Elementos Limited
Annual Report 2016

Plain-text annual report

ELEMENTOS LIMITED ABN 49 138 468 756 CONSOLIDATED FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Contents Cautionary Statements Corporate Information Review of Operations Director’s Report Auditor’s Independence Declaration Shareholder Information Interests in Tenements (and Annual Mineral Resources and Ore Reserves Statement) Corporate Governance Statement Consolidated Statement of Profit or Loss and Other Comprehensive Income for the Year Ended 30 June 2016 Consolidated Statement of Financial Position as at 30 June 2016 Consolidated Statement of Changes In Equity for the Year Ended 30 June 2016 Consolidated Statement of Cash Flows for the Year Ended 30 June 2016 Notes To The Consolidated Financial Statements for the Year Ended 30 June 2016 Director’s Declaration Independent Auditor’s Report 2 3 4 6 20 21 24 27 35 36 37 38 39 60 61 Page 1 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Cautionary Statements Forward-looking statements This document may contain certain forward-looking statements. Such statements are only predictions, based on certain assumptions and involve known and unknown risks, uncertainties and other factors, many of which are beyond the company’s control. Actual events or results may differ materially from the events or results expected or implied in any forward-looking statement. The inclusion of such statements should not be regarded as a representation, warranty or prediction with respect to the accuracy of the underlying assumptions or that any forward-looking statements will be or are likely to be fulfilled. Elementos undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date of this document (subject to securities exchange disclosure requirements). The information in this document does not take into account the objectives, financial situation or particular needs of any person or organisation. Nothing contained in this document constitutes investment, legal, tax or other advice. Mineral Resources and Ore Reserves Elementos confirms that Mineral Resource and Ore Reserve estimates used in this document were estimated, reported and reviewed in accordance with the guidelines of the Australian Code for the Reporting of Exploration Results, Mineral Resources and Ore Reserves (The JORC Code) 2012 edition. Elementos confirms that it is not aware of any new information or data that materially affects the Mineral Resource or Ore Reserve information included in the following announcements:    “Cleveland Tailings Ore Reserve” released on the 3 August 2015; “Cleveland JORC Resource Significantly Expanded” announced to the ASX on 5 March 2014; and “Cleveland Open Pit - High-Grade Mineral Resource Defined” announced on 3 March 2015. The Company also confirms that all material assumptions and technical parameters underpinning the estimates in the Cleveland Mineral Resources and Reserves continue to apply and have not materially changed. Elementos also confirms the form and context in which the Competent Person’s findings are presented have not been materially modified from the date of announcement. A separate Competent Person sign-off for the Annual Mineral Resources and Ore Reserves Statement is set out on page 26. Scoping study results and mining inventories The scoping studies referred to in this document are based on a low-level technical and economic assessment, which is insufficient to support estimation of Ore Reserves, or to provide assurance of an economic development case at this stage, or to provide certainty that the conclusions of the scoping studies will be realised. Elementos advises that the scoping study results are partly drawn from Inferred Resources. There is a low level of geological confidence associated with Inferred Mineral Resources and there is no certainty that further exploration work will result in the conversion of Inferred Mineral Resources to Indicated Mineral Resources or that the production target itself will be realised. The term “mining inventory” is used to describe Indicated and Inferred Mineral Resource within the mine design. Whereas an Ore Reserve, as defined by the JORC code (2012 Edition), must be based on a study at pre-feasibility study level or better and must not include Inferred Mineral Resources. As such, no Ore Reserve can be publicly declared on the basis of these scoping studies. Page 2 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Corporate Information Directors and Company Secretary Mr Andy Greig (Non-executive Chairman) Mr Christopher Dunks (Executive Director) Mr Calvin Treacy (Non-executive Director) Mr Corey Nolan (Non-executive Director) Mr Duncan Cornish (Company Secretary) Head Office and Registered Office Elementos Limited Level 10, 110 Market Street Brisbane QLD 4000 Tel: +61 7 3212 6299 Fax: +61 7 3212 6250 www.elementos.com.au Auditors BDO Audit Pty Ltd Level 10, 12 Creek Street Brisbane QLD 4000 Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au Share Registry Boardroom Pty Limited Level 12, 225 George Street Sydney NSW 2000 Tel: 1300 737 760 Fax: 1300 653 459 www.boardroomlimited.com.au Stock Exchange Listing Australian Securities Exchange Ltd ASX Code: ELT Australian Business Number 49 138 468 756 Page 3 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Review of Operations Exploration and development activities at the Group’s projects during the year are detailed below. Cleveland The Group continued to progress its Cleveland Project in North-western Tasmania toward development. Early in the year the Company completed Pre-feasibility and Scoping Studies on the Project at Cleveland, summaries of which are set out below: Tailings Reprocessing PFS A Pre-feasibility Study1 (“PFS”) for the reprocessing of the Tailings Mineral Resource was completed. The PFS resulted in an estimated an Ore Reserve of 3.7 million tonnes @ 0.29% Tin 2 (0% cut-off grade). The PFS demonstrated that the reprocessing of tailings is both technically and financially viable. Open Pit Mining Scoping Study In the first quarter, the Company received the results of an Open Pit Scoping Study, prepared by AMC Consultants Pty Ltd (AMC). The study was based on the previously announced Mineral Resource of 0.8Mt at 0.81% Tin and 0.27% Copper3. The study identified five viable open pits and concluded the open-pit project to be financially robust and technically low-risk; with over 98% of the ore being in the Indicated Mineral Resource category. Underground Mining Scoping Study AMC also completed an Underground Scoping Study in the first quarter, which examined the technical and economic viability of mining and processing the previously developed tin-copper deposit and a separate but large tungsten porphyry deposit. The viability of the underground operation was assessed as an extension to the proposed tailings and open-pit operations with shared services, plant and infrastructure. The study provided a high-level mine design, mining inventory, production schedule, process plant flowsheet, and cost estimate for the potential underground operation. Based on the previously announced Mineral Resource4, the study identified a potential mining inventory5 of 1.9Mt of tin- copper ore grading 0.61% Tin and 0.22% Copper, and 1.7Mt of tungsten ore grading 0.31% WO3. The findings demonstrate that known underground resources could extend the Cleveland mine life by up to eight years and significantly add to the project’s cash flows. Environmental The Cleveland environmental permitting process and Mining License Application are progressing. The Tasmanian government remains very supportive and is working with the Company to progress the Cleveland Project towards development. The Company’s objective is to move to production and cash flow, through a low-capital, development strategy as quickly as possible. A number of initiatives for reducing the initial capital cost of the tailings retreatment project were accessed during the year, including moving the Tailings Storage Facility (TSF) to a new location. A Scoping Study on the conceptual TFS plan is complete and has indicated a meaningful cost saving per cubic meter of tailing stored is achievable. Also during the year Elementos has undertaken column leach tests to access the NAG (Net Acid Generation) or NAP (Net Acid Production) characteristics of the waste material generated from 1 Announced per the JORC Code 2012 on 3 August 2015 “Cleveland Tailings PFS”. 2 Announced per the JORC Code 2012 on 3 August 2015 “Cleveland Tailings Ore Reserve”. 3 Announced per the JORC Code 2012 on 3 March 2015 “Cleveland Open Pit - High-Grade Mineral Resource Defined” 4 Announced per the JORC Code 2012 on 3 March 2015 “Cleveland Open Pit - High-Grade Mineral Resource Defined” 5 A mining inventory is not an Ore Reserve. Refer to Cautionary Statements attached to this announcement. Page 4 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Review of Operations tailings. Also the Company has continued a water-monitoring program on site. Both of these activities are required to ensure relevant approvals will be granted. Conclusion Since the completion of the positive Pre-Feasibility and Scoping Studies, the equity and commodity markets have been depressed, creating a difficult environment for raising new equity capital. Therefore the appropriate development strategy was to identify potential funding or off-take partners for the Cleveland project, before moving to the next phase. Despite the operating environment, the Company is encouraged by the over 30% increase in the LME tin price from a low of US$13,810 in January 2016. Also the recent increase in successful equity capital raisings in the junior resources sector bodes well for Elementos in 2016/17. Other Projects Selwyn At the Selwyn Range project in the Mt Isa district, the Company’s Joint Venture partner, Jason Resources, completed a XRF geochemical line survey. The survey comprised 7 lines 400m apart at Sandy Creek, 5 lines at Mt Ulo, 2 lines at Perisher, 2 lines at the A1 magnetic anomaly and 5 lines at Wallaby. 502 XRF soil and 38 XRF rock samples were assayed. Non-prospective sub-blocks were relinquished across the tenement package as required by government regulations and the agreed schedule. Later in the year Jason Resources, withdrew from the joint venture agreement. The Company is considering its options in regard to the project. Millennium During the year Elementos announced that it had relinquished its Millennium Project exploration permits in order to reduce holding costs, plus the dissolution of its joint venture with Chinalco Yunnan Copper Resources Ltd (ASX:CYU) and the subsequent sale of its Millennium Project leases to Hammer Metals Limited (ASX:HMX). Page 5 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Director’s Report The directors submit their report on the consolidated entity (“Group”) consisting of Elementos Limited and the entities it controlled at the end of, and during, the financial year ended 30 June 2016. Directors The following persons were directors of Elementos Limited during the financial year and up to the date of this report, unless otherwise stated: Mr Andy Greig (appointed 30 October 2015) Mr Chris Dunks (appointed 4 November 2015) Mr Corey Nolan Mr Calvin Treacy Mr Rick Anthon (resigned 30 October 2015) Mr Richard Seville (resigned 26 October 2015) Information on Directors The board has a strong combination of technical, managerial and capital markets experience. Expertise and experience includes operating and mineral exploration in Australia. The names and qualifications of the current directors are summarised as follows: Andy Greig (appointed 30 October 2015) Non- Executive Chairman Mr Greig (GDipBus (Monash); Fellow, ATSE) recently retired from a 35 year career with Bechtel Group, Inc., the globally renowned engineering, construction and project management company. Mr Greig was a director of Bechtel Group, Inc., and for 13 years through 2014 the President of its Mining and Metals Global Business Unit. Mr Greig has deep experience in the engineering and construction of large mining and minerals processing projects around the world. He is a business graduate of Monash University, and a Fellow of the Australian Academy of Technological Sciences and Engineering. Mr Greig has not held any other (ASX listed) directorships in the last three years. Chris Dunks (appointed 4 November 2015) Executive Director Mr Dunks (BEng (Mech), GAICD) is currently the Managing Director of Synergen Met Pty Ltd, a Brisbane-based company that is commercialising novel minerals processing technology. Mr Dunks was a Founder and Managing Director of Rockwell Minerals Pty Ltd, the company that merged with Elementos in 2013, and negotiated the original deal to purchase the Cleveland Project. Mr Dunks’s experience over the last 20 years has been dominated by working on major minerals processing, refining and power projects both in Australia and the USA. Mr Dunks’s experience has been in mechanical design, construction management and supervision, project controls, project management, contract negotiation, business development and new technology commercialisation. He has worked extensively with Bechtel, Worley Parsons, SNC Lavalin and Jacobs (Aker Kvaerner). Mr Dunks was originally appointed as a Non-Executive Director of Elementos in November 2015. Following the resignation of the Company’s CEO in July 2016, Mr Dunks is continuing the Company’s permitting and partnering process in an Executive Director capacity. Mr Dunks is a member of the Audit and Risk Committee. Page 6 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Director’s Report Mr Dunks has not held any other (ASX listed) directorships in the last three years. Corey Nolan Non-executive Director Mr Nolan (BCom, MMEE, Graduate of AICD) has twenty years of diverse experience in the resources sector. This has included experience in mining operations, global resource evaluation, and the financing and development of new opportunities in Australia, South Africa, Asia and South America. Mr Nolan is a qualified mineral economist. He has held specialist roles as an equities analyst in the mining and natural resources sector of stock broking firms Morgan Stanley and Wilson HTM. During this period, he undertook detailed coverage of the Australian and global resources sector including the commodities market. Mr Nolan has been a Director at PWC in the corporate finance and valuations practice, specialising in resources industry valuations for Australian and global resources firms. Mr Nolan is a member of the Audit and Risk Committee. During the past three years, Mr Nolan has also served as a director of the following ASX listed company:  Leyshon Resources Limited * (since 14 February 2014) *denotes current directorship Calvin Treacy Non-executive Director Mr Treacy (BEng, MBA, MAICD) has over twenty years senior management experience in mining, mining technology and manufacturing. He has a strong track record of founding and growing companies, and brings a wealth of experience in the areas of strategic planning and capital raising. Mr Treacy is a qualified Mechanical Engineer and holds a Masters of Business Administration, with extensive experience across a range of industries and positions. Mr Treacy has worked in a range of roles including Non-executive