Annual Reports 24 March 2022 KGL Resources Limited (ASX:KGL) is today announcing the release of: • The 2021 Annual Report including the Annual Financial Statements and Corporate Governance Statement and, • The 2021 Sustainability Report. The Company also advises that the Annual General Meeting will be held on 31 May 2022. These announcements have been approved by the directors of KGL Resources Limited. KGL Resources Limited | Annual Reports Page 1 of 1 2021 \ ANNUAL REPORT Contents 1 2 4 5 6 7 9 10 19 84 Corporate Directory Chairman’s Address Message from the Managing Director and CEO Operations Review Resource Table Tenement Map and Holdings Sustainability Corporate Governance Statement Financial Report Additional Information Corporate Directory Name of Company Secretary Kylie Anderson Address of Registered Office KGL Resources Limited Level 5, 167 Eagle Street Brisbane 4000 07 3071 9003 Name and Address of Share Register Link Market Services Limited Tower 4, 727 Collins Street Melbourne VIC 3008 Securities Exchange Listing Quotation has been granted for the unrestricted ordinary shares of the Company on all Member Exchanges of the Australian Securities Exchange. Page 1 | KGL Resources Annual Report 2021 Chairman’s Address To our Shareholders This has been a difficult year for your company as we continued to deal with the logistical issues brought about by the Covid-19 pandemic. Nevertheless, I am pleased with our progress at Jervois and I must congratulate our staff, in particular our site staff, who have managed to persevere and complete our 2021 drilling program even with the prevailing and industry-wide challenges. Work at Jervois during the year provided every indication of a project that will continue to increase in size and quality. The pandemic halted work on-site for much of 2020 and drilling recommenced in early 2021 and while it took some time to get fully into stride, we have seen some very good results. Resource drilling increased the copper metal content at Reward by some 43,000 tonnes, lifting the total contained copper metal at Reward by 20%, and representing an overall increase of 13.5% on the 2020 total Jervois Cu-Ag- Au Resource estimate. Auguring well for the future at Jervois, drilling encountered some extremely high grades at Rockface. The intersections were below the current resource, with the deposit remaining open for significant extensions at depth. All the major deposits at Jervois are open at depth, making them highly prospective for additional resources. The Feasibility Study is now expected to be completed in mid-2022. While that will be several months later than previously planned the extra time it is taking to complete the Feasibility Study is enabling us to further optimise the mine plan, identify cost pressures and refine capital and operating costs. The opportunity is also being taken to finalise offtake arrangements. We can offer customers long term contracts for copper concentrate with gold and silver credits produced in a secure, low risk country when much of the world’s copper supply, now and in the future, is sourced from far less stable environments. We will be selling into a global market that is expected to continue to experience strong demand and high copper prices. The price reached an all-time peak of US$10,729 a tonne in March 2022 and has remained largely between US$9,000 and US$10,000 since May 2021. Copper lies at the heart of the modern industrial order. It is the key metal required in ever growing quantities for the age of increasing electrification and green energy. Senior analysts are forecasting a copper super-cycle of high producer margins this decade as prices advance towards US$15,000 a tonne, driven by demand growth at a time of constrained supply caused by rising costs, declining ore grades, few new projects and sovereign risks in major producing countries. KGL’s Executive Chairman Denis Wood initially retired last year after six years as a Director and Chairman. Under his leadership, mineral resources at Jervois increased in quality and size, the Feasibility Study reached an advanced stage, market capitalization of the Company increased significantly, and a strong cash position was maintained. Denis was instrumental in transforming KGL from a small explorer into a company now preparing to be a mid-sized copper producer and we are delighted that he has agreed to re-join the board as a Non-executive Director. Page 2 | KGL Resources Annual Report 2021 Managing Director Simon Finnis joined the Company last year. Based on his long experience in management and operational roles in the mining industry in Australia and internationally, Simon is providing strong executive leadership with the Jervois project. We were very pleased to welcome Denis Gately on to the board of KGL last year. Denis is one of Australia’s most respected energy and resources lawyers having led mineral and oil and gas transactions in Australia and internationally and served as a director on several resource company boards. We are also appreciative of the service provided to KGL by departing directors, Fiona Murdoch and Stephen Mallyon. Fiona resigned from the board in October 2021 having been an active and valued board member for three years. Stephen joined the board in the middle of 2021 bringing with him management experience with mining projects, both in Australia and internationally, and corporate finance experience. He has recently resigned from the board. During the year, the Company raised $25.21 million in share placements and a shareholder entitlement issue. Directors greatly appreciate the strong investor and shareholder support in providing the new capital which is funding the Feasibility Study and drilling programs. Directors join with me in thanking shareholders for their continuing confidence in the Company to build value and create a strong and sustaining mining enterprise. Peter Hay CHAIRMAN KGL Resources Limited 23 March 2022 _______________________________________________ Page 3 | KGL Resources Annual Report 2021 Message from the Managing Director and CEO Dear Shareholders It has been an extremely busy nine months since I joined the Company. After the loss of the 2020 drilling season due to COVID-19, it was straight into the deep end with two drill rigs fully engaged onsite, the feasibility study in full swing and COVID-19 driven disruptions needing management attention on an almost daily basis. We have augmented the team and applied significant resources to enable the feasibility to be very well advanced, despite the abovementioned COVID-19 related delays. I must say that it was a great effort by everyone involved. The actual disruptions to site activities were minimized, and we were able to complete the drilling, and all site programs for the feasibility study within the 2021 calendar year. We are now in the final stages of optimising the mine plan, based on the new and increased Resource for Jervois of 22.89 million tonnes at 2.03% Copper, 25.7g/t Silver and 0.25g/t gold. In contained metal this amounts to 465,600t copper, 18.94M Oz silver and 187,000 Oz. gold; a significant increase from the most recent Resource upgrade in September 2020, upon which the PFS was based. From here we will cost the new mine plan and then update the financial model, allowing attention to be given to the Mining Reserve, the final stage of the feasibility study. We have already been working on the financing strategy, and after we publish the feasibility study we’ll focus much more heavily on this aspect as we strive to achieve the Final Investment Decision later this year. We are encouraged by the strong commodity market, including copper and our other by-products of silver and gold. If things progress along currently envisaged timelines, we will be bringing the Jervois Project online just when copper shortages are predicted to occur as the structural change to the market fundamentals brought about by the electric vehicle revolution and the strong move to renewables, starts to materially affect the supply and demand balance. I would like to thank the Board and the broader KGL team for their support during this very busy period. Simply put, I joined KGL because of the quality of the Jervois Project – there are not many high-grade, high-quality copper projects around. This is one of them and it deserves to be developed. Simon Finnis MANAGING DIRECTOR AND CEO KGL Resources Limited 23 March 2022 _____________________________________________________ Page 4 | KGL Resources Annual Report 2021 Operations Review During 2021, the Company re-established its Northern Territory site operations, which had been put on hold during 2020 due to COVID-19. The main focus of works was on the completion of the Feasibility Study for the Jervois Project, which involved exploration drilling targeting the upgrade of existing mineral resources; capital and operating costs estimates; design of process plant and finalization of flow sheet; metallurgical test work; planning and design work for water and mine infrastructure; civil works and logistics studies. Towards the end of 2021, further high-grade discoveries were made using geophysics and followed up through the exploration drilling program, creating potential for longer term extension at Jervois. FEASIBILITY STUDY The Jervois Project PFS was completed in December 2020, and the Board approved proceeding to the Feasibility Study stage on the back of encouraging findings that Jervois would support an initial robust mining operation. In 2021, as globally the world turned to post-pandemic recovery, associated increases in Australian and international cost pressures, have been offset by growing confidence in the resource base at Jervois, and a bull copper market, with all time highs in the market being seen during 2021 and continuing into 2022. The feasibility was well advanced in 2021, with all major works packages close to being finalised at year’s end. Optimisation of the mine plan, prioritising access to high grade ores earlier in the mining sequence, was performed. Synergies using the mining and civils fleet were explored, while similar optimisation reviews were completed for the process plant design and processing costs. Mine infrastructure design and layout were prepared, and inbound logistics for the planned work force and outbound logistics for copper concentrate were reviewed and optimised. A camp to sleep 300 and hybrid solar-diesel power station design were also developed as the project manning and power needs were clarified. Water infrastructure was designed to provide adequate supply for project needs in accordance with the licenced water draw for the project. EXPLORATION The 2021 site ramp up took longer than envisaged, with labour availability and local and interstate lockdowns interrupting travel to and from the site, however one drill rig was operational from February 2021. A further rig mobilised to site in May 2021. The drill rigs were initially deployed to complete the infill drilling program to complete the resource update upon which the upcoming Feasibility Study will be based. The aim was to increase the proportion of indicated resources and extend the PFS mine life beyond 7.5 years. A geophysical IP survey was carried out in August 2021, and together with Down Hole Electro Magnetic (DHEM) surveys, provided geological data for design of new holes, aimed at near mine extensions of existing resources. Several new high-grade intersections were discovered at Rockface North, and the DHEM indicates that the ore body remains open at depth, as do the other known resource deposits, Reward and Bellbird. COPPER MARKET From a 2020 low point of US$4,630/t, copper more than doubled in price at the year’s end, and throughout 2021, traded in the range between US$8,768/t and an all-time high of US$10,724/t. The forecast increases in copper demand, due to the widespread uptake of electric vehicles and a ‘green led’ recovery from the COVID-19 downturn, together with declining global copper grades and lack of new near- term supply, points to a copper market entering a new phase. REGULATORY UPDATES The Northern Territory government approved KGL’s Mining Management Plan on 7 January 2021, which was the last major approval requirement for the project. Water licences were granted in April 2021. Further details on the operational activities for 2021 are contained in the Review of Operations, within the Directors’ Report. Page 5 | KGL Resources Annual Report 2021 Resource Table AS AT 23 MARCH 2022 RESOURCE MINERALISED MASS GRADE METAL AREA* CATEGORY (Mt) Copper (%) Silver (g/t) Gold (g/t) Copper (kt) Silver (Moz) Gold (koz) Open Cut Potential > 0.5 % Cu Underground Potential > 1 % Cu Reward Bellbird Indicated Inferred Indicated Inferred Sub Total Reward Bellbird Rockface Indicated Inferred Indicated Inferred Indicated Inferred 3.84 0.65 2.03 1.44 7.95 4.78 4.32 0.38 1.92 2.80 0.73 1.80 39.4 0.31 69.1 4.86 38.2 0.92 2.20 1.36 9.2 13.1 9.3 0.07 5.9 0.19 1.5 0.16 44.5 0.85 10.5 0.15 19.5 0.43 6.9 1.75 24.8 0.22 139.1 6.33 57.1 2.12 42.6 0.45 101.6 6.55 69.2 1.56 19.6 0.20 67.3 2.72 27.8 2.62 17.7 0.14 9.9 0.22 1.7 2.06 12.0 0.10 39.5 0.74 3.37 21.4 0.23 94.3 1.93 1.92 19.0 0.18 14.0 0.45 6.0 21.1 4.2 Sub Total 14.93 2.19 26.3 0.27 326.6 12.60 130.0 Sub Totals Indicated 13.83 2.31 32.4 0.32 319.4 14.41 140.7 Inferred 9.06 1.61 15.6 0.16 146.2 4.53 46.4 TOTAL 22.87 2.04 25.7 0.25 465.6 18.93 187.1 * Does not include Reward South deposit * Due to rounding to appropriate significant figures, minor discrepancies may occur, tonnages are dry metric tonnes. Mineral Resources are not Ore Reserves and do not have demonstrated economic viability. Inferred resources have less geological confidence than Indicated resources and should not have modifying factors applied to them. It is reasonable to expect that with further exploration most of the inferred resources could be upgraded to indicated resources. COMPETENT PERSON STATEMENT The Jervois Resources information were first released to the market on 23/03/2022 and complies with JORC 2012. The company confirms that it is not aware of any new information or data that materially affects the information included in the original market announcement and that all material assumptions and technical parameters underpinning the estimates in the relevant market announcement continue to apply and have not materially changed. The company confirms that the form and context in which the Competent Person’s findings are presented have not been materially modified from the original market announcement. Page 6 | KGL Resources Annual Report 2021 Tenement Map and Holdings KGL’s current tenement holdings cover over 600km2 including 19.5km2 Jervois mining leases, 37.9km2 Jervois Exploration Licence and 72.7km2 Unca Creek Exploration Licence. TENEMENT NUMBER PROJECTS BENEFICIAL HOLDING EXPIRY ML 30180 Jervois Project, Northern Territory ML 30182 Jervois Project, Northern Territory ML30829 Jervois Project, Northern Territory ML 32277 Jervois Project, Northern Territory EL 25429 Jervois Project, Northern Territory EL 30242 Jervois Project, Northern Territory EL 28340 Yambah, Northern Territory EL 28271 Yambah, Northern Territory EL 28082 Unca Creek, Northern Territory (*) renewal application pending 100% 100% 100% 100% 100% 100% 100% 100% 100% 27/01/2034 25/03/2034 17/08/2032 17/08/2032 01/02/2023 25/11/2022 03/07/2023 05/04/2023 29/12/2021 (*) Page 7 | KGL Resources Annual Report 2021 JERVOIS PROJECT TENEMENTS Page 8 | KGL Resources Annual Report 2021 Sustainability The Company was pleased to prepare our inaugural annual Sustainability Report for the period 1 January 2021 to 31 December 2021 (Reporting Period). • The Company’s commitment to the environment and our operations was demonstrated by receiving approval of our Mining Management Plan from the Northern Territory government, thus supporting our next steps into construction; • The appointment of three key executive positions with outstanding experience to guide KGL through the next stages of construction and operation; and • Reflecting KGL’s approach to water stewardship, KGL received approval of water licenses and proceeded with the design of the water borefield and water management system to ensure water availability to accommodate the Project’s needs. These outcomes illustrate how sustainability is being actively embedded throughout our business as we progress from exploration and feasibility into mine operations. The report’s scope covers the activities and approach of KGL Resources Ltd (KGL or the Company), its key subsidiaries, including Jinka Minerals Ltd and its wholly owned subsidiary, Jervois Operations Pty Ltd. KGL is committed to building on our sustainability reporting platform set through the report. Year- on-year we will collect, interpret, and publish data to support our progress being made against our sustainability objectives and targets. We will also align our sustainability and ESG reporting approach with relevant international guidelines and frameworks that suit a company of our size as we advance in the construction and operational stages of our Project. Noteworthy sustainability outcomes in 2021 included: • KGL’s continued focus on health and safety was reflected in the way in which our COVID-19 controls were effectively implemented at our operations. The health and safety of our people is our first priority. Our people are our most valuable assets and their safety and health is our greatest responsibility; • Working alongside our key stakeholders to identify those areas of sustainability that are important to them and our business, including the development of our first set of high- level sustainability objectives, targets and performance measures; Page 9 | KGL Resources Annual Report 2021 Corporate Governance Statement as at 31 December 2021 LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT To effectively carry out its responsibilities, the Board delegates all other functions to the Managing Director. Management, led by the Managing Director, is responsible for running the affairs of the Company under delegated authority from the Board and implementing the policies and strategies set by the Board. The Managing Director must report to the Board in a timely manner and ensure all reports to the Board present a true and fair view of the Company’s financial position and operating results. A copy of the Board Charter can be found on the Company’s website www.kglresources.com.au. The Board Charter is reviewed at least every 2 years to ensure it is in line with the legislative and regulatory requirements and leading practice. NOMINATION AND APPOINTMENT OF DIRECTORS Before a director is appointed, the Board undertakes appropriate evaluations including in-depth interviews and reference checks. All members of the Board are given the opportunity to interview the potential appointee. Where a director is standing for election or re- election, the Notice of Meeting including the Explanatory Memorandum, will set out information on the director including qualifications and experience, independence status and the recommendation of the rest of the Board on the resolution. A statement as to whether the Board supports the election/re-election of each director standing for election is provided. Additionally, a detailed profile for each director is included in the Company’s Annual Report. THE BOARD CHARTER The over-riding responsibility of the Board, as set out in the Board Charter, is to act honestly, fairly, diligently and in accordance with the law in serving the interests of the Company’s shareholders, as well as its employees and its customers. The Board should work to promote and maintain an environment within the Company that establishes these principles as basic guidelines for all of its employees and representatives at all times. More specifically, the role of the Board is to provide strategic guidance for the Company and to effectively oversee management of the Company. The Board charter sets out the Board’s responsibilities as: (a) overseeing the Company, including its control and accountability systems; (b) appointing and removing the CEO and senior executives, and monitoring performance of the CEO and senior executives; (c) determining and approving the levels of authority to be given to the CEO and senior executives in relation to operational expenditures, capital expenditures, contracts and authorising any further delegations of those authorities by the CEO to the other employees of the Company; (d) approval of corporate strategy, financial plans and performance objectives; (e) reviewing, ratifying and monitoring systems of risk management and internal control, codes of conduct and legal compliance; (f) monitoring occupational health, safety and environmental performance and compliance and ensuring commitment of appropriate resources; (g) evaluating, approving and monitoring major capital expenditure, capital management and all major corporate transactions, including the issue of securities of the Company; and (h) approving all financial reports and material reporting and external communications by the Company. Page 10 | KGL Resources Annual Report 2021 TERMS OF APPOINTMENT FOR DIRECTORS AND EXECUTIVES Each Director executes a Letter of Appointment with the Company prior to appointment as a director. The Letter of Appointment covers the following key terms: • Performance requirements in terms of board meetings and matters under consideration • Key responsibilities and powers as detailed in the board Charter • Conditions of continuing in the role of director • Membership of committees • Remuneration • Consideration of independence and • Ability to seek independent advice. A separate Deed of Insurance and Indemnity is executed by each Director. Details of the Directors’ and Key Management Personnel’s employment are also provided annually in the Remuneration Report as part of the Directors’ Report. In the case of the Managing Director/CEO, the major terms of his contract are disclosed to the ASX at the time of appointment. Each executive is employed under an employment agreement which sets out the employment terms, duties, and responsibilities, remuneration details and the circumstances under which employment can be terminated. COMPANY SECRETARY The Company Secretary reports solely to the Board and communication between the directors and the Company Secretary is open and unfettered. The Company Secretary advises the Board and its committees on governance matters, attends and takes minutes at all Board meetings, communicates with the ASX and ASIC on all regulatory matters, monitors adherence to Board policies and procedures and retains professional advisors at the Board’s request. DIVERSITY POLICY KGL Resources Limited believes in equal opportunities for all our people and recognises that our business benefits from the diversity of our people. The Company has a Diversity and Inclusiveness Policy and is committed to developing a diverse and inclusive workforce and providing a respectful environment free from discrimination. We believe that recruitment and promotion of people should be based on merit, regardless of their race, gender or gender orientation, age, relationship or family status, disability, sexual