Alien Metals Ltd Annual Report For the year ended 31 December 2019 O v e r v i e w G o v e r n a n c e F i n a n c i a l s O t h e r Contents Chair’s & Chief Executive statement ................................................................... 3 Business overview .......................................................................................... 4 Strategy and business model ................................................................... 4 Financial highlights .............................................................................. 4 Overview of operations .......................................................................... 4 Copper project ................................................................................... 4 Silver projects .................................................................................... 4 Future outlook .................................................................................... 5 Governance ................................................................................................. 6 Chair’s Corporate governance statement ..................................................... 6 Board leadership ................................................................................. 7 Nomination & Remuneration Committee Report ........................................... 11 Audit Committee Report ....................................................................... 15 Risk Management ................................................................................ 15 Financial statements ..................................................................................... 22 Directors’ responsibilities statement ......................................................... 22 Independent auditor’s report .................................................................. 23 Consolidated statement of comprehensive income ........................................ 28 Consolidated statement of financial position ............................................... 29 Consolidated statement of cash flows ....................................................... 30 Consolidated statement of changes in equity ............................................... 31 Notes to the financial statements ............................................................ 32 Other information ........................................................................................ 52 Forward looking statements Certain information in this annual report may constitute a forward-looking statement. Forward-looking statements are frequently characterised by words such as “plan”, “expect”, “forecast”, “project”, “intend”, “believe”, “anticipate”, “expect”, “budget”, “scheduled”, “outlook” and other similar words or statements that certain events or conditions “may” or “will” occur. Forward-looking statements are not guarantees of future performance. Rather, they are based on current opinions and estimates of management and involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ from any future results or developments expressed or implied from each forward-looking statement. Each forward-looking statement is expressed only as at the date on which it is made and the Company undertakes no obligation to update forward-looking statements if circumstances or management’s estimates or opinions should change, other than as required by securities laws. The reader is cautioned not to place undue reliance on forward-looking statements. 2 Chair & Chief Executive’s statement 2019 marked a year of growth as the Company, headed by a high-quality geological team, focused on its strategy to advance its assets up the value curve; with new prospects in Western Australia added to our diversified portfolio, they lay the groundwork for 2020. The Company’s Technical Director, Bill Brodie Good, with over 25 years of experience in mineral exploration, embarked on an acquisition-led strategy. We focused on strengthening our portfolio of diversified assets to encompass silver and precious metals projects in Mexico and newly acquired silver and iron ore projects in Western Australia. Reducing overheads is a practice from previous years that has stayed with us. In 2019, we continued to bring value by acquiring or entering into joint ventures for projects within an established mining community that has a stable political background and assures a strong operation control. During 2019, we are delighted to have acquired the Brockman and Hancock Ranges high grade iron ore projects with the potential of Direct Shipping Ore (DSO). High-grade iron ore (or 60%+ Fe) is highly sought after by steel mills as it reduces energy cost, increases efficiency and overall, reduces costs of production. We are pleased to have additionally broadened our silver portfolio by acquiring the historic Elizabeth Hill silver mine with significant unmined resources based on a 1999 resource estimation report. Both these acquisitions are in the region of Pilbara, Western Australia. We are committed to delivering on the strategy of advancing our projects through the exploration phases with our high quality geological team’s expertise while seeking to identify a suitable partner for an earned-in agreement or a joint ventured at a price which will not overly dilute existing Shareholders. We intend, in joining with a partner, to ensure the costs and capital commitments are minimised. We believe that in order to successfully grow this vision, we need to focus on channelling the funds invested in it towards exploration activity and business development, and this is at the heart of everything we do. The Company’s work to identify suitable partners for a joint venture or earned-in agreement include our Mexican silver projects and gold and copper project. Alien works based on a strict selection criteria centred on assessing risk, appropriate scale and likely upside. We look forward to sharing further results from our exploration work at our various sites following the completion of our Placing earlier in 2020 to fund work programmes and support business activities. Dan Smith Chairman Bill Brodie Good Technical Director w e i v r e v O e c n a n r e v o G s l a i c n a n i F r e h t O 3 O v e r v i e w G o v e r n a n c e F i n a n c i a l s O t h e r Business overview Strategy and business model Alien Metals’ objective is to create a multi-commodity portfolio of exploration and mining projects in jurisdictions with established mining communities, stable political backgrounds, and where strong operational controls can be assured. The group has operated in Mexico for over ten years during which time it has established long-term relationships with local government, communities, and key stakeholders. Alien Metals’ geological experts assess and identify projects for potential mineralisation. Wherever possible, the projects are acquired on a low-cost option basis whilst preliminary exploration is undertaken to assess the merits of further work. The Company routinely evaluates mining projects in jurisdictions other than Mexico. During 2019, this included Namibia, West Africa and Australia. close proximity to other wholly owned projects within Alien’s portfolio along the Mexican precious and base metals belt. The Teck Resources San Nicolás copper zinc deposit and Minera Frisco El Coronel gold mine are both located within 25km. Alien Metals' preliminary exploration programme on this project, has identified several areas that exhibit pathfinder indicators of volcanogenic massive sulphide (VMS)-style mineralisation, and ground magnetic geophysics and induced polarisation have confirmed indications of sub-surface VMS-style mineralisation. Silver projects Elizabeth Hill project (Option to acquire 100%) The Elizabeth Hill project is situated approximately 45 km south of Karratha in the 61,000 km2 Achaean Pilbara Block of the Pilbara Craton. The Project is well located, lying 40 km from the deep-water port at Dampier and 8 km from rail infrastructure. studies evidence sufficient Where preliminary mineralisation, increasingly comprehensive studies will be undertaken with a view to delineating a compliant mineral resource estimate in readiness of potential sale of the asset to a producing mining company, at which time a significant premium over its acquisition and development cost may be justified. The Elizabeth Hill Silver Project was mined between 1998 and 2000 via underground mining, primarily between the 62 m and 102 m levels. Silver production totalled approximately 16,800 tonnes of ore grading 2,195 g/t Ag (70.24 oz/t Ag) generating 1,170,000 ounces Ag, including some very large specimens of native silver. Financial highlights All dollar amounts in this annual report and financial statements are US dollars, unless stated otherwise. As at 31 December 2019, the Group had total assets of $0.7 million (2018: $0.7 million) of which $0.2 million (2018: $0.3 million) was cash. The Group had total liabilities of $0.1 million (2018: $0.1 million) of which $0.1 million were current liabilities (2018: $0.1 million). In the year ended 2019 the Group made an operating loss of $1.0 million (2018: $1.5 million) and a loss per share of 0.1 cents (2018: 0.3 cents). Los Campos project The Los Campos project comprises four concessions covering an area of approximately 500 hectares and is located on the south side of the city of Zacatecas and only 3 km from the Endeavour Silver El Compas silver mine. The property contains at least two known veins: the Los Campos vein and the San Rafael vein, which were both partially mined historically. The Los Campos vein system has been developed along a strike distance of 3.3km and to depths exceeding 100m. Geological mapping and sampling discovered additional veins running either parallel or nearly parallel to the Los Campos vein. Overview of operations During 2019, the Group completed its initial high level review and some exploration work over its portfolio of mining concessions in Mexico covering an area of over approximately 1,500 hectares, to advance the projects in knowledge and potential. San Celso project The 88 hectare San Celso project is located in the historic mining district of Pánfilo Natera-Ojocaliente. It contains two highly mineralised veins: the San Celso and Las Cristinitas veins which were also partially mined historically. Work carried out during 2019 confirmed the high grade of these veins. As at 31 December 2019, the Company held 12 fully owned mining concessions, and options to acquire an interest in 3 additional projects. Copper project Donovan 2 project The Company’s 750 hectare Donovan 2 flagship project is located to the southeast of Zacatecas city and in Iron Ore projects Hancock Ranges Project – 51% The Hancock Ranges Iron Ore Project. E47/3954, is within 20kms of the Newman township and borders licences held by Fortescue Metals Group, Hancock Prospecting, BHP Billiton (Mount Whaleback), Hope Downs and Brockman Mining. 4 The License has been subject to historical exploration by Rio Tinto plc, BHP Group plc, and more recently Volta Mining Limited, where drilling intercepted mineralisation within the Brockman Iron Formation including 126m @ 60.28% Fe from surface (Hole 14SERC004). Brockman Iron Project – 51% This tenement hosts part of the historic BHP Deposit 20 iron ore target and the historic BHP Deposit 19 Fe target sits on the south-eastern boundary. This tenement is dominated by the Brockman Iron Formation which underlies the majority of the tenement area. Recent alluvial cover is prevalent and covers the indicated Brockman Iron Formation. BHP, as part of their much larger regional programme, identified these two ‘deposits’ from a combination of mapping and surface rock chip sampling. This sampling was undertaken by BHP at both the 19 and 20 prospects and the samples were analysed for a standard suit of iron ore related elements. The average iron content of four rock-chip samples from prospect 19 was 62% Fe and the average for five samples from prospect 20 was 63.3% Fe. Future outlook The Company has benefited from fresh leadership, a new perspective, and the financial support of experienced mining professionals the injection of additional cash resources in 2019 & early 2020. through The directors have acted to reduce the Company’s expenditures, especially in light of the COVID-19 pandemic, and to identify and acquire small but scalable projects stable governments, and in commodities considered to have strong futures, both in the short-to-medium, and long term. jurisdictions with in w e i v r e v O e c n a n r e v o G s l a i c n a n i F r e h t O 5 Governance Chair’s corporate governance statement Maintaining the highest standards of corporate governance in the context of the stage, size and complexity of any company, together with robust systems of internal control are fundamental building blocks for any business. Following the change to the AIM Rules in March 2019, the Board resolved to adopt the QCA Corporate Governance Code. In July 2019, the Financial Reporting Council published an update to the UK Corporate Governance Code for accounting periods beginning on or after 1 January 2019 (the “Code”), and the Board resolved to adopt this code with immediate effect. The UK Corporate Governance Code is widely recognised as setting the highest standard for corporate governance and is written to accommodate very large companies as well as much smaller ones. The directors have therefore satisfied themselves that appropriate governance structures, policies and procedures are in place, and have made training available to all directors. All directors have access to the services of the Company Secretary, who is responsible for advising the board on all governance matters. Both the appointment and removal of the Company Secretary are matters for the whole board. The provisions of the Code that the Company does not apply are summarised below, and described in further detail within this annual report: Employee engagement Due to the Company having no employees, the Board has not appointed a director from the workforce, created a formal workforce advisory panel, or designated a non-executive director to engage with the workforce. This is contrary to Code provision 5 and is explained in the section headed “Culture and employees” on page 9. Senior independent director The Board has not appointed a senior independent director. This is contrary to Code provision 12 and is explained in the section headed “Senior Independent Director” on page 8. Annual evaluation of the performance of the board The Board does not carry out a formal annual evaluation of the performance of the board, its committees, the Chair and individual directors. This is contrary to Code provision 21 and is explained in the section headed “Board assessments” on page 14. Performance related pay Non-executive directors participate in the Company’s share option plan. This is contrary to Code provision 34 and is explained in the section headed “Share Option Plan and Option-Based Awards” on page 12. O v e r v i e w G o v e r n a n c e F i n a n c i a l s O t h e r 6 Board leadership The Board of Directors is responsible for overseeing the long term success and strategic direction of the Company in accordance with the schedule of matters reserved for board decision and it responsible for monitoring the activities of the executive management. Non-executive Chair Daniel Smith (appointed 26 February 2019) Skills and experience Dan Smith has over 12 years’ capital markets experience working in various roles including as an Executive and Non-Executive Director and Company Secretary of companies with shares quoted on AIM, ASX and NSX. He is the founder of Minerva Corporate Pty Ltd, a boutique corporate services firm focused on providing corporate advisory, company secretarial, and accounting services to listed and unlisted entities, as well as compliance manager services for IPOs and RTOs across sectors including natural resources. Dan is currently a Non-Executive Director and Company Secretary of AIM traded Europa Metals Ltd, a European focused zinc-lead exploration company, and is director and company secretary for a range of companies listed on the ASX. Roles on Board committees Member: Member: Audit Committee Nomination & Remuneration Committee Technical Director Bill Brodie Good (appointed 4 July 2019) Skills and experience Douglas William (“Bill”) Brodie Good, BSc and BA (Hons) has worked in minerals exploration in over 40 countries, across Africa, the Middle East, Central Asia and SE Asia, since his geological studies and early years in the mining industry in Australia. Bill has over 25 years’ in mineral exploration, working for start-ups, juniors, mid- tier and major (Rio Tinto Mining and other Rio Tinto group companies in a variety of roles) resource companies, as well as 5 years as a principal with SRK Exploration Services Ltd, a leading global mining consultancy group. Roles on Board committees None Non-executive director Christopher Gordon Skills and experience Chris Gordon has a Bachelor of Economics degree awarded by the University of London and over 10 years’ experience in the financial services sector in London, working in dealing and trading roles with a focus on raising capital for listed companies. Chris Gordon previously acted as a non-executive director for Gunsynd plc which is listed on AIM. Roles on Board committees Member: Member: Audit Committee Nomination & Remuneration Committee Non-executive director James Cable Skills and experience James Cable has been a chartered accountant for over 40 years and has extensive experience at board level in various companies. He has significant international and commercial experience gained in the Middle East, Africa, Far East and Europe in several business sectors including natural resources and construction. He is a former Finance