European Metals Holdings Limited
Annual Report 2016

Plain-text annual report

EUROPEAN METALS HOLDINGS LIMITED ARBN 154 618 989 ANNUAL REPORT 30 JUNE 2016 EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL REPORT 30 JUNE 2016 CORPORATE DIRECTORY Directors Mr David Reeves Mr Keith Coughlan Dr Pavel Reichl Mr Kiran Morzaria Company Secretary Ms Julia Beckett Registered Office in Australia Suite 12, Level 1 11 Ventnor Avenue West Perth WA 6005 Telephone +61 8 6141 3500 Facsimile +61 8 6141 3599 Email www.europeanmet.com Registered Office in Czech Republic Jaselska 193/10, Veveri 602 00 Brno Czech Republic Tel: +420 732 671 666 Share Register - Australia Computershare Investor Services Limited Level 11 172 St Georges Terrace Perth WA 6000 Telephone 1300 850 505 (within Australia) Telephone +61 3 9415 4000 (outside Australia) Facsimile 1800 783 447 (within Australia) Facsimile +61 3 9473 2555 (outside Australia) Auditor Stantons International Audit and Consulting Pty Ltd Level 2, 1 Walker Avenue West Perth WA 6005 Telephone +61 8 9481 3188 Facsimile +61 8 9321 1204 Non-Executive Director Chairman Managing Director and Chief Executive Officer Non-Executive Director Non-Executive Director Nominated Advisor & Broker Michael Cornish and Roland Cornish Beaumont Cornish 2nd Floor, Bowman House 29 Wilson Street LONDON EC2M 2SJ UNITED KINGDOM Registered Address and Place of Incorporation - BVI Rawlinson & Hunter Woodbourne Hall PO Box 3162 Road Town Tortola VG1 110 British Virgin Islands UK Depository Computershare Investor Services plc The Pavilions Bridgewater Road BRISTOL BS99 6ZZ UNITED KINGDOM Reporting Accountants (UK) Chapman Davis LLP 2 Chapel Court LONDON SE1 1HH UNITED KINGDOM Securities Exchange Listing - Australia ASX Limited Level 40, Central Park 152-158 St Georges Terrace PERTH WA 6000 ASX Code: EMH Securities Exchange Listing – United Kingdom London Stock Exchange plc 10 Paternoster Square LONDON EC4M 7LS UNITED KINGDOM AIM Code: EMH 1 EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL REPORT 30 JUNE 2016 CONTENTS Directors’ Report Auditor’s Independence Declaration Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Audit Report to the members of European Metals Holdings Limited Corporate Governance Statement Additional Information Tenement Schedule 3 15 16 17 18 19 20 45 46 48 57 58 2 EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL REPORT 30 JUNE 2016 DIRECTORS’ REPORT Your Directors’ present their report, together with the financial statements of the Group, being the Company and its controlled entities, for the year ended 30 June 2016. Directors The following persons were Directors of the Company and were in office for the entire year, and up to the date of this report, unless otherwise stated: Mr David Reeves Mr Keith Coughlan Dr Pavel Reichl Mr Kiran Morzaria Non-Executive Chairman Managing Director Non-Executive Director Non-Executive Director Appointed 6 March 2014 Appointed 6 September 2013 Appointed 6 March 2014 Appointed 10 December 2015 Company Secretary The following person held the position of Company Secretary at the end of the financial year: Ms Julia Beckett holds a Certificate in Governance Practice and Administration and is a Certificated Member of Chartered Secretaries Australia. Julia is a Corporate Governance professional, having worked in corporate administration and compliance for the past 8 years. She has been involved in business acquisitions, mergers, initial public offerings, capital raisings as well as statutory and financial reporting. Julia is also Joint Company Secretary of Ensurance Limited. Principal Activities The Company is primarily involved in the development of a lithium and tin project in the Czech Republic. Review of Operations The 2016 Financial Year has been one of significant growth and development for the Company. Corporate • The Company’s securities were admitted to trading on the London Stock Exchange AIM Market (“AIM”) on 10 December 2015. • Mr Kiran Morzaria joined the Board of the Company as a Non-Executive Director. Mr Morzaria is the CEO of AIM listed Rare Earth Minerals and a Non-Executive Director of AIM and TSX listed Bacanora Minerals. • Mr Pavel Reichl stepped away from an Executive Director role with the Company on 31 August 2015 and remains as a Non-Executive Director. Project Development • A bulk sample of 1.5 tonnes was collected and processed in Germany resulting in approximately 420kg of high grade lithium concentrate being produced and shipped to Australia. The concentrate has been used for testing various available technologies for the production of lithium carbonate. The bulk of the concentrate will be used for a bench scale continuous feed mini plant test. • • The Company embarked on a 5,000 m drill program in September 2015 which ran through into the New Year. The drill program was planned to target the area outlined in the Company’s positive Scoping Study concluded earlier in the year. The aims of the drill program were to convert a significant portion of the lithium and tin inferred resource used in the Scoping Study to the indicated category, and to provide additional material for further test work. The Company is very pleased with the results of the drill program as they reinforce the extent and consistency of the lithium and tin mineralisation at Cinovec. The results of the drilling included intercepts of up to 194m width with higher grade intervals. 3 EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL REPORT 30 JUNE 2016 DIRECTORS’ REPORT Review of Operations (Continued) • The Company completed a detailed geological model which has identified shallow, higher grade lithium zones. This geological model will be used, along with recent drill results to update the current mineral resource model and allow the company to investigate targeting these areas in the early years of development. This is likely to allow for the conversion of a greater part of the Cinovec resource from Inferred to Indicated category under JORC guidelines, and for initial mine planning and scheduling as the Company progresses the project along the development curve. • On 31 March 2016, the Company withdrew from the non-binding memorandum of understanding (“MOU”) with Lithium Australia in relation to the Cinovec project due to failure to reach satisfactory commercial terms for the joint venture anticipated to be the outcome of the MOU. • A Scoping Study conducted by specialist independent consultants indicates the deposit could be amenable to bulk underground mining. Metallurgical testwork has produced both battery grade lithium carbonate and high grade tin concentrate at excellent recoveries with the Scoping Study revealing a potential production cost of approximately $1,500 per tonne of lithium carbonate excluding tin and tungsten credits. Cinovec is centrally located for European end-users and is well serviced by infrastructure, with a sealed road adjacent to the deposit, rail lines located 5 km north and 8 km south of the deposit and an active 22 kV transmission line running to the historic mine. As the deposit lies in an active mining region, it has strong community support. • On 2 May 2016, the Company entered into a licensing agreement with Lepidico Limited for its proprietary L-Max technology. Lepidico has granted the Company an option to acquire a licence to use the L-Max technology for the Cinovec project in Czech Republic for consideration of $20,000 in cash. The option will be valid for 12 months, and can be renewed for a further 12 months by payment of an additional option fee of $25,000. The material terms of the option agreement with Lepidico are: • Payment of a license option fee of $20,000; • • • The term of the option is 12 months, which may be extended for a further 12 months by the payment of an additional option fee of $25,000; Upon exercise of option, the Company must make an additional payment of $30,000 plus the issuance of 890,215 CDI’s in EMH; and Under the licensing agreement, the Company is required to pay Lepidico a gross product royalty of 2% of all sales relating to lithium chemicals (and other by products) produced using the L-Max® technology. • In early June 2016 the Company commenced a new drill programme targeting the higher grade, shallower lithium zones in the north and west of the Cinovec deposit. This is a 7,500 metre programme that is aimed at converting a significant portion of the currently inferred resource for lithium and tin into the indicated category. The programme will also provide significant material for further metallurgical test work. Results of Operations The consolidated loss for year ended 30 June 2016 amounted to $1,591,637 (2015 loss: $666,872). Financial Position The net assets of the Group have increased by $3,813,667 to $7,958,489 at 30 June 2016. Significant Changes in the State of Affairs The following significant changes in the state of affairs of the parent entity occurred during the financial year: • On 13 August 2015, the Company issued 9,410,578 CDI at an issue price of $0.08 per CDI to raise $752,846. The tranche 2 placement was approved by the shareholders at the General Meeting held on 31 July 2015. • On 17 August 2015, the Company issued 496,725 CDI in lieu of payment of outstanding 2015 director and consultancy fees amounting to $30,000 and 3,750,000 options exercisable at 16.6 cents on or before 17 August 2020 which approved by the shareholders at the General Meeting held on 31 July 2015. The Company issued 2,000,000 options exercisable at 20 cents on or before 19 October 2016. • 4 EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL REPORT 30 JUNE 2016 DIRECTORS’ REPORT Significant Changes in the State of Affairs (Continued) • On 19 October 2015, the Company issued 2,00,000 CDI at an issue price of $0.18 per CDI to raise $360,000 and • On 18 March 2016, the Company issued 13 million CDI at an issue price of $0.135 per CDI to raise $1,755,000 and 1 million warrants in consideration for Beaumont Cornish acting as Nominated advisor. The placement has been made to sophisticated investors and will be used to further develop Company’s 100% owned Cinovec Lithium and Tin Project in the Czech Republic. From 20 April 2016 to 30 June 2016, 21,365,364 listed options which expired on 30 June 2016 were exercised and the Company received a total of $2,136,536. These funds will be utilized to assist with the completion of the pre-feasibility study on the Cinovec lithium/tin deposit. • Dividends Paid or Recommended No dividends were declared or paid during the year and the Directors do not recommend the payment of a dividend. Information on Directors David Reeves Qualifications Experience Interest in CDIs and Options Special Responsibilities Directorships held listed entities in other Keith Coughlan Qualifications Experience Interest in CDIs and Options Special Responsibilities Directorships held listed entities in other Non-Executive Chairman – Appointed 6 March 2014 Mining Engineer Mr Reeves is a qualified mining engineer with 25 years’ experience in Africa and Australia. Mr Reeves holds a First Class Honours Degree in Mining Engineering from the University of New South Wales, a Graduate Diploma in Applied Finance and Investment from the Securities Institute of Australia and a First Class Mine Managers Certificate of Competency. 3,720,244 CDIs 1,000,000 Options, 16.6 cents, exp 17 August 2020 Member of all the Committees Managing Director of Keras Resources Plc (AIM) Managing Director (CEO) – Appointed 6 September 2013 BA Mr Coughlan has over 26 years’ experience in stockbroking and funds management. He has been largely involved in the funding and promoting of resource companies listed on ASX, AIM and TSX. He has advised various companies on the identification and acquisition of resource projects and was previously employed by one of Australia’s then largest funds management organizations. 8,500,000 CDIs 2,000,000 Options, 16.6 cents, exp 17 August 2020 Member of all the Committees Non-Executive Chairman of Talga Resources Limited 5 EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL REPORT 30 JUNE 2016 DIRECTORS’ REPORT Information on Directors (continued) Pavel Reichl Qualifications Experience Interest in CDIs and Options Non-Executive Director – Appointed 6 March 2014 PhD from University of Montana Dr Reichl has over 15 years’ experience in precious, base and PGE metals exploration and production and has a PhD from University of Montana. He was formerly Business Unit Manager of a Canadian listed minerals exploration company responsible for Europe and Central Asia. Dr Reichl was the former head of the Newmont acquisition program in Eastern Europe and exploration manager for Kyrgyzstan and Uzbekistan. He is fluent in English, Czech and Russian. 2,778,672 CDIs 750,000 Options, 16.6 cents, exp 17 August 2020 Special Responsibilities Directorships held listed entities in other Member of all the Committees Nil Kiran Morzaria Qualifications Experience Non-Executive Director – Appointed 10 December 2015 Bachelor of Engineering (Industrial Geology) from the Camborne School of Mines and an MBA (Finance) from CASS Business School Mr Morzaria has extensive experience in the mineral resource industry working in both operational and management roles. He spent the first four years of his career in exploration, mining and civil engineering before obtaining his MBA. Mr Morzaria has served as a director of a number of public companies in both an executive and non-executive capacity. Interest in CDIs and Options Mr Morzaria is a director and chief executive of Rare Earth Minerals plc which owns Special Responsibilities Directorships held listed entities in other 19,860,756 CDIs. Mr Morzaria has no direct interest in CDIs. Nil Chief Executive Officer and Director of Rare Earth Minerals plc Non-Executive Director of Bacanora Minerals Limited Director Meetings The number of Directors’ meetings and meetings of Committees of Directors held during the year and the number of meetings attended by each of the Directors of the Company during the year is: Name David Reeves Keith Coughlan Pavel Reichl Kiran Morzaria Directors’ Meetings Number attended 4 4 4 4 Number eligible to attend 4 4 4 3 Indemnifying officers or auditor During or since the end of the financial year the Company has given an indemnity or entered into an agreement to indemnify, or paid or agreed to pay insurance premiums as follows: i. ii. The Company has entered into agreements to indemnify all Directors and provide access to documents, against any liability arising from a claim brought by a third party against the Company. The agreement provides for the Company to pay all damages and costs which may be awarded against the Directors. The Company has paid premiums to insure each of the Directors against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of Director of the Company, other than conduct involving a willful breach of duty in relation to the Company. Under the terms and conditions of the insurance contract, the nature of the liabilities insured against and the premium paid cannot be disclosed. iii. No indemnity has been paid to auditors. 