C H A L L E N G E R E X P L O R AT I O N L I M I T E D
( F O R M E R LY C H A L L E N G E R E N E R G Y L I M I T E D )
A C N 1 2 3 5 9 1 3 8 2
A N N U A L R E P O R T 2 0 1 9
C O R P O R A T E D I R E C T O R Y
DIRECTORS
Fletcher Quinn (Non-Executive Chairman)
Kris Knauer (Managing Director)
Scott Funston (Executive Director)
COMPANY SECRETARY
Scott Funston
REGISTERED OFFICE
Level 3, Suite 302
17 Castlereagh Street
SYDNEY NSW 20 00
Telephone: (02) 9299 9580
ABN: 45 123 591 382
AUDITOR
HLB Mann Judd
Level 4, 130 Stirling Street
PERTH WA 6000
SHARE REGISTRY
Security Transfer Registrars Pty Ltd
770 Canning Highway
APPLECROSS WA 6153
Telephone: (08) 9315 2333
Facsimile: (08) 9315 2233
SECURITIES EXCHANGE LISTING
Australian Securities Exchange
ASX Code: CEL
WEBSITE
www.challengerexploration.com
C O N T E N T S
Chairmans’ Address
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 Statement of Cash Flows
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Additional Shareholders’ Information
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Challenger Exploration:
Argentina and Ecuador Gold/Copper Projects
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C H A I R M A N S ’ A D D R E S S
Dear Shareholder,
On behalf of the Company, its management, its South American partners and all employees and consultants, I am very
pleased to report that this year we have made some very important and rapid steps towards our vision of becoming mid-
tier resource company.
The completion of the acquisition of AEP Corporation Pty Ltd and with its two potentially world class assets. The
appointment of an internationally experienced board with a history of success. The raising of $5,000,000 in a very
competitive market and our reinstatement to official quotation on 4 July 2019 - lays the foundation for a pathway to
success.
Many of the critical elements of a profitable mining operation are abundantly evident at our Argentinian Hualilan Gold
Project;
•
consistently high grade;
• mineralisation from surface or near surface;
•
•
•
•
•
low capex to commence production;
established infrastructure;
favourable mining jurisdiction;
considerable ounces delineated from a historic non JORC compliant resource (but NI 43-101 compliant) and
a high gold price environment.
With so many positive aspects identified and a project yet to be tested with systematic drilling, the Company has
commenced embarking on redefining the scope of the Hualilan Gold Project to better understand the best means of
development.
Results to date have been very encouraging, with numerous announcements from early works including ‘CEL Receives
High Grade Sampling Results’ (9 July 2019), ‘CEL Receives Spectacular Grades from Hualilan Gold Project’ (16 July 2019)
and ‘CEL Receives Outstanding Assay Results from Cerro Norte’ (13 August 2019).
The Company is very excited that the Hualilan Gold Project remains open in all directions and a 2,000 metre drilling
campaign commenced on 11 October 2019.
The El Guayabo Gold Copper Project was last drilled by Newmont Mining in 1995 and 1997, in an era of poor gold
prices . Newmount were targeting gold in hydrothermal breccias. Historical drilling has demonstrated potential to host
significant copper and associated gold and silver mineralisation (Refer to Section 10 of CEL’s Prospectus Released to the
ASX on 16 May 2019). Historical drilling has returned a number of significant (plus 100m) intersections of intrusion related
breccia and vein hosted mineralisation.
El Guayabo has multiple targets including breccia hosted mineralisation, an extensive flat lying late stage potentially high
grade vein system and an underlying porphyry system which has never been drill tested.
In the past three months CEL has completed the acquisition of a 16km2 geophysics (Magneto-Telluric and test Induced
Polarisation) and Mobile Metal Ions sampling program to define targets for drilling.
I have considerable confidence in the management team in taking a very solid strategy to continue to aggressively
advance both the Hualilan Gold Project and the El Guayabo Gold Copper Project to realise our goal of becoming a mid-
tier mining operation and maximising our potential to increase our share price.
I take this opportunity to congratulate all stakeholders in our success to date and thank all shareholders for their support
as we strive to grow the Company towards its true potential.
Yours Sincerely
Fletcher Quinn
Chairman
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2,000 metre drilling
campaign has commenced
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D I R E C T O R S ’ R E P O R T
The Directors submit the financial report of the Group, consisting of Challenger Exploration Limited (“the Company”) and
the entities it controlled during the period, for the financial year ended 30 June 2019.
DIRECTORS
The names and details of the Company’s Directors who held office during the year and until the date of this report are
as follows. Directors were in office for the entire year unless otherwise stated.
Names, qualifications, experience and special responsibilities
Fletcher Quinn
Non-Executive Chairman (appointed 4 July 2019)
Mr Quinn has over 35 years’ experience in venture capital, corporate finance and investment banking including extensive
experience with both listed and unlisted companies, including public company development, management and
governance. Mr Quinn was the foundation chairman for ASX entities Citadel Resources and Sirocco Resources.
Kris Knauer B.ASc. (Geological and Earth Sciences, Geosciences)
Managing Director (appointed 4 July 2019)
Mr Knauer started his career as an exploration geologist before moving into investment banking, initially as a mining
analyst. He is an experienced listed company CEO. He led the listing of a package of copper/gold assets in Saudi Arabia
to create Citadel Resources (ASX: CGG) becoming the Managing Director for the first 18 months. Citadel completed a
DFS on the Jabal Sayid copper project in Saudi Arabia prior to being taken over for $1 billion. In the past 5 years Mr Knauer
was also a Director of Medibio (ASX: MEB) where he resigned as a Director on 13 October 2017.
Scott Funston B.Bus CA ACIS
(Executive Director and Company Secretary) (appointed 4 July 2019)
Mr Funston is a qualified Chartered Accountant and Company Secretary with nearly 20 years’ experience in the mining
industry and the accounting profession. His expertise is financial management, regulatory compliance and corporate
advice. Mr Funston possesses a strong knowledge of the Australian Securities Exchange requirements and has assisted
a number of resources companies operating throughout Australia, South America, Asia, USA and Canada with financial
accounting, stock exchange compliance and regulatory activities. Mr Funston has performed roles as an executive
director, non-executive director, chief financial officer and company secretary for numerous ASX listed companies.
Michael Fry, B.Com, F. Fin
Non-Executive Chairman (resigned 4 July 2019)
Mr Michael Fry holds a Bachelor of Commerce degree from the University of Western Australia, is a Fellow of Financial
Services Institute of Australasia, and is a past member of the Australian Securities Exchange (“ASX”). Michael has extensive
experience in capital markets and corporate treasury management specialising in the identification of commodity,
currency and interest rate risk and the implementation of risk management strategies.
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Robert Willes, BA (Hons)
Executive Director (resigned 4 July 2019)
Mr Robert Willes has an honours degree in Geography from Durham University in the UK and has completed executive
education programs at Harvard Business School in the USA and Cambridge University in the UK. Robert has held a
number of senior roles in BP including General Manager of the North West Shelf LNG Project, overall accountability
for BP’s interests in the Browse LNG and Greater Gorgon LNG Projects, and for business development activities in Asia
Pacific. More recently, Robert was Chief Executive Officer of Eureka Energy Limited. He is a Graduate of the Australian
Institute of Company Directors, a member of the Association of International Petroleum Negotiators, and was formerly a
director of the Australian Petroleum Production and Exploration Association (APPEA). Robert is a Non-Executive director
of Buru Energy Limited.
Clinton Carey, B.Com (Fin., Econ.)
Non-Executive Director (resigned 4 July 2019)
Mr Carey has over 25 years management and Director level experience in listed companies specializing in mining, oil and
gas and technology. Mr Carey was a director of Roper River Resources Limited when it completed a reverse take over of
Webjet Limited. He has worked for mining companies in Russia, Brazil, Canada, Australia and England.
Directorships of other listed companies in the last 3 years are as follows:
Name
Company
Period of Directorship
Fletcher Quinn
None
N/A
Kris Knauer
Medibio Limited
2 July 2014 to 13 October 2017
Scott Funston
None
N/A
Michael Fry
Brookside Energy Limited
Norwest Energy NL
Technology Metals Australia Limited
Robert Willes
Buru Energy Limited
20 April 2004 to date
8 June 2009 to date
20 May 2016 to date
2 July 2014 to date
Clinton Carey
Red Sky Energy Limited
12 January 2015 to date
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D I R E C T O R S ’ R E P O R T
FORMER COMPANY SECRETARIES
Robert Lees, B.Bus (UTS), Grad. Dip. DP (UTS), CA, AGIA (appointed 27 September 2018, resigned 4 July 2019)
Mr Lees has over 35 years of experience in the accounting profession and 17 years of experience as a Company Secretary
for ASX listed companies.
Adrien Wing, CPA (resigned 27 September 2018)
Mr Adrien Wing is a qualified Certified Practicing Accountant. He practised in the audit and corporate divisions of a
chartered accounting firm before working with a number of public companies listed on the Australian Securities Exchange
as a corporate/accounting consultant and company secretary.
MEETINGS OF DIRECTORS
The Directors held 11 meetings (of which 2 included Audit and Risk Committee meetings) during the financial year and
all meetings were attended by Mr Fry, Mr Willes and Mr Carey. Mr Quinn, Mr Knauer and Mr Funston were not eligible to
attend any meetings during the financial year.
CORPORATE INFORMATION
Challenger Exploration Limited is a public company listed on the ASX (Code: CEL) and is incorporated and domiciled
in Australia. Challenger Exploration Limited and the entities it controlled during the period are collectively referred to as
Challenger Exploration, Challenger, or the Group, as the context requires.
NATURE OF OPERATIONS AND PRINCIPAL ACTIVITIES
Challenger Exploration became a gold and copper exploration company during the financial year as approved by
shareholders on 29 April 2019. There have been no other significant changes in the nature of those activities during the
year.
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Highlights
• On 25 February 2019 Challenger announced binding
conditional agreement to acquire 75% of the Hualilan Project
(Argentina) and 100% of El Guayabo Project (Ecuador) via
acquisition of AEP Corporation Pty Ltd (AEP) for consideration
comprising 180,000,000 ordinary shares and 78,444,444
4 cent options expiring 30 June 2022, 60,000,000 Class A
Performance Shares and 60,000,000 Class B Performance
Shares
•
•
•
•
•
•
AEP can earn 75% of the Hualilan Project in Argentina and
100% of El Guayabo Project in Ecuador via staged farmin
agreements
Hualilan Project is a high-grade gold / silver project with
extensive historical drilling and a 43-101 compliant foreign
resource estimate
El Guayabo is a breccia and porphyry gold / copper project
with sufficient historical information to identify multiple
targets including;
•
•
•
Breccia hosted mineralization - only 2 of 10 breccia
bodies systematically drill tested;
Extensive late stage vein system - never drill tested;
and
Underlying porphyry system target - never drill tested
Successful Reinstatement to Official Quotation on ASX with
the completion of the transaction with AEP Corporation Pty
Ltd on 4 July 2019
Completion of $5M Capital Raising at 3 cents per share to
progress exploration of the Hualilan Gold Project, Argentina
and the El Guaybo Copper Gold Project, Ecuador
Appointment of experienced exploration and mining
executives Fletcher Quinn, Kris Knauer and Scott Funston
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D I R E C T O R S ’ R E P O R T
REVIEW OF OPERATIONS
Corporate
Challenger completed the acquisition of 100% of the issued share capital of AEP Pty Ltd (“Acquisition”). AEP owns the
rights to earn in to 75% of the Hualilan Project in Argentina and 100% of the El Guayabo Project in Ecuador (collectively
referred to as the Projects. This also involved a change in name from Challenger Energy Limited to Challenger Exploration
Limited and the appointment of a new Board of Directors with requisite minerals exploration experience. The company’s
ASX Code remained CEL.
There was a consolidation of capital on a 1 for 5 basis.
Challenger Exploration Limited commenced trading on the Australian Securities Exchange (ASX) at 10am July 4 2019,
after successfully raising $5 million at $0.03 per share by the issue of 166,666,667 ordinary shares under a re-compliance
prospectus.
The El Guayabo Copper-Gold Project was last drilled by Newmont Mining in 1995 and 1997 targeting gold in
hydrothermal breccias. Historical drilling has demonstrated potential to host significant copper and associated gold
and silver mineralisation. Historical drilling has returned a number of ore grade intersections of plus 100m of intrusion
related breccia and vein hosted mineralisation. The Project has multiple targets including breccia hosted mineralization,
an extensive flat lying late stage vein system and an underlying porphyry system target neither of which has been drill
tested. CEL has a farmin agreement under which It can earn 100% of the project.
Figure 1 - Expanded IP Chargeability model along north-south IP line showing historical drilling
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Prospectus 2019
Challenger Exploration has two complementary advanced
exploration gold / copper targets in South America:
– High grade gold project with historic non JORC compliant resource(1) with
mineralisation open in most directions located in San Juan, Argentina
– Ecuador - Drilling has returned a number of intersections of greater than 100m
of mineralisation(2)
(1) Source “SRK Independent Geologist’s Report on the Mineral Assets of Challenger Energy Limited”
(2) Source “Company ASX Release 25 February 2019”
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C
err
o N
o
rte
Historical Cerro Norte
Mine Site
Hualilan Project Looking North –
Historical Cerro Sur Mine Site in
the foreground with Cerro Norte
to the top of the page.
