Annual Report 2018 COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Eds_p13a 24 August 2018 12:12 PM Contents Highlights of FY2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Messages from the Co-Chairmen . . . . . . . . . . . . . . . . 4 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Message from the Chief Executive Officer . . . . . . 5 Corporate governance . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Clean TeQ Sunrise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Financial report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Clean TeQ Water . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Corporate directory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IBC Technology development . . . . . . . . . . . . . . . . . . . . . . . . 12 COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Eds_p13a 24 August 2018 12:12 PM 1 OUR VISION AND VALUES Clean TeQ’s vision is to empower the clean revolution . We apply our proprietary technologies to find better ways to solve planet earth’s most pressing environmental problems . INVESTED We achieve positive outcomes for all our stakeholders. We are committed to creating and sustaining value from Clean TeQ’s core technologies. EMPOWER THE CLEAN REVOLUTION CONNECTED We actively interact to leverage our combined capabilities and create mutually beneficial outcomes. PREPARED TO BE DIFFERENT We have the courage to pursue excellence and are prepared to do things differently to add value, while managing the risks in our business. Clean TeQ Holdings Limited Annual Report 2018 COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Eds_p13a 24 August 2018 12:12 PM 2 Highlights of the Year The 2018 Financial Year has been one of significant advancement for Clean TeQ. With many notable achievements over the year, we are well positioned to deliver on our vision to empower the clean revolution. SIGNIFICANTLY ADVANCED DEVELOPMENT OF CLEAN TEQ SUNRISE Outstanding progress made on engineering, design, technical studies, permitting and government and community engagement SECURED FUNDING TO ACCELERATE PROJECT DEVELOPMENT A$155 million capital raising completed in March 2018 to fund the Project’s early works and detailed engineering COMPLETED CLEAN TEQ SUNRISE DEFINITIVE FEASIBILITY STUDY A key Project milestone, completed in June 2018, which demonstrated the Project’s outstanding technical and economic outcomes MAIDEN PRODUCT OFFTAKE AGREEMENT SIGNED Binding product offtake agreement with Beijing Easpring for nickel and cobalt sulphate in August 2017 STRONG PROGRESS ON DELIVERY OF MULTIPLE PROJECTS BY CLEAN TEQ WATER Completed construction of Oman Project; Fosterville Gold and DRC projects well advanced PIPELINE OF OPPORTUNITIES DEVELOPED FOR NEW WATER PROJECTS Several feasibility studies and pilot programs underway EXPANDED STRATEGIC PARTNERSHIPS Agreements with Chinalco and Chongqing University for scandium alloy development added to existing partnerships with Airbus and UAC INCREASED MARKET RECOGNITION Successful Toronto Stock Exchange Listing and inclusion in the S&P/ASX 200 All Australian Index COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Eds_p13a 24 August 2018 12:12 PM 3 Looking ahead… As we look to the future, Clean TeQ is focused on several key milestones which will position the business for future success and generate strong returns for our stakeholders. FINALISE PRODUCT OFFTAKE AGREEMENTS AND COMPLETE FINANCING FOR CLEAN TEQ SUNRISE PROJECT COMPLETE EARLY WORKS AND FRONT-END ENGINEERING AND DESIGN (FEED) BEFORE COMMENCING CONSTRUCTION IN 2019 FINALISE COMMISSIONING AND HANDOVER OF VARIOUS CLEAN TEQ WATER PROJECTS WHILE CONTINUING TO DEVELOP THE PIPELINE OF NEW OPPORTUNITIES CONTINUE DELIVERING ON OUR COMMITMENT TO OUR PEOPLE, THE COMMUNITY AND THE ENVIRONMENT Clean TeQ Holdings Limited Annual Report 2018 COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Eds_p13a 24 August 2018 12:12 PM 4 Messages from the Co-Chairmen Mr Jiang Zhaobai Co-Chairman Mr Robert Friedland Co-Chairman It has been a great pleasure to see the Clean TeQ business evolve over the last year as it has built a solid foundation for future success and prosperity. As our shareholders, partners, other stakeholders and followers will know and appreciate, Clean TeQ has achieved headline- making progress in its principal businesses during the past year. During the year, our Company has demonstrated Clean TeQ Sunrise’s strategic importance for the rapidly growing electric vehicle market. The increasing adoption of electric vehicles represents a revolution in global transport. This will have a profound and transformative impact on air quality in our cities and lead to improved environmental and health outcomes worldwide. This is particularly the case in China where demand for zero emission electric vehicles continues to rise as the country transitions away from fossil fuels. This revolution is having a significant impact on raw material demand, particularly for metals required for the lithium-ion batteries that power these vehicles. The Clean TeQ Sunrise Project is rapidly progressing towards development and will become a major supplier of nickel sulphate and cobalt sulphate to this important market. Projects like Clean TeQ Sunrise are rare and must be developed to allow the electric vehicle and renewable energy storage markets to grow in tandem with global demand. I look forward to another exciting and prosperous year ahead as the development of Clean TeQ Sunrise enters a new phase. 董事会联席主席的致辞 董事会联席主席姜照柏先生 我很荣幸地看到CLQ公司业务在过去一年里不断发展，这为 公司未来的成功和繁荣奠定了坚实的基础。 过去的一年，我们验证了CLQ桑瑞斯项目对电动汽车市场快 速发展具有的重要战略性意义。随着电动汽车使用的不断扩 大，全球交通运输的革新日益显现。这将对我们城市的空气 质量产生深远而变革性的影响，同时将为我们带来全球范围 内环境和健康水平的提高。中国尤其如此，随着国家逐步从 化石燃料转型，其对零排放电动汽车的需求正在日益提升。 这场变革正在对原材料需求产生重大影响，特别是针对那些 为车辆供电的锂离子电池所需的金属元素。CLQ桑瑞项目正 在迅速推进，将成为这个重要市场里硫酸镍和硫酸钴的主要 供应商。 像CLQ桑瑞斯这样的项目并不多见，而我们必须要全力以赴 发展这个项目，从而使得电动汽车和可再生能源储能市场与 国际需求同步增长。 我对下一个令人兴奋和繁荣兴旺的一年满怀期待，CLQ桑瑞 斯项目的发展进入一个新的阶段。 Mr. Jiang Zhaobai Co-Chairman 姜照柏先生 董事会联席主席 The advancement of our Clean TeQ Sunrise nickel-cobalt- scandium Project and our Clean TeQ Water business is further confirmation that our company remains firmly on course to achieve our fundamental business objectives. We are dedicated to playing a responsive, leadership role in contributing to the alleviation of impacts on the environment and on human-health that are linked to what has been a traditional, urban dependence on fossil fuels. We also are delivering solutions to treat wastewater, recycle water used in industrial processes and provide safe drinking water. The challenges, of course, are immense; but the opportunities are unprecedented. Clean TeQ’s resources and technologies now have recognized and respected roles in contributing to the building of a better world. Clean TeQ Sunrise is set to become a globally significant source of high-purity nickel and cobalt sulphate – essential raw materials for the lithium-ion battery market. The demand for these commodities continues to grow as sales of electric vehicles accelerate – exceeding one million units last year for the first time. Now, market watchers and forecasters are predicting that consumer demand for electric vehicles will overtake sales of conventional gasoline- and diesel- powered vehicles within about two decades. Completion of the Definitive Feasibility Study for Clean TeQ Sunrise in June this year represented a very important achievement. With this study concluded, we are well positioned to secure the offtake agreements and the funding to enable construction of the Project to proceed in 2019. The market interest in Clean TeQ Sunrise’s remarkable store of mineral resources is exceptionally strong, as is the Project’s potential to generate substantial returns for Clean TeQ’s shareholders. Clean TeQ Water had a successful year in 2017/18 and is positioned to demonstrate the value of its technology in a number of international projects – some already under construction, with additional opportunities in the development pipeline. We are committed to seizing the opportunities ahead of us as a producing miner and technology developer and implementer. Members of the Board of Directors are confident that senior management, under the leadership of Chief Executive Officer Sam Riggall, and the women and men of Clean TeQ will continue to build and deliver significant value for our stakeholders. Mr Robert Friedland Co-Chairman COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Eds_p13a 24 August 2018 12:12 PM 5 Message from the Chief Executive Officer Sam Riggall Chief Executive Officer The 2018 financial year was important for Clean TeQ. We achieved several milestones, which take us closer to development of our Clean TeQ Sunrise Project in New South Wales. We also made good progress with Clean TeQ Water, delivering on contracts and building a pipeline of new opportunities. Both these businesses bring a unique value proposition to the industries in which they operate, utilising our proprietary technologies to empower the clean revolution that is at the heart of our mission statement. At Clean TeQ Sunrise, the key achievement was completion of the Definitive Feasibility Study in June. The Study highlighted the Project’s outstanding technical and economic merit and confirmed that Clean TeQ Sunrise is a globally significant source of nickel, cobalt and scandium. Once developed, the Project will be a major supplier of critical raw materials to the lithium ion battery market. The Definitive Feasibility Study confirmed that Clean TeQ Sunrise can deliver large volumes of critical battery raw materials while generating outstanding financial returns over many decades. The Project is forecast to deliver over US$14 billion in revenue and average annual EBITDA of US$344 million over the first 25 years of operations. Average C1 cash costs of negative US$1.46/lb of nickel (net of by-product credits) positions Clean TeQ Sunrise in the lowest cost quartile, while a Net Present Value of US$1.392 billion (A$1.856 billion) supports a post-tax Internal Rate of Return (IRR) of 19.1%. The economic fundamentals of the Project are very strong. Importantly, during the year the Company signed its first product off-take agreement with Beijing Easpring. The agreement covers annual tonnages representing approximately 20% of Clean TeQ Sunrise production over the first five years, with pricing linked to spot commodity prices. Beijing Easpring is one of the world’s preeminent cathode companies, with a reputation for high- quality products and rapid innovation. Clean TeQ is delighted to have partnered with such a strong business. In parallel to the Definitive Feasibility Study, we have progressed other components of the Project that will allow its development to be undertaken as quickly as possible including: • the acquisition of two autoclaves, critical long lead components for the Project; • the purchase of an accommodation facility for our construction workforce; • re-estimated the Clean TeQ Sunrise mineral resource, which resulted in an increase in the cobalt grade of the resource; • securing Mining Leases over the Project area; • securing a number of key permit modifications. With the DFS now complete, early works and long-lead item procurement commencing and a strong implementation team in place, we are focused on progressing the Project into formal construction over the coming year. Financing and offtake discussions are well advanced with a range of counterparties. Once complete, this will allow us to consider a Final Investment Decision in early 2019 with construction expected to commence shortly thereafter. It has also been a highly successful year for the Clean TeQ Water business. New projects have been secured in Oman, the Democratic Republic of Congo and Australia, while our work towards developing projects in China is well advanced. At the end of June 2018, Clean TeQ Water had four key projects under construction, all of which are expected to be commissioned and delivered to their respective customers in the coming financial year. The completion of these contracts are important milestones for Clean TeQ Water and will provide impetus for future growth. Clean TeQ has also continued its commitment to developing new technologies which are targeted to improve or complement our existing suite of technology solutions. During the year, a significant investment was made in advancing our Continuous Ionic Filtration (CIF®) technology. Work is also underway to develop graphene oxide membranes for the next generation of water purification processes and encapsulated bacteria to treat nutrient issues in wastewater. As a business, Clean TeQ has never been stronger. Over the last 12 months we have expanded our capabilities and grown our team to ensure we can deliver on our pipeline of opportunities. The expertise and experience we have within Clean TeQ puts us in a strong position to deliver on our strategy. In March 2018, the Company successfully raised A$155 million from a range of international and institutional investors and a share purchase plan, thereby expanding our share register and providing a strong capital base from which to fund an accelerated work program for Clean TeQ Sunrise. The year ahead is one of huge opportunity as we put our financing plan in place, commence construction of Clean TeQ Sunrise and pursue various projects within Clean TeQ Water. I would like to thank our staff for their hard work and commitment to our shared objectives, and our shareholders for their ongoing support. I look forward to providing regular updates as we achieve our key milestones throughout the year. Sam Riggall Chief Executive Officer Clean TeQ Holdings Limited Annual Report 2018 COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Eds_p13a 24 August 2018 12:12 PM 6 Clean TeQ Sunrise is the Company’s flagship nickel, cobalt & scandium project located in New South Wales, Australia which is rapidly progressing toward full-scale development. The Project is a globally significant mineral resource which, once developed, will become a major supplier of high purity raw materials which are critical to the lithium ion battery industry. The Project is also one of the highest grade scandium deposits in the world, with production destined to underpin development of the next generation of lightweight aluminium alloys for key transportation markets. The Definitive Feasibility Study (DFS), completed in June 2018, represented a significant milestone for the Project. The Study demonstrated the Project’s strong technical foundations and its ability to generate substantial value for all our stakeholders. The Project will be developed using Clean TeQ’s proprietary Clean-iX® technology which will enable highly efficient, low cost production of nickel sulphate and cobalt sulphate – the key raw materials required for lithium ion battery cathodes. Clean TeQ Sunrise is development ready with a defined mineral resource underpinning a 40+ year mine life, secure freehold tenure, and key approvals, permits and mining leases in place. COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Eds_p13a 24 August 2018 12:12 PM 7 Key achievements of the year: Completed Definitive Feasibility Study Completion of the Definitive Feasibility Study, a major milestone for the Project, was achieved in June 2018 and demonstrated the Project’s strong technical credentials and outstanding financial outcomes. Acquired critical long-lead items During the year Clean TeQ acquired two autoclaves, key pieces of equipment for the processing plant, and an accommodation facility. Acquisition of these will allow the Project’s development to be significantly fast-tracked. Continued to proactively engage with the community Throughout the year, Clean TeQ maintained a close and active connection with the local communities in the Shires of Parkes, Forbes and Lachlan. This engagement forms an important part of our commitment to ensure the Project’s success is shared by all our stakeholders. Maiden offtake agreement signed with Beijing Easpring A binding five-year offtake agreement for annual tonnages representing approximately 20% of cobalt and nickel sulphate production was signed with Beijing Easpring in August 2017. Beijing Easpring is one of the world’s largest producers of high quality cathode material for the lithium ion battery industry and is an important partner for Clean TeQ. Completed a significant mineral resource update The Project’s exceptional potential to produce high volumes of cobalt was highlighted with a resource update in October 2017 that demonstrated a 30% increase in cobalt ore grades and 16% increase in contained cobalt metal compared to the 2016 resource estimate. Appointed Mandated Lead Arrangers for a project debt facility The Project attracted strong banking support with Industrial Commercial Bank of China (ICBC), Société Générale, National Australia Bank and Natixis appointed as mandated lead arrangers (MLAs) to make best efforts to provide US$500 million of a project debt facility. Successfully completed raising to accelerate Project development Completion of a A$155 million institutional Placement and Share Purchase Plan to enable development of the Project to be accelerated. The capital raising was well supported by international and Australian institutional investors, and will fund early works, detailed engineering and long lead item acquisition prior to a final investment decision. Mining Leases granted In early 2018, Mining Leases were granted over the Project area providing security of tenure and the ability to commence operations once a final investment decision has been made. Clean TeQ Holdings Limited Annual Report 2018 COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Eds_p13a 24 August 2018 12:12 PM 8 CLEAN TEQ SUNRISE DEFINITIVE FEASIBILITY STUDY HIGHLIGHTS STRONG ANNUAL PRODUCTION NICKEL: 19,620 TONNES PER ANNUM COBALT: 4,420 TONNES PER ANNUM AVERAGE OVER FIRST 10 YEARS EXCELLENT PROJECT ECONOMICS NPV OF US$1.39 BILLION IRR OF 19.1% FIRST QUARTILE OPERATING COSTS NEGATIVE US$1.46/LB NI AFTER BY-PRODUCT CREDITS PRODUCTION OF HIGH PURITY BATTERY GRADE MATERIALS • NICKEL SULPHATE • COBALT SULPHATE PLUS SCANDIUM OXIDE FOR AUTOMOTIVE & AEROSPACE APPLICATIONS EXCEPTIONAL CASH FLOWS LIFE OF MINE REVENUE: +US$14 BILLION LOM EBITDA: ~US$8.60 BILLION AVERAGE EBITDA: US$344 MILLION PER ANNUM CAPITAL COST ESTIMATE US$1.49 BILLION INCLUDING $165 MILLION CONTINGENCY “The prospects of creating extremely substantial value for all of our stakeholders is apparent from the results of the Definitive Feasibility Study. We are truly excited to see the Sunrise Project move into the next stage of development.” Mr Robert Friedland Co-Chairman COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Eds_p13a 24 August 2018 12:12 PM 9 COMMUNITY BENEFITS Clean TeQ is committed to working with our host communities to ensure the benefits generated by the Project are enjoyed by all of our stakeholders. Over the life of the mine, Clean TeQ Sunrise is set to deliver substantial financial returns for the community through employment opportunities, royalties, taxes and infrastructure upgrades. Outcomes of the June 2018 Definitive Feasibility Study included estimates as follows: Employment Opportunities: A peak construction workforce of 1,000 people and a steadystate operations workforce of 300 people (plus mining and logistics contractors and ancillary services). Employee Salaries/Wages: A$1.9 billion (estimate includes mining contractor wages but excludes logistics contractors and ancillary services). State Royalties and payroll tax: A$630 million over first 25 years. Taxes (corporate tax): A$2.2 billion over first 25 years. Local Community Contributions: This will cover payments to compensate communities for local project impacts (principally road upgrades and maintenance), council rates and additional ongoing local community enhancement initiatives. Local Supply Opportunities: Benefits are also expected for local businesses as suppliers of goods and services to Clean TeQ Sunrise. “When it comes to community investment and development, our approach seeks to recognise the importance of consulting the community about how it wants to grow and thrive. “We are committed to working together with our host communities as we seek to maximise the benefits of our presence, manage any impacts through leading environmental practices and show respect and care for people as we go about our business.” Sam Riggall Chief Executive Officer Clean TeQ Holdings Limited Annual Report 2018 COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Eds_p13a 24 August 2018 12:12 PM 10 Clean TeQ Water aspires to provide solutions to the world’s most challenging water treatment problems and become a world leader in the treatment and reuse of freshwater resources. Clean TeQ Water’s technologies are environmentally and economically sustainable, providing innovative solutions to the municipal and industrial waste water sectors. Our technology suite includes a range of proprietary filtration and separation processes for primary separation including continuous ion exchange and membrane technologies. In addition, by-product management processes include membrane filtration, biological degradation, evaporation and crystallisation. CIF ® Continuous Ionic Filtration NEX Natural Evaporation Crystallisation DeSALx® CIF ® based Desalination Clean-Bio® Biocatalysts Nitrification & Denirification Clean TeQ Technology Suite Clean-Mem Membrane Filtration HiROx® High Recovery Reverse Osmosis COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Eds_p13a 24 August 2018 12:12 PM 11 AUSTRALIA – Mine waste water treatment project Clean TeQ is also delivering a DeSALx® water treatment plant for the Fosterville Gold Mine in Victoria, Australia. The treatment plant will have a capacity of two million litres per day and will treat mine process water to a level of quality which will allow it to be reused in mining operations. Status: Procurement and manufacturing of components are well progressed with construction expected to commence before the end of 2018. AFRICA – Mine process treatment plant In Africa, Clean TeQ is executing a project to design, supply and commission a plant using Continuous Ion Exchange processing technology at a base metals processing plant in the Democratic Republic of Congo. Status: Procurement and manufacturing of components are well progressed with construction expected to commence before the end of 2018. Clean TeQ Water continued its transition from technology development to commercialisation, with a number of Projects approaching completion and a strong pipeline of new opportunities. CHINA – Municipal waste water treatment project Joint Venture with Jinzhong Hoyo Municipal Urban Investment & Construction Co. Ltd for the construction of a 13,000 tonne per day municipal waste water treatment plant. The Project will utilise Clean TeQ’s Continuous Ionic Filtration (CIF®) technology. Status: Design and engineering underway with construction expected to commence in early 2019. OMAN – Industrial waste water treatment project Clean TeQ is designing, procuring and commissioning a Clean TeQ CIF® wastewater treatment solution at a minerals processing plant currently under construction in Oman. The plant will remove toxic pollutants, sulphates, antimony and arsenic to treat flue gas desulphurisation scrubber wastewater. Status: Construction complete, with commissioning due during the third quarter of 2018. Fresh water scarcity is a critical global issue. Only 0.3% of available water is classified as fresh water. 