Hillgrove Resources
Annual Report 2020

Plain-text annual report

Annual Report for the year ended 31 December 2020 www.hillgroveresources.com.au Hillgrove Resources Limited ACN 004 297 116 CORPORATE DIRECTORY Corporate and Registered Office 5-7 King William Road, Unley S.A. 5061, Australia Tel: + 61 8 7070 1698 Kanmantoo Copper Mine Eclair Mine Road Kanmantoo S.A. 5252, Australia Tel: + 61 8 8538 6800 Share Registry Boardroom Pty Limited Level 7, 207 Kent Street Sydney N.S.W. 2000, Australia Tel: + 61 2 9290 9600 Fax: + 61 2 9279 0664 Bankers Westpac Banking Corporation 31 Willoughby Road Crows Nest N.S.W. 2065, Australia Auditors PricewaterhouseCoopers 70 Franklin Street Adelaide S.A. 5000, Australia Web Site www.hillgroveresources.com.au General Enquiries Info@hillgroveresources.com.au CONTENTS Chairman and Managing Director’s Statement Hillgrove Projects Mineral Resource, Ore Reserve & Exploration Target Sustainability: Environment, Safety and Community Financial Report Directors’ Declaration Independent Auditor’s Report Shareholder Information 1 2 6 8 9 55 56 63 Chairman and Managing Director’s Statement Dear Shareholders, 2020 marked a year of transition for Hillgrove as the Company completed processing the remaining low-grade ore stockpiles, placed the Kanmantoo site to care and maintenance, and pivoted the business strategy from pumped hydro energy storage (PHES) towards the development of the Kanmantoo Underground. Safety is a fundamental consideration to everything we do at Hillgrove. It is pleasing to note that safety continues to improve, with 2020 resulting in the lowest number of injuries since operations commenced in late 2011 despite the material change in activities, including the decommissioning of fixed plant and demobilisation of heavy earth moving equipment. The processing of stockpiles was completed in March 2020. A total of 1,855 tonnes of copper and 776 oz of gold was produced from the stockpiles in 2020 at a C1 cost of $US2.52/lb. This was either in line with or better than the production and costs guidance for the second consecutive year. Prior to equipment demobilising in March, a further 45 hectares of native vegetation was planted as part of the progressive rehabilitation program, effectively covering all of the available areas not required for the underground development. The cessation of processing resulted in the workforce downsizing from 55 people at the start of the year to 8.8 full time equivalent employees by year end. A focus on cost reduction also resulted in the successful withdrawal from Indonesia, renegotiating key contracts, shrinking the Board from 4 to 2 non-executive directors and reducing board fees. Mr Derek Carter Independent Non-Executive Chairman Mr Lachlan Wallace Chief Executive Officer and Managing Director The termination of the PHES agreement in February 2020 enabled the Company to advance the Kanmantoo Underground without the time or technical restrictions associated with the PHES project. A drilling program that commenced in March confirmed depth extensions of the mineralisation at grades and widths that support underground mining, and resulted in the announcement of a maiden underground Mineral Resource Estimates (MRE) for West Kavanagh and Nugent, and an update to the Kavanagh MRE which increased the total estimated Cu metal in the Resources below the open pits by 110% from 16.2k tonnes to 34.4k tonnes of copper. Following the substantial MRE increase, a successful placement and oversubscribed rights issue was initiated in December and concluded in early 2021, raising $10.9M which enables drilling to further increase the Kanmantoo Underground MRE and advance the feasibility assessment studies. The strong investor support from existing shareholders and institutional investors for the Kanmantoo Underground supports the Board’s view that the Kanmantoo Underground is well positioned to take advantage of the strong commodity prices with regulatory approval to commence operations received in 2020, the key infrastructure in place and being well maintained for quick restart, and a relatively short time and low-cost capital development ahead of first ore production. We would also like to take this opportunity to recognise John Gooding, Phil Baker and Tony Breuer who resigned from the Board during the year. On behalf of the Hillgrove Resources Board, we thank them for their contribution to the Company during their respective tenures and wish them well in the future. Mr Derek Carter Chairman Mr Lachlan Wallace Managing Director H I L L G R O V E R E S O U R C E S I I L M T E D A N N U A L R E P O R T 2 0 2 0 P a g e 1 Hillgrove Projects KANMANTOO COPPER MINE OPEN PIT OPERATIONS Hillgrove’s flagship project is the Kanmantoo Copper Mine in South Australia, located 55 kilometres from Adelaide. The site is in an enviable position, being close to road, rail, power, water, port facilities and enjoying access to a large pool of specialised contractors and potential employees. The exploration and mining lease is scattered with historical copper and base metal operations and includes the former Kanmantoo Copper Mine, a medium sized copper mine that operated from 1971 to 1976 as an open pit and underground operation. Hillgrove Resources re-opened the mining operations in 2011 and operated a copper-gold mine until 2020. The location of the Kanmantoo Copper Mine offers many operational and logistical advantages, with a main highway passing close to the project and being approximately 90km by road to Port Adelaide, permitting the trucking of copper concentrate. The mine site is connected to the electricity grid and has access to mains and recycled water. Due to Kanmantoo’s location close to the outer-Adelaide regional centres of Mt Barker and Murray Bridge, there is no requirement to provide fly in/fly out facilities. Production for the 2020 year was 1,885 tonnes of copper in concentrate and 776 ounces of gold in concentrate. The Company completed processing of the stockpiled open pit ore in March 2020, on time and without injury. As a result, the number of full time equivalent employees was reduced from 55 at the beginning of the year to 8.8 at the end of the year. The remaining employees are focussed on the development of the Kanmanto Underground Project (Underground), rehabilitation in order to reduce future liabilities, and care and maintenance of the existing processing plant in order to enable a rapid low-cost restart should the Underground operation proceed. GUIDANCE The Company’s actual performance against its 2020 guidance is summarised in the table below. Copper production was in line with 2020 guidance, while gold production and C1 costs were better than guidance. CY20 2020 Guidance Copper produced 1,650 to 2,150 tonnes Gold produced 450 to 700 ounces Actuals 1,855 tonnes 776 ounces C1 costs US$2.55 to US$2.75 per lb US$2.52 per lb EXPLORATION AND DEVELOPMENT SUMMARY Whilst the focus during the year was on the Kanmantoo Underground development, the Company continues to advance the near mine and regional exploration areas. KANMANTOO UNDERGROUND DEVELOPMENT With the completion of mining and processing of the Giant open pit, the Company is advancing a number of opportunities for organic growth around the Kanmantoo infrastructure, with a focus on the down-dip extensions of the copper-gold lodes previously mined within the Giant and Nugent open pits. Hillgrove is executing a staged strategy for the evaluation of the Underground opportunity, which is designed to efficiently drill test the dominant Cu-Au lodes to confirm depth, width and grade continuity. The Stage 1 drilling undertaken in the difficult COVID-19 pandemic circumstances of 2020 was aimed at confirming that the key Cu-Au lodes of Kavanagh and Nugent extend at least 150m below the extent of the respective pits with adequate grade and width to support underground mining. A total of 14 diamond drill holes were drilled with the highlights from this drilling1 including: Central and East Kavanagh ½ KTDD190_W2 20.3m @ 2.07% Cu, 0.67 g/t Au, 7.0 g/t Ag from ½ KTDD197 Nugent ½ KTDD192 ½ KTDD194 ½ KTDD195 West Kavanagh ½ KTDD189 490.0m downhole 20.65m @ 2.01% Cu, 0.42 g/t Au, 6.0g/t Ag from 326.6m downhole 10m @ 1.43% Cu, 0.46 g/t Au, 1.6 g/t Ag from 295m downhole 6.0m @ 1.13% Cu, 1.86 g/t Au, 1.9 g/t Ag from 281m downhole 11m @ 1.15% Cu, 0.58 g/t Au, 2.9 g/t Ag from 301m downhole 16.7m @ 1.27% Cu, 0.08 g/t Au, 2.7 g/t Ag from 496m downhole 1 Intersections at a 0.6% Cu cut-off grade over a minimum of 3m horizontal width. D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 2 e g a P Hillgrove Projects (cont.) KANMANTOO UNDERGROUND DEVELOPMENT (cont.) These drill holes demonstrate that the mineralisation extends for at least 150m below the extent of the respective pits and led to the release of a maiden Mineral Resource Estimate (MRE) for West Kavanagh and Nugent, and an updated MRE for the Kavanagh Zone during the December 2020 Quarter2. The highlights of the 2020 MRE include: ½ A 110% increase in the total estimated Cu metal from 16.2k tonnes to 34.4k tonnes of copper in the Resources below the open pits within 12 months. ½ The copper and gold grades of the resource estimates continue to support the Company’s investigations of the economic viability for an underground operation at Kanmantoo. ½ The resource estimates only cover a portion of the Nugent, the West Kavanagh, and Kavanagh areas and there is considerable opportunity to increase the resources with further drilling on these and adjacent mineralised lodes. ½ The resource estimates are all constrained by the extent of the drilling and not by the geology, in both the along strike and dip directions. Following the capital raise in December 2020, the 2021 Kanmantoo drilling program commenced in January 2021, focussing initially on the Kavanagh lodes. The drilling program seeks to expand the Underground MRE and infill drill to improve the geological and engineering confidence such that an initial Ore Reserve Estimate may be prepared. The aim is to define sufficient Ore Reserves to support the capital investment required to develop the Underground mining areas. If an Underground operation is developed, cash flows from the Underground operation will enable the drill testing of the proximal Cu-Au lodes which were mined within the open pits (for example North Kavanagh, Spitfire, SW Kavanagh as shown in the figure below). These lodes have the potential to significantly uplift the value of the Underground operation for relatively low incremental capital cost as they would potentially utilise the development infrastructure from the main Kavanagh lodes. H I L L G R O V E R E S O U R C E S I I L M T E D 6114400mN 6114800mN 6115200mN Final Nugent Open Pit Final Giant Open Pit 1200mRL NorthKavanagh Open 1000mRL Kavanagh MRE 800mRL A N N U A L R E P O R T 2 0 2 0 P a g e 3 Kavanagh Open 600mRL West Kavanagh Open Nugent MRE Nugent Open SW Kavanagh Open West Kavanagh MRE Blast Holes > 2% Cu 0 200 metres Kanmantoo MRE & Drill Targets Sectional View Looking West of 2019-2020 MREs 2 Refer ASX announcement of 7 December 2020. Hillgrove Projects (cont.) NEAR MINE EXPLORATION The Company continues to advance the exploration of its Cu-Au targets within 10 kms of the Kanmantoo processing plant. These include the previously announced3 Stella and North West Kanmantoo geochemical and geophysical targets. 6120000mN 316000mE NORTH WEST 320000mE ain m o ral D ctu u Str MineAlteration Corridor 6116000mN ain m o ral D ctu u Str 6112000mN KANMANTOO STELLA Old Cu-Au shafts 0 NORTH 2 kilometres Kanmantoo Airmagnetics & Structural Trends Plan View of the Location of Projects Within 10km of Kanmantoo Copper Mine Stella The 2019 3D MT (magneto-telluric) geophysical survey has identified the Stella zone as a coincident magnetic high, conductivity high and gravity low target commencing at around 200m below surface. Nearby drilling has intersected a 60m wide zone of chlorite-pyrrhotite- garnet alteration with attendant Cu-Au mineralisation (ASX release of 29 April 2019). This target is now ready for drill testing. North West Mapping and sampling has identified a 2.4km long zone of Cu-Au anomalism coincident with a strong magnetic high and broad widths of iron-oxide alteration and iron-oxide brecciation at surface, within 4.5kms of the Kanmantoo processing plant. The rock chip sampling, where possible, across the North-West Kanmantoo area has identified mineralisation with a strong magmatic association including: ½ Rock chip samples to 2.2 g/t Au, 0.1% Cu (not the same sample). ½ Elevated Mo, Bi, Co, Sn, U, La. The area has not previously been drilled by Hillgrove or its predecessors. 3 ASX release of 29 April 2019 Cu-Au and Cu-Mo zones uncovered by exploration D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 4 e g a P Hillgrove Projects (cont.) REGIONAL EXPLORATION South East Delamerian The Regional area comprises 5,652 sq kms of exploration licences in the south-east of South Australia, within the Delamerian Orogen. In a recent publication by the Geological Survey of South Australia4, the Survey notes the similarities between the Delamerian Orogen tectonic setting and its high- level granitic to dioritic intrusives in South Australia, with the geology of the large Porphyry Cu-Mo-Au deposits in south-east China (e.g. Dexing, 9.7Mt of Cu metal, 265 t Au). These observations support Hillgrove’s exploration activities in this Orogen. Kanappa Copper-Gold Exploration Hillgrove has previously reported the results of the diamond drilling at Kanappa that intersected copper-gold mineralisation within a skarn mineralising system. Kanappa is approximately 65 kms by road from the Kanmantoo operation. The petrology work on a suite of samples from all drill holes by internationally respected alteration petrologist, Dr Roger Taylor, has clearly identified the mineralisation as an overprinting Cu-Au rich skarn with attendant alteration stages including garnet- pyroxene, amphibole-magnetite, and copper and iron sulphides. A review of the whole rock geochemistry of the monzonites intersected by the drill holes shows that the magmatic system is classified as a Volcanic Arc Granite and classified within the Loucks (2014) porphyry fertility field. These drill results confirm the Company’s view that the Kanappa area is prospective for large scale magmatic related copper- gold mineral deposits and further work is continuing in the area. Mt Rhine Copper-Gold Exploration The Company had previously identified two significant zones of copper-gold at Mt Rhine through a systematic soil and rock chip sampling program. In 2018, the stronger copper-gold zone was covered with a program of ground magnetics and pole-dipole IP which indicated a 1.7km long anomaly for drill targeting. Field inspection of the copper-gold and conductivity anomaly has located a series of carbonate Cu-Fe skarns over a strike length of 1km. These have never been drilled and present as a large scale Cu-Au magmatic target similar to the Kanappa style mineralisation. The Mt Rhine Project is 80kms via existing roads from the Kanmantoo processing plant and 12kms north of the Kanappa copper-gold project. PUMPED HYDRO ENERGY STORAGE PROJECT In February 2020, Hillgrove announced that Hillgrove and AGL have mutually agreed to terminate the PHES Project Agreement and associated project documents and effect a clean break without any further obligations on either party. The termination of the agreement enabled Hillgrove to advance the Kavanagh Underground project. Hillgrove may seek to promote the PHES in the future as a post mining land use at Kanmantoo as the Kanmantoo PHES project remains competitive due to the difference in elevation between the base of the pit and an upper reservoir, its proximity to the South Australian Electricity Interconnector, water availability, its land holding on surrounding properties, and the South Australian electricity market requirements. Hillgrove also believe the rationale for large energy storage solutions remains sound as Australia tackles climate change through energy policy. INDONESIAN PROJECTS In October 2020, Hillgrove successfully withdrew from Indonesia, through the sale of its Indonesian subsidiaries PT Akram Resources and PT Fathi Resources. With the carrying value of these assets being fully impaired in 2015, the transaction resulted in an improvement of the balance sheet (through a reduction in liabilities) of $2.2M. 4 Mesa Journal 93, 2020, p47-53 H I L L G R O V E R E S O U R C E S I I L M T E D A N N U A L R E P O R T 2 0 2 0 P a g e 5 Mineral Resource, Ore Reserve & Exploration Target MINERAL RESOURCES FOR KANMANTOO As at 31 December 2020 On 7 December 2020, the Company released an updated Mineral Resource Estimate for the first of its underground opportunities on a portion of the deeper Kavanagh mineralisation beneath the Giant Open Pit. The Mineral Resource Estimate does not include any Ore Reserve and is estimated at a cut-off grade and geologic continuity suitable for eventual underground studies for its exploitation. The Table below summarises the Mineral Resource Estimate (“MRE”) for the Kavanagh, West Kavanagh and Nugent underground areas at 0.8% Cu cut-off grade. MINERAL RESOURCE ESTIMATE FOR THE KANMANTOO UNDERGROUND AREA Mine Kavanagh West Kavanagh Nugent Totals JORC 2012 Classification Indicated Inferred Sub-Total Indicated Inferred Sub-Total Indicated Inferred Sub-Total Indicated Inferred Total Tonnage (kt) 583 560 1,143 105 300 406 202 457 659 890 1,318 2,208 Cu (%) 1.97 1.7 1.83 1.42 1.1 1.18 1.40 1.3 1.32 1.77 1.4 1.56 Au (g/t) 0.24 0.2 0.24 0.06 0.06 0.06 0.47 0.7 0.61 0.27 0.4 0.32 Ag (g/t) 6.0 5 5.6 2.0 2.0 2.0 3.2 2.7 2.8 4.9 3.5 4.1 Cu Metal (kt) 11.5 9 20.9 1.5 3 4.8 2.8 6 8.7 15.8 19 34.4 The information in this report that relates to the Mineral Resources on the Kavanagh underground project were initially reported by the Company to ASX on 7 December 2020. The Company confirms that it is not aware of any new information or data that materially affects the information included in the original market announcement and that all material assumptions and technical parameters underpinning the estimate in the relevant market announcement continue to apply and have not materially changed. The Company confirms that the form and context in which the Competent Person’s findings are presented have not been materially modified from the original market announcement. The 2020 Mineral Resource Estimate for the Nugent, West Kavanagh and Kavanagh underground area is based upon information compiled by Mr Peter Rolley, who is a Member of The Australian Institute of Geoscientists. Mr Rolley is a full-time employee of Hillgrove Resources Limited and has sufficient experience relevant to the styles of mineralisation and type of deposit under consideration to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code)’. Mr Rolley has consented to the inclusion in the release of the matters based on their information in the form and context in which it appears. D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 6 e g a P Mineral Resource, Ore Reserve & Exploration Target (cont.) STATEMENT OF ORE RESERVES As at 31 March 2020 STATEMENT OF EXPLORATION TARGETS As at 31 December 2020 The Kanmantoo Exploration Target was reported on 23 February 2021. These Exploration Targets