Director of Kopane Diamond Developments Plc and Mantle Diamonds Ltd and he advises natural resources companies on corporate strategy and project finance and is a director of GemRock Company Ltd. Roles on Board committees Chair: Chair: Audit Committee Nomination & Remuneration Committee w e i v r e v O e c n a n r e v o G s l a i c n a n i F r e h t O 7 O v e r v i e w G o v e r n a n c e F i n a n c i a l s O t h e r Company Secretary Phil Dexter & Jane Kirton (appointed 10 January 2020) Skills and experience Phil has in excess of 40 years experience in the company secretarial environment and has worked in the natural resources sector since 1977. During that time he has worked with most of the leading South African mining companies and assisted on numerous corporate transactions involving acquisitions, reorganisations and restructurings, rights offers and fund raisings. Jane has over 20 years experience in the company secretarial environment and qualified as a Chartered Secretary in 2007. Roles on Board committees Secretary: Secretary: Audit Committee Nomination & Remuneration Committee Directors who served during the year ended 31 December 2019 are listed on page 52. Following the resignation of Dennis Edmonds in April 2019, Daniel Smith was appointed as Non-Executive Chair. On 4 July 2019, Bill Brodie Good was appointed to the board as a Technical Director, working in a part-time executive capacity. Peter Taylor, CEO, resigned on 4 July 2019. The following documents are available on the Company’s website, www.alienmetals.uk: schedule setting out the division of responsibilities between the Chair and CEO; Terms of reference of the Nomination & Remuneration Committee Terms of reference of the Audit Committee Independent directors At least half the Board, including the Chair, comprises independent non-executive directors who provide a balance of skills and experience, and who are responsible for providing constructive challenge to and assistance in, developing proposals on strategy. All the non-executive directors participate in the Company’s share option plan; the extent of their participation is not considered to impact their independence. Each of Daniel Smith, James Cable and Chris Gordon is deemed independent. Senior Independent Director The role of a Senior Independent Director is to provide a sounding board for the Chair and serve as an intermediary for the other directors and shareholders. In addition, a senior independent director would be expected to meet the other non-executive directors without the Chair present, to appraise his performance. The Company Secretary, as well as each of the non-executive directors, is available as a sounding board to the Chair and to serve as an intermediary for shareholders. The Company Secretary is also available to serve as an intermediary for any of the directors when required. The nomination of any one particular director to act as a Senior Independent Director is not considered by the Board, at the present time, to improve its effective operation, although the matter is kept under review. The process through which board assessments are undertaken is more fully described in the section headed “Board assessments”, on page 144. Operation of the board All directors are required to allocate sufficient time to the Company to discharge their responsibilities effectively. In any decision-making, the directors are required to exercise their judgement in determining the likely impact of each decision as to the likelihood of promoting the success of the company for the benefit of its members as a whole. In doing so, the directors consider whether the decision is likely to promote the success of the company for the benefit of its members as a whole, having regard for (amongst other matters): (a) the likely consequences of any decision in the long term, (b) the interests of the company's employees, (c) the need to foster the company's business relationships with suppliers, customers and others, (d) the impact of the company's operations on the community and the environment, (e) the desirability of the company maintaining a reputation for high standards of business conduct, and (f) the need to act fairly as between members of the company. The Chair is ultimately responsible for ensuring that each board decision is taken having sufficient information on and with all due discussion of, each of the aforementioned items as is relevant to such decision. 8 The Company has a schedule of matters reserved for its own decision, an executive committee comprising exclusively executive directors or officers, and two committees comprised entirely of non-executive directors: the Audit Committee and the Nomination & Remuneration Committee. From May 2019, the Executive Committee had only one member and is therefore not expected to meet until such time as additional members are appointed. Each committee has formally delegated responsibilities by way of terms of reference. The performance of the Board, committees and individual directors are evaluated on a regular basis. Board meeting attendance The small size of the Board and frequent contact between the directors enables decisions to be taken quickly and effectively using written resolution procedures rather than physical board meetings. The number of occasions on which the written resolution procedure was exercised is also set out in the table below. No. meetings No. written resolutions Dan Smith James Cable Chris Gordon Bill Brodie Good Dennis Edmonds Peter Taylor Board 5 13 5 of 5 5 of 5 5 of 5 1 of 1 1 of 1 2 of 2 Audit Committee 2 3 n/a 2 of 2 2 of 2 n/a n/a n/a Nomination & Remuneration Committee 3 0 n/a 3 of 3 3 of 3 n/a n/a n/a Value generation and preservation The Company’s business model and opportunities immediately available are more fully described in the “Business overview” section of this annual report. Over the long-term, the Company seeks to create value by acquiring mining rights, demonstrating the presence of mineralisation and thereby significantly increasing the value of those mining rights. As the Company does not expect to generate operating revenues in the immediate future, it is dependent upon the financial support of new or existing investors and it is believed that companies that are well-governed enjoy a lower cost of capital which, all things being equal, should translate to greater business success. The risks to the business are set out in the Risk Management section commencing on page 15. Culture and employees At the Company’s present stage of development, it has nil employees and its culture therefore exists principally in the boardroom and amongst any contractors. In the UK, all contractors report directly to the Technical Director. Overseas, all contractors report directly to the country manager. The country manager reports to the Executive Director. It is considered that the board is well positioned to ensure that policy, practices and behaviour throughout the business is aligned with the Company’s purpose, values and strategy. In the event that the Board had any concerns, it would require the Technical Director or country manager to take remedial action. The Board recognise the importance of the remuneration structure supporting its strategy and reinforcing the culture of the organisation. This is further described in the Nomination and remuneration committee report on page 11. Relations with shareholders The Chair welcomes major shareholders to discuss the Company’s strategy and governance, including, as explained in the Nomination & Remuneration Committee Report, on the appointment of key board appointments. The Chair reports to the Board as a whole, on the views of major shareholders. All investors are encouraged and welcomed at the Company’s annual general meeting, at which there is opportunity to pose questions to the directors. w e i v r e v O e c n a n r e v o G s l a i c n a n i F r e h t O 9 O v e r v i e w G o v e r n a n c e F i n a n c i a l s O t h e r Annual general meeting At the Company’s annual general meeting held during 2019, all resolutions were passed and proxy voting figures were published immediately following the AGM held on 20 September 2019. The number of investors who voted against the resolutions represented less than 10% of the number who voted. It being clear that the majority of investors were in favour, the Company proceeded with the change of name but the Chair extended an invitation to investors who wished to discuss the matter, to do so. The invitation was not taken up by investors and no further action has therefore been taken. Major shareholders As at 18 June 2020 being the latest practicable date, the Company had been notified of the following companies or individuals interested 3% or more of the Company’s shares: Shareholder Windfield Metals Pty Gravner Ltd No. shares 220,000,000 202,247,000 % 9.30 8.55 Conflicts of interest All Directors have duties under the BVI Business Companies Act to act with care, diligence and skill, in the best interests of the Company. Certain directors and officers of the Company may also serve as directors and/or officers of, or have investments in other companies involved in mineral exploration and development and consequently there is the potential for conflicts of interest. Conflicts of interest can arise amongst shareholders, especially where one shareholder, or a small group of shareholders, has a significant stake in the Company. The directors must not to allow this to compromise or override their independent judgement, especially in the context of acting fairly as between members of the Company. In the event a conflict of interest should arise, each individual so conflicted is required to disclose the conflict in accordance with the Company’s Articles of Association in order that it can be considered and approved if appropriate. No director may vote on any matter in which he or she may be deemed to be interested. On an ongoing basis, each director is responsible for informing the Company Secretary of any new actual or potential conflicts that may arise or if there are any changes in circumstances that may affect an authorisation previously given. Even when provided with authorisation, a director is not absolved from his or her statutory duties. Board Committees The Board of Directors has two standing committees: Audit Committee Nomination & Remuneration Committee The Company Secretary is Secretary to each Committee and attends all meetings. The Board considers that each of the Committees has an appropriate balance of skills, experience, independence and knowledge of the Company to enable them to discharge their respective duties and responsibilities effectively. The Corporate Governance Committee and a Health & Safety Committee were dissolved in July 2018 as the size of the Board and the extent of operations did not warrant their continuance. Audit Committee The Audit Committee meets at appropriate times in the reporting and audit cycle, and otherwise as required. It is responsible for nominating the external auditor recommending to the Board the auditor’s compensation, overseeing the work of the auditor, and approving any proposals for non-audit services. The Audit Committee is also responsible for reviewing public announcements relating to the Company’s profit or loss or cash flow, satisfying itself of the adequacy of procedures for the release of financial information, and ensuring the maintenance of appropriate and proportionate procedures for addressing matters relating to accounting, internal financial controls and auditing matters. It is the Board of Directors’ conclusion that each of the members of the Audit Committee has an understanding of the accounting principles used by the Company to prepare its financial statements, the ability to assess the general application of such accounting principles in connection with the accounting for estimates, accruals and reserves, and experience in evaluating financial statements that present a breadth and level of complexity of 10 accounting issues generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the Company's financial statements. The Audit Committee is currently composed of three members, being Daniel Smith, James Cable and Chris Gordon, each of whom is an independent non-executive director and each of whom is deemed financially literate. Mr Cable serves as Chair of the Audit Committee. Nomination & Remuneration Committee The Nomination & Remuneration Committee meets at least once each year, and otherwise as required. It is responsible for identifying and nominating for the approval of the Board, candidates to fill Board vacancies as and when they arise, having due regard for the structure, size and composition of the Board together with the skills, knowledge, experience and diversity of both the Board and the individual. Additionally, the Nomination & Remuneration Committee is responsible for reviewing the results of any board effectiveness review that relates to the composition of the board. The scale and structure of the remuneration and compensation packages for the directors is set taking into account time commitment, comparatives, and risks and responsibilities, to ensure that the amount of compensation adequately reflects the individual’s previous performance, achievements, experience, responsibilities and the risks of the office or position held, and in the context of the Company’s risk profile, to ensure they do not encourage excessive risk taking. The Nomination & Remuneration Committee is currently composed of three members, being Daniel Smith, James Cable and Chris Gordon, each of whom is an independent non-executive director. James Cable serves as Chair of the Nomination & Remuneration Committee. Nomination and remuneration committee report Overview The Nomination & Remuneration Committee (“N&R Committee”) makes recommendations to the Board as to the appropriate structure, size and composition (including the skills, knowledge, experience and diversity) of the Board and is responsible for identifying and nominating suitable candidates to fill Board vacancies. The N&R Committee is also responsible for recommending the remuneration policy to the Board, determining the remuneration of the directors and senior executives, ensuring that remuneration is reported correctly, and reviewing the results of any assessment of the effectiveness of the Board. The N&R Committee meets as required each year to review the performance of the executive directors and to determine their respective compensation. The N&R Committee is governed by terms of reference, which are available on the Company’s website at www.alienmetals.uk. The N&R Committee’s terms of reference require it to review its own terms of reference once a year; they were last amended on 28 September 2019. During the year, Daniel Smith joined the Board as an independent non-executive director (then non-executive Chairman) and Bill Brodie Good joined as a Technical Director. Dennis Edmonds and Peter Taylor resigned as Executive Chair and CEO, respectively, in May and July 2019. The directors received a significant award of share options to ensure there was a strong link between their contribution to the Company and their reward. The Board is not aware that the workforce has any particular desire to engage in the discussion of remuneration policy and how executive remuneration aligns with wider company pay policy. The Board will make appropriate provision should it appear that this is not the case or the situation changes. The members of the Nomination & Remuneration Committee have the necessary experience of executive compensation matters relevant to their responsibilities as members of such a committee by virtue of their respective professions, contacts within the minerals industry as well as experience in the broader business community. In addition, each member of the Nomination & Remuneration Committee keeps abreast on a regular basis of trends and developments affecting executive compensation. Accordingly, it is considered that the Nomination & Remuneration Committee has sufficient experience and knowledge to set appropriate levels of compensation. Neither the Company nor the Nomination & Remuneration Committee engaged independent consultants to evaluate the levels of compensation during the year ended 31 December 2019. The recommendations of the Nomination & Remuneration Committee are submitted to the independent members of the Board of Directors for consideration and approval. 