African Energy Resources
Annual Report 2019

Plain-text annual report

Annual Report 2019 Corporate Directory Table of Contents DIRECTORS Mr Alasdair Cooke Executive Chairman Dr Charles (Frazer) Tabeart CEO/Executive Director Mr Gregory (Bill) Fry Executive Director Mr Valentine Chitalu Non-Executive Director Mr Vincent (Ian) Masterton-Hume Non-Executive Director Mr John Dean Non-Executive Director COMPANY SECRETARY Mr Daniel Davis REGISTERED OFFICE Granite House La Grande Rue St Martin, Guernsey GY1 3RS REPRESENTATIVE OFFICE IN AUSTRALIA Suite 1, 245 Churchill Avenue Subiaco, Western Australia, 6008 SHARE REGISTER Link Market Services Limited Level 12, QV1 Building, 250 St Georges Terrace Perth, Western Australia, 6000 STOCK EXCHANGE LISTINGS Australian Securities Exchange (ASX: AFR) AUDITOR BDO Audit (WA) Pty Limited 38 Station Street Subiaco, Western Australia, 6008 SOLICITORS Fairweather Corporate Lawyers 595 Stirling Highway Cottesloe, Western Australia, 6011 BANKERS Westpac Banking Corporation Level 6, 109 St Georges Terrace Perth, Western Australia, 6000 WEBSITE www.africanenergyresources.com africanenergyresources.com Chief Executive’s Letter Sese Joint Venture Mmamabula West Power Project Tenement Schedule Annual Statement of Mineral Resources Financial Report Directors’ Report Directors’ Declaration Independent Audit Report Consolidated Statement of Profit or Loss & Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Additional Shareholder Information 01 02 06 09 10 11 12 20 21 26 27 28 29 30 48 Chief Executive’s Letter Dear Shareholder, Your Company, African Energy, remains focused on its Botswana coal portfolio and developing the Sese JV as a low-cost integrated coal mine and power station. First Quantum Minerals Ltd continued to invest in the Sese JV Project, increasing their stake to 66.7%. Key negotiations for grid connection, power sales and transmission agreements are being actively pursued. Interest in developing new sources of power generation in the region remains very high, with significant infrastructure investment planned through China’s Belt and Road Initiative. The Sese JV has is engaged with potential development partners to explore avenues for project funding and technical and construction expertise relevant to such major power investments. Last year we reported that the supply and demand for power in southern Africa was moving towards a period of delicate balance after a period of market destabilization caused by low cost exports from South Africa. Since then the power supply situation in the region has rapidly deteriorated, particularly in the three largest markets, South Africa, Zambia and Zimbabwe. In South Africa the widely publicised fiscal and technical issues at Eskom have resulted in a major reduction in power generation with associated tariff increases to the point that Eskom is now unable to export large volumes of power over extended periods. In Zambia and Zimbabwe, intense drought conditions and over extraction of shared water resources have led to dramatic falls in water levels in Kariba Dam and significant reductions in hydro-electric power generation. This has resulted in widespread load shedding in both countries, with most parts of Zimbabwe receiving power for only 6 hours during the night. Zambia, Zimbabwe and Botswana all relied heavily on imports of electricity during the year, and with the reduced supply available from South Africa there has been significant upward pressure on electricity tariffs. The power utilities in most of these countries are under severe financial hardship and are unable to finance new power generation, so attention is turning to private sector funding. This provides an opportunity for new, low-cost power generators to replace older, less efficient and unreliable state-owned power stations. The model being pursued by African Energy, of an independent power producer with direct credit support from end users, is the most likely way new generation can be built and financed. And it may be a significant advantage to have that generation located in a country such as Botswana which is widely recognised as a favourable investment jurisdiction. Power generation from coal remains a controversial issue in the developed economies around the world. However, the region we operate within remains heavily dependent on traditional fuels such as wood and charcoal. In Zambia for example, charcoal remains the primary cooking fuel for 90% of households. The issues arising from making and using charcoal, including widespread deforestation and deadly respiratory diseases, are well documented and rank among the major environmental and health problems in the region. Whilst renewable power sources are slowly being introduced throughout the region, the urgent demand for low cost, base load electricity can only be met using conventional coal-fired thermal generation. This will displace large amounts of temporary diesel generation and allow more widespread and affordable power to replace traditional sources of fuel that have far more significant and immediate negative impacts. In addition to power generation projects, the Company continues to evaluate coal export opportunities into South Africa with positive implications for the Company’s Mmamabula West project which could produce export quality coal at low prices. The Company is currently re-evaluating this project and is updating the mining feasibility study to reflect current capital and operating costs and a revised product specification suitable for Eskom power stations. African Energy carries no debt and has very low corporate overheads. Coupled with a strong development partner at the Sese JV Project, a high-quality portfolio, and a robust power market in southern Africa the Company remains well placed to develop major power projects for the region. Frazer Tabeart, Executive Director and CEO AfricanEnergy Annual Repor t 2019 01 Sese Joint Venture INTRODUCTION The Sese JV Project in Botswana is situated very close to the interconnected regional transmission grid (Figure 1), and can produce and export secure, low cost base-load power. Figure 1. Location of African Energy’s Botswana coal and power projects and the existing and planned regional transmission interconnectors 02 africanenergyresources.com REGIONAL POWER MARKETS The key power markets of relevance to African Energy are Zambia, Botswana, Zimbabwe and South Africa. Currently all four countries are experiencing supply side issues for a variety of reasons: emergency basis. The result is widespread load shedding throughout the region, with power cuts ranging from 4 to 18 hours per day in Zambia and Zimbabwe, along with relentless upward pressure on regional tariffs. 1. In the case of Zambia and Zimbabwe, declining inflows and overallocation of water have resulted in a significant fall in electricity generation from Kariba Dam (see Figure 2) and other hydro-electric schemes. 2. In the case of Botswana, the fall in power generation has been due to continuing performance issues at the Morupule B power station, resulting in widespread reliance on expensive diesel generation and imported power. 3. In the case of South Africa, widely publicised problems with severe financial and technical issues at the huge Kusile and Medupi power stations, management of an ageing fleet, mounting debt, and numerous senior management changes have resulted in significant reductions in generation to the extent that exports have been severely restricted. In the past few years, surplus supply from South Africa has been available as low-cost imports to shore-up deficits in neighbouring countries but given South Africa’s current supply side concerns this is no longer the case except on an In most cases average industrial tariffs are now well in excess of USD 8.0c/kWh (Figure 3), with further tariff hikes almost inevitable. South Africa, for example has a clearly defined tariff increase over the next 3-5 years which will see tariffs rise to well in excess of USD 10.0c/kWh. Zambia has recently announced a six-month tariff hike of 200% to cover the high import cost of 300MW of emergency power – it remains to be seen whether the hike will be removed in six- months’ time. Figure 3. June 2019 industrial tariffs for power in southern Africa (green bars represent requested but not yet approved tariff increases). Figure 2. Lake Kariba reservoir level decline to near record lows in 2018/19, the lowest September level in almost 25 years AfricanEnergy Annual Repor t 2019 03 Sese Joint Venture (continued) First Quantum Minerals Ltd (FQML) became a majority equity partner at the Sese Joint Venture in 2014 and have since directly invested AUD $17m for a 67% project interest. FQML is responsible for arranging the funds required to build the Sese integrated power project and will loan carry African Energy’s residual interest through to commercial production. The Sese JV partners have completed several technical studies covering mining, coal preparation and power generation. A conceptual study of the proposed power station layout and design along with power station fuel specification development and coal combustion tests have determined that Sese coal is a suitable fuel for all common power station boiler technologies and can readily meet the required air quality and emissions standards set in the environmental approvals for the project. These studies have also established the operating costs, capital costs and a robust financial model for the development of a power project in staged 225MW to 300MW increments. Assessment of the associated coal mine and coal processing facilities have demonstrated that power from Sese could be delivered to the Zambian Copperbelt where FQML operates a large copper mining and smelting business and to other large power consumers in the region. The project has secured the majority of licences, permits and stakeholder approvals that are required for such an operation (see Figure 4), including: A large-scale mining licence has been granted for an initial period of 25-years over an area of approximately 51 km2 which contains 650Mt of coal in Block-C. Environmental approval for up to 500MW of power generation and the associated coal mining and coal processing volumes. Land Rights and an associated 50-year Land Lease Agreement. Water extraction rights from Shashe Dam. A Development Approval Order which sets the fiscal framework for the project, including a 5-year tax holiday from the commencement of commercial operations followed by a 15% corporate tax rate on power generation. A resettlement action plan (RAP), under which 31 households will have their grazing rights, water bores and access trails relocated to outside the Sese Land Rights Lease. This process is nearing completion under joint monitoring by Sese JV staff and the Tonota Land Board. 04 africanenergyresources.com Figure 4. Sese JV license areas and main project elements The Sese JV has now secured all licenses and permits required to build an integrated coal and power project in Botswana with only the Generation and Export Licences required to commence operation and these are currently being negotiated with Botswana’s energy regulator. The advanced nature of the Sese JV and the robust market for power sales in the region has attracted interest from parties engaged in China’s Belt and Road Initiative, which plans to invest up to US $30B in Africa and predominantly into large scale infrastructure projects. The Sese JV has commenced discussions with several parties who are considering providing financial, technical and construction assistance for the Project. The current project development plan contemplates an initial 300MW stage which will deliver 100MW into Zambia for use by FQML, with the balance sold to third parties. This will require at least two Power Purchase Agreements (PPA’s), one with FQML for 100MW, and one or more for the balance. A draft PPA between the Sese JV and FQML has been drawn up and is undergoing final legal review. Commercial negotiations with several large power consumers in southern Africa are currently underway for the balance of the output of the first stage of the project. A second 200-300MW Stage is being considered should suitable demand be established from these negotiations. In addition to securing the PPA’s, the main remaining commercial documents required for the project include Grid Connection, Transmission, and Use of System agreements with the power utilities in Botswana, Zimbabwe and Zambia. AfricanEnergy Annual Repor t 2019 05 Mmamabula West and Mmamantswe Coal Projects The 2,935Mt Mmamabula West project contains high quality coal in two 4m to 6m thick seams (A-Seam and K-Seam) which are 100-150m below surface and are amenable to conventional underground mining. The project is situated 65km west of the main railway line in Botswana which provides access to local and regional coal markets (Figure 5). A prefeasibility study on the extraction of the high-quality lower A-Seam was completed for the project in 2014 and determined that conventional underground mining could produce a variety of products for coal export or power generation at highly competitive prices, and that this coal could be readily trucked to a rail loading station on the main Botswana railway line. African Energy has developed coal specifications for several different coal products, including high quality export coals and coal suitable for use in South African power stations. African Energy continues to develop this project with an emphasis on the potential for an underground mine exporting coal for use in South African power stations: An updated mineral resource has been completed using information from infill drilling along the planned decline covering the initial years of the mine schedule (Figure 6 and 7). The portion of the resource in the Measured and Indicated Resource category for A-Seam provides the basis for an updated feasibility study for an export operation. This updated feasibility study will commence in late 2019. This study will review the proposed mining schedule and coal washing plant requirements to produce a South African power station product specification. Capital cost and operating cost estimates will be updated to reflect 2019 prices. The Company continues to evaluate proposals from potential South African BEE partners who have expressed interest in participating in this project. Monitoring of groundwater levels and groundwater chemistry continued. The Company now has four years of continuous baseline data. An Environmental and Social Impact Assessment (ESIA) for the project has been submitted to the Department of Environmental Affairs in Botswana. An application for Land Rights over the area to be developed has been submitted. Follow-up meetings with the local Land Board have occurred, and once this and the ESIA have been approved, an application for a mining licence will be submitted. 