(Formerly MRL Corporation Limited) ABN 50 007 870 760 ANNUAL REPORT 30 JUNE 2016 CORPORATE DIRECTORY DIRECTORS Warwick Grigor Craig McGuckin Peter R. Youd Chris Banasik (Chairman) (Managing Director) (Executive Director) (Non-Executive Director) COMPANY SECRETARY Peter R. Youd PRINCIPAL REGISTERED OFFICE IN AUSTRALIA Suite 3 9 Hampden Road Nedlands WA 6009 Telephone: +61 1300 660 448 +61 1300 855 044 Facsimile: info@firstgraphite.com.au Email: www.firstgraphite.com.au Website: STOCK EXCHANGE LISTING The Company is listed on the Australian Securities Exchange Limited under the trading codes FGR, FGROA and FGROB SHARE REGISTRY Automic Registry Services Level 1, 7 Ventnor Avenue West Perth W.A. 6005 Telephone: +61 8 9324 2099 +61 8 9321 2337 Facsimile: AUDITOR BDO Audit (WA) Pty Ltd 38 Station Street Subiaco WA 6008 SOLICITORS – AUSTRALIA Steinepreis Paganin Lawyers and Consultants Level 4, The Read Buildings 16 Milligan Street Perth WA 6000 SOLICITORS – SRI LANKA Varners Level 14, West Tower World Trade Centre Echelon Square Colombo 01 Sri Lanka BANKERS Westpac Banking Corporation Level 6 109 St Georges Terrace Perth WA 6000 2 First Graphite Ltd • ANNUAL REPORT 2016 TABLE OF CONTENTS Corporate Directory Table of Contents Chairman’s Report Review of Operations Overview of Operations Exploration Environment Safety Directors’ Report Remuneration Report (audited) Auditor’s Independence Corporate Governance Statement Auditor’s Independence Declaration Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements 1. Basis of Preparation 2. Accounting policies 3. Financial Risk Management 4. Segment reporting 5. Operating profit and finance income and expense 6. Income tax 7. Earnings per share 8. Dividends paid and proposed 9. Cash and cash equivalents 10. Interests in other entities 11. Exploration and evaluation assets 12. Property, plant and equipment 13. Trade and other payables 14. Issued Capital 15. Share based payments 16. Reserves and accumulated losses 17. Statement of cash flow reconciliation 18. Commitments and contingencies 19. Results of the parent company 20. Events since the end of the financial year 21. Related party transactions 22 Auditors’ remuneration Directors’ Report Independent Auditor’s Report Additional Securities Exchange Information 2 3 4 5 5 6 6 6 7 10 16 16 17 18 19 20 21 22 22 22 30 35 36 37 37 37 38 38 38 39 40 40 42 43 44 44 45 46 46 46 47 48 50 3 ANNUAL REPORT 2016 • First Graphite Ltd CHAIRMAN’S REPORT Dear Fellow Shareholder The 2016 financial year has been one of significant achievements and “Firsts” for your Company. During September and October 2015 the Company completed a Shareholder Purchase Plan and private placement which raised a total of $4.5m at $0.055 per share. In May 2016 the Company was able to complete a further strongly supported raising of $2.4m at $0.09 per share. These funds have enabled the Company to continue to pursue its stated goal of becoming a producer of high quality graphene from high grade Sri Lankan graphite. Following extensive bench scale test work undertaken by the University of Adelaide, FGR constructed its first prototype commercial scale production unit for graphene. This unit was successfully commissioned during August and confirmed the scalability of the production process which has been developed by the Company. Having established the ability to produce graphene at very low cost, First Graphite is continuing its work at the University of Adelaide to identify commercial applications of graphene, thereby opening up new markets. The board sees the production and commercialisation of graphene as providing the most significant driver for your Company’s share price appreciation in the future. The continued exploration efforts of the Company resulted in it being granted additional licences in November 2015 which meant it became the largest holder of graphite exploration licences in Sri Lanka. Drilling at the Aluketiya project provided an intersection of 1.72m of high grade vein graphite over 2.81m. This was the most significant intercept from any FGR drilling program and it is likely the most significant reported graphite intersection in Sri Lankan modern history. Subsequent analysis yielded Length Weighted Average (LWA) 98.41% Total Graphitic Carbon (TGCLOI) with results as high as 99.51% TGCLOI. In another first the Company brought an Australian geophysics company to Sri Lanka to conduct down hole electromagnetic surveys on previously drilled holes at Aluketiya and Pandeniya. These surveys were enormously successful and the results were released to the Australian Securities Exchange on 23 September 2016. On a mining front the Company was granted an Industrial Mining Licence – A class (IML-A) over the Pandeniya project in April 2016. This was the first new underground graphite mining licence granted in 25 years. This was a clear demonstration of the ability of the Company to take a target area from exploration through to mining. The future for your Company looks promising with ongoing progress of its own exploration and mining areas and the exciting developments in its graphene strategy. In closing I would like to thank our shareholders for their continued support. The board would also like to express its thanks to our Managing Director, Mr Craig McGuckin, for his tireless and considerable efforts to advance the Company’s projects and his inspirational leadership in building the Sri Lankan team. This team is also to be thanked for their considerable efforts. The board looks forward to an exciting and rewarding 2016/17 financial year. Warwick Grigor Non-Executive Chairman 28 September 2016 4 First Graphite Ltd • ANNUAL REPORT 2016 REVIEW OF OPERATIONS OVERVIEW OF OPERATIONS Graphene Research and Development Your Company has made considerable progress during the 2016 financial year on its high quality graphene strategy. About Graphene Graphene is a natural material which is the basic building block of graphite, achieved when the thickness is reduced to less than 10 atoms. Though it was “discovered” in the 1940s, it took until 2004, before scientists figured out how to isolate it from graphite particles, using the simple “scotch tape” exfoliation method. Since then there has been tremendous interest in graphene with research scientists demonstrating its suitability for combination with a vast range of materials, which greatly enhances the performance of those materials. There has also been an explosion in the number of patents being taken out as industry has been preparing for the start of the new and deeply disruptive “graphene age”. Graphene has been talked about in glowing terms with scientists suggesting confidently it is the key to the future of almost all materials. Its disruptive qualities are one consideration, but what does the path to commercialisation look like? There is no road map, but some parallels can be drawn with the path taken by the internet with graphene being to materials what the internet has been to communications. To start with the internet was about emails. A major breakthrough occurred with the release of the first web browser in 1994, which turned the web into a user friendly graphical interface communications environment. As computing power increased and technology convergence accelerated we have experienced the development of smart phones and wireless-based applications offering flexibility and commercial opportunity and massive productivity gains well beyond what was first contemplated. One of the greatest challenges being faced today in commercialising graphene is how to produce high quality material, on a large scale at low cost, and in a reproducible manner. Currently, the synthesis of graphene by conventional methods involves the use of toxic chemicals and these methods usually result in the generation of hazardous waste and poisonous gases. Other methods are capital intensive and complex. Thus the major hurdle in manufacturing graphene on an industrial scale is the process complexity and the associated high cost of its production, which results in expensive product. The quality of graphene produced is also crucial, as the presence of defects, impurities, grain boundaries, multiple domains, structural disorders, or wrinkles in the graphene sheet can have an adverse effect on its electronic and optical properties. At First Graphite Limited we have addressed these issues by producing graphene using high-grade, vein graphite from Sri Lanka. Sri Lankan graphite has a unique crystalline structure and is the highest quality, naturally occurring material in the world. The use of electrochemical exfoliation on this unique product was viewed as a method to overcome some of the issues outlined above. Test work has conclusively demonstrated up to 80% of our unique vein graphite converts to graphene within a short time frame. Furthermore, the graphene platelet size being produced is larger than that produced by other graphite material and graphene production methods with graphene platelets of between 45µm and 78µm regularly produced. First Graphite promises the ability to dramatically change the cost structure of the graphene supply curve, thereby facilitating the acceleration of the development of applications for consumption of bulk tonnages of graphene in industry. Sri Lanka The 2016 financial year has seen significant progress made on the Company’s high grade vein graphite projects in Sri Lanka. The Company holds 39,500ha over thirteen exploration licences together with two granted Industrial Mining Licences, one at Pandeniya and one at Aluketiya. All areas are held 100% in the name of MRL Graphite (Pvt) Ltd, a Sri Lankan subsidiary company. Pandeniya (within the Warakapola exploration licences) In April 2016 the Company was granted Industrial Mining licence IML/A/HO/9405 (IMLA)covering the Pandeniya development area. This was the first new IMLA to have been issued is Sri Lanka for an underground graphite project in over twenty five years and the first to include a full environmental review. The award of this licence demonstrated the capability of the Company to take an area of interest through the exploration phase, apply for licensing and be successful in the conversion process. Since the award of the licence and at the time of writing the Company has successfully completed the shaft rehabilitation to a depth of 30 metres to the shaft floor. At the bottom of the shaft a further 39 metres of horizontal drives/offset shafts were encountered, these workings were not anticipated in the initial mine plan however have been cleaned out and mapped where safe to do so. Following cleanout and examining these drives three older shafts were also found together with clear evidence of graphite vein stoping. The age and unstable condition of these old workings made them unsuitable for current use as it was considered to be unsafe for the Company’s miners to use as a primary access. 5 ANNUAL REPORT 2016 • First Graphite Ltd REVIEW OF OPERATIONS (Continued) These facts, together with the additional information supplied from the DHTEM, led to a change to the mine plan and the existing shaft is now being sunk a further 15 metres to gain access to the structures identified by the DHTEM and previous diamond drilling below the previously mined areas. To date the shaft has been advanced to 34 metres below the shaft collar. Figure 1: Schematic of shaft development and drives Aluketiya At Aluketiya Shaft H has been sunk to a depth of 17 metres. Between 12 and 15 metres a void was encountered which caused significant delays to the shaft sinking efforts. During this activity the shaft liners hung up, in the process of freeing up the liners damage was done to three of the smaller cement liners. This has now been remedied and shaft sinking re-commenced. The mine plan calls for the shaft to be sunk between 28 and 35 metres depth, depending on the ground conditions below the weathered and fresh rock interface. An exploration drive will then be driven 20 metres to the large drill intersection encountered in drill hole ALK11. A second target will be drilled shortly up dip from the large intersection on ALK18 to determine the potential to access that structure from Shaft H. Shaft J’s head frame has been erected and the Company has commenced the installation of the support equipment such as hoists, generators and compressors. While these delays, while unfortunate, were necessary to amended mine plans and enable a longer term set up for the delivery of ore over a longer period. With the additional prospectively shown from the DHTEM it would have been unwise and short sighted not to have amended the initial plans. EXPLORATION In August the Company conducted a downhole electromagnetic (DHTEM) surveys at its Aluketiya and Pandeniya projects. This was the first DHTEM survey to have been conducted in Sri Lanka and proved extremely successful. 