6 EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL REPORT 30 JUNE 2016 DIRECTORS’ REPORT CDIs under option Unissued CDIs of European Metals Holdings Limited under option at the date of this report is as follows: Expiry date 17 August 2020 19 October 2016 Exercise Price 16.6 cents 20 cents Number under option 3,750,000 2,000,000 No person entitled to exercise the option has or has any right by virtue of the option to participate in any share issue of any other body corporate. As of the date of this report, 21,365,364 listed options which expired on 30 June 2016 were exercised and the Company received a total of $2,136,536 (2015: nil). Warrants in issue Warrants issued on 18 March 2016 of European Metals Holdings Limited at the date of this report are as follows: Expiry date 11 November 2018 Exercise Price 14 cents Number under option 1,000,000 No person entitled to exercise the warrant has or has any right by virtue of the option to participate in any share issue of any other body corporate. Performance Shares As at the date of this report, 5,000,000 Class B Performance Shares expired on 20 February 2016. Environmental Regulations The Group’s operations are subject to the environmental risks inherent in the mining industry. Proceedings on Behalf of the Company No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year. Non-audit Services Stantons International has not provided any non-audit services during the year. Significant events after the reporting date On 21 July 2016, the Group appointed Ausenco Limited as the Lead Engineer to the Pre-Feasibility Study of the Cinovec Lithium/Tin Project in Czech Republic. Except for the matters noted above there have been no other significant events arising after the reporting date. Auditor’s Independence Declaration The auditor’s independence declaration for the year ended 30 June 2016 has been received and can be found on page 15 of the financial report. 7 EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL REPORT 30 JUNE 2016 REMUNERATION REPORT (AUDITED) DIRECTORS’ REPORT This report details the nature and amount of remuneration for each Director of the Company, and Key Management Personnel. The directors are pleased to present the remuneration report which sets out the remuneration information for European Metals Holdings Limited’s non-executive directors, executive directors and other key management personnel. A. Principles used to determine the nature and amount of remuneration The remuneration policy of the Group has been designed to align Director and management objectives with shareholder and business objectives by providing a fixed remuneration component, and offering specific long-term incentives based on key performance areas affecting the Group financial results. The Board of the Company believes the remuneration policy to be appropriate and effective in its ability to attract and retain the best management and Directors to run and manage the Group, as well as create goal congruence between Directors, Executives and shareholders. The Board’s policy for determining the nature and amount of remuneration for Board members and Senior Executives of the Group is as follows: The remuneration policy, setting the terms and conditions for the Executive Directors and other Senior Executives, was developed by the Board. All Executives receive a base salary (which is based on factors such as length of service and experience), superannuation, options and performance incentives. The Board reviews Executive packages annually by reference to the Group’s performance, executive performance, and comparable information from industry sectors and other listed companies in similar industries. Executives are also entitled to participate in the employee share and option arrangements. All remuneration paid to Directors and Executives is valued at the cost to the Group and expensed. The Board policy is to remunerate Non-executive Directors at commercial market rates for comparable companies for time, commitment, and responsibilities. The Board determines payments to the Non-executive Directors and reviews their remuneration annually based on market practice, duties, and accountability. Independent external advice is sought when required. The maximum aggregate amount of fees that can be paid to Non-executive Directors is subject to approval by shareholders at the Annual General Meeting. Fees for Non- Executive Directors are not linked to the performance of the Group. However, to align Directors’ interests with shareholder interests, the Directors are encouraged to hold CDIs in the Company. The remuneration policy has been tailored to increase the direct positive relationship between shareholders’ investment objectives and Directors’ and Executives’ performance. Currently, this is facilitated through the issue of options to the majority of Directors and Executives to encourage the alignment of personal and shareholder interests. The Company believes this policy will be effective in increasing shareholder wealth. For details of Directors’ and Executives’ interests in CDIs, options and performance shares at year end, refer to the remuneration report. B. Details of Remuneration Details of the nature and amount of each element of the emoluments of each of the KMP of the Company (the Directors) for the year ended 30 June 2016 and 30 June 2015 are set out in the following tables: 8 EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL REPORT 30 JUNE 2016 DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) B. Details of Remuneration (Continued) 2016 Group Key Management Personnel Short-term benefits Post- employment benefits Long-term benefits Equity-settled share- based payments Total % of remuneration as share based payments Salary, fees and leave Profit share and bonuses Non- monetary Other1 Super- annuation Other Equity Options 2 Directors: $ $ $ $ $ $ $ $ $ David Reeves 36,000 Keith Coughlan 200,000 Pavel Reichl Kiran Morzania3 43,508 13,355 292,863 - - - - - - - - - - 60,000 - - 19,000 50,157 - - - 110,157 19,000 - - - - - - - - - - 103,146 199,146 206,292 425,292 77,360 171,025 - 13,355 386,798 808,818 52% 49% 45% - - 2015 Group Key Management Personnel Short-term benefits Post- employment benefits Long-term benefits Equity-settled share- based payments Total % of remuneration as share based payments Salary, fees and leave Profit share and bonuses Non- monetary Other4 Super- annuation Other Equity Options Directors: $ $ $ $ $ $ $ $ $ David Reeves 24,000 Keith Coughlan 200,000 Pavel Reichl 83,000 Robert Timmins* Colin Ikin* David Porter* - - - 307,000 - - - - - - - - - - - - - - 40,000 - - - - - - 19,000 - - - - 40,000 19,000 - - - - - - - - - - - - - - - - - - - - - 64,000 219,000 83,000 - - - 366,000 - - - - - - * Directors resigned on 5 November 2014 1 Consulting services of Company Non-Executive Director (David Reeves) and the Company which he controls, Wilgus Investments Pty Ltd. The amounts billed related to this consulting service amounted to $60,000 (2015: $40,000) based on normal market rates and the amount outstanding at reporting date was $nil (2015: $30,000). Consulting services of Company Non-Executive Director (Pavel Rechl) and the Company which he controls, Orex consultant S.R.O. The amounts billed related to this consulting service amounted to $50,157 (2015: $nil) based on normal market rates and the amount outstanding at reporting date was $21,528 (2015: $nil). 2 The value of the performance rights granted to key management personnel as part of their remuneration is calculated as at the grant date using the Black and Scholes. The amounts disclosed as part of remuneration for the financial year were issued and vested within the year. 3 Balance at the end of year represents Non-Executive Director remuneration from 10 December 2015. 4 Consulting services of Company Non-Executive Director (David Reeves) and the Company which he controls. The amounts billed related to this consulting service amounted to $40,000 (2014: $Nil) based on normal market rates and the amount outstanding at reporting date was $30,000 (2014: $Nil) the amount outstanding was equity settled subsequent to balance date. 9 EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL REPORT 30 JUNE 2016 DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) C. Service Agreements It was formally agreed at a meeting of the directors that the following remuneration be established; there are no formal notice periods, leave accruals or termination benefits payable on termination: Mr Keith Coughlan to receive a salary of $200,000 per annum plus SGC of 9.5%. Mr. Kiran Morazania to receive a standard non-executive director fee of $24,000 per annum which exclude statutory superannuation effectively from 10 December 2015. D. Options issued as part of remuneration for the year ended 30 June 2016. On 31 July 2015, 3,750,000 options with an exercise price 16.6 cents on or before the 17 August 2020 were granted to Directors. The issue was approved by shareholders at a General Meeting held on the 31 July 2015. The options were valued under Black and Scholes and were recognised as a share based payment in the profit and loss. 30 June 2016 Grant Details Exercised Lapsed Grant Date No. Value 5 $ No. Value No. Value Balance at End of Year $ $ Group KMP David Reeves 31 July 2015 1,000,000 103,146 Keith Coughlan 31 July 2015 2,000,000 206,292 Pavel Reichl 31 July 2015 750,000 77,360 Kiran Morzania - - - 3,750,000 386,798 - - - - - - - - - - - - - - - No options were granted to directors as remuneration during the year ended 30 June 2015. E. Equity instruments issued on exercise of remuneration options No. Value $ - - - - - 1,000,000 103,146 2,000,000 206,292 750,000 77,360 - - 3,750,000 386,798 There were no equity instruments issued during the year to Directors or other KMP as a result of options exercised that had previously been granted as compensation. F. Loans to Directors and Executives No loans have been made to Directors or Executives of the Company during, or since, the year ended 30 June 2016 (2015: nil). G. Company performance, shareholder wealth and Directors’ and Executives’ remuneration The remuneration policy has been tailored to increase the direct positive relationship between shareholders’ investment objectives and Directors’ and Executives’ performance. This will be facilitated through the issue of options to the majority of Directors and Executives to encourage the alignment of personal and shareholder interests. The Company believes this policy will be effective in increasing shareholder wealth. At commencement of mine production, performance based bonuses based on key performance indicators are expected to be introduced. 5 The fair value of options granted as remuneration and as shown in the above table has been determined in accordance with Australian Accounting Standards. The expense for these options have been recognised in full in the current year given there is no applicable service period. The options vested on grant date and are all exercisable at 30 June 2016. 10 EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL REPORT 30 JUNE 2016 DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) H. Other information Options held by Key Management Personnel The number of options to acquire CDIs in the Company held during the 2016 and 2015 reporting period by each of the Key Management Personnel of the Group; including their related parties are set out below. Balance at the start of the year Granted during the year 30 June 2016 Exercised during the year Other changes during the year Balance at the end of the year Vested and exercisable Unvested David Reeves 658,372 1,000,000 658,372 Keith Coughlan 4,000,000 2,000,000 4,000,000 Pavel Reichl Kiran Morzaria - - 750,000 - - - - - - - 1,000,000 1,000,000 2,000,000 2,000,000 750,000 750,000 - - Total 4,658,372 3,750,000 4,658,372 - 3,750,000 3,750,000 - - - - - Balance at the start of the year Granted during the year Exercised during the year Other changes6 during the year Balance at the 7 end of the year Vested and exercisable Unvested 30 June 2015 David Reeves Keith Coughlan Pavel Reichl - - - Robert Timmins 500,000 Colin Ikin - David Porter 500,000 Total 1,000,000 - - - - - - - - - - - - - - 658,372 658,372 658,372 4,000,000 4,000,000 4,000,000 - - - - - - 500,000 500,000 - - 500,000 500,000 4,658,372 5,658,372 5,658,372 - - - - - - - 6 Participation in CDI placement, the offer comprised of four new CDIs for every seven held at an issue price of $0.05 cents per CDI. For every CDI taken up holders were provided one free attaching option with an exercise price of $0.10 expiring 30 June 2016. 7 Balance at resignation date of 5 November 2014, for those directors (Mr Ikin, Mr Porter and Mr Timmins) who retired during the year. 11 EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL REPORT 30 JUNE 2016 DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) H. Other information (Continued) Chess Depositary Interests (‘CDIs’) held by Key Management Personnel The number of ordinary CDIs in the Company during the 2016 and 2015 reporting period held by each of the Key Management Personnel of the Group; including their related parties are set out below. 2016 Name David Reeves Indirect Keith Coughlan Indirect Pavel Reichl Kiran Morzaria 9 Indirect Total 2015 Name David Reeves Indirect Keith Coughlan Indirect Pavel Reichl Robert Timmins Colin Ikin Indirect David Porter Indirect Total Balance at Start of year Granted as remuneration during the year Issued on exercise of options Other Changes during the year Balance at end of year 2,565,147 4,500,000 2,778,672 - - 9,843,819 - - - - - - 658,372 496,7258 3,720,244 4,000,000 - - - 4,658,372 - - - 19,860,756 20,357,481 8,500,000 2,778,672 - 19,860,756 34,859,672 Balance at Start of year Granted as remuneration during the year Issued on exercise of options Other Changes during the year10 Balance at end of year11 1,364,124 500,000 1,984,766 - 225,000 3,868,580 110,000 8,052,470 - - - - - - - - - - - - - - - - 1,201,023 2,565,147 4,000,000 793,906 - - - 4,500,000 2,778,672 - 225,000 3,868,580 - 5,994,929 110,000 14,047,399 8 During the year, 496,725 CDI’s at $0.06 per share were issued to Mr.Reeves related party in lieu of payment of outstanding 2015 Director & consultancy fees amounting to $30,000 approved by Shareholders at the General Meeting held on 31 July 2015. 9 Mr Morzaria is a director and chief executive of Rare Earth Minerals plc. As at the date of Mr Morzaria becoming a director of the Company, Rare Earth Minerals plc had 10,334,830 CDIs. On 18 March 2016, Rare Earth Minerals plc acquired a further 9,525,926 CDIs as part of a CDI placement. 10 Participation in CDI placement, the offer comprised of four new CDIs for every seven held at an issue price of $0.05 cents per CDI. For every CDI taken up holders were provided one free attaching option with an exercise price of $0.10 expiring 30 June 2016. Other changes included the conversion of Class A Performance Shares for Mr Reeves and Mr Reichl into CDIs according to the terms of Class A Performance Shares. 