Gulf Manganese Corporation Limited Annual Report 2019

Plain-text annual report

A N N UA L R E P O R T 2 0 1 9 For personal use onlyGulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Review of Operations Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Review of Operations Corporate Directory DIRECTORS Craig Munro (Non-executive Chairman) Hamish Bohannan (Managing Director and CEO) Andrew Wilson (Non-executive Director) Tan Hwa Poh (Non-executive Director) REGISTERED AND PRINCIPAL OFFICE T4/152 Great Eastern Highway ASCOT WA 6104 Telephone: (08) 9367 9228 Facsimile: (08) 9367 9229 Website: www.gulfmanganese.com SHARE REGISTRY Automic Registry Services Pty Ltd Level 2/267 St George’s Terrace Perth WA 6000 Telephone: (08) 9324 2099 Facsimile: (08) 9321 2337 AUDITORS Bentleys Audit & Corporate (WA) Pty Ltd London House Level 3 216 St George’s Terrace Perth WA 6000 AUSTRALIAN SECURITIES EXCHANGE Gulf Manganese Corporation Limited shares (GMC) are listed on the Australian Securities Exchange. PT GULF MANGAN GRUP Board of Directors Steven Pragnell - President Director Johanes Susilo - Vice President Director John Pilotti - Director Peter Allen - Director Yusdi Sangadji - Director Robert Ierace - Director Board of Commissioners Raden Fofo Sariaatmadja - President Commissioner Chairoel Jul Naro - Commissioner Craig Munro - Commissioner Andrew Wilson - Commissioner Hamish Bohannan - Commissioner Registered Ofﬁ ce Graha Pena Building, 5th Floor Jl. Piet A Tallo No. 1 Kelurahan Liliba, Kecamatan Oebobo Kupang 85111 East Nusa Tenggara 2 3 3 For personal use onlyGulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Directors Report Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Review of Operations Contents Corporate Directory Managing Director’s Report Review of Operations Directors’ Report Auditor’s Independence Declaration Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Directors’ Declaration Independent Auditor’s Review Report 3 14 16 22 31 32 34 35 36 37 62 63 4 5 For personal use onlyGulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 “I am pleased with the outcomes achieved by the Board and our staff over the course of the year and our focus is now ﬁ rmly on executing a number of crucial milestones this year that have the ability to quickly transform Gulf into a signiﬁ cant producer of premium quality manganese alloy.“ Cra g Munr Craig Munro (Non-executive Chairman)man Chai tiv exe on 6 6 7 For personal use onlyGulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 “Our vision and commitment to establish a world-class manganese smelting operation in Kupang is as resolute as ever and I would like to thank our entire team for their determination and hard work over the past 12 months. Gulf has an incredible opportunity to unlock considerable value over the next 12 months and I look forward to rewarding the support and loyalty of our shareholders.“ Hamish Bohannan (Managing Director and CEO) 8 8 9 For personal use onlyGulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 “W “We have in place a very clear and achievable roadmap to becoming a near-term man manganese alloy producer with dir direct exposure to Indonesia’s pr premium high-grade ore and we are very well positioned t to deliver on its operational objectives this year.“ Andrew Wilson (Non-executive Director) 10 10 11 11 For personal use onlyGulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 nt “Gulf’s ongoing commitment to working closely with the ara people of East Nusa Tenggara has fostered a number of important and long-lasting d relationships and the Board looks forward to sharing future successes with the local communities.“ Tan Hwa Poh (Non-executive Director) 12 12 13 13 For personal use onlyGulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Managing Director's Report Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Managing Director's Report FY 2019 Managing Director’s Report Dear Valued Shareholders, It is my pleasure to be providing you with Gulf’s Annual Report for the 2019 ﬁ nancial year. In the summary below I will revisit a number of the outcomes delivered and challenges faced by the Company during the year in focus and ﬁ nish with a look to our strategies and visions for the current year. The year in review - a challenging, yet progressive 12 months The 2019 ﬁ nancial year presented several challenges from both a corporate and local regulatory perspective, and although frustrating at times, the experience of our Board and management ensured we were able to successfully navigate our way through these issues and emerge with a renewed sense of clarity and determination. As reﬂ ected by our reporting on the ASX platform, our resources were deployed during the year towards achieving three vitally important outcomes – underpinning of the ﬁ nancial position of the Company for future growth, securing our Manganese Concentrate Direct Shipped Ore (DSO) licence and building our supply chain of high-grade manganese ore – and I am pleased to report that considerable progress has been achieved across all fronts. Committed to ensuring long-term funding stability At the time of writing this report, we are well advanced towards securing an important debt ﬁ nancing agreement that would provide the funding capacity to complete construction of our ﬁ rst two smelters in Kupang and commence commercial production of manganese alloy. A look at the NTT mining review and a focus on diversifying ore supply One of the key challenges faced during the year was the 12-month moratorium called on all mining activities in the NTT province following the inauguration in September 2018of Bapak Viktor Bungtilu Laiskodat as the new Governor of NTT. The primary focus of the moratorium, which ends on 13 November 2019, is to allow a regulatory review to be completed into mining practices in the region, hopefully putting an end to previous illegal mining practices. 14 Importantly, Gulf is permitted to purchase manganese ore from approved local suppliers, so our focus has been on diversifying and mitigating future risk within our ore supply chain. I am pleased to conﬁ rm that all local mining groups that we have entered into an ore supply Memorandum of Understanding (MoU) with have obtained the mandatory Clean and Clear Certiﬁ cation to operate in NTT. A strong indication of the local support and willingness to supply high-grade ore to Gulf is that some 22 local miners responded to the granting of our DSO export licence by submitting their Annual Work Plan & Budget (“RKAB”) applications to the Ministry of Energy and Mineral Resources (“ESDM”) to recommence mining operations. We are now working closely with the 17 groups that received their approvals to secure additional high-quality ore supply sources. A strategic move made during the year to further de- risk our ore supply pipeline was the acquisition of the Putra Indonesia Jaya (“PIJ”) high-grade manganese mine in Timor by our Indonesian partners. The underlying value and near-term impact that PIJ can add to the business is signiﬁ cant and over the course of the year our in-country team has been working hard to procure initial ore supply from the mine which will allow commencement of our commercial DSO operations. At the time of writing on-ground activities at PIJ were well advanced with the ﬁ rst parcel of ore scheduled for delivery to Gulf during the month of October. Several additional high-grade manganese mines and stockpiles are also currently being assessed in West Timor and surrounding regions including Sumbawa and Sulawesi, so we expect to see a steady stream of activity reported in respect to ore supply as we approach the end of the calendar year. Gulf Manganese JBoard – L-R Andrew Wilson, Tan Hwa Poh, Craig Munro, Hamish Bohannan and Ian Gregory (Company Secretary) DSO strategy nearing fruition One of the critical outcomes reported during the year was the receipt of our DSO licence from Indonesia’s Ministry of Trade in May 2019, which gave the green light to commence exporting of up to 103,162 tonnes per year of high-grade (+49%) manganese ore. Although we have encountered some delays start to the commercial start-up of our DSO shipments, the magnitude of this opportunity and the value it will deliver to Gulf for the next there years should not be underestimated. As touched on above, a degree of uncertainty in the local regulatory environment has meant it has taken longer to secure a dependable, high-grade supplier of ore, however with supply from the PIJ mine and approved regional miners expected to come online in the near-term we are now ﬁ nally poised to commence DSO shipments. Broadening our horizons – the Timor-Leste opportunity In line with our strategy to de-risk and diversify, the decision was made to acquire a 20% interest in Melbourne-based, Timor-Leste focused manganese explorer Iron Fortune Pty Ltd (“Iron Fortune”). Iron Fortune has already competed a volume of high-quality geological work and established strong relationships with the Government and local stakeholders. Importantly, the operational objectives of the two businesses are well aligned and the ability for Gulf to secure a ﬁ rst mover advantage in this untapped exploration jurisdiction is compelling. We are now working closely with Iron Fortune to develop a clear work plan and I look forward to reporting further Timor-Leste related developments in due course. Future Outlook I am proud of the efforts of our team over the course of the year, highlighted by their willingness to accept a challenge, implement a solution and forge ahead with a steely resolve. Looking ahead, Gulf remains as committed as ever to establishing a world-class manganese smelting operation in Kupang for our supportive shareholders and the people of East Nusa Tenggara (“NTT”). With construction work on the Kupang Smelting Hub Facility standing at approximately 60% complete, the ﬁ nish line is now in sight and several critical pieces that will allow us to ﬁ nish the build are either in place or in the ﬁ nal stages of being secured. The next 12 months will see a great deal of value created for our shareholders as we aim to establish Gulf as a globally signiﬁ cant producer and exporter of premium ferro manganese alloy. I would also like to take this opportunity to sincerely thank our loyal shareholders and supporters for their commitment over the past 12 months and I look forward to repaying your loyalty by delivering on our operational and corporate objectives over the next 12 months. 15 For personal use onlyGulf Manganese Corporation Limited (ACN: 059 954 317) Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Review of Operations Annual Report 2018-19 Review of Operations Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Review of Operations Review of Operations Gulf Manganese Corporation Limited (ASX:GMC) (“Gulf” or “the Company”) is developing a premium reﬁ ned ferromanganese smelting hub in West Timor, Indonesia to produce and sell medium and low carbon ferromanganese alloy. Gulf’s Kupang Smelting Hub facility will contain multiple furnaces built in stages over about ﬁ ve years, targeting the production of a premium quality manganese alloy. At full production, Gulf will aim to produce over 200,000 tonnes per year of manganese alloy. GULF DELIVERS MAJOR MILESTONE WITH SECURING OF DSO LICENCE On 15 May 2019, Gulf’s Indonesian subsidiary PT Gulf Mangan Grup (“GMG”) formally received its manganese concentrate export licence, also known as a Direct Shipped Ore (DSO) Licence from Indonesia’s Ministry of Trade which allows GMG to export up to 103,162 tonnes of high-grade manganese ore per year. GMG’s manganese concentrate export licence is reviewed annually in line with its Annual Work Plan & Budget (“RKAB”) as submitted to the Ministry of Energy and Mineral Resources (“ESDM”). The licence allows Gulf to export screened and washed ore that must average over 49% Manganese. Manganese ore is priced on a dry metric tonne unit (“dmtu”) basis. As of September 2019, ﬁ nal preparations were being undertaken to commence initial ore supply, with ﬁ rst ore expected to be loaded in containers and transported to Tenau Port in Kupang for processing before the end of CY2019. GMG expects monthly exports to commence at 1,000 tonnes per month and ramp up to 10,000 tonnes per month within six months. SMELTER ORE SUPPLY CHANNELS STRENGTHENED The Company has developed a multi-pronged approach in regard to its ore procurement strategy, designed to mitigate supply continuity and quality risks, being • Acquisition of mines, in conjunction with Gulf in-country partners, 66 16 16 • Regional ore supply agreements, with mines located within East Nusa Tenggara (“NTT”), and • Ore supply agreements with mines located in other provinces. Importantly, Gulf can advise that all ore supply partnerships are compliant with the Company’s ‘Clean and Clear’ strategy, which ensures that Gulf partners only with local mining groups who have obtained the mandatory Clean and Clear Certiﬁ cation in accordance with Indonesian Government requirements. Regional (NTT) Ore Supply Agreements Signed A key in-country focus for Gulf has been on establishing ore supply agreements with local miners of high-grade manganese ore to support the near- term commercial production start-up at the Kupang Smelting Hub Facility. With regard to sourcing additional ore, some 22 mines have responded to the granting of our DSO export licence by completing their RKAB applications to the ESDM to recommence mining operations. These mines were forced to close down under Indonesian government’s beneﬁ ciation policy in 2013, which banned the export of untreated ores. Gulf expects to see the productivity of these mines build incrementally over the coming months as production is gradually ramped-up, along with the utilisation of key logistic and warehousing infrastructure. Of these 22 applications, 13 have been approved by ESDM with a further nine in process. Approved RKAB applications are now waiting for ﬁ nal approval from the Provincial Government. Acquisition of High-grade Manganese Mines n In line with the Company’s broader project acquisition strategy, subsequent to the reporting aacq period Gulf successfully vended the Putra Indonesia ppe Iron Fortune represents a fantastic opportunity to not only diversify our supply chain to include sources from neighbouring regions outside of Indonesia, but also to establish a ﬁ rst-mover advantage in what is considered an untapped exploration jurisdiction for high-grade manganese ore deposits. Jaya (“PIJ”) high-grade manganese mine in Timor to its key Indonesian partners. Importantly, the ore produced will be supplied to Gulf’s DSO operations and its smelting operations in Kupang. It is expected that ore supply from PIJ will commence in the last quarter of CY2019. As part of this process led by Steven Pragnell, President Director of Gulf’s Indonesian subsidiary GMG, several other high-grade manganese mines were assessed in West Timor and surrounding regions with due diligence well advanced on several opportunities. Iron Fortune and Gulf Manganese Joint Venture Team – L-R Ian Sinclair, Tan Hwa Poh, Mary Thompson, Craig Munro, Andrew Wilson, Hamish Bohannan Strategic Partnership to De-risk and Solidify Manganese Ore Supply In August 2019, Gulf entered into an agreement to acquire a strategic 20% interest in Iron Fortune Pty Ltd (“Iron Fortune”), a private Australian-based minerals and exploration company focused on Timor-Leste. Upon completion of the due diligence process, Gulf will pay a further A$200.000 and issue A$100,000 worth of shares to secure a 20% interest in Iron Fortune. Under the terms of the agreement, Gulf will pay an initial A$100,000 for exclusivity whilst due diligence is completed and has agreed to work together with Iron Fortune to develop a work plan and strategic direction. We are now working very closely with Iron Fortune to expedite a number of opportunities that have the potential to unlock considerable value in the near-term. 17 Field Work in Timor-Leste Geology of Timor-Leste For personal use onlyGulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Review of Operations Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Review of Operations Construction Progress Review • The ﬁ nancial year began with the arrival of the ﬁ rst two smelters on site at Kupang in July 2018, which was marked with a celebratory ceremony and blessing attended by representatives of Gulf’s key investment partners and Government and community representatives. • Shortly after the arrival of all key smelting components, the installation of equipment commenced onsite along with the establishment of construction infrastructure including site ofﬁ ce, workshop and tool store. • Scope of work for ancillary facilities including the laboratory, hazardous waste management, Health, Safety, Environmental and Security Centre as well