Director, Chief Executive Officer, Chief Operating Officer and Production Manager, providing a blend of experience from hands-on management through to executive oversight and strategic management. Mr Treacy is a member of the Audit and Risk Committee. Mr Treacy has not held any other (ASX listed) directorships in the last three years. Company Secretary Duncan Cornish held the position of Company Secretary during the financial year and up to the date of this report. Mr Cornish is a Chartered Accountant with significant experience as public company CFO and Secretary, focused on junior resource companies, as well as financial, administration and governance. Mr Cornish is an accomplished and highly efficient corporate administrator and manager. Duncan has more than 20 years’ experience in the accountancy profession both in England and Australia, mainly with the accountancy firms Ernst & Young and PricewaterhouseCoopers. He has extensive experience in all aspects of company financial reporting, corporate regulatory and governance areas, business acquisition and disposal due diligence, capital raising and company Page 7 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Director’s Report listings and company secretarial responsibilities, and serves as corporate secretary and chief financial officer of several Australian and Canadian public companies. Mr. Cornish holds a Bachelor of Business (Accounting) and is a member of the Australian Institute of Chartered Accountants. Interests in Securities As at the date of this report, the interests of each director in shares and options issued by the Company are shown in the table below: Directors Shares Unlisted Options Unlisted Options ($0.03 @ 20-Mar-18) ($0.06 @ 20-Jan-17) A. Greig C. Dunks C. Nolan C. Treacy Principal Activities 164,000,001 15,750,004 3,853,400 26,850,004 - - - 6,200,000 - - 800,000 - The principal activity of the Group during the year was project development in Australia. The Group is developing the Cleveland tin-copper-tungsten Project through a staged, low-capital development strategy, which minimises upfront capital, with cash flow funding future stages. This ensures maximum benefit from capital expenditure, delivering optimal value to shareholders. Operating Results The Group’s operating loss for the financial year, after applicable income tax was $1,757,780 (2015: $2,692,540). Exploration and evaluation expenditure during the year totalled $459,006 (2015: $1,352,157). Dividends Paid or Recommended There were no dividends paid or recommended during the financial year. Review of Operations Information on the operations of the Group during the financial year and up to the date of this report is set out separately in the Annual Report under Review of Operations. Review of Financial Condition Capital Structure No shares were issued during the financial year (or subsequent to 30 June 2016). On 26 August 2015, 1,000,000 unlisted options exercisable at $0.012 per option on or before 31 July 2018 were issued to an employee. On 26 August 2015, 10,000,000 unlisted options exercisable at $0.0125 per option on or before 31 July 2019 and 10,000,000 unlisted options exercisable at $0.015 per option on or before 31 July 2019 were issued to the Company’s then CEO. Page 8 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Director’s Report On 21 December 2015, 10,000,000 unlisted options exercisable at $0.0125 per option on or before 31 July 2019 were issued to management. During the year 5,000,000 options exercisable at $0.226 expired. At 30 June 2016, the Company had 767,479,642 ordinary shares and 43,850,000 unlisted options on issue. Subsequent to 30 June 2016, the 20,000,000 unlisted options issued to management on 26 August 2015 (noted above) lapsed following the resignation of the CEO. As at the date of this report, the Company had 767,479,642 ordinary shares and 23,850,000 unlisted options on issue. Financial Position At 30 June 2016, the Group’s net assets totalled $4,580,715 (2015: $5,502,726) which included cash assets of $467,268 (2015: $761,828). The movement in net assets largely resulted from the following factors:  Operating losses of $1,757,780;  Cash outflows from operating activities ($698,149) were partially offset by the receipt of $500,000 of loan funding (an increase in liabilities); and  Cash outflows on exploration and evaluation assets ($459,006) were mostly offset by the receipt for R&D refunds ($320,684) and proceeds from the sale of a subsidiary ($57,950). Throughout the year the Group focussed on:  progressing environment approvals and mining licences;  completing technical studies required to attract suitable project partner/s and corporate/project funding;  exploring innovative ways of enhancing the value of the Group’ Cleveland Project This focus resulted in:    reduced ‘on-the-ground’ project expenditure (from 2015); lower overall corporate and administration overheads following Board and management restructures throughout the year; and seeking additional funding that the Board chose to take in the form of an unsecured loan from a related party. The Group’s working capital, being current assets less current liabilities has decreased from $625,420 in 2015 to $407,257 in 2016. Treasury policy The Group does not have a formally established treasury function. The Board is responsible for managing the Group’s finance facilities. The Group does not currently undertake hedging of any kind and is not directly exposed to material currency risks. Liquidity and funding The Group has sufficient funds to finance its operations and exploration activities, and to allow the Group to take advantage of favourable business opportunities, not specifically budgeted for, or to fund unforeseen expenditure. Significant Changes in State of Affairs There were no significant changes in the state of affairs of the Group in the financial year. Page 9 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Director’s Report Subsequent Events There are no matters or circumstances that have arisen since the end of the 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. Business Results The prospects of the Group in progressing their exploration projects in Tasmania may be affected by a number of factors. These factors are similar to most exploration companies moving through exploration phase and attempting to get projects into development. Some of these factors include:  Exploration - the results of the exploration activities may be such that the estimated resources are insufficient to justify the financial viability of the projects. Elementos undertakes extensive exploration and product quality testing prior to establishing JORC compliant resource estimates and to (ultimately) support mining feasibility studies. The Company engages external experts to assist with the evaluation of exploration results where required and utilises third party competent persons to prepare JORC resource statements or suitably qualified senior management of the Company. Economic feasibility modelling of projects will be conducted in conjunction with third party experts and the results of which will usually be subject to independent third party peer review  Regulatory and Sovereign - the Company operates in Australia and deals with local regulatory authorities in relation to the exploration of its properties. The Company may not achieve the required local regulatory approvals to continue exploration or properly assess development prospects. The Company takes appropriate legal and technical advice to ensure it manages its compliance obligations appropriately.  Social Licence to Operate – the ability of the Company to secure and undertake exploration and development activities within prospective areas is also reliant upon satisfactory resolution of native title and (potentially) overlapping tenure. To address this risk, the Company develops strong, long term effective relationships with landholders with a focus on developing mutually acceptable access arrangements. The Company takes appropriate legal and technical advice to ensure it manages its compliance obligations appropriately.  Environmental - All phases of mining and exploration present environmental risks and hazards. Elementos’s operations in Australia are subject to environmental regulation pursuant to a variety of state and municipal laws and regulations. Environmental legislation provides for, among other things, restrictions and prohibitions on spills, releases or emissions of various substances produced in association with mining operations. Compliance with such legislation can require significant expenditures and a breach may result in the imposition of fines and penalties, some of which may be material. Environmental legislation is evolving in a manner expected to result in stricter standards and enforcement, larger fines and liability and potentially increased capital expenditures and operating costs. Environmental assessments of proposed projects carry a heightened degree of responsibility for companies and directors, officers and employees. The Company assesses each of its projects very carefully with respect to potential environmental issues, in conjunction with specific environmental regulations applicable to each project, prior to commencing field exploration. Periodic reviews are undertaken once field exploration commences.  Safety - Safety is of critical importance in the planning, organisation and execution of Elementos’s exploration and development activities. Elementos is committed to providing Page 10 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Director’s Report and maintaining a working environment in which its employees are not exposed to hazards that will jeopardise an employee’s health, safety or the health and safety of others associated with our business. Elementos recognise that safety is both an individual and shared responsibility of all employees, contractors and other persons involved with the operation of the organisation. The Company has a comprehensive Safety and Health Management system which is designed to minimise the risk of an uncontrolled safety and health event and to continuously improving safety culture within the organisation.  Funding - the Company will require additional funding to continue exploration and potentially move from the exploration phase to the development phases of its projects. There is no certainty that the Company will have access to available financial resources sufficient to fund its exploration, feasibility or development costs at those times.  Market - there are numerous factors involved with exploration and early stage development of its projects, including variance in commodity price and labour costs which can result in projects being uneconomical. Environmental Issues The Group is subject to significant environmental regulations under the laws of the Commonwealth of Australia and states of Australia in which the Group operates. The directors monitor the Group’s compliance with environmental obligations. The directors are not aware of any compliance breach arising during the year and up to the date of this report. Native Title Mining tenements that the Group currently holds, are subject to Native Title claims. The Group has a policy that is respectful of the Native Title rights and is continuing to negotiate with relevant indigenous bodies. Remuneration Report (Audited) This report details the nature and amount of remuneration for each director and other key management personnel. The names of key management personnel of Elementos Ltd who have held office during the financial year are: Andy Greig Director – Non-executive Chairman (appointed 30 October 2015) Chris Dunks Director – Non-executive (appointed 4 November 2015, ceased 6 July 2016) Director – Executive (commenced 6 July 2016) Corey Nolan Director - Non-executive Calvin Treacy Director - Managing Director (ceased 9 June 2015) Director - Non-executive (commenced 9 June 2015) Rick Anthon Director – Non-executive Chairman – (resigned 30 October 2015) Richard Seville Director - Non-executive (resigned 26 October 2015) Duncan Cornish Chief Financial Officer (appointed 16 June 2015) Company Secretary (appointed 1 December 2015) Page 11 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Director’s Report Tim McManus Chief Operating Officer (appointed 29 September 2014, ceased 9 June 2015) Chief Executive Officer (commenced 9 June 2015, resigned 6 July 2016) The Group’s remuneration policy seeks to align director and executive objectives with those of shareholders and business, while at the same time, recognising the early development stage of the Group and the criticality of funds being utilised to achieve development objectives. The board believes the current policy has been appropriate and effective in achieving a balance of these objectives. The Group’s remuneration policy provides for long-term incentives to be offered through a director and employee share option plan and also through a performance rights plan (approved at the Company’s 2015 AGM). Options may be granted under these plans to align directors’, executives’, employees’ and shareholders’ interests. Two methods may be used to achieve this aim, the first being performance rights and options that vest upon reaching or exceeding specific predetermined objectives, and the second being options granted with higher exercise prices (than the share price at issue) rewarding share price growth. The board of directors is responsible for determining and reviewing the Group’s remuneration policy, remuneration levels and performance of both executive and non-executive directors. Independent external advice will be sought when required. No independent external advice was sought during the current year. Performance-Based Remuneration Performance-based remuneration includes both short-term and long-term incentives and is designed to reward key management personnel for reaching or exceeding specific objectives or as recognition for strong individual performance. Short-term incentives are available to eligible staff of the Group and may be comprised of cash bonuses, determined on a discretionary basis by the board. No short-term incentives were made available during the year. Long-term incentives are comprised of share options and performance rights, which are granted from time-to-time to encourage sustained strong performance in the realisation of strategic outcomes and growth in shareholder value. The exercise price of the options is determined after taking into account the underlying share price performance in the period leading up to the date of grant and if applicable, performance conditions attached to the share options. Subject to specific vesting conditions, each option is convertible into one ordinary share. The Group’s policy for determining the nature and amount of remuneration of board members and key executives is set out below. Directors Board policy is to remunerate non-executive directors at market rates for comparable companies for time, commitment and responsibilities. 