Historical Cerro Sur Mine Site
Tailings Dumps
• Granted mining leases with a surrounding exploration licence application covering 26 square kilometres
• Close proximity to major gold mining operations with San Juan City, Argentina’s Kalgoorlie, only 2.5 hours drive
• 500 metres from a sealed highway and power lines being constructed 2km from project
• 4 x 4m production decline and two production drives installed in 1996 before gold collapse have never been used
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Geophysical Survey Campaign
During the quarter international geophysical company Quantec Geoscience, conducted a distributed array 3D-MT
(3D Magneto-Telluric) covering 16 km2 using its Spartan system. Two 2D IP/EMAP test lines were also collected using
Quantec’s deep-earth imaging Titan electrical geophysical system. The data was collected on a 300m spaced grid with
the location of the survey is shown In Figure 1.
Quantec was contracted by Solgold to undertake 3DIP-MT (3D Induced Polarisation and Magneto-Telluric) survey over
their Cascabel project in Ecuador. Whilst conventional IP systems typically see to depths of around 400m at best, the
Titan system can read IP effects to potential depths of 800m and beyond, and Spartan can read resistivity data to
potential depths of 2 kilometres and beyond using magneto-telluric measurements.
The Spartan and Titan systems are a very sophisticated survey technique and are designed to image the existing breccia
bodies (and their depth extensions), new breccia bodies, and to define porphyry targets to a depth of 2 km. Only widely
spaced airborne magnetics has previously been done over the property. The final survey results to which will be delivered
will consist of :
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Inversion 2D products
2D model sections (for each line) of the DC resistivity model;
IP chargeability model using the DC resistivity model as a reference;
IP chargeability model using a half-space resistivity model as a reference;
•
•
•
• MT(EMAP) resistivity model;
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Joint MT+DC resistivity model; IP chargeability model using the MT+DC resistivity model;
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Inversion 3D products
3D MT model;
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• Cross-sections and Elevation Plan maps of the 3D MT models;
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Figure 2 - Complete IP Chargeability model along north-south IP line
D I R E C T O R S ’ R E P O R T
Geophysical Survey Results
Results were received for the first IP line which was oriented north-south (A-B on Figure 3) and was designed to traverse
the copper breccia to test for possible extensions at depth. The IP Chargeability Section shown as Figure 1 has Identified
two key targets as well as a number of secondary targets.
The most noticeable feature on the chargeability section is a high chargeability zone starting just below site 2100 and
dipping to the north (24A). This zone can be correlated with the copper breccia which was Intersected by 6 drill holes
as listed In Table 1. These drill holes and the known copper breccia mineralisation is shown on Figure 1. Historical
drilling was completed to only 250-300m beneath surface with drill holes such as JDH-06 (116m @ 0.4% Cu + 0.6
g/t gold + 8.9 g/t silver) and GY-05 (150m @ 0.3% Cu + 0.4 g/t gold + 11.0 g/t silver). This chargeability-high increases
significantly in both width and intensity from 300m to 500m subsurface which is below the limit of the deepest drilling.
This chargeability high also shows a second higher grade zone (24B) which is approximately 500m-800m sub surface.
As part of the geophysical survey a program of measurement of the chargeability, magnetic susceptibility and resistivity
was undertaken across all rock types and mineralisation in the core. The high chargeability response of the mineralised
copper breccia, compared to all other known rock types intersected in the core, was confirmed by the program and
in addition this program showed a linear relationship between copper/gold grade and increasing chargeability in the
copper breccia samples. It should be noted that the chargeability response where Newmont undertook historical drilling
was 25-40 mrads whereas the chargeability response in the main part of this anomaly is 80-90 mrads.
A second main chargeability-high zone occurs approximately 600m south along strike (24C). This chargeability high
looks to be blind (does not reach surface), has a width of approximately 300m and extends at to at least 750m sub-
surface. A program of field reconnaissance has commenced to in the projected outcrop of this chargeability anomaly to
check for signs of leakage from a mineralised system below. This chargeability high could indicate another mineralised
breccia analogous to the copper breccia.
Additionally, there are two lower tenor chargeability anomalies further south along strike (24D) and (24E) on Figure 2.
Figure 3 – Plan View Geophysics survey and north-south IP Line (A-B)
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IP resistivity results
The IP Resistivity section is shown below In Figure 4. Of note Is that the more chargeable zone of the copper breccia
(24A) can be correlated with a more conductive zone 24F. Similarly, we can also correlate the more conductive zone
24G observed at 300-600m depth below site 2800N with the more chargeable zone which is interpreted as a deep
extension of the copper breccia (24B).
A small more conductive feature 24I is identified below site 1400N; that feature might be correlated with the more
chargeable zone 24C. Note here that a more resistive zone 24J is located between the two more conductive zones 24F
and 24I; that more resistive unit is non-chargeable.
CEL anticipates receiving the 2D chargeability and resistivity models and preliminary interpretation for the east-west IP
line shortly with the 3D-MT results after this. The company will wait for the complete survey results however given the
success of the IP test line in delineation the breccia targets, the company anticipates it will undertake additional IP lines
to better define these two breccia targets and explore for additional targets.
Historical drilling results
– 112m @ 0.6 % Cu +0.7 g/t Au +14.7 g/t Ag ;
– 116m @ 0.4% Cu + 0.6 g/t Au + 8.9 g/t Ag;
– 215m @ 0.4% Cu + 0.2 g/t Au + 9.6 g/t Ag
(incl 83m @ 0.5% Cu + 0.2 g/t Au + 14.9 g/t Ag)
24I
24F
24G
24J
Figure 4 - DC 2D Resistivity model along north-south IP line
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D I R E C T O R S ’ R E P O R T
The Hualilan Gold Project is a high-grade gold and silver prospect associated with a multi-phase porphyry intrusive.
It has extensive historical drilling with over excess of 150 drill-holes dating back to the 1970s. There has been limited
historical production reported despite having in excess of 6km of underground workings. The property was last explored
in 2006 by La Mancha Resources, a Toronto Stock Exchange listed company. La Mancha’s work resulted in NI43-101
(non-JORC) resource estimates that remain open in most directions. Exploration by La Mancha attempted to assess the
continuity of mineralisation across the property, but this is yet to be tested by systematic drilling. CEL has the rights to
earn up to 75% of the Project which comprises 15 mining licences and an exploration licence application covering the
surrounding 26km2s.
Foreign Resource Estimate Hualilan Project
La Mancha Resources 2003 foreign resource estimate for the Hualilan Project ^
Category
Measured
Indicated
Total of Measured & Indicated
Inferred
Tonnes
(kt)
218
226
445
977
Total of Measured, Indicated & Inferred
1,421
Gold Grade
(g/t)
Contained Gold
(koz)
14.2
14.6
14.4
13.4
13.7
100
106
206
421
627
^ Source: La Mancha Resources Toronto Stock Exchange Release dated 14 May 2003 -Independent Report on Gold Resource Estimate.
Rounding errors may be present. Troy ounces (oz) tabled here
For details of the foreign non-JORC compliant resource and to ensure compliance with LR 5.12 please refer to the
Company’s ASX Release dated 25 February 2019. These estimates are foreign estimates and not reported in accordance
with the JORC Code. A competent person has not done sufficient work to clarify the foreign estimates as a mineral
resource in accordance with the JORC Code. It is uncertain that following evaluation and/or further exploration work
that the foreign estimate will be able to be reported as a mineral resource. The company is not in possession of any new
information or data relating to the foreign estimates that materially impacts on the reliability of the estimates or CEL’s
ability to verify the foreign estimates estimate as minimal resources in accordance with Appendix 5A (JORC Code). The
company confirms that the supporting information provided in the initial market announcement on February 25 2019
continues to apply and is not materially changed
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The company commenced its on-ground exploration program at Hualilan with an underground bulk and channel
sampling program designed to validate the historic mineralisation and provide a representative grade of the mineralisation.
In addition to this, which is detailed below, CEL has engaged SRK Consulting to expand on the company’s 3D geological
model of the Hualilan deposit. This will incorporate all historical and new data including but not limited to:
Surface mapping/pit mapping
•
• Underground workings
• Drill holes
•
Topographic/satellite data and drone Images
SRK’s brief is to review the existing interpretation, identifying drillable targets on areas within the model and provide
recommendations made as to where and how to progress towards the estimation of a mineral resource that is reportable
under the JORC Code (2012). This will include guidance on the requirements for twin and infill drilling in the 2019 drilling
program required to facilitate mineral resource that is reportable under the JORC Code (2012). Results from this work are
expected to be received in the coming quarter.
In addition, the company has completed all environmental and safety work required at Cerro Sur by the mines department
and lodged Its EIS (Environmental Impact Statement) covering the Cerro Sur program and is close to finalising drilling
approval at Cerro Sur. The EIS and drilling permit applications are currently being finalised for the Cerro Norte portion
of the Project. The company Is also finalising a drilling contract. This contract will be for an initial 2000m of core drilling
broken into two 1000m segments with drilling targeted to begin in the current quarter.
Sampling Program Overview
During the quarter CEL undertook an underground channel sampling, underground ore stockpile sampling and sampling
of the mine dumps. This program was designed to validate the historic mineralisation and provide a representative grade
of the mineralisation. Where possible the sampling programme re-sampled the historical underground channel sampling
points used in the preparation of the historical non-JORC resource. The sampling was conducted over the majority
of the known zones of mineralisation including the Magnata Vein and Manto, Sentazon, Bicolor, Dona Justa Pit, Main
Manto, Muchilera, Northern Magnata. For the location of these zones within the larger Project the reader is referred to
Figures 3 and 4.
Results from the first half of the program from Cerro Sur are outlined in Table 1 and were discussed in detail in ASX
releases dated 9 July 2019 and 16 July 2019. Suffice to say that the results to date are highly encouraging on a number
of levels:
•
•
•
The results validate the historically reported mineralisation and its high-grade nature
The assays included some spectacular results, including the second highest assay ever recorded at Hualilan of
201 g/t Gold, 1560 g/t Silver and 3.3% Zinc from a 1 metre channel sample within a broader 5m zone grading
52.2 g/t Gold, 410 g/t Silver
and 6.1% Zinc - 5m channel
sample Magnata Adit
The gold grades we are
seeing are consistently 20%
above the reported historical
grades.
• High copper grades have
been encountered with
16.1%
grades
including
and 6.8% copper
(0.4m
and 1.1m channel samples
respectively) which were
never previously evaluated.
Photo - Dona Justa pit at Cerro Norte looking north. (Main Manto mineralisation continues to the North)
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D I R E C T O R S ’ R E P O R T
Figure 5 – Showing Hualilan Project
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Table 1: Initial sampling results from 2019 Hualilan Gold Project Sampling Programme
(1) Gold equivalent values were calculated using a price of US$1300 for Gold, US$15 for Silver and US$2500t Zinc. (Copper and lead were not
included as metallurgical test work has yet to demonstrate an economic path for the extraction of Copper and Lead. Recoveries were not
factored into the calculation of Gold equivalents given metallurgical test work is preliminary in nature)
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D I R E C T O R S ’ R E P O R T
Figure 6 – Showing Main Cerro Sur Mineralised Zones
(Source SRK Independent Geologist Report)
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Board Representation
In September 2018 Challenger announced the appointment of Robert Lees as Company Secretary and the resignation
of Adrien Wing.
In July 2019, Mr Fry, Mr Willes, Mr Carey and Mr Lees resigned from the Company.
In July 2019, Mr Fletcher Quinn, Mr Kris Knauer and Mr Scott Funston were appointed to the board of the Company.
Progress in South Africa
The Company continues to pursue its application for shale gas exploration rights in South Africa. As previously reported,
the Department of Mineral Resources is progressing a new petroleum resources development bill, and the Minister
reportedly indicated during his address in the debate on the Presidential State of the Nation Address in June that the bill
will soon undergo public participation, as part of the cabinet and parliamentary approval processes.
With regard to previously reported legal challenges to the Regulations for Petroleum Exploration and Production, on 4
July 2019 the Supreme Court of Appeal (SCA) heard a consolidated appeal in which the Minister of Mineral Resources
appealed the decision of the Eastern Cape High Court, which set aside the proposed Technical Regulations for Petroleum
Exploration and Exploitation, and in which the Treasure the Karoo Action Group (TKAG) and Afriforum appealed a decision
of the Pretoria High Court, which upheld the Technical Regulations.
The SCA dismissed the appeal of the Minister of Mineral Resources and upheld the appeal of the TKAG and Afriforum
and ruled that the Technical Regulations were published unlawfully and are therefore set aside. The decision of the
court was based on a procedural question and turned on whether the Minister of Mineral Resources had the power to
make regulations of an environmental nature. The Court found that the Minister did not have the power to make such
regulations, and since the greater part of the Technical Regulations were considered to be of an environmental nature,
the Minister did not have the power to make the Technical Regulations. Challenger understands that the Technical
Regulations may therefore need to be redrafted.
