Cazaly Resources
Annual Report 2017

Plain-text annual report

Cazaly Resources Limited ABN: 23 101 049 334 and Controlled Entities Annual Report For the Year Ended 30 June 2017 CONTENTS Cazaly Resources Limited Annual Report 2017 Corporate Directory Directors’ Report Auditor’s Independence Declaration Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Cash Flow Statement Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report Additional Shareholder Information 1 2 21 22 23 24 25 26 52 53 58 CORPORATE DIRECTORY Cazaly Resources Limited Annual Report 2017 JOINT MANAGING DIRECTORS Nathan McMahon Clive Jones NON-EXECUTIVE DIRECTOR Terry Gardiner COMPANY SECRETARY Mike Robbins PRINCIPAL & REGISTERED OFFICE Level 2, 38 Richardson Street WEST PERTH WA 6005 AUDITORS Bentleys Audit & Corporate (WA) Pty Ltd Level 3, 216 St Georges Tce Perth WA 6000 SHARE REGISTRAR Advanced Share Registry Services 110 Stirling Highway Nedlands WA 6009 PERTH WA 6000 STOCK EXCHANGE LISTING Australian Securities Exchange (Home Exchange: Perth, Western Australia) Code: CAZ BANKERS National Australia Bank 100 St Georges Terrace PERTH WA 6000 DIRECTORS’ REPORT Cazaly Resources Limited Annual Report 2017 Your directors present their report, together with the financial statements of Cazaly Resources Limited (‘the Company’ or ‘Cazaly’) and its controlled entities (‘the Group’) for the financial year ended 30 June 2017. 1. DIRECTORS AND COMPANY SECRETARY Directors The following directors have been in office since the start of the financial year to the date of this report unless otherwise stated: Nathan McMahon Clive Jones Terry Gardiner (appointed 1 December 2016) Kent Hunter (resigned 1 December 2016) Company Secretary Mike Robbins 2. PRINCIPAL ACTIVITIES The principal activity of the Group during the financial period was mineral exploration. There were no significant changes in the nature of the Group’s principal activities during the financial period. 3. OPERATING RESULTS & FINANCIAL POSITION The Group’s loss after tax for the year was $1,427,577 (2016: $1,721,210). The Group’s net assets at the end of the year are $20,532,994 (2016: $20,517,095). Cash and cash equivalents as at year end were $723,262 (2016 - $1,585,592). Exploration expenditure for the year was $1,446,350 (2016 - $410,439). The majority of this expenditure was on the Parker Range, Mt Angelo, Mt Venn including the acquisition of Mt Venn and Widgemooltha projects. Exploration expenditure written off for the year was $718,451 compared to $1,129,248 in the previous financial year. The main write offs in this year related to the Mt Angelo, Halls Creek and Yilgarn areas as well as previously capitalised expenditures relating to the various tenements and/or applications that were relinquished during the financial year. Net administration expenses and employee benefits for the year totalled $718,714 (2016 - $670,414). During the next financial year the Group intends to continue to further develop its newly acquired core projects whilst also exploring new key commodity opportunities both in Australia and overseas. These opportunities are being explored by the Board and corporate consultants who operate on a success fee basis only. 4. RISKS There are specific risks associated with the activities of the Group and general risks which are largely beyond the control of the Group and the Directors. The risks identified below, or other risk factors, may have a material impact on the future financial performance of the Group and the market price of the Company’s shares. 2 DIRECTORS’ REPORT Cazaly Resources Limited Annual Report 2017 All mining ventures are exposed to risks and the Group continues to monitor risks associated with current projects whilst also analysing the risks associated with any new mining opportunities. These risks may cover such areas as:  Title Risk This may specifically cover mining tenure whereby country specific mining laws and legislation apply. Any opportunity in Australia and overseas will be subject to particular risks associated with operating in Australia or the respective foreign country. These risks may include economic, social or political instability or change, hyperinflation, currency non-convertibility or instability and changes of law affecting foreign ownership, exchange control, exploration licensing, export duties, investment into a foreign country and repatriation of income or return of capital, environmental protection, land access and environmental regulation, mine safety, labour relations as well as government control over mineral properties or government regulations that require the employment of local staff or contractors or require other benefits be provided to local residents.  Exploration Risk The Directors of the Company realise that mineral exploration and development are high risk undertakings due to the high level of inherent uncertainty. There can be no assurance that exploration of the Group’s tenements, or of any other tenements that may be acquired by the Group in the future, will result in the discovery of economic mineralisation. Even if economic mineralisation is discovered there is no guarantee that it can be commercially exploited. Any future exploration activities of the Group may be affected by a range of factors including geological conditions, limitations on activities due to seasonal weather patterns, unanticipated operational and technical difficulties, industrial and environmental accidents, native title process, changing government regulations and many other factors beyond the control of the Group.  Resource Estimates The Group’s projects may contain JORC Code compliant resources. There is no guarantee that a JORC Code compliant resource will be discovered on any of the Group’s other tenements. Resource estimates are expressions of judgement based on knowledge, experience and industry practice. Estimates which were valid when originally calculated may alter significantly when new information or techniques become available. In addition, by their very nature, resource estimates are imprecise and depend to some extent on interpretations which may prove to be inaccurate. As further information becomes available through additional fieldwork and analysis the estimates are likely to change. This may result in alterations to development and mining plans which may, in turn, adversely affect the Group’s operations and the value of the Company’s listed shares.  Access Risks – Cultural Heritage and Native Title The Group must comply with various country specific cultural heritage and native title legislation including access agreements which require various commitments, such as base studies and compliant survey work, to be undertaken ahead of the commencement of mining operations. 3 DIRECTORS’ REPORT Cazaly Resources Limited Annual Report 2017 It is possible that some areas of those tenements may not be available for exploration due to cultural heritage and native title legislation or invalid access agreements. The Group may need to obtain the consent of the holders of such interests before commencing activities on affected areas of the tenements. These consents may be delayed or may be given on conditions which are not satisfactory to the Group.  JV and Contractual Risk The Group has and may have additional options where it can increase its holding in the selective assets by achieving or undertaking selected milestones. The Group’s ability to achieve its objectives and earn or maintain an interest in these projects is dependent upon it and the registered holders of those tenements complying with their respective contractual obligations under joint venture agreements in respect of those tenements, and the registered holders complying with the terms and conditions of the tenements and any other relevant legislation.  Economic General economic conditions, introduction of tax reform, new legislation, the general level of activity within the resources industry, movements in interest and inflation rates and currency exchange rates may have an adverse effect on the Group’s exploration, development and possible production activities, as well as on its ability to fund those activities.  Market conditions Share market conditions may affect the value of the Company’s quoted securities regardless of the Group’s operating performance. Share market conditions are affected by many factors such as: introduction of tax reform or other new legislation; interest rates and inflation rates; - general economic outlook; - - - changes in investor sentiment toward particular market sectors; - - the demand for, and supply of, capital; and terrorism or other hostilities. The market price of securities can fall as well as rise and may be subject to varied and unpredictable influences on the market for equities in general and resource exploration stocks in particular. Neither the Group nor the Directors warrant the future performance of the Group or any return on an investment in the Company.  Volatility in Global Credit and Investment Markets Global credit, commodity and investment markets have recently experienced a high degree of uncertainty and volatility. The factors which have led to this situation have been outside the control of the Group and may continue for some time resulting in continued volatility and uncertainty in world stock markets (including the ASX). This may impact the price at which any Listed Options and Shares trade regardless of operating performance and affect the Company’s ability to raise additional equity and/or debt to achieve its objectives, if required. 4 DIRECTORS’ REPORT Cazaly Resources Limited Annual Report 2017  Commodity Price Volatility and Exchange Rates Risks If the Group achieves success leading to mineral production, the revenue it will derive through the sale of gold, iron ore, lithium or any other minerals it may discover exposes the potential income of the Group to commodity price and exchange rate risks. Commodity prices fluctuate and are affected by many factors beyond the control of the Group. Such factors include supply and demand fluctuations for commodities and metals, technological advancements, forward selling activities and other macro-economic factors such as inflation expectations, interest rates and general global economic conditions. Furthermore, international prices of various commodities are denominated in United States dollars whereas the income and expenditure of the Group are and will be taken into account in Australian currency. This exposes the Group to the fluctuations and volatility of the rate of exchange between the United States dollar and the Australian dollar as determined in international markets. If the price of commodities declines this could have an adverse effect on the Group’s exploration, development and possible production activities, and its ability to fund these activities, which may no longer be profitable.  Environmental Risks The operations and proposed activities of the Group are subject to each project’s jurisdiction, laws and regulations concerning the environment. As with most exploration projects and mining operations, the Group’s activities are expected to have an impact on the environment, particularly if advanced exploration or mine development proceeds. Future legislation and regulations governing exploration, development and possible production may impose significant environmental obligations on the Group. The cost and complexity of complying with the applicable environmental laws and regulations may prevent the Group from being able to develop potential economically viable mineral deposits. The Group may require approval from the relevant authorities before it can undertake activities that are likely to impact the environment. Failure to obtain such approvals or to obtain them on terms acceptable to the Group may prevent the Group from undertaking its desired activities. The Group is unable to predict the effect of additional environmental laws and regulations, which may be adopted in the future, including whether any such laws or regulations would materially increase the Group’s cost of doing business or affect its operations in any area. There can be no assurances that new environmental laws, regulations or stricter enforcement policies, once implemented, will not oblige the Group to incur significant expenses and undertake significant investments in such respect which could have a material adverse effect on the Group’s business, financial condition and results of operations.  Sovereign and Political Risk The Company has an 80% interest in two uranium project applications in the Czech Republic. The Company’s interests in the Czech Republic are subject to the risks associated with operating in a foreign country. These risks may include economic, social or political instability or change, hyperinflation, currency non-convertibility or instability and changes of law affecting foreign ownership, exchange control, exploration licensing, export duties, investment into a foreign country and repatriation of income or return of capital, environmental protection, land access and environmental regulation, mine safety, labour relations as well as government control over petroleum properties or government regulations that require the employment of local staff or contractors or require other benefits be provided to local residents. 5 DIRECTORS’ REPORT Cazaly Resources Limited Annual Report 2017 The Company may also be hindered or preventing from enforcing its rights with respect to government instrumentalities because of the doctrine of sovereign immunity. Any future material adverse changes in government policies or legislation in the Czech Republic that affect ownership, development or mining activities, may affect the viability and profitability of the Company. The legal system operating in the Czech Republic is different to that in Australia and this may result in risks such as:  Different forms of legal redress in the courts whether in respect of a breach of law or regulation, or in ownership dispute.  A higher degree of discretion on the part of governmental agencies.  