The Financial Report of Kingsgate Consolidated Limited for the year ended 30 June 2007 was authorised for issue in accordance with a resolution of Directors on 27 August 2007.

Kingsgate Consolidated Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Stock Exchange using the ASX code KCN.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of the Financial Report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The Financial Report includes separate financial statements for Kingsgate Consolidated Limited as an individual entity and the Group consisting of Kingsgate Consolidated Limited and its subsidiaries.

(a) Basis of preparation
This general purpose Financial Report has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Interpretations and the Corporations Act 2001.

As at 30 June 2007 the consolidated entity had net current liabilities of $7,803,000 (2006: $10,324,000). The consolidated entity incurred a cash outflows from operating activities for the year ended 30 June 2007 of $19,888,000 (2006: an inflow of $21,889,000) and a net loss of $(12,590,000) (2006: profit of $16,662,000).

The adverse results recorded in this financial year are largely due to the mining and processing of low grade of ore from Chatree South and the delivery of gold into out-of-the-money hedges. These hedges have been fully delivered into as at 30 June 2007. From that date, the consolidated entity is selling gold and silver at the current spot prices which are currently much higher than previous hedge prices.

The consolidated entity has access to financing facilities that are disclosed in Note 14. The future cash position is actively managed by the consolidated entity and it is noted that consistent with the accounting policy of the Group, available for sale financial assets amounting to $60,693,000 at year end are classified as non-current assets as there is no current intention to sell this investment within 12 months of the balance date. The Chatree North Mining Lease applications are well advanced and the grant of the new leases will allow the mine to resume full production with a significant increase in head grade and cash flows.

The Directors are of the opinion that the above provides reasonable grounds to believe that the Company and the consolidated entity will be able to pay their debts as and when they fall due. This Financial Report has been prepared on a going concern basis.

Compliance with IFRS
Australian Accounting Standards include AIFRS. Compliance with AIFRS ensure that the consolidated financial statements and notes of Kingsgate Consolidated Limited comply with International Financial Reporting Standards (IFRS). The parent entity financial statements and notes also comply with IFRS except that it has elected to apply the relief provided to parent entities in respect of certain disclosure requirements contained in AASB 132 Financial Instruments: Presentation and Disclosure.

Historical cost convention
These financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, financial assets and liabilities (including derivative instruments) at fair value.

Critical accounting estimates
The preparation of financial statements in conformity with AIFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 2.

(b) Principles of consolidation
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Kingsgate Consolidated Limited (“Company” or “Parent Entity”) as at 30 June 2007 and the results of all subsidiaries for the year then ended. Kingsgate Consolidated Limited and its subsidiaries together are referred to in this financial report as the Group or the Consolidated Entity.

Subsidiaries are all those entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group (refer to Note 1 (h)).