11 Balance at resignation date of 5 November 2014, for those directors (Mr Ikin, Mr Porter and Mr Timmins) who retired during the year. 12 EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL REPORT 30 JUNE 2016 DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) Performance Shares granted to Key Management Personnel 30 June 2015/2016 Grant Details Exercised Lapsed Grant Date No. Value No. Value No. Value Group KMP David Reeves 20 Feb 2014 542,651 Keith Coughlan - - Pavel Reichl 20 Feb 2014 793,906 Kiran Morzaria - - Description of Performance Shares $ - - - - - $ - - - - - - - - - - (542,651) - (793,906) - (1,336,557) $ - - - - - Balance at End of Year No. Value $ - - - - - - - - - - Class Automatically convert into that number of Shares and an equivalent number of CDIs equal to : Class B Performance Shares (i) $7,500,000 less the value of the CDIs issued on conversion of the A Class Performance Shares calculated at a deemed issue price of $0.30 per CDI; divided by, (ii) the greater of $0.30 and the volume weighted average price of CDIs as calculated over the 5 ASX trading days prior to the date the DFS (as defined below) is provided to the Company, and subject to the definitive feasibility study commissioned by the board of the Company in respect of the Permits (DFS) and prepared by a reputable independent third party engaged by the board of the Company being provided to the Company on or before that date which is 2 years after the date of issue of the B Class Performance Shares (Milestone). For clarity, the DFS must be: (i) of a standard suitable to be submitted to a financial institution as the basis for lending of funds for the development and operation of mining activities contemplated in the study; (ii) capable of supporting a decision to mine on the permits; and (iii) completed to an accuracy of +/- 15% with respect to operating and capital costs and display a net present value of not less than US$100,000,000 using a discount rate of 10% and a tin price of no less than 90% of the average closing cash price of tin as published by the London Stock Exchange for the 6 months immediately preceding completing of the study. At the date of this report, these Performance Shares have been lapsed. Loans to Key Management Personnel There were no loans to Key Management Personnel during the financial year. 13 EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL REPORT 30 JUNE 2016 DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) Other transactions with Key Management Personnel Purchases from related parties are made on terms equivalent to those that prevail in arm’s length transactions. The Group acquired the following services from entities that are controlled by members of the Group’s KMP: Some Directors or former Directors of the Group hold or have held positions in other companies, where it is considered they control or significantly influence the financial or operating policies of those entities. During the year, the following entities provided corporate services and rental to the Group. Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. Entity Nature of transactions - - - Wilgus Investments Pty Ltd Sub-underwriting fee Sub-underwriting fee Reimbursement Rental Key Management Personnel Keith Coughlan David Reeves David Reeves David Reeves Total Transactions 2015 2016 $ $ 7,144 - 799 - - 5,615 Payable Balance 2015 $ - - - 2016 $ - - - 31,000 - - - There were no other transactions with Key Management Personnel during the financial year. End of Remuneration Report Signed in accordance with a resolution of the Board of Directors. Keith Coughlan Managing Director Dated at 30 September 2016 14 EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL FINANCIAL REPORT 30 JUNE 2016 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2016 Note 30 June 2016 30 June 2015 Revenue – interest income Other income Professional fees Audit fees Directors’ fees Share based payments Employees’ benefits Travel and accommodation Office rent Insurance expense Impairment expense Share registry expense Depreciation expense Other expenses Loss before income tax Income tax expense Loss for the year Other comprehensive income Items that may be reclassified subsequently to profit or loss – exchange differences on translating foreign operations Other comprehensive (loss)/income for the year, net of tax Total comprehensive loss for the year Net Loss attributable to: members of the parent entity Total Comprehensive loss attributable to: members of the parent entity 6 16 $ 12,647 140,236 $ 6,917 21,516 (405,248) (270,257) (29,911) (49,355) (557,246) (26,025) - - (219,100) (219,000) (27,717) (59,005) (11,372) (56) (325,307) (942) (59,261) (29,551) (16,396) (20,329) - (51,114) (2,333) (60,300) (1,591,637) (666,872) 3 - - (1,591,637) (666,872) (37,900) (37,900) (2,258) (2,258) (1,629,537) (669,130) (1,591,637) (666,872) (1,591,637) (666,872) (1,629,537) (669,130) (1,629,537) (669,130) Basic and diluted loss per CDI (cents) 7 (1.78) (1.25) The above statement should be read in conjunction with the accompanying notes. 16 EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL FINANCIAL REPORT 30 JUNE 2016 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2016 CURRENT ASSETS Cash and cash equivalents Other receivables Other assets TOTAL CURRENT ASSETS NON-CURRENT ASSETS Property, plant and equipment Note 8 9 10 2016 $ 2015 $ 3,134,661 889,208 94,591 79,915 28,703 32,918 3,309,167 950,829 - 488 Exploration and evaluation expenditure 11 4,940,613 3,414,934 Intangible assets TOTAL NON-CURRENT ASSETS 2,599 3,398 4,943,212 3,418,820 TOTAL ASSETS 8,252,379 4,369,649 CURRENT LIABILITIES Trade and other payables Other liabilities TOTAL CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Reserves Accumulated losses TOTAL EQUITY 12 13 14 15 293,890 201,536 - 23,291 293,890 224,827 293,890 224,827 7,958,489 4,144,822 11,674,141 6,788,183 644,547 222,761 (4,360,199) (2,866,122) 7,958,489 4,144,822 The above statement should be read in conjunction with the accompanying notes. 17  EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL FINANCIAL REPORT 30 JUNE 2016 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2016 Issued Capital Option Reserve Foreign Currency Translation Reserve Accumulated Losses $ $ $ $ Total $ Balance at 1 July 2014 5,002,296 97,560 127,459 (2,199,250) 3,028,065 Loss attributable to members of the Company Other comprehensive loss Total comprehensive loss for the year - - - Transactions with owners, recognised directly in equity CDIs issued during the year, net of costs 1,755,857 Share based payments Balance at 30 June 2015 30,030 - - - - - - (666,872) (666,872) (2,258) (2,258) - (2,258) (666,872) (669,130) - - - - 1,755,857 30,030 6,788,183 97,560 125,201 (2,866,122) 4,144,822 Balance at 1 July 2015 6,788,183 97,560 125,201 (2,866,122) 4,144,822 Loss attributable to members of the Company Other comprehensive loss Total comprehensive loss for the year - - - Transactions with owners, recognised directly in equity CDIs issued during the year, net of costs 4,855,958 - - - - Options lapsed Equity based payments Balance at 30 June 2016 - 30,000 11,674,141 (97,560) 557,246 557,246 - (1,591,637) (1,591,637) (37,900) - (37,900) (37,900) (1,591,637) (1,629,537) - - - - 4,855,958 97,560 - - 587,246 87,301 (4,360,199) 7,958,489 The above statement should be read in conjunction with the accompanying notes. 18  EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL FINANCIAL REPORT 30 JUNE 2016 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 June 2016 CASH FLOWS FROM OPERATING ACTIVITIES Payments to suppliers and employees Interest received Interest paid UK listing cost R&D Rebate Receipts for services 30 June 2016 30 June 2015 Note $ $ (1,072,664) (712,182) 12,647 (23) (242,392) 128,024 6,917 - - - - 21,516 Net cash (used in) operating activities 17 (1,174,408) (683,749) CASH FLOWS FROM INVESTING ACTIVITIES Payments for exploration and evaluation expenditure Net cash (used in)/ from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of CDIs Capital raising costs paid Net cash from financing activities (1,507,146) (567,136) (1,507,146) (567,136) 5,004,382 1,844,307 (77,375) (82,829) 4,927,007 1,761,478 Net increase in cash and cash equivalents 2,245,453 510,593 Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of financial year 889,208 3,134,661 378,615 889,208 The above statement should be read in conjunction with the accompanying notes. 19  EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL FINANCIAL REPORT 30 JUNE 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 1 : SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of preparation These consolidated financial statements and notes represent those of European Metals Holdings Limited (“the Company”) and Controlled Entities (the “Consolidated Group” or “Group”). The separate financial statements of the parent entity, European Metals Holdings Limited, have not been presented within this financial report as is permitted by Corporations Act 2001. The financial statements are general purpose financial statements, which have been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Boards (AASB) and the Corporations Act 2001. The Group is a for-profit entity for financial reporting purposes under Australian Accounting Standards. The accounting policies detailed below have been adopted in the preparation of the financial report. Except for cash flow information, the financial statements have been prepared on an accrual basis and are based on historical cost, modified, where applicable, by the measurement at fair values of selected non-current assets, financial assets and financial liabilities. The Group is a listed public company, incorporated in the British Virgin Islands and registered in Australia. (i) Accounting policies The Group has consistently applied the following accounting policies to all periods presented in the financial statements. The Group has considered the implications of new and amended Accounting Standards applicable for annual reporting periods beginning after 1 January 2015 but determined that their application to the financial statements is either not relevant or not material. (ii) Statement of Compliance The financial report was authorised for issue on 30 September 2016. Australian Accounting Standards set out accounting policies that the AASB has concluded would result in the financial statements containing relevant and reliable information about transactions, events and conditions. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards as issued by the IASB. (iii) Critical accounting estimates and judgements The application of accounting policies requires the use of judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions are recognised in the period in which the estimate is revised if it affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Share-based payment transactions The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Impairment of capitalised exploration and evaluation expenditure The future recoverability of capitalised exploration and evaluation expenditure is dependent on a number of factors, including whether the Group decides to exploit the related lease itself or, if not, whether it successfully recovers the related exploration and evaluation asset through sale. Factors that could impact the future recoverability include the level of reserves and resources, future technological changes, which could impact the cost of mining, future legal changes (including changes to environmental restoration obligations) and changes to commodity prices. To the extent that capitalised exploration and evaluation expenditure is determined not to be recoverable in the future, profits and net assets will be reduced in the period in which this determination is made. 20  EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL FINANCIAL REPORT 30 JUNE 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 1 : SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (iii) Critical accounting estimates and judgements (continued) Recognition of deferred tax assets Deferred tax assets relating to temporary differences and unused tax losses have not been recognised as the Directors are of the opinion that it is not probable that future taxable profit will be available against which the benefits of the deferred tax assets can be utilised. (b) Income Tax Current income tax expense charged to the 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 year as well unused tax losses. Current and deferred income tax expense (income) is charged or credited directly to equity instead of the profit or loss when the tax relates to items that are credited or charged directly to equity. 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. 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. 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. Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where a legally enforceable right of set-off exists, the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. (c) Impairment of assets At the end of each reporting period the Group assesses whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of its fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets and the asset's value in use cannot be estimated to be close to its fair value. In such cases the asset is tested for impairment as part of the cash-generating unit to which it belongs. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset or cash- generating unit is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses relating to continuing operations are recognised in those expense categories consistent with the function of the impaired asset unless the asset is carried at revalued amount in which case the impairment loss is treated as a revaluation decrease. 21  EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL FINANCIAL REPORT 30 JUNE 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 1 : SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (c) Impairment of assets An assessment is also made at each reporting period as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. (d) Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within short-term borrowings in current liabilities in the Statement of Financial Position. (e) Revenue Interest Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. (f) Goods and Services Tax (GST) Revenues, expenses, and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the Statement of Financial Position are shown inclusive of GST. 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. (g) Trade and other receivables Trade receivables are measured on initial recognition at fair value and are subsequently measured at amortised cost using the effective interest rate method, less any allowance for impairment. Trade receivables are generally due for settlement within 30 days. Impairment of trade receivables is continually reviewed and those that are considered to be uncollectible are written off by reducing the carrying amount directly. An allowance account is used when there is objective evidence that the Group will not be able to collect all amounts due according to the original contractual terms. Factors considered by the Group in making this determination include known significant financial difficulties of the debtor, review of financial information and significant delinquency in making contractual payments to the Group. The impairment allowance is set equal to the difference between the carrying amount of the receivable and the present value of estimated future cash flows, discounted at the original effective interest rate. Where receivables are short-term discounting is not applied in determining the allowance. The amount of the impairment loss is recognised in the profit and loss within other expenses. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in the profit and loss. (h) Finance Income and Finance Costs Finance income comprises interest income on funds invested (including available-for-sale financial assets), dividend income, gains on the disposal of available-for-sale financial assets, changes in the fair value of financial assets at fair value through profit or loss, and gains on hedging instruments that are recognised in profit or loss. Interest income is recognised as it accrues in profit or loss, using the effective interest method. 