Differences in political and administrative guidance on implementing applicable rules and regulations including, in particular, as regards local taxation and property rights.  Different attitudes of the judiciary and court.  Difficult in enforcing judgments. The commitment by local business people, government officials and agencies and the judicial system to abide by legal requirements and negotiated agreements may be more uncertain, creating particular concerns with respect to licences and agreements for business. These may be susceptible to revision or cancellation and legal redress may be uncertain or delayed. There can be no assurance that joint ventures, licences, licence applications or other legal arrangements will not be adversely affected by the actions of government authorities or others and the effectiveness and enforcement of such arrangements cannot be assured. Further, there is no guarantee that any applications for tenements will be granted or granted on conditions satisfactory to the Company. The Company’s future operations in the Czech Republic may be affected by changing political conditions and changes to laws and petroleum and/or mining policies. The effects of these factors cannot be accurately predicted and developments may impede the operation or development of a project or even render it uneconomic. The above risks are not exhaustive but are the minimum exposure areas observed by the Group. 5. DIVIDENDS PAID OR RECOMMENDED The Directors do not recommend the payment of a dividend and no amount has been paid or declared by way of a dividend to the date of this report. 6. REVIEW OF OPERATIONS Projects Mt Venn Gold Project (100% CAZ) The Mount Venn project is located ~125 km northeast of Laverton and just 40 km west of Gold Road Resources Ltd’s (ASX:GOR) Gruyere gold deposit (148 Mt @ 1.30 g/t Au for 6.16M oz., GOR announcement, 22 April 2016) in the Eastern Goldfields region of Western Australia. The belt is associated with the regionally significant Yamarna Shear Zone complex and has many similarities with the Dorothy Hills greenstone belt which hosts Gruyere. 6 DIRECTORS’ REPORT Cazaly Resources Limited Annual Report 2017 Following grant and obtaining access to the project, Cazaly conducted two drilling campaigns at Mount Venn during the year. Targeting was largely based upon anomalous in gold and pathfinder geochemistry association with favourable lithologies and structural positions defined from geophysics and previous mapping. Drilling initially focussed on two prospects, Three Bears and Rutters. The programmes proved to be highly successful in defining a major gold mineralised structure at Three Bears and outlining widespread zinc anomalism at Rutters. Figure 1: Yamarna Shear Zone & associated greenstone belts Figure 2: Geology and 2017 drill locations within the Mount Venn Greenstone Belt the results confirmed The Three Bears mineralised corridor for over 3km. Mineralisation occurs within a large shear structure close to the contact between felsic volcanics and an ultramafic unit (figure 3). results Better from drilling at Three Bears Extended included 12m @ 1.19g/t Au, 40m @ 0.36 g/t Au, 36m @ 0.47 g/t Au, 28m @ 0.32 g/t Au and 25m @ 0.21 g/t Au with several 4 metre composite samples >1.0 g/t Au, 4m @ 2.14 g/t Au and 4m @ 0.18 g/t Au. Follow up RC drilling is currently being planned to commence in September. Areas of recent work 7 DIRECTORS’ REPORT Cazaly Resources Limited Annual Report 2017 Figure 3: Three Bears Prospect, 2017 drilling The confirmation that a large mineralised gold bearing structure is present in the area is particularly significant for the region the key aspects of which include: 1. Large scale, gold bearing structures 2. Extensive near surface remobilised mineralisation 3. Presence of iron rich rocks including basalts, dolerite and gabbros 4. Internal granites (eg; Wartu Granite) 5. Tightly folded geometries (eg; Rutters Dolerite) Given that the region has not previously been systematically explored for gold these features and the confirmation of a large gold bearing structure, greatly enhances the prospectivity of the region. 8 DIRECTORS’ REPORT Cazaly Resources Limited Annual Report 2017 Rutters Zinc Project In February a programme of 30 RAB drillholes targeted a coincident auger geochemistry and Zinc-Gold anomaly situated approximately 6km south of the Three Bears prospect along the western margin of the Wartu granite (Figure 2). Results showed widespread and thick anomalous zinc mineralisation within weathered felsic volcanics and included; 39m @ 2290 ppm Zn, 40m @ 1178 ppm Zn & 8m @ 0.52 g/t Au. The host volcanics display pervasive, fine grained sulphides, predominantly pyrite, whilst reprocessing of historic airborne EM (Electromagnetic) data highlighted a +1.5km long coincident anomaly below the geochemical anomaly. The company has just finalised processing of a ground based Dipole-Dipole Induced Polarisation (IP) which has highlighted a moderate but consistent shallow IP anomaly coincident with the geochemistry and regional EM anomaly (Figures 4 & 5). Figure 4: Rutters Zinc-Gold Prospect, 2017 drilling & Geophysics The presence of extensive Zinc mineralisation, with coincident elevated levels of gold, arsenic, silver, copper and lead, occurring within a felsic volcanic pile indicates the potential for primary VMS (Volcanic Massive Sulphide) mineralisation at depth. The presence of pervasive pyrite 9 DIRECTORS’ REPORT Cazaly Resources Limited Annual Report 2017 alteration, typically proximal to such mineralisation, and coincident EM & IP anomalies suggests the potential presence of base metal mineralisation. RC holes are currently being planned to test the IP anomaly. Figure 5: Rutters Zinc-Gold Prospect, Dipole-Dipole IP anomaly, Line 2700mN Goldfields Lithium Alliance (“GLiA”, CAZ 50%/LIT 50%) Cazaly and Lithium Australia Limited (ASX: LIT) have an agreement to combine their respective holdings for the exploration and development of Pegmatite Minerals including lithium minerals in the Goldfields region of Western Australia (the Goldfields Lithium Alliance or “GLiA”). The agreement includes offers the Alliance rights to pegmatite minerals over any existing or additional ground secured within a 100km radius of Kalgoorlie for an initial period of 5 years. The Alliance includes LIT’s rights to the Coolgardie Rare Metals Venture (CRMV). The CRMV is a LIT initiative with Focus Minerals Limited (ASX: FML) and includes the historic lithium production centres of the Lepidolite Hill and Tantalite Hill mines. Under LIT’s terms of its agreement with FML, LIT has the rights to all metals derived from pegmatites on the property and will free-carry FML a 20% interest until a decision is made to commit to feasibility. Under the Alliance agreement CAZ will not be liable for any costs associated with metallurgical testwork or feasibility studies for the CRMV which are to be borne solely by LIT. Teutonic Base Metal Project (CAZ 30%/Metallum 70%) The Company is in joint venture with Metallum Limited (ASX:MNE) over the Teutonic project which comprises exploration licence 37/1037 located north of Leonora in the eastern goldfields of Western Australia. Reprocessing of historic data by MNE highlighted a number of discrete anomalies within the same stratigraphy hosting the Jaguar and Bentley VMS base metal deposits located ~20km to the north. Recent EM by MNE delineated a 350m long conductor called Mustang in the area. Follow up work by MNE, announced on 23 May 2017, reported preliminary results from a MLEM geophysical survey which identified several prospective bedrock conductors occurring within the target stratigraphic horizon which contains the Mustang conductor. The results further confirm the prospectivity of the Teutonic Project to host base metal mineralisation similar to the deposits to the north. 10 DIRECTORS’ REPORT Cazaly Resources Limited Annual Report 2017 Figure 6: Regional geology and location of the Teutonic Project and Mustang Conductor showing proximity to the Jaguar and Bentley VMS deposits Parker Range Iron Ore (CAZ 100%) . During the June quarter the Company was granted an extension of its rights to commence mining at the project for a further five years to 2022 by the Minister for Environment. The project hosts a near mine-ready iron ore deposit located in the Yilgarn of Western Australia key features of which include ultra-low Phosphorous haematite ore, completed full DFS, located nearby to major infrastructure and has its key approvals to mine in place. McKenzie Springs Nickel/Graphite (CAZ 100%) Located immediately south & along strike of the Savannah Nickel Mine (Panoramic Res.), Kimberley, WA. Prospective ultramafic basal contact extends for ~15km. Limited historic work, High grade gossan samples returned 12.8% Cu, 1.92% Ni, 0.17% Co. Halls Creek Copper (DDD 80%, CAZ 20%) Hosts the VMS Mt Angelo North copper-zinc deposit and the Mt Angelo Cu Porphyry. 11 DIRECTORS’ REPORT Cazaly Resources Limited Annual Report 2017 Czech Republic (CAZ 80%) Two uranium project applications, Brzkov & Horni Venice, located in the Czech Republic. State enterprise Diamo are closing the country’s only operating uranium mine & has indicated interest in mining at Brzkov. Corporate Shares On 22 August 2016, the Company issued the following fully paid ordinary shares in the capital of the Company:     2,500,000 shares issued to the vendors of Yamarna West Pty Ltd; 1,538,462 shares issued as consideration for the Widgiemooltha project; 175,000 shares issued to a consultant; and 6,666,666 shares were issued to Directors on the conversion of convertible notes. On 15 May 2017, the Company issued 14,120,000 fully paid ordinary shares in the Company, at an issue price of $0.05 per share, on the completion of the placement announced to the ASX on 9 May 2017. The completion of the book build placement raised gross proceeds of $706,000. A free attaching quoted option was also issued on a one for two basis. The quoted options were issued on the same terms as other quoted options, with an exercise price of $0.11 per share and expiry date of 21st August 2018. Options Quoted The Company issued a total of 11,853,847 quoted options exercisable at $0.11 on or before 21 August 2018 as per the terms and conditions set out in the cleansing prospectus lodged with the ASX on 17 August 2016. As mentioned above, the Company issued a further 7,060,000 quoted options, exercisable at $0.11 on or before 21 August 2018, as part of the book build placement. Unquoted During the financial year, Cazaly issued the following unquoted options:      2,500,000 options exercisable at $0.144 on or before 22 August 2019 as part consideration to the vendors of Yamarna West Pty Ltd; 2,500,000 options exercisable at $0.216 on or before 22 August 2020 as part consideration to the vendors of Yamarna West Pty Ltd; 175,000 options exercisable at $0.15 on or before 22 August 2018 issued to a consultant in lieu of services provided; 1,450,000 options exercisable at $0.18 on or before 22 August 2019 issued to employees under the Cazaly employee incentive scheme; and 3,333,334 options exercisable at $0.04 on or before 5 January 2018 issued to Directors on the conversion of convertible notes. At the annual general meeting held on 24 November 2016, the shareholders approved the issue of a total of 5,000,000 unquoted options to the Directors, exercisable at $0.20 on or before 30 November 2018. 12 DIRECTORS’ REPORT Cazaly Resources Limited Annual Report 2017 7. FUTURE DEVELOPMENTS, PROSPECTS AND BUSINESS STRATEGIES The Group will continue its mineral exploration activity at and around its exploration projects with the object of identifying commercial resources. The Group has continued to reduce its tenement holdings but is also focussed on sourcing key commodity projects. 8. SIGNIFICANT CHANGES IN STATE OF AFFAIRS There were no significant changes in the state of affairs of the Group during the financial year. 9. AFTER BALANCE DATE EVENTS The Directors are not aware of any matters or circumstances at the date of the report, other than those referred to in this report or the financial statements or notes thereto, that has significantly affected or may significantly affect the operations, the results of operations or the state of affairs of the Group in subsequent financial years. 10. ENVIRONMENTAL ISSUES The Group’s exploration activities are subject to the 1978 (WA) Mining Act. The Group has a policy of complying with or exceeding its environmental performance obligations. The Board of Cazaly believes that the Group has adequate systems in place for the management of its environmental requirements. The Group aims to ensure the appropriate standard of environmental care is achieved, and in doing so, that it is aware of and is in compliance with all environmental legislation. The Directors are not aware of any breach of environmental legislation for the financial year under review. 11. INFORMATION ON DIRECTORS Nathan McMahon Managing Director (Corporate and Administration) Qualifications B.Com Experience Mr McMahon has provided corporate and tenement management advice to the mining industry for nearly 25 years. Mr McMahon specialises in native title negotiations, joint venture negotiations and project acquisition due diligence. Mr McMahon is also a director of other ASX listed mining companies. Equity Holdings 27,236,099 fully paid ordinary shares 2,500,000 options exercisable at $0.20 expiring 30 November 2018 1,666,667 options exercisable at $0.04 expiring 5 January 2018 Other Directorships Hodges Resources Ltd (since May 2008) Dempsey Minerals Ltd (since February 2011) 13 DIRECTORS’ REPORT Cazaly Resources Limited Annual Report 2017 Clive Jones Managing Director (Technical) Qualifications B.App.Sc(Geol), M.AusIMM. Experience Equity Holdings Mr Jones has been involved in mineral exploration for over 25 years and has worked on the exploration for a range of commodities including gold, base metals, mineral sands, uranium and iron ore. Mr Jones is also a director of other ASX listed mining companies. 