Beowulf Mining plc Annual Report 2016

Plain-text annual report

ANNUAL REPORT 2016 2 Beowulf Mining plc Annual Report 2016Contents Company Profile Company Strategy Chairman’s Statement Review of Operations and Activities Board of Directors and Senior Management Strategic Report Report of the Directors Remuneration Report Corporate Governance Report Independent Auditor’s Report Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Company Statement of Financial Position Consolidated Statement of Changes in Equity Company Statement of Changes in Equity Consolidated Statement of Cash Flows Company Statement of Cash flows Notes to the Consolidated Financial Statements Company Information 2 4 5 8 24 26 29 32 34 36 38 39 40 41 42 44 46 47 48 71 2 1 Beowulf Mining plc Annual Report 2016Company Profile Beowulf Mining plc (“Beowulf” or the “Company”) is listed on London’s Alternative Investment Market (“AIM”) (Ticker: BEM) and Stockholm’s AktieTorget (Ticker: BEO). The Company’s most advanced project is the Kallak magnetite iron ore deposit located approximately 40 kilometres (“km”) west of Jokkmokk in the County of Norrbotten, Northern Sweden. The Company is currently going through the process of obtaining an exploitation concession for Kallak North (the “Exploitation Concession”). Local infrastructure around the project is excellent, with all-weather gravel roads passing through the project area, and all parts are easily reached by well used forestry tracks. A major hydroelectric power station with associated electric power-lines is located only a few kilometres to the south east. The nearest railway (the Inlandsbahnen or ‘Inland Railway Line’) passes approximately 40km to the east. This railway line is connected at Gällivare with the ‘Ore Railway Line’, used by Luossavaara-Kiirunavaara (“LKAB”) for delivery of its iron ore material to the Atlantic harbour at Narvik (Norway) or to the Botnian Sea harbour at Luleå (Sweden). In 2016, in addition to Kallak, the Company was awarded two exploration licences in southern Sweden, Åtvidaberg nr 1 (“Åtvidaberg”) and Sala nr 10 (“Sala”). The Åtvidaberg licence is in the Bergslagen area and covers 225 square kilometres (“km2”). The exploration focus is on polymetallic discoveries. The Sala licence is located in Västmanland County and covers an area of 1,049 hectares (“ha”). The licence is prospective for lead- zinc-silver mineralisation and is situated 200 metres (“m”) west of the former Sala silver mine. On 8 January 2016, the Company acquired Oy Fennoscandian Resources AB (“Fennoscandian”), a company with a number of early stage graphite projects in Finland. This reaffirms the Company’s Nordic focus and diversifies the exploration commodity mix to include industrial minerals. Both Sweden and Finland are ranked highly by the Fraser Institute in terms of their attractiveness as mining jurisdictions. The management team’s approach is to build strong working relationships and partnerships with key stakeholders in Sweden and Finland, encapsulated in the following mission statements: “Visar respekt för alla intressenter” “Vill samverka lokalt” “Står för ansvarsfull utveckling” “Kunnioittaa kaikkia sidosryhmiä” “Toimia yhteistyössä paikallisten kanssa” “Vastuullisuus” “Showing respect to all our stakeholders” “Becoming a local partner” “Delivering responsible development” 2 Beowulf Mining plc Annual Report 20162 33 Beowulf Mining plc Annual Report 2016Company Strategy Beowulf’s strategy is to build a sustainable Nordic focused mining company, that creates shareholder value through project exploration and development into production and cash flow, while preserving the Company’s low sovereign risk profile. The Company’s priority is the award of the Exploitation Concession. Once this has been granted, the Company will push forward with a scoping study for Kallak (“Scoping Study”). The Scoping Study will pull together all the technical work completed to date and provide the roadmap for working towards pre-feasibility for Kallak. The study will also provide an updated economic analysis for the project. As the Company advances work on Kallak it will continue to consider the introduction of a strategic partner/investor, who understands the value of Kallak as a high quality asset, which could be in production within four to five years. Testwork has proved that a ‘super’ high grade magnetite concentrate can be produced, yielding over 71 per cent iron content, with low levels of deleterious elements, including phosphorous and sulphur, lending itself to pelletisation and consumption in Direct Reduction Iron (“DRI”) facilities in Europe and the Middle East. During the year, Beowulf advanced exploration on its graphite portfolio in Finland. The Company’s ambition is to identify and develop a small scale graphite mining operation, within two to three years, focusing on adding value to mine production, and capturing the value usually lost to downstream players. Positive cashflows will support the Company’s other exploration activities. The Company was also awarded the Åtvidaberg and Sala exploration licences in Sweden, with efforts being focused on Åtvidaberg. Beowulf is systematically collecting and interpreting historical data and undertaking cost effective exploration to increase the understanding of the licence area, and plan further work that will enable the selection of optimum drill targets. The Board of Directors will continue to look beyond the Company for value creation opportunities. 4 4 Beowulf Mining plc Annual Report 2016Chairman's Statement Dear Shareholders Introduction I had hoped that I would be commencing this Statement informing you that we had been awarded the Exploitation Concession, however, despite our best efforts, the process is still ongoing. Although the Company made significant progress in 2015, in gaining support for the Exploitation Concession, 2016 has seen further delays to the process. The Company has continued to communicate with key stakeholders, with regular visits to Sweden and meetings with members of the Swedish Parliament, the County Administrative Board (“CAB”), the Mining Inspectorate, Jokkmokk Kommun, local business community in Jokkmokk, landowners and people of Jokkmokk. We have also been working with our public relations advisers in Sweden, to ensure that we are effectively communicating our vision for a modern and sustainable mining operation at Kallak, and have established a Facebook page to engage with our stakeholders in Jokkmokk and further afield. Kallak has the potential to transform Jokkmokk and give the community the thriving, diversified and sustainable economy it seeks and we continue to make a strong case for being awarded the Exploitation Concession, now with growing support from the community. To date we have spent approximately SEK 72 million (or £6.4 million) on Kallak. Following the award of the Exploitation Concession, we plan to undertake the Scoping Study, which will pull together all the technical work completed to date and provide the roadmap towards pre-feasibility. The Scoping Study will also provide an updated economic analysis of the project. In January 2016, the implementation of our strategy to be a Nordic focused mining company gained momentum with the acquisition of Fennoscandian, a company with a number of early stage graphite projects in Finland. This enabled Beowulf to diversify its exploration risk, both geographically and by commodity. Kallak Progress on the Company’s Exploitation Concession in 2016 has been slow. On 23 February 2016, Tasman Metals (“Tasman”) announced that it had been notified of a decision by the Supreme Administrative Court of Sweden (“SAC”), dated 22 February 2016, to cancel its Norra Kärr Mining Lease. The SAC determined that the decision by the Mining Inspectorate to grant the Norra Kärr Mining Lease to Tasman was incorrect, as the decision to grant the Mining Lease was not adequately supported by environmental studies into a future mining operation. As a result, the Norra Kärr Mining Lease was cancelled and the project reverted to an Exploration Licence. We believe that in the absence of the Norra Kärr judgement, made by the SAC, the Company would have been awarded the Exploitation Concession in early 2016 as our application had met all the requirements of the Swedish Minerals Act and the Environmental Code. Following the SAC decision, the Government of Sweden handed back the decision on awarding the Exploitation Concession to the Mining Inspectorate, who then wrote to the CAB for an opinion on the Company’s application. The CAB has so far failed to provide an opinion, making a statement on 1 February 2017 which asked the Mining Inspectorate to first resolve matters on the interaction between Kallak and Laponia, and also on national interests in the area of Kallak. Despite further delays, we are pleased with the urgency shown recently by the Mining Inspectorate to move towards a decision on our application. I would like to reiterate a number of key points regarding the Exploitation Concession process: 1. The Board believes the Company has carried out all the necessary work to enable the granting of the Exploitation Concession. The Company is committed to the responsible development of Kallak in partnership with the local community; 2. The Company did not agree with the Mining Inspectorate’s recent decision to consult again with the Swedish National Heritage Board and the Swedish Environmental Protection Agency, as both these agencies have already reviewed the Company’s application for an Exploitation Concession and provided comments; 3. The Company believes that it is not reasonable to presume that a mining operation at Kallak will have an adverse impact on the World Heritage Status of Laponia; with Laponia almost one million hectares, and Kallak approximately one thousandth of its size and 33.8km from the closest point of Laponia; and 4. Responding to the CAB’s concerns with regards to the interaction between mining and reindeer herding, the Company eliminated the Jelka- Rimakåbbå transport route from future plans, and 5 4 4 Beowulf Mining plc Annual Report 2016Chairman's Statement the Company’s Environmental Impact Assessment for Kallak North (“EIA”) contains established frameworks for preventative, precautionary and compensatory measures that could be developed into management plans, in consultation with the reindeer herding communities around Kallak. Other exploration In 2016, we commenced exploration on our graphite projects in Finland, and by February 2017, had completed eight diamond drill holes on the Aitolampi prospect. We were also active on our Åtvidaberg licence in Sweden, where our early stage exploration has been positive delivering high value zinc and copper assays from a series of “grab” samples collected from old mine workings, together with the identification of 26 magnetic targets for further investigation. By adding exploration licences at Åtvidaberg and Sala, and investing time and money in Åtvidaberg, we are demonstrating our strong commitment to building a mining business in Sweden. Shareholder base Beowulf is 99 per cent owned by retail shareholders in Sweden and the UK. The number of Swedish shareholders on the share register continued to grow during 2016 and, at 31 March 2017, over 54 per cent of the Company is owned by Swedish shareholders compared to approximately 12 per cent when I joined the Company in September 2014. I would like to take the opportunity to thank our existing and new shareholders for their continued support. Raising Finance Maintaining sufficient funding to continue to invest in projects is the biggest challenge for any mining exploration and development company and without investment funds we cannot create shareholder value. We undertook two fundraisings in 2016, one in February 2016 with an over-allotment option in March 2016 which together raised £1.5 million (before expenses) (the “Q1 Fundraising”) and one in December 2016 which raised £1 million (before expenses) of which £0.8 million came from Swedish investors (the “December Fundraising”). The Q1 Fundraising was completed at a placement price of 3.25 pence per share and the December Fundraising was completed at a price of 4.2 pence per share (and SEK 0.5 for participating Swedish shareholders). Financial Performance Loss before and after taxation attributable to the owners of the parent at £0.63 million is significantly down on the loss recorded in 2015 of £1.48 million. There were no impairment costs in 2016, compared with £1.12 million in 2015. General and administrative costs of £0.64 million were kept to a minimum and were slightly below last year (2015: £0.65 million). Basic loss per share of 0.13 pence showed a 66 per cent improvement over last year (2015: loss per share of 0.38 pence). Approximately £1.61 million in cash was held at the year end. During the year £0.62 million was spent on exploration and capitalised. Corporate It was announced that Mr Christopher Davies had been appointed to the Board as a Non-Executive Director on 4 April 2016. Chris, who is a Fellow of the Australasian Institute of Mining and Metallurgy, is an exploration/ economic geologist with more than 30 years’ experience in the mining industry. I am very pleased that Chris joined the Board as he has substantial knowledge of graphite and base metals. We announced the divestment of the non-core Grundträsk gold project to Erris Resources Limited in October 2016. The project was fully impaired following a review in 2015. Beowulf will receive certain payments if future milestones are achieved. 6 Beowulf Mining plc Annual Report 2016Outlook The Company is in a stronger position than it was 12 months ago and we look forward to 2017 being a pivotal year for the Company, still with the expectation that the Exploitation Concession will be awarded, but also advancing our exploration programme on our graphite projects in Finland and our Åtvidaberg licence in Sweden. Bevan Metcalf Non-Executive Chairman 11 May 2017 In October 2016, the Company announced it had established a Swedish Advisory Board, and the appointment of two members, Mr Per G. Broman and Mr Jan-Olof Hedström to support the permitting and development of Beowulf’s projects in Sweden, primarily Kallak. Mr Broman led the team which prepared the EIA for Kallak North and represented and supported the Company throughout the application process. Mr Hedström served as the Chief Mine Inspector and Head of the Mining Inspectorate of Sweden from 1997 to 2010. I am very happy to have such well respected professionals advising and guiding us as we develop our business in Sweden. Staff On behalf of the Board, I would like to express my sincere thanks to our staff for their hard work and support during the past 12 months. 6 7 7 Beowulf Mining plc Annual Report 2016 Review of Operations and Activities SWEDEN Introduction Sweden continues to be a prominent mining country and it is the largest iron ore (mostly magnetite) producer in the European Union. It provides modern, efficient and well- established infrastructure, excellent power accessibility and affordability, a highly skilled workforce, a very strong mining culture, a highly innovative and well-resourced mining sector, and a low sovereign risk profile. Beowulf has been active in northern Sweden for more than ten years and the Kallak project has been the principal focus of the Group’s exploration and development work in recent years. The application for exploration permits and exploitation concessions is governed by the Swedish Minerals Act (1991:45) (the “Act”), which has been subject to amendments. The Act accords that an exploration permit is granted for an initial period of three years from the date of issue and can be subsequently extended for a further three years after the initial three, followed by another four year extension if special circumstances exist and, if exceptional circumstances exist, for another five years. The longest possible period of validity for any one permit is 15 years, during which an application for an exploitation concession must be made. An application for a mining concession must be lodged before the end of the fifteenth year. 88 8 Beowulf Mining plc Annual Report 2016Sweden Exploration Permits Beowulf, via its subsidiaries, currently holds 11 exploration permits together with one registered application for the Exploitation Concession, as set out in the table below: Permit Name/Minerals Permit ID Area (km2) Valid From Valid Until Parkijaure nr3 (Fe)1 2011:135 Parkijaure nr2 (Fe)1 Kallak nr1 (Fe)1,3 2008:20 2006:197 4.17 2.85 5.00 11/08/2011 11/08/2017 18/01/2008 18/01/2018 28/06/2006 28/06/2021 Kallak nr2 (Fe)1 2011:97 22.19 22/06/2011 22/06/2017 Kallak nr3 (Fe)1 2012:100 Parkijaure nr4 (Fe)1 2012:59 Parkijaure nr5 (Fe)1 Nautijaure nr1 (Cu)1 2013:36 2012:57 5.56 7.60 6.22 8.80 09/08/2012 09/08/2018 Applied for 02/05/2017 04/03/2013 04/03/2019 Applied for 02/05/2017 Ågåsjiegge nr2 (Fe)1 2014:10 11.14 24/02/2014 24/02/2020 Åtvidaberg nr1 (Pb,Zn,Cu, Ag)2 2016:51 225.12 30/05/2016 30/05/2019 Sala nr10 (Pb,Ag,Zn)2 2015:91 10.49 29/06/2016 29/06/2019 TOTAL: Notes: 1. held by the Company’s wholly owned subsidiary, Jokkmokk Iron Mines AB (“JIMAB”). 309.14 3. an application for the Exploitation Concession was lodged on 25 April 2013 (Mines Inspector Official Diary nr 559/2013) and an updated, revised and expanded application was submitted in April 2014. On 21 September 2016, the 2. held by the Company’s wholly owned subsidiary, Beowulf Company submitted a letter to the Mining Inspectorate of Mining Sweden AB. Sweden, revising its application boundary to encompass both the Concession Area, delineated by the Kallak North orebody, and the activities necessary to support a modern and sustainable mining operation. 