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2023 ReportRegistered number: 05389216 FINNAUST MINING PLC ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 FINNAUST MINING PLC CONTENTS Company Information Chairman’s Report Group Strategic Report Directors’ Report Statement of Directors’ Responsibilities Corporate Governance Report Independent Auditor’s Report Consolidated and Company Statement of Financial Position Consolidated Income Statement Consolidated Statement of Comprehensive Inc ome Consolidated Statement of Changes in Equity Company Statement of Changes in Equity Consolidated and Company Statements of Cash Flows Notes to the Financial Statements Page 2 3 7 9 11 12 13 14 15 16 17 18 19 20 FINNAUST MINING PLC COMPANY INFORMATION Directors Graham Marshall (Non-Executive Chairman) Gregory Kuenzel (Non-Executive Director) Roderick McIllree (Executive Director) – Appointed 8 December 2015 Daniel Lougher (Non-Executive Director) – Resigned 10 March 2016 Company Secretary Garth Palmer CA Registered Office 47 Charles Street London W1J 5EL Company Number 05389216 Bankers Nominated Adviser & Broker Independent Auditor Solicitors HSBC Bank plc 129 New Bond Street London W1J 2JA S.P. Angel Corporate Finance LLP Prince Frederick House 35-39 Maddox Street London W1S 2PP PKF Littlejohn LLP Statutory Auditor 1 Westferry Circus Canary Wharf London E14 4HD Kerman & Co LLP 200 Strand London WC2R 1DJ 2 FINNAUST MINING PLC CHAIRMAN’S REPORT The year under review for FinnAust Mining plc (the ‘Company’ or ‘FinnAust’) has been characterised by rapid transformation and progress, thanks to our successful acquisition of the Pituffik Titanium Project (‘Pituffik’ or the ‘Project’) in Greenland in December 2015. We believe that this significant and unusually pure titanium deposit, which is spread across both beaches and the shallow marine environment, has the potential to be in the top percentile of projects worldwide in terms of heavy mineral grade. I sit on the FinnAust Board as a representative of the Company’s supportive cornerstone investor, Western Areas Limited, and in assessing this Project, we were attracted to the opportunity to deliver production at low cost in the relative near term via a dredging operation within the marine environment using industry normal equipment and practices. FinnAust has big ambitions for this distinctive and exciting Project and is committed to effectively delivering on our strategy for the benefit of all stakeholders. We anticipate dredging a small amount of material next year to demonstrate that the logistics and processing routes currently being developed are precise before ramping up our operation towards a full production scenario. Significant milestones have been achieved since December 2015: we were granted the first offshore minerals licence in Greenland; appointed consultants with the right experien ce to develop this project; received very positive results from the 2015 study programme which demonstrated that the shallow marine environment hosts very large volumes of potentially high grade titanium; and commenced a work programme to generate a maiden JORC code compliant resource which, when defined, will support the Company in its application for an exploitation licence during 2017. I am pleased to report that the initial findings of the activities support our belief that Pituffik has the potential to be a significant global titanium project. Pituffik is located within the broader "Thule black sand province" in North West Greenland, comprising coastlines several hundred kilometres long that contain both ilmenite and magnetite -rich regions. These regions host localised higher concentrations of ilmenite, and it is these areas that FinnAust is targeting. The Company has focused its attention on three primary target types along more than 30km of prospective coastline, Raised, Active, and Drowned beaches. Work undertaken prior to our acquisition of the project identified two project areas within the Pituffik tenure. Moriusaq is the most advanced and has returned the highest ilmenite grades to date, whilst Interlak offers the largest volume of heavy miner al sands with grade upside potential. Importantly, the highest-grade material from the entire region to date has been identified within FinnAust’s licences. Photogrammetry, marine bathymetry and onshore and offshore sampling was completed by the previou s owners, Bluejay Mining Limited (‘Bluejay’), during 2015 and initial results gave an indication that it could become one of the highest grade in situ deposit of ilmenite anywhere in the world. Shortly after the transaction we delivered the results from t hese campaigns which positively strengthened this belief by demonstrating that the shallow marine environment hosts very large volumes of potentially high grade titanium within shallow, extensive and thick ilmenite rich sediments extending for >30km in len gth and 1,000m in width. With the sedimentary horizons on average more than 5m in thickness (up to a maximum thickness of 27m), the amount of known titanium mineralisation understood by the Company to be in existence at Pituffik was multiplied significantly. Three sedimentary units were identified in total with the two shallowest sequences showing visual concentrations of ilmenite. Sampling in the “Moriusaq bay” gave us an indication of the phenomenal grade potential of this area, returning opaque fractions (magnetite and ilmenite) of up to 95% of sample with 73% of that being ilmenite. Sampling was not limited to the marine environment and on the active beaches at Moriusaq, average grades of ±40% were returned. In addition to these areas are the far more expansive uplifted beaches which are on average around 17% ilmenite. The third or "high stand" sequence wasn't sampled during 2015, however continues to represent an attractive exploration target even if in slightly deeper water. These results make it clear that we have ownership of a very pure and expansive ilmenite deposit. Bearing in mind our plans to dredge the marine environment, we were naturally delighted to receive an extension to our existing onshore licences to include all minerals within the shallow marine environment at Pituffik. This is the first time that the Self Rule Government of Greenland has granted a marine based exploration licence, which is testament to our strong relationship with the authorities and the potential of our Project. This was a milestone moment for FinnAust, providing us not only with title over the marine bearing sediments at Pituffik but more importantly, providing us a clear permitting pathway for the Project as a whole. Our positive relationship with the Greenlandic authorities endorses our strong geographic focus on European natural resource projects, mostly due to the Board’s aversion to sovereign risk. With this licence in hand we are ideally positioned to look ahead and commence a new work programme to support our production strategy. In order to successfully commercialise this exciting asset, it is imperative that we deliver a viable development and logisti cs solution. With this in mind we appointed Royal IHC ('IHC'), a world leader in the provision of co st-effective wet mining solutions, dredging equipment supply, training, maintenance and support to work with us in defining an effective scenario for both our ‘proof of concept’ bulk sampling programme planned within the marine environment at Moriusaq (als o known as Moriusaq Bay) in H2 2017, and for our full scale production operation. We anticipate using their in house wet mining equipment and look forward to receiving a high level cost estimation for our Project. I am excited to be working with IHC, who 3 FINNAUST MINING PLC CHAIRMAN’S REPORT stood out during the evaluation process as the best and most qualified to provide all marine dredging and wet mining services as we move Pituffik towards development. Defining a processing route is also key to delivering production and we have made excel lent progress here. KeyPointE Pty Ltd ('KeyPointE') and QuedTech Pty Ltd ('QuedTech'), both leaders in the mineral sands space, have been appointed to complete the next phase of metallurgical test work programme at Pituffik. As part of our 2016 work progr amme, a large metallurgical sample has been prepared and shipped to our metallurgical consultants with the aim of producing a high purity ilmenite concentrate for analysis and distribution. Once this has been completed, attention will turn to scaling up an d optimising the processing route identified in order to support large -scale production of a similar high purity ilmenite concentrate from the Pituffik black sands. This will ultimately evolve to include pilot scale continuous testing later this year. Fo llowing this, both KeyPointE and QuedTech will confirm the processing flowsheet, which will form the basis for plant design and optimisation, and will advise on processing routes in order to optimise concentrate production rates and operating efficiencies. We are also pleased to be working with Mr. Peter Waugh as we focus on finalising our route to market and we expect to benefit from his broad industry management experience as well as his valuable knowledge of the international titanium dioxide pigment industry. We are optimistic that our product will be in strong demand given the results of the market analysis conducted by TZ Minerals International Pty Ltd ('TZMI'), which covered all aspects of the titanium sector and identified two prospective end -sale markets for product taken from Pituffik. Initial analytical results indicate that the ilmenite concentrate from Pituffik in its current non optimised form is well suited for direct use in the sulphate production process of Titanium Dioxide pigment ('TiO2') This non-optimised ilmenite concentrate from Pituffik gives the Company a high degree of confidence that with a very small amount of further purification on larger samples from the main zones at the Project, the concentrate could also be suitable for chloride slag manufacture to produce either TiO2 pigment or titanium metal . Detailed market analysis from TZMI confirms chloride slag and sulphate markets are both large & growing globally and potential end-sale customers have been identified in both Europe and Asia. TZMI has also forecast that supply deficits will increase into the medium and longer term, thereby presenting the Company with an excellent opportunity to deliver Pituffik product into this market shortfall. We plan to submit our application for an exploitation licence in Q1 2017. There are a number of pre-requisite tasks to complete ahead of applying for this licence which are: a resource definition programme; an Environmental Impact Assessment; and a Social Impact Assessment. To ensure that we complete these rapidly and successfully, we have appointed a number of world class consultants to assist in delivering these results. The Geological Survey of Greenland and Denmark ('GEUS') is playing a key role in our campaign to deliver a resource. Exploitation is now possible due to the dramatic climatic changes being experienced in this part of the world. GEUS has worked on the Project in one form or another for more than 40 years and has an intimate understanding of the Project. We have leveraged off this knowledge base with the design and execution of the 2016 work programme at Pituffik which is comprised of: Vibracore drilling in the shallow marine environment; Ground penetrating radar over the raised beaches; and Extensive pit sampling and auger drilling. The mild weather conditions allowed us to quickly complete our planned campaign, which focussed on both Moriusaq and Interlak. GEUS is now working with SRK Exploration Services Limited to deliver a JORC compliant resource for the marine and broader environment and pleasingly, the initial findings support the Company's belief that Pituffik represents a globally significant titanium project. Extensive trenching over main project areas has identified large volumes of ilmenite -rich sand across many square kilometres while ground penetrating radar has identified buried layers of what is expected to be high concentrations of heavy minerals. Additionally, all 260 auger drill holes completed on the raised and active beach targets show significant horizons of ilmenite-rich sands. We expanded the programme to include infill drilling focused on the regional 4 FINNAUST MINING PLC CHAIRMAN’S REPORT extent of raised beaches between Moriusaq and Interlak (±15km ) which will define deeper drilling targets for future work as is common in this type of coastal system. We have also drilled 150 offshore vibracore holes to date from a support vessel (designed to penetrate up to 3m). Vibra - coring (or vibro-coring) is a technique for collecting core samples of underwater sediments and soils using a rod and a vibrating drill head. Vibra-coring, utilising a second unit, was also completed from a raft in shallower, protected waters. Some holes in the Moriusaq Bay area encountered compacted layers of ilmenite