14,579,904 fully paid ordinary shares 2,500,000 options exercisable at $0.20 expiring 30 November 2018 1,666,667 options exercisable at $0.04 expiring 5 January 2018 Other Directorships Corazon Mining Ltd (since February 2005) Bannerman Resources Ltd (since January 2007) Unity Mining Ltd (from January 2013 to June 2016) Terry Gardiner Non-Executive Director (appointed 1 December 2016) Qualifications B.Bus. Experience Mr Gardiner has been involved in capital markets, corporate advising, stockbroking & derivatives trading for over 20 years. For the past twelve years Mr Gardiner has been an Executive Director of boutique broker Barclay Wells Ltd. Mr Gardiner is also a director of many public unlisted companies. Equity Holdings 1,225,000 fully paid ordinary shares 150,000 options exercisable at $0.04 expiring 5 January 2018 59,923 listed options exercisable at $0.11 on or before 21 August 2018 Other Directorships Dempsey Minerals Ltd (from December 2013) Kent Hunter Non-Executive Director (resigned 1 December 2016) Mr Hunter held the position of Non-Executive Director from August 2003 to his resignation date. Mike Robbins Company Secretary Mr Robbins has over 20 years resource industry experience gathered at both operational and corporate levels, both within Australia and overseas. He is currently Company Secretary for three other listed entities. 12. REMUNERATION REPORT - AUDITED This report details the nature and amount of remuneration for each director of the Company. Remuneration Policy The remuneration policy of Cazaly has been designed to align director objectives with shareholder and business objectives by providing a fixed remuneration component which is assessed on an annual basis in line with market rates. The Board of the Company believes the remuneration policy to be appropriate and effective in its ability to attract and retain the best directors to run and manage the company, as well as create goal congruence between directors and shareholders. 14 DIRECTORS’ REPORT Cazaly Resources Limited Annual Report 2017 12. REMUNERATION REPORT – AUDITED (Cont’d) The Board’s policy for determining the nature and amount of remuneration for board members is set out below. The remuneration policy, setting the terms and conditions for the executive directors and other senior staff members, was developed by the managing directors and approved by the board after seeking professional advice from independent external consultants. In determining competitive remuneration rates, the Board seeks independent advice on local and international trends among comparative companies and industry generally. It examines terms and conditions for employee incentive schemes benefit plans and share plans. Independent advice is obtained to confirm that executive remuneration is in line with market practice and is reasonable in the context of Australian executive reward practices. The Group is exploration and development focussed, and therefore speculative in terms of performance. Consistent with attracting and retaining talented executives, directors and senior executives are paid market rates associated with individuals in similar positions, within the same industry. The Board acquired and were issued shares as part of the terms of the Initial Public Offer in 2003. Board members have retained these securities which assist in aligning their objectives with overall shareholder value. Options and performance incentives will be issued in the event that the entity moves from an exploration entity to a producing entity, and key performance indicators such as profits and growth can be used as measurements for assessing Board performance. All remuneration paid to directors is valued at the cost to the Company and expensed or carried forward on the balance sheet for time that is attributable to exploration and evaluation. Options are valued using the Black-Scholes methodology. The Board policy is to remunerate non-executive directors at market rates for comparable companies for time, commitment and responsibilities. The managing directors in consultation with independent advisors determine payments to the non-executive directors and review their remuneration annually, based on market practice, duties and accountability. The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders at the Annual General Meeting. Fees for non-executive directors are not linked to the performance of the Company. However, to align directors’ interests with shareholder interests, all directors are encouraged to hold shares in the company. Company Performance, Shareholder Wealth and Directors’ and Executives’ Remuneration The remuneration policy has been tailored to increase goal congruence between shareholders and directors and executives. This has been achieved by the issue of shares to the majority of the directors and executives to encourage the alignment of personal and shareholder interest. Employment Contracts of Directors and Senior Executives The employment conditions of the Managing Directors are each formalised in contracts of employment. These contracts commenced on 1 July 2010 and have 3 year terms (with an option for a 3 year extension). The contracts provide Messrs. McMahon and Jones with annual salaries of $180,000 each. The Company may terminate these agreements at any time and without prior notice if serious misconduct has occurred. In this event only the fixed proportion of the remuneration is payable and only up until the date of the termination. There is also a contract in place for the non-executive director, Terry Gardiner. Mr Gardiner commenced on 1 December 2016 and his annual fee is $30,000 per annum. 15 DIRECTORS’ REPORT Cazaly Resources Limited Annual Report 2017 12. REMUNERATION REPORT – AUDITED (Cont’d) The employment contracts stipulate a range of one to three-month resignation periods. The Company may terminate an employment contract without cause by providing one to three months written notice or making payment in lieu of notice, based on the individual’s annual salary component. Termination payments are not payable on resignation or under the circumstances of unsatisfactory performance. Details of Remuneration for Years Ended 30 June 2017 & 30 June 2016 The remuneration for key management personnel of the company during the year was as follows: Short-term Benefits Post Employment Benefits Other Long-term Benefits Share based Payment Total Performance Related Cash, salary Cash Non-cash Other Super Other Equity Options & commissions profit share Benefit (iv) $ $ $ $ $ $ $ $ $ % Nathan McMahon – Managing Director (i) 2017 2016 180,000 180,000 - - Clive Jones – Managing Director (ii) 2017 2016 180,000 180,000 - - - - - - Kent Hunter – Non Executive Director (iii) 2017 2016 17,500 27,250 - - - - Terry Gardiner – Non Executive Director (iii) 2017 2016 17,500 - Total Remuneration 2017 2016 395,000 387,250 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 25,490 205,490 12% - 180,000 - 25,490 205,490 12% - - - - - 180,000 17,500 27,250 17,500 - - - - - - 50,980 445,980 11% - 387,250 - i) An aggregate amount of $180,000 (2016:$ 180,000) was paid, or was due and payable to Kingsreef Pty Ltd, a company controlled by Mr Nathan McMahon, for the provision of corporate and tenement management services to the Company. ii) An aggregate amount of $180,000 (2016:$ 180,000) was paid, or was due and payable to Widerange Corporation Pty Ltd, a company controlled by Mr Clive Jones, for the provision of corporate and technical services to the Company. iii) Mr Kent Hunter resigned as a director on 1 December 2016. Mr Terry Gardiner commenced as a director on 1 December 2016. iv) The value of options granted to key management personnel as part of their remuneration is calculated as at the grant date using a Black Scholes model. The following tables discloses the relevant calculation information: No. of options issued Fair value at grant date $ Estimated volatility Expiry date Exercise price Risk free interest rate 5,000,000 $0.01020 75% 28/11/2018 $0.200 1.75% Related Party Information Remuneration (excluding the reimbursement of costs) received or receivable by the directors of the Company and aggregate amounts paid to superannuation plans in connection with the retirement of directors are disclosed in Note 4 to the accounts. 16 DIRECTORS’ REPORT Cazaly Resources Limited Annual Report 2017 12. REMUNERATION REPORT – AUDITED (Cont’d) Key Management Personnel (KMP) Share and Option Holdings Shares 30 June 2017 N McMahon C Jones K Hunter (i) T Gardiner (i) 30 June 2016 N McMahon C Jones K Hunter (i) T Gardiner (i) Unquoted Options 30 June 2017 N McMahon C Jones K Hunter (i) T Gardiner (i) 30 June 2016 N McMahon C Jones K Hunter (i) T Gardiner (i) Quoted Options 30 June 2017 N McMahon C Jones K Hunter (i) T Gardiner (i) Balance 01-07-16 Granted as Remuneration Options Exercised Net Change Other Balance 30-06-17 21,622,766 11,146,571 212,501 925,000 32,981,838 Balance 01-07-15 Granted as Remuneration 17,701,154 10,075,114 212,501 - 27,988,769 - - - - - - - - - - Options Exercised - - - - - - - - - - 5,613,533 3,433,333 (212,501) 300,000 9,134,365 27,236,299 14,579,904 - 1,225,000 43,041,203 Net Change Other Balance 30-06-16 3,921,612 1,071,457 - - 4,993,069 21,622,766 11,146,571 212,501 - 32,981,838 Balance 01-07-16 Issued Exercised Lapsed Balance 30-06-17 Vested during the year Vested and exercisable 1,500,000 4,166,667 1,500,000 4,166,667 500,000 - - - 3,500,000 8,333,334 - - - - - (1,500,000) 4,166,667 4,166,667 4,166,667 (1,500,000) 4,166,667 4,166,667 4,166,667 (500,000) - - - - - - - (3,500,000) 8,333,334 8,333,334 8,333,334 Balance 01-07-15 1,500,000 1,500,000 500,000 - 3,500,000 Issued Exercised Lapsed Balance 30-06-16 Vested during the year Vested and exercisable - - - - - - - - - - - - - - - 1,500,000 1,500,000 500,000 - 3,500,000 - - - - - 1,500,000 1,500,000 500,000 - 3,500,000 Balance 01-07-16 Issued Exercised Lapsed Balance 30-06-17 Vested during the year Vested and exercisable - - - - - - - - 59,923 59,923 - - - - - - - - - - - - - 59,923 59,923 - - - - - - - - - - 17 DIRECTORS’ REPORT Cazaly Resources Limited Annual Report 2017 12. REMUNERATION REPORT – AUDITED (Cont’d) 30 June 2016 N McMahon C Jones K Hunter (i) T Gardiner (i) Balance 01-07-15 Issued Exercised Lapsed Balance 30-06-16 Vested during the year Vested and exercisable - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (i) Mr Hunter resigned on 1 December 2016. Mr Gardiner commenced as a director on 1 December 2016. Voting and comments made at the Company’s 2016 Annual General Meeting The adoption of the Remuneration Report for the financial year ended 30 June 2016 was put to the shareholders of the Company at the Annual General Meeting held 24 November 2016. The Company received 99.99% of the vote, of those shareholders who exercised their right to vote, in favour of the remuneration report for the 2016 financial year. The resolution was passed without amendment on a show of hands. The Company did not receive any specific feedback at the AGM or throughout the year on its remuneration practices. End of Remuneration Report (Audited). 13. MEETINGS OF DIRECTORS The number of directors' meetings and/or circular resolutions held and/or conducted during the financial year, each director held office during the financial year and the number of meetings and/or circular resolutions attended and/or signed off by each director is: Director N McMahon C Jones K Hunter T Gardiner Directors Meetings/Resolutions Number Eligible 14 14 7 6 Number Participated 14 14 7 6 The Group does not have a formally constituted audit committee as the Board considers that the Group’s size and type of operation do not warrant such a committee. 14. INDEMNIFYING OFFICERS OR DIRECTORS In accordance with the constitution, except as may be prohibited by the Corporations Act 2001 every Officer, or agent of the Group shall be indemnified out of the property of the Group against any liability incurred by him in his capacity as Officer or agent of the Group or any related corporation in respect of any act or omission whatsoever and howsoever occurring or in defending any proceedings, whether civil or criminal. The Group has a Directors and Officers insurance policy in place. 18 DIRECTORS’ REPORT Cazaly Resources Limited Annual Report 2017 15. OPTIONS Options on Issue At the date of this report unissued ordinary shares of the Company under option are: Expiry Date Exercise Price Number Under Option Unquoted 5/1/2018 22/8/2018 30/11/2018 22/8/2019 22/8/2019 22/8/2020 Quoted 21/8/2018 $0.040 $0.150 $0.200 $0.180 $0.144 $0.216 5,974,168 175,000 5,000,000 1,450,000 2,500,000 2,500,000 $0.11 18,913,847 Option holders do not have any rights to participate in any issue of shares or other interests in the Company or any other entity. Options Expired or Lapsed On 31 July 2016, 100,000 unlisted options exercisable at $0.107 expired. On 26 November 2016, 3,500,000 unlisted options exercisable at $0.18 expired. Options forfeited or cancelled During, or since the end of the financial year, no options were forfeited or cancelled. 16. PROCEEDINGS ON BEHALF OF GROUP No person has applied for leave of Court to bring proceedings on behalf of the Group or intervene in any proceedings to which the Group is a party for the purpose of taking responsibility on behalf of the Group for all or any part of those proceedings. The Group was not a party to any such proceedings during the year. 17. AUDITORS INDEPENDENCE DECLARATION The lead auditor’s independence declaration for the year ended 30 June 2017 has been received and can be found on page 21. 18. NON AUDIT SERVICES The Board of Directors is satisfied that the provision of non-audit services performed during the year by the Group’s auditors is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. No other fees were paid or payable to the auditors for non-audit services performed during the year ended 30 June 2017. 