8 88 9 Beowulf Mining plc Annual Report 2016 Review of Operations and Activities Kallak Iron Ore Project Introduction The Kallak project is located in the Jokkmokk municipality, north of the Arctic Circle, approximately 40km west of Jokkmokk city centre and 80km southwest of the major iron ore mining centre of Malmberget in Norrbotten County, northern Sweden. LKAB’s Kiruna iron ore mine, the world’s second largest underground mine, is located approximately 120km to the north east. Iron mineralisation was first discovered in the Kallak area by the Swedish Geological Society (“SGU”) in 1947/48. Between 1968 and 1970, detailed ground geophysical surveys were carried out by the SGU over the entire area of interest including closely grid spaced magnetic, gravimetric and electromagnetic measurements. Some limited diamond drilling was also carried out. This led to the discovery of the Kallak North and Kallak South deposits which are separated by only a few hundred metres in distance and, as the deposits are located in the same geological structures, the deposits may well be connected at depth. Data from these surveys has now been compiled and interpreted. Kallak is located within the Svecofennian shield, consisting of metamorphic, sedimentary and volcanic rocks that are commonly between 1900 and 1870 million years old. The area around Kallak, and the villages of Björkholmen and Randijaur, is dominated by mafic to intermediate volcanics and metavolcanics as well as gabbro, diorite and ultramafic rocks and their metamorphic equivalents. The bedrock of the area is thus predominantly mafic. Only smaller areas with felsic rocks are found in the northeast, northwest and southwest. These areas consist of granites and syenites and their metamorphic equivalents, pegmatites and other felsic to intermediate rocks. The deposits are outcropping and consist of quartz banded magnetite haematite iron ore, comprised of fine grained banded magnetite and minor haematite, interlayered with quartz, feldspar and some hornblende. The dominant host rock is a grey, altered volcanic unit. The deposits occur in a north-south oriented syncline of altered sediments and felsic volcanic rocks of early Proterozoic age within granitic gneisses. The deposits are up to 300m wide at surface outcrop and are located on topographically high ground. The northern deposit has a confirmed length extension of more than 1km and the southern deposit has a total length of more than 2km. Drilling has confirmed, in single drillholes, mineralised vertical depth extensions to more than 300m at both deposits. The mineralised structures at both Kallak North and Kallak South are almost vertically dipping, generally covered by only shallow (<2m) glacial overburden and, as such, are highly amenable to potential open pit mining. Area description and accessibility The Kallak project area comprises forested, low hilly ground close to a main paved road between Kvikkjokk and Jokkmokk. The principal land use is forestry, with the majority of the ground area being owned by a large local forestry company. Regional vegetation is generally comprised of mature pine, birch and spruce trees. The ground elevation varies between 300m and 450m above sea level in an area of undulating forested or logged ground forming a peninsula surrounded by Lake Parkijaure. The highest point is the Råvvåive hill at 481m located in the south east part of the project area. Local infrastructure is excellent with all-weather gravel roads passing through the project area and all parts are easily reached by well used forestry tracks. A major hydroelectric power station with associated electric power- lines is located only a few kilometres to the south east. There are no settlements within the project area, with the closest villages being Björkholmen, approximately 2km to the northwest, and Randijaur approximately 3km to the east. The nearest railway (the ‘Inland Railway Line’) passes approximately 40km to the east. This railway line is connected at Gällivare with the ‘Ore Railway Line’, which is used by LKAB for delivery of its ore material to the Atlantic harbour at Narvik (Norway) or to the Botnian Sea harbour at Luleå (Sweden). 10 Beowulf Mining plc Annual Report 2016Kallak Resource The Kallak North and Kallak South orebodies are centrally located and cover an area approximately 3,700m in length and 350m in width, as defined by drilling. The mineral resource estimate for Kallak North and South is based on drilling conducted between 2010-2014, a total of 27,895m were drilled, including 131 drillholes. The latest resource statement for the Kallak project was finalised on 28 November 2014, following the guidelines of the JORC Code 2012 edition, summary as follows: Project Category Kallak North Kallak South Global Notes: Indicated Inferred Indicated Inferred Indicated Inferred Tonnage Mt 105.9 17.0 12.5 16.8 118.5 33.8 Fe % 27.9 28.1 24.3 24.3 27.5 26.2 P % 0.035 0.037 0.041 0.044 0.036 0.040 S % 0.001 0.001 0.003 0.005 0.001 0.003 1. The effective date of the Mineral Resource Estimate is 28 November 2014. 2. Resources have been classified as Indicated or Inferred, following the guidelines of the JORC Code, 2012 edition. 3. Cut-off grade of 15 per cent Fe has been used. 4. Mineral Resources which are not Mineral Reserves have no demonstrated economic viability. 5. An exploration target of 90-100Mt at 22-30 per cent Fe represents potential ore below the pit shells modelled for this resource statement, and in the gap between drilling defined Kallak South mineralised zones. 6. The resource statement has been prepared and categorised for reporting purposes by Mr. Thomas Lindholm, of GeoVista AB, Fellow of the MAusIMM, following the guidelines of the JORC Code, 2012 edition. An overview of the interpreted mineralisation is shown in the diagram below. 10 11 Beowulf Mining plc Annual Report 2016 Review of Operations and Activities The mineralised area at Kallak North is approximately 1,100m long, from south to north, and, at its widest part in the center, is approximately 350m wide. Metallurgical Testwork There was no testwork undertaken in 2016. The deepest drillhole intercept is located some 350m below the surface in the central part of the mineralisation. In the southern and northern parts, the intercepts are shallower at 150-200m. However, in the northern part, there are no barren holes below them, so the mineralisation could continue at depth. The investigations at Kallak South have been divided into two parts, the northern and southern ends respectively. In the northern part the mineralisation extends approximately 750m from north to south and has an accumulated width of 350m. The deepest drillhole intercept is located some 350m below the surface in the southern-most part of the mineralisation. In the southern part, the mineralisation extends approximately 500m from north to south and has a maximum width of just over 300m. The deepest drillhole intercept is located some 200m to 250m below the surface in the central part of the mineralisation. Approximately 800m in between the southern and northern parts of Kallak South has not been investigated by systematic drilling. An exploration target of 90 million tonnes (“Mt”) to 100Mt at 22-30 per cent iron has been assigned to the area between the southern and northern parts. Further to the south, within the Parkijaure exploration permits controlled by JIMAB, there are further known magnetite occurrences, but the current level of investigation does not permit the estimation of mineral resources. The impetus for the 2015 testwork programme was the belief that even higher grade magnetite concentrate could be produced through the application of reverse flotation, and that the results would prove the suitability of the Kallak North magnetite concentrate for use in Direct Reduction Iron (“DRI”) facilities and as chemical grade raw material. Kallak North has three main ore types, classified as follows: ‘Blue’ ore - magnetite rich; ‘Green’ ore - magnetite rich with haematite; and ‘Red’ ore - haematite rich. The work at the Geological Survey of Finland (“GTK”) applied reverse flotation on two of the three ore types, Blue and Green. Head assays for the samples used were performed using X-Ray Fluorescence (“XRF”) analysis for Green, Blue and Red samples. The main elements of interest are shown below: Element Green Blue Red Fe % SiO2 % Al2O3 % CaO % MgO % P2O5 % MnO % 31.9 47.7 2.92 1.2 2.37 0.068 0.229 36.5 40.6 2.41 2.51 2.58 0.096 0.51 37.9 40.8 1.84 1.05 2.59 0.081 0.296 12 Beowulf Mining plc Annual Report 2016This work was carried out by Labtium, who have a geo-analytical laboratory in Outokumpu City and are accredited according to ISO/IEC 17025 by FINAS (Finnish accreditation service). Concentrate product results: The table below shows detailed product specifications for concentrates produced in 2015 and, in italics, the results from the previous programme in 2014: Fe % SiO2 % S % CaO MgO % % Al2O3 % TiO2 Na2O % % K2O % P2O5 MnO % % Magnetite (SGS certified, 2015) 71.5 0.62 <0.01 0.03 0.03 0.10 <0.01 <0.01 0.01 <0.01 0.48 Magnetite (GTK, 2014) 69+ 3.9 0.003 0.109 0.11 0.24 0.010 0.03 0.19 0.009 0.444 Haematite (GTK, 2015) 68.3 2.03 0.005 0.15 0.25 0.20 0.26 0.02 0.019 0.04 0.023 Haematite (GTK, 2014) 66.6 3.29 0.016 0.45 0.39 0.37 n/r 0.03 0.022 0.081 0.165 Key: Key: Fe – Iron, SiO2 – Silica, S – Sulphur, CaO – Calcium Oxide, MgO – Magnesium Oxide Al2O3 – Alumina, TiO2 – Titanium Dioxide, Na2O – Sodium Oxide, K2O – Potassium Oxide, P2O5 – Phosphorous, MnO – Manganese Oxide, n/r – not replaced 2013/2014 - Pilot scale test work on Kallak North material In late 2013, approximately 500 tonnes of ore, from the test mining sampling programme completed on a defined area of the Kallak North deposit in summer 2013, was transported to a test facility in Outokumpu City, owned by GTK. The main portion of the material was a general composite bulk sample, representing all of the test mined sections at Kallak North in proportion to their respective occurrence. Approximately 60 tonnes of the general composite bulk sample were tested during a two-week pilot campaign, primarily focusing on establishing recovery and product quality parameters for the magnetite content. Average iron content for the submitted sample was 29.5 per cent. The proportion of magnetite to haematite in the sample was approximately 3.4:1. The magnetite beneficiation circuit was conventional and straightforward, consisting of rod milling with rougher-scavenger cobbing low-intensity magnetic separation (“LIMS”) pre-concentration, followed by ball mill re-grinding together with six cleaner LIMS stages to achieve the final magnetite product. The grade and recovery levels were excellent. The amount of dry magnetite concentrate produced for downstream testwork was approximately 2.7 tonnes, grading at 69.4 per cent iron at a magnetite recovery of approximately 95 per cent. Average silica content in the final product was 3.9 per cent and the levels of sulphur and phosphorous were insignificant, being below 0.01 per cent. The end product fineness was 80 per cent passing 25 microns. The secondary objective, to produce a concentrate of the haematite content, was successful in respect of the quality aspect. A sample of 0.36 tonnes of dry 12 13 Beowulf Mining plc Annual Report 2016 Review of Operations and Activities haematite iron concentrate was produced, at an average grade of 66.6 per cent iron, containing 3.3 per cent silica, 0.08 per cent phosphorous and less than 0.02 per cent sulphur. The fineness was 80 per cent passing 175 microns. Several different flow sheet options were tested in order to maximise the haematite recovery, without fully reaching optimised levels. The best beneficiation result was achieved using a combination of spiral separators, supported by High-Gradient Intensity Magnetic Separator (“HGIMS”), recovery remained at below 30 per cent. The short test work programme did not enable optimisation of the haematite beneficiation section. Process mineralogy studies proved that the haematite losses were mostly occurring in the very fine particle sizes. Application for the Exploitation Concession 2016 Update On 23 February 2016, Tasman announced that it had been notified of a decision by the SAC, dated 22 February 2016, to cancel its Norra Kärr Mining Lease. On the basis of a review of the process of granting of the Mining Lease, the SAC determined that the decision by the Mining Inspectorate was incorrect, as the decision to grant the Mining Lease was not adequately supported by environmental studies into a future mining operation. As a result, the Norra Kärr Mining Lease was cancelled and the project reverted to an Exploration Licence. Working practice in Sweden before the SAC judgement was to focus on the concession area and activities within it, with aspects of a future mining operation outside of the concession area being dealt with later, under Environmental Permitting. On 15 April 2016, the Company responded to a letter from the Government of Sweden, requesting our opinion on the judgement of the SAC regarding Tasman’s Norra Kärr project, and how it relates to the Company’s application for the Exploitation Concession. The Company stated that the EIA completed in relation to the Exploitation Concession was in accordance with the SAC judgement, and suggested that the Government of Sweden return the Company’s application to the Mining Inspectorate for further review. In July 2016, the Government of Sweden asked the Mining Inspectorate to review the Company’s application in the context of the SAC judgement. In October 2016 the Mining Inspectorate, in turn, wrote to the CAB asking the CAB several questions about the Company’s EIA, and allowing them an extended deadline, of 28 February 2017, to respond. On 21 September 2016, the Company provided a plan to the Mining Inspectorate, with a revised application boundary for Kallak North, encompassing both the 103-hectare Concession Area, delineated by the Kallak North orebody, and the area to be used for activities supporting the mining operation, all previously included in the EIA. The Company remains of the opinion that the EIA has met the requirements of the Swedish Minerals Act and Environmental Code, is consistent with the SAC judgement in the case of Norra Kärr, and is comprehensive in its assessment of a future mining operation at Kallak, and associated environmental effects. On 2 December 2016, the Company provided the CAB with a paper on the interaction of Kallak and Laponia, matters regarding Laponia’s World Heritage Status and Heritage Impact Assessments. The purpose of the paper was to address matters raised by interested parties with respect to the Company’s application, since the CAB’s statement in October 2014. The paper directed the CAB to where matters raised are addressed in the Company’s EIA, where the Company believes matters should be addressed under environmental permitting, and where the Company believes matters fall outside of the prescribed process for being awarded an Exploitation Concession. Post year end On 15 February 2017, the Company sent a letter to the Mining Inspectorate with comments on the statement made by the CAB on 1 February 2017. At that time the CAB announced it had referred the Company’s application for an Exploitation Concession for Kallak North back to the Mining Inspectorate, with respect to matters regarding the effects of a future mining operation at Kallak on Laponia. The Company’s letter to the Mining Inspectorate stated: • the Company’s application includes a technical description, covering the Concession Area, the actual deposit to be mined, and the operational 14 Beowulf Mining plc Annual Report 2016 facilities necessary to support mining. It also includes a comprehensive EIA, where all activities and their potential effects have been described; • the Company has shown that a discovery of iron ore has been found, and is likely to be commercially viable. In the Chief Mining Inspector’s opinion, the environmental impact study, with the supplements which have been made, meet the requirements set forth in Chapter 6 of the Environmental Code; • however, in the view of the Chief Mining Inspector, as the CAB has not developed their arguments sufficiently regarding the scope of the encroachment on reindeer herding which will be caused by the Concession Area, the Chief Mining Inspector has decided to refer the issue to the Government; • the EIA and other relevant documents have already been reviewed by the CAB, and other stakeholders, during the period from April 2013 to October 2014, and the Company has responded to all comments made; • on 1 October 2014, the CAB confirmed that the Company’s EIA was sufficient with respect to Chapters 3, 4 and 6 of the Environmental Code and on 7 July 2015, the CAB wrote to the Government of Sweden indicating that the Company’s EIA application could be permissible with respect to Chapters 3 and 4 of the Environmental Code; • the CAB’s statements must be interpreted as if the CAB has no objections to the granting of an Exploitation Concession; • the Company does not understand the legal basis for any process involving United Nations Educational, Scientific and Cultural Organisation (“UNESCO”), when considering the Company’s application for an Exploitation Concession. The interaction between Kallak and Laponia, which is 33.8km away at its closest point, is something that should be assessed under environmental permitting; and been designated an Area of National Interest for its minerals and metals only, affording it protection against competing land use, and measures that may hinder future potential mineral extraction. On 24 February 2017, further to an announcement on 22 February 2017 regarding the Exploitation Concession, the Company announced that it had written to the Mining Inspectorate, stating that it does not agree on consulting with the Swedish National Heritage Board (Riksantikvarieämbetet, “RAÄ”) and the Swedish Environmental Protection Agency (Naturvårdsverket, “NV”), as both these agencies have already reviewed the Company’s application for an Exploitation Concession and provided comments. The Company stated that it is for the CAB to answer the Mining Inspectorate’s questions and to give an opinion on the Company’s application. The CAB has stated, on more than one occasion, that the Company’s EIA is sufficient for an assessment, and in July 2015, the CAB detailed a robust economic case for Kallak. The Company summarised arguments that support its case for the award of the Exploitation Concession, and stated that it will not