Hot Chili Limited
Annual Report 2011

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2011 ACN 130 955 725 ANNUALREPORT HOT CHILI ANNUAL REPORT 2011 Chairman’s Letter 2 Tenement Schedule and Details 22 Auditor’s Independence Declaration 43 Directors’ Declaration 46 Statement of Changes in Equity 49 Notes to the Financial Statements 51 Projects Overview 4 Review of Operations 6 Corporate Governance Statement 35 Directors’ Report 38 Independent Audit Report to the Members 44 Statement of Comprehensive Income 47 Statement of Financial Position 48 Statement of Cash Flows 50 Shareholder Information Required by the ASX 67 “Hot Chili made its way to Chile for Tier Two open pitable copper projects capable of achieving relatively near-term production.” Directors Murray E Black (Non Executive Chairman) Christian E Easterday (Managing Director) Dr Allan Trench (Independent Non Executive Director) Company Secretary John E Sendziuk Registered Office and Principal Place of Business Corner Federal Road and Wilson Street KALGOORLIE WA 6430 Telephone: +61 8 9021 3033 Facsimile: +61 8 9021 6995 Email: Web: ally@hotchili.net.au www.hotchili.net.au Perth Office Unit 25 784 Canning Highway APPLECROSS WA 6153 Telephone: +61 8 9315 9009 Facsimile: +61 8 9315 5004 Solicitors Jackson McDonald 140 St George’s Terrace PERTH WA 6000 Share Registry Security Transfer Registrars Pty Ltd 770 Canning Highway APPLECROSS WA 6153 Telephone: +61 8 9315 0933 Facsimile: +61 8 9315 2233 Auditors RSM Bird Cameron Partners 8 St George’s Terrace PERTH WA 6000 Principal Banker Westpac Banking Corporation Hannan Street KALGOORLIE WA 6430 1 HOT CHILI ANNUAL REPORT 2011 chairman’s letter Dear Shareholder, On behalf of the board of Hot Chili Limited (Hot Chili or Company), I am pleased to present the company’s 2011 annual report, which outlines an impressive set of achievements in the company’s short history since listing on the Australian Securities Exchange (ASX) in early May 2010. Over the past year, Hot Chili has wasted no time in positioning the company to make the important transition from explorer to project developer. Aggressive exploration and resource definition work programmes at the company’s portfolio of large multi-commodity copper projects in Chile have underpinned rapid growth in the value of the company, allowing Hot Chili to outperform most of its peers during this past year. Drilling results from our flagship project Productora have revealed the presence of a large at-surface copper-gold-molybdenum deposit. We now look forward to the release of the company’s first resource estimate in September 2011 and expect that this will provide a strong platform for future growth and establish Hot Chili’s presence within the ranks of emerging mid-tier multi-commodity copper developers. The rapid success from our activities this past year has been due to the efforts and dedication of our talented board, management and exploration team. Four years of hard work have gone into the preparation for this success and we could not have achieved this without the support of our Chilean partners. We have strived to develop our company’s cooperative relationships in Chile and direct the benefits of our investment back into the local community in which we operate. Finally I would like to thank the strong and continuing support from our shareholders. While it has been quite a journey from our early beginnings, it has been a journey worth the wait. I look forward to reporting on our next year of activity in which the company anticipates achieving even greater milestones. Murray Edward Black Non Executive Chairman 2 Copper Gold s e i t i d o m m o C Molybdenum 3 “ positioning the company to make the important transition from explorer to project developer.” HOT CHILI ANNUAL REPORT 2011 projects overview Hot Chili’s projects lie along Chile’s coastal cordillera, one of the world’s largest iron-oxide- copper-gold (IOCG) provinces hosting several significant deposits, including Candelaria, Mantos Blancos, Manto Verde and El Soldado. All of Hot Chili’s projects are low altitude (<1,000m elevation) and are close to major infrastructure. The 2011 reporting year involved an intensive period of exploration and resource work programmes over each of the company’s multi-commodity copper projects in Chile. The focus at each project was to rapidly confirm the work of earlier exploration results and to assess the potential for each project to host significant deposits amenable to large open-pit operations. This work involved extensive mapping, geochemistry, and airborne surveys. Large drilling programmes were undertaken over Hot Chili’s two advanced projects Productora and Los Mantos. The company is now at an advanced stage of estimating a first resource at the Productora copper-gold-molybdenum project that is anticipated to be released in September 2011. The results of resource development drilling indicate that a large initial resource is emerging within the project that will give the company confidence to commence economic scoping studies later in 2011. Hot Chili’s team was expanded during the year to accommodate for the rapid growth in drilling activities in Chile. A strong management and operational team is now in-place to continue this work and capitalise on the company’s achievements during this past year. The company has continued to work closely with it’s Chilean partners, in particular CMP and CODELCO. Further land additions and some relinquishments occurred as all projects were further consolidated and rationalised around known mineralised areas. In order of focus, the three projects and their key features are: Productora Productora is Hot Chili’s flagship multi-commodity copper project. The project is at an advanced stage, with an underground mine (operating under a capped production arrangement as part of the company’s purchase option agreement over the central lease at Productora), significant historical drilling and extensive supporting geological work already undertaken. Hot Chili has undertaken intensive resource drilling within the central 1.4km strike extent of the project, revealing wide zones of copper, gold and molybdenum hosted within a breccia intruded fault corridor. Hot Chili controls over 12.5 kilometres of strike extent across the main mineralised corridor at Productora. The identified footprint of the copper-gold-molybdenum mineralised corridor at Productora is greater than 9.5km in strike length. Extensional drilling has successfully intersected breccia hosted multi- commodity mineralisation for over 3.7km of this strike extent. Drilling confirms that a magnetic anomaly delineated by an airborne survey completed by the company in mid 2010 relates to a magnetite zone along the western margin of the mineralised breccia corridor. A major drilling programme is now underway to test the 9.5km mineralised trend, and the first stage of this programme is to be completed over the coming year of exploration at Productora. Approximately 28,000m of reverse circulation (RC) and 5,500m of diamond drilling was completed at the project during the past year. A programme comprising 65,000m of RC and 8,000m of diamond is planned to be undertaken at Productora during the coming year. This drilling is aimed toward rapid resource growth along strike, adjacent to and at depth to the anticipated first resource within central area of Productora. 4 CHILE NORTE Currently undergoing Drilling Exploration Programmes. PRODUCTORA Currently undergoing Resource Drilling Programmes. LOS MANTOS Currently undergoing Drilling Exploration Programmes. RESOURCE TYPE: Copper Gold Molybdenum Los Mantos Los Mantos is at an advanced stage with an operating small-scale mine, and extensive historical underground and surface development. The Company has recognised a zoned multi-commodity IOCG system at the project. Extensive mantos and breccia style mineralisation is exposed over 2.5km in strike length in surface development and outcrop. During the year an 11,500m first-pass RC drilling programme was undertaken over the project. Drilling returned multiple zones of shallow, moderate width, multi-commodity copper intersections across 1.5km of strike extent. Chile Norte Hot Chili is in its second year of a five-year agreement with CODELCO to earn an interest in a large contiguous land holding that adjoins the Company’s own landholding in the project area. Chile Norte is at an early stage of advancement. Historical work undertaken to date includes copper multi-commodity exploration investigations, minor drilling activity, trenching and surface geochemical assaying complete. Over 17km strike length of multi- commodity anomalism has been identified in the area and further extensions along strike are inferred. Work undertaken by Hot Chili and the current mining activities indicate that Los Mantos may potentially be higher-grade than Productora. The company is pleased with the results of the first-pass drilling programme and will be planning to undertake a second-pass programme in which to potentially define a second shallow multi-commodity copper resource in Chile. Exploration by Hot Chili has included airborne magnetic and radiometric surveying, ground mapping and geochemical sampling. Four large target areas have been prioritised for assessment within the 65km strike extent of land position at the project. A more focused phase of surface geochemistry and mapping is planned to advance the project towards a drill readiness status in the coming year. 5 La SerenaARGENTINACHILEBOLIVIAPERUIquiqueAntofagastaSantiago HOT CHILI ANNUAL REPORT 2011 review of operations continued The year has seen the company complete extensive drilling programmes at both of its advanced projects Productora and Los Mantos. These campaigns were very successful in delineating large shallow multi-commodity copper mineralisation at both projects. Drilling results at Productora have far exceeded the company’s earlier estimates of potential at the projects, while drilling at Los Mantos confirmed the potential predicted. First stage drilling at Productora commenced on the 17th August 2011, with the use of a single RC drill rig. First-pass drilling intersected wide zones of copper-gold and molybdenum in 22 of the first 23 RC drill holes at Productora, which gave the company encouragement to increase the size and scope of the drilling campaign. Continued success with drilling over the ensuing months saw the drill programme expand and the company utilised up to six RC drilling rigs, and five diamond drilling rigs in an effort to expedite the delineation of a maiden resource for Productora. Further work at Productora involved an extensive litho-structural mapping and geochemical rock chip sampling programme along strike extensions of the Productora mine area to further enhance the company’s understanding of the mineralised system within the area. Hot Chili completed a major helicopter based aeromagnetic and radiometric survey over the Productora project area. These geophysical surveys, in conjunction with mapping and geochemical sampling programmes, will be used for further target generation for the next phase of extensional drilling due to commence at Productora in September 2011. Drilling targeted substantial copper-gold shear-hosted and mantos zones that are currently being exploited from both surface and underground small-scale development. The first drilling results confirm Hot Chili’s earlier surface exploration mapping and geochemical sampling which indicated a zoned metal distribution between the northern and southern zones of the deposit. The northern zone of the deposit hosts a sequence of moderately east-dipping mantos zones. First drilling across this zone has successfully returned several moderate width intersections of copper and gold at shallow depths. Higher-grade mineralisation is associated with sediments and breccia zones related to cross faults locations. Mineralisation in the southern zone of Los Mantos is hosted by a series of west-dipping shears. Several orientations of drilling were utilised owing to the presence of mineralised cross faults. Many of the individual drill holes returned multiple intersections, recording significant multi-commodity copper results in breccia. Hot Chili also completed a major helicopter based aeromagnetic and radiometric survey over the Los Mantos project area. These geophysical surveys, in conjunction with mapping and geochemical sampling programmes, will be used for further target generation for the next phase of exploration drilling at Los Mantos. A first pass RC drill programme was undertaken at Los Mantos during May and June 2011. Significant intersections were reported in the majority of drill holes completed on the project, confirming moderate width, multi-commodity copper mineralisation across 1.5km of the 2.5km strike extent of mineralisation tested at the project. At Chile Norte a large aeromagnetic and radiometric survey was conducted which identified a series of anomalies. These anomalies were then investigated by a helicopter-supported reconnaissance mapping and sampling survey. Based on the geophysical work and the follow-up field checking and sampling, four areas of interest have been prioritised for follow-up work. 6 Productora “Initial drill results from the first stage of drilling were extremely encouraging” Above: looking north across resource drilling platforms at Productora Productora Project The Productora project is located in Chile’s low-altitude coastal range belt, 15km south of the regional mining centre of Vallenar. Productora is the most advanced of Hot Chili’s three Chilean projects, containing an operating underground copper mine and historical exploration results. Exploration and Resource Drilling Activities The company commenced first drilling at Productora in August 2010 and continued until late June 2011. The first stage drilling programme was directed towards several key target areas within the project which were located primarily within the central and northern areas of the project. Drilling focussed on a zone of significant copper and gold workings associated with a large geophysical induced polarisation (IP) anomaly defined in earlier work by Teck during the 1990’s. Initial drill results from the first stage of drilling were extremely encouraging with the intersection of numerous wide zones of mineralisation which warranted the need for the addition of a second RC drill rig in late 2010 to accelerate drilling activities. Hot Chili reported significant intersections in 22 of the first 23 RC drill holes completed within the central area of Productora. Wide zones of breccia hosted copper, gold and molybdenum mineralisation have been recorded over 1.4km strike within the central area, which was the focus for the company’s preliminary resource at Productora. Resource drilling was directed from initial shallow RC drilling to deeper diamond drilling at the beginning of April 2011 which was completed by late June 2011. During this time, Hot Chili utilised up to six RC drill rigs and five diamond drill rigs on site in an effort to expedite the delineation of a resource over a 1.4km strike extent within the central area of the project. Resource drilling returned several higher-grade results during the drilling campaign, highlighting enriched grade within numerous shallow areas within the deposit. In addition to the higher-grade drilling results, wide zones of moderate grade mineralisation were also intersected. These results highlight the shallow nature of the deposit and clearly demonstrate that a number of potentially large tonnage zones are present from surface particularly within the southern extent of the central area. Significant intercepts from the drilling are in the following table. 