Directors' Report
The Directors present their report together with the financial report of Breakaway Resources Limited (“Breakaway or the Company”) and the consolidated financial report for the consolidated entity, being the Company and its controlled entities, for the year ended 30th
June 2007 and the auditors’ report thereon.
Directors
The names and details of the Directors of the Company at any time during or since the end of the financial year are:
John King Atkins – Chairman
(Appointed 24th
November 2006)
John is one of Perth’s most experienced corporate lawyers, with a career spanning more than 25 years and encompassing experience within numerous sophisticated financing and corporate transactions.
He is currently a senior partner with national law firm Freehills and head of the firm’s Perth office. His distinguished career with Freehills has seen him hold several senior roles within the firm. John holds a Bachelor of Law from the University of Western Australia and a Masters of Law from London University. He is currently a Director of Pearlstreet Limited, Lions Eye Institute Ltd, Committee for Perth Ltd and the Chamber of Commerce and Industry of Western Australia.
Peter Stanley Buck – Managing Director
(Non-Executive Director since June 2004, appointed Managing Director effective May 2006)
Peter is a geologist of some 35 years experience who gained his Bachelor of Science in Australia and his Masters of Science in Canada.
Peter worked for 23 years for WMC in a variety of senior exploration and production roles both in Australia and Brazil. His experience covers a range of commodities covering gold, nickel and base metals and has been associated with a number of new discoveries and their development.
In 1994 Peter joined Forrestania Gold which later became LionOre. Peter was the Exploration Director for LionOre and managed a highly successful team which discovered the Maggie Hays, Emily Ann, Waterloo/Amorac nickel deposits, and the two million ounce Thunderbox gold deposit in Western Australia, the majority of which have been successfully brought into production.
Jonathan Alister Young - Director
(Director since March 2003, resigned as Chairman November 2006)
Jon graduated from UWA with a Bachelor of Commerce Degree. He qualified as a Chartered Accountant with Price Waterhouse spending 7 years in their Perth, Melbourne and Sydney offices.
The following 22 years have been spent in the Finance and Stockbroking industry and Jon is currently Director Private Clients with leading Perth based national stockbroking firm Patersons Securities Limited.
For the past 11 years and until the sale of the contracting business in August 2007 Jon served as Non-Executive Chairman of the Barminco Group of companies including Barminco Limited, one of Australia’s largest privately owned underground mining contractors. Jon continues as the Non-Executive Chairman of FMR Investments Pty Ltd (formerly Barminco Investments Pty Ltd) a major shareholder of Breakaway Resources Limited.
Garry Patrick Connell - Director
(Director since 1999)
Garry has gained valuable experience in the mining industry through his successful involvement in substantial fuel supply and earthmoving businesses. From 1984 and 1998 he was Managing Director of the Kalgoorlie Fuel Company one of BP Australia Limited’s largest independent fuel distributors in Australia and supplier to many of the leading mining and industrial companies in the Kalgoorlie/Goldfields region.
He also has extensive experience in the earthmoving business and has undertaken many large and complex projects. He has a ‘hands on’ approach to management and is well-known in both the Perth and Kalgoorlie business communities.
Jeffrey John Gresham - Director
(Appointed 1st October 2006)
Mr Gresham has over 39 years experience in exploration, mining and the corporate functions both in Australia and overseas. During a career spanning 19 years with WMC he held a number of senior corporate and technical positions, most notably Chief Geologist of the Kambalda Nickel Operations between 1981 and 1985 and Executive Vice President Exploration for WMC’s Canadian subsidiary Westminster Canada Ltd between 1988 and 1993. From 1993 to 1997 he was Managing Director of Wiluna Mines Ltd and General Manager Exploration at Homestake Gold of Australia Ltd between 1998 and 2001.
He was most recently Managing Director of Titan Resources Ltd from June 2004 until September 2006, and is currently the Chairman of Rox Resources Ltd and a Non-Executive Director of View Resources Ltd.
Company Secretary
Grant Jonathan Mooney
Grant is the principal of Perth-based corporate advisory firm Mooney & Partners, specialising in corporate compliance administration to public companies.