be making any further detailed submission before the Mining Inspectorate consults with the RAÄ and NV. The Mining Inspectorate received comments back from the RAÄ and NV on 27 March 2017. On 28 March 2017, the Mining Inspectorate wrote to the Company, and gave the Company the opportunity to submit comments and supplementary information further to the NV and RAÄ response by 28 April 2017. On 29 March 2017, the Company met with the Mining Inspectorate to discuss the next steps in the process. The CEO outlined the Company’s interpretation of the NV and RAÄ response, as follows: • the focus of the response is the effect of Kallak on Laponia; • it is acknowledged that Kallak does not directly affect • within the Concession Area, there are no conflicts Laponia; where national interests are considered, a fact stated by the CAB in July 2015, and for the areas taken by operational facilities necessary to support mining, there are also no conflicts where national interests are considered. Since February 2013, Kallak has • it is suggested that the Company should provide more details, to describe the indirect effects on Laponia, the interaction of mining and reindeer herding, and matters related to transport; and 14 15 Beowulf Mining plc Annual Report 2016Review of Operations and Activities • the agencies have not been specific, as requested by the Mining Inspectorate, as to where the Company’s EIA is insufficient in the detail provided. On 28 April 2017, the Company submitted a document to the Mining Inspectorate in response to the RAÄ and NV comments on the impact of a mining operation at Kallak on Laponia. The analysis follows UNESCO guidelines for conducting a Heritage Impact Assessment (“HIA”). Typically, a HIA is not required with an application for an exploitation concession, but the Company voluntarily produced one, with the support of its expert Swedish technical team and Swedish Advisory Board. It has already been concluded, by RAÄ and NV, that a mining operation at Kallak will have no direct impact on Laponia. Kallak is 13.6km2 compared to Laponia’s 9,400km2 and, at its closest point, Kallak is approximately 34km away from Laponia. The Company maintains that its studies into reindeer herding support the case that mining and reindeer herding can cooperate and prosper side by side and, to the Company’s knowledge, there is no evidence to suggest that they cannot. Kallak’s area of 13.6km2 compares to Jåhkågaska reindeer herding community’s 2,640km2 of grazing land or 0.5 per cent, as a percentage. With regards to transport, solutions will be optimised, and sensibly controlled by the environmental permitting process, such that there should be no material effect on Laponia, and planning will involve other parties, including Trafikverket and Inlandsbanan. It is the Company’s ambition to seek environmentally sensitive solutions with respect to all aspects of the Kallak project. The Mining Inspectorate wrote to the CAB on 8 May 2017 including a copy of the documents submitted by the Company seeking a further opinion on the Exploitation Concession by 1 June 1 2017. History – Pre 2016 Due to the importance of the Exploitation Concession to the Company, a history of the application process is listed below for shareholders. In April 2013, JIMAB submitted an application to the Mining Inspectorate for an Exploitation Concession. Further to the Mining Inspectorate’s consultation process, in late November 2013 the CAB raised a number of queries and additional information requests on certain aspects of the EIA component of JIMAB’s application. In April 2014 an updated and enhanced application dealing with the CAB’s queries was submitted to the Mining Inspectorate. JIMAB added certain supplements to the EIA, along with further technical description and commentary. The enhanced report comprised 164 pages, including various figures and tables, with an additional 16 appendices, of more than 200 pages in length, covering various technical and specialist aspects based on work performed by the Company’s expert team of Swedish consultants. The EIA was supplemented in the following principal areas: • The reindeer husbandry section was complemented by further analysis commissioned from consultants Swedish Geological AB. It was also supplemented and revised based on certain comments and information received from the local Sami villages. • Additional investigations regarding safety aspects for hydroelectric power dams were conducted by Ramboll Sweden AB. • Questions raised regarding security issues surrounding any tailings dams for the project were further investigated and addressed by Tailings Consultants Scandinavia AB. • Various comments received on the socio-economic aspects were responded to by Luleå University of Technology. • Additional investigations concerning local hunting and fishing activity and specialist environmental aspects, including water ecology and water chemistry, were conducted by Pelagia Miljökonsult AB based in Umeå. 16 Beowulf Mining plc Annual Report 2016• Additional information was gathered regarding Areas of National Interest and other interests of importance in respect of general water management and military defence aspects. • Additional studies and inventories on the existing natural water sources in the project area were compiled by Hifab International AB, together with reports on dust and air quality issues. • Further information was obtained on the Laponia World Heritage site located 33.8km away from Kallak, as well as on the general tourism industry in the Jokkmokk region sourced from the Destination Jokkmokk organisation. The methodologies utilised in the enhanced EIA report were developed and conducted in accordance with the comments received from the CAB, and reflected the feedback from a constructive meeting held with representatives of Norrbotten County in March 2014. In a letter to the Chief Mining Inspector, dated 1 October 2014, the CAB expressed the belief that the effects of possible transport routes, from the future mine through areas used for reindeer husbandry could be detrimental and that the Exploitation Concession should therefore not be granted by the Mining Inspectorate at that time. In response to the CAB’s concern the Company eliminated a specific route passing in a north/north-easterly direction through the Jelka-Rimakåbbå Natura 2000 area and any future interaction with important reindeer herding business in that area. This change was communicated in a written submission to the Mining Inspectorate in November 2014. In February 2015, after further investigation, the Chief Mining Inspector concluded as follows: • The Exploitation Concession which has been applied for covers an area which is deemed suitable in light of the discovery, purpose, and other circumstances. • The Company has shown that a discovery of iron ore has been found, and is likely to be commercially viable. In the Chief Mining Inspector’s opinion, the EIA, with the supplements which have been made, meets the requirements set forth in Chapter 6 of the Environmental Code. • However, in the view of the Chief Mining Inspector, as the CAB has not developed their arguments sufficiently regarding the scope of the encroachment on reindeer herding which will be caused by the concession area, the Chief Mining Inspector has decided to refer the issue to the Government. In July 2015, the CAB was asked by the Government of Sweden to provide comments on the national economic assessment of Kallak North. The CAB’s findings were that: • Mining is economically relevant and that the Kallak North project generates economic benefits at local, regional and national levels, including direct and indirect jobs, tax revenues, and more broadly across mining equipment and services sectors in Sweden. • The Concession Area applied for by the Company creates no conflicts where national interests are considered. • The Concession is designated as an Area of National Interest for minerals. The Company should work with communities that could be affected by the development of a mining project, in order to eliminate or migrate any impacts, including reindeer herders and Sami villages. • The Company should consider, in its ongoing studies, the potential impact of its mining activities on tourism and transport infrastructure. In October 2015, the Mining Inspectorate wrote to the Government of Sweden and recommended that the Exploitation Concession be granted. 16 17 Beowulf Mining plc Annual Report 2016Review of Operations and Activities Other Swedish Projects in the Portfolio Åtvidaberg Volcanogenic Massive Sulphide (“VMS”) lead-zinc-copper Project The exploration licence for Åtvidaberg was awarded in June 2016. On 7 October 2016, the Company provided an update on the Åtvidaberg licence, reporting positive findings, high grade assays for “grab” samples taken from former mine sites on the licence, and the identification of 26 magnetic targets for further investigation. The work to date has given the Company’s exploration team a better understanding of the geology of the area and the setting of different types of mineralisation. This has led to the definition of several “blind” exploration targets, for example, limited outcrops because of glacial till cover, and the identification of promising areas for further exploration. Below is a summary for the main prospects: lie on magnetic high anomalies, but rather on the gradients. • In contrast, electromagnetic data shows that the former mines lie on high conductivity zones, possibly resulting from the presence of conductive copper mineralisation, together with abundantly evident pyrite. • Mineralisation occurs in retrograde shear zones in potassium-altered felsic rocks. The host rocks are often enriched in biotite and quartz, are garnet-bearing, and often show intense deformation. • Intense alteration by silification in metavolcanics, west of the Mormors mine area, appears to be accompanied by an increase in magnetite, but no significant mineralisation has been identified. Bersbo Sala Lead-Zinc-Silver Project • Former mines in the Bersbo area, including the Grönhög mine, show evidence of high grade zinc mineralisation, that seems to have been previously classed as waste, which is found in both waste dumps and as road fill. • ‘Grab’ samples of sphalerite (zinc ore) have yielded up to 19.7 per cent zinc, while waste samples with chalcopyrite (the main ore of copper), have yielded up to 1.7 per cent copper. • The Bersbo ore occurs stratabound within interlayered felsic and mafic metavolcanic rocks. • The ore is often associated with pyrrhotite, which means that aeromagnetic data can be used to trace potential mineralisation. Mormor • Mineralisation in the Mormors area appears to contain predominantly copper, and no zinc. The Sala licence area covers 1,049ha and is located in Västmanland County, southern Sweden. The licence is prospective for lead-zinc-silver mineralisation and is situated 200m west of the former Sala silver mine. Sulphide mineralisation in the area is carbonate hosted, occurring dominantly as silver-bearing lead sulphide (galena), and zinc sulphide (sphalerite), and to a lesser extent as complex antimonides, sulphosalts and native silver. The Sala mine was once Europe’s largest silver producer, in continuous production between the late 15th century and 1908, and known for having some of the richest silver ores in the world. Mining records show that Sala was mined to a depth of approximately 300m, with mineralisation remaining open at depth. Mining continued in 1950-51 and between 1945-62 at the adjacent Bronas mine. • Two waste dump samples from the area have yielded Nautijaure IOCG (“Iron Oxide Copper Gold”) Project 4.42 per cent and 8.46 per cent copper. • Quartz-veined samples from dumps at Mormorsgruvan have yielded up to 2.05 ppm gold. • The Company will continue to explore for copper ore and quartz-veined gold mineralisation. • The ore in the Mormors area is not consistently linked to high magnetic susceptibility minerals, with aeromagnetic data for the area showing that former mines do not 18 Nautijaure lies directly north of, and adjacent to, Kallak. Based on regional geological and geophysical evidence, Nautijaure shows exploration potential for IOCG style mineralisation. We have defined large volumes of iron present at Kallak, and there could be associated copper mineralisation in close proximity. Fieldwork during the 2014 season identified several copper sulphide rich boulders. Beowulf Mining plc Annual Report 2016Ågåsjiegge Iron Ore Project Ågåsjiegge lies in close proximity to the northeast of Kallak, and shows exploration potential to host the same geological structures for iron mineralisation as those seen at Kallak. The SGU has a historic resource estimate of 74-75Mt of magnetite, grading 30 per cent iron and almost free of impurities. Historic logs on two holes show mineralisation in hole 72601 (west position) from depth at 16m, and in the 72602 hole (east position) from depth at 8.5m. The holes are 202.5m and 214m in length respectively. FINLAND Introduction Finland introduced a new Mining Act in 2011 (effective 1 July 2011) (the “New Act”). Under the New Act, an area may be reserved for a period of maximum 24 months. The reservation gives the holder the exclusive right to apply for an exploration permit within the boundaries of the area. Certain exploration work such as geological mapping, geophysical measurements and minor prospecting work can be carried out, provided that no damage is done to the landowner`s property or to the environment. Exploration work such as drilling and trenching can only be done with the landowners’ approval. An exploration permit is valid for a maximum of four years and can be renewed for maximum three years at a time. An exploration permit can be valid for a maximum of 15 years if certain commitments are met. The exploration permit allows the holder to conduct exploration work such as trenching and drilling within the permitted area. An application for mining permit must be lodged before the end of the fifteenth year. A mining permit may be granted if the deposit is shown to be exploitable in terms of size, grades and technical characteristics. The mining permit entitles the holders to exploit the deposit and to conduct further exploration. The key objective during 2016 has been to identify one project with the potential to become an operating mine. Due to limited funds, it was not possible to evaluate all the permits during the year. The focus was initially on Piippumäki and Haapamäki then, while exploring Haapamäki, we discovered a new prospective area at the eastern part of Haapamäki called Pitkäjärvi which post year end we have started to drill. 18 19 19 Beowulf Mining plc Annual Report 2016 Review of Operations and Activities Finnish Exploration Permits Beowulf, via its subsidiary, Fennoscandian, currently holds four claim reservations and two exploration permits for graphite, and has applied for a further two graphite exploration permits. Permit Name Permit ID Area (km2) Valid from Valid until Approved Claim Reservations: Pitkäjärvi 1 Kolari 1 Piippumäki 2 Haapamäki 1 2016:0033-01 2015:0037-01 2015:0034-01 2015:0032-01 Exploration Permits Awarded Pitkäjärvi 1 Piippumäki 2 2016:0025-01 2016:0006-01 9.68 9.70 9.47 9.66 9.99 0.31 11/10/2016 31/12/2017 07/10/2015 15/09/2017 07/10/2015 09/08/2017 07/10/2015 09/08/2017 07/12/2016 10/01/2021 12/12/2016 10/01/2021 Applied for Exploration Permits Haapamäki 1 2015:0025-01 4.77 Viistola 1 2016:0025-01 0.74 Applied for 26/4/2016 Applied for 19/2/2016 20 Beowulf Mining plc Annual Report 2016 Haapamäki/Pitkäjärvi/Aitolampi – Graphite • A secondary cleaning circuit produced grades of at Overview • The Pitkäjärvi and Aitolampi graphite prospects were new discoveries in 2016, and are eastern extensions to the Haapamäki prospect. Haapamäki is in eastern Finland approximately 40km southwest of the well- established mining town of Outokumpu. least 95.7 per cent Ct in all size fractions between 65 mesh and 200 mesh (210-75 micron), with the highest grade of 97.4 per cent Ct obtained from the 80/+100 mesh (180-150 micron) size fraction for Pitkäjärvi (test MET-03-3). Most of the carbon in the samples was associated with graphite, with only small amounts of organic carbon and carbonate carbon. • Fennoscandian has 100 per cent owned claim • Flake size analysis for Pitkäjärvi concentrate showed reservations over two areas, 96.58km² at Haapamäki and 96.77km² at Pitkäjärvi, and a 100 per cent owned exploration permit, over 10 hectares, named Pitkäjärvi1. Geology • The area has several historic graphite workings, the locations of which correspond to ground and airborne electromagnetic (“EM”) anomalies. The graphite occurs as high grade lenses hosted by mica-bearing gneisses; the metamorphic grade is typically upper amphibolite to granulite facies. Mapping and Slingram EM surveys conducted by Fennoscandian and Åbo Akademi during 2015 identified extensive conductor with potential for graphitic carbon mineralisation around historic workings at Käärmerinne and Suurenkahanvuori. • Grab samples taken from mine workings yielded assays ranging from 48 per cent graphitic carbon (“Cg”) to 67.7 per cent Cg. Historic studies have also reported visually estimated flake sizes ranging 0.1-2.0 millimetres (“mm”). • Pitkäjärvi and Aitolampi are areas of graphitic schists on a fold limb, coincidental with an extensive EM anomaly. Many of the EM zones are obscured by glacial till, but graphite observations in road cuttings and outcrops are also associated with abundant EM anomalies. 83 per cent fine (<150 micron), 5.6 per cent medium (150-180 micron) and 11.4 per cent large/jumbo (+180 micron) flakes. • Flake size analysis for Aitolampi concentrate showed 78.3 per cent fine, 8.8 per cent medium and 12.9 per cent large/jumbo flakes. • Inductively Coupled Plasma Optical Emission Spectrometry (“ICP-OES”) scans and whole-rock analysis showed no elevated concentrations of typical deleterious elements. • All testwork was performed by SGS Mineral Services in Canada. Highlights of Aotilampi drilling programme announced Post Year End • Eight holes drilled, approximately 1,197m in total, with the first four drill holes, AITDD17001-004, extending 350m along strike for the main conductive zone. • Drill holes AITDD17005-008 tested the extent of mineralisation down-dip of the main conductive zone. • Substantial graphite mineralisation intersections in all holes, including up to 113.5m down-hole width for the longest drill hole AITDD17006, which correspond with identified EM conductors. It should be noted that the mineralisation intercept is the down-hole width and may not be the true width. 