9 Clean TeQ Holdings Limited Annual Report 2018 COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Eds_p13a 24 August 2018 12:12 PM 12 Technology Development A commitment to investing in research and development is at the core of Clean TeQ, and an important part of the Company’s strategy. Clean TeQ’s focus during FY2018 was on the development of graphene oxide membranes, encapsulated bacteria and further development of Clean TeQ’s Continuous Ion Filtration (CIF®) technology. Graphene Oxide Membranes Graphene and graphene oxide are the world’s thinnest, strongest and most conductive materials yet discovered with huge potential for industrial applications. In water treatment applications, graphene oxide membranes have the potential to deliver significant benefits due to their high water flux, tunability and non-fouling properties. The advantages of the membrane can be seen in increased flow, better water recovery and lower energy costs. Clean TeQ is collaborating with Monash University and Ionic Industries to manufacture and apply graphene oxide membranes to water treatment applications, thereby expanding Clean TeQ’s already strong capability in the water treatment sector. Continuous Ionic Filtration (CIF®) Clean TeQ is continuing to develop the proprietary CIF® technology, with a focus on developing methods of dealing with brine by-products in tertiary wastewater treatment applications. Clean TeQ’s technology, using hybrid resins, are showing strong efficacy in removal of nutrients such as nitrogen and phosphorous from waste water. High nutrient levels in waste waters represent a significant issue as they can cause algal blooms when discharged into waterways. Clean Bio® Encapsulated Bacteria Technology Clean TeQ is also actively progressing its encapsulated bacterial technology, Clean Bio®, which can effectively manage the concentrated by-products from CIF® treated waste water. Encapsulated bacterial technology provides a way of converting residual nutrients such as ammonia and nitrate to harmless nitrogen gas. Clean Bio® can be used as a standalone technology or in conjunction with the CIF® technology to provide a complete solution for nutrient reduction. COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Eds_p13a 24 August 2018 12:12 PM 13 Sustainability Clean TeQ is committed to creating a sustainable, value-creating business through positive innovation and disruptive change. Our commitment to sustainability is reflected across the areas of safety, environment, community engagement and diversity. • Building a strong and positive safety culture • Implementing robust management systems across our businesses • Focusing on hazard identification and the proactive management of risks • Operating in a manner that mitigates or removes environmental impacts, whilst improving energy and natural resource management • Delivering the highest possible quality products and services • Building relationships based on mutual respect, open and transparent dealings and lasting commitment • Sharing our values, fostering value creation and helping our host communities thrive beyond us • Providing equal opportunity and creating a diverse work environment Clean TeQ Sunrise is positioned to be a modern and sustainable mining operation producing products which are critical to the clean energy revolution. The global environmental issues caused by the unconstrained burning of fossil fuels in the world’s transport sector are profound. Being part of the solution is a core objective of Clean TeQ and a driver of our strategy to develop Sunrise. Clean TeQ Holdings Limited Annual Report 2018 COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Eds_p13a 24 August 2018 1:08 PM 14 Board of Directors Mr Sam Riggall Managing Director & Chief Executive Officer Mr Riggall is a graduate in law and commerce from Melbourne University and has an MBA from Melbourne Business School. He was previously Executive Vice President of Business Development and Strategic Planning at Ivanhoe Mines Ltd. Prior to that Mr Riggall worked in a variety of roles in Rio Tinto for over a decade covering project generation and evaluation, business development and capital market transactions. Mr Riggall was appointed to the Clean TeQ Board and to the position of Chairman on 4 June 2013. Mr Riggall was appointed Chairman and Chief Executive Officer effective 1 July 2015. Mr Riggall resigned as Chairman and assumed the role of Managing Director effective 24 April 2017. Mr Li Binghan Non‑Executive Director Member of the Sustainability and Risk Committee Mr Li is a lawyer with more than 20 years’ experience. He is currently the Director of the Risk Control and Legal Department of Pengxin Mining. He commenced his career with Henan Province Judicial Bureau in 1996. After five years in the Judicial Bureau, Mr Li began his legal career with Shanghai Pudong Law firm in 2003, focusing on foreign direct investment and mergers and acquisitions. In 2012 Mr Li joined Shanghai Co-effort Law Firm, working in the field of intellectual property law. Mr Li joined Pengxin Mining in 2015. He was appointed a Director of Clean TeQ on 24 April 2017. Mr Jiang Zhaobai Co‑Chairman and Non‑Executive Director Mr Jiang took part in numerous engineering and construction projects following graduation from university in the 1980’s. He later founded his own real estate development company in 1988. In 1997, Shanghai Pengxin Group Co., Ltd. was established with Mr Jiang as founding Chairman and he remains in that role to this date. Under Mr Jiang’s leadership, Shanghai Pengxin Group has successfully developed a number of significant property projects, amounting to a total of six million square meters. Starting from real estate development including both residential and commercial as well as hotel industry, the group has diversified into a range of other sectors including modern agriculture, mining, environmental science and technology and financial investment. The group is now a diversified conglomerate with controlling interests in four listed companies in China. He was appointed a Director of Clean TeQ on 24 April 2017. Mr Robert Friedland Co‑Chairman and Non‑Executive Director During the past 20 years of his career, Mr. Friedland has founded and led two prominent, international mining entities under the Ivanhoe Mines banner. He is Executive Chairman and a director of the present Ivanhoe Mines Ltd., which has three major mine development projects including construction of two new mines on world-scale mineral discoveries in South Africa and the Democratic Republic of Congo. The original Ivanhoe Mines, founded in 1994, had extensive mining and exploration interests in the Asia Pacific Region. Mr. Friedland was Executive Chairman and Chief Executive Officer of the initial Ivanhoe Mines until 2012, and was President from 2003 to 2008. He directed Ivanhoe Mines’ portfolio of interests in several countries over 16 years and led the company’s discoveries and initial development of the Oyu Tolgoi copper-gold- silver deposits in southern Mongolia. Mr. Friedland also is Chairman and President of Ivanhoe Capital Corporation, his family’s private, Singapore- based company that specializes in providing venture capital, project financing and related services for international business enterprises, predominantly in the minerals, energy and communications technologies sectors. He was inducted into the Canadian Mining Hall of Fame in 2016. He was appointed a director of Clean TeQ on 8 September 2018. COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Eds_p13a 24 August 2018 12:12 PM 15 Mr Eric Finlayson Non-Executive Director Member of the Nomination, Remuneration and Governance Committee Member of the Audit and Finance Committee Mr Finlayson is a geologist with over thirty years’ experience in Australia and overseas. Over 24 years with Rio Tinto, Mr Finlayson held a number of key executive roles including regional exploration manager for Canada, Director of Exploration for the Australasian region and 5 years as Global Head of Exploration based in London. Mr Finlayson also served as CEO of Rio Tinto Coal Mozambique following Rio Tinto’s takeover of Riversdale Mining in 2011. Mr Finlayson is currently President of High Power Exploration. He was appointed a director of Clean TeQ on 16 September 2015. Mr Ian Knight Independent Non-Executive Director Ms Stefanie Loader Independent Non-Executive Director Mr Mike Spreadborough Independent Non-Executive Director Chair of the Sustainability and Risk Committee Member of the Audit and Finance Committee Mr Spreadborough is a mining engineer with extensive experience in the development and operation of mineral resources projects spanning a range of commodities including copper, gold, uranium, lead, zinc and iron ore. Over the past 20 years Mr Spreadborough has held senior executive roles with a number of mining companies including Chief Operating Officer of Sandfire Resources and Inova Resources Ltd (formerly Ivanhoe Australia), General Manager – Coastal Operations for Rio Tinto and General Manager – Mining for WMC and later Vice President – Mining for BHP Billiton at the world-class Olympic Dam mine in South Australia. He was appointed a director of Clean TeQ on 8 December 2016. Member of the Nomination, Remuneration and Governance Committee Chair of the Nomination, Remuneration and Governance Committee Chair of the Audit and Finance Committee Mr Knight is a graduate in Business Studies and is also a fellow of the Institute of Chartered Accountants, an Associate Fellow of the Australian Institute of Management and a member of the Institute of Company Directors. His experience includes presenting and working with boards of public, private and private equity ownership, State and Federal Governments and extensive experience in strategising and implementing mergers, acquisitions, divestments and capital raising initiatives. Mr Knight was also formerly a Partner of KPMG where he held the position of Head of Mergers and Acquisitions and Head of Private Equity for KPMG Corporate Finance. Currently he is Managing Director of Axsia Group and a partner of Axsia Corporate Pty Ltd. He was appointed a director of Clean TeQ on 8 July 2013. Member of the Sustainability and Risk Committee and the Audit and Finance Committee Ms Stefanie (Stef) Loader is a mining industry executive with broad international experience having worked in exploration, project evaluation and development, mining and corporate roles across seven countries and four continents. Residing in Central West NSW, Ms Loader was most recently Managing Director of Northparkes Copper and Gold Mine for CMOC International. A geologist and statistician by training, Ms Loader began her career with Rio Tinto as an exploration geologist in Western Australia and was then part of the discovery team for the Khanong copper deposit at Sepon in Laos. After exploration and evaluation roles in the Americas, Ms Loader was assigned to the office of Rio Tinto Chief Executive in London where she then worked on global exploration strategy and prioritisation as Exploration Executive. Ms Loader also led the development of the Bunder diamond project in India for four years, including the signing of a landmark development agreement with the State of Madhya Pradesh in support of the project. Ms Loader was appointed a Director of Clean TeQ on 28 June 2017, with effect from 1 July 2017. Clean TeQ Holdings Limited Annual Report 2018 16 Contents Directors’ Report Auditor’s Independence Declaration Statement of Profit or Loss and Other Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration lndependent Auditor’s Report Shareholder Information Corporate Directory COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM 17 44 45 46 47 48 49 92 93 97 IBC The Company’s 2018 Corporate Governance Statement was released to the ASX on 27 August 2018 and is available at www.cleanteq.com COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 17 Directors’ Report For the year ended 30 June 2018 The directors present their report, together with the financial statements, for the consolidated entity consisting of Clean TeQ Holdings Limited (referred to hereafter as the ‘Parent Entity’, ‘the Company’ or ‘Clean TeQ’) and the entities it controlled (referred to hereafter as the ‘Consolidated Entity’), for the financial year ended 30 June 2018, and the auditor’s report thereon. Directors The following persons were directors of the Company during the whole of the financial year and up to the date of this report, unless otherwise stated: Robert Friedland (Co‑Chairman and Non‑Executive Director) Jiang Zhaobai (Co‑Chairman and Non‑Executive Director) Sam Riggall (Managing Director and CEO) Li Binghan (Non‑Executive Director) Eric Finlayson (Non‑Executive Director) Roger Harley (Independent Non‑Executive Director – retired as director effective 1 November 2017) Ian Knight (Independent Non‑Executive Director) Stefanie Loader (Independent Non‑Executive Director) Michael Spreadborough (Independent Non‑Executive Director) Principal activities During the financial year the principal continuing activities of the Consolidated Entity consisted of: • The ongoing development and use of the Clean‑iX® resin technology for application in the extraction and purification of a range of resources in the mining industry including base metals, precious metals and rare earth elements and through the development of the Consolidated Entity’s Clean TeQ Sunrise Project in New South Wales (‘Metals Division’); and • The ongoing development and commercialisation of the Company’s proprietary Continuous Ionic Filtration (‘CIF®’) and Macroporous Polymer Adsorption (‘MPA®’) resin technologies for application in the purification and recycling of industrial and mining waste waters (‘Water Division’). There have been no other significant changes in the nature of the Consolidated Entity’s activities during the financial year. Dividends There were no dividends paid, recommended or declared during the current or previous financial year. Review of Operations During the financial year ended 30 June 2018, the loss after tax for the Consolidated Entity amounted to $16,012,000 (2017: loss after tax of $12,184,000). The Consolidated Entity’s revenue from continuing operations increased to $5,966,000 (2017: $1,612,000) primarily due to an increase in contract income and interest income received in the period. The continuing development of the Sunrise Project resulted in $60,413,000 of expenditure being capitalised as an exploration and evaluation asset during the financial year. This expenditure, along with the net cash outflows from operating activities of $6,998,000, was financed largely by equity capital raisings totalling $151,776,000 after issue costs. Revenues from continuing operations were low during the financial year due to the fact that the Consolidated Entity’s technologies remain at the early stages of commercialisation and as a result of the Sunrise Project being at the pre‑production development phase. The Consolidated Entity’s net assets increased during the financial year by $138,772,000 to $252,156,000 (2017: $113,384,000). Working capital, being current assets less current liabilities, amounts to a surplus of $146,576,000 (2017: $85,671,000), with cash and cash equivalents increasing from $88,863,000 to $152,637,000 during the financial year. Metals Division During the financial year, the Consolidated Entity announced that its wholly owned Syerston Nickel Cobalt Scandium Project in New South Wales would be renamed to the Clean TeQ Sunrise Project (‘Project’). The new name signifies the change in focus of the Project as an emerging global source of cobalt sulphate, nickel sulphate and scandium, and provides a strong connection to the local area. Sunrise is the name of a property located to the south‑west of the Project area which is owned by Clean TeQ. The key focus for the Metals Division remains advancing the development of the Consolidated Entity’s Sunrise Project, with excellent progress being made towards its development during the financial year. The Consolidated Entity completed a Mineral Resource Update during the year, in preparation for a review of the Ore Reserve estimate which was conducted in conjunction with the Definitive Feasibility Study (‘DFS’). 18 Directors’ Report continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM The updated resource (see Table 1 below) was announced during the year and highlighted a 30% increase in cobalt grades compared to the resource estimate completed in 2016. For full details of the 2017 Resource Update please see the ASX announcement dated 9 October 2017. Table 1: Syerston Cobalt/Nickel Mineral Resource Estimate (0.06% Co cut-off) Classification Category Measured Indicated Measured + Indicated Inferred Total Tonnage (Mt) Ni Grade % Co Grade % 40 47 87 14 101 0.75 0.55 0.64 0.24 0.59 0.15 0.12 0.13 0.11 0.13 Ni Metal Tonnes 299,000 259,000 558,000 35,000 Co Metal Tonnes 59,000 58,000 116,000 16,000 593,000 132,000 Note: Any apparent arithmetic discrepancies in the table above are due to rounding. The updated Mineral Resource Estimate was released to the Australian Securities Exchange (ASX) under the guidelines of the JORC Code (2012 edition) in October 2017 and was also published in a technical report titled, ‘Sunrise Nickel Cobalt Project, New South Wales, Australia NI 43‑101 Technical Report’ with an effective date of October 30, 2017, prepared in accordance with Canadian National Instrument 43‑101 (NI 43‑101), which is available via the SEDAR profile of Clean TeQ Holdings Limited at www.sedar.com or on the Clean TeQ Holdings Limited website at www.cleanteq.com. The updated Mineral Resource estimate confirmed a 30% increase in cobalt grade compared to the 2016 Pre‑Feasibility Study (‘PFS’). The PFS resource based on a 0.6% Ni equivalent cut‑off grade and the 2017 Updated Mineral Resource is based on a 0.06% Co cut‑off grade, 300 ppm Sc cut‑off grade and 0.15 g/t Pt cut‑off grade. The updated Mineral Resource estimate also resulted in an increase in both scandium and platinum resources at Sunrise. The scandium Mineral Resource for the Project increased significantly to 45.7 Mt @ 420 ppm Sc for 19,222 tonnes of contained metal using a 300ppm cut‑off. Of this total resource, 27% is in the Measured and Indicated categories. The platinum in the Mineral Resource for the Project also increased significantly to 103 Mt @ 0.33 g/t Pt for 1,076,170 ounces, using a 0.15 g/t cut‑off. Of this total resource, 94% (metal content) is in the Measured and Indicated categories. In June 2018, the Consolidated Entity completed the Clean TeQ Sunrise Definitive Feasibility Study (‘DFS’), which marked a significant milestone for the Project. Finalisation of the DFS will underpin the next phase of the Project’s development which includes finalisation of product offtake agreements, completion of project financing and commencement of construction subject to a final investment decision. The results from the DFS confirmed Clean TeQ Sunrise’s status as a globally significant cobalt, nickel and scandium resource which, once developed, will become a major supplier of critical raw materials to the lithium‑ion battery market. The DFS modelled the first 25 years of production, however the Project has sufficient resources for a mine life of more than 40 years. Highlights of the DFS outcomes included forecast: • Strong cash flow generation supporting a post‑tax Net Present Value1 (NPV) of US$1.392 billion (A$1.856 billion2) and post‑tax Internal Rate of Return (IRR) of 19.1%. • Average C13 operating costs of negative US$1.46/lb nickel after byproduct credits4 and US$4.68/lb nickel before credits4. • Average production post ramp‑up of: (i) 21,780 tpa nickel and 4,640 tpa cobalt (Year 2 – 6) and; (ii) 19,620 tpa nickel and 4,420 tpa cobalt (Year 2 – 11) (iii) 18,520 tpa nickel and 3,450 tpa cobalt (Year 2 – 25) • Average scandium oxide production capacity of 80 tonnes per year which can be readily expanded to 160 tonnes per year. The DFS conservatively caps scandium oxide sales at 10 tonnes per year for the life of mine. 1. Net Present Value calculated using 8% discount rate. 2. AUD/USD 1/0.75 exchange rate applied for life of mine. 3. C1 Cash Cost includes mining, processing, site overheads (including administration), haulage and port charges. 4. Credits from cobalt sulphate, scandium oxide and ammonium sulphate. COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 19 Directors’ Report continued • Pre‑production capital cost estimate of US$1.33 billion (A$1.77 billion) (excluding US$165m estimated contingency). The estimate reflects a significant increase in refining capacity, relative to the 2016 Pre‑Feasibility Study, to provide the potential opportunity to increase production volumes once in operations. • Significant economic and social benefits to local communities over the life of mine including employment, infrastructure upgrades, royalties, taxes and local community contributions. Compared to the 2016 Pre‑feasibility Study and the Sunrise Nickel Cobalt Project, New South Wales, Australia NI 43‑101 Technical Report completed in 2017, the total capital cost estimate for the Project has increased. This is primarily due to the implementation of a number of measures devised to de‑risk the delivery of the Project and to increase the Project’s scope in order to deliver the potential to substantially increase revenue, EBITDA and return on capital. Improvements to the Project included upsizing the refinery capacity, increasing surge capacities and revising the mine plan to significantly bring forward future cobalt metal production, which will allow the Company to respond to the strong demand for battery raw materials from major automobile producers and battery manufacturers. The DFS assumes that the Project will be designed and built by the Consolidated Entity in conjunction with SNC‑Lavalin and McDermott International (collectively ‘the Alliance’), whereby the three parties will jointly manage engineering, procurement and construction. In parallel, the Consolidated Entity has been evaluating a competing fixed‑price Engineering‑Procurement‑Construction (‘EPC’) proposal received from one of China’s largest engineering and construction groups. At the end of the financial year, the Consolidated Entity remained in discussions with both the potential Chinese EPC contractor and the Alliance partners, with a decision on the final delivery model expected during the third quarter of the calendar year 2018. With the DFS completed, Clean TeQ’s focus has turned to finalising offtake discussions for the production which remains uncontracted and securing funding for the Project. Once developed, the Project is expected to produce substantial volumes of high‑purity, battery‑grade nickel and cobalt sulphate – products in high demand from the electric vehicle industry. The Company is continuing to engage with numerous parties in the electric vehicle supply chain who have indicated strong interest in securing a reliable source of supply from a favourable jurisdiction. During the year the Consolidated Entity announced the signing of a binding offtake agreement with Beijing Easpring Material Technology Co Ltd (‘Easpring’) for the supply of hydrated cobalt sulphate and nickel sulphate products. Under the agreement, Easpring will purchase fixed tonnages representing approximately 20 per cent of forecast production, for an initial five‑year period commencing from the start of commercial production. The agreement represents a significant milestone for the Sunrise Project as it develops into a leading global supplier of battery grade cobalt and nickel to the lithium ion battery industry. The Company is confident of securing additional binding long‑term sales contracts for the majority of the uncontracted portion of production during the second half of the calendar year 2018. Securing the necessary finance to develop the Project is now a key priority for the Consolidated Entity. During the financial year, the Consolidated Entity announced the appointment of Industrial and Commercial Bank of China (‘ICBC’), Société Générale, National Australia Bank and Natixis as Mandated Lead Arrangers (‘MLAs’) to arrange a debt financing facility to fund a significant proportion of the development cost of the Sunrise Project. Each of the MLAs have undertaken to use best efforts to provide US$125 million, for a total of US$500 million for the proposed total credit facilities required for the development of the Project. This includes providing a debt facility to fund capital expenditure and working capital and other credit facilities including bonds and bank guarantees. The financing will be contingent upon completion of a successful due diligence process, credit approval and agreement of formal documentation of terms and conditions. With the DFS completed, the MLAs have now commenced the detailed work of undertaking due diligence and finalising a binding term sheet for a debt finance facility. In addition, the Consolidated Entity is assessing a range of opportunities to raise the remaining equity required to build the Project. This includes negotiations involving potential project level investment, joint ventures, product prepayment and streaming/royalty transactions. As outlined in the DFS, the current indicative schedule sees a final investment decision in early 2019 followed closely by commencement of construction. The DFS estimated a 24‑month construction period, followed by a 24‑month period of commissioning and ramp up. First production is expected in early 2021. During the financial year, the Consolidated Entity announced the acquisition of two autoclaves, critical components of the proposed processing plant for the Sunrise Project. The acquisition significantly de‑risks the Project schedule, with delivery lead times in today’s market for similar equipment being approximately three years. The autoclaves, which were acquired from Vale International S.A. (a subsidiary of Brazilian multinational metals and mining COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM 20 Directors’ Report continued group, Vale SA) for US$6.5 million have never been used, are ideally sized for the Project and are in excellent condition. The autoclaves have been shipped from New Caledonia to Port Pirie in South Australia where they will be stored until they are ready to be transported by road to the Sunrise Project site for installation. During the financial year, the Consolidated Entity announced that it had paid a deposit to purchase a 300‑person accommodation facility to support the construction phase of the Sunrise Project. The facility will be purchased from Fleetwood Corporation for A$3.8 million and includes 306 rooms, administration area, first aid centre, mess and recreation facilities, with the flexibility to expand capacity as required. The acquisition price represents a significant discount to the cost of a newly built facility, which is consistent with the Consolidated Entity’s strategy to identify and procure pre‑made facilities to reduce capital costs and fast‑track development of the Project. The facility was originally constructed in 2014 for a natural gas project in Queensland, Australia. It is in excellent condition and ideally suited for the site conditions and operational requirements of the Project. The Consolidated Entity paid an initial deposit of $440,000 with the balance due in 2018 when the facility is delivered and installed at the Sunrise Project area. During the financial year, another important milestone was achieved with the NSW Department of Planning and Environment formally issuing the Mining Leases (MLs) over the Project area (ML1770) and limestone quarry (ML1769). The Clean TeQ Sunrise Project has an approve Development Consent DA 374‑11‑00, which has been modified on five occasions since it was issued in 2005 (Modifications 1, 2, 3, 5 and 6). The most recent modification to the Development Consent provided for changes to the accommodation facility at the Project which were necessary to both optimise the mine development plan and improve the amenity of the on‑site workforce (Mod 6). The changes included the relocation of the accommodation facility from the main mine site to an adjacent property south of the mine on a property owned by the Company called ‘Sunrise’. A Development Consent modification to support several project optimising scope amendments (Mod 4) is well advanced with final approval currently anticipated in the second half of calendar year 2018. Mod 4 involves the implementation of a range of optimisation opportunities including mining in a more selective manner, addition of drilling and blasting, adoption of the resin‑in‑pulp processing method, increased sulphur demand and sulphuric acid production; increase limestone demand, addition of a cystalliser, changes to process input and road transport requirements, addition of a water treatment plant, increased tailings storage facility capacity, reduced evaporation pond capacity, relocation of mine infrastructure, addition of surface water extraction from the Lachlan River, minor changes to the borefield transfer station and reduced gas demand. Water Division Clean TeQ’s water division is currently delivering on four key contracts focused on mine and municipal waste water treatment, as well as assessing new opportunities to promote and develop Clean TeQ’s Continuous Ion Exchange Technology (CIF®) and DeSALx® technologies for power, mining, municipal and industrial wastewater applications. During the financial year, the joint venture between Clean TeQ and Jinzhong Hoyo Municipal Urban Investment & Construction Co., Ltd (‘Hoyo’) continued to work on water treatment opportunities in China’s Shanxi Province utilising the Consolidated Entity’s CIF® proprietary technology. The JV Company was awarded an initial contract to build, own and operate a water treatment plant, using this technology to treat up to 13,000 tonnes of effluent per day for a 20‑year period at a waste water treatment plant owned by Hoyo. The contract allows for the JV Company to be paid a service fee of 1RMB per tonne of water treated, subject to a minimum payment for 9,000 tonnes per day. During the financial year, the joint venture completed the environmental impact assessment and final works on the detailed design. While this process is taking longer than anticipated, steady progress is being made toward securing various government approvals required in order for construction to commence, now expected during the third quarter of 2018. The Consolidated Entity is also executing a significant contract with Multotec Process Equipment Pty Ltd (‘Multotec’) to design, procure and commission a Clean TeQ CIF® wastewater treatment solution at a minerals processing plant currently being constructed in Oman (‘Oman Contract’). COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 21 Directors’ Report continued The Oman Contract is valued in excess of US$400,000 and includes a technology fee and payments for engineering, equipment and resin supply and commissioning support. The CIF® waste water treatment plant will treat waste water from a flue gas desulphurisation scrubber at a minerals processing plant at Port of Sohar Free Zone, Sultanate of Oman. Significant changes in the state of affairs In November 2017 the shares of the Consolidated Entity began trading on the Toronto Stock Exchange under the ticker ‘CLQ’. The Company’s ordinary share capital continues to trade under the symbol ‘CLQ’ on the Australian Stock Exchange and ‘CTEQF’ on the United States OTCQX Exchange. The plant will treat waste water from a flue gas desulphurisation scrubber removing toxic pollutants and sulphate, antimony and arsenic from the wastewater stream. Construction of the waste water treatment plant was completed in May and first stage cold commissioning was completed in June 2018. Construction of the mineral processing plant is expected to be completed during the third quarter, after which the Consolidated Entity will complete final commissioning and hand over. The technology uses the Consolidated Entity’s proprietary CIF® technology to remove toxic pollutants and in particular sulphate, antimony and arsenic from the wastewater stream. This solution is being provided to Multotec as an equipment design and supply package. Multotec is the principal contractor with overall responsibility for delivering the CIF® wastewater management systems for the mineral processing facility. Fabrication of the CIF® waste water treatment plant equipment was completed by the Consolidated Entity. During the financial year the Consolidated Entity announced that it had entered into a landmark agreement with Fosterville Gold Mine Pty Ltd (‘Fosterville’) to design, supply and commission a two million litre‑per‑day Clean TeQ DeSALx® mine water treatment plant. The award of the contract follows a period of extensive due diligence and testwork conducted by Fosterville to validate the efficacy of the Consolidated Entity’s proprietary DeSALx® system for the treatment of mining process waters. The value of the contract is $3,500,000 and serves as a significant milestone for the Clean TeQ Water division. The Fosterville Gold Mine is located in Bendigo in regional Victoria. Design of the Fosterville water treatment plant has been completed in the financial year. Manufacturing of the columns and major components of the plant largely been completed, with installation on site expected to commence in Q4 2018. The Water Division has continued to develop new opportunities during the financial year, with a number of feasibility and pilot programs underway to allow clients to assess the benefits of Clean TeQ’s ion exchange technology. The Consolidated Entity announced on 1 November 2017 that Mr Roger Harley, had retired as a Non‑Executive Director of the Consolidated Entity with effect from the conclusion of the 2017 Annual General Meeting. Mr Harley was appointed to the Board of Consolidated Entity in June 2010 and since his appointment has played an instrumental part in the growth of the Company. The Board would like to thank Mr Harley for his valuable and substantial contribution. The Consolidated Entity announced on 20 February 2018 that Mr Tim Kindred, had been appointed to the role of Project and Start Up Director. Mr Kindred has over 30 years’ experience in the mining industry, having held senior positions in project management, construction, commissioning and ramp‑up of development projects, with a strong background in development and operations of pressure‑acid‑leach nickel projects. On 8 March 2018, the Consolidated Entity announced that it was conducting an underwritten institutional placement to raise a minimum of $150 million at a $1.15 a share (‘Placement’). The offer was made to institutional, accredited, sophisticated and professional investors under relevant prospectus exemptions. In conjunction with the Placement, the Consolidated Entity also conducted share purchase plan, offering eligible shareholders in Australia and New Zealand the ability to apply to subscribe for up to A$15,000 of new shares at a $1.15 a share. Proceeds raised via the placement and share purchase plan are to be used to fund early works and long lead items to accelerate the development of the Sunrise Project. There were no other significant changes in the state of affairs of the Consolidated Entity during the financial year. Matters subsequent to the end of the financial year No matter or circumstance has arisen since 30 June 2018 that has significantly affected, or may significantly affect the Consolidated Entity’s operations, the results of those operations, or the Consolidated Entity’s state of affairs in future financial years. 