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Synergy Metals Ltd

ABN 59 005 482 904


and its Controlled Entities

Financial Report
for the half-year ended 31 December 2007
Synergy Metals Ltd
Corporate Directory

Directors Stock exchange


Michael J Sadler Synergy Metals Ltd is listed on the
Chairman, Australian Securities Exchange (ASX)
Independent non-executive director Home exchange - Melbourne
ASX code: SML
Peter R Malkin Options: SMLO; SMLOC; SMLAI
Operations director

Kit Foo Chye Registered office


Non-executive director 152 Macleod Street
Bairnsdale Victoria 3875
K C Freddie Heng Telephone: (03) 5152 5011
Non-executive director Facsimile: (03) 5152 5705

Paul D Pupazzoni
Non-executive director Share registry
Security Transfer Registrars Pty Ltd
Company secretary 770 Canning Highway
Paul D Pupazzoni Applecross WA 6153
Telephone: (08) 9315 2333
Facsimile: (08) 9315 2233
Bankers
National Australia Bank Ltd
179 Main Street Auditors
Bairnsdale Victoria 3875 PKF
Chartered Accountants & Business Advisers
28 The Esplanade
ANZ Bank Ltd Perth WA 6000
77 St George's Terrace
Perth WA 6000
Synergy Metals Ltd
Financial Report
For the half-year ended 31 December 2007

Page
CONTENTS Number

Directors' Report 1

Auditor's Independence Declaration 3

Condensed Income Statement 4

Condensed Balance Sheet 5

Condensed Cash Flow Statement 6

Condensed Statement of Changes in Equity 7

Notes to the Financial Statements 8

Directors' Declaration 13

Independent Auditor's Review Report 14


Synergy Metals Ltd
Directors' Report
The directors present their report for the half-year ended 31 December 2007 for Synergy Metals Ltd
(Synergy) and its controlled entities (the group).

Directors
The following persons were directors in office at any time during the half-year and/or up to the date of this
report:

Michael J Sadler Chairman and independent Appointed 6 July 2004


non-executive director

Peter R Malkin Operations director Appointed 6 July 2005

Kit Foo Chye Non-executive director Appointed 16 November 2006

K C Freddie Heng Non-executive director Appointed 29 January 2008

Paul D Pupazzoni Non-executive director and Appointed 6 March 2002


company secretary

Review and results of operations

Overview
The Directors of Synergy Metals Limited are pleased to report that the company’s exploration activity was
maintained at a high level during the six months ended 31 December 2007.

Having achieved its earlier objective of proving up a northerly extension of the Glen Wills mineralised zone,
the focus shifted to Glen Wills South to commence a resource drill-out there and to Sunnyside where
excellent results had previously been reported.

Two diamond core drill rigs operated from the surface at Glen Wills and Sunnyside during the period and
will soon be supplemented by a third rig which will operate from underground. Having three rigs on site will
greatly enhance the group's exploration capacity and will allow Synergy to accelerate the exploration
program into 2008.

A major achievement for the period was the completion of the underwritten $7.2 million capital raising
which has secured the company’s funding requirements for the foreseeable future.

Financial results
During the period, the group continued the exploration, evaluation and development work at the Glen Wills
and Sunnyside gold projects located in the East Gippsland region of Victoria, Australia. The consolidated
loss after income tax for the half-year ended 31 December 2007 was $454,315 (Half-year ended 31
December 2006: $627,765).

Victorian operations
The group has been focusing its attention on increasing the inferred mineral resource and the mineral
exploration potential at its 100% owned gold projects at Glen Wills and Sunnyside. This follows an
independent review conducted by Coffey Mining Pty Ltd in early 2007 on behalf of the Board and which
confirmed the excellent prospectivity of the group's mining tenements in Victoria.

In September 2007, Coffey Mining recommended a resource drill out at Glen Wills South; further
exploration drilling at the highly prospective Sunnyside area; and a large soil sampling program at
Merrimac which is located some 8 kilometres to the north of Sunnyside. All three projects were
commenced during the period and are continuing at the date of this report.

