BPL Annual Report Final Single Page


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2011
Annual Report

Drilling at Pyrite Hill South

Contents
BROKEN HILL PROSPECTING LIMITED (Incorporated in New Zealand) NZ Company Number: 322887, NZ Overseas Issuer Number 2541657 NZ Financial Services Provider Number FSP32949 Australian ABN: 83 003 453 503
CONTENTS Directory........................................................................................................................................................................................................................................... Page 2 Chairman’s Letter.................................................................................................................................................................................................................. Page 3 Directors’ Report..................................................................................................................................................................................................................... Page 4 Board of Directors.................................................................................................................................................................................................................. Page 14 Audit Report.................................................................................................................................................................................................................................. Page 15 Statement of Comprehensive Income............................................................................................................................................................... Page 16 Statement of Changes in Equity.............................................................................................................................................................................. Page 16 Statement of Financial Position............................................................................................................................................................................... Page 17 Statement of Cash Flows................................................................................................................................................................................................ Page 18 Notes to the Financial Statements....................................................................................................................................................................... Page 19 Directors’ Statement........................................................................................................................................................................................................... Page 26 Additional Information....................................................................................................................................................................................................... Page 27 Corporate Governance....................................................................................................................................................................................................... Page 31
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Company Directory

COMPANY DIRECTORY
DIRECTORS F Creagh O’Connor (Chairman) Ian J Pringle (Managing Director) Peter R Atkinson Geoffrey G Hill Ralph N Stagg
COMPANY SECRETARY Donald W de Boer
REGISTERED OFFICE Level 3, 135 Broadway Newmarket, Auckland New Zealand
AUSTRALIAN OFFICE Level 14, 52 Phillip Street Sydney NSW 2000
Box 3486 GPO SYDNEY NSW 2001
Phone: (+61 2) 9252 5300 Fax: (+61 2) 9252 8400 Email: [email protected]
WEBSITE www.bhpl.biz
INTERESTS IN MINING TENEMENTS Exploration License 6622, Broken Hill NSW Australia - 100% Mining Lease 86, Broken Hill NSW Australia - 100% Mining Lease 87, Broken Hill NSW Australia - 100%

AUDITORS Carlton – DFK 135 Broadway Newmarket, Auckland New Zealand
BANKERS National Australia Bank, Sydney
SECURITIES LISTED Australian Securities Exchange: Code BPL New Zealand Stock Exchange: Code BPL
SHARE REGISTRARS AUSTRALIA Computershare Investor Services Pty Ltd Level 5, 115 Grenfell Street Adelaide, South Australia 5000 Phone: (+61 8) 8236 2300 www.computershare.com.au
NEW ZEALAND Computershare Investor Services Pty Ltd Level 2, 159 Hurstmere Road, Takapuna, Auckland Phone: (+64 9) 488 8777 www.computershare.co.nz

2 Broken Hill Prospecting Limited

Chairman’s Letter

Dear Shareholder,
I am very pleased to present the 2011 Annual Report for Broken Hill Prospecting Limited (“BPL”) to its shareholders, stakeholders and supporters and to report on the excellent progress made during the year.
Following a successful capital raising of A$4.5 million in an initial public offering (“IPO”), BPL was jointly listed on the Australian Securities Exchange and NZX Securities Exchange on 14 February 2011 (both with a trading code of BPL).
Significant progress towards our goal of becoming a profitable metals producer has been made on a number of fronts, and the Company is well positioned for an exciting future as we assess the two large cobalt resources at Pyrite Hill and Big Hill and numerous prospects in our two granted mining leases and surrounding exploration licence which are located less than 25 kilometres from the established mining centre of Broken Hill in western NSW.
At both the Pyramid Hill and Himalaya North prospects mapping and drill testing has identified anomalous copper, lead, silver and zinc and significant potential for underlying Broken Hill-type base metal mineralisation. Elsewhere within the Company’s tenements numerous base metal anomalies of Broken Hill-type have yet to be explored.
The Company has enlisted an experienced Managing Director, Dr Ian Pringle, a geologist with an impressive track record of discovery and development of mineral deposits. Ian commenced work with Broken Hill Prospecting in April 2011 and with the help of a strong and experienced exploration team has initiated a vigorous exploration program focussed on drill testing of the Company’s cobalt deposits and exploration for more cobalt mineralisation as well as for zinc, lead, silver and gold.
The Company’s Pyrite and Big Hill cobalt deposits are unusual because, other than cobalt which almost all occurs within the pyrite mineral of the host rock, they contain no other metals of any consequence. Both deposits crop out at surface, their cobaltiferous pyrite can be upgraded and concentrated using

