Leigh Creek Energy
Annual Report 2019

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L E I G H C R E E K E N E RGY L I M I T E D A N N UA L R E P O RT 2 0 1 9 1 , 1 5 3 P J 2P RESERVE TE L F O R D B A S I N E a s t e r n Australia’s largest undeve l o p e d a nd uncontracted gas reserve s LEIGH CREEK ENERGYLimited For personal use only 2 For personal use only Reserve (PJ) 2P 1,153.2 3P 1,608.3 Achievements Environment Activity notification approval – Pre-Commercial Demonstration Facility (PCD) operations Completed PCD operations and decommissioned Continuous groundwater and soil vapour monitoring Ongoing flora and fauna studies No reportable environmental incidents and all government requirements met Community benefit Room nights Copley + Leigh Creek: 1,075 PCD Plant Total hours worked onsite: 31,333 Economic benefit to local community: $785,000 Economic benefit for South Australia: $12 million Safety PCD safely operated No reportable safety incidents Lost time incidents/injuries: 0 Corporate overview Listed on the Australian Stock Exchange - ASX code: LCK Licence: Petroleum Exploration Licence 650 (PEL 650) Head Office: Adelaide, South Australia Project Location: Telford Basin, Leigh Creek Coalfield - Leigh Creek, South Australia Operation: Leigh Creek Energy Project Project Stage: Stage 2 — Leigh Creek Energy Project 9 1 0 2 T R O P E R L A U N N A D E T I M I L Y G R E N E K E E R C H G I E L 3 Company snapshot+++Eastern Australia’s largest undevelopedand uncontracted gas reservesFor personal use only Leigh Creek Energy (LCK) is an ASX listed energy company focussed on developing its Leigh Creek Energy Project (LCEP), located 550km north of the capital city of Adelaide in the state of South Australia. The project is located on Petroleum Exploration Licence 650 (PEL 650), which covers an area of 93 km2 over the Leigh Creek Coalfield, and Gas Storage Exploration Licence (GSEL) 662 which covers the same area. The Leigh Creek Coalfield was quickly identified as a highly favourable location for In-Situ Gasification (ISG) development using criteria that covered environmental, technical and commercial aspects. The coal resource is technically suitable for ISG, it is well serviced by local infrastructure and most importantly, the site is suitable for undertaking ISG in a manner that is safe and minimises environmental impact. Other favourable factors that influenced the location of the Leigh Creek Energy Project include: • high quality existing infrastructure (road, rail, water and power) • nearby service centre at Leigh Creek township • strong local community and potential workforce • extensive information base for the Leigh Creek Coalfield • existing disturbed mine site (minimising disturbance footprint) • distant from environmentally sensitive areas or conservation reserves. The ISG process converts coal from its solid state into a gaseous form, resulting in the production of synthesis gas (syngas) containing methane, hydrogen and carbon monoxide. The syngas can either be used to produce electricity directly or further refined into a variety of products including synthetic natural gas, ammonia, urea or methanol. LCK’s pathway to development of the LCEP is entering the third and final stage. Each stage requires careful planning and engineering, in addition to the necessary regulatory assessments and approvals: Characterisation Phase - Investigate cultural, environmental, geological, geotechnical, hydrogeological and social characteristics of the site. Demonstration Phase - A Pre-Commercial Demonstration Facility (PCD) demonstrated ISG at the Telford Basin of the Leigh Creek Coalfield. The series of controlled tests provided environmental and gas quality data to inform regulators and stakeholders that the process can be managed safely with minimal impact to the environment. The findings have helped to determine the Commercial Project design and feasibility study direction. Commercial Phase - Conduct engineering and feasibility studies to support Demonstration Phase data for the deployment of a Commercial Operation. Options include; electricity production or further refining of syngas into a variety of products including synthetic natural gas, ammonia, urea, or methanol. LCK is committed to developing the LCEP using a best practice approach to mitigate the environmental, social, technical and financial project risks. As part of the second stage of the LCEP’s pathway to commercial development, LCK obtained information to inform the design for a potential commercial facility. This involved the establishment of a below ground single ISG gasifier chamber and the construction of an above ground plant. The PCD plant was commissioned and operated for just over three months, producing syngas and technical and environmental performance data for analysis, and was in the process of decommissioning at the end of the 2018/19 financial year. The information from the PCD will be used in LCK’s feasibility studies for the commercial phase of the project. 4 Leigh Creek Energy ProjectFor personal use only Company snapshot Leigh Creek Energy Project Chairman’s letter Managing Director’s report 2018/19 achievements Tenement schedule Directors’ Report Auditor’s Independence Corporate Governance Statement Directors’ Declaration Auditor’s Independence Declaration Financial Information Consolidated Statement of Profit or Loss and other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Independent Auditor’s Report Shareholder information Facts: The in situ gasification (ISG) process 3 4 6 8 10 12 16 27 27 28 29 32 33 34 35 36 61 64 66 Corporate directory inside back cover Telford Basin — a huge reserve to hinge our future operations Aboveground demonstration plant (PCD) at Leigh Creek. 5 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019ContentsFor personal use only It is with great pleasure that I can provide our shareholders with a summary of the past financial year, a year which has been a milestone year for Leigh Creek Energy. Our investment profile is changing and our company is becoming an attractive investment prospect for institutional, larger and long-term shareholders, as we have achieved all our commitments. As a result greater interest has been sparked with major gas companies and institutional investors as we continuously reach ever more important milestones. After clearing the way to commence the PCD, and the successful initiation of the PCD the mood and energy at LCK was once again very positive with both our Leigh Creek operational and Adelaide teams. However, as is the case with In-Situ Gasification operations, the process of producing syngas would and did take time, but with careful attention to process and detail we met all of our objectives. Over the past year, we have supported businesses at Leigh Creek, Copley, Port Augusta and Adelaide. The accommodation, food and logistical requirements meant that business in Leigh Creek and Copley in particular 1 , 1 5 3 P J 2P RESERVE benefitted from what has so far been the busiest period for the Company in the area. TE L F O R D B A S E a s t e r n Australia’s largest undeve l o p e d a nd uncontracted gas reserve s I N LCK had the opportunity to continue building our valued relationship with China New Energy Ltd (CNE) our major shareholder, with a site visit and negotiations and now a recent HoA with CNE where we will take ISG to China. This is an exciting development and one which has huge potential for LCK. We have also been working closely with and proposed Chinese strategic partners in Australia namely China Communications Construction Company (CCCC) and Shanghai Electric (SEC). As I mentioned at the time, to have such large internationally renowned companies in Adelaide was a great opportunity for LCK and the state to showcase the project and demonstrates how significant world players are excited about our project, technology and potential. The company has well positioned itself for the future having unveiled the path towards commercial operation, a template for the ISG safety and environmental regulatory approval process and a huge gas reserve to underwrite our future operations. We are very close to reaping the hard earned and richly deserved success. This is as a result of many years of hard work and having the determination to overcome any and all obstacles thrown at us in the last few years. As a result, we now find ourselves in the envious position of having a very large gas reserve which we will endeavour to monetise. Leigh Creek Energy’s (LCK) completion of the Pre-Commercial Demonstration Facility (PCD) and the subsequent large 2P reserve is generating great interest across both the resource and investment sectors. LCK’s development of this proven technology now has eyes focused on our Company from all around the globe. There still remains challenges and obstacles for LCK to deal with, but our track record in dealing with those challenges and obstacles, combined with a year of success means that we have what it takes to achieve the ultimate goal of long- term commercial ISG operations both in South Australia and internationally. After an extraordinarily busy financial year began with all hands on deck, we received our final government approvals to begin our PCD operations. Whilst our focus was firmly set on beginning our 90-day trial, as is the case with many mining and resource companies, a final-hour court injunction from the NSW Environmental Defenders Office on behalf of the Adnyamathanha Traditional Lands Association ultimately delayed initiation. Thankfully, the expertise, planning and risk mitigation from our legal team and staff saw the injunction quickly dismissed, and we were free to go ahead with operations. LCK’s achievements and growing status saw media attention over the past 12 months. 6 Chairman’s letterFor personal use only Then, as we entered Q4 2018, LCK reached its most significant achievement to date in producing its first gas at our PCD. The next step for operations on site was to produce quality syngas – a product with a chemical makeup offering potential for low-cost feedstock for high-value ammonia, urea products and pipeline gas. We achieved this, followed soon after with confirmation that the gas was also being produced in commercial quantities. The validation of the technology on site unlocked a very productive quarter for LCK, which featured a Heads of Agreement with Africary for potential leasing of the PCD plant once decommissioned, and an oversubscribed rights issue. The beginning of 2019 marked another significant achievement for LCK, when the company announced the PCD’s success in accomplishing all five pre- operational objectives – produce syngas consistently, produce over 1m cubic feet/day, capture information required for PRMS 2P reserve upgrade, demonstrate safe and environmentally responsible ISG operations, and provide key data for commercial project development. All these objectives were achieved. This was vital for securing the Company’s 1153 PJ 2P reserve certification, validated by Denver-based MHA Petroleum Consultants, unequivocally representing Eastern Australia’s largest undeveloped and uncontracted gas reserves. It cannot be understated how important the PCD’s success was for the future of LCK. The 2P reserve, interest by Africary, invitation to the Shanghai Energy Exchange, HoA with China New Energy, an agreed pathway to commercial approvals with the regulator, were all dependant on the success of the PCD. The company has now positioned itself for the future having unveiled the path towards commercial operation, a template for the ISG safety and environmental regulatory approval process and a huge reserve that supports a commercial project. The achievement of a large 2P reserve of quality syngas has allowed LCK to push forward with negotiations with our potential strategic joint venture partners and has also allowed us to commence negotiation on gas offtake agreements in Australia. LCK’s past financial year has featured our greatest achievements to date and our most significant steps towards realising a goal set almost a decade ago. Those of us at LCK who were here at the beginning understood the enormity of the challenge we faced trying to commercialise an ISG project in Australia. But seeing the growth of the company and the high calibre of our people working towards the common goal, I am very comfortable in stating that we are closer than ever to achieving something significant and special for our company. It certainly makes us excited. I want to thank the dedicated employees at LCK, who continue to go above and beyond what they are required to do, taking this company forward. We move forward with great confidence and even more resolute to make the most of the opportunities we’ve created for LCK and the global ISG industry. Finally, I want to thank our shareholders, whose support has been vital in the past and remains vital for our company to go forward. We believe more than ever that your loyalty and our hard work will see us all enjoy the benefits of success. Mr Daniel Justyn Peters Executive Chairman LCK’s valued relationship with key stakeholder China Communications Construction Company (CCCC) continued with a site visit and collaboration talks during 2018. 7 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019For personal use only The past 12 months saw many years’ of hard work coming to fruition, with the most notable achievement being the successful operation of our Pre-Commercial Demonstration Facility (PCD) at Leigh Creek followed by the booking of the maiden 2P gas reserve of 1,153PJ. Year of achievements The PCD was initiated for the first time in October. The following months’ saw us successfully achieve all the objectives of the PCD. The outcome was made all the sweeter when reflecting on the hurdles our company has had to jump over to get to this point, and the hard work and dedication from everyone behind the scenes. But the success also paved the way for our other major achievement of the year. Perhaps the most significant moment for the company to date was the confirmation of our PRMS certification of 1,153 PJ 2P Reserve, and it came shortly after and as a direct result of the PCD’s success. This reserve has led to substantial excitement around the company knowing it bridges the gap between LCK’s exploratory status and becoming a fully-fledged developed/crucial energy company. The size of our reserve and the resulting advantage LCK has over other junior gas and energy companies through SA and around the nation is obvious. What next? On the back of successful PCD operations, and substantial PRMS 2P reserve upgrade, LCK is now in a strong position to focus wholly on commercialising the Leigh Creek Energy Project (LCEP). The PCD justified environmental and geographical approvals from the state government regulator, which releases the shackles of what is arguably perceived as one of the most challenging aspects of taking the LCEP to the commercial stage. Our 1,153 PJ of 2P reserves means we have an embarrassment of riches, and the potential to commit to multi-billion-dollar decisions in the coming months. LCK now has Australia’s largest uncontracted 2P gas reserve available to Australia’s East Coast market. The Company’s early plans outlined the importance of receiving a gas reserve certification at our Leigh Creek Energy Project. This we have achieved. 