as various employee amenity buildings were also ﬁ nalised. KUPANG OPERATIONS PERMIT GRANTED In August 2018, Gulf’s Indonesian subsidiary GMG received its Operations Permit for the Kupang Smelting Hub Facility. The Operations Permit is valid for 30 years for the buying, selling and transporting of manganese ore within Indonesia for smelting, and to conduct overseas sales of ferromanganese alloy in accordance with the provisions of the laws and regulations in Indonesia. KUPANG SMELTING HUB FACILITY - FOUNDATIONS SET FOR COMPLETION During the year in focus, the Company made the decision to scale back construction activities while extra emphasis was placed on securing the requisite funding to ﬁ nish construction. In addition, the Company has also ramped up its efforts to lock away diversiﬁ ed supply channels of high-grade ore to underpin future production. Considerable efforts were made during the early stages of the ﬁ nancial year to advance construction of the Kupang Smelting Hub, with the ﬁ rst two smelters at approximately 60% completion as of ﬁ nancial year end. At the time of writing, positive discussions are continuing with several potential offtake partners and debt providers to secure the requisite capital to fully fund the completion of the Kupang Smelting Hub Facility construction program. It is anticipated that construction activity will recommence in the 2019 calendar year, with commissioning of the ﬁ rst two smelters remaining on target for H1 CY2020. MANGANESE APPLICATIONS AND MARKET OVERVIEW Manganese is the fourth-most used metal in terms of tonnage. Approximately 90% of all manganese consumed is used in the production of steel, primarily due to its properties as a deoxidizing and alloying element. Other uses include batteries, aluminium beverage cans, fertilisers, health vitamins, water puriﬁ cation, gasoline additives and colouring glass. Mined as an oxide ore, manganese is converted to ferromanganese, which contains 74-82% manganese, and can be classiﬁ ed into three main subgroups; high carbon (>2% carbon), medium carbon (1.0-2.0% carbon) and low carbon (<1% carbon). The higher manganese content and lower impurity Figure 1: Kupang Smelter Hub Construction Site Figure 2: Smelters and Construction Site – Kupang Smelting Hub at Bolok Industrial Estate 18 19 For personal use onlyGulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Review of Operations Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Review of Operations content of low carbon and medium carbon ferromanganese achieves premium pricing over standard high carbon ferromanganese alloys. Demand for manganese globally has grown substantially this century as global steel production increases, and in the long term the ferromanganese price has continued to trend upward. In May 2019 GMG received its manganese concentrate export licence or DSO, allowing the export sale and shipment of >49% manganese under the provisions in Indonesian regulations allowing for smelting and processing companies to sell manganese concentrate during the construction phase while building the smelters. MANGANESE IN INDONESIA Indonesian manganese ore is one of the highest grade manganese ores available in the world, with a unique combination of very high manganese content, above 49%, combined with low iron and phosphorous. These qualities are in high demand from manganese alloy producers worldwide particularly in China, Korea and India. Indonesian legislation, however, does not allow for the export of ‘untreated’ ore. As a result of the regulations under the Indonesian Mining Law of 2009, that were implemented in 2013 and 2014, the mining and export of manganese deposits in Indonesia largely ceased at that time. It is Gulf’s intention to enable many of Indonesia’s high-grade manganese mines to restart production through the development of the Kupang Smelting Hub Facility, which once in production will produce high purity, low and medium carbon ferromanganese alloys to fulﬁ l international demand from high-grade and specialty steel producers. The Company is currently assessing a number of mines in West Timor and surrounding regions including Sumbawa and Sulawesi. As part of this due diligence process, Gulf is ensuring that the concentrate quality meets its DSO export permit requirements with grades greater than 49% manganese content and that the mines have Clean and Clear certiﬁ cation in accordance with Indonesian Government requirements. MANGANESE PRICES Manganese ore prices remained strong over the 2019 ﬁ nancial year with Fast Markets 44% manganese ore price index staying above US$6.00 per dmtu up until June 2019 when it fell just below to US$5.90 per dmtu. Ore pricing has continued to come under since the end of the ﬁ nancial year with prices stabilising at $5.40 per dmtu CIF China in September. Medium and low carbon prices also remained stable at strong levels throughout the period, with market in the USA and Europe being the largest markets for reﬁ ned alloys. The Kupang Facility is ideally located to supply key global markets with direct access to international container lines and bulk cargo trade routes on its doorstep. The below graph shows the value proposition of the project and value differential between selling manganese ore and the reﬁ ned alloys of low carbon and medium carbon ferromanganese alloys. Figure 3: Low Carbon FeMn Project Value Proposition 20 CORPORATE ACTIVITY Acuity Capital share placements In August 2018 Gulf placed 100,000,000 shares at an issue price of 1.26c to Acuity Capital for a total raise of $1,260,000. On 13 March 2019, Gulf placed 62,500,000 GMC shares at an issue price of 0.8c to Acuity Capital for a total raise of $500,000. As part of the A$3.6 million Placement in May 2019, Gulf placed 45,000,000 shares at 0.7c per share to Acuity Capital for a total raise of A$315,000. The above placements were made in accordance with the Controlled Placement Agreement (“CPA”) with Acuity Capital announced on 31 January 2018, with the funds deployed towards general purposes and working capital. A$2.3 million raised through conversion of 0.5c Listed Options On 30 April 2019, the Company advised that strong shareholder support resulted in 463,364,804 GMCO unlisted options (representing ~25% of total listed options on issue) being exercised, raising in excess of A$2.3 million. The GMCO listed 0.5c options expired on 21 April 2019. Placement raised A$3.6 million to advance Kupang Smelting Hub In May 2019, the Company raised A$3.0 million (before costs) via the issue of 540,000,000 shares at $0.005 per share and 45,000,000 shares at $0.007 per share to sophisticated investors and Acuity Capital. Funds received from the Placement were deployed towards the start-up of Direct Shipping Ore operations, advancing the development of the Kupang Smelting Hub Facility and for general working capital purposes. PT Jayatama Tekno Sejahtera and Singco Cornerstone Investments As originally advised on 12 March 2018, the Company entered into a series of transactions with Indonesian based cornerstone investor PT Jayatama Tekno Sejahtera (“JTS”) and its subsidiary, PT Jayatama Global Investindo (“JGI”), and its related entities to fund up to approximately A$15 million for the construction and commissioning of the ﬁ rst two smelters at the Kupang Smelting Facility in West Timor, Indonesia. On 2 January 2019, Gulf reached an agreement to restructure the JTS debt facility and respective investments in Gulf and GMG. JGI agreed to restructure its existing A$6 million Convertible Note with GMG. The Convertible Note converted into 25.1% of the issued share capital of GMG and ~A$5 million loan which will be repayable from the proﬁ ts from commercial production of the Kupang Smelting Hub Facility. Following the conversion of the Convertible Note, Gulf holds a 74.9% interest in GMG. As part of the restructure, JGI will also receive a 2.5% net royalty on alloy sales from GMG’s ﬁ rst two smelters. Final conversion of the JGI Convertible Note and subsequent issue of shares in GMG to JGI is subject to approval from the Indonesian Ministry of Energy and Mineral Resources. In addition to restructuring the existing funding agreement, JGI agreed to invest a further A$6 million into Gulf at 1.5 cents per share, each with a free attaching 0.5 cent listed option on a one for one basis, expiring 21 April 2019. In addition, Gulf signed a subscription agreement with a Singapore based ore and alloy company (“Singco”) for an additional A$2 million investment into Gulf at 1.5 cents with a free attaching 0.5 cent listed option on a one for one basis, expiring 21 April 2019 The investments were undertaken in two tranches with the second tranche requiring Shareholder Approval, which was received at a general meeting on 28 February 2019. The ﬁ rst tranche of the new JGI and Singco investments was received on 15 January, with A$3.6 million received by the Company. The funds received from the investors fully repaid A$2.5 million owed under the JTS standby facility with remaining funds used towards construction of the Kupang smelter. As part of the ﬁ rst tranche completion, Eighteen Blue Investments Pty Ltd (“EBI”) converted its existing A$2 million of convertible notes into 133,333,333 shares in Gulf at a conversion price of 1.5 cents per share. At the Company’s General Meeting on 28 February, the relevant Resolutions pertaining to the Second Tranche of A$4.4m of the additional investments totalling A$8m were approved. The cut-off date for Tranche 2 (“T2”) of subscription agreements between JGI and Singco was 30 April 2019 and that date passed without all of the conditions in the subscription agreements being satisﬁ ed or waived, so T2 Completion did not occur, and Gulf terminated the agreements. Cornerstone Investment Overview On 28 August 2018, the Company signed a term sheet for a cornerstone investment into the Company of ~A$10.8 million from Jakarta based businessman, Bapak Dato Dr Low Tuck Kwong, founder and 21 For personal use onlyGulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Review of Operations Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Directors' Report President Director of integrated coal group PT Bayan Resources TBK. In October 2018, Dr Low advised he would not proceed with the proposed cornerstone investment as a result of the moratorium on all mining activities in the NTT province announced by the Provincial Governor. Change of Registered Ofﬁ ce and Principal Place of Business In September 2018 the Company’s registered ofﬁ ce and principal place of business changed to: T4/152 Great Eastern Highway Ascot WA 6104 Tel: (08) 9367 9228 Fax: (08) 9367 9229 Non-executive Director Appointment Following the resignation of Sam Boon Beng Lee (appointed 21 July 2018, resigned effective 20 November 2018), Tan Hwa Poh was appointed as a Non-executive Director of the Company. Tan works as a private business consultant, bridging businesses between Singapore, Indonesia, Thailand and Hong Kong in a variety of industries, including oil and, gas and agriculture. Company Secretary and Chief Financial Ofﬁ cer Appointments Due to increasing ﬁ nance and governance requirements, the decision was made subsequent to the reporting period to separate the ﬁ nance and secretarial roles to strengthen the Company’s professional resource base. As a result, Robert Ierace retired from the position of Company Secretary to focus on his role as Chief Financial Ofﬁ cer of Gulf Manganese Corporation Limited. Ian Gregory was appointed as Company Secretary, having previously acted as Gulf’s Company Secretary between 2 July 2018 and 20 November 2018. Matters subsequent to the end of the ﬁ nancial year The following occurred subsequent to the end of the period: • On 4 July 2019, the Company successfully vended the PIJ high-grade manganese mine in Timor to its key Indonesian partners. • On 2 August 2019, Gulf entered into an agreement to acquire a strategic 20% interest in Iron Fortune Pty Ltd (“Iron Fortune”), a private Australian- based minerals and exploration company focused on Timor-Leste. The acquisition signiﬁ cantly diversiﬁ es and de-risks high-grade manganese ore supply chain through farm- in exposure to Timor-Leste exploration areas prospective for high-grade manganese. • Ian Gregory was appointed Company Secretary on 5 August 2019, replacing Robert Ierace who retired from the position to focus on his role as Chief Financial Ofﬁ cer. • Managing Director Hamish Bohannan presented to key stakeholders in Dili, Timor-Leste during September 2019, forming part of Gulf’s strategy to establish a ﬁ rst to market exploration opportunity in Timor-Leste. Tenement Holdings Lease Locality Project Lease Status Grant Date Transfer Date Area Managing Company Registered Holder EL10335 NT Wollogorang Granted 15/08/2002 02/09/2019 215 Blks EL29898 NT Debbil Debbil Creek Granted 15/08/2002 28/09/2018 55 Blks Redbank Operations Pty Ltd Redbank Operations Pty Ltd Laramide Resources Ltd Laramide Resources Ltd The transfers out of the above tenements originally held by Gulf Copper Pty Ltd were effected during the 2018/2019 ﬁ nancial year and as such, Gulf Copper no longer holds any tenements. Directors' Report The Directors present the following report on the consolidated entity consisting of Gulf Manganese Corporation Limited and the entity it controlled at the end of, or during, the ﬁ nancial year ended 30 June 2019. The names of each person who has been a Director during the year and continues in ofﬁ ce to the date of this report are: Craig Munro (Non-executive Chairman) Hamish Bohannan (Managing Director) Andrew Wilson (Non-executive Director) Tan Hwa Poh (Non-executive Director) - Appointed 20 November 2018 Names, qualiﬁ cations, experience and special responsibilities Craig Munro CPA (Non-executive Chairman) Craig is a Certiﬁ ed Practicing Accountant with over 40 years’ experience in the mining industry. He has been both an executive director and non-executive director of a number of listed companies since 1990. Craig was recently Chairman of Bathurst Resources Limited, a New Zealand coal mining company, Executive Vice President and CFO at Anvil Mining Limited that had copper operations in the Democratic Republic of Congo and Executive Director Finance at Aquarius Platinum Limited involved in Platinum mining and processing in South Africa. Other Current ASX Directorships Former ASX Directorships in the Last Three Years None None Hamish Bohannan MBA (Managing Director) Hamish holds an Honours Degree in Mining Engineering from the Royal School of Mines UK and an MBA from Deakin University, Victoria. He has extensive corporate and operational experience in public companies within Australia and overseas in the capacity of Managing Director or CEO with ASX, TSX and AIM listed groups. Other Current ASX Directorships Former ASX Directorships in the Last Three Years None None Andrew Wilson, B.Com, FAICD, AusIMM (Non-executive Director) Andrew has a Bachelor of Commerce (Marketing) and a Masters of Law, with over 30 years of legal experience and 16 years with BHP in various legal, risk and commercial roles. In addition, Andrew has also been a director of various listed companies, including Herald Resources Ltd, Robust Resources Ltd, PT Resource Alam Indonesia TBK, and director or chairman of various not for proﬁ t organisations. From 2000 until 2007, Andrew served as the President Director of BHP Billiton Indonesia, based in Jakarta. Andrew was also a Director of the Indonesian Mining Association and has established strong connections in the region and speaks the local language ﬂ uently. He is a Fellow of the Australian Institute of Company Directors, a member of the Risk Management Institution of Australasia and AusIMM. Other Current ASX Directorships Former ASX Directorships in the Last Three Years None None Tan Hwa Poh (Non-executive Director) - Appointed 20 November 2018 Tan Hwa Poh works as a private business consultant essentially bridging businesses between Singapore, Indonesia, Thailand and Hong Kong. His strengths lie in liaising with the respective country’s government departments and embassies, helping to reduce the effect of “red tape” and bringing together the business and government sectors to create efﬁ cient and lasting partnerships. 