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Directors' Report
Two surface drill rigs were used throughout most of the period: one at Glen Wills and the other at
Sunnyside. A third drill rig will soon be delivered on site to accelerate the Glen Wills South resource drill
out by drilling from underground. This specially designed drill rig will allow Synergy to drill faster to the
mineralised zone from underground by avoiding the dead drilling that is otherwise required by drilling from
the surface.

In preparation for the commencement of drilling from underground, in September 2007, the Board
approved the refurbishment of part of the number 5 adit of the historic workings. This will allow the
construction of several crosscuts and cuddies which will enable the underground drill rig to be positioned in
the best location to provide the shortest drilling distances and to hit the known mineralised zone at the
optimum angle.

The refurbishment work of the adit has been completed and the Board announced today that construction
of the crosscuts has commenced.

The Board and the geological team have regular review meetings with Coffey Mining to assess new assay
results; additional geological information and interpretation; and to also refine the future works program.

Funding
In August 2007, Synergy announced an underwritten finance package which closed in November 2007 and
raised $7.2 million. The Board used some of those funds to make an early repayment of the equipment
finance facility held by a subsidiary. Consequently, the group now has no loans outstanding.

At 31 December 2007, the group had approximately $6.3 million of cash on hand which will be used to
accelerate the exploration efforts and for working capital purposes.

Board appointment
In January 2008, the Synergy Board invited Mr K C Freddie Heng to join as a non-executive director. Mr
Heng is based in Singapore and has expanded the Board's reach into South East Asia.

Auditor's independence declaration


We have obtained an independence declaration from our auditors, PKF Chartered Accountants, which is
included on page 3 of this financial report.

Signed in accordance with a resolution of the directors.

Paul Pupazzoni
Director
14 March 2008

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AUDITOR’S INDEPENDENCE DECLARATION

As lead engagement partner for the review of Synergy Metals Ltd for the half year ended 31 December
2007, I declare that, to the best of my knowledge and belief, there have been:

(i) no contraventions of the independence requirements of the Corporations Act 2001 in relation to the
review; and

(ii) no contraventions of any applicable code of professional conduct in relation to the review.

PKF
Chartered Accountants

Chris Nicoloff
Partner

th
Dated at Perth, Western Australia this 14 day of March 2008

Tel: 61 8 9278 2222 | Fax: 61 8 9278 2200 | www.pkf.com.au


West Australian Partnership | ABN 39 542 778 278
Level 7, BGC Centre | 28 The Esplanade | Perth | Western Australia 6000 | Australia
PO Box Z5066 | St Georges Terrace | Perth | Western Australia 6831

PKF is a national association of independent chartered accounting and consulting firms, each trading as PKF. PKF Australia Ltd is
also a member of PKF International, an association of legally independent chartered accounting and consulting firms.

Liability limited by a scheme approved under Professional Standards Legislation

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Synergy Metals Ltd
Condensed Income Statement
For the half-year ended 31 December 2007

Consolidated
Six months Six months
ended ended
31.12.07 31.12.06
Notes $ $

Continuing operations
Revenue from ordinary activities 4 112 851 7 821
Operating expenses -556 349 -520 555
Finance costs 4 -10 817 -75 116
Write off of deferred exploration
and evaluation expenditure -39 915

Profit (loss) from continuing


operations before income tax -454 315 -627 765

Loss before income tax -454 315 -627 765

Income tax expense 5

Net profit (loss) for the period attributable


to members of the parent company -454 315 -627 765

Cents Cents
Basic earnings (loss) per share
For the half-year -0.09 -0.24
Diluted earnings (loss) per share
For the half-year -0.09 -0.24

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Synergy Metals Ltd
Condensed Balance sheet
At 31 December 2007

Consolidated
As at As at
31.12.07 30.6.07
Notes $ $

CURRENT ASSETS
Cash and cash equivalents 6 6 306 871 1 071 981
Trade and other receivables 97 445 45 339

TOTAL CURRENT ASSETS 6 404 316 1 117 320

NON- CURRENT ASSETS


Deferred exploration and evaluation expenditure 10 226 430 9 792 606
Property, plant and equipment 3 328 122 3 115 434

