Northern Minerals Limited Annual Report 2020

Plain-text annual report

A N N U A L R E P O R T 2 0 2 0 2020 ANNUAL REPORT ASX:NTU CONTENTS CHAIRMAN’S REPORT ...............................................................................................................................................................................................................1 CEO’S REPORT ............................................................................................................................................................... 3 SAFETY .............................................................................................................................................................................. 6 ENVIRONMENT & STAKEHOLDER ENGAGEMENT ...................................................................................... 8 PEOPLE .............................................................................................................................................................................10 COO REPORT ................................................................................................................................................................12 CFO REPORT ..................................................................................................................................................................17 EXPLORATION & GEOLOGY REPORT ...............................................................................................................20 ORE RESERVE AND MINERAL RESOURCE STATEMENT ........................................................................27 ORE RESERVE ..................................................................................................................................................28 MINERAL RESOURCE ..................................................................................................................................29 FINANCIAL REPORT ..................................................................................................................................................32 DIRECTORS’ REPORT ..................................................................................................................................33 REMUNERATION REPORT ........................................................................................................................44 CORPORATE GOVERNANCE STATEMENT ......................................................................................55 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME ...............57 STATEMENT OF FINANCIAL POSITION ............................................................................................58 STATEMENT OF CHANGES IN EQUITY...............................................................................................59 STATEMENT OF CASH FLOWS ...............................................................................................................60 NOTES TO THE FINANCIAL STATEMENTS .......................................................................................61 DIRECTORS DECLARATION .................................................................................................................104 AUDITORS DECLARATION OF INDEPENDENCE .................................................................................... 105 INDEPENDENT AUDITORS REPORT ...............................................................................................................106 SHAREHOLDER INFORMATION ....................................................................................................................... 111 CORPORATE DIRECTORY .................................................................................................................................... 114 1 Chairman’s Report NORTHERN MINERALS _ ANNUAL REPORT 2020 2 CHAIRMAN ’S REPORT Dear Shareholder, I am pleased to present to you the Company’s 2020 annual report. It has been a challenging year, but I am extremely proud of the Company’s achievements over the past 12 months. This time last year, the Browns Range Pilot Plant was one of only a few producers of heavy rare earths outside of China. In January, we made our first shipment of heavy rare earth carbonate to German heavy industries major thyssenkrupp, and our second in March. This was a significant achievement for our company, for Browns Range and for Australia, and we look forward to continuing our relationships with offtake partners into the future. In March, we made the difficult decision to put operations at Browns Range temporarily on care and maintenance, due to the COVID-19 crisis and the inclusion of Browns Range in the Commonwealth biosecurity restrictions applied to the Kimberley region. After closely following the impact of the virus around the world, we made what we believe to be the right decision for our business, our people, and for the community in which we operate by closing down operations. As of 1 July, following the lifting of the Commonwealth biosecurity restrictions in the Kimberley region, Browns Range has partially resumed testwork through the beneficiation section of the Pilot Plant and we are greatly encouraged that we will also be able to restart the hydrometallurgical section of the Pilot Plant in due course. In my note to shareholders last year, I also noted issues around the Company’s research and development tax offset claims over several financial years. We have worked closely with the ATO and other stakeholders to resolve these matters and in August 2020, we have reached a settlement for R&D claims for the financial years ended 30 June 2017, 2018 and 2019, resulting in a net refund of $9.9 million payable to the Company. consider the viabilty of a full size heavy rare earths processing plant at Browns Range. We will also now take the opportunity to get back out on the ground and ramp-up exploration across our highly prospective tenement package, as we aim to lift the overall life of mine available for inclusion in the next stage of assessing the feasibility a full scale mining and processing operation at Browns Range. The full exploration potential of Browns Range remains unfulfilled with many targets yet to be drilled. The tenement package, with an area of 30km by 60km, hosts one of the largest occurrences of the heavy rare earth mineral xenotime in the world. Pleasingly, our safety performance and environmental record at the Browns Range Project remains at a high standard. It is testament to the talented and committed team, whose strong culture has contributed to our safety and environmental record. In June we said goodbye to our long-time CEO and Managing Director George Bauk, who spearheaded the development of the Pilot Plant Project which transitioned us from explorer to producer. Our long-term CFO, Mark Tory, has stepped up into the role of CEO. Mark has been with the Company for eight years and brings an intimate knowledge of Northern Minerals and more than 35 years’ professional experience to the role to ensure the Company continues to grow and prosper for shareholders. I would like to take this opportunity to thank our staff, consultants and contractors for their tireless effort throughout 2019/20 and I thank you, our shareholders, for your patience and continuing support. I would also like to thank our partners, the Jaru people, for their continuing support, assistance and cooperation – together we hope to make Browns Range the longest-life, most reliable producer of Heavy Rare Earths in Australia and the world. The settlement of our R&D claims with the ATO will allow us to further reduce the Company’s debt position and to clean up our balance sheet as we Colin McCavana Chairman NORTHERN MINERALS _ ANNUAL REPORT 20203 CEO’S Report NORTHERN MINERALS _ ANNUAL REPORT 20204 CEO’S REPORT Well what a year we have seen – who would have predicted the devastation, the pandemic and global reaction that has seen the world transform into a very different place. Northern Minerals was impacted by the pandemic and the enacting of the Biosecurity Act to protect remote indigenous communities which heavily restricted travel into and within the Kimberley region. The pilot plant was put on care and maintenance in March 2020 and the company used this opportunity to discuss the learnings from the first 18 months of the operation of the plant. In August 2020 the plant was partially restarted to continue test-work within the beneficiation plant. The last year has been very challenging, as most have been over this journey. I recently took over as CEO from George Bauk in July 2020, who had dedicated over 10 years of his life to driving Northern Minerals to the position it is in today. George gave his heart and soul to the company and I am personally grateful for the energy and time he spent and the absolute dedication and care he had for the people and the company. Again, over the last 12 months the company has seen financial crisis and been able to weather the storm to get to the position where the company will be debt free with cash in the bank by the end of December 2020. To this end, I would like to personally thank all new and existing shareholders for the support shown to help grow Northern Minerals. In particular, I would like to express my gratitude to Jeff Easton and the team at Lind Partners for their continued support of the company in difficult times. A great group of people who are very dedicated and work together ensured the company moved forward and made the decisions necessary to survive and grow. In particular, I would like to thank the Board of Directors who made tough decisions during very difficult times. Secondly, the executive team at Northern who work long hours to ensure the operation is on track, the finances are in order, the exploration work is continuing and the people in the organisation are cared for. All staff helped the company get through the pandemic as they were either stood down or took significant pay cuts to ensure the company survived. Finally, to our contractors and suppliers who continue to stick by us, extending terms of credit and continuing to help us every way possible – a huge thank you. The last financial year threw up many obstacles. The FIRB rejected an investment by the largest rare earth company in the world, through Boagang Group Investment (Australia) Pty Ltd, who were going to invest A$20 million for a 10% stake in the company at 6.2 cents per share. The company had to replace this financing with a placement at 2 cents per share which was highly dilutive to existing shareholders. In addition, the company worked tirelessly during the year to get AusIndustry to set aside its negative finding in relation to its research and development (R&D) finding. In February 2020, the company received formal notification that AusIndustry had reversed its initial finding in relation to the company’s R&D claims and the company’s registered activities were in fact eligible for the R&D incentive. Following this reversal, the company then engaged in a process with the ATO in relation to the settlement of claims for the 2017, 2018 and 2019 tax years. This negotiation concluded in August 2020 with the company to wipe off the $9 million debt in the books and received just under $9.9 million cash from the ATO in mid-September. Subsequent to the end of the financial year and as part of the partial restart of operations, construction in relation to the ore sorter has commenced. The inclusion of ore sorting into the circuit aims to significantly increase the head grade to the mill by approximately 2.2x, which if successfully tested following implementation, would improve the project economics. Separation test-work at a Scoping Study level with K-Tech in the USA of our mixed rare earth carbonate continued during the year. The pandemic has slowed the process with the company expected to see results at the end of the 2020 year. This is an essential step in the advancement of the project to ensure that we can produce many separated products that will open many markets globally. NORTHERN MINERALS _ ANNUAL REPORT 20205 The company is also looking at further studies around separated product utilising various technologies. The $51 million road upgrade from Halls Creek to Ringer Soak which was announced by the Federal and State Governments in May 2019, continued during the year and great progress has been made. This project should allow for a 20% increase in throughput for a full-scale operation through increased access to site during the wet season. Exploration was suspended during the year following the excitement of 2019 discoveries of Dazzler and Iceman as a result of financial uncertainty and the pandemic, but is now ramping back up. We have recently announced that the company will focus on exploration over the next 12 to 18 months to endeavour to double the existing reserves and resources used in the mine life for a potential full- scale operation. Shipments continued through our offtake partner thyssenkrupp during the year which saw the company receive just over $3 million in revenue. It is important to note that the throughputs and production will vary over the three-year Pilot Plant Project as we assess various methods, processes and equipment. As a pilot plant project, we have planned and are undertaking 271 different experiments aimed at assessing the economic and technical feasibility of a larger-scale development. Financing has continued to be a major focus for the company in 2019-20. During this period, we have achieved further milestones including: • Raised $52.0 million in equity (net of fees); • Raised $2.5 million in an unsecured convertible note; and • Closure of the $7.5 million convertible note. Northern Minerals is continually striving to strengthen our balance sheet to drive our core activities to determine whether or not the process is technically and economically viable so we can Above: Browns Range Pilot Plant. decide on the development of a larger-scale operation. In addition to move downstream into separation of product and expand the resource base to add mine life to a full-scale project. Rare earths have continued to become globally significant and it continues to be an education process with governments and industry in relation to the supply chain of rare earths and the dominance of China in this area. The trade tensions continue between the US and China and this has led to continued media coverage in relation to heavy rare earths and increased interactions with industry and government. At Northern Minerals, we are doing our bit, in developing alternative global supply chains and providing environmentally safe dysprosium. In the coming year, we will build on our knowledge of our operation and the markets, continue studies in downstream processing, look for exploration success to expand our resource and reserve base with the aim of being in a much stronger position at the end of 2020–21. Thank you again to all the board members, employees, contractors, suppliers, federal, state and local governments, the Jaru and the broader community. Mark Tory Chief Executive Officer NORTHERN MINERALS _ ANNUAL REPORT 20206 HEALTH AND SAFET Y Northern Minerals encourages a culture of openness, teamwork and integrity in everything we do. We believe that through effective consultation, visible leadership, clear communication and the active involvement of all employees and contractors, we will achieve the best possible Health & Safety outcomes. The Kimberley biosecurity zone, in response to COVID-19, effectively restricted travel to site from 26 March 2020 to 5 June 2020 with the Browns Range Pilot Plant placed on care and maintenance for most of the June quarter. Northern Minerals put in place an Infectious Diseases Management Plan in-line with the Department of Mines Industry Regulation and Safety requirements and this continues to be implemented at site post the lifting of Biosecurity order. There have been no cases of COVID-19 at the Browns Range site and no-one has presented with COVID-19 symptoms. Through our value system SPIRIT, which stands for Safety, People, Integrity, Results, Initiative and Team, we are committed to providing a safe working environment and instilling a strong culture of safety within the Company. Over the course of the year, we have continued to develop and implement a set of policies, standards, procedures and management plans, which sets our focus on managing risks and injury prevention. The STEMS system continued to be used during the year for reporting and tracking the Company’s safety performance, which combined with a process of investigating and reviewing incidents and hazards to continuously improve safety performance and minimise risk to personnel, is a key component to providing a safe working environment. Good progress continued to be made on the Safety Improvement Plan actions during the year. Northern Minerals’ overall safety performance for Financial Year 2020 was acceptable, but having two Recordable Injuries in January 2020 served as a constant reminder for the Company and all personnel to be focused on their safety and that of their colleagues every day of the year. During FY20, there was no Lost Time Injury (LTI) and the LTI frequency rate has remained at 0 as it was for the two previous years. For the reporting year, the Company had the two Recordable Injuries (one Restricted Work Injury and one Medical Treatment Injury) with the Total Recordable Injury Frequency Rate (TRIFR) then trending up and reaching a TRIFR of 12.09 in June 2020. A key focus area this year has been on emergency response capability and training. Mettle Crisis Leaders provided onsite training and a mock scenario in November for the Emergency Response Plan (ERP) in conjunction with Crisis Management Plan (CMP) training in the Perth office. The ERP and CMP have subsequently been refined and the site risk register has been updated. To complement this, several ‘hands- on’ training exercises were conducted during the year by the Emergency Response Team to prepare for incidents that could occur on site including, working at heights, confined space rescue training and the use of self-contained breathing apparatus. Above: Browns Range Pilot Plant. NORTHERN MINERALS _ ANNUAL REPORT 20207 To improve the emergency and medical response on site, a new medical building was procured and delivered to site after year end, with the facility capable of hosting the emergency response equipment, medical equipment, occupational hygiene equipment, the site ambulance, fire truck and associated safety equipment. The Company upgraded road signage on the mine access road in October to identify corners that need to be driven at a lower speed to improve safety for people travelling to and from the Browns Range site, while a Traffic Management Plan was developed to reinforce this. Another key focus area has been general health and wellbeing, with the Company implementing an Occupational Health and Hygiene Management Plan which now also provides for mental health aspects. A new gym at the camp and the 1.5km nature trail was established between the village and the processing plant continue to be popular healthy exercise options for employees. Above: Emergency response training. Moving forward In the year ahead, Northern Minerals is determined and committed to ensure that visible and proactive safety leadership is continued at all levels. We will strengthen our commitment to further health and safety improvements, and we will continue to focus on working safely and providing our people with the necessary skills, systems, processes and work environment to perform their tasks safely. NORTHERN MINERALS _ ANNUAL REPORT 20208 ENVIRONMENT & STAKEHOLDER ENGAGEMENT Environment Northern Minerals is committed to producing ethically mined rare earth carbonate and integrating risk-based environmental management throughout our operations. We also strive for continual improvement of our environmental performance, efficient use of resources, prevention or minimisation of pollution and consider high environmental standards a critical part of our operations. Northern Minerals has received environmental permitting for the installation of an ore sorter in the process circuit. The 2019 calendar year saw significant effort dedicated to undertaking environmental and radiological impact assessment studies and then communicating the proposed changes and associated risk to key community and government stakeholders. The overall findings of the impact assessment studies undertaken were that the proposed changes are associated with a low level of risk if the Project continues to be managed in accordance with existing legal requirements and standard industry practices currently in place. Our Environmental Management System (EMS) ensures that we operate in accordance with our approvals and statutory requirements and continue to identify areas for continual improvement. Key improvement initiatives during the annual period have focussed on refining the Project water balance to better manage risk related to mine affected water in a climate with a monsoonal influence; as well as further implementation of the Dingo Risk Management Strategy via training and awareness initiatives and installation of an improved dog-proof fence around the landfill facility. Good reporting is an important part of environmental management and we prepared and submitted all our statutory reports to the DMIRS and Department of Water and Environmental Regulation. Internally, environmental incidents and issues are included in the daily report and environmental performance is also included in the monthly report to the Board. We believe in honest, open and timely communication with regulators and reported one breach of environmental licence conditions during the reporting period related to an unplanned stormwater discharge from the Pilot Plant Event Ponds. The discharge was relatively small in volume and occurred following heavy rainfall in March 2020. Monitoring of water quality during the event demonstrated it was of good quality and no environmental harm occurred as a result. We believe that rehabilitation and preparing for closure is an integral part of the mining process and we will continue to undertake progressive rehabilitation as areas become available to do so. Currently, all available mining activity-related areas have been rehabilitated and there are currently no further opportunities for progressive rehabilitation. The exploration rehabilitation program was however, delayed due to COVID-19 pandemic related disruptions and a dedicated effort has commenced to complete all outstanding rehabilitation prior to the upcoming 2020 drilling program. A revised Mine Closure Plan was approved during 2020 and our ongoing closure studies, which include rehabilitation trials and in-situ kinetic leach trials will continue to provide valuable information that will inform future closure planning. Stakeholder Engagement We believe in open and honest stakeholder engagement to ensure that there is a clear understanding of the project and its current and future impacts. Our stakeholders include regulators, local government, traditional owners, pastoralists, customers, contractors, employees, shareholders, interest groups, and the general community. No complaints were received during the reporting period. During the reporting period, we continued to have a good relationship with the Jaru people, who are the traditional owners of the Browns Range Project area. We recognise and respect that there are areas of special heritage and cultural significance and continue to honour our agreement with the Jaru when managing land clearing, protecting heritage values and environmental management and reporting. This includes the ongoing training and support of several Jaru representatives to conduct pre-clearance surveys for conservation significant fauna which include the Greater Bilby, Spectacled Hare Wallaby and Brush-tailed Mulgara. NORTHERN MINERALS _ ANNUAL REPORT 20209 Training to Work program Northern Minerals also employed a training coordinator to implement the Training to Work program in partnership with the Wunan organisation in the East Kimberley. The inaugural course was scheduled for May 2020, but was postponed due to COVID-19. A modified course is now scheduled to be held in October 2020. This course will give six local Aboriginal community members the opportunity to live and train at the Browns Range site while gaining the skills and experience needed to be successful in a full time position with Northern Minerals. Successful graduates will be supported to apply for positions with Northern Minerals or with our contractors working at site and assist us to meet our targets regarding local Aboriginal employment. Above: Cleaning supplies donated to Ringer Soak community. We continue to give preference to employing members of the local community who have equivalent skills and experience. The Company has also continued to engage a local Jaru-owned company to provide a front-end loader and operator for the loading of ore from the ROM pad to the crusher. The contractor employs several local Jaru traditional owners as operators of the machinery. The majority of the project area is located on the Gordon Downs Pastoral Lease and we seek to maintain the good relationship with the pastoralist that has been developed since the early phase of the Project. Northern Minerals remains committed to keeping the Halls Creek Shire Council and communities of Halls Creek and Ringer Soak informed of the Project’s environmental performance and we will continue to consult with the community regarding any proposed changes to the Project. Visits to the community were limited in the second half of the 2020 Financial Year due to Remote Aboriginal Community Directions, which were put in place by the Commonwealth to protect communities from COVID-19. Ahead of those biosecurity measures being put in place, Northern Minerals appointed a Community Liaison in February 2020 to be the primary point of contact between the Company and the traditional owners. Contact during the restricted period continued via phone and email. Regular visits to the community are expected to resume once all remaining restrictions are removed. Having a dedicated community liaison will allow community members to communicate more frequently and directly with Northern Minerals. While Browns Range was on care-and-maintenance as a result of restrictions, Northern Minerals donated a significant quantity of cleaning products to the nearby Ringer Soak community to assist with COVID-19 prevention. These products assisted in limiting outbreaks of skin disease and improving the overall health of the community. Northern Minerals put in place a strict policy regarding interactions with the local Aboriginal population during the restricted period to ensure that the ongoing risk of spreading COVID-19 is minimised. NORTHERN MINERALS _ ANNUAL REPORT 202010 PEOPLE Northern Minerals encountered periods of uncertainty and rapid change during 2020. The global COVID-19 pandemic, changes in leadership (both executive and site based), critical funding issues and the partial restart of the Browns Range operation highlight some of the challenges faced by Northern Minerals and our People. After a period of stand-down in the second half of the year for site operations, the partial restart of operations resulted in an unavoidable restructure with thirteen roles across the business being made redundant. At the forefront of every decision during the difficult and uncertain times was the care for our people. Our SPIRIT values (Safety, People, Integrity, Results, Initiative and Teams) is the framework that guides expectations and standards and provides the foundation on which Northern Minerals operates. Northern Minerals recognises and values the critical contribution each person makes toward the Company. The capability of our people and the culture we’ve developed continues to be the key driver of our success. Despite the uncertainty during the last 12 months, Northern Minerals continues to be committed to the continued support and development of our people and keeping our SPIRIT at the forefront of everything we do. Executive Team One of the core strengths of the Company has been the loyal and dedicated service of our executive team, taking Browns Range from discovery through to operation of the Browns Range Pilot Plant and now on to the next exciting phase. The team is accountable for upholding our SPIRIT values and leading the business to achieve its vision of becoming the next significant producer of Dysprosium outside of China. George Bauk - Managing Director and Chief Executive Officer George Bauk led Northern Minerals from 2010, providing the driving force in establishing Browns Range as a significant heavy rare earth producer. Through the process, George has become a strong advocate for the sector, leading and participating in various forums and industry groups aimed at improving knowledge of the sector. In June 2020, after 10 years of dedicated service, George resigned from his role as MD / CEO. Robin Jones - Chief Operating Officer Robin Jones joined the Company in June 2012 and was charged with turning Browns Range from a concept into reality. Under Robin’s leadership, the Pilot Plant Project has been constructed and is now operational. Mark Tory - Chief Executive Officer In July 2020 Mark Tory was appointed to the role of Chief Executive Officer for Northern Minerals. - Chief Financial Officer and Company Secretary For the period prior to the appointment to the CEO role, Mark has been Northern Minerals long-serving CFO and Company Secretary. Mark has taken the lead in financing discussions and negotiations for the Browns Range Project. As a new industry in Australia, traditional finance was difficult to achieve, therefore a range of alternative financing structures were developed and negotiated that resulted in the project being fully financed. Robin Wilson - Geology and Exploration Manager Robin Wilson discovered heavy rare earths at Browns Range and has led the geological team from discovery through to mining. Robin is now charged with new discoveries, with Dazzler the first of what the Company hopes is many more to come. Bin Cai - Alternate Director Bin Cai joined the Board in 2013 and, as well as being a supportive shareholder, he has provided significant advice and introductions to funding and offtake partners in Asia. Bin’s contacts have been invaluable to getting Browns Range financed and developed. Hayley Patton - HR Manager Hayley Patton joined the Company in early 2019 and has over 15 years experience in senior leadership and management roles withing the mining and resource sector and other industries. Hayley has a strong background in strategic, value driven HR practices. NORTHERN MINERALS _ ANNUAL REPORT 202011 Board of Directors The Board of Northern Minerals has a diverse set of backgrounds and skills that has been invaluable in providing support to the executive team. The following Board members are current as at the date of this report. Colin McCavana - Non-executive Chairman (appointed 2006) Mr McCavana has more than 35 years of management experience worldwide in the earthworks, construction and mining industries. Mr McCavana was temporarily appointed to the role of Executive Chairman between June and July 2020 during the transition of Company leadership. Adrian Griffin - Non-executive Director (appointed 2006) An Australian trained mining professional with exposure to metal mining and processing throughout the world, Mr Griffin has been involved in the development of extraction technology for platinum group metals and agricultural commodities. Yanchung Wang - Non-executive Director (appointed 2013) Ms Wang acts as a strategic investor for a number of Chinese based companies. Ms Wang is Vice Chairman of Conglin Baoyuan International Investment Group and also a Director of Huachen. Bin Cai - Non-executive Director (alternate) (appointed 2013) Bin is the MD of Conglin International Investment Group Pty Ltd based in Brisbane. He has a record of successful strategic investments in emerging Australian resources companies. Browns Range Leadership Team General Manager Operations, Tony Hadley, resigned from his role in January 2020. Engineering Manager, Eben Van Rooyen, who played an integral role in the construction of the processing plant, has taken on the role as Acting General Manager Operations for Browns Range. Eben has provided strong leadership, guidance and direction for site operations during this period. Louis de Klerk, R&D Manager, brings extensive experience to the team and drives our research and development process. Kurt Warburton has been an integral part of the exploration team since the first discovery of the Browns Range deposits and provided the expertise and leadership behind the recent Dazzler discovery. Karen Fairweather, Environment and Approvals