22 23 For personal use onlyGulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Directors' Report Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Directors' Report Other Current ASX Directorships Former ASX Directorships in the Last Three Years None None Sam Lee (Non-executive Director) – Appointed 21 July 2018 & resigned 20 November 2018 Sam has over 25 years of senior management experience in directorship roles throughout Australia and Asia. In his previous role as Director – Ore Supply with PT GMG, Sam played a vital role during the initial phase of the smelter hub construction, with key responsibilities including setting up the geology team and identifying and establishing contracts with manganese miners to supply ore to the Kupang smelting hub. Other Current ASX Directorships Former ASX Directorships in the Last Three Years None None Robert Ierace, BCom, CA (Chief Financial Ofﬁ cer) - Appointed 2 October 2018 Robert is a Chartered Accountant and Secretary with over 20 years’ experience, predominantly with ASX and AIM listed resources, oil and gas exploration and production companies. He has extensive experience in ﬁ nancial and commercial management including experience in corporate governance, debt and capital raising, risk management, treasury management, insurance and corporate acquisitions and divestment. Robert holds a Bachelor of Commerce degree from Curtin University, a Graduate Diploma in Applied Corporate Governance from the Governance Institute of Australia and a Graduate Certiﬁ cate of Applied Finance and Investment from the Securities Institute of Australia. Robert has previously served in senior ﬁ nancial roles for various resource and oil and gas companies, including Bullseye Mining Limited, Key Petroleum Limited, Amadeus Energy Limited, Kimberley Diamond Company NL and Rio Tinto Iron Ore. Robert previously acted as Gulf’s Company Secretary between 20 November 2018 and 5 August 2019. Ian Gregory, BBus, FGIA, FCIS, FFIN, MAICD (Company Secretary) - Appointed 5 August 2019 Ian has over 30 years’ experience in the provision of company secretarial, governance and business administration services with listed and unlisted companies. Ian holds a Bachelor of Business degree from Curtin University and is a Fellow of the Governance Institute of Australia, the Financial Services Institute of Australia and a Member of the Australian Institute of Company Directors. Ian currently consults on company secretarial and governance matters to a number of listed and unlisted companies and is a past Chairman of the Western Australian Branch Council of Governance Institute of Australia. Ian previously acted as Gulf’s Company Secretary between 2 July 2018 and 20 November 2018. Leonard Math, BCom, CA (Company Secretary) – Resigned 4 July 2018 Leonard is a Chartered Accountant with more than 13 years of resources industry experience. He previously worked as an auditor at Deloitte and is experienced with public company responsibilities including ASX and ASIC compliance, control and implementation of corporate governance, statutory ﬁ nancial reporting and shareholder relations. Directors’ interests in shares and options At the date of this report, the relevant interest of each Director in the shares and options of the Company are: Director Shares Options over ordinary shares Direct Indirect Direct Indirect Performance Rights Craig Munro 13,583,333 19,333,333 - 10,000,000 13,666,667 Hamish Bohannan 28,832,016 34,091,667 30,000,000 - 39,583,251 Andrew Wilson 850,000 29,833,333 Tan Hwa Poh 152,083,333 - - - 10,000,000 9,700,000 - - Principal activity The principal activity of the Company is developing an ASEAN focused manganese alloying enterprise based in West Timor. Review of operations and results Details of the operations of the Company are set out in the Review of Operations on page 16. The Company incurred an after tax operating loss of $10,697,593 (2018: $7,467,562). Dividends No dividend has been paid or recommended for the current year. Signiﬁ cant changes in the state of affairs During the year, the Company reached an agreement with Indonesian-based cornerstone investor PT Jayatama Tekno Sejahtera (“JTS”) and its subsidiary, PT Jayatama Global Investindo (“JGI”), to restructure the JTS debt facility and respective investments in the Company and its Indonesian subsidiary GMG. The JGI A$6 million Convertible Note with GMG was converted into 25.1% of the issued share capital of GMG and an approximately A$5 million loan which will be repayable from the proﬁ ts from commercial production of the Kupang Smelting Hub Facility. Following the conversion of the Convertible Note, the Company now holds a 74.9% interest in GMG. Details of the Company’s non-controlling interest is set out in Note 24. Other than the above, there have been no signiﬁ cant changes in the state of affairs of the Group to the date of this report. Upon completion of the due diligence process, Gulf will pay a further A$200,000 and issue A$100,000 worth of shares to secure a 20% interest in Iron Fortune. Full terms and conditions are outlined in the ASX announcement lodged on 2 August 2019. Other than as disclosed above, there are no other signiﬁ cant events that have occurred after the reporting period. Meetings of Directors The numbers of meetings of the Company’s Board of Directors held during the year ended 30 June 2019, and the numbers of meetings attended by each Director were: Board Meetings Audit Committee Meetings Name of Director Number eligible to attend Number attended Number attended Craig Munro Hamish Bohannan Andrew Wilson Tan Hwa Poh Sam Lee 6 6 6 2 4 6 6 6 2 3 2 2 2 1 1 Likely developments and expected results of operations The Company has established an Audit and Risk Committee that comprises the whole Board. Audit and Risk Committee Likely developments in the operations of the Company are set out in the Review of Operations on page 16. Matters subsequent to the end of the ﬁ nancial year On 2 August 2019, the Company announced it had entered into an agreement to acquire a strategic 20% interest in Iron Fortune Pty Ltd (“Iron Fortune”), a private Australian-based minerals and exploration company focused on Timor-Leste. Under the terms of the agreement, Gulf will pay an initial A$100,000 for exclusivity whilst due diligence is completed and has agreed to work together with Iron Fortune to develop a work plan and strategic direction. Hamish Bohannan will also be appointed to the Board of Iron Fortune in the position of Non-executive Director. Remuneration committee The Company has established a remuneration committee that comprises the Non-executive Chairman and one Non-executive Director. The Remuneration Committee met twice during the year. Environmental regulations The Company’s current operations in Indonesia do not include mining and have limited exposure to the environmental regulations. No breaches of any environmental restrictions were recorded during the ﬁ nancial year. Director’s beneﬁ ts Since the date of the last Directors’ Report, no Director of the Company has received, or become 24 25 For personal use onlyGulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Directors' Report Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Directors' Report A Remuneration policy The objective of the Company’s policy is to provide remuneration that is competitive and appropriate. The Board ensures that executive reward satisﬁ es the following key criteria for good reward governance practices: (i) (ii) competitiveness and reasonableness; acceptability to shareholders; (iii) transparency; and (iv) capital management. Directors’ and executives’ remuneration The policy of the Company is to pay remuneration of Directors in amounts in line with employment market conditions relevant in the mining industry. Fees and payments to non-executive directors reﬂ ect the demands which are made on, and the responsibilities of, the directors. Non-executive Directors’ fees and payments are reviewed annually by the Board. The Chairman’s fees are determined independently to the fees of Non-executive Directors based on comparative roles in the external market. The Constitution of the Company provides that Non-executive Directors may collectively be paid as remuneration for their services a ﬁ xed sum not exceeding the aggregate maximum sum per annum determined by the Company in a general meeting. The current aggregate maximum is $500,000. The table below sets out summary information about the Consolidated Entity’s earnings and movements in net asset for the last 5 years: entitled to receive, (other than a remuneration beneﬁ t included in Note 17 to the ﬁ nancial statements or remuneration report), a beneﬁ t because of a contract that involved: (a) the Director; or (b) a ﬁ rm of which the Director is a member; or (c) an entity in which the Director has a substantial ﬁ nancial interest (during the year ended 30 June 2019, or at any other time) with the Company; or (d) an entity that the Company controlled, or a body corporate that was related to the Company, when the contract was made or when the Director received, or became entitled to receive, the beneﬁ t (if any). Remuneration report (audited) The information provided in this remuneration report has been audited as required under Section 308 (3C) of the Corporations Act 2001. During the ﬁ nancial year the Key Management Personnel and Directors (see page 22 for details about each Director and Key Management Personnel) are as follows. Craig Munro Non-executive Chairman Hamish Bohannan Managing Director Andrew Wilson Non-executive Director Tan Hwa Poh Non-executive Director (appointed 20 November 2018) Sam Lee Non-executive Director (resigned 20 November 2018) Robert Ierace Chief Financial Ofﬁ cer (appointed 2 October 2018) Paul Robinson Chief Operating Ofﬁ cer (resigned 1 April 2019) Leonard Math CFO & Company Secretary (resigned 4 July 2018) 30-Jun-19 $ 30-Jun-18 $ 30-Jun-17 $ 30-Jun-16 $ 30-Jun-15 $ Revenue 47,748 112,761 1,100 - 150,043 (10,697,593) (7,467,562) (5,363,308) (2,903,474) (2,594,559) 16,709,359 9,736,238 8,636,614 841,174 (836,429) (0.32) (0.31) (0.39) (0.94) (4.97) Net proﬁ t /(loss) before tax Net asset/ (liability) Basic and diluted loss per share (cents) 26 Performance based remuneration During the year, 20,175,000 performance rights were granted to Directors. Director Craig Munro Hamish Bohannan Andrew Wilson TOTAL No. Fair value of performance rights granted 4,500,000 13,125,000 2,550,000 20,175,000 $40,500 $118,125 $22,950 $181,575 Refer to Note 13 for further details of the performance rights. Voting and comments made at the Company’s 2018 Annual General Meeting At the 2018 Annual General Meeting, the Company received 96% votes in favour of the adoption of its remuneration report and did not receive any speciﬁ c feedback at the AGM or throughout the year on its remuneration practices. B Details of remuneration Details of the remuneration of the Directors, the Key Management Personnel of the Company (as deﬁ ned in AASB 124 Related Party Disclosures) and speciﬁ ed executives of the Company are set out in the following table: Short–term beneﬁ ts Cash salary and fees Bonus Non- monetary beneﬁ ts Post– employment beneﬁ ts Super- annuation Long-term beneﬁ ts Share-based payments Total Long service leave Termination beneﬁ ts Options, Shares & Performance Rights % share based payments Directors $ $ $ $ $ $ $ % $ Craig Munro 2019 2018 137,738 92,390 - - Hamish Bohannan 2019 2018 Andrew Wilson 344,597(3) 104,825 244,936 2019 2018 87,083 60,000 - - - Tan Hwa Poh (appointed on 20 November 2018) 2019 2018 49,583 - - - Sam Lee(1) (resigned on 20 November 2018) 2019 2018 25,789 - - - - - - - - - - - - - 13,085 7,610 35,338 23,302 - - - - - - - - - - - - - - - - - - - - - - - - - - 95,971 38.89% 246,794 320,000 76.19% 420,000 50,227 9.39% 534,987 1,000,000 78.85% 1,268,238 9,758 10.07% 96,841 192,000 76.19% 252,000 168,750 77.29% 218,333 - - - 35,624 58.00% 61,413 - - - 27 For personal use onlyGulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Directors' Report Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Directors' Report Other Key Management Personnel F Key Management Personnel shareholdings - - - - - - 160,731 - Directors/ Executives Balance at the beginning of the year Share movement during the year Held at Resignation Balance at end of Year 53,161 41,976 40.95% 102,502 Hamish Bohannan 73,823,600 (1,205,510) Craig Munro 11,999,999 20,916,667 Robert Ierace (appointed on 2 October 2018) 2019 2018 146,786 - - - Leonard Math(2) (resigned on 4 July 2018) 2019 2018 3,161 161,602 - - Paul Robinson (resigned on 1 April 2019) 2019 2018 134,642 132,771 - - Total Remuneration 2019 2018 929,379 104,825 691,699 - - - - - - - - - 13,945 - 4,204 15,352 - 12,613 66,572 58,877 - - - - - - - - - - - 236,100 57.16% 413,054 129,701 49.06% 264,343 358,455 71.14% 503,839 53,161 532,007 31.55% 1,685,944 - 2,106,555 73.73% 2,857,131 (1) Mr Lee had 600,000 Performance Rights vested during the ﬁ nancial year (post his resignation date) which related to the 2017/2018 year. (2) Mr Math had 3,500,000 Performance Rights vested during the ﬁ nancial year (post his resignation date) which related to the 2017/2018 year. (3) This ﬁ gure includes an annual leave payout totalling $34,094. C Service agreements The Company has an Executive Service Agreement with Hamish Bohannan for his role as Managing Director and Chief Executive Ofﬁ cer. Hamish will be remunerated at an annual salary of $350,000 inclusive of statutory superannuation with a three months’ termination notice period. The Company has an Executive Service Agreement with Robert Ierace for his role as Chief Financial Ofﬁ cer. Robert will be remunerated at an annual salary of $220,000 inclusive of statutory superannuation with a three months’ termination notice period. uc cch uSn Non-executive Directors receive a letter of appointment which contains key terms to their appointmen appointment. Such terms include the term in mr appointme accordance with the Constitution of the Company, sn accordan time commitment expected, role, standards of e time comm conduct and cessation of ofﬁ ce. The Non-executive e f on Directors receive a remuneration package of $7,083 o $ re Director per month with the Chairman receiving $12,500 per 50 0 p month inclusive of statutory superannuation. yott month emi tassecd ice ethtwht sucn T ap v nn mrea ahC Ne k gn eg $1 at ot e ad o fo at ce e cex tfo ps ot na pe eh cﬁ io y b aashd pme ﬁneeb Andrew Wilson is employed by Kesempatan Pty Ltd d L y P ta deo Andrew nsoilWw (“KPL”) and has a beneﬁ cial interest in KPL. Under nd er U KP L ) ( an Agreement with the Company, KPL provides the s t h vid ro de nmemeer oC an Ag services of Andrew as a Non-executive Director of o f o noN ec Dir the Company. the C ynampmCo pa pm se in s L KP tiv e thi aw iai pm ednAfo te yn cu xe Termination beneﬁ ts The Company is not liable for any termination beneﬁ ts on termination of the current Executive or Non-executive Directors or Key Management Personnel other than payment of a period of notice on termination where applicable. D Share-based compensation Options and Performance Rights granted to Directors and Ofﬁ cers There were no unlisted options granted to Directors and Ofﬁ cers. Please refer to Note H below for performance rights granted to Directors and Ofﬁ cer during the year. Shares issued on exercise of unlisted options There were no unlisted options exercised during the ﬁ nancial year. E Additional information Options granted to Directors and Ofﬁ cers carry no dividend or voting rights. ooneae There are no other service agreements other than n Ther disclosed above. di e.voabd slscd ga eem sereh ecv nts er he en th ot a - - - - 32,916,666 72,618,090 30,683,333 152,083,333 Andrew Wilson 16,333,333 14,350,000 Tan Hwa Poh 133,333,333 18,750,000 Sam Lee 87,019,047 (16,243,421) 70,775,626 Robert Ierace - 1,025,886 - 1,025,886 Paul Robinson 2,175,400 2,200,000 4,375,400 Leonard Math 2,000,000 - 2,000,000 - - G Key Management Personnel option holdings Directors/ Executives Balance at the beginning of the year Option movement during the year Held at Resignation Balance at end of Year Craig Munro 12,000,000 (2,000,000) Hamish Bohannan 58,435,400 (13,435,400) Andrew Wilson 12,000,000 - Tan Hwa Poh 200,000,000 (200,000,000) Sam Lee Robert Ierace 85,385,714 - - - Paul Robinson 3,263,100 (3,263,100) - - - - 85,385,714 - - Leonard Math 5,000,000 - 5,000,000 10,000,000 45,000,000 12,000,000 - - - - - 28 28 29 For personal use onlyGulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Directors' Report Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Directors' Report H Performance Rights awarded, vested and lapsed during the year The table below discloses the number of performance rights granted, vested or lapsed during the year. Performance rights do not carry any voting or dividend rights, and can only be exercised once the vesting conditions have been met. Financial year Award date Rights awarded during the year (No.) Fair value per option at award date ($) Vesting date Exercise price Expiry date No. vested during year No. lapsed during year Value of options granted during the year(1) ($) Value of options exercised during the year (No.) Craig Munro 2019 4,500,000 28 Feb 2019 0.009 In 3 tranches Hamish Bohannan 2019 13,125,000 28 Feb 2019 0.009 In 3 tranches Andrew Wilson 2019 2,550,000 28 Feb 2019 0.009 In 3 tranches Sam Lee 2019 600,000 7 March 2019 0.007 In 3 tranches Leonard Math 2019 1,800,000 7 March 2019 0.007 In 3 tranches Paul Robinson 2019 6,600,000 7 March 2019 0.007 In 3 tranches - - - - - - 7 March 2022 1,500,000 7 March 2022 4,375,083 7 March 2022 850,000 7 March 2022 600,000 7 March 2022 1,800,000 7 March 2022 2,200,000 - - - - - - 40,500 13,500 118,125 39,376 22,950 7,650 4,200 4,200 12,600 12,600 46,200 15,400 (1) Determined at the time of grant per AASB 2. For details on the valuation of the options, including models and assumptions used, please refer to Note 13. I Other Transactions with Key Management Personnel and their related parties Andrew Wilson is employed by Kesempatan Pty Ltd (“KPL”) and has beneﬁ cial interest in KPL. Under an Agreement with the Company, KPL provides the services of Andrew as a Non-executive Director of the Company. During the year, KPL was paid $87,083 (2018: $60,000) for the Non-executive Director services provided Andrew. During the period, KPL also invoiced the Company $101,860 for services in leading the negotiation and resolution of a dispute and a restructure that was in addition to the scope of Andrew’s services as a Non-executive Director. There is no other additional information other than the information disclosed above. This is the end of the audited remuneration report. Shares under option At the date of this report, unissued ordinary shares of the Company under option are: Expiry date 31-Dec-20 31-Dec-20 5-Sep-21 Exercise price Number of options Vested and exercisable $0.03 $0.02 $0.02 25,000,000 25,000,000 74,000,000 124,000,000 Yes Yes Yes When exercisable, each option is convertible into one ordinary share. 