19 DIRECTORS’ REPORT Cazaly Resources Limited Annual Report 2017 This report of the Directors, incorporating the Remuneration Report, is signed in accordance with a resolution of the Board of Directors. Nathan McMahon Managing Director 22 September 2017 Competent Persons Statement This information that relates to exploration targets, exploration results, resource reporting and drilling data of Cazaly operated projects is based on information compiled by Mr Clive Jones and Mr Don Horn who are Members of The Australasian Institute of Mining and Metallurgy and/or The Australian Institute of Geoscientists and are employees of the Company. Mr Jones and Mr Horn have sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are undertaking to qualify as a Competent Persons as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr Jones and Mr Horn consent to the inclusion in their names in the matters based on their information in the form and context in which it appears. 20 To The Board of Directors Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 As lead audit director for the audit of the financial statements of Cazaly Resources Limited for the financial year ended 30 June 2017, I declare that to the best of my knowledge and belief, there have been no contraventions of: the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and any applicable code of professional conduct in relation to the audit. Yours faithfully BENTLEYS Chartered Accountants MARK DELAURENTIS CA Director Dated at Perth this 22nd day of September 2017 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For Year Ended 30 June 2017 Note 2017 $ 2016 $ Revenue from continuing operations Other Income Employee benefits Depreciation Administrative expenses Compliance and regulatory expenses Occupancy expenses Written-off exploration expenditure Gain/(Loss) on sale of financial assets Revaluation /(Impairment) of financial assets Loss before income tax Income tax (expense)/ benefit Loss for the year Other comprehensive income Total comprehensive income for the year 2 2 3 3 6 Loss for the year attributable to: Members of the parent entity Non-controlling interest Total comprehensive income attributable to: Members of the parent entity Non-controlling interest 143,159 290,780 258,911 23,137 (432,855) (8,526) (285,859) (201,550) (62,583) (718,451) - (119,823) (462,741) (12,997) (207,672) (156,091) (251,634) (1,129,248) 30,645 154,611 (1,427,577) - (1,427,577) - (1,427,577) (1,721,210) - (1,721,210) - (1,721,210) (1,427,312) (265) (1,427,577) (1,719,741) (1,469) (1,721,210) (1,427,312) (265) (1,427,577) (1,719,741) (1,469) (1,721,210) Earnings/(loss) per share from continuing and discontinued operations Basic earnings/ (loss) per share Diluted earnings per share 19 19 Cents (0.83) (0.83) Cents (1.27) (1.27) The accompanying notes form part of these financial statements. 22 CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2017 Note 2017 $ 2016 $ CURRENT ASSETS Cash and cash equivalents Trade and other receivables 7 8 723,262 219,622 1,585,592 205,254 TOTAL CURRENT ASSETS 942,884 1,790,846 NON CURRENT ASSETS Trade and other receivables Financial assets Property, plant and equipment Exploration and evaluation assets 8 9 10 11 25,744 143,745 22,545 19,679,982 25,270 264,530 31,071 18,952,083 TOTAL NON CURRENT ASSETS 19,872,016 19,272,954 TOTAL ASSETS 20,814,900 21,063,800 CURRENT LIABILITIES Trade and other payables Provisions Convertible Notes 12 13 14 204,692 77,214 - 278,923 67,782 200,000 TOTAL CURRENT LIABILITIES 281,906 546,705 TOTAL LIABILITIES 281,906 546,705 NET ASSETS EQUITY Issued capital Reserves Accumulated losses Controlling entity interest Non-controlling interest 20,532,994 20,517,095 15 16 17 27,712,676 218,304 (7,383,010) 20,547,970 (14,976) 26,487,504 115,744 (6,071,442) 20,531,806 (14,711) TOTAL EQUITY 20,532,994 20,517,095 The accompanying notes form part of these financial statements. 23 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2017 Issued Capital (Accumulated Losses) And Retained Earnings $ $ Option Reserve Non- Controlling Interest Total $ $ $ Balance at 1 July 2015 24,889,282 (4,355,599) 119,642 (13,242) 20,640,083 Loss for the year Other comprehensive income for the year Total comprehensive income for the year Transactions with owners, in their capacity as owners, and other transfers: Shares issued during the year Equity based payments Option reserve Transaction costs Tax effect of equity raising cost Balance at 30 June 2016 Loss for the year Other comprehensive income for the year Total comprehensive income/(loss) for the year Transactions with owners, in their capacity as owners, and other transfers: Shares issued during the year Equity based payments Option reserve Transaction costs Tax effect of equity raising cost Balance at 30 June 2017 - - - (1,719,741) - (1,719,741) - - - (1,469) (1,721,210) - - (1,469) (1,721,210) 1,674,950 - - (76,728) - - 3,898 - - - (3,898) - - - - - 1,674,950 - - (76,728) - 26,487,504 - (6,071,442) - 115,744 - (14,711) - 20,517,095 - - - (1,427,312) - (1,427,312) - - - (265) (1,427,577) - - (265) (1,427,577) 1,253,750 - - (28,578) - - 115,744 - - 218,304 (115,744) - - - - - 1,253,750 218,304 - (28,578) - 27,712,676 - (7,383,010) - 218,304 - (14,976) - 20,532,994 The accompanying notes form part of these financial statements. 24 CONSOLIDATED CASH FLOW STATEMENT For the year ended 30 June 2017 Note 2017 $ 2016 $ Cash Flows from Operating Activities Payments to suppliers and employees Interest received Proceeds from reimbursement of expenses Proceeds from other income Payments for exploration and evaluation (781,341) 5,400 (1,009,943) 5,010 - 265,790 (1,093,101) 253,365 (710,423) Net cash used in operating activities 20 (1,603,252) (1,461,991) Cash Flows From Investing Activities Proceeds from sale of exploration assets Proceeds from sale of royalty Proceeds from sale of investments Proceeds term deposit bond 52,500 - - - 270,000 - 237,516 120,898 Net cash provided by investing activities 52,500 628,414 Cash Flows from Financing Activities Proceeds from issue of securities Payment for costs of issue of securities Proceeds from convertible notes 717,000 (28,578) - 1,674,950 (76,728) 200,000 Net cash provided by financing activities 688,422 1,798,222 Net increase/(decrease) in cash held (862,330) 964,645 Cash and cash equivalents at beginning of the financial year 1,585,592 620,947 Cash and cash equivalents at end of the financial year 7 723,262 1,585,592 The accompanying notes form part of these financial statements. 25 NOTES TO THE FINANCIAL STATEMENTS Cazaly Resources Limited Annual Report 2017 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES These consolidated financial statements and notes represent those of Cazaly Resources Limited (‘the Company’ or ‘Cazaly’) and Controlled Entities (‘the Group’). Cazaly Resources Limited is a listed public company, incorporated and domiciled in Australia. The financial statements were authorised for issue on 22 September 2017 by the Directors of the Company. Basis of Preparation The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. The Group is a for-profit entity for financial reporting purposes under Australian Accounting Standards. Australian Accounting Standards set out in accounting policies that the AASB has concluded would result in financial statements containing relevant and reliable information about transactions, events and conditions. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards as issued by the IASB. Material accounting policies adopted in the preparation of these financial statements are presented below and have been consistently applied unless otherwise stated. These financial statements have been prepared on an accruals basis and are based on historical costs, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. Going Concern The financial report has been prepared on a going concern basis, which contemplates the continuity of normal business activity and the realisation of assets and the settlement of liabilities in the ordinary course of business. The Group incurred a loss after tax for the year of $1,427,577 (2016: $1,721,210) and net cash outflows from operating activities of $1,603,252 (2016: $1,461,991). There was a working capital surplus of $660,979 at 30 June 2017 compared to a surplus of $1,244,141 at 30 June 2016. Pending the outcome of various applications, the Group could have lease and exploration commitments of $542,725 (2016: $590,627) due within the next twelve months. The directors have prepared a cash flow forecast, which indicates that the Group will have sufficient cash flows to meet all commitments and working capital requirements for the 12 month period from the date of signing this financial report. Based on the cash flow forecasts and other factors referred to above, the directors are satisfied that the going concern basis of preparation is appropriate because: - - - the Directors have an appropriate plan to raise additional funds as and when it is required. In light of the Group’s current exploration projects, the Directors believe that the additional capital required can be raised in the market; and the Directors have an appropriate plan to contain certain operating and exploration expenditure if appropriate funding is unavailable; and the Directors will divest its interest in financial assets held for trading as and when required to fund ongoing expenditure. 26 NOTES TO THE FINANCIAL STATEMENTS Cazaly Resources Limited Annual Report 2017 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Should the Group not achieve the matters set out above, there is material uncertainty whether the Group will continue as a going concern and therefore whether it will realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report. The financial report does not contain any adjustments relating to the recoverability and classification of recorded assets or to the amounts or classification of recorded assets or liabilities that might be necessary should the Group not be able to continue as going concern. (a) Principles of Consolidation The consolidated financial statements incorporate the assets, liabilities and results of entities controlled by the Company at the end of the reporting period. A controlled entity is any entity over which the Company has the power to govern the financial and operating policies so as to obtain benefits from the entity’s activities. Control will generally exist when the parent owns, directly or indirectly through subsidiaries, more than half of the voting power of an entity. In assessing the power to govern, the existence and effect of holdings of actual and potential voting rights are also considered. Where controlled entities have entered or left the Group during the year, the financial performance of those entities are included only for the period of the year that they were controlled. A list of controlled entities, as at 30 June 2017 is contained in Note 22 to the financial statements. In preparing the consolidated financial statements, all inter-group balances and transactions between entities in the Group have been eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with those adopted by the Company. Non-controlling interests, being the equity in a subsidiary not attributable, directly or indirectly, to a parent, are shown separately within the Equity section of the consolidated Statement of Financial Position and Statement of Profit or Loss and other Comprehensive Income. The non- controlling interest in the net assets comprises their interests at the date of the original business combination and their share of changes in equity since that date. (b) Plant and Equipment Plant and equipment are stated at cost less accumulated depreciation and impairment. The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. (c) Depreciation Depreciation is provided on plant and equipment. Depreciation is calculated on a straight line basis so as to write off the net cost or other revalued amount of each asset over its expected useful life to its estimated residual value. The depreciation rates used for each class of depreciable assets are: Class of Fixed Asset Plant and equipment Office furniture and equipment Motor vehicle Depreciation Rate 40.0% 18.0% 22.5% 27 NOTES TO THE FINANCIAL STATEMENTS Cazaly Resources Limited Annual Report 2017 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d) The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the Statement of Profit or Loss and other Comprehensive Income. When revalued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings. (d) Exploration, Evaluation and Development Expenditure Costs incurred during exploration and evaluations relating to an area of interest are accumulated. Costs are carried forward to the extent they are expected to be recouped through successful development, or by sale, or where exploration and evaluation activities have not yet reached a stage to allow a reasonable assessment regarding the existence of economically recoverable reserves. In these instances the entity must have rights of tenure to the area of interest and must be continuing to undertake exploration operations in the area. Accumulated costs carried forward in respect of an area of interest that is abandoned are written off in full against profit in the year in which the decision to abandon the area is made. When production commences, the accumulated costs for the relevant area of interest will be amortised over the life of the area according to the rate of depletion of the economically recoverable reserves. A regular review is undertaken of each area of interest to determine the appropriateness of continuing to capitalise costs in relation to that area of interest. Costs of site restoration are provided over the life of the project from when exploration commences and are included in the costs of that stage. Site restoration costs include the dismantling and removal of mining plant, equipment and building structures, waste removal, and rehabilitation of the site in accordance with clauses of the mining permits. Such costs have been estimated of future costs, current legal requirements and technology on an undiscounted basis. (e) Leases Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership, are transferred to entities in the consolidated group are classified as finance leases. Finance leases are capitalised by recording an asset and a liability equal to the present value of the minimum lease payments, including any guaranteed residual values. Leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred. (f) Financial Instruments Initial Recognition and Measurement Financial instruments, incorporating financial assets and financial liabilities, are recognised when the entity becomes a party to the contractual provisions of the instrument. Trade date accounting is adopted for financial assets that are delivered within timeframes established by marketplace convention. 