Competent Person Statement – Exploration results
The information in this release provided under ASX Listing Rules 5.12.2 to 5.12.7 is an accurate representation of the
available data and studies for the material mining project. The information that relates to sampling techniques and data,
exploration results and geological interpretation has been compiled by Mr John King who is a full-time employee of JRK
Consulting Pty Ltd. Mr King is a member of the Mining and Metallurgical Society of America and a senior fellow of the
Society for Economic Geologists in the USA. This is a Recognised Professional Organisation (RPO) under the Joint Ore
Reserves Committee (JORC) Code.
Mr King has sufficient experience of relevance to the styles of mineralisation and the types of deposits under consideration,
and to the activities undertaken, to qualify as a Competent Person as defined in the 2012 Edition of the Joint Ore Reserves
Committee (JORC) Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Mr King
consents to the inclusion in this report of the matters based on information in the form and context in which it appears.
The Australian Securities Exchange has not reviewed and does not accept responsibility for the accuracy or adequacy
of this release.
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D I R E C T O R S ’ R E P O R T
Competent Person Statement – Historical resources
The information in this release provided under ASX Listing Rules 5.12.2 to 5.12.7 is an accurate representation of the
available data and studies for the material mining project. The information that relates to Mineral Resources has been
compiled by Mr John King who is a full-time employee of JRK Consulting Pty Ltd. Mr King is a member of the Mining
and Metallurgical Society of America and a senior fellow of the Society for Economic Geologists in the USA. This is a
Recognised Professional Organisation (RPO) under the Joint Ore Reserves Committee (JORC) Code.
Mr King has sufficient experience of relevance to the styles of mineralisation and the types of deposits under consideration,
and to the activities undertaken, to qualify as a Competent Person as defined in the 2012 Edition of the Joint Ore Reserves
Committee (JORC) Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Mr King
consents to the inclusion in this report of the matters based on information in the form and context in which it appears.
The Australian Securities Exchange has not reviewed and does not accept responsibility for the accuracy or adequacy
of this release.
EVENTS SUBSEQUENT TO BALANCE DATE
On the 17 September 2019, the Company issued 3,333,334 shares as part of the deferred consideration shares, as
approved at a meeting of shareholders on 29 April 2019.
RESULTS OF OPERATIONS
The net loss after tax for the financial year ended 30 June 2019 for the Group was $5,834,974 (2018: Nil).
DIVIDENDS
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.
SIGNIFICANT CHANGES IN STATE OF AFFAIRS
During the financial year and up to the date of this report, Challenger completed the acquisition of 100% of the issued
share capital of AEP Pty Ltd (“Acquisition”). AEP owns the rights to earn in to 75% of the Hualilan Project in Argentina and
100% of the El Guayabo Project in Ecuador (collectively referred to as the Projects. This also involved a change in name
from Challenger Energy Limited to Challenger Exploration Limited and the appointment of a new Board of Directors with
requisite minerals exploration experience.
LIKELY DEVELOPMENTS AND EXPECTED RESULTS
Likely developments in the operations of the Company are set out in the above review of operations in this annual
financial report. Any future prospects are dependent upon the results of future exploration and evaluation.
ENVIRONMENTAL REGULATIONS
The Group carries or carried out operations that are subject to environmental regulations under legislation in Ecuador
and Argentina. The Group has formal procedures in place to ensure regulations are adhered to. The Group is not aware
of any breaches in relation to environmental matters.
20
REMUNERATION REPORT (Audited)
REMUNERATION POLICY
The remuneration policy of the Group has been designed to align Director objectives with shareholder and business
objectives by providing a fixed remuneration component that is assessed on an annual basis in line with market rates. The
Board of Challenger Exploration 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. The remuneration policy, setting the terms and conditions for executive and non-executive directors and
other senior staff members, was developed and approved by the Board.
The Board’s policy for determining the nature and amount of remuneration for board members is as follows:
In determining competitive remuneration rates, the Board considers local and international trends among comparative
companies and the industry generally so that executive remuneration is in line with market practice and is reasonable in
the context of Australian executive reward practices. All executives receive a base salary (which is based on factors such
as length of service and experience), superannuation, and may be issued options or performance shares from time to
time.
The Group is currently an exploration entity, and therefore speculative in terms of performance. Consistent with attracting
and retaining talented executives, Executive Directors and Senior Executives are paid market rates associated with
individuals in similar positions within the same industry. Options and performance incentives may be issued particularly
if the Group moves from an exploration towards a producing entity and key performance indicators such as market
capitalisation and production and reserves growth can be used as measurements for assessing executive performance.
All remuneration paid to Executive Directors and Senior Executives is valued at the cost to the Company and expensed.
Options are valued using the Black-Scholes methodology, which takes account of factors such as the option exercise
price, the current level and volatility of the underlying share price and the time to maturity of the option. Although a value
is ascribed and included in total remuneration, it should be noted that the Executive Directors and Senior Executives have
not received this amount and the option may have no actual financial value unless the options achieve their exercise
price.
The Board policy is to remunerate non-executive Directors at market rates for comparable companies for time,
commitment and responsibilities. The Board determines payments to the non-executive Directors and reviews their
remuneration annually, based on market practice, duties and accountability. 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 and they do not receive performance shares
or options, however, to align non-executive Directors’ interests with shareholder interests, the Directors are encouraged
to hold shares in the Company.
The Company may engage remuneration consultants from time to time. The Company will ensure any recommendation
from a remuneration consultant will be made free from undue influence from any members of Key Management
Personnel. The Company did not engage remuneration consultants for the year ended 30 June 2019.
20
21
D I R E C T O R S ’ R E P O R T
KEY MANAGEMENT PERSONNEL
(a) Details of Key Management Personnel
Fletcher Quinn – Non Executive Chairman(a)
Kris Knauer – Managing Director(a)
Scott Funston – Executive Director(a)
Michael Fry – Non-Executive Chairman(b)
Robert Willes – Managing Director(b)
Clinton Carey – Non-Executive Director(b)
(a) Mr Quinn, Mr Knauer and Mr Funston were appointed 4 July 2019
(b)Mr Fry, Mr Willes and Mr Carey resigned 4 July 2019
Directors’ remuneration and other terms of employment are reviewed annually by the non-executive Directors having
regard to performance against goals set at the start of the year, and relative comparative information.
Except as detailed in Notes (b) – (d) below, no Director has received or become entitled to receive, during or since the
financial year, a benefit because of a contract made by the Company or a related body corporate with a director, a firm
of which a director is a member or an entity in which a director has a substantial financial interest.
Hualilan Underground Channel Sampling
Photo showing the collection of underground channel sample 485108 which returned 36.9 g/t Gold, 302 g/t Silver and
10.6% Zinc over 1m within a broader 5m zone grading 52.2 g/t Gold, 410 g/t Silver and 6.1% Zinc (Refer to ASX Release
of 16 July 2019)
22
(b) Compensation of Key Management Personnel
Remuneration Policy
The Board of Directors is responsible for determining and reviewing compensation arrangements for the executive team.
The Board will assess the appropriateness of the nature and amount of emoluments of such officers on a periodic basis
by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder
benefit from the retention of a high quality Board and executive team. Remuneration of Key Management Personnel is
set out below.
The value of remuneration received or receivable by Key Management Personnel for the financial year ended 30 June
2019 is as follows:
Primary
Equity Compen-
sation
Post-employment
Perform-
ance
Related
%
Base
Salary
and Fees
$
Bonus and
Non Monetary
Benefits
$
Value of
Performance
Rights / Shares
$
Superannuation
Contributions
$
Termin-
ation
Benefits
$
TOTAL
$
2019
Directors
Fletcher Quinn(a)
Kris Knauer(a)
Scott Funston(a)(c)
Michael Fry(b)
Robert Willes(b)
Total 2019
-
-
25,000
-
18,265
43,265
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,735
1,735
(a) Mr Quinn, Mr Knauer and Mr Funston were appointed 4 July 2019
(b) Mr Fry, Mr Willes and Mr Carey resigned 4 July 2019
(c) Mr Funston was paid fees from AEP Corporation Pty Ltd during the financial year
2018
Directors
Michael Fry
Robert Willes
Bill Bloking
Clinton Carey
Executives
Adrien Wing
Total 2018
55,000
318,750
57,167
-
60,000
490,917
-
-
-
-
-
-
-
-
-
-
-
25,000
-
-
(6,548)
(6,548)
-
25,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
25,000
-
20,000
45,000
55,000
343,750
57,167
-
53,452
509,369
-
-
-
-
-
-
-
-
-
-
-
22
23
D I R E C T O R S ’ R E P O R T
(c) Compensation Options
No options were granted to Key Management Personnel of the Group during the year.
There have been no alterations to the terms and conditions of options granted as remuneration since their grant date.
(d) Share, Option and Performance Rights holdings
Options and Performance Rights may be issued to Key Management Personnel as part of their remuneration. The
Options and Performance Rights are issued to increase goal congruence between Executives, Executive Directors and
Shareholders. Options and Performance Rights are not issued to Non-Executive Directors.
(e) Employment Contracts of Key Management Personnel
AEP Corporation Pty Ltd and Mr Kris Knauer entered into an agreement on 5 May 2019 pursuant to which Mr Knauer
was appointed as managing director of AEP. The Company, AEP and Mr Knauer, have subsequently agreed, that upon
Settlement of the Proposed Acquisition, the Company assumed the obligations of AEP under the agreement, the material
terms and conditions of the agreement are set out below:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(Commencement Date): The date of the Company’s re-admission to the Official List.
(Term): Two (2) years from the Commencement Date or until validly terminated.
(Remuneration): Mr Knauer will receive a base salary of $240,000 per annum (including
superannuation).
(Incentives): Mr Knauer is eligible to receive Securities under the Company’s Incentive Option Plan
and Performance Rights Plan.
(Accrued Entitlements): All entitlements that have accrued to Mr Knauer prior to the date of this
agreement will be honoured by the Company.
(Termination): The Company may terminate the agreement by providing six (6) months’ written
notice.
(Expenses): Mr Knauer is entitled to reimbursement for all reasonable travelling expenses,
accommodation and general expenses incurred in the performance of his duties under the
agreement.
AEP Corporation Pty Ltd and Scott Funston entered into an agreement pursuant to which Mr Funston was
appointed as company secretary, chief financial officer and finance director of AEP. The Company, AEP and
Mr Funston, have subsequently agreed, that upon Settlement the Company will assume the obligations of AEP
under the agreement, the material terms and conditions of the agreement are set out below:
(h)
(i)
(j)
(k)
(l)
(m)
(n)
(o)
(Position): Company Secretary, Chief Financial Officer and Finance Director
(Commencement Date): One (1) day after the Company’s re-admission to the Official List.
(Term): Two (2) years from the Commencement Date or until validly terminated.
(Remuneration): Mr Funston will receive a base salary of $150,000 per annum (including
superannuation).
(Incentives): Mr Funston is eligible to receive Securities under the Company’s Incentive Option Plan
and Performance Rights Plan.
(Accrued Entitlements): All entitlements that have accrued to Mr Funston prior to the date of this
agreement will be honoured by the Company.
(Termination): The agreement may be terminated by either party by providing three (3) months
written notice.
(Expenses): Mr Funston is entitled to reimbursement for all reasonable travelling expenses,
accommodation and general expenses incurred in the performance of his duties under the
agreement.
24
Pursuant to an agreement executed on 20 August 2008, Mr Michael Fry provided services to the Group as a Non-Executive
Chairman. The broad terms of this agreement include remuneration payable of $60,000 per annum. The agreement
may be terminated by either party by providing 3 months written notice and upon payment of any outstanding fees for
services rendered.
Effective 21 June 2018, Mr Fry agreed to forego all fees yet to be paid for his capacity as non-executive chairman of the
Company up to and including the date of his resignation on 4 July 2019.
On 3 April 2013, the Group entered into an executive services agreement with Mr Robert Willes under which Mr Willes
receives a salary package of $375,000 per annum inclusive of superannuation for Mr Willes’ services as Managing Director
of the Group. The agreement may be terminated by either party by providing 3 months written notice and, in the case of
termination by the Company without reason, upon payment of three months’ salary. Further provisions apply in respect
of any unissued Retention Shares and/or unvested Incentive Shares.
As part of his remuneration package, and as approved by shareholders at the EGM held 22 August 2013, Mr Willes will
be issued 4,000,000 fully paid ordinary shares (“Retention Shares”) in the Company in equal 6 monthly instalments of
666,667 Retention Shares for a period of 36 months. The issue of Retention Shares is conditional on Mr Willes remaining
an employee of the Company as at the date the respective Retention Shares are issued. The final two instalments of shares
required to be issued for 1,333,334 shares in total are yet to be issued at the date of this report and will not be issued.
Effective 21 June 2018, components of remuneration for Mr Willes in his capacity as Managing Director were altered.
These changes included:
•
•
foregoing $518,750 of fees yet to be paid for his capacity as Managing Director up to and including 31 May 2018;
receiving $200,000 of fees yet to be paid for his capacity as Managing Director in cash at the time the Company
completes a further capital raising of at least $1,000,000;
• waive any entitlement to receive fees (as Managing Director) on and from 1 June 2018 until such time as the
Company completes the pro-rata non-renounceable entitlement offer as announced on 13 June 2018 (Rights
Issue); and
•
on and from completion of the Rights Issue, receive remuneration of $10,000 per month for a three-month term,
such amount to be revisited at the end of this three-month period.