22  EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL FINANCIAL REPORT 30 JUNE 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 1 : SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (i) Government Grants An unconditional government grant is recognised in profit or loss as other income when the grant becomes receivable. Grants that compensate the Group for expenses incurred are recognised in profit or loss as other income on a systematic basis in the same period in which the expenses are recognised. Research and development tax incentives are recognised in the statement of profit or loss when received or when the amount to be received can be reliably estimated. (j) Employee Benefits Short-term benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. Other long-term employee benefits Provision is made for the liability due to employee benefits arising from services rendered by employees to the reporting date. Employee benefits expected to be settled within one year together with benefits arising out of wages and salaries, sick leave and annual leave which will be settled after one year, have been measured at their nominal amount. Other employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits. Contributions made to defined employee superannuation funds are charged as expenses when incurred. (k) Exploration and Evaluation Assets Exploration and evaluation costs, including costs of acquiring licenses, are capitalised as exploration and evaluation assets on an area of interest basis. Costs of acquiring licences which are pending the approval of the relevant regulatory authorities as at the date of reporting are capitalised as exploration and evaluation cost if in the opinion of the Directors it is virtually certain the Group will be granted the licences. Exploration and evaluation assets are only recognised if the rights of tenure to the area of interest are current and either: (a) The expenditures are expected to be recouped through successful development and exploitation of the area of interest, or (b) Activities in the area of interest have not at the reporting date, reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves and active and significant operations in, or in relation to, the area of interest are continuing. Exploration and evaluation assets are assessed for impairment when: (i) Sufficient data exists to determine technical feasibility and commercial viability, and (ii) Facts and circumstances suggest that the carrying amount exceeds the recoverable amount (see impairment accounting policy in Note 1(c). For the purposes of impairment testing, exploration and evaluation assets are allocated to cash-generating units to which exploration activity relates. The cash generating unit shall not be larger than the area of interest. Once the technical feasibility and commercial viability of the extraction of mineral resources in an area of interest are demonstrable, exploration and evaluation assets attributable to that area of interest are first tested for impairment and then reclassified from intangible assets to mining property and development assets within property, plant and equipment. 23  EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL FINANCIAL REPORT 30 JUNE 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 1 : SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (l) Financial Instruments Initial recognition and measurement Financial instruments, incorporating financial assets and financial liabilities, are recognised when the Group becomes a party to the contractual provisions of the instrument. Trade date accounting is adopted for financial assets that are delivered within timeframes established by marketplace convention. 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. Financial instruments are classified and measured as set out below. Financial assets at fair value through profit and loss Financial assets are classified at “fair value through profit or loss” when they are held for trading for the purpose of short term profit taking, derivatives not held for hedging purposes, or when the are designated as such to avoid an accounting mismatch or to enable performance evaluation where a Group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Such assets are subsequently measured at fair value with changes in carrying amount being included in profit or loss. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Loans and receivables are included in current assets, except for those which are not expected to mature within 12 months after the end of the reporting period. All other loans and receivables are classified as non-current assets. Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments and it is the Group’s intention to hold these investments to maturity. Such assets are recognised initially at fair value plus any directly attributable transaction costs. They are subsequently measured at amortised cost using the effective interest rate method, less any impairment losses. Held-to-maturity investments are included in non-current assets, except for those which are expected to mature within 12 months after the end of the reporting period. All other investments are classified as current assets. If during the period the Group sold or reclassified more than an insignificant amount of the held-to-maturity investments before maturity, the entire held-to-maturity investments category would be tainted and reclassified as available-for-sale. Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are either not suitable to be classified into other categories of financial assets due to their nature, or they are designated as such by management. They comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable payments. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign exchange gains and losses on available-for-sale monetary items, are recognised as a separate component of equity. When an investment is derecognised, the cumulative gain or loss in equity is transferred to profit and loss. Available-for-sale financial assets are included in non-current assets, except for those which are expected to mature within 12 months after the end of the reporting period. All other available-for-sale financial assets are classified as current assets. Financial liabilities Non-derivative financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest rate method. 24  EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL FINANCIAL REPORT 30 JUNE 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 1 : SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (l) Financial Instruments (continued) Fair value Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models. Derecognition Financial assets are derecognised where the contractual rights to cash flow 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 expired. 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. (m) Trade and other payables Trade payables and other payables are carried at amortised cost and represent liabilities for goods and services provided to the Group prior to the end of the financial period that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. Trade and other payables are presented as current liabilities unless payment is not due within 12 months. (n) Earnings Per CDI Basic earnings per CDI Basic earnings per CDI is determined by dividing the profit or loss attributable to ordinary shareholders of the Company, by the weighted average number of CDIs outstanding during the period, adjusted for bonus elements in CDIs issued during the period. Diluted earnings per CDI Diluted earnings per CDI adjusts the figure used in the determination of basic earnings per CDI to take into account the after income tax effect of interest and other financial costs associated with dilutive potential CDIs and the weighted average number of CDIs assumed to have been issued for no consideration in relation to dilutive potential CDIs, which comprise convertible notes and CDI options granted. (o) Borrowing Costs Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to prepare for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in income in the period in which they are incurred. (p) Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, when appropriate, the risks specific to the liability. (q) Segment reporting An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. Operating segments’ results are reviewed by the Group’s Managing Director to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. 25  EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL FINANCIAL REPORT 30 JUNE 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 1 : SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (r) CDI based payments The grant date fair value of CDI-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do not meet the related service and non-market performance conditions at the vesting date. For CDI-based payment awards with non-vesting conditions, the grant date fair value of the CDI-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes. (s) Foreign Currency Transactions and Balances Functional and presentation currency The functional currency of each of the Group’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency. Transaction 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 determined. 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. Exchange differences arising on the translation of non-monetary items are recognised directly in equity to the extent that the gain or loss is directly recognised in other comprehensive income; otherwise the exchange difference is recognised in Profit or Loss. Group companies The financial results and position of foreign operations whose functional currency is different from the Group’s presentation currency are translated as follows:    Assets and liabilities are translated at year end exchange rates prevailing at the end of the reporting period; Income and expenses are translated at average exchange rates for the period; and Retained earnings are translated at the exchange rates prevailing at the date of the transaction. Exchange differences arising on translation of foreign operations recognised in the other comprehensive income and included in the foreign currency translation reserve in the Statement of Financial Position. These differences are reclassified into Profit or Loss in the period in which the operation is disposed. (t) Issued capital CDIs are classified as equity. Incremental costs directly attributable to the issue of new CDIs or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new CDIs or options for the acquisition of a new business are not included in the cost of acquisition as part of the purchase consideration. 26  EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL FINANCIAL REPORT 30 JUNE 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 1 : SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (u) Principles of Consolidation The consolidated financial statements incorporate all of the assets, liabilities and results of the parent European Metals Holdings Limited and all of the subsidiaries. Subsidiaries are entities the parent controls. The parent controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. A list of the subsidiaries is provided in Note 20. The assets, liabilities and results of all subsidiaries are fully consolidated into the financial statements of the Group from the date on which control is obtained by the Group. The consolidation of a subsidiary is discontinued from the date that control ceases. Intercompany transactions, balances and unrealised gains or losses on transactions between Group entities are fully eliminated on consolidation. Accounting policies of subsidiaries have been changed and adjustments made where necessary to ensure uniformity of the accounting policies adopted by the Group. Equity interests in a subsidiary not attributable, directly or indirectly, to the Group are presented as “non-controlling interests". The Group initially recognises non-controlling interests that are present ownership interests in subsidiaries and are entitled to a proportionate share of the subsidiary's net assets on liquidation at either fair value or at the non- controlling interests' proportionate share of the subsidiary's net assets. Subsequent to initial recognition, non- controlling interests are attributed their share of profit or loss and each component of other comprehensive income. Non-controlling interests are shown separately within the equity section of the statement of financial position and statement of comprehensive income. NOTE 2: DETERMINATION OF FAIR VALUES A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non- financial assets and liabilities. Fair values have been determined for measurement and / or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. CDI-based payment transactions The fair value of the employee CDI options and the share appreciation right is measured using the Black-Scholes formula. Measurement inputs include CDI price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behaviour), expected dividends, and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value. 27  EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL FINANCIAL REPORT 30 JUNE 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 3: INCOME TAX (a) Income tax expense Current tax Deferred tax Deferred income tax expense included in income tax expense comprises: (Increase) in deferred tax assets Increase in deferred tax liabilities (b) Reconciliation of income tax expense to prima facie tax payable Net loss before tax Prima facie tax on operating loss at 30% (2015: 30%) Add / (Less): Non-deductible items -Impairments -Legal fees -Share-based payments -Other Current year tax loss not recognised Income tax attributable to operating loss The applicable weighted average effective tax rates are as follows: Balance of franking account at year end Deferred tax assets Tax losses Capital raising costs Unrecognised deferred tax asset Set-off deferred tax liabilities Net deferred tax assets Deferred tax liabilities Exploration expenditure Set-off deferred tax assets Net deferred tax liabilities Tax losses 30 June 2016 30 June 2015 $ $ - - - - - - - - - - - - (1,591,637) (477,491) (666,872) (200,062) - 94,201 167,174 14,805 201,311 - Nil% Nil 290,477 21,032 311,509 - - - 10,981 189,081 - Nil% Nil 270,033 12,127 285,160 - 311,509 285,160 - - - - - - - - Unused tax losses for which no deferred tax asset has been recognised 968,254 910,111 28  EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL FINANCIAL REPORT 30 JUNE 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 3: INCOME TAX (CONTINUED) The Company is registered in the British Virgin Islands (BVI) and the Company is a tax resident of Australia. The unused tax losses are representative of losses incurred in Australia. There are currently no withholding taxes or exchange control regulations in the BVI applicable to the Company. The Company is subject to the taxation regulations of the Czech Republic where it currently holds mining license via Geomet S.R.O, and also to UK taxation regulations in respect of European Metals (UK) Limited. NOTE 4: RELATED PARTY TRANSACTIONS Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. Other than transactions with Key Management Personnel and their related entities (refer Note 5), there were no other related party transactions during the year. NOTE 5: KEY MANAGEMENT PERSONNEL COMPENSATION Refer to the Remuneration Report contained in the Directors’ Report for details of the remuneration paid or payable to each member of the Group’s key management personnel (KMP) for the year ended 30 June 2016 and 30 June 2015. The totals of remuneration paid to KMP during the year are as follows: Short-term benefits Post-employment benefits Equity settled Other payments 2016 $ 2015 $ 292,863 19,000 386,798 110,157 808,818 307,000 19,000 - 40,000 366,000 Loans to Key Management Personnel There were no loans to Key Management Personnel during the financial year. Other transactions with Key Management Personnel Purchases from related parties are made on terms equivalent to those that prevail in arm’s length transactions. The Group acquired the following services from entities that are controlled by members of the Group’s KMP: Some Directors or former Directors of the Group hold or have held positions in other companies, where it is considered they control or significantly influence the financial or operating policies of those entities. During the year, the following entities provided corporate services and rental to the Group. Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. 