are all located within Hillgrove’s Kanmantoo Mining Lease and are all extensions of along strike or down dip Cu-Au lodes mined by the Company’s open pits or intersected by diamond drilling undertaken by Hillgrove. In summary, Hillgrove has approximated an Exploration Target for the Kanmantoo Mine Lease area of between eight and sixteen million tonnes with a target grade of between 1.0% and 2.0% Cu and 0.2 g/t to 0.4 g/t Au. The Exploration Target is in addition to the Mineral Resource Estimate. Kanmantoo Exploration Target By Zone Zone Coopers North Kavanagh Kavanagh West Kavanagh South-West Kavanagh Spitfire Nugent Paringa Emily Star TOTAL Maximum RL Depth Tonnage Range Metres Mt Grade Range Cu% Grade Range Au g/t 600 600 400 400 600 600 600 900 900 0.1 - 0.3 0.1 - 0.7 2.0 - 3.5 1.0 - 2.0 0.8 - 1.0 0.4 - 0.7 1.5 - 2.5 0.5 - 1.5 2.0 - 4.5 1.5 – 2.0 0.4 – 0.8 1.5 – 2.0 0.4 – 0.8 1.0 – 2.0 0.2 – 0.4 0.8 – 1.5 0.02 – 0.05 1.8 – 2.2 0.1 – 0.4 1.5 – 2.0 0.8 - 1.5 1.1 - 2.2 1.2 - 2.2 1.5 - 3.0 0.2 - 0.6 0.1 - 0.2 0.1 - 0.3 8 - 16 1.0 – 2.0 0.2 – 0.4 The information that relates to Exploration Target and Exploration Results was first reported by the Company to the ASX on 23 February 2021 and is based on and fairly represents information and supporting documentation compiled by Peter Rolley, a Competent Person, a full time employee of Hillgrove Resources Limited, and a member of the Australian Institute of Geoscientists. Mr Rolley has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity being undertaken to qualify as a Competent Person as defined in the 2012 edition of the ‘Australian Code for Reporting Exploration Results, Mineral Resources and Ore Reserves’. Mr Rolley consents to the inclusion in the report of the matters based on his information in the form and context in which it appears. H I L L G R O V E R E S O U R C E S I I L M T E D A N N U A L R E P O R T 2 0 2 0 P a g e 7 As a result of the cessation of open pit mining operations at Kanmantoo in May 2019 resulting from the depletion of all Ore Reserves within the Giant Open Pit, and the completion of milling of all stockpiles in March 2020, there is no longer an Ore Reserve reported for the Kanmantoo District. The information in this release that relates to the Ore Reserve is prepared by a Competent Person in accordance with the JORC Code 2012. Further information on the Kanmantoo Ore Reserves is available in the Hillgrove Updated Ore Reserve Estimate released to the ASX on 18 October 2016. Hillgrove Resources confirms that it is not aware of any new information or data that materially affects the information included in that market announcement and in the case of estimates of Ore Reserves for open pit mining that all material assumptions and technical parameters underpinning the estimates in the relevant market announcement continue to apply and have not materially changed except for open pit mining and processing depletion. Hillgrove Resources confirms that the form and context in which the findings of the Competent Person Lachlan Wallace in relation to the Ore Reserve estimates are presented, have not been materially modified from the original market announcement apart from mining and processing depletion. Mr Wallace (MAusIMM) is a full-time employee of Hillgrove Resources Limited. Mr Wallace has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity being undertaken to qualify as a Competent Person as defined in the 2012 edition of the ‘Australian Code for Reporting Exploration Results, Mineral Resources and Ore Reserves’. Mr Wallace consents to the inclusion in this report of the matters based on their information in the form and context in which it appears. Sustainability: Environment, Safety and Community We continue to produce and harvest native seed as well as conduct wild seed collection to ensure there are sufficient propagules to enable this important work. Strategic community engagement continues utilising the long established Community Engagement Plan. Regular reviews and modifications to the plan continue to ensure engagement of the community remains effective and productive. We remain pro-active in meeting the ongoing challenges and impacts of our site through the use of real-time monitoring and alert systems focused on dust prevention. There is however always room for improvement and as such we utilise working groups made up of community and committee members and regulators to drive actions and ideas to improve performance. Hillgrove’s Sustainability and Work Health & Safety Policies provide a strong, ethical foundation for our approach to health, safety, environment and community (HSEC) responsibilities. Supporting these policies, Hillgrove has implemented an Integrated Risk Management System (Kan-do) across our operations. The system incorporates a prioritised risk based approach and continual improvement framework, ensuring our HSEC policy objectives and legislative compliance are achieved. D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 8 e g a P To reduce the risks as low as reasonably practicable, the Kan-do system provides the appropriate safe systems of work, clearly outlined responsibilities and accountabilities, and a strong audit framework. Hillgrove has identified its Principal HSEC risks and implemented the appropriate control measures. The Kan-do system is driven by effective leadership, the acceptance of individual responsibility and the promotion of a risk aware culture across its operations. Prudent and environmentally responsible operational management at Kanmantoo has helped reduce our overall rehabilitation expenditure, while building our reputation with the community as a good neighbour and an ethical mining operator. Progressive rehabilitation of the site continued in 2020, including shaping and seeding of additional areas of the site including the Integrated Waste Landform (IWL) – comprised of our waste rock and the tailings storage facility, and the backfilled Emily pit. The wetter than average weather conditions experienced in 2020 assisted in advancing the growth of vegetation on these seeded areas. The only disturbed areas on the site required to be rehabilitated that remain unseeded are: the top of the Tailings Storage Facility (TSF), rock stockpiles required for future TSF expansion and mine closure, site access roads and the processing plant area. The establishment of high quality native vegetation on adjacent land is assisting us to return up to 10 hectares of high quality rehabilitated land to the community for every hectare of native vegetation we have disturbed. The establishment of this vegetation has been integrated into a “Community Master Plan” to ensure the presence of the mine delivers real benefit to the impacted community and the natural environment. Financial Report Contents Directors’ Report Remuneration Report (audited) Auditor’s Independence Declaration Consolidated statement of profit or loss and other comprehensive income Consolidated balance sheet Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the Consolidated Financial Statements Directors’ Declaration Independent Auditor’s Report Shareholder Information 10 17 28 29 30 31 32 33 55 56 63 These financial statements are the consolidated financial statements for the consolidated entity consisting of Hillgrove Resources Limited and its subsidiaries. The financial statements are presented in the Australian currency. Hillgrove Resources Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Hillgrove Resources Limited Ground Floor, 5-7 King William Road, Unley, South Australia 5061 The financial statements were authorised for issue by the Directors on 26 February 2021. The Directors have the power to amend and reissue the financial statements. Through the use of the internet, we have ensured that our corporate reporting is timely and complete. All press releases, financial reports and other information are available at our Investors’ Centre on our website www.hillgroveresources.com.au for the year ended 31 December 2020 Directors’ Report The Directors present their report on the consolidated entity (referred to hereafter as “the Group”) consisting of Hillgrove Resources Limited (Hillgrove or the Company) and the entities it controlled during the 12 months ended 31 December 2020. PRINCIPAL ACTIVITIES Hillgrove is an Australian mining company listed on the Australian Securities Exchange (ASX: HGO) and focused on the development of the Kanmantoo Underground Copper Mine in South Australia and mineral exploration in the south-east of South Australia. The Kanmantoo Copper Mine is located less than 55 kilometres from Adelaide in South Australia. DIRECTORS AND OFFICERS The Directors and Officers of the Company during the whole of the financial year and up to the date of this report are: Name/Qualifications Experience and Special Responsibilities Mr Derek Carter Qualifications Experience Independent Non-Executive Chairman / Chairman Nomination and Remuneration Committees BSc, MSc, FAusIMM Derek has over 40 years’ experience in exploration and mining geology and management. He held senior positions in Burmine Ltd and the Shell Group of Companies where he was responsible for discovering the Los Santos tungsten deposit in Spain, before founding Minotaur Gold NL in 1993. He resigned as Chairman of Minotaur Exploration Ltd in November 2016. Derek was awarded AMEC’s Prospector of the Year Award (jointly) in 2003 for the discovery of the Prominent Hill copper-gold deposit, the AusIMM President’s Award and is a Centenary Medallist. Derek is currently the Chairman of Petratherm Limited (ASX: PTR). Derek is a member of the Audit and Risk Committee. Appointed 24 April 2020. Mr Murray Boyte Non-Executive Director / Chairman Audit and Risk and Treasury Committees Qualifications Experience BCA, CA, MAICD Murray joined the Board in May 2019, as a Non-Executive Director replacing Maurice Loomes. Murray has over 35 years’ experience in merchant banking and finance, undertaking company reconstructions, mergers and acquisitions in Australia, New Zealand, North America and Hong Kong. Murray holds a Bachelor of Commerce and Administration from the Victoria University in Wellington and is a member of the Australian Institute of Company Directors, the Institute of Directors of New Zealand and Chartered Accountants Australia & New Zealand. In addition, Murray has held executive positions and directorships in the transport, horticulture, finance service, investment, health services and property industries. Murray is currently the Chairman of Eureka Group Holdings (ASX: EGH) and National Tyre & Wheel Limited (ASX: NTD). Murray is a member of the Remuneration and Nomination Committees. Appointed 10 May 2019. Mr Lachlan Wallace Chief Executive Officer and Managing Director Qualifications Experience BEng (Mining Hons), MSc (Mineral & Energy Economics), MBA, MAusIMM, GAICD Since joining Hillgrove in 2012, Lachlan held various operational roles at the Kanmantoo Copper Mine including General Manager before becoming the Chief Executive Officer and Managing Director in 2019. Previously, Lachlan was responsible for Stemcor’s global mining assets, developing their iron ore and manganese portfolio in India and nickel project in Indonesia at a time when Stemcor’s annual turnover exceeded £6Bn. In addition, Lachlan chaired a JV between Stemcor and an Indonesian partner to facilitate thermal coal trade flows ex-Indonesia. Lachlan has held technical, managerial and consulting roles in Africa and Australia, including Anglo Gold Ashanti’s Siguiri gold project in Guinea, the Lumwana copper mine in Zambia, and the Savage River iron ore mine in Tasmania. Lachlan is a member of the Treasury Committee. Appointed 24 May 2019. D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 0 1 e g a P Directors’ Report (cont.) DIRECTORS AND OFFICERS (CONT.) Mr Joe Sutanto Chief Commercial Officer & Company Secretary Qualifications Experience BCom, MBA, CPA Joe joined Hillgrove in 2011 and has held a number of roles within the finance team, which spanned commercial and planning to financial control before becoming the Chief Commercial Officer and Company Secretary in 2020. Prior to Hillgrove, Joe held a number of roles which included as a corporate finance executive at PwC Corporate Finance, commodities trader at Glencore, and as an auditor at KPMG. A CPA qualified accountant, Joe completed his MBA at HKUST and London Business School. Joe is a member of the Treasury Committee. Appointed 10 July 2020. Retired Directors and Officers Mr John Gooding Independent Non-Executive Chairman / Chairman Nomination and Remuneration Committees Resigned 24 April 2020. Mr Philip Baker Independent Non-Executive Director / Chairman Audit and Risk and Treasury Committees Resigned 20 May 2020. Mr Antony (Tony) Breuer Independent Non-Executive Director Resigned 24 April 2020. Mr Paul Kiley Chief Financial Officer & Company Secretary Resigned 10 July 2020. H I L L G R O V E R E S O U R C E S I I L M T E D Directors’ Meetings The number of Directors’ meetings and number of meetings attended by each of the Directors of the Company during the twelve month period are: Meetings Held Board Remuneration Committee Audit Committee Nomination Committee Director Mr D Carter Mr M Boyte Mr L Wallace Mr J E Gooding Mr P Baker Mr A Breuer A 12 18 18 6 7 6 B 12 18 18 6 7 6 A 4 6 6 2 2 2 B 4 6 6 2 2 2 A 2 4 4 2 3 2 B 2 4 4 2 3 2 A - 2 - 2 2 2 B - 2 - 2 2 2 Treasury Committee A B - - - - - - - - - - - - A – Number of meetings held during the Directors time in office B – Number of meetings attended A N N U A L R E P O R T 2 0 2 0 P a g e 1 1 Directors’ Report (cont.) RESULTS Revenue from ordinary activities Profit / (Loss) from ordinary activities after tax attributable to the owners of Hillgrove Resources Limited Profit / (Loss) for the period attributable to the owners of Hillgrove Resources Limited CY20 $20.2m ($5.9m) ($5.9m) CY19 $113.5m ($10.0m) ($10.0m) For the year ended 31 December 2020, the net loss after tax was $5.9 million compared to a net loss after tax of $10.0 million for the year ended 31 December 2019. The underlying EBITDA for the year was a loss of $3.7 million compared to an EBITDA of $12.1 million for 2019. The lower level of EBITDA profitability compared to the previous year was a result of the Company’s transition from a producer (with the processing of low grade stockpiles) to an explorer and developer in March 2020. As a result of the costs associated with exploration and development along with site optionality costs such as care and maintenance as well as rehabilitation, the closing cash balance decreased from $9.3 million at the end of 2019 to $5.6 million at the end of 2020. Income Statement Overview Copper revenue Gold revenue Silver revenue Less: Treatment and refining costs NET REVENUE FROM SALE OF CONCENTRATE Mining costs Pre-strip and deferral Processing costs Transport and shipping costs Other direct costs Care and maintenance costs Inventory movements Royalties Corporate costs TOTAL COSTS Gain on sale of Indonesian operations Other income EBITDA Depreciation and amortisation Exploration and project costs written off EBIT Net interest and financing charges Income tax benefit/(expense) NET PROFIT AFTER TAX 12 mths to Dec 2020 12 mths to Dec 2019 $ million 19.6 1.7 0.4 (1.5) 20.2 - - (6.5) (1.5) (2.3) (1.3) (9.2) (0.9) (4.2) $ million 116.1 6.3 2.0 (10.9) 113.5 (21.2) (7.9) (31.4) (7.0) (4.4) - (20.9) (5.4) (4.9) (25.9) (103.1) 1.9 0.1 (3.7) (1.9) (0.1) (5.7) (0.2) - (5.9) - 1.7 12.1 (14.7) (3.0) (5.6) (0.7) (3.7) (10.0) Change $ million (96.5) (4.6) (1.6) 9.4 (93.3) 21.2 7.9 24.9 5.5 2.1 (1.3) 11.7 4.5 0.7 77.2 1.9 (1.6) (15.8) 12.8 2.9 (0.1) 0.5 3.7 4.1 Revenue for the year was from the sale of 4,056dmt of copper concentrate containing 1,885 copper tonnes (for the year to 31 December 2019: 59,172dmt and 13,073 copper tonnes). Total costs were $25.9 million compared to $103.1 million for the previous year. The significant reduction in costs were a result of the completion of stockpiles processing. D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 2 1 e g a P Directors’ Report (cont.) RESULTS (Cont.) Cash Flow Overview Net cash inflows from operating activities Net cash used in investing activities Net cash inflows/ (outflows) from financing activities Net increase/(decrease) in cash held Cash and cash equivalents at the end of the year Operating Activities Cash Flow 12 mths to Dec 2020 12 mths to Dec 2019 $ million $ million (3.0) (2.7) 2.0 (3.7) 5.6 21.8 (5.4) (9.5) 6.9 9.3 Change $ million (24.8) 2.7 11.5 (10.6) (3.7) Cash received in the course of operations amounted to $20.2 million and relates to the sale of copper concentrate during 2020 together with the receipt of trade receivables from 2019. Cash payments in the course of operations totalled $23.2 million and include payments for copper concentrate production, corporate and administration costs and the costs relating to care and maintenance activities. With the completion of processing operations in March 2020, direct comparison between 2019 and 2020 cashflows would provide little benefit and has not been provided. H I L L G R O V E R E S O U R C E S Trade creditors and other payables are on normal commercial terms. Investing Activities Cash Flow Net cash outflow from investing activities was $2.7 million compared to an outflow of $5.4 million in the previous corresponding period. Of the $2.7 million, $2.0 million related to underground expansion works, which are classified as mine development (2019: $2.0 million). Expenditure on regional exploration licences amounted to $0.7 million (2019: $0.9 million). Financing Activities Cash Flow In 2020 there was a net cash inflow of $2.0 million from financing activities. Net receipts of $2.2m relating to Tranche 1 of the capital raising were offset by payments totalling $0.2 million for the repayment of leases. The net cash outflow of $9.5 million in 2019 was largely driven by the payment of a dividend to shareholders. Balance Sheet Overview 12 mths to Dec 2020 12 mths to Dec 2019 $ million $ million Change $ million Cash Receivables Inventories Property, Plant & Equipment Exploration Total Assets Trade Payables Provisions Borrowings Employee Benefits Deferred Income Total Liabilities Net Assets / Equity 5.6 0.8 1.8 24.4 3.2 35.9 1.1 10.5 - 1.0 - 12.7 23.2 9.3 3.1 12.1 24.2 2.6 51.3 8.6 12.3 0.3 3.3 0.5 25.0 26.3 (3.7) (2.3) (10.3) 0.2 0.6 (15.4) 7.5 1.8 0.3 2.3 0.5 12.3 (3.1) I I L M T E D A N N U A L R E P O R T 2 0 2 0 P a g e 1 3 Directors’ Report (cont.) RESULTS (Cont.) Total assets decreased by $15.4 million to $35.9 million, largely as a result of the decrease in inventories. This was due to the processing of the low grade stockpiled ore as well as the sale of copper concentrate on hand. Total liabilities decreased by $12.3 million to $12.7 million. This decrease was largely due to the pay down of trade creditors and employee benefits, both driven by the completion of processing of stockpiled ore (ie pay down of creditors related to processing and employee benefits of processing staff). In addition to this, provisions decreased as a result of rehabilitation works completed during the year. OPERATING REVIEW Production for the year was 1,885 tonnes of copper in concentrate and 776 ounces of gold in concentrate. Completion of processing the stockpiled ore