million, compared with £1.1 millionin August 2009.

Capital ExpenditureDuring the year the Group’s capital expenditure increasedto £9.9 million during the year (2009: £1.7 million). Thisreflected and investment of £6 million in plant propertyand equipment (2009: £1.2 million) and £3.9 million ofexpenditure on mines property and development (2009:£0.4 million).

The increase in capital expenditure reflects part of theadditional investment required to increase productionlevels to our stated target of 100,000 ounce per annum.

In summary, the year under review has been one of rapiddevelopment at the Vatukoula Gold Mine in Fiji and hasvindicated the Company’s strategy of rolling out anextensive capital expenditure programme to buildoperational capacity in the near-term.

This capital expenditure programme is continuing at themine, through infrastructure improvement and geologicalexploration – a combination that we believe will ensureVatukoula’s ability to remain cost efficient on a long-lifebasis. We do not at this stage recommend a payment of adividend.

Kiran Morzaria Finance Director28 February 2011


ContentsBoard of Directors 23 Directors’ Report 24Corporate Governance Statement 27Independent Auditor’s Report 28 Consolidated Statement of Comprehensive Income 29 Consolidated Statement of Financial Position 30Company Statement of Financial Position 31Consolidated Statement of Changes in Shareholders’ Equity 32Company Statement of Changes in Shareholders’ Equity 33Consolidated Statement of Cash Flows 34Company Statement of Cash Flows 35Notes to the Financial Statements 36Notes 66

Corporate DirectorySecretaryLaytons Secretaries LimitedCarmelite50 Victoria EmbankmentLondon, EC4Y 0LS

Registered office5th Floor Carmelite50 Victoria EmbankmentBlackfriarsLondon, EC4Y 0LS

Nominated Adviser to the CompanyWH Ireland Limited24 Martin LaneLondon, EC4R 0DR

Brokers to the CompanyWH Ireland Limited24 Martin LaneLondon, EC4R 0DR

AuditorsMazars LLPTower Bridge HouseSt Katharine’s WayLondon, E1W 1DD

SolicitorsLaytonsCarmelite50 Victoria EmbankmentLondon, EC4Y 0LS

RegistrarsCapita IRG plcBourne House34 Beckenham RoadBeckenhamKent, BR3 4T


I C Orr-Ewing Executive Chairman, age 69Mr Orr-Ewing has been involved in the natural resources sector for 36 years. His experience covers both the oil and miningindustries and he has been a director of UK and Canadian oil companies and Irish and Canadian mining companies. Currently MrOrr-Ewing also advises a fund management company on its natural resources portfolios. He began his career as an investmentmanager for the Shell Pension Fund in London after completing his education as a Chartered Accountant. Mr Orr-Ewing also hasextensive experience in international financial affairs. He was deeply involved in the oil industry from 1971 through to 1987 withnumerous companies in the North Sea, Libya, Nigeria and Algeria. Mr Orr-Ewing has also served as a director for a number of oiland gas exploration and development companies. He is a graduate of Oxford University in geography and geology.

D K PaxtonChief Executive Officer (CEO), age 56Mr Paxton is a professional engineer with over 36 years experience in the mining industry, starting with mine production atGoldfields of South Africa, and then time at their head office and culminating with 24 years as a mining analyst. As a mininganalyst he has worked for a number of Canadian and UK stockbrokers, most recently Religare Hichens, Harrison Plc. He is adirector of India Minerals Plc, Adit Investments Ltd, Sahara Mines Ltd, Far North Platinum Ltd and Mining and Dining Club Ltd.

K C MorzariaFinance Director, age 36Mr Morzaria holds a Bachelor of Engineering (Industrial Geology) from the Camborne School of Mines and an MBA (Finance) fromCASS Business School. He has 11 years of experience in the mineral resource industry covering gold and diamonds. MrMorzaria spent his first four years in exploration, mining and civil engineering working for Highland Gold, Firestone Diamonds andCL Associates. He was appointed Finance Director of Vatukoula Gold Mines Plc in 2004 and since then has been overseeing thedevelopment of its mining and exploration projects in Fiji, Sierra Leone and Brazil.

D A LenigasExecutive Director, age 49Mr. Lenigas has 25 years of experience in the gold, diamond, coal and base metals industries. David is a Mining Engineer with aBachelor of Applied Science (Mining Engineering - with distinction). He is Chairman of Lonrho Plc, Lonzim Plc, Leni Gas & Oil Plc,Solo Oil Plc, and is also a non-executive director of Rare Earth Minerals.

J I Stalker Non-executive Director, age 56Mr. Stalker was the Chief Executive Officer of UraMin, a London- and Toronto-listed uranium company from July 2005 until itsacquisition by Areva in August 2007 for US$2.5 billion. He has over 30 years of mining experience in Europe, Africa and Australiaand has worked his way up from operational roles in base and precious metals companies to senior project development anddirector positions with some of the largest mining companies in the world.

J F KearneyNon-executive Director, age 59Mr Kearney is the Chairman and President of Canadian Zinc Corporation with over 30 years experience in the mining industryworldwide. With degrees in law, economics and business administration, he has a strong background in corporate development,finance and managing public companies, primarily in the mining field.

J A MacPhersonNon-executive Director, age 66Mr MacPherson is a Director of and founding chairman of Canadian Zinc Corporation. He has been active in public markets,corporate finance and corporate development for over 30 years. During this time he has led the strategic development of severalsuccessful ventures, primarily in the fields of mining and oil and gas. Throughout his career he has served as director of manyprivate and public corporations listed on the Toronto, AMEX and London Stock Exchanges.

Board of DirectorsFor the year ended 31 August 2010


The directors are pleased to present this year’s annual report together with the consolidated and company financial statementsfor the year ended 31 August 2010.

Principal activitiesThe principal activity of the Group was the operation of the Vatukoula Gold Mine in Fiji. The principal activity of the Company wasthat of a holding Company for its subsidiary undertakings, which are set out in Note 15 of the financial statements.

Results and dividendsThe profit on ordinary activities of the Group for the year ended 31 August 2010, after taxation was £4,523,049 (2009: loss of£9,381,476).

The directors do not recommend the payment of a dividend.

Business reviewA review of the current and future development of the Group’s business is given in the Chairman’s statement and the Review bythe Chief Executive on pages 10 to 17.

Given the nature of business and industry the key performance indicators are based on operational objectives set at thebeginning of the year. Performance in relation to these is highlighted in the Review by the Chief Executive on pages 12 to 17.

Financial key performance indicators are based on the budget as set out at the beginning of the year. Performance against theseindicators is highlighted in the Review by Finance Director on pages 18 to 21.

Post balance sheet eventsAt the date these financial statements were approved, being 28 February 2011, the directors were not aware of any significantpost balance sheet events other than those set out in Note 31 of the financial statements.

Future developmentsA review of our future developments is given in the Review by the Chief Executive on pages 12 to 17.

Financial risk managementThe Group’s operations expose it to financial risks that include liquidity risk, interest rate and foreign exchange risk. The Groupdoes not use derivative financial instruments to manage any of these risks nor is hedge accounting applied.

The Group depends on the Vatukoula mine for a substantial portion of its revenue and cash flow and, therefore, the Group’sbusiness will be harmed if Vatukoula’s revenues are adversely affected.

Given the size of the Group, the directors have not delegated the responsibility of monitoring financial risk management to a sub-committee of the board. The Group’s finance department implements the policies set by the Board of Directors.

Liquidity riskThe Group actively manages its working finance to ensure the Group has sufficient funds for operations and planned expansion.As referred to in Note 3 of the financial statements, it is for this reason that the directors believe it is appropriate to prepare thefinancial statements on a going concern basis.

Interest rate cash flow riskInterest bearing assets are only cash balances that earn interest at a floating rate. The Group does not have any variable ratedebt and therefore it is not exposed to interest rate cash flow risk on its debt.

Foreign exchange riskThe Group principally operates in Fiji and Brazil. The board has assessed its exposure and it does not currently consider the riskof exposure to these currencies to be material. As such the directors do not currently consider it necessary to enter into forwardexchange contracts. This situation is monitored on a regular basis.

Credit riskCredit risk is the risk of financial loss to the Group if a customer or counter party to a financial instrument, fails to meet itscontractual obligations, and arises principally from the Group’s receivables from customers. The Group has credit riskmanagement policies in place and exposures to credit risk are monitored on an ongoing basis. Management generally adoptsconservative strategies and a tight control on credit policy.

Principal risks and uncertaintiesThe Board annually reviews the key risks facing the business together with making assessment of the controls for managingthese risks where possible. The principal risks and uncertainties facing the Group are as follows:

• Geological: Geological factors might influence the ability of the Group to extract gold from the Vatukoula mine. These include, in particular, the flooding of mine workings which would hinder the ability to mine.

Directors’ Report

Director’s Report


• Market: The Group’s business is impacted by the general risks associated with the gold market. Profitability is affected by factors beyond the Group’s control, such as fall in the market price of gold.

• Licenses, leases and consents: The group’s extraction and processing activities are subject to the grant and continuation of appropriate licenses, leases, permits and planning permissions.

• Inventory Valuations: Valuations of gold stockpiles, gold in circuit and gold within the fine ore bin requires estimations of the amount contained in, and the recovery rates from, the various work in progress gold circuits. These estimations are based on analysis of samples and prior experience. A judgement is also required when the gold in circuit will be recovered and what gold price should be applied in calculating the net realisable value.

Directors’ insuranceThe Company has taken out an insurance policy to indemnify the directors and officers of the Company against liability whenacting for the Group.

DirectorsThe following directors have held office during the year:

I C Orr-EwingD K PaxtonK C MorzariaD A LenigasJ I StalkerJ F KearneyJ A MacPherson

Directors’ interestsOn 8 November 2010 the Ordinary Shares in the Company were consolidated on the basis of one new ordinary share of 5p forevery 50 existing ordinary shares of 0.1p. Therefore, the number of ordinary shares have decreased and the value of eachOrdinary Share increased, such that, disregarding market price movements the aggregate value and interest of each Director hasremained the same. Warrants and Options over ordinary shares were similarly consolidated. For illustrative purposes the directors’interests’ are shown post the consolidation of ordinary shares at 8 November 2010 only. Since the 8 November 2010 there hasbeen not been any change in directors or family interests. Directors’ interests, including family interests in the ordinary shares,were as follows:

Directors’ interests, including family interests in the ordinary shares, were as follows:

Beneficial Holding17 February 2011 31 August 2010 31 August 2009

I C Orr-Ewing* 452,683 22,634,154 22,634,154 D K Paxton 100,000 5,000,000 5,000,000K Morzaria 35,940 1,797,000 1,797,000D A Lenigas 20,000 1,000,000 1,000,000J I Stalker - - -J F Kearney - - -J A MacPherson - - -

* of which 10,555,367 (2009: 10,555,367) are held beneficially (prior to consolidation).

Directors also hold options over ordinary shares as follows:

Number of Options17 February 2011 31 August 2010 31 August 2009

I C Orr-Ewing 300,000 15,000,000 13,500,000D K Paxton 1,000,000 50,000,000 50,000,000K C Morzaria 700,000 35,000,000 18,500,000D A Lenigas 700,000 35,000,000 33,500,000J I Stalker 700,000 35,000,000 30,000,000J F Kearney 400,000 20,000,000 -J A MacPherson 400,000 20,000,000 -


Substantial shareholdingsAs at 17 February 2011 the following had notified the Company of disclosable interests of 3% or more in the nominal value of theCompany’s shares:

Ordinary shares of 5 p %

Canaccord Nominees Limited * 12,663,380 15.39Roy Nominees Limited 7,547,548 9.17Pension Financial Services Inc 7,232,870 8.79Barclayshare Nominees Limited 3,819,888 4.64State Street Nominees Limited 3,214,081 3.91TD Waterhouse Nominees (EUROPE) 3,182,025 3.87

Total 37,659,792 45.78

* These shares are held by Canaccord Nominees Limited on behalf of and for the benefit of Canadian Zinc Corporation.

Policy on payment of creditorsThe Company seeks to maintain good terms with all of its trading partners. In particular, it is the Company’s policy to agreeappropriate terms and conditions for its transactions with suppliers and, provided the supplier has complied with its obligations,to abide by the terms of payment agreed. Trade creditor days of the Group for the year ended 31 August 2010 were 56 days(2009: 80 days).

Going concernAfter making enquiries, the directors have formed a judgement at the time of approving the financial statements, that there is areasonable expectation that the Company and the Group as a whole have adequate resources to continue in operationalexistence for the foreseeable future. For this reason the directors have adopted the going concern basis in preparing thefinancial statements.

