Corporate Information ABN 46 106 346 918 DIRECTORS Mr. Peter Ingram (Chairman) Mr. Anthony Rovira (Managing Director) Dr Wolf Martinick (Non‑Executive Director) COMPANY SECRETARY Mr. Brett Dickson REGISTERED OFFICE Level 1, 30 Richardson Street WEST PERTH WA 6005 (08) 9481 2555 SOLICITORS K & L Gates Level 32 44 St Georges Terrace Perth WA 6000 BANKERS Commonwealth Bank of Australia Limited SHARE REGISTER Computershare Investor Services Pty Ltd Level 11 172 St Georges Terrace Perth WA 6000 Telephone: 1300 787 272 AUDITORS BDO Audit (WA) Pty Ltd 38 Station Street SUBIACO WA 6008 INTERNET ADDRESS www.azureminerals.com.au ASX CODE Shares AZS 2 AZURE MINERALS LIMITED ANNUAL REPORT 2014 Contents Corporate Information Chairman’s Letter Review of Operations Directors’ Report Corporate Governance Statement – Statement of Profit or Loss and Other Comprehensive Income – Statement of Financial Position – Statement of Changes in Equity – Statement of Cash Flows – Notes to the Consolidated Financial Statements – Directors’ Declaration – Independent Auditor’s Report – Declaration of Independence ASX Additional Information 2 4 5 9 22 27 28 29 31 32 60 61 63 64 AZURE MINERALS LIMITED ANNUAL REPORT 2015 3 Chairman’s Letter Dear Fellow Shareholder I have pleasure in presenting to you, the Annual Report of Azure Minerals Limited for the year ending 30 June 2015. While this report is primarily a review of activities for the last financial year, it would be remiss of me not to make mention of the very exciting, recent exploration success at our Alacrán Project in Mexico that occurred after the close of the reporting period. This large, high grade silver discovery has the potential to redefine and reshape your company and we expect the forthcoming year will be one of exciting progress. What is important to remember, is that this recent exploration success would not have been achieved without the hard work and effort applied over the last year. Despite the general malaise within the resources sector of our economy, 2015 has been a year of solid achievements and progress for your Company. Our achievements in Mexico include the: • Successful delineation of a significant copper‑gold‑silver resource at Promontorio and Cascada deposits, for a total Indicated and Inferred Resource of 2.9MT at an average grade of 1.4% Cu, 1.6gpt Au, and 25gpt Ag (see the Managing Director’s Review of Operations for full details); • Successful negotiation of a very favorable Earn‑In and Joint Venture Agreement with Kennecott Promontorio S.A. de C.V., a wholly owned subsidiary of the Rio Tinto Group, covering the entire Promontorio Project; • Successful negotiation of the Right to Acquire a 100% interest in a significant silver‑copper‑gold project, the Alacrán Project, from Minera Teck S.A. de C.V. (Teck). Teck is a believer in the potential of Alacrán to host major copper deposits and has retained certain back‑in rights over the project; • Successful early exploration at Alacrán, which has been achieved during the first phases of systematic exploration, culminating in the completion of 14 RC drill holes testing several targets and the discovery of the abovementioned high‑grade silver deposit at Mesa de Plata; • Application for three strategic mineral concessions, the Telix Graphite Project, covering several significant graphite deposits within Mexico’s premiere graphite mining district and surrounding the suspended El Tejon graphite mine; • Successful raising of $3,156,406 of new capital to fund our ongoing exploration programs. The successes achieved during the year are the result of a combination of extremely hard work by, and excellent technical skills of our management teams in both the head office in Perth and the operations base in Mexico. I would like to take this opportunity to, on your behalf, thank the team for their efforts and to congratulate them on their successes. Finally, I would like to thank you, the Shareholders, for your continuing support of the company and its continued exploration efforts, without which our successes could not have been achieved. I look forward to the next year with great anticipation. Yours sincerely, Peter Ingram Chairman 4 AZURE MINERALS LIMITED ANNUAL REPORT 2015 Review of Operations OVERVIEW Azure Minerals Limited (“Azure”) is progressing two copper‑gold‑silver projects with two of the world’s major mining companies – the Alacrán Project under option with a subsidiary of Teck Resources Limited (“Teck”), and with the Rio Tinto Group which is earning into the Promontorio Project. ALACRÁN PROJECT In line with its strategy to grow the asset base of the company, Azure secured the right to acquire 100% of the Alacrán Project from Minera Teck S.A. de C.V. (“Teck”), a Mexican subsidiary of Teck Resources Limited, subject to certain back‑in rights. ALACRÁN BACKGROUND Alacrán is located in northern Mexico approximately 50km south of the USA border. The property covers 54km2 of highly prospective exploration ground in the middle of the Laramide Copper Province. This is one of North America’s most prolific copper‑producing districts, extending from northern Mexico into the southern United States. Alacrán lies in close proximity to several large copper mines, including being only 15km from the world class, giant Cananea Copper Mine operated by Grupo Mexico. There is excellent access to and within the property, via a sealed highway from Hermosillo, capital of the State of Sonora, and existing mine roads and ranch tracks. The nearby town of Cananea is a mining‑friendly jurisdiction with experienced exploration and mining services, as well as physical infrastructure including roads, railway, airport, electrical power and water. Commercial and artisanal mining occurred within the project area in the early 20th century, ending in 1913 due to the Mexican Revolution. Since that time, Alacrán has seen only limited exploration and its potential for hosting large porphyry copper deposits and smaller high grade precious and base metal deposits remains largely untested by modern exploration techniques. The Anaconda Copper Mining Company explored the property intermittently from the 1930’s to the 1960’s. Data relating to this work is held in the Anaconda Geological Documents Collection, part of the American Heritage Centre in the University of Wyoming. Azure has visited the library and retrieved copies of numerous technical reports and maps. Between the 1960’s and the early 1980’s, the Consejo de Recursos Minerales (Mexican Geological Survey) carried out occasional exploration programs, including drilling 6 holes at the Cerro Alacrán prospect in 1970 and undertaking geophysical surveys over the Palo Seco and La Morita prospects in 1981. Grupo Mexico S.A.B.de C.V. (“Grupo Mexico”) then acquired the project and drilled 26 holes at Cerro Alacrán in the 1990’s. This drilling, which was restricted to an area of approximately 50 hectares, outlined a large body of near‑surface, copper oxide and chalcocite (copper sulphide) mineralisation. The size, grade and the extent of this mineralised body is yet to be defined as a mineral resource to JORC standards. Teck acquired the property from Grupo Mexico in 2013 and undertook limited exploration prior to optioning its rights to Azure. Azure acquired the rights to the project in December 2014 through its fully owned Mexican subsidiary Minera Piedra Azul S.A. de C.V. Azure has signed an Agreement with Teck to acquire 100% of the property, subject to an underlying back‑in right retained by Teck and a 2% Net Smelter Returns Royalty (NSR) retained by Grupo Mexico. Teck is Canada’s largest diversified mineral resource company. Grupo Mexico is Mexico’s, and one of the world’s, largest copper producers. ALACRÁN EXPLORATION ACTIVITIES Following finalisation of the agreement with Teck, Azure commenced exploration to identify and progress a number of high‑priority targets prospective for precious and base metal mineralisation, especially copper, gold and silver. Exploration was focused in the western half of the project area where significant surface expressions of mineralisation and historical mine workings are present. Activities included acquisition of historical technical data, geological mapping, surface and underground mine sampling, geophysics, and airborne LIDAR and photographic surveys. This work identified several highly prospective targets. One of the targets, La Morita has potential for porphyry‑ related copper mineralisation; other targets such as Mesa de Plata, San Simon, Puerto del Oro and Palo Seco have potential for structurally‑controlled, stratabound or epithermal polymetallic mineralisation – specifically for silver‑gold deposits. No modern exploration has been undertaken on any of these prospects. Having completed the initial work program, post‑year end Azure carried out a Reverse Circulation (RC) drilling program of 14 holes for 2,073 metres to test the grade, thickness and lateral extent of mineralisation identified at these prospects. AZURE MINERALS LIMITED ANNUAL REPORT 2015 5 Review of Operations PROMONTORIO PROJECT AGREEMENT WITH RIO TINTO Azure has made strong progress at Promontorio over the past 12 months, with the highlight being execution of an Earn‑in and Joint Venture Agreement with Kennecott Promontorio S.A. de C.V., a subsidiary of the Rio Tinto Group (“Kennecott”). The agreement enables Kennecott to earn up to 80% interest in the Promontorio Project by spending US$45 million on exploration and development. The agreement with Kennecott has demonstrated the excellent potential for Promontorio to host very large copper deposits, and has allowed significant acceleration of exploration activity at the project area over the past 12 months. Stage 1 Kennecott will sole‑fund a minimum expenditure of US$2 million during the calendar year 2015 (“Minimum Commitment”). In addition, upon the signing of the Agreement in December 2014, Kennecott paid a non‑ refundable fee of US$250,000 to Azure. Azure is the Project Operator during the early stages of the Agreement, with Kennecott providing their technical expertise in exploration planning and evaluation of results. Kennecott earns no interest in the project during Stage 1 and may withdraw from the Agreement at any time, after satisfying the Minimum Commitment. Stage 2 At the end of the first 12 months of the Agreement (December 2015), Kennecott may elect to continue its exploration and, through spending a total of US$20 million (inclusive of the Minimum Commitment) over a further five years, earn an initial 51% interest in the project. At this point a 51:49 Joint Venture (“JV”) will be formed. To account for the considerable value already created by Azure with the definition of the Promontorio and Cascada copper deposits, upon formation of the JV, Kennecott will credit Azures’ JV account with US$50 million. This credit will cover Azures’ joint venture contributions as the Project progresses. Stage 3 Upon earning its 51% interest Kennecott may elect to earn an additional 29% interest (for a total interest in the JV of 80%) by spending a further US$25 million within a further 6 year period, taking total earn‑in expenditures to US$45 million. PROGRESS Following the execution of commercial terms, Stage 1 exploration activity under the agreement commenced in February 2015 This activity represented the first modern exploration activity conducted over the entire Promontorio project area. Key activities have included: • Airborne LIDAR and photographic survey • Airborne magnetic, radiometric and electromagnetic survey • Processing and interpretation of geophysical data • Regional mapping and sampling • Soil sampling program • Induced Polarisation Survey (in progress) Results from these programs to date have provided a solid base for exploration for large, buried copper deposits. Cascada Mineral Resources Azure was also pleased to deliver a maiden mineral resource estimate for the Cascada deposit (refer ASX release dated 07/05/15), located within the broader Promontorio Project. This resource of 2,060,000 tonnes @ 1.9% CuEq represents a substantial upgrade of resources for the Project, and Azure remains confident that exploration activity being undertaken by Kennecott will identify more targets that could further increase the overall resource base at the Promontorio Project. The mineral resource estimate for Cascada and the total updated resources for the Promontorio Project are shown in Tables 1 to 5. 6 AZURE MINERALS LIMITED ANNUAL REPORT 2015 Review of Operations Table 1: Cascada Mineral Resource above a 0.5% Cu Equivalent Cut-off within the Resource Constraining Shell Within Constraining Shell Cut off > 0.5% CuEq Classification Indicated Inferred Total Tonnage (tonnes) 810,000 1,140,000 1,950,000 Cu (%) 1.1 0.7 0.9 Grade Contained Metal Au (g/t) Ag (g/t) CuEq (%) Cu (tonnes) Au (oz) Ag (oz) 1.4 1.7 1.6 28 26 27 2.0 1.8 1.8 9,000 8,400 36,000 720,000 63,200 960,000 17,400 99,200 1,690,000 35,900 CuEq (tonnes) 15,900 20,000 Table 2: Cascada Mineral Resource above a 1.0% Cu Equivalent Cut-off below the Resource Constraining Shell Below Constraining Shell Cut off > 1.0% CuEq Grade Contained Metal Classification Indicated Inferred Total Tonnage (tonnes) 30,000 80,000 110,000 Cu (%) 1.0 1.3 1.2 Au (g/t) Ag (g/t) CuEq (%) Cu (tonnes) 0.8 2.7 2.3 17 22 21 1.5 2.7 2.4 300 1,100 1,300 Au (oz) 700 7,300 8,100 Ag (oz) 20,000 60,000 70,000 CuEq (tonnes) 400 2,300 2,700 Table 3: Cascada Mineral Resource Total within and below the Resource Constraining Shell Total Resource Grade Contained Metal Classification Indicated Inferred Total Tonnage (tonnes) 840,000 1,230,000 2,060,000 Cu (%) 1.1 0.8 0.9 Au (g/t) Ag (g/t) CuEq (%) Cu (tonnes) Au (oz) Ag (oz) CuEq (tonnes) 1.4 1.8 1.6 27 26 27 1.9 1.8 1.9 9,200 9,500 36,700 740,000 16,300 70,500 1,020,000 22,300 18,800 107,200 1,760,000 38,600 Table 4: Promontorio Project Mineral Resources Total Resource Grade Contained Metal Deposit Promontorio Tonnage (tonnes) 840,000 Cu (%) 2.5 Au (g/t) Ag (g/t) CuEq (%) Cu (tonnes) Au (oz) Ag (oz) CuEq (tonnes) 1.6 56 4.1 20,800 43,800 1,500,000 34,200 TELIX GRAPHITE PROJECT Azure was successful in being sole applicant for three mineral concessions to form the Telix Graphite Project (“Telix”). While the focus for Azure remains on progressing the Promontorio and Alacrán projects, Telix presented a low cost and highly attractive opportunity for the Company to acquire a strategic landholding in Mexico’s premier graphite mining district. The Telix Graphite Project covers 12.6km2 of highly prospective ground, located adjacent to Mexico’s only commercial graphite mine, El Tejon. Having operated for 21 years, El Tejon was closed in 2002 due to low graphite prices and, since then, the mine and processing plant have been on care and maintenance. Several historical graphite mines, including Curva 25, Zopilote and Temescal, are hosted within Azure’s concessions, with these deposits reported to be high quality flake graphite similar to that mined at the adjacent La Cucharita Central deposit, which was a principal source of ore for the El Tejon Graphite Mine and Mill. There is excellent local infrastructure with good roads including the Pan American Highway, a major railroad, and mains electrical power and water all passing through the project area. Azure believes the Telix Project may have attractive development synergies with the proposed recommencement of operations at El Tejon. AZURE MINERALS LIMITED ANNUAL REPORT 2015 7 Review of Operations MINERAL RESOURCES ESTIMATION GOVERNANCE STATEMENT Governance of Azure’s mineral resources is a responsibility of the Executive Management of the Company. The Promontorio mineral resource has not changed since last year. The Cascada mineral resource is a new resource this financial year and its first estimate was release to ASX on 7 May 2015. Azure has ensured that its mineral resources estimates are subject to appropriate levels of governance and internal controls. The mineral resources reported have been estimated by independent external consultants who are experienced in best practices in modelling and estimation methods. The consultants have also undertaken reviews of the quality and suitability of the underlying information used to generate the resource estimations. Additionally the Company carries out regular internal peer reviews of processes and contractors engaged. Azure has reported its Promontorio mineral resources on an annual basis in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Resources (the JORC code) 2004 Edition. Azure has reported its Cascada mineral resources on an annual basis in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Resources (the JORC code) 2012 Edition. Competent Persons named by Azure are members of the Australian Institute of Mining and Metallurgy and/or the Australian Institute of Geoscientists and/or of a “Recognised Professional Organisation”, as included in a list on the JORC and ASX websites. COMPETENT PERSON STATEMENT: Information in this report that relates to previously reported Exploration Results has been crossed-referenced in this report to the date that it was reported to ASX. Azure Minerals Limited confirms that it is not aware of any new information or data that materially affects information included in the relevant market announcement. The information in this report that relates to the Mineral Resource for the Promontorio deposit was prepared and first disclosed to the ASX on 10 May 2013 under the JORC Code 2004. It has not been updated since to comply with the JORC Code 2012 on the basis that the information has not materially changed since it was last reported. The information in this report that relates to Mineral Resources for the Cascada deposit is extracted from the report “Cascada Mineral Resource Estimate” created and released to ASX on 7 May 2015 and is available to view on www.asx.com. The Company confirms that it is not aware of any new information or data that materially affects the information included in the original market announcement and that all material assumptions and technical parameters underpinning the estimates in the relevant market announcement continue to apply and have not materially changed. The Company confirms that the form and context in which the Competent Person’s findings are presented have not been materially modified from the original market announcement. COPPER EQUIVALENCY STATEMENT: Copper Equivalency Statement – Promontorio: Copper Equivalent (CuEq) was based on the following assumed metal