7 HOT CHILI ANNUAL REPORT 2011 review of operations continued Productora Project (continued) Exploration and Resource Drilling Activities (continued) Table of Selected Significant Intersections at Productora Hole_ID Coordinates Azim. Dip Intersection North East From PRP0014 6821893 323470 PRP0018D 6822595 323545.3 PRP0023 6822230 323550 PRP0027 PRP0049 6822380 323580 Open to end of hole 323420 6821900 PRP0062 6822020 PRP0066D 6822380 6822143 PRP0069 6822460 PRP0077 323420 323500 323436.3 323720 PRP0079 6822550 323600 PRP0081 PRP0082 6822366 323476.4 Open to end of hole 323549.3 6822364 PRP0084 PRP0090 6822366 6821868 323515.7 323326.6 PRP0096 6822224 323525.2 PRP0100 6822065 323448.8 PRP0101 PRP0102 6821869 323486.4 Open to end of hole 323508 6821946 PRP0104 6822365 323601 PRP0109 Open to end of hole 323616 6822311 PRP0111 PRP0112 6822365 6822548 323435 323531 PRP0113 6822504 323615 PRP0115 PRP0117 6821770 6822542 323236 323607 8 90 90 90 90 -60 including -60 including -60 including -60 including -60 including -60 90 90 90 90 90 -60 -60 including -60 including -60 90 90 90 90 90 90 90 90 90 -60 including including -60 -60 including -60 including -60 including -60 -60 including -60 including 90 90 90 90 90 90 including -60 including -60 -60 including -60 including -60 -60 including 12 13 103 189 77 97 111 112 108 142 122 98 88 74 105 101 101 121 91 92 181 63 30 57 75 103 0 67 211 92 116 88 88 189 196 62 76 110 132 133 104 108 64 135 145 To 38 24 227 212 103 102 188 133 161 161 208 160 148 141 137 129 112 161 193 100 192 82 92 65 127 114 167 88 250 127 121 144 96 221 210 91 83 174 215 140 128 116 126 164 155 Interval Copper Gold Molyb- denum Copper Eq* (m) (% Cu) (g/t Au) (ppm Mo) (% Cu ) 26 11 124 23 26 5 77 21 53 17 86 62 60 67 32 28 11 40 102 8 11 19 62 8 52 11 167 21 39 35 5 56 8 32 14 29 7 64 83 7 24 8 62 29 10 0.73 1.15 0.50 0.90 0.93 2.34 0.60 1.00 0.60 1.00 0.50 0.60 0.50 0.70 1.00 0.70 1.00 0.70 0.70 2.20 1.00 1.20 0.60 1.10 0.70 1.00 0.60 1.30 0.60 0.60 1.70 0.80 2.40 0.80 1.20 0.90 2.20 0.60 0.50 1.10 0.80 1.10 0.50 0.80 1.40 0.1 0.2 0.1 0.2 0.3 0.6 0.1 0.2 0.1 0.1 0.1 0.1 0.1 0.2 0.3 0.1 0.2 0.1 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.2 0.2 0.0 0.1 0.1 0.2 0.2 0.3 0.1 0.3 0.1 0.1 0.2 0.2 0.3 0.1 0.3 0.3 85 110 175 220 232 441 142 196 255 208 146 178 196 141 203 214 278 254 301 195 1107 340 107 115 118 119 180 153 169 366 1760 207 421 316 386 170 322 186 187 329 186 187 133 411 754 0.88 1.35 0.71 1.22 1.30 3.12 0.79 1.30 0.88 1.24 0.69 0.82 0.73 0.95 1.37 0.95 1.37 0.98 1.09 2.50 2.05 1.55 0.76 1.26 0.87 1.17 0.82 1.56 0.88 0. 0.90 3.22 1.04 2.88 1.20 1.72 1.11 2.67 0.82 0.72 1.51 1.09 1.46 0.68 1.34 2.23 Long Section of Productora Central Area - selected drilling results and diamond hole location “rapid resource definition...” Litho-Structural Mapping and Rock Chip Sampling Hot Chili’s consultant structural mapping team Jigsaw Geoscience continued with a detailed litho-structural mapping campaign over the Productora project during the year. Reconnaissance mapping and rock chip sampling at Productora focused on the newly-acquired Sierra Zapolla area located along the southern strike extension of the Productora fault system. The results from the later resource definition RC drilling confirmed the presence of additional wide vertical zone of mineralisation along the eastern extent of the deposit (locally referred to as the eastern breccia) not previously recognised in earlier first-pass drilling within the central area. The results also indicated the presence of additional shallow dipping zones located near- surface and adjacent to the main mineralised vertical breccia zone. At present, these new shallow dipping zones are interpreted to be related to shallow dipping mantos horizons that lie in close proximity to the main mineralised vertical breccia zone. A total of 283 samples were collected during the year and were assayed using a comprehensive multi-element suite. Significant copper, gold and molybdenum results were obtained from this sample assaying. These results define a number of anomalous mineralised trends associated with a swarm of northwest-trending narrow veins that typically show strike lengths in excess of 200m. The vein swarm at Sierra Zapolla is developed over an area of at least 1.5km x 1.5km, and is interpreted to extend beyond this. The successful and rapid resource development of the project has positioned the company to announce its maiden resource for the Productora project in September 2011. Investigations of historical drill sites, trenching and mine development areas has also provided further confirmation of the extent and results of historical exploration activities already undertaken over the project. Drilling at Productora during the year has seen the completion of 143 drill holes on the project for total drill metres of 33,001.92m. Further mapping is planned to extend coverage along the remaining strike extent of the main mineralised corridor at Productora. 9 HOT CHILI ANNUAL REPORT 2011 review of operations continued Productora Project (continued) Surface rock-chip copper-gold-molybdenum results at Productora South (Sierra Zapollo) overlaid on magnetic image Note: the high-grade nature of preliminary copper and gold results on the southern most extent of Productora’s 9.5km mineralised corridor. Airborne Survey During the third quarter of 2010, Hot Chili completed a major helicopter based aeromagnetic and radiometric survey over the Productora project area as part of large-scale survey over all three of its projects in Chile. The airborne survey comprised a total of 644 line kilometres over the Productora project. A flight line spacing of 100m with a flight height of 50m was chosen in order to maximise resolution of the survey and enable the direct targeting of drill-sites at Productora. Southern Geoscience Consultants were engaged to facilitate processing and completion of final imagery and data analysis. 10 Map of Tenement Land Holding displaying aquired land 0 N 2km a e r A j t c e o r P +1140 hectares Hot Chili (SMEAL) Aquired 2010 - 2011 Hot Chili (SMEAL 100%) Project Partner (SMEAL JV & purchase options agreements) Land acquisitions A series of substantial increases to the land holding at the Productora project during the year saw an additional 1140 hectares of prospective ground being added to the project area which has increased the strike length of the project by 2.5km’s primarily in the southern extent of the project (Sierra Zapolla area). All new land concessions secured during the year lie in extensional areas of the project and have expanded the prospectivity and potential size of the Productora target mineralisation. “expanded the prospectivity and potential size of the Productora target mineralisation” 11 HOT CHILI ANNUAL REPORT 2011 review of operations continued Los Mantos “Significant intersections were reported in the majority of drill holes Los Mantos Project The Los Mantos project is located in Chile’s low- altitude coastal range belt, 60km south of the coastal city of La Serena and 15km west of the large Andacollo copper-gold mine. The project has seen significant small-scale historical surface and underground mining activity but had not been drill tested until Hot Chili’s drilling campaign which commence in early 2011. Under the terms of Hot Chili’s five year purchase-option agreement, the owners of Los Mantos have been granted a concession to continue their small-scale surface and underground copper mining activity limited to a rate of 30,000 tonnes per annum. First-pass Exploration Drilling Activities A first-pass RC drilling programme comprising 57 drill holes for 11,515 metres was completed at Los Mantos during the second quarter (Q2 2011). Significant intersections were reported in the majority of drill holes reported to date over the project, confirming moderate width, copper multi-commodity mineralisation across 1.5km of the 2.5km strike extent project. To date, results for the first 21 RC holes have been compiled and reported to the market. 12 Above: Los Mantos Project - drilling platform and access clearing in southern mine area Results from the drilling have confirmed Hot Chili’s earlier surface exploration which indicated a zoned metal distribution between the northern and southern zones of the deposit. The northern zone of the deposit hosts a sequence of moderately east-dipping mantos zones. Drilling across this zone successfully returned several moderate width intersections of copper and gold at shallow depths. Higher grade mineralisation is associated with sediments and breccia zones related to cross faults locations. To date drilling intersections in the northern zone average 8m width (down-hole), 1.2% copper and 0.1g/t gold. The average cumulative width of mineralisation in each of the first drill holes directed towards the northern zone is 14m (down-hole). Higher grade intercepts from the northern zone include: down-hole . 8m grading 2.1% copper and 0.1g/t gold from 56m . 14m grading 0.9% Copper and 0.1g/t gold from . 11m grading 1.5% copper and 0.2g/t gold from 72m down-hole 77m down-hole Los Mantos structural mapping and significant drill intercepts 11m@1.5% Cu and 0.2g/t Au 11m@0.6% Cu 12m@0.8% Cu Eq* (0.6% Cu) 8m@1.2% Cu Eq* (1.0% Cu) 12m@0.7% Cu 13m@0.7% Cu 8m@2.1% Cu and 0.1g/t Au 4m@2.6% Cu and 0.2g/t Au 14m@0.9% Cu and 0.1g/t Au 26m@0.8% Cu Eq* (0.7% Cu) 4m@2.7% Cu Eq* (2.5% Cu) 5m@1.4% Cu Eq* (0.8% Cu) 8m@0.9% Cu Eq* (0.8% Cu) Cu and Au Results Cu Eq* Results Mineralisation in the southern zone of Los Mantos is hosted by a series of west-dipping shears. Several orientations of drilling were utilised owing to the presence of mineralised cross faults. Many of the individual drill holes returned multiple intersections, recording significant multi-commodity results within breccia. The multi-commodity drilling intersections individually average 6m width (down-hole), 0.8% copper, 0.1g/t gold and 118 ppm molybdenum. The average cumulative width of mineralisation in each of the first drill holes directed towards the southern zone is 28m (down-hole). High Grade intercepts from the southern zone include: . 26m grading 0.8% copper equivalent* from 56m . 8m grading 1.2% copper equivalent* from 25m down-hole down-hole “further successful results may allow the company to define a second large-scale multi-commodity copper resource” The company is currently analysing all data from the successful first-pass drilling campaign at Los Mantos with an outlook to commencing a second-pass programme at the project. It is anticipated that further successful results may allow the company to define a second large-scale multi-commodity copper resource in Chile. 13 HOT CHILI ANNUAL REPORT 2011 review of operations continued Los Mantos Project (continued) First-pass Exploration Drilling Activities (continued) Significant intercepts from the Southern Zone of Los Mantos Project are tabulated below Hole_ID Coordinates Azim. Dip Intersection North East From MNP0001 6638740 289020 75 -60 MNP0002 6638740 288991 345 -59.6 MNP0003 MNP0004 6638800 6638765 289055 289095 345 360 -59.7 -90 MNP0005 6638711 289016 345 -58.6 MNP0006 6638720 288945 75 -59 MNP0008 6638795 288896 75 -58.5 including MNP0009 6638760 289070 345 -59.8 MNP0010 6638720 289085 345 -58.1 MNP0012 6639450 288720 75 -59.8 MNP0013 MNP0014 6639430 6639430 288640 288640 MNP0015 6639800 288480 MNP0016 6639567 288531 75 255 -59 -59 including -59.2 including -59.2 255 255 MNP0018 MNP0019 6640017 6639830 288526 288555 MNP0020 MNP0023 6639584 6639665 288664 288820 255 255 255 345 -60.9 -73.2 -59.3 -59.9 14 4 18 30 51 73 103 47 75 88 131 49 26 37 13 28 47 63 80 119 154 164 180 196 3 32 46 125 163 199 79 80 182 2 25 160 171 186 21 50 84 115 235 51 72 81 71 75 56 99 8 20 52 46 12 77 To 9 24 33 62 79 115 49 83 92 134 51 28 39 21 31 51 71 85 123 160 168 183 206 9 40 51 131 173 217 105 90 184 13 33 164 173 188 27 52 88 121 240 55 86 86 77 76 64 106 20 33 64 55 20 88 Interval Copper Gold Molyb- denum Copper Eq* (m) (% Cu) (g/t Au) (ppm Mo) (% Cu ) 5 6 3 11 6 12 2 8 4 3 2 2 2 8 3 4 8 5 4 6 4 3 10 6 8 5 6 10 18 26 10 2 11 8 4 2 2 6 2 4 6 5 4 14 5 6 1 8 7 12 13 12 11 8 11 0.33 0.40 0.39 0.33 0.31 0.56 2.95 0.63 2.50 0.56 0.56 2.54 2.03 0.80 0.79 0.50 0.26 0.33 0.94 0.44 0.59 1.42 0.65 0.36 0.66 0.77 0.31 0.50 0.28 0.68 1.22 0.98 0.48 1.01 0.68 0.67 0.71 0.29 1.09 0.99 0.68 0.60 2.63 0.86 1.84 0.81 3.73 2.14 0.36 0.67 0.72 0.42 0.64 0.73 1.51 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.3 0.0 0.0 0.0 0.2 0.1 0.1 0.0 0.0 0.0 0.1 0.0 0.0 0.1 0.0 0.0 0.0 0.1 0.1 0.0 0.0 0.1 0.1 0.0 0.0 0.0 0.0 0.1 0.1 0.0 0.0 0.1 0.1 0.1 0.2 0.1 0.3 0.2 0.5 0.1 0.0 0.0 0.0 0.0 0.0 0.1 0.2 33 165 84 138 225 176 472 55 25 87 51 5 204 24 170 65 208 18 9 8 2 8 7 42 56 674 8 10 8 88 146 618 14 224 106 101 67 37 84 220 8 14 6 5 9 72 267 6 5 5 12 16 7 141 3 0.37 0.57 0.47 0.47 0.52 0.75 3.40 0.71 2.72 0.66 0.61 2.57 2.30 0.86 0.99 0.58 0.45 0.37 1.01 0.45 0.60 1.47 0.68 0.40 0.72 1.40 0.37 0.52 0.31 0.80 1.41 1.50 0.50 1.23 0.78 0.79 0.80 0.34 1.17 1.24 0.76 0.65 2.79 0.96 2.02 1.00 4.29 2.18 0.39 0.68 0.73 0.44 0.65 0.94 1.62 Map of Tenement Land Holding displaying aquired land 0 N 500m a e r A j t c e o r P new acquisition Hot Chili (SMEAL) Aquired 2010 - 2011 ACG/SMEAL 100% Airborne Survey During the year Hot Chili completed a helicopter based aeromagnetic and radiometric survey. The airborne survey comprised a total of 308 line kilometres over the Los Mantos project. A flight line spacing of 100m with a flight height of 50m was chosen in order to maximise resolution of the survey and enable the direct targeting of drill-sites at Productora and Los Mantos. The survey represents a significant investment in the company’s projects and will provide a high resolution dataset to assist our exploration team in interpreting the existing iron-oxide-copper-gold (IOCG) systems, as well as identifying new targets within our land holdings. The datasets will greatly assist in the company’s exploration strategy at each of its projects. Southern Geoscience Consultants were engaged to facilitate processing and completion of final imagery and data analysis. The results of this work will be incorporated into drill targeting and exploration activities in 2012. Land Acquisitions During the period a purchase option agreement with private central mining lease owners Cruz Riviera Emilia was executed, this added the Libertad 1-3 lease to the inventory of Hot Chili. This is a significant deal for Hot Chili and means that the company now controls a contiguous land package of 1.5km wide by 2.5km in length. 15 Litho-Structural Mapping and Rock chip sampling Results of surface mapping in conjunction with soil and rock-chip sampling by Hot Chili’s exploration team has confirmed over 2.5km cumulative strike length of mantos and vein-hosted copper-gold mineralisation at surface. Similar to the Productora project, Los Mantos displays a zoned metal distribution with increasing molybdenum content at depth. However, unlike the Productora project where mineralisation is concealed in-part by surface leaching, mineralisation at Los Mantos is prominent in outcrop with demonstrated continuity. HOT CHILI ANNUAL REPORT 2011 review of operations Chile Norte “exploring to locate a large iron-oxide-copper gold style target” Above: looking east across CODELCO and Hot Chili’s project position Chile Norte Project The Chile Norte project is located in Chile’s low-altitude coastal range belt, approximately 50km south of the coastal city of Iquique. Hot Chili has assembled a substantial landholding in the area and in addition the company has a formal agreement with CODELCO to gain access to a large contiguous tenement holding at Chile Norte. Hot Chili is exploring to locate a large iron-oxide-copper gold style target within the Chile Norte project that may be associated with significant at-surface, uranium evaporite style mineralisation. Southern Geoscience Consultants (SGC) were engaged to facilitate processing and completion of final imagery and data analysis. Southern Geoscience identified a total of 18 magnetic anomalies and 4 uranium anomalies in the review which warranted further investigation. The target review was confined to the limits of the airborne survey undertaken exclusively over CODELCO’s land position, where the company has a 5 year 65% earn-in exploration agreement in place. The results of this work will be incorporated into drill targeting and exploration activities in 2011 and 2012. Airborne Survey During the year Hot Chili completed a helicopter based aeromagnetic and radiometric survey. The airborne survey comprised a total of 1,219 line kilometres over the Chile Norte project. A flight line spacing of 100m with a flight height of 50m was chosen in order to maximise resolution of the survey. Reconnaissance Field Work Ten days of helicopter-supported reconnaissance mapping and sampling was completed by Hot Chili at the Chile Norte project during May 2011. Reconnaissance was completed over the priority targets identified by interrogation of the geophysical survey within CODELCO’s land position as well as other priority areas of interest within Hot Chili’s own large contiguous land holding at Chile Norte. 