AuditorsIn accordance with Section 489 of the Companies Act 2006, a resolution proposing that Mazars LLP be re-appointed will be putto the forthcoming Annual General Meeting.

Directors’ responsibilities in the preparation of financial statementsThe directors are responsible for preparing the annual report and the financial statements in accordance with EU endorsedInternational Financial Reporting Standards (‘IFRS’), interpretations from the International Financial Reporting InterpretationsCommittee (‘IFRIC’) and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. Company lawrequires directors to prepare financial statements for each financial period which give a true and fair view of the state of affairs ofthe Company and the Group and of the profit and loss for that period. In preparing the financial statements, directors arerequired to:

• select suitable accounting policies and then apply them consistently;• make judgements and estimates that are reasonable, comparable, understandable and prudent;• ensure the financial statements comply with IFRS;• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue

in business.

The directors are responsible for keeping proper books of account which disclose with reasonable accuracy at any time thefinancial position of the Company and the Group and to enable them to ensure that the financial statements comply with theCompanies Act 2006. The directors are also responsible for safeguarding the assets of the Group and hence for taking reasonablesteps for the prevention and detection of fraud and other irregularities.The directors are also responsible for the maintenance andintegrity of the Group’s website on the internet. However, information is accessible in many different countries where legislationgoverning preparation and documentation of financial statements may differ from that applicable in the United Kingdom.

Disclosure of information to auditorsSo far as each person who was a director at the date of approving the report is aware, there is no relevant audit information, beinginformation needed by the auditor in connection with preparing the report, of which the auditors are unaware. Having madeenquiries of fellow directors, each director has taken all the steps that he is obliged to have taken as a director in order to havemade himself aware of any relevant audit information and to establish that the company’s auditors are aware of that information.

On behalf of the Board

On behalf of the Board

K C MorzariaDirector28 February 2011

Directors’ Report (continued)


Compliance with the Combined Code The directors recognise the value of the Combined Code on Corporate Governance that was issued in 2008 by the FinancialReporting Council and whilst under AIM rules full compliance is not required, the directors believe that the Company applies therecommendations insofar as is practicable and appropriate for a public company of its size.

Board of DirectorsThe board of directors comprises four executive directors, one of whom is the Chairman, and three non-executive directors. Thedirectors are of the opinion that the board comprises a suitable balance and that the recommendations of the Combined Codehave been implemented to an appropriate level. The board, through the Chief Executive Officer and the Finance Director inparticular, maintains regular contact with its advisers and public relations consultants in order to ensure that the board developsan understanding of the views of major shareholders about the company.

Board MeetingsIn addition to ad hoc meetings arranged to discuss particular transactions and events and the AGM, the full board met five timesduring the year ending August 2010. The board is responsible for formulating, reviewing and approving the Company's strategy,financial activities and operating performance. Day to day management is devolved to the executive directors who are chargedwith consulting the board on all significant financial and operational matters. Consequently decisions are made promptly andfollowing consultation amongst the directors concerned where necessary and appropriate.

All necessary information is supplied to the directors on a timely basis to enable them to discharge their duties effectively, and alldirectors have access to independent professional advice, at the company's expense, as and when required.

The Chief Executive Officer is available to meet with institutional shareholders to discuss any issues and concerns regarding theGroup's governance. The non-executive directors can also attend meetings with major shareholders if requested.

The participation of both private and institutional investors at the Annual General Meeting is welcomed by the board.

Internal controlsThe directors acknowledge their responsibility for the Company's and the Group's systems of internal control, which are designedto safeguard the assets of the Group and ensure the reliability of financial information for both internal use and externalpublication. Overall control is ensured by a regular detailed reporting system covering both technical progress of a project andthe state of the group's financial affairs. The board has put in place procedures for identifying, evaluating and managing anysignificant risks that face the group.

Any system of internal control can provide only reasonable, and not absolute, assurance that material financial irregularities will bedetected or that the risk of failure to achieve business objectives is eliminated. The directors, having reviewed the effectiveness ofthe system of internal financial, operational and compliance controls and risk management, consider that the system of internalcontrol operated effectively throughout the financial year and up to the date the financial statements were signed.

CommitteesEach of the following committees has its own terms of reference.

Audit CommitteeThe Audit Committee comprises the non-executive directors. Its terms of reference indicate at least two regular meetings peryear. The audit committee has met twice during the year. The Audit Committee's primary responsibilities are to review theeffectiveness of the company's systems of internal control, to review with the external auditors the nature and scope of their auditand the results of the audit, and to evaluate and select external auditors.

Remuneration CommitteeThe Remuneration Committee comprises the non-executive directors. It plans to meet at least twice in each year. TheRemuneration Committee has met once during the year.

The Company's policy is to remunerate senior executives fairly in such a manner as to facilitate the recruitment, retention andmotivation of staff. The Remuneration Committee agrees with the board a framework for the remuneration of the chairman, theexecutive directors and the senior management of the company. The principal objective of the Committee is to ensure thatmembers of the executive management of the Company are provided incentives to encourage enhanced performance and are, ina fair and responsible manner, rewarded for their individual contributions to the success of the Company. Non-executive fees areconsidered and agreed by the board as a whole.

Corporate Governance Statement


To the Members of Vatukoula Gold Mine Plc

We have audited the financial statements of Vatukoula Gold Mines Plc for the year ended 31 August 2010 which comprise theConsolidated Statement of Comprehensive Income , the Consolidated and Company statements of Financial Position, theConsolidated and Company Statement of Cash Flows, the Consolidated and Company Statements of Changes in Equity and therelated notes. The financial reporting framework that has been applied in their preparation is applicable law and InternationalFinancial Reporting Standards (IFRS) as adopted by the European Union and, as regards the parent company financialstatements, as applied in accordance with the provisions of the Companies Act 2006.

Respective responsibilities of directors and auditorsAs explained more fully Directors’ Responsibilities Statement set out on page 26, the directors are responsible for the preparationof the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financialstatements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards requireus to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. This report, including our opinion, hasbeen prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required tostate to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assumeresponsibility to anyone other than the company and the company’s members as a body for our audit work, for this report, or forthe opinions we have formed.

Scope of the audit of the financial statementsA description of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/apb/scope/UKNP.

Opinion on the financial statementsIn our opinion: • the financial statements give a true and fair view of the state of the group’s and the parent company’s affairs as at 31 August

2010 and of the group’s profit for the year then ended;• the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; • the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European

Union and as applied in accordance with the provisions of the Companies Act 2006; and• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matter prescribed by the Companies Act 2006In our opinion, the information given in the Directors’ Report for the financial year for which the financial statements are preparedis consistent with the financial statements.

Matters on which we are required to report by exceptionWe have nothing to report of the following:Under the Companies Act 2006 we are required to report to you if, in our opinion:

• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

• the parent company financial statements are not in agreement with the accounting records and returns; or• certain disclosures of directors’ remuneration specified by law are not made; or• we have not received all the information and explanations we require for our audit.

Richard Karmel (Senior statutory auditor)

For and on behalf of Mazars LLP, Chartered Accountants (Statutory auditor)Tower Bridge HouseSt Katharine's WayLondon E1W 1DDDate: 28 February 2011

Note: The maintenance and integrity of the Vatukoula Gold Mines Plc website is the responsibility of the directors. The workcarried out by the auditors does not involve consideration of these matters and accordingly the auditors accept no responsibilityfor any changes that may have occurred to the financial statements since they were originally presented on the website.Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislationin other jurisdictions.

Independent Auditor’s Report


Note 2010 2009£’000 £’000

Turnover 4 40,354 18,837Cost of sales 5 (28,032) (17,429)

Gross profit 4 12,322 1,408

Operating ExpensesGold Duty (1,216) (560)Administrative expenses (3,229) (3,515)Foreign exchange gains 2,182 975Depreciation and amortisation (5,187) (3,903)

Underlying operating profit / (loss) 4,872 (5,595)

Impairment of available for sale investments - (400)Inventory obsolescence (381) -Rehabilitation charge (17) (193)Provision for doubtful debt 18 - (2,712)Share based payments (665) (1,091)

Operating profit / (loss) 6 3,809 (9,991)

Interest receivable and other income 8 39 130Interest payable and similar charges 8 (163) (45)

Net profit / (loss) before taxation 3,685 (9,906)

Taxation 9 838 525

Profit / (loss) for the period 4,523 (9,381)

Attributable to: 4,523 (9,381)Owners of the Parent - -Non Controlling interest 4,523 (9,381)

Other Comprehensive Income and (expenses)Currency translation differences (332) (210)

Total comprehensive income and (expenses) for the period 4,191 (9,591)

Attributable to:Owners of the Parent 4,191 (9,591)Non Controlling interest - -

Total comprehensive income and (expenses) for the period 4,191 (9,591)

Earnings / (loss) per sharePence Pence

Basic 11 0.13 (0.43)Diluted 11 0.13 (0.43)

All activities relate to continuing operations.

The notes on pages 36 to 65 form an integral part of these financial statements

Consolidated Statement of Comprehensive IncomeFor the year ended 31 August 2010


Note 2010 2009£’000 £’000

AssetsNon current assetsIntangible assets 12 33,688 36,542Property, plant and equipment 13 20,723 13,017Mine properties and development 16 4,423 591Available for sale investments 14 - -

Total non-current assets 58,834 50,150

Current assetsInventories 17 6,030 4,681Trade and other receivables 18 5,151 1,843Cash and cash equivalents 19 12,849 1,086Total current assets 24,030 7,611

Total assets 82,864 57,761

Current liabilitiesTrade and other payables 21 4,308 3,822Provisions 22 1,539 1,615Borrowings 23 45 -

Total current liabilities 5,892 5,437

Non current liabilitiesProvisions 22 4,726 1,869Convertible loan 24 332 502Borrowings 23 5 -Deferred tax liability 30 9,394 10,232

Total non-current liabilities 14,457 12,603

Shareholders’ equityShare Capital 20 4,031 2,686Share premium account 20 69,699 53,076Merger reserve 2,167 2,167Foreign exchange reserve 404 736Other reserves 1,592 1,237Accumulated losses (15,378) (20,181)

Total shareholders equity 62,515 39,721

Total liabilities and shareholders equity 82,864 57,761

Approved by the Board and authorised for issue on 28 February 2011 and signed on behalf of the Board of Directors by:



Consolidated Statement of Financial PositionAs at 31 August 2010


Note 2010 2009£’000 £’000

AssetsNon current assetsInvestment in subsidiary companies 15 37,679 37,679Property, plant and equipment 13 250 250

Total non-current assets 37,929 37,929

Current assetsTrade and other receivables 18 14,748 8,846Cash and cash equivalents 19 10,452 438

Total current assets 25,200 9,284

Total assets 63,129 47,213

Current liabilitiesTrade and other payables 21 318 232

Non current liabilitiesConvertible loan 24 332 502

Shareholders’ EquityShare Capital 4,031 2,686Share premium account 69,699 53,076Other reserves 1,592 1,237Accumulated losses (12,843) (10,520)

Total shareholders’ equity 62,479 46,479

Total liabilities and shareholders equity 63,129 47,213

Approved by the Board and authorised for issue on 28 February 2011 and signed on behalf of the Board of Directors by:



Company Statement of Financial PositionAs at 31 August 2010


Ordinary Foreignshare Share Merger exchange Other Accumulated

capital premium reserve reserve reserves losses Total£’000 £’000 £’000 £’000 £’000 £’000 £’000

Balance at 1 Sep 2009 2,686 53,076 2,167 736 1,237 (20,181) 39,721Profit for the year - - - - - 4,523 4,523

– Other comprehensive income - - - - - - -– Currency translation differences - - - (332) - - (332)

Total comprehensive income 2,686 53,076 2,167 404 1,237 (16,658) 43,912

Issue of shares 1,324 17,286 - - - - 18,610Cost of share issue - (872) - - - - (872)Share option expired - - - - (280) 280 -Convertible loan 21 209 - - (30) - 200Share based payment - - - - 665 - 665

Balance at 31 Aug 2010 4,031 69,699 2,167 404 1,592 (15,378) 62,515

Ordinary Foreignshare Share Merger exchange Other Accumulated

capital premium reserve reserve reserves losses Total£’000 £’000 £’000 £’000 £’000 £’000 £’000

Balance at 1 Sep 2008 1,902 49,427 2,167 947 168 (9,830) 44,781Loss for the year - - - - - (9,381) (9,381)

– Other comprehensive income - - - - - - -– Currency translation differences - - - (210) - - (210)

Total comprehensive income 1,902 49,427 2,167 736 168 (19,211) 35,189

Issue of shares 834 4,170 - - - - 5,004Cost of share issue - (521) - - - - (521)Share option expired - - - - (80) 80 -Share reduction (50) - - - - 50 -Adjustment for unpaid shares - - - - - (1,100) (1,100)Convertible loan - - - - 58 - 58Share based payment - - - - 1,091 - 1,091

Balance at 31 Aug 2009 2,686 53,076 2,167 736 1,237 (20,181) 39,721

Share premium: The share premium reserve represents the consideration that has been received in excess of the nominal valueof shares on issue of new ordinary share capital.

