Element 25 Limited Annual Report 2020

Plain-text annual report

Annual Report 2020 A Year of Transformational Change Annual Report 2020 Table of Contents 1. The Butcherbird Project ........................................................................................................................................... 4 1.1. 1.2. 1.3. Introduction ..................................................................................................................................................... 4 Simple Geology ............................................................................................................................................... 4 Manganese Lump Ore Pre-Feasibility Study ............................................................................................. 5 1.3.1. Key outcomes and Assumptions ........................................................................................................... 6 1.3.2. Process Plant Design ................................................................................................................................ 7 1.3.3. Logistics and Ore Transport .................................................................................................................... 8 1.3.4. Development Timeline ............................................................................................................................. 9 1.4. Post PFS Activities .......................................................................................................................................... 9 1.4.1. Potential High-Grade Manganese Concentrate Zone ........................................................................ 9 1.4.2. Sales and Marketing ............................................................................................................................... 11 1.4.3. Water Bore Drilling .................................................................................................................................. 11 1.4.4. Access Agreement/Mining Lease Application ................................................................................... 12 2. Corporate .................................................................................................................................................................. 12 2.1. 2.2. 2.3. 2.4. Placement and Share Purchase Plan ....................................................................................................... 12 Cummins Range ............................................................................................................................................ 12 Acuity Capital Controlled Placement Facility ......................................................................................... 13 $500K Royalty Sale Agreement Complete ............................................................................................... 13 3. Mineral Resources and Ore Reserves ................................................................................................................... 14 3.1. 3.2. 3.3. 3.4. 3.5. Mineral Resource Estimate as at 30 June 2020 ...................................................................................... 14 Mining Reserve as at 30 June 2020 ........................................................................................................... 14 Review of Material Changes ....................................................................................................................... 14 Governance controls ................................................................................................................................... 15 Competent Persons Statement ................................................................................................................. 15 Page 2 of 15 Annual Report 2020 Letter from the Chairman Dear Fellow Shareholders, Thank you once again for your continued interest and support of Element 25 Limited. 2020 has been an extraordinary year in many ways and is not likely to be forgotten. While I don’t want to dwell on the challenges we have all faced to one degree or another, I think it is important to acknowledge that many people across the World have suffered and continue to suffer in extremely difficult circumstances. Fortunately, as shareholders of E25 we can reflect on 2020 and see it as a transformational year for our company. Our Managing Director, Justin Brown and his team have done an outstanding job in difficult circumstances and this is reflected in share price appreciation, market capitalisation and positive profile for the Company. Justin and his team are well aware that there is more work to be done in order to bring the Butcherbird Project into production on budget, on time and safely. They are focussed on continuing to deliver superior outcomes for shareholders and the wider stakeholder community while maintaining the highest standards for safety, environmental, stewardship and governance. I am sure all shareholders will join me in thanking Justin and his entire team for their efforts to date and the results they have delivered this year and wish them every success for the next stages of the Butcherbird development. Yours sincerely Seamus Cornelius Chairman Element 25 Limited Page 3 of 15 Annual Report 2020 1. 1.1. The Butcherbird Project Introduction Element 25 Limited (E25 or Company) is currently developing the Butcherbird Manganese Project (Project) via a staged development strategy with a low capital cost start up Stage 1 development., exporting manganese lump ore to smelters for use in silicomanganese alloy production. Significant progress has also been made on delivering a processing solution to undertake downstream processing to produce high purity manganese products including Electrolytic Manganese Metal (EMM) and battery grade manganese sulphate (HPMSM). The Project is located 1,050 km north of Perth and 130km south of Newman in the Pilbara region of Western Australia. The Project comprises several defined resource areas, the largest of which is the Yanneri Ridge deposit. Yanneri Ridge is the planned start up location for first production, selected due to a higher resource grade and its location adjacent to both the Great North Highway and the Goldfields Gas Pipeline (GGP). The Yanneri Ridge mineralisation also has minimal overburden, allowing simple and low-cost free-dig mining, requiring no drill and blast. The deposit was discovered by E25 and subsequently drilled out, with a mineral resource estimate confirming the very large scale of the deposit as outlined in Error! Reference source not found. which details a global mineral resource of 263Mt grading 10% Mn. A Pre-Feasibility Study (PFS) was completed in May 2020 demonstrating compelling economics around a manganese lump ore export business with a very modest capital requirement of A$14.5M. 1.2. Simple Geology The mineralisation at the Project forms a flat-lying, stratiform ore body. The very simple geology ensures continuity of mineralisation, which simplifies mining. The ore zone starts at surface and is laterally continuous and no selective mining is required. The life of mine strip ratio is estimated at 0.36:1. The ore zone is above the water table and is expected to be a primarily free-dig operation with localised ripping. Page 4 of 15 Annual Report 2020 Figure 1: Geological cross section looking west through the Yanneri Ridge manganese deposit. 1.3. Manganese Lump Ore Pre-Feasibility Study Highlights: • Start-up manganese concentrate export scenario has been developed for the Project as part of a staged development strategy. • Maiden Proved and Probable Ore Reserve of 50.55Mt at 10.3% Mn containing 5.22Mt Mn. • Pre-tax Net Present Value (8% DCF) (NPV8) of Real A$283M and IRR of Real 223%. • Low capital requirement of $14.5M. • Average annual operating cashflow of $32.1M for years 1-5. • Simple payback period 6 months from start of operations. • Medium grade manganese market is the fastest growing section of the manganese market. • Base case assumes annual production and sale of 312,000tpa of medium grade lump manganese ore grading 30-35% Mn. Beneficiation test work completed during the first quarter of calendar 2020 highlighted a compelling opportunity to fast track the development of the Project by implementing a low capital cost start up stage exporting manganese lump ore. The Company subsequently published a PFS and Maiden Reserve for the Project1, which confirmed outstanding economics and a low capital requirement. The PFS confirmed the potential for the Project to be Australia’s next significant manganese mine. 1 Reference: Company ASX releases dated 19 May 2020 Page 5 of 15 Annual Report 2020 Life of Mine Years 1-5 1,200 357 33 4.79 32.1 4.06 2.80 6.00 5.57 23.8 2.88 3.23 42 4 485.2 474% 330% 1.3.1. Key outcomes and Assumptions Butcherbird Financial Summary Measure Ore Mined Manganese Concentrate Produced Manganese Concentrate Grade Unit ktpa ktpa Mn% Manganese Price (base) (LOM) US$/dmtu 33% Mn FOB Port Hedland Undiscounted Cashflow Mine Life NPV8 Real (pre-tax) IRRReal (pre-tax) Operating Cost (AISC) Capital Cost A$M pa Years A$M % A$/dmtu 33% FOB Port Hedland U$/dmtu 33% FOB Port Hedland Project Capital A$M Contingency A$M Working Capital A$M Total capital A$M 1,200 311 33 4.87 24.4 42 283 223 4.43 3.09 12.6 1.9 9.3 23.8 Financial summary under various manganese price scenarios. Manganese Price CIF China Manganese Price FOB Port Hedland U$/dmtu U$/dmtu Capital Cost (incl. working capital) A$M All in Sustaining Cost (AISC) Years 1-5 Life of Mine Mine Life Project Payback Period NPV8 Pre-Tax Real IRR Pre-Tax Real IRR Post-Tax Real U$/dmtu U$/dmtu Years Months A$M % % 4.00 3.57 23.8 2.75 3.10 42 9 148.1 109% 83% 4.76 4.33 23.8 2.80 3.15 42 6 283.0 223% 163% 5.00 4.57 23.8 2.81 3.16 42 5 316.7 257% 186% Operating costs are summarised below. LOM Operating Costs Summary Operational Area Site Cost (including mining, processing and administration) Logistics (including haulage and port charges) Marketing Royalties FOB Cost Corporate Total Operating Cost A$/dt Product 69 54 A$/dmtu produced 2.09 1.63 3 13 139 8 147 0.09 0.39 4.20 0.25 4.45 Page 6 of 15 Annual Report 2020 Capital costs for the Project are summarised below: Capital Cost Estimate Summary Project Section Major plant and equipment Power Generation Water Supply TSF & Fresh/Dirty Water Ponds Buildings & Infrastructure, Site prep, SMP, Elec Project Management, Engineering & Consultants Subtotal Contingency Total Plant & Contingency Capital Working capital allowance Total Capital 1.3.2. Process Plant Design A$M 5.0 0.4 1.2 2.3 2.6 1.1 12.6 1.9 14.5 9.3 23.8 The beneficiation process plant and other infrastructure have been designed in accordance with normal industry practice and the unit operations included in the flowsheet are well established within the resources and other industries. The design philosophy has utilised predominantly mobile or semi-mobile equipment such that operating installation maintains a degree of flexibility for management of the advancing mining face, whilst minimising civils, structure and set-up investment costs. The proposed processing facility is shown schematically in Figure 2: below: Figure 2: Butcherbird manganese lump ore schematic flowsheet. Page 7 of 15 Annual Report 2020 Ore Sorting During the flowsheet design process, ore sorting was identified as a potential technology that could be implemented to further upgrade the ore. Sorting tests were undertaken by Steinert Australia, utilising a production-scale 1m wide multiple sensor Steinert KSS sorter, on the two size fractions generated from the scrubbing/screening process. The sorting tests confirmed the ability of the ore sorter to upgrade the manganese ore on a repeatable basis to a marketable specification within the range 30-35% Mn. Manganese Grade, Recovery and Yield by Size Mn Grade Mn Recovery Mass Yield Ore Sorter Feed +19mm Product -19mm Product Total Product Total Reject 27.3% 34.0% 30.4% 33.1% 8.0% 97% 86% 94% 6% 83% 67% 79% 21% The ore sorter delivered a 30-35% Mn grade product which was the result of an upgrade of approximately 6% whilst maintaining a manganese recovery of 94%. This combined size fraction concentrate has the grade, composition and size distribution characteristics of commercial lump ores presently used in the steel industry. Impurity levels across all main elements of concern are acceptable and certain key impurities may provide some marketing opportunities which are being explored as a part of ongoing offtake negotiations. Testwork Product Quality Component Mn Specification 33.1% Fe 8.2% SiO2 21.8% P 0.08% Al 2.97% Loss on ignition 10.2% Sorted product composition. 1.3.3. Logistics and Ore Transport Over the life of mine (LOM) the Project will produce approximately 312,000 tonnes of lump ore per annum. The lump ore will be trucked from the Project to the Utah Point bulk handling facility at Port Hedland where it will be loaded for export. The proposed concentrate handling method is fully compliant with Class 9 transport requirements and no special bulk shipping restrictions currently apply for UN 3077 mineral concentrates. The manganese ore is neither classified as a dangerous or as hazardous good in transit. It is a benign product and is not affected by typical atmospheric conditions (heat, cold, rain). Page 8 of 15 Annual Report 2020 Port Operations and Shipping The Company is in negotiations with Pilbara Ports for the access to the Utah Point stockpile and port facilities at Port Hedland. The product will be in a lumpy form and is perfectly suited to existing handling infrastructure located at Utah Point. E25 has also engaged with Qube Logistics (Qube), the current operator of the ship loading infrastructure on behalf of Pilbara Ports. Qube indicated that the product can be handled and loaded efficiently with the current infrastructure. Qube has extensive experience in loading manganese ores. 1.3.4. Development Timeline A Project development timeline has been developed with key milestone and activities shown below. 