occurred in March 2020, on time and without injury. As a result, the number of employees was reduced from 55 at the beginning of the year to a full-time equivalent of 8.8 at the end of the year. The remaining employees are focussed on the development of the Kanmantoo Underground Project (Underground), rehabilitation in order to reduce future liabilities, and care and maintenance of the existing processing plant in order to enable a rapid low- cost restart for the Underground. OUTLOOK AND FUTURE DEVELOPMENTS The focus of the Company will predominantly be directed towards further advancing the Underground project, with the key steps to be undertaken as follows: ½ Expansion of the Underground Resource; ½ Infill drill to improve the geological confidence such that an initial Ore Reserve Estimate may be prepared for the Underground; ½ Drill test depth extensions; ½ Completion of a feasibility study; and ½ Reach a final investment decision. Subject to a positive final investment decision, assess the optimal financing structure for the development of the Underground. In addition to the activities related to the Underground, the Company will also continue to explore and evaluate its near mine as well as regional prospects. GUIDANCE The Company’s actual performance against its 2020 guidance is summarised in the table below. Copper production was in line with 2020 guidance, while gold production and C1 costs were better than guidance. CY20 2020 Guidance Actuals Copper produced 1,650 to 2,150 tonnes 1,855 tonnes Gold produced 450 to 700 ounces 776 ounces C1 costs US$2.55 to US$2.75 per lb US$2.52 per lb CAPITAL RAISINGS On 17 December 2020, the Company announced a combined equity raising of up to $10.9 million at $0.031 per share. The raising consisted of the following: ½ Placement Tranche 1 – the issue of 76,209,676 new fully paid ordinary shares pursuant to the Company’s available placement capacity under ASX Listing Rules 7.1 raising gross proceeds of $2.4 million (before transaction costs of $0.2 million); ½ Placement Tranche 2 – subject to shareholder approval, the issue of 185,080,646 new fully paid ordinary shares to raise $5.7 million; and ½ Entitlement Offer – non underwritten non-renounceable offer to raise gross proceeds of up to $2.8 million through the issue of approximately 90.1 million shares. Proceeds from Placement Tranche 1 was received in the current period. IMPACT OF COVID-19 ON OPERATIONS With the outbreak of COVID-19 in the first quarter of 2020, the Company implemented controls such that there was no material impact to stockpile processing operations, which was completed in March 2020. It did however, impact Kanmantoo Underground exploration and development activities, with the suspension of drilling and ground works for approximately two months. These activities recommenced in June 2020. As the impact of COVID-19 continues to evolve, the Directors cannot reasonably estimate the effects that the COVID-19 pandemic could have on future periods. There is uncertainty about the length and potential impact of any resultant disturbance. As a result, we are unable to estimate the potential impact on the Group’s future operations as at the date of these Financial Statements. D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 4 1 e g a P Directors’ Report (cont.) IMPACT OF COVID-19 ON OPERATIONS (cont.) During the year ended 31 December 2020 the group received government assistance through JobKeeper of $583,800 which was treated as a reduction in expenses and $100,000 COVID Cash Boost which has been recognised as other income. DIVIDENDS There were no dividends paid during the current period. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS Other than those matters listed in this report there have been no significant changes in the affairs of the Group during the period. EVENTS SUBSEQUENT TO BALANCE DATE Subsequent to year end, the Company completed and received the funds from the capital raising that was contemplated in the announcement of 17 December 2020. Whilst the Placement Tranche 1 was completed in the current period, the following was completed subsequent to the balance date: ½ Placement Tranche 2 – shareholder approval for the issue of 185,080,646 new fully paid ordinary shares to raise gross proceeds of $5.7 million; and ½ Entitlement Offer – the non underwritten non-renounceable offer closed oversubscribed, with $3.4m of subscriptions. As there were applications for more shortfall shares than what was available under the Top Up Facility, it was necessary for the Company to scale back applications. The entitlement offer raised gross proceeds of $2.8 million through the issue of 90,090,541 shares. LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS Likely developments in the operations of the group in the short to medium term will largely be focussed on the exploration and development potential of Hillgrove’s tenements. For further details on each of these, refer to the review of operations section of this report. ENVIRONMENTAL REGULATION Closure of an operation brings with it potential significant financial, environment, and social impacts. Recognising this, a closure management plan for Kanmantoo has been prepared, which includes long term monitoring to verify that controls are effective and standards are maintained. The consolidated entity engages appropriately experienced contractors and consultants to advise on and ensure compliance with environmental regulations in respect of its exploration and development activities. There have been no reports of material breaches of environmental regulations in the financial period and at the date of this report. INDEMNIFICATION AND INSURANCE OF OFFICERS Officers’ Indemnity Article 7.3(a) of the Company’s Constitution provides that “To the extent permitted by law, the Company must indemnify each Relevant Officer against: (i) a Liability of that person; and (ii) Legal Costs of that person”. The Company indemnifies every Officer against any liability or costs and expenses incurred by the person in his or her capacity as Officer of the Company: ½ in defending any proceedings, whether civil or criminal, in which judgement is given in favour of the person or in which the person is acquitted, or ½ in connection with an application, in relation to such proceedings, in which the Court grants relief to the person under the Corporations Law. Indemnity of Auditors Hillgrove Resources Limited has agreed to indemnify their auditors, PricewaterhouseCoopers, to the extent permitted by law, against any claim by a third party arising from Hillgrove Resources Limited’s breach of their agreement. The indemnity stipulates that Hillgrove Resources Limited will meet the full amount of any such liabilities including a reasonable amount of legal costs. H I L L G R O V E R E S O U R C E S I I L M T E D A N N U A L R E P O R T 2 0 2 0 P a g e 1 5 Directors’ Report (cont.) INDEMNIFICATION AND INSURANCE OF OFFICERS (cont.) Directors’ and Officers’ Insurance During the financial year, the Company paid a premium in respect of a contract for directors’ and officers’ liability insurance. It is a condition of this Policy that each Insured and/or any persons at their direction or on their behalf shall not disclose the existence of any Coverage Section, its Limits of Liability, the nature of the liability indemnified, or the premium payable. The Board is committed to following ASX Corporate Governance Council Corporate Governance Principles and Recommendations. The Company adopts these best practice recommendations in its policies and procedures where it is appropriate to do so, given the size and type of Company and its operations. The Board has a process of reviewing all policies and corporate governance processes. Charters are reviewed and updated periodically. These charters provide the framework and roles of respective committees for the appointment of Non-Executive Directors to undertake specific responsibilities on behalf of the Board. Details of the corporate governance policies adopted by the Company and referred to in this statement are available on the Company’s website at www.hillgroveresources.com.au. D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 6 1 e g a P Proceedings on Behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of the Corporations Act 2001. Non-Audit Services The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Company and/or the consolidated entity are important. Details of the amounts paid or payable to the auditor (PricewaterhouseCoopers) for audit and non-audit services provided during the period are set out in Note 7 (e). The Audit and Risk Committee has considered the position and is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor did not compromise the auditor independence requirements of the Corporations Act 2001. None of the services provided undermine the general principles relating to auditor independence as set out in Professional Statement F1, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risk and rewards. A copy of the Auditors’ Independence Declaration as required under section 307C of the Corporations Act 2001 is set out on page 28. Directors’ Report (cont.) REMUNERATION REPORT (AUDITED) The Directors of Hillgrove Resources and its Consolidated Entities present the Remuneration Report for the Company for the year ended 31 December 2020, which forms part of the director’s report and has been audited in accordance with section 308 (3C) of the Corporations Act 2001. 1.0 Key Management Personnel Key management personnel comprise the Non-Executive Directors, the Executive Director and Executives (KMP). Details of the KMP are set out in the table below. Non-Executive Directors Mr D Carter Mr M Boyte (Non-independent) Executive Directors Mr L Wallace Change in 2020 Financial Year Part Year Appointed 24 April 2020 Full Year Title (At Year End) Chairman Chairman Nomination Committee Chairman Remuneration Committee Member Audit and Risk Committee Director Chairman Audit and Risk Committee Chairman Treasury Committee Member Nomination Committee Member Remuneration Committee CEO and Managing Director Member Treasury Committee Full Year KMP Departures During the 2020 Financial Year Non-Executive Directors Mr J Gooding Mr P Baker Mr T Breuer KMP Executives Mr P Kiley Title (Prior to Departure) Chairman Chairman Nomination Committee Chairman Remuneration Committee Member Audit and Risk Committee Director Member Nomination Committee Member Remuneration Committee Chairman Audit and Risk Committee Chairman Treasury Committee Director Member Nomination Committee Member Remuneration Committee Member Audit and Risk Committee Chief Financial Officer and Company Secretary Member Treasury Committee Mr G Norris (1) General Manager, Kanmantoo Change in 2020 Financial Year Part Year Resigned 24 April 2020 Part Year Resigned 20 May 2020 Part Year Resigned 24 April 2020 Part Year Resigned 10 July 2020 Part Year Until 31 May 2020 1 Mr Norris remains an employee with Hillgrove Resources however following completion of ore processing and transition to care and maintenance, his role is no longer regarded as KMP. 2.0 Role of the Board and the Remuneration Committee The Board is responsible for the Company’s remuneration strategy and policy. Consistent with this responsibility, the Board has established a Remuneration Committee which is chaired by an Independent Non-Executive Director. The role of the Remuneration Committee is set out in its Charter and in summary is to: ½ Review and approve the Company’s remuneration strategy and policy; ½ Consider and propose to the Board the remuneration of the CEO and consider and approve the remuneration of all designated senior executives; ½ Review and approve Hillgrove Resources’ short term incentive (STI) and long term incentive (LTI) schemes, including amounts, terms and offer processes and procedures; ½ Determine and approve equity awards in accordance with policy and shareholder approvals, including testing of vesting and termination provisions; and ½ Review and make recommendations to the Board regarding remuneration of non- executive directors. Further information on the Remuneration Committee’s role, responsibilities and membership is contained in the Company’s website www.hillgroveresources.com.au. H I L L G R O V E R E S O U R C E S I I L M T E D A N N U A L R E P O R T 2 0 2 0 P a g e 1 7 Directors’ Report (cont.) REMUNERATION REPORT (AUDITED) (cont.) 2.1 Remuneration and Benefits Policy The Company’s approach to remuneration is outlined in the Remuneration and Benefits Policy and is based on providing competitive rewards that motivate talented employees to deliver superior results. Details In the year ending 31 December 2020, the Committee engaged remuneration advisors Egan Associates and received advice relating to future remuneration levels, in particular to future LTI plans. No remuneration recommendations, as defined under section 300A (1) (h) of the Corporations Act 2001 were made by remuneration advisors during the year ended 31 December 2020. 3.0 Non-Executive Director Remuneration Elements D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 8 1 e g a P The Remuneration and Benefits policy aims to: ½ Align employee remuneration to the principles and measurement of Total Shareholder Return (TSR); ½ Present progressive incentive structures to encourage outstanding performance, and hence improved TSR; and ½ Mitigate the business risks associated with poor performance, market movements and employee turnover. The Remuneration Committee Charter and Remuneration and Benefits Policy can be viewed in the Company’s website www.hillgroveresources.com.au. 2.2 Use of Remuneration Consultants The Remuneration Committee is briefed by management however, makes all decision free of influence of management. Further to the management briefings, to assist in its decision making, the Committee may, from time to time, seek independent advice from remuneration consultants, and in so doing will directly engage with the consultant without management involvement. Aggregate Board and Committee Fees The total amount of fees paid to non-executive directors in the year ended 31 December 2020 is within the aggregate amount approved by shareholders at the AGM in 2009 of $450,000 a year. The individual amounts paid to directors have decreased during the year. Board/Committee Fees Per Annum Board Chairman Fee Board NED Base Fee $120,000 $75,000 Post-Employment Benefits Superannuation Details Superannuation contributions are made at a rate of 9.5% of base fee (but only up to the Government’s prescribed maximum contributions limit) which satisfies the Company’s statutory superannuation contributions. Contributions are included in the total fee. Other Benefits Details Equity Instruments Non-Executive Directors do not receive any performance related remuneration or performance rights. Other fees/benefits No payments were made to Non-Executive Directors during the 2020 financial year for extra services or special exertions. Directors are entitled to be reimbursed for approved Company related expenditure e.g. flights and expenses to attend Board meetings. 4.0 Executive Remuneration 4.1 Executive KMP remuneration framework Hillgrove Resources’ executive remuneration strategy is designed to attract, retain and motivate a highly qualified and experienced group of Executives. 4.2 Total Fixed Remuneration Total Fixed Remuneration (TFR) includes all remuneration and benefits paid to an Executive KMP calculated on a Total Employment Cost (TEC) basis and includes base salary and superannuation benefits paid in line with the prevailing statutory Superannuation Guarantee legislation. 4.3 Remuneration Composition Mix and Timing of Receipt The Company endeavours to provide an appropriate and competitive mix of remuneration components balanced between fixed and ‘at risk’. The broad remuneration composition mix of the Company’s Executive KMP can be illustrated as follows: Remuneration Mix (Actual) CY 2020 Position CEO/MD Senior Executives (KMP) TFR (Cash) STI (Cash) LTI (Equity) 100% 100% Up to 50% of TFR Up to 50% of TFR Up to 50% of TFR Up to 50% of TFR Note KMPs are classified as Executives for the purposes of remuneration disclosures under the Corporations Act. Directors’ Report (cont.) REMUNERATION REPORT (AUDITED) (cont.) The three complementary components of Executive KMP remuneration are ‘earned’ over multiple time ranges. This is illustrated in the following chart. YEAR 1 August 2020 TFR Performance measured (one year) January 2020 TFR STI LTI YEAR 2 December 2020 December 2021 Performance measured (1 years & 5 months) STI performance period starts and new TFR effective LTI performance period starts STI performance period ends LTI performance period ends 4.4 Variable ‘At Risk’ Remuneration As set out in Section 4.3, variable remuneration forms a portion of the CEO/MD and other Executive KMP remuneration. Apart from being market competitive, the purpose of variable remuneration is to direct Executive’s behaviours towards maximising Hillgrove Resources’ value and return value to shareholders, by targeting short, medium and long term performance measures. The key aspects are summarised below. 4.4.1 Short Term Incentives (STI) STI Program Purpose Performance Target Areas Rewarding Performance The STI arrangements are designed to reward executives for the achievement against annual performance targets set by the Board at the beginning of the performance period. The STI program is reviewed annually by the Remuneration Committee and approved by the Board. All STI awards to the CEO/MD and other KMP are approved by the Remuneration Committee and the Board. The key performance objectives of the Company vary by level but are currently directed to achieving ambitious targets, complemented by the achievement of individual performance goals and Company performance. The Board adopted a Balanced Scorecard approach to determine 2020 STI performance. The Balanced Scorecard measures performance against the Company’s internal goals and published key market guidance metrics each year and includes safety, production, cost control, financial performance and growth measures. The Balanced Scorecard also includes an individual performance component which is a subjective assessment that gives the ability to recognise individuals that have performed above expectations to deliver value for shareholders. A threshold and target is set for each STI outcome. Specific targets are not provided in detail due to commercial sensitivity. Validation of performance against the Balanced Scorecard measures set for the CEO/MD and KMPs involves a review calculation and recommendation by the CEO, reviewed and approved by the Remuneration Committee with final Board sign-off. H I L L G R O V E R E S O U R C E S I I L M T E D A N N U A L R E P O R T 2 0 2 0 P a g e 1 9 Directors’ Report (cont.) REMUNERATION REPORT (AUDITED) (cont.) 4.4.2 Performance Based Remuneration Granted and Forfeited During the Year The following table shows how much of the STI cash bonus was awarded and how much was forfeited for each KMP. KMP Mr L Wallace Mr P Kiley (1) Mr G Norris 2019 Performance 2020 Performance Opportunity ($) Awarded (%) Forfeited (%) Opportunity ($) Awarded (%) Forfeited (%) 210,000 204,300 150,000 30% 25% 30% 70% 75% 70% 210,000 N/A 62,500 (2) 56% N/A 36% 44% N/A 64% (1) Mr Kiley resigned on 10 July 2020. (2) Apportioned for the period Mr Norris was a KMP. Board approval for the STI related to the 2019 performance occurred in February 2020, with payment made in March 2020. Board approval and payment for the STI related to the 2020 performance occurred in January 2021. 