22 Directors’ Report continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Likely developments and expected results of operations The Consolidated Entity will continue to pursue its objectives of advancing the development of the Sunrise Project as well as its suite of technology applications for the treatment of water in the water, municipal, industrial and resources sectors. This will include further commercial development of the applications that are both currently in use and in development and advancing the market penetration strategies to enable the Consolidated Entity to fully exploit the potential of its products in the Metals and Water Divisions. The Consolidated Entity intends to fund its development through debt finance, equity partnerships, capital raisings as well as operational revenues from contracts entered into, and through securing additional contracts throughout the year. Further information on likely developments in the operations of the Consolidated Entity and the expected results of operations have not been included in this report because the directors believe it would be likely to result in unreasonable prejudice to the Consolidated Entity. Environmental regulation The Consolidated Entity has an interest in the mineral licences disclosed in note 17. The authorities responsible for the granting of these licences require the tenement holder to comply with the terms and conditions of the licence and all directions given to it by those authorities. The terms and conditions of any mineral licence typically include certain environmental conditions, covering such matters as Aboriginal cultural heritage, threatened species, habitat, heritage items, trees and vegetation, roads and tracks, groundwater, streams and watercourses, erosion and sediment controls, preventing and monitoring pollution, refuse, chemicals, fuels and waste materials, transmission lines and pipelines, drilling, rehabilitation of the land, environmental reporting, and site security. There have been no known breaches of the Consolidated Entity’s licence conditions or any other environmental regulation during the financial year or up until the date of this report. COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 23 Directors’ Report continued Information on directors Name: Title: Qualifications: Experience and Expertise: Mr Robert Friedland Co‑Chairman and Non‑Executive Director Bachelor of Arts in Political Science from Reed College, Oregon, USA Mr Friedland was appointed Co‑Chairman of Clean TeQ on 8 September 2016. During the past 20 years of his career, Mr Friedland has founded and led two prominent, international mining entities under the Ivanhoe Mines banner. He is Executive Chairman and a director of the present Ivanhoe Mines Ltd., which has three major mine development projects underway in Southern Africa, including construction of two new mines on world‑scale mineral discoveries in South Africa and the Democratic Republic of Congo. The company operated under the Ivanplats name after its founding in 1998 and assumed the Ivanhoe name in 2013. The original Ivanhoe Mines, founded in 1994, had extensive mining and exploration interests in the Asia Pacific Region. Mr Friedland was Executive Chairman and Chief Executive Officer of the initial Ivanhoe Mines until 2012, and also was President from 2003 to 2008. He directed Ivanhoe Mines’ assembly of a portfolio of interests in several countries over 16 years and led the company’s discoveries and initial development of the Oyu Tolgoi copper‑gold‑silver deposits in southern Mongolia. Rio Tinto acquired a controlling interest in the company in 2012; the company was required to relinquish the Ivanhoe name and became Turquoise Hill Resources, which is continuing the development of Oyu Tolgoi. Mr Friedland also is Chairman and President of Ivanhoe Capital Corporation, his family’s private, Singapore‑based company founded in 1987 that specializes in providing venture capital, project financing and related services for international business enterprises, predominantly in the minerals, energy and communications technologies sectors. He was inducted into the Canadian Mining Hall of Fame in 2016. Other current directorships: Executive Chairman, Ivanhoe Mines Ltd. Chairman & President, Ivanhoe Capital Corporation Chairman & Co‑Founder, I‑Pulse Inc. Chairman & Chief Executive Officer, High Power Exploration Inc. Chairman, Pu Neng Energy Co‑Chairman, SK Global Entertainment Chairman, Ivanhoe Pictures Ivanhoe Industries & Kietta Former directorships (last 3 years): Nil Special responsibilities: Nil Interests in shares: 94,518,888 fully paid ordinary shares Interests in options: Interests in rights: Nil Nil 24 Directors’ Report continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Name: Title: Qualifications: Experience and Expertise: Mr Jiang Zhaobai Co‑Chairman and Non‑Executive Director EMBA, China International Business School Mr Jiang took part in numerous engineering and construction projects following graduation from university in the 1980’s. He later founded his own real estate development company in 1988. In 1997, Shanghai Pengxin Group Co., Ltd. was established with Mr Jiang as founding Chairman and he remains in that role to this date. Under Mr Jiang’s leadership, Shanghai Pengxin Group has successfully developed a number of significant property projects, amounting to a total of six million square meters. Starting from real estate development including both residential and commercial as well as hotel industry, the group has diversified into a range of other sectors including modern agriculture, mining, environmental science and technology and financial investment. The group is now a diversified conglomerate with controlling interests in four listed companies in China. He was appointed a Director of Clean TeQ on 24 April 2017. Other current directorships: Chairman of Shanghai Pengxin Group; Executive Chairman of Shanghai Entrepreneurs Association; Vice President of China Non‑governmental Enterprise Directors Association; Economic Adviser to China Development Bank Former directorships (last 3 years): Nil Special responsibilities: Nil Interests in shares: 92,518,888 fully paid ordinary shares Interests in options: Interests in rights: Nil Nil Name: Title: Mr Sam Riggall Managing Director & Chief Executive Officer Qualifications: LLB (Hons), B.Com., MBA Experience and Expertise: Mr Riggall is a graduate in law and commerce from Melbourne University and has an MBA from Melbourne Business School. He was previously Executive Vice President of Business Development and Strategic Planning at Ivanhoe Mines Ltd. Prior to that Mr Riggall worked in a variety of roles in Rio Tinto for over a decade covering project generation and evaluation, business development and capital market transactions. Mr Riggall was appointed to the Clean TeQ Board and to the position of Chairman on 4 June 2013. Mr Riggall was appointed Chairman and Chief Executive Officer effective 1 July 2015. Mr Riggall resigned as Chairman and assumed the role of Managing Director effective 24 April 2017. Other current directorships: Syrah Resources Limited Former directorships (last 3 years): Nil Special responsibilities: Nil Interests in shares: 26,112,055 fully paid ordinary shares Interests in options: Nil Interests in rights: 1,722,571 COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 25 Directors’ Report continued Name: Title: Mr Ian Knight Independent Non‑Executive Director Qualifications: FCA Experience and Expertise: Mr Knight is a graduate in Business Studies and is also a fellow of the Institute of Chartered Accountants, an Associate Fellow of the Australian Institute of Management and a member of the Institute of Company Directors. His experience includes presenting and working with boards of public, private and private equity ownership, State and Federal Governments and extensive experience in strategising and implementing mergers, acquisitions, divestments and capital raising initiatives. Mr Knight was also formerly a Partner of KPMG where he held the position of Head of Mergers and Acquisitions and Head of Private Equity for KPMG Corporate Finance. Currently he is Managing Director of Axsia Group and a partner of nem Australasia Pty Ltd. He was appointed a director of Clean TeQ on 8 July 2013. Other current directorships: Former directorships (last 3 years): Nil Nil Special responsibilities: Member of the Nomination, Remuneration and Governance Committee and Chair of the Audit and Interests in shares: 1,646,840 fully paid ordinary shares Finance Committee. Interests in options: 375,000 unlisted options exercisable at $0.3100 (31.00 cents) per option Interests in rights: Nil Name: Title: Qualifications: Experience and Expertise: Other current directorships: Former directorships (last 3 years): Mr Eric Finlayson Non‑Executive Director BSc (Honours) in Applied Geology Mr Finlayson is a geologist with over thirty years’ experience in Australia and overseas. Over 24 years with Rio Tinto, Mr Finlayson held a number of key executive roles including regional exploration manager for Canada, Director of Exploration for the Australasian region and 5 years as Global Head of Exploration based in London. Mr Finlayson also served as CEO of Rio Tinto Coal Mozambique following Rio Tinto’s takeover of Riversdale Mining in 2011. Mr Finlayson is currently President of High Power Exploration. He was appointed a director of Clean TeQ on 16 September 2015. Cordoba Minerals Corp., Kaizen Discovery Inc. and Sama Resources Inc. (all TSX Venture Exchange); VRB Energy (private) Apollo Minerals Limited (resigned 7 July 2016) Special responsibilities: Member of the Nomination, Remuneration and Governance Committee and Audit and Finance Interests in shares: Nil Committee. Interests in options: 750,000 unlisted options exercisable at $0.2712 (27.12 cents) per option; 375,000 unlisted options exercisable at $0.3100 (31.00 cents) per option Interests in rights: Nil 26 Directors’ Report continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Name: Title: Qualifications: Experience and Expertise: Mr Michael Spreadborough Independent Non‑Executive Director BEng (Mining Engineering); MBA, AICD Mr Spreadborough is a mining engineer with extensive experience in the development and operation of mineral resources projects spanning a range of commodities including copper, gold, uranium, lead, zinc and iron ore. Over the past 20 years Mr Spreadborough has held senior executive roles with a number of mining companies including Chief Operating Officer of Sandfire Resources and Inova Resources Ltd (formerly Ivanhoe Australia), General Manager – Coastal Operations for Rio Tinto and General Manager – Mining for WMC and later Vice President – Mining for BHP Billiton at the world‑class Olympic Dam mine in South Australia. He was appointed a director of Clean TeQ on 8 December 2016. Other current directorships: Nusantara Resources Limited Former directorships (last 3 years): Nil Special responsibilities: Chair of the Sustainability and Risk Committee Member of the Audit and Finance Committee Interests in shares: Nil Interests in options: 750,000 unlisted options exercisable at $0.7700 (77.00 cents) per option Interests in rights: Nil Name: Title: Qualifications: Experience and Expertise: Mr Li Binghan Non‑Executive Director Masters in International Law, Law School, Fudan University, Masters in Intellectual Property Law, Law School, Queen Mary University of London and a Qualification Certificate for Attorney at Law and Qualification Certificate for Patent Attorney Mr Li is a lawyer with more than 20 years’ experience. He is currently the Director of the Risk Control and Legal Department of Pengxin Mining. He commenced his career with Henan Province Judicial Bureau in 1996. After five years in the Judicial Bureau, Mr Li began his legal career with Shanghai Pudong Law firm in 2003, focusing on foreign direct investment and mergers and acquisitions. In 2012 Mr Li joined Shanghai Co‑effort Law Firm, working in the field of intellectual property law. Mr Li joined Pengxin Mining in 2015. He was appointed a Director of Clean TeQ on 24 April 2017. Other current directorships: Former directorships (last 3 years): Nil Nil Special responsibilities: Member of the Sustainability and Risk Committee Interests in shares: Interests in options: Interests in rights: Nil Nil Nil COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 27 Directors’ Report continued Name: Title: Qualifications: Experience and Expertise: Ms Stefanie Loader Independent Non‑Executive Director Bachelor of Science with Honours (Geology), University of Western Australia, Graduate Certificate in Applied Statistics, Murdoch University; MAIG; GAICD. Ms Stefanie (Stef) Loader is a mining industry executive with broad international experience having worked in exploration, project evaluation and development, mining and corporate roles across seven countries and four continents. Residing in Central West NSW, Ms Loader was most recently Managing Director of Northparkes Copper and Gold Mine for CMOC International. A geologist and statistician by training, Ms Loader began her career with Rio Tinto as an exploration geologist in Western Australia and was then part of the discovery team for the Khanong copper deposit at Sepon in Laos in the late 1990s. After exploration and evaluation roles in the Americas, Ms Loader was assigned to the office of Rio Tinto Chief Executive in London where she then worked on global exploration strategy and prioritisation as Exploration Executive. Ms Loader also led the development of the Bunder diamond project in India for four years, including the signing of a landmark development agreement with the State of Madhya Pradesh in support of the project. Ms Loader was appointed a Director of Clean TeQ on 28 June 2017, with effect from 1 July 2017. Other current directorships: Former directorships (last 3 years): Nil Nil Special responsibilities: Chair of the Nomination, Remuneration and Governance Committee Member of the Sustainability and Risk Committee and the Audit and Finance Committee Interests in shares: 50,000 fully paid ordinary shares Interests in options: Interests in rights: Nil Nil Other current directorships’ quoted above are current directorships for listed entities only and excludes directorships in all other types of entities, unless otherwise stated. ‘Former directorships’ quoted above are directorships held in the last 3 years for listed entities only and excludes directorships in all other types of entities, unless otherwise stated. Company Secretary Ms Melanie Leydin was appointed to the position of Company Secretary on 7 July 2011. Ms Leydin is a Chartered Accountant and principal of Leydin Freyer, a chartered accounting firm specializing in accounting and company secretarial services. Ms Leydin has over 20 years’ experience in the accounting profession and is company secretary for a number of junior mining, bioscience, biotechnology and IT entities listed on ASX. 28 Directors’ Report continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Meetings of Directors The number of meetings of the Company’s Board of Directors (‘the Board’) and of each Board committee held during the financial year ended 30 June 2018, and the number of meetings attended by each director were: Robert Friedland Jiang Zhaobai Sam Riggall Roger Harley* Ian Knight Eric Finlayson Stefanie Loader Mike Spreadborough Li Binghan Robert Friedland Jiang Zhaobai Sam Riggall Roger Harley* Ian Knight Eric Finlayson Stefanie Loader Mike Spreadborough Li Binghan Full Board Meeting Audit and Finance Committee Attended Held Attended Held 5 1 6 2 6 6 6 6 – 6 6 6 2 6 6 6 6 6 – – – 1 4 2 3 1 – – – – 1 4 2 3 2 – Nomination, Remuneration and Governance Committee Sustainability and Risk Committee Attended Held Attended Held – – – – 3 3 3 – – – – – – 3 3 3 – – – – – – – – 3 3 1 – – – – – – 3 3 3 * Roger Harley retired from the board, effective 1 November 2017. Held: represents the number of meetings held during the time the director held office or was a member of the relevant committee. COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 29 Directors’ Report continued Remuneration report (audited) The remuneration report, which has been audited, outlines the director and executive remuneration arrangements for the Consolidated Entity and the Company, in accordance with the requirements of the Corporations Act 2001 and its Regulations. Remuneration is referred to as compensation throughout the Remuneration Report. The Remuneration Report is set out under the following main headings: A. Principles used to determine the nature and amount of remuneration B. Details of remuneration C. Service agreements D. Share-based compensation E. Additional information F. Additional disclosures relating to key management personnel The Board of Directors is responsible for approving the compensation arrangements for the Directors and senior executives following recommendations received from the Nomination, Remuneration and Governance Committee. The Board, in conjunction with the Nomination, Remuneration and Governance Committee, assesses 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. Key management personnel have authority and responsibility for planning, directing and controlling the activities of the Consolidated Entity. Key management personnel as identified for the purposes of this report by the criteria set out above are as follows: • Ben Stockdale – Chief Financial Officer • Scott Magee – Sunrise Project Director (resigned) • Tim Kindred – Sunrise Project Director A. Principles used to determine the nature and amount of remuneration (audited) There were no other employees in the Consolidated Entity that met the definition of key management personnel in accordance with the Corporations Act 2001 or Australian Accounting Standards. Compensation levels are competitively set to attract and retain appropriately qualified and experienced directors and executives. As and when required the Nomination, Remuneration and Governance Committee has access to independent advice on the appropriateness of compensation packages given trends in comparative companies and the objectives of the compensation strategy. Independent advice was sought during the 2017 and 2018 financial years and their recommendations were implemented during financial year 2018. The compensation structures explained below are designed to attract and retain suitably qualified candidates, reward the achievement of strategic objectives, and create the broader outcome of creating value for shareholders. The compensation structures take into account: • the capability and experience of the key management personnel; • the key management personnel’s ability to control the relevant segment’s performance; • the Consolidated Entity’s performance including: (i) the Consolidated Entity’s earnings; • Robert Friedland – Co‑Chairman and Non‑Executive (ii) the growth in share price and delivering constant Director returns on shareholder wealth; and • Jiang Zhaobai – Co‑Chairman and Non‑Executive Director (iii) the amount of incentives within each key management • Sam Riggall – Managing Director and Chief Executive Officer person’s compensation. • Li Binghan – Non‑Executive Director • Eric Finlayson – Non‑Executive Director • Roger Harley – Independent Non‑Executive Director (retired) • Ian Knight – Independent Non‑Executive Director • Stefanie Loader – Independent Non‑Executive Director • Mike Spreadborough – Independent Non‑Executive Director The directors’ and executives’ remuneration and incentive policies and practices are performance based and aligned to the Consolidated Entity’s vision, values and overall business objectives. They are designed to motivate key management personnel to pursue the Consolidated Entity’s long‑term growth and success. Compensation packages include a mix of fixed and variable compensation and short and long‑term performance‑based incentives. 