29  EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL FINANCIAL REPORT 30 JUNE 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 5: KEY MANAGEMENT PERSONNEL COMPENSATION (continued) Entity Nature of transactions Sub-underwriting fee Sub-underwriting fee Reimbursement Rental Investments Pty - - - Wilgus Ltd Key Management Personnel Keith Coughlan David Reeves David Reeves David Reeves Total Transactions 2015 2016 $ $ 7,144 - 799 - - 5,615 Payable Balance 2015 2016 $ $ - - - - - - 31,000 - - - There were no other transactions with Key Management Personnel during the financial year. NOTE 6: AUDITOR’S REMUNERATION 2016 $ 2015 $ Details of the amounts paid to the auditor of the Group, Stantons International Audit and Consulting Pty Ltd for audit and non- audit services provided during the year are set out below: Auditor’s services Audit and review of financial report NOTE 7: BASIC AND DILUTED LOSS PER CDI Basic and diluted loss per CDI (cents) Loss attributable to members of European Metals Holdings Limited Weighted average number of CDI outstanding during the year 29,911 26,025 2016 2015 (1.78) (1.25) (1,591,637) (666,872) 89,471,195 53,143,446 The Group is in a loss making position and it is unlikely that the conversion to, calling of, or subscription for, CDI capital in respect of potential CDIs would lead to diluted earnings per CDI that shows an inferior view of the earnings per CDI. For this reason, the diluted losses per CDI for the year ended 30 June 2016 are the same as basic loss per CDI. NOTE 8: CASH AND CASH EQUIVALENTS Cash at bank Total cash and cash equivalents in the Statement of Cash Flows NOTE 9: OTHER RECEIVABLES CURRENT GST and VAT Receivable Other receivables NOTE 10: OTHER ASSETS Current Prepayments 2016 $ 2015 $ 3,134,661 889,208 3,134,661 889,208 2016 $ 2015 $ 40,107 54,484 94,591 28,329 374 28,703 2016 $ 2015 $ 79,915 79,915 32,918 32,918 30  EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL FINANCIAL REPORT 30 JUNE 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 11: EXPLORATION AND EVALUATION EXPENDITURE Exploration at cost Balance at the beginning of the year Acquisition of tenements Exploration of tenements Foreign exchange movement NOTE 12: TRADE AND OTHER PAYABLES CURRENT Trade payables Accrued expenses Payables are normally due for payment within 30 days. NOTE 13: OTHER LIABILITIES CURRENT Loan from Cominco Resources 2016 $ 2015 $ 3,414,934 2,814,798 - - 1,502,819 599,746 22,860 390 4,940,613 3,414,934 2016 $ 2015 $ 225,842 68,048 293,890 180,975 20,561 201,536 2016 $ 2015 $ - - 23,291 23,291 European Metals Holdings had a loan agreement with Cominco Resources. The loan was for no fixed term, was interest free, unsecured and repayable by European Metals at call of Cominco. The funds were advanced in Euros and repayment was expected in Euros. At 30 June 2016 the amount was fully paid. NOTE 14: ISSUED CAPITAL (a) Issued and paid up capital 121,417,126 (30 June 2015: 75,144,459 CDIs) Total issued capital (b) Movements in CDIs Balance at the beginning of the year Rights issue Share based payment Date 1 July 2014 6 November 2014 20 April 2015 Conversion of A Class Performance Shares 14(c) 27 May 2015 30 June 2015 CDI Placement Capital raising costs Balance at the end of the year Number $ 121,417,126 11,674,141 11,674,141 Number $ 38,400,006 21,943,023 462,000 5,000,000 9,339,430 5,002,296 1,097,151 30,030 - 747,155 (88,449) 30 June 2015 75,144,459 6,788,183 31  EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL FINANCIAL REPORT 30 JUNE 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 14: ISSUED CAPITAL (continued) Balance at the beginning of the year CDI capital raising Issued in lieu of director fees CDI capital raising CDI capital raising CDI – exercised of options CDI – exercised of options CDI – exercised of options CDI – exercised of options CDI – exercised of options CDI – exercised of options CDI – exercised of options Capital raising cost Balance at the end of the year (c) Movements A Class Performance Shares Balance at the beginning of the year Conversion into CDIs Balance at the end of the year (d) Movements B Class Performance Shares Balance at the beginning of the year Conversion into CDIs Balance at the end of the year Performance Shares lapsed Balance at the end of the year Number $ 1 July 2015 75,144,459 6,788,183 13 August 2015 17 August 2015 19 October 2015 9,410,578 496,725 2,000,000 752,846 30,000 360,000 18 March 2016 13,000,000 1,755,000 20 April 2016 3,525 353 9 May 2016 300,000 30,000 19 May 2016 688,514 68,851 1 June 2016 1,279,372 127,937 8 June 2016 1,223,446 122,345 16 June 2016 6,045,366 604,537 30 June 2016 11,825,141 1,182,514 30 June 2016 121,417,126 11,674,141 - (148,425) Date 1 July 2014 14(b) 27 May 2015 30 June 2015 Number $ 5,000,000 (5,000,000) - Date Number $ 1 July 2014 5,000,000 - 30 June 2015 5,000,000 20 February 2016 (5,000,000) 30 June 2016 - - - - - - - - - CDIs entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of shares held. On a show of hands every holder of a CDI present at a meeting in person or by proxy, is entitled to one vote, and in a poll each share is entitled to one vote. European Metals Holdings limited is a company limited by shares incorporated in the British Virgin Islands with an authorised share capital, 200,000,000 no par value shares of a single class. Pursuant to the prospectus dated 26 April 2012, the company issued CDIs in July 2012. The holder of the CDIs has beneficial ownership in the underlying shares instead of legal title. Legal title and the underlying shares is held by Chess Depository Nominees Pty Ltd. Holders of CDIs have the same entitlement benefits of holding the underlying shares. Each Share in the Company confers upon the Shareholder: 1. 2. 3. the right to one vote at a meeting of the Shareholders of the Company or on any Resolution of Shareholders; the right to an equal share in any dividend paid by the Company; and the right to an equal share in the distribution of the surplus assets of the Company on its liquidation. 32  EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL FINANCIAL REPORT 30 JUNE 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 14: ISSUED CAPITAL (continued) The terms of the B Class Performance Shares are as follows Class Automatically convert into that number of Shares and an equivalent number of CDIs equal to : Class B Performance Shares (i) $7,500,000 less the value of the CDIs issued on conversion of the A Class Performance Shares calculated at a deemed issue price of $0.30 per CDI; divided by, (ii) the greater of $0.30 and the volume weighted average price of CDIs as calculated over the 5 ASX trading days prior to the date the DFS (as defined below) is provided to the Company, and subject to the definitive feasibility study commissioned by the board of the Company in respect of the Permits (DFS) and prepared by a reputable independent third party engaged by the board of the Company being provided to the Company on or before that date which is 2 years after the date of issue of the B Class Performance Shares (Milestone). For clarity, the DFS must be: (i) of a standard suitable to be submitted to a financial institution as the basis for lending of funds for the development and operation of mining activities contemplated in the study; (ii) capable of supporting a decision to mine on the permits; and (iii) completed to an accuracy of +/- 15% with respect to operating and capital costs and display a net present value of not less than US$100,000,000 using a discount rate of 10% and a tin price of no less than 90% of the average closing cash price of tin as published by the London Stock Exchange for the 6 months immediately preceding completing of the study. At the date of this report, the Performance Shares were lapsed on 20 February 2016. (e) Capital risk management The Group’s objectives when managing capital is to safeguard its ability to continue as a going concern, so that it may continue to provide returns for shareholders and benefits for other stakeholders. The capital structure of the Group consists of equity comprising issued capital, reserves and accumulated losses. Due to the nature of the Group’s activities, being mineral exploration, the Group does not have ready access to credit facilities, with the primary source of funding being equity raisings. Therefore, the focus of the Group’s capital risk management is to maintain sufficient current working capital position to meet the requirements of the Group to meet exploration programmes and corporate overheads. The Group’s strategy is to ensure appropriate liquidity is maintained to meet anticipated operating requirements, with a view to initiating appropriate capital raisings as required. The working capital position of the Group at 30 June is as follows: Cash and cash equivalents Other receivables Other assets Trade and other payables Other liabilities The Group is not subject to any externally imposed capital requirements. 2016 $ 2015 $ 3,134,661 889,208 94,591 79,915 28,703 32,918 (293,890) (201,536) - (23,291) 3,015,277 726,002 33  EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL FINANCIAL REPORT 30 JUNE 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 15: RESERVES Option Reserve Foreign Currency Translation Reserve Total Reserves Option Reserve Balance at the beginning of the financial year Options lapsed Equity based payments Balance at the end of the financial year 2016 $ 557,246 87,301 644,547 2016 $ 97,560 (97,560) 557,246 557,246 2015 $ 97,560 125,201 222,761 2015 $ 97,560 - - 97,560 The options reserve is used to recognise the fair value of all options and warrants on issue but not yet exercised. At 30 June 2016 the following options and warrants are outstanding: • • • 3,750,000 unlisted options exercisable at 16.6 cents on or before 17 August 2020 were issued to key management personnel. 1,000,000 warrants exercisable at 14 cents on or before 11 November 2018 were issued to Company’s Nominated Adviser. 2,000,000 unlisted options were issued on 19 October 2015 with an exercise price of 20 cents and expiry date of 19 October 2016. On 19 July 2015, 1,200,000 options with an exercise price of 30 cents expired. The balance in the option reserve relating to the options of $97,560 has been transferred to accumulated losses. Foreign Currency Translation Reserve The foreign currency translation reserve records exchange differences arising on translation of foreign controlled subsidiaries. Balance at the beginning of the financial year Movement during the year Balance at the end of the financial year 2016 $ 125,201 (37,900) 87,301 2015 $ 127,459 (2,258) 125,201 NOTE 16: SHARE BASED PAYMENTS The following share-based payment arrangements existed at 30 June 2016: On 31 July 2015, 3,750,000 options with an exercise price 16.6 cents on or before the 17 August 2020 were granted to Directors. The issue was approved by shareholders at a General Meeting held on the 31 July 2015. The options were valued under Black and Scholes and a fair value adjustment of $386,798 and were recognised as a share based payment in the profit and loss. Options granted to Key Management Personnel are as follow: Grant Date 31 July 2015 Number 3,7500,000 Further details of these options are provided in the directors’ report. The options hold no voting of dividend rights and are unlisted. A summary of the movements of all company options issued is as follows: 34  EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL FINANCIAL REPORT 30 JUNE 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 16: SHARE BASED PAYMENTS (continued) Options outstanding as at 1 July 2014 Granted Forfeited Exercised Expired Options outstanding as at 30 June 2015 Options outstanding as at 1 July 2015 Granted Forfeited Exercised Expired Options outstanding as at 30 June 2016 Options exercisable as at 30 June 2015 Options exercisable as at 30 June 2016 Other share based payment details as follows Number Weighted Average Exercise Price 1,200,000 $0.30 - - - - 1,200,000 1,200,000 3,750,000 - - (1,200,000) 3,750,000 1,200,000 3,750,000 - - - - $0.30 $0.30 $0.166 - - ($0.30) $0.166 $0.30 $0.166 i. On 10 December 2015, 1,000,000 warrants with an exercise price 14 cents on or before the 11 November 2018 were granted to the Company’s Nominated Adviser. The warrants were valued under Black and Scholes and a fair value adjustment of $170,448 and were recognised as a share based payment in the profit and loss. A summary of the movements of all company warrants issued is as follows: Warrants outstanding as at 1 July 2015 Granted Forfeited Exercised Expired Warrants outstanding as at 30 June 2016 Warrants exercisable as at 30 June 2016 Number - 1,000,000 - - - 1,000,000 1,000,000 Weighted Average Exercise Price - $0.14 - - - $0.14 $0.14 These instruments vest immediately. The instruments hold no voting or dividend rights. The options and warrants are unlisted. All options and warrants were issued and vested in the current year. In respect of all of the above shares and options issued for services provided it was determined that no fair value of the services was able to be determined, as such the fair value of the instruments was used as the fair value recorded. 35  EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL FINANCIAL REPORT 30 JUNE 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 16: SHARE BASED PAYMENTS (continued) A summary of the inputs used in the valuation of the options and warrants is as follows: Descriptions Exercise price Share price at date of issue Grant date Expected volatility (i) Expiry date Expected dividends Risk free interest rate Value per option/warrant Number of options/warrants Total value of options NOTE 17: CASH FLOW INFORMATION (a) Reconciliation of cash flow from operating activities with the loss after tax Loss after income tax Adjustments for: Impairment of receivable Share based payments Unrealised foreign exchange loss/ (gain) Depreciation expense Changes in assets and liabilities Decrease/ (Increase) in other receivables (Increase)/ Decrease in other assets (Decrease)/ Increase in trade and other payables Cash flow (used in)/from operating activities (b) Credit standby facilities The Company had no credit standby facilities as at 30 June 2016 and 2015. (c) Non-cash financing and investing activities There was no non-cash financing and investing activities during the year. Options $0.166 $0.12 Warrants $0.14 $0.20 31 July 2015 10 December 2015 136.83% 153.46% 31 July 2020 10 December 2018 - 2.12% $0.10315 3,750,000 $386,798 - 2.16% $0.17045 1,000,000 $170,448 2016 $ 2015 $ (1,591,637) (666,872) 56 557,246 (37,556) 942 (65,887) (46,997) - - (2,970) 2,346 1,303 8,629 9,425 (26,185) (1,174,408) (683,749) 36  EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL FINANCIAL REPORT 30 JUNE 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 18: OPERATING SEGMENTS The accounting policies used by the Group in reporting segments are in accordance with the measurement principles of Australian Accounting Standards. The Group has identified its operating segments based on the internal reports that are provided to the Board of Directors. According to AASB 8 Operating Segments, two or more operating segments may be aggregated into a single operating segment if the segments have similar economic characteristics, and the segments are similar in each of the following respects: • • • • • The nature of the products and services; The nature of the production processes; The type or class of customer for their products and services; The methods used to distribute their products or provide their services; and If applicable, the nature of the regulatory environment, for example; banking, insurance and public utilities. The Group currently has one project which takes into account each of the above mentioned aspects. The principal activity for the project is exploration of tin and base metals. The project is likely to have the same methods to distribute the resources