16 continued Southern Geoscience Magnetic and Uranium Anomalies Each of these anomalies was assessed on the ground to determine the causes of each anomaly, and to locate any associated alteration or mineralisation with the anomalies. Work completed during this reconnaissance survey included the following: anomaly (nominal 80m spacing), . 260 soil samples collected on lines across each . Geological observations (lithology, structure, . Geophysical observations (scintillometer and . 131 rock chip samples of typical rock types, magnetic susceptibility readings), alteration, mineralisation), interesting alteration and mineralisation. In addition to these ground surveys a large but disjointed package of tenements in the south and southeast of the project area were overflown as far south as the Rio Loa canyon to provide some idea of ground access, exposure level and basic geology. Finally, the Red Hill area (at the far north of the project) was overflown and geological observations plus sampling was completed over a series of old workings associated with a prominent NW-striking fault segment of the Salar Grande Fault. 17 HOT CHILI ANNUAL REPORT 2011 review of operations continued Chile Norte Project (continued) Surface rock-chip results from mapping and sampling activities at Chile Norte during 2011 Reconnaissance Field Work (continued) Four targets have now been confirmed for follow-up soil geochemical surveys and additional prospect- scale mapping. All of these areas are easily accessible by road from Iquique. The company has completed planning for a second airborne magnetic and radiometric survey over its own northern landholding at Chile Norte. This survey is expected to commence in September 2011. 18 Surface soil results from mapping and sampling activities at Chile Norte during 2011 “Four targets have now been confirmed for follow-up” 19 HOT CHILI ANNUAL REPORT 2011 review of operations continued Map of Tenement Land Holding displaying aquired land N 0 10m +1700 hectares a e r A j t c e o r P Hot Chili (SMEAL) Aquired 2010 - 2011 Hot Chili (SMEAL 100%) Hot Chili/CODELCO JV exploration agreement “substantial increases to the land holding at the Chile Norte project... which equates to 2km’s of prospective ground” Chile Norte Project (continued) Land acquisitions A series of substantial increases to the land holding at the Chile Norte project during the year saw an additional 1700 hectares which equates to 2km’s of prospective ground added to the northern extension of the project through the pegging of leases Murray 35 to Murray 40. There were also a number of tenements which were relinquished due to exploration expiries. The land which was relinquished was deemed to be of low prospectivity allowing remaining expenditure to be directed toward only those tenements with moderate to high prospectivity. 20 Notes to Review of Operations * Copper Equivalent Calculation Copper Equivalent (also Cu Eq*) Calculation represents the total metal value for each metal, multiplied by the conversion factor, summed and expressed in equivalent copper percentage. These results are exploration results only and no allowance is made for recovery losses that may occur should mining eventually result. However it is the company’s opinion that elements considered here have a reasonable potential to be recovered as evidenced in similar multi- commodity natured mines elsewhere in the world. Copper equivalent conversion factors and long-term price assumptions used follow: Copper Equivalent Formula = Cu % + Mo(ppm) x 0.0008 + Au(ppm) x 0.6832 Price Assumptions - Cu (US$1.60/lb) to the Cu (US$1.80/lb) Target Mineralisation Competent Person’s statement References to exploration target size and target mineralisation in this announcement are conceptual in nature and should not be construed as indicating the existence of a JORC Code compliant mineral resource. Target mineralisation is based on projections of established grade ranges over appropriate widths and strike lengths having regard for geological considerations including mineralisation style, specific gravity and expected mineralisation continuity as determined by qualified geological assessment. There is insufficient information to establish whether further exploration will result in the determination of a mineral resource within the meaning of the JORC Code. Information in this announcement that relates to exploration results or mineral resources is based on information compiled by Mr Christian Easterday, a Director, who is a Member of The Australian Institute of Geoscientists. Mr Easterday has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a ‘Competent Person’ as defined in the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’ (the JORC Code). Mr Easterday consents to the inclusion in this announcement of the statements based on his information in the form and context in which they appear. 21 HOT CHILI ANNUAL REPORT 2011 tenement schedule and details Productora “close working relationships with both government and private stakeholders...” Above: looking south across the newly acquired Productora South area Productora Tenement Details Outside of the Company’s own landholding, Hot Chili has executed an agreement with several private parties, government organisations and major miners. Importantly, these parties together with Hot Chili control over 85% of the strike extent of defined mineralisation within this land position including the central mining lease of Productora which contains an operating underground copper mine. Hot Chili recently successfully acquired a further four concessions along the southern extension to the Productora project. The new concessions extend the strike length of the Productora Project by 2.5km, or 20 per cent, providing further up-side to Hot Chili’s plans to delineate and develop significant copper-gold- molybdenum resources at the project. Hot Chili has established close working relationships with both government and private stakeholders, of particular note is the major local partnership with CMP (Chile’s largest iron ore producer). An underground copper mine is in operation within the central mining lease of the Productora project. Under the terms of Hot Chili’s (SMEAL’s) agreement with the owners of this mining lease (Coyigualles) agreement the lease mining agreement will be allowed to continue throughout SMEAL’s five year exploration purchase option period with extraction limited to 1.3 million tonnes of ore, and mining terminated with a 120 day notice period upon exercise of the option at any time within the five year exploration period. The lease mining company will have 6 months from exercise of the option agreement in which to remove all equipment. The details of the tenement holding for the Productora project are presented in the following table. 22 Productora project tenement details Licence ID Holder* % Interest Licence Type Area (ha) Mining Patents** 2010-2011 US$ (7)-(8) FRAN 1, 1-60 SMEAL 100% Mining Claim FRAN 2, 1-60 SMEAL 100% Mining Claim FRAN 3, 1-60 SMEAL 100% Mining Claim FRAN 4, 1-60 SMEAL 100% Mining Claim FRAN 5, 1-60 SMEAL 100% Mining Claim FRAN 6, 1-60 SMEAL 100% Mining Claim FRAN 7, 1-60 SMEAL 100% Mining Claim FRAN 8, 1-60 SMEAL 100% Mining Claim FRAN 9, 1-20 SMEAL 100% Mining Claim FRAN 11, 1-40 SMEAL 100% Mining Claim 300 300 300 300 300 300 300 300 100 200 Exploration and Expenditure Commitment- Payments None Expiration date of the concession (dd.mm.yyyy) None None None None None None None None None FRAN 12, 1-40 SMEAL 100% Mining Claim 200 1,643.00 None FRAN 13, 1-40 SMEAL 100% Mining Claim 200 1,643.00 None FRAN 14, 1-40 SMEAL 100% Mining Claim 200 1,643.00 None FRAN 15, 1-60 SMEAL 100% Mining Claim FRAN 16, 1-20 SMEAL 100% Mining Claim FRAN 17, 1- 40 SMEAL 100% Mining Claim FRAN 18, 1-60 SMEAL 100% Mining Claim FRAN 21, 1-60 SMEAL 100% Mining Claim 300 200 200 300 300 None None None None None FRAN 22 SMEAL 100% Mining Application 400 657.00 None ALGA 7A, 1-32 SMEAL 100% Mining Exploitation ALGA VI, 5-24 SMEAL 100% Mining Exploitation MONTOSA 1-4 SMEAL 100% Mining Exploitation CHICA SMEAL 100% Mining Exploitation ESPERANZA 1-5 LEONA SEGUNDA 1-4 CABRITO, CABRITO 1-9 SMEAL 100% Mining Exploitation SMEAL 100% Mining Exploitation SLM Cabrito 60% Mining Exploitation 89 66 35 1 11 10 50 731.23 None 542.26 None 95.80 None 8.20 None 90.30 None 82.16 None 410.00 None GBD ZAPA 1, 1-10 ZAPA 3, 1-23 GBD ZAPA 5A, 1-16 GBD GBD ZAPA 7, 1-24 65% Mining Exploitation 65% Mining Exploitation 65% Mining Exploitation 65% Mining Exploitation 100 92 80 120 821.60 755.80 657.20 985.90 Total Exploration Expenditure Commitment of US$500,000 over 5 years (US$100,000 pa). Exercise Payment- US$100,000 Comments Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed SMEAL 100% Purchase SMEAL 100% Purchase SMEAL 100% Purchase SMEAL 100% Purchase SMEAL 100% Purchase SMEAL 100% Purchase SMEAL 100% Purchase (pending acquisition of 40%) 5 Year- 65% JV Earn- in option Agreement executed 23 HOT CHILI ANNUAL REPORT 2011 tenement schedule and details continued Productora Tenement Details (continued) Productora project tenement details (continued) Licence ID Holder* % Interest Licence Type Area (ha) Mining Patents** 2010-2011 US$ (7)-(8) Exploration and Expenditure Commitment- Payments Expiration date of the concession (dd.mm.yyyy) Comments CMP CMP CMP CUENCA A, 1-51 CUENCA B, 1-28 CUENCA C, 1-51 CMP CUENCA D CMP CUENCA E CHOAPA 1-10 CMP CMP ELQUI 1-14 CMP LIMARÍ 1-15 CMP LOA 1-6 CMP MAIPO 1-10 CMP TOLTÉN 1-4 CMP CACHIYUYITO 1, 1-60 CACHIYUYITO 2, 1-60 CACHIYUYITO 3, 1-60 LA PRODUCTORA 1-16 CMP CMP SLM Produc- tora 65% Mining Exploitation 255 2,095.00 65% Mining Exploitation 139 1,142.00 65% Mining Exploitation 255 2,095.00 65% Mining Exploitation 65% Mining Exploitation 65% Mining Exploitation 65% Mining Exploitation 65% Mining Exploitation 65% Mining Exploitation 65% Mining Exploitation 65% Mining Exploitation 65% Mining Claim 3 1 50 61 66 30 50 70 300 25.00 8.21 410.00 501.00 542.00 246.00 410.00 575.00 2,465.00 65% Mining Claim 300 2,465.00 65% Mining Claim 300 2,465.00 Total Exploration Expenditure Commitment of US$4,000,000 over 5 years (Yr1- US$750,000, Yr2 US$500,000, Yr3- US$500,000, Yr4- US$1,000,000, Yr5- US$1,250,000). Exercise Payment (price) of US$100,000 100% Mining Exploitation 75 614.00 BUENA SU- ERTE 1-6 PILAR 1-2 SLM Buena Suerte SLM Pilar 100% Mining Exploitation 30 246.00 100% Mining Exploitation 10 82.00 Total price of USD 7,750,000. USD 100,000 paid upon signa- ture. Payments of US$100,000 pa for Yr. 1, 2, 3 and 4. US$7,250,000 Exercise Payment at the end of Yr. 5 Total price of USD 1,000,000. USD 20,000 paid upon signature. Payments of US$50,000 pa for Yr. 1, 2, 3 and 4. Exercise Payment of USD 780,000 at the end of Yr 5. 5 Year- 65% JV Earn- in option Agreement executed 5 Year- 100% Purchase- option Agreement executed 5 Year- 100% Purchase- option Agreement executed 5 Year- 100% Purchase- option Agreement executed 28,138.00 Total Expenditure in Exploration Commitments (5 Yrs)- US$ 4,500,000 Total Exercise Payment Commitments (or price) US$ 8,950,000 Note: (1) CMP = Compañía Minera del Pacífico; SLM Productora = Sociedad Legal Minera La Productora 1 de la Sierra Coyigualles; SLM Buena Suerte = Sociedad Legal Minera Buena Suerte 1 de la Sierra Tamarico; SLM Pilar = Sociedad Legal Minera Pilar 1 de la Sierra Tamarindo; SLM Cabrito = Sociedad Legal Minera Cabrito de la Sierra Zapallo. (2) In accordance with the approximate observed dollar exchange rate published on August 4th, 2009 (CH$460), by the Central Bank of Chile. (3) This amount is only referential. It is calculated by taking into account a monetary unit known as UTM, which is established and readjusted on a monthly basis. Hence, it will depend on the UTM existing in March 2011 (4) Mining Patents represent yearly rent and rate fees for mining rights in Chile. (5) Values may suffer variations according to the value of the Monthly Tax Unit. 24 Productora project tenement location plan 25 HOT CHILI ANNUAL REPORT 2011 tenement schedule and details continued Los Mantos “6 Mining Exploitations and 4 Exploration Licences...” Above: view across the Los Mantos Project Los Mantos Tenement Details The Los Mantos project comprises 10 licences in total, including 6 Mining Exploitations and 4 Exploration Licences. The Exploration Licences have been constituted as a layer of protection and do not add to the landholding of the project, defined only by the 6 Mining Exploitation Licences. The Mining Exploitation Licences cover approximately 275 ha. Hot Chili, through its Chilean subsidiary company Sociedad Minera El Aguila (SMEAL), has entered into a five year option agreement for the 100% purchase of the Los Mantos project. The private purchase-option agreement with local Chilean landholder and mine operator Mr. Aldo Cordero Godoy was executed on the 11th of June 2009, with the payment of US$220,000. The right to purchase 100% of the Aldo Cordero concession is exercisable at any time within the five year option period following satisfaction of all remaining yearly option payments and an exercise payment of US$2,000,000. Mr. Aldo Cordero Godoy will receive a 0.5% Gross Production Royalty on all marketable minerals produced from the project and a 30,000 tpa mining concession during the five year option period. In addition, SMEAL has also entered into a similar 100% purchase option agreement with the owners of mining concession Libertad 1-3. SMEAL has a private purchase-option agreement with local Chilean landholders and mine operator Cruz Riviera Family was executed on the 24th of June 2011, with the payment of US$321,000. The right to purchase 100% of the Libertad is exercisable at any time within the four year option period following satisfaction of all remaining yearly option payments which total US$2,086,870 (including the execution payment which has already been made). The Cruz Riviera Family will receive a 1.5% Gross Production Royalty on all marketable minerals produced from the project and a 20,000 tpa mining concession during the four year option period. 