Manager, continues to provide strategic leadership and direction in all areas relating to environmental approvals, performance and strategy. Financial Controller, Belinda Pearce, adds value in the finance and accounting role and assists the CFO with financing strategies. Northern Minerals SPIRIT framework drives our culture Safety Safety is our leading core value. It encompasses the physical health of every employee and the success and profitability of the Company. Safety and production are considered inseparable and equally important. People Our strategy is to employ and retain talented and motivated people to lead the organisation. Integrity The Company is committed to responsible and ethical business practices. We care about safety, the environment and local communities, and act with honesty and integrity. Results We deliver on commitment and take accountability to achieve our long-term objectives. Initiative The Company moves forward in its operations by encouraging and rewarding creativity, and initiative among its employees. We embrace great ideas and lateral thinking from everywhere and everyone. Teams All company functions are equally important. It’s only by working together productively and sharing ideas, technologies and talent that we achieve and sustain profitable growth. NORTHERN MINERALS _ ANNUAL REPORT 202012 COO Report NORTHERN MINERALS _ ANNUAL REPORT 202013 COO REPORT The 12 months to July 2020 have been operationally challenging for Northern Minerals, as we continued to pursue our testwork program at the Browns Range Pilot Plant Project despite financial limitations and significant logistical challenges. Operations continued with the research and development (R&D) testwork program in the first half of the year, however, a bigger than usual wet season which limited site access, combined with the restrictions imposed by COVID-19 resulted in operations being shut down for most of the second half of the year. The logistical challenges we faced as a result of Commonwealth biosecurity restrictions in response to COVID-19 are well documented elsewhere in this report, but from an operations perspective ultimately left us with no other choice than to place the Pilot Plant on temporary care and maintenance and reduce personnel and activities on site to an absolute minimum. Due to Browns Range’s proximity to remote indigenous communities in the East Kimberley and travel restrictions in and out of the region and local government area, it was not feasible to maintain operations without supply of fuel, reagents and consumables as well as a reasonable and safe roster for the quantum of personnel required to maintain operations. The Kimberley biosecurity zone, in response to COVID-19, effectively restricted travel to site from 26 March 2020 to 5 June 2020. Northern Minerals announced it was moving to care and maintenance on 25 March 2020 and continued the suspension of operations through to the subsequent announcement of a partial restart on 1 July 2020. Pilot Plant Operations During FY20, the Pilot Plant milled 19,314 tonnes of ore and produced 124,607 kg of rare earth carbonate. These operations occurred mostly in the first half of the year and allowed us to continue to test the pilot plant operation and collect valuable data to drive innovative solutions and improvements in the plant. A major shutdown was undertaken during the first half of the year to enable modifications to the kiln feed system. These modifications addressed scale build up in the kiln, throughput rates and availability. These works were successful, with a notable increase in kiln performance when operations recommenced after the shut. Prior to the Browns Range Pilot Plant being placed on care and maintenance from late March to year end, the operation was impacted by extended access road closures which resulted from significant rainfall events over the wet season, which shuttered the operation for the second half of the year. Following Board approval post year end for a partial restart of the Pilot Plant, planning and logistics commenced to support the restart of operations in August 2020 which will initially focus on testwork in the beneficiation circuit followed by tests in the hydrometallurgical circuit. The partial restart allowed us to bring three-quarters of our site-based personnel back to work in late July 2020. Lessons learnt workshops were completed with our operations and technical staff during the care and maintenance period which together with the information gathered from the R&D testwork programs will provide data for future feasibility studies on a full- scale, commercial processing operation. Work on the Browns Range access road (Duncan Road and Gordon Downs Road) commenced during the third quarter, following the allocation of $51 million in funding by the Federal and WA State Governments. The three-year staged project will provide for improved access to Browns Range and potentially allow for the operation to run continuously once completed. NORTHERN MINERALS _ ANNUAL REPORT 202014 Above: Browns Range Pilot Plant flowsheet. Research & Development (R&D) A total of 271 individual Research and Development (R&D) experiments were originally planned for the duration of the three-year Pilot Plant stage and additional experiments have been done based on new information obtained from the experiments done to date. In the 2020 financial year, experiments were conducted on all areas of the plant, including fine grinding, magnetic separation, flotation, sulphation bake, leaching, purification, ion exchange, rare earth precipitation and waste water treatment. Major breakthroughs were achieved in improving the efficiency and operation of the sulphation bake kiln. These resulted from tests on the kiln that led to significant changes to the equipment, including: seals, feed system, materials of construction, and mechanical devices designed to limit scaling in the kiln to improve availability and throughput. In the coming financial year, R&D will continue in most areas of the process plant with a continued focus on the kiln’s systems to provide a consistent feed to the downstream hydromet circuit. Test work to improve understanding of the beneficiation circuit behaviour on different ore types, and the impact on the hydromet circuit will be undertaken as well as the impact of recirculating streams in the hydromet circuit on impurity rejection. Above: The Wolverine open pit at Browns Range. NORTHERN MINERALS _ ANNUAL REPORT 202015 Ore Sorting Product Separation In July 2019, Northern Minerals committed to implementation of the ore sorter project with the procurement of the ore sorting equipment and commencement of engineering design. The project progressed on schedule but was put on hold in the second half of the year. Post the close of the reporting period in August, the Board decided to proceed with the mechanical construction and installation of ore-sorting equipment. Subject to procurement of the electrical systems, installation and commissioning of the system is expected to be completed by the end of the March quarter 2021. The system concentrates ore in the beneficiation circuit by selecting ore and rejecting waste based on x-ray transmission. Previous trials of ore sorting at Browns Range identified the potential to double the feed grade to the mill. Once the ore sorting system is commissioned, we intend to run additional testwork at the Pilot Plant scale on all ore types to establish base line data on feed grade improvements as well as the material flow-through benefits for processing the Brown Range ore. This data will also feed into any future feasibility studies. Above: A sample of Xenotime mineralisation at Browns Range. Browns Range has to date only produced a mixed heavy rare earth carbonate for small scale export to our early off-take partners. The next stage in the supply chain is to separate the mixed heavy rare earth carbonate into individual rare earth products. The Company announced in August 2019 it had commenced a scoping study to investigate a separation technology on intermediate mixed rare earths materials produced at Browns Range with United States based K-Technologies, Inc. (K-Tech). K-Tech’s technology is focused on continuous ion exchange (CIX), continuous ion-chromatography (CIC) and related advanced separation methodologies. The study is progressing well with positive test results being achieved at K-Tech’s facilities in Florida, USA, albeit slower than planned due to the constraints associated with COVID-19. This work will result in development of a CIX/CIC process flowsheet with associated capital and operating cost estimates. Post year end, the Company also commenced studies into traditional solvent extraction separation and variants thereof, for separating the mixed heavy rare earth material produced at Browns Range into individual rare earth products. If we can prove-up the technology and economics of downstream processing our mixed heavy rare earth carbonate to individual oxides or metals it will be an important step in the development of an alternative supply chain for heavy rare earth oxides and it will significantly increase both the value of the product we are producing as well as the number of potential end-customers we can target for off-take agreements. NORTHERN MINERALS _ ANNUAL REPORT 202016 Upstream Midstream Downstream Refining/recycling Extraction Beneficiation Hydrometallurgy Separation Oxide to metal Alloy and magnet manufacture Component manufacture End-use manufacture Mixed Carbonate Dy Oxide Tb Oxide DyFe Metal Tb Metal Product offerings Browns Range Pilot Plant Above: Rare earth magnet supply chain. Offtake Agreement Northern Minerals entered into an offtake agreement with thyssenkrupp Materials Trading GmbH (thyssenkrupp) for all mixed heavy rare earth carbonate from the Browns Range Pilot Plant Project in August 2019. Importantly, the agreement included an option for thyssenkrupp to participate in the potential future commercial, full-scale project as an offtake partner as well as the flexibility for us to supply separated rare earth products in the future, if the Company decided to go down that path. During the year, Northern Minerals sold and exported from Darwin 157 tonnes of heavy rare earth carbonate. The thyssenkrupp offtake agreement replaced the earlier offtake agreement Northern Minerals had with Lianyugang Zeyu New Materials Sales Co Ltd, which was terminated on signing with thyssenkrupp. Robin Jones Chief Operating Officer NORTHERN MINERALS _ ANNUAL REPORT 202017 CFO Report NORTHERN MINERALS _ ANNUAL REPORT 202018 CFO REPORT The 2020 financial year was once again predominately focused on financing and strengthening the balance sheet. With a number of challenges along the way, it is pleasing that the Company has overcome the challenges of the last 12 months and is a strong position to move forward with our plans for the 2021 financial year. The most significant event in February 2020 was the decision by AusIndustry to reverse its initial findings to find most activities in Northern Minerals R & D tax offset claims in FY17 and FY18 were eligible for the R & D tax offset. The ATO had previously released 50% (A$10.78 million) of the retained R & D refundable tax offset for the FY18 year. Pending the decision by AusIndustry whilst the Company was undertaking the appeals process, the Company had negotiated to repay the ATO the required A$14 million (for FY17 & FY18) over 24 equal monthly installments. The Company negotiated with the ATO to immediately stop payments of amounts owing as a result of the initial finding whilst working closely with the ATO to confirm the final refundable tax amounts. As announced in August 2020, a settlement agreement was entered into with the ATO, settling all matters relating to the Company’s refundable R & D tax offset claims for the financial years ended 30 June 2017 and 2018. The settlement agreement also agreed the 30 June 2019 refundable R & D tax offset position. The net effect of the settlement agreement is a net refund to the Company of A$9.9 million payable to the Company and was received in mid- September. The Company no longer has any amounts owing to the ATO in respect of these financial years and are currently working with the ATO regarding the 2020 refundable R & D tax offset of which a framework for reviewing was documented in the settlement agreement. In August 2019, the Company announced that a subscription agreement had been entered into with Baogang Group Investment (Australia) Pty Ltd (BGIA) to raise A$20 million ( before costs ) under a private placement The placement was subject to approval of the Company’s shareholders and BGIA obtaining Australian Foreign Investment Review Board (FIRB) approval. After a number of voluntary extensions to the statutory deadline, the transaction was prohibited by the Treasurer of the Commonwealth of Australia and the agreement did not proceed. Non-Renounceable Entitlements Offer In July 2019, the Company completed the retail component of its accelerated non-renounceable 1 for 13 pro-rata entitlement offer as announced in June 2019. The offer closed on 8 July 2019 and raised A$4.27 million before costs, at an offer price of A$0.045 per new share. The Company received strong demand for additional new shares in excess of entitlements under the Top -Up Facility and were required to scale-back applications for additional new shares. Equity Placements In July 2019 the Company announced it had entered into subscription agreements with sophisticated and institutional investors to raise a further A$30 million (before costs) at an issue price of A$0.062 per share. The total amount raised under the Placement was $25.68 million (before costs), issuing 414,271,362 shares. The remaining funds were not received by the completion date. In April 2020 the Company entered into subscription agreements with various sophisticated investors to raise A$22 million (before costs) at A$0.02 per share. Final funds were received post period close in September to complete this placement. JHY Convertible Note The A$4 million convertible note held with JHY was due to mature on 31 December 2019. The Company successfully negotiated an extension of the maturity date on the convertible notes for a further year, the maturity date is now 31 December 2020 and the interest rate payable was also renegotiated from 16% to 10% from 1 January 2020. NORTHERN MINERALS _ ANNUAL REPORT 202019 The Company will be debt free with cash reserves in the bank by the end of the 2020 calendar year, this represents a significant reduction in debt in this timeframe and places the Company in a strong position to achieve our goals in the second half of the 2021 financial year. Lind Financing Facility The Company entered into a Convertible Security Funding Agreement with Lind Global Macro Fund, LP (Lind) in March 2020 to assist with short term cash requirements. The Company received a net amount of A$2.50 million. At the date of this report the full amount has been repaid after the final conversion subsequent to the year end. Share Purchase Plan In April 2020 the Company announced a Share Purchase Plan (SPP) allowing all eligible existing shareholders to participate at A$0.02 per share, with the target of raising A$5 million (before costs). The SPP offer closed with total funds raised of A$9.98 million (before costs). The received applications were well in excess of the Company’s targeted amount and the Board decided to accept applications beyond the targeted amount. Financing Summary The following is a table of the debt position (excluding accrued interest) as at 14 September 2020, compared to 30 June 2019. Creditor Balance as at 1 September 2020 Balance as at 30 June 2019 Repayment Date Sinosteel (EPC Contract) A$2.1 million A$10.1 million 23 October 2020 JHY Convertible Note A$2.0 million A$4.0 million 31 December 2020 ATO Other Convertible Notes - - A$13.5 million A$7.5 million Total A$4.1 million A$35.1 million Mark Tory Chief Financial Officer NORTHERN MINERALS _ ANNUAL REPORT 202020 Exploration & Geology Report NORTHERN MINERALS _ ANNUAL REPORT 2020EXPLOR ATION & GEOLOGY REPORT 21 The 2019-20 financial year saw significant exploration activity at Browns Range. Several drilling programs have been undertaken during the reporting period with the main focus continuing to be the Dazzler deposit and the immediate surrounding area. The proposed full-scale project has a mine life of approximately 11 years based on existing Ore Reserves and Mineral Resources. The Company is targeting a mine life of at least 20 years with increased exploration over the next twelve to eighteen months. Higher-grade resources of the Dazzler unconformity related type will be the priority target over that period. WA and NT Project Locations: John Galt, Browns Range and Boulder Ridge Projects. NORTHERN MINERALS _ ANNUAL REPORT 202022 Dazzler The Dazzler deposit is located less than 15km south of the Browns Range Pilot Plant on the edge of a small scarp slope. A maiden Mineral Resource was estimated for Dazzler in March 2019. During 2019-20 further reverse circulation (RC) and diamond drilling programs were completed at the deposit. In April 2020 an updated Mineral Resource estimate was completed for Dazzler. An Inferred Mineral Resource of 214,000 tonnes at 2.33% TREO comprising 5,000,000 kg contained TREO using a cut-off of 0.15% TREO was estimated. The new estimate represents a 50% increase in the contained TREO from the maiden Mineral Resource Estimate. The grade of the Dazzler deposit is more than 3 times the average for the Total Browns Range Project Mineral Resource with 95% of the rare earths being heavy rare earths and the average grade of dysprosium being 2,170ppm. Brown’s Range Project: Deposits and Prospects NORTHERN MINERALS _ ANNUAL REPORT 202023 The high-grade mineralisation occurs predominantly within an argillaceous metasediment (argillite) which lies immediately below the Gardiner Sandstone unit and directly above the unconformity with the older Archean Browns Range Metamorphics. The resource estimate includes four separate zones one of them being the Iceman prospect. Mineralisation also occurs within the Browns Range Metamorphics but this tends to be lower grade and has not been included in the resource estimate. Further drilling is planned in the second half of 2020 with infill drilling and step out drilling to the northwest. Brown’s Range Project: Dazzler and Iceman Prospects - Drill Hole Location Plan NORTHERN MINERALS _ ANNUAL REPORT 202024 Other Browns Range WA prospects The continued exploration success at the Dazzler prospect has highlighted the potential for significant mineralisation to occur in the Gardiner Sandstone and argillite adjacent to the unconformity with the underlying Browns Range Metamorphics. The “structural corridor” from Dazzler extending northwest and southeast towards the NT border (a strike length of approximately 12km), close to the unconformity, is considered prospective for this style of deposit. Within this corridor lies the Rogue and Quiksilver prospects where mineralisation has already been identified. During 2019-20 RC drilling was completed at a number of prospects and deposits besides Dazzler, including Banshee South, Gambit West, Rogue, Cyclops and Longshot. Eight RC drillholes were completed at Banshee South, with the final hole, BRBR0044, returning the broadest mineralisation intersected at the prospect to date, with 22m @ 0.52% TREO from 15m and a MHREO/TREO ratio of 0.91, which included 4m @ 1.52% TREO from 31m. The drillhole is located outside the defined surface geochemical anomaly at the northwest end of the prospect. There is no drilling immediately to the west or northwest of BRBR0044 and further drilling is required to follow up on this mineralisation in 2020. Brown’s Range Project: Dazzler Prospect - Oblique Drill Hole Cross Section NORTHERN MINERALS _ ANNUAL REPORT 202025 Browns Range NT The Browns Range Dome is a large oval-shaped structure, approximately 60km x 30km in extent, that lies on the Western Australian (WA) and Northern Territory (NT) border. To date nearly all the Company’s exploration at Browns Range has been focussed on the WA side of the Browns Range Dome, which only covers approximately 15% of the total area of the Dome. In 20-21 the Company plans to recommence exploration on the NT side of the Dome, initially focussed on the southern margin of the Browns Range Dome. Brown’s Range Project: Browns Range Dome location on WA and NT border. Boulder Ridge The Boulder Ridge Project is in the Northern Territory, approximately 110km from Browns Range. Drill ready targets have been identified with xenotime mineralisation in a similar geological setting as Browns Range. On- ground exploration was cancelled in 2020 due to travel restrictions imposed by the NT and WA governments in response to the COVID-19 pandemic, but first-pass drilling is now being planned for mid-2021. NORTHERN MINERALS _ ANNUAL REPORT 202026 John Galt The Company’s 100%-owned John Galt Project near Warmun, WA has high-grade heavy rare earth mineralisation with a drill ready target. However, exploration work in recent years has been focused on the copper mineralisation. In October 2019, the Company undertook a selective rock chip sampling program over an area of 2.0km x 0.5km, located 3-4km to the south of the John Galt Heavy Rare Earth Prospect, which was focused on previously identified copper occurrences. Of the 24 samples collected and analysed, 12 returned assays of greater than 1.0% Cu. The higher-grade copper samples mostly occurred in a cluster over 500m of strike length. Anomalous gold and silver assays were also associated with some of the anomalous copper samples. Follow-up work is planned in 2020-21 which will include ground geophysics. John Galt Project: Tenement location plan. Robin Wilson Exploration Manager NORTHERN MINERALS _ ANNUAL REPORT 202027 Ore Reserve and Mineral Resource Statement NORTHERN MINERALS _ ANNUAL REPORT 202028 ORE RESERVE AND MINERAL RESOURCE STATEMENT Ore Reserve The Ore Reserve at 30 June 2020, reported in accordance with the JORC 2012 code, is detailed in Table 1. Table 1– Browns Range Ore Reserve Statement as at 30 June 2020 Deposit Class Mt TREO Kg/t TREO Kg Dy2 O3 Kg/t Dy2 O3 Kg Tb407 Kg/t Tb407 Kg Y2 O3 Kg/t Y2 O3 Kg OPEN PIT Wolverine Probable 0.722 6.17 4,458,000 0.55 400,000 0.08 57,000 3.60 2,598,000 Area 5 Probable 0.467 2.24 1,048,000 0.14 65,000 0.02 10,000 0.99 463,000 UNDERGROUND Wolverine Probable 2.104 8.00 16,833,000 0.70 1,483,000 0.10 221,000 4.71 9,908,000 Total Probable1 3.293 6.78 22,339,000 0.59 1,948,000 0.09 288,000 3.94 12,969,000 1 Rounding may cause some computational discrepancies NORTHERN MINERALS _ ANNUAL REPORT 202029 Mineral Resource The Mineral Resource at 30 June 2020, reported in accordance with the JORC 2012 Code, is stated below in Table 2. The Mineral Resource is inclusive of the Ore Reserves Table 2 – Browns Range Mineral Resource Estimate as at 30 June 2020 Deposit Classification Mt TREO % Dy2O3 kg/t Y2O3 kg/t Tb4O7 kg/t HREO % Wolverine Indicated Inferred Total1 Gambit West Indicated Pilot Plant Stockpiles Gambit Area 5 Cyclops Banshee Dazzler Total1 Inferred Total1 Indicated Inferred Total1 Indicated Inferred Total1 Indicated Inferred Total1 Indicated Inferred Total1 Indicated Inferred Total1 Indicated Inferred Total1 Indicated Inferred Total1 2.88 1.97 4.85 0.12 0.13 0.25 0.18 0.03 0.21 0.21 0.21 1.38 0.14 1.52 0.33 0.33 1.66 1.66 0.21 0.21 4.56 4.68 9.24 0.84 0.89 0.86 1.8 0.51 1.11 0.95 0.26 0.84 0.89 0.89 0.29 0.27 0.29 0.27 0.27 0.21 0.21 2.33 2.33 0.7 0.64 0.67 0.74 0.76 0.75 1.62 0.4 0.97 0.83 0.2 0.73 0.83 0.83 0.18 0.17 0.18 0.18 0.18 0.16 0.16 2.17 2.17 0.6 0.54 0.57 4.89 5.15 4.99 10.98 2.67 6.56 5.53 1.35 4.84 5.62 5.62 1.27 1.17 1.26 1.24 1.24 1.17 1.17 13.93 13.93 3.98 3.67 3.81 0.11 0.11 0.11 0.22 0.05 0.13 0.12 0.03 0.1 0.11 0.11 0.03 0.03 0.03 0.03 0.03 0.02 0.02 0.29 0.29 0.09 0.08 0.08 89 88 89 94 81 91 89 79 88 96 96 69 70 69 70 70 87 87 95 95 87 88 87 TREO Kg 24,195,000 17,588,000 41,786,000 2,107,000 674,000 2,781,000 1,661,000 89,000 1,750,000 1,878,000 1,878,000 3,953,000 394,000 4,347,000 891,000 891,000 3,484,000 3,484,000 5,000,000 5,000,000 31,916,000 29,998,000 61,917,000 1 Rounding may cause some computational discrepancies TREO = Total Rare Earth Oxides – Total of: La2O3, CeO2, Pr6O11, Nd2O3, Sm2O3, Eu2O3, Gd2O3, Tb4O7, Dy2O3, Ho2O3, Er2O3, Tm2O3, Yb2O3, Lu2O3, Y2 O3 HREO = Heavy Rare Earth Oxides – Total of: Sm2O3, Eu2O3, Gd2O3, Tb4O7, Dy2O3, Ho2O3, Er2O3, Tm2O3, Yb2O3, Lu2O3, Y2O3 HREO % = HREO/TREO x 100 NORTHERN MINERALS _ ANNUAL REPORT 2020 30 Comparison with previous years Mineral Resource estimate For comparison to 30 June 2020, the Mineral Resource at the Browns Range Project as at 30 June 2019 is presented in Table 3 (below). The Mineral Resource in Table 3 is inclusive of the Ore Reserves. Changes to the Mineral Resource between 30 June 2019 and 30 June 2020 are due to: • Depletion of Pilot Plant Stockpile Mineral Resource by processing. • Estimation and reporting of the updated Dazzler Mineral Resource. Table 3 – Browns Range Mineral Resource Estimate as at 30 June 2019 Deposit Classification Mt TREO % Dy2O3 kg/t Y2O3 kg/t Tb4O7 kg/t HREO % Wolverine Indicated Inferred Total1 Gambit West Indicated Pilot Plant Stockpiles Gambit Area 5 Cyclops Banshee Dazzler Total1 Inferred Total1 Indicated Inferred Total1 Indicated Inferred Total1 Indicated Inferred Total1 Indicated Inferred Total1 Indicated Inferred Total1 Indicated Inferred Total1 Indicated Inferred Total1 2.88 1.97 4.85 0.12 0.13 0.25 0.2 0.03 0.23 0.21 0.21 1.38 0.14 1.52 0.33 0.33 1.66 1.66 0.14 0.14 4.58 4.61 9.19 0.84 0.89 0.86 1.8 0.51 1.11 0.99 0.26 0.88 0.89 0.89 0.29 0.27 0.29 0.27 0.27 0.21 0.21 2.23 2.23 0.71 0.61 0.66 0.74 0.76 0.75 1.62 0.4 0.97 0.86 0.2 0.76 0.83 0.83 0.18 0.17 0.18 0.18 0.18 0.16 0.16 2.08 2.08 0.6 0.51 0.56 4.89 5.15 4.99 10.98 2.67 6.56 5.73 1.35 5.08 5.62 5.62 1.27 1.17 1.26 1.24 1.24 1.17 1.17 12.79 12.79 4 3.47 3.73 0.11 0.11 0.11 0.22 0.05 0.13 0.12 0.03 0.11 0.11 0.11 0.03 0.03 0.03 0.03 0.03 0.02 0.02 0.27 0.27 0.09 0.07 0.08 89 88 89 94 81 91 89 79 89 96 96 69 70 69 70 70 87 87 93 93 86 87 86 TREO Kg 24,195,000 17,588,000 41,786,000 2,107,000 674,000 2,781,000 1,934,000 89,000 2,022,000 1,878,000 1,878,000 3,953,000 394,000 4,347,000 891,000 891,000 3,484,000 3,484,000 3,200,000 3,200,000 32,189,000 28,198,000 60,389,000 1 Rounding may cause some computational discrepancies TREO = Total Rare Earth Oxides – Total of: La2O3, CeO2, Pr6O11, Nd2O3, Sm2O3, Eu2O3, Gd2O3, Tb4O7, Dy2O3, Ho2O3, Er2O3, Tm2O3, Yb2O3, Lu2O3, Y2 O3 HREO = Heavy Rare Earth Oxides – Total of: Sm2O3, Eu2O3, Gd2O3, Tb4O7, Dy2O3, Ho2O3, Er2O3, Tm2O3, Yb2O3, Lu2O3, Y2O3 HREO % = HREO/TREO x 100 NORTHERN MINERALS _ ANNUAL REPORT 2020 31 Comparison with previous years Ore Reserve estimate For comparison to 30 June 2020, the Ore Reserve at the Browns Range Project as at 30 June 2019 is presented in Table 4 (below). There were no changes to the Ore Reserve between 30 June 2019 and 30 June 2020. Table 4 – Browns Range Ore Reserve Estimate as at 30 June 2019 Deposit Class Mt TREO Kg/t TREO Kg Dy2 O3 Kg/t Dy2 O3 Kg Tb407 Kg/t Tb407 Kg Y2 O3 Kg/t Y2 O3 Kg OPEN PIT Wolverine Probable 0.722 6.17 4,458,000 0.55 400,000 0.08 57,000 3.60 2,598,000 Area 5 Probable 0.467 2.24 1,048,000 0.14 65,000 0.02 10,000 0.99 463,000 UNDERGROUND Wolverine Probable 2.104 8.00 16,833,000 0.70 1,483,000 0.10 221,000 4.71 9,908,000 Total Probable1 3.293 6.78 22,339,000 0.59 1,948,000 0.09 288,000 3.94 12,969,000 1 Rounding may cause some computational discrepancies COMPETENT PERSON AND COMPLIANCE STATEMENT The information in this report that relates to the Mineral Resource and Ore Reserve Estimates was compiled and approved as a whole by Mr Bill Rayson who is a Member of the Australasian Institute of Mining and Metallurgy. Mr Rayson is a consultant to Northern Minerals, employed by Total Earth Science Pty Ltd, and has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’ (the JORC Code). Mr Rayson consents to the inclusion of this information in the form and context in which it appears. The Mineral Resource and Ore Reserves statement is based on, and fairly represents, information and supporting documentation prepared by competent persons. For Pilot Plant Stockpiles, Wolverine, Gambit, Gambit West, Cyclops, Banshee and Area 5, further information that relates to the Mineral Resource Estimates and Ore Reserves is available in the report entitled “Mineral Resource and Ore Reserve Update” dated 28 September 2018 and is available to view on the company’s website (www.northernminerals.com.au). For Dazzler, further information that relates to the Mineral Resource Estimates is available in the report entitled “Over 50% Increase In Dazzler High-Grade Mineral Resource” dated 7 April 2020 and is available to view on the company’s website (www.northernminerals.com.au). The Company confirms that it is not aware of any new information or data that materially affects the information included in the original market announcement and that all material assumptions and technical parameters underpinning the estimates in the relevant market announcement continue to apply and have not materially changed. The Company confirms that the form and context in which the Competent Person’s findings are presented have not been materially modified from the original market announcement. CORPORATE GOVERNANCE AND INTERNAL CONTROLS – MINERAL RESOURCES AND ORE RESERVES Northern Minerals has ensured that the Mineral Resources estimates quoted above are subject to governance arrangements and internal controls. The Mineral Resource estimates have been derived by various practitioners and then reviewed by Northern Minerals’ employees who have substantial knowledge of best practice in modelling and estimation techniques. Internal reviews of the Mineral Resource estimate have been completed by Northern Minerals’ management and executives prior to public release. All Mineral Resource estimates that are disclosed by the Company are subject to review and approval by the Company’s Board of Directors whose qualifications are disclosed in the Directors Report. Northern Minerals has ensured that the Ore Reserve estimates quoted above are subject to governance arrangements and internal controls. The Ore Reserve estimates have been derived by external consultants and then reviewed by Northern Minerals’ employees who have substantial knowledge of mine design and Ore Reserve estimation techniques. Internal reviews of the Ore Reserve estimate have been completed by Northern Minerals management and executives prior to public release. All Ore Reserve estimates that are disclosed by the Company are subject to review and approval by the Company’s Board of Directors whose qualifications are disclosed in the Directors Report. NORTHERN MINERALS _ ANNUAL REPORT 202032 Financial Report NORTHERN MINERALS _ ANNUAL REPORT 202033 NORTHERN MINERALS LIMITED DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2020 The directors present their report together with the consolidated financial report of the Group, being Northern Minerals Limited (the “parent entity” or “Company’) and its controlled entities, for the financial year ended 30 June 2020 and the independent auditors report thereon. DIRECTORS The names and details of the Company’s directors in office during the financial year and until the date of this report are as follows. Directors and officers were in office for the entire period unless otherwise stated. Colin James McCavana – Non-executive Chairman Mr McCavana has more than 30 years of management experience worldwide in the earthworks, construction and mining industries. Much of this has been related to acquisition, development and operation of mining and mineral recovery projects. Mr McCavana is a member of the remuneration and nomination committee. During the past three years Mr McCavana has served as a director of the following listed company: • Reward Minerals Limited (Director February 2010 – Present) George Bauk – Managing Director / Chief Executive Officer – resigned 5 June 2020 Mr Bauk is an experienced executive, with over 25 years’ experience in the resources industry. Mr Bauk holds a Bachelor of Business from Edith Cowan University and an MBA from the University of New England. Prior to Northern Minerals, Mr Bauk held global operational and corporate roles with WMC Resources, Arafura Resources and Western Metals and has a strong background in strategic management, business planning, building teams, finance and capital/debt raising, and experience with a variety of commodities in particular rare earths and nickel. As Managing Director of Northern Minerals since 2010, he has led its rapid development from a greenfields heavy rare earth explorer to the first commercial-scale heavy rare earths project outside of China, mainly producing dysprosium and terbium. During the past three years Mr Bauk has served as a director of the following listed companies: • • Lithium Australia NL (Non-executive Chairman July 2015 – Present) Blackearth Minerals NL (Non-executive Director January 2018- Present) Adrian Christopher Griffin – Non-executive Director Mr Griffin is an Australian trained mining professional with exposure to metal mining and processing throughout the world. Mr Griffin has been involved in the development of extraction technology for a range of metals and was a pioneer of the WA lateritic nickel processing industry. He specialises in mine management and production. Mr Griffin is a member of the remuneration and nomination committee. During the past three years Mr Griffin has also served as a director of the following listed companies: • • • Lithium Australia NL (Director February 2011 – Present) Parkway Minerals NL (October 2010 – Present) Reedy Lagoon Corporation Ltd (June 2014 – Present) Yanchun Wang – Non-executive Director Ms Wang acts as a strategic investor for a number of Chinese based companies. Ms Wang is Vice Chairman of Conglin Baoyuan International Investment Group and also a Director of Huachen. During the past three years Ms Wang has not served as a director of any other listed companies. 