Hot Chili Limited
Annual Report 2018

Plain-text annual report

2018 Key Highlights ANNUAL REPORT 2018 Lulu 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 4 6 16 19 21 30 31 35 36 37 38 39 40 60 62 66 HOT CHILI Annual Report 2018 Valentina Productora Copper Project Productora Copper Project - Bulk tonnage El Fuego Copper Project - High Grade San Antonio HOT CHILI Annual Report 2018 1  2018 Key Highlights Exploration • Critical mass achieved with formation of newly consolidated El Fuego high grade coastal copper project in Chile, comprising the collective landholdings across three exciting high grade areas (San Antonio, Lulu & Valentina), all located within short trucking distance of Productora, and containing- or directly adjacent to - some of the area’s most substantial underground high grade copper mines. • Completion of a 5,000m maiden drilling programme across San Antonio and Valentina, with impressive shallow, wide, high grade copper drilling intersections confirming significant strike and depth extensions to high grade copper mineralisation at the San Antonio and Valentina copper mines. • San Antonio and Valentina set to become key additions to Hot Chili’s large-scale open pit resource inventory with the potential to add further scale and make a positive material impact on the head grade of the Company’s future copper production plans. Significantly leveraged to improving copper price, Hot Chili is one of thelargest and most advanced copper developments on the ASX • Activities underway in preparation for initiation of geophysical surveys and environmental applications in advance of a second campaign of drilling at both San Antonio and Valentina, in an effort to accelerate the definition and incorporation of new high grade copper resources into the Company’s expanding coastal copper portfolio in Chile. • Multiple large scale targets identified through regional exploration across the El Fuego copper project, with targets being assessed by detailed mapping ahead of initiating drilling. • Partnerships for other expansion opportunities gaining in momentum, with Hot Chili well placed to leverage off almost 10 years operating in Chile. View across San Antonio to Valentina Corrido El Fuego Copper Project, Chile. San Antonio Copper Mine View Across San Antonio to Valentina Corridor El Fuego Copper Project, Chile 2 HOT CHILI Annual Report 2018Figure 1. The new consolidated El Fuego copper project in relation to the Company’s existing large-scale Productora copper project Clearing a path forward to advance the Company’s flagship Productora copper project through the final stages of growth and development Corporate • A $4 million Placement to sophisticated and institutional investors was successfully closed in May 2018, with the Placement cornerstoned by existing major shareholders Exploration Capital Partners (affil. Sprott), Taurus and Blue Spec Drilling, an associate of Hot Chili’s chairman Murray Black). • 133,333,334 New Shares were issued at $0.03 each, and 66,666,667 free attaching unlisted options, (exercise price of $0.10, expiry 31st May 2020). • A Share Purchase Plan was successfully completed in November 2017, with 28,757,205 New Shares issued at A$0.035 each, raising A$1,006,500 before costs. • Sprott representative Randall Nickson welcomed to the Board as a Non-Executive Director, with Mr Nickson’s experience considered a valuable asset in the growth and advancement of Productora toward production. 3 20 km RadiusHuascoFreirinaVallenarLos Losas Port (CAP)Maintencillo Sub StationSeawater PipelineEasementPan American HighwayLorem ipsumPowerTransmission EasementLuluValentinaSan AntonioProductoraPFS Complete10 year open pit mine life66kt Cu and 25koz Au annuallyJORC Resource237Mt @48% Cu, 0.1g/t Au, 135ppm MoHOT CHILI Annual Report 20181 Chairman’s Letter Dear Shareholder, I would like to thank my fellow directors, our management team and staff for their tireless efforts in delivering the beginnings of a resurgence for our Company this year. Our team has been very successful in securing numerous opportunities that promise to deliver critical mass to our Productora project and cement Hot Chili as the largest copper developer on the ASX. Our strategy to propel Hot Chili toward this goal is simple - add higher grade and more mine life to the credentials of our flagship Chilean copper asset. The past year has seen the consolidation of three high grade mines which sit close to Productora. First pass drilling at two of these (San Antonio and Valentina) has met with strong results and confirmed the first of several satellite resource opportunities that look set to transform Productora into a regional copper production hub. It is an exciting time to be a copper developer, let-alone a copper developer with a US$100 million head-start towards developing a mine. We believe the fundamentals for forecast higher copper prices in the near-term are underpinned by a lack of quality large copper developments. Large copper projects that can be developed at low capital intensity and in safe/stable jurisdictions, such as Productora, are rare. Over the coming year we have a great opportunity to re-establish Hot Chili as a copper sector leader on the ASX. I look forward to a strong year ahead as we focus on delivering further success across exploration, resource growth and acquisitions for our Company and our shareholders. Murray Edward Black Chairman 4 HOT CHILI Annual Report 2018Our strategy to propel Hot Chili toward this goal is simple - add higher grade and more mine life to the credentials of our flagship Chilean copper asset 5 HOT CHILI Annual Report 20182 Review of Operations Securing El Fuego provides renewed vigour to successfully execute Hot Chili’s strategy to significantly re-rate the Company and generate substantial shareholder value in the near term Hot Chili benefits from almost ten years operating in Chile, during which time the Company has fostered many partnerships, allowing for rapid review and evaluation of expansion opportunities. This year has been no exception, with Hot Chili continuing to actively pursue further suitable projects in its strategy to build a large-scale copper production centre in Chile. The Company is very pleased that its efforts this year have culminated in achieving critical mass with formation of the El Fuego high grade copper project, comprising collective landholdings across three exciting high grade mine areas (San Antonio, Lulu and Valentina). The El Fuego copper project is located within trucking distance of Productora, and provides an enriched pipeline of opportunity which builds on the Company’s existing large asset base. The addition of a high grade blend from satellite ore sources and extension of the project’s bulk tonnage mine life aims to provide critical mass for the expansion of Productora into a higher margin and larger scale copper operating centre. 6 HOT CHILI Annual Report 2018Productora Copper Project The Productora copper project currently stands as one of the largest copper developments controlled by an ASX listed company. Productora’s 2016 Pre-feasibility Study (US$3.00/lb Cu and US$1,250/oz Au) already outlines a 10 year open pit mine life with the first eight years forecast to produce 66kt of copper metal and 25koz of gold annually, at a strip ratio of 2.7:1. Productora sits in a commanding position within the global development pipeline, where large-scale, low cost, long life projects in tier-one mining jurisdictions with very low capital intensities, are rare. Hot Chili’s growth strategy is now in full thrust, with the Company capitalising on exciting project acquisition opportunities and executing three Joint Venture Option Agreements within the past year, to secure a stable of high-grade copper projects - collectively named El Fuego – located within close development distance of Productora, as seen in Figure 1. El Fuego has the potential to host high-grade ore sources which can take advantage of Productora’s planned large-scale, low-cost processing facilities. The impending improving copper price environment and its strong leverage to Productora’s existing asset value means that Hot Chili is poised for a significant re-rate. Figure 2 below outlines Productora’s significant exposure and economic sensitivity to long term copper price as outlined in the Company’s 2016 PFS (as announced to ASX on 2nd March 2016). Figure 2. Financial analysis of Productora PFS valuation in relation to copper price. 