Merger reserve: The merger reserve represent shares that have been issued at a premium to their nominal value on acquisition ofanother company.

Foreign exchange reserves: The Foreign exchange reserves represent the exchange gains or losses resulting form translatingforeign currency amounts to the reporting currency during the consolidation of the accounts of the Company.

Other reserves: The other reserves represents the increases and decreases in the amounts recognised in the previous andcurrent periods relating to share based payment and convertible loan note transactions.

Accumulated losses: The accumulated losses represent profits and losses retained in previous and current period


Consolidated Statement of Changes in Shareholders’ EquityAs at 31 August 2010


Ordinaryshare Share Other Accumulated

capital premium reserves losses Total£’000 £’000 £’000 £’000 £’000

Balance at 1 Sep 2009 2,686 53,076 1,237 (10,520) 46,479Loss for the year - - - (2,603) (2,603)

Total comprehensive income 2,686 53,076 1,237 (13,123) (43,876)

Issue of shares 1,324 17,286 - - 18,610Cost of share issue - (872) - - (872)Convertible loan 21 209 (30) - 200Share option expired - - (280) 280 -Share based payments - - 665 - 665

Balance at 31 Aug 2010 4,031 69,699 1,592 (12,843) 62,479

Ordinaryshare Share Other Accumulated

capital premium reserves losses Total£’000 £’000 £’000 £’000 £’000

Balance at 1 Sep 2008 1,902 49,427 168 (5,804) 45,693Loss for the year - - - (3,746) (3,746)

Total comprehensive income 1,902 49,427 168 (9,550) 41,947

Issue of shares 834 4,170 - - 5,004Cost of share issue - (521) - - (521)Convertible loan - - 58 - 58Share reduction (50) - - 50 -Share option expired - - (80) 80 -Adjustment for unpaid shares - - - (1,100) (1,100)Share based payments - - 1,091 - 1,091

Balance at 31 Aug 2009 2,686 53,076 1,237 (10,520) 46,479

Share premium: The share premium reserve represents the consideration that has been received in excess of the nominal value ofshares on issue of new ordinary share capital.

Other reserves: The other reserves represents the increases and decreases in the amounts recognised in the previous and currentperiods relating to share based payment and convertible loan note transactions.

Accumulated losses: The accumulated losses represent profits and losses retained in previous and current period.


Company Statement of Changes in Shareholders’ EquityAs at 31 August 2010


Note 2010 2009£’000 £’000

Cash flow from operating activitiesOperating profit/(loss) for the period 6 3,809 (9,991)Adjustments for:

Share based payments 20 665 1,091Depreciation and amortisation 5,187 3,903Foreign exchange gains (2,182) 97Impairment of investments - 400Loss on disposal of property, plant and equipment - 333Allowance for inventory obsolescence 381 -Provision for bad debts - 2,112Provision for rehabilitation trust deed 17 193

Net operating income/(loss) before changes in working capital 7,877 (1,862)

(Increase) /decrease in inventories 17 (1,348) (1,318)(Increase) / decrease in receivables 18 (3,307) 111Increase / (decrease) in payables 21 486 (1,069)

Net cash generated / (used) in operating activities 3,708 (4,138)

Cash flow from investing activitiesPurchase of property, plant and equipment 13 (6,038) (1,237)Payments for mine properties and development 16 (3,887) (439)Interest received 8 39 10

Net cash used in investing activities (9,886) (1,666)

Cash flows before financing (6,178) (5,901)

Cash flows from financing activitiesProceeds from issuance of shares 20 18,609 5,004Cost of issue of shares (872) (521)Interest paid (179) (45)Proceeds from / (repayment of) convertible loan note - 485(Repayment)/proceeds from borrowings 23 50 (281)

Net cash generated from financing activities 17,609 4,643

Net (Increase)/decrease in cash and cash equivalents 11,431 (1,258)

Cash and cash equivalents at beginning of the year 19 1,086 2,249Effect of foreign exchange on cash and cash equivalents 332 95

Cash and cash equivalents at end of the year 19 12,849 1,086


Consolidated Statement of Cash FlowsFor the year ended 31 August 2010


Note 2010 2009£’000 £’000

Cash flow from operating activitiesOperating loss for the period (2,540) (3,745)Adjustment for:

Investment written off - 1,543Impairment - 609Share based payment 20 665 1,091

Net operating loss before changes in working capital (1,875) (502)

(Increase) in receivables 18 (5,903) (1,157)Increase/(decrease) in payables 21 86 (14)

Net cash used in operating activities (7,692) (1,673)

Investing activitiesPurchase of investments - (3,804)Interest received 36 7Purchase of property, plant and equipment - (250)

Net cash used in investing activities 36 (4,047)

Cash flows before financing (7,656) (5,720)

Cash flows from financing activitiesProceeds from issuance of shares 20 18,609 5,004Costs of issue of shares (872) (521)Proceeds from / (repayment of) convertible loan note - 485(Repayment) / proceeds from borrowings - -Finance expense (68) (30)

Net cash generated from financing activities 17,670 4,938

Net (increase)/decrease in cash and cash equivalents 10,014 (782)

Cash and cash equivalents at beginning of the year 19 438 1,220

Cash and cash equivalents at end of the year 19 10,452 438


Company Statement of Cash FlowsFor the year ended 31 August 2010


1. General informationVatukoula Gold Mines Plc is registered in England and Wales under number 5059077. The Company is governed by its articles ofassociation and the principal statute governing the Company is the Companies Act 2006. The Company’s registered office issituated at 5th floor, Carmelite, Victoria Embankment, Blackfriars, London, EC4Y 0LS. The company is listed on the AIM marketof the London Stock Exchange.

The nature of the Group’s and Company’s operations and principal activities are set out in the Directors’ Report on page 24.

2. Basis of preparationThe principal accounting policies adopted by the Group and Company in the preparation of the financial statements are set outbelow.

The Board has reviewed the accounting policies set out in the financial statements and considers them to be most appropriate tothe Group’s business.

These financial statements are presented in sterling. The functional currency of the Group is the Fijian dollar (F$) as it effects themajority of its costs. Revenues are in US dollars. Given that the Fijian dollar is not widely used as a reporting currency and thatthe parent company is listed in the United Kingdom it is deemed appropriate for the presentation currency to be in sterling.

Statement of Compliance with IFRSThe Group’s and Company’s financial statements have been prepared in accordance with International Financial ReportingStandards (IFRS and IFRIC interpretations) as adopted by the European Union.

New accounting standardsThe group has adopted IFRS 8: Operating segments. The effect of this standard is to disclose information concerning the group’sreporting segments however adoption of this standard did not materially change the analysis of the group’s results andperformance. The group and company adopted IAS 1 (revised): Presentation of financial statements. The effect of this standard ispurely presentational.

The Group will apply the revised IFRS 3: Business Combinations to all business combinations entered into on or after 1 July2009. The key features of the revised IFRS 3 include the requirement for acquisition related costs to be expensed and notincluded in the purchase price; and contingent consideration to be recognised at fair value or the acquisition date (withsubsequent changes recognised in the profit and loss account and not as a change in goodwill). The standard also changes thetreatment of non-controlling interests with an option to recognise these at fair value as at the acquisition date and a requirementfor previously held non-controlling interests to be fair valued as at the date of control is obtained, with gains and lossesrecognised in profit or loss. The revised standard has not had an impact on the 2009 / 2010 financial statements.

IAS 27: Consolidated and separate financial statements (Revised) became effective during the year. IAS 27 revised no longerrestricts the allocation to non-controlling interests of losses incurred by a subsidiary to the amount of non-controlling equityinvestments of the subsidiary. A partial disposed of equity investment in a subsidiary that does not result in a loss of control willbe accounted for as an equity transaction and will have no impact on goodwill nor will it give rise to any gain or loss. Where thereis a loss of control of a subsidiary, any retained interest will have be re-measured to fair value, which will impact the gain or lossrecognised on disposal. The revised standard has not had an impact on 2009 / 2010 financial statements. The group and thecompany have not applied the following IFRS, IAS and IFRICs that are applicable and have been issued but are not yet effective.

New/Revised International Financial Reporting Standards Issued Effective Date

IFRS 2 Share-based Payment June 2009 Annual periods – Amendments relating to group cash-settled share-based payment beginning on or transactions after 1 January 2010

IFRS 7 Financial Instruments: Disclosures October 2010 Annual periods – Amendments enhancing disclosures about transfers of financial assets beginning on or

after 1 July 2011IFRS 9 Financial Instruments Original issue Annual periods

– Classification and Measurement November 2009 beginning on or after 1 January 2013

Revised International Accounting Standards Revised Effective Date

IAS 12 Income Taxes December 2010 Annual periods – Limited scope amendment (recovery of underlying assets) beginning on or

after 1 January 2012IAS 24 Related Party Disclosures November 2009 Annual periods

– Revised definition of related parties beginning on or after 1 January 2011

IAS 32 Financial Instruments: Presentation 2009 Annual periods – Amendments relating to classification of rights issues beginning on or

after 1 February 2010

Notes to the Financial StatementsFor the year ended 31 August 2010


In addition to the above, there are a number of minor adjustments to various standards which are part of the IASB’s annualimprovement project published in April 2009 and May 2010. These amendments are not expected to have significant impact onthe group’s accounts and are effective for financial years beginning on or after 1 January 2010 and 1 January 2011 respectively.

There have been no other new or revised International Financial Reporting Standards, International Accounting Standards orInterpretations that are in effect since that last annual report that have a material impact on the financial statements.

3. Summary of significant accounting policies(a) Basis of consolidationThe consolidated financial information incorporates the financial statements of the Company and its subsidiaries (the “Group”).Control is achieved where the Group has the power to govern the financial and operating policies of an investee entity so as toobtain benefits from its activities.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealisedlosses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred orassumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities andcontingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date,irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share ofthe identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets ofthe subsidiary acquired, the difference is recognised directly in the profit or loss. Where necessary, adjustments are made to thefinancial statements of subsidiaries to bring the accounting policies used in line with those used by the Group.

(b) Going concernThe financial information has been prepared assuming the Company and the Group will continue as a going concern. Under thegoing concern assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future with neither theintention nor the necessity of liquidation, ceasing trading or seeking protection from creditors pursuant to laws or regulations. Inassessing whether the going concern assumption is appropriate, management takes into account all available information for theforeseeable future, in particular for the twelve months from the date of approval of the financial statements. Should the Companyor the Group be unable to continue trading, adjustments would have to be made to reduce the value of the assets to theirrecoverable amounts, to provide for further liabilities which might arise, and to classify fixed assets as current.

(c) Business combinationsThe purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of theacquisition is measured at the aggregate of the fair values, at the date of exchange, of the assets given, liabilities incurred orassumed and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributableto the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions forrecognition under IFRS 3 “Business Combinations” are recognised at their fair value at the acquisition date, except for non-currentassets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 “Non Current Assets Held for Sale andDiscontinued Operations”, which are recognised and measured at fair value less costs to sell.

Where there is a difference between the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities andcontingent liabilities and the cost of the business combination, any excess cost is recognised in the statement of financial positionas goodwill and any excess net fair value is recognised immediately in the profit or loss as negative goodwill on acquisition ofsubsidiary. The interest of minority shareholders in the acquiree is initially measured at the minority’s proportion of the net fairvalue of the assets, liabilities and contingent liabilities recognised.

(d) Significant accounting judgements, estimates and assumptionsThe preparation of financial statements requires the application of estimates and assumptions on future events, which affectsassets and liabilities at the balance sheet date and income and expenditure for the period. The estimates and underlyingassumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which theestimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affectsboth current and future periods.

The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certainassets and liabilities within the next annual reporting period are:

1. Share-based payment transactions (see note 20)The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equityinstruments at the date at which they are granted. The fair value is determined using the Black-Scholes model.

2. Income taxes (see note 9)The Group is subject to income taxes in the United Kingdom, Fiji and Brazil. Significant judgment is required in determining theworldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination isuncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts thatwere initially recorded, such differences will impact the current and deferred tax provisions in the period in which suchdetermination is made.


3. Intangible assets (see note 12)AmortisationIntangible assets (other than goodwill) are amortised over their useful lives. Useful lives are based on management’s estimates ofthe period that the assets will generate revenue, which are periodically reviewed for continued appropriateness. Due to the longlives of assets, changes to the estimates used can result in significant variances in the carrying value.