bearing sediments and cobble , reducing penetration. The Company has also recently acquired Avannaa Exploration Limited (a subsidiary of Cairn Energy Ltd). The transaction is yet to settle and remains conditional on Greenlandic approval ; however the portfolio consists of exciting projects that the Company believes will create significant shareholder value in the near and long term future. Accordingly, we look forward to generating a maiden resource for the Project and thereby defining both the grade and volume characteristics of Pituffik, with a particular emphasis on defining optimal "wet mining" areas. This will be a major value milestone to look forward to in the coming months. We would like to thank shareholders for their continued support and conclude we are looking forward to a productive 2017. Financial and Corporate Review The loss before taxation of the Group for the year ended 30 June 2016 amounted to £620,059 (30 June 2015: £561,381). The Group’s cash position at 30 June 2016 was £425,046 (30 June 2015: £795,368). In February 2016, we were pleased to commence trading on the Frankfurt Stock Exchange ('FSE') under the symbol 'S5WA'. This dual listing was in response to strong demand from European investors given that the Company's core operations are located across Europe. We also strengthened our Board considerably during the period in tandem with the Bluejay acquisition. During December, Rod McIllree, a Board member of Bluejay and having intimate knowledge of the Pituffik project and strong relationships in Greenland, joined the Company as Managing Director and at the same time, I moved to the position of Non -Executive Chairman. Daniel Lougher moved to Non-executive director and then in March retired from the Board. Like me, he is also an Executive of Western Areas Limited (Australia’s leading nickel producer), which has a 37.14% holding in FinnAust. His retirement from the FinnAust Board was a reflection of our belief that the new management team has control of an exciting project with serious growth potential and with the right know-how to deliver value. Importantly, FinnAust continues to have access to Western Areas’ resources and expertise. ‘Brexit’ Implications Following the result of the recent EU referendum in the UK, the Directors acknowledge that this may have an impact on the Company’s future trading and performance. They cannot say with any certainty as to what this impact will be, given the uncertainty surrounding the UK’s withdrawal from the EU but they will continue to monitor the situation closely and take action as and where deemed appropriate. Wider Portfolio Greenland is our primary focus of activity; however the Group has a wider portfolio of prospective assets situated in Finland and Austria. In Finland, the Group owns 100% of a portfolio of copper, zinc and nickel projects; the Hammaslahti Copper- Gold-Zinc Project, the Outokumpu Copper Project and the Kelkka Nickel Project. In January 2016 we increased licence coverage across these project areas by approxim ately 50%. We continue to see value in these project areas but we will be focusing our resources and activities over the next six to twelve months on our Greenlandic portfolio due to the exceptional results from our preliminary work. Naturally, we always evaluate potentially value accretive projects but are mindful of preserving shareholder value. Outlook I am confident that Pituffik has the potential to be a globally significant titanium project with a low cost route to market, and our team is incredibly excited to deliver on the objectives required to facilitate cash generative production. The remainder of 2016 will see us deliver a maiden resource for the area and strengthen our understanding of the processing requirements for 5 FINNAUST MINING PLC CHAIRMAN’S REPORT this unusually pure mineralisation, which will in turn aid our end user / offtake discussions. We feel confident that we are well placed to make the right decisions for the Project given our working relationships with leaders in their respective fields and we look forward to clarifying our development scenario as it becomes defined. We also feel that we have the right asset at the right time following the report from TZMI which highlights the dynamic current and forecast market fundamentals. I speak both as a representative of the Company’s cornerstone stakeholder and as FinnAust Chairman when I say that I hope investors share in our excitement regarding this expansive project and look forward to updating you all as we progress. I would like to thank all our investors, partners, advisers and management team for their support during the period and look forward to a very busy future. Graham Marshall Chairman 16 September 2016 6 FINNAUST MINING PLC GROUP STRATEGIC REPORT The Directors of the Company and its subsidiary undertakings (which together comprise the “Group”) present their Strategic Report on the Group for the year ended 30 June 2016. Strategic Approach The Group’s aim is to create value for shareholders through the discovery and development of economic mineral deposits. The Group’s strategy is to continue to progress the development of its existing projects in Europe and to evaluate its existing and new mineral resource opportunities with a view to potential joint venture arrangements and/or other corporate activit ies. Organisation Overview The Group’s business is directed by the Board and is managed on a day-to-day basis by the Chief Executive Officer. The Board monitors compliance with objectives and policies of the Group through monthly performance reporting, budget updates and periodic operational reviews. The Board comprises one Executive Director and two Non-Executive Directors. The Corporate Head Office of the Group is located in London, UK, and provides corporate support services to the overseas operations. Overseas operations are managed out of the Group’s office in Outokumpu, Finland. Review of Business In March 2016, the Group completed the acquisition of 60.37% of the share capital of Bluejay Mining Limited by way of all share consideration. Pursuant to this transaction, the Group assumed ownership of a 126km sq. mineral exploration license in Greenland. To date, the Group has undertaken vibracore drilling in the shallow marine environment, ground penetrating radar over the raised beaches and extensive pit sampling and auger drilling. Extensive trenching over main project areas has identified large volumes of ilmenite-rich sand across many square kilometres, while ground penetrating radar has identified buried layers of what is expected to be high concentrations of heavy minerals. The Company drilled 260 auger holes on the raised and active beach targets which show significant horizons of ilmenite-rich sands. It has also drilled 150 offshore vibracore holes to date from a support vessel (designed to penetrate up to 3m). Results from this field work are pending. Greenland is the primary focus of activity; however the Group has a wider portfolio of prospective assets situated in Finland and Austria. In Finland, the Group owns 100% of a portfolio of copper, zinc and nickel projects; the Hammaslahti Copper- Gold-Zinc Project, the Outokumpu Copper Project and the Kelkka Nickel Project. In January 2016 the Company increased licence coverage across these project areas by approximately 50%. Exploration activity across the Finnish and Austrian projects was kept to a minimum in order to preserve cash. Financial Performance Review The loss of the Group for the year ended 30 June 2016 before taxation amounts to £620,059 (30 June 2015: £561,381). The Board monitors the activities and performance of the Group on a regular basis. The Board uses financial indicators based on budget versus actual to assess the performance of the Group. The indicators set out below will continue to be used by the Board to assess performance over the period to 30 June 2017. The three main KPIs for the Group are as follows. These allow the Group to monitor costs and plan future exploration and development activities: KPI Cash and cash equivalents Administrative expenses as a percentage of total assets Exploration costs capitalised during the year 2016 2015 £425,046 £795,368 4.8% 6.04% £845,261 £1,080,814 Cash has been used to fund the Group’s operations and facilitate its investment activities (refer to the Statements of Cash Flows on page 19). Exploration costs capitalised during the year consist of exploration expenditure on the Group’s exploration licences net of foreign exchange rate movements. 7 FINNAUST MINING PLC GROUP STRATEGIC REPORT Principal Risks and Uncertainties The management of the business and the execution of the Group’s strategy are subject to a number of risks. The key business risks affecting the Group are set out below. Risks are formally reviewed by the Board, and appropriate processes are put in place to monitor and mitigate them. If more than one event occurs, it is possible that the overall effect of such events would compound the possible adverse effects on the Group. Exploration risks The exploration and mining business is controlled by a number of global factors, principally supply and demand which in turn is a key driver of global mineral prices; these factors are beyond the control of the Group. Exploration is a high -risk business and there can be no guarantee that any mineralisation discovered will result in proven and probable reserves or go on to be an operating mine. At every stage of the exploration process the projects are rigorously reviewed to determine if the results justify the next stage of exploration expenditure ensuring that funds are only applied to high priority targets. The principal assets of the Group comprising the mineral exploration licences are subject to certain financial and legal commitments. If these commitm ents are not fulfilled the licences could be revoked. They are also subject to legislation defined by the Government; if this legislation is changed it could adversely affect the value of the Group’s assets. Dependence on key personnel The Group and Company is dependent upon its executive management team and various technical consultants. Whilst it has entered into contractual agreements with the aim of securing the services of these personnel, the retention of their services cannot be guaranteed. The development and success of the Group depends on its ability to recruit and retain high quality and experienced staff. The loss of the service of key personnel or the inability to attract additional qu alified personnel as the Group grows could have an adverse effect on future business and financial conditions. Uninsured risk The Group, as a participant in exploration and development programmes, may become subject to liability for hazards that cannot be insured against or third party claims that exceed the insurance cover. The Group may also be disrupted by a variety of risks and hazards that are beyond control, including geological, geotechnical and seismic factors, environmental hazards, industrial accidents, occupation and health hazards and weather conditions or other acts of God. Funding risk The only sources of funding currently available to the Group are through the issue of additional equity capital in the parent company or through bringing in partners to fund exploration and development costs. The Compan y’s ability to raise further funds will depend on the success of the Group’s exploration activities and its investment strategy. The Company may not be successful in procuring funds on terms which are attractive and, if such funding is unavailable, the Gro up may be required to reduce the scope of its exploration activities or relinquish some of the exploration licences held for which it may incur fin es or penalties. Financial Risks The Group’s operations expose it to a variety of financial risks that can include market risk (including foreign currency, price and interest rate risk), credit risk, and liquidity risk. The Group has a risk management programme in place that seeks to limit the adverse effects on the financial performance of the Group by monitoring levels of debt finance and the related finance costs. The Group does not use derivative financial instruments to manage interest rate costs and, as such, no hedge accounting is applied. Details of the Group’s financial risk management policies are set out in Note 3 to the Financial Statements. The Group Strategic Report was approved by the Board on 16 September 2016. Greg Kuenzel Director 8 FINNAUST MINING PLC DIRECTORS’ REPORT The Directors present their annual report on the affairs of FinnAust Mining plc together with the audited Consolidated Financial Statements for the year ended 30 June 2016. Principal Activity The principal activity of the Company is to make investments and/or acquire projects in the natural resources and mineral sectors as a whole. The principal activity of the Group is to implement its mineral exploration strategy to advance projects towards defining a sufficient in-situ mineral resource to support a detailed feasibility study towards mine development and production. Dividends The Directors do not recommend the payment of a dividend for the year (30 June 2015: nil). Directors & Directors’ Interests The Directors who served during the year ended 30 June 2016 are shown in the Company Information on page 2 and had, at that time the following beneficial interests in the shares of the Company: Roderick McIllree (1) Greg Kuenzel (2) Daniel Lougher (3) Graham Marshall 30 June 2016 1 July 2015 Ordinary Shares 42,966,685 Options Ordinary Shares Options - n/a n/a 17,395,791 3,600,000 30,000 3,600,000 N/A - N/A - - - - - (1) Appointed on 8 December 2015 (2) Greg Kuenzel’s shares are held by Fitel Nominees Limited. 