06 africanenergyresources.com Figure 5. Location of the Mmamabula West project, some 65km west of the main railway line in Botswana. Existing and future rail routes to regional markets for coal are shown in this figure. Figure 6. Drill hole status map for Mmamabula West showing Land Rights application area, water monitoring stations and extent of potential underground coal mining. Figure 7. Life of Mine plot for Mmamabula West showing mine scheduling for a 4.4Mtpa underground coal mine on the high-quality A-Seam AfricanEnergy Annual Repor t 2019 07 Mmamabula West and Mmamantswe Coal Projects (continued) The nearby Mmamantswe Project contains approximately 1,243Mt of thermal coal in Measured and Indicated Resources which is suitable for power generation in a captive power station. Several studies on coal preparation and power station design were completed by the previous project owner, including grid integration studies for power sales into the South African grid. The project is only 20km from the South African border and is close to the regional power transmission grid and planned grid expansions into South Africa (refer to Figure 8). African Energy has applied for Land Rights over the project area, access corridor and grid connection corridor. The Company continues to monitor developments in South Africa’s Integrated Resource Plan under which Mmamantswe may be a viable source of power exports to South Africa. Figure 10. Location of the Mmamantswe coal project, close to infrastructure corridors in eastern Botswana 08 africanenergyresources.com Tenement Schedule Project Name Tenement Name Tenement Holder Licence Number African Energy Equity Area (sq km) Date Granted Current Expiry Date BOTSWANA SESE SESE SESE SESE Sese Mining Licence Sese Power Subsidiary (Pty) Ltd ML2016/42L 33% 51 22-Mar-17 31-Jan-42 Sese African Energy Resources Botswana (Pty) Ltd PL 96/2005 33% 95 26-Jul-05 30-Sep-21 Sese West African Energy Resources Botswana (Pty) Ltd PL197/2007 33% 131 01-Oct-07 30-Sep-21 Foley North African Energy Resources Botswana (Pty) Ltd PL004/2013 33% 774 01-Jan-13 30-Sep-20 MMAMANTSWE Mmamantswe Mmamantswe Coal (Pty) Ltd PL069/2007 100% 453 01-Jul-12 31-Dec-21 MMAMABULA WEST Mmamabula West Phokoje Power (Pty) Ltd PL56/2005 100% 293 01-July-05 30-Sep-19* ZAMBIA * Tenement renewal submitted to Botswana Department of Mines. JORC Statement The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the ‘JORC Code’) sets out minimum standards, recommendations and guidelines for Public Reporting in Australasia of Exploration Results, Mineral Resources and Ore Reserves. The information contained in this announcement has been presented in accordance with the JORC Code (2012 edition) and references to “Measured, Indicated and Inferred Resources” are to those terms as defined in the JORC Code (2012 edition). Information in this report relating to Exploration results, Mineral Resources or Ore Reserves is based on information compiled by Dr Frazer Tabeart (an employee of African Energy Resources Limited) who is a member of The Australian Institute of Geoscientists. Dr Tabeart has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person under the 2012 Edition of the Australasian Code for reporting of Exploration Results, Mineral Resources and Ore Reserves. Dr Tabeart consents to the inclusion of the data in the form and context in which it appears. AfricanEnergy Annual Repor t 2019 09 AfricanEnergy Annual Repor t 2019 09 Annual Statement of Mineral Resources Sese Project (AFR 33.3%, FQM 66.7%): Raw coal on an air-dried basis Resource Zone MEASURED (Bk-C) MEASURED (Bk-B) INDICATED INFERRED TOTAL In-Situ Tonnes* 325 Mt 304 Mt 1,663 Mt 126 Mt 2,418 Mt CV (MJ/ kg) CV (kcal/ kg) Ash % IM% VM% FC% S% 17.6 16.0 15.4 14.2 4,200 3,820 3,700 3,400 30.1 34.8 38.4 41.4 7.9 7.4 6.8 6.4 20.6 20.3 18.7 18.8 41.5 37.6 34.1 31.2 2.1 1.6 2.0 2.2 Sese West Project (AFR 33.3%, FQM 66.7%): Raw coal on an air-dried basis Resource Zone INFERRED TOTAL In-Situ Tonnes* CV (MJ/ kg) CV (kcal/ kg) Ash % IM% VM% FC% S% 2,501 Mt 14.6 3,500 40.2 6.1 19.8 31.9 2.0 2,501 Mt Mmamabula West Project (AFR 100%): Raw coal on an air-dried basis Resource Zone MEASURED INDICATED INFERRED TOTAL In-Situ Tonnes* 17 Mt 1,061 Mt 1,858 Mt 2,935 Mt CV (MJ/ kg) CV (kcal/ kg) Ash % IM% VM% FC% S% 22.2 20.4 20.3 5,300 4,875 4,850 19.7 24.4 24.7 7.3 6.1 5.8 24.8 26.5 26.2 48.2 43.1 43.4 1.7 1.5 1.6 Mmamantswe Project (AFR 100%): Raw coal on an air-dried basis MEASURED INDICATED INFERRED TOTAL 978 Mt 265 Mt N/A 1,243 Mt CV (MJ/ kg) CV (kcal/ kg) Ash % IM% VM% FC% S% 9.5 7.9 2,270 1,890 56.5 62.3 3.9 3.3 15.8 14.2 21.8 18.1 2.0 2.1 Mineral Resources & Ore Reserve Governance A summary of the governance and internal controls applicable to African Energy’s Mineral Resources and Ore Reserves processes are as follows: • Review and validation of drilling and sampling methodology and data spacing, geological logging, data collection and storage, sampling and analytical quality control; • Geological interpretation – review of known and interpreted structure, lithology and weathering controls; • Estimation methodology – relevant to mineralisation style and proposed mining methodology; • Comparison of estimation results with previous mineral resource models, and with results using alternate modelling methodologies; • Statistical and visual validation of block model against raw composite data; and • Use of external Competent Persons to assist in the preparation of JORC Mineral Resources updates. *In-Situ Tonnes have been derived by removing volumes for modeled intrusions, burnt coal and weathered coal and then applying appropriate geological loss factors to the remaining Gross In-Situ Tonnes. The Coal Resources quoted for the Mmamantswe Project in the table above have been defined in accordance with the practices recommended by the Joint Ore Reserves Committee (2004 edition of the JORC Code). The coal resources quoted for Sese, Sese West and Mmamabula West are reported as per the 2012 edition. There have been no material changes to any of the resources since they were announced. 10 africanenergyresources.com Financial Report 30 June 2019 African Energy Resources Limited ARBN 123 316 781 AfricanEnergy Annual Repor t 2019 011 11 Directors’ Report African Energy Resources Limited  Directors’ Report         Financial Report 30 June 2019  Your  Directors  present  their  report  on  the  Consolidated  Entity  consisting  of  African  Energy  Resources  Limited  (Company)  and  its  controlled entities for the financial year ended 30 June 2019.  1. Directors and Company Secretary  The Directors and the Company Secretary of the Company at any time during or since the end of the financial year are as follows.  Alasdair Cooke BSc (Hons), MAIG – Executive Chairman  Mr Cooke has served as Chairman of the Board since its incorporation. Mr Cooke is a geologist with over 30 years’ experience in the  resource exploration industry throughout Australia and internationally.  For the past 20 years Mr Cooke has been involved in mine  development through various private and public resource companies, prior to which he held senior positions in BHP Billiton plc’s  international new business and reconnaissance group.  Mr Cooke is a founding director of Mitchell River Group, which over the past seventeen years has established a number of successful  ASX listed resources companies, including Panoramic Resources, operating the Savannah and Lanfranchi nickel projects in Australia;  Albidon,  operating  the  Munali  Nickel  Mine  in  Zambia,  Mirabela  Nickel,  operating  the  Santa  Rita  nickel  project  in  Brazil;  Exco  Resources, developing copper and gold resources in Australia; and EVE Investments.   Other current directorships  EVE Investments Limited  Anova Metals Limited  Caravel Minerals Limited   Former directorships in the last three years  none  Special responsibilities   Executive Chairman  Member of the remuneration committee  Interests in shares and options  50,003,682 shares  766,667 performance rights  1,750,000 options  Charles (Frazer) Tabeart PhD, BSc (Hons) ARSM, MAIG – Executive Director   Dr Tabeart is a graduate of the Royal School of Mines with a PhD and Honours in Mining Geology. He has over 30 years’ experience  in  international  exploration  and  mining  projects,  including  16  years  with  WMC  Resources.  Whilst  at  WMC,  Dr  Tabeart  managed  exploration portfolios in the Philippines, Mongolia and Africa, gaining considerable experience in a wide variety of commodities and  operating with staff from diverse cultural backgrounds.  Dr Tabeart was appointed Managing Director of the Company in November 2007 after serving two years as General Manager. Under  his stewardship the Company discovered and delineated the coal resource at the Sese Coal & Power Project and has since managed  the strategic direction of company to focus upon the delivery of multiple coal‐fired power stations, captive coal‐mines and an export  coal  mine.  He  has  overseen  the  acquisition  of  Mmamantswe  and  Mmamabula  West  Coal  Projects  that  has  grown  the  resource  inventory of the Company to 8.7Bt of thermal coal.  Other current directorships  PolarX Limited  Arrow Minerals Ltd  Special responsibilities   Executive Director  Member of the audit and risk committee  Former directorships in the last three years   none  Interests in shares and options  4,774,100 shares  1,266,667 performance rights  2,500,000 options  Gregory (Bill) Fry – Executive Director   Mr Fry has more than 30 years corporate experience in the mining and resources industry, specialising in accounting, management,  business  development  and  general  corporate  activities.  He  has  vast  experience  in  project  evaluation  and  development,  project  funding, management, finance and operations.   Over  the  past  15  years,  Mr  Fry  has  been  a  Director  of  several  private  and  public  companies  with  activities  ranging  from  funds  management, minerals exploration, mining and quarrying. He has been an Executive Director of African Energy Resources since listing  and is responsible for the Company’s commercial and financial business programs.   12 africanenergyresources.com 12 africanenergyresources.com 4 | P a g e                                                   African Energy Resources Limited                    Financial Report 30 June 2019  Directors Report (continued)  Other current directorships  EVE Investments Ltd  Anova Metals Ltd  Former directorships in the last three years  nil  Special responsibilities   Member of the audit and risk committee  Interests in shares and options  5,869,610 shares  933,333 performance rights  875,000 options  Valentine Chitalu MPhil, BAcc, FCCA – Non‐Executive Director  Mr Chitalu, a Zambian national and resident, is a Chartered Certified Accountant, Fellow of the Association of Chartered Certified  Accountants (UK) and holds a practicing certificate from the Zambia Institute of Certified Accountants. He also holds a Masters Degree  in Economics, Finance and Politics of Development and a Bachelor’s Degree in Accounting and Finance.   Mr Chitalu has been a Non‐Executive Director of African Energy Resources since listing and has assisted African Energy through his  extensive business and Government contacts in the region.   Other current directorships  CDC Group  Special responsibilities   Chairman of the audit and risk committee  Former directorships in the last three years  nil  Interests in shares and options  2,251,425 shares  400,000 performance rights  500,000 options  Vincent Ian Masterton‐Hume ‐ Non‐Executive Director  Mr Hume's career in the resources industry stretches back several decades, primarily in the fields of managed fund investments,  capital raising and project development. He currently sits on the boards of Silver City Mines; TSX‐listed Golden Minerals; and ASX‐ listed Iron Road. He is a former Director of ASX and TSX‐listed Marengo Mining.  Mr Hume was a Founding Partner of The Sentient Group (“Sentient”), an independent private equity investment firm that specialises  in  the  global  resource  industry.  He  remains  an  independent  advisor  to  Sentient,  following  his  retirement  from  the  fund  in  2008.  Sentient manages in excess of US $2.3 billion in the development of metal, mineral and energy assets across the globe. Sentient’s  current investment portfolio includes projects in power generation, energy storage, potash, and base, precious and ferrous metals  mining, covering countries as diverse as China, Brazil, Canada, Papua New Guinea, Finland, Australia, Kenya and Botswana.  Prior to the founding of Sentient, Mr Hume was a consultant to AMP’s Private Capital Division, working on the development of a  number  of  Chilean  mining  investment  joint  ventures,  as  well  as  advising  on  a  number  of  specific  investments  across  a  range  of  commodities and locations.  Other current directorships  Golden Minerals Limited  Iron Road Limited  Special responsibilities   Chairman of Remuneration Committee  Former directorships in the last three years  Silver City Mines Limited (retired 31 January  2017)  Interests in shares and options  4,157,606 shares  100,000 performance rights  500,000 options  John Dean ‐ Non‐Executive Director  Mr Dean is an employee of First Quantum Minerals (FQM). Since joining FQM in 2011 he has fulfilled various roles within their mining  operations including at FQM’s Sentinel Copper Mine, its new flagship mine in Zambia.  Prior to joining FQM, Mr Dean worked as an  analyst in the energy and natural resource industries, possessing expertise in the valuation and commercial analysis of upstream oil  and gas projects, as well as experience in electricity, natural gas, and crude oil markets.   Mr  Dean  graduated  with  honours  from  the  University  of  Louisville  in  the  United  States  with  a  Bachelor  of  Science  in  Business  Administration, and was later awarded a Masters of Business Administration with distinction from the University of Oxford.    5 | P a g e   AfricanEnergy Annual Repor t 2019 13                                                                                                                                         Directors’ Report (continued) African Energy Resources Limited  Directors Report (continued)                    Financial Report 30 June 2019  In addition to the Directorship, Mr Dean is a part of the team responsible for the development of power generation projects at the  Sese Coal & Power Project under the joint venture with FQM.   Current directorships  nil  Special responsibilities   Member of Remuneration Committee  Former directorships in the last three years  nil  Interests in shares and options  nil  Daniel Davis – Company Secretary   Mr Davis is a qualified accountant who has fifteen years‐experience in senior accounting and corporate roles for resources businesses  in all stages from exploration to development, construction and mining.  1.1 Directors’ Meetings  The number of Directors’ meetings and number of meetings attended by each of the Directors of the Company during the financial  year were:  Director  Alasdair Cooke  Charles Tabeart  Gregory Fry  Valentine Chitalu  Vincent Masterton‐Hume  John Dean  Board of Directors  Held  1  1  1  1  1  1  Present  1  1  1  1  1  1  Remuneration  Committee  Present  ‐  ‐  ‐  ‐  ‐  ‐  Held  ‐  ‐  ‐  ‐  ‐  ‐  Audit & Risk Committee  Present  ‐  1  1  1  ‐  ‐  Held  ‐  1  1  1  ‐  ‐  2. Review of Operations  African Energy is focused on its Botswana coal portfolio, with an emphasis on developing the Sese JV as an integrated coal mine and power  station, and on progressing the Mmamabula West project as an export coal mine.  The Company’s focus is to:        Secure access to transmission systems to transmit power from Sese to FQM’s Zambian operations in the Copperbelt;  Continue negotiations with other credit‐worthy off‐takers for the balance of power available from Sese;  Complete amendments to the approved Sese ESIA seeking to increase power output from 300MW to up to 500MW;  Implement a resettlement action plan around Sese, under which 25 households will have their grazing rights, water bores  and access trails relocated to outside the Land Rights Lease;  Pursue development opportunities for its Mmamabula West coal project; and  Evaluate new project opportunities for base and precious metals projects that are deemed to have the potential to add to  shareholder value.  