prices that were guided by the three year averages at the data cut-off date 2 April 2013: US$3.25/lb for Cu, US$1,450/oz for Au and US$27.50/oz for Ag. The CuEq grade accounts for the following metal recoveries: 97.9% for Cu, 93.4% for Au, and 97.0% for Ag. It is Azure’s belief that all elements included in the metal equivalent calculation have a reasonable potential to be recovered. The following formula was used to calculate the Copper Equivalent grade: CuEq (%) = (Cu% x 0.979) + (Au (g/t) x 0.6077) + (Ag (g/t) x 0.0120). Copper Equivalency Statement – Cascada: Copper Equivalent (CuEq) was based on the following assumed metal prices that were guided by the three year averages at the data cut-off date of 30 October 2014: US$3.40/lb for Cu, US$1,470/oz for Au and US$25.00/ oz for Ag. The CuEq grade accounts for the following metal recoveries: 95.0% for Cu, 75.0% for Au, and 85.0% for Ag. It is Azure’s belief that all elements included in the metal equivalent calculation have a reasonable potential to be recovered. The following formula was used to calculate the Copper Equivalent grade: CuEq (%) = (Cu% x 0.95) + (Au (g/t) x 0.4729) + (Ag (g/t) x 0.0091) 8 AZURE MINERALS LIMITED ANNUAL REPORT 2015 Directors’ Report Your directors present their report on the consolidated entity (referred to hereafter as “the Group”) consisting of Azure Minerals Limited (“Azure”) and the entities it controlled at the end of or during the year ended 30 June 2015. DIRECTORS The following persons were directors of Azure Minerals Limited during the whole of the financial year and up to the date of this report. Peter Ingram Anthony Rovira Wolf Martinick PRINCIPAL ACTIVITIES During the year the principal continuing activity of the Group was exploration for precious and base minerals in Mexico. DIVIDENDS No dividends were paid or declared since the start of the financial year. No recommendation for payment of dividends has been made. REVIEW OF OPERATIONS Group Overview Azure Minerals Limited was incorporated on 19 September 2003. Its principal focus is on exploration for gold, copper, silver and zinc in Mexico. The company has a number of 100% owned projects, one of which has been joint ventured. The Group has two main projects Promontorio where Kennecott may earn a 80% interest and Alacran where the Group may earn a 100% interest from Teck. The Group will continue to seek opportunities in Mexico, either 100% owned or in joint venture. Operating Results for the Year The operating loss after income tax of the Group for the year ended 30 June 2015 was $1,151,360 (2014: $3,317,821). Included in this loss figure is $2,041,367 (2014: $2,174,850) of exploration expenditure written off. Refer to notes 1(c) and 6 to the financial statements. Shareholder Returns Basic loss per share (cents) Diluted loss per share (cents) 2015 (0.13) (0.13) 2014 (0.5) (0.5) Investments for Future Performance The future performance of the group is dependent upon exploration success, the progress of development of those projects where precious and base metals are already present, and continued funding. To this end the group has budgeted to continue exploration at its Mexico projects. Review of Financial Condition At the date of this report the consolidated entity has a sound capital structure and is in a strong position to progress its mineral properties. AZURE MINERALS LIMITED ANNUAL REPORT 2015 9 Directors’ Report Risk Management The board is responsible for ensuring that risks, and also opportunities, are identified on a timely basis and that activities are aligned with the risks and opportunities identified by the board. The board has established an Audit and Risk Committee and has adopted a Risk Management Policy. The board has a number of mechanisms in place to ensure that management’s objectives and activities are aligned with the risks identified by the board. These include the following: • Board approval of a strategic plan, which covers strategy statements designed to meet stakeholders’ needs • and manage business risk. Implementation of board approved operating plans and budgets and board monitoring of progress against these budgets. The company undertakes risk review meetings as required with the involvement of senior management. Identified risks are weighed with action taken to mitigate key risks. SIGNIFICANT CHANGES IN STATE OF AFFAIRS During the year the company issued 215,993,616 ordinary fully paid shares raising $3,156,406 after all expenses of the issues. There were no other significant changes in the state of affairs of the Group during the financial year. SIGNIFICANT EVENTS AFTER THE REPORTING DATE Since the end of the financial year Azure has entered into an agreement with a New York‑based investment fund which provides the Azure with the right to secure up $3.25 million in equity funding over the next 24 months by way of an equity investment from the fund of a minimum of $100,000 each month, and up to $250,000 subject to certain conditions and at a price equal to 80% of the 5 day VWAP prior to any investment request. Azure made its first placement under the facility of 10,154,346 shares at $0.098 each raising $100,000. No other matter or circumstance has arisen since the end of the financial year which significantly affected or may significantly affect the operations of the group, the results of those operations, or the state of affairs of the group in future financial years. LIKELY DEVELOPMENTS AND EXPECTED RESULTS The group expects to maintain the present status and level of operations. ENVIRONMENTAL REGULATION AND PERFORMANCE The company is subject to significant environmental regulation in respect to its exploration activities. The company aims to ensure the appropriate standard of environmental care is achieved, and in doing so, that it is aware of and is in compliance with all environmental legislation. The directors of the company are not aware of any breach of environmental legislation for the year under review. The directors have considered compliance with the National Greenhouse and Energy Reporting Act 2007 which requires entities to report annual greenhouse gas emissions and energy use. The directors have assessed that the Company has no current reporting requirements, but may be required to report in the future. INFORMATION ON DIRECTORS Names, qualifications, experience and special responsibilities Mr. Peter Anthony Ingram BSc, FAusIMM, MGSA, FAICD (appointed 12 October 2011 and on 1 December 2011 appointed Chairman) Mr Ingram is a geologist with over forty years experience in the mining and mineral exploration industries within Australia, including over thirty years experience in public company management. He was the founding Chairman and Managing Director of Universal Resources Limited (now Altona Mining Limited). Mr Ingram was a founding councilor and past President of the Association of Mining and Exploration Companies (AMEC) and has been made an Honorary Life Member in recognition of his services to AMEC. He was also a founding director of the Australian Gold Mining Industry Council. He has served on the board of management of the WA School of Mines at Curtin University and was instrumental in the establishment of the Chair of Mineral Economics and Mine Management within that institution. Mr Ingram’s previous directorships include: Managing Director of Metana Minerals NL and Eastmet Limited; Executive Chairman of Australia Oriental Minerals NL and Glengarry Resources Limited; and Non‑executive Director of Dragon Mining Limited, Metana Petroleum Limited and Carnarvon Petroleum Limited. 10 AZURE MINERALS LIMITED ANNUAL REPORT 2015 Directors’ Report INFORMATION ON DIRECTORS (cont’d) Names, qualifications, experience and special responsibilities (cont’d) Other Current Directorships Altona Mining Limited Former Directorships in the last 3 years None. Special Responsibilities Chairman of the Board and Chairman of the Remuneration & Nomination Committee and member of the Audit & Risk Management Committee Interests in Shares and Options 6,206,364 ordinary shares in Azure Minerals Limited 3,000,000 options over ordinary shares in Azure Minerals Limited Mr. Anthony Paul Rovira, BSc (Hons) Flinders University, MAusIMM (Managing Director) Tony Rovira has over 30 years technical and management experience in the mining industry, as an exploration and mining geologist, and as a company executive at Board level. Since graduating from Flinders University in South Australia in 1983, Tony has worked for companies both large and small, including BHP, Barrack Mines, Pegasus Gold and Jubilee Mines. From 1997‑2003 Tony was the General Manager of Exploration with Jubilee Mines, during which time he led the team that discovered and developed the world class Cosmos and Cosmos Deeps nickel sulphide deposits in Western Australia. In the year 2000, the Association of Mining and Exploration Companies awarded Tony the “Prospector of the Year Award” for these discoveries. Tony joined Azure Minerals as the inaugural Managing Director in December 2003 and held the position of Executive Chairman from June 2007 until December 2012. Tony is responsible for the decision to focus Azure Minerals’ activities on the world class mineral provinces in Mexico, where the company has been operating since 2005. Other Current Directorships Oro Verde Limited. Former Directorships in the last 3 years None. Special Responsibilities Managing Director Interests in Shares and Options 7,125,255 ordinary shares in Azure Minerals Limited, of which 2,193,335 are held indirectly. 9,000,000 options over ordinary shares in Azure Minerals Limited Dr Wolf Martinick, PhD, BSc (agric) (Appointed 1 September 2007) Dr Martinick is an environmental scientist with over 40 years experience in mineral exploration and mining projects around the world, attending to environmental, water, land access and indigenous people issues. He has conducted due diligence on mining projects around the world on behalf of international financial institutions and resource companies for a variety of transactions including listings on international stock exchanges, mergers and debt financing. He is a Fellow of the Australian Institute of Mining and Metallurgy. He is a founding director and chairman of Weatherly International plc, an AIM listed company with copper mines in Namibia. He was also a founding director of Basin Minerals Limited, an ASX listed mineral exploration company that discovered a world‑class mineral project in Victoria, Australia, that was acquired by Iluka Resources Limited in 2003. Other Current Directorships Sun Resources NL – Non‑Executive Director since February 1996 Oro Verde Limited– Chairman since January 2003 Weatherly International Plc – Director since July 2005 Former Directorships in the last 3 years None AZURE MINERALS LIMITED ANNUAL REPORT 2015 11 Directors’ Report INFORMATION ON DIRECTORS (cont’d) Names, qualifications, experience and special responsibilities (cont’d) Special Responsibilities Chairman of the Audit and Risk Management Committee and member of the Remuneration & Nomination Committee Interests in Shares and Options 3,935,253 ordinary shares in Azure Minerals Limited 3,000,000 options over ordinary shares in Azure Minerals Limited Company Secretary Brett Dickson, BBus, FCPA (Appointed 21 November 2006) Mr Dickson is a Certified Practising Accountant with a Bachelors degree in Economics and Finance from Curtin University and has over 25 years experience in the financial management of companies, principally companies in early stage development of its resource or product, and offers broad financial management skills. He has been Chief Financial Officer for a number of successful resource companies listed on the ASX. In addition he has had close involvement with the financing and development of a number of greenfield resources projects. DIRECTORS’ MEETINGS The number of directors’ meetings held (including meetings of committees of directors) and number of meetings attended by each of the directors of the company during the financial year are: Peter Anthony John Ingram Anthony Paul Rovira* Wolf Gerhard Martinick Directors’ Meetings Meetings of Committees Audit Remuneration A 8 8 8 B 8 8 8 A 1 – 1 B 1 – 1 A 1 – 1 B 1 – 1 Notes A ‑ Number of meetings attended. B ‑ Number of meetings held during the time the director held office or was a member of the committee during the year. * ‑ Not a member of the relevant committee. REMUNERATION REPORT (AUDITED) The remuneration report is set out under the following main headings: A Principles used to determine the nature and amount of remuneration B Details of remuneration C Service agreements D Share‑based compensation E Additional Information The information provided in this remuneration report has been audited as required by section 308 (3C) of the Corporation Act 2001. A Principles used to determine the nature and amount of remuneration The remuneration policy of Azure Minerals Limited has been designed to align director and executive objectives with shareholder and business objectives by providing a fixed remuneration component and where appropriate offering specific short and long‑term incentives based on key performance areas affecting the Groups results. Short‑term incentives implemented by the Company are detailed later in the report in section E. At present the Company has not implemented any specific long‑term incentives and as such the remuneration policy is not impacted by the Groups performance, including earnings in shareholder wealth (dividends, changes in share price or return on capital to shareholders). The board of Azure Minerals Limited believes the remuneration policy to be appropriate and effective in its ability to attract and retain the best executives and directors to run and manage the Group. 12 AZURE MINERALS LIMITED ANNUAL REPORT 2015 Directors’ Report A Principles used to determine the nature and amount of remuneration (cont’d) The remuneration policy, setting the terms and conditions for the executive directors and other senior executives, was developed by the board. All executives receive a base salary (which is based on factors such as length of service and experience) and superannuation. The board reviews executive packages annually by reference to the Groups performance, executive performance and comparable information from industry sectors and other listed companies in similar industries. The board may exercise discretion in relation to approving incentives, bonuses and options. The policy is designed to attract the highest calibre of executives and reward them for performance that results in long‑term growth in shareholder wealth. Executives are also entitled to participate in the employee share and option arrangements. The executive directors and executives receive a superannuation guarantee contribution required by the government, which is currently 9.5% of cash salary, and do not receive any other retirement benefits. Some individuals, however, may choose to sacrifice part of their salary to increase payments towards superannuation. All remuneration paid to directors and executives is valued at the cost to the company and expensed. Shares given to directors and executives are valued as the difference between the market price of those shares and the amount paid by the director or executive; to date no shares have been awarded to directors or executives. Options are valued using either the Black‑Scholes or Binomial methodologies. The board policy is to remunerate non‑executive directors at market rates for comparable companies for time, commitment and responsibilities. The board determines payments to the non‑executive directors and reviews their remuneration annually based on market practice, duties and accountability. Independent external advice is sought when required. The maximum aggregate amount of fees that can be paid to non‑executive directors is subject to approval by shareholders at the Annual General Meeting (currently $200,000). In line with standard industry practice fees for non‑executive directors are not linked to the performance of the economic entity. However, to align directors’ interests with shareholder interests, the directors are encouraged to hold shares in the company and are able to participate in employee option plans. A Remuneration Committee has been established and is a committee of the board. It is primarily responsible for making recommendations to the board on: • Non‑executive directors fees • Remuneration levels of executive directors and other key management personnel • Key performance indicators and performance hurdles of the executive team Their objective is to ensure that remuneration policies and structures are fair and competitive and aligned with the long‑term interests of the Group. The Corporate Governance Statement provides further information on the role of this committee. Remuneration consultants were not engaged during the year. There is no Retirement Benefit Policy for directors, other than the payment of statutory superannuation. B Details of remuneration Amount of remuneration Details of the remuneration of the directors and key management personnel (as defined in AASB 124 Related Party Disclosures) of Azure Minerals Limited are set out below in the following tables. The key management personnel of Azure Minerals Limited includes the directors as disclosed earlier in this report and the following who have authority and responsibility for planning, directing and controlling the exploration activities of the entity and the Company Secretary, Mr B Dickson is an executive whose remuneration must be disclosed under the Corporations Act 2001. AZURE MINERALS LIMITED ANNUAL REPORT 2015 13 Directors’ Report B Details of remuneration (cont’d) Key management personnel of the Group Short-Term Post Employment Cash, salary & fees Cash Bonus Non monetary benefits Super‑ annuation Share- based Payments Options Total Percentage Performance Based % Name Directors Peter Anthony Ingram – Chairman 2015 2014 50,000 50,000 – – Anthony Paul Rovira – Managing Director 2015 2014 300,000 40,875 300,000 – Wolf Gerhard Martinick –Non Executive 2015 2014 Executives 33,750 45,000 – – Brett Dickson – Company Secretary 2015 2014 Total 2015 2014 153,540 19,140 153,420 – 537,290 60,015 548,420 – – – – – – – ‑ – – – Compensation options No options were issued during 2014 or 2015. 