30 Directors’ Report continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM In addition to their salaries, the Consolidated Entity also provides non‑cash benefits to its directors and key management personnel and contributes to post‑employment superannuation plans on their behalf. Fixed remuneration Fixed compensation consists of base compensation (which is calculated on a total cost basis and includes any fringe benefits tax charges related to employee benefits including motor vehicles), as well as leave entitlements and employer contributions to superannuation funds. Compensation levels are reviewed at least annually by the Nomination, Remuneration and Governance Committee through a process that considers individual, segment and overall performance of the Consolidated Entity. An executive’s compensation is also reviewed upon promotion. Performance-linked remuneration Performance‑linked compensation, including both short‑term and long‑term incentives, is designed to reward employees for meeting or exceeding their financial and personal objectives. The short‑term incentive (‘STI’) is an ‘at risk’ bonus while the long‑term incentive (’LTI’) is provided as options and performance rights over ordinary shares of the Company under the rules of the shareholder approved Employee Incentive Plan. The STI and LTI plans provide for Board discretion on the provision of bonuses as cash, shares and options. During the 2018 financial year the Board exercised its discretion and authorised the issue of options and performance rights to a number of employees. In addition, STI bonuses relating to performance against FY17 KPI’s of $87,144 were paid to staff during the 2018 financial year. Refer to section E of this remuneration report for an analysis of the Consolidated Entity’s recent performance and link to overall remuneration. Short Term Incentive Each year the Nomination, Remuneration and Governance Committee sets the key performance indicators (’KPI’s’) for all employees. The KPI’s generally include measures relating to the Consolidated Entity, the relevant segment and the individual, and include financial, staff management, safety, customer and strategy and risk measures. The measures are chosen as they directly align the individual’s reward to the KPI’s of the Consolidated Entity and to its strategy and performance. The performance objectives include financial performance compared to budgeted amounts. The non‑financial objectives vary with position and responsibility and include measures such as achieving strategic outcomes, safety and environmental performance, customer satisfaction and staff development. At the end of the financial year, the Nomination, Remuneration and Governance Committee assesses the actual performance of the Consolidated Entity, the relevant segment and individual against the KPI’s set at the beginning of the financial year. A percentage of the pre‑determined maximum bonus amount is awarded at the Board’s discretion and depending on results. No bonus is awarded where performance falls below the minimum performance expectation. Long Term Incentive The LTI consists of a grant of performance rights and options to certain directors and employees, administered under the Company’s shareholder approved Employee Incentive Plan (‘EIP’). The EIP provides for directors and key executives to receive, for no consideration, options over ordinary shares of the Company at specified exercise prices as determined by the Board. The grant of options is intended to align the interests of directors and key executives with other owners of the Company. The ability to exercise the options is conditional upon each director and key executive’s ongoing employment by the Company and other applicable performance hurdles determined by the Board from time to time. The LTI also consists of a grant of performance rights to employees, administered under the terms of the EIP. The grant of performance rights is intended to align the interests of employees with other owners of the Company. Performance rights are granted at the discretion of the Board to employees by way of issue at nil cost both at the time of grant and vesting. Performance rights are granted on a semi‑annual basis, with the at‑risk value of the annual grant over the vesting period, typically three years, representing a percentage of the employee’s total fixed remuneration, priced at the time of grant. Vesting is contingent on the Consolidated Entity meeting or exceeding a performance hurdle over the performance period. The performance hurdle involves an assessment of the Company’s total shareholder returns relative to a comparator group of companies. Vesting is also subject to the continued employment of the employee. COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 31 The aggregate maximum sum will be apportioned among them in such manner as the Directors in their absolute discretion determine. Non‑Executive Directors fees are set based on advice from external advisors with reference to fees paid to other Non‑Executive Directors of comparable companies. Non‑Executive Directors do not receive performance related remuneration. Directors’ fees include fees for subcommittee roles and responsibilities. Non‑Executive Directors are entitled to be paid travelling and other expenses properly incurred by them in attending Directors’ or general meetings of the Company or otherwise in connection with the business of the Consolidated Entity. No retirement benefits are to be paid to Non‑Executive Directors however, Director remuneration figures quoted herein are inclusive of superannuation where applicable. The Company determines the maximum amount for remuneration, including thresholds for share‑based remuneration, for Directors by resolution. Voting and comments made at the Company’s 1 November 2017 Annual General Meeting (‘AGM’) The Company received 97.3% of ‘for’ votes in relation to its remuneration report for the year ended 30 June 2017. The Company did not receive any specific feedback at the AGM regarding its remuneration practices. Directors’ Report continued The EIP, which was adopted on 19 July 2017, states that the total number of options issued pursuant to the EIP must not exceed 5% of the total number of issued shares in the Company, which excludes options and performance rights issued pursuant to shareholder approval or to non‑employees. The Nomination, Remuneration and Governance Committee, in conjunction with the Board, determines the number of options performance rights and the terms and conditions associated with those options and performance rights that may be issued to employees each year. The criteria used to assess the number of options and performance rights issued include the Consolidated Entity’s performance, individual performance and an industry analysis of best practice. The method of assessment was chosen as it provides the Nomination, Remuneration and Governance Committee with an objective means of measuring performance against expected performance. Short Term and Long-Term Incentive Structure The Nomination, Remuneration and Governance Committee considers that the above performance‑linked compensation structure will generate the desired outcome in respect of attracting and retaining high calibre employees. In the current year the Consolidated Entity has achieved many of its operational targets, however, financial results remained loss‑making due to the fact that the Consolidated Entity’s technologies remain at the early stages of commercialisation and as a result of the Sunrise Project being at the pre‑production development phase. The Nomination, Remuneration and Governance Committee will conduct a formal assessment of employees’ key performance indicators and the Consolidated Entity’s performance as a whole during the 2019 financial year to determine if any STI bonus is to be awarded in respect of the 2018 financial year. Non-Executive Directors The Company Constitution provides for Non‑Executive Directors to be paid or provided remuneration for their services the total amount or value of which must not exceed an aggregate maximum of $1,000,000 per annum or such other maximum amount determined from time to time by the Company in a general meeting. 32 Directors’ Report continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM B. Details of remuneration (audited) Details of the nature and amount of each major element of remuneration of the key management personnel of the Consolidated Entity are set out in the following tables. Short-term benefits Post- employment benefits Long-term benefits Share based payments Cash salary and fees Bonus Non- monetary Super- annuation Long service leave Equity-settled 2018 Non‑Executive Directors: $ Robert Friedland 127,500 Jiang Zhaobai Li Binghan Eric Finlayson Roger Harley* Ian Knight Stefanie Loader** Mike Spreadborough Executive Directors: 127,500 87,504 83,713 37,576 99,083 95,700 86,377 $ – – – – – – – – Sam Riggall 436,750 44,280 Other KMP: Tim Kindred*** 107,692 Scott Magee**** 308,425 Ben Stockdale 303,199 – 12,033 30,831 1,901,019 87,144 $ – – – – – – – – – – – – – $ – – – 7,953 3,570 – – 8,206 $ – – – – – – – Total $ 127,500 127,500 87,504 91,666 41,146 99,083 95,700 $ – – – – – – 230,855 325,438 23,250 12,031 135,139 651,450 10,231 24,258 25,000 – – – – 117,923 344,716 10,349 66,843 436,222 102,468 22,380 432,837 2,545,848 * Roger Harley retired as a Non‑Executive Director on 1 November 2017. ** Stefanie Loader was appointed to the Board as a Non‑Executive Director with effect from 1 July 2017. *** Tim Kindred was appointed as Project and Start up Director with effect from 20 February 2018. **** Scott Magee resigned as Sunrise Project Director effective 20 February 2018. Of his salary payment, $79,908 is a severance benefit. COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 33 Directors’ Report continued Short-term benefits Cash salary and fees $ Bonus $ 37,500 8,333 8,333 45,872 45,872 50,000 25,649 300,000 250,000 92,952 253,750 1,118,261 – – – – – – – – – – – – 2017 Non‑Executive Directors: Robert Friedland* Jiang Zhaobai**** Li Binghan**** Eric Finlayson Roger Harley Ian Knight Mike Spreadborough** Executive Directors: Sam Riggall Peter Voigt***** Other KMP: Scott Magee*** Ben Stockdale $ – – – – – – – – 413 – – Post- employment benefits Long-term benefits Share based payments Non- monetary Super- annuation Long service leave Equity- settled $ – – – 4,358 4,358 – 2,437 $ – – – – – – – $ – – – 137,738 137,738 Total $ 37,500 8,333 8,333 187,968 187,968 137,738 187,738 – 28,086 28,500 23,750 6,974 3,004,288 3,339,762 16,719 418,331 709,213 6,230 24,106 1,593 4,329 346,640 447,415 30,433 312,618 413 93,739 29,615 4,212,906 5,454,934 * Robert Friedland was appointed as Co‑Chairman and Non‑Executive Director on 8 September 2016. ** Mike Spreadborough was appointed as a Non‑Executive Director on 8 December 2016. *** Scott Magee was appointed Sunrise Project Director on 27 February 2017. **** Jiang Zhaobai was appointed as Co‑Chairman and Non‑Executive Director on 24 April 2017. Li Binghan was appointed as a Non‑Executive Director on 24 April 2017. ***** Peter Voigt retired as a director effective 30 June 2017. 34 Directors’ Report continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM The following tables sets out the relative mix of fixed remuneration and the total opportunity for performance related remuneration for Key Management Personnel for the current and previous financial period: 2018 Non–Executive Directors: Robert Friedland Jiang Zhaobai Li Binghan Eric Finlayson Roger Harley* Ian Knight Stefanie Loader** Mike Spreadborough Executive Directors: Sam Riggall Other KMP: Tim Kindred*** Scott Magee**** Ben Stockdale Proportion of remuneration that is fixed Proportion of remuneration at risk as an STI Proportion of remuneration at risk as an LTI Proportion of remuneration consisting of options 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 29.06% – – – – – – – – – – – – – – – – 72.46% 6.80% 20.74% 100.00% 96.51% 77.61% – 3.49% 7.07% – – 15.32% – – – – – – – 70.94% – – – – * Roger Harley retired as a Non‑Executive Director on 1 November 2017. ** Stefanie Loader was appointed to the Board as a Non‑Executive Director with effect from 1 July 2017. *** Tim Kindred was appointed as Project and Start up Director with effect from 20 February 2018. **** Scott Magee resigned as Sunrise Project Director effective 20 February 2018. COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 35 Directors’ Report continued 2017 Non–Executive Directors: Robert Friedland* Jiang Zhaobai**** Li Binghan**** Eric Finlayson Roger Harley Ian Knight Mike Spreadborough** Executive Directors: Sam Riggall Peter Voigt***** Other KMP: Scott Magee*** Ben Stockdale Proportion of remuneration that is fixed Proportion of remuneration at risk as an STI Proportion of remuneration at risk as an LTI Proportion of remuneration consisting of options 100.00% 100.00% 100.00% 26.72% 26.72% 26.63% 100.00% 10.04% 41.01% 22.52% 90.27% – – – – – – – – – – – – – – – – – – 1.97% 5.63% – – – 73.28% 73.28% 73.37% – 87.98% 53.35% – 77.48% 9.73% – * Robert Friedland was appointed as Co‑Chairman and Non‑Executive Director on 8 September 2016. ** Mike Spreadborough was appointed as a Non‑Executive Director on 8 December 2016. *** Scott Magee was appointed Sunrise Project Director on 27 February 2017. **** Jiang Zhaobai was appointed as Co‑Chairman and Non‑Executive Director on 24 April 2017. Li Binghan was appointed as a Non‑Executive Director on 24 April 2017. ***** Peter Voigt retired as a director effective 30 June 2017. 36 Directors’ Report continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM C. Service agreements (audited) Remuneration and other terms of employment for key management personnel are formalised in service agreements. Details of these agreements are as follows: Name: Title: Agreement commenced: Mr Sam Riggall Managing Director 1 July 2015 Term of agreement: No fixed term Remuneration Name: Title: Agreement commenced: Total fixed remuneration is set at a salary inclusive of superannuation of $460,000 per annum based on duties as Managing Director. The Company may terminate the agreement upon three months’ notice or payment in lieu of notice. Mr Riggall can terminate the agreement upon three months’ notice. The Company may terminate the agreement immediately where the executive commits any act of serious misconduct, persistent breach or non‑observance of a term of this agreement. Mr Ben Stockdale Chief Financial Officer 15 January 2015 Term of agreement: No fixed term Remuneration Name: Title: Agreement commenced: Total fixed remuneration set at salary inclusive of superannuation of $394,200 per annum based on duties as Chief Financial Officer. The Company may terminate the agreement upon six months’ notice or payment in lieu of notice. Mr Stockdale can terminate the agreement upon three months’ notice. The Company may terminate the agreement immediately where the executive commits any act of serious misconduct, persistent breach or non‑observance of a term of this agreement. Mr Tim Kindred Project and Start up Director 20 February 2018 Term of agreement: No fixed term Remuneration Total fixed remuneration set at salary inclusive of superannuation of $438,000 per annum based on duties as Project Director. The Company may terminate the agreement upon three months’ notice or payment in lieu of notice. Mr Kindred can terminate the agreement upon three months’ notice. The Company may terminate the agreement immediately where the executive commits any act of serious misconduct, persistent breach or non‑observance of a term of this agreement. The service contracts outline the components of compensation paid to the key management personnel. The service contracts of the key management personnel prescribe how compensation levels are modified year to year. Compensation levels are reviewed each year to take into account cost‑of‑living changes, any change in the scope of the role performed by the senior executive and any changes required to meet the principles of the compensation policy. COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 37 Directors’ Report continued D. Share‑based compensation (audited) Issue of shares There were no shares issued to directors and other key management personnel as part of compensation during the year ended 30 June 2018. Options The terms and conditions of each grant of options over ordinary shares affecting remuneration of directors and other key management personnel in the year ended 30 June 2018 financial year are as follows: Grantee/Number of Options/Grant Date Ian Knight 375,000 options 6 September 2016 Eric Finlayson 750,000 options 20 November 2015 Eric Finlayson 375,000 options 6 September 2016 Mike Spreadborough 375,000 options 19 July 2017 Mike Spreadborough 375,000 options 19 July 2017 Vesting date & exercisable date Expiry Date Exercise Price Fair value per option at grant date 6 September 2016 16 May 2019 $0.3100 $0.367 20 November 2015 30 November 2018 $0.2712 $0.083 6 September 2016 16 May 2019 $0.3100 $0.367 8 December 2017 17 February 2020 $0.7770 $0.379 8 December 2018 17 February 2020 $0.7770 $0.379 Options granted carry no dividend or voting rights. The number of options over ordinary shares granted to directors and other key management personnel as part of compensation during the year ended 30 June 2018 is set out below: Name Sam Riggall Peter Voigt Roger Harley Ian Knight Eric Finlayson Number of options granted during the year Number of options granted during the year Number of options vested during the year Number of options vested during the year 2018 2017 2018 2017 – – – – – 8,000,000 1,000,000 375,000 375,000 375,000 – – – – – 8,000,000 1,000,000 375,000 375,000 375,000 Mike Spreadborough 750,000 Ben Stockdale Scott Magee Tim Kindred – – – – – 375,000 – 3,000,000 1,500,000 – – – – – – 38 Directors’ Report continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Values of options over ordinary shares granted, exercised and lapsed for directors and other key management personnel as part of compensation during the year ended 30 June 2018 are set out below: Value of options granted during the year Value of options exercised during the year Value of options lapsed during the year Remuneration consisting of options for the year Name Sam Riggall Peter Voigt Roger Harley* Ian Knight Eric Finlayson $ – – – – – Mike Spreadborough 230,856 Ben Stockdale Scott Magee Tim Kindred – – – $ 3,398,984 179,933 – $ 764,288 24,667 – 51,629 10,696 – – 270,126 658,977 – – – 42,273 658,977 – % – – – – – 70.94% – – – * Retired as director 1 November 2017. No options were granted, exercised or lapsed during the period 1 July 2017 to 1 November 2017 by Mr Harley. Options vested in prior years and expired in the current year are disclosed in note 42 to the financial statements. Performance Rights The terms and conditions of each grant of performance rights over ordinary shares affecting remuneration of directors and other key management personnel in this financial year or future reporting years are as follows: Grantee/Number of Performance Rights/Grant Date Sam Riggall – 480,000 rights 19 November 2015 Ben Stockdale – 400,000 rights 8 July 2015 Ben Stockdale – 468,606 rights 16 May 2016 Sam Riggall – 831,025 rights 6 September 2016 Ben Stockdale – 187,880 rights 1 July 2017 Sam Riggall – 411,546 rights 1 July 2017 Ben Stockdale – 45,998 rights 6 Feb 2018 Vesting date 1 July 2018 Expiry Date 1 July 2018 1 July 2018 1 July 2018 1 July 2019 1 July 2019 6 September 2019 6 September 2019 1 July 2020 1 July 2020 1 July 2020 1 July 2020 1 January 2021 1 January 2021 Exercise Price Fair value per performance right at grant date Nil Nil Nil Nil Nil Nil Nil $0.065 $0.086 $0.126 $0.195 $0.581 $0.581 $1.014 Performance rights granted carry no dividend or voting rights. COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 39 Directors’ Report continued The number of performance rights over ordinary shares granted to each key management personnel as part of compensation during the year ended 30 June 2018 is set out below: Name Sam Riggall Peter Voigt* Ben Stockdale Number of rights granted during the year Number of rights granted during the year Number of rights vested during the year Number of rights vested during the year 2018 411,546 215,317 233,878 2017 831,025 461,681 – 2018 2017 – – – – – – * Peter Voigt retired as a director effective 30 June 2017. Values of performance rights over ordinary shares granted, exercised and lapsed key management personnel as part of compensation during the year ended 30 June 2018 are set out below: $ Value of rights granted during the year $ Value of rights granted during the year $ Value of rights vesting during the year $ Value of rights vesting during the year 2018 69,218 33,491 36,378 2017 53,914 29,952 – 2018 2017 – – – – – – Name Sam Riggall Peter Voigt* Ben Stockdale * Peter Voigt retired as a director effective 30 June 2017. E. Additional information (audited) In considering the Consolidated Entity’s performance and generation of shareholder value, the Nomination, Remuneration and Governance Committee has due regard to profit or loss after tax in the current and previous financial years, along with the market capitalisation and movement in the share price. The earnings of the Consolidated Entity for the five years to 30 June 2018 are summarised below: 2014 $’000 2015 $’000 2016 $’000 2017 $’000 2018 $’000 Profit/(loss) after income tax (4,910) (8,225) (6,423) (12,184) (16,012) The factors that are considered to affect total shareholders return (‘TSR’) are summarised below: Share price at financial year end ($) Movement in share price ($) Dividends paid ($) 2014 0.05 (0.05) – 2015 0.23 0.18 – 2016 0.43 0.20 – 2017 0.67 0.24 – 2018 0.81 0.14 – Company, and individual, key performance indicators are the basis of the performance targets assessed for determining the award of short‑term incentives. Dividends and changes in share price are included in the total shareholder return calculation, which is the key performance criteria assessed for the long‑term incentives. 40 Directors’ Report continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM F. Key management personnel transactions (audited) Movement in shares held The number of shares in the Company held during the financial year by each director and other members of key management personnel of the Consolidated Entity, including their personally related parties, is set out below: Balance at the start of the year Received as part of remuneration Additions Disposals/ other Balance at end of the year Ordinary shares Robert Friedland Jiang Zhaobai Sam Riggall Li Binghan Eric Finlayson Roger Harley** Ian Knight Stefanie Loader* Mike Spreadborough Scott Magee*** Tim Kindred**** Peter Voigt***** Ben Stockdale 94,518,888 92,518,888 6,917,944 – – 1,830,812 1,025,557 – – – – 22,725,794 75,000 219,612,883 – – – – – – – – – – – – – – 2,082,008 – – – 96,600,896 92,518,888 19,594,111 400,000 26,112,055 – – 621,283 50,000 – – – – – – – – – – – – – – 1,830,812 1,646,840 50,000 – – – 22,725,794 2,594,047 969,047 1,700,000 24,941,449 1,369,047 243,185,285 * Appointed to the position of Non‑Executive Director during the financial year. ** Retired as director with effect from 1 November 2017. Final balance as per date of resignation. *** Resigned on 20 February 2018. Final balance as per date of resignation. **** Appointed as Project and Start‑up Director during the financial year. ***** Resigned as director on 30 June 2017. Final balance as per date of resignation. Grant of anti-dilution right to Pengxin International Group Limited On 27 March 2017, ASX Limited (‘ASX’) granted the Company a waiver from ASX listing rule 6.18. This waiver was given to the extent necessary to permit Pengxin International Group Limited (‘Pengxin’), a company associated with Mr Jiang Zhaobai and Mr Li Binghan, to maintain, its percentage interest in the issued share capital of the company. This Anti‑Dilution Right is activated if a dilution event occurs in the future. The Anti‑Dilution Right lapses on the earlier of: (i) the date on which Pengxin and its related bodies corporate cease to hold in aggregate at least 10% voting power in the Company; (ii) the date on which Pengxin and its related bodies corporate’s voting power in the Company exceeds 25%; or (iii) the strategic relationship between the Company and Pengxin ceases or changes in such a way that it effectively ceases. This Anti‑Dilution Right can only be transferred to an entity in the wholly owned group of Pengxin. COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 41 Directors’ Report continued Movement in options held The number of options over ordinary shares in the Company held during the financial year by each director and other members of key management personnel of the Consolidated Entity, including their personally related parties, is set out below: Balance at the start of the year Granted as part of remuneration Exercised Expired/ forfeited/other Balance at end of the year Options over ordinary shares Sam Riggall Peter Voigt Eric Finlayson Roger Harley Ian Knight Ben Stockdale 24,000,000 3,000,000 1,125,000 1,125,000 1,125,000 3,000,000 (19,594,111) (4,405,889) – (1,758,876) (241,124) 1,000,000 – (929,101) (621,283) (2,594,047) – 1,125,000 (195,899) (128,717) (405,953) – 375,000 – Mike Spreadborough – 750,000 – – 750,000 Scott Magee 3,000,000 (1,500,000) (1,500,000) – 36,375,000 750,000 (26,997,418) (6,877,582) 3,250,000 Movement in performance rights held The number of performance rights over ordinary shares in the Company held during the financial year by each director and other members of key management personnel of the Consolidated Entity, including their personally related parties, is set out below: Balance at the start of the year Granted as part of remuneration Vested Expired/ forfeited/other Balance at end of the year Rights over ordinary shares Sam Riggall Peter Voigt Ben Stockdale 1,311,025 861,681 868,606 3,041,312 411,546 215,317 233,878 860,741 – – – – – – – – 1,722,571 1,076,998 1,102,484 3,902,053 This concludes the remuneration report, which has been audited. 42 Directors’ Report continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Shares under option Unissued ordinary shares of Clean TeQ Holdings Limited under option at the date of this report are as follows: Grant Date 20 November 2015 16 May 2016 6 September 2016 15 December 2016 19 July 2017 7 September 2017 13 November 2017 5 February 2018 Expiry Date Exercise Price Number under Option 30 November 2018 16 May 2019 16 May 2019 15 December 2019 17 February 2020 31 August 2020 6 November 2020 4 December 2020 $0.2712 $0.2820 $0.3100 $0.5850 $0.7700 $0.9500 $1.7300 $1.8000 1,000,000 3,000,000 750,000 325,000 750,000 350,000 75,000 5,500,000 11,750,000 No person is entitled to exercise the options had or has any right by virtue of the option to participate in any share issue of the Company or of any other body corporate. For details of options issued to directors and executives as remuneration refer to the remuneration report. Shares subject to performance rights Unissued ordinary shares of Clean TeQ Holdings Limited subject to performance rights as at 30 June 2018 are as follows: Grant Date 8 July 2015 20 November 2015 16 May 2016 6 September 2016 1 July 2017 6 February 2018 Vest Date Exercise Price 1 July 2018 1 July 2018 1 July 2019 6 September 2019 1 July 2020 1 January 2021 Nil Nil Nil Nil Nil Nil Number 766,416 880,000 1,169,463 1,292,706 1,503,828 484,903 6,097,316 Shares issued on the exercise of options or performance rights During the year, the Company issued the following amount of shares, as a result of option holders exercising their options: Number of Shares 5,212,356 7,004,743 6,545,512 2,246,628 978,319 666,214 6,347,612 108,471 1,500,000 600,000 Amount paid on each share $0.1450 $0.1574 $0.2305 $0.2712 $0.2820 $0.3010 $0.3100 $0.5850 $0.6549 $0.9500 COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 43 Directors’ Report continued Indemnity and insurance of officers • none of the services undermine the general principles The Company has indemnified the directors and executives of the Company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the Company paid a premium in respect of a contract to insure the directors and executives of the Company against a liability to the extent permitted by the Corporations Act 2001. Indemnity and insurance of auditor The Company has not, during or since the financial year, indemnified or agreed to indemnify the auditor of the Company or any related Entity against a liability incurred by the auditor. During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related Entity. Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. Non‑audit services Details of the amounts paid or payable to the auditor for non‑audit services provided during the financial year by the auditor are outlined in note 32 to the financial statements. The directors are satisfied that the provision of non‑audit services during the financial year, by the auditor (or by another person or firm on the auditor’s behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services as disclosed in note 32 to the financial statements do not compromise the external auditor’s independence requirements of the Corporations Act 2001 for the following reasons: • all non‑audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision‑making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards. Officers of the Company who are former audit partners of KPMG Ian Knight, appointed as a Non‑Executive Director on 17 July 2013, was previously a Partner of KPMG and Head of Private Equity for KPMG Corporate Finance, until June 2012. Rounding of amounts The Company is of a kind referred to in Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to ‘rounding‑off’. Amounts in this report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, the nearest dollar. Lead auditor’s independence declaration A copy of the lead auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 44 and forms part of the directors’ report for the financial year ended 30 June 2018 Auditor KPMG continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the directors Sam Riggall Managing Director 24 August 2018 Melbourne COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM 44 Auditor’s Independence Declaration For the year ended 30 June 2018 COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 45 Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2018 Revenue Share of profit/(loss) of joint venture accounted for using the equity method Expenses Raw materials and other direct costs Employee benefits expenses Depreciation and amortisation expenses Legal and professional expenses Occupancy expenses Marketing expenses Write off of bad debts Other expenses Finance costs Loss before income tax benefit Income tax benefit Consolidated 2018 $’000 5,966 (1) (2,480) (9,895) (781) (2,281) (1,159) (1,363) – (3,864) (154) (16,012) – 2017 $’000 1,612 1 (76) (8,841) (813) (1,050) (420) (756) (2) (1,669) (170) (12,184) – Note 5 6 7 7 7 7 8 Loss after income tax benefit for the year (16,012) (12,184) Other comprehensive income Items that may be reclassified subsequently to profit or loss Foreign currency translation Other comprehensive income for the year, net of tax Total comprehensive income for the year – – – – (16,012) (12,184) The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. Earnings per share for loss from continuing operations attributable to the owners of Clean TeQ Holdings Limited Basic earnings per share Diluted earnings per share Earnings per share for loss attributable to the owners of Clean TeQ Holdings Limited Basic earnings per share Diluted earnings per share Consolidated 2018 Cents (2.57) (2.57) (2.57) (2.57) 2017 Cents (2.49) (2.49) (2.49) (2.49) Note 41 41 41 41 The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM 46 Statement of Financial Position As at 30 June 2018 Current assets Cash and cash equivalents Trade and other receivables Inventories Research and development incentive receivable Total current assets Non-current assets Other financial assets Investment in equity accounted investee Property, plant and equipment Intangibles Exploration and evaluation assets Total non-current assets Total assets Current liabilities Trade and other payables Employee benefits Provisions Deferred revenue Notes payable Total current liabilities Non-current liabilities Deferred revenue Employee benefits Provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity Consolidated Note 2018 $’000 2017 $’000 9 10 11 12 13 14 15 16 17 18 19 24 20 21 20 23 24 25 26 27 152,637 2,658 96 67 155,458 228 803 18,580 9,762 76,894 106,267 88,863 993 96 2,088 92,040 80 804 2,662 10,406 14,379 28,331 261,725 120,371 6,998 613 1,225 47 – 8,883 448 40 198 686 3,172 300 – 47 2,850 6,369 495 68 55 618 9,569 6,987 252,156 113,384 289,293 11,492 (48,629) 137,517 8,484 (32,617) 252,156 113,384 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 47 Statement of Changes in Equity For the year ended 30 June 2018 Contributed Equity Accumulated Losses Reserves Total Equity Consolidated Balance at 1 July 2016 Loss after income tax benefit for the financial year Total comprehensive income for the financial year Transactions with owners in their capacity as owners: Equity contributions, net of transaction costs (note 25) Share‑based payments (note 42) Lapse of options Total contribution and distribution: Change in ownership interests: Total transactions with owners of the Company Balance at 30 June 2017 Balance at 1 July 2017 Loss after income tax benefit for the financial year Total comprehensive income for the financial year Transactions with owners in their capacity as owners: Equity contributions, net of transaction costs (note 25) Share‑based payments (note 42) Lapse of options $’000 39,856 – – 97,661 – – 97,661 97,661 137,517 137,517 – – 151,776 – – Total contribution and distribution: 151,776 Change in ownership interests: Total transactions with owners of the Company Balance at 30 June 2018 151,776 289,293 $’000 (20,433) (12,184) (12,184) – – – – – (32,617) (32,617) (16,012) (16,012) – – – – – (48,629) The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. $’000 3,302 – – – 5,182 – 5,182 5,182 8,484 $’000 22,725 (12,184) (12,184) 97,661 5,182 – 102,843 102,843 113,384 8,484 113,384 – – – 3,008 – (16,012) (16,012) 151,776 3,008 – 3,008 154,784 3,008 11,492 154,784 252,156 COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM 48 Statement of Cash Flows For the year ended 30 June 2018 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Cash used in operating activities Interest received Interest and other finance costs paid Research and development tax incentive received Net cash used in operating activities Cash flows from investing activities Payments for property, plant and equipment Payments for acquisition of other intangibles Payments for exploration and evaluation assets Acquisition of non‑controlling interest Proceeds from disposal of plant & equipment Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares, net of issuance costs Cash on deposit for security over bank guarantees Repayment of borrowings Net cash from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Note 40 15 16 17 5 Consolidated 2018 $’000 4,423 (17,863) (13,440) 1,652 – 4,790 (6,998) (14,682) – 2017 $’000 616 (5,112) (4,496) 392 (4) 2,604 (1,504) (336) (70) (63,174) (13,619) – – (804) 12 (77,856) (14,817) 151,776 97,661 (148) (3,000) 148,628 63,774 88,863 297 – 97,958 81,637 7,226 Cash and cash equivalents at the end of the financial year 9 152,637 88,863 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 49 Notes to the Financial Statements For the year ended 30 June 2018 Note 1. General information The financial statements cover the Clean TeQ Holdings Limited group as a Consolidated Entity consisting of Clean TeQ Holdings Limited (‘the Company’) and its subsidiaries (‘Consolidated Entity’). The financial statements are presented in Australian dollars, which is the Consolidated Entity’s functional and presentation currency. Clean TeQ Holdings Limited is a for‑profit listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Unit 12, 21 Howleys Road Notting Hill Victoria Australia 3168 A description of the nature of the Consolidated Entity’s operations and its principal activities are included in the directors’ report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of directors, on 24 August 2018. The directors have the power to amend and reissue the financial statements. Note 2. Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. (a) Going concern The financial report has been prepared on a going concern basis, which assumes continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business. The Consolidated Entity reported a net loss after tax from continuing operations for the financial year of $16,012,000 (30 June 2017: loss of $12,184,000). We note there were no significant revenues from continuing operations during the financial year. Operational revenues were more than offset by exploration and evaluation, business development and corporate overhead costs. Working capital, being current assets less current liabilities, amounts to a $146,576,000 surplus (30 June 2017: $85,671,000 surplus), with cash reserves increasing from $88,863,000 to $152,637,000 during the financial year. Net cash outflows from operating activities were $6,998,000 for the financial year (30 June 2017: $1,504,000 outflow). During the financial year, the following events have taken place to support the going concern basis of preparation for the Consolidated Entity: • The Consolidated Entity increased its available cash on hand as at 30 June 2018 to $152,637,000; • During the financial year, the Consolidated Entity raised $151,776,000 in equity capital after issue costs, indicating strong support from investors to invest in the Consolidated Entity and its technologies; • The Consolidated Entity received a $4,790,000 cash rebate from the Australian Tax Office for eligible research and development expenditure relating to the 2017 financial year. The Consolidated Entity anticipates that a proportion of the 2018 financial years’ development expenditure, will also be eligible for the refundable tax offset; and • The forecast cash flows for the Consolidated Entity indicate a positive cash position for at least the period of 12 months to August 2019 The Consolidated Entity expects that relationships with its major investors will also assist in widening the Consolidated Entity’s opportunities for profitable commercialisation of its technologies in addition to assisting in securing further funding required. As set out in the financial report, during the financial year the Consolidated Entity made good progress in respect of the commercialisation of its water and metals technologies. A number of significant project opportunities have been identified in a number of key markets with a focus on treatment of waste water from mining operations. The Consolidated Entity also made good progress in respect of the ongoing development of the Clean TeQ Sunrise Project. The Consolidated Entity will continue working towards securing commercial contracts in the near future and anticipates both the Water and Metals Divisions to produce substantial revenues in the future. The directors are confident that the Consolidated Entity can continue to access debt and equity funding to meet medium term working capital requirements and has a history of securing such funding as required in the past to support their confidence. On the basis of cash and cash equivalents available as at 30 June 2018, cashflow forecasts to 31 December 2020, and that sufficient funding is expected to be raised to meet the Consolidated Entity’s medium to long term expenditure forecasts, the directors consider that the Consolidated Entity remains a going concern and these financial statements have been prepared on this basis. 50 Notes to the Financial Statements continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM (b) Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards (‘AASBs’) and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001, as appropriate for for‑profit oriented entities. These financial statements also comply with International Financial Reporting Standards (‘IFRSs’) as issued by the International Accounting Standards Board (‘IASB’). Historical cost convention The financial statements have been prepared under the historical cost convention unless otherwise described in the accounting policies. Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Consolidated Entity’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 3. (c) Parent Entity information In accordance with the Corporations Act 2001, these financial statements present the results of the Consolidated Entity only. Supplementary information about the Parent Entity is disclosed in note 36. (d) Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Clean TeQ Holdings Limited as at 30 June 2018 and the results of all subsidiaries for the year then ended. Clean TeQ Holdings Limited and its subsidiaries together are referred to in these financial statements as the ‘Consolidated Entity’. Subsidiaries are all those entities over which the Consolidated Entity has control. The Consolidated Entity controls an entity when the Consolidated Entity is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Consolidated Entity. They are de‑consolidated from the date that control ceases. Business combinations The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred is the sum of the acquisition‑date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non‑controlling interest in the acquiree. For each business combination, the non‑controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree’s identifiable net assets. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities. On the acquisition of a business, the Consolidated Entity assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the Consolidated Entity’s operating or accounting policies and other pertinent conditions in existence at the acquisition‑date Where the business combination is achieved in stages, the Consolidated Entity remeasures its previously held equity interest in the acquiree at the acquisition‑date fair value and the difference between the fair value and the previous carrying amount is recognised in profit or loss. Contingent consideration to be transferred by the acquirer is recognised at the acquisition‑date fair value. Subsequent changes in the fair value of contingent consideration classified as an asset or liability is recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. The difference between the acquisition‑date fair value of assets acquired, liabilities assumed and any non‑controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre‑existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre‑existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition‑date, but only after a reassessment of the identification and measurement of the net assets acquired, the non‑controlling interest in the acquiree, if any, the consideration transferred and the acquirer’s previously held equity interest in the acquirer. Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the acquisition date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value. COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 51 Notes to the Financial Statements continued Transactions eliminated on consolidation Intercompany transactions, balances and any unrealised gains and losses on transactions between entities in the Consolidated Entity are eliminated. Unrealised gains arising from transactions with equity‑accounted investees are eliminated against the investment to the extent of the Consolidated Entity’s interest in the investee. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Consolidated Entity. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non‑controlling interest acquired is recognised directly in equity attributable to the Parent. Loss of control Where the Consolidated Entity loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non‑controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The Consolidated Entity recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. Associates Associates are entities over which the Consolidated Entity has significant influence but not control or joint control. Investments in associates are accounted for using the equity method. Under the equity method, the share of the profits or losses of the associate is recognised in profit or loss and the share of the movements in equity is recognised in other comprehensive income. Investments in associates are carried in the statement of financial position at cost plus post‑acquisition changes in the Consolidated Entity’s share of net assets of the associate. Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. Dividends received or receivable from associates reduce the carrying amount of the investment. The Consolidated financial statements include the Consolidated Entity’s share of profit or loss and other comprehensive income of equity accounted interests, after adjustments to align the accounting policies with those of the Consolidated Entity, from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. When the Consolidated Entity’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest, including any long‑term interests that form part thereof, is reduced to zero, and the recognition of further losses is discontinued except to the extent that the Consolidated Entity has an obligation or has made payments on behalf of the investee. Joint ventures A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Investments in joint ventures are accounted for using the equity method. Under the equity method, the share of the profits or losses of the joint venture is recognised in profit or loss and the share of the movements in equity is recognised in other comprehensive income. Investments in joint ventures are carried in the statement of financial position at cost plus post‑acquisition changes in the Consolidated Entity’s share of net assets of the joint venture. Goodwill relating to the joint venture is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. Income earned from joint venture entities reduces the carrying amount of the investment. (e) Operating segments Operating segments are presented using the ‘management approach’, where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers (‘CODM’). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. (f) Revenue recognition Revenue is recognised when it is probable that the economic benefit will flow to the Consolidated Entity and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable. Sale of goods and services Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be reliably measured, then the discount is recognised as a reduction of revenue as the sales are recognised. 52 Notes to the Financial Statements continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Transfers of risks and rewards vary depending on the individual terms of the contract of sale. For sales of units developed and built, transfer usually occurs when the product is received at the customer’s site and or is commissioned ready for use. Rendering of services Revenue from contracted services rendered is recognised in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to the completion of key milestones in the contracts. Contract revenue includes the initial amount agreed in the contract plus any variations in contract work, claims and incentive payments to the extent that it is probable that they will result in revenue and can be measured reliably. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that are likely to be recoverable. Contract expenses are recognised as they are incurred unless they create an asset related to future contract activity. An expected loss on a contract is recognised immediately in profit or loss. Sales of non-current assets Gains or losses on sale of non‑current assets are included as income or expenses at the date control of the asset passes to the buyer, usually when an unconditional contract of sale is signed. Gains or losses on disposal are calculated as the difference between the carrying amount of the asset at the time of disposal and the net proceeds on disposal. Government grants Government grants are recognised initially as deferred income at fair value and when there is reasonable assurance that they will be received and that the Consolidated Entity will comply with the conditions associated with the grant, they are then recognised in profit or loss as other income on a systematic basis over the useful life of the asset. Grants that compensate the Consolidated Entity for expenses incurred are recognised in profit or loss or other income on a systematic basis in the same periods in which the expenses are recognised. Grants that compensate the Consolidated Entity for expenditure capitalised are recognised as a reduction in the carrying value of the asset and grants that compensate the Consolidated Entity for expenditure recognised in profit or loss is recognised as government grant income. (g) Exploration and evaluation assets Exploration, evaluation and feasibility expenditure Exploration and evaluation expenditure is capitalised and carried forward in the financial statements, in respect of areas of interest for which the rights of tenure are current and where such costs are expected to be recouped through successful development and exploitation of the area of interest, or alternatively, by its sale. Capitalised costs are deferred until commercial production commences from the relevant area of interest, at which time they are amortised on a unit of production basis. Exploration and evaluation expenditure consists of an accumulation of acquisition costs and direct exploration and evaluation costs incurred. Exploration and evaluation assets are assessed for impairment if (i) sufficient data exists to determine technical feasibility and commercial viability, and (ii) facts and circumstances suggest that the carrying amount exceeds the recoverable amount (see impairment policy, Note 2(o)). For the purpose of impairment testing, exploration and evaluation assets are allocated to cash‑generating units to which the exploration activity relates. When an area of interest is abandoned, or the Directors determine it is not commercially viable to pursue, accumulated costs in respect of that area are written off in the period the decision is made. (h) Income tax Tax expense comprises current and deferred tax. Current tax and deferred tax is recognised in the profit or loss except to the extent that it relates to business combinations, or items recognised directly in equity or in other comprehensive income. Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for: • temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; • temporary differences related to investments in subsidiaries, associates and joint arrangements to the extent that the Consolidated Entity is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and • taxable temporary differences arising on the initial recognition of goodwill. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The Consolidated Entity COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 53 Notes to the Financial Statements continued makes this assessment at each reporting date. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable Entity or different taxable entities which intend to settle simultaneously. Clean TeQ Holdings Limited (the ‘head Entity’) and its wholly‑owned Australian subsidiaries have formed an income tax Consolidated group under the tax consolidation regime. The head Entity and each subsidiary in the tax Consolidated group continue to account for their own current and deferred tax amounts. The tax Consolidated group has applied the ‘separate taxpayer within group’ approach in determining the appropriate amount of taxes to allocate to members of the tax Consolidated group. In addition to its own current and deferred tax amounts, the head Entity also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from each subsidiary in the tax Consolidated group. Assets or liabilities arising under tax funding agreements with the tax Consolidated entities are recognised as amounts receivable from or payable to other entities in the tax Consolidated group. The tax funding arrangement ensures that the intercompany charge equals the current tax liability or benefit of each tax Consolidated group member, resulting in neither a contribution by the head Entity to the subsidiaries nor a distribution by the subsidiaries to the head Entity. (i) Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non‑current classification. An asset is current when: it is expected to be realised or intended to be sold or consumed in the normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non‑current. A liability is current when: it is expected to be settled in the normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non‑current. Deferred tax assets and liabilities are always classified as non‑current. (j) Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short‑term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. (k) Trade and other receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. Trade receivables are generally due for settlement within 30 days. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by reducing the carrying amount directly. A provision for impairment of trade receivables is raised when there is objective evidence that the Consolidated Entity will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency in payments (more than 60 days overdue) are considered indicators that the trade receivable may be impaired. The amount of the impairment allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short‑term receivables are not discounted if the effect of discounting is immaterial. Other receivables are recognised at amortised cost, less any provision for impairment. (l) Inventories Raw materials, work in progress and finished goods are stated at the lower of cost and net realisable value on a ‘first‑in first‑out’ basis. Cost comprises direct materials and delivery costs, direct labour, import duties and other taxes, an appropriate proportion of variable and fixed overhead expenditure based on normal operating capacity, and, where applicable, transfers from cash flow hedging reserves 54 Notes to the Financial Statements continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM in equity. Costs of purchased inventory are determined after deducting rebates and discounts received or receivable. Work in progress is measured, for each project in progress, as the excess of revenue recognised for the project, based on the project’s percentage of completion, over the revenue invoiced to date for that project. For projects where the revenue recognised for a project is less than the revenue invoiced to date for that project, the excess of revenue invoiced over revenue recognised is recorded as a current liability, presented as deferred revenue. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. (m) Property, plant and equipment Plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses. Subsequent expenditure is capitalised only when it is probable that the future economic benefits associated with the expenditure will flow to the Consolidated Entity. Ongoing repairs and maintenance are expensed as incurred. Land is not depreciated. Items of property, plant and equipment are depreciated from the date that they are installed and are ready for use, or in respect of internally constructed assets, from the date that the asset is completed and ready for use. Depreciation is calculated to write off the net cost of each item of plant and equipment (excluding land) over their expected useful lives. Depreciation is generally recognised in profit or loss, unless the amount is included in the carrying amount of another asset. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Consolidated Entity will obtain ownership by the end of the lease term. The estimated useful lives of property, plant and equipment are as follows for the current and preceding financial year: Mining equipment Office furniture and equipment 2.5 to 20 years (straight line and diminishing value) 2.5 to 20 years (straight line and diminishing value) Leasehold improvements 3‑7 years (diminishing value) Motor vehicles 5‑6 years (diminishing value) Land Indefinite The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. An item of plant and equipment is derecognised upon disposal or when there is no future economic benefit to the Consolidated Entity. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. Any revaluation surplus reserve relating to the item disposed of is transferred directly to retained profits. (n) Other financial assets Cash on deposit used as security for bank guarantees maturing within twelve months of each reporting period is disclosed as a current other financial asset. Those deposits that mature in excess of twelve months are disclosed as non‑current other financial assets. (o) Intangibles Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the de‑recognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method of determining useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period. Capitalised development costs Research costs are expensed in the period in which they are incurred. Development costs are capitalised when it is probable that the project will be an economic success considering its commercial and technical feasibility; the Consolidated Entity is able to use or sell the asset; the Consolidated Entity has sufficient resources; and intent to complete the development and its costs can be measured reliably. Otherwise they are recognised in the profit or loss as incurred. Capitalised development costs are amortised on a straight‑line basis over the period of their expected economic benefit, being between 4 and 20 years dependent on the project. Mineral Licence Rights Licence rights relating to mining tenements are amortised in the consolidated statement of profit or loss and comprehensive income over the life of the relevant area of interest from the commencement of commercial production. The mineral license rights intangible asset is subject to impairment testing in accordance with the Consolidated Entity’s accounting policy for impairment of non‑financial assets as set out in note 2(p). COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 55 Notes to the Financial Statements continued Patents and trademarks Significant costs associated with patents and trademarks are deferred and amortised on a straight‑line basis over the period of their expected benefit, being between 4 and 20 years. Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred. (p) Impairment of non-financial assets At each reporting date, the Consolidated Entity reviews the carrying amounts of its non‑financial assets (other than inventories and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill is tested annually for impairment. For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs. Goodwill arising from a business combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the combination. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, 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 or CGU. An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount. Impairment losses are recognised in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis. An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (q) Leases Determining whether an arrangement contains a lease At inception of an arrangement, the Consolidated Entity determines whether such an arrangement is or contains a lease. At inception or on reassessment of an arrangement that contains a lease, the Consolidated Entity separates payments and other consideration required by the arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Consolidated Entity concludes for a finance lease that it is impracticable to separate the payments reliably, then an asset and a liability are recognised at an amount equal to the fair value of the underlying asset; subsequently, the liability is reduced as payments are made and an imputed finance cost on the liability is recognised using the Consolidated Entity’s incremental borrowing rate. Leased assets Assets held by the Consolidated Entity under leases that transfer to the Consolidated Entity substantially all the risks and rewards of ownership are classified as finance leases. The leased asset is measured initially at an amount equal to the lower of their fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the assets are accounted for in accordance with the accounting policy applicable to that asset. Assets held under other leases are classified as operating leases and are not recognised in the Consolidated Entity’s statement of financial position. Lease payments Payments made under operating leases are recognised in profit or loss on a straight‑line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. The Consolidated Entity derecognises the liabilities when its contractual obligations are discharged, cancelled or expired. (r) Trade and other payables These amounts represent liabilities for goods and services provided to the Consolidated Entity prior to the end of the financial year and which are unpaid. Due to their short‑term nature they are measured at amortised cost. The amounts are unsecured and are usually paid within 30 days of recognition. The Consolidated entity derecognises the liability when its contractual obligations are discharged, cancelled or expired. (s) Borrowings Loans and borrowings, including promissory notes, are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. 56 Notes to the Financial Statements continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Where there is an unconditional right to defer settlement of the liability for at least 12 months after the reporting date, the loans or borrowings are classified as non‑current. (u) Employee benefits Short-term employee benefits Interest related to the financial liability component is recognised in profit or loss. On conversion, the equity component of the financial liability is reclassified to equity and no gain or loss is recognised. (t) Finance income and costs The Consolidated Entity’s finance income and finance costs include, as applicable: • interest expense; • dividend income; • the net gain or loss on the disposal of available‑for‑sale financial assets; • the net gain or loss on financial assets at fair value through profit or loss; • the foreign currency gain or loss on financial assets and financial liabilities; • the fair value loss on contingent consideration classified as a financial liability; • impairment losses recognised on financial assets (other than trade receivables); • the net gain or loss on hedging instruments that are recognised in profit or loss; and • the reclassification of net gains previously recognised in other comprehensive income. Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Dividend income is recognised in profit or loss on the date that the Group’s right to receive payment is established. Interest expense is recognised using the effective interest method. Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are expensed in the period in which they are incurred, including: • interest on short‑term and long‑term borrowings; • interest on hire purchases. Liabilities for wages and salaries, including non‑monetary benefits, annual leave and long service leave expected to be settled within 12 months of the reporting date are recognised in current liabilities in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Other long-term employee benefits The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are recognised in non‑current liabilities, provided there is an unconditional right to defer settlement of the liability. The liability is measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on Australian Corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Termination benefits Termination benefits are expensed at the earlier of when the Group can no longer withdraw the offer of those benefits and when the Group recognises costs for a restructuring. If benefits are not expected to be settled wholly within 12 months of the end of the reporting period, then they are discounted. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. Share-based payments Equity‑settled share‑based compensation benefits are provided to employees. There were no cash settled share‑based payments during the financial year. Equity‑settled transactions are awards of shares, or options and performance rights over shares that are provided to employees in exchange for the rendering of services. Cash‑settled transactions are awards of cash for the exchange of services, where the amount of cash is determined by reference to the share price. The cost of equity‑settled transactions are measured at fair value on grant date. COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 57 Notes to the Financial Statements continued Fair value is independently determined using either the Binomial or Black‑Scholes option pricing model that takes into account the exercise price, the term of the option, the strike price of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non‑vesting conditions that are not dependant on whether the Consolidated Entity receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity‑settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. The cost of cash‑settled transactions is initially, and at each reporting date until vested, determined by applying either the Binomial or Black‑Scholes option pricing model, taking into consideration the terms and conditions on which the award was granted. The cumulative charge to profit or loss until settlement of the liability is calculated as follows: • during the vesting period, the liability at each reporting date is the fair value of the award at that date multiplied by the expired portion of the vesting period; • from the end of the vesting period until settlement of the award, the liability is the full fair value of the liability at the reporting date. All changes in the liability are recognised in profit or loss. The ultimate cost of cash‑settled transactions is the cash paid to settle the liability. Market conditions are taken into consideration in determining grant date fair value. Therefore, any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met provided all other conditions are satisfied. If equity‑settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share‑based compensation benefit as at the date of modification. If the non‑vesting condition is within the control of the Consolidated Entity or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the Consolidated Entity or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited. If equity‑settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification. (v) Fair value measurement When an asset or liability, financial or non‑financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principle market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interest. For non‑financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed each reporting date and transfers between levels are determined based on a reassessment of the lowest level input that is significant to the fair value measurement. For recurring and non‑recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. 58 Notes to the Financial Statements continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM (w) Issued capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. (x) Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the ordinary shareholders of Clean TeQ Holdings Limited by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after‑income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (y) Goods and Services Tax (‘GST’) and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority. (z) Rounding of amounts The Company is of a kind referred to in Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to ‘rounding‑off’. Amounts in this report have been rounded off in accordance with that Legislative Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. (aa) New standards and interpretations not yet adopted A number of new standards and amendments to standards are effective for annual period beginning after 1 July 2018, however, the Group has not applied the following new or amended standards in preparing these consolidated financial statements. AASB 15 Revenue from Contracts with Customers AASB 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including AASB 118 Revenue, AASB 111 Construction Contracts and AASB Interpretation 13 Customer Loyalty Programmes. AASB 15 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. The adoption of this standard is not expected to be material. AASB 9 Financial Instruments AASB 9, published in July 2014, replaces the existing guidance in AASB 139 Financial Instruments: Recognition and Measurement. AASB 9 includes revised guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment on financial assets, and the new general hedge accounting requirements. It also carries forward the guidance on recognition and de‑recognition of financial instruments from AASB 139. AASB 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. The adoption of this standard is not expected to be material. AASB 16 Leases AASB 16 requires companies to bring most leases on‑balance sheet from 2019. Companies with leases will appear to be more asset‑rich, but also more heavily indebted. AASB 16 is effective for annual reporting periods beginning on or after 1 January 2019, with early adoption permitted. The adoption of these standards may have an impact on the Consolidated Entity’s financial assets, and is not expected to have a significant impact on the Consolidated Entity’s financial liabilities; however, the impact is not expected to be material to net equity. COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 59 Notes to the Financial Statements continued Note 3. Critical accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. Exploration & Evaluation Assets As set out in Note 2(g) exploration and evaluation expenditure is capitalised for an area of interest for which it is considered likely to be recoverable from future exploitation or sale. The accounting policy requires management to make certain estimates and assumptions as to future events and circumstances, in particular whether an economically viable extraction operation can be established. These estimates and assumptions may change as new information becomes available. If, after having capitalised the expenditure under the accounting policy, a judgement is made that recovery of the expenditure is unlikely, the relevant capitalised amount will be written off to the profit or loss. Share-based payment transactions The Consolidated Entity measures the cost of equity‑settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using either the Binomial or Black‑Scholes model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity‑settled share‑based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity. Estimation of useful lives of assets The Consolidated Entity determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non‑strategic assets that have been abandoned or sold will be written off or written down. Intangible assets The recoverable value of patents and trademarks acquired is based on the cost of registering the patents and trademarks, less any diminution in value through amortisation and impairment. The recoverable value of development intangible assets is based on discounted cash flows expected to be derived from the use or eventual sale of the assets. At each reporting date the directors and management undertake an impairment review to determine their value in use as derived from discounted cash flow modelling. Based on the impairment review at 30 June 2018, the directors determined that no impairment of the intangible assets be recognised (2017: Nil). Details of the review, and the assumptions and estimates used, are contained in note 16. Estimation of reserves Reserves are estimates of the amount of product that can be economically and legally extracted from the properties owned by the Consolidated Group. In order to calculate reserves, estimates and assumptions are required abut a range of geological, technical and economic factors, including quantities, grades, production techniques, recovery rates, production costs, transport costs, commodity demand, commodity prices and exchange rates. Estimating the quantity, and/or grade of reserves requires the size, shape and depth of ore bodies or fields to be determined by analysing geological data such as drilling samples. This process may require complex and difficult geological judgements and calculations to interpret the data. Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences only if the Consolidated Entity considers it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Other non-derivative financial liabilities Other non‑derivative financial liabilities are measured at fair value, at initial recognition and for disclosure purposes, at each financial reporting date. Fair value is calculated based on the present value of the future principal and interest cash flows, discounted at the market rate of interest at the measurement date. In respect of the liability component of convertible notes, the market rate of interest is determined with reference to similar liabilities that do not have a conversion option. 60 Notes to the Financial Statements continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Inter‑segment pricing is determined on an arm’s length basis. The information relating to the performance of the identified segments includes revenues and directly attributable costs and materials. The assets attributed to each division relates to revenue generating assets. All other assets and liabilities are not allocated to specific segments. Geographical segments Geographically, the Consolidated Entity operates predominately in Australia. Major customers Major revenue for the year ended 30 June 2018 is derived chiefly from interest income and contracts with customers. Revenues from the contract with Fosterville Gold Mine represented approximately $2,200,000 (2017: nil) of the Consolidated Entity’s total revenue. Note 4. Operating segments Identification of reportable operating segments The Consolidated Entity is organised into two operating segments: Water and Metals. These operating segments offer different products and services and are managed separately because they require different technology and marketing strategies. For each segment internal reports are produced for review and use by the Managing Director who is the Consolidated Entity’s chief operating decision maker (‘CODM’), in assessing performance and in determining the allocation of resources. There is no aggregation of operating segments. The CODM reviews gross profit for each operating division. The accounting policies adopted for internal reporting to the CODM are consistent with those adopted in the financial statements. The information reported to the CODM is on at least a monthly basis. Types of products and services The principal products and services of each of these operating segments are as follows: Water Metals The Company’s suite of water technologies filter, separate and purify polluted waters for drinking, agriculture, recreation or industrial use. The Clean‑iX® technology is at the core of this segment and aims to provide cost effective extraction techniques for a range of resources, including base metals, precious metals and radioactive elements (such as uranium). The Metals segment is also progressing the development of the Sunrise Project in New South Wales. Information regarding the results of each reportable segment is included below. Performance is measured based on the net result before interest, depreciation, amortisation and tax, as included in the internal management reports that are reviewed by the Consolidated Entity’s Managing Director. Each segment’s net result before interest, depreciation, amortisation and tax is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 61 Notes to the Financial Statements continued Operating segment information Consolidated – 2018 Revenue Sales to external customers Rental income Interest income Other revenue Total revenue Share of profit/(loss) from JV Reportable segment (loss)/profit before interest, depreciation and tax Depreciation and amortisation Impairment of assets Finance costs Profit/(loss) before income tax benefit Income tax benefit Loss after income tax benefit Consolidated – 2018 Assets Segment assets Total assets Total assets includes: Metals $’000 – 46 1 – 47 – (423) (339) – – (762) – (762) Intersegment eliminations/ unallocated** $’000 – – 1,756 1 1,757 – Total $’000 3,639 46 1,757 524 5,966 (1) (13,744) (15,077) (62) – (154) (781) – (154) Water $’000 3,639 – – 523 4,162 (1) (910) (380) – – (1,290) (13,960) (16,012) – – – (1,290) (13,960) (16,012) Metals $’000 Water $’000 Intersegment eliminations/ unallocated* $’000 101,500 6,005 154,220 Total $’000 261,725 261,725 Additions of non‑current assets (including those acquired in a business combination) 78,220 – 360 78,580 Liabilities Segment liabilities Total liabilities 6,388 92 3,089 9,569 9,569 * The magnitude of the unallocated portion of the segment results is a result of the Consolidated Entity incurring a significant amount of expenses that cannot be directly attributable on a reasonable basis to any one segment. 62 Notes to the Financial Statements continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Consolidated – 2017 Revenue Sales to external customers Rental income Interest income Other revenue Total revenue Share of profit from JV Metals $’000 – 72 – 500 572 – Intersegment eliminations/ unallocated** $’000 – – 453 14 467 – Water $’000 392 – – 181 573 1 Total $’000 392 72 453 695 1,612 1 Reportable segment (loss)/profit before interest, depreciation and tax (1,541) (1,754) (7,906) (11,201) Depreciation and amortisation (388) (378) Impairment of assets Finance costs Profit/(loss) before income tax benefit Income tax benefit Loss after income tax benefit – – (1,929) – – – (2,132) – (47) – (170) (813) – (170) (8,123) (12,184) – – (12,184) Consolidated – 2017 Assets Segment assets Total assets Total assets includes: Metals $’000 Water $’000 Intersegment eliminations/ unallocated* $’000 24,668 5,754 89,949 Total $’000 120,371 120,371 Additions of non‑current assets (including those acquired in a business combination) 13,689 804 336 14,829 Liabilities Segment liabilities Total liabilities 2,850 542 3,595 6,987 6,987 * The magnitude of the unallocated portion of the segment results is a result of the Consolidated Entity incurring a significant amount of expenses that cannot be directly attributable on a reasonable basis to any one segment. COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 63 Notes to the Financial Statements continued Note 5. Revenue Sales revenue Contract revenue Government grants Rental income Other revenue Interest income Proceeds from sale of asset Other revenue Revenue Note 6. Share of Profits of Joint Ventures Accounted for using the Equity Method Share of profit/(loss) – Joint Venture Consolidated 2018 $’000 2017 $’000 3,639 419 46 4,104 1,757 – 105 1,862 5,966 392 682 72 1,146 453 12 1 466 1,612 Consolidated 2018 $’000 (1) 2017 $’000 1 64 Notes to the Financial Statements continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Note 7. Expenses Loss before income tax from continuing operations includes the following specific expenses: Cost of sales Raw materials and other direct costs Depreciation Motor vehicles Leasehold improvements Office equipment and furniture Total depreciation Amortisation Capitalised development costs Patents and trademarks Total amortisation Total depreciation and amortisation Employee benefit expenses Wages and salaries Employee entitlements expense including movements in provisions for employee entitlements Superannuation Equity settled share‑based payments Other costs Total employee benefit expenses Rental expense relating to operating leases Lease payments Other expenses Write off of bad debts Consolidated 2018 $’000 2017 $’000 2,480 12 22 103 137 610 34 644 781 5,169 156 224 3,008 1,338 9,895 76 2 63 (20) 45 732 35 767 813 2,565 40 256 5,182 798 8,841 1,159 420 – 2 COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 65 Notes to the Financial Statements continued Note 8. Income tax benefit Income tax benefit: Current tax Deferred tax – origination and reversal of temporary differences Aggregate income tax benefit Deferred tax included in income tax benefit comprises: Decrease in deferred tax liabilities (note 22) Consolidated 2018 $’000 2017 $’000 – – – – – – – – Numerical reconciliation of income tax benefit and tax at the statutory rate Loss before income tax benefit from continuing operations (16,012) (12,184) Profit before income tax (expense)/benefit from discontinued operations Tax at the statutory tax rate of 27.5% (2017: 27.5%) Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Entertainment expenses Share‑based payments Interest expense on promissory note treated as non‑deductible Tax losses (reinstated)/not brought to account Non‑assessable government grant income Non‑deductible R&D expense R&D tax credit Non‑deductible amortisation expense Income tax benefit Tax losses not recognised: – (16,012) (4,403) 21 827 41 3,611 (103) 279 (441) 168 – – (12,184) (3,351) 4 1,425 46 2,764 (138) 1,637 (2,589) 202 – Unused tax losses for which no deferred tax asset has been recognised, including tax losses arising from a business combination Potential tax benefit @ 27.5% (2017: 27.5%) Plus: Unrecognised benefit of carry forward non‑refundable R&D tax offset for which no deferred tax asset has been recognised, arising from a business combination Total potential tax benefit of carry forward tax losses and R&D tax offset for which no deferred tax asset has been recognised 40,576 25,508 11,158 589 7,015 589 11,747 7,604 Temporary differences not brought to account 903 903 The above potential tax benefits for tax losses and R&D tax offset have not been recognised in the statement of financial position. The tax losses can only be utilised in the future if the continuity of ownership test is passed, or failing that, the same business test is passed. The R&D tax offset can only be utilised in the future if sufficient tax liabilities can be generated against which the carry forward R&D tax offset can be credited. 