2020 Qtr 2 Qtr 3 Qtr 4 2021 Qtr 1 Qtr 2 PFS Approvals Order Long Lead Items Financing Construction Commissioning Operations Figure 3: Project Development Timeline 1.4. 1.4.1. Post PFS Activities Potential High-Grade Manganese Concentrate Zone Sub-sampling of diamond core from BBDD016 drilled into the Coodamudgi manganese resource at the Project has returned high grade manganese values of up to 42.3%Mn from surface with low impurity levels. Importantly the Coodamudgi resource is located entirely within granted mining lease M52/1074. The ore at Coodamudgi is geologically similar to Yanneri Ridge, in that the manganese mineralisation comprises interlayered bands of siliceous manganese bands interlayered with non-manganese bearing clays and shales. The sub-sampling methodology utilised was designed to emulate full scale processing via the proposed beneficiation flowsheet for the Project as outlined in the PFS. It should be noted that the work completed in this programme is preliminary and will need to be followed up with further test work to confirm these results, however the sampling reported herein is strongly suggestive that this material has the potential to deliver a high-grade manganese lump ore. Page 9 of 15 Annual Report 2020 Figure 4: Granted mining lease M52/1074 showing resource categories and location of BBDD0016 relative to current mine plan areas. Sample ID Mn(%) Fe(%) P(%) BBDD016 0-1 m BBDD016 1-2 m BBDD016 2-3 m BBDD016 3-4 m BBDD016 4-5 m BBDD016 5-6 m 42.3 41.4 38.2 33.8 38.3 31.7 4.78 5.67 7.53 10.6 6.58 14.5 0.04 0.04 0.04 0.08 0.10 0.13 SiO2 15.57 16.25 17.62 18.52 17.90 16.81 Al(%) LOI (%) 2.17 2.20 2.33 2.67 2.36 2.55 10.99 11.15 10.75 10.54 11.07 9.70 Subsampling results for manganese bands in diamond drillhole BBDD016. Drillhole BBDD016 was completed as part of a metallurgical programme completed in 20132, however only a single 2cm section of the core was sampled, which returned a manganese grade of 42.2%. This programme was a more comprehensive sampling exercise structured around the revised processing flowsheet and followed up the previous work. The results have confirmed the potential of this area to produce a high-grade manganese concentrate through beneficiation. 2 Company’s ASX release dated 30 January 2014. Page 10 of 15 Annual Report 2020 1.4.2. Sales and Marketing Following the completion of the PFS, the Company engaged with a number of potential offtake counterparties to negotiate terms for the sale of the planned production volumes. As part of the process, the Company entered into a non-binding memorandum of understanding (MOU) with OM Materials (S) Pte Ltd (OMS), a wholly owned subsidiary of OM Holdings Limited (OMH) (ASX:OMH) to supply manganese lump products. This represents the first formal milestone in E25’s engagement with OMH and follows a number of positive discussions between the parties. Under the MOU, E25 and OMH will negotiate a formal offtake agreement as part of the development of the Project. The final terms of the offtake agreement are subject to further negotiations, however the MOU provides a framework for discussions around the following key parameters: • Binding offtake of between 50% and 100% of the concentrate produced from the Project. • Pricing mechanisms based on agreed published benchmark pricing. • An initial term of up to 5 years. • Optimising the logistics solution for the Project. About OM Holdings Limited OM Holdings Limited (OMH) is an integrated manganese and silicon company. It is engaged in the business of mining and trading raw ores, as well as the smelting and marketing of processed ferroalloys. OMH has an established history of over 25 years in the industry, is listed on the ASX and captures value across the entire process chain through operations in Australia, China, Japan, Malaysia, Singapore, and South Africa. Its latest project is a smelter complex in Sarawak, Malaysia, which successfully commenced production in 2014. 1.4.3. Water Bore Drilling A water bore drilling programme was completed in the June 2020 quarter to follow up on previously announced water exploration drilling completed earlier in the year. The programme comprised two production bores drilled for the purposes of conducting pump tests to confirm the potential of the selected area to provide sufficient process water for the beneficiation plant at the Project. The programme targeted two aquifers were, a shallow aquifer in near surface calcretes and a deep aquifer in palaeochannel sands. The programme was successful and the two aquifers, based on hydrogeological modelling, are expected to yield sufficient process water for the current development plans at the Project. Page 11 of 15 Annual Report 2020 1.4.4. Access Agreement/Mining Lease Application All access related matters have been resolved, allowing for the grant of mining lease application M52/1074 for the Project. The mining lease has been granted for a period of 21 years. The lease covers the planned mining and infrastructure areas for the current proposed development. 2. Corporate 2.1. Placement and Share Purchase Plan Subsequent to the end of the financial year, the Company undertook a placement to sophisticated, professional and institutional investors to raise $3,500,000 (before costs) through a placement of 8,750,000 fully paid ordinary shares (Shares) at an issue price of $0.40 per Share (Placement). Euroz was Lead Manager and Sole Bookrunner to the Placement, which settled on 14 July 2020. In addition to the Placement the Company completed a Share Purchase Plan to existing eligible shareholders to raise approximately $3.2M at the same issue price per Share of $0.40. 2.2. Cummins Range RareX Pty Ltd (RareX) exercised its option to purchase the Cummins Range Rare Earths Project comprising Exploration Licence E80/5092 (Cummins Range). Pursuant to the option agreement announced 19 July 2019, RareX paid $500,000 in cash and parent company Sagon Resources Limited (Sagon) (ASX:SG1) issued 13,338,261 ordinary shares at a deemed price of $0.0375 per share for total consideration of $1,000,000. These shares have subsequently been sold on market, providing additional funding for the Company. The sale agreement also includes a number of future payments as follows: • Within twelve months of settlement of the acquisition, RareX/Sagon must pay $500,000 in cash and issue $500,000 in shares in Sagon or pay $1,000,000 in cash (Deferred Consideration). • Within 36 months of settlement, and subject to the completion of a positive Bankable Feasibility Study (BFS) on the Cummins Range project, RareX/Sagon must pay or issue $1,000,000 in cash or Sagon shares or a combination thereof to a total value of $1,000,000 (Further Deferred Consideration). Page 12 of 15 Annual Report 2020 • If a BFS is unable to be completed within 36 months of the date of settlement, the further Deferred Consideration is not payable and RareX will, in lieu, grant E25 a 1% Net Smelter Return Royalty on future production from the Cummins Range project capped at $1,000,000. 2.3. Acuity Capital Controlled Placement Facility During May 2020, the Company utilised the Controlled Placement Agreement (CPA) with Acuity Capital to raise $555,000 (inclusive of costs) by agreeing to issue 1,530,000 Shares to Acuity Capital at an issue price of $0.363. 2.4. $500K Royalty Sale Agreement Complete The royalty sale agreement with Vox Royalty Corp. (VOX) (TSXV:VOX) announced on 26 February 2020 has completed. In consideration for the sale of the royalty portfolio, E25 was issued 151,700 shares in VOX at a deemed valuation of CAD$3.00 for total consideration of A$500,000. The shares were not subject to escrow conditions and have since been sold in market. The royalties included in the agreement are the Green Dam, Holleton and Yamarna gold royalties and the Yalbra graphite royalty. Page 13 of 15 Annual Report 2020 3. Mineral Resources and Ore Reserves 3.1. Mineral Resource Estimate as at 30 June 2020 Butcherbird Manganese project Mineral Resource Classification as first reported on 17 April 2019 and are unchanged as at 30 June 2019 and 30 June 2020. Category Measured Indicated Inferred Total Notes: Tonnes (Mt) Mn (%) Si (%) Fe (%) Al (%) 16 41 206 263 11.6 10.0 9.8 10.0 20.6 20.9 20.8 20.8 11.7 11.0 11.4 11.4 5.7 5.8 5.9 5.9 • Reported at a 7% Mn cut-off for the Measured and Indicated categories and an 8% Mn cut-off for the Inferred categories. • All figures rounded to reflect the appropriate level of confidence (apparent differences may occur due to rounding). 3.2. Mining Reserve as at 30 June 2020 Based on the results of the Pre-Feasibility Study completed in May 2020, E25 published a Maiden Ore Reserve for the Project of 50.55Mt in the Proved and Probable categories3. Butcherbird Manganese project Mineral Reserve Classification as first reported on 19 May 2020 and are unchanged as at 30 June 2020. Classification Tonnes (Mt) Grade (Mn%) Contained Mn (Mt) Recovered Mn (Mt) Proved Probable Total 14.4 36.2 50.6 11.5 9.8 10.3 1.65 3.56 5.21 1.35 2.92 4.27 3.3. Review of Material Changes The Company updated its Mineral Resource estimates for the Butcherbird Project on 17 April 2019. Total reported Measured, Indicated and Inferred Mineral Resource estimates are 263 million tonnes at 10.0% per cent manganese for 26 million tonnes of contained manganese. E25 announced a Maiden Reserve for the Project on 19 May 2020. Total Proved and Probable Reserves are 50.6 million tonnes at 10.3% Mn for 5.21 million tonnes of contained manganese. The Company confirms that it is not aware of any new information or data that materially affects the information included in the original announcements dated 17 April 2019 and 19 May 2020 and that all material assumptions and technical parameters underpinning the estimates continue to apply and have not materially changed. 3 Reference: Element 25 Limited Reserve Statement lodged with ASX 19 May 2020. Page 14 of 15 Annual Report 2020 3.4. Governance controls E25 reports its Mineral Resources and Ore Reserves on an annual basis, with Mineral Resources inclusive of Ore Reserves. Reporting is in accordance with the 2012 Edition of the Australasian Code for Report of Exploration Results, Mineral Resources and Ore Reserves and the ASX Listing Rules. All Competent Persons named by E25 are suitably qualified and experienced as defined in the JORC Code 2012 Edition. 3.5. Competent Persons Statement The information in this report that relates to Exploration Results, Mineral Resources and Ore Reserves listed in the table below is based on, and fairly represents, information and supporting documentation prepared by the Competent Person whose name appears in the same row. Each person named in the table below has sufficient experience which is relevant to the style of mineralisation and types of deposits under consideration and to the activity which he/she has undertaken to qualify as a Competent Person as defined in the JORC Code 2012. Each person identified in the list below consents to the inclusion in this announcement of the material compiled by them in the form and context in which it appears. Activity Exploration Results Yanneri Ridge, Coodamudgi, Mundawindi and Ritchies Mineral Resource Estimates Bindi, Ilgarrari, and Cadgies Mineral Resource Estimates Mining, Metallurgy and Financial Modelling in relation to Mineral Resrerves Competent Person Justin Brown Membership Institution Australasian Institute of Mining and Metallurgy Greg Jones Australasian Institute of Mining and Metallurgy Mark Glassock Australasian Institute of Mining and Metallurgy Ian Huitson Australasian Institute of Mining and Metallurgy At the time that the Exploration Results and Exploration Targets were compiled, Mr Brown was an employee of Element 25 Limited. Mr. Greg Jones, who acts as Consultant Geologist for E25 is a full time employee of IHC Robbins. At the time that the Mineral Resources were compiled, Mr Glassock was a consultant to Element 25 Limited. Ian Huitson is employed by Mining Solutions Pty Ltd. Mr Huitson is a shareholder of Element 25 Limited. Mr Huitson has visited site on a number of occasions as part of the ongoing studies of the Project. Please note with regard to exploration targets, the potential quantity and grade is conceptual in nature, that there has been insufficient exploration to define a Mineral Resource and that it is uncertain if further exploration will result in the determination of a Mineral Resource. Page 15 of 15 Element 25 Limited ABN 46 119 711 929 Annual Report for the year ended 30 June 2020 Element 25 Limited Corporate Information ABN 46 119 711 929 Directors Seamus Cornelius (Non-Executive Chairman) Justin Brown (Managing Director) John Ribbons (Non-Executive Director) Company Secretary John Ribbons Registered Office Suite 2, 11 Ventnor Avenue WEST PERTH WA 6005 Principal Place of Business Level 2, 45 Richardson Street WEST PERTH WA 6005 Telephone: +61 8 6315 1400 Facsimile: +61 8 9486 7093 Solicitors House Legal 86 First Avenue MT LAWLEY WA 6050 Bankers National Australia Bank Limited 1232 Hay Street WEST PERTH WA 6005 ANZ Banking Corporation Level 1, 1275 Hay Street WEST PERTH WA 6005 Share Register Automic Pty Ltd Level 2, 267 St Georges Terrace PERTH WA 6000 Telephone: 1300 288 664 Web: www.automicgroup.com.au Auditors Rothsay Auditing Level 1, Lincoln Building 4 Ventnor Avenue WEST PERTH WA 6005 Internet Address www.element25.com.au Stock Exchange Listing Element 25 Limited shares (Code: E25) are listed on the Australian Securities Exchange. 