Mr Willes has agreed to forgo all remuneration that may be payable to him under his agreement up to the date of his
resignation on 4 July 2019.
Under an established Performance Rights Plan, Mr Willes has been issued 16,000,000 Performance Rights in the following
tranches and subject to the following vesting conditions:
•
•
•
•
Tranche 1 – 4,000,000 Performance Rights (fair value of $69,593 – refer to Note 11 for further details) vest on
completion of 12 months continuous employment with the Company and the Company having or achieving a
market capitalization of $100m or greater by no later than 7 April 2016. These Performance Rights have expired.
Tranche 2 – 4,000,000 Performance Rights (fair value of $1,707 – refer to Note 11 for further details) vest on
completion of 24 months continuous employment with the Company and the Company having or achieving a
market capitalization of $200m or greater by no later than 7 April 2018. These Performance Rights have expired.
Tranche 3 – 4,000,000 Performance Rights (fair value of $308,000 – refer to Note 11 for further details) vest on
completion of 36 months continuous employment with the Company and the Company having or achieving a 3P
resource in excess of 1TCF by no later than 7 April 2018. These Performance Rights have expired.
Tranche 4 – 4,000,000 Performance Rights (fair value of $308,000 – refer to Note 11 for further details) vest on
completion of 36 months continuous employment with the Company and either the Company by no later than 7
April 2020:
•
•
•
announcing that its interests in the Karoo Basin, South Africa can be commercially developed; or
receiving an independent reserves certification containing proved reserves; or
having or achieving a market capitalization of $500m or greater.
It is not currently considered probable the Tranche 4 Performance Rights will vest.
24
25
At the completion of the consolidation of the issued capital on a 1 for 5 basis, Mr Willes held 800,000 performance rights
at year end under the Tranche 4 Performance Rights.
(f) Shares held by Key Management Personnel
Directors
Fletcher Quinn(a)
Kris Knauer(a)
Scott Funston(a)
Michael Fry(b)
Robert Willes(b)
Clinton Carey(b)
Balance
at 1.7.18
Shares
Issued(c)
Net Change
Other(d)
Balance
at 30.06.19
43,309,850
14,435,000
1,666,667
(34,647,880)
39,308,332
(11,548,000)
10,328,637
42,195,332
-
3,666,667
-
3,666,667
1,832,965
2,666,668
250,000
-
-
-
(1,466,372)
(2,133,335)
(200,000)
366,593
533,333
50,000
62,494,483
44,641,666
(49,995,587)
57,140,562
(a) Mr Quinn, Mr Knauer and Mr Funston were appointed 4 July 2019
(b) Mr Fry, Mr Willes and Mr Carey resigned 4 July 2019
(c) Mr Quinn, Mr Knauer and Mr Funston were issued shares in Challenger pursuant to the Additional Offers in
Section 6 of the Prospectus dated 15 May 2019
(d) Shareholders approved a consolidation of capital on a 1 for 5 basis at a General Meeting held on 29 April 2019
No shares were issued by the Group during or since the financial year ended 30 June 2019 as a result of the exercise
of an option or performance right.
(g) Options held by Key Management Personnel
Balance
at
1.7.18
Options
Expired
Options
under offer
Prospectus(c)
Consolidation
of Capital(d)
Balance
at
30.06.19
Total
Vested
Total
Exercisable
Directors
Fletcher Quinn(a)
Kris Knauer(a)
Scott Funston(a)
Michael Fry(b)
Robert Willes(b)
Clinton Carey(b)
2,500,000
4,400,000
-
-
-
-
6,900,000
-
-
-
-
-
-
-
-
8,854,167
2,000,000
-
-
-
(2,000,000)
(3,520,000)
-
-
-
-
500,000
9,734,167
2,000,000
-
-
-
500,000
9,734,167(e)
2,000,000(e)
-
-
-
500,000
880,000
-
-
-
-
10,854,167
(5,520,000)
12,234,167
12,234,167
1,380,000
(a) Mr Quinn, Mr Knauer and Mr Funston were appointed 4 July 2019
(b) Mr Fry, Mr Willes and Mr Carey resigned 4 July 2019
(c) Mr Knauer and Mr Funston were issued options in Challenger pursuant to the Additional Offers in Section 6 of
the Prospectus dated 15 May 2019
(d) Shareholders approved a consolidation of capital on a 1 for 5 basis at a General Meeting held on 29 April 2019
(e) Unexercisable options are subject to escrow under ASX Listing Rules up to 4 July 2021
26
(h) Performance Shares held by Key Management Personnel
Balance
at
1.7.18
Received as
Remuneration
Performance
Shares
Expired
Net Change
Other
Balance
at
30.06.19
Total
Vested
Total
Exercisable
Directors
Fletcher Quinn(a)
Kris Knauer(a)
Scott Funston(a)
Michael Fry(b)
Robert Willes(b)
Clinton Carey(b)
-
-
-
-
4,000,000
-
4,000,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
37,000,000(c) 37,000,000
-
-
(3,200,000) (d) 800,000
-
-
-
-
- 33,800,000 37,800,000
-
-
-
-
-
-
-
-
-
-
-
-
(a) Mr Quinn, Mr Knauer and Mr Funston were appointed 4 July 2019
(b)Mr Fry, Mr Willes and Mr Carey resigned 4 July 2019
(c) Mr Knauer was issued performance shares in Challenger. They consist of 18,500,000 Performance A Shares
and 18,500,000 Performance B Shares pursuant to the Additional Offers in Section 6 of the Prospectus dated
15 May 2019. Details of Performance Shares are disclosed in Note 11 of the financial report.
(d) Shareholders approved a consolidation of capital on a 1 for 5 basis at a General Meeting held on 29 April 2019
END OF REMUNERATION REPORT
26
27
D I R E C T O R S ’ R E P O R T
OPTIONS
At the date of this report, 94,594,444 unlisted options over new ordinary shares in the Company were on issue:
Type
Unlisted
Unlisted
Date of Expiry
Exercise Price
Number under Option
30 June 2020
30 June 2022
$0.25
$0.04
6,950,000
87,644,444
No ordinary shares were issued upon the exercise of options during or since the financial year ended 30 June 2019.
PERFORMANCE SHARES
At the date of this report, 120,800,000 Performance Shares over new ordinary shares in the Company were on issue:
Type
Performance A
Performance B
Remuneration
Number
60,000,000
60,000,000
800,000
Performance A Rights have the following vesting conditions:
A JORC Compliant Mineral Resource Estimate of at least Inferred category on either Project of the following:
(i)
(ii)
(iii)
a minimum 500,000 ounces of gold (AU) or Gold Equivalent (in accordance with clause 50 of the JORC Code)
at a minimum grade of 6 grams per tonne Gold Equivalent; or
a minimum 1,500,000 ounces of gold (AU) or Gold Equivalent (in accordance with clause 50 of the JORC Code)
at a minimum grade of 2.0 grams per tonne Gold Equivalent; or
a minimum 3,000,000 ounces of gold (AU) or Gold Equivalent (in accordance with clause 50 of the JORC
Code) at a minimum grade of 1.0 grams per tonne Gold Equivalent.
Performance B Rights will vest on the completion and announcement by Challenger (subject to the provision of
information allowable at the time of completion) of a positive Scoping Study (as defined in the JORC Code) on either the
Hualilan Project or the El Guayabo Project by an independent third-party expert which evidences an internal rate of return
of US Ten Year Bond Rate plus 10% (using publicly available industry assumptions, including deliverable spot commodity /
mineral prices, which are independently verifiable) provided that the total cumulative EBITDA over the project life is over
US$50m,
The relevant interests held by each Director in shares, options and performance rights of the Company at the date of this
report are included in the Remuneration Report above.
No ordinary shares were issued upon the vesting of performance rights during or since the financial year ended 30 June
2019.
28
INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS
In accordance with the constitution, except as may be prohibited by the Corporations Act 2001, every officer, auditor
or agent of the Group shall be indemnified out of the property of the Group against any liability incurred by them in
their capacity as an officer, auditor 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 Company paid
insurance premiums in respect of Directors’ and Officers’ Liability Insurance contracts for current officers of the Company,
including officers of the Company’s controlled entities. The liabilities insured are damages and legal costs that may be
incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers
of entities in the Group. The total amount of insurance premiums paid has not been disclosed due to confidentiality
reasons.
PROCEEDINGS ON BEHALF OF THE COMPANY
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.
AUDITOR’S INDEPENDENCE DECLARATION
Section 307C of the Corporations Act 2001 requires our auditors, HLB Mann Judd, to provide the Directors of the
Company with an independence declaration in relation to the audit of the financial report.
The lead auditor’s independence declaration is set out on page 30 and forms part of the Directors’ Report for the year
ended 30 June 2019.
NON-AUDIT SERVICES
HLB Barnett Chown (South Africa), an overseas separate HLB firm, provided statutory compliance non-audit services of
$2,636 (2018: $2,563) during the year ended 30 June 2019.
HLB Mann Judd (WA Partnership) provided services for the Independent Accounting Report included in the Prospectus
dated 15 May 2019 of $12,000 (2018: $Nil).
This report is made in accordance with a resolution of the Directors.
Kris Knauer
Managing Director
27 September 2019
28
29
A U D I T O R ’ S I N D E P E N D E N C E D E C L A R A T I O N
A U D I T O R ’ S I N D E P E N D E N C E D E C L A R A T I O N
AUDITOR’S INDEPENDENCE DECLARATION
As lead auditor for the audit of the consolidated financial report of Challenger Exploration Limited
for the year ended 30 June 2019, I declare that to the best of my knowledge and belief, there
have been no contraventions of:
a)
the auditor independence requirements of the Corporations Act 2001 in relation to the
audit; and
b)
any applicable code of professional conduct in relation to the audit.
Perth, Western Australia
27 September 2019
B G McVeigh
Partner
30
30
31
C O N S O L I D A T E D S T A T E M E N T O F P R O F I T O R L O S S
A N D O T H E R C O M P R E H E N S I V E I N C O M E
F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9
Consolidated
Consolidated
Other income
Accounting and audit fees
Consultants’ fees
Legal and compliance
Listing premium on acquisition
Other
Profit/(loss) before income tax
Note
2
22
2019
$
300,028
(80,132)
(85,523)
(98,239)
(5,822,719)
(1,364)
(5,787,949)
Income tax expense
3
(47,025)
Net profit/(loss) for the year
(5,834,974)
Other comprehensive income:
Items that may be reclassified to profit or loss:
Exchange differences on translation of foreign operations
Income tax on other comprehensive income/(loss)
Other comprehensive income/(loss) for the year
-
-
-
Total comprehensive income/(loss) for the year
(5,834,974)
Earnings per share
Basic earnings/(loss) per share (cents)
Diluted earnings/(loss) per share (cents)
15
15
(6.50)
(6.50)
2018
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The accompanying notes form part of these financial statements.
32
C O N S O L I D A T E D S T A T E M E N T O F F I N A N C I A L P O S I T I O N
A S A T 3 0 J U N E 2 0 1 9
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Prepayments
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Deferred exploration and evaluation expenditure
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
Borrowings
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Deferred Tax Liability
TOTAL NON-CURRENT LIABIITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Issued capital
Reserves
Accumulated losses
TOTAL EQUITY
Consolidated
Consolidated
Note
2019
$
2018
$
4
5
6
7
8
3
9
10
5,043,935
87,941
827
5,132,703
3,277,843
3,277,843
8,410,546
729,027
467,780
1,196,807
47,025
47,025
1,243,832
7,166,714
13,000,904
784
(5,834,974)
7,166,714
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The accompanying notes form part of these financial statements.
32
33
C O N S O L I D A T E D S T A T E M E N T O F C H A N G E S I N E Q U I T Y
F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9
Consolidated
2019
Balance at 1 July 2018
Loss for the year
Other comprehensive loss
Total comprehensive loss for the year
Shares issued under Prospectus
Issued and paid up capital of AEP
Shares issued on reverse acquisition
- at fair value of the Company
Shares issued on conversion of loans
Issue of options
Share issue costs
Issued
Capital
$
-
-
-
-
5,180,000
2,258,740
5,113,048
1,050,000
-
(600,884)
Accumulated
Losses
$
-
(5,834,974)
-
(5,834,974)
-
-
-
-
-
-
Reserves
$
-
-
-
-
-
-
-
-
784
-
Total
$
-
(5,834,974)
-
(5,834,974)
5,180,000
2,258,740
5,113,048
1,050,000
784
(600,884)
Balance at 30 June 2019
13,000,904
(5,834,974)
784
(7,166,714)
Balance at 1 July 2017
Loss for the year
Other comprehensive loss
Total comprehensive loss for the year
Shares issued under Prospectus
Share issue costs
Balance at 30 June 2018
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The accompanying notes form part of these financial statements.