Currently, Grant acts as Company Secretary to several ASX listed companies across a variety of industries including technology, resources and energy and has obtained a depth of experience through his involvement in a diversity of corporate transactions.
Grant is a member of the Institute of Chartered Accountants in Australia.
Directorships Of Other Listed Companies
Directorships of other listed companies held by Directors in the three years immediately before the end of the financial year are as follows:
Directors’ Interests And Meetings Of Directors
The following tables sets out the relevant interests of each Director in the share capital of the Company at the date of this report and their participation in Board meetings during the year.
Directors' Meetings
The Remuneration Committee was formed 22nd
November 2006, comprising Jeff Gresham (Chairman), John Atkins and Grant Mooney (Secretary).
Principal Activities
The principal activities of the consolidated entity during the financial year were exploration for gold, nickel and copper.
Result
The consolidated Profit after income tax for the financial year was $0.816 million (2006: Profit of $9.747 million).
Dividends
No dividend was paid during the year and no dividend will be paid in respect of the current financial year.
Review Of Operations
The Consolidated entity predominately explored and evaluated base and precious metals projects through the year. A full review of the operations is set out in the 2007 Annual Report.
Significant Changes In The State Of Affairs
Significant changes in the state of affairs of the consolidated entity during the financial year were as follows:
1. Following the shareholders meeting on the 12th July 2006, the shareholders approved the acquisition of the LionOre assets from LionOre Australia Pty Ltd (“LionOre”) and the other conditions precedent under the sale agreement.
Those conditions were as follows:
• Consolidation of capital on a 5 for 1 basis;
• Issue of $9,000,000 in converting notes to LionOre Australia Pty Ltd (“LionOre”) (up to a maximum of 72,000,000 shares), converting at 40 cents per share within 5 years after issue;
• Approval to issue up to 70,000,000 ordinary shares to raise capital; and
• Issue of 4,800,000 ordinary shares for part acquisition of the LionOre assets.
2. On the 17th
July 2006, the Company announced the completion of the capital raising whereby gross proceeds of $13.5 million were raised by the issue of 45,000,000 ordinary shares at 30 cents per share.
3. On the 21st
August 2006, the Company announced the completion of the acquisitions of the LionOre assets. Following the completion of this transaction, LionOre converted all its existing converting notes with a face value of $3.5 million which resulted in a further 15,555,555 ordinary shares issued to LionOre.
4. During the year, 4,000,000 employee options were issued to staff as per the Company’s “Employee Option Scheme”. Exercisable at 55 cents within 3 years from the date of issue but commencing not before the relevant vesting dates as follows:
• 50% vesting 12 months from date of issue;
• 50% vesting 24 months from date of issue.
5. During the year, Breakaway received $7.47 million payments from its 30% net profit royalty interest (“NPI Royalty”) in the Eloise Copper Mine in Queensland. This represents the final payments from the balance owing on the June 2006 quarter and the royalty earned from the September 2006 quarter.
6. On the 8th February 2007, the Company announced that it would not be receiving a NPI Royalty for the December 2006 quarter following a $12.0 million loss reported from the Eloise Copper Mine and it would be unlikely that any further royalty would be earned until the 2007/08 year.
Events Subsequent To The End Of The Financial Year
On the 30th
July 2007 the Company issued 2,050,000 employee options via the Company’s Employee Share Plan. The issued options are exercisable at 85 cents within 3 years following the date of issue but commencing not before the relevant vesting dates as follows:
• 50% vesting 12 months from date of issue; and
• the remaining 50% vesting 24 months from the date of issue.
Likely Developments
Information as to likely developments in the operations of the Company and the expected results of those operations in subsequent financial years has not been included in this report because, in the opinion of the Directors, it would prejudice the Company’s interests.
Environmental Regulation
The Company’s operations are subject to significant environmental regulations under both Commonwealth and state legislation in relation to its mining and exploration activities situated in Queensland and Western Australia. There are significant environmental regulations under the Queensland and Western Australian Mining and Environmental Protection Acts, including licence requirements relating to waste disposal, water and air pollution and the handling of dangerous goods in relation to these operations.
The Company is not aware of any matter that requires disclosure regarding any significant environmental regulation in respect to its operating activities.