4,748 4,624 15,611 70,359 46,582 101,206 28,500 27,750 46,832 416,207 139,745 467,495 15,976 4,160 15,611 46,582 65,337 95,742 – – 31,222 203,902 93,163 246,583 49,224 36,534 109,276 755,805 326,072 911,026 22.2 46.0 21.1 29.9 23.9 48.7 24.7 37.8 22.4 35.8 There were no alterations to the terms and conditions of options granted as remuneration since their grant date. There were neither forfeitures nor shares issued on exercise of Compensation Options during 2015 or 2014. There were no options granted as remuneration or exercised during the year. During the year 3,000,000 (2014: 4,500,000) options exercisable at $0.049 with an expiry date of 30 November 2014 lapsed. The Company’s remuneration policy prohibits directors and executives from entering into transactions or arrangements which limit the economic risk of participating in unvested entitlements. Retirement benefits provided for the non‑executive directors in the financial statements do not form part of the above remuneration until such time as the amount is paid to the retiring director. Apart from the issue of options the company currently has no performance based remuneration component built into non‑executive director remuneration (2014: Nil). Performance based remuneration for executives is detailed later in section E of this report. C Service Agreements Remuneration and other terms of employment for the following key management personnel are formalised in service agreements, the terms of which are set out below: Anthony Rovira, Managing Director: • Term of agreement – to 1 January 2017. • Base salary, exclusive of superannuation, of $300,000 to be reviewed annually by the remuneration committee. • Payment of termination benefit on early termination by the employer, other than for gross misconduct, includes an amount equal to the amounts due for the balance of the term of the contract from the date of termination. 14 AZURE MINERALS LIMITED ANNUAL REPORT 2015 Directors’ Report C Service Agreements (cont’d) Brett Dickson, Company Secretary/Chief Financial Officer: • Term of agreement – to 1 January 2017. • Fixed fee, $12,760 per month. • Payment of termination benefit on early termination by the employer, other than for gross misconduct, includes an amount equal to the amounts due for the balance of the term of the contract from the date of termination. Retirement Benefits Other retirement benefits may be provided directly by the company if approved by shareholders. D Share based compensation Options over shares in Azure Minerals Limited may be issued to directors and executives. The options are not issued based on performance criteria, but are issued to directors and executives of Azure Minerals Limited, where appropriate, to increase goal congruence between executives, directors and shareholders. There are no standard vesting conditions to options awarded with vesting conditions, if any, at the discretion of Directors at the time of grant. Options are granted for nil consideration. During the year no options were issued to Directors and Executives. (2014: Nil). No options held by directors or executives were exercised during the financial year and no options have been exercised since the end of the financial year. During the year 3,000,000 (2014: 4,500,000) options exercisable at $0.049 with an expiry date of 30 November 2014 lapsed. The value of the options at lapse date was nil as the exercise price of the option was significantly in excess of the market price of the underlying share. The value is determined at the time of lapsing, but assuming any vesting condition was satisfied. The Company’s remuneration policy prohibits executives from entering into transactions or arrangements which limit the “at risk” aspect of participating in unvested entitlements. E Additional Information Performance based remuneration Variable Remuneration – Short Term Incentive (“STI”) Objective The objective of the STI program is to link the achievement of the Company’s operational targets with the remuneration received by the executives charged with meeting those targets. The total potential STI available is set at a level so as to provide sufficient incentive to the executive to achieve those operational targets and such that the cost to the Company is reasonable in the circumstances. Structure Actual STI payments granted to executives depend on the extent to which specific targets set at the beginning of the review period, being a fiscal year, are met. The targets consist of a number of Key Performance Indicators (KPI’s) covering both financial and non‑financial, corporate and individual measures of performance. Typically included are measures such as contribution to exploration success, share price appreciation, risk management and cash flow sustainability. These measures were chosen as they represent the key drivers for the short term success of the business and provide a framework for delivering long term value. The Board has predetermined benchmarks that must be met in order to trigger payments under the STI scheme. On an annual basis, after consideration of performance against KPI’s, the Remuneration Committee, determines the amount, if any, of the STI to be paid to each executive. This process usually occurs in the last quarter of the fiscal year. Payments made are delivered as a cash bonus in the fourth quarter of the fiscal year. STI bonus for 2014 and 2015 financial years Key performance indicators on which performances is measured and bonus’s if any are awarded are divided into two categories; 1. General management (including safety, environment, professional development, board reporting and financial management), with a maximum total weighting of 30%; and 2. Operations (including increasing resources, adding value to the Company’s other projects and the acquisition of new projects) with a total maximum weighting of 70%. The minimum amount payable for 2015 assuming executives fail to meet their KPI’s was nil and the maximum amount payable if all KPI’s were met is $125,000. For the year ending 30 June 2015 an assessment has not been made. For 2014 50% of the possible bonus was awarded and 50% forfeited. This bonus was paid in the 2015 financial year. There have been no alterations to the STI bonus plans since their grant date. AZURE MINERALS LIMITED ANNUAL REPORT 2015 15 Directors’ Report E Additional Information (cont’d) Performance based remuneration (cont’d) Variable Remuneration – Long Term Incentive (“LTI”) Objective The objective of the LTI plan is to reward senior managers in a manner which aligns this element of remuneration with the creation of shareholder wealth. As such LTI grants are only made to executives who are able to influence the generation of shareholder wealth. Structure LTI grants to executives are delivered in the form of options. The options, when issued to executives, will not be exercisable for a price less than the then current market price of the Company’s shares. The grant of LTI’s is reviewed annually, though LTI’s may not be granted each year. Exercise price and performance hurdles, if any, are determined at the time of grant of the LTI. To date no performance hurdles have been set on options issued to executives other than time based service conditions. The Company believes that as options are issued at not less than the current market price of the Company’s shares there is an inherent performance hurdle on those options as the share price of the Company’s shares must increase significantly before there is any reward to the executive. Shares issued on exercise of compensation options There were no shares issued on exercise of compensation options during the year. Option holdings of key management personnel Balance at beginning of year Granted as Remun- eration Options Exercised Options Lapsed Balance at end of year Vested at 30 June Vested & Exercisable Unvested 2015 Directors Wolf Gerhard Martinick Peter Anthony Ingram Anthony Paul Rovira Executives 3,000,000 6,000,000 9,000,000 Brett Dickson 6,000,000 Total 2014 Directors Wolf Gerhard Martinick Peter Ingram Anthony Paul Rovira Executives 24,000,000 3,500,000 6,000,000 11,000,000 Brett Dickson 7,500,000 Total 28,000,000 – – – – – – – – – – – – – – – – – – – – 3,000,000 3,000,000 (3,000,000) 3,000,000 3,000,000 – – 9,000,000 9,000,000 6,000,000 6,000,000 (3,000,000) 21,000,000 21,000,000 – – – – – (500,000) 3,000,000 2,000,000 1,000,000 – 6,000,000 5,000,000 1,000,000 (2,000,000) 9,000,000 6,000,000 3,000,000 (1,500,000) 6,000,000 4,000,000 2,000,000 – (4,000,000) 24,000,000 17,000,000 7,000,000 16 AZURE MINERALS LIMITED ANNUAL REPORT 2015 Directors’ Report Shareholdings of key management personnel Balance 1 July Granted On Exercise of Options Net Change Other Balance 30 June Balance Indirectly Held Ord Ord Ord Ord Ord Ord 2015 Directors Wolf G Martinick 2,373,333 Anthony P Rovira 5,133,333 Peter A Ingram 3,000,000 Executives Brett Dickson Total 2014 Directors – 10,506,666 Wolf G Martinick 2,373,333 Anthony Paul Rovira 5,133,333 Peter Ingram 1,000,000 Executives Brett Dickson – Total 8,506,666 – – – – – – – – – – – – – – – – – – – – 1,561,920 3,935,253 3,935,253 1,991,922 7,125,255 2,193,335 3,206,364 6,206,364 6,206,364 – – – 6,760,206 17,266,872 12,334,952 – – 2,373,333 833,333 5,133,333 1,880,000 2,000,000 3,000,000 – – – – 2,000,000 10,506,666 2,713,333 Other Related Party Transactions The Company has entered into a sub‑lease agreement on normal commercial terms with Oro Verde Limited, a company of which Wolf Martinick, Brett Dickson and Anthony Rovira are directors. During the year Oro Verde Limited paid sub‑lease fees totalling $4,800 (2014: $4,800). The Company has also entered into a sub‑lease agreement on normal commercial terms with Rox Resources Limited, a company of which Brett Dickson is a Director. During the year Rox Resources Limited paid sub‑lease fees totalling $114,800 (2014: $114,800). Directors and executive options Set out below are summaries of current Directors & Executives options granted. Grant Date Expiry Date Exercise Price (cents) 2015 25 Sept ‘13 30 Jun ‘17 9 Dec ‘11 30 Nov ‘14 5.8 4.9 Weighted average exercise price 2014 25 Sept ‘13 30 Jun ‘17 9 Dec ‘11 30 Nov ‘14 5.8 4.9 14 Dec ‘10 30 Nov ‘13 13.0 Weighted average exercise price Value per option at grant date (cents) Balance at the start of the year Number Granted during the year Number Exercised during the year Number Lapsed during the year Number Balance at end of the year Number Vested and exercisable at end of the year Number 3.2 1.6 3.2 1.6 5.5 21,000,000 3,000,000 24,000,000 $0.057 21,000,000 3,000,000 4,500,000 28,500,000 $0.068 – – – – – – – – – – 21,000,000 21,000,000 (3,000,000) – - – (3,000,000) 21,000,000 21,000,000 $0.049 $0.058 $0.058 – – – – 21,000,000 16,666,668 – 3,000,000 3,000,000 (4,500,000) – – – (4,500,000) 24,000,000 19,666,668 $0.130 $0.057 $0.057 The weighted average remaining contractual life of share options outstanding at the end of the period was 2.0 years (2014: 1.76 years) AZURE MINERALS LIMITED ANNUAL REPORT 2015 17 Directors’ Report Total expenses arising from share‑based payment transactions recognised during the year were as follows: Consolidated 2015 $ 2014 $ Options issued to directors and other executives 130,091 388,181 Company’s Performance Company’s share price performance The Company’s share price performance shown in the below graph is a reflection of the Company’s performance during the year and of general market conditions. The variable components of the executives’ remuneration including short‑term and long‑term incentives are indirectly linked to the Company’s share price performance. The graph below shows the Company’s share price performance during the financial year ended 30 June 2015. Loss per share Below is information on the Company’s loss per share for the previous four financial years and for the current year ended 30 June 2015. Basic loss per share (cents) 2015 (0.13) 2014 (0.5) 2013 (0.7) 2012 (0.9) 2011 (1.2) 18 AZURE MINERALS LIMITED ANNUAL REPORT 2015 Directors’ Report Voting and comments made at the company’s 2014 Annual General Meeting Azure Minerals received approximately 90% of “yes” votes on its remuneration report for the 2014 financial year. Remuneration consultants were not engaged during the year and the company did not receive any specific feedback at the AGM or throughout the year on its remuneration practices. End of Audited Remuneration Report LOANS TO DIRECTORS AND EXECUTIVES No loans have been provided to directors or executives. SHARES UNDER OPTION At the date of this report there are 50,924,075 unissued ordinary shares in respect of which options are outstanding. Balance at the beginning of the year Share option movements during the year Issued Exercised Lapsed Exercisable at 4.9 cents, on or before 30 November 2014 Exercisable at 2 cents, on or before 30 September 2014 (3,000,000) (16,995,833) (277,778) Total options issued, exercised and lapsed in the year to 30 June 2015 Total number of options outstanding as at 30 June 2015 and at the date of this report The balance is comprised of the following Total Number of options 71,197,687 (3,000,000) (17,273,611) (20,273,611) 50,924,075 Date granted 25 June 2013* 16 May 2014 30 May 2014 Expiry date Exercise price (cents) Number of options 30 June 2017 30 Nov 2016 30 Nov 2016 5.8 4.5 4.5 25,000,000 20,618,913 5,305,162 50,924,075 Total number of options outstanding at the date of this report No person entitled to exercise any option referred to above has or had, by virtue of the option, a right to participate in any share issue of any other body corporate. During the financial year 16,995,833 options exercisable at $0.02 were exercised by parties unrelated to the Company. Since the end of the financial year no options have been exercised. AZURE MINERALS LIMITED ANNUAL REPORT 2015 19 Directors’ Report INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS During the financial year, Azure Minerals Limited paid a premium of $16,095 (2014: $16,095) to insure the directors and secretary of the company and its Australian based controlled entities. The liabilities insured include legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of entities in the Group, and any other payments arising from liabilities incurred by the officers in connection with such proceedings. This does not include such liabilities that arise from conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the company. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities. Proceedings on behalf of the company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party, for the purpose of taking responsibility on behalf of the company for all or part of those proceedings. No Proceedings have been brought or intervened in on behalf of the company with leave of the Court under section 237 of the Corporations Act 2001 NON-AUDIT SERVICES The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the company and/or the Group are important. Details of the amount paid or payable to the auditor (BDO Audit (WA) Pty Ltd) for audit and non‑audit services provided during the year are set out below. The Board of directors has considered the position and, in accordance with advice received from the audit committee, is satisfied that the provisions of the non‑audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the provision of non‑audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: • All non‑audit services have been reviewed by the audit committee to ensure they do not impact the impartiality and objectivity of the auditor ª None of the services underline the general principals relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants. 20 AZURE MINERALS LIMITED ANNUAL REPORT 2015 Directors’ Report NON-AUDIT SERVICES (cont’d) During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non‑audit firms: Consolidated 2015 $ 2014 $ 1. Audit Services BDO Audit (WA) Pty Ltd Audit and review of financial reports 33,790 46,029 Salles Sáinz‑Grant Thornton, S.C. – Audit and review of financial reports of Mexican subsidiaries 11,734 11,177 2. Non audit Services Audit-related services BDO Audit (WA) Pty Ltd Attendance at Annual General Meeting – 297 Taxation Services BDO Corporate Tax (WA) Pty Ltd Tax compliance services 13,158 10,965 Total remuneration for non‑audit services 13,158 11,262 AUDITOR’S INDEPENDENCE A copy of the auditor’s independence declaration as required under section 307c of the Corporations Act 2001 is set out on page 63. AUDITOR BDO Audit (WA) Pty Ltd continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of the directors. Peter Ingram Chairman Perth, 17 September 2015 AZURE MINERALS LIMITED ANNUAL REPORT 2015 21 Corporate Governance Statement APPROACH TO CORPORATE GOVERNANCE Azure Minerals Limited ACN 106 346 918 (Company) has established a corporate governance framework, the key features of which are set out in this statement. In establishing its corporate governance framework, the Company has referred to the recommendations set out in the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations 3rd edition (Principles & Recommendations). The Company has followed each recommendation where the Board has considered the recommendation to be an appropriate benchmark for its corporate governance practices. Where the Company’s corporate governance practices follow a recommendation, the Board has made appropriate statements reporting on the adoption of the recommendation. In compliance with the “if not, why not” reporting regime, where, after due consideration, the Company’s corporate governance practices do not follow a recommendation, the Board has explained it reasons for not following the recommendation and disclosed what, if any, alternative practices the Company has adopted instead of those in the recommendation. The following governance‑related documents can be found on the Company’s website at www.azureminerals. com.au, under the section marked “Corporate Governance”: Charters Board Audit and Risk Committee Nomination & Remuneration Committee Policies and Procedures Process for Performance Evaluations Policy and Procedure for the Selection and (Re)Appointment of Directors Induction Program Diversity Policy (summary) Code of Conduct (summary) Policy on Continuous Disclosure (summary) Compliance Procedures (summary) Shareholder Communication and Investor Relations Policy Securities Trading Policy The Company reports below on whether it has followed each of the recommendations during the 2014/2015 financial year (Reporting Period). The information in this statement is current at 15 September 2015. This statement was approved by a resolution of the Board on 15 September 2015. Principle 1 – Lay solid foundations for management and oversight Recommendation 1.1 The Company has established the respective roles and responsibilities of its Board and management, and those matters expressly reserved to the Board and those delegated to management and has documented this in its Board Charter. Recommendation 1.2 The Company undertakes appropriate checks before appointing a person, or putting forward to shareholders a candidate for election as a director and provides shareholders with all material information in its possession relevant to a decision on whether or not to elect or re‑elect a director. The Board did not appoint any directors during the Reporting Period, accordingly the checks referred to in the Company’s Policy and Procedure for the Selection and (Re)Appointment of Directors were not required. The Company provided shareholders with all material information in relation to the re‑election of Dr Wolf Martinick as a director at its 2014 Annual General Meeting. Recommendation 1.3 The Company has a written agreement with each director and senior executive setting out the terms of their appointment. The material terms of any employment, service or consultancy agreement the Company, or any of its child entities, has entered into with its Managing Director, any of its directors, and any other person or entity who is related party of the Managing Director or any of its directors has been disclosed in accordance with ASX Listing Rule 3.16.4 (taking into consideration the exclusions from disclosure outlined in that rule). 