2016 Work Programme announced Post Year End • Drill holes AITDD17005-006 tested two parallel • Testwork on composite samples for Pitkäjärvi and Aitolampi has produced concentrate grades of 94.5 per cent Total Carbon (“Ct”) and 94.7 per cent Ct, respectively. conductors to the main conductive zone and intersected graphite mineralisation for both conductors. • The Company’s geologists have completed core logging for all holes, and samples have been sent to ALS Minerals in Finland for assay. 20 21 Beowulf Mining plc Annual Report 2016 Review of Operations and Activities Kolari – Graphite Overview • The Kolari graphite project is in north-western Finland approximately 50km and 100km east of Talga Resources’ (ASX:TLG) Vittangi project and Jalkunen graphite projects respectively, both of which are situated in Sweden. • Fennoscandian has a 100 per cent owned claim reservation over an area of 96.97km². A desktop study of the area has been completed and shows extensive areas of graphitic schist. Geology • Archives at GTK provide information on drilling conducted by Rautaruukki Corporation in the 1970s. Diamond drill hole R1 intersected 170m of mineralisation starting from surface, with an average grade of 8.9 per cent Cg. The intersection included 15.8m grading 19.8 per cent Cg (Mattila,1978). Geology • Historic small-scale mining for graphite has taken place in the area, with old workings corresponding to ground and airborne EM anomalies. The graphite is hosted by feldspar quartz and mica schists, associated with upper amphibole to granulite grade metamorphic rocks. • Slingram EM surveys conducted by Fennoscandian and Åbo Akademi during 2013 and 2015 have demonstrated two conductive zones of possible graphite schist along a strike extent of up to 2km, with outcrop “grab” samples indicating grades of 5-10 per cent Cg (analysis performed by Sintef Molab AS, Norway). Fieldwork has also visually identified occurrences of coarse flake graphite. • The Laboratory of Physical Chemistry, Åbo Akademi University conducted testwork in February 2013 on a sample from Piippumäki. Findings showed high quality graphite flakes with visible hexagonal growth, and physical characteristics reportedly similar to synthetic graphite. • It should be noted that mineralisation intercepts are the down-hole width and may not be the true width. Viistola – Graphite • The graphite encountered was described as very Overview fine to fine microcrystalline graphite, within graphitic schists that are generally rich in quartz, feldspar, biotite and scapolite associated with greenstone-grade metamorphic rocks. Piippumäki – Graphite Overview • The Piippumäki graphite project is in south eastern Finland approximately 45km southwest of the town of Mikkeli. • Fennoscandian has a 100 per cent owned claim reservation over an area of 94.68 km². • The Viistola graphite project is in eastern Finland approximately 30km southeast of the town of Joensuu. • Fennoscandian applied for an exploration permit in February 2016 over an area of 0.74km². • The graphite is hosted in a massive to brecciated graphitic schist associated with gabbro, quartzite, dolomite and phyllite country rocks. • Based on historical diamond drilling, rock chip drilling, trenching and ground geophysics, a potential high grade target at Hyypiä, a prospect which forms part of the Viistola Project, has been identified and is anticipated to grade around 20-35 per cent Cg based on the preliminary evaluation of historic exploration data. The target represents less than 10 per cent of the total strike length of the prospective EM conductor. • Two diamond drill holes tested the EM conductor 6km south of the Hyypiä prospect and intersected 9-10m apparent thickness of graphite schist. 22 Beowulf Mining plc Annual Report 2016Geology • Historic exploration at Viistola includes: o 1973-1974: GTK drilled 10 diamond drill holes (Pekkarinen,1979), which included: • R310: 21.7m of mineralisation from 47.6m (no grade reported). It should be noted that the mineralisation intercept is the down-hole width and may not be the true width; • R311: 7.8m at 36.2 per cent Cg from 172.0m. It should be noted that the mineralisation intercept is the down-hole width and may not be the true width; and • Flotation tests on core samples from drill hole R311 indicated that the Hyypiä flakes are predominately fine, with approximately 13 per cent larger than 210 microns and approximately 40 per cent finer than 63 microns. o 1981-1983: GTK identified a graphite-bearing horizon associated with a 2km non-magnetic ground EM anomaly. GTK conducted trenching, including 72 surface drilling samples to identify the apparent width and quality of the graphite schist and drilled three holes. It should be noted that the mineralisation intercepts are the down-hole width and may not be the true width, and that core loss may have affected some of the drill results, which included the following composited assays: • R430: 14.6m at 31.8 per cent Cg from 48.5m; • R431: 15.2m at 25.3 per cent Cg from 44.2m; and • R432: 13.2m at 30.3 per cent Cg from 24.6m. o 1984: Based on a combination of drilling and EM data, Sarapää and Kukkonen (1984) estimated a (historical) Mineral Resource of four million tonnes at 28.6 per cent Cg within the central part of the Hyypiä deposit (700m strike length). o The deposit was 10-12m thick, dipping at 70 degrees to the southwest and was interpreted to extend to at least 200m depth. 22 23 23 Beowulf Mining plc Annual Report 2016 Board of Directors Bevan Metcalf BMS ACA (NZ) - Non-Executive Chairman, Age 59 Mr Metcalf was appointed a Non-Executive Director of Beowulf in September 2014, became Senior Non-Executive Director in December 2014 and Non-Executive Chairman in May 2015. Bevan served as the Chief Financial Officer of Afferro Mining Inc. from January 2008 until the sale of the Company in December 2013. He joined African Eagle Resources plc in July 2004 and served as Finance Director and Company Secretary. Bevan has over 30 years of financial management experience including international companies, such as ICI, GlaxoSmithKline and Orion Corporation. Bevan holds a Management Studies degree from the University of Waikato, Hamilton New Zealand and is a qualified accountant (ACA NZ). Kurt Budge MBA MEng ARSM - Chief Executive Officer, Age 46 Mr Budge was appointed Chief Executive Officer of Beowulf Mining in October 2014 after joining the Company as a Non-Executive Director in September 2014. Kurt has over 20 years’ experience in the mining sector, during which he spent five years as a Business Development Executive in Rio Tinto’s Business Evaluation Department, here he was engaged in mergers and acquisitions, divestments and evaluated capital investments. He has also been an independent advisor to junior mining companies on acquisitions and project development as well as a General Manager of Business Development, where he developed strategic growth and M&A options for iron ore assets. Kurt was Vice President of Pala Investments AG, a mining focused private equity firm based in Switzerland and has worked as a mining analyst in investment research. During the earlier part of his career he held several senior operations and planning roles in the UK coal industry with RJB Mining (UK Coal plc) and worked as a Venture Capital Executive with Schroder Ventures. Kurt holds an M.Eng (Hons) degree in Mining Engineering from The Royal School of Mines, Imperial College London and an MBA from London Business School. Christopher Davies BSc Hons Geology, MSc DIC Mineral Exploration - Non-Executive Director, Age 59 Mr Davies joined the board of Beowulf as a Non-Executive Director in April 2016. Chris, who is a Fellow of the Australasian Institute of Mining and Metallurgy, is an exploration/ economic geologist with more than 30 years’ experience in the mining industry. He has substantial knowledge of graphite and base metals, a particular skill set which will be complimentary to Beowulf’s existing team. He was Manager for the exploration and development of a graphite deposit in Tanzania and has been involved with due diligence studies on graphite deposits in East Africa and Sri Lanka. Chris has worked as a geologist in many different parts of the world including Africa, Australia, Yemen, Indonesia and Eastern Europe. His most recent role was as a Consultant to an Australian Group seeking copper-gold assets in Africa where he carried out technical due diligence and negotiated commercial terms for joint venture partnerships. Chris was Operations Director of African Eagle until March 2012 and Country Manager for SAMAX Resources in Tanzania, which was acquired by Ashanti Goldfields in 1998 for US$135m. 24 Beowulf Mining plc Annual Report 2016Senior Management Liam O’Donoghue Company Secretary Mr O’Donoghue is a qualified corporate lawyer and director of the AIM specialist advisory and administration firm, One Advisory Group Limited. Rasmus Blomqvist Exploration Manager Mr. Blomqvist, the founder of Fennoscandian, was appointed Exploration Manager in January 2016. Mr. Blomqvist has been working in exploration and mining geology for over 11 years and holds an MSc in Geology and Mineralogy from Åbo Akademi University, Turku Finland. Since 2012, Mr. Blomqvist has been exploring for flake graphite within the Fennoscandian shield and is one of the most experienced graphite geologists in the Nordic region. Prior to Fennoscandian, Mr. Blomqvist was Chief Geologist for Nussir ASA, managing its exploration team and achieving significant exploration success for the company. Prior to Nussir, Mr. Blomqvist worked as an independent consultant for several international mining companies including Mawson Resources, Tasman Metals and Agnico Eagle and has experience in graphite, gold, base metals and iron ore, within the Nordic region. Mr Blomqvist is a member of the Australasian Institute of Mining and Metallurgy (“AusIMM”). 24 25 25 Beowulf Mining plc Annual Report 2016Strategic Report The Directors present their strategic report for the year ended 31 December 2016. PRINCIPAL ACTIVITY The principal activities of the Group are the exploration and development for iron ore, graphite and other prospective minerals in the Nordic Region. A detailed review of the mining activities can be found under Review of Operations and Activities. The Group is controlled, financed and administered within the United Kingdom which remains the principal place of business. REVIEW OF THE BUSINESS The results of the Group for the year are set out in the consolidated income statement and show a loss after taxation attributable to the owners of the parent for the year of £632,125 (2015: Loss of £1,477,109). A comprehensive review of the business is given under the Chairman’s Statement and Review of Operations and Activities. 26 26 Beowulf Mining plc Annual Report 2016PRINCIPAL RISKS AND UNCERTAINTIES The principal risks and uncertainties facing the Group are detailed below: Description Risk Risk rating pre-mitigation Mitigating action Risk rating post-mitigation Not obtaining an Exploitation Concession at Kallak North Unable to raise sufficient funds Long term adverse changes in commodity prices The Company does not meet the environmental and other requirements for an Exploitation Concession Unable to raise sufficient funds to invest in exploration and evaluation of its project portfolio Prices for graphite, iron ore and other commodities may affect the viability of the Company’s projects Not discovering an economic mineral deposit Very few projects go through to be developed into mines Revocation of licences Licences are subject to conditions which, if not satisfied, may lead to the revocation of the licence In July 2015, the CAB supported the Company’s application, and in October 2015 Mining Inspectorate recommended that the Exploitation Concession be awarded. The Company has responded to concerns raised and continues to engage with key stakeholders. Identify new investors and communicate effectively with all investors. Ensure expenditure controls are in place and forecasting is accurate to optimise cash resources. The Company identifies projects that have a high quality resource so it can attract premium pricing. The Company will manage capital and operating expenses to maximise returns. In Kallak the Company has a high quality resource which should attract premium pricing. Infrastructure to support a mine is excellent. MEDIUM HIGH MEDIUM MEDIUM TO LOW MEDIUM HIGH HIGH HIGH MEDIUM The Company uses external consultants to manage its licences to ensure compliance. LOW 26 26 27 Beowulf Mining plc Annual Report 2016Strategic Report PERFORMANCE MEASUREMENT The ongoing performance of the Company is managed and monitored using a number of key financial and non-financial indicators (“KPIs”) on a monthly basis: Financial: i. Administration Expenses Overheads are managed versus budget and forecast on a monthly basis. The Company has reduced its administration expenses over the last two years. ii. Cash position “Cash is king” for an exploration company and it must be managed accordingly. Monthly we analyse the expenditure of each subsidiary. We also manage monthly cash flow for the Group versus budget and forecast. The financial strategy is to ensure that wherever possible there are sufficient funds to cover corporate overheads and exploration expenditure for a 12-month period. iii. Exploration expenditure by project The Company controls its exploration spend by project versus budget and in relation to its available cash resources. If the results of exploration do not meet expectations, then budgeted activities are re-evaluated or even cancelled. Evaluation of early stage projects is approached in a cost effective way. The Group determines whether there are any indicators of impairment of its exploration assets on an annual basis. iv. Share price The Company monitors its share price on both AIM and AktieTorget monthly and versus a peer group of explorers. Many factors outside the Company’s control can affect the share price but the Company appreciates that this KPI is important to shareholders and the market in general in assessing the Company’s performance. Non-financial: v. Licence renewal compliance It is important from a risk management perspective that the Company monitors the expiry dates of its exploration permits. This is managed internally for our Finnish graphite permits while in Sweden we use an external service provider to report on the status of our permits, and assist with renewal applications. ON BEHALF OF THE BOARD: Mr B Metcalf Director 11 May 2017 28 Beowulf Mining plc Annual Report 2016 Report of Directors The Directors present their report, together with the audited financial statements of the Group, for the year ended 31 December 2016. DIRECTORS Since 1 January 2016 the following Directors have held office: Mr B Metcalf Mr K R Budge Mr Christopher Davies (Appointed 4 April 2016) DIVIDENDS No dividends will be distributed for the year ended 31 December 2016 (2015: £nil). GOING CONCERN At 31 December 2016, the Company had a cash balance of £1.61 million. Management have prepared cash flow forecasts which indicate that the Group has sufficient cash to cover its anticipated working capital requirements for the next twelve months, however, they expect that the Group will need to raise further funds for corporate overheads and to advance Kallak North and its other exploration assets in May 2018 or shortly thereafter. The Directors have concluded that it is appropriate to prepare the financial statements on a going concern basis. The Directors are confident they are taking all necessary steps to ensure that the required finance will be available, and have successfully raised finance in the past. However, while they are confident of being able to raise the new funds as they are required, there are currently no agreements in place, and there can be no certainty that they will be successful in raising the required funds within the appropriate timeframe. These conditions indicate the existence of a material uncertainty which may cast significant doubt over the Group’s and the Company’s ability to continue as a going concern and that it may be unable to realise its assets and discharge its liabilities in the normal course of business. The financial statements do not include any adjustments that would result if the Company was unable to continue as a going concern. SUBSTANTIAL SHAREHOLDINGS The Directors are aware of the following who were interested, directly or indirectly, in 3 per cent or more of the Group’s ordinary shares on 31 December 2016: Shareholders TD Direct Investing Barclayshare Nominees Limited HSDL Nominees Limited Shares 28,242,612 21,238,129 15,416,740 % 5.62 4.23 3.07 28 29 Beowulf Mining plc Annual Report 2016Report of Directors AUTHORITY TO ISSUE SHARES Each year at the AGM the Directors seek authority to allot shares. The authority, when granted, lasts until the next AGM (unless renewed, varied or revoked by the Company prior to, or on, such date). At the AGM held on 29 June 2016, shareholders gave authority for the Directors to allot equity securities for cash up to an aggregate nominal value of £1,198,242 (2015: £561,639). SIGNIFICANT AGREEMENTS The Companies Act 2006 requires the Company to disclose any significant agreements which take effect, alter or terminate upon a change of control of the Company. The Company is not aware of, or party to, any such agreement. EVENTS AFTER THE REPORTING PERIOD Information relating to events since the end of the year is given in Note 21 to the financial statements. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES Financial risk management policies and objectives for capital management are provided within Note 18. Pitkäjärvi 1. The Company is currently evaluating the results and will make an announcement shortly. In addition metallurgical work on drill core will be undertaken during 2017. The Company will look to advance its other exploration projects subject to funding. DIRECTORS’ RESPONSIBILITIES STATEMENT The Directors are responsible for preparing the strategic report, annual report and the financial statements in accordance with applicable laws and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the Group and Company financial statements in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that year. The Directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the AIM and the rules of the AktieTorget in Sweden. In preparing these financial statements, the Directors are required to: FUTURE DEVELOPMENTS WITHIN THE BUSINESS • select suitable accounting policies and then apply them The Company explores for and evaluates iron ore, and other minerals in Sweden and for graphite in Finland. The Company is focussed on its application for an Exploitation Concession at its Kallak iron ore project which was submitted four years ago. The Company is waiting for the Mining Inspectorate of Sweden to make a decision on granting the Exploitation Concession. The Company completed a drill programme in March 2017 at its Aitolampi prospect, in Finland, part of Beowulf’s 100 per cent owned exploration permit, consistently; • make judgements and accounting estimates that are reasonable and prudent; • state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. 30 Beowulf Mining plc Annual Report 2016AUDITOR BDO LLP has extensive experience of working with AIM companies in the Natural Resources sector. BDO LLP have expressed their willingness to continue in office and a resolution to re-appoint them will be proposed at the Group’s forthcoming Annual General Meeting. ANNUAL GENERAL MEETING The Group’s Annual General Meeting will be held at 11.00 a.m. (BST) on 29 June 2017 at the offices of One Advisory Group, 201 Temple Chambers, 3-7 Temple Avenue, London, EC4Y 0DT. The Notice of Meeting including details of the proposed resolutions will be posted to shareholders in due course and will appear on the Company’s website. ON BEHALF OF THE BOARD: Mr B Metcalf Director 11 May 2017 The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose, with reasonable accuracy, at any time the financial position of the Company and enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. WEBSITE PUBLICATION The Directors are responsible for ensuring the annual report and financial statements are made available on a website. Financial statements are published on the Company’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein. STATEMENT AS TO DISCLOSURE OF INFORMATION TO AUDITORS So far as the Directors are aware, there is no relevant audit information (as defined by Section 418 of the Companies Act 2006) of which the Group’s auditors are unaware, and each Director has taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Group’s auditors are aware of that information. 30 31 Beowulf Mining plc Annual Report 2016Remuneration Report Executive Directors’ terms of engagement Mr Budge is the sole Executive Director and Chief Executive Officer. His annual salary was increased for the first time in two years from £120,000 to £130,000 effective 1 November 2016. Mr Budge has a notice period of 12 months. Mr Davies was appointed as a Non-Executive Director on April 4, 2016. Under Mr Davies letter of appointment, he is paid a fee of £25,000 per annum. Mr Davies has a consultancy agreement with the Company for the provision of exploration advice over and above his Non-Executive duties. Mr Davies has a one month notice period under his letter of appointment. Non-Executive Directors’ terms of engagement The Non-Executive Directors have specific terms of engagement under a letter of appointment. Their remuneration is determined by the Board. In the event that a Non-Executive Director undertakes additional assignments or work for the Company, this is covered under a separate consultancy agreement. Under Mr Metcalf’s letter of appointment, he is paid a fee of £35,000 per annum as Non-Executive Chairman. Mr Metcalf has a consultancy agreement with the Company for financial and administrative advice and guidance as the Company does not yet have a Finance Director. Mr Metcalf has a one month notice period under his letter of appointment. Aggregate Directors’ Remuneration Indemnity Agreements Pursuant to the Companies Act 2006 and the Company’s articles of association, the Board may exercise the powers of the Company to indemnify its Directors against certain liabilities, and to provide its Directors with funds to meet expenditure incurred, or to be incurred, in defending certain legal proceedings or in connection with certain applications to the court. In exercise of that power, and by resolution of the Board on 26 July 2016, the Company has agreed to enter into this Deed of Indemnity with each Director. The remuneration paid to the Directors in accordance with their agreements, during the years ended 31 December 2016 and 31 December 2015, was as follows: Name Position Salary & Fees1 Share-based Payments2 2016 Total 2015 Total £ £ £ £ Mr B Metcalf3 Non-Executive Chairman 59,375 18,875 78,250 110,483 Mr K R Budge Chief Executive Officer 121,667 21,234 142,901 154,457 Mr C Davies4 Non-Executive Director 22,625 - - - 22,625 - - 62,829 203,667 40,109 243,776 327,769 Other5 Total Notes: 1. Does not include expenses reimbursed to the Directors. 4. Mr Davies joined the Company on 4 April 2016. 2. In relation to options granted in 2014 & 2015. 5. Remuneration related to past Directors. 3. Mr Metcalf’s Chairman’s fee is £35,000. Mr Metcalf also earned fees under his consultancy agreement in relation to financial advice as the Company does not yet have a Finance Director. 32 Beowulf Mining plc Annual Report 2016 Each Director is also paid all reasonable expenses incurred The Group does not currently operate a pension scheme and has wholly, necessarily and exclusively in the proper performance of not paid any contributions to any pension scheme for Directors or his duties. employees. The beneficial and other interests of the Directors holding office on 31 December 2016 in the issued share capital of the Company were as follows: ORDINARY SHARES 31 December 2016 31 December 2015 Mr B Metcalf Mr K R Budge 2,165,841 2,249,759 2,165,841 2,249,759 No options were awarded in 2016. Mr Metcalf and Mr Budge were awarded 8,000,000 and 9,000,000 options respectively in the year ended 31 December 2015. One third of these options vested on issue, with one third vesting on the first anniversary of the date of grant and the final third vesting after the second anniversary of the date of grant. At 31 December 2016 5,666,667 options have not yet vested. ORDINARY SHARES UNDER OPTION Mr B Metcalf Mr K R Budge Mr B Metcalf Mr K R Budge NUMBER EXERCISE PRICE EXPIRY DATE 500,000 500,000 8,000,000 9,000,000 4 pence 4 pence 1.66 pence 1.66 pence 9 October 2019 9 October 2019 17 July 2020 17 July 2020 32 33 Beowulf Mining plc Annual Report 2016 Corporate Governance Report Corporate Governance and Board composition Audit Committee As an AIM-listed company, Beowulf Mining plc is not required to comply with the UK Corporate Governance Code (2016). However, the Directors support high standards of corporate governance and have established a set of corporate governance principles based on the Quoted Companies Alliance (“QCA”) Guidelines, which they regard as appropriate for the size, nature and stage of development of the Company. Corporate governance is a key value driver for investors and an important determinant of investment decision- making. For this reason, shareholders must be able to rely on appropriate corporate governance structures, risk management systems and Board processes to safeguard their interests and ultimately enhance shareholder value. Some basic safeguards that help reduce investment risk include confidence that the board and management will: (1) release timely and reliable information about the Company, so as to allow shareholders to react to changing circumstances; (2) deliver on the stated strategy and performance targets; (3) take decisions in the interests of all investors - in other words, without favouring insiders and controlling shareholders; (4) ensure that shareholdings will not be significantly and unexpectedly diluted through non-pre-emptive issues; and (5) guard against shareholder value being destroyed through significant transactions or material related- party transactions that investors have not had a chance to evaluate and approve. Clearly, corporate governance alone will not make an investment attractive if the business model itself is not convincing. But all other things being positive, particularly the business acumen and experience of the management team, investor attention will turn to the calibre, expertise and integrity of the Non-Executive Directors, and therefore their ability to oversee, challenge and advise the management in order both to drive value creation and to protect the interests of shareholders at all times. The overall purpose of the Audit Committee is: (1) To ensure that the Company’s management has designed and implemented an effective system of internal financial controls; (2) To review and report on the integrity of the consolidated financial statements of the Company and related financial information; and (3) To review the Company’s compliance with regulatory and statutory requirements as they relate to financial statements, taxation matters and disclosure of financial information. In performing its duties, the Committee will maintain effective working relationships with the Board of Directors, management, and the external auditors and monitor the independence and effectiveness of the auditors and the audit. To perform his or her role effectively, each committee member will obtain an understanding of the responsibilities of committee membership as well as the Company’s business, operations and risks. The Audit Committee meets approximately four times a year. The members of the Committee are Chris Davies (Chair) and Bevan Metcalf. Remuneration Committee The Remuneration Committee’s role is to assist the Board of Directors to discharge its responsibilities in relation to remuneration of the Company’s Executive Directors, Non-Executive Directors and senior executives including share and benefit plans and make recommendations as and when it considers it appropriate. The Remuneration Committee meets as and when required. The members of the Committee are Bevan Metcalf (Chair) and Chris Davies. Nominations Committee The Board has not established a Nominations Committee as the Board considers that a separately established committee is not yet necessary, as its functions and responsibilities can be adequately and efficiently discharged by the Board as a whole. 34 Beowulf Mining plc Annual Report 2016dealings. Any breach of this policy will be regarded as a serious matter by the Company and is likely to result in disciplinary action and potentially the involvement of the police. Whistle-blower Policy In order to discourage illegal activity and unethical business conduct in the Company, the Board has developed a Whistle-blower Policy. It is the responsibility of all Directors, officers and employees (including contract employees and consultants) to comply with the law and the Company’s policies, and to report any wrongdoing or violations or suspected violations, including those relating to accounting, internal accounting controls, questionable accounting or auditing matters, securities law and the laws and regulations of any jurisdiction in which the Company operates, in accordance with its Whistle-blower Policy. Relations with Shareholders The Board recognises that it is accountable to shareholders for the performance and activities of the Group. Beowulf communicates with its shareholders through its website at www.beowulfmining.com and the release of announcements, trading updates and Interim and Annual Reports through the Regulatory News Service. Shareholders can also sign up to receive news releases directly from the Group by email. The Board encourages shareholders to attend Annual General Meetings of the Company where they have the opportunity to express their views on the Group’s business activities and performance. The Board assesses the experience, knowledge and expertise of potential Directors before any appointment is made and adheres to the principle of establishing a Board comprising Directors with a blend of skills, experience and attributes appropriate to the Group and its business. The main criterion for the appointment of Directors is an ability to add value to the Group and its business. All Directors appointed by the Board are subject to election by shareholders at the next Annual General Meeting of the Company following their appointment. The Board will review the need for a Nominations Committee as the Company evolves and one will be established if, and when, it is considered appropriate. Share dealing Effective 3 July 2016 the Company adopted a new policy for dealings in securities. The Policy is intended to assist the Company and its staff in complying with their obligations under the Market Abuse Regulation (EU) No. 596/2014 (“MAR”) and the AIM Rules. The Policy addresses the dealing restrictions set out in MAR and reflects the requirements for a securities dealing policy set out in the AIM Rules. Its purpose is to ensure that persons discharging managerial responsibilities (“PDMRs”), persons closely associated with them (“PCAs”) and other Restricted Persons and their PCAs do not abuse, or place themselves under suspicion of abusing, price-sensitive information that they may have or be thought to have, especially in periods leading up to an announcement of results. Anti-Bribery Policy The Company has in place appropriate guidance, training and implementation of procedures to ensure compliance with the UK Bribery Act. The Company is committed to the highest standards of personal and professional ethical behaviour. This must be reflected in every aspect of the way in which the Company operates. The Company takes a zero-tolerance approach to bribery and corruption and we are committed to act professionally, fairly and with integrity in all our business 34 35 Beowulf Mining plc Annual Report 2016 Independent Auditor's Report We have audited the financial statements of Beowulf Mining plc for the year ended 31 December 2016 which comprise of the consolidated income statement, the consolidated statement of other comprehensive income, the consolidated and company statements of financial position, the consolidated and company statements of changes in equity, the consolidated and company statements of cash flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and auditors As explained more fully in the statement of directors’ responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council’s (FRC’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the FRC’s website at www.frc.org.uk/auditscopeukprivate. Opinion on financial statements In our opinion: • the financial statements give a true and fair view of the state of the group’s and the parent company’s affairs as at 31 December 2016 and of the group’s loss for the year then ended; • the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; • the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Emphasis of Matter – Going concern In forming our opinion, which is not modified, we have considered the adequacy of disclosures made in Note 1 to the financial statements concerning the Group and Company’s ability to continue as a going concern. The Group has identified a requirement to raise additional funds in May 2018, or shortly thereafter, to meet corporate overheads and exploration-related costs. The Board has a reasonable expectation they will be able to raise the required funds within an appropriate timeframe, however there can be no certainty of this. These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Group and Company’s ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Group and the Company was unable to continue as a going concern. 36 Beowulf Mining plc Annual Report 2016 Opinion on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: • the information given in the strategic report and directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements are not in agreement with the accounting records and returns; or • the strategic report and directors’ report have been • certain disclosures of directors’ remuneration specified prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report. by law are not made; or • we have not received all the information and explanations we require for our audit. Stuart Barnsdall (senior statutory auditor) For and on behalf of BDO LLP, statutory auditor London, UK Date: 11 May 2017 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). 