Share Options
Options granted to Directors and Officers of the Company
During or since the end of the financial year, the Company granted options for no consideration over unissued in the Company to the following Directors and Officers of the Company as part of their Remuneration:
All options were granted during the financial year with the exception to the options expiring, 30th
July 2010 with exercisable price of 85 cents which were issued on the 30th
July 2007.
At the date of this report, unissued ordinary shares of the Company under options are as follows:
All options, except the 2,000,000 options expiring on 28th
July 2009 with an exercise price of 34.5 cents each, are employee options issued under the terms of the Company’s Employee Option Scheme and expire 30 days after termination of the employee’s employment. The 2,000,000 options expiring on 28th
July 2009 with an exercise price of 34.5 cents each were issued to Managing Director, Mr Peter Buck as part of his remuneration package and were approved at the shareholders meeting held on the 12th
July 2006.
Remuneration Report
This report details the amount and nature of remuneration of each Director of the Company and Executive Officers of the Company during the year.
Remuneration Policy
The remuneration policy is to provide a fixed remuneration component and a specific equity related component. The Board believes that this remuneration policy is appropriate given the stage of development of the Company and the activities which it undertakes and is appropriate in achieving the alignment with shareholder and business objectives.
Compensation levels for key management personnel of the Company and consolidated entity are competitively set to attract and retain appropriate qualified and experience Directors and Executives. The Remuneration Committee obtains independent advice on the appropriateness of compensation packages given trends in comparative companies locally and the objectives of the company compensation strategy.
Options are issued under the Employee Share Option Scheme (made in accordance with the criteria as set out in the plan approved by shareholders at the 2003 Annual General Meeting), at the discretion of the Directors or are issued under specific shareholder approval. All options are issued for no consideration.
The remuneration policy in regards to setting terms and conditions for the Executive Directors has been developed by the Board taking into account market conditions and comparable salary levels for companies of similar size and operating in similar sectors.
Non-Executive Directors
Directors receive a superannuation guarantee contribution required by the government, which is currently 9% and do not receive any other retirement benefit. Some individuals, however, have chosen to sacrifice part of their salary to increase payments towards superannuation.
The Board’s policy is to remunerate Non-Executive Directors at market rates for comparable companies for time, commitment and responsibilities. The Board determines payment to the Non-Executive Directors and reviews their remuneration annually, based on market practices, duties and accountability. Independent external advice is sought when required. The maximum aggregate amount of fees that can be paid to Non-Executive Directors is $250,000, last voted upon by shareholders at the 2006 Annual General Meeting. Directors’ base fees are presently up to $40,000 per annum.
The Chairman receives 50% more than the base Directors’ fee. Non-Executive Directors’ fees are not linked to the performance of the consolidated entity. Director fees cover all main board activities and committee memberships.
Directors and Executive Officers’ Remuneration
Details of the nature and amount of remuneration provided whilst in office to Directors of the Company during the financial year are as follows:
Insurance Premiums
Since the end of the previous financial year the Company has paid insurance premiums in respect of Directors’ and Officers’ Liability and Company Reimbursement Insurance contracts, for the current Directors and current and former Officers, including Executive Officers and Secretaries of the Company.
The Directors have not included details of the nature of the liabilities covered or the amount of the premium paid in respect of this insurance, as disclosure is prohibited under the terms of the contract.
Non-Audit Services
During the year the Company’s auditors performed certain other services in addition to their statutory duties. The Board has considered the non-audit services provided during the year by the auditor and are satisfied that the provision of those non-audit services during the year by the auditor is compatible with the general standard of independence for auditors imposed by the Corporation Act 2001. The nature and scope of non-audit services has been assessed by the Board to ensure that auditor independence was not compromised.
Details of the amounts paid to the auditor of the Company and its related parties for non-audit services provided during the year are set out below.
Remuneration Of Auditors
Auditors Independence Declaration
The copy of the Auditors Independence Declaration as required under sections 307c of the Corporation Act 2001 is set out on page 45.
Rounding Off
The Company is of a kind referred to in ASIC Class Order 98/100 dated 10th
July 1998 and in accordance with that Class Order, amounts stated in the financial report and Directors’ reports have been rounded off to the nearest thousand dollars, unless otherwise stated.