8 Managing Director’s reportFor personal use only We are now moving forward with commercial agreements, JV partners, offtake and financing. I understand the frustration that some shareholders feel, but these are multi billion dollar decisions. They take time. We will make the decisions in a mature way. We will make the right decisions with the right partners and the right product. We will get it right for the benefit of all shareholders. These decisions will be made after the outcomes of competing options analysis over the course of 2019/2020 become clearer, which will determine our preferred commercial pathway between pipeline domestic gas, urea fertiliser, or both. Unique brand, unique opportunities. Our growing status as an emerging Australian energy company understates LCK’s larger-scale increasing standing as an ISG world leader. We are compiling the blueprint for commercial success using the technology we have developed in Australia, and as is often the case with new and unconventional technology, we must often face and solve issues subsequent developers don’t have to deal with. Perhaps most importantly, we have proven to the world that we have the technical skillset and unique approach to make ISG technology work on a commercial scale, which cement’s our company’s status as a world-leader and places us firmly on the global stage. This is witnessed by the numerous approaches we have had from overseas. Whilst these projects may appear exciting in themselves we retain our absolute focus on the LCEP. The best identified site in the world. Our management resources are limited and we will deploy them to be successful at the LCEP before we turn our attention to other opportunities. People focus People are what make this happen. It will continue to be so as we aim to achieve more significant milestones on the way to commercialisation. I look forward to celebrating even more significant achievements with the team, our shareholders and supporters in the near future. Mr Phil Staveley Managing Director Pathway to Commercial 2020 EIS submitted. Pre-feasibility study completed. 2021+ EIS approval. FEED. Feasibility completed. 2022 FID & commence commercial project construction. 2023+ Commercial project operation 2019–H2 Complete options analysis. Geotechnical investigation. Commercial arrangement settled. PCD Operations 2P Reserve Fertiliser Production and/or Gas Sales Australian East Coast Gas 2P Reserves 5202 4802 4802 6,000 ) J P ( 4,000 s e v r e s e R P 2 2000 0 3201 2677 2001 These gas reserves are primarily contracted to LNG export projects 1153 1153 1100 660 567 305 126 c e p o n i S s o t n a S c e p o n i S n i g i r O a n i h C o r t e P s p i l l i h P o c o n o C i d e t i Y G m R L E N E K E E R C H G E L I P H B n o x x E x e n e S y g r e n E h c a e B y g r e n E r e p o o C m u e l o r t e P l a r t n e C 9 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019For personal use only Regulatory Approvals • Final Activity Notification for PCD Operations recieved third quarter 2018 Operations • PCD initiated on 10 October 2018 • PCD successfully completed Project Financing • $3.86m Rights Issue to existing shareholders • $3.0m Issue of Convertible Notes • $1.25m Placement to existing shareholders • $3m Share Purchase Plan with existing shareholders Environment • Continuous air quality monitoring throughout the PCD with no adverse findings • Baseline flora and fauna studies to continue in 2019 for future studies • PCD groundwater monitoring program was conducted throughout the trial with no adverse findings • Groundwater and soil vapour monitoring continues through to 2022 LCK had the opportunity to continue building our valued relationship with key stakeholder China Communications Construction Company (CCCC) during the year with a site visit and collaboration talks. LCK signed a Heads of Agreement with African energy company Africary for potential leasing of the PCD plant once decommissioned. 10 It was a breakout year of achievements for our operations team on the ground at site, which oversaw the successful Pre-Commercial Demonstration. 2018/19 achievementsFor personal use only Stakeholder Relations • Leigh Creek medical service funding • Northern Flinders netball scholarship • Copley & Districts Gymkhana sponsorship • Copley Cricket Club sponsorship • Blinman Gymkhana sponsorship • Aroona Council Copley Christmas party sponsorship • Continued maintaining relationships with all stakeholders Procurement LCK managed PCD project costs by sound procurement and contract management governance and practices to: • Ensure local construction contractors were used for the main PCD plant activities • Develop local businesses’ systems and processes to meet our contractual and operational standards • Maintain a local team during operations and post PCD monitoring • Record a 100% DIFOT (Delivery In Full On Time) with zero logistics non-productive time (NPT) to operations Government Relations • Continue maintaining relationships with the government Leigh Creek Energy committed $60,000 to Dr Clive Hume to keep his vital Leigh Creek doctor and pharmacy service operating during the year. Leigh Creek Energy was a major sponsor for one of the region’s only sporting club’s, Copley Cricket Club, during its 2018/19 season. 11 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019Eastern Australia’s largest undevelopedand uncontracted gas reservesEastern Australia’s largest undevelopedand uncontracted gas reservesFor personal use only Petroleum and Mineral Tenement Schedule Tenement Percentage Interest Grant Date Location Petroleum Exploration Licence 650 100% 18 November 2014 Leigh Creek Petroleum Exploration Licence Application 582 100% Application Approved Finniss Springs Petroleum Exploration Licence Application 643 100% Application Approved Callabonna Petroleum Exploration Licence Application 644 100% Application Approved Roxby Downs Petroleum Exploration Licence Application 647 100% Application Approved Leigh Creek Petroleum Exploration Licence Application 649 100% Application Approved Oakdale Gas Storage Exploration Licence 662 100% 5 February 2016 Leigh Creek PEL 650 ISG suitable Coal Resource Analysis Working section Resource Category Tonnage (mt) Thickness (m) Relative Density (g/cc ad) Raw Ash (%ad) Total Moisture (%ad) Seam FGH I K Q V W FG FH G I I1 K K12 K2 Q Q V V1 W Indicated Indicated Indicated Indicated Indicated Indicated Indicated Indicated Indicated Inferred Inferred Inferred Inferred 9.1 28.9 7.7 22.7 1.0 14.8 4.6 4.8 93.0 73.4 34.0 1.0 6.2 10.74 20.86 5.29 5.78 2.36 7.01 5.78 3.15 12.08 9.24 5.29 2.41 7.37 8.41 1.62 1.69 1.65 1.67 1.43 1.69 1.66 1.60 1.45 1.44 1.67 1.48 1.76 1.54 37.68 43.00 40.74 40.94 17.66 42.50 40.00 36.36 18.11 17.88 40.75 22.23 49.80 28.73 22.99 22.53 23.37 23.37 29.05 22.56 22.22 24.29 26.88 26.82 22.67 23.55 21.06 24.94 ISG Project Total 301.2 12 Tenement scheduleFor personal use only Coal and Gas Resources The Company’s Coal Resource and equivalent Syngas Resource as at 30 June 2019, reported in accordance with 2012 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code) guidelines and the 2018 Society of Petroleum Engineers (SPE) Petroleum Resources Management System (PRMS) guidelines (respectively), are: Tenement Location Coal Resource Coal Resources Coal Resources Syngas Resource Classification Category (Mt) 2019 (Mt) 2018 Syngas Energy Syngas Energy (Pj) 2018 (Pj) 2019 Petroleum Leigh Creek Indicated Exploration Licence 650 Inferred – 376.6 186.6 114.6 1P Reserves 2P Reserves 3P Reserves 1C Resources 2C Resources 3C Resources – – – 2,747.7 2,963.9 3,303.1 – 1,153.2 1,608.3 – 1,469.0 2,126.6 Notes of Gas Resources: For the purposes of ASX Listing Rule 5.43, Leigh Creek Energy confirms that it is not aware of any new information or data that materially affects the information included in the 29 March 2019 PRMS ISG Gas Reserve and Resources Certification and that all material assumptions and technical parameters underpinning the estimates in the PRMS certification continue to apply and have not materially changed. The Gas Resource estimates stated herein are based on, and fairly represent, information and supporting documentation prepared by Timothy Hower of MHA Petroleum Consultants LLC, Denver USA. Mr Hower is a member of the Society of Petroleum Engineers and has consented to the use of the Resource estimates and supporting information contained herein in the form and context in which it appears. All estimates are based on the deterministic method for estimation of petroleum resources. Mineral Resource and Syngas Resource Governance and Disclosures Mineral Resources estimated in accordance with the requirements of the JORC Code, by qualified competent persons who are consultants to Leigh Creek Energy. Syngas Resources are estimated in accordance with the requirements of the Petroleum Resources Management System (PRMS) approved by the Society of Petroleum Engineers, by qualified petroleum reserves and resources evaluators who are consultants to Leigh Creek Energy. The Minerals Resource and Syngas Resource Statements in the 2019 Annual Report are reviewed by qualified consultants described below. For Mineral Resources, this is the qualified competent person, and for the Syngas Resources, the qualified petroleum reserves and resource evaluator. Notes on Coal Resources: For the purposes of ASX Listing Rule 5.23, Leigh Creek Energy confirms that it is not aware of any new information or data that materially affects the information included in the 18 March 2019 Resources Statement and that all material assumptions and technical parameters underpinning the estimates in the Resources Statement continue to apply and have not materially changed. The coal resources reported herein, insofar as they relate to mineralisation, are based on information compiled by Mr Warwick Smyth & Lynne Banwell of GeoConsult Pty Ltd. Mr Smyth is a Member of the Australasian Institute of Mining and Metallurgy and the Australian Institute of Geoscientists, who has more than 25 years’ experience in the field of activity being reported. Lynne Banwell is a member of the Australian Instititue of Mining and Metallurgy and the Geological Society of Australia and has over 30 years experience in this style of mineralisation. Both Mr Smyth and Mrs Banwell have sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity he is undertaking to qualify as a Competent Person as defined in the 2012 Edition of the “Australasian Code for Reporting Exploration Results, Mineral Resources and Ore Reserves”. Mr Smyth consents to the inclusion in the report of coal resources estimates based on his information in the form and 14 context in which it appears. 13 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019For personal use only 14 For personal use only 9 1 0 2 T R O P E R L A U N N A D E T I M I L Y G R E N E K E E R C H G I E L 15 Directors’ ReportFor personal use only Leigh Creek Energy Limited is a public company incorporated and domiciled in Australia and listed on the Australian Securities Exchange. The directors present their report together with the financial statements of the consolidated entity, being Leigh Creek Energy Limited (“the Company” or “Leigh Creek Energy”) and its controlled entities (“the Group”) for the year ended 30 June 2019. Directors The names of the directors in office at any time during or since the end of the year are: Daniel Justyn Peters (appointed 28 November 2014) Phillip Staveley (appointed 5 December2017) Gregory English (appointed 22 September 2015) Murray Chatfield (appointed 30 June 2016) Zhe Wang (appointed 1 July 2017) Zheng Xiaojiang (appointed 5 December 2017) Information on continuing Directors Daniel Justyn Peters LLB, BA (Politics/Jurisprudence) GDLP Executive Chairman Audit and Risk Committee Member Director since 2014 Experience & expertise Mr Peters joined Linc Energy soon after its listing on the ASX when Linc Energy was considered a world leader in underground coal gasification. In his six years at Linc Energy Mr Peters held the positions of General Manager Environment and Government Relations, General Manager Business Development, Executive General Manager North Asia and finished as Executive General Manager of Investor Relations. Prior to joining Linc Energy Mr Peters was employed as National Property and Environment Manager and head of North Asia for Airservices Australia, and prior to his time with Airservices Australia Mr Peters was employed at the Queensland Environmental Protection Authority (EPA) as head of Investigations and Compliance and as acting Director of Central and Northern Regions. He managed the integration of the environmental regulation of the Queensland Mining Industry into the EPA. His experience across a broad range of business units from both government and private sector will prove invaluable in developing the Leigh Creek Energy project. Other current listed directorships: None Previous listed directorships (last three years) Emperor Energy Ltd – resigned 27 March 2019 Directors have been in office since the start of the financial year to the date of this report unless otherwise stated. Phillip Staveley CPA, BA (Acc) (Hons), Dipl Btr Managing Director Director since 2017 Experience & expertise Mr Staveley is a qualified Accountant who has 30 years’ experience working in the resources sector. He started his career in the oil and gas sector working for Schlumberger in London, followed by a number of years with SAGASCO and SAOG (South Australian Oil and Gas Company). He spent almost ten years with Normandy Mining Ltd. Whilst with Normandy he fulfilled a number of planning, finance, M&A and commercial roles, including the establishment of a Group Supply Function and three years based in Rio de Janeiro as the CFO of TVX Normandy Americas. Since 1998 he has been involved in mining and contracting companies in the position of CFO and more latterly, CEO roles with an emphasis on strategy and corporate finance. Other current listed directorships: None Previous listed directorships (last three years) Oakdale Resources Limited 16 Directors’ ReportFor personal use only Gregory D English LLB, B.Eng (Mining) Zhe Wang B.Sc (Thermal Dynamics), M.Eng (Energy Engineering Non-Executive Director Audit and Risk Committee Member Director since 2015 and Thermal Physics) Non-Executive Director Director since 2017 Experience & expertise Zheng is a senior finance executive and brings wide experience in the finance sector in both Australia and China. His experience includes having been a senior official for The People’s Bank of China in Australia and New Zealand. Zheng was responsible for facilitating the investment in LCK by China New Energy, LCK’s largest shareholder. Other current listed directorships: None Previous listed directorships (last three years): None Zheng Xiaojiang BCom Non-Executive Director Director since 2017 Experience & expertise Zheng is a senior finance executive and brings wide experience in the finance sector in both Australia and China. His experience includes having been a senior official for The People’s Bank of China in Australia and New Zealand. Zheng was responsible for facilitating the investment in LCK by China New Energy, LCK’s largest shareholder. Other current listed directorships: None Previous listed directorships (last three years): None Experience & expertise Mr English is an experienced and qualified mining engineer and lawyer with over 25 years of involvement in the resources industry. As a mining engineer he has worked on underground and open pit coal mines, including working as a mining engineer at the Leigh Creek Coalfield where he lived in the Leigh Creek town. As a lawyer Greg has acted for numerous oil and gas companies and advised on numerous gas marketing, gas transportation and similar transactions. Greg’s experience in the coal industry, and in particular his knowledge of the Leigh Creek Coalfield, and experience and contacts in the oil and gas industry is a significant asset to the Company. Other current listed directorships Archer Exploration Limited and Core Exploration Limited Previous listed directorships (last three years): None Murray K Chatfield B Com Ag (Economics and Marketing), MBA, ACT, MAICD Non-Executive Director Audit and Risk Committee Chair Director since 2016 Experience & expertise Mr Chatfield has extensive experience within finance with nearly 30 years’ experience within investment banking, hedge funds and corporate finance both in Australia and internationally. He was a senior Economist with the New Zealand government before joining Bankers Trust in London. He then moved into Hedge Funds initially as European Treasurer and then as a Partner and COO in a Relative Value Hedge Fund. He was the COO and Partner in an Australian based fund focussed on Global Macro events. He has been and is still, actively involved as a Director of several unlisted companies in the Commodity and Marketing areas. Mr Chatfield’s career covers finance, treasury, accounting, operational efficiency, risk management (business, market, tax and regulatory), legal and regulatory compliance and direct financial market interaction. Other current listed directorships: None Previous listed directorships (last three years): None 17 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019For personal use only   Company Secretary The PCD operation was able to: Jordan Mehrtens is a qualified lawyer, and has other qualifications in finance and urban and regional planning. Jordan has worked with Leigh Creek Energy since its commencement, providing regulatory, compliance and other analytical advice. Jordan is a member of the Governance Institute of Australia and performs the secretarial role in the Company. Jordan has been the Company Secretary of Leigh Creek Energy Limited since 2015. Principal activities The principal activity of the Group was advancing the development of its Leigh Creek Energy Project (LCEP). 