1 Element 25 Limited Contents Directors' Report Audit Independence Letter Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Directors' Declaration Independent Auditor’s Report ASX Additional Information Corporate Governance Statement 3 9 10 11 12 13 14 31 32 36 39 2 Directors’ Report Element 25 Limited Your directors submit their report on the consolidated entity (referred to hereafter as the Group) consisting of Element 25 Limited and the entities it controlled at the end of, or during, the year ended 30 June 2020. 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. Where applicable, all current and former directorships held in listed public companies over the last three years have been detailed below. Directors were in office for this entire period unless otherwise stated. Names, qualifications, experience and special responsibilities Seamus Cornelius, (Non-Executive Chairman, Chairman of remuneration committee, audit committee member) Mr Cornelius is an experienced international corporate lawyer and company director. He was a partner with a major international law firm from 2000 to 2010 and resided in China from 1993 until 2017. In 2010, Mr Cornelius commenced his public company career as company director and is currently a director and non-executive chairman of Buxton Resources Limited, Duketon Mining Limited and Danakali Limited. Mr Cornelius has not held any former directorships in the last 3 years. Justin Brown, B.Sc. (Hon), (Managing Director, audit committee member) Mr Brown is a geologist with over 20 years of experience in global mineral exploration and mining. He has been involved in the full spectrum of mineral exploration through to mining in a range of commodities. Mr Brown has also held a number of board positions, including an executive role with Element 25 Limited since 2006. He has a strong track record of closing successful commercial transactions and brings a well-rounded set of skills to the management of the Company's activities. Mr Brown was the founding Managing Director of the Company. Mr Brown was most recently a non-executive director of Exterra Resources Ltd (ceased 20 September 2017), which merged with Anova Metals Ltd via a Scheme of Arrangement. John Ribbons, B.Bus., CPA, ACIS (Non-Executive Director, Chairman of audit committee, remuneration committee member) Mr Ribbons is an accountant who has worked within the resources industry for over twenty years in the capacity of group financial controller, chief financial officer or company secretary. Mr Ribbons has extensive knowledge and experience with ASX listed production and exploration companies. He has considerable site based experience with operating mines and has also been involved with the listing of several exploration companies on ASX. Mr Ribbons has experience in capital raising, ASX and TSX compliance and regulatory requirements. Mr Ribbons has not held any former directorships in the last 3 years. COMPANY SECRETARY John Ribbons Interests in the shares and options of the Company and related bodies corporate As at the date of this report, the interests of the directors in the shares and options of Element 25 Limited were: Seamus Cornelius Justin Brown John Ribbons Ordinary Shares 5,255,177 5,405,360 660,715 Options over Ordinary Shares 2,300,000 4,600,000 2,300,000 PRINCIPAL ACTIVITIES During the year the Group carried out exploration on its tenements and applied for or acquired additional tenements with the objective of identifying economic mineral deposits. There was no significant change in the nature of the Group’s activities during the year. DIVIDENDS No dividends were paid or declared during the financial year. No recommendation for payment of dividends has been made. 3 Directors' Report continued Element 25 Limited REVIEW OF OPERATIONS The year ended 30 June 2020 has seen excellent progress for Element 25 Limited, including the publication of the Pre-Feasibility Study (PFS) which looked at the potential for a low capital cost early cashflow operation exporting manganese concentrate from the Butcherbird Manganese Project (Project). The PFS returned outstanding economics and the Company is currently working to deliver the Project as soon as practicable. In addition, the Company published a PFS and Maiden Reserve for the Project, which highlighted outstanding economics and a low capital requirement. The PFS contemplates the export and sale of manganese concentrate from the Project over a long mine life confirming the potential for the Project to be Australia’s next significant manganese mine. The Company is currently working towards delivering the Project as outlined in the PFS. This is an exciting time in the development of the Company as it continues to work hard for its shareholders with the view to creating shareholder value. Finance Review The Group began the financial year with a cash reserve of $2,552,400. During the year the Company raised $581,875 via a controlled placement facility and the exercise of 125,000 unlisted options, issuing a total of 1,655,000 fully paid ordinary shares. Funds were used to advance the Group’s 100% owned Butcherbird Manganese Project located in Australia. During the year total tenement acquisition and exploration expenditure incurred by the Group amounted to $3,491,939 (2019: $3,745,629). In line with the Group’s accounting policies, all exploration expenditure was expenses as incurred. The Group recognised a net fair value loss on financial assets of $919,553 (2019: $506,400 fair value loss), and income of $2,635,000 (2019: $1,700,000) on the sale of mineral properties. The Group also received a research and development tax incentive of $615,465 (2019: $208,653) and other government grants totalling $539,922 (2019: Nil). Net administration expenditure incurred amounted to $1,200,166 (2019: $1,081,958). This has resulted in an operating loss after income tax for the year ended 30 June 2020 of $1,821,271 (2019: $3,633,987). At 30 June 2020 surplus funds available totalled $2,697,175. Operating Results for the Year Summarised operating results are as follows: Consolidated entity revenues and profit from ordinary activities before income tax expense Shareholder Returns Basic and diluted loss per share (cents) 2020 Revenues $ Results $ 3,844,030 (1,821,271) 2020 (1.9) 2019 (4.3) Risk Management The board is responsible for ensuring that risks, and opportunities, are identified on a timely basis and that activities are aligned with the risks and opportunities identified by the board. The Group believes that it is crucial for all board members to be a part of this process, and as such the board has not established a separate risk management committee. The board has a number of mechanisms in place to ensure that management's objectives and activities are aligned with the risks identified by the board. These include the following: • Board approval of a strategic plan, which encompasses strategy statements designed to meet stakeholders needs and manage business risk. Implementation of board approved operating plans and budgets and board monitoring of progress against these budgets. • SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS Other than as disclosed in this Annual Report, no significant changes in the state of affairs of the Group occurred during the financial year. SIGNIFICANT EVENTS AFTER THE BALANCE DATE No matters or circumstances, besides those disclosed at note 21, have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years. LIKELY DEVELOPMENTS AND EXPECTED RESULTS The Group expects to maintain the present status and level of operations and hence there are no likely developments in the Group’s operations. 4 Directors' Report continued Element 25 Limited ENVIRONMENTAL REGULATION AND PERFORMANCE The Group is subject to significant environmental regulation in respect to its exploration activities. The Group aims to ensure the appropriate standard of environmental care is achieved, and in doing so, that it is aware of and is in compliance with all environmental legislation. The directors of the Group are not aware of any breach of environmental legislation for the year under review. COVID-19 IMPACT The impact of the COVID-19 pandemic is ongoing and whilst it has had no financial impact for the Group up to 30 June 2020, it is not practicable to estimate the potential impact, positive or negative, after the reporting date. The situation is rapidly developing and is dependent on measures imposed by the Australian government and other countries, such as maintaining social distancing requirements, quarantine, travel restrictions and any economic stimulus that may be provided. REMUNERATION REPORT The information provided in this remuneration report has been audited as required by section 308(3C) of the Corporations Act 2001. Principles used to determine the nature and amount of remuneration Remuneration Policy The remuneration policy of Element 25 Limited has been designed to align key management personnel objectives with shareholder and business objectives by providing a fixed remuneration component and offering specific long-term incentives based on key performance areas affecting the Group’s financial results. The board of Element 25 Limited believes the remuneration policy to be appropriate and effective in its ability to attract and retain the best key management personnel to run and manage the Group. The board’s policy for determining the nature and amount of remuneration for key management personnel of the Group is as follows: The remuneration policy, setting the terms and conditions for the executive directors and other senior executives (if any), was developed by the board. All executives receive a base salary (which is based on factors such as length of service and experience) and superannuation. The board reviews executive packages annually by reference to the Group’s performance, executive performance and comparable information from industry sectors and other listed companies in similar industries. The board may exercise discretion in relation to approving incentives, bonuses and options. The policy is designed to attract and retain the highest calibre of executives and reward them for performance that results in long-term growth in shareholder wealth. Executives are also entitled to participate in the employee share and option arrangements. The executive directors and executives (if any) receive a superannuation guarantee contribution required by the government, which was 9.5% for the 2020 financial year, and do not receive any other retirement benefits. Some individuals may choose to sacrifice part of their salary to increase payments towards superannuation. All remuneration paid to directors and executives is valued at the cost to the Group and expensed. Options are valued using the Black-Scholes methodology. The board policy is to remunerate non-executive directors at market rates for comparable companies for time, commitment and responsibilities. The board determines payments to the non-executive directors and reviews their remuneration annually, based on market practice, duties and accountability. Independent external advice is sought when required. The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders at the Annual General Meeting (currently $200,000). Fees for non-executive directors are not linked to the performance of the Group. However, to align directors’ interests with shareholder interests, the directors are encouraged to hold shares in the Company. Performance based remuneration The Group currently has no performance based remuneration component built into key management personnel remuneration packages. Group performance, shareholder wealth and key management personnel remuneration The remuneration policy has been tailored to increase the direct positive relationship between shareholders’ investment objectives and key management personnel performance. Currently, this is facilitated through the issue of options to the majority of key management personnel to encourage the alignment of personal and shareholder interests. The Group believes this policy will be effective in increasing shareholder wealth. At commencement of production, performance based bonuses based on key performance indicators are expected to be introduced. Use of remuneration consultants The Group did not employ the services of any remuneration consultants during the financial year ended 30 June 2020. Voting and comments made at the Company’s 2019 Annual General Meeting The Company received approximately 82.0% of “yes” votes on its remuneration report for the 2019 financial year. The Company did not receive any specific feedback at the Annual General Meeting or throughout the year on its remuneration practices. Details of remuneration Details of the remuneration of the key management personnel of the Group are set out in the following table. The key management personnel of the Group include only the directors as per page 3. 