orientation, nationality, political or religious beliefs, or any other factor not relevant to their competence and performance. We are focused on eliminating bias in all its forms. No form of unlawful discrimination will be tolerated by KGL. The Board has not set measurable objectives for achieving gender diversity however there has been progress made in recruiting women into what is considered a traditionally male dominated industry. With 19 full time employees, 8 are female, and 1 is non-binary. Women occupy the senior positions of Chief Financial Officer, Group Human Resources Manager, Community, Environment & Cultural Compliance Manager and Company Secretary. The Company is not a “relevant employer” as defined under the Workplace Gender Equality Act. A copy of the Diversity and Inclusiveness Policy can be found on the Company website www.kglresources.com.au. BOARD EVALUATION KGL is currently a small single project company. The Company is yet to develop a procedure for evaluating the performance of the Board as the outcomes related to the project align with the outcomes required of the Board. As the Company advances the development of the Jervois Copper project, consideration will be made of how best to structure a board performance review. SENIOR EXECUTIVE EVALUATION As the Company advances the Jervois project, consideration will be given to the appropriate structure of the executive roles within the Company. As positions are filled, the Board, in conjunction with the Remuneration Committee, considers the processes for evaluation of the performance of senior executives. Page 11 | KGL Resources Annual Report 2021 STRUCTURE THE BOARD TO BE EFFECTIVE AND ADD VALUE NOMINATION COMMITTEE The Board has a Remuneration Committee that considers matters of nomination as part of its function. The Committee is currently comprised of three independent directors. The current Committee members are: Mr Denis Gately (Chairman and Independent Non-executive Director) Mr Steve Mallyon (Independent Non-executive Director) (i) Mr Peter Hay (Independent Non-executive Director) (i) Resigned 21 March 2022 The details of meetings held and attendances can be found in the Directors’ Report. The Remuneration Committee Charter is listed on the Company’s website under the Corporate Governance section. BOARD SKILLS Directors recognise the following skills as being either essential or desirable to the effective operation of the Board. An assessment is made as to whether any of these skills are required from the members of the Board or whether they are better sourced through a consultant. External consultants have been used on a limited basis. Skills required: • Ability to think strategically and identify and critically assess strategic opportunities and threats and develop effective strategies in the context of the strategic objectives of the Company. • Financial performance – Qualifications and experience in accounting and/or finance – Oversee budgets and efficient use of resources – Analyse financial statements – Critically assess financial viability and performance – Contribute to strategic financial planning – Oversee funding arrangements and accountability • Legal – Formal legal qualifications – Understanding of the legal framework in which companies operate. • Risk and compliance oversight – Ability to identify key risks to the organisation in a wide range of areas including legal and regulatory compliance and monitor risk and compliance management frameworks and systems. • Corporate governance – Knowledge and experience in best practice corporate governance, particularly in the context of listed company requirements, including Corporate Governance Guidelines. • Major transactions – Experience at a board level of overseeing and managing large acquisitions, divestments, joint ventures etc. • Financial/equity market experience – Experience in and understanding of the fundamentals and operation of financial/ equity markets. • Experience at an executive level – Appointment and evaluation of the performance of the CEO and senior executive managers – Oversight of strategic human resource management including workforce planning and employee and industrial relations – Oversight of large-scale organisational change. • Commercial and technical experience – A broad range of commercial/business and technical experience. • Metals industry experience – A thorough understanding of the metal/ copper industry, including metals production, key stakeholders, geology and exploration, marketing and logistics. • Mine development and operation experience – A thorough understanding of the issues involved in developing and operating a mine in Australia – Knowledge of relevant mining legislation – Mine planning, design and feasibility – Safety and environmental issues – Native title requirements – Product processing – Infrastructure requirements INDEPENDENT DIRECTORS The Board currently has three independent, non- executive directors. Mr Peter Hay Mr Steve Mallyon(i) Mr Denis Gately (i) Resigned 21 March 2022 With the appointment of Mr Gately in December 2021, the Board has returned to having a majority of independent, non-executive directors. Page 12 | KGL Resources Annual Report 2021 The composition of the Board sub-committees was recently reviewed and at that time, the Board considered the independence of each of the directors of the sub-committee. The length of service of all directors is disclosed in the Directors’ Report. CHAIRMAN AND CEO ROLES During 2021, Mr Peter Hay became the Chairman of the Board and Mr Simon Finnis was appointed as Managing Director/CEO. Thus, the Company now has an independent Chairman, separate from the role of Managing Director/CEO. DIRECTOR INDUCTION AND PROFESSIONAL DEVELOPMENT New directors undergo an induction process which includes receiving briefing from the Chairman and/ or CEO of the Company, being provided with copies of all reports and announcements relevant to the Company’s recent activities and developments and, when possible, a site familiarisation visit. The current Board members have many years’ experience, particularly in resources projects and therefore come with a thorough understanding of what is required to perform their roles as directors. The Audit and Risk Committee, via the Chief Financial Officer, are regularly provided with information on developments in laws, regulations and accounting standards relevant to the Company. INSTIL A CULTURE OF ACTING LAWFULLY, ETHICALLY AND RESPONSIBLY COMPANY VALUES The Company has developed a set of guiding principles and norms that define the type of Company that KGL Resources aspires to be and what it requires from its directors, senior executives and employees to achieve that aspiration. All policies and procedures use these values as the basis for development. CODE OF CONDUCT The Company’s Code of Conduct outlines what is expected of everyone who works for KGL with respect to responsibilities to shareholders, employees, customers, suppliers, consumers and the broader community. The Code of Conduct applies to everyone who works for KGL – directors, officers, employees and contractors – and covers business activities with all stakeholders in Australia and overseas. The Code of Conduct is to be read in conjunction with KGL’s policies and procedures and other relevant documents including employment contracts. A copy of the Code of Conduct can be found on the Company’s website www.kglresources.com.au. WHISTLEBLOWER POLICY The Company has introduced a comprehensive Whistleblower Policy that states the Company’s commitment to doing business in an open and accountable way through supporting a culture of honest and ethical behaviour. The Company recognises that an important aspect of this is that individuals feel confident about reporting any concerns they may have about suspicious activity or wrongdoing in relation to our business activities without fear of harm or reprisal. The policy details the process that should be followed to enable the protection of the whistleblower as well as the reporting requirements for issues raised. A copy of the Whistleblower Policy can be found on the Company’s website www.kglresources.com.au. ANTI-BRIBERY AND CORRUPTION The Company has an Anti-bribery and Corruption Policy that details KGL’s commitment to a zero- tolerance for and prohibiting bribery and corruption in all business dealings, in every country it operates or procures business or supplies from. The policy details the objectives that KGL is accountable for and the accountabilities of KGL’s employees and contractors. A copy of the Anti-bribery and Corruption Policy can be found on the Company’s website www.kglresources.com.au. Page 13 | KGL Resources Annual Report 2021 SAFEGUARDING THE INTEGRITY OF CORPORATE REPORTS The Committee is comprised of three directors, all of whom are independent. AUDIT COMMITTEE The Company has established an Audit and Risk Committee to assist the Board in its oversight of: the integrity of the Company’s accounting and • financial reporting practices; the Company’s risk profile and risk policies; the effectiveness of the Company’s system of internal control and framework for risk management; and the Company’s compliance with applicable legal and regulatory obligations. • • • The specific responsibilities and functions of the Committee in relation to audit, as set out in the Charter, are: • assessing whether the Company’s external reporting is consistent with the information and knowledge of members of the Audit and Risk Committee and whether it is adequate for the needs of the Company’s shareholders; assessing the management processes supporting external reporting; • • overseeing the development, implementation and review of the procedures for selection and appointment of the Company’s external auditor and for the rotation of external audit engagement partners; • making recommendations to the Board about • • the appointment and removal of the Company’s external auditor; assessing the performance and independence of the Company’s external auditors, including confirming that provision of non-audit services by the Company’s external auditors has not compromised the auditor’s independence (if the Company’s external auditor provides non-audit services); reporting to the Board the results of the Audit and Risk Committee’s review of the Company’s risk management, internal controls and compliance systems and processes; • monitoring, reviewing and assessing the propriety of related party transactions; implementing comprehensive risk management systems across the Company. • The committee members are: Mr Steve Mallyon (Chairman, Independent Non-executive Director)(i) Mr Peter Hay (Independent Non-executive Director) Mr Denis Gately (Independent Non-executive Director) (i) Resigned 21 March 2022 The Committee meets with the external auditor without management present on general matters concerning the audit and the financial management of the Company. The Chair of the Audit Committee reports to the Board on the Committee’s discussions, conclusions and recommendations. The Committee reviews the performance of the external auditor, most regularly after the release of the Annual Financial Statements, to ensure that the auditor has provided an efficient and effective audit. The Committee is responsible for recommending to the Board the removal of the auditor if, in its opinion, the auditor is not meeting the standards required by the Committee. The appointment of new auditors would also be recommended by the Committee. Partner rotation complies with the requirements of the Corporations Act 2001. The details of the qualifications and experience of the Committee members and the number of meetings attended each year is detailed in the Company’s Directors’ Report and/or on the Company’s website. CEO AND CFO DECLARATIONS The Company requires the Managing Director/CEO and Chief Financial Officer to provide the Board with their written opinion stating: • That the financial records of the entity have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position of the entity in accordance with Section 295A of the Corporations Act 2001 and • That this opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively. Page 14 | KGL Resources Annual Report 2021 VERIFY CORPORATE REPORTS NOT AUDITED Any periodic corporate reports that are released to the market are prepared or reviewed by the Company’s CFO. In relation to the Quarterly Cashflow Report, the CEO and CFO make the following declaration that; 1. The financial records of the Company/disclosing entity have been properly maintained in accordance with Section 286 of the Corporations Act 2001. 2. The financial statements on which the Quarterly Cashflow Report are based are founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board. The Company’s risk management and internal compliance and control systems are operating efficiently and effectively in all material respects. MAKE TIMELY AND BALANCED DISCLOSURE CONTINUOUS DISCLOSURE OBLIGATIONS The Board approved a Continuous Disclosure Standard that sets out what information must be disclosed, what exemptions may apply and the importance of confidentiality. The standard is applicable to all directors and employees and details how to report potentially disclosable information. Personnel who are authorised to speak on behalf of KGL are approved by the Chairman and the standard imposes restrictions on the content and timing of briefings. The Policy is listed on the Company’s website www.kglresources.com.au. ADVICE OF MARKET ANNOUNCEMENTS All directors receive a copy of the final version of all material market announcements both prior to the announcement being released to the ASX and after confirmation has been received from the ASX that the announcement has been released to the market. COMPANY PRESENTATIONS The Company regularly updates its corporate presentations used for investors, the annual general meeting and conferences and provides the ASX with copies of this material prior to the presentations. Additionally, for annual general meetings, the Company provides a written transcript of the Chairman’s address to these meetings. RESPECT THE RIGHTS OF SECURITY HOLDERS COMPANY DETAILS AND GOVERNANCE ON WEBSITE The Company’s website contains detailed information about its business and projects. Details of the Board Members and Executive team are also listed. The investor page provides helpful information to the shareholder. It allows shareholders to view all ASX and media releases, copies of the annual reports and quarterly activities and cashflow statements. The website also contains the following corporate governance documents. • KGL Resources Constitution • Board Charter • Audit & Risk Committee Charter • Remuneration Committee Charter • Bullying and Harassment Policy • Diversity and Inclusiveness Policy • Environmental Policy • Mental Health and Wellbeing Policy • Privacy Policy • Securities Trading Policy • Whistleblowers Policy • Workplace Health and Safety Policy • ASX Continuous Disclosure Policy • Anti-bribery and Corruption Policy INVESTOR RELATIONS PROGRAM The Company has not established a formal investor relations program and the Board considers this appropriate for the Company’s stage of development. The Company does take the appropriate measures to keep shareholders informed about its activities and to listen to issues or concerns raised by shareholders. Information is communicated to the members through compliance with ASX Listing Rules and the Corporations Act 2001, by way of the Annual Report, Half-Yearly Report, Quarterly Activities Reports, Appendix 5B cashflow reports, the Annual General Meeting and other meetings that may be called to obtain approval for Board recommendations. In addition to this the Company releases regular progress reports and presentation to ASX to keep members abreast of developments. The Company also maintains a website – www.kglresources. com.au – where all of the Company’s ASX announcements and media releases can be viewed at any time. Page 15 | KGL Resources Annual Report 2021 PARTICIPATION AT MEETINGS OF SECURITY HOLDERS Notices of meeting sent to shareholders comply with the “Guideline for notices of meeting” issued by the ASX. In relation to the Annual General Meeting (AGM), shareholders are encouraged to submit questions before the meeting. The Chairman encourages shareholders at the AGM to ask questions or make comments about the Company’s projects and the performance of the Board and senior management. The Chairman may respond directly to the questions or, at his discretion, refer the question to another director or executive. SECURITY HOLDER RESOLUTIONS The Company held its Annual General Meeting in May 2021 with all resolutions being decided by poll. It is the Company’s intention to have all resolutions, not only those considered to be substantive, at future meetings decided by a poll. ELECTRONIC COMMUNICATIONS The Company’s Share Registry provides shareholders with an opportunity to register an email address to receive electronic communication of information provided by the Share Registry e.g. advice on Entitlement Offers, Notices of Meetings. Additionally, the Company provides a subscription service whereby subscribers can receive advice of ASX announcements after their release to the market. RECOGNISE AND MANAGE RISK RISK COMMITTEE The Company has established an Audit and Risk Committee to assist the Board in its oversight of: the integrity of the Company’s accounting and • financial reporting practices; the Company’s risk profile and risk policies; the effectiveness of the Company’s system of internal control and framework for risk management; and • • • the Company’s compliance with applicable legal and regulatory obligations. The responsibilities and functions of the Committee specific to risk, as set out in the Charter, are: • reporting to the Board the results of the Audit and Risk Committee’s review of the Company’s risk management, internal controls and compliance systems and processes; • ensuring that Management has implemented a structured and comprehensive risk management system across the Company; • reviewing, and approving for recommendation to the Board, guidelines and policies governing the oversight and management of the Company’s material business risks, including the processes by which management assesses, manages and controls the Company’s exposure to risk; and • monitoring material changes to the Company’s risk profile. The Committee is currently comprised of three directors, all of whom are independent. The committee members are: Mr Steve Mallyon (Chairman, Independent Non-executive Director)(i) Mr Denis Gately (Independent Non-executive Director) Mr Peter Hay (Independent Non-executive Director) (i) Resigned 21 March 2022 The Committee and more generally the Board have reviewed the risk management framework provided by management. RISK MANAGEMENT FRAMEWORK The Board considers risks specific to each stage of development and a comprehensive risk assessment is undertaken at each stage. As the Company is rapidly changing, it is considered appropriate to assess risk at each stage of development and following each program. A risk workshop has been undertaken and a detailed assessment and management strategy has been applied to each of the risk areas identified. INTERNAL AUDIT FUNCTION The Company does not have an internal audit function and considers this appropriate for the size of the Company and the stage of its development. The Audit & Risk Committee meets at least three times a year to receive and consider reports on, and monitor and discuss, known and emerging risk and compliance issues, including non-financial operational and other business risks. In support of the functions of the Audit & Risk Committee, the Company’s managers are directly responsible for risk management in their respective areas of accountability. Operational, financial, legal, compliance, strategic and reputational risks continue to be managed primarily by the Directors and where appropriate, these risks are managed with the support of relevant external professional advisers. The Board receives monthly reports to ensure that management is appropriately addressing the risks to the Company. Specifically, a compliance register is presented in each Monthly Report detailing the major items that the Company must adhere to. The register provides specifics of actions taken to ensure compliance. Page 16 | KGL Resources Annual Report 2021 REMUNERATION POLICIES AND PRACTICES With a small number of executive roles, the Company takes an individual approach to setting the remuneration. Annually the Remuneration Committee receives a report on the employment conditions of staff including the executives referencing external salary surveys to ensure that KGL’s employment conditions remain competitive. As the Company progresses the development of the Jervois project and the number of roles increase, policies and practices will be established. The responsibility of the Remuneration Committee in respect of performance reviews is to: • develop and recommend to the Board for • • • approval, the individual goals for the MD & CEO; review and recommend to the Board for approval the individual goals for executives; review and recommend to the Board for approval the Company goals; and assist the Board in relation to the performance evaluation of the MD & CEO and executives, including reviewing performance against pre- determined individual goals and the terms of their employment contracts and advising the Board of the outcomes of the performance reviews and any recommended actions. The Directors are paid a fixed remuneration per month. Full details of payments to executives can be found in the Remuneration Report as part of the Directors’ Report section of the Annual Report. EQUITY BASED REMUNERATION RISK The Company has a Securities Trading Policy. This policy strictly prohibits Directors and employees from entering into any transaction that is designed to limit the economic risk of a holding in unvested KGL Resources Limited securities. A full copy of the policy can be found on the Company’s website www.kglresources.com.au. MATERIAL EXPOSURE TO ENVIRONMENTAL OR SOCIAL RISKS KGL has this year prepared its inaugural Sustainability Report. Material environmental and social risks are dealt with as part of this report which has been released at the same time as the Annual Report. REMUNERATE FAIRLY AND RESPONSIBLY REMUNERATION COMMITTEE The Board has established a Remuneration committee. The Committee is comprised of three independent directors. The current committee members are: Mr Denis Gately (Chairman and Independent, Non-executive Director) Mr Steve Mallyon (Independent Non-executive Director)(i) Mr Peter Hay (Independent Non-executive Director) (i) Resigned 21 March 2022 The Committee has oversight of: • • • the integrity of the Company’s remuneration practices. the Company’s remuneration, including the remuneration of executives and the CEO. the Company’s compliance with applicable legal and regulatory obligations. The purpose of the Committee is to assist the Board in the effective discharge of its responsibilities as they relate to remuneration. Specifically, these include, but are not limited to, overseeing: • remuneration levels of the Board and senior management and recommending changes as appropriate. • management incentive schemes including • • employee short-term and long-term incentives. the identification of material risks insofar as they relate to remuneration matters. the review and recommendation of guidelines and policies for the management of material business risks. The details of meetings held and attendances can be found in the Directors’ Report. The Remuneration Committee Charter is presented on the Company’s website under the Corporate Governance section. Page 17 | KGL Resources Annual Report 2021 Page 18 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES ABN 52 082 658 080 Financial Report YEAR ENDED 31 DECEMBER 2021 Page 19 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Financial Report Contents 21 45 46 47 48 49 50 51 78 79 Directors’ Report Competent Person’s Statement Auditor’s Independence Declaration Statement of Profit or Loss and Other Comprehensive Income Statement of Financial Position Statement of Cash Flows Statement of Changes in Equity Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report Page 20 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Directors’ Report Your directors present their report on the consolidated entity (or the Group) consisting of KGL Resources Limited and the entities it controlled at the end of, or during, the year ended 31 December 2021. All amounts are in Australian dollars unless otherwise stated. DIRECTORS The following persons were directors of KGL Resources Limited during the whole of the financial year and up to the date of this report, unless otherwise stated. DIRECTOR Current Mr P. Hay 1 Mr S. Finnis2 ROLE CHANGES IN TENURE Independent Chairman Managing Director Chief Executive Officer Mr D. Gately Independent Non-executive Director Appointed 13 December 2021 Mr S. Mallyon Independent Non-executive Director Appointed 05 July 2021, Resigned 21 March 2022 Mr F. Purnamasidi Non-executive Director Mr D. Wood3 Former Non-executive Director Ms F. Murdoch Former Non-executive Director Resigned 15 October 2021 1 Mr Hay was appointed as Chairman of the Board of Directors on 30 August 2021. During the period 1 January 2021 to 30 August 2021, Mr Hay was an Independent Non-executive Director of the Company. 