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 and is not linked to the performance of the Group. The maximum aggregate amount of fees that can be paid to non-executive directors approved by shareholders is currently $250,000. One-third, by number, of non-executive directors retires by rotation at the Company’s Annual General Meeting. Retiring directors are eligible for re- election by shareholders at the Annual General Meeting of the Company. The appointment conditions of the non-executive directors are set out and agreed in letters of appointment. Page 12 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Director’s Report Given the protracted negotiations of the partnering and funding process, the Company believes it is prudent it continues to maintain a very low-cost corporate overhead and preserve its cash resources. Consequently, following a board restructure at the end of October 2015 the board resolved to reduce non-executive director fees (from $27,500 per annum plus superannuation) to $25,000 per annum (including superannuation)(to Messrs Dunks, Nolan and Treacy) and Andy Greig chose to not accept a (director) fee. Following the resignation of the Company’s CEO on 6 July 2016, Chris Dunks was appointed as an executive director and his fee was increased to $70,000 per annum (including superannuation) from 1 August 2016. Executives The remuneration structure for executives is based on a number of factors, including length of service, particular experience of the individual concerned, and overall performance of the Group. The executives receive payments provided for under an employment or service agreement, which incentives, and equity based performance may include cash, superannuation, short-term remuneration. The key terms of the employment agreement with Tim McManus (CEO during the year ended 30 June 2016 and until 6 July 2016) were:  Total Fixed Remuneration of $200,000 per annum;  Annual cash bonus at the discretion of the board;    Short term incentive of 20.0m performance rights; Long term incentive of 20.0m unlisted options expiring on or before 31 July 2019 (10.m @ $0.0125 and 10.m @ $0.0150), issued on 26 August 2015; and Three months’ notice of termination by the Company and no notice required by Tim McManus. As noted above, Tim McManus resigned on 6 July 2016. None of the performance rights were issued and all of the unlisted options have since lapsed unexercised. The Company has a services agreement with Corporate Administration Services Pty Ltd (“CAS”) and Duncan Cornish, the Company’s CFO (since 1 December 2015) and Company Secretary (since 15 June 2015). Under the agreement, CAS also provides accounting, bookkeeping and administrative services. Both Elementos and CAS are entitled to terminate the agreement upon giving not less than three months’ written notice. The base fee under the services agreement is $120,000 per annum, in effect from 1 December 2015. Prior to the CFO appointment, the base fee for company secretarial services was $30,000 per annum (from 15 June 2015 to 30 November 2015). On 21 December 2015 Duncan Cornish was issued with 10.0 million unlisted options exercisable at $0.0125 each on or before 31 July 2019 (vested immediately on issue). Page 13 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Director’s Report Remuneration Details of Key Management Personnel The remuneration of the key management personnel of Elementos Limited for the year ended 30 June 2016 was as follows: Year Ended 30 June 2016 Key Management Personnel Short Term Benefits Salary & Fees Bonuses Equity Settled Shares Equity Settled Options Post- Employment Super- annuation Total Performance related % % consisting of options $ $ $ $ $ $ A. Greig C. Dunks C. Nolan C. Treacy R. Anthon R. Seville D. Cornish - 16,664 24,221 24,221 13,367 9,000 82,500 T. McManus 183,714 353,687 - - - - - - - - - - - - - - - - - - - - - - - - - 2,301 2,301 - 16,664 26,522 26,522 - 13,367 855 9,855 63,200 - 145,700 128,100 17,453 329,267 - 191,300 22,910 567,897 - - - - - - - - - - - - - - 42.8% 38.9% The remuneration of the key management personnel of Elementos Limited for the year ended 30 June 2015 was as follows: Year Ended 30 June 2015 Key Management Personnel R. Anthon C. Treacy C. Nolan R. Seville Short Term Benefits Salary & Fees Bonuses Equity Settled Shares Equity Settled Options Post- Employment Super- annuation Total Performance related % % consisting of options $ $ $ $ $ $ 25,000 217,422 20,696 20,696 - - - - - - - - 18,510 18,510 - 37,020 - - - - - - - 25,000 15,449 232,871 3,725 42,931 3,725 42,931 12,733 146,769 35,632 490,502 - - - - - - - - - - T. McManus 134,036 417,850 Page 14 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Director’s Report The percentage of equity based remuneration for persons who were key management personnel of the Group during the year ended 30 June 2016 is set out below: Key Management Personnel Proportion of Remuneration Equity Based Salary and Fees A. Greig C. Dunks C. Nolan C. Treacy R. Anthon R. Seville T. McManus D. Cornish n/a - - - - - 38.9% 42.8% n/a 100% 100% 100% 100% 100% 61.1% 57.2% Company Performance, Shareholder Wealth, and Director and Executive Remuneration During the financial year, the Company has generated losses as its principal activity was mineral exploration. The following table shows the share price of the Company since 2011. 30 June 2016 30 June 2015 30 June 2014 30 June 2013 30 June 2012 30 June 2011 Share Price at year end ($) 0.008 0.010 0.02 0.015 0.079 0.225 As the Company is still in the exploration and development stage, the link between remuneration, company performance and shareholder wealth is tenuous. Share prices are subject to the influence of metal prices and market sentiment towards the sector, and as such, increases and decreases might occur independent of executive performance and remuneration. Page 15 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Director’s Report Options Held by Key Management Personnel Details of options held directly, indirectly or beneficially by key management personnel during the year ended 30 June 2016 were as follows: Key Management Personnel Balance at 1 July 2015 Granted as Compensat ion Exercised Expired Balance at 30 June 2016 Total Vested 30 June 2016 Total Vested and Exercisable 30 June 2016 A. Greig C. Dunks - - C. Nolan 3,300,000 C. Treacy 6,200,000 R. Anthon R. Seville D. Cornish T. McManus - - - - - - - - - - 10,000,000 20,000,000 - - - - - - - - - - - - - - - - 2,500,000 800,000 800,000 800,000 - - - - - 6,200,000 6,200,000 6,200,000 - - - - - - 10,000,000 10,000,000 10,000,000 20,000,000 20,000,000 20,000,000 9,500,000 30,000,000 - 2,500,000 37,000,000 37,000,000 37,000,000 Details of options held directly, indirectly or beneficially by key management personnel during the year ended 30 June 2015 were as follows: Key Management Personnel Balance at 1 July 2014 Granted as Compensat ion Exercised Other Changes Balance at 30 June 2015 Total Vested 30 June 2015 Total Vested and Exercisable 30 June 2015 C. Nolan 3,300,000 C. Treacy 6,200,000 R. Anthon R. Seville - - 9,500,000 - - - - - - - - - - - - - - - 3,300,000 3,300,000 3,300,000 6,200,000 6,200,000 6,200,000 - - - - - - 9,500,000 9,500,000 9,500,000 Page 16 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Director’s Report Options Granted as Remuneration As noted above, 30,000,000 options were issued to key management personnel during the year ended 30 June 2016. Key Management Personnel Number of Options Exercise Price Grant Date Expiry Date Value per Option D. Cornish 10,000,000 $0.0125 21-Dec-15 31-Jul-19 $0.00632 T McManus(1) Note: 10,000,000(1) 10,000,000(1) $0.0125 $0.0150 26-Aug-15 26-Aug-15 31-Jul-19 31-Jul-19 $0.00656 $0.00625 (1) The options issued to Tim McManus noted above have lapsed subsequent to 30 June 2016. Further information regarding the terms and valuation of the options shown above is included in Note 20 (Share Based Payments). Shares Held by Key Management Personnel Details of shares held directly, indirectly or beneficially by key management personnel during the year ended 30 June 2016 were as follows: Key Management Personnel Balance at 1 July 2015 Granted as Compensation Received on Exercise of Options Other Changes Balance at 30 June 2016 A. Greig C. Dunks C. Nolan C. Treacy R. Anthon R. Seville D. Cornish - - 3,853,400 26,850,004 4,664,678 26,290,598 - T. McManus 300,000 61,958,680 Notes: - - - - - - - - - - - - - - - - - - 164,000,001(1) 164,000,001 15,750,004(1) 15,750,004 - - 3,853,400 26,850,004 (4,664,678)(2) (26,290,598)(2) - (300,000) - - - - 148,494,729 210,453,409 (1) The Shares added (shown in ‘Other Changes’) for A. Greig and C. Dunks represent their respective holdings when they were appointed as directors of the Company during the year. (2) The Shares deducted (shown in ‘Other Changes’) for R. Anthon and R. Seville represent their respective holdings when they resigned as directors of the Company during the year. Other transactions with Key Management Personnel On 23 December 2015, the Company executed a loan deed with the Company’s Non-Executive Chairman Mr Andy Greig, a related party, for up to $500,000. Further details are contained in Note 12 (Borrowings). At 30 June 2016, the amount recognised as a non-current liability was $515,658 (including $15,658 of accrued interest). Page 17 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Director’s Report End of Remuneration Report Options At the date of this report, the unissued ordinary shares of the Company under options are as follows: Unlisted Options Grant Date Expiry Date Exercise Price No. Under Option 28 March 2011 18 January 2017 4 December 2012 3 December 2016 8 February 2013 20 January 2017 20 March 2014 20 March 2018 26 August 2015 26 August 2015 31 July 2019 31 July 2019 $0.326 $0.06 $0.06 $0.03 $0.012 $0.0125 1,000,000 200,000 2,350,000 9,300,000 1,000,000 10,000,000 23,850,000 There have been no unissued shares or interests under option of any controlled entity within the economic entity during or since reporting date. Option holders do not have any rights to participate in any share issue or other interests in the Company or any other entity. Directors’ Meetings The meetings attended by each director during the financial year were: Directors A. Greig (appointed 30 October 2015) C. Dunks (appointed 4 November 2015) C. Nolan C. Treacy R. Anthon (resigned 30 October 2015) R. Seville (resigned 26 October 2015) Board Audit & Risk Committee Meetings Attended Meetings Attended 4 4 7 7 3 3 4 4 6 7 3 2 1* 1 1 1* - - 1* 1 1 1* - - * These directors attended the Audit & Risk Committee meeting (by invitation) despite not being members of the Audit & Risk Committee or appointed members of the Audit & Risk Committee at that time. Corporate Governance In recognising the need for the highest standards of corporate behaviour and accountability, the directors of Elementos Limited support and, where practicable or appropriate, have adhered to the ASX Principles of Corporate Governance. The Company’s corporate governance statement is set out in this Annual Report. Page 18 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Director’s Report AUDITOR’S DECLARATION OF INDEPENDENCE Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au Level 10, 12 Creek St Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Australia DECLARATION OF INDEPENDENCE BY A J WHYTE TO THE DIRECTORS OF ELEMENTOS LIMITED As lead auditor of Elementos Limited for the year ended 30 June 2016, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Elementos Limited and the entities it controlled during the period. A J Whyte Director BDO Audit Pty Ltd Brisbane, 29 September 2016 BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. 20 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Shareholder Information Additional information required by the Australian Securities Exchange Ltd and not shown elsewhere in this report is as follows. The information is current as at 19 September 2016. (a) Distribution of equity securities The number of holders, by size of holding, in each class of security are: Ordinary Shares Unlisted Options ($0.06 @ 3-Dec-16) No. Holders 57 78 88 290 315 828 No. Shares 11,954 243,519 723,859 12,239,370 754,260,940 767,479,642 No. Holders No. Options - - - - 1 1 - - - - 200,000 200,000 Unlisted Options ($0.326 @ 18-Jan-17) Unlisted Options ($0.06 @ 20-Jan-17) No. Holders No. Options No. Holders No. Options - - - - 1 1 - - - - 1,000,000 1,000,000 - - - - 4 4 - - - - 2,350,000 2,350,000 Unlisted Options ($0.03 @ 20-Mar-18) Unlisted Options ($0.012 @ 31-Jul-18) No. Holders No. Options No. Holders No. Options - - - - 2 2 - - - - 9,300,000 9,300,000 - - - - 1 1 - - - - 1,000,000 1,000,000 Unlisted Options ($0.0125 @ 31-Jul-19) No. Holders No. Options - - - - 1 1 - - - - 10,000,000 10,000,000 The number of shareholders holding less than a marketable parcel is 47. 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Total 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Total 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Total 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Total Page 21 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Shareholder Information (b) Twenty Largest Shareholders The names of the twenty largest holders of Quoted Ordinary Shares are: # Registered Name Number of Shares % of total Shares 1 2 3 4 5 6 7 8 9 BOND STREET CUSTODIANS LIMITED 164,000,001 21.37% BOURSE SECURITIES PTY LTD ANDES INVESTORS LLC MR MICHAEL DAVID ADAMS & MRS CAROL ADAMS SEAFOUR INVESTMENTS PTY LIMITED 1514341 ONTARIO INC LEET INVESTMENTS PTY LIMITED* MR PHILLIP GERRARD BERRY 68,366,667 56,826,208 22,890,004 17,450,004 17,200,000 17,145,512 16,544,748 MR WILLIAM RICHARDS GOODALL 15,750,004 8.91% 7.40% 2.98% 2.27% 2.24% 2.23% 2.16% 2.05% 10 MR JOHN DOUGLAS JEFFERY & MRS ELSPETH LOUISE JEFFERY 15,000,000 1.95% 11 KOKONG HOLDINGS PTY LIMITED 14,950,511 1.95% 12 CHRISTOPHER JOHN STAPLES & ANNA CLAIRE STAPLES 14,350,004 1.87% 13 14 15 J P MORGAN NOMINEES AUSTRALIA LIMITED 13,346,876 THE WELL BENEATH PTY LIMITED 12,250,004 1.74% 1.60% RICHARD SEVILLE & ASSOCIATES PTY LTD 11,340,087 1.48% 16 HOMEMINSTER PTY LTD 17 ONE MANAGED INVT FUNDS LTD <1 A/C> 18 CALVIN PATRICK TREACY 19 MR DAMIAN CHARLES WILLS 20 MR TIMOTHY NEWTON TOP 20 TOTAL Total of Securities * Merged holding 10,531,303 10,000,000 7,000,000 6,000,000 5,600,000 1.37% 1.30% 0.91% 0.78% 0.73% 516,541,933 67.30% 767,479,642 Page 22 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Shareholder Information (c) Substantial Shareholders Substantial shareholders as shown in substantial shareholder notices received by Elementos Limited are: Name of Shareholder Ordinary Shares BOND STREET CUSTODIANS LIMITED 164,000,001 BOURSE SECURITIES PTY LTD JAMES CALAWAY 68,366,667 60,020,768 (d) Voting rights All ordinary shares carry one vote per share without restriction. Options do not carry voting rights. (e) Restricted securities The Group currently has no restricted securities on issue. (f) On-market buy back There is not a current on-market buy-back in place. (g) Business objectives The Group has used its cash and assets that are readily convertible to cash in a way consistent with its business objectives. Page 23 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Interests in Tenements Elementos Limited held the following interests in tenements as at the date of this report: Tenement Name Tenement Number Cleveland EL7/2005 Selwyn Range EPM 19371 Selwyn Range EPM 19375 Selwyn Range EPM 19426 Area (Hectares) Elementos Interest 5993 3732 6220 622 100% 100% 100% 100% Location of Tenements Tasmania Queensland Queensland Queensland Page 24 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Annual Mineral Resources and Ore Reserves Statement A summary of the Group’s annual review of its ore reserves and mineral resources of its Cleveland project located in Tasmania at 30 June 2016 compared to 30 June 2015 is set out below. Tailings (at 0% Sn cut-off) 6 30 June 2015 – Mineral Resource Category Tonnage Sn Grade Cu Grade Indicated 3.8 Mt 0.30% 0.13% 30 June 2016 – Ore Reserve Category Tonnage Sn Grade Contained Sn Cu Grade Contained Cu Probable 0.29% Tables subject to rounding errors; Sn = tin, Cu = copper 3.7 Mt 11,000t 0.13% 5,000t Total Tin-Copper Mineral Resource (at 0.35% Sn cut-off) 30 June 2015 and 30 June 2016 – unchanged Category Tonnage Sn Grade Contained Sn Cu Grade Contained Cu Indicated Inferred 5.0 Mt 2.4 Mt 0.69% 0.56% 34,500t 13,700t 0.28% 0.19% 14,000t 4,600t Table subject to rounding errors; Sn = tin, Cu = copper Open Pit Tin-Copper Mineral Resource (at 0.35% Sn cut-off) NOTE: this Open Pit Tin-Copper Mineral Resource is a sub-set of the Total Tin-Copper Mineral Resource noted above 30 June 2015 and 30 June 2016 – unchanged Category Tonnage Sn Grade Contained Sn Cu Grade Contained Cu Indicated Inferred 0.8 Mt 0.01 Mt 0.81% 0.99% Table subject to rounding errors; Sn = tin, Cu = copper 6,500t 140t 0.27 0.34 2,300t 50t Underground Tungsten Mineral Resource (at 0.20% WO3 cut-off) 7 30 June 2015 and 30 June 2016 – unchanged Category Inferred Tonnage 4 Mt Table subject to rounding errors; WO3 = tungsten oxide WO3 Grade 0.30% The only change during the financial year was the Cleveland Tailings Mineral (Indicated) Resource being re-classified as an Ore Reserve. The Group confirms that it is not aware of any new information or data (since 30 June 2015) that materially affects the other Mineral Resources set out above. 