1 NORTHERN MINERALS _ ANNUAL REPORT 2020 34 NORTHERN MINERALS LIMITED DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2020 DIRECTORS (Continued) Ming Lu – Non-executive Director Mr Lu is a CPA qualified senior finance leader with over a decade of commercial experience in successful multinational businesses worldwide, and is a member of the Australian Institute of Company Directors. Mr Lu has extensive experience in working with investors, boards and senior executive teams in modelling, strategic planning, providing financial support and delivering returns. Throughout his career as a finance professional, he has had hands-on experience in leading finance functions in multinational businesses worldwide. Mr Lu has versatile industry experience in manufacturing, engineering and R&D, education, mining services and private equity, spanning privately owned SMEs, private equity backed ventures to listed public listed companies and Fortune 500s. Mr Lu was appointed as a nominee of Huatai Mining. Mr. Lu is not a Director of any other listed companies. Congyan Xue – Non-executive Director – resigned 7 November 2019 Mr Xue is a corporate finance executive, with over 15 years’ experience in fundraising, corporate advisory and mergers and acquisitions, predominantly in China. Mr Xue has a Masters in Global Finance from the Hong Kong University of Science and Technology and the NYU Stern School of Business. He also holds a Master’s degree in International Finance from the University of Leeds. Mr. Xue is not a director of any other listed companies. Xiaohua Liu – Non-executive Director – resigned 7 October 2019 Ms Liu is an investment banker with over 7 years’ experience in corporate advisory and equity markets, predominately in China. Ms Liu has a Masters of Law from the China University of Geosciences in Beijing and a Bachelor of Law from Tianjin University of Commerce. Ms Liu is not a director of any other listed companies. Bin Cai – Alternate Director Mr Cai is the Managing Director of Mr Conglin Yue’s Brisbane-based, Australia Conglin International Investment Group Pty Ltd. Mr Cai has an outstanding record of successful strategic investments in emerging Australian resource companies based on his long experience in global resource industry investment. Prior to joining the Conglin Group, Mr Cai had eight years’ experience with The China Investment Bank. Mr Cai is currently a director of the following listed companies: • Orion Metals Limited (Director July 2012 - present) • Carpentaria Exploration Limited (Director May 2011 – May 2018) CHIEF EXECUTIVE OFFICER AND COMPANY SECRETARY – appointed CEO on 29 July 2020 Mark Tory Mr Tory is a Chartered Accountant with an MBA majoring in finance. He is a highly experienced executive in the mining and resources sector having held senior finance and strategic positions with both large and small resource companies. He has been CFO and Company Secretary since Dec 2012 until recently appointed as CEO. Previously he was Managing Director of Crescent Gold Limited after two years as CFO and Company Secretary. Before this Mr Tory held executive positions with Anglo American Exploration and Homestake Gold of Australia (now Barrick Gold). 2 NORTHERN MINERALS _ ANNUAL REPORT 2020 35 NORTHERN MINERALS LIMITED DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2020 DIRECTORS’ MEETINGS & AUDIT AND REMUNERATION COMMITTEE MEETINGS The numbers of meetings of the company’s board of directors and of each board committee held during the year ended 30 June 2020, and the number of meetings attended by each director while they were a director was as follows: Director Board Meetings Audit Committee Colin McCavana George Bauk Adrian Griffin Yanchun Wang Ming Lu Congyan Xue Xiaohua Liu Bin Cai A 14 11 14 0 13 8 8 14 B 14 11 14 14 14 8 8 14 A 2 2 2 0 2 1 1 2 B 2 2 2 2 2 1 1 2 A – meetings attended B – meetings held during the time the director held office Remuneration Committee A 2 N/A 2 N/A N/A N/A N/A N/A B 2 N/A 2 N/A N/A N/A N/A N/A DIRECTORS’ INTERESTS IN THE SHARES AND OPTIONS OF THE COMPANY As at the date of this report, the interests of the directors in the shares and options of the Company were: Director (direct and indirect holdings) Colin McCavana Adrian Griffin Yanchun Wang1 Ming Lu Bin Cai Ordinary Shares Performance Rights Options 2,953,847 3,500,626 211,157,999 - 5,700,000 1,000,000 1,000,000 1,000,000 - 1,000,000 - - - - - 1 Includes Ordinary shares held by Australian Conglin International Investment Group Pty Ltd DIVIDENDS No dividends have been paid or declared by the Company during the financial year or subsequent to the year end. PRINCIPAL ACTIVITIES The principal activity of the Company during the course of the financial year was the operation of a pilot scale project aimed at assessing the technical and economic feasibility of a full-scale commercial operation at its Browns Range Pilot Plant Project. REVIEW OF OPERATIONS During the period, the Company continued operation at the Browns Range Pilot Plant Project. The pilot plant project is a three-year research and development project, to assess the economic and technical feasibility of a full-scale plant and forms part of a broader ongoing economic and technical feasibility study underpinning the Browns Range Pilot Plant Project. 3 NORTHERN MINERALS _ ANNUAL REPORT 2020 36 NORTHERN MINERALS LIMITED DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2020 Browns Range Pilot Plant Operations During FY20, the Pilot Plant milled 19,314 tonnes of ore and produced 124,607 kg of rare earth carbonate. These operations allowed us to continue to test the pilot plant operation and collect valuable data to drive innovative solutions and improvement. A major shutdown was undertaken in the first quarter to enable modifications to the kiln feed system. These modifications addressed scale build up in the kiln, throughput rates and availability. These works were successful, with a notable increase in kiln performance when operations recommenced after the shutdown. On 22 November 2019 the Company officially opened the Training2Work facility as a part of a program that is being jointly undertaken with the Wunan Foundation. The Training2Work facility was established to enable members of the local indigenous community at Ringer Soak and Halls Creek to be trained in the skills that are required for positions in and around the mine site. In March 2020, a decision was made to temporarily suspend operations at the Browns Range Pilot Plant and move to care and maintenance due to the Covid-19 restrictions. This suspension involved the temporary stand down of most site based staff (except for a small care and maintenance team), along with corporate office staff as well as the implementation of several cashflow saving measures. On 1 July 2020, the Company made the decision to partially restart operations at the Browns Range Pilot Plant Project. This decision was made following the lifting of Commonwealth biosecurity restrictions applied to the Kimberley region as a part of Covid-19 control measures. The partial return of pilot plant operations at Browns Range resulted in about three quarters of the previous Project workforce being re-mobilised. Initial operations will focus on test work in the beneficiation circuit followed by tests in the hydrometallurgical circuit along with mechanical construction and installation of the ore sorter. Research & Development (R&D) Projects A total of 271 individual R&D experiments were originally planned for the duration of the three-year Pilot Plant stage and additional experiments have been performed based on new information obtained from the experiments done to date. In the 2020 financial year, experiments were conducted on all areas of the plant, including fine grinding, magnetic separation, flotation, sulphation bake, leaching, purification, ion exchange, rare earth precipitation and waste water treatment. Major breakthroughs were achieved in improving the efficiency and operation of the sulphation bake kiln. These resulted from tests on the kiln that led to significant changes to the equipment, including: seals, feed system, materials of construction, and mechanical devices designed to limit scaling in the kiln to improve availability and throughput. A rare earth separation study was commenced early in the year with US company K-Technologies, Inc. (K-Tech) to assess the possibility of producing separated rare earth oxides that currently require separation in China. K-Tech is focussed on processes which involve continuous ion exchange, continuous ion-chromatography and other related advanced separation methodologies. Initial bench scale test work completed by K-Tech showed that the Stage 1 continuous ion exchange process was successful with the rare earths (RE) loading in preference to the non-RE on the resin. Regeneration was successful and the composition and the regeneration solution showed that final non- RE/RE ratio is in the range that would allow for the regeneration solution to be used as the feed for the Stage 2 continuous ion chromatography step, where initial separation of the rare earths by group begins. Completion of this work was ultimately delayed as a result of the impacts of shutdown orders in the US as a result of the Covid-19 pandemic. 4 NORTHERN MINERALS _ ANNUAL REPORT 2020 37 NORTHERN MINERALS LIMITED DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2020 Offtake During the reporting period, the Company terminated the offtake agreement with Lianyugang Zeyu New Materials Sale Co., Ltd. (JFMAG) and entered into a new offtake agreement with German conglomerate, thyssenkrupp Materials Trading Gmbh (TK). The new offtake agreement included all mixed heavy rare earth carbonate stockpiled at Browns Range as well as future production from the Browns Range Pilot Plant Project. A total of 3 shipments comprising 157,076kg of Rare Earth Carbonate were sold to TK during the year. EXPLORATION In August 2019, the Company released assay results from diamond drilling completed at the Dazzler and Iceman prospects. The diamond drilling programme, which comprised 3 drill holes at Dazzler and one at Iceman was designed to twin and validate the reverse circulation drilling programmes undertaken in 2018 and early 2019. One of the diamond drill holes at Dazzler was drilled to provide samples for metallurgical test work. Results from the first twinned hole shows the interval as being narrower but much higher grade, while the second showed an interval width approximately the same as the twinned hole but a significantly lower grade. Further drilling commenced in September 2019, including 3,797m of infill and exploration RC drilling in the Dazzler-Iceman area and 641m exploration RC drilling at four other prospects. Significant results from this drill programme included 52m @ 4.15% TREO from 20m and 20m @ 0.62% TREO from 16m. In January 2020, the Company announced high grade copper assays following a selective rock chip sampling program at the Company’s 100% owned John Galt Project. A selective rock chip sampling program was conducted during October 2019 over an area of 2.0km x 0.5km and of the 24 samples collected and analysed, 12 returned assays of greater than 1.0% Cu. In April 2020 an update to the Mineral Resource estimate for Dazzler was released. The inferred Mineral Resource was estimated at 214,000 tonnes at 2.33% TREO comprising 5,000,000kg TREO using a cut-off grade of 0.15% TREO. This was a 50% increase in the contained TREO from the maiden Mineral Resource estimate reported in March 2019. Exploration activities were temporarily suspended along with other activities at Browns Range as a result of the impacts of Covid-19. Following the restart of operations at Browns Range, the Company announced that exploration would be ramped up over the next 12 months with a budget of $4.5 - $5.0 million being allocated for greenfields exploration, further evaluation of identified mineralisation and to boost confidence in resources, with the objective of increasing the overall life-of-mine potential of the project. CORPORATE R&D Funding In early 2019, the Company lodged a formal appeal with AusIndustry regarding its initial decision that the Company’s activities were ‘ineligible R&D claims’ for the FY17 and FY18 periods. On 24 February 2020 the Company was advised that AusIndustry had completed a review of its initial decision and subsequently found that most of the Company’s R&D activities for these periods were in fact eligible. In August 2020, the Company announced that it had reached a settlement agreement with the Australian Taxation Office (ATO) that settled all matters relating to the FY17 and FY18 R&D tax offset claims. The settlement agreement also documented the agreed refundable R&D offset claim for the FY19 as well as a framework for reviewing the Company’s refundable R&D offset claim for FY20. Capital Raising In June 2019 the Company announced a A$21.95 million placement and Accelerated Non- Renounceable Entitlement Offer. The placement was completed for A$15 million via the issue of 5 NORTHERN MINERALS _ ANNUAL REPORT 2020 38 NORTHERN MINERALS LIMITED DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2020 333,333,333 fully paid ordinary shares at $0.045 per share. The Entitlements offer for A$6.95 million was offered on a 1 for 13 basis at a price of $0.045 per fully paid ordinary share. A total of A$2.66 million was received during FY19 with the balance (A$ 4.29 million) received in FY20. In July 2019, the Company announced it had entered multiple subscription agreements with sophisticated investors, for the placement of 483,870,970 fully paid ordinary shares at an issue price of $0.062 per share to raise A$30 million before costs. A total of A$25.7 million of the A$30 million was received before the agreement was terminated on 31 January 2020 due to non-payment of the remaining balance. In August 2019, the Company entered into a subscription agreement with Baogang Investment (Australia) Pty Ltd (BGIA) to raise A$20 million at A$0.062 million per share via the issue of 322,580,645 fully paid ordinary shares. The investment by BGIA was subject to shareholder approval, Australian Foreign Investment Review Board (FIRB) approval as well as regulatory approvals in the People’s Republic of China. On 20 April 2020, the Company was advised by BGIA that the Treasurer of the Commonwealth of Australia, following an assessment by the FIRB, had prohibited the transaction. In December 2019, an amendment was made to the JHY Investments Pty Ltd (JHY) convertible note terms. The $4.0 million convertible note subscription was due to mature on 31 December 2019. The Company successfully negotiated an extension of the maturity date for the notes for a further year and at a lower interest rate of 10% (previously 16%). The maturity date for the notes is now 31 December 2020 and the interest rate was reduced to 10% from 1 January 2020. As consideration for agreeing to amend the terms of the notes, the Company issued 2 million fully paid ordinary shares in the Company to JHY. On 2 March 2020 the Company entered into a Convertible Security Funding Agreement with Lind Global Macro Fund, LP (Lind). Under the funding agreement the Company received a net amount of A$2.5 million (after deduction of commitment fees payable to Lind of $125,000), from the issue of one unsecured convertible note with a face value of A$3 million. The A$2.5 million funding was received on 6 March 2020. As a part of this transaction, the Company also agreed to issue Lind with 34,000,000 unlisted options with an exercise price of $0.045 and expiry date of 2 March 2024 along with 60,000,000 fully paid ordinary shares which were to be used as collateral for the purposes of the funding agreement. On 7 May 2020, the Company issued 52,631,579 fully paid ordinary shares to a nominee of Lind in respect of the conversion of A$1 million of the face value of the convertible security. On 22 June 2020 a replacement convertible security was issued to Lind in accordance with the Convertible Security Funding Agreement announced on 2 March 2020 following shareholder approval being obtained at the Company’s general meeting held on 18 June 2020. The replacement convertible security was issued with a face value of A$2 million. On 20 April 2020 the Company announced it had entered into subscription agreements with various sophisticated investors to raise A$22 million (before costs) via private placement and in 4 tranches as detailed below: Tranche # Shares Issue Price Subscription Amount Tranche 1 Tranche 2 Tranche 3 Tranche 4 Total 450,000,000 210,000,000 170,000,000 270,000,000 1,100,000,000 $0.02 $0.02 $0.02 $0.02 $0.02 $9,000,000 $4,200,000 $3,400,000 $5,400,000 $22,000,000 By the end of the year, the Company had received a total of A$15.43 million of the total of A$22 million with the balance of A$6.57 million received post year end. Of the shares issued, 225,000,000 were issued to Yuzhen Ma in full repayment of the remaining amounts owing (A$4.5 million) on the convertible notes issued on 26 June 2019, which had an initial aggregate face value of A$7.5 million, (which was reduced to A$4.5 million after completion of tranche 1 of the placement). 6 NORTHERN MINERALS _ ANNUAL REPORT 2020 39 NORTHERN MINERALS LIMITED DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2020 In conjunction with the Placement, the Company also launched a Share Purchase Plan (SPP) for eligible shareholders. Under the SPP, eligible shareholders were able to subscribe for up to A$30,000 in Ordinary shares at $0.02, the same price as the placement. The SPP closed on 2 June 2020 with total funds raised of A$9.98 million (before costs) and the issue of 499,020,000 fully paid ordinary shares. Board & Management There were a number of director resignations during the year. Non-Executive Directors Ms Xiaohua Liu resigned on 7 October 2019 while Mr Congyan Xue resigned on 7 November 2019. Long-standing Managing Director and CEO George Bauk announced his resignation on 5 June 2020, with existing Non-Executive Chairman Colin McCavana temporarily assuming the role of Executive Chairman while replacement CEO candidates were considered. Mark Tory (CFO and Company Secretary) was appointed CEO on 29 July 2020. SUMMARY OF FINANCIAL PERFORMANCE A summary of key financial indicators for the Company, with prior year comparisons, is set out in the following table: Total income Net loss after tax Basic EPS (cents) 30 June 2020 $ 30 June 2019 $ 30 June 2018 $ 28,426,653 2,002,375 4,564,718 (54,328,360) (63,966,330) (18,497,161) (2.04) (4.7) (2.0) Net cash used in operating activities (31,756,314) (19,693,943) (15,058,308) Net cash used in investing activities (15,844,542) (11,932,810) (29,781,958) Net cash from financing activities 46,152,294 29,411,876 46,658,629 The net loss of the Group for the year ended 30 June 2020 of A$54.3 million (2019: A$64.0 million) mainly consisted of the R&D rebates being accounted for, as mentioned below, partially offsetting a A$24.8 million impairment on the beneficiation and hydrometallurgical assets at Browns Range after completing an impairment review. Current year income is comprised of A$23.3 million relating to R&D rebates for the current tax year along with the FY17, FY18 and FY19 tax years. In 2019 the Company received notification from AusIndustry that it was their opinion that the R&D activities of Northern Minerals were ineligible R&D activities and therefore would not be eligible for the R&D tax rebate for the 2016/2017 and 2017/2018 income years. The Company appealed this finding and was successful in having the original decision from AusIndustry overturned. Previously, in accordance with applicable accounting standards, Income from Government Grants, revenue was not accrued for the 2019 financial year and amounts that were recognised as income in prior periods were reversed as a change in estimate totalling $6.2 million. Refer Note 5. 2020 also represented the Company’s first sales revenue from 3 shipments comprising 156,848kg of Rare Earth Carbonate that were sold to TK during the year. Sales revenue totalled A$3.0 million. Depreciation expenses increased to A$24.4 million (2019: A$19.4 million) due to the completion of the pilot plant construction and supporting infrastructure in 2019, and therefore depreciation being charged for a full year on the assets. Processing costs totalled A$18.0 million (2019: A$20.6 million), with the most significant expenditure relating to wages and salaries, camp accommodation and messing costs and travel and maintenance 7 NORTHERN MINERALS _ ANNUAL REPORT 2020 40 NORTHERN MINERALS LIMITED DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2020 costs. This was slightly lower due to the impacts of the temporary suspension of operations at Browns Range Pilot Plant due to the Covid-19 virus. The Company’s cash receipts were A$3.6 million (2019: A$12.4 million). Receipts in 2020 included A$2.6 million received from the sale of rare earth carbonate as well as A$0.85 million in receipts from government grants (including A$0.48 million for the Federal Government’s Building Better Regions Fund (BBRF) and A$0.37 million related to the Federal Governments jobkeeper and other related cashflow boost programmes). 2019’s cash receipts included a A$1.43 million receipt for the 3rd milestone payment awarded under the BBRF to develop an Aboriginal training-to-work (T2W) program at the Browns Range Pilot Plant Project as part of a consortium led by the Wunan Foundation. Investing cash flows increased from A$11.9 million in 2019 to A$15.8 million in FY20. The focus of this investing cash flows was related to the additional improvement works at the Browns Range Pilot Plant and also included A$6.5 million in payments under the original EPC contract with Sinosteel. Financing cash inflows for the year ended 30 June 2020 included A$51.8 million for the issue of shares (net of costs). In addition A$2.6 million was received from the issue of convertible notes, while A$8.3 million was repaid in cash in the year. SUMMARY OF FINANCIAL POSITION 30 June 2020 $ 30 June 2019 $ 30 June 2018 $ Total assets 42,479,796 61,577,238 101,231,091 Debt (current and non - current) 5,853,678 25,908,071 24,393,876 Other liabilities 24,969,604 24,989,227 45,109,868 Shareholder funds/net assets 11,656,514 10,679,938 31,727,347 Number of shares on issue (million) Share price at reporting date (cents) 3,987M 1.8 2,083M 7.50 1,114M 8.72 The Company’s cash reserves at 30 June 2020 totalled A$6.6 million compared to A$8.1 million as at 30 June 2019. The Company’s receivables balance has increased from A$2.1 million to A$24.3 million due to the reversal of AusIndustry’s previous decision to disallow R&D claims by the Company and recognition of R&D receivables for the 2017, 2018, 2019 and 2020 financial years. Refer to Note 5 for additional information. Property, plant and equipment has decreased from A$50.5 million to A$10.4 million. Additions for the year totalled A$9.1 million while the depreciation charge for the period was A$24.4 million. An impairment loss of A$24.7 million was also recognised in the current year. Total interest bearing liabilities reduced by A$20.1 million from A$25.9 million to A$5.8 million mainly due to the settlement of the liability due to the ATO for repayment of previous R&D claims along with conversion and repayment of convertible notes. Total deferred revenue increased from A$2.7 million to A$7.5 million as a result of the recognition of the deferred revenue relating to the R&D rebate during the year. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS There were no significant changes in the state of affairs of the Group during the year other than as disclosed elsewhere in this report. 8 NORTHERN MINERALS _ ANNUAL REPORT 2020 41 NORTHERN MINERALS LIMITED DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2020 FINANCIAL POSITION The financial report has been prepared on the going concern basis, which contemplates the continuity of normal business activity and the realisation of assets and the settlement of liabilities in the normal course of business. The Group has incurred a loss for the year ended 30 June 2020 of $54,328,360 (2019: $63,966,330) and experienced net cash outflows from operating activities of $31,756,314 (2019: $19,693,943). As at 30 June 2020 the Group had cash on hand of $6,660,568 (2019: $8,140,422) and a net working capital surplus of $6,147,783 (2019: deficit of $22,124,648). The loss mainly reflects the impairment loss on property, plant and equipment and depreciation expense. Subsequent to year end the Group received funding from the following sources: • In August 2020, the Company announced it had reached a settlement agreement with the ATO that settled all matters relating to the FY17, FY18 and FY19 R&D tax offset claims. In September 2020, the Company received the net refund from the ATO of $10.0 million in relation to the FY17 to FY19 tax offset claims. • As at the date of this report, a further $6.57 million had been received post year end for the outstanding tranches of the A$22 million placement announced on the ASX on 20 April 2020. This now completes the placement in full. • On 21 August 2020, the Company issued fully paid ordinary shares as a result of the conversion of the final amounts outstanding under the Lind convertible note (which has now been redeemed in full). Lind also elected to reduce its collateral shareholding number (under the original funding agreement) from 60,000,000 shares to nil by paying the Company $1.08 million in cash. In addition the claim for the refundable R&D tax offset for FY20 of is currently under review by the ATO and is expected to be lodged and received within the December 2020 quarter. The ATO settlement agreement also documented a framework for reviewing the Company’s refundable R&D offset claim for FY20 to ensure there were no significant delays. The directors carefully manage discretionary expenditure in line with the Group’s cash flow forecast. Based on the matters described above, the Directors consider the going concern basis of preparation appropriate. LIKELY DEVELOPMENTS AND EXPECTED RESULTS The Company proposes to continue with its development of the Browns Range Pilot Plant Project as detailed in the Review of Operations in the Annual Report. ENVIRONMENTAL REGULATION AND PERFORMANCE The exploration and mining activities of the Company are subject to environmental regulations imposed by various regulatory authorities, particularly those relating to ground disturbance and the protection of rare and endangered flora and fauna. The Company has complied with all material environmental requirements up to the date of this report. The Directors believe that the Company has adequate systems in place for the management of its environmental responsibilities and are not aware of any breaches of the regulations during the period covered by this report. RISK MANAGEMENT The Group takes a proactive approach to risk management. The Board is responsible for ensuring that risks, and opportunities are identified on a timely basis and that the Group’s objectives and activities are aligned with the risks and opportunities identified by the Board. Northern Minerals has developed a framework for a risk management policy and internal compliance and control system that covers the organisational, financial and operational aspects of the Company's affairs. The responsibility for undertaking and assessing risk management and internal control effectiveness is delegated to management, and management are required to regularly report back to 9 NORTHERN MINERALS _ ANNUAL REPORT 2020 42 NORTHERN MINERALS LIMITED DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2020 the Board. This involves the tabling of a risk register which is monitored and updated by management periodically. The CEO is responsible for ensuring the maintenance of, and compliance with, appropriate systems. The Board adopts practices to identify significant areas of risk and to effectively manage those risks in accordance with the Group’s risk profile. Where appropriate the Board draws on the expertise of appropriate external consultants to assist in dealing with or mitigating risk. OPTIONS AND PERFORMANCE RIGHTS As at the date of this report, there were the following unissued ordinary shares for which options and performance rights were outstanding: Unlisted options Unlisted options1 Unlisted options Unlisted performance rights2,3 Total Number of options/rights Exercise price – (cents) Expiry date 3,000,000 10,000,000 34,000,000 13,307,000 60,307,000 $0.15 $0.1225 $0.045 Nil 24 May 2021 20 December 2021 2 March 2024 Based on performance conditions 1 - As advised per the ASX announcement on 31 July 2019, the exercise prices of these unquoted options over fully paid ordinary shares in the capital of the Company have been recalculated in accordance with their terms of issue, which are consistent with the formula set out in ASX Listing Rule 6.22, as a result of the accelerated non- renounceable 1 for 13 pro-rate entitlement offer announced by the Company on 6 June 2019. 2 - Included in these performance rights were rights issued as remuneration to the Directors and the five most highly remunerated officers during the 2017 financial year. Details of performance rights granted to key management personnel are referred to in the remuneration report. 3 - Vesting of the rights are subject to the Company meeting numerous performance conditions beginning on grant of the performance right and subject to meeting various hurdles. The performance conditions are set out in Note 11(c). Option holders do not have any right, by virtue of the option, to participate in any share issue of the Company or any other entity. No ordinary shares were issued during the financial year, or since the end of the financial year, as a result of the exercise of options. The following ordinary shares were issued during the year ended 30 June 2020 on the exercise of performance rights issued as remuneration to the Directors, key management personnel and employees of the Company (no amounts are unpaid on any of the shares): Date performance rights were granted 30 November 2016 21 May 2019 Exercise price of shares – (cents) Nil Nil Number of shares issued 1,000,000 3,361,150 The following ordinary shares were issued after the year ended 30 June 2020 on the exercise of performance rights issued as remuneration to the Directors, key management personnel and employees of the Company (no amounts are unpaid on any of the shares): Date performance rights were granted 30 November 2016 Exercise price of shares – (cents) Nil Number of shares issued 4,000,000 INDEMNIFICATION AND INSURANCE OF DIRECTORS The Company has entered into an Access, Indemnity and Insurance Deed with the Directors to indemnify them to the maximum extent permitted by law against liabilities and legal expenses incurred 10 NORTHERN MINERALS _ ANNUAL REPORT 2020 43 NORTHERN MINERALS LIMITED DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2020 in, or arising out of, the conduct of the business of the Company or the discharge of their duties as Directors. Also, pursuant to the Deed, the Company has paid premiums to insure the directors against liabilities incurred in the conduct of the business of the Company and has provided the right of access to Company records. In accordance with common commercial practice, the insurance policy prohibits disclosure of the amount of the premium and the nature of the liability insured against. The amount of the premium is included as part of the directors’ remuneration in the Remuneration Report. PROCEEDINGS ON BEHALF OF COMPANY No person has applied for leave of Court to bring proceedings on behalf of the Company or 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 any part of those proceedings. The Company was not a party to any such proceedings during the year. 11 NORTHERN MINERALS _ ANNUAL REPORT 2020 44 NORTHERN MINERALS LIMITED DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2020 REMUNERATION REPORT (Audited) This Remuneration Report for the year ended 30 June 2020 outlines the remuneration arrangements of the Company in accordance with the requirements of the Corporations Act 2001 and its Regulations. This information has been audited as required by section 308(3C) of the Act. This Remuneration Report details the remuneration arrangements for key management personnel (“KMP”) who are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company, directly or indirectly. Northern Minerals Limited (the Company) received more than 75% of the votes in favour of the Remuneration Report for the 2019 financial year. Details of directors and key management personnel Non-executive and Executive directors of Northern Minerals Limited during the year were: • Colin McCavana (Non-executive Chairman – took on the role of Executive Chairman from 5 June 2020 until 29 July 2020) • George Bauk (Managing Director/ Chief Executive Officer) – resigned 5 June 2020 • Adrian Griffin (Non-executive Director) • Yanchun Wang (Non-executive Director) • Ming Lu (Non-executive Director) • Congyan Xue (Non-executive Director) – resigned 7 November 2019 • Xiaohua Liu (Non-executive Director) – resigned 7 October 2019 • Bin Cai (Alternate Director) Other key management personnel were: • Robin Wilson (Geology and Exploration Manager) • Robin Jones (Chief Operating Officer) • Mark Tory (Company Secretary and Chief Financial Officer – appointed Chief Executive Officer on 29 July 2020) Other than indicated above, there were no changes to KMP after the reporting date and before the date the financial report was authorised for issue. 