2 Mr Finnis was appointed as Chief Executive Officer on 5 July 2021 and as Managing Director on 30 August 2021. 3 Mr Wood was appointed as a Non-executive Director on 18 March 2022. During the period from 1 January 2021 to 30 August 2021, Mr Wood was Executive Chairman, until he retired from the board on 30 August 2021. REVIEW OF OPERATIONS The Group employed two drill rigs at the Jervois Copper Project (Jervois) during 2021, with their initial focus on resource infill drilling to improve the confidence in copper resources at Jervois for the purposes of completing the Feasibility Study (FS). Labour shortages, interstate travel disruption and supply chain issues caused by COVID-19 meant exploration drilling did not commence until the infill holes were completed in late Q3 2021. The FS, including mine planning for the initial mining operation, progressed throughout the year and the mine plan will be further optimised with updated resources announced subsequent to year end. Further high-grade discoveries from the exploration drilling program have created the potential for longer term extension and expansion at Jervois. Drilling at the Rockface deposit intersected some of the richest copper mineralisation ever seen at Jervois. The year began with the Northern Territory Government’s approval on 7 January 2021 of the Jervois Mining Management Plan, representing the last major regulatory clearance for the project. This was followed by water licensing approval in April 2021. After an 11-month halt due to COVID-19, drilling re-commenced in mid-February 2021 with one rig, and a second rig commenced in May 2021. Following on from the delays to drilling, the FS is now expected to be completed in mid-2022. Page 21 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Directors’ Report REVIEW OF OPERATIONS (CONTINUED) Feasibility Study In December 2020, the Board approved proceeding to the Feasibility Study stage based on the positive results of the Pre-Feasibility Study which found that Jervois would support a robust initial mining operation. The Feasibility Study dominated work in 2021 against a background of Australian and international cost pressures offset by growing confidence in the quality of the Jervois resource and a strong world copper price. From a low point of US$4,630/t in March 2020, the price doubled by that year’s end and ranged during 2021 between US$8,768/t and an all-time peak of US$10,724/t. The FS was advanced on all fronts in 2021 and by year’s end, all major work packages were being finalised. The initial costed mine plan for Jervois was subjected to an external optimisation initiative to fine tune and improve investor returns by accessing higher grade ore earlier and maximising the use of the civil and mining fleets. Similar studies were initiated for the process plant design and costing. Layouts were prepared for mine infrastructure, the processing plant and the village to accommodate project development and operations workforces, along with detailed civil designs. A hybrid power station was designed, as the project’s power needs were clarified. A water borefield and water harvesting system was also designed to ensure a prudent margin over the project’s needs while keeping within the licence entitlements. Logistics studies were completed into incoming freight and outgoing concentrates. To meet fly-in-fly-out needs, charter flight and airfield requirements were determined. A COVID-19 management plan for mine construction and operation was also prepared. In the last quarter of 2021, the Company committed to Front End Engineering and Design Study of the Process Plant to be completed by the preferred engineering contractor and awarded the contract for the establishment of a high-speed internet link to the Jervois Site. Increased and Upgraded Mineral Resources Subsequent to the year end, the Company announced updated Resources for its Reward, Bellbird and Rockface deposits. It is anticipated mine planning will benefit from these upgrades of copper resources resulting from resource drilling carried out during 2021. Reward Deposit Contained copper increased by 20% to 244,000 tonnes at Reward, one of the three principal resource deposits at Jervois. Announced on 10 January 2022, the new resource represents an almost 10% increase in the 2020 total estimate for Jervois of 426,000 tonnes contained copper metal. Contained copper in the indicated category at Reward increased by 23%, maintaining a high confidence level in the resource. The copper grade at Reward remained consistent at 1.8%. Bellbird Deposit At Bellbird, when compared to the most recent previous estimate (2020), the mineral resource estimate delivered a 10% increase in contained copper metal, to 113.4 kt (from 103.1 kt), and 28% increase in resource tonnes to 5.76 Mt (from 4.49 Mt), in the indicated and inferred categories. Copper grade is reported at 1.97% and represents a drop of 14% (from 2.30% Cu). The main reason for the drop in grade was the inclusion of more mineralised material at, or marginally below the cut-off grade, to improve the continuity of the interpreted lodes. Rockface Deposit When compared to the most recent previous estimate (2020), the Rockface indicated and inferred mineral resource estimate delivers a 4% increase in contained copper metal, to 108.3 kt (from 104.3 kt), and a 7% increase in resource tonnes to 3.53 Mt (from 3.29 Mt). Copper grade is reported at 3.07% and represents a drop of just 3% (from 3.17% Cu). Silver grades have increased considerably to 21.0 g/t (from 18.7 g/t) and contained silver metal increased 20% to 2.38 Moz (from 1.98 Moz). Rockface has not been closed off at depth by drilling and DHEM geophysics indicates that the conductive sulphide mineralisation continues substantially below the level of current drilling (Figure 1). Page 22 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Directors’ Report REVIEW OF OPERATIONS (CONTINUED) Increased and Upgraded Mineral Resources (continued) Rockface Deposit (continued) Figure 1: Long Projection of Rockface Resource Model showing drillhole pierce-points (circled crosses) in the plane of Rockface North lode. Modelled conductors (red rectangles) from recent DHEM survey in KJCD481D8 and earlier DHEM survey in KJCD230, which are the deepest holes at Rockface, indicate that the conductive sulphide mineralisation continues to greater depths. Rockface Main KJCD481D8 KJCD230 Rockface North Mineral resources are not ore reserves and do not have demonstrated economic viability. Inferred resources have less geological confidence than indicated resources and should not have modifying factors applied to them. It is reasonable to expect that with further exploration most of the inferred resources could be upgraded to indicated resources. Page 23 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Directors’ Report REVIEW OF OPERATIONS (CONTINUED) Increased and Upgraded Mineral Resources (continued) Drilling results were reported during the year as they became available. Particularly encouraging were the high-grade copper intersections within and near the open pit outlines at Reward and Bellbird. Intersections at Reward included: KJCD458D1 3.72m @ 6.38% Cu, 101.3 g/t Ag, 0.50 g/t Au from 84.85m KJCD446 KJCD447 KJCD448 27.35m @ 2.14% Cu, 18.3 g/t Ag, 0.37 g/t Au from 247.5 m including 7.34m @ 3.98% Cu, 33.8 g/t Ag, 0.30 g/t Au from 266m 4.47m @ 3.81% Cu, 22.0 g/t Ag, 0.05 g/t Au from 176.4m and 4.22m @ 3.18% Cu, 235.8 g/t Ag, 0.27 g/t Au from 195.07m 2.57m @ 2.26% Cu, 35.0 g/t Ag, 0.09 g/t Au from 217.9m and 5.16m @ 2.73% Cu, 23.2 g/t Ag, 0.29 g/t Au from 253.0m At Bellbird, results of drilling broadly confirmed the existing resource model. Intersections at Bellbird included: KJD449 KJD450 KJD455 KJD456 3.85m @ 3.74% Cu, 19.9 g/t Ag, 0.58 g/t Au from 80.00m 5.45m @ 3.62% Cu, 15.8 g/t Ag, 0.15 g/t Au from 59.85m including 2.22m @ 8.08% Cu, 32.6 g/t Ag, 0.30 g/t Au from 65.10m 4.46m @ 4.68% Cu, 38.3g/t Ag, 0.12 g/t Au from 64.00m downhole 5.30m @ 3.66% Cu, 29.1g/t Ag, 0.29g/t Au from 128.26m. Exciting Exploration Outcomes Extensive new copper mineralisation was discovered at Rockface North late in the year when both drill rigs were engaged at Rockface to define the strike and depth extent. A record copper assay for Jervois of 61.4% copper & 521 g/t Ag over 0.84m was assayed within a total intercept of 4.21m @ 20.5% Cu & 302 g/t Ag from 698m downhole in KJCD481D6. Hole KJCD481D3 intersected 3.5m @ 23.6% Cu & 503 g/t Ag from 725.35m downhole including: • 1.51m @ 37.4% Cu & 1,106 g/t Ag from 725.35m downhole, and • 0.78m @ 40.9% Cu & 1,427 g/t Ag from 725.35m downhole. The results so far reported extend the massive sulphide shoot at Rockface North at least 160 metres up dip and down plunge. Down hole electromagnetic (DHEM) surveying indicates that Rockface is open at depth, like the Reward and Bellbird deposits, and also to the west, confirming the potential for significant extensions at Rockface. The application of DHEM and induced polarisation (IP) geophysical techniques resulted in the discovery of a new exploration target at Jervois during the year. Located during a large IP survey of under-explored sections of the J-fold, the segment between Reward and Rockface, south-west of the Cox’s Find prospect, was then test drilled. KJCD482 intersected a broad zone of disseminated sulphide mineralisation, including 2.53m @ 1.92% Cu and 14.7 g/t Ag from 523m downhole. Based on DHEM modelling, an exploration target is postulated to be 2 to 3 million tonnes at 1.5% to 2.3% Cu. The new target, known as Cox’s South, is close to the planned Rockface underground mine, presenting potential developmental synergies. The extensive geophysical surveys along with the results of the exploration drilling into targets indicated by the geophysics continue to be analysed and form the basis of the exploration program being initiated in 2022. Page 24 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Directors’ Report FINANCIAL REVIEW For the year ended 31 December 2021, the Group has recorded a loss after income tax of $2,325,072 (2020: loss of $1,248,140). A total of $16,114,231 was capitalised to Exploration and Evaluation Assets during the year (2020: $4,344,574). Employee expenses increased in the year to 31 December 2021 to $1,025,609 (2020: $569,938) as a result of: • engaging additional staff to progress the development of the Jervois Copper Project, and • the issue of share options to key management personnel and other employees as a long-term incentive. The Group’s cash reserve as at 31 December 2021 was $12,742,972 including $8,500,041 in term deposits. CAPITAL RAISINGS In February 2021, the Company completed an institutional placement of 28,571,427 new ordinary shares at $0.42 per share, raising $12,000,000 before costs, and announced a 1 for 13 non-renounceable entitlement offer to retail shareholders for new ordinary shares on the same pricing terms. The Company received applications under the entitlement offer for 22,795,564 new ordinary shares, raising $9,574,128 before costs. Acceptances represented approximately 81.3% of the total of 28,024,573 new ordinary shares offered to shareholders. Subsequent to the completion of the entitlement offer, the Company placed 5,200,000 shortfall shares with institutional and sophisticated investors at a price of $0.70 per share, representing a 66% premium to the offer price under the entitlement offer. The placement of shortfall shares raised an additional $3,640,000 before costs. After costs of $973,697, the entitlement offer and placements provided the Company with a total of $24,240,431 of working capital. In total, 56,566,991 new ordinary shares were issued. Page 25 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Directors’ Report MATERIAL BUSINESS RISKS The Group’s exploration and mining operations will be subject to the normal risks of mining and any revenues will be subject to numerous factors beyond the Group’s control. The material business risks that may affect the Group are summarised below. Future Capital Raisings The Group’s ongoing activities are expected to require substantial further financing in the future, in addition to amounts raised pursuant to the entitlement offer completed in 2021. The Group will require additional funding to bring the Jervois Copper Project into commercial production. Any additional equity financing may be dilutive to shareholders, may be undertaken at lower prices than the current market price and debt financing, if available, may involve restrictive covenants which limit the Group’s operations and business strategy. Although the Directors believe that additional capital can be obtained, no assurances can be made, especially given the impact of the COVID-19 pandemic, that appropriate capital or funding, if and when needed, will be available on terms favourable to the Company or at all. If the Company is unable to obtain additional financing as needed, it may be required to reduce, delay or suspend its operations and this could have a material adverse effect on the Group’s activities and could affect the Group’s ability to continue as a going concern. Exploration Risk The success of the Group depends on the delineation of economically mineable reserves and resources, access to required development capital, movement in the price of commodities, securing and maintaining title to the Group’s exploration and mining tenements and obtaining all consents and approvals necessary for the conduct of its exploration activities. Exploration on the Group’s existing tenements may be unsuccessful, resulting in a reduction in the value of those tenements, diminution in the cash reserves of the Group and possible relinquishment of the tenements. The exploration costs of the Group are based on certain assumptions with respect to the method and timing of exploration. By their nature, these estimates and assumptions are subject to significant uncertainties and, accordingly, the actual costs may materially differ from these estimates and assumptions. Accordingly, no assurance can be given that the cost estimates and the underlying assumptions will be realised in practice, which may materially and adversely affect the Group’s viability. If the level of operating expenditure required is higher than expected, the financial position of the Group may be adversely affected. The Group may also experience unexpected shortages or increases in the costs of consumables, spare parts, plant and equipment. Feasibility and Development Risks It may not always be possible for the Group to exploit successful discoveries which may be made in areas in which the Group has an interest. Such exploitation would involve obtaining the necessary licences or clearances from relevant authorities that may require conditions to be satisfied and/or the exercise of discretions by such authorities. It may or may not be possible for such conditions to be satisfied. Further, the decision to proceed to further exploitation may require participation of other companies whose interests and objectives may not be the same as the Group’s. There is a complex, multidisciplinary process underway to complete a feasibility study to support any development proposal. There is a risk that the feasibility study and associated technical works will not achieve the results expected. There is also a risk that, even if a positive feasibility study is produced, the project may not be successfully developed for commercial or financial reasons. Page 26 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Directors’ Report MATERIAL BUSINESS RISKS (CONTINUED) Regulatory Risk The Group’s operations are subject to various Commonwealth, State and local laws and plans, including those relating to mining, prospecting, development permit and licence requirements, industrial relations, environment, land use, royalties, water, native title and cultural heritage, mine safety and occupational health. Approvals, licences and permits required to comply with such rules are subject to the discretion of the applicable government officials. No assurance can be given that the Group will be successful in maintaining such authorisations in full force and effect without modification or revocation. To the extent such approvals are required and not retained or obtained in a timely manner or at all, the Group may be curtailed or prohibited from continuing or proceeding with production and exploration. The Group’s business and results of operations could be adversely affected if applications lodged for exploration licences are not granted. Mining and exploration tenements are subject to periodic renewal. The renewal of the term of a granted tenement is also subject to the discretion of the relevant Minister. Renewal conditions may include increased expenditure and work commitments or compulsory relinquishment of areas of the tenements comprising the Group’s projects. The imposition of new conditions or the inability to meet those conditions may adversely affect the operations, financial position and/or performance of the Group. It is also possible that, in relation to tenements which the Group has an interest in or will in the future acquire such an interest in, there may be areas over which legitimate common law native title rights of Aboriginal Australians exist. If native title rights do exist, the ability of the Group to gain access to tenements (through obtaining consent of any relevant landowner), or to progress from the exploration phase to the development and mining phases of operations may be affected. The Group has a registered Indigenous Land Use Agreement with the traditional owners for its Jervois Copper Project. Occupational Health and Safety Given the Group’s exploration activities (and especially if it achieves exploration success leading to mining activities), it will face the risk of workplace injuries which may result in workers’ compensation claims, related common law claims and potential occupational health and safety prosecutions. Further, the production processes used in conducting any future mining activities of the Group can be dangerous. The Group has, and intends to maintain, a range of workplace practices, procedures and policies which will seek to provide a safe and healthy working environment for its employees, visitors and the community. Of particular concern will be operating and managing health and safety in an environment where COVID-19 remains a major concern. Limited Operating History of the Group The Group has limited operating history on which it can base an evaluation of its future prospects. If the Group’s business model does not prove to be profitable, investors may lose their investment. The Group’s historical financial information is of limited value because of the Group’s lack of operating history and the emerging nature of its business. The prospects of the Group must be considered in the light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly in the mineral exploration sector, which has a high level of inherent uncertainty. Key Personnel In formulating its exploration programs, feasibility studies and development strategies, the Group relies to a significant extent upon the experience and expertise of the Directors and management. A number of key personnel are important to attaining the business goals of the Group. One or more of these key employees could leave their employment, and this may adversely affect the ability of the Group to conduct its business and, accordingly, affect the financial performance of the Group and its share price. Recruiting and retaining qualified personnel are important to the Group’s success. The number of persons skilled in the exploration and development of mining properties is limited and competition for such persons is strong. Page 27 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Directors’ Report MATERIAL BUSINESS RISKS (CONTINUED) Resource Estimate Risk Resource estimates are expressions of judgement based on knowledge, experience and industry practice. These estimates were appropriate when made but may change significantly when new information becomes available. There are risks associated with such estimates. Resource estimates are necessarily imprecise and depend to some extent on interpretations, which may ultimately prove to be inaccurate and require adjustment. Adjustments to resource estimates could affect the Group’s future plans and ultimately its financial performance and value. Copper and gold price fluctuations, as well as increased production costs or reduced throughput and/or recovery rates, may render resources containing relatively lower grades uneconomic and may materially affect resource estimations. Environmental Risk The operations and activities of the Group are subject to the environmental laws and regulations of Australia. As with most exploration projects and mining operations, the Group’s operations and