66 Notes to the Financial Statements continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Note 9. Current assets – cash and cash equivalents Cash at bank Consolidated 2018 $’000 2017 $’000 152,637 88,863 The effective interest rate on short‑term bank deposits at 30 June 2018 was 2.67% (2017: 2.03%). These deposits have a maximum maturity of three months from year end. Any balances with maturities exceeding this have been disclosed as other financial assets. Note 10. Current assets – trade and other receivables Trade receivables Other receivables Past due but not impaired Consolidated 2018 $’000 473 2,185 2,658 2017 $’000 91 902 993 Customers with balances past due but without provision for impairment of receivables amount to $nil as at 30 June 2018 ($nil as at 30 June 2017). The Consolidated Entity did not consider a credit risk on the aggregate balances after reviewing credit terms of customers based on recent collection practices. The ageing of the past due but not impaired receivables are as follows: 31–60 days 60–90 days 90+ days Consolidated 2018 $’000 – – 365 365 2017 $’000 – – – – Normal trading terms are 30 days from month end. Amounts outstanding beyond normal trading terms do not have a history of default and thus management is of the view that no debtors are impaired at 30 June 2018 or 30 June 2017 and thus should not be provided for. COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 67 Notes to the Financial Statements continued Note 11. Current assets – inventories Raw materials – at net realisable value Finished goods – at cost Consolidated 2018 $’000 10 86 96 2017 $’000 10 86 96 Raw materials includes grape skin extract which was initially recognised at a cost of $598,000 when first acquired pre‑2007. At 30 June 2018 the carrying value of grape skin extract is $10,000 (2017: $10,000). During the year ending 30 June 2018, there was no write down of finished goods (2017: $nil). Note 12. Current assets – Research and development incentive receivable Research and development incentive receivable Consolidated 2018 $’000 67 2017 $’000 2,088 Research and development incentive receivable represents the refund due to the Consolidated Entity on expenditure during the current financial year eligible for research and development tax concessions. Note 13. Non‑Current Assets – Other financial assets Current Cash on deposit used as security for bank guarantees Non‑Current Cash on deposit used as security for bank guarantees and facilities Note 14. Non‑current assets – Investment in equity accounted investee Investment in joint venture Consolidated 2018 $’000 2017 $’000 – 228 – 80 Consolidated 2018 $’000 803 2017 $’000 804 COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM 68 Notes to the Financial Statements continued Note 15. Non‑current assets – property, plant and equipment Office furniture and equipment – at cost Less: Accumulated depreciation Motor vehicles – at cost Less: Accumulated depreciation Factory equipment – at cost Less: Accumulated depreciation Leasehold improvements – at cost Less: Accumulated depreciation Mining Equipment – at cost Land – at cost Consolidated 2018 $’000 2017 $’000 339 (162) 177 146 (52) 94 737 (737) – 342 (94) 248 13,374 13,374 4,687 4,687 18,580 194 (100) 94 101 (40) 61 737 (737) – 213 (63) 150 – – 2,357 2,357 2,662 Approximately $2,229,000 of the land was acquired from Ivanhoe Mines Ltd as part of the Consolidated Group’s acquisition of the Sunrise Project. The land was recorded at its deemed cost, being an approximate of its fair value as at that date as determined by management, with reference to an independent valuation performed in May 2013. The acquisition of the Sunrise Project has been recognised as an asset acquisition in accordance with Australian Accounting Standards. COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 69 Notes to the Financial Statements continued Reconciliations of carrying amount Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance as at 1 July 2016 Additions Disposals Transfers In/Out Depreciation expense Balance as at 30 June 2017 Mining Equipment $’000 – – – – – – Land $’000 2,229 128 – – – 2,357 Additions Write off of assets Depreciation expense 13,374 2,330 – – – – Balance as at 30 June 2018 13,374 4,687 Office Furniture & Equipment Leasehold Improve- ments Motor Vehicles $’000 $’000 $’000 38 94 (1) (57) 20 94 188 (2) (103) 177 41 115 – 57 (63) 150 138 (18) (22) 248 21 50 (8) (2) 61 45 – (12) 94 Total $’000 2,329 387 (9) – (45) 2,662 16,075 (20) (137) 18,580 Additions in leasehold improvements include a non‑cash provision for make good of $139,000 that was provided for in this financial year. This provision relates to the lease over the property that the Company holds at Level 6, 350 Collins Street. Note 16. Non‑current assets – intangibles Capitalised development costs – at cost Less: Accumulated amortisation and impairments Patents and trademarks – at cost Less: Accumulated amortisation and impairments Licence rights – at cost Less: Accumulated amortisation and impairments Consolidated 2018 $’000 18,424 (10,495) 7,929 713 (371) 342 4,542 (3,051) 1,491 9,762 2017 $’000 18,424 (9,885) 8,539 713 (337) 376 4,542 (3,051) 1,491 10,406 70 Notes to the Financial Statements continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Reconciliation of carrying amount Reconciliations of the carrying amounts at the beginning and end of the current and previous financial year are set out below: Consolidated Capitalised Development Costs $’000 License Rights $’000 Patents and Trademarks $’000 Balance as at 1 July 2016 9,271 1,421 Additions Impairment charge Amortisation expense Balance as at 30 June 2017 Additions Impairment charge Amortisation expense Balance as at 30 June 2018 Allocation of Intangible Assets to Cash Generating Units (CGUs) As at 30 June 2017: Water Metals As at 30 June 2018: Water Metals – – (732) 8,539 – – (610) 7,929 Capitalised Development Costs $’000 4,472 4,067 8,539 4,108 3,821 7,929 70 – – 1,491 – – – 1,491 411 – – (35) 376 – – (34) 342 License Rights $’000 Patents and Trademarks $’000 141 1,350 1,491 20 1,471 1,491 188 188 376 171 171 342 Total $’000 11,103 70 – (767) 10,406 – – (644) 9,762 Total $’000 4,801 5,605 10,406 4,299 5,463 9,762 COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 71 Notes to the Financial Statements continued The carrying amount of each CGU inclusive of assets other than intangible assets is $1,705,000 (2017: $953,000) for Water and $96,036,000 (2017: $19,063,000) for Metals. Amortisation The amortisation of patents and trademarks, licence rights and development costs are allocated to expenses within the statement of profit or loss and other comprehensive income. Recoverability of development costs The carrying amount of the Consolidated Entity’s development intangible assets that are yet to be commercialised is reviewed at each reporting date for potential impairment. Impairment is now assessed at a CGU level where the Consolidated Entity’s technologies are platform technologies where cash flows are inter‑dependent. The review consists of a comparison of the carrying value with the expected recoverable amount of the development intangible assets based on the estimated value in use, which is determined by discounted cash flow models, as set out below. Impairment test As a result of the impairment assessment at 30 June 2018, the directors and management of the Consolidated Entity identified that no impairment charge be recognised (30 June 2017: impairment of $nil). Impairment testing of significant CGUs The Consolidated Entity’s intangible assets are reviewed for impairment at a CGU level using operating segments and individually identifiable projects to develop appropriate discounted cash flow models. The discounted cash flow models take into account a range of factors including: • the status of an individual project with regard to its stage of project development; results and capital and operating costs are estimated by appropriately qualified and competent personnel engaged by the Consolidated Entity for both the Water and Metals CGUs. As there are no guarantees that new projects will be awarded, given regulatory approval where such approval is required, or be commercialized within planned timeframes, there is an inherent risk attached to the discounted cash flows that is factored into the key assumptions by way of probability factor adjustments. In generating the forecast cash flows, the Consolidated Entity has used forecast prices of US$8.00/lb for nickel (including US$1.00/lb sulphate premium), US$30.00/lb for cobalt, US$1,500/Kg for Scandium oxide and AUD/USD 0.75 and a post‑tax discount rate of 15% (2017: 15%) for all future cash flows for a 25 year period for the Metals CGU. The Water CGU forecast cashflows include income derived from a mix of long term (20 years) and short to medium term (5 years), tolling arrangement and plant revenue projects using a discount rate of 15% post‑tax (2017: 15%). The discount rate was used in conjunction with a range of probability factors for both CGUs to reflect the current assessment of the likelihood of success of the forecast cashflows. Management note that reasonably possible changes in key assumptions include changes to probability factors applied to forecast cash flows, changes in the timing of cash flows and changes to assumed rates of market penetration. Management considered the following reasonable possible changes in key assumptions as at 30 June 2018: • A reduction of 10% in the probability factors applied to forecast cash flows; • A delay of six months in the commencement of forecast cash flows; • A change of 2% in the weighted average cost of capital; • the extent of any incremental costs expected to be incurred • An increase of 5% in operating expenditure; to commercialise the development assets; • five to twenty year (Metals CGU) forecast revenues from commercialisation of the development assets, including assumptions with respect to sales growth dependent upon either the quantum of projects forecast to commence; • the risks attached to commercialising the asset, including any industry specific or regulatory risk; • anticipated levels of competition; and • other general economic factors. The discounted cash flows have been prepared using a variety of sourced data such as sales data from Memoranda of Understanding signed, anticipated sales resulting from discussions with potential customers and other market data to forecast future revenue. Forecast production and processing • A reduction of 5% in commodity prices; • A reduction of 5% in production yield; • An increase of 5% in foreign currency exchange rates; and • An increase of 10% in capital expenditure. Management’s conclusion is that these changes in key assumptions, while reducing the recoverable amounts of the Consolidated Entity’s technologies, would not, as at 30 June 2018, reduce the recoverable amounts to the extent that the development intangible assets would be impaired. Therefore, reasonably possible changes in key assumptions are unlikely to result in an impairment at 30 June 2018 (30 June 2017: nil). COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM 72 Notes to the Financial Statements continued Note 17. Non‑current assets – Exploration & evaluation assets At the beginning of the financial year Reversal of accrual Additions R&D incentive on exploration asset off‑set Accrual of expenditure at year end Disposals/Write offs At end of the financial year Mineral tenement summary Licence Number EL4573 EL8561 ML1770 ML1769 Note 18. Current liabilities – trade and other payables Trade payables Other payables Consolidated 2018 $’000 14,379 – 63,174 (2,395) 1,736 – 2017 $’000 3,201 (351) 13,619 (2,088) – (2) 76,894 14,379 Project Name Location Equity Interest Equity Interest Sunrise Sunrise Sunrise Sunrise NSW NSW NSW NSW 2018 100% 100% 100% 100% Consolidated 2018 $’000 4,508 2,490 6,998 2017 100% 100% – – 2017 $’000 2,520 652 3,172 COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 73 Notes to the Financial Statements continued Note 19. Current liabilities – employee benefits Annual leave Long service leave Note 20. Deferred revenue Current Government grant* Non‑Current Government grant* Consolidated 2018 $’000 448 165 613 2017 $’000 168 132 300 Consolidated 2018 $’000 2017 $’000 47 448 495 47 495 542 * This relates to the Commonwealth government grant money received associated with the Climate Ready project. This income is being recognised over 17 years, being the estimated useful life of the related asset. Note 21. Current assets – Notes payable Current Notes Payable Consolidated 2018 $’000 – – 2017 $’000 2,850 2,850 As part of the acquisition of the Sunrise Project from Ivanhoe Mines Ltd on 31 March 2015, a promissory note was issued by the Consolidated Entity with a face value of $3,000,000 payable in three years’ time and carrying a zero coupon. This promissory note was repaid to Ivanhoe Mines during the current financial year. 74 Notes to the Financial Statements continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Note 22. Non‑current liabilities/assets – deferred tax Consolidated Net balance 1 July 2017 Recognised in profit or loss Recognised directly in equity Deferred tax assets Deferred tax liabilities Balance as at 30 June 2018 $’000 $’000 $’000 $’000 $’000 Deferred tax asset (liability) comprises temporary differences attributable to: Amounts recognised in: • Intangible assets • Unearned interest • Accrued expenses • Prepaid expenses • Employee benefits • Transaction costs on share issues • Legal and consulting fees • Plant & equipment • Unused tax losses Tax liabilities (assets) before set‑off Set off deferred tax assets/liabilities Net tax liabilities (assets) Movements 2018 Opening balance Charges to profit or loss (note 8) Closing balance (2,206) 18 123 – 101 252 17 11 1,684 – – – – – – Note 23. Non‑current liabilities – employee benefits Long service leave Note 24. Provisions Current Provision for settlement of creditor dispute* Non‑Current Provision for make good at end of lease 168 30 (110) 78 – (2) (54) (28) – – – – (82) – – – – 48 13 179 170 15 – 1,656 2,081 (2,081) – (2,038) – – – – (43) – (2,081) 2,081 – Consolidated 2018 $’000 40 Consolidated 2018 $’000 1,225 198 1,423 2017 $’000 68 2017 $’000 – 55 55 * The provision of $1,225,000 raised in the current financial year relates to a dispute that a member of the Consolidated Entity is having with a current creditor in relation to the value of services provided by the creditor. COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 75 Notes to the Financial Statements continued Note 25. Equity – issued capital Consolidated 2018 Shares 2017 Shares 2018 $’000 2017 $’000 Ordinary shares – fully paid 742,757,760 576,266,310 289,293 137,517 Movements in ordinary share capital Details Balance Date Shares Issue Price $’000 1 July 2017 576,266,310 137,517 Exercise of Options by Option Holder Exercise of Options by Option Holder 26 July 2017 26 July 2017 36,545 $0.3010 29,900 $0.3010 Exercise of Options by Option Holder 11 August 2017 1,637,001 $0.1450 Exercise of Options by Option Holder 29 August 2017 200,751 $0.2820 Shares Issued as a result of Employee Share Plan 7 September 2017 10,219 $0.0979 Exercise of Options by Option Holder 19 October 2017 500,000 $0.2712 Exercise of Options by Option Holder 24 October 2017 231,884 $0.3010 Exercise of Options by Option Holder 6 November 2017 625,345 $0.2712 Exercise of Options by Option Holder 6 November 2017 303,756 $0.3100 Exercise of Options by Option Holder 20 November 2017 108,471 $0.5850 11 8 – – – 136 70 – – – Exercise of Options by Option Holder 22 December 2017 500,000 $0.2712 136 Exercise of Options by Option Holder 19 January 2018 1,816,479 $0.1495 Exercise of Options by Option Holder 19 January 2018 621,283 $0.2712 Exercise of Options by Option Holder 25 January 2018 600,000 $0.9500 Exercise of Options by Option Holder 9 February 2018 7,004,743 $0.1619 Exercise of Options by Option Holder 6 March 2018 1,500,000 $0.6549 – – 570 – 982 Shares issued as approved by the general meeting 14 March 2018 86,858,903 $1.1500 99,888 Exercise of Options by Option Holder 21 March 2018 3,272,756 $0.2305 Exercise of Options by Option Holder 21 March 2018 3,272,756 $0.2305 Exercise of Options by Option Holder 21 March 2018 6,043,856 $0.3100 Exercise of Options by Option Holder 21 March 2018 777,568 $0.2820 Exercise of Options by Option Holder 30 March 2018 1,758,876 $0.1450 – – – – – Shares issued as approved by the general meeting 20 April 2018 43,575,880 $1.1500 50,112 Shares issued as approved by the general meeting 24 April 2018 4,836,593 $1.1500 5,563 Exercise of Options by Option Holder 22 June 2018 257,720 $0.3010 Exercise of Options by Option Holder 28 June 2018 110,165 $0.3010 78 33 (5,811) – Capital raising costs Balance 30 June 2018 742,757,760 289,293 COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM 76 Notes to the Financial Statements continued Ordinary shares Capital risk management Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the Company does not have a limited amount of authorised capital. All ordinary shares rank equally with regard to the Consolidated Entity’s residual assets. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Share buy-back There is no current on‑market share buy‑back. Note 26. Equity – reserves Share based payments reserve Movements in reserves The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board of Directors monitors the return on capital, which the Consolidated Entity defines as net operating income divided by total shareholders’ equity. The Board of Directors also monitors the level of dividends likely to be proposed and paid to ordinary shareholders. The Board ultimately seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings, new share issues and the issuing of convertible notes and the advantages and security afforded by a sound capital position. The Consolidated Entity may increase its debt levels if and when required in order to achieve increased returns for shareholders. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements. The capital risk management policy remains unchanged from the 30 June 2015 Annual Report. Consolidated 2018 $’000 11,492 2017 $’000 8,484 Movements in each class of reserve during the current and previous financial year are set out below: Consolidated Balance as at 1 July 2016 Lapsed options Share based payments Balance as at 30 June 2017 Lapsed options Share based payments Balance as at 30 June 2018 Foreign Currency Reserve Share Based Payments $’000 – – – – – – – $’000 3,302 – 5,182 8,484 – 3,008 11,492 Total $’000 3,302 – 5,182 8,484 – 3,008 11,492 COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 77 Notes to the Financial Statements continued Note 27. Equity – accumulated losses Accumulated losses at the beginning of the financial year Loss after income tax benefit for the year Consolidated 2018 $’000 (32,617) (16,012) (48,629) 2017 $’000 (20,433) (12,184) (32,617) Note 28. Equity – dividends Dividends There were no dividends paid, recommended or declared during the current or previous financial year. Franking credits Franking credits available for future years based on a tax rate of 27.5% Consolidated 2018 $’000 – 2017 $’000 – The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for: • franking credits that will arise from the payment of the amount of the provision for income tax at the reporting date; • franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and • franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date. The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends. In accordance with the tax consolidation legislation, the Company as the head Entity in the tax Consolidated Entity has assumed the benefit of franking credits of $nil (2017: $nil). Note 29. Financial instruments Financial risk management objectives The Consolidated Entity’s activities expose it to a variety of financial risks: market risk (including foreign currency risk, price risk and interest rate risk), credit risk and liquidity risk. The Consolidated Entity’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Consolidated Entity. The Consolidated Entity uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks, ageing analysis for credit risk. Risk management is carried out by senior finance executives under policies approved by the Board of Directors. These policies include identification and analysis of the risk exposure of the Consolidated Entity and appropriate procedures, controls and risk limits. Finance identifies, evaluates and manages financial risks within the Consolidated Entity’s operating units. The Company’s finance department reports to the Board on a monthly basis. The Consolidated Entity has exposure to the following risks from their use of financial instruments: • Market risk; • Credit risk; and • Liquidity risk. This note presents information about the Consolidated Entity’s exposure to each of the above risks, their objectives, policies and processes for measuring and managing risk and the management of capital. Further quantitative disclosures are included throughout this financial report. The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. The Board is responsible for developing and monitoring risk management policies. Market risk Market risk is the risk that changes in market prices – such as foreign exchange rates and interest rates – will affect the Consolidated Entity’s income or the value of its holdings of 78 Notes to the Financial Statements continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. Foreign currency risk The Consolidated Entity undertakes certain transactions denominated in foreign currency and is exposed to foreign currency risk through foreign exchange rate fluctuations. There is no current material exposure to foreign exchange risk. Interest rate risk The Consolidated Entity currently has no debt subject to variable interest rates. Accordingly, the Consolidated Entity has limited exposure to interest rate movements. The Consolidated Entity has a term deposit facility used as security for bank guarantees and credit card debts, and short‑term deposit facilities with variable interest rates which mature within 90 days. Fair value sensitivity analysis for fixed-rate instruments The Consolidated Entity does not account for any fixed‑rate financial assets or liabilities at fair value through profit or loss, and the Consolidated Entity does not designate derivatives as hedging instruments under a fair value hedge accounting model. Therefore, a change in interest rates at the reporting date would not affect profit or loss. A change of 100 basis points in interest rates would have increased or decreased equity by approximately nil after tax (2017: $nil). Entity must be approved by the Board prior to the contract being signed. Many of the Consolidated Entity’s customers are typically large multinationals. Losses relating to recovery of amounts owing to the Consolidated Entity have occurred very infrequently since the inception of the business. The majority of sales transactions undertaken by the Consolidated Entity require the customer to make payments as contract milestones are achieved. Failure of the customer to make payment by the due date will result in the further supply of goods and services being put on hold until such time as payment is received by the Consolidated Entity. The Consolidated Entity’s trade and other receivables relate mainly to the Group’s wholesale customers who are predominantly made up of large corporations. Customers that are graded as ‘high risk’ are placed on a restricted customer list, and future sales are made on a prepayment basis with approval of executive management. From inception to the date of this report, the Consolidated Entity has only ever had two minor trade bad debts. Refer to note 10 for debtors aging analysis. Guarantees The Consolidated Entity’s policy is to provide financial guarantees only to wholly‑owned subsidiaries. As at the reporting date, there are no outstanding guarantees. Credit risk Cash and cash equivalents Credit risk is the risk of financial loss to the Consolidated Entity if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Consolidated Entity’s receivables from customers. The carrying amount of financial assets represents the maximum credit exposure. Trade and other receivables The Consolidated Entity’s exposure to credit risk relating to trade and other receivables of $2,666,000 (2017: $993,000) is influenced mainly by the individual characteristics of each customer. The demographics of the Consolidated Entity’s customer base, including the default risk of the industry and country, in which customers operate, has less of an influence on credit risk. Geographically there is an Australian concentration of credit risk. The Consolidated Entity is exposed to concentrations of credit risk in relation to project revenue, due to the progress on projects. The Board has established a credit policy under which each new significant customer is analysed individually for creditworthiness before the Consolidated Entity’s standard payment and delivery terms and conditions are offered. Each new contract of works to be undertaken by the Consolidated The Consolidated Entity held cash and cash equivalents of $152,637,000 as at 30 June 2018 (2017: $88,863,000). The cash and cash equivalents are held with top tier banks in accordance with a board approved credit risk management policy. Liquidity risk Liquidity risk is the risk that the Consolidated Entity will not be able to meet its obligations associated with its financial liabilities as they fall due. The Consolidated Entity’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Consolidated Entity’s reputation. The Consolidated Entity adopts milestone and progress invoicing, which assists it in monitoring cash flow requirements and optimising its cash return on investments. Typically, the Consolidated Entity ensures that it has sufficient cash on demand to meet expected operational expenses for a period of not less than 90 days, including the servicing of financial obligations. This excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 79 Notes to the Financial Statements continued Exposure to liquidity risk The following tables detail the Consolidated Entity’s remaining contractual maturity for its financial liabilities at the reporting date. The amounts are gross and undiscounted and include estimated interest payments. Contractual cash flows Carrying amount 1 year or less Between 1 and 2 years Between 2 and 5 years Over 5 years $’000 $’000 $’000 $’000 $’000 Consolidated – 2018 Non–derivatives Non‑interest bearing Trade payables Other payables Notes payable Total non‑derivatives 6,998 6,998 4,508 2,490 – 4,508 2,490 – – – – – – – – – – – – – Consolidated – 2017 Non–derivatives Non‑interest bearing Trade payables Other payables Notes payable Total non‑derivatives Contractual cash flows Carrying amount 1 year or less Between 1 and 2 years Between 2 and 5 years Over 5 years $’000 $’000 $’000 $’000 $’000 2,520 652 2,850 6,022 2,520 652 3,000 6,172 – – – – – – – – – – – – Total $’000 4,508 2,490 – 6,998 Total $’000 2,520 652 3,000 6,172 The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. Fair value of financial instruments Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest rate method, less any provision for impairment. Trade and other payables are measured at fair value on recognition and at amortised cost using the effective interest rate method subsequently. Due to their short‑term nature neither trade and other receivables or trade and other payables are discounted. Borrowings are recognised at fair value of consideration received, net of transaction costs, and subsequently measured at amortised cost using the effective interest rate method. In estimating amortised cost the Consolidated Entity takes into account its borrowing capacity and the source of its borrowings. The categorisation of the borrowings based on the fair value hierarchy is detailed in note 30. 80 Notes to the Financial Statements continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Note 30. Fair value measurement Fair value hierarchy The following tables show the carrying amounts and fair values of the Consolidated Entity’s financial assets and financial liabilities, measured or disclosed at fair value, using a three level hierarchy, being: Carrying amount $’000 152,637 2,666 228 155,531 Consolidated – 2018 Financial assets not measured at fair value Cash and cash equivalents Trade and other receivables Other financial assets Financial liabilities not measured at fair value Trade and other payables (6,998) Other borrowings Notes payable Consolidated – 2017 Financial assets not measured at fair value Cash and cash equivalents Trade and other receivables Other financial assets Financial liabilities not measured at fair value Trade and other payables Other borrowings Notes payable – – (6,998) Carrying amount $’000 88,863 993 80 89,936 (3,172) – (2,850) (6,022) Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Entity can access at the measurement date Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly Level 3: Unobservable inputs for the asset or liability Fair value Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Fair value Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 – – – – – – – – – – – – – – (2,892) (2,892) – – – – – – – – – – – – – – (2,892) (2,892) COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 81 Notes to the Financial Statements continued There were no transfers between levels during the financial year. The tables do not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value. Financial instruments measured at fair value – valuation technique Type Valuation technique Significant unobservable inputs Promissory notes Discounted cash flows Risk adjusted discount rate of 6.69% (2017: 6.69%) Unless otherwise stated, the carrying amounts of financial instruments reflect their fair value. The carrying amounts of cash and cash equivalents, trade and other receivables and other financial assets and trade and other payables are assumed to approximate their fair values due to their short‑term nature. The fair value of financial liabilities is estimated by discounting the remaining contractual maturities at the current market interest rate that is available for similar financial instruments. Compliance with the Consolidated Entity’s standards is supported by a programme of periodic reviews undertaken by management. Note 31. Key management personnel disclosures Directors The following persons were directors of Clean TeQ Holdings Limited during the financial year: • Robert Friedland (Co‑Chairman and Non‑Executive Director) • Jiang Zhaobai (Co‑Chairman and Non‑Executive Director) • Sam Riggall (Managing Director and CEO) • Li Binghan (Non‑Executive Director) • Eric Finlayson (Independent Non‑Executive Director) • Roger Harley (Independent Non‑Executive Director) • Ian Knight (Independent Non‑Executive Director) • Stefanie Loader (Independent Non‑Executive Director) • Mike Spreadborough (Independent Non‑Executive Director) Other key management personnel The following persons also had the authority and responsibility for planning, directing and controlling the major activities of the Consolidated Entity, directly or indirectly, during the financial year: • Tim Kindred (Project and Start up Director) • Scott Magee (Sunrise Project Director) • Ben Stockdale (Chief Financial Officer) 82 Notes to the Financial Statements continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Compensation The aggregate compensation made to directors and other members of key management personnel of the Consolidated Entity is set out below: Short‑term employee benefits Post‑employment benefits Long‑term benefits Termination benefits Share‑based payments Consolidated 2018 $’000 2017 $’000 1,908,255 1,118,674 102,468 22,380 79,908 93,739 29,615 – 432,837 4,212,906 2,545,848 5,454,934 The key management personnel receive no compensation in relation to the management of the Company. Key management personnel are compensated for management of the Consolidated Entity. Note 32. Remuneration of auditors During the financial year the following fees were paid or payable for services provided by KPMG, the auditor of the Company: Audit services – KPMG Audit or review of the financial statements Audit‑related services Other services – KPMG Advisory services Taxation services Consolidated 2018 $’000 2017 $’000 86,951 64,201 – – 86,951 64,201 7,687 104,471 112,158 – 76,500 76,500 199,109 140,701 Note 33. Contingent liabilities The Consolidated Entity has a contingent liability, incurred in the financial year ended 30 June 2015, to pay a 2.5% gross revenue royalty on output mined from the Sunrise Project. This royalty is payable to Ivanhoe Mines, and is payable by Clean TeQ Sunrise Pty Ltd, a company within the Consolidated Entity. This royalty was part of the consideration paid for the acquisition of the Sunrise Project from Ivanhoe Mines, on 31 March 2015. COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 83 Notes to the Financial Statements continued Note 34. Commitments Hire purchases Committed at the reporting date and recognised as liabilities, payable: Within one year One to five years Total commitment Less: Future finance charges Net commitment recognised as liabilities Operating leases (non‑cancellable) Committed at the reporting date but not recognised as liabilities, payable: Within one year One to five years More than five years Note 35. Related party disclosures Parent Entity Clean TeQ Holdings Limited is the Parent Entity. Subsidiaries Interests in subsidiaries are set out in note 37. Key management personnel Consolidated 2018 $’000 2017 $’000 – – – – – – 486 780 – 1,266 – – – – – – 275 1,032 25 1,332 Disclosures relating to key management personnel are set out in note 31. Transactions with related parties No transactions occurred with related parties during the financial year ending 30 June 2018, or the previous financial year. Receivable from and payable to related parties There were no trade receivables from or trade payables to related parties at the current and previous reporting date. Loans to/from related parties There were no loans outstanding at the reporting date owed to related parties. 