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7
ANNUAL REPORT 2017
Contents
1 Chairman’s Letter
2 Review of Operations
3 Qualifying Statements
4 Corporate Activities
5 Directors’ Report
6 Auditors’ Independence Declaration
7 Auditors’ Report
8 Directors’ Declaration
9 Statement of Comprehensive Income
10 Statement of Financial Position
11 Statement of Changes in Equity
12 Statement of Cash Flows
13 Notes to the Financial Statements
14 Shareholder Information
15 Tenement Schedule
16 Corporate Directory
2
4
12
15
19
27
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32
33
34
35
36
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56
58
61
HOT CHILI Annual Report 2017 2017 Key
Highlights
Exploration
• Expanded growth strategy to strengthen Hot
Chili’s Productora copper project in Chile gathers
momentum with the execution of a two non-binding
Letters of Intent (LOI) to secure high-grade copper-
gold satellite projects.
• Both projects located on highly prospective
landholdings, have been privately held for several
decades, and had very little modern exploration.
• Lulu Project:
–
Located ~ 30km west of Productora, a LOI has
been executed to acquire a 70% interest.
– High grade copper-gold project containing
the direct extension of a substantial historical
underground mine which reportedly exploited
vein-hosted ore material to 600m depth, over
widths ranging between 1.5m and 2m and
grades averaging 6% copper and 3g/t gold.
• San Antonio Project:
–
Located 20km trucking distance from
Productora, a LOI has been executed to
acquire a 90% interest.
– High grade copper-gold project containing a
historical underground mine which produced
approximately 2Mt of ore grading 2% copper
and 0.3g/t gold during its operation.
• Productora Project:
–
First phase of porphyry copper exploration
drilling complete at Productora, with four key
targets identified from reconnaissance drilling.
Productora porphyry drilling undertaken by Blue
Spec Sondajes Chile (a company associated
with Hot Chili’s chairman Murray Black) at its
own cost and at no risk to Hot Chili.
1
Corporate
• A$11.3 million private placement was completed
via issue of unsecured Convertible Notes to key
major shareholders. Funding led by Sprott Capital
Partners, with strong participation by Taurus Funds
Management Pty Ltd and supported by Blue Spec
Drilling Pty Ltd, (a company associated with Hot
Chili’s Chairman, Murray Black).
• All outstanding debt fully repaid to Sprott Resource
Lending Partnership and all loan securities
discharged over Hot Chili and its subsidiaries.
• Shareholder approval for Blue Spec offer to accept
up to a maximum of US$1 million in Hot Chili shares
in consideration for drilling services.
Improving Market
Conditions
• Global copper prices have risen ~ 50% in the past
year to around US$3.00/lb as increasing demand
exposes a tight supply balance ahead of a widely
expected deep supply deficit in future years.
• Hot Chili is significantly leveraged to improving
copper price as one of the largest and most
advanced copper developments on the ASX.
• For every US5c/lb movement upwards in the
copper price we roughly add the equivalent of
our current market capitalisation (fully dilute) in
Net Present Value to the valuation of Productora
(against spot prices).
• The positive outlook for copper price, and the
Company’s expanded growth strategy have the
potential to significantly re-rate Hot Chili.
HOT CHILI Annual Report 2017 1 Chairman’s
Letter
Dear Shareholder,
This year saw a dramatic turn-around in global copper prices as strengthening demand signalled the early stages of
a looming supply deficit and a new dawn for the copper sector.
With copper prices expected to rise further in the medium term, the market is beginning to focus on the next wave
of copper developers, and those that are best positioned to take advantage of a sustained price recovery.
Setting Hot Chili apart in this group is size; we are one of the largest scale and most advanced copper developers
listed on the ASX, and with that comes outstanding leverage to the onset of a rising copper market. This could not
have been achieved without the ongoing support of our major shareholders, who this year positioned Hot Chili with
a strengthened balance sheet to pursue a series of exceptional growth opportunities.
Our management have unveiled an expanded growth strategy, which if successfully executed, will establish
Hot Chili as Australia’s leading and largest scale new copper producer.
Exploration was accelerated during the year at our flagship Productora copper project on Chile’s coastal range.
Reconnaissance drilling has now confirmed potential for significant large-scale porphyry copper resource growth,
outlining numerous mineralised porphyry targets located in the heart of Productora’s planned development area.
In addition, Hot Chili secured Joint Venture Option deals over two exciting high grade satellite copper projects
within short trucking distance of Productora. Both projects contain or are adjacent to substantial historical
high-grade copper and gold underground mines which have seen little drill testing.
These and other nearby opportunities being pursued by Hot Chili have the potential to significantly increase
planned head-grade and annual metal production, expanding Productora into a future low-cost, large-scale
operating centre.
I would like to thank our Board, management and staff for their continued efforts and dedication to Hot Chili’s
success. We look forward to an exciting year of growth and optimism for our company and shareholders as the
light once again shines on copper.
Murray Edward Black
Chairman
2
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017 3
Exploration was
accelerated during the
year at our flagship
Productora copper
project on Chile’s
coastal range
HOT CHILI Annual Report 2017 2 Review of
Operations
Productora Copper Project
Productora positioned as a leading global large-scale
copper development.
Productora is one of the best located new large-scale
copper developments globally - (located at low altitude
in Region III, on the coastal range of Chile, surrounded
by infrastructure, boasting low capital intensity).
Outside of the Company’s growth efforts to drive value
creation at Productora through further exploration
success, Productora’s existing asset value is strongly
leveraged to the improving copper price environment.
Productora is already positioned as one of the leading
large-scale copper projects in the global development
pipeline. Given Productora’s level of advancement
(PFS complete, 10 year mine life established and 1.5Mt
copper and 1Moz gold resource) and infrastructure/
location advantages, further large-scale exploration
success is expected to move the project into the
next class of development options available to the
copper sector in order to meet forecast future copper
demand requirements.
Productora’s 2016 PFS was completed using a
long-term copper price of US$3.00/lb, however over
the past 12 months the copper price has improved
significantly, rising from approximately US$2.00/lb in
early 2016 to an average copper price of US$3.06/lb
in August 2017.
Figure 1. Productora Project location, and its proximity to surrounding infrastructure.
4
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017 5
Figure 2 below outlines Productora’s economic sensitivity
to copper price as outlined in the Company’s 2016 PFS
(announced to ASX on 2nd March 2016 “Hot Chili Delivers
PFS and Near Doubles Reserves at Productora”).
Figure 2. Financial analysis of Productora PFS valuation in relation to copper price.
Potential to Transform Productora into Copper Project
of Global Significance
Productora’s porphyry copper potential was revealed
after the detection of a cluster of large-scale targets
identified from a deep penetrating IP-MT geophysical
survey. The survey was commissioned following
discovery of the Alice porphyry copper deposit,
located immediately adjacent to Productora’s planned
central pit.
More than two years of exploration studies over
Productora’s porphyry copper potential has provided
significant confidence in the Company’s strategy to
realise large resource growth potential at Productora
in advance of commencing the final stage of
development studies.
A study on the characteristics of the Productora
porphyry copper project highlighted that the project
sits within a Giant (+5Mt) Chilean Copper Camp
setting. The study also highlighted Productora to be
comparable in scale and footprint (geochemical and
geophysical signature) to other Tier 1 global porphyry
copper deposits such as SolGold’s Cascabel deposit
in Ecuador.
3D modelling of IP porphyry copper targets indicates
that Productora has the potential to grow its current
resource base by several multiples.
Successful drill testing of these large-scale porphyry
copper targets has the potential to transform
Productora into a copper project of global significance,
which in turn could have a substantial impact on the
project’s mine life and economics.
HOT CHILI Annual Report 2017 2 Review of
Operations (cont’d)
Productora Porphyry Copper Drilling
Hot Chili accelerated its exploration efforts at Productora in 2017, with
reconnaissance drilling completed providing significant insight into the
large-scale porphyry copper system.
Reconnaissance drilling has identified and tested two
distinct domains associated with a 6km long porphyry
lithocap; the western domain (magnetite rich) and
eastern domain (magnetite poor) as shown in Figure 3.
Drilling directed toward targets located within the
magnetite rich western domain has confirmed that
it is largely the distal margin of the porphyry copper
system. However, drilling along the eastern domain has
provided significant encouragement. Zones of copper
oxide (chalcocite and malachite) and primary copper
sulphide (chalcopyrite) mineralisation in association with
molybdenum enrichment was recognised in several drill
holes over moderate widths.
Phase 1 reconnaissance exploration drilling is now
complete and the Company is awaiting receipt of
results before finalising the design and commencement
of Phase 2 porphyry copper drilling programme. Four
large-scale porphyry copper targets located along the
eastern domain are now the focus for Hot Chili.
Alice Resource
(Porphyry Hosted)
Magne(cid:3)c Inversion Depth Slice
& Reconnaissance Drilling
Porphyry
Silica Lithocap
Mineralised
Porphyry Target
PPS Pit
Design
Productora Main
Zone Resource
(Breccia Hosted)
Figure 3. Location of
reconnaissance drill
holes in relation to key
datasets (geophysics,
faults, silica caps) covering
the Productora porphyry
copper lithocap.
6
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017 7
Expanded Growth Strategy to Strengthen Productora
Since delivering a Pre-feasibility Study in 2016 outlining
an annual production base of 66ktpa copper and 25koz
gold over the first 8 years of mine life, the Company
has focussed its efforts on unlocking opportunities to
increase mine life and scale at Productora.
having executed two deals to secure a stable of
high-grade satellite projects within close development
distance of Productora, as seen in Figure 4.
Exploration during this time has been largely directed
towards large-scale porphyry copper potential identified
immediately adjacent to Productora’s planned central
pit development.
In support of this bulk tonnage growth strategy, Hot
Chili is now also focused on opportunities to increase
Productora’s future head-grade and annual metal
production via the incorporation of nearby high-grade
exploration and development satellite projects.
Several satellite projects are currently being evaluated
for their potential to host and deliver future high-grade
ore sources that can take advantage of Productora’s
planned large-scale, low-cost processing facilities.
Hot Chili is pleased that its growth strategy to increase
the grade and future metal production capacity of
Productora is gathering momentum, with the Company
Securing high-grade opportunities to feed into
Productora has the potential to establish Hot Chili as the
premier large-scale copper developer listed on the ASX.
The Company envisages Productora as a future large-
scale operating centre in Chile, with Productora already
being one of the largest and most advanced ASX listed
copper developments by scale.
Increasing the grade and metal production capability
of Productora by incorporating numerous high grade
satellite ore sources is very material for Hot Chili.
Successful execution of this strategy could have
the potential to dramatically enhance the value of
Productora, in addition to the leverage the project
already has to the rising copper price.
The combined positive outlook for copper price, and
the Company’s expanded growth strategy has the
potential to significantly re-rate Hot Chili.
Figure 4. Productora copper project in relation to San Antonio and Lulu satellite projects and coastal
range infrastructure position.
HOT CHILI Annual Report 2017 2 Review of
Operations (cont’d)
Lulu Copper-Gold Project
The Lulu copper-gold project lies 30km directly west of Productora
(figure 4) in Region IV of Chile at low altitude (~950m). Lulu is a
relatively early stage exploration project which has not previously been
drill tested and comprises two exploitation leases covering 40ha.
Importantly, the project represents the direct extension
of one of the regions highest grade substantial
underground mines. This mine reportedly exploited
vein hosted material to 600m depth, over widths
ranging between 1.5m and 2m and grades averaging
6% copper and 3g/t gold.
Higher grade ore shoots within the historical
underground mine, adjacent to the Lulu project,
exploited vein widths up to 7m with grades averaging
12% copper and 5g/t gold.
Preliminary surface mapping undertaken by
Hot Chili within the Lulu project has confirmed a
strike continuous 800m extension of the main ore
hosting structure to the south of the main historical
underground mine as displayed in Figure 5.
Copper mineralisation at Lulu is hosted within a
moderately (60 - 70°) southwest dipping carbonate
vein which varies in width between 0.7m and 4.1m
(where observed). The main carbonate vein trends
NW-SE and transects a granodiorite which has also
been variably intruded by andesitic dykes. Brecciation
and secondary veining occurs within a 10m to 15m
wide zone encompassing the main copper-bearing
carbonate vein.
Oxidation at Lulu occurs to a depth of approximately
75m vertical, where oxide copper mineralisation is
associated with malachite, chrysocolla and cuprite.
Sulphide copper is associated with chalcopyrite, bornite
and minor covellite.
Hot Chili’s 100% owned subsidiary Sociedad Minera
Frontera SpA (Frontera) has executed a non-binding
LOI with a private party to earn a 70% interest in the
Lulu copper-gold project over a four-year period.
The proposed Joint Venture (JV) involves an Option
agreement whereby full ownership of 70% of the mining
rights of the project will be transferred upon satisfaction
of the following Option payment schedule:
1. US$75,000 upon execution of a formal JV Option
agreement
2. US$75,000 12 months from execution of a formal
JV Option agreement
3. US$150,000 24 months from execution of a formal
JV Option agreement
4. US$150,000 36 months from execution of a formal
JV Option agreement, and
5. US$2 million 48 months from execution of a formal
JV Option agreement
Exploration by Frontera at Lulu shall be at its discretion
and during the first 36 months of the JV the owner will
be able to exploit up to 50,000 tonnes of ore per year
from within the Project.
The LOI is subject to favourable legal due diligence
along with agreement and approval of final terms of a
formal agreement by the Board of Hot Chili.
8
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017 9
Figure 5. Lulu copper-gold project landholding and preliminary surface mapping of the main copper-
bearing vein system.
HOT CHILI Annual Report 2017 2 Review of
Operations (cont’d)
San Antonio Copper-Gold Project
The Company has executed a non-binding Letter
of Intent (LOI) for a Joint Venture Option Agreement
to earn a 90% interest in the San Antonio project,
located 20km directly east of Productora in Region IV
of Chile at low altitude (800m).