TOTAL NON-CURRENT ASSETS 13 554 552 12 908 040

TOTAL ASSETS 19 958 868 14 025 360

CURRENT LIABILITIES
Trade and other payables 97 367 203 552
Interest-bearing loans and borrowings 7 90 976

TOTAL CURRENT LIABILITIES 97 367 294 528

NON-CURRENT LIABILITIES
Interest-bearing loans and borrowings 7 321 576
Provisions 33 000 33 000

TOTAL NON-CURRENT LIABILITIES 33 000 354 576

TOTAL LIABILITIES 130 367 649 104

NET ASSETS 19 828 501 13 376 256

EQUITY
Contributed equity 8 48 071 534 41 164 974
Accumulated losses -28 243 033 -27 788 718

TOTAL EQUITY 19 828 501 13 376 256

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Synergy Metals Ltd
Condensed Cash Flow Statement
For the half-year ended 31 December 2007

Consolidated
Six months Six months
ended ended
31.12.07 31.12.06
Notes $ $

Cash flows from operating activities


Payments to suppliers and employees
(including net GST) -684 304 -497 411

Net cash flows from (used in) operating activities -684 304 -497 411

Cash flows from investing activities


Interest income received 90 016 6 956
Deferred exploration and development
expenditure carried forward -439 824 -291 662
Purchase of plant and equipment -214 188
Proceeds from sale of assets held for sale 40 000

Net cash flows from (used in) investing activities -563 996 -244 706

Cash flows from financing activities


Proceeds from issue of shares 7 408 792 782 000
Cash expenses of share issues -502 233 -46 410
Repayment of borrowings and advances -412 552 -35 364
Interest expense -10 817 -40 117

Net cash flows from (used in) financing activities 6 483 190 660 109

Net increase (decrease) in cash and cash equivalents 5 234 890 -82 008

Cash and cash equivalents at beginning of period 1 071 981 321 904

Cash and cash equivalents at end of period 6 6 306 871 239 896

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Synergy Metals Ltd
Condensed Statement of Changes in Equity

For the half-year ended 31 December 2007:

Attributable to equity holders of the parent

Issued Accumulated Total


capital losses equity
Consolidated $ $ $

Opening balance 1 July 2007 41 164 974 -27 788 718 13 376 256

Issue of share capital (net of share issue costs) 6 906 560 6 906 560

Loss for the period -454 315 -454 315

Closing balance 31 December 2007 48 071 534 -28 243 033 19 828 501

For the half-year ended 31 December 2006:

Attributable to equity holders of the parent

Issued Accumulated Total


capital losses equity
Consolidated $ $ $

Opening balance 1 July 2006 37 786 953 -26 745 116 11 041 837

Issue of share capital 726 207 726 207

Loss for the period -627 765 -627 765

Closing balance 31 December 2006 38 513 160 -27 372 881 11 140 279

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Synergy Metals Ltd
Notes to the Financial Statements
For the half-year ended 31 December 2007
1 CORPORATE INFORMATION
The financial report of Synergy Metals Limited (Synergy) for the half-year ended 31 December 2007
was authorised for issue in accordance with a resolution of the directors on 14 March 2008. Synergy is
a company limited by shares incorporated in Australia whose shares are publicly traded on the
Australian Securities Exchange. The nature of the operations and principal activities of the group are
described in note 3.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


The half-year financial report does not include all of the notes of the type normally included within the
annual financial report and therefore cannot be expected to provide as full an understanding of the
financial performance, financial position and financing and investing activities of the consolidated entity
as the full financial report.

The half-year financial report should be read in conjunction with the annual financial report of Synergy
as at 30 June 2007. It is also recommended that the half-year financial report be considered together
with the public announcements made by Synergy and its controlled entities during the half-year ended
31 December 2007 and to the date of this report in accordance with the continuous disclosure
obligations arising under the Corporations Act 2001.

a) Basis of preparation
The half-year consolidated financial report is a general purpose financial report, which has been
prepared in accordance with the requirement of the Corporations Act 2001, applicable Accounting
Standards, including AASB 134 “Interim Financial Reporting” and other mandatory professional
reporting requirements. The half-year financial report has been prepared on a historical cost basis,
except where stated.