5 Element 25 Limited Directors' Report continued Key management personnel of the Group Short-Term Post- Employment Directors Seamus Cornelius 2020 2019 Justin Brown 2020 2019 John Ribbons 2020 2019 Salary & Fees $ 56,573 60,000 220,000 220,000 42,000 42,000 Total key management personnel compensation 2020 2019 318,573 322,000 Non-Monetary Superannuation $ $ Long-Term Long Service Leave $ Share-based Payments Total Options $ $ - - 5,714 4,883 - - 5,714 4,883 1,902 - 20,900 20,900 - - - - 4,015 48,182 - - 30,100 36,350 60,200 72,700 30,100 36,350 88,575 96,350 310,829 366,665 72,100 78,350 22,802 20,900 4,015 48,182 120,400 145,400 471,504 541,365 Service agreements The details of service agreements of the key management personnel of the Group are as follows: Justin Brown, Managing Director: • Term of agreement – until terminated in accordance with the agreement. The Company may terminate without cause at any time by giving six months’ written notice, whilst the executive must provide three months’ written notice of termination (unless breach or agreement by the Company). The agreement contains standard clauses on immediate termination for breach of contract or misconduct. • Annual salary of $220,000 (plus 9.5% statutory superannuation), plus the provision of income protection insurance. Mr Brown’s salary • is reviewed on an annual basis. In the event the Managing Director is terminated as a result of one of the following circumstances the Company will make a six calendar months termination payment at the base salary and any unvested incentive options will vest immediately: o The executive is demoted from his position as executive director of the Company; o The executive is terminated by reason of the liquidation of the Company for the purpose of reconstruction or amalgamation; o The executive is requested to assume responsibilities or perform tasks not reasonably consistent with his position as executive director of the Company; or o The Company is subject to a change of control event as described by the Corporations Act including but not limited to a takeover, merger or a resolution is passed at a general meeting of the Company which results in a change to the majority of the board of directors. Share-based compensation Options Options are issued to key management personnel as part of their remuneration. The options are not issued based on performance criteria but are issued to the majority of key management personnel of Element 25 Limited to increase goal congruence between key management personnel and shareholders. The following options were granted to or vesting with key management personnel during the year: Grant Date Granted Number Vesting Date Expiry Date Exercise Price (cents) Value per option at grant date (cents) (1) Exercised Number % of Remuneration Directors Seamus Cornelius Justin Brown John Ribbons 29/11/2019 29/11/2019 29/11/2019 500,000 1,000,000 500,000 22/11/2019 22/11/2019 22/11/2019 20/11/2024 20/11/2024 20/11/2024 27.3 27.3 27.3 6.0 6.0 6.0 Nil Nil Nil 34.0 19.4 41.7 (1) The value at grant date in accordance with AASB 2: Share Based Payments of options granted during the year as part of remuneration. For options granted during the current year, the valuation inputs for the Black-Scholes option pricing model were as follows: Directors Underlying Share Price (cents) 18.5 Exercise Price (cents) 27.3 Risk Free Interest Rate Valuation Date 0.8% 22/11/2019 Expiry Date 20/11/2024 Volatility 50.0% 6 Directors' Report continued Element 25 Limited Details of ordinary shares in the Company provided as a result of the exercise of remuneration options to key management personnel of the Group are set out below: Number of ordinary shares issued on exercise of options during the year Amount paid per ordinary share (cents) Value exercised ($) (1) Directors Seamus Cornelius 125,000 21.5 (4,375) No amounts are unpaid on any shares issued on the exercise of options. (1) The value at exercise date of the options that were granted as part of remuneration and were exercised during the year has been determined as the intrinsic value of the options at that date. Equity instruments held by key management personnel Share holdings The numbers of shares in the Company held during the financial year by each director of Element 25 Limited and other key management personnel of the Group, including their personally related parties, and any nominally held, are set out below. There were no shares granted during the reporting period as compensation. 2020 Acquired during the year on the exercise of options Balance at start of the year Other changes during the year Balance at end of the year Directors of Element 25 Limited Ordinary shares Seamus Cornelius Justin Brown John Ribbons 3,450,400 5,255,360 585,715 125,000 - - 1,604,777 - - 5,180,777 5,255,360 585,715 Option holdings The numbers of options over ordinary shares in the Company held during the financial year by each director of Element 25 Limited and other key management personnel of the Company, including their personally related parties, are set out below: 2020 Balance at start of the year Granted as compensation Exercised Other changes Balance at end of the year Vested and exercisable Unvested Directors of Element 25 Limited Seamus Cornelius Justin Brown John Ribbons 2,550,000 4,850,000 2,550,000 500,000 1,000,000 500,000 (125,000) - - (625,000) (1,250,000) (750,000) 2,300,000 4,600,000 2,300,000 2,300,000 4,600,000 2,300,000 - - - All vested options are exercisable at the end of the year. Loans to key management personnel There were no loans to key management personnel during the year. End of audited Remuneration Report DIRECTORS’ MEETINGS During the year the Company held ten meetings of directors. The attendance of directors at meetings of the board were: Directors Meetings Audit Committee Meetings Remuneration Committee Meetings A 10 10 10 B 10 10 10 Seamus Cornelius Justin Brown John Ribbons Notes A - Number of meetings attended. B - Number of meetings held during the time the director held office during the year. * - Not a member of the Remuneration Committee A 2 2 2 B 2 2 2 A - * - B - * - 7 Directors' Report continued Element 25 Limited SHARES UNDER OPTION Unissued ordinary shares of Element 25 Limited under option at the date of this report are as follows: Exercise price (cents) 50.0 20.0 27.3 26.0 26.1 35.5 32.5 20.0 35.0 Date options granted 26 June 2020 7 April 2020 22 November 2019 22 February 2019 & 26 June 2020 29 November 2018 1 December 2017 3 November 2017 2 December 2016 20 November 2015 Expiry date 25 June 2025 1 April 2025 20 November 2024 22 February 2024 28 November 2023 28 November 2022 3 November 2022 24 November 2021 20 November 2020 Total number of options outstanding at the date of this report Number of options 500,000 500,000 2,000,000 1,850,000 2,000,000 1,200,000 600,000 2,000,000 2,200,000 12,850,000 No option holder has any right under the options to participate in any other share issue of the Company or any other entity. INSURANCE OF DIRECTORS AND OFFICERS During the financial year, Element 25 Limited paid a premium of $16,951 to insure the directors of the Company. The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of entities in the Group, and any other payments arising from liabilities incurred by the officers in connection with such proceedings. This does not include such liabilities that arise from conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the company. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities. NON-AUDIT SERVICES There were no non-audit services provided by the entity's auditor, Rothsay Auditing, or associated entities, during the year. PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party, for the purpose of taking responsibility on behalf of the company for all or any part of those proceedings. No proceedings have been brought or intervened in on behalf of the company with leave of the Court under section 237 of the Corporations Act 2001. AUDITOR’S INDEPENDENCE DECLARATION A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 9. Signed in accordance with a resolution of the directors. Justin Brown Managing Director Perth, 18 September 2020 8 AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001 As lead auditor of the review of Element 25 Limited for the year ended 30 June 2020, I declare that, to the best of my knowledge and belief, there have been: • no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and • no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Element 25 Limited and the entities it controlled during the year. Rothsay Auditing Daniel Dalla Partner 18 September 2020 Liability limited by a scheme approved under Professional Standards Legislation Consolidated Statement of Comprehensive Income Element 25 Limited YEAR ENDED 30 JUNE 2020 Notes Consolidated REVENUE Other income EXPENDITURE Administration expenses Depreciation expense Exploration expenditure Fair value losses on financial assets Salaries and employee benefits expense Secretarial and share registry expenses Share based payment expense LOSS BEFORE INCOME TAX INCOME TAX EXPENSE 2020 $ 10,677 3,833,353 (576,499) (5,556) (3,491,939) (919,553) (227,124) (152,799) (291,831) 4 5 24(b) 2019 $ 35,669 1,908,653 (511,161) (4,251) (3,745,629) (506,400) (378,517) (187,911) (244,440) (1,821,271) (3,633,987) 7 - - LOSS FOR THE YEAR ATTRIBUTABLE TO MEMBERS OF ELEMENT 25 LIMITED (1,821,271) (3,633,987) OTHER COMPREHENSIVE INCOME Items that may be reclassified to profit or loss Exchange differences on translation of foreign operations Other comprehensive income for the year, net of tax TOTAL COMPREHENSIVE LOSS FOR THE YEAR ATTRIBUTABLE TO MEMBERS OF ELEMENT 25 LIMITED (5,803) (5,803) (10,431) (10,431) (1,827,074) (3,644,418) LOSS PER SHARE FOR LOSS ATTRIBUTABLE TO THE ORDINARY EQUITY HOLDERS OF THE COMPANY Basic and diluted loss per share (cents per share) 23 (1.9) (4.3) The above Consolidated Statement of Comprehensive Income should be read in conjunction with the Notes to the Consolidated Financial Statements. 10 Consolidated Statement of Financial Position Element 25 Limited AT 30 JUNE 2020 Notes Consolidated CURRENT ASSETS Cash and cash equivalents Trade and other receivables Financial assets at fair value through profit or loss TOTAL CURRENT ASSETS NON-CURRENT ASSETS Plant and equipment TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Employee benefits obligations TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Employee benefits obligations TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Reserves Accumulated losses TOTAL EQUITY 2020 $ 2,697,175 1,184,417 4,302,502 8,184,094 6,868 6,868 2019 $ 2,552,400 75,573 6,200,565 8,828,538 12,157 12,157 8,190,962 8,840,695 1,106,194 235,443 1,341,637 808 808 808,639 209,922 1,018,561 249 249 1,342,445 1,018,810 6,848,517 7,821,885 16,403,737 4,098,267 (13,653,487) 6,848,517 15,841,862 3,812,239 (11,832,216) 7,821,885 8 9 10 11 12 13 14 The above Consolidated Statement of Financial Position should be read in conjunction with the Notes to the Consolidated Financial Statements. 11 Consolidated Statement of Changes in Equity Element 25 Limited YEAR ENDED 30 JUNE 2020 Consolidated BALANCE AT 1 JULY 2018 Loss for the year OTHER COMPREHENSIVE INCOME Exchange differences on translation of foreign operations TOTAL COMPREHENSIVE LOSS TRANSACTIONS WITH OWNERS IN THEIR CAPACITY AS OWNERS Shares issued during the year Employee and consultant share-based payments Notes Contributed Equity $ 14,351,850 - Share-Based Payments Reserve $ 3,604,253 - Foreign Currency Translation Reserve $ Accumulated Losses $ Total $ (26,023) - (8,198,229) (3,633,987) 9,731,851 (3,633,987) - - 1,490,012 - - - 24(b) - 244,440 (10,431) (10,431) - (3,633,987) (10,431) (3,644,418) - - - - 1,490,012 244,440 BALANCE AT 30 JUNE 2019 15,841,862 3,848,693 (36,454) (11,832,216) 7,821,885 Loss for the year OTHER COMPREHENSIVE INCOME Exchange differences on translation of foreign operations TOTAL COMPREHENSIVE LOSS TRANSACTIONS WITH OWNERS IN THEIR CAPACITY AS OWNERS Shares issued during the year Share issue transaction costs Employee and consultant share-based payments - - - 581,875 (20,000) - - - - - 24(b) - 291,831 - (1,821,271) (1,821,271) (5,803) (5,803) - (1,821,271) (5,803) (1,827,074) - - - - - - 581,875 (20,000) 291,831 BALANCE AT 30 JUNE 2020 16,403,737 4,140,524 (42,257) (13,653,487) 6,848,517 The above Consolidated Statement of Changes in Equity should be read in conjunction with the Notes to the Consolidated Financial Statements. 