28 NOTES TO THE FINANCIAL STATEMENTS Cazaly Resources Limited Annual Report 2017 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Financial instruments are initially measured at fair value plus transactions costs, except where the instrument is classified as “at fair value through profit or loss”, in which case transaction costs are expensed to profit or loss immediately. Classification and Subsequent Measurement Finance instruments are subsequently measured at either of fair value, amortised cost using the effective interest rate method, or cost. Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models. Amortised cost is the amount at which the financial asset or financial liability is measured at initial recognition less principal repayments and any reduction for impairment, and adjusted for any cumulative amortisation of the difference between that initial amounts calculated using the effective interest method. The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that exactly discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) through the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of an income or expense in profit or loss. The Group does not designate any interests in subsidiaries, associates or joint venture entities as being subject to the requirements of accounting standards specifically applicable to financial instruments. (i) Financial assets at fair value through profit or loss Financial assets classified as held for trading are included in the category ‘financial assets at fair value through profit or loss’. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on investments held for trading are recognised in profit or loss. (ii) Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity when the Group has the positive intention and ability to hold to maturity. Investments that are intended to be held-to-maturity, such as bonds, are subsequently measured at amortised cost. Held-to-maturity investments are included in non-current assets, except for those which are expected to mature within 12 months after the end of the reporting period. (All other investments are classified as current assets.) (iii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process. Loans and receivables are included in current assets, except for those which are not expected to mature within 12 months after the end of the reporting period. (All other loans and receivables are classified as non-current assets). 29 NOTES TO THE FINANCIAL STATEMENTS Cazaly Resources Limited Annual Report 2017 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d) (iv) Available-for-sale investments Available-for-sale investments are those non-derivative financial assets that are designated as available-for-sale or are not classified as any of the three preceding categories. They comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable payments. They are subsequently measured at fair value with gains or losses being recognised in other comprehensive income (except for impairment losses). When the financial asset is derecognised, the cumulative gain or loss pertaining to that asset previously recognised in other comprehensive income is reclassified into profit or loss. Available-for-sale financial assets are included in non-current assets where they are expected to be sold within 12 months after the end of the reporting period. All other financial assets are classified as current assets. (v) Financial liabilities Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost. Impairment At the end of each reporting period, the Group assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether impairment has arisen. Impairment losses are recognised in profit or loss. Also, any cumulative decline in fair value previously recognised in other comprehensive income is reclassified to profit or loss at this point. Financial guarantees Where material, financial guarantees issued, which require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due, are recognised as a financial liability at fair value on initial recognition. The Group has no such financial guarantees. De-recognition Financial assets are de-recognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are de- recognised where the related obligations are discharged, cancelled or expired. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss. (g) Cash and Cash Equivalents Cash and cash equivalents includes cash on hand, deposits held at call with banks, other short- term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within short-term borrowings in current liabilities on the statement of financial position. 30 NOTES TO THE FINANCIAL STATEMENTS Cazaly Resources Limited Annual Report 2017 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d) (h) Trade and Other Receivables Trade receivables, which generally have 30-90 day terms, are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. An allowance for doubtful debts is made when there is objective evidence that the entity will not be able to collect the debts. Bad debts are written off when identified. (i) Revenue and Other Income Revenue from the sale of goods is recognised upon the delivery of goods to customers. Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. Revenue from the rendering of a service is recognised upon the delivery of the service to the customers. All revenue is stated net of the amount of goods and services tax (GST). (j) Impairment of Assets At the end of each reporting period, the Group assesses whether there is any indication that an asset may be impaired. The assessment will include the consideration of external and internal sources of information including dividends received from subsidiaries, associates or jointly controlled entities deemed to be out of pre-acquisition profits. If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is recognised immediately in profit or loss, unless the asset is carried at a revalued amount in accordance with another standard (eg in accordance with the revaluation model in AASB 116). Any impairment loss of a revalued asset is treated as a revaluation decrease in accordance with that other standard. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Impairment testing is performed annually for goodwill and intangible assets with indefinite lives. (k) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office (“ATO”). In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the statement of financial position. Cash flows are included in the cash flow statement on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows. (l) Taxation The income tax expense (revenue) for the year comprises current income tax expense (income) and deferred tax expense (income). Current income tax expense charged to the profit or loss is the tax payable on taxable income calculated using applicable income tax rates enacted, or substantially enacted, as at reporting date. Current tax liabilities (assets) are therefore measured at the amounts expected to be paid to (recovered from) the relevant taxation authority. 31 NOTES TO THE FINANCIAL STATEMENTS Cazaly Resources Limited Annual Report 2017 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well unused tax losses. Current and deferred income tax expense (income) is charged or credited directly to equity instead of the profit or loss when the tax relates to items that are credited or charged directly to equity. Deferred tax assets and liabilities are ascertained based on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets also result where amounts have been fully expensed but future tax deductions are available. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates enacted or substantively enacted at reporting date. Their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where a legally enforceable right of set-off exists, the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. Tax Consolidation Cazaly and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under tax consolidation legislation. Each entity in the group recognises its own current and deferred tax assets and liabilities. Such taxes are measured using the ‘stand-alone taxpayer’ approach to allocation. Current tax liabilities (assets) and deferred tax assets arising from unused tax losses and tax credits in the subsidiaries are immediately transferred to the head entity. (m) Trade and Other Payables Trade payables and other payables are carried at amortised costs and represent liabilities for goods and services provided to the company prior to the end of the financial year that are unpaid and arise when the company becomes obliged to make future payments in respect of the purchase of these goods and services. 32 NOTES TO THE FINANCIAL STATEMENTS Cazaly Resources Limited Annual Report 2017 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d) (n) Provisions Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. (o) Equity Based Payments The Group operates equity-settled share-based payment employee share and option schemes. The fair value of the equity to which employees become entitled is measured at grant date and recognised as an expense over the vesting period, with a corresponding increase to an equity account. Share-based payments to non-employees are measured at the fair value of goods or services received or the fair value of the equity instruments issued, if it is determined the fair value of the good or services cannot be reliably measured, and are recorded at the date the goods or services are received. The corresponding amount is shown in the option reserve. The fair value of shares is ascertained as the market bid price. The fair value of options is ascertained using a Black–Scholes pricing model which incorporates all market vesting conditions. The number of shares and options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognised for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest. (p) Issued Capital Issued and paid up capital is recognised at the fair value of the consideration received by the Company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received. (q) Earnings Per Share Basic earnings per share is calculated as net earnings attributable to members, adjusted to exclude costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for an bonus element. Diluted earnings per share is calculated as net earnings attributable to members, adjusted for costs of servicing equity (other than dividends) and preference share dividends; the after tax effect of dividends and interest associated with dilutive potential ordinary shares that would have been recognised as expenses; and other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. (r) Employee Benefits Provision is made for the Group’s liability for employee benefits arising from services rendered by employees to the end of the reporting period. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled. 33 NOTES TO THE FINANCIAL STATEMENTS Cazaly Resources Limited Annual Report 2017 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d) (s) Interest in Joint Operations A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. When a Group entity undertakes its activities under joint operations, the Group as a joint operator recognises in relation to its interest in a joint operation:      its assets, including its share of any assets held jointly; its liabilities, including its share of any liabilities incurred jointly; its revenue from the sale of its share of the output arising from the joint operation; its share of the revenue from the sale of the output by the joint operation; and its expenses, including its share of any expenses incurred jointly. The Group accounts for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with the AASBs applicable to the particular assets, liabilities, revenues and expenses. When a Group entity transacts with a joint operation in which a Group entity is a joint operator (such as a sale or contribution of assets), the Group is considered to be conducting the transaction with the other parties to the joint operation, and gains and losses resulting from the transactions are recognised in the Group's consolidated financial statements only to the extent of other parties' interests in the joint operation. When a Group entity transacts with a joint operation in which a Group entity is a joint operator (such as a purchase of assets), the Group does not recognise its share of the gains and losses until it resells those assets to a third party. (t) Critical Accounting Estimates and Judgements The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. The directors evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the group. Key Judgements –Exploration and evaluation expenditure Exploration and evaluation costs are carried forward where right of tenure of the area of interest is current. These costs are carried forward in respect of an area that has not at balance sheet date reached a stage that permits reasonable assessment of the existence of economically recoverable reserves, refer to the accounting policy stated in note 1(d). Key Judgements - Share based payment transactions The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by an internal valuation using a Black-Scholes option pricing model. 