activities are expected to have an impact on the environment, particularly if advanced exploration or mine development proceeds. The Group attempts to conduct its operations and activities to the highest standard of environmental obligation, including compliance with all environmental laws and regulations. The Group is unable to predict the effect of additional environmental laws and regulations which may be adopted in the future, including whether any such laws or regulations would materially increase the Group’s cost of doing business or affect its operations in any area. However, there can be no assurances that new environmental laws, regulations or stricter enforcement policies, once implemented, will not oblige the Group to incur significant expenses and undertake significant investments which could have a material adverse effect on the Group’s business, financial condition and performance. Availability of Equipment and Contractors Prior to the COVID-19 pandemic, appropriate equipment, including drill rigs, was in short supply. There was also high demand for contractors providing other services to the mining industry. The COVID-19 pandemic has only served to exacerbate these issues. Consequently, there is a risk that the Group may not be able to source all the equipment and contractors required to fulfil its proposed activities. There is also a risk that hired contractors may underperform or that equipment may malfunction, either of which may affect the progress of the Group’s activities. Fluctuations in Copper Price and Australian Dollar Exchange Rate The copper mining industry is competitive. There can be no assurance that copper and gold prices will be such that the Group can mine its deposits at a profit. Copper and gold prices fluctuate due to a variety of factors including supply and demand fundamentals, international economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates, global or regional consumption patterns and speculative activities. These fluctuations were exacerbated by the worldwide spread of the COVID-19 virus and at this stage, forecast recoveries from the impact of the virus are speculative. Similarly, demand and supply of capital and currencies, forward trading activities, relative interest rates and exchange rates and relative economic conditions can impact exchange rates. Climate Change Risk The operations and activities of the Group are subject to changes to local or international compliance regulations related to climate change mitigation efforts, specific taxation or penalties for carbon emissions or environmental damage, and other possible restraints on industry that may further impact the Group and its profitability. While the Group will endeavour to manage these risks and limit any consequential impacts, there can be no guarantee that the Group will not be impacted by these occurrences. Climate change may also cause certain physical and environmental risks that cannot be predicted by the Group, including events such as increased severity of weather patterns, incidence of extreme weather events and longer-term physical risks such as shifting climate patterns. All these risks associated with climate change may significantly change the industry in which the Group operates. Page 28 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Directors’ Report MATERIAL BUSINESS RISKS (CONTINUED) Macro-Economic Risks In 2022, the world continues to remain in a pandemic phase of COVID-19, with global supply chains, labour and equipment shortages still being materially affected, though this is being slowly abated by re-opening of world economies. Inflationary pressures for appropriately skilled labour and capital items are being seen across many industries, including mining. Australia is continuing to open its interstate and international borders for fully vaccinated persons, however further disruptions may be experienced as the pandemic moves into the endemic phase, with waning vaccine effectiveness and possible new COVID-19 variants, which could cause subsequent disruptions to businesses nationwide. The recent conflict between Ukraine and Russia may also affect capital markets, and cause spikes in materials prices, particularly diesel prices, in the short term. SHARES UNDER OPTION At the date of the report, the unissued ordinary shares of the Company under option are as follows: ISSUE DATE EXPIRY DATE EXERCISE PRICE NO. OF OPTIONS Options issued 23 June 2021 Options issued 08 July 2021 Total shares under option 22 June 2026 07 July 2026 – – 458,000 587,000 1,045,000 During the year ended 31 December 2021, no shares were issued on exercise of options and no shares relating to the exercise of options have been issued since the end of the financial year. Holders of options do not have any rights to participate in any issues of shares or other interests of the Company or any other entity. DIVIDENDS No dividends in respect of the current year have been paid, declared or recommended for payment. ENVIRONMENTAL REGULATION The Group’s operations in the Northern Territory are subject to significant environmental regulations under Northern Territory legislation. The Group is also subject to certain environmental obligations under the Commonwealth Native Title Act 1993. There have been no breaches by the Company or its subsidiaries. INDEMNITY AND INSURANCE OF DIRECTORS AND OFFICERS The Company has entered into Deeds of Indemnity with each of the directors and the company secretary, indemnifying them against certain liabilities and costs to the extent permitted by law. The Company has also agreed to pay a premium in respect of a contract insuring the directors and officers of the Company. Full details of the cover and premium are not disclosed in this report as the insurance policy prohibits the disclosure. Page 29 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Directors’ Report NON-AUDIT SERVICES No amounts have been paid or are payable to the auditor for non-audit services provided during the financial year. Refer to Note 24 of the financial statements for further information on the remuneration of auditors. OFFICERS OF THE COMPANY WHO ARE FORMER AUDIT PARTNERS OF BDO AUDIT PTY LTD There are no officers of the Company who are former audit partners of BDO Audit Pty Ltd. PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of the Corporations Act 2001. OTHER CORPORATE INFORMATION Principal Activity The principal activity of the Group during the year was the exploration and development of the Jervois Copper Project in the Northern Territory. Employees The Group employed 19 employees as of 31 December 2021 (2020: 9 employees). Page 30 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Directors’ Report INFORMATION ON DIRECTORS The following information is current as at the date of this report. MR PETER HAY MR SIMON FINNIS BACHELOR OF ENGINEERING (MINING) MASTER OF BUSINESS AND TECHNOLOGY BACHELOR OF COMMERCE MEMBER OF CHARTERED ACCOUNTANTS AUSTRALIA & NEW ZEALAND CHAIRMAN: Appointed 30 Aug 2021 NON-EXECUTIVE DIRECTOR: Appointed 02 Nov 2017 Mr Hay has a Bachelor of Engineering (Mining) and Bachelor of Commerce and is an associate member Chartered Accountants Australia & New Zealand. With over 30 years’ experience in the mining industry, he has held senior positions in some of Queensland’s largest resource companies, including General Manager of Pan Australian Mining Limited, Managing Director of Sedgman Limited and Joint Managing Director of Macarthur Coal Ltd. Mr Hay has extensive experience as a non-executive director of companies including Sedgman Limited and Aston Resources Limited. Special Responsibilities: • Chair of the Board of Directors. • Member of the Audit and Risk Committee. • Member of the Remuneration Committee. Other Current Directorships of ASX Listed Companies: • None. Former Directorships of ASX Listed Companies in Last Three Years: • None. Interests in Shares and Options: • 2,771,571 ordinary shares. MANAGING DIRECTOR: Appointed 30 Aug 2021 CHIEF EXECUTIVE OFFICER: Appointed 05 Jul 2021 Mr Finnis has over 30 years of global mining experience across a range of roles. Most recently, Mr Finnis held the position of Managing Director and CEO of Metro Mining Limited (ASX: MMI). He has held a number of managerial and operational roles in mining in Australia and internationally including CEO of Grande Cote Operations (Senegal, West Africa) during its development and operational phases and Managing Director of Cloncurry Metals Limited (renamed Global Resources Corporation Limited). Special Responsibilities: • Chief Executive Officer. Other Current Directorships of ASX Listed Companies: • None. Former Directorships of ASX Listed Companies in Last Three Years: • Metro Mining Limited – Resigned 5 July 2021. Interests in Shares and Options: • 587,000 share options. Page 31 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Directors’ Report INFORMATION ON DIRECTORS (CONTINUED) MR FERDIAN PURNAMASIDI MR STEPHEN MALLYON BACHELOR OF COMMERCE BACHELOR OF BUSINESS DIPLOMA OF BUSINESS MANAGEMENT NON-EXECUTIVE DIRECTOR: Appointed 26 Apr 2016 Mr Purnamasidi is an executive at the Salim Group and a representative for KMP Investments Pte Ltd, a subsidiary of Salim Group. He is responsible for managing the Salim Group’s investments in Australia. The Salim Group is a diversified multinational business group which owns various interests in mining, food products, agribusiness, retail, automobile, banking and financial and property sectors. Mr Purnamasidi is also the Managing Director of Mach Energy Australia Pty Ltd which owns the world-class Mt Pleasant coal operation in the Hunter Valley region, New South Wales. Special Responsibilities: • None. Other Current Directorships of ASX Listed Companies: • None. Former Directorships of ASX Listed Companies in Last Three Years: • None. Interests in Shares and Options: • 646,154 ordinary shares. MASTER OF BUSINESS ADMINISTRATION (UNIVERSITY OF QUEENSLAND) CERTIFIED PRACTICING ACCOUNTANT INDEPENDENT NON-EXECUTIVE DIRECTOR: Appointed 05 Jul 2021 Resigned 21 March 2022 Mr Mallyon has spent more than 40 years in the mining and construction materials industry as well as establishing Royal Bank of Canada’s investment banking operation in Sydney. He has extensive operational and corporate finance experience with direct management of mining and development projects in Australia, Africa, South America and Asia. He has worked for major mining companies including in senior roles at M.I.M Holdings Limited, RGC Limited and Billiton Plc. Mr Mallyon was previously a director of N.M. Rothchild (Australia), managing director of RBC Capital Markets (Australia) and managing director of Riversdale Mining Limited and, subsequently, Riversdale Resources Limited. Special Responsibilities: • Chair of the Audit and Risk Committee. Member of the Remuneration Committee. Other Current Directorships of ASX Listed Companies: • None. Former Directorships of ASX Listed Companies in Last Three Years: • None. Interests in Shares and Options: • 6,119,307 ordinary shares. Page 32 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Directors’ Report INFORMATION ON DIRECTORS (CONTINUED) MR DENIS GATELY MS FIONA MURDOCH BACHELOR OF ARTS BACHELOR OF LAWS INDEPENDENT NON-EXECUTIVE DIRECTOR: Appointed 13 Dec 2021 Mr Gately is an experienced energy and resources lawyer. He has spent the majority of his legal career with Minter Ellison, serving as head of its National Resources and Energy Industry Group, and serving as a member of its national board for nine years and as Brisbane Managing Partner for six years until his retirement in 2010. He has led transactions in minerals and oil and gas operations and development projects, both domestic and international, as well as having extensive experience in associated infrastructure. Mr Gately has previously served as a director of Gloucester Coal Limited, Alligator Energy Limited (Chair), Xanadu Mines Limited (Chair) and Resource Generation Limited (Chair). Special Responsibilities: • Chair of the Remuneration Committee. • Member of the Audit and Risk Committee. Other Current Directorships of ASX Listed Companies: • None. Former Directorships of ASX Listed Companies in Last Three Years: • None. Interests in Shares and Options: • None. BACHELOR OF LAWS (HONS) MASTER OF BUSINESS ADMINISTRATION GRADUATE OF THE AUSTRALIAN INSTITUTE OF COMPANY DIRECTORS NON-EXECUTIVE DIRECTOR: Appointed 26 Apr 2016 Resigned 15 Oct 2021 Ms Murdoch brings more than 30 years of senior operational experience including leadership roles in the mining and resources industry with AMCI Investment, MIM Holdings and Xstrata Queensland. She has extensive experience with major domestic and international projects and has worked with international investment partners across multi-national, listed, private and statutory authority environments. She was a partner of corporate advisory firm Neuchâtel Partners for 10 years and previously a non- executive director of metallurgical services and technology company Core Resources Pty Ltd. In addition to the non-executive directorships listed below, Ms Murdoch serves on the board of Building Queensland and on the Joint Venture Committee for the West Pilbara Iron Ore Project. Ms Murdoch is also Chair of The Pyjama Foundation Limited, a not-for-profit organisation providing learning-based activities for children in foster care. Special Responsibilities: • Chair of the Audit and Risk Committee until 15 Oct 2021. • Member of the Remuneration Committee until 15 Oct 2021. Other Current Directorships of ASX Listed Companies: • NRW Holdings Limited. Appointed 24 February 2020. • Metro Mining Limited. Appointed 11 March 2019. Former Directorships of ASX Listed Companies in Last Three Years: • KGL Resources Limited. Resigned 15 Oct 2021. Interests in Shares and Options: • 83,451 ordinary shares. Page 33 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Directors’ Report INFORMATION ON DIRECTORS (CONTINUED) COMPANY SECRETARY MS KYLIE ANDERSON BSC. MBA (INT. BUS.) MPA, MAICD COMPANY SECRETARY: Appointed 02 Jan 2008 Ms Anderson has held senior financial and company secretarial roles with a number of companies in the resources sector including Felix Resources Limited and Rio Tinto Group. MR DENIS WOOD BACHELOR OF SCIENCE (GEOLOGY) EXECUTIVE CHAIRMAN: Appointed 28 Jul 2015 Retired 30 Aug 2021 NON-EXECUTIVE DIRECTOR: Appointed 18 March 2022 Mr Wood is an Australian and international mining industry director, investor, executive and professional metallurgist and geologist with more than 45 years’ experience. Following a 13-year career as a metallurgist with BHP and a further 8 years with CCI Holdings, where he reached the position of Managing Director. Mr Wood moved to Chicago to join a multinational company which supplied a complete range of services to the mining industry. On his return to Australia, Mr Wood held multiple directorships of Australian based resource companies including executive directorships with Australian Premium Coals and Talbot Group. Special Responsibilities: • Executive Chair of the Board until 30 Aug 2021. Other Current Directorships of ASX Listed Companies: • None. Former Directorships of ASX Listed Companies in Last Three Years: • KGL Resources Limited. Retired 30 Aug 2021. Interests in Shares and Options: • 35,588,088 ordinary shares. Page 34 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Directors’ Report MEETINGS OF DIRECTORS The number of meetings of the Company’s Board of Directors, and of each Board committee, held during the year ended 31 December 2021 and the number of meetings attended by each director were: A = Attended H = Held FULL BOARD AUDIT & RISK COMMITTEE REMUNERATION COMMITTEE ATTENDED HELD1 ATTENDED HELD1 ATTENDED HELD1 Current Directors P. Hay S. Finnis D. Gately S. Mallyon F. Purnamasidi Former Directors F. Murdoch D. Wood 11 4 – 5 11 9 7 12 4 – 5 12 9 7 3 – – 1 – 3 – 3 – – 1 – 3 – 4 – – 1 – 3 – 4 – – 1 – 3 – 1 Held is the number of meetings held during the time the director held office or was a member of the relevant committee. Page 35 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Directors’ Report REMUNERATION REPORT – AUDITED The Remuneration Report, which has been audited, outlines the director and executive remuneration arrangements for the Group in accordance with the requirements of the Corporations Act 2001 and its regulations. A. Remuneration Philosophy The Group’s remuneration philosophy is to ensure that remuneration packages accurately reflect employees’ duties and responsibilities, with the overall objective of ensuring maximum stakeholder benefit from the attraction and retention of a high-quality Board and executive team members. The key principles underpinning the Group’s remuneration philosophy are: • Remuneration that is comparable and market-competitive, • An appropriate balance between fixed and variable (at-risk) remuneration components, • The alignment of directors’ and executives’ interests with those of shareholders, and • Fairness and transparency. The Group’s remuneration philosophy and practices are overseen by the Remuneration Committee. The Remuneration Committee is responsible for: • Monitoring and reporting to the Board material risks insofar as they relate to people and remuneration matters, • Reviewing on an annual basis the remuneration levels of the Board and senior management and recommending changes to the Board as appropriate, • Overseeing management incentive schemes including employee short-term and long-term incentives, • Developing and recommending to the Board performance goals for the Managing Director and other executives, and • Assisting the Board in evaluating achievement of performance goals. The Remuneration Committee considers that, to maximise stakeholder benefits, the evaluation of the performance of the executive team appropriate for the Group’s present circumstances (a mining explorer, transitioning to development and, ultimately, production) should contain Key Performance Indicators (KPIs) related to the achievement of project milestones being the delivery of the Jervois feasibility study, obtaining project financing and first production. In recognition of this, zero-cost share options have been incorporated as a component of executive remuneration in 2021. The zero-cost share options are designed to reward high performance against challenging, clearly defined and measurable objectives. Page 36 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Directors’ Report REMUNERATION REPORT – AUDITED (CONTINUED) B. Key Management Personnel The Key Management Personnel (KMP) of the Group, comprising the non-executive directors, the managing director and the chief financial officer, are those individuals considered to have significant influence over the Group’s operating performance and decision making. The KMP of the Group are listed in the table below. Unless otherwise indicated, KMP have held the stated position since the commencement of the financial year and up to the date of this report. NAME POSITION TENURE Directors Mr P. Hay Mr S. Finnis Independent Non-executive Chairman Appointed 2 November 2017 Appointed Chairman 30 August 2021 Managing Director Chief Executive Officer Appointed MD 30 August 2021 Appointed 5 July 2021 Mr F. Purnamasidi Non-executive Director Appointed 26 April 2016 Mr S. Mallyon Independent Non-executive Director Appointed 5 July 2021 Resigned 21 March 2022 Mr D. Gately Ms F. Murdoch Mr D. Wood Other KMP Ms A. Treble Independent Non-executive Director Appointed 13 December 2021 Former Non-executive Director Resigned 15 October 2021 Former Executive Chairman Non-executive Director Retired 30 August 2021 Appointed 18 March 2022 Chief Financial Officer Appointed 25 November 2019 C. Remuneration Structure In accordance with best practice corporate governance, the structure of non-executive director and executive remuneration is separate and distinct. i) Non-executive Director Remuneration Objective The Board seeks to set aggregate remuneration at a level which provides the Company with the ability to attract and retain non-executive directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders. Structure The Constitution and the ASX Listing Rules specify that the aggregate remuneration of non-executive directors shall be determined from time to time by a general meeting. The current aggregate remuneration so determined is $500,000. An amount not exceeding $500,000 is divided between the directors as agreed. When appropriate, the Board considers advice from external consultants as well as the fees paid to non-executive directors of comparable companies when undertaking the annual review process. No remuneration consultants were engaged to review non-executive remuneration in 2021. Each director receives a fee for being a director of the Company. Directors who are called upon to perform extra services beyond the director’s ordinary duties may be paid additional fees for those services. Non-executive directors do not receive any form of equity incentive entitlement, bonus, options, other form of incentive entitlement or retirement benefits. All non-executive directors are entitled to superannuation contributions up to the statutory capped rates. In order to align with shareholder interests, non-executive directors are encouraged to hold shares in the Company. Page 37 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Directors’ Report REMUNERATION REPORT – AUDITED (CONTINUED) C. Remuneration Structure (continued) ii) Executive Remuneration Objective The Company aims to attract, motivate and retain high-performance, and high-quality executives, to reward them with a level of remuneration commensurate with their position and responsibilities within the Group and to align their interests with those of shareholders. Structure Executive remuneration has three components, a combination of which comprises the executive’s total remuneration: 1. Fixed remuneration comprising a base salary, employer superannuation contributions and non-monetary benefits, 2. Other remuneration, including annual leave and long service leave benefits, and 3. A performance-based incentive. Executives can receive the fixed component of their remuneration in the form of cash or other fringe benefits (for example car parking benefits) where it does not create any additional costs to the Group and adds value to the executive. Any awards over and above contractual fixed remuneration and associated statutory entitlements are made at the discretion of the Board. Upon retirement or termination, executive KMP are paid employee benefits accrued to date of retirement or termination. No other termination benefits are payable under services contracts. For the 2021 financial year, the Board issued performance-based incentives, in the form of zero-cost share options, in two tranches with vesting periods of between 12 months and 33 months. At the completion of the option vesting period, the Remuneration Committee will review performance against the vesting criteria and advise the Board whether the criteria for vesting have been met. Performance against the vesting criteria for tranche 1 will be reviewed in June 2022. Performance-based incentives are issued at the discretion of the Board. Until