34
C O N S O L I D A T E D S T A T E M E N T O F C A S H F L O W S
F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9
Consolidated
Consolidated
Note
2019
$
2018
$
CASH FLOWS FROM OPERATING ACTIVITIES
Payments to suppliers and employees
Interest received
(657,124)
28
NET CASH USED IN OPERATING ACTIVITIES
4
(657,096)
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditure on exploration
Investment in subsidiary net of cash acquired
NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Loans received
Proceeds from share issue
NET CASH PROVIDED BY FINANCING ACTIVITIES
NET DECREASE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at beginning of the year
(2,521,846)
1,002
(2,520,844)
1,217,780
7,004,095
8,221,875
5,043,935
-
CASH AND CASH EQUIVALENTS AT END OF YEAR
4
5,043,935
The accompanying notes form part of these financial statements.
-
-
-
-
-
-
-
-
-
-
-
-
34
35
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S
F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9
1.
(a)
STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
Challenger Exploration Limited is a for-profit listed public company limited by shares that is incorporated and
domiciled in Australia. The Group has operations in Ecuador and Argentina and its principal activities are exploration
for gold and copper.
The financial report is a general-purpose financial report, which has been prepared in accordance with the
Corporations Act 2001, Accounting Standards and Interpretations, and complies with other requirements of the
law.
The financial information has been prepared on the accruals basis and is based on historical costs and does not
take into account changing money values. Cost is based on the fair values of the consideration given in exchange
for assets.
The financial report is presented in Australian dollars.
The financial report was authorised for issue on the date of the signing of the Directors’ Declaration.
The financial report complies with Australian Accounting Standards, which include Australian equivalents to
International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the financial report,
comprising the financial statements and notes thereto, complies with International Financial Reporting Standards
(IFRS).
The following is a summary of the accounting policies adopted by the Group in the preparation of the financial
information. The accounting policies have been consistently applied unless otherwise stated.
(b)
Adoption of new and revised standards
Standards and Interpretations applicable to 30 June 2019
In the year ended 30 June 2019, the Directors have adopted all of the new and revised Standards and Interpretations
issued by the AASB that are relevant to the Group and effective for the current annual reporting period. As a result
of this review the Directors have determined that there is no material impact of the new and revised Standards and
Interpretations on the Group and, therefore, no change is necessary to the Group’s accounting policies.
AASB 9 Financial Instruments
AASB 9 replaces AASB 139 Financial Instruments: Recognition and Measurement and makes changes to a number
of areas including classification of financial instruments, measurements, impairment of financial assets and hedge
accounting model.
The Group has adopted AASB 9 from 1 July 2018.
The standard introduced new classification and measurement models for financial assets. A financial asset shall
be measured at amortised cost if it is held within a business model whose objective is to hold assets in order to
collect contractual cash flows which arise on specified dates and that are solely principal and interest.
A debt investment shall be measured at fair value through other comprehensive income if it is held within a
business model whose objective is to both hold assets in order to collect contractual cash flows which arise on
specified dates that are solely principal and interest as well as selling the asset on the basis of its fair value.
All other financial assets are classified and measured at fair value through profit or loss unless the entity makes
an irrevocable election on initial recognition to present gains and losses on equity instruments (that are not held-
for-trading or contingent consideration recognised in a business combination) in other comprehensive income
(‘OCI’).
Despite these requirements, a financial asset may be irrevocably designated as measured at fair value through
profit or loss to reduce the effect of, or eliminate, an accounting mismatch.
36
For financial liabilities designated at fair value through profit or loss, the standard requires the portion of the
change in fair value that relates to the entity’s own credit risk to be presented in OCI (unless it would create an
accounting mismatch).
New simpler hedge accounting requirements are intended to more closely align the accounting treatment with
the risk management activities of the entity.
New impairment requirements use an ‘expected credit loss’ (‘ECL’) model to recognise an allowance. Impairment is
measured using a 12-month ECL method unless the credit risk on a financial instrument has increased significantly
since initial recognition in which case the lifetime ECL method is adopted. For receivables, a simplified approach
to measuring expected credit losses using a lifetime expected loss allowance is available.
It was determined that the adoption of AASB 9 had no impact on the Group.
AASB 15 Revenue from Contracts with Customers
AASB 15 replaces AASB 118 Revenue and AASB 111 Construction Contracts and related interpretations and it
applies to all revenue arising from contracts with customers, unless those contracts are in the scope of other
standards.
The Group has adopted AASB 15 from 1 July 2018.
AASB 15 establishes a single comprehensive income for entities to use in accounting for revenue arising from
contracts with customers.
It was determined that the adoption of AASB 15 had no impact on the Group.
Standards and Interpretations in issue not yet adopted
The Directors have also reviewed all Standards and Interpretations in issue not yet adopted for the year ended
30 June 2019. As a result of this review the Directors have determined that there is no material impact of the
Standards and Interpretations in issue not yet adopted on the Company and, therefore, no change is necessary
to Group accounting policies.
AASB 16
AASB 16 replaces AASB 17 Leases. AASB 16 removes the classification of leases as either operating leases of
finance leases for the lessee – effectively treating all leases as finance leases.
AASB 16 is applicable to annual reporting periods beginning on or after 1 July 19.
It was determined that the adoption of AASB 16 will have no impact on the Group.
(c)
Basis of Consolidation
The consolidated financial statements comprise of the separate financial statements of Challenger Exploration
Limited (“Company” or “Parent”) and its subsidiaries as at 30 June each year (the “Group”). Control is achieved
where the Company has the power to govern the financial and operating policies of an entity so as to obtain
benefits from its activities.
On 27 June 2019 Challenger Exploration Limited announced that all conditions precedent for the completion
and acquisition of AEP Corporation Pty Ltd through an off-market takeover bid for all of the ordinary shares in
AEP Corporation Pty Ltd on the basis of 1 Challenger Exploration Limited share for every 1 AEP Corporation Share.
As such the consolidation of these two companies was on the basis of the continuation of AEP Corporation with
no fair value adjustments, whereby AEP Corporation was deemed to be the accounting parent and Challenger
the legal parent.
The financial statement of the subsidiaries is prepared for the same reporting period as the Parent, using consistent
accounting policies.
All intercompany balances and transactions, income and expenses, and profits and losses from intra-group
transactions are eliminated in full on consolidation.
36
37
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S
F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9
Subsidiaries are fully consolidated from the date on which control is transferred to the Group and cease to be
consolidated from the date on which control is transferred out of the Group. Control exists where the Company
has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
The existence and effect of potential voting rights that are currently exercisable or convertible are considered
when assessing when the Group controls another entity.
Business combinations have been accounted for using the acquisition method of accounting. Investments in
subsidiaries are accounted for at cost in the separate financial statements of the parent entity less any impairment
charges. Dividends received from subsidiaries are recorded as a component of other revenues in the separate
statement of profit or loss and other comprehensive income of the parent entity, and do not impact the cost of the
investment. Upon receipt of dividend payments from subsidiaries, the parent will assess whether any indicators
of impairment of the carrying value of the investment in the subsidiary exist. Where such indicators exist, to the
extent that the carrying value of the investment exceeds its recoverable amount, an impairment loss is recognised.
Non-controlling interests represent the portion of profit or loss and net assets in subsidiaries not held by the Group
and are presented separately in the consolidated statement of profit or loss and other comprehensive income
and within equity in the consolidated statement of financial position. Losses are attributed to the non-controlling
interest even if it results in a deficit balance.
(d)
Income Tax
Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be
recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are
those that are enacted, or substantively enacted, as at the end of the reporting period.
Deferred income tax is provided on all temporary differences as at the end of the reporting period between the
tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax
liabilities are recognised for all taxable temporary differences except:
• when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability
in a transaction that is not a business combination and that, at the time of the transaction, affects neither
the accounting profit nor taxable profit or loss; or
• when the taxable temporary difference is associated with investments in subsidiaries, associates or
interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and
it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax
assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which
the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be
utilised, except:
• when the deferred income tax asset relating to the deductible temporary difference arises from the initial
recognition of an asset or liability in a transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable profit or loss; or
• when the deductible temporary difference is associated with investments in subsidiaries, associates or
interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is
probable that the temporary difference will reverse in the foreseeable future and taxable profit will be
available against which the temporary difference can be utilised.
The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and reduced
to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the
deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance
date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred
tax asset to be recovered.
38
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year
when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted, or
substantively enacted, as at the end of the reporting period.
Income taxes relating to items recognised directly in equity are recognised in equity and not in profit or loss.
Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current
tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity
and the same taxation authority.
(e)
Exploration and Evaluation Expenditure
Exploration and evaluation expenditures in relation to each separate area of interest are recognised as an
exploration and evaluation asset in the year in which they are incurred where the following conditions are satisfied:
(a)
the rights to tenure of the area of interest are current; and
(b) at least one of the following conditions is also met:
(i)
the exploration and evaluation expenditures are expected to be recouped through
successful development and exploitation of the area of interest, or alternatively, by its sale;
or
(ii) exploration and evaluation activities in the area of interest have not at the balance date
reached a stage which permits a reasonable assessment of the existence or otherwise of
economically recoverable reserves, and active and significant operations in, or in relation
to, the area of interest are continuing.
Exploration and evaluation assets are initially measured at cost and include acquisition of rights to explore,
studies, exploratory drilling, trenching and sampling and associated activities and an allocation of depreciation
and amortised of asset used in exploration and evaluation activities. General and administrative costs are only
included in the measurement of exploration and evaluation costs where they are related directly to operational
activities in a particular area of interest.
Exploration and evaluation assets are assessed for impairment when facts and circumstances suggest that the
carrying amount of an exploration and evaluation asset may exceed its recoverable amount. The recoverable
amount of the exploration and evaluation asset (for the cash generating unit(s) to which it has been allocated
being no larger than the relevant area of interest) is estimated to determine the extent of the impairment loss
(if any). Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the
revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not
exceed the carrying amount that would have been determined had no impairment loss been recognised for the
asset in previous years.
Where a decision has been made to proceed with development in respect of a particular area of interest,
the relevant exploration and evaluation asset is tested for impairment and the balance is then reclassified to
development.
The directors believe this policy results in relevant and reliable information in the financial report. Exploration
and evaluation assets are inherently uncertain and expensing as incurred results in a more transparent balance
sheet and profit and loss. Furthermore, this adopted accounting policy is consistent with those of many other
exploration and mining companies.
(f)
Trade and Other Payables
Trade payables and other payables are carried at amortised cost and represent liabilities for goods and services
provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes
obliged to make future payments in respect of the purchase of these goods and services. Amounts are unsecured
and are usually paid within 30 to 45 days of recognition.
38
39
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S
F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9
(g)
Cash and Cash Equivalents
Cash comprises cash at bank and in hand. Cash equivalents are short term, highly liquid investments that are
readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
Bank overdrafts are shown within borrowings in current liabilities in the statement of financial position.
For the purpose of the statement of cash flows, cash consists of cash and cash equivalents as defined above, net
of bank overdrafts.
(h)
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 statement of cash flows on a gross basis. The GST components of cash flows
arising from investing and financing activities that are recoverable from, or payable to, the ATO are classified as
operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the
ATO.
(i)
Foreign Currency Translation
Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange
rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are
retranslated at the rate of exchange ruling at the end of the reporting period.
All exchange differences in the consolidated financial report are taken to profit or loss with the exception of
differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity.
These are taken directly to equity until the disposal of the net investment, at which time they are recognised in
profit or loss.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the
exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign
currency are translated using the exchange rates at the date when the fair value was determined.
The functional currencies of the Group are United States Dollars (USD), South African Rand (ZAR) and Australian
Dollars (AUD). The presentation currency is Australian Dollars (AUD).
As at reporting date the assets and liabilities of the subsidiaries are translated into the presentation currency of
Challenger Exploration at the rate of exchange ruling at the end of the reporting period and income and expenses
are translated at the weighted average exchange rate for the year.
The exchange differences arising on the translation are taken directly to a separate component of equity, being
recognised in the foreign currency translation reserve.
On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular
foreign operation is recognised in profit or loss.
40
(j)
Earnings Per Share (“EPS”)
Basic earnings per share is calculated as net profit or loss attributable to members of the parent, 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 any bonus element.
Diluted EPS is calculated as net profit or loss attributable to members of the parent, 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 shares and dilutive potential shares, adjusted for any bonus element.
(k)
Segment Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the Board of Directors.
(l)
Trade and Other Receivables
Trade receivables are measured on initial recognition at fair value and are subsequently measured at amortised
cost using the effective interest rate method, less provision for impairment. Trade receivables are generally due
for settlement within periods ranging from 15 days to 30 days.
A provision for impairment is established based on 12-month expected credit losses unless there has been a
significant increase in credit risk when lifetime expected credit losses are recognised. The amount of any provision
is recognised in profit or loss.
(m)
Issued Capital
Issued and paid up capital is recognised at the fair value of the consideration received. Any transaction costs arising
on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received.
(n)
Operating Leases
The minimum lease payments of operating leases, where the lessor effectively retains substantially all of the risks
and benefits of ownership of the leased item, are recognised as an expense on a straight-line basis.
(o)
Revenue
The following specific recognition criteria must also be met before revenue is recognised:
Interest
Interest revenue is recognised when control of the right to receive the interest payment.
40
41
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S
F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9
(p)
Property, Plant & Equipment
Property, plant & equipment is measured at cost less accumulated depreciation and any accumulated impairment
losses. Depreciation is provided on a straight line basis on all property, plant and equipment over 3 years. The
assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each
financial year end.