3,000,000 of Greg Kuenzel’s options are held by Hey tesbury Corporate LLP of which Greg is a partner. (3) Daniel Lougher resigned on 10 March 2016. Further details on options can be found in Note 15 to the Financial Statements. Corporate Responsibility Environmental FinnAust undertakes its exploration activities in a manner that minimises or eliminates negative environmental impacts and maximises positive impacts of an environmental nature. FinnAust is a mineral explorer, not a mining company. Hence, the environmental impact associated with its activities is minimal. To ensure proper environmental stewardship on its projects, FinnAust conducts certified baseline studies prior to all drill programmes and ensures that areas explored are properly maintained and conserved. Health and safety FinnAust operates a comprehensive health and safety programme to ensure the wellness and security of its employees. The control and eventual elimination of all work related hazards requires a dedicated team effort involving the active participat ion of all employees. A comprehensive health and safety programme is the primary means for delivering best practices in health and safety management. This programme is regularly updated to incorporate employee suggestions, lessons learned from past incidents and new guidelines related to new projects with the aim of identifying areas for further improvement of health and safety management. This results in continuous improvement of the health and safety programme. Employee involvement is regarded as fundamental in recognising and reporting unsafe conditions and avoiding events that may result in injuries and accidents. Internal Controls The Board recognises the importance of both financial and non -financial controls and has reviewed the Group’s control environment and any related shortfalls during the year. Since the Group was established, the Directors are satisfied that, given the current size and activities of the Group, adequate internal controls have been implemented. Whilst they are aware that no system can provide absolute assurance against material misstatement or loss, in light of the current activity and proposed future development of the Group, continuing reviews of internal controls will be undertaken to ensure that they are adequate and effective. Further details of corporate governance can be found in the Corporate Governance Report on page 12. 9 FINNAUST MINING PLC DIRECTORS’ REPORT Going Concern The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and, therefore, continue to adopt the going concern basis in preparing the Annual Report and Financial Statements. Further details on their assumptions and their conclu sion thereon are included in the statement on going concern included in Note 2.4 to the Financial Statements. Directors’ and Officers’ Indemnity Insurance The Group has made qualifying third-party indemnity provisions for the benefit of its Directors and Officers. These were made during the year and remain in force at the date of this report. Events after the reporting period Events after the reporting period are set out in Note 27 to the Financial Statements. Policy and Practice on Payment of Creditors The Company and its subsidiary undertakings agree terms and conditions for their business transactions with suppliers. Payment is then made in accordance with these terms, subject to the terms and conditions being met by the supplier. As at 30 June 2016, the Company had an average of 45 days (2015: 12 days) purchases outstanding in trade payables. The Group average was 38 days (2015: 59 days). Future Developments Details of future developments for the Group are disclosed in the Chairman’s Report on page 3. Provision of Information to Auditor So far as each of the Directors is aware at the time this report is approved: there is no relevant audit information of which the Company's auditor is unaware; and the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information. Auditor PKF Littlejohn LLP has signified its willingness to continue in office as auditor. This report was approved by the Board on 16 September 2016 and signed on its behalf. Greg Kuenzel Director 10 FINNAUST MINING PLC STATEMENT OF DIRECTORS’ RESPONSIBILITIES The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations, including the AIM Rules for Companies. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the Group and Parent Company Financial Statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company, and of the profit or loss of the Group for that period. In preparing these Financial Statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgments and accounting estimates that are reasonable and prudent; and state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company, and enable them to ensure that the Financial Statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and Company, and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities . The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of the Financial Statements may differ from legislation in other jurisdictions. The Company is compliant with AIM Rule 26 regarding the Company’s website. The Directors confirm that they have complied with the above requirements in preparing the Financial Statements. This statement was approved by the Board on 16 September 2016 and signed on its behalf. Greg Kuenzel Director 11 FINNAUST MINING PLC CORPORATE GOVERNANCE REPORT The Board of Directors currently comprises three Non-Executive Directors, one of whom is the Chairman. The Company is not required to comply with the UK Code of Corporate Governance. However, the Directors recognise the importance of sound corporate governance and the Board intends, to the extent it considers appropriate in light of the Group’s size, stage of development and resources , to implement certain corporate governance recommendations. The Directors have responsibility for the overall corporate governance of the Group and recognise the need for the highest standards of behaviour and accountability. The Board has a wide range of experience directly related to the Group and its activities and its structure ensures that no one individual or group dominates the decision making process. Board Meetings The Board meets regularly throughout the year. The Board is responsible for formulating, reviewing and approving the Group's strategy, financial activities and operating performance. Board Committees The Group has established an Audit Committee and a Remuneration Committee. In light of the size of the Board, the Directors do not consider it necessary to establish a Nomination Committee. However, this will be kept under regular review. Audit Committee The Audit Committee, comprising Graham Marshall and Greg Kuenzel, reviews the Group's annual and interim financial statements before submission to the Board for approval. The Committee also reviews regular reports from management and the external auditor on accounting and internal control matters. Where appropriate, the Committee monitors the progress of action taken in relation to such matters. The Committee also recommends the appointment, and reviews the fees, of the external auditor. The Committee keeps under review the cost effectiveness and the independence and objectivity of the external auditor. A formal statement of independence is received from the external auditor each year. Remuneration Committee The Remuneration Committee, comprising Graham Marshall and Greg Kuenzel, is responsible for reviewing the performance of the Chief Executive Officer and for setting the scale and structure of his remuneration, determining the payment of bonuses, considering the grant of options under any share option scheme and, in particular, the price per share and the application of performance standards which may apply to any such grant, paying due regard to the interests of shareholders as a whole and the performance of the Group. Internal Controls The Directors acknowledge their responsibility for the Group’s systems of internal controls and for reviewing their effectiveness. These internal controls are designed to safeguard the assets of the Group and to ensure the reliability of financial information for both internal use and external publication. Whilst they are aware that no system can provide absolute assurance against material misstatement or loss, in light of the increased activity and further development of the Group, continuing reviews of internal controls will be undertaken to ensure that they are adequate and effective. Risk Management The Board considers risk assessment to be important in achieving its strategic objectives. Project miles tones and timelines are regularly reviewed. Securities Trading The Group has adopted a share dealing code for dealings in shares by directors and senior employees which is appropriate for an AIM quoted company. The Directors will comply with Rule 21 of the AIM Rules for Companies relating to Directors’ dealings and will take all reasonable steps to ensure compliance by the Group’s applicable employees. Relations with Shareholders The Board is committed to providing effective communication with the Shareholders of the Group. Significant developments are disseminated through stock exchange announcements and regular updates of the Group’s website. The Board views the AGM as a forum for communication between the Group and its shareholders and encourages their participation in its agenda. 12 FINNAUST MINING PLC INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF FINNAUST MINING PLC We have audited the Financial Statements of FinnAust Mining Plc for the year ended 30 June 2016 which comprise the Consolidated and Company Statements of Financial Position, the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated and Company Statements of Changes in Equity, the Consolidated and Company Statements of Cash Flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the Parent Company Financial Statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to th e Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone, other than the Company and the Company's member s as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and Auditor As explained more fully in the Statement of Directors’ Responsibilities, the Directors are responsible for the preparation of the Financial Statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Financial Statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the Financial Statements An audit involves obtaining evidence about the amounts and disclosures in the Financial Statements sufficient to give reasonable assurance that the Financial Statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of whether the accounting policies are appropriate to the Group’s and the Parent Company’s circumstances and have been consistently applied and adequately disclosed , the reasonableness of significant accounting estimates made by the Directors and the overall presentation of the Financial Statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited Financial Statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on Financial Statements In our opinion: the Financial Statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 30 June 2016 and of the Group’s loss for the year then ended; the Group Financial Statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the Parent Company Financial Statements for the 12 months ended 30 June 2016 have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and the Financial Statements have been prepared in accordance with the requirements of the Companies Act 2006 . Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Strategic Report and the Directors’ Report for the financial period for which the Financial Statements are prepared is consistent with the Financial Statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or the Parent Company Financial Statements are not in agreement with the accounting records and returns; or certain disclosures of Directors’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. Alistair Roberts (Senior statutor y auditor) For and on behalf of PKF Littlejohn LLP Statutory Auditor 16 September 2016 1 Westferry Circus Canary Wharf London E14 4HD 13 FINNAUST MINING PLC STATEMENTS OF FINANCIAL POSITION As at 30 June 2016 Non-Current Assets Property, plant and equipment Intangible assets Investment in subsidiaries Current Assets Trade and other receivables Cash and cash equivalents Company number: 05389216 Consolidated Com pany 30 June 2016 £ 30 June 2015 £ 30 June 2016 £ 30 June 2015 £ 16,883 12,627,680 12,327 8,432,062 4,577 - 812 - - - 13,505,274 10,971,654 12,644,563 8,444,389 13,509,851 10,972,466 Note 6 7 8 9 10 175,685 425,046 79,178 795,368 111,176 371,485 38,526 715,583 600,731 874,546 482,661 754,109 Total Assets 13,245,294 9,318,935 13,992,512 11,726,575 Non-Current Liabilities Deferred Tax Liabilities Current Liabilities Trade and other payables Borrowings Total Liabilities 13 373,343 373,343 - - - - - - 11 12 392,754 - 198,800 62,500 392,754 261,300 766,097 261,300 368,403 49,664 - 368,403 368,403 - 49,664 49,664 Net Assets 12,479,197 9,057,635 13,624,109 11,676,911 Equity attributable to owners of the Parent Share capital Share premium Deferred shares Reverse acquisition reserve Other reserves Retained losses 14 14 16 5,938,572 5,919,731 5,938,572 5,919,731 16,183,675 14,274,528 16,183,675 14,274,528 1,825,104 1,825,104 1,825,104 1,825,104 (8,071,001) (8,071,001) - - 470,700 (4,458,414) (974,504) (3,916,223) 355,809 (10,679,051) 398,010 (10,740,462) Total equity attributable to owners of the Parent 11,888,636 9,057,635 13,624,109 11,676,911 Non-controlling interest 590,561 - - - Total Equity 12,479,197 9,057,635 13,624,109 11,676,911 The Financial Statements were approved and authorised for issue by the Board of Directors on 16 September 2016 and were signed on its behalf by: Greg Kuenzel Director The Notes on pages 20 to 42 form part of these Financial Statements. 14 FINNAUST MINING PLC CONSOLIDATED INCOME STATEMENT For the year ended 30 June 2016 Continued operations Revenue Cost of sales Gross profit Administrative expenses Foreign exchange Operating Loss Finance income Loss before Income Tax Income tax expense Loss for the Year Loss attributable to - Owners of the Parent - Non-Controlling interests Loss for the Year Note Year ended 30 June 2016 Year ended 30 June 2015 £ - - - £ 1,028 - 1,028 22 (629,046) (563,340) 19 20 8,737 - (620,309) 250 (562,312) 931 (620,059) (561,381) - - (620,059) (561,381) (613,849) (561,381) (6,210) - (620,059) (561,381) Basic and Diluted Earnings Per Share attributable to owners of the parent during the year (expressed in pence per share) 21 (0.172) p (0.201) p The Company has elected to take the exemption under Section 408 of the Companies Act 2006 from presenting the Parent Company Income Statement and Statement of Comprehensive Income. The loss for the Company for the year ended 30 June 2016 was £10,247 (year ended 30 June 2015: £674,883). The Notes on pages 20 to 42 form part of these Financial Statements. 15 FINNAUST MINING PLC CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 30 June 2016 Loss for the year Other Comprehensive Income: Items that may be subsequently reclassified to profit or loss Currency translation differences Other comprehensive income for the year, net of tax Total Comprehensive Income for the Year Attributable to - Owners of the Parent - Non-Controlling interests Total Comprehensive Income Year ended 30 June 2016 Year ended 30 June 2015 £ £ (620,059) (561,381) 1,487,405 (1,025,713) 867,346 (1,587,094) 867,346 (1,587,094) - - 867,346 (1,587,094) The Notes on pages 20 to 42 form part of these Financial Statements. 16 FINNAUST MINING PLC CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2016 Attributable to owners of the Parent Share capital Share premium Deferred shares Other reserves Retained losses Note £ £ £ £ £ Total £ Balance as at 1 July 2014 4,941,953 14,188,311 1,825,104 (8,019,792) (3,354,842) 9,580,734 - - (561,381) (561,381) Non- controlling interest £ - - Total equity £ 9,580,734 (561,381) Loss f or the y ear Other comprehensive income for the year Items that may be subsequently reclassified to profit or loss Currency translation dif f erences Total comprehensive income for the year - - - - - - Proceeds f rom share issues Issue costs 14 14 977,778 - 122,222 (36,005) Total transactions with owners, recognised in equity 977,778 86,217 - (1,025,713) - (1,025,713) - (1,025,713) - - - - (1,025,713) (561,381) (1,587,094) - - - - - - 1,100,000 (36,005) 1,603,995 - - - - - - (1,587,094) 1,100,000 (36,005) 1,603,995 9,057,635 9,057,635 Balance as at 30 June 2015 5,919,731 14,274,528 1,825,104 (9,045,505) (3,916,223) 9,057,635 Balance as at 1 July 2015 5,919,731 14,274,528 1,825,104 (9,045,505) (3,916,223) 9,057,635 Loss f or the y ear Other comprehensive income for the year Items that may be subsequently reclassified to profit or loss Currency translation dif f erences Total comprehensive income for the year - - - - - - Proceeds f rom share issues 5,807 1,155,537 Issue costs Share based pay ments Issued options Expired options Non-controlling interest arising on business combination Total transactions with owners, recognised in equity - 13,034 (44,108) 797,718 - - - - - - 18,841 1,909,147 - - - - - - - - - - - (613,849) (613,849) (6,210) (620,059) 1,487,405 - 1,487,405 - 1,487,405 1,487,405 (613,849) 873,556 (6,210) 867,346 - - - 29,457 (71,658) - - - - 1,161,344 (44,108) 810,752 29,457 71,658 - - - - - - - - - 1,161,344 (44,108) 810,752 29,457 - 596,771 596,771 (42,201) 71,658 1,957,445 596,771 2,554,216 Balance as at 30 June 2016 5,938,572 16,183,675 1,825,104 (7,600,301) (4,458,414) 11,888,636 590,561 12,479,197 The Notes on pages 20 to 42 form part of these Financial Statements. 17 FINNAUST MINING PLC COMPANY STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2016 Attributable to equity shareholders Share capital £ Share premium Deferred shares £ £ Other reserves £ Retained losses £ Total equity £ Note Balance as at 1 July 2014 4,941,953 14,188,311 1,825,104 398,010 (10,065,579) 11,287,799 Loss f or the y ear Total comprehensive income for the year - - - - Proceeds f rom share issues Issue costs 14 14 977,778 - 122,222 (36,005) Total transactions with owners, recognised in equity 977,778 86,217 - - - - - - - - - - (674,883) (674,883) (674,883) (674,883) - - - 1,100,000 (36,005) 1,063,995 Balance as at 30 June 2015 5,919,731 14,274,528 1,825,104 398,010 (10,740,462) 11,676,911 Balance as at 1 July 2015 5,919,731 14,274,528 1,825,104 398,010 (10,740,462) 11,676,911 Loss f or the y ear Total comprehensive income for the year Proceeds f rom share issues Issue costs Share based pay ments Issued options Expired options Total transactions with owners, recognised in equity - - - - 5,807 1,155,537 - 13,034 (44,108) 797,718 - - - - 18,841 1,909,147 - - - - - - - - - - - - - (10,247) (10,247) (10,247) (10,247) - - - 1,161,344 (44,108) 810,752 29,457 - 29,457 (71,658) 71,658 (42,201) 71,658 1,957,445 Balance as at 30 June 2016 5,938,572 16,183,675 1,825,104 355,809 (10,679,051) 13,624,109 The Notes on pages 20 to 42 form part of these Financial Statements. 18 FINNAUST MINING PLC STATEMENTS OF CASH FLOWS For the year ended 30 June 2016 Cash flows from operating activities Loss before taxation Adjustments for: Depreciation Finance income Share options expense Share based payments Intercompany management fees Foreign exchange Changes in w orking capital: Increase in trade and other receivables (Decrease)/increase/ in trade and other payables Net cash generated from operating activities Cash flows from investing activities Finance income Cash consideration for subsidiaries net of cash Purchase of property plant and equipment Purchase of software Loans granted to subsidiary undertakings Repayment of borrowings Purchase of intangible assets Net cash used in investing activities Cash flows from financing activities Proceeds from issue of share capital Transaction costs of share issue Repayment of borrowings Consolidated Com pany Year ended 30 June 2016 £ Year ended 30 June 2015 £ Year ended 30 June 2016 £ Year ended 30 June 2015 £ Note (620,059) (561,381) (10,247) (674,883) 5,037 - 29,457 129,302 - 2,335 (931) - - - (2,541) 86,070 1,547 - 29,457 129,302 (120,855) (522,341) 333 (875) - - (181,129) 306,883 (99,323) (25,000) (1,452) (37,019) (72,652) 94,583 (1,177) 14,476 (583,127) (512,378) (471,206) (536,372) - 4,182 (2,307) (5,312) - - 931 - - - - - (845,261) (1,080,814) - - - (5,312) 875 - - - (984,816) (1,519,772) - - - - (848,698) (1,079,883) (990,128) (1,518,897) 1,161,344 1,139,925 1,161,344 1,139,925 (44,108) (62,500) (36,005) (62,500) (44,108) (36,005) - - 6 19 15 15 9 11 19 6 6 7 14 14 12 Net cash generated from financing activities 1,054,736 1,041,420 1,117,236 1,103,920 Net decrease in cash and cash equivalents (377,089) (550,841) (344,098) (951,349) Cash and cash equivalents at beginning of year 795,368 1,706,137 715,583 1,666,932 Exchange gain/(loss) on cash and cash equivalents 6,767 (359,928) - - Cash and cash equivalents at end of year 10 425,046 795,368 371,485 715,583 The Notes on pages 20 to 42 form part of these Financial Statements. 19 FINNAUST MINING PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2016 1. General information The principal activity of FinnAust Mining plc (the ‘Company’) and its subsidiaries (together the ‘Group’) is the exploration and development of precious and base metals. The Company’s shares are listed on the AIM of the London Stock Exchange. The Company is incorporated and domiciled in England. The address of its registered office is 47 Charles Street, London, W1J 5EL. 2. Summary of Significant Accounting Policies The principal Accounting Policies applied in the preparation of these Consolidated Financial Statements are set out below. These Policies have been consistently applied to all the periods presente d, unless otherwise stated. 2.1. Basis of Preparation of Financial Statements The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) and IFRS Interpretations Committee (‘IFRIC’) as adopted by the European Union, the Companies Act 2006 that applies to companies reporting under IFRS and IFRIC interpretations. The Consolidated Financial Statements have also been prepared under the historical cost convention. The Financial Statements are presented in Pound Sterling rounded to the nearest pound. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Accounting Policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Consolidated Financial Statements are disclosed in Note 4. 2.2. New and Amended Standards (a) New and amended standards mandatory for the first time for the financial periods b eginning on or after 1 July 2015 A number of new standards and amendments to standards and interpretations are effective for the financial year beginning on or after 1 July 2015 and have been applied in preparing these Financial Statements. Annual Improvements Cycle 2010-2012 Amendments to IFRS 2 (Share-based payments – Definition of “vesting condition”), IFRS 3 (Business combinations – accounting for contingent consideration in a business combination), IFRS 8 (Operating segments – aggregation of operating segments and reconciliation of the total of the reportable segments’ assets to the entity’s assets), IFRS 13 (Fair value measurement – short-term receivables and payables), IAS 16 (Property, plant and equipment – revaluation method – proportionate restatement of accumulated depreciation), IAS 24 (Related party disclosures – key management personnel), and IAS 38 (Intangible assets – revaluation method – proportionate restatement of accumulated amortization). Effective 1 February 2015. Annual Improvements Cycle 2011-2013 Amendments to IFRS 1 (First time adoption of International Financial Reporting Standards – meaning of effective IFRSs), IFRS 3 (Business combinations – scope of exception for joint ventures), IFRS 13 (Fair value measurement – scope of paragraph 52 (portfolio exception)), and IAS 40 (Investment property – clarifying the inter-relationship of IFRS 3 and IAS 40 when classifying property as investment property or owner-occupied property). Effective 1 January 2015. The adoption of these standards had no impact on the financia l statements other than changes to disclosures. (b ) New standards, amendments and Interpretations in issue b ut not yet effective or not yet endorsed and not early adopted The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Financial Statements are listed below. The Company and Group intend to adopt these standards, if applicable, when they become effective. Standard IAS 1 (Amendments) IAS 7 (Amendments) IAS 12 (Amendments) IAS 16 (Amendments) IAS 27 (Amendments) IFRS 2 (Amendments) Impact on initial application Presentation of Financial Statements: Disclosure Initiative Disclosure Initiative Recognition of Deferred Tax Clarification of Acceptable Methods of Depreciation Equity method in Separate Financial Statements Classification and Measurement of Share-based payments Effective date 1 January 2016 *1 January 2017 *1 January 2017 1 January 2016 1 January 2016 *1 January 2018 20 FINNAUST MINING PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2016 IAS 38 (Amendments) IFRS 9 IFRS 10 (Amendments) IFRS 11 (Amendments) IFRS 12 (Amendments) IFRS 15 IFRS 16 Annual Improvements Clarification of Acceptable Methods of Amortisation Financial Instruments Contribution of Assets between an Investor and its Associate or Joint Venture Joint Arrangements: Accounting for Acquisitions of Interests in Joint Operations Investment Entities: Applying the Consolidation Exception Revenue from Contracts with Customers Leases 2012 - 2014 Cycle 1 January 2016 *1 January 2018 *^1 January 2016 1 January 2016 *1 January 2016 *1 January 2018 *1 January 2019 1 January 2016 * Subject to EU endorsement ^ Effective date deferred indefinitely The Group is evaluating the impact of the new and amended standards above. The Directors believe that these new and amended standards are not expected to have a material impact on the Group’s results or shareholders’ funds. 