3. Remuneration Report ‐ Audited  This Remuneration Report outlines the remuneration arrangements which were in place during the year and remain in place as at the date  of this report, for the Directors and key management personnel (“KMP”) of African Energy Resources Limited.   The information provided in this remuneration report has been Audited as required by section 308(3c) of the Corporations Act 2001.  3.1 Principles of Compensation  The objective of the Company’s executive reward framework is to ensure reward for performance is competitive and appropriate for the  results delivered. The framework aligns executive reward with achievement of strategic objectives and the creation of value for shareholders  and conforms with market practice for delivery of reward. The Board ensures that executive reward satisfies the following key criteria for  good reward governance practices:       competitiveness and reasonableness;  acceptability to shareholders;  performance linkage / alignment of executive compensation;  transparency; and  capital management.  14 africanenergyresources.com 6 | P a g e                                         African Energy Resources Limited                    Financial Report 30 June 2019  Directors Report (continued)  Alignment to shareholders’ interests:     has economic profit as a core component of plan design;  focuses on sustained growth in shareholder wealth, consisting of dividends and growth in share price, and delivering constant  return on assets as well as focusing the executive on key non‐financial drivers of value; and  attracts and retains high calibre executives.  Alignment to program participants’ interests:  rewards capability and experience;  reflects competitive reward for contribution to growth in shareholder wealth;  provides a clear structure for earning rewards; and  provides recognition for contribution.      The framework provides a mix of fixed and variable pay, and a blend of short and long‐term incentives. As executives gain seniority with the  Company, the balance of this mix shifts to a higher proportion of ''at risk'' rewards.   The following table shows key performance indicators for the group over the last five years:  Profit / (loss) for the year attributable to owners  Basic earnings / (loss) per share (cents)  Dividend payments  Dividend payment ratio (%)  Increase / (decrease) in share price (%)  Total KMP incentives as percentage of profit / (loss)  for the year (%)  2019  (927,792)  (0.15)  ‐  ‐  (187%)  2018  (4,013,178)  (0.64)  ‐  ‐  (304%)  Restated (1)     2017  (1,618,702)  (0.27)  ‐  ‐  209%  Restated (1)     2016  (2,070,429)  (0.34)  ‐  ‐  (4%)  Restated (1)    2015   (5,084,144)  (0.90)  ‐  ‐  (4%)  ‐  ‐  ‐  ‐  ‐  (1) Prior to 30 June 2017, the Group capitalised, accumulated exploration and evaluation expenditure and carried forward to the  extent that they were expected to be recouped through the successful development of the area or where activities in the area  have not yet reached a stage which permits reasonable assessment or the existence or economically recoverable reserves. From  1 July 2017, Exploration and evaluation expenditure is stated at cost and is accumulated and carried forward to the extent  that they are expected to be recouped through the successful development of the area or where activities in the area have  not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves. The  result of this accounting change meant that the Group expensed exploration and evaluation expenditure as incurred in respect of  each Identifiable area of interest until a time where an asset Is In development.  3.2 Remuneration governance  The  Remuneration Committee provides advice  on  remuneration and  incentive  policies  and  practices  and specific  recommendations  on  remuneration packages and other terms of employment for Executive Directors, other senior executives and Non‐Executive Directors. The  Corporate Governance Statement provides further information on the role of the Board.  3.3 Non‐Executive Directors  Fees and payments to Non‐Executive Directors reflect the demands which are made on, and the responsibilities of, the Directors. Non‐ Executive Directors’ fees and payments are reviewed annually by the Board.   The current base remuneration was last reviewed with effect from 1 April 2018 and was set at US$24,545 (AU$35,000) per annum (2018:  US$26,819).  3.4 Executive Directors  The executive pay and reward framework has two components:    base pay; and  long‐term incentive through issue of performance rights and options;   Base Pay  Base pay is structured as a total employment cost package which may be delivered as a combination of cash and prescribed non‐financial  benefits at the Remuneration Committee’s discretion.  Executives are offered a competitive base pay that comprises the fixed component of pay and rewards.  Base pay for executives is reviewed  annually to ensure the executive’s pay is competitive with the market. There is no guaranteed base pay increases included in any executives’  contract.  7 | P a g e   AfricanEnergy Annual Repor t 2019 15                                             Directors’ Report (continued) African Energy Resources Limited  Directors Report (continued)                    Financial Report 30 June 2019  Long‐term incentives  The award of performance rights and options to Directors, provides an opportunity for Directors to participate in the Company's growth and  an  incentive  to  contribute  to  that  growth.  The  Remuneration  Committee  determines  performance  hurdles  that  will  apply  to  each  performance right and option issued. No new performance rights were issued during the year ended 30 June 2019.  Performance conditions attached to performance rights and options issued in the prior year are detailed in note 8.1.  Service Contracts  On appointment to the Board, Executive Directors enter into an executive service agreement with the Company.  The agreement details the  Board policies and terms, including compensation, relevant to the office of Director.   The Company currently has service contracts in place with the following three Board members.  All contracts with Executive Directors are for  a two year term but can be terminated by either party with three months’ notice.  Details of the service agreements are listed below.  Alasdair Campbell Cooke ‐ Executive Chairman, the Company      Commencement date: 1 January 2019  Base annual salary is US$59,610 (AU$85,000)  Consulting Fee of US$1,402 (AU$2,000) per day when the executive works more than one day per week  Termination payment is the equivalent of three months consulting fees  Charles Frazer Tabeart ‐ Executive Director, the Company      Commencement date: 1 January 2019  Base annual salary is US$112,208 (AU$160,000)  Consulting Fee of US$1,402 (AU$2,000) per day when the executive works more than two and a half days per week   Termination payment is the equivalent of three months consulting fees  Gregory William Fry ‐ Executive Director, the Company     Commencement date: 1 January 2019  Base annual salary is US$45,584 (AU$65,000)   Termination payment is the equivalent of three months consulting fees  No other key management personnel have service contracts in place with the Consolidated Entity.  3.5 Comments made at the Company’s 2018 Annual General Meeting  The  Company  did  not  receive  any  specific  feedback  at  the  AGM  held  on  16  November  2018  or  throughout  the  year  on  its  remuneration practices.  3.6 Directors and Executive Officers’ Remuneration (Consolidated Entity)  Details of the remuneration of the Directors of the Consolidated Entity (as defined in AASB 124 Related Party Disclosures) of the Consolidated  Entity are set out in the following tables.  The key management personnel of the Consolidated Entity are the Directors of African Energy Resources Limited.  16 africanenergyresources.com 8 | P a g e                                           AfricanEnergy Annual Repor t 2019 17 African Energy Resources Limited                       Financial Report 30 June 2019  Directors Report (continued)  9 | Page The following tables set out remuneration paid to key management personnel of the Consolidated Entity during the year.  Key Management Personnel remuneration ‐ 2019 Short term employee benefits Post‐employment benefits Share based payments (1) Performance based (2) Total Cash salary & fees Superannuation Rights US$ US$ US$ % US$ Non‐Executive Directors           Valentine Chitalu 25,044 ‐ (15,262) ‐ 9,782 Vincent Masterton‐Hume 22,872 2,173 (3,815) ‐ 21,230 John Dean 23,256 ‐ ‐ ‐ 23,256 Total Non‐Executive Directors 71,172 2,173 (19,077) ‐ 54,268 Executive Directors       ‐   Gregory Fry 42,093 4,419 (29,879) ‐ 16,633 Charles Tabeart 114,489 ‐ (36,864) ‐ 77,625 Alasdair Cooke 103,755 ‐ (26,386) ‐ 77,369 Total Executive Directors 260,337 4,419 (93,129) ‐ 171,627 Total Key Management Personnel 331,509 6,592 (112,206) ‐ 225,895       Key Management Personnel remuneration ‐ 2018           Non‐Executive Directors  Valentine Chitalu 32,950 ‐ 1,455 4.2% 34,405 Philip Clark 23,896 2,270 364 1.4% 26,530 Vincent Masterton‐Hume 30,091 2,858 364 1.1% 33,313 Wayne Trumble 6,784 19,382 3,637 12.2% 29,803 John Dean 32,950 ‐ ‐ 0.0% 32,950 Total Non‐Executive Directors 126,671 24,510 5,820 3.7% 157,001 Executive Directors      Gregory Fry 85,258 8,099 4,699 4.8% 98,056 Charles Tabeart 196,407 ‐ 7,215 3.5% 203,622 Alasdair Cooke 101,563 ‐ 3,441 3.3% 105,004 Total Key Management Personnel 383,228 8,099 15,355 3.8% 406,682 Total 509,899 32,609 21,175 3.8% 563,683  (1) Negative remuneration values are due to a reversal in share‐based payment expense as a result of a change in management estimates for the achievement of performance rights. Refer Note 8.1 for further details. (2) Where performance based remuneration is negative for the period, the percentage of performance based salary is noted as nil for the period.  The Group did not engage a remuneration consultant during the year.  3.7 Share‐based compensation The Company did not issue share‐based compensation during the year.     Directors’ Report (continued) African Energy Resources Limited                    Financial Report 30 June 2019  Directors Report (continued)  3.8 Directors’ and Executives Interests  A. Shares  Non‐executive Directors  Valentine Chitalu  Vincent Masterton‐Hume  John Dean  Executive Directors  Alasdair Cooke  Charles Tabeart  Gregory Fry  B. Performance Rights  Non‐executive Directors  Valentine Chitalu  Vincent Masterton‐Hume  John Dean  Executive Directors  Alasdair Cooke  Charles Tabeart  Gregory Fry  C. Options  Non‐executive Directors  Valentine Chitalu  Vincent Masterton‐Hume  John Dean  Executive Directors  Alasdair Cooke  Charles Tabeart  Gregory Fry  Balance at  30/06/2018   Purchases  (Sales)  Balance at  30/06/2019  Balance at  Reporting  Date  2,251,425  4,157,606  ‐  50,003,682  4,774,100  5,869,610  67,056,423  ‐  ‐  ‐  ‐  ‐  ‐  ‐  2,251,425  4,157,606  ‐  2,251,425  4,157,606  ‐  50,003,682  4,774,100  5,869,610  67,056,423  50,003,682  4,774,100  5,869,610  67,056,423  Balance at  30/06/2018  Balance at  30/06/2019  Vested and  exercisable  Unvested  400,000  100,000  ‐  766,667  1,266,667  933,333  3,466,667  400,000  100,000  ‐  766,667  1,266,667  933,333  3,466,667  ‐  ‐  ‐  ‐  ‐  ‐  ‐  400,000  100,000  ‐  ‐  766,667  1,266,667  933,333  3,466,667  Balance at  30/06/2018  Balance at  30/06/2019  Vested and  exercisable  Unvested  500,000  500,000  ‐  500,000  500,000  ‐  1,750,000  2,500,000  875,000  1,750,000  2,500,000  875,000  6,125,000  6,125,000  ‐  ‐  ‐  ‐  ‐  ‐  ‐  500,000  500,000  ‐  1,750,000  2,500,000  875,000  6,125,000  D. Other related party transactions  The terms and conditions of the transactions with Directors, key executives and associates and their related entities were no more favourable  than those available, or which might reasonably be expected to be available, on similar transactions to non‐Director related entities on an  arm’s length basis.  Mitchell River Group Pty Ltd  Charges from  Charges to  2019  US$  52,851  2018  US$  102,458  2019  US$  2018  US$  ‐  ‐  At 30 June 2019 the company had a payable outstanding to Mitchell River Group of US$6,105 (30 June 2018: US$1,499).  This is the end of the Audited remuneration report.  4. Principal Activities  The principal activity of the Consolidated Entity during the course of the financial year was the development of power projects in southern  Africa.   18 africanenergyresources.com 10 | P a g e                                                                                            African Energy Resources Limited                    Financial Report 30 June 2019  Directors Report (continued)  5. Events Subsequent to Reporting Date  No matters or circumstances have arisen since the end of the financial year which have significantly affected or may significantly affect the  operations, results or state of affairs of the Group in future financial years which have not been disclosed publicly at the date of this report.  6. Likely Developments and Expected Results  The Group will continue to pursue activities within its corporate objectives.  Further information about likely developments in the operations  of the Group and the expected results of those operations in the future financial years has not been included in this report because disclosure  would likely result in unreasonable prejudice to the Group.  7. Significant Changes in the State of Affairs  In the opinion of the Directors, other than stated under Review of Operations, and Events Subsequent to Reporting Date, there were no  significant changes in the state of affairs of the Group that occurred during the financial year under review and subsequent to the year end.  8. Environmental Regulations  The Consolidated Entity’s operations are not subject to any significant environmental regulations under the legislation of countries in which  it operates.  However, the Board believes there are adequate systems in place for the management of its environmental requirements and  is not aware of any breach of those environmental requirements as they apply.  The Company is not subject to the reporting requirements of both the Energy Efficiency Opportunities Act 2006 and the National Greenhouse  and Energy Reporting Act 2007.  9. Indemnification and Insurance of Officers and Auditors  9.1  Indemnification  An indemnity agreement has been entered into with each of the Directors and Company Secretary of the Company named earlier in this  report. Under the agreement, the Company has agreed to indemnify those officers against any claim or for any expenses or costs which  may arise as a result of work performed in their respective capacities to the extent permitted by law. There is no monetary limit to the  extent of this indemnity.    9.2  Insurance  During the financial year, the Company has taken out an insurance policy in respect of Directors’ and officers’ liability and legal expenses’  for Directors and officers.    10. Corporate Structure  African Energy Resources Limited is a Company limited by shares that is incorporated and domiciled in Guernsey. The Company is listed on  the Australian Securities Exchange and Botswana Stock Exchange under code AFR.  11. Non‐Audit Services  During the year, there were no non‐Audit services provided by BDO Audit (WA) Pty Limited (2018: nil).  