7 HOT CHILI Annual Report 20182 Review of Operations (cont’d) San Antonio El Fuego Copper Project Hot Chili is excited to have secured the newly consolidated El Fuego high grade coastal copper project in Chile, comprising the collective landholdings across three high grade areas within a 30 kilometre radius of the Company’s flagship Productora copper project (as seen in Figure 1). These are: • San Antonio • Valentina • Lulu Securing El Fuego marks the beginning of Hot Chili’s expanded growth strategy to secure and successfully delineate multiple, high grade satellite resources capable of supplying approximately 1Mtpa of high grade ore to Productora’s planned 14-15Mtpa, low-cost production base. This strategy aims to transform Productora by increasing margins and lowering production costs through higher head grade and expanded metal output. Hot Chili’s strategy to define high grade copper resource opportunities is gathering momentum with drill results from a maiden 5000 metre drilling campaign confirming a large extensional discovery at both the San Antonio and Valentina copper mines. These results provide further confidence in the Company’s ability to build a stable of high grade additions to Productora. Valentina Lulu 8 HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018 San Antonio Hot Chili is pleased to have executed a formal agreement to earn a 90% interest in the San Antonio high grade copper project, located within a short 20km trucking distance, directly east of the Company’s Productora copper project in Chile (see Figure 1). For further details on the Joint Venture please refer to the Tenement section of this report. The San Antonio project has been privately owned for several decades and contains a substantial underground mine which historically produced some 2Mt grading 2% copper and 0.3g/t gold from shallow depths. The mine has been exploited over a 200m strike length to a vertical depth of 130m, at an average true width ranging between 7m and 30m. Following its acquisition, the Company undertook an intensive period of data compilation which culminated in the creation of the first ever 3D geological model for San Antonio. The model integrated historical underground mine development plans and surveys, historical drilling and underground channel assay data, current mining data, and Hot Chili’s own detailed surface and underground mapping and geochemical sampling. The creation of an integrated 3D model enabled Hot Chili’s technical team to design and prioritise its maiden drilling campaign with confidence, targeting depth and strike extensions to known high grade copper mineralisation, resulting in multiple impressive significant copper intersections exceeding the Company’s expectations, as listed below: • 19m grading 2.0% copper from 61m down-hole depth (including 11m grading 2.4% copper) • 9m grading 2.0% copper from 132m down-hole depth • 6m grading 2.1% copper from 65m down-hole depth • 5m grading 2.5% copper from 31m down-hole depth (including 2m grading 4.3% copper) • 15m grading 1.7% copper from 80m down-hole depth, • 16m grading 1.1% copper from 93m down-hole (including 5m grading 2.7% copper) • 13m grading 1.3% copper from 17m down-hole depth (including 5m grading 2.3% copper) • 53m grading 0.9% copper from 72m down-hole depth (including 27m grading 1.3% copper), • 10m grading 1.6% copper from 58m down-hole depth (including 4m grading 2.7% copper) • 18m grading 1.3% copper from 52m down-hole depth (including 5m grading 2.1% copper), and • 11m grading 1.6% copper from 83m down-hole depth 9 HOT CHILI Annual Report 20182 Review of Operations (cont’d) San Antonio (cont’d) Mineralisation at San Antonio remains open at depth and along strike as displayed in Figures 3, 4 and 5. Given the shallow, high grade nature of mineralisation, San Antonio looks set to become a key addition to Hot Chili’s large-scale open pit resource inventory with the potential to make a positive material impact on the head grade of the Company’s future copper production plans. In addition, gold and silver co-products at San Antonio could potentially provide valuable additional credits. Drill planning is underway in advance of submission of regulatory applications to commence follow-up and resource definition drilling at San Antonio. Figure 3. Plan displaying the location of significant drill intercepts in relation to the San Antonio underground development and interpretation of high grade copper mineralisation approximately 50m below surface (1,150m RL). 10 19m@ 2.0% Cu5m@ 2.5% Cu &18m@ 1.3% Cu (vertical hole)11m@ 1.6% Cu53m@ 0.9% Cu including 27m@ 1.3% Cu4m@ 2.0% Cu9m@ 2.0% Cu16m@ 1.1% Cu including 5m@ 2.7% Cu4m@ 2.7% Cu5m@ 0.9% Cu15m@ 1.7% Cu3m@ 1.0% Cu6m@ 2.1% Cu6m@ 1.2% Cu4m@ 0.9% Cu2m@ 1.2% Cu5m@ 1.3% Cu100mAA’10m@ 1.6% Cu13m@ 1.3% Cu, including 5m@ 2.3% CuCodelcodrill intercept20m @ 1.0% Cu(from 310.5m downhole)San Antonio Mineralisation(1150mRL interpretation)Main LodeFootwall LodeHangingwallLodeSan Antonio Mine DevelopmentHOT CHILI Annual Report 2018HOT CHILI Annual Report 2018Figure 4. Long Section (looking west) displaying the pierce point locations of stand-out drill results (circles) at San Antonio. Figure 5. Cross Section (looking north) displaying the continuation of the San Antonio Main Lode below the existing underground mine development as confirmed by recent drill results. Note the shallow dip of high grade copper mineralisation and confirmation of wide high grade copper. 11 700m0m100m200m300m400m500m600m342300mE342500mE6818800mN6819200mN1,200mRL1,000mRLHistorical Stope Area40 Level60 LevelRC Drilling ResultsSignificant Intercept (+10 % x m (metal))Significant Intercept (5-10 % x m (metal))Drill Intercept (2-5 % x m (metal))Drilled –did not intersect lode or structure)San Antonio Copper MineLong Section(El Fuego Copper Project, Chile)North1,100mRL90 Level110 Level120 Level150 Level19m@ 2.0% Cu10m@ 1.6% Cu5m@ 2.5% Cu &18m@ 1.3% Cu11m@ 1.6% Cu53m@ 0.9% Cu including 27m@ 1.3% Cu13m@ 1.3% Cu4m@ 2.0% Cu9m@ 2.0% Cu16m@ 1.1% Cu including 5m@ 2.7% Cu4m@ 2.7% Cu6m@ 2.1% Cu5m@ 1.3% CuDRILLING RESULTS15m@ 1.7% CuSouth60 LevelCollapsed stopeMine development1,200mRL1,100mRL342600mE342400mE342500mE50mFelsic-intermediate porphyryVolcaniclastic sedimentsHistorical StopeIntermediate volcaniclastics53m@ 0.9% Cu including 27m@ 1.3% Cu10m@ 1.6% CuPaula declineWestEastIntense sulphide alterationFootwall LodeMain LodeHOT CHILI Annual Report 20182 Review of Operations (cont’d) San Antonio (cont’d) Mapping over the wider San Antonio project has identified and confirmed a number of mineralised copper targets, including shear-zone hosted vein and replacement systems, brecciated zones, manto zones and porphyry copper occurrences. The San Antonio East target, located along the eastern flank of San Antonio, is the largest target identified and comprises occurrences of porphyry copper mineralisation (associated with chalcopyrite, bornite and copper oxides/carbonates evident as replacements and in veins) and a K-feldspar tourmaline breccia zone that extends over a strike length of at least 600m. Five large targets have been defined within a domain extending over approximately 3km south of San Antonio as shown in Figure 6. Each of the five targets show attractive size and surface metal distribution (from surface rock chip and soil data) and are considered high priority based on a combination of structural setting; evidence of copper mineralisation; copper soil anomalism; and visual alteration. A programme of infill soil geochemistry and detailed target mapping is planned to assist with future drill design and scheduling against a growing number of high grade copper targets that the Company is assembling within the El Fuego copper project. Hot Chili’s exploration team has also commenced planning and preparation for the initiation of geophysical surveys to further refine these targets in addition to San Antonio and Valentina. +1km strike 1.2% Cu, 12.9g/t Ag 1.0% Cu 3.9% Cu 2.4% Cu 3.1% Cu 2.2% Cu 5.6% Cu XRF Rock Chip Results Cu Rock Chip Results San Antonio Mine Historical Production 2Mt @ 2.0% copper & 0.2g/t gold 1.9% Cu 2.0% Cu 2.4% Cu 1.5% Cu, 19.2g/t Ag 1.5% Cu 1.3% Cu 2.3% Cu 3.2% Cu 9.7% Cu 4.6% Cu 10.4% Cu 1.5% Cu 1km Figure 6. High priority targets in relation to surface rock chip, surface rock XRF results and earlier defined copper soil anomalies south of the San Antonio mine area. 12 HOT CHILI Annual Report 2018 HOT CHILI Annual Report 2018Valentina The Company is pleased to have executed a Joint Venture Option Agreement to earn a 90% interest in the Valentina project, located 5 kilometres north of San Antonio (see Figure 1). For further details on the Joint Venture please refer to the Tenement section of this report. Due diligence work by Hot Chili confirmed Valentina as a potential high grade copper opportunity to define resources from a shallow high grade copper mine which has been privately owned for several decades. Copper mineralisation is fault hosted within a sequence of andesites and volcaniclastics that have been locally intruded by felsic porphyry dykes, with high grade copper sulphide mineralisation present from near surface and associated with chalcopyrite and bornite. Certified historical mine production data, recorded in 1997, from the shallow small-scale Valentina underground mine, logged ore parcels grading between 3.4% and 4.8% copper over mined widths of 1 to 5 metres. Although Hot Chili’s 5,000m first-pass drilling programme across El Fuego primarily focussed on assessing the potential of the San Antonio copper mine area, three shallow drill holes were also completed across the southern extent of the shallowly developed Valentina copper mine. Two of these holes recorded significant drilling intersections including: • 12m grading 1.5% copper from 28m down-hole depth (including 6m grading 2.7% copper), and • 8m grading 2.0% copper from 124m down-hole depth (including 2m grading 4.8% copper) Importantly, the drill holes have successfully confirmed significant strike and depth extensional potential to high grade copper mineralisation immediately south of the Valentina underground mine development. Valentina is now the second high grade copper mine to deliver successful extensional results, with recent drilling results providing further confidence in Hot Chili’s ability to build a stable of high grade resource additions to Productora. Hot Chili next aims to confirm and advance the Valentina copper mine toward the commencement of resource definition. HOT CHILI Annual Report 2018 13 2 Review of Operations (cont’d) Lulu The Company has executed a Joint Venture Option Agreement to earn a 70% interest in the Lulu copper project, located 30km directly west of Productora (see Figure 1). For further details on the Joint Venture please refer to the Tenement section of this report. underground mine over a strike extent of approximately 800m within the Lulu project. Evidence of the strike extensive outcropping carbonate vein, and small-scale surface workings can be observed across Lulu as displayed in Figure 7. Importantly, the project represents the direct extension of one of the regions highest grade substantial underground mines, with the mine reportedly exploiting 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. Mining in the area surrounding the Lulu project dates back to the late 19th century. However, fractured ownership by multiple private landholders has restricted modern exploration, preserving highly prospective areas, such as the Lulu project, which have never been drill tested. 