11 w e i v r e v O e c n a n r e v o G s l a i c n a n i F r e h t O O v e r v i e w G o v e r n a n c e F i n a n c i a l s O t h e r Remuneration policy The Company’s remuneration policy is intended to support the Company’s long-term strategy and sustainable success in a manner consistent with the Company’s purpose and values, attracting and retaining the highest quality of directors and senior executives. The pay policy is to: align the interests of the Board and senior executives with shareholders’ align the interests of the workforce (including the Board and senior executives) with the Company’s purpose and values, avoid incentivising excessive risk taking by the Board and senior executives, be proportionate to the contribution of the individuals concerned, and to be sensitive to pay and employment conditions elsewhere in the group. The remuneration policy does not require post-employment shareholding requirements. Share options ordinarily lapse upon the resignation of the option holder. The scale and structure of the remuneration and compensation packages of directors is set taking into account time commitment, comparatives, risks and responsibilities, to ensure that the amount of compensation adequately reflects the individual’s previous performance, achievements, experience, responsibilities and risks of the office or position held, and in the context of the Company’s risk profile, to ensure they do not encourage excessive risk taking on the part of the recipient of such compensation. As the Company is at an early stage of development, the use of traditional performance standards, such as corporate profitability, is not considered by the Nomination & Remuneration Committee to be appropriate in the evaluation of corporate or directors’ performance. Discretionary bonuses may be paid to aid staff retention and reward performance. The Board considers that the remuneration policy has operated as intended in terms of company performance and quantum. The Company provides executive directors with base salaries which represent their minimum compensation for services rendered during the financial year. The base salaries of directors and senior executives depend on the scope of their experience, responsibilities, and performance. A description of the material terms of each director’s contract is provided under “Terms of Directors’ Employment, Termination and Change of Control Benefits” below. The N&R Committee has considered the risk implications of the Company’s compensation policies and practices and has concluded that there is no appreciable risk associated with such policies and practices since such policies and practices do not have the potential of encouraging an executive officer or other applicable individual to take on any undue risk or to otherwise expose the Company to inappropriate or excessive risks. Furthermore, although the Company does not have in place any specific prohibitions preventing executives from purchasing financial instruments, including prepaid variable forward contracts, equity swaps, collars, or units of exchange funds that are designed to hedge or offset a decrease in market value of options or other equity securities of the Company granted in compensation or held directly or indirectly, by the director, the Company is unaware of the purchase of any such financial instruments by any director. The Company does not anticipate making any significant changes to its compensation policies and practices during 2020. Share Option Plan and Option-Based Awards All share options granted under the Company’s Unapproved option plan as amended and restated effective as of 1 December 2006 have now lapsed and no further share options will be awarded under this plan. The Company currently has EMI share option plan (“Approved Plan”) which was adopted by the Board on 3 February 2018, and which provides for the award of share options under HMRC’s approved Enterprise Management Incentive scheme, the Company Share Option Plan, as well as Unapproved share options. In February 2018, the Board resolved that no further options would be granted under the Unapproved Plan and succeeded it with the Approved Plan. Share options are approved by the Board of Directors on the recommendation of the Nomination & Remuneration Committee. Option awards are reviewed periodically, take into account previous option grants, changes in executive positions and overall contribution to the Company. The Approved Plan provides that the maximum number of shares which may be reserved and set aside for issue under it, is 10% of the Company’s issued share capital at the date of grant. The aggregate number of shares which may be reserved for issuance to any one person under the Share Option Plan and which are subject to 12 outstanding options granted under a prior plan, must not exceed 5% of the issued shares (determined at the date the option was granted), in a 12-month period. The Company’s non-executive directors participate in the Unapproved Plan because the Board considers that the holding of options helps align the interests of the non-executive directors with shareholders by incentivising their decision making with a view to providing growth in the Company’s share price. The Company’s long-term success will be dependent upon raising additional finance in future; aligning the interests of all directors and senior executives with shareholders incentivises all concerned to achieve the best possible price for such placings and to minimise undue dilution of interests. Summary Compensation Table The following table sets forth the compensation awarded, paid to or earned by each director during 2019, rounded to the nearest US$1,000. All figures in US$ Director and position J. S. Cable Non-Executive Director C. C. Gordon Non-Executive Director D. J. Smith Non-Executive Chairman B. Brodie Good Technical Director D. V. Edmonds Executive Chair P. Taylor Chief Executive Officer Appointed / Resigned Base Salary / Fees / Pensions 2019 Option based awards 2018 Base Salary / Fees Option based awards Total 32,000 2,000 34,000 34,000 32,000 - 32,000 21,000 42,000 19,000 61,000 51,000 10,000 61,000 - - - - - - 14,000 - 14,000 21,000 58,000 79,000 119,000 32,000 151,000 - - - Appointed 15 May 2019 Appointed 26 February 2019 Appointed 5 July 2019 Resigned 30 April 2019 Appointed 15 May 2019 Resigned 8 July 2019 Notes: (1) (2) (3) Salaries are paid in pounds sterling and translated to US dollars based on the average £:$ foreign exchange rate for each respective year (2019: 1.2760; 2018: 1.3436). The fair value of options granted is calculated using the Black-Scholes model as this model is widely accepted as an industry standard and is considered to provide the best estimation of value. During the year ended 31 December 2019, $nil (2018: $114,000 (£93,000)) wages and salaries was satisfied by the issue of common shares in the Company (2018: 37,200,000). Outstanding Option-based Awards The following table sets out all stock options outstanding at 31 December 2019 for each of the Company’s directors. Name C. C. Gordon J. S. Cable D. J. Smith B. Brodie Good Number of securities underlying unexercised options 17,142,373 500,000 1,100,000 12,342,509 3,000,000 3,000,000 4,000,000 Option exercise price £0.0025 £0.01 £0.0025 £0.0025 £0.0022 £0.0030 £0.0045 Option expiration date 14 May 2023 9 Feb 2022 28 Mar 2024 28 Mar 2024 28 Mar 2024 28 Mar 2024 28 Mar 2024 Value of unexercised in-the-money options ($) - - - - - - - - 13 w e i v r e v O Total 34,000 21,000 - - e c n a n r e v o G s l a i c n a n i F r e h t O Appointment of new directors and succession planning The N&R Committee recognises that an effective board comprises a range and balance of skills, experience, knowledge, gender and independence, with individuals that are prepared to challenge each other whilst working as a team, which requires a range of personal attributes, including character, intellect, sound judgement, honesty and courage. The Board and its advisers have significant experience in the mining sector and from that, a strong network of individuals working in the sector. In the first instance, the N&R Committee in consultation with the Chair identify the Board’s needs, and potential candidates believed to have the right blend of attributes to complement the Board, are identified and shortlisted from this broad network. Given this experience and network, the Board does not consider it necessary to openly advertise positions or, generally, to use executive search consultants, however, in the event the N&R Committee is unsatisfied with the suitability of candidates which have been presented from the identification process, an executive search agency would be appointed. The Company usually has very limited need for the service of executive search agencies and therefore does not maintain a relationship with any one particular firm. For key appointments, such as the appointment of the Chair, a representative from the Board may discuss the proposed appointment with significant investors. Once a suitable candidate has been identified, the Company’s Nominated Advisor carries out searches to provide assurance of their suitability. Diversity and inclusion There are many forms of diversity in the workplace: age, gender, race, national or ethnic origin, religion, language, political beliefs, sexual orientation and physical ability, as well as diversity of perspective arising from individuals’ skills, experience and working styles providing different perspectives and approaches to finding solutions. The present gender balance of senior management is exclusively male; the Board recognises this would benefit from improved balance, and the N&R Committee is cognisant of this when seeking candidates. Appointment and removal of directors The powers of the directors of the Company are determined by its Articles of Association and British Virgin Islands (“BVI”) legislation, each of which contain rules about the appointment and replacement of directors. They provide that subject to certain conditions, directors may be appointed by an ordinary resolution of the members or by a resolution of the directors, provided that, in the latter instance, a director appointed in this way retires at the first AGM following his or her appointment. The Company’s Articles of Association also provide that directors should normally be subject to re-election at the AGM at intervals of three years although directors may volunteer to stand for re-election annually. A director may cease to be a director: • By special resolution of the members approved by 75% of the shareholders entitled to vote • By resolution of the directors • • If he resigns If he ceases to meet the eligibility requirements under the BVI Companies Act. Where any director resigns and has concerns about the operation of the board or the management of the company, they are asked to provide a written statement to the Chair to circulate to the Board. Board assessments The Chair continuously considers the performance of the Board, its committees and of individual directors, and provides feedback when appropriate. Similarly, the Chair invites feedback in the same manner from the Non- Executive Directors and the Company Secretary. The Nomination & Remuneration Committee consider the time and cost involved in carrying out a formal process, especially one that is externally facilitated, cannot be justified for the Company at this stage in its development. The Nomination & Remuneration Committee acknowledges the merits in carrying out formal board evaluations and will monitor the continuing suitability of this stance as the Company grows in size. O v e r v i e w G o v e r n a n c e F i n a n c i a l s O t h e r 14 Audit committee report Overview The Audit Committee oversees the Company’s financial reporting process on behalf of the Board of Directors. The Company’s management has the primary responsibility for the financial statements, for maintaining effective internal control over financial reporting, and for assessing the effectiveness of internal control over financial reporting. In fulfilling its oversight responsibilities, the Committee reviewed and discussed the audited consolidated financial statements and the notes to them, as set out on pages 288 to 51 of this annual report, with Company management, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. The Committee is governed by terms of reference, which are available on the Company’s website at www.alienmetals.uk. The Audit Committee’s terms of reference require it to review its own terms of reference once a year; they were last amended on 28 September 2019. Independence of the external auditor In March 2020, as a part of a cost reduction strategy the Board appointed Jeffreys Henry LLP as the Company’s Auditor, replacing RSM UK Audit LLP (“RSM”) in the role. RSM confirmed that there were no circumstances connected with its resignation which they considered should be brought to the notice of the members or the creditors of the Company. The independence of the auditor is considered by the Audit Committee each year. In assessing the auditor’s independence, the Audit Committee consider: Ratio of audit fees to non-audit fees Length of tenure Whether there are any known material relationships between the Company, its directors and senior executives, and the audit firm, its partners, and the audit team Application of constructive challenge and professional scepticism Audit and non-audit fees are disclosed in note 4 to the financial statements, on page 40. The Audit Committee considers the nature and value (in the context of the audit fee) of any non-audit services on the auditor’s independence, and is required to give its prior approval of any such non-audit services. Effectiveness of the external audit process In considering the effectiveness of the external audit process, the Audit Committee consider: Effectiveness of the audit plan, its delivery and execution Knowledge and experience of the audit team Robustness of the audit Internal audit function The Audit Committee considers annually whether there is a need for an internal audit function and makes a recommendation to the Board if a change is considered to be appropriate. The Company’s operations are small in scale, the organisational structure is flat, and the cost of an internal audit function is not justified at present. Risk management The financing, exploration, development and mining of any of the Company’s properties is subject to a number of factors including the price of copper, silver, gold, lead and zinc, laws and regulations, political conditions, currency fluctuations, environmental regulations, hiring and retaining qualified people and obtaining necessary services in jurisdictions where the Company operates. The Board periodically carries out robust assessments of the emerging and principal risks facing the Company including those that would threaten its business model, future performance, solvency or liquidity. The assessment includes a review of all material controls including those which are related to finance, operations and compliance. The Audit Committee is responsible for monitoring the effectiveness of the Company’s risk management and internal control systems, and reports to the Board as required. Alien Metals operates with a small team of key personnel and with open lines of internal communication. Where new risks are identified, these are reported to the Company Secretary or the Executive Director. Where practicable, a method of mitigation is determined, and the risk together with any form of mitigation is presented to the Board for discussion. 15 w e i v r e v O e c n a n r e v o G s l a i c n a n i F r e h t O O v e r v i e w G o v e r n a n c e F i n a n c i a l s O t h e r The following is a brief discussion of those distinctive or special characteristics of the Company’s operations and industry which may have a material impact, or constitute risk factors in respect of the Company’s future financial performance. Principal risks and uncertainties Key risks Description of risk Mitigating factors and risks incidental The Company's operations are subject to all of the exploration, hazards development, and the production of minerals, including damage to life or property, environmental damage and legal liability for damage, which could have a material adverse impact on the business and its financial performance. to The Company intends to acquire additional mining concessions in Mexico, Australia or elsewhere in the world. The Company may be unable to obtain suitable mining concessions at competitive prices. Any exploration programme entails risks relating to the location of economic ore bodies, the development of appropriate metallurgical processes, the receipt of necessary governmental permits and the construction of mining and processing facilities. In the event that the Company’s portfolio of mining concessions are deemed by management not to warrant further exploration and the Company is unsuccessful in acquiring suitable new projects, the Company will have no exploration or development projects to pursue. The Company does not hold any concessions in respect of which reserves or resource estimates have been established that comply with Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) Standards and Guidelines or other industry similar standards. recognised No assurance can be given that any exploration programme will result in any new commercial mining operation or in the discovery of new resources. concessions Our mineral are evaluated carefully by qualified geologists, independent and advisors are engaged as and when appropriate. has The management significant experience operating in Mexico and Australia. team The Company has had significant success in the past at delineating mineral resources in accordance with NI 43-101. Strategic risks Exploration and development and acquisitions future No reserves or resources 16 Key risks Description of risk Mitigating factors Strategic risks Mineral concessions and titles risks In relation to mining concessions over which the Company holds legal rights, if the Company fails to fulfil the specific terms of any of its concessions or operates in the concession areas in a manner that violates Mexican law, regulators may impose fines, suspend or revoke the concessions, any of which could have a material adverse effect on the Company's operations and proposed operations. Ownership of the mineral concessions has been transferred from the Company’s former operating subsidiary Alien Metals de Mexico SA de CV (“ASM”) to its new operating subsidiary, Compañía Minera Estrella de Plata SA de CV (“CMEP”). Whilst the Company has previously received legal opinions in respect of title of ASM to its properties there is no guarantee that title to such properties will not be challenged or impugned by third parties. The Company’s concessions could be subject to prior unregistered agreements, transfers or other claims and title could be affected by unidentified or unknown defects or government actions. A formal legal opinion has not been obtained as to the legal title of CMEP to the mineral concessions. The Company’s mineral concessions have been registered in the name of CMEP and no contest or objection was received. Prior to entering into agreements relating to mineral concessions, formal searches and reviews of legal documentation are conducted to provide evidence of the legal owner, including outsourcing of due legal diligence to legal practitioners. tenement and/or Key risks Description of risk Mitigating factors The Company has an experienced board and management team with significant experience in financing mining activities. The Company has been successful in raising funds in the past and it is our intention to raise additional funds in future to support the ongoing development of the business. It is expected that the Company will raise sufficient funds from investors to fund its future growth, exploration, development, and operating costs. Financial risks Requirement of additional financing Liquidity risk Failure to obtain sufficient financing for any projects would result in a delay or indefinite postponement of exploration, development or production on properties covered by the Company's concessions or even the loss of a concession. Additional financing might not be available when needed, or if available, the terms of such financing might not be favourable to the Company and could involve substantial dilution to shareholders. In the absence of adequate funding or cost reductions, the Company may not be able to continue as a going concern. The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at 31 December 2019, the Company had cash of $166k to settle accounts payable of $124k. The Company’s accounts payable have contractual maturities of less than 30 days and are subject to normal trade terms. In the short-term, liabilities will be funded by cash. Although the Company has been successful in the past in raising equity finance, there can be no assurance that the funding required by the Group will be made available to it when needed or, if such funding were to be available, that it would be offered on reasonable terms. The terms of such financing might not be favourable to the Group and might involve substantial dilution to existing shareholders. 