26 Los Mantos project tenement details Licence ID Holder* % Interest Licence Type Area (ha) Mining Patents** 2010-2011 US$ (7)-(8) Expenditure- Commitment- Payments Expiration date of the concession (dd.mm.yyyy) Comments ILLAPEL 1 ACG 100% Exploration ILLAPEL 2 ACG 100% Exploration ILLAPEL 2 ACG 100% Exploration ILLAPEL 3 ACG 100% Exploration 200 200 200 200 329.00 329.00 329.00 329.00 ANTONIO 1-29 ACG 100% Exploitation 139 1,142.00 14.10.2011 15.10.2011 30.10.2011 30.10.2011 Total of USD 2,470,000. USD 220,000 paid upon signature; Payments of US$50,000 pa at the end of Yr 1,2,3 and US$100,000 in Yr 4. Exercise Payment of US$2,000,000 at the end of Yr 5. ESPADA 1-12 ACG 100% Exploitation ROSITA 1-6 ACG 100% Exploitation ACG 100% Exploitation 36 30 9 295.78 246.48 73.94 ALINDER- AMIENTO Y OTRAS ENSUEÑO 1-11 ACG 100% Exploitation 50 410.80 LIBERTAD 1-3 SMEAL 100% Exploitation 11.4 94.00 Total of ~US$ 1,747,247. US$ 326,087 paid upon signature, plus 8 instalments every six months of USD 177,645 (first coming instalment on the 24th of December 2011; last instalment on the 24th of December 2015). Floor of Protection licences only. 5 Year- 100% Purchase- option Agreement executed 5 Year- 100% Purchase- option Agreement executed 4 Year- 100% Purchase- option Agreement executed 3,579.00 Total Exercise Payment Commitments (or price) US$4,217,247 Note: (1) SMEAL = Sociedad Minera El Águla Limitada; ACG = Aldo Cordero Godoy. (2) In accordance with an approximate dollar exchange rate (CH$460). (3) The Libertad 1-3 value is only referential. It is calculated by taking into account a monetary unit known as UF which is established and readjusted on daily basis. Hence, it will depend on the UF existing at each payment day. (4) Mining Patents represent yearly rent and rate fees for mining rights in Chile. (5) Values may suffer variations according to the value of the Monthly Tax Unit. 27 HOT CHILI ANNUAL REPORT 2011 tenement schedule Los Mantos Tenement Details (continued) Los Mantos project tenement plan and details continued 28 Chile Norte “131 mining and exploration licences over areas considered to be highly prospective...” Above: view across the Chile Norte Project Chile Norte Tenement Details The Company’s tenements comprise 131 mining and exploration licences over areas considered to be highly prospective for the definition of a large IOCG deposit. Of these licenses, 94 have been approved and 37 are in the process of being approved (constituted). Hot Chili’s exploration licences cover the northern and southern extensions of a large identified uranium anomaly in the area. The Company executed an “Exploration and Promise to Incorporate” agreement with CODELCO on the 22nd of October, 2009. Hot Chili intends to actively pursue future discussions in relation to gaining further land positions in the area. 29 HOT CHILI ANNUAL REPORT 2011 tenement schedule and details continued Chile Norte Tenement Details (continued) Chile Norte project tenement details Licence ID Holder* % Interest Licence Type Area (ha) CHRIS 1 CHRIS 2 CHRIS 3 CHRIS 4 CHRIS 5 CHRIS 6 CHRIS 7 CHRIS 8 CHRIS 9 MURRAY B1 SMEAL SMEAL SMEAL SMEAL SMEAL SMEAL SMEAL SMEAL SMEAL SMEAL 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Mining Application MURRAY B2 SMEAL 100% Mining Application MURRAY B3 SMEAL 100% Mining Application MURRAY B4 SMEAL 100% Mining Application MURRAY B5 SMEAL 100% Mining Application MURRAY B6 SMEAL 100% Mining Application MURRAY B7 SMEAL 100% Mining Application MURRAY B8 SMEAL 100% Mining Application MURRAY B12 SMEAL 100% Mining Application MURRAY B13 SMEAL 100% Mining Application MURRAY B14 SMEAL 100% Mining Application MURRAY B15 SMEAL 100% Mining Application MURRAY B16 SMEAL 100% Mining Application MURRAY B17 SMEAL 100% Mining Application MURRAY B18 SMEAL 100% Mining Application MURRAY B19 SMEAL 100% Mining Application MURRAY B20 SMEAL 100% Mining Application MURRAY B21 SMEAL 100% Mining Application MURRAY B22 SMEAL 100% Mining Application MURRAY B23 SMEAL 100% Mining Application MURRAY B24 SMEAL 100% Mining Application MURRAY B25 SMEAL 100% Mining Application 300 300 300 300 300 300 300 300 200 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 100 300 200 300 100 Mining Patents** 2010-2011 US$ (7)-(8) 493.00 493.00 493.00 493.00 493.00 493.00 493.00 493.00 329.00 Exploration and Expenditure Commitment- Payments None None None None None None None None None None None None None None None None None None None None None None None None None None None None None None None Comments Expiration date of the concession (dd.mm.yyyy) 23.11.2011 23.11.2011 23.11.2011 23.11.2011 23.11.2011 23.11.2011 23.11.2011 23.11.2011 23.11.2011 Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed 30 Licence ID Holder* % Interest Licence Type Area (ha) MURRAY B26 SMEAL 100% Mining Application MURRAY B27 SMEAL 100% Mining MURRAY 29 MURRAY 30 MURRAY 31 MURRAY 32 MURRAY 33 MURRAY 34 MURRAY 35 SMEAL SMEAL SMEAL SMEAL SMEAL SMEAL SMEAL Application 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Mining Application 100 100 200 200 300 300 300 100 200 Mining Patents** 2010-2011 US$ (7)-(8) Exploration and Expenditure Commitment- Payments None None None None None None None None None 329.00 329.00 493.00 493.00 493.00 165.00 307.60 MURRAY 36 SMEAL 100% Mining 300 461.40 None Application MURRAY 37 SMEAL 100% Mining 300 461.40 None Application MURRAY 38 SMEAL 100% Mining 300 461.40 None Application MURRAY 39 SMEAL 100% Mining 300 461.40 None Application MURRAY 40 SMEAL 100% Mining 300 461.40 None Application MURRAY 9, 1-60 MURRAY 10, 1-60 MURRAY 11, 1-40 MURRAY 21, 1-60 MURRAY 23, 1-60 MURRAY 25, 1-60 MURRAY 26, 1-60 MURRAY 27, 1-40 MURRAY 28, 1-20 CHRIS 6 SMEAL 100% Mining Claim 300 SMEAL 100% Mining Claim 300 SMEAL 100% Mining Claim 200 SMEAL 100% Mining Claim 300 SMEAL 100% Mining Claim 300 SMEAL 100% Mining Claim 300 SMEAL 100% Mining Claim 300 SMEAL 100% Mining Claim 200 SMEAL 100% Mining Claim 100 SMEAL 100% Mining Application 300 300 CHRIS 15 SMEAL 100% Mining CHRIS 14, 1-40 SMEAL Application 100% Mining Claim 200 CHRIS 15, 1-60 SMEAL 100% Mining Claim 300 CHRIS 17, 1-60 SMEAL 100% Mining Claim 300 CHRIS 19, 1-40 SMEAL 100% Mining Claim 200 None None None None None None None None None None None None None None None Comments Expiration date of the concession (dd.mm.yyyy) Being processed Being processed 27.07.2012 Constituted 27.07.2012 Constituted 27.07.2012 Constituted 27.07.2012 Constituted 27.07.2012 Constituted 27.07.2012 Constituted Awaiting constitutive award Awaiting constitutive award Awaiting constitutive award Awaiting constitutive award Awaiting constitutive award Awaiting constitutive award Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed Being processed 31 HOT CHILI ANNUAL REPORT 2011 tenement schedule and details continued Chile Norte Tenement Details (continued) Chile Norte project tenement details (continued) Licence ID Holder* % Interest Licence Type Area (ha) CHRIS 19, 1-40 SMEAL 100% Mining Claim 200 Mining Patents** 2010-2011 US$ (7)-(8) Exploration and Expenditure Commitment- Payments None Expiration date of the concession (dd.mm.yyyy) Comments Being processed Being processed CHRIS 22 SMEAL 100% Mining PAM 1 PAM 2 PAM 3 PAM 5 PAM 6 PAM 8 PAM 9 PAM 10 PAM 11 PAM 12 PAM 13 PAM 14 PAM 15 PAM 16 PAM 17 BRAVO 1 BRAVO 2 BRAVO 3 BRAVO 4 BRAVO 5 BRAVO 8 BRAVO 9 BRAVO 10 BRAVO 11 BRAVO 12 PAM 1 PAM 2 PAM 3 SMEAL SMEAL SMEAL SMEAL SMEAL SMEAL SMEAL SMEAL SMEAL SMEAL SMEAL SMEAL SMEAL SMEAL SMEAL SMEAL SMEAL SMEAL SMEAL SMEAL SMEAL SMEAL SMEAL SMEAL SMEAL SMEAL SMEAL SMEAL Application 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 100% Exploration 300 100 200 300 300 200 300 100 100 100 300 300 300 300 300 100 300 300 300 200 200 200 100 200 300 200 100 200 300 153.80 307.60 461.40 461.40 307.60 461.40 153.80 153.80 153.80 461.40 461.40 461.40 461.40 461.40 153.80 493.00 329.00 493.00 329.00 329.00 329.00 165.00 329.00 493.00 329.00 153.80 307.60 461.40 None None None None None None None None None None None None None None None None None None None None None None None None None None None None None 32 29.12.2011 29.12.2011 29.12.2011 29.12.2011 29.12.2011 29.12.2011 29.12.2011 22.10.2011 22.10.2011 22.10.2011 22.10.2011 22.10.2011 22.10.2011 22.10.2011 29.12.2011 02.02.2012 30.09.2011 30.09.2011 27.10.2011 26.10.2011 26.10.2011 23.10.2011 26.10.2011 23.10.2011 26.02.2012 31.08.2011 31.08.2011 31.08.2011 Mining Patents** 2010-2011 US$ (7)-(8) 400.00 Exploration and Expenditure Commitment- Payments Expiration date of the concession (dd.mm.yyyy) Comments Licence ID Holder* % Interest Licence Type Area (ha) AUGITA 4B, 1-40 QUITO B 1 QUITO B 2 QUITO B 3 QUITO B 4 QUITO B 5 QUITO B 6 QUITO B 7 QUITO B 8 QUITO B 9 QUITO B 10 QUITO B 11 QUITO B 12 QUITO B 13 QUITO B 14 QUITO B 15 QUITO B 16 QUITO B 17 QUITO B 18 QUITO B 19 QUITO B 20 QUITO B 21 QUITO B 22 QUITO B 23 QUITO B 24 QUITO B 25 QUITO B 26 QUITOS 35 APIR B 1 APIR B 2 APIR B 3 APIR B 4 CODELCO 65% Mining CODELCO CODELCO CODELCO CODELCO CODELCO CODELCO CODELCO CODELCO CODELCO CODELCO CODELCO CODELCO CODELCO CODELCO CODELCO CODELCO CODELCO CODELCO CODELCO CODELCO CODELCO CODELCO CODELCO CODELCO CODELCO CODELCO CODELCO CODELCO CODELCO CODELCO CODELCO 65% Exploration 65% Exploration 65% Exploration 65% Exploration 65% Exploration 65% Exploration 65% Exploration 65% Exploration 65% Exploration 65% Exploration 65% Exploration 65% Exploration 65% Exploration 65% Exploration 65% Exploration 65% Exploration 65% Exploration 65% Exploration 65% Exploration 65% Exploration 65% Exploration 65% Mining Application 65% Exploration 65% Exploration 65% Exploration 65% Exploration 65% Exploration 65% Exploration 65% Mining Application 65% Exploration 65% Mining Application 400 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 200 200 300 300 300 300 200 300 300 300 800 1200 600 1200 493.00 329.00 493.00 493.00 493.00 493.00 493.00 493.00 493.00 493.00 493.00 493.00 493.00 493.00 493.00 493.00 493.00 329.00 329.00 493.00 493.00 493.00 493.00 329.00 493.00 493.00 493.00 800.00 1200.00 600.00 1200.00 APIR B 5 CODELCO 65% Mining 1000 1000.00 Application APIR B 6 CODELCO 65% Mining 1200 1200.00 APIR B 7 APIR B 8 APIR B 9 APIR B 10 APIR B 11 APIR B 12 APIR B 13 CODELCO CODELCO CODELCO CODELCO CODELCO CODELCO CODELCO Application 65% Exploration 65% Exploration 65% Exploration 65% Exploration 65% Exploration 65% Exploration 65% Mining Application 800 600 600 100 1000 400 1200 800.00 600.00 600.00 100.00 1000.00 400.00 1200.00 APIR B 14 CODELCO 65% Mining 1200 1200.00 APIR B 15 APIR B 16 APIR B 17 APIR B 18 APIR B 19 APIR 20 CODELCO CODELCO CODELCO CODELCO CODELCO CODELCO Application 65% Exploration 65% Exploration 65% Exploration 65% Exploration 65% Exploration 65% Mining Application 200 600 200 200 200 200 200.00 600.00 200.00 200.00 200.00 200.00 I. Promise of incorporation value USD2,000,000. II. Exploration expenses: (i) Between October 22nd, 2009, and October 22nd, 2010 USD150,000; (ii) Between October 23rd, 2010, and October 22nd, 2011, USD300,000; (iii) Between October 23rd, 2011, and October 22nd, 2012, USD300,000; (iv) Between October 23rd, 2012, and October 22nd, 2013, USD500,000; (iv) Between October 23rd, 2013, and October 22nd, 2014, USD750,000 30.05.2013 30.05.2013 30.05.2013 30.05.2013 20.04.2013 20.04.2013 20.04.2013 20.04.2013 20.04.2013 20.04.2013 20.04.2013 05.05.2013 05.05.2013 31.05.2013 26.05.2013 26.05.2013 26.05.2013 30.05.2013 30.05.2013 30.05.2013 30.05.2013 31.05.2013 30.05.2013 31.05.2013 31.05.2013 25.11.2012 20.04.2013 20.04.2013 05.05.2013 05.05.2013 05.05.2013 05.05.2013 05.05.2013 05.05.2013 26.05.2013 26.05.2013 26.05.2013 26.05.2013 26.05.2013 16.03.2012 5 Year- 65% JV Option Agreement executed 36,748.00 Total Exploration Expenditure Commitment (5 Yrs)- US$2,000,000 Total Exercise Payment Commitment (or price) US$2,000,000 Note (1) SMEAL = Sociedad Minera El Águla Limitada; CODELCO (CCMLA) = Compañía Contractual Minera Los Andes a subsidiary of CODELCO. (2) In accordance with the approximate observed dollar exchange rate published on August 4th, 2009 (CH$460), by the Central Bank of Chile. (3) This amount is only referential. It is calculated by taking into account a monetary unit known as UTM, which is established and readjusted on a monthly basis. Hence, it will depend on the UTM existing in March 2011. (4) Mining Patents represent yearly rent and rate fees for mining rights in Chile. (5) Exercise Payment Commitment of US$2,000,000 is due following the completion of a Bankable Feasibility Study and 30 days after decision to construct has been taken. 33 HOT CHILI ANNUAL REPORT 2011 tenement schedule and details continued Chile Norte Tenement Details (continued) Chile Norte project regional structural setting and tenement map 34 corporate governance statement Corporate governance procedures and policies The Board The Board is responsible for the overall corporate governance of the Company, and it recognises the need for the highest standards of ethical behaviour and accountability. The Board is committed to administering its corporate governance structures to promote integrity and responsible decision making. Board charter The Board has adopted a board charter. Under the board charter, the Board is responsible for the overall operation and stewardship of the Company and its subsidiaries and, in particular, is responsible for: a) setting the strategic direction of the Company, establishing goals to ensure that these strategic objectives are met and monitoring the performance of management against these goals and objectives; b) ensuring there are adequate resources available to meet the Company’s objectives; Conflicts of interest In accordance with the Corporations Act and the Constitution, Directors must keep the Board advised, on an ongoing basis, of any interest that could potentially conflict with those of the Company. Where the Board believes a significant conflict exists, the Director concerned will not receive the relevant papers and will not be present at the Board meeting whilst the matter is being considered. Independent professional advice In fulfilling their duties, each Director dealing with corporate governance matters may obtain independent professional advice at the Company’s expense, subject to prior approval of the Chairman, whose approval will not be unreasonably withheld. Corporate governance policies The Board has adopted the corporate governance policies described below. Copies of the policies are available on the Company’s website at: www.hotchili.net.au. As the Company’s activities develop in size, nature and scope, the implementation of additional corporate governance policies will be given further consideration. c) appointing the managing director and company secretary and Code of conduct chief financial officer of the Company; d) evaluating the performance and determining the remuneration of senior executives, and ensuring that appropriate policies and procedures are in place for recruitment, training, remuneration and succession planning; e) approving and monitoring financial reporting and capital management; f) approving and monitoring the progress of business objectives; g) ensuring that any necessary statutory licences are held and compliance measures are maintained to ensure compliance with the law and licences; h) ensuring that adequate risk management procedures exist and are being used; i) ensuring that the Company has appropriate corporate governance structures in place, including standards of ethical behaviour and a culture of corporate and social responsibility; j) ensuring that the Board is and remains appropriately skilled to meet the changing needs of the Company; and k) ensuring procedures are in place for ensuring the Company’s compliance with the law. The Board believes that the success of the Company has been and will continue to be enhanced by a strong ethical culture within the organisation. The Company has established a corporate code of conduct (Code) which aims to develop a consistent understanding of, and approach to, the desired standards of conduct and behaviour with which the Directors, officers, managers, employees and consultants of the Company are expected to comply. The Code sets out the Company’s policies on various matters, including the following: a) conflicts; b) fair dealing; c) Company assets and property; d) computer, email and internet use; e) health, safety and environment; f) employment practices; and g) gifts and entertainment. 