22 AZURE MINERALS LIMITED ANNUAL REPORT 2015 Corporate Governance Statement Recommendation 1.4 The Company Secretary is accountable directly to the Board, through the Chair, on all matters to do with the proper functioning of the Board as outlined in the Company’s Board Charter. The Company Secretary’s role is also outlined in the consultancy agreement between the Company Secretary and the Company. Recommendation 1.5 The Company has a Diversity Policy. However, the Diversity Policy does not include requirements for the Board to set measurable objectives for achieving gender diversity and to assess annually both the objectives and the Company’s progress in achieving them. Nor has the Board set measurable objectives for achieving gender diversity. Given the Company’s stage of development as an exploration company, the number of employees in Australia and the nature of the labour market in Mexico, the Board considers that it is not practical to set measurable objectives for achieving gender diversity. The respective proportions of men and women on the Board, in senior executive positions and across the whole organisation are set out in the following table. “Senior executive” for these purposes means a person who makes, or participates in the making of, decisions that affect the whole or a substantial part of the business or has the capacity to affect significantly the company’s financial standing. For the Reporting Period, this includes the Managing Director and the Company Secretary: Whole organisation Senior executive positions Board Proportion of women 2 out of 7 (28%) 0 out of 2 (0%) 0 out of 3 (0%) Recommendation 1.6 The Chair is responsible for evaluation of the Board and, when deemed appropriate, Board committees and individual directors. The evaluations are undertaken in accordance with the Company’s Process for Performance Evaluations, which is disclosed on the Company’s website. During the Reporting Period an evaluation of the Board, its committees, and individual directors took place in accordance with the process disclosed in the Company’s Process for Performance Evaluations. Recommendation 1.7 The Managing Director is responsible for evaluating the performance of senior executives in accordance with the process disclosed in the Company’s Process for Performance Evaluations. During the Reporting Period an evaluation of senior executives took place in accordance with the process disclosed in the Company’s Process for Performance Evaluations. The Nomination and Remuneration Committee is responsible for evaluating the Managing Director. During the Reporting Period an evaluation of the Managing Director took place in accordance with the process disclosed in the Company’s Process for Performance Evaluations. Principle 2 – Structure the board to add value Recommendation 2.1 The Board has established a Nomination and Remuneration Committee comprising the Company’s two independent non‑executive directors, Peter Ingram (Chair) and Wolf Martinick. The Nomination and Remuneration Committee is not structured in accordance with Recommendations 2.1 and 8.1 as it has only two members. However, the Board considers that the committee’s composition is appropriate as it comprises the Board’s two independent non‑executive directors, and does not include an executive director. Details of director attendance at Nomination and Remuneration Committee meetings held during the Reporting Period are set out in a table in the Directors’ Report on page 12 of the Company’s 2015 Annual Report. The Board has adopted a Nomination Committee Charter which describes the role, composition, functions and responsibilities of the Nomination Committee and is disclosed on the Company’s website. As noted above, the Board has combined the Nomination and Remuneration committees. AZURE MINERALS LIMITED ANNUAL REPORT 2015 23 Corporate Governance Statement Recommendation 2.2 The mix of skills and diversity for which the Board is looking to achieve in membership of the Board is represented by the Board’s current composition, which includes extensive geological experience, environmental management leadership, governance and strategy. While the Company is at exploration stage, it does not wish to increase the size of the Board, and considers that the Board weighted towards technical experience is appropriate at this stage of the Company’s development. The Board may bring in external consultants with specialist knowledge as and when required to address any areas where the Board does not collectively possess the relevant attribute. Recommendation 2.3 The Board considers the independence of directors having regard to the relationships listed in Box 2.3 of the Principles & Recommendations. The independent directors of the Company are Peter Ingram and Wolf Martinick. The length of service of each director is set out in the Directors’ Report on page 10 of the Company’s 2015 Annual Report. Recommendation 2.4 The Board has a majority of directors who are independent. Recommendation 2.5 The independent Chair of the Board is Peter Ingram, who is not also Managing Director of the Company. Recommendation 2.6 New directors undertake an induction program coordinated by the Company Secretary that briefs and informs the director on all relevant aspects of the company’s operations and background. A director development program is also available to ensure that directors can enhance their skills and remain abreast of important developments. The Nomination and Remuneration Committee regularly reviews whether the directors as a group have the skills, knowledge and familiarity with the Company and its operating environment required to fulfil their role on the Board and the Board committees effectively using a Board skills matrix. Where any gaps are identified, the Nomination and Remuneration Committee considers what training or development should be undertaken to fill those gaps. In particular, the Nomination and Remuneration Committee ensures that any director who does not have specialist accounting skills or knowledge has a sufficient understanding of accounting matters to fulfil his or her responsibilities in relation to the Company’s financial statements. Directors also receive ongoing education on developments in accounting standards. Principle 3 – Act ethically and responsibly Recommendation 3.1 The Company has established a Code of Conduct for its directors and employees, which is disclosed on the Company’s website. Principle 4 – Safeguard integrity in corporate reporting Recommendation 4.1 The Board has established an Audit and Risk Committee comprised of the Company’s two independent non‑ executive directors, Wolf Martinick (Chair) and Peter Ingram. The Audit and Risk Committee is not structured in compliance with Recommendations 4.1 and 7.1 as it has only two members. However, the Board considers that the committee’s composition is appropriate as it comprises the Board’s two independent non‑executive directors, and it is chaired by an independent chair that is not also chair of the Board. Details of each of the director’s qualifications are set out in the Directors’ Report on page 10 of the Company’s 2015 Annual Report. Each of the members of the Audit and Risk Committee consider themselves to be financially literate and have an understanding of the industry in which the Company’s operates. The Company’s Chief Financial Officer, Mr Brett Dickson, is a Certified Practising Accountant with a Bachelor degree in Economics and is invited to attend Audit and Risk Management Committee meetings by invitation. The Company has also established a Procedure for the Selection, Appointment and Rotation of its External Auditor. The Board is responsible for the initial appointment of the external auditor and the appointment of a new external auditor when any vacancy arises. Candidates for the position of external auditor must demonstrate complete independence from the Company through the engagement period. The Board may otherwise select an external auditor based on criteria relevant to the Company’s business and circumstances. The performance of the external auditor is reviewed on an annual basis by the Board. 24 AZURE MINERALS LIMITED ANNUAL REPORT 2015 Corporate Governance Statement Recommendation 4.1 (cont’d) Details of director attendance at Audit and Risk Committee meetings held during the Reporting Period are set out in a table in the Directors’ Report on page 12 of the Company’s 2015 Annual Report. The Board has adopted an Audit and Risk Committee Charter which describes the Audit and Risk Committee’s role, composition, functions and responsibilities and is disclosed on the Company’s website. Recommendation 4.2 Before the Board approved the Company financial statements for the half year ended 31 December 2014 and the full‑year ended 30 June 2015, it received from the Managing Director and the Chief Financial Officer a declaration that, in their opinion, the financial records of the Company for the relevant financial period have been properly maintained and that the financial statements for the relevant financial period comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the Company and the consolidated entity and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively. Recommendation 4.3 Under section 250RA of the Corporations Act, the Company’s auditor is required to attend the Company’s annual general meeting at which the audit report is considered, must arrange to be represented by a person who is a suitably qualified member of the audit team that conducted the audit and is in a position to answer questions about the audit. Each year, the Company writes to the Company’s auditor to inform them of the date of the Company’s annual general meeting. In accordance with section 250S of the Corporations Act, at the Company’s annual general meeting where the Company’s auditor or their representative is at the meeting, the Chair allows a reasonable opportunity for the members as a whole at the meeting to ask the auditor (or its representative) questions relevant to the conduct of the audit; the preparation and content of the auditor’s report; the accounting policies adopted by the Company in relation to the preparation of the financial statements; and the independence of the auditor in relation to the conduct of the audit. The Chair also allows a reasonable opportunity for the auditor (or their representative) to answer written questions submitted to the auditor under section 250PA of the Corporations Act. A representative of the Company’s auditor, BDO attended the Company’s annual general meeting held on 18 November 2014. Principle 5 – Make timely and balanced disclosure Recommendation 5.1 The Company has established written policies and procedures for complying with its continuous disclosure obligations under the ASX Listing Rules. A summary of the Company’s Policy on Continuous Disclosure and Compliance Procedures are disclosed on the Company’s website. Principle 6 – Respect the rights of security holders Recommendation 6.1 The Company provides information about itself and its governance to investors via its website at www. azureminerals.com.au. Recommendation 6.2 The Company has designed and implemented an investor relations program to facilitate effective two‑way communication with investors. The program is set out in the Company’s Shareholder Communication and Investor Relations Policy. Recommendation 6.3 The Company has in place a Shareholder Communication and Investor Relations Policy which outlines the policies and processes that it has in place to facilitate and encourage participation at meetings of shareholders. Recommendation 6.4 Shareholders are given the option to receive communications from, and send communications to, the Company and its share registry electronically. The Company engages its share registry to manage the majority of communications with shareholders. Shareholders are encouraged to receive correspondence from the Company electronically, thereby facilitating a more effective, efficient and environmentally friendly communication mechanism with shareholders. Shareholders not already receiving information electronically can elect to do so through the share registry, Computershare Investor Services Pty Ltd at www.computershare. com.au AZURE MINERALS LIMITED ANNUAL REPORT 2015 25 Corporate Governance Statement Principle 7 – Recognise and manage risk Recommendation 7.1 As noted above, the Board has established a combined Audit and Risk Committee. Please refer to the disclosure above under Recommendation 4.1 in relation to the Audit and Risk Committee. Recommendation 7.2 The Board reviews the Company’s risk management framework annually to satisfy itself that it continues to be sound, to determine whether there have been any changes in the material business risks the Company faces and to ensure that the Company is operating within the risk appetite set by the Board. The Board carried out these reviews during the Reporting Period. Recommendation 7.3 The Company does not have an internal audit function. To evaluate and continually improve the effectiveness of the Company’s risk management and internal control processes, the Board relies on ongoing reporting and discussion of the management of material business risks as outlined in the Company’s Risk Management Policy. Recommendation 7.4 The Company has material exposure to the economic, environmental and/or social sustainability risks as set out in the Company’s Annual Report for 2015 commencing at page 10. The Board has adopted a Risk Management Policy and Risk Management Procedures. Under the Risk Management Policy, the Board oversees the processed by which risks are managed. This includes defining the Company’s risk appetite, monitoring of risk performance and those risks that may have a material impact to the business. Management is responsible for the implementation of the risk management and internal control system to manage the Company’s risk and to report to the Board whether those risks are being effectively managed. The Company’s system to manage its material business risks includes the preparation of a risk register by management to identify the Company’s material business risks, analyse those risks, evaluate those risks (including assigning a risk owner to each risk) and treat those risks. Risks and their management are to be monitored and reviewed at least annually by senior management. The risk register is to be updated and a report submitted to the Managing Director. The Managing Director is to provide a risk report at least annually to the Board. The Board has required management to design, implement and maintain risk management and internal control systems to manage the Company’s material business risks. A summary of the Company’s Risk Management Policy is disclosed on the Company’s website. Principle 8 – Remunerate fairly and responsibly Recommendation 8.1 As noted above, the Board has established a combined Nomination and Remuneration Committee. Please refer to the disclosure above under Recommendation 2.1 in relation to the Nomination and Remuneration Committee. The Board has adopted a Remuneration Committee Charter which describes the role, composition, functions and responsibilities of the Remuneration Committee and is disclosed on the Company’s website. As noted above, the Board has combined the Nomination and Remuneration committees. Recommendation 8.2 Details of remuneration, including the Company’s policy on remuneration, are contained in the “Remuneration Report” which forms of part of the Directors’ Report and commences at page 11 of the Company’s 2015 Annual Report. The Company’s has not at this stage adopted a separate policy regarding the deferral of performance‑ based remuneration and the reduction, cancellation or clawback of the performance‑based remuneration in the event of serious misconduct or a material misstatement in the Company’s financial statements. However, other measures are available to the Company in these circumstances, including dismissal. Recommendation 8.3 The Company does not currently have an equity based remuneration scheme in place. However, the Company’s Remuneration Committee Charter includes a statement of the Company’s policy on prohibiting executives and directors who may receive equity based remuneration from entering into transactions (whether through the use of derivatives or otherwise) which limit the economic risk of participating in the equity based remuneration. 