4.4.3 Long Term Incentives (LTI) Plans The LTI provides an annual opportunity for executives and key staff to receive an equity award that is intended to align a significant portion of an executive’s overall remuneration to shareholder value over the longer term. All LTI awards remain at risk and subject to clawback (forfeiture or lapse) until vesting and must meet or exceed relative TSR performance hurdles over the vesting period, along with other performance criteria. Following the termination of the agreement with AGL Energy Limited (AGL) to sell the pumped hydro energy storage project in February 2020, and pivoting the business strategy towards the development of the Kanmantoo Underground, the Board decided that the cash based Key Employees Plan (KEP) granted in July 2019 was no longer an appropriate LTI scheme for the revised business strategy. As such, the cash based KEP was replaced with the Option & Performance Rights Plan in August 2020 (2019 OPRP), which enables the Company to focus the Company’s cash resources towards the exploration and development activities associated with the Kanmantoo Underground. Details of the 2019 OPRP along with the cessation of the KEP are outlined in more detail below. Cessation of KEP When the KEP was implemented in 2019, the Company was focussed on completing the Kanmantoo open pit, processing the remaining stockpiles, and monetising the pumped hydro energy storge opportunity which had been sold to AGL. The KEP was designed to align Executive remuneration with delivering these outcomes. During 2019, drilling was undertaken which culminated in the maiden underground mineral resource estimate for Kanmantoo and demonstrated the potential value of underground mining at Kanmantoo. In addition, the agreement with AGL was terminated and the Company commenced a 5.3km drilling program aimed at evaluating the depth extensions for the underground. The successful drill program increased the estimated copper metal by 110% and demonstrated that the mineralisation continued for at least 150m below the open pit. Additional funds that were raised in late 2020 are expected to complete the drilling program and studies to enable an investment decision towards the end of 2021, which in turn will require additional funds to be raised around the same time as when the cash based KEP would have vested. The Board determined that it was not in the best interest of Shareholders, the Kanmantoo Underground, or the Company to be obliged to potentially make a significant cash-based incentive payment to employees during the exploration or development phase of the Kanmantoo Underground and successfully negotiated with eligible employees to replace the KEP with the 2019 OPRP. The replacement of the KEP with the 2019 OPRP in respect of the Managing Director is subject to approval by Shareholders at the upcoming Annual General Meeting. Given the KEP has or is expected to be replaced in respect of the Managing Director, further details of this plan has not been disclosed. The 2019 annual report includes a summary of the key terms of the KEP plan. The details of the 2019 OPRP that replaced the KEP are explained below. D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 0 2 e g a P Directors’ Report (cont.) REMUNERATION REPORT (AUDITED) (cont.) OPRP Status 5,620,219 performance rights relating to the 2019 OPRP are on issue. The 2019 OPRP for Mr Wallace has not been issued and will be put forward at the upcoming Annual General Meeting. During 2020, 0% of the OPRP performance rights granted in 2018 vested and as such no shares were issued to employees. 2019 OPRP Description The KEP granted in July 2019 was replaced with the 2019 OPRP in August 2020. The 2019 OPRP consists of both Performance Rights and a cash incentive. Long Term Incentives (2019 OPRP) Purpose Award Grant Date Vest Date To retain key executives and align their remuneration with shareholder value. Under the LTI, executives and key staff are offered performance rights (to acquire ordinary shares of Hillgrove Resources Limited) and a cash incentive. 10 August 2020. 31 December 2021. Service Period 1 June 2019 to 31 December 2021. Performance Hurdles and Vesting Schedule Award grants are subject to the Company’s Total Shareholder Return (TSR) ranked against the S&P/ASX Small Resources Index as follows: Ranking of TSR Against S&P/ASX Small Resources Index (17 Months) Performance Below the 50th percentile at the 50th percentile % of equity to vest 0% 50% vest Between the 50th to 75th percentile 2% vesting on a straight line interpolation for each percentile ranking above the 50th percentile At or above 75th percentile 100% vest Performance rights vest as shares if the time restrictions and relevant performance hurdle are met. Special provisions, in accordance with company policies, may apply in the event of termination of employment or a change of control. If the TSR performance hurdle is not met at the vesting date, performance rights lapse, subject to Board discretion. Exercise Price Exercise price of nil in the event performance hurdles are met. Voting Rights LTI Allocation There are no voting rights attached to performance rights. The size of individual LTI grants for the CEO/MD and other KMPs is determined in accordance with the Board approved remuneration strategy mix. See Section 4.3. The target LTI dollar value for each executive is then converted into a number of performance rights equivalent to 55% of target LTI dollar value based on a valuation methodology determined at the grant date, as follows: Performance right allocation = 55% x LTI dollar value determined / Hillgrove Resources share price at grant date. A cash incentive is also allocated as follows: Cash incentive = 9 ÷ 11 x Number of Performance Rights that vest x Share Price using 15-day Volume Weighted Average Price (VWAP) at Vesting Date. Review of Future LTI Plans The Board has engaged remuneration consultants Egan Associates to conduct an independent review of future LTI plans. This will be used by the Board in connection with a proposal for future LTI plans at the upcoming Annual General Meeting. H I L L G R O V E R E S O U R C E S I I L M T E D A N N U A L R E P O R T 2 0 2 0 P a g e 2 1 Directors’ Report (cont.) REMUNERATION REPORT (AUDITED) (cont.) 4.4.4 Hedging and Margin Lending Prohibition Under the Company’s Share Trading Policy and in accordance with the Corporations Act 2001, equity granted under the Company’s equity incentive schemes must remain at risk until vested, or exercised. It is a specific condition of the policy that no schemes are entered into, by an individual or their associates, that specifically protects the unvested value of shares, options or performance rights allocated. The Company, as required under the ASX Listing Rules, has a formal policy outlining how and when employees may deal in Hillgrove Resources securities. Hillgrove Resources Limited’s Share Trading Policy is available on the Company’s website www.hillgroveresources.com.au. 4.5 Relationship Between Performance and Executive KMP Remuneration 4.5.1 Hillgrove Resources Financial Performance (31 December 2016 to 31 December 2020) Sales Revenue ($M) Underlying EBITDA ($M) Reported net profit / (loss) ($M) Return on equity (ROE) % (2) Basic earnings per share (EPS) (cents) Diluted EPS (cents) Dividends paid (cents per share) Share price as at 31 December (cents) 12 Months to 31 Dec 2016 113.1 22.2 (109.1) (3) 2017 restated 113.3 (1) 16.2 (14.1) 2018 180.1 44.3 29.5 2019 113.5 12.1 (10.0) 2020 20.4 (3.7) (5.9) (144.3%) (3) (88.3%) 101.7% (28.4%) (24.0%) (57.8) (3) (57.8) (3) 0 4 (4.8) (4.8) 0 9 5.1 4.9 0 9 (1.7) (1.7) 1.5 6 (1.0) (1.0) 0 3.2 Total shareholder return (TSR) % (Annual) (75.0%) 125.0% 0% (4) (16.7%) (5) (46.7%) (1) Restatement for changes in accounting policies. (2) Based on average total equity. (3) Includes impairment charge of $68.5m. (4) Share price as at 31 December was 9c in 2017 and 2018, which results in a 0% TSR. (5) Hillgrove’s TSR performance includes the $0.015 dividend. D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 2 2 e g a P Directors’ Report (cont.) REMUNERATION REPORT (AUDITED) (cont.) 4.6 KMP Remuneration Tables – Audited Short-term Long-term Fixed Remuneration Salary and Fees Non- monetary benefits Super- annuation Benefits Termination Benefits Long Service Leave Total 74,745 - 68,493 44,169 43,555 136,986 30,254 77,626 21,777 68,493 - - - - - - - - - - N/A N/A 24,675 238,824 351,949 395,000 368,953 - - - - - N/A N/A 165,803 395,000 534,756 203,603 383,681 114,583 163,547 318,186 547,228 952,010 1,433,933 - - - - - - - - - - - 7,101 - 6,507 4,196 4,138 13,014 2,874 7,374 2,069 6,507 N/A 2,344 22,689 33,435 24,997 29,484 N/A 7,500 24,997 36,984 13,269 24,998 10,416 15,067 23,685 40,065 71,371 110,484 - - - - - - - - - - - - - - - - - - - - N/A N/A - - - - - N/A 496,574 - - - - 9,875 25,662 N/A 21,693 9,875 81,846 - 75,000 48,365 47,693 150,000 33,128 85,000 23,846 75,000 N/A 27,019 261,513 385,384 429,872 424,099 N/A 691,570 429,872 496,574 47,355 1,155,669 111,186 - - - 111,186 - 111,186 496,574 - - - 13,447 - 13,447 328,058 408,679 124,999 192,061 453,057 600,740 9,875 1,144,442 60,802 2,101,793 Non-Executive Directors Mr D Carter (1) Mr M Boyte (2) Mr J Gooding (3) Mr P Baker (4) Mr A Breuer (5) Mr M Loomes (6) Total Executive Directors Mr L Wallace Mr S McClare (7) Total Year CY20 CY19 CY20 CY19 CY20 CY19 CY20 CY19 CY20 CY19 CY20 CY19 CY20 CY19 CY20 CY19 CY20 CY19 CY20 CY19 Other Key Management Personnel Mr P Kiley (8) Mr G Norris (9) Total Total CY20 CY19 CY20 CY19 CY20 CY19 CY20 CY19 (1) Mr D Carter was appointed on 24 April 2020. (2) Mr M Boyte was appointed on 10 May 2019. (3) Mr J Gooding resigned on 24 April 2020. (4) Mr P Baker resigned on 20 May 2020. (5) Mr A Breuer resigned on 24 April 2020. (6) Mr M Loomes resigned on 10 May 2019. (7) Mr S McClare resigned on 2 May 2019. (8) Mr P Kiley resigned on 10 July 2020. (9) The table shows the period Mr G Norris was a part of the KMP (23 May 2019 to 31 May 2020). H I L L G R O V E R E S O U R C E S I I L M T E D A N N U A L R E P O R T 2 0 2 0 P a g e 2 3 Directors’ Report (cont.) REMUNERATION REPORT (AUDITED) (cont.) 4.6 KMP Remuneration Tables – Audited (cont.) Variable Remuneration Total Proportion of Total Remuneration Year Short-Term Long-Term Total Fixed and Variable Fixed % Variable % Non-Executive Directors Mr D Carter Mr M Boyte Mr J Gooding Mr P Baker Mr A Breuer Mr M Loomes Total Executive Directors Mr L Wallace Mr S McClare Total CY20 CY19 CY20 CY19 CY20 CY19 CY20 CY19 CY20 CY19 CY20 CY19 CY20 CY19 CY20 CY19 CY20 CY19 CY20 CY19 Other Key Management Personnel - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 180,180(10) 133,334(13) 52,500 117,966(11) - - 313,514 170,466 - 89,381 101,184(11)(12) 190,565 180,180 141,881 133,334 219,150 313,514 361,031 Mr P Kiley Mr G Norris Total Total CY20 CY19 CY20 CY19 CY20 CY19 CY20 CY19 51,075 97,213(13) 51,075 142,929(11) 67,218(10) 53,080(13) 37,500 71,106(11) 118,293 88,575 298,473 230,456 150,293 214,035 283,627 433,185 148,288 194,004 120,298 108,606 268,586 302,610 582,100 663,641 81,846 100% - - 75,000 48,365 47,693 150,000 33,128 85,000 23,846 75,000 - 27,019 261,513 385,384 743,386 594,565 - 882,135 743,386 1,476,700 476,346 602,683 245,297 300,667 721,643 903,350 1,726,542 2,765,434 100% 100% 100% 100% 100% 100% 100% 100% 0% 100% 100% 100% 58% 71% - 78% 58% 76% 69% 68% 51% 64% 63% 67% 66% 76% (10) Includes payments related to 2019 and 2020 performance, please refer to section 4.4.2 for further details. (11) Includes the value of forfeited 2017 performance rights. (12) Includes the value of 2018 performance rights forfeited on termination. (13) Includes the value of forfeited 2018 performance rights. 0% - 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 42% 29% - 22% 42% 24% 31% 32% 49% 36% 37% 33% 34% 24% D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 4 2 e g a P Directors’ Report (cont.) REMUNERATION REPORT (AUDITED) (cont.) 5.0 Equity plan disclosures 5.1 Employee Share Schemes (ESS) Operated By the Group Plan Details Type of Instruments Details Purpose Employee share plan and share issues General Employee Share Plan (GESP) Hillgrove Resources Option and Performance Rights Plan Option and Performance Rights Plan (OPRP) Refer 4.4.3 To incentivise and align part of employee remuneration to shareholder value To provide equity and cash incentive subject to meeting predetermined service and performance conditions. 5.2 Analysis of Share-Based Payments Granted as Remuneration to KMP Details of the vesting profile of the performance rights granted as remuneration to each Key Management Personnel, and the movements during the period are set out below: KMP Mr L Wallace TOTAL Former KMP Mr S McClare TOTAL Mr P Kiley TOTAL Mr G Norris TOTAL Balance Held at 31/12/19 Grant Date Aug 20 Granted (1) - 3,121,622 (3) Jun 18 1,900,000 - 1,900,000 3,121,622 Number Vested % Vested Number Forfeited % Forfeited Balance held at 31/12/20 (2) - - - 0% 0% - 0% 3,121,622 1,900,000 100% - 1,900,000 3,121,622 Jun 18 1,608,755 1,608,755 N/A - Aug 20 - 3,032,432 Jun 18 2,300,000 2,300,000 - - Aug 20 - 2,229,730 Jun 18 1,350,000 1,350,000 - - N/A N/A - - - - - - - 0% 0% 0% 0% N/A N/A - 1,731,442 57% 2,300,000 100% 2,300,000 N/A (4) - N/A (5) - - - 0% N/A (6) 1,350,000 100% 1,350,000 - - (1) Relates to the conversion of the 2019 Key Employees Plan to (4) Mr S McClare resigned on 2 May 2019. Option & Performance Rights Plan in August 2020. (2) None of these rights are exercisable and have not vested. (5) Mr P Kiley resigned on 10 July 2020. (6) Mr G Norris was no longer a member of the KMP from (3) Subject to Shareholder approval at the Annual General 1 June 2020. Meeting in 2021. 5.3 Exercise of Performance Rights Granted as Remuneration During the financial year, there were no shares issued on the exercise of performance rights, which were previously granted as part of remuneration. 5.4 Value of Performance Rights Granted and on Foot to Executive KMP as at 31 December 2020 KMP Grant Date Number Granted Vesting Date Face Value per right (1) Fair Value (2) Intrinsic Value (3) Total Fair Value Mr L Wallace Aug 20 3,121,622 Dec 21 $0.032 $0.030 $99,892 $93,649 (1) The Face Value is the closing share price on 31 December 2020. (2) The Fair Value at grant date (10 August 2020) has been based on a valuation in accordance with accounting standard AASB 2 “Share Based Payments”. The fair values are used for accounting purposes only. (3) Intrinsic value is the difference between the Face Value ($0.032) and the exercise price ($0.00). H I L L G R O V E R E S O U R C E S I I L M T E D A N N U A L R E P O R T 2 0 2 0 P a g e 2 5 Directors’ Report (cont.) REMUNERATION REPORT (AUDITED) (cont.) 5.5 Movement In Equity Held The movement during the reporting period in the number of ordinary shares of Hillgrove Resources Limited held, directly, indirectly or beneficially, by each specified Director and executive KMP, including their personally-related entities: Held as at 31/12/19 Exercise of Rights Net Other Changes Held as at 31/12/20 Directors Mr D Carter Mr M Boyte Mr L Wallace Former Directors Mr J Gooding Mr P Barker Mr A Breuer Former KMP Mr P Kiley Mr G Norris Shares Shares Shares Shares Shares Shares Shares Shares - - 12,205,197 94,444 667.626 20,166,800 6,027,666 5,287,019 (1) Resigned during 2020 and as such, no longer a current Director or KMP. (2) Mr G Norris was no longer a member of the KMP from 1 June 2020. - - - - - - - - - - - - - - - - - - 12,205,197 N/A (1) N/A (1) N/A (1) N/A (1) N/A (2) 6.0 Service Contracts and Employment Agreements The Company does not enter into service contracts for KMP Executives. The following sets out details of the employment contract for the Executive KMP as at 31 December 2020. Employee Position Commencement Fixed Remuneration Short-term Incentive Long-term Incentive Contract Length Mr LA Wallace Chief Executive Officer and Managing Director 24 May 2019 $420,000 p.a. reviewed periodically Up to 50% of fixed remuneration Up to 50% of fixed remuneration Indefinite Notice periods for resignation or termination 6 months Redundancy Benefit National Employment Standards and Group Redundancy Policy Death or Total and Permanent Disability Benefit No specific benefit Change of Control No effect Termination for serious misconduct No notice required, remuneration to the day less advance payments and return of Company property. Statutory entitlements Post-Employment restraints No payment of STI/LTI All leave and benefits due per National Employment Standards For 6 months: must not recruit employees or make adverse comments or actions by either party D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 6 2 e g a P Directors’ Report (cont.) CORPORATE GOVERNANCE STATEMENT The Company’s Board is committed to achieving the highest standards of corporate governance. The Company’s Corporate Governance Statement for the year ended 31 December 2020 may be accessed from the Company’s website at www.hillgroveresources.com.au/Corporate-Governance. ROUNDING OF AMOUNTS The Company is of a kind referred to in ASIC Corporations (Rounding in Financials/Directors’ Reports) Instrument 2016/191, dated 24 March 2016, and in accordance with that Corporations Instrument amounts in the directors‘ report and the financial statements are rounded off to the nearest hundred thousand dollars, unless otherwise indicated. AUDITORS 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 28. Signed in accordance with a resolution of the Directors: Dated at Adelaide on 26 February 2021 H I L L G R O V E R E S O U R C E S I I L M T E D Mr Derek Carter Chairman Mr Lachlan Wallace Managing Director A N N U A L R E P O R T 2 0 2 0 P a g e 2 7 Auditor’s Independence Declaration D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 8 2 e g a P PricewaterhouseCoopers, ABN 52 780 433 757 Level 11, 70 Franklin Street, ADELAIDE SA 5000, GPO Box 418, ADELAIDE SA 5001 T: +61 8 8218 7000, F: +61 8 8218 7999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. Auditor’s Independence Declaration As lead auditor for the audit of Hillgrove Resources Limited for the year ended 31 December 2020, I declare that to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Hillgrove Resources Limited and the entities it controlled during the period. Andrew Forman Adelaide Partner PricewaterhouseCoopers 26 February 2021 Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 31 December 2020 31 Dec 2020 31 Dec 2019 Note $’000 $’000 Continuing operations Concentrate revenue Other income Expenses Interest and finance charges Impairment charges (Loss) before income tax Income tax (expense) / benefit Loss from continuing operations Profit / (loss) from discontinued operations Loss for the period Comprehensive income Items that may be reclassified to profit or loss: Exchange difference on translation of discontinued operation Total comprehensive income for the period attributable to equity holders of Hillgrove Resources Limited