6 Announced per the JORC Code 2012 on 3 August 2015 “Cleveland Tailings Ore Reserve” 7 This information was prepared and first disclosed under the JORC Code 2004. It has not been updated since to comply with the JORC Code 2012 on the basis that the information has not materially changed since it was last reported. Page 25 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Annual Mineral Resources and Ore Reserves Statement The Group regularly reviews its Mineral Resources and Reserves to assess their reasonableness, engaging suitably qualified competent person/s where required. A summary of the governance and controls applicable to the Group’s Mineral Resources and Reserves processes is as follows:  Review and validation of drilling and sampling methodology and data spacing, geological logging, data collection and storage, sampling and analytical quality control;  Geological interpretation — review of known and interpreted structure, lithology and weathering controls;  Estimation methodology — relevant to mineralisation style and proposed mining methodology;  Comparison of estimation results with previous mineral resource models, and with results using alternate modelling methodologies;  Visual validation of block model against raw composite data; and  Peer review by senior company personnel and independent consultants as required. This Annual Mineral Resources and Ore Reserves Statement:  is based on, and fairly represents, information and supporitng documentation prepared by competent persons (referred to on page 2); and  has been approved by Mr Chris Creagh who is a Member of the Australasian Institute of Mining and Metallurgy and is a part-time consultant to Elementos Ltd. Mr Creagh is qualified geologist with sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking, to qualify as a Competent Person as defined in the 2012 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves”. Mr Creagh has approved this Annual Mineral Resources and Ore Reserves Statement as a whole as the form and context in which it appears in this Annual Report. Page 26 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Corporate Governance Statement The board of directors of Elementos Limited is responsible for the corporate governance of the consolidated entity. The Board guides and monitors the business and affairs of Elementos Limited on behalf of the shareholders by whom they are elected and to whom they are accountable. Elementos Limited’s Corporate Governance Statement (which can be found on the Company’s website www.elementos.com.au) is structured with reference to the Australian Securities Exchange (“ASX”) Corporate Governance Council’s (the “Council”) “Corporate Governance Principles and Recommendations, 3rd Edition”, which are as follows: Principle 1 Principle 2 Principle 3 Principle 4 Principle 5 Principle 6 Principle 7 Principle 8 Lay solid foundations for management and oversight Structure the board to add value Act ethically and responsibly Safeguard integrity in corporate reporting Make timely and balanced disclosure Respect the rights of security holders Recognise and manage risk Remunerate fairly and responsibly A copy of the eight Corporate Governance Principles and Recommendations can be found on the ASX’s website. The Board is of the view that, during the reporting period, with the exception of the departures from the ASX Guidelines as set out below, it otherwise complies with all of the ASX Guidelines. Roles and Responsibilities of the Board and Management ASX CGC Principle 1 Lay solid foundations for management and oversight. Role of the Board The Board of Directors is pivotal in the relationship between shareholders and management and the role and responsibilities of the Board underpin corporate governance. The Board is committed to administering the policies and procedures with openness and integrity, pursuing the true spirit of corporate governance commensurate with the Group’s needs. Generally, the powers and obligations of the Board are governed by the Corporations Act and the general law. Without limiting those matters, the Board expressly considers itself responsible for the following:  Ensuring compliance with the Corporations Act, ASX Listing Rules (where appropriate) and all relevant laws;  Oversight of the Group including its framework of control and accountability systems to enable risk to be assessed and managed;  Appointing and removing the chief executive officer;  Ratifying the appointment and, where appropriate, removal of senior executives including the chief financial officer and the Group secretary;  Input into and final approval of management’s development of corporate strategy and performance objectives;  Monitoring senior executive’s performance and implementation of strategy;  Ensuring appropriate resources are available to senior executives;  Approving and monitoring the progress of major capital expenditure, capital management and acquisitions and divestitures; Page 27 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Corporate Governance Statement  Approving and overseeing Committees where appropriate to assist in the Board’s function and powers. The Functions, Powers and Responsibilities of the Board are set out in the Company’s Corporate Governance Charter which is available from the corporate governance section of the Group’s website. The board meets on a regular basis to review the performance of the Company against its goals both financial and non-financial. In normal circumstances, prior to the scheduled board meetings, each board member is provided with a formal board package containing appropriate management and financial reports. Appropriate background checks are conducted on proposed new directors and material information about a director being re-elected is provided to security holders. Written agreements are entered in to with directors and senior management clearly setting out their roles and responsibilities. The company secretary works directly with the chair and the executive director on the functioning of all board and committee procedures. Diversity The Group is committed to workplace diversity and ensuring a diverse mix of skills amongst its directors, officers and employees. Recommendation 1.5 requires that listed entities should establish a policy concerning diversity. Whilst the Group does not currently have a Diversity policy due to its size and nature of its operations, it strives to attract the best person for the position regardless of gender, age, ethnicity or cultural background. As at 30 June 2016, the proportion of women in the whole organisation is a follows: Male Female Board Members Officers Other 4 2 - - - 1 Performance Evaluation The Board (in carrying out the functions of the Remuneration and Nomination Committees) considers remuneration and nomination issues annually and otherwise as required in conjunction with the regular meetings of the Board. As the CEO resigned subsequent to the year end, no performance evaluation was undertaken. No formal performance evaluation of the non-executive directors was undertaken during the year ended 30 June 2016. Page 28 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Corporate Governance Statement Board Composition ASX CGC Principle 2 Structure of the Board to add value Nomination Committee Recommendation 2.1 requires the Board to establish a nomination committee. Although the Board has adopted a Nominations Committee Charter, the Board has not formally established a Nominations Committee as the Directors consider that the Company is currently not of a size nor are its affairs of such complexity as to justify the formation of this Committee. The Board as a whole is able to address these issues and is guided by the Nominations Committee Charter. The Company will review this position annually and determine whether a Nominations Committee needs to be established. The Nomination Committee Charter is set out in the Company’s Corporate Governance Charter which is available from the corporate governance section of the Group’s website. The Company is developing an appropriate board skills matrix. The skills, experience and expertise relevant to the position of each director who is in office at the date of the Annual Report is detailed in the director’s report. Corporate Governance Council Recommendation 2.4 requires a majority of the Board to be independent Directors. The Corporate Governance Council defines independence as being free from any interest, position, association or relationship that might influence, or reasonably be perceived to influence, in a material capacity to bring independent judgement to bear on issues before the board and to act in the best interests of the entity and its security holders generally. In the context of Director independence, “materiality” is considered from both the Group and the individual Director perspective. The determination of materiality requires consideration of both quantitative and qualitative elements. An item is presumed to be material (unless there is qualitative evidence to the contrary) if it is equal to or greater than 10% of the appropriate base amount. Qualitative factors considered included whether a relationship is strategically important, the competitive landscape, the nature of the relationship and the contractual or other arrangements governing it and other factors which point to the actual ability of the Director in question to shape the direction of the Group. In accordance with the Council’s definition of independence above and the materiality thresholds set, all of the Company’ s directors are not considered to be independent and therefore the Group does not currently comply with Recommendation 2.4: Name A. Greig C. Dunks Position Reason for non-compliance Non-Executive Chairman Director is a substantial (>5%) shareholder Executive Director Director is engaged by the Company in an executive capacity C. Nolan Non-Executive Director C. Treacy Non-Executive Director Director was employed by the Company in an executive capacity within the last three years Director was employed by the Company in an executive capacity within the last three years Page 29 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Corporate Governance Statement Elementos Limited considers industry experience and specific expertise, as well as general corporate experience, to be important attributes of its Board members. The Directors noted above have been appointed to the Board of Elementos Limited due to their considerable industry and corporate experience.The term in office held by each Director in office at the date of this report is as follows: Name A. Greig C. Dunks C. Nolan C. Treacy Term in Office 11 months 11 months 7 years 2 months 2 year 11 months Directors have the right to seek independent professional advice in the furtherance of their duties as directors at the Group’s expense. Written approval must be obtained from the chair prior to incurring any expense on behalf of the Group. Informal induction is provided to any new directors. Act Ethically and Responsibly ASX CGC Principle 3 Code of Conduct The Directors are subject to certain stringent legal requirements regulating the conduct both in terms of their internal conduct as directors and in their external dealings with third parties both on their own and on behalf of the Group. To assist directors in discharging their duty to the Group and in compliance with relevant laws to which they are subject, the Group has adopted a Corporate Ethics Policy and Corporate Code of Conduct within its Corporate Governance Charter. The Corporate Ethics Policy sets out rules binding Directors in respect of:  a Director’s legal duties as an officer of the Company;  a Director’s obligations to make disclosures to the ASX and the market generally; and  dealings by Directors in shares in the Company. The Corporate Ethics Policy, as set out in the Company’s Corporate Governance Charter is available from the corporate governance section of the Group’s website. Safeguard Integrity in Corporate Reporting ASX CGC Principle 4 Audit Committee The Board has established an Audit and Risk Management Committee which operates under a charter approved by the Board. Recommendation 4.1 states that an audit committee should be structured so that it: i. consists only non-executive directors; ii. consists of a majority of independent directors; iii. is chaired by an independent chair, who is not the chair of the Board; and iv. has at least three members. The members of the Audit & Risk Management Committee are Corey Nolan, Calvin Treacy and Chris Page 30 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Corporate Governance Statement Dunks. While Messrs Nolan and Treacy are both non-executive directors, Chris Dunks is engaged in an executive capacity. As the Company’s Audit and Risk Management Committee includes an executive director, none of the Committee are considered independent (based on the Council’s definition), and the Committee is not chaired by an independent director, the Company does not presently comply with Recommendation 4.1. All members of the Audit & Risk Management Committee are considered financially literate in the context of the Company’s affairs. The Company believes that given the size and nature of its operations, non-compliance by the Company with Recommendation 4.1 will not be detrimental to the Company. The number of meetings of the Audit & Risk Management Committee held