26 AZURE MINERALS LIMITED ANNUAL REPORT 2015 Consolidated Statement of Profit or Loss and Other Comprehensive Income YEAR ENDED 30 JUNE 2015 Revenue from continuing activities Expenditure Depreciation Salaries and employee benefits expense Directors fees Exploration expenses Exploration expenses reimbursed Travel expenses Promotion expenses Administration expenses Consulting expenses Insurance expenses Notes Consolidated 2015 $ 2014 $ 5 6 6 6 358,112 37,270 (27,827) (37,176) (587,501) (544,652) (95,000) (95,000) (2,041,367) (2,174,850) 2,351,295 (171,424) (84,653) (266,166) (29,313) (21,908) 65,600 (173,778) (64,480) (180,474) (54,554) (41,290) Share based payment expense Reversal of provision for doubtful debts Debt not recoverable Other expenses Loss from continuing operations before income tax 27 (130,091) (388,181) – 426,978 (21,006) (384,511) – (93,234) (1,151,360) (3,317,821) Income tax benefit/(expense) 7 – – Loss from continuing operations after income tax Loss is attributable to: The owners of Azure Minerals Limited (1,151,360) (3,317,821) (1,151,360) (3,317,821) Other comprehensive income/(loss) Items that may subsequently be reclassified to profit and loss Exchange differences on translation of foreign operations Change to available‑for–sale financial assets, net of tax Items that will not be subsequently reclassified to profit and loss Other comprehensive income/(loss) for the year net of tax Total comprehensive loss for the Year Total comprehensive loss is attributable to: The owners of Azure Minerals Limited Loss per share from continuing operations attributable to the ordinary equity holders of the company 95,144 – – (117,529) (2,175) – 95,144 (119,704) (1,056,216) (3,437,525) (1,056,216) (3,437,525) Basic loss per share (cents per share) Diluted loss per share (cents per share) 23 (0.13) (0.13) (0.5) (0.5) The above Consolidated Statement of Profit or Loss and Other Comprehensive Income is to be read in conjunction with the Notes to the Financial Statements. AZURE MINERALS LIMITED ANNUAL REPORT 2015 27 Consolidated Statement of Financial Position AT 30 JUNE 2015 ASSETS Current Assets Cash and cash equivalents Trade and other receivables Total Current Assets Non-Current Assets Available for sale investments Plant and equipment Capitalised exploration expenditure Other financial assets Total Non-Current Assets TOTAL ASSETS LIABILITIES Current Liabilities Trade and other payables Provisions Total Current Liabilities Non-Current Liabilities Provisions Total Non-Current Liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Reserves Accumulated losses TOTAL EQUITY Notes Consolidated 2015 $ 2014 $ 19 8 9 10 11 12 14 15 15 16 17 17 1,775,412 1,064,291 2,839,703 978,865 238,666 1,217,531 948 108,483 948 85,295 4,913,050 4,343,687 45,378 45,378 5,067,859 4,475,308 7,907,562 5,692,839 235,051 94,281 329,332 249,061 93,104 342,165 49,962 49,962 52,687 52,687 379,294 394,852 7,528,268 5,297,987 51,121,569 47,965,163 3,063,288 2,838,053 (46,656,589) (45,505,229) 7,528,268 5,297,987 The above Consolidated Statement of Financial Position is to be read in conjunction with the Notes to the Financial Statements 28 AZURE MINERALS LIMITED ANNUAL REPORT 2015 Consolidated Statement of Changes in Equity FOR THE YEAR ENDED 30 JUNE 2015 30 JUNE 2015 Issued Share Capital Share Option Reserve Available for Sale Assets Reserve Foreign Currency Translation Reserve Accum- ulated Losses Total $ $ $ $ $ $ Balance at 1 July 2014 47,965,163 3,031,401 (39,996) (153,352) (45,505,229) 5,297,987 Loss for period Other comprehensive income/(loss) Exchange differences on translation of foreign operations Change in fair value of available‑for‑sale financial assets Total other comprehensive loss Total comprehensive loss for the period – – – – – Transactions with owners in their capacity as owners: Issue of share capital, net of transaction costs 3,156,406 – – – – – – Share based payments – 130,091 Total transactions with owners 3,156,406 130,091 – – – – – – – – – (1,151,360) (1,151,360) 95,144 – 95,144 – – – 95,144 – 95,144 95,144 (1,151,360) (1,056,216) – – – – – – 3,156,406 130,091 3,286,497 Balance as at 30 June 2015 51,121,569 3,161,492 (39,996) (58,208) (46,656,589) 7,528,268 AZURE MINERALS LIMITED ANNUAL REPORT 2015 29 Consolidated Statement of Changes in Equity FOR THE YEAR ENDED 30 JUNE 2015 30 JUNE 2014 Issued Share Capital Share Option Reserve Available for Sale Assets Reserve Foreign Currency Translation Reserve Accum- ulated Losses Total $ $ $ $ $ $ Balance at 1 July 2013 44,677,855 2,222,665 (37,821) (35,823) (42,187,408) 4,639,468 Loss for period Other comprehensive income/(loss) Exchange differences on translation of foreign operations Change in fair value of available‑for‑sale financial assets Total other comprehensive income/(loss) Total comprehensive income/(loss) for the period – – – – – Transactions with owners in their capacity as owners: Issue of share capital, net of transaction costs 3,287,308 – – – – – – Share based payments – 808,736 Total transaction with owners 3,287,308 808,736 – – (3,317,821) (3,317,821) – (117,529) (2,175) – (2,175) (117,529) – – – (117,529) (2,175) (119,704) (2,175) (117,529) (3,317,821) (3,437,525) – – – – – – – – – 3,287,308 808,736 4,096,044 Balance at 30 June 2014 47,965,163 3,031,401 (39,996) (153,352) (45,505,229) 5,297,987 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. 30 AZURE MINERALS LIMITED ANNUAL REPORT 2015 Consolidated Statement of Cash Flows FOR THE YEAR ENDED 30 JUNE 2015 CASH FLOWS FROM OPERATING ACTIVITIES Payments to suppliers and employees Interest received Other revenue Expenditure on mining interests Reimbursement of exploration expenditure NET CASH (OUTFLOW) INFLOW FROM OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Payments for plant and equipment Acquisition Payments for projects Option payments for projects NET CASH (OUTFLOW) INFLOW FROM INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of ordinary shares Share issue costs NET CASH (OUTFLOW) INFLOW FROM FINANCING ACTIVITIES Notes Consolidated 2015 $ 2014 $ (1,647,053) (1,286,857) 211,966 138,891 37,270 – (2,137,442) (1,723,492) 1,601,962 65,600 19(b) (1,831,676) (2,907,479) (49,310) (11,059) – (1,861,007) (458,719) (302,955) (508,029) (2,175,021) 3,325,483 3,921,100 (171,277) (213,237) 3,154,206 3,707,863 814,501 (1,374,637) 978,865 2,386,471 (17,954) 1,775,412 (32,969) 978,865 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at the beginning of the financial year Effect of exchange rate changes on cash and cash equivalents CASH AND CASH EQUIVALENTS AT END OF YEAR 19(a) The above Consolidated Statement of Cash Flows is to be read in conjunction with the Notes to the Financial Statements. AZURE MINERALS LIMITED ANNUAL REPORT 2015 31 Notes to the Consolidated Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial report includes separate financial statements for Azure Minerals Limited as an individual entity and the consolidated entity consisting of Azure Minerals Limited and its subsidiaries. BASIS OF PREPARATION This general purpose financial report has been prepared in accordance with the Australian Accounting Standards, and interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. Azure Minerals Limited is a for‑profit entity for the purpose of preparing the financial statements. Compliance with AIFRSs The consolidated financial statements of Azure Minerals Limited and the separate financial statements of Azure Minerals Limited also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Historical cost convention These financial statements have been prepared under the historical cost convention except for available‑for‑ sale financial asset which is accounted for at fair value. Critical accounting estimates The preparation of financial statements in conformity with AIFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 3. Going Concern The Directors recognise that additional funding either through the issue of further shares, convertible notes or a farm‑out or sale of its exploration concessions or a combination of is required to continue its normal business activities and to ensure the realisation of asset and extinguishment of liabilities as and when they fall due. The Directors have reviewed the business outlook and the assets and liabilities of the Consolidated Entity and are of the opinion that the use of the going concern basis of accounting is appropriate. Since the end of the end of the reporting date the Group has conducted an entitlement share issue, refer Note 22 for further information. However, if the Consolidated Entity is unable to achieve the above, there is material uncertainty that may cast significant doubt on the group’s ability to continue as a going concern and therefore whether it will be able to pay its debts as and when they fall due and realise its assets and extinguish its liabilities in the normal course of business at the amounts stated in the financial report. The financial report does not include any adjustments relating to the recoverability or classification of recorded asset amounts, nor the amounts or classification of liabilities that might be necessary should the Consolidated Entity not be able to continue as a going concern. (a) Principles of consolidation Subsidiaries Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The acquisitions method of accounting is used to account for business combinations by the Group. The financial statements of subsidiaries are prepared for the same reporting period as the parent entity, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies which may exist. All intercompany balances and transactions, including unrealised profits arising from intra‑group transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered. Investments in subsidiaries are accounted for at cost in the individual financial statements of Azure Minerals Limited. 32 AZURE MINERALS LIMITED ANNUAL REPORT 2015 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (b) Property, plant and equipment Each class of property, plant and equipment is carried at cost less, where applicable, any accumulated depreciation and impairment losses. Plant and equipment Plant and equipment are measured on the cost basis. The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Depreciation Depreciation of plant and equipment is calculated on a reducing balance basis so as to write off the net costs of each asset over the expected useful life. The rates vary between 20% and 40% per annum. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement. When revalued assets are sold, it is group policy to transfer the amounts included in other reserves in respect of those assets to retained earnings. (c) Exploration and evaluation costs Exploration and evaluation costs are written off in the year they are incurred apart from acquisition costs which are carried forward where right of tenure of the area of interest is current and they are expected to be recouped through sale or successful development and exploitation of the area of interest or, where exploration and evaluation activities in the area of interest have not reached a stage that permits reasonable assessment of the existence of economically recoverable reserves. Where an area of interest is abandoned or the directors decide that it is not commercial, any accumulated acquisition costs in respect of that area are written off in the financial period the decision is made. Each area of interest is also reviewed at the end of each accounting period and accumulated costs written off to the extent that they will not be recoverable in the future. Amortisation is not charged on costs carried forward in respect of areas of interest in the development phase until production commences. (d) Leases Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership that are transferred to entities in the economic entity are classified as finance leases. Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Leased assets are depreciated on a straight‑line basis over their estimated useful lives. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged on a straight line basis over the period of the lease. Lease incentives under operating leases are recognised as a liability and amortised on a straight‑line basis over the life of the lease term. AZURE MINERALS LIMITED ANNUAL REPORT 2015 33 Notes to the Consolidated Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (e) Income tax The charge for current income tax expense is based on the profit for the year adjusted for any non‑assessable or disallowed items. It is calculated using the tax rates that have been enacted or are substantially enacted by the statement of financial position date. Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the income statement except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised. The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. (f) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST. Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. (g) Foreign currency translation Functional and presentation currency The functional currency of each of the group’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is Azure Minerals Limited’s functional and presentation currency. The functional currency of Australian subsidiary (Azure Mexico Pty Ltd) is the Australian dollar. The functional currency of the Mexican overseas subsidiary (Minera Piedra Azul CV de SA) is the Mexican Peso. Transactions and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year‑end exchange rate. Non‑monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non‑monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined. Exchange differences arising on the translation of monetary items are recognised in the profit or loss, except where deferred in equity as a qualifying cash flow or net investment hedge. Group companies The financial results and position of foreign operations whose functional currency is different from the group’s presentation currency are translated as follows: • assets and liabilities are translated at year‑end exchange rates prevailing at that reporting date; and • income and expenses are translated at average exchange rates for the period. Exchange differences arising on translation of foreign operations are transferred directly to the group’s foreign currency translation reserve in the statement of financial position. These differences are recognised in the profit or loss in the period in which the operation is disposed. (h) Trade and other payables Liabilities for trade creditors are recognised initially at fair value and subsequently at amortised cost. Payables to related parties are carried at the principal amount. Interest, when charged by the lender, is recognised as an expense on an accrual basis. 34 AZURE MINERALS LIMITED ANNUAL REPORT 2015 Notes to the Consolidated Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (i) Employee benefits Provision is made for employee benefits accumulated as a result of employees rendering services up to the reporting date. These benefits include wages and salaries, annual leave, and long service leave. Liabilities arising in respect of wages and salaries, annual leave and any other employee benefits expected to be settled wholly within twelve months of the reporting date are measured at their nominal amounts based on remuneration rates which are expected to be paid when the liability is settled. All other employee benefit liabilities are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the reporting date. In determining the present value of future cash outflows, the market yield as at the reporting date on national government bonds, which have terms to maturity approximating the terms of the related liability, are used. Share-based payments The Group provides benefits to employees (including directors) of the Group in the form of share‑based payment transactions, whereby employees render services in exchange for shares or rights over shares (‘equity‑settled transactions’). The cost of these equity‑settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined by an internal valuation using a Binomial option pricing model. The cost of equity‑settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘vesting date’). The cumulative expense recognised for equity‑settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the number of options that, in the opinion of the directors of the Group, will ultimately vest. This opinion is formed based on the best available information at reporting date. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition. Where an equity‑settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award. (j) Revenue recognition Interest revenue is recognised on a time proportionate basis that takes into account the effective yield on the financial assets. (k) Contributed Equity Ordinary shares are classified as equity. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received. (l) Earnings per share (EPS) Basic earnings per share Basic EPS is calculated as the profit attributable to equity holders of the company, excluding any costs of servicing equity other than ordinary shares, divided by the weighted average number of ordinary shares outstanding during the financial year, adjusted for any bonus elements in ordinary shares issued during the year. Diluted earnings per share Diluted EPS adjusts the figures used in the determination of basic EPS to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. AZURE MINERALS LIMITED ANNUAL REPORT 2015 35 Notes to the Consolidated Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (m) Cash and cash equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks, other short‑term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within short‑term borrowings in current liabilities on the statement of financial position. (n) Comparative figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. (o) Interests in joint ventures The Groups share of the assets, liabilities, revenue and expenses of joint venture operations are included in the appropriate items of the consolidated income statement and statement of financial position. (p) Segment reporting Operating segments are reported in a manner consistent with the internal reporting to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Executive Chairman. (q) Investments and Financial assets Classification The Group classifies its financial assets in the following categories: loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. Loans and receivables Loans and receivables are non‑derivative financial assets with fixed or determinable payments that are not quoted in an active market and are recognised at fair value on initial recognition. They are included in current assets, except for those with maturities greater than 12 months after the reporting date which are classified as non‑current assets. Loans and receivables are included in trade and other receivables in the statement of financial position (note 8). Available-for-sale financial assets Available‑for‑sale financial assets, comprising principally marketable equity securities, are non‑derivatives that are either designated in this category or not classified in any of the other categories. They are included in non‑ current assets unless the investment matures or management intends to dispose of the investment within 12 months of the end of the reporting period. Investments are designated as available‑for‑sale if they do not have fixed maturities and fixed or determinable payments and management intends to hold them for the medium to long term. Recognition and derecognition Regular purchases and sales of financial assets are recognised on trade‑date – the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the right 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. Subsequent measurement Loans and receivables are carried at amortised cost using effective interest method. Impairment The Group assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired. Impairment losses are recognised in the profit or loss. Debts which are known to be uncollectible are written off by reducing the carrying amount directly. 