6 Graphite is an excellent conductor of electricity, a property which makes it highly amenable to exploration Surface and airborne using electrical techniques. electromagnetic techniques have been used previously by FGR and other companies to search for graphite in Sri Lanka. The limitation of these techniques is that while presence of graphite can be determined, DHTEM can predict the location of veins in three dimensions. GEM geophysics provided the field data acquisition services and Southern Geoscience provided the survey planning and data interpretation for the surveys conducted in August 2016. The full results of this survey were released to the Australian Securities Exchange on 23 September 2016. ENVIRONMENT The Directors and management are conscious of ensuring all activities are undertaken with a view to achieving the highest environmental standards which are practically possible. The Industrial Mining Licence granted to the Company at Pandeniya was the first to include a full environmental review. At Aluketiya the Company successfully converted its Industrial Mining Licence from a category C to a category A following a successful Initial Environmental Examination. The surface footprint of the mining activities is small and all mining activities are to be conducted underground. As a result, the impact on the surrounding area will be minimal. No processing will occur on the mining location and all mined graphite will be transported to a central processing facility. SAFETY Employment and Training Program All potential full time MRL employees must undergo a Company funded full medical examination prior to commencing employment. All employees are also required to complete a Company funded safety first training course at the commencement of employment and annual refresher courses. All employees are given a stringent safety training program and the Company has two full time Occupational Health, Safety and Environment (OHS&E) Officers. The safety training and safety standards adopted by the Company are those applicable to the well-developed and proven standards used in the West Australian mining and petroleum industries and exceed the legislative standards imposed in Sri Lanka. The Company will be ensuring training is provided to all machinery operators by qualified training institutions and personnel. Employees will then be signed out as competent operators for selected pieces of machinery, e.g. cranes, winches, compressors etc. Refresher courses will be conducted to make sure competence levels are maintained. First Graphite Ltd • ANNUAL REPORT 2016 DIRECTORS’ REPORT The directors present their report together with the financial report of the consolidated entity (referred to hereafter as the ‘consolidated entity’) and the entities it controlled at the end of, or during, the year ended 30 June 2016. Planning Engineer, Mine Manager and Managing Director of private and publicly listed companies. No other directorships have been held in the last three years. DIRECTORS The names and details of the Company’s Directors in office during the financial year and until the date of this report are as follows. The Directors were in office for this entire period unless otherwise stated. Warwick Grigor BEc. LLB, MAusIMM, FAICD Non-Executive Chairman (Appointed 4 December 2015) Mr Grigor is a highly respected and experienced mining analyst, with an intimate knowledge of all market related aspects of the mining industry. He is a graduate of the Australian National University having completed degrees in law and economics. His association with mining commenced with a position in the finance department of Hamersley Iron, and from there he moved to Jacksons, Graham, Moore and Partners to become Australia’s first specialist gold mining analyst. Mr Grigor left to be the founding research partner at Pembroke Securities and then the Senior Analyst at County NatWest Securities. He left County in 1991 to found Far East Capital Limited which was established as a specialist mining company financier and corporate adviser, together with Andrew “Twiggy” Forrest. In 2008, Far East Capital sponsored the formation of a stockbroking company, BGF Equities, and Mr Grigor assumed the position of Executive Chairman. This was re- badged as Canaccord Genuity Australia Limited when a 50% stake was sold to Canaccord Genuity Group Inc. Mr Grigor retired from Canaccord in October 2014, returning to Far East Capital. Special Responsibilities: Member of the Audit Committee and Remuneration Committee Other Current Directorships: Non-executive director of Peninsular Energy Limited Peter Youd B Bus (Accounting), AICA Executive Director Peter Youd is a Chartered Accountant and has extensive experience within the resources and oil and gas services, industries. For the last 28 years Mr Youd has held a number of senior management positions and directorships for publicly listed and private companies in Australia and overseas. No other directorships have been held in the last three years. Special Responsibilities: Member of the Audit Committee Chris Banasik B App Sc (Physics), MSc (Econ Geol), Grad Dip Ed, MAusIMM Non-Executive Director Mr Banasik was a founding Director of Exploration and Geology for the ASX listed company Silver Lake Resources Limited and held this position from May 2007 until November 2014. Mr Banasik has a Master’s Degree in Mineral Economics from University of WA and Bachelor’s Degree in Applied Physics from Curtin University. Prior to becoming the Director of Exploration and Geology of Silver Lake Resources, he held senior geological management positions over 12 years’ with organisations including WMC Resources Ltd, Reliance Mining Ltd, Goldfields Mine Management and Consolidated Minerals Ltd. He has gained extensive experience in every aspect of mining, mineral processing, smelting and refining primarily for gold and nickel. Former Directorships: Silver Lake Resources Limited until November 2014 Craig McGuckin Dip. Minsurv Class 1, Dip Surfmin Managing Director Denis Geldard (resigned 30 June 2016) Non-Executive Director Craig McGuckin is a qualified mining professional with 30 years’ experience in the mining, drilling and petroleum industries. He has held senior positions including Senior Peter Hepburn-Brown (resigned 20 November 2015) Non-Executive Director 7 ANNUAL REPORT 2016 • First Graphite Ltd DIRECTORS’ REPORT (Continued) COMPANY SECRETARY & CHIEF FINANCIAL OFFICER Peter Youd B Bus (Accounting), AICA Results and Dividends The Group result for the year was a loss of $4,927,830 (2015: loss of $3,200,472). No final dividend has been declared or recommended as at 30 June 2016 or as at the date of this report (2015: $ nil). No interim dividends have been paid (2015: nil). Principal Activities During the financial year the principal continuing activities of the consolidated entity were as an explorer and developer of high-grade graphite projects in Sri Lanka. It is also a developer and producer of high technology graphene materials. Events Since the End of the Financial Year There are no known subsequent events of a material nature. Significant Changes in State of Affairs There were no significant changes in the state of affairs of the consolidated entity during the financial year. Likely Developments and expected results of operations The Directors have excluded from this report any further information on the likely developments in the operations of the Group and the expected results of those operations in future financial years, other than as mentioned in the Chairman’s Statement and Review of Operations as the Directors have reasonable grounds to believe the continuing market volatility makes it impractical to forecast future profitability and other material financial events. Directors’ and other officers’ emoluments Details of the remuneration policy for Directors and other officers are included in Principle 8: “Remunerate fairly and responsibly” of the Remuneration Report (page 10) and the Corporate Governance Principles (page 17). Details of the nature and amounts of emoluments for each Director of the Company and Executive Officers are included in the Remuneration Report. Environmental Regulations The Group’s operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a state or territory. Proceedings on behalf of company No person has applied to the Court under section 237 of the Corporations Act for leave to bring proceedings on behalf of the Company or 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 any part of those proceedings. The Company was not a party to any such proceedings during the year. Share Options At the date of this report, First Graphite Limited has unlisted options holders holding options exercisable into ordinary shares in First Graphite Limited as follows: Unlisted Grant Date Date of Expiry Exercise Price Number under option Share options 31 Oct 2014 31 Oct 2017 Share option Share option 11 Jan-2016 11 Jan-2016 11 Jan 2019 11 Jan 2019 $0.092 $0.10 $0.15 12,000,000 500,000 500,000 No options were exercised, lapsed or cancelled during the year and to the date of this report. 8 First Graphite Ltd • ANNUAL REPORT 2016 At the date of this report, First Graphite Limited has listed options holders holding options exercisable into ordinary shares in First Graphite Limited as follows: Listed Grant Date Date of Expiry Exercise Price Number under option Share options (“FGROA”) 9 Jan 2013 17 Oct 2016 Share options (“FGROA”) 6 Mar 2013 17 Oct 2016 Share options (“FGROA”) 18 Dec 2013 17 Oct 2016 Share options (“FGROA”) 31 Oct 2014 17 Oct 2016 Share options (“FGROB”) 28 Apr 2014 21 May 2017 Share options (“FGROB”) 29 June 2015 21 May 2017 Share options (“FGROB”) 27 Nov 2015 21 May 2017 Share options (“FGROB”) 31 May 2016 21 May 2017 $0.20 $0.20 $0.20 $0.20 $0.10 $0.10 $0.10 $0.10 13,000,000 22,698,551 5,500,000 8,200,000 25,500,000 28,500,000 57,366,282 13,505,000 No options were exercised, lapsed or cancelled during the year and to the date of this report 259,100 options have been exercised after the financial year end. Directors’ meetings The number of meetings of Directors held during the year and the number attended by each Director was as follows: Warwick Grigor (appointed 4 December 2015) Craig McGuckin Peter Youd Chris Banasik Denis Geldard (resigned 30 June 2016) Peter Hepburn-Brown (resigned 20 November 2015) Directors Meetings Meetings Attended Entitled to Attend 3 4 4 4 4 - 3 4 4 4 4 - Indemnification and insurance of officers and auditors During or since the end of the financial year, the Company has not given an indemnity or entered into an agreement to indemnify, or paid or agreed to pay insurance premiums, against costs incurred in defending any writ, summons, application or other originating legal or arbitral proceedings, cross claim or counterclaim issued against or served upon any Director or Officer alleging any wrongful act; or any written or verbal demand alleging any wrongful act communicated to any Director or Officer under any circumstances and by whatever means. In relation to the other activities of the Company, the Company has not, during or since the financial year, in respect of any person who is or has been an officer of the Company or a related body corporate paid any premiums in regards to indemnification and insurance of Directors and Officers. No indemnity or insurance is in place in respect of the auditor. 9 ANNUAL REPORT 2016 • First Graphite Ltd DIRECTORS’ REPORT (Continued) REMUNERATION REPORT (AUDITED) This report outlines the remuneration arrangements in place for Directors of First Graphite Limited and Executives of the Group. Key Management Personnel disclosed in this report Mr Craig McGuckin Mr Peter Youd Mr Warwick Grigor Mr Chris Banasik Mr Denis Geldard Mr Peter Hepburn-Brown (resigned 20 November 2015) (appointed 4 December 2015) (resigned 30 June 2016) Remuneration Policy Emoluments of Directors and senior executives are set by reference to payments made by other companies of similar size and industry, and by reference to the skills and experience of the Directors and Executives. Details of the nature and amounts of emoluments of each Director of the Company are disclosed annually in the Company’s annual report. Directors and Senior Executives are prohibited from entering into transactions or arrangements which limit the economic risk of participating in unvested entitlements. Non-Executive Director Remuneration Remuneration The Company’s policy is to remunerate non-executive Directors at a fixed fee for time, commitment and responsibilities. for Non-Executive Directors is not linked to individual performance. Given the Company is at its early stage of development and the financial restrictions placed on it, the Company may consider it appropriate to issue unlisted options to Non- Executive Directors, subject to obtaining the relevant approvals. This Policy is subject to annual review. All of the Directors’ option holdings are fully disclosed. From time to time the Company may grant options to non- executive Directors. The grant of options is designed to recognise and reward efforts as well as to provide Non- Executive Directors with additional incentive to continue those efforts for the benefit of the Company. Non-Executive Directors are remunerated for their services from the maximum aggregate amount (currently $300,000 per annum) approved by shareholders for this purpose. They receive a base fee, which is currently set at $25,000 per annum per non-executive Director and $30,000 per annum for the non-executive Chairman. There are no termination payments to Non-Executive Directors on their retirement from office. There has been no direct relationship between the Group’s financial performance and remuneration of key management personnel over the previous 5 years. The Company’s policy for determining the nature and amounts of emoluments of Board members and Senior Executives of the Company is set out below: Executive Director Remuneration Setting Remuneration Arrangements Executive pay and reward consists of a base fee and short term performance incentives. Long term performance incentives may include options granted at the discretion of the Board and subject to obtaining the relevant approvals. The grant of options is designed to recognise and reward efforts as well as to provide additional incentive and may be subject to the successful completion of performance hurdles. Executives are offered a competitive level of base pay at market rates (for comparable companies) and are reviewed annually to ensure market competitiveness. The remuneration policy is designed to encourage superior performance and long-term commitment to FGR. At this stage of the Company’s development there is no contractual performance based remuneration. Executive Directors do not receive any fees for being Directors of FGR or for attending Board and Board Committee meetings. All Executive Directors, Non-Executive Directors and responsible executives of FGR are entitled to an Indemnity and Access Agreement under which, inter alia, they are indemnified as far as possible under the law for their actions as Directors and officers of FGR. The Company has established a separate Remuneration Committee. Members of the Remuneration Committee are Chris Banasik and Warwick Grigor. The Remuneration Committee complies with Recommendation 8.2 in that the committee consists of only non-executive directors. Executive Officer Remuneration, including Executive Directors The remuneration structure for Executive Officers, including Executive Directors, is based on a number of factors, including length of service, the particular experience of the individual concerned, and the overall performance of the Company. The contracts for service between the Company and specified Directors and Executives are on a continuing basis, the terms of which are not expected to change in the immediate future. Upon retirement Executive Directors and Executives are paid employee benefit entitlements accrued to the date of retirement. As an incentive, the Company has adopted an employee share option plan. The purpose of the plan is to give employees, directors and officers of the Company an opportunity, in the form of options, to subscribe for shares. The Directors consider the plan will enable the Company to retain and attract skilled and experienced employees, board members and officers, and provide them with the motivation to make the Company more successful. 