30 Performance Rights Performance rights on issue at the date of this report: Number 18,000,000 16,000,000 31,500,001 6,725,083 6,725,083 1,500,000 Exercise price $ N/A N/A N/A N/A N/A N/A Expiry date 28/11/2019 28/11/2019 Vested and exercisable Yes Yes 31/12/2019 No - 20/12/2020 N/A N/A N/A No - 5/3/2021 No - 5/3/2022 No - 5/3/2022 Directors/Employees Directors Employees Directors Directors Directors Employees Convertible notes Non-audit services At the date of this report, there were no convertible notes outstanding (2018: 133,333,433). Indemniﬁ cation There are indemnities and insurances for the Directors in regard to their positions. These insure and indemnify the Directors including former Directors against certain liabilities arising in the course of their duties. The Directors have not disclosed the amount of the premiums paid as such disclosure is prohibited under the terms of the policies. Proceedings on behalf of Company No person has applied for leave of Court under section 237 of the Corporations Act 2001 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. There were no non-audit services provided for the ﬁ nancial year (2018: nil). The Auditor’s remuneration is disclosed in Note 22. Auditor independence declaration A copy of the Auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 31. Signed in accordance with a resolution of the Directors and on behalf of the board by: Craig Munro Non-executive Chairman Perth, Western Australia 27 September 2019 31 For personal use onlyGulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Auditor Independence Declaration Auditor Independence Declaration Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Consolidated Statement of Proﬁ t or Loss and Other Comprehensive Income Consolidated Statement of Proﬁ t or Loss And Other Comprehensive Income For the Year Ended 30 June 2019 To the Board of Directors Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 As lead audit Partner for the audit of the ﬁ nancial statements of Gulf Manganese Corporation Limited for the ﬁ nancial year ended 30 June 2018, I declare that to the best of my knowledge and belief, there have been no contraventions of: • the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and • any applicable code of professional conduct in relation to the audit. Yours faithfully BENTLEYS Chartered Accountants CHRIS NICOLOFF CA Partner Dated at Perth this 27th day of September 2019 Continuing operations Interest income Other income Foreign exchange gains Director and employee beneﬁ ts Administrative expenses Legal fees Professional fees Settlement expenses Amortisation expense Depreciation expense Loss on sale of ﬁ xed assets Insurance expense Exploration and evaluation expenses Share based payments Foreign exchange losses Loss on sale of investments Finance costs Loss before income tax from continuing operations Income tax beneﬁ t/(expense) 2018 $ 41,235 71,526 164,610 (1,706,016) (1,510,409) (717,186) (309,137) (93,384) (51,470) (34,364) (6,260) (149,133) (4,538) Note 2(a) 2(b) 2019 $ 29,447 18,301 8,335 (3,739,329) (1,756,395) (574,310) (983,230) 2(c) (1,500,000) - (62,894) - (141,681) (2,613) 7 13 6 2(d) 3 (938,934) (3,079,751) - (287,469) (766,821) - - (83,285) (10,697,593) (7,467,562) - - Net loss after tax (10,697,593) (7,467,562) Other comprehensive loss for the year, net of tax Exchange differences on translation of foreign operations - - 622,157 (454,596) Total comprehensive loss for the year (10,075,436) (7,922,158) 32 33 For personal use onlyGulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Consolidated Statement of Proﬁ t or Loss and Other Comprehensive Income Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Consolidated Statement of Financial Position Loss for the year attributable to: Owners of the parent Non-controlling interest Total comprehensive loss Owners of the parent Non-controlling interest Basic and diluted loss per share Note 24 24 15 2019 $ 2018 $ (10,022,391) 7,467,562 (675,202) - (10,697,593) (7,467,562) (9,382,739) (692,697) 7,922,158 - (10,075,436) (7,922,158) (0.32) (0.31) The above Consolidated Statement of Proﬁ t or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes. Consolidated Statement of Financial Position For the Year Ended 30 June 2019 Current assets Cash and cash equivalents Trade and other receivables Other assets Total current assets Non-current assets Plant and equipment Other assets Non-current assets Total assets Current liabilities Trade and other payables Provisions Borrowings Total current liabilities Non-current liabilities Borrowings Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Parent equity Non-controlling interest Total equity Note 4 5 6 7 6 8 9 10 10 11 12 14 24(b) 2019 $ 3,972,085 33,900 76,242 4,082,227 2018 $ 4,213,499 111,450 537,818 4,862,767 21,163,202 470,832 21,634,034 14,782,964 610,103 15,393,067 25,716,261 20,255,834 3,858,605 33,824 - 3,892,429 5,114,473 5,114,473 2,963,421 41,157 7,515,018 10,519,596 - - 9,006,902 10,519,596 16,709,359 9,736,238 55,790,732 3,257,228 (41,583,225) 17,464,735 (755,376) 16,709,359 38,942,128 8,616,377 (37,822,267) 9,736,238 - 9,736,238 34 35 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. For personal use only Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Consolidated Statement of Changes in Equity Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Consolidated Statement of Cash Flows Consolidated Statement of Cash Flows For the Year Ended 30 June 2019 Cash ﬂ ows from operating activities Other receipts Payments to suppliers and employees Interest received Interest paid Note 2019 $ 2018 $ 18,301 21,526 (5,541,593) (2,920,811) 29,447 (585,221) 41,235 (62,397) Net cash ﬂ ows used in operating activities 4 (6,079,066) (2,920,447) Cash ﬂ ows from investing activities Purchase of property, plant and equipment Proceeds from sale of tenements Payments for construction of plant and project development Payments for mining deposits Receipt of security deposit funds (90,846) 715,820 (221,293) 50,000 (5,462,757) (10,217,933) (673,368) 132,054 (515,871) - Net cash ﬂ ows used in investing activities (5,379,097) (10,905,097) Consolidated Statement of Changes in Equity For the Year Ended 30 June 2019 Note Issued capital $ Convertible note reserve $ Option reserve $ Foreign currency translation $ Accumulated losses $ Owners of the parent $ Non- controlling interest $ Total equity $ 38,942,128 221,840 8,849,133 (454,596) (37,822,267) 9,736,238 - 9,736,238 - - - 1,691,165 1,350,792 3,041,163 - 8,765,484 12(C) 11,12(C) 11,12(B) 10 - - - - - - - - - - - (1,691,165) 46,799 (3,041,163) (2,037,320) 2,163,383 2,000,000 (221,840) (1,200,000) - (10,022,391) (10,022,391) (675,202) (10,697,593) 622,157 - 639,652 (17,495) 622,157 622,157 (10,022,391) (9,382,739) (692,697) (10,075,436) - - - 1,397,591 3,041,163 3,041,163 2,037,320 - - - 10,928,867 578,160 - - - - - - - 1,397,591 3,041,163 - 10,928,867 578,160 - - - - - - - 55,790,732 32,309,605 - - - 13 11 2,112,332 - 4,520,191 - - - - - - - - - - 221,840 6,681,714 - - - (2,112,332) 4,279,751 - - - - (30,354,705) (7,467,562) (454,596) - (454,596) (7,467,562) - - - - - - - - 38,942,128 221,840 8,849,133 (454,596) (37,822,267) Balance at 1 July 2018 Loss for the year Other comprehensive loss/ income Total comprehensive loss for the year Transfer of performance rights vested during the period Share based payments Exercise of share options Expiry of share options Securities issued during the year (net of costs) Convertible note conversion Non-controlling interest acquired Balance 30 June 2019 Balance at 1 July 2017 Loss for the year Other comprehensive loss Total comprehensive loss for the year Transfer of performance rights vested during the period Share based payments Securities issued during the year (net of costs) Issue of convertible notes Balance 30 June 2018 - 1,182,950 1,165,455 (62,679) 1,102,776 Proceeds from convertible note 3,089,667 167,561 (41,583,225) 17,464,735 (755,376) 16,709,359 Proceeds from borrowings Repayment of borrowings 10 11,725,907 - 3,502,752 (4,124,752) 4,842,078 7,936,858 1,966,000 (1,978,892) Cash ﬂ ows from ﬁ nancing activities Proceeds from issue of securities net of costs Net cash ﬂ ows from ﬁ nancing activities 11,103,907 12,766,044 Net increase in cash and cash equivalents (354,256) (1,059,500) Foreign exchange differences Cash and cash equivalents at beginning of the year Cash and cash equivalents at the end of the year 4 112,842 4,213,499 3,972,085 (75,146) 5,348,145 4,213,499 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. - - - - - - - - - - - - - - - - 8,636,614 (7,467,562) (454,596) (7,922,158) - 4,279,751 4,520,191 221,840 9,736,238 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. 36 37 For personal use only Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Notes to the Consolidated Financial Statements Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements For the Year Ended 30 June 2019 Corporate Information The ﬁ nancial report of the Company for the year ended 30 June 2019 was authorised for issue in accordance with a resolution of the Directors on 27 September 2019. Gulf Manganese Corporation Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian stock exchange. The nature of the operations and principal activities of the Company are described in the review of operations. Note 1. Summary of signiﬁ cant accounting policies (a) Basis of preparation These ﬁ nancial statements are general-purpose ﬁ nancial statements, which have been prepared in accordance with the requirements of the Corporations Act 2001, and Australian Accounting Standards and Interpretations. These ﬁ nancial statements have been prepared on a historical cost basis. Gulf Manganese Corporation Limited is a for-proﬁ t entity for the purpose of preparing the ﬁ nancial statements. These consolidated ﬁ nancial statements are presented in Australian dollars and all values are expressed as whole dollars. (b) Foreign currencies The Group’s consolidated ﬁ nancial statements are presented in Australian dollars, which is also the parent company’s functional currency. For each entity, the Group determines the functional currency and items included in the ﬁ nancial statements of each entity are measured using that functional currency. The Group uses the direct method of consolidation and on disposal of a foreign operation, the gain or loss that is reclassiﬁ ed to proﬁ t or loss reﬂ ect the amount that arises from using this method. (c) Going concern The ﬁ nancial report has been prepared on the going concern basis, which contemplates the continuity of normal business activity and the realisation of assets and the settlement of liabilities in the normal course of business. The Company had a working capital surplus position of $189,798 as at 30 June 2019 (30 June 2018: working capital deﬁ cit of $5,656,829), incurred a net loss after tax for the ﬁ nancial year ended 30 June 2019 of $10,697,593 (30 June 2018: $7,467,562) and experienced net cash outﬂ ows from operating activities of $6,079,066 (30 June 2018: $2,920,447). Whilst the Company is in a net asset position, the incurred losses and operating cash outﬂ ows indicate a material uncertainty that may cast signiﬁ cant doubt about the Company’s ability to continue as a going concern. The Directors however have prepared a cash ﬂ ow forecast, which indicates that the Company will have sufﬁ cient cash ﬂ ows to meet all commitments and working capital requirements for the 12-month period from the date of signing this ﬁ nancial report. Included in the cash ﬂ ow forecast is the sale of manganese concentrate and debt ﬁ nancing to fund the Kupang Smelting Hub to completion. The Directors believe it is appropriate to prepare these accounts on a going concern basis as follows: • the Company is working to develop a ferromanganese smelting and sales business to produce low/medium carbon ferromanganese allow in West Timor, Indonesia. The Company’s Kupang Smelting Facility is 60% complete; • the Company’s Indonesian subsidiary PT Gulf Mangan Grup received formal receipt of its Direct Shipping Ore License, allowing the Company to export up to 103,162 tonnes of high-grade manganese ore per year. DSO will be in high demand due to its high manganese content and low impurities and as such would command a premium over lower grade ores; and • the Company has a Controlled Placement Agreement (CPA) with Acuity Capital allowing Gulf to raise up to $5 million of standby equity capital. The placing agreement does not place any restrictions on Gulf raising capital through other means. The placement of any shares under the placing agreement is subject to the company placing capacity. The Directors have prepared a cash ﬂ ow forecast, which includes the completion of the above activities that indicates that the Company will have sufﬁ cient cash ﬂ ows to meet all commitments and working capital requirements for the 12 months period from the date of signing this ﬁ nancial report. Should the Company be unsuccessful in completing the required debt funding or ﬁ nalising offtake ﬁ nance, commencing production at the intended time and at the required proﬁ t levels, or raising equity capital, there is material uncertainty whether the Company would continue as a going concern and therefore whether it would realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the ﬁ nancial statements. The ﬁ nancial statements do not include any adjustment relating to the recoverability or classiﬁ cation of recorded asset amounts or to the amounts or classiﬁ cations of liabilities that might be necessary should the Company not be able to continue as a going concern. (d) Statement of compliance These ﬁ nancial statements comply with Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board and Australian Accounting Interpretations. Compliance with Australian Accounting Standards ensures that the ﬁ nancial report, comprising the ﬁ nancial statements and notes thereto, complies with the International Financial Reporting Standards (IFRS). (e) Critical accounting estimates Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a ﬁ nancial impact on the entity and that are believed to be reasonable under the circumstances. The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by deﬁ nition, seldom equal the related actual results. The estimates and assumptions that have a signiﬁ cant risk of causing a material adjustment to the carrying amounts and liabilities within the next ﬁ nancial year are discussed below. Fair value of share options and assumptions The fair value of services received in return for share options granted to consultants, directors and employees is measured by reference to the fair value of options granted. The estimate of the fair value of the services is measured based on Black-Scholes options valuation methodology. Impairment The carrying amounts of the Company’s assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. (i) Impairment of exploration and evaluation assets The future recoverability of capitalised exploration and evaluation expenditure is dependent on a number of factors, including whether the Company decides to exploit the related lease itself or, if not, whether it successfully recovers the related exploration and evaluation asset through sale. Factors that would impact the future recoverability include the level of reserves and resources, future technological changes, which would 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, proﬁ ts and net assets will be reduced in the period in which this determination is made. In addition, exploration and evaluation expenditure is capitalised if the activities in the area of interest have not yet reached a stage that permits a reasonable assessment of the existence or otherwise of economically recoverable reserves. To the extent that it is determined in the future that this capitalise expenditure should be written off or impaired, proﬁ ts and net assets will be reduced in the period in which this determination is made. (ii) Calculation of recoverable amount The recoverable amount of the consolidate entity’s receivables carried at amortised costs is calculated at the present value of estimated future cash ﬂ ows, discounted at the original effective interest rate (i.e. the effective interest rate computed at initial recognition of these ﬁ nancial assets). Receivable with a short duration are not discounted. Impairment of receivable is not recognised until objective evidence is available that a loss event has occurred. Signiﬁ cant receivables are individually assessed for impairment. The recoverable amount of other assets is greater of their fair value less costs to sell and value in use. In assessing value in use, the estimated future cash ﬂ ows are discounted to their present value in using a pre-tax discount rate that reﬂ ects current market assessments of the time value of money and risk speciﬁ c to the asset. For an asset that does not generate largely independent cash inﬂ ows, the recoverable amount is determined for the cash- generating unit to which the asset belongs. 