Earnings per share for profit from continuing operations attributable to the ordinary equity holders of the Company: Basic earnings per share Diluted earnings per share Earnings per share for profit attributable to the ordinary equity holders of the Company: Basic earnings per share Diluted earnings per share 5 6 7(a) 7(b) 7(c) 9 8 10 10 10 10 20,248 124 (27,624) (167) (51) (7,470) - (7,470) 1,525 (5,945) 177 (5,768) 113,537 1,703 (117,017) (788) (3,048) (5,613) (3,685) (9,298) (729) (10,027) - (10,027) Cents Cents H I L L G R O V E R E S O U R C E S I I L M T E D (1.3) (1.3) (1.0) (1.0) (1.6) (1.6) (1.7) (1.7) A N N U A L R E P O R T 2 0 2 0 P a g e 2 9 The Consolidated Statement of Profit or Loss and Other Comprehensive Income is to be read in conjunction with the notes to the consolidated financial statements set out on pages 33 to 54. Consolidated Balance Sheet As at 31 December 2020 31 Dec 2020 31 Dec 2019 Note $’000 $’000 Current assets Cash and cash equivalents Trade and other receivables Inventories Non-current assets Inventories Property, plant and equipment Exploration and evaluation expenditure D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 0 3 e g a P Total assets Current liabilities Trade and other payables Provisions Lease liabilities Employee benefits payable Deferred income Non-current liabilities Provisions Total liabilities Net assets Equity Contributed equity Reserves Accumulated losses Total equity 11 12 13 13 14 15 16 17 18 19 20 21 22 23 24 5,601 832 50 6,483 1,782 24,390 3,236 29,408 35,891 1,122 775 - 1,035 - 2,932 9,736 9,736 12,668 23,223 9,329 3,075 10,182 22,586 1,899 24,163 2,616 28,678 51,264 8,640 4,132 253 3,322 479 16,826 8,140 8,140 24,966 26,298 236,550 27,755 (241,082) 23,223 234,322 27,113 (235,137) 26,298 The Consolidated Balance Sheet is to be read in conjunction with the notes to the consolidated financial statements set out on pages 33 to 54. Consolidated Statement of Changes in Equity For the year ended 31 December 2020 Contributed equity Note $’000 Reserves $’000 Accumulated losses Total equity $’000 $’000 Balance 1 January 2019 234,327 34,986 (225,110) 44,203 (10,027) (10,027) Profit/(Loss) for the period Other comprehensive income Transactions with owners: Options exercised Dividend paid Share-based compensation Balance 31 December 2019 Profit/(Loss) for the period Other comprehensive income Transactions with owners: Contributions of equity, net of transaction costs Share-based compensation Balance 31 December 2020 22 3 33 22 33 - - (5) - - 234,322 - - 2,228 - 236,550 - - - (8,784) 911 27,113 - 177 - 465 - - - - (235,137) (5,945) - - - 27,755 (241,082) - (5) (8,784) 911 26,298 (5,945) 177 2,228 465 23,223 H I L L G R O V E R E S O U R C E S I I L M T E D The Consolidated Statement of Changes in Equity is to be read in conjunction with the notes to the consolidated financial statements set out on pages 33 to 54. A N N U A L R E P O R T 2 0 2 0 P a g e 3 1 Consolidated Statement of Cash Flows For the year ended 31 December 2020 31 Dec 2020 31 Dec 2019 Note $’000 $’000 Cash flows from operating activities Cash receipts in the course of operations (inclusive of GST) Cash payments in the course of operations (inclusive of GST) Net cash (used) / generated by operating activities 28 Cash flows from investing activities Payments for exploration and evaluation expenditure Payments for property, plant and equipment Proceeds on disposal of plant and equipment Payment on disposal of Indonesian subsidiaries Net cash used in investing activities Cash flows from financing activities Dividends paid Proceeds from issue of shares (net of transaction costs) Repayment of borrowings Repayment of leases Interest received Interest paid Net cash from/(used) in financing activities Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of financial period Cash and cash equivalents at the end of the financial period 11 20,211 (23,211) (3,000) (687) (2,346) 348 (91) (2,776) - 2,251 - (206) 3 - 2,048 (3,728) 9,329 5,601 116,772 (94,957) 21,815 (950) (4,574) 96 - (5,428) (8,784) - (430) (225) 4 (76) (9,509) 6,878 2,451 9,329 The Consolidated Statement of Cash Flows is to be read in conjunction with the notes to the consolidated financial statements set out on pages 33 to 54. D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 2 3 e g a P Notes to the consolidated Financial Statements for the year ended 31 December 2020 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. Where an accounting policy is specific to one note, the policy is described in the note to which it relates. The financial statements are for the consolidated entity consisting of Hillgrove Resources Limited and its subsidiaries. (a) Basis of preparation This general purpose financial report has been prepared in accordance with Australian Accounting Standards, Interpretations and other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. The financial statements comprise the consolidated financial statements of the Group. For the purposes of preparing the consolidated financial statements, Hillgrove Resources Limited is a for-profit entity. (i) Working capital The consolidated financial statements have been prepared on a going concern basis, which assumes the Group will be able to realise its assets and discharge its liabilities in the normal course of business. Cash generating activities from the processing of copper ore ceased during 2020, however, based on projected cashflows, the directors consider that cash on hand at the date of the report plus cash generated from the capital raise will be sufficient for the Group to cover forecast expenditure for the next twelve months including its ongoing rehabilitation and compliance requirements and to meet expenditure commitments under exploration leases. (ii) Compliance with International Financial Reporting Standards Compliance with Australian Accounting Standards ensures that the consolidated financial statements and notes of Hillgrove Resources Limited comply with International Financial Reporting Standards (IFRSs). (iii) Historical cost convention These financial statements have been prepared under the historical cost convention, as modified when necessary by the revaluation of certain financial assets and liabilities to fair value through other comprehensive income or through profit or loss. (iv) Critical accounting estimates The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 2. (b) Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Australian dollars, which is Hillgrove Resources Limited’s functional and presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit or loss, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges. For the purpose of presenting consolidated financial statements, the assets and liabilities of Hillgrove Resources Limited’s foreign operations are translated into Australian dollars using exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange rate differences arising, if any, are recognised in other comprehensive income and accumulated in equity (attributed to non-controlling interests as appropriate). (c) Impairment of assets The carrying value of property, plant and equipment is assessed for impairment whenever there is an indicator that the asset may be impaired. Determining whether property, plant and equipment is impaired requires an estimation of the recoverable value of the Cash Generating Unit (“CGU”) to which property, plant and equipment has been allocated. Impairment is recognised when the carrying amount exceeds the recoverable amount. H I L L G R O V E R E S O U R C E S I I L M T E D A N N U A L R E P O R T 2 0 2 0 P a g e 3 3 Notes to the consolidated Financial Statements for the year ended 31 December 2020 (cont.) 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont.) In its impairment assessment, the Company determined the recoverable amount based on a fair value less cost of disposal (“FVLCOD”) calculation. The FVLCOD assessment was undertaken using a discounted cash flow approach. Cash flow projections are based on the CGU’s life of mine plan. In assessing the FVLCOD, the estimated future post- tax cash flows are discounted to their present value using a post-tax discount rate that reflects the current market assessment of the time value of money and business risk. The valuation is considered to be level 3 in the fair value hierarchy due to unobservable inputs used in the valuation. Assets that have undergone an impairment charge are reviewed for possible reversal of the impairment at each reporting date. The specific methods and assumptions used to estimate the discounted future cash flows of the Group’s CGU are outlined in more detail in Note 2 “Critical accounting estimates and judgements”. (d) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows. (e) Government grants The Group was eligible for the Australian Government’s JobKeeper wage subsidy scheme. Receipts from the JobKeeper Program are accounted for as government grants under AASB 120 Accounting for Government Grants and Disclosures of Government Assistance. Government grants are recognised where there is reasonable assurance that the grant will be received, and all attached conditions will be complied with. Where the grant relates to an expense item, it is recognised as a reduction of the expense to which it relates. Where the grant relates to capitalised expenses, it is recognised as a reduction to the carrying amount of the related asset. (f) Rounding of amounts The Company is a company of the kind referred to in ASIC Corporations (Rounding in Financials/Directors’ Reports Instrument 2016/191, dated 24 March 2016, and in accordance with that Corporations Instrument, amounts in the directors’ report and the financial statements are rounded off to the nearest thousand dollars, unless otherwise indicated. (g) Standards and interpretations in issue (i) Mandatory standards adopted in the current reporting period The Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board that are relevant to its operations and effective for the current annual reporting period. The adoption of these mandatory standards has not had a significant impact on the Group’s accounting policies or the amounts reported during the year. (ii) Early adoption of standards There are no standards on issue that are expected to have a material impact on the group in the current or future reporting periods. 2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are discussed below: (a) Recoverability of non-current assets The Group has a single Cash Generating Unit (CGU) being the Kanmantoo copper mine. The estimates of discounted future cash flows for the Kanmantoo CGU are based on significant assumptions including: ½ Estimates of the quantities of resources and exploration targets and the timing of access to those resources and exploration targets; ½ Future production levels based on plant throughput and recoveries; ½ Future copper, gold and silver prices based on spot pricing; ½ Future exchange rates for the Australian dollar to US dollar based on spot prices; D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 4 3 e g a P Notes to the consolidated Financial Statements for the year ended 31 December 2020 (cont.) 2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (cont.) ½ Future operating costs of production, capital expenditure and rehabilitation expenditure; and ½ The discount rate most appropriate to the CGU. ½ The timing and amounts to be received from the sale of processing equipment and land following completion of mining and processing activities. Annual assessments of the discounted future cash flows for the Kanmantoo CGU have resulted in no adjustments to the carrying values. Separate to the CGU there have been impairments of carrying values of some exploration assets. The ultimate recoupment of costs capitalised and carried forward for exploration and evaluation activities is dependent on successful development and commercial exploitation, or sale of the respective areas. (b) Restoration, rehabilitation and environmental obligations Provision is made for the costs of decommissioning and site rehabilitation costs when the related environmental disturbance takes place. Provisions are recognised at the net present value of future expected costs as outlined in Notes 17 and 21. The provision represents management’s best estimate of the costs that will be incurred, but significant judgement is required as many of these costs will not crystallise until the end of the life of the mine. 3. DIVIDENDS Franked dividend paid for 2019: 1.5 cents per share Amount of franking credits available to shareholders for subsequent financial years 31 Dec 2020 31 Dec 2019 $’000 $’000 - 8,784 17,556 17,556 4. FINANCIAL REPORTING BY SEGMENT Through its ownership of the Kanmantoo copper mine, the Group has one operating segment being in the resources industry, in Australia. The Group also had exploration tenement interests overseas which were sold during the year as part of the sale of the Indonesian subsidiaries. These tenements were previously fully written down, incurring minimal care and maintenance costs and were therefore considered to be immaterial, not requiring separate segment disclosure. The Indonesian business has been disclosed as discontinued in Note 8. 5. CONCENTRATE REVENUE 31 Dec 2020 31 Dec 2019 $’000 19,643 1,796 393 (1,584) $’000 116,152 6,325 2,011 (10,951) Copper in concentrate Gold in concentrate Silver in concentrate Treatment and refining deductions Concentrate revenue 20,248 113,537 Revenue is measured at the fair value of the consideration received or receivable. The group sells copper concentrate under an offtake contract and the Group trades using CIF terms (i.e. Seller’s cost, insurance and freight) for vessel chartering. Under AASB 15, the Company has three performance obligations relating to the sale of concentrate which include delivery and transfer of title of concentrate at the port of loading, loading of concentrate onto the ship and transporting the shipment to the port of destination. The transaction price applied to the delivery of concentrate to the port is the value of the concentrate delivered adjusted for treatment and refining charges. The transaction price allocated to the final two performance obligations are cost of loading and chartering a vessel for shipment to destination at cost recovery. The price can be declared as either one of: one month before the month of shipment or synthetically spread adjusted to five months after the month of arrival at the discharge port. The group has recognised the following assets and liabilities related to contracts with customers: 31 Dec 2020 31 Dec 2019 $’000 - - $’000 (479) 479 Deferred income (contract liability) Trade and other receivables (contract asset) During 2020, the performance obligations relating to the group’s final shipment of copper concentrate were satisfied and all associated revenues received. H I L L G R O V E R E S O U R C E S I I L M T E D A N N U A L R E P O R T 2 0 2 0 P a g e 3 5 Notes to the consolidated Financial Statements for the year ended 31 December 2020 (cont.) 6. OTHER INCOME (b) Interest and finance charges Interest Grant income PHES project Other – services provided to third parties Other – government cashflow boost Total other income 31 Dec 2020 31 Dec 2019 $’000 13 - - 11 100 124 $’000 12 275 1,000 416 - 1,703 7. EXPENSES Profit or loss before income tax includes the following expenses: (a) Expenses per profit or loss 31 Dec 2020 31 Dec 2019 Note (i) (ii) (iii) (iv) Costs of production Depreciation and amortisation Inventory movement Cost of goods sold Government royalties Corporate and other costs Care and maintenance costs Rehabilitation adjustment (Gain) / Loss on sale of fixed assets Foreign exchange loss / (gain) Total Expenses per Profit or Loss $’000 10,564 1,891 9,211 21,666 907 3,777 1,335 (166) (92) 197 $’000 72,583 14,664 20,859 108,106 5,388 4,216 - (702) (47) 56 27,624 117,017 D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 6 3 e g a P 31 Dec 2020 31 Dec 2019 Note $’000 $’000 Discount on unwind of rehabilitation provision Borrowing costs, bank fees and charges Interest on borrowings Other interest payable Total Interest and finance charges (i) 109 257 6 - 52 167 6 3 522 788 (i) Includes interest charged on sales proceeds received in advance of ship loading. The cost is netted-off against revenue as it is received and therefore is not dislcosed as a financing activity cashflow in the Statement of Cashflows. (c) Impairment charges 31 Dec 2020 31 Dec 2019 Note $’000 Exploration assets PHES project costs (i) (ii) 51 - 51 $’000 232 2,816 3,048 (i) Expenditure on exploration areas of interest where the prospect of recoupment of costs capitalised through successful development and commercial exploitation is no longer considered likely, is charged to the profit or loss as an impairment charge. (ii) Costs accumulated in connection with the PHES project development by AGL were impaired at 31 December 2019 due to mutual agreement to terminate the contract by both parties in February 2020. (d) Other required disclosures 31 Dec 2020 31 Dec 2019 $’000 $’000 4,256 19,023 587 911 (i) Costs of production represent costs for mining, processing, transport of concentrate to port, and site overheads. Employee benefits (excluding share-based payments) (ii) Corporate and other costs reflect the costs incurred in running the corporate head office. Share based payments (see Note 33) (iii) During the period of care and maintenance, depreciation of the processing plant has ceased based on the assumption that the activities performed during the period of care and maintenance will preserve the current value of these assets. Costs incurred in relation to care and maintenance have been expensed. (iv) The decrease in the required rehabilitation provision has been fully expensed as the associated rehabilitation asset in Mine Development has been written down to nil in prior reporting periods. Notes to the consolidated Financial Statements for the year ended 31 December 2020 (cont.) 7. EXPENSES (cont.) (e) Assurance services The following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non-related audit firms: 31 Dec 2020 31 Dec 2019 $ $ (i) Audit Services Fees paid to PricewaterhouseCoopers: Audit and review of financial reports and other audit work under the Corporations Act 2001 Fees paid to other firms: Crowe Horwath Singapore (ii) Taxation Services Services by PricewaterhouseCoopers: 149,928 226,355 - 149,928 19,900 246,255 Tax advice 6,171 24,299 Services by other firms: Crowe Horwath Singapore 3,812 9,983 - 24,299 8. DISCONTINUED OPERATIONS (a) Description In October 2020, Hillgrove successfully withdrew from Indonesia, through the sale of its Indonesian subsidiaries, PT Akram Resources and PT Fathi Resources. With the carrying value of these assets being fully impaired in 2015, the transaction resulted in an improvement of the balance sheet (through a reduction in liabilities) of $2.2 million. (b) Financial performance 31 Dec 2020 31 Dec 2019 Expenses Loss before income tax Income tax expense Loss after income tax of discontinued operation Gain on sale of subsidiaries after income tax (see (d) below) Profit from discontinued operation Exchange differences on translation of discontinued operations Total comprehensive income from