The financial report is presented in Australian dollars. For the purpose of preparing the half-year
financial report, the half-year has been treated as a discrete reporting period.

b) Basis of consolidation
The consolidated financial statements comprise the financial statements of Synergy Metals Limited
(Synergy) and its subsidiaries (the group).

c) Significant accounting policies


The half-year consolidated financial statements have been prepared using the same accounting
policies as used in the annual financial statements for the year ended 30 June 2007.

d) Changes in accounting policies


Since 1 July 2007, the group has adopted the following standards and interpretations, mandatory for
financial reporting periods beginning on and after 1 July 2007. Adoption of these Standards and
Interpretations did not have any material effect on the financial position or the performance of the
group.
• AASB 101 (revised October 2006) Presentation of Financial Statements
• AASB 7 Financial Instruments: Disclosures
• AASB 2005-10 Amendments of Australian Accounting Standards (AASB 132, 101, 114, 117, 133,
139, 1, 4, 1023, and 1038)
• AASB 2007-4 Amendments of Australian Accounting Standards arising from ED 151 and Other
Amendments
• AASB 2007-7 Amendments of Australian Accounting Standards (AASB 1, AASB2, AASB 4,
AASB5, AASB107, & AASB 128)
• Interpretation 10 Interim Financial Reporting Impairment.

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Notes to the Financial Statements
3 SEGMENT INFORMATION
The group’s primary reporting format is in geographical segments. The operating businesses are
organised and managed separately according to their geographic location, with the Victorian
operations representing the major business of the group.

The group conducts mineral exploration within Australia. The principal focus is on the Glen Wills and
Sunnyside gold projects in the East Gippsland region of Victoria. The group also holds exploration
tenements in the Kalgoorlie region of Western Australia.

Consolidated
Six months Six months
ended ended
31.12.07 31.12.06
$ $
4 REVENUE, INCOME AND EXPENSES
a) Revenue
Interest income - banks 112 851 7 821

b) Finance costs
Interest expense - banks 10 817 27 147
Interest expense - convertible notes 47 969
Total finance costs 10 817 75 116

c) Other expenses
Depreciation - plant and equipment 7 500 1 051
Employee benefits expense 190 895
Deferred exploration and evaluation expenditure:
Written off 20 790
Impairment 19 125
Loss on sale of assets 23 400

5 INCOME TAX
Prima facie income tax payable (benefit) on operating loss
calculated at the statutory rate of 30% (2006: 30%) -136 295 -188 330
Deferred tax asset attributable to tax losses - not
brought to account since realisation is not probable 136 295 188 330
Income tax expense reported in the
condensed income statement Nil Nil

Consolidated
31.12.07 30.6.07
$ $
6 CASH AND CASH EQUIVALENTS
Cash at bank and on hand 6 306 871 1 071 981

Cash at bank earns interest at floating rates based on daily bank rates. An amount of $33,000 (2006
$23,000) has been placed on deposit to support bank guarantees given to the Victorian Department of
Primary Industries as rehabilitation bonds on several mining tenements.

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Notes to the Financial Statements

Consolidated
31.12.07 30.6.07
$ $

7 INTEREST-BEARING LOANS AND BORROWINGS


Current
Equipment facility 125 021
Less: Terms charges -34 045
Total payables 90 976

Non-current
Equipment facility 364 646
Less: Terms charges -43 070
Total payables 321 576

The equipment facility was a 5 year loan at an interest rate of 9.5% per annum. It had been provided
by National Australia Bank Ltd and was secured over the plant and equipment owned by Synergy's
subsidiary, Mt Wills Gold Mines NL, together with a fixed and floating charge over that company.
During the period, Mt Wills made an early repayment and retired the NAB loan in full.