12. Loans to key management personnel  No loans to key management personnel were provided during the period or up to the date of signing this report.  13. Lead Auditor’s Independence Declaration  The lead Auditor’s Independence Declaration is set out on page 18 and forms part of the Directors’ report for the financial year ended 30  June 2019.   Charles Frazer Tabeart  Executive Director  Perth, 27 September 2019  11 | P a g e   AfricanEnergy Annual Repor t 2019 19                                   Directors’ Declaration African Energy Resources Limited  Directors’ Declaration  African Energy Resources Limited and its Controlled Entities  The Directors of the Company declare that:  Financial Report 30 June 2019  1 The financial statements, comprising the consolidated statement of profit or loss and other comprehensive income, consolidated  statement  of  financial  position,  consolidated  statement  of  cash  flows,  consolidated  statement  of  changes  in  equity  and  accompanying notes, are in accordance with the Corporations Act 2001; and  (a) comply  with  Accounting  Standards  and  the  Corporations  Regulations  2001  and  other  mandatory  professional  reporting  requirements; and  (b) give a true and fair view of the financial position as at 30 June 2019 and of the performance for the year ended on that date of  the Consolidated Entity.   2 3 4 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.   The Consolidated Entity has included in the notes to the financial statements an explicit and unreserved statement of compliance  with International Financial Reporting Standards.  The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A  of the Corporations Act 2001.   This declaration is made in accordance with a resolution of the Board of Directors and is signed on behalf of the Directors by:  Charles Frazer Tabeart  Executive Director  Perth, 27 September 2019 20 africanenergyresources.com 12 | P a g e                                                    Independent Audit Report Tel: +61 8 6382 4600 Fax: +61 8 6382 4601 www.bdo.com.au 38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia INDEPENDENT AUDITOR'S REPORT To the members of African Energy Resources Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of African Energy Resources Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2019, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial report, including a summary of significant accounting policies and the directors’ declaration. In our opinion the accompanying financial report of the Group, is in accordance with the Corporations Act 2001, including: (i) Giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its financial performance for the year ended on that date; and (ii) Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. AfricanEnergy Annual Repor t 2019 21 Independent Audit Report (continued) Recoverability of investment in associate Key audit matter How the matter was addressed in our audit As disclosed in Note 2.2, the Group’s investment in Our procedures included, but were not limited to the associate (Sese Power Project) has a significant following: carrying value as at 30 June 2019. The Company is required to assess whether any impairment indicators are present in accordance with AASB 128 Investments in Associates and Joint Ventures (“AASB 128”) which may indicate the Group’s investment in associate is impaired. · · Considering the existence of any indicators of impairment of the investment in accordance with AASB 128; Reviewing ASX announcements, Board of Directors meetings minutes, joint venture minutes and considering management’s We have determined this is a key audit matter given its assessment of impairment indicators; and financial significance to the Group and the judgements and estimates required in assessing the carrying value of the investment. · Assessing the adequacy of related disclosures in Note 2.2 and Note 1.6 to the Financial Statements. Recoverability of exploration and evaluation assets Key audit matter How the matter was addressed in our audit As disclosed in Note 2.1, the capitalised exploration Our procedures included, but were not limited to: and evaluation asset has a significant carrying value as at 30 June 2019. As the carrying value of the exploration and evaluation asset represents a significant asset of the Group, we considered it necessary to assess whether any facts or circumstances exist to suggest that the carrying amount of this asset may exceed its recoverable amount. In accordance with AASB 6 Exploration for and Evaluation of Mineral Resources (“AASB 6”), the recoverability of exploration and evaluation expenditure requires significant judgment by management in determining whether there are any facts or circumstances that exist to suggest that the carrying amount of this asset may exceed its recoverable amount. As a result, this is considered a key audit matter. · · Assessing whether rights to tenure of the identified area of interest remained current at balance date; Holding discussions with management as to the status of ongoing exploration programmes in the respective area of interest; · Considering whether any such area of interest had reached a stage where a reasonable assessment of economically recoverable reserves existed; · · Considering whether any facts or circumstances existed to suggest impairment testing was required; and Assessing the adequacy of the related disclosures in Note 2.1 and Note 1.6 to the Financial Statements. 22 africanenergyresources.com Other information The directors are responsible for the other information. The other information comprises the information contained in the Group’s annual report for the year ended 30 June 2019, but does not include the financial report and our auditor’s report thereon, which we obtained prior to the date of this auditor’s report, and the annual report, which is expected to be made available to us after that date. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the annual report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and will request that it is corrected. If it is not corrected, we will seek to have the matter appropriately brought to the attention of users for whom our report is prepared. Responsibilities of the directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. AfricanEnergy Annual Repor t 2019 23 Independent Audit Report (continued) A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website (http://www.auasb.gov.au/Home.aspx) at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf This description forms part of our auditor’s report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 6 to 10 of the directors’ report for the year ended 30 June 2019. In our opinion, the Remuneration Report of African Energy Resources Limited, for the year ended 30 June 2019, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. BDO Audit (WA) Pty Ltd Jarrad Prue Director Perth, 27 September 2019 24 africanenergyresources.com Tel: +61 8 6382 4600 Fax: +61 8 6382 4601 www.bdo.com.au 38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia DECLARATION OF INDEPENDENCE BY JARRAD PRUE TO THE DIRECTORS OF AFRICAN ENERGY RESOURCES LIMITED As lead auditor of African Energy Resources Limited for the year ended 30 June 2019, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of African Energy Resources Limited and the entities it controlled during the period. Jarrad Prue Director BDO Audit (WA) Pty Ltd Perth, 27 September 2019 BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. AfricanEnergy Annual Repor t 2019 25 Consolidated Statement of Profit or Loss and Other Comprehensive Income African Energy Resources Limited                 Financial Report 30 June 2019  Consolidated Statement of Profit or Loss and Other Comprehensive Income  For the year ended 30 June 2019 For the year ended 30 June 2019  Gain on sale of Zambian Uranium Project  Gain / (loss) on derivative  (Loss) on Sale of Listed Investments  Share based payment (expense) / reversal  Interest received  Personnel expenses  Professional & administration expense  Exploration & evaluation expensed  Share of Loss in Sese JV  Impairment of Mmamantswe  Foreign currency gain / (loss)  Loss before tax  Income tax expense  Loss after income tax for the year  Attributable to:  Equity holders of the Company  Loss for the year  Other comprehensive items that may be reclassified to profit or loss  Changes in the fair value of financial assets at fair value through other  comprehensive income (FVOCI)  Foreign currency translation reserve  Total other comprehensive income / (loss) for the year  Note  2019  US$  ‐  (128,867)  ‐  226,291  46,161  (276,270)  (187,423)  (116,038)  (376,918)  ‐  (114,728)  (927,792)  ‐  (927,792)  8.3  3.2  3.3  3.3  2.2  3.4  2018  US$  503,477  181,987  (1,537)  77,701  60,130  (536,684)  (343,040)  (85,037)  (471,527)  (3,396,842)  (1,806)  (4,013,178)  ‐  (4,013,178)  (927,792)  (927,792)  (4,013,178)  (4,013,178)  (191,598)  (38,378)  (229,976)  (9,223)  (139,242)  (148,465)  Total comprehensive loss attributable to the ordinary equity holders of the  Company:  Total comprehensive loss for the year  (1,157,768)  (4,161,643)  Loss per share for loss attributable to the ordinary equity holders of the  Company:  Basic and diluted loss per share (cents per share)  3.5  (0.15)  (0.64)  The Consolidated Statement of Profit or Loss and Other Comprehensive Income is to be read in conjunction with the accompanying  notes  26 africanenergyresources.com 18 | P a g e                                                                                                 Consolidated Statement of Financial Position African Energy Resources Limited  Consolidated Statement of Financial Position  As at 30 June 2019 As at 30 June 2019  Assets  Current assets  Cash & cash equivalents  Financial assets at FVOCI  Derivative asset  Trade & other receivables  Total current assets  Non‐current assets  Investment in Sese Joint Venture  Property, plant & equipment  Exploration & evaluation  Total non‐current assets  Total assets  Liabilities  Current liabilities  Trade & other payables  Total current liabilities  Total liabilities  Net assets  Equity  Contributed equity  Reserves  Retained earnings (Accumulated losses)  Total equity attributable to shareholders of the Company           Financial Report 30 June 2019  Note  2019  US$  2018  US$  4.1  4.6  4.7  4.3  2.2  2.1  4.4  5.1  1,941,739  630,610  53,120  51,482  2,676,951  6,924,616  ‐  2,500,000  9,424,616  12,101,567  2,300,244  1,147,930  181,987  37,252  3,667,413  7,301,534  26  2,500,000  9,801,560  13,468,973  100,541  100,541  100,541  83,889  83,889  83,889  12,001,026  13,385,084  64,134,977  (412,635)  (51,721,316)  12,001,026  64,134,977  25,852  (50,775,745)  13,385,084  The consolidated statement of financial position is to be read in conjunction with the accompanying notes  19 | P a g e   AfricanEnergy Annual Repor t 2019 27                                                                                     Consolidated Statement of Changes in Equity African Energy Resources Limited  Consolidated Statement of Changes in Equity  For the year ended 30 June 2019 for the year ended 30 June 2019    Financial Report 30 June 2019  For the twelve months ended 30  June 2019  Contributed    equity  Accumulated  losses  Foreign  Currency  Translation  Reserve  Other                 Comprehensive         Income Reserve       (FVOCI)   Share‐ Based  Payments  Reserve   Total          equity  At 30 June 2018  Net earnings for the year  Effect  of  translation  of  foreign  operations  to  group  presentation  currency  Movement in fair value of financial  assets at FVOCI  Total  comprehensive  income  for  the year  Transactions  with  owners  in  their  capacity as owners:  Share based payments  At 30 June 2019  For  the  twelve  months  ended  30  June 2018  At 30 June 2017  Net earnings for the year  Effect  of  translation  of  foreign  operations  to  group  presentation  currency  Movement in fair value of financial  assets at FVOCI  Total  comprehensive  income  for  the year  Transactions  with  owners  in  their  capacity as owners:  Issue of new shares  Share buyback  Share based payments  At 30 June 2018  US$  64,134,977  ‐  US$  (50,775,745)  (927,792)  US$  (5,180,211)  ‐  US$  (9,223)  ‐  US$  5,215,287  ‐  US$  13,385,085  (927,792)  ‐  ‐  ‐  ‐  (38,378)  ‐  (17,779)  ‐  (173,819)  (945,571)  (38,378)  (173,819)  ‐  ‐  ‐  (38,378)  (191,598)  (1,157,768)  ‐  64,134,977  ‐  (51,721,316)  ‐  (5,218,589)  ‐  (183,042)  (226,291)  4,988,996  (226,291)  12,001,026  63,109,911  ‐  (46,762,567)  (4,013,178)  (5,040,969)  ‐  ‐  ‐  ‐  ‐  ‐  (139,242)  ‐  (4,013,178)  (139,242)  ‐  ‐  ‐  (9,223)  (9,223)  5,292,988  ‐  16,599,363  (4,013,178)  ‐  ‐  ‐  (139,242)  (9,223)  (4,161,643)  1,089,179  (64,113)  ‐  1,025,066  64,134,977  ‐  ‐  ‐  ‐  (50,775,745)  ‐  ‐  ‐  ‐  (5,180,211)  ‐  ‐  ‐  ‐  (9,223)  ‐  ‐  (77,701)  (77,701)  5,215,287  1,089,179  (64,113)  (77,701)  947,365  13,385,085  The consolidated statements of changes in equity are to be read in conjunction with the accompanying notes  28 africanenergyresources.com 20 | P a g e                                                                                    Consolidated Statement of Cash Flows African Energy Resources Limited  Consolidated Statement of Cash Flows  As at 30 June 2019 for the year ended 30 June 2019  Cash flows from operating activities  Interest received  Payment for exploration and evaluation  Payment to suppliers and employees  Net cash (outflow) from operating activities  Cash flows from investing activities  Receipts from sale of listed investments  Acquisitions of Shares in Caravel Minerals  Net cash inflow/(outflow) from investing activities  Cash flows from financing activities  Issue of Shares  Buyback of shares   Net cash inflow/(outflow) from financing activities  Cash and cash equivalents at the beginning of the year  Net (decrease) / increase in cash and cash equivalents  Effect of exchange rate fluctuations on cash held  Cash and cash equivalents at the end of the year            Financial Report 30 June 2019  Note  2019  US$  2018  US$  49,177  (121,414)  (460,510)  (532,747)  459,086  (111,135)  347,951  ‐  ‐  ‐  2,300,244  (184,796)  (173,709)  1,941,739  87,222  (97,022)  (824,709)  (834,509)  48,800  (420,174)  (371,374)  1,089,179  (64,113)  1,025,066  2,621,783  (180,817)  (140,721)  2,300,244  4.2  4.1  4.1  The consolidated statements of cash flows are to be read in conjunction with the accompanying notes  21 | P a g e   AfricanEnergy Annual Repor t 2019 29                                                                             Notes to the Consolidated Financial Statements African Energy Resources Limited    2019  Notes to the Consolidated Financial Statements  1. 1.1 Basis of Preparation  Statement of Compliance                    Financial Report 30 June  These general purpose financial statements have been prepared in accordance with Australian Accounting Standards (‘AASBs’)  (including Australian Interpretations) adopted by the Australian Accounting Standards Board (‘AASB’) and the Corporations Act  2001. The financial report of the Consolidated Entity also complies with IFRSs and interpretations as issued by the International  Accounting  Standards  Board.  