Economic Deposits of Minerals - Case Study Example

ANCHOR RESOURCES ANNUAL REPORT Name Institution Total Word count Excluding Title page, Reference page, Headings and Letter to the CEO is 1443 Anchor Resources Annual Report An anchor resource is a mineral company based in Sydney, Australia. It was incorporated in 2006. It operates as a subsidiary of China Shandong Jinshunda Group Co., Ltd (Bloomberg business week, 2012). The company’s main objective is developing mines holding these minerals. The continuing principal activity of the Group is the exploration for economic deposits of minerals. For the period of this report, the emphasis has been on gold, copper, antimony, uranium and to a lesser extent, tin and tungsten (Anchor Resources Limited, 2011). During the year, Jinshunda, acquired a 97.6% of total company shares through its subsidiary company, Sunstar Capital Pty Ltd. The company has a set of exploration projects in the east coast of Australia for possible mines (Anchor Resources Limited, 2011). The company recorded $1,551,844 after tax expense. This was high, compared to $439,406 loss in 2010. During the year, directors, employees and consultants were granted 1,400,000 share options The company intends to undertake a diamond drilling program consisting of 8 to 10 deep holes spaced on 60 m. It also intends to drill test for antimony deposit at Bielsdown so as to increase the size and grade of the current resource. In search for gold at Tyringham, Anchor has planned to drill two deep diamond oriented core holes to a depth of around 500m (Anchor Resources Limited, 2011). At Birdwood Copper Project, there are plans to further diamond core drilling; to evaluate the extent of so far poorly tested porphyry system (Anchor Resources Limited, 2011). Auditing was conducted in line with Australian Auditing Standards and a comprehensive financial report provided. From the report, The Company incurred a loss of 1,860,124 before income tax benefit in 2011. This was higher than the 2010 loss of 503,490. Total income for 2011 was 1,343,873, which was higher than the previous year’s $506,356. No dividends were paid or declared at the start of year. The basic loss per share was 2.96 cents while that of 2010 was 1.46 cents per share (Anchor Resources Limited, 2011). Total current assets for the company are 1,187,547 while total non-current assets were 4,162,690. In 2010, the former was 716,526, while the latter was 3,597,923. There was therefore an increase in total assets. Current liabilities maintained at 98,502. There was no non-current liability in the two years. The current assets are twelve times more and can meet current liabilities. In 2011, the company made a loss of $1,343,114, while in 2010 the loss was 682,469 (Anchor Resources Limited, 2011). Due to change in management and remuneration policy, administration expenses increased to $166,341 in 2011 compared to $50, 337 in 2010. Payment expanses increased by $ 256536. The loss was also attributed to exploration expenditure written off and finance expenses incurred while changing ownership shares. Accumulated losses increased to 4,241,673 in 2011 from 2,689,829 in 2010. There were no proceeds from shares in 2011, which also contributed to the loss. Cash flow from operating activities in December 2011 was 114,147. From investing activities, cash flow was 848,054 and from financing activities, it was 1,350,000. Income tax was not paid (Anchor Resources Limited, 2011). Currently, the price share index for the company is $0.2, with a share volume of $ 52.54 million. The range within week 10 and week 11 was $0.15 and $ 0.305. the volume traded within the week was 6,600. On June 2010, there was a change in top management of anchor resources. A team of male directors now heads the company namely; Ian Price – Managing Director Jianguang Wang - Non-executive Chairman Steven Jiayi Yu - Chief Executive Officer Haolin Wang – Non-executive Director. The company secretary is known as Mr. Grahame Clegg (Anchor Resources Limited, 2011). During the financial year, there were seventeen director meetings, all of which were attended by two of the directors, while one missed one meeting. There were three audit committee meetings and two remuneration committee meetings, all of which were fully attended (Anchor Resources Limited, 2011). Remuneration policy for the company is designed to offer fixed remuneration package and long- term incentives. This is in an attempt to align key management personnel objectives with shareholder and business objectives (Anchor Resources Limited, 2011). Remuneration policy for executive committee is designed by the remuneration committee and approved by the board of directors. Key management personnel receive a fixed package depending on experience, length of service, fringe benefits, superannuation and options. This package is reviewed annually in reference to performance of the company. The executive personnel receive a 9% superannuation benefit in line with constitutional requirements and do not receive other retirement benefits (Anchor Resources Limited, 2011). Non -executive directors have not fixed remuneration but are paid depending on the enumeration committees’ decisions. They do not enjoy retirement benefits. There is an aggregate payment of $175,000 per year approved by shareholders (Anchor Resources Limited, 2011). There is an employee share and option arrangement designed for key management