1. Remuneration Policy The Remuneration Committee of the Board of Directors is responsible for determining and reviewing compensation arrangements for the Directors and executives. The Remuneration Committee assesses the appropriateness of the nature and amount of remuneration on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high-quality board and executive team. Remuneration levels for Directors and executives are competitively set to attract the most qualified and experienced candidates, taking into account prevailing market conditions and individual's experience and qualifications. 12 NORTHERN MINERALS _ ANNUAL REPORT 2020 45 NORTHERN MINERALS LIMITED DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2020 Remuneration packages contain the following key elements: 1. Short-term benefits − salary/fees and non-monetary benefits including the provision of motor vehicles; 2. Post-employment benefits – including superannuation; and 3. Share-based payments − including participation in option and share plans (refer to Note 17 for more information). Remuneration is not linked to profit performance. The Company’s remuneration policy seeks to encourage alignment between the performance of the Company and total shareholder returns, and the remuneration of executives. Short term and, in particular, long term ‘at risk’ incentives only vest when predetermined Company performance objectives are achieved. These performance objectives are operational in nature (production outcomes) but are linked to financial performance and Company value indirectly. In accordance with best practice corporate governance, the structure of non-executive director and executive remuneration is separate and distinct. The Company does not currently have a policy pertaining to Directors hedging their exposure to risks associated with the Company’s securities they receive as compensation. The Company has not used any remuneration consultants in the year. 2. Non-executive Director Remuneration The Board seeks to set aggregate remuneration at a level which provides the Company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost which is acceptable to the shareholders. Each of the Non-executive directors receive a fixed fee for their services as a director. There is no direct link between cash remuneration paid to any of the directors and corporate performance such as bonus payments for achievement of certain key performance indicators. The Constitution and the ASX Listing Rules specify that the aggregate remuneration of Non-executive directors must be determined from time to time by a general meeting. An amount not exceeding the amount determined is then divided between the directors as agreed. The latest determination was on 29 November 2013 when shareholders approved an aggregate remuneration of $500,000 per year. Annual Non-executive Chairman and Non-executive Directors’ base fees are presently $85,000 and $65,000 respectively, inclusive of superannuation, with $5,000 per annum paid for representation on each board committee. The amount of aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst Directors is reviewed annually. The Board considers the fees paid to non-executive directors of comparable companies when undertaking the annual review process. 3. Executive Remuneration Executives receive a fixed remuneration set to provide a base level commensurate with their position and responsibilities within the Company and so as to align the interests of executives with those of shareholders and ensure total remuneration is competitive by market standards. There is no direct link between remuneration paid and corporate performance such as bonus payments for achievement of certain key performance indicators. In addition, executives are entitled to participate in equity-based remuneration plans to recognise ability and effort, provide incentive to improve company performance, attract appropriate persons and promote loyalty. Remuneration levels are reviewed annually by the Remuneration Committee by reviewing Company performance, personal performance, market trends, industry comparisons, employment market conditions and, where appropriate, external advice. 13 NORTHERN MINERALS _ ANNUAL REPORT 2020 46 NORTHERN MINERALS LIMITED DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2020 4. Service agreements Employment Contract – Mr George Bauk (Managing Director/Chief Executive Officer) – Resigned 5 June 2020 The employment contract commenced on 1 August 2019 for a fixed term period of two years. The main terms of the employment contract with Mr Bauk for the year under review are as follows: • Remuneration package of $673,425 pa (inclusive of superannuation). • Salary may be reviewed during the 2 year term. • The Company is entitled to terminate the agreement at any time during the first 12 months of the • term by giving 12 months’ notice. If the Company terminates the agreement at any time within 12 months of the expiry of the fixed term period, the amount of notice required to be given to Mr Bauk is equivalent to the number of months remaining until the expiry of the term, with a minimum of 3 months notice. • Mr Bauk is entitled to terminate the agreement by giving no less than 4 months’ notice. • If the agreement comes to an end automatically at the end of the 2 year term, Mr Bauk will be entitled to a one off completion payment equivalent to 3 months base salary including superannuation. • On 1 April 2020 Mr Bauks salary was reduced by 50% to $336,712 pa by way of a temporary variation agreement due to the impact of COVID-19. • On 5th June 2020 Mr Bauk resigned from his position as Managing Director / Chief Executive Officer. The Company paid Mr Bauk 4 months in lieu of notice plus an additional 2 months on the basis that Mr Bauk provided consultancy and advice for a period of 6 months. Employment Contract – Mr Robin Wilson (Exploration Manager) The employment contract commenced on 26 June 2006 and is not for a fixed period. The main terms of the employment contract with Mr Wilson for the year under review are as follows: • Remuneration package of $240,000 pa (inclusive of superannuation). • Salary reviewed in June each year. • The Company is entitled to terminate the agreement by giving no less than 3 months’ notice. • Mr Wilson is entitled to terminate the agreement by giving no less than 3 months’ notice. • On 1 April 2020 Mr Wilson’s salary was reduced by 30% to $168,000 pa by way of a temporary variation agreement due to the impact of COVID-19. • On 1 July 2020 Mr Wilson returned to his remuneration package of $240,000 pa (inclusive of superannuation). Employment Contract – Mr Robin Jones (Chief Operating Officer) The employment contract commenced on 1 June 2012 and is not for a fixed period. The main terms of the employment contract with Mr Jones for the year under review are as follows: • Remuneration package of $366,825 pa (inclusive of superannuation). • Salary reviewed in June each year. • The Company is entitled to terminate the agreement by giving no less than 3 months’ notice. • Mr Jones is entitled to terminate the agreement by giving no less than 3 months’ notice. • On 1 April 2020 Mr Jones’ salary was reduced by 50% to $183,412 pa by way of a temporary variation agreement due to the impact of COVID-19. • On 27 May 2020 Mr Jones returned to his remuneration package of $366,825 pa (inclusive of superannuation). Employment Contract – Mr Mark Tory (CFO/Company Secretary) The employment contract commenced on 3 December 2012 and is not for a fixed period. The main terms of the employment contract with Mr Tory for the year under review are as follows: • Remuneration package of $383,250 pa (inclusive of superannuation). • Salary reviewed in June each year. 14 NORTHERN MINERALS _ ANNUAL REPORT 2020 47 NORTHERN MINERALS LIMITED DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2020 • The Company is entitled to terminate the agreement by giving no less than 3 months’ notice. • Mr Tory is entitled to terminate the agreement by giving no less than 3 months’ notice. • On 1 April 2020 Mr Tory’s salary was reduced by 50% to $191,625 pa by way of a temporary variation agreement due to the impact of COVID-19. • On 27 May 2020 Mr Tory returned to his remuneration package of $383,250 pa (inclusive of superannuation). • On 29 July 2020 Mr Tory was appointed as Managing Director. There were no changes to his terms of employment. Consultancy Agreement – Mr Bin Cai (Alternate Director) The contract commenced on 1 November 2013 and is not for a fixed period. The main terms of the contract with Australian Cayenne Holdings Pty Ltd, of which Mr Bin Cai is a director for the year under review are as follows: • Remuneration package of $285,000 pa (Inclusive of superannuation). • On 1 April 2020 Mr Cai’s remuneration package was reduced by 50% to $142,500 pa due to the impact of COVID-19. • On 1 July 2020 Mr Cai returned to his remuneration package of $285,000 pa (inclusive of superannuation). • Continues until completion of services required by the agreement. 15 NORTHERN MINERALS _ ANNUAL REPORT 2020 48 % 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % % n o i t a r e n u m e R d e x i F o t d e k n i l e c n a m r o f r e p n o i t a r e n u m e r $ 7 8 1 , 8 8 1 8 9 9 , 8 7 9 7 8 6 , 1 8 7 3 9 , 2 7 7 3 4 , 5 6 2 6 3 9 , 2 7 5 0 6 , 8 2 5 4 2 , 9 2 1 0 6 , 8 2 2 4 0 7 , 7 4 3 6 2 5 , 7 7 3 3 6 8 , 1 7 6 , 2 - - - - - - - - - - - - $ s t h g R i $ - - - - - - - - - - - - / s n o i t p O e c n a m r o f r e P n a l P e r a h S - - - - - - $ - g n o L e v a e L e c i v r e S ) 9 2 5 , 3 1 ( 2 3 9 , 4 6 9 1 , 9 8 0 6 , 9 $ - - 2 1 2 , 7 2 5 2 , 9 1 4 9 6 , 5 - - 4 3 9 , 4 0 6 2 , 9 1 3 0 0 , 1 2 3 0 0 , 1 2 7 0 2 , 0 1 8 5 3 , 8 9 l a t o T s t n e m y a P d e s a b - e r a h S t n e m y o p m E l - t s o P s t i f e n e B n o i t a u n n a r e p u S h s a C s u n o B $ - - - - - - - - - - - - $ $ r e h t O s t i f e n e B m r e t - t r o h S s e e F & y r a l a S 2 6 0 , 6 1 2 6 9 , 4 1 2 6 0 , 6 1 2 6 0 , 6 1 2 6 0 , 6 1 2 6 0 , 6 1 7 7 6 , 5 3 1 3 , 4 3 1 9 , 4 6 1 3 1 3 , 8 5 9 1 3 9 , 9 5 5 7 8 , 6 5 5 7 3 , 9 4 2 0 4 9 , 1 5 8 2 9 , 2 2 2 3 9 , 4 2 - 6 0 2 , 4 2 6 0 , 6 1 3 0 2 , 0 0 2 5 0 5 , 7 1 3 3 5 8 , 0 3 3 0 3 5 , 5 2 1 8 6 7 , 7 3 4 , 2 7 , 5 , 4 a n a v a C c M n i l o C s r o t c e r i D 6 , 4 , 1 k u a B e g r o e G 5 , 4 n i f f i r G n a i r d A 5 , 4 g n a W n u h c n a Y 2 e u X n a y g n o C 3 u L i a u h o a X i 5 , 4 i a C n B i 4 u L g n M i t n e m e g a n a M y e K l e n n o s r e P l i 5 , 4 n o s W n b o R i 5 , 4 s e n o J n b o R i 5 , 4 y r o T k r a M L A T O T : s e t o N I I D E T M L S L A R E N M N R E H T R O N I 0 2 0 2 E N U J 0 3 D E D N E R A E Y E H T R O F T R O P E R ’ S R O T C E R D I 0 2 0 2 e n u J 0 3 d e d n E r a e Y e h t r o f n o i t a r e n u m e R f o s l i a t e D . 5 n e e b t o n e v a h y e h t h c u s s A . s t n e m y a p d e s a b e r a h s d e s n g o c e r i l y s u o v e r p i 6 1 f o l a s r e v e r a g n i t a e r c , n o i t a n g s e r i m o r f g n i t l u s e r s t h g i r f o e r u t i e f r o f e h t o t e u d s e c n a a b l t i d e r c e r a s t n e m y a p d e s a b e r a h S . 6 l . e b a t e v o b a e h t n i n w o h s . n a m r i a h C e v i t u c e x E s a e m i t s a l l e w s a s e e f y c n a t l u s n o c r o f i d a p s t n u o m a l a n o i t i d d a s e d u c n I l . 7 e r a h s d e s n g o c e r i l y s u o v e r p i f o l a s r e v e r a g n i t a e r c l s e d r u h e c n a m r o f r e p g n v e h c a f o y t i l i i i b a b o r p e h t n i e g n a h c a o t e u d s t h g i r l f o n o i t a u a v e r e h t o t e u d s e c n a a b l t i d e r c e r a s t n e m y a p d e s a b e r a h S . 5 l . e b a t e v o b a e h t n i n w o h s n e e b t o n e v a h y e h t h c u s s A . s t n e m y a p d e s a b . s t n e m e e r g a i e c v r e s f o s l i a t e d n i d e t o n s a e c a p l n i s a w t n e m e e r g a n o i t a i r a v y r a r o p m e t a e l i l h w y r a a s % 0 5 i d e v e c e R . 4 . d o i r e p e c i t o n d n a e v a e l l a u n n a f o t u o y a p s e d u c n l i s e e f d n a y r a a S l . 0 2 0 2 e n u J 5 n o i d e n g s e R . 1 . 9 1 0 2 r e b m e v o N 7 n o d e n g s e R i . 2 . 9 1 0 2 r e b o t c O 7 n o d e n g s e R i . 3 NORTHERN MINERALS _ ANNUAL REPORT 2020 49 7 1 % 0 % 0 % 0 % 0 % 3 8 . 4 3 % 8 4 . 3 2 % 2 1 . 0 2 % 2 6 . 5 2 % 7 3 . 9 % 1 0 . 0 1 % 6 9 . 6 % 1 3 . 4 3 % 7 1 . 5 6 % 2 5 . 6 7 % 8 8 . 9 7 % 8 3 . 4 7 % 3 6 . 0 9 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 9 9 . 9 8 % 4 0 . 3 9 % 9 6 . 5 6 % % n o i t a r e n u m e R d e x i F o t d e k n i l e c n a m r o f r e p n o i t a r e n u m e r $ 4 3 2 , 9 7 8 6 1 7 , 9 1 1 6 1 7 , 9 3 1 6 1 7 , 9 0 1 3 1 0 , 0 0 3 0 9 0 , 6 5 7 7 7 , 6 1 1 7 1 , 9 6 9 4 , 1 2 $ s t h g R i 1 2 2 , 6 5 1 1 1 , 8 2 1 1 1 , 8 2 1 1 1 , 8 2 1 1 1 , 8 2 - - - - 9 7 7 , 0 8 2 6 0 1 , 4 0 4 5 6 3 , 7 7 5 1 1 1 , 8 2 1 1 1 , 8 2 1 1 1 , 8 2 % 1 4 . 9 1 % 9 5 . 0 8 9 7 1 , 4 1 9 , 2 8 9 9 , 2 5 2 g n i t r o p e r e h t n i s t n e m y a p d e s a b - e r a h s f o l a s r e v e r a g n i t a e r c , n o $ - - - - - - - - - - - - - - - - - - - - - $ g n o L e v a e L e c i v r e S 7 7 2 , 4 2 $ 7 0 5 , 6 2 4 2 , 8 1 3 5 , 0 2 - - 1 8 8 , 3 - - - 0 0 0 , 6 0 7 1 , 9 2 1 2 , 7 1 1 3 5 , 0 2 1 3 5 , 0 2 1 3 5 , 0 2 $ $ $ - - - - - - - - - - 0 0 0 , 0 5 2 5 0 6 , 6 1 5 0 6 , 6 1 5 0 6 , 6 1 5 0 6 , 6 1 5 0 6 , 6 1 9 5 3 , 1 1 1 2 4 , 3 0 7 8 , 1 6 4 2 , 5 - 8 6 6 , 6 0 0 0 , 0 7 1 5 0 6 , 6 1 3 9 4 , 8 6 8 5 7 , 6 8 0 0 0 , 5 6 0 0 6 , 1 1 5 7 9 2 , 5 5 2 0 5 8 , 0 4 6 5 3 , 3 1 1 0 3 , 7 0 5 2 , 6 1 9 6 4 , 9 1 2 4 9 2 , 6 4 3 6 0 9 , 4 2 3 1 k u a B e g r o e G n i f f i r G n a i r d A s r o t c e r i D a n a v a C c M n i l o C g n a W n u h c n a Y 3 e u X n a y g n o C 4 u L i a u h o a X i 6 , 5 g n a Y n a N 2 u L g n M i i a C n B i t n e m e g a n a M y e K l e n n o s r e P l i n o s W n b o R i s e n o J n b o R i 1 y r o T k r a M L A T O T : s e t o N 9 5 6 , 6 5 4 5 7 , 0 0 1 0 0 0 , 0 2 4 4 9 1 , 8 2 1 4 7 5 , 5 5 9 , 1 i t a n g s e r i i s h o t e u d s t h g i r e c n a m r o f r e p f o e r u t i e f r o f o t e u d d o i r e p e h t r o f s e c n a a b l t i d e r c e r a g n a Y n a N r o f s t n e m y a p d e s a b - e r a h S . 6 . l e b a t e v o b a e h t n i n w o h s n e e b t o n e v a h y e h t h c u s s A . d o i r e p . 9 1 0 2 h c r a M n i n o i l l i m 0 1 $ f o g n s a r i i l a t i p a c l u f s s e c c u s e h t n o d e s a b i d a p e r e w s e s u n o b h s a C 1 . . 8 1 0 2 r e b o t c O h t 4 2 d e t n o p p a i s a w u L g n M i . 2 . 9 1 0 2 l i r p A 6 1 d e t n o p p a i s a w e u X n a y g n o C . 3 . 9 1 0 2 y a M 0 2 d e t n o p p a i s a w u L i a u h o a X i . 4 . 8 1 0 2 r e b o t c O h t 4 2 d e n g s e r i g n a Y n a N . 5 l a t o T s t n e m y a P d e s a b - e r a h S t n e m y o p m E l - t s o P / s n o i t p O e c n a m r o f r e P n a l P e r a h S s t i f e n e B n o i t a u n n a r e p u S h s a C s u n o B r e h t O s t i f e n e B m r e t - t r o h S s e e F & y r a l a S 0 2 0 2 E N U J 0 3 D E D N E R A E Y E H T R O F T R O P E R I I D E T M L S L A R E N M N R E H T R O N I ’ S R O T C E R D I 9 1 0 2 e n u J 0 3 d e d n E r a e Y e h t r o f n o i t a r e n u m e R f o s l i a t e D NORTHERN MINERALS _ ANNUAL REPORT 2020 50 NORTHERN MINERALS LIMITED DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2020 6. Employee share/performance rights plan 6.1 Options/Performance Rights and Shares granted as compensation to key management personnel Terms and conditions of share-based payment arrangements affecting remuneration of key management personnel in the current financial year or future financial years: Options/ Performance Rights Vesting and exercise date Expiry date Value per performance right at grant date Grant date Performance achieved % vested 30/11/2016 Various Various $0.12 To be determined 60% There have been no alteration of the terms and conditions of the above share-based payment arrangements since the grant date. No share-based payments were granted as compensation to key management personnel during the 2019 or 2020 financial years. During the year, key management personnel exercised their rights that were granted to them as part of their compensation in previous years. A number of performance rights were also forfeited due to performance conditions not being met. The number of performance rights exercised and forfeited are shown in section 6.2, the value of performance rights exercised and forfeited are shown below. 30 June 2020 Directors George Bauk Adrian Griffin Colin McCavana Yanchun Wang Bin Cai Ming Lu Congyan Xue Xiaohua Liu Nan Yang Key Management Personnel Robin Wilson Robin Jones Mark Tory TOTAL Value of options/performance rights granted during the year $ Value of options/performance rights exercised during the year $ Value of options/performance rights forfeited during the year $ - 60,000 - - - - - - - 60,000 - - 120,000 200,321 - - - - - - - - - - - 200,321 - - - - - - - - - - - - - 18 NORTHERN MINERALS _ ANNUAL REPORT 2020 51 - - - - 0 0 0 , 0 0 0 , 3 0 0 0 , 0 0 5 , 1 0 0 0 , 0 0 5 , 1 0 0 0 , 0 0 5 , 1 0 0 0 , 0 0 5 , 1 0 0 0 , 0 0 5 , 1 0 0 0 , 0 0 5 , 1 0 0 0 , 0 0 5 , 1 0 0 0 , 0 0 5 , 3 1 - - - - - - - - - - - 0 0 0 , 0 0 5 0 0 0 , 0 0 5 . i e s c r e x e n o - - - - 0 0 0 , 0 0 0 , 3 0 0 0 , 0 0 0 , 2 0 0 0 , 0 0 5 , 1 0 0 0 , 0 0 5 , 1 0 0 0 , 0 0 5 , 1 0 0 0 , 0 0 5 , 1 0 0 0 , 0 0 5 , 1 0 0 0 , 0 0 5 , 1 0 0 0 , 0 0 0 , 4 1 ) 0 0 0 , 0 0 5 ( - - - - - ) 0 0 0 , 0 0 5 ( ) 0 0 0 , 0 0 0 , 1 ( - - - - - - - ) 0 0 0 , 0 0 0 , 2 ( - - - - ) 0 0 0 , 0 0 5 ( ) 0 0 0 , 0 0 5 ( ) 0 0 0 , 0 0 5 ( ) 0 0 0 , 0 0 5 ( ) 0 0 0 , 0 0 5 , 2 ( ) 0 0 0 , 0 0 5 , 3 ( - - - - - - - - - - - - - - - - 0 0 0 , 0 0 0 , 4 0 0 0 , 0 0 0 , 2 0 0 0 , 0 0 0 , 2 0 0 0 , 0 0 0 , 2 0 0 0 , 0 0 0 , 2 0 0 0 , 0 0 0 , 2 0 0 0 , 0 0 0 , 2 0 0 0 , 0 0 0 , 2 0 0 0 , 0 0 0 , 2 0 0 0 , 0 0 0 , 0 2 i a C n B o i 9 1 t d e r r e f s n a r t g n a W n u h c n a Y r o f s t h g i r e c n a m r o f r e p d n a g n a Y n a N r o f n o i t a n g s e r i n o s t h g i r e c n a m r o f r e p d e t i e f r o f e d u c n l i - - - - 0 0 0 , 0 0 0 , 1 0 0 0 , 0 0 0 , 1 0 0 0 , 0 0 0 , 1 0 0 0 , 0 0 0 , 1 0 0 0 , 0 0 0 , 1 0 0 0 , 0 0 0 , 1 0 0 0 , 0 0 0 , 1 0 0 0 , 0 0 0 , 7 0 0 0 , 0 0 5 0 0 0 , 0 0 5 0 0 0 , 0 0 5 0 0 0 , 0 0 5 0 0 0 , 0 0 0 , 1 - - - - 0 0 0 , 0 0 5 0 0 0 , 0 0 5 0 0 0 , 0 0 0 , 4 - - - 0 0 0 , 0 0 0 , 1 0 0 0 , 0 0 5 , 1 0 0 0 , 0 0 5 , 1 0 0 0 , 0 0 5 , 1 0 0 0 , 0 0 5 , 1 0 0 0 , 0 0 0 , 1 0 0 0 , 0 0 5 , 1 0 0 0 , 0 0 5 , 1 0 0 0 , 0 0 0 , 1 1 ) 0 0 0 , 0 0 0 , 2 ( - - - - - - - - - - - - - - - - - ) 0 0 0 , 0 0 5 ( - - ) 0 0 0 , 0 0 5 ( ) 0 0 0 , 0 0 0 , 2 ( ) 0 0 0 , 0 0 0 , 1 ( - - - - - - - - - - - - - - - 0 0 0 , 0 0 0 , 3 0 0 0 , 0 0 0 , 2 0 0 0 , 0 0 5 , 1 0 0 0 , 0 0 5 , 1 0 0 0 , 0 0 5 , 1 0 0 0 , 0 0 5 , 1 0 0 0 , 0 0 5 , 1 0 0 0 , 0 0 5 , 1 0 0 0 , 0 0 0 , 4 1 9 1 0 2 r o f l e n n o s r e P t n e m e g a n a M y e K d e t s e v n U d e t s e V 0 3 t a d l e H 9 1 0 2 e n u J r e h t O 1 s e g n a h C s t h g R i n o i t a s n e p m o C r a e Y f o e s i c r e x E e c n a m r o f r e P / s n o i t p O s a d e t n a r G t a d l e H i f o g n n n g e B i I I D E T M L S L A R E N M N R E H T R O N I 0 2 0 2 E N U J 0 3 D E D N E R A E Y E H T R O F T R O P E R ’ S R O T C E R D I d e t s e v n U d e t s e V 0 3 t a d l e H 0 2 0 2 e n u J r e h t O 1 s e g n a h C s t h g R i n o i t a s n e p m o C r a e Y f o e s i c r e x E e c n a m r o f r e P / s n o i t p O s a d e t n a r G 0 2 0 2 r o f l e n n o s r e P t n e m e g a n a M y e K i f o g n n n g e B i t a d l e H i l f o s g n d o H s t h g R e c n a m r o f r e P i 2 . 6 l e n n o s r e P t n e m e g a n a M y e K a n a v a C c M n i l o C g n a W n u h c n a Y k u a B e g r o e G n i f f i r G n a i r d A : s r o t c e r i D e u X n a y g n o C u L i a u h o a X i i a C n B i u L g n M i l i n o s W n b o R i n o i t a n g s e r n o i d e t i e f r o F . 1 s e n o J n b o R i y r o T k r a M i l f o s g n d o H s t h g R e c n a m r o f r e P i l e n n o s r e P t n e m e g a n a M y e K a n a v a C c M n i l o C g n a W n u h c n a Y k u a B e g r o e G n i f f i r G n a i r d A : s r o t c e r i D e u X n a y g n o C u L i a u h o a X i g n a Y n a N i a C n B i u L g n M i s e g n a h c r e h t O . 1 s e n o J n b o R i y r o T k r a M l i n o s W n b o R i NORTHERN MINERALS _ ANNUAL REPORT 2020 d e t s e V t o N d e t s e V 0 2 0 2 e n u J 0 3 t a d e H l 2 s e g n a h C r e h t O f o e s i c r e x E e c n a m r o f r e P s n o i t p O / s a d e t n a r G t a d l e H i f o g n n n g e B i 52 I I D E T M L S L A R E N M N R E H T R O N I 0 2 0 2 E N U J 0 3 D E D N E R A E Y E H T R O F T R O P E R ’ S R O T C E R D I 0 2 0 2 r o f l e n n o s r e P t n e m e g a n a M y e K l i f o s g n d o h e r a h S 3 . 6 - - - - - - - - - - - - - - - - 6 2 6 , 0 0 0 , 5 1 0 0 , 0 0 1 , 4 6 1 6 , 4 8 4 , 5 9 9 9 , 7 5 6 , 0 1 2 5 9 4 , 0 4 8 , 1 4 5 1 , 2 1 5 4 1 5 , 2 5 8 , 1 5 0 4 , 8 4 4 , 9 2 2 - - - - 6 2 6 , 0 0 0 , 5 1 0 0 , 0 0 1 , 4 6 1 6 , 4 8 4 , 5 9 9 9 , 7 5 6 , 0 1 2 5 9 4 , 0 4 8 , 1 4 5 1 , 2 1 5 4 1 5 , 2 5 8 , 1 5 0 4 , 8 4 4 , 9 2 2 - 6 7 4 , 1 2 4 ) 0 5 6 1 8 2 , , 6 ( ) 9 9 9 9 9 0 , , 1 ( 1 0 0 , 7 4 0 , 5 1 6 1 6 , 4 8 3 ) 0 6 7 , 4 3 1 , 4 3 1 ( ) 0 0 0 , 0 0 0 , 0 1 1 ( - - - - - - s t h g R i - 0 0 0 , 0 0 5 ) 4 1 1 , 0 9 5 ( ) 4 5 1 , 8 9 4 ( 6 0 5 , 5 4 1 - - 0 0 0 , 0 0 5 ) 8 7 0 , 6 0 6 , 6 3 2 ( , 0 0 0 0 0 0 , 1 n o i t a s n e p m o C r a e Y - - - - - - - - - - - - - 0 5 6 , 1 8 2 , 6 0 5 1 , 9 7 0 , 4 0 0 0 , 0 0 2 , 5 0 0 0 , 0 0 1 , 5 8 9 9 , 0 1 6 , 5 9 1 0 6 7 , 4 3 1 , 4 3 1 0 0 0 , 0 0 0 , 0 1 1 9 0 6 , 0 3 9 , 1 8 0 3 , 0 1 0 , 1 8 0 0 , 7 0 7 , 1 3 8 4 , 4 5 0 , 5 6 4 3 , 1 k u a B e g r o e G n i f f i r G n a i r d A a n a v a C c M n i l o C g n a W n u h c n a Y : s r o t c e r i D 2 i a C n B i u L g n M i t n e m e g a n a M y e K l e n n o s r e P 3 e u X n a y g n o C 3 u L i a u h o a X i l i n o s W n b o R i s e n o J n b o R i y r o T k r a M l e b a r u o v a f e r o m o n s n o i t i d n o c d n a s m r e t r e d n u o t n i d e r e t n e n e e b e v a h n o i t a s n e p m o c s a d e t n a r g s n o i t p o f i o e s c r e x e e h t m o r f i g n s i r a e s o h t n a h t r e h t o l e n n o s r e P t n e m e g a n a M y e K h t i w s n o i t c a s n a r t y t i u q e l l A . t h g n e l ' s m r a t a g n i l a e d f i d e t p o d a e v a h l d u o w y n a p m o C e h t e s o h t n a h t l l . s e u r n a P e r a h S e h t h t i w e c n a d r o c c a n i y n a p m o C e h t o t k c a b t r e v e r d n a y r i p x e n a o l o t e u d r a e y e h t n i d e r i p x e e v a h t a h t s e r a h s l n a p e r a h s s e d u c n l i k u a B e g r o e G r o f s e g n a h c r e h t O s e g n a h c r e h t o n i s t n e m e v o m s a n w o h s e r a n o i t a n g s e r n o i s e r a h s r i e h t – r a e y e h t n i d e n g s e r i s r o t c e r i D t e k r a m - n o s e s a h c r u p d n a s e a s l s e d u c n l i o s a l s e g n a h c r e h t O . 1 . 2 . 3 0 2 NORTHERN MINERALS _ ANNUAL REPORT 2020 d e t s e V t o N d e t s e V 9 1 0 2 e n u J 0 3 t a d l e H 5 s e g n a h C r e h t O s t h g R i n o i t a s n e p m o C r a e Y - - - - - - - - - - - - - - 0 5 6 , 1 8 2 , 6 0 5 1 , 9 7 0 , 4 0 0 0 , 0 0 2 , 5 0 0 0 , 0 0 1 , 5 8 9 9 , 0 1 6 , 5 9 1 - 0 6 7 , 4 3 1 , 4 3 1 0 0 0 , 0 0 0 , 0 1 1 9 0 6 , 0 3 9 , 1 8 0 3 , 0 1 0 , 1 8 0 0 , 7 0 7 , 1 3 8 4 , 4 5 0 , 5 6 4 - 0 5 6 , 1 8 2 , 6 0 5 1 , 9 7 0 , 4 0 0 0 , 0 0 2 , 5 0 0 0 , 0 0 1 , 5 8 9 9 , 0 1 6 , 5 9 1 - 0 6 7 , 4 3 1 , 4 3 1 0 0 0 , 0 0 0 , 0 1 1 9 0 6 , 0 3 9 , 1 8 0 3 , 0 1 0 , 1 8 0 0 , 7 0 7 , 1 3 8 4 , 4 5 0 , 5 6 4 - - - 0 0 0 , 0 0 5 ) 0 0 0 , 0 0 0 , 3 ( ) 0 0 0 , 0 0 5 ( 0 6 7 , 4 3 1 , 4 3 1 0 0 0 , 0 0 0 , 0 1 1 ) 0 0 0 , 0 0 2 ( ) 0 0 0 , 0 0 3 ( 0 0 0 , 0 4 3 - - - - - - 0 0 0 , 0 0 5 0 0 0 , 0 0 5 0 0 0 , 0 0 5 0 0 0 , 0 0 5 0 0 0 , 0 0 5 ) 0 0 0 , 0 0 0 , 4 ( 0 0 0 , 0 0 0 , 1 0 6 7 , 4 7 9 , 6 3 2 0 0 0 , 0 0 5 , 3 - - - - - - - - - - - - - - - - 0 0 0 , 0 0 5 0 5 6 , 1 8 2 , 9 0 5 1 , 9 7 0 , 4 0 0 0 , 0 0 7 , 4 0 0 0 , 0 0 1 , 4 8 9 9 , 0 1 6 , 8 9 1 8 0 3 , 0 1 8 8 0 0 , 7 6 8 9 0 6 , 0 3 6 , 1 3 2 7 , 9 7 5 , 4 2 2 1 k u a B e g r o e G n i f f i r G n a i r d A a n a v a C c M n i l o C g n a W n u h c n a Y : s r o t c e r i D 2 i a C n B i u L g n M i t n e m e g a n a M y e K l e n n o s r e P 3 e u X n a y g n o C 3 u L i a u h o a X i 4 3 n a Y n a N l i n o s W n b o R i s e n o J n b o R i y r o T k r a M 0 2 0 2 E N U J 0 3 D E D N E R A E Y E H T R O F T R O P E R I I D E T M L S L A R E N M N R E H T R O N I ’ S R O T C E R D I 9 1 0 2 r o f l e n n o s r e P t n e m e g a n a M y e K l i f o s g n d o h e r a h S f o e s i c r e x E e c n a m r o f r e P / s n o i t p O s a d e t n a r G t a d l e H i f o g n n n g e B i l l . s e u r n a P e r a h S e h t h t i w e c n a d r o c c a n i y n a p m o C e h t o t k c a b t r e v e r d n a y r i p x e n a o l o t e u d r a e y e h t n i d e r i p x e e v a h t a h t s e r a h s l n a p e r a h s s e d u c n l i k u a B e g r o e G r o f s e g n a h c r e h t O . s e g n a h c r e h t o n i s t n e m e v o m s a n w o h s e r a t n e m t n o p p a i n o l s e c n a a b r i e h t – r a e y e h t n i i d e t n o p p a s r o t c e r i D . s e g n a h c r e h t o n i t n e m e v o m a s a n w o h s e r a e t a d n o i t a n g s e r i t a s a s e c n a a b l i s h – r a e y n i d e n g s e r i g n a Y n a N s t h g i r e c n a m r o f r e p f o i e s c r e x e n o g n a W n u h c n a Y m o r f r e f s n a r t e d u c n l i s e g n a h c r e h t O t e k r a m - n o s e s a h c r u p d n a s e a s l s e d u c n l i o s a l s e g n a h c r e h t O . 1 . 2 . 3 . 4 . 5 l e b a r u o v a f e r o m o n s n o i t i d n o c d n a s m r e t r e d n u o t n i d e r e t n e n e e b e v a h n o i t a s n e p m o c s a d e t n a r g s n o i t p o f o e s c r e x e e h t i i m o r f g n s i r a e s o h t n a h t r e h t o l e n n o s r e P t n e m e g a n a M y e K h t i w s n o i t c a s n a r t y t i u q e A l l 53 1 2 . h t g n e l ' s m r a t a g n i l a e d f i d e t p o d a e v a h l d u o w y n a p m o C e h t e s o h t n a h t NORTHERN MINERALS _ ANNUAL REPORT 2020 54 NORTHERN MINERALS LIMITED DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2020 6.4 Other transactions with key management personnel Northern Minerals have entered into agreements with companies associated with Non-executive Director Adrian Griffin and ex-Managing Director George Bauk, for them to rent office accommodation at 675 Murray Street, West Perth. The rent has been set at a rate which is at arms-length commercial rate for comparable premises. Rental Income 2020 $ 125,941 2019 $ 95,294 The following balances are outstanding at the end of the reporting period in relation to transactions with related parties: Current receivables 20,767 12,452 During the year ended 30 June 2019, Northern Minerals entered into a consultancy agreement with Go & Company Ltd, a company associated with Non-executive Director Congyan Xue, under which Go & Company Ltd advised the Company on equity raisings. The Company issued 10,000,000 fully paid ordinary shares to Go & Company Ltd as partial consideration for entry into the consultancy agreement upon receipt of the $3 million placement for 50,000,000 fully paid ordinary shares in the Company at an issue price of $0.06 per share as announced on 1 February 2019. A further 20,000,000 fully paid ordinary shares were issued upon receipt of the $3 million placement for 60,000,000 fully paid ordinary shares in the Company at an issue price of $0.05 per share. The value of these shares issued in relation to this consultancy agreement totalled $1,270,000 for FY19. No such services were provided during the year ended 30 June 2020. *** End of Remuneration Report *** 22 NORTHERN MINERALS _ ANNUAL REPORT 2020 55 NORTHERN MINERALS LIMITED DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2020 CORPORATE GOVERNANCE STATEMENT The Board of Northern Minerals Limited is committed to achieving and demonstrating the highest standards of corporate governance. The Board is responsible to its shareholders for the performance of the Company and seeks to communicate extensively with shareholders. The Board believes that sound corporate governance practices will assist in the creation of shareholder wealth and provide accountability. In accordance with ASX Listing Rule 4.10.3, the Company has elected to disclose its corporate governance policies and its compliance with them on its website, rather than in the Annual Report. Accordingly, information about the Company’s corporate governance practices is set out on the Company’s website at www.northernminerals.com.au. AUDITOR’S INDEPENDENCE DECLARATION A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 105. NON-AUDIT SERVICES There were no non-audit services carried out in the year ended 30 June 2020. SIGNIFICANT EVENTS AFTER THE BALANCE DATE On 1 July 2020, the Company made the decision to partially restart operations at the Browns Range Pilot Plant Project. This decision was made following the lifting of Commonwealth biosecurity restrictions applied to the Kimberley region as a part of Covid-19 control measures. The partial return of pilot plant operations at Browns Range resulted in about three quarters of the previous project workforce being re-mobilised. Initial operations will focus on test work in the beneficiation circuit followed by tests in the hydrometallurgical circuit along with mechanical construction and installation of the ore sorter. On 22 July 2020, the Company issued 183,500,000 fully paid ordinary shares upon receipt of $3.67 million relation to the outstanding tranches of the $22 million placement announced on the ASX on 20 April 2020. A further 145,000,000 fully paid ordinary shares were issued on 16 September following the receipt of the final $2.9 million of the placement. In August 2020, the Company announced it had reached a settlement agreement with the ATO that settled all matters relating to the FY17 and FY18 R&D tax offset claims. The settlement agreement also documented the agreed refundable R&D offset claim for FY19 as well as a framework for reviewing the Company’s refundable R&D offset claim for FY20. On 14 September 2020, the Company received $8.64 million from the ATO in relation to the refundable R&D tax offset claims for FY17 to FY19. The final $1.3 million relating to these claims was received on 17 September. On receipt of the first tranche of R&D funding the Company made a repayment of $2 million of the outstanding $4 million of convertible notes issued to JHY Investments Pty Ltd. The final balance of $2 million payable to JHY is due on 31 December 2020. On 17 July 2020 Lind issued a notice for the conversion of $0.8 million owing under the convertible note agreement and as a result the Company issued 50,000,000 fully paid ordinary shares. On 21 August 2020 the Company issued a further 66,666,667 fully paid ordinary shares as a result of the conversion of $1.2 million of the face value of the convertible