The Group assesses the impairment of intangible assets subject to amortisation or depreciation whenever events or changes incircumstances indicate that the carrying value may not be recoverable. Factors considered important that could trigger animpairment review include the following:

• significant underperformance relative to historical or projected future operating results;• significant changes in the manner of the use of the acquired assets or the strategy for the overall business; and • significant negative industry or economic trends.

The complexity of the estimation process and issues related to the assumptions, risks and uncertainties inherent in theapplication of the Group’s accounting estimates in relation to intangible assets affect the amounts reported in the financialstatements, especially the estimates of the expected useful economic lives and the carrying values of those assets. If businessconditions were different, or if different assumptions were used in the application of this and other accounting estimates, it islikely that materially different amounts could be reported in the Group’s financial statements.

AllocationThe Group recognises intangible assets acquired as part of business combinations at fair value at the date of acquisition and avaluation is subsequently allocated to each intangible asset acquired. The determination of these fair values is based uponmanagement’s judgment and includes assumptions on the timing and amount of future incremental cash flows generated by theassets and the selection of an appropriate cost of capital. If these assumptions were to change there would be a material impactto the Group’s financial statements.

4. Allowance for doubtful debts (see note 18)Each receivable balance is assessed to determine recoverability. Provisions are made for those debtors where evidenceindicates that recoverability is doubtful. Amounts are written off when they are deemed irrecoverable. Any changes to estimatesmade in relation to debtors recoverability may result in immaterially different amounts being reported by the Group’s financialstatements.

5. Mineral Resources and ReservesQuantification of mineral resources requires a judgment on the reasonable prospects for eventual economic extraction.Quantification of ore reserves requires a judgement on whether mineral resources are economically mineable. These judgmentsare based on assessment of mining, metallurgical, economic, marketing, legal, environmental, social and governmental factorsinvolved, in accordance with the Canadian Institute of Mining, Metallurgy and Petroleum’s’ definition standards on mineralresources and mineral reserves. These factors are a source of uncertainty and changes could result in an increase or decrease inmineral resources and ore reserves. This would in turn affect certain amounts in the financial statements such as amortisation,closure provisions which are calculated on a projected life of mine figures.

6. Inventory ValuationsValuations of gold stockpiles, gold in circuit and gold within the fine ore bin requires estimations of the amount contained in, andthe recovery rates from, the various work in progress gold circuits. These estimations are based on analysis of samples and priorexperience. A judgement is also applied when the gold in circuit will be recovered and what gold price should be applied incalculating the net realisable value; these are both sources of uncertainty.

7. Mine Rehabilitation ProvisionsSuch provisions require a judgement on likely future obligations, based on assessment of technical, legal and economic factors.The ultimate cost of environmental remediation is in certain and cost estimates can vary in response to many factors, includingchanges in the relevant legal requirements, the emergence of new restoration techniques and changes to the life of mine.

8. Provisions and Contingent LiabilitiesJudgements are made as to whether a past event has led to a liability that should be recognised in the financial statements ordisclosed as a contingent liability. Quantifying any such liability often involves judgements and estimations. These judgementsare based on a number of factors including the nature of the claim or dispute, the legal process and potential amount payable,legal advice received, previous experience and the probability of a loss being realised. Several of these factors are a source ofestimation uncertainty.

(e) Revenue recognitionRevenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and revenue can bereliably measured. The following specific recognition criteria must be met before revenue is recognised:

Notes to the Financial StatementsFor the year ended 31 August 2010 (Continued)


Bullion sales• The product is in a saleable form and therefore the quantity and value can be determined with reasonable accuracy;• The product has been received by the refinery and is no longer under the physical control of the Group;• The selling price can be measured reliably;• It is probable that the economic benefits associated with the transaction will flow to the Group; and • The costs incurred, or to be incurred, can be measured reliably.

Finance revenueInterest revenue is recognised as interest accrues using the effective interest rate method. This is a method of calculating theamortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate,which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the netcarrying amount of the financial asset.

(f) Turnover and Segmental AnalysisThe Group has adopted IFRS 8 which is required for all annual reports and interim financial statements starting 1 January 2009 orlater. Implementation of IFRS 8 has not changed the Group’s policy in measuring the amounts included in the turnover andsegmental analysis reporting. However the presentation of the turnover and segmental analysis has changed in 2010 compared to2009.

The reportable segments identified make up all of the Group’s external revenue, which is derived primarily from the sale of gold.The reportable segments are an aggregation of the operating segments within the Group as prescribed by IFRS 8. The reportablesegments are based on the Group’s management structures and the consequent reporting to the Chief Operating Decision Maker,the Board of Directors. Our sector results are attributable to the gold production, exploration and corporate costs. Thesereportable segments also correspond to geographical locations such that each reportable segment is in a separate geographiclocation,ie; head office – UK, gold mining – Fiji, other activities – Brazil.

Income and expenses included in profit for the year are allocated directly or indirectly to the reportable segments. Expensesallocated as either directly or indirectly attributable comprise: cost of sales, gold duty and administrative expenses.

Non-current segment assets comprise the non-current assets used directly for segment operations, including intangible assets,property plant and equipment and mine properties and development.

Current segment assets comprise the current assets used directly for segment operations, including inventories, tradereceivables, other receivables and pre-payments.

Inter-company balances comprise arms’ length transactions between operating segments making up the reportable segments.These balances are eliminated to arrive at the figures in the consolidated accounts.

(g) The Company’s investments in subsidiariesIn its separate financial statements the Company recognises its investments in subsidiaries at cost, less any impairment forpermanent diminution in value.

(h) Foreign currencyThe presentational functional currency of the Group is Sterling (“£”). Each entity in the Group determines it own functionalcurrency and items included in the financial statements of each entity are measured using that functional currency. The assetsand liabilities of these subsidiaries are translated into the presentation currency of Vatukoula Gold Mines Plc at the rate ofexchange ruling at the reporting date and their income statements are translated at the average exchange rate for the year. Theexchange differences arising on the translation are taken directly to a separate component of equity.

All other differences arising on translation are included in the profit or loss except for exchange differences arising on non-monetary assets and liabilities where the changes in fair values are recognised directly in equity.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreignentity and translated at the closing rate.

Exchange differences recognised in profit or loss of Group entities’ separate financial statements on the translation of long-termmonetary items forming part of the Group’s net investment in the overseas operation concerned are reclassified to the foreignexchange reserve. On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchangereserve relating to that operation up to the date of disposal are transferred to the income statement as part of the profit or loss.

(i) Goodwill on consolidationGoodwill arising on the acquisition of a subsidiary or jointly controlled entity represents the excess of the cost of acquisition overthe Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary or jointlycontrolled entity recognised at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequentlymeasured at cost less any accumulated impairment losses.


For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefitfrom synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairmentannually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount ofany goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of eachasset in the unit. An impairment loss recognised for goodwill is not reversed in subsequent periods.

(j) InventoriesOre stock, consisting of stocks on which further processing is required to convert them to trading stocks, is valued at the lowerof cost and net realisable value. Cost is calculated using a weighted average cost model, where inventories are valued at theweighted average cost of the closing inventory. Net realisable value is estimated selling price less the estimated costs necessaryto make the sale.

Other inventories include:

(i) Stores, comprising plant spares and consumable stores, are valued on the basis of weighted average cost after providing for obsolescence.

(ii) Work in progress is valued on the basis of first in first out and includes direct costs, depreciation and amortisation.(iii) Insurance spares are stated at the lower of cost and net realisable value.

Gold in circuitGold in circuit is valued at the lower of cost and net realisable value. Cost comprises direct material, labour and transportationexpenditure incurred in getting inventories to their existing location and condition, together with an appropriate portion of fixedand variable overhead expenditure based on weighted average costs incurred during the period in which such inventories wereproduced. Net realisable value is the amount anticipated to be realised from the sale of inventory in the normal course ofbusiness less any anticipated costs to be incurred prior to its sale.

(k) Intangible assetsAcquired intangible assets which consist of mining rights are valued at cost less accumulated amortisation. Amortisation iscalculated using the units of production method which is calculated over the life span of the mine.

The assets’ residual value and useful lives are reviewed and adjusted if appropriate, at each reporting date. An asset’s carryingvalue is written down immediately to its recoverable value if the asset’s carrying amount is greater than its listed recoverableamount.

(l) Property Plant and EquipmentProperty Plant and Equipment are stated at cost less accumulated depreciation and any accumulated impairment losses.Depreciation is provided on all tangible assets to write down the cost less estimated residual value of each asset over its usefuleconomic life on a units of production method basis at the following annual rate:

Freehold land Not depreciatedPlant and machinery Over 3-10 yearsMotor vehicles Over 3 yearsFixtures, fittings and equipment Over 4 years

The depreciation charge for each period is recognised in the income statement.

Subsequent expenditure relating to an item of property, plant and equipment is capitalised when it is probable that futureeconomic benefits from the use of the asset will be increased. All other subsequent expenditure is recognised as an expense inthe period in which it is incurred.

Repairs and maintenance which neither materially add to the value of assets nor appreciably prolong their useful lives arecharged against income.

The gain or loss arising from the de-recognition of any items of property, plant and equipment is included in the profit or losswhen the item is de-recognised. The gain or loss arising from the de-recognition of an item of property, plant and equipment isdetermined as the difference between the net disposal proceeds, if any, and the carrying amount of the item. The carrying valuesof property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carryingvalue may not be recoverable.

(m) Mining and exploration expenditure The Group applies the full cost method of accounting for exploration and evaluation costs, having regard to the requirements ofIFRS 6 ‘Exploration for and Evaluation of Mineral Resources’. All costs associated with mining development and investment arecapitalised on a project by project basis pending determination of the feasibility of the project. Such expenditure comprisesappropriate technical and administrative expenses but not general overheads.



Such exploration and evaluation costs are capitalised provided that the Group’s rights to tenure are current and one of thefollowing conditions is met;

(i) such costs are expected to be recouped through successful development and exploitation of the area of interest or alternatively by its sale; or

(ii) the activities have not reached a stage which permits a reasonable assessment of whether or not economically recoverable resources exist; or

(iii) active and significant operations in relation to the area are continuing.

When an area of interest is abandoned or the directors decide that it is not commercial, any exploration and evaluation costspreviously capitalised in respect of that area are written off to profit or loss.

Impairment assessments are carried out regularly by the directors. Exploration and evaluation assets are assessed for impairmentwhen facts and circumstances suggest that the carrying amount may exceed its recoverable amount. Such indicators include thepoint at which a determination is made as to whether or not commercial reserves exist.

The recoverability of capitalised mining costs and mining interests is dependent upon the discovery of economically recoverablereserves, the ability of the Company to obtain necessary financing to complete the development of reserves and future profitableproduction or proceeds from the disposition of recoverable reserves.

Mine properties and development (“MPD”)This represents the accumulated exploration, evaluation, development and acquisition expenditure in relation to areas of interestin which economically recoverable reserves exist.

Development costs that can be capitalised fall into the following categories:

Initial Capital DevelopmentThis includes, but is not restricted to the following:

• Shaft sinking• Station (plant) development & Underground workshops• Pump station and dams• Ore and waste pass systems

Primary Capital DevelopmentThis is the development carried out on each level in the exploration and exploitation of a mining area or orebody. It includes, but isnot restricted to the following:

• Cross cuts, haulages and drives to the orebody• Initial rises on the orebody to effect the first holing’s to facilitate production• Main airways

Secondary Capital DevelopmentThis is the development carried out within an area in which the primary development has been completed and which is critical tothe continued operation of the mine or mining area. It includes, but is not restricted to the following:

• Airways crosscuts and drives• Pump stations

The capitalised value of mine properties is amortised on a life of mine basis. The life of mine has been calculated on a units ofproduction method based on economically recoverable reserves and resources. The amortisation for the period is calculatedusing the following:

Recovered gold ounces during the period * Net book value to date plus costs capitalised during the periodEconomically recoverable reserves and resourcesat the start of the period

The net carrying value of a mine assets is reviewed regularly and, to the extent to which this amount exceeds its recoverableamount (based on the higher of estimated future net cash flows and the mine’s asset’s current realisable value) that excess is fullyprovided against in the financial year in which this is determined.

(n) Provision for mine rehabilitationA provision for rehabilitation is initially recognised at the present value of expected future cash flows when there exists aconstructive obligation for the entity to undertake rehabilitation at the mine site. The increase in the provision for rehabilitationrelating to the unwinding of the discount and the depreciation of the rehabilitation asset are recorded within profit or loss.