10 First Graphite Ltd • ANNUAL REPORT 2016 DIRECTORS’ REPORT (Continued) % 0 0 0 0 - - d e t a l e r f o e u l a V s i h c i h w e c n a m r o f r e p n o i t a r e n u m e r $ A l a t o T 7 6 6 0 5 7 , , 5 7 0 8 8 4 5 3 3 7 3 4 , 7 1 3 , 8 9 0 0 0 5 2 , 3 3 3 , 8 , 7 2 7 7 0 8 1 , - - - - - - - - $ A - t s o P t n e m y o l p m e d e s a B e r a h S s t fi e n e b s t n e m y a P $ A e r a h S s n o i t p o 7 8 5 , 6 2 1 7 8 5 , 6 2 1 s ’ r o t c e r i D r e h t O e l c i h e V l e v a r T e s a B s t fi e n e b r e h t o & s e v i t n e c n i m r e t t r o h S $ A s e e f - - 0 5 7 3 4 , 0 0 6 , 6 2 0 0 0 5 1 , 0 0 0 2 1 , 0 3 3 5 6 , 8 8 8 , 2 4 0 0 0 0 0 5 , 0 0 0 0 8 2 , $ A $ A $ A $ A s e c n a w o l l a e c n a w o l l a e c n a w o l l a e e f g n i t l u s n o c 7 8 5 , 6 2 1 0 0 5 7 , ) i i i ( 8 4 2 9 7 2 , - - 7 1 3 5 2 , , 8 7 0 5 0 4 0 0 0 5 2 , 0 0 0 5 2 , 3 3 3 , 8 3 3 8 5 6 , - - - - - - - - - - 0 0 0 4 2 , 0 0 0 8 4 , s r o t c e r i D e v i t u c e x E 6 1 0 2 e n u J 0 3 ) i ( n i k c u G c M g i a r C ) i ( d u o Y r e t e P s r o t c e r i D e v i t u c e x e - n o N ) v ( n w o r B - n r u b p e H r e t e P ) i i ( r o g i r G k c i w r a W ) v i ( d r a d e G l s i n e D k i s a n a B s i r h C . t n e m e e r g a t n a t l u s n o c e v i t c e p s e r r i e h t h t i w e c n a d r o c c a n i d e t a s n e p m o c e r a r e v e w o h s e e f s ’ r o t c e r i d e v i e c e r t o n o d d u o Y r e t e P r M d n a n i k c u G c M g i a r C r M ) i ( 6 1 0 2 y a M d n a 5 1 0 2 r e b m e c e D n i s g n i s i a r y t i u q e r o f d e t i m i L l a t i p a C t s a E r a F o t d i a p s e e f t n e m e c a l P ) i i i ( 5 1 0 2 r e b m e c e D 4 d e t n i o p p A ) i i ( 5 1 0 2 r e b m e v o N 0 2 d e n g i s e R ) v ( 6 1 0 2 e n u J 0 3 d e n g i s e R ) v i ( 11 8 9 5 9 4 3 , 0 0 0 7 2 , 8 1 2 , 8 0 1 0 0 0 2 5 8 , l a t o T : s w o l l o f s a s a w r a e y e h t g n i r u d p u o r G e h t f o s e v i t u c e x e t n e m e g a n a m y e k d n a r o t c e r i d h c a e r o f n o i t a r e n u m e r e h T 6 1 0 2 e n u J 0 3 d e d n e r a e y e h t r o f n o i t a r e n u m e r f o s l i a t e D ANNUAL REPORT 2016 • First Graphite Ltd DIRECTORS’ REPORT (Continued) % 0 0 0 0 0 0 0 d e t a l e r f o e u l a V n o i t a r e n u m e r s i h c i h w e c n a m r o f r e p $ A l a t o T , 7 1 6 5 4 8 5 3 6 7 1 8 , 6 2 2 3 4 1 , 3 8 0 1 1 , 0 1 8 7 8 , 7 1 8 , 6 1 0 5 2 , 6 , 8 3 4 8 2 9 1 , - t s o P t n e m y o l p m e e r a h S d e s a B s t fi e n e b s t n e m y a P s t fi e n e b r e h t o & s e v i t n e c n i m r e t t r o h S e r a h S s n o i t p o n o i t a r e n u m e r s e e f ) v ( s u n o B s e c n a w o l l a e c n a w o l l a e c n a w o l l a e e f d e r r e f e d y l s u o i v e r P s ’ r o t c e r i D r o t a c i d n I r e h t O e l c i h e V l e v a r T g n i t l u s n o c y e K e c n a m r o f r e P e s a B $ A $ A $ A $ A S A $ A $ A $ A $ A 5 1 0 2 e n u J 0 3 - - - - - - - - - 0 5 0 4 1 3 , - 0 5 0 4 1 3 , 0 0 0 0 5 , - - 0 0 0 5 2 1 , 0 0 0 5 2 1 , 0 0 5 7 1 , 3 8 3 , 4 2 0 0 0 0 1 , 4 8 0 9 7 , 3 8 9 9 9 2 , ) i ( n i k c u G c M g i a r C 0 0 0 2 1 , 6 3 5 5 3 , 6 6 6 , 6 5 2 ) i ( d u o Y r e t e P s r o t c e r i D e v i t u c e x E - - - 0 1 8 , 2 6 - - - - 0 1 8 , 2 6 6 1 4 0 1 , 0 0 0 5 2 , 3 8 0 2 , 0 0 0 5 2 , 7 1 4 0 1 , 0 5 2 , 6 - - - - - - - - - - - - - - - - - - - 0 0 0 5 4 , 0 0 0 9 , - - 0 0 4 6 , 0 2 7 3 5 7 , 6 1 4 0 6 , 0 5 7 8 6 , 0 0 0 0 5 2 , 3 8 8 1 4 , 0 0 0 2 2 , 0 2 6 4 1 1 , 9 4 0 7 1 6 , s r o t c e r i D e v i t u c e x e - n o N n w o r B - n r u b p e H r e t e P ) i i ( k i s a n a B s i r h C d r a d e G l s i n e D ) i i i ( g n o h C l e o J ) v i ( y l l i e R r e t e P l a t o T . t n e m e e r g a t n a t l u s n o c e v i t c e p s e r r i e h t h t i w e c n a d r o c c a n i d e t a s n e p m o c e r a r e v e w o h s e e f s ’ r o t c e r i d e v i e c e r t o n o d d u o Y r e t e P r M d n a n i k c u G c M g i a r C r M ) i ( . s u n o B r o t a c i d n I e c n a m r o f r e P y e K e h t o t m e h t e l t i t n e h c i h w e e t t i m m o C n o i t a r e n u m e R e h t y b d e h s i l b a t s e a i r e t i r c e h t d e d e e c x e e v a h d u o Y d n a n i k c u G c M s r s s e M ) v ( . s t n e m e l t i t n e r i e h t d i a p n e e b r o n d e l l i b r e h t i e n e v a h d u o Y d n a n i k c u G c M s r s s e M r a e y r a d n e l a c 4 1 0 2 e h t f o d n e e h t t a s a s e s u n o b e h t o t d e l t i t n e e l i h W 5 1 0 2 y a M 0 2 d e n g i s e R 4 1 0 2 r e b m e t p e S 0 3 d e t n i o p p A ) i i i ( 4 1 0 2 r e b m e t p e S 0 3 d e n g i s e R ) v i ( 5 1 0 2 y a M 0 2 d e t n i o p p A ) i i ( 12 First Graphite Ltd • ANNUAL REPORT 2016 DIRECTORS’ REPORT (Continued) Relationship between Remuneration and Company Performance There is not a connection between the profitability of the Company and remuneration as the Company is not generating revenues. Name Craig McGuckin Peter Youd Warwick Grigor Chris Banasik Denis Geldard Peter Hepburn-Brown Service Agreements % Fixed remuneration % Short Term Incentive % Long Term Incentive 83.14 74.06 71.05 74.25 100.00 100.00 - - - - - - 16.86 25.94 28.95 25.75 - - Remuneration and other terms of employment for the executives are formalised in service agreements. These agreements specify the components of remuneration benefits and notice periods. The material terms of service agreements with the Executive Directors are noted as follows: Name Term of agreement and notice period Base fee Termination payment(3) Mr Craig McGuckin No fixed term; 12 months(1) Mr Peter Youd No fixed term; 12 months(1) (2)$447,000 (2)$318,600 None None (1) The twelve-month notice period applies only to the Company. The executive is required to give three months’ notice. (2) Base fee quoted are for the period ended 30 June 2016 includes vehicle allowance and an additional allowance equal to 9.5% of the base fee. A travel allowance based on the number of days spent away from Australia is also payable. They are reviewed annually by the Board (3) Notice period of termination benefit in lieu of notice (on behalf of the Company), other than for gross misconduct. There are no other service agreements in place. Shares-based compensation Shares issued as part of remuneration for the year ended 30 June 2016 No shares were issued to directors and other key management personnel as part of compensation during the year. Options issued as part of remuneration for the year ended 30 June 2016 The Black Scholes Model - Simple European Call Option method was used as the basis for valuation of the options granted. The terms and conditions of each grant of options over ordinary shares affecting remuneration of directors and other key management personnel in this financial year or future reporting years are as follows: Vesting date and exercisable date Date of Expiry Exercise price Fair value per option at grant date Fair value of options granted % Vested Grant Date 9 Jan 2013 9 Jan 2013 17 Oct 16 28 April 2014 28 April 2014 21 May 2017 $0.20 $0.10 $0.128 $1,344,000 $0.033 $430,333 31 Oct 2014 31 Oct 2014 31 Oct 2017 $0.092 $0.0628 $753,720 27 Nov 2015 21 May 2017 21 May 2017 $0.10 $0.0253 $405,079 Options granted carry no dividend or voting rights. 100 100 100 100 13 ANNUAL REPORT 2016 • First Graphite Ltd DIRECTORS’ REPORT (Continued) The number of options over ordinary shares granted to and vested by directors and other key management personnel as part of compensation during the year ended 30 June 2016 are set out below: Directors Number of options granted during the year Number of options vested during the year Value of options granted Value of options exercised Value of options lapsed or forfeited Craig McGuckin 5,000,000 5,000,000 Peter Youd(i) 5,000,000 5,000,000 Warwick Grigor 5,000,000 5,000,000 Chris Banasik 1,000,000 1,000,000 Total 16,000,000 16,000,000 126,587 126,587 126,587 25,317 405,078 (i) Options granted to Mr Youd include 1 million which were allotted to his nominees $ - - - - - $ - - - - - These share options do not have service or performance vesting criteria as they have been granted to directors for their commitment and contributions to the Group to date. Options and rights holdings held by key management personnel Directors Balance 01.07.15 Granted Exercised Other Balance 30.06.16 Total vested 30.06.16 Vested & exercisable 30.06.16 Vested & un-exercisable 30.06.16 C McGuckin 16,270,109 5,000,000 P Youd(i) 16,770,109 3,000,000 W Grigor(i) C Banasik - - 5,000,000 1,000,000 D Geldard(ii) 2,500,000 P Hepburn- Brown(iii) 2,000,000 - - - - - - - - 272,728 21,542,837 21,542,837 21,542,837 (36,363) 19,733,746 19,733,746 19,733,746 10,295,000 15,295,000 15,295,000 15,295,000 636,364 1,636,364 1,636,364 1,636,364 (2,500,000) (2,000,000) - - - - - - - - - - - - (i) Adjusted for options no longer held in a trustee capacity as these securities are now held by the beneficiaries directly. Granted Acquired Other Balance 30.06.16 7,631,240 6,511,521 545,454 416,727 - - 13,105,946 13,105,946 272,727 - 772,727 - (2,516,800) 90,909 (292,509) - - - - - - - - (ii) Appointed 4 December 2015 (iii) Resigned 30 June 2016 (iv) Resigned 20 November 2015 Directors C McGuckin P Youd W Grigor(i) Chris Banasik D Geldard(ii) P Hepburn-Brown(ii) (i) Appointed 4 December 2015 (ii) Resigned 30 June 2016 Balance 01.07.15 7,085,786 6,094,794 - 500,000 2,516,800 201,600 14 First Graphite Ltd • ANNUAL REPORT 2016 DIRECTORS’ REPORT (Continued) (iii) Resigned 20 November 2015 Transactions with other related parties During the reporting period, there were no other payments to related parties. There were no loans or other transactions with key management personnel. No remuneration consultants were utilised as at this point in the Company’s development as this would be a waste of shareholders’ valuable funds. Voting Rights At the 2015 Annual General Meeting held on 27 November 2015 there were 0.81% of the votes against the adoption of the remuneration report. End of audited Remuneration Report 15 ANNUAL REPORT 2016 • First Graphite Ltd AUDITORS INDEPENDENCE AUDITOR’S DECLARATION INDEPENDENCE Auditor’s independence The Directors received the independence declaration from the auditor of MRL Corporation Limited as stated on page 21. The Directors received the independence declaration from the auditor of First Graphite Limited as stated on page 18. Non-audit services Non-audit services During the period BDO Corporate Tax (WA) Pty Ltd was paid $29,977 for the provision of taxation services (2014: $22,695). BDO Corporate Tax (WA) Pty Ltd is an affiliate member of BDO Audit (WA) Pty Ltd. Refer to Note 24 for further details During the period BDO Corporate Tax (WA) Pty Ltd was paid $17,315 for the provision of taxation services (2015: $29,977). BDO Corporate Tax (WA) Pty Ltd is an affiliate member of BDO Audit (WA) Pty Ltd. Refer to Note 22 for further details Signed in accordance with a Resolution of the Directors. Signed in accordance with a Resolution of the Directors. Craig McGuckin Craig McGuckin Managing Director Managing Director Dated at Perth this 30th day of September 2015 Dated at Perth this 28th day of September 2016 Corporate Governance Statement The Company’s full Corporate Governance Statement is available on the Company’s website, www.mrltd.com.au/corporate/corporate-governance.html. A completed Appendix 4G and the full Corporate Governance Statement have been lodged with the Australian Securities Exchange as required under Listing Rules 4.7.3 and 4.7.4. CORPORATE GOVERNANCE STATEMENT The Company’s full Corporate Governance Statement is available on the Company’s website, www.firstgraphite.com.au/corporate/corporate-governance.html A completed Appendix 4G and the full Corporate Governance Statement have been lodged with the Australian Securities Exchange as required under Listing Rules 4.7.3 and 4.7.4. 