(i)
Impairment
The carrying values of plant and equipment are reviewed for impairment at each reporting date, with
recoverable amount being estimated when events or changes in circumstances indicate that the carrying
value may be impaired.
The recoverable amount of plant and equipment is the higher of fair value less costs to sell and value in use.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-
tax discount rate that reflects current market assessments of the time value of money and the risks specific
to the asset.
For an asset that does not generate largely independent cash inflows, recoverable amount is determined
for the cash-generating unit to which the asset belongs, unless the asset’s value in use can be estimated to
be close to its approximate fair value.
An impairment exists when the carrying value of an asset or cash-generating units exceeds its estimated
recoverable amount. The asset or cash-generating unit is then written down to its recoverable amount.
For plant and equipment, impairment losses are recognised in the statement of profit or loss and other
comprehensive income in the cost of sales line item.
(ii) Derecognition and disposal
An item of property, plant and equipment is derecognised upon disposal or when no further future
economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the
asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset)
is included in profit or loss in the year the asset is derecognised.
(q)
Share-based Payment Transactions
Equity settled transactions:
The Group provides benefits to employees (including senior executives) of the Group in the form of share-
based payments, whereby employees render services in exchange for shares or rights over shares (equity-settled
transactions).
The cost of equity-settled transactions with employees is measured 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 external valuer using the Black
& Scholes option-pricing model. In valuing equity-settled transactions, no account is taken of any performance
conditions, other than conditions linked to the price of the shares of Challenger Exploration Limited.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the
period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant
employees become fully entitled to the award (the vesting period).
The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date
reflects (i) the extent to which the vesting period has expired and (ii) the Group’s best estimate of the number
of equity instruments that will ultimately vest. No adjustment is made for the likelihood of market performance
conditions being met as the effect of these conditions is included in the determination of fair value at grant
date. The statement of profit or loss and other comprehensive income charge or credit for a period represents
the movement in cumulative expense recognised as at the beginning and end of that period. No expense is
recognised for awards that do not ultimately vest, except for awards where vesting is only conditional upon a
market condition.
42
If the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had
not been modified. In addition, an expense is recognised for any modification that increases the total fair value of
the share-based payment arrangement, or is otherwise beneficial to the employee, measured at the modification
date.
If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense
not yet recognised for the award is recognised immediately. However, if a new award is substituted for the
cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new
award are treated as if they were a modification of the original award, as described in the previous paragraph.
The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of
earnings per share.
(r) Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past
event, it is probable that an outflow of resources embodying economic benefits will be required to settle the
obligation and a reliable estimate can be made of the amount of the obligation. Provisions are not recognised
for future operating losses.
When the Group expects some or all of a provision to be reimbursed, for example under an insurance contract,
the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The
expense relating to any provision is presented in the statement of profit or loss and other comprehensive income
net of any reimbursement.
Provisions are measured at the present value or management’s best estimate of the expenditure required to settle
the present obligation at the end of the reporting period. If the effect of the time value of money is material,
provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability. When discounting
is used, the increase in the provision due to the passage of time is recognised as a borrowing cost.
(s) Employee leave benefits
Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within
12 months of the balance date are recognised in other payables in respect of employees’ services up to the
balance date. They are measured at the amounts expected to be paid when the liabilities are settled.
(t)
Critical Accounting Judgements and Key Sources of Estimation Uncertainty
The application of accounting policies requires the Group’s management to make estimates and assumptions
that affect the carrying values of assets and liabilities that are not readily apparent from other sources. The
determination of estimates requires the exercise of judgment based on various assumptions and other factors
such as historical experience, current and expected economic conditions and expectations of future events that
are believed to be reasonable under the circumstances. Actual results could differ from those estimates.
Estimates and underlying assumptions are evaluated on an ongoing basis.
Revisions are recognised in the period in which the estimate is revised if it affects only that period, or in the period
of the revision and future periods if the revision affects both current and future periods.
The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying
amounts of the assets and liabilities within the next financial year are discussed below.
Share-based Payments
The Group measures the cost of equity-settled transactions with employees and consultants, where the fair value
of the services provided cannot be reliably measured by reference to the fair value at grant date using the Black
& Scholes formula, taking into account the terms and conditions upon which the instruments were granted. The
assumptions used are detailed in Note 11.
42
43
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S
F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9
Exploration and evaluation expenditure
The application of the Group’s accounting policy for exploration and evaluation expenditure requires judgment
in determining whether it is likely that future economic benefits are likely either from future exploitation or sale
or where activities have not reached a stage which permits a reasonable assessment of the existence of reserves.
The determination of a Joint Ore Reserves Committee (JORC) resource is itself an estimation process that
requires varying degrees of uncertainty depending on sub-classification and these estimates directly impact the
point of deferral of exploration and evaluation expenditure. The deferral policy requires management to make
certain estimates and assumptions about future events or circumstances, in particular whether an economically
viable extraction operation can be established. Estimates and assumptions made may change if new information
becomes available.
(u)
Going Concern
The financial statements have been prepared on the going concern basis, which contemplates continuity of
normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of
business.
(v)
Parent Entity Disclosures
The financial information for the parent entity, is the legal parent Challenger Exploration Limited, disclosed in note
21 has been prepared on the same basis as the consolidated financial statements, except as set out below.
Investments in subsidiaries
Investments in subsidiaries are accounted for at cost in the parent entity’s financial statements.
(w)
Reverse Asset Acquisition
On 25 February 2019 Challenger Exploration Limited (formerly Challenger Energy Limited) announced a binding
Heads of Agreement to acquire 100% of the issued capital in AEP Corporation Pty Ltd. For accounting purposes,
the acquisition of AEP by Challenger has the features of a reverse acquisition under Australian Accounting
Standard AASB 3 “Business Combination” notwithstanding that the Company is the legal parent of the Group.
Consequently, the historical financial information presented in this Report for the year ended 30 June 2019 is the
historical information of AEP Corporation Pty Ltd.
The legal structure of the Group subsequent to the acquisition of Challenger Exploration Limited is that Challenger
is the legal entity. However, the principles of reverse acquisition accounting are applicable where the owner of the
acquired entity (in this case, the Challenger) obtain control of the acquiring entity (in this case, AEP) as a result of
the business’ combination.
Under reverse acquisition accounting, the consolidated statements are issued under the name of the legal parent
(Challenger) but are a continuation of the financial statements of the legal subsidiary (AEP), with assets and
liabilities of the legal subsidiary being recognizes and measured at their pre-combination carrying amounts rather
than their fair values.
44
2.
REVENUE
Capital gain from loan forgiveness
Interest received
3.
INCOME TAX
The prima facie tax benefit on profit/(loss) before income
tax is reconciled to the income tax expense as follows:
Net profit/(loss) before income tax
Prima facie tax expense/(benefit) on result
before income tax at 27.5% (2018: 27.5%)
Add:
- Listing premium on acquisition
- Share based payments
- Movements in provisions, accruals and prepayments
Less:
- Black hole expenditure deductions
- Benefit of tax losses and other temporary differences
not brought to account
Income tax expense/(benefit)
The following deferred tax balances have not been recognised:
Deferred tax assets at 27.5% (2018: 27.5%):
Carry forward revenue losses
Capital raising costs
Provisions, accruals and prepayments
Capitalised exploration costs
Consolidated
Consolidated
2019
$
2018
$
300,000
28
300,028
-
-
-
(5,787,949)
(1,591,686)
1,601,248
49,500
6,862
(33,049)
14,150
47,025
917,983
33,049
(6,862)
(901,407)
42,763
-
-
-
-
-
-
-
-
-
-
-
-
-
The tax benefits of the above deferred tax assets will only be obtained if:
(a)
the Group derives future assessable income of a nature and of an amount sufficient to enable
the benefits to be utilised;
(b)
the Group continues to comply with the conditions for deductibility imposed by law; and
(c) no changes in income tax legislation adversely affect the Group in utilising the benefits.
44
45
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S
F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9
4. CASH AND CASH EQUIVALENTS
For the purposes of the statement of cash flows, cash and cash equivalents comprise cash on hand and at bank
and investments in money market instruments, net of outstanding bank overdrafts. Cash at bank earns interest at
floating rates based on a daily bank deposit rate.
Reconciliation of net loss after tax to the net cash flows from operations:
Consolidated
Consolidated
2019
$
2018
$
Net profit/(loss)
(5,834,974)
Non cash items:
Deferred Tax Liability
Listing premium on acquisition
Changes in assets and liabilities
(Increase)/Decrease in receivables and prepayments
(Decrease)/Increase in payables and accruals
Net cash flows used in from operating activities
Changes in liabilities arising from financing activities:
Opening balance
Loans received
Loans converted to equity
Net cash from financing activities
Closing balance
5.
TRADE & OTHER RECEIVABLES
Current
Other receivables
47,025
5,822,719
(88,762)
(603,104)
(657,096)
-
1,217,780
(750,000)
467,780
467,780
87,941
-
-
-
-
-
-
-
-
-
-
-
These amounts arise from the usual operating activities of the Company and are non-interest bearing. The debtors
do not contain any overdue or impaired receivables.
6.
CAPITALISED EXPLORATION AND ACQUISITION COSTS
Non-current
Deferred exploration and evaluation expenditure
Opening balance
Exploration and evaluation expenditure
Acquisition costs
Closing balance
3,277,843
-
3,086,608
191,235
3,277,843
-
-
-
-
-
The recoupment of costs carried forward in relation to areas of interest in the exploration and evaluation phase is
dependent on the successful development and commercial exploitation or sale of the respective areas.
46
Consolidated
Consolidated
2019
$
2018
$
7.
TRADE & OTHER PAYABLES
Current
Trade creditors and accruals
729,027
Terms and conditions:
Trade creditors are non-interest bearing and are normally settled on 30-day terms.
8.
BORROWINGS
Current
Unsecured loans
467,780
-
-
The Company has entered into an unsecured loan facility on arm’s length terms from a non-related party to
Challenger for the amount of $467,780 to pay for incurred exploration expenditure between 31 March 2019
and financial year end. The repayment of this amount will come from the proceeds of the Public Offer from the
Prospectus dated 15 May 2019 and will be repaid post year end.
Changes in liabilities arising from financing activities
Opening Balance (unsecured loan)
Net cash from financing activities
Less: converted into equity
9.
ISSUED CAPITAL
Issued Capital
Movement in ordinary shares on issue
-
1,217,780
(750,000)
467,780
13,000,904
-
-
-
-
-
Consolidated 2019
$
No
Consolidated 2018
No
$
At start of period
existing shares of AEP post-consolidation
Elimination of historical numbers of AEP shares
Existing shares of Challenger post-consolidation
Elimination of historical value of Challenger
Shares issued to acquire AEP
Shares issued pursuant to the Prospectus
Conversion of AEP loan facility
Conversion of loans from various lenders
Shares issued to lead manager
Transaction costs relating to issued shares
-
180,000,000
(180,000,000)
11,893,459
-
180,000,000
166,666,667
25,000,000
10,000,000
6,000,000
-
-
2,258,740
-
32,017,360
(32,017,360)
5,113,048
5,000,000
750,000
300,000
180,000
(600,884)
465,560,126
13,000,904
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
46
47
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S
F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9
The movement in ordinary shares during year ended 30 June 2019 is comprised of the following transactions:
166,666,667 shares were issued for cash, 180,000,000 shares were issued as consideration shares for the AEP
Corporation Pty Ltd Vendor Offer, 10,000,000 shares were issued for the third party lender offer, 6,000,000 shares
were issued to advisors to the offer, 25,000,000 shares were issued on the conversion of a third party lender offer.
All shares issued for the offers are as outlined in the Challenger Prospectus dated 15 May 2019 and approved at a
meeting of shareholders on 29 April 2019.
During the financial year ended 30 June 2019, no ordinary shares were issued as a result of the exercise of options.
(b) Terms and Conditions
Ordinary shares entitle their holder the right to receive dividends as declared and, in the event of the winding up
of the Company, to participate in the proceeds from the sale of surplus assets in proportion to the number of and
amounts paid on shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a
Company meeting.
10. RESERVES
Options reserve
Options reserve
At beginning of reporting period
Balance at end of reporting period
11. OPTIONS
Consolidated
Consolidated
2019
$
2018
$
784
784
784
-
-
-
At the date of this report, 94,594,444 unlisted options over new ordinary shares in the Company were on issue:
Type
Unlisted
Unlisted
Date of Expiry
Exercise Price
Number under Option
30 June 2020
30 June 2022
$0.25
$0.04
6,950,000
87,644,444
No ordinary shares were issued upon the exercise of options during or since the financial year ended 30 June
2019.
12. PERFORMANCE RIGHTS
At the date of this report, 120,800,000 Performance Shares over new ordinary shares in the Company were on
issue:
Type
Performance A
Performance B
Remuneration
Number
60,000,000
60,000,000
800,000
Please refer to the Remuneration Report above for full details, terms and conditions of the Remuneration Performance
Shares.