vested and exercised, zero-cost share options carry no dividend or voting rights. One ordinary share in the Company is issued on vesting and exercise of a share option. In determining the level and make-up of executive remuneration, the Board may obtain independent advice from external consultants on market levels of remuneration for comparable executive roles. No remuneration consultants were engaged to review executive remuneration in 2021. It is the Board’s policy that employment contracts are entered into with all the senior executives. D. Relationship between Remuneration and the Company’s Performance The earnings of the Group for the five years to 31 December 2021 are summarised below: Sales revenue EBITDA EBIT 2021 $ – 2020 $ – 2019 $ – 2018 $ – 2017 $ – (2,265,958) (1,195,375) (2,443,690) (1,508,769) (1,331,131) (2,322,511) (1,246,596) (2,494,448) (1,521,183) (1,340,161) Loss after income tax (2,325,072) (1,248,140) (2,328,377) (1,229,078) (1,264,772) Total KMP remuneration 897,523 538,695 1,278,331 * 238,685 163,635 * in 2019, the remuneration paid included $1,000,000 shares issued to Mr Wood in June 2019. This award was in-lieu of the remuneration for his significant contribution in this role in the three years since his appointment in June 2016. The share issue to Mr Wood was put to, and approved, by shareholders at the 2019 Annual General Meeting. Mr Wood resigned as a member of the Board of Directors on 30 August 2022 and was re-appointed to the Board as a Non-executive Director on 18 March 2022. Page 38 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Directors’ Report REMUNERATION REPORT – AUDITED (CONTINUED) D. Relationship between Remuneration and the Company’s Performance (continued) The factors that are considered to affect total shareholders return (TSR) are summarised below: Share price at financial year end ($) Total dividends declared (cents per share) Basic loss per share (cents per share) 2021 $0.60 – 2020 $0.27 – 2019 $0.23 – 2018 $0.29 – 2017 $0.36 – (0.61) (0.39) (0.83) (0.50) (0.65) E. Employment Contracts Employment contracts have been entered into by the Group with key management personnel, documenting the components and level of remuneration applicable to their appointments. These contracts do not fix the amount of remuneration increases from year to year. Remuneration levels are generally reviewed each year by the Remuneration Committee to align with changes in job responsibilities and market salary expectations. F. Remuneration of Directors and Executives (1) Remuneration of the Managing Director Mr Simon Finnis Under contractual arrangements, Mr Finnis is entitled to fixed annual remuneration of $450,000 including statutory superannuation, subject to annual review. For further details of Mr Finnis’s employment terms refer to Section G: Service Contracts. (2) Remuneration of Non-executive Directors There have been no changes to non-executive remuneration in the current year. All non-executive directors receive an annual fee of $47,250 plus superannuation at the statutory rate, subject to annual review. There are no additional fees paid for additional roles such as Committee members, or Chair positions. The annual fees have been apportioned in accordance with each Directors’ period of tenure during the year. (3) Remuneration of the Chief Financial Officer Ms Amy Treble Under contractual arrangements, Ms Treble is entitled to fixed annual remuneration of $280,000 including statutory superannuation, subject to annual review. For further details of Ms Treble’s employment terms refer to Section G: Service Contracts. Subsequent to the financial year end and following a review and recommendation to the Board by the Remuneration Committee, Ms Treble’s fixed annual remuneration, including statutory superannuation, was increased to $305,000 with effect from 1 January 2022. No member of key management personnel has entitlements to termination payments in the event of removal for misconduct. Page 39 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Directors’ Report REMUNERATION REPORT – AUDITED (CONTINUED) F. Remuneration of Directors and Executives (continued) (4) Remuneration Summary Directors and other key management personnel received the following compensation for their services during the year: SHORT-TERM BENEFITS POST-EMPLOYMENT BENEFITS YEAR ENDED 31 DEC 2021 CASH SALARY AND FEES $ SUPERANNUATION $ SHARE-BASED PAYMENTS $ TOTAL $ TOTAL PERFORMANCE RELATED % Directors P. Hay S. Finnis(1) D. Gately(2) S. Mallyon(3) F. Purnamasidi Former Directors F. Murdoch(4) D. Wood(5) Other KMP A. Treble 47,250 202,648 3,595 23,625 47,250 37,216 31,500 269,958 663,042 4,607 13,344 360 2,363 4,607 3,603 3,032 24,932 56,848 – 51,857 114,589 330,581 – 34.7 – – – – – 3,955 25,988 51,857 40,819 34,532 – – – – – 63,044 357,934 177,633 897,523 17.6 19.8 (1) Appointed as CEO on 5 July 2021, and Managing Director on 30 August 2021, (2) Appointed 13 December 2021, (3) Appointed 5 July 2021, resigned 21 March 2022, (4) Resigned 15 October 2021, (5) Retired 30 August 2021, reappointed 18 March 2022 SHORT-TERM BENEFITS POST-EMPLOYMENT BENEFITS YEAR ENDED 31 DEC 2020 CASH SALARY AND FEES $ SUPERANNUATION $ SHARE-BASED PAYMENTS $ TOTAL $ TOTAL PERFORMANCE RELATED % Directors D. Wood F. Purnamasidi P. Hay F. Murdoch Former Directors J. Gooding Other KMP A. Treble 47,250 47,250 47,250 47,250 47,250 255,708 491,958 4,489 4,489 4,489 4,489 4,489 24,292 46,737 – – – – – – – 51,739 51,739 51,739 51,739 51,739 280,000 538,695 – – – – – – – Page 40 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Directors’ Report REMUNERATION REPORT – AUDITED (CONTINUED) F. Remuneration of Directors and Executives (continued) (4) Remuneration Summary (continued) The remuneration of all Non-executive Directors is fixed. For all other key management personnel, the proportion of remuneration that is fixed and the proportion of remuneration that is linked to performance is outlined below. FIXED REMUNERATION $ AT RISK – STI $ AT RISK – LTI $ Managing Director and CEO S. Finnis Other Executive KMP A. Treble Former Executive Chairman D. Wood 2021 2020 2021 2020 2021 2020 65.3 – 82.4 100 100 100 – – – – – – 34.7 – 17.6 – – – No member of key management personnel is entitled to receive securities that are not performance based. G. Service Contracts Remuneration and other terms of employment for key management personnel, other than Non-executive Directors, are formalised in service agreements. Details of these agreements are as follows: MR SIMON FINNIS MS AMY TREBLE Managing Director and Chief Executive Officer (CEO) Agreement Commenced: 5 July 2021 Term of Agreement: Until terminated in accordance with the provisions of the agreement. The key terms of this agreement are as follows: • The term is ongoing whilst Mr Finnis is CEO. • Base remuneration of $450,000 inclusive of superannuation and is subject to annual review by the Board. • Contractual LTI; up to 40% of base remuneration. Chief Financial Officer (CFO) Agreement Commenced: 25 November 2019 Term of Agreement: Until terminated in accordance with the provisions of the agreement. The key terms of this agreement are as follows: • The term is ongoing whilst Ms Treble is CFO. • Base remuneration of $280,000 (increased to $305,000, effective 1 Jan 2022), inclusive of superannuation, and is subject to annual review by the Board. • Contractual LTI; up to 30% of base • No termination payments, other than remuneration. statutory entitlements. • No termination payments, other than • Notice period on resignation: 3 months’ statutory entitlements. notice in writing. • Notice period on termination: 6 months’ notice in writing. • Notice period: 1 month’s notice in writing. Page 41 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Directors’ Report REMUNERATION REPORT – AUDITED (CONTINUED) H. Cash Bonuses There were no cash bonuses granted to any KMP in relation to either the 2021 or 2020 financial years. I. Options Granted as Remuneration The terms and conditions relating to long-term incentive share options offered as remuneration during the year to KMP are as follows: GRANTEE TYPE ISSUE DATE OFFER VALUE(1) % VESTED EXPIRY DATE S. Finnis Share Options 08 Jul 2021 $340,460 A. Treble Share Options 23 Jun 2021 $156,800 (1) The indicative offer value was determined using a Black Scholes-Merton valuation model. – – 07 July 2026 22 Jun 2026 The share options were offered by the Board to incentivise executive members of key management personnel and to align their interests with those of shareholders. The share options were issued in two equal tranches which have performance related vesting conditions as outlined below: TRANCHE CONDITIONS 1 2 Vest upon achieving successful final investment decision for the Jervois Copper Project, on time and on budget based on the criteria approved by the Board of the Company. In respect of the Tranche 1 options - unless the board of KGL Resources Limited determines otherwise, 20% of the total Tranche 1 options granted to the holder will lapse for each month that a successful final investment decision for the Jervois project is delayed beyond the time approved and set by the board of KGL Resources Limited. Vest following the construction of the mine for the Jervois Copper Project and achieving first production of at least 1000t of concentrate under the conditions approved by the Board of the Company. In respect of the Tranche 2 options - unless the board of KGL Resources Limited determines otherwise, 20% of the total Tranche 2 options granted to the holder will lapse for each month that the construction of the mine for the Jervois project and first production (1000t) is delayed beyond the time approved and set by the board of KGL Resources Limited. ESTIMATED VESTING DATE June 2022 ~ 2024 subject to FID The number of options over ordinary shares held during the financial year by the managing director and other members of key management personnel of the Group is set out below: BALANCE AT BEGINNING OF YEAR NUMBER ISSUE DATE GRANTED EXERCISED LAPSED NUMBER VALUE $ NUMBER VALUE $ NUMBER Managing Director S. Finnis Other KMP A. Treble – – – 8 Jul 21 587,000 340,460 23 Jun 21 224,000 156,800 811,000 497,260 – – – – – – – – – No share options had vested or were exercisable at 31 December 2021. BALANCE END OF YEAR NUMBER 587,000 224,000 811,000 Page 42 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Directors’ Report REMUNERATION REPORT – AUDITED (CONTINUED) J. Shareholdings of Directors and Key Management Personnel The numbers of ordinary shares in the Company held during the financial year by each director and by each other member of key management personnel of the Group, including their personally related parties, are as follows: 31 DECEMBER 2021 Current Directors P. Hay S. Finnis D. Gately S. Mallyon(i) F Purnamasidi Former Directors F Murdoch D Wood(ii) Other KMP A Treble TOTAL BALANCE AT BEGINNING OF YEAR NUMBER ENTITLEMENT OFFER NUMBER ISSUED ON EXERCISE OF OPTIONS NUMBER OTHER CHANGES NUMBER BALANCE AT END OF YEAR NUMBER 2,573,601 197,970 - - - - - - 600,000 46,154 77,490 5,961 33,046,081 2,542,007 – – 36,297,172 2,792,092 - - - - - – - – - - - - 2,771,571 - - 6,119,307 6,119,307 - 646,154 (83,451) – - 35,588,088 – 6,035,856 45,125,120 (i) Mr Mallyon was appointed to the Board on 5 July 2021 and his existing shareholding in the Company is being recognised in the table of Shareholdings of Directors and Key Management Personnel for the first time in the year ended 31 December 2021. Mr Mallyon resigned from the Board on 21 March 2022. (ii) Mr Wood retired from the Board as an Executive Chairman on 30 August 2021 and was reappointed as a Non-executive director on 18 March 2022. K. Other Transactions with Key Management Personnel and/or Their Related Parties There were no transactions conducted between the Group and key management personnel or their related parties, apart from those disclosed above relating to equity and compensation, that were conducted other than in accordance with normal employee or supplier relationships on terms no more favourable than those reasonably expected under arm’s length dealings with unrelated parties. THIS IS THE END OF THE REMUNERATION REPORT – AUDITED Page 43 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Directors’ Report EVENTS AFTER THE REPORTING DATE Changes to the Board of Directors Mr Denis Wood was re-appointed to the the board as a Non-executive Director on 18 March 2022. Mr Wood, who is well known to shareholders, previously served as the Company’s Executive Chairman for 6 years. He has an extensive knowledge of the Jervois project and was instrumental in advancing the project prior to his retirement last year. On 21 March 2022, Mr Stephen Mallyon resigned from the Board of Directors. Change of Group Financial Year End On 31 January 2022, the Board of Directors resolved, in accordance with s323D of the Corporations Act 2001, to change the Group’s financial year-end date from 31 December to 30 June. The Company will have a 6-month transitional financial year beginning 1 January 2022 and ending on 30 June 2022. Thereafter, from 1 July 2022, the Company will revert to a 12-month financial year, first ending on 30 June 2023. As a result of the introduction of the 6-month transitional financial year, the Company will: • • Lodge an annual financial report by 31 March 2022 for the period 1 January 2021 to 31 December 2021; and hold an annual general meeting by 31 May 2022. Lodge an annual financial report by 30 September 2022 for the period 1 January 2022 to 30 June 2022; and hold an annual general meeting by 30 November 2022. No other matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial periods. Offtake Agreement with Glencore On 22 March 2022, the Company announced that it has entered into a binding sales agreement with Glencore International AG (Glencore) for the sale of 100% of the copper concentrate produced from KGL’s high-grade Jervois Copper Project (Jervois or the Project). It has a minimum term expiring at the end of 5 full calendar years after commercial production is reached. The sale agreement is evergreen, and will continue beyond the minimum term until either party terminates it by giving 2 years’ prior notice. The sale price for the copper concentrate is volume based and calculated by reference to the LME cash settlement price for copper, with silver and gold credits (subject to minimum ‘payable’ limits) and adjustments for penalties, treatment and refining charges and a freight credit. The agreement is subject to other customary terms and conditions, including processes for assaying, weighing, sampling and moisture determination in relation to the concentrate, and contains relevant force majeure clauses. The current schedule, to be confirmed as part of the Feasibility, and Final Investment Decision has the Project in the development phase this year, however this sale contract is conditional upon finance being secured by no later than 30 September 2025, or commercial production by no later than 31 December 2025. AUDITOR INDEPENDENCE The auditor’s independence declaration as required under section 307C of the Corporations Act 2001, is set out on page 46 of the financial report. This report is made in accordance with a resolution of the directors. On behalf of the Board, Peter Hay Chairman Brisbane Dated: 23 March 2022 Page 44 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Competent Person’s Statement The Jervois resources information included on pages 22, 23 and 24 of the Directors’ Report, was first released to the ASX on 10 January 2022, 27 January 2022 and 7 March 2022 respectively, and complies with JORC 2012. The Company confirms that it is not aware of any new information or data that materially affects the information included in the original market announcement and that all material assumptions and technical parameters underpinning the estimates in the relevant market announcement continue to apply and have not materially changed. The Company confirms that the form and context in which the Competent Person’s findings are presented has not been materially modified from the original market announcement. The following drill holes were originally reported on the date indicated and using the JORC code specified in the table. Results reported under JORC 2004 have not been updated to comply with JORC 2012 on the basis that the information has not materially changed since it was last reported. HOLE KJCD KJCD KJCD KJCD KJCD KJCD KJCD KJD KJD KJCD 458D1 446 447 448 449 450 455 456 481D3 482 DATE ORIGINALLY REPORTED JORC REPORTED UNDER 21/09/2021 21/09/2021 21/09/2021 21/09/2021 21/10/2021 21/10/2021 21/10/2021 21/10/2021 10/11/2021 21/12/2021 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 Page 45 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Auditor’s Independence Declaration BY T R MANN TO THE DIRECTORS OF KGL RESOURCES LIMITED Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au Level 10, 12 Creek St Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Australia DECLARATION OF INDEPENDENCE BY T R MANN TO THE DIRECTORS OF KGL RESOURCES LIMITED As lead auditor of KGL Resources Limited for the year ended 31 December 2021, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of KGL Resources Limited and the entities it controlled during the period. T R Mann Director BDO Audit Pty Ltd Brisbane, 23 March 2022 BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. Page 46 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Statement of Profit or Loss and Other Comprehensive Income FOR THE YEAR ENDED 31 DECEMBER 2021 Other income Administrative expenses Employee benefits expense Other expenses Depreciation and amortisation expense Finance expense Loss before income tax Income tax benefit Net loss for the year NOTE 3 4(a) 4(b) 4(c) 5 CONSOLIDATED 2021 $ 23,338 (1,083,474) (1,025,609) (180,213) (56,553) (2,561) 2020 $ 142,939 (645,008) (569,938) (123,368) (51,221) (1,544) (2,325,072) (1,248,140) – – (2,325,072) (1,248,140) Other comprehensive income, net of tax – – Total comprehensive income for the year (2,325,072) (1,248,140) Loss per share attributable to the owners of the Company Basic loss per share (cents per share) Diluted loss per share (cents per share) 6 6 (0.61) (0.61) (0.39) (0.39) This financial statement should be read in conjunction with the accompanying notes. Page 47 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Statement of Financial Position AS AT 31 DECEMBER 2021 CONSOLIDATED 2021 $ 2020 $ NOTE Current assets Cash and cash equivalents Trade and other receivables Financial assets Prepayments Total current assets Non-current assets Financial assets Property, plant and equipment Right-of-use assets Exploration and evaluation assets Intangible assets Total non-current assets Total assets Current liabilities Trade and other payables Lease liabilities Total current liabilities Non-current liabilities Lease liabilities Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Accumulated losses Total equity 7 8 9 9 10 11 12 13 15 11 11 17 16 12,742,972 5,157,935 230,429 148,765 580,260 23,326 110,155 114,939 13,702,426 5,406,355 223,102 159,838 535,983 224,202 66,176 69,693 80,599,275 64,485,044 21,218 – 81,539,416 64,845,115 95,241,842 70,251,470 2,871,105 310,671 3,181,776 218,791 218,791 454,307 63,348 517,655 13,427 13,427 3,400,567 531,082 91,841,275 69,720,388 214,480,963 190,240,532 205,528 – (122,845,216) (120,520,144) 91,841,275 69,720,388 This financial statement should be read in conjunction with the accompanying notes. Page 48 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Statement of Cash Flows FOR THE YEAR ENDED 31 DECEMBER 2021 CONSOLIDATED 2021 $ 2020 $ 1,314,992 578,066 (3,571,670) (1,599,396) 25,596 (15,089) 40,361 (3,332) (2,246,171) (984,301) NOTE 7(d) 7(a) Cash flows from operating activities Receipts in the course of operations Payments to suppliers and employees Interest received Finance costs – leases Net cash used in operating activities Cash flows from investing activities Payment for exploration and evaluation assets (13,938,329) (4,526,675) Payment for property, plant and equipment Payment for right-of-use assets Payment for intangible assets Movement in financial assets Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Payment of share issue costs Principal elements of lease payments Net cash provided by financing activities 10 13 17 17 (170,469) (20,661) (10,395) (21,721) (37,510) – – 366,489 (14,178,424) (4,180,847) 25,214,128 3,828,787 (973,697) (230,799) (126,138) (105,821) 24,009,632 3,596,828 Net increase/ (decrease) in cash and cash equivalents 7,585,037 (1,568,320) Cash and cash equivalents at the beginning of the year 5,157,935 6,726,255 Cash and cash equivalents at the end of the year 7 12,742,972 5,157,935 This financial statement should be read in conjunction with the accompanying notes. Page 49 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Statement of Changes in Equity FOR THE YEAR ENDED 31 DECEMBER 2021 CONSOLIDATED CONTRIBUTED EQUITY SHARE-BASED PAYMENT RESERVE ACCUMULATED LOSSES TOTAL EQUITY $ $ $ $ Balance as at 1 January 2021 190,240,532 Loss for the year Other comprehensive income, net of tax Total comprehensive income for the year – – – Transactions with owners in their capacity as owners Issue of share capital (net of costs) 24,240,431 – – – – – Share-based payments – expensed Share-based payments – capitalised (i) – – 171,738 33,790 (120,520,144) 69,720,388 (2,325,072) (2,325,072) – – (2,325,072) (2,325,072) – – – 24,240,431 171,738 33,790 Balance as at 31 December 2021 214,480,963 205,528 (122,845,216) 91,841,275 Balance as at 1 January 2020 186,537,883 Loss for the year Other comprehensive income, net of tax Total comprehensive income for the year – – – Transactions with owners in their capacity as owners Issue of share capital (net of costs) Balance as at 31 December 2020 3,702,649 190,240,532 – – – – – – (119,272,004) 67,265,879 (1,248,140) (1,248,140) – – (1,248,140) (1,248,140) – 3,702,649 (120,520,144) 69,720,388 (i) The value of share-based payments to employees of the Jervois Copper Project has been capitalised as part of the Exploration and Evaluation Asset (refer Note 12). This financial statement should be read in conjunction with the accompanying notes. Page 50 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Notes to the Financial Statements for the year ended 31 December 2021 ABOUT THIS REPORT The financial statements of KGL Resources Limited for the year ended 31 December 2021 cover the consolidated entity consisting of KGL Resources Limited and its controlled entities (together referred to as the Group) as required by the Corporations Act 2001. The registered office and principal place of business is Level 5, 167 Eagle Street, Brisbane, Queensland, 4000, Australia. The financial statements are presented in the Australian currency. KGL Resources Limited is a public company, incorporated and domiciled in Australia. The principal activity of the Group during the year was exploration and development of the Jervois multi-metal project in the Northern Territory. There have been no significant changes in the nature of these activities during the year. The consolidated general-purpose financial report of the Group for the year ended 31 December 2021 was authorised for issue in accordance with a resolution of the Directors on 23 March 2022. The Directors have the power to amend and reissue the financial report. The financial report is a general-purpose financial report which: • • has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board (AASB) and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board, adopts all new and amended Accounting Standards and Interpretations issued by the AASB and IFRS that are relevant to the operations of the Group and effective for reporting periods beginning on or after 1 January 2021. Adopting these standards did not have any impact on the Group’s accounting policies and did not require retrospective adjustments. • does not early adopt any Australian Accounting Standards and Interpretations that have been issued or amended but are not yet effective. The financial statements have been prepared on a historical cost basis. The entity is a for-profit entity for the purposes of Australian Accounting Standards. KEY JUDGEMENTS AND ESTIMATES In the process of applying the Group’s accounting policies, management has made a number of judgements and applied estimates of future events. Judgements and estimates which are material to the financial report are found in the following notes: • Note 5: • Note 11: • Note 12: Income taxes Leases Exploration and evaluation assets Page 54 Page 59 Page 61 BASIS OF CONSOLIDATION Subsidiaries are those entities over which KGL Resources Limited has control. The Group controls an entity when the Group is exposed, or has the rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. All intercompany balances and transactions, including unrealised profits arising from intragroup transactions have been eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. The financial statements of subsidiaries are prepared for the same reporting period as the parent, using consistent accounting policies. Page 51 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Notes to the financial statements for the year ended 31 December 2021 OTHER ACCOUNTING POLICIES Significant and other accounting policies that summarise the measurement basis used and are relevant to an understanding of the financial statements are provided throughout the notes to the financial statements. THE NOTES TO THE FINANCIAL STATEMENTS The notes include information which is required to understand the financial statements and is material and relevant to the operations, financial position and performance of the Group. Information is considered relevant and material if for example: • • • • the amount in question is significant because of its size or nature, it is important for understanding the results of the Group, it helps to explain the impact of significant changes in the Group’s business, for example acquisitions and impairment write-downs, or it is related to an aspect of the Group’s operations that is important to its future performance. 