20 MRL CORPORATION LIMITED ANNUAL REPORT 2015 16 First Graphite Ltd • ANNUAL REPORT 2016 AUDITOR’S INDEPENDENCE DECLARATION Tel: +61 8 6382 4600 Fax: +61 8 6382 4601 www.bdo.com.au 38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia DECLARATION OF INDEPENDENCE BY PHILLIP MURDOCH TO THE DIRECTORS OF FIRST GRAPHITE LIMITED As lead auditor of First Graphite Limited for the year ended 30 June 2016, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of First Graphite Limited and the entities it controlled during the period. Phillip Murdoch Director BDO Audit (WA) Pty Ltd Perth, 28 September 2016 BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. 17 ANNUAL REPORT 2016 • First Graphite Ltd CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the year ended 30 June 2016 Continuing operations Other revenue Revenue Administration expense Insurance Legal fees Employee benefits expense Occupancy costs Communication costs Project assessment expense Development costs Depreciation and amortisation Options expense Share based payments expense Operating loss Finance income Finance expense Loss from continuing operations before tax Note 5(a) 2016 A$ - - 2015 A$ - - 5(b) (970,969) (1,026,827) 5(c) 5(e) 5(d) 5(f) (81,070) (49,167) (37,638) (58,781) (50,326) (15,084) (221,639) (180,197) (60,577) (51,404) (51,933) (1,433,175) (2,708,769) - (77,711) (14,998) (431,896) (753,720) - (16,500) (4,691,369) (3,601,012) 16,321 (2,176) 198,065 - (4,677,224) (3,402,947) Income tax (expense)/benefit 6 - - Loss after income tax attributable to the owners of First Graphite Limited (4,677,224) (3,402,947) Other comprehensive income Items which may be reclassified to profit and loss Exchange differences arising on translation of foreign operations Other comprehensive income for the year Total comprehensive loss for the year attributable to the owners of First Graphite Limited (250,606) (250,606) 202,475 202,475 (4,927,830) (3,200,472) Loss per share for the year attributable to the owners of First Graphite Limited Basic (loss) per share (cents per share) Diluted (loss) per share (cents per share) 7 7 (1.86) (1.86) (2.03) (2.03) The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes 18 First Graphite Ltd • ANNUAL REPORT 2016 CONSOLIDATED STATEMENT OF FINANCIAL POSITION At 30 June 2016 Assets Current assets Cash and cash equivalents Trade and other receivables Other current assets Total current assets Non-current assets Exploration and evaluation assets Property, plant and equipment Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Lease liabilities Total current liabilities Non-current liabilities Lease liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity Note 2016 A$ 2015 A$ 9 3,101,282 1,055,093 20,471 71,962 36,172 32,339 3,193,715 1,123,604 11 12 1,848,446 1,910,640 421,890 61,556 2,270,337 1,972,196 5,464,052 3,095,800 13 667,730 484,782 23,073 - 690,803 484,782 73,904 73,904 - - 764,706 484,782 4,699,345 2,611,018 14 67,328,257 60,743,995 3,344,348 3,163,058 (65,973,260) (61,296,035) 4,699,345 2,611,018 The above consolidated statement of financial position should be read in conjunction with the accompanying notes 19 ANNUAL REPORT 2016 • First Graphite Ltd CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2016 Transactions with owners in their capacity as owners Consolidated Group As at 1 July 2015 Loss for the year Foreign currency translation Total comprehensive loss for the year Share placement during the year Share issue costs Issue of options 30 June 2016 As at 1 July 2014 Loss for the year Foreign currency translation Total comprehensive loss for the year Issued capital Share based payments reserve Translation reserve Accumulated losses Total 60,743,995 2,848,053 315,005 (61,296,035) 2,611,018 - (4,677,224) (4,677,224) (250,606) - (250,606) (250,606) (4,677,224) (4,927,830) - - - - - - 7,009,691 (425,429) 431,896 7,009,691 (425,429) - 431,896 67,328,257 3,279,949 64,399 (65,973,259) 4,699,346 58,281,263 2,094,333 112,530 (57,893,088) 2,595,038 - - - - - - Transactions with owners in their capacity as owners Share placement during the year Share issue costs Issue of options 30 June 2015 2,647,500 (184,768) - 753,720 60,743,995 2,848,053 315,005 (61,296,035) 2,611,018 - (3,402,947) (3,402,947) 202,475 - 202,475 202,475 (3,402,947) (3,200,472) - - - - - - 2,647,500 (184,768) 753,720 - - - - - - - - - - The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes 20 First Graphite Ltd • ANNUAL REPORT 2016 CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 30 June 2016 Cash flows from operating activities Payments to suppliers and employees Interest received Interest paid Note 2016 A$ 2015 A$ (4,200,932) (2,338,196) 12,963 (2,176) 18,663 - Net cash outflows from operating activities 17 (4,190,145) (2,319,533) Cash flows from investing activities Payments for property, plant and equipment (347,982) (45,175) Net cash outflows from investing activities (347,982) (45,175) Cash flow from financing activities Proceeds from rights issue/placement of shares Payment of share issue/capital raising costs) Finance lease payments Net cash inflows from financing activities 7,009,691 2,148,000 (425,429) (141,768) (3,305) - 6,580,957 2,006,232 Net increase/(decrease) in cash and cash equivalents 2,042,830 (358,476) Cash and cash equivalents at beginning of the year Effect of exchange rate fluctuations on cash held 1,055,093 1,230,499 3,359 183,070 Cash and cash equivalents at end of the year 9 3,101,282 1,055,093 The above consolidated statement of cash flows should be read in conjunction with the accompanying note 21 ANNUAL REPORT 2016 • First Graphite Ltd NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PREPARATION The Group is a for-profit entity for the purpose of preparing the financial statements. The financial report has been prepared on an accruals basis and is based on historical costs modified by the revaluation of selected non-current assets, financial assets and financial liabilities for which fair value basis of accounting has been applied. These consolidated financial statements are presented in Australian Dollars (A$), which is the Company’s functional currency. The accounting policies detailed below have been consistently applied to all of the period presented unless otherwise stated. a) Authorisation of financial statements and statement of compliance with IFRS The financial report is a general purpose financial report prepared in accordance with Australian Accounting Standards, including Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. The financial report covers the consolidated group of First Graphite Limited and controlled entities (Group). First Graphite Limited (FGR) is a listed public Company, incorporated and domiciled in Australia. The financial report of the Group complies with all International Financial Reporting Standards (IFRS) in their entirety. The following is a summary of the material accounting policies adopted by the Group in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated. b) Going Concern For the year ended 30 June 2016 the entity recorded a loss of $4,927,830 and had net cash outflows from operating activities of $4,190,145. The ability of the entity to continue as a going concern is dependent on securing additional funding through the sale of equity securities to either existing or new shareholders to continue to fund its operational and marketing activities. These conditions indicate a material uncertainty that may cast a significant doubt about the entity’s ability to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business. Management believe there are sufficient funds to meet the entity’s working capital requirements and as at the date of this report. Subsequent to year end the entity expects to receive additional funds via the sale of equity securities to either existing or new shareholders The financial statements have been prepared on the basis that the entity is a going concern, which contemplates the continuity of normal business activity, realisation of assets and settlement of liabilities in the normal course of business for the following reasons: y In the event of further funds not being raised the entity’s activities would be wound back to a sustainable level. Should the entity not be able to continue as a going concern, it may be required to realise its assets and discharge its liabilities other than in the ordinary course of business, and at amounts that differ from those stated in the financial statements and that the financial report does not include any adjustments relating to the recoverability and classification of recorded asset amounts or liabilities that might be necessary should the entity not continue as a going concern. 2. ACCOUNTING POLICIES a) Principles of consolidation Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has to, variable returns from its investment with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date when control ceases. The acquisition method of account is used to account for business combinations by the Group. Intercompany transactions, balance and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of profit or loss and other comprehensive income, statement of changes in equity and statement of financial position respectively. 22 First Graphite Ltd • ANNUAL REPORT 2016 b) Foreign currency translation The financial report is presented in Australian dollars, which functional and presentation currency. is First Graphite Limited’s translated Foreign currency transactions into transactions are Foreign currency Australian dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Foreign operations The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars using the average exchange rates, which approximate the rate at the date of the transaction, for the period. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity. The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of. c) Taxes Income taxes The charge for current income tax expense is based on the profit for the period adjusted for any non- assessable or disallowed items. It is calculated using tax rates which have been enacted or are substantively enacted by the reporting date. Deferred tax is accounted for using the liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax is calculated at the tax rates which are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the statement of profit or loss except where it relates to items which may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred income tax assets are recognised to the extent it is probable future tax profits will be available against which deductible temporary differences can be utilised. Deferred tax is not recognised for taxable temporary differences arising on the recognition of indefinite life intangibles including goodwill and trademarks. The amount of benefits brought to account or which may be realised in the future is based on the assumption no adverse change will occur in income taxation legislation and the anticipation the economic entity will derive sufficient income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. future assessable FGR formed an income tax Group under the Tax Consolidation Regime effective 1 July 2003, and its wholly-owned Australian subsidiaries were members of the tax consolidated group. Under Australian Accounting Interpretation 1052, each entity in the Group recognises its own current and deferred tax amounts, except for any deferred tax assets resulting from unused tax losses and tax credits assumed by the head entity. A new subsidiary, MRL Corporation Pty Ltd was incorporated in December 2011 and joined as a member of the existing tax consolidated Goods and services tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST. d) Financial Instruments Recognition Financial instruments are initially measured at fair value on trade date, which includes transaction costs for financial assets and liabilities not at fair value through the profit and loss, when the related contractual rights or obligations exist. Subsequent to initial recognition these instruments are measured as set out below. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments which are not quoted in an active market and are stated at amortised cost using the effective interest rate method. Financial liabilities Non-derivative financial liabilities are recognised at amortised cost, comprising original debt less principal payments and amortisation. 23 ANNUAL REPORT 2016 • First Graphite Ltd NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Fair value Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models. Impairment At each reporting date, the Group assesses whether there is objective evidence a financial instrument has been impaired. In the case of available-for-sale financial instruments, a significant prolonged decline in the value of the instrument is considered to determine whether impairment has arisen. Impairment losses are recognised in the profit and loss in Statement of profit or loss. e) Exploration and evaluation assets Only acquisition-related expenditure has been capitalised. The Company will expense exploration and evaluation expenditure as incurred in respect of each identifiable area of interest until such a time where a JORC 2012 compliant resource is announced in relation to the identifiable area of interest. Exploration and evaluation assets are only recognised if the rights of the area of interest are current and either: i) The expenditures are expected to be recouped through successful development and exploitation or from sale of the area of interest; or ii) Activities in the area of interest have not at the reporting date, reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in, or in relation to, the areas of interest are continuing. 