during the year and the number of meetings attended by each Director was as follows: Audit & Risk Management Committee Number of meetings held while in office Meetings attended C. Nolan C. Dunks (appointed 4 November 2015) C. Treacy 1 1 1* 1 1 1* * Calvin Treacy attended the Audit & Risk Committee meeting (by invitation) despite not being appointed to the Audit & Risk Committee at that time. The Audit Committee Charter is set out in the Company’s Corporate Governance Charter which is available from the corporate governance section of the Group’s website. Certification of financial reports The Executive Director has made the following certifications to the Board:   That the Group’s financial reports are complete and present a true and fair view, in all material respects, of the financial position and performance of the Group and are in accordance with relevant accounting standards; The integrity of the reports is founded on a sound system of financial risk management and internal compliance and control. The Chief Financial Officer has made the following certifications to the Board:   That the Group’s financial reports are complete and present a true and fair view, in all material respects, of the financial position and performance of the Group and are in accordance with relevant accounting standards; The integrity of the reports is founded on sound system of financial risk management and internal compliance and control. The Group ensures that its external auditors are present at the AGM to answer any questions with regard to the efficacy of the financial statement audit and the associated independent audit report. Continuance Disclosure ASX CGC Principle 5 Make timely and balanced disclosure The Group duly complies with ASX and ASIC requirements for the timely and accurate reporting of the Group’s financial activities, thus ensuring that the Group has disclosed all information which has a material impact on shareholders. This includes the Annual Financial Report, Interim Financial Report, quarterly cash flows, new and relinquished tenements and changes in directors and Page 31 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Corporate Governance Statement shareholder interests and other events which are identified to be material. All ASX announcements are available on the Group’s website. The Company Secretary is responsible for communication with the ASX, including responsibility for ensuring compliance with the continuous disclosure requirements of the ASX Listing Rules and oversight of information distributed to the ASX. Respect The Rights of Security Holders ASX CGC Principle 6 The Board of directors undertakes to ensure that shareholders are informed of all major developments affecting the Group. Information is communicated to shareholders through the annual report, interim financial report, announcements made to the ASX, notices of Annual General and Extraordinary General Meetings, the AGM and Extraordinary General Meetings. The Board encourages full participation of shareholders at Annual and Extraordinary General Meetings to ensure a high level of accountability and identification with the Group’s direction, strategy and goals. In particular, shareholders are responsible for voting on the re-election of directors. The Group also offers shareholders the option to receive ASX announcements and other notices from the Company electronically. Risk Management ASX CGC Principle 7 Recognise and manage risk The Board has established an Audit and Risk Management Committee which operates under a charter approved by the Board. Recommendation 7.1 states that an audit committee should be structured so that it: i. consists only non-executive directors; ii. consists of a majority of independent directors; iii. is chaired by an independent chair, who is not the chair of the Board; and iv. has at least three members. The members of the Audit & Risk Management Committee are Corey Nolan, Calvin Treacy and Chris Dunks. While Messrs Nolan and Treacy are both non-executive directors, Chris Dunks is engaged in an executive capacity. As the Company’s Audit and Risk Management Committee includes an executive director, none of the Committee are considered independent (based on the Council’s definition), and the Committee is not chaired by an independent director, the Company does not presently comply with Recommendation 7.1. All members of the Audit & Rick Management Committee are considered to have sufficient technical, legal and industry experience in the context of the Company’s affairs to properly assess the risks facing the Group. The Company believes that given the size and nature of its operations, non-compliance by the Company with Recommendation 7.1 will not be detrimental to the Company. Page 32 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Corporate Governance Statement The number of meetings of the Audit & Risk Management Committee held during the year and the number of meetings attended by each Director was as follows: Audit & Risk Management Committee Number of meetings held while in office Meetings attended C. Nolan C. Dunks (appointed 4 November 2015) C. Treacy 1 1 1* 1 1 1* * Calvin Treacy attended the Audit & Risk Committee meeting (by invitation) despite not being appointed to the Audit & Risk Committee at that time. The Company has developed a basic framework for risk management and internal compliance and control systems which cover organisational, financial and operational aspects of the Company’s affairs. Further detail of the Company’s risk management policies can be found within the Audit and Risk Management Committee Charter. Recommendation 7.2 requires that the Board review the Company’s risk management framework and disclose whether such a review has taken place. Business risks are considered regularly by the Board and management at management and Board meetings. A formal report to the Board as to the effectiveness of the management of the Company’s material business risks has not been formally undertaken. The Audit and Risk Management Committee Charter is set out in the Company’s Corporate Governance Charter which is available from the corporate governance section of the Group’s website. The Company does not have a separate internal audit function. The board considers that the Company is not currently of the size or complexity to justify a separate internal audit function, and that appropriate internal financial controls are in place. Such controls are monitored by senior financial management and the Audit and Risk Committee. The Director’s Report sets out some of the key risks relevant to the Company and its operations. Although not specifically defined as such, the risks include economic, environmental and social sustainability risks. As noted above, the Company regularly reviews risks facing the Company and adopts appropriate mitigation strategies where possible. Remuneration ASX CGC Principle 8 Remunerate fairly and responsibly Remuneration Committee The Board has not established a Remuneration Committee which operates under a charter approved by the Board. Although the Board has adopted a Remuneration Committee Charter, the Board has not formally established a Remuneration Committee as the Directors consider that the Company is currently not of a size nor are its affairs of such complexity as to justify the formation of this Committee. The Board as a whole considers themselves to have sufficient legal, corporate, commercial and industry experience in the context of the Company’s affairs to properly assess the remuneration issues required by the Group and is able to address these issues while being guided by the Remuneration Committee Charter. The Company will review this position annually and determine whether a Remuneration Committee needs to be established. Page 33 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Corporate Governance Statement The Company believes that given the size and nature of its operations, non-compliance by the Company with Recommendation 8.1 will not be detrimental to the Company. It is the Company’s objective to provide maximum stakeholder benefit from the retention of a high quality Board and Executive team by remunerating directors and key executives fairly and appropriately with reference to relevant employment market conditions. To assist in achieving this objective, the Board links the nature and amount of executive director’s and officer’s remuneration to the Group’s financial and operations performance. The expected outcomes of the remuneration structure are:  retention and motivation of key Executives  attraction of quality management to the Group  performance incentives which allow executives, management and staff to share the rewards of the success of Elementos Limited. For details on the amount of remuneration and all monetary and non-monetary components for Key Management Personnel during the period, please refer to the Remuneration Report within the Directors’ Report. In relation to the payment of bonuses, options and other incentive payments, discretion is exercised by the Remuneration Committee and the Board, having regard to the overall performance of Elementos Limited and the performance of the individual during the period. There is no scheme to provide retirement benefits to directors other than statutory superannuation. The Remuneration Committee Charter is set out in the Company’s Corporate Governance Charter which is available from the corporate governance section of the Group’s website. Remuneration Policy The Group’s remuneration policy is also further detailed in the Remuneration Report in the Directors Report. Non-Executive Director Remuneration Non-executive directors are remunerated at market rates for time, commitment and responsibilities. Non-executive directors are remunerated by fees as determined by the Board with the aggregate directors’ fee pool limit of $250,000. 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. Independent consultancy sources provide advice, as required; ensuring remuneration is in accordance with market practice. Fees for non-executive Directors are not linked to the performance of the Group. However, to align Directors’ interests with shareholders interests, the Directors are encouraged to hold shares in the Company and are, subject to approval by shareholders, periodically offered options and/or performance rights. The Company has adopted a Trading Policy that includes a prohibition on hedging, aimed at ensuring participants do not enter in to arrangements which would have the effect of limited their exposure to rick relating to an element of their remuneration. Other Information Further information relating to the Group’s corporate governance practices and policies has been made publicly available on the Group’s web site. Page 34 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Consolidated Statement of Profit or Loss and Other Comprehensive Income For the Year Ended 30 June 2016 Revenue Corporate and administrative expenses Write-off of exploration assets Reclassify foreign currency reserve Note 30 June 2016 30 June 2015 $ $ 2 3 8 14 10,648 96,706 (860,157) (944,903) (240,447) (1,844,343) (667,824) - Loss before income tax expense (1,757,780) (2,692,540) Income tax expense 4 - - Loss for the period attributable to members of the parent entity (1,757,780) (2,692,540) Other comprehensive income Items that may be reclassified to profit or loss: Exchange differences on operations translation of foreign Reclassify foreign currency reserve Other comprehensive income/(loss) for the period, net of tax 810 (73,705) 667,824 - 668,634 (73,705) Total comprehensive members of the parent entity income/(loss) attributable to (1,089,146) (2,766,245) Basic and diluted earnings/(loss) per share (cents per share) (0.2) (0.4) The accompanying notes form part of these financial statements. Page 35 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Consolidated Statement of Financial Position As at 30 June 2016 Note 30 June 2016 30 June 2015 $ $ CURRENT ASSETS Cash and cash equivalents Trade and other receivables Other current assets Total Current Assets NON-CURRENT ASSETS Exploration and evaluation assets Plant and equipment Other non-current assets Total Non-Current Assets TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Total Current Liabilities NON-CURRENT LIABILITIES Borrowings Total Non-Current Liabilities 5 6 7 8 9 10 11 12 467,268 2,020 708 469,996 761,828 19,380 10,917 792,125 4,681,891 4,859,170 1,225 6,000 4,186 13,950 4,689,116 4,877,306 5,159,112 5,669,431 62,739 62,739 166,705 166,705 515,658 515,658 - - TOTAL LIABILITIES 578,397 166,705 NET ASSETS EQUITY Contributed equity Reserves Accumulated losses TOTAL EQUITY 4,580,715 5,502,726 13 12,407,382 12,437,377 261,300 (604,464) (8,087,967) (6,330,187) 4,580,715 5,502,726 The accompanying notes form part of these financial statements. Page 36 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Consolidated Statement of Changes in Equity For the Year Ended 30 June 2016 Note Issued Capital Accumulated Losses Share- Based Payments Reserve Foreign Currency Translation Reserve Total $ $ $ $ $ Balance at 30 June 2014 10,924,168 (3,637,647) 64,170 (594,929) 6,755,762 Loss for the period Other comprehensive income for the period 14 Total comprehensive income - - - (2,692,540) - (2,692,540) Shares issued due to capital raising Equity settled compensation Transaction costs 13 13 13 1,543,948 37,021 (67,760) - - - - - - - - - - (2,692,540) (73,705) (73,705) (73,705) (2,766,245) - - - 1,543,948 37,021 (67,760) Balance at 30 June 2015 12,437,377 (6,330,187) 64,170 (668,634) 5,502,726 Loss for the period Other comprehensive income for the period 14 Reclassify foreign currency reserve 14 - - - (1,757,780) - - Total comprehensive income - (1,757,780) - - - - - (1,757,780) 810 810 667,824 667,824 668,634 (1,089,146) Equity settled compensation Transaction costs 20 13 - (29,995) - - 197,130 - Balance at 30 June 2016 12,407,382 (8,087,967) 261,300 - - - 197,130 (29,995) 4,580,715 The accompanying notes form part of these financial statements. Page 37 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Consolidated Statement of Cash Flows For the Year Ended 30 June 2016 CASH FLOWS FROM OPERATING ACTIVITIES Interest received Other receipts Payments to suppliers and employees 30 June 2016 30 June 2015 $ $ 10,195 - 51,125 45,581 (708,344) (818,863) Net cash used in operating activities 15 (698,149) (722,157) CASH FLOWS FROM INVESTING ACTIVITIES Payments for exploration and evaluation assets (459,006) (1,352,157) Refunds of security deposits Research and development refunds Cash disposed of on disposal of subsidiary Purchase of property, plant and equipment Proceeds from the sale of a subsidiary 15,005 320,684 (183) (866) 57,950 - 682,268 - (5,844) - Net cash used in investing activities (66,416) (675,733) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares Costs associated with share issues Proceeds from loan - 1,543,948 (29,995) 500,000 (67,760) - Net cash provided by financing activities 470,005 1,476,188 Net increase/(decrease) in cash held (294,560) 78,298 Cash at Beginning of Year 761,828 682,689 Effect of exchange rates on cash holdings in foreign currencies - 841 Cash at End of Year 5 467,268 761,828 The accompanying notes form part of these financial statements. Page 38 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Notes to the Consolidated Financial Statements For the Year Ended 30 June 2016 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements are general purpose financial statements that have been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards, and other authoritative pronouncements of the Australian Accounting Standards Board. Elementos Limited is a for-profit entity for the purpose of preparing the financial statements. The financial statements are presented in Australian dollars. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards. The financial statements are for the consolidated entity consisting of Elementos Limited and its Controlled Entities. Elementos Limited is a public company, incorporated and domiciled in Australia. The financial statements have been prepared on an accruals basis and are based on historical cost modified by the measurement at fair value of selected non-current assets, financial assets and liabilities. The financial report was authorised for issue on 29 September 2016 by the directors of the Company. Separate financial statements for Elementos Limited as an individual entity are no longer presented following a change to the Corporations Act 2001. However, financial information required for Elementos Limited as an individual entity is included in Note 26. Material accounting policies adopted in the preparation of these financial statements are presented below. They have been consistently applied unless otherwise stated. Going Concern The financial statements have been prepared on a going concern basis which contemplates the continuity of normal business activities and the realisation of assets and discharge of liabilities in the ordinary course of business. The ability of the Group to maintain continuity of normal business activities and to pay its debts as and when they fall due is dependent on the ability of the Group to successfully raise additional capital and/or successful exploration and subsequent exploitation of areas of interest through sale or development. The Group has not generated any revenues from operations. During the year, the Group did not raise any equity capital, however borrowed $0.5 million (unsecured, non- recourse) from a related party. Should the Group not be able to raise further capital, dispose of assets when required or manage its expenditure so as to conserve cash over the coming 12 months, there exists a material uncertainty regarding the Group’s ability to continue as a going concern and realise its assets and settle its liabilities and commitments in the normal course of business and at the amounts stated in the financial statements. The financial report does not include any adjustments relating to the recoverability or classification of recorded asset amounts, or to the amounts or classification of liabilities which might be necessary should the Group not be able to continue as a going concern. Principles of Consolidation Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Elementos Limited ("Company" or "parent entity") as at 30 June 2016, and the results of all subsidiaries for the year then ended. Elementos Limited and its subsidiaries together are referred to in these financial statements as the Group or the economic entity. Page 39 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Notes to the Consolidated Financial Statements for the Year Ended 30 June 2016 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Principles of Consolidation (continued) The names of the subsidiaries are contained in Note 24. All subsidiaries have a 30 June financial year end and are accounted for by the parent entity at cost. Subsidiaries are all entities over which the Group has control. The Group has control over an entity when the Group is exposed to, or has a right to, variable returns from its involvement with the entity, and has the ability to use its power to affect those returns. 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. 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 asset transferred. Accounting policies of controlled entities have been changed where necessary to ensure consistency with the policies adopted by the Group. Changes in ownership interests When the Group ceases to have control, joint control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in the 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, joint venture 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. 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 Managing Director/Chief Executive Officer. Income Tax The income tax expense/(income) for the year comprises current income tax expense/(income) and deferred tax expense/(income). Current income tax expense charged to profit or loss is the tax payable on taxable income calculated using applicable income tax rates enacted, or substantially enacted, as at reporting date. Current tax liabilities/(assets) are therefore measured at the amounts expected to be paid to/(recovered from) the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the period as well unused tax losses. Current and deferred income tax expense/(income) is charged or credited directly to equity instead of profit or loss when the tax relates to items that are credited or charged directly to equity. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates enacted or substantively enacted at reporting date. Their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. Page 40 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Notes to the Consolidated Financial Statements for the Year Ended 30 June 2016 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Income Tax (continued) Deferred tax assets and liabilities are ascertained based on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets also result where amounts have been fully expensed but future tax deductions are available. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. The Company and its Australian 100% owned controlled entities have formed a tax consolidated group. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. Exploration and Evaluation Assets Exploration and evaluation expenditure incurred is accumulated in respect of each identifiable area of interest. Such expenditures comprise net direct costs and an appropriate portion of related overhead expenditure but do not include overheads or administration expenditure not having a specific nexus with a particular area of interest. These costs are only carried forward to the extent that they are expected to be recouped through the successful development of the area or where activities in the area have not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves and active or significant operations in relation to the area are continuing. A regular review has been undertaken on each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. A provision is raised against exploration and evaluation assets where the directors are of the opinion that the carried forward net cost may not be recoverable or the right of tenure in the area lapses. The increase in the provision is charged against the results for the year. Accumulated costs in relation to an abandoned area are written off in full against profit or loss in the year in which the decision to abandon the area is made. When production commences, the accumulated costs for the relevant area of interest are amortised over the life of the area according to the rate of depletion of the economically recoverable reserves. Restoration Costs Costs of site restoration are provided over the life of the facility from when exploration commences and are included in the costs of that stage. Site restoration costs include the dismantling and removal of mining plant, equipment and building structures, waste removal, and rehabilitation of the site in accordance with clauses of the exploration and mining permits. Such costs have been determined using estimates of future costs, current legal requirements and technology on an undiscounted basis. Page 41 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Notes to the Consolidated Financial Statements for the Year Ended 30 June 2016 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Restoration Costs (continued) Any changes in the estimates for the costs are accounted for on a prospective basis. In determining the costs of site restoration, there is uncertainty regarding the nature and extent of the restoration due to community expectations and future legislation. Accordingly, the costs have been determined on the basis that the restoration will be completed within one year of abandoning the site. The economic entity currently has no obligation for any restoration costs in relation to discontinued operations, nor is it currently liable for any future restoration costs in relation to current areas of interest. Consequently, no provision for restoration has been deemed necessary. Impairment of Assets At each reporting date, the economic entity reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset's carrying value. Any excess of the asset's carrying value over its recoverable amount is expensed to profit or loss. Financial Instruments Recognition and Initial Measurement Financial instruments, incorporating financial assets and financial liabilities, are recognised when the entity becomes a party to the contractual provisions of the instrument. Trade date accounting is adopted for financial assets. Financial instruments are initially measured at fair value plus transactions costs where the instrument is not classified as at fair value through profit or loss. Transaction costs related to instruments classified as at fair value through profit or loss are expensed to profit or loss immediately. Derecognition Financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised where the related obligations are either discharged, cancelled or expire. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non- cash assets or liabilities assumed, is recognised in profit or loss. Classification and Subsequent Measurement Financial instruments are subsequently measured at fair value, amortised cost using the effective interest rate method, or cost. Page 42 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Notes to the Consolidated Financial Statements for the Year Ended 30 June 2016 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Financial Instruments (continued) Fair value is the price that would be received to sell an asset or paid to transfer an assets. Amortised cost is calculated as: (a) the amount at which the financial asset or financial liability is measured at initial recognition; (b) less principal repayments; (c) plus or minus the cumulative amortisation of the difference, if any, between the amount initially recognised and the maturity amount calculated using the effective interest method; and (d) less any reduction for impairment. The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that exactly discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) through the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of an income or expense in profit or loss. The economic entity does not designate any interests in subsidiaries, associates or joint venture entities as being subject to the requirements of accounting standards specifically applicable to financial instruments. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost. Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are either designated as such or that are not classified in any of the other categories. They comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable payments. Financial Liabilities Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost. Impairment At each reporting date, the economic entity assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a significant or prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in profit or loss. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks and other short- term highly liquid investments with original maturities of less than 3 months. Page 43 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Notes to the Consolidated Financial Statements for the Year Ended 30 June 2016 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Issued Capital Ordinary shares are classified as equity. Transaction costs (net of tax where the deduction can be utilised) arising on the issue of ordinary shares are recognised in equity as a reduction of the share proceeds received. Share Based Payments The economic entity makes equity-settled share based payments to directors, employees and other parties for services provided or the acquisition of exploration assets. Where applicable, the fair value of the equity is measured at grant date and recognised as an expense over the vesting period, with a corresponding increase to an equity account. The fair value of shares is ascertained as the market bid price. The fair value of options is ascertained using a binomial lattice pricing model which incorporates all market vesting conditions. Where applicable, the number of shares and options expected to vest is reviewed and adjusted at each reporting date such that the amount recognised for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest. Where the fair value of services rendered by other parties can be reliably determined, this is used to measure the equity-settled payment. Revenue Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. Employee Benefits Short-term employee benefit obligations Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled wholly within 12 months after the end of the reporting period are recognised in liabilities in respect of employees' services rendered up to the end of the reporting period and are measured at amounts expected to be paid when the liabilities are settled. Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST (or overseas VAT), except where the amount of GST incurred is not recoverable. In these circumstances the GST (or overseas VAT) is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST. Cash flows are presented in the statement of cash flows on a gross basis except for the GST component of investing and financing activities which are disclosed as operating cash flows. Foreign Currency Transactions and Balances Functional and presentation currency The functional and presentation currency of Elementos Ltd and its Australian subsidiaries is Australian dollars ($A). Page 44 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Notes to the Consolidated Financial Statements for the Year Ended 30 June 2016 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Foreign Currency Transactions and Balances (continued) Transactions and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year- end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were measured. Exchange differences arising on the translation of monetary items are recognised in profit or loss, except where deferred in equity as a qualifying cash flow or net investment hedge. Group Companies The financial results and position of foreign operations whose functional currency is different from the economic entity’s presentation currency are translated as follows:  assets and liabilities are translated at period-end exchange rates prevailing at that reporting date;   income and expenses are translated at average exchange rates for the period; retained earnings are translated at the exchange rates prevailing at the date of the transaction. Exchange differences arising on translation of foreign operations are recognised in other comprehensive income. Plant and Equipment Each class of property, plant and equipment is carried at cost or fair value less, where applicable, any accumulated depreciation and impairment losses. Plant and equipment are measured on the cost basis and therefore carried at cost less accumulated depreciation and any accumulated impairment. In the event the carrying amount of plant and equipment is greater than the estimated recoverable amount, the carrying amount is written down immediately to the estimated recoverable amount and impairment losses are recognised either in profit or loss or as a revaluation decrease if the impairment losses relate to a revalued asset. A formal assessment of recoverable amount is made when impairment indicators are present. The carrying amount of plant and equipment is reviewed periodically by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. The cost of fixed assets constructed within the Consolidated Entity includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads. 