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. Hot Chili has confirmed the presence of the main copper- gold hosting structure, extending from the historical Preliminary surface results have confirmed significant shallow vein hosted mineralisation, with rock chip samples returning grades of up to 2.8% copper and 3.9g/t gold highlighting high grade copper and gold resource potential (see Figure 8). The high gold grades will add significant value to the economics of any potential ore that may eventually be exploited from the project. Given that surface samples were taken from copper oxide material, there is a potential for an elevation in grades in copper sulphide material similar to that recognised in the adjacent underground mine, with average production grades of 6% copper and 3g/t gold associated with sulphide mineralogy comprising chalcopyrite, bornite pyrrhotite and magnetite. Oxidation at Lulu occurs to a depth of approximately 75m vertical, where copper oxide mineralisation is associated with malachite, chrysocolla and cuprite. Sulphide copper is associated with chalcopyrite, bornite and minor covellite. Additional surface sampling and focussed mapping is planned to commence in the coming months at Lulu to assist with prioritising target areas for drill testing. 14 Figure 7. Plan displaying surface rock chip results in relation to vein width mapping across Lulu’s 800m copper-gold bearing structure. HOT CHILI Lulu8100m100m2.81% Cu, 0.38 g/t Au2.67 % Cu, 0.19 g/t Au2.75% Cu, 0.39 g/t Au2.25 % Cu, 0.13 g/t Au1.25 % Cu, 3.86 g/t Au0.56 % Cu, 3.24 g/t Au1.18 % Cu, 0.62 g/t AuRock Chip Assays (Cu %)Vein Thickness (cm)HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018Figure 8. Long section displaying significant surface samples returned over an 800m strike extent Further consolidation opportunities continue to be pursued as part of the Company’s strategy to add critical mass and establish Hot Chili as the leading copper developer listed on the ASX 15 2.81% Cu0.38 g/t Au2.67 % Cu0.19 g/t Au2.75% Cu0.39 g/t Au2.25 % Cu 0.13 g/t Au1.24 % Cu3.86 g/t Au0.56 % Cu3.24 g/t Au1.18 % Cu0.62 g/t AuLulu Project NE facing long sectionUnderground mine accessUnderground mine access100mMapped Vein width>1m vein widthMineralised vein0.00 -0.050.05 -0.100.10 -0.500.50 -1.001.00 -2.81Rock Chips (Cu %)1.67 % Cu0.16 g/t Au1.01 % Cu0.10 g/t Au1.25 % Cu0.17 g/t AuHOT CHILI Annual Report 2018HOT CHILI Annual Report 2018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 10,000 86,000 72,000 2,000 320,000 241,000 12,000 17,000 5,000 7,000 2,000 22,000 9,000 400 100 400 250,000 176,000 10,000 91,000 74,000 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 nearest thousand, or if less, to the nearest hundred. Metal rounded to nearest thousand, or if less, to the nearest hundred. 16 HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018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, now working in a consulting capacity for the Company, 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. 17 HOT CHILI Annual Report 2018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. 18 HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018HOT CHILI Annual Report 20184 Corporate Activities 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 El Fuego. Convertible Notes Quarterly interest on convertible notes was paid to convertible note holders in the form of shares, pursuant to the terms and conditions of the convertible notes. The following issues of shares in lieu of cash took place during the year: Date Interest due $ VWAP Shares 31 July 2017 21,536 N/a N/a 2 October 2017 223,644 0.03710 6,028.186 4 January 2018 229,411 0.03523 6,511,789 4 April 2018 224,389 0.03679 6,099,183 3 July 2018 226,900 0.02840 7,989,446 Share Purchase Plan A Share Purchase Plan was also successfully completed, with 28,757,205 New Shares issued at A$0.035 each, for A$1,006,502 before costs. A$4.0 Million Placement On 30 April 2018 the Company announced its intention to raise approximately $4,000,000 (before costs) by way of a placement of Shares and free-attaching Offer Options exercisable at $0.10 each on or before 31 May 2020 to various sophisticated and professional investors in Australia, and to investors in other jurisdictions, including the United States, on the basis of one free-attaching Offer Option for every two Shares subscribed for under the Placement. The Placement saw strong demand from existing major shareholders as well as professional and sophisticated investors in Australia. EverBlu Capital Pty Ltd acted as Corporate Advisor to the Placement. Continued support was received from Blue Spec (a related party of Murray Black) and the Managing Director, Christian Easterday, who participated in the placement following shareholder approval. Funds from the Placement were used to advance exploration and drilling work at El Fuego as well as to provide general working capital for Hot Chili. 19 HOT CHILI Annual Report 2018HOT CHILI Annual Report 20184 Corporate Activities (cont’d) Hot Chili looks forward to a strong year ahead with a focus on delivering further success across exploration, resource growth and acquisitions 20 HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018HOT CHILI Annual Report 20185 Directors’ Report Your Directors have pleasure in presenting their report, together with the financial statements, for the year ended 30 June 2018 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 43 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. Mr Black Is currently a non-executive director of Great Boulder Resources Ltd (appointed 6 April 2016). Christian Ervin Easterday Managing Director Mr Easterday is a geologist with over 20 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. Mr Easterday has not held any directorships in any public listed company in Australia in the last three years. Dr Allan Trench Independent Non-Executive Director Dr Trench is a geologist/geophysicist and business management consultant with over 28 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 25 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 25 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. 21 HOT CHILI Annual Report 2018HOT CHILI Annual Report 20185 Directors’ Report (cont’d) Review of Operations Refer to Operations Report on pages 6 to 14. 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 3 July 2018 quarterly interest of $226,900 was settled by the issue of 7,989,446 ordinary fully paid shares using a VWAP of $0.0284. There were no other significance events occurring after the balance date 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 36 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. Mr Nickson has not held any directorships in any public listed company in Australia in the last three years. 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 almost 20 years’ experience within the mineral exploration industry. She has held project and senior geologist roles with several Australian listed companies including Hill 50 Gold, Harmony, 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. Ms Leighton is currently a non- executive director of Great Boulder Resources Ltd (appointed 6 April 2016). 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 2018 was a loss of $4,010,556 (2017: loss $2,498,476). Dividends No dividends were paid or declared since the end of the previous year. The Directors do not recommend the payment of a dividend. 22 HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018Security Holding Interests of Directors Ordinary Shares Options Over Ordinary Shares Convertible Notes 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 - Indirect Interest 71,795,243 Direct Interest - 300,000 20,764,065 - - 1,000,000 - 174,258 - - - - Indirect Interest 6,666,666 833,333 - - - - - Direct Interest - Indirect Interest 3,834 - - - - - - - - - - - - - - - - - - Melanie Leighton (Alternate for M Black) 140,000 Shares under Option Company Secretary – Lloyd Flint There were 108,666,667 ordinary shares under option at 30 June 2018 (2017: 39,000,000). Shares Issued on the Exercise of Options There were no ordinary shares of Hot Chili Limited issued during the year ended 30 June 2018 (2017: nil) from the exercise of options. Options Lapsed/ Cancelled During the Year No options lapsed or were cancelled during the year. Convertible Notes There are 113,009 convertible notes on issue as at 30 June 2018 (2017: 109,175). There were no shares issued during the financial year on redemption, conversion or repayment. Quarterly interest payable on the convertible notes was settled by the issue of shares. Directors Benefits Since 30 June 2018, 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. Lloyd Flint is a Chartered Accountant. He has 25 years’ experience in providing corporate secretarial, financial and business advice to a diverse group of business clients and public companies. 