17 w e i v r e v O e c n a n r e v o G s l a i c n a n i F r e h t O Key risks Description of risk Mitigating factors The Group’s objective when managing capital is to safeguard the Group’s ability to continue as a going concern and have access to adequate funding for its exploration and development projects, so that it can provide returns for shareholders and benefits for other stakeholders. The Group manages the capital structure and makes adjustments in the light of changes in economic conditions and risk characteristics of the underlying assets. The price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices, whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments in the market. The Company’s exploration expenditure is made in Mexican pesos, Australian dollars or US dollars and head office expenses are predominantly made in the UK in pounds sterling. The Company is therefore exposed to the movement in exchange rates for these currencies. At the year end the majority of the Company’s cash resources were held in GBP. The Company therefore also has downside exposure to any weakening of pound sterling against the US dollar as this would increase expenses in US dollar terms and accelerate the depletion of the Company’s cash resources. Any strengthening of pound sterling or the Mexican peso against the US dollar would, however, result in a reduction in expenses in US dollar terms and preserve the Company’s cash resources. In addition, any movements in pounds sterling or Mexican peso would affect the presentation of the consolidated statement of financial position when the net assets of the Mexican subsidiary and parent company in the UK are translated from their functional currencies into US dollars. The Company’s credit risk is primarily attributable to cash and the financial stability of the institutions holding it. The Group’s maximum exposure to credit risk is attributable to cash. The credit risk on cash is limited because the Group invests its cash in deposits with well capitalised financial institutions with strong credit ratings. The Company may from time to time hold shares in other mining companies, such as SGL UK. There is not always a liquid market for the shares in companies such as SGL UK companies and so it may not always be possible to sell such shares at the optimum time or price. In order to maintain or adjust the capital structure the Group may issue new shares, acquire debt, or sell assets. Management regularly reviews cash flow forecasts to determine whether the Group has sufficient cash reserves to meet capital working future and requirements take advantage business of opportunities. The Company does not currently have any financial instruments in issue other than share options and warrants. to The Company does not hedge its exposure to price risk. The Company does not currently hedge foreign exchange risk. There is not considered to be any material exposure in respect of other monetary and liabilities of the Group. assets The Company invests its cash in deposits with well-capitalised financial institutions with strong credit ratings. The Company has previously been successful in realising value from investments. O v e r v i e w G o v e r n a n c e F i n a n c i a l s O t h e r Financial risks Capital management risk Price risk Foreign currency risk Credit risk Investment risk 18 Key risks Description of risk Mitigating factors External risks Metals prices The Company’s ability to obtain further financing will depend in part on the price of commodity prices, including copper, silver, lead and zinc, and the industry’s perception of its future price. The Company's resources and financial results of operations will also be affected by fluctuations in metal prices over which the Company has no control. A reduction in the metal prices could from being prevent economically mined or result in curtailment of existing production activities or result in the impairment and write-off of assets. the Company’s properties It is an accepted risk that the Company’s performance will be impacted by the price of metals. The Board and management believe the price of precious metals in particular, will increase in the long term. The Company does not hedge its exposure to metals prices. The price of commodities, which is affected by numerous factors including inflation levels, fluctuations in the US dollar and other currencies, supply and demand and political and economic conditions, could have a significant influence on the market price of the Company’s common shares. Key risks Description of risk Mitigating factors Operational risks Reliance on contractors The Company relies on contractors to implement exploration and development programmes. The failure of a contractor or key service provider to perform properly its services to the Company could delay or inconvenience the Company’s operations, and have a materially adverse effect on the Company. The Company has operated in Zacatecas in Mexico, for several years and has well-established and trusted relationships with various contractors. The Company also has considerable experience operating in Australia. and significant Certain of the Company’s directors have recent experience operating in other global jurisdictions, which may help identify reliable contractors. The Board has established a Nomination Remuneration Committee which is responsible for considering succession planning and ensuring remuneration is sufficient to attract and retain staff of a the necessary calibre. & Key personnel The Company's business is dependent on retaining the services of a small number of key personnel of the appropriate calibre as the business develops. The Company has entered into employment agreements with certain key managers. The success of the Company is, and will continue to be to a significant extent, dependent on the expertise and experience of the directors and senior management. The loss of one or more of these individuals could have a materially adverse effect on the Company. The Company does not currently have any insurance in place with respect to key personnel. w e i v r e v O e c n a n r e v o G s l a i c n a n i F r e h t O 19 Key risks Description of risk Mitigating factors Operational risks Environmental factors The Company's operations are subject to environmental regulation in the jurisdictions in which it operates. Such regulation covers a wide variety of matters including, without limitation, prevention of waste, pollution and protection of the environment, labour regulations and health and safety. The Company might also be subject under such regulations to clean-up costs and liability for toxic or hazardous substances, which might exist on or under any of the properties covered by its concessions, or which might be produced as a result of its operations. If the Company does not comply with environmental regulations or does not file environmental impact statements in relation to each of its concessions, it might be subject to penalties, its operations might be suspended, closed and/or its concessions may be revoked. The Company has an experienced board and management team with an awareness and knowledge of these types of risk. to their acquisition Concessions are evaluated carefully prior for environmental risks and consultants are engaged to advise on specific risks when appropriate. The Company has an excellent track record on environmental matters. directors believe of Mexico the The governments and Australia support the development of natural resources by foreign operators. The directors have in place a system of internal controls to ensure any payment obligations are complied with. Environmental legislation and permit requirements are likely to evolve in a manner which will require stricter fines and standards and enforcement, penalties stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their directors and employees. increased non-compliance, more for The Company's activities could be subject to prolonged disruptions due to weather conditions depending on the location of operations in which the Company has interests. The Company is conducting its exploration activities in the Zacatecas region Mexico, and in Western Australia. The Company may be adversely affected by changes in economic, political, judicial, administrative or other regulatory factors such as taxation these jurisdictions, where the Company operates and holds its major assets. Mexico may have a more volatile political environment and/or more challenging trading conditions than in some other parts of the world. There is no assurance that future political and economic conditions in Mexico will not result in the government of Mexico adopting different policies in respect of foreign development and ownership of mineral resources. Any such changes in policy may result in changes in laws affecting ownership of assets, taxation, rates of exchange, environmental protection, labour relations, and repatriation of income and return of capital. These changes may affect both the Company's ability to undertake exploration and development activities in respect of future properties in the manner currently contemplated, as well as its ability to continue to explore and develop those properties, in respect of which it has obtained exploration and development rights to date. Under the mineral property concessions and certain other contractual agreements to which a member of the Group is, or may in the future become, a party, any such company is, or may become, subject to payment and other obligations. If such obligations are not complied with when due, in addition to any other remedies which may be available to other parties, this could result in dilution or forfeiture of interests held by such companies. O v e r v i e w G o v e r n a n c e F i n a n c i a l s Political risk O t h e r Payment obligations 20 Key risks Description of risk Mitigating factors Operational risks Regulatory approvals Competition Conflicts of interest The operations of the Company require approvals, licenses and permits from various regulatory authorities, governmental and otherwise. There can be no guarantee that the Company will be able to obtain or maintain all necessary approvals, licenses and permits that may be required to explore and develop its various projects and/or commence construction or operation of mining facilities that economically justify the cost. The Company competes with numerous other companies and individuals in the search for and acquisition of mineral claims, leases and other mineral interests, as well as for the recruitment and retention of qualified employees. There is significant competition for the silver and other precious metals opportunities available and, as a result, the Company may be unable to acquire further mineral concessions on terms it considers acceptable. Certain directors and officers of the Company also serve as directors and/or officers of other companies involved in mineral and consequently there is the potential for conflicts of interest. The Company expects that any such director or officer shall disclose such interest in accordance with its articles of association or his contractual obligations to the Company and any decision made by any of such directors and officers involving the Company will be made in accordance with their duties and obligations to deal fairly and in good faith with a view to the best interests of the Company and its shareholders. and development exploration The Company has significant experience in operating in Mexico and Australia, and believes that the Company holds or will obtain all necessary approvals, licenses and permits under applicable laws and regulations in respect of its current projects. The Company and its management team have significant experience in in Mexico. mining operations and Through Mexico, relationships counterparties may consider the Company to have lower transaction risk than its competitors. experience its in Articles Company’s of The Association have been adopted by shareholders and any conflicts of interest in accordance with the rules set out therein. dealt with are In the event of a conflict of interests, the conflicted director shall not vote on the relevant matter. Viability statement and going concern The Board has assessed the prospects of the Group over a period of 12 months from the date of approval of these financial statements, involving a review of the Group’s forecast prepared for the year ending 31 December 2020 and taking account of the Board’s intentions for future activities after that date. As explained further in note 2(C), taking account of the Group’s current position and principal risks, over a 12 month period, the Board has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over that period albeit additional funding will be required to enable the Group to meet all of its objectives. The raising of additional funding is fundamental to the future success of the business and therefore gives rise to a material uncertainty, although the Board notes the Group’s successful track record in having raised finance in the past as necessary to meet the Group’s ongoing cash requirements. The Board considers these periods of assessment to be appropriate because they contextualise the Company’s financial position, business model and strategy. 21 w e i v r e v O e c n a n r e v o G s l a i c n a n i F r e h t O O v e r v i e w G o v e r n a n c e F i n a n c i a l s O t h e r Financial statements Directors’ responsibilities statement The directors are responsible for preparing the annual report and financial statements and have prepared the Group financial statements in accordance with International Financial Reporting Standards in order to give a true and fair view of the state of affairs of the Group and of its profit or loss for that period, in accordance with the rules of the London Stock Exchange for companies trading securities on AIM. In preparing these financial statements the directors are required to: select suitable accounting policies and then apply them consistently; make judgements and accounting estimates that are reasonable and prudent; state whether they have been prepared in accordance with IFRSs, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company and the Group will continue in business. The directors are responsible for keeping records that are sufficient to show and explain the Group and Company’s transactions and will, at any time, enable the financial position of the Group and Company to be determined with reasonable accuracy. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the British Virgin Islands governing the preparation and dissemination of the Company’s financial statements and other information included in the annual reports may differ from legislation in other jurisdictions. The directors consider this Annual report and accounts, taken as a whole, is fair, balanced, understandable, and provides the information necessary for shareholders to assess the company’s position, performance, business model and strategy. Statement as to disclosure of information to auditor Each of the persons who is a Director at the date of approval of this annual report confirms that: so far as the Director is aware, there is no relevant audit information of which the Group’s auditor is unaware; and the Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Group’s auditor is aware of that information. Jeffreys Henry LLP were appointed as auditor to the Group, a resolution proposing that they be re-appointed will be put at a General Meeting. On behalf of the board, D Smith Non-executive Chairman 30 June 2020 22 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ALIEN METALS LTD Opinion We have audited the consolidated financial statements of Alien Metals Ltd (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31 December 2019 which comprise the consolidated statement of income and other comprehensive income, the consolidated statement of financial position, the consolidated statement of cash flows, the consolidated statement of changes in equity and the notes to the consolidated financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. In our opinion: the group financial statements give a true and fair view of the state of the Group’s affairs as at 31 December 2019 and of the Group’s loss for the year then ended; and the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material uncertainty related to going concern We draw attention to note 2(C) in the group financial statements, which indicates that the group will need to raise additional finance in order to continue with its exploration programmes and to meet its recurring expenditure, and that, although the group has been successful in the past in raising additional finance, there can be no assurance that the funding required by the group will be made available to it when needed or, if such funding were to be available, that it would be offered on reasonable terms. As stated in note 2(C), these conditions, along with the other matters as set forth in note 2(C), indicate that a material uncertainty exists that may cast significant doubt over the group’s ability to continue as a going concern for a period of at least twelve months from the date when the financial statements are authorised for issue and significant doubt over the group’s longer term ability to continue in operation and meet its liabilities as they fall due over the period of their viability assessment on page 21. Whilst there is a global impact of the COVID-19 outbreak, the Group has been able to operate during the pandemic to date. It remains difficult to assess reliably whether there will be any material disruption in the future which could adversely impact the Group’s forecast. See the going concern assumption key matter on pages 24 where we describe how we have evaluated management’s assessment and the key observations arising with respect to that evaluation. Our opinion is not modified in respect of this matter. Our audit approach Overview Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. Going concern assumption Carrying value of intangible assets Carrying value of financial asset investments These are explained in more detail below. 23 w e i v r e v O e c n a n r e v o G s l a i c n a n i F r e h t O O v e r v i e w G o v e r n a n c e F i n a n c i a l s O t h e r Key audit matters Key audit matter Going concern assumption The Group is dependent upon its ability to generate sufficient cash flows to meet continued operational costs and hence continue trading. The Directors have considered the cash requirements of the business for the following 12 months. As part of this process, they have taken into account existing liabilities, along with detailed operating cashflow requirements. The projections prepared include ongoing running costs of the Group and committed expenditure at the date of approving the financial statements. The Directors have identified a variety of potential sources of funds including issue of additional equity and/or debt and shareholder loans. In addition, the Directors have identified additional cost reductions which may be implemented if necessary. Key assumptions that impact the conclusions are the ability to fundraise and the ability to control operating costs. These are therefore inherent risks that the forecasts may understate future costs, and that the Company will not be able to operate within its cash resources and continue to operate as a going concern. The COVID-19 pandemic has created a great deal of uncertainty regarding the future outlook of the business. Carrying value of intangible assets Intangible assets comprise exploration assets, being accumulated licence acquisition costs and subsequent capitalised expenditure on those concessions. The Group had intangibles of US$492k at the year-end (2018 as restated: US$231k). 24 How our audit addressed the key audit matter We have performed the following audit procedures: Evaluated the suitability of management’s model for the forecast. The forecast includes a number of assumptions related to future cash flows and associated risks. Our audit work has focused on evaluating and challenging the reasonableness of these assumptions and their impact on the forecast period and ensuring that all key matters are correctly disclosed in the going concern note. Specifically, we obtained, challenged and assessed management’s going concern forecast and performed procedures including: Verifying the consistency of key inputs and fund raisers relating to future costs to other financial and operational information obtained during the audit; Corroborated with management relating to future cash inflows. We reviewed the latest management accounts to gauge the financial position. We performed sensitivity analysis on the cash flow forecasts prepared by the directors. We performed a mechanical check on the cash flow forecast model prepared by the directors. Considered the Group’s historic ability to raise funds; and Reviewed the financing options available to the Group to evaluate the ability of the Group to pay their debts as they become due. We have enquired with management as to the impact of COVID-19 and the steps being taken to limit the impact of the pandemic on the business. We have reviewed forecasts and latest bank balances to ensure the group can cover its overheads. The forecasts have been stress tested by management and the assumptions have been challenged. We note that post year end the group have successfully raised additional funding of £700k (before expenses) in February 2020 and £275k (before expenses) in May 2020 as result of share placings. Due to the risks outlined above, a material uncertainty relating to going concern is highlighted in the auditor’s report. We have performed the following audit procedures: We have confirmed the existence and ownership of key licenses to confirm that the group holds a valid right to explore the projects. We have vouched additions of exploration costs and ensured compliance with IFRS 6. Included within intangibles assets were additions relating to capitalised exploration costs. The Directors have a duty to confirm that all intangibles, are correctly recognised. As these are the group’s primary assets, the continued existence and ownership of these assets is a key audit matter. Additionally, management is required, by IFRS 6, to consider whether there are any impairment indicators which may suggest that the exploration costs will not be recoverable. Such indicators include the expiry or potential non-renewal of licences, absence of planned or budgeted expenditure on further exploration, the discontinuance of exploration activities in a specific area consequent on the non-discovery of commercially viable minerals, or data which indicates that the carrying amount of the asset is unlikely to be recovered in full from development or sale of the asset. Carrying value of financial asset investments The group holds an investment in the shares of an unlisted company, Siberian Goldfields Limited, which is carried at fair value through other comprehensive income in accordance with the requirements of IFRS 9. The investment held in Siberian Goldfields Limited has been fully impaired in the year to US$1 (2018: US$78k). As the measurement of fair value of a small equity holding in an unlisted company requires, in the absence of a readily observable market price, the application of judgement and use of estimates, the valuation is considered to be a key audit matter. We have reviewed expert reports in relation to the concessions and their future viability. We have reviewed disclosures made in the financial statements. We have reviewed the directors’ consideration of impairment indicators and comparing this to other information available to us, including RNS announcements, expenditure, management’s plans and budgets. past w e i v r e v O Based on the audit work performed we are satisfied that the management have appropriately considered the carrying value in accordance with accounting standards. We have performed the following audit procedures: We have confirmed the number of shares held and the total issued shares of the investee entity. We have reviewed the valuation adopted by management, challenging the assumptions made. We have reviewed publicly available information on valuations adopted by other investors in the shares and compared this to the group’s valuation. As no public information was available on valuations by other investors at the date of signing this report and since there is no active market for the shares of Siberian Goldfields Limited, we agreed with management the need to impair the investment as an appropriate fair value could not be determined. Our application of materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Overall materiality How we determined it Rationale for benchmark applied Group financial statements US$18,500 (31 December 2018: US$30,000). Based on 2.5% of gross assets We believe that the gross assets is a primary measure used by shareholders in assessing the performance of the Group, as the group is at a pre-revenue stage and is asset heavy. 25 e c n a n r e v o G s l a i c n a n i F r e h t O O v e r v i e w G o v e r n a n c e F i n a n c i a l s O t h e r We agreed with the Audit Committee that we would report to them misstatements identified during our audit above US$1,000 (Group audit) (31 December 2018: US$1,000) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. An overview of the scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the group financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud. How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which they operate. The group financial statements are a consolidation of 2 reporting units, comprising the Group’s operating businesses. The Group comprises the parent undertaking, incorporated in the British Virgin Islands, its principal operating subsidiary, Compania Minera Estrella de Plata S.A de C.V. and five non-trading or intermediate holding companies, all registered in England. A full scope audit to group materiality levels was performed on the parent undertaking and Compania Minera Estrella de Plata S.A de C.V. This resulted in 100% coverage of consolidated expenditures and 100% of the group’s gross and net assets. We performed audits of the complete financial information of the Group reporting units, which were individually financially significant and accounted for 100% of the Group’s absolute profit before tax (i.e. the sum of the numerical values without regard to whether they were profits or losses for the relevant reporting units). We also performed specified audit procedures over other intangible assets, as well as certain account balances and transaction classes that we regarded as material to the Group at the 2 reporting units. The Group engagement team performed all audit procedures. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the group financial statements and our auditor’s report thereon. Our opinion on the group financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the group financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the group financial statements or a material misstatement of the other information. If, based on the work we have performed, 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. In this context, we have a responsibility to specifically address the following items in the other information and to report as uncorrected material misstatements of the other information where we conclude that those items meet the following conditions: Fair, balanced and understandable – the statement given by the directors that they consider the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the group’s performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or Audit committee reporting – the section describing the work of the audit committee does not appropriately address matters communicated by us to the audit committee; or Directors’ statement of compliance with the UK Corporate Governance Code set out on page 6 - whether the directors’ statement relating to going concern, required under provisions 30 and 31 of the UK Corporate Governance Code 2019, is materially inconsistent with our knowledge obtained in the audit. Responsibilities of directors As explained more fully in the directors’ responsibilities statement set out on page 22, the directors are responsible for the preparation of the group financial statements and for being satisfied that they give a true 26 and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the group financial statements, the directors are responsible for assessing the group’s and parent company’s ability 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 the parent company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the group financial statements as a whole are 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 ISAs (UK) 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 these financial statements. A further description of our responsibilities for the audit of the group financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Use of this report This report is made solely to the Company's members, as a body, in accordance with our engagement letter. Our audit work has been undertaken so that we might state to the Company's members those matters that we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, or the Company's members as a body, for our audit work, for this report, or for the opinions we have formed. Sanjay Parmar Senior Statutory Auditor For and on behalf of Jeffreys Henry LLP (Statutory Auditors) Finsgate 5-7 Cranwood Street London EC1V 9EE 30 June 2020 w e i v r e v O e c n a n r e v o G s l a i c n a n i F r e h t O 27 O v e r v i e w G o v e r n a n c e F i n a n c i a l s O t h e r Consolidated statement of comprehensive income For the year ended 31 December 2019 (Tabulated amounts expressed in thousands of US dollars unless otherwise stated) Continuing operations Administrative expenses Operating loss Net investment income Loss for the year before taxation Tax Loss for the year attributable to equity shareholders of the parent Other comprehensive income that may be reclassified to profit or loss: Foreign exchange translation differences recognised directly in equity Movement in equity instrument Other comprehensive income for the year Total comprehensive income for the year attributable to equity shareholders of the parent Basic and diluted loss per share (US cents/share) All activities relate to continuing operations. Note 2019 As restated 2018 4 6 7 17 (1,042) (1,042) (4) (1,046) - (1,046) 10 (81) (71) (1,117) (1,531) (1,531) (2) (1,533) - (1,533) (70) (56) (126) (1,659) 8 (0.1) (0.3) The accompanying notes are an integral part of these consolidated financial statements. 28 Consolidated statement of financial position As at 31 December 2019 (Tabulated amounts expressed in thousands of US dollars unless otherwise stated) Assets Financial asset investments Intangible assets Property, plant and equipment Total non-current assets Trade and other receivables Cash and cash equivalents Total current assets Total assets Equity attributable to equity shareholders of the parent Share capital Warrant reserve Share-based payment reserve Equity investment reserve Foreign exchange translation reserve Accumulated losses Total equity Liabilities Trade and other payables Total current liabilities Total liabilities Total equity and liabilities Note 2019 As restated 2018 17 9 10 11 12 13 13 13 17 13 15 - 492 1 493 63 166 229 722 78 231 3 312 94 298 392 704 56,814 261 1,121 (272) 1,887 (59,212) 599 53,870 2,183 1,057 (185) 1,871 (58,166) 630 123 123 123 722 74 74 74 704 The financial statements were approved and authorised for issue by the Board of Directors on 30 June 2020 and were signed on its behalf by: Dan Smith Non-executive Chairman The accompanying notes are an integral part of these consolidated financial statements. 29 w e i v r e v O e c n a n r e v o G s l a i c n a n i F r e h t O O v e r v i e w G o v e r n a n c e F i n a n c i a l s O t h e r Consolidated statement of cash flows For the year ended 31 December 2019 (Tabulated amounts expressed in thousands of US dollars unless otherwise stated) Cash flows from operating activities Loss before tax from continuing operations Adjustments for non-cash items: Depreciation Exchange difference Finance charges Equity-settled share-based payment transactions Decrease/(Increase) in trade and other receivables Increase/(Decrease) in trade and other payables Cash used in operating activities Cash flows from investing activities Interest received Purchase of intangible assets Cash used in investing activities Cash flows from financing activities Proceeds from convertible loan Proceeds from issue of share capital and warrants Issue costs Cash from financing activities Net (decrease) in cash and cash equivalents Cash and cash equivalents at 1 January Effect of exchange rate fluctuations on cash held Cash and cash equivalents at 31 December Note 2019 2018 (1,046) (1,533) 10 6 11 15 6 9 13 13 13 12 2 (6) 5 64 34 46 (901) (1) (261) (262) 264 834 (76) 1,022 (141) 298 9 166 3 30 - 260 (40) (18) (1,298) - (27) (27) - 813 (16) 797 (528) 876 (50) 298 The accompanying notes are an integral part of these consolidated financial statements. 