38 39 For personal use onlyGulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Notes to the Consolidated Financial Statements Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Notes to the Consolidated Financial Statements (f) Plant and equipment (k) Earnings per share Plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Such cost includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts is incurred. Similarly, when each major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement only if it is eligible for capitalisation. Depreciation is calculated on the diminishing value basis to write off the net cost of each item of property, plant and equipment over its expected useful life. Depreciation rates for motor vehicles are at 22.5% and for other plant and equipment, the rates range from 15-40%. (g) Cash and cash equivalents For purposes of the statement of cash ﬂ ows, cash includes deposits at call which are readily convertible to cash on hand and which are used in the cash management function on a day-to-day basis, net of outstanding bank overdrafts. (h) Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the Australian Tax Ofﬁ ce (ATO). 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 are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the Statement of Financial Position. Cash ﬂ ows are included in the Statement of Cash Flows on a gross basis. The GST components of cash ﬂ ows arising from investing and ﬁ nancing activities which are recoverable from, or payable to, the ATO are classiﬁ ed as operating cash ﬂ ows. (i) Trade and other payables Liabilities are recognised for amounts to be paid in the future for goods or services received, whether or not billed to the Company. Trade accounts payable are normally settled within 30 days. (j) Contributed equity Ordinary shares are classiﬁ ed as equity. Transaction costs arising on the issue of equity instruments are recognised directly in equity as a reduction of the proceeds of the equity instruments to which the costs relate. (i) Basic earnings per share Basic earnings per share is determined by dividing the operating loss after income tax by the weighted average number of ordinary shares outstanding during the ﬁ nancial year. (ii) Diluted earnings per share Diluted earnings per share adjusts the ﬁ gures used in the determination of basic earnings per share by taking into account amounts unpaid on ordinary shares and any reduction in earnings per share that will probably arise from the exercise of partly paid shares or options outstanding during the ﬁ nancial year. (l) Revenue recognition Revenue is measured at the transaction price received or receivable (which excludes estimates of variable consideration) allocated to the performance obligation satisﬁ ed and represents amounts receivable for services provided in the normal course of business, net of discounts, VAT, GST and other sales related taxes. As the expected period between transfer of a promised service and payment from the customer is one year or less, no adjustment for a ﬁ nancing component has been made. Revenue arising from the provision of services is recognised when and to the extent that the customer simultaneously receives and consumes the beneﬁ ts of the Group’s performance or the Group does not create an asset with an alternative use but has an enforceable right to payment for performance completed to date. (m) Principles of consolidation The consolidated ﬁ nancial statements incorporate the assets and liabilities of all subsidiaries of Gulf Manganese Corporation Limited (“company” or “parent entity”) as at 30 June 2019 and the results of all subsidiaries for the year then ended. Gulf Manganese Corporation Limited and its subsidiary together are referred to in this ﬁ nancial report as the Company. Subsidiaries are all those entities (including special purpose entities) over which the Company has the power to govern the ﬁ nancial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are de-consolidated from the date that control ceases. The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Company. The Company applies a policy of treating transactions with non-controlling interests as transactions with parties external to the Company. Disposals to non-controlling interests result in gains and losses for the Company that is recorded in the statement of comprehensive income. Purchases from non-controlling interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of identiﬁ able net assets of the subsidiary. Intercompany transactions, balances and unrealised gains on transactions between companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Company. Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of comprehensive income and statement of ﬁ nancial position respectively. Investments in subsidiaries are accounted for at cost in the individual ﬁ nancial statements of Gulf Manganese Corporation Limited. (n) Trade and other receivables Trade accounts receivable, amounts due from related parties and other receivables represent the principal amounts due at reporting date plus accrued interest and less, where applicable, any unearned income and provisions for doubtful accounts. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off by reducing the carrying amount directly. An allowance account (provision for impairment of trade receivables) is used when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. Signiﬁ cant ﬁ nancial difﬁ culties of the debtor, probability that the debtor will enter bankruptcy or ﬁ nancial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The amount of the impairment allowance is the difference between the asset’s carrying amount and the present value of estimated future cash ﬂ ows, discounted at the original effective interest rate. Cash ﬂ ows relating to short-term receivables are not discounted if the effect of discounting is immaterial. The amount of the impairment loss is recognised in the statement of comprehensive income within other expenses. When a trade receivable for which an impairment allowance had been recognised becomes uncollectable 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 statement of comprehensive income. (o) Income tax Deferred income tax is provided on all temporary differences at the balance date between the tax bases of assets and liabilities and their carrying amounts for ﬁ nancial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences except: • when the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting proﬁ t nor taxable proﬁ t or loss; or • when the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable proﬁ t will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised, except: • when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting proﬁ t nor taxable proﬁ t or loss; or • when the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable proﬁ t will be available against which the temporary difference can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance date and reduced to the extent that it is no longer probable that sufﬁ cient taxable proﬁ t will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are 40 41 For personal use only Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Notes to the Consolidated Financial Statements Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Notes to the Consolidated Financial Statements reassessed at each balance date and are recognised to the extent that it has become probable that future taxable proﬁ t will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance date. Income taxes relating to items recognised directly in equity are recognised in equity and not in proﬁ t or loss. Tax consolidation legislation Gulf Manganese Corporation Limited and its 100% owned Australian resident subsidiaries have implemented the tax consolidation legislation. Current and deferred tax amounts are accounted for in each individual entity as if each entity continued to act as a taxpayer on its own. Gulf Manganese Corporation Limited recognises its own current and deferred tax amounts and those current tax liabilities, current tax assets and deferred tax assets arising from unused tax credits and unused tax losses which it has assumed from its controlled entities within the tax consolidated Company. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts payable or receivable from or payable to other entities in the Company. Any difference between the amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) controlled entities in the tax consolidated Company. (p) Employee beneﬁ ts Provision is made for the Company’s liability for employee beneﬁ ts arising from services rendered by employees to reporting date. Employee beneﬁ ts that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Employee beneﬁ ts payable later than one year have been measured at present value of the estimated future cash outﬂ ows to be made for those beneﬁ ts and included in other payables. (q) Segment reporting Operating segments are now reported in a manner that is consistent with the internal reporting provided to the chief operating decision maker, which has been identiﬁ ed by the Company as the Executive Director and other members of the Board of Directors. (r) Impairment of assets The Company assesses at each reporting date 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 Company 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 inﬂ ows 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 ﬂ ows are discounted to their present value using a pre-tax discount rate that reﬂ ects current market assessments of the time value of money and the risks speciﬁ c 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). An assessment is also made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such an 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 a reversal is recognised in proﬁ t or loss unless the asset is carried at its 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. (s) Fair value estimation The fair value of ﬁ nancial assets and ﬁ nancial liabilities must be estimated for recognition and measurement or for disclosure purposes. The fair value of ﬁ nancial instruments traded in active markets (such as publicly traded derivatives, and trading and available for sale securities) is based on quoted market prices at the reporting date. The quoted market price used for ﬁ nancial assets held by the Company is the current bid price; the appropriate quoted market price for ﬁ nancial liabilities is the current ask price. The fair value of ﬁ nancial instruments that are not traded in an active market is determined using valuation techniques. The Company uses a variety of methods and makes assumptions that are based on market conditions existing at each reporting date. Quoted market prices or dealer quotes for similar instruments are used for long-term debt instruments held. Other techniques, such as estimated discounted cash ﬂ ows, are used to determine fair value for the remaining ﬁ nancial instruments. The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. The fair value of ﬁ nancial liabilities for disclosure purposes is estimated by discounting the future contractual cash ﬂ ows at the current market interest rate that is available to the Company for similar ﬁ nancial instruments. (t) Exploration and evaluation expenditure Exploration and evaluation expenditure incurred is accumulated in respect of each identiﬁ able area of interest in accordance with AASB 6 Exploration and Evaluation Expenditure. These costs are only carried forward where the rights to the area of interest are current and to the extent that they are expected to be recouped through the successful development or sale of the area, or where activities in the area have not yet reached a stage that permits reasonable assessment of the existence or otherwise of economically recoverable reserves. Accumulated costs in relation to an abandoned area are written off in full against proﬁ t in the year in which the decision to abandon the area is made. (u) Financial instruments Financial assets and ﬁ nancial liabilities are recognised in the statement of ﬁ nancial position when the Group becomes a party to the contractual provisions of the instrument. (i) Financial Assets Trade receivables are held in order to collect the contractual cash ﬂ ows and are initially measured at the transaction price (excludes estimates of variable consideration) as deﬁ ned in AASB 15, as the contracts of the Group do not contain signiﬁ cant ﬁ nancing components. Impairment losses are recognised based on lifetime expected credit losses in proﬁ t or loss. Other receivables are held in order to collect the contractual cash ﬂ ows and accordingly are measured at initial recognition at fair value, which ordinarily equates to cost and are subsequently measured at cost less impairment due to their short term nature. A provision for impairment is established based on 12-month expected credit losses unless there has been a signiﬁ cant increase in credit risk when lifetime expected credit losses are recognised. The amount of any provision is recognised in proﬁ t or loss. (ii) Financial Liabilities and Equity Financial liabilities and equity instruments issued by the Group are classiﬁ ed in accordance with the substance of the contractual arrangements entered into and the deﬁ nitions of a ﬁ nancial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. All other loans including convertible loan notes are initially recorded at fair value, which is ordinarily equal to the proceeds received net of transaction costs. These liabilities are subsequently measured at amortised cost, using the effective interest rate method. (iii) Effective Interest Rate Method The effective interest rate method is a method of calculating the amortised cost of a ﬁ nancial asset or liability and allocating interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash ﬂ ows through the expected life of the ﬁ nancial asset or liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. (v) New accounting standards and interpretations Adoption of new and revised standards In the year ended 30 June 2019, the Directors have reviewed all of the new and revised Standards and Interpretations issued by the AASB that are relevant to the Company and effective for the current reporting periods beginning on or after 1 July 2018. As a result of this review, the Group has initially applied AASB 9 and AASB 15 from 1 July 2018. Due to the transition methods chosen by the Group in applying AASB 9 and AASB 15, comparative information throughout the ﬁ nancial statements has 42 43 For personal use onlyGulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Notes to the Consolidated Financial Statements Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Notes to the Consolidated Financial Statements not been restated to reﬂ ect the requirements of the new standards. AASB 9 Financial Instruments AASB 9 replaces AASB 139 Financial Instruments: Recognition and Measurement and makes changes to a number of areas including classiﬁ cation of ﬁ nancial instruments, measurement, impairment of ﬁ nancial assets and hedge