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. 23 HOT CHILI Annual Report 2018 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 2018 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 2017 to 30 June 2018, 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 HHealth 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 to Eligible Meetings while in office Eligible Meetings attended 5 5 5 5 5 4 - 5 5 5 5 4 4 - make sure our action plan remains effective and relevant. The LTIFR during the last 24 months (until 30th June 2018) 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 2018 has been received and is included within this annual report. 24 HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018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 practices: • 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 Directors 2018 Short Term Consulting Fees (Related Parties) $ - 36,792 Salary $ - - Directors’ Fee $ - - - - - 259,200 - - 33,600 - 36,178 - 36,792 - 259,200 32,144 101,922 Name Murray E Black Dr Michael Anderson Christian E Easterday Dr Allan Trench Roberto de Andraca Adriasola Randall Nickson (Appointed 17 August 2017) Post- Employment Share- based Payments Other Benefits $ Super- annuation $ Options $ - - - - - - - - - 24,624 3,192 - - 27,816 - - - - - - - 2017 Short Term Consulting Fees (Related Parties) $ - 36,792 Salary $ - - - - 259,200 - - 36,792 - 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 Post- Employment Share- based Payments Other Benefits $ Super- annuation $ Options $ - - - - - - - - 24,624 3,192 - 27,816 - - - - - - Total $ - 36,792 283,824 36,792 36,178 32,144 425,730 Total $ - 36,792 283,824 36,792 6,745 364,153 25 HOT CHILI Annual Report 20185 Directors’ Report (cont’d) Remuneration of Key Management Personnel 2018 Short Term Post- Employment Share-based Payments Consulting Fees Related Parties $ - - - - Salary $ 45,000 180,000 163,212 388,212 Other Benefits Super- annuation $ $ Options $ - - - - 4,188 17,100 - 21,288 - - - - Name John Sendziuk (Company Secretary)1 Melanie Leighton (Corporate Projects Manager / Alternate Director) Jose Ignacio Silva (Chief Legal Counsel) 1 Resigned 3 April 2018 2017 Short Term Post- Employment Share-based Payments Name John Sendziuk (Company Secretary) Melanie Leighton (Corporate Projects Manager) 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 $ 49,188 197,100 163,212 409,500 Total $ 65,700 197,100 165,495 428,295 26 HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018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 to 30 June 2018, 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. 2018 Directors Murray E Black Christian E Easterday Dr Allan Trench Dr Michael Anderson** Roberto de Andraca Adriasola George Randall Nickson** Key Management Personnel John Sendziuk 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 25,599,242 17,050,000 41,400 - 40,000 - 42,730,642 970,000 40,000 270,000 1,280,000 44,010,642 - - - - - - - - - - - - 46,196,001 4,014,065 132,858 - 71,795,243 21,064,065 174,258 - 960,000 1,000,000 - - 51,302,924 94,033,566 1(970,000) 100,000 3,720,834 2,850,834 54,153,758 - 140,000 3,990,834 4,130,834 98,164,400 1 Net changes during the period to date of resignation 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 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 * Resigned on 3 April 2018 ** There are no shares held during the financial year and up to 30 June 2018 by the director. 27 HOT CHILI Annual Report 2018 5 Directors’ Report (cont’d) Options Pursuant to participating in a placement of share to raise funds some directors and key management personnel were granted free attaching options during the year (2017: Nil). 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. Directors and key management personnel holdings of options are as followed: 2018 Directors Murray E Black Christian E Easterday Key Management Personnel Jose Ignacio Silva Balance at the start of the year Granted as compensation Other changes during the year Balance at the end of the year - - - - - - - - 6,666,666 833,333 6,666,666 833,333 1,666,667 9,166,666 1,666,667 9,166,666 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. 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. Remuneration Under the agreement, Mr Easterday will receive an annual salary of $259,200 after voluntary reductions, plus superannuation at the rate of 9.5% and other entitlements. Mr Easterday’s remuneration is subject to annual review. Term and termination Mr Easterday was employed for an initial term of 3 years, commencing on 9 October 2013. At least 6 months before the End Date, either party may give notice that the agreement will terminate on the End date. After the initial term, the agreement will continue until either Mr Easterday terminates by giving the Company 6 months’ notice or the Company terminates by giving Mr Easterday 6 months’ Termination entitlements Upon termination of the agreement, Mr Easterday will be entitled to termination benefits in accordance with Part 2D.2 of the Corporations Act. The termination benefits (including any amount of payment in lieu of notice) must not exceed the amount equal to one times the executive’s average annual base salary in the last 3 years of service with the Company, unless the benefit has first been approved by Shareholders in a general meeting. Post termination restraints Mr Easterday is subject to post termination non-competition restraints up to a maximum of 12 months from the date of termination. Additional information The earnings of the consolidated entity for the five years to 30 June 2018 are summarised below: Revenue Expenses EBITDA EBIT Loss after income tax 2018 140,513 (4,151,069) (2,419,012) (2,431,564) (4,010,556) 2017 1,356,693 (3,855,169) (1,311,457) (1,327,339) (2,498,476) 2016 186,665 (9,775,548) (7,153,060) (7,234,332) (9,588,883) 2015 71,601 (8,726,371) (6,290,813) (6,399,228) (8,654,770) 2014 538,546 (9,152,108) (6,542,811) (6,664,920) (8,613,562) 28 HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018 The factors that are considered to affect total shareholders return (‘TSR’) are summarised below: Share price at financial year end ($) Basic earnings per share (cents per share) 2018 0.03 (0.65) 2017 0.023 (0.44) 2016 0.06 (2.22) 2015 0.10 (2.47) 2014 0.19 (2.67) Other transactions with directors, key management personnel and their related parties MRA Consulting Pty Ltd, a company associated with Dr Anderson, a director, was paid $36,792 (2017: $36,792) in directors and consulting fees. There were no amounts payable as at 30 June 2018 (2017: Nil). 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, a director, following shareholder approval. Quarterly interest accruing on the convertible notes payable to Blue Spec Drilling Pty Ltd of $25,110 for the year was settled by the issue of 753,266 shares. ($7,698 was payable as at June 2018 which was settled by issue of 271,054 shares on 3 July 2018). Blue Spec Sondajes Chile Limitada, a company in which Mr Murray Black is a director, was paid $49,171 (2017: $276,499) for rent and drilling services. There were no amounts payable as at 30 June 2018 (2017: Nil). All transactions were made at commercial terms. End of Remuneration Report Dated this 28th day of September 2018 in accordance with a resolution of the Directors and signed for on behalf of the Board by: Christian E Easterday Managing Director 29 HOT CHILI Annual Report 2018 6 Auditors’ Independence Declaration 30 AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the financial report of Hot Chili Limited for the year ended 30 June 2018, 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: 28 September 2018 Partner HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018HOT CHILI Annual Report 20187 Auditors’ Report 31 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 2018, 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 2018 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 2018HOT CHILI Annual Report 20187 Auditors’ Report (cont’d) 32 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 $4,010,556 and had cash outflows from operating activities of $2,163,922 and from investing activities of $1,596,499 during the year ended 30 June 2018 and, as of that date, the Group's current liabilities exceeded its current assets by $5,644,344. 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 $108,743,662 as at 30 June 2018. 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 of 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 the successful development or by sale. This included the assessment of the key inputs, design and accuracy of the Productora Asset pre-feasibility financial model that supported management’s assessment; 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 2018HOT CHILI Annual Report 201833 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 The Group has 113,009 unsecured convertible notes with a face value of $100 each as at 30 June 2018. 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 ($3,814,764), and the conversion option classified as a derivative financial liability ($7,010,455). 