1. Going concern The financial report has been prepared on the going concern basis, which contemplates continuity of normal business activities and the realisation of assets and settlement of liabilities in the normal course of business. As disclosed in the financial report, the Group incurred a net loss of $2,325,072 and net operating cash outflows of $2,246,171 for the period ended 31 December 2021. As at 31 December 2021, the Group has cash and cash equivalents of $12,742,972. The ability of the Group to continue as a going concern is principally dependent upon one or more of the following: • • the ability of the Company to raise capital as and when necessary, and/or the successful exploration and subsequent exploitation of the Group’s tenements. These conditions give rise to material uncertainty which may cast significant doubt over the Group’s ability to continue as a going concern. The Directors believe that the going concern basis of preparation is appropriate for the following reasons: • the Directors believe there is sufficient cash available for the Group to continue operating until it can raise further capital to fund its ongoing activities. • Funds through equity raisings have been successfully raised in the past, as recently as February, and March 2021, and the entitlement offer was fully subscribed after shortfall was placed in May 2021. • Directors can curtail activities to preserve cash. Should the Group be unable to continue as a going concern, it may be required to realise its assets and extinguish its liabilities other than in the ordinary course of business, and at amounts that differ from those stated in the financial report. This financial report does not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts or classification of liabilities and appropriate disclosures that may be necessary should the Group be unable to continue as a going concern. 2. Segment information The Group identifies its operating segments based on the internal reports that are reviewed and used by the Board of Directors (the chief operating decision makers) in assessing performance and determining the allocation of resources. All information provided to the Board is consolidated information. Accordingly, management currently identifies the Group as having only one reportable segment, being exploration at the Jervois Copper Project in the Northern Territory. The financial results from this segment are equivalent to the financial statements of the Group as a whole. All significant operating decisions are based upon analysis of the Group as one segment. All assets of the Group are located in Australia. The Group does not yet have any products or services from which it derives an income. Page 52 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Notes to the financial statements for the year ended 31 December 2021 3. Other income Interest revenue – third parties ATO Cashflow Boost Grant Total other income CONSOLIDATED 2021 $ 2020 $ 23,338 – 23,338 42,939 100,000 142,939 Recognition and measurement Interest revenue is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount. All revenue is stated net of the amount of goods and services tax (GST). 4. Expenses a) Administrative expenses Professional and consulting fees Business development and investor relations Corporate office overheads Corporate fees Insurance Expenses relating to leases of low-value assets b) Employee benefits expense Salaries, wages, and related costs Directors’ fees (excluding superannuation) Share-based payments expense Superannuation contributions c) Finance expense Interest on lease liabilities (refer Note 11) 568,625 72,145 141,602 118,424 179,570 3,108 315,429 47,165 138,509 78,441 61,620 3,844 1,083,474 645,008 601,006 190,436 171,738 62,429 1,025,609 2,561 2,561 284,555 237,193 – 48,190 569,938 1,544 1,544 Recognition and measurement Post-employment benefits plans – defined contribution plans The Group provides post-employment benefits through defined contribution plans. The Group pays fixed contributions into independent entities in relation to several state plans. The Group has no legal or constructive obligations to pay contributions in addition to its fixed contributions, which are recognised as an expense in the period that the relevant employee services are received. Page 53 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Notes to the financial statements for the year ended 31 December 2021 5. Income taxes a) Components of tax expense Current tax benefit on loss for the year Deferred tax arising from origination and reversal of temporary differences Total income tax benefit in profit or loss b) The prima facie income tax on the loss is reconciled to income tax benefit as follows: Loss before income tax Prima facie tax benefit on loss before income tax at 25% (2020: 27.5%) Amounts that are not deductible in calculating tax loss Deferred tax assets arising from temporary differences not recognised Income tax benefit attributable to the Group c) Unrecognised deferred tax assets Prior year tax losses brought forward – gross Total losses recognised – gross Current year tax losses – gross Unrecognised tax losses – gross CONSOLIDATED 2021 $ 2020 $ – – – (2,325,072) (581,268) (19,198) 600,466 – – – – (1,248,140) (343,239) – 343,239 – 140,585,405 135,023,871 (79,140,842) (64,362,895) 17,193,413 5,561,534 78,637,976 76,222,510 Deferred tax assets not taken up – at 25% (2020: 26%) 19,659,494 19,817,853 d) Recognised net deferred tax assets Deferred tax liabilities Exploration and prospecting Deferred tax assets Tax losses Provisions/accruals (19,911,136) (19,911,136) (16,766,111) (16,766,111) 19,785,210 16,734,353 125,926 19,911,136 31,758 16,766,111 Net deferred tax asset recognised – – e) Franking credits There are no franking credits available. Page 54 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Notes to the financial statements for the year ended 31 December 2021 5. Income taxes (continued) Recognition and measurement The income tax expense / (benefit) for the year comprises current income tax expense / (benefit) and deferred tax expense / (benefit). Current income tax expense charged to profit or loss is the tax payable on taxable income. Current tax liabilities / (assets) are measured at the amounts expected to be paid to / (recovered from) the relevant taxation authority using tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred income tax expense / (benefit) reflects movements in deferred tax asset and deferred tax liability balances during the year as well unused tax losses. Current and deferred income tax expense / (benefit) is charged or credited outside profit or loss when the tax relates to items that are recognised outside profit or loss. Except for business combinations, no deferred income tax is recognised from the initial recognition of an asset or liability where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are ascertained based on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets also result where amounts have been fully expensed but future tax deductions are available. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates enacted or substantively enacted at reporting date. Their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Deferred tax assets and liabilities are offset where a legally enforceable right of set-off exists, 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 it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. Key judgements Recoverability of deferred tax assets The Group recognises deferred tax assets when it becomes probable that sufficient taxable income will be derived in future periods against which to offset these assets. At each reporting date, the Group assesses the level of expected future cash flows from the business, and the probability associated with realising these cash flows, and determines whether the deferred tax assets of the Group should be recognised. The Group continues to assess that, at the reporting date, it is not probable that the Group’s carry-forward tax losses and temporary differences will be used to offset future taxable profits. A future income tax benefit from the Group’s carry-forward tax losses and temporary differences will only be obtained if: • • future assessable income is derived of a nature and of an amount sufficient to enable the benefit to be realised, the conditions for deductibility imposed by tax legislation continue to be complied with, and • no changes in tax legislation adversely affect the Group in realising the benefit. Page 55 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Notes to the financial statements for the year ended 31 December 2021 6. Loss per share Loss after income tax attributable to the owners of the Company used in calculating basic and diluted loss per share. Basic loss per share (cents per share) Diluted loss per share (cents per share) Weighted average number of ordinary shares used in the calculation of basic and diluted loss per share. CONSOLIDATED 2021 $ 2020 $ (2,325,072) (1,248,140) (0.61) (0.61) (0.39) (0.39) # SHARES # SHARES 381,338,390 321,494,682 At 31 December 2021, the Company had 1,045,000 options (2020: nil options) over unissued ordinary shares. No options had vested or were exercisable at financial year end. Therefore, the options have been treated as anti-dilutive for the purposes of determining diluted loss per share (Refer to Note 18). Recognition and measurement Basic earnings per share Basic earnings / (loss) per share is calculated by dividing the profit / (loss) attributable to the owners of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings / (loss) per share adjusts the figures used in the determination of basic earnings / (loss) per share to take into account the after-tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. 7. Cash and cash equivalents Cash at bank Term deposits with short-term maturity Total cash and cash equivalents CONSOLIDATED 2021 $ 2020 $ 4,242,931 8,500,041 12,742,972 404,406 4,753,529 5,157,935 Cash at bank balances bear floating interest rates between 0.0% and 0.05% (2020: 0% and 0.20%). Term deposits bear fixed interest rates between 0.05% and 0.1% (2020: 0.25% and 0.60%). Recognition and measurement For the purposes of the Consolidated Statement of Cash Flows, cash and cash equivalents includes cash on hand and at bank, deposits held at call with financial institutions and other short term, highly liquid investments with original maturities of three months or less, that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Page 56 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Notes to the financial statements for the year ended 31 December 2021 CONSOLIDATED 2021 $ 2020 $ 7. Cash and cash equivalents (continued) a) Reconciliation of loss after tax to net cash flows from operations Loss for the year after income tax benefit (2,325,072) (1,248,140) 56,553 171,738 8,089 (12,528) (207,103) 101,949 (174,027) 134,230 (2,246,171) 51,221 – – – 153,680 343,379 (10,739) (273,702) (984,301) Non-cash flows in loss: Depreciation and amortisation expense Share-based payments expense (Gain) / loss on disposal of property, plant and equipment Capitalised expenditure classified as cash flows from operating activity: Interest expense Change in operating assets and liabilities: (Increase) / decrease in trade and other receivables (Increase) / decrease in payables for exploration and evaluation assets (i) (Increase) / decrease in prepayments Increase / (decrease) in trade and other payables Net cash used in operating activities (i) Classified as investing activity b) Facilities with banks There are no borrowing facilities at reporting date (2020: Nil). c) Non-cash financing and investing activities Non-cash investing and financing activities disclosed in other notes are: • Additions to right-of-use assets – refer to Note 11, and • Share options issued to employees for no cash consideration – refer to Note 18. d) Cash and non-cash movements in liabilities arising from financing activities The following table reconciles the cash and non-cash movements in liabilities arising from financing activities: Borrowings Opening Balance Additions Other Adjust. Lease Payments Closing Balance $ $ $ $ $ Non-cash Cash 31 Dec 2021 Lease liabilities 31 Dec 2020 Lease liabilities 76,775 686,003 (2,517) (230,799) 529,462 182,596 – – (105,821) 76,775 Page 57 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Notes to the financial statements for the year ended 31 December 2021 8. Trade and other receivables GST receivable (net) Other receivables Total trade and other receivables CONSOLIDATED 2021 $ 2020 $ 208,058 22,371 230,429 16,176 7,150 23,326 Other receivables are non-interest bearing and have repayment terms up to thirty days. 9. Financial assets Current Term deposits Total current financial assets Non-current Security deposits Total non-current financial assets 148,765 148,765 223,102 223,102 110,155 110,155 224,202 224,202 Financial assets are comprised of rolling interest-bearing term deposits supporting environmental bank guarantees with the Department of Mines and other guarantees. Security deposits and guarantees of $223,102 (2020: $224,202) have been provided to the Department of Mines and other suppliers. 10. Property, plant and equipment Plant and equipment Cost Accumulated depreciation Total plant and equipment 634,890 (475,052) 159,838 479,559 (413,383) 66,176 Recognition and measurement Each class of property, plant and equipment is carried at historical cost less, where applicable, any accumulated depreciation and accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the assets. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be reliably measured. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred. At each reporting period end, the carrying amount of property, plant and equipment is reviewed to ensure that carrying values are not in excess of the recoverable amounts. The assets’ residual values and useful lives are also reviewed, and adjusted if appropriate, at each reporting date. The depreciable amount of all property, plant and equipment is depreciated on a straight-line basis to allocate cost, net of any residual value, over the estimated useful lives to the Group commencing from the time the asset is held ready for use. The useful lives of assets classified as plant and equipment are between 3 and 10 years. Page 58 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Notes to the financial statements for the year ended 31 December 2021 10. Property, plant and equipment (continued) Movements in carrying amount of property, plant and equipment: 2021 Carrying amount at the beginning of the year Additions Depreciation Disposals Carrying amount at the end of the year 2020 Carrying amount at the beginning of the year Additions Depreciation Disposals Carrying amount at the end of the year PLANT AND EQUIPMENT $ 66,176 170,469 (68,718) (8,089) 159,838 PLANT AND EQUIPMENT $ 140,320 20,661 (91,671) (3,134) 66,176 11. Leases This note provides information for leases where the Group is a lessee. Amounts recognised in the statement of financial position The statement of financial position shows the following amounts relating to leases: Right-of-use assets Property Infrastructure Equipment Motor vehicles Total right-of-use assets Lease liabilities Current Non-current Total lease liabilities CONSOLIDATED 2021 $ 2020 $ 112,769 136,333 103,991 182,890 535,983 310,671 218,791 529,462 23,223 – – 46,470 69,693 63,348 13,427 76,775 Page 59 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Notes to the financial statements for the year ended 31 December 2021 11. Leases (continued) Amounts recognised in the statement of profit or loss and other comprehensive income The statement of profit or loss and other comprehensive income includes the following amounts relating to leases: Amortisation charge Interest expense (i) Expense relating to leases of low value assets CONSOLIDATED 2021 $ 2020 $ 227,589 2,561 3,108 112,344 1,544 3,844 (i) Interest of $12,528 recognised on leases entered into for the purposes of advancing the Jervois Copper Project has been capitalised as part of the Exploration and Evaluation asset. Recognition and measurement The Group leases various properties, motor vehicles, infrastructure and items of equipment. Lease contracts are typically made for periods of 2 to 5 years but may have extension options. Lease terms are negotiated on an individual basis and contain a wide variety of terms and conditions. Contracts may contain both lease and non-lease components. The Group allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices. However, for the lease of real estate for which the Group is the lessee, it has elected not to separate lease and non-lease components and instead accounts for these as a single lease component. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments: • Fixed payments, less any lease incentive receivable, • Variable lease payments that are based on an index or a rate, initially measured using the index or rate as at the commencement date, • Amounts expected to be payable by the Group under residual value guarantees, • The exercise price of a purchase option if the Group is reasonably certain to exercise that option, and • Payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option. Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability. The lease payments are discounted using the interest rates implicit in the lease. If that rate cannot be determined, the Group’s incremental borrowing rate is used, being the rate that the Group would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms, security and conditions. To determine the incremental borrowing rate, the Group, where possible, uses recent third-party financing received by the individual lessee as a starting point, adjusted to reflect changes in financing conditions since third-party financing was received. Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Right-of-use assets are measured at cost comprising the following: • The amount of the initial measurement of the lease liability, • Any lease payments made at or before the commencement date, less any lease incentives received, • Any initial direct costs, and • Restoration costs. Page 60 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Notes to the financial statements for the year ended 31 December 2021 11. Leases (continued) Recognition and measurement (continued) Right-of-use assets are generally depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset’s useful life. Payments associated with short-term leases and leases of low value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a term of 12 months or less. Low value assets are small items of office equipment. Key judgements and estimations In determining both the right-of-use asset and the lease liability certain estimates and judgements were made. These included the following: • Impairment identification. No impairments were identified at 31 December 2021. Each of the right-of-use asset was allocated to a cash generating unit (CGU) and the CGUs were assessed for impairment based on value in use. No impairments to CGUs have been identified. • Discount rate. The Group determined that the appropriate discount rate for valuation of the right-of-use assets and lease liabilities was the Group’s current incremental borrowing rate. 12. Exploration and evaluation assets CONSOLIDATED 2021 $ 2020 $ Deferred exploration and evaluation assets 80,599,275 64,485,044 Deferred exploration and evaluation assets Balance at the beginning of the year Current year expenditure Balance at the end of the year 64,485,044 60,140,470 16,114,231 4,344,574 80,599,275 64,485,044 The ultimate recovery of exploration and evaluation assets is dependent upon successful development and commercial exploitation, or alternatively, sale of the respective areas of interest. Recognition and measurement The Group applies AASB 6 Exploration for and Evaluation of Mineral Resources. Exploration and evaluation expenditure incurred is accumulated in respect of each identifiable area of interest. These costs are only carried forward to the extent that they are expected to be recouped through the successful development of the area or where activities in the area have not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves. Accumulated costs in relation to an abandoned area are written off in full in profit or loss in the year in which the decision to abandon the area is made. When production commences, the accumulated costs for the relevant area of interest are transferred to mine development and amortised over the life of the area according to the rate of depletion of the economically recoverable reserves. A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. Where incidental income and other research and development grants are received that relate to capitalised exploration and evaluation expenditure, these amounts are offset against the amounts capitalised. Page 61 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Notes to the financial statements for the year ended 31 December 2021 12. Exploration and evaluation assets (continued) Key estimates and judgements The Directors determine when an area of interest should be abandoned. When a decision is made that an area of interest is not commercially viable, all costs that have been capitalised in respect of that area of interest are written off. The Directors’ decisions are made after considering the likelihood of finding commercially viable outcomes balanced with acceptable political and environmental assessment. No tenements were abandoned in the current year. The Group continues to assess the economic viability of a potential mine through the completion of a definitive feasibility study. Works undertaken in the current year have advanced the technical aspects of the project, however, until the feasibility study is complete, the vast majority of work undertaken to date is eligible for capitalisation under AASB6 Exploration and Evaluation Accounting Standard. Until the feasibility work is complete (planned for mid-2022), the Directors believe that the Jervois project is still in the exploration and evaluation phase and have capitalised expenses to the Exploration and evaluation asset in accordance with the prescribed accounting treatment. 