36 37 37 Beowulf Mining plc Annual Report 2016 Consolidated Income Statement CONTINUING OPERATIONS Administrative expenses Impairment of exploration costs OPERATING LOSS Finance costs Finance income LOSS BEFORE INCOME TAX Income tax expense LOSS FOR THE YEAR Loss attributable to: Owners of the parent Non-controlling interests Note 2016 £ 2015 £ 3 3 4 5 (638,573) (647,268) - (1,123,892) (638,573) (1,771,160) - (139) 5,344 1,982 (633,229) (1,769,317) - - (633,229) (1,769,317) (632,125) (1,477,109) (1,104) (292,208) (633,229) (1,769,317) Loss per share attributable to the ordinary equity holder of the parent: Basic and diluted (pence) 6 (0.13) (0.38) The notes on pages 48 to 70 form part of these financial statements 38 Beowulf Mining plc Annual Report 2016 Consolidated Statement Of Comprehensive Income LOSS FOR THE YEAR OTHER COMPREHENSIVE INCOME/LOSS Item that may be reclassified subsequently to profit or loss: Exchange gains/(losses) arising on translation of foreign operations Revaluation of investments Reclassification of revaluation reserve 2016 £ 2015 £ (633,229) (1,769,317) 626,438 (157,900) - (20,550) 55,664 - 682,102 (178,450) TOTAL COMPREHENSIVE INCOME/LOSS 48,873 (1,947,767) Total comprehensive income/loss attributable to: Owners of the parent Non-controlling interests 49,005 (1,660,172) (132) (287,595) 48,873 (1,947,767) 38 39 The notes on pages 48 to 70 form part of these financial statements Beowulf Mining plc Annual Report 2016 Consolidated Statement of Financial Position ASSETS NON-CURRENT ASSETS Intangible assets Property, plant and equipment Loans and other financial assets CURRENT ASSETS Trade and other receivables Cash and cash equivalents TOTAL ASSETS EQUITY SHAREHOLDERS’ EQUITY Share capital Share premium Revaluation reserve Capital contribution reserve Share based payment reserve Merger reserve Translation reserve Accumulated losses Non-controlling interests TOTAL EQUITY LIABILITIES CURRENT LIABILITIES Trade and other payables TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES Note 7 8 10 2016 £ 2015 £ 7,186,576 23,511 5,503 5,588,270 31,551 51,938 7,215,590 5,671,759 11 12 51,766 1,609,219 82,330 352,914 1,660,985 435,244 8,876,575 6,107,003 14 16 16 16 16 16 16 16 13 5,026,302 4,303,138 16,879,241 15,187,112 (30,000) 46,451 97,796 - (1,090,348) (13,067,163) (12,466,046) 25,664 46,451 237,803 137,700 (464,882) 8,821,116 (158,593) 6,048,103 (158,461) 8,662,523 5,889,642 17 214,052 217,361 214,052 217,361 8,876,575 6,107,003 The financial statements were approved and authorised for issue by the Board of Directors on 11 May 2017 and were signed on its behalf by: Mr B Metcalf - Director Company Number 02330496 The notes on pages 48 to 70 form part of these financial statements 40 Beowulf Mining plc Annual Report 2016 Company Statement of Financial Position Note 2016 £ 2015 £ ASSETS NON-CURRENT ASSETS Property, plant and equipment Investments Loans and other financial assets CURRENT ASSETS Trade and other receivables Cash and cash equivalents TOTAL ASSETS EQUITY SHAREHOLDERS’ EQUITY Share capital Share premium Revaluation reserve Capital contribution reserve Share based payment reserve Merger reserve Accumulated losses TOTAL EQUITY LIABILITIES CURRENT LIABILITIES Trade and other payables TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES 8 9 10 11 12 14 16 16 16 16 16 16 139 345,015 7,805,923 1,118 4,909 7,068,102 8,151,077 7,074,129 34,658 1,567,770 74,102 349,013 1,602,428 423,115 9,753,505 7,497,244 5,026,302 4,303,138 16,879,241 15,187,112 (55,664) 46,451 97,796 - (12,680,024) (12,180,655) - 46,451 237,803 137,700 9,647,473 7,398,178 17 106,032 99,066 106,032 99,066 9,753,505 7,497,244 40 41 As permitted by Section 408 of the Companies Act 2006, the income statement of the parent Company is not presented as part of these financial statements. The parent Company’s loss for the financial year was £530,377 (2015: Loss £1,595,140). These financial statements were approved and authorised for issue by the Board of Directors on 11 May 2017 and were signed on its behalf by: Mr B Metcalf - Director Company Number 02330496 The notes on pages 48 to 70 form part of these financial statements Beowulf Mining plc Annual Report 2016 Consolidated Statement of Changes in Equity Share capital Share Revaluation premium reserve Merger reserve Capital contribution £ £ £ £ At 1 January 2015 3,452,598 15,009,812 (9,450) Loss for the year Foreign exchange translation Revaluations on listed investments Total comprehensive income Transactions with owners Issue of share capital Cost of issue Equity settled share based transactions Release of charge for lapsed options - - - - - - - - - - (20,550) (20,550) 850,540 - - - 232,757 (55,457) - - - - - - At 31 December 2015 4,303,138 15,187,112 (30,000) Loss for the year Foreign exchange translation Total comprehensive income Transactions with owners - - - - - - 55,664 - 55,664 Issue of share capital 697,664 1,837,243 Cost of issue Equity settled share based transactions Release of charge for lapsed options - - - Acquisition of subsidiary 25,500 (145,114) - - - - - - - - - - - - - - - - - - - - - - - - - 137,700 reserve £ 46,451 - - - - - - - - Share based Translation Accumulated Totals payments reserve £ reserve losses £ £ £ Non- controlling interest £ Totals £ 69,318 (927,835) (11,025,834) 6,615,060 129,134 6,744,194 - - - - - - 65,375 (36,897) - (1,477,109) (1,477,109) (292,208) (1,769,317) (162,513) - - - (162,513) (20,550) 4,613 - (157,900) (20,550) (162,513) (1,477,109) (1,660,172) (287,595) (1,947,767) - - - - - - - 36,897 1,083,297 (55,457) 65,375 - - - - - 1,083,297 (55,457) 65,375 - 46,451 97,796 (1,090,348) (12,466,046) 6,048,103 (158,461) 5,889,642 - - - - - - - - - - - - - 40,109 (31,008) 130,906 - (632,125) 625,466 - (576,461) 625,466 (1,104) 972 (577,565) 626,438 625,466 (632,125) 49,005 (132) 48,873 - - - - - - - - 31,008 - 2,534,907 (145,114) 40,109 - 294,106 - - - - - 2,534,907 (145,114) 40,109 - 294,106 At 31 December 2016 5,026,302 16,879,241 25,664 137,700 46,451 237,803 (464,882) (13,067,163) 8,821,116 (158,593) 8,662,523 The notes on pages 48 to 70 form part of these financial statements 42 43 Beowulf Mining plc Annual Report 2016 Company Statement of Changes in Equity Share capital £ Share premium Revaluation reserve £ £ Merger reserve £ At 1 January 2015 3,452,598 15,009,812 (35,114) Loss for the year Revaluations on listed investments Total comprehensive income Transactions with owners Issue of share capital Cost of issue Equity settled share based transactions Release of charge for lapsed options - - - 850,540 - - - - - - 232,757 (55,457) - - - (20,550) (20,550) - - - - At 31 December 2015 4,303,138 15,187,112 (55,664) Loss for the year Total comprehensive income Transactions with owners Issue of share capital Cost of issue Equity settled share based transactions Release of charge for lapsed options - - 697,664 - - - Acquisition of subsidiary 25,500 - - 1,837,243 (145,114) - - - At 31 December 2016 5,026,302 16,879,241 55,664 55,664 - - - - - - Capital contribution reserve £ 46,451 Share based Accumulated Totals payments reserve £ losses £ £ 69,318 (10,622,412) 7,920,653 - - - - - - - - - - - - 65,375 (36,897) (1,595,140) - (1,595,140) (20,550) (1,595,140) (1,615,690) - - - 36,897 1,083,297 (55,457) 65,375 - 46,451 97,796 (12,180,655) 7,398,178 - - - - - - - - - - - 40,109 (31,008) 130,906 (530,377) (474,713) (530,377) (474,713) - - - 31,008 - 2,534,907 (145,114) 40,109 - 294,106 - - - - - - - - - - - - - - - 137,700 137,700 46,451 237,803 (12,680,024) 9,647,473 The notes on pages 48 to 70 form part of these financial statements 44 45 Beowulf Mining plc Annual Report 2016 Consolidated Statement of Cash Flows Cash flows from operating activities Loss before income tax Depreciation charges Equity-settled share-based transactions Impairment of exploration costs Expenses financed by issue of shares Reclassification of revaluation reserve Finance costs Finance income Decrease/(increase) in trade and other receivables Decrease in trade and other payables Net cash used in operating activities Cash flows from investing activities Purchase of intangible assets Purchase of property, plant and equipment Sale of investments Acquisition of subsidiary Interest received Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Payment of share issue costs Settlement of derivative financial asset Net cash from financing activities Increase in cash and cash equivalents Cash and cash equivalents at beginning of year Effect of foreign exchange rate changes 2016 £ 2015 £ (633,229) (1,769,317) 12,097 40,109 9,553 65,375 - 1,123,892 29,375 55,664 - 58,298 - 139 (5,344) (1,982) (501,328) (514,042) 31,646 (15,557) (39,803) (77,040) (485,239) (630,885) (622,817) (323,545) (862) 50,444 (50,482) 5,344 - 119 - 1,838 (618,373) (321,588) 2,505,530 1,024,999 (145,114) - (55,457) 150,000 2,360,416 1,119,542 1,256,804 352,914 (499) 167,069 186,889 (1,044) Cash and cash equivalents at end of year 1,609,219 352,914 The notes on pages 48 to 70 form part of these financial statements 46 Beowulf Mining plc Annual Report 2016 Company Statement of Cash Flows Cash flows from operating activities Loss before income tax Depreciation charges Equity-settled share-based transactions Finance income Reclassification of revaluation reserve Expenses financed by issue of shares Impairment of intercompany share capital Impairment of intercompany loans Decrease/(increase) in trade and other receivables Increase/(decrease) in trade and other payables Net cash used in operating activities Cash flows from investing activities Loans to subsidiaries Fixed asset additions Interest received Acquire subsidiary Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Payment of share issue costs Settlement of derivative financial asset Net cash from financing activities Increase in cash and cash equivalents Cash and cash equivalents at beginning of year 2016 £ 2015 £ (530,377) (1,595,140) 1,841 40,109 (5,344) 55,664 29,375 - - 375 65,375 (1,978) - 58,298 229,795 787,396 (408,732) (455,879) 39,444 6,969 (35,090) (78,432) (362,319) (569,401) (737,822) (368,504) (862) 5,344 (46,000) - 1,978 - (779,340) (366,526) 2,505,530 1,024,999 (145,114) - (55,457) 150,000 2,360,416 1,119,542 1,218,757 349,013 183,615 165,398 Cash and cash equivalents at end of year 1,567,770 349,013 46 47 The notes on pages 48 to 70 form part of these financial statements Beowulf Mining plc Annual Report 2016 Notes to the Consolidated Financial Statements 1. ACCOUNTING POLICIES Nature of operations Beowulf Mining plc (the “Company”) is domiciled in England. The Company’s registered office is 201 Temple Chambers, 3-7 Temple Avenue, London, EC4Y 0DT. These consolidated financial statements comprise the Company and its subsidiaries (collectively the ‘Group’ and individually ‘Group companies’). The Group is engaged in the acquisition, exploration and evaluation of natural resources assets and has not yet generated revenues. The principal accounting policies applied in the preparation of these consolidated financial statements are set out below: Going concern At 31 December 2016, the Company had a cash balance of £1.61 million. Management have prepared cash flow forecasts which indicate that the Group has sufficient cash to cover its anticipated working capital requirements for the next twelve months, however, they expect that the Group will need to raise further funds for corporate overheads and to advance Kallak North and its other exploration assets in May 2018 or shortly thereafter. The Directors have concluded that it is appropriate to prepare the financial statements on a going concern basis. The Directors are confident they are taking all necessary steps to ensure that the required finance will be available, and have successfully raised finance in the past. However, while they are confident of being able to raise the new funds as they are required, there are currently no agreements in place, and there can be no certainty that they will be successful in raising the required funds within the appropriate timeframe. These conditions indicate the existence of a material uncertainty which may cast significant doubt over the Group’s and the Company’s ability to continue as a going concern and that it may be unable to realise its assets and discharge its liabilities in the normal course of business. The financial statements do not include any adjustments that would result if the Company was unable to continue as a going concern. Basis of preparation The consolidated financial statements have been prepared in accordance with applicable International Financial Reporting Standards as adopted by the European Union (“IFRS”) and with those parts of the UK Companies Act 2006 applicable to companies reporting under IFRS as adopted by the European Union. The financial statements are presented in GB Pounds Sterling. They are prepared on the historical cost basis or the fair value basis where the fair valuing of relevant assets and liabilities has been applied. New and amended standards, and interpretations issued but not yet effective for the financial year beginning 1 January 2016 and not early adopted The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the financial statements are listed below. The Group intends to adopt these standards, if applicable, when they become effective. Unless stated below, there are no IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group. Standard IFRS 15 Revenue from Contracts with Customers IFRS 9 Financial Instruments IFRS 16 Leases * *Subject to EU endorsement Effective Date 01-Jan-18 01-Jan-18 01-Jan-19 48 Beowulf Mining plc Annual Report 2016 The only standard which is anticipated to be significant or relevant to the Group is IFRS 9 “Financial Instruments”, the Group is in the process of assessing the impact of the standard on the Financial Statements. Both IFRS 15 and IFRS 16 are not expected to have a material impact on the Group at this stage of the Group’s operations. It is not anticipated that the adoption in the future of the new or revised standards or interpretations that have been issued by the International Accounting Standards Board but are not yet effective will have a material impact on the Group’s earnings or shareholders’ funds. The Company has not adopted any new standards in advance of the effective dates. Significant accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the amounts reported for income and expenses during the year and the amounts reported for assets and liabilities at the balance sheet date. However, the nature of estimation means that the actual outcomes could differ from those estimates. The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are the measurement of any impairment of intangible assets, the estimation of share-based payment costs and the treatment of the acquisition of Fennoscandian. In respect of these items: (i) (ii) The Group determines whether there are any indicators of impairment of intangible assets on an annual basis (see note 1 below and note 7); The estimation of share-based payments requires the selection of an appropriate model, consideration as to the inputs necessary for the valuation model chosen and the estimation of the number of awards that will ultimately vest (see note 9 and15); and (iii) Taking into account the nature and description of the Fennoscandian transaction it was determined that the acquisition should be treated as an acquisition of assets for accounting purposes and outside the scope of IFRS 3. Basis of consolidation (i) Subsidiaries and acquisitions The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year. Control is recognised where an investor is exposed, or has rights, to variable returns from its investment with the investee, and has the ability to affect these returns through its power over the investee. On acquisition, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair value at the date of acquisition. Any excess of the cost of the acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. If the cost of the acquisition is less than the fair value of net assets of the subsidiary acquired, the difference is recognised directly in profit or loss. The results of subsidiaries acquired or disposed of during the year are included in the statement of comprehensive income from the effective date of acquisition, or up to the effective date of disposal, as appropriate. Non-controlling interests in subsidiaries are presented separately from the equity attributable to equity owners of the parent Company. When changes in ownership in a subsidiary do not result in a loss of control, the non- controlling shareholders’ interests are initially measured at the non-controlling interests’ proportionate share of the subsidiaries net assets. Subsequent to this, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests’ share of subsequent changes in equity. Total comprehensive income is attributed to non controlling interests even if this results in the non-controlling interests having a deficit balance. 48 49 Beowulf Mining plc Annual Report 2016 Notes to the Consolidated Financial Statements (ii) Transactions eliminated on consolidation Intra-Group balances and any unrealised gains and losses or income and expenses arising from intra-Group transactions are eliminated in preparing the consolidated financial statements. Intangible assets – deferred exploration costs All costs incurred prior to the application for the legal right to undertake exploration and evaluation activities on a project are expensed as incurred. Exploration and evaluation costs arising following the application for the legal right, are capitalised on a project-by-project basis, pending determination of the technical feasibility and commercial viability of the project. Costs incurred include appropriate employee costs and costs pertaining to technical and administrative overheads. Exploration and evaluation activity includes: • researching and analysing historical exploration data; • gathering exploration data through topographical, geochemical and geophysical studies; • exploratory drilling, trenching and sampling; • determining and examining the volume and grade of the resource; • surveying transportation and infrastructure requirements; and • conducting market and finance studies. Administration costs that are not directly attributable to a specific exploration area are expensed as incurred. Deferred exploration costs are carried at historical cost less any impairment losses recognised. When a project is deemed to no longer have commercially viable prospects to the Group, deferred exploration costs in respect of that project are deemed to be impaired and written off to the statement of comprehensive income. Impairment Whenever events or changes in circumstance indicate that the carrying amount of an asset may not be recoverable an asset is reviewed for impairment. An asset’s carrying value is written down to its estimated recoverable amount (being the higher of the fair value less costs to sell and value in use) if that is less than the asset’s carrying amount. Impairment reviews for deferred exploration and evaluation expenditure are carried out on a project by project basis, with each project representing a potential single cash generating unit. An impairment review is undertaken when indicators of impairment arise such as: (i) unexpected geological occurrences that render the resource uneconomic; (ii) title to the asset is compromised; (iii) variations in mineral prices that render the project uneconomic; (iv) substantive expenditure on further exploration and evaluation of mineral resources is neither budgeted nor planned; and (v) the period for which the Group has the right to explore has expired and is not expected to be renewed. 