in future and the nature of the regulatory environment which is the Czech Republic. This is expected to be the same for future projects. Accordingly, management has identified one operating segment based on the location of the projects, that being the Czech Republic. Australia $ Congo $ Czech $ Total $ 30 June 2016 REVENUE Interest revenue Total segment revenue Net expenditure Loss before income tax Segment assets Segment liabilities 30 June 2015 REVENUE Interest revenue Total segment revenue Net expenditure Eliminate intercompany Loss before income tax Segment assets Segment liabilities 12,624 12,624 (1,554,911) 2,835,802 254,630 6,917 6,917 - - - - - - - - - (49,350) 12,624 12,624 (1,604,261) (1,591,637) 5,416,577 8,252,379 39,260 293,890 - - 6,917 6,971 (570,725) (96,147) (666,872) (534,121) 4,932 (41,536) 942,777 184,263 - - 3,426,872 4,369,649 40,564 224,827 37  EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL FINANCIAL REPORT 30 JUNE 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 19: FINANCIAL RISK MANAGEMENT The Group’s financial instruments consist mainly of deposits with banks, equity instruments and accounts receivable and payable. The main purpose of non-derivative financial instruments is to raise finance for Group’s operations. The Group does not speculate in the trading of derivative instruments. The Group holds the following financial instruments: Financial assets Cash and cash equivalents Other receivables Total financial assets Trade and other payables Other liabilities Total financial liabilities 2016 $ 2015 $ 3,134,661 889,208 94,591 28,703 3,229,252 917,911 293,890 201,536 - 23,291 293,890 224,827 The fair value of the Group’s financial assets and liabilities approximate their carrying value. Specific Financial Risk Exposures and Management The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and price risk) credit risk and liquidity risk. Market risk (i) The Board meets on a regular basis to analyse currency and interest rate exposure and to evaluate treasury management strategies in the context of the most recent economic conditions and forecasts. Interest rate risk Exposure to interest rate risk arises on financial assets and financial liabilities recognised at the end of the reporting period whereby a future change in interest rates will affect future cash flows or the fair value of fixed rate financial instruments. The Group is also exposed to earnings volatility on floating rate instruments. Interest rate risk is not material to the Group as no interest bearing debt arrangements have been entered into. Price risk Price risk relates to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The Group is not exposed to securities price risk as it does not hold any investments. Foreign exchange risk Exposure to foreign exchange risk may result in the fair value or future cash flows of a financial instrument fluctuating due to movement in foreign exchange rates of currencies in which the Group holds financial instruments which are other than the AUD functional currency of the Group. With instruments being held by overseas operations, fluctuations in foreign currencies may impact on the Group’s financial results. The Group’s exposure to foreign exchange risk is monitored by the Board. The majority of the Group’s funds are held in Australian dollars, British Stirling and Czech Koruna. The Group previously held small sums of money in the subsidiary bank account in Congolese Franc. 38  EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL FINANCIAL REPORT 30 JUNE 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 19: FINANCIAL RISK MANAGEMENT (continued) At 30 June 2016, the group has financial assets and liabilities denominated in the foreign currencies detailed below: Geomet S.R.O 2016 Amount in CZK Amount in GBP Amount in AUD Amount in CZK Cash and cash equivalents Intercompany payables 5% effect in foreign exchange rates - - - - - 31,000 31,000 - 1,112,243 1,112,243 1,550 55,612 - - - - 2015 Amount in GBP - 31,000 31,000 Amount in AUD - 383,826 383,826 1,550 19,191 There were no financial assets and liabilities denominated in foreign currencies for EMH UK and the Company. Credit risk (ii) Credit exposure represents the extent of credit related losses that the Group may be subject to on amounts to be received from financial assets. Credit risk arises principally from trade and other receivables. The objective of the Group is to minimise the risk of loss from credit risk. Although revenue from operations is minimal, the Group trades only with creditworthy third parties. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is insignificant. The Group’s maximum credit risk exposure is limited to the carrying value of its financial assets as indicated on the Statement of Financial Position and notes to the financial statements. The credit quality of the financial assets was high during the year. The table below details the credit quality of the financial assets at the end of the year: Financial assets Credit Quality Cash and cash equivalents held at BGFI Bank Cash and cash equivalents held at Komercni Bank Cash and cash equivalents held at Westpac Bank • Interest-bearing deposit Other receivables and deposits High High High High 2016 $ - 365,399 2015 $ - 984 2,769,262 888,224 94,591 28,703 3,229,252 917,911 Impairment losses $56 amount due from other debtor was past due and impaired for during the year. Liquidity risk (iii) Liquidity risk is the risk that the entity will not be able to meet its financial obligations as they fall due. The objective of the Group is to maintain sufficient liquidity to meet commitments under normal and stressed conditions. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, and the availability of funding through an adequate amount of committed credit facilities. Due to the lack of material revenue, the Group aims at maintaining flexibility in funding by maintaining adequate reserves of liquidity. The Group did not have access to any undrawn borrowing facilities at the reporting date. The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting arrangements. 39  EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL FINANCIAL REPORT 30 JUNE 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 19: FINANCIAL RISK MANAGEMENT (continued) As at 30 June 2016 Trade and other payables Carrying Amount $ Contractual Cash flows $ <3 months $ 3-6 months $ 6-24 months $ 293,890 293,890 293,890 Loan payable to external party - - - 293,890 293,890 293,890 As at 30 June 2015 Trade and other payables Loan payable to external party Carrying Amount $ Contractual Cash flows $ 201,536 23,291 224,827 201,536 23,291 224,827 <3 months $ 201,536 - 201,536 - - - 3-6 months $ 6-24 months $ - - - - - - - 23,291 23,291 Cash flow and fair value interest rate risk (iv) From time to time the Group has significant interest bearing assets, but they are as a result of the timing of equity raising and capital expenditure rather than a reliance on interest income. The interest rate risk arises on the rise and fall of interest rates. The Group’s income and operating cash flows are not expected to be materially exposed to changes in market interest rates in the future and the exposure to interest rates is limited to the cash and cash equivalents balances. The Group’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rates on classes of financial assets and financial liabilities: Floating Interest Rate Non- interest bearing 2016 Total Floating Interest Rate $ $ $ $ Non- interest bearing $ 2015 Total $ Financial assets - Within one year Cash and cash equivalents 3,134,661 - 3,134,661 889,208 - 889,208 Other receivables Total financial assets - 94,591 94,591 3,134,661 94,591 3,229,252 Weighted average interest rate 1.12% 28,703 28,703 28,703 917,911 889,208 1.62% Financial Liabilities - Within one year Trade and other Payables Borrowings Total financial liabilities - - - 293,890 293,890 - - 293,890 293,890 - - - 201,536 201,536 23,291 23,291 224,827 224,827 Net financial assets/ (liabilities) 3,134,661 (199,299) 2,935,362 889,208 (196,124) 693,084 40  EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL FINANCIAL REPORT 30 JUNE 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 19: FINANCIAL RISK MANAGEMENT (continued) Cash flow sensitivity analysis for variable rate instruments A change of 100 basis points in the interest rates at the reporting date would have increased or decreased the Group’s equity and profit or loss by $31,347 (2015: $8,892). Net fair value of financial assets and liabilities (v) The net fair value of cash and cash equivalents and non-interest bearing monetary assets and financial liabilities approximates their carrying values. NOTE 20: CONTROLLED ENTITIES Subsidiaries of European Metals Holdings Limited Controlled entity Country of Incorporation Class of Shares Percentage Owned Equamineral Group Limited (EGL)* British Virgin Islands Equamineral SA (ESA Congo) Republic of Congo European Metals UK Limited ** United Kingdom Geomet S.R.O Czech Republic Ordinary Ordinary Ordinary Ordinary 2016 100% 100% 100% 100% 2015 100% 100% 100% 100% *EGL was incorporated on 8 December 2010 and domiciled in the British Virgin Islands. EGL is the parent company for Equamineral SA (ESA Congo) located in the Republic of Congo. EGL is the beneficial holder of 100% of the issued share capital in Equamineral SA. This company is currently in the process of being deregistered. **EMH UK Limited is the parent company for Geomet S.R.O NOTE 21: PARENT ENTITY DISCLOSURE The following information has been extracted from the books and records of the parent and has been prepared in accordance with Australian Accounting Standards. Statement of Financial Position ASSETS Current assets Non-current assets TOTAL ASSETS LIABILITIES Current liabilities TOTAL LIABILITIES NET ASSETS 2016 $ 2015 $ 2,835,802 - 2,835,802 942,288 3,468,474 4,410,762 254,630 254,630 184,262 184,262 2,581,172 4,226,500 41  EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL FINANCIAL REPORT 30 JUNE 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 21: PARENT ENTITY DISCLOSURE (continued) EQUITY Issued capital Reserves Accumulated losses TOTAL EQUITY Profit or Loss and Other Comprehensive Income Loss for the year Total comprehensive loss Guarantees 2016 $ 2015 $ 11,674,141 6,788,183 557,246 97,560 (9,650,215) (2,659,243) 2,581,172 4,226,500 (7,088,531) (7,088,531) (534,122) (534,122) There are no guarantees entered into by European Metals Holdings Limited for the debts of its subsidiary as at 30 June 2016. Contingent liabilities There are no contingent liabilities as at 30 June 2016. Commitments There were no commitments as at 30 June 2016. NOTE 23: CAPITAL COMMITMENTS Capital expenditure commitments: Capital expenditure commitments for: Mining concession commitments Payable: Not longer than 1 year Longer than 1 year and not longer than 5 years Longer than 5 years 2016 $ 2015 $ - - - - - - - - - - Commitments at 30 June 2016 relate to mining contracts for works to be performed were nil (2015: Nil.) NOTE 24: CONTINGENT LIABILITIES There are no contingent liabilities as at 30 June 2016. NOTE 25: SIGNIFICANT EVENTS AFTER THE REPORTING DATE On 21 July 2016, the Company appointed Ausenco Limited as the Lead Engineer to the Pre-Feasibility Study of the Cinovec Lithium/Tin Project in Czech Republic. Except for the matters noted above there have been no other significant events arising after the reporting date. 42  EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL FINANCIAL REPORT 30 JUNE 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 NOTE 26: NEW ACCOUNTING STANDARDS FOR APPLICATION IN FUTURE PERIODS A number of new standards, amendments to standards and interpretations issued by the AASB which are not yet mandatorily applicable to the Group have not been applied in preparing these consolidated financial statements. Those which may be relevant to the Group are set out below. The Group does not plan to adopt these standards early. AASB 9 Financial Instruments and associated Amending Standards (applicable for annual reporting period commencing  1 January 2018) The Standard will be applicable retrospectively (subject to the comment on hedge accounting below) and includes revised requirements for the classification and measurement of financial instruments, revised recognition and derecognition requirements for financial instruments and simplified requirements for hedge accounting. Key changes made to this standard that may affect the Group on initial application include certain simplifications to the classification of financial assets, simplifications to the accounting of embedded derivatives, and the irrevocable election to recognise gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. The directors anticipate that the adoption of AASB 9 will not have a material impact on the Group’s financial instruments. AASB 15: Revenue from Contracts with Customers (applicable to annual reporting periods commencing on or after 1  January 2018). When effective, this Standard will replace the current accounting requirements applicable to revenue with a single, principles- based model. Except for a limited number of exceptions, including leases, the new revenue model in AASB 15 will apply to all contracts with customers as well as non-monetary exchanges between entities in the same line of business to facilitate sales to customers and potential customers. The core principle of the Standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services. To achieve this objective, AASB 15 provides the following five-step process: - identify the contract(s) with a customer; - identify the performance obligations in the contract(s); - determine the transaction price; - allocate the transaction price to the performance obligations in the contract(s); and - recognise revenue when (or as) the performance obligations are satisfied. This Standard will require retrospective restatement, as well as enhanced disclosures regarding revenue. The directors anticipate that the adoption of AASB 15 will not have a material impact on the Group’s revenue recognition and disclosures. AASB 16: Leases (applicable to annual reporting periods commencing on or after 1 January 2019).  AASB 16 removes the classification of leases as either operating leases or finance leases for the lessee effectively treating all leases as finance leases. Short term leases (less than 12 months) and leases of a low value are exempt from the lease accounting requirements. Lessor accounting remains similar to current practice. The directors anticipate that the adoption of AASB 15 will not have a material impact on the Group’s recognition of leases and disclosures. 43  EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL FINANCIAL REPORT 30 JUNE 2016 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 AASB 2014-3: Amendments to Australian Accounting Standards – Accounting for Acquisitions of Interests in Joint NOTE 26: NEW ACCOUNTING STANDARDS FOR APPLICATION IN FUTURE PERIODS (continued)  Operations [AASB 1 & AASB 11] AASB 2014-3 amends AASB 11 Joint Arrangements to provide guidance on the accounting for acquisitions of interests in joint operations in which the activity constitutes a business. The amendments require: (a) the acquirer of an interest in a joint operation in which the activity constitutes a business, as defined in AASB 3 Business Combinations, to apply all of the principles on business combinations accounting in AASB 3 and other Australian Accounting Standards except for those principles that conflict with the guidance in AASB 11 the acquirer to disclose the information required by AASB 3 and other Australian Accounting Standards for business combinations. (b) This Standard also makes an editorial correction to AASB 11. The directors anticipate that the adoption of these amendments will not have a material impact on the financial statements. AASB 2014-9: Amendments to Australian Accounting Standards – Equity Method in Separate Financial Statements  (AASB 2014-9 applies to annual reporting periods beginning on or after 1 January 2016. Early adoption permitted). AASB 2014-9 amends AASB 127 Separate Financial Statements, and consequentially amends AASB 1 First-time Adoption of Australian Accounting Standards and AASB 128 Investments in Associates and Joint Ventures, to allow entities to use the equity method of accounting for investments in subsidiaries, joint ventures and associates in their separate financial statements. AASB 2014-9 also makes editorial corrections to AASB 127. The directors anticipate that the adoption of these amendments will not have a material impact on the financial statements.  