12 Consolidated Statement of Cash Flows Element 25 Limited YEAR ENDED 30 JUNE 2020 Notes Consolidated CASH FLOWS FROM OPERATING ACTIVITIES Payments to suppliers and employees Interest received Proceeds on sale of mining interests Expenditure on mining interests Proceeds from disposal of financial assets at fair value through profit or loss Payments for financial assets at fair value through profit or loss Research and development tax incentive received Other government grants received Royalties received NET CASH OUTFLOW FROM OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Payments for plant and equipment NET CASH (OUTFLOW)/INFLOW FROM INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issues of ordinary shares Payment of share issue transaction costs NET CASH INFLOW FROM FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents CASH AND CASH EQUIVALENTS AT THE END OF THE FINANCIAL YEAR 22 8 2020 $ (829,374) 11,445 635,000 (3,266,215) 1,893,754 (60,000) 615,465 539,922 42,966 (417,037) 2019 $ (917,567) 37,121 1,700,000 (3,131,449) 1,024,105 (62,500) 208,653 - - (1,141,637) (267) (267) 8,410 8,410 581,875 (20,000) 561,875 144,571 2,552,400 204 2,697,175 1,490,012 - 1,490,012 356,785 2,194,663 952 2,552,400 The above Consolidated Statement of Cash Flows should be read in conjunction with the Notes to the Consolidated Financial Statements. 13 Notes to the Consolidated Financial Statements Element 25 Limited 30 JUNE 2020 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements are for the consolidated entity consisting of Element 25 Limited and its subsidiaries. The financial statements are presented in the Australian currency. Element 25 Limited is a company limited by shares, domiciled and incorporated in Australia. The financial statements were authorised for issue by the directors on 18 September 2020. The directors have the power to amend and reissue the financial statements. (a) Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. Element 25 Limited is a for-profit entity for the purpose of preparing the financial statements. (i) Compliance with IFRS The consolidated financial statements of the Element 25 Limited Group also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). (ii) New and amended standards adopted by the Group The Group has adopted all the new, revised or amending Accounting Standards and Interpretations issued by the AASB that are relevant to its operations and effective for the current annual reporting period. New and revised Standards and amendments thereof and Interpretations effective for the current year that are relevant to the Group include: • AASB 16 Leases; and Interpretation 23 Uncertainty Over Income Tax Treatments. • AASB 16 Leases The Group has adopted AASB 16 Leases from 1 July 2019 which has resulted in changes in the classification, measurement and recognition of leases. The new standard requires recognition of a right-of-use asset (the leased item) and a financial liability (lease payments) and removes the former distinction between ‘operating’ and ‘finance’ leases. The exceptions are short-term leases and leases of low value assets. In applying AASB 16 for the first time, as permitted by the standard, the Group has elected not to reassess whether a contract is, or contains, a lease at the date of initial application. Instead, for contracts entered before the transition date the Group relied on its assessment made applying AASB 117 Leases and Interpretation 4 Determining whether an Arrangement contains a Lease. There was no material impact on adoption of the standard and no adjustment made to current or prior period amounts. The Group is party to one lease agreement for the office premises for a fixed period of 12 months commencing 1 July 2019. Under AASB 16 this lease is classified as a short-term lease defined as a lease with a lease term of 12 months or less. Payments associated with this short-term lease are recognised on a straight-line basis as an expense in profit or loss. (iii) New standards and interpretations not yet adopted Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2020 reporting periods and have not been early adopted by the Group. The Group’s assessment of the impact of these new standards and interpretations is that they are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. (iv) Historical cost convention These financial statements have been prepared under the historical cost convention, except for certain financial assets and liabilities measured at fair value. (b) Principles of consolidation (i) Subsidiaries 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 rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The acquisition method of accounting is used to account for business combinations by the Group. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. 14 Notes to the Consolidated Financial Statements continued Element 25 Limited 30 JUNE 2020 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) (ii) Changes in ownership interests The Group treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners of the Group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognised in a separate reserve within equity attributable to owners of Element 25 Limited. When the Group ceases to have control, any retained interest in the entity is remeasured to its fair value with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, jointly controlled entity or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss. If the ownership interest in a jointly controlled entity or associate is reduced but joint control or significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate. (c) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the full Board of Directors. (d) Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Australian dollars, which is Element 25 Limited's functional and presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency 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 year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. They are deferred in equity if they are attributable to part of the net investment in a foreign operation. (iii) Group companies The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • • assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position; income and expenses for each statement of profit or loss and other comprehensive income are translated at average exchange rates (unless that is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and all resulting exchange differences are recognised in other comprehensive income. • On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are recognised in other comprehensive income. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, the associated exchange differences are reclassified to profit or loss, as part of the gain or loss on sale. (e) Revenue recognition Interest revenue is recognised on a time proportionate basis that takes into account the effective yield on the financial assets. (f) Government grants Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received, and the Group will comply with all attached conditions. (g) Income tax The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. 15 Notes to the Consolidated Financial Statements continued Element 25 Limited 30 JUNE 2020 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company’s subsidiaries and associated operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised, or the deferred income tax liability is settled. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. (h) Leases As explained in note 1(a)(ii) above, the Company has changed its accounting policy for leases where the Company is the lessee. The new policy and the impact of the change are described in note 1(a)(ii). Until 30 June 2019, leases where a significant portion of the risks and rewards of ownership are not transferred to the Company as lessee are classified as operating leases (note 18). Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease. (i) Impairment of assets Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. (j) Cash and cash equivalents For statement of cash flows presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value, and bank overdrafts. (k) Investments and other financial assets (i) Classification The Group classifies its financial assets in the following measurement categories: • Those to be measured subsequently at fair value (either through OCI or through profit or loss); and Those to be measured at amortised cost. • The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows. For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. For investments in equity instruments that are not held for trading, this will depend on whether the Company has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income (FVOCI). (ii) Recognition and derecognition Regular way purchases and sales of financial assets are recognised on trade-date, the date on which the Company commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownership. 16 Notes to the Consolidated Financial Statements continued Element 25 Limited 30 JUNE 2020 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) (iii) Measurement At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss. Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest. Debt instruments Subsequent measurement of debt instruments depends on the Company’s business model for managing the asset and the cash flow characteristics of the asset. There are three measurement categories into which the Company classifies its debt instruments: • • • Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in other income or expenses. Impairment losses are presented as a separate line item in the statement of profit or loss. FVOCI: Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest income and foreign exchange gains and losses which are recognised in profit or loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in other income or expenses. Interest income from these financial assets is included in finance income using the effective interest rate method. Foreign exchange gains and losses are presented in other income or expenses and impairment losses are presented as a separate line item in the statement of profit or loss. FVPL: Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVPL. A gain or loss on a debt investment that is subsequently measured at FVPL is recognised in profit or loss and presented net within other income or expenses in the period in which it arises. Equity instruments The Company subsequently measures all equity investments at fair value. Where the Company’s management has elected to present fair value gains and losses on equity investments in OCI, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from such investments continue to be recognised in profit or loss as other income when the Company’s right to receive payment is established. Changes in the fair value of financial assets at FVPL are recognised in other income or expenses in the statement of profit or loss as applicable. Impairment losses (and reversal of impairment losses) on equity investments measured at FVOCI are not reported separately from other changes in fair value. (iv) Impairment From 1 July 2019 the Company assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortised cost and FVOCI. The impairment methodology depends on whether there has been a significant increase in credit risk. (l) Plant and equipment All plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to the statement of comprehensive income during the reporting period in which they are incurred. Depreciation of plant and equipment is calculated using the reducing balance method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives or, in the case of leasehold improvements and certain leased plant and equipment, the shorter lease term. The rates vary between 20% and 40% per annum. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 1(i)). Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the statement of comprehensive income. When revalued assets are sold, it is Company policy to transfer the amounts included in other reserves in respect of those assets to retained earnings. (m) Exploration and evaluation costs Exploration and evaluation costs are written off in the year they are incurred. 17 Notes to the Consolidated Financial Statements continued Element 25 Limited 30 JUNE 2020 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) (n) Trade and other payables These amounts represent liabilities for goods and services provided to the Company prior to the end of the financial year which are unpaid. The amounts are unsecured, non-interest bearing and are paid on normal commercial terms. (o) Employee benefits (i) Wages and salaries and annual leave Liabilities for wages and salaries, including non-monetary benefits, and annual leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. (ii) Other long-term employee benefit obligations The Group also has liabilities for long service leave that are not expected to be settled wholly within 12 months after the end of the period in which the employees render the related service. These obligations are therefore measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of the reporting period of high-quality corporate bonds with terms that match, as closely as possible, the estimated future cash outflows. Remeasurements as a result of experience adjustments and changes in actuarial assumptions are recognised in profit or loss. The obligations are presented as current liabilities in the balance sheet if the Group does not have an unconditional right to defer settlement for at least twelve months after the reporting period, regardless of when the actual settlement is expected to occur. (ii) Share-based payments The Company provides benefits to employees (including directors) of the Company in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (‘equity-settled transactions’), refer to note 24. The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined by an internal valuation using a Black-Scholes option pricing model. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘vesting date’). The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the number of options that, in the opinion of the directors of the Company, will ultimately vest. This opinion is formed based on the best available information at balance date. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award. (p) Issued capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options for the acquisition of a business are not included in the cost of the acquisition as part of the purchase consideration. (q) Earnings per share (i) Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to owners of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year. (ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. 18 Notes to the Consolidated Financial Statements continued Element 25 Limited 30 JUNE 2020 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) (r) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows. (s) Critical accounting judgements, estimates and assumptions The preparation of these financial statements 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 areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are: Share based payment transactions The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by an internal valuation using a Black-Scholes option pricing model, using the assumptions detailed in note 24. Environmental Issues Balances disclosed in the financial statements and notes thereto are not adjusted for any pending or enacted environmental legislation, and the directors understanding thereof. At the current stage of the Group’s development and its current environmental impact the directors believe such treatment is reasonable and appropriate. Taxation Balances disclosed in the financial statements and the notes thereto related to taxation are based on the best estimates of the directors. These estimates consider both the financial performance and position of the Group as they pertain to current income taxation legislation, and the directors understanding thereof. No adjustment has been made for pending or future taxation legislation. The current income tax position represents the directors’ best estimate, pending an assessment by the Australian Taxation Office. 2. FINANCIAL RISK MANAGEMENT The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. Risk management is carried out by the full board of directors as the Group believes that it is crucial for all board members to be involved in this process. The managing director, with the assistance of senior management as required, has responsibility for identifying, assessing, treating and monitoring risks and reporting to the board on risk management. (a) Market risk (i) Foreign exchange risk The Group operates internationally and are exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Euro. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated in a currency that is not the entity’s functional currency. The Group has not formalised a foreign currency risk management policy however, it monitors its foreign currency expenditure considering exchange rate movements. The risk is not material and sensitivity analysis does not result in a material effect on Group results or financial position. (ii) Price risk The Group is exposed to equity securities price risk. This arises from investments held by the Group and classified in the statement of financial position as financial assets at fair value through profit or loss. Given the current level of operations, the Group is not currently exposed to commodity price risk. To minimise the risk, the Group’s investments are of high quality and are publicly traded on the ASX. The investments are managed on a day to day basis to pick up any significant adjustments to market prices. Sensitivity analysis At 30 June 2020, if the value of the equity instruments held had increased/decreased by 15% with all other variables held constant, post- tax loss for the Group would have been $645,375 lower/higher, with no changes to other equity balances, as a result of gains/losses on equity securities classified as financial assets at fair value through profit or loss (2019: $930,085 lower/higher post-tax loss). 19 Notes to the Consolidated Financial Statements continued Element 25 Limited 30 JUNE 2020 2. FINANCIAL RISK MANAGEMENT (cont’d) (iii) Interest rate risk The Group is exposed to movements in market interest rates on cash and cash equivalents. The Group policy is to monitor the interest rate yield curve out to six months to ensure a balance is maintained between the liquidity of cash assets and the interest rate return. The entire balance of cash and cash equivalents for the Group $2,697,175 (2019: $2,552,400) is subject to interest rate risk. The proportional mix of floating interest rates and fixed rates to a maximum of six months fluctuate during the year depending on current working capital requirements. The weighted average interest rate received on cash and cash equivalents by the Group was 0.5% (2019: 1.7%). Sensitivity analysis At 30 June 2020, if interest rates had changed by +/- 50 basis points from the weighted average rate for the year with all other variables held constant, post-tax profit for the Group would have been $10,300 higher/lower (2019: $10,560 lower/higher post-tax loss on +/- 50 basis points) as a result of higher/lower interest income from cash and cash equivalents. (b) Credit risk The maximum exposure to credit risk at reporting date is the carrying amount (net of provision for impairment) of those assets as disclosed in the statement of financial position and notes to the financial statements. The only significant concentration of credit risk for the Group is the cash and cash equivalents held with financial institutions. All material deposits are held with the major Australian banks for which the Board evaluate credit risk to be minimal. As the Group does not presently have any debtors, lending, significant stock levels or any other credit risk, a formal credit risk management policy is not maintained. (c) Liquidity risk The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and ensuring sufficient cash and marketable securities are available to meet the current and future commitments of the Group. Due to the nature of the Group’s activities, being mineral exploration, the Group does not have ready access to credit facilities, with the primary source of funding being equity raisings. The Board of Directors constantly monitor the state of equity markets in conjunction with the Group’s current and future funding requirements, with a view to initiating appropriate capital raisings as required. The financial liabilities of the Group are confined to trade and other payables as disclosed in the statement of financial position. All trade and other payables are non-interest bearing and due within 12 months of the reporting date. (d) Fair value estimation The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. The equity investments held by the Group are classified at fair value through profit or loss. The market value of all equity investments represents the fair value based on quoted prices on active markets (ASX) as at the reporting date without any deduction for transaction costs. These investments are classified as level 1 financial instruments. 20 Notes to the Consolidated Financial Statements continued Element 25 Limited 30 JUNE 2020 2. FINANCIAL RISK MANAGEMENT (cont’d) The carrying amounts and estimated fair values of financial assets and financial liabilities are as follows: Consolidated Financial Assets Cash and cash equivalents Trade and other receivables Financial assets at fair value through profit or loss Total Financial Assets Financial Liabilities Trade and other payables Total Financial Liabilities 2020 $ 2,697,175 1,184,417 4,302,502 8,184,094 1,106,194 1,106,194 2019 $ 2,552,400 75,573 6,200,565 8,828,538 808,639 808,639 The methods and assumptions used to estimate the fair value of financial instruments are outlined below: Cash The carrying amount is fair value due to the liquid nature of these assets. Receivables/Payables Due to the short-term nature of these financial rights and obligations, their carrying amounts are estimated to represent their fair values. Fair value measurements of financial assets The carrying values of financial assets and liabilities of the Group approximate their fair values. Fair values of financial assets and liabilities have been determined for measurement and / or disclosure purposes. Fair value hierarchy The Group classifies assets and liabilities carried at fair value using a fair value hierarchy that reflects the significance of the inputs used in determining that value. The following table analyses financial instruments carried at fair value by the valuation method. The different levels in the hierarchy have been defined as follows: Level 1: Level 2: quoted prices (unadjusted) in active markets for identical assets or liabilities; inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and inputs for the asset or liability that are not based on observable market data (unobservable inputs). Level 3: 30 June 2020 Financial assets at fair value through profit or loss Total as at 30 June 2020 30 June 2019 Financial assets at fair value through profit or loss Total as at 30 June 2019 3. SEGMENT INFORMATION Level 1 $ 4,302,502 4,302,502 6,200,565 6,200,565 Level 2 $ Level 3 $ - - - - Total $ 4,302,502 4,302,502 6,200,565 6,200,565 - - - - The Group has identified its operating segments based on the internal reports that are reviewed and used by the board of directors (chief operating decision makers) in assessing performance and determining the allocation of resources. The Group is managed primarily on the basis of geographic location of assets given that the type of work done in each location is of a similar nature. Operating segments are therefore determined on this basis, with two segments being identified: Australia; and France. The activities undertaken in each segment are those associated with the determination and assessment of the existence of commercial economic reserves, from the Group’s mineral assets in the respective geographic location. Segment performance is evaluated based on the operating profit and loss and cash flows and is measured in accordance with the Group’s accounting policies. 21 Notes to the Consolidated Financial Statements continued Element 25 Limited 30 JUNE 2020 3. SEGMENT INFORMATION (cont’d) Australia France Total 2020 $ 2019 $ 2020 $ 2019 $ 2020 $ 2019 $ Segment revenue - - - - - - Reconciliation of segment revenue to total revenue before tax: Interest revenue Total revenue Segment results Reconciliation of segment result to net loss before tax: Interest revenue Other income Other corporate and administration Net (loss)/profit before tax (764,021) (1,998,605) (69,410) (47,024) (833,431) (2,045,629) 10,677 10,677 35,669 35,669 10,677 1,155,388 (2,153,905) 35,669 208,653 (1,832,680) (1,821,271) (3,633,987) Segment operating assets 1,000,000 - - - 1,000,000 - Reconciliation of segment operating assets to total assets: Other corporate and administration assets Total assets 4. REVENUE From continuing operations Other revenue Interest 5. OTHER INCOME Net gain on sale of mining interests Research and development tax incentive Government grant funding Royalties 6. EXPENSES Profit or loss before income tax includes the following specific expenses: Expenses relating to short-term leases Defined contribution superannuation expense Net foreign exchange losses 22 7,190,962 8,840,695 8,190,962 8,840,695 Consolidated 2020 $ 2019 $ 10,677 35,669 2,635,000 615,465 539,922 42,966 3,833,353 1,700,000 208,653 - - 1,908,653 90,692 42,365 5,213 122,841 47,194 2,573 Notes to the Consolidated Financial Statements continued Element 25 Limited 30 JUNE 2020 7. INCOME TAX (a) Income tax benefit Current tax Deferred tax Consolidated 2020 $ 2019 $ - - - - - - (b) Numerical reconciliation of income tax expense/(benefit) to prima facie tax payable (Loss)/profit from continuing operations before income tax expense Prima facie tax (benefit)/expense at the Australian tax rate of 27.5% (2019: 27.5%) Tax effect of amounts which are not deductible/(taxable) in calculating taxable income: (1,821,271) (500,850) (3,633,987) (999,346) Share-based payments Other Movements in unrecognised temporary differences Tax effect of current year tax losses for which no deferred tax asset has been recognised Income tax expense/(benefit) (c) Unrecognised temporary differences Deferred Tax Assets at 27.5% (2019: 27.5%) On Income Tax Account Capital raising expenses Accruals and provisions Foreign carry forward tax losses Australian carry forward tax losses Deferred Tax Liabilities at 27.5% (2019: 27.5%) Financial assets at fair value through profit or loss Accrued income 80,254 468 (420,128) 381,720 38,408 - 16,236 88,265 246,478 2,003,745 2,354,724 295,256 117 295,373 67,221 2,872 (929,253) 165,489 763,764 - 24,215 69,897 227,390 2,314,115 2,635,617 672,250 339 672,589 Net deferred tax assets were not brought to account as it was not considered probable within the immediate future that tax profits would be available against which deductible temporary differences and tax losses could be utilised. The Group’s ability to use losses in the future is subject to each Group company satisfying the relevant tax authority’s criteria for using these losses. In April 2017, the Australian Government enacted legislation which reduces the corporate rate for small and medium business (base rate) entities from 30% to 25% over the next decade. For the 2017 financial year the corporate tax rate reduced to 27.5% for small business entities with turnover less than $10 million. This turnover threshold will progressively increase until it reaches $50 million in the 2020 financial year. For the 2021 financial year, the tax rate will decrease to 26% and then 25% for the 2022 and later financial years. Element 25 Limited satisfies the criteria to be a base rate entity. 