note. Following this conversion, there are no amounts outstanding under the convertible note (which has now been redeemed in full). In addition, Lind also elected to reduce its collateral shareholding number (under the original funding agreement) from 60,000,000 shares to zero by paying the Company $10.8 million in cash. The impact of the Coronavirus (COVID-19) pandemic is ongoing as at 30 June 2020 and it is not practicable to estimate the potential impact, positive or negative, after the reporting date. The situation is rapidly developing and is dependent on measures imposed by the Australian Government and other 23 NORTHERN MINERALS _ ANNUAL REPORT 202056 NORTHERN MINERALS LIMITED DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2020 countries, such as maintaining social distancing requirements, quarantine, travel restrictions and any economic stimulus that may be provided. Signed in accordance with a resolution of the directors. _____________________ Colin McCavana Director 24 September 2020 24 NORTHERN MINERALS _ ANNUAL REPORT 2020 57 NORTHERN MINERALS LIMITED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 June 2020 Revenue from continuing operations Revenue from contracts with customers Interest Research and development rebate Other income Total revenue Corporate expenses Note 5 6 5 5 2020 $ 3,069,070 24,432 23,272,772 2,060,379 2019 $ - 2,307 - 2,000,068 28,426,653 2,002,375 Administration expenses Depreciation expense Share based payments expense Legal and professional expenses Occupancy expenses Employee benefits expense Other corporate expenditure Royalty expense Research and development rebate reversal Impairment loss on property, plant and equipment Changes in the fair value of interest bearing liabilities at fair value through profit & loss 10(a) 17 5 10 8(g) 1,334,803 24,430,719 (586,159) 2,364,618 247,176 3,385,067 1,684,557 125,926 - 24,763,044 (189,162) 935,836 19,415,157 2,124,684 2,297,026 286,825 3,076,389 261,013 1,228 6,198,937 - (90,182) Total corporate expenses 57,560,589 34,506,913 Exploration and evaluation expenditure Exploration costs Project evaluation and pre-feasibility Mining expenditure Total exploration and evaluation expenditure expenses Total expenses Operating loss Finance costs / (Income) Loss before income tax Income tax expense Loss for the year Other comprehensive income Total comprehensive loss for the year attributable to members of the entity Loss per share attributable to ordinary equity holders of the company: Basic and diluted loss per share (cents per share) 4 4 4 6 7 2,605,662 19,618,647 116,319 1,591,966 21,221,271 - 22,340,628 22,813,237 79,901,217 57,320,150 (51,474,564) (55,317,775) 2,853,796 8,648,555 (54,328,360) (63,966,330) - - (54,328,360) (63,966,330) - - (54,328,360) (63,966,330) 19 (2.04) (4.67) The above consolidated statement of profit and loss and other comprehensive income should be read in conjunction with the accompanying notes 25 NORTHERN MINERALS _ ANNUAL REPORT 2020 58 NORTHERN MINERALS LIMITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 June 2020 Current assets Cash and cash equivalents Trade and other receivables Inventories Total Current Assets Non-current assets Other financial assets Property, plant and equipment Note 8 (a) 8 (b) 10 (b) 2020 $ 6,660,568 24,315,603 992,099 2019 $ 8,140,422 2,118,577 722,015 31,968,270 10,981,014 8 (c) 10 (a) 60,523 10,451,003 89,272 50,506,952 Total Non-Current Assets 10,511,526 50,596,224 Total assets Current liabilities Trade and other payables Interest bearing liabilities Deferred revenue Provisions Total Current Liabilities Non-current liabilities Trade and other payables Interest bearing liabilities Deferred revenue Provisions 42,479,796 61,577,238 11,364,370 5,828,193 7,521,406 1,106,518 12,365,446 18,435,416 1,333,680 971,120 25,820,487 33,105,662 - 25,485 - 4,977,310 4,269,253 7,472,655 1,333,589 4,716,141 8 (d) 8 (e) 8 (f) 10 (c) 8 (d) 8 (e) 8 (f) 10 (c) Total Non-Current Liabilities 5,002,795 17,791,638 Total liabilities Net assets Equity Issued Capital Reserves Accumulated losses Total equity 30,823,282 50,897,300 11,656,514 10,679,938 11 (a) 11 (g) 243,671,335 12,521,187 (244,536,008) 188,482,276 12,405,310 (190,207,648) 11,656,514 10,679,938 The above consolidated statement of financial position should be read in conjunction with the accompanying notes 26 NORTHERN MINERALS _ ANNUAL REPORT 2020 7 4 3 , 7 2 7 , 1 3 5 2 0 , 8 7 2 , 1 1 5 4 , 8 9 3 , 8 0 8 3 , 7 4 3 , 4 ) 8 1 3 , 1 4 2 , 6 2 1 ( 9 0 8 , 4 4 9 , 3 4 1 $ $ L A T O T R E H T O S E V R E S E R $ S N O T P O I E V R E S E R D N A S T H G R I E V R E S E R S T N E M Y A P S E S S O L $ $ $ E C N A M R O F R E P D E S A B E R A H S D E T A L U M U C C A I L A T P A C D E U S S I e t o N I Y T U Q E N I I I D E T M L S L A R E N M N R E H T R O N I 0 2 0 2 e n u J 0 3 T A S A S E G N A H C F O T N E M E T A T S D E T A D L O S N O C I 59 ) 0 3 3 , 6 6 9 , 3 6 ( - ) 0 3 3 , 6 6 9 , 3 6 ( 1 6 9 , 7 7 6 7 6 4 , 7 3 5 , 4 4 ) 0 0 0 , 0 4 5 , 1 ( ) 2 9 8 , 1 0 7 , 1 ( 5 8 3 , 5 4 9 8 3 9 , 9 7 6 , 0 1 8 3 9 , 9 7 6 , 0 1 - ) 0 6 3 , 8 2 3 , 4 5 ( ) 0 6 3 , 8 2 3 , 4 5 ( ) 9 5 1 , 0 1 1 ( 6 3 0 , 6 2 2 9 5 0 , 9 8 1 , 5 5 4 1 5 , 6 5 6 , 1 1 - - - - - - 5 8 3 , 5 4 9 ) 2 9 8 , 1 0 7 , 1 ( 8 1 5 , 1 2 5 8 1 5 , 1 2 5 - - - - - 6 3 0 , 6 2 2 4 5 5 , 7 4 7 - - - - - - - 1 6 9 , 7 7 6 - - - - - - - ) 0 0 0 , 0 4 5 , 1 ( - - - - - ) 9 5 1 , 0 1 1 ( - - - - - - 3 5 2 , 6 6 9 , 8 0 8 3 , 7 0 8 , 2 ) 8 0 0 , 6 3 5 , 4 4 2 ( 5 3 3 , 1 7 6 , 3 4 2 - - - - - 9 5 0 , 9 8 1 , 5 5 ) a ( 1 1 ) g ( 1 1 2 1 4 , 6 7 0 , 9 0 8 3 , 7 0 8 , 2 ) 8 4 6 , 7 0 2 , 0 9 1 ( 6 7 2 , 2 8 4 , 8 8 1 2 1 4 , 6 7 0 , 9 0 8 3 , 7 0 8 , 2 ) 8 4 6 , 7 0 2 , 0 9 1 ( 6 7 2 , 2 8 4 , 8 8 1 - ) 0 6 3 , 8 2 3 , 4 5 ( ) 0 6 3 , 8 2 3 , 4 5 ( - - - r a e y l i a c n a n i f s a y t i c a p a c r i e h t n i s r e n w o h t i w s n o i t c a s n a r T s t s o c n o i t c a s n a r t f o t e n d e u s s i s e r a h S : s r e n w o d e u s s i s e t o n l e b i t r e v n o C d e u s s i s n o i t p o / s e r a h S 0 2 0 2 e n u J 0 3 t a e c n a l a B e h t r o f s s o l i e v s n e h e r p m o c l a t o T e m o c n i i e v s n e h e r p m o c r e h t O r a e y l i a c n a n i f e h t r o f s s o L 9 1 0 2 e n u J 0 3 t a e c n a a B l 9 1 0 2 y u J 1 l t a e c n a a B l ) 0 3 3 , 6 6 9 , 3 6 ( - ) 0 3 3 , 6 6 9 , 3 6 ( - - - r a e y l i a c n a n i f e h t r o f s s o l i e v s n e h e r p m o c l a t o T e m o c n i i e v s n e h e r p m o c r e h t O d o i r e p e h t r o f s s o L 8 1 0 2 y u J 1 l t a e c n a a B l y t i t n E d e t a d i l o s n o C - - - - - - - - - 7 6 4 , 7 3 5 , 4 4 ) a ( 1 1 ) g ( 1 1 ) g ( 1 1 ) g ( 1 1 s a y t i c a p a c r i e h t n i s r e n w o h t i w s n o i t c a s n a r T s t s o c n o i t c a s n a r t f o t e n d e u s s i s e r a h S : s r e n w o d e u s s e r i s e r a h s l a r e t a l l o c n i l e u a v n i e s a e r c e D d e u s s i s e t o n l e b i t r e v n o C d e u s s i s n o i t p o / s e r a h S d e u s s i t o n s e r a h S 7 2 s e t o n i g n y n a p m o c c a e h t h t i w n o i t c n u n o c j n i d a e r e b l d u o h s y t i u q e n i s e g n a h c f o t n e m e t a t s d e t a d i l o s n o c e v o b a e h T NORTHERN MINERALS _ ANNUAL REPORT 2020 60 NORTHERN MINERALS LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS AS AT 30 June 2020 NOTE 2020 $ 2019 $ Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest paid Research & development rebate on eligible expenditure Other income received 2,661,735 (29,732,767) (1,218,134) (4,401,712) 934,564 - (27,987,212) (4,083,593) - 12,376,862 Net cash outflow from operating activities 12(a) (31,756,314) (19,693,943) Cash flows from investing activities Payments for property, plant and equipment (15,844,542) (11,932,810) Net cash outflow from investing activities (15,844,542) (11,932,810) Cash flows from financing activities Proceeds from issues of shares Proceeds from issue of convertible notes Repayment of convertible notes Share issue costs Proceeds from borrowings Repayment of borrowings 55,522,026 2,625,000 - (3,708,166) - (8,286,566) 40,161,541 13,500,000 (1,653,099) (1,831,158) 3,187,894 (23,953,302) Net cash inflow from financing activities 46,152,294 29,411,876 Net (decrease) / increase in cash and cash equivalents (1,448,562) (2,214,877) Cash and cash equivalents at beginning of the financial year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the end of the financial year 8,140,422 10,394,113 8(a) (31,292) (38,814) 6,660,568 8,140,422 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 28 NORTHERN MINERALS _ ANNUAL REPORT 2020 61 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS This section sets out the accounting policies that relate to the financial statements of Northern Minerals Limited (“the Company”) and its subsidiaries (“the Group”). Where an accounting policy, critical accounting estimate, assumption and judgement is specific to a note, these are described within the note to which they relate. These policies have been consistently applied to all periods presented, except as described in Note 23 New standards and Interpretations. The consolidated financial statements of Northern Minerals Limited (“the Company”) and its subsidiaries (“the Group”) for the year ended 30 June 2020 were authorised for issue in accordance with a resolution of the directors on 24 September 2020. 1. Reporting Entity Northern Minerals Limited is a company limited by shares incorporated and domiciled in Australia where its shares are publicly traded on the Australian Securities Exchange (ASX), and the entity is a for profit entity. The nature of the operations and principal activities of the Company are described in the Directors' Report. 2. Basis of Preparation The financial report is a general purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report has also been prepared on a historical cost basis, except for derivative financial instruments and certain other financial assets and liabilities, which are required to be measured at fair value. The financial report complies with Australian Accounting Standards, as issued by the Australian Accounting Standards Board and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. The financial report is presented in Australian dollars which is the Group’s functional currency and all values are rounded to the nearest dollar. The Group has, where applicable, adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to their operations and effective for the year ended 30 June 2020. Refer to Note 23 New Standards and Interpretations for further details. The Group did not early adopt any Accounting Standards and Interpretations that have been issued or amended but are not yet effective. a) Financial Position The financial report has been prepared on the going concern basis, which contemplates the continuity of normal business activity and the realisation of assets and the settlement of liabilities in the normal course of business. The Group has incurred a loss for the year ended 30 June 2020 of $54,328,360 (2019: $63,966,330) and experienced net cash outflows from operating activities of $31,756,314 (2019: $19,693,943). As at 30 June 2020 the Group had cash on hand of $6,660,568 (2019: $8,140,422) and a net working capital surplus of $6,147,783 (2019: deficit of $22,124,648). The loss mainly reflects the impairment loss on property, plant and equipment and depreciation expense. Subsequent to year end the Group received funding from the following sources: • In August 2020, the Company announced it had reached a settlement agreement with the ATO that settled all matters relating to the FY17, FY18 and FY19 R&D tax offset claims. In September 2020, the Company received the net refund from the ATO of $10.0 million in relation to the FY17 to FY19 tax offset claims. • As at the date of this report, a further $6.57 million had been received post year end for the outstanding tranches of the A$22 million placement announced on the ASX on 20 April 2020. This now completes the placement in full. 29 NORTHERN MINERALS _ ANNUAL REPORT 2020 62 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 2. Basis of Preparation (continued) • On 21 August 2020, the Company issued fully paid ordinary shares as a result of the conversion of the final amounts outstanding under the Lind convertible note (which has now been redeemed in full). Lind also elected to reduce its collateral shareholding number (under the original funding agreement) from 60,000,000 shares to nil by paying the Company $1.08 million in cash. In addition the claim for the refundable R&D tax offset for FY20 is currently under review by the ATO and is expected to be lodged and received within the December 2020 quarter. The ATO settlement agreement also documented a framework for reviewing the Company’s refundable R&D offset claim for FY20 to ensure there were no significant delays. The directors carefully manage discretionary expenditure in line with the Group’s cash flow forecast. Based on the matters described above, the Directors consider the going concern basis of preparation appropriate. b) Basis of Consolidation The consolidated financial statements comprise the financial statements of Northern Minerals Limited and its subsidiaries as at and for the year ended 30 June 2020. A list of controlled entities at year end is contained within note 13. The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. 3. Critical Accounting Judgements, Estimates, Assumptions and Errors (a) Significant estimates and judgements In applying the Group’s accounting policies management continually evaluates judgements, estimates and assumptions based on experience and other factors, including expectations of future events that may have an impact on the Group. All judgements, estimates and assumptions made are believed to be reasonable based on the most current set of circumstances available to management. Actual results may differ from the judgements, estimates and assumptions. Significant judgements, estimates and assumptions made by management in the preparation of these financial statements are outlined below: Taxation Balances disclosed in the financial statements and the notes thereto related to taxation are based on the best estimates of the Directors. These estimates take into account both the financial performance and position of the Group as they pertain to current income taxation legislation, and the Directors understanding thereof. No adjustment has been made for pending or future taxation legislation. The current income tax position represents the directors’ best estimate, in respect of R & D and the decline in value of the pilot plant. Details of the tax assessment are further discussed in Note 7. Share-based payment transactions The Company measures the cost of equity-settled transactions with employees, vendors and suppliers by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by an internal valuation using a Black-Scholes option pricing model, using the assumptions detailed in Note 17. Rehabilitation provision The recognition of closure and rehabilitation provisions require significant estimates and assumptions such as requirements of the relevant legal and regulatory framework and the timing, extent and costs 30 NORTHERN MINERALS _ ANNUAL REPORT 2020 63 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 3. Critical Accounting Judgements, Estimates, Assumptions and Errors (continued) of required closure and rehabilitation activity. These uncertainties may result in future actual expenditure differing from the amounts currently provided. Refer to Note 10(c). Convertible notes The fair value of convertible notes is determined at the end of each reporting date. The fair value is determined using a market interest rate. The compound convertible notes are subsequently recognised on an amortised cost basis until extinguished on conversion or maturity of the bonds. The remainder of the proceeds is allocated to the conversion option and recognised in shareholders equity. All other convertible notes are recognised at fair value through profit and loss. Refer to Note 8(e). Impairment of Property, Plant and Equipment During the year, the Browns Range Pilot Plant (“BRPP”) was placed into care and maintenance due to the effects of Covid-19. Post year end, the board made the decision to partially restart operations at the BRPP rather than resuming full operations. The Board is therefore of the view that indications of impairment exist due to this planned reduction to overall activities and estimates of future cash flows were determined in order to assess the recoverable amount of the BRPP. In assessing the recoverable amount the board was required to exercise judgement in order to calculate the BRPP’s fair value as well as its estimated value in use. Refer to note 10(a) for additional information. Coronavirus (COVID-19) pandemic Judgement has been exercised in considering the impacts that the Coronavirus (COVID-19) pandemic has had, or may have, on the consolidated entity based on known information. This consideration extends to the nature of the activities and geographic regions in which the consolidated entity operates. Other than as addressed in specific notes, there does not currently appear to be either any significant impact upon the financial statements or any significant uncertainties with respect to events or conditions which may impact the consolidated entity unfavourably as at the reporting date or subsequently as a result of the Coronavirus (COVID-19) pandemic. 4. Exploration and evaluation expenditure The Company’s accounting policy for exploration expenditure is to expense costs as incurred in accordance with AASB 6 Exploration for and Evaluation of Mineral Resources. The Company has determined that expenditure in relation to the pilot plant can still be accounted for under AASB 6, given the main activity of the Company relates to evaluating the technical feasibility and commercial viability of extracting the mineral resource. Items of plant and equipment purchased as part of the pilot plant are capitalised. 31 NORTHERN MINERALS _ ANNUAL REPORT 2020 64 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 5. Revenue The Group derives the following types of revenue: Consolidated 2020 $ 3,069,070 23,272,772 583,000 1,333,680 143,699 28,402,221 2019 $ - - - 1,813,682 186,386 2,000,068 Revenue from contracts with customers R&D rebate on eligible expenditure Covid-19 grant programs Other government grants Other Total revenue from continuing operations Revenue Recognition Revenue from contracts with customers Revenue is recognised at an amount that reflects the consideration to which the Group is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the Group: identifies the contract with a customer; identifies the performance obligations in the contract; − − − determines the transaction price which takes into account estimates of variable consideration and the time value of money; − allocates the transaction price to the separate performance obligations on the basis of the − relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods and services promised. Current year revenue from contracts with customers has resulted from the sale of Rare Earth Carbonate (“REC”) to a single external customer. Revenue from REC sales is brought to account when the significant risks and rewards of ownership have transferred to the buyer and selling prices are known or can be reliably estimated. R&D rebates and government grants The Company’s accounting policy for R&D rebates and government grants is to recognise these when there is reasonable assurance that: • The expenditure incurred during the financial period complies with relevant legislation and activities; and • The rebates claimed will be received. Rebates and grants relating to costs are deferred and recognised in the profit or loss over the period necessary to match them with the costs that they are intended to compensate. Government grants relating to the purchase of property, plant and equipment are included in liabilities as deferred revenue and are credited to profit or loss on a straight-line basis over the expected lives of the related assets. For details of unfulfilled conditions or other contingencies attaching to these grants see Note 14. A government grant is not recognised until there is reasonable assurance that the entity will comply with the conditions attaching to it, and that the grant will be received. Receipt of a grant does not of itself provide conclusive evidence that the conditions attaching to the grant have been or will be fulfilled. 32 NORTHERN MINERALS _ ANNUAL REPORT 2020 65 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 5. Revenue (continued) In early 2019, the Company lodged a formal appeal with AusIndustry regarding its initial decision that the Company’s activities were ‘ineligible R&D claims’ for the FY17 and FY18 periods. On 24 February 2020 the Company was advised that AusIndustry had completed a review of its initial decision and subsequently found that most of the Company’s R&D activities for these periods were in fact eligible. In August 2020, the Company announced that it had reached a settlement agreement with the ATO that settled all matters relating to the FY17 and FY18 R&D tax offset claims. The settlement agreement also documented the agreed refundable R&D offset claim for the FY19 as well as a framework for reviewing the Company’s refundable R&D offset claim for FY20 In the current financial year, the Company has recognised the R&D rebate attributable to the FY17 to FY19 periods in addition to accruing the expected R&D offset claim for FY20 as described above. 6. Finance Income and Costs Finance income Interest income Total finance income Finance costs Interest for financial liabilities Provisions: unwinding of discount Net exchange losses on foreign currency borrowings Financing transactions and costs Total finance costs Amount capitalised Finance costs expensed Net finance costs/(income) Interest income 2020 $ 24,432 24,432 2,531,274 34,306 - 288,216 2,853,796 - 2,853,796 2,853,796 2019 $ 2,307 2,307 5,949,198 89,988 1,221,552 3,151,627 10,412,365 (1,763,810) 8,648,555 8,648,555 Interest income is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. For credit impaired financial assets the effective interest rate is applied to the net carrying amount of the financial asset (after deduction of the loss allowance). Interest income on financial assets at amortised cost is recognised in the statement of profit or loss as other income. Capitalised borrowing costs Borrowing costs capitalised include costs that are directly attributable to the acquisition and construction of the Browns Range Pilot Plant Project. The rate used is the actual borrowing costs eligible for capitalisation. 33 NORTHERN MINERALS _ ANNUAL REPORT 2020 66 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 7. Income Tax Expense (a) Income tax expense Reconciliation of income tax expense to prima facie tax payable: Loss from continuing operations before income tax expense Tax calculated at 27.5% (2019: 27.5%) on loss before income tax Add tax effect of: Share-based payments Non-deductible expenses Unused tax losses and temporary differences not recognised R & D adjustments Income tax expense/(benefit) (b) Unrecognised deferred tax balances temporary differences comprises The balance attributable to: Deferred tax assets Unused tax losses Unused capital losses Property, plant & equipment Deductible temporary differences Total unrecognised deferred tax assets Deferred tax liabilities Property, plant and equipment Taxable temporary differences - other Total unrecognised deferred tax liabilities 2020 $ 2019 $ (54,328,360) (63,966,330) (14,940,299) (17,590,740) (161,194) 7,446 12,266,875 2,827,172 - 592,925 3,430 16,994,385 - - 35,794,404 175,661 4,574,990 5,913,705 34,891,210 175,661 - 2,700,734 46,458,760 37,767,605 - - - (3,550,196) (25,520) (3,575,716) Net unrecognised deferred tax balances 46,458,760 34,191,889 The net deferred tax balances are not recognised since it is not probable at the reporting date that future taxable profits will be available to utilise deductible temporary differences and losses. (c) Income tax expense / (benefit) The income tax expense / (benefit) for the period is the tax payable on the current period’s taxable income / (loss) based on the applicable income tax rate adjusted for changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. Current tax is calculated using the tax rates enacted or substantively enacted at period end, and includes any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for the tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for tax assessment or deduction purposes. 34 NORTHERN MINERALS _ ANNUAL REPORT 2020 67 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 7. Income Tax Expense (continued) The tax effect of certain temporary differences is not recognised, principally with respect to: • Temporary differences arising on the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. • Temporary differences relating to investments and undistributed earnings in subsidiaries, to the extent that the company is able to control its reversal and it is probable that it will not reverse in the foreseeable future. Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets are reviewed at each balance date and amended to the extent it is no longer probable that the related tax benefit will be realised. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Current and deferred tax is recognised in profit and loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. Based on the disclosure in Note 3, the current income tax position represents the Directors’ best estimate, in respect of R&D and the decline in value of the pilot plant. 8. Financial Assets and Financial Liabilities and other receivables and liabilities (a) Cash and cash equivalents Current Cash at bank and on hand 2020 $ 6,660,568 6,660,568 2019 $ 8,140,422 8,140,422 Cash in the statement of financial position comprises cash at bank and in hand and short-term deposits, with an original maturity of three months or less, that are readily convertible to known amounts of cash, and that are subject to an insignificant risk of changes in value. For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. (b) Trade and other receivables Current Trade receivables GST receivable Prepayments Other receivables R&D rebate receivable (Refer Note 5) 2020 $ 407,335 516,718 2,664,719 318,843 20,407,988 24,315,603 2019 $ - 778,525 824,295 515,757 - 2,118,577 35 NORTHERN MINERALS _ ANNUAL REPORT 2020 68 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 8. Financial Assets and Financial Liabilities and other receivables and liabilities (continued) (i) Other receivables Other receivables are amounts that generally arise from transactions outside the usual operating activities of the Group. They are recognised at amortised cost, less any allowance for expected credit losses. The Company assessed the balance in other receivables for expected credit losses but they were deemed to have no material impact. (ii) Research and development rebate receivable In early 2019, the Company lodged a formal appeal with AusIndustry regarding its initial decision that the Company’s activities were ‘ineligible R&D claims’ for the FY17 and FY18 periods. On 24 February 2020 the Company was advised that AusIndustry had completed its review of its initial decision and subsequently found that most of the Company’s R&D activities for these periods were in fact eligible and as a result, the Company has finalised its FY17 to FY19 tax returns which include the relevant R&D rebate for those periods. The Company has also estimated the R&D rebate for the 2020 financial year. (iii) Trade receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses as per AASB 9 Financial Instruments. Trade receivables are generally due for settlement within 30 days. Information about the methods and assumptions used in determining fair value is provided in Note 8(g). Information about the impairment of trade and other receivables, their credit quality and the group’s exposure to credit risk, foreign currency risk and interest rate risk can be found in Note 9. (iv) Fair values of trade and other receivables Due to their short-term nature, their carrying amount is approximate to their fair value. Information about the methods and assumptions used in determining fair value is provided in Note 8(g). Information about the impairment of trade and other receivables, their credit quality and the Group’s exposure to credit risk, foreign currency risk and interest rate risk can be found in Note 9. Prepayments include the following share-based payments: Lind collateral shares issued in the year (refer Note 8 (e)) Lind options issued in the year (refer Note 8(e)) JHY Investments options issued in the year (refer Note 8(e)) (c) Other financial assets Non-Current Security deposits – rent and performance bonds 2020 $ 2,040,000 396,667 - 2,436,667 2019 $ - - 49,539 49,539 60,523 89,272 36 NORTHERN MINERALS _ ANNUAL REPORT 2020 69 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 8. Financial Assets and Financial Liabilities and other receivables and liabilities (continued) Other financial assets are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method. (i) Fair values of other financial assets Due to their short-term nature, the financial assets carrying amount is approximate to their fair value. Information about the methods and assumptions used in determining fair value is provided in Note 8(g). Information about the impairment of other financial assets, their credit quality and the group’s exposure to credit risk, foreign currency risk and interest rate risk can be found in Note 9. (d) Trade and other payables Current Trade and other payables Trade and other payables (Refer to Note 8(e)) (Secured) 2020 $ 2019 $ 6,901,061 4,463,309 11,364,370 5,799,385 6,566,061 12,365,446 Non-Current Trade and other payables (Refer to Note 8 (e)) (Secured) - 4,269,253 Trade and other payables are classified as loans and are carried at amortised cost. They are non- interest bearing and represent liabilities for goods and services provided to the Group prior to the end of the financial period. They are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days of recognition. These are included in current liabilities. Liabilities where payment is not due within 12 months from the reporting date, which are classified as non-current liabilities. (i) Fair values of trade and other payables Due to their short-term nature, current trade and other payables carrying amounts are approximate to their fair value. Information about the methods and assumptions used in determining fair value is provided in Note 8(g). Information about the group’s exposure to credit risk, foreign currency risk and interest rate risk can be found in Note 9. Details of the fair values of non-current trade and other payables can be found in Note 8(g). 37 NORTHERN MINERALS _ ANNUAL REPORT 2020 70 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 8. Financial Assets and Financial Liabilities and other receivables and liabilities (continued) (e) Interest Bearing Liabilities At Amortised Cost Current Convertible note (Unsecured) - JHY Inv Pty Ltd Convertible note (Unsecured) - Yuzhen Ma ATO Liability (Unsecured) Equipment finance (Secured) Insurance premium funding Non-Current Equipment finance (Secured) ATO Liability (Unsecured – Refer Note 7) Interest Rate 10%/16% 10% 4.96% 2.90%-6.50% 5.10%/3.15% 2.90%-6.50% 4.96% 2020 $ 3,831,044 319,726 - 142,865 - 4,293,635 25,485 - 25,485 2019 $ 4,016,650 7,037,622 6,602,568 138,855 639,721 18,435,416 176,341 7,296,314 7,472,655 At Fair value through profit and loss Current Convertible note (Unsecured) - Lind Total Interest Bearing Liabilities Current Non-Current 0% 1,534,558 1,534,558 - - 5,828,193 25,485 5,853,678 18,435,416 7,472,655 25,908,071 Commitments in relation to hire purchase leases are payable as follows: Within one year Later than one year but not later than five years Minimum lease payments Future finance charges Total lease liabilities 147,371 25,485 172,856 (4,506) 168,350 154,106 176,341 330,447 (15,251) 315,196 The present value of hire purchase lease liabilities is as follows: Within one year Later than one year but not later than five years Minimum lease payments 147,753 20,597 168,350 150,060 165,136 315,196 Aside from amounts disclosed above as measured at Fair Value through profit and loss, borrowings are classified as loans and are initially recognised at fair value net of directly attributable transaction costs. Subsequent to initial recognition, interest bearing liabilities are measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the statement of profit or loss when the liabilities are derecognised. Interest bearing liabilities are classified as current liabilities, except when the Group has an unconditional right to defer settlement for at least 12 months after the reporting date in which case the liabilities are classified as non-current. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. The fee is capitalised as a prepayment and amortised over the remaining period of the facility to which it relates once it is drawn down. 38 NORTHERN MINERALS _ ANNUAL REPORT 2020 71 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 8. Financial Assets and Financial Liabilities and other receivables and liabilities (continued) Convertible notes issued by the Group can be converted to ordinary shares at the option of the holder on or before the expiry date. The liability component of the convertible note is recognised initially at the fair value of a similar liability that does not have a conversion option. Subsequent to initial recognition, the liability component of the convertible note is measured at amortised cost using the effective interest method. Interest relating to the financial liability is recognised in the statement of profit or loss as a non- cash item. The conversion option is recognised initially as the difference between the consideration and the value of the liability component and the conversion option is classified as equity. The Convertible Note issued to Lind Global Macro Fund, LP is not convertible at a fixed conversion price and includes a floor price in the contract so has been accounted for as fair value through profit or loss. Financial liabilities designated at fair value through profit or loss are measured at fair value, with any gains or losses arising on changes in fair value recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability. The amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is recognised in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. The remaining amount of change in the fair value of liability is recognised in profit or loss. Changes in fair value attributable to a financial liability’s credit risk that are recognised in other comprehensive income are not subsequently reclassified to profit or loss; instead, they are transferred to retained earnings upon de-recognition of the financial liability. Leases, which transfer to the Group, substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised as an expense in profit or loss. Convertible Note – JHY Investments Pty Ltd In December 2018 a subscription agreement was entered into with JHY Investments Pty Ltd (JHY), for the issue of 4,000,000 convertible notes over two tranches with a face value of $1.00 each. Tranche 1 was completed in December 2018 and 3,500,000 notes were issued. Tranche 2 for a further 500,000 notes was completed in January 2019. The maturity date for the convertible notes was 31 December 2019 at a conversion price of $0.06 per share. The interest rate was 16% per annum, accruing daily and payable monthly from immediately available funds on the face value of the notes from the date the notes are issued until the earlier of the date the note is converted into shares and the maturity date. Conversion can be at any time before the maturity date at JHY’s election, and must be for a minimum 300,000 notes at any one time. 10,000,000 unlisted options were issued to JHY Investments Pty Ltd on 18 December 2018 as part of the Convertible Security Funding Agreement. These options have an exercise price of $0.09 each and have an expiry date of 31 December 2019. During the year, the Company successfully negotiated an extension of the maturity date of the convertible notes issued to JHY as well as a lower interest rate. The new maturity date for the notes is 31 December 2020 and the interest rate payable was reduced to 10% per annum from 1 January 2020. Convertible Note – Yuzhen Ma In April 2019 a subscription agreement was entered into with Yuzhen Ma for the issue of 7,500,000 convertible notes over two tranches with a face value of $1.00 each. Tranche 1 was completed with $2.5 million received in April 2019 and 2,500,000 notes were issued. Tranche 2 for a further 5,000,000 notes was completed and $5.0 million received in June 2019. The maturity date for the convertible notes is 30 June 2020 at a conversion price of $0.10 per share. The interest rate is 10% per annum, accruing daily and payable monthly from immediately available 39 NORTHERN MINERALS _ ANNUAL REPORT 2020 72 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 8. Financial Assets and Financial Liabilities and other receivables and liabilities (continued) Funds on the face value of the notes from the date the notes are issued until the earlier of the date the note is converted into shares and the maturity date. Conversion can be at any time before the maturity date at the note holder’s election. Equipment Finance These loans are secured by a first charge over the equipment under finance and are for a period of between 36-48 months. Convertible Note – Lind Global Macro Fund, LP On 2 March 2020, a Convertible Security Funding Agreement was entered with Lind Global Macro Fund, LP (“Lind”) of $2.625 million. Under the Agreement, the Company received the net amount of $2.5 million after the deduction of fees payable to Lind of $0.125 million from the issue of one unsecured convertible note with a face value of $3.0 million. The conversion price of the note is calculated as the lessor of: (i) 90% of the average of the five lowest daily VWAPs during the 20 trading days prior to conversion; and (ii) $0.055, and the convertible security may be converted into fully paid ordinary shares at the conversion price at any time before the maturity date (2 March 2022). If a conversion would result in a conversion price of less than $0.03, the Company may settle that conversion in cash. Lind may then elect to accept such cash payment or have the conversion settled at a conversion price of $0.03. The Company has the right to redeem the outstanding face value of the convertible note at any time by giving 10 days notice by paying the amount outstanding on the convertible security. Upon receiving such notice, Lind may convert up to (in aggregate) 33% of the face value of the convertible security. As a part of the agreement, the Company also issued 60,000,000 fully paid ordinary shares with a value of $2.04 million to Lind as collateral shares along with 34,000,000 unlisted options with an exercise price of $0.045 and expiry date of 2 March 2024. On 7 May 2020, the Company issued 52,631,579 fully paid ordinary shares to a nominee of Lind in respect of the conversion of $1m of the face value of the convertible security. On 22 June 2020 a replacement convertible security was issued to Lind in accordance with the Convertible Security Funding Agreement announced on 2 March 2020 following shareholder approval being obtained at the Company’s general meeting held on 18 June 2020. The replacement convertible security was issued with a face value of $2.0 million. A reconciliation of the balance at year end is as follows: Opening Balance Funding Received Repayments made Finance costs incurred Fair value adjustments Closing Balance 2020 $ - 2,625,000 (1,000,000) 98,720 (189,162) 1,534,558 2019 $ - - - - - - 40 NORTHERN MINERALS _ ANNUAL REPORT 2020 73 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 8. Financial Assets and Financial Liabilities and other receivables and liabilities (continued) Assets pledged as security The carrying amounts of assets pledged as security for current and non-current borrowings are: Current Fixed charge Receivables Floating charge Cash and cash equivalents Receivables Derivative financial assets Inventory Total current assets pledged as security Non-Current Fixed charge Property, plant and equipment * Finance lease Property, plant and equipment Floating charge Receivables Property, plant and equipment Total non-current assets pledged as security Total assets pledged as security 2020 $ - - - - - - - 2019 $ - 8,140,422 1,289,602 - 722,015 10,152,039 42,028,642 312,023 479,971 - - 7,998,337 - 312,023 50,506,950 60,658,989 * Sinosteel has a Specific Security Deed giving it security over the Company’s mechanical equipment, electrical and instrumentation equipment, structural steel, platework and piping for the beneficiation and hydrometallurgical process plants supplied and installed by the contractor as defined by the Process Engineering package in the EPC Contract. These assets were fully impaired during the year hence have a nil carrying value as at 30 June 2020. (f) Deferred revenue Current Deferred revenue Non-Current Deferred revenue 2020 $ 2019 $ 7,521,406 1,333,680 - 1,333,589 Refer to Note 5 for the accounting policy in relation to R&D rebates and government grants. 41 NORTHERN MINERALS _ ANNUAL REPORT 2020 74 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 8. Financial Assets and Financial Liabilities and other receivables and liabilities (continued) (g) Accounting classification and fair value Financial assets A financial asset shall be measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cashflows which arise on specified dates and that are solely principal and interest. A debt investment shall be measured at fair value through other comprehensive income if it is held within a business model whose objective is to hold both assets in order to collect contractual cashflows which arise on specified dates that are solely principal and interest as well as selling the asset on the basis of its fair value. Financial assets not measured at amortised cost or at fair value through other comprehensive income are classified as financial assets at fair value through profit or loss. Typically, such financial assets with be either: • held for trading, where they are acquired for the purpose of selling in the short-term with an intention of making a profit, or a derivative; or • designated as such upon initial recognition where permitted. Fair value movements are recognised in profit or loss. Despite these requirements, a financial asset may be irrevocably designated as measured at fair value through profit or loss to reduce the effect of, or eliminate, an accounting mismatch. Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. When there is no reasonable expectation of recovering part or all of a financial asset, its carrying value is written off. Impairment of financial assets The Group recognises a loss allowance for expected credit losses on financial assets which are either measured at amortised cost or fair value through other comprehensive income. The measurement of the loss allowance depends upon the Group’s assessment at the end of each reporting period as to whether the financial instruments credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain. Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12- month expected credit loss allowance is estimated. This represents a portion of the assets lifetime expected credit losses that is attributable to a default event that is possible within the next 12 months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the assets lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate. For financial assets measured at fair value through other comprehensive income, the loss allowance is recognised within other comprehensive income. In all other cases, the loss allowance is recognised in profit or loss. Financial liabilities Financial liabilities other than derivatives are initially recognised at fair value of consideration received net of transaction costs as appropriate, and are subsequently carried at amortised cost. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The amortisation is included in finance costs in the statement of profit or loss. 42 NORTHERN MINERALS _ ANNUAL REPORT 2020 75 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 8. Financial Assets and Financial Liabilities and other receivables and liabilities (continued) Derivatives, including those embedded in contractual arrangements but separated for accounting purposes because they are not clearly and closely related to the host contract, are initially recognised at fair value on the date the contract is entered into and are subsequently remeasured at their fair value. Fair value changes are recognised immediately in the profit and loss. For the interest bearing liabilities, the fair values are not materially different to their carrying amounts, since the interest payable on those borrowings is either close to current market rates or the borrowings are of a short-term nature. The fair values of non-current borrowings are based on discounted cash flows using a current borrowing rate. Measurement The following method and assumptions are used to estimate the fair values: Fair values of the Group’s interest-bearing borrowings and loans are determined by using discounted cash flow models that use discount rates to reflect the issuer’s borrowing rate as at the end of the reporting period. The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments which are measured at fair value by valuation technique: Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities Level 2: Other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly Level 3: Techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data All financial instruments measured at fair value use Level 2 valuation techniques in both years. There have been no transfers between fair value levels during the reporting period. 9. Financial Risk Management The Group’s principal financial liabilities, comprise loans and borrowings and trade and other payables. The main purpose of these financial liabilities is to finance the Group’s operations. The Group’s principal financial assets include trade and other receivables and cash that derive directly from its operations. The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group takes a proactive approach to risk management. The Board is responsible for ensuring that risks, and also opportunities are identified on a timely basis and that the Group’s objectives and activities are aligned with the risks and opportunities identified by the Board. The Board provides policies for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk and credit risk. a) Market Risk Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises interest rate risk, currency risk and other price risk. 43 NORTHERN MINERALS _ ANNUAL REPORT 2020 76 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 9. Financial Risk Management (continued) Foreign Exchange Risk The Group operates internationally and is exposed to foreign exchange risk arising from currency exposures with respect to changes in USD/AUD exchange rates. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated or linked to a currency that is not the entity’s functional currency. The Group’s revenue from contracts with customers was invoiced in US dollars in FY2020. The Group did not enter into any FX hedging agreements in relation to its revenue transactions. In FY2019 the Group hedged the currency risk of the Brevet facility by hedging the entire value of the notional value of the loan, which is mainly an exposure to US Dollar borrowings. The risk was measured through forecasting the US dollar amounts required for repayments. The US dollar denominated borrowings were to be repaid with receipt of the R&D Tax Incentive Offset which is receipted in Australian dollars. Under the terms of the loan agreement the Company must within two business days of each advance enter into a FX hedging arrangement in respect of USD/AUD (“hedge”) for that advance in a form reasonably acceptable to the lender. The lender must be named as payee in each hedge and the Company must provide a copy of the trade confirmation to the lender as soon as possible. If the company does not enter into a hedge for an advance the Company must deposit and maintain a Margin of Deposit Account in accordance with the agreement. In respect of an advance the margin is the positive difference multiplied by 105% calculated on the relevant margin calculation date (end of each calendar month). The Company must pay the margin in AUD into the deposit account, within 2 business days of the lender giving written notice to the Company of any obligation to pay margin. If there is a negative difference and the sum of margin amounts in the deposit account exceeds the total of margin amounts required, 90% of the surplus must be paid to the lender within 2 business days. This will be applied in repayment of the outstanding monies upon the repayment date for the term loan in respect of the relevant advance. The amount will be converted to USD at the current exchange rate quoted by the Reserve Bank of Australia on the relevant day. This facility was repaid in full and extinguished in the 2019 financial year. The Group has used this combination of foreign currency option contracts and foreign exchange forward contracts to hedge exposure to foreign currency risk. Derivatives are only used for economic hedging purposes and not as speculative investments. Certain operating and capital expenditure is linked to currencies other than the Company’s functional currency. The financial assets and liabilities that are exposed to foreign exchange risk at the end of the reporting period, expressed in Australian dollars, are: Cash and cash equivalents - USD Trade receivables - USD 2020 $ 168,601 407,335 575,936 2019 $ 992 - 992 As shown in the table above, the group is primarily exposed to changes in USD/AUD exchange rates. The sensitivity of profit or loss to changes in the exchange rates arises mainly from US-dollar denominated financial instruments and foreign forward exchange contracts. 44 NORTHERN MINERALS _ ANNUAL REPORT 2020 77 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 9. Financial Risk Management (continued) US / $ exchange rate – increase 10% US / $ exchange rate – decrease 10% Amounts recognised in the statement of profit or loss Impact on post tax profit/(loss) 2020 $ Impact on post tax profit/(loss) 2019 $ (52,358) 57,594 (99) 99 During the year the following foreign exchange-related amounts were recognised in the statement of profit or loss: Net foreign exchange gain included in other income Foreign exchange loss in administration expenses Net foreign exchange gain/(loss) 2020 $ - (31,292) (31,292) 2019 $ - (30,666) (30,666) Net gain/(loss) on foreign currency derivatives not qualifying as hedges included in finance costs - 90,182 Cash flow and fair value interest rate risk Interest rate risk in relation to the fair value or future cash flow may arise from interest rate fluctuations. The Group's exposure to interest rate risk and the effective weighted average interest rate for classes is set out below: Fixed Interest $ - - 60,523 60,523 Non-Interest Bearing $ Total $ 290,250 6,660,568 21,134,166 21,134,166 - 60,523 21,424,416 27,855,257 - - 6,370,318 - - - - 7,662,553 5,853,678 - 7,662,553 5,853,678 5,853,678 7,662,553 13,516,231 Weighted average interest rate Floating Interest Rate % $ 30 June 2020 Financial Assets Cash and cash equivalents 0.14% 6,370,318 Trade and other receivables - Other financial assets 1.55% Total financial assets Financial Liabilities Trade and other payables - Interest bearing liabilities 7.20% Total financial liabilities 45 NORTHERN MINERALS _ ANNUAL REPORT 2020 78 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 9. Financial Risk Management (continued) Weighted average interest rate Floating Interest Rate % $ 30 June 2019 Financial Assets Cash and cash equivalents 0.00% Trade and other receivables - Other financial assets 2.62% Total financial assets Financial Liabilities Trade and other payables - 547 - - 547 - Fixed Interest $ - - 89,272 89,272 Non-Interest Bearing $ Total $ 8,139,875 8,140,422 511,077 - 511,077 89,272 8,650,952 8,740,771 - 14,565,188 14,565,188 Interest bearing liabilities 8.03% 13,898,882 12,009,189 - 25,908,071 Total financial liabilities 13,898,882 12,009,189 14,565,188 40,473,259 Financial assets are subject to underlying interbank cash rate movements as determined by the Reserve Bank of Australia. The impact of a material movement of +/- 1% in the underlying cash rate will not have a material impact on revenue and therefore shareholder equity. The assumed movement in basis point volatility for the interest rate sensitivity analysis is based on the observable market movements in interest rates in the recent past which have been relatively stable. b) Credit Risk Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, as well as credit exposure relating to outstanding receivables and committed transactions. The Group has minimal credit risk with regards to its bank held deposits which are all held with reputable institutions. The Group has minimal credit risk in relation to its receivables. The maximum exposure to credit risk at the reporting date is the carrying amount of the receivables. Collateral is not held as security. There are no significant concentrations of credit risk within the Group. c) Liquidity Risk Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Group management aims at maintaining flexibility in funding by keeping committed credit lines available. Management monitors rolling forecasts of the Group’s liquidity reserve and cash and cash equivalents. In addition, the Group’s liquidity policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these and monitoring debt financing plans. The Company: • currently has short term funding in place (refer Note 8). The Company continuously monitors forecasts and actual cash flows and the maturity profiles of financial assets and liabilities to manage its liquidity risk; 46 NORTHERN MINERALS _ ANNUAL REPORT 2020 79 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 9. Financial Risk Management (continued) • manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Surplus funds are invested in short-term bank deposits. Financing arrangements The Group has access to the following undrawn borrowing facilities at the end of the reporting period, subject to the conditions outlined below: Fixed rate - Expiring within one year - Expiring beyond one year 2020 $ - - - 2019 $ - - - Maturities of financial liabilities The tables below analyse the Group’s financial liabilities into relevant maturity groupings based on their contractual maturities for all non-derivative financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant. Total contractual cash flows Carrying amount $ 7,662,553 7,662,553 6,519,726 5,685,329 178,163 168,350 14,360,442 13,516,232 - - - - - - - - - - Contractual maturities of financial liabilities Less than 6 months 6-12 months Between 1 and 2 years Between 2-5 years $ - - - - - - - - - $ As at 30 June 2020 Non-derivatives Trade payables 7,662,553 $ - Interest bearing liabilities (excluding finance leases) 5,319,726 1,200,000 $ - - Lease liabilities 78,798 73,880 Total non-derivatives 13,061,077 1,273,880 25,485 25,485 Derivatives Other financial liabilities Gross settled exchange contracts forward -(Inflow) -Outflow Total derivatives - - - - - - - - - - - - - - - 47 NORTHERN MINERALS _ ANNUAL REPORT 2020 80 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 9. Financial Risk Management (continued) Contractual maturities of financial liabilities Less than 6 months 6-12 months Between 1 and 2 years Between 2-5 years $ $ $ As at 30 June 2019 Non-derivatives Trade payables Interest bearing liabilities (excluding finance leases) 5,918,561 4,377,374 4,269,253 8,071,738 11,176,284 7,296,314 $ - - Total contractual cash flows Carrying amount $ 14,565,188 14,565,188 26,544,336 25,592,875 Lease liabilities 78,798 78,798 155,122 18,291 331,009 315,196 Total non-derivatives 14,069,097 15,632,456 11,720,689 18,291 41,440,533 40,473,259 Derivatives Other financial liabilities Gross exchange contracts settled forward -(Inflow) -Outflow Total derivatives - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 48 NORTHERN MINERALS _ ANNUAL REPORT 2020 81 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 10. Non-financial Assets and Liabilities (a) Property, plant and equipment 2020 Cost Assets under construction Plant and Equipment Bulk earthworks Browns Range Buildings Total $ $ $ $ $ At beginning of the financial year 290,264 64,462,597 5,634,400 3,561,145 73,948,406 Additions Capitalised Interest Transfers Disposals Impairment loss 8,256,009 565,837 54,732 270,058 9,146,636 - - - - (4,606,828) 2,644,867 1,714,504 247,457 - - - - (12,921) - (61,905,568) (5,294,663) - - (12,921) (67,200,231) At the end of the financial year 3,939,445 5,754,812 2,108,973 4,078,660 15,881,890 Accumulated Depreciation At beginning of year Depreciation charge for the year Disposals Impairment loss Accumulated depreciation at end of year - - - - - 20,379,886 2,700,112 22,202,367 1,973,835 (4,100) - (38,917,462) (3,519,725) 361,457 254,517 - - 23,441,455 24,430,719 (4,100) (42,437,187) 3,660,691 1,154,222 615,974 5,430,887 Carrying amount at end of the year 3,939,445 2,094,121 954,751 3,462,686 10,451,003 2019 Cost At beginning of the financial year 50,116,533 4,999,158 4,991,608 3,492,247 63,599,546 Additions Capitalised Interest Transfers 8,536,255 1,763,810 48,797 - - - - - (60,126,332) 59,414,642 642,792 68,898 8,585,052 1,763,810 - At the end of the financial year 290,266 64,462,597 5,634,400 3,561,145 73,948,408 Accumulated Depreciation At beginning of year Depreciation charge for the year Accumulated depreciation at end of year - - - 2,639,660 1,245,951 17,740,227 1,454,161 140,688 220,769 4,026,299 19,415,157 20,379,887 2,700,112 361,457 23,441,456 Carrying amount at end of the year 290,266 44,082,710 2,934,288 3,199,688 50,506,952 49 NORTHERN MINERALS _ ANNUAL REPORT 2020 82 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 10. Non-financial Assets and Liabilities (continued) Property, plant and equipment Plant and equipment is stated at cost less accumulated depreciation and impairment charges. Cost is the fair value of consideration given to acquire the asset at the time of its acquisition or construction and includes the direct cost of bringing the asset to the location and condition necessary for operation and its estimated future cost of closure and rehabilitation. Subsequent costs are included in the assets carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be reliably measured. All other repairs and maintenance are charged to the statement of profit or loss during the reporting period in which they are incurred. Any item of property, plant and equipment is derecognised upon disposal or when no further economic benefits are expected from its use or disposal. Any gain or loss arising on derecognising of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit or loss in the year the asset is derecognised. Depreciation and amortisation The carrying amounts of property, plant and equipment are depreciated to their estimated residual value over the estimated useful lives of the specific assets concerned, or the estimated life of the associated project, if shorter. Estimates of residual values and useful lives are reassessed annually and any change in estimate is taken into account in the determination of remaining depreciation charges. Depreciation commences on the date the asset is ready and available for use. The major categories of property, plant and equipment are depreciated on a straight-line basis using estimated lives indicated below. Pilot plant in construction – based on life of pilot plant project – 3 years from being available for use Office Equipment – 3 years Fixtures and Fittings – 4 years Exploration Equipment – 3 years Vehicles – 4 years Leasehold Improvements – 3-10 years Buildings – 3-15 years for fixtures and fittings and portable building structures Browns Range Site Equipment - 3-10 years and 20 years for mobile equipment Site Plant Bulk Earthworks – 3-4 years based on life of pilot plant depending on commencement as available for use Beneficiation Plant – 3 years based on life of pilot plant Hydrometallurgical Plant – 3 years based on life of pilot plant depending on commencement as available for use. Assets under construction All assets included in assets under construction are reclassified to other categories in property, plant and equipment when the asset is available and ready for use in the location and condition necessary for it to be capable of operating in the manner intended. Non-current assets pledged as security Refer to Note 8 (e) for information on non-current assets pledged as security by the Group. Impairment Losses The impairment loss relates to the write down of assets associated with the Browns Range Pilot Plant after it was determined that due to changes at the operation a clear indication of impairment existed at year end. A subsequent assessment of the recoverable amount determined that this would not exceed $nil and the decision was made to write down the carrying value of these assets to $nil. 50 NORTHERN MINERALS _ ANNUAL REPORT 2020 83 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 10. Non-financial Assets and Liabilities (continued) Leases The Company has purchased a number of items of plant and equipment under hire purchase lease agreements. These are presented as part of property, plant and equipment in the statement of financial position. Plant and equipment – hire purchase Less: Accumulated depreciation Lease liability Current lease liability Non-current lease liability 2020 $ 472,820 (160,797) 321,023 2019 $ 472,820 (89,469) 383,351 2020 $ 142,835 25,485 168,320 2019 $ 138,855 176,341 315,196 Interest charged on hire purchase lease liabilities during the year was $10,295. The average interest rate charged is 4.13%. The Company leases offices in West Perth, Western Australia, under a non-cancellable lease which expired on 31 March 2020. The Company subsequently entered into another lease agreement with a term of 6 months. As the original office lease was due to expire within 12 months of the first date of application of AASB 16, the Company has relied on the practical expedients outlined in AASB 16 as follows: - Leases with a remaining term of 12 months or less from the date of application have been accounted for as short-term leases and have therefore not been recognised on the balance sheet. The office leases have been recognised as an expense in the statement of profit or loss on a straight- line basis over the lease term in accordance with AASB 16. During the year ended 30 June 2020, a total of $216,469 was recognised as an expense in relation to the office leases. Income of $125,941 has been recognised for sub-leasing of the office premises. Lease Commitments Commitments for minimum lease payments are: Within one year Later than one year but less than five years Later than five years (b) Inventories Current 2020 $ 45,302 - - 45,302 2020 $ 2019 $ 181,282 - - 181,282 2019 $ Diesel fuel and consumables 992,099 722,015 Inventories are valued at the lower of cost and net realisable value. Cost is determined using weighted average costs. 51 NORTHERN MINERALS _ ANNUAL REPORT 2020 84 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 10 Non-financial Assets and Liabilities (continued) (c) Provisions Current Employee benefits Non-Current Rehabilitation (i) Movements in provisions 2020 Balance at the beginning of year Amounts expensed for the year Utilisation Balance at the end of year Employee benefits 1,106,518 971,120 4,977,310 4,977,310 4,716,141 4,716,141 Employee benefits $ 971,120 991,734 (856,336) 1,106,518 Rehabilitation $ Total $ 4,716,141 261,169 - 4,977,310 5,687,261 1,252,903 (856,336) 6,083,828 Liabilities for unpaid wages and salaries are recognised in sundry creditors. Current entitlements to annual leave accrued for services up to the reporting date are recognised in the provision for employee benefits and are measured at the amounts expected to be paid. Entitlements to non-accumulating sick leave are recognised when the leave is taken. The current liability for long service leave (for which settlement within 12 months of the reporting date cannot be deferred) is recognised in the current provision for employee benefits and is measured in accordance with annual leave described above. The non-current liability for long service leave is recognised in the non-current provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to current wage and salary levels to match as closely as possible, the estimated future cash outflows. Rehabilitation The mining, exploration and construction activities of the Group give rise to obligations for site closure and rehabilitation. Closure and rehabilitation works can include facility decommissioning and dismantling, removal of waste materials, site and land rehabilitation. Provisions for the cost of each closure and rehabilitation programme are recognised at the time the environmental disturbance occurs. When the extent of disturbance increases over the life of an operation, the provision is increased accordingly. Costs included in the provision encompass all closure and rehabilitation activity expected to occur progressively over the life of the operation and at, or after, the time of closure, for disturbance existing at the reporting date. Routine operating costs that may impact the ultimate closure and rehabilitation activities, are not included in the provision. Costs arising from unforeseen circumstances, are recognised as an expense and liability when the event gives rise to an obligation which is probable and capable of reliable estimation. The timing of the actual closure and rehabilitation expenditure is dependent upon a number of factors such as the life and nature of the asset, the operating licence conditions and the environment in which they operate. Expenditure may occur before and after closure and can continue for an extended period of time dependent on closure and rehabilitation requirements. 