African  Energy  Resources  Limited  is  a  for‐profit  entity  for  the  purposes  of  preparing  financial  statements.  The financial report was authorised for issue by the Directors on 27 September 2019.  1.2 Basis of measurement  The financial report is prepared under the historical cost convention.  1.3 Functional and presentation currency  These consolidated financial statements are presented in US dollars (‘US$’).   The functional currency of the Company and each of the operating subsidiaries is US$ which represents the currency of the  primary economic environment in which the Company and each of the operating subsidiaries operates.   Subsidiaries denominated in Australian dollars (‘AU$’) are translated at the closing rate on reporting date. Profit or loss items  are translated on the prevailing rate on the date of transaction.  1.4 Going concern  The financial report has been prepared on a going concern basis, which contemplates the continuity of normal business activity  and the realisation of assets and the settlement of liabilities in the normal course of business.  1.5 Reporting entity  African Energy Resources Limited (referred to as the ‘Parent Entity’ or the ‘Company’) is a company domiciled in Guernsey. The  consolidated financial statements of the Company as at and for the year ended 30 June 2019 comprise the Company and its  subsidiaries (together referred to as the ‘Consolidated Entity’ or the ‘Group’). The Group is primarily involved in power and coal  development in southern Africa.  1.6 Use of estimates and judgments  The  preparation  of  a  financial  report  in  conformity  with  Australian  Accounting  Standards  requires  management  to  make  judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities,  income and expenses. The estimates and associated assumptions are based on historical experience and various other factors  that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements  about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from  these estimates. These accounting policies have been consistently applied by each entity in the Consolidated Entity.  The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised  in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future  periods if the revision affects both current and future periods. In particular, information about significant areas of estimation  uncertainty  and  critical  judgments  in  applying  accounting  policies  that  have  the  most  significant  effect  on  the  amount  recognised in the financial statements are described in the following notes:   Note  2.1  –  Exploration  &  evaluation  expenditure  ‐  If,  after  having  capitalised  expenditure  under  this  policy,  the  Directors  conclude  that  the  Group  is  unlikely  to  recover  the  expenditure  by  future  exploration  or  sale,  then  the  relevant capitalised amount will be written off to the Statement of Profit or Loss and other Comprehensive Income.   Note 2.2 – Investments in Associates – The Group assesses the carrying amount of investment in associates at each  reporting  period  in  accordance  with  AASB  128.  If  impairment  indicators  are  identified,  the  Group  tests  the  investments for impairment in accordance with AASB 136. In assessing the recoverability of investments in associates,  management applies their estimates and judgements as to the recoverability.   Note 8 – Share‐based payments arrangements ‐ The Group values options issued at fair value at the grant date using  the black scholes option pricing model taking into account the exercise price, the term of the option, the impact of  dilution, the share price at grant date, the expected volatility of the underlying share, the expected dividend yield and  risk free interest rate for the term of the option. Performance rights are valued at face value of the share on the date  of  issue.  At  each  reporting  period  management  assess  the  probability  of  the  vesting  of  options  and  performance  22 | P a g e   30 africanenergyresources.com                   African Energy Resources Limited                Financial Report 30 June 2019  Notes to the Consolidated Financial Statements (continued)  rights where applicable in accordance with AASB 2 – Share based payments (non‐market conditions). The probability  is assessed to either be less likely or more likely (0% or 100%) and a vesting expense is recorded accordingly.  2. 2.1 Non‐Current Assets  Exploration and evaluation expenditure   (a) Exploration and Evaluation Carrying Values  The Group will elect by Area of Interest to adopt one of the following policies:  (i) Exploration and evaluation expenditure is stated at cost and is accumulated and carried forward to the extent that  they are expected to be recouped through the successful development of the area or where activities in the area  have not  yet  reached  a  stage  which  permits  reasonable  assessment  of  the existence  of  economically  recoverable  reserves; or  Exploration and evaluation costs are expenses as incurred as an operating cost of the Group. Costs related to the  acquisition of properties that contain mining resources are capitalised and allocated separately to specific areas of  interest. These costs are capitalised until the viability of the area of interest is determined.  (ii) The Board has determined to apply this policy to an area of interest on a case by case basis.  Area of Interest  Mmamabula West project  Mmamantswe Coal Project  African Energy Holdings SRL (Sese JV)  Accounting  Policy Election  2.1(a)(ii)  2.1(a)(i)  2.1(a)(i)  Exploration and evaluation activity involves the search for energy resources, the determination of technical feasibility and the  assessment of commercial viability of an identified resource.   Exploration and evaluation assets are only recognised if the rights of the area of interest are current and either:  a) b) the expenditures are expected to be recouped through successful development and exploitation of the area of interest;  or  activities in the area of interest have not at the reporting date, reached a stage which permits a reasonable assessment  of  the  existence  or  other  wise  of  economically  recoverable  reserves  and  active  and  significant  operations  in,  or  in  relation to, the area of interest are continuing.  Exploration and evaluation assets are assessed for impairment if sufficient data exists to determine technical feasibility and  commercial viability and facts and circumstances suggest that the carrying amount exceeds the recoverable amount. For the  purposes  of  impairment  testing,  exploration  and  evaluation  assets  are  allocated  to  cash‐generating  units  to  which  the  exploration activity relates. The cash generating unit shall not be larger than the area of interest. Once the technical feasibility  and  commercial  viability  of  the  extraction  of  mineral  resources  in  an  area  of  interest  are  demonstrable,  exploration  and  evaluation assets attributable to that area of interest are first tested for impairment and then reclassified from intangible assets  to mineral property and development assets within property, plant and equipment.  The recoverability of the carrying amounts of exploration and evaluation assets is dependent on the successful development  and commercial exploitation or sale of the respective area of interest.   Mmamabula West Coal Project  Carrying amount of exploration and evaluation  (b) Exploration and Evaluation movement reconciliation  Balance at the beginning of the year  Impairments  Effect of movements in foreign exchange  Carrying amount at 30 June  2019  US$  2,500,000  2,500,000  2018  US$  2,500,000  2,500,000  2019  US$  2,500,000  ‐  ‐  2,500,000  2018  US$  5,900,172  (3,396,842)  (3,330)  2,500,000  23 | P a g e   AfricanEnergy Annual Repor t 2019 31                                     Notes to the Consolidated Financial Statements (continued) African Energy Resources Limited                Financial Report 30 June 2019  Notes to the Consolidated Financial Statements (continued)  2.2 Investments in Associates  Associates are entities over which the Group has significant influence but not control or joint control. Associates are accounted  for  in  the  parent  entity  financial  statements  at  cost  and  the  consolidated  financial  statements  using  the  equity  method  of  accounting.  Under  the  equity  method  of  accounting,  the  group's  share  of  post‐acquisition  profits  or  losses  of  associates  is  recognised in consolidated profit or loss and the group's share of post‐acquisition other comprehensive income of associates is  recognised in consolidated other comprehensive income. The cumulative post‐acquisition movements are adjusted against the  carrying amount of the investment. Dividends received from associates are recognised in the parent entity's profit or loss, while  they reduce the carrying amount of the investment in the consolidated financial statements.  Subsidiaries are all entities over which the group has control. Control is determined with reference to whether the group is  exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns  through its power to direct the activities of the entity. Where the group loses control of a subsidiary but retains significant  influence, the retained interest is re‐measured to fair value at the date that control is lost and the difference between fair value  and the carrying amount is recognised in profit or loss. There is judgement involved in determining whether control has been  lost and determining the fair value of the investment held.   (a) Movements in carrying amounts  Balance at the beginning of the year  Share of Losses after income tax  Movement on renegotiation of Sese JV terms   Carrying amount at 30 June  2019  US$  7,301,534  (376,918)  ‐  6,924,616  2018  US$  8,056,900  (471,527)  (283,839)  7,301,534  (b) Share of the results of its associates  The groups share of the results of its associates and its aggregated assets and liabilities are as follows.    Ownership     Interest %  African Energy Holdings SRL   33  Company's share of:  Assets          Liabilities       Revenues       US$  4,877,096  US$  105,865  US$  ‐  (Loss)        US$  (376,918)  (c) Summarised financial information of associate ‐ African Energy Holdings SRL  Summarised statement of financial position  Current Assets  Cash and cash equivalents  Trade and other receivables  Total current assets  Non‐current Assets  Exploration & evaluation  Property, plant & equipment  Total non‐current assets  Total assets  Current Liabilities  Trade and other payables  Total current liabilities  Non‐current Liabilities  Rehabilitation Provision  Total non‐current liabilities  Total liabilities  Net assets  32 africanenergyresources.com 24 | P a g e   2019  US$  2018  US$  59,922  119,105  179,027  14,574,666  25,386  14,600,052  14,779,079  159,648  92,780  252,428  14,378,556  64,770  14,443,326  14,695,754  70,803  70,803  54,439  54,439  250,000  250,000  320,803  14,458,276  250,000  250,000  304,439  14,391,315                                                                    African Energy Resources Limited                Financial Report 30 June 2019  Notes to the Consolidated Financial Statements (continued)  Summarised statement of comprehensive income  Total Operating Expense  Loss from operating activities  Other comprehensive income  Total comprehensive income  2019  US$  1,090,614  1,090,614  5,140  1,095,754  2018  US$  1,245,307  1,245,307  13,493  1,258,800  There were no contingent assets or liabilities in African Energy Holdings SRL at 30 June 2019. There were no commitments at  30 June 2019.  3. 3.1 Financial Performance  Segment information  AASB 8 Operating Segments requires a ‘management approach’, under which segment information is presented on the same  basis as that used for internal reporting purposes. The segments are reported in a manner that is consistent with the internal  reporting provided to the chief operating decision maker.  (a) Description of Segments  The Company’s Board receives financial information across three reportable segments. These are Coal‐fired Power Projects;  Power Investments and Unallocated.   (b) Segment Information    For the year ended 30 June 2019  Coal‐fired  Power  Development  Projects  Power  Investments  All other  segments  Consolidated  US$  US$  US$  US$  Total segment revenue  Profit (loss) before income tax  ‐  (116,038)  ‐  (376,918)  46,161  (434,836)  46,161  (927,792)  Segment Assets  Investment in Sese JV  Exploration and evaluation expenditure  Cash and short term receivable  Total Segment Assets  Segment Liabilities  Trade & other payables  Total Segment Liabilities  For the year ended 30 June 2018  Total segment revenue  Profit (loss) before income tax  Segment Assets  Investment in Sese JV  Exploration and evaluation expenditure  Property, plant and equipment  Cash and short term receivable  Total Segment Assets  Segment Liabilities  Trade & other payables  Total Segment Liabilities  25 | P a g e   ‐  2,500,000  ‐  2,500,000  6,924,616  ‐  ‐  6,924,616  ‐  ‐  2,676,951  2,676,951  6,924,616  2,500,000  2,676,951  12,101,567  ‐  ‐  ‐  ‐  100,541  100,541  100,541  100,541  ‐  (3,481,879)  ‐  (471,527)  563,607  (59,772)  563,607  (4,013,178)  ‐  2,500,000  ‐  ‐  2,500,000  7,301,534  ‐  ‐  ‐  7,301,534  ‐  ‐  26  3,667,413  3,667,439  7,301,534  2,500,000  26  3,667,413  13,468,973  ‐  ‐  ‐  ‐  83,889  83,889  83,889  83,889  AfricanEnergy Annual Repor t 2019 33                                                                                                                               Notes to the Consolidated Financial Statements (continued) Notes to the Consolidated Financial Statements (continued)  African Energy Resources Limited                Financial Report 30 June 2019  3.2 Revenue  (a) Revenue recognition  Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can  be reliably measured.  (b) Net financial income  Net  financial  income  comprises  interest  payable  on  borrowings  calculated  using  the  effective  interest  method,  interest  receivable on funds invested, dividend income and foreign exchange gains and losses.   Interest  income  is  recognised  in  the  profit  or  loss  as  it  accrues,  using  the  effective  interest  method.  Management  fees  are  recognised in the profit or loss as the right to a fee accrues, in accordance with contractual rights.  2019  US$  46,161  46,161  2018  US$  60,130  60,130  2019  US$  89,097  10,224  338,177  (161,228)  ‐  276,270  71,932  68,554  (17,808)  37,529  14,028  1,402  29  11,757  187,423  2018  US$  147,596  15,008  544,463  (170,898)  515  536,684  53,634  91,347  70,344  29,925  15,740  53,789  395  27,866  343,040  2019  US$  2018  US$  ‐  ‐  ‐  ‐  ‐  ‐  ‐  ‐  Interest received  3.3 Expenses  Personnel expenses  Employee salaries  Superannuation  Directors fees  Recharge of director fees and employee salaries  Payroll tax  Professional & administration expense  Audit Tax and Accounting  Compliance & Insurance  Occupancy   Travel  Marketing  Legal fees  Depreciation and Impairment of PP&E  Other  3.4 Income Taxes  (a) Income tax expense:  Current tax  Deferred tax  Overprovision in respect to prior years  26 | P a g e   34 africanenergyresources.com                                                      African Energy Resources Limited    African Energy Resources Limited    Notes to the Consolidated Financial Statements (continued)  Notes to the Consolidated Financial Statements (continued)                    Financial Report 30 June 2018              Financial Report 30 June 2019  (b) Reconciliation of income tax expense to prima facie tax payable:  Subsidiaries are all entities over which the group has control. Control is determined with reference to whether the group is exposed  to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its  power  to  direct  the  activities  of  the  entity.  