8. CURRENT ASSETS - CASH AND CASH EQUIVALENTS Cash at bank and in hand Short-term deposits Cash and cash equivalents as shown in the statement of financial position and the statement of cash flows 2,557,520 139,655 1,690,720 861,680 2,697,175 2,552,400 Cash at bank and in hand earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group and earn interest at the respective short-term deposit rates. 23 Element 25 Limited Notes to the Consolidated Financial Statements continued 30 JUNE 2020 Consolidated 9. CURRENT ASSETS - TRADE AND OTHER RECEIVABLES Sundry receivables Prepayments Deferred consideration due on tenement sale Notes 9(a) 2020 $ 173,770 10,647 1,000,000 1,184,417 2019 $ 66,223 9,350 - 75,573 (a) Under the terms of the sale agreement with RareX Pty Ltd and its parent company Sagon Resources Ltd, since renamed RareX Ltd (“RareX”, ASX code REE), to sell tenement E80/5092, RareX must pay $500,000 cash and issue $500,000 in shares or pay $1,000,000 in cash (Deferred Consideration) within 12 months of settlement of the acquisition. The Deferred Consideration is due to be received by the Group in September 2020. 10. CURRENT ASSETS - FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS Australian listed equity securities 4,302,502 6,200,565 Changes in fair values of financial assets at fair value through profit or loss are recorded in other income for gains or directly on the face of the statement of comprehensive income for losses. 11. NON-CURRENT ASSETS - PLANT AND EQUIPMENT Plant and equipment Cost Accumulated depreciation Net book amount Movements: Opening net book amount Exchange differences Additions Depreciation charge Closing net book amount 12. CURRENT LIABILITIES - TRADE AND OTHER PAYABLES Trade payables Other payables and accruals 13. ISSUED CAPITAL (a) Share capital Ordinary shares fully paid Total issued capital 92,370 (85,502) 6,868 12,157 - 267 (5,556) 6,868 566,652 539,542 1,106,194 92,103 (79,946) 12,157 16,660 (4,251) 3,999 (4,251) 12,157 64,457 744,182 808,639 2020 2019 Notes Number of shares $ Number of shares $ 13(b), 13(d) 98,362,274 16,403,737 91,907,274 15,841,862 98,362,274 16,403,737 91,907,274 15,841,862 24 Notes to the Consolidated Financial Statements continued Element 25 Limited 30 JUNE 2020 13. ISSUED CAPITAL (cont’d) 2020 2019 Notes Number of shares $ Number of shares $ (b) Movements in ordinary share capital Beginning of the financial year Issued during the year: − Pursuant to controlled placement agreement at 36.3 cents per share − Controlled placement agreement collateral shares (1) − Upon exercise of 21.5 cent options − Upon exercise of 20 cent options − Pursuant to share purchase plan and shortfall placement at 17.5 cents per share Transaction costs End of the financial year 91,907,274 15,841,862 83,464,350 14,351,850 1,530,000 4,800,000 125,000 - 555,000 - 26,875 - - - - 500,000 - - - 100,000 - - 98,362,274 - (20,000) 16,403,737 7,942,924 - 91,907,274 1,390,012 - 15,841,862 (1) The 4,800,000 collateral shares were issued pursuant to a controlled placement agreement (CPA) with Acuity Capital that provides up to $2 million of standby equity capital to 31 January 2022. Under the terms of the CPA, the Company retains full control of all aspects of the placement process: having sole discretion as to whether or not to utilise the CPA, the quantum of issued shares, the minimum issue price of shares and the timing of each placement tranche (if any). As collateral for the CPA, the Company agreed to place 4,800,000 fully paid ordinary shares at nil consideration to Acuity Capital. (c) Movements in options on issue Beginning of the financial year Issued during the year: − Exercisable at 20 cents, on or before 1 April 2025 − Exercisable at 26 cents, on or before 22 February 2024 − Exercisable at 26.1 cents, on or before 28 November 2023 − Exercisable at 27.3 cents, on or before 20 November 2024 − Exercisable at 50 cents, on or before 25 June 2025 Exercised during the year: − At 20 cents, on or before 19 November 2018 − At 21.5 cents, on or before 18 November 2019 Expired during the year: − On 19 November 2018, exercisable at 20 cents − On 18 November 2019, exercisable at 21.5 cents − On 2 December 2019, exercisable at 22 cents − On 2 December 2019, exercisable at 30 cents − On 17 June 2019, exercisable at 30 cents − On 22 October 2018, exercisable at 32 cents − On 20 November 2018, exercisable at 35 cents End of the financial year Number of options 2019 2020 14,750,000 13,850,000 500,000 750,000 - 2,000,000 500,000 - 1,600,000 2,000,000 - - - (125,000) (500,000) - - (2,625,000) (200,000) (200,000) - - - 15,350,000 (1,500,000) - - - (250,000) (250,000) (200,000) 14,750,000 (d) Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. Ordinary shares have no par value and the Company does not have a limited amount of authorised capital. 25 Notes to the Consolidated Financial Statements continued Element 25 Limited 30 JUNE 2020 13. ISSUED CAPITAL (cont’d) Consolidated 2020 $ 2019 $ (e) Capital risk management The Group’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they may continue to provide returns for shareholders and benefits for other stakeholders. Due to the nature of the Group’s activities, being mineral exploration, the Group does not have ready access to credit facilities, with the primary source of funding being equity raisings. Therefore, the focus of the Group’s capital risk management is the current working capital position against the requirements of the Group to meet exploration programmes and corporate overheads. The Group’s strategy is to ensure appropriate liquidity is maintained to meet anticipated operating requirements, with a view to initiating appropriate capital raisings as required, including utilising the Acuity Capital CPA as described at note 13(b)(1). The working capital position of the Group at 30 June 2020 and 30 June 2019 are as follows: Cash and cash equivalents Trade and other receivables Financial assets at fair value through profit or loss Trade and other payables Employee benefit obligations (current) Working capital position 2,697,175 1,184,417 4,302,502 (1,106,194) (235,443) 6,842,457 2,552,400 75,573 6,200,565 (808,639) (209,922) 7,809,977 14. RESERVES AND RETAINED EARNINGS (a) Reserves Foreign currency translation reserve Share-based payments reserve (42,257) 4,140,524 4,098,267 (36,454) 3,848,693 3,812,239 (b) Nature and purpose of reserves (i) Foreign currency translation reserve Exchange differences arising on translation of the foreign controlled entity are recognised in other comprehensive income as described in note 1(d) and accumulated within a separate reserve within equity. The cumulative amount is reclassified to profit or loss when the net investment is disposed of. (ii) Share-based payments reserve The share-based payments reserve is used to recognise the fair value of options and performance rights granted. 15. DIVIDENDS No dividends were paid during the financial year. No recommendation for payment of dividends has been made. 16. REMUNERATION OF AUDITORS During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non-related audit firms: Audit services Rothsay Auditing - audit and review of financial reports Total remuneration for audit services 39,500 39,500 38,500 38,500 17. CONTINGENCIES There are no material contingent liabilities of the Company at balance date. The Company has contingent assets at balance date resulting from tenement sales as follows: Mt Venn Cobalt-Nickel-Copper Project Under the terms of the sale agreement with Magmatic Resources Ltd (“Magmatic”, ASX code MAG), to sell tenement E38/2961 the following contingent consideration is outstanding: • Should Magmatic define a JORC 2012 Mineral Resource of 20Mt @ >= 1% CuEq on the sale tenement, Magmatic will pay the Company $350,000 in cash and $350,000 in MAG shares; and Should Magmatic make a decision to mine at the sale tenement, Magmatic will pay the Company $350,000 in cash and $350,000 in MAG shares. • 26 Notes to the Consolidated Financial Statements continued Element 25 Limited 30 JUNE 2020 17. CONTINGENCIES (cont’d) Cummins Range Rare Earths Project Under the terms of the sale agreement with RareX to sell tenement E80/5092 the following contingent consideration is outstanding: • Within 36 months of settlement, and subject to the completion of a Bankable Feasibility Study (“BFS”) on the Cummins Range project, RareX must pay or issue $1,000,000 in cash or shares or a combination thereof (Further Deferred Consideration); and If a BFS is unable to be completed within 36 months of settlement, the Further Deferred Consideration is not payable and RareX will, in lieu, grant a 1% net smelter royalty on future production from the Cummins Range project capped at $1,000,000. • 18. COMMITMENTS Consolidated 2020 $ 2019 $ (a) Exploration commitments The Company has certain commitments to meet minimum expenditure requirements on the mineral exploration assets it has an interest in. Outstanding exploration commitments are as follows: within one year later than one year but not later than five years later than five years 508,300 1,162,700 2,478,600 4,149,600 474,000 915,000 - 1,389,000 (b) Lease commitments: Group as lessee Operating leases (non-cancellable): Minimum lease payments within one year later than one year but not later than five years Aggregate lease expenditure contracted for at reporting date but not recognised as liabilities - - - 115,200 - 115,200 The Group has a non-cancellable property lease with a one-year term, with rent payable monthly in advance. The lease allows for subletting of all lease areas subject to permission from the lessor. The Group has obtained permission from the lessor and entered into a sublet arrangement for the entire one-year term of the lease amounting to 50% of the commitment noted above. From 1 July 2019, upon adoption AASB 16, the Group may recognise right-of-use assets for leases in the future, except for short-term and low-value leases, refer to note 1(a)(ii). 19. RELATED PARTY TRANSACTIONS (a) Parent entity The ultimate parent entity within the Group is Element 25 Limited. (b) Subsidiaries Interests in subsidiaries are set out in note 20. (c) Key management personnel compensation Short-term benefits Post-employment benefits Other long-term benefits Share-based payments Detailed remuneration disclosures are provided in the remuneration report on pages 5 to 7. (d) Loans to related parties There were no loans to related parties, including key management personnel, during the year. 324,287 22,802 4,015 120,400 471,504 326,883 20,900 48,182 145,400 541,365 27 Notes to the Consolidated Financial Statements continued Element 25 Limited 30 JUNE 2020 20. SUBSIDIARY The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 1(b): Name Country of Incorporation Equity Holding (1) Class of Shares Cordier Mines SAS Element 25 Butcherbird Project Pty Ltd France Australia Ordinary Ordinary (1) The proportion of ownership interest is equal to the proportion of voting power held. 2020 % 100 100 2019 % 100 100 21. EVENTS OCCURRING AFTER THE STATEMENT OF FINANCIAL POSITION DATE During July 2020 the Company raised a total of $6,729,000 at $0.40 per share from a placement of 8,750,000 ordinary shares to sophisticated, professional and institutional investors and the issue of 8,072,500 ordinary shares pursuant to a share purchase plan. During July and August 2020, the Company issued a total of 2,500,000 ordinary shares upon exercise of unlisted options raising $730,000. No other matter or circumstance has arisen since 30 June 2020, which has significantly affected, or may significantly affect the operations of the Group, the result of those operations, or the state of affairs of the Group in subsequent financial years. 22. CASH FLOW INFORMATION Reconciliation of (loss)/profit after income tax to net cash outflow from operating activities (Loss)/profit for the year Non-Cash Items Depreciation of non-current assets Employee and consultants share-based payments Fair value of financial assets received on sale of mining interests Fair value of financial assets disposed as consideration for expenses Net exchange differences Change in operating assets and liabilities (Increase)/decrease in trade and other receivables Decrease in financial assets at fair value through profit or loss Increase in trade and other payables Increase in employee benefit obligations Net cash outflow from operating activities 23. LOSS PER SHARE (a) Reconciliation of earnings used in calculating loss per share Loss attributable to the owners of the Company used in calculating basic and diluted loss per share (b) Weighted average number of shares used as the denominator Weighted average number of ordinary shares used as the denominator in calculating basic and diluted loss per share 28 Consolidated 2020 $ 2019 $ (1,821,271) (3,633,987) 5,556 291,831 (1,000,000) 30,000 (5,989) (108,834) 1,868,063 297,527 26,080 (417,037) 4,251 244,440 - - (6,987) 23,071 1,439,240 699,655 88,680 (1,141,637) (1,821,271) (3,633,987) Number of shares 2020 Number of shares 2019 93,481,823 84,246,547 Notes to the Consolidated Financial Statements continued Element 25 Limited 30 JUNE 2020 23. LOSS PER SHARE (cont’d) (c) Information on the classification of options As the Group made a loss for the year ended 30 June 2020, the options on issue were considered anti-dilutive and were not included in the calculation of diluted earnings per share. The options currently on issue could potentially dilute basic earnings per share in the future. 