1. Produce syngas comprising Methane, Hydrogen, Carbon Monoxide and Nitrogen 2. Produce syngas at over 1 million cubic feet per day 3. Capture information required to upgrade the SPE- PRMS 2C resource to 2P reserve 4. Demonstrate that LCK can operate the gasifier safely and in an environmentally responsible manner 5. Provide key data and information for the development of the commercial project. Review of operations and financial results Leigh Creek Energy Project: The Company continued its progress towards full regulatory approval, above and underground construction and subsequent operation of the Pre-Commercial Demonstration Facility (PCD) at the LCEP. PCD operation commenced in October 2018 and was completed and decommissioned by June 2019. On 3 September 2018, the Company received its final Activity Notification approval for PCD operations, allowing the Company to commence operation, decommissioning and monitoring of the PCD. Following this approval, on 7 September 2018 the Company was served legal documents on behalf of the Adnyamathanha Traditional Lands Association seeking judicial review of government approval and seeking an injunction to prevent commencement of the PCD. On 19 September 2018 the South Australian Supreme Court dismissed the application for an injunction and the Company was able to proceed with the project. The application for judicial review was also dismissed and announced to the market on 17 October 2018. On 11 October 2018, the Company announced the successful initiation of the gasifier and the production of first syngas at the PCD, and announced successful production of commercial syngas on 18 February 2019, with the objectives of the PCD having been achieved. The Company then announced the receipt of a PRMS certification of 1,153 PJ 2P on 27 March 2019. On 25 June 2019, the Company announced the completion of the process to cease operations, shutdown and preserve the plant and facilities associated with the PCD. On completion of shutdown the Company confirmed that there were no reportable incidents at the site, confirming that the process was operated and shutdown in a safe, regulated and controlled manner. The Company’s monitoring regime commenced and to date also confirms no environmental impacts or safety issues from the PCD within its zone of operation. Finance and Corporate: The consolidated operating loss of the financial year to 30 June 2019 was $9,534,857 (2018: ($6,018,850)). Expenditure incurred on the LCEP capitalised as Exploration expenditure, net of 2017/18 R&D tax offset rebates received ($9,010,220) and R&D rebates receivable for 2018/19 ($6,363,118) was $8,625,766 (2018: $10,414,426). The Company has a working capital facility with the Commonwealth Bank of Australia (CBA) to bring forward access to refundable R&D tax concessions (refer Note 10 for Borrowings). This has provided LCK with the flexibility to bring forward its tax offsets by providing a draw down on eligible expenditure and for CBA to be repaid from the company’s taxation return rebate. In June 2018 LCK extended the Facility to December 2019 and the facility limit was increased to $10.5m. Following receipt of the 2017/18 ATO rebate and clean down of the Facility the limit decreased to $4m to match anticipated 2018/19 tax rebates. A total of $3,870,000 was drawn under the extended facility as at 30 June 2019. 18 Directors’ ReportFor personal use only Dividends The Directors do not recommend the payment of a dividend and no amount has been paid or declared since the end of the previous financial year. Significant changes in state of affairs No significant change in the state of affairs of the Group occurred during the financial year, other than as already referred to in this report. Likely developments, prospects and business strategies The Company continues to progress its commercialisation plans and is in negotiation with several strategic partners. After reporting date events On 1 August 2019 the Company completed a $3.2 million capital raise with professional, sophisticated and institutional investors, with 14,322,222 ordinary shares issued on that day at a price of $0.225 per share. On 13 August 2019 the Company signed a Heads of Agreement with China New Energy Group Limited to develop in-situ gasification in China. The agreement establishes the process to develop a full commercial agreement, with a view to forming a joint venture company. In July 2018, the Company completed a Share Purchase Plan, offering eligible shareholders the opportunity to purchase up to $15,000 of shares at $0.16 per share. On 20 July 2018 the Company issued 9,510,000 new ordinary shares in accordance with the Share Purchase Plan, and the unsubscribed balance of 9,240,000 ordinary shares was placed and issued to shareholders on 30 July 2018. On 17 December 2018, the Company announced a $5.14m capital raise consisting of a $1.28m placement and a non-renounceable rights issue providing eligible shareholders with the opportunity to by one new share in the Company for every fifteen shares held, at 12 cents per share. On 7 February 2019, the Company announced additional funding to the rights issue, with the issue of convertible notes with a face value of $3,000,000 and fixed conversion price of 12 cents per share. Following successful PCD operations, the rights issue closed on 28 February 2019, and 15,535,591 shares were issued on 7 March 2019 under the offer, and 16,610,133 oversubscribed shortfall shares were issued on 19 March 2019. The convertible notes were converted and issued as shares on 3 April 2019, which included interest payable as shares totalling $1,818,013, in addition to a placement fee payable in shares worth $397,500. On 16 January 2019 the Company announced the execution of a Heads of Agreement with African Carbon Energy Pty Ltd, providing the framework for agreements to enable the Company’s PCD plant and equipment to be leased by Africary, an option to purchase, and for the Company to provide advisory services to Africary. Following successful operations of the PCD, the Company advanced negotiations with potential strategic partners. The Chairman’s report contains further information on the detailed operations of the Group during the year. 19 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019For personal use only Options forfeited during the period up to and including the date of this report include 8,708,750 options. Options granted during the period up to and including the date of this report to employees and consultants include 25,790,000 all with different expiry dates listed below. Grant Date Date of expiry Exercise Number under option price 17 July 2018 16 July 2022 $0.25 5,790,000 18 April 2018 17 April 2023 $0.35 5,000,000 4 July 2018 3 July 2022 $0.25 5,000,000 1 November 2018 31 October 2021 $0.20 1,500,000 1 November 2018 31 October 2021 $0.22 1,500,000 1 November 2018 31 October 2021 $0.24 1,500,000 1 November 2018 31 October 2021 $0.26 1,500,000 11 February 2019 31 December 2020 $0.25 4,000,000 During the year ended 30 June 2019, and to the date of this report 470,000 shares of Leigh Creek Energy Limited were issued on the exercise of options. None of the options on issue entitles the holders to participate, by virtue of the options, in any dividend or share issue of the Company. Meetings of Directors During the financial year, the number of meetings held at which a director was eligible to attend and the number actually attended by each director were: Board Meetings Audit & Risk Committee Director D J Peters P J Staveley G D English M K Chatfield Z Wang Z Xiaojiang Meetings Meetings Meetings Meetings attended attended held held 13 13 13 13 13 13 13 12 13 13 12 12 5 - 5 5 - - 5 - 5 5 - - Unissued shares under options Unissued ordinary shares of Leigh Creek Energy Limited under option at the date of this report are: Grant Date Date of expiry Exercise Number under option price 14 October 2015 14 October 2019 $0.21 1,000,000 14 October 2015 14 October 2020 $0.25 1,000,000 1 December 2015 31 July 2020 $1.50 1,000,000 1 December 2015 30 November 2020 $0.30 7,340,000 11 July 2016 30 November 2020 $0.49 27,500 15 July 2016 8 May 2021 $0.30 800,000 4 October 2016 10 October 2021 $0.35 2,000,000 4 October 2016 10 October 2021 $0.45 2,000,000 10 July 2017 30 November 2020 $0.30 306,000 17 July 2018 16 July 2022 $0.25 5,790,000 18 April 2018 17 April 2023 $0.35 5,000,000 4 July 2018 3 July 2022 $0.25 5,000,000 1 November 2018 31 October 2021 $0.20 1,500,000 1 November 2018 31 October 2021 $0.22 1,500,000 1 November 2018 31 October 2021 $0.24 1,500,000 1 November 2018 31 October 2021 $0.26 1,500,000 11 February 2019 31 December 2020 $0.25 4,000,000 Total 41,263,500 20 Directors’ ReportFor personal use only Auditor’s independence declaration The Auditor’s Independence Declaration for the year ended 30 June 2019 can be found on page 29 and forms part of the Directors’ Report. 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. Proceedings The Company is not currently a party to legal proceedings brought against it or initiated by it at the date of this report. Environmental issues The Company and subsidiaries are required to comply with various Commonwealth and State environmental legislation in relation to its planned exploration activities and future development at the Leigh Creek site. No notification of any breach of any environmental regulation has been received in respect of any of the Company’s exploration activities during the year. Indemnities given to, and insurance premiums paid for, officers During the year, the company paid a premium to insure officers of the Group. The officers of the Group covered by the insurance policy include all Directors. The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of the Group, and any other payments arising from liabilities incurred by the officers in connection with such proceedings, other than where such liabilities arise out of conduct involving a willful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else to cause detriment to the Group. Details of the amount of the premium paid in respect of insurance policies are not disclosed as such disclosure is prohibited under the terms of the contract. The Group has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify any current or former officer of the Group against a liability incurred as such by an officer. 21 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019For personal use only 1. Principles used to determine the nature and amount of remuneration The remuneration policy is designed to align the objectives of the Key Management Personnel with shareholder and business objectives by providing a fixed remuneration package to non-executive Directors and time based remuneration to Executive Directors. The Board of Leigh Creek Energy believes the policy to be appropriate and effective in attracting and retaining the best Directors and Executives to manage and direct the Group, as well as create goal congruence between Directors, Executives and shareholders. The Company’s policy for determining the nature and amounts of emoluments of board members and other Key Management Personnel of the Company is as follows. The Company’s Constitution specifies that the total amount of remuneration of non-executive Directors shall be fixed from time to time by a general meeting. The current maximum aggregate remuneration of non-executive Directors has been set at $750,000 per annum (as approved by shareholders on 22 August 2018). Directors may apportion any amount up to this maximum amount amongst the non-executive Directors as they determine. Directors are also entitled to be paid reasonable travelling, accommodation and other expenses incurred in performing their duties as Directors. Non-executive Director remuneration is by way of fees and statutory superannuation contributions. Non-executive Directors do not participate in schemes designed for remuneration of executives but they may receive options or bonus payments subject to shareholder approval and are not provided with retirement benefits other than salary sacrifice and statutory superannuation. The Company’s remuneration structure is based on a number of factors including the particular experience and performance of the individual in meeting key objectives of the Company. The Board is responsible for assessing relevant employment market conditions and achieving the overall, long term, objective of maximising shareholder benefits through the retention of high quality personnel. The Board may approve the payment of cash bonuses from time to time in order to reward individual executive performance in achieving key objectives as considered appropriate by the Board. The Company also has an Employee Share Option Plan, approved by shareholders, that enables the Board to offer eligible employees options to acquire ordinary fully paid shares in the Company. Under the terms of the Plan, options to acquire ordinary fully paid shares may be offered to the Company’s eligible employees at no cost unless otherwise determined by the Board in accordance with the terms and conditions of the Plan. The objective of the Plan is to align the interests of employees and shareholders by providing employees of the Company with the opportunity to participate in the equity of the Company as an incentive to achieve greater success for the Company and to maximise the long term performance of the Company, and can also be used as a reward for performance. As the Company is developing an energy asset which is not yet in production, in the opinion of the Board, the Company’s earnings and the consequences of the Company’s performance on shareholder wealth are not related to the Company’s remuneration policy. Voting at 2018 AGM Of the total valid available votes lodged, Leigh Creek Energy received 88.24% “yes” votes on its remuneration report for the 2018 financial year with the motion carried unanimously on a show of hands as an ordinary resolution. The Company did not receive any specific feedback at the AGM on its remuneration practices. Use of remuneration consultants The Company has engaged and sought benchmarking advice from remuneration consultants. In 2018 independent consultants were engaged to undertake market benchmarking to provide information on KMP remuneration. The Corporations Act 2001 requires companies to disclose specific details regarding the use of remuneration consultants. The mandatory disclosure requirements only apply to those advisors who provide a “remuneration recommendation” as defined in the Corporations Act 2001. The Remuneration Committee did not receive any remuneration recommendations during the reporting period. 