36 AZURE MINERALS LIMITED ANNUAL REPORT 2015 Notes to the Consolidated Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (r) Fair value estimation The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. The fair value of financial instruments traded in active markets (such as publicly traded derivative, and trading and available‑for‑sale securities) is based on quoted market prices at the reporting date. The quoted market price used for financial assets held by the Group is the current bid price. The fair value of financial instruments that are not traded in an active market (for example, over‑the‑counter derivatives) is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each reporting date. Quoted market prices or dealer quotes for similar instruments are used for long‑term debt instruments held. Other techniques, such as estimated discounted cash flow, are used to determined fair value for the remaining financial instruments. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. The fair value of forward exchange contracts is determined using forward exchange market rates at the reporting date. The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values due to their short‑term nature. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. (s) Provisions Provisions for legal claims, service warranties and make good obligations are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the reporting date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense. AZURE MINERALS LIMITED ANNUAL REPORT 2015 37 Notes to the Consolidated Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d) (t) New Accounting Standards for Application in future Periods New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the consolidated entity for the annual reporting period ended 30 June 2015. The consolidated entity’s assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the consolidated entity, are set out below. Mandatory application date/ Date adopted by company Must be applied for financial years commencing on or after 1 January 2018. Application date for the company will be 30 June 2019. The company does not currently have any hedging arrangements in place. Must be applied for annual reporting periods beginning on or after 1 January 2018. Application date for the company will be 30 June 2019. Title of standard AASB 9 Financial Instruments Nature of change Impact AAB 9 addresses the classification, measurement and derecognition of financial assets and financial liabilities. Since December 2013, it also sets out new rules for hedge accounting. There will be no impact on the company’s accounting for financial assets and financial liabilities as the new requirements only affect the accounting for available‑for‑sale financial assets and the accounting for financial liabilities that are designated at fair value through profit or loss and the company does not have any such financial assets or financial liabilities. The new hedging rules align hedge accounting more closely with the company’s risk management practices. As a general rule it will be easier to apply hedge accounting going forward. The new standard also introduces expanded disclosure requirements and changes in presentation. The company has not yet made an assessment of the impact of this standard. AASB 15 (issued June 2014) Revenue from contracts with customers An entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Revenue will be recognised when control of goods or services is transferred, rather than on transfer of risks and rewards as is currently the case under IAS 18 Revenue. (u) New, revised or amending Accounting Standards and Interpretations adopted The consolidated entity has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period. Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. The adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the consolidated entity. 38 AZURE MINERALS LIMITED ANNUAL REPORT 2015 Notes to the Consolidated Financial Statements 2. FINANCIAL RISK MANAGEMENT Overview The Company and Group have exposure to the following risks from their use of financial instruments: • credit risk • liquidity risk • market risk This note presents information about the Company’s and Group’s exposure to each of the above risks, their objectives, policies and processes for measuring and managing risk, and the management of capital. The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. Management monitors and manages the financial risks relating to the operations of the group through regular reviews of the risks. Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers and cash and cash equivalents. For the Company it arises from receivables due from subsidiaries. Cash and Cash Equivalents The Group manages its credit risk on cash and cash equivalents by only dealing with banks licensed to operate in Australia. Trade and other receivables As the Group operates in the mining exploration sector, it generally does not have trade receivables and therefore is not exposed to credit risk in relation to trade receivables. Presently, the Group undertakes exploration and evaluation activities exclusively in Mexico. At the reporting date there were no significant concentrations of credit risk. Exposure to credit risk The carrying amount of the Group’s financial assets represents the maximum credit exposure. The Group’s maximum exposure to credit risk at the reporting date was: Trade and other receivables Cash and cash equivalents Security deposits Note 8 19 12 Consolidated Carrying amount 2015 2014 1,064,291 1,775,412 45,378 238,666 978,865 45,378 Impairment losses None of the Company’s other receivables are past due (2014: nil). The Group operates in the mining exploration sector and generally does not have trade receivables and is therefore not materially exposed to credit risk in relation to trade receivables. Other receivables are principally value added taxes withheld by third parties and due to the Group from sovereign governments, as such the Group does not consider it is exposed to any significant credit risk. The allowance accounts in respect of other receivables is used to record impairment losses unless the Group is satisfied that no recovery of the amount owing is possible; at that point the amount is considered irrecoverable and is written off against the financial asset directly. At 30 June 2015 the Group does not have any collective impairments on its other receivables. The Group places its cash deposits with institutions with a credit rating of AA or better and only with major banks. Guarantees Group policy is to provide financial guarantees only to wholly‑owned subsidiaries. There are no guarantees outstanding (2014: Nil) AZURE MINERALS LIMITED ANNUAL REPORT 2015 39 Notes to the Consolidated Financial Statements 2. FINANCIAL RISK MANAGEMENT (cont’d) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group manages liquidity risk by maintaining adequate reserves by continuously monitoring forecast and actual cash flows. The Company anticipates a need to raise additional capital in the next 12 months to meet forecasted operational activities. The decision on how the Company will raise future capital will depend on market conditions existing at that time. Typically the Group ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 180 days, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. The following are the contractual maturities of financial liabilities at amortised cost: Consolidated 30 June 2015 Trade and other payables 30 June 2014 Trade and other payables Carrying amount Contract- ual cash flows 6 mths or less 6-12 mths 1-2 years 2-5 years More than 5 years 235,051 235,051 235,051 249,061 249,061 249,061 – – – – – – – – Market Risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. Currency risk The Group is exposed to currency risk on purchases that are denominated in a currency other than the respective functional currencies of Group entities, primarily the United Sates Dollar (USD) and Mexican Peso (MxP). The Group has not entered into any derivative financial instruments to hedge such transactions and anticipated future receipts or payments that are denominated in a foreign currency. Group’s investments in its subsidiaries are not hedged as those currency positions are considered to be long term in nature. 40 AZURE MINERALS LIMITED ANNUAL REPORT 2015 Notes to the Consolidated Financial Statements 2. FINANCIAL RISK MANAGEMENT (cont’d) Exposure to currency risk The Group’s exposure to foreign currency risk at reporting date was as follows, based on notional amounts: Trade receivables Trade payables Gross statement of financial position Forward exchange contracts Net exposure 2015 USD 2014 USD – 80,030 80,030 – 108,368 76,712 185,080 – 80,030 185,080 The following significant exchange rates applied during the year: Average rate Reporting date spot rate 2015 2014 2015 2014 AUD/USD 1.2011 1.0898 1.3061 1.0606 Sensitivity analysis Over the reporting period there have been significant movements in the Australian dollar when compared to other currencies, it is therefore considered reasonable to review sensitivities base on a 10% movement in the Australian dollar. A 10 percent strengthening of the Australian dollar against the following currencies at 30 June would have increased equity and decrease loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2014. 30 June 2015 USD 30 June 2014 USD Consolidated Profit or loss 8,003 18,508 A 10 percent weakening of the Australian dollar against the above currencies at 30 June would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant. AZURE MINERALS LIMITED ANNUAL REPORT 2015 41 Notes to the Consolidated Financial Statements 2. FINANCIAL RISK MANAGEMENT (cont’d) Interest rate risk Interest rate risk is the risk that the Groups financial position will be adversely affected by movements in interest rates that will increase the costs of floating rate debt or opportunity losses that may arise on fixed rate borrowings in a falling interest rate environment. The Group does not have any borrowings therefore is not exposed to interest rate risk in this area. Interest rate risk on cash and short term deposits is not considered to be a material risk due to the short term nature of these financial instruments. At the reporting date the interest rate profile of the Company’s and the Group’s interest‑bearing financial instruments was: Variable rate instruments Short term cash deposits Consolidated Carrying amount 2015 2014 1,288,286 882,105 Cash flow sensitivity analysis for variable rate instruments The Group has reviewed the likely movements in interest rates and considers that a movement of +/ – 100 basis points is reasonable. Group Sensitivity At 30 June 2015 if interest rates had changed +/ – 100 basis points from year end rates with all other variables held constant, equity and post tax profit would have been $18,204 higher /lower (2014 – change of 100 basis points $10,242 higher/lower). Fair values Fair values versus carrying amounts The fair values of financial assets and liabilities, together with the carrying amounts shown in the statement of financial position, are as follows: Consolidated 2015 2014 Carrying amount Fair value Carrying amount Fair value Trade and other receivables Cash and cash equivalents Other financial assets Trade and other payables 1,064,291 1,064,291 1,775,412 1,775,412 45,378 45,378 238,666 978,865 45,378 238,666 978,865 45,378 (235,051) (235,051) (249,061) (249,061) The methods and assumptions used to estimate the fair value of instruments are: Cash and cash equivalent: The carrying amount approximates fair value because of their short‑term to maturity. Receivables and payables: The carrying amount approximates fair value. Available‑for‑sale financial assets: Quoted prices in active markets been used to determine the fair value of listed available‑for‑sale investments (Level 1). The fair value of these financial assets has been based on the closing quoted bid prices at reporting date, excluding transaction costs. 42 AZURE MINERALS LIMITED ANNUAL REPORT 2015 Notes to the Consolidated Financial Statements 2. FINANCIAL RISK MANAGEMENT (cont’d) Capital Management The Group’s objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits of other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may issue new shares or sell assets. There were no changes in the Group’s approach to capital management during the year. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements. 3. CRITICAL ACCOUNTING ESTIMATES AND SIGNIFICANT JUDGEMENTS The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are: Exploration and evaluation costs Exploration and evaluation costs are written off in the year they are incurred apart from acquisition costs which are carried forward where right of tenure of the area of interest is current. The future recoverability of exploration and evaluation expenditure is dependent on a number of factors, including whether the Group decides to exploit the related lease itself, or, if not, whether it successfully recovers the related exploration and evaluation assets through sale. Factors that could impact the future recoverability include the level of reserves and resources, future technological changes, which could impact the cost of mining, future legal changes (including changes to environmental restoration obligations) and changes to commodity prices. To the extent that capitalised exploration and evaluation expenditure is determined not to be recoverable in the future, profits and net assets will be reduced in the period in which this determination is made. Deferred tax assets Deferred tax assets are recognised for deductible temporary differences when management considers that it is probable that future taxable profits will be available to utilise those temporary differences. Currently no deferred tax assets have been recognised as it is not probable that future taxable profits will be available to utilise those temporary differences. 4. SEGMENT INFORMATION The Company currently does not have production and is only involved in exploration. As a consequence, activities in the operating segments are identified by management based on the manner in which resources are allocated, the nature of the resources provided and the identity of service line manager and country of expenditure. Discrete financial information about each of these areas is reported to the executive management team on a monthly basis. Based on this criteria, management has determined that the company has one operating segment being mineral exploration in Mexico. As the company is focused on mineral exploration, the Board monitors the company based on actual versus budgeted exploration expenditure incurred by area of interest. These areas of interest meet aggregating criteria and are aggregated into one reporting sector. This internal reporting framework is the most relevant to assist the Board with making decisions regarding the company and its ongoing exploration activities, while also taking into consideration the results of exploration work that has been performed to date. AZURE MINERALS LIMITED ANNUAL REPORT 2015 43 Notes to the Consolidated Financial Statements 4. SEGMENT INFORMATION (cont’d) Revenue from external sources Reportable segment profit (loss) Reportable segment assets Reportable segment liabilities Reconciliation of reportable segment loss Reportable segment profit (loss) Other profit Unallocated: – Salaries and wages – Travel and accommodation – Office costs – Other corporate expenses – Share based payments – Depreciation Loss before tax Reconciliation of reportable segment assets Reportable segment assets Unallocated: – Cash – Trade and other receivables – Investments – Security deposits – Office plant and equipment Total assets Reconciliation of reportable segment liabilities Reportable segment liabilities Unallocated: – Trade and other payables – Provisions Total liabilities 44 AZURE MINERALS LIMITED ANNUAL REPORT 2015 30 June 2015 $ 30 June 2014 $ – – 619,666 (1,733,237) 6,051,473 4,629,661 (160,060) (153,424) 619,666 (1,733,237) (682,501) (171,424) (375,935) (404,847) (130,091) (6,228) (639,652) (173,778) (91,362) (284,044) (388,181) (7,567) (1,151,360) (3,317,821) 6,051,473 4,629,661 1,775,412 18,216 948 45,378 16,135 978,865 18,118 950 45,378 19,867 7,907,562 5,692,839 (160,060) (153,424) (74,991) (144,243) (379,294) (95,637) (145,791) (394,852) Notes to the Consolidated Financial Statements 5. REVENUE FROM CONTINUING OPERATIONS Other revenues Bank interest Penalty interest received Rental and overhead fees Total revenues from continuing operations 6. EXPENSES Loss before income tax includes the following specific expenses Depreciation of plant and equipment Exploration expenditure Exploration expenditure reimbursement Operating lease expenses Superannuation Bad debt 7. INCOME TAX (a) Income tax expense Current tax Deferred tax 30 June 2015 $ 30 June 2014 $ 18,199 201,022 138,891 358,112 37,270 – – 37,270 27,827 37,176 2,041,367 2,174,850 (2,351,295) (65,600) 55,343 37,524 21,006 47,655 36,533 – 2015 $ 2014 $ – – – – – – AZURE MINERALS LIMITED ANNUAL REPORT 2015 45 Notes to the Consolidated Financial Statements 7. INCOME TAX (cont’d) 2015 $ 2014 $ (b) Numerical reconciliation of income tax expense to prima facie tax payable Loss from continuing operations before income tax expense Tax at the Australian tax rate of 30% (2014: 30%) (1,151,360) (3,317,821) (345,408) (995,346) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Share‑based payments Reverse provision for doubtful debt Sundry items Movement in unrecognised temporary differences Difference in overseas tax rates Prior year adjustments to deferred tax balances Tax effect of current year tax losses for which no deferred tax asset has been recognised Income tax expense (c) Unrecognised temporary differences Deferred Tax Assets (at 30%) On Income Tax Account Prepayments Depreciation of plant and equipment Provisions Carry forward tax losses Carry forward tax losses – foreign Other – tenement Deferred Tax Liabilities (at 30%) 39,027 6,302 52,196 (247,883) (59,852) – – 116,454 (128,093) 49,733 (957,252) (56,880) – – 307,735 1,014,132 – – 3,289 (14,974) 50,773 6,823,831 5,436,105 654,600 4,425 (15,246) 55,640 6,516,096 5,441,912 654,600 12,953,624 12,657,427 – – Deferred income tax assets have not been recognised as it is not probable that future profit will be available against which deductible temporary differences can be utilised. In addition to the above Australian estimated future income tax benefits the consolidated entity has incurred significant expenditure in Mexico, some of which should give rise to taxable deductions. At this stage the company is unable to reliably estimate the quantity of such future tax benefits. There are no franking credits available. 