accounting model. Financial instruments are classiﬁ ed as either held at amortised cost or fair value. The entity has assessed the requirement of AASB 15 and analysed the effect this has on revenue recognition however there was no material impact on adoption of this new standard in the current or comparative periods. Standards and Interpretations in issue not yet adopted The Directors have also reviewed all of the new and revised Standards and Interpretations in issue not yet adopted for the year ended 30 June 2019. Financial instruments are carried at amortised cost if the business model concept can be satisﬁ ed. AASB 16: Leases (applicable to annual reporting periods beginning on or after 1 January 2019) All equity instruments are carried at fair value and the cost exemption under AASB 139 which was used where it was not possible to reliably measure the fair value of an unlisted entity has been removed. Equity instruments which are non-derivative and not held for trading may be designated as fair value through other comprehensive income (FVOCI). Previously classiﬁ ed available-for-sale investments, now carried at fair value are exempt from impairment testing and gains or loss on sale are no longer recognised in proﬁ t or loss. The AASB 9 impairment model is based on expected loss at day 1 rather than needing evidence of an incurred loss, this is likely to cause earlier recognition of bad debt expenses. Most ﬁ nancial instruments held at fair value are exempt from impairment testing. The Group has assessed the requirement of AASB 9 and assessed that there is no material impact to proﬁ t or loss or net assets on the adoption of this new standard in the current or comparative periods. AASB 15 Revenue from Contracts with Customers AASB 15 replaces AASB 118 Revenue and AASB 111 Construction Contracts and related interpretations and it applies to all revenue arising from contracts with customers, unless those contracts are in the scope of other standards. AASB 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised, including in respect of multiple element arrangements. The core principle of AASB 15 is that it requires identiﬁ cation of discrete performance obligations within a transaction and associated transaction price allocation to these obligations. Revenue is recognised upon satisfaction of these performance obligations, which occur when control of goods or services is transferred, rather than on transfer of risks or rewards. Revenue received for a contract that includes a variable amount is subject to revised conditions for recognition, whereby it must be highly probable that no signiﬁ cant reversal of the variable component may occur when the uncertainties around its measurement are removed. 44 When effective, this Standard will replace the current accounting requirements applicable to leases in AASB 117: Leases and related Interpretations. AASB 16 introduces a single lessee accounting model that eliminates the requirement for leases to be classiﬁ ed as operating or ﬁ nance leases. The main changes introduced by the new Standard are as follows: • recognition of a right-of-use asset and liability for all leases (excluding short-term leases with less than 12 months of tenure and leases relating to low- value assets); • depreciation of right-of-use assets in line with AASB 116 : Property, Plant and Equipment in proﬁ t or loss and unwinding of the liability in principal and interest components; • inclusion of variable lease payments that depend on an index or a rate in the initial measurement of the lease liability using the index or rate at the commencement date; • application of a practical expedient to permit a lessee to elect not to separate non-lease components and instead account for all components as a lease; and • inclusion of additional disclosure requirements. AASB 16 is effective from annual reporting periods beginning on or after 1 January 2019. A lessee can choose to apply the Standard using a full retrospective or modiﬁ ed retrospective approach. The transitional provisions of AASB 16 allow a lessee to either retrospectively apply the Standard to comparatives in line with AASB 108 or recognise the cumulative effect of retrospective application as an adjustment to opening equity on the date of initial application. Although the Directors anticipate that the adoption of AASB 16 will impact the Group’s ﬁ nancial statements, it is impracticable at this stage to provide a reasonable estimate of such impact. Note 2. Revenue and expenses (a) Other income Sale of tenement assets Other (b) Administrative Expenses Occupancy expense ASX and share registry expenses Investor relations expenses Travel and accommodation expenses Accounting fees Other administrative expenses (c) Settlement Expenses Equity-settled expenses 2019 $ - 18,301 18,301 281,111 150,748 182,663 549,675 276,922 315,276 2018 $ 50,000 21,526 71,526 215,886 177,377 175,805 153,309 199,731 588,301 1,756,395 1,510,409 1,500,000 1,500,000 93,384 93,384 In December 2018, the Company and Mighty River International Ltd (“MRI”) agreed in a Deed of Settlement and Release to settle all outstanding claims and dismiss the action in the Supreme Court of Western Australia. As part of the agreed settlement, the Company issued to MRI 100,000,000 shares deemed at 1.5 cents each and 100,000,000 GMC listed options. MRI also agreed to a $300,000 cash subscription of GMC shares with free attaching options. Refer to Note 11. (d) Finance costs Interest expense on borrowings 2019 $ 766,821 766,821 2018 $ 83,285 83,285 45 For personal use only Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Notes to the Consolidated Financial Statements Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Notes to the Consolidated Financial Statements Note 3. Income tax Note 4. Cash and cash equivalents 2019 $ 2018 $ The prima facie income tax expense/ (beneﬁ t) on pre-tax accounting loss from operations reconciles to the income tax expense in the ﬁ nancial statements as follows: Accounting loss before income tax (10,697,593) (7,467,562) Income tax beneﬁ t calculated at 27.5% (2018: 27.5%) (2,941,838) (2,053,580) Tax effect of amounts which are not deductible/(taxable) in calculating taxable income: Non-deductible expenses Adjustments recognised in current year in relation to the tax of previous years Effect of temporary differences that would be recognised directly in equity Share based payments Temporary differences not recognised 1,646,752 11,065 (83,507) - 1,367,528 - - - 846,932 1,206,648 Income tax beneﬁ t reported in the statement of comprehensive income - - The tax rate used in the above reconciliation is the corporate tax rate of 27.5% payable by Australian corporate entities on taxable proﬁ ts under Australian tax law. The tax rate used in the previous reporting period was 27.5%. The Indonesian corporate tax rate is 25%. The Company has tax losses arising in Australia and Indonesia. The Australian tax losses of $33,577,169 (2018: $25,524,992) are available indeﬁ nitely in Australia. The Indonesian tax losses of A$2,947,440 (2018: A$2,449,166) can be accumulated up to 5 years from the year the tax loss is recognised for income tax purposes in Indonesia. These losses will be available for offset against future taxable proﬁ ts of the companies in which the losses arose, subject to ongoing conditions for deductibility being met (for example satisfaction of the requisite loss recoupment tests in each jurisdiction). Unrecognised deferred tax assets and liabilities Deferred tax assets have not been recognised in respect of the following items: Tax losses - Australia Tax losses - Indonesia 2019 $ 9,233,721 884,232 10,117,953 2018 $ 7,019,372 612,291 7,631,663 Cash at bank and on hand 3,972,085 4,213,499 Information about the Company’s exposure to interest rate risk is disclosed in Note 18. 2019 $ 2018 $ (a) Reconciliation of loss for the year to net cash ﬂ ows used in operating activities Net loss for the year (10,697,593) (7,467,562) 2019 $ 2018 $ Loss on sale of ﬁ xed assets and/or investments Amortisation Loss on sale of ﬁ xed assets and/or investments Share based payment expense Non cash payments (settlement in equity) Foreign exchange differences Expenses classiﬁ ed as investing ﬂ ows (Increase) / decrease in assets: Trade and other receivables Increase / (decrease) in liabilities: Trade and other payables Provisions 62,894 - 287,469 938,934 - - 2,710,637 34,364 51,470 6,260 3,079,751 93,369 (177,502) - 216,423 (163,312) 409,503 (7,333) 1,687,056 (14,341) Net cash ﬂ ows used in operating activities (6,079,066) (2,870,447) Note 5. Trade and other receivables Trade receivables GST recoverable Other receivables Total trade and other receivables 2019 2018 $ - - 33,900 33,900 $ - 23,228 88,222 111,450 As of 30 June 2019, trade receivables that were past due or impaired was nil (2018: nil). Information about the Company’s exposure to credit risk is provided in Note 18. 46 47 For personal use onlyGulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Notes to the Consolidated Financial Statements Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Notes to the Consolidated Financial Statements Note 6. Other assets Current Prepayments Security deposits Non-current Prepayments Investment in for mining rights(1) Reconciliation of investment in mining rights: Opening balance Additions Disposal consideration Loss on sale of disposal Closing balance 2019 $ 69,192 7,050 76,242 284,881 185,951 470,832 515,871 673,368 (715,819) (287,469) 185,951 2018 $ 492,946 44,872 537,818 94,232 515,871 610,103 - 515,871 - - 515,871 1 This represents deposit payments for the exclusive right to conduct due diligence on Indonesian mining licence interests. Note 7. Plant and equipment Balance at 30 June 2019 Smelter hub (under Construction) $ Land and buildings $ Motor vehicles $ Ofﬁ ce furniture & equipment $ Total $ 20,870,678 130,032 29,798 247,587 21,278,095 - (18,622) (6,829) (89,442) (114,893) 20,870,678 111,410 22,969 158,145 21,163,202 At cost Accumulated depreciation Carrying value as at 30 June 2019 Reconciliation Opening carrying value 14,577,987 Additions Disposals Depreciation expense Foreign currency differences Closing written down value at 30 June 2019 Balance at 30 June 2018 At cost Accumulated depreciation Carrying value as at 30 June 2018 Reconciliation Additions Disposals Depreciation expense Foreign currency differences Closing written down value at 30 June 2018 6,292,691 - - - 73,873 44,124 - 24,903 - - 106,201 100,424 - 14,782,964 6,437,239 - (12,351) (3,933) (46,610) (62,894) 5,764 1,999 (1,870) 5,893 20,870,678 111,410 22,969 158,145 21,163,202 14,577,987 80,144 27,799 139,739 14,825,669 - (6,271) (2,896) (33,538) (42,705) 14,577,987 73,873 24,903 106,201 14,782,964 10,353,840 - - - - 80,144 - (6,271) - 27,799 - (2,896) 24,308 111,292 (3,913) (25,197) 4,248,455 10,573,075 (3,913) (34,364) - - (289) (289) 14,577,987 73,873 24,903 106,201 14,782,964 Opening carrying value 4,224,147 48 49 For personal use onlyGulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Notes to the Consolidated Financial Statements Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Notes to the Consolidated Financial Statements Note 8. Trade and other payables Note 10. Borrowings (continued) Trade creditors Accruals Employee liabilities Tax liabilities Other creditors 2019 $ 2,211,690 400,415 669,174 - 577,326 3,858,605 2018 $ 1,885,297 223,338 211,481 199,427 443,878 2,963,421 Trade payables are non-interest bearing and are normally settled on 30-day terms. Information regarding the interest rate and liquidity risk exposure is set out in Note 18. Note 9. Provisions Employee leave entitlements Note 10. Borrowings Current Convertible notes Total current borrowings 2019 $ 33,824 2019 $ - - The following table shows the movement of convertible notes during the period: 2018 $ 41,157 2018 $ 7,515,018 7,515,018 2018 $ 1,000,000 - 2019 $ 7,515,018 193,315 - 7,936,858 (1,000,000) (2,000,000) 1,090,018 (683,878) (5,114,473) - (221,840) - - - - - (1,200,000) 7,515,018 Opening balance Adjustment(1) Additions Repayment during the year Converted – ordinary shares component Converted – free attaching options component Conversion to non-controlling interest Conversion to long-term loan Fair value of free attaching options issued Closing balance During the year, the convertible note with JGI of IDR equivalent of approximate A$6M was converted into 25.1% of the issued share capital of Gulf’s Indonesian subsidiary PT Gulf Mangan Grup and an approximately A$5 million loan remains outstanding. The loan will be repayable from the proﬁ ts from commercial production of the Kupang Smelting Hub Facility. The loan is secured by ﬁ duciary charge over the manganese smelters, with 8% interest per annum and has a due date of 30 September 2020. Refer to the Company’s ASX announcement on 2 January 2019 for further details. Reconciliation of borrowings: 2018 Cash inﬂ ows Cash outﬂ ows Non-cash Conversion - loan and non- controlling interest Redeemed - equity 2019 Convertible notes Long-term borrowings Short-term borrowings Total liabilities from ﬁ nancing activities (1,000,000) 193,315 (909,982) (5,798,351) - 7,515,018 - - - - 3,502,752 (3,124,752) - - - 5,114,473 - 5,114,473 - (378,000) - 7,515,018 3,502,752 (4,124,752) 193,315 4,204,491 (6,176,351) 5,114,473 Note 11. Contributed equity 2019 No 2019 $ 2018 No 2018 $ Shares on issue Ordinary shares issued and fully paid 4,910,267,664 55,790,732 2,660,722,860 Total contributed equity 4,910,267,664 55,790,732 2,660,722,860 38,942,128 38,942,128 Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. Transaction costs arising on the issue of equity instruments are recognised directly in equity as a reduction of the proceeds of the equity instruments to which the costs relate. 1 An amount of $193,315 was adjusted at the end of the period being the amortised portion of the 133,333,333 free attaching listed options issued to Eighteen Blue Investments Pty Ltd for the A$2 million of convertible notes. 50 51 For personal use only Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Notes to the Consolidated Financial Statements Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Notes to the Consolidated Financial Statements Note 11. Contributed equity (continued) Movement in ordinary shares on issue Note 11. Contributed equity (continued) Balance at 1 July 2018 2,660,722,860 38,942,128 2019 No 2019 $ Grant of 361,815,011 listed options exercisable at 0.05 cents Exercise of listed Options at 0.05 cents each Exercise of listed Options at 0.0196 cents each Vesting of performance rights deemed at 0.077 cents Vesting of performance rights deemed at 0.0177 cents Issue of ordinary shares as part of Settlement(1) Issue of ordinary shares as part of placement at 1.5 cents Issue of ordinary shares as part of placement at 0.008 cents Issue of ordinary shares upon conversion of convertible note at 1.5 cents Issue of ordinary shares upon conversion of loan at 0.0075 cents Issue of ordinary shares upon conversion of loan at 0.008 cents Issue of ordinary shares upon conversion of loan at 0.007 cents Issue of ordinary shares upon conversion of loan at 0.005 cents Issue of ordinary shares as part of placement at 0.005 cents Issue of ordinary shares as part of placement at 0.007 cents to Acuity - 599,216,716 2,300,000 18,001,133 82,106,667 100,000,000 10,000,000 62,500,000 (1,447,260) 2,996,084 45,080 235,458 1,455,707 1,000,000 150,000 500,000 133,333,333 2,000,000 14,533,333 109,000 19,875,000 159,000 8,571,428 60,000 10,000,000 50,000 637,196,000 3,136,181 45,000,000 315,000 Issue of ordinary shares as part of placement at 0.015 cents 241,815,011 Issue of ordinary shares to Directors & KMP deemed at 0.08 cents 39,700,000 3,627,225 320,700 Issue of ordinary shares under STI plan deemed at 0.07 cents Issue of ordinary shares for services rendered deemed at 0.08 cents Issue of ordinary shares as part of placement at 0.0126 cents to Acuity(2) Issue of ordinary shares for services rendered deemed at 0.015 cents 35,660,250 249,622 66,402,600 647,138 100,000,000 1,260,000 13,333,333 133,333 Issue of ordinary shares as part of placement at 0.015 cents 10,000,000 Less: capital raising costs Balance at 30 June 2019 - 4,910,267,664 150,000 (303,664) 55,790,732 1 On 21 December 2018, the Company issued 100,000,000 shares deemed at 1.5 cents each as part of a settlement agreement with Mighty River International Limited (“MRI”). See Note 2(c) for further details. 2 At the Company’s Annual General Meeting on 19 November 2018, Shareholders approved the issue of shares to Acuity Capital Pty Ltd in accordance with the Controlled Placement Agreement dated 1 January 2018. 