52 NORTHERN MINERALS _ ANNUAL REPORT 2020 85 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 10. Non-financial Assets and Liabilities (continued) Closure and rehabilitation provisions are measured at the expected value of future cash flows, discounted to their present value. Significant judgements and estimates are involved in forming expectations of future activities and the amount and timing of associated cash flows. When provisions for closure and rehabilitation are initially recognised, the corresponding cost is capitalised as an asset, representing part of the cost of acquiring the future economic benefits of the operation, to the extent that the activity in which the provision is related to is capitalised. The capitalised cost of rehabilitation and closure activities is recognised in property, plant and equipment accordingly. The value of the provision is progressively increased over time due to the effect of discounting unwinding creating an expense recognised in finance expenses. Where the activity in which the provision relates is expensed in accordance with the exploration and evaluation expenditure, the provision expense is also expensed. Closure and rehabilitation provisions are also adjusted for changes in costs and estimates. Those adjustments are accounted for as a change in the corresponding capitalised cost, except where a reduction in the provision is greater than the undepreciated capitalised cost of the related assets, in which case the capitalised cost is reduced to nil and the remaining adjustment is recognised first against other items in property, plant and equipment and subsequently to the consolidated statement of profit or loss. Changes to the capitalised cost result in an adjustment to future depreciation. Adjustments to the estimated amount and timing of future closure and rehabilitation cash flows are a normal occurrence in light of significant judgements and estimates involved. 53 NORTHERN MINERALS _ ANNUAL REPORT 2020 86 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 11. Equity (a) Ordinary Shares Share Capital Ordinary Shares Movement in Ordinary Share Capital Balance at the beginning of year Rights issue Share placement - $30 million placement (part) Issue of securities – exercise of performance rights Issue of shares for consultancy Issue of shares to JHY Pty Ltd – extension of convertible note Share placement - $30 million placement (part) Lind Collateral Shares Placement at $0.02 Lind – Partial repayment of Convertible Note Share Purchase Plan Conversion of Performance Rights Shares issued in lieu of payment of vendor invoices Issue of securities to Lind - Convertible Security repayment – July 2018 Placement Issue – July 2018 Issue of securities to Lind - Convertible Security repayment – October 2018 Issue of securities to Lind - Convertible Security repayment – November 2018 Issue of securities to Lind - Convertible Security repayment – December 2018 Shares issued to Sinosteel for Deed of Settlement dated December 2018 Shares issued to Primero for Deed of Settlement dated December 2018 Issue of shares to creditors Issue of securities to Lind - Convertible Security repayment – December 2018 NRE Subscription Share Placement – February 2019 Shares issued for consultancy agreement Shares issued to creditors Issue of securities to Lind - Convertible Security repayment – February 2019 Share Placement – March 2019 Shares issued for consultancy agreement Share Placement – April/ May 2019 Shares issued on exercise of performance rights Share issue for success fees on placements Institutional Rights Issue Share issue for success fees on placements Share Placement – May 2019 Number 2020 $ Number 2019 $ 3,987,080,431 243,671,335 2,083,027,096 188,482,276 2,083,027,096 188,482,276 1,114,820,770 143,944,809 95,039,889 411,045,556 2,859,500 2,419,355 2,000,000 3,225,806 60,000,000 771,500,000 52,631,579 499,020,000 1,501,650 2,810,000 - - - 4,276,801 25,484,824 - 181,500 122,000 200,000 2,040,000 15,430,000 1,000,000 9,980,400 - 61,800 - - - - - - - - - - - - - - - 7,440,477 38,461,538 17,434,876 - - - - - - - - - - - - 572,917 3,000,000 1,245,833 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 9,615,386 625,000 13,020,836 729,167 15,000,000 1,095,000 10,000,000 5,900,000 14,719,205 11,111,111 50,000,000 10,000,000 2,500,000 15,746,126 60,000,000 20,000,000 400,000,000 4,100,000 38,000,000 59,156,771 16,000,000 150,000,000 620,000 295,000 677,083 1,000,000 3,000,000 470,000 120,000 677,083 2,999,487 800,000 20,000,000 - 1,900,000 2,662,055 800,000 7,500,000 Less: costs of issue Balance at the end of year 3,987,080,431 - 3,987,080,431 247,259,601 (3,588,266) 243,671,335 2,083,027,096 - 2,083,027,096 194,733,434 (6,251,158) 188,482,276 54 NORTHERN MINERALS _ ANNUAL REPORT 2020 87 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 11. Equity (continued) (i) Ordinary shares Issued capital is recognised at the fair value of the consideration received by the Company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received. Ordinary shares entitle the holder to participate in dividends, and to share in the proceeds of winding up the Company in proportion to the number of and amounts paid on the shares held. Ordinary shares have no par value and the Company does not have a limited amount of authorised capital. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. Share Purchase Plan shares not taken up on termination are dealt with in accordance with the Share Plan rules. For further details on the nature of these shares, refer to Note 17. (b) Share Purchase Plan Shares Included in ordinary shares are shares issued pursuant to the Share Purchase Plan as follows: Balance at beginning of year Shares reverted to company and reissued during the year Balance at end of year (c) Performance Rights over ordinary shares Performance rights with conditions* with Nil exercise price vesting and exercisable upon a number of conditions (Unquoted) Balance at beginning of year Issued during the year Forfeited/lapsed during the year Exercised during the year Balance at end of year Performance rights with conditions** with Nil exercise price vesting and exercisable upon a number of conditions (Unquoted) Balance at beginning of year Issued during the year Forfeited/lapsed during the year Exercised during the year Balance at end of year 2020 Number 5,303,400 (950,000) 4,353,400 2019 Number 5,303,400 - 5,303,400 2020 Number 2019 Number 14,000,000 - (2,000,000) (1,000,000) 11,000,000 18,000,000 - - (4,000,000) 14,000,000 - - - - - 2,000,000 - (2,000,000) - - 55 NORTHERN MINERALS _ ANNUAL REPORT 2020 88 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 11. Equity (continued) Performance rights with conditions*** with Nil exercise price vesting and exercisable upon a number of conditions (Unquoted) Balance at beginning of year Issued during the year Forfeited/lapsed during the year Exercised during the year Balance at end of year Performance rights with conditions**** with Nil exercise price vesting and exercisable upon a number of conditions (Unquoted) Balance at beginning of year Issued during the year Forfeited/lapsed during the year Exercised during the year Balance at end of year * Performance conditions 2020 Number 2019 Number 300,000 - - - 300,000 400,000 - - (100,000) 300,000 9,713,050 914,000 (1,086,000) (3,361,150) 6,179,900 - 11,714,000 (2,000,950) - 9,713,050 - 5,500,000 shares will vest and be exercisable upon the Company making a final investment decision to proceed with its Browns Range Pilot Plant; - 5,500,000 will vest and be exercisable upon practical completion being achieved under a contract for the construction of the Browns Range Pilot Plant; - 5,500,000 shares will vest and be exercisable upon the first accumulated 100 tonnes of mixed rare earth carbonate being produced and sold from the Browns Range Pilot Plant; - 11,000,000 shares will vest and be exercisable upon the Browns Range Pilot Plant achieving production of mixed rare earth carbonate of at least 260 tonnes within a period of 90 consecutive days. ** Performance conditions - 500,000 shares will vest and be exercisable upon the Company taking the first delivery of equipment and material from Sinosteel arriving at an Australian Port under the Company’s EPC contract with Sinosteel for the construction of the Browns Range Pilot Plant; - 500,000 will vest and be exercisable upon practical completion being achieved under a contract for the construction of the Browns Range Pilot Plant; - 500,000 shares will vest and be exercisable upon the first accumulated 100 tonnes of mixed rare earth carbonate being produced and sold from the Browns Range Pilot Plant; - 1,000,000 shares will vest and be exercisable upon the Browns Range Pilot Plant achieving production of mixed rare earth carbonate of at least 260 tonnes within a period of 90 consecutive days. *** Performance conditions - 100,000 shares will vest and be exercisable upon the completion of Civil Works (concrete) for the Browns Range Pilot Plant; - 200,000 shares will vest and be exercisable upon the delivery of project EP portion and LTSC portion within budget, no lost time injury and no reportable environmental incident; - 300,000 shares will vest and be exercisable upon completion of the Pilot Plant performance test and practical completion by 30 June 2019; - 50,000 shares will vest and be exercisable upon commencement of mining operations of the Browns Range Pilot Project; - 300,000 shares will vest and be exercisable upon delivery of the mining scope of work for the Browns Range Pilot Plant on time and within budget. No lost time injury at the site from the commencement to the completion of both the mining and earthworks contracts, and no reportable environmental incidents from the commencement to the completion of both the mining and earthworks contracts; - 250,000 shares will vest and be exercisable upon completion of the mining and earthworks contracts at the discretion of the CEO; - 100,000 shares will vest and be exercisable upon commencement of employment with Northern Minerals; - 200,000 shares will vest and be exercisable upon completion of process plant performance test and practical completion achieved by 30 June 2019, and completion of necessary R&D tests and claim application for 2017/2018 R&D claim, and receipt of R&D refund by the Company; - 300,000 shares will vest and be exercisable upon completion of necessary R&D tests and claim application for 2018/2019 R&D claim and receipt of refund by the Company. 56 NORTHERN MINERALS _ ANNUAL REPORT 2020 89 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 11. Equity (continued) **** Performance conditions -2,858,500 shares will vest and be exercisable subject to vesting conditions that relate to OHS Positive Performance Indicators (PPI) for the financial year ended 30 June 2020; -2,858,500 shares will vest and be exercisable subject to vesting conditions that relate to Key Production Indicators (KPI) for the financial year ended 30 June 2020; -2,998,500 shares will vest and be exercisable subject to vesting conditions that relate to OHS Positive Performance Indicators (PPI) for the financial year ended 30 June 2020; -2,998,500 shares will vest and be exercisable subject to vesting conditions that relate to Key Production Indicators (KPI) for the financial year ended 30 June 2020. (d) Options over ordinary shares Share options outstanding at the end of the year have the following expiry date and exercise prices: Grant Date Expiry date Exercise price Share options 30 June 2020 Share options 30 June 2019 12 June 2014 12 June 2014 12 April 2017 14 June 2017 29 December 2017 29 December 2017 30 November 2018 17 December 2018 2 March 2020 Total 12 June 2020 12 June 2020 24 May 2021 20 June 2020 31 December 2019 31 December 2019 20 December 2021 31 December 2019 2 March 2024 $0.25 $0.25 $0.15 $0.2475 $0.1175 $0.1175 $0.1225 $0.0875 $0.045 - - 3,000,000 - - - 10,000,000 - 34,000,000 47,000,000 1,921,870 10,890,600 3,000,000 22,500,000 30,000,000 5,023,076 10,000,000 10,000,000 - 93,335,546 Weighted average remaining contractual life of options outstanding at end of period 3.03 years 0.94 years The following options expired during the year: Expiry date Exercise price 12 June 2020 12 June 2020 20 June 2020 31 December 2019 31 December 2019 31 December 2019 $0.25 $0.25 $0.2475 $0.1175 $0.1175 $0.0875 Share options 30 June 2020 1,921,870 10,890,600 22,500,000 30,000,000 5,023,076 10,000,000 57 NORTHERN MINERALS _ ANNUAL REPORT 2020 90 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 11. Equity (continued) (e) Capital management When managing capital, the Board’s objective is to ensure the Group continues as a going concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders. Management also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity. The Board may in the future adjust the capital structure to take advantage of favourable costs of capital and issue further shares in the market. Management monitors capital by reviewing the level of cash on hand, future revenue streams and assessing the impact of possible future commitments in respect of the potential capital structure that would be required to meet those potential commitments. (f) Dividends No dividends were paid or declared by the Company since the incorporation of the Company. (g) Other reserves Reserves Reserves comprise the following: Performance Rights and options reserve Balance at the beginning of year Vesting charge on performance rights and options Balance at the end of year Share-based payment reserve Balance at the beginning year Share plan allocation Other share-based payments -refer note below Balance at the end of year Other Reserves Balance at the beginning year Convertible notes issued during the year / (converted in year) Change in value of collateral shares refunded and reissued Balance at the end of year 2020 $ 2019 $ 12,521,187 12,405,310 9,076,412 (110,159) 8,966,253 8,398,451 677,961 9,076,412 2,807,380 - - 2,807,380 4,347,380 - (1,540,000) 2,807,380 521,518 226,036 - 747,554 1,278,025 945,385 (1,701,892) 521,518 Total Reserves 12,521,187 12,405,310 During 2017 a sales agreement with Lianyugang Zeyu New Materials Sales Co Ltd (JFMAG) was entered into. Following execution of the sales agreement Northern Minerals were to issue 14 million ordinary shares to JFMAG or its nominated beneficiary. This agreement has been terminated and the shares will not be issued. This transaction was reversed in the share-based payments reserve in 2019. 58 NORTHERN MINERALS _ ANNUAL REPORT 2020 91 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 11. Equity (continued) (h) Nature and purpose of other reserves The share option reserve is used to recognise the value of options or performance rights issued in lieu of cash payments, issued to employees and Key Management Personnel as remuneration, and to recognise the proceeds received on issue of options and performance rights. The share-based payments reserve is used to recognise the value of shares issued in lieu of cash payments and is allocated the vested portion of the employee share purchase plan over the vesting period. The other reserve covers the equity component of the issued convertible notes. The liability component is reflected in financial liabilities. It also includes the change of value in the collateral shares issued, refunded and reissued. 12. Cash Flow Information (a) Reconciliation of loss after income tax to net cash outflow from operating activities Net Loss after tax Adjustments Depreciation expense Amortisation of borrowing costs Loss on disposal of assets Unrealised foreign exchange Share-based payments – (refer Note 17) Repayment of Research & Development Research & Development rebate reversal Impairment of PPE Non-cash fair value adjustments Change in assets and liabilities (Increase) /decrease in other receivables (Increase) / decrease in inventory Increase / (decrease) in trade and other payables Increase / (decrease) in provisions Net cash flows used in operating activities 2020 $ 2019 $ (54,328,360) (63,966,330) 24,430,720 1,017,578 (8,551) - (509,889) (4,108,378) - 24,763,044 92,793 19,415,157 2,503,415 - 1,256,376 2,784,684 - 6,198,937 - 1,097,743 (20,787,403) (270,084) (2,444,351) 396,567 (31,756,314) 11,272,368 284,254 (1,254,642) 714,095 (19,693,943) (b) Non-cash investing and financing activities Acquisition of property, plant and equipment by means of finance leases - 60,000 Conversion of debt to equity (refer note 17) 1,000,000 4,527,084 The above reflects the Lind facility where repayments have been made via the issue of ordinary shares. 59 NORTHERN MINERALS _ ANNUAL REPORT 2020 92 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 12. (c) Cash Flow Information (continued) Reconciliation of liabilities arising from financing activities Opening balance 2019 $ Cash flows * $ Foreign exchange movements $ Conversion of debt to equity $ Other non-cash movements $ Closing balance 2020 $ Non-cash changes 11,054,262 315,196 639,721 (5,404,406) (146,846) (639,721) - - - (1,000,000) - - 1,035,473 - - 5,685,329 168,350 - 12,009,179 (6,190,973) - (1,000,000) 1,035,473 5,853,679 Convertible notes Equipment finance Other loans Total liabilities from financing activities *Interest paid on liabilities has been included in the cash flows above, however, is shown as operating cash flows in the Statement of Cash Flows. 13. Subsidiaries The following are wholly owned subsidiaries of the Company: Northern Uranium Pty Ltd Northern Commodities Pty Ltd Northern P2O5 Pty Ltd Northern Rare Earth Metals Pty Ltd; and Northern Xenotime Pty Ltd. Subsidiaries are entities controlled by the parent entity. Control exists where the parent entity 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. A parent entity has power over the subsidiary, when it has existing rights to direct the relevant activities of the subsidiary which are those which significantly affect the subsidiary returns. 14. Contingent Liabilities Co-Existence Agreement Under the terms of the Browns Range Co-existence Agreement announced to ASX on 16 June 2014, the Company has an obligation to make certain payments as well as maximising local employment. The majority of payments are subject to the commencement of commercial production at the Company’s Browns Range Project and cannot be reliably measured at this time. During the Pilot Plant Phase, the payment obligations do not apply and are substituted with alternative payment obligations. Guarantees The Group has guarantees in the form of security deposits for rent and performance bonds of $60,522 (2019: $89,272). 60 NORTHERN MINERALS _ ANNUAL REPORT 2020 93 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 14. Contingent Liabilities (continued) Government Grants On 7 August 2017, as part of a consortium led by the Wunan Foundation, Northern Minerals announced that funding has been awarded under the Federal Government’s Building Better Regions Fund (BBRF) to develop an Aboriginal training-to-work (T2W) program at the Browns Range Pilot Plant Project. The Grant is paid as agreed milestones are achieved in arrears, based on actual eligible costs. Payments are subject to satisfactory progress on the Project and compliance by the Grantee with its obligations under the agreement. A final payment of at least 10% of the Grant will be withheld until the Grantee submits a satisfactory final report demonstrating end of the Project reporting obligations have been met. If the Grantee does not comply with an obligation under the agreement and the Commonwealth believes that the non-compliance is incapable of remedy, or if the Grantee has failed to comply with a notice to remedy, the Commonwealth may by written notice reduce the scope of the Agreement. This can include return of any part of the Grant to the Commonwealth. 15. Commitments (i) Exploration Expenditure Commitments In order to maintain current rights of tenure to exploration tenements, the Company is required to perform minimum exploration work to meet the minimum expenditure requirements specified by various State governments. These obligations can be reduced by selective relinquishment of exploration tenure or renegotiation. Due to the nature of the Company's operations in exploring and evaluating areas of interest, exploration expenditure commitments beyond twelve months cannot be reliably determined. It is anticipated that expenditure commitments in subsequent years will be similar to that for the forthcoming twelve months. These obligations are not provided for in the financial report and are payable: Exploration Tenements Within one year 2020 $ 2019 $ 841,400 834,900 61 NORTHERN MINERALS _ ANNUAL REPORT 2020 94 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 16. Related Party Transactions (a) Key management personnel compensation The aggregate compensation made to directors and other key management personnel of the Group is set out below: Short-term employee benefits Post-employment benefits Other long-term benefits Share-based payments Total compensation 2020 $ 2,563,298 98,358 10,206 (709,349) 1,962,513 2019 $ 2,503,768 100,754 56,659 119,746 2,780,927 Detailed remuneration disclosures are provided in the Remuneration Report. (b) Transactions with other related parties Northern Minerals have entered into agreements with companies associated with Non-executive Director Adrian Griffin and ex-Managing Director George Bauk, for them to rent office accommodation at 675 Murray Street, West Perth. The rent has been set at a rate which is at arms-length commercial rate for comparable premises. Rental Income 125,941 95,294 The following balances are outstanding at the end of the reporting period in relation to transactions with related parties: Current receivables 20,767 12,452 62 NORTHERN MINERALS _ ANNUAL REPORT 2020 95 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 17. Share-based Payments Total expenses arising from share-based payment transactions recognised during the period: Performance rights and options – refer to (i) Share purchase plan shares – refer to (ii) Total Options and Performance Rights • • • Included in share-based payments expense Included in prepayments (refer Note 8(b)) Included in capitalised borrowing costs Share-based payments by issuing shares • Repayment of debt (refer Note 12(b)) • • • • • • Included in share-based payments expense Included in borrowing costs Included in share capital costs Included in project development costs Included in consulting fees Included in prepayments (refer Note 8(b)) • Total shares issued for payment of goods and services 2020 $ (110,159) - (110,159) (586,159) 476,000 - (110,159) 1,000,000 - - - 41,800 201,500 2,162,000 3,405,300 2019 $ 677,961 - 677,961 377,790 300,171 - 677,961 4,527,084 1,746,893 750,000 3,220,000 - - - 10,243,977 Total share-based payments for the year 3,295,141 10,921,938 Total share-based payments recognised in profit and loss Total share-based payments recognised in statement of financial position (202,526) 2,874,684 3,497,667 8,047,254 Equity settled transactions The Group provides benefits to its employees (including Key Management Personnel) in the form of share-based payments. In valuing equity-settled transactions, vesting conditions, other than conditions linked to the price of the shares of Northern Minerals Limited (market conditions) are considered if applicable. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and / or service conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become fully entitled to the award (the vesting date). At each subsequent reporting date until vesting, the cumulative charge to the statement of profit or loss is the product of: (i) The grant date fair value of the award. (ii) The expired portion of the vesting period. The charge to the statement of profit or loss for the period is the cumulative amount as calculated above less the amounts already charged in previous periods. There is a corresponding entry to equity. Until an award has vested, any amounts recorded are contingent and will be adjusted if more or fewer awards vest than were originally anticipated to do so. The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share (see Note 19). The Group expenses equity-settled share-based payments such as share and option issues after ascribing a fair value to the shares and/or options issued. The fair value of option and share plan issues of option and share plan shares are recognised as an expense together with a corresponding increase in the share based payments reserve or the share option reserve in equity over the vesting period. The 63 NORTHERN MINERALS _ ANNUAL REPORT 2020 96 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 17. Share-based Payments (continued) proceeds received net of any directly attributable transaction costs are credited to share capital when options are exercised. The value of shares issued to employees, financed by way of a non-recourse loan under the employee Share Plan, is recognised with a corresponding increase in equity when the company receives funds from either the employees repaying the loan or upon the loan termination. All shares issued under the plan with non-recourse loans are considered, for accounting purposes, to be options. The initial undiscounted value of the performance rights is the value of an underlying share in the Company as traded on ASX at the date of deemed date of grant of the performance right. As the performance conditions are not market based performance conditions, no discount is applied. (i) Options and Performance Rights 914,000 performance rights were granted to employees and directors during the year (2019: 11,714,000). 34,000,000 (2019: 20,000,000) options were granted to third parties. Details on the performance rights and options issued are included in Note 11(c) and 11(d). Details on the performance rights issues to key management personnel are included in the Remuneration Report section of the Directors’ Report. The number and weighted average exercise price of performance rights granted are as follows: 2020 Number Weighted average exercise price 2019 Number Weighted average exercise price Outstanding at the beginning of the year Performance rights expired during the year Performance rights issued during the year Performance rights forfeited / lapsed during the year Performance rights exercised during the year Outstanding at the end of the year Exercisable at the end of the year 24,013,050 - 914,000 (3,086,000) (4,361,150) 17,479,900 4,263,900 The outstanding balance as at 30 June 2020 is represented by: $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 20,400,000 - 11,714,000 (4,000,950) (4,100,000) 24,013,050 4,216,050 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 • 17,479,900 performance rights with an exercise price of nil, with numerous performance conditions – see Note 11(c) for details. The weighted average remaining contractual life for the performance rights outstanding as at 30 June 2020 is 0.98 years (2019: 1.83 years). (ii) Share Plan Shares To ensure that the Company has appropriate mechanisms to continue to attract and retain the services of Directors and employees of a high calibre, the Company has an established Share Plan. The Directors and employees of the Company have been, and will continue to be, essential to the growth of the Company. The Directors considered the Plan an appropriate method to: a) Reward Directors and employees for their past performance; b) Provide long-term incentives to participate in the Company’s future growth; c) Motivate Directors and employees and generate loyalty in employees; and d) Assist to retain the services of valuable employees. 