inexpensive and effective processes and cobalt can be produced using a choice of metallurgical processing options.
In addition to these, BPL has recently extended the footprint of cobalt mineralisation through the discovery of cobalt rich gossanous outcrops at the Pyrite Hill South prospect which is located in the southern portion of ML86. This exciting new discovery may add considerable mineralisation to the Inferred Mineral Resource at Pyrite Hill and is a high priority drill target.
In recent years China has fuelled rising worldwide consumption for cobalt as it secures supply to feed a growing industrial demand for the metal. Cobalt has many applications including rechargeable batteries, hardened metals, alloys, catalysts, dyes, food supplements and magnets as well as a wide variety of other uses. Cobalt is predominantly mined as a by-product from copper deposits located in central Africa, remote from the USA, China, Europe and Japan, which are the largest cobalt consumers and which have no significant cobalt resources of their own. As a consequence, future cobalt prices are likely to rise and with our well located and large cobalt resources BPL is in an excellent situation to benefit from positive cobalt market trends.
BPL enters its first full year of trading as a public company with a strong cash position, a first-rate portfolio of exciting exploration targets, and potential to significantly grow the size and viability of the Pyrite Hill and Big Hill Cobalt deposits through resource definition drill testing and development scoping studies.
I would like to thank our team for their hard work during the year and on behalf of the Board of Directors I would also like to thank shareholders for their support in what has been a milestone year for the Company.
Francis Creagh O’Connor Chairman

Wolfgang Leyh (Consultant Geologist), Ralph Stagg (Director) indicating Pyrite Hill geological features, Geoffrey Hill (Director).

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Directors’ Report

The Directors present the following report for the year ended 30 June 2011.
DIRECTORS: The names of the Directors of the Company during the year and up to the date of this report are:

Francis Creagh O’Connor Peter Robert Atkinson Geoffrey Guild Hill Ralph Nicholas Stagg Ian James Pringle Warren Richard Eades *

Non-Executive Chairman Non-Executive Director Non-Executive Director Non-Executive Director Managing Director Non-Executive Director

Appointed 22 June 2000 Appointed 30 July 1999 Appointed 15 February 1989 Appointed 1 June 2004 Appointed 14 April 2011 Appointed 15 February 1989

* Mr WR Eades passed away during the reporting period.

Directors’ Meetings: The number of meetings of the Board of Directors and Audit Committee held during the year ended 30 June 2011 and the number of meetings attended by each director were:

Directors:
FC O’Connor PR Atkinson GG Hill RN Stagg IJ Pringle WR Eades
Secretary:
D de Boer - as Committee Member - as Secretary

Board of Directors

Attended

Eligible to attend

4

5

5

5

5

5

4

5

1

1

3

3

-

-

4

5

Audit Committee

Attended

Eligible to attend

-

-

-

-

1

1

1

1

-

-

-

-

1

1

1

1

In addition a number of matters were resolved by circular resolution during the period.
ACTIVITIES The principal activity of Broken Hill Prospecting Limited (BPL) is exploration for cobalt and base metals in and around Broken Hill. The nature of the company’s business has not changed during the period under review.
FINANCIAL UPDATES The net loss after income tax for the year ended 30 June 2011 was A$566,247 (2010: loss of A$49,603).
The increased loss reflects the increase in management and administration costs associated with developing the business and proceeding to raise capital and list on the ASX and NZX.
Reflected in the statement of financial position are • Increase in share capital: A$5,366,459 less costs of A$993,874 • Increase in intangibles: exploration costs incurred during the year of A$337,569
During the year to 30 June 2011, the company’s focus was on capital raising activities, exploration and the maintenance of the tenements.
Dividends: No dividends were declared for the current year.
Post balance date events 4,050,000 options with exercise price A$0.20 and expiry 17 February 2016 will be issued to seed investors remaining as at 17/8/2011, in accordance with the Replacement Prospectus dated 12 November 2011 (item 10.6). At the date of this report

these options have not been issued. Due to restrictions imposed by the ASX the issue of the options is subject to the company entering into escrow agreements with the option holders. Apart from the above there are no significant events since balance date.
REVIEW OF PROJECTS Broken Hill Prospecting Limited has completed a very eventful and rewarding year to start a new era of exploration in its promising cobalt and base metal exploration programs at its Thackaringa Project south west of Broken Hill, NSW (Figure 1). The Company holds Exploration Licence (EL) 6622 and Mining Leases (ML) 86 and 87, and is commencing an extensive exploration program for cobalt, zinc, lead and silver mineralisation to build on the current large cobalt resources at Pyrite Hill (ML86) and Big Hill (ML87). Together, these two deposits contain 15 million tonnes of 2.1 lb/t cobalt.
Significant progress during 2010 – 2011 Important milestones reached during the year include;
• Successful listing on the ASX and NZX and an Initial Public Offering was completed in mid February 2011 and successfully raised $A4.5 million. BPL was admitted to the official list of the ASX on Monday, 14 February 2011. Official quotation of the Company’s securities commenced on Thursday, 17 February 2011.
• Drill intersections of significant Broken Hill-type copper, gold, silver and base metal mineralisation in reverse circulation drilling at both the Pyramid Hill and Himalaya North prospects in EL 6622.