52 2018 No 2018 $ Balance at 1 July 2017 2,037,849,924 32,309,605 Issue of ordinary shares at 1.5 cents 266,666,667 4,000,000 Exercise of listed options at 0.5 cents Vesting of performance rights deemed at 0.07 cents Vesting of performance rights deemed at 1.6 cents Issue of ordinary shares as part of Settlement Issue of Collateral Shares to Acuity1 Less: Capital raising costs Balance at 30 June 2018 147,499,001 34,000,000 68,481,664 6,225,604 100,000,000 737,495 238,000 1,874,332 93,384 - - (310,688) 2,660,722,860 38,942,128 Capital risk management The Company’s objectives when managing capital are to safeguard their ability to continue as a going concern and to maintain an optimal capital structure so as to maximise shareholder value. In order to maintain or adjust the capital structure, the Company may issue new shares or reduce its capital, subject to the provisions of the Constitution and any relevant regulatory requirements. Note 12. Reserves Nature and purpose of reserves Foreign currency translation reserve The foreign currency translation reserve is used to record exchange differences arising from the translation of the ﬁ nancial statements of foreign subsidiaries. It is also used to record the effect of hedging net investments in foreign operations. Balance at the beginning of the year Movement during the year Balance at the end of the year 2019 $ (454,596) 622,157 167,561 2018 $ - (454,596) (454,596) Convertible note reserve The convertible note reserve represents the equity component (conversion rights) of the convertible notes issued during the year. Refer to Note 10. Balance at the beginning of the year Movement in convertible notes converted during the period Balance at the end of the year 2019 $ 221,840 (221,840) - 2018 $ - 221,840 221,840 53 For personal use only Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Notes to the Consolidated Financial Statements Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Notes to the Consolidated Financial Statements Note 12. Reserves (continued) Option reserve The option reserve is used to recognise the fair value of share based payments issued. Note 12. Reserves (continued) B. Movement in unlisted options 2018 No 8,849,133 2,163,384 (6,278,483) 46,798 (1,691,165) 3,089,667 2018 $ 6,681,714 1,200,000 - 3,079,751 (2,112,332) 8,849,133 Balance at the beginning of the year Issue of options during the year Exercise/expiry of options during the year Movement in performance rights during the year Transfer of performance rights vested during the period Balance at the end of the year Share options on issue Listed share options on issue Unlisted share options on issue 2019 No - 2019 $ 2019 No 2019 $ - 1,627,658,304 2,283,122 124,000,000 1,216,621 148,425,917 3,048,592 Performance rights on issue 128,372,681 1,873,046 181,213,336 Total share options on issue 252,372,681 3,089,667 1,957,297,557 3,517,419 8,849,133 A. Movement in listed options (GMCO) exercisable at 0.5 cents each expiring 21 April 2019 2019 No 2019 $ Balance at the beginning of the year 1,627,658,304 2,283,122 Exercise of listed options Issue of listed options as part of Settlement(1) Issue of listed options pursuant to Prospectus(2) (599,216,716) (2,996,084) 100,000,000 261,815,011 500,000 1,447,260 Cancellation/lapsing of listed options (1,390,256,599) (1,234,298) Balance at the end of the year - - 1 1,000,000 options were issued and settled per Deed of Settlement and Release with Mighty River International Limited (“MRI”). 2 During the year, 261,815,011 free attaching listed options were issued pursuant to agreements entered into by the Company as announced on 24 December 2018 and 2 January 2019 and as described in sections 1.1(a) and (b) of the Prospectus. These options were exercisable at $0.005 and expired on 21 April 2019. The options were valued at $0.004 each being the quoted market price of the listed options on the date of the agreement totalling $1,447,260. Balance at the beginning of the year Exercise of unlisted options exercisable at 1.96 cents each expiring 30 September 2018 Lapsing of unlisted options exercisable at 1.96 cents each expiring 30 September 2018 Lapsing of unlisted options exercisable at 1.2496 cents each expiring 31 December 2018 Issue of unlisted options exercisable at 2 cents each expiring 31 December 2020(1)(2) Issue of unlisted options exercisable at 3 cents each expiring 31 December 2020(1)(3) 2019 No 148,425,917 (2,300,000) 2019 $ 3,048,592 (45,079) (64,625,917) (1,711,265) (7,500,000) (291,750) 25,000,000 114,965 25,000,000 101,158 Balance at the end of the year 124,000,000 1,216,621 1 During the year the Company settled payment for certain consulting services received through the issue of ordinary shares. The Company issued 50,000,000 unlisted options in lieu of cash payments for consulting services rendered to the Group on 8 March 2019. 2 The fair value of each option of $0.0046 is determined using a Black-Scholes option pricing model that takes into account the exercise price (2 cents), the term of the options (1.8 years), the share price at grant date ($0.008), the expected price volatility of the underlying share (159%), the expected dividend yield (nil) and the risk-free interest rate for the term of the option (1.66%). The options vest immediately and the Black-Scholes valuation is expensed on grant date. 3 The fair value of each option of $0.004 is determined using a Black-Scholes option pricing model that takes into account the exercise price (3 cents), the term of the options (1.8 years), the share price at grant date ($0.008), the expected price volatility of the underlying share (159%), the expected dividend yield (nil) and the risk-free interest rate for the term of the option (1.66%). The options vest immediately and the Black-Scholes valuation is expensed on grant date. The unlisted options outstanding at 30 June 2019 had a weighted average exercise price of $0.22 and a weighted average contractual life of 1.9 years. C. Movement in performance rights Balance at the beginning of the year Exercised during the year Cancellation of performance rights Performance rights issued to Directors and Employees on 7 March 2019 2019 No 181,213,336 (100,107,797) - 47,267,150 2019 $ 3,517,413 (1,691,165) (118,933) 165,731 Balance at the end of the year 128,372,681 1,873,046 54 55 For personal use only Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Notes to the Consolidated Financial Statements Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Notes to the Consolidated Financial Statements Note 13. Share based payments Note 15. Earnings per share During year, 47,267,150 performance rights were issued pursuant to Resolutions 7, 8 and 9 as approved by shareholders at EGM on 28 February 2019 and under the Company’s Long Term Incentive Plan (LTI) as approved by shareholders on 2 September 2016 to Directors and Employees and they vest based in three tranches. In accordance with the LTI, the Company’s Total Shareholder Return (TSR) for the ﬁ nancial year ended 30 June 2019 in comparison to the Comparator Group of companies was above the 70th percentile and the ﬁ rst equal tranche of the LTI performance rights have vested, resulting in 18,001,133 shares being issued. The Company has assigned a 100% probability that the service condition relating to the LTI performance rights in the second and third tranches will be met. Tranche 2 will vest on 7 March 2021 and Tranche 3 will vest on 7 March 2022 (when the service condition has been met). Recognised during the period Performance rights granted 20,175,000 27,092,150(1) 645,333 Tranche 1 Tranche 2 Tranche 3 6,725,083 9,030,717 2,245,333 6,725,000 9,030,717 6,724,917 9,030,716 (800,000) (800,000) 47,912,483 18,001,133 14,955,717 14,955,633 Directors Employees Adjustment TOTAL Expense recognised during the year 139,458 16,687 9,586 1 Net performance rights granted to employees who left during the year. The rights that were recognised during the period were valued based on the share price at the date of grant. The grant date for the performance rights issued to Directors is 28 February 2019 and the share price at the grant date was 0.9 cents. The grant date for the performance rights issued to Employees was 7 March 2019 and the share price at the grant date was 0.7 cents. The total expense recognised relating to the tranches above is $165,731. In addition to the above, the following performance rights issued on 7 March 2019 have vested resulting in the issue of 11,276,050 shares at a price of 0.8 cents based on the share price at the date of issue. The share based payments from the issue of unlisted options during the year is disclosed in Note 12(B). Note 14. Accumulated losses 2019 $ 2018 $ Accumulated losses at beginning of the year (37,822,267) (30,354,705) Net loss for the year (10,022,391) (7,467,562) Adjustments relating to expiry of options Non-controlling interest acquired 5,078,483 1,182,950 - - Accumulated losses at end of the year (41,583,225) (37,822,267) Issue of unlisted options exercisable at 3 cents each expiring 31 December 2020(1)(3) 25,000,000 101,158 Balance at the end of the year 124,000,000 1,216,621 Basic and diluted loss per share 2019 Cents (0.32) 2019 No 2018 Cents (0.31) 2018 No Weighted average number of ordinary shares outstanding during the year used in the calculation of basic loss per share 3,392,143,869 2,412,092,719 Diluted loss per share has not been calculated as the Company made a loss for the year and the impact would be to reduce the loss per share. Note 16. Commitments for expenditure Operating lease commitments Ofﬁ ce operating lease rentals are payable as follows: Not later than one year Later than one year but no later than two years Later than two years Total operating lease commitments 2019 $ 18,641 - - 18,641 2018 $ 24,625 18,564 - 43,189 The Company leases one ofﬁ ce under a non-cancellable operating lease expiring on 28 February 2020. On renewal, the terms of the lease are renegotiated. Note 17. Key Management Personnel disclosures (a) Summarised compensation of Key Management Personnel Summary of Directors and Key Management Personnel compensation in the following categories are as follows: Short-term employee beneﬁ ts Post-employment beneﬁ ts Long-term beneﬁ ts Share based payments 2019 $ 1,034,204 66,572 53,161 532,007 2018 $ 691,699 58,877 - 2,106,555 Total Directors and Key Management Personnel compensation 1,685,944 2,857,131 (b) Loans to Key Management Personnel There are no loans to Key Management Personnel as at 30 June 2019 (2018: Nil). 56 57 For personal use only Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Notes to the Consolidated Financial Statements Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Notes to the Consolidated Financial Statements Note 17. Key Management Personnel disclosures (continued) Transactions with related parties: Note 18. Financial risk management (continued) Market risk Andrew Wilson is employed by Kesempatan Pty Ltd (“KPL”) and has beneﬁ cial interest in KPL. Under an Agreement with the Company, KPL provides the services of Andrew as a Non-executive Director of the Company. During the year, KPL was paid $87,083 (2018: $60,000) for the Non-executive Director services provided by Andrew. During the period, KPL also invoiced the Company $101,860 for services in leading the negotiation and resolution of a dispute and a restructure that was in addition to the scope of Andrew’s services as a Non-executive Director. Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. For details of remuneration disclosures relating to Key Management Personnel, refer to the remuneration report in the Directors’ Report. Note 18. Financial risk management The Company’s ﬁ nancial instruments consist of deposits with banks, accounts receivable and payable, and convertible notes. Overall risk management The Company’s activities expose it to a variety of ﬁ nancial risks; market risk (including the markets for the commodities it consumes and sells, the electricity price and fair value of interest rate risk), credit risk, country risk, liquidity risk and cash ﬂ ow interest rate risk. The Company’s overall risk management program focuses on the unpredictability of ﬁ nancial markets and commodity markets and seeks to minimise potential adverse effects on the ﬁ nancial performance of the Company. The Company actively seeks engagement and a cooperative relationship with the local community and all stakeholders, including all three levels of the Government of Indonesia. The Company does not tolerate and strictly forbids the payment of any corrupt payments or facilitation fees. Risk management is carried out by the Board of Directors under policies approved by the Board. Credit risk Credit risk arises from the ﬁ nancial assets of the Company, which comprise cash and cash equivalents and trade and other receivables. The Company’s exposure to credit risk arises from potential default of the counter party, with a maximum exposure equal to the carrying amount of these instruments. The Company does not have any signiﬁ cant credit risk exposure to any single counterparty. The credit risk on liquid funds is limited because the counter party is a bank with a high credit rating. The carrying amount of the Company’s ﬁ nancial assets represents the maximum credit exposure. The Company’s maximum exposure to credit risk at the reporting date was: Cash and cash equivalents Trade and other receivables Other assets Maximum exposure to credit risk 2019 $ 2018 $ 3,972,085 4,213,499 33,900 547,074 4,553,059 111,450 537,818 4,862,767 The credit quality of ﬁ nancial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates. Liquidity risk Liquidity risk management implies maintaining sufﬁ cient cash to meet commitments as and when they fall due. The Company’s ﬁ nancial liabilities include trade payables which are non-interest. Expenses are managed on an ongoing basis and the Company expects to be able to raise additional funds as and when necessary to meet these commitments. Additionally, a major shareholder has signed a letter of comfort to provide ﬁ nancial support to the Company for the next 12 months. Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company’s income or the value of its holdings of ﬁ nancial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. Foreign exchange The Group undertakes certain transactions denominated in foreign currency and are exposed to foreign currency risk through foreign exchange rate ﬂ uctuations. Foreign exchange risk arises from future commercial transactions and recognised ﬁ nancial assets and ﬁ nancial liabilities denominated in a currency that is not the entity’s functional currency. The risk is measured using sensitivity analysis and cashﬂ ow forecasting. As a result of the operating activities in Indonesia and the ongoing funding of overseas operations from Australia, the Group’s Statement of Financial Position can be affected by movements in Indonesian Rupiah dollar (IDR) / Australian Dollar (AUD) and US Dollar (USD) / Australian Dollar (AUD) exchange rates. The Group seeks to mitigate the effect of its foreign currency exposure by timing its purchase and payment to coincide with highs in the IDR/AUD and USD/AUD exchange rate cycle. Interest rate risk Interest rate risk is the risk that the fair value or future cash ﬂ ows of ﬁ nancial instruments will ﬂ uctuate because of changes in market interest rates. The Company’s exposure to interest rate risk is not signiﬁ cant and is limited to cash and cash equivalents. The company does not rely on the generation of interest to provide working capital. Proﬁ le At the reporting date the interest rate proﬁ le of the company’s interest-bearing ﬁ nancial instruments was: Financial assets Cash and cash equivalents - 3,972,085 3,972,085 Fixed interest $ Floating interest $ Total $ Financial liabilities Convertible notes Sensitivity analysis 5,114,473 - 5,114,473 The sensitivity analyses of the Group’s exposure to interest rate risk at the reporting date has been determined based on a change of 100 basis points in interest rates. At reporting date, if interest rates had been 100 basis points higher and all other variables were constant, the Group’s net proﬁ t after tax would have increased by $39,721 (2018: $42,135) with a corresponding increase in equity. Where interest rates decreased, there would be an equal and opposite impact on the proﬁ t after tax and equity. Note 19. Segment information For management purposes, the Group is organised into one main operating segment, which involves developing a ferromanganese smelting and sales business to produce low/medium carbon ferromanganese alloy in West Timor, Indonesia. All of the Group’s activities are interrelated, and discrete ﬁ nancial information is reported to the Board (chief operating decision maker) as a single segment. Accordingly, all signiﬁ cant operating decisions are based upon analysis of the Group as one segment. The ﬁ nancial results from this segment are equivalent to the ﬁ nancial statements of the Group as a whole. The accounting policies applied for internal reporting purposes are consistent with those applied in the preparation of these ﬁ nancial statements. 