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 benefits associated with the item will flow to the Consolidated Entity and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred. Page 45 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Notes to the Consolidated Financial Statements for the Year Ended 30 June 2016 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Plant and Equipment (continued) Depreciation The depreciable amount of all fixed assets is depreciated on a straight-line basis over the asset’s useful life to the Consolidated Entity commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The depreciation rates used for plant and equipment is 33%. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance date. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the statement of comprehensive income. When revalued assets are sold, amounts included in the revaluation surplus relating to that asset are transferred to retained earnings. 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. Government grants relating to costs are deferred and recognised in the profit or loss over the period necessary to match them with the costs that they are intended to compensate. Government grants relating to exploration and evaluation assets that have been capitalised are recognised by deducting the grant received from the carrying amount of the exploration and evaluation asset recognised on the balance sheet. Earnings Per Share (EPS) Basic earnings per share is calculated by dividing the loss attributable to equity holders 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 period adjusted for any bonus elements in ordinary shares issued during the period. 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. Page 46 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Notes to the Consolidated Financial Statements for the Year Ended 30 June 2016 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) New and Amended Standards and Interpretations None of the new standards and amendments to standards that are mandatory for the first time for the financial year beginning 1 July 2015 affected any of the amounts recognised in the current period or any period prior and are not likely to affect future periods. A number of new standards and amendments to the standards are effective for financial reporting periods beginning and after 1 July 2016 and have not been applied in preparing these financial statements. None of these are expected to have a significant effect on the financial statements when they are first applied. Fair Values Fair values may be used for financial asset and liability measurement as well as for sundry disclosures. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is based on the presumption that the transaction takes place either in the principal market for the asset or liability or, in the absence of a principal market, in the most advantageous market. The principal or most advantageous market must be accessible to, or by, the Group. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability assuming that market participants act in their best economic interest. The fair value measurement of a non-financial asset takes into account the market participant's ability to generate economic benefits by using the asset at its highest and best use or by selling it to another market participant that would use the asset at its highest and best use. In measuring fair value, the Group uses valuation techniques that maximise the use of observable inputs and minimise the use of unobservable inputs. Critical Accounting Estimates and Judgements The directors evaluate estimates and judgments incorporated into the financial statements based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the economic entity. Key Judgements: Exploration and Evaluation Assets The economic entity performs regular reviews on each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. These reviews are based on detailed surveys and analysis of drilling results performed to reporting date. Exploration and evaluation assets at 30 June 2016 were $4,681,891 (2015: $4,859,170). Page 47 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Notes to the Consolidated Financial Statements for the Year Ended 30 June 2016 NOTE 2: REVENUE Revenue from operating activities: Interest received from other persons Consulting fees Gain on sale of subsidiary(see note below) 30 June 2016 30 June 2015 $ $ 10,195 - 453 10,648 51,125 45,581 - 96,706 During the period, Elementos Limited sold one of its 100% owned subsidiaries Elementos Minerals Australia Pty Ltd: Consideration received Carrying amount of net assets sold Gain on sale NOTE 3: EXPENSES Included in expenses are the following items: Depreciation Foreign currency translation loss/(profit) ASX, ASIC, share registry expenses Business development and investor relations costs Legal fees Insurances Audit and external accounting fees Employee benefits expense comprises: Salaries and wages Consulting fees Contributions to defined contribution plans Equity settled options Annual leave expensed Less capitalised as exploration assets 57,950 (57,497) 453 30 June 2016 30 June 2015 $ $ 3,783 (676) 42,043 120,679 46,991 39,950 74,927 91,242 82,835 23,799 197,130 7,743 - 730,446 37,790 (98) 59,336 81,910 18,735 29,945 74,909 651,099 25,000 50,401 - 7,386 (370,764) 665,649 Page 48 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Notes to the Consolidated Financial Statements for the Year Ended 30 June 2016 NOTE 4: INCOME TAX EXPENSE The prima facie tax on the operating loss is reconciled to income tax expense as follows: Prima facie tax/(benefit) on loss from ordinary activities before income tax at 30% (2015: 30%) 30 June 2016 30 June 2015 $ $ (527,334) (807,762) Adjust for tax effect of: Non-deductible amounts Tax loss not recognised Temporary differences recognised R&D adjustment (for 2015 claim) Income tax expense/(benefit) 156,606 153,340 - 217,388 - Deferred tax assets and liabilities not recognised, the net benefit of which will only be realised if the conditions for deductibility set out in Note 1 occur: Temporary differences Tax losses - 3,804,013 3,650,673 81,841 488,425 237,496 - - - The Group has carried forward tax losses of $14,094,217 in Australia, which must satisfy the Continuity of Ownership Test, or failing that, the Same Business Test, in order to be utilised in the future. NOTE 5: CASH AND CASH EQUIVALENTS Cash at bank and on hand Short term deposits NOTE 6: TRADE AND OTHER RECEIVABLES Current: Other receivables 30 June 2016 30 June 2015 $ $ 154,605 312,663 467,268 307,426 454,402 761,828 30 June 2016 30 June 2015 $ $ 2,020 19,380 There are no balances within other receivables that contain assets that are impaired or are past due. It is expected these balances will be received when due. There are no balances with terms that have been renegotiated, but which would otherwise be past due or impaired. These amounts are non-interest bearing and generally on 30 day terms. No collateral is held over receivables. Page 49 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Notes to the Consolidated Financial Statements for the Year Ended 30 June 2016 NOTE 7: OTHER CURRENT ASSETS Current: Other Deposits Prepayments NOTE 8: EXPLORATION AND EVALUATION ASSETS 30 June 2016 30 June 2015 $ $ 708 - 708 790 10,127 10,917 30 June 2016 30 June 2015 $ $ Exploration and evaluation expenditure carried forward in respect of areas of interest are: Exploration and evaluation phase - at cost 4,681,891 4,859,170 Movement in exploration and evaluation assets: Opening balance - at cost Security deposit refunds Capitalised exploration expenditure Exploration and evaluation assets disposed of 4,859,170 6,456,348 (14,956) 448,172 (49,364) - 1,003,138 - Foreign currency translation movement - (73,705) Exploration and evaluation assets written off Total exploration and evaluation assets Less research and development refunds (240,447) 5,002,575 (320,684) (1,844,343) 5,541,438 (682,268) Carrying amount at the end of the year 4,681,891 4,859,170 Recoverability of the carrying amount of exploration assets is dependent on the successful development and commercial exploitation of projects, or alternatively, through the sale of the areas of interest. NOTE 9: PLANT AND EQUIPMENT At cost Accumulated depreciation Total plant and equipment Page 50 30 June 2016 30 June 2015 $ 13,727 (12,502) 1,225 $ 38,542 (34,356) 4,186 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Notes to the Consolidated Financial Statements for the Year Ended 30 June 2016 NOTE 9: PLANT AND EQUIPMENT (CONTINUED) Reconciliation of the carrying amounts for property, plant and equipment is set out below: Balance at the beginning of year Additions during the year Depreciation expense Foreign currency translation movement Carrying amount at the end of year NOTE 10: OTHER NON-CURRENT ASSETS Mining Lease Deposits NOTE 11: TRADE AND OTHER PAYABLES Current: Trade payables and accrued expenses Short term employee benefits Total payables (unsecured) 4,186 866 (3,783) (44) 1,225 36,060 5,844 (37,790) 72 4,186 30 June 2016 30 June 2015 $ $ 6,000 6,000 13,950 13,950 30 June 2016 30 June 2015 $ $ 53,695 9,044 62,739 165,404 1,301 166,705 The average credit period on purchases of goods and services is 30 days. No interest is paid on trade payables. NOTE 12: BORROWINGS Non-Current: Unsecured: Loan from related party Accrued interest Total unsecured non-current liability 30 June 2016 30 June 2015 $ $ 500,000 15,658 515,658 - - - Loan amount = $500,000 Loan term = 2 years Interest rate = 6.0% On 23 December 2015, the Company executed a loan deed with the Company’s Non-Executive Chairman Mr Andy Greig, a related party, with the following key terms:     Unsecured  No conversion rights  No requirement to repay principal or pay interest during the loan term  Repayable by the Company at any time (during the loan term) Page 51 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Notes to the Consolidated Financial Statements for the Year Ended 30 June 2016 NOTE 13: CONTRIBUTED EQUITY Fully paid ordinary shares Balance as at 1 July Other share issues: 25 July 2014 11 August 2014 11 August 2014 2 October 2014 23 December 2014 23 December 2014 5 March 2015 Balance as at 30 June Total transaction costs associated with share issues 2016 2015 No. of Shares $ No. of Shares $ 767,479,642 12,437,377 633,310,868 10,924,168 (a) (b) (c) (d) (e) (f) (g) - - - - - - - - - - - - - - 83,186,790 998,240 40,315,384 483,785 2,000,230 1,403,366 2,402,372 3,160,000 1,700,632 24,003 14,174 14,174 37,920 8,673 767,479,642 12,437,377 767,479,642 12,505,137 (29,995) (67,760) Net issued capital 12,407,382 12,437,377 Ordinary shareholders are entitled to participate in dividends and the proceeds on the winding up of the company in proportion to the number of and amount paid on the shares held. Every ordinary shareholder present at a meeting in person or by proxy is entitled to one vote on a show of hands or by poll. Ordinary shares have no par value. Notes for the above table, relating to the year ended 30 June 2015, are: (a) Issued at 1.2 cents each, pursuant to a rights issue. (b) Issued at 1.2 cents each, shortfall placement of the rights issue. (c) Issued at 1.2 cents each, pursuant to a private placement. (d) Issued at 1.01 cents each, pursuant to directors and executive staff salary sacrifice plan. (e) Issued at 0.059 cents each, pursuant to directors and executive staff salary sacrifice plan. (f) Issued at 1.2 cents each, pursuant to shareholder approval at AGM held on 26 November 2014. (g) Issued at 0.051 cents each, pursuant to directors and executive staff salary sacrifice plan. Options Note Weighted average exercise price (cents) 30 June 2016 No. of Options Weighted average exercise price (cents) 30 June 2015 No. of Options Unlisted Share Options 2.67 43,850,000 10.58 17,850,000 Balance at the beginning of the reporting period Options issued during the period: Issued to staff and consultants 20 Lapsed Exercisable at end of year Page 52 10.58 17,850,000 10.94 18,400,000 1.33 22.6 2.67 31,000,000 (5,000,000) 43,850,000 - 22.6 10.58 - (550,000) 17,850,000 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Notes to the Consolidated Financial Statements for the Year Ended 30 June 2016 NOTE 13: CONTRIBUTED EQUITY (continued) Capital Management Exploration companies such as Elementos Limited are funded almost exclusively by share capital. The Group has recently however entered in to a loan agreement set out in more detail in Note 12 (Borrowings). Management controls the capital of the Group to ensure it can fund its operations and continue as a going concern. Capital management policy is to fund its exploration activities principally by way of equity, and where required, debt and/or project finance. No dividend will be paid while the Group is in exploration stage. There are no externally imposed capital requirements. There have been no other changes to the capital management policies during the year. NOTE 14: RESERVES Foreign Currency Translation Reserve The foreign currency translation reserve recorded exchange differences arising on translation of foreign controlled subsidiaries. Amounts were reclassified during the period to profit or loss as the foreign operations have been abandoned. Share-Based Payments Reserve The share-based payment reserve is used to recognise the fair value of options issued to employees. This reserve can be reclassified as retained earnings if options lapse. NOTE 15: CASH FLOW INFORMATION Reconciliation of Cash Flow from Operations with Loss after Income Tax: Loss after income tax (1,757,780) (2,692,540) 30 June 2016 30 June 2015 $ $ Non-cash flows in loss from ordinary activities: Depreciation Exploration expenditure written off Equity settled compensation Gain on disposal of subsidiary Reclassify foreign currency reserve Changes in operating assets and liabilities: (Increase)/Decrease in receivables (Increase)/Decrease in prepayments and other assets (Decrease)/Increase in payables 3,783 240,447 197,130 (453) 667,824 12,847 10,127 (72,074) 37,790 1,844,343 37,021 - - 5,020 4,103 42,106 Cash flows from operations (698,149) (722,157) Page 53 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Notes to the Consolidated Financial Statements for the Year Ended 30 June 2016 NOTE 16: EARNINGS PER SHARE 30 June 2016 30 June 2015 $ $ Net loss used in the calculation of basic and diluted EPS (1,757,780) (2,692,540) Weighted average number of ordinary shares outstanding during the period used in the calculation of basic EPS 767,479,642 752,713,682 Options are considered potential ordinary shares. Options issued are not presently dilutive and were not included in the determination of diluted earnings per share for the period. NOTE 17: COMMITMENTS (a) Exploration Commitments The Group has certain obligations to expend minimum amounts on exploration in tenement areas. These obligations may be varied from time to time and are expected to be fulfilled in the normal course of operations of the Group. The following commitments exist at balance date but have not been brought to account. If the relevant option to acquire a mineral tenement is relinquished the expenditure commitment also ceases. The Group has the option to negotiate new terms or relinquish the tenements and also to meet expenditure requirements by joint venture or farm-in arrangements. 