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; • 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 2018, 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 20187 Auditors’ Report (cont’d) 34 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 2018. In our opinion, the Remuneration Report of Hot Chili Limited, for the year ended 30 June 2018, 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: 28 September 2018 Partner HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018HOT CHILI Annual Report 20188 Directors’ Declaration In the directors’ opinion: • • • • the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 1 to the financial statements; the attached financial statements and notes give a true and fair view of the Group’s financial position as at 30 June 2018 and of its performance for the financial year ended on that date; and there are reasonable grounds to believe that the Company 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. Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the directors Director Christian E Easterday Managing Director Dated this 28th day of September 2018 35 HOT CHILI Annual Report 2018HOT CHILI Annual Report 20189 Statement of Comprehensive Income FOR THE YEAR ENDED 30 JUNE 2018 Statement of Profit or Loss & Other Comprehensive Income 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 Loss on revaluation of derivative liability 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) Consolidated Entity 2018 $ 6,708 133,805 140,513 (12,552) (77,474) (422,109) (94,722) (219,196) (824,946) (183,913) (63,142) (29,229) (350,116) (76,081) (218,597) 2017 $ 14,179 1,342,514 1,356,693 (15,882) (788,723) (114,375) (81,522) (136,523) (799,244) (175,266) (114,078) (84,383) (374,036) - - (1,578,992) (4,010,556) - (1,171,137) (2,498,476) - (4,010,556) (2,498,476) - - (4,010,556) (2,498,476) (106,610) (155,296) (3,903,946) (2,343,180) (4,010,556) (2,498,476) (0.65) (0.65) (0.44) (0.44) Note 4 5 10 6 16 16 The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes. 36 HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018 10 Statement of Financial Position AS AT 30 JUNE 2018 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 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 2018 $ 2017 $ 7 8 9 10 11 13 12 3,656,560 2,402,980 12,086 113,438 3,668,646 2,516,418 193,353 219,928 108,743,662 107,555,248 108,937,015 107,775,176 112,605,661 110,291,594 2,302,535 7,010,455 9,312,990 2,571,093 6,451,250 9,022,343 3,814,764 3,814,764 3,184,082 3,184,082 13,127,754 12,206,425 99,477,907 98,085,169 14 15(b) 15(c) 15(a) 127,432,848 122,053,043 1,497,028 1,473,539 1,222 1,222 (48,762,425) (44,858,479) 80,168,673 78,669,325 15(d) 19,309,234 19,415,844 99,477,907 98,085,169 The above Statement of Financial Position should be read in conjunction with the accompanying notes. 37 HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018 11 Statement of Changes in Equity FOR THE YEAR ENDED 30 JUNE 2018 Consolidated Entity Contributed Equity Option Reserve Foreign Currency Translation Reserve Accumulated Losses Non- controlling Interest Total Equity $ $ $ $ $ $ Balance at 1 July 2017 122,053,043 1,473,539 1,222 (44,858,479) 19,415,844 98,085,169 Loss for the year Total Comprehensive Income for the Year - - Shares issued Share issue costs 5,703,116 (323,311) - - - - Share based payments - 23,489 - - - - - (3,903,946) (106,610) (4,010,556) (3,903,946) (106,610) (4,010,556) - - - - - - 5,703,116 (323,311) 23,489 Balance at 30 June 2018 127,432,848 1,497,028 1,222 (48,762,425) 19,309,234 99,477,907 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 The above Statement of Changes in Equity should be read in conjunction with the accompanying notes. 38 HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018 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 2018 2017 Note $ $ (2,159,372) (1,874,137) (145,063) (1,141,946) 6,708 133,805 14,179 122,269 Net cash used in operating activities 19(b) (2,163,922) (2,879,635) Cash Flows from Investing Activities Payments for plant and equipment Payments for exploration and evaluation 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 Repayment of borrowings Net cash provided by financing activities Net increase / (decrease) in cash held Cash and cash equivalents at the beginning of the financial year Effects of exchange rates on cash holdings in foreign currencies (15,029) (45,344) (1,581,470) (1,333,893) (1,596,499) (1,379,237) 5,006,380 4,400,050 (299,698) (231,653) 383,400 10,917,500 - (8,664,357) 5,090,082 1,329,661 6,421,540 2,162,668 2,402,980 (76,081) 221,576 18,736 Cash and cash equivalents at the end of the financial year 19(a) 3,656,560 2,402,980 The above Statement of Cash Flows should be read on conjunction with the accompanying notes. 39 HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018 13 Notes to the Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial report was authorised for issue on 28th September 2018 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. 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. 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 $4,010,556 and had cash outflows from operating activities of $2,163,922 and from investing activities of $1,596,499 for the year ended 30 June 2018. As of that date, the consolidated entity had net current liabilities of $5,644,344. 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 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. 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 2016-1 Amendments to Australian Accounting Standards - Recognition of Deferred Tax Assets for Unrealised Losses The consolidated entity has adopted AASB 2016-1 from 1 July 2017. The amendments to AASB 112 ‘Income Taxes’ clarify the requirements on recognition of deferred tax assets for unrealised losses on debt instruments measured at fair value. AASB 2016-2 Amendments to Australian Accounting Standards - Disclosure Initiative: Amendments to AASB 107 The consolidated entity has adopted AASB 2016-2 from 1 July 2017. The amendments to AASB 107 ‘Statement of Cash Flows’ require the disclosure of changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. AASB 2017-2 Amendments to Australian Accounting Standards - Further Annual Improvements 2014-2016 Cycle The consolidated entity has adopted AASB 2017-2 from 1 July 2017. The amendments to AASB 12 ‘Disclosure of Interests in Other Entities’ clarify that the disclosure requirements of AASB 12 (other than the requirements for summarised information for subsidiaries, joint ventures and associates) apply to an entity’s interests in other entities that are classified as held for sale, held for distribution to owners in their capacity as owners, or discontinued operations in accordance with AASB 5 ‘Non-current Assets Held for Sale and Discontinued Operations’. (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. 40 HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018 Where control of an entity is obtained during a financial year, its results are included in the consolidated statement of profit and loss and 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. 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. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) 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 liability of $7,010,455 (Note 13) and debt component of $3,814,764 (Note 12) attributed to granting an option to the convertible note holder that may be converted at any time prior to maturity. The convertible note is redeemable at the option of the company and thus will not be a drain on the company’s funds; Included in current liabilities a refundable deposit option fee of $2,029,500 (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 • Other sources of funding may also be contemplated. This may include the issue of additional equity securities under the Corporations Act 2001 to raise further working capital. 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 entity is shown separately in the consolidated statement of profit or loss and other comprehensive income and the consolidated statement of financial position respectively. 41 HOT CHILI Annual Report 2018HOT CHILI Annual Report 201813 Notes to the Financial Statements (cont’d) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) (h) Plant and equipment Plant and equipment (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. (f) Current and non-current classification 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 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. Plant and equipment are measured on the cost basis less depreciation and impairment losses. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the consolidated entity and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred. Each class of plant and equipment is carried at cost or fair value less, where applicable, any accumulated depreciation and impairment losses. The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the assets’ employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts Depreciation The depreciable amount of all plant and equipment is depreciated on a diminishing value over their useful lives to the consolidated entity commencing from the time the asset is held ready for use. The depreciation rates used for each class of depreciable assets are: Class of Fixed Asset Plant and Equipment Depreciation Rate 10-33% The assets’ residual values and useful lives are reviewed, and 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. 