13. Intangible assets Software at cost Accumulated amortisation Total intangible assets Movements in carrying amount At 1 January, net of accumulated amortisation Additions Amortisation expense At 31 December, net of accumulated amortisation CONSOLIDATED 2021 $ 2020 $ 21,721 (503) 21,218 – 21,721 (503) 21,218 83,555 (83,555) – 5,350 – (5,350) – Recognition and measurement Items of computer software which are not integral to the computer hardware owned by the Group are classified as intangible assets with a finite life. Computer software is amortised on a straight-line basis over the expected useful life of the software being 5 years. 14. Interests in other entities Subsidiaries The subsidiaries listed below have share capital consisting solely of ordinary shares which are held directly by the Group. The proportion of ownership interests held equals the voting rights held by Group. NAME Jinka Minerals Limited Jervois Holdings Pty Ltd Jervois Operations Pty Ltd Kentor Minerals (WA) Pty Ltd KGL Resources Sales Pty Ltd COUNTRY OF INCORPORATION 2021 % HELD 2020 % HELD Australia Australia Australia Australia Australia 100 100 100 – 100 100 100 100 100 100 Page 62 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Notes to the financial statements for the year ended 31 December 2021 14. Interests in other entities (continued) Different reporting dates Jinka Minerals Limited has a reporting date of 30 June which was the company’s reporting date when it was acquired in 2011. The reporting date has not been changed to coincide with the remainder of the Group. However, the financial statements of Jinka Minerals Limited consolidated within the Group aligns with the same reporting period as the parent entity, using consistent accounting policies. This entity is an unlisted public company. Deregistration of subsidiary In November 2021, the Group applied to the Australian Investment and Securities Commission for the deregistration of Kentor Minerals (WA) Pty Ltd. There was no impact on the financial statements because of deregistration. Company name changes During the financial year, the following company name changes were made: • The name of Kentor Minerals (NT) Pty Ltd was changed to Jervois Operations Pty Ltd, • The name of Kentor Energy Pty Ltd was changed to KGL Resources Sales Pty Ltd, and • The name of Kentor Minerals (Aust) Pty Ltd was changed to Jervois Holdings Pty Ltd. 15. Trade and other payables Trade payables Employee benefits Total trade and other payables Recognition and measurement CONSOLIDATED 2021 $ 2020 $ 2,695,000 176,105 2,871,105 283,527 170,780 454,307 Trade and other payables Trade and other payables represent liabilities for goods and services provided to the Group prior to the year-end which are unpaid. These amounts are unsecured and have 7 to 30-day payment terms. They are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. No assets of the Group have been pledged as security for the trade and other payables. Short-term employee benefits Provision is made for the Group’s obligation for short-term employee benefits. Short-term employee benefits are benefits (other than termination benefits) that are expected to be settled wholly before 12 months after the end of the annual reporting period in which the employees render the related service, including wages, salaries, superannuation, annual leave and long service leave. Based on past experience, the Group does not expect the full amount of annual leave or long service leave balances classified as current liabilities to be settled within the next 12 months. However, these amounts must be classified as current liabilities since the Group does not have an unconditional right to defer the settlement of these amounts in the event employees wish to use their leave entitlements. Short-term employee benefits are measured at the undiscounted amounts expected to be paid when the obligation is settled. Page 63 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Notes to the financial statements for the year ended 31 December 2021 16. Reserves Share-based payments reserve Total reserves Nature and purpose of reserves CONSOLIDATED 2021 $ 2020 $ 205,528 205,528 – – Share-based payments reserve The reserve is used to recognise the value of equity benefits provided to Directors and other employees as part of their remuneration (refer to Note 18). 17. Contributed equity Ordinary shares – fully paid Movement in shares on issue DETAILS 214,480,963 190,240,532 2021 2020 SHARES ISSUED, NO. ISSUED CAPITAL, $ SHARES ISSUED, NO. ISSUED CAPITAL, $ Beginning of the financial year 335,748,021 190,240,532 311,818,103 186,537,883 Entitlement offer – July 2020 – – 23,929,918 3,828,787 Shares issued – February 2021 28,571,427 12,000,000 Entitlement offer – May 2021 Shortfall offer – May 2021 Share issue costs 22,795,564 5,200,000 – 9,574,128 3,640,000 (973,697) – – – – – – – (126,138) End of the financial year 392,315,012 214,480,963 335,748,021 190,240,532 Ordinary shares Ordinary shares have the right to receive dividends as declared and, in the event of winding up of the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of, and amounts paid up on, shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company. Ordinary shares have no par-value and the Company does not have a limited amount of authorised capital. Capital risk management The capital structure of the Group consists of equity as disclosed in the statement of financial position. Management controls the capital of the Group in order to generate long-term shareholder value, maximising the return to shareholders and ensuring that the Group can fund its operations and continue as a going concern. There are no externally imposed capital requirements. The Group’s capital is effectively managed by assessing the Group’s financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include the management of debt levels, distributions to shareholders and share issues. There have been no changes in the strategy adopted by management to control the capital of the Group since the prior year. Recognition and measurement Issued and paid-up capital is recognised at the fair value of the consideration received by the Group. Transaction costs arising on the issue of equity instruments are recognised directly in equity as a reduction in the proceeds of the equity instruments to which the costs relate. Transaction costs are the costs that are incurred directly in connection with the issue of those equity instruments, and which would not have been incurred had those instruments not been issued. Page 64 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Notes to the financial statements for the year ended 31 December 2021 18. Share-based payments Share options granted to key management personnel and other employees On 23 June 2021, the Company issued 458,000 zero-priced options to key management personnel and other eligible employees. These options were approved at the annual general meeting of the Company on 31 May 2021 (Grant Date). A further 587,000 zero-priced options were granted to key management personnel on 8 July 2021. Of the total of 1,045,000 options issued during the financial year, 811,000 were granted to key management personnel. The options are unlisted. The share options granted during the financial year ended 31 December 2021 are summarised as follows: OPTIONS GRANTED Share options Share options Total options granted GRANT DATE EXERCISE PRICE $ EXPIRY DATE 31 May 2021 8 Jul 2021 – – 22 Jun 2026 7 Jul 2026 FAIR VALUE AT GRANT DATE $ NUMBER OF OPTIONS 320,600 340,460 458,000 587,000 661,060 1,045,000 The grant of options to each option holder has been split into two equal tranches with each tranche subject to vesting conditions as outlined below: TRANCHE CONDITIONS 1 2 Vest upon achieving successful final investment decision for the Jervois Copper Project, on time and on budget based on the criteria approved by the Board of the Company. In respect of the Tranche 1 options - unless the board of KGL Resources Limited determines otherwise, 20% of the total Tranche 1 options granted to the holder will lapse for each month that a successful final investment decision for the Jervois project is delayed beyond the time approved and set by the board of KGL Resources Limited. Vest following the construction of the mine for the Jervois Copper Project and achieving first production of at least 1000t of concentrate under the conditions approved by the Board of the Company. In respect of the Tranche 2 options - unless the board of KGL Resources Limited determines otherwise, 20% of the total Tranche 2 options granted to the holder will lapse for each month that the construction of the mine for the Jervois project and first production (1000t) is delayed beyond the time approved and set by the board of KGL Resources Limited. ESTIMATED VESTING DATE June 2022 ~ 2024 subject to FID The estimated vesting date of the tranches is based on management’s best estimate as at 31 December 2021, and the probability of achieving the hurdles has been reflected in the fair value of the options granted. Terms and conditions of option issue Unless the Board of the Company determines otherwise, the options will immediately lapse if a holder ceases to be employed by the Group. If, in the opinion of the Board of the Company, a significant safety, environmental or social incident occurs, the Board of the Company may determine that the options will lapse. In respect of the Tranche 1 options, unless the Board of the Company determines otherwise, 20% of the total Tranche 1 options granted to the holder will lapse for each month that a successful final investment decision for the Jervois Copper Project is delayed beyond the time approved and set by the Board of the Company. In respect of the Tranche 2 options, unless the Board of the Company determines otherwise, 20% of the total Tranche 2 options granted to the holder will lapse for each month that the construction of the mine for the Jervois Copper Project and first production (1000t) is delayed beyond the time approved and set by the Board of the Company. The options do not confer a right to participate in new issues of shares unless the options have vested and have been exercised on or before the record date for determining entitlements to the issue. Similarly, while they remain unexercised, the options will not give the holder any entitlement to receive any dividends declared and paid by the Company. Each option entitles the holder to one ordinary fully paid share in the Company. Any shares issued on exercising an option will be issued on the same terms as, and rank in all respects on equal terms with, existing ordinary fully paid shares in the Company. Page 65 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Notes to the financial statements for the year ended 31 December 2021 18. Share-based payments (continued) Fair value of options The fair value of options issued was determined in accordance with AASB 2 Share-based Payments using the Black Scholes-Merton (BSM) valuation model and the following assumptions: GRANT DATE SHARE PRICE ON GRANT DATE RISK FREE RATE VOLATILITY DIVIDEND YIELD 31 May 2021 08 Jul 2021 $ % % 0.70 0.58 1.205 1.205 21.7 21.7 % – – TIME TO EXPIRY YEARS 5 5 The volatility of the shares was determined by calculating the standard deviation of the KGL share price over the preceding 12 months. Given the share options are zero-priced options, the BSM valuation model calculates the value of the shares as the fair value of the shares on the date of options issue. Option summary A summary of the movements of all options issued for the year ended 31 December 2021 is as follows: GRANT DATE EXPIRY DATE BALANCE AT START OF YEAR GRANTED EXERCISED LAPSED / FORFEITED BALANCE AT END OF YEAR TOTAL VALUE # # # # # $ Tranche 1 31 May 2021 08 Jul 21 Tranche 2 31 May 2021 08 Jul 21 Total 22 Jun 26 07 Jul 26 22 Jun 26 07 Jul 26 – – – – – 229,000 293,500 229,000 293,500 1,045,000 – – – – – – – – – – 229,000 160,300 293,500 170,230 229,000 160,300 293,500 170,230 1,045,000 661,060 No options were exercisable as at 31 December 2021. Included under employee benefits expense in the statement of profit or loss and other comprehensive income is $171,738 which relates to equity-settled share-based payment transactions. A further $33,790 in equity-settled share-based payment expenditure has been capitalised as part of the Exploration and Evaluation asset. Recognition and measurement Equity-settled share-based payments with Directors and employees are measured at the fair value of the equity instrument at the grant date. Fair value is measured by use of a Black Scholes-Merton valuation model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. The fair value determined at the grant date of the share-based payments is expensed on a straight-line basis over the vesting period with a corresponding increase in equity. No expense is recognised for awards that do not ultimately vest because internal conditions were not met. An expense is still recognised for options that do not ultimately vest because a market condition was not met. Where options are cancelled, they are treated as if they had vested on the date of cancellation and any unrecognised expenses are taken immediately to profit or loss. However, if new options are substituted for the cancelled options and designated as a replacement on grant date, the combined impact of the cancellation and replacement is treated as if it were a modification. Equity-settled share-based payment transactions with other parties are measured at fair value of the goods and services received, except where the fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date goods or services were obtained. Page 66 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Notes to the financial statements for the year ended 31 December 2021 19. Financial assets and liabilities Fair value estimation of financial assets and financial liabilities The fair values of financial assets and financial liabilities are presented in the following table. For all categories of financial assets and financial liabilities, the carrying amount is considered a reasonable approximation of fair value. Financial assets measured at amortised cost Cash and cash equivalents Security deposits Trade and other receivables Total financial assets Financial liabilities measured at amortised cost Trade and other payables Lease liabilities Total financial liabilities NOTE 7 9 8 15 11 CONSOLIDATED 2021 $ 2020 $ 12,742,972 5,157,935 371,867 230,429 334,357 23,326 13,345,268 5,515,618 (2,695,000) (529,462) (3,224,462) (283,527) (76,775) (360,302) Recognition, initial measurement and derecognition Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument and are measured initially at fair value adjusted by transactions costs, except for those carried at fair value through profit or loss, which are measured initially at fair value. The subsequent measurement of financial assets and financial liabilities is described below. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or it expires. Classification and subsequent measurement of financial assets a) Investments and other financial assets Classification The Group classifies its financial assets in the following measurement categories: • • those to be measured subsequently at fair value (either through other comprehensive income (OCI), or through profit or loss); and those to be measured at amortised cost. The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows. For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. For investments in equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income (FVOCI). The Group reclassifies debt investments when and only when its business model for managing those assets changes. Page 67 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Notes to the financial statements for the year ended 31 December 2021 19. Financial assets and liabilities (continued) Classification and subsequent measurement of financial assets (continued) a) Investments and other financial assets (continued) Measurement At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss. Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest. b) Debt instruments Subsequent measurement of debt instruments depends on the Group’s business model for managing the asset and the cash flow characteristics of the asset. There are three measurement categories into which the Group classifies its debt instruments: • Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in other gains/(losses), together with foreign exchange gains and losses. Impairment losses are presented as a separate line item in the statement of profit or loss and other comprehensive income. • FVOCI: Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest revenue and foreign exchange gains and losses which are recognised in profit or loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in other gains/(losses). Interest income from these financial assets is included in finance income using the effective interest rate method. Foreign exchange gains and losses are presented in other gains/(losses) and impairment expenses are presented as a separate line item in the statement of profit or loss and other comprehensive income. • FVPL: Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVPL. A gain or loss on a debt investment that is subsequently measured at FVPL is recognised in profit or loss and presented net within other gains/(losses) in the period in which it arises. c) Impairment The Group assesses, on a forward-looking basis, the expected credit losses associated with its debt instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables, the Group applies the simplified approach permitted by AASB 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables. Classification and subsequent measurement of financial liabilities The Group’s financial liabilities include trade and other payables and lease liabilities. Financial liabilities are measured subsequently at amortised cost using the effective interest method. Page 68 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Notes to the financial statements for the year ended 31 December 2021 20. Financial risk management Financial risk management objectives and policies Management monitors and manages the financial risks relating to the operations of the Group through regular reviews of the risks. These risks include market risk (including interest rate risk, foreign currency risk and commodity price risk), credit risk, and liquidity risk. The primary responsibility for identification and control of financial risks rests with the Board. The Group’s financial and commodity risk management program supports the achievement of the Group’s objectives by enabling the identification and evaluation of risks, setting acceptable risk thresholds, identifying and mapping controls against these risks and implementing policies and procedures to manage and monitor the risks. These written policies establish the financial and commodity risk management framework and define the procedures and controls for the effective management of the Group’s risks that arise through the Group’s current exploration and development activities and those risks which may arise through other mining activities in the future. The policy ensures all financial and commodity risks are fully recognised and treated in a manner consistent with: • The Board’s management philosophy, • Commonly accepted industry practice and corporate governance, and • Shareholders’ expectations of becoming a gold and copper producer. The policies are reviewed by the Board annually, at a minimum, as the Group’s financial and commodity risks are likely to change over time. There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from the previous period. The Group’s principal financial instruments comprise cash at bank, security deposits, trade and other receivables, trade and other payables and lease liabilities. Exposure limits are reviewed by management on a continuous basis. The Group does not enter into, or trade, financial instruments for speculative purposes. Credit risk exposures Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Credit risk arises principally from cash on deposit and trade and other receivables. The objective of the Group is to minimize risk of loss from credit risk exposure. The maximum exposure to credit risk, excluding the value of any collateral or other security at reporting date, is the carrying amount of those assets, net of any impairment, as disclosed in the statement of financial position and notes to the financial statements. In the years ended 31 December 2021 and 31 December 2020, there has been no concentration of credit risk in trade and other receivables as the Group did not have customers at either year end. At year end, the Group has one material exposure of $12,891,737 to ANZ (2020: $5,157,935) relating to funds on deposit and cash at bank. The Group manages its credit risk associated with funds on deposit and cash at bank by only dealing with reputable financial institutions. Liquidity risk Liquidity risk is the risk that the entity will not be