Importantly, the project has been privately owned
for several decades and contains a substantial
underground mine which historically produced
some 2Mt of ore material with an average grade of
approximately 2% copper and 0.3g/t gold. The mine
has been exploited over a 200m strike length to a
vertical depth of 130m.
Little modern exploration and drilling has been
undertaken over the project which comprises 12
exploitation leases covering 1,566ha.
Copper mineralisation is associated with a sequence
of moderately east-dipping sandstone and limestone/
andesite units which have seen extensive skarn
alteration adjacent to a granitic contact along the
projects eastern margin. The zone of skarn alteration
has been recognised over a 2.5km strike extent within
the project.
Andesite units host the majority of mineralisation which
was exploited underground at true widths ranging
between 7m and 30m (10m average). Sulphide copper
is associated with chalcopyrite, minor bornite, pyrrhotite
and magnetite.
Hot Chili’s 100% owned subsidiary Sociedad Minera
Frontera SpA (Frontera) has executed a non-binding
LOI with a private party to earn a 90% interest in the
San Antonio copper-gold project over a four-year
period. The proposed JV involves an Option agreement
whereby full ownership of 90% of the mining rights of
the project will be transferred upon satisfaction of a
payment of US$300,000 in 36 months and then a final
payment of US$6,700,000 in 48 months.
Importantly, the LOI provides for no payments and no
exploration commitments over the first three years of
the Option.
Exploration by Frontera at San Antonio shall be at its
discretion and the owner will have the right to lease to
any third party the exploitation of the mining rights of up
to 50,000 tonnes of ore per year until exercise of
the Option.
The LOI is subject to favourable legal due diligence
along with agreement and approval of final terms of a
formal agreement by the Board of Hot Chili.
10
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017 11
Figure 6. San Antonio copper-gold project landholding, regional geology and surface geochemistry
displaying Cu ppm.
HOT CHILI Annual Report 2017 3 Qualifying
Statements
JORC Compliant Ore Reserve Statement
Productora Open Pit Probable Ore Reserve Statement – Reported 2nd March 2016
Grade
Contained Metal
Payable Metal
Reserve Tonnage Cu
(%)
Category
(Mt)
Au Mo
(g/t)
(ppm)
Cu
(tonnes)
Au
(ounces)
Mo
(tonnes)
Cu
(tonnes)
Au
(ounces)
Mo
(tonnes)
24.1
20.5
0.43
0.08
0.45
0.08
49
92
103,000
59,600
91,300
54,700
1,200
1,900
55,600
61,500
24,400
800
122.4
0.43
0.09
163
522,500
356,400
20,000
445,800
167,500
10,400
Probable
166.9 0.43 0.09 138
716,800 470,700 23,100 562,900 191,900 11,200
Ore Type
Oxide
Fresh
Total
Transitional
Probable
Note 1: Figures in the above table are rounded, reported to two significant figures, and classified in accordance with the Australian JORC Code 2012
guidance on Mineral Resource and Ore Reserve reporting. Note 2: Price assumptions: Cu price - US$3.00/lb; Au price US$1200/oz; Mo price
US$14.00/lb. Note 3: Mill average recovery for fresh Cu - 89%, Au - 52%, Mo - 53%. Mill average recovery for transitional; Cu 70%, Au - 50%,
Mo - 46%. Heap Leach average recovery for oxide; Cu - 54%. Note 4: Payability factors for metal contained in concentrate: Cu - 96%; Au - 90%;
Mo - 98%. Payability factor for Cu cathode - 100%.
JORC Compliant Mineral Resource Statements
Productora Higher Grade Mineral Resource Statement, Reported 2nd March 2016
Deposit
Classification
Indicated
Productora
Inferred
Alice
Sub-total
Indicated
Inferred
Sub-total
Indicated
Combined
Inferred
Total
Tonnage
(Mt)
166.8
51.9
218.7
15.3
2.6
17.9
182.0
54.5
236.6
Cu
(%)
0.50
0.42
0.48
0.41
0.37
0.41
0.50
0.42
0.48
Grade
Au
(g/t)
0.11
0.08
0.10
0.04
0.03
0.04
0.10
0.08
0.10
Contained Metal
Mo
(ppm)
Cu
(tonnes)
Au
(ounces)
Mo
(tonnes)
151
113
142
42
22
39
142
109
135
841,000
572,000
25,000
219,000
136,000
6,000
1,059,000
708,000
31,000
63,000
10,000
20,000
2,000
73,000
23,000
600
100
700
903,000
592,000
26,000
228,000
138,000
6,000
1,132,000
730,000
32,000
Reported at or above 0.25 % Cu. Figures in the above table are rounded, reported to two significant figures, and classified in accordance with the Australian
JORC Code 2012 guidance on Mineral Resource and Ore Reserve reporting. Metal rounded to the nearest thousand, or if less, to the nearest hundred.
Productora Low Grade Mineral Resource Statement, Reported 2nd March 2016
Deposit
Classification
Indicated
Productora
Inferred
Alice
Sub-total
Indicated
Inferred
Sub-total
Indicated
Combined
Inferred
Total
Tonnage
(Mt)
150.9
50.7
201.6
12.3
4.1
16.4
163.2
54.8
218.0
Cu
(%)
0.15
0.17
0.16
0.14
0.12
0.13
0.15
0.17
0.16
Grade
Au
(g/t)
0.03
0.04
0.04
0.02
0.01
0.02
0.03
0.04
0.04
Contained Metal
Mo
(ppm)
Cu
(tonnes)
Au
(ounces)
Mo
(tonnes)
66
44
60
29
20
27
63
43
58
233,000
170,000
86,000
72,000
10,000
2,000
320,000
241,000
12,000
17,000
5,000
7,000
2,000
22,000
9,000
250,000
176,000
91,000
74,000
400
100
400
10,000
2,000
341,000
250,000
13,000
Reported at or above 0.1% Cu and below 0.25 % Cu. Figures in the above table are rounded, reported to two significant figures, and classified in accordance
with the Australian JORC Code 2012 guidance on Mineral Resource and Ore Reserve reporting. Metal rounded to the nearest thousand, or if less, to the
nearest hundred. Metal rounded to the nearest thousand, or if less, to the nearest hundred.
12
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017 13
Competent Person’s Statement
- Ore Reserves
The information in this Announcement that relates
to Productora Project Ore Reserves, is based on
information compiled by Mr Carlos Guzmán, Mr
Boris Caro, Mr Leon Lorenzen and Mr Grant King.
Mr Guzmán is a Fellow of the Australasian Institute
of Mining and Metallurgy (AusIMM), a Registered
Member of the Chilean Mining Commission (RM- a
‘Recognised Professional Organisation’ within the
meaning of the JORC Code 2012) and a full time
employee of NCL Ingeniería y Construcción SpA
(NCL). Mr Caro is a former employee of Hot Chili
Ltd, and is a Member of the Australasian Institute of
Mining and Metallurgy (AusIMM) and a Registered
Member of the Chilean Mining Commission. Mr
Lorenzen is employed by Mintrex Pty Ltd and is a
Chartered Professional Engineer, Fellow of Engineers
Australia, and is a Fellow of the Australasian Institute
of Mining and Metallurgy (AusIMM). Mr King is
employed by AMEC Foster Wheeler (AMEC FW) and
is a Member of the Australasian Institute of Mining
and Metallurgy (AusIMM). NCL, Mintrex and AMEC
FW have been engaged on a fee for service basis to
provide independent technical advice and final audit
for the Productora Project Ore Reserve estimate. Mr.
Guzmán, Mr Caro, Mr Lorenzen and Mr King have
sufficient experience which is relevant to the style of
mineralisation and type of deposit under consideration,
and to the activity which they are undertaking to qualify
as a Competent Person as defined in the 2012 Edition
of the ‘Australasian Code for Reporting of Exploration
Results, Mineral Resources and Ore Reserves’. Mr
Guzmán, Mr Caro, Mr Lorenzen and Mr King consent to
the inclusion in the report of the matters based on their
information in the form and context in which it appears.
Mineral Resource and
Ore Reserve Confirmation
The information in this report that relates to Mineral
Resources and Ore Reserve estimates on the
Productora copper projects were originally reported
in the ASX announcements “Hot Chili Delivers PFS
and Near Doubles Reserves at Productora” dated
2nd March 2016. The company confirms that it is not
aware of any new information or data that materially
affects the information included in the original market
announcement and that all material assumptions and
technical parameters underpinning the estimates in
that announcement continue to apply and have not
materially changed. The company confirms that the
form and context in which the Competent Person’s
findings are presented have not been materially
modified from the original market announcement.
Competent Person’s Statement
- Exploration Results
Exploration information in this Announcement is based
upon work undertaken by Mr Christian Easterday, the
Managing Director and a full-time employee of Hot
Chili Limited whom is a Member of the Australasian
Institute of Geoscientists (AIG). Mr Easterday has
sufficient experience that is relevant to the style of
mineralisation and type of deposit under consideration
and to the activity which he is undertaking to qualify as
a ‘Competent Person’ as defined in the 2012 Edition
of the ‘Australasian Code for Reporting of Exploration
Results, Mineral Resources and Ore Reserves’ (JORC
Code). Mr Easterday consents to the inclusion in the
report of the matters based on their information in the
form and context in which it appears.
Competent Person’s Statement
- Mineral Resources
The information in this Announcement that relates to
the Productora Project Mineral Resources, is based
on information compiled by Mr J Lachlan Macdonald
and Mr N Ingvar Kirchner. Mr Macdonald is a part-
time employee of Hot Chili, and is a Member of
the Australasian Institute of Mining and Metallurgy
(AusIMM). Mr Kirchner is employed by AMC
Consultants (AMC). AMC has been engaged on a fee
for service basis to provide independent technical
advice and final audit for the Productora Project
Mineral Resource estimates. Mr Kirchner is a Fellow
of the Australasian Institute of Mining and Metallurgy
(AusIMM) and is a Member of the Australian Institute
of Geoscientists (AIG). Both Mr Macdonald and Mr
Kirchner have sufficient experience that is relevant to
the style of mineralisation and type of deposit under
consideration and to the activity being undertaken
to qualify as a Competent Person as defined in the
2012 Edition of the ‘Australasian Code for Reporting
of Exploration Results, Mineral Resources and Ore
Reserves’ (the JORC Code 2012). Both Mr Macdonald
and Mr Kirchner consent to the inclusion in the report of
the matters based on their information in the form and
context in which it appears.
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017 3 Qualifying
Statements (cont’d)
Forward Looking Statements
This Announcement is provided on the basis that
neither the Company nor its representatives make
any warranty (express or implied) as to the accuracy,
reliability, relevance or completeness of the material
contained in the Announcement and nothing contained
in the Announcement is, or may be relied upon as a
promise, representation or warranty, whether as to
the past or the future. The Company hereby excludes
all warranties that can be excluded by law. The
Announcement contains material which is predictive in
nature and may be affected by inaccurate assumptions
or by known and unknown risks and uncertainties, and
may differ materially from results ultimately achieved.
The Announcement contains “forward-looking
statements”. All statements other than those of
historical facts included in the Announcement are
forward-looking statements including estimates
of Mineral Resources. However, forward-looking
statements are subject to risks, uncertainties and
other factors, which could cause actual results to differ
materially from future results expressed, projected or
implied by such forward-looking statements. Such risks
include, but are not limited to, copper, gold and other
metals price volatility, currency fluctuations, increased
production costs and variances in ore grade recovery
rates from those assumed in mining plans, as well
as political and operational risks and governmental
regulation and judicial outcomes. The Company
does not undertake any obligation to release publicly
any revisions to any “forward-looking statement”
to reflect events or circumstances after the date of
the Announcement, or to reflect the occurrence of
unanticipated events, except as may be required under
applicable securities laws. All persons should consider
seeking appropriate professional advice in reviewing the
Announcement and all other information with respect
to the Company and evaluating the business, financial
performance and operations of the Company. Neither
the provision of the Announcement nor any information
contained in the Announcement or subsequently
communicated to any person in connection with the
Announcement is, or should be taken as, constituting
the giving of investment advice to any person.
Hot Chili is
significantly leveraged
to improving copper
price as one of the
largest and most
advanced copper
developments for an
ASX listed company
14
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017 4 Corporate
Activities
15
The Company is very pleased to have achieved financing
arrangements during the year which have significantly strengthened
the Company’s financial position and allowed It to focus on growth
activities at Productora.
The terms are as stated in the Company’s Notice of
General Meeting released to ASX on 3 May 2017. The
Notes will not be listed on ASX at this time.
Hot Chili also welcomed Sprott representative Randall
Nickson to the Board as a Non-executive Director
in August 2017, and looks forward to Randall’s
contribution toward the growth and advancement of
Productora toward production.
The Funding has allowed the Company to repay all
outstanding debt and also provides additional funds for
exploration and general working capital requirements.
Paying off the Company’s debt ensures that Hot Chili is
financially well-positioned, and achieves a key near-
term financing target. The Company is now significantly
de-risked and able to take advantage of rising copper
market conditions and success from the drill bit.
With the Company’s balance sheet now strengthened,
Hot Chili is able to fully focus on its growth activities
at Productora.
Blue Spec Shows
Continued Support
A General Meeting held on the 31st August 2017 saw
shareholders approve the issue of shares to Blue Spec
Sondajes Chile SpA (Blue Spec) for drilling services.
Blue Spec have offered to accept up to a maximum of
US$1 million in Hot Chili shares in consideration for any
further drilling that Hot Chili may decide to undertake.
The Company is very pleased with the continuing
support of Blue Spec to ensure that further exploration
drill testing of Productora’s potential scale can be
achieved with minimal cash expenditure.
Convertible Note
Following shareholder approval at a general meeting
held on 6th June 2017, the Company successfully
closed a A$11.3 million private placement (Funding)
with key major shareholders and other sophisticated
investors via an offering of unsecured Convertible
Notes (Notes).