42 HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) (j) Equity-based payments Equity-based compensation benefits can be provided to directors and executives. (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. 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 become 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. (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. 43 HOT CHILI Annual Report 2018 13 Notes to the Financial Statements (cont’d) New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been Issued or amended but are not yet mandatory, have not been early adopted by the consolidated entity for the annual reporting period ended 30 June 2018. The consolidated entity’s assessment of the Impact of these new or amended Accounting Standards and Interpretations, most relevant to the consolidated entity, are set out below: 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 not expected to have a material impact on 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. 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. 44 HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018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. 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. 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. 45 HOT CHILI Annual Report 2018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 (2017: 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% (2017: 27.5%) 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% (2017: 27.5%) Geographical Non-current assets 2018 $ 53,521 2017 $ 51,044 108,883,494 108,937,015 107,724,132 107,775,176 Consolidated Entity 2017 2018 $ $ 6,708 6,708 14,179 14,179 - - 133,805 133,805 227,745 992,500 122,269 1,342,514 (4,010,556) (1,102,903) 471,044 631,859 - (2,498,476) (687,081) (128,557) 815,638 - 21,574,064 5,932,868 19,353,868 5,322,314 (c) The directors estimate that the potential deferred tax asset at 30 June 2018 in respect of tax losses not brought to account is $5,932,868 (2017: $5,322,314). In addition, Chilean subsidiaries of Hot Chili Limited also have tax losses that are a potential deferred tax asset of $20,713,268 (2017: $17,726,786). 46 HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018 6. INCOME TAX EXPENSE (CONT’D) (d) The benefit for tax losses will only be obtained if: i. ii. 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 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 (i) Carrying amount at the end of the year Consolidated Entity 2018 $ 3,656,560 3,656,560 2017 $ 2,402,980 2,402,980 - 11,953 133 12,086 723,395 (530,042) 193,353 219,928 15,029 - (41,604) 193,353 35,449 77,856 133 113,438 708,366 (488,438) 219,928 325,086 45,344 (84,170) (66,332) 219,928 (i) Depreciation of $29,052 (2017: $50,450) was capitalised into exploration costs. 10. EXPLORATION AND EVALUATION EXPENDITURE Carrying amount at the beginning of the year Consideration given for mineral exploration acquisition Capitalised mineral exploration and evaluation Exploration costs written off 107,555,248 106,335,730 173,741 1,436,782 (422,109) - 1,333,893 (114,375) Carrying amount at the end of the year (i) 108,743,662 107,555,248 (i) 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. 47 HOT CHILI Annual Report 2018 13 Notes to the Financial Statements (cont’d) 11. TRADE AND OTHER PAYABLES Trade payables and accruals Refundable deposit (option fee) (i) Consolidated Entity 2018 $ 273,035 2,029,500 2,302,535 2017 $ 619,721 1,951,372 2,571,093 (i) 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 NON-CURRENT Convertible note – debt component1 Consolidated Entity 2017 2018 $ $ 3,184,082 3,814,764 3,814,764 3,184,082 1 There are a total of 113,009 convertible notes on issue (2017: 109,175). On 22 June 2017, the consolidated entity issued 109,175, 8% five-year convertible notes, with a face value of $100 each and a further 3,834 convertible notes were issued on 8 September 2017 for total proceeds of $11,300,900. 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; and 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. 48 HOT CHILI Annual Report 2018HOT CHILI Annual Report 201812. BORROWINGS (CONT’D) Convertible note - reconciliation Balance Brought forward Proceeds from Issue Derivative liability at inception Transaction costs Interest expense Interest paid At the end of the financial year Consolidated Entity 2017 $ 2018 $ 3,184,082 383,400 (340,608) (2,140) 3,224,734 1,494,376 (904,346) 3,814,764 - 10,917,500 (7,443,750) (299,716) 3,174,034 29,190 (19,142) 3,184,082 13. DERIVATIVE FINANCIAL INSTRUMENTS Derivative Liability - Convertible Note Consolidated Entity 2017 2018 $ $ 6,451,250 7,010,455 6,451,250 7,010,455 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 Balance at beginning of period Derivative liability at inception Net Change in fair value during the period At the end of the financial year Consolidated Entity 2017 2018 $ $ 6,451,250 340,608 218,597 7,010,455 - 7,443,750 (992,500) 6,451,250 49 HOT CHILI Annual Report 2018 13 Notes to the Financial Statements (cont’d) 14. CONTRIBUTED EQUITY (a) Share capital No. Shares Consolidated Entity 2018 2017 2018 $ 2017 $ At the beginning of the financial year 554,381,254 445,723,709 122,053,043 117,209,608 Shares issued during the financial year Shares issued in lieu of convertible note costs 162,090,539 19,404,971 Shares issued for the extension of the finance facility Less cost of issue At the end of the financial year (b) Terms and Conditions of Contributed Equity Ordinary Shares 88,001,000 11,300,976 9,355,569 5,006,502 696,614 - (323,311) 4,400,050 282,514 523,912 (363,041) - - 735,876,764 554,381,254 127,432,848 122,053,043 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 2018 Options 2017 Options 39,000,000 69,666,667 108,666,667 11,000,000 28,000,000 39,000,000 There are no listed options over ordinary shares in the company at 30 June 2018 (2017: 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. 50 HOT CHILI Annual Report 2018HOT CHILI Annual Report 201815. RESERVES, ACCUMULATED LOSSES AND NON-CONTROLLING INTERESTS (a) Accumulated losses Accumulated losses at the beginning of the year Net loss for the year Accumulated losses at the end of the year (b) Option reserve The options reserve is used to recognise the fair value of options issued. As at 30 June 2018, 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 Share of loss for the year Balance at the end of the year 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 2018 $ 2017 $ (44,858,479) (3,903,946) (48,762,425) (42,515,299) (2,343,180) (44,858,479) 1,473,539 23,489 1,497,028 1,125,616 347,923 1,473,539 1,222 - 1,222 1,222 - 1,222 19,415,844 (106,610) 19,309,234 19,571,140 (155,296) 19,415,844 Consolidated Entity 2018 $ 2017 $ (3,903,946) (2,343,180) (0.65) (0.65) (0.44) (0.44) 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 596,376,912 537,703,601 596,376,912 537,703,601 51 HOT CHILI Annual Report 2018 13 Notes to the Financial Statements (cont’d) 17. REMUNERATION OF AUDITORS Remuneration of the auditor for: - Auditing and reviewing of financial reports - Tax services Consolidated Entity 2018 $ 2017 $ 46,000 18,434 64,434 44,300 22,636 66,936 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) (Independent Non-Executive Director, appointed 17 August 2017) (b) Company Secretary John Sendziuk (Resigned 3 April 2018) Lloyd Flint (Appointed 3 April 2018) (c) Corporate Projects Manager Melanie Leighton (also Alternate Director) (d) Chief Legal Counsel and country manager Jose Ignacio Silva (e) Details of Remuneration of Key Management Personnel for the year ended 30 June 2017: Consolidated Entity 2017 2018 $ $ 397,914 27,816 425,730 388,212 21,288 409,500 835,230 336,337 27,816 364,153 405,495 22,800 428,295 792,448 Directors Short-term benefits Post-employment benefits Key Management Personnel Short-term benefits Post-employment benefits Total 52 HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018 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 Amortised finance costs Non-cash finance costs Shares issued in lieu of convertible note transaction costs Options issued in lieu of convertible note transaction costs Consolidated Entity 2018 $ 3,656,560 3,656,560 2017 $ 2,402,980 2,402,980 (4,010,556) (2,498,476) 12,552 76,081 422,109 218,597 - 587,888 677,443 - 19,170 66,332 (227,745) 114,375 (992,500) 84,170 - - 192,116 146,381 Net cash flows from operating activities before change in assets and liabilities (1,996,716) (3,115,347) Change in assets and liabilities during the financial year: Other current assets Trade and other payables Net cash outflow from operating activities (c) Non cash investing and financing activities 101,352 (268,558) (113,305) 349,017 (2,163,922) (2,879,635) 66,666,667 options exercisable at 10c per share expiring on 31 May 2020 were issued as free attaching on a one option issued for every two shares successfully applied for in a placement of shares announced 30 April 2018. A further 3,000,000 of the same series of options were issued to EverBlu Capital Pty Ltd as fees for managing the placement. Quarterly convertible note interest that accrued to noteholders was settled through the issue of fully paid ordinary shares calculated on the 5 day volume weighted average price (VWAP) prior to quarter end: Quarter ended Date paid Interest due $ 30 September 2017 2 October 2017 31 December 2017 4 January 2018 31 March 2018 30 June 2018 4 April 2018 3 July 2018 223,644 229,411 224,389 226,900 VWAP 0.03710 0.03520 0.03679 0.02840 Shares issued 6,028,186 6,511,789 6,099,183 7,989,446 There were no non cash investing and financing activities during the 2017 year. 53 HOT CHILI Annual Report 2018 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: Within one year Later than one year but not later than five years (b) Exploration Commitments Consolidated Entity 2017 2018 $ $ 78,000 105,116 - 105,116 - 78,000 During the year the consolidated entity entered into a formal agreement to acquire a 90% interest in the San Antonio Project, a 70% interest in Lulu project and a 90% interest in the Valentina Project over a four-year period. The Joint ventures involves an Option agreement whereby the full interest of 90%, 70% and 90% respectively of the mining rights of the project will be transferred upon satisfaction of the following Option payments committed as at 30 June 2018: Within one year Later than one year but not later than five years (c) Operating Leases 101,475 18,197,808 18,299,283 - - - 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 75,533 188,833 113,300 188,833 302,133 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 3 July 2018 quarterly interest of $226,900 was settled by the issue of 7,989,446 ordinary fully paid shares using a VWAP of $0.0284. 