PNX METALS LIMITED ABN 67 127 446 271 ANNUAL REPORT 2019 Share Registry Computershare Level 5, 115 Grenfell Street Adelaide SA 5000 Telephone (within Australia): 1300 305 232 Telephone (outside Australia): +61 (3) 9415 4657 Auditors Grant Thornton Level 3, 170 Frome St Adelaide SA 5000 Lawyers Piper Alderman Level 16, 70 Franklin Street Adelaide SA 5000 ASX The Company’s fully paid ordinary shares are quoted on the ASX under the code PNX. CORPORATE DIRECTORY Australian Business Number 67 127 446 271 Country of Incorporation Australia Board of Directors Graham Ascough Non-executive Chairman Paul Dowd Peter Watson David Hillier James Fox Non-executive Director Non-executive Director Non-executive Director Managing Director & CEO Company Secretary Angelo Gaudio Principal Administrative Office Level 1, 135 Fullarton Rd Rose Park SA 5067 Telephone: +61 (8) 8364 3188 Facsimile: +61 (8) 8364 4288 Registered Office Level 1, 135 Fullarton Rd Rose Park SA 5067 Telephone: +61 (8) 8364 3188 Facsimile: +61 (8) 8364 4288 Contact: info@pnxmetals.com.au Website: www.pnxmetals.com.au Cover photo: Fountain Head and Tally Ho pit. 2 PNX METALS LIMITED | ANNUAL REPORT 2019 CONTENTS CHAIRMAN’S LETTER OVERVIEW EXPLORATION REPORT TENEMENTS MINERAL RESOURCES AND ORE RESERVES DIRECTORS’ REPORT REMUNERATION REPORT AUDITOR’S INDEPENDENCE DECLARATION CORPORATE GOVERNANCE STATEMENT FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS DIRECTORS’ DECLARATION 4 6 11 23 27 30 34 39 40 44 48 66 INDEPENDENT AUDITOR’S REPORT TO MEMBERS 67 ADDITIONAL SHAREHOLDER INFORMATION 70 3 PNX METALS LIMITED | ANNUAL REPORT 2019 CHAIRMAN’S LETTER Dear Fellow Shareholders, On behalf of the Board of Directors, it is my pleasure to present the 2019 Annual Report for PNX Metals Limited (PNX or Company). During the year, the Company focused on advancing the Hayes Creek Project in the Northern Territory towards a development decision. A Detailed Feasibility Study (DFS) is currently underway on Hayes Creek and this follows the successful completion of a Pre-Feasibility Study (PFS) in July 2017 which confirmed that the project is a promising, high value, relatively low risk and technically strong development opportunity. The DFS is expected to provide increased confidence in all aspects of the project and will also investigate opportunities to improve overall project economics and meet the Company’s objective to be a successful explorer and a sustainable and profitable gold and base metals producer. The finalisation of the DFS is expected to take until at least the end of the first quarter of 2020, subject to any unplanned delays. A significant amount of technical work is also underway that will be used to prepare the Project’s Environmental Impact Statement (EIS) for submission by mid-2020. Located less than 15km from the Hayes Creek deposits, the Fountain Head site is an integral part of the Hayes Creek Project as it is the preferred location for the processing plant and tailings facility. Fountain Head is also host to a number of high-grade gold prospects and drilling during the year identified new gold mineralisation that lead to development of a new geological model for the area. As a result, the Company completed its first JORC compliant mineral resource estimate for Fountain Head containing 138Koz of gold (see ASX announcement dated 11 July 2019). The relative values of PNX mining some or all of these mineral resources versus utilising the historic open pits for tailings disposal from the Hayes Creek project is being assessed, including how the two strategies might be combined. The new gold mineral resource at Fountain Head provides confidence that a significant gold system may be emerging, and drilling success during the year, including at Cookies Corner, highlights the potential of the Company’s large NT exploration tenure. Regionally, our tenement interests cover in excess of 1,500 km2 and host numerous base metal and gold prospects. The exploration strategy for this large area is to identify significant additional mineralisation with the potential to complement and enhance the Hayes Creek Project as well as to identify new, potentially stand-alone resources. The Company continues to receive strong support from its shareholders demonstrated through successful fund raisings completed during the year. In May 2019 the Company completed a three (3) for five (5) underwritten non-renounceable pro-rata rights issue raising $5.48 million (before costs and expenses). The proceeds are being used to fund the significant level of activity at Hayes Creek, including the completion of the DFS, and ongoing assessment of the Fountain Head gold project. The Board and management are confident that continued exploration work will be successful in growing the resource