35 HOT CHILI ANNUAL REPORT 2011 corporate governance statement continued Corporate governance procedures and policies (continued) Code of conduct (continued) In addition to their obligations under the Corporations Act in relation to inside information, all Directors, employees and consultants have a duty of confidentiality to the Company in relation to confidential information they possess. The Code also outlines the procedure for reporting any breaches of the Code and the possible disciplinary action the Company may take in respect of any breaches. Directors and senior executives of the Company may not deal in the Company’s securities without first notifying the Managing Director and the Company Secretary of the intention to trade. There is a blackout period of two weeks before the periodic reports are lodged with the ASX and twenty four hours after the reports are lodged during which trading is prohibited. The Managing Director may not deal in the Company’s securities without prior approval of the Chairman, and notifying the Company Secretary of the intention to trade. The Company Secretary must be subsequently notified of any trade that has occurred. Continuous disclosure policy Once listed, the Company will be a “disclosing entity” pursuant to section 111AR of the Corporations Act and, as such, will need to comply with the continuous disclosure requirements of Chapter 3 of the ASX Listing Rules and section 674 of the Corporations Act. Subject to the exceptions contained in the ASX Listing Rules, the Company will be required to disclose to ASX any information concerning the Company which is not generally available and which a reasonable person would expect to have a material effect on the price or value of the Shares. The Company is committed to observing its disclosure obligations under the Corporations Act and its obligations under the ASX Listing Rules. All relevant information provided to ASX will be posted on the Company’s website. The Company has adopted a continuous disclosure policy, the purpose of which is to: a) ensure that the Company, as a minimum, complies with its continuous disclosure obligations under the Corporations Act and the ASX Listing Rules and, as much as possible, seeks to achieve and exceed best practice; b) provide Shareholders and the market with timely, direct and equal access to information issued by the Company; and Shareholder communication policy The Company has adopted a shareholder communication policy which outlines the processes through which the Company will endeavour to ensure timely and accurate information is provided equally to all Shareholders and the broader market. The Company supports Shareholder participation in general meetings. Mechanisms for enabling Shareholder participation will be reviewed regularly to encourage the highest level of Shareholder participation. Risk management policy The Company has established a risk management policy, the purpose of which is to: a) provide a framework for identifying, assessing, monitoring and managing risk; b) communicate the roles and accountabilities of participants in the risk management system; and c) highlight the status of risks to which the Company is exposed, including any material changes to the Company’s risk profile. d) The Board is responsible for: c) promote investor confidence in the integrity of the Company e) risk management and oversight of internal controls; and its securities. Securities dealing policy The Company has in place a securities dealing policy which sets out the requirements for all Directors, executives, employees, contractors, consultants and advisers of the Company dealing in the Company’s securities. 36 f) establishing procedures which provide assurance that business risks are identified, consistently assessed and adequately addressed; and g) for the overseeing of such procedures. The Board will review assessments of the effectiveness of risk management and internal compliance and control on an annual basis. Recommendation 2.2 (independent chairman) The Chairman of the Company, Mr Murray Black, is not an independent director in accordance with the criteria for independence as outlined in Recommendation 2.1. However, given the size and scope of the Company’s operations, the Board considers that Mr Black has the relevant experience in the exploration and mining industry and his appointment as Chairman is in the best interests of the Company and its Shareholders. Recommendation 2.4 (nomination committee) There is no nomination committee. The full Board, which comprises two (2) Non-Executive Directors and one (1) Executive Director, considers the matters and issues that would fall to the nomination committee. The Board considers that, given the current size and scope of the Company’s operations, no efficiencies or other benefits would be gained by establishing a separate nomination committee. The Board intends to reconsider the requirement for, and benefits of, a separate nomination committee as the Company’s operations grow and evolve. Recommendations 4.1, 4.2, 4.3 and 4.4 (audit committee) There is no audit committee. The role of the audit committee is undertaken by the full Board, which comprises two (2) Non-Executive Directors and one (1) Executive Director. The Board considers that, given the current size and scope of the Company’s operations and that only one (1) Director holds an executive position in the Company, no efficiencies or other benefits would be gained by establishing a separate audit committee at present. As the Company’s operations grow and evolve, the Board will reconsider the appropriateness of forming a separate audit committee. Recommendation 8.1 (remuneration committee) The Company has not established a separate remuneration committee and does not have a formal remuneration policy in place. The role of the remuneration committee is undertaken by the full Board. The Board considers that, given its current size and that only one (1) Director holds an executive position in the Company, no efficiencies or other benefits would be gained by establishing a separate remuneration committee. Corporate governance – exceptions to ASX recommendations The Company sets out below its “if not why not” report in relation to those matters of corporate governance where the Company’s practice departs from the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (2nd edition) (Recommendations) to the extent that they are currently applicable to the Company. Recommendations 1.2 and 2.5 (process for evaluation) The Company does not have in place a formal process for evaluation of the Board, its committees, individual Directors and key executives. The small size of the Board and the nature of the Company’s activities make the establishment of a formal performance evaluation strategy unnecessary. Performance evaluation is a discretionary matter for consideration by the entire Board and in the normal course of events the Board will review performance of the management, Directors and the Board as a whole. Recommendation 2.1 (independent directors) At present, the Board does not comprise a majority of “independent directors”. There is one Director who satisfies the criteria for independence as outlined in Recommendation 2.1. Dr Allan Trench holds no shares in the company and is not involved in the day-to-day management of the company. However, given the size and scope of the Company’s operations, the Board considers that it has the relevant experience in the exploration and mining industry and is appropriately structured to discharge its duties in a manner that is in the best interests of the Company and its Shareholders from both a long-term strategic and operational perspective. The Board intends to appoint further independent non-executive directors as suitably qualified candidates are identified, and the size and scale of the Company’s operations determine. As the Company’s operations grow and evolve, the Board will reconsider the appropriateness of forming a separate remuneration committee. 37 HOT CHILI ANNUAL REPORT 2011 directors’ report Directors’ Report Your Directors have pleasure in presenting their report together with the financial statements for the year ended 30 June 2011 and the auditor’s report thereon. Directors The names of the Directors of Hot Chili Limited during the financial year and to the date of this report are: Murray E Black Christian E Easterday Bernard R Mountford Dr Allan Trench (Non Executive Chairman) (Executive Director) (Non Executive Director - Resigned 19 July 2010) (Non Executive Director - Appointed 19 July 2010) Directors have been in office since the start of the financial year to the date of this report unless otherwise stated. Directors Information Murray Edward Black, Non-Executive Chairman Mr Black has over 36 years’ experience in the mineral exploration and mining industry and has served as an executive director and chairman for several listed Australian exploration and mining companies. He part-owns and manages a substantial private Australian drilling business, has interests in several commercial developments and has significant experience in capital financing. Christian Ervin Easterday, Managing Director Mr Easterday is a geologist with over 13 years’ experience in the mineral exploration and mining industry. He holds an Honours Degree in Geology from the University of Western Australia, a Masters degree in Mineral Economics from Curtin University of Technology and a Masters Degree in Business Administration from Curtin’s Graduate School of Business. Mr Easterday has held several senior positions and exploration management roles with top-tier gold companies including Placer Dome, Hill 50 Gold and Harmony Gold, specialising in structural geology, resource development and mineral economic valuation. For the past five years, Mr Easterday has been involved in various aspects of project negotiation drawing together his commercial, financial and project valuation skills. This work has involved negotiations and valuations covering gold, copper, uranium, iron ore, nickel, and tantalum resource projects in Australia and overseas. Mr Easterday is a Member of The Australian Institute of Geoscientists. 38 Bernard R Mountford, Non-Executive Director (Resigned 19 July 2010) Mr Bernard R Mountford is a geologist with over 36 years’ experience in the mineral exploration industry and has served as an executive director for several listed Australian exploration and mining companies. His background spans a wide spectrum of commodities, with expertise in gold, uranium and base metals. Mr Mountford has been the principal consultant for Hawkeye Resources Pty Ltd, a private geological consultancy, since 1983. Mr Mountford is a Member of The Australian Institute of Mining and Metallurgy. Dr Allan Trench, Non-Executive Director (Appointed 19 July 2010) Allan has previously worked with McKinsey & Company as a management consultant, with Woodside Petroleum in strategy development and with WMC both as a geophysicist and exploration manager. He is an Associate Consultant with international metals and mining advisory firm CRU Group and has contributed to the development of that company’s uranium practice, having previously managed the CRU Group global copper research team. Allan maintains academic links as an Adjunct Professor to the Western Australian School of Mines, Curtin University of Technology. Dr Allan Trench’s appointment adds considerable experience and expertise to Hot Chili’s board. Corporate Information Hot Chili Ltd is a Company limited by shares and is domiciled in Australia. Principal Activities During the year, the consolidated entity was involved in mineral exploration. Results of Operations The results of the consolidated entity for the year ended 30 June 2011 was a loss of $11,065,643 ( 2010: loss $3,182,794). Dividends No dividends were paid or declared since the end of the previous year. The Directors do not recommend the payment of a dividend. Review of Operations Refer to Operations Report on pages 6 to 21. Significant Changes in the State of Affairs There were no significant changes to the state of affairs, subsequent to the end of the reporting period, other than what has been reported in other parts of this report. Matters Subsequent to the End of the Financial Year Since the end of the financial year, the consolidated entity placed 13,333,334 shares at 60 cents to boost the working capital by $8,000,000 less costs of $240,000. The initial resource report for Productora was completed and announced on 6 September 2011. At the date of this report there are no other matters or circumstances which have arisen since 30 June 2011 that has significantly affected or may significantly affect: i) ii) iii) the operations of the consolidated entity; the results of its operations; or the state of affairs of the consolidated entity subsequent to 30 June 2011. Likely Developments and Expected Results of Operations Further information on the likely developments in the operations of the consolidated entity and the expected results of operations have been included in the review of operations. Security Holding Interests of Directors Directors Murray E Black Ordinary Shares Options Over Ordinary Shares Direct Interest Indirect Interest Direct Interest Indirect Interest - 10,000,000 - 6,750,000 Christian E Easterday Dr Allan Trench (Appointed 19 July 2010) 200,000 - 10,000,000 - 100,000 - 6,750,000 - Shares Under Option Company Secretary - J Sendziuk There were, 40,590,000 ordinary shares under option at 30 June 2011. John Sendziuk is a Chartered Accountant. He has been in practice for 24 years providing corporate secretarial, taxation and business advice to a diverse group of business clients and public companies. Shares Issued on the Exercise of Options There were 150,000 ordinary shares of Hot Chili Limited issued during the year ended 30 June 2011 from the exercise of options. Directors Benefits Since 30 June 2011, no Director of the consolidated entity has received or become entitled to receive a benefit (other than a benefit included in the aggregate amount of emoluments received or due and receivable by Directors shown in the financial statements) by reason of a contract made by the consolidated entity with the Director or with a firm of which he is a member, or with a company in which he has a substantial financial interest. Indemnification and Insurance of Directors and Officers During the financial year, the consolidated entity maintained an insurance policy which indemnifies the Directors and Officers of Hot Chili Limited in respect of any liability incurred in connection with the performance of their duties as Directors or Officers of the consolidated entity. The consolidated entity’s insurers have prohibited disclosure of the amount of the premium payable and the level of indemnification under the insurance contract. 