34 NOTES TO THE FINANCIAL STATEMENTS Cazaly Resources Limited Annual Report 2017 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Key Judgments – Environmental issues Balances disclosed in the financial statements and notes thereto are not adjusted for any pending or enacted environmental legislation, and the directors understanding thereof. At the current stage of the company’s development and its current environmental impact the directors believe such treatment is reasonable and appropriate. Key Estimate – Taxation Balances disclosed in the financial statements and the notes thereto, related to taxation, are based on the best estimates of directors. These estimates take into account both the financial performance and position of the company as they pertain to current income taxation legislation, and the directors understanding thereof. No adjustment has been made for pending or future taxation legislation. The current income tax position represents that directors’ best estimate, pending an assessment by the Australian Taxation Office. (u) Fair value measurements The Group measures and recognises the asset, ‘Financial assets held for trading’ at fair value on a recurring basis after initial recognition. The Group does not subsequently measure any liabilities at fair value on a non-recurring basis. (i) Fair Value Hierarchy AASB 13: Fair Value Measurement requires the disclosure of fair value information by level of the fair value hierarchy, which categorises fair value measurements into one of three possible levels based on the lowest level that an input that is significant to the measurement can be categorised into as follows: Level 1 Level 2 Level 3 Measurements based on quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. Measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Measurements based on unobservable inputs for the asset or liability. The fair values of assets and liabilities that are not traded in an active market are determined using one or more valuation techniques. These valuation techniques maximise, to the extent possible, the use of observable market data. If all significant inputs required to measure fair value are observable, the asset or liability is included in Level 2. If one or more significant inputs are not based on observable market data, the asset or liability is included in Level 3. 35 NOTES TO THE FINANCIAL STATEMENTS Cazaly Resources Limited Annual Report 2017 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d) (ii) Valuation techniques The Company selects a valuation technique that is appropriate in the circumstances and for which sufficient data is available to measure fair value. The availability of sufficient and relevant data primarily depends on the specific characteristics of the asset or liability being measured. The valuation technique selected by the Company is the Market approach whereby valuation techniques use prices and other relevant information generated by market transactions for identical or similar assets or liabilities. When selecting a valuation technique, the Company gives priority to those techniques that maximise the use of observable inputs and minimise the use of unobservable inputs. Inputs that are developed using market data (such as publicly available information on actual transactions) and reflect the assumptions that buyers and sellers would generally use when pricing the asset or liability are considered observable, whereas inputs for which market data is not available and therefore are developed using the best information available about such assumptions are considered unobservable. The following table provides the fair values of the Company’s assets and liabilities measured and recognised on a recurring basis after initial recognition and their categorisation within the fair value hierarchy: 30 June 2017 Note Level 1 $ Level 2 $ Level 3 $ Total $ Recurring fair value measurements Financial assets at fair value through profit or loss: - held-for-trading Australian listed shares - unlisted Australian shares (i) Recurring fair value measurements Financial assets at fair value through profit or loss: - held-for-trading Australian listed shares 102,505 - 102,505 - - - - 102,505 41,240 41,240 41,240 143,745 30 June 2016 Note Level 1 $ Level 2 $ Level 3 $ Total $ 264,530 - - 264,530 (i) Directors have valued the shares on the last active trading price prior to delisting from the ASX. 36 NOTES TO THE FINANCIAL STATEMENTS Cazaly Resources Limited Annual Report 2017 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d) (v) New accounting standards for application in future periods Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the group for the annual reporting period ended 30 June 2017. The Company does not plan to adopt these standards early. Standard/Interpretation AASB 9 ‘Financial Instruments’, and the relevant amending standards AASB 15 ‘Revenue from Contracts with Customers’ AASB 16 ‘Leases’ Effective for annual reporting periods beginning on or after Expected to be initially applied in the financial year ending 1 January 2018 30 June 2018 1 January 2018 1 January 2019 30 June 2018 30 June 2019 Although the Directors anticipate that the adoption of these standards may have an impact on the Group’s financial statements, it is impractical at this stage to provide a reasonable estimate of such impact. 37 NOTES TO THE FINANCIAL STATEMENTS Cazaly Resources Limited Annual Report 2017 2. 2. REVENUE & OTHER INCOME Revenue - - - other revenue interest received recoupment of office costs on-charged Other Income - profit on sale of tenement - proceeds on sale of royalty 3. PROFIT (LOSS) FOR THE YEAR 2017 $ 2016 $ 5,874 39,877 97,408 143,159 52,500 206,411 258,911 5,010 285,770 - 290,780 23,137 - 23,137 Profit (loss) before income tax from continuing operations includes the following specific expenses: Expenses Administrative expenses Consulting Advertising, printing and stationery Travel and accommodation Insurance Memberships Other Compliance and regulatory expenses ASX, ASIC, registry and secretarial Legal Employee Benefits Superannuation 4. KEY MANAGEMENT PERSONNEL Interests of Key Management Personnel 68,450 7,292 15,611 21,739 10,763 162,004 285,859 181,055 20,495 201,550 81,670 4,454 20,445 21,013 (4,901) 84,991 207,672 134,342 21,749 156,091 24,843 9,833 Refer to the remuneration report contained in the directors’ report for details of the remuneration paid or payable to each member of the Group’s key management personnel for the year ended 30 June 2017. The totals of remuneration paid to key management personnel of the Company during the year are as follows: 38 NOTES TO THE FINANCIAL STATEMENTS Cazaly Resources Limited Annual Report 2017 4. KEY MANAGEMENT PERSONNEL (Cont’d) Short-term employee benefits Post-employment benefits Other long-term benefits Share based payments No compensation was paid in respect to KMP in termination benefits 5. AUDITORS REMUNERATION Remuneration of the auditor for: - Auditing or reviewing the financial report 6. INCOME TAX EXPENSE The components of the tax expense/(income) comprise: Current tax Deferred tax 2017 $ 395,000 - - 50,980 445,980 2016 $ 387,250 - - - 387,250 22,500 22,500 22,000 22,000 - - - - - - (a)Numerical reconciliation of income tax expense to prima facie tax payable: Profit from continuing operations (1,427,577) (1,721,210) Prima facie tax benefit on loss from ordinary activities before income tax at 30% (2015: 30%) (428,273) (516,363) Add: Tax effect of: Current year capital losses not recognised Effect of tax losses derecognised Derecognition of previously recognised tax losses Other non-allowable items - 363,353 - 49,044 183,690 287,700 285,250 1,248 Less: Tax effect of: Tax benefit of deductible equity raising costs Movement in unrecognised temporary differences Income (tax benefit)/loss attributable to entity (11,382) 27,257 - (9,667) (231,858) - 39 NOTES TO THE FINANCIAL STATEMENTS Cazaly Resources Limited Annual Report 2017 6. INCOME TAX EXPENSE (Cont’d) (b) Deferred tax assets at 30% (2016: 30%) comprise the following Carry forward revenue losses Capital raising and future black hole deductions Provisions and accruals Other Less: Set off of deferred tax liabilities Deferred tax liabilities at 30% (2015: 30%) comprise the following Exploration expenditure Other Less: Set off of deferred tax asset (c) Deferred tax recognised directly in equity: Relating to equity raising costs 2017 $ 2016 $ 5,656,745 5,565,630 2,146 31,964 73,500 5,764,354 (5,764,354) - 5,764,354 - 5,764,354 (5,764,354) - 4,833 29,909 73,500 5,673,872 (5,673,872) - 5,673,872 - 5,673,872 (5,673,872) - - - - - (d) Unrecognised deferred tax assets at 30% (2015: 30%) comprise the following: Deferred tax assets have not been recognized in respect to the following as they are not considered to have met the recognition criteria: Investments Tax revenue losses Capital losses 7. CASH AND CASH EQUIVALENTS Cash at bank Petty cash 8. TRADE AND OTHER RECEIVABLES Current Other receivables (i) 350,615 1,466,630 235,601 2,052,846 326,165 1,103,277 235,601 1,665,043 723,062 200 723,262 1,585,392 200 1,585,592 219,622 219,622 205,254 205,254 (i) Other receivables normally have 30 to 90 day terms. Other receivables disclosed above include amounts of $179,311 (2016: $134,348) that are past due at the end of the reporting period for which the Group has not recognised any impairment because the amounts are still considered recoverable. $132,432 (2016: $132,432) is receivable from a company related to one of the Directors. 40 NOTES TO THE FINANCIAL STATEMENTS Cazaly Resources Limited Annual Report 2017 8. TRADE AND OTHER RECEIVABLES (CONT’D) Non-Current Bonds (ii) (ii) Bonds are term deposits, held by way of bank guarantee. 9. FINANCIAL ASSETS Current Financial assets, at fair value through profit or loss: Held-for-trading Australian listed shares Unlisted Australian public company shares 10. PROPERTY, PLANT AND EQUIPMENT Plant and Equipment At cost Accumulated depreciation Office Furniture and Equipment At cost Accumulated depreciation Motor Vehicle At cost Accumulated depreciation 2017 $ 2016 $ 25,744 25,744 25,270 25,270 102,505 41,240 143,745 264,350 - 264,530 309,652 (302,652) 7,000 309,652 (298,699) 10,953 40,384 (36,839) 3,545 65,878 (53,878) 12,000 22,545 40,384 (35,480) 4,904 65,878 (50,664) 15,214 31,071 Movement in the carrying amounts for each class of property, plant and equipment between the beginning and end of the current financial year. Balance at the beginning of the year Additions Disposals Depreciation expense Carrying amount at the end of the year Balance at the beginning of the year Additions Disposals Depreciation expense Carrying amount at the end of the year Plant and Equipment $ 10,953 - - (3,953) 7,000 Plant and Equipment $ 18,171 - - (7,218) 10,953 2017 Office Furniture $ 4,904 - - (1,359) 3,545 2016 Office Furniture $ 8,914 - (2,319) (1,691) 4,904 Motor Vehicles $ 15,214 - - (3,214) 12,000 Motor Vehicles $ 19,302 - - (4,088) 15,214 Total $ 31,071 - - (8,526) 22,545 Total $ 46,387 - (2,319) (12,997) 31,071 41 NOTES TO THE FINANCIAL STATEMENTS Cazaly Resources Limited Annual Report 2017 11. EXPLORATION AND EVALUATION ASSETS Non-Current Costs carried forward in respect of areas of interest in: 2017 $ 2016 $ Exploration and evaluation phases at cost 19,679,982 18,952,083 Movement – exploration and evaluation Brought forward Exploration expenditure capitalised during the year Acquisitions Exploration expenditure capitalised on tenements sold during the year Exploration expenditure written off (i) 18,952,083 1,040,600 405,750 19,917,756 410,439 - - (718,451) (246,864) (1,129,248) 19,679,982 18,952,083 (i) Exploration expenditure written off for the year was $718,451 compared to $1,129,248 in the previous financial year. The main write offs in 2017 related to the Mt Angelo, Halls Creek and Yilgarn areas as well as previously capitalized expenditures relating to the various tenements and/or applications that were relinquished during the financial year. The value of the Group’s interest in exploration expenditure is dependent upon: - - - the continuance of the Group’s rights to tenure of the areas of interest; the results of future exploration; and the recoupment of costs through successful development and exploitation of the areas of interest, or alternatively, by their sale. 12. TRADE AND OTHER PAYABLES Current Trade creditors Other creditors and accrued expenses Creditors are non-interest bearing and settled at 30 day terms. 13. PROVISIONS Current Provision for annual leave Provision for long service leave 14. CONVERTIBLE NOTES Current Convertible Notes 146,167 58,524 204,691 233,539 45,384 278,923 64,464 12,750 77,214 55,031 12,750 67,782 - - 200,000 200,000 In December 2015, two directors, Mr Nathan McMahon and Mr Clive Jones, advanced a total of $200,000 in debt funds by way of a convertible note to the Company. The principal terms of the convertible note were designed to mirror the terms of the placement completed in December 2015. As such, the convertible notes carried no coupon rate, were unsecured and would convertible at $0.03 with a free attaching option on the basis of one option for every two shares converted. The convertible notes were converted on 22 August 2016 after shareholder approval was obtained on 12 August 2016. 42 NOTES TO THE FINANCIAL STATEMENTS Cazaly Resources Limited Annual Report 2017 15. ISSUED CAPITAL 186,691,608 fully paid ordinary shares (2016: 160,116,480) with no par value Movements in Ordinary Shares 2017 $ 2016 $ 27,712,676 26,487,504 30 June 2017 Number 30 June 2017 $ 30 June 2016 Number 30 June 2016 $ Balance at the beginning of the year Issue of shares at $0.03 each Issue of shares at $0.065 each Convertible note conversion Issue of shares at $0.071 each Issue of shares at $0.065 each Issue of shares at $0.11 each Conversion of options at $0.04 each Issue of shares at $0.05 each Issue of shares at $0.05 each Less: transaction costs (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) 160,116,480 - - 6,666,666 2,500,000 1,538,462 175,000 275,000 14,120,000 800,000 26,487,504 130,477,121 6,831,667 22,307,692 - - - - 500,000 - - - - - 200,000 177,500 100,000 19,250 11,000 706,000 40,000 (28,578) 24,889,282 204,950 1,450,000 - - - - 20,000 - - (76,728) Balance at the end of the year 186,691,608 27,712,676 160,116,480 26,487,504 (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) Placement shares issued on 5 January 2016 Placement shares issued on 27 May 2016. Approved by shareholders at a general meeting on 12 August 2016. Shares issued on conversion of two convertible notes provided by Directors. Approved by shareholders at a general meeting on 12 August 2016. Shares issued to the vendors of Yamarna West Pty Ltd. Approved by shareholders at the annual general meeting on 24 November 2016. Shares issued to the vendors of the Widgiemooltha project. Approved by shareholders at the annual general meeting on 24 November 2016. Shares issued to a consultant on 23 August 2016 in lieu of services provided. Shares issued on the conversion of $0.04 options (expiry date 5 January 2018). Placement shares issued on 15 May 2017. Shares issued to consultant on 15 May 2017 in lieu of services provided. Ordinary shares participate in dividends and the proceeds on winding up of the Company in proportion to the number of shares held and in proportion to the amount paid up on the shares held. At shareholders meetings each ordinary share is entitled to one vote in proportion to the paid up amount of the share when a poll is called, otherwise each shareholder has one vote on a show of hands. 