58 59 For personal use only Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Notes to the Consolidated Financial Statements Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Notes to the Consolidated Financial Statements Note 20. Contingent liabilities As per the restructure agreement between PT Jayatama Global Investindo (“JGI”) and PT Gulf Mangan Grup (“GMG”), it was agreed that JGI will receive a 2.5% net royalty on alloy sales from GMG’s ﬁ rst two smelters. This liability will not take effect until production of alloys from the smelters. Other than as disclosed above, there were no contingent liabilities at the end of the reporting period. Note 21. Events occurring after reporting period On 2 August 2019, the Company announced it had entered into an agreement to acquire a strategic 20% interest in Iron Fortune Pty Ltd (“Iron Fortune”), a private Australian-based minerals and exploration company focused on Timor-Leste. Under the terms of the agreement, Gulf will pay an initial A$100,000 for exclusivity whilst due diligence is completed and has agreed to work together with Iron Fortune to develop a work plan and strategic direction. Hamish Bohannan will also be appointed to the Board of Iron Fortune in the position of Non-executive Director. Upon completion of the due diligence process, Gulf will pay a further A$200,000 and issue A$100,000 worth of shares to secure a 20% interest in Iron Fortune. Full terms and conditions are outlined in the ASX announcement lodged on 2 August 2019. Other than as disclosed above, there are no other signiﬁ cant events that have occurred after the reporting period. Note 22. Auditor’s remuneration Audit and review of ﬁ nancial statements Total auditor’s remuneration Note 23. Dividends 2019 $ 65,236 65,236 2018 $ 53,253 53,253 There were no dividends recommended or paid during the ﬁ nancial years ended 30 June 2019 and 30 June 2018. Note 24. Subsidiaries and non-controlling interests a. Subsidiaries The consolidated ﬁ nancial statements include the ﬁ nancial statements of Gulf Manganese Corporation Limited and the subsidiaries listed in the following table: % Equity interest Name of entity Parent entity Place of incorporation Gulf Manganese Corporation Limited Australia Controlled entities Gulf Copper Pty Ltd1 Gulf Manganese Pty Ltd(1) International Manganese Group Limited Australia Australia Australia PT Gulf Mangan Grup Indonesia 1 These companies were inactive during the years ended 30 June 2019 and 30 June 2018. 2019 % 100 100 100 100 74.9 2018 % 100 100 100 100 100 Note 24. Subsidiaries and non-controlling interests (continued) (b) Non-controlling entities The following table sets out the summarised ﬁ nancial information for PT Gulf Mangan Grup that has non-controlling interests. Amounts disclosed are before intercompany eliminations (AASB 12.B11). Summarised statement of Financial Position Current Assets Non-current Assets Total Assets Current Liabilities Non-current Liabilities Total Liabilities Net Assets/(Liabilities) Accumulated NCI Summarised ﬁ nancial performance Revenue Other income Loss before income tax Income tax expense Post tax loss Other comprehensive income Total comprehensive loss Loss attributable to non-controlling interests Other comprehensive income attributable to non- controlling interests Total comprehensive loss attributable to non-controlling interests 2019 $ 302,043 17,528,361 2018 $ 3,702,625 11,152,079 17,830,404 14,854,704 3,379,873 17,459,997 20,839,870 (3,009,466) (755,376) 2019 $ - 46,894 2,119,115 11,932,861 14,051,976 802,728 - 2018 $ - 31,186 (4,761,600) (2,258,134) - (4,761,600) (594,643) (5,356,243) (675,202) (17,495) (692,697) - (2,258,134) (454,596) (2,712,730) - - - 60 61 For personal use only Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Notes to the Consolidated Financial Statements Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Directors’ Declaration Note 25. Gulf Manganese Corporation Limited Parent Company Information Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Accumulated losses Total equity Financial performance Loss for the year Other comprehensive income Total comprehensive loss Parent 2019 $ 4,065,065 12,804,280 16,869,345 512,560 - 512,560 Parent 2018 $ 1,254,374 11,083,984 12,338,358 885,453 1,716,667 2,602,120 16,356,785 9,736,238 55,790,732 3,089,667 38,942,128 8,932,466 (42,523,614) (38,138,356) 16,356,785 9,736,238 (5,935,993) (7,935,964) - - (5,935,993) (7,935,964) Directors’ Declaration The Directors of the Company declare that: 1. The ﬁ nancial statements and note set out on pages 32 to 61, are in accordance with the Corporations Act 2001 and: (a) comply with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements and (b) give a true and fair view of the Company’s ﬁ nancial position as at 30 June 2019 and of its performance for the year ended on that date. In the Director’s opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. The remuneration disclosures included in the Directors’ report (as part of audited Remuneration Report) for the year ended 30 June 2019, comply with section 300A of the Corporations Act 2001. 3. The Directors have been given the declarations by the chief executive ofﬁ cer and chief ﬁ nancial ofﬁ cer required by section 295A. 4. The Company has included in the notes to the ﬁ nancial statements an explicit and unreserved statement of compliance with International Financial Reporting Standards. 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: Craig Munro Non-executive Chairman Perth, Western Australia 27 September 2019 62 63 For personal use only Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Independent Auditor’s Report Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Independent Auditor’s Report Independent Auditor’s Report Independent Auditor’s Report Independent Auditor's Report To the Members of Gulf Manganese Corporation Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Gulf Manganese Corporation Limited (“the Company”) and its subsidiaries (“the Consolidated Entity”), which comprises the consolidated statement of financial position as at 30 June 2019, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion: a. the accompanying financial report of the Consolidated Entity is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Consolidated Entity’s financial position as at 30 June 2019 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. b. the financial report also complies with International Financial Reporting Standards as disclosed in Note 1a. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Consolidated Entity in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independent Auditor’s Report To the Members of Gulf Manganese Corporation Limited (Continued) Material Uncertainty Related to Going Concern We draw attention to Note 1c in the financial report which indicates that the Consolidated Entity incurred a net loss of $10,697,593 during the year ended 30 June 2019. As stated in Note 1c, these events or conditions, along with other matters as set forth in Note 1b, indicate that a material uncertainty exists that may cast significant doubt on the Consolidated Entity’s ability to continue as a going concern. Our opinion is not modified in this respect of this matter. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter How our audit addressed the key audit matter Plant and equipment – $21,163,202 Our procedures included, amongst others: (Refer to Note 7) As disclosed in Note 7 in the financial report, as at 30 June 2019 the Consolidated Entity is carrying plant and equipment of $21,163,202. Of significance in this amount is $20,870,678 which relates to the Smelter Hub which is currently under construction. Plant and equipment is considered to be a key audit mater due to: (cid:16) The significant value of the asset to the Consolidated Entity’s financial position; and (cid:16) The complexity in identifying the elements of cost attributable to the asset. (cid:16) Assessing the Group’s methodology for determining and recognising Plant and Equipment under construction; (cid:16) We tested the additions to the Smelter Hub in Plant and Equipment for the year by evaluating a sample of recorded expenditure for consistency to underlying records, the capitalisation requirements of the Consolidated Entity’s accounting policy and the requirements of AASB 116; (cid:16) Evaluating management’s assessment as to whether indicators of impairment had occurred; and (cid:16) Assessing the adequacy of the disclosures included in the financial report. Share based payments – $938,934 Our procedures included, amongst others: (Refer to Note 13) (cid:16) Analysing contractual agreements to identify the As disclosed in Note 13 in the financial statements, during the year ended 30 June 2019, the Consolidated Entity incurred share based payments totaling $938,934. Share based payments are considered to be a key audit matter due to: (cid:16) the value of the transactions; key terms and conditions of share based payments issued and relevant vesting conditions in accordance with AASB 2 Share Based Payments; (cid:16) Evaluating the key assumptions used to value the performance rights including the probability of the performance conditions being met as disclosed in note 13 of the financial statements; 64 65 For personal use only Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Independent Auditor’s Report Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Independent Auditor’s Report Independent Auditor’s Report Independent Auditor’s Report Independent Auditor’s Report To the Members of Gulf Manganese Corporation Limited (Continued) Key audit matter How our audit addressed the key audit matter (cid:16) (cid:16) the complexities involved in recognition and measurement of these instruments; and the judgement involved in determining the inputs used in the valuation. This process involved significant estimation and judgement required to determine the fair value of the equity instruments granted. (cid:16) Assessing the amount recognised during the period against the vesting conditions of the options; and (cid:16) Assessing the adequacy of the disclosures included in the financial report. Borrowings - $5,114,473 Our procedures included, amongst others: (Refer to Note 10) (cid:16) Obtaining the loan agreement to identify the key As disclosed in note 10 of the financial statements for the year ended 30 June 2019, the Consolidated Entity converted part of its loan into the issued capital of the subsidiary PT Gulf Mangan Grup and the remaining balance of the loan is due to be repaid on 30 September 2020. Borrowings are considered to be a key audit matter due to the value of the loan. terms; (cid:16) Assessing the financial instruments in accordance with the Australian Accounting Standard with particular consideration given to the recognition, measurement and disclosures surrounding debt & equity components of compound instruments; (cid:16) Evaluating the derivative components that may exist as a result of the issue of these financial instruments; and (cid:16) Assessing the adequacy of the disclosures included in the financial report. Other Information The directors are responsible for the other information. The other information comprises the information included in the Consolidated Entity’s annual report for the year ended 30 June 2019, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Independent Auditor’s Report To the Members of Gulf Manganese Corporation Limited (Continued) Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 1c, the directors also state in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the financial report complies with International Financial Reporting Standards. In preparing the financial report, the directors are responsible for assessing the Consolidated Entity’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Consolidated Entity or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our responsibility is to express an opinion on the financial report based on our audit. Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: (cid:16) (cid:16) Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Consolidated Entity’s internal control. (cid:16) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. (cid:16) Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Consolidated Entity’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Consolidated Entity to cease to continue as a going concern. 66 66 67 For personal use only Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 Independent Auditor’s Report Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 ASX Additional Information Independent Auditor’s Report ASX Additional Information Independent Auditor’s Report To the Members of Gulf Manganese Corporation Limited (Continued) (cid:16) (cid:16) Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Consolidated Entity to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Consolidated Entity audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report We have audited the Remuneration Report included in the directors’ report for the year ended 30 June 2019. The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with s 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s Opinion In our opinion, the Remuneration Report of the Company, for the year ended 30 June 2019, complies with section 300A of the Corporations Act 2001. BENTLEYS Chartered Accountants CHRIS NICOLOFF CA Partner Dated at Perth this 27th day of September 2019 Additional information as required by the Australian Securities Exchange Limited and not disclosed elsewhere in this report is set out below. The information is current as at 18 October 2019. 1.1 Ordinary Shares on Issue There are 5,044,848,331 ordinary shares on issue (GMC). 1.2 Listed Options on issue There are nil Listed Options on issue. 1.3 Unlisted Options on issue Class # Securities # Holders Holder of more than 20% of Securities Exercisable at $.02 options expiring 31/12/2020 25,000,000 Exercisable at $0.02 options expiring 5 Sep 2021 50,000,000 Exercisable at $0.02 options expiring 5 Sep 2021 (ECSOP) 24,000,000 Exercisable at $.03 options expiring 31/12/2020 25,000,000 Holder Name # Securities Jeremy Slater 19,000,000 HJL Bohannan 30,000,000 C & Diane Munro Setia Pty Ltd John Woodacre Donna Whittaker 10,000,000 10,000,000 7,000,000 5,000,000 Jeremy Slater 22,500,000 10 3 7 4 1.4 Distribution of shareholders Analysis of numbers of equity security holders by size of holding: Holding Ranges Holders Total Units % Issued Share Capital 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 - 9,999,999,999 Totals 55 27 10 464 1,297 1,853 13,764 72,492 77,030 28,597,123 5,016,087,922 5,044,848,331 0.00% 0.00% 0.00% 0.57% 99.43% 100.00% Based on the price per security at $0.006, number of holders with an unmarketable holding: 419, with total 15,582,354 amounting to 0.31% of Issued Capital 68 69 For personal use only Gulf Manganese Corporation Limited (ACN: 059 954 317) Annual Report 2018-19 ASX Additional Information 1.6 Twenty largest shareholders Position Holder Name 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Holding 606,543,870 401,613,358 CITICORP NOMINEES PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED PT JAYATAMA GLOBAL INVESTINDO & RELATED PARTIES 314,694,591 TAN HWA POH BNP PARIBAS NOMS PTY LTD TOM HALE PTY LTD ALI SANTOSO HALIM ACUITY CAPITAL INVESTMENT MANAGEMENT PTY LTD JOHN ALBERT WOODACRE MR SAM BOON BENG LEE & MRS JENNY SU LEE LEE HAMISH BOHANNAN ZHANG & KHOE FAMILY PTY LTD MR KIM YEW LEE MR EDUARDO SIAO & MRS EVELYN SIAO MR NEIL THOMPSON UBS NOMINEES PTY LTD ARKWRIGHT DEVELOPMENTS PTY LIMITED TEPANY PTY LTD J P MORGAN NOMINEES AUSTRALIA PTY LIMITED BMK CORPORATION PTY LTD Total 152,083,333 149,900,000 98,500,000 83,333,334 76,946,839 74,098,833 71,108,960 63,923,683 61,447,196 60,453,753 50,736,868 50,000,032 43,937,922 42,500,000 41,850,000 38,616,301 37,705,000 2,386,511,655 1.8 Corporate Governance Statement The Company’s 2019 Corporate Governance Statement has been released as a separate document and is located on its website at www.gulfmanganese.com % 12.02% 7.96% 6.24% 3.01% 2.97% 1.95% 1.65% 1.53% 1.47% 1.41% 1.27% 1.22% 1.20% 1.01% 0.99% 0.87% 0.84% 0.83% 0.77% 0.75% 47.31% Total issued capital - selected security class(es) 5,044,848,331 100.00% Substantial Shareholders Substantial Holder Citicorp Nominees Pty Ltd HSBC Custody Nominees (Australia) Limited PT Jayatama Global Investindo 1.7 Tenement Schedule Size of Holdings 606,543,870 401,613,358 314,694,591 % 12.02% 7.96% 6.24% All Tenements previously held by Gulf Copper Pty Ltd have now been transferred to unrelated parties. The Company no longer holds any tenements. 70 For personal use only gulfmanganese.com For personal use only

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