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 the carrying amount exceeds the recoverable amount. For the purpose of impairment testing, exploration and evaluation assets are allocated to cash-generating units to which the exploration activity relates. The cash generating unit shall not be larger than the area of interest. Once the technical feasibility and commercial viability of the extraction of mineral resources in an area of interest are demonstrable, exploration and evaluation assets attributable to this area of interest are first tested for impairment and then reclassified to mining property and development assets within property, plant and equipment. When an area of interest is abandoned or the directors decide it is not commercial, and accumulated costs in respect of the area are written off in the financial period the decision is made. f) Impairment of assets At each reporting date, the Group reviews the carrying values of its tangible and intangible assets to determine whether there is any indication those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the profit and loss in Statement of profit or loss. Impairment testing is performed annually for goodwill and other intangible assets. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. g) Property, plant and equipment Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure which is directly attributable to the acquisition of the items. Depreciation is calculated on a straight-line basis to write off the net cost of each item of property, plant and equipment (excluding land) over their expected useful lives as follows: y Plant and equipment 3-7 years The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. Leasehold improvements and plant and equipment under lease are depreciated over the unexpired period of the lease or the estimated useful life of the assets, whichever is shorter. An item of property, 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 the profit and loss. Any revaluation surplus reserve relating to the item disposed of is transferred directly to retained profits. h) Contributed equity Ordinary shares are classified as contributed equity. Incremental costs directly attributable to the issue of new shares or options are shown as a deduction, net of tax, from the proceeds. i) Trade and other payables Trade and other payables represent the liabilities for goods and services received by the entity which remain unpaid at the end of the reporting period. The balance is recognised as a current liability with the amounts normally paid within 30 days of recognition of the liability. 24 First Graphite Ltd • ANNUAL REPORT 2016 j) Employee benefits Provision is made for the company’s liability for employee benefits arising from services rendered by employees to reporting date. Employee benefits which are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits. k) Provisions Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable an outflow of economic benefits will results and this outflow can be reliably measured. l) Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within short-borrowings in current liabilities on the statement of financial position. Cash flows are presented in the statement of cash flows on a gross basis, except for customer account transactions and the GST component of investing and financing activities, which are disclosed as operating cash flows. m) Revenue recognition Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. Dividend revenue is recognised when the right to receive a dividend has been established. Dividends received from associates and joint venture entities are accounted for in accordance with the equity method of accounting. All revenue is stated net of the amount of goods and services tax (GST). n) Finance costs Finance costs directly attributable to the acquisition, construction or production of assets which necessarily take a substantial period of time to prepare for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other finance costs are recognised in income in the period in which they are incurred. o) Comparative figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. p) Critical Accounting Estimates and Judgements The preparation of financial statements in conformity with AIFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The area that may have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period is: Key Estimates – Impairment The Group assesses impairment at each reporting date by evaluating conditions specific to the Company which may lead to impairment of exploration and evaluation assets, and plant and equipment. Where an impairment trigger exists under the relevant standard the recoverable amount of the asset is determined. The recoverable amount of the asset is the higher of its value in use and its fair value less cost to sell. Value-in-use calculations performed recoverable amounts incorporate a number of key estimates and fair value less cost to sell is determined using market rates. in assessing the Exploration and evaluation expenditure The Board of Directors determines when an area of interest should be abandoned. When a decision is made that an area of interest is not commercially viable, all costs that have been capitalised in respect of that area of interest are written off. The Directors’ decision is made after considering the likelihood of finding commercially viable reserves. Share-based payment transactions The Group measures the cost of equity-settled transactions with employees and consultants by reference to the fair value of the equity instruments at the date at which they are granted. The fair value of options is determined using a Black-Scholes model, using the assumptions detailed in Note 15. 25 ANNUAL REPORT 2016 • First Graphite Ltd NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) q) Share-based payments transactions Equity-settled and cash-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares, which 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. Fair value is independently determined using either the Binomial or Black-Scholes option pricing model which takes into account the exercise price, the term of the option, the impact of dilution, 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 which do not determine whether the consolidated entity receives the services which 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 which 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: y During the vesting period, the liability at each reporting date is the fair value of the award at this date multiplied by the expired portion of the vesting period; y 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. into consideration Market conditions are in taken determining fair value. Therefore, any awards subject to market conditions are considered to vest irrespective of whether or not the 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 which 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. Where equity instruments are granted to persons other than directors or employees the consolidated Statement of Profit or Loss and Other Comprehensive Income is charged with the fair value of any goods or services received. r) Earnings per share Basic EPS is calculated as net profit attributable to members, adjusted to exclude costs of servicing equity (other than dividends) divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted EPS is calculated as net profit attributable to members, adjusted for: y y y costs of servicing equity (other than dividends) and preference share dividends; the after tax effect of dividends and interest associated with dilutive potential ordinary shares which have been recognised as expenses; and other non-discretionary changes in revenues or expenses during the period which would result from the dilution of potential ordinary shares; 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. divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. 26 First Graphite Ltd • ANNUAL REPORT 2016 s) New standards and interpretations not yet adopted The following new/amended accounting standards and interpretations have been issued, but are not mandatory for financial years ended 30 June 2016. They have not been adopted in preparing the financial statements for the year ended 30 June 2016 and are expected to impact the entity in the period of initial application. In all cases the entity intends to apply these standards from application date as indicated in the table below. Application Date Annual reporting periods beginning on or after 1 January 2018 Impact on Initial Application Adoption of AASB 9 is only mandatory for the year ending 30 June 2019. The entity has not yet made an assessment of the impact of these amendments. Title and Affected Standard(s) Financial Instrument AASB reference AASB 9 (issued December 2014) Nature of Change Classification and measurement AASB 9 amendments the classification and measurement of financial assets: y y Financial assets will either be measured at amortised cost, fair value through other comprehensive income (FVTOCI) or fair value through profit or loss (FVTPL). Financial assets are measured at amortised cost or FVTOCI if certain restrictive conditions are met. All other financial assets are measured at FVTPL. y All investments in equity instruments will be measured at fair value. For those investments in equity instruments that are not held for trading, there is an irrevocable election to present gains and losses in OCI. Dividends will be recognised in profit or loss. The following requirements have generally been carried forward unchanged from AASB 139 Financial Instruments: Recognition and Measurement into AASB 9: y Classification and measurement of financial liabilities, and y Derecognition requirements for financial assets and liabilities. However, AASB 9 requires that gains or losses on financial liabilities measured at fair value are recognised in profit or loss, except that the effects of changes in the liability’s credit risk are recognised in other comprehensive income. Impairment The new impairment model in AASB 9 is now based on an ‘expected loss’ model rather than an ‘incurred loss’ model. A complex three stage model applies to debt instruments at amortised cost or at fair value through other comprehensive income for recognising impairment losses. 27 ANNUAL REPORT 2016 • First Graphite Ltd NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) AASB reference Title and Affected Standard(s) Nature of Change Application Date Impact on Initial Application A simplified impairment model applies to trade receivables and lease receivables with maturities that are less than 12 months. For trade receivables and lease receivables with maturity longer than 12 months, entities have a choice of applying the complex three stage model or the simplified model. Hedge accounting Under the new hedge accounting requirements: y y The 80-125% highly effective threshold has been removed Risk components of non-financial items can qualify for hedge accounting provided that the risk component is separately identifiable and reliably measurable y An aggregated position (i.e. combination of a derivative and a non-derivative) can qualify for hedge accounting provided that it is managed as one risk exposure When entities designate the intrinsic value of options, the initial time value is deferred in OCI and subsequent changes in time value are recognised in OCI. y When entities designate only the spot element of a forward contract, the forward points can be deferred in OCI and subsequent changes in forward points are recognised in OCI. Initial foreign currency basis spread can also be deferred in OCI with subsequent changes be recognised in OCI y Net foreign exchange cash flow positions can qualify for hedge accounting. An entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This means that revenue will be recognised when control of goods or services is transferred, rather than on transfer of risks and rewards as is currently the case under IAS 18 Revenue. AASB 15 (issued December 2014) Revenue from Contracts with Customers 28 Due to the recent release of this standard, the entity has not yet made a detailed assessment of the impact of this standard. Annual reporting periods beginning on or after 1 January 2018 First Graphite Ltd • ANNUAL REPORT 2016 Title and Affected Standard(s) Leases AASB reference AASB 16 (issued February 2016) Application Date Annual reporting periods beginning on or after 1 January 2019. Nature of Change AASB 16 eliminates the operating and finance lease classifications for lessees currently accounted for under AASB 117 Leases. It instead requires an entity to bring most leases onto its balance sheet in a similar way to how existing finance leases are treated under AASB 117. An entity will be required to recognise a lease liability and a right of use asset in its balance sheet for most leases. There are some optional exemptions for leases with a period of 12 months or less and for low value leases. Lessor accounting remains largely unchanged from AASB 117. Impact on Initial Application To the extent that the entity, as lessee, has significant operating leases outstanding at the date of initial application, 1 July 2019, right-of-use assets will be recognised for the amount of the unamortised portion of the useful life, and lease liabilities will be recognised at the present value of the outstanding lease payments. Thereafter, earnings before interest, depreciation, amortisation and tax (EBITDA) will increase because operating lease expenses currently included in EBITDA will be recognised instead as amortisation of the right-of- use asset, and interest expense on the lease liability. However, there will be an overall reduction in net profit before tax in the early years of a lease because the amortisation and interest charges will exceed the current straight- line expense incurred under AASB 117 Leases. This trend will reverse in the later years. There will be no change to the accounting treatment for short-term leases less than 12 months and leases of low value items, which will continue to be expensed on a straight-line basis. 