This report has been signed in accordance with a resolution of the Directors made at Perth on 28th
September 2007.
|
|
| John Atkins Chairman |
Peter Buck
Managing Director |
Corporate Governance Statement
The Board and management are committed to corporate governance and, to the extent they are applicable to the Company, have adopted the Ten Essential Corporate Governance Principles and each of the Best Practice Recommendations as published by ASX Corporate Governance Council (“ASX Principles and Recommendations”). The Board has adopted comprehensive systems of control and accountability as the basis for the administration of corporate governance. These policies and procedures are summarised below. Other information about the Company’s corporate governance practices were adopted by the Board on 16th
August 2004 and reviewed on 21st
September 2007 and are set out on the Company’s website at www.breakawayresources.com.au.
• Risk Management Policy;
• Securities Trading Policy;
• Audit Committee Charter;
• Non-Executive Remuneration Policy;
• Remuneration Committee Charter ;
• Board & Senior Executive Evaluation Policy;
• Continuous Disclosure Policy;
• Code of Conduct Policy;
• Shareholder Communication Policy; and
• Matter Requiring Board Approval.
Board Of Directors
The Board is responsible for the overall Corporate Governance of the consolidated entity including its strategic direction,
establishing goals for management and monitoring the achievement of those goals.
The Board operates in accordance with Breakaway Resources Limited’s Constitution, ASX Listing Rules, the Corporations Act, various Mining Acts and other applicable laws while achieving these goals.
At commencement of the fi nancial year, the Board of Directors comprised two Non-Executive Directors including the Chairman, and one Executive Director, who had the role of Managing Director.
The Board is now comprised of a Non-Executive Chairman, Managing Director and three Non Executive Directors. Full details of the Company’s Directors and their relevant experience and skills are detailed in the Directors’ Report.
The Board of Directors now has a majority of independent directors for the purposes of the Australian Securities Exchange Corporate Governance Council “Principles of Good Corporate Governance and Best Practice Recommendations”.
With the exception of an Audit Committee and Remuneration Committee, the consolidated entity is not considered to be of a size, nor is its affairs of such complexity to justify the establishment of separate committees. Accordingly all matters, which may be capable of delegation to a committee, are dealt with by the full Board.
In addition to formal Board meetings, the Board regularly meets informally to retain full and effective control over the consolidated entity and monitor the executive management. The Board has established a framework for the management of the consolidated entity including a system of internal control, a business risk management process and the establishment of appropriate ethical standards.
The Company’s Constitution and the Listing Rules of the Australian Securities Exchange Limited govern the procedures for election and retirement of Directors.
All Directors have the right to seek independent legal and accounting advice concerning any aspect of the Company’s operations and undertakings.
An independent Director is a Director who is not a member of management (a Non-Executive Director) and who:
• Holds less than 5 percent of the voting shares of the Company and is not an officer of, otherwise associated, director or
indirectly, with a shareholder of more than five percent of the voting shares in the Company;
• Has not with the last three years been employed in an executive capacity by the Company or another group member,
or been a director after ceasing to hold any such employment;
• Within the last three years has not been a principal or employee of a material professional adviser or a material consultant to the Company or another group member is not a material suppler or customer of the Company or another group member, or an officer of or otherwise associated, directly or indirectly, with a material supplier or customer and has no material contractual relationship with the Company or another group member other than as a director of the Company;
• Is free from any interest and business or other relationship which could or could reasonably be perceived to, material interfere with the directors ability to act in the best interest of the Company.
Audit And Audit Committee
The Company has an Audit Committee with an established Charter.
The members of the Audit Committee during the year were:
|
Mr JA Young (Chairman) Mr GP Connell |
Non-Executive Director Independent Non-Executive Director |
The Audit Committee has met twice this year and the Committee members attendance record is disclosed in the table of Directors meeting in the Directors Report. The Company’s auditors, Managing Director and Financial Controller are invited to Audit Committee meetings at the discretion of the committee.
The Company in a general meeting is responsible for the appointment of the external auditors of the Company, and the Board from time to time will review the scope, performance and fees of those external auditors.