22 Remuneration Report – auditedDirectors’ ReportFor personal use only 2. Details of remuneration Details of the nature and amount of each element of the remuneration of each Key Management Personnel (KMP) of the Group are shown in the table below: Short term benefits Post-employment benefits Share based payments Directors Year Directors Salary & Other Fees wages Non-monetary Super benefits1 contributions benefits Termination Options2 Total Executive Directors D J Peters 2019 2018 P J Staveley 2019 2018 - - - - Non Executive Directors G D English 2019 50,000 2018 50,000 M Chatfield 2019 50,000 2018 50,000 Z Wang 2019 54,750 2018 29,168 Z Xiaojiang 2019 50,000 2018 28,782 325,130 105,0957 3,713 20,155 - 190,4043 644,497 309,790 - 4,402 27,470 - 4,723 346,385 374,930 99,5927 - 19,555 - 190,4043 684,481 324,877 - - - - - - - - - - - - 21,019 - 210,8334 - 115,0004 3,926 28,268 - 13,792 370,863 - - - - - - - - 4,750 4,750 4,750 4,750 - 2,771 4,750 2,734 - - - - - - - - - - - - - 54,750 54,750 54,750 54,750 54,750 114,161 167,119 - 265,583 114,161 260,677 Other key management personnel J Haines5 M Terry6 2019 2018 2019 2018 - - - - 472,208 282,500 34,680 257,000 - - - - 1,003 20,985 22,431 30,913 547,540 892 26,838 - 13,792 324,022 - - 3,641 3,833 30,913 73,067 24,415 - 6,896 288,311 Total 2019 204,750 1,206,948 415,520 4,716 78,586 26,264 442,633 2,379,418 2018 157,950 1,174,167 136,019 9,220 121,996 - 267,525 1,866,877 Performance based on % of remuneration 46% 1% 42% 4% - - - - - 68% - 44% 51% 4% 42% 2% Notes (1) Non-monetary benefits include benefits provided to the KMP on which Fringe Benefits tax is paid. (2) In accordance with the Accounting Standards, remuneration includes a proportion of the fair value of the options granted or outstanding during the year. The notional value of options is determined as at the issue date and is progressively allocated over the vesting period. The amount included as remuneration is not indicative of the benefit (if any) that the employee may ultimately realise should the option vest. The notional value of the options as at the issue date has been determined in accordance with the accounting policy Employee Remuneration Note 11. (3) Options were granted to Executive Directors on 4 July 2018. The remuneration was approved by shareholders on 22 August 2018 at the Annual General Meeting. Under accounting rules, the options were expensed in the financial year based on the provisional grant date (4) Mr Xiaojiang provided consulting services during the year. (5) Mr Haines resigned effective 5 April 2019. (6) Mr Terry resigned effective 17 August 2018. (7) The following Short Term Incentives were approved by the Board on 20 June 2019 in recognition of achievements for the year ended 30 June 2019; Mr Peters $105,095 and Mr Staveley $99,592 both payable in shares subject to shareholder approval. 23 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019For personal use only 3. Service agreements Remuneration and other terms of employment for the Executive Directors and other Key Management Personnel are formalised in a Service Agreement. The major provisions of the agreement relating to remuneration are set out below: Employee Salary & Super Term of agreement Notice period1 D J Peters $345,285 Ongoing P J Staveley $394,485 Ongoing 3 months 6 months Notes (1) Service agreements are presented as at 30 June 2019. The options were provided at no cost to the recipients. All options expire on the earlier of the expiry date or cessation of the individual’s employment (except retiring directors). Options issued in previous financial years that lapsed or were forfeited during the current financial year: Name Number of options forfeited Financial year in which (lapsed) during the year those options were granted M Terry 1,000,000 1 2016 Notes: (1) Mr Terry acquired 1,000,000 options with a grant date of 1 December 2015 with an employment condition, all of which cancelled on his resignation 17 August 2018. 4. Share-based remuneration Unlisted options are granted to Directors and Key Management Personnel as part of their remuneration. The options are not granted subject to performance criteria, but are issued to the relevant directors and Key Management Personnel of the Group to increase goal congruence between executives, directors and shareholders. All options refer to options over ordinary shares of the Company, which are exercisable on a one-for-one basis under the terms of the agreements. Options granted during this financial year: Name Number Grant granted date Number vested Last Vesting & first exercise exercise date date D J Peters 1 2,500,000 22 August 2,500,000 22 August 2018 2018 P J Staveley 1 2,500,000 22 August 2,500,000 22 August 2018 2018 3 July 2022 3 July 2022 Total 5,000,000 Notes: (1) Options were granted to Executive Directors on 22 August 2018. The remuneration was approved by shareholders on 22 August 2018 at the Annual General Meeting. Under accounting rules, the options were expensed in the financial year based on the provisional grant date. 24 Remuneration Report – auditedDirectors’ ReportFor personal use only A U D I T O R ’ S I N D E P E N D E N C E 5. Other information Number of Options held by Key Management Personnel The number of options to acquire ordinary shares in the Company held during the 2018 reporting period by each of the Group’s Key Management Personnel, including their related parties, is set out below: Name Balance at start of year Granted as remuneration Exercised Other changes Closing balance Vested and exercisable at the end of the reporting period Vested and unexercisable at the end of the reporting period D J Peters 1 750,000 2,500,000 P J Staveley 1 2,000,000 2,500,000 G D English 2,000,000 M Chatfield 2,000,000 Z Wang 2 Z Xiaojiang 2 - - J Haines 2,000,000 M Terry 3, 4 1,000,000 - - 2,000,000 2,000,000 400,000 400,000 Total 9,750,000 9,800,000 - - - - - - - - - - - - - - - - 3,250,000 3,000,000 4,500,000 4,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,400,000 1,900,000 (1,000,000) 400,000 400,000 (1,000,000) 18,550,000 17,300,000 - - - - - - - - - Notes (1) Options were granted to Executive Directors on 22 August 2018 and approved by shareholders on 22 August 2018 at the Annual General Meeting. Under accounting rules, the options were expensed in the financial year based on the provisional grant date. (2) Options that form part of Non-Executive Director remuneration package were granted and approved by shareholders on 22 August 2018 at the Annual General Meeting, the value of $114,161 recognised in 2018 Remuneration Report. Under accounting rules, the options were expensed in the financial year based on the provisional grant date. (3) Options were granted to Key Management Personnel on 18 July 2018. The remuneration was approved by shareholders on 22 August 2018 at the Annual General Meeting. Under accounting rules, the options were expensed in the financial year based on the provisional grant date. (4) Mr Terry acquired 1,000,000 options with a grant date of 1st December 2015 with an employment condition, all of which cancelled on his resignation 17 August 2018. Number of Shares held by Key Management Personnel Name D J Peters 4 P J Staveley 2 G D English M Chatfield 2 Z Wang Z Xiaojiang 3 J Haines M Terry Total Balance at start of year Granted as remuneration Received on exercise Other changes1 Held at the end of the reporting period - 550,000 - 1,308,914 - - - - 1,858,914 - - - - - - - - - - - - - - - - - - - 136,667 - - 686,667 - 287,263 1,596,177 - - - - - - - - 423,930 2,282,844 Notes (1) Other changes include purchases, sales or transfers during the financial year. (2) M Chatfield and P Staveley both acquired shares under the NRRI in March 2019. (3) Z Xiaojiang has an interest in 45,831,347 shares held by Crown Ascent Development Limited due to having a 25% interest in Crown. (4) Justyn Peters close family members hold 4,843,433 shares. Mr Peters does not have any interest in these shares. 25 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019For personal use only Loans to Key Management Personnel At balance date, the Group does not have any outstanding receivables relating to loans to employees or Key Management Personnel. Related party transactions During the reporting period: Piper Alderman lawyers were paid $46,255 (2018: $82,909) for legal services rendered to the Group. Greg English is a partner at Piper Alderman lawyers; ARK Energy Ltd had a service agreement in place with the Company for facilities and accounting services. Fees rendered to the Company were $9,432 (2018: $14,700); Investment Company Services Pty Ltd were paid $45,509 (2018: $60,116) for providing investor relations services to the Group. The party is related to Mr Peters, Executive Chairman; On 7 February 2019 the Company issued convertible notes with a face value of $3m to Crown Ascent Development Limited. The issue price was $0.12 per note, convertible into a fully paid share, with interest calculated at 12.2% per annum (to be capitalised and paid in shares at the conversion price), and early conversion required full payment of interest over the 2 year term of the notes. In April 2019, these convertible notes were converted to shares resulting in an interest charge of $1,818, 013. In addition, Crown Ascent Development Limited earned a 6% establishment fee which was paid in shares at the conversion price, worth $397,500. Mr Xiaojiang is a Director of Crown Ascent and non-executive director of Leigh Creek Energy. Mr Xiaojiang provided consulting services during the year totalling $210,833. END OF AUDITED REMUNERATION REPORT 26 Remuneration Report – auditedDirectors’ ReportFor personal use only Grant Thornton Audit Pty Ltd continues in office in accordance with Section 327 of the Corporations Act 2001. The auditor has not been engaged during the year for any non-audit services which may have impaired the auditor’s independence. The auditor’s independence declaration for the year ended 30 June 2019 has been received and is included in this report. Signed in accordance with a resolution of the Board. D J Peters Director Dated at Adelaide, South Australia this 28th day of August 2019 The Board of Directors (the Board) of Leigh Creek Energy Limited (the Company) is committed to achieving and demonstrating the highest standard of Corporate Governance. The Board guides the affairs of the Company on behalf of the shareholders by whom they are elected and to whom they are accountable. The Board has responsibility for the overall Corporate Governance of the Company including its strategic direction, establishment of goals for its management and monitoring the achievement of those goals. The individual Directors recognise that their primary responsibility is to the owners of the Company, its shareholders, while simultaneously having regard for the interests of all stakeholders and the broader community. The statement outlines the Company’s Corporate Governance Practices in place during the financial year. The Company’s statement is made based on the ASX Corporate Governance Councils Corporate Governance Principles and Recommendations (4th Edition). Although the ASX Corporate Governance Council’s Recommendations are not mandatory, under listing rule 4.10.3 companies are required to provide a statement disclosing the extent to which they have followed the recommendations in the reporting period, identifying any principles which have not been followed with reasons for not having done so. The statement of revised principles and the Company’s compliance with each principle are set out in the Company’s website www.lcke.com.au 27 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019Auditor’s Independence Corporate Governance StatementFor personal use only D I R E C T O R S ’ R E P O R T 1. In the opinion of the Directors of Leigh Creek Energy Limited: a. The consolidated financial statements and notes of the company are in accordance with the Corporations Act 2001, including: i. Giving a true and fair view of the financial position as at 30 June 2019 and of the performance of the Group for the year ended on that date; and ii. Complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and 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 financial year ended 30 June 2019. 3. Note 1 confirms that the consolidated financial statements also comply with International Financial Reporting Standards. This declaration is made in accordance with a resolution of the Board of Directors. D J Peters Director Dated at Adelaide, South Australia this 28th day of August 2019 28 Directors’ DeclarationFor personal use only D I R E C T O R S ’ R E P O R T Level 3, 170 Frome Street Adelaide SA 5000 Correspondence to: GPO Box 1270 Adelaide SA 5001 T +61 8 8372 6666 F +61 8 8372 6677 E info.sa@au.gt.com W www.grantthornton.com.au Auditor’s Independence Declaration To the Directors of Leigh Creek Energy Limited In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of Leigh Creek Energy Limited for the year ended 30 June 2019, I declare that, to the best of my knowledge and belief, there have been: a no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b no contraventions of any applicable code of professional conduct in relation to the audit. GRANT THORNTON AUDIT PTY LTD Chartered Accountants I S Kemp Partner – Audit & Assurance Adelaide, 28 August 2019 Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 www.grantthornton.com.au ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. 