(o) Impairment of intangible and tangible assets excluding goodwillThe Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indicationexists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverableamount. An asset’s recoverable amount is the higher of the asset’s or cash-generating unit’s fair value less costs to sell and itsvalue in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largelyindependent of those from other assets or groups of assets and the asset’s value in use cannot be estimated to be close to itsfair value. In such cases the asset is tested for impairment as part of the cash-generating unit to which it belongs. When thecarrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset or cash-generating unit isconsidered impaired and is written down to its recoverable amount.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate thatreflects current market assessments of the time value of money and the risk specific to the asset. Impairment losses ofcontinuing operations are recognised in those expense categories consistent with the function of the impaired asset unless theasset is carried at a revalued amount (in which case the impairment is treated as a revaluation decrease).

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment lossesmay no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated, a previouslyrecognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’srecoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset isincreased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have beendetermined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal isrecognised in profit or loss unless the asset is carried at a revalued amount, in which case the reversal is treated as a revaluationincrease. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised carryingamount, less any residual value, on a systematic basis over its remaining useful life.

(p) Financial instrumentsFinancial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of theinstruments and on a trade date basis. A financial asset is derecognised when the Group’s contractual rights to future cash flowsfrom the financial asset expire or when the Group transfers the contractual rights to future cash flows to a third party. A financialliability is derecognised only when the liability is extinguished.

(i) Trade and other receivables and other assetsTrade and other receivables and other assets are measured at initial recognition at fair value, and are subsequently measured atamortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts arerecognised in the income statement when there is objective evidence that the asset is impaired.

(ii) Cash and cash equivalentsFor purposes of the consolidated balance sheet and consolidated statement of cash flows, the Group considers all highly liquidinvestments which are readily convertible into known amounts of cash and have a maturity of three months or less whenacquired to be cash equivalents. Cash and cash equivalents comprise cash in bank and in hand, and short term deposits with anoriginal maturity of three months or less, net of any outstanding bank overdrafts, all of which are available for use by theCompany unless otherwise stated. Cash and cash equivalents are measured at fair value, based on the relevant exchange ratesat balance sheet date.

(iii) InvestmentsInvestments included as financial assets are valued at fair value and are held as available for sale. When available for sale assetsare considered to be impaired, cumulative gains or losses previously recognised in equity are reclassified to the profit or loss inthe period.

(iv) Financial liabilities and equityFinancial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into.An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of itsliabilities. The Group’s financial liabilities include trade and other payables, bank loans, other borrowings, convertible loans andobligations under finance leases. All financial liabilities, except for derivatives, are recognised initially at their fair value plustransaction costs that are directly attributable to the acquisition or issue of the financial liability and subsequently measured atamortised cost, using the effective interest method, unless the effect of discounting would be insignificant, in which case they arestated at cost.

(v) Other financial liabilitiesOther financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financialliabilities are subsequently measured at amortised cost using the effective interest method.

(vi) Bank borrowingsInterest-bearing bank loans and overdrafts are recorded at the proceeds received net of direct issue costs. Finance charges,including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis to theprofit and loss account using the effective interest method and are added to the carrying amount of the instrument to the extentthat they are not settled in the period in which they arise.



(vii) Trade payables, provisions and other payablesTrade and other payables are not interest-bearing and are stated at cost. Provisions are recognised when the Group has apresent legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will berequired to settle the obligations, and a reliable estimate of the amount can be made. Provision has been made in the financialstatements for benefits accruing in respect of sick leave, annual leave, and long service leave.

(q) Financing costs and interest incomeFinancing costs comprise interest payable on borrowings and finance lease payments and interest income which is calculatedusing the effective interest rate method.

(r) Impairment of financial assetsAt each reporting date, the Group assesses whether there is objective evidence that financial assets, other than those at fair valuethrough profit or loss, are impaired. The impairment loss of financial assets carried at amortised cost is measured as thedifference between the assets’ carrying amount and the present value of estimated future cash flows discounted at the financialasset’s original effective interest rate.

(s) Share CapitalOrdinary shares are recorded at nominal value and proceeds received in excess of nominal value of shares issued, if any, areaccounted for as share premium. Both ordinary shares and share premium are classified as equity. Costs incurred directly to theissue of shares are accounted for as a deduction from share premium, otherwise they are charged to the income statement.

(t) TaxationTax on profit or loss for the period comprises current and deferred tax. Tax is recognised in the income statement except to theextent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted atthe balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided on temporary differences between the carrying amount of assets and liabilities for financial reportingpurposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initialrecognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, anddifferences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. Theamount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assetsand liabilities, using tax rates enacted or substantively enacted at the reporting date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against whichthe asset can be utilised.

(u) Share-based paymentsThe Company operates a share option scheme for granting share options, for the purpose of providing incentives and rewards toeligible employees of the Group. The cost of share options granted is measured by reference to the fair value at the date at whichthey are granted. It is recognised together with a corresponding increase in equity, over the vesting period. The cumulativeexpense recognised at each reporting date until the end of the vesting period reflects the extent to which the vesting period hasexpired and the number of shares that in the opinion of the directors of the Group at that date will ultimately vest.

(v) Compound Financial InstrumentsCompound financial instruments issued by the group comprise convertible loan notes that can be converted to share capital atthe option of the holder, and the number of shares to be issued does not vary with changes in their fair value.

The liability component of a compound financial instrument is recognised initially at the fair value of a similar liability that does nothave an equity conversion option. The equity component is recognised initially at the difference between the fair value of thecompound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costsare allocated to the liability and equity components in proportion to their initial carrying amounts.

Subsequent to initial recognition, the liability component of a financial instrument is measured at amortised cost using theeffective interest method. The equity component of a compound financial instrument is not re-measured subsequent to initialrecognition except on conversion or expiry.

Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for atleast 12 months after the end of the reporting period.

(w) Contingent liabilities and contingent assetsA contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by theoccurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be apresent obligation arising from past events that is not recognised because it is not probable that an outflow of economicresources will be required or the amount of obligation cannot be measured reliably.


A contingent liability is not recognised but is disclosed in the notes to the accounts. When a change in the probability of anoutflow occurs so that the outflow is probable, it will then be recognised as a provision.

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrenceor non-occurrence of one or more uncertain events not wholly within the control of the Group.

Contingent assets are not recognised but are disclosed in the notes to the accounts when an inflow of economic benefits isprobable. When an inflow is virtually certain, an asset is recognised.

(x) Leased assetsOperating lease: Operating lease rentals are included in the determination of the operating profit or loss for the year inaccordance with the contracted lease payment agreement.

(y) Employee benefits(i) Defined contribution planObligations for contributions to the Fiji National Provident Fund are recognised as an expense in profit or loss as they are due.

(ii) Short-term benefitsShort-term employee benefit obligations are measured on an undiscounted basis and are expensed in profit or loss as the relatedservice is provided.

(iii) Long-term employee benefitsObligations in respect of long-term employee benefits such as long service leave is the amount of future benefit that employeeshave earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value.

(iv) Termination benefitsTermination benefits are recognised as an expense when the Group is demonstrably committed, without realistic probability ofwithdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide terminationbenefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies arerecognised as an expense if the company has made an offer encouraging voluntary redundancy, it is probable that the offer willbe accepted, and the number of acceptances can be measured reliably.



4. Turnover and Segmental AnalysisAll turnover in the Group in the current and prior year is derived from the sales to the one customer, which is included in the Goldmining segment.

2010Head Gold Other

Office mining Activity Total£’000 £’000 £’000 £’000

Turnover - 40,354 - 40,354Mining - (17,949) - (17,949)Processing - (7,471) - (7,471)Overheads - (2,612) - (2,612)

Cost of sales - (28,032) - (28,032)

Gross Profits - 12,322 - 12,322

Gold duty - (1,216) - (1,216)Administrative Expenses (1,487) (1,589) (153) (3,229)Foreign exchange gains/(losses) - 2,182 - 2,182Depreciation and Amortisation (2,994) (2,158) (35) (5,187)

Underlying operating Profit / (loss) (4,481) 9,540 (188) 4,872

Inventory Obsolescence - (381) - (381)Rehabilitation charge - (17) - (17)Provision for doubtful debt - - - -Share based payments (665) - - (665)

Operating profit / (loss) (5,146) 9,142 (188) 3,809

Interest receivable and other income 37 2 0 39Interest payable and similar charges (100) (54) (9) (163)

Net profit / (loss) before taxation (5,209) 9,091 (197) 3,685

Taxation 838 - - 838

Profit / (loss) for the period (4,371) 9,091 (197) 4,523

Other Segment ItemsAdditions to plant, property and equipment - 9,246 2 9,248Additions to mine properties and development - 3,887 - 3,887

Current assets 10,597 13,332 101 24,030Non currents assets 33,797 24,771 266 58,834

Current liabilities 318 5,561 14 5,893Non current liabilities 9,725 4,732 - 14,457


4. Turnover and Segmental Analysis (continued)

2009Head Gold Other

Office mining Activity Total£’000 £’000 £’000 £’000

Turnover - 18,799 38 18,837Mining - (12,793) - (12,793)Processing - (2,927) - (2,927)Overheads - (1,705) (4) (1,709)

Cost of sales - (17,425) (4) (17,429)

Gross Profits - 1,374 34 1,408

Gold duty - (560) - (560)Administrative Expenses (1,243) (1,077) (220) (2,540)Depreciation and Amortisation (1,872) (2,187) 156 (3,903)

Underlying operating Profit / (loss) (3,115) (2,450) (30) (5,595)

Impairment of investments (400) - - (400)Inventory Obsolescence - - - -Rehabilitation charge - (193) - (193)Provision for doubtful debt (500) (2,212) - (2,712)Share based payments (1,091) - - (1,091)

Operating (loss) (5,106) (4,855) (30) (9,991)

Interest receivable and other income 45 - 85 130Interest payable and similar charges (30) (1) (14) (45)

Net profit / (loss) before taxation (5,091) (4,856) 41 (9,906)

Taxation 525 - - 525

Profit / (loss) for the period (4,566) (4,856) 41 (9,381)

Other Segment ItemsAdditions to plant, property and equipment - 987 - 987Additions to mine properties and development - 439 - 439

Current assets 555 7,012 44 7,611Non currents assets 36,542 13,341 267 50,150

Current liabilities 223 5,200 14 5,437Non current liabilities 10,733 1,869 - 12,603

5. Cost of SalesGroup

2010 2009£’000 £’000

Mining (17,949) (12,337)Metallurgy (7,471) (2,996)Bullion assay (126) (92)Technical Services (122) (143)Resource engineering (656) (316)Supply and security (332) (646)Human resources (979) (766)Safety training and environment (58) (83)Mine general administration (339) (50)

(28,032) (17,429)



6. Operating Profit / (loss)Group

2010 2009£’000 £’000

Operating profit is stated after charging:– Auditors’ remuneration

Audit services 48 35Non-audit services - Taxation 25 6Non-audit services - Other 2 -Auditors’ renumeration payable to subsidiary auditors 17 14

– Share based payments expense granted by the Company 665 1,091– Depreciation of property, plant and equipment 1,976 1,170– Amortisation of mining properties and development 217 797– Amortisation of intangible assets 2,994 1,872– Impairment of available for sales investments - 400

7. EmployeesThe average monthly number of persons (including directors) employed by the Group during the year was:

2010 2009Number Number

Productive labour 740 641Office and management 77 33

817 674

Employment costs: 2010 2009£’000 £’000

Wages and salaries 4,347 3,557Pension 343 256

4,690 3,813

Directors’ remuneration: 2010 2009£’000 £’000

I C Orr-Ewing 60 60D K Paxton 150 125K C Morzaria 97 87D A Lenigas 60 60J I Stalker 82 85J F Kearney 24 4*J A MacPherson 24 4*

497 425

*J F Kearney and J A MacPherson were appointed in June 2009 and therefore were only remunerated for two months in thatperiod.

Directors remuneration in 2010 solely consisted of salaries, and as at 31 August 2010 (2009: nil) there were no directors accruingbenefits under a money pension scheme. During the year the Directors were granted options over 75,000,000 ordinary shares inthe Company, these options have an exercise price of between 1.8 and 2 pence and have a term of 5 years. These options havebeen valued using a Black Scholes options valuation model (see Note 20) and have a total value of £440,334, which has beenexpensed as part of the share based payments. During the year no options were exercised by the directors.


8. Interest receivable/payable and similar charges

Other interest receivable and other income: 2010 2009£’000 £’000

Bank interest 39 130

39 130

2010 2009£’000 £’000

Interest and bank charges 42 15Interest convertible loan notes 121 30

163 45

9. Taxation

2010 2009£’000 £’000

Current taxation - -Deferred taxation (838) (525)

(838) (525)

Factors affecting tax charge:

Profit/(loss) before tax 3,685 (9,906)

Tax at 28% (2009: 28.5%) 1,032 (2,873)

Effects of:- Non deductible expenses 351 834- Temporary differences not recognised 465 1,414- Rate adjustment - 100- Tax effect of income not subject to income tax (2,686) -

Total tax credit (838) (525)

The deferred taxation credit arises on the release of the deferred tax liability.