43 NOTES TO THE FINANCIAL STATEMENTS Cazaly Resources Limited Annual Report 2017 15. ISSUED CAPITAL (Cont’d) Movements in Options over Ordinary Shares Exercise Period Exercise Price Number on issue at 30 June 2016 Issued during the year Exercised/ Expired/ Cancelled Number on issue at 30 June 2017 Quoted On or before 21 August 2018 Unquoted On or before 31 July 2016 On or before 26 November 2016 On or before 5 January 2018 (i) On or before 22 August 2018 (ii) On or before 30 November 2018 (iii) On or before 22 August 2019 (iv) On or before 22 August 2019 (v) On or before 22 August 2020 (v) Total unquoted options $0.11 - 18,913,847 - 18,913,847 $0.107 $0.180 $0.040 $0.150 $0.200 $0.180 $0.144 $0.216 100,000 3,500,000 2,915,834 - - - - - - - 3,333,334 175,000 5,000,000 1,450,000 2,500,000 2,500,000 6,515,834 14,958,334 (100,000) (3,500,000) (275,000) - - - - - (3,875,000) - - 5,974,168 175,000 5,000,000 1,450,000 2,500,000 2,500,000 17,599,168 (i) (ii) (iii) (iv) (v) Issued on conversion of two convertible notes provided by Directors. Approved by shareholders at a general meeting on 12 August 2016. Issued to a consultant in lieu of services provided. Issued to Directors. Approved by shareholders at the annual general meeting on 24 November 2016. Issued to employees of the Company under the Cazaly EIS. Issued to the vendors of Yamarna West Pty Ltd. Approved by shareholders at the annual general meeting on 24 November 2016. Unquoted options are issued to vendors, directors, employees and consultants. The unquoted options may be subject to performance criteria, and are issued to directors, employees and consultants to increase goal congruence between executives, directors and shareholders. Unquoted options carry no dividend or voting rights. Summary of Options Granted During the Year Allottee Employees and consultants Employees and consultants Directors Vendors of Yamarna West Vendors of Yamarna West Capital risk management No. of options issued 1,450,000 175,000 5,000,000 2,500,000 2,500,000 Fair value at grant date $ $0.03473 $0.02970 $0.01020 $0.02260 $0.02211 Estimated volatility 75% 75% 75% 75% 75% Expiry date 22/08/2019 22/08/2018 28/11/2018 22/08/2019 22/08/2020 Exercise price $0.180 $0.150 $0.200 $0.144 $0.216 Risk free interest rate 1.75% 1.75% 1.75% 1.75% 1.75% The Board controls the capital of the Group in order to provide the shareholders with adequate returns and ensure that the Group can fund its operations and continue as a going concern. The Group’s capital includes ordinary share capital. There are no externally imposed capital requirements. 44 NOTES TO THE FINANCIAL STATEMENTS Cazaly Resources Limited Annual Report 2017 15. ISSUED CAPITAL (Cont’d) The working capital position of the Group at 30 June 2017 and 30 June 2016 are as follows: Par Cash and cash equivalents Trade and other receivables Financial assets Current liabilities Working capital position 16. OPTION RESERVE Opening balance Equity based payments Transfers to accumulated losses Closing balance 2017 $ 723,262 219,622 143,745 (281,906) 804,725 115,744 218,304 (115,744) 218,304 2016 $ 1,585,592 205,254 264,530 (546,705) 1,508,671 119,642 - (3,898) 115,744 This reserve is used to record the value of equity benefits provided to the employees and directors as part of their remuneration. 17. ACCUMULATED LOSSES Opening balance Net loss attributable to members Transfers from option reserve Closing balance 18. FINANCIAL RISK MANAGEMENT (6,071,442) (1,427,312) 115,744 (7,383,010) (4,355,599) (1,719,741) 3,898 (6,071,442) The Group’s principal financial instruments comprise receivables, payables, held-for-trading investments, cash and short-term deposits. The Board of Directors has overall responsibility for the oversight and management of the Group’s exposure to a variety of financial risks (including fair value interest rate risk, credit risk, liquidity risk and cash flow interest rate risk). The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. Interest rate risks The Group’s exposure to market interest rates relates to cash deposits held at variable rates. The Board constantly analyses its interest rate exposure. Within this analysis consideration is given to potential renewals of existing positions. Credit risk The maximum exposure to credit risk at balance date is the carrying amount (net of provision of doubtful debts) of those assets as disclosed in the Statement of Financial Position and notes to the financial statements. The Consolidated group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. 45 NOTES TO THE FINANCIAL STATEMENTS Cazaly Resources Limited Annual Report 2017 18. FINANCIAL RISK MANAGEMENT (Cont’d) Credit risk related to balances with banks and other financial institutions is managed by the board. The board’s policy requires that surplus funds are only invested with counterparties with a Standard & Poor’s rating of at least A+. All of the Group’s surplus funds are invested with AA and A+ Rated financial institutions, the amount is $723,262 (2016: $1,585,592). Liquidity risk The responsibility for liquidity risk management rests with the Board of Directors. The Consolidated group manages liquidity risk by maintaining sufficient cash or credit facilities to meet the operating requirements of the business and investing excess funds in highly liquid short term investments. Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. Maturity profile of financial instruments The following tables detail the Group’s exposure to interest rate risk as at 30 June 2017 and 30 June 2016: 30 June 2017 Financial assets Cash and cash equivalents Trade and other receivables Financial assets – held for trading Floating Interest Rate $ 723,062 - - 723,062 Fixed Interest maturing in 1 year or less $ - 25,744 - 25,744 Non- interest bearing 2017 Total $ $ 200 219,622 143,745 363,567 723,262 245,366 143,745 1,112,373 Weighted average effective interest rate 0.90% Financial Liabilities Trade and other payables 30 June 2016 Financial assets Cash and cash equivalents Trade and other receivables Financial assets – held for trading - - - - 204,691 204,691 204,691 204,691 Floating Interest Rate $ 1,585,392 - - 1,585,392 Fixed Interest maturing in 1 year or less $ - 25,270 - 25,270 Non- interest bearing 2016 Total $ $ 200 205,254 264,530 469,984 1,585,592 230,524 264,530 2,080,646 Weighted average effective interest rate 0.78% Financial Liabilities Trade and other payables - - - - 278,923 278,923 278,923 278,923 46 NOTES TO THE FINANCIAL STATEMENTS Cazaly Resources Limited Annual Report 2017 18. FINANCIAL RISK MANAGEMENT (Cont’d) Net Fair Values The carrying value and net fair values of financial assets and liabilities at balance date are: Financial assets Cash and deposits Receivables Investment held for trading Financial liabilities Payables 2017 2016 Carrying Amount $ 723,262 245,366 143,745 1,112,373 204,691 204,691 Net fair Value $ 723,262 245,366 143,745 1,112,373 204,691 204,691 Carrying Amount $ 1,585,592 230,524 264,530 2,080,646 278,923 278,923 Net fair Value $ 1,585,592 230,524 264,530 2,080,646 278,923 278,923 The financial instruments recognised at fair value in the statement of financial position have been analysed and classified using a fair value hierarchy reflecting the significance of the inputs used in making the measurements. All financial instruments measured at fair value are level one, meaning fair value is determined from quoted prices in active markets for identical assets. Sensitivity Analysis Interest Rate Risk The Company has performed sensitivity analysis relating to its exposure to interest rate risk at balance date. This sensitivity analysis demonstrates the effect on the current year results and equity which could result from a change in these risks. Change in loss Increase in interest rate by 100 basis points   Decrease in interest rate by 100 basis points Change in equity Increase in interest rate by 100 basis points   Decrease in interest rate by 100 basis points 219. EARNINGS PER SHARE a) Reconciliation of earnings to profit or loss: 2017 $ 7,231 (7,231) 7,231 (7,231) 2016 $ 15,854 (15,854) 15,854 (15,854) Loss for the year Loss used to calculate basic and diluted EPS (1,427,312) (1,427,312) (1,719,741) (1,719,741) 47 NOTES TO THE FINANCIAL STATEMENTS Cazaly Resources Limited Annual Report 2017 19. EARNINGS PER SHARE (Cont’d) 2017 No. of Shares 2016 No. of Shares b) Weighted average number of ordinary shares outstanding during the year used in calculating basic EPS 171,443,575 135,888,537 Weighted average number of dilutive options outstanding - - Weighted average number of ordinary shares outstanding during the year used in calculating dilutive EPS 20. CASH FLOW INFORMATION Reconciliation of cash flows from operating activities with profit/(loss) after income tax Profit/(Loss) after income tax Non-operating cash flows in loss for the year: Depreciation Net (Gain)/ Loss on sale of shares Net Profit on sale of exploration assets Employee & Consultant equity settled transactions Fair value adjustment to investments Exploration write-off Income tax expense recognised in profit or loss Changes in assets and liabilities: Decrease/(increase) in trade receivables and prepayments Increase/(decrease) in trade payables, accruals and employee entitlements Decrease/(increase) in exploration 171,443,575 135,888,537 2017 $ 2016 $ (1,427,577) (1,721,210) 8,526 - (52,500) 106,536 119,823 718,451 - 12,997 (30,645) (23,137) - (154,611) 1,129,248 - (14,841) (30,071) (4,579) (1,057,091) (195,216) (449,346) Cash outflow from operations (1,603,252) (1,461,991) 21. COMMITMENTS In order to maintain rights of tenure to mining tenements, the Group would have the following discretionary exploration expenditure requirements up until expiry of leases. These obligations, which are subject to renegotiation upon expiry of the leases, are not provided for in the financial statements and are payable: No longer than one year Longer than one year, but not longer than five years Longer than five years $ 542,725 975,446 815,526 2,333,697 $ 590,627 1,740,681 1,002,398 3,271,518 48 NOTES TO THE FINANCIAL STATEMENTS Cazaly Resources Limited Annual Report 2017 21. COMMITMENTS (Cont’d) At the moment the Group has commitments in excess of cash, however the Board believes it will be able to raise the additional funds to satisfy the commitments for the future. If the Group decides to relinquish certain leases and/or does not meet these obligations, assets recognised in the statement of financial position may require review to determine the appropriateness of carrying values. The sale, transfer or farm-out of exploration rights to third parties will reduce or extinguish these obligations. 22. CONTROLLED ENTITIES Parent Entity Cazaly Resources Limited Controlled Entities Cazaly Iron Pty Ltd Sammy Resources Pty Ltd Cazroy Pty Ltd Baker Fe Pty Ltd Baldock Fe Pty Ltd Lockett Fe Pty Ltd Hase Fe Pty Ltd Caz Yilgarn Pty Ltd Discovery Minerals Pty Ltd Yamarna West Pty Ltd 23. OPERATING SEGMENTS Country of Incorporation Percentage Owned 2016 2017 Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 100% 100% 100% 100% 100% 100% 100% 100% 80% 100% 100% 100% 100% 100% 100% 100% 100% 100% 80% 0% The Group has identified its operating segments based on the internal reports that are reviewed and used by the Board of Directors in assessing performance and determining the allocation of resources. The Group is managed primarily on the basis of its exploration and corporate activities. Operating segments are therefore determined on the same basis. Exploration Segment assets, including acquisition cost of exploration licenses, all expenses related to the tenements and profit on sale of tenements are reported on in this segment. Segment assets Where an asset is used across multiple segments, the asset is allocated to the segment that receives the majority of economic value from the asset. In the majority of instances, segment assets are clearly identifiable on the basis of their nature and physical location. Unless indicated otherwise in the segment assets note, deferred tax assets and intangible assets have not been allocated to operating segments. Segment liabilities Liabilities are allocated to segments where there is direct nexus between the incurrence of the liability and the operations of the segment. Borrowings and tax liabilities are generally considered to relate to the Group as a whole and are not allocated. Segment liabilities include trade and other payables. 49 NOTES TO THE FINANCIAL STATEMENTS Cazaly Resources Limited Annual Report 2017 23. OPERATING SEGMENTS (Cont’d) Unallocated items Non-recurring items of revenue or expenses are not allocated to operating segments as they are not considered part of the core operations of any segment. 2017 Revenue Interest received Other Total segment revenue Segment net operating profit (loss) before tax Depreciation Impairment of exploration assets Share based payments Segment assets Exploration expenditure Capital expenditure Segment liabilities 2016 Revenue Interest received Other Total segment revenue Segment net operating profit (loss) before tax Depreciation Impairment of exploration assets Share based payments Segment assets Exploration expenditure Capital expenditure Segment liabilities Exploration $ Unallocated $ Total $ - 52,500 52,500 5,874 343,696 349,570 5,874 396,196 402,070 (665,951) - (761,626) 8,526 (1,427,577) 8,526 718,451 - 19,679,982 19,679,982 30,191 - 106,536 1,134,918 - 22,545 251,714 718,451 106,536 20,814,900 19,679,982 22,545 281,905 Exploration $ Unallocated $ Total $ - 23,137 23,137 5,010 285,770 290,780 5,010 308,907 313,917 (1,106,110) - (615,100) 12,997 (1,721,210) 12,997 1,129,248 - 18,952,084 18,952,084 - 106,395 - 15,000 2,111,716 - 31,071 440,310 1,129,248 15,000 21,063,800 18,952,084 31,071 546,705 24. EVENTS SUBSEQUENT TO REPORTING DATE Since 30 June 2017, no event has arisen that would likely to materially affect the operations of the Group, or the state of affairs of the Group no otherwise disclosed in the Group’s financial report. 