29 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019Financial InformationAuditor’s Independence DeclarationFor personal use only 30 For personal use only 9 1 0 2 T R O P E R L A U N N A D E T I M I L Y G R E N E K E E R C H G I E L 31 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019Financial InformationFor personal use only for the year ended 30 June 2019 Other income Other expenses Depreciation of property, plant and equipment Notes 2a 2b 2019 $ 13,455 2018 $ 55,000 (3,054,725) (2,711,097) (59,116) (39,951) Employee benefits expense 11 (4,385,866) (3,192,731) Finance income Finance costs Loss before income tax Income tax benefit Loss for the year after income tax Total other comprehensive income Total comprehensive (loss) for the year Earnings per share Basic (cents per share) Diluted (cents per share) The accompanying notes form part of these financial statements. (7,486,252) (5,888,779) 114,430 180,645 (2,163,035) (310,716) (9,534,857) (6,018,850) - - (9,534,857) (6,018,850) - - (9,534,857) (6,018,850) (0.02) (0.02) (0.02) (0.02) 3a 3b 4 20 20 32 Consolidated Statement of Profit or Loss and Other Comprehensive IncomeFor personal use only as at 30 June 2019 Assets Current Cash assets Trade and other receivables Other financial assets Total Current Assets Non-current Property, plant and equipment Exploration and evaluation expenditure Total Non-Current Assets Total assets Liabilities Current Trade and other payables Borrowings Employee entitlements Total Current liabilities Total liabilities Net assets Equity Equity attributable to owners of the parent: Share capital Share option reserve Retained losses Total equity The accompanying notes form part of these financial statements. Notes 2019 $ 2018 $ 5 6 7 8 9 10 11 3,057,383 9,323,648 6,524,077 9,359,171 - 142,434 9,581,460 18,825,253 412,699 282,658 25,025,917 16,400,151 25,438,616 16,682,809 35,020,076 35,508,062 767,908 5,757,263 3,989,012 3,830,000 517,416 538,584 5,274,336 10,125,847 5,274,336 10,125,847 29,745,740 25,382,215 12 13 71,000,050 58,327,054 2,581,728 1,802,721 (43,836,038) (34,747,560) 29,745,740 25,382,215 33 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019Consolidated Statement of Financial PositionFor personal use only for the year ended 30 June 2019 Share capital $ Retained losses $ Share option reserve $ Total equity $ Balance 1 July 2018 58,327,054 (34,747,560) 1,802,721 25,382,215 Total comprehensive income Total profit or (loss) Other comprehensive income Total comprehensive income - - - (9,534,857) - (9,534,857) - - - (9,534,857) - (9,534,857) Transactions with members in their capacity as owners: Issued of share capital (net of costs) 10,457,483 Shares issued on convertible note – non-cash 2,215,513 Employee share based payment options - Transfer of lapsed options Total transactions with owners 12,672,996 - - - 446,379 446,379 10,457,483 - 2,215,513 1,225,386 1,225,386 (446,379) - 779,007 13,898,382 Balance at 30 June 2019 71,000,050 (43,836,038) 2,581,728 29,745,740 Balance 1 July 2017 41,100,034 (28,728,710) 1,456,144 13,827,468 Share capital $ Retained losses $ Share option reserve $ Total equity $ Total comprehensive income Total profit or (loss) Other comprehensive income Total comprehensive income Transactions with members in their capacity as owners: - - - (6,018,850) - (6,018,850), Issued of share capital (net of costs) 17,227,020 Employee share based payment options - Total transactions with owners 17,227,020 - - - - - - - (6,018,850) - (6,018,850) 17,227,020 346,577 346,577 346,577 17,573,597 Balance at 30 June 2018 58,327,054 (34,747,560) 1,802,721 25,382,215 The accompanying notes form part of these financial statements. 34 Consolidated Statement of Changes in Equity For personal use only for the year ended 30 June 2019 Cash flows from operating activities Sundry income received Interest paid Interest received R&D rebates received Payments to suppliers and employees Notes 2019 $ 2018 $ 10,000 55,000 - - 136,203 180,610 9,010,220 2,173,372 (5,824,137) (5,543,770) Net cash (used in) operating activities 16(b) (3,332,286) (3,134,788) Cash flows from investing activities Purchase of property, plant & equipment Proceeds from disposal of assets Capitalised exploration costs Net cash (used in) investing activities Cash flow from financing activities Issue of shares Share issue transaction costs Proceeds from borrowings Payment of borrowing costs (Repayments) of borrowings Net cash from financing activities Net change in cash and cash equivalents Cash and cash equivalents, beginning of year (189,158) (110,637) 3,455 - (20,081,822) (15,394,967) (20,267,525) (15,505,604) 11,290,874 18,414,559 (435,891) (1,187,540) 3,989,012 4,170,000 (345,022) (240,766) (3,830,000) (1,950,000) 10,668,973 19,206,253 (6,266,265) 565,861 9,323,648 8,757,787 Cash and cash equivalents, end of year 16(a) 3,057,383 9,323,648 The accompanying notes form part of these financial statements. 35 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019Consolidated Statement of Cash FlowsFor personal use only 1. Summary of significant accounting policies The principal activity of the Group was pursuing the development of its Leigh Creek Energy Project. a. General information and statement of compliance The consolidated general purpose financial statements have been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board (AASB). Compliance with Australian Accounting Standards results in full compliance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Leigh Creek Energy is a for-profit entity for the purposes of preparing the financial statements. The financial report has been presented in Australian dollars. Leigh Creek Energy Limited is the Group’s Ultimate Parent Company. Leigh Creek Energy Limited is a listed public company, incorporated and domiciled in Australia. The address of the registered office and its principal place of business is Level 11, 19 Grenfell Street, Adelaide SA 5000. The consolidated financial statements for the year ended 30 June 2019 were approved and authorised for issue by the Board of Directors on 28th August 2019. b. Overall considerations The consolidated financial statements have been prepared on an accruals basis and are based on historical costs modified by the revaluation of selected non-current assets, financial assets and financial liabilities for which the fair value basis of accounting has been applied. c. Basis of consolidation The Group financial statements consolidate those of the Parent Company and all of its subsidiaries as of 30 June 2019. The Parent controls a subsidiary if it is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. All subsidiaries have a report date of 30 June. The controlled entities are disclosed in Note 17 to the financial statements. All inter-company balances transactions and balances between Group companies are eliminated on consolidation. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. d. Changes in accounting policy New and revised standards that are effective for these financial statements A number of new and revised standards became effective for the first time to annual periods beginning on or after 1 July 2018. Information on the more significant standards is presented below. (i) AASB 15 Revenue from Contracts with Customers AASB 15 provides new guidance for determining when the Group should recognise revenue. The new revenue recognition model provides a single model for accounting for revenue arising from contracts with customers and is effective for annual periods beginning on or after 1 January 2018. AASB 15 replaces AASB 118 Revenue and several other revenue related interpretations: • establishes a new revenue recognition model • changes the basis for deciding whether revenue is to be recognised over time or at a point in time • provides new and more detailed guidance on specific topics (e.g. multiple element arrangements, variable pricing, rights of return, warranties and licensing) • expands and improves disclosures about revenue. The new standard has been applied as at 1 July 2018. There is no impact to the Group’s historical financial results given the Group is not currently in production. (ii) AASB 9 Financial Instruments The AASB issued AASB 9 Financial Instruments, which covers classification and measurement of financial assets and financials liabilities and introduces an ‘expected credit loss’ model for impairment of financial assets. AASB 9 replaces AASB 139 Financial Instruments: Recognition and Measurement and is effective for annual period beginning on or after 1 July 2018. 36 Notes to the Consolidated Financial Statements for the year ending 30 June 2019For personal use only 1. Summary of significant accounting policies continued d. Changes in accounting policy continued The table below shows the classification of each class of financial assets and liabilities under AASB 139 and AASB 9 as at 1 July 2018: AASB 139 Carrying classification AASB 9 Carrying AASB 139 Carrying AASB 139 Carrying Amount $ Amount $ classification Financial assets Trade and other receivables Loans and receivables Amortised cost 9,359,171 9,359,171 Financial liabilities Borrowings Amortised cost Amortised cost 3,830,000 3,830,000 When adopting AASB 9, the Group has applied transitional relief and opted not to restate prior periods. Accounting standards issued but not yet effective and not been early adopted by the Group The accounting standards that have not been early adopted for the year ended 30 June 2019, but will be applicable to the Group in future reporting periods are detailed below. Apart from these standards, we have considered other accounting standards that will be applicable in future reporting periods, however they have been considered insignificant to the Group. Standard / Interpretation change Nature of Effective for annual periods beginning on or after Expected to be initially applied in the financial year ending AASB 16 ‘Leases’ Requires all leases 1 January 2019 30 June 2020 to be accounted for ‘on-balance sheet’ for lessees other than short-term and low value asset leases. The Group is yet to undertake a detailed assessment of the impact of AASB 16. However, based on the Group’s preliminary assessment, the likely impact on the first time adoption of the Standard for the year ending 30 June 2020 includes: - there will be a minor increase in lease assets and financial liabilities recognised on the balance sheet - the reported equity will reduce as the carrying amount of lease assets will reduce more quickly than the carrying amount of lease liabilities - EBIT in the statement of profit or loss and other comprehensive income will be higher as the implicit interest in lease payments for former off balance sheet leases will be presented as part of finance costs rather than being included in operating expenses - operating cash outflows will be lower and financing cash flows will be higher in the statement of cash flows as principal repayments on all lease liabilities will now be included in financing activities rather than operating activities. As per Note 14, the Group’s commitments relating to operating leases for the 2020 financial year is $193,877 and $8,044 beyond 1 July 2020, the group does not believe the adoption of this standard will materially impact the financial statements. There are no other standards that are not yet effective and that are expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. e. Impairment of Assets At each reporting date, the group reviews the carrying values of its assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to profit or loss. Where it is not possible to estimate the recoverable amount of an individual asset, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs. f. Segment reporting The Board has considered the requirements of AASB 8 Operating Segments and the internal reports that are reviewed by the chief operating decision maker (the Board) in allocating resources and has concluded at this time that there are no separately identifiable segments. 37 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019Notes to the Consolidated Financial Statements for the year ending 30 June 2019For personal use only d) sufficient data exists to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale. Management has made a judgement that, given these factors, the balance of Exploration and Evaluation assets is not impaired. • Share based payments – Note 11 The valuation for accounting purposes of Share Based Payments relies on a number of factors that cannot be accurately measured. These include: a) the volatility of the LCK share value; b) the probability that vesting conditions/ milestones will be met; c) the probability that the employee will remain employed with the company until the expiry date of the options; d) the probability that the employee will exercise their options. Final judgement about vesting of the options is retained by the Board. Management has assessed each of these factors and made judgements on what factors are used for the calculation. 1. Summary of significant accounting policies continued g. Goods and Services Tax (GST) Income, expenses and assets are recognised net of the amount of GST, unless the GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST. The net amount of GST recoverable from the Australian Tax Office is included with other receivables in the statement of financial position. Cash flows are presented in the cash flow statement on a GST inclusive basis. h. Comparative Figures Unless otherwise required by an accounting standard comparative information is disclosed in respect of the previous corresponding period, including for narrative and descriptive information. To the extent that items are amended or reclassified comparative amounts are also amended or reclassified. Prior period errors are retrospectively corrected in the next financial report following discovery. i. Significant management judgement in applying accounting policies When preparing the financial statements, management undertake a number of judgements, estimates and assumptions about the recognition and measurement of assets, liabilities, income and expenses. The areas involving significant estimates and assumptions are listed below: • Exploration and Evaluation Expenditure – Note 8 Judgement is required to ensure that the carrying value of Exploration and Evaluation assets does not exceed the recoverable amount. Factors considered in this judgement are: a) the period for which the entity has the right to explore in the specific area has expired or will expire in the near future; b) substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted nor planned; c) exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the entity has decided to discontinue such activities; 38 Notes to the Consolidated Financial Statements for the year ending 30 June 2019For personal use only 2. Other income and expenses Accounting policy – income and expenses recognition Other income is recognised on an accruals basis and is recognised at the time the right to receive payment is established. Other expenses represent costs incurred for the administration of the business. Costs relating to the project have been capitalised to Exploration and Evaluation expenditure (as shown in Note 8). a) Other income Grants Tenement option Disposal of fixed assets Total other income b) Other expenses Accounting and audit Communications costs Corporate advisory Software & other Consulting and legal expense Insurance Investor relations Listing & registry fees Occupancy expense Printing and office supplies Travel and accommodation Sundry Total other expenses 2019 $ 2018 $ - 55,000 10,000 3,455 13,455 185,384 51,680 591,815 54,176 524,357 123,136 178,829 143,788 375,985 47,838 334,429 443,308 - - 55,000 164,948 52,292 574,330 47,619 428,627 110,704 259,169 118,708 358,753 52,840 298,503 244,604 3,054,725 2,711,097 39 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019Notes to the Consolidated Financial Statements for the year ending 30 June 2019For personal use only 3. Finance income and finance costs Accounting policy – Finance income and finance costs Finance income includes interest revenue which is recognised on an accruals basis taking into account the interest rates applicable. It is recognised at the time the right to receive payment is established. Finance costs include interest paid and amortised borrowing costs from financing arrangements. Costs incurred in relation to the arrangement are amortised using the effective interest method, over the life of the loan. a) Finance income Interest earned Total finance income b) Finance costs Interest paid Amortised borrowing costs 1 Total finance costs 2019 $ 2018 $ 114,430 114,430 - 2,163,035 2,163,035 180,645 180,645 - 310,716 310,716 1 The Convertible Note included interest payable as shares totalling $1,818,013, refer to Note18. 