Tax is calculated at 28% (2009: 28.5%), being the effective tax rate for the Group, of the estimated taxable profit for the year. Thiseffective tax rate is based upon the rates prevailing in the respective tax jurisdictions, principally Fiji.

10. Loss for the yearThe Company’s loss for the year dealt within the accounts of Vatukoula Gold Mines Plc was £ 2,603,706 (2009 £ 3,745,441). Asprovided by S408 of the Companies Act 2006, no income statement is presented in respect of Vatukoula Gold Mines Plc.



11. Earnings per share(a) BasicThe calculation of consolidated earnings / (loss) per share is based on the following earnings / (loss) and number of shares:

2010 2009£’000 £’000

Profit / (loss) after tax 4,523 (9,381)


Basic weighted average ordinary shares in issue during the period 3,576,964,090 2,185,136,099

2010 2009Pence Pence

Basic earnings per share 0.13 (0.43)

Basic earnings / (loss) per share is calculated by dividing the profit for the year from continuing operations of the Group by theweighted average number of ordinary shares in issue during the year.

(b) DilutedDiluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume theconversion of dilutive potential ordinary shares. The Company has two categories of dilutive potential ordinary shares: convertibleloan notes and share options / warrants. The convertible debt is assumed to have been converted into ordinary shares, and thenet profit is adjusted to eliminate the interest expense less the tax effect. For the share options, a calculation is done to determinethe number of shares that could have been acquired at fair value (determined as the average annual market share price of thecompany’s shares) based on the monetary value of the subscription rights attached to outstanding share options. The number ofshares calculated as above is compared with the number of shares that would have been issued assuming the exercise of theshare options.

2010 2009£’000 £’000

Profit / (loss) after tax 4,523 (9,381)Interest expense on convertible loan note (net of tax) 53 -

Profit used to determine diluted earnings per share 4,576 (9,381)


Basic weighted average ordinary shares in issue during the period 3,576,964,090 2,185,136,099Adjustments for:

Assumed conversion of convertible loan note 50,355,311 -Share options / warrants 37,783,677 -

Diluted weighted average ordinary shares in issue during the period 3,665,103,078 2,185,136,099

2010 2009Pence Pence

Diluted earnings per share 0.13 (0.43)

In the prior year, all potential shares were anti-dilutive as the Group was in a loss making position. As a result diluted loss pershare for the year ended 31 August 2009 is disclosed as the same value as basic loss per share.


12. Intangible asset

2010 2009£’000 £’000

CostBalance as at 1 September 38,414 38,414Transferred from tangible assets 138 -Exchange difference 2 -

Balance as at 31 August 38,554 38,414

AmortisationBalance as at 1 September (1,872) -Current charge (2,994) (1,872)

Balance as at 31 August (4,866) (1,872)

Carrying value 33,688 36,542

The amortisation of the intangible asset is calculated on a unit of production basis, based on forecast production and the totalMineral Reserves. We would expect the intangible asset to be amortised over five years. This rate can vary from year to year andis dependant on the mineral reserves which are reassessed every year.

This year the directors carried out an impairment review. As in previous years, this was based on an estimate of discounted futurecash flows from the development and operation of the Vatukoula Gold Mine. The directors have used past experience and anassessment of future conditions, together with external sources of information, to determine the assumptions which wereadopted in the preparation of a financial model to estimate the cashflows.

The recoverable amount of the mine is determined by using a net present value calculation based on the estimated economicallyrecoverable portion of the total Mineral Resource and the life of mine plan. The life of mine plan is currently 12 years. This MineralResource is used rather than the Mineral Reserve as the Mineral Reserve will not represent the total recoverable amount from themine. This is because it excludes ore deposits that are above the economic cut off grade within the Inferred Mineral Resourcecategory.

The key assumptions therein are those regarding discount rates, and expected changes to selling prices and direct costs duringthe period. Management estimates discount rates using post-tax rates that reflect current market assessments of the time valueof money and the risks specific to the mine and the rate used was 10%.

The production is based on the directors’ forecast of the mine’s maximum output and based on the mine achieving its operatingcapacity. The directors believe this rate is justified based on the current progress of the mine. A deferred tax liability of£10,757,000 arose in 2008 in respect of the intangible assets recognised on the acquisition in the prior periods. The deferred taxliability is in respect of future taxable profits potentially generated from the exploration of the mining rights (Note 30).



13. Property plant and equipment

Freehold and Fixtures,leasehold Work in Plant and Motor Mine fittings and

land progress machinery Vehicles Assets equipment TotalGroup £’000 £’000 £’000 £’000 £’000 £’000 £’000

CostAs at 1 September 2009 1,074 1,176 12,990 388 - 145 15,773Additions - 6,204 - - 3,042 2 9,248Transferred on completion - (4,449) 4,449 - - - -Disposals - (17) (13) - - - (30)Transferred to intangible - (138) - - - - (138)Exchange difference 60 105 973 17 44 1 1,200

At 31 August 2010 1,134 2,881 18,399 405 3,085 148 26,053

Accumulated depreciationAs at 1 September 2009 - 104 2,300 259 - 93 2,756Charge for the year - - 1,803 19 152 2 1,976Disposals - (13) (13) - - - (26)Transferred on completion - (87) 87 - - - -Exchange difference - (4) 616 9 2 1 623

At 31 August 2010 - - 4,793 287 154 96 5,330

Net book valueAt 31 August 2010 1,134 2,881 13,606 118 2,932 52 20,723

At 31 August 2009 1,074 1,072 10,690 129 - 52 13,017

The Group has one item that has been acquired which is subject to a finance lease (Note 23). It was acquired for £29,035 and hasa net book value of £19,867.

Freehold and Fixtures,leasehold Work in Plant and Motor fittings and

land progress machinery Vehicles equipment TotalGroup £’000 £’000 £’000 £’000 £’000 £’000

CostAs at 1 September 2008 824 1,089 12,678 389 9 14,989Additions 250 123 728 - 136 1,237Transferred on completion - (37) 37 - - -Disposals - - (453) - - (453)Exchange difference - - - - - -

At 31 August 2009 1,074 1,175 12,990 389 145 15,773

Accumulated depreciationAs at 1 September 2008 - - 1,301 219 2 1,522Charge for the year - 88 970 34 78 1,170Disposals - - (120) - - (120)Exchange difference - 15 149 6 14 184

At 31 August 2009 - 103 2,300 259 94 2,756

Net book valueAt 31 August 2009 1,074 1,072 10,690 130 51 13,017

At 31 August 2008 824 1,089 11,377 169 7 13,466


Freehold land TotalCompany £’000 £’000

CostAs at 1 September 2009 and as at 31 August 2010 250 250

Net book valueAt 31 August 2010 250 250

At 31 August 2009 250 250

CostAs at 1 September 2008 - -Additions 250 250

As 31 August 2009 250 250

Net book valueAt 31 August 2009 250 250

At 31 August 2008 - -

14. Available for sale investments

Group and Company2010 2009£’000 £’000

CostAs at 1 September and as at 31 August 477 477

Provision for diminution in valueAs at 1 September and as at 31 August (477) (477)

Net book value at 31 August - -

Available for sale investments constitute holdings in the following entities:

Name of business Country of incorporation Principal activities % held

Lesotho Diamonds Corporation Gibraltar Mining 0.5Cambrian Forestry Products United Kingdom Forestry 0.1

In April 2007, the Company acquired 1,212,121 new ordinary shares in Lesotho Diamond Corporation for £400,000. The companywas subsequently renamed Global Diamonds Resources (“GDR”). During the previous financial year operations ceased at themine due to a lack of funding on the 5 January 2010. During this year GDR has gone into liquidation and therefore the Directors ofthe Company thought it was appropriate to continue to provide fully for this investment.

In the year ended 2003, River Diamonds Ltd a wholly owned subsidiary of Vatukoula Gold Mines purchased £77,000 of newordinary shares in Cambrian Forestry Products. In 2004 the Company provided fully for this investment as it was undergoingrestructuring.

These investments were initially and subsequently measured at cost. This is because the directors consider that its fair valuecannot be measured reliably as the investments are not quoted on an active market.



15. Investment in subsidiary companies

Company2010 2009£’000 £’000

CostAs at 1 September 39,489 35,685Additions - 3,804


ImpairmentAs at 1 September 1,810 1,410Current provision - 400


Net book valueBalance as at 31 August 37,679 37,679

Details of the subsidiaries:

Name of subsidiaries Country of incorporation Principal activities % held

Viso Gero International Inc BVI Holding company 100Vatukoula Gold Pty Ltd Australia Holding company 100Vatukoula Australia Australia Holding company 100Vatukoula Finance Pty Ltd Australia Holding company 100Koula Mining Company Fiji Dormant 100Jubilee Mining Company Fiji Dormant 100Vatukoula Gold Mine Ltd Fiji Mining 100River Diamonds UK Ltd England & Wales Holding Company 100Panguma Diamonds Ltd Sierra Leone Dormant 100São Carlos Mineração Limitada* Brazil Exploration 100

* The investment in this entity is held by River Diamonds UK Ltd, a 100% owned subsidiary of the Company.

16. Mine properties and development

Company2010 2009£’000 £’000

CostBalance as at 1 September 1,604 1,165Additions 3,887 439Foreign exchange difference 159 -


AmortisationBalance as at 1 September 1,013 216Current charge 217 797Foreign exchange difference (3) -


Carrying valueBalance as at 31 August 4,423 591

During the current year the company invested £3,887,000 (2009:£439,000) in underground capital development, this increase is aresult of the increased operational activity.


17. Inventories

Company2010 2009£’000 £’000

Consumables stores 3,720 3,323Allowances for inventory obsolescence (609) (259)Foreign exchange difference (57) -

Total consumables stores 3,054 3,064

Insurance spares 253 234Allowances for obselescene (253) (222)

Total insurance spares - 12

Gold in circuit and gold stock 2,976 1,605

As at 31 August 6,030 4,681

18. Trade and other receivables

Group Company2010 2009 2010 2009£’000 £’000 £’000 £’000

Trade receivables 1,523 386 - -Amounts owed by group undertakings - - 14,677 8,525Other receivables 4,122 2,599 571 821

5,645 2,985 15,248 9,346

Less: Provision for doubtful debts (3,011) (2,712) (500) (500)

Prepayments 2,517 1,570 - -

5,151 1,843 14,748 8,846

Trade receivables are amounts due from the sales of gold. The average credit period taken on sales of goods is two weeks.

The provision for doubtful debts includes £2.5 million (2009: £2.5 million) in relation to the prepayments against the claimed taxliabilities of F$ 11.5 million by The Fiji Islands Revenue & Customs Authority. The prepayment ceased in December 2008 andnone have been made since this date. However, given the time the court case has been outstanding and that currently there is nodate in the court diaries for this matter to be heard it was thought prudent that the Company provide for any prepayments madein relation to this tax assessment. The Fiji Islands Revenue & Customs Authority has recognised the prepayment of the claimedtax liability.

The Group does not consider it has a significant concentration of credit risks arising from the trade receivables as no amountsrepresent more than 5% of the total balance at the balance sheet date.

The following table provides an analysis of trade and other receivables that were past due as at 31 August 2010, but not providedfor. Subsequent to the year, all trade receivables of over six months have been paid. The Group believe that all the balances areultimately recoverable.



Group2010 2009£’000 £’000

Due 0-31 days 1,725 235Past due 32-62 days 468 -Past due 63 – 92 days - 2,712Past due more than 93 days 3,452 39

Gross receivables 5,645 2,985

Specific Impairment (3,011) (2,712)

2,634 273

19. Cash and cash equivalents

Group Company2010 2009 2010 2009£’000 £’000 £’000 £’000

Cash at banks and in hand 12,849 1,086 10,452 438

12,849 1,086 10,452 438

At 31 August 2010 management believes that the carrying amount of cash equivalents approximates to fair value because of theshort maturity of these financial instruments.