25. CONTINGENT LIABILITIES AND CONTINGENT ASSETS There are no other contingent liabilities or contingent assets outstanding at the end of the year. 50 NOTES TO THE FINANCIAL STATEMENTS Cazaly Resources Limited Annual Report 2017 26. PARENT ENTITY DISCLOSURES (a) Statement of financial position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Equity Issued capital Reserves: Equity settled employee benefits Retained profits Total Equity (b) Statement of Profit or Loss and Other Comprehensive Income Total profit/ (loss) Total comprehensive income Loans to Controlled Entities 2017 $ 2016 $ 938,980 2,936,118 1,720,084 2,828,561 3,875,098 4,548,645 281,881 - 546,705 - 281,881 546,705 27,712,676 26,487,505 218,304 (24,337,763) 115,744 (22,601,310) 3,593,217 4,001,939 (1,639,045) (690,480) (1,639,045) (690,480) Loans are provided by Cazaly (‘the Parent’) to its controlled entities for their respective operating activities. Amounts receivable from controlled entities are non-interest bearing with no fixed term of repayment. The eventual recovery of the loan will be dependent upon the successful commercial application of these projects or the sale to third parties. 27. SHARE BASED PAYMENTS The following table illustrates the number and weighted average exercise prices of and movements in share options issued under the Employee Incentive Plan during the year: 2017 2016 Number of Options Weighted Ave Exercise Price $ Number of Options Weighted Ave Exercise Price $ Balance at beginning of reporting period Expired during the year Issued during the year Balance at end of reporting period Exercisable at end of reporting period 3,600,000 0.178 3,700,000 0.176 (3,600,000) 6,625,000 6,625,000 6,625,000 0.178 0.194 0.194 (100,000) - 3,600,000 3,600,000 0.100 - 0.178 The options outstanding at 30 June 2017 had a weighted average remaining life of 1.57 years (2016 – 0.39 years). The weighted average fair value of the options outstanding at 30 June 2017 was $0.016 (2016 - $0.032). 51 DIRECTORS’ DECLARATION Cazaly Resources Limited Annual Report 2017 In accordance with a resolution of the directors of Cazaly Resources Limited, the directors of the Company declare that: 1. the financial statements and notes, as set out, are in accordance with the Corporations Act 2001 and: a. b. comply with Australian Accounting Standards, which, as stated in accounting policy Note 1 to the financial statements, constitutes compliance with International Financial Reporting Standards (IFRS); and give a true and fair view of the financial position as at 30 June 2017 and of the performance for the year ended on that date of the consolidated group; 2. 3. in the directors’ opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; and the directors have been given the declarations required by s 295A of the Corporations Act 2001 from the Chief Executive Officer and Chief Financial Officer. On behalf of the Directors Nathan McMahon Managing Director Perth, 22 September 2017 52 Independent Auditor's Report To the Members of Cazaly Resources Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Cazaly Resources Limited (“the Company”) and its subsidiaries (“the Consolidated Entity”), which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion: a. the accompanying financial report of the Consolidated Entity is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Consolidated Entity’s financial position as at 30 June 2017 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. b. the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Consolidated Entity in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independent Auditor’s Report To the Members of Cazaly Resources Limited (Continued) Material Uncertainty Related to Going Concern We draw attention to Note 1 in the financial report, which indicates that the Consolidated Entity incurred a net loss of $1,427,577 during the year ended 30 June 2017. As stated in Note 1, these events or conditions, along with other matters as set forth in Note 1, indicate that a material uncertainty exists that may cast significant doubt on the Consolidated Entity’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter How our audit addressed the key audit matter Exploration and Evaluation Expenditure - $19,679,982 (Refer to Note 11) Exploration and evaluation is a key audit matter due to: The significance of the balance to the Consolidated Entity’s consolidated financial position. The level of judgement required in evaluating management’s application of the requirements of AASB 6 Exploration for and Evaluation of Mineral Resources. AASB 6 is an industry specific accounting standard requiring the application of significant judgements, estimates and industry knowledge. This includes specific requirements for expenditure to be capitalised as an asset and subsequent requirements which must be complied with for capitalised expenditure to continue to be carried as an asset. The assessment of impairment of exploration and evaluation expenditure being inherently difficult. Our procedures included, amongst others: Assessing management’s determination of its areas of interest for consistency with the definition in AASB 6. This involved analysing the tenements in which the consolidated entity holds an interest and the exploration programmes planned for those tenements. For each area of interest, we assessed the Consolidated Entity’s rights to tenure by corroborating to government registries and evaluating agreements in place with other parties as applicable; We tested the additions to capitalised expenditure for the year by evaluating a sample of recorded expenditure for consistency to underlying records, the capitalisation requirements of the Consolidated Entity’s accounting policy and the requirements of AASB 6; We considered the activities in each area of interest to date and assessed the planned future activities for each area of interest by evaluating budgets for each area of interest. We assessed each area of interest for one or more of the following circumstances that may indicate impairment of the capitalised expenditure: the licenses for the right to explore expiring in the near future or are not expected to be renewed; Independent Auditor’s Report To the Members of Cazaly Resources Limited (Continued) Key audit matter How our audit addressed the key audit matter substantive expenditure for further exploration in the specific area is neither budgeted or planned decision or intent by the Consolidated Entity to discontinue activities in the specific area of interest due to lack of commercially viable quantities of resources; and data indicating that, although a development in the specific area is likely to proceed, the carrying amount of the exploration asset is unlikely to be recovered in full from successful development or sale. We assessed the appropriateness of the related disclosures in note 11 to the financial statements. Other Information The directors are responsible for the other information. The other information comprises the information included in the Consolidated Entity’s annual report for the year ended 30 June 2017, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the financial report complies with International Financial Reporting Standards. In preparing the financial report, the directors are responsible for assessing the Consolidated Entity’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Consolidated Entity or to cease operations, or has no realistic alternative but to do so. Independent Auditor’s Report To the Members of Cazaly Resources Limited (Continued) Auditor’s Responsibilities for the Audit of the Financial Report Our responsibility is to express an opinion on the financial report based on our audit. Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Consolidated Entity’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Consolidated Entity’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Consolidated Entity to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Consolidated Entity to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Consolidated Entity audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Independent Auditor’s Report To the Members of Cazaly Resources Limited (Continued) We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report We have audited the Remuneration Report included in the directors’ report for the year ended 30 June 2017. The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with s 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s Opinion In our opinion, the Remuneration Report of the Company, for the year ended 30 June 2017, complies with section 300A of the Corporations Act 2001. BENTLEYS Chartered Accountants MARK DELAURENTIS CA Director Dated at Perth this 22nd day of September 2017 ADDITIONAL SHAREHOLDER INFORMATION Cazaly Resources Limited Annual Report 2017 Additional information required by Australian Securities Exchange Limited and not shown elsewhere in this Annual Report is as follows. The information is made up to 18 September 2017. DETAILS OF HOLDERS OF EQUITY SECURITIES ORDINARY SHAREHOLDERS There are 186,727,588 fully paid ordinary shares on issue, held by 2,358 individual shareholders. Each member entitled to vote may vote in person or by proxy or by attorney and on a show of hands every person who is a member or a representative or a proxy of a member shall have one vote and on a poll every member present in person or by proxy or attorney or other authorised representative shall have one vote for each share held. TWENTY LARGEST SHAREHOLDERS (AS AT 18 SEPTEMBER 2017) Ordinary Shareholders Kingsreef Pty Ltd (NB & DL Family A/C) Widerange Corporation Pty Ltd Clive Jones Thomas Francis Corr Kingsreef Pty Ltd New Page Investments Ltd Nathan McMahon Mr R W Patek & Mrs M H Patek (RWP Super Fund) Maincoast Pty Ltd Anthony Ramage GGDT Developments Pty Ltd Mr C W Chalwell & Mrs J R Chalwell (Chalwell Pension Fund) Citicorp Nominees Pty Ltd HSBC Custody Nominees (Australia) Ltd Mr R C Gardner & Ms H Black (Tumeke Super Fund) Buckland Capital Pty Ltd (D Millar S/F) Clarksons Boathouse Pty Ltd (Clarkson Super Fund) Paso Holdings Pty Ltd Denis Bell Peter Stanley Symonds Fully Paid Ordinary Number Percentage 17,260,967 7,333,647 6,646,256 5,542,308 4,897,299 4,828,517 4,823,756 3,200,000 3,163,335 3,050,000 2,500,000 2,500,000 2,066,001 2,057,257 2,000,000 1,900,000 1,761,462 1,754,081 1,629,162 1,617,308 9.2% 3.9% 3.6% 3.0% 2.6% 2.6% 2.6% 1.7% 1.7% 1.6% 1.3% 1.3% 1.1% 1.1% 1.1% 1.0% 0.9% 0.9% 0.9% 0.9% 80,531,356 43.1% VOTING RIGHTS Subject to any rights or restrictions for the time being attached to any class or classes (at present there are none) at general meetings of shareholders or classes of shareholders: (a) each shareholder entitled to vote, may vote in person or by proxy, attorney or representative; (b) on a show of hands, every person present who is a shareholder or a proxy, attorney or representative of a shareholder has one vote; and 58 ADDITIONAL SHAREHOLDER INFORMATION Cazaly Resources Limited Annual Report 2017 (c) on a poll, every person present who is a shareholder or a proxy, attorney or representative of a shareholder shall, in respect of each fully paid share held, or in respect of which he/she has appointed a proxy, attorney or representative, have one vote for the share, but in respect of partly paid shares shall have a fraction of a vote equivalent to the proportion which the amount paid up bears to the total issue price for the share. HOLDERS OF NON-MARKETABLE PARCELS There are 1,411 shareholders who hold less than a marketable parcel of shares. STOCK EXCHANGE INFORMATION DISTRIBUTION OF SHARE HOLDERS (AS AT 18 SEPTEMBER 2017) 1 to 1,001 to 5,001 to 1,000 5,000 10,000 10,001 to 100,000 100,001 and over SUBSTANTIAL SHAREHOLDERS Ordinary Shares 141,320 1,871,193 3,146,702 28,860,562 152,707,811 186,727,588 As at report date, the following shareholders are recorded as Substantial Shareholders: Substantial Shareholder Ordinary Shares held % Held Nathan McMahon & associated entities Clive Jones & associated entities 27,982,022 14,479,904 14.99% 7.75% SHARE BUY-BACKS There is no current on-market buy-back scheme. OTHER INFORMATION Cazaly Resources Limited, incorporated and domiciled in Australia, is a public listed Company limited by Shares. 59 ADDITIONAL SHAREHOLDER INFORMATION Cazaly Resources Limited Annual Report 2017 INTEREST IN MINING TENEMENTS AS AT 18 SEPTEMBER 2017 TID PROJECT ENTITY % INT TID PROJECT ENTITY % INT Not Managed E31/1019 E31/1020 M31/0427 E37/1037 M47/1450 E51/1290 M80/0247 CAROSUE CAROSUE CAROSUE TEUTONIC BORE HAMERSLEY RUBY WELL MT ANGELO CAZR CAZR CAZR SAMR LOFE SAMR CAZR 10 10 10 100 49 7.5 20 Managed E77/1235 E77/1403 L77/0220 L77/0228 L77/0229 M77/0741 M77/0742 M77/0764 P77/4162 P77/4164 E80/4808 P15/6010 * P15/6011 * P15/6012 * P15/6013 * P15/6014 P15/6015 * P15/6016 * P15/6019 P15/6020 * P15/6021 * P15/6022 E38/3111 E38/3150 EPM26213 EL 8483 Czech Rep * Czech Rep * * – application PARKER RANGE PARKER RANGE PARKER RANGE PARKER RANGE PARKER RANGE PARKER RANGE PARKER RANGE PARKER RANGE PARKER RANGE PARKER RANGE MCKENZIE SPRINGS GLIA GLIA GLIA GLIA GLIA GLIA GLIA GLIA GLIA GLIA GLIA MOUNT VENN MOUNT VENN MOUNT TABOR (QLD) BUNGONIA (NSW) Horní Věžnice Brzkov II CAZR CAZI CAZI CAZI CAZI CAZI CAZI CAZI SAMR SAMR SAMR SAMR SAMR SAMR SAMR SAMR SAMR SAMR SAMR SAMR SAMR SAMR YAMW YAMW SAMR CAZR Discovery Discovery 100 100 100 100 100 100 100 100 100 100 100 50 50 50 50 50 50 50 50 50 50 50 100 100 100 100 80 80 60 

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