29 ANNUAL REPORT 2016 • First Graphite Ltd NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 3. FINANCIAL RISK MANAGEMENT (a) Financial risk management The Group’s activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk (currency risk and interest rate risk). The Group’s principal financial liabilities comprise trade and other payables. The main purpose of these financial liabilities is to raise finance for the Group’s operations. The Group has various financial assets such as trade and other receivables, deposits with banks, local money market instruments and short-term investments. The accounting policy with respect to these financial instruments is described in note 2. Financial risk management structure: Board of Directors The Board is ultimately responsible for ensuring there are adequate policies in relation to risk oversight and management and internal control systems. The Group’s policies are designed to ensure financial risks are identified, assessed, addressed and monitored to enable achievement of the Group’s business objectives. (b) Financial risks Credit risk Credit risk refers to the risk a counterparty will default on its contractual obligation resulting in financial loss to the Group. Credit risk is managed on a group basis and structures the levels of credit risk it accepts by placing limits on its exposure to a single counterparty or group of counterparties. The Group has no significant concentrations of credit risk. It is the Group’s policy to place funds generated internally and from deposits with clients with high quality fi institutions. The Group does not employ a formalised internal ratings system for the assessment of credit exposures. Amounts due from and to clients and dealers represents receivables sold and payables for securities purchased which have been contracted for but not yet settled on the reporting date, respectively. The majority of these transactions are carried out on a delivery versus payment basis, which results in securities and cash being exchanged within a very close timeframe. Settlement balances outside standard terms are monitored on a daily basis. Exposure to credit risk The maximum exposure to credit risk, excluding the value of any collateral or other security, at the reporting date to recognised financial assets, is the carrying amount, net of any provision for impairment of those assets, as disclosed in the statement of financial position and the notes to the financial statements. The Group does not have any material credit risk exposure to any single receivable or group of receivables under financial instruments entered into by the Group. The Group’s maximum exposure to credit risk without taking account of any collateral or other credit enhancements at the reporting date was $1,055,093 (2015: $1,230,499). The Company banks with Westpac Banking Corporation (Westpac). Westpac is rated AA- and Stable by Standard and Poor’s rating agency. Cash and cash equivalents Group 2016 2015 3,101,282 1,055,093 3,101,282 1,055,093 30 First Graphite Ltd • ANNUAL REPORT 2016 Impairment and provisioning policies Impairment provisions are recognised for financial reporting purposes only for losses which have been incurred at the reporting date, based on objective evidence of impairment. All credit exposures are reviewed at least annually. Impairment allowances on credit exposures are determined by an evaluation of the incurred loss at the reporting date. For the purposes of the Group’s disclosures regarding credit quality, its financial assets have been analysed as follows: Neither Past Due nor individually impaired Past due but not individually impaired Individually impaired Consolidated 30 June 2016 $ Cash and cash equivalents 3,101,282 3,101,282 Consolidated 30 June 2015 $ Cash and cash equivalents 1,055,093 1,055,093 $ - $ - - $ - $ - - Total $ 3,101,282 3,101,282 $ 1,055,093 1,055,093 Impairment allowance $ - $ - - Total carrying amount $ 3,101,282 3,101,282 $ 1,055,093 1,055,093 Financial assets past due but not individually impaired For the purpose of this analysis an asset is considered past due when any payment due under the contractual terms is received one day past the contractual due date. The majority of these transactions are carried out on a delivery versus payment basis, which results in securities and cash being exchanged within a very close timeframe. Settlement balances outside standard terms are monitored on a daily basis. Credit risk is also mitigated as securities held for the counterparty by the Group can ultimately be sold should the counterparty default. There were no renegotiated financial assets during the year. Collateral pledged or held There is no collateral held as security by the Group or its controlled entities. Liquidity risk Liquidity risk is the risk the Group will not be able to meet its financial obligations as they fall due. The Group manages liquidity risk by monitoring forecast cash requirements and cash flows. The primary objective of the Group is to manage short-term liquidity requirements in such a way as to minimise financial risk. The Group maintains sufficient cash resources to meet its obligations, cash deposits are repayable on demand. 31 ANNUAL REPORT 2016 • First Graphite Ltd NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) The tables below present the cash flows receivable and payable by the Group under financial assets and liabilities by remaining contractual maturities at the reporting date. The amounts disclosed are the contractual, undiscounted cash flows. Weighted average effective interest rate Floating interest rate Within one year 30 June 2016 % $ Financial assets Cash and cash equivalents Total Financial assets at 30 June 2015 Financial liabilities 0.31 3,101,282 3,101,282 Trade and other payables n/a Total financial liabilities at 30 June 2016 - - $ % 0.31 1,055,093 1,055,093 30 June 2015 Financial assets Cash and cash equivalents Total Financial assets at 30 June 2015 Financial liabilities Trade and other payables n/a Total financial liabilities at 30 June 2015 - - Fixed interest Non-interest bearing Within one year 1-5 years Within one year 1-5 years $ - - - - $ - - - - $ - - - - $ - - - - $ - - 667,730 667,730 $ - - 484,782 484,782 $ - - - - $ - - - - Total $ 3,101,282 3,101,282 667,730 667,730 $ 1,055,093 1,055,093 484,782 484,782 Trade and other payables and loans to related parties and shareholders are expected to be paid as follows: 30 June 2016 Trade and other payables (refer note 13) 30 June 2015 Trade and other payables (refer note 13) Less than 1 year Between 1 and 2 years Between 2 and 5 years Over 5 years 667,730 667,730 484,782 484,782 - - - - - - - - - - - - 32 First Graphite Ltd • ANNUAL REPORT 2016 Market Risk Market risk is the risk the fair value of future cash flows of financial instruments will fluctuate due to changes in market variables such as interest rates, foreign exchange rates and equity prices. Foreign exchange risk (i) The consolidated entity undertakes certain transactions denominated in foreign currency and are exposed to foreign currency risk through foreign exchange fluctuations. Foreign exchange risk arises from future commercial transactions and recognised financial assets and financial liabilities denominated in a currency which is not the entity’s functional currency. The risk is measured using sensitivity analysis and cash flow forecasting. The Group’s profitability can be significantly affected by movements in the $US/$A exchange rates, and to a lesser degree, though movements in the Sri Lankan Rupee verses the Australian dollar. Through reference to industry standard practices, and open market foreign currency trading patterns within the past 12 months, the group set the level of acceptable foreign exchange risk. The Group seeks to manage this risk by holding foreign currency in $US and Sri Lankan Rupee. Sensitivity analysis The following table does not include intra group financial assets and liabilities. It summaries the sensitivity of the Group’s financial assets and liabilities to external parties at 30 June 2016 to foreign exchange risk, based on foreign exchange rates as at 30 June 2016 and sensitivity of +/-10%: 30 June 2016 rate (cents) 0.7417 110.98 US$/A$ LKR/A$ Market Risk 2016 Change in profit/loss due to: Improvement in AUD by 5% Decline in AUD by 5% Change in equity due to: Improvement in AUD by 5% Decline in AUD by 5% (ii) Interest rate risk Group Foreign exchange risk 2016 A$ 2015 A$ (84,318) (40,741) 84,318 40,741 (84,318) (40,741) 84,318 40,741 The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s cash position. A change of 100 basis points in interest rates at the reporting date would result in a change of profit or loss by the amounts shown below. This analysis assumes all other factors remain constant. 33 ANNUAL REPORT 2016 • First Graphite Ltd NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Profile At reporting date the interest rate profile of the Group’s financial instruments was: Interest rate risk -10bps +10bps Profit Equity Profit Equity 2016 A$ 3,101,282 3,101,282 (998) (998) 2015 A$ 1,055,093 1,055,093 (356) (356) - - - - 998 998 356 356 - - - - Floating rate instruments Cash at bank Floating rate instruments Cash at bank (c) Net fair values Fair value versus carrying amount Fair value of financial instruments Set out below is a comparison by class of the carrying amounts and fair values of the Group’s financial instruments which are carried in the financial statements. Methodologies and assumptions For financial assets and liabilities which are liquid or have short term maturities it is assumed the carrying amounts approximate to their fair value. 30 June 2016 30 June 2015 Note Carrying amount Net fair value Carrying amount Net fair value A$ A$ A$ A$ 20,471 20,471 20,471 20,471 36,172 36,172 36,172 36,172 Assets carried at amortised cost Trade and other receivables Total financial assets Liabilities carried at amortised cost Trade and other payables 13 667,730 667,730 484,782 484,782 Total Financial Liabilities 667,730 667,730 484,782 484,782 34 First Graphite Ltd • ANNUAL REPORT 2016 4. SEGMENT REPORTING (a) Identification of reportable segments The Group has identified its operating segments based on the internal reports which are reviewed and used by the Board (the chief operating decision makers) in assessing performance and in determining the allocation of resources. The existing operating segments are identified by management based on the manner in which the Group’s operations were carried out during the financial year. Discrete financial information about each of these operating businesses is reported to the Board on a monthly basis. The reportable segments are based on aggregated operating segments determined by the similarity of the asset base and revenue or income streams, as these are the sources of the Group’s major risks and have the most effect on the rates of return. The Group’s segment information for the current reporting period is reported based on the following segments: Mining and exploration activities The Board has determined the Company has one reportable segment, being mineral exploration and development in Sri Lanka. As the Company is focused on mineral exploration, the Board monitors the Company based on actual verses budgeted exploration expenditure incurred by area of interest. Corporate services This segment reflects the overheads associated with maintaining the ASX listed FGR corporate structure, identification of new assets and general management of an ASX listed entity. Business Segment 2016 2015 2016 2015 2016 2015 Exploration Corporate Services Total Revenue from external customers A$ - A$ - A$ - A$ - A$ - A$ - Interest revenue 2,555 11,117 10,408 7,546 12,963 18,663 Operating loss (1,770,688) (2,271,621) (2,906,536) (1,131,326) (4,677,224) (3,402,947) Depreciation expense Amortisation expense 30,754 3,729 12,297 43,228 2,701 73,982 14,998 - - - 3,729 - Segment assets 373,135 1,541,325 5,090,917 1,554,475 5,464,052 3,095,800 Segment liabilities 145,383 21,851 619,323 462,931 764,706 484,782 (b) Geographical areas In presenting the information on the basis of geographical areas, segment revenue is based on the geographical location of customers. Segment assets are based on the geographical location of the assets. Geographical segments Revenue Total Assets Revenue Total Assets 2016 2015 Australia Sri Lanka Total 10,408 5,090,917 2,555 373,135 12,963 5,464,052 7,546 11,117 18,663 1,554,475 1,541,325 3,095,800 35 ANNUAL REPORT 2016 • First Graphite Ltd NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (c) Reconciliation of segment assets and liabilities to the Statement of financial Position Reconciliation of segment assets to the Statement of Financial Position Total segments assets Inter-segment elimination Total assets per statement of financial position Reconciliation of segment liabilities to the Statement of Financial Position Total segments liabilities Inter-segment elimination Total liabilities per statement of financial position 2016 2015 9,106,133 5,602,951 (3,642,081) (2,507,151) 5,464,052 3,095,800 2016 2015 4,881,623 2,864,307 (4,116,917) (2,379,525) 764,706 484,782 5. OPERATING PROFIT AND FINANCE INCOME AND EXPENSE Revenue and expenses from continuing operations Notes 2016 2015 (a) Other revenue (b) Other administrative expenses includes: Financial administration and other consultancy Directors fee and directors consulting fee Audit and accounting fees Other accounting services ASX listing and share registry fees Travel and accommodation (c) Employee benefits expense As at 30 June 2016: 35 employees remained within the group (2015: 14) (d) Share based payments expense (e) Options expense (f) Finance income and expense Interest income on bank deposits Foreign exchange gain 294,272 865,523 35,319 22,614 163,301 110,689 108,784 564,237 28,755 31,352 103,529 128,705 37,638 15,084 15 15 - 16,500 431,896 753,720 12,963 3,358 16,321 18,663 179,402 198,065 36 First Graphite Ltd • ANNUAL REPORT 2016 INCOME TAX 6. The major components of income tax expense are: A reconciliation between tax expense and the product of accounting profit before income tax multiplied by the Group’s applicable income tax rate is as follows: Total loss before income tax from all activities 2016 2015 (4,677,224) (3,402,947) Prima facie tax benefit on loss before income tax at 30% (2015: 30%) (1,403,167) (1,020,884) Unrecognised temporary differences Unrecognised tax losses Income tax expense Income tax expense from continuing activities Total income tax expense 49,778 971,106 - - - - - - Unused tax losses for which no deferred tax has been recognised (10,825,257) (7,942,097) Potential tax benefit at 30% (3,247,577) (2,382,629) The Group has Australian revenue losses from previous years for which no deferred tax assets have been recognised. The availability to utilise these losses in future periods is subject to review in the relevant jurisdictions. 