The Funding was led by Sprott Capital Partners, a
division of Sprott Private Wealth LP, and affiliates
(collectively Sprott) and supported by Taurus Funds
Management Pty Ltd (Taurus) and Blue Spec Drilling
Pty Ltd (Blue Spec), a company associated with Hot
Chili’s Chairman, Murray Black.
On 22 June 2017, following receipt of A$10.92 million,
Hot Chili issued 109,175 Notes with a face value A$100
each. Sprott and sophisticated investors as arranged
by Sprott, have been issued a total of 88,833 Notes and
Taurus have been issued 20,342 Notes.
In addition, on 7 September 2017, Blue Spec were
issued with 3,834 Notes following shareholder approval
and receipt of a further A$383,400.
The terms of the Notes are as follows:
• Unsecured Notes have a maturity of 5 years and
a conversion price of A$0.03333 per Ordinary
Share (a strong premium to Hot Chili closing price
of A$0.025 on 16th March 2017, when the Funding
was announced).
• All Notes will automatically be converted on the
maturity date at the lower of $0.03333 or 95% of
the VWAP traded on the ASX for the 10 consecutive
trading days preceding the maturity date.
• Annual Coupon Rate of 8% based on the face
value, will be paid to Note holders on a quarterly
basis (in arrears), payable in cash or Ordinary
Shares at the election of Hot Chili.
• Hot Chili can redeem the Notes early in cash for
the face value plus interest accrued. This can
only occur on or after the second anniversary
of the issue date of the Notes, and provided the
VWAP for the shares traded on the ASX for the 20
consecutive trading days preceding the date on
which the notice of redemption is given is not less
than 300% of the Conversion Price of A$0.03333
per share;
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017 4 Corporate
Activities (cont’d)
Oversubscribed A$4.4
Million Placement
In July 2016, Hot Chili successfully arranged a placement
to sophisticated and institutional investors through
the issue of New Shares at 5 cents per share (the
“Placement”). The issue price represented a discount
of 10.7% to Hot Chili’s previous close of 5.6 cents.
The Placement, which originally targeted A$2.5 million,
was heavily oversubscribed and the Company agreed
to accept over-subscriptions up to a maximum
A$4.4 million.
The Placement saw strong demand from existing major
shareholders as well as professional and sophisticated
investors in Australia. Hartleys Limited acted as Sole
Lead Manager and Corporate Advisor to the Placement.
Funds from the Placement were used to advance an
assessment of the high-grade Sierra Zapallo gold
deposit as well as to provide general working capital for
Hot Chili.
Hot Chili Shareholders
Approve CMP Transaction
Hot Chili took another key step towards development
of its flagship Productora copper project in Chile, with
shareholders approving a pivotal transaction with
Chilean resources major CMP.
The CMP Transaction, which was approved by
shareholders by General Meeting held on 30th April
2015 has now been fully implemented, and opens
the door to funding options providing access to
vital infrastructure, saving time and money in the
development of Productora.
CMP is a subsidiary of Compañia de Aceros del
Pacifico S.A. (CAP), Chile’s largest iron ore miner
and integrated steel business, and is also Hot Chili’s
second-largest shareholder.
Following this transaction CMP received a 17.5 percent
stake in Productora in exchange for Productora
securing access to critical infrastructure and CMP’s
interest in certain mining rights at the project. CMP
also has an Option to increase its stake in Productora to
50.1 per cent at a price of between US$80 million and
US$110 million (see separate ASX announcement re
Notice of Meeting and full Independent Expert’s Report
dated March 19th March, 2015).
The CMP Transaction has provided significant
advantages, in particular:
• Providing the Company with the critical
infrastructure necessary to develop the
Productora Project faster than otherwise;
• Providing the Company with funds that it can
use to contribute to its portion of development
costs for the Productora Project;
•
Introducing a partner at a project level with
operational strength and significant local
knowledge and experience to assist with the
development of the Productora Project; and
• Reducing the development risk of the
Productora Project.
The Company is now strongly positioned to develop a
large-scale copper business in partnership with one of
Chile’s largest mining groups.
The CMP Transaction is the outcome of over two years
of co-operation, due diligence and negotiation between
Hot Chili and CMP, and is considered a fundamental
milestone for the Company.
Material terms of CMP Transaction which was
completed in August 2015 are outlined below.
In June 2015, Hot Chili entered into binding contracts
with its joint venture partner, Compañía Minera del
Pacífico S.A (CMP), and its wholly owned subsidiary,
CMP Productora SpA (CMP Productora), to undergo a
restructure of its joint venture arrangements with CMP
(CMP Transaction).
16
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017 17
The CMP Transaction saw the establishment of an
incorporated joint venture to develop the Productora
Project to production. The incorporated joint venture
company is Hot Chili’s Chilean subsidiary, Sociedad
Minera El Águila SpA (SMEA).
The additional 32.6% shareholding interest in SMEA
that CMP may acquire (Option Shares) will be
determined by reference to a valuation (discussed
below) and will have a minimum value of US$80 million
and a maximum value of US$110 million.
The material terms of the CMP Transaction are as
follows:
The Option will be exercisable in two separate tranches
on key milestones being satisfied.
(a) Acquisition of assets and establishment of
Tranche 1
joint venture
The exercise price for the first tranche of the Option is
US$26 million (Tranche 1).
The number of SMEA shares to be acquired under
Tranche 1 is to be calculated by dividing US$26 million
by the value of SMEA shares.
For this purpose, the price per share will be determined
by dividing the total number of shares on issue by the
higher of US$245,398,733 and the value determined by
an independent valuation of SMEA (Valuation) capped
at US$337,423,313.
If Tranche 1 is exercised, CMP’s percentage interest in
SMEA will be between:
• 10.6% (based on the minimum Valuation of the
Option Shares of US$80 million); and
• 7.71% (based on the maximum Valuation of the
Option Shares of US$110 million).
Tranche 1 can be exercised following completion of a
preliminary feasibility study of the Productora Project,
the Valuation being completed and a preliminary
decision to mine at Productora being made.
CMP Productora exchanged the following assets for a
17.5% interest in Hot Chili’s subsidiary, SMEA:
i. CMP’s mining concessions at Productora;
ii. contractual rights to be the beneficiary of mining
easements over CMP controlled land related to a
proposed water pipeline and electricity lines from
Productora to the coast near Huasco; and
iii. certain surface rights over the proposed mining
development area of the Productora Project.
CMP Productora merged with SMEA under a Chilean
legal process known as merger by incorporation,
following which SMEA became a special purpose
joint venture company that holds and operates the
Productora Project. SMEA is now owned by Hot Chili’s
subsidiary SMECL (82.5%) and CMP (17.5%).
CMP is currently free-carried (i.e. not required to
contribute to funding) until a preliminary feasibility study
of the Productora Project (PFS) is completed. CMP will
then be responsible for funding its proportionate share of
expenditure or it will be subject to dilution of its interest.
(b) Grant of Option
SMEA granted CMP an option to acquire further shares
in SMEA such that upon exercise of the option, CMP
will be entitled to acquire a further 32.6% interest,
taking its total interest up to 50.1%, by acquiring
existing shares from SMECL (Option).
CMP paid US$1.5 million for the grant of the Option.
This fee and the balance of any loan provided by CMP
to Hot Chili or its subsidiaries is to be off-set against
any exercise price payable.
HOT CHILI Annual Report 2017 4 Corporate
Activities (cont’d)
Tranche 2
(d) Exit rights
Tranche 2 of the Option allows CMP to increase its
shareholding in SMEA to 50.1%, being an acquisition
of between:
CMP has certain rights to exit its investment in the joint
venture by selling its SMEA shares to SMECL in the
following circumstances:
• 22% for US$54 million if the results of the Valuation
are at the low end of the price range; and
• 24.89% for US$84 million if the results of the
Valuation are at the high end of the price range.
The Tranche 2 exercise price will be the balance of the
amount of the Valuation. The price per share will be the
same value as that determined for Tranche 1.
If CMP elects not to exercise Tranche 1 but a
preliminary decision to mine is made by Hot Chili,
CMP will have the right to either retain its shareholding
interest (subject to standard dilution provisions) or to
transfer its shareholding interest in SMEA to SMECL
for an amount equal to 17.5% of the Valuation (capped
at US$59,049,080), payable within 24 months after
4 January 2016.
Tranche 2 is exercisable following completion of a
definitive/bankable feasibility study of the Productora
Project, final project finance being secured and a final
decision to mine at Productora being made.
(c) US$13 million loan under CMP facility
CMP is to make a US$13 million secured loan facility
available to SMECL following receipt of the exercise
price for Tranche 1 (CMP Facility).
The CMP Facility will have a term of up to 24 months
from first draw down. The loan will be repayable in full
on the earlier of 24 months from becoming available for
drawdown and the date on which the exercise price for
Tranche 2 is payable.
Interest will accrue on the drawn portion of the loan
facility per semester. The interest rate will be, at
Hot Chili’s election, either a fixed rate of 10% per
annum or a rate of 8% per annum with a 1% upfront
payment commitment.
The CMP Facility will be secured against substantially
all real and personal property assets of SMECL. Both
Hot Chili and SMEA will provide secured guarantees.
•
If CMP elects not to exercise Tranche 2, it may:
–
–
–
retain its shareholding interest (subject to
standard dilution provisions);
transfer its shareholding interest in SMEA to a
third party; or
sell its shareholding interest in SMEA to SMECL
for an amount proportionate to the interest it
holds in SMEA as a percentage of the Valuation
amount, with the purchase price to be paid
upon project financing for the Productora
Project being secured.
If both parties determine not to proceed prior to
exercise of Tranche 1, then: the merger between SMEA
and CMP Productora will be terminated and deemed
not to have had effect; SMEA must transfer back the
assets acquired from CMP Productora under the
merger; and SMECL must return the US$1.5 million fee
paid for the Option.
The exit rights are structures such that if Hot Chili
is unable to proceed with the development of the
Productora Project for whatever reason, Hot Chili will
not be required to pay cash for the acquisition of CMP’s
interest in SMEA, and may instead transfer back the
merger assets to CMP.
18
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017 19
5 Directors’
Report
Your Directors have pleasure in presenting their report,
together with the financial statements, for the year ended
30 June 2017 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
Chairman
Christian E Easterday
Executive Director
Dr Michael Anderson
Non-Executive Director
Dr Allan Trench
Independent Non-Executive Director
Roberto de Andraca Adriasola
Non-Executive Director
George Randall Nickson
Non-Executive Director
(Appointed 17 August 2017)
Melanie Leighton
Alternate for M Black
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 42 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 19 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.
Dr Allan Trench
Independent Non-Executive Director
Dr Trench is a geologist/geophysicist and business
management consultant with over 26 years experience across
a broad range of commodities. His minerals sector experience
spans strategy formulation, exploration, project development
and mining operations. Dr Trench holds degrees in geology,
a doctorate in geophysics, a Masters degree in Mineral
Economics and a Masters degree in Business Administration.
He currently acts or acted as independent director to Pioneer
Resources Ltd, commenced 5 September 2008, Enterprise
Metals Ltd, commenced 3 April 2012, Trafford Resources
Ltd, commenced 7 May 2012, resigned 22 May 2015, and
Emmerson Resources Ltd, commenced 3 March 2015.
Dr Trench 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.
Dr Trench maintains academic links as a Professor at the
University of Western Australia (UWA) Business School
and also research professor at the Centre for Exploration
Targeting, UWA.
Dr Michael Anderson
Non-Executive Director
Dr Anderson has more than 23 years industry experience,
largely in southern Africa and Australia. His career
commenced as a geologist with Anglo American, followed
by roles in the metallurgical and engineering industries with
Mintek, Bateman and Kellogg Brown & Root. Dr Anderson
subsequently held senior management positions including
Corporate Development Manager at Gallery Gold Limited and,
as Managing Director at Exco Resources Limited where he
oversaw the successful development of the White Dam Gold
Project and the sale of the Company’s Cloncurry Copper
Project to Xstrata.
Dr Anderson joined specialist resource investor Taurus Funds
Management Pty Ltd as a Director in August 2011. He was
appointed as a Non-Executive Director of Base Resources
Ltd on 28 November 2011 he resigned on 31 August 2017.
He was appointed as a Non- Executive Director of Heemskirk
Consolidated Ltd on 31 May 2017 on a temporary basis and
resigned on 25 August 2017.
Roberto de Andraca Adriasola
Non-Executive Director
Mr de Andraca Adriasola is a business manager with
24 years’ experience in the financial and mining business.
Over the last five years he has been working in the main Iron
Ore and Steel Producer in Chile, CAP S A. He also oversaw
the construction of the first desalination plant dedicated 100%
to producing water for mining companies in the north of Chile.
Mr de Andraca Adriasola has finance experience working at
Chase Manhattan Bank, ABN Amro and Citigroup, working
both in Chile and in New York and holds an MBA from the
Adolfo Ibanez Business School of Chile. He is a director of
Puerto Los Losas, a port in the Atacama Region of Chile. He
was elected to the board of directors of CAP S.A. on April
18th 2017, until that date he held the position of VP
of Business Development.
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017 5 Directors’
Report (cont’d)
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
On 17 August 2017 the company announced the appointment
of Mr George Randall Nickson as a Non-Executive Director.
On 8 September 2017 the company issued 3,834 convertible
notes with a face value of $100 to raise $383,400. The
company also issued 766,800 ordinary shares pursuant to
the subscription agreement for the convertible notes. The
convertible notes and shares were issued to Blue Spec
Drilling Pty Ltd, a company associated with Mr Murray Black,
following shareholder approval.
There were no other matters subsequent to the end of the
financial year that require reporting.
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.
Corporate Governance Statement
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. It is committed to administering its corporate
governance structures to promote integrity and responsible
decision making.