30 Consolidated statement of changes in equity For the year ended 31 December 2019 (Tabulated amounts expressed in thousands of US dollars unless otherwise stated) Share capital Warrant reserve Share based payment reserve Equity investment reserve As restated Foreign exchange translation reserve As restated Total Accumulated losses 52,965 - 2,166 - 1,389 - (129) - 1,941 - (57,099) (1,533) 1,233 (1,533) - - - - - 984 (62) - - (17) - - - - - - - - - 17 - - - - - - - (466) 134 - - (38) (56) - - - (38) (56) (56) (38) (1,533) (1,627) - (32) - (32) (56) (70) (1,533) (1,659) - - - - - - - - - - - - 466 - - 984 (62) - 134 - 630 53,870 2,183 1,057 (185) 1,871 (58,166) - - - - - - - 1,098 (76) - (244) 2,166 56,814 - - - - 244 (2,166) 261 - - - - - - 64 - - 1,121 - (6) (81) (87) - - - - - (272) - 16 - 16 - - - - - 1,887 (1,046) (1,046) - - (1,046) - - - - - (59,212) 10 (81) (1,117) 1,098 (76) 64 - - 599 Balance: 31 December 2017 Loss for the year Foreign exchange translation differences recognised directly in equity Movement on equity investment fair value Total comprehensive income before restatement Restated foreign exchange translation differences recognised directly in equity (As restated) (note 19) Total comprehensive income (As restated) Shares issued for cash Share issue costs Lapse of share options Share based payment Fair value of warrants issued Balance: 1 January 2019 (As restated) Loss for the year Foreign exchange translation differences recognised directly in equity Movement in equity instrument Total comprehensive income Shares issued Share issue costs Share based payment Fair value of warrants issued Cancellation of warrants Balance: 31 December 2019 The accompanying notes are an integral part of these consolidated financial statements. 31 w e i v r e v O e c n a n r e v o G s l a i c n a n i F r e h t O Reporting entity 1. Alien Metals Ltd (the “Company”) is a public company limited by shares and was incorporated in the British Virgin Islands. The consolidated financial statements for the year ended 31 December 2019 comprise the Company and its subsidiaries (together referred to as the “Group”). The Group is primarily involved in the acquisition and development of mineral resource assets. 2. Basis of preparation Statement of compliance (A) The consolidated financial statements for the year ended 31 December 2019 have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board. IFRIC interpretations and the British Virgin Island Business Companies Act 2004. The Group has adopted all of the new and revised Standards and Interpretations that are relevant to its operations and effective for accounting periods beginning 1 January 2019. The adoption of these new and revised Standards and Interpretations had no material effect on the profit or loss or financial position of the Group. The Group has not adopted any standards or interpretations in advance of the required implementation dates. IFRS 16 Leases is effective for periods beginning on or after 1 January 2019 and therefore being adopted for the first time in these financial statements. Under IFRS 16, lessees may elect not to recognise assets and liabilities for leases with a lease term of 12 months or less. The Company’s office premises are currently under 12 months contract so the Company has taken the IFRS 16 scope exemption and have chosen to recognise the lease payments in profit and loss on a straight-line basis over the lease term. IFRIC 23 Uncertainty over income tax treatments is effective for periods beginning on or after 1 January 2019. This standard clarifies how to recognise and measure current and deferred income tax assets and liabilities when there is uncertainty over income tax treatments. Adoption of standard had no material effect on the Group or the Company. The accounts were approved by the board and authorised for issue on 30 June 2020. (B) Future standards and possible effects Amendments to Existing Standards Amendments to References to the conceptual framework in IFRSs Amendment to IFRS 3 Business Combinations: Definition of Business Amendments to IAS 1 and IAS 8: Definition of Material 1 Periods beginning unless noted otherwise. Issued Date IASB mandatory effective date1 29-Mar-18 22-Oct-18 31-Oct-18 01-Jan-20 01-Jan-20 01-Jan-20 In January 2020, the IASB issued amendments to IAS 1, which clarify the criteria used to determine whether liabilities are classified as current or non-current. These amendments clarify that current or non-current classification is based on whether an entity has a right at the end of the reporting period to defer settlement of the liability for at least twelve months after the reporting period. The amendments also clarify that ‘settlement’ includes the transfer of cash, goods, services, or equity instruments unless the obligation to transfer equity instruments arises from a conversion feature classified as an equity instrument separately from the liability component of a compound financial instrument. The amendments are effective for annual reporting periods beginning on or after 1 January 2022. The application of the above standards in the future financial statements is not expected to have a material impact on the financial statements. O v e r v i e w G o v e r n a n c e F i n a n c i a l s O t h e r 32 2. Basis of preparation (continued) Going concern (C) The directors regularly review cash flow forecasts to determine whether the Group has sufficient cash reserves to meet future working capital requirements and discretionary business development opportunities including exploration activities. The Group’s assets are at an early stage and in order to meet financing requirements for their development the Company has raised funds by way of several discrete share placements, which is a common practice for junior mineral exploration companies. Subsequent to the reporting date, on 31 January 2020, the World Health Organisation (WHO) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (COVID-19 outbreak) and the risks to the international community as the virus spreads globally beyond its point of origin. Because of the rapid increase in exposure globally, on 11 March 2020, the WHO classified the COVID-19 outbreak as a pandemic. These events had a significant negative impact on world stock markets, currencies and general business activities primarily in the March and June quarters, with stabilisation and improvement witnessed throughout June. On 25 March, the Company provided an update to shareholders regarding the level of impact that COVID-19 was having to the Company and its operations. While there were restrictions to certain ground based activities that the Company could undertake due to limits on travel and public gatherings, the Company has been able to continue with a range of desktop based activities to add value to its portfolio of projects. The Company issued a convertible loan note in February 2019 which raised gross proceeds of £202,247 (US$264,202 based on an exchange rate of £:$ 1.306). On 10 April 2019 the conversion option was exercised resulting in the issue of 202,247,000 shares. The Company successfully raised a further £300,000 (US$389,766 based on an exchange rate of £:$ 1.299 as at 13 May 2019) before expenses by way of a brokered private placing of shares at a price 0.15 pence per share. In addition to the private placings during 2019, in February 2020, the Company successfully raised gross proceeds of £700,000 (US$907,000 based on an exchange rate of 1.2953) in a placing and subscription of 466,666,666 new ordinary shares at a price of 0.15 pence per share. On 11 May 2020, the Company announced that it had raised an additional £275,000 (before costs), through a placing and subscription of 343,750,000 new ordinary shares at a price of 0.08 pence per share. Please refer to note 19 for further details. As evidenced above, the directors believe that the Group will be able to raise additional funds to continue with any future acquisitions or exploration programmes and to meet recurring expenditure and, taking account of the Company’s current position and principal risks, therefore consider it appropriate to prepare the Group’s financial statements on a going concern basis. Although the Company has been successful in the past in raising finance, there can be no assurance that the funding required by the Group will be made available to it when needed or, if such funding were to be available, that it would be offered on reasonable terms. The terms of such financing might not be favourable to the Group and might involve substantial dilution to existing shareholders. These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern and therefore it may be unable to realise its assets and discharge its liabilities in the normal course of business. The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern. Use of estimates and judgement (D) The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, 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 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. 2. Basis of preparation (continued) w e i v r e v O e c n a n r e v o G s l a i c n a n i F r e h t O 33 Use of estimates and judgement (continued) (D) Information about such judgements and estimates are contained in the accounting policies and/or the notes to the consolidated financial statements. Areas of judgement that have the most significant effect on the amounts recognised in the consolidated financial statements: Going concern Management regularly review cash flow forecasts to determine whether the Group has sufficient cash reserves to meet future working capital requirements and discretionary business development opportunities including exploration activities. This judgement is based on Management’s assumptions for the development of its assets and corresponding estimated expenditure, and the expectation of raising additional funds to progress such further exploration and development during the year. For further information please refer to note 2(C). Impairment of exploration and evaluation costs – Notes 3(E), 9 Determination as to whether, and by how much, an asset or cash generating unit is impaired involves management estimates. Management uses the following triggers to assess whether impairment has occurred (the list is not exhaustive): the period for which the entity has the right to explore in the specific area has expired during the period or will expire in the near future and is not expected to be renewed. substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted nor planned. exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the entity has decided to discontinue such activities in the specific area. sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full on successful development or by sale. Impairment of exploration and evaluation costs – Notes 3(E), 9 As at 31 December 2019, it was considered that none of the impairment triggers had arisen and the assets were being evaluated for future potential exploration. In any such case, or similar cases, the Group will measure, present and disclose any resulting impairment loss in accordance with IAS 36. For further information please refer to notes 3(E) and 9. Estimation of share-based payment costs Where appropriate, the Group estimates the fair value of share-based payments using the Black-Scholes model taking into account the terms and conditions upon which the share-based payment was granted. For further information please refer to notes 3(K) and 14 Valuation of financial asset investments The Group measures financial assets investments with fair value through other comprehensive income (FVTOCI) at fair value. Management determine the appropriate valuation techniques and inputs for fair value measurement. In estimating the fair value, the Group uses market-observable data to the extent it is available. For further information please refer to notes 3(H) and 17. (E) Functional and presentation currency These consolidated financial statements are presented in United States dollars, rounded to the nearest thousand dollars, as the Company believes it to be the most appropriate and meaningful currency for investors. The functional currencies of the Company and its subsidiary in Mexico, Compañía Minera Estrella de Plata SA de CV (“CMEP”), are pounds sterling and Mexican pesos respectively. O v e r v i e w G o v e r n a n c e F i n a n c i a l s O t h e r 34 (E) Functional and presentation currency (continued) For the reporting purposes the following exchange rates have been used: GBP:USD Closing rate 1:1.312 Average rate 1:1.276 USD:MXN Closing rate 1:0.053 Average rate 1: 0.052 3. Significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements and have been applied consistently by Group entities. (A) Basis of consolidation (i) Subsidiaries An investor controls an investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control is obtained up to the date that control ceases. (ii) Transactions eliminated on consolidation Intra-group balances and any unrealised gains, losses, income or expenses arising from intra- group transactions are eliminated in preparing the consolidated financial statements. (B) Foreign Currency (i) Foreign currency transactions Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the date of the consolidated statement of financial position are translated at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in profit or loss. 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 at foreign exchange rates ruling at the dates the fair value was determined. (ii) Financial statements of operations The assets and liabilities of operations, including goodwill and fair value adjustments arising on consolidation, are translated to United States dollars at exchange rates ruling at the date of the consolidated statement of financial position. The revenues and expenses of operations are translated to United States dollars at rates approximating to the exchange rates ruling at the dates of the transactions. Foreign exchange differences arising on retranslation are recognised in other comprehensive income. They are reclassified to profit or loss upon disposal. On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are reclassified to the profit or loss as part of the profit or loss on disposal. w e i v r e v O e c n a n r e v o G s l a i c n a n i F r e h t O 35 O v e r v i e w G o v e r n a n c e F i n a n c i a l s O t h e r 3. Significant accounting policies (continued) (C) Income tax expense comprises current and deferred tax. Income tax expense Income tax expense is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for taxation purposes. Deferred tax is not recognised for the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries that will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Loss per share (D) The Group presents basic and diluted loss per share (“LPS”) data for its common shares. Basic LPS is calculated by dividing the profit or loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period. Diluted LPS is determined by adjusting the profit or loss attributable to common shareholders and the weighted average number of common shares outstanding for the effects of all potentially dilutive common shares, which comprise warrants, share options and conversion of the loan note into shares. (E) Intangible assets (i) Deferred exploration and evaluation costs These comprise costs directly incurred in exploration and evaluation as well as the cost of mineral licences. Costs which are capitalised include costs of licence acquisition, technical services and studies, exploration drilling and testing and appropriate technical and administrative expenses but do not include general administrative expenses or costs incurred prior to having obtained the legal rights to explore an area, which are expensed directly to the income statement account as they occur. They are capitalised as intangible assets pending the determination of the feasibility of the project. When the decision is taken to develop a mine the related intangible assets are transferred to property, plant and equipment and the exploration and evaluation costs are amortised over the estimated life of the project. Where a project is abandoned or is determined not economically viable, the related costs are written off. The recoverability of deferred exploration and evaluation costs is dependent upon a number of factors common to the natural resource sector. These include the extent to which the Company can establish mineral reserves on its properties, the ability of the Company to obtain necessary financing to complete the development of such reserves and future profitable production or proceeds from the disposition thereof. (F) Property, plant and equipment (i) Depreciation Depreciation is charged to profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives for the current and comparative periods are as follows: • plant and equipment: 5 to 10 years • motor vehicles: 4 years The residual value, if not insignificant, is reassessed annually. 