base and that the completion of the DFS at the Hayes Creek project during 2020 will provide confidence in this development opportunity, with the potential to deliver strong returns for PNX shareholders. In closing, I would like to take this opportunity to express my thanks to my fellow directors, management and staff for their dedication and work during the past 12 months. We are committed to progressing the Company and growing our flagship Hayes Creek project towards development for the benefit of all stakeholders. I also take this opportunity to thank all shareholders for your continued support of PNX and I look forward to providing further updates as our activities move forward in 2020. Yours sincerely, Graham Ascough Chairman 17 September 2019 4 PNX METALS LIMITED | ANNUAL REPORT 2019 5 PNX METALS LIMITED | ANNUAL REPORT 2019 OVERVIEW GENERAL PNX Metals Limited (PNX or the Company) is an ASX listed minerals exploration company, with a vision of being a successful explorer and sustainable and profitable gold and base metals producer. PNX holds a large and prospective precious and base metals tenement portfolio, primarily located in the Pine Creek region of the Northern Territory (NT) (Figure 1). The main activities of the Company during the 2019 financial year were progression of technical studies and work programs to inform a Detailed Feasibility Study (DFS) over the Hayes Creek zinc-gold-silver project (Project or Hayes Creek), in addition to conducting nearby precious metal exploration at the Fountain Head project, and Cookies Corner gold prospect. The Fountain Head mineral leases were acquired in 2018 from Newmarket Gold NT Holdings Pty Ltd (Newmarket), a subsidiary of Kirkland Lake Gold Ltd (KL Gold, ASX: KLA) as part of a land swap and royalty agreement. The acquisition secured the preferred site for the Project’s proposed processing plant and tailings facility, and also added a new project area that is highly prospective for gold. Since acquiring the Fountain Head mineral leases a review of historical data and the results of PNX drilling has enabled PNX to publish a new gold mineral resource estimate for the Fountain Head project in mid-2019. As part of the agreement with Newmarket, PNX also acquired the then outstanding 49% interest in the Moline project tenements, taking its ownership of that project to 100%. PNX also holds a 90% interest in a further 19 tenements in the Pine Creek region of the NT (Burnside and Chessman projects) under joint venture with Newmarket which now holds a 10% interest free-carried until a decision to mine is made. A full listing of PNX’s tenements is contained in the Exploration Report. DARWIN N O R T H E R N T E R R I T O R Y Fountain Head Project Hayes Creek Project Chessman Project Burnside Project Darwin Moline Project Burnside Project Fountain HeadProject Hayes Creek Project Hayes Creek Pine Creek Moline Project 0 50 100 Katherine kilometres Chessman Project NT 03 Figure 1 NT Project locations. 6 NORTHERN TERRITORY QUEENSLAND WESTERN AUSTRALIA SOUTH AUSTRALIA NEW SOUTH WALES Adelaide VICTORIA TASMANIA Aust 03 PNX METALS LIMITED | ANNUAL REPORT 2019 HAYES CREEK PROJECT The Hayes Creek Project comprises the Mt Bonnie (open-cut) and Iron Blow (underground) zinc-gold- silver deposits, and the Fountain Head gold deposit, located in close proximity to each other on wholly-owned mineral leases within the Pine Creek region of the Northern Territory, 170 km south of Darwin. The leases are located in a favourable mining jurisdiction where the development scenario considers utilising existing infrastructure that includes rail, road, high voltage power lines, gas pipeline and water, further enhancing Project fundamentals and lowering development risks. The Project hosts considerable Mineral Resources, including at Mt Bonnie and Iron Blow which together contain 238koz of gold, 16.2Moz of silver and 177kt of zinc, and the Fountain Head gold deposit which hosts 138koz of gold – further information is contained within the Exploration Report. The Company is well-funded to complete the DFS which recommenced during the year subsequent to completion of a fully-underwritten rights issue to raise $5.48 million, (before costs) in May 2019. The DFS is progressing well and follows on from a successful Pre-Feasibility Study (PFS) published in mid-2017 which confirmed Hayes Creek to be a promising future low-cost, high margin zinc and precious metal mine that could create significant value for the Company’s shareholders (PNX ASX release 12 July 2017). The DFS is expected to provide increased confidence in all aspects of the Project as well as investigate opportunities to improve mine life and overall Project economics, thereby increasing the prospect of favourable development finance terms