8 CONTRIBUTED EQUITY
Consolidated
31.12.07 30.6.07
$ $
Ordinary shares
Issued and fully paid 48 071 534 41 164 974

Issued 31.12.07
shares $

Movements in number of ordinary shares on issue


Opening balance at 1 July 2007 427 784 745 41 164 974
Placements 125 000 000 5 000 000
Rights issue 54 807 247 2 192 290
Exercise of options 7 177 792 216 503
Less expenses of placements and rights issue -502 233

Closing balance at 31 December 2007 614 769 784 48 071 534

SMLO SMLOC
Options Options

Movements in number of options on issue


Opening balance at 1 July 2007 179 593 535
Options issued 179 807 247
Options exercised -7 177 792

Closing balance at 31 December 2007 172 415 743 179 807 247

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Notes to the Financial Statements
9 COMMITMENTS AND CONTINGENCIES
Mining tenements
In order to maintain in good standing, the mining and exploration tenements in which the group is
involved, the group will be required to meet the minimum conditions and expenditure obligations of the
tenements once they are granted; as well as any other obligations which may arise from arrangements
with participants over jointly held tenements. These obligations are met on a regular basis as part of
the group's on-going exploration program. At 31 December 2007, the group had annual expenditure
obligations of approximately $355,000 falling due within the next 12 months for its granted mining
tenements (At 30.6.07: $362,000).

Joint ventures
In accordance with normal industry practice, the group has entered into joint venture arrangements
with several parties for the purpose of exploring and developing various mineral interests. If a party to
a joint venture agreement were to default by not meeting its proportionate share of joint venture
obligations, then the other joint venturers will be liable to meet those obligations. In that event, the
proportionate interest in the mining tenement held by the defaulting party may be redistributed to the
remaining joint venture participants.

Capital commitments
Prior to the end of the period, the group committed to purchase a diamond drill rig from Boart Longyear
for approximately $400,000. An instalment payment of $100,000 was made at the time of the order
and the balance of $300,000 will be paid on delivery which is due at the end of March 2008.

Contractor
In February 2006, Comet Enterprises (Tas) Pty Ltd, one of the contractors to the Australian Gold Mines
NL (AGM) group, entered into voluntary administration. In his report to creditors, the administrator
recommended that creditors place Comet into liquidation and this took effect in March 2006. Synergy
has not been able to complete its audit of the amounts charged by Comet to AGM but Synergy’s
lawyers formally advised Comet’s accounting advisor (now the liquidator) of some significant
overcharging. Synergy has been frustrated in its efforts to conduct a full audit of amounts on-charged
by Comet from some of Comet’s sub-contractors. Synergy declined to pay some of Comet's invoices
once it became aware of the overcharging and moved to secure its rights with the liquidator to be able
to conduct a full audit and preserve its strong legal position.

Subsequently, Synergy had an independent valuer conduct a valuation of some of the plant and
equipment which had been supplied and/or erected by Comet. Based on that independent valuation,
Synergy wrote off approximately $1.3 million of Comet's charges during the year ended 30 June 2006.
Synergy is unlikely to be able to recover any of the overcharges from the liquidator since Comet failed
with liabilities in excess of $3 million and the liquidator has advised that they will not be fully satisfied by
the realisation of Comet's assets.

In December 2006, Synergy received advice from the liquidator that he may call some executives to
appear before the Federal Court of Australia for a public examination. In July 2007, the liquidator
requested certain information to clarify his understanding of the extent of the overcharges. Full details
were provided to the liquidator in August 2007 and at the same time Synergy briefed counsel and
prepared a comprehensive submission ready to be lodged against the liquidator should he proceed
with any further action.

In December 2007, Synergy received a request from the liquidator's lawyer for further particulars,
which were provided by Synergy to the liquidator's lawyer in January 2008. The liquidator's lawyer has
advised that the liquidator is still considering Synergy's request for access to the documents held by
the liquidator so that Synergy may complete its audit of Comet's records.

The legal advice to the Board continues to be that Synergy is in a strong position and that the ultimate
financial impact on Synergy cannot be quantified until Synergy is given full access to the records of
Comet and its sub-contractors so as to complete the audit of Comet's charges. Accordingly, it is
considered unlikely that Synergy will have to pay any additional funds to the liquidator.

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Notes to the Financial Statements
10 EVENTS AFTER THE BALANCE SHEET DATE
Board appointment
Subsequent to the end of the period, Mr KC Freddie Heng was appointed as a non-executive director
of Synergy Metals Ltd.