48
Performance A Rights have the following vesting conditions:
A JORC Compliant Mineral Resource Estimate of at least Inferred category on either Project of the following:
i.
ii.
iii.
a minimum 500,000 ounces of gold (AU) or Gold Equivalent (in accordance with clause 50 of the JORC
Code) at a minimum grade of 6 grams per tonne Gold Equivalent; or
a minimum 1,500,000 ounces of gold (AU) or Gold Equivalent (in accordance with clause 50 of the JORC
Code) at a minimum grade of 2.0 grams per tonne Gold Equivalent; or
a minimum 3,000,000 ounces of gold (AU) or Gold Equivalent (in accordance with clause 50 of the JORC
Code) at a minimum grade of 1.0 grams per tonne Gold Equivalent.
Performance B Rights will vest on the completion and announcement by Challenger (subject to the provision of
information allowable at the time of completion) of a positive Scoping Study (as defined in the JORC Code) on
either the Hualilan Project or the El Guayabo Project by an independent third-party expert which evidences an
internal rate of return of US Ten Year Bond Rate plus 10% (using publicly available industry assumptions, including
deliverable spot commodity / mineral prices, which are independently verifiable) provided that the total cumulative
EBITDA over the project life is over US$50m,
The relevant interests held by each Director in shares, options and performance rights of the Company at the date
of this report are included in the Remuneration Report above.
No ordinary shares were issued upon the vesting of performance rights during or since the financial year ended
30 June 2019.
Options reserve is used to record the proceeds of issued share options.
13.
KEY MANAGEMENT PERSONNEL EMOLUMENTS
(a)
Details of Key Management Personnel
Fletcher Quinn – Non Executive Chairman(a)
Kris Knauer – Managing Director(a)
Scott Funston – Executive Director(a)
Michael Fry – Non-Executive Chairman(b)
Robert Willes – Managing Director(b)
Clinton Carey – Non-Executive Director(b)
(a) Mr Quinn, Mr Knauer and Mr Funston were appointed 4 July 2019
(b)Mr Fry, Mr Willes and Mr Carey resigned 4 July 2019
Directors’ remuneration and other terms of employment are reviewed annually by the non-executive Directors
having regard to performance against goals set at the start of the period, relative comparative information and
independent expert advice, as appropriate.
(b) Compensation of Key Management Personnel
The aggregate compensation paid to Directors and other members of key management personnel is out below:
Short-term employee benefits
Post-employment benefits
Share-based payments
Consolidated
Consolidated
2019
$
43,265
1,735
-
45,000
2018
$
-
-
-
-
Further details of key management personnel remuneration have been included in the Remuneration Report section of
the Directors’ Report.
48
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N O T E S T O T H E F I N A N C I A L S T A T E M E N T S
F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9
(c) Other Transactions with Key Management Personnel
Mr Funston is a director of Resourceful International Consulting Pty Ltd. Resourceful has provided his services as
Director, Company Secretary and CFO to a value of $25,000 (2018: $Nil) to Challenger during the year on normal
commercial terms.
(d) Amounts owing to Key Management Personnel
There were no amounts outstanding to Key Management Personnel as at 30 June 2019.
14.
SEGMENT INFORMATION
The Group is organised into one segment, being exploration operations. This operating segment is based on the
internal reports that are reviewed and used by the Board of Directors (who are identified as the Chief Operating
Decision Makers (“CODM”)) in assessing performance and in determining the allocation of resources.
30 June 2019
Interest Income
Loan Forgiveness
Segment Revenue
Australia
$
Ecuador
$
Argentina
$
Consolidated
$
28
300,000
300,028
-
-
28
300,000
300,028
-
-
Segment profit / (loss) before income tax
(5,674,319)
(67,935)
(45,295)
(5,787,549)
Segment assets
Segment liabilities
Included within segment loss
Listing premium on acquisition
Included within segment assets
Cash at bank
Non-current asset additions:
Exploration and evaluation
5,132,703
3,101,229
176,614
8,410,546
1,052,597
191,235
-
1,243,832
5,822,719
5,043,935
-
-
-
-
5,822,719
5,043,935
-
3,101,229
176,614
3,277,843
Cash flow information
Net cashflow outflows from operating activities
Net cashflow outflows from investing activities
Net cashflow inflows from financing activities
(598,037)
-
8,221,875
(13,764)
(2,344,230)
-
(45,295)
(176,614)
-
(657,096)
(2,520,844)
8,221,875
For the year ended 30 June 2018, no comparatives were existing.
50
Consolidated
Consolidated
2019
$
2018
$
15.
EARNINGS PER SHARE
The following reflects the profit/(loss) and share data used
in the calculation of basic and diluted earnings per share (EPS):
Profit/(Loss) used in calculation of basic and diluted EPS
(5,787,943)
-
Weighted average number of ordinary shares on issue used in
the calculation of basic and diluted EPS
(i)
There are no dilutive impacts on EPS.
Number
Number
88,991,176
-
16.
RELATED PARTY DISCLOSURE
Interest in subsidiaries
The consolidated financial statements include the financial statements of Challenger Exploration Limited and
the subsidiaries listed in the following table:
Name
Country of Incorporation
Percentage of equity interest held
by the Group
Bundu Oil & Gas Exploration (Pty) Ltd
Sunset Texas Exploration LLC
Challenger Texas Energy LLC
Challenger Texas Energy
Operating LLC
Afro-Asian Resources Pty Ltd
Ecuador Mining Pty Ltd
South Africa
USA
USA
USA
Australia
Australia
2019
95%
100%
100%
100%
100%
100%
2018
95%
100%
100%
100%
-
-
Bundu Oil & Gas Exploration does not have a material non-controlling interest in the Group.
17. AUDITOR’S REMUNERATION
Amounts received or due and receivable by the auditor:
-
HLB Mann Judd (WA Partnership) - audit or review of the
financial reports of the Company
Amounts received or due and receivable by overseas separate firms:
- HLB Mann Judd (WA Partnership) – Independent Experts
Report for Prospectus
-
HLB Barnett Chown (South Africa) – statutory compliance services
Consolidated
Consolidated
2019
$
2018
$
37,500
12,000
2,636
52,136
-
-
-
-
50
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N O T E S T O T H E F I N A N C I A L S T A T E M E N T S
F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9
18.
FINANCIAL INSTRUMENTS
(a)
Financial risk management and risk policies
The Group’s principal financial instruments comprise of cash and short-term deposits. The main purpose of these
financial instruments is to hold funds for the entity’s operations. The entity has various other financial assets and
liabilities such as trade receivables and trade payables, which arise directly from its operations. It is, and has been
throughout the period under review, the entity’s policy that no trading in financial instruments shall be undertaken.
The main risks arising from the entity’s financial instruments are cash flow interest rate risk, liquidity risk, foreign
currency risk and credit risk. The Board reviews and agrees policies for managing each of these risks and they are
summarised below.
(b)
Significant accounting policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis
of measurement and the basis on which income and expenses are recognised, in respect of each class of financial
asset and financial liability are disclosed in Note 1 to the financial statements.
(c)
Interest rate risk
The Group is exposed to movements in market interest rates on short term deposits. The policy is to monitor the
interest rate yield curve out to 120 days to ensure a balance is maintained between the liquidity of cash assets and
the interest rate return. The Group does not have short or long term debt, and therefore this risk is minimal.
The table below reflects the undiscounted contractual settlement terms for financial instruments of a fixed period
of maturity, as well as management’s expectations of the settlement period for all other financial instruments. As
such, the amounts might not reconcile to the statement of financial position.
2019
Consolidated
FINANCIAL ASSETS
Non-interest bearing
Variable interest rate instruments
FINANCIAL LIABILITIES
Non-interest bearing
Variable interest rate instruments
NET FINANCIAL ASSETS
Interest Rate Sensitivity Analysis
Rate
0.01%
Less than
1 month
$
1 to 3
months
$
3 months
to 1 year
$
1 to 5
years
$
Total
$
88,768
5,043,935
5,132,703
(729,027)
-
4,403,676
-
-
-
-
-
-
-
-
-
(467,780)
-
-
-
-
-
-
88,768
5,043,935
5,132,703
(1,196,807)
-
(467,780)
- 3,935,896
At reporting date, if interest rates had been 50 basis points higher or lower than the prevailing rates realised, with
all other variable held constant, there would have been an immaterial change in post tax loss for the year. The
impact on equity would have been the same.
There was no exposure to interest rate risk in 2019.
(d) Net fair values of financial assets and liabilities
All financial assets and liabilities have been recognised at the balance date at their net fair values.
The following methods and assumptions are used to determine the net fair values of financial assets and liabilities:
Recognised Financial Instruments
Cash and cash equivalents: The carrying amount approximates fair value because of their short-term maturity.
Receivables, payables and borrowings: The carrying amount approximates fair value.
52
(e)
Credit risk exposures
The Group’s maximum exposure to credit risk at each balance date in relation to each class of recognised
financial assets is the carrying amount, net of any allowance for doubtful debts, of those assets as indicated in the
statement of financial position. The maximum credit risk exposure on receivables of the Group at 30 June 2019
is $87,941. There are no impaired receivables at 30 June 2019.
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss
to the Group. The 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
exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of
transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty
limits that are reviewed and approved annually. The Group measures credit risk on a fair value basis.
Concentration of Credit Risk
The Group is not exposed to any individual customer.
(f)
Liquidity risk management
The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing
facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial
assets and liabilities. The Group does not have any bank debt.
(g)
Foreign exchange risk management
The Group is exposed to US Dollar (USD) and South African Rand (ZAR) currency fluctuations. At 30 June 2019,
there would have been an immaterial change in the post-tax operating loss for the year as a result of a 10% change
in the Australian Dollar (AUD) to the USD and ZAR. The impact to equity would be the same.
(h) Capital Risk Management
The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, so that
it may continue to provide returns for shareholders and benefits for other stakeholders.
Due to the nature of the Group’s activities, being oil and gas exploration, it does not have ready access to credit
facilities, with the primary source of funding being equity raisings. Accordingly, the objective of the Group’s capital
risk management is to balance the current working capital position against the requirements of the Group to meet
exploration programmes and corporate overheads. This is achieved by maintaining appropriate liquidity to meet
anticipated operating requirements, with a view to initiating appropriate capital raisings as required.
19. CONTINGENT ASSETS AND LIABILITIES
There are no contingent liabilities or contingent assets.
20.
COMMITMENTS FOR EXPENDITURE
There are no commitments for expenditure as at 30 June 2019 (2018: $Nil).
52
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N O T E S T O T H E F I N A N C I A L S T A T E M E N T S
F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9
21. PARENT ENTITY DISCLOSURES
Information relating to Challenger Exploration Limited, the legal Parent entity, is detailed below:
Financial position
Assets
Current assets
Non-current assets
Total assets
Liabilities
Current liabilities
Total liabilities
Net Assets / (Deficiency)
Equity
Issued capital
Accumulated losses
Reserves
Total equity / (deficiency)
Financial performance
Profit/(Loss) for the year
Other comprehensive income
Total comprehensive income/(loss)
22. REVERSE ACQUISITION ACCOUNTING
2019
$
2018
$
5,297,464
7,841,190
13,138,654
378,025
378,025
121,902
-
121,902
573,200
573,200
12,760,629
(451,298)
43,046,471
(32,829,698)
2,543,856
32,017,355
(35,691,716)
3,223,063
12,760,629
(451,298)
2,862,018
-
2,862,018
16,968
-
16,968
On 27 June 2019 Challenger Exploration Limited announced that all conditions precedent for the completion
and acquisition of AEP Corporation Pty Ltd through an off-market takeover bid for all of the ordinary shares in
AEP Corporation Pty Ltd on the basis of 1 Challenger Exploration Limited share for every 1 AEP Corporation Share.
Additionally, 78,444,444 consideration options and 120,000,000 consideration performance shares were issued
on a post consolidation basis.
Under the Acquisition, Challenger Exploration Limited acquired all the shares in AEP Corporation Pty Ltd by
issuing 180,000,000 shares in Challenger Exploration to AEP Corporation shareholders, giving AEP Corporation
(accounting parent) a controlling interest in Challenger Exploration (accounting subsidiary) and equating to a
controlling interest in the combined entity. Wolf Operations was thus been deemed the acquirer for accounting
purposes as it owned 69.80% of the consolidated entity. The acquisition of AEP Corporation by Challenger
Exploration is not deemed to be a business combination, as Challenger Exploration is not considered to be a
business under AASB 3 Business Combinations.
As such the consolidation of these two companies was on the basis of the continuation of AEP Corporation
with no fair value adjustments, whereby AEP Corporation was deemed to be the accounting parent. Therefore
the most appropriate treatment for the transaction was to account for it under AASB 2 Share Based Payments,
whereby AEP Corporation is deemed to have issued shares to Challenger Exploration Shareholders in exchange
for the net assets held by Challenger Exploration.
54
In this instance, the value of the Challenger Exploration shares provided was been determined as the notional
number of equity instruments that the shareholders of AEP Corporation would have had to issue to Challenger
Exploration to give the owners of Challenger Exploration the same percentage ownership in the combined entity.
It has been deemed to be $5,113,048.
The pre-acquisition equity balances of Challenger Exploration are eliminated against this increase in Share
Capital of $5,113,048 on consolidation and the balance is deemed to be the amount paid for the listing status of
Challenger Exploration, being $5,822,719 (recognised as a share-based payment in the statement of profit or loss).