The Company’s corporate governance structures, policies
and procedures are described in its Corporate Governance
Statement which is available on the Company’s website at
http://www.hotchili.net.au/about/corporate-governance-
procedures-and-policies/
Directors (cont’d)
George Randall Nickson
Non-Executive Director
(Appointed 17 August 2017)
Mr. Nickson has more than 35 years of global experience in
the mining industry, including 14 years based in Chile devoted
to copper exploration. His career includes work across
a range of base and precious metals, bulk commodities
and energy. He holds an honours degree in Geological
Engineering and a Masters degree in Business Administration.
Mr Nickson is currently engaged as an independent
consultant to the exploration sector, specializing in business
development, commercial advisory and business evaluations.
Prior to that he spent 16 years with BHP, where he worked
in a variety of senior technical, exploration management and
business development roles while based in Chile, Brazil and
Australia. He is a member of the Australasian Institute of
Mining & Metallurgy and the Prospectors and Developers
Association of Canada.
Melanie Leighton
Alternate Director
Ms Leighton holds a degree in Geology from the University
of Western Australia, is a Member of the Australian Institute
of Geoscientists, and has greater than 17 years’ experience
within the mineral exploration industry. She has held project
and senior geologist roles with several Australian listed
companies including Hill 50 Gold and Terra Gold, gaining
practical and management experience within the areas of
exploration, mining and resource development. Ms Leighton
has extensive experience in mineral exploration and resource
development and acts in a project management role for
Hot Chili in regard to resource estimation, land management,
systems development and data integration and
stakeholder relations.
Corporate Information
Hot Chili Limited 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 2017 was a loss of $2,498,476 (2016: loss $9,588,883).
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 4 to 18.
20
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017 21
Security Holding Interests of Directors
Ordinary Shares
Options Over Ordinary Shares
Indirect
Interest
25,790,942
16,750,000
41,400
-
40,000
-
-
Direct
Interest
Indirect
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.
Indemnification and Insurance
of Auditor
The consolidated entity has not, during or since the end of the
financial year, indemnified or agreed to indemnify the auditor
of the company or any related entity against a liability incurred
by the auditor.
During the financial year, the company has not paid a premium
in respect of a contract to insure the auditor of the company
or related entity.
Directors
Murray E Black
Christian E Easterday
Dr Allan Trench
Michael Anderson
Roberto de Andraca Adriasola
George Randall Nickson
(Appointed 17 August 2017)
Direct
Interest
-
300,000
-
-
-
-
Melanie Leighton (Alternate for M Black)
40,000
Shares under Option
There were 39,000,000 ordinary shares under option at
30 June 2017.
Shares Issued on the Exercise
of Options
There were no ordinary shares of Hot Chili Limited
issued during the year ended 30 June 2017 from the
exercise of options.
Options Lapsed/ Cancelled
During the Year
No options lapsed or were cancelled during the year.
Directors Benefits
Since 30 June 2017, 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.
Company Secretary - John Sendziuk
John Sendziuk is a Chartered Accountant. He has 30 years’
experience in providing corporate secretarial, taxation and
business advice to a diverse group of business clients and
public companies.
HOT CHILI Annual Report 2017
5 Directors’
Report (cont’d)
Directors’ Meetings
The number of directors’ meetings attended and written resolutions signed by each of the Directors of the Company during the
year were:
Director
Murray E Black
Dr Michael Anderson
Christian E Easterday
Dr Allan Trench
Roberto de Andraca Adriasola
George Randall Nickson (Appointed 17 August 2017)
Melanie Leighton (Alternate for M Black)
Environmental Issues
The consolidated entity’s exploration and mining operations
are subject to environment regulation under the law of Chile.
No bonds are necessary in respect of the consolidated
entity’s tenement holdings.
The Directors advise that during the year ended 30 June 2017
no claim has been made by any competent authority that any
environmental issues, condition of license or notice of intent
has been breached.
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 2016 to 30
June 2017, the Directors have assessed that there are no
current reporting requirements but may be required to do so
in the future.
Occupational Health and Safety
Health and Safety actions are framed within the “Quality,
Environment, Safety and Occupational Health Integrated
Policy” that states people´s health and safety is safeguarded
within the different fields of our activity. Hot Chili Limited
strictly follows the Chilean safety rules and communicates a
set of key performance indicators to the Chilean Mining Safety
Authority on a monthly basis. Health and Safety activities
follow an action plan aimed to prevent and control different
forms of risk at company operations. The plan covers specific
areas such as the Compliance of Legal and Other Standards,
Risk Assessment and Control, Occupational Health,
Emergency Response, Training, Incidents - Corrective and
Preventive Action, Management of Contractors and Suppliers,
Audit and Management Review.
Hot Chili Limited provides continuous training to enable
employees to perform their work safely and efficiently.
Training focuses on six areas where the risks are more evident
according to the nature of our operations: Safe Driving, Drilling
Platform Operations, Emergency Plans and Protection from
Ultraviolet Radiation, Dust and Noise Emissions.
In terms of Safety performance, “Lost Time Incident
Frequency Rate (LTIFR*)” is the main indicator we monitor
Eligible
Meetings while
in office
Eligible
Meetings
attended
16
19
17
19
19
-
-
16
19
17
19
15
-
-
to make sure our action plan remains effective and relevant.
The LTIFR during the last 24 months (until 30th June 2017) is 0.
*LTIFR: number of lost time injuries in accounting period / total
hours worked in accounting period * 1,000,000.
Proceedings on Behalf of Company
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 Australia Partners, have been disclosed in
Note 17.
Auditors Independence Declaration
The lead auditor’s independence declaration for the year
ended 30 June 2017 has been received and is included within
this annual report.
22
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017 23
REMUNERATION REPORT (AUDITED)
The information provided in this remuneration report has been audited.
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 1 July 2013. All director fees are periodically
recommended for approval by shareholders.
The consolidated entity’s policy regarding executive’s 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:
2017
Short Term
Consulting
Fees
Related
Parties
$
-
36,792
-
-
-
36,792
Salary
$
-
-
259,200
-
-
259,200
Directors’
Fee
$
-
-
-
33,600
6,745
40,345
Name
Murray E Black
Dr Michael
Anderson
Christian E
Easterday
Dr Allan Trench
Roberto de
Andraca Adriasola
2016
Short Term
Post-
Employment
Share-
based
Payments
Other
Benefits
$
Super-
annuation
$
Options
$
-
-
-
-
-
-
-
-
24,624
3,192
-
27,816
-
-
-
-
-
-
Post-
Employment
Share-
based
Payments
Consulting
Fees
Related
Parties
Name
Murray E Black
Dr Michael
Anderson
Christian E
Easterday
Dr Allan Trench
Roberto de
Andraca Adriasola
$
-
41,986
-
-
-
41,986
Salary
$
-
-
291,600
-
-
291,600
Directors’
Fee
$
29,583
-
-
37,800
19,600
86,983
Other
Benefits
$
-
-
-
-
-
-
Super-
annuation
$
3,550
-
32,292
4,186
-
40,028
Options
$
-
-
-
-
-
-
Total
$
-
36,792
283,824
36,792
6,745
364,153
Total
$
33,133
41,986
323,892
41,986
19,600
460,597
HOT CHILI Annual Report 2017 5 Directors’
Report (cont’d)
OTHER TRANSACTIONS WITH DIRECTORS
MRA Consulting Pty Ltd, a company associated with Dr Anderson, a director, was paid $36,792 (2016: $41,986) in directors and
consulting fees. No amounts were owing as at 30 June 2017 (2016: Nil).
Blue Spec Sondajes Chile Limitada, a company of which Mr Black is a director, was paid $276,499 (2016: $1,570,540) for drilling
services. No amounts were owing as at 30 June 2017 (2016: Nil).
All payments were made at recognised commercial rates.
Remuneration of Key Management Personnel
2017
Short Term
Post-
Employment
Share-based
Payments
Name
John Sendziuk
(Company Secretary)
Melanie Leighton
(Corporate Projects Manager /
Alternate Director)
Jose Ignacio Silva
(Chief Legal Counsel)
Consulting
Fees
Related
Parties
$
-
-
-
-
Salary
$
60,000
180,000
165,495
405,495
Other
Benefits
Super-
annuation
$
$
Options
$
-
-
-
-
5,700
17,100
-
22,800
-
-
-
-
Total
$
65,700
197,100
165,495
428,295
2016
Short Term
Post-
Employment
Share-based
Payments
Name
Rodrigo Diaz
(Manager Chile)
Resigned 16 February 2016
John Sendziuk
(Company Secretary)
Melanie Leighton
(Corporate Projects Manager)
Jose Ignacio Silva
(Chief Legal Counsel)
Consulting
Fees
Related
Parties
$
-
-
-
-
-
Salary
$
252,134
60,000
202,500
193,138
707,772
Other
Benefits
Super-
annuation
$
$
Options
$
Total
$
-
-
-
-
-
-
6,575
22,425
-
29,000
-
-
-
-
-
252,134
66,575
224,925
193,138
736,772
24
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017 25
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 2017, by each Key Management Personnel
of Hot Chili Limited, including their personally related parties, is set out below. There were no shares granted as compensation
during the year.
2017
Directors
Murray E Black
Christian E Easterday
Dr Allan Trench
Dr Michael Anderson**
Roberto de Andraca Adriasola
Key Management Personnel
John Sendziuk
Melanie Leighton
Jose Ignacio Silva
Total
2016
Directors
Murray E Black
Christian E Easterday
Dr Allan Trench
Dr Michael Anderson**
Roberto de Andraca Adriasola
Key Management Personnel
John Sendziuk
Rodrigo Diaz*
Melanie Leighton
Jose Ignacio Silva
Total
Balance at the
start of the year
Granted as
compensation
Other changes
during the year
Balance at the
end of the year
21,599,242
17,050,000
41,400
-
40,000
38,730,642
970,000
40,000
270,000
1,280,000
40,010,642
-
-
-
-
-
-
-
-
-
-
-
4,000,000
-
-
-
-
25,599,242
17,050,000
41,400
-
40,000
4,000,000
42,730,642
-
-
-
-
4,000,000
970,000
40,000
270,000
1,280,000
44,010,642
Balance at the
start of the year
Granted as
compensation
Other changes
during the year
Balance at the
end of the year
16,750,000
17,050,000
41,400
-
40,000
33,881,400
970,000
31,511
40,000
270,000
1,311,511
35,192,911
-
-
-
-
-
-
-
-
-
-
-
-
4,849,242
-
-
-
-
21,599,242
17,050,000
41,400
-
40,000
4,849,242
38,730,642
-
(31,511)
-
-
(31,511)
4,817,731
970,000
-
40,000
270,000
1,280,000
40,010,642
* Rodrigo Diaz resigned on 16 February 2016.
** There are no shares held during the financial year and up to 30 June 2017 by the director.
HOT CHILI Annual Report 2017
5 Directors’
Report (cont’d)
Options
There are no options over ordinary shares held during the
financial year, and up to 30 June 2017 by the directors or key
management personnel.
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.
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 $259,200 after voluntary reductions, plus
superannuation at the rate of 9.5% and other entitlements.
Mr Easterday’s remuneration is subject to annual review.
Term and termination
Mr Easterday was employed for an initial term of 3 years,
commencing on 9 October 2013. At least 6 months’ before
the End Date, either party may give notice that the agreement
will terminate on the End date.
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 or wrongdoing by Mr Easterday.
Termination entitlements
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.