Where  the  group  loses  control  of  a  subsidiary  but  retains  significant  influence,  the  retained interest is re‐measured to fair value at the date that control is lost and the difference between fair value and the carrying  amount is recognised in profit or loss. There is judgement involved in determining whether control has been lost and determining  the fair value of the investment held.   Loss before income tax  Prima facie income tax at 27.5% (2018: 30%)  Tax effect of amounts not deductible in calculating taxable income:  (a) Movements in carrying amounts  (4,013,178)  (1,203,953)  (927,792)  (255,143)  2018  US$  2019  US$  Sundry items  Other  Balance at the beginning of the year  Share of Losses after income tax  Movement on renegotiation of Sese JV terms   Difference in overseas tax rates  Tax loss not recognised  Income tax expense/(benefit)  Carrying amount at 30 June  (c) Tax losses:  67  2018  82,091  US$  (172,985)  8,056,900  3,552  (471,527)  169,433  (283,839)  ‐  7,301,534  (b) Share of the results of its associates  2019  US$  The groups share of the results of its associates and its aggregated assets and liabilities are as follows.  Unused tax losses for which no deferred tax asset has been recognised  Potential tax benefit @ 27.5% (2018: 30%)  Difference in overseas tax rates 10%  Potential tax benefit  African Energy Holdings SRL   Ownership     Interest %  US$  5,143,514  US$  106,554  Liabilities       Assets          Company's share of:  35%  (408,073)  (112,220)  Revenues       3,552  US$  (108,668)  ‐  262  2017  137,011  US$  (1,066,680)  8,515,246  4,654  (458,346)  1,062,026  ‐  ‐  8,056,900  2018  US$  (739,055)  (221,717)  (Loss)        4,654  US$  (217,063)  (471,526)  (d) Unrecognised deferred tax assets arising on timing differences and losses  (c) Summarised financial information of associate ‐ African Energy Holdings SRL  Summarised statement of financial position  Current Assets  Timing  Losses ‐ Revenue  Cash and cash equivalents  Trade and other receivables  Total current assets  Non‐current Assets  2019  US$  2018  US$  2018  US$  2017  US$  70,666  159,648  4,498,803  92,780  4,569,469  252,428  12,753  79,649  4,390,135  92,344  4,402,888  171,993  The tax benefits of the above deferred tax assets will only be obtained if:  Exploration & evaluation  Property, plant & equipment  i. The  Consolidated  Entity  derives  future  assessable  income  of  a  nature  and  of  an  amount  sufficient  to  enable  the  benefits to be utilised;  The Consolidated Entity continues to comply with the conditions for deductibility imposed by law;  ii. iii. No changes in income tax legislation adversely affect the Consolidated Entity from utilising the benefits.  14,112,860  125,085  14,237,945  14,378,556  64,770  14,443,326  Total non‐current assets  Total assets  14,695,754  14,409,937  Current Liabilities  Trade and other payables  Income tax on the Statement of Profit or Loss and other Comprehensive Income for the periods presented comprises current  and deferred tax. Income tax is recognised in the Statement of Profit or Loss and other Comprehensive Income except to the  extent that it relates to items recognised directly in equity, in which case it is recognised in equity.  54,439  54,439  38,476  38,476  Total current liabilities  Non‐current Liabilities  Rehabilitation Provision  Total non‐current liabilities  Total liabilities  The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the  reporting  period  in  the  countries  where  the  Company’s  subsidiaries  and  associates  operate  and  generate  taxable  income.  Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation  is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax  Net assets  authorities.  14,391,315  14,371,462  250,000  250,000  304,439  ‐  ‐  ‐  Deferred tax is provided using the liability method, providing for temporary differences between the carrying amounts of assets  and liabilities for financial reporting purposes and the amounts used for taxation purposes.  Summarised statement of comprehensive income Total Operating Expense  A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which  the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit  will be realised, or to the extent that the Group has deferred tax liabilities with the same taxation authority. Additional income  taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend.  Loss from operating activities Other comprehensive income  2018  US$  (1,245,307)  (1,245,307)  (13,493)  2017  US$  (1,098,124)  (1,098,124)  ‐  Total comprehensive income (1,258,800)  (1,098,124)  26 | P a g e   27 | P a g e   AfricanEnergy Annual Repor t 2019 35                                                                                                                                                              Notes to the Consolidated Financial Statements (continued) African Energy Resources Limited                Financial Report 30 June 2019  Notes to the Consolidated Financial Statements (continued)  3.5 Earnings per share  (a) Basic loss per share  The  calculation  of  basic  loss  per  share  at  30  June  2019  was  based  on  the  losses  attributable  to  ordinary  shareholders  of  US$927,792 (2018:  US$4,013,178) and a weighted average number of ordinary shares outstanding during the financial year  ended 30 June 2019 of 622,960,630 (2018: 624,507,780) calculated as follows:  Gain (Loss) attributable to ordinary shareholders  Issued number of ordinary shares at 1 July  Effect of shares issued during the period  Weighted average number of shares for year to 30 June   2019  US$  (927,792)  2018  US$  (4,013,178)  622,960,630  ‐  622,960,630  608,996,715  15,511,065  624,507,780  Basic loss per share (cents per share)  (0.15)  (0.64)  A share buyback during June 2018 is the reason the prior year weighted average number of shares exceeds the current year  opening balance.  Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company, excluding any costs  of servicing equity other than ordinary shares, by weighted average number of ordinary shares outstanding during the financial  year, adjusted for the bonus elements in ordinary shares issued during the year.  (b) Diluted loss per share  Potential ordinary shares are not considered dilutive, thus diluted loss per share is the same as basic loss per share.  4. 4.1 Working Capital Management  Cash and Cash Equivalents  Cash and cash equivalents comprise cash balances, short term bills and call deposits. Bank overdrafts that are repayable on  demand and form an integral part of the Consolidated Entity’s cash management are included as a component of cash and cash  equivalents for the purpose of the statement of cash flows.  Cash at bank and in hand  Short‐term deposits  Refer to note 5.2 for risk exposure analysis.  4.2 Reconciliation of loss after income tax to net cash flows from operating activities  Cash flows from operating activities  (Loss) for the year  Adjustments for:  Gain on sale of Zambian Uranium Project  Gain/(Loss) on Derivative  Cost base of Goviex shares sold  Equity‐settled share‐based payment expenses  Share of Loss in Sese JV  Depreciation and amortisation expense  Impairment of Mmamantswe  Foreign exchange losses  Change in operating assets & liabilities  (Increase)/decrease in trade and other receivables  (Decrease)/increase in trade and other payables  Net cash used in operating activities  36 africanenergyresources.com 28 | P a g e   2019  US$  479,609  1,462,130  1,941,739  2018  US$  2,070,606  229,638  2,300,244  2019  US$  (927,792)  2018  US$  (4,013,178)  ‐  128,867  ‐  (226,291)  376,918  29  ‐  113,099  (14,230)  16,653  (532,747)  (503,477)  (181,987)  (1,537)  (77,701)  471,527  395  3,396,842  603  101,534  (27,530)  (834,509)                                                       African Energy Resources Limited                Financial Report 30 June 2019  Notes to the Consolidated Financial Statements (continued)  There was no non‐cash investing and financing activities during the year.  4.3 Trade and other receivables  The fair value of trade and other receivables, is estimated as the present value of future cash flows, discounted at the market  rate of interest at the reporting date.  Trade debtors  Interest receivable  GST and VAT receivable  2019  US$  2018  US$  31,546  1,743  18,193  51,482  14,770  4,759  17,723  37,252  Trade and other receivables are recorded at amounts due less any allowance for any expected credit losses.  4.4 Trade and other payables  Trade  and  other  payables  are  recognised  when  the  related  goods  or  services  are  received,  at  the  amount  of  cash  or  cash  equivalent that will be required to discharge the obligation, gross of any settlement discount offered. Trade payables are non‐ interest bearing and are settled on normal terms and conditions.  Trade creditors  Accrued expenses  Payroll liabilities  2019  US$  63,711  32,403  4,427  100,541  2018  US$  26,393  23,079  34,417  83,889  Liabilities for employee benefits for wages, salaries and annual leave that are expected to be settled within 12 months of the  reporting date represent present obligations resulting from employees’ services provided to reporting date, are calculated at  undiscounted amounts based on remuneration wage and salary rates that the Consolidated Entity expects to pay as at reporting  date including related on‐costs, such as workers compensation insurance and payroll tax.    4.5 Impairment  The Group assesses at each reporting date whether there is objective evidence financial asset or group of financial assets is  impaired in accordance with AASB 9. Refer to note 9.4(b)(i).   4.6 Financial Assets at FVOCI  Balance at 1 July 2017  Additions  Movement in Fair Value of Financial assets at FVOCI  Disposals  Carrying amount at 30 June 2018  Additions  Movement in Fair Value of Financial assets at FVOCI  Effect of movements in foreign exchange  Disposals  Carrying amount at 30 June 2019   Caravel Shares  ‐  704,013  (26,667)  ‐  677,346   Goviex Shares  ‐  461,498  17,444  (8,358)  470,584  111,135  (156,278)  (1,593)  ‐  630,610  ‐  (35,310)  ‐  (435,274)  ‐   Total   ‐  1,165,511  (9,223)  (8,358)  1,147,930  111,135  (191,598)  (1,583)  (435,274)  630,610  4.7 Derivatives  1.6M Goviex options were held at 30 June 2019 were valued at US$53,120 (2018: US$140,494) using a Black ‐Scholes option  valuation model with the following inputs.  Black‐Scholes Inputs  Strike price  Share price  Term  Volatility of 100%  Risk free rate  29 | P a g e   US$0.23  US$0.95  2 years  100%  1.5%  AfricanEnergy Annual Repor t 2019 37                                 Notes to the Consolidated Financial Statements (continued) African Energy Resources Limited    Notes to the Consolidated Financial Statements (continued)              Financial Report 30 June 2019  Price per option  Number of Options  Total Value  US$0.033  1,600,000  US$53,120  5. Funding and Risk Management  The Group's objectives when managing capital are to safeguard their ability to continue as a going concern, so that it can continue  to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the  cost  of  capital.  In  order  to  maintain  or  adjust  the  capital  structure,  the  Group  may  adjust  the  amount  of  dividends  paid  to  shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.   Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in the proportion to  the number and amount paid on the shares held. Ordinary shares are classified as equity.   Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from  the proceeds. Incremental costs directly attributable to the issue of new shares or options for the acquisition of a business are not  included in the cost of the acquisition as part of the purchase consideration.  If the entity reacquires its own equity instruments, for example as a result of a share buy‐back, those instruments are deducted  from equity and the associated shares are cancelled. No gain or loss is recognised in the profit or loss and the consideration paid  including any directly attributable incremental costs (net of income taxes) is recognised directly in equity.   5.1 Contributed equity  Movement in share capital  Balance 30 June 2017  Share Placement to First Quantum Minerals  Share Buyback  14 Aug 2017  30 Jun 2018  Balance 30 June 2018  Balance 30 June 2019  5.2 Financial risk management  Date  Number of  shares  Issue price         US$ cents  US$  608,996,716  17,692,308  (3,728,394)  622,960,630  622,960,630                          6.2                           1.7   63,109,911              1,089,179   (64,113)  64,134,977  64,134,977  The Group's activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and price risk),  credit risk and liquidity risk. The Group's overall risk management program focuses on the unpredictability of financial markets and  seeks  to  minimise  potential  adverse  effects  on  the  financial  performance  of  the  Group.  The  Group  uses  different  methods  to  measure different types of risk to which it is exposed.   Risk management is carried out by the Audit & Risk Committee under a charter approved by the Board of Directors. The Audit &  Risk Committee identifies, evaluates and hedges foreign currency risks by holding cash in the currency that it is budgeted to be  spent in.  (a) Market risk  i. Foreign currency risk  Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated in a currency  that is not the entity’s functional currency and net investments in foreign operations. Some exposure to foreign exchange risk  exists  in  respect  to  the  Australian  subsidiaries  which  provides  administrative  and  technical  support  to  the  Group  and  have  transactions denominated in Australian Dollars. The risk is measured using sensitivity analysis and cash flow forecasting.    The Group’s exposure to foreign currency risk at the end of the reporting period, expressed in US$, was:  Cash held in US Dollars (US$)  Cash held in South African Rand (ZAR)  Cash held in Botswana Pula (BWP)  Trade and other receivables (BWP)  Trade and other payables (BWP)  38 africanenergyresources.com 30 | P a g e   2019  US$  92,060  2,643  8,421  8,963  (840)  2018  US$  168,710  6,891  6,308  5,669  (2,634)                                                      African Energy Resources Limited                Financial Report 30 June 2019  Notes to the Consolidated Financial Statements (continued)  ii. Price risk  The Group does holds shares in Caravel Minerals and is exposed to equity securities price risk.  30 June 2019  Financial assets at FVOCI  iii. Interest rate risk  Price risk  +10%  ‐10%  Carrying  amount  Profit  US$  Equity  US$  Profit  US$  Equity  US$      630,610   63,061  63,061  (63,061)  (63,061)  The Group has significant interest‐bearing assets; however, a change in interest rates would not have a material impact on the  results.   