36 3. Significant accounting policies (continued) Impairment of non-financial assets (G) The carrying amounts of the Group’s assets are reviewed at the date of each consolidated statement of financial position to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. Impairment is measured by comparing the carrying values of the asset with its recoverable amount. The recoverable amount of the asset is the higher of the assets' fair value less costs to sell and its value-in-use, which is measured by reference to discounted future cash flow. An impairment loss is recognised in the income statement immediately. When there is a change in the estimates used to determine the recoverable amount, a subsequent increase in the recoverable amount of an asset is treated as a reversal of the previous impairment loss and is recognised to the extent of the carrying amount of the asset that would have been determined (net of amortisation and depreciation) had no impairment loss been recognised. The reversal is recognised in the income statement immediately, unless the asset is carried at its revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. (H) Financial instruments Financial instruments are recognised in the statements of financial position when the Group has become a party to the contractual provisions of the instruments. Financial assets are derecognised when the contractual rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. On de-recognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration received and any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss. (i) Financial assets carried at amortised cost These assets incorporate such types of financial assets where the objective is to hold these assets in order to collect contractual cash flows and the contractual cash flows are solely payments of principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. Impairment of provisions for receivables are recognised based on the simplified approach within IFRS 9 using a provision matrix in the determination of the lifetime expected credit losses. During this process the probability of the non-payment of the receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the receivables. On confirmation that the receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision. Impairment provisions for receivables from related parties and loans to related parties are recognised based on a forward-looking expected credit loss model. The methodology used to determine the amount of the provision is based on whether there has been a significant increase in credit risk since initial recognition of the financial asset. For those where the credit risk has not increased significantly since initial recognition of the financial asset, twelve month expected credit losses along with gross interest income are recognised. For those for which credit risk has increased significantly, lifetime expected credit losses along with the gross interest income are recognised. For those that are determined to be credit impaired, lifetime expected credit losses along with interest income on a net basis are recognised. The Group's financial assets measured at amortised cost comprise other receivables and cash and cash equivalents in the consolidated statement of financial position. w e i v r e v O e c n a n r e v o G s l a i c n a n i F r e h t O 37 3. Significant accounting policies (continued) (H) Financial instruments (continued) (ii) (iii) (iv) Financial assets with fair value through other comprehensive income (FVTOCI) The Group has a strategic investment in an unlisted entity (SGL, note 17), which is not accounted for as subsidiary, associate or jointly controlled entity. For that investment, the Group has made an irrevocable election to classify the investment at fair value through other comprehensive income rather than through profit or loss as the Group considers this measurement to be the most representative of the business model for this asset. It is carried at fair value with changes in fair value recognised in other comprehensive income and accumulated in the equity instrument reserve through other comprehensive income reserve. Upon disposal any balance within the equity instrument reserve is reclassified directly to retained earnings and is not reclassified to profit or loss. Dividends are recognised in profit or loss, unless the dividend clearly represents a recovery of part of the cost of the investment, in which case the full or partial amount of the dividend is recorded against the associated investments carrying amount. Purchases and sales of financial assets measured at fair value through other comprehensive income are recognised on settlement date with any change in fair value between trade date and settlement date being recognised in the equity instrument reserve. Financial liabilities measured at amortised cost Financial liabilities measured at amortised cost include current borrowings and trade and other payables that are short term in nature. Financial liabilities are derecognised if the Group’s obligations specified in the contract expire or are discharged or cancelled. Fair value measurement Fair value is 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. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: In the principal market for the asset or liability; or In the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities; Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable; and Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. O v e r v i e w G o v e r n a n c e F i n a n c i a l s O t h e r 38 3. Significant accounting policies (continued) (H) Financial instruments (continued) (v) Fair value measurement (continued) For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re- assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. (I) Warrants The Company estimates the fair value of the future liability relating to issued warrants using residual method, where a warrant was issued and included as a part of a package placement of “1 share+ 1 warrant”; the Black-Scholes pricing model taking into account the terms and conditions upon which the warrants were issued, if the warrant was granted on its own Warrants relating to equity finance are recorded as a reduction of capital stock based on the fair value of the warrants. (J) Share capital – common shares Incremental costs directly attributable to the issue of common shares and share options are recognised as a deduction from equity. (K) Share-based payment transactions The share option programme allows Group directors, officers, employees and consultants to acquire shares of the Company. Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date and are recognised as an expense with a corresponding increase in equity. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Directors’ estimate of equity instruments that will eventually vest, with a corresponding increase in equity. Where the conditions are non- vesting, the expense and equity reserve arising from share-based payment transactions is recognised in full immediately on grant. The fair value of the options granted is measured using the Black-Scholes model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest, except if the change is due to market-based conditions not being satisfied. (L) Cash and cash equivalents Cash and cash equivalents comprise cash in hand, demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. The carrying amount of these assets approximates their fair value. w e i v r e v O e c n a n r e v o G s l a i c n a n i F r e h t O 4. Operating loss Operating loss is stated after charging: Depreciation Exchange loss Exploration costs 2019 2 14 (4) 2018 3 6 2 39 4. Operating loss (continued) In accordance with IFRS 8 'Operating Segments', an operating segment is defined as a business activity whose operating results are reviewed by the chief operating decision maker ('CODM') and for which discrete information is available. The Group's CODM is the Board of Directors. The Group only has one reporting segment being its corporate activities whilst it seeks out opportunities to expand its portfolio. The Group's income, costs, assets, liabilities and cash flows are therefore totally attributable to its one segment so no IFRS 8 disclosures have been given. Auditor’s remuneration Fees payable to the Group’s auditor for the audit of the annual financial statements Fees payable to the Group’s auditor for other services: Tax compliance services Total 2019 2018 29 - 29 31 2 33 Staff numbers and costs 5. The average number of persons employed by the Group (including directors) during the year, analysed by category, was as follows: Finance and administration Total staff numbers The aggregate staff costs of these persons as follows: Wages and salaries Social security costs Pension Share based payments Total staff costs 2019 5 5 2018 5 5 2019 362 36 10 64 472 2018 839 85 2 134 1,060 During the year ended 31 December 2019 $nil (2018: $114,000) wages and salaries were satisfied by the issue of common shares in the Company (2018: 37,200,000). Remuneration of key management personnel Key management personnel remuneration is detailed below: Executive directors B Brodie Good (appointed 4 July 2019) P Taylor (appointed 26 Feb 2019, resigned 5 July 2019) A J Williams (resigned 15 May 2018) J T Williams (resigned 15 May 2018) D V Edmonds (appointed 15 May 2018, resigned 11 April 2019) Non-executive directors D J Smith (appointed 26 Feb 2019) T A Bailey (resigned 30 June 2018) J S Cable J A Crombie (resigned 30 June 2018) C C Gordon (appointed 15 May 2018) Other key management Company Secretary Total remuneration 2019 Salary/Fees 2018 Salary/Fees 51 119 - - 14 42 - 32 - 32 81 371 - - 166 406 21 - 25 34 25 21 141 839 O v e r v i e w G o v e r n a n c e F i n a n c i a l s O t h e r 40 5. Staff numbers and costs (continued) Remuneration of key management personnel (continued) The above remuneration excludes social security costs incurred by the Group. Including these social security costs, the total short-term employee benefits for the year in respect of key management personnel amounted to $471,000 (2018: $847,000). Wages and salaries Paid directly Paid via related party consultancy companies Share based payment charge Total 2019 320 42 63 425 2018 838 - 134 972 Share based payment charges relate to the fair value charge attributed to share options granted, further details are disclosed in note 14. 6. Net investment income Finance charges Interest income Total net investment income 7. Income tax recognised in the income statement Current tax Reconciliation of effective tax rate Loss before tax Income tax using the domestic corporation tax rate of 19% (2018: 19%) Non-deductible expenses Effect of timing differences Depreciation in excess of capital allowances Adjustments relating to different tax rates of subsidiary Tax losses carried forward not recognised Total tax expense 2019 (5) 1 (4) 2019 - 2019 (1,046) (199) 18 - - - 181 - 2018 (2) - (2) 2018 - 2018 (1,533) (291) 40 - - - 251 - At the year end the Group had tax losses to carry forward of approximately $25,577,000 (2018: $24,627,00). Under IFRS a net deferred tax asset of approximately $4,872,000 (2018: $4,691,000) has not been recognised due to the uncertainty as to the amount that can be utilised. No adjustments are required in respect of the subsidiaries. w e i v r e v O e c n a n r e v o G s l a i c n a n i F r e h t O 41 8. Loss per share Basic loss per share The calculation of basic loss per share at 31 December 2019 was based on the loss attributable to common shareholders of $1,046,000 (2018: $1,533,000) and a weighted average number of common shares outstanding during the year ended 31 December 2019 of 1,103,098,525 (2018: 601,248,037). Loss from continuing operations Loss attributable to common shareholders Basic and diluted loss per share in US cents 2019 1,046 1,046 0.1 2018 1,533 1,533 0.3 Diluted Loss per share The potential increase in common shares from the exercise of any outstanding share purchase warrants and share options would be anti-dilutive as the Group has a net loss. These potential common shares are therefore excluded from the calculation and the diluted loss per share figure reported is the same as the basic loss per share. 9. Intangible assets Cost At 1 January 2018 Additions Foreign exchange (Restated) At 31 December 2018 Additions Foreign exchange At 31 December 2019 As restated Deferred exploration costs 236 26 (31) 231 251 10 492 The additions during the year were for deferred exploration costs of $207,000 relating to a number of projects in Mexico and an option to purchase iron ore projects in Western Australia costing $44,000. Foreign exchange figure for the year ended 31 December 2018 has been restated from $1,000 to ($31,000). Note 19 has more details on this adjustment. O v e r v i e w G o v e r n a n c e F i n a n c i a l s O t h e r 42 10. Property, plant and equipment Cost At 31 December 2017 Disposals At 31 December 2018 Additions/ (Disposals) At 31 December 2019 Depreciation and impairment losses At 31 December 2017 Depreciation Disposals At 31 December 2018 Depreciation At 31 December 2019 Carrying amounts At 31 December 2017 At 31 December 2018 At 31 December 2019 11. Trade and other receivables Other receivables Prepayments Total trade and receivables 12. Cash and cash equivalents Bank balances Cash and cash equivalents in the statement of cash flows 13. Share capital and reserves Share Capital Plant and equipment Vehicles Total 34 (32) 2 - 2 (32) (1) 32 (1) - (1) 2 1 1 7 - 7 - 7 (3) (2) - (5) (2) (7) 4 2 - 41 (32) 9 - 9 (35) (3) 32 (6) (2) (8) 6 3 1 2019 17 46 63 2019 166 166 2018 21 73 94 2018 298 298 Authorised The Company is authorised to issue an unlimited number of common shares of no par value. Issued and outstanding common shares Changes for the years ended 31 December 2019 and 2018 are detailed in the following table: Opening balance 1 January Shares and warrants issued for cash Issue costs of share issuance Fair value of share warrants issued Expiry of warrants Closing balance 31 December 2019 Number of shares (000s) 716,143 635,580 - - - 1,351,723 Amount 53,870 1,098 (76) (244) 2,166 56,814 2018 Number of shares (000s) 423,695 292,448 - - - 716,143 Amount 52,965 984 (62) (17) - 53,870 w e i v r e v O e c n a n r e v o G s l a i c n a n i F r e h t O 43 13. Share capital and reserves (continued) During the years ended 31 December 2019 and 2018, the Company made share issuances as set out below. 2019 On 27 June 2019, 233,333,333 common shares were issued at £0.0015 each, £350,000 (US$443,951). On 14 May 2019, 200,000,000 common shares were issued at £0.0015 pence each, £300,000 (US$389,766). On 10 April 2019, 202,247,000 common shares were issued at £0.0010 each, £202,247 (US$264,203). This was in full settlement of the subsisting convertible loan. 2018 On 1 November 2018, 14,448,000 common shares were issued at £0.0025 each, £36,120 (US$46,027). On 15 May 2018, 278,000,000 common shares were issued at £0.0025 each, £695,000 (US$938,000). Warrants Warrant reserve The warrants reserve arises on the issue of warrants. Opening balance 1 January Fair value of warrants issued Expiry of warrants Closing balance 31 December 2019 2,183 244 (2,166) 261 2018 2,166 17 - 2,183 On 10 April 2019 202,247,000 common shares purchase warrants were issued, exercisable at £0.0015 per common share, until 31 January 2022. These warrants were issued as a part of the full settlement of subsisting convertible loan. The number and weighted average exercise price of warrants in issue for the year ended 31 December 2019 and 2018: 2019 2018 Outstanding (000s) 393,235 202,247 (378,787) 216,695 Weighted average exercise price ($) 0.01 0.01 0.01 0.01 Outstanding (000s) 378,787 14,448 - 393,235 Weighted average exercise price ($) 0.01 0.01 - 0.01 Opening balance 1 January Issued Cancelled Closing balance 31 December Fair value of Warrants and assumptions The estimate of the fair value of the Warrants is measured based on the Black-Scholes model. The following inputs were used in the calculation of the fair value of the warrants granted. Fair value ($000s) Share price ($) Weighted average exercise price (£) Expected volatility Expected warrants life Expected dividend yield Risk-free interest rate 17 April 2019 244 0.0020 0.0015 103.38% 2.8 years 0% 0.823% The expected volatility is based on the historical share prices of a group of companies deemed to be comparable. O v e r v i e w G o v e r n a n c e F i n a n c i a l s O t h e r 44 13. Share capital and reserves (continued) Share-based payment reserve The share-based payment reserve arises on the grant of share options to directors, employees and other eligible persons under the share option plan. Opening balance 1 January Fair value of share options issued Share options lapsed Closing balance 31 December 2019 1,057 64 - 1,121 2018 1,389 134 (466) 1,057 Foreign exchange translation reserve The translation reserve comprises foreign exchange differences arising from the translation of the financial statements of operations that do not have a US dollar functional currency. Exchange differences arising are classified as equity and transferred to the Group’s translation reserve. Accumulated losses Accumulated losses contain losses incurred in the current and prior years. 