Other standards not yet applicable There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. 44 EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL REPORT 30 JUNE 2016 DIRECTORS’ DECLARATION The Directors of the Company declare that: 1. The financial statements and notes, as set out on pages 16 to 44, are in accordance with the Corporations Act 2001 and: (a) (b) (c) comply with Accounting Standards; are in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board, as stated in Note 1 to the financial statements; and give a true and fair view of the financial position as at 30 June 2016 and of the performance for the year ended on that date of the Group. 2. the Chief Executive Officer and Chief Finance Officer have each declared that: (a) the financial records of the Group for the financial year have been properly maintained in accordance with s 286 of the Corporations Act 2001; (b) the financial statements and notes for the financial year comply with the Accounting Standards; and (c) the financial statements and notes for the financial year give a true and fair view. 3. in the Directors’ opinion there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable. This declaration is made in accordance with a resolution of the Board of Directors and is signed for and on behalf of the Directors by: Keith Coughlan Managing Director Dated at Perth on 30 September 2016 45 EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL REPORT 30 JUNE 2016 CORPORATE GOVERNANCE STATEMENT This Corporate Governance summary discloses the extent to which the Company will follow the recommendations set by the ASX Corporate Governance Council in its publication ‘Corporate Governance Principles and Recommendations (3rd Edition)’ (Recommendations). The Recommendations are not mandatory, however, the Recommendations that will not be followed have been identified and reasons have been provided for not following them. The Company’s Corporate Governance Plan has been posted on the Company’s website at www.europeanmet.com. PRINCIPLES AND RECOMMENDATIONS COMPLY (YES/NO) EXPLANATION Principle 1: Lay solid foundations for management and oversight Recommendation 1.1 The Company has adopted a Board Charter. A listed entity should have and disclose a charter which: YES (a) (b) the sets out roles and responsibilities of the board, the chair and management; and respective includes a description of those matters expressly reserved to the board and those delegated to management. Recommendation 1.2 A listed entity should: YES (a) undertake appropriate before appointing a person, or putting forward to security holders a candidate for election, as a director; and checks (b) provide security holders with all material information relevant to a decision on whether or not to elect or re-elect a director. Recommendation 1.3 A listed entity should have a written agreement with each director and senior executive setting out the terms of their appointment. YES the sets out The Board Charter specific responsibilities of the Board, requirements as to the Boards composition, the roles and responsibilities of the the Chairman and Company establishment, operation and management of Board Committees, Directors access to company records and information, details of the Board’s relationship with management, Board’s details performance review and details of the Board’s disclosure policy. Secretary, the of A copy of the Company’s Board Charter is stated in Schedule 1 of the Corporate Governance Plan which is available on the Company’s website. (a) The Company has detailed guidelines for the appointment and selection of the Board. The Company’s Corporate Governance Plan requires the Board to undertake appropriate checks before appointing a person, or putting forward to security holders a candidate for election, as a director. (b) Material information relevant to any decision on whether or not to elect or re-elect a Director will be provided to security holders in the notice of meeting holding the resolution to elect or re- elect the Director. The Company’s Corporate Governance Plan requires the Board to ensure that each Director and senior executive is a party to a written agreement with the Company which sets out the terms of that Director’s or senior executive’s appointment. Recommendation 1.4 The company secretary of a listed entity should be accountable directly to the board, through the chair, on all matters to do with the proper functioning of the board. YES The Board Charter outlines the roles, responsibility and accountability of the Company Secretary. The Company Secretary is accountable directly to the Board, through the chair, on all matters to do with the proper functioning of the Board. 48 EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL REPORT 30 JUNE 2016 CORPORATE GOVERNANCE STATEMENT Recommendation 1.5 A listed entity should: (a) have a diversity policy which includes requirements for the board: (i) set measurable objectives to achieving gender diversity; and for (ii) to assess annually both the objectives and the entity’s progress in achieving them; (b) disclose that policy or a summary or it; and (c) disclose as at the end of each reporting period: (i) the measurable objectives for achieving gender diversity set by the board in accordance with the entity’s diversity policy and its progress towards achieving them; and (ii) either: (A) the respective proportions of men and women on the board, in senior executive positions and across the whole organisation (including how the entity has defined “senior executive” for these purposes); or (B) “Gender Equality the entity’s Indicators”, as defined the Workplace Gender Equality Act 2012. in (a) The Company has adopted a Diversity Policy. YES (i) The Diversity Policy provides a framework for the Company to achieve a list of 6 measurable objectives that encompass gender equality. for (ii) The Diversity Policy provides the monitoring and evaluation of the scope and currency of the Diversity Policy. The company is responsible for implementing, monitoring the measurable objectives. reporting and on (b) The Diversity Policy is stated in Schedule 9 of the Corporate Governance Plan which is available on the company website. (c) included (i) The measurable objectives set by the Board the annual key in will be performance indicators for the CEO, MD and senior executives. In addition the Board will review progress against the objectives in its annual performance assessment. (ii) The Company currently has no employees and utilizes external consultants and contractors as and when required. The Board will review this position on an annual implement measurable objectives as and when they deem the Company to require them. and will basis Recommendation 1.6 A listed entity should: NO (a) have and disclose a process for periodically evaluating the performance of the board, its committees and individual directors; and (b) disclose in relation to each reporting period, whether a performance evaluation was undertaken in in accordance with that process. reporting period the the Board and (a) The Board is responsible for evaluating the performance of individual directors on an annual basis. It may do so with the aid of an independent advisor. The process for this can be found in Schedule 6 of the Company’s Corporate Governance Plan. (b) The Company’s Corporate Governance Plan requires the Board to disclosure whether or not performance evaluations were conducted during the relevant reporting period. Due to the size of the Board and the nature of the business, it has not been deemed necessary to institute a formal documented performance review program of individuals. However, the Chairman intends to conduct formal reviews each financial year whereby the performance of the Board as a whole and the individual contributions of each director are disclosed. The Board considers that at this stage of the Company’s development an informal process is appropriate. 49 EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL REPORT 30 JUNE 2016 CORPORATE GOVERNANCE STATEMENT The review will assist to indicate if the Board’s performance is appropriate and efficient with respect to the Board Charter. remains appropriate legal and The Board regularly reviews its skill base and whether the it for financial Company’s operational, requirements. New Directors are obliged to participate in the Company’s induction process, which provides a comprehensive understanding of the Company, its objectives and the market in which the Company operates. Directors are encourages to avail themselves of resources required to fulfil the performance of their duties. NO (a) The Board is responsible for evaluating the performance of senior executives. The Board is to arrange an annual performance evaluation of the senior executives. to the Board (b) The Company’s Corporate Governance Plan requires annual performance of the senior executives. Schedule 6 ‘Performance Evaluation’ requires the Board to disclose whether performance or evaluations were conducted during the relevant reporting period. conduct not Recommendation 1.7 A listed entity should: (a) have and disclose a process for periodically its senior evaluating the performance of executives; and (b) disclose in relation to each reporting period, whether a performance evaluation was undertaken in in accordance with that process. reporting period the During the financial year an evaluation of performance of the individuals was not formally carried out. However, a general review of the individuals occurs on an on-going basis to ensure that structures suitable to the Company’s status as a listed entity are in place. Principle 2: Structure the board to add value Recommendation 2.1 The board of a listed entity should: YES (a) have a nomination committee which: (a) The Nomination Committee was formed on 26 August 2015, with directors appointed as members of the Committee, being Mr Reeves (Chairman), Mr Coughlan and Dr Reichl. (i) has at least three members, a majority of whom are independent directors; and (ii) is chaired by an independent director, and disclose: (iii) (iv) (v) the charter of the committee; the members of the committee; and as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) if it does not have a nomination committee, The role and responsibilities of the Nomination Committee in Nomination outlined Committee Charter available online on the Company’s website. are The Board devotes time at board meetings to discuss board succession issues. All members of the Board are in the Company’s nomination process, to the maximum extent permitted under the Corporations Act and ASX Listing Rules. involved The Board regularly updates the Company’s (in accordance with board recommendation 2.2) to assess the appropriate skills matrix 50 EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL REPORT 30 JUNE 2016 CORPORATE GOVERNANCE STATEMENT disclose that fact and the processes it employs to address board succession issues and to ensure that the board has the appropriate balance of skills, experience, independence and knowledge of the entity to its duties and to discharge enable responsibilities effectively. it Recommendation 2.2 A listed entity should have and disclose a board skill matrix setting out the mix of skills and diversity that the board currently has or is looking to achieve in its membership. balance of skills, experience, independence and knowledge of the entity. YES Board Skills Matrix Number of Directors that Meet the Skill Executive & Non- Executive experience Industry experience & knowledge Leadership Corporate governance & risk management Strategic thinking Desired behavioural competencies Geographic experience Capital Markets experience Subject matter expertise: - accounting - capital management - corporate financing - industry taxation 1 - risk management - legal - IT expertise 2 4 4 4 4 4 4 4 4 3 4 3 0 4 4 0 Recommendation 2.3 A listed entity should disclose: (a) the names of the directors considered by the YES board to be independent directors; (b) interest, position, if a director has an association or relationship of type described in Box 2.3 of the ASX Corporate the (1) Skill gap noticed however an external taxation taxation is employed to maintain firm requirements. (2) Skill gap noticed however an external IT firm is employed on an adhoc basis to maintain IT requirements. (a) The Board Charter provides for the disclosure of the names of Directors considered by the Board to be independent. These details are provided in the Annual Reports and Company website. (b) The Board Charter requires Directors to disclose their interest, positions, associations and relationships the requires independence of Directors is regularly assessed that and 51 EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL REPORT 30 JUNE 2016 CORPORATE GOVERNANCE STATEMENT it does Governance Principles and Recommendation (3rd Edition), but the board is of the opinion that the not independence of the director, the nature of the association or relationship in question and an explanation of why the board is of that opinion; and interest, position, compromise (c) the length of service of each director Recommendation 2.4 A majority of the board of a listed entity should be independent directors. Recommendation 2.5 The chair of the board of a listed entity should be an independent director and, in particular, should not be the same person as the CEO of the entity. Recommendation 2.6 directors providing A listed entity should have a program for inducting appropriate new and for professional development opportunities continuing directors to develop and maintain the skills and knowledge needed to perform their role as a director effectively. by the Board in light of the interests disclosed by interests, Directors. Details of the Directors positions associations and relationships are provided in the Annual Reports and Company website. (c) The for Board Charter provides the determination of the Directors’ terms and requires the length of service of each Director to be disclosed. The length of service of each Director is provided in the Annual Reports and Company website. YES YES YES The Board Charter requires that where practical the majority of the Board will be independent. Details of each Director’s independence are provided in the Annual Reports and Company website. The Board Charter provides that where practical, the Chairman of the Board will be a non-executive director. If the Chairman ceases to be independent then the Board will consider appointing a lead independent Director. The Board Charter states that a specific responsibility of the Board is to procure appropriate professional development opportunities for Directors. The Board is responsible for the approval and review of induction and continuing professional development programs and procedures for Directors to ensure that they can effectively discharge their responsibilities. Principle 3: Act ethically and responsibly Recommendation 3.1 A listed entity