40 Notes to the Consolidated Financial Statements for the year ending 30 June 2019For personal use only 4. Income tax Accounting policy – income taxes Deferred taxes are not recognised in the accounts. As the Group has significant carried forward tax losses, it does not have sufficient taxable temporary differences which will result in taxable amounts against which the unused tax losses can be utilised. The amount of benefits which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the condition of deductibility imposed by the law. Tax consolidation Leigh Creek Energy Limited and its wholly owned Australian subsidiaries are part of a tax-consolidated group under Australian taxation law. a) Numerical reconciliation of income tax expense to prima facie tax payable Loss before income tax 2019 $ 2018 $ (9,534,857) (6,018,850) Prima facie tax (benefit) on loss before income tax at 27.5% (2018: 27.5%) (2,622,086) (1,655,184) Permanent differences: Entertainment non deductible Share based payments Fair value adjustment for investments Movement in unrecognised tax assets and liabilities Tax loss not recognisable Under/(Over) provided in prior year Aggregate income tax expense b) Tax losses Unused tax losses for which no deferred tax asset has been recognised Revenue losses Capital losses 13,899 203,812 - (87,130) 2,491,505 - - 16,687 95,309 - 666,949 804,335 71,904 - 17,736,240 16,775,866 78,404 50,729 The Group considers that in the future it will be generating taxable income to utilise carried forward tax losses, however, it does not meet the recognition criteria. Additionally, the carried forward tax losses can only be utilised in the future when taxable income is being generated, if the continuity of ownership test is passed, or failing that, the same business test is passed. 41 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019Notes to the Consolidated Financial Statements for the year ending 30 June 2019For personal use only 5. Cash Assets Accounting policy – Cash and cash equivalents Cash and cash equivalents include cash on hand, deposits held at call and term deposits with banks. Cash and cash equivalents Bank balances Term deposits1, 2 2019 $ 2018 $ 324,259 1,087,392 2,733,124 8,236,256 Cash and cash equivalents in the statement of cashflows 3,057,383 9,323,648 Notes: 1 Includes $770,735 of restricted cash to support a bond and credit card facility. 2 Term deposits comprise cash balances with an original maturity of less than three months. 6. Trade and other receivables Accounting policy – Trade and other receivables Trade receivables are recognised initially at fair value. At balance date, no receivables were considered to be outstanding or impaired. Trade debtors GST recoverable Prepayments R&D tax incentive receivable Other debtors Total Trade and other receivables 2019 $ 12,032 52,030 78,589 2018 $ 9,433 250,165 51,697 6,363,118 9,010,220 18,308 37,656 6,524,077 9,359,171 42 Notes to the Consolidated Financial Statements for the year ending 30 June 2019For personal use only 7. Property, Plant and Equipment Accounting policy – Property, plant and equipment Each class of property, plant and equipment is carried at cost, where applicable, less any accumulated depreciation and impairment losses. i) Plant and equipment Plant and equipment are shown at historical cost less accumulated depreciation and accumulated impairment. Cost includes expenditure that is directly attributable to the acquisition of the assets. The carrying amount of plant and equipment is reviewed annually to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. ii) Depreciation Depreciation is calculated using the straight-line method to allocate their cost over their estimated useful lives, as follows: • Plant and equipment • Office equipment • Motor vehicles • Leasehold improvement 5-33% 10-50% 15% 45% The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. Gains and losses on disposal of property, plant and equipment are determined as the difference between the disposal proceeds and the carrying amount of the assets (including impairment provision) and are recognised in the profit or loss with Other Income or Other Expenses. Cost Balance at 1 July 2018 Additions Transfers Disposals 2019 $ 2018 $ 624,066 218,466 - (53,523) 506,172 117,894 - - Balance at 30 June 2019 789,009 624,066 Accumulated depreciation & impairment Balance at 1 July 2018 Impairment balance Depreciation Transfers Impairment movement Disposals Balance at 30 June 2019 Carrying amounts At 1 July 2018 At 30 June 2019 341,408 285,452 - - 88,425 56,016 - - - - (53,523) (60) 376,310 341,408 282,658 412,699 220,720 282,658 43 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019Notes to the Consolidated Financial Statements for the year ending 30 June 2019For personal use only 8. Exploration and Evaluation Expenditure Accounting policy – Exploration and evaluation expenditure Exploration and evaluation expenditure incurred is accumulated in respect of each identifiable area of interest. These costs are only carried forward to the extent that right of tenure is current and those costs are expected to be recouped through the successful development of the area (or, alternatively by its sale) or where activities in the area have not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves and operations in relation to the area are continuing. When production commences, the accumulated costs for the relevant area of interest are amortised over the life of the area according to the rate of depletion of the economically recoverable reserves. Accumulated costs, in relation to an abandoned area, are written off in full against profit in the period in which the decision to abandon the area is made. Balance at opening Licence fees Costs capitalised for Feasibility Studies Costs capitalised for LCEP Less R&D tax concession rebates Total exploration and evaluation expenditure 2019 $ 2018 $ 16,400,151 5,985,725 7,518 964,374 8,748 916,489 14,016,992 18,537,324 (6,363,118) (9,048,135) 25,025,917 16,400,151 During the year the Company applied for R&D Tax Incentives through AusIndustry in relation to eligible research expenditure incurred during 2018/19 for the Leigh Creek Energy Project. The tax incentive received during the year is a refundable tax credit and has been credited to Exploration and Evaluation capitalised expenditure ($9,010,135). Additionally, the Company has booked a receivable ($6,363,118) in relation to eligible R&D expenditure for the period up to and including 30 June 2019 which has been reviewed externally to ensure it is in accordance with the relevant criteria. 9. Trade and Other Payables Trade and other payables consist of the following: Trade payables Other payables Accruals Total Trade and other payables 2019 $ 2018 $ 373,428 1,410,581 57,533 336,947 767,908 53,594 4,293,088 5,757,263 44 Notes to the Consolidated Financial Statements for the year ending 30 June 2019For personal use only 10. Borrowings Accounting policy – Borrowings Borrowings are recognised initially at fair value less attributable transaction and finance costs. Subsequent to initial recognition, borrowings and loans are stated at amortised cost, with any difference between cost and redemption value being recognised in the profit or loss over the period of the loan on an effective interest basis. Loans with a determinable payment due less than twelve months from reporting date are classified as current liabilities. Transaction and finance costs include ancillary costs incurred in connection with the arrangement of loans, interest payable and facility line fees payable on the loan. Current Loan R&D working capital facility Total current borrowings Non-current Loan Total borrowings Loans R&D working capital facility – available R&D working capital facility – undrawn Loans - drawn Less: unamortised transaction costs Carrying amount at 30 June 2019 2019 $ 2018 $ 11,105 - 3,870,000 3,830,000 3,881,105 3,830,000 107,907 - 3,989,012 3,830,000 4,000,000 6,500,000 (130,000) (2,670,000) 3,870,000 3,830,000 - - 3,870,000 3,830,000 The Company has a working capital facility with the Commonwealth Bank of Australia (CBA) to bring forward access to refundable R&D tax concessions. This has provided LCK with the flexibility to bring forward its tax offsets by providing a draw down on eligible expenditure and for CBA to be repaid from the company’s taxation return rebate. In June 2018 LCK extended the Facility to December 2019 and the facility limit was increased to $10.5m. Following receipt of the 2017/18 ATO rebate and clean down of the Facility the limit decreased to $4m to match anticipated 2018/19 tax rebates. A total of $3,870,000 was drawn under the extended facility as at 30 June 2019. The receivable due from the R&D rebate is $6,363,118 for the year. 45 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019Notes to the Consolidated Financial Statements for the year ending 30 June 2019For personal use only 11. Employee remuneration Employee benefits expense Wages, salaries (inc on-costs) Superannuation Share based payments Total employee benefit expense 2019 $ 2018 $ 2,970,417 2,651,217 190,063 1,225,386 194,937 346,577 4,385,866 3,192,731 Under the Company’s Accounting for Exploration policy, labour costs relating to the LCEP are capitalised. The total staff cost was $8,592,221 (2018 : $5,759,766). Share based employee remuneration Accounting policy – Share based payment plans Share based compensation benefits are provided to employees of the Company. The fair value of the options granted under the plan is recognised as an employee benefit expense with a corresponding increase in equity (Share Option Reserve). The fair value is measured at grant date and recognised over the period during which the employees become entitled to the underlying options. The fair value at issue date is calculated using the Trinomial option pricing model that takes into account the share price at issue date, the exercise price, the term until expiry, estimate of implied volatility, the vesting and performance criteria and the non-tradeable nature of the option. At each balance sheet date, the Company revises its estimate of the number of options that are expected to become exercisable. (i) Number of options issued to employees during the year Outstanding at beginning of the year Forfeited Issued 1 Exercised Notes: 2019 2018 16,352,250 16,445,000 (1,678,750) (728,750) 15,015,000 636,000 - - 29,688,500 16,352,250 1 Excludes 4,000,000 director options and 1,000,000 company secretary options (related party) granted 18th April 2018, with issue subject to shareholder approval on 22nd August 2018. 46 Notes to the Consolidated Financial Statements for the year ending 30 June 2019For personal use only 11. Employee remuneration continued (ii) Valuation assumptions Grant date Number issued Share price at grant date Volatility (average)5 Fair value at issue date Exercise price Exercisable from Exercisable to Plan 1 Plan 2 Plan 3 15 October 2015 1 December 2015 1 December 2015 2,000,000 2,000,0000 10,250,000 $0.17 70% $0.08 $0.211, $0.252 $0.23 70% $0.02 $1.50 $0.23 70% $0.04 $0.30 22 October 2015 31 July 20163 31 July 20163 14 October 20204 31 July 2020 30 November 2020 Notes: 1 Exercise price for Tranche 1 was the greater of $0.21 and 10% premium to the 5 day VWAP up to 26 May 2015. 2 Exercise price for Tranche 2 was the greater of $0.25 and 20% premium to the 5 day VWAP up to 26 May 2015. 3 Options vest at 25% per year on 31 July 2016, 31 July 2017, 31 July 2018 and 31 July 2019 if vesting conditions (milestones) are achieved. 4 Tranche 1 expiry date is 14 October 2019, and Tranche 2 expiry date is 14 October 2020. 5 A volatility curve was used for calculations. Grant date Number issued Share price at grant date Volatility (average)3 Fair value at issue date Exercise price Exercisable from Exercisable to Plan 4 Plan 5 Plan 6 11 July 2016 4 October 2016 10 July 2017 195,000 4,000,000 636,000 $0.19 70% $0.04 $0.13 70% $0.03 $0.49, $0.30 $0.35, $0.45 $0.11 70% $0.02 $0.30 11 July 20161 10 October 2016 31 July 20182 30 November 2020 10 October 2021 30 November 2020 Notes: 1 Options vest at 25% per year on 31 July 2016, 31 July 2017, 31 July 2018 and 31 July 2019 if vesting conditions (milestones) are achieved. 2 Options vest at 33% per year on 31 July 2018, 31 July 2019 and 31 July 2020 if vesting conditions are achieved. 3 A volatility curve was used for calculations. Plan 7 Plan 8 Plan 9 22 August 2018 22 August 2018 18 July 2018 5,000,000 5,000,000 5,015,000 $0.17 70% $0.06 $0.35 $0.17 70% $0.08 $0.25 $0.19 70% $0.07 $0.25 18 January 20191 18 January 20192 18 July 20183 17 April 2023 3 July 2022 15 July 2022 Grant date Number issued Share price at grant date Volatility (average)3 Fair value at issue date Exercise price Exercisable from Exercisable to Notes: 1 Options vested at issue date. 2 Options vested at issue date. 3 Options vested at issue date. 4 A volatility curve was used for calculations. 47 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019Notes to the Consolidated Financial Statements for the year ending 30 June 2019For personal use only 11. Employee remuneration continued Employee benefits Accounting policy – Employee benefits Provision is made for the Group’s liability for employee benefits arising from services rendered by employees to reporting date. These benefits include wages, salaries and annual leave. Where these benefits are expected to be settled within 12 months of the reporting date, they are measured at the amounts expected to be paid when the liabilities are settled. The provision has been recognised at the undiscounted amount expected to be paid. In relation to employee benefits arising for employees directly involved in the exploration project, these indirect costs have been capitalised to the project. Liability for annual leave Provision for bonus Total employee benefit liability 12. Issued capital Accounting policy – Issued capital 2019 $ 312,729 204,687 517,416 2018 $ 288,019 250,565 538,584 Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares is shown in equity as a deduction from the proceeds. The company has granted unlisted options to employees in respect of their employment contracts. The fair value of the options granted is recognised as an employee benefits expense with a corresponding increase in equity (Share Option Reserve). The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to exercise the option. Fair value is determined by the use of a Trinomial option pricing model. Ordinary shares Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of shares held. At the shareholders’ meeting each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands. All issued shares are fully paid. All unissued shares are ordinary shares of the Company. 