2.3. Basis of Consolidation The Consolidated Financial Statements consolidate the financial statements of the Company and its subsidiaries made up to 30 June each year. Subsidiaries are entities over which the Group has control. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: The contractual arrangement with the other vote holders of the investee; Rights arising from other contractual arrangements; and The Group's voting rights and potential voting rights The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary. Investments in subsidiaries are accounted for at cost less impairment within the parent company financial statements. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the Group. All significant intercompany transa ctions and balances between Group enterprises are eliminated on consolidation. 2.4. Going Concern The Group’s business activities together with the factors likely to affect its future development, performance and position are set out in the Chairman’s Report on pages 3 to 6. In addition, Note 3 to the Consolidated Financial Statements includes the Group’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and its exposure to market, credit and liquidity risk. The Consolidated Financial Statements have been prepared on a going concern basis . Although the Group’s assets are not generating revenues and an operating loss has been reported, the Directors are of the view that the Group has sufficient funds to undertake its operating activities over the next 12 months from the date these financial statements are approved including any additional payments required in relation to its current exploration projects. The Group has financial resources which the Directors consider will be sufficient to fund the Group’s committed expenditure both operationally and on various exploration projects for this time period. However, in order to complete other exploration work over the life of existing projects and as additional projects are identified, additional funding will be required. The amount of funding cannot be forecast with any certainty at the point of approval of these Financial Statements and the Group will be required to raise additional funds either via an issue of equity or through the issuance of debt. The Directors are reasonably confident that funds will be forthcoming if and when they are required. Should additional funding not be forthcoming the Directors have agreed , if circumstances require, to defer payment of their fees until such time as adequate funding is received. 21 FINNAUST MINING PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2016 The Directors have a reasonable expectation that the Group and Company ha ve adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the Group and Company Financial Statements. 2.5. Segment Reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision- maker (CODM). The CODM, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors that makes strategic decisions. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis . 2.6. Foreign Currencies (a) Functional and presentation currency Items included in the Financial Statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the ‘functional currency’). The functional currency of the UK parent entity and UK subsidiary is Pound Sterling and the functional currency of the Finnish and Austrian subsidiaries is Euros. The Financial Statements are presented in Pounds Sterling which is the Company’s functional and Group’s presentation currency. (b ) Transactions and b alances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where such items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. (c) Group companies The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: assets and liabilities for each year end date presented are translated at the year-end closing rate; income and expenses for each Income Statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and all resulting exchange differences are recognised in other comprehensive income. On consolidation, exchange differences arising from the translatio n of the net investment in foreign entities, and of monetary items receivable from foreign subsidiaries for which settlement is neither planned nor likely to occur in the foreseeable future, are taken to other comprehensive income. When a foreign operation is sold, such exchange differences are recognised in the Income Statement as part of the gain or loss on sale. 2.7. Intangible assets Exploration and evaluation assets The Group recognises expenditure as exploration and evaluation assets when it determines th at those assets will be successful in finding specific mineral resources. Expenditure included in the initial measurement of exploration and evaluation assets and which are classified as intangible assets relate to the acquisition of rights to explore, top ographical, geological, geochemical and geophysical studies, exploratory drilling, trenching, sampling and activities to evaluate the technical feasibility and commercial viability of extracting a mineral resource. Capitalisation of pre-production expenditure ceases when the mining property is capable of commercial production. Exploration and evaluation assets are recorded and held at cost. Exploration and evaluation assets are not subject to amortisation, but are assessed annually for impairment. The assessment is carried out by allocating exploration and evaluation assets to cash generating units (“CGU’s”), which are based on specific projects or geographical areas. The CGU’s are then assessed for impairment using a variety of methods including those specified in IFRS 6. 22 FINNAUST MINING PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2016 Whenever the exploration for and evaluation of mineral resources in cash generating units does not lead to the discovery of commercially viable quantities of m ineral resources and the Group has decided to discontinue such activities of that unit, the associated expenditures are written off to the Income Statement. 2.8. Investments in subsidiaries Investments in Group undertakings are stated at cost, which is the fair value of the consideration paid, less any impairment provision. 2.9. Property, Plant and Equipment Property, Plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is provided on all property, plant and equipment to write off the cost less estimated residual value of each asset over its expected useful economic life on a straight line basis at the following annual rates: Office Equipment – 20% straight line Machinery and Equipment – 10% straight line Software – 50% straight line Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item c an be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. 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 disposal are determined by comparing the proceeds with the carrying amount and are recognised within ‘Other (losses)/gains’ in the Income Statement. 2.10. Impairment of non-financial assets Assets that have an indefinite useful life, for example, intangible assets not ready to use, and goodwill, are not subject to amortisation and are tested annually for impairment. Property, plant and equipment is 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). Non -financial assets that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. 2.11. Financial Assets (a) Classification The Group classifies its financial assets in the following categories: loans and receivables and available -for-sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. (i) Loans and receivab les Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets , except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The Group’s loans and receivables comprise trade and other receivables and cash and cash equivalents. 23 FINNAUST MINING PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2016 (b ) Recognition and measurement Regular purchases and sales of financial assets are recognised on the trade date – the date on which the Group commits to purchasing or selling the asset. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the Income Statement. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred, and the Group has transferred substantially all of the risks and rewards of ownership. Loans and receivables are subsequently carried at amortised cost using the effective interest method. Gains or losses arising from changes in the fair value of financial assets at fair value through profit or loss are presented in the Income Statement within ‘Other (Losses)/Gains – Net’ in the period in which they arise. (c) Impairment of financial assets The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset, or a group of financial assets, is impaired. A financial asset, or a group of financial assets, is impaired, and impairment losses are incurred, only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”), and that loss event (or events) has an impact on the estimated future cash flows of the financial asset, or group of financial assets, that can be reliably estimated. The criteria that the Group uses to determine that there is objective evidence of an impairment loss include: significant financial difficulty of the issuer or obligor; a breach of contract, such as a default or delinquency in interest or principal repayments ; the disappearance of an active market for that financial asset because of financial difficulties; observable data indicating that there is a measureable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio; or for assets classified as available-for-sale, a significant or prolonged decline in fair value of the security below its cost. For loans and receivables, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred), discounted at the financial asset’s original effective interest rate. The asset’s carrying amount is reduced, and the loss is recognised in the Income Statement. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in the Income Statement. 2.12. Financial Liabilities Financial liabilities comprise trade and other payables and borrowings in the Statement of Financial Position, and are held at amortised cost. Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current li abilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade payables are recognised initially at fair value, and subsequently measured at amortised cost using the effective interest method. Borrowings in the Statement of Financial Position are also classified as financial liabilities and are held at amortised cost. Borrowings are classified as current liabilities if repayment is due within one year or less. If not, they are presented as non- current liabilities. 2.13. Cash and Cash Equivalents Cash and cash equivalents comprise cash at bank and in hand. 2.14. Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability in cash for at least 12 months after the end of the reporting period. 24 FINNAUST MINING PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2016 2.15. Equity Equity comprises the following: “Share capital” represents the nominal value of the Ordinary shares; “Share Premium” represents consideration less nominal value of issued shares and costs directly attributable to the issue of new shares; “Other reserves” represents the merger reserve, foreign currency translation reserve, redemption reserve and share option reserve where; o o o o “Merger reserve” represents the difference between the fair value of an acquisition and the nominal value of the shares allotted in a share exchange; “Foreign currency translation reserve” represents the translation differences arising from translating the financial statement items from functional currency to presentational currency; “Redemption reserve” represents a non-distributable reserve made up of share capital; “Share option reserve" represents share options awarded by the group; “Retained earnings” represents retained losses. 