Additional information
The earnings of the consolidated entity for the five years to 30 June 2017 are summarised below:
Revenue
Expenses
EBITDA
EBIT
Loss after income tax
2017
$
1,356,693
(3,855,169)
(1,261,007)
(1,327,339)
(2,498,476)
2016
$
186,665
(9,775,548)
(7,153,060)
(7,234,332)
(9,588,883)
2015
$
71,601
(8,726,371)
(6,290,813)
(6,399,228)
(8,654,770)
2014
$
538,546
(9,152,108)
(6,542,811)
(6,664,920)
(8,613,562)
The factors that are considered to affect total shareholders return (‘TSR’) are summarised below:
Share price at financial
year end ($)
Basic earnings per share
(cents per share)
2017
0.023
(0.44)
2016
0.06
(2.22)
2015
0.10
(2.47)
2014
0.19
(2.67)
2013
$
208,525
(4,576,271)
(4,277,099)
(4,367,746)
(4,367,746)
2013
0.49
(1.68)
[End of Remuneration Report]
Dated this 29th day of September 2017 in accordance with a resolution of the Directors and signed for on behalf of the Board by:
Christian E Easterday
Managing Director
26
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017
6 Auditors’ Independence
Declaration
27
AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the financial report of Hot Chili Limited for the year ended 30 June 2017, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. RSM AUSTRALIA PARTNERS Perth, WA ALASDAIR WHYTE Dated: 29 September 2017 Partner HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017 7 Auditors’
Report
28
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF HOT CHILI LIMITED Opinion We have audited the financial report of Hot Chili Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group's financial position as at 30 June 2017 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board's APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor's report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017 29
Material Uncertainty Related to Going Concern We draw attention to Note 1 in the financial report, which indicates that the Group incurred a net loss of $2,498,476 and had cash outflows from operating activities of $2,879,635 and from investing activities of $1,379,237 during the year ended 30 June 2017 and, as of that date, the Group's current liabilities exceeded its current assets by $6,505,925. As stated in Note 1, these events or conditions, along with other matters as set forth in Note1, indicate that a material uncertainty exists that may cast significant doubt on the Group's ability to continue as a going concern. Our opinion is not modified in respect of this matter. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Material Uncertainty Related to Going Concern section, we have determined the matters described below to be the key audit matters to be communicated in our report. Key Audit Matter How our audit addressed this matter Carrying value of Exploration and Evaluation Expenditure Refer to Note 10 in the financial statements The Group has capitalised a significant amount of exploration and evaluation expenditure, with a carrying value of $107,555,248 as at 30 June 2017. We determined this to be a key audit matter due to the significant management judgment involved in assessing the carrying value in accordance with AASB 6 Exploration for and Evaluation of Mineral Resources, including: Determination of whether expenditure can be associated with finding specific mineral resources, and the basis on which that expenditure is allocated to an area of interest; Determination of whether exploration activities have progressed to the stage at which the existence of an economically recoverable mineral reserve may be assessed; and Assessing whether any indicators of impairment are present, and if so, judgments applied to determine and quantify any impairment loss. Our audit procedures in relation to the carrying value exploration and evaluation expenditure included: Obtaining evidence that the Group has valid rights to explore in the areas represented by the capitalised exploration and evaluation expenditure; Agreeing a sample of additions to capitalised exploration and evaluation expenditure during the year to supporting documentation and ensuring that the amounts were capital in nature and relate to the area of interest; Reviewing and enquiring with management the basis on which they have determined that the exploration and evaluation of mineral resources has not yet reached the stage where it can be concluded that no commercially viable quantities of mineral resources exists; Enquiring with management and reviewing budgets and plans to test that the Group will incur substantive expenditure on further exploration for and evaluation of mineral resources in the specific area; Reviewing whether management has received sufficient data to conclude that the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale. This included assessment of the key inputs, design and accuracy of the Productora Asset pre-feasibility study financial model; and Reviewing minutes of director meetings and Australian Securities Exchange announcements to ensure that the Group has not resolved to discontinue activities in the specific area of interest. HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017 7 Auditors’
Report (cont’d)
30
Key Audit Matter How our audit addressed this matter Accounting for Convertible Notes issued Refer to Note 12 and Note 13 in the financial statements During the financial year the Group issued 109,175 unsecured convertible notes with a face value of $100 each to raise $10,917,500 (before costs). The convertible notes have been treated as a compound financial instrument, with the debt component classified in the consolidated statement of financial position as borrowings ($3,184,082), and the conversion option classified as a derivative financial liability ($6,451,250). The accounting for the convertible notes issued was considered to be a key audit matter due to the following: It is a significant liability of the Group; and The accounting is technically complex and requires judgement in valuing the derivative financial liability. Our audit procedures in relation to the accounting for convertible notes issued included: Reviewing the convertible note deed to understand the transaction and the related accounting considerations; Obtaining direct confirmation from the convertible note holders of the number of notes held and the key terms to the notes as at balance date; Evaluating the accounting treatment to determine whether the accounting for the convertible notes issued were in compliance with Australian Accounting Standards; Reviewing the valuation of the derivative financial liability at both inception and subsequent measurement as at balance date, including the reasonableness of key inputs to the valuation model; and Assessing the appropriateness of the disclosures in respect of the borrowings and derivative financial liability. Other Information The directors are responsible for the other information. The other information comprises the information included in the Group's annual report for the year ended 30 June 2017, but does not include the financial report and the auditor's report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017 31
Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor's Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: www.auasb.gov.au/auditors_responsibilities/ar2.pdf. This description forms part of our auditor's report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included within the directors' report for the year ended 30 June 2017. In our opinion, the Remuneration Report of Hot Chili Limited, for the year ended 30 June 2017, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. RSM AUSTRALIA PARTNERS Perth, WA ALASDAIR WHYTE Dated: 29 September 2017 Partner HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017 8 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; and
b. give a true and fair view of the consolidated entity’s financial position as at 30 June 2017 and of its performance for the
year ended on that date; and
2.
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.
The Directors have been given the declarations required by section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the Board of Directors.
Director
Christian E Easterday
Managing Director
Dated this 29th day of September 2017
32
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017 33
9 Statement of
Comprehensive Income
FOR THE YEAR ENDED 30 JUNE 2017
Statement of Profit or Loss and Other Comprehensive Income
Consolidated Entity
Note
2017
$
Interest income
Other income
Depreciation
Convertible notes expenses
Exploration expenses written off
Corporate fees
Legal and professional
Employee benefits expense
Administration expenses
Accounting fees
Travel costs
Other expenses
Foreign exchange loss
Finance costs
Loss before income tax
Income tax expense
Loss after income tax
Other comprehensive income
Total Comprehensive Loss
Loss attributable to:
Non-controlling interests
Owners of Hot Chili Limited
Basic earnings per share (cents)
Diluted earnings per share (cents)
4
5
12
10
6
16
16
2016
$
18,694
167,971
186,665
(81,272)
-
(4,631,404)
(80,891)
(82,234)
(933,990)
(672,670)
(119,124)
(122,434)
(212,285)
(484,693)
(2,354,551)
(9,588,883)
-
14,179
1,342,514
1,356,693
(66,332)
(788,723)
(114,375)
(81,522)
(136,523)
(799,244)
(175,266)
(114,078)
(84,383)
(323,586)
-
(1,171,137)
(2,498,476)
-
(2,498,476)
(9,588,883)
-
-
(2,498,476)
(9,588,583)
(155,296)
(89,230)
(2,343,180)
(9,499,653)
(2,498,476)
(9,588,883)
(0.44)
(0.44)
(2.22)
(2.22)
The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017
10 Statement of Financial
Position
AS AT 30 JUNE 2017
Current Assets
Cash and cash equivalents
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
Borrowings
Derivative financial instruments
Total Current Liabilities
Non-Current Liabilities
Borrowings
Total Non-Current Liabilities
Total Liabilities
Net Assets
Equity
Contributed equity
Option reserve
Foreign currency translation reserve
Accumulated losses
Capital and reserves attributable to owners of Hot Chili Limited
Non-controlling interests
Total Equity
Consolidated Entity
Note
2017
$
2016
$
7
8
9
10
11
12
13
12
2,402,980
113,438
2,516,418
221,576
133
221,709
219,928
325,086
107,555,248
106,335,730
107,775,176
106,660,816
110,291,594
106,882,525
2,571,093
-
6,451,250
2,737,208
8,753,030
-
9,022,343
11,490,238
3,184,082
3,184,082
-
-
12,206,425
11,490,238
98,085,169
95,392,287
14
15(b)
15(c)
15(a)
122,053,043
117,209,608
1,473,539
1,125,616
1,222
1,222
(44,858,479)
(42,515,299)
78,669,325
75,821,147
15(d)
19,415,844
19,571,140
98,085,169
95,392,287
The above Statement of Financial Position should be read in conjunction with the accompanying notes.
34
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017
35
11 Statement of
Changes in Equity
FOR THE YEAR ENDED 30 JUNE 2017
Consolidated Entity
Contributed
Equity
Option
Reserve
Foreign
Currency
Translation
Reserve
Accumulated
Losses
Non-
controlling
Interest
Total Equity
$
$
$
$
$
$
Balance at 1 July 2016
117,209,608
1,125,616
1,222
(42,515,299)
19,571,140
95,392,287
Loss for the year
Total Comprehensive
Income for the Year
-
-
Shares issued
Share issue costs
5,206,476
(363,041)
-
-
-
-
Share based payments
-
347,923
-
-
-
-
-
(2,343,180)
(155,296)
(2,498,476)
(2,343,180)
(155,296)
(2,498,476)
-
-
-
-
-
-
5,206,476
(363,041)
347,923
Balance at 30 June 2017
122,053,043
1,473,539
1,222
(44,858,479)
19,415,844
98,085,169
Balance at 1 July 2015
112,746,883
1,125,616
1,222
(37,365,869)
-
76,507,852
Loss for the year
Total Comprehensive
Income for the Year
-
-
Shares issued
Share issue costs
Transactions with
non-controlling interests
4,493,253
(30,528)
-
-
-
-
-
-
-
-
-
-
-
(9,499,653)
(89,230)
(9,588,883)
(9,499,653)
(89,230)
(9,588,883)
-
-
-
-
4,493,253
(30,528)
4,350,223
19,660,370
24,010,593
Balance at 30 June 2016
117,209,608
1,125,616
1,222
(42,515,299)
19,571,140
95,392,287
The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017
12 Statement of
Cash Flows
FOR THE YEAR ENDED 30 JUNE 2017
Cash Flows from Operating Activities
Payments to suppliers and employees
Interest payment
Interest received
Other receipts
Consolidated Entity
2017
2016
Note
$
$
(1,874,137)
(1,774,009)
(1,141,946)
(1,683,550)
14,179
122,269
18,694
167,971
Net cash used in operating activities
19(b)
(2,879,635)
(3,270,894)
Cash Flows from Investing Activities
Payments for plant and equipment
Payments for exploration and evaluation
VAT refund
Net cash used in investing activities
Cash Flows from Financing Activities
Proceeds from issue of shares
Share issue costs
Proceeds from issuance of Convertible Note
Proceeds from sale of investment
Repayment of borrowings
Net cash provided by financing activities
Net increase / (decrease) in cash held
(45,344)
-
(1,333,893)
(6,010,734)
-
649,883
(1,379,237)
(5,360,851)
4,400,050
4,493,253
(231,653)
(30,528)
10,917,500
-
-
2,030,594
(8,664,357)
(4,764,579)
6,421,540
2,041,074
1,728,740
(6,903,005)
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rates on cash holdings in foreign currencies
221,576
18,736
Cash and cash equivalents at the end of the financial year
19(a)
2,402,980
7,112,498
12,083
221,576
The above Statement of Cash Flows should be read on conjunction with the accompanying notes.
36
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017
37
13 Notes to the Financial
Statements
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of
the financial statements are set out below. These policies have
been consistently applied to all the years presented, unless
otherwise stated.
New, revised or amending Accounting Standards
and Interpretations adopted
The consolidated entity has adopted all of the new, revised or
amending Accounting Standards and Interpretations issued
by the Australian Accounting Standards Board (‘AASB’) that
are mandatory for the current reporting period.
Any new, revised or amending Accounting Standards or
Interpretations that are not yet mandatory have not been
early adopted.
Any significant impact on the accounting policies of the
consolidated entity from the adoption of these Accounting
Standards and Interpretations are disclosed below. The
adoption of these Accounting Standards and Interpretations
did not have any significant impact on the financial
performance or position of the consolidated entity.
The following Accounting Standards and Interpretations are
most relevant to the consolidated entity:
AASB 9 Financial Instruments
This standard is applicable to annual reporting periods
beginning on or after 1 January 2018. The standard replaces
all previous versions of AASB 9 and completes the project
to replace IAS 39 ‘Financial Instruments: Recognition and
Measurement’. AASB 9 introduces new classification and
measurement models for financial assets. A financial asset
shall be measured at amortised cost, if it is held within a
business model whose objective is to hold assets in order to
collect contractual cash flows, which arise on specified dates
and solely principal and interest. All other financial instrument
assets are to be classified and measured at fair value
through profit or loss unless the entity makes an irrevocable
election on initial recognition to present gains and losses
on equity instruments (that are not held -for-trading) in other
comprehensive income (‘OCI’). For financial liabilities, the
standard requires the portion of the change in fair value that
relates to the entity’s own credit risk to be presented in OCI
(unless it would create an accounting mismatch). New simpler
hedge accounting requirements are intended to more closely
align the accounting treatment with the risk management
activities of the entity. New impairment requirements will
use an ‘expected credit loss’ (‘ECL’) model to recognise an
allowance. Impairment will be measured under a 12-month
ECL method unless the credit risk on a financial instrument
has increased significantly since initial recognition in which
case the lifetime ECL method is adopted. The standard
introduces additional new disclosures. The consolidated entity
will adopt this standard from 1 July 2018 but the impact of its
adoption is yet to be assessed by the consolidated entity.
AASB 16 Leases
This standard is applicable to annual reporting periods
beginning on or after 1 January 2019. The standard replaces
AASB 117 ‘Leases’ and for lessees will eliminate the
classifications of operating leases and finance leases.
Subject to exceptions, a ‘right-of-use’ asset will be capitalised
in the statement of financial position, measured as the present
value of the unavoidable future lease payments to be made
over the lease term. The exceptions relate to short -term
leases of 12 months or less and leases of low-value assets
(such as personal computers and small office furniture) where
an accounting policy choice exists whereby either a ‘right-
of-use’ asset is recognised or lease payments are expensed
to profit or loss as incurred. A liability corresponding to the
capitalised lease will also be recognised, adjusted for lease
prepayments, lease incentives received, initial direct costs
incurred and an estimate of any future restoration, removal
or dismantling costs. Straight-line operating lease expense
recognition will be replaced with a depreciation charge
for the leased asset (included in operating costs) and an
interest expense on the recognised lease liability (included
in finance costs). In the earlier periods of the lease, the
expenses associated with the lease under AASB 16 will be
higher when compared to lease expenses under AASB 117.
However, EBITDA (Earnings before Interest, Tax, Depreciation
and Amortisation) results will be improved as the operating
expense is replaced by interest expense and depreciation
in profit or loss under AASB 16. For classification within the
statement of cash flows, the lease payments will be separated
into both a principal (financing activities) and interest (either
operating or financing activities) component. For lessor
accounting, the standard does not substantially change how
a lessor accounts for leases. The consolidated entity will
adopt this standard from 1 July 2019. The impact of the new
leases standard is that leased asset will be capitalised in the
statement of financial position, measured as the present
value of the unavoidable future lease payments to be made
over the lease term and a liability corresponding to the
capitalised lease will also be recognised, adjusted for lease
prepayments, lease incentives received, initial direct costs
incurred and an estimate of any future restoration, removal
or dismantling costs.
(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.
These financial statements also comply with International
Financial Reporting Standards as issued by the International
Accounting Standards Board.
The financial report was authorised for issue on
26th September 2017 by the Board of Directors.
The functional and presentation currency of Hot Chili Limited
is Australian Dollars.
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 the
notes to the financial statements.
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017 13 Notes to the
Financial Statements (cont’d)
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONT’D)
Historical cost convention
These financial statements have been prepared under the
historical cost convention, as modified by the revaluation of
available-for-sale financial assets.
Going concern
The directors have prepared the financial statements on
a going concern basis, which contemplates continuity of
normal business activities and the realisation of assets and
extinguishment of liabilities in the normal course of business.
As disclosed in the financial statements, the consolidated
entity incurred a net loss of $2,498,476 and had cash outflows
from operating activities of $2,879,635 and from investing
activities of $1,379,237 for the year ended 30 June 2017.