4 Broken Hill Prospecting Limited

• New discovery and mapping of cobalt mineralised

Cobalt – a metal of the future

gossans at Pyrite Hill South, which crop out over a large BPL’s tenements contain two deposits of cobalt mineralisation

area (>20 metres x >250 metres) and which could be the with an Inferred Resource total of 15Mt of 2.1 lb/t Co (13,608

surface expression of a second cobalt deposit within

tonnes of contained cobalt). Both deposits outcrop at surface and

A sustMaLin8e6.d cobalt price increase could occur during tharee nopeexnt afleowng ysetraikresaands atthdeepethle. cTthreiccocbaarltbmaintteerraylismataiornket ex•panPdlsaninninglinoef deweipthdridlletemsatinngdoffocorbaloltwmienemraislisaiotinonvseethiclpersov.idLeisthBiuPLmw-iiothnanbaextcteelrlieenst,opthpoertumnaityinforcoa mfutpuorenegrnotwsthof electriactvPeyrhiticelHeilml. Dortoillrisn,gccomntmaeinncaesd imn uAucghuastsa6nd0%rescuoltsbalt.path as a significant cobalt metal miner.

are expected during September - October 2011.

Cobalt is produced mostly as a by-product from either nickel

• Dr Ian Pringle, an experienced minerals exploration geologist with 29 years of experience and a track record of exploration success was appointed to the board as Managing Director

mining or as an extra product in some copper deposits, many of which are located in central Africa. Africa (predominantly the Democratic Republic of Congo) accounted for more than 65% of cobalt production in 2010. Clearly, as a by-product, mine production of cobalt from these deposits cannot easily

Figure 1. Project Location.

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Directors’ Report

be increased to supply market demand in times of high cobalt consumption or when the cobalt price undergoes a significant increase.
During the last 10 years, China has had a profound influence on the cobalt market and is the world’s leading refiner, producing 33,000 tonnes of the 76,050 tonnes refined in 2010. The Chinese appetite for cobalt is growing at an increasing rate and China competes with the US, Europe and Japan for access to a small number of geographically isolated cobalt resources. The US views cobalt as a strategic metal, accounted for 58% of 2010 cobalt consumption, but does not produce cobalt other than small amounts from metal recycling.
Cobalt prices during the last several months have ranged between US$33,000 and US$40,000 per tonne. The metal has not seen the same recent steep price rises of gold, silver and some base metals, despite peaks of over US$80,000 per tonne in 1977 and 2007.
A sustained cobalt price increase could occur during the next few years as the electric car battery market expands in line with demand for low emission vehicles. Lithium-ion batteries, the main components of electric vehicle motors, contain as much as 60% cobalt.
Considerable amounts of cobalt are blended into many superalloys, with much of the metal being used in jet engines, turbines and hardened metal, mainly because of its ability to operate at high temperatures. Increased aircraft manufacture is a cornerstone of China’s new strategic industrial plan as it seeks to challenge Boeing and Airbus as the world’s largest jet aircraft manufacturer.

Cobalt is also in demand for the construction of wind turbines, satellites, magnets, pigments and catalysts, all of which individually are sizeable consumers of cobalt. Because it is the main component of vitamin B12, there is also a growing demand for cobalt in medical applications and as human and animal food additives.
Cobalt stand-alone deposits (where cobalt is the main economic metal) are rare and account for less than 15% of the world’s cobalt production. The Company’s Pyrite and Big Hill cobalt deposits are stand-alone deposits. They are near-surface, can be readily upgraded by simple and low-cost gravity concentration and have several metallurgical processing options. They are very well located close to road, rail and the mining centre of Broken Hill. The location and geological characteristics could provide considerable development and supply advantages.
Geology and Prospects BPL’s tenements cover portions of the Broken Hill and Thackaringa Group rocks, which host the Broken Hill lead-zincsilver deposit and other significant base metal deposits of the region. Extensive geological mapping and rock chip sampling of EL 6622 has been undertaken by Mr W. Leyh of Eaglehawk Geological Consulting Pty Ltd (“Eaglehawk”) and this work will continue during late 2011 and 2012. The geological work by Mr Leyh has highlighted numerous additional exploration targets (Figure 2) that are widespread in the company’s tenements. These are prospective for base metals, silver, cobalt and gold and detailed assessment of each is planned. The most significant of the targets defined by Eaglehawk are detailed below.
BPL’s tenements have been explored on an intermittent basis since the discovery of mineralisation at Broken Hill in the early