and structure. The development of a Mineral Resource at the Fountain Head Project and new near-surface gold/silver mineralisation intersected at Iron Blow (ASX release 27 June 2019) has the potential to provide flexibility within the Company’s development strategy with the prospect of additional feed for Hayes Creek to be assessed. Project approvals are well advanced with a referral being made to the Commonwealth Department of Environment and Energy in accordance with the Environmental Protection Biodiversity Act 1999, and development of terms of reference to assist with preparing an Environmental Impact Statement (EIS) being completed. The Company received the positive decision from the Commonwealth Department of Environment and Energy that the Hayes Creek proposal is not a controlled action, but, as expected, it does require assessment under the Environmental Assessment Act 1982 (NT) at the level of an EIS. Feedback from public consultation was received from the NT Environmental Protection Authority (EPA) during August 2019 which is being incorporated in the EIS, due for submission from May 2020. Technical work to inform the DFS is ongoing and expected to be complete no earlier than end of the first quarter 2020. Subject to securing offtake agreements, funding and various Government approvals the Project is envisaged to be ready for development to commence later that year directly employing approximately 130 people. 7 PNX METALS LIMITED | ANNUAL REPORT 2019 OVERVIEW HAYES CREEK PROJECT Figure 2 Hayes Creek Project. 8 PNX METALS LIMITED | ANNUAL REPORT 2019 NT REGIONAL EXPLORATION PNX’s regional exploration project areas host numerous gold and base metals exploration prospects, and cover in excess of 1,500 square kilometres in the Pine Creek region of the Northern Territory. The Company’s strategy is to discover mineralisation with the potential to complement and enhance the Hayes Creek Project and to identify new, potentially stand-alone resources. PNX has divided its exploration portfolio into four regional project areas: • Fountain Head (100%) – gold • Moline (100%) – gold and base metals • Burnside (90% earned) – gold and base metals • Chessman (90% earned) – gold and base metals. Drilling completed at Fountain Head in June 2019, resulted in a new mineral resource estimate containing 138,000 oz gold being reported in accordance with the JORC (2012) code, reported to the ASX on 11 July 2019. PNX also completed drilling campaigns at Burnside (Cookies Corner prospect) with extensive gold mineralisation identified over an 800m strike. The Company elected to exit from the Litchfield farm-in agreement over the Kilfoyle project during June 2019. The Exploration Report contains detail on activities during and since the end of the financial year on the Company’s exploration projects. 9 PNX METALS LIMITED | ANNUAL REPORT 2019 OVERVIEW KEY FINANCIAL RESULTS ($000’s, except as indicated) 30 JUNE 2019 30 JUNE 2018 Interest/other income Research & development tax offset refund Corporate/administrative costs Impairment – NT exploration assets Fair value movement on Sunstone investment Interest charges 95 220 (1,258) (137) 39 - 59 253 (1,252) - 297 (60) Comprehensive loss after tax (1,041) (704) Comprehensive loss per share (0.07) cents (0.10) cents Net operating cashflows Exploration expenditure Funds raised – equity (net of costs) Funds raised – silver streaming Cash on hand Financial assets – term deposits1 Net working-capital2 Investment in Sunstone – at fair value Capitalised exploration expenditure Debt Contract liabilities – silver streaming Net assets (1,214) (2,941) 8,552 - 2,804 2,500 5,315 529 12,505 - 2,400 15,969 (731) (3,027) 2,308 800 860 - 698 490 9,707 - 2,400 8,449 Number of shares on issue 2,435,288,142 1,088,930,020 Number of performance rights on issue 12,440,000 7,070,000 Number of unlisted options on issue 453,125,000 85,450,000 Share price (ASX: PNX)3 0.8 cents 0.8 cents 1 2 Includes term deposits (with maturity terms greater than 90 days) as at 30 June 2019. Excludes investment in Sunstone Metals Ltd. 3 Closing share price as at 30 June. PNX reported an overall loss for the year after tax of $1.1 million (2018: $1.0 million), including a $0.137 million impairment charge to reduce the carrying value of the Kilfoyle tenements to $Nil. The loss for the year was net of a $0.22 million (2018: $0.25 million) income tax benefit relating to the Company’s research and development tax offset claims. Pre-tax loss for the year was $1.30 million compared to $1.25 million in 2018. The increased loss is primarily due to the difference in non-cash items, notably the Kilfoyle impairment charge in 2019 and interest expense of $60K settled by issuing shares in 2018. The Company raised $3.4 million net of costs from placements to sophisticated and professional investors in August/ September 2018, and completed a fully underwritten non-renounceable rights issue in May 2019 which raised $5.1 million net of costs. PNX spent $2.94 million on exploration activities during the year, of which $0.94 million related to Hayes Creek feasibility studies and $2.0 million to its key regional exploration projects in the NT. At 30 June 2019, the Group had no debt, and: • cash holdings of $2.8 million, • term deposits of $2.5 million, and • an investment in Sunstone Metals Limited at a market value of $0.5 million. 