7. EARNINGS PER SHARE Net loss used in calculating basic loss per share Net loss used in calculating diluted loss per share Weighted average ordinary shares used in calculating basic earnings per share Weighted average ordinary shares used in calculating basic earnings per share Basic loss per share - cents per share Diluted loss per share - cents per share 8. DIVIDENDS PAID AND PROPOSED No final dividend has been proposed or paid during the year (2015: $nil) 2016 A$ 2015 A$ (4,677,224) (3,402,947) (4,677,224) (3,402,947) Number of shares Number of shares 251,700,071 167,830,971 251,700,071 167,830,971 (1.86) (1.86) (2.03) (2.03) 37 ANNUAL REPORT 2016 • First Graphite Ltd NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 9. CASH AND CASH EQUIVALENTS For the purposes of the cash flow statement, cash and cash equivalents comprise the following at the end of the reporting period: Cash at bank and in hand The Group’s maximum exposure to financial risk is disclosed in note 3. 10. INTERESTS IN OTHER ENTITIES Proportion of voting rights and shares held Principal activity in the year MRL Investments (Pvt) Ltd Holding company MRL Graphite (Pvt) Ltd Graphite exploration and mining 2016 100% 100% 11. EXPLORATION AND EVALUATION ASSETS Opening balance Cash paid for acquisition of exploration interest Share based payments for acquisition of exploration interest(i) Foreign currency translation adjustment Carrying amount 2016 A$ 2015 A$ 3,101,282 1,055,093 3,101,282 1,055,093 Class of shares held Place of Incorporation 2015 100% Ordinary Sri Lanka 100% Ordinary Sri Lanka 2016 A$ 2015 A$ 1,910,640 1,333,325 - - (62,194) - 450,000 127,315 1,848,446 1,910,640 (i) In accordance with the second stage of the agreement with The Supreme Group of Sri Lanka for the acquisition of graphite exploration licences, 5,000,000 vendor shares in FGR were issued to the Supreme Group at $0.09 per share. The recoverability of exploration and evaluation assets is dependent on the successful development and commercial exploitation or sale of the respective areas of interest. 38 First Graphite Ltd • ANNUAL REPORT 2016 12. PROPERTY, PLANT AND EQUIPMENT Reconciliations of the carrying value for each class of property, plant and equipment is set out below: Exploration equipment: Carrying amount at beginning of year - Additions - Transfer from Capital Work in Progress - Depreciation - Movement due to foreign exchange Carrying amount at year end Capital Work in Progress: Carrying amount at beginning of year - Additions - Transfer to Exploration equipment - Movement due to foreign exchange Carrying amount at year end Plant & equipment: Carrying amount at beginning of year - Additions - Depreciation - Movement due to foreign exchange Carrying amount at year end Office equipment: Carrying amount at beginning of year - Additions - Depreciation - Movement due to foreign exchange Carrying amount at year end Motor vehicles: Carrying amount at beginning of year - Additions - Depreciation - Movement due to foreign exchange Carrying amount at year end Leased Motor Vehicles: Carrying amount at beginning of year - Additions - Amortisation - Movement due to foreign exchange Carrying amount at year end 2016 A$ 10,403 270,293 25,907 (57,557) (7,255) 241,791 25,907 - (25,907) - - 21,449 7,576 (11,180) (2,165) 15,680 2,250 27,135 (4,639) (665) 24,081 1,547 - (605) (133) 808 - 142,305 (3,729) 954 139,530 2015 A$ 14,024 - (6,626) 3,005 10,403 - 25,907 - - 25,907 10,799 15,852 (7,209) 2,007 21,449 985 1,665 (721) 321 2,250 - 1,751 (442) 238 1,547 - - - - - Total carrying amount at year end 421,890 61,556 39 ANNUAL REPORT 2016 • First Graphite Ltd NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 13. TRADE AND OTHER PAYABLES Current Trade and other payables 2016 A$ 2015 A$ 667,730 667,730 484,782 484,782 The Group’s maximum exposure to financial risk is disclosed in note 3. Due to their short term nature the carrying value of trade and other payables is assumed to approximate their future value. Trade payables are non-interest bearing, unsecured and are normally settled on 30 day terms from end of month in which the invoice is received. 14. ISSUED CAPITAL (a) Ordinary shares 2016 $ 2015 $ 2016 2015 Number Number Issued and fully paid 67,328,257 58,281,263 196,716,587 149,191,587 Movements in shares on issue At the beginning of the period 60,743,995 58,281,263 196,716,587 149,191,587 Share purchase plan September 2015 563,791 - 10,250,714 Tranche 1 of placement to investors October 2015 1,611,756 Tranche 2 of placement to investors November 2015 2,403,244 29,304,658 43,695,342 Placement to investors May 2016 2,430,900 27,010,006 Share issue costs (425,429) (184,768) - Placement to senior employee Placement to investors September 2014 Shares issued to Supreme Global Holdings (Pvt) Ltd1 Placement to investors May 2015 Placement to investors June 2015 Placement/management fee to consultants2 16,500 1,148,000 450,000 810,000 190,000 33,000 - - 300,000 16,400,000 5,000,000 20,250,000 4,750,000 825,000 At the end of the period 67,328,257 60,743,995 306,977,307 196,716,587 1 2 In accordance with the second stage of the agreement with The Supreme Group of Sri Lanka for the acquisition of graphite exploration licences, 5,000,000 vendor shares in FGR were issued to the Supreme Group at $0.09 per share. Share based payment was valued at the time of the transactions at the fair value of the instruments issued as the Company was unable to fair value the services acquired 40 First Graphite Ltd • ANNUAL REPORT 2016 (b) Share options Listed share options At the beginning of the period Options expired Options issued9 Options exercised Options changed from unlisted to listed series Options issued3 Options released from escrow At the end of the period (c) Share options Unlisted share options At the beginning of the period Options issued4 Options issued5 Options issued6 Options issued7 Options issued8 Options released from escrow Options changed from unlisted to listed series At the end of the period Refer note 14 for further details 2016 2015 Number Number 49,398,551 25,054,053 13,505,000 6 111,625,357 (7,054,053) - - 8,200,000 23,198,551 174,528,914 49,398,551 2016 2015 Number Number 66,000,000 48,698,551 - 12,000,000 36,500,000 28,500,000 16,000,000 5,125,357 1,000,000 - - - - (23,198,551) (111,625,357) - 13,000,000 66,000,000 3 Issued 8,200,000 listed options, as free attaching to the 16,400,000 placement shares to investors in September 2014, exercisable at 20 cents on or before 17 October 2016. 4 12,000,000 options issued to directors, exercisable at $0.092 cents on or before 31 October 2017. 5 36,500,000 options issued to placement participants, exercisable at $0.10 cents on or before 21 May 2017. 6 16,000,000 options issued to directors and corporate adviser, exercisable at $0.10 cents on or before 21 May 2017. 7 5,125,357 options issued under Share Placement Plan, exercisable at $0.10 cents on or before 21 May 2017. 8 1,000,000 options were granted to the Sri Lankan Country Manager on 11 January 2016, with exercise prices of $0.10 for 500,000 options and $0.15 for 500,000 options, in accordance with the Employee Share Options Plan. The options expire on 11 January 2019 9 13,505,000 options issued to placement participants, exercisable at $0.10 cents on or before 21 May 2017. 41 ANNUAL REPORT 2016 • First Graphite Ltd NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 15. SHARE BASED PAYMENTS (a) Employee Share Option Plan The Company provides directors, certain employees and advisors with share options. The options are exercisable at set prices and the vesting and exercisable terms varied to suit each grant of options. 2016 2015 Weighted average exercise price (cents) 0.146 Number of Options 48,198,551 Number of Options 36,198,551 17,000,000 0.125 12,000,000 48,198,551 Weighted average exercise price (cents) 16.4 9.2 14.6 Outstanding 1 July Issued4,6,8 Outstanding 30 June An additional 16,000,000 unlisted options were granted to directors, with an exercise price of $0.10, in accordance with the Employee Share Options Plan and a corporate adviser with an exercise price of $0.10. The options expire on 21 May 2017. The pricing of the options at the time of issue was calculated using the Black-Scholes option valuation method applying the following inputs. Exercise price range $0.10 List of options range 1.5 years Underlying share price Expected share volatility Dividend yield Risk free interest rate $0.06 120% 0% 2.03% Fair value of options $0.0253 1,000,000 unlisted options were granted to the Sri Lankan Country Manager on 11 January 2016, with exercise prices of $0.10 for 500,000 options and $0.15 for 500,000 options, in accordance with the Employee Share Options Plan. The options expire on 11 January 2019 The pricing of the options at the time of issue was calculated using the Black-Scholes option valuation method applying the following inputs. Exercise price range List of options range Underlying share price $0.10 3 years $0.048 Expected share volatility 120% Dividend yield Risk free interest rate Fair value of options Exercise price range List of options range Underlying share price 0% 1.98% $0.0285 $0.15 3 years $0.048 Expected share volatility 120% Dividend yield Risk free interest rate Fair value of options 0% 1.98% $0.0251 42 First Graphite Ltd • ANNUAL REPORT 2016 Historical volatility has been the basis for determining expected share price volatility as it assumes this is indicative of future tender, which may not eventuate. When applicable, market conditions have been built into the options pricing model to reflect the likelihood of those conditions being met. Historical data has been used to determine dividend yield and option life. The fair value of the consultants’ and directors’ option is not based on the fair value of the services provided but on the Black Scholes option pricing model. The Group recognised total expenses of $431,896 (2015: $753,720) related to director, senior employee and consultant share based payment transactions in the period. Share-based payments and options issued to directors and consultants The table below summarises options granted to directors, employees and consultants: Grant Date Expiry Date Exercise price Balance at start of the year Granted during the year Exercised during the year Expired during the year Balance during the year Vested and exercisable during the year Number Number Number Number Number Number 11 Jan 2016 11 Jan 2016 11 Jan 2019 11 Jan 2019 27 Nov 2015 21 May 2017 31 Oct 2014 31 Oct 2017 28 Apr 2014 21 May 2017 9 Jan 2013 17 Oct 2016 $0.15 $0.10 $0.10 - - - 500,000 500,000 16,000,000 $0.092 12,000,000 $0.10 13,000,000 $0.20 13,000,000 - - - - - - - - - - - - - - 500,000 500,000 - - 16,000,000 16,000,000 12,000,000 12,000,000 13,000,000 13,000,000 13,000,000 13,000,000 The weighted average remaining contractual life of the options is 0.79 years (2015: 2.8years). Share based payments expense – options issued to directors 2016 2015 405,079 753,720 Share based payments expense – options issued to a senior employee 26,817 - Total 431,896 753,720 16. RESERVES AND ACCUMULATED LOSSES The share based payments reserve holds the directly attributable cost of services provided pursuant to the options issued to corporate advisors, directors, employees and past directors of the Group. The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations. 43 ANNUAL REPORT 2016 • First Graphite Ltd NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 17. STATEMENT OF CASH FLOW RECONCILIATION (a) Reconciliation of net loss after tax to net cash flows from operations Net Loss Adjusted for: Depreciation Amortisation Share based payments expensed Options expensed (Profit)/loss on sale of subsidiaries Foreign exchange gains Changes in assets/liabilities (Increase)/decrease in trade and other receivables (Increase)/decrease in prepayments Decrease in trade and other payables 2016 A$ 2015 A$ (4,677,224) (3,402,947) 73,982 3,729 431,896 - - 14,998 - 16,500 753,720 - (181,553) (113,483) 15,701 (39,623) 182,946 (9,472) 162,563 258,588 Net cash (used in) operating activities (4,190,145) (2,319,533) (b) Non-cash investing and financing activities There were no non-cash investing and financing activities during the reporting period. 