As of that date, the consolidated entity had net current
liabilities of $6,505,925.
These factors indicate a material uncertainty which may
cast significant doubt over the ability of the consolidated
entity to continue as a going concern and therefore whether
it will realise its assets and extinguish its liabilities in the
normal course of business and at the amounts stated in the
financial report.
The directors believe there are reasonable grounds to believe
that the consolidated entity will be able to continue as going
concern, after consideration of the following factors:
•
•
Included in current liabilities is a derivative financial liability
of $6,451,250 (Note 13) attributed to the convertible notes
issued during the year and representing the component
of the convertible notes of granting an option to the
note holder to convert to equity at any time prior to
maturity. The derivative financial liability component of the
convertible note is redeemable at the option of Hot Chili
and thus will not be a drain on the company’s funds;
Included in current liabilities a refundable deposit option
fee of $1,951,372 (Note 11). The option fee is refundable
at the option of Campania Minera del Pacífico S.A.
(CMP). The directors are working co-operatively with
CMP to co-ordinate the exercise of Tranche 1 of the
associated Additional Purchase Option, which would
raise USD $26m, enable the potential settlement of the
convertible facility and provide significant cash flow to the
consolidated entity; and
• The company expects to issue additional equity securities
under the Corporations Act 2001, to raise further
working capital. Other sources of funding may also be
contemplated, including alternate funding options.
Accordingly, the Directors believe that the consolidated
entity will be able to continue as a going concern and that
it is appropriate to adopt the going concern basis in the
preparation of the financial report.
The financial report does not include any adjustments relating
to the amounts or classification of recorded assets or liabilities
that might be necessary if the consolidated entity does not
continue as a going concern.
(b) Parent entity information
In accordance with the Corporations Act 2001, these financial
statements present the results of the consolidated entity
only. Supplementary information about the parent entity is
disclosed in note 26.
(c) Principles of consolidation
The consolidated financial statements comprise the financial
statements of Hot Chili Limited and its controlled entities.
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.
(d) 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 balance
sheet 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.
38
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017 39
1.
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONT’D)
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.
(e) 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.
exploitation of an area of interest, or by its sale; or exploration
activities are continuing in an area and activities have not
reached a stage which permits a reasonable estimate of the
existence or otherwise of economically recoverable reserves.
Where a project or an area of interest has been abandoned,
the expenditure incurred thereon is written off in the year in
which the decision is made.
(h) 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.
(f) Current and non-current classification
Depreciation
Assets and liabilities are presented in the statement of financial
position based on current and non-current classification.
An asset is current when: it is expected to be realised or
intended to be sold or consumed in normal operating cycle;
it is held primarily for the purpose of trading; it is expected to
be realised within twelve months after the reporting period;
or the asset is cash or cash equivalent unless restricted
from being exchanged or used to settle a liability for at least
twelve months after the reporting period. All other assets are
classified as non-current.
A liability is current when: it is expected to be settled in
normal operating cycle; it is held primarily for the purpose
of trading; it is due to be settled within twelve months after
the reporting period; or there is no unconditional right to
defer the settlement of the liability for at least twelve months
after the reporting period. All other liabilities are classified
as non-current.
Deferred tax assets and liabilities are always classified as
non-current.
(g) Exploration and evaluation expenditure
Exploration and evaluation expenditure in relation to
separate areas of interest for which rights of tenure are
current is carried forward as an asset in the statement of
financial position where it is expected that the expenditure
will be recovered through the successful development and
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.
(i) 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.
HOT CHILI Annual Report 2017
13 Notes to the
Financial Statements (cont’d)
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONT’D)
(j) 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.
(k) 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.
(n) 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.
(o) 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.
(p) 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.
ii. Diluted earnings per share
(q) Borrowings
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.
(l) 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.
(m) Impairment of assets
Assets that have an indefinite useful life 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).
Loans and borrowings are initially recognised at the fair value
of the consideration received, net of transaction costs. They
are subsequently measured at amortised cost using the
effective interest method.
Where there is an unconditional right to defer settlement of
the liability for at least 12 months after the reporting date, the
loans or borrowings are classified as non-current.
The component of the convertible notes that exhibits
characteristics of a liability is recognised as a liability in the
statement of financial position, net of transaction costs.
(r) Derivative financial instruments
Derivatives are initially recognised at fair value on the date
a derivative contract is entered into and are subsequently
remeasured to their fair value at each reporting date. The
accounting for subsequent changes in fair value depends on
whether the derivative is designated as a hedging instrument,
and if so, the nature of the item being hedged.
(s) Finance costs
Finance costs attributable to qualifying assets are capitalised
as part of the asset. All other finance costs are expensed in
the period in which they are incurred, including interest on
short-term and long-term borrowings.
(t) Issued Capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new
shares or options are shown in equity as a deduction, net of
tax, from the proceeds.
40
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017 41
Derivative financial instruments
The directors have determined that the convertible notes
issued during the year are a compound financial Instrument
with both a debt component and derivative financial liability
representing the conversion option. The accounting for
the derivative financial instrument requires management
judgements and estimates in determining the fair value.
Consolidation of entities
The directors have concluded that the group controls
Sociedad Minera El Aguila SpA (SMEA), even though it holds
less than all the voting rights of this subsidiary. This is because
the group is the largest shareholder with an 80% equity
interest and the ability to appoint 4 of the 5 Directors while the
remaining 20% of shares are held by Compañía Minera del
Pacífico S.A (CMP) with the ability to appoint the remaining
Director. An agreement signed between the group and CMP
requires a quorum to hold a Board meeting and adopt a
resolution to be of at least three Directors with the right to
vote. The accounting treatment of SMEA will be evaluated
at each reporting date subject to any developments between
the shareholders.
Fair value measurement hierarchy
The consolidated entity is required to classify all assets and
liabilities, measured at fair value, using a three level hierarchy,
based on the lowest level of input that is significant to the
entire fair value measurement, being: Level 1: Quoted prices
(unadjusted) in active markets for identical assets or liabilities
that the entity can access at the measurement date; Level
2: Inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly or
indirectly; and Level 3: Unobservable inputs for the asset or
liability. Considerable judgement is required to determine what
is significant to fair value and therefore which category the
asset or liability is placed in can be subjective.
2. CRITICAL ACCOUNTING
JUDGEMENTS, ESTIMATES
AND ASSUMPTIONS
The preparation of the financial statements requires
management to make judgements, estimates and
assumptions that affect the reported amounts in the
financial statements. Management continually evaluates its
judgements and estimates in relation to assets, liabilities,
contingent liabilities, revenue and expenses. Management
bases its judgements, estimates and assumptions on
historical experience and on other various factors, including
expectations of future events; management believes to be
reasonable under the circumstances. The resulting accounting
judgements and estimates will seldom equal the related
actual results. The judgements, estimates and assumptions
that have a significant risk of causing a material adjustment
to the carrying amounts of assets and liabilities (refer to the
respective notes) within the next financial year are
discussed below.
Exploration and evaluation costs
Exploration and evaluation costs have been capitalised on the
basis that the consolidated entity will commence commercial
production in the future, from which time the costs will
be amortised in proportion to the depletion of the mineral
resources. Key judgements are applied in considering costs
to be capitalised which includes determining expenditures
directly related to these activities and allocating overheads
between those that are expensed and capitalised. In
addition, costs are only capitalised that are expected to be
recovered either through successful development or sale of
the relevant mining interest. Factors that could impact the
future commercial production at the mine include the level of
reserves and resources, future technology changes, which
could impact the cost of mining, future legal changes and
changes in commodity prices. To the extent that capitalised
costs are determined not to be recoverable in the future,
they will be written off in the period in which this
determination is made.
Share-based payment transactions
The consolidated entity measures the cost of equity-settled
transactions with employees by reference to the fair value of
the equity instruments at the date at which they are granted.
The fair value is determined by using either the Binomial
or Black-Scholes model taking into account the terms and
conditions upon which the instruments were granted. The
accounting estimates and assumptions relating to equity-
settled share-based payments would have no impact on
the carrying amounts of assets and liabilities within the
next annual reporting period but may impact profit or loss
and equity.
HOT CHILI Annual Report 2017 13 Notes to the
Financial Statements (cont’d)
3. 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 (2016: 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.
GEOGRAPHICAL INFORMATION
Australia
Chile
4.
INTEREST INCOME
Interest income
5. OTHER INCOME
Foreign exchange gain
Gain on revaluation of derivative liability
Other
6.
INCOME TAX EXPENSE
(a) Reconciliation of income tax expense to prima facie tax payable
Loss before income tax
Prima facie income tax at 27.5% (2016: 28.5%)
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:
Unused tax losses for which no deferred tax asset has been recognised
Potential tax benefit at 27.5% (2016: 28.5%)
Geographical
Non-current assets
2017
$
51,044
2016
$
64,067
107,724,132
107,775,176
106,596,749
106,660,816
Consolidated Entity
2016
2017
$
$
18,694
18,694
35,475
35,475
227,745
992,500
122,269
1,342,514
-
-
167,971
167,971
(2,498,476)
(687,081)
-
(128,557)
815,638
-
(9,588,883)
(2,732,832)
-
(101,966)
2,834,798
-
19,440,724
5,346,199
23,218,773
6,617,350
(c) The directors estimate that the potential deferred tax asset at 30 June 2017 in respect of tax losses not
brought to account is $5,346,199 (2016: $6,617,350).
In addition, Chilean subsidiaries of Hot Chili Limited also have tax losses that are a potential deferred tax asset of $17,726,786
(2016: $12,174,371).
42
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017
43
6.
INCOME TAX EXPENSE (CONT’D)
(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.
7. CASH AND CASH EQUIVALENTS
Consolidated Entity
Cash at bank
8. OTHER CURRENT ASSETS
Prepayment
Accounts receivable
VAT receivable
9. 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
Disposals and scrapped
Depreciation
Carrying amount at the end of the year
2017
$
2,402,980
2,402,980
35,449
77,856
133
113,438
708,366
(488,438)
219,928
325,086
45,344
(84,170)
(66,332)
219,928
2016
$
221,576
221,576
-
-
133
133
835,275
(510,189)
325,086
406,358
-
-
(81,272)
325,086
10. EXPLORATION AND EVALUATION EXPENDITURE
Carrying amount at the beginning of the year
Consideration given for mineral exploration acquisition (i)
Capitalised mineral exploration and evaluation
Exploration costs written off
106,335,730
-
1,333,893
(114,375)
83,626,283
21,980,000
5,360,851
(4,631,404)
Carrying amount at the end of the year (ii)
107,555,248
106,335,730
(i) On 27 August 2015, Compañía Minera del Pacífico S.A. (CMP) acquired a 17.5% interest in the Hot Chili subsidiary, Sociedad
Minera El Águila SpA (SMEA) from the issue of shares by SMEA in exchange for assets sold by CMP comprising surface
rights, easements and mining leases (CMP Assets).
(ii) Management have determined that the capitalised expenditure relating to the projects in Chile are still in the exploration phase
and are to be classified as Exploration and Evaluation expenditure. In accordance with AASB 6 Exploration for and evaluation
of Mineral Resources management have assessed whether there are any indicators of impairment on the capitalised
expenditure as at balance date. In making this assessment management have considered whether sufficient data exists to
conclude that the exploration and evaluation assets are unlikely to be recovered in full from successful development or sale.
This included management engaging an independent consultant to review and update the key drivers within the Productora
pre-feasibility financial model including the long term copper price, discount rate and the operating and capital costs. Based
on this review, management are satisfied that there are no impairment indicators as at balance date.
The future realisation of these non-current assets is dependent on further exploration and funding necessary to
commercialise the resources or realisation through sale.
HOT CHILI Annual Report 2017
13 Notes to the
Financial Statements (cont’d)
11. TRADE AND OTHER PAYABLES
Trade payables and accruals
Unissued shares (i)
Refundable deposit (option fee) (ii)
Consolidated Entity
2017
$
619,721
-
1,951,372
2,571,093
2016
$
74,716
523,912
2,138,580
2,737,208
(i) On 8 July 2016, 9,355,569 ordinary shares with a fair value of $523,912 were issued as consideration for Sprott Resource
Lending Partnership’s extension of the credit facility provided to Hot Chili Limited. Refer to note 14.
(ii) Sociedad Minera El Águila SpA (SMEA) granted Compañía Minera del Pacífico S.A. (CMP) an option (Additional Purchase
Option) to acquire shares in SMEA such that upon exercise of the option, CMP will be entitled to acquire a further 32.6%
interest, taking its total interest up to 52.6%, by acquiring existing shares from Hot Chili subsidiary, SMECL. The additional
32.6% shareholding interest in SMEA that CMP may acquire can be exercised in two tranches and determined by reference to
a valuation and will have a minimum value of US$80 million and a maximum value of US$110 million. The Option fee of US$1.5
million had been received following confirmation of the executed merger agreement. In the case where the parties do not
execute the option, Hot Chili shall refund CMP the Option fee.
12. BORROWINGS
CURRENT
Non-bank loan1
Consolidated Entity
2016
2017
$
$
8,753,030
-
-
8,753,030
1 The non-bank loan payable to Sprott Resources Lending Partnership of US$6.5 million was repaid during the year.
NON-CURRENT
Convertible note – debt component2
Consolidated Entity
2016
2017
$
$
3,184,082
3,184,082
-
-
2 On 22 June 2017 the consolidated entity issued 109,175, 8% five year convertible notes, with a face value of $100 each, for
total proceeds of $10,917,500. Interest is paid quarterly in arrears at a rate of 8% per annum based on the face value. The
maturity date of the notes is 22 June 2022. The conversion rights associated with the convertible notes are:
a) The holder of the notes may convert into ordinary shares of the parent entity at any time prior to maturity at a conversion
price of A$0.03333 per share;
b) The company can redeem the notes early in cash for the face value plus interest accrued, only after two years since the
issue date provided the VWAP for the shares traded on the ASX for the 20 consecutive trading days preceding the date
on which the notice of redemption is given is not less than 300% of the conversion price of A$0.03333 per share;
c) The Convertible note will automatically be converted on the maturity date at the lower of $0.03333 or 95% of the VWAP
traded on the ASX for the 10 consecutive trading days preceding the maturity date.