2.16. Share capital, share premium and deferred shares 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 provided there is sufficient premium available. Should sufficient premium not be available placing costs are recognised in the Income Statement. Deferred shares are classified as equity. Deferred shares have no rights to receive dividends, or to attend or vote at general meetings of the Company and are only entitled to a return of capital after payment to holders of new ordinary shares of £100,000 per each share held. 2.17. Share Based Payments The Group operates a number of equity-settled, share-based schemes, under which the Group receives services from employees or third party suppliers as consideration for equity instruments (options and warrants) of the Group. The fair value of the third party suppliers’ services received in exchange for the grant of the options is recognised as an expense in the Income Statement or charged to equity depending on the nature of the service provided . The value of the employee services received is expensed in the Income Statement and its value is determined by reference to the fair value of the options granted: including any market performance conditions; excluding the impact of any service and non-market performance vesting conditions (for example, profitability or sales growth targets, or remaining an employee of the entity over a specified time period ); and including the impact of any non-vesting conditions (for example, the requirement for employees to save). The fair value of the share options and warrants are determined using the Black Scholes valuation model. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. The total expense or charge is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each reporting period, the entity revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the Income Statement or equity as appropriate, with a corresponding adjustment to a separate reserve in equity. When the options are exercised, the Group issues new shares. The proceeds received, net of any directly attributable transaction costs, are credited to share capital (nominal value) and share premium when the options are exercised. 2.18. Taxation No current tax is yet payable in view of the losses to date. Deferred tax is recognised for using the liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax as sets (including those arising from investments in subsidiaries), are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. 25 FINNAUST MINING PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2016 Deferred income tax assets are recognised on deductible temporary differences arising from investments in subsidiaries only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be used. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will n ot reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basi s. Deferred tax is calculated at the tax rates (and laws) that have been enacted or substantively enacted by the statement of financial position date and are expected to apply to the period when the deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets and liabilities are not discounted. 3. Financial Risk Management 3.1. Financial Risk Factors The Group’s activities expose it to a variety of financial risks: market risk (foreign currency risk, price risk and interest rate risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group ’s financial performance. None of these risks are hedged. Risk management is carried out by the London based management team under policies approved by the Board of Directors. Market Risk (a) Foreign currency risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Euro and the British Pound. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations. The Group negotiates all material contracts for activities in relation to its subsidiar ies in either British Pounds or Euros. The Group does not hedge against the risks of fluctuations in exchange rates. The volume of transactions is not deemed sufficient to enter into forward contracts as most of the foreign exchange movements result from the retranslation of inter company loans. The Group has not sensitised the figures for fluctuations in foreign exchange rates as the Directors are of the opinion that these fluctuations , apart from the retranslation of intercompany loans at the closing rate, would not have a significant impact on the financial statements of the Group. However, the Directors acknowledge that, at the present time, the foreign exchange retranslations have resulted in rather higher than normal fluctuations which are separately disclosed, and is predominantly due to the exceptional nature of the Euro exchange rate in the last two years in the current economic climate. The Directors will continue to assess the effect of moveme nts in exchange rates on the Group’s financial operations and initiate suitable risk management measures where necessary. One measure may include the presentation currency of future financial statements being shown in Euros, which is the Group’s functional currency, as this may reduce the presentation fluctuations that have arisen in the last two years. (b ) Price risk The Group is not exposed to commodity price risk as a result of its operations, which are still in the exploration phase. The Directors will revisit the appropriateness of this policy should the Group’s operations change in size or nature. The Group has no exposure to equity securities price risk, as it has no listed or unlisted equity investments other than investments in wholly owned subsidiaries. (c) Interest rate risk As the Group’s borrowings are non-interest bearing it is not exposed to interest rate risk on financial liabilities. The Group’s interest rate risk arises from its cash held on short-term deposit, which is not significant. 26 FINNAUST MINING PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2016 Credit Risk Credit risk arises from cash and cash equivalents as well as outstanding receivables. Management does not expect any losses from non-performance of these receivables. The amount of exposure to any individual counter party is subject to a limit, which is assessed by the Board. The Group considers the credit ratings of banks in which it holds funds in order to reduce exposure to credit risk. Liquidity Risk In keeping with similar sized mineral exploration groups, the Group’s continued future operations depend on the ability to raise sufficient working capital through the issue of equity share capital or debt. The Directors are reasonably confident that adequate funding will be forthcoming with which to finance operations. Controls over expenditure are carefully managed. With exception to deferred taxation, financial liabilities are all due within one year. 3.2. Capital Risk Management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, to enable the Group to continue its exploration and evaluation activities , and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the issue of shares or sell as sets to reduce debts. At 30 June 2016 the Group had borrowings of £nil (30 June 2015: £62,500) and defines capital based on the total equity of the Company. The Group monitors its level of cash resources available against future planned exploration and evaluation activities and may issue new shares in order to raise further funds from time to time . Given the Group’s level of debt versus its cash at bank and cash equivalents , the gearing ratio is immaterial. 3.3. Sensitivity Analysis On the assumption that all other variables were held constant, and in respect of the Group and the Company’s expenses the potential impact of a 10% increase/decrease in the UK Sterling:Euro Foreign exchange rate on the Group’s loss for the year and on equity is as follows: Potential impact on euro expenses: 2016 Increase/(decrease) in foreign exchange rate Effect on loss before tax for the year ended Group Company Effect on equity before tax for the year ended Group Company 10% -10% £ 000's (627,295) (612,822) £ 000's (10,247) (10,247) £ 000's £ 000's 12,715,807 12,242,587 13,624,108 13,624,108 4. Critical Accounting Estimates and Judgements The preparation of the Financial Statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of expenses during the year. Actual results may vary from the estimates used to produce these Financial Statements. Estimates and judgements are regularly evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Items subject to such estimates and assumptions, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial years, include but are not limited to: Impairment of intangib le assets – exploration and evaluation costs Exploration and evaluation costs have a carrying value at 30 June 2016 of £12,627,680 (2015: £8,432,062). Such assets have an indefinite useful life as the Group has a right to renew exploration licences and the asset is only amortised once extraction of the resource commences. Management tests for impairment annually whether exploration projects have future economic value in accordance with the accounting policy stated in Note 2.7. Each exploration project is subject to an annual review by either a consultant or senior company geologist to determine if the exploration results returned during the year warrant further exploration expenditure and have the potential to result in an economic discovery. This review takes into consideration long term metal prices, anticipated resource volumes and supply and demand outlook. In the event that a project 27 FINNAUST MINING PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2016 does not represent an economic exploration target and results indicate there is no additional upside a decision will be made to discontinue exploration; an impairment charge will then be recognised in the Income Statement. The Directors have reviewed the estimated value of each project prepared by management and have concluded that no impairment is necessary for the year ended 30 June 2016. Share b ased payment transactions The Group has made awards of options and warrants over its unissued share c apital to certain Directors as part of their remuneration package. Certain warrants have also been issued to shareholders as part of their subscription for shares and suppliers for various services received. The valuation of these options and warrants involves making a number of critical estimates relating to price volatility, futu re dividend yields, expected life of the options and forfeiture rates. These assumptions have been des cribed in more detail in Note 15. 5. Segment Information Management has determined the operating segments based on reports reviewed by the Board of Directors that ar e used to make strategic decisions. During the year the Group had interests in four geographical segments; the United Kingdom, Greenland, Austria, and Finland. Activities in the UK are mainly administrative in nature whilst the activities in Austria and Finland relate to exploration and evaluation work. The Group had no turnover during the year. 2016 Revenue Administrative expenses Loss from operations per reportable segment Greenland £ - (3,629) Austria £ - (69,858) Finland £ - (34,630) UK £ - (520,929) Total £ - (629,046) (3,629) (69,858) (34,630) (512,192) (620,309) Additions to non-current assets Reportable segment assets Reportable segment liabilities 2,266,850 2,302,853 1094 2015 Revenue Administrative expenses Loss from operations per reportable segment (Reductions)/additions to non-current assets Reportable segment assets Reportable segment liabilities 79,545 612,887 2,116 Austria £ - (12,281) (12,281) (61,033) 519,312 441 1,806,023 9,812,573 21,140 Finland £ 1,028 (154,528) (153,500) 367,918 8,033,086 147,814 3,764 473,790 741,747 4,156,982 13,202,103 766,097 UK £ - (396,531) (396,531 (333) 766,537 113,045 Total £ 1,028 (563,340) (562,312) 306,552 9,318,935 261,300 28 FINNAUST MINING PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2016 6. Property, Plant and Equipment Group Cost As at 1 July 2014 Exchange differences As at 30 June 2015 As at 1 July 2015 Exchange Differences Additions As at 30 June 2016 Depreciation As at 1 July 2014 Charge for the year Exchange differences As at 30 June 2015 As at 1 July 2015 Charge for the year Exchange differences As at 30 June 2016 Softw are £ - - - - - 5,312 5,312 - - - - - 734 - 734 Machinery & equipment Office equipment £ £ Total £ 24,815 (3,124) 21,691 21,691 3,183 7,619 32,493 8,493 2,335 3,124 - 3,124 3,124 - 2,307 5,431 1,979 333 - (1,464) 2,312 2,312 2,126 - 9,364 9,364 5,037 1,209 10,438 4,438 15,610 21,691 (3,124) 18,567 18,567 3,183 - 21,750 6,514 2,002 (1,464) 7,052 7,052 2,177 1,209 Net book value as at 30 June 2015 Net book value as at 30 June 2016 - 11,515 4,578 11,312 812 993 12,327 16,883 Depreciation expense of £5,037 (30 June 2015: £2,335) for the Group has been charged in administration expenses. 29 FINNAUST MINING PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2016 Com pany Cost As at 1 July 2014 Additions As at 30 June 2015 As at 1 July 2015 Additions As at 30 June 2016 Depreciation As at 1 July 2014 Charge for the year As at 30 June 2015 As at 1 July 2015 Charge for the year As at 30 June 2016 Net book value as at 30 June 2015 Net book value as at 30 June 2016 Office equipment £ 3,124 - 3,124 3,124 5,312 8,436 1,979 333 2,312 2,312 1,547 3,859 812 4,577 Depreciation expense of £1,547 (30 June 2015: £333) for the Company has been charged in administration expenses. 