50 Beowulf Mining plc Annual Report 2016 Property, plant and equipment Items of property, plant and equipment are stated at historical cost less accumulated depreciation. Depreciation is provided at the following annual rates in order to write off each asset over its estimated useful life: Plant and machinery - 25 per cent on reducing balance The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Investments Investments in listed companies are classified as available for sale. The revaluation adjustment is taken to the revaluation reserve and reclassified to the income statement for objective evidence of impairment. Investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are recognised at cost less any provision for impairment. Fixed asset investments in subsidiary undertakings and joint venture interests are stated at cost less provision for any impairment in value. Financial instruments The Group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. Financial assets and liabilities are recognised in the statement of financial position when the Group becomes a party to the contractual provisions of the instrument. Trade and other receivables Trade and other receivables are recorded at their nominal amount less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivable. Bad debts are written off when identified. Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks, and other short term highly liquid investments with original maturities of three months or less. Trade payables Trade payables are stated at amortised cost using the effective interest method. Equity instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. Where equity instruments are issued as part of an acquisition they are recorded at their fair value on the date of acquisition. 50 51 Beowulf Mining plc Annual Report 2016 Notes to the Consolidated Financial Statements Taxation Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is recognised, using the liability method, in respect of temporary differences between the carrying amount of the Group’s assets and liabilities and their tax base. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Any remaining deferred tax asset is recognised only when, on the basis of all available evidence, it can be regarded as probable that there will be suitable taxable profits, within the same jurisdiction, in the foreseeable future against which the deductible temporary difference can be utilised. Deferred tax is determined using tax rates that are expected to apply in the periods in which the asset is realised or liability settled, based on tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Current and deferred tax is recognised in the profit or loss, except when the tax relates to items charged or credited directly in equity, in which case the tax is also recognised directly in equity. Foreign currencies The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in GB Pounds Sterling which is the presentation currency for the Group and Company financial statements. The functional currency of the Company is the GB Pounds Sterling. In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the balance sheet date. Exchange differences arising on the settlement of monetary items and on the retranslation of monetary items are included in the statement of comprehensive income for the period. For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are expressed in GB Pounds Sterling using exchange rates prevailing at the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are classified as other comprehensive income and are transferred to the Group’s translation reserve. Foreign currency movements arising from the Group’s net investment, which comprises equity and long-term debt, in subsidiary companies whose functional currency is not the GB Pounds Sterling are recognised in the translation reserve, included within equity until such time as the relevant subsidiary company is sold, whereupon the net cumulative foreign exchange difference relating to the disposal is transferred to profit and loss. Share-based payment transactions Where equity settled share options are awarded to employees, the fair value of the options at the date of grant is charged to the income statement over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of all options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition. 52 Beowulf Mining plc Annual Report 2016 Where terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the income statement over the remaining vesting period. Where equity instruments are granted to persons other than employees, the income statement or share premium account, if appropriate, are charged with the fair value of goods and services received. 2. EMPLOYEES AND DIRECTORS Group Company 2016 2015 2016 2015 £ £ £ £ Wages and salaries 330,778 224,038 203,667 199,565 Social security costs 50,197 25,731 23,398 22,127 Bonus 972 - - - 381,947 249,769 227,065 221,692 Wages and salaries exclude amounts paid to related parties in respect of Director’s services during the year which amounted to £Nil (2015: £39,329). Including these amounts, the Directors’ remuneration is as follows: Directors emoluments, including salary and fees Share based payments Compensation to Directors and past Directors for 2016 2015 £ £ 203,667 238,894 40,109 65,375 loss of office - 23,500 243,776 327,769 The average monthly number of employees and Directors during the year was as follows: 2016 Group 2015 Group 2016 2015 Company Company Number Number Number Number 3 2 3 1 3 2 3 1 Directors Employees 52 53 Beowulf Mining plc Annual Report 2016 Notes to the Consolidated Financial Statements 3. FINANCE INCOME AND COSTS Finance income: Deposit account interest Finance costs: Interest 2016 2015 £ £ 5,344 1,982 5,344 1,982 £ - £ 139 4. LOSS BEFORE TAX AND AUDITOR’S REMUNERATION a. The loss before tax is stated after charging/(crediting): 2016 2015 Depreciation - owned assets (note 8) Foreign exchange differences Impairment of exploration costs (note 7) Reclassification of revaluation reserve b. Auditor’s remuneration Fees payable to the Group’s auditor for the audit of the consolidated financial statements Fees payable to the Group auditor for other services: - audit of subsidiaries pursuant to legislation - tax compliance services £ 12,097 (1,124) £ 9,553 (5,865) - 1,123,892 55,664 - 2016 2015 £ £ 23,120 21,250 5,000 3,250 3,750 2,500 31,370 27,500 5. INCOME TAX Analysis of tax expense No liability to UK corporation tax arose on ordinary activities for the year ended 31 December 2016 or for the year ended 31 December 2015. 54 Beowulf Mining plc Annual Report 2016 Factors affecting the tax expense The tax assessed for the year is higher than the standard rate of corporation tax in the UK. The difference is explained below: Loss on ordinary activities before income tax (633,229) (1,769,317) 2016 £ 2015 £ Tax thereon at a UK corporation tax rate of 20% (2015 - 20%) Effects of: Expenses not deductible for tax purposes Tax losses not recognised Losses of overseas subsidiaries carried forward (126,646) (353,863) 30,740 80,166 15,740 224,778 116,063 13,022 - - The main rate of UK corporation tax during the year ended 31 December 16 was 20 per cent (2015: 20 per cent). The Group has estimated UK losses of £9,709,834 (2015: £9,309,009) and foreign losses of £581,034 (2015: £450,247) available to carry forward against future trading profits. The value of unrecognised deferred tax assets in respect of the UK losses amounts to £1,941,967 (2015: £1,861,802). The Directors believe that it would not be prudent to recognise such tax assets before such time as the Group generates taxable income. 6. BASIC AND DILUTED LOSS PER SHARE The calculation of basic and diluted loss per share at 31 December 2016 was based on the loss attributable to ordinary shareholders of £632,125 (2015: £1,477,109) and a weighted average number of ordinary shares outstanding during the period ended 31 December 2016 of 472,525,290 (2015: 392,759,984) calculated as follows: Loss attributable to ordinary shareholders 2016 £ 2015 £ Loss attributable to ordinary shareholders (632,125) (1,477,109) Weighted average number of ordinary shares Number Number Number of shares in issue at the beginning of the year 430,313,824 304,755,824 Effect of shares issued during year 42,211,466 88,004,070 Weighted average number of ordinary shares in issue for the year 472,525,290 392,759,894 As detailed in note 21, the Company issued a number of options subsequent to the year end. These options, if exercised, would have had an anti-dilutive effect. All existing options are also anti-dilutive. 54 55 Beowulf Mining plc Annual Report 2016 Notes to the Consolidated Financial Statements 7. INTANGIBLE ASSETS - Group COST At 1 January 2015 Additions for the year Impairments recognised Foreign exchange movements At 31 December 2015 At 1 January 2016 Additions for the year Foreign exchange movements At 31 December 2016 NET BOOK VALUE At 31 December 2016 At 31 December 2015 The net book value of exploration costs is comprised of expenditure on the following projects: Kallak Nautijaur Åtvidaberg Ågåsjiegge Sala Haapamäki Kolari1 Piippumäki Viistola Pitkäjärvi 2016 £ 6,438,283 24,912 153,927 7,257 2,372 141,944 99,554 119,087 107,369 91,871 Exploration Costs £ 6,538,752 323,545 (1,123,892) (150,135) 5,588,270 5,588,270 968,460 629,846 7,186,576 7,186,576 5,588,270 2015 £ 5,565,328 22,942 - - - - - - - - 7,186,576 5,588,270 Total Group exploration costs of £7,186,576 are currently carried at cost in the financial statements. The Group will need to raise funds and/or bring in joint venture partners to further advance exploration and development work. An amount of £146,563 was recorded against the projects for services provided by the Directors during the year. During the year no impairment provision was recognised (2015: £1,123,892). 56 Beowulf Mining plc Annual Report 2016 Accounting estimates and judgements are continually evaluated and are based on a number of factors, including expectations of future events that are believed to be reasonable under the circumstances. The most significant risk currently facing the Group is that it does not receive an Exploitation Concession for its Kallak North iron ore project. The Company originally applied for the Exploitation Concession in April 2013 and throughout 2016, and since the year end, management have actively sought to progress the application, engaging with the various government bodies and other stakeholders. These activities are summarised under the Review of Operations and Activities. The Kallak project is included in the financial statements as an intangible exploration licence with a carrying value of £6,438,283 at the year end. Management are required to consider whether there are events or changes in circumstances that indicate that the carrying value of this asset may not be recoverable. Management have considered the status of the application for the Exploitation Concession and in their judgement, they believe it is appropriate to be optimistic about the chances of being awarded the Exploitation Concession and thus have not impaired the project. 8. PROPERTY, PLANT AND EQUIPMENT COST At 1 January 2015 Foreign exchange movements At 31 December 2015 At 1 January 2016 Additions Foreign exchange movements At 31 December 2016 DEPRECIATION At 1 January 2015 Charge for year Foreign exchange movements At 31 December 2015 At 1 January 2016 Charge for year Foreign exchange movements At 31 December 2016 NET BOOK VALUE At 31 December 2016 At 31 December 2015 Group £ Company £ 54,152 (1,157) 5,521 - 52,995 5,521 52,995 862 5,326 5,521 862 - 59,183 6,383 11,758 9,553 133 4,028 375 - 21,444 4,403 21,444 12,097 2,131 4,403 1,841 - 35,672 6,244 23,511 139 31,551 1,118 56 57 Beowulf Mining plc Annual Report 2016 Notes to the Consolidated Financial Statements 9. INVESTMENTS Shares in group Listed undertakings investments £ £ 234,704 - (229,795) 4,909 4,909 340,106 345,015 20,550 (20,550) - - - - - Total £ 255,254 (20,550) (229,795) 4,909 4,909 340,106 345,015 COST OR VALUATION At 1 January 2015 Revaluation of investments Impairment of investments At 31 December 2015 At 1 January 2016 Acquisitions At 31 December 2016 On 11 January 2016, the Company announced it had acquired 100 per cent of the share capital of Fennoscandian, a privately owned company based in Finland with a portfolio of four early-stage graphite exploration projects. The transaction consisted of an initial payment of 2.1 million shares with a deferred payment of 450,000 shares. Beowulf has paid for 100 per cent of the share capital of Fennoscandian by issuing 2.55 million ordinary shares in the Company. On 11 January 2016, one Beowulf share was worth 6.4 pence, valuing the initial part of the transaction at £163,200. In addition, two further tranches of 2.1 million ordinary shares will be issued on achievement of certain performance milestones. The first tranche of ordinary shares will be issued on the production of a maiden resource statement on one of the graphite projects in the portfolio, or on the anniversary 24 months following completion of the acquisition, subject to Mr Blomqvist having worked for the Company as a full-time employee during that period. The second tranche of shares will be issued on completion of a bankable feasibility study on one of the graphite projects in the portfolio. The total number of ordinary shares that may be issued, if all performance milestones are achieved, is 6.75 million ordinary shares. Beowulf will issue up to a further 4.2 million additional consideration shares in the form of a share-based payment transaction to the former owner, Rasmus Blomqvist. The share-based payments fall within the scope of IFRS 2 and are fair valued at the grant date based on the estimated number of shares that will vest. The fair value has been prepared using a Black-Scholes pricing model including a share price of 6.4 pence, option life of two years, volatility of 49.79 per cent and a risk free rate of 0.698 per cent. The share-based charge is £268,800 bringing the total consideration including transaction costs of £46,000 to £478,000, if all additional shares are issued. The consideration recognised in the financial statements as at 31 December 2016 is £346,547 and has been recorded in intangible assets evenly across the four acquired graphite projects. The share based payment charge is spread over the two-year option life, therefore, in the 12 months ended 31 December 2016, only £130,907 (of the £268,800) has been recognised under intangibles. 58 Beowulf Mining plc Annual Report 2016 At a Group level, the Company have considered whether the acquisition meets the definition of a business combination and therefore falls within the scope of IFRS 3. The conclusion is that due to the early stage of the projects acquired and because Fennoscandian does not have the inputs, processes and outputs required to meet the conditions of a business combination the acquisition shall be treated as an acquisition of assets at a Group level and is therefore outside the scope of IFRS 3. Name Incorporated Activity % holding % holding 2016 2015 Oy Fennoscandian Resources AB Finland Mineral exploration Iron of Sweden Limited1 Jokkmokk Iron Mines AB Beowulf Mining Sweden AB2 Wayland Copper Limited Wayland Sweden AB UK Sweden Sweden UK Sweden Dormant Mineral exploration Mineral exploration 100% - 100% 100% - 100% 100% 100% Holding company 65.25% 65.25% Mineral exploration 3,465.25% 3,465.25% The Group consists of the following subsidiary undertakings: Name Registered office Oy Fennoscandian Resources AB Plåtslagarevägen 35 A 1, 20320 Turku, Finland Iron of Sweden Limited1 Jokkmokk Iron Mines AB Beowulf Mining Sweden AB2 Wayland Copper Limited Wayland Sweden AB Richmond House, Broad Street, Ely Cambridgeshire Storgatan 36, 921 31, Lycksele, Sweden Storgatan 36, 921 31, Lycksele, Sweden 201 Temple Chambers, 3-7 Temple Avenue, London Storgatan 36, 921 31, Lycksele, Sweden Notes: 1. Iron of Sweden has been dissolved in the year 2. Previously Norrbotten Mining AB 3. Indirectly held 4. Effective interest Details on the non-controlling interest in subsidiaries is given in note 13. 