10 PNX METALS LIMITED | ANNUAL REPORT 2019 EXPLORATION REPORT HAYES CREEK PROJECT Figure 3 Hayes Creek Project. DEVELOPMENT STUDIES REPORT Detailed feasibility studies are currently underway on the Hayes Creek Project and this follows the successful completion of a PFS in July 2017 which confirmed that the Project is a promising, high value, relatively low risk and technically strong development opportunity. The DFS is expected to provide increased confidence in all aspects of the Project and will also investigate opportunities to improve overall Project economics and meet the Company’s objective to be a successful explorer and a sustainable and profitable gold and base metals producer. The proposed process plant is planned to be constructed at the historic Fountain Head mining area located approximately 15 km to the north of the Iron Blow and Mt Bonnie deposits. It is anticipated that two product streams will be produced, a zinc concentrate and a precious metals concentrate, as well as tailings. All concentrates would be trucked to the main port of Darwin for shipment to international markets. Activities at Hayes Creek during the year focused on the progression of technical studies to inform the DFS, and exploration drilling. These are summarised below and include: • Diamond drilling at Iron Blow • Reverse circulation and diamond drilling at Fountain Head and Cookies Corner • Metallurgical test-work and process design • Environmental permitting and approvals • Geochemical (waste rock characterisation) and hydrological studies • Power and infrastructure studies • Fountain Head resource estimate. 11 PNX METALS LIMITED | ANNUAL REPORT 2019 EXPLORATION REPORT HAYES CREEK PROJECT Figure 4 Long section of Iron Blow underground mine depicting; stopes = green, decline = light blue, vent raise = blue, ore drives = grey. Figure 5 Mt Bonnie open pit shell. DIAMOND DRILLING AT IRON BLOW In late 2018, two diamond drill holes were completed at Iron Blow which provided samples for DFS level metallurgical test-work, additional geotechnical information, and assay data for stope design and scheduling of the proposed underground development. The results of the metallurgical test-work will also assist in plant design and establish parameters to be used in offtake and marketing negotiations. Thick intersections of massive sulphide mineralisation were reported from within the eastern and western lodes, consistent with the geological model (ASX release 27 June 2019). Significant assays include: • 85.22m at 11.87% zinc, 4.19g/t gold, 309g/t silver, 1.94% lead, 0.49% copper from 115.9m in IBDH061 (eastern lode) • 48.07m at 5.67% zinc, 2.45g/t gold, and 90.6g/t silver from 230.3m in IBDH063 (western lode) 12 Drill hole IBDH062 also intersected a near-surface zone of oxide gold and silver mineralisation in the western lode: • 21.42m at 1.98g/t gold and 161g/t silver from 2.3m in IBDH062 Significantly, this zone is situated up- dip of previous testing and is outside the current resource estimate and mining plan. Figure 6 Core samples from Iron Blow drilling, Hole IBDH023 – from 162m to 166m. PNX METALS LIMITED | ANNUAL REPORT 2019 HAYES CREEK PROJECT METALLURGY AND PROCESS DESIGN Samples of the various ore types were collected from Iron Blow and Mt Bonnie, along with water from Fountain Head (which will likely be used as process water) for metallurgical test-work and process design. The first of the Iron Blow baseline batch flotation tests have been completed to confirm the grinding (initial and re-grind), reagent and residence time conditions for the subsequent locked cycle testing conditions. Previous test-work used master composites, being a combination of eastern and western lodes to reflect the resource as a whole. The new metallurgical locked cycle test-work will assess Iron Blow eastern and western lodes separately and then three variability samples will also be tested to ensure proposed operating parameters are sufficient to manage the variable ore grades and ore types likely to be received. Mt Bonnie samples will be used to re- establish baseline flotation conditions. Concentrate cleaner optimisation is also to be completed to maximise