7. Intangible Assets Intangible assets comprise exploration and evaluation costs. Exploration and evaluation assets are all internally generated. Exploration & Evaluation Assets - Cost and Net Book Value As at 1 July Additions Acquired through acquisition (at fair value) (Note 24) Exchange differences Impairments As at 30 June Group 30 June 2016 £ 8,432,062 842,281 1,912,886 1,440,451 - 30 June 2015 £ 8,101,446 1,080,814 - (750,198) - 12,627,680 8,432,062 Exploration projects in Finland, Greenland and Austria are at an early stage of development and no JORC (Joint Ore Reserves Committee) or non-JORC compliant resource estimates are available to enable value in use calculations to be prepared. The Directors therefore undertook an assessment of the following areas and circumstances that could indicate the existence of impairment: • The Group’s right to explore in an area has expired, or will expire in the near future without renewal; • No further exploration or evaluation is planned or budgeted for; • A decision has been taken by the Board to discontinue exploration and evaluation in an area due to the absence of a commercial level of reserves; or • Sufficient data exists to indicate that the book value will not be fully recovered from future developme nt and production. 30 FINNAUST MINING PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2016 Following their assessment the Directors concluded that no impairment charge was necessary for the year ended 30 June 2016. 8. Investments in Subsidiary Undertakings Shares in Group Undertakings At beginning of year Additions in year At end of year Loans to Group undertakings Total Com pany 30 June 2016 £ 30 June 2015 £ 7,700,002 7,700,002 905,607 - 8,605,609 7,700,002 4,899,665 3,271,652 13,505,274 10,971,654 Investments in Group undertakings are stated at cost, which is the fair value of the consideration paid, less any impairment provision. Subsidiaries Nam e of subsidiary Country of incorporation and place of business Proportion of ordinary shares held by parent (%) Proportion of ordinary shares held by the Group (%) Centurion Mining Limited United Kingdom Centurion Universal Limited United Kingdom Centurion Resources GmbH Austria 100% 100% Nil Finland Investments Plc United Kingdom 100% FinnAust Mining Finland Oy FinnAust Mining Northern Oy BlueJay Mining Limited Finland Finland BVI All subsidiary undertakings are included in the consolidation. Nil Nil Nature of business Dormant Holding Exploration Holding Exploration Exploration 100% 100% 100% 100% 100% 100% 60.37% 60.37% Exploration The proportion of the voting rights in the subsidiary undertakings held directly by the parent company do not differ from the proportion of ordinary shares held. 31 FINNAUST MINING PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2016 9. Trade and Other Receivables Current portion Prepayments VAT receivable Other receivables Total current portion Non-current portion Other receivables Total non-current portion Total Group Com pany 30 June 2016 £ 72,510 78,142 25,033 175,685 - - 175,685 30 June 2015 £ 29,781 27,483 735 57,999 21,179 21,179 79,178 30 June 2016 £ 33,362 77,814 - 30 June 2015 £ 26,277 12,249 - 111,176 38,526 - - - - 111,176 38,526 The fair value of all receivables is the same as their carrying values stated above. At 30 June 2016 all trade and other receivables were fully performing. No ageing analysis is considered necessary as the Group has no trade receivable receivables which would require such an analysis to be disclosed under the requirements of IFRS 7. The carrying amounts of the Group and Company’s trade and other receivables are denominated in the following currencies: UK Pounds Euros Group Com pany 30 June 2016 £ 140,666 35,019 175,685 30 June 2015 £ 38,526 40,652 79,178 30 June 2016 £ 111,176 - 30 June 2015 £ 38,526 - 111,176 38,526 The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The Group does not hold any collateral as security. 10. Cash and Cash Equivalents Group Com pany 30 June 2016 £ 30 June 2015 £ 30 June 2016 £ 30 June 2015 £ Cash at bank and in hand 425,046 795,368 371,485 715,583 All of the Group and Company’s cash at bank is held with institutions with an AA- credit rating. 32 FINNAUST MINING PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2016 The carrying amounts of the Group and Company’s cash and cash equivalents are denominated in the following currencies: UK Pounds Euros 11. Trade and Other Payables Trade payables Other creditors Accrued expenses Group Com pany 30 June 2016 £ 377,998 47,048 30 June 2015 £ 715,583 79,785 30 June 2016 £ 30 June 2015 £ 371,485 715,583 - - 425,046 795,368 371,485 715,583 Group Com pany 30 June 2016 £ 136,559 229,361 26,834 30 June 2015 £ 91,250 9,400 98,150 392,754 198,800 30 June 2016 £ 124,786 224,159 19,458 368,403 Trade payables include amounts due of £42,992 in relation to exploration and evaluation activities. 12. Borrowings Current Unsecured borrowings at amortised cost Non-interest bearing loan Group 30 June 2016 £ - - Non-interest bearing loans arose in prior periods as unsecured cash advances to the Group from Western Areas Limited (‘Western Areas’). The agreed facility was £250,000, denominated in Pound Sterling and the balance was repaid in full. There are no undrawn borrowings as at the year end. 13. Deferred Tax An analysis of deferred tax liabilities is set out below. Deferred tax liabilities - Deferred tax liability after more than 12 months Deferred tax liabilities Group 2016 £ 373,343 373,343 2015 £ - - Com pany 2016 £ 2015 £ - - - - 33 30 June 2015 £ 18,518 2 31,144 49,664 30 June 2015 £ 62,500 62,500 FINNAUST MINING PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2016 The movement in the deferred tax account is as follows: At 1 January Acquisition of subsidiary (Note 24) As at 31 December Group Com pany 2016 2015 2016 2015 £ - 373,343 373,343 £ - - - £ - - - £ - - - The Group has additional capital losses of approximately £nil (2015: £nil) and other losses of approximately £4,752,742 (2015: £4,145,017) available to carry forward against future taxable profits. No deferred tax asset has been recognised in respect of these tax losses because of uncertainty over the timing of future taxable profits against which the losses may be offset. 14. Share capital and premium Group and Company Issued and fully paid At 30 June 2014 Num ber of shares Ordinary shares £ Share premium £ Total £ 247,097,670 4,941,953 14,188,311 19,130,264 Issue of new shares – 24 October 2014 (1) 48,888,890 977,778 86,217 1,063,995 At 30 June 2015 295,986,560 5,919,731 14,274,528 20,194,259 Issue of new shares – 24 December 2015 Issue of new shares – 3 March 2016 (2) 10,000,000 54,032,316 1,000 5,403 199,000 200,000 1,031,135 1,036,538 Issue of new shares – 8 March 2016 123,900,000 12,390 669,060 681,450 Issue of new shares – 15 April 2016 481,928 48 9,952 10,000 As at 30 June 2016 484,400,804 5,938,572 16,183,675 22,122,247 (1) (2) Includes issue costs of £36,005 Includes issue costs of £44,108 On 24 December 2015 the Company raised £200,000 via the issue and allotment of 10,000,000 new ordinary shares of 0.01 pence each fully paid at a price of 2 pence per share. On 3 March 2016 the Company raised £1,036,538 via the issue and allotment of 54,032,316 new ordinary shares of 0.01 pence each fully paid at a price of 2 pence per share. On 8 March 2016 the Company issued and allotted 123,900,000 new ordinary shares of 0.01 pence each fully paid at a price of 0.55 pence per share as consideration for a business acquisition. On 15 April 2016 the Company issued and allotted 481,928 new ordinary shares of 0.01 pence each fully paid at a price of 2.075 pence per share as consideration for services provided. 34 FINNAUST MINING PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2016 15. Share Based Payments Share options and warrants outstanding and exercisable at the end of the year have the following expiry dates and exercise prices: Grant Date Expiry Date Exercise price in £ per share 12 November 2012 12 November 2015 29 November 2013 12 November 2012 29 May 2017 12 November 2017 29 November 2013 29 May 2019 4 March 2016 4 March 2016 4 March 2016 15 April 2016 3 March 2017 3 March 2018 3 March 2019 14 April 2021 0.67 0.15 0.10 0.20 0.20 0.40 0.60 0.20 Options & Warrants 30 June 2016 30 June 2015 - 1,681,930 6,000,000 3,684,366 6,000,000 3,684,366 6,000,000 6,000,000 1,000,000 1,000,000 1,000,000 625,000 - - - - 19,309,366 17,366,296 The Company and Group have no legal or constructive obligation to settle or repurchase the options or warrants in cash. The fair value of the share options and warrants was determined using the Black Scholes valuation model. The parameters used are detailed below: Granted on: Life (years) Share price (pence per share) Risk free rate Expected volatility Expected dividend yield Marketability discount Total fair value (£000) Granted on: Life (years) Share price (pence per share) Risk free rate Expected volatility Expected dividend yield Marketability discount Total fair value (£000) 2016 Options 2013 Options 2013 Options 2012 Options & Warrants 4/3/2016 29/11/2013 29/11/2013 12/11/2012 1 year 3.03p 0.81% 48.40% - 20% 9 3.5 years 5.7p 2.25% 26.41% - 20% 3 5.5 years 5.7p 2.25% 26.41% - 20% 4 5 years 1.13p 2.25% 29.74% - 20% 117 2016 Options 2016 Options 2016 Options 15/4/2016 5 years 4.0p 0.81% 48.40% - 20% 12 4/3/2016 3 years 3.03p 0.81% 48.40% - 20% 3 4/3/2016 2 years 3.03p 0.81% 48.40% - 20% 4 The expected volatility for the 2012 options & warrants was based on historical share price volatility of similar AIM listed entities for the 6 months prior to the date of granting. This was considered to be the most reasonable measure of expected volatility, given the relatively brief trading history of the Company available. The expected volatility of the 2013 and 2016 options is based on historical volatility for the six months prior to the date of granting. The risk free rate of return is based on zero yield government bonds for a term consistent with the option life. 35 FINNAUST MINING PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2016 A reconciliation of options and warrants granted over the year to 30 June 2016 is shown below: Outstanding at beginning of year Expired Adjustment for share consolidation Granted Outstanding as at year end Exercisable at year end 2016 2015 Weighted average exercise price (£) 0.1237 0.0043 - 0.0366 0.1347 0.1347 Num ber 17,366,296 (1,681,930) - 3,625,000 19,309,366 19,309,366 Weighted average exercise price (£) Number 17,366,296 0.1237 - - - - - - 17,366,296 17,366,296 0.1237 0.1237 2016 2015 Weighted average exercise price (£) Num ber of shares Weighted average rem aining life expected (years) Weighted average rem aining life contracted (years) Weighted average exercise price (£) Number of shares Weighted average remaining life expected (years) Weighted average remaining life contracted (years) 0.37 0.15 3,625,000 15,684,366 2.20 1.78 2.20 1.78 0.00900 5,366,296 0.1750 12,000,000 2.37 2.92 2.37 2.92 of Range exercise prices (£) 0 – 0.05 0.05 – 2.00 No options or warrants were exercised during the year. During the year there was a charge of £29,457 (2015: £nil) in respect of share options. 16. Other Reserves Group Foreign currency translation reserve £ Merger reserve £ Redem ption reserve £ Share option reserve £ Total £ At 30 June 2014 166,000 (346,801) 36,463 195,547 51,209 Currency translation differences - (1,025,713) - - (1,025,713) At 30 June 2015 166,000 (1,372,514) 36,463 195,547 (974,504) Currency translation differences Issued options Expired options At 30 June 2016 - - - 1,444,214 - - - - - - 1,444,214 29,457 29,457 (71,658) (71,658) 166,000 71,700 36,463 153,346 427,509 36 FINNAUST MINING PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2016 At 30 June 2014 At 30 June 2015 Issued options Expired options At 30 June 2016 17. Employee benefit expense Staff costs (excluding Directors) Salaries and wages Social security costs Retirement benefit costs Com pany Merger reserve £ Redem ption reserve £ Share option reserve £ Total £ 166,000 36,463 195,547 398,010 166,000 36,463 195,547 398,010 - - - - 29,457 29,457 (71,658) (71,658) 166,000 36,463 153,346 355,809 Group Year ended 30 June 2016 Year ended 30 June 2015 £ £ 134,781 3,679 40,018 310,175 55,892 12,203 178,478 378,270 The average monthly number of employees for the Group during the year was 6 (30 June 2015: 6). These were all employed in exploration & evaluation related roles. Of the above Group staff costs, £169,846 (30 June 2015: £348,527) has been capitalised in accordance with IFRS 6 as exploratory related costs and are shown as an intangible addition in the year. 18. Directors' Remuneration Company Executive Directors Alastair Clayton (1) Roderick McIllree Non-executive Directors Greg Kuenzel Daniel Lougher Graham Marshall Directors’ Fees Options Issued Year ended 30 June 2016 £ Year ended 30 June 2015 £ Year ended 30 June 2016 £ Year ended 30 June 2015 £ - 203,043 11,370 - 12,000 12,000 - - - - 23,370 215,043 - - - - - - - - - - - - No pension benefits are provided for any Director. Details of fees paid to Companies and Partnerships of which the Directors detailed above are Directors and Partners have been disclosed in Note 25. 