64 NORTHERN MINERALS _ ANNUAL REPORT 2020 97 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 17. Share-based Payments (continued) The Plan is used as part of the remuneration planning for senior Employees. ASX corporate governance guidelines recommend that executive remuneration packages involve a balance between fixed and incentive pay reflecting short and long-term performance objectives appropriate to the Company’s circumstances and goals. The Plan is also to be used as part of the remuneration package for non-executive Directors. Although this is not in accordance with the recommendations contained in the corporate governance guidelines, the Company considers that it is appropriate for non-executive Directors to participate in the Plan from time to time, given the size of the Company. The Company obtained shareholder approval for the introduction of the Plan in November 2007 and again in November 2013, and any Shares issued under the Plan within 3 years of approval of the Plan, is an exception to Listing Rule 7.1. Listing Rule 7.1 broadly provides, subject to certain exceptions, that a company may not issue or agree to issue securities representing more than 15% of the nominal value of the company’s issued capital at the beginning of any 12 month period without shareholder approval. Pursuant to the terms of the Plan, the Board or a duly appointed committee of the Board ("Committee") may, at such time as it determines, issue invitations to Directors and Employees of the Company to apply for Shares. It is at the discretion of the Committee who were issued invitations to apply for Shares under the Share Plan and the number of Shares the subject of an invitation. Offers of Shares by the Board or the Committee are subject to the limits imposed by the Plan. Except where necessary to comply with the provisions of an employment contract or other contract approved by the Board whereby executive or technical services are provided to the Company, neither the Board nor the Committee may offer or issue Shares under the Plan where the effect would be that the number of Shares offered or granted, when aggregated with the number of Shares issued on the same date or within the previous 5 years under any share incentive scheme, would exceed 5% of the total number of Shares on issue at the date of the proposed offer or issue. The issue price for Shares offered under the Plan is at the discretion of the Board or the Committee, provided that the issue price is not less than 1% below the weighted average sale price of Shares sold through ASX during the one week period up to and including the offer date, or, if there were no transactions in Shares during that one week period, the last price at which an offer was made to purchase Shares on ASX. A Director or Employee ("Participant") who is invited to subscribe for Shares under the Plan may also be invited to apply for a loan up to the amount payable in respect of the Shares accepted, on the following terms: a) Loans must be made solely to the Participant or their nominee and in the name of either the Participant or their nominee as the case may be. b) The principal amount outstanding under a Loan will be interest free. c) Any loan made available to a Participant will be applied by the Company directly towards payment of the issue price of the Shares to be acquired under the Plan. d) The term of the loan, the time in which repayment of the loan must be made by the Participant and the manner for making such payments shall be determined by the Board or the Committee and set out in the invitation. e) The amount repayable on the loan by the Participant will be the lesser of: i) ii) the issue price of the Shares less any cash dividends paid in respect of the Shares and applied by the Company in accordance with paragraph (g) below and any amount of the loan repaid by the Participant; and the last sale price of the Shares on ASX on the date of repayment of the Loan or, if there are no transactions on that day, the last sale price of the Shares prior to that date, or, if the Shares are sold by the Company, the amount realised by the Company from the sale. 65 NORTHERN MINERALS _ ANNUAL REPORT 2020 98 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 17. Share-based Payments (continued) f) A Participant may elect to repay the Loan in full prior to expiry of the term of the Loan but may elect to repay the Loan amount in respect of any or all of the Shares (in multiples representing not fewer than 1,000 Shares) at any time prior to expiry of the term of the Loan. g) Cash dividends which are paid in respect of Shares the subject of a loan will be applied by the Company on behalf of the Participant to repayment of the amount outstanding under the loan and any surplus of the cash dividend will be paid to the Participant. h) Any fees, charges and stamp duty payable in respect of a loan will be payable by the Participant. i) j) The Company shall have a lien over each Share acquired pursuant to the loan until such time as the loan in respect of that Share is repaid. The Company shall be entitled to sell those Shares in accordance with the terms of the Plan. A Share issued under the Share Plan will not be tradeable by a Participant until the Loan amount in respect of that Share has been repaid and the Company: (i) will retain the Share Certificate in respect of the Loan Shares; (ii) may apply a Holding Lock; and (iii) may refuse to register a transfer of Loan Shares, until the Loan amount has been repaid. If, prior to repayment of a loan by a Participant, the Participant dies, becomes bankrupt or is no longer a Director or Employee of the Company or its subsidiaries, then the Participant is required to either repay the loan within one month or allow the Company to sell the Shares on ASX and apply the proceeds of sale in repayment of the loan. If the proceeds of sale of the Shares are less than the amount outstanding in relation to the loan (including the expenses associated with the sale of the relevant Shares), the Company will forgive the amount of the shortfall. The following shares were issued under the Northern Minerals Share Purchase Plan. Opening Balance Issued during the year Shares for which loan has been repaid Shares reverted back to the Company reissued in accordance with the Share Plan rules Closing Balance 2020 Number 5,303,400 - - 2019 Number 5,303,400 - - (950,000) 4,353,400 - 5,303,400 4,353,400 shares have reverted to the Company under the terms of the share plan. The shares are available to be issued by the Company as at 30 June 2020. (iii) Valuation of Options, Performance Rights and Share Plan Shares The fair value of the equity-settled share options granted under both the option and the loan plans, and to third parties is estimated as at the date of grant using the Black-Scholes option pricing model taking into account the terms and conditions upon which the options and shares were granted. The initial undiscounted value of the performance rights is the value of an underlying share in the Company as traded on ASX at the date of deemed date of grant of the performance right. As the performance conditions are not market based performance conditions, no discount is applied. The fair value of options, performance rights and share plan shares are recognised as an expense over the period from grant to vesting date. The Black-Scholes Option Pricing Model assumes that the securities subject to the valuation can be sold on a secondary market. The terms and conditions of the Options and Share Plan shares state that no application will be made for the Shares to be listed for official quotation on ASX, until certain milestones are met. 66 NORTHERN MINERALS _ ANNUAL REPORT 2020 99 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 17. Share-based Payments (continued) The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other features of options granted were incorporated into the measurement of fair value. The following tables list the inputs to the model used for the years ended 30 June 2020 or 2019. There were no Share Plan shares issued during the year ended 30 June 2020 or 2019. The following relates to the unlisted options and performance rights issued during the year ended 30 June 2020:- Issue Date Vesting Date Number Issued Grant Date Stock price at Grant Date Issue Price – at date of issue Risk Free Rate Volatility Value Per Option/Right 02/03/2020 02/03/2020 34,000,000 02/03/2020 $0.034 $0.045 0.5% 04/11/2019 Various 914,000 04/11/2019 $0.051 Nil Nil 65% Nil $0.014 $0.051 18. Auditor’s Remuneration Nexia Perth Audit Services Pty Ltd During the year the following fees were paid or payable for services provided by the auditor: Audit and Other Assurance Services Audit and review of financial reports under the Corporations Act 2001 Other assurance services - audit of government grant final report Total remuneration of auditors 2020 $ 2019 $ 132,724 1,970 134,694 105,134 4,500 109,634 19. Earnings per share a) Basic loss per share From continuing operations attributable to the ordinary equity holders of the Company b) Loss used in calculating loss per share Loss attributable to ordinary equity holders of the Company for basic and diluted earnings per share c) Weighted average number of shares used as the denominator 2020 $ 2019 $ (2.04) (4.67) (54,328,360) (63,966,330) Number Number The weighted average number of ordinary shares on issue during the financial year used in the calculation of basic loss per share 2,667,758,484 1,370,412,599 67 NORTHERN MINERALS _ ANNUAL REPORT 2020 100 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 19. Earnings per share (continued) As the Company has incurred a loss, any exercise of options would be antidilutive, therefore the diluted and basic earnings per share are equal. Basic earnings / (loss) per share is calculated as net profit/(loss) attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted earnings/(loss) per share is calculated as net profit/(loss) attributable to members of the parent, adjusted for: • • costs of servicing equity (other than dividends) and preference share dividends; the after-tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; • other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares, divided by the weighted average number of ordinary shares and; • dilutive potential ordinary shares, adjusted for any bonus element. 20. Parent Entity Information Summary financial information The individual financial statements for the parent entity, Northern Minerals Limited, show the following aggregate amounts: Statement of financial position Current assets Total assets Current liabilities Total liabilities Shareholder’s equity Share capital Reserves Accumulated losses Net Loss for the period Contingent liabilities 2020 $ 2019 $ 31,968,270 42,479,796 10,981,013 61,577,237 25,820,487 30,823,282 33,105,662 50,897,298 243,671,335 12,521,187 (244,536,008) 11,656,514 188,482,276 14,023,856 (126,241,318) 10,679,940 (54,328,360) (63,966,330) Refer to Note 14 The Parent entity had no guarantees and commitments other than detailed in Notes 14 and 15. 21. Segment Information The Company operates in only one business and geographical segment, being the mineral exploration industry in Australia. An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the entity’s chief operating decision maker (the Board of Directors) to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. This includes start-up operations which are yet to earn revenues. Management will also consider other factors in determining operating segments such as the existence of a line manager and the level of segment information presented to the board of directors. 68 NORTHERN MINERALS _ ANNUAL REPORT 2020 101 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 22. Events Occurring After the Reporting Period On 1 July 2020, the Company made the decision to partially restart operations at the Browns Range Pilot Plant Project. This decision was made following the lifting of Commonwealth biosecurity restrictions applied to the Kimberly region as a part of Covid-19 control measures. The partial return of pilot plant operations at Browns Range resulted in about three quarters of the previous Project workforce being re-mobilised. Initial operations will focus on testwork in the beneficiation circuit followed by tests in the hydrometallurgical circuit along with mechanical construction and installation of the ore sorter. On 22 July 2020, the Company issued 183,500,000 fully paid ordinary shares upon receipt of $3.67 million relation to the outstanding tranches of the $22 million placement announced on the ASX on 20 April 2020. A further 145,000,000 fully paid ordinary shares were issued on 16 September 2020 following the receipt of the final $2.9 million of the placement. In August 2020, the Company announced it had reached a settlement agreement with the ATO that settled all matters relating to the FY17 and FY18 R&D tax offset claims. The settlement agreement also documented the agreed refundable R&D offset claim for the FY19 as well as a framework for reviewing the Company’s refundable R&D offset claim for FY20. On 14 September 2020, the Company received $8.64 million from the ATO in relation to the refundable R&D tax offset claims for FY17, FY18 and FY19. The final $1.3 million relating to these claims was received on 17 September 2020. On receipt of the first tranche of R&D funding the Company made a repayment of $2 million of the outstanding $4 million of convertible notes issued to JHY Investments Pty Ltd. The final balance of $2 million payable to JHY is due on 31 December 2020. On 17 July 2020 Lind issued a notice for the conversion of $0.8 million owing under the convertible note agreement and as a result the Company issued 50,000,000 fully paid ordinary shares. On 21 August 2020 the Company issued a further 66,666,667 fully paid ordinary shares as a result of the conversion of $1.2 million of the face value of the convertible note. Following this conversion, there are no amounts outstanding under the convertible note (which has now been redeemed in full). In addition, Lind also elected to reduce its collateral shareholding number (under the original funding agreement) from 60,000,000 shares to zero by paying the Company $1.08 million in cash. The impact of the Coronavirus (COVID-19) pandemic is ongoing as at 30 June 2020 and it is not practicable to estimate the potential impact, positive or negative, after the reporting date. The situation is rapidly developing and is dependent on measures imposed by the Australian Government and other countries, such as maintaining social distancing requirements, quarantine, travel restrictions and any economic stimulus that may be provided. 23. New Accounting Standards and Interpretations The Group has where applicable, adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to their operations and effective for the year ended 30 June 2020 including: AASB 16: Leases AASB 16 replaces AASB 117 Leases and sets out the principles for the recognition, measurement, presentation and disclosure of leases. AASB 16 introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligations to make lease payments. 69 NORTHERN MINERALS _ ANNUAL REPORT 2020 102 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 23 New Accounting Standards and Interpretations (continued) A lessee measures right-of-use assets similarly to other non-financial assets (such as property, plant and equipment) and lease liabilities similarly to other financial liabilities. As a consequence, a lessee recognises depreciation of the right-of-use asset and interest on the lease liability, and also classifies cash repayments of the lease liability into a principal portion and an interest portion and presents them in the statement of cash flows applying AASB 107 Statement of Cash Flows. AASB 16 substantially carries forward the lessor accounting requirements in AASB 117 Leases. Accordingly, a lessor continues to classify its leases as operating leases or finance leases. The Company has relied upon the practical expedients in AASB 16 and has therefore recognised operating leases with less than 12 months remaining at the time of adoption as short term leases (not recognised on balance sheet). Refer to note 10(a) for additional information. AASB 2018-1: Annual Improvements to IFRS Standards 2015 - 2017 Cycle The amendments clarify certain requirements in: a) b) AASB 3 Business Combinations and AASB 11 Joint Arrangements - previously held interest in a joint operation; AASB 112 Income Taxes - relating to the income tax consequences of dividend payments; and c) AASB 123 Borrowing Costs - borrowing costs eligible for capitalisation. Interpretation 23: Uncertainty over Income Tax Treatments Interpretation 23 clarifies how to apply the recognition and measurement requirements in AASB 112 Income Taxes when there is uncertainty over income tax treatments. Consequential amendments are made by AASB 2017-4 to AASB 1 First-time Adoption of Australian Accounting Standards as a result of Interpretation 23. The adoption of these amendments did not have any impact on the current period or any prior period and is not likely to affect future periods. As at the date of the authorisation of the financial statements, the Standards and Interpretations listed below were in issue but not yet effective and have not been adopted by the Group for the annual reporting year ending 30 June 2020: Standard AASB 2018-7 Amendments to Australian Accounting Standards – Definition of Material Effective date for annual reporting periods beginning on or after 1 January 2020 Application date for the Company 1 July 2020 AASB 2020-3 Annual Improvements to IFRS Standards 2018–2020 and Other Amendments AASB 2020-1 Amendments to Australian Accounting Standards – Classification of Liabilities as Current or Non-Current 1 January 2022 30 June 2023 1 January 2023 30 June 2024 The Company has decided not to early adopt any of the new and amended pronouncements. Of the above new and amended Standards and Interpretations the Company's assessment of those new and amended pronouncements that are relevant to the Company but applicable in future reporting periods is set out below. The Group has not yet determined the impact of these pronouncements on its financial statements. 70 NORTHERN MINERALS _ ANNUAL REPORT 2020 103 NORTHERN MINERALS LIMITED NOTES TO THE FINANCIAL STATEMENTS 23 New Accounting Standards and Interpretations (continued) AASB 2018- 7: Amendments to Australian Accounting Standards – Definition of Material The amendments refine the definition of material in AASB 101.The amendments clarify the definition of material and include guidance relating to obscuring information that could be reasonably expected to influence decisions of the primary users of the financial information. The amendments include additional guidance to the definition of material, gives it more prominence, and clarifies the explanation; accompanying the definition of material. AASB 2020-3 Annual Improvements to IFRS Standards 2018–2020 and Other Amendments This Standard amends: (a) (b) (c) (d) (e) (f) the application of AASB 1 by a subsidiary that becomes a first-time adopter after its parent in relation to the measurement of cumulative translation differences; AASB 3 to update references to the Conceptual Framework for Financial Reporting; AASB 9 to clarify when the terms of a new or modified financial liability are substantially different from the terms of the original financial liability; AASB 116 to require an entity to recognise the sales proceeds from selling items produced while preparing property, plant and equipment for its intended use and the related cost in profit or loss, instead of deducting the amounts received from the cost of the asset; AASB 137 to specify the costs that an entity includes when assessing whether a contract will be loss-making; and AASB 141 to align the fair value measurement requirements in AASB 141 with those in other Australian Accounting Standards. AASB 2020-1 Amendments to Australian Accounting Standards – Classification of Liabilities as Current or Non- Current Amends AASB 101 to clarify that liabilities are classified as either current or non-current, depending on the rights that exist at the end of the reporting period. Classification is unaffected by the expectations of the entity or events after the reporting date (for example, the receipt of a waiver, a breach of covenant, or settlement of the liability). The mandatory application date of the amendment has been deferred by 12 months to 1 January 2023. Management is currently assessing the effects of applying the new standards on the Group’s financial statements. The Group will make more detailed assessments over the next 12 months. 71 NORTHERN MINERALS _ ANNUAL REPORT 2020 104 NORTHERN MINERALS LIMITED DIRECTORS’ DECLARATION In accordance with a resolution of the directors of Northern Minerals Limited I state that: 1. In the opinion of the directors (a) The financial statements and notes of Northern Minerals Limited for the financial year ended 30 June 2020 are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2020 and of their performance for the year then ended; and (ii) complying with Australian Accounting Standards 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 having regard to the matters disclosed in Note 2(a); and (c) The financial statements and notes also comply with International Financial Reporting Standards as disclosed in Note 2; and 2. This declaration has been made after receiving the declarations required to be made to the directors in accordance with Section 295A of the Corporations Act 2001 for the financial year ended 30 June 2020. On behalf of the Board ________________ Colin McCavana Director 24 September 2020 72 NORTHERN MINERALS _ ANNUAL REPORT 2020 105 Auditor’s independence declaration under section 307C of the Corporations Act 2001 To the directors of Northern Minerals Ltd I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 June 2020 there have been: Auditor’s independence declaration under section 307C of the Corporations Act 2001 (i) no contraventions of the auditor’s independence requirements as set out in the Corporations To the directors of Northern Minerals Ltd Act 2001 in relation to the audit; and I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 June 2020 there have been: (ii) no contraventions of any applicable code of professional conduct in relation to the audit. (i) no contraventions of the auditor’s independence requirements as set out in the Corporations Act 2001 in relation to the audit; and (ii) no contraventions of any applicable code of professional conduct in relation to the audit. Nexia Perth Audit Services Pty Ltd Nexia Perth Audit Services Pty Ltd Muranda Janse Van Nieuwenhuizen Director Perth 24 September 2020 Muranda Janse Van Nieuwenhuizen Director Perth 24 September 2020 NORTHERN MINERALS _ ANNUAL REPORT 2020 106 Independent Audit Report to the Members of Northern Minerals Limited Independent Audit Report to the Members of Northern Minerals Limited Report on the financial report Report on the financial report Opinion We have audited the financial report of Northern Minerals Limited (“the Company”), including its Opinion subsidiaries (“the Group”) which comprises the consolidated statement of financial position as at 30 We have audited the financial report of Northern Minerals Limited (“the Company”), including its June 2020, the consolidated statement of comprehensive income, consolidated statement of changes subsidiaries (“the Group”) which comprises the consolidated statement of financial position as at 30 in equity and consolidated statement of cash flows for the year then ended, and notes to the June 2020, the consolidated statement of comprehensive income, consolidated statement of changes consolidated financial statements, including a summary of significant accounting policies, and the in equity and consolidated statement of cash flows for the year then ended, and notes to the directors’ declaration. 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: In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its financial performance for the year then ended; and (i) giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its financial (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under Basis for opinion those standards are further described in the ‘auditor’s responsibilities for the audit of the financial We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under report’ section of our report. We are independent of the Group in accordance with the Corporations Act those standards are further described in the ‘auditor’s responsibilities for the audit of the financial 2001 and the ethical requirements of the Accounting Professional & Ethical Standards Board’s APES report’ section of our report. We are independent of the Group in accordance with the Corporations Act 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial 2001 and the ethical requirements of the Accounting Professional & Ethical Standards Board’s APES report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Group, would be in the same terms if given to the directors as at the time We confirm that the independence declaration required by the Corporations Act 2001, which has been of this auditor’s report. given to the directors of the Group, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters 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 Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide our audit of the financial report of the current period. These matters were addressed in the context of a separate opinion on these matters. 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. NORTHERN MINERALS _ ANNUAL REPORT 2020 Independent Audit Report to the Members of Northern Minerals Limited Report on the financial report Opinion We have audited the financial report of Northern Minerals Limited (“the Company”), including its subsidiaries (“the Group”) which comprises the consolidated statement of financial position as at 30 June 2020, the consolidated statement of 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 In our opinion, the accompanying financial report of the Group is in accordance with the Corporations directors’ declaration. Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the ‘auditor’s responsibilities for the audit of the financial report’ section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional & Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Group, would be in the same terms if given to the directors as at the time We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis of this auditor’s report. for our opinion. 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 Future Funding (Refer to note 2(a) in the financial report) The Group has not yet started to generate revenue which is sufficient to cover their operating expenditure and is therefore reliant on the raising of capital or debt funding. The adequacy of funding and liquidity as well as the relevant impact on the going concern assessment is a key audit matter due to the inherent uncertainties associated with the future development of the Group’s projects and the level of funding required to support that development. Research and development (R&D) tax incentive (Refer to note 5 in the financial report) In August 2020, the Group signed a settlement agreement with the ATO in relation to it’s R&D rebates for the financial years ending 30 June 2017, 2018 and 2019. This was treated as an adjusting subsequent event and the Group has recognised income of $16m for those years, with a further $4m in deferred revenue. Management engaged external experts to prepare the R&D rebate assessment for the year ending 30 June 2020. Accordingly, the Group has also recognised income of $6.9m for the year ending 30 June 2020, with a further $2m in deferred revenue. The settlement with the ATO and lodgement of the 2020 claim is a key audit matter as the amounts are material and significant to the Group and users of the financial statements. Rehabilitation Provision (Refer to note 10(c) in the financial report) As a consequence of its operations the Group has an obligation to rehabilitate and restore the disturbances to the environment arising from the construction of the Pilot Plant. 107 How our audit addressed the key audit matter Our audit procedures included, amongst others:  Assessing the financial position of the Group at 30 June 2020 and up to date of sign off;  Reviewing receipt of payments post year end;  Reviewing repayment of liabilities post year end; and  Reviewing managements forecast for the 12 month period to 30 September 2021 and inputs and assessing the reliability of the assumptions used. Our audit procedures included, amongst others:  Obtaining a copy of the ATO settlement agreement and agreeing the amounts recognised in the financial report;  Assessing the competence, objectivity and experience of management’s external expert; professional  Obtaining a copy of the calculation of the R&D claim prepared for the year ending 30 June 2020 and assessing the inputs and methodology used;  Checking the calculation and journal prepared by management to record the R&D tax incentive income;  Agreeing that the payments received from the ATO post year end were in line with the settlement agreement; and  Auditing the relevant disclosures in the financial statements. Our audit procedures included, amongst others:  Assessing the competency, objectivity and experience of management’s internal expert who valued the rehabilitation provision;  Reconciling the expert’s calculations to the basis of the rehabilitation provision in the financial report;  Checking a sample of costs used in the Group’s rehabilitation estimates against legislated rates; NORTHERN MINERALS _ ANNUAL REPORT 2020 108 The nature of the rehabilitation activities that will be required are governed by local legislative requirements.  Agreeing the expected timing of the rehabilitation works in the cash flow model to the expected life of the Pilot Plant; activities rehabilitation This matter is a key audit matter because estimating the costs associated with these requires future judgement and estimation for factors such as the timing of when the rehabilitation works will take place, the extent of the rehabilitation and restoration activities that will be required and inflation rates and discount rates pertinent to the rehabilitation work.  Testing the mathematical accuracy of management's cash flow model; and  Auditing the relevant disclosures in the financial statements. Convertible securities issued in the year Our audit procedures included, amongst others: (refer to note 8(e) of the financial report)  Obtaining and reviewing a copy of the Convertible On 2 March 2020, a Convertible Security Funding Agreement was entered with Lind Global Macro Fund, LP. The security included multiple embedded derivatives. The Group made the accounting policy choice to account for the convertible security at fair value through profit or loss. The convertible security transaction is a key audit matter due to the complexity of the transaction and the judgement required by management the accounting treatment. in assessing Security Funding Agreement;  Assessing the inputs and assumptions used in managements calculations and vouching these to supporting documentation;  Reviewing the journal entries raised to assess whether they accurately reflected the transaction;  Assessing the accounting treatment in accordance with AASB 9 Financial Instruments and AASB 132 Financial Instruments: Presentation; and  Auditing the relevant disclosures in the financial statements. NORTHERN MINERALS _ ANNUAL REPORT 2020 109 Other information The directors are responsible for the other information. The other information comprises the information in Northern Minerals Limited’s annual report for the year ended 30 June 2020, but does not include the consolidated financial report and the auditor’s report thereon. Our opinion on the consolidated 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 consolidated 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 the other information we are required to report that fact. We have nothing to report in this regard. Directors’ responsibility for the financial report The directors of the Group are responsible for the preparation of the consolidated 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 consolidated 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 entity or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibility 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 at: Australian http://www.auasb.gov.au/auditors_files/ar2.pdf. This description forms part of our auditor’s report. Assurance Standards Auditing website Board and We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. NORTHERN MINERALS _ ANNUAL REPORT 2020 110 Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 44 to 54 of the Directors’ Report for the year ended 30 June 2020. In our opinion, the Remuneration Report of Northern Minerals Limited for the year ended 30 June 2020 complies with Section 300A of the Corporations Act 2001. Responsibilities The directors of the Group 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. Nexia Perth Audit Services Pty Ltd Muranda Janse Van Nieuwenhuizen Director Perth 24 September 2020 NORTHERN MINERALS _ ANNUAL REPORT 2020 SHAREHOLDER INFORMATION 111 As at 21 September 2020 Additional information required by the Australian Securities Exchange Ltd and not shown elsewhere in this report is as follows. 1. Ordinary Shares (NTU) a) Distribution of shares Category (size of holding) Number of holders % Issued Share Capital 1-1,000 1,001-5,000 5,001-10,000 10,001-100,000 100,000-and over Total The number of shareholdings held in less than marketable parcels is 3,005. 287 663 1,348 4,544 2,540 9,382 0.00% 0.06% 0.25% 4.43% 95.26% 100.00% NORTHERN MINERALS _ ANNUAL REPORT 2020112 b) Twenty largest shareholders The names of the twenty largest holders of quoted shares are: Name of Holder Citicorp Nom PL Vastness Investment Group Limited Yongquan He Yuzhen Ma Australia Conglin International Investment Group Pty Ltd Jing Liu Huatai Mining Pty Ltd Chen Hui Yun Xue Congyan BNP Paribas Nominees Pty Ltd JHY Investments Pty Ltd 1 2 3 4 5 6 7 8 9 10 11 12 Wenbao Li 13 14 15 16 17 18 19 20 Straits Investments Limited Conglin Yue Huatai Mining Pty Ltd J P Morgan Nominees Australia Pty Limited Joy And K Pty Ltd RHE Investments Pty Ltd Ronan Hee Jo Holding Pty Ltd Number of shares held % Holding 507,794,378 375,000,000 250,000,000 225,000,000 156,833,095 150,000,000 129,387,914 107,692,308 107,692,308 72,072,891 66,105,367 64,516,130 56,923,077 50,615,385 50,000,000 39,321,047 35,038,462 33,758,065 33,758,065 33,258,065 11.45% 11.45% 5.64% 5.07% 3.54% 3.38% 2.92% 2.43% 2.43% 1.62% 1.49% 1.45% 1.28% 1.14% 1.13% 0.89% 0.79% 0.76% 0.76% 0.75% As at 21 September 2020 the issued capital comprised 4,436,247,099 ordinary fully paid quoted shares. 2,544,766,557 45.92% NORTHERN MINERALS _ ANNUAL REPORT 2020113 2. Substantial Holders of Equity Securities The names of substantial shareholders (NTU) are as follows: Holder Vastness Investment Group Limited Yongquan He Yuzhen Ma 3. Voting Rights Number of shares 375,000,000 250,000,000 225,000,000 The voting rights attaching to each class of equity securities are set out below: a) Ordinary shares On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. b) Options No voting rights 4. Stock Exchange Listing Listing has been granted for ordinary shares (NTU) of the company on all Member Exchanges of the Australian Stock Exchange Limited. 5. Unquoted Securities Options expiring 24 May 2021 at $0.15 issued to Argonaut Investments Pty Ltd Options expiring 20 December 2021 at $0.1225 to Lind Asset Management X LLC Options expiring 2 March 2024 at $0.045 to Lind Global Macro Fund, LP Unquoted performance rights 6. Restricted Securities Number Number of holders 3,000,000 10,000,000 34,000,000 13,307,000 1 1 1 45 As at 21 September 2020 there were 4,353,400 restricted securities on issue. 7. On-Market Buyback The Company is not performing an on-market buyback at the time of this report. NORTHERN MINERALS _ ANNUAL REPORT 2020 114 CORPOR ATE DIRECTORY Northern Minerals Limited Share Registry Directors Colin McCavana (Non-executive Chairman) Adrian Griffin (Non-executive Director) Yanchun Wang (Non-executive Director) Ming Lu (Non-executive Director) Bin Cai (Alternate Director) CEO & Company Secretary Mark Tory Registered and Principal Office Ground Floor, 34 Colin Street West Perth WA 6005 PO Box 669 West Perth WA 6872 Telephone: + 61 8 9481 2344 Email: info@northernminerals.com.au Website: www.northernminerals.com.au ABN 61 119 966 353 Automic Group Pty Ltd GPO Box 5193, Sydney NSW 2001 T 1300 288 664 F +61 2 9698 5414 hello@automic.com.au ASX Code: NTU Solicitors Johnson Winter & Slattery Level 4, Westralia Place 167 St Georges Terrace Perth WA 6000 Auditors Nexia Perth Audit Services Pty Ltd Level 3, 88 William Street Perth WA 6000 Investor & Media Relations Cannings Purple Level 1, Brookfield Tower 2 123 St Georges Terrace Perth WA 6000 Bankers National Australia Bank NORTHERN MINERALS _ ANNUAL REPORT 2020115 This page left blank intentionally NORTHERN MINERALS _ ANNUAL REPORT 2020116 This page left blank intentionally NORTHERN MINERALS _ ANNUAL REPORT 2020www.northernminerals.com.au info@northernminerals.com.au Telephone +61 8 9481 2344 Ground Floor, 34 Colin Street West Perth WA 6005 A N N U A L R E P O R T 2 0 2 0

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