548,143,421 (2018: 452,780,603) Ordinary shares Share issue costs Total issued capital 2019 $ 2018 $ 74,930,077 61,423,690 (3,930,027) (3,096,636) 71,000,050 58,327,054 48 Notes to the Consolidated Financial Statements for the year ending 30 June 2019For personal use only 12. Issued capital continued Additional shares were issued during 2019 in relation to capital raising activities listed below. Detailed table of capital issued during the year Type of share issue Date of issue Opening balance 1 July 2018 No of ordinary shares on issue 452,780,603 Issue price $ Share issue Share issue Share issue Share issue Share issue Convertible note Options exercised Share issue costs Issued capital Unlisted options 20 July 2018 9,510,000 30 July 2018 9,240,000 21 December 2018 10,636,668 7 March 2019 15,535,591 19 March 2019 16,610,133 3 April 2019 33,360,426 16 April 2019 470,000 548,143,421 $0.16 $0.16 $0.12 $0.12 $0.12 $0.15 $0.30 At the end of the financial year, unissued shares of the Group under option are: Share capital $ 58,327,054 1,521,600 1,494,400 1,276,387 1,864,271 1,993,216 5,215,513 141,000 (833,391) 71,000,050 Expiry date 20 July 2019 14 October 2019 14 October 2020 31 July 2020 30 November 2020 30 November 2020 8 May 2021 10 October 2021 10 October 2021 30 November 2020 16 July 2022 17 April 2023 3 July 2022 31 October 2021 31 October 2021 31 October 2021 31 October 2021 31 December 2020 Total Exercise price Number of shares $0.30 $0.21 $0.25 $1.50 $0.30 $0.49 $0.30 $0.35 $0.45 $0.30 $0.30 $0.35 $0.24 $0.20 $0.22 $0.24 $0.26 $0.25 1,030,000 1,000,000 1,000,000 1,000,000 7,340,000 27,500 800,000 2,000,000 2,000,000 306,000 5,790,000 5,000,000 5,000,000 1,500,000 1,500,000 1,500,000 1,500,000 4,000,000 42,293,500 Options granted under the Employee Share Option Plan will typically expire on the earlier of the expiry date or termination of the employee’s employment (unless the employee is a retiring director). For employees that are made redundant, their future unvested tranches are still able to vest (if conditions are met). 49 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019Notes to the Consolidated Financial Statements for the year ending 30 June 2019For personal use only 12. Issued capital continued Listed options A number of listed options (17,687,463 at an exercise price of $0.50) were issued as part of the prospectus for the capital raising finalised in May 2016. These options lapsed unexercised on the 6th June 2018 and as such there are nil listed options over shares of the Group at the end of the financial year. Capital management Management objectives when managing capital are to ensure that the Group can fund the development of its operations. The Group manages the capital structure and makes adjustments to it in light of the forecast cash requirements of the development programme. To that end, internal capital rationing is complemented by capital raising activities as required to ensure funding for development activities is in place. There are no externally imposed capital requirements. 13. Reserves Accounting policy - reserves The share option reserve is used to recognise the fair value of options granted to employees and consultants but not exercised. Upon exercise of the options, the proceeds are allocated to share capital. Share option reserve Total reserves A breakdown of the share option reserve is as follows: Directors Employees Former employees Consultants Total 2019 $ 2018 $ 2,581,728 1,802,721 2,581,728 1,802,721 No of Options 10,750,000 9,011,000 9,927,500 12,605,000 2019 $ 630,010 681,018 478,966 753,860 42,293,500 2,543,854 50 Notes to the Consolidated Financial Statements for the year ending 30 June 2019For personal use only 14. Commitments for Expenditure Accounting policy - operating leases Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred. The Company does not have any leases over property, plant or equipment where lease arrangements would be classed as finance leases. Operating lease commitment Not longer than 1 year Longer than 1 year and not longer than 5 years The Group has no contingent liabilities at the year end. Accounting policy – capital commitments 2019 $ 2018 $ 193,877 8,044 249,261 12,529 Capital commitments relates to expenditure commitments for the Leigh Creek Energy Project (LCEP) outstanding at balance date. Leigh Creek Energy Project 2019 $ 2018 $ 93,720 1,037,042 The company held bank guarantees with the Minister for Mineral Resources and Energy of $184,000 dated 3 January 2018, and $170,000 dated 7 May 2018, the Department of State Development of $50,000 dated 13 July 2018, and Knight Frank of $71,160 dated 30 September 2019. Under the terms of tenement registration and renewal, tenements have commitments to work requirements. The commitment to work requirements at Leigh Creek is included above. There are no other commitments at balance date for expenditure by the Group. 51 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019Notes to the Consolidated Financial Statements for the year ending 30 June 2019For personal use only 15. Financial assets & liabilities Accounting policy – financial assets & liabilities Financial instruments 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. Subsequent measurement of financial assets and financial liabilities are 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 expires. Classification and subsequent measurement of financial assets Except for those trade receivables that do not contain a significant financing component and are measured at the transaction price in accordance with AASB 15, all financial assets are initially measured at fair value adjusted for transaction costs (where applicable) For the purpose of subsequent measurement, financial assets other than those designated and effective as hedging instruments are classified into the following categories upon initial recognition: - amortised cost - fair value through profit or loss (FVPL) - equity instruments at fair value through other comprehensive income (FVOCI) - debt instruments at fair value through other comprehensive income (FVOCI) All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within other expenses. Classifications are determined by both: The entities business model for managing the financial asset The contractual cash flow characteristics of the financial assets All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables, which is presented within other expenses. Subsequent measurement financial assets Financial assets at amortised cost Financial assets are measured at amortised cost if the assets meet the following conditions (and are not designated as FVPL): - they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows - the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding After initial recognition, these are measured at amortised cost using the effective interest method. Discounting is omitted where the effect of discounting is immaterial. The Group’s cash and cash equivalents, trade and most other receivables fall into this category of financial instruments. 52 Notes to the Consolidated Financial Statements for the year ending 30 June 2019For personal use only 15. Financial assets & liabilities continued Impairment of Financial assets AASB 9’s impairment requirements use more forward looking information to recognize expected credit losses – the ‘expected credit losses (ECL) model’. Instruments within the scope of the new requirements included loans and other debt-type financial assets measured at amortised cost and FVOCI, trade receivables, contract assets recognised and measured under AASB 15 and loan commitments and some financial guarantee contracts (for the issuer) that are not measured at fair value through profit or loss. The Group considers a broader range of information when assessing credit risk and measuring expected credit losses, including past events, current conditions, reasonable and supportable forecasts that affect the expected collectability of the future cash flows of the instrument. In applying this forward-looking approach, a distinction is made between: financial instruments that have not deteriorated significantly in credit quality since initial recognition or that have low credit risk (‘Stage 1’) and financial instruments that have deteriorated significantly in credit quality since initial recognition and whose credit risk is not low (‘Stage 2’). ‘Stage 3’ would cover financial assets that have objective evidence of impairment at the reporting date. ‘12-month expected credit losses’ are recognised for the first category while ‘lifetime expected credit losses’ are recognised for the second category. Measurement of the expected credit losses is determined by a probability-weighted estimate of credit losses over the expected life of the financial instrument. Classification and measurement of financial liabilities As the accounting for financial liabilities remains largely unchanged from AASB 139, the Group’s financial liabilities were not impacted by the adoption of AASB 9. However, for completeness, the accounting policy is disclosed below. The Group’s financial liabilities include borrowings, trade and other payables and derivative financial instruments. Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the Group designated a financial liability at fair value through profit or loss. Subsequently, financial liabilities are measured at amortised cost using the effective interest method except for derivatives and financial liabilities designated at FVPL, which are carried subsequently at fair value with gains or losses recognised in profit or loss (other than derivative financial instruments that are designated and effective as hedging instruments). All interest-related charges and, if applicable, changes in an instrument’s fair value that are reported in profit or loss are included within finance costs or finance income. 53 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019Notes to the Consolidated Financial Statements for the year ending 30 June 2019For personal use only 15. Financial assets & liabilities continued Categories of financial assets and liabilities The carrying amount of financial assets and liabilities in each category are as follows: Financial assets Notes Assets at fair value through profit or loss Financial assets at amortised cost Total 30 June 2019 Trade and other receivables Cash and cash equivalents 5 - - - 6,524,077 6,524,077 3,057,383 3,057,383 9,581,460 9,581,460 Financial liabilities 30 June 2019 Current borrowings Trade and other payables Notes Designated at fair value through profit or loss Other liabilities (amortised cost) Total 10 9 - - - 3,870,000 3,870,000 767,909 767,909 4,637,909 4,637,909 Financial assets Notes Assets at fair value through profit or loss Financial assets at amortised cost Total 30 June 2018 Trade and other receivables Cash and cash equivalents Financial liabilities 30 June 2018 Current borrowings Trade and other payables 6 5 - - - 9,359,171 9,359,171 9,323,648 9,323,648 18,682,819 18,682,819 Notes Designated at fair value through profit or loss Other liabilities Total 10 9 - - - 3,830,000 3,830,000 5,757,263 5,757,263 9,587,263 9,587,263 54 Notes to the Consolidated Financial Statements for the year ending 30 June 2019For personal use only 15. Financial assets & liabilities continued Measurement Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are stated at amortised cost. i. Treasury Risk Management The risk management of treasury functions is managed by the Audit and Risk Committee. ii. Finance Risks The Group’s financial instruments are exposed to a variety of financial risks, being Market risk (Interest rate and Price risk), Credit risk and Liquidity risk. The Group operates mainly in Australia and as such is not subject to foreign exchange risk. Interest rate risk The Group’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in market interest rates on classes of financial assets and liabilities, is summarised in the table above. Sensitivity: At June 30, 2019, if interest rates on cash and term deposits had changed by -/+ 10 basis points from the year end rates with all other variables held constant post tax loss and total equity would have been $15,363 more/less as a result of lower/higher interest income. At June 30, 2019, if interest rates on borrowings had changed by -/+ 10 basis points from the year end rates with all other variables held constant post tax loss and total equity would have been $954 more/less as a result of lower/higher interest expense Credit risk Exposure to credit risk relating to financial assets arises from the potential non-performance by counterparties of contract obligation that could lead to a financial loss to the Group. The Group’s maximum exposure to credit risk is its cash and cash equivalents and receivables as noted in the table above. The group manages its credit risk by depositing with reputable licenced banks. Liquidity risk Liquidity risk arises from the possibility that the Group might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. The Group manages liquidity risk by monitoring forecast cash flows and ensuring that adequate sources of funding are available. Maturity of the group’s financial liabilities is within 1 year. 55 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019Notes to the Consolidated Financial Statements for the year ending 30 June 2019For personal use only 16. Notes to the Statement of Cash Flows (a) Reconciliation of cash For the purposes of the statement of cash flows, cash includes cash on hand and in banks and investments in money market instruments. Cash at the end of the financial year as shown in the statement of cash flows is reconciled to the related items in the statement of financial position as follows: Bank balances and short term deposits 2019 $ 2018 $ 3,057,383 9,323,648 The weighted average effective interest rate on bank deposits is 1.19% (2018: 1.36%). All deposits are for less than 12 months. (b) Reconciliation of cash flow from operations with loss after tax Loss after income tax Cash flows excluded from loss attributable to operating activities: Non-cash flows in operating loss Depreciation expense Share based payments Other revenue Interest Change in assets and liabilities 2019 $ 2018 $ (9,534,857) (6,018,850) 59,116 1,225,386 (3,455) 2,163,035 39,951 346,577 - - Decrease/(Increase) in receivables / prepayments 9,340,645 (1,905,283) Increase/(Decrease) in payables Increase/(Decrease) in provisions 103,584 4,162,733 (21,167) 240,084 Net Cash (used in) / provided by operating activities (3,332,286) (3,134,788) 56 Notes to the Consolidated Financial Statements for the year ending 30 June 2019For personal use only 17. Parent Entity Disclosures Investment in controlled entities Entity Country of Class of share Interest Held Bonanza Gold Pty Ltd Leigh Creek Operations Pty Ltd Parent entity information Parent Entity Asset Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Equity Issued capital Share option reserve Accumulated losses Shareholder equity Financial performance Profit (loss) for the year Other comprehensive income Total comprehensive income incorporation Australia Australia Ordinary Ordinary 2019 100% 100% 2019 $ 2018 100% 100% 2018 $ 8,847,931 18,086,987 25,199,744 11,560,147 34,047,675 29,647,134 4,935,623 4,996,516 107,907 - 5,043,530 4,996,516 69,390,809 56,717,813 2,581,728 1,802,721 (42,968,392) (33,869,916) 29,004,145 24,650,618 (9,544,856) (6,018,863) - - (9,544,856) (6,018,863) The parent entity has not entered into a deed of cross guarantee nor are there any contingent liabilities at the year end. Accounting policy – capital commitments for parent Capital commitments relates to expenditure commitments for the Leigh Creek Energy Project (LCEP) outstanding at balance date. Leigh Creek Operations Pty Ltd 2019 $ 2018 $ 93,720 1,037,042 57 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019Notes to the Consolidated Financial Statements for the year ending 30 June 2019For personal use only 18. Related Party Transactions Transactions with key management personnel compensation Key management of the Group are the executive members of the Group’s Board of Directors and members of the management team. Key management personnel remuneration includes the following expenses: Total short term employee benefits Total post-employment benefits Share based payments Total Remuneration 2019 $ 2018 $ 1,831,935 1,477,356 104,850 442,633 121,996 267,525 2,379,418 1,866,877 The amounts disclosed in the table are the amounts recognised as an expense during the reporting year. Other transactions with key management personnel Transactions between related parties are on normal commercial terms and conditions no more favourable than those to other parties, unless otherwise stated: i) Piper Alderman lawyers were paid $46,255 (2018: $82,909) for legal services rendered to the Group. Greg English is a partner at Piper Alderman lawyers; ii) ARK Energy Ltd had a service agreement in place with the Company for facilities and accounting services. Fees rendered to the Company were $9,432 (2018: $14,700); iii) Investment Company Services Pty Ltd were paid $45,509 (2018: $60,116) for providing investor relations services to the Group. The party is related to Mr Peters, Executive Chairman. iv) On 7 February 2019 the Company issued convertible notes with a face value of $3m to Crown Ascent Development Limited. The issue price was $0.12 per note, convertible into a fully paid share, with interest calculated at 12.2% per annum (to be capitalised and paid in shares at the conversion price), and early conversion required full payment of interest over the 2 year term of the notes. In April 2019, these convertible notes were converted to shares resulting in an interest charge of $1,818, 013. In addition, Crown Ascent Development Limited earned a 6% establishment fee which was paid in shares at the conversion price, worth $397,500. Mr Xiaojiang is a Director of Crown Ascent and non- executive director of Leigh Creek Energy. Mr Xiaojiang provided consulting services during the year totalling $210,833. 