37 FINNAUST MINING PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2016 (1) Alastair Clayton resigned on 3 June 2015. 19. Finance Income Interest received from cash and cash equivalents Finance Income 20. Income Tax Expense No charge to taxation arises due to the losses incurred. Group Year ended 30 June 2016 Year ended 30 June 2015 £ 250 250 £ 931 931 The tax on the Group’s loss before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to the losses of the consolidated entities as follows: Loss before tax Tax at the applicable rate of 19.20% (2014: 21.18%) Effects of: Expenditure not deductible for tax purposes Depreciation in excess of/(less than) capital allowances Net tax effect of losses carried forward Tax charge Group Year ended 30 June 2016 Year ended 30 June 2015 £ £ (620,059) (561,381) (119,065) (118,900) 1,401 967 9,953 2,335 116,696 106,612 - - The weighted average applicable tax rate of 19.20% (2015: 21.18%) used is a combination of the 20% standard rate of corporation tax in the UK, 20% Finnish corporation tax, 30% Austrian corporation tax and 30% Greenlandic corporation tax. The Group has a potential deferred income tax asset of approximately £1,498,657 (2015: £1,381,961) due to tax losses available to carry forward against future taxable profits. The Company has tax losses of approximately £4,752,742 (2015: £4,145,017) available to carry forward against future taxable profits. No deferred tax asset has been recognised on accumulated tax losses because of uncertainty over the timing of future taxable profits against which the losses may be offse t. 21. Earnings per Share Group The calculation of the total basic earnings per share of 0.172 pence (30 June 2015: (0.201) pence) is based on the loss attributable to equity holders of the parent company of £ 613,849 (30 June 2015: £561,381) and on the weighted average number of ordinary shares of 357,925,047 (30 June 2015: 279,913,500) in issue during the year. In accordance with IAS 33, basic and diluted earnings per share are identical for the Group as the effect of the exercise of share options would be to decrease the earnings per share. Details of share options that could potentially dilute earnings per share in future periods are set out in Note 15. 38 FINNAUST MINING PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2016 22. Expenses by nature Directors’ fees Employee salaries AIM related costs (including Public Relations) Establishment expenses Auditor remuneration Auditor fees for other services Travel & subsistence Professional & consultancy fees Insurance Depreciation Other expenses Total administrative expenses Group Year ended 30 June 2016 £ Year ended 30 June 2015 £ 3,505 8,632 164,811 30,000 16,000 1,000 60,787 253,783 17,238 5,037 68,253 129,007 29,743 108,367 45,383 16,000 1,000 11,327 156,818 18,197 2,335 45,163 629,046 563,340 The above Directors’ fees are exclusive of £20,915 (30 June 2015: £86,036) which has been capitalised in accordance with IFRS 6 as exploratory related costs and are shown as an intangible addition in the year. Services provided by the Company’s auditor and its associates During the year, the Group (including overseas subsidiaries) obtained the following services from the Company’s auditors and its associates: Group Year ended 30 June 2016 £ Year ended 30 June 2015 £ Fees payable to the Company’s auditor and its associates for the audit of the Parent Company and Consolidated Financial Statements Fees payable to the Company’s auditor for tax compliance & other services 16,000 1,000 16,000 1,000 23. Commitments (a) Royalty agreements As part of the contractual arrangement with Thames Mining Limited (“Thames Mining”) the Group has agreed to pay a royalty on revenue from mineral sales arising from mines developed by Centurion Resources GmbH and covered by the Mitterberg Copper Exploration Licences (the “Licences”) acquired by the Company. Under the terms of the Royalty Agreement between Thames Mining and the Company, the Group shall pay a 2 per cent royalty on revenue from all mineral sales less permitted deductions generated from revenue in connection with the Licences. The royalty agreement includes a right of first r efusal granted in favour of Thames Mining whereby it is given the opportunity to buy back the Licences in the event that it is proposed to be sold by the Company. As part of the contractual arrangement with Magnus Minerals Limited (“Magnus”) the Group has agreed to pay royalties on revenue from mineral sales arising from mines developed by the Group. Under the terms of the respective Royalty Agreements between Magnus and the Company, the Group shall pay the following: 0.5% of net smelter returns over mineral production from the Kainuu Schist Belt tenements; 1.0% of net smelter returns over mineral production from the Outokumpu Savonara Mine Belt tenements; 1.5% of net smelter returns over mineral production from the Enonoski Area tenements; and 2.5% of net smelter returns over mineral production from the Hammaslahti Area tenements. 39 FINNAUST MINING PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2016 The Enonoski and Hammaslahti Royalty Agreements further provide that royalty entitlements may be extended to future rights with the respective areas of influence defined with the agreements. Additionally, under the terms of the Kainuu Schist Belt Royalty Agreement and the Outokumpu Savonara Mine Belt Royalty Agreement the Group is obligated to pay SES Finland Limited a 0.5% net smelter royalty in respect of production from the associated tenements and Western Areas Limited (“Western Areas”) 0.5% of net smelter returns over mineral production of the tenements using a biological leaching technology owned by Western Areas. (b ) License commitments On 8 March 2016, via the acquisition of Bluejay, the Group acquired a mineral exploration licence in Greenland expiring 31 December 2019. This licence includes commitments to pay annual licence fees and minimum spend requirements. As at 30 June 2016 these are as follows: Group Not later than one year Later than one year and no later than five years 2016 Minim um spend requirement £ Total £ 2,615 57,845 - 284,100 License fees £ 55,230 284,100 Total 339,330 2,615 341,945 (c) Operating lease commitments The Group leases office premises under a non-cancellable operating lease agreement. The lease is on an initial fixed term of two years from 1 July 2015, automatically renewable at the end of the lease period for a further two year fixed term . The lease expenditure charged to the Income Statement during the year is disclosed in Note 22 and is included within establishment expenses. The future aggregate minimum lease payments under non-cancellable operating leases are as follows: Group 30 June 2016 £ 36,000 36,000 30 June 2015 £ 18,000 18,000 Not later than one year Total lease commitment 24. Business Combinations Bluejay Mining Limited On 8 March 2016, the Group acquired 60.37% of the share capital of Bluejay Mining LImited (“Bluejay”) for £905,607 (“Bluejay Acquisition”). Bluejay is registered in the British Virgin Islands and holds a 126km sq. mineral exploration licence in Greenland. As a result of this acquisition the Group is expected to increase its presence in this market and commodity. Gregory Kuenzel and Roderick McIllree are both shareholders in Bluejay and received consideration shares resulting from the Bluejay Acquisition. Refer to Note 25 for more details. The following table summarises the consideration paid for Bluejay and the amounts of the assets acquired and liabilities assumed recognised at the acquisition date. 40 FINNAUST MINING PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2016 Consideration at 8 March 2016 Cash Deferred Equity Consideration (40,755,885 ordinary shares at 0.55 pence per share) Equity instruments (123,900,000 ordinary shares at 0.55 pence per share) Total consideration £ - 224,157 681,450 905,607 Recognised amounts of identifiable assets acquired and liabilities assumed Book value FV adj. Total Cash and cash equivalents - - £ - Exploration assets (included within Intangible Assets) (Note 7) 46,171 1,866,715 1,912,886 Other identifiable assets and liabilities Deferred tax liability Total identifiable net assets Goodwill Non-controlling interest Total consideration (37,165) - - (373,343) (37,165) (373,343) 9,006 1,493,372 1,502,378 - (596,771) 905,607 The fair value of the 40,755,885 Ordinary Shares and 123,900,000 Ordinary shares issued as consideration for Bluejay was based on the agreed price of 0.55 pence and 0.0055 pence per Ordinary Share respectively. The fair value of the exploration assets of £1,912,886 was estimated by applying a number of valuation metrics which include; geological upside potential, mineralogy, market benchmarks and the application of local market factors. In the Directors’ opinion, the value of the consideration paid to effect the acquisition related primarily to the value of the exploration licences and upside potential representing a price agreed between willing and knowledgeable parties on an arm’s length basis. Therefore, the fair value of the consideration transferred, after consideration of tax implications and the removal of the fa ir value of other identifiable assets acquired, has been used as a basis for valuing the explora tion assets acquired. Since 8 March 2016 Bluejay Mining Limited contributed a loss of £15,671 . No revenue was recognised in the consolidated statement of comprehensive income in respect of Bluejay Mining Limited. Had Bluejay Mining Limited been consolidated from 1 January 2015, the consolidated statement of income would show a loss of £621,961 and revenue would remain unchanged. 25. Related Party Transactions Loans to Group undertakings Amounts receivable as a result of loans granted to subsidiary underta kings are as follows: Centurion Universal Limited Centurion Resources GmbH Finland Investments Plc FinnAust Mining Finland Oy Centurion Mining Limited Bluejay Mining Limited At 30 June (Note 8) 41 Com pany 30 June 2016 £ 564,300 85,155 289,153 3,515,060 195 445,802 30 June 2015 £ 564,300 58,828 192,401 2,455,928 195 - 4,899,665 3,271,652 FINNAUST MINING PLC NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2016 Loans granted to subsidiaries have increased during the year due to additional loans being granted to the subsidiaries, and foreign exchange losses of £598,529, given that no loans were repaid during the year. These amounts are unsecured, interest free and repayable in Euros when sufficient cash resources are available in the subsidiaries. All intra Group transactions are eliminated on consolidation. Bluejay Acquisition As per Note 24, Gregory Kuenzel and Roderick McIllree are both shareholders in Bluejay Mining Limited and received 17,365,791 and 42,966,685 consideration shares respectively as a result of the Bluejay Acquisition they are further entitled to receive 5,712,334 and 14,133,537 deferred consideration shares. Other Transactions The Group defines its key management personnel as the Directors of the Company as disclosed in the Directors’ Report. Heytesbury Corporate LLP, a limited liability partnership of which Gregory Kuenzel is a partner, was paid a fee of £ 84,000 (2015: £84,000) for the provision of corporate management and consulting services to FinnAust Mining Plc. A balance of £8,405 was outstanding at the year-end. Tabasco Consulting Limited, a limited company of which Roderick McIllree is a Director, was paid a fee of £55,930 (2015: £nil) for the provision of corporate management and consulting services to FinnAust Mining Plc. A balance of £6,500 was outstanding at the year-end. Noricum Gold Limited, a company of which Greg Kuenzel is a Director, was paid a fee of £ 2,151 (2015: £nil) for storage services provided to FinnAust Mining Plc. No balance was outstanding at the year-end. Greenland Gas and Oil Limited, a limited company of which Roderick McIllree and Gregory Kuenzel is a Director, was paid a fee of £9,300 (2014: nil) for geological information systems consulting services to FinnAust Mining plc. This balance was outstanding at the year-end. 26. Ultimate Controlling Party The Directors believe there is no ultimate controlling party. 27. Events after the Reporting Date On 13 July 2016 the Company raised £500,000 via the issue and allotment of 10,000,000 new ordinary shares of 0.01 pence each fully paid at a price of 5 pence per share. On 5 September 2016 the Group proposed to acquire 100% of Avannaa Exploration Limited for consideration of £500,000 to be paid via the issue and allotment of ordinary shares of 0.01 pence each. Completion of the Acquisition is conditional upon, inter alia, the relevant change of control approvals being received from the Greenland Government and admission of the Consideration Shares to trading on AIM. 42
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