Details of the pre-combination carrying amounts of the assets and liabilities of the acquire are as follows:
Net Assets Acquired:
Cash and cash equivalents
Trade and other receivables
Exploration and evaluation assets
Creditors and Borrowings
Net Assets
Listing expense:
Acquisition consideration
Add: Net liabilities of Challenger Exploration Limited
Total
Reconciliation of cash and cash equivalents to net cash acquired:
Cash and cash equivalents at 27 June 2019 – Challenger
Proceeds from acquisition
Total
23. SUBSEQUENT EVENTS
$
42,708
77,782
191,325
(1,021,486)
(709,671)
5,113,048
709,671
5,822,719
42,708
(41,706)
1,002
On the 17 September 2019, the Company issued 3,333,334 shares as part of the deferred consideration shares, as
approved at a meeting of shareholders on 29 April 2019.
54
55
D I R E C T O R S ’ D E C L A R A T I O N
1.
The Directors of the Company declare that:
a.
the financial statements, notes and the additional disclosures are in accordance with the Corporations Act
2001 including:
i.
ii.
giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its performance
for the year then ended; and
complying with Australian Accounting Standards, the Corporations Regulations 2001, professional
reporting requirements and other mandatory requirements;
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 financial statements and notes thereto are in accordance with International Financial Reporting Standards
issued by the International Accounting Standards Board.
b.
c.
2.
This declaration has been made after receiving the declarations required to be made to the Directors in
accordance with Section 295A of the Corporations Act 2001 for the financial year ended 30 June 2019.
This declaration is signed in accordance with a resolution of the Board of Directors.
Mr Kris Knauer
Managing Director
27 September 2019
56
I N D E P E N D E N T A U D I T O R ’ S R E P O R T
INDEPENDENT AUDITOR’S REPORT
To the members of Challenger Exploration Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Challenger Exploration Limited (“the Company”) and its
controlled entities (“the Group”), which comprises the consolidated statement of financial position
as at 30 June 2019, the consolidated statement of profit and 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, the accompanying financial report of the Group is in accordance with the
Corporations Act 2001, including:
a)
giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its
financial performance for the year then ended; and
b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities
under those standards are further described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report. We are independent of the Group in accordance with the
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.
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. We have determined the matters described below to
be the key audit matters to be communicated in our report.
56
57
I N D E P E N D E N T A U D I T O R ’ S R E P O R T
Key Audit Matter
How our audit addressed the key audit
matter
Acquisition of AEP Corporation Pty Limited
Note 22
During the year, the Group completed am asset
acquisition under reverse acquisition principles of AEP
Corporation Pty Limited which holds tenement rights in
two different South American projects by the issue of
shares, options and performance shares to
the
vendors.
We considered this acquisition to be a key audit matter
as it is material and required judgement in relation to
measurement of the consideration paid.
Our audit procedures included but were not
limited to the following:
- We read the acquisition agreements
to understand their key terms and
conditions;
- We agreed the fair value of the
to supporting
consideration paid
information; and
- We determined
that
the asset
acquisition was correctly recorded in
accordance with
the Group’s
accounting policies and in line with
the principles of AASB 3 Business
Combination requirements.
We assessed the adequacy of the Group’s
disclosures in the financial report with
respect to the acquisition.
Information other than the financial report and auditor’s report thereon
The directors are responsible for the other information. The other information comprises the
information included in the Group’s annual report for the year ended 30 June 2019, but does not
include the financial report and our auditor’s report thereon.
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 preparing the financial report, the directors are responsible for assessing the ability of the Group
to continue as a going concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the directors either intend to liquidate the Group
or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with Australian Auditing Standards will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are
58
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 Group’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 Group’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 Group 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.
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.
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.
58
59
I N D E P E N D E N T A U D I T O R ’ S R E P O R T
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included within the directors’ report for the year ended
30 June 2019.
In our opinion, the Remuneration Report of Challenger Exploration Limited for the year ended 30
June 2019 complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the Remuneration Report, based on our audit conducted
in accordance with Australian Auditing Standards
HLB Mann Judd
Chartered Accountants
Perth, Western Australia
27 September 2019
B G McVeigh
Partner
60
A D D I T I O N A L S H A R E H O L D E R S ’ I N F O R M A T I O N
Additional information required by the Australian Stock Exchange Ltd and not shown elsewhere in this report is as follows.
The information is current at 25 September 2019.
Substantial Shareholders
The names of the substantial shareholders who have notified the Company in accordance with Section 671B of the
Corporations Act 2001 as at 25 September 2019:
Shareholder
Kris Knauer
Distribution of Shareholders
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
TOTAL
Top 20 Shareholders
Number
42,195,332
Number of Holders
Number of Shares
Ordinary Shares
110
226
114
438
357
1,245
38,327
645,220
929,303
17,681,482
449,599,128
468,893,460
The names of the twenty largest holders of each class of quoted equity security, the number of equity security each
holds and the percentage of capital each holds (as at 25 September 2019) is as follows:
Rank Holder Name
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
*MONEYBUNG PL
HSBC CUSTODY NOM AUST LTD
*STRANDLINE INV PL
EASTERN CAP GRP LLC
*DOMAEVO PL
*JAWAF ENTPS PL
*AUSEPEN PL
*BERNARD LAVERTY PL
*SANPEREZ PL
ALTHAUS PINCHAS
*FRENEY CHRIS
LQ SUPER PL
GREENWOOD M A + CHRISTIAN
JACQUELINE KAY PL
E & E HALL PL
MOWBRICK PTE LTD
ALLEN JAMES HENDERSON
BOLLENBACH INV LP
BENNETT J + SKAFTE K
BROWN WARREN W + M H
Units
39,308,332
19,738,205
19,657,225
19,100,000
14,766,667
12,726,667
11,300,000
9,966,666
7,497,866
6,000,000
5,833,333
5,833,260
5,434,064
5,312,684
5,300,000
5,100,000
5,000,000
4,666,667
4,650,000
4,511,667
%
8.38%
4.21%
4.19%
4.07%
3.15%
2.71%
2.41%
2.13%
1.60%
1.28%
1.24%
1.24%
1.16%
1.13%
1.13%
1.09%
1.07%
1.00%
0.99%
0.96%
TOTAL
211,703,303
45.14%
60
61
A D D I T I O N A L S H A R E H O L D E R S ’ I N F O R M A T I O N
Restricted Securities
The following securities are restricted securities:
Escrowed 24 months from listing date
On-Market Buy Back
There is no current on-market buy back.
Voting Rights
All ordinary shares carry one vote per share without restriction.
Ordinary Shares
100,666,667
Interests in Tenements Held
Project
Property Name
Tenure Title
Holder
Interest
%
AREA
(ha)
DNPM No
of Area
Status of
Tenure
El Guayabo
El Guayabo
Torata Mining Resources S.A
earning 100%
281
COD225
Granted
Hualilan
Divisadero
Golden Mining S.R.L.
earning 75%
Hualilan
Flor de Hualilan
Golden Mining S.R.L.
as above
Hualilan
Pereyra y Aciar
Golden Mining S.R.L.
as above
Hualilan
Hualilan
Hualilan
Hualilan
Hualilan
Hualilan
Hualilan
Bicolor
Golden Mining S.R.L.
as above
Sentazon
Golden Mining S.R.L.
as above
Muchilera
Golden Mining S.R.L.
as above
Magnata
Golden Mining S.R.L.
as above
Pizarro
La Toro
Golden Mining S.R.L.
as above
CIA GPL S.R.L.
La Puntilla
CIA GPL S.R.L.
Hualilan
Pique de Ortega
CIA GPL S.R.L.
Hualilan
Descrubidora
CIA GPL S.R.L.
Hualilan
Hualilan
Hualilan
Pardo
Sanchez
CIA GPL S.R.L.
CIA GPL S.R.L.
Andacollo
CIA GPL S.R.L.
as above
as above
as above
as above
as above
as above
as above
6
6
6
6
6
6
6
6
6
6
6
6
6
6
6
5448-M-1960
Granted
5448-M-1960
Granted
5448-M-1960
Granted
5448-M-1960
Granted
5448-M-1960
Granted
5448-M-1960
Granted
5448-M-1960
Granted
5448-M-1960
Granted
5448-M-1960
Granted
5448-M-1960
Granted
5448-M-1960
Granted
5448-M-1960
Granted
5448-M-1960
Granted
5448-M-1960
Granted
5448-M-1960
Granted
Hualilan
North of “Pizarro” Mine
Golden Mining S.R.L.
as above
1.9
195-152-C-1981
Granted
Hualilan
South of “La Toro” Mine
CIA GPL S.R.L.
as above
1.9
195-152-C-1981
Granted
Hualilan
Josefina
Golden Mining S.R.L.
as above
2570
30.591.654
Pending
62
ASX Waivers
The ASX granted the Company a waiver from ASX Listing Rule 7.3.2 to permit the notice of meeting (the “Notice”) seeking
shareholder approval for the issue of up to 245,000,001 fully paid ordinary shares in the Company (“Waiver Securities”)
upon the Company satisfying the milestones in relation to each of the Projects (“Milestones”) not to state that the Waiver
Securities will be issued within 3 months of the date of the shareholder meeting.
The Waiver Securities must be issued no later than 60 months after the date of reinstatement of the Company’s securities
to official quotation.
3,333,334 Securities were issued on 17 September 2019.
The total Earn-In Shares will be issued progressively subject to the achievement of the following milestones:
El Guayabo Project Milestones
Project Interest
Cumulative Interest
Project Milestones
19.9%
15.1%
16%
49%
19.9%
35%
51%
100%
Existing interest in the project
Minimum expenditure on project of A$2m - ~1 Year after relisting
Minimum expenditure on project of A$3m - ~3 Years after relisting
180m CEL shares payable at the sole discretion of the Board of CEL.
Shares to be issued no later than 15 December 2022.
Hualilan Project Milestones
•
•
•
•
•
A payment of 1.667 million shares (being shares in CEL assuming the Transaction completes) to Cerro Sur owners
for assignment of Cerro Norte farmin due no later than one month after re-listing on the ASX.
A milestone payment of 1.667 million shares (being shares in CEL assuming the Transaction completes) due on 22
June 2019.
Minimum expenditure of A$1 million on the Hualilan Project.
The issue of a 11.667 million shares (being shares in CEL assuming the Transaction completes) no later than 1 July
2020 to acquire a 25% interest in the project.
Completion of a Definitive Feasibility Study within five years and the issue of 50 million shares (being shares in CEL
assuming the Transaction completes) to move from 25% to 75% of the project.
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63
A D D I T I O N A L S H A R E H O L D E R S ’ I N F O R M A T I O N
Performance Shares
The Company has 60,000,000 Class A Performance Shares and 60,000,000 Class B Performance Shares on Issue.
A summary of the terms and conditions of the Performance Shares are as follows:
The Performance Shares shall automatically convert into Shares, provided that if the number of Shares that would be
issued upon such conversion is greater than 10% of the Company’s Shares on issue as at the date of conversion, then
that number of Performance Shares that is equal to 10% of the Company’s Shares on issue as at the date of conversion
under this paragraph will automatically convert into an equivalent number of Company Shares. The conversion will be
completed on a pro rata basis across each class of Performance Shares then on issue as well as on a pro rata basis for
each Holder. Performance Shares that are not converted into Shares under this paragraph will continue to be held by
the Holders on the same terms and conditions.
(No Conversion if Milestone not Achieved): If the relevant Milestone is not achieved by the required date (being seven
years from the date of the Proposed Acquisition or such other date as required by ASX), then all Performance Shares held
by each Holder shall lapse.
(After Conversion): The Shares issued on conversion of the Performance Shares will, as and from 5.00pm (WST) on
the date of issue, rank equally with and confer rights identical with all other Shares then on issue and application will be
made by the Company to ASX for official quotation of the Shares issued upon conversion (subject to complying with any
restriction periods required by the ASX).
(Milestones): The Performance Shares will, convert upon the satisfaction of the following milestones:
(Class A): A JORC Compliant Mineral Resource Estimate of at least Inferred category on either Project of the
following:
a minimum 500,000 ounces of gold (AU) or Gold Equivalent (in accordance with clause 50 of the
JORC Code) at a minimum grade of 6 grams per tonne Gold Equivalent; or
a minimum 1,500,000 ounces of gold (AU) or Gold Equivalent (in accordance with clause 50 of the
JORC Code) at a minimum grade of 2.0 grams per tonne Gold Equivalent; or
a minimum 3,000,000 ounces of gold (AU) or Gold Equivalent (in accordance with clause 50 of the
JORC Code) at a minimum grade of 1.0 grams per tonne Gold Equivalent;
(Class B): The Class B Performance Shares held by the holder will convert into an equal number of Shares upon
the Company:
Completion and announcement by CEL (subject to the provision of information allowable at the time
of completion) of a positive Scoping Study (as defined in the JORC Code) on either Project by an
independent third-party expert which evidences an internal rate of return of US Ten Year Bond Rate
plus 10% (using publicly available industry assumptions, including deliverable spot commodity / mineral
prices, which are independently verifiable) provided that the total cumulative EBITDA over the project
life is over US$50m.
No Performance Milestones have been met.
64
www.challengerex.com.au
64
www.challengerex.com.au