The Company has appointed, with their consent, PKF as its auditors.
The external auditors were appointed in 2004.
Remuneration Committee
During November 2006 the Company formed a Remuneration Committee with an established Charter.
The Remuneration Committee reviews and makes recommendations to the Board on remuneration packages and policies applicable to the Managing Director, senior executives and Directors themselves. It is also responsible for share options schemes.
The members of the remuneration Committee during the year were:
|
Mr JJ Gresham (Chairman) Mr JK Atkins |
Independent Non-Executive Directors Independent Non-Executive Directors |
The Managing Director is invited to Remuneration Committee meetings, as required, to discuss senior executive’s performance and remuneration packages.
The Remuneration Committee meets as required. The committee has met once this year and the Committee member’s attendance record is disclosed in the table of the Directors meeting in the Directors Report.
Internal Control Framework
The Board acknowledges that it is responsible for the overall internal control framework, but recognises that no cost effective internal control system will preclude all errors and irregularities. To assist in discharging this responsibility the Board relies on several internal controls:
• There is a comprehensive monthly management reporting system. Management reports detailing consolidated entity expenditure are prepared and presented to Board members monthly. Results are reported against budget and variations from budget have been discussed with site personnel to ascertain the reasons for the variances each month for each of the consolidated entity’s operations. Budgets are revised when management has sufficient historical information to make informed forecasts;
• Procedures are in place to ensure that price sensitive information is reported to the ASX in accordance with the Continuous Disclosure Requirements;
• The consolidated entity conducts a review of the ability and experience of potential senior employees prior to appointment. Informal appraisals are conducted regularly together with on the job monitoring and training for all employees.
Ethical Standards
Breakaway is committed to the highest standards of ethical business conduct. As part of that commitment, Breakaway established a Code of Conduct to guide executives, management and staff in carrying out their duties and responsibilities. The Code is subject to ongoing review to ensure that Breakaway’s standards of behaviour and corporate culture reflect best practice in corporate governance.
Breakaway also has a number of specific policies that underpin the Code of Conduct and elaborate on various legal and ethical issues. These policies are designed to foster and maintain ethical business conduct within Breakaway, and govern such things as workplace and human resources practices, handling of confidential information, insider trading, risk management and legal compliance.
In addition, the Board has guidelines dealing with disclosure of interests by Directors in participating and voting at Board meetings where any such interests are discussed. In accordance with the Corporations Act, any Director with a material personal interest in a matter being considered by the Board must not be present when the matter is being considered, and may not vote on the matter.
Business Risks
The Board adopts practices to identify significant areas of risk and to effectively manage those risks in accordance with the consolidated entity’s risk profile.
Where appropriate the Board draws on the expertise of appropriate external consultants to assist in dealing with or mitigating risk.
The Company’s main areas of risk include:
• Mineral exploration, development and production;
• Fluctuating metal prices and exchange rates;
• Financing; and
• Title to assets.
The Board gives regular consideration to all these matters.
Share Trading
A formal policy has been adopted which is to ensure compliance with the “insider trading” provisions of the Corporations Act by executive staff who may be in possession of sensitive information concerning the Company’s affairs, prior to release to the market.
Performance Review
The Board has adopted a self –evaluation process to measure its performance each year by way of an annual Director’s Questionnaire, as well as the Chairman reviewing the individual performance of each Board member. This process includes a review of the composition, performance, effectiveness and skills mix of the Directors of the Company.
Arrangements put in place by the Board to monitor the performance of the Company’s Executives include:
• Annual performance evaluations carried out by the Managing Director against an established set of performance targets.
• Executive performance evaluation report prepared by the Managing Director and provided to the Remuneration Committee as a basis for making recommendations to the Board in relation to remuneration levels of Executives.
Explanation for Departure from Best Practice Recommendations
During the reporting period from 1st July 2006 to 30th June 2007 the Company has complied with each of the Ten Essential Corporate Governance principles and the corresponding Best Practice Recommendations as published by ASX Corporate Governance Council (“ASX Principles and Recommendations”), other than in relation to the matters specified below.
Auditor Independence Declaration