Interest rate risk  Foreign exchange risk   ‐ 100 bps   + 100 bps  ‐10%  +10%  Carrying  amount  Profit  US$  Equity  US$  Profit  US$  Equity  US$  Profit  US$  Equity  US$  Profit  US$  Equity  US$  30 June 2019  Financial assets  Cash & cash equivalents  1,941,739  19,417  Financial assets at  FVOCI  Trade & other  receivables  630,610  51,482  ‐  ‐  Financial liabilities  Trade and other  payables  100,541  ‐  (19,417)  (19,417)  19,417  (194,174)  194,174  194,174  (194,174)  ‐  ‐  ‐  ‐  ‐  ‐  (63,061)  63,061  63,061  (63,061)  (5,148)  5,148  5,148  (5,148)  ‐  (10,054)  10,054  10,054  (10,054)    Interest rate volatility was chosen to reflect expected short term fluctuations in market interest rates.  Foreign exchange volatility was chosen to reflect expected short term fluctuations in the Australian Dollar.  iv. Credit risk  The carrying amount of cash and cash equivalents, trade and other receivables (excluding prepayments), represent the Group’s  maximum exposure to credit risk in relation to financial assets. Cash and short term liquid investment are placed with reputable  banks, so no significant credit risk is expected.  The Group does not have any material exposure to any single debtor or group of  debtors, so no significant credit risk is expected. The credit quality of financial assets that are neither past due nor impaired can  be assessed by reference to external credit rates:  Cash at bank & short term bank deposits  A‐1+  FNB Botswana (not rated)  Standard Bank South Africa (not rated)  (b) Liquidity risk  2019  US$  2018  US$  1,930,675  8,421  2,643  1,941,739  2,287,045  6,308  6,891  2,300,244  Prudent  liquidity  risk  management  implies  maintaining  sufficient  cash  and  marketable  securities,  the  availability  of  funding  through an adequate amount of committed credit facilities and the ability to close out market positions. The Group manages  liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets  and liabilities. Due to the dynamic nature of the underlying businesses, management aims at maintaining flexibility in funding  by keeping committed credit lines available with a variety of counterparties. Surplus funds are only invested in instruments that  are tradeable in highly liquid markets.  31 | P a g e   AfricanEnergy Annual Repor t 2019 39                                                                                                                    Notes to the Consolidated Financial Statements (continued) African Energy Resources Limited    Notes to the Consolidated Financial Statements (continued)              Financial Report 30 June 2019  The tables below analyse the Group’s financial liabilities into relevant maturity groupings. The amounts disclosed in the table  are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying amounts as the impact of  discounting is not significant.   2019  Trade Payables  2018  Trade Payables  (c) Fair value estimation  Less than 6  months  6 ‐ 12  months  100,541  100,541  83,889  83,889  Total  contractual  cash flows  100,541  100,541  83,889  83,889  ‐  ‐  ‐  ‐  The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure  purposes.   The fair value of financial instruments traded in active markets is based on quoted market prices at the reporting date. The  quoted market price used for financial assets held by the Group is the current bid price.  The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. The  Group uses a variety of methods and makes assumptions that are based on market conditions existing at each reporting date.  Quoted market prices or dealer quotes for similar instruments are used for long‐term debt instruments held. Other techniques,  such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments.   The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values  due to their short‐term nature. The fair value of financial  liabilities for disclosure purposes is estimated by discounting the  future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.  5.3 Fair value measurement  The  fair  value  of  financial  assets  and  financial  liabilities  must  be  estimated  for  recognition  and  measurement  or  for  disclosure  purposes.  The following tables detail the consolidated entity's assets and liabilities, measured or disclosed at fair value, using a three level  hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being:     Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the  measurement date  Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly  or indirectly  Level 3: Unobservable inputs for the asset or liability  30 June 2019  Financial assets at FVOCI  Derivative asset  Total assets  30 June 2018  Financial assets at FVOCI  Derivative asset  Total assets  Level 1  US$  Level 2  US$  Level 3  US$  630,610  ‐  630,610  1,147,930  ‐  1,147,930  ‐  ‐  ‐  ‐  ‐  ‐  ‐  53,120  53,120  ‐  181,987  181,987  Total  US$  630,610  53,120  683,730  1,147,930  181,987  1,329,917  There were no transfers between levels during the financial year.  Level 3 financial derivative unobservable inputs and sensitivity are as follows:  Description  Unobservable inputs  Sensitivity  40 africanenergyresources.com 32 | P a g e                                             African Energy Resources Limited                Financial Report 30 June 2019  Notes to the Consolidated Financial Statements (continued)  Financial derivative  Share price  Volatility   Decease share price decrease fair value  Increase volatility significantly increase or  decrease fair value  Accounting policy for fair value measurement  When an asset or liability, financial or non‐financial, is measured at fair value for recognition or disclosure purposes, the fair value  is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market  participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the  absence of a principal market, in the most advantageous market.  Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they  act in their economic best interests. For non‐financial assets, the fair value measurement is based on its highest and best use.  Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value,  are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.  Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects the significance  of the inputs used in making the measurements. Classifications are reviewed at each reporting date and transfers between levels  are determined based on a reassessment of the lowest level of input that is significant to the fair value measurement.  Fair value in active market (Level 1)  The  fair  value  of  financial  assets  and  liabilities  traded  in  active  markets  (such  as  publicly  traded  derivatives  and  listed  equity  securities) are based on quoted market prices at the close of trading at the end of the reporting period without any deduction for  estimated future selling costs.  A  financial  instrument  is  regarded  as  quoted  in  an  active  market  if  quoted  prices  are  readily  and  regularly  available  from  an  exchange, dealer, broker,  industry group, pricing service, or regulatory agency, and those prices represent actual and regularly  occurring market transactions on an arm’s length basis.  Fair value in an inactive or unquoted market (Level 2 and Level 3)  The fair value of financial assets that are not traded in an active market is determined using valuation techniques. These include  the use of recent share price from capital raising and option pricing models that provides a reliable estimate of prices obtained in  actual market transactions.  For option pricing models, inputs are based on available market data. Fair values for unquoted equity investments are estimated,  using the latest share price from capital raising. Some of the inputs to these models may not be market observable and are therefore  estimated based on assumptions.  6. Group Structure  6.1 Basis of consolidation  (d) Subsidiaries  Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when  the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those  returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control  is transferred to the Group. They are deconsolidated from the date that control ceases.   Investments in subsidiaries are carried at their cost of acquisition in the Company’s financial statements.  (e) Transactions eliminated on consolidation  Intragroup balances, and any unrealised gains and losses or income and expenses arising from intragroup transactions, are  eliminated in preparing the consolidated financial statements.   (f) Comparatives  Prior period comparative are for the year from 1 July 2017 to 30 June 2018.  6.2 Foreign currency  (a) Foreign currency transactions  Transactions in foreign currencies are translated to the functional currency at the foreign exchange rate ruling at the date of  the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to United  States dollars at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised  33 | P a g e   AfricanEnergy Annual Repor t 2019 41                                 Notes to the Consolidated Financial Statements (continued) African Energy Resources Limited    Notes to the Consolidated Financial Statements (continued)              Financial Report 30 June 2019  in the Statement of Profit or Loss and other Comprehensive Income. Non‐monetary assets and liabilities that are measured in  terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non‐monetary  assets and liabilities denominated in foreign currencies that are stated at fair value are translated to US$ at foreign exchange  rates ruling at the dates the fair value was determined.  (b) Financial statements of foreign operations  The assets and liabilities of Australian subsidiaries, including goodwill and fair value adjustments arising on consolidation, are  translated to US dollars at foreign exchange rates ruling at the reporting date. The revenues and expenses of foreign operations,  excluding foreign operations in hyperinflationary economies, are translated to US dollars at rates approximating to the foreign  exchange rates ruling at the dates of the transactions.  Foreign exchange differences arising on translation are recognised directly in the foreign currency translation reserve (“FCTR”),  as a separate component of equity. When a foreign operation is disposed of, in part or in full, the relevant amount in the FCTR  is transferred to profit or loss, as part of the gain or loss on sale where applicable.  (c) Net investment in foreign operations  Exchange differences arising from the translation of the net investment in foreign operations, and of related effective hedges  are taken to translation reserve and released into profit or loss upon disposal.  6.3 Parent Entity Disclosures  The parent entity within the Group is African Energy Resources Limited.    Current Assets  Non‐Current Assets  Total Assets  Current Liabilities  Total Liabilities  Contributed equity  Reserves  Accumulated losses  Total Equity  Gain (loss) for the year  Other comprehensive income / (loss) for the year  Total comprehensive income / (loss) for the year  2019  US$  1,851,913  10,149,113  12,001,026  2018  US$  2,859,054  10,526,030  13,385,084  ‐  ‐  ‐  ‐  64,134,977  4,860,950  (56,994,901)  12,001,026  (1,076,229)  ‐  (1,076,229)  64,134,977  5,168,779  (55,918,672)  13,385,084  (5,216,782)  ‐  (5,216,782)  There were no commitments, contingent liabilities or contingent assets at the parent level at 30 June 2019.   6.4 Subsidiaries  The consolidated financial statements incorporate the assets, liabilities and results of the following principal subsidiaries in  accordance with the accounting policy described in note 6.1(a).  Botswana Energy Solutions Limited    Mmamantswe Coal (Pty) Ltd  African Energy Holdings SRL 2    Phokoje Power (Pty) Ltd   AFR Australia Pty Ltd  Country of incorporation  British Virgin Is.  Botswana  Barbados  Botswana  Australia  Ownership  interest  2019  100%  100%  100%  100%  100%  Ownership  interest  2018  100%  100%  100%  100%  100%  42 africanenergyresources.com 34 | P a g e                                                 African Energy Resources Limited                Financial Report 30 June 2019  Notes to the Consolidated Financial Statements (continued)  7. 7.1 Related parties  Key Management Personnel  US$225,895 (2018: US$563,683) was paid to Directors of the Company during the year. Of this amount US$338,101 (2018:  US$542,508) was paid in cash with the balance paid in equity instruments. Disclosures relating to key management personnel  are set out in the Remuneration Report. During the prior year, there was a negative balance for equity compensation benefits  due to the reversal of share‐based payment expenses.  Short‐term employee benefits  Post‐employment benefits  Equity compensation benefits  7.2 Cash Bonus  2019  US$  331,509  6,592  (112,206)  225,895  2018  US$  509,899  32,609  21,175  563,683  The board resolved to set a bonus pool for Key Management Personnel and Employees of 5% of the total cash proceeds realised  from  the  sale  of  the  Mmamantswe  Project,  capped  at  AU$1,000,000.  The  bonus  is  payable  when  the  Consolidated  Entity  receives the cash consideration from the sale of the Mmamantswe Project.  The following Key Management Personnel are entitled to a percentage of the total bonus pool as follows:  Frazer Tabeart  Alasdair Cooke  Gregory Fry  25%  10%  10%  7.3 Other related party transactions  The terms and conditions of the transactions with Directors, key executives and associates and their related entities were no  more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non‐ Director related entities on an arm’s length basis.  Mitchell River Group Pty Ltd  Charges from  Charges to  2019  US$  52,851  2018  US$  102,458  2019  US$  2018  US$  ‐  ‐  Directors Mr Cooke, Mr Fry and Dr Tabeart are Directors and 20% shareholders of Mitchell River Group Pty Ltd which charges  the Group for provision of a serviced office and administration staff.  7.4 Assets and liabilities at 30 June arising from transactions with related parties  Trade and other receivables  Trade and other payables  8. 8.1 Share based payments  Performance Rights  2019  US$  ‐  6,205  2018  US$  ‐  6,962  The Company has granted performance rights to Directors and employees are as follows: Fair Value of performance rights is  equal to the market price on the date of issue  Issue Date  Expiry Date  Vesting  hurdle**  Unvested at  30 June 2018  Issued in  Year  Vested  in Year  Forfeited  in Year  Unvested at  30 June 2019  Fair Value  (AUD)  24‐Oct‐13  24‐Oct‐13  28‐Nov‐14  28‐Nov‐14  23‐Oct‐18  23‐Oct‐18  27‐Nov‐19  27‐Nov‐19  PPA1  PQ  FC  PPA2  833,333  833,333  4,500,000  666,667  ‐  ‐  ‐  ‐  ‐  ‐  ‐  ‐  833,333  833,333  ‐  ‐  ‐  ‐  4,500,000  666,667  ‐  ‐  ‐  ‐  35 | P a g e   AfricanEnergy Annual Repor t 2019 43                                                   Notes to the Consolidated Financial Statements (continued) African Energy Resources Limited    Notes to the Consolidated Financial Statements (continued)              Financial Report 30 June 2019  28‐Nov‐14  31‐Mar‐15  22‐Nov‐16  22‐Nov‐16  15‐Aug‐17  27‐Nov‐19  30‐Mar‐20  31‐Dec‐19  31‐Dec‐19  31‐Dec‐19  PPAZ  MMA2  PPA3   BFS2  GEO2  * *Vesting hurdle  300,000  500,000  1,166,667  100,000  300,000  9,200,000  ‐  ‐  ‐  ‐  ‐  ‐  ‐  ‐  ‐  ‐  ‐  ‐  ‐  ‐  ‐  ‐  ‐  1,666,666  300,000  500,000  1,166,667  100,000  300,000  7,533,334  ‐  ‐  ‐  ‐  4,500  4,500  PPAZ  FC  MMA2  PPA2  PPA3  BFS2  GEO2  Formal execution of a PPA  between the Sese JV company and  ZESCO for the full output of a 300MW IPP at Sese  Financial close of a 300MW power station whereby all conditions  are satisfied by all parties and all agreements are executed, or  when FQM have made a formal financial commitment to a 300MW  power station at Sese  unconditional completion of binding SSA or successful award of SA  IPP tender to Mmamantswe  Formal execution of a 300MW Sese PPA or when FQM have made  a formal financial commitment to a 300MW power station at Sese  by 27/11/2019  Formal execution of a 300MW Sese PPA or when FQM have made  a formal financial commitment to a 300MW power station at Sese  by 31/12/2019  successful completion of a bankable feasibility study on Sese Coal  Project or when FQM have made a formal financial commitment to  a 300MW power station at Sese from 1 October 2018 to 31  December 2019  100% upon sign off of Mining Reserve or when FQM have made a  formal financial commitment to a 300MW power station at Sese  8.2 Options  As at 30 June 2019 the group had the following options on issue.  