30 June 2016 30 June 2015 $ 1,000,000 212,838 $ 1,739,675 1,102,401 1,212,838 2,842,076 Not later than 1 year Later than 1 year but not later than 5 years Total commitment (b) Operating Lease Commitments The Group has no operating leases (2015: nil). NOTE 18: CONTINGENT LIABILITIES There were no contingent liabilities at the end of the reporting period. NOTE 19: RELATED PARTY TRANSACTIONS Parent Entity Elementos Limited is the legal parent and ultimate parent entity of the Group, owning 100% of all subsidiaries at 30 June 2016. Subsidiary Interest in subsidiaries are disclosed in Note 24. Page 54 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Notes to the Consolidated Financial Statements for the Year Ended 30 June 2016 NOTE 19: RELATED PARTY TRANSACTIONS (continued) Key Management Personnel Short-term employee benefits Post-employment benefits Equity-based payments 30 June 2016 30 June 2015 $ 353,687 22,910 191,300 567,897 $ 417,850 35,632 37,020 490,502 On 23 December 2015, the Company executed a loan deed with the Company’s Non-Executive Chairman Mr Andy Greig, a related party, for up to $500,000. Further details are contained in Note 12 (Borrowings). NOTE 20: SHARE-BASED PAYMENTS Director and Employee Share-based Payments Share based payment expense recognised during the year: Share based payment expense recognised during the period: Options issued to employees under employee share option plan Options issued to consultant 30 June 2016 30 June 2015 $ $ 133,930 63,200 197,130 - - - During the year, 31million options were granted, 21million to employees (includes 20million options issued to the then chief executive officer, Tim McManus, one of the Group’s key management personnel) under the employee share option plan and 10million to a consultant. The options vested on grant date and expire on 31 July 2019, except for 1million which expire 31 July 2018. The weighted average fair value of options granted during the year was 0.64 cents. The fair values at grant date were determined by an independent valuator using a Black-Scholes option pricing model that takes into account the share price at grant date, exercise price, expected volatility, option life, expected dividends, the risk free rate, the impact of dilution, the fact that the options are not tradeable. The inputs used for the Black-Scholes option pricing model for options granted during the year ended 30 June 2016 were as follows:  grant dates: 26 August 2015 (for 21million options) and 21 December 2015 (for 10million options) share price at grant date: 1.0 cent (for the 21million options issued on 26 August 2015) and 0.9  cents (for the 10million options issued on 21 December 2015)  exercise prices: 1.25 cents to 1.50 cents  expected volatility: 100%  expected dividend yield: nil%  risk free rates: 1.91% (for 1million options expiring 31 July 2018) and 2.12% (for 30million options expiring 31 July 2019) Expected volatility was determined based on the historic volatility (based on the remaining life of the option), adjusted for any expected changes to future volatility based on publicly available information. Page 55 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Notes to the Consolidated Financial Statements for the Year Ended 30 June 2016 NOTE 21: AUDITOR’S REMUNERATION Remuneration for the auditor of the parent entity: BDO Audit Pty Ltd and its related entities: Auditing or reviewing the financial reports NOTE 22: FINANCIAL RISK MANAGEMENT (a) Financial Risk Management Policies 30 June 2016 30 June 2015 $ $ 42,324 42,324 36,092 36,092 The Elementos Group's financial instruments comprises cash balances, receivables and payables, loans to and from subsidiaries and a loan from a related party. The main purpose of these financial instruments is to provide finance for Group operations. Treasury Risk Management Key executives of the Company meet on a regular basis to analyse exposure and to evaluate treasury management strategies in the context of the most recent economic conditions and forecasts. The board of directors has overall responsibility for the establishment and oversight of the Group's risk management framework. Management is responsible for developing and monitoring the risk management policies and reports to the board. Financial Risks The main risks the Group is exposed to through its financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk. These risks are managed through monitoring of forecast cash flows, interest rates, economic conditions and ensuring adequate funds are available. Interest Rate Risk The Group's exposure to interest rate risk, which is the risk that a financial instrument's cash flows or fair value will fluctuate as a result of changes in market interest rates, arises in relation to the Group's bank balances. This risk is managed through the use of variable rate bank accounts. Liquidity Risk Liquidity risk is the risk that the Group will not be able meet its financial obligations as they fall due. This risk is managed by ensuring, to the extent possible, that there is sufficient liquidity to meet liabilities when due, without incurring unacceptable losses or risking damage to the Group's reputation. The economic Group's activities are funded from equity and where required and available debt and/or project finance. There is no requirement to repay principal or pay interest on the related party loan during the loan term. Page 56 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Notes to the Consolidated Financial Statements for the Year Ended 30 June 2016 NOTE 22: FINANCIAL RISK MANAGEMENT (CONTINUED) Credit Risk The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date to recognised financial assets, is their carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. Credit risk arises from exposures to deposits with financial institutions and sundry receivables. Credit risk is managed and reviewed regularly by key executives. The key executives monitor credit risk by actively assessing the rating quality and liquidity of counter parties:  only banks and financial institutions with an ‘A’ rating are utilised; and  all other entities are rated for credit worthiness taking into account their size, market position and financial standing. At 30 June 2016, there was no concentration of credit risk, other than bank balances and on geographical basis with most financial assets in Australia (2015: nil). Foreign Currency Risk The Group is exposed to fluctuations in foreign currencies arising from the purchase of goods and services in currencies other than the relevant entity's functional currency. Financial assets and liabilities exist for the Group's Argentine operations, and thus there is exposure to the Argentine Peso. As this risk is minor, it is not hedged. At reporting date, the net foreign currency risk (stated in $AUD) was $389 (2015: $836). (b) Financial Instrument Composition and Contractual Maturity Analysis Financial assets: Within 6 months: cash & cash equivalents (i) receivables (ii) Financial liabilities: Within 6 months: payables (ii) Within 18 months: loan 30 June 2016 30 June 2015 $ $ 467,268 2,020 469,288 761,828 19,380 781,208 (62,739) (166,705) (515,658) (578,397) - (166,705) (i) Floating interest rates, with weighted average effective interest rate 1.79%, with an average maturity of 10 days. (ii) Non-interest bearing. The contractual cash flows do not differ to the carrying amount. (c) Net Fair Values Fair values of financial assets and financial liabilities are materially in line with carrying values. Page 57 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Notes to the Consolidated Financial Statements for the Year Ended 30 June 2016 NOTE 22: FINANCIAL RISK MANAGEMENT (CONTINUED) (d) Sensitivity Analysis The Company has performed sensitivity analysis relating to its exposure to interest rate risk. At year end, the effect on profit and equity as a result of a 1% change in the interest rate, with all other variables remaining constant, is immaterial (2015: $7,610). NOTE 23: SEGMENT REPORTING Operating segments have been determined on the basis of reports reviewed by the board of directors and the Chief Executive Officer (chief operating decision makers) in assessing performance and determining the allocation of resources. The Group is managed primarily on a geographic basis, that is, the location of the respective areas of interest (tenements) in Australia. Operating segments are determined on the basis of financial information reported to the board of directors which is at the consolidated entity level. The Group does not have any products or services that it derives revenue from. The Group's exploration and development activities in Australia is the Group’s sole focus, primarily focused around tin and copper. The Group's previous exploration activities in Argentina and Chile have been discontinued and/or sold. Accordingly, management currently identifies the Group as having only one reportable segment, being the exploration of mineral assets in Australia. There have been no changes in the operating segments during the year. Accordingly, all significant operating decisions are based upon analysis of the consolidated entity as one segment. The financial results from this segment are equivalent to the financial statements of the Group as a whole. NOTE 24: SUBSIDIARIES The consolidated financial statements incorporate the assets, liabilities and results of the following wholly-owned subsidiaries in accordance with the accounting policy described in Note 1: Rockwell Minerals Pty Ltd Rockwell Minerals (Tasmania) Pty Ltd Element Minerals Australia Pty Ltd (see note below) Elementos Minerales S.A. Elementos Chile Limitada Country of incorporation Australia Australia Australia Argentina Chile Ownership interest 2016 100% 100% - 100% 100% 2015 100% 100% 100% 100% 100% During the period, Elementos Limited sold one of its 100% owned subsidiaries Element Minerals Australia Pty Ltd. Further details can be found in Note 2 (Revenue). NOTE 25: SUBSEQUENT EVENTS There were no subsequent events after year end. Page 58 ELEMENTOS LIMITED - ABN 49 138 468 756 ANNUAL REPORT 2016 Notes to the Consolidated Financial Statements for the Year Ended 30 June 2016 NOTE 26: PARENT ENTITY INFORMATION The following information relates to the parent entity, Elementos Limited at 30 June 2016. This information has been prepared using consistent accounting policies as presented in Note 1. Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Contributed equity Reserves Accumulated losses Total equity Loss for the period Other comprehensive income for the period 30 June 2016 30 June 2015 $ $ 467,131 777,286 7,426,918 7,833,324 7,894,049 8,610,610 59,257 515,658 574,915 130,338 - 130,338 28,302,914 28,332,909 1,270,522 1,073,392 (22,254,302) (20,926,029) 7,319,134 8,480,272 (1,328,273) (10,710,560) - - Total comprehensive income for the period (1,328,273) (10,710,560) The Company has no contingent liabilities, nor has it entered into any guarantees in relation to the debts of its subsidiaries (2015: nil). The Company has not entered into any contractual commitments for the acquisition of property, plant and equipment (2015: nil). The Company and its Australian 100% owned controlled entities have formed a tax consolidated group. Members of the Group entered into a tax sharing arrangement. The agreement provides for the allocation of income tax liabilities between the entities in proportion to their contribution to the Group's taxable income. The head entity of the tax consolidated Group is Elementos Ltd. NOTE 27: COMPANY DETAILS The registered office and principal place of business is: Level 10, 110 Mary Street Brisbane, Queensland, 4000 Australia NOTE 28: DIVIDENDS & FRANKING CREDITS There were no dividends paid or recommended during the financial year. There are no franking credits available to the shareholders of the Company. Page 59 Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au Level 10, 12 Creek St Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Australia INDEPENDENT AUDITOR’S REPORT To the members of Elementos Limited Report on the Financial Report We have audited the accompanying financial report of Elementos Limited, which comprises the consolidated statement of financial position as at 30 June 2016, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Elementos Limited, would be in the same terms if given to the directors as at the time of this auditor’s report. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. 61 Opinion In our opinion: (a) the financial report of Elementos Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2016 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Emphasis of matter Without modifying our opinion, we draw attention to Note 1 in the financial report, which indicates that the ability of the consolidated entity to continue as a going concern is dependent upon the future successful raising of necessary funding through equity, successful exploration and subsequent exploitation of the consolidated entity’s tenements, and/or sale of non-core assets. These conditions, along with other matters as set out in Note 1, indicate the existence of a material uncertainty that may cast significant doubt about the consolidated entity’s ability to continue as a going concern and therefore, the consolidated entity may be unable to realise its assets and discharge its liabilities in the normal course of business. Report on the Remuneration Report We have audited the Remuneration Report included in pages 11 to 17 of the directors’ report for the year ended 30 June 2016. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Opinion In our opinion, the Remuneration Report of Elementos Limited for the year ended 30 June 2016 complies with section 300A of the Corporations Act 2001. BDO Audit Pty Ltd A J Whyte Director Brisbane, 29 September 2016 BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. 62 

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