discontinued operations $’000 (373) (373) - (373) 1,898 1,525 $’000 (729) (729) - (729) - (729) 177 - 1,702 (729) (c) Cashflow information There was no consideration received on the sale of the subsidiaries. A negotiated payment of US$60,000 was made in full settlement of the outstanding liabilities of the companies which subsequently allowed the accrued balances of $2.2 million to be reversed. (d) Details of the sale of the subsidiaries Consideration received/(paid) Carrying amount of net liability sold Reclassification of foreign currency translation reserve Gain on sale $’000 (91) 2,166 2,075 (177) 1,898 H I L L G R O V E R E S O U R C E S I I L M T E D A N N U A L R E P O R T 2 0 2 0 P a g e 3 7 Notes to the consolidated Financial Statements for the year ended 31 December 2020 (cont.) 9. INCOME TAX (a) Income tax expense Income tax expense comprises: - Current tax expense - Deferred tax expense / (benefit) Income tax expense / (benefit) (b) Numerical reconciliation of income tax expense to prima facie tax payable Profit/(loss) from continuing operations before income tax expense/(benefit) Tax at the Australian tax rate of 30% Tax effect of amounts which are not deductible in calculating taxable income: - Share based payments - Non-deductible expenses - Non-assessable income - (Profit)/Losses from non- resident foreign operations - Tax temporary differences not recognised Income tax expense (c) Amounts recognised directly in equity Deferred tax – (credited)/ debited directly in equity D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 8 3 e g a P 31 Dec 2020 31 Dec 2019 $’000 $’000 An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. - - - - 3,685 3,685 Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. (iii) Deferred tax assets are recognised for deductible (5,945) (6,342) (1,783) (1,903) 176 - - (458) 2,065 - - 273 10 (172) 225 5,252 3,685 - temporary differences and unused tax losses only if it is probable future taxable amounts will be available to utilise those temporary differences and losses. Unused tax losses and offsets for which no deferred tax asset has been recognised are approximately $230.6 million (tax benefit at the Australian tax rate of 30%: $69.2 million). In addition, the total value of unrecognised deductible temporary differences is $59.4 million (tax benefit at the Australian tax rate of 30%: $17.8 million) of which the unrecognised deductible temporary difference on plant and equipment is approximately $44.8 million (tax benefit at the Australian tax rate of 30%: $13.4 million). (e) Tax consolidation legislation The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. Hillgrove Resources Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. The head entity, Hillgrove Resources Limited, and the controlled entities in the tax consolidated group account for their own current and deferred tax amounts. (d) Deferred Tax (i) No deferred tax assets or liabilities have been recognised. (ii) Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. Notes to the consolidated Financial Statements for the year ended 31 December 2020 (cont.) 9. INCOME TAX (cont.) These tax amounts are measured as if each entity in the tax consolidated group continues to be a stand-alone taxpayer in its own right. The entities in the tax-consolidated group entered into a tax sharing agreement and a tax funding agreement. On adoption of the legislation, the entities in the tax consolidated group entered into a tax sharing agreement which, in the opinion of the Directors, limits the joint and several liability of the wholly owned entities in the case of a default by the head entity. The entities have also entered a tax funding agreement under which the wholly-owned entities fully compensate the head entity for any current tax payable assumed and are compensated by the head entity for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to it under the tax consolidation legislation. 10. EARNINGS PER SHARE Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the year, adjusted for bonus elements in ordinary shares issued during the year. Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. Where there is a loss after tax, diluted earnings per share is equivalent to basic earnings per share. Classification of securities as ordinary shares Ordinary shares have been classified as ordinary shares and included in basic earnings per share. Classification of securities as potential shares Outstanding performance rights have been classified as potential ordinary shares and included in diluted earnings per share. (a) Weighted average number of shares used as the denominator Weighted average number of ordinary shares used in calculating basic and dilutive EPS 31 Dec 2020 31 Dec 2019 Number Number 586,213,187 581,988,390 (b) Reconciliation of earnings used in calculating earnings per share 31 Dec 2020 31 Dec 2019 $’000 $’000 (i) Basic earnings (Loss) attributable to the ordinary equity holders of the Company: From continuing operations (7,470) (9,298) From discontinued operations (ii) Diluted earnings (Loss) attributable to the ordinary equity holders of the Company 1,525 (5,945) (729) (10,027) From continuing operations (7,470) (9,298) From discontinued operations 1,525 (5,945) (729) (10,027) (c) Basic earnings per share From continuing operations attributable to the ordinary equity holders of the Company From discontinued operations Total basic earnings per share attributable to the ordinary equity holders of the company 31 Dec 2020 31 Dec 2019 Cents Cents (1.3) 0.3 (1.6) (0.1) (1.0) (1.7) (d) Diluted earnings per share 31 Dec 2020 31 Dec 2019 Cents Cents From continuing operations attributable to the ordinary equity holders of the Company From discontinued operations Total diluted earnings per share attributable to the ordinary equity holders of the company (1.3) 0.3 (1.6) (0.1) (1.0) (1.7) H I L L G R O V E R E S O U R C E S I I L M T E D A N N U A L R E P O R T 2 0 2 0 P a g e 3 9 Notes to the consolidated Financial Statements for the year ended 31 December 2020 (cont.) 11. CASH AND CASH EQUIVALENTS Cash at bank and on hand Restricted cash 31 Dec 2020 31 Dec 2019 $’000 5,042 559 5,601 $’000 8,971 358 9,329 The group holds trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method. Details about the group’s impairment policies and the calculation of the loss allowance are provided in note 25(c). 13. INVENTORIES Cash and cash equivalents include cash on hand, deposits held at call with financial institutions, other short-term and highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Current Assets Concentrates Restricted cash cannot be accessed without consent and comprises deposits to cash back environmental bonds and office rental security deposits. Run-of-mine (ROM) stockpile Stores and consumables Total current inventory 31 Dec 2020 31 Dec 2019 $’000 $’000 - - 50 50 1,976 7,313 893 10,182 12. TRADE AND OTHER RECEIVABLES Trade receivables Prepayments Other receivables GST receivable 31 Dec 2020 31 Dec 2019 $’000 - 385 404 43 832 $’000 1,135 1,230 424 286 3,075 Trade receivables are for concentrate sales and the Group has a single customer under the terms of an offtake agreement. Sales are denominated in US dollars. Revenue is recognised in accordance with the policy described in Note 5 using spot exchange rates on the date of the sale, with trade receivables subsequently being translated at the exchange rate applicable on the date when settled. Unsettled balances at period end are revalued using the appropriate end of period exchange rate. First progress payment is received three business days after concentrate is delivered to port in minimum tonnage lots. First provisional payment covering 95% of the value is received three business days after ship loading. Second provisional payment for the remaining 5% is received 45 days after ship loading. Refer to note 5 for additional information. Prepayments include contract assets recognised under AASB 15 of $Nil (CY19: $479,000). Non-Current Assets Stores inventory Total non-current inventory 1,782 1,782 1,899 1,899 Inventory is recognised at the lower of cost and net realisable value. The cost of inventory is determined using the allocation of costs between production and development activities. Costs and activities are monitored at each stage of the production process and allocated to physical units. Net realisable value is based on the estimated amount expected to be received when the inventory is completely processed and sold. The estimation of net realisable value of inventories involves judgements about the quantity of metal that can be recovered, future commodity prices, production costs and selling costs. Due to the processing plant entering a phase of care and maintenance, an assessment has been made of the estimated cost or net realisable value of stores inventory which is unlikely to be consumed in the next financial year but still has future economic value in conjunction with the plant itself. This has been reclassified to non-current stores inventory. D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 0 4 e g a P Notes to the consolidated Financial Statements for the year ended 31 December 2020 (cont.) The straight line method of depreciation to allocate cost, net of residual values, is used for all remaining assets over estimated useful lives between 3-10 years from inception. The duration reflects the specific nature of the assets. Freehold land is not depreciated. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. During the period of care and maintenance, depreciation of the processing plant ceased. Refer to note 7 (a) (iii) for further information. Mine development includes development costs related to the Kanmantoo mine. In accordance with the Group’s accounting policies, regular impairment testing is carried out to ensure assets are not carried at more than their recoverable amount. The fair value less cost of disposal (FVLCOD) methodology is used to estimate the recoverable amount, rather than the value in use method as FVLCOD is considered more appropriate given the cessation of open pit operations and the intent to develop the underground project. The impairment calculations were performed using a discount rate of 12.53% (2019 12.03%). No impairment charges were taken against the Group’s Kanmantoo assets in the current year. 14. PROPERTY, PLANT AND EQUIPMENT Land and buildings At cost Accumulated depreciation Plant and equipment At cost Accumulated depreciation and impairment Motor vehicles At cost Accumulated depreciation Mine development At cost Accumulated depreciation and impairment Total property, plant and equipment 31 Dec 2020 31 Dec 2019 $’000 $’000 5,277 (379) 4,898 5,524 (379) 5,145 73,490 73,370 (59,817) 13,673 (59,621) 13,749 477 (399) 78 763 (640) 123 165,451 163,313 (159,710) (158,167) 5,741 5,146 24,390 24,163 All property, plant and equipment is stated at historical cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items and costs incurred in bringing assets into use. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred. The units of production basis is used when depreciating mine specific assets which results in a depreciation charge proportional to the depletion of the forecast remaining life of mine production. Changes in factors such as estimates of proven and probable reserves that affect the unit of production calculations are applied on a prospective basis. H I L L G R O V E R E S O U R C E S I I L M T E D A N N U A L R E P O R T 2 0 2 0 P a g e 4 1 Notes to the consolidated Financial Statements for the year ended 31 December 2020 (cont.) 14. PROPERTY, PLANT AND 15. EXPLORATION AND EQUIPMENT (cont.) Reconciliations of the carrying amounts for each class of asset are set out below: 31 Dec 2020 31 Dec 2019 $’000 $’000 EVALUATION EXPENDITURE The Group accumulates certain costs associated with exploration activities on specific areas of interest where the Group has rights of tenure and where exploration and evaluation activities in the area of interest have not reached a stage that permits a reasonable assessment of the existence of economically recoverable reserves. Land and buildings Carrying amount at beginning of period Disposals Depreciation Carrying amount at end of period Plant and equipment Carrying amount at beginning of period Additions Disposals Depreciation Carrying amount at end of period Motor vehicles Carrying amount at beginning of period Additions Disposals Depreciation Carrying amount at end of period Mine development Carrying amount at beginning of period Additions Depreciation (Decrease) / Increase provision for rehabilitation Carrying amount at end of period D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 2 4 e g a P 5,145 (247) - 5,145 - - Expenditure on exploration areas of interest where the prospect of recoupment of costs capitalised through successful development and commercial exploitation is no longer considered likely, is charged to the profit or loss as an impairment charge. 4,898 5,145 13,749 15,152 179 - (255) 106 - (1,509) Exploration and evaluation expenditure Carrying at beginning of period Additions Impairment loss 31 Dec 2020 31 Dec 2019 $’000 $’000 3,236 2,616 671 (51) 2,616 2,034 814 (232) 13,673 13,749 Carrying amount at end of period 3,236 2,616 16. TRADE AND OTHER PAYABLES Trade payables Other payables and accruals 31 Dec 2020 31 Dec 2019 $’000 218 904 1,122 $’000 2,608 6,032 8,640 Information about the Group’s exposure to liquidity risk is provided in Note 25(d). 123 - (18) (27) 78 520 - (39) (358) 123 5,146 2,138 15,286 2,488 (1,543) (12,399) - (229) 5,741 5,146 Total property, plant and equipment 24,390 24,163 Notes to the consolidated Financial Statements for the year ended 31 December 2020 (cont.) 17. PROVISIONS – CURRENT 18. LEASE LIABILITIES 31 Dec 2020 31 Dec 2019 31 Dec 2020 31 Dec 2019 Rehabilitation provision Make good provision Unsettled ship provision Movement in provisions Carrying value at the beginning of the period Payments charged against provisions: $’000 775 - - 775 $’000 3,588 420 124 4,132 4,132 3,277 Rehabilitation provision (1,159) (2,200) Make good provision Unsettled ship provision Increase / (reduce) provision recognised: Make good provision Unsettled ship provision Transfer from / (to) non- current provisions: Rehabilitation provision Balance at end of period (244) (124) (176) - (1,654) 775 (402) (528) 273 124 3,588 4,132 The rehabilitation provision is based on estimates for tenements held and refers to the measures and actions required to repair land disturbed by exploration and mining activities. The current balance is in respect of the Kanmantoo mine and Comet Vale tenement. Lease liabilities Total lease liabilities $’000 - - $’000 253 253 Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of; fixed payments (including in-substance fixed payments), less any lease incentives receivable, variable lease payments, amounts expected to be payable under residual value guarantees, the exercise price of a purchase option, and payments of penalties for terminating the lease, if the lease term reflects the group exercising that option. Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, the Group’s incremental borrowing rate is used, being the rate that the Group would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Right-of-use assets are measured at cost comprising; the amount of the initial measurement of lease liability, any lease payments made at or before the commencement date less any lease incentives received, any initial direct costs, and restoration costs. Right-of-use assets are depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset’s useful life. Payments associated with new short-term leases of equipment and vehicles and all leases of low-value assets are to be recognised on a straight-line basis as an expense in profit or loss. As at 31 December 2019, the Group was a lessee under finance leases for 12 motor vehicles. As these were due to expire in mid 2020, management treated these contracts as exempt from AASB 16. At 31 December 2020 these leases had expired. The Group has no other material lease obligations that require the disclosure of “lease liabilities” and “right-to-use” assets under AASB 16. H I L L G R O V E R E S O U R C E S I I L M T E D A N N U A L R E P O R T 2 0 2 0 P a g e 4 3 Notes to the consolidated Financial Statements for the year ended 31 December 2020 (cont.) 19. EMPLOYEE BENEFITS PAYABLE – CURRENT Employee benefits payable 31 Dec 2020 31 Dec 2019 $’000 1,035 $’000 3,322 The current provision for employee benefits includes accrued annual leave, long service leave, bonuses and other accrued remuneration. The entire amount of employee benefits payable of $1.0 million (2019: $3.3 million) is presented as current since the Group does not have an unconditional right to defer settlement for any of these obligations. However, based on past experience the Group does not expect all employees to take the full amount of accrued leave or require payment within the next 12 months. 31 Dec 2020 31 Dec 2019 $’000 $’000 Leave obligations expected to settle after 12 months 123 276 20. DEFERRED INCOME Deferred revenue (contract liability) 31 Dec 2020 31 Dec 2019 $’000 $’000 - - 479 479 Deferred revenue relates to the delivery of concentrate to the local port and transfer of title being completed, however loading of concentrate onto vessels and the shipping of concentrate to the destination port had not yet been performed. Refer to Note 5 for additional information. 