39 HOT CHILI ANNUAL REPORT 2011 directors’ report continued Directors’ Report (continued) Directors’ Meetings The number of directors’ meetings attended and number of written resolutions signed by each of the Directors of the Company during the year were: Director Murray E Black Bernard R Mountford (Resigned 19 July 2010) Christian E Easterday Dr Allan Trench (Appointed 19 July 2010) No. of Meetings while in office No. of Meetings attended 14 - 14 14 14 - 14 14 Environmental Issues Proceedings on Behalf of Company The consolidated entity’s exploration and mining operations are subject to environment regulation under the law of Chile. The consolidated entity holds exploration/mining tenements in Chile thus is subject to the Mining Acts of that country each with specific conditions relating to environmental management. In some jurisdictions Cash Bonds must be lodged with the relevant Department until conditions are fulfilled. There are no bonds currently in place in respect of the consolidated entity’s tenement holdings. The Directors advise that during the year ended 30 June 2011 no claim has been made by any competent authority that any environmental issues, condition of license or notice of intent has been breached, and no claim has been made for increase of bond. The Directors have considered compliance with the National Greenhouse and Energy Reporting Act 2007 which requires entities to report annual greenhouse gas emissions and energy use. For the measurement period, 1 July 2010 to 30 June 2011, the Directors have assessed that there are no current reporting requirements but may be required to do so in the future. Shares under Option At the date of this report, there were 40,590,000 unissued ordinary shares under options. Options Lapsed During the Year No options lapsed during the year. No person has applied for leave of Court to bring proceedings on behalf of the consolidated entity or intervene in any proceedings to which the consolidated entity is a party for the purpose of taking responsibility on behalf of the consolidated entity for all or any part of those proceedings. The consolidated entity was not a party to any such proceedings during the year. Non-Audit Services The Board of Directors is satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the services disclosed below did not compromise the external auditor’s independence for the following reasons: . all non-audit services are reviewed and approved by the directors prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and . the nature of the services provided does not compromise the general principles relating to auditor independence in accordance with APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board. Non audit services that have been provided by the entity’s auditor, RSM Bird Cameron Partners, have been disclosed in Note 14. Auditors Independence Declaration The lead auditor’s independence declaration for the year ended 30 June 2011 has been received and can be found on page 43 of annual report. 40 Remuneration Report (Audited) The information provided in this remuneration report has been audited as required by section 308(3C) of the Corporations Act 2001. Principles used to determine amount and nature of remuneration The objective of the consolidated entity’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The Board ensures that executive reward satisfies the following key criteria for good reward governance practises: . competitiveness and reasonableness . acceptability to shareholders . transparency The current base remuneration for Directors was last reviewed with effect from 23 March 2010. All director fees are periodically recommended for approval by shareholders. The consolidated entity’s policy regarding executives remuneration is that the executives are paid a commercial salary and benefits based on the market rate and experience. Details of Remuneration of Key Management Personnel of the consolidated entity and Remuneration of Directors Details of the nature and amount of each element of remuneration of each Director of the consolidated entity for the financial year are as follows:- 2011 Short Term Post Employment Share-based Payments Name Murray E Black Bernard R Mountford (Resigned 19 July 2010) Christian E Easterday Dr Allan Trench (Appointed 19 July 2010) 2010 Name Murray E Black Bernard R Mountford (Resigned 19 July 2010) Christian E Easterday Dr Allan Trench (Appointed 19 July 2010) Consulting Fees Related Parties $ - - - - - Consulting Fees Related Parties $ - 68,551 215,110 - 283,661 Salary $ - - 220,000 - 220,000 Short Term Directors’ Fee $ 65,000 2,043 - 37,957 105,000 Super- annuation $ 7,800 - 26,400 4,555 38,755 Options $ - - - - - Total $ 72,800 2,043 246,400 42,512 363,755 Post Employment Share-based Payments Salary $ - - - - - Directors’ Fee $ 14,896 6,667 50,417 - 71,980 Super- annuation $ 1,787 800 6,050 - 8,637 Options $ - - - - - Total $ 16,683 76,018 271,577 - 364,278 Remuneration of Key Management Personnel 2011 Name Rodrigo Dias (Manager Chile) John Sendziuk (Company Secretary) 2010 Name Rodrigo Dias (Manager Chile Appointed 17 May 2010) John Sendziuk (Company Secretary Appointed 14 May 2010) Short Term Consulting Fees $ - - - Salary $ 187,425 7,000 194,425 Post Employment Super- annuation $ - 28,000 28,000 Share-Based Payments Options $ - - - Total $ 187,425 35,000 222,425 Short Term Consulting Fees $ - - - Salary $ 26,028 5,000 31,028 Post Employment Super- annuation $ Share-Based Payments Options $ - 600 600 - - - Total $ 26,028 5,600 31,628 41 HOT CHILI ANNUAL REPORT 2011 directors’ report continued Remuneration Report (Audited) (continued) Remuneration of Key Management Personnel (continued) There were no termination benefits paid during the year to any director or key management personnel. Termination entitlements There were no key management personnel employed by the Company during the year for which disclosure of remuneration is required, apart from the remuneration details disclosed above. At the date of this report, the Company had no employees that fulfilled the role of key management personnel, other than those disclosed above. Upon termination of the agreement, Mr Easterday will be entitled to termination benefits in accordance with Part 2D.2 of the Corporations Act. The termination benefits (including any amount of payment in lieu of notice) must not exceed the amount equal to one times the executive’s average annual base salary in the last 3 years’ of service with the Company, unless the benefit has first been approved by Shareholders in a general meeting. Post termination restraints Mr Easterday is subject to post termination non-competition restraints up to a maximum of 12 months from the date of termination. Other Information Director and executive remuneration contains no bonus cash or option components. No directors have received loans from the consolidated entity. The share price of the Company has fluctuated with the markets since the listing on 3 May 2010 at 20 cents. The shares have reached a high of 85 cents and a low of 17 cents. Dated this 21st day of September 2011 in accordance with a resolution of the Directors and signed for on behalf of the Board by: Service Contracts The Company has entered into an executive service agreement with Mr Christian Easterday, as Managing Director of the Company. Remuneration Under the agreement, Mr Easterday will receive an annual salary of $220,000, plus superannuation at the rate of 12% and other entitlements. Mr Easterday’s remuneration is subject to annual review. Term and termination Mr Easterday is employed for an initial term of 3 years, commencing on 5 April 2010 (End Date). At least 6 months’ before the End Date, either party may give notice that the agreement will terminate on the End Date. During the initial 3 year term, the Company may terminate the agreement by providing Mr Easterday with notice of termination or payment in lieu of notice up to an amount equivalent to 6 months’ remuneration. After the initial term, the agreement will continue until either Mr Easterday terminates by giving the Company 6 months’ notice, or the Company terminates by giving Mr Easterday 6 months’ notice or payment in lieu of notice up to an amount equivalent to 6 months’ remuneration. The Company may terminate the agreement summarily for any serious incidents of wrongdoing by Mr Easterday. Christian E Easterday Managing Director 42 auditor’s independence continued Quality ISO 9001 43 declaration HOT CHILI ANNUAL REPORT 2011 independent audit report Quality ISO 9001 44 to the members 45 HOT CHILI ANNUAL REPORT 2011 directors’ declaration The directors of the company declare that: 1. the financial statements and notes are in accordance with the Corporations Act 2001 and: a) comply with Australian Accounting Standards, which, as stated in accounting policy Note 1(a) to the financial statements, constitutes explicit and unreserved compliance with International Financial Reporting Standards (IFRS); and b) give a true and fair view of the consolidated entity’s financial position as at 30 June 2011 and of its performance for the year ended on that date; 2. the Chief Executive Officer and Chief Finance Officer have each declared that: a) the financial records of the consolidated entity for the financial year have been properly maintained in accordance with section 286 of the Corporations Act 2001; b) the financial statements and notes for the financial year comply with Australian Accounting Standards; and c) the financial statements and notes for the financial year give a true and fair view; and 3. in the directors’ opinion there are reasonable grounds to believe that the consolidated entity will be able to pay its debts as and when they become due and payable. This declaration is made in accordance with a resolution of the Board of Directors. Christian E Easterday Managing Director Dated this 21st day of September 2011 46 For the year ended 30 June 2011 Interest income Other income Depreciation Consulting fees Exploration expenses Corporate fees Legal and professional Employee benefits expense Administration expenses Accounting fees Travel costs Other expenses Foreign exchange loss Loss from continuing operations before income tax Income tax expense Loss after income tax Other comprehensive income Consolidated Entity 2011 2010 Note $ 2 3 104,498 - 104,498 (41,017) (452,924) (8,031,965) (101,602) (584,036) (1,204,618) (258,809) (34,642) (134,180) (144,592) (181,756) $ 32,434 66,074 98,508 (4,587) (537,190) (250,821) (84,590) (563,579) (113,159) (52,858) (23,416) (212,478) (84,259) - (11,065,643) (1,828,429) 5 - - (11,065,643) (1,828,429) - - Total comprehensive income attributable to members of Hot Chili Limited (11,065,643) (1,828,429) Basic earnings per share (cents) Diluted earnings per share (cents) 13 13 (8.11) (8.11) (2.14) (2.14) The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes. 47 incomecomprehensive statement of HOT CHILI ANNUAL REPORT 2011 As at 30 June 2011 Current Assets Cash and cash equivalents Trade and other receivables Other current assets Total Current Assets Non-Current Assets Plant and equipment Exploration and evaluation expenditure Total Non-Current Assets Total Assets Current Liabilities Trade and other payables Total Current Liabilities Total Liabilities Net Assets Equity Contributed equity Option reserve Foreign currency translation reserve Accumulated losses Total Equity Consolidated Entity 2011 2010 Note $ $ 6 7 8 9 4,220,660 6,607,586 9,151 - 55,430 173,017 4,229,811 6,836,033 243,984 167,874 2,342,138 1,829,495 2,586,122 1,997,369 6,815,933 8,833,402 10 1,327,701 1,327,701 1,327,701 99,093 99,093 99,093 5,488,232 8,734,309 11 12(b) 12(c) 12(a) 19,239,321 11,419,755 72,308 1,222 72,308 1,222 (13,824,619) (2,758,976) 5,488,232 8,734,309 The above Statement of Financial Position should be read in conjunction with the accompanying notes. 48 positionfinancialstatement of As at 30 June 2011 Consolidated Entity Contributed Equity Option Reserve Foreign Currency Translation Reserve Accumulated Losses Total Equity $ $ $ $ $ Balance at 1 July 2009 1,682,400 Loss for the year Total Comprehensive Income for the year Share options issued Shares issued Share issue costs - - - 10,642,105 (904,750) - - - 72,308 - - 1,222 (930,547) 753,075 - - - - - (1,828,429) (1,828,429) (1,828,429) (1,828,429) - - - 72,308 10,642,105 (904,750) Balance at 30 June 2010 11,419,755 72,308 1,222 (2,758,976) 8,734,309 Balance at 1 July 2010 11,419,755 72,308 1,222 (2,758,976) 8,734,309 Loss for the year Total Comprehensive Income for the year Shares issued Share issue costs - - 8,330,017 (510,451) - - - - - - - - (11,065,643) (11,065,643) (11,065,643) (11,065,643) - - 8,330,017 (510,451) Balance at 30 June 2011 19,239,321 72,308 1,222 (13,824,619) 5,488,232 The above Statement of Changes in Equity should be read in conjunction with the accompanying notes. 49 financialin equitychangesstatement of HOT CHILI ANNUAL REPORT 2011 For the year ended 30 June 2011 Cash Flows From Operating Activities Payments to suppliers and employees Interest received Consolidated Entity 2011 2010 Note $ $ (9,499,464) (2,148,759) 104,498 32,434 Net cash (used in) operating activities 16(b) (9,394,966) (2,116,325) Cash Flows From Investing Activities Payments for plant and equipment Payments for mineral exploration areas Net cash (used in) investing activities Cash Flows From Financing Activities Proceeds from issue of shares Share issue costs Net cash provided by financing activities Net increase (decrease) in cash held Cash and cash equivalents at the beginning of the financial year Effects of exchange rates on cash holdings in foreign currencies (117,127) (172,461) (512,643) (198,763) (629,770) (371,224) 8,330,017 9,400,000 (510,451) (832,440) 7,819,566 8,567,560 (2,205,170) 6,080,011 6,607,586 461,502 (181,756) 66,073 Cash and cash equivalents at the end of the financial year 16(a) 4,220,660 6,607,586 The above Statement of Cash Flows should be read on conjunction with the accompanying notes. 50 flowscashstatement of notes to the financial continued 1 Summary of Significant Accounting Policies The following is a summary of the material accounting policies adopted by the consolidated entity in the preparation of the financial statements. a) Basis of preparation These general purpose financial statements have been prepared in accordance with Australian equivalents to International Financial Reporting Standards (AIFRS), other authoritative pronouncements of the Australian Accounting Standards Board, Australian Accounting Interpretations and the Corporations Act 2001. The financial report was authorised for issue on 21 September 2011 by the Board of Directors. The functional and presentation currency of Hot Chili Limited is Australian Dollars. Compliance with IFRSs Australian Accounting Standards include AIFRS. Compliance with AIFRS ensures that the financial statements of Hot Chili Limited comply with International Financial Reporting Standards (IFRSs). New Accounting Standards and Interpretations In the current year, the consolidated entity has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to its operations and effective for the current annual reporting period. The adoption of these new and revised Standards and Interpretations has not resulted in a significant or material change to the consolidated entity’s accounting policies. At the date of this financial report the following standards, which may impact the entity in the period of initial application, have been issued but are not yet effective: Reference Title Summary AASB 9 Financial Instruments AASB 124 Related Party Disclosures Replaces the requirements of AASB 139 for the classification and measurement of financial assets. This is the result of the first part of Phase 1 of the IASB’s project to replace IAS 39. Revised standard. The definition of a related party is simplified to clarify its intended meaning and eliminate inconsistencies from the application of the definition The consolidated entity has decided against early adoption of these standards. Historical cost convention Application date (financial years beginning) 1 January 2013 Expected Impact No expected impact on the entity 1 January 2011 Disclosure only These financial statements have been prepared under the historical cost convention, as modified by the revaluation of available- for-sale financial assets. Critical accounting estimates The preparation of financial statements in conformity of AIFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the consolidated entity’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 24. 