Exercise of options
Prior to the end of the period, Synergy received $1,169 for the exercise of options. A total of 29,219
shares were issued after the period end.

No other matters or circumstances have arisen since the end of the financial period which have
significantly affected or may significantly affect the operations of the consolidated entity, the results of
those operations, or the state of affairs of the consolidated entity in future financial years.

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Synergy Metals Ltd
Directors' Declaration
The directors of Synergy Metals Ltd declare that:

a) In the directors' opinion, the financial statements and notes of the company and the consolidated entity
have been prepared in accordance with the Corporations Act 2001, including that they:

i) comply with Australian Accounting Standards and Corporations Regulations 2001; and

ii) give a true and fair view of the financial position of the company and of the consolidated entity as at
31 December 2007 and of their performance as represented by the results of their operations and
their cash flows for the half-year ended on that date; and

b) in the directors' opinion, there are reasonable grounds to believe that the company will be able to pay its
debts as and when they become due and payable.

This report has been made in accordance with a resolution of the directors.

Paul Pupazzoni
Director
14 March 2008

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INDEPENDENT AUDITOR’S REVIEW REPORT

TO THE MEMBERS OF SYNERGY METALS LTD

Report on the Half-Year Financial Report

We have reviewed the accompanying half-year financial report of Synergy Metals Ltd, which comprises
the condensed balance sheet as at 31 December 2007, and the condensed income statement,
condensed statement of changes in equity and condensed cash flow statement for the half-year ended on
that date, a statement of accounting policies, other selected explanatory notes and the directors’
declaration of the consolidated entity comprising the company and the entities it controlled at 31
December 2007 or from time to time during the half year ended on that date.

Directors’ Responsibility for the Half-Year Financial Report

The directors of the company are responsible for the preparation and fair presentation of the half-year
financial report in accordance with the Australian Accounting Standards (including the Australian
Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and
maintaining internal control relevant to the preparation and fair presentation of the half-year financial
report that is free from material misstatement, whether due to fraud or error; selecting and applying
appropriate accounting policies; and making accounting estimates that are reasonable in the
circumstances.

Auditor’s Responsibility

Our responsibility is to express a conclusion on the half-year financial report based on our review. We
conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410
Review of an Interim Financial Report Performed by the Independent Auditor of the Entity, in order to
state whether, on the basis of the procedures described, we have become aware of any matter that
makes us believe that the financial report is not in accordance with the Corporations Act 2001 including:
giving a true and fair view of the disclosing entity’s financial position as at 31 December 2007 and its
performance for the half-year ended on that date; and complying with Accounting Standard AASB 134
Interim Financial Reporting and the Corporations Regulations 2001. As the auditor of Synergy Metals Ltd,
ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual
financial report.

A review of a half-year financial report consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and
consequently does not enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Tel: 61 8 9278 2222 | Fax: 61 8 9278 2200 | www.pkf.com.au


West Australian Partnership | ABN 39 542 778 278
Level 7, BGC Centre | 28 The Esplanade | Perth | Western Australia 6000 | Australia
PO Box Z5066 | St Georges Terrace | Perth | Western Australia 6831

PKF is a national association of independent chartered accounting and consulting firms, each trading as PKF. PKF Australia Ltd is
also a member of PKF International, an association of legally independent chartered accounting and consulting firms.

Liability limited by a scheme approved under Professional Standards Legislation

14
Independence

In conducting our review, we have complied with the independence requirements of the Corporations Act
2001.

Conclusion

Based on our review, which is not an audit, we have not become aware of any matter that makes us
believe that the half-year financial report Synergy Metals Ltd is not in accordance with the Corporations
Act 2001 including:

(a) giving a true and fair view of the consolidated entity’s financial position as at 31 December 2007
and of its performance for the half-year ended on that date; and

(b) complying with Accounting Standard AASB 134 Interim Financial Reporting and Corporations
Regulations 2001.

PKF
Chartered Accountants

Chris Nicoloff
Partner

th
Dated in Perth, Western Australia, this 14 day of March 2008

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