18. COMMITMENTS AND CONTINGENCIES (a) Lease expenditure commitments Operating leases (non-cancellable) Minimum lease payments - Not later than one year - Later than one year and not later than five years - Later than five years Total operating leases (non-cancellable) 2016 A$ 2015 A$ 19,239 18,689 - - - - 19,239 18,689 The operating leases are entered into for the purposes of leasing company premises. (b) Contingent liabilities On 9 April 2013 the Company announced it had reached agreed terms with The Supreme Group of Sri Lanka for the acquisition of 45km2 of graphite exploration licences representing 45 Grids. The remaining terms of the acquisition are; 1. Payment of US$500,000 at the time of commencement of commercial mining activities. The Directors do not believe there are any grounds for any other claims of a material nature as at the date of this report and as at the reporting date. 44 First Graphite Ltd • ANNUAL REPORT 2016 19. RESULTS OF THE PARENT COMPANY Current Assets Cash and cash equivalents Trade and other receivables Other current assets Other financial assets Total current assets Non-current assets Property, plant and equipment Intercompany loans receivable Total assets Liabilities Current liabilities Trade and other payables Total current liabilities Total liabilities Net Assets Equity Issued capital Share based payments reserve Accumulated losses Total equity Results of the parent entity: Loss for the period 2016 A$ 2015 A$ 3,037,861 1,042,544 20,471 7,040 - 10,649 7,040 - 3,065,372 1,060,233 177,099 29,489 4,097,496 1,984,231 4,274,595 2,013,720 7,339,967 3,073,953 619,323 619,323 462,931 462,931 619,323 462,931 6,720,644 2,611,022 67,328,257 60,743,995 3,279,949 2,848,053 (63,887,562) (60,981,026) 6,720,644 2,611,022 (2,906,536) (3,200,064) (2,906,536) (3,200,064) 45 ANNUAL REPORT 2016 • First Graphite Ltd NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 20. EVENTS SINCE THE END OF THE FINANCIAL YEAR There are no known subsequent events of a material nature. 21. RELATED PARTY TRANSACTIONS (a) Compensation for key management personnel The aggregate compensation made to directors and other key management personnel is set out below: 2016 A$ 2015 A$ 1,402,649 1,174,718 405,078 753,720 1,807,727 1,928,438 Short term employee benefits Share based payments (b) Transactions with other related parties During the reporting period there were no other payments to related parties. There were no loans to/from related parties in 2016 (2015: Nil) 22 AUDITORS’ REMUNERATION Services provided by the Group’s auditor (in tenure as auditor) and associated firms During the year, the Group (including its overseas subsidiaries) obtained the following services from BDO Audit (W.A.) Pty Ltd as detailed below: Auditors’ remuneration Remuneration of the auditor of the Group for: - Audit services – BDO Audit (WA) Pty Ltd - Other services – BDO Corporate Tax (WA) Pty Ltd 2016 A$ 45,031 17,315 62,346 2015 A$ 28,755 29,977 58,732 46 First Graphite Ltd • ANNUAL REPORT 2016 DIRECTORS’ REPORT The Directors declare: 1. the financial statements and notes, as set out on pages 19 to 46 are in accordance with the Corporations Act 2001 and: a. comply with Accounting Standards and the Corporations Regulations 2001 and other mandatory professional reporting requirements; and b. give a true and fair view of the financial position as at 30 June 2016 and of the performance for the year ended on this date of the consolidated group; a. the financial records of the consolidated group for the financial year have been properly maintained in accordance 2. the Chief Executive Officer and Chief Finance Officer have each declared: AUDITORS INDEPENDENCE DECLARATION with section 286 of the Corporations Act 2001; b. the financial statements, and the notes for the financial year comply with the accounting standards; and c. the financial statements and notes for the financial year give a true and fair view; and as and when they become due and payable. 3. in the directors’ opinion, there are reasonable grounds to believe the consolidated group will be able to pay its debts Auditor’s independence The Directors received the independence declaration from the auditor of MRL Corporation Limited as stated on page 21. 4. the consolidated group has included in the notes to the financial statements an explicit and unreserved statement of compliance with the International Financial Reporting Standards comply with section 300A of the Corporations Act 2001; Non-audit services 5. the remuneration disclosures set out in the Directors’ Report on pages 10 to 15 (as the audited Remuneration Report) During the period BDO Corporate Tax (WA) Pty Ltd was paid $29,977 for the provision of taxation services (2014: $22,695). BDO Corporate Tax (WA) Pty Ltd is an affiliate member of BDO Audit (WA) Pty Ltd. Refer to Note 24 for further details Signed in accordance with a resolution of the directors made pursuant to S295 (5) of the Corporations Act 2001. On behalf Signed in accordance with a Resolution of the Directors. of the Directors. Craig McGuckin Craig McGuckin Managing Director Managing Director Dated at Perth this 30th day of September 2015 28 September 2016 Corporate Governance Statement The Company’s full Corporate Governance Statement is available on the Company’s website, www.mrltd.com.au/corporate/corporate-governance.html. A completed Appendix 4G and the full Corporate Governance Statement have been lodged with the Australian Securities Exchange as required under Listing Rules 4.7.3 and 4.7.4. 47 20 MRL CORPORATION LIMITED ANNUAL REPORT 2015 ANNUAL REPORT 2016 • First Graphite Ltd INDEPENDENT AUDITOR’S REPORT Tel: +61 8 6382 4600 Fax: +61 8 6382 4601 www.bdo.com.au 38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia INDEPENDENT AUDITOR’S REPORT To the members of First Graphite Limited Report on the Financial Report We have audited the accompanying financial report of First Graphite Limited, which comprises the consolidated statement of financial position as at 30 June 2016, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. 48 First Graphite Ltd • ANNUAL REPORT 2016 INDEPENDENT AUDITOR’S REPORT We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of First Graphite Limited, would be in the same terms if given to the directors as at the time of this auditor’s report. Opinion In our opinion: (a) the financial report of First Graphite Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2016 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Emphasis of matter Without modifying our opinion, we draw attention to Note 1(b) in the financial report, which describes the conditions which give rise to the existence of a material uncertainty that may cast significant doubt about the consolidated entity’s ability to continue as a going concern and therefore, the consolidated entity may be unable to realise its assets and discharge its liabilities in the normal course of business. Report on the Remuneration Report We have audited the Remuneration Report included in pages 10 to 15 of the directors’ report for the year ended 30 June 2016. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Opinion In our opinion, the Remuneration Report of First Graphite Limited for the year ended 30 June 2016 complies with section 300A of the Corporations Act 2001. BDO Audit (WA) Pty Ltd Phillip Murdoch Director Perth, 28 September 2016 49 ANNUAL REPORT 2016 • First Graphite Ltd ADDITIONAL SECURITIES EXCHANGE INFORMATION (Note, this information does not form part of the audited financial statements) Additional information required by the Australian Securities Exchange Limited and not shown elsewhere in this report is as follows. This information is complete as at 27 September 2016. a) Distribution of Shareholdings – Fully Paid Ordinary Shares: Holding Ranges 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 - 9,999,999,999 Totals Equity Security Fully Paid ordinary shares Options Substantial Shareholder The Company has received the following Substantial Holding notice: Shareholder Name Agcentral Pty Ltd * Holders Total Units % Issued Share Capital 76 68 178 717 382 12,863 236,595 1,492,683 31,487,462 274,226,804 0.00% 0.08% 0.49% 10.24% 89.19% 1,421 307,456,407 100.00% Quoted Unquoted 307,456,407 - 174,269,836 13,000,000 Number of Shares 17,751,901 % of Issued Shares 5.77 * Agcentral Pty Ltd lodged a Substantial Shareholder Notice on 6 July 2016 advising that they hold 18,000,000 shares (5.87% shareholding interest of First Graphite). Agcentral Pty Ltd are not required to lodge an updated substantial shareholder notice as their % has not changed by more than 1% but the above figures have been restated to allow for changes in Agcentral Pty Ltd’s shareholding interest since that date. 50 First Graphite Ltd • ANNUAL REPORT 2016 b) Top 20 Security Holders – Fully Paid Ordinary Shares (FGR) at 27 September 2016 Position Name of Holder 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 AGCENTRAL PTY LTD IPS NOMINEES LTD J P MORGAN NOMINEES AUSTRALIA LIMITED GREGORACH PTY LTD CITICORP NOMINEES PTY LIMITED MR CRAIG ROBERT MCGUCKIN & MRS LEE ANN MCGUCKINSPICEME CAPITAL PTY LTD EMERPUS ASIA LTD HALLIDAF MANAGEMENT LTD MR JASON PETERSON & MRS LISA PETERSON JITARNING NOMINEES PTY LTD MR RYAN JEHAN ROCKWOOD GINGA PTY LTD CARRINGTON CORPORATE PTY LTD MR BENJAMIN PHILLIPE GRENIER HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED SDG NOMINEES PTY LTD WINKARA PTY LTD DEBT MANAGEMENT ASIA CORPORATION BNP PARIBAS NOMS PTY LTD Totals Total Issued Capital Holding 17,751,901 13,932,465 11,149,903 10,415,000 8,998,232 6,908,513 6,500,000 6,250,000 6,094,794 6,017,222 % IC 5.77% 4.53% 3.63% 3.39% 2.93% 2.25% 2.11% 2.03% 1.98% 1.96% 5,200,000 1.69% 4,500,000 4,367,747 3,450,000 3,287,518 3,016,376 2,900,000 2,766,800 2,762,429 2,664,675 1.46% 1.42% 1.12% 1.07% 0.98% 0.94% 0.90% 0.90% 0.87% 128,933,575 41.94% 307,456,407 100.00% Shareholders with less than a marketable parcel At 27 September 2016, there were 132 shareholders holding less than a marketable parcel of shares ($0.11 cents on this date) in the Company totalling 190,308 ordinary shares or 0.06% of the issued capital. 51 ANNUAL REPORT 2016 • First Graphite Ltd ADDITIONAL SECURITIES EXCHANGE INFORMATION (Continued) c) Top 20 Security Holders – Listed Options (FGROA) expiring 17 October 2016 Position Holder Name 1 1 2 3 4 5 6 7 8 8 8 9 10 11 12 13 13 14 14 14 14 14 14 14 14 14 15 16 17 18 19 20 HALLIDAF MANAGEMENT LTD MR CRAIG ROBERT MCGUCKIN & MRS LEE ANN MCGUCKIN MR ANTHONY MILENKO SKENDER MR ALAN WESLEY PATTERSON-KANE MR MARIO IERARDI & MRS POPPY IERARDI SUPREME CAMILLO CAPITAL LTD MR ROBERT JESSE HUNT MR CRAIG ROBERT MCGUCKIN & MRS LEE ANN MCGUCKIN MR JAMES WILLIAM HYNDES MR HAYDEN PAUL FARROW INTERNATIONAL BUSINESS NETWORK (SERVICES) PTY LTD REDHILL PARTNERS PTE LTD COMSEC NOMINEES PTY LIMITED MR PAUL STEWART DUNSHEA SADDIQUE NASSER OMAR HASSAN ST JUDE PROGENY PTY LTD HALLIDAF MANAGEMENT LTD MR JONATHAN DOUGLAS RZETELSKI-WEST PARMELIA PTY LTD EMERPUS ASIA LTD MS NERIDA SCHMIDT NORVALE PTY LTD MR MATTHEW JAMES TROTT VARRA PTY LTD PARMELIA PTY LTD MRS KELLY BROOKE WESTLAKE MR TRISTAN DAVID HEWITT MRS TERRI FRANCES YOUD TISIA NOMINEES PTY LTD MR ADAM LESLIE GRIGGS ICONIC CAPITAL MANAGEMENT PTE LTD NAVIGATOR AUSTRALIA LTD Totals Total Issued Capital 52 Holding % IC 5,000,000 10.12% 5,000,000 10.12% 4,500,000 3,369,403 2,166,000 1,914,018 1,900,000 1,020,109 1,000,000 1,000,000 1,000,000 965,000 944,000 654,545 625,000 600,000 600,000 500,000 500,000 500,000 500,000 500,000 500,000 9.11% 6.82% 4.38% 3.87% 3.85% 2.07% 2.02% 2.02% 2.02% 1.95% 1.91% 1.33% 1.27% 1.21% 1.21% 1.01% 1.01% 1.01% 1.01% 1.01% 1.01% 500,000 1.01% 500,000 500,000 429,000 420,109 405,670 400,000 350,000 325,000 1.01% 1.01% 0.87% 0.85% 0.82% 0.81% 0.71% 0.66% 39,087,854 79.13% 49,398,551 100.00% First Graphite Ltd • ANNUAL REPORT 2016 d) Top 20 Security Holders – Listed Options (FGROB) expiring 21 May 2017 Position Holder Name 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 19 20 MR CRAIG ROBERT MCGUCKIN & MRS LEE ANN MCGUCKIN GREGORACH PTY LTD TWYNAM AGRICULTURAL GROUP PTY LTD MR GREGORY NEVILLE ARNOLD HALLIDAF MANAGEMENT LTD IPS NOMINEES LTD FAR EAST CAPITAL LIMITED KINGSTON VALE PTY LTD JITARNING NOMINEES PTY LTD NATIONAL NOMINEES LIMITED NUTSVILLE PTY LTD GREGORACH PTY LTD LOBSTER BEACH PTY LTD GINGA PTY LTD MR JASON PETERSON & MRS LISA PETERSON CITICORP NOMINEES PTY LIMITED CARRINGTON CORPORATE PTY LTD GEO BAN CONSULTING PTY LTD PAVARAI PTY LTD SDG NOMINEES PTY LTD MR RICHARD JAMES COONEY Holding 10,136,364 9,750,000 9,000,000 6,532,874 5,550,000 4,880,000 3,500,000 3,136,364 % IC 8.12% 7.81% 7.21% 5.23% 4.44% 3.91% 2.80% 2.51% 2,950,000 2.36% 2,466,797 2,265,000 2,045,000 2,000,000 1,946,667 1,776,111 1,700,000 1,672,329 1,636,364 1,525,000 1.98% 1.81% 1.64% 1.60% 1.56% 1.42% 1.36% 1.34% 1.31% 1.22% 1,525,000 1.22% 1,517,000 1.21% Totals 77,510,870 62.07% Total Issued Capital 124,871,285 100.00% 53 ANNUAL REPORT 2016 • First Graphite Ltd ADDITIONAL SECURITIES EXCHANGE INFORMATION (Continued) e) Licence Position as at 27 September 2016 All granted licences are in good standing and comply with the reporting requirements of the relevant licence. Licence Number FGR Interest - % IML/A/HO/9405 IML/A/HO/8416/LR2 EL/225 EL/226 EL/228 EL/243 EL/318 EL/321 EL/227 EL/322 EL/231 EL/244 EL/262 EL/325 EL/326 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Status Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted General Location Central Western Central Central Central Central Central Central South Central South Central South West South West Central Central Central 54 First Graphite Ltd • ANNUAL REPORT 2016 This page has been left blank intentionally. 55 ANNUAL REPORT 2016 • First Graphite Ltd This page has been left blank intentionally. 56 First Graphite Ltd • ANNUAL REPORT 2016