should: (a) have a code of conduct for its directors, senior executives and employees; and (b) disclose that code or a summary of it. YES (a) The Corporate Code of Conduct applies to the Company’s directors, senior executives and employees. (b) The Company’s Corporate Code of Conduct is in Schedule 2 of the Corporate Governance Plan which is on the Company’s website. Principle 4: Safeguard integrity in financial reporting Recommendation 4.1 The board of a listed entity should: YES (a) have an audit committee which: (i) has at least three members, all of whom are non-executive directors and a majority of whom are independent directors; and (ii) is chaired by an independent director, who is not the chair of the board, and disclose: (b) The Audit and Risk Committee was formed on 26 August 2015, with directors appointed as members of the Committee, being Dr Reichl (Chairman), Mr Reeves and Mr Coughlan. The role and responsibilities of the Audit and Risk Committee are outlined in Audit and Risk Committee Charter available online on the Company’s website. The Board devote time at annual board meetings to responsibilities associated with maintaining the Company’s roles and fulfilling the 52 EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL REPORT 30 JUNE 2016 CORPORATE GOVERNANCE STATEMENT (iii) (iv) (v) the charter of the committee; relevant the and experience of the members of the committee; and qualifications in relation to each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or internal audit function and arrangements with external auditors. All members of the Board are involved in the Company’s audit function to ensure the proper maintenance of the entity and the integrity of all financial reporting. (b) that the if it does not have an audit committee, disclose that fact and the processes it independently verify and employs safeguard financial integrity of reporting, including the processes for the appointment and removal of the external auditor and the rotation of the audit engagement partner. its YES Recommendation 4.2 The board of a listed entity should, before it approves the entity’s financial statements for a financial period, receive from its CEO and CFO a declaration that the financial records of the entity have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the entity and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively. Recommendation 4.3 A listed entity that has an AGM should ensure that its external auditor attends is from security available to answer questions holders relevant to the audit. its AGM and YES The Company’s Corporate Governance Plan states that a duty and responsibility of the Board is to ensure that before approving the entity’s financial statements for a financial period, the CEO and CFO have declared that in their opinion the financial records of the entity have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the entity and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively. The Company’s Corporate Governance Plan provides that the Board must ensure the Company’s external auditor attends its AGM and is available to answer questions from security holders relevant to the audit. Principle 5: Make timely and balanced disclosure Recommendation 5.1 A listed entity should: YES (a) have a written policy for complying with its continuous disclosure obligations under the Listing Rules; and (b) disclose that policy or a summary of it. (a) The Board Charter provides details of the Company’s disclosure policy. In addition, Schedule 7 of the Corporate Governance Plan is entitled ‘Disclosure – Continuous Disclosure’ and details the Company’s disclosure requirements as required by the ASX Listing Rules and other relevant legislation. (b) The Board Charter and Schedule 7 of the Corporate Governance Plan are available on the Company website. Principle 6: Respect the rights of security holders Recommendation 6.1 A listed entity should provide information about Information about the Company and its governance is available in the Corporate Governance Plan which can 53 EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL REPORT 30 JUNE 2016 CORPORATE GOVERNANCE STATEMENT itself and website. its governance to investors via its YES be found on the Company’s website. Information about the Company and its governance is available in the Corporate Governance Plan which can be found on the Company website. Recommendation 6.2 A listed entity should design and implement an investor relations program to facilitate effective two-way communication with investors. YES a has adopted Shareholder The Company Communications Strategy which aims to promote and facilitate effective two-way communication with investors. The Shareholder Communications Strategy outlines a range of ways in which information is communicated to shareholders. Recommendation 6.3 A listed entity should disclose the policies and facilitate and processes encourage participation at meetings of security holders. in place to it has YES The Shareholder Communications Strategy can be found in Schedule 10 of the Board Charter which is available on the Company website. The Shareholder Communications Strategy states that as a part of the Company’s developing investor relations program, Shareholders can register with the Company Secretary to receive email notifications of when an announcement is made by the Company to the ASX, including the release of the Annual Report, half yearly reports and quarterly reports. Links are made available to the Company’s website on which all information provided to the ASX is immediately posted. Shareholders are encouraged to participate at all EGMs and AGMs of the Company. Upon the despatch of any notice of meeting to Shareholders, the Company Secretary shall send out material with that notice of meeting stating that all Shareholders are encouraged to participate at the meeting. Recommendation 6.4 A listed entity should give security holders the option to receive communications from, and send communications to, the entity and its security registry electronically. YES Security holders can register with the Company to receive email notifications when an announcement is made by the Company to the ASX. Shareholders queries should be referred to the Company Secretary at first instance. Principle 7: Recognise and manage risk Recommendation 7.1 The board of a listed entity should: YES (a) have a committee or committees to oversee risk, each of which: (i) has at least three members, a majority of whom are independent directors; and (ii) is chaired by an independent director, and disclose: (iii) the charter of the committee; (iv) the members of the committee; and (c) The Audit and Risk Committee was formed on 26 August 2015, with directors appointed as members of the Committee, being Dr Reichl (Chairman), Mr Reeves and Mr Coughlan. The role and responsibilities of the Audit and Risk Committee are outlined in Schedule 3 of the Company’s Corporate Governance Plan available online on the Company’s website. the fulfilling roles and The Board devote time at annual board meeting to responsibilities associated with overseeing risk and maintaining the entity’s risk management framework and internal compliance and control associated 54 EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL REPORT 30 JUNE 2016 CORPORATE GOVERNANCE STATEMENT (v) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) if it does not have a risk committee or committees that satisfy (a) above, disclose that fact and the process it employs for overseeing the entity’s risk management framework. Recommendation 7.2 (a) The board or a committee of the board should: YES (a) review the entity’s risk management framework with management at least annually to satisfy itself that it continues to be sound, to determine whether there have been any changes in the material business risks the entity faces and to ensure that they remain within the risk appetite set by the board; and (b) disclose in relation to each reporting period, whether such a review has taken place. Recommendation 7.3 A listed entity should disclose: YES (a) (b) if it has an internal audit function, how the function it performs; or is structured and what role if it does not have an internal audit function, that fact and the processes it employs for evaluating and continually improving the effectiveness of its risk management and internal control processes. Recommendation 7.4 A listed entity should disclose whether, and if so how, it has regard to economic, environmental and social sustainability risks and, if it does, how it manages or intends to manage those risks. YES procedures. risks, these risk, monitor The Company process for risk management and internal compliance includes a requirement to identify and measure the environment for emerging factors and trends risk that affect formulate management strategies and monitor the performance of risk management systems. Schedule 8 of the Corporate Governance Plan is entitled ‘Disclosure – Risk Management’ and details the Company’s disclosure requirements with respect to the risk management review procedure and compliance and internal controls. (b) The Board Charter requires the Board to disclose the number of times the Board met throughout the relevant reporting period, and the individual attendances of the members at those meetings. Details of the meetings will be provided in the Company’s Annual Report. Schedule 3 of the Company’s Corporate Plan provides for the internal audit function of the Company. The Board Charter outlines the monitoring, review and assessment of a range of internal audit functions and procedures. Schedule 3 of the Company’s Corporate Plan details the Company’s risk management systems which assist in identifying and managing potential or apparent business, economic, environmental and social sustainability risks (if appropriate). Review of the Company’s risk management framework is conducted at least annually and reports are continually created by management on the efficiency and effectiveness of the Company’s risk management framework and associated control procedures. compliance internal and 55 EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL REPORT 30 JUNE 2016 CORPORATE GOVERNANCE STATEMENT Principle 8: Remunerate fairly and responsibly Recommendation 8.1 The board of a listed entity should: YES (a) have a remuneration committee which: (i) has at least three members, a majority of whom are independent directors; and (ii) is chaired by an independent director, and disclose: (iii) (iv) (v) the charter of the committee; the members of the committee; and as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or The Remuneration Committee was formed on 26 August 2015, with directors appointed as members of the Committee, being Mr Reeves (Chairman), Mr Coughlan and Dr Reichl. The role and responsibilities of the Remuneration Committee are outlined in Remuneration Committee Charter available online on the Company’s website. The Board devote time at annual board meetings to fulfilling the roles and responsibilities associated with setting the level and composition of remuneration for Directors and senior executives and ensuring that such remuneration is appropriate and not excessive. (b) that fact and it does not have a remuneration if the committee, disclose processes it employs for setting the level and composition of remuneration for directors and senior executives and ensuring that such remuneration and not excessive. appropriate is Recommendation 8.2 its listed entity should separately disclose A policies and practices regarding the remuneration of non-executive directors and the remuneration of executive directors and other senior executives roles and and ensure directors responsibilities compared to executive directors and other senior executives are level and composition of their remuneration. the different non-executive that of reflected the in YES The Company’s Corporate Governance Plan requires its policies and practices the Board to disclose remuneration of non-executive, regarding executive and other senior directors. the YES Recommendation 8.3 listed entity which has an equity-based A remuneration scheme should: (a) have a policy on whether participants are permitted to enter into transactions (whether through the use of derivatives or otherwise) which limit the economic risk of participating in the scheme; and (b) disclose that policy or a summary of it. (a) Company’s Corporate Governance Plan states that the Board is required to review, manage and disclose the policy (if any) on whether participants are permitted into (whether through the use of transactions derivatives or otherwise) which the economic risk of participating in the scheme. The Board must review and approve any equity based plans. to enter limit (b) A copy of the Company’s Corporate Governance Plan is available on the Company’s website. 56 EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL REPORT 30 JUNE 2016 ADDITIONAL INFORMATION FOR LISTED PUBLIC COMPANIES The following additional information is required by the Australian Securities Exchange Ltd in respect of listed public companies only. 1 Shareholding as at 26 September 2016 (a) Distribution of Shareholders Category (size of holding) 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – and over Number of Shareholders 25 115 150 243 84 617 (b) The number of shareholdings held in less than marketable parcels is 36. (c) Voting Rights The voting rights attached to each class of equity security are as follows: CDIs - Each CDI is entitled to one vote when a poll is called, otherwise each member present at a meeting or by proxy has one vote on a show of hands. (d) 20 Largest Shareholders — CDIs as at 26 September 2016 Name 1. COMPUTERSHARE COMPANY NOMINEES LTD 2. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 3. ARMCO BARRIERS PTY LTD 4. MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED 5. 6. INSWINGER HOLDINGS PTY LTD J P MORGAN NOMINEES AUSTRALIA LIMITED 7. MRS ELEANOR JEAN REEVES 8. COURT SECURITIES PTY LTD 9. MR NEIL THACKER MACLACHLAN 10. M & K KORKIDAS PTY LTD 11. HEREFORD GROUP LIMITED 12. RODINIA GEOLOGICAL SERVICES PTY LTD 13. WB NOMINEES LIMITED 14. LICHTER SERVICES PTY LTD 15. MR BRIAN MICHAEL MORITZ 16. HANA VANOVA 17. DR JONATHAN LLOYD LICHTER 18. MR CRAIG BARTLE 19. MR THOMAS MASAICHI COVENEY 20. ABN AMRO CLEARING SYDNEY NOMINEES PTY LTD Number of CDIs Held 22,897,442 20,007,277 12,300,000 8,684,782 8,500,000 3,985,619 3,720,244 2,815,000 2,000,000 1,600,000 1,571,429 1,299,776 1,286,079 1,160,747 1,113,554 928,672 840,000 800,000 800,000 789,708 % Held of Issued Ordinary Capital 18.86 16.48 10.13 7.15 7.00 3.28 3.06 2.32 1.65 1.32 1.29 1.07 1.06 0.96 0.92 0.76 0.69 0.66 0.66 0.65 97,100,329 79.97 57 EUROPEAN METALS HOLDINGS LIMITED ABRN 154 618 989 ANNUAL REPORT 30 JUNE 2016 ADDITIONAL INFORMATION FOR LISTED PUBLIC COMPANIES 2 3 The name of the Company Secretary is Ms Julia Beckett. The address of the principal registered office in Australia is Suite 12, Level 1, 11 Ventnor Avenue, West Perth WA 6005. Telephone +61 8 6141-3500. 4 Registers of securities are held at the following addresses Computershare Investor Services Limited Level 11 172 St Georges Terrace Perth, Western Australia 6000 5 Securities Exchange Listing Quotation has been granted for all the CDIs of the Company on all Member Exchanges of the Australian Securities Exchange Limited. 6 Unquoted Securities Options over Unissued Shares A total of 5,750,000 options over unissued CDIs are on issue. A total of 1,000,000 Warrants over unissued CDIs are on issue. 7 Use of Funds The Company has used its funds in accordance with its initial business objectives. TENEMENT SCHEDULE Project Location Project Cinovec Cinovec 2 Czech Republic Czech Republic 58 

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