personnel to align director’s interests with shareholder’s interests. Each option is converted to one ordinary share valued using the Black-Scholes methodology. These options lack dividends and voting rights. Remuneration is not given on individual performance (Anchor Resources Limited, 2011). For the year ended 30 June 2011, key management personnel were paid a total of between $ 201,746 and $ 252,280 depending on duration of service while non- executive directors were paid between $141,180 and $ 86,480 (Anchor Resources Limited, 2011). With the current remuneration policy, the CEO, who is contracted through a service agreement, receives an annual remuneration of $180,000 (including superannuation) and a housing allowance of $20,000. The managing director receives an annual pay of $200,000 (including superannuation) and a housing allowance of $20,000. Non- executive director Vaughan Webber receives a salary of $36,000 per annum, superannuation inclusive and $25,000 for extra duties. There is no written contract document for non- executive directors Jianguang Wang and Haolin Wang. The two received director’s interests on ordinary shares of 3,152,075 and 490,101 respectively (Anchor Resources Limited, 2011). Anchor Resources rehabilitates exhausted mines in line with requirements stipulated in mines departments’ guidelines and standards. It holds exploration licenses, which specify guidelines for environmental impacts in relation to exploration activities. The license conditions provide for the full rehabilitation of the areas of exploration in accordance with the various Mines Departments’ guidelines and standards. There have been no significant known breaches of the license conditions (Anchor Resources Limited, 2011). The company does not interact with the community whatsoever and does not support any charity work. Shareholders own the company. The principal shareholder is China Shandong Jinshunda Group Co. Ltd. (Jinshunda), with 97.6% on Anchor shares. These shares were acquired through a bid, through its wholly owned subsidiary Sunstar Capital Pty Ltd and two subsidiary companies were sold to private investors. Other share holders are Mr. Jianguang Wang (6%), Rui Teng Trading Pty Limited (2.45%), Mr Jiayi Yuthe(0.93%), Octifil Pty Limited(0.47%) among others. The company is still listed on ASX (code AHR) (Anchor Resources Limited, 2011). The company, in line with general standard of independence for auditors, imposed by the Corporations Act 2011, does not have a company auditor. One of the directors, offered audit services, but did not interfere with the corporations’ act 2001. Remuneration for auditors was $18,000 for 2011 and $19,000 for 2010. There are comments on the ethics standards of the company. It also explains how the company is governed. Decisions made in the company are entirely based on the interests of the main shareholder. Executive directors do not have performance obligations, as they do not sign a performance contract. This may lead to poor performance without being liable to anyone. In addition, lack of hiring an independent auditing body and using one of the directors as the auditor is also a loophole in the company. As an investor, I would not invest in this company. Though the future plans and change of management looks promising and may improve performance in the company, liability for the company still is high. It may take some time for the company to recover from this. In addition, the trend of loss in the share index for the company is worrying. It may also indirectly influence governance to suit their will. Lastly, the company is making losses instead of profit. Though the report is comprehensive, there is unnecessary information included. Detailed explanation and diagrams illustrating mineral sources and prospect areas could not be understood by a common man. The report order was good but a summary of figure should have been given before the detailed financial report. Not all people read through the whole report. A figure summary enables them get the most important information about profit or loss margins of the company. LETTER TO THE CEO The Chief Executive Officer, Anchor Resources Limited, Dear Sir, RE: ANNUAL FINANCIAL REPORT FRO THE YEAR 2011 I am writing in reference to the above subject. On behalf of the department, I am grateful for the help offered by the company’s secretary in obtaining information about the company. Most of all my gratitude goes to the companies’ management for authorizing release of this information. Attached, is the report I wrote using the information given. In my view, the report was comprehensive, giving most of the necessary information, but was a little too informative for a non- professional in business and engineering. For instance, information on mines and prospects for more minerals was a bit scientific and out of context. In addition, providing a summary of important figures of profit or loss margins is necessary for people who may not be interested in reading the whole report or for those to whom business language is difficult to understand. I hope my views will be of help in developing future reports. References Bloomberg business week, Anchor resources ltd (AHR:ASX) 2:16 AM 03/1/12 Retrieved on 30th April 2012 from http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=AHR:AU Anchor Resources Limited and Controlled Entities, Financial Report For The Financial Year Ended 30 June 2011 Read More