46 AZURE MINERALS LIMITED ANNUAL REPORT 2015 Notes to the Consolidated Financial Statements 8. TRADE AND OTHER RECEIVABLES Current Prepayments Sundry Receivables (a) 2015 $ 2014 $ 16,318 1,047,973 1,064,291 14,750 223,916 238,666 (a) These amounts generally arise from activities outside the usual operating activities. Interest is not usually charged and collateral is not obtained. For the Group the receivable principally arises from consumption taxes paid to third party suppliers for which a refund from tax authorities is expected. There are no impaired sundry receivables and no past due but not impaired receivables. (b) Refer to note 2 for information on the risk management policy of the Group and the credit quality of the Groups receivables 9. AVAILABLE FOR SALE INVESTMENTS Listed shares at fair value (a) Wolfeye Resource Corp. 948 948 (a) Available‑for‑sale investments consist of investments in ordinary shares, and therefore have no fixed maturity date or coupon rate. Wolfeye Resource Corp. is listed on the Toronto Venture Exchange. Fair value has been determined directly by reference to published quotations on active markets (Level 1). The fair value of these financial assets has been based on the closing quoted bid prices at reporting date, excluding transaction costs. Also refer to Note 2 – Financial Risk Management. At Cost Impairment Fair value adjustment to reserve (Note 17) Fair value at 30 June 40,944 – 40,944 – (39,996) (39,996) 948 948 AZURE MINERALS LIMITED ANNUAL REPORT 2015 47 Notes to the Consolidated Financial Statements 10. PLANT AND EQUIPMENT Consolidated At 1 July 2013 Cost Furniture, fittings and equipment $ Motor Vehicles $ Exploration Equipment $ Total $ 387,103 81,986 57,976 527,065 Accumulated Depreciation (331,202) (56,718) (25,303) (413,223) Net Book Amount 55,901 25,268 32,673 113,842 Year ended 30 June 2014 Opening net book value Additions Disposals Depreciation on disposals Depreciation charge Foreign exchange translation adjustment Closing net book value At 30 June 2014 Cost 55,901 8,944 (69,578) 69,578 (17,503) (2,909) 44,433 25,268 – – – (15,363) 1,037 10,942 32,673 2,115 (8,880) 8,880 (4,310) (558) 29,920 113,842 11,059 (78,458) 78,458 (37,176) (2,430) 85,295 323,665 79,272 49,681 452,618 Accumulated depreciation (279,232) (68,330) (19,761) (367,323) Net book amount 44,433 10,942 29,920 85,295 Year ended 30 June 2015 Opening net book value Additions Disposals Depreciation on disposals Depreciation charge Foreign exchange translation adjustment Closing net book value At 30 June 2015 Cost 44,433 6,544 – – 10,942 – – – (12,155) (10,790) 637 39,459 294 446 29,920 43,928 – – (4,882) (388) 68,578 85,295 50,472 – – (27,827) 543 108,483 332,381 81,307 93,650 507,338 Accumulated depreciation (292,922) (80,861) (25,072) (398,855) Net book amount 39,459 446 68,578 108,483 48 AZURE MINERALS LIMITED ANNUAL REPORT 2015 Notes to the Consolidated Financial Statements 11. CAPITALISED EXPLORATION EXPENDITURE (NON-CURRENT) At Cost Reconciliations Movement in the carrying amounts of capitalised exploration expenditure between the beginning and end of the current financial year Opening net book amount Additions Disposals Foreign exchange translation adjustment Closing net book amount 2015 $ 2014 $ 4,913,050 4,343,687 4,343,687 458,719 – 2,254,337 2,163,962 – 110,644 (74,612) 4,913,050 4,343,687 Recovery of the capitalised amount is dependent upon successful development and commercial exploitation, or alternatively, sale. 12. OTHER FINANCIAL ASSETS (NON-CURRENT) Security Deposit 45,378 45,378 These financial assets are carried at cost. 13. SUBSIDIARIES The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 1(a): Name Country of incorporation Class of shares Azure Mexico Pty Ltd Minera Piedra Azul, S.A. de C.V Minera Capitana S.A. de C.V Azu‑Perth S.A. de C.V. Minera Azure, S.A. de C.V. Australia Mexico Mexico Mexico Mexico Ordinary Ordinary Ordinary Ordinary Ordinary *Percentage of voting power is in proportion to ownership 14. TRADE AND OTHER PAYABLES (CURRENT) Trade payables Equity Holding* 2015 % 100 100 100 100 100 2014 % 100 100 100 100 – 2015 $ 2014 $ 235,051 249,061 Information about the Groups financial risk management policies is disclosed in note 2. AZURE MINERALS LIMITED ANNUAL REPORT 2015 49 Notes to the Consolidated Financial Statements 15. PROVISIONS CURRENT Employee benefits NON-CURRENT Employee benefits 2015 $ 2014 $ 94,281 93,104 49,962 52,687 The provisions for employee benefits include accrued annual leave and long service leave. For long service leave it covers all unconditional entitlements where employees have completed the required period of service. Based on past experience employee entitlements that represent annual leave are presented as current and employee entitlements that are in relation to long serve leave are present as non‑current. 16. CONTRIBUTED EQUITY (a) Share capital Consolidated 2015 2014 Number of shares $ Number of shares $ Ordinary shares fully paid Total consolidated contributed equity 995,020,107 51,121,569 779,026,491 47,965,163 (b) Movements in ordinary share capital 2015 2014 Number of shares $ Number of shares $ 1 July opening balance Issue at $0.026 per share Issue at $0.027 per share 779,026,491 47,965,163 630,476,486 44,677,855 – – – – 82,750,006 2,151,500 64,799,999 1,749,600 Option exercise at $0.020 per share 16,995,833 339,917 1,000,000 20,000 Issue at $0.022 per share Issue at $0.0132 per share Issue at $0.03 per share Share issue expenses 30 June closing balance 100,000 2,200 177,462,238 2,342,500 21,435,545 643,066 – (171,277) – – – – – – – (633,792) 995,020,107 51,121,569 779,026,491 47,965,163 Funds raised from the share issues during the 2015 were used to progress the company’s exploration activities and for general working capital. 50 AZURE MINERALS LIMITED ANNUAL REPORT 2015 Notes to the Consolidated Financial Statements 16. CONTRIBUTED EQUITY (cont’d) (c) Movements in unlisted options on issue 1 July Opening Balance Issued during the year Number of options 2015 2014 71,197,686 50,773,611 ‑Exercisable at 4.5 cents, on or before 30 Nov 2016 – 25,924,075 Forfeited during the year – Exercisable at 4.0 cents, on or before 30 Nov 2014 – Exercisable at 2 cents, on or before 30 Sept 2014 – Exercisable at 13 cents on or before 30 Nov 2013 Exercised during the year at 2.0 cents 30 June closing balance Further information on options issued is set out in note 28. (d) Ordinary shares (3,000,000) (277,778) – – – (4,500,000) (16,995,833) (1,000,000) 50,924,075 71,197,686 Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. For further information on Capital Management refer to Note 2. 17. RESERVES AND ACCUMULATED LOSSES Accumulated losses Balance at beginning of year Loss for the year Balance at end of year Share-based payments reserve Balance at beginning of year Movement during the year Balance at end of year Available-for-sale assets reserve Balance at beginning of year Revaluation Balance at end of year 2015 $ 2014 $ 45,505,229 42,187,408 1,151,360 3,317,821 46,656,589 45,505,229 3,031,401 2,222,665 130,091 808,736 3,161,492 3,031,401 (39,996) – (39,996) (37,821) (2,175) (39,996) AZURE MINERALS LIMITED ANNUAL REPORT 2015 51 Notes to the Consolidated Financial Statements 17. RESERVES AND ACCUMULATED LOSSES (cont’d) Foreign currency translation reserve Balance at beginning of year Movement during the year Balance at end of year 2015 $ 2014 $ (153,352) 95,144 (35,823) (117,529) (58,208) (153,352) (a) Nature and purpose of reserves Share-based payments reserve The share‑based payments reserve is used to recognise the fair value of options issued but not exercised. Available-for-sale assets reserve This reserve records fair value changes on available‑for‑sale investments. Amounts are recognised in profit and loss when the associated assets are sold or impaired. Foreign currency translation reserve The foreign currency translation reserve is used to record exchange differences arising from the translation of the statements of foreign subsidiaries. 18. DIVIDENDS PAID OR PROVIDED FOR ON ORDINARY SHARES No dividends were paid or declared since the start of the financial year. No recommendation for payment of dividends has been made. 19. STATEMENT OF CASH FLOWS (a) Cash and cash equivalents (refer note 2) Cash and cash equivalents comprises: – cash at bank and in hand – short‑term deposits Closing cash and cash equivalents balance 487,126 1,288,286 1,775,412 96,760 882,105 978,865 Cash at bank and in hand earns interest at floating rates based on daily bank deposit rates. Short‑term deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short‑term deposit rates. 52 AZURE MINERALS LIMITED ANNUAL REPORT 2015 Notes to the Consolidated Financial Statements 19. STATEMENT OF CASH FLOWS (cont’d) (b) Reconciliation of the net loss after income tax to the net cash flows from operating activities Net loss Depreciation of non‑current assets Share based payment expense Non‑cash exploration expense Provision for doubtful debt Changes in operating assets and liabilities (Increase)/decrease in trade and other receivables (Increase)/decrease in prepayments Increase/(decrease) in trade and other payables Increase/(decrease) in provisions Net cash outflow from operating activities 2015 $ 2014 $ (1,151,360) (3,317,821) 27,827 130,091 2,200 37,176 388,181 – – (426,978) (739,276) 744,249 (1,472) (1,443) (98,138) (345,259) (1,548) 14,416 (1,831,676) (2,907,479) (c) Non-cash financing and investing activities There have been no non‑cash financing and investing activities during the 2015 year (2014: Nil). 20. COMMITMENTS (a) Exploration commitments The company has certain commitments to meet minimum expenditure requirements on the mineral exploration assets it has an interest in. Outstanding exploration commitments which are expected to be met in the normal course of business are as follows: Not later than one year 97,064 72,196 (b) Option payments The company has entered into option agreements to acquire a 100% interest in the Promontorio project located in the northern Mexican state of Chihuahua within the richly mineralised Sierra Madre Occidental mining province. In order to retain the right to acquire the Promontorio project option payments must be made as follows: Not later than one year Later than one year and not later than five years (c) Lease expenditure commitments Operating leases (non-cancellable): Minimum lease payments: not later than one year later than one year and not later than five years Aggregate lease expenditure contracted for at reporting date 1,430,180 – 1,430,180 344,681 1,161,311 1,505,992 78,186 – 78,186 156,372 78,186 234,558 The property lease is a non‑cancellable lease with a three‑year term ending 31 December 2015, rent is payable monthly in advance. The lease allows for subletting of all leased areas and excess off space has been sub‑let the related third parties as disclosed in Note 26(c). AZURE MINERALS LIMITED ANNUAL REPORT 2015 53 Notes to the Consolidated Financial Statements 21. CONTINGENCIES During the year Azure entered into an agreement with Minera Teck S.A. de C.V. (“Teck”), a Mexican subsidiary of Teck Resources Limited whereby Azure can acquire 100% ownership of the Alacrán Copper Project, located in the northern Mexican state of Sonora. Pursuant to that agreement Azure undertook to incur minimum exploration expenditure of US$1 million before 30 November 2015 and a further US$1 million by 30 November 2016. As at 30 June Azure had incurred exploration expenditure of approximately US$379,000. There are no other material contingent liabilities or contingent assets of the company at reporting date (2014: Nil). 22. EVENTS OCCURING AFTER BALANCE SHEET DATE Since the end of the financial year Azure has entered into an agreement with a New York‑based investment fund which provides the Azure with the right to secure up $3.25 million in equity funding over the next 24 months by way of an equity investment from the fund of a minimum of $100,000 each month, and up to $250,000 subject to certain conditions and at a price equal to 80% of the 5 day VWAP prior to any investment request. Azure made its first placement under the facility of 10,154,346 shares at $0.098 each raising $100,000. No other matter or circumstance has arisen since the end of the financial year which significantly affected or may significantly affect the operations of the group, the results of those operations, or the state of affairs of the group in future financial year. 23. LOSS PER SHARE (a) Reconciliation of earnings to profit or loss Net loss Loss used in calculating basic loss per share 2015 $ 2014 $ (1,151,360) (3,317,821) (1,151,360) (3,317,821) (b) Weighted average number of ordinary shares outstanding during the year used in calculating basic loss per share CONSOLIDATED Number of shares 2015 Number of shares 2014 Weighted average number of ordinary shares used in calculating basic loss per share 861,793,000 668,222,558 (c) Effect of dilutive securities Options on issue at reporting date could potentially dilute basic earnings per share in the future. The effect in the current year is to decrease the loss per share hence they are considered antidilutive. Accordingly diluted loss per share has not been disclosed. 54 AZURE MINERALS LIMITED ANNUAL REPORT 2015 Notes to the Consolidated Financial Statements 24. AUDITOR’S REMUNERATION Amounts received or due and receivable by BDO Audit (WA) Pty Ltd or associated entities for: Tax compliance services Other An audit or review of the financial report of the entity Remuneration of other auditors of subsidiaries Audit or review of financial report of subsidiaries 25. KEY MANAGEMENT PERSONNEL DISCLOSURES (a) Compensation of key management personnel by compensation Short‑term Post employment Share‑based payment Consolidated 2015 $ 2014 $ 13,158 – 33,790 46,948 10,965 297 46,029 57,291 11,734 11,177 597,305 49,224 109,276 755,805 548,420 36,534 326,072 911,026 For further information refer to the Remuneration Report included as part of the Director’s Report. 26. RELATED PARTY DISCLOSURES (a) Parent entity The ultimate parent entity within the Group is Azure Minerals Limited. (b) Subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 1(a): Name Country of incorporation Class of shares Azure Mexico Pty Ltd Minera Piedra Azul, S.A. de C.V Minera Piedra Capitana, S.A. de C.V Servicios AzuPerth, S.A. de C.V Mineral Azure S.A. de C.V. Australia Mexico Mexico Mexico Mexico Ordinary Ordinary Ordinary Ordinary Ordinary Equity Holding* 2015 % 100 100 100 100 100 2014 % 100 100 100 100 – *Percentage of voting power is in proportion to ownership No other provision for doubtful debts have been raised in relation other outstanding balances, and no other expense has been recognised in respect of bad or doubtful debts due from related parties. AZURE MINERALS LIMITED ANNUAL REPORT 2015 55 Notes to the Consolidated Financial Statements 26. RELATED PARTY DISCLOSURES (cont’d) (c) Other Related Transaction The Company has entered into a sub‑lease agreement on normal commercial terms with Oro Verde Limited, a company of which Wolf Martinick and Brett Dickson are directors. During the year Oro Verde Limited paid sub‑lease fees totalling $4,800 (2014: $4,800). The Company has also entered into a sub‑lease agreement on normal commercial terms with Rox Resources Limited, a company of which Brett Dickson is a Director. During the year Rox Resources Limited paid sub‑lease fees totalling $114,800 (2014: $114,800). 27. SHARE-BASED PAYMENTS No options have been issued pursuant to an Employee Share plan. Employee and consultants option plan The establishment of the Azure Minerals Limited – Employees and Contractors Option Incentive Plan (“Plan”) was approved by shareholders at the 2004 Annual General Meeting. The plan is designed to provide long‑term incentives for employees and certain contractors to deliver long term shareholder returns. Participation in the plan is at the Boards discretion and no individual has a contractual right to participate in the plan or to receive guaranteed benefits. In addition, under the Plan, the Board determines the terms of the options including exercise price, expiry date and vesting conditions, if any. Options granted under the plan carry no dividend or voting rights. When exercised, each option is convertible into an ordinary share of the company with full dividend and voting rights. No options are on issue pursuant to the plan. (a) Directors and executive options Set out below are summaries of current directors, executives & employees options granted. Grant Date Expiry Date Exercise Price (cents) Value per option at grant date (cents) Balance at the start of the year Number Granted during the year Number Exercised during the year Number Lapsed during the year Number Balance at end of the year Number Vested and exercis- a ble at end of the year Number 2015 25 Jun ‘13* 30 Jun ‘17 9 Dec ‘11 30 Nov ‘14 5.8 4.9 Weighted average exercise price 2014 25 Jun ‘13* 30 Jun ‘17 9 Dec ‘11 30 Nov ‘14 5.8 4.9 14 Dec ‘10 30 Nov ‘13 13.0 Weighted average exercise price 3.2 1.6 3.2 1.6 5.5 25,000,000 3,000,000 28,000,000 $0.057 25,000,000 3,000,000 4,500,000 32,500,000 $0.067 – – – – – – – – – 25,000,000 25,000,000 – (3,000,000) – – – (3,000,000) 25,000,000 25,000,000 $0.049 $0.058 $0.058 – – – – 25,000,000 16,666,668 – 3,000,000 3,000,000 (4,500,000) – – – (4,500,000) 28,000,000 19,666,668 $0.130 $0.057 $0.057 * One third of these options vested on grant, one third vested on 30 June 2014 and the final third vested on 30 June 2015. The weighted average remaining contractual life of share options outstanding at the end of the period was 2.0 years (2014: 1.76 years). 