21. PROVISIONS – NON-CURRENT Rehabilitation provision Movement in provisions Carrying value at the beginning of the period Discount on unwind of rehabilitation provision Transfer (to)/from current provisions (Reduce)/increase provision recognised Balance at end of period 31 Dec 2020 31 Dec 2019 $’000 9,736 $’000 8,140 8,140 12,402 109 257 1,654 (3,588) (167) 9,736 (931) 8,140 The rehabilitation provision is based on estimates for tenements held and refers to the measures and actions required to remediate land disturbed by exploration and mining activities. Close down and restoration costs include the dismantling and demolition of infrastructure and the removal of residual materials and remediation of disturbed areas. Close down and restoration costs are provided for in the accounting period when the obligation arising from the related disturbance occurs, whether this occurs during mine development or during the production phase, based on the net present value of estimated future costs. The costs are estimated on the basis of a closure plan. The cost estimates are calculated annually during the life of the operation to reflect known developments and are subject to formal review at regular intervals. The amortisation or ‘unwinding’ of the discount applied in establishing the net present value of provisions is charged to the statement of profit or loss and shown as a financial cost. Included in the rehabilitation provision is a payment of approximately $1.7 million to the Native Vegetation Fund. With permission from the State Government, the Group has delayed the timing of this payment and, whilst the intention is for the payment to be made at a later date, it should be noted that non-payment would increase the Group’s rehabilitation provision by approximately $1.5 million. This circumstance is not expected to eventuate. D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 4 4 e g a P Notes to the consolidated Financial Statements for the year ended 31 December 2020 (cont.) 22. CONTRIBUTED EQUITY Share capital Issued and paid up capital for 661,798,194 fully paid shares (31 December 2019: 585,588,518) Ordinary Shares Issued – movements during the period 31 Dec 2020 31 Dec 2019 $’000 $’000 236,550 234,322 31 Dec 2020 31 Dec 2019 31 Dec 2020 31 Dec 2019 Opening balance No. of shares No. of shares 585,588,518 577,477,118 Employee option schemes / issues - 8,111,400 Capital Raise Less – transaction costs Balance at end of period 76,209,676 - - - $’000 234,322 - 2,362 (134) $’000 234,327 - - (5) 661,798,194 585,588,518 236,550 234,322 Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Terms and conditions Holders of ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at shareholders meetings. In the event of winding up the Company, ordinary shareholders rank after all other shareholders and creditors and are fully entitled to any net proceeds of liquidation. Capital risk management The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, so it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets. Capital Raise On 17 December 2020, the Company announced a combined equity raising of up to $10.9 million at $0.031 per share. The raising was to be undertaken through the following: ½ Placement Tranche 1 – the issue of 76,209,676 new fully paid ordinary shares pursuant to the Company’s available placement capacity under ASX Listing Rules 7.1 raising ~$2.4 million; ½ Placement Tranche 2 – subject to shareholder approval, the issue of 185,080,646 new fully paid ordinary shares to raise ~$5.7 million; and ½ Entitlement Offer – non underwritten non-renounceable offer to raise gross proceeds of up to ~$2.8 million through the issue of approximately 90.1 million shares. Proceeds from Placement Tranche 1 was received in the current period. H I L L G R O V E R E S O U R C E S I I L M T E D A N N U A L R E P O R T 2 0 2 0 P a g e 4 5 Notes to the consolidated Financial Statements for the year ended 31 December 2020 (cont.) 23. RESERVES 24. ACCUMULATED LOSSES 31 Dec 2020 31 Dec 2019 $’000 $’000 31 Dec 2020 31 Dec 2019 $’000 $’000 At beginning of the period (235,137) (225,110) 5,673 22,082 - 27,755 5,208 22,082 (177) 27,113 Net loss (not carried forward to profit reserve) Accumulated losses at end of the period (5,945) (10,027) (241,082) (235,137) Employee share options reserve Profit reserve Foreign currency translation Movements: Employee share options reserve D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 6 4 e g a P Opening balance 5,208 4,297 Share based compensation expense Closing balance Profit reserve Opening balance Transfer of current year profit Dividend paid Closing balance Foreign currency translation 465 5,673 911 5,208 22,082 30,866 - - 22,082 - (8,784) 22,082 Opening balance (177) (177) Reclassified to profit and loss on disposal of discontinued operations Closing balance 177 - - (177) Nature and purpose of reserves Employee share option reserve (i) The employee share option reserve is used to recognise the fair value of share performance rights issued to employees. (ii) Foreign currency translation reserve Exchange differences arising on translation of the foreign controlled entity are recognised in Other Comprehensive Income as described in Note 1(b)(ii) and accumulated in the foreign currency translation reserve within equity. The cumulative amount has been reclassified to profit or loss as the investment has been disposed of. (iii) Profit reserve The profit reserve is used to accumulate distributable profits, preserving the characteristics of profit by not appropriating against prior year accumulated losses. The reserve can be used to pay taxable dividends. 25. FINANCIAL RISK MANAGEMENT The Group’s activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. Risk management is carried out by senior management under direction of the Board of Directors. The Board provides principles for overall risk management, as well as policies covering specific areas. (a) Market risk (i) exchange risk management Copper and Gold – Commodity price and foreign The Group has exposure to copper and gold commodity prices arising from sales contracts that commit the Group to supply copper concentrate in 2020. The prices for copper concentrate supplied under these contracts is determined at the time of delivery with respect to the price of copper, gold and silver which is quoted in US dollars. The copper price component represents approximately 95% of the copper concentrate sales value and gold represents about 5%. As at 31 December 2020, all fixed price contracts had been delivered into, and there were no fixed price arrangements in place at 31 December 2020. (b) Foreign exchange risk The Group sells copper concentrate and sales invoices are denominated in US$. The current fixed pricing arrangements on a ship by ship basis with Freepoint include conversion from US$ into A$ to the extent of the aggregate of the early drawdown values for each ship. Provisional and final invoicing is settled at spot foreign exchange rates. At 31 December 2020, the Group has no US$-denominated trade receivables (31 December 2019: US$749,281). The table below details the Group’s foreign exchange sensitivity on its net USD-denominated trade receivables and final invoice ship provisions: Notes to the consolidated Financial Statements for the year ended 31 December 2020 (cont.) 25. FINANCIAL RISK MANAGEMENT (CONT.) Impact on profit or loss 31 December 2020 31 December 2019 $’000 Increase $’000 Decrease $’000 Increase $’000 Decrease Impact of 10% increase/decrease in A$/US$ exchange rate on US$ denominated trade receivables - - (97) 107 The Group and parent entity also hold a bank account denominated in US$ which had a carrying value of $NIL at 31 December 2020 (31 December 2019: $866,645). (c) Credit risk Credit risk is managed on a group basis. Credit risk can arise from cash and cash equivalents, deposits with banks and financial institutions, derivative financial instruments and receivables. The Group holds its cash with Westpac Banking Corporation and Commonwealth Bank of Australia which are considered to be appropriate financial institutions. The Group has trade receivables of $NIL (31 December 2019: $1,135,058). The maximum exposure to credit risk at the reporting date is the carrying amount of the financial assets. The group applies the AASB 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets. Applying the principles of the expected credit loss model and historical recovery rates, the Consolidated entity has not recognised a provision against trade receivables and contract assets. Trade receivables and contract assets are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the group, and a failure to make contractual payments. GST refunds are receivable from a government agency and are deemed to have no significant credit risk. For banks, financial institutions and third party debtors, management assesses the credit quality of the counterparty, taking into account its financial position, past experience and other relevant factors. (d) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Liquidity risk is managed on a Group basis. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The Group monitors its cash flow on a regular basis to ensure adequate funds are in place to maintain uninterrupted production and to meet its payment obligations when they fall due. The Group and the parent entity had no undrawn borrowing facilities at the reporting date. Maturities of financial liabilities The tables below analyse the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows and includes future interest on borrowings. Less than 1 year 1 to 2 year(s) 2 to 3 years 3 to 4 years 4 to 5 years More than 5 years 31 December 2020 $’000 Trade and other payables Total 31 December 2019 $’000 Trade and other payables Lease liabilities Total 1,122 1,122 8,640 253 8,893 - - - - - - - - - - - - - - - - - - - - - - - - - H I L L G R O V E R E S O U R C E S I I L M T E D A N N U A L R E P O R T 2 0 2 0 P a g e 4 7 Notes to the consolidated Financial Statements for the year ended 31 December 2020 (cont.) 26. SUBSIDIARIES The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Hillgrove Resources Limited (the “parent entity”) as at 31 December 2020 and the results of all subsidiaries for the period then ended. Hillgrove Resources Limited and its subsidiaries together are referred to in this financial report as the Group. Subsidiaries are all entities controlled by the Group. Control is achieved when the Group has power over the investee, is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to use its power to affect its returns. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Profit or loss and each component of other comprehensive income are attributed to owners of Hillgrove Resources Limited and to the non- controlling interests where applicable. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The proportion of ownership interest is equal to the proportion of voting power held. The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries: Name of controlled entity Hillgrove Copper Pty Ltd Hillgrove Copper Holdings Pty Ltd Hillgrove Exploration Pty Ltd Hillgrove Mining Pty Ltd Hillgrove Operations Pty Ltd Hillgrove Wheal Ellen Pty Ltd Kanmantoo Properties Pty Ltd Mt Torrens Properties Pty Ltd SA Mining Resources Pty Ltd Hillgrove Indonesia Pty Ltd Hillgrove Singapore Holdings Pte Ltd Hillgrove Singapore No 2 Pte Ltd Hillgrove Singapore No 3 Pte Ltd Hillgrove Singapore No 4 Pte Ltd PT Akram Resources PT Fathi Resources PT Hillgrove Indonesia Country of incorporation Class of share Equity holding 31 Dec 2020 (%) Equity holding 31 Dec 2019 (%) Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Singapore Singapore Singapore Singapore Indonesia Indonesia Indonesia Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - - 100 100 100 100 100 100 100 100 100 100 100 80 80 100 100 80 80 100 There were no transactions with non-controlling interests during the period. D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 8 4 e g a P Notes to the consolidated Financial Statements for the year ended 31 December 2020 (cont.) 27. COMMITMENTS (a) Non-cancellable commitments Future commitments not provided for in the financial statements and payable: Within one year One to five years 31 Dec 2020 31 Dec 2019 $’000 30 13 43 $’000 22 - 22 The Group has no material lease obligations that require the disclosure of “lease liabilities” and “right-to-use” assets under AASB 16. (b) Exploration expenditure commitments In order to maintain current rights of tenure to exploration tenements, the Group is required to perform exploration work to meet the minimum expenditure requirements under the various exploration licences which are held. These obligations are expected to be fulfilled in the normal course of operations. Mining interests may be relinquished or joint ventured to reduce this amount. The SA State Government has the authority to defer, waive or amend the minimum expenditure requirements. Eligible exploration expenditure includes an appropriate allocation of overhead costs. H I L L G R O V E R E S O U R C E S Within one year One to five years 31 Dec 2020 31 Dec 2019 $’000 1,010 1,106 2,116 $’000 1,365 1,965 3,330 (c) Capital commitments At 31 December 2020 there were no contracted capital commitments (31 December 2019: Nil). I I L M T E D A N N U A L R E P O R T 2 0 2 0 P a g e 4 9 Notes to the consolidated Financial Statements for the year ended 31 December 2020 (cont.) 28. NOTES TO THE STATEMENT OF CASH FLOWS (a) Reconciliation of cash For the purposes of the statement of cash flows, cash includes cash on hand and at bank and short term deposits at call. Cash as at the end of the financial year as shown in the statement of cash flows is reconciled to the related items in the Balance Sheet as set out in Note 11. (b) Reconciliation of operating profit after income tax to net cash provided by operating activities Operating profit/(loss) after income tax Add/(less) items classified as investing/financing activities Net (gain)/loss on sale of fixed assets Net interest expense Lease payments Payment on disposal of Indonesian subsidiaries Add/(less) non-cash items Depreciation and amortisation Impairment asset write downs Employee share options Discount on unwind of rehabilitation provision Deferred income amortisation Rehabilitation adjustment Changes in operating assets and liabilities Increase / (decrease) in deferred revenue (Increase) / decrease in receivables, prepayments and inventories Increase / (decrease) in trade creditors and accruals (Increase) / decrease in net deferred tax assets Increase / (decrease) in provisions and employee benefits (Increase) / decrease in deferred mining costs Net cash generated by operating activities 31 Dec 2020 31 Dec 2019 $’000 (5,945) $’000 (10,027) (92) 58 206 91 1,891 51 587 109 - (166) (479) 12,492 (7,812) - (3,991) - (3,000) (47) 531 225 - 14,664 3,048 911 257 (275) (702) (687) 23,881 (18,140) 3,685 (3,414) 7,905 21,815 (c) Net debt reconciliation This section sets out an analysis of net debt and the movements in net debt for each of the periods presented. Cash and cash equivalents Borrowings – repayable within one year Borrowings – repayable after one year Net funds / (debt) 31 Dec 2020 31 Dec 2019 $’000 5,601 - - 5,601 $’000 9,329 (253) - 9,076 D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 0 5 e g a P Notes to the consolidated Financial Statements for the year ended 31 December 2020 (cont.) 28. NOTES TO THE STATEMENT OF CASH FLOWS (cont.) Reconciliation of movement of liabilities to cash flows arising from financing activities Other Assets Liabilities from Financing activities Cash & Bank Liquid Investments Leases due within 1 year Leases due after 1 year Borrowings due within 1 year Borrowings due after 1 year Total Net debt as at 1 January 2019 Cash flows Other non-cash movements Net funds/(debt) as at 31 December 2019 Cash flows Other non-cash movements Net funds/(debt) as at 31 December 2020 2,451 6,878 - 9,329 (3,728) - 5,601 - - - - - - - (333) 225 (145) (253) 206 47 - (145) - 145 - - - - (503) 506 (3) - - - - - - - - - - - 1,470 7,609 (3) 9,076 (3,522) 47 5,601 Non-cash movements represent accrued interest, repayment timing movements between current and non-current and revaluations. 29. KEY MANAGEMENT PERSONNEL DISCLOSURES Key management personnel compensation Short-term employee benefits Post-employment benefits Cash bonus Termination payments Share based payments 31 Dec 2020 31 Dec 2019 $ 952,010 81,246 298,473 111,186 283,627 $ 1,433,933 171,286 230,456 496,574 433,185 1,726,542 2,765,434 Further detail regarding key management personnel compensation can be found in the Remuneration Report. H I L L G R O V E R E S O U R C E S I I L M T E D A N N U A L R E P O R T 2 0 2 0 P a g e 5 1 Notes to the consolidated Financial Statements for the year ended 31 December 2020 (cont.) 30. RELATED PARTY TRANSACTIONS (a) Parent entities The parent entity within the Group is Hillgrove Resources Limited. (b) Subsidiaries Interests in subsidiaries are set out in Note 26. (c) Key management personnel Disclosures relating to key management personnel are set out in Note 29. (d) Related parties Loans to controlled entities are eliminated on consolidation. 31. EVENTS AFTER THE REPORTING PERIOD Subsequent to year end, the Company completed and received the funds from the capital raising that was contemplated in the announcement of 17 December 2020. Whilst the Placement Tranche 1 was completed in the current period, the following was completed subsequent to the balance date: ½ Placement Tranche 2 – shareholder approval for the issue of 185,080,646 new fully paid ordinary shares to raise ~$5.7 million; and ½ Entitlement Offer – the non underwritten non-renounceable offer closed oversubscribed, with $3.4m of subscriptions. As there were applications for more shortfall shares than what was available under the Top Up Facility, it was necessary for the Company to scale back applications. The entitlement offer raised gross proceeds of $2.8 million through the issue of 90,090,541 shares. 32. CONTINGENT LIABILITIES Guarantees 31 Dec 2020 31 Dec 2019 $’000 $’000 Electranet performance bond to support the build, own, operate and maintain agreement for installation of transmission infrastructure at the Kanmantoo site Security bonds on rental properties 338 16 354 333 16 349 The consolidated entity has obligations to restore land disturbed under exploration and mining licences. The maximum obligation to the South Australian Government in respect of the Kanmantoo copper mine has been assessed at a value of $9.2 million and is secured by the SA Government on a first ranking basis against the assets of the consolidated entity. Included in the rehabilitation provision is a payment of approximately $1.7 million to the Native Vegetation Fund. With permission from the State Government, the Group has delayed the timing of this payment and, whilst the intention is for the payment to be made at a later date, it should be noted that non-payment would increase the Group’s rehabilitation provision by approximately $1.5 million. This circumstance is not expected to eventuate. The Directors are of the opinion that further provisions are not required in respect of these matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement. The consolidated entity had no other contingent liabilities at 31 December 2020. D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 2 5 e g a P Notes to the consolidated Financial Statements for the year ended 31 December 2020 (cont.) 33. SHARE-BASED PAYMENTS Following the termination of the agreement with AGL Energy Limited (AGL) to sell the pumped hydro energy storage project in February 2020, and pivoting the business strategy towards the development of the Kanmantoo Underground, the Board decided that the cash based Key Employees Plan (KEP) granted in July 2019 was no longer an appropriate LTI scheme for the revised business strategy. As such, the cash based KEP was replaced with the Option & Performance Rights Plan in August 2020 (2019 OPRP), which enables the Company to divert cash-based remuneration towards the exploration and development activities associated with the Kanmantoo Underground. Please refer to section 4.4.3 of the Remuneration Report for the LTI schemes currently in place. Movements in performance rights during the year 31 December 2020 31 December 2019 Number of performance rights Weighted average exercise price ($) Number of performance rights Weighted average exercise price ($) Balance at beginning of year Granted during the year Forfeited during the year Exercised during the year Expired during the year Balance at end of year Exercisable at end of year 18,875,000 10,473,282 (3,622,687) - (13,983,755) 11,741,840 - - - - - - - - 31,165,000 - (4,178,600) (8,111,400) - 18,875,000 - - - - - - - - Performance rights outstanding at the end of the year At the end of the year there are 11,741,840 performance rights outstanding that have been offered under the 2019 OPRP and milestone based hurdles. The exercise price of these performance rights is Nil (31 December 2019: Nil), and