Directors and Staff Options (6c strike expiring 30 Sep 2019)  8.3 Expenses arising from share‐based payment transactions  Performance rights issued under AFR Performance Rights Plan  Total reversal of share‐based payment expense  Likelihood of hurdle being met  (See note 1.6)  less likely than more likely  less likely than more likely  less likely than more likely  less likely than more likely  less likely than more likely  less likely than more likely  more likely than less likely  Number of  Options  10,875,000  10,875,000  2019  US$  (226,291)  (226,291)  2018  US$  (77,701)  (77,701)  The likelihood of various tranches of performance rights vesting changed from more than likely to less than likely during the  year resulting in a reversal of prior year expenses.  9. 9.1 Other  Events occurring after the reporting period  No matters or circumstances have arisen since the end of the financial year which have significantly affected or may significantly  affect the operations, results or state of affairs of the Group in future financial years which have not been disclosed publicly at  the date of this report.  9.2 Contingencies and Commitments  There were no contingent assets or liabilities in the Group at 30 June 2019. There were no commitments at 30 June 2019.  44 africanenergyresources.com 36 | P a g e                                    African Energy Resources Limited                Financial Report 30 June 2019  Notes to the Consolidated Financial Statements (continued)  9.3 Remuneration of Auditors  BDO Audit (WA) Pty Ltd: Audit and review of financial reports  9.4 New standards and interpretations not yet adopted  (a) Early adoption of accounting standards  2019  US$  25,800  25,800  2018  US$  30,624  30,624  The Group has not elected to apply any pronouncements before their operative date in the annual reporting year beginning 1  July 2018.  (b) New and amended standards adopted by the Group  (i)         AASB 9 Financial Instruments  AASB  9  Financial  Instruments  (“AASB  9”)  replaces  the  provisions  of  AASB  139  Financial  Instruments:  Measurement  and  Recognition  (“AASB  139”)  that  relate  to  the  recognition,  classification  and  measurement  of  financial  assets  and  liabilities,  recognition of financial instruments, impairment of financial assets and hedge accounting.   The adoption of AASB 9 resulted in minimal changes in accounting policies. The new accounting policies are set out below.  Transitional adjustments were however required, as set out below, which were recognised on 1 July 2018, in accordance with  the transitional provisions of AASB 9.  Impact of adoption  Classification and measurement of financial assets   On the date of initial application, 1 July 2018, the financial instruments of the Group were as follows, with any reclassifications  noted.  Measurement Category  Carrying Value  Financial Assets  Financial Assets at FVOCI  Derivative Asset  Trade & other receivables  Original (AASB 139)  New (AASB 9)  Available‐for‐sale  FVPL  Amortised cost  FVOCI  FVPL  Amortised cost  Original  $  603,943  89,493  40,012  New  $  603,943  89,493  40,012  Difference  $  ‐  ‐  ‐  Impact on statement of financial position (Financial Assets)  As a result of the adoption of AASB 9, assets with a fair value of $603,943 were reclassified from available‐for‐sale financial  assets, to financial assets at FVOCI in the statement of financial position.   The adoption of AASB 9 on the Group’s trade and other receivables did not have a material impact.   The  following  tables  show  the  above  noted  adjustments  recognised  for  each  individual  line  item.  Line  items  that  were  not  affected by the changes have not been included.  Consolidated statement of financial position (condensed extract)   Financial Assets  Financial assets at fair value through other comprehensive income   Available‐for‐sale financial assets   Impact on statement of financial position (Equity)  30‐Jun‐18  $  AASB 9          $  01‐Jul‐18  $  ‐  1,147,930  1,147,930  (1,147,930)  1,147,930  ‐  There was no impact on the Group’s Accumulated Losses and Reserves as at 1 July 2018.  AASB 9 ‐ Accounting policies applied from 1 July 2018  37 | P a g e   AfricanEnergy Annual Repor t 2019 45                                                           Notes to the Consolidated Financial Statements (continued) African Energy Resources Limited    Notes to the Consolidated Financial Statements (continued)  Investments and other financial assets               Financial Report 30 June 2019  Classification   From 1 July 2018, the Group classifies its financial assets in the following measurement categories:   ‐ those to be measured subsequently at fair value (either through OCI, or through profit or loss), and   ‐ those to be measured at amortised cost.   The classification depends on the entity's business model for managing the financial assets and the contractual terms of the  cash flows.   For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. For investments in equity  instruments that are not held for trading, this will depend on whether the group has made an irrevocable election at the time  of initial recognition to account for the equity investment at fair value through other comprehensive income (FVOCI). The group  reclassifies debt investments when and only when its business model for managing those assets changes.   Measurement   At initial recognition, the group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value  through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction  costs of financial assets carried at FVPL are expensed in profit or loss.  Equity instruments  The group subsequently measures all equity investments at fair value. Where the group's management has elected to present  fair value gains and losses on equity investments in OCI, there is no subsequent reclassification of fair value gains and losses to  profit or loss following the derecognition of the investment. Dividends from such investments continue to be recognised in  profit or loss as other income when the group's right to receive payments is established. Changes in the fair value of financial  assets at FVPL are recognised in other gains/(losses) in the statement of profit or loss as applicable. Impairment losses (and  reversal of impairment losses) on equity investments measured at FVOCI are not reported separately from other changes in  fair value.  Impairment   From 1 July 2018, the group assesses on a forward‐looking basis the expected credit losses associated with its debt instruments  carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant  increase in credit risk.   For trade receivables, the group applies the simplified approach permitted by AASB 9, which requires expected lifetime losses  to be recognised from initial recognition of the receivables.  (ii)        AASB 15 Revenue from Contracts with Customers  This standard is applicable to annual reporting periods beginning on or after 1 January 2017. The standard provides a single  standard for revenue recognition. The core principle of the standard is that an entity will recognise revenue to depict the  transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects  to be entitled in exchange for those goods or services.   The standard will require: contracts (either written, verbal or implied) to be identified, together with the separate  performance obligations within the contract; determine the transaction price, adjusted for the time value of money excluding  credit risk; allocation of the transaction price to the separate performance obligations on a basis of relative stand‐alone  selling price of each distinct good or service, or estimation approach if no distinct observable prices exist; and recognition of  revenue when each performance obligation is satisfied.   Credit risk will be presented separately as an expense rather than adjusted to revenue. For goods, the performance  obligation would be satisfied when the customer obtains control of the goods. For services, the performance obligation is  satisfied when the service has been provided, typically for promises to transfer services to customers. For performance  obligations satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue  should be recognised as the performance obligation is satisfied. Contracts with customers will be presented in an entity's  statement of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship between  46 africanenergyresources.com 38 | P a g e                                         African Energy Resources Limited                Financial Report 30 June 2019  Notes to the Consolidated Financial Statements (continued)  the entity's performance and the customer's payment. Sufficient quantitative and qualitative disclosure is required to enable  users to understand the contracts with customers; the significant judgments made in applying the guidance to those  contracts; and any assets recognised from the costs to obtain or fulfil a contract with a customer.   The Group has adopted this standard from 1 July 2018 and the impact is not material to the group.  The adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial  performance or position of the Group.  (c) New accounting standards and interpretations not yet adopted  Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory,  have not been early adopted by the Group for the annual reporting period ended 30 June 2019. The Group’s assessment of  the impact of these new or amended Accounting Standards and Interpretations, most relevant to the Group, are set out  below.  AASB 16: Leases (applicable to annual reporting periods beginning on or after 1 January 2019)  When effective, this Standard will replace the current accounting requirements applicable to leases in AASB 117: Leases and  related Interpretations. AASB 16 introduces a single lessee accounting model that eliminates the requirement for leases to be  classified as operating or finance leases.  The main changes introduced by the new Standard include:      Recognition of a right‐to‐use asset and liability for all leases (excluding short‐term leases with less than 12 months  of tenure and leases relating to low‐value assets);  Depreciation of right‐to‐use assets in line with AASB 116: Property, Plant and Equipment in profit or loss and  unwinding of the liability in principal and interest components;  Variable lease payments that depend on an index or a rate are included in the initial measurement of the lease  liability using the index or rate at the commencement date;  By applying a practical expedient, a lessee is permitted to elect not to separate non‐lease components and instead  account for all components as a lease; and  (d) Additional disclosure requirements.  AASB 16 is effective for annual reporting periods beginning on or after 1 January 2019 with early adoption permitted.    The impact on the Group’s financial assets and financial liabilities of the adoption of AASB 16 is expected to be immaterial to  the Group.  39 | P a g e   AfricanEnergy Annual Repor t 2019 47                   Additional Shareholder Information The following additional information required by the ASX Listing Rules is current as at 7 October 2019. African Energy Resources Limited shares are listed on the Australian Securities Exchange (ASX:AFR). Distribution of Shareholders Range 100,001 and Over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total Unmarketable Parcels Largest 20 shareholders Rank Name Securities % 593,892,130 94.46 28,373,742 2,638,261 1,672,470 112,421 4.78 0.46 0.28 0.02 No. of holders 392 782 338 552 447 % 15.61 31.14 13.46 21.98 17.80 626,689,024 100.00 2,511 100.00 13,761,938 1.69 1,815 72.28 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Sentient Group First Quantum Minerals Alasdair Cooke (and associated entities) Stacey Radford PS Consulting Pty Ltd STL Super Pty Ltd CS Third Nominees Pty Ltd J A Advisory Services Pty Ltd Mr Miroslaw Jan Marzec & Mrs Barbara Anne Wiszniewski Donal Windrim Bill Fry (and associated entities) General Advisory Pty Ltd Helmet Nominees Pty Ltd Frazer Tabeart (and associated entities) Raejan Pty Ltd Mr Brian Henry Mccubbing & Mrs Adriana Maria Mccubbing Mr Robert Cooke & Mrs Elizabeth Cooke ZW 2 Pty Ltd Jolib Pty Ltd Ian Hume (and associated entities) Total Top 20 Number Of Shares Held 141,404,786 86,692,308 50,003,683 19,237,334 17,000,000 10,338,585 7,502,500 7,000,000 6,300,000 6,871,914 5,869,610 5,645,926 5,000,000 4,774,100 4,700,000 4,563,000 4,500,000 4,500,000 4,435,625 4,157,606 400,496,977 %IC 22.56% 13.83% 7.98% 3.07% 2.71% 1.65% 1.20% 1.12% 1.01% 1.10% 0.94% 0.90% 0.80% 0.76% 0.75% 0.73% 0.72% 0.72% 0.71% 0.66% 63.91% There were 2,511 holders of 626,689,024 ordinary fully paid shares of the Company. The voting rights attaching to the ordinary shares are in accordance with the Company’s Memorandum & Articles of Association being that: Class of shares and voting rights a. each shareholder entitled to vote may vote in person or by proxy, attorney or Representative; b. on a show of hands, every person present who is a shareholder or a proxy, attorney or representative of a shareholder has one vote; and c. on a poll, every person present who is a shareholder or a proxy, attorney or Representative of a shareholder shall, in respect of each fully paid Share held by him, or in respect of which he is appointed a proxy, attorney or Representative, have one vote for the Share, but in respect of partly paid Shares, shall, have such number of votes as bears the proportion which the paid amount (not credited) is of the total amounts paid and payable (excluding amounts credited).” 48 africanenergyresources.com Substantial Holders As notified to the Company Name Sentient Executive GP IV Limited First Quantum Minerals (Australia) Pty Limited Mr Alasdair Campbell Cooke (and associated entities) Unquoted Equity Securities Number Of Shares Held 141,404,786 86,692,308 50,003,683 %IC 22.56% 13.83% 7.98% Exercise Price Expiry Date Number of Holders Names of Holders Holding More Than 20% Number Held nil various 12 nil Number of securities on issue Performance Rights 7,533,334 Other information The company has not utilised a share buyback in the past 12 months AfricanEnergy Annual Repor t 2019 49 A f r i c a n E n e r g y A n n u a l R e p o r t 2 0 1 7 PERTH OFFICE Suite 1, 245 Churchill Avenue, Subiaco WA 6008 | PO Box 162, Subiaco WA 6904 Tel: +61 8 6465 5500 | Fax: +61 8 6465 5599 | Email: info@africanenergyresources.com africanenergyresources.com African Energy Resources Limited ARBN 123 316 781 

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