51 cashstatements HOT CHILI ANNUAL REPORT 2011 notes to the financial continued 1 Summary of Significant Accounting Policies (continued) b) Principles of consolidation The consolidated financial statements comprise the financial statements of Hot Chili Ltd and its controlled entities, Sociedad Minera El Corazon Limitada, Sociedad Minera El Aguila Limitada and Sociedad Minera El Huerto Limitada Control exists where the consolidated entity has the capacity to dominate the decision-making in relation to the financial and operating policies of another entity so that the other entity operates with the consolidated entity to achieve the objectives of the consolidated entity. All inter- company balances and transactions between entities in the consolidated entity, including any unrealised profits and losses have been eliminated on consolidation. Non controlling interests in the results and equity of the consolidated entities are shown separately in the consolidated statement of comprehensive income and consolidated statement of financial position respectively. Where control of an entity is obtained during a financial year, its results are included in the consolidated statement of comprehensive income from the date on which control commences. Where control ceases, de-consolidation occurs from that date. Investments in associates are accounted for in the consolidated financial statements using the equity method. Under this method, the consolidated entity’s share of the post-acquisition profits or losses of associates is recognised in the consolidated statement of comprehensive income, and its share of post-acquisition movements in reserves is recognised in consolidated reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment. Associates are those entities over which the consolidated entity exercises significant influence, but not control. Investments in subsidiaries are recognised at cost less impairment losses. c) Income tax The consolidated entity adopts the liability method of tax-effect accounting whereby the income tax expense is based on the profit adjusted for any non-assessable or disallowed items. Deferred tax is accounted for using the statement of financial position liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the statement of comprehensive income except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised. The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the consolidated entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. Hot Chili Limited and its wholly-owned Chilean subsidiaries have not formed an income tax consolidated group under the Tax Consolidation Regime. d) Revenue Recognition Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances and amounts collected on behalf of third parties. Revenue is recognised for major business activities as follows: i) Interest Income Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. ii) Other Services Other debtors are recognised at the amount receivable and are due for settlement within 30 days from the end of the month in which services were provided. 52 statements e) Exploration and evaluation expenditure Exploration and evaluation expenditure incurred is accumulated in respect of each identifiable area of interest. These costs are only carried forward to the extent that they are expected to be recouped through the successful development of the area or where activities in the area have not yet reached a stage which permits reasonable assessment of the economically recoverable reserves. Accumulated costs in relation to an abandoned area are written off in full against operating results in the year in which the decision to abandon the area is made. When production commences the accumulated costs for the relevant area of interest are amortised over the life of the project area according to the rate of depletion of the economically recoverable reserves. A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. f) Plant and equipment Plant and equipment Plant and equipment are measured on the cost basis less depreciation and impairment losses. 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 consolidated entity and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred. Each class of plant and equipment is carried at cost or fair value less, where applicable, any accumulated depreciation and impairment losses. The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the assets’ employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. Depreciation The depreciable amount of all plant and equipment is depreciated on a diminishing value over their useful lives to the consolidated entity commencing from the time the asset is held ready for use. The depreciation rates used for each class of depreciable assets are: Class of Fixed Asset Plant and Equipment Depreciation Rate 10-33% The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the statement of comprehensive income. When revalued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings. g) Trade and other payables These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year and which are unpaid, together with assets ordered before the end of the financial year. The amounts are unsecured and are usually paid within 30 days of recognition. h) Equity-based payments Equity-based compensation benefits can be provided to directors and executives. The fair value of options granted to directors and executives is recognised as an employee benefit expense with a corresponding increase in contributed equity. The fair value is measured at grant date and recognised over the period during which the directors and/or executives becomes unconditionally entitled to the options. The fair value at grant date is independently determined using an option pricing model that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected divided yield and the risk-free interest rate for the term of the option. 53 HOT CHILI ANNUAL REPORT 2011 notes to the financial continued 1 Summary of Significant Accounting Policies (continued) i) Earnings per share i) Basic earnings per share Basic earnings per share is determined 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 financial year, adjusted for bonus elements in ordinary shares issued during the year. ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. j) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the board of directors. k) Impairment of assets Assets that have an indefinite useful like are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). l) Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. m) Provisions Provisions are recognised when the consolidated entity has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. n) GST Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation. 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 as inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flow. 2 Interest Income Interest income 54 Consolidated Entity 2011 2010 $ 104,498 104,498 $ 32,434 32,434 statements 3 Other Income Foreign exchange gain Consolidated Entity 2011 2010 $ - - $ 66,074 66,074 4 Segment Information The consolidated entity has identified its operating segments based on the internal reports that are reviewed and used by the board of directors (chief operating decision makers) in assessing performance and determining the allocation of resources. The consolidated entity operates as a single segment which is mineral exploration. The consolidated entity is domiciled in Australia. All revenue from external parties is generated from Australia only. Segment revenues are allocated based on the country in which the party is located. Operating revenues of approximately Nil (2010 - Nil) are derived from a single external party. All the assets relate to mineral exploration. Segment assets are allocated to segments based on the purpose for which they are used. 5 Income Tax Expense a) Income tax expense: Current tax Deferred tax Loss before income tax Prima facie income tax at 30% (2010: 30%) Tax-effect of amounts not assessable in calculating taxable income: Tax-effect of amounts not deductible in calculating taxable income Tax loss not recognised Income tax expense b) Tax losses: - - - - - - (11,065,643) (1,828,429) (3,319,693) (548,529) - 3,004,370 (315,323) - - 254,733 (293,796) - Unused tax losses for which no deferred tax asset has been recognised Potential tax benefit @ 30% 2,539,841 1,375,824 761,952 412,747 c) The directors estimate that the potential deferred tax asset at 30 June 2011 in respect of tax losses not brought to account is $761,952 (2010 : $412,747). In addition, Chilean subsidiaries of Hot Chili Ltd also have tax losses that are a potential deferred tax asset of $985,246 (2010: $124,510). The companies will be taxed independently in Chile. d) The benefit for tax losses will only be obtained if: i) The consolidated entity and the subsidiaries derive income, sufficient to absorb tax losses. ii) There is no change to legislation to adversely affect the consolidated entity and its subsidiaries in realising the benefit from the deduction of the losses. 55 HOT CHILI ANNUAL REPORT 2011 notes to the financial continued 6 Cash and Cash Equivalents Cash at bank 7 Trade and Other Receivables Trade and other receivables There are no impaired receivables or any provision for impairment against the receivables. 8 Plant and Equipment Plant and equipment at cost Less provision for depreciation Reconciliations: Plant and equipment Carrying amount at the beginning of the year Additions Depreciation Carrying amount at the end of the year 9 Exploration and Evaluation Expenditure Mining tenements at cost Tenements Carrying amount at the beginning of the year Purchase of mineral interests Exploration costs written off Consolidated Entity 2011 2010 $ $ 4,220,660 4,220,660 6,607,586 6,607,586 9,151 9,151 55,430 55,430 289,588 (45,604) 172,461 (4,587) 243,984 167,874 167,874 117,127 (41,017) - 172,461 (4,587) 243,984 167,874 2,342,138 1,829,495 2,342,138 1,829,495 1,829,495 388,628 512,643 1,440,867 - - Carrying amount at the end of the year 2,342,138 1,829,495 The future realisation of these non-current assets is dependent on further exploration and funding necessary to commercialise the resources or realisation through sale. 56 statements 10 Trade and Other Payables Trade payables Other payables 11 Contributed Equity Consolidated Entity 2011 2010 $ 1,265,704 61,997 1,327,701 $ 32,472 66,621 99,093 No. Shares No. Shares Consolidated Entity 2011 2010 2011 2010 $ $ a) Share capital At the beginning of the financial year 124,210,517 80,000,000 11,419,755 1,682,400 Shares issued during the year Shares cancelled during the year Less cost of issue 24,833,361 60,210,527 8,330,017 10,642,105 - - (16,000,000) - (510,451) (904,750) At the end of the financial year 149,043,888 124,210,527 19,239,321 11,419,755 b) Terms and Condition of Contributed Equity Ordinary Shares Ordinary shares have the right to receive dividends as declared and, in the event of winding up the company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the company. c) Movement in Unlisted Options Balance at beginning of year Issued during the year Options exercised during the year Options lapsed during the year 2011 2010 Options Options 40,740,000 40,200,000 - 540,000 (150,000) - - - Balance at end of year 40,590,000 40,740,000 d) Listed Options There are no listed options over ordinary shares in the company at 30 June 2011 (2010: nil). e) Capital Risk Management The consolidated entity’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they can continue to provide returns to 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 consolidated entity may issue new shares, pay dividends or return capital to shareholders. Capital is calculated as ‘equity’ as shown in the statement of financial position, and is monitored on the basis of funding exploration activities. 57 HOT CHILI ANNUAL REPORT 2011 notes to the financial continued 12 Reserves and Accumulated Losses a) Accumulated losses Accumulated losses at the beginning of the year Net loss for the year Accumulated losses at the end of the year b) Reserves Options reserve The options reserve is used to recognise the fair value of options issued. As at 30 June 2011, no options to which the reserve relates have been exercised. Balance at the beginning of the year Movement during the year Balance at the end of the year c) Foreign transaction reserve Balance at the beginning of the year Additions during the year Balance at the end of the year Consolidated Entity 2011 2010 $ $ (2,758,976) (930,547) (11,065,643) (1,828,429) (13,824,619) (2,758,976) 72,308 - 72,308 1,222 - 1,222 - 72,308 72,308 1,222 - 1,222 Total Reserves and Accumulated Losses (13,751,089) (2,685,446) 13 Loss Per Share Loss after tax attributable to members of Hot Chili Limited (11,065,643) (1,828,429) Basic loss per share (cents) Diluted loss per share (cents) Unexercised options are not dilutive (8.11) (8.11) (2.14) (2.14) The weighted average number of ordinary shares on issue used in the calculation of basic loss per share 136,403,634 85,543,187 Weighted average number of ordinary shares and potential ordinary shares used as the denomina- tor in calculating diluted loss per share 136,403,634 85,543,187 14 Remuneration of Auditors Remuneration of the auditor for: - Auditing and reviewing of financial reports - Preparation an investigating accountants report for inclusion in the IPO prospectus 33,500 - 33,500 18,000 10,000 28,000 58 statements 15 Key Management Personnel Disclosures a) Directors The following persons were Directors of Hot Chili Limited during the financial year and up to the date of this report: Murray E Black Bernard R Mountford Christian E Easterday Dr Allan Trench (Non Executive Chairman) (Non Executive Director) (Resigned 19 July 2010) (Executive Director) (Non Executive Director) (Appointed 19 July 2010) b) Company Secretary John Sendziuk c) Country Manager Rodrigo Diaz Borquez Details of Remuneration of Key Management Personnel for the year ended 30 June 2011: Short-term benefits Post-employment benefits Share based payment Consolidated Entity 2011 2010 $ 519,425 66,755 - $ 386,669 9,237 - 586,180 395,906 d) Key Management Personnel Interests in the Shares and Options of the Company Shares The number of shares in the company held during the financial year, and up 30 June 2011, by each Key Management Personnel of Hot Chili Limited, including their personally related parties, are set out below. There were no shares granted as compensation during the year. 2011 Murray E Black Christian E Easterday Dr Allan Trench John Sendziuk 2010 Murray E Black Christian E Easterday Bernard R Mountford Dr Allan Trench John Sendziuk Balance at the start of the year 10,000,000 10,200,000 - 1,100,000 21,300,000 Balance at the start of the year 13,500,000 13,700,000 2,000,000 - 700,000 29,900,000 Granted as compensation Other changes during the year Granted as compensation Other changes during the year - - - - - - - - - - - Balance at the end of the year 10,000,000 10,200,000 - - - - (100,000) 1,000,000 (100,000) 21,200,000 Balance at the end of the year 10,000,000 10,200,000 (3,500,000) (3,500,000) (666,667) 1,333,333 - - 400,000 1,100,000 (7,266,667) 22,633,333 59 HOT CHILI ANNUAL REPORT 2011 notes to the financial continued 15 Key Management Personnel Disclosures (continued) d) Key Management Personnel Interests in the Shares and Options of the Company (continued) Options The number of options over ordinary shares in the company held during the financial year, and up to 30 June 2010, by each Key Management Personnel of Hot Chili Ltd including their personally related parties are set out below: 2011 Balance at start of the year Acquired during the year Exercised during the year Forfeited during the year Balance at the end of the year Vested and exercisable at the end of the year Murray E Black Christian E Easterday Dr Allan Trench John Sendziuk 6,750,000 6,850,000 - 350,000 13,950,000 - - - - - - - - - - - - - - - 6,750,000 6,850,000 - 6,750,000 6,850,000 - 350,000 350,000 13,950,000 13,950,000 2010 Balance at start of the year Acquired during the year Exercised during the year Forfeited during the year Balance at the end of the year Murray E Black Christian E Easterday 6,750,000 6,850,000 Bernard R Mountford 1,000,000 Dr Allan Trench John Sendziuk - 350,000 14,950,000 - - - - - - - - - - - - - - - Vested and exercisable at the end of the year 6,750,000 6,850,000 1,000,000 - 6,750,000 6,850,000 1,000,000 - 350,000 350,000 14,950,000 14,950,000 16 Notes to Statement of Cash Flows a) Reconciliation of Cash For the purposes of the statement of cash flows, cash includes cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash at the end of the financial year as shown in the statement of cash flows is reconciled to the related items in the statement of financial position as follows: Cash and short term deposits 60 Consolidated Entity 2011 2010 $ $ 4,220,660 6,607,586 4,220,660 6,607,586 statements b) Reconciliation of Net Cash used In Operating Activities to Operating Loss after Income Tax Loss for the year Depreciation Effect of exchange rates on holdings in foreign currencies Consolidated Entity 2011 2010 $ $ (11,065,643) (1,828,429) 41,017 181,756 4,587 (66,074) Net cash flows from operating activities before change in assets and liabilities (10,842,870) (1,889,916) Change in assets and liabilities during the financial year: Other current assets Payables Net cash outflow from operating activities 219,296 (219,974) 1,228,608 (6,435) (9,394,966) (2,116,325) c) Non cash investing and financing activities There were no non cash investing and financing activities during the year. 17 Finance Facilities No credit standby facility arrangement or loan facilities existed at 30 June 2011. 