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 (2017: $36,792) in directors and consulting fees. There were no amounts payable as at 30 June 2018 (2017: Nil). 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. Quarterly interest accruing on the convertible notes payable to Blue Spec Drilling Pty Ltd of $25,110 for the year was settled by the issue of 753,266 shares. ($7,698 was payable as at June 2018 which was settled by issue of 271,054 shares on 3 July 20180. Blue Spec Sondajes Chile Limitada, a company in which Mr Murray Black is a director, was paid $49,171 (2017: $276,499) for rent and drilling services. There were no amounts payable as at 30 June 2018 (2017: Nil). All transactions were made at recognised commercial terms. 23. CONTINGENT LIABILITIES As at 30 June 2018, Hot Chili Limited had accumulated VAT refund payments totalling $12,602,329 (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. 54 HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018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 2018 % 100 80* 100 100 100 2017 % 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-18 30-Jun-17 185,614 108,133,390 108,319,004 139,094 107,354,922 107,494,016 - 25,521,627 25,521,627 25,169 24,138,425 24,163,594 82,797,377 83,330,422 133,805 (666,849) (533,044) - (533,044) - (533,044) - (776,482) (776,482) - (776,482) - (776,482) (620,874) (778,468) 1,383,201 (16,141) (700,527) (1,265,909) 2,028,521 62,085 (106,610) 19,309,234 (155,296) 19,415,844 55 HOT CHILI Annual Report 2018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. 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 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. 56 HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018Weighted average interest rate % 1 year or less $ Between 1 and 5 years $ Remaining contractual maturities $ Amount as per Statement of Financial Position $ -% -% 8% -% 273,035 2,029,500 - 2,302,535 7,010,455 7,010,455 - - 273,035 273,035 2,029,500 2,029,500 11,300,900 11,300,900 11,300,900 13,603,435 - - 7,010,455 7,010,455 3,814,764 6,117,299 7,010,455 7,010,455 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 - - 10,917,500 10,917,500 - - 619,721 1,951,372 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 Consolidated - 2018 Non-derivatives Non-interest bearing Trade payables Refundable deposit Convertible note debt – fixed rate Total non-derivatives Derivatives Convertible note debt Total derivatives Consolidated - 2017 Non-derivatives Non-interest bearing Trade payables Refundable deposit Interest-bearing - fixed rate Total non-derivatives Trade payables Refundable deposit (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. 2018 2017 AUD/USD + 10% AUD/USD - 10% AUD/USD + 10% AUD/USD - 10% Consolidated Entity Post tax profit Equity $ $ - - Post tax profit Equity $ $ - - - - - - 57 HOT CHILI Annual Report 2018 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 2018 $ 2017 $ 3,419,774 90,470,785 93,890,559 2,357,525 87,986,425 90,343,950 7,283,490 3,814,764 7,045,801 3,184,082 11,098,254 10,229,883 127,432,859 122,053,054 1,497,029 1,473,539 (46,137,583) (43,412,526) 82,792,305 80,114,068 (2,992,689) (1,811,540) - - (2,992,689) (1,811,540) Contingent liabilities of the parent entity The parent entity did not have any contingent liabilities as at 30 June 2018 or 30 June 2017. Contractual commitments for the acquisition of property, plant or equipment The parent entity did not have any contractual commitments for the acquisition of property, plant or equipment as at 30 June 2018 or 30 June 2017. 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 2018: Issue date 27/06/2014 24/08/20162 06/06/20173 09/05/20181 21/06/20181 Total Expiry date 27/06/2019 06/09/2018 20/06/2019 31/05/2020 31/05/2020 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 - - 39,000,000 - - - 52,189,305 17,477,362 69,666,667 - - - - - - - - - - Balance at end of year 11,000,000 8,000,000 20,000,000 52,189,305 17,477,362 108,666,667 Number exercisable at end of year 11,000,000 8,000,000 20,000,000 52,189,305 17,477,362 108,666,667 (1) Weighted average exercise price for options issued during the financial year was $0.10 (2017: $0.052). (2) The weighted average remaining contractual life of options outstanding at the end of the financial year was 1.2 years (2017: 1.71 years). 58 HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018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. 2018 (1) 69,666,667 options exercisable at 10c each expiring 31 May 2020 were issued pursuant to a placement announced 30 April 2018 and a prospectus dated 2 May 2018. 66,666,667 of the options were free attaching options issued to successful places on a “one option for every two shares” successfully applied for. 3,000,000 of the options were a share based payment forming part of the fees paid for managing the placement. The inputs for the fair value model for fee options were as follows: a) options are granted for no consideration. b) exercise price - $0.10 c) issue date – 9 May 2018 d) expiry date – 31 May 2020 e) expected price volatility of the Company’s shares: 100% f) risk-free interest rate: 2.01% g) spot price at date of issue: $0.03 fair value of 0.783c per option h) 2017 (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 - $0.10 c) issue date - 24 August 2016 d) expiry date – 6 September 2018 e) expected price volatility of the Company’s shares: 94% f) g) spot price at date of valuation: $0.05 risk-free interest rate: 1.50% (3) 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) g) spot price at date of valuation: $0.030 risk-free interest rate: 1.50% (c) Shares issued as share-based payment transactions: During the year the Company issued 19,404,971 shares (2017: 11,300,976) at a fair value of $923,514 (2017: $282,524) in lieu of interest and transaction costs related to the convertible note issue. As at 30 June 2018 interest of $226,900 had accrued and the 7,989,446 shares issued on 3 July 2018 are included in total issued for the year. (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 Convertible note interest and transaction costs 2018 2017 23,490 - - - - 923,514 947,004 132,657 192,116 90,408 146,381 68,885 - 630,447 59 HOT CHILI Annual Report 2018 14 Shareholder Information AS AT 24 SEPTEMBER 2018 Information Required by the Australian Securities Exchange Limited (a) Spread of Holdings 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 & Over There are 859 holders of unmarketable parcels comprising 743,866,210 shares. (b) Substantial Shareholders (from substantial shareholder notices) Shareholders Units 113 275 189 726 446 32,113 793,514 1,569,023 28,925,717 712,545,843 1,749 743,866,210 93,340,695 66,153,868 12.68% 8.89% Shares Held Directly - 300,000 - - - - Held by Companies in which Directors’ have a beneficial Interest 71,795,243 20,764,065 174,258 - 1,000,000 - % 9.65% 2.83% 0.02% - 0.13% - Taurus SM Holdings Pty Ltd CAP SA (c) Directors’ Shareholdings Murray E Black Christian E Easterday Dr Allan Trench Dr Michael Anderson Roberto de Andraca Adriasola George Randall Nickson 60 HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018 (d) The names of the twenty largest shareholders as at 24 September 2018, who between them held 65.34% of the issued capital are listed below: 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 CITICORP NOMINEES PTY LIMITED KALGOORLIE AUTO SERVICE PTY CAP S A BLUE SPEC DRILLING PTY LTD BLUE SPEC SONDAJES CHILE SPA HSBC CUSTODY NOMINEES MR BERNARD OWEN STEPHENS & SAMLISA NOMINEES PTY LTD YARANDI INVESTMENTS PTY LTD TWO TOPS PTY LTD SAFARI CAPITAL PTY LTD REPLAY HOLDINGS PTY LTD AUSTERIDAD INVERSIONES EXPLORATION CAPITAL PARTNERS MR GRAHAM JOHN WOOLFORD AMC INVESTMENTS (WA) PTY LTD AJAVA HOLDINGS PTY LTD INVERSIONES CANTO DEL AGUA INVERSIONES PIMPOLLEDA Number of Ordinary Shares 100,588,142 76,562,624 67,000,000 66,153,868 30,799,033 24,246,210 21,746,447 17,000,000 14,000,000 11,293,473 9,294,243 7,277,036 5,928,572 5,872,804 5,717,518 5,000,000 4,920,467 4,449,996 4,152,813 3,990,834 % 13.52% 10.29% 9.01% 8.89% 4.14% 3.26% 2.92% 2.29% 1.88% 1.52% 1.25% 0.98% 0.80% 0.79% 0.77% 0.67% 0.66% 0.60% 0.56% 0.54% 485,994,080 65.34% (e) As at 24 September 2018 there