the weighted average remaining contractual life at the end of the period was 0.89 years (31 December 2019: 0.41 years). Expenses arising from share-based payment transactions Total expenses arising from share-based payment transactions recognised during the period as part of employee benefit expense were as follows: Performance rights issued under the OPRP Equity based Cash based 31 Dec 2020 31 Dec 2019 $’000 $’000 465 122 587 911 - 911 The expense arising from the 2018 Rights was determined using an adjusted form of the Black Scholes Model. A third party valuation was performed on the 2019 rights using a Monte Carlo simulation approach. Key inputs in the valuations were: Grant date Expiration date Share price at grant date Risk free rate Expected price volatility Dividend yield Carrying amount of liability included in employee benefits payable 2019 Rights 10 Aug 2020 31 Dec 2021 $0.044 0.15% 67% 0% $121,592 2018 Rights 1 Jun 2018 31 July 2020 $0.093 1.85% 29% 0% - H I L L G R O V E R E S O U R C E S I I L M T E D A N N U A L R E P O R T 2 0 2 0 P a g e 5 3 Notes to the consolidated Financial Statements for the year ended 31 December 2020 (cont.) 34. PARENT ENTITY INFORMATION The financial information for the parent entity, Hillgrove Resources Limited, has been prepared on the same basis as the consolidated financial statements, except as set out below. Investments in subsidiaries and associates are accounted for at cost in the financial statements of Hillgrove Resources Limited. Dividends received from associates are recognised in the parent entity’s profit or loss, rather than being deducted from the carrying amount of these investments. Set out below is the supplementary information about the parent entity. Parent 31 Dec 2020 31 Dec 2019 $’000 (4,525) (4,525) 5,755 16,222 1,216 1,216 15,006 $’000 (5,671) (5,671) 1,101 17,467 629 629 16,838 236,550 12,539 234,322 12,074 Profit / (loss) after income tax Total comprehensive income Balance Sheet Total current assets Total assets Total current liabilities Total liabilities Net assets Shareholder’s Equity Contributed equity Reserves Accumulated losses (234,083) (229,558) Total equity 15,006 16,838 Significant accounting policies The accounting policies of the parent entity are consistent with those of the consolidated entity, disclosed throughout the report and notes. Investments in subsidiaries are accounted for at cost, less any impairment. Contingent liabilities Security bond on rental properties 31 Dec 2020 31 Dec 2019 $’000 $’000 16 16 D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 4 5 e g a P Directors’ Declaration In the Directors’ opinion: (a) the financial statements and notes set out on pages 29 to 54 are in accordance with the Corporations Act 2001, including: (i) (ii) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and giving a true and fair view of the consolidated entity’s financial position as at 31 December 2020 and of its performance for the financial period ended on that date; and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the Directors. Dated at Adelaide on 26 February 2021 Mr Derek Carter Chairman Mr Lachlan Wallace Managing Director H I L L G R O V E R E S O U R C E S I I L M T E D A N N U A L R E P O R T 2 0 2 0 P a g e 5 5 Independent Auditor’s Report to the Members of Hillgrove Resources Limited D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 6 5 e g a P PricewaterhouseCoopers, ABN 52 780 433 757 Level 11, 70 Franklin Street, ADELAIDE SA 5000, GPO Box 418, ADELAIDE SA 5001 T: +61 8 8218 7000, F: +61 8 8218 7999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. Independent auditor’s report To the members of Hillgrove Resources Limited Report on the audit of the financial report Our opinion In our opinion: The accompanying financial report of Hillgrove Resources Limited (the Company) and its controlled entities (together the Group) is in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the Group's financial position as at 31 December 2020 and of its financial performance for the year then ended (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. What we have audited The Group financial report comprises: • the consolidated balance sheet as at 31 December 2020 • the consolidated statement of changes in equity for the year then ended • the consolidated statement of cash flows for the year then ended • the consolidated statement of profit or loss and other comprehensive income for the year then ended • the notes to the consolidated financial statements, which include significant accounting policies and other explanatory information • the directors’ declaration. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. 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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional & Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (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. Independent Auditor’s Report to the Members of Hillgrove Resources Limited (cont.) H I L L G R O V E R E S O U R C E S I I L M T E D A N N U A L R E P O R T 2 0 2 0 P a g e 5 7 2 Our audit approach An audit is designed to provide reasonable assurance about whether the financial report is free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial report as a whole, taking into account the geographic and management structure of the Group, its accounting processes and controls and the industry in which it operates. Materiality Audit scope • For the purpose of our audit we used overall Group materiality of $359,000, which represents approximately 1% of the Group’s total assets. • We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial report as a whole. • We chose Group total assets because, in our view, it is a benchmark against which the performance of the Group is most commonly measured. • We utilised a 1% threshold based on our professional judgement, noting it is within the range of commonly acceptable thresholds. • Our audit focused on where the Group made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events. • The Group’s accounting records are held and managed at the Kanmantoo site and the corporate head office, located in Adelaide. • The Kanmantoo operation was the focus of the audit as it was the Group’s only operating site during 2020. The Group has overseas subsidiaries in Indonesia and Singapore which were not operating during 2020. We have performed limited audit procedures over these subsidiaries. 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 for the current period. The key audit 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. Further, any commentary on the outcomes of a particular audit procedure is made in that context. We communicated the key audit matters to the Audit and Risk Committee. Independent Auditor’s Report to the Members of Hillgrove Resources Limited (cont.) D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 8 5 e g a P 3 Key audit matter How our audit addressed the key audit matter Basis of preparation of the financial report (Refer to note 1(a)(i)) As described in Note 1 (a)(i) to the financial report, the financial statements have been prepared by the Group on a going concern basis, which contemplates that the Group will continue to meet its commitments, realise its assets and settle its liabilities in the normal course of business. Assessing the appropriateness of the Group’s basis of preparation for the financial report was a key audit matter due to its importance to the financial report and the level of judgement involved with respect to the Group forecasting future cash flows for a period of at least 12 months from the date of the financial report (cash flow forecasts). In assessing the appropriateness of the Group’s going concern basis of preparation for the financial report, we performed the following procedures amongst others: • Evaluated the appropriateness of the Group's assessment of their ability to continue as a going concern, including whether the assessment is appropriate given the nature of the Group, the period covered is at least 12 months from the date of our auditor’s report and relevant information of which we are aware as a result of the audit has been included. • Enquired of management and the board of directors as to their knowledge of events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. • Evaluated the Group’s plans for future actions and whether these are feasible in the circumstances. This included consideration of the impacts of post balance date events, in particular the capital raising finalised on 16 February 2021, to ensure these were appropriately included in the cashflow forecasts. • Evaluated selected data and assumptions used in the Group’s cash flow forecasts for at least 12 months from the date of signing the auditor’s report. • Considered the liquidity of existing assets on the consolidated balance sheet as at 31 December 2020. • Requested written representations from management and the board of directors regarding their plans for future action and the feasibility of these plans. • Evaluated whether, in view of the requirements of Australian Accounting Standards, the financial report provides adequate disclosures. Independent Auditor’s Report to the Members of Hillgrove Resources Limited (cont.) H I L L G R O V E R E S O U R C E S I I L M T E D A N N U A L R E P O R T 2 0 2 0 P a g e 5 9 4 Key audit matter How our audit addressed the key audit matter Carrying value of assets of Kanmantoo cash generating unit (Refer to note 14) The Group’s assessment of the carrying value of the Kanmantoo cash generating unit (‘CGU’) was considered a key audit matter due to the financial significance of property, plant and equipment ($24.4 million) and the judgemental assumptions included in the Group’s discounted cash flow models for the Kanmantoo mine, particularly: • resources and exploration targets; • processing volumes; • ore production; • long term copper prices; • foreign exchange rates; • operating costs; • capital costs; • discount rate; and • expected proceeds from sale of property, plant & equipment and land. We performed the following procedures, amongst others: • Assessed the appropriateness of the CGU identification in accordance with the requirements of Australian Accounting Standards. • Evaluated the Group’s ability to forecast future results by comparing budgets with reported actual results for the previous financial year. • Tested the mathematical accuracy, on a sample basis, of the discounted cash flow model. • Assessed the completeness of cash flows included within the model based on our understanding of operations from the audit. • Evaluated the Group’s plans for the Kanmantoo mine and considered whether these are feasible. This included: o an assessment of resources and exploration targets; o an assessment of the competence of the Group’s expert; and o written representations from management and the board of directors regarding their plans for the Kanmantoo mine. • Assessed the reasonableness of the forecast ore processing volumes by comparing these volumes to historical processing levels. • Assessed the reasonableness of the forecast ore production by comparing this to historical recovery levels. • Compared copper pricing data used to independent industry forecasts. • Compared foreign exchange rates to current market information. • Assessed the reasonableness of forecast operating costs by comparing these to historical costs incurred. • Assessed the reasonableness of forecast capital costs by Independent Auditor’s Report to the Members of Hillgrove Resources Limited (cont.) D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 0 6 e g a P 5 Key audit matter How our audit addressed the key audit matter comparing these to external cost estimates. • Evaluated the sensitivity of the CGU recoverable amount to changes in the discount rate by varying the discount rate used in the discounted cash flow model. • Assessed the timing and amounts to be received from the sale of property, plant & equipment and land following expected completion of mining and processing activities by comparing these amounts to external valuation reports. This included an assessment of the competence of the external firms who prepared the valuations; • Evaluated the adequacy of disclosures made in the financial report, including those regarding key assumptions, in light of the requirements of Australian Accounting Standards. Rehabilitation provision (Refer to notes 17 and 21) As a result of its mining and processing operations, the Group is obligated to restore and rehabilitate the environment disturbed by these operations. Rehabilitation activities are governed by a combination of legislative requirements and Group policies. At 31 December 2020 the consolidated balance sheet included provisions for such obligations of $10.5m. This was a key audit matter due to the judgement applied by the Group in assessing the nature and extent of the rehabilitation work to be performed, estimating the future cost and timing of performing this work and applying assumptions such as the discount rate and inflation to future cash outflows associated with rehabilitation activities. We performed the following procedures, amongst others: • Compared the actual rehabilitation costs incurred against the Group’s forecasts to check that rehabilitation estimates take into account current experience. • Assessed the nature, timing and extent of rehabilitation work to be performed by inspecting mine and rehabilitation plans. • Tested the mathematical accuracy, on a sample basis, of the Group’s rehabilitation estimate. • Assessed the completeness of cash flows based on our understanding of the Group’s rehabilitation obligations. • Evaluated the method, significant assumptions and data used to develop the estimates. • Evaluated the appropriateness of discount rates and inflation rates utilised in calculating the closing provision by comparing them to current market information. • Evaluated the adequacy of disclosures made in the financial statements, in light of the requirements of Australian Accounting Standards. Independent Auditor’s Report to the Members of Hillgrove Resources Limited (cont.) H I L L G R O V E R E S O U R C E S I I L M T E D A N N U A L R E P O R T 2 0 2 0 P a g e 6 1 6 Other information The directors are responsible for the other information. The other information comprises the information included in the annual report for the year ended 31 December 2020 but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, 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. 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 preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with 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 the financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our auditor's report. Independent Auditor’s Report to the Members of Hillgrove Resources Limited (cont.) D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 2 6 e g a P 7 Report on the remuneration report Our opinion on the remuneration report We have audited the remuneration report included in pages 17 to 26 of the directors’ report for the year ended 31 December 2020. In our opinion, the remuneration report of Hillgrove Resources Limited for the year ended 31 December 2020 complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. PricewaterhouseCoopers Andrew Forman Adelaide Partner 26 February 2021 Shareholder Information Shareholder Information for Listed Public Companies The following additional information is required by the Australia Securities Exchange Limited in respect of listed public companies only. As at the reporting date the most recent Shareholder information available for disclosure is as follows: (a) Voting rights and classes of equity securities As at 16 February 2021, the Company has 936,969,381 listed fully paid ordinary shares. Each fully paid share carries on a poll one vote. The company also has 8,620,219 unquoted performance rights on issue which are held by 5 holders which do not carry voting rights. (b) Unmarketable parcels The number of shareholdings holding less than a marketable parcel of ordinary shares was 2,049 as at 16 February 2021. (c) Distribution schedule of Fully Paid Ordinary Shares as at 16 February 2021 Size of holding Number of shareholders 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over 448 1,183 346 821 407 3,205 (d) Securities exchange listing Quotation has been granted for all the ordinary shares of the Company on all Member Exchanges of the Australian Securities Exchange Limited. The ASX code is HGO. (e) Company Secretary Mr Joe Sutanto is the Company Secretary. (f) On-market buy-back There is no current on-market buy-back. (g) Substantial shareholders as at 16 February 2021 An extract of the Company’s register of Substantial Shareholders (who hold 5.0% or more of the issued capital) in accordance with Form 604 Notices is set out below: Name Ariadne Australia Limited Munro Family Super Fund Issued capital 19.5% 6.7% H I L L G R O V E R E S O U R C E S I I L M T E D A N N U A L R E P O R T 2 0 2 0 P a g e 6 3 Shareholder Information (cont.) Twenty largest listed shareholders The twenty largest shareholders hold 61.6% of the total ordinary shares issued. The 20 largest shareholdings as at 16 February 2021 are listed below: Shareholder 1 Portfolio Services Pty Ltd 2 Mr Raymond Edward Munro 3 4 5 6 7 8 9 Bell Potter Nominees Pty Ltd J P Morgan Nominees Australia BNP Paribas Nominees Pty Ltd Portfolio Services Pty Ltd Portfolio Services Pty Ltd Portfolio Services Pty Ltd UBS Nominees Pty Ltd 10 Citicorp Nominees Pty Ltd 11 Portfolio Services Pty Ltd 12 Proco Pty Ltd 13 Proco Pty Ltd 14 Mr Antony Gordon Breuer 15 National Nominees Pty Ltd 16 HSBC Custody Nominees 17 Sighet Pty Limited 18 Cosell Pty Limited 19 Mr Lachlan Wallace 20 Mr Malcolm Neil Nichols No. of ordinary shares held % of issued shares 74,812,355 59,750,000 55,329,826 53,961,405 48,755,990 42,337,067 32,258,065 30,961,163 29,635,336 28,334,404 17,546,894 16,500,000 16,300,000 15,577,134 11,995,052 9,551,081 8,588,144 8,400,000 8,214,458 8,163,115 8.0% 6.4% 5.9% 5.8% 5.2% 4.5% 3.4% 3.3% 3.2% 3.0% 1.9% 1.8% 1.7% 1.7% 1.3% 1.0% 0.9% 0.9% 0.9% 0.9% (h) Interests in mining tenements 576,971,489 61.6% Tenement ML 6345 ML 6436 EML 6340 EL 6526 EL 6174 EL 6175 EL 6176 EL 6207 EL 6208 EL 6294 EL 6397 ML 755 Location Percentage Kanmantoo, South Australia Kanmantoo, South Australia Kanmantoo, South Australia Kanmantoo, South Australia Coomandook, South Australia Coonalpyn, South Australia Wheal Ellen, South Australia Tintinara, South Australia Carcuma, South Australia Wynarka, South Australia Laffer, South Australia Armidale, New South Wales 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% (i) Other information Hillgrove Resources Limited, incorporated and domiciled in Australia, is a publicly listed Company limited by shares. D E T M L I I S E C R U O S E R E V O R G L L I H 0 2 0 2 T R O P E R L A U N N A 4 6 e g a P HILLGROVE RESOURCES LIMITED ACN 004 297 116 Adelaide Office Ground Floor 5-7 King William Road Unley, SA 5061 Australia P.O. Box 372 Unley, SA 5061 Australia T: +61 8 7070 1698 E: info@hillgroveresources.com.au T: +61 8 7070 1698 E: info@hillgroveresources.com.au W: www.hillgroveresources.com.au 

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