44
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017 45
12. BORROWINGS (CONT’D)
Convertible note - reconciliation
NON-CURRENT
Proceeds from Issue
Derivative liability at inception
Transaction costs1
Interest expense
Interest payable – included in other payables (refer note 11)
At the end of the financial year
Consolidated Entity
2016
2017
$
$
10,917,500
(7,443,750)
(299,716)
3,174,034
29,190
(19,142)
3,184,082
-
-
-
-
-
-
-
1 Total transaction costs from the convertible notes issued were $1,088,439, of which $299,716 were capitalised to Borrowings
and $788,723 were expensed.
13. DERIVATIVE FINANCIAL INSTRUMENTS
Derivative Liability - Convertible Note
Consolidated Entity
2016
2017
$
$
6,451,250
6,451,250
-
-
The holders of the convertible notes have the option to convert into ordinary share capital of the Company. Refer to Note 12.
Fair value hierarchy
The consolidated entity using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value
measurement, being:
• Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the
measurement date;
• Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
or indirectly;
• Level 3: Unobservable inputs for the asset or liability
The derivative liability is determined to be Level 2 and has been valued using quoted market prices at the end of the reporting
period. This valuation technique maximises the use of observable market data where it is available and relies as little as possible
on entity specific measurements.
Derivative liability - reconciliation
Derivative liability at inception
Change in fair value
At the end of the financial year
Consolidated Entity
2016
2017
$
$
7,443,750
(992,500)
6,451,250
-
-
-
HOT CHILI Annual Report 2017 13 Notes to the
Financial Statements (cont’d)
14. CONTRIBUTED EQUITY
(a) Share capital
No. Shares
Consolidated Entity
2017
2016
2017
$
2016
$
At the beginning of the financial year
445,723,709
398,471,912
117,209,608
112,746,883
Shares issued during the financial year
Shares issued in lieu of convertible note costs
Shares issued for the extension of the
finance facility
Less cost of issue
At the end of the financial year
88,001,000
11,300,976
9,355,569
-
47,251,797
-
-
-
4,400,050
282,514
523,912
(363,041)
4,493,253
-
-
(30,528)
554,381,254
445,723,709
122,053,043
117,209,608
(b) Terms and Conditions 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 financial year
Issued during the financial year
Balance at end of financial year
Listed Options
2017
Options
2016
Options
11,000,000
28,000,000
39,000,000
11,000,000
-
11,000,000
There are no listed options over ordinary shares in the company at 30 June 2017 (2016: NIL).
(d) 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.
46
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017 47
15. RESERVES, ACCUMULATED LOSSES AND NON-CONTROLLING INTERESTS
(a) Accumulated losses
Accumulated losses at the beginning of the year
Net loss for the year
Transactions with non-controlling interests
Accumulated losses at the end of the year
(b) Option reserve
The options reserve is used to recognise the fair value of options issued.
As at 30 June 2017, 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 currency translation reserve
Balance at the beginning of the year
Additions during the year
Balance at the end of the year
(d) Non-controlling interests
Balance at the beginning of the year
Non-controlling interests (i)
Non-controlling interests (ii)
Share of loss for the year
Balance at the end of the year
Consolidated Entity
2017
$
2016
$
(42,515,299)
(2,343,180)
(37,365,869)
(9,499,653)
-
(44,858,479)
4,350,223
(42,515,299)
1,125,616
1,125,616
347,923
1,473,539
-
1,125,616
1,222
-
1,222
1,222
-
1,222
19,571,140
-
-
(155,296)
19,415,844
-
17,213,977
2,446,393
(89,230)
19,571,140
(i) On 27 August 2015, Compañía Minera del Pacífico S.A (CMP) acquired a 17.5% interest in Sociedad Minera El Aguila SpA
(SMEA), a Hot Chili Limited’s subsidiary, from the issue of shares by SMEA.
(ii) On 24 June 2016, CMP acquired an additional 2.5% interest in SMEA from the purchase of shares by CMP from
Hot Chili Limited.
HOT CHILI Annual Report 2017
13 Notes to the
Financial Statements (cont’d)
16. LOSS PER SHARE
Loss after tax attributable to the owners of Hot Chili Limited
Basic loss per share (cents)
Diluted loss per share (cents)
Unexercised options are not dilutive.
Consolidated Entity
2017
$
2016
$
(2,343,180)
(9,499,653)
(0.44)
(0.44)
(2.22)
(2.22)
The weighted average number of ordinary shares on issue used in the
calculation of basic loss per share
Weighted average number of ordinary shares and potential ordinary shares
used as the denominator in calculating diluted loss per share
537,703,601
427,463,126
537,703,601
427,463,126
17. REMUNERATION OF AUDITORS
Remuneration of the auditor for:
- Auditing and reviewing of financial reports
- Tax services
44,300
22,636
66,936
44,300
6,500
50,800
18. 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
Christian E Easterday
Dr Michael Anderson
Dr Allan Trench
Roberto de Andraca Adriasola
George Randall Nickson
(Chairman)
(Executive Director)
(Non-Executive Director)
(Independent Non-Executive Director)
(Non-Executive Director)
(Non-Executive Director, appointed 17 August 2017)
(b) Company Secretary
John Sendziuk
(c) Corporate Projects Manager
Melanie Leighton (also Alternate Director)
(d) Chief Legal Counsel and country manager
Jose Ignacio Silva
48
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017
49
18. KEY MANAGEMENT PERSONNEL DISCLOSURES (CONT’D)
(e) Details of Remuneration of Key Management Personnel for the year ended 30 June 2017:
Directors
Short-term benefits
Post-employment benefits
Key Management Personnel
Short-term benefits
Post-employment benefits
Total
Consolidated Entity
2016
2017
$
$
336,337
27,816
364,153
405,495
22,800
428,295
792,448
420,569
40,028
460,597
707,772
29,000
736,772
1,197,369
19. 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
(b) Reconciliation of Net Cash used in Operating Activities to Operating
Loss for the year
Depreciation
Effect of exchange rates on holdings in foreign currencies
Exploration expenditure written off
Gain on revaluation of derivative liability
Loss on scrapped plant
Shares issued in lieu of convertible note transaction costs
Options issued in lieu of convertible note transaction costs
Consolidated Entity
2017
$
2,402,980
2,402,980
2016
$
221,576
221,576
(2,498,476)
(9,588,883)
66,332
(227,745)
114,375
(992,500)
84,170
192,116
146,381
81,272
484,693
4,631,404
-
-
-
-
Net cash flows from operating activities before change in assets and liabilities
(3,115,347)
(4,391,514)
Change in assets and liabilities during the financial year:
Other current assets
Trade and other payables
Net cash outflow from operating activities
(113,305)
349,017
(2,879,635)
43,746
1,076,874
(3,270,894)
(c) Non cash investing and financing activities
There were no non cash investing and financing activities during the year.
HOT CHILI Annual Report 2017
13 Notes to the
Financial Statements (cont’d)
20. 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:
Later than one year but not later than five years
Consolidated Entity
2016
2017
$
$
-
146,120
78,000
657,540
(b) Operating Leases
The consolidated entity leases office premises under operating leases. The leases have various terms and renewal rights.
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
113,300
188,833
302,133
70,331
-
70,331
The Company sub leases its head office premises for 50% of the total cost under the lease agreement. The above operating
lease commitments does not include the benefit under this sub lease arrangement.
21. EVENTS OCCURRING AFTER REPORTING DATE
On 17 August 2017 the company announced the appointment of Mr Randall Nickson as a Non-Executive Director.
On 8 September 2017 the company issued 3,834 convertible notes with a face value of $100 to raise $383,400. The company
also issued 766,800 ordinary shares pursuant to the subscription agreement for the convertible notes. The convertible notes and
shares were issued to Blue Spec Drilling Pty Ltd, a company associated with Mr Murray Black, following shareholder approval.
There were no other significance events occurring after the balance date that require reporting.
22. RELATED PARTIES
MRA Consulting Pty Ltd, a company associated with Dr Anderson, a director, was paid $36,792 (2016: $41,986) in directors and
consulting fees. There were no amounts payable as at 30 June 2017 (2016: Nil).
Blue Spec Sondajes Chile Limitada, a company in which Mr Black is a director, was paid $276,499 (2016: $1,570,540) for drilling
services. There were no amounts payable as at 30 June 2017 (2016: Nil).
All payments were made at recognised commercial rates.
23. CONTINGENT LIABILITIES
As at 30 June 2017, Hot Chili Limited had accumulated VAT refund payments totalling $11,737,047 (CLP 6,018,998,141). Under
the terms of the VAT refund payment, the consolidated entity has until the 31 December 2019 to commercialise production from
Productora and meet certain export targets. Hot Chili also has the right to extend this term. In the event that the term is not
extended and Hot Chili does not meet certain export targets, Hot Chili will be required to re-pay the VAT refund payments to the
Chilean Tax Authority subject to certain terms and conditions. However, if Hot Chili achieves the export targets from Productora
within that timeframe or its renewal, if required, any VAT refund payments will not be required to be repaid. Given potential delays
to Productora’s planned future production target, owing to depressed global copper price conditions, the Company intends to
exercise its right to extend the date of commercial production from Productora with the Chilean Tax Authority.
50
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017
51
24. INTEREST IN SUBSIDIARIES
(a) Material subsidiaries
The consolidated financial statements incorporate the assets, liabilities, and results of the following material subsidiaries, in
accordance with the accounting policy described in Note 1:
Name of Entity
Sociedad Minera El Corazon Limitada
Sociedad Minera El Aguila SpA*
Sociedad Minera Los Mantos SpA
Sociedad Minera Frontera SpA
Sociedad Minera Bandera SpA
Equity Holding
Country of
Incorporation
Chile
Chile
Chile
Chile
Chile
Class of
Shares
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
2017
%
100
80*
100
100
100
2016
%
100
80*
100
100
100
* The non-controlling interests hold 20% of Sociedad Minera El Aguila SpA (SMEA) - refer to note 24 (b)
(b) Non-controlling interests (NCI)
Summarised financial information of the subsidiary with non-controlling interests that are material to the consolidated entity are
set out below:
Summarised statement of financial position
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Summarised statement of profit or loss and other comprehensive income
Revenue
Expenses
Loss before income tax expense
Income tax expense
Loss after income tax expense
Other comprehensive income
Total comprehensive loss
Statement of cash flows
Net cash used in operating activities
Net cash used in investing activities
Net cash from in financing activities
Net increase in cash and cash equivalents
Other financial information
Profit / (loss) attributable to non-controlling interests
Accumulated non-controlling interests at the end of reporting period
SMEA
30-Jun-17
30-Jun-16
139,094
107,354,922
107,494,016
-
106,227,538
106,227,538
25,169
24,138,425
24,163,594
10,717
8,361,128
8,371,845
83,330,422
97,855,693
-
(776,482)
(776,482)
-
(776,482)
-
(776,482)
-
(509,887)
(509,887)
-
(509,887)
-
(509,887)
(700,527)
(1,265,909)
2,028,521
62,085
(1,751,902)
(5,085,293)
6,837,195
-
(155,296)
19,415,844
(89,230)
19,571,140
HOT CHILI Annual Report 2017
13 Notes to the
Financial Statements (cont’d)
25. 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 summarized 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.
Risk Exposures and Responses
(a) Interest rate risk exposure
The consolidated entity’s is not exposed to interest rate risk. Borrowings are issued at fixed rates (Note 12).
(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 trades 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.
Financing arrangements
Unused borrowing facilities at the reporting date:
Finance facilities
52
Consolidated Entity
2017
$
2016
$
-
-
USD 6,500,000
USD 6,500,000
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017 53
25. FINANCIAL RISK MANAGEMENT (CONT’D)
Remaining contractual maturities
The following tables detail the consolidated entity’s remaining contractual maturity for its financial instrument liabilities. The tables
have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial
liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual
maturities and therefore these totals may differ from their carrying amount in the statement of financial position.
Weighted
average
interest rate
%
1 year
or less
$
Between 1
and 5 years
$
Remaining
contractual
maturities
$
Amount as
per Statement
of Financial
Position
$
-%
-%
8%
-%
619,721
1,951,372
-
2,571,093
6,451,250
6,451,250
-
-
619,721
1,951,372
10,917,500
10,917,500
10,917,500
13,488,593
-
-
6,451,250
6,451,250
619,721
1,951,372
3,184,082
5,755,175
6,451,250
6,451,250
Weighted
average
interest rate
%
1 year
or less
$
Between 1
and 5 years
$
Remaining
contractual
maturities
$
Amount as
per Statement
of Financial
Position
$
-%
-%
-%
12%
74,716
74,716
2,138,580
8,753,030
10,966,326
-
-
-
-
74,716
74,716
2,138,580
8,753,030
74,716
74,716
2,138,580
8,753,030
10.966,326
10.966,326
Consolidated - 2017
Non-derivatives
Non-interest bearing
Trade payables
Refundable deposit
Convertible note debt
– fixed rate
Total non-derivatives
Derivatives
Convertible note debt
Total derivatives
Consolidated - 2016
Non-derivatives
Non-interest bearing
Trade payables
Refundable deposit
Interest-bearing - fixed rate
Finance facilities
Total non-derivatives
(d) Market risk
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.