24. SHARE-BASED PAYMENTS (a) Employees and Contractors Options The Company provides benefits to employees (including directors) and contractors of the Company in the form of share-based payment transactions, whereby employees render services in exchange for options to acquire ordinary shares. The exercise price of the options granted and on issue at 30 June 2020 range from 20 cents to 50 cents per option, with expiry dates ranging from 22 August 2020 to 25 June 2025. Options granted carry no dividend or voting rights. When exercisable, each option is convertible into one ordinary share of the Company with full dividend and voting rights. Fair value of options granted The weighted average fair value of the options granted during the year was 9.7 cents (2019: 6.8 cents). The price was calculated by using the Black-Scholes European Option Pricing Model applying the following inputs: Weighted average exercise price (cents) Weighted average life of the option (years) Weighted average underlying share price (cents) Expected share price volatility Risk free interest rate 2020 29.1 4.7 24.8 50.0% 0.6% 2019 26.1 5.0 18.8 50.0% 2.0% Historical volatility has been used as the basis for determining expected share price volatility as it assumed that this is indicative of future trends, which may not eventuate. Set out below is a summary of the share-based payment options granted: Outstanding at the beginning of the year Granted Forfeited Exercised Expired Outstanding at year-end Exercisable at year-end 2020 2019 Weighted average exercise price cents 27.3 29.1 - 21.5 22.1 28.8 28.8 Weighted average exercise price cents 26.8 26.1 - 20.0 23.9 27.3 27.3 Number of options 13,850,000 3,600,000 - (500,000) (2,200,000) 14,750,000 14,750,000 Number of options 14,750,000 3,750,000 - (125,000) (3,025,000) 15,350,000 15,350,000 The weighted average remaining contractual life of share options outstanding at the end of the financial year was 2.4 years (2019: 2.3 years), and the exercise prices range from 20 cents to 50 cents. (b) Expenses arising from share-based payment transactions Consolidated 2020 $ 2019 $ Total expenses arising from share-based payment transactions recognised during the period were as follows: Options granted to employees and contractors expensed to profit or loss 291,831 291,831 244,440 244,440 29 Notes to the Consolidated Financial Statements continued Element 25 Limited 30 JUNE 2020 25. PARENT ENTITY INFORMATION Parent Entity 2020 $ 2019 $ The following information relates to the parent entity, Element 25 Limited, at 30 June 2020. The information presented here has been prepared using accounting policies consistent with those presented in note 1. Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Issued capital Share-based payments reserve Accumulated losses Total equity Loss for the year Total comprehensive loss for the year 8,169,154 6,868 8,176,022 1,330,880 808 1,331,688 16,403,737 4,140,524 (13,699,927) 6,844,334 (1,801,027) (1,801,027) 8,793,753 12,157 8,805,910 1,014,006 249 1,014,255 15,841,862 3,848,693 (11,898,900) 7,791,655 (3,639,311) (3,639,311) 30 Directors' Declaration Element 25 Limited In the directors’ opinion: (a) the financial statements and notes set out on pages 10 to 30 are in accordance with the Corporations Act 2001, including: (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and giving a true and fair view of the consolidated entity’s financial position as at 30 June 2020 and of its performance for the financial year ended on that date; (ii) (b) (c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and a statement that the attached financial statements are in compliance with International Financial Reporting Standards has been included in the notes to the financial statements. The directors have been given the declarations by the chief executive officer and chief financial officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the directors. Justin Brown Managing Director Perth, 18 September 2020 31 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ELEMENT 25 LIMITED Report on the Audit of the Financial Report Opinion We have audited the financial report of Element 25 Limited (“the Company”) and its controlled entities (“the Group”) which comprises the consolidated statement of financial position as at 30 June 2020, 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 on that date and notes to the financial statements, including a summary of significant accounting policies and the directors’ declaration of the Company. In our opinion the financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its financial performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under these standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of this report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the “Code”) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ELEMENT 25 LIMITED (continued) Key Audit Matter – Impairment of Assets The Group’s cash and financial assets at fair value make up 85% of total assets by value and are considered to be the key driver of the Group’s operations. We do not consider cash and financial assets at fair value to be at a high risk of significant misstatement or to be subject to a significant level of judgement. However due to their materiality in the context of the financial statements as a whole, they are considered to be the area which had the greatest effect on our overall strategy and allocation of resources in planning and completing our audit. How our Audit Addressed the Key Audit Matter We considered the inputs into the determination of fair value at year end and compared our assessment with the written down value. We compared the fair value of the listed investments to externally quoted prices, which was the closing bid price at 30 June 2020; We compared cash and holdings in financial assets at fair value to independent third party documentation; We assessed whether the disclosures included in the financial report meet the requirements of Australian Accounting Standards. Other Information The directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2020, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If based on the work we have performed we conclude there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 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 the 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. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ELEMENT 25 LIMITED (continued) In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or cease operations, or have no realistic alternative but to do so. Auditor’s Responsibility for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: www.auasb.gov.au/Home.aspx. We communicate with the directors regarding, amongst other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe those matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communications. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ELEMENT 25 LIMITED (continued) Report on the Remuneration Report Opinion on the Remuneration Report We have audited the remuneration report included in the directors’ report for the year ended 30 June 2020. In our opinion the remuneration report of Element 25 Limited for the year ended 30 June 2020 complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Rothsay Auditing Dated 18 September 2020 Daniel Dalla Partner ASX Additional Information Element 25 Limited Additional information required by Australian Stock Exchange Ltd and not shown elsewhere in this report is as follows. The information is current as at 7 September 2020. (a) Distribution of equity securities Analysis of numbers of equity security holders by size of holding: 1 1,001 5,001 10,001 100,001 - - - - 1,000 5,000 10,000 100,000 and over The number of equity security holders holding less than a marketable parcel of securities are: (b) Twenty largest shareholders Twenty largest quoted equity security holders The names of the twenty largest holders of quoted ordinary shares are: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 J P MORGAN NOMINEES AUSTRALIA PTY LIMITED RANGUTA LIMITED ALPHA BOXER LIMITED ACUITY CAPITAL INVESTMENT MANAGEMENT PTY LTD ARADIA VENTURES PTY LTD DUKETON MINING LIMITED MR JACOBUS GERARDUS DE JONG DUKETON CONSOLIDATED PTY LTD AUSTRADE HOLDINGS PTY LTD SINO WEST ASSETS LIMITED MR PAUL HARTLEY WATTS DANE PASTORAL COMPANY PTY LIMITED BNP PARIBAS NOMINEES PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED KAPT ENTERPRISES PTY LTD MR SEAMUS IAN CORNELIUS MR ROHAIN IAN CORNELIUS OM MATERIALS (S) PTE LTD BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD MR SEAMUS CORNELIUS Ordinary shares Number of holders Number of shares 80 252 171 398 139 1,040 67 22,722 732,724 1,412,848 15,379,474 100,137,006 117,684,774 9,867 Listed ordinary shares Number of shares 11,285,093 7,255,440 5,374,006 4,800,090 4,798,215 4,782,500 4,227,818 3,090,715 2,750,000 2,709,629 2,500,000 1,831,104 1,681,633 1,602,745 1,419,063 1,382,733 1,351,500 1,250,000 1,204,282 1,162,815 66,459,381 Percentage of ordinary shares 9.59 6.17 4.57 4.08 4.08 4.06 3.59 2.63 2.34 2.30 2.12 1.56 1.43 1.36 1.21 1.17 1.15 1.06 1.02 0.99 56.47 (c) Substantial shareholders The names of substantial shareholders who have notified the Company in accordance with section 671B of the Corporations Act 2001 are: Marcel Mandanici (d) Voting rights All ordinary shares (whether fully paid or not) carry one vote per share without restriction. Number of Shares 3,208,782 36 Element 25 Limited ASX Additional Information continued (e) Schedule of interests in mining tenements as at 7 September 2020 Location Isle Bore Eelya Hill Yallon Well Sunday Well Pinnacles Nickel Flanker South Pinnacles Mulga Tank Black Hill Mt Padbury Butcher Bird Copper Yanneri Bore Yanneri Pool Millidie Creek Limestone Bore Mt Padbury Kumarina Beyondie Bluff Neds Gap Corner Bore Woolgatharra Pool Dead Camel Yanneri Well Victory Bore Twin Peaks Lake Johnston Eileen Bore Limestone Bore Butcherbird East 1 Butcherbird East 2 Butcherbird East 3 Butcherbird East 4 Butcherbird East 5 Butcherbird East 6 Yanneri Ridge (1) 100% interest held in all minerals other than iron ore and manganese. Tenement E09/2415 E20/659 E20/948 E20/953 E28/2577 E28/2761 E28/2908 E39/2135 E46/1352 E52/1529 E52/2350 E52/3606 E52/3706 E52/3708 E52/3735 E52/3738 E52/3769 E52/3779 E52/3788 E52/3789 E52/3840 E52/3849 E52/3858 E57/1060 E59/2408 E63/2027 E80/5056 L52/211 L52/215 L52/216 L52/217 L52/218 L52/220 L52/221 M52/1074 Percentage held / earning 100% 10% 100% 100% 100% 100% 100% 100% 100% 100% (1) 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 20% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 37 Element 25 Limited ASX Additional Information continued (f) Unquoted Securities At 7 September 2020, the Company had the following unlisted securities on issue: Class $0.20 Options, Expiry 24 November 2021 Number of Securities 2,000,000 Number of Holders 3 $0.20 Options, Expiry 1 April 2025 $0.26 Options, Expiry 22 February 2024 500,000 1,850,000 $0.261 Options, Expiry 28 November 2023 2,000,000 $0.273 Options, Expiry 20 November 2024 2,000,000 $0.325 Options, Expiry 3 November 2022 600,000 $0.35 Options, Expiry 20 November 2020 2,200,000 $0.355 Options, Expiry 28 November 2022 1,200,000 $0.50 Options, Expiry 25 June 2025 500,000 1 4 3 3 3 4 3 1 Holders of 20% or more of the class Holder Name Aradia Ventures Pty Ltd Seamus Cornelius Antoinette Janet Ribbons Andrea Gertrud Graham Duketon Consolidated Pty Ltd B R Smoothy & R M Burn Aradia Ventures Pty Ltd Seamus Cornelius John George Ribbons Aradia Ventures Pty Ltd Seamus Cornelius John George Ribbons Liam Cornelius Pato Negro Pty Ltd Aradia Ventures Pty Ltd Seamus Cornelius Antoinette Janet Ribbons Aradia Ventures Pty Ltd Seamus Cornelius Antoinette Janet Ribbons Zoetmelksvlei (Pty) Ltd Number of Securities 1,000,000 500,000 500,000 500,000 1,000,000 500,000 1,000,000 500,000 500,000 1,000,000 500,000 500,000 300,000 200,000 1,000,000 500,000 500,000 600,000 300,000 300,000 500,000 38 Corporate Governance Statement Element 25 Limited Element 25 Limited and the Board are committed to achieving and demonstrating the highest standards of corporate governance. Element 25 Limited has reviewed its corporate governance practices against the Corporate Governance Principles and Recommendations (3rd edition) published by the ASX Corporate Governance Council. The 2020 Corporate Governance Statement was approved by the Board on 17 September 2020 and is current as at the date of this Annual Report. A description of the Group’s current corporate governance practices is set out in the Group’s Corporate Governance Statement which can be viewed at www.element25.com.au. 39

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