56 AZURE MINERALS LIMITED ANNUAL REPORT 2015 Notes to the Consolidated Financial Statements 27. SHARE-BASED PAYMENTS (cont’d) Total expenses arising from share‑based payment transactions recognised during the year were as follows: Consolidated 2015 $ 2014 $ Options issued to directors and executives 130,091 388,181 (b) Options issued to other parties During the year no (2014: no) options were issued to unrelated parties relating to the fundraising activities and corporate advice received. The following table illustrated the number, exercise prices and movements in share options held by unrelated parties during the year. 2015 Grant Date Expiry Date Exercise Price (cents) Value per option at grant date (cents) Balance at the start of the year Number Granted during the year Number Exercised during the year Number Lapsed during the year Number Balance at end of the year Number Vested and exercis- able at end of the year Number 27 Sept ‘12 30 Sept ‘14 3 Dec ‘12 30 Sept ‘14 16 May ‘14 30 Nov ‘16 30 May ‘14 30 Nov ‘16 2.0 2.0 4.5 4.5 Weighted average exercise price 1.1 0.9 1.7 1.5 2,873,611 14,400,000 20,618,913 5,305,162 43,197,686 $0.035 – (2,595,833) (277,778) – (14,400,000) – – – – – – – – – – 20,618,913 20,618,913 – 5,305,162 5,305,162 – (16,995,833) (277,778) 25,924,075 25,924,075 $0.02 $0.02 $0.045 $0.045 The weighted average remaining contractual life of share options outstanding at the end of the 2015 period was 1.4 years (2014: 1.6 years) 2014 Grant Date Expiry Date Exercise Price (cents) Value per option at grant date (cents) Balance at the start of the year Number Granted during the year Number Exercised during the year Number Lapsed during the year Number Balance at end of the year Number Vested and exercis- able at end of the year Number 27 Sept ‘12 30 Sept ‘14 3 Dec ‘12 30 Sept ‘14 16 May ‘14a 30 Nov ‘16 30 May ‘14b 30 Nov ‘16 2.0 2.0 4.5 4.5 1.1 0.9 1.7 1.5 2,873,611 15,400,000 – – – – 2,873,611 2,873,611 (1,000,000) – 14,400,000 14,400,000 – 20,618,913 – 5,305,162 – – – 20,618,913 20,618,913 – 5,305,162 5,305,162 Weighted average exercise price $0.020 $0.045 $0.020 – $0.035 $0.035 18,273,611 25,924,075 (1,000,000) – 43,197,686 43,197,686 The weighted average remaining contractual life of share options outstanding at the end of the 2014 period was 1.6 years (2013: 1.2). AZURE MINERALS LIMITED ANNUAL REPORT 2015 57 Notes to the Consolidated Financial Statements 27. SHARE-BASED PAYMENTS (cont’d) Fair value of options granted. During the 2014 financial year the weighted average fair value of the options granted was 1.7 and 1.5 cents. The price was calculated by using the Binominal Option valuation methodology applying the following inputs: Weighted average exercise price (cents) Weighted average life of the option (years) Weighted average underlying share price (cents) Expected share price volatility (%) Risk free interest rate (%) 2015 – – – – – 2014 (a) 4.5 2.5 3.2 100 2.85 (b) 4.5 2.5 3.0 100 2.80 Historical volatility has been the basis for determining expected share price volatility as it assumed that this is indicative of future trends, which may not eventuate. The life of the options is based on historical exercise patterns, which may not eventuate in the future. Total expenses arising from share‑based payment transactions recognised during the year were as follows: Consolidated 2015 $ 2014 $ Options issued to other unrelated parties – – 1. An amount of $Nil (2014: $420,555) relating to these options has been capitalised as costs associated with a capital raising (note 16(b)). 2. The fair value of options issued to other parties in 2014 was based on the fair value of options as the entity has rebutted the presumption that the fair value of services was determinable at the time of issuance of these options. 58 AZURE MINERALS LIMITED ANNUAL REPORT 2015 Notes to the Consolidated Financial Statements 28. PARENT ENTITY FINANCIAL INFORMATION (a) Summary financial information The individual financial statements for the parent entity show the following aggregate amounts: Statement of Financial Position Current assets Total assets Current liabilities Total liabilities Net assets Shareholder’s equity Issued capital Reserves Share‑based payments Accumulated loses 2015 $ 2014 $ 7,684,689 10,036,093 7,747,503 10,102,641 219,235 219,235 241,428 241,428 7,528,268 51,121,569 47,965,163 3,121,496 2,991,405 (46,714,797) (41,095,356) 7,528,268 9,861,212 (b) Contingent liabilities of the parent entity The parent entity did not have any contingent liabilities as at 30 June 2015 or 30 June 2014. (c) Contracted commitments for the acquisition of property, plants or equipment The parent entity did not have any commitments for the acquisition of property, plants or equipment. AZURE MINERALS LIMITED ANNUAL REPORT 2015 59 Notes to the Consolidated Financial Statements Directors’ Declaration Directors’ Declaration The directors of the company declare that: (1) The financial statements and notes of the consolidated entity are in accordance with the Corporations Act 2001, including: (a) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (b) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2015 and of its performance for the year ended on that date. (2) Subject to achievement of the matters as set out in note 1, in the directors’ opinion, there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. (3) The directors have been given the declaration by the chief executive officer and chief financial officer as required by section 295A of the Corporations Act 2001. (4) The Company has included in the notes to the financial statements an explicit and unreserved statement of compliance with International Financial Reporting Standards. This declaration is made in accordance with a resolution of the Board of Directors and is signed for and on behalf of the directors by: Peter Ingram Chairman Perth, 17 September2015 60 AZURE MINERALS LIMITED ANNUAL REPORT 2015 Tel: +61 8 6382 4600 Fax: +61 8 6382 4601 www.bdo.com.au Tel: +61 8 6382 4600 Fax: +61 8 6382 4601 www.bdo.com.au 38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia 38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia INDEPENDENT AUDITOR’S REPORT To the members of Azure Minerals Limited INDEPENDENT AUDITOR’S REPORT Report on the Financial Report INDEPENDENT AUDITOR’S REPORT We have audited the accompanying financial report of Azure Minerals Limited, which comprises the consolidated statement of financial position as at 30 June 2015, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. To the members of Azure Minerals Limited To the members of Azure Minerals Limited Report on the Financial Report Report on the Financial Report Directors’ Responsibility for the Financial Report Directors’ Responsibility for the Financial Report We have audited the accompanying financial report of Azure Minerals Limited, which comprises the The directors of the company are responsible for the preparation of the financial report that gives a true and consolidated statement of financial position as at 30 June 2014, the consolidated statement of profit or fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such loss and other comprehensive income, the consolidated statement of changes in equity and the internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 1, the consolidated statement of cash flows for the year then ended, notes comprising a summary of directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, significant accounting policies and other explanatory information, and the directors’ declaration of the that the financial statements comply with International Financial Reporting Standards. consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. We have audited the accompanying financial report of Azure Minerals Limited, which comprises the consolidated statement of financial position as at 30 June 2014, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. Directors’ Responsibility for the Financial Report Auditor’s Responsibility Auditor’s Responsibility We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Azure Minerals Limited, would be in the same terms if given to the directors as at the time of this auditor’s report. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and well as evaluating the overall presentation of the financial report. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. (a) the financial report of Azure Minerals Limited is in accordance with the Corporations Act 2001, including: (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2015 and of its performance for the year ended on that date; and Opinion In our opinion: Independence We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis Emphasis of matter for our audit opinion. Without modifying our opinion, we draw attention to Note 1 in the financial report, which indicates that the ability of the consolidated entity to continue as a going concern is dependent upon the future successful raising of necessary funding through equity, convertible notes, a farm out or sale of its exploration concessions or a combination of these. These conditions, along with other matters as set out in Note 1, indicate the existence of a material uncertainty that may cast significant doubt about the consolidated entity’s ability to continue as a going concern and therefore, the consolidated entity may be unable to realise its assets and discharge its liabilities in the normal course of business. In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which Independence BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania. BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania. 50 AZURE MINERALS LIMITED ANNUAL REPORT 2015 61 50 Independent Auditor’s Report Report on the Remuneration Report We have audited the Remuneration Report included in the directors’ report for the year ended 30 June 2015. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. has been given to the directors of Azure Minerals Limited, would be in the same terms if given to the directors as at the time of this auditor’s report. Opinion Opinion In our opinion, the Remuneration Report of Azure Minerals Limited for the year ended 30 June 2015 complies with section 300A of the Corporations Act 2001. In our opinion: (a) BDO Audit (WA) Pty Ltd the financial report of Azure Minerals Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2014 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Ian Skelton Director Emphasis of matter Perth, 17 September 2015 Without modifying our opinion, we draw attention to Note 1 in the financial report, which indicates that the ability of the consolidated entity to continue as a going concern is dependent upon the future successful raising of necessary funding through equity, successful exploration and subsequent exploitation of the consolidated entity’s tenements, and/or sale of non-core assets. These conditions, along with other matters as set out in Note 1, indicate the existence of a material uncertainty that may cast significant doubt about the consolidated entity’s ability to continue as a going concern and therefore, the consolidated entity may be unable to realise its assets and discharge its liabilities in the normal course of business. Report on the Remuneration Report We have audited the Remuneration Report included in the directors’ report for the year ended 30 June 2014. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Opinion In our opinion, the Remuneration Report of Azure Minerals Ltd for the year ended 30 June 2014 complies with section 300A of the Corporations Act 2001. BDO Audit (WA) Pty Ltd Peter Toll Director Perth, 25 September 2014 62 AZURE MINERALS LIMITED ANNUAL REPORT 2015 51 Tel: +61 8 6382 4600 Fax: +61 8 6382 4601 www.bdo.com.au Tel: +61 8 6382 4600 Tel: +61 8 6382 4600 Fax: +61 8 6382 4601 Fax: +61 8 6382 4601 www.bdo.com.au www.bdo.com.au 38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia 38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia 38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia DECLARATION OF INDEPENDENCE BY IAN SKELTON TO THE DIRECTORS OF AZURE MINERALS LIMITED DECLARATION OF INDEPENDENCE BY PETER TOLL TO THE DIRECTORS OF AZURE MINERALS LIMITED DECLARATION OF INDEPENDENCE BY PETER TOLL TO THE DIRECTORS OF AZURE MINERALS LIMITED DECLARATION OF INDEPENDENCE BY PETER TOLL TO THE DIRECTORS OF AZURE MINERALS LIMITED As lead auditor of Azure Minerals Limited for the year ended 30 June 2014, I declare that, to the best of my knowledge and belief, there have been: As lead auditor of Azure Minerals Limited for the year ended 30 June 2015, I declare that, to the best of my knowledge and belief, there have been: As lead auditor of Azure Minerals Limited for the year ended 30 June 2014, I declare that, to the best of my knowledge and belief, there have been: As lead auditor of Azure Minerals Limited for the year ended 30 June 2014, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 inrelation to the 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in audit; and relation to the audit; and relation to the audit; and relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Azure Minerals Limited and the entities it controlled during the period. 2. No contraventions of any applicable code of professional conduct in relation to the audit. 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Azure Minerals Limited and the entities it controlled during the period. This declaration is in respect of Azure Minerals Limited and the entities it controlled during the period. This declaration is in respect of Azure Minerals Limited and the entities it controlled during the period. Ian Skelton Director BDO Audit (WA) Pty Ltd Perth, 17 September 2015 Peter Toll Peter Toll Peter Toll Director Director Director BDO Audit (WA) Pty Ltd BDO Audit (WA) Pty Ltd BDO Audit (WA) Pty Ltd Perth, 25 September 2014 Perth, 25 September 2014 Perth, 25 September 2014 BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania. BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania. BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania. 52 AZURE MINERALS LIMITED ANNUAL REPORT 2015 63 52 52 ASX Additional Information ASX Additional Information The number of shareholders, by size of holding, in each class of share as at 25 September 2015 are: 1 1,001 5,001 ‑ 1,000 ‑ 5,000 ‑ 10,000 10,001 ‑ 100,000 100,001 and over Ordinary shares Number of holders Number of shares 172 172 498 1,566 1,285 15,292 619,443 4,426,580 72,159,837 927,953,301 3,693 1,005,174,453 The number of shareholders holding less than a marketable parcel of shares are: 1,745 27,687,185 (b) Twenty largest shareholders The names of the twenty largest holders of quoted shares are: 1 National Nominees Limited 2 Yandal Investments Pty Ltd 3 HSBC Custody Nominees4 Mr Neil James Waddington 5 Citicorp Nominees Pty Ltd 6 Mr Peter Murray Nicholas 7 Mr Phillip Wood 8 Dr Lyndsay George Gordon 9 SBI Investments (PR) LLC 10 J P Morgan Nominees Australia Limited 11 Calyerup Pty Ltd 12 ASIPAC Group Pty Ltd 13 International Commodity Finance Limited 14 Mr Richard Dean Clarke 15 Henderson Services Pty Ltd ,the Henderson A/C> 16 Mr Anthony Paul Rovira 17 Stadjoy Pty Ltd 18 Poluru Pty Ltd 19 ABN Ambro Clearing Sydney Nominees Pty Ltd 20 Parsons Cove Pty Ltd Listed ordinary shares Number of shares Percentage of ordinary shares 104,789,036 10.42 29,152,200 13,291,872 9,205,873 9,119,923 8,300,000 8,300,000 8,009,611 7,902,679 6,763,418 6,206,364 5,555,555 5,555,555 5,251,233 5,136,364 4,931,920 4,836,364 4,500,000 4,264,151 4,182,290 2.90 1.32 0.92 0.91 0.83 0.83 0.80 0.79 0.67 0.62 0.55 0.55 0.52 0.51 0.49 0.48 0.45 0.42 0.42 (c) Substantial shareholders The names of substantial shareholders who have notified the Company in accordance with section 671B of the Corporations Act 2001 are: 255,254,408 25.39 64 AZURE MINERALS LIMITED ANNUAL REPORT 2015 ASX Additional Information Drake Private Investments LLC Number of Shares 91,777,778 (d) Voting rights All ordinary shares (whether fully paid or not) carry one vote per share without restriction. (e) Schedule of interests in mining tenements Project Common Name Tenement Percentage held / earning El Tecolote El Tecolote El Tecolte III Promontorio Hidalgo Promontorio El Magistral All Minerals All Minerals All Minerals All Minerals All Minerals Promontorio Regional All Minerals 230771 234586 235270 235269 218881 234447 Loreto Panchita Alacran Loreto Panchita Dona Panchita Hildago Hildago 2 Hildago 3 Hildago 4 Hildago 5 Hildago 6 Hildago 7 Hildago 8 Hildago 9 Kino 2 Kino 3 Kino 4 Kino 8 Kino 9 Kino 10 Kino 11 Kino 15 Kino 16 San Simon San Simon 2 El Alacran All Minerals Awaiting allocation All Minerals All Minerals All Minerals All Minerals All Minerals All Minerals All Minerals All Minerals All Minerals All Minerals All Minerals All Minerals All Minerals All Minerals All Minerals All Minerals All Minerals All Minerals All Minerals All Minerals All Minerals All Minerals All Minerals 212767 192097 166374 166369 166368 166366 166370 166371 166373 166372 166375 166313 166312 166314 166315 166316 166317 166318 166365 166367 166376 166377 201817 100% 100% 100%1 100%1 100%1 100%1 100% 100% 100% Option to earn 100% Option to earn 100% Option to earn 100% Option to earn 100% Option to earn 100% Option to earn 100% Option to earn 100% Option to earn 100% Option to earn 100% Option to earn 100% Option to earn 100% Option to earn 100% Option to earn 100% Option to earn 100% Option to earn 100% Option to earn 100% Option to earn 100% Option to earn 100% Option to earn 100% Option to earn 100% Option to earn 100% Telix Area under application All Minerals Awaiting allocation Application for 100% 1. Kennecott Exploration Mexico S.A. de C.V has an option to earn up to an 80% interest AZURE MINERALS LIMITED ANNUAL REPORT 2015 65 Notes 66 AZURE MINERALS LIMITED ANNUAL REPORT 2015