58 Notes to the Consolidated Financial Statements for the year ending 30 June 2019For personal use only 19. Auditor’s Remuneration During the year the following fees were paid or payable for services provided by the Auditor of the Group: Auditing and review services Other services 2019 $ 43,982 - 2018 $ 43,856 55,750 During the year, Grant Thornton Audit Pty Ltd, the Company’s auditors, did not undertake any additional services to their statutory audit duties. 20. Earnings Per Share Accounting policy – Earnings per share i) Basic earnings per share Basic earnings per share is calculated by dividing the profit (loss) attributable to equity holders excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the year. ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the weighted average number of shares assuming conversion of all dilutive potential ordinary shares. The calculation of basic loss per share at 30 June 2019 was based on the loss attributable to ordinary equity holders of $9,534,857 (2018: $6,018,850) and a weighted average number of ordinary shares outstanding during the 12 months of 433,286,469 (2018: 392,533,489). The calculation of diluted loss per share at 30 June 2019 is the same as basic diluted loss per share. In accordance with AASB 133 Earning per share, as potential ordinary shares may result in a situation where their conversion results in a decrease in the loss per share, no dilutive effect has been taken into account. Potential ordinary shares relating to listed and unlisted options at 30 June 2019 totalled 42,293,500 (2018: 24,652,250). Loss used to calculate basic EPS Basic earnings per share – cents per share Diluted earnings per share – cents per share 2019 $ 2018 $ (9,534,857) (6,018,850) (0.02) (0.02) (0.02) (0.02) Weighted average number of shares used as denominator Weighted average number of ordinary shares outstanding during the year used in calculating basic EPS 433,286,469 392,533,489 Shares deemed to be issued for no consideration in respect of share based payments Listed options issued for no consideration 42,293,500 24,652,250 - - Weighted average number of shares used in diluted earnings per share 475,579,969 417,185,739 59 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019Notes to the Consolidated Financial Statements for the year ending 30 June 2019For personal use only 21. Matters Subsequent to the End of the Year On 1 August 2019 the Company completed a $3.2 million capital raise with professional, sophisticated and institutional investors, with 14,322,222 ordinary shares issued on that day at a price of $0.225 per share. On 13 August 2019 the Company signed a Heads of Agreement with China New Energy Group Limited to develop in-situ gasification in China. The agreement establishes the process to develop a full commercial agreement, with a view to forming a joint venture company. 22. Company Details The registered office and principal place of business is: Leigh Creek Energy Limited Level 11, 19 Grenfell Street Adelaide, South Australia 5000 60 Notes to the Consolidated Financial Statements for the year ending 30 June 2019For personal use only Level 3, 170 Frome Street Adelaide SA 5000 Correspondence to: GPO Box 1270 Adelaide SA 5001 T +61 8 8372 6666 F +61 8 8372 6677 E info.sa@au.gt.com W www.grantthornton.com.au Independent Auditor’s Report To the Members of Leigh Creek Energy Limited Report on the audit of the financial report Opinion We have audited the financial report of Leigh Creek Energy Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2019, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies, and the Directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its performance for the year ended on that date; and b complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 www.grantthornton.com.au ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. 61 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019Independent Audit ReportFor personal use only Text to come 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. Key audit matter How our audit addressed the key audit matter Exploration and evaluation assets – Note 8 At 30 June 2019, the carrying value of exploration and evaluation assets was $25,025,917. Our procedures included, amongst others:  obtaining the management reconciliation of capitalised In accordance with AASB 6 Exploration for and Evaluation of Mineral Resources, the Group is required to assess at each reporting date if there are any triggers for impairment which may suggest the carrying value is in excess of the recoverable value.  exploration and evaluation expenditure and agreeing to the general ledger; reviewing management’s area of interest considerations against AASB 6; The process undertaken by management to assess whether there are any impairment triggers in each area of interest involves an element of management judgement. This area is a key audit matter due to the significant judgement involved in determining the existence of impairment triggers.  conducting a detailed review of management’s assessment of trigger events prepared in accordance with AASB 6 including;  tracing projects to statutory registers, exploration licenses and third party confirmations to determine whether a right of tenure existed;  enquiry of management regarding their intentions to carry out exploration and evaluation activity in the relevant exploration area, including review of management’s budgeted expenditure;  understanding whether any data exists to suggest that the carrying value of these exploration and evaluation assets are unlikely to be recovered through development or sale;  evaluating the competence, capabilities and objectivity of management’s experts in the evaluation of potential impairment triggers; and  assessing the appropriateness of the related financial statement disclosures. Information other than the financial report and auditor’s report thereon The Directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2019, but does not include the financial report and our 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. 62 Independent Audit ReportFor personal use only 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 Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our auditor’s report. Report on the remuneration report Opinion on the remuneration report We have audited the Remuneration Report included in the Directors’ report for the year ended 30 June 2019. In our opinion, the Remuneration Report of Leigh Creek Energy Limited, for the year ended 30 June 2019 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. GRANT THORNTON AUDIT PTY LTD Chartered Accountants I S Kemp Partner – Audit & Assurance Adelaide, 28 August 2019 63 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019Independent Audit ReportFor personal use only Substantial shareholders at 7 August 2019 Name Fully paid shares Ordinary shares % Options Options % China New Energy Group Limited Crown Ascent Development Limited 136,333,334 45,831,347 24.24 8.15 - - - - Distribution of shareholdings at 7 August 2019 Number of security holders by size of holding: Range 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total Total holders shares Number of shares Total holders listed options Number of listed options 461 963 627 213,678 2,726,432 4,976,257 1,605 57,689,289 557 496,859,987 4,213 562,465,643 - - - - - - - - - - - - The issued capital of the Company is fully paid ordinary shares (entitling the holders to participate in dividends and proceeds on winding up of the Company in proportion to the number of shares held) and listed options. On a show of hands every holder of the shares present at a meeting in person or by proxy is entitled to one vote and upon a poll each share counts as one vote. At 7 August 2019 a marketable parcel constituted 2,000 shares. The number of shareholders holding less than a marketable parcel was 717 (593,208 shares). 64 Shareholder informationFor personal use only Twenty largest shareholders at 7 August 2019 Name China New Energy Group Limited Crown Ascent Development Limited Citic Australia Pty Ltd HSBC Custody Nominees (Australia) Limited - A/C 2 Rubi Holdings Pty Ltd Fully paid ordinary shares % of issued capital 136,333,334 24.24 45,831,347 15,470,000 14,540,588 13,516,584 Mr George Andrew Raftopulos + Mrs Elizabeth Athena Raftopulos 12,430,563 Bart Properties Pty Ltd Slade Technologies Pty Ltd One Design & Skiff Sails Pty Ltd Littlejohn Embrey Engineering Pty Ltd GS Group Australia Pty Ltd River Property Investments Pty Ltd Mr Bruce Warrington Holman Hephzibah Pty Ltd Mr Ryan Burke Lawry Super Nominees Pty Ltd Bart Properties Pty Ltd Hephzibah Pty Ltd Martin & Alison Cromme Pty Ltd 8,900,000 6,692,800 6,412,706 5,100,000 4,821,197 3,806,754 3,582,309 3,143,758 3,088,000 2,884,493 2,844,444 2,687,064 2,662,500 Mr Bruce Warrington Holman + Mrs Amanda Louise Holman 2,646,531 8.15 2.75 2.59 2.40 2.21 1.58 1.19 1.14 0.91 0.86 0.68 0.64 0.56 0.55 0.51 0.51 0.48 0.47 0.47 Totals top 20 Total remaining holders balance Unissued equity securities Unlisted options Securities exchange The Company is listed on the Australian Securities Exchange. 297,394,972 265,070,671 52.87 47.13 Number 42,293,500 LCK’s valued relationship with major shareholders China Communications Construction Company (CCCC) continued with a site visit and collaboration talks during 2018. 65 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019For personal use only The demonstration plant was located in the heavily modifed Telford Basin in the former Leigh Creek Coal field. How does the ISG process work? 3) Initiation tool is placed down the 2 5 7 1 5 325m The ISG process converts coal, through a chemical reaction, from its solid state into a gaseous form, resulting in the generation of syngas. Syngas comprises methane, hydrogen and carbon monoxide energy gases with variable amounts of inert gases, carbon dioxide and nitrogen. inlet well to heat the coal and starts the gasification process. 4) Addition of air and water creates a series of chemical conversions transforming coal to syngas. 5) Process is controlled by using inlet and outlet wells to manage the flow of air and water. 1) Outlet well is drilled to intersect coal seam. 6) Syngas will flow up through the outlet well and is analysed on the surface. 4 500m OVERBURDEN (SEAL) 6 2) Inlet well is drilled and steered to link up with Outlet well. 7) Process is stopped by turning off air and water supply from the inlet well. 12m12m MAIN SERIES COAL SEAM GASIFIER CHAMBER 3 2 Diagram not to scale 30m What is LCK’s Pre-Commercial Demonstration Facility? LCK’s Pre-Commercial Demonstration Facility (PCD) commenced Q4 2018 and concluded Q1 2019 and had five main objectives: 1 Produce syngas comprising Methane (CH4), Hydrogen (H2), Carbon Monoxide (CO) and Nitrogen (N2). ISG of 1t LC coal 15 GJ Syngas 2 Produce syngas at over 1 million cubic feet per day. Why ISG? The remaining resource in the Telford Basin at Leigh Creek is deep and no longer economic to mine using open cut mining methods. 1,153 PJ 2P RESERVE E a s t e r n Australia’s largest undeve l o p e d a nd uncontracted gas reserve s TELFORD BASIN What is a 2P Reserve? The project has a PRMS reserve of 2P 1,153 PJ, which is now the largest uncontracted gas reserve available to eastern Australia and larger than what is commercially available in the entire Cooper Basin (ACCC, 2018). LCK’s certifcation comes after having successfully extracted gas at economic flow rates at its PCD. The size of the reserve indicates that LCK has multiple commercailisation paths, mainly the sale of synthetic natural gas in the Australian East Coast market and/or using the gas to manufacture ammonia-based fertiliser products. 66 3 Capture information required to upgrade the Petroleum Resources ISG technology is able to access the deep coal via a system of drilled linked wells. 309kg LPG gas bottles OR OR OR OR Management System (PRMS) 2C resource to 2P reserve. 4 Demonstrate safe and environmentally responsible ISG operations. Syngas can be used to make other products such as; electricity, synthetic natural gas, ammonia and derivatives (fertilisers or explosives), methanol and diesel. 5 Provide key data and information for commercial project development. gas to fuel a hot water service for 30mins/day electricity to run an average household 1000 km of fuel for an average car 200days of natural 20wheelbarrows 4days of of fertilser The PCD was deemed a success having met or exceeded all objectives, taking the company another step closer to commercial operations. 1,153 PJ = LCK’s syngas could power all 9.9 million Australian homes continuously for 2.8 years OR OR OR 865 petajoules pipeline gas 31 million tonnes of ammonia CH4N2O 52 million tonnes of urea 240,363 gigawatt hours of electricity Stats: ABS 2016 Census report Facts: The in situ gasification (ISG) processFor personal use only Directors Executive Chairman Daniel J Peters Managing Director Phillip Staveley Non-Executive Director Gregory D English Non-Executive Director Murray K Chatfield Non-Executive Director Zhe Wang Non-Executive Director Zheng Xiaojiang Company Secretary Jordan Mehrtens Level 11, 19 Grenfell Street Adelaide, South Australia, 5000 Registered & Principal Business Office Level 11, 19 Grenfell Street Adelaide, South Australia, 5000 Bankers Commonwealth Bank of Australia 96 King William Street Adelaide, South Australia, 5000 Principal Lawyer Piper Alderman Level 16, 70 Franklin Street Adelaide, South Australia, 5000 Auditors Grant Thornton Audit Pty Ltd Level 3, 170 Frome Street Adelaide, South Australia, 5000 Share Registrar Computershare Registry Services Pty Ltd Level 5, 115 Grenfell Street Adelaide, South Australia, 5000 Investor enquiries: 1300 556 161 International: +61 3 9415 4000 Leigh Creek Energy Limited ABN 31 107 531 822 PO Box 12 Rundle Mall SA 5000 Phone: +61 8 81329100 Email: contactus@lcke.com.au www.lcke.com.au ASX: LCK 67 LEIGH CREEK ENERGY LIMITED ANNUAL REPORT 2019Corporate directoryFor personal use only LEIGH CREEK ENERGYLimited 68 Reliable energy for South AustraliaFor personal use only

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