14. Share-based payment transactions The number and weighted average exercise prices of share options for the years ended 31 December 2019 and 2018 are set out below. Opening balance 1 January Issued Lapsed Closing balance 31 December 2019 2018 Outstanding (000s) 36,785 44,542 - 81,327 Weighted average exercise price ($) 0.03 0.003 - 0.02 Outstanding (000s) 9,225 34,285 (6,725) 36,785 Weighted average exercise price ($) 0.03 0.95 0.07 0.03 Share options in issue at 31 December 2019: Outstanding shares 1,250,000 1,250,000 34,284,746 5,000,000 2,200,000 5,000,000 10,000,000 12,342,509 3,000,000 3,000,000 4,000,000 Exercisable shares 1,250,000 1,250,000 34,284,746 5,000,000 2,200,000 5,000,000 10,000,000 12,342,509 3,000,000 3,000,000 4,000,000 Exercise price £0.0100 £0.0100 £0.0025 £0.0018 £0.0025 £0.0019 £0.0023 £0.0025 £0.0022 £0.0030 £0.0045 Expiry 2 February 2022 9 February 2022 14 May 2023 28 March 2024 28 March 2024 28 March 2024 28 March 2024 28 March 2024 28 March 2024 28 March 2024 28 March 2024 The share options outstanding at 31 December 2019 if exercised, will be settled by issue of equity. The weighted average remaining contractual life of share options as at 31 December 2019 was 1,391 days. w e i v r e v O e c n a n r e v o G s l a i c n a n i F r e h t O 45 14. Share-based payment transactions (continued) Fair value of share options and assumptions The estimate of the fair value of the share options is measured based on the Black-Scholes model. The following inputs were used in the calculation of the fair value of the warrants granted. Option 1 29 March 2019 Option 2 29 March 2019 Option 3 29 March 2019 Option 4 29 March 2019 Option 5 29 March 2019 Option 6 29 March 2019 Option 7 29 March 2019 Share price (£) 0.0017 0.0017 0.0017 0.0017 0.0017 0.0017 0.0017 Exercise price (£) 0.0018 0.0025 0.0019 0.0023 0.0025 0.0025 0.0025 Expected volatility 111.8% 111.8% 111.8% 111.8% 111.8% 111.8% 111.8% Expected option life (years) 5.0 5.0 4.8 4.5 4.8 4.5 4.0 Expected dividend yield 0 0 0 0 0 0 0 Risk-free interest rate 0.75% 0.75% 0.75% 0.75% 0.75% 0.70% 0.70% The total charge of US$54,735 in relation to 34,542,509 options granted on 29 March 2019 is included in administrative expenses in the Consolidated Statement of Comprehensive Income. These options have three different exercisable dates: 29 March 2019, 29 June 2019 and 29 September 2019. Share price (£) Exercise price (£) Option 8 30 September 2019 Option 9 30 September 2019 Option 10 30 September 2019 0.0014 0.0022 0.0014 0.0030 0.0014 0.0045 Expected volatility 100% 100% 100% Expected option life (years) Expected dividend yield 4.5 0 4.5 0 4.5 0 Risk-free interest rate 2.00% 2.00% 2.00% The total charge of US$9,741 in relation to 10,000,000 options granted on 30 September 2019 is included in administrative expenses in the Consolidated Statement of Comprehensive Income. The expected volatility is based on the historical share prices of a group of companies deemed to be comparable. O v e r v i e w G o v e r n a n c e F i n a n c i a l s O t h e r 46 14. Share-based payment transactions (continued) Share options held by directors and senior management at 31 December 2019: Holder D J Smith B Brodie Good C C Gordon J S Cable Senior Management Shares Options 3,085,627 3,085,627 6,171,255 3,000,000 3,000,000 4,000,000 Exercise price Grant Date Vesting Date Expiry1 £0.0025 £0.0025 £0.0025 £0.0022 £0.0030 £0.0045 29 Mar 2019 29 Mar 2019 29 Mar 2019 29 Jun 2019 29 Sep 2019 29 Mar 2020 28 Mar 2024 28 Mar 2024 28 Mar 2024 30 Sep 2019 30 Sep 2019 30 Sep 2019 1 Oct 2019 1 Oct 2019 1 Oct 2019 28 Mar 2024 28 Mar 2024 28 Mar 2024 17,142,373 £0.0025 15 May 2018 15 May 2018 14 May 2023 500,000 1,100,000 2,000,000 1,100,000 £0.01 £0.0025 £0.01 £0.0025 10 Feb 2018 29 Mar 2019 10 Feb 2018 29 Mar 2019 09 Feb 2022 28 Mar 2024 03 Feb 2018 29 Mar 2019 03 Feb 2018 29 Mar 2019 02 Feb 2022 28 Mar 2024 1 The expiry date is subject to the terms and conditions contained in the share option plan. Changes to the number of share options held by directors and senior management in the year ended 31 December 2019: Holder At 1 January 2019 Granted Lapsed D J Smith P W Taylor B Brodie Good D V Edmonds C C Gordon J S Cable Senior Management Total - - - 17,142,373 17,142,373 500,000 2,000,000 36,784,746 12,342,509 20,000,000 10,000,000 - - 1,100,000 1,100,000 44,542,509 - - - - - - - - At 31 December 2019 12,342,509 20,000,000 10,000,000 17,142,373 17,142,373 1,600,000 3,100,000 81,327,255 15. Trade and other payables Trade payables Other payables Total trade and other payables 16. Group entities Country of incorporation and operation Significant Subsidiaries Compañía Minera Estrella de Plata S.A. de C.V. Mexico Arian Silver Corporation (UK) Ltd Arian Silver (Holdings) Limited Alien Minerals Ltd Alien Resources Ltd Alien Exploration Ltd England and Wales England and Wales England and Wales England and Wales England and Wales 2019 86 37 123 2018 22 52 74 Principal activity Mining exploration Holding Holding Non-trading Non-trading Non-trading Alien Metals Ltd effective interest 2019 100% 100% 100% 100% 100% 100% 2018 100% 100% 100% 100% 100% 100% 47 w e i v r e v O e c n a n r e v o G s l a i c n a n i F r e h t O 17. Financial instruments and financial risk management Categories of financial instruments Cash and cash equivalents (note 12) Trade and other receivables (note 11) Total financial assets measured at amortised cost Financial assets at fair value through other comprehensive income Total financial assets Trade and other payables measured at amortised cost (note 15) Total financial liabilities 2019 166 17 183 81 264 123 123 2018 298 37 335 78 413 62 62 Exposure to interest rate and foreign currency risks arises in the normal course of the Group’s business. Derivative financial instruments are not used to hedge exposure to fluctuations in foreign exchange rates and interest rates. The Group’s policy is to retain its surplus funds on short term deposits, usually between one week and four weeks duration, at prevailing market rates. Credit risk is managed by ensuring that surplus funds are only deposited with well-established financial institutions of high quality credit standing. Market risk Market risk is the risk that the Group’s future earnings will be adversely impacted by changes in market prices. Market risk for Alien Metals comprises two types of risk: price risk and foreign currency risk. Price risk The price risk is the risk that the Group’s future earnings will be adversely impacted by changes in the market prices of commodities. Foreign currency risk The Group’s operational expenditure is made in Mexico in Mexican pesos and head office expenses are predominantly made in the UK in pounds sterling, and United States dollars. The Group is therefore exposed to the movement in exchange rates for these currencies. The Group does not currently hedge foreign exchange risk. At the year end the majority of the Group’s cash resources were held in pounds sterling. The Group therefore also has downside exposure to any strengthening of United States dollar or the Mexican peso against pounds sterling as this would increase expenses in pounds sterling terms and accelerate the depletion of the Group’s cash resources. Any weakening of United States dollar or the Mexican peso against pounds sterling would, however, result in a reduction in expenses in pounds sterling terms and preserve the Group’s cash resources. There is not considered to be any material exposure in respect of other monetary assets and liabilities of the Group as these are of a short-term nature. The table below shows an analysis of cash and cash equivalents denominated by currency. Pounds sterling United States dollars Mexican pesos Total cash held 2019 158 7 1 166 2018 268 27 3 298 O v e r v i e w G o v e r n a n c e F i n a n c i a l s O t h e r 48 17. Financial instruments and financial risk management (continued) Sensitivity Analysis The Group holds cash in pounds sterling to settle accounts payable balances derived in that currency. The main risk is through foreign exchange fluctuations in companies where the cash balances are held in a currency that is different to the functional currency. Currency of net monetary asset/liability Sterling United States dollars Mexican pesos Total Functional Currency Sterling Sterling 2019 2018 Mexican Peso 2019 Mexican Peso 2018 Total Total 2019 2018 96 2 - 98 258 34 - 292 - 5 1 6 - 27 15 42 96 7 1 104 258 61 15 334 Exposure to foreign currency risk sensitivity analysis: 15% strengthening in the United States dollar 15% weakening in the United States dollar Against Sterling US$ (325) 325 A 15% variation is considered an appropriate level of sensitivity given recent levels of foreign exchange volatility. Interest rate risk Interest rate risk is the risk that the value of a financial instrument or cash flows associated with the instrument will fluctuate due to changes in market interest rates. Interest rate risk arises from interest bearing financial assets and liabilities that the Group uses. Treasury activities take place under procedures and policies approved and monitored by the Board to minimise the financial risk faced by the Group. Interest bearing assets comprise cash and cash equivalents which are considered to be short-term liquid assets. No sensitivity analysis has been disclosed as management does not consider any reasonable fluctuation in interest rates to be sufficiently material to disclose. Liquidity risk The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. The directors regularly review cash flow forecasts to determine whether the Group has sufficient cash reserves to meet future working capital requirements and discretionary business development opportunities including exploration activities. As at 31 December 2019, the Company had cash and other receivables of $183k to settle accounts payable of $85k. The Company’s accounts payable have contractual maturities of less than 30 days and are subject to normal trade terms. In the short-term, liabilities will be funded by cash. The Group’s assets are at an early stage and in order to meet financing requirements for their development the Company has raised funds by way of several discrete share placements, which is a common practice for junior mineral exploration companies. In Feb 2020 the Company was successful in an equity placing and subscription generating proceeds of $907,000. Although the Company has been successful in the past in raising equity finance, there can be no assurance that the funding required by the Group will be made available to it when needed or, if such funding were to be available, that it would be offered on reasonable terms. The terms of such financing might not be favourable to the Group and might involve substantial dilution to existing shareholders. Credit risk Credit risk is the risk of loss associated with a counterparty’s inability to fulfil its payment obligations. The Group’s maximum exposure to credit risk is attributable to cash. The credit risk on cash is limited because the Group invests its cash in deposits with well capitalised financial institutions with strong credit ratings. w e i v r e v O e c n a n r e v o G s l a i c n a n i F r e h t O 49 17. Financial instruments and financial risk management (continued) Fair values Financial instruments not measured at fair value include cash and cash equivalents, trade and other receivables, trade and other payables. It is the Board’s opinion that the carrying values of the cash and cash equivalents, the other receivables, all trade and other payables in the consolidated statement of financial position approximate their fair values due to their short-term nature. Fair value disclosures for financial asset investment in SGL are shown below in this note. Capital management The Group’s objective when managing capital is to safeguard the Group’s ability to continue as a going concern and have access to adequate funding for its exploration and development projects, so that it can provide returns for shareholders and benefits for other stakeholders. The Group manages the capital structure and makes adjustments in the light of changes in economic conditions and risk characteristics of the underlying assets. In order to maintain or adjust the capital structure the Group may issue new shares, acquire debt, or sell assets. Management regularly reviews cash flow forecasts to determine whether the Group has sufficient cash reserves to meet future working capital requirements and to take advantage of business opportunities. Financial asset investment The Company has only one investment, which is an equity investment into the shares of Siberian Goldfields Limited “SGL”, an unlisted company with interests in gold and iron ore deposits in Siberia, Russia. The classification of the equity investments into SGL share is disclosed as fair value through other comprehensive income under IFRS 9. The Directors have considered a number of methodologies to determine the fair value of the financial asset investment in SGL including market approach, determining a fair value by reference to similar listed companies, determining a fair value by reference to in-situ resources and determining a value through discounted cash flow model. However, considering the geopolitical climate for Russian related investments which remains particularly challenging and given that SGL has not been able to raise the pre-IPO funding they intended to, the Directors have taken conservative approach to reduce the carrying value to $1 until there will be objective evidence to show otherwise. The following table shows the changes to the fair value of the Company’s Level 2 financial assets: Opening balance Change in fair value recognised in OCI Foreign exchange Closing balance 18. Operating lease arrangements 2019 78 (81) 3 - 2018 143 (56) (9) 78 At the reporting date, the Group had outstanding commitments for future minimum lease payments under non- cancellable operating leases, which fall due as follows: Within one year 19. Prior year adjustment 2019 34 2018 - In note 9 Intangible assets, the foreign exchange movement in the prior year was $1,000 which has been restated to ($31,000), an adjustment of ($32,000). This adjustment arises because the prior year closing intangible asset balance was incorrectly translated as at 31 December 2018. This has been rectified by taking the closing intangible amount and correctly translating it to USD as at 31 December 2018. The restatement has been updated in the following primary statements: Consolidated statement of comprehensive income – Foreign exchange translation differences recognised directly in equity. Prior year reported was ($38,000) restated to ($70,000). O v e r v i e w G o v e r n a n c e F i n a n c i a l s O t h e r 50 19. Prior year adjustment (continued) Consolidated statement of financial position – Intangible assets. Prior year reported balance was $263,000 restated to $231,000. Consolidated statement of changes in equity – Foreign exchange translation differences recognised directly in equity. Prior year reported balance was ($38,000) restated to ($70,000), reflecting an adjustment of $32,000. 20. Ultimate controlling party There is no ultimate controlling party of the Company. 21. Related parties Control of the Company In the opinion of the Board, at 31 December 2019 there was no ultimate controlling party of the Company. Identity of related parties The Company and its subsidiaries have related party relationships with their respective directors. Directors’ interests in shares of the Company At 31 December 2019, none of the Directors of the Company or their immediate relatives had an interest in the Common shares of the Company (2018:nil). Transactions with key management personnel During the year ended 31 December 2019 the Company entered into the following transactions involving key management personnel: During the period KBG Consultants a company in which Bill Brodie Good is a director, charged the Company a total of $29,584 (2018: nil) for geological consultancy services. There was no outstanding balance at 31 December 2019 (2018: nil). The Company had $2,319 outstanding balance owed to Bill Brodie Good for expense claims (2018: nil). During the period Sorrento Resources International, a company in which Daniel Smith is a director, charged the Company a total of $46,277 (2018: nil) for directors fees and geological consultancy services. There was no outstanding balance at 31 December 2019 (2018: nil). During the period Minerva Corporate, a company in which Daniel Smith is a director, charged the Company a total of $6,498 (2018: nil) for consultancy services and expenses. There was $6,561 outstanding balance at 31 December 2019 (2018: nil). Key management personnel participate in the Group’s share option programme as disclosed in note 14. Key management personnel compensation is disclosed in note 5. 21. Post balance sheet events On 25 February 2020, the Company raised £700,000 (before costs), in a placing and subscription of 466,666,666 new ordinary shares at a price of 0.15 pence per share. One warrant is to be issued with every three placing shares, exercisable at 0.30 pence for the period of two years from the admission of the placing shares. The shares were admitted to trading on AIM on 10 March 2020. On 19 March 2020, the Company announced that it had completed the acquisition of a 51% interest in the Hancock Ranges and Brockman Iron Ore Projects in Pilbara, Western Australia. Pursuant to the joint venture agreement with Windfield Metals Pty Ltd (“Windfield”), the Company issued Windfield with 200,000,000 shares at an issue price of 0.11 pence per share and 66,666,666 warrants over shares in the Company. The warrants have an exercise price of 0.2 pence each and are exercisable on or before 12 March 2022. On 11 May 2020, the Company announced that it had raised an additional £275,000 (before costs), through a placing and subscription of 343,750,000 new ordinary shares at a price of 0.08 pence per share. One warrant is to be issued with every two new shares, exercisable at 0.15 pence for a period of three years from admission of the placing shares. w e i v r e v O e c n a n r e v o G s l a i c n a n i F r e h t O 51 Other information Directors The following individuals served as directors to the Company during the year ended 31 December 2019: Dan John Smith Bill Brodie Good Christopher Charles Gordon James Seymour Cable Peter Taylor Dennis Vernon Edmonds (appointed 26 February 2019) (appointed 4 July 2019) (appointed 15 May 2018) (appointed 17 October 2006) (appointed 26 February 2019; resigned 4 July 2019) (appointed 15 May 2018; resigned 11 April 2019) Company contacts and advisers Auditors Jeffreys Henry LLP Finsgate 5-7 Cranwood Street London EC1V 9EE United Kingdom Registrar (BVI) Computershare Investor Services (BVI) Limited c/o Queensway House Hilgrove Street St Helier JE1 1ES Jersey Registered office Craigmuir Chambers P.O. Box 71 Road Town Tortola British Virgin Islands UK head office 16 Berkeley Street London W1J 8DZ United Kingdom Nominated Advisor and Broker Beaumont Cornish Ltd 10th Floor 30 Crown Place London EC2A 4EB United Kingdom Registrar (UK depository interests) Computershare Investor Services plc The Pavilions Bridgewater Road Bristol BS99 7NH United Kingdom Company registration number UK FC027089 BVI 1029783 Website www.alienmetals.uk O v e r v i e w G o v e r n a n c e F i n a n c i a l s O t h e r 52
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