20. Share capital(a) Share capital

Group and Company2010 2009

£ £

Authorised4,250,000,000 ordinary shares of 0.1p each(2009: 4,250,000,000 shares of 0.1p each) 4,250,000 4,250,000

Allotted, issued and fully paid4,081,141,072 ordinary shares of 0.1p each(2009: 2,686,371,072 Ordinary shares of 0.1p each) 4,031,141 2,686,371

(b) Share issues during the period

Issue Par Share Value ofvalue value premium Share Share shares issued

per share per share per share capital premium for cashDate £ £ £ Shares £ £ £

Shares issued for cashIssue for cash 29/09/2009 0.0128 0.001 0.0118 156,000,000 156,000 1,843,920 1,999,920Issue for cash 21/10/2009 0.0120 0.001 0.0110 750,000,000 750,000 8,250,000 9,000,000Exercise of warrants 19/01/2010 0.0120 0.001 0.0110 10,000,000 10,000 110,000 120,000Exercise of warrants 03/06/2010 0.0120 0.001 0.0110 7,436,613 7,437 81,803 89,240Issue for cash 30/07/2010 0.0185 0.001 0.0175 400,000,000 400,000 7,000,000 7,400,000

1,323,436,613 1,323,437 17,285,723 18,609,160


Issue Par Share Value ofvalue value premium Share Share loan note

per share per share per share capital premium convertedDate £ £ £ Shares £ £ £

Shares issued in relation to theconversion of loan notesConversion of 12/04/2010 0.0120 0.001 0.0110 8,333,333 8,333 91,667 100,000loan notesConversion of 12/04/2010 0.0100 0.001 0.0090 500,000 500 4,500 5,000loan notesConversion of 03/06/2010 0.0100 0.001 0.0090 12,500,000 12,500 112,500 125,000loan notes

21,333,333 21,333 208,667 230,000

1,344,769,946 1,344,770 17,494,390 18,839,160

The ordinary shares have a par value of 0.1pence per share (2009: 0.1 pence) and are fully paid. These shares carry no right tofixed income or have any preferences or restrictions attached to them.

(c) Warrants and optionsDuring the year ended 31 August 2010 the following movements occurred on the warrants and options to purchase 0.1p ordinaryshares in Vatukoula Gold Mines Plc. The following main conditions apply to all options and warrants currently on issue and grantedduring the year.

Management options vest immediately on grant, however should the grantee resign or be dismissed during prior to the firstanniversary of his or her employment the options will cease. Directors options vest immediately and there are no performanceconditions associated with the options.

Of the warrants on issue and granted during the year, 48,500,000 are associated with the issue of the convertible loan note in theprevious year. The remainder of warrants were granted to professional advisors in lieu of services. All the warrants vestedimmediately on grant.

Average Numberexercise price Number of Number of Number of of warrants Number of Number of

per share options warrants options and options options warrantsExercise price p 1p 1.2p 1.8p 2p 2.5p 6p Total

Balance at 1 September 2009 1.8 65,900,000 - - 219,500,000 21,300,000 - 306,700,000Granted during the year 2.9 3,000,000 31,462,501 20,000,000 55,000,000 - 42,092,885 151,555,386Exercised during the year 1.2 - (17,436,613) - - - - (17,436,613)Expired during the year 2.5 - - - - (21,300,000) - (21,300,000)

Balance at 31 August 2010 2.2 68,900,000 14,025,888 20,000,000 274,500,000 - 42,092,885 419,518,773

Average Numberexercise price Number of of warrants Number of

per share options and options optionsExercise price p 1p 2p 2.5p Total

Balance at 1 September 2008 2.2 5,000,000 - 22,500,000 27,500,000Granted during the year 1.8 65,900,000 219,500,000 - 285,400,000Exercised during the year - - - - -Expired during the year 1.3 (5,000,000) - (1,200,000) (6,200,000)

Balance at 31 August 2009 1.8 65,900,000 219,500,000 21,300,000 306,700,000



The options granted during the year to directors, staff and advisors were as follows:

• On the 26 September 2009 - 3,000,000 options to the mine management in Fiji. Each option carries the right to subscribe for 1ordinary share of 0.1 pence each in the capital of the Company at a price of 1 pence, exercisable up to five years after the commencement of employment with the Company; and

• On the 21 October 2009 - 22,212,501 warrants to WH Ireland Limited, Arbuthnot Securities Limited, as part payment of corporate finance advice. Each warrant carries the right to subscribe for 1 ordinary share of 0.1 pence in the capital of the Company at a price of 1.2 pence, exercisable up to 30 March 2011; and

• On the 5 January 2010 - 6,250,000 warrants to Brant Securities Ltd as part payment of corporate finance advice. Each warrant carries the right to subscribe for 1 ordinary share of 0.1 pence in the capital of the Company at a price of 1.2 pence, exercisable up to 5 July 2011; and

• On the 30 July 2010 - 3,000,000 options to the mine management in Fiji. Each option carries the right to subscribe for 1 ordinary share of 0.1 pence each in the capital of the Company at a price of 1.2 pence, exercisable up to five years after the commencement of employment with the Company; and

• On the 28 July 2010 - 20,000,000 options to Directors. Each option carries the right to subscribe for 1 ordinary share of 0.1 pence each in the capital of the Company at a price of 1.8 pence, exercisable up to 28 July 2015; and

• On the 28 July 2010 - 55,000,000 options to Directors. Each option carries the right to subscribe for 1 ordinary share of 0.1 pence each in the capital of the Company at a price of 2 pence, exercisable up to 28 July 2015; and

• On the 31 March 2010 - 42,049,809 warrants to WH Ireland Limited, Religare Capital Markets Limited as part payment corporate finance advice associated with the re-admission of the Company to the AIM market in 1 April 2008. Each warrant carries the right to subscribe for 1 ordinary share of 0.1 pence in the capital of the Company at a price of 6 pence, exercisable up to 31 March 2011.

The total share-based payment expense in the year for the Group was £664,554 (2009: £1,090,901), and 419,475,697 options areexercisable at the year end

The following tables lists the inputs used for the warrant and option issues which occurred during the year:

Grant date 26/09/2009 21/10/2009 05/01/2010 30/07/2010 28/07/2010 28/07/2010 31/03/2010

Dividend yield 0% 0% 0% 0% 0% 0% 0%Expected volatility 37% 63% 60% 38% 38% 38% 58%Risk-free interest rate 1.56% 1.56% 1.56% 1.56% 1.56% 1.56% 1.56%Expected life of options 5 years 1.5 years 1.5 years 5 years 5 years 5 years 1 yearExercise price 1 pence 1.2 pence 1.2 pence 1.2 pence 1.8 pence 2 pence 6 pencePrice at grant date 1.34 pence 1.51 pence 1.43 pence 1.87 pence 1.79 pence 1.79 pence 2.03 pence

The model used to arrive at the fair value of all the options granted during the year was the Black Scholes option pricing model

The weighted average remaining contractual life of the 306.7 million options outstanding at the balance sheet date is 4 years (2009: 4years). The weighted average share price during the year was 2.2p (2008: 1p) per share.

The expected volatility of the warrants and options reflects the assumption that historical volatility is indicative of future trends, whichmay not necessarily be the actual outcome. The expected life of the options is based on historical data available at the time of theoption issue and is not necessarily indicative of future trends, which may not necessarily be the actual outcome.

The share option scheme and the warrants on issue is an equity settled plan and fair value is measured at the grant date of theoption.

21. Trade and other payablesGroup Company

2010 2009 2010 2009£’000 £’000 £’000 £’000

Trade creditors 4,103 3,686 142 144Accruals and deferred income 205 136 176 88

4,308 3,822 318 232


22. Provisions

Group2010 2009£’000 £’000

Current – Employee entitlementsProvision for annual leave 164 135Provision for redundancy payment 1,011 1,062Provision for workers compensation 65 75Other employee related accruals 299 343

1,539 1,615

Non current – RestorationProvisions for mine rehabilitation 4,220 1,055Provision for Vatukoula Rehabilitation Trust Fund 506 814

4,726 1,869

Total 6,265 3,484

Employee Vatukoularelated Mine Rehabilitation

provisions rehabilitation Trust Fund TotalGroup £’000 £’000 £’000 £’000

Balance at 1 September 2009 1,615 1,055 814 3,484Additional provisions 29 3,042 - 3,178Used during the year (100) - (296) (396)Exchange difference (5) 123 (12) 106

Balance at 31 August 2010 1,539 4,220 506 6,265

The Vatukoula Rehabilitation Trust Fund (“VRTF”) was established for the purpose of social assistance for the employees maderedundant by the previous mine operator and the local mining community in accordance with the Trust Deed dated 18thDecember 2009.

The current portion of the provision for the VRTF represents a provision for redundancy payment of F$ 3,000,000. Theseredundancy payments are now payable as part of the VRTF. The Group’s contribution to the Vatukoula Social Assistance TrustFund will continue until the 10th March 2014. A total of F$ 6 million is payable of which the Group paid F$1.5 million on the 10thMarch 2010. The VRTF is part of the Vatukoula Trust Deed, a binding contract between the Company’s wholly owned subsidiaryand the Fijian Ministry of Lands and Mineral Resources. Given this the directors believe that there very little uncertainty in relationto the quantum and timing of the provision.

The increase in the provision for mine rehabilitation represents changes to an existing mine closure plan. The present value of theestimated cost is capitalised as property, plant and equipment. Over time the discounted liability will be increased for the changein the present value based on the discount rates that reflect the current market assessments and the risks specific to the liability.The provision for Mine Rehabilitation is currently expected to be expensed over the life of mine which is currently twelve years.The life of mine is dependant on the economic viability of extracting the contained Mineral Resources and may vary on a year byyear basis dependant on the mining / processing costs and the price of Gold. In addition the quantum of the provision may varyon a year by year basis dependant on the costs associated with executing the Mine Rehabilitation Plan.



23. Borrowings

Group2010 2009£’000 £’000

CurrentANZ Banking Group 34 -Finance lease liability 11 -

45 -

Non currentFinance lease liability 5 -

ANZ Banking Group LoanThe loan was taken to facilitate payment of an insurance premium.

The loan is repayable by monthly instalments of £ 35,006 and interest is being charged at the rate of 9.0% per annum. The loanwas secured over the master operating lease agreement over motor vehicles.

The loan will be repayable in full in September 2010.

Finance lease liabilityThe finance lease liability is secured by master lease agreement and a charge over leased assets.

The finance lease is repayable by monthly instalments of £ 987 and interest is being charged at the rate of 14% per annum and isfully repayable in January 2012.

24. Converible Loans(i) On 22 April 2007, the Group issued a fully redeemable convertible loan note for £100,000 repayable in cash by December2009, which during the year was extended to the end of March 2010. The loan note carries a coupon rate of 1% per annum. Thisconvertible loan note was fully converted into equity on the 12 April 2010, via the issue of 8,833,333 new ordinary shares in theCompany. £8,333 was credited to ordinary share capital and £91,667 was credited to share premium. £12,000 has been debitedfrom the equity component upon conversion.

(ii) On 26 June 2009, the Group issued a fully redeemable convertible loan note for £485,000 repayable in cash 5 years after thedate of grant. The loan note carries a coupon rate of 11% per annum. The loan note will be convertible at £0.01 equating to48,500,000 shares in Vatukoula Gold Mines Plc. During the year £130,000 of these convertible loan notes were converted to13,000,000 new ordinary shares in the Company £13,000 was credited to ordinary share capital and £117,000 was credited toshare premium. £18,000 has been debited from the equity component upon conversion.

The net proceeds from the issue of the convertible loans have been split between the liability element and an equity componentas follows:

Group and Company2010 2009£’000 £’000

Nominal value 385 585Equity component (53) (83)

Liability component 332 502


(iii) The movement in the liability component of the convertible loan note is as follows:

Group and Company2010£’000

Balance at 1 September 2009 502Conversion of loan notes (230)Unwind discounted present value of liability 22Principal interest 46Coupon interest 53Interest paid (61)

Balance at 31 August 2010 332

25. Financial instruments and risk management objectives and policiesThe accounting policies for financial instruments have been applied to the line items below:

Group2010 2009£’000 £’000

Assets per balance sheetTrade and other receivables 5,151 1,843Cash and cash equivalents 12,849 1,086

18,000 2,929

£’000 £’000

Liabilities per balance sheetTrade and other payables 4,308 3,822Borrowings 45 -Convertible loan notes 332 502Other liabilities 5 -

4,690 4,324

Company2010 2009£’000 £’000

Assets per balance sheetTrade and other receivables 84 320Cash and cash equivalents 10,452 438

10,536 758

£’000 £’000

Liabilities per balance sheetTrade and other payables 318 232Convertible loan notes 332 502

650 734

Loans and receivables are measured using the amortised cost method. Available for sale financial instruments are initiallyrecognised at fair value and subsequently remeasured to fair value at each year end, with any change in value recognised directlyin equity.



The Group’s activities expose it to a variety of financial risks; currency risk, credit risk, liquidity risk and cash flow interest rate risk.The policies for managing these risks are regularly reviewed and agreed by the Board. It is, and has been throughout the periodunder review, the Group’s policy that no trading in financial instruments should be undertaken.