58 59 Beowulf Mining plc Annual Report 2016 Notes to the Consolidated Financial Statements 10. LOANS AND OTHER FINANCIAL ASSETS Group At 1 January 2015 Disposals in the year Foreign exchange movements At 31 December 2015 At 1 January 2016 Disposal in the year Foreign exchange movements At 31 December 2016 Company At 1 January 2015 Advances made in the year Impairment of investments Loans to group undertakings £ 7,484,210 368,504 (787,396) At 31 December 2015 7,065,318 At 1 January 2016 Advances made in the year 7,065,318 737,821 At 31 December 2016 7,803,139 Financial assets £ 2,784 - - 2,784 2,784 - 2,784 Financial fixed Assets £ 53,262 (119) (1,205) 51,938 51,938 (50,444) 4,009 5,503 Totals £ 7,486,994 368,504 (787,396) 7,068,102 7,068,102 737,821 7,805,923 60 Beowulf Mining plc Annual Report 2016 11. TRADE AND OTHER RECEIVABLES Other receivables VAT Prepayments and accrued income 2016 £ 237 22,447 Group 2015 £ 2,204 15,716 2016 £ 237 14,408 Company 2015 £ - 9,692 29,082 64,410 20,013 64,410 51,766 82,330 34,658 74,102 12. CASH AND CASH EQUIVALENTS Group 2016 £ 2015 £ 2016 £ Company 2015 £ Bank accounts 1,609,219 352,914 1,567,770 349,013 1,609,219 352,914 1,567,770 349,013 13. NON-CONTROLLING INTERESTS Wayland Copper Limited, a 65.25 per cent owned subsidiary of the Company that has material non-controlling interests (“‘NCI”). Summarised financial information reflecting 100 per cent of the underlying subsidiary’s relevant figures is set out below: Administrative expenses Impairment of intangibles Loss after tax Loss allocated to NCI Other comprehensive income allocated to NCI 2016 £ (3,178) - 2015 £ (2,395) (838,493) (3,178) (840,888) (1,104) 972 (292,208) 4,613 Total comprehensive loss allocated to NCI (132) (287,595) Current assets Current liabilities Net (liabilities) 10,687 (467,069) 9,405 (465,408) (456,382) (456,003) NCI at 34.75 per cent (158,593) (158,461) 61 60 Beowulf Mining plc Annual Report 2016 Notes to the Consolidated Financial Statements 14. SHARE CAPITAL Allotted, called up and fully paid At 1 January Issued for cash 2016 Number 2016 £ 2015 Number 2015 £ 430,313,824 4,303,138 345,259,849 3,452,598 66,829,007 668,289 79,224,175 Issued in settlement of expenses 2,937,500 Issued for acquisition of subsidiary 2,550,000 29,375 25,500 5,829,800 - 792,242 58,298 - At 31 December 502,630,331 5,026,302 430,313,824 4,303,138 The par value of all ordinary shares in issue is £0.01. The Company has removed the limit on the number of shares that it is authorised to issue in accordance with the Companies Act 2006. Shares issued in 2016 On 11 January 2016, the Company issued 2,100,000 million new ordinary shares of 6.4 pence each, in connection with its acquisition of Fennoscandian. On 11 February 2016, the Company issued 729,329 new ordinary shares of 6.4 pence each. This included the issue of 450,000 new ordinary shares being the deferred payment in connection with its acquisition of Fennoscandian and 279,329 new ordinary shares in satisfaction of the professional fees. On 25 February 2016, the Company announced that it had raised £1.25 million before expenses and issued 38,461,538 new ordinary shares at a price of 3.25 pence per new ordinary share. On 2 March 2016, the Company announced that the over-allotment option announced on 25 February 2016, was exercised on 29 March by the Company in respect of 7,692,307 new ordinary shares at a price of 3.25 pence per new ordinary share raising £0.25 million before expenses. On 21 December 2016, the Company announced a subscription for £1m (before expenses). Pursuant to the subscription, the Company issued to Swedish investors 20,000,000 ordinary shares of 1.0 pence each to raise approximately £860,000 (before expenses) at a price of 0.5 SEK per ordinary share and to 3,333,333 ordinary shares to UK investors to raise approximately £140,000 (before expenses) at a price of 4.2 pence per new ordinary share. Shares issued in 2015 In March 2015, the Company raised £350,000 before fees and expenses by way of a subscription of 29,166,666 new ordinary shares of 1.0 pence each at a premium of 0.2 pence per share. This was fully paid in cash. In June 2015, the Company issued 2,035,457 new ordinary shares of 1 pence each at a premium of 1.25 pence per share in accordance with a salary sacrifice arrangement with Directors. The total value of these shares was £45,798. 62 Beowulf Mining plc Annual Report 2016 In July 2015, the Company raised £650,000 before fees and expenses by way of a subscription of 52,000,000 new ordinary shares of 1 pence each at a premium of 0.25 pence per share. This was fully paid in cash. In July 2015, the Company issued 617,284 ordinary shares of 1 pence at a premium of 1.025 pence to its joint broker in lieu of their broker fees for six months. In October 2015, the Company received notification from its joint broker that it wanted to exercise 617,284 warrants at an exercise price of 2.025 pence for which the Company received proceeds of £12,500 and issued 617,284 new ordinary shares. In December 2015, the Company received notification from its joint broker that it wanted to exercise 617,284 warrants at an exercise price of 2.025 pence for which the Company received proceeds of £12,500 and issued 617,284 new ordinary shares. 15. SHARE-BASED PAYMENTS During the year ended 31 December 2016 no options were granted (2015: 17,000,000). The options outstanding as at 31 December 2016 have an exercise price in the range of 1.66 pence to 4.00 pence (2015: 1.66 pence to 30.00 pence) and a weighted average remaining contractual life of 3.5 years (2015: 4.14 years). The equity-settled share-based payments expense for the options for the year ended 31 December 2016 was £40,109 (2015: £63,375). The fair value of services received during 2015 in return for share options granted was based on the fair value of share options granted, measured using the Black-Scholes model, with the following inputs: Fair value at grant date Share price Exercise price Expected volatility Option life Risk free interest rate 0.708p 1.25p 1.66p 170.90% 5 years 1.58% The expected volatility was determined by reviewing the actual volatility of the Company’s share price in the five years preceding the date of granting the option. No warrants were granted during the year. In 2015 1,234,568 warrants were issued and exercised at 2.025 pence to the Company’s joint broker. The fair value of the warrants was £25,000. 62 63 Beowulf Mining plc Annual Report 2016 Notes to the Consolidated Financial Statements 16. RESERVES The following is a description of each of the reserve accounts that comprise equity shareholders’ funds: Share capital Share premium Revaluation reserve Capital contribution reserve Share based payments reserve Translation reserve Merger reserve Accumulated losses The share capital comprises the issued ordinary shares of the Company at par. The share premium comprises the excess value recognised from the issue of ordinary shares at par. Gains/losses arising on the revaluation of the Group’s listed investments. Prolonged declines in value at transferred to profit and loss. The capital contribution reserve represents historic non-cash contributions to the Company from equity holders. Cumulative fair value of options charged to the consolidated income statement net of transfers to the profit or loss reserve on exercised and cancelled/lapsed options. Cumulative gains and losses on translating the net assets of overseas operations to the presentation currency. The balance on the merger reserve represents the fair value of the consideration given in excess of the nominal value of the ordinary shares issued in an acquisition made by the issue of shares. Accumulated losses comprise the Group’s cumulative accounting profits and losses since inception. 17. TRADE AND OTHER PAYABLES Current: Trade payables Amounts owed to participating interests Social security and other taxes Other payables Accruals and deferred income Group Company 2016 £ 142,329 9,658 10,089 8,319 43,657 2015 £ 85,520 9,658 7,989 5,081 109,113 2016 £ 64,933 - 8,786 933 31,380 2015 £ 21,773 - 6,080 933 70,280 214,052 217,361 106,032 99,066 64 Beowulf Mining plc Annual Report 2016 18. FINANCIAL INSTRUMENTS The Group and Company’s financial instruments comprise cash and cash equivalents, loans and investments, trade receivables and trade payables that arise directly from its operations. The Group and Company hold the following financial instruments: Group Company Held at amortised cost £ Total £ Held at amortised cost £ Total £ At 31 December 2016 Financial assets Cash and cash equivalents 1,609,219 1,609,219 1,567,770 1,567,770 Trade and other receivables 51,766 51,766 34,658 34,658 Loans to group undertakings - - 7,803,139 7,803,139 Other financial assets 5,503 5,503 2,784 2,784 Financial liabilities Trade and other payables 214,052 214,052 106,032 106,032 1,666,488 1,666,488 9,408,351 9,408,351 Group Company Held at amortised cost £ Total £ Held at amortised cost £ Total £ At 31 December 2015 Financial assets Cash and cash equivalents 352,914 352,914 Trade and other receivables 82,330 82,330 349,013 349,013 64,410 64,410 Loans to group undertakings - - 7,065,318 7,065,318 Other financial assets 51,938 51,938 2,784 2,784 Financial liabilities Trade and other payables 209,473 209,473 92,986 92,986 487,182 487,182 7,481,525 7,481,525 64 65 Beowulf Mining plc Annual Report 2016 Notes to the Consolidated Financial Statements The main purpose of these financial instruments is to finance the Group’s and Company’s operations. The Board regularly reviews and agrees policies for managing the level of risk arising from the Group’s financial instruments as summarised below. a) Market Risk Market risk is the risk that changes in market prices, such as commodity prices, foreign exchange rates, interest rates and equity prices will affect the Group’s and Company’s income or the value of its holdings in financial instruments. i) Foreign Exchange Risk The Group operates internationally and is exposed to currency risk arising on cash and cash equivalents, receivables and payables denominated in a currency other than the respective functional currencies of the Group entities, which are primarily Swedish Krona, Euro and Sterling. The Group’s and Company’s net exposure to foreign currency risk at the reporting date is as follows: Group Company Net foreign currency financial 2016 (liabilities)/assets £ Swedish Krona Euro 752,879 4,494 2015 £ (86,332) - 2016 £ 811,254 (17,667) 2015 £ 5,656 - Total net exposure 757,373 (86,332) 793,587 5,656 Sensitivity analysis A 10 per cent strengthening of sterling against the Swedish Krona at 31 December 2016 would have increased/ (decreased) equity and profit or loss by the amounts shown below: Profit or loss Equity 2016 £ (75,288) (449) 2015 £ 8,633 - 2016 £ (75,288) (449) 2015 £ 8,633 - (75,737) 8,633 (75,737) 8,633 Group Swedish Krona Euro Total 66 Beowulf Mining plc Annual Report 2016 Company Swedish Krona Euro Total Profit or loss Equity 2016 £ (81,125) 1,767 2015 £ (566) - 2016 £ (81,125) 1,767 2015 £ (566) - (79,358) (566) (79,358) (566) A 10 per cent weakening of sterling against the foreign currencies at 31 December 2016 would have an equal but opposite effect on the amounts shown above. ii) Commodity Price Risk The principal activity of the Group is the exploration for iron ore in Sweden and graphite in Finland, and the principal market risk facing the Group is an adverse movement in the price of such commodities/industrial minerals. Any long term adverse movement in market prices would affect the commercial viability of the Group’s various projects. iii) Interest Rate Risk The Group’s and Company’s policy is to retain its surplus funds on the most advantageous term of deposit available up to a 12 month maximum duration. Given that the Directors do not consider that interest income is significant in respect of the Group’s and Company’s operations no sensitivity analysis has been provided in respect of any potential fluctuations in interest rates. b) Credit Risk The Group’s principal financial assets are the cash and cash equivalents and loans and receivables, as recognised in the statement of financial position, and which represent the Group’s maximum exposure to credit risk in relation to financial assets. The Group and Company policy for managing its exposure to credit risk with cash and cash equivalents is to only deposit surplus cash with financial institutions that hold acceptable credit ratings. The Company has made unsecured interest-free loans to its subsidiaries. Although they are repayable on demand, they are unlikely to be repaid until the projects becomes successful and the subsidiaries start to generate revenues. Jokkmokk Iron Mines AB Beowulf Sweden AB Wayland Copper Ltd Oy Fennoscandian Resources AB 2016 £ 2015 £ 7,400,249 162,965 2,300 237,625 7,065,318 - - - 7,803,139 7,065,318 67 66 Beowulf Mining plc Annual Report 2016 Notes to the Consolidated Financial Statements c) Liquidity Risk To date the Group and Company have relied on shareholder funding to finance operations. As the Group and Company have finite cash resources and no material income, the liquidity risk is significant and is managed by controls over expenditure and cash resources. In addition, the Group and Company do not have any borrowings and only have trade and other payables with a maturity of less than one year. The rationale for the preparation the accounts on a going concern basis is detailed in the Report of the Directors. Capital Management The Company’s capital consists wholly of ordinary shares. The Board’s policy is to preserve a strong capital base in order to maintain investor, creditor and market confidence and to safeguard the future development of the business, whilst balancing these objectives with the efficient use of capital. 19. SEGEMENT REPORTING The Group’s only reportable segment is the exploration for, and the development of iron ore, graphite and other mineral deposits. The Group also reports by geographical reportable segment in the countries in which it operates. The Group’s exploration and development activities are focused on two countries, Sweden and Finland, with support provided from the UK headquarters. In presenting information on the basis of geographical reportable segments, the loss for the year, key statement of financial position data, property, plant and equipment additions and deferred exploration additions is based on the geographical location of the assets. The Group has adopted IFRS 8 ‘Operating Segments’. IFRS 8 requires operating segments to be identified on the basis of internal reports that are regularly reviewed by the chief operating decision maker to allocate resources and assets. 2016 Licence and Exploration Other non-current assets Current assets Liabilities Finance income Expenses Loss for the year Other comprehensive income Sweden £ 6,626,751 26,091 28,194 (86,529) - (83,485) (83,485) 623,926 2015 Licence and Exploration Other non-current assets Current assets Liabilities Finance income Expenses Loss for the year Other comprehensive income 5,588,270 79,588 11,806 (117,666) 5 (593,965) (594,099) (157,900) Finland £ 559,825 - 29,412 (21,883) - (5,946) (5,946) 2,512 UK £ Total £ - 2,923 1,603,379 (105,640) 5,344 (549,142) (543,798) 55,664 7,186,576 29,014 1,660,985 (214,052) 5,344 (638,573) (633,229) 682,102 - - - - - - - - - 3,902 423,440 (99,696) 1,977 (1,177,195) (1,175,218) (20,550) 5,588,270 83,490 435,246 (217,362) 1,982 (1,771,160) (1,769,317) (178,450) 68 Beowulf Mining plc Annual Report 2016 20. RELATED PARTY DISCLOSURES Transactions with subsidiaries During the year, cash advances of £233,079 (2015: £368,502) were made to Jokkmokk Iron Mines AB and incurred costs of £88,266 that were paid on behalf by the Company £101,853 (2015: £82,142). The advances are held on an interest free inter-group loan which has no terms for repayment. At the year end the inter-Group loan amounted to £7,400,249. (2015: £7,065,318). Beowulf Sweden AB received cash advances of £74,699 (2015: £Nil) and incurred costs of £88,266 (2015: £Nil) that were paid on behalf by the Company. The advances are held on an interest free inter-Group loan which has no terms for repayment. At the year end the inter-Group loan amounted to £162,965. (2015: £Nil). In the year ended 31 December 2016, cash advances of £2,300 (2015: £Nil) were made to Wayland Copper Group, formerly a joint venture entity which became a subsidiary on 1 October 2014. These advances have no repayment term and are interest free. Post the acquisition of Fennoscandian, the Company has made cash advances of £196,975 (2015: £Nil). The advances are held on an interest free inter-Group loan which has no terms for repayment. At the year end the inter-Group loan amounted to £237,625. In accordance with its service agreement, Fennoscandian charges Beowulf Mining plc for time incurred by its staff on exploration projects held by other entities in the Group. In turn Beowulf Mining plc recharges the other entities involved. In addition Beowulf Mining plc charges entities in the Group for time and expenses spent by Directors on providing services. An arm’s length margin has been included, but subsequently eliminated on consolidation. Transactions with other related parties The aggregate compensation paid to key management personnel of the Company is set out below: Short-term employee benefits (including employers’ national insurance contributions) Termination benefits Post-retirement benefits Share based payments 2016 £ 2015 £ 300,866 - 15,884 334,216 221,692 23,500 - - 650,966 245,192 Mr Rasmus Blomqvist, who currently acts as Exploration Manager received share based payments of £294,107 in respect of the acquisition of Fennoscandian. Mr Budge, a Director who served during the year had an amount outstanding of £1,813 (2015: £Nil) in relation to reimbursement of expenses incurred during the year. 68 69 Beowulf Mining plc Annual Report 2016 21. EVENTS AFTER THE REPORTING DATE On 26 January 2017, options for 4,500,000 ordinary shares of 1.0 pence each were awarded to Mr Christopher Davies and Mr Rasmus Blomqvist at an exercise price of 12.0 pence per share. The options vest over a two year period with 50% vesting on the first anniversary of grant and 50% on the second anniversary of grant, and are valid for five years from the date of grant. 70 Beowulf Mining plc Annual Report 2016 Company Information Directors Mr B Metcalf Mr K R Budge Mr C Davies Secretary Mr L O’Donoghue Auditors BDO LLP 55 Baker Street London W1U 7EU Public Relations UK Blytheweigh Communications Limited 4-5 Castle Court London EC3V 9DL Registered Number & Office Nominated Adviser & Broker Public Relations Sweden 02330496 (England & Wales) Cantor Fitzgerald Europe Diplomat Communications Beowulf Mining plc 201 Temple Chambers 3-7 Temple Avenue London EC4Y 0DT 1 Churchill Place Level 20 Canary Wharf London E14 5RB Nybrogatan 12 SE-114 39 Stockholm Sweden Finnish Office Swedish Custodian Bank Solicitors Spearing Waite LLP 34 Pocklingtons Walk Leicester LE1 6BU Website www.beowulfmining.com Oy Fennoscandian Resources AB Plåtslagarevägen 35 A 1 Skandinaviska Banken AB 20320 Turku Finland SEB Securities Services 106 40 Stockholm Sweden Swedish Registered Address UK Bank The Royal Bank of Scotland Piccadilly Circus Branch 48 Haymarket London SW1Y 4SE All subsidiary companies Storgatan 36, 921 31 LYCKSELE Sweden Registrars Neville Registrars Ltd Neville House, 18 Laurel Lane Halesowen West Midlands B63 3DA 70 71 Beowulf Mining plc Annual Report 2016 Notes 72 Beowulf Mining plc Annual Report 201672 73 Beowulf Mining plc Annual Report 2016www.beowulfmining.com

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