Figure 2. Location of prospect areas overlayed on geological map showing main rock types i.e. Sundown Group, Broken Hill Group, Thackaringa Group (as shown on legend).
6 Broken Hill Prospecting Limited
Gossan crops out at surface and is surrounded by relatively fresh pyritic host rock. The cobaltiferous gneiss

Figure 3. Geological map of Pyrite Hill with locations of planned drill holes.

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Directors’ Report

1880s, but significant cobalt mineralisation was not identified until the 1960s. The Company’s tenements host two large, low grade cobaltiferous pyrite deposits at Pyrite Hill and Big Hill which have been the main focus for BPL and its predecessors since the mid 1970s.
The company’s project area includes two mining leases (ML86 and M87) which are centred on the Pyrite Hill and Big Hill cobaltiferous pyrite deposits. The cobalt mineralisation in these deposits is
stratabound, occurring within complexly deformed plagioclasequartz-pyrite gneissic rock of the Thackaringa Group. The Pyrite Hill deposit is located within the nose of an open, moderately east-plunging antiform while the Big Hill deposit is located along the northern limb of a synform.
The Inferred Mineral Resources at Pyrite Hill and Big Hill are:

Project
Pyrite Hill Big Hill

Cut-off (lb/t Co) 1.1 1.1

Most of the cobalt mineralisation is held in solid solution within pyrite and requires the application of specialised metallurgical techniques to effectively extract the cobalt. Various metallurgical trials have shown that the cobaltiferous pyrite can be readily concentrated by gravity or flotation upgrade and the cobalt contained in the pyrite can be recovered by one of several metallurgical process routes. Opportunities to apply emerging processing technologies have been identified and the recovery and sale of by-products and co-products including feldspar, sulphuric acid, elemental sulphur, hematite and rutile may add value to future development of the resources.

ML86, Pyrite Hill Cobalt Deposit The Pyrite Hill deposit has been folded around the nose of the Camels Hump Antiform and extends for 800 metres along the

north-western limb and 400 metres along the southern limb of this fold (Figures 3 and 4). The host unit dips towards the east at about 50° and consists predominantly of plagioclase, quartz and pyrite with minor pyrrhotite and rutile. Mineralogical studies have not identified any primary cobalt minerals, and the cobalt occurs in solid solution with primary pyrite. A secondary coarser pyrite phase has been recognised and this is cobalt-poor.
Gossan crops out at surface and is surrounded by relatively fresh pyritic host rock. The cobaltiferous gneiss is oxidised to a depth of approximately 30 metres and cobalt is slightly depleted in the oxidised zone. Previous diamond drilling indicates that the host rocks have been extensively deformed with considerable thickening along the hinge of the anticline with attenuation of the fold limbs.

Inferred Mt 10.6 4.4

lb/t (Cobalt) 2.2 2.0

Pyrite-rich gneiss outcrops over about 1.5 kilometres along the north western limb of the anticline and mineralisation also extends along the southern fold limb but the thickness and pyrite content of the host unit decreases.

ML87, Big Hill Cobalt Deposit The Big Hill deposit is located at the south-western end of a series of plagioclase-quartz-pyrite gneissic rocks which crop out for more than 3.5 kilometres along strike trend and which also host the North East Extensions prospect to the north-east of Big Hill (Figure 2). The line of outcrop forms the northern limb of the interpreted Big Hill Synform and the northern limb of this structure dips to the north at about 65°. The cobalt mineralised plagioclase-quartz-pyrite unit appears to terminate abruptly in the southwest in what appears to be a synformal fold closure.

FigureF4ig. uLorneg4se.cLtioonntghrosuegch tihoenPytrhitreoHuilgl Chobthalet DPepyorsiite(seHeillolcCatoiobn aonltFDiguerpe o3)ssihto(wsiengethloe capaptriooxnimoatne pFieirgceupreoin3ts)osf hploanwniendgdrtilhl heoles.

8 Broken Hill Prospecting Limited

approximate pierce points of planned drill holes.

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BPL Annual Report Final Single Page