are 18 holders of the 113,009 Convertible Notes on issue. Convertible Note holders holding more than 20% of the notes: 1 Exploration Capital Partners 2008 Ltd Partnership There are no voting rights attached to Convertible Notes Number Held 80,873 % 71.56% (f) As at 24 September 2018 there are 91 holders of the 100,666,667 Options over shares on issue. There are no Option holders holding more than 20% of the options. There are no voting rights attached to Options (g) As at 24 September 2018 there is no current on-market buyback under way. 61 HOT CHILI Annual Report 201815 Tenement Schedule Hot Chili has significantly added to its landholdings in Chile with addition of the San Antonio, Valentina and Lulu projects during the year. Productora 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, 1-60 FRAN 2, 1-20 FRAN 3, 1-20 FRAN 4, 1-20 FRAN 5, 1-20 FRAN 6, 1-26 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, 1-46 ALGA 7A, 1-32 ALGA VI, 5-24 MONTOSA 1-4 CHICA ESPERANZA 1-5 LEONA 2A 1-4 CARMEN I, 1-50 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 1-14 CACHIYUYITO 1, 1-20 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 62 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 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 220 100 100 100 100 130 176 120 200 200 200 300 273 226 89 66 35 1 11 10 222 274 100 92 80 120 50 255 139 255 3 1 50 61 66 30 50 70 100 300 300 NSR 3% HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018 Licence ID Holder % Interest Licence Type Expiration date (dd.mm.yyyy) Area (ha) Exploration and Expenditure Commitment- Payments LA PRODUCTORA 1-16 SMEA SpA ORO INDIO 1A, 1-20 AURO HUASCO I, 1-8 SMEA SpA SMEA SpA 80% 80% 80% Exploitation concession Exploitation concession Exploitation concession 75 82 35 URANIO, 1-70 CCHEN 80% Exploitation concession 350 JULI 9, 1-60 JULI 10, 1-60 JULI 11 1/60 JULI 12 1/42 JULI 13 1/20 JULI 14 1/50 JULI 15 1/55 JULI 16, 1-60 JULI 17, 1-20 JULI 19 JULI 20 JULI 21 1/60 JULI 22 JULI 23 1/60 JULI 24, 1-60 JULI 25 JULI 27 1/30 JULI 27 B 1/10 JULI 28 1/60 JULIETA 5 JULIETA 6 JULIETA 7 JULIETA 8 JULIETA 9 JULIETA 10 1/60 JULIETA 11 JULIETA 12 JULIETA 13, 1-60 JULIETA 14, 1-60 JULIETA 15, 1-40 JULIETA 16 JULIETA 17 JULIETA 18, 1-40 ARENA 1 1-6 ARENA 2 1-17 ZAPA 1 - 6 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 SMEA SpA SMEA SpA SMEA SpA SMEA SpA SMEA SpA SMEA SpA SMEA SpA SMEA SpA 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% Exploitation concession Exploitation concession Exploration concession Exploration concession Exploration concession Exploration concession Exploration concession Exploitation concession Exploitation concession Exploration concession Exploration concession Exploration concession Exploration concession Exploration concession Exploitation concession Exploration concession Exploration concession Exploration concession Exploration concession Exploration concession Exploration concession Exploration concession Exploration concession Exploration concession Exploration concession Exploration concession Exploration concession Exploitation concession Exploitation concession Exploitation concession Exploration concession Exploration concession Exploitation concession Mining Claim Mining Claim Exploitation concession 300 300 300 210 100 250 275 300 100 300 300 300 300 300 300 300 150 50 300 200 200 100 100 100 300 300 300 298 269 200 200 200 200 40 113 6 16/03/2020 21/03/2020 15/03/2018 16/03/2020 27/03/2020 14/03/2020 15/03/2020 15/03/2020 21/03/2020 15/03/2020 15/03/2020 16/03/2020 14/03/2020 Lease agreement USD 250,000 per Yr (average for the 25 year term); plus 2% NSR all but gold; 4% NSR gold; 5% NSR non-metallic NSR 1% Notes SMEA SpA (Sociedad Minera El Aguila SpA) is a wholly owned Chilean subsidiary of Hot Chili Limited; CMP= Compañía Minera del Pacífico; CCHEN= Comisión Chilena de Energía Nuclear. 63 HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018 15 Tenement Schedule (cont’d) San Antonio The Company has executed a Joint Venture Option Agreement to earn a 90% interest in the San Antonio project, located 20km trucking distance to the east of Productora. The Joint Venture (JV) involves an Option agreement whereby full ownership of 90% of the mining rights of the project will be transferred upon satisfaction of the following Option payment schedule: 1. US$nil paid on execution of a formal JV Option agreement (executed 7 November 2017) 2. US$300,000 36 months from execution of a formal JV Option agreement 3. US$6,700,000 48 months from execution of a formal JV Option agreement Exploration by Hot Chili at San Antonio 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. Along with entering into a 90% JV option agreement, the Company has successfully doubled the size of the San Antonio project through exploration lease applications over available prospective land positions around the project, with the landholding now standing at almost 4000 hectares. A schedule of tenements is tabled below. Table 2. San Antonio project tenement schedule Licence ID Holder Santiago 21 al 36 Arnaldo Del Campo Santiago 37 al 43 Arnaldo Del Campo Santiago A, 1 al 26 Arnaldo Del Campo Santiago B, 1 al 20 Arnaldo Del Campo Santiago C, 1 al 30 Arnaldo Del Campo Santiago D, 1 al 30 Arnaldo Del Campo Santiago E, 1 al 30 Arnaldo Del Campo Prima Uno Prima Dos Arnaldo Del Campo Arnaldo Del Campo Santiago 15 al 19 Arnaldo Del Campo San Antonio 1 al 5 Arnaldo Del Campo Santiago 1 AL 14 Y 20 Arnaldo Del Campo Mercedes 1 al 3 Arnaldo Del Campo CORTADERA 1 CORTADERA 2 CORTADERA 3 CORTADERA 4 CORTADERA 5 CORTADERA 6 CORTADERA 7 SAN ANTONIO 1 SAN ANTONIO 2 SAN ANTONIO 3 SAN ANTONIO 4 SAN ANTONIO 5 DORO 1 DORO 2 DORO 3 Frontera SpA Frontera SpA Frontera SpA Frontera SpA Frontera SpA Frontera SpA Frontera SpA Frontera SpA Frontera SpA Frontera SpA Frontera SpA Frontera SpA Frontera SpA Frontera SpA Frontera SpA % Interest 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Licence Type 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 Exploration Concession Exploration Concession Exploration Concession Exploration Concession Exploration Concession Exploration Concession Exploration Concession Exploration Concession Exploration Concession Exploration Concession Exploration Concession Exploration Concession Exploration Concession Exploration Concession Exploration Concession Area (ha) Expiration date (dd.mm.yyyy) Exploration and Expenditure Commitment- Payments 90% (HCH)-10% JV. 4 years term. USD 300,000 to be paid on year 3 -Nov 7th 2020. USD 6,700,000 as a final exercise payment on year 4.. 76 26 236 200 300 300 300 1 2 25 25 75 50 200 200 200 200 200 300 100 200 200 300 300 300 200 200 300 02/02/2020 28/02/2020 08/03/2020 28/02/2020 02/03/2020 19/02/2020 06/03/2020 02/03/2020 28/02/2020 06/03/2020 20/02/2020 02/03/2020 25/07/2020 06/08/2020 25/07/2020 Note: Frontera SpA (Sociedad Minera Frontera SpA) is a wholly owned Chilean subsidiary of Hot Chili Limited. 64 HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018 Valentina The Company has executed a Joint Venture Option Agreement to earn a 90% interest in the Valentina project, located 20km east of Productora. The Joint Venture (JV) involves an Option agreement whereby full ownership of 90% of the mining rights of the project will be transferred upon satisfaction of the following Option payment schedule: 1. US$nil paid on execution of a formal JV Option agreement (executed 4 June 2018) 2. US$150,000 36 months from execution of a formal JV Option agreement 3. US$4,000,000 48 months from execution of a formal JV Option agreement Exploration by Hot Chili at Valentina shall be at its discretion other than for the requirement that 1,500 meters of drilling be completed during the first 24 months of the JV by Hot Chili. A schedule of tenements is tabled below. Table 3. Valentina project tenement schedule Licence ID Holder % Interest Licence Type Area (ha) Expiration date (dd.mm.yyyy) SAN JUAN SUR 1/5 Arnaldo Del Campo 90% Exploitation concession 10 SAN JUAN SUR 6/23 Arnaldo Del Campo 90% Exploitation concession 90 Note: Frontera SpA (Sociedad Minera Frontera SpA) is a wholly owned Chilean subsidiary of Hot Chili. Lulu Exploration and Expenditure Commitment- Payments 90% (HCH)-10% JV. 4 years term. USD 150,000 to be paid on year 3 -June 1st 2020. USD 4,000,000 as a final exercise payment on year 4. The 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 (executed 3 November 2017) 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 Hot Chili 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. A schedule of tenements is tabled below. Table 4. Lulu project tenement schedule Licence ID Holder % Interest Licence Type Area (ha) Expiration date (dd.mm.yyyy) El Sarco 1 al 16 Hernán Callejas 70% Exploitation concession 40 La Gringa 1-40 (23 y 24) Hernán Callejas 70% Exploitation concession 10 Note: Frontera SpA (Sociedad Minera Frontera SpA) is a wholly owned Chilean subsidiary of Hot Chili Limited. Exploration and Expenditure Commitment- Payments 70% (HCH)-30% JV. 4 years term. USD 75,000 paid upon execution -3 Nov 2017-. USD 75,000 after one year; USD 150,000 after 2 years; USD 150,000 after 3 years and final exercise payment of USD 2,000,000 year 4. 65 HOT CHILI Annual Report 2018HOT CHILI Annual Report 2018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 Lloyd Flint 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 66 HOT CHILI Annual Report 2018www.hotchili.net.au 

Continue reading text version or see original annual report in PDF format above