2017
2016
AUD/USD + 10%
AUD/USD - 10%
AUD/USD + 10%
AUD/USD - 10%
Consolidated Entity
Post tax profit
Equity
$
$
-
-
-
-
Post tax profit
Equity
$
(874,382)
874,382
$
(874,382)
874,382
HOT CHILI Annual Report 2017
13 Notes to the
Financial Statements (cont’d)
26. PARENT ENTITY DISCLOSURES
Financial position
Assets
Current assets
Non-current assets
Total assets
Liabilities
Current liabilities
Non-current liabilities
Total liabilities
Equity
Issued capital
Reserves
Accumulated losses
Total equity
Financial performance
Loss for the year
Other comprehensive income
Total comprehensive income
2017
$
2016
$
2,357,525
87,986,425
90,343,950
160,174
85,915,005
86,075,179
7,045,801
3,184,082
10,229,883
9,340,941
-
9,340,941
122,053,054
117,209,608
1,473,539
1,125,616
(43,412,526)
(41,600,986)
80,114,068
76,734,238
(1,811,540)
(3,772,827)
-
-
(1,811,540)
(3,772,827)
Contingent liabilities of the parent entity
The parent entity did not have any contingent liabilities as at 30 June 2017 or 30 June 2016.
Contractual commitments for the acquisition of property, plant or equipment
As at 30 June 2017 (30 June 2016 – $Nil), the parent entity did not have any contractual commitments for the acquisition of
property, plant or equipment.
27. SHARE BASED PAYMENTS
Below are details of share based payments made during the current year and prior financial years.
(a) Options issued
No options are currently issued to employees.
Set out below is a summary of options on issue as at 30 June 2017:
Issue
date
27/06/2014
24/08/2016 (1)
06/06/2017(2)
Total
Expiry date
27/06/2019
6/09/2018
20/06/2019
Balance
at start of
year
Number
issued during
year
Number
expired
during
year
Exercised
during the
year
11,000,000
-
-
8,000,000
20,000,000
28,000,000
-
-
-
-
-
-
-
-
Balance at
end of year
11,000,000
8,000,000
20,000,000
39,000,000
Number
exercisable
at end of
year
11,000,000
8,000,000
20,000,000
39,000,000
(1) Weighted average exercise price for options issued during the financial year was $0.052 (2016: Nil).
(2) The weighted average remaining contractual life of options outstanding at the end of the financial year was 1.71 years
(2016: 3 years).
54
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017
55
27. SHARE BASED PAYMENTS (CONT’D)
(b) 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.
(1) The model inputs for options granted during the year ended 30 June 2017 included:
a) options are granted for no consideration.
b) exercise price – $0.10
c)
issue date – 24 August 2016
d) expiry date – 6 September 2018
e) expected price volatility of the Company’s shares: 94%
f)
risk-free interest rate: 1.50%
g) spot price at date of valuation: $0.05
(2) The model inputs for options granted during the year ended 30 June 2017 included:
a) options are granted for no consideration.
b) exercise price – $0.033
c)
issue date – 6 June 2017
d) expiry date – 20 June 2019
e) expected price volatility of the Company’s shares: 94%
f)
risk-free interest rate: 1.50%
g) spot price at date of valuation: $0.030
(c) Shares issued as share-based payment transactions:
During the year the Company issued 11,300,976 shares at a fair value of $282,524 in lieu of transaction costs related to the
convertible note issue.
During the year the Company issued 9,355,509 shares at a fair value of $523,912 as consideration for the extension of the
finance facility. This amount was expensed during the year ended 30 June 2016 but the shares were issued in July 2017.
(d) Expenses arising from share-based payment transactions:
Total transactions arising from share-based payment transactions recognised during the year were as follows:
Options issued in lieu of capital raising costs
Shares issued for convertible note costs - expensed
Shares issued for convertible note costs - capitalised borrowing cost
Options issued for convertible note costs - expensed
Options issued for convertible note costs - capitalised borrowing cost
Extension of finance facility
2017
2016
132,657
192,116
90,408
146,381
68,885
-
630,447
-
-
-
-
-
523,912
523,912
HOT CHILI Annual Report 2017 14 Shareholder
Information
AS AT 23 AUGUST 2017
Information Required by the Australian Securities Exchange Limited
Shareholders
Units
111
310
209
733
307
35,417
914,177
1,748,103
28,157,782
523,525,775
1,670
554,381,254
75,023,704
65,725,296
40,926,771
25,856,514
24,246,210
17,050,000
16,750,000
16,750,000
16,750,000
16,000,000
Shares Held
Directly
300,000
Held by
Companies in
which Directors’
have a beneficial
Interest
25,599,242
16,750,000
41,400
-
40,000
(a) Spread of Holdings
1
- 1,000
1,001
- 5,000
5,001
- 10,000
10,001
- 100,000
100,001 & Over
(b) Substantial Shareholders
J P Morgan Nominees Australia Ltd
Port Finance Ltd NV
Citicorp Nominees Pty Ltd
Merrill Lynch Australia Nominees Pty Ltd
Blue Spec Sondajes Chile
C Easterday
Kalgoorlie Auto Service Pty Ltd
Westralian Diamond Drillers Pty Ltd
R Leighton
Blue Spec Drilling Pty Ltd
(c) Directors’ Shareholdings
Murray E Black
Christian E Easterday
Dr Allan Trench
Dr Michael Anderson
Roberto de Andraca Adriasola
George Randall Nickson
56
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017
57
(d) The names of the twenty largest shareholders as at 23 August 2017, who between them held 72.60% of the
issued capital are listed below:
Number of Ordinary Shares
%
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
J P Morgan Nominees Australia Ltd
Kalgoorlie Auto Service Pty Ltd
Port Finance Ltd NV
Citicorp Nominees Pty Ltd
Merrill Lynch Australia Nominees Pty Ltd
Blue Spec Sondajes Chile
HSBC Custody Nominees Australia Ltd
Blue Spec Drilling Pty Ltd
BO & EJ Stephens
Samlisa Nominees Pty Ltd
Resource Income Partners Ltd
HSBC Custody Nominees Australia Ltd
Austeridad Inversiones
Graham John Woolford
AMC Investments WA Pty Ltd
Ajava Holdings Pty Ltd
Limitada Inversiones C D
Robert Gemelli
Gecko Resources Pty Ltd
Campari Holdings Pty Ltd
75,023,704
67,000,000
65,725,296
40,926,771
25,856,514
24,246,210
18,522,650
16,000,000
11,000,000
10,000,000
7,184,262
7,179,227
5,872,804
5,000,000
4,878,467
4,449,996
4,152,813
3,852,488
3,000,000
2,730,000
402,601,202
13.53
12.09
11.86
7.38
5.96
4.37
3.34
2.89
1.98
1.80
1.30
1.29
1.06
0.90
0.88
0.80
0.75
0.69
0.54
0.49
72.60
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017 15 Tenement
Schedule
Hot Chili has rationalised its tenement holdings in Chile to ensure its expenditure is focussed towards the development of its
Productora copper project.
A full tenement schedule is listed in the below tables.
Table 1. Productora project tenement schedule
Licence ID
Holder
%
Interest
Licence Type
Expiration
date (dd.
mm.yyyy)
Area
(ha)
Exploration and
Expenditure
Commitment-
Payments
FRAN 1, 1-48
FRAN 2, 1-20
FRAN 3, 1-60
FRAN 4, 1-20
FRAN 5, 1-20
FRAN 6, 1-60
FRAN 7, 1-37
FRAN 8, 1-30
FRAN 12, 1-40
FRAN 13, 1-40
FRAN 14, 1-40
FRAN 15, 1-60
FRAN 18, 1-60
FRAN 21, 1-60
ALGA 7A, 1-32
ALGA VI, 5-24
MONTOSA 1-4
CHICA
ESPERANZA 1-5
LEONA SEGUNDA 1-4
CARMEN I, 1-60
CARMEN II, 1-60
ZAPA 1, 1-10
ZAPA 3, 1-23
ZAPA 5A, 1-16
ZAPA 7, 1-24
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
CABRITO, CABRITO 1-9
SMEA SpA
CUENCA A, 1-51
CUENCA B, 1-28
CUENCA C, 1-51
CUENCA D
CUENCA E
CHOAPA 1-10
ELQUI 1-14
LIMARÍ 1-15
LOA 1-6
MAIPO 1-10
TOLTÉN 1-4
CACHIYUYITO 1, 1-60
CACHIYUYITO 2, 1-60
CACHIYUYITO 3, 1-60
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
Exploitation concession
300
300
300
300
300
300
300
300
200
200
200
300
300
300
89
66
35
1
11
10
222
274
100
92
80
120
50
255
139
255
3
1
50
61
66
30
50
70
300
300
300
58
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
3% NSR
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017
59
Licence ID
Holder
%
Interest
Licence Type
Expiration
date (dd.
mm.yyyy)
Area
(ha)
Exploration and
Expenditure
Commitment-
Payments
LA PRODUCTORA 1-16
SMEA SpA
100%
Exploitation concession
75
None
ORO INDIO I, 1-20
AURO HUASCO I, 1-8
JGT
JGT
100%
Exploitation concession
100%
Exploitation concession
82
35
URANIO, 1-70
CCHEN
100%
Exploitation concession
350
JULI 1
JULI 2
JULI 3
JULI 4
JULI 5
JULI 6
JULI 7
JULI 8
JULI 9
JULI 10
JULI 11
JULI 12
JULI 13
JULI 14
JULI 15
JULI 16
JULI 17
JULI 18
JULI 19
JULI 20
JULI 21
JULI 22
JULI 23
JULI 24
JULI 25
JULI 26
JULI 27
JULI 28
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Mining Petition
Mining Petition
Mining Petition
Mining Petition
Mining Petition
Mining Petition
Mining Petition
Mining Petition
Mining Claim
Mining Claim
Mining Petition
Mining Petition
Mining Petition
Mining Petition
Mining Petition
Mining Claim
Mining Claim
Mining Petition
Mining Petition
Mining Petition
Mining Petition
Mining Petition
Mining Petition
Mining Claim
Mining Petition
Mining Petition
Mining Petition
Mining Petition
300
300
300
300
100
200
200
300
300
300
300
300
100
300
300
300
200
300
300
300
300
300
300
300
300
300
200
300
Total purchase price of
US$500,000.
US$100,000 paid upon
signature. Payments of
US$80,000 pa for Yr. 1,
2, 3. Also, US$60,000
was paid in Yr. 4 and a
final exercise payment of
US$60,000 is scheduled for
January 2018.
Exploration phase
US$100,000 per Yr plus
US$6,000,000 minimum
exploration commitment
(commitment already met).
Exploitation phase
US$250,000 per Yr plus
2% NSR on all but gold;
4% NSR gold; 5% NSR
non-metallic
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
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017
15 Tenement
Schedule (cont’d)
Licence ID
JULIETA 1
JULIETA 2
JULIETA 3
JULIETA 4
JULIETA 5
JULIETA 6
JULIETA 7
JULIETA 8
JULIETA 9
JULIETA 10
JULIETA 11
JULIETA 12
JULIETA 13
JULIETA 14
JULIETA 15
JULIETA 16
JULIETA 17
JULIETA 18
JULIETA 19
ARENA 1
ARENA 2
ZAPA 1-6
Holder
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEA SpA
SMEAL
SMEAL
SMEA SpA
%
Interest
Licence Type
Expiration
date (dd.
mm.yyyy)
Area
(ha)
Exploration and
Expenditure
Commitment-
Payments
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Mining Petition
Mining Petition
Mining Petition
Mining Petition
Mining Petition
Mining Petition
Mining Petition
Mining Petition
Mining Petition
Mining Petition
Mining Petition
Mining Petition
Mining Claim
Mining Claim
Mining Claim
Mining Petition
Mining Petition
Mining Claim
Mining Petition
Exploration concession
Exploration concession
Exploitation concession
100
200
300
200
300
300
300
300
300
300
300
300
300
300
200
200
200
200
200
100
200
6
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
None
Notes SMEA SpA (Sociedad Minera El Aguila SpA) is a wholly owned Chilean subsidiary of Hot Chili Limited; CMP= Compañía
Minera del Pacífico; SLM Productora= Sociedad Legal Minera La Productora 1 de la Sierra Coyigualles; SLM Cabrito= Sociedad
Legal Minera Cabrito de la Sierra Zapallo; JGT= Julio Godoy Torres; CCHEN= Comisión Chilena de Energía Nuclear.
Table 2. Banderas project tenement schedule
Licence ID
Holder
%
Interest
Licence Type
Expiration
date (dd.
mm.yyyy)
Area
(ha)
Exploration and
Expenditure
Commitment-
Payments
CONEJA 1-10
SMB SpA
100%
Exploitation Concession
100
None
Note: SMB SpA (Sociedad Minera Bandera SpA) is a wholly owned Chilean subsidiary of Hot Chili Limited.
60
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017
61
16 Corporate
Directory
Directors
Murray E Black
(Non-Executive Chairman)
Christian E Easterday
(Managing Director)
Dr Allan Trench
(Independent Non-Executive Director)
Dr Michael Anderson
(Non-Executive Director)
Roberto de Andraca Adriasola
(Non-Executive Director)
George Randall Nickson
Non-Executive Director, appointed 17 August 2017)
Melanie Leighton
(Alternate for M Black)
Company Secretary
John E Sendziuk
Chief Legal Counsel
Jose Ignacio Silva
Principal Place of Business and
Registered Office
First Floor 768 Canning Highway
APPLECROSS WA 6153
Telephone: 08 9315 9009
Facsimile: 08 9315 5004
Email:
Web:
admin@hotchili.net.au
www.hotchili.net.au
Solicitors
Jackson McDonald
Level 17 225 St George’s Terrace
PERTH WA 6000
Share Registry
Security Transfer Registrars Pty Ltd
770 Canning Highway
APPLECROSS WA 6153
Telephone: 08 9315 0933
Facsimile: 08 9315 2233
Auditors
RSM Australia Partners
Level 32 Exchange Tower
2 The Esplanade
PERTH WA 6000
Principal Banker
Westpac Banking Corporation
Hannan Street
KALGOORLIE WA 6430
HOT CHILI Annual Report 2017HOT CHILI Annual Report 2017 A
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