(i) Currency rate riskLoans between companies which are members of the Vatukoula Gold Mines Plc group are made in the operating currency of thelending company. In all other respects, the policy for all group companies is that they only trade in their principal operatingcurrency, except in exceptional circumstances from time to time.

The Group’s revenue derives from the sale of gold bullion by its Fijian operating subsidiary respectively. Proceeds of gold bullionsales are received in US Dollars. As the group reports in Sterling, reported revenue is affected by the combination of changes inthe US Dollar/Fijian Dollar and Sterling/Fijian Dollar rates.

The Group’s expenses in Fiji and Brazil are incurred in Fiji Dollars and Reals respectively. Any weakening in the Fijian Dollar/Realswould result in a reduction in expenses in Sterling terms, which would be to the Group’s advantage. There is an equivalentdownside risk to the group of strengthening in the Fijian Dollar/Reals which would increase Brazilian operating expenses inSterling terms.

2010 2009

Brazilian Australian Fiji Brazilian Australian Fiji£ Sterling Real Dollar Dollar £ Sterling Real Dollar Dollar

Class £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000

Financial assetsTrade receivables 84 6 - 2,592 1,446 8 - 390Cash and cashequvalents 10,484 58 41 2,266 438 36 62 550

Financial liabilitiesTrade payables 225 14 - 4,069 103 15 - 3,704Borrowings - - - 50 - - - -Convertible loan notes 332 - - - 502 - - -

The following table illustrates the Group’s sensitivity to the fluctuation of the major currencies in which it transacts. A 15%increase has been applied to each currency in the table below, representing management’s assessment of a reasonably possiblechange in foreign exchange rates:

2010 2009£’000 £’000

Financial AssetsImpact on profit after tax on 15% increase in Fijian Dollar fx rate against Sterling 728 143Impact on profit after tax on 15% decrease in Fijian Dollar fx rate against Sterling (728) (143)Impact on profit after tax on 15% increase in Reals fx rate against Sterling 10 1Impact on profit after tax on 15% decrease in Reals fx rate against Sterling (10) (1)

Financial LiabilitiesImpact on profit after tax on 15% increase in Fijian Dollar fx rate against Sterling (618) (556)Impact on profit after tax on 15% decrease in Fijian Dollar fx rate against Sterling 618 556Impact on profit after tax on 15% increase in Reals fx rate against Sterling (2) (2)Impact on profit after tax on 15% decrease in Reals fx rate against Sterling 2 2


(ii) Interest rate riskInterest rate exposure arises mainly from cash holdings. Contractual agreements entered into at floating rates expose the entityto cash flow risk whilst the fixed rate borrowings expose the entity to fair value risk.

The table below shows the Group’s financial assets and liabilities split by those bearing fixed and floating rates and those that arenon-interest bearing.

2010 2009Non-interest Non-interest

Class/categories Floating rate Fixed rate bearing Floating rate Fixed rate bearing£’000 £’000 £’000 £’000 £’000 £’000

Financial assetsTrade receivables - - 2,635 - - 386Other receivables - - 2,516 - - 1,457Cash and cash equivalents 12,849 - - 1,086 - -

Financial liabilitiesTrade payables - - 4,744 - - 3,686Bank overdraft - - - - - -Accruals - - 176 - - 136Borrowings - 34 - - - -Finance lease liability - 16 - - - -Convertible loan notes - 332 - - 502 -

The fair value of all financial instruments is approximately equal to book value due to their short term nature and the fact that theybear interest at floating rates based on the local bank rate.

If interest rates had been 1% higher/lower and all other variables held constant, the Group’s profit for the year ended 31 August2010 would increase/decrease by £22,486 (2009: loss would increase/decrease by £10,860).

(iii) Credit riskCredit risk arises from trade receivables and cash and cash equivalents. Credit exposure is measured on a Group basis. TheGroup’s maximum exposure to credit risk relating to its financial assets is given in Note 18.

(iv) Gold price riskThe Group’s policy is to sell gold at spot. The Group is exposed to gold price risk through gold price fluctuations.

An increase/decrease of 25% in the spot price of gold at 31 August 2010, with all other variables held constant, would have thefollowing impact on the income statement and statement equity at 31 August 2010:

Income statement and equity impactIncrease/(decrease)

£’000

25% increase in the gold spot price 10,00825% decrease in the gold spot price (10,008)

(v) Liquidity riskResponsibility for liquidity risk management rests with the board of directors, which has established appropriate liquidity riskframeworks 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 and by continuously monitoring forecast and actual cashflows and by matching maturity profiles of financial assets and liabilities.

The following table details the Group’s maturity profiles of its financial assets and liabilities. The table has been drawn up basedon the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. Thetable includes both interest and principle cash flows.



2010 2009Less than More than Less than More thanone year one year one year one year

£’000 £’000 £’000 £’000

Financial AssetsCash at Bank 12,849 - 1,086 -Trade and other receivables 5,151 - 1,843 -

18,000 - 2,929 -

Financial LiabilitiesBorrowings 45 5 - -Trade and other payables 4,308 - 11,543 -Convertible loan notes - 332 - 502

4,353 337 11,543 502

(i) Capital riskThe Group’s objectives when managing capital (defined as net debt plus equity) are to safeguard the Group’s ability to continueas a going concern in order to provide returns to shareholders and benefits to other stakeholders, while maintaining a strongcredit rating and headroom whilst optimising return to shareholders through an appropriate balance of debt and equity funding.The group manages its capital structure and makes adjustments to it, in light of changes to economic conditions and the strategicobjectives of the company.

To maintain or adjust the capital structure, the Group may issue new shares or return capital shareholders. No changes weremade in the objectives, polices or processes during the year ending August 2009 and August 2010. During the year the Groupfunded the expansion of the operations at the mine predominantly via the issue of equity. The board thought this was the mostappropriate means of funding given the stage of development of the Group, and the risks associated with the development of theVatukoula Gold Mine.

26. Ultimate controlling partyThere was no ultimate controlling party during the year.

27. Related party transactionsTransactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation.Transactions and balances between related parties are set out below:

In order to fund the expansion of the operations at the Vatukoula Gold Mine, during the current year the Company has loaned£5,863,071 (2009: £1,104,315) to the wholly owned Fijian subsidiary Vatukoula Gold Mines Ltd. The total balance as at 31 August2010 is £13,005,995 (2009: £7,142,924). The loan is interest free and does not have any fixed repayment period.

During the current year, the company has loaned Viso Gero International Inc, a wholly owned subsidiary, £ Nil. In 2009 Viso GeroInternational Inc repaid the company £818,775 of the inter-company loan reducing the total balance from £2,200,769 to£1,363,014. The total balance as at 31 August 2010 is £1,362,014. The loan is interest free and does not have any fixedrepayment period.

During the current year, the company has loaned River Diamonds (UK) Limited, a wholly owned subsidiary £308,784 (2009:£115,951). The total balance as at 31 August 2010 is £308,784 (2009 £Nil:). Of the balance, the company has written of £Nilduring the year ended 31 August 2010 (2009: £115,951). The loan is interest free and does not have any fixed repayment period.

During the year, the Company paid consultancy fees of £82,083 (2009: £60,000) to Promaco Ltd, a company related to J I Stalker,director of Vatukoula Gold Mines Plc. There were no amounts payable to Promaco Ltd at the year end.

During the year, the Company paid consultancy fees of £30,307 (2009: £73,000) to Kimmel Consulting Ltd, a company related toK Morzaria, director of Vatukoula Gold Mines Plc. There were no amounts payable to Kimmel Consulting Ltd at the year end.

During the year Canadian Zinc Corporation, a company related to JF Kearney and J A MacPherson exercised its conditional rightto acquire further shares in the Company as approved by shareholders on the 10 June 2010. Canadian Zinc subscribed for156,000,000 ordinary shares in the Company. These shares were issued for cash at a price of 1.282 pence per share.

The company deems key management personnel to be the executive directors. Remuneration paid to the executive directors isdisclosure in Note 7.


28. Commitmentsa. Details of mining leases and special site rights held by the Group are as follows:(i) On 22 March 2004, the Vatukoula Gold Mines Ltd entered into Special Mining Lease (“SML”) agreements with the Governmentof Fiji to lease a piece of land in the Province of Ba for the purpose of mining minerals. The terms of the lease agreement is for 20years ending on 21 March 2025. Vatukoula Gold Mine Ltd has three agreements and the details are as follows:

Mining lease title Lease number

Vatukoula Gold Mines Ltd (formerly known as Westech Gold Ltd) under freehold title 54Majority of the lease is owned by Nosomo Landowners. The remainder of SML is crown Freehold 55Vatukoula Gold Mines Ltd (formerly known as Westech Gold Ltd) under freehold title 56

Under the current agreement, rent is payable at the rate of F$49,227 per annum.Currently, rent is payable at a rate of F$750 (2009: F$750) per annum.

(ii) The Group has mining bonds and undertakings in favour of the director of Mines and is required to pay the Government of Fijiat the rate of 1% of value of the bond per annum (iii) Total commitments for future SML and SSR lease rentals, which have not been provided for in the financial statements, are asfollows:

Group2010 2009£’000 £’000

Not later than one year 19 17Later than one year but not later than two years 19 17Later than one year and not later than five years 57 52Later than five years 189 191

Net operating lease liability 284 277

b) Details of operating leases held by the Group are as follows:(i) The Group has various operating leases with ANZ for motor vehicles. The operating lease is repayable by monthly instalmentsof F$34,207 (2009: F$34,207).(ii) Total commitments for future motor vehicle lease rentals, which have not been provided for in the financial statements, are asfollows:

Group2010 2009£’000 £’000

Not later than one year 138 127Later than one year 13 127Later than two years - 12

151 266

(iii) The operating lease is secured over the master operating lease agreement over motor vehicles.

(c) Capital commitmentsCapital commitments as at 31 August 2010 amounted to £1,187,500 (2009: £11,034,250). These commitments are in relation toprojected expenditure on mine properties and development.

29. Contingent liabilitiesa. The following contingent liabilities are in relation to the Fijian subsidiary.

Group2010 2009£’000 £’000

Bank guarantee - 34Immigration bond 3 3Mining bond - 3Bankers undertaking 199 186

202 226



b. The Fiji Islands Revenue & Customs Authority (“FIRCA”) has issued taxation assessments against the Group of F$11.5million.The Group does not believe any amounts are payable and is vigorously defending the claim. No amounts have been provided inthe accounts in respect of this claim. As at year end, advance tax payment of F$7.9m has been made in relation to this. Thegovernment has recognised the prepayment of the claimed tax liability, however given the period of time these debts have beenoutstanding, the Company has taken a prudent view and provided for the debts (Note 18).

c. The Group is a plaintiff in several litigations with respect to potential claims of creditors, workers compensation and industrialaction. The directors have assessed the likelihood of these claims becoming payable and consider that this is not likely. Thereforethere are no provision or contingent liabilities disclosed for these.

30. Deferred taxationMovements in deferred taxation during the period are as follows:

Group2010 2009£’000 £’000

Balance at 1 September 10,232 10,757Utilisation (838) (525)

9,394 10,232

The deferred tax liability was in respect of the intangible assets recognised in the acquisition in a prior period (Note 12).

31. Post balance sheet eventsSubsequent to the year end, the following significant post balance sheet events occurred:

The following exercise of options / warrants occurred:Gross proceed from

Date Shares issued Exercise price exercise ofoptions/warrants

5 October 2010 1,000,000 £0.02 £20,0008 October 2010 3,000,000 £0.02 £60,00020 October 2010 4,775,888 £0.012 £57,31129 October 2010 22,750,000 £0.01 £227,50018 November 2010 340,000 £1.00 £340,00014 January 2011 330,000 £1.00 £330,00014 January 2011 60,000 £0.50 £30,000

The following loan notes were converted into ordinary shares:Value of loan note

Date Shares issued Conversion price exercised

19 October 2010 500,000 £0.01 £5,0003 November 2010 40,000 £0.50 £20,000

On the 21 October, The Company proposed to its shareholders a one for fifty basis consolidation of its share capital. Thisresolution was approved on the 8 November 2010, the ordinary shares were consolidated on the basis of one new ordinary shareof 5 pence for every existing ordinary share of 0.1 pence. All outstanding options and warrants were adjusted appropriately toreflect the share consolidation so that in general terms, the options or warrants would be exercisable on the basis of one newordinary share for each 50 existing ordinary shares subject to the warrant or option and so that the exercise price for each suchshares would be 50 times the subscription price for the existing ordinary shares.


Notes

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VATUKOULA GOLD MINES

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