84 Notes to the Financial Statements continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Note 36. Parent entity information Set out below is the supplementary information about the Parent Entity. Statement of profit or loss and other comprehensive income Profit(loss) after income tax Total comprehensive income/(loss) Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Issued capital Share‑based payments reserve Accumulated losses Total equity Parent 2018 $’000 (6,844) (6,844) Parent 2018 $’000 4,790 2017 $’000 (5,949) (5,949) 2017 $’000 – 290,592 138,365 – 11,934 289,293 11,492 (22,127) 2,850 7,646 137,517 8,484 (15,282) 278,658 130,719 Guarantees entered into by the Parent Entity in relation to the debts of its subsidiaries The Parent Entity had no guarantees in relation to the debts of its subsidiaries as at 30 June 2018 and 30 June 2017, other than the cross guarantee referred to elsewhere in these financial statements. Contingent liabilities The Parent Entity had no contingent liabilities as at 30 June 2018 and 30 June 2017. Capital commitments – Property, plant and equipment The Parent Entity had no capital commitments for property, plant and equipment at as 30 June 2018 and 30 June 2017, or since the end of the financial year. Significant accounting policies The accounting policies of the Parent Entity are consistent with those of the Consolidated Entity, as disclosed in note 2, except for the following: • Investments in subsidiaries are accounted for at cost, less any impairment, in the Parent Entity. • Investments in associates are accounted for at cost, less any impairment, in the Parent Entity. • Dividends received from subsidiaries are recognised as other income by the Parent Entity and its receipt may be an indicator of an impairment of the investment. COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 85 Notes to the Financial Statements continued Note 37. Interests in subsidiaries The Consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 2: Name Clean TeQ Limited Clean TeQ Metals Pty Ltd Clean TeQ Water Pty Ltd Associated Water Pty Ltd LiXiR Functional Foods Pty Ltd Scandium Holding Company Pty Ltd Clean TeQ Sunrise Pty Ltd*** Uranium Development Pty Ltd CLQW HK Limited Sunrise Scandium Pty Ltd Shanyi Hoyo Clean TeQ Environmental Co Ltd** Clean Teq Environmental Protection Technology(Beijing) co., Ltd* * Chinese entity set up during the year ended 30 June 2017 ** Accounted for as investment in equity accounted trustee Principal place of business/Country of incorporation Australia Australia Australia Australia Australia Australia Australia Australia Hong Kong Australia China China Ownership interest 2018 % 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 50% 100% 2017 % 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 50% 100% *** Entity’s name was changed from Scandium21 Pty Ltd to Clean TeQ Sunrise Pty Ltd on 11 July 2018 Note 38. Deed of cross guarantee The following entities are or were party to a deed of cross guarantee under which each company guarantees the debts of the others: • Clean TeQ Holdings Limited • Clean TeQ Limited By entering into the deed, the wholly‑owned entities have been relieved from the requirement to prepare financial statements and directors’ report pursuant to ASIC Corporations (Wholly owned Companies) Instrument 2016/785. The above companies represent a ‘Closed Group’ for the purposes of the Class Order, and as there are no other parties to the Deed of Cross Guarantee that are controlled by Clean TeQ Holdings Limited, they also represent the ‘Extended Closed Group’. Set out below is a Consolidated statement of profit or loss and other comprehensive income and statement of financial position of the Closed Group. COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM 86 Notes to the Financial Statements continued Statement of profit or loss and other comprehensive income Revenue Raw materials and other direct costs Employee benefits expenses Depreciation and amortisation expenses Legal and professional expenses Occupancy expenses Marketing expenses Other expenses Finance costs Loss before income tax benefit Income tax benefit Loss after income tax benefit Other comprehensive income for the year, net of tax Total comprehensive income for the year Equity – retained profits Retained profits/ (accumulated losses) at the beginning of the financial year Loss after income tax benefit Accumulated losses at the end of the financial year 2018 $’000 2,642 (2,306) (9,098) (707) (2,052) (1,022) (1,087) (2,751) (154) 2017 $’000 1,040 (76) (8,608) (802) (489) (359) (746) (157) (170) (16,535) (10,367) – – (16,535) (10,367) – – (16,535) (10,367) 2018 $’000 (31,132) (16,535) (47,667) 2017 $’000 (20,765) (10,367) (31,132) COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 87 Notes to the Financial Statements continued Statement of financial position Current assets Cash and cash equivalents Trade and other receivables Inventories Income tax receivable Non-current assets Receivables Other financial assets Plant and equipment Intangible assets Investment in subsidiary companies Total assets Current liabilities Trade and other payables Notes payable Employee benefits Deferred revenue Non-current liabilities Deferred revenue Employee benefits Provisions Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity 2018 $’000 2017 $’000 152,262 1,426 96 67 153,851 88,861 936 96 2,088 91,981 92,433 20,607 128 298 8,442 1,054 102,355 80 135 9,036 1,055 30,913 256,206 122,894 1,855 – 500 47 2,402 448 40 198 686 4,210 2,850 300 47 7,407 495 68 55 618 3,088 8,025 253,118 114,869 289,293 11,492 (47,667) 137,517 8,484 (31,132) 253,118 114,869 88 Notes to the Financial Statements continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Note 39. Events after the reporting period No matters or circumstance has arisen since 30 June 2018 that has significantly affected, or may significantly affect the Consolidated Entity’s operations, the results of those operations, or the Consolidated Entity’s state of affairs in future financial years. Note 40. Reconciliation of cash used in operating activities Loss after income tax expense for the year Adjustments for: Depreciation, amortisation and impairment Share‑based payments Write off of bad debts Non‑cash finance costs Change in value of investment Change in operating assets and liabilities: Decrease/(increase) in trade and other receivables Decrease/(increase) in other financial assets Decrease/(increase) in income tax refund due net of capitalised research and development Decrease/(increase) in R&D contra asset (Increase)/decrease in accrued revenue Increase/(decrease) in trade and other payables Increase/(decrease) in employee benefits Net cash used in operating activities Note 7 7 Consolidated 2018 $’000 2017 $’000 (16,012) (12,184) 781 3,008 – 150 (1) (1,235) (148) – 2,395 (47) 3,827 284 (6,998) 813 5,182 2 166 – (692) – 2,746 – (48) 2,457 54 (1,504) COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 89 Notes to the Financial Statements continued Note 41. Earnings per share Earnings per share for loss from continuing operations Loss after income tax attributable to the owners of Clean TeQ Holdings Limited (16,012) (12,184) Consolidated 2018 $’000 2017 $’000 Weighted average number of ordinary shares used in calculating basic earnings per share Weighted average number of ordinary shares used in calculating diluted earnings per share Basic earnings per share Diluted earnings per share 2018 Number 2017 Number 623,241,497 490,055,864 623,241,497 490,055,864 2018 Cents (2.57) (2.57) 2017 Cents (2.49) (2.49) Consolidated 2018 $’000 2017 $’000 Earnings per share for loss Loss after income tax attributable to the owners of Clean TeQ Holdings Limited (16,012) (12,184) Weighted average number of ordinary shares used in calculating basic earnings per share Weighted average number of ordinary shares used in calculating diluted earnings per share Basic earnings per share Diluted earnings per share 2018 Number 2017 Number 623,241,497 490,055,864 623,241,497 490,055,864 2018 Cents (2.57) (2.57) 2017 Cents (2.49) (2.49) Options have been classified as potential ordinary shares and are included in the determination of diluted earnings per share, except where the potential ordinary shares are anti‑dilutive. The options and convertible notes on issue throughout the current financial year are not dilutive in effect, as the Consolidated Entity recorded a net loss in the financial year. 90 Notes to the Financial Statements continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Note 42. Share‑based payments On 24 September 2007 the Company introduced a share option plan for employees, directors and service providers of the Consolidated Entity (‘the Plan‘). The Plan entitles key management personnel, service providers and employees to receive shares and options in the Company. Set out below are summaries of options granted under the Plan: 2017/2018 Grant date Expiry date Exercise price Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year 25/02/2015 25/02/2018 $0.1574 8,000,000 01/03/2015 01/03/2018 $0.1450 4,000,000 06/07/2015 30/06/2018 $0.3010 666,214 20/11/2015 30/06/2018 $0.2305 8,000,000 20/11/2015 31/03/2018 $0.1450 2,000,000 20/11/2015 30/11/2018 $0.2712 3,500,000 16/05/2016 16/05/2019 $0.2820 3,300,000 06/09/2016 16/05/2019 $0.2820 1,000,000 06/09/2016 16/05/2019 $0.3100 9,125,000 15/12/2016 15/12/2019 $0.5850 500,000 22/02/2017 22/02/2020 $0.6549 3,000,000 20/06/2017 20/06/2020 $0.9500 600,000 – – – – – – – – – – – – 19/07/2017 17/02/2020 $0.7700 07/09/2017 31/08/2020 07/09/2017 31/08/2020 13/11/2017 06/11/2020 05/02/2018 04/12/2020 05/02/2018 04/12/2020 05/02/2018 04/12/2020 05/02/2018 04/12/2020 $0.9500 $0.9500 $1.7300 $1.8000 $1.8000 $1.8000 $1.8000 – – – – – – – – 750,000 150,000 200,000 75,000 3,000,000 1,000,000 1,000,000 500,000 (7,004,743) (995,257) (3,453,480) (546,520) (666,214) – (6,545,512) (1,454,488) (1,758,876) (241,124) – – – – – (2,246,628) (253,372) 1,000,000 (200,751) (99,249) 3,000,000 (777,568) (222,432) – (6,347,612) (2,027,388) 750,000 (108,471) (66,529) 325,000 (1,500,000) (1,500,000) (600,000) – – – – – – – – – – – – – – – – – – – 750,000 150,000 200,000 75,000 3,000,000 1,000,000 1,000,000 500,000 43,691,214 6,675,000 (31,209,855) (7,406,359) 11,750,000 Weighted average exercise price: $0.2749 $1.6389 $0.2580 $0.3264 $1.0621 The weighted average number of years for share options issued under the Plan is 2.85 years (2017: 2.00 years). COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 91 Notes to the Financial Statements continued For the options granted during the current financial period, a Black‑Scholes pricing model was used to value the options. The valuation model inputs used to determine the fair value at the grant date are as follows: 2017/2018 Grant date Expiry date 19/07/2017 17/02/2020 07/09/2017 31/08/2020 13/11/2017 06/11/2020 05/02/2018 04/12/2020 Share price at grant date Exercise price Expected volatility Dividend yield Risk-free Interest rate $0.69 $0.97 $1.58 $1.30 $0.7700 $0.9500 $1.7300 $1.8000 88.46% 86.90% 85.65% 86.27% –% –% –% –% 2.67% 2.59% 2.62% 2.40% Fair value at grant date $0.379 $0.559 $0.853 $0.612 Set out below are summaries of performance rights granted under the Plan: 2018 Grant date Expiry date 08/07/2015 01/07/2018 20/11/2015 01/07/2018 Exercise price $0.00 $0.00 Balance at the start of the year Granted Exercised – 1,674,416 766,416 880,000 16/05/2016 01/07/2019 $0.00 1,646,416 1,756,281 06/09/2016 06/09/2019 $0.00 2,815,879 1,292,706 01/07/2017 01/07/2020 $0.00 4,108,585 1,723,838 06/02/2018 01/01/2021 $0.00 5,612,413 487,760 7,815,001 * Performance rights forfeited as the employee ceased employment. The performance rights have the following vesting conditions: Expired/ forfeited/ Other* Balance at the end of the year (908,000) 766,416 – 1,646,416 (586,818) 2,815,879 – 4,108,585 (220,010) 5,612,413 (2,857) 6,097,316 (1,717,685) – – – – – – – • Rights vesting if the Company’s total shareholder return outperforms a comparator group of listed companies over a three‑year period from the grant date; and • Continuous service from Date of Grant to Vesting Date. For the performance rights granted during the current financial period, a Binomial Option Valuation model was used to value the performance rights. A probability adjustment for market vesting conditions is then attached to the value of the performance rights. Each performance right, once vested, entitles the performance right holder to receive one fully paid ordinary share in the Company for zero consideration. The valuation model inputs used to determine the fair value at the grant date are as follows: 2017/2018 Grant date Expiry date 01/07/2017 01/07/2020 06/02/2018 01/01/2021 Share price at grant date $0.66 $1.18 Risk-free Interest rate Expected volatility Dividend yield Vesting probability –% –% 87.57% 85.33% –% –% 87.00% 50.00% Fair value at grant date $0.581 $1.014 COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM 92 Directors’ Declaration For the year ended 30 June 2018 In the directors’ opinion: • the attached Consolidated financial statements and notes thereto, and the Remuneration report in the Directors’ report, comply with the Corporations Act 2001, the Australian Accounting Standards, and the Corporations Regulations 2001; • the attached Consolidated financial statements and notes thereto, comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 2(b) to the financial statements; • the attached Consolidated financial statements and notes thereto and the Remuneration report in the Directors’ reports, give a true and fair view of the Consolidated Entity’s financial position as at 30 June 2018 and of its performance for the financial year ended on that date; • there are reasonable grounds to believe that the Consolidated Entity will be able to pay its debts as and when they become due and payable; and • at the date of this declaration, there are reasonable grounds to believe that the members of the Extended Closed Group will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in note 38 to the financial statements. The directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the directors Sam Riggall Managing Director 24 August 2018 Melbourne COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 93 lndependent Auditor’s Report To the shareholders of Clean TeQ Holdings Limited Independent Auditor’s Report To the shareholders of Clean TeQ Holdings Limited Report on the audit of the Financial Report Opinion We have audited the Financial Report of Clean TeQ Holdings Limited (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including: • giving a true and fair view of the Group's financial position as at 30 June 2018 and of its financial performance for the year ended on that date; and • complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion The Financial Report comprises: • Statement of Financial Position as at 30 June 2018 • Statement of Profit or Loss and Other Comprehensive Income, Statement of Changes in Equity, and Statement of Cash Flows for the year then ended • Notes including a summary of significant accounting policies • Directors' Declaration. The Group consists of the Company and the entities it controlled at the year-end or from time to time during the financial year. We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 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 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 fulfilled our other ethical responsibilities in accordance with the Code. KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. 103 94 lndependent Auditor’s Report continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM 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. This matter was 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 this matter. Valuation assessment for intangible assets ($9.8 million) and exploration and evaluation (E&E) assets ($76.9 million) Refer to significant accounting policies in Note 2 and Notes 16 and 17 to the Financial Report. The key audit matter How the matter was addressed in our audit A discounted cash flow model is used in determining the recoverable amount of the Metals and Water cash generating units (CGUs) to which intangible assets and E&E assets have been allocated. The valuation of the Metals and Water CGU intangible assets and Metals E&E assets is a key audit matter due to the audit effort required by us in assessing the Group’s judgements applied and inputs to the models, including: • Discount rates applied to forecast cash flows, as each CGU displays unique conditions varying the assessment of discount rates • • • • Future resource prices Future foreign exchange rates For the Water CGU, forecasting the probability of converting tender pipeline into contracted revenue Future production/output, capital expenditure and operating costs. In particular, for the Metals CGU, the Group has not incurred any capital expenditure for production and has not yet commenced operations. Therefore future production/output, capital expenditure and operating Our procedures included: • Working with our valuation specialists, we utilised their expertise in assessing discounted cash flow models in the mining and water treatment industries, including assessing a discount rate range for each CGU and comparing it to the discount rates used by the Group; • • Testing the acceptability from a valuation perspective of the discounted cash flow models used to determine the recoverable amount for each CGU in comparison to common market practice and accounting standard requirements; Performing sensitivity analysis in respect of the discount rates, future production/output, capital expenditure and operating costs, future resource prices, future foreign exchange rates. This allowed us to determine which inputs relative to the risk of impairment, had the most impact on the outcome of the models, and to focus our audit effort thereon; • Comparing future resource prices and foreign exchange rates used in the models to external market data, such as publicly available forecasts and consensus views of market commentators as well as historical information; • Reading a sample of tenders, correspondence with prospective clients, memorandums of understanding and contracts to inform our view of the likelihood of the Water CGU tender pipeline being converted into contracted revenue; 104 COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 95 lndependent Auditor’s Report continued costs are estimated based on the Group’s expertise/experience from other mining operations • Comparing future production/output, capital expenditure and operating costs used in the Group’s models to other market participants; • Reserves, including the success of exploration, and appraisal activities, including drilling and geological and geophysical analysis. In assessing this key audit matter, we involved senior audit team members, including valuation specialists, who understand the Group’s business, industry and the economic environment it operates in. • • For the Metals CGU, analysing the Group’s determination of recoupment through successful development and exploitation of its reserves by evaluating the Group’s planned future/continuing activities; For the Metals CGU, we obtained the Group’s project budgets identifying areas with existing funding and those requiring alternate funding sources. We compared this for consistency with current E&E expenditure, for evidence of the ability to fund continued activities. We identified those areas relying on alternate funding sources and evaluated the capacity of the Group to secure such funding. Other Information Other Information is financial and non-financial information in Clean TeQ Holdings Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information. The Other Information we obtained prior to the date of this Auditor’s Report was the Directors’ Report and the Remuneration Report. The Chairman’s Report and CEO’s Report are expected to be made available to us after the date of the Auditor's Report. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not and will not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we 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. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: • • preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error 105 96 lndependent Auditor’s Report continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Clean TeQ Holdings Limited Annual Report 2018 97 Shareholder Information Shareholder Information For the year ended 30 June 2018 The information below is current as at 25 July 2018 Distribution of equity securities Analysis of number of equity security holders by size of holding: 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Number of holders of ordinary shares Number of holders of options over ordinary shares Number of holders of convertible notes 1,061 2,075 1,177 2,262 337 6,912 – – – 3 12 15 – – – – – – Equity security holders Twenty largest quoted equity security holders The names of the twenty largest security holders of fully paid ordinary shares as at 25 July 2018 are listed below: Rank Name of Share Holder Number of Shares Held % of Total Shares Issued 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 J P MORGAN NOMINEES AUSTRALIA LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED PENGXIN INTERNATIONAL GROUP LIMITED CITICORP NOMINEES PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED‑GSCO ECA SAM RIGGALL THIERVILLE PTY LTDMR GREGORY LEONARD TOLL + MRS MARGARET ESTELLE TOLL HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED – A/C 2 SALITTER PTY LTD MR DAVID NEVILLE COLBRAN CANADIAN REGISTER CONTROL\C JEREMY’S HAVEN PTY LTD THIERVILLE PTY LTD MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED MAL CLARKE & ASSOCIATES PTY LTD BNP PARIBAS NOMINEES PTY LTD XUE INVESTMENTS PTY LIMITED MR RICHARD ARMSTRONG CALDOW SUNSHINE SUPERANNUATION PTY LTD 181,953,502 107,598,482 92,518,888 38,916,970 21,945,074 19,594,111 16,734,147 11,022,628 6,694,805 5,853,304 5,000,010 4,930,613 4,690,310 4,550,801 4,376,599 3,979,985 3,489,887 3,480,000 3,250,000 2,750,000 24.50 14.49 12.46 5.24 2.95 2.64 2.25 1.48 0.90 0.79 0.67 0.66 0.63 0.61 0.59 0.54 0.47 0.47 0.44 0.37 Total – Top 20 holders of Ordinary Fully Paid Shares 543,330,116 73.15 Total – Shares Issued 742,757,760 100.00 98 Shareholder Information continued COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM (Unquoted equity securities) Options over ordinary shares with various exercise prices and expiry dates 11,750,000 14 Number on issue Number of holders Substantial holders Substantial holders in the Company are set out below: Name of Share Holder Robert Martin Friedland Pengxin International Group Limited FMR LLC Voting rights Ordinary Shares Number held % of total shares issued 94,518,888 92,518,888 58,489,117 12.73 12.46 7.87 The voting rights attached to ordinary shares are set out below. Other classes of equity securities do not have voting rights. Ordinary shares On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. There are no other classes of equity securities. COLLIER CREATIVE 03 9088 2470 CLT0007 CleanTeQ AR18 Fins_p4a 24 August 2018 11:53 AM Corporate Directory DIRECTORS SHARE REGISTER Robert Friedland (Co‑Chairman and Non‑Executive Director) Computershare Investor Services Pty Ltd Jiang Zhaobai (Co‑Chairman and Non‑Executive Director) Sam Riggall (Managing Director and CEO) Li Binghan (Non‑Executive Director) Eric Finlayson (Non‑Executive Director) Roger Harley (Independent Non‑Executive Director – retired as director effective1 November 2017) Ian Knight (Independent Non‑Executive Director) Stefanie Loader (Independent Non‑Executive Director) Mike Spreadborough (Independent Non‑Executive Director) COMPANY SECRETARY Melanie Leydin Leydin Freyer Level 9, 96‑100 Albert Road South Melbourne, Victoria 3205 PRINCIPAL PLACE OF BUSINESS & REGISTERED OFFICE Unit 12, 21 Howleys Road Notting Hill, Victoria, 3168 Telephone: +61 (03) 9797 6700 +61 (03) 9706 8344 Facsimile: Yarra Falls, 452 Johnson Street Abbottsford, Victoria, 3067 Telephone: +61 (03) 9415 5000 +61 (03) 9473 2500 Facsimile: AUDITORS KPMG Tower Two, Collins Place 727 Collins Street Melbourne, Victoria 3008 LEGAL ADVISORS Baker & McKenzie Level 19, 181 William Street Melbourne, Victoria 3000 STOCK EXCHANGE LISTING Clean TeQ Holdings Limited shares are listed on the Australian Securities Exchange (ASX: CLQ) Toronto Stock Exchange (TSX: CLQ), and OTCQX Market in the United States (OTCQX: CTEQF) WEBSITE www.cleanteq.com www.colliercreative.com.au #CLT0007