able to meet its financial obligations as they fall due. The objective of managing liquidity risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when they fall due. Working capital is primarily comprised of cash. The Group has established policies and processes for managing liquidity risk including: • Monitoring actual cashflows against budgeted cashflows, • Regularly forecasting long term cashflows and stress testing, and • Regularly monitoring the availability of equity capital and current market conditions. Page 69 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Notes to the financial statements for the year ended 31 December 2021 20. Financial risk management (continued) Liquidity risk (continued) Maturity Analysis The following table shows the periods in which financial liabilities mature. Contractual cash flows shown in the table are at undiscounted values (including future interest expected to be paid). Accordingly, these values may not agree to the carrying amount. CONSOLIDATED <1 YEAR 1 – 5 YEARS TOTAL CASHFLOWS CARRYING AMOUNT $ $ $ $ 31 December 2021 Financial liabilities Trade and other payables 2,695,000 – 2,695,000 2,695,000 Lease liabilities 327,066 223,641 550,707 529,462 Total financial liabilities 3,022,066 223,641 3,245,707 3,224,462 31 December 2020 Financial liabilities Trade and other payables Lease liabilities Total financial liabilities 283,527 66,173 349,700 – 283,527 283,527 14,318 14,318 80,491 364,018 76,775 360,302 Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in commodity prices (commodity price risk); foreign exchange rates (foreign currency risk) or interest rates (interest rate risk). The objective of market risk management is to manage and control risk exposure within acceptable parameters whilst optimising returns. It is the policy of the Group to manage the foreign currency risk on highly probable forecast capital expenditure by utilising foreign currency hedging where appropriate. At 31 December 2021 and at 31 December 2020, there was no foreign currency that was being held as a hedging instrument. The Group has no exposure to foreign currency risk at the reporting date. Page 70 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Notes to the financial statements for the year ended 31 December 2021 20. Financial risk management (continued) Market risk (continued) Interest rate risk The Group has established policies and processes for managing interest rate risk. These include monitoring risk exposure continuously and utilising fixed rate facilities where required. The Group’s exposure to interest rate risk and the effective weighted average interest rate for each class of financial assets and liabilities is set out in the following table: WEIGHTED AVERAGE INTEREST REATE % FLOATING INTEREST RATE $ MATURING IN < 1 YEAR 1 TO 5 YEARS $ $ NON- INTEREST BANKING $ TOTAL $ CONSOLIDATED 2021 Financial assets Cash and cash equivalents 0.06 305,747 12,437,225 0.15 N/A N//A 4.32 Security deposits Trade and other receivables Total financial assets Financial liabilities Trade and other payables Lease liabilities Total financial liabilities 2020 Financial assets Security deposits Trade and other receivables Total financial assets Financial liabilities Trade and other payables Lease liabilities Total financial liabilities 1.30 N/A N/A 4.84% – – 148,765 – 305.747 12,585,990 – – – – – 12,742,972 223,102 371,867 230,429 230,429 453,531 13,345,268 – – – – – (2,695,000) (2,695,000) (310,671) (218,791) – (529,462) (310,671) (218,791) (2,695,000) (3,224,462) – – 110,155 – 404,406 4,863,684 – – – – – – 5,157,935 224,202 334,357 23,326 23,326 247,528 5,515,618 (283,527) (283,527) – – – – (63,348) (13,427) – (76,775) (63,348) (13,427) (283,527) (360,302) Cash and cash equivalents 0.22 404,406 4,753,529 Page 71 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Notes to the financial statements for the year ended 31 December 2021 20. Financial risk management (continued) Market risk (continued) Interest rate risk (continued) The following sensitivity analysis is based on the interest rate risk exposures in existence at the reporting date. At 31 December 2021, if interest rates had moved, as illustrated in the table below, with all other variables held constant, net loss and other comprehensive income would have been affected as follows: CONSOLIDATED +0.5% (50 basis points) -0.5% (50 basis points) NET LOSS OTHER COMPREHENSIVE INCOME HIGHER / (LOWER) HIGHER / (LOWER) 2021 $ 2020 $ 2021 $ 2020 $ 77,785 (77,785) 54,760 (54,760) – – – – 21. Fair value measurement Due to their short-term nature, the net fair values of financial assets and liabilities approximate their carrying value as disclosed in the statement of financial position. No financial assets or liabilities are readily traded on organised markets in standardised form. Recognition and measurement Fair values may be used for asset and liability measurement as well as for sundry disclosures. Fair value is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. It is based on the presumption that the transaction takes place either in the principal market for the asset or liability or, in the absence of a principal market, in the most advantageous market. The principal or most advantageous market must be accessible to, or by, the Group. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their best economic interests. The fair value measurement of a non-financial asset takes into account the market participant’s ability to generate economic benefits by using the asset at its highest and best use or by selling it to another market participant who would use the asset at its highest and best use. In measuring fair value, the Group uses valuation techniques that maximise the use of observable inputs and minimise the use of unobservable inputs. Page 72 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Notes to the financial statements for the year ended 31 December 2021 22. Commitments Capital expenditure commitments – exploration and evaluation assets No longer than 1 year Between 1 and 5 years Total capital expenditure commitments – exploration and evaluation assets CONSOLIDATED 2021 $ 2020 $ 4,746,636 224,682 4,971,318 115,038 13,427 128,465 Capital expenditure commitments of less than one year are outstanding purchase order commitments relating to the Jervois Copper Project. There are capital and rental commitments on tenements ranging from $4,000 to $40,000 per annum with expiry terms of between 1 to 2 years. Non-cancellable rental commitments – tenements Commitments for rental payments in relation to tenements are payable: No longer than 1 year Between 1 and 5 years Greater than 5 years Total commitments for rental payments in relation to tenements 70,236 192,829 161,508 424,573 61,766 151,201 202,933 415,900 Rental commitments comprise the tenement rentals at Jervois, Unca Creek and Yambah. The annual rental commitments on these leases range from $996 to $31,884 per annum with expiry terms of between 1 to 11 years. AASB 16 Leases does not apply to mining tenements. 23. Related party transactions Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. Parent entity The parent entity is KGL Resources Limited, which is incorporated in Australia. Subsidiaries Interests in subsidiaries are disclosed in Note 14 Key management personnel compensation Information regarding the identity of key management personnel and their compensation can be found in the audited Remuneration Report contained in the Directors’ Report. The Directors and the chief financial officer are the only key management personnel. The total remuneration paid to key management personnel of the Company and the Group during the year is as follows: Key management personnel compensation Short-term employee benefits Post-employment benefits Share-based payments Total key management personnel compensation Page 73 | KGL Resources Annual Report 2021 CONSOLIDATED 2021 $ 2020 $ 663,042 56,848 177,633 897,523 491,958 46,737 – 538,695 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Notes to the financial statements for the year ended 31 December 2021 23. Related party transactions (continued) Key management personnel compensation (continued) Short-term employee benefits These amounts include fees and benefits paid to the Board of Directors as well as salary, paid leave benefits, fringe benefits and cash bonuses awarded to executive directors and other key management personnel. Post-employment benefits These amounts are superannuation contributions made during the year. Share-based payments These amounts represent the expense related to the participation of key management personnel in equity- settled benefit schemes as measured by the fair value of share options granted on grant date. Refer to Note 18 for further information. Detailed remuneration disclosures are provided in the Remuneration Report on pages 36 to 43. Amounts payable to key management personnel At 31 December 2021, the following amount due to a member of key management personnel was outstanding: Payable to key management personnel Director’s fees Other related party transactions There were no other transactions with other related parties during the year. 24. Auditor’s remuneration CONSOLIDATED 2021 $ 2020 $ 3,131 – CONSOLIDATED 2021 $ 2020 $ Amounts paid or payable to BDO Audit Pty Ltd for audit or review of the financial statements of the Company and any other entity in the Group 58,000 66,800 25. Contingent liabilities and contingent assets Contingent assets There were no contingent assets as at 31 December 2021 or at 31 December 2020. Contingent liabilities In the prior financial year, the Company selected a preferred mining contractor to prepare a mine plan for the Jervois Copper Project. The contract with the preferred mining contractor contains several termination provisions, allowing the Company to select an alternative mining contractor in exchange for a compensation payment of $237,500. Page 74 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Notes to the financial statements for the year ended 31 December 2021 26. Events after reporting date Changes to the Board of Directors Mr Denis Wood was re-appointed to the the board as a non-executive director on 18 March 2022. Mr Wood, who is well known to shareholders, previously served as KGL’s Executive Chairman for 6 years. He has an extensive knowledge of the Jervois project and was instrumental in advancing the project prior to his retirement last year. On 21 March 2022, Mr Stephen Mallyon resigned from the Board of Directors. Change of Group financial year end On 31 January 2022, the Board of Directors resolved, in accordance with s323D of the Corporations Act 2001, to change the Group’s financial year-end date from 31 December to 30 June. The Company will have a 6-month transitional financial year beginning 1 January 2022 and ending on 30 June 2022. Thereafter, from 1 July 2022, the Company will revert to a 12-month financial year, first ending on 30 June 2023. As a result of the introduction of the 6-month transitional financial year, the company will: • • Lodge an annual financial report by 31 March 2022 for the period 1 January 2021 to 31 December 2021; and hold an annual general meeting by 31 May 2022. Lodge an annual financial report by 30 September 2022 for the period 1 January 2022 to 30 June 2022; and hold an annual general meeting by 30 November 2022. No other matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial periods. Offtake Agreement with Glencore On 22 March 2022, the Company announced that it has entered into a binding sales agreement with Glencore International AG (Glencore) for the sale of 100% of the copper concentrate produced from KGL’s high-grade Jervois Copper Project (Jervois or the Project). It has a minimum term expiring at the end of 5 full calendar years after commercial production is reached. The sale agreement is evergreen, and will continue beyond the minimum term until either party terminates it by giving 2 years’ prior notice. The sale price for the copper concentrate is volume based and calculated by reference to the LME cash settlement price for copper, with silver and gold credits (subject to minimum ‘payable’ limits) and adjustments for penalties, treatment and refining charges and a freight credit. The agreement is subject to other customary terms and conditions, including processes for assaying, weighing, sampling and moisture determination in relation to the concentrate, and contains relevant force majeure clauses. The current schedule, to be confirmed as part of the Feasibility, and Final Investment Decision has the Project in the development phase this year, however this sale contract is conditional upon finance being secured by no later than 30 September 2025, or commercial production by no later than 31 December 2025. Page 75 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Notes to the financial statements for the year ended 31 December 2021 Parent entity information 27. The Corporations Act 2001 requirement to prepare parent entity financial statements where consolidated financial statements are prepared has been removed and replaced by regulation 2M.3.01 which requires the following limited disclosure in regard to the parent entity, KGL Resources Limited. The consolidated financial statements incorporate the assets, liabilities and results of the parent entity in accordance with the Group accounting policies. The financial information for the parent entity, KGL Resources Limited, has been prepared on the same basis as the consolidated financial statements. Parent entity Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Contributed equity Reserves Accumulated losses Total shareholders’ equity 2021 $ 2020 $ 12,873,328 5,298,983 80,042,264 65,129,762 92,915,592 70,428,745 (479,678) (47,832) (527,510) (327,795) – (327,795) 92,388,082 70,100,950 214,480,963 190,240,532 205,528 – (122,298,409) (120,139,582) 92,388,082 70,100,950 Total comprehensive loss for the year (2,158,826) (1,149,399) Guarantees No guarantees have been entered into by the parent entity in relation to debts of its subsidiaries. Contractual commitments The parent entity has no capital commitments. Contingent liabilities The parent entity has no known contingent liabilities. Page 76 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Notes to the financial statements for the year ended 31 December 2021 28. Other accounting policies Goods and services tax (GST) Revenues, expenses and assets are recognised net of the amount of GST except: • where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the statement of cashflows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority, is classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. New and amended standards and interpretations not yet adopted New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the Group for the annual reporting period ended 31 December 2021. From management’s review of the new Australian Accounting Standards and Interpretations issued not yet adopted there are no significant impacts on the financial performance or position of the Group envisaged. New, revised or amending accounting standards and interpretations adopted The Group has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian Accounting Standards Board that are mandatory for the current reporting period. There were no material effects requiring disclosure, on applying the new, revised or amended standards and interpretations in the current reporting period. Page 77 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Directors’ Declaration 1. In the opinion of the Directors of KGL Resources Limited: (a) The consolidated financial statements, comprising the statement of profit or loss and other comprehensive income, statement of financial position, statement of changes in equity, statement of cash flows and accompanying notes, are in accordance with the Corporations Act 2001 and: (i) comply with Australian Accounting Standards (including the Australian Accounting Interpretations), which as stated in the notes to the financial statements constitutes compliance with International Financial Reporting Standards and the Corporations Regulations 2001; and (ii) give a true and fair view of the Group’s financial position as at 31 December 2021 and of its performance for the year ended on that date. (b) There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the chief executive officer and chief financial officer for the year ended 31 December 2021. This declaration is made in accordance with a resolution of the Directors. On behalf of the Board Peter Hay Chairman Brisbane Dated: 23 March 2022 Page 78 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Independent Auditor’s Report Page 79 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au Level 10, 12 Creek St Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Australia INDEPENDENT AUDITOR'S REPORT To the members of KGL Resources Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of KGL Resources Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 31 December 2021, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial report, including a summary of significant accounting policies and the directors’ declaration. In our opinion the accompanying financial report of the Group, is in accordance with the Corporations Act 2001, including: (i) Giving a true and fair view of the Group’s financial position as at 31 December 2021 and of its financial performance for the year ended on that date; and (ii) Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material uncertainty related to going concern We draw attention to Note 1 in the financial report which describes the events and/or conditions which give rise to the existence of a material uncertainty that may cast significant doubt about the group’s ability to continue as a going concern and therefore the group may be unable to realise its assets and discharge its liabilities in the normal course of business. Our opinion is not modified in respect of this matter. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. Page 80 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Material uncertainty related to going concern section, we have determined the matters described below to be the key audit matters to be communicated in our report. Recoverability of exploration and evaluation assets Key audit matter How the matter was addressed in our audit Refer to note 12 in the financial report. There is significant balance of exploration and evaluation assets as at 31 December 2021. The recoverability of exploration and evaluation assets is a key audit matter due to: • The significance of the total balance; and • The level of procedures undertaken to evaluate management’s application of the requirements of AASB 6 Exploration for and Evaluation of Mineral Resources (‘AASB 6’) in light of any indicators of impairment that may be present. Our procedures included, but are not limited to the following: • Obtaining evidence that the Group has valid rights to explore in the areas represented by the capitalised exploration and evaluation expenditure by obtaining supporting documentation such as licence agreements and also considering whether the Group maintains the tenements in good standing; • Making enquiries of management with respect to the status of ongoing exploration programs in the respective areas of interest and assessing the Group's cash-flow forecast for the level of budgeted spend on exploration projects; and • Enquiring of management, reviewing ASX announcements and reviewing directors' minutes to ensure that the Group had not decided to discontinue activities in any applicable areas of interest and to assess whether there are any other facts or circumstances that existed to indicate impairment testing was required. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. Page 81 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Other information The directors are responsible for the other information. The other information comprises the information in the Group’s annual report for the year ended 31 December 2021, but does not include the financial report and the auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf This description forms part of our auditor’s report. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. Page 82 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 36 to 43 of the directors’ report for the year ended 31 December 2021. In our opinion, the Remuneration Report of KGL Resources Limited, for the year ended 31 December 2021, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. BDO Audit Pty Ltd T R Mann Director Brisbane, 23 March 2022 BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. Page 83 | KGL Resources Annual Report 2021 KGL RESOURCES LIMITED AND ITS CONTROLLED ENTITIES | ABN 52 082 658 080 Additional Information AS AT 22 MARCH 2022 1. Names of substantial holders NAME OF HOLDER NO. OF SECURITIES % ISSUED CAPITAL KMP Investments Pte Ltd 96,252,777 24.53% Mr Denis Wood Marshall Plenty Investments Paradice Investment Management Pty Ltd Pegasus CP One 30,264,422 28,331,249 29,536,7911 18,050,0002 9.07% 7.22% 7.53%3 4.66%3 1 per substantial shareholder notice dated 14 October 2021 2 per substantial shareholder notice dated 14 March 2019 3 recalculated on current issued share capital, in absence of updated substantial shareholder notices. 2. Number of holders in each class of equities Ordinary Shares 2,782 392,315,012 NO OF HOLDERS NO OF UNITS 3. Voting rights attached to each class of security Each fully paid ordinary share is entitled to one vote. 4. Distribution schedule RANGE 100,001 and Over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 TOTAL SECURITIES NO OF HOLDERS 358,870,398 27,540,008 3,115,040 2,636,616 152,950 202 833 405 962 380 392,315,012 2,782 Page 84 | KGL Resources Annual Report 2021 5. Unmarketable parcels Number of holders with a holding of less than a marketable parcel is 382 (154,976 securities, at a price of $0.49 on 22 March 2022). 6. 20 largest holders in each class of quoted security RANK NAME KMP INVESTMENTS PTE LTD NO. OF SECURITIES % 96,252,777 24.53 MR DENIS LESLIE WOOD & MRS ANNE WOOD MARSHALL PLENTY INVESTMENTS 30,832,829 28,331,249 BNP PARIBAS NOMINEES PTY LTD ACF CLEARSTREAM 22,945,231 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED CITICORP NOMINEES PTY LIMITED NATIONAL NOMINEES LTD BNP PARIBAS NOMINEES PTY LTD J P MORGAN NOMINEES AUSTRALIA PTY LIMITED BNP PARIBAS NOMINEES PTY LTD SIX SIS LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED RAVELLO GROUP PTY LIMITED ROBRIAN PTY LTD COAL INDUSTRY SERVICES PTY LTD UBS NOMINEES PTY LTD SCML INVESTMENTS PTY LTD HAY SUPERANNUATION PTY LTD MORANBAH NOMINEES PTY LTD TRI-STAR ENERGY COMPANY 7.86 7.22 5.85 4.78 4.04 4.00 3.62 1.86 1.82 1.66 1.53 1.38 1.21 0.86 0.81 0.71 0.62 0.56 0.51 18,769,842 15,838,681 15,688,874 14,217,501 7,279,897 7,151,811 6,511,592 6,011,614 5,400,000 4,755,259 3,387,404 3,159,007 2,771,571 2,448,996 2,188,685 2,000,000 20 MRS MELINDA GAYE TURNER TOTAL 295,942,820 75.43 Page 85 | KGL Resources Annual Report 2021 Level 5, 167 Eagle Street Brisbane QLD 4000 Australia T: +61 (0) 7 3071 9003 F: +61 (0) 7 3071 9008 info@kglresources.com.au kglresources.com.au