the upside in zinc recovery prior to undertaking the locked cycle testing. New innovative flotation and leaching test-work was also completed on the Iron Blow float tailings stream and achieved additional recoveries of precious metals to solution and then to doré (a semi-pure alloy of gold and silver cast as a doré bar) of at least 10.7% gold and 17.0% silver. This indicates potential for the recovery of approximately 13koz of gold and 1Moz of silver over life-of-mine creating a new revenue stream for the Project that would otherwise be lost to tailings. ENVIRONMENTAL PERMITTING AND APPROVALS A Notice of Intent (NOI) was submitted to the NT Environment Protection Authority (EPA) in August 2018. The NOI is the first step in the environmental approval process in the NT and provides a description of the project including the options being considered together with a background environmental description. As expected, the EPA determined that the appropriate level of assessment of the project should be an EIS. Final terms of reference have been developed by the EPA to assist PNX in preparing the EIS for the Project after a period of public consultation in August 2019. In February 2019, the Company submitted a referral regarding the Hayes Creek development under the Australian Government’s Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act). The Company has received the positive notice that the Hayes Creek development is not considered a controlled action and does not require further assessment and approval under the EPBC Act. Submission of the EIS is expected around May 2020 with the operations mine management plan to be drafted and submitted thereafter. GEOCHEMICAL AND HYDROLOGICAL STUDIES Ongoing water quality analyses and regular surface water samples continue to populate baseline environmental data to support the environmental approvals for the Project. Technical studies to support the EIS are underway and both an aquatic survey and a site investigation and water sampling survey have been completed. Additional site ethnographic, flora and fauna and air quality surveys have commenced. The majority of the technical and project inputs necessary to underpin the specific studies have also been provided. Column leach tests utilising waste rock collected during various drilling campaigns have continued to collect water quality data which will be used in modelling of groundwater both during and post completion of mining. Figure 7 Flotation and leaching test-work. 13 PNX METALS LIMITED | ANNUAL REPORT 2019 EXPLORATION REPORT HAYES CREEK PROJECT POWER AND INFRASTRUCTURE STUDIES Further work has taken place during the year to define potential infrastructure locations and requirements, combined with reviews of numerous options for base power generation and supply. With the Bonaparte gas pipeline being less than 1km from the proposed processing facility at Fountain Head, gas fired base load power appears to be the most viable option for the Project and negotiations for gas supply and pipeline access have commenced. Detailed designs for office layout and plant locations have been reviewed that consider access options and with the view to utilising as much previously disturbed ground as possible. These details will be utilised in the EIS study moving forward and provide more clarity to the DFS. Figure 8 Process flowsheet. 14 PNX METALS LIMITED | ANNUAL REPORT 2019 REGIONAL EXPLORATION PROJECTS In addition to the Hayes Creek Project, PNX holds significant exploration tenure in the highly prospective Pine Creek Orogen (Figure 9). PNX’s strategy regarding regional exploration is to discover and delineate additional high-value base metals and/ or gold deposits to complement and enhance the proposed development at Hayes Creek or feed into existing free milling gold infrastructure in the region. During the year under review exploration drilling was completed at the Fountain Head (100%), Moline (100%), and Burnside Projects (90%). The Burnside and Chessman Projects (Figure 9) consist of 18 Exploration Licences and one Mineral Lease and are subject to a farm-in agreement with Newmarket. PNX completed the second stage of the farm-in during December 2018 increasing its interest in these areas from 51% to 90%. Figure 9 Regional exploration projects. 15 PNX METALS LIMITED | ANNUAL REPORT 2019 EXPLORATION REPORT REGIONAL EXPLORATION PROJECTS FOUNTAIN HEAD In addition to being the preferred site for the processing plant and tailings facility for Hayes Creek, the Fountain Head area is also host to a number of high-grade gold prospects. During July 2018, a large drill program was completed at the Fountain Head project consisting of approximately 2,700 metres of RC and 770 metres of diamond drilling (see ASX releases 23 July 2018, