Gold Mines of Sardinia Limited

A.C.N. 009 234 851

Directors
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The directors present their report on the results for the year ended 31 December 2000.

DIRECTORS

The names and details of the directors of the Company in office during the financial year and until the date of this report are:

NAMES, QUALIFICATION, EXPERIENCE AND SPECIAL RESPONSIBILITIES OF DIRECTORS

1. JON PITHER (Non Executive Chairman - appointed 21 December 2000)

Mr. Pither is a graduate of Cambridge University and is Chairman of the AIM Trust. He was formerly the Managing Director of Amari plc, a director of Selection Trust plc, the London Metal Exchange, a Council Member of the CVI, and President of the Aluminium Federation.

2. JOHN C MORRIS (Managing Director - appointed 17 July 1987)

Mr Morris has over 32 years experience in exploration, mining and the management of public companies. He has held various directorships with Australian public companies and is director of Sardinia Gold Mining S.p.A. (SGM).

3. JOHN CHAPPELL (Non-Executive -appointed 1 May 1996)

Dr. Chappell is an independent consulting geologist. Dr. Chappell is a director of Sardinia Gold Mining S.p.A., General Gold Resources NL and Compass Resources NL and was formally a director of Aztec Mining Company Limited.

Dr. Chappell holds a Bachelor of Science and Doctor of Philosophy Degree from London University, is a Fellow of the Society of Economic Geologists, and a Member of the Institute of Mining and Metallurgy.

4. GARRY M. JOHNSTON (Executive - appointed 16 January 1998)

Mr. Johnston, formerly with Newcrest Mining and BHP, was responsible for securing rapid approvals for Newcrest’s big Cadia Hill copper/gold project in New South Wales (Australia), technical and conceptual engineering studies on the Gosowong project in Indonesia, and permitting and land acquisition strategies for the Ridgeway project in New South Wales. Mr. Johnston is based in Sardinia and is Managing Director of SGM and is directly involved in the day to day management of SGM and its future planning and development. Mr. Johnston holds Bachelor of Science and Master of Science degrees. He is a Member of the Australian Institute of Mining and Metallurgy.

5. PETER J NEWTON (resigned 31 May 2000)

Mr Newton was involved in the Australian stockbroking industry for 25 years, specialising in institutional and corporate advisory work in the resources sector, in particular, in the areas of capital raisings and mergers and acquisitions. Mr. Newton is Chairman of Hill 50 Gold NL.

6. PETER HAMBRO (resigned 12 December 2000)

Mr. Hambro was Chairman of Gold Mines of Sardinia and a director of SGM. Mr Hambro is Chairman and Chief Executive and majority shareholder of Peter Hambro PLC, a London mining finance house founded by Mr Hambro and his partner in 1990. He is also Président Directeur Général of Mines d’Or Salsigne SA, western Europe’s second largest gold producer, and chairman of Zoloto Mining Limited, majority shareholder in JSC Pokrovskiy Mining, which is producing gold from a 2 million ounce deposit in Far East Russia.

7. VITTORIO GORI (resigned December 12, 2000)

Vittorio Gori has a degree in Mechanical Engineering from La Sapienza University, Rome. He is the son of one of the founders of the Gori & Zucchi Group, established in 1926, and is currently Italy's largest jewelry manufacturer. Mr Gori was Chairman and executive Director until the majority of the company was sold in 1999. At present he is a non-executive director in several group companies. Mr. Gori is a director of SGM.

8. RUDOLPH AGNEW (resigned 12 December 2000)

Mr. Agnew is Chairman of Lasmo plc, Stena International and World Conservation Monitoring committee. He was the former Chairman of Consolidated Gold Fields and a former director of Newmont Mining.

As of the date of this report, the interests of the directors in the shares and options of the Company were:

DIRECTOR

ORDINARY SHARES

UNLISTED

OPTIONS

J. Pither

150,000

0

J C Morris

2,660,000

500,000

J Chappell

100,000

250,000

G.M. Johnston

150,000

1,500,000

PRINCIPAL ACTIVITIES

The principal continuing activity of entities within the consolidated entity is investing in mineral resource projects, primarily gold in Italy. There have been no significant changes in the nature of those activities during the year.

RESULTS

The consolidated operating loss was attributable to the following:

Reconciliation of Consolidated Operating Loss

12 months

ended

31/12/00

$000

12 months

ended

31/12/99

$000

Operating Income

   

Sales Revenue

13,326

13,704

     

Less Operating Costs

   

Supplies and employee costs

(11,771)

(12,473)

Other costs

(851)

_____________

(1,121)

____________

 

(12,622)

(13,594)

Operating Result

704

110

     

Less Financing Costs (net)

   

Interest revenue

354

252

Grant revenue

 

-

Interest expense

(275)

(907)

 

_____________

____________

 

79

(655)

 

_____________

____________

Operating profit/(loss) before non cash items

783

(545)

     

Less: Other non cash costs

   

Depreciation Furtei plant and equipment

(2,865)

(4,046)

Amortisation of Furtei development costs

(2,164)

(5,314)

Unrealised foreign exchange (loss)/gain

(2,013)

2,802

Exploration costs written off

(2,338)

(531)

 

_____________

____________

 

(9,380)

(7,089)

 

_____________

____________

Consolidated Operating Loss

(8,597)

(7,634)

 

============

===========

The consolidated operating loss is primarily attributable to non-cash provisions relating to depreciation of plant and equipment of A$2,865m (1999: A$4,046m), amortisation of development costs of A$2,164m (1999: A$5,314m) and exploration costs written off of A$2,338m (1999: $531).

DIVIDENDS

The directors recommend that no dividend be paid for the year ended 31 December 2000. No dividends have been paid or declared during the year.

CORPORATE ACTIVITIES

Issued Capital

At the date of this report the Company has an issued share capital of 237,069,404 ordinary fully paid shares.

The Company also has on issue 8,960,000 Employee Incentive Options, full details of which are disclosed in Note 12 of the financial statements.

SIGNIFICANT CHANGES IN STATE OF AFFAIRS

There are no other significant changes in the state of affairs of the Company that have not already been referred to in this Annual Report.

SIGNIFICANT EVENTS AFTER BALANCE SHEET DATE

Corporate Overdraft Facility renewed:

The Corporate Overdraft Facility from NM Rothschild & Sons Australia Ltd, entered into on 28 January 1999, has been used to retire Sardinia Gold Mining SpA’s (SGM) debt to NM Rothschild & Sons Limited amounting to US$3.65m and to provide working capital for the Group. The Facility, which was due to expire on 31 December 2000, was extended and is now due to expire on 30 April 2001 and is secured by:

     

  1. First ranking fixed and floating charge over the Company;
  2.  

  3. Unsecured Guarantee for all amounts outstanding under the Overdraft given by SGM;
  4.  

  5. Share mortgage over the Company’s share holding in Mediterranean Gold Mines Pty Ltd (MGM) and Euro Mining Pty Ltd (EM) and over MGM’s and EM’s shareholding in SGM;
  6.  

  7. First ranking charge over the SGM Proceeds Account.

 

Navan shares:

On 13 March 2001, GMS sold 1 million of the 6,500,000 ordinary shares that it holds in Navan Mining (refer note 12). The shares were sold at 98 pence each.

ENVIRONMENTAL REGULATION AND PERFORMANCE

The consolidated entity holds exploration licences issued by the Sardinian Authorities which specify full exploration programs, including drilling, trenching and trial mining.

A summary of all licences in place is set out in the Tenement Schedule included in the review of the Company's operations commencing on page 15.

There have been no significant known breaches of the consolidated entity's licence conditions.

REVIEW OF OPERATIONS

A review of the Company's Sardinia operations commences on page 15.

LIKELY DEVELOPMENTS AND EXPECTED RESULTS

In the opinion of the directors there are no matters or events that would affect the future operations and expected results of the consolidated entity that have not already been referred to in this Annual Report, other than sustained volatility in the international financial markets and continuing low prices for the commodities produced by the consolidated entity.

The Company’s principal investment is its 90% interest in Sardinia Gold Mining S.p.A and details relating to its activities are set out in this report.

DIRECTORS’ MEETINGS

The number of formal directors’ meetings held during the year and number of meetings attended by each of the directors of the Company during the financial year were:

 

 

Gold Mines of Sardinia Limited

Sardinia Gold Mining S.p.A

 

No of Meetings held while in office

No of Meetings Attended

No of Meetings held while in office

No of Meetings Attended

J. Pither

0

0

0

0

P. Hambro

8

7

6

5

J C Morris

8

8

6

4

J Chappell

8

7

6

4

V. Gori

8

4

3

2

P J Newton

2

1

0

0

G.M. Johnston

8

5

6

6

 

 

 

Mr. Pither appointed 21 December 2000
Mr. Newton resigned 31 May 2000

 

 

 

Mr. Hambro appointed 12 November 1999 - resigned 12 December 2000
Mr. Agnew appointed 6 April 2000 - resigned 12 December 2000
Mr. Gori appointed 8 February 2000 - resigned 12 December 2000

There were 16 circular resolutions passed during the financial year as a consequence of prior discussions between the directors.

There were no committee meetings held during the year.

INDEMNIFICATION AND INSURANCE OF DIRECTORS

During the financial year under review, the Company procured a Directors and Officers Liability/Corporate Reimbursement Insurance Policy at a premium of $30,232.00, viz:

(A) Directors and Officers Liability Insurance -

The Insurer will pay on behalf of the directors and officers any loss for which the directors and officers may not be legally indemnified by the Company arising out of any claim, by reason of any wrongful act committed by them in their capacity as a director or officer, first made against them jointly or severally during the period of insurance and notified to the insurer during the indemnity period.

(B) Corporate Reimbursement Insurance -

The insurer will pay on behalf of the Company any loss payment which it is legally permitted to make arising out of any claim, by reason of any wrongful act, committed by any director or officer in their capacity as a director of officer, first made against the director or officer during the period of insurance and notified to the insurer during the Indemnity period.

The total amount payable in respect of all claims under A or B shall not in the aggregate exceed the limit of aggregate liability, i.e.; $15,000,000.

This aforementioned premium has been included as part of Directors’ Remuneration in Note 15.

DIRECTORS’ AND OTHER OFFICERS' EMOLUMENTS

The Remuneration Committee of the Board of Directors is responsible for determining and reviewing compensation arrangements for the directors, the chief executive officer and the executive team. The Remuneration Committee assesses the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and executive team. Such officers are given the opportunity to receive their base emolument in a variety of forms including cash and fringe benefits such as motor vehicles and expense payment plans. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the Company.

To assist in achieving these objectives, the Remuneration Committee links the nature and amount of executive directors’ and officers’ emoluments to the Company’s financial and operational performance. All senior executives have the opportunity to qualify for participation in the Employee Option Plan which currently provides share option incentives to executives. Details regarding the issue of share options under this plan are provided in Note 12 to the financial statements.

Details of the nature and amount of each element of the emolument of each director of the Company and each of the executive officers of the Company and the consolidated entity receiving the highest emolument for the financial year are as follows:

Emoluments of directors of Company and the consolidated entity

 

 

Base Fee

 

Consulting

Fees

 

Other

 

Options

 

Super-

annuation

Fees paid to companies in which directors have a financial interest

 

TOTAL

 

$

$

$

 

$

$

$

J. Pither

-

-

-

-

-

-

 

J. Morris

150,000

-

20,014

-

15,024

-

185,038

P. Hambro

-

-

5,039

-

-

197,972

203,011

P.J. Newton

5,000

-

-

-

-

-

5,000

J. Chappell

5,000

-

5,039

-

 

13,500

25,539

G. Johnston

40,000

-

29,025

-

-

222,291

291,316

V. Gori

6,264

-

5,039

45,735

-

-

57,038

R. Agnew

3,348

-

5,039

-

-

-

8,387

 

Mr. Johnston is a director and has a financial interest in Davidson Management Pty Ltd which received a total of $222,291 (1999: $166,717) for management services provided throughout the year.

Mr. Chappell is a director and has a financial interest in Nalmor Pty Ltd which received a total of $13,500 (1999: $17,626) for geological services provided throughout the year.

Mr. Hambro was a director and has a financial interest in Peter Hambro Plc which received a total of $197,972 (1999: Nil) for services provided since becoming a director of the Company and until year end.

Options issued in the current year were valued using the Black-Scholes option pricing model.

Emoluments of the five most highly paid executives/officers of the Company and the consolidated entity.

The term ‘director’ and ‘officer’ have been treated as mutually exclusive for the purposes of this disclosure. There were no officers of the Company during the year. Executives are those directly accountable and responsible for the operational management and strategic direction of the Company and the consolidated entity.

Options granted to directors and any of the five most highly paid officers.

Details of options granted over unissued shares in Gold Mines of Sardinia Limited during or since the end of the year to any director and any of the five most highly remunerated officers of the Company as part of their remuneration are as follows:

 

Options over one ordinary share

Exercise Price

 

Expiry Date

V. Gori

200,000

0.39c

August 8, 2005

 

DEEDS OF INDEMNITY

During the financial period ended 30 June 1996 the Board of Directors agreed to Messrs Morris, Franks and Chappell entering into a Deed of Indemnity with the Company and its controlled entities whereby the Company and its controlled entities has agreed to indemnify the directors in connection with their appointments as directors of the Italian registered Company Sardinia Gold Mining S.p.A.

ROUNDING

The amounts contained in the report and in the financial statements have been rounded to the nearest thousand dollars under the option available to the Company under ASIC Class Order 98/100. The Company is an entity to which the Class Order applies.

CORPORATE GOVERNANCE STATEMENT

The Board of directors of the Company is responsible for the corporate governance of the consolidated entity. The Board guides and monitors the business and affairs of the Company on behalf of the shareholders by whom they are elected and to whom they are accountable. To ensure the Board is well equipped to discharge its responsibilities it has established guidelines for the nomination and selection of directors and for the operation of the Board.

Composition of the Board

The Composition of the Board is determined in accordance with the following principles and guidelines:

 

 

 

 

the Board should be comprised of at least six directors and should preferably maintain a majority of non-executive directors;
the chairperson may be a non-executive director;
the Board should comprise of directors with an appropriate range of qualifications and expertise; and
the Board should meet at least quarterly and follow meeting guidelines set down to ensure all directors are made aware of, and have available all necessary information, to participate in an informed discussion of all agenda items.

The directors in office at the date of this statement are:

 

Name

Position

Area of Expertise

J. Pither

Non Executive Chairman

Finance, Mining and Engineering

John Morris

Managing Director, Executive

Operations

John Chappell, Dr

Non-Executive Director

Geology and Operations

Garry Johnston

Operations Director, Executive

Development/Operations

 

Nomination Committee

As the Company develops its investment in Sardinia and as it shifts its corporate profile increasingly towards the capital markets of Europe, to ensure that the Board is well equipped to continue to discharge its responsibilities and into the future, the Board is establishing guidelines for the future nomination and selection of potential new directors and for the operation of the Board. To this end a Nomination Committee has been formed to canvas future candidates for the position of director, to ensure that the Company continues to be governed by appropriately qualified people. The nomination committee is comprised of the following members:

J Chappell

J Morris

Remuneration Committee

The Board is responsible for determining and reviewing compensation arrangements for the directors themselves and the chief executive officer and the executive management. The Board has established a remuneration committee, comprising two non-executive directors. The remuneration committee is comprised of the following members:

J. Pither

J Chappell

Audit Committee

As at the date of this report, the Company has an Audit Committee. The members of the audit committee are:

J. Pither

C. Chappell

The Board is also responsible for:

nomination of the external auditor and reviewing the adequacy of the scope and quality of the annual statutory audit and half year statutory audit review.

Board Responsibilities

As the Board acts on behalf of the shareholders and is accountable to the shareholders, the Board seeks to identify the expectations of the shareholders, as well as other regulatory and ethical expectations and

obligations. In addition the Board is responsible for identifying areas of significant risk and ensuring arrangements are in place to adequately manage those risks. The Board seeks to discharge these responsibilities in a number of ways.

The responsibility for the operation and administration of the consolidated entity is delegated by the Board to the chief executive officer and the executive management. The Board ensures that the executive management is appropriately experienced and qualified to discharge their responsibilities and constantly monitors the performance of the chief executive and the executive management.

The Board is responsible for ensuring that management’s objectives and activities are aligned with the expectations and risks identified by the Board. The Board has a number of mechanisms in place to ensure this is achieved. These mechanisms include the following:

 

 

 

implementation of operating plans, cash flows and budgets by management and Board monitoring of progress against projections;
establishment of operational committees to report on environmental issues and concern, and occupational health and safety;
procedures to allow directors, and management in the furtherance of their duties, to seek independent professional advice via the utilisation of various external technical consultants.

Monitoring of the Board’s Performance and Communication to Shareholders

In order to ensure that the Board continues to discharge its responsibilities in an appropriate manner, the performance of all directors is constantly reviewed by the Chairman.

The Board of directors aims to ensure that the shareholders, on behalf of whom they act, are informed of all information necessary to assess the performance of the directors. Information is communicated to the shareholders through:

 

 

 

 

the Annual Report which is distributed to all shareholders;
the availability of the Company’s’ Quarterly Report to shareholders so requesting;
the Half-Yearly Report distributed to shareholders so requesting; and
the Annual General Meeting and other meetings so called to obtain shareholder approval for Board action as appropriate.

Signed in accordance with a resolution of the directors.

J C MORRIS

DIRECTOR

Perth, 30 March, 2001

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Last modified: April 03, 2001