18 Commitments for Expenditure a) Exploration Commitments In order to maintain current rights of tenure to exploration and mining tenements, the consolidated entity has the following discretionary exploration expenditure requirements up until expiry of leases. These obligations are not provided for in the financial statements and are payable: Within one year Later than one year but not later than five years 1,481,156 1,401,313 14,291,323 19,291,403 15,772,479 20,692,716 b) Operating Leases The consolidated entity leases office premises under an operating lease expiring in three years. The lease has various terms and renewal rights and commenced on 1 May 2010. Commitments for minimum lease payments in relation to operating leases are payable as follows: Within one year Later than one year but not later than five years Later than five years 21,450 - - 34,943 42,900 - 21,450 77,893 61 HOT CHILI ANNUAL REPORT 2011 notes to the financial continued 19 Events Occurring after Reporting Date Since the end of the financial year, the company placed 13,333,334 shares at 60 cents to boost the working capital by $8,000,000 less costs of $240,000. Apart from the matter disclosed above, there are other no matters or circumstances that have arisen since 30 June 2011 that has significantly affected or may significantly affect the operations, the results of those operations, or the state of affairs of the consolidated entity. 20 Related Parties There were no related party transactions during the year. 21 Contingent Liabilities There are no contingent liabilities at reporting date (2010: Nil). 22 Investment in Controlled Entities Name of Entity Sociedad Minera El Corazon Limitada Sociedad Minera El Aguila Limitada Sociedad Minera El Huerto Limitada Country of Incorporation Class of Shares Chile Chile Chile Ordinary Ordinary Ordinary Equity Holding 2011 2010 % 100 100 100 % 100 100 100 23 Financial Risk Management The consolidated entity’s principal financial instruments comprise receivables, payables cash and short-term deposits. The consolidated entity manages its exposure to key financial risks in accordance with the consolidated entity’s financial risk management policy. The objective of the policy is to support the delivery of the consolidated entity’s financial targets while protecting future financial security. The main risks arising from the consolidated entity’s financial instruments are interest rate risk, credit risk and liquidity risk. The consolidated entity uses different methods to measure and manage different types of risks to which it is exposed. These include monitoring levels of exposure to interest rates and assessments of market forecasts for interest rates. Ageing analysis of and monitoring of receivables are undertaken to manage credit risk, liquidity risk is monitored through the development of future rolling cash flow forecasts. The Board reviews and agrees policies for managing each of these risks as summarised below. Primary responsibility for identification and control of financial risks rests with the Board. The Board reviews and agrees policies for managing each of the risks identified below, including for interest rate risk, credit allowances and cash flow forecast projections. 62 statements Risk Exposures and Responses a) Interest rate risk exposure The consolidated entity’s exposure to market interest rates relates primarily to the consolidated entity’s cash balances and short- term deposits. The consolidated entity constantly analyses its interest rate exposure. Within this analysis consideration is given to potential renewals of existing positions, alternative financing positions and the mix of fixed and variable interest rates. The consolidated entity’s cash balance is available at call and is held at a floating interest rate, all creditors and debtors are non interest bearing and are payable and receivable on commercial terms. The consolidated entity has considered the sensitivity relating to its exposure to interest rate risk at reporting date. This analysis considers the effect on current year results and equity which could result in a change in this risk. Management have considered the potential impact on the profit and equity and considered that it would not be a material amount. b) Credit risk exposure Credit risk arises from the financial assets of the consolidated entity, which comprise deposits with banks and trade and other receivables. The consolidated entity’s exposure to credit risk arises from potential default of the counter party, with the maximum exposure equal to the carrying amount of these instruments. The carrying amount of financial assets included in the statement of financial position represents the consolidated entity’s maximum exposure to credit risk in relation to those assets. The consolidated entity does not hold any credit derivatives to offset its credit exposure. The consolidated entity trades only with recognised, credit worthy third parties and as such collateral is not requested nor is it the Company’s policy to securities it trade and other receivables. Receivable balances are monitored on an ongoing basis with the result that the consolidated entity does not have a significant exposure to bad debts. There are no significant concentrations of credit risk within the consolidated entity. c) Liquidity risk Liquidity risk arises from the financial liabilities of the consolidated entity and the consolidated entity’s subsequent ability to meet their obligations to repay their financial liabilities as and when they fall due. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and, the availability of funding through the ability to raise further equity or through related party entities. Due to the dynamic nature of the underlying businesses, the Board aims at maintaining flexibility in funding through management of its cash resources. The consolidated entity has no financial liabilities at the year-end other than normal trade and other payables incurred in the general course of business. d) Fair values The fair values of the consolidated entity’s financial assets and liabilities are summarised in the table below; 2011 Cash and cash Trade and other receivables Trade and other payables 2010 Cash and cash Trade and other receivables Trade and other payables Consolidated Entity Carrying amount Fair value $ 4,220,660 9,151 1,327,701 $ 4,220,660 9,151 1,327,701 Carrying amount Fair value $ 6,607,586 55,430 99,093 $ 6,607,586 55,430 99,093 63 HOT CHILI ANNUAL REPORT 2011 notes to the financial continued 23 Financial Risk Management (continued) Risk Exposures and Responses (continued) e) Foreign exchange risk The consolidated entity has considered the sensitivity relating to its exposure to foreign currency risk at reporting date. This sensitivity analysis considers the effect on current year results and equity which could result in a change in the USD / AUD rate. The consolidated entity is exposed to foreign exchange risk through its USD cash holdings at reporting date. The table below summarises the impact of + / - 10% strengthening / weakening of the AUD against the USD on the consolidated entities post tax profit for the year and equity. The analysis is based on a 10% strengthening /weakening of the AUD against the USD at reporting date with all other factors remaining equal. 2011 AUD/USD + 10% AUD/USD - 10% 2010 AUD/USD + 10% AUD/USD - 10% Consolidated Entity Post tax profit $ 296,976 (296,976) Post tax profit $ (514,657) 514,657 Equity $ 296,976 (296,976) Equity $ (514,657) 514,657 24 Critical Accounting Estimates and Judgements Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. The consolidated entity makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Recoverability of exploration expenditure The directors tests annually whether the exploration and evaluation expenditure incurred in identifiable areas of interest is expected to be recouped through the successful development of the area or where activities in the area have not yet reached a stage that permits reasonable assessment of the existence of reserves and further work is expected to be performed. All expenditure that does not meet these criteria is expensed to the statement of comprehensive income. 64 statements 25 Parent Entity Disclosures Financial position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Total liabilities Equity Issued capital Reserves Accumulated losses Total equity Financial performance Loss for the year Other comprehensive income Total comprehensive income 2011 2010 $ $ 4,158,943 1,397,234 6,618,396 2,173,641 5,556,177 8,792,037 67,945 67,945 69,393 69,393 19,239,321 11,419,755 72,308 72,308 (13,823,397) (2,769,419) 5,488,232 8,722,644 (11,053,978) (1,840,094) - - (11,053,978) (1,840,094) Contingent liabilities of the parent entity The parent entity did not have any contingent liabilities as at 30 June 2011 or 30 June 2010. Contractual commitments for the acquisition of property, plant or equipment As at 30 June 2011 (30 June 2010 – $Nil), the parent entity did not have any contractual commitments for the acquisition of property, plant or equipment. 65 HOT CHILI ANNUAL REPORT 2011 notes to the financial continued 26 Share Based Payments The company has not made any share based payments in the current year. Below are details of share based payments made in the prior year. a) Options issued The Company issued options to a consultant as part payment of share issue costs. Set out below is a summary of options on issue as at 30 June 2011: Issue date 01/05/2009 10/01/2010 29/04/2010 Expiry date 29/10/2014 29/10/2014 29/10/2014 Balance at start of year Number issued during year Number expired during year Balance at end of year Number exercisable at end of year 200,000 140,000 400,000 - - - - - - 200,000 140,000 400,000 200,000 140,000 400,000 Fair value of options issued: The fair value at issue date was determined using a Black-Scholes option pricing model that takes into account the exercise price, the share price at issue date and expected price volatility of the underlying share, and the risk free interest rate for the term of the loan. The model inputs for options granted during the year ended 30 June 2010 included: i) options are granted for no consideration. ii) exercise price - $0.20. iii) issue date - 1 May 2009, 10 January 2010, 29 April 2010 iv) expiry date – 29 October 2014. v) expected price volatility of the Company’s shares: 110%. vi) risk-free interest rate: 5.36%. vii) spot price at date of valuation: $0.05, $0.10 and $0.20. b) Expenses arising from share-based payment transactions Total transactions arising from share-based payment transactions recognised during the year were as follows: Expenses related to options issued to consultants Shares issued for option payment on Chilean mining rights 2011 2010 $ - - - $ 72,308 1,242,105 1,314,413 The option payment on Chilean mining rights were issued at the date of listing and consisted of 6,210,525 shares at the listing price of $0.20. 66 statements shareholder information Shareholder Information as at 29 August 2011 a) Spread of Holdings 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 & Over b) Spread of Holdings 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 & Over c) Substantial Shareholders Kalgoorlie Auto Service Pty Ltd Harbour Group (Consolidated) Port Finance Ltd NV Panoramic Copper Pty Ltd Taurus Funds Management (Consolidated) Fitel Nominees Ltd d) Directors’ Shareholdings: Murray E Black Christian E Easterday Dr Allan Trench (Appointed 19 July 2010) Shareholders Units 56 221 272 707 154 40,157 693,804 2,348,876 28,727,457 130,616,928 1,410 162,427,222 Option Holders Units - - - 13 27 40 - - - 1,100,000 39,440,000 40,540,000 40,000,000 8,161,530 6,210,527 6,666,667 6,666,667 4,471,750 Shares Held Directly Held by Companies in which Directors have a beneficial interest - 10,000,000 200,000 10,200,000 - 67 required by the asx HOT CHILI ANNUAL REPORT 2011 shareholder information continued Shareholder Information as at 29 August 2011 (continued) e) The names of the twenty largest shareholders as at 29 August 2011, who between them held 56.62% of the issued capital are listed below: 1 Kalgoorlie Auto Service Pty Ltd 2 Panoramic Copper Pty Ltd 3 Taurus Funds Management Pty Ltd 4 Port Finance Ltd NV 5 Fitel Nominees Ltd 6 Norman Lester Mountford 7 Harbour Seager Rex 8 Graham John Woolford 9 Miro & Helen Cecich 10 Campari Holdings Pty Ltd 11 Ajava Holdings Pty Ltd 12 Harbour Foundation 13 SHL Pty Ltd 14 UBS Wealth Management Australia Nominees 15 BO & EJ Stephens 16 Leilani Investments Pty Ltd 17 Romulus Pty Ltd 18 Miro Cecich 19 Timothy James Carter 20 Gary Dene Gale Number of Ordinary Shares 40,000,000 6,666,667 6,290,223 6,210,527 4,471,750 4,000,000 3,931,696 2,577,000 2,533,334 2,077,500 2,000,000 1,916,667 1,750,000 1,486,381 1,140,000 1,030,000 1,020,000 1,000,000 950,000 925,000 91,976,745 % 24.63 4.10 3.87 3.82 2.75 2.46 2.42 1.59 1.56 1.28 1.23 1.18 1.08 0.92 0.70 0.63 0.63 0.62 0.58 0.57 56.62 f) The names of the twenty largest optionholders as at 29 August 2011, who between them held 94.08% of the issued options are listed below: 1 Kalgoorlie Auto Service Pty Ltd 2 Norman Lester Mountford 3 Ajava Holdings Pty Ltd 4 BO & EJ Stephens 5 Miro Cecich 6 Campari Holdings Pty Ltd 7 DJ Carmichael Pty Ltd 8 Romulus Pty Ltd 9 Jacqueline Tracey Hunter 10 Oakstream Pty Ltd 11 Ian William Dorrington 12 Talltree Holdings Pty Ltd 13 L & TE King Russell 14 Oregonwood Pty Ltd 15 Rowan Radford 16 Alf’s Crew Pty Ltd 17 Mancini Management Pty Ltd 18 James Douglas Coote 19 Hahn Properties Pty Ltd 20 Gary Dene Gale 68 Number of Options 27,000,000 3,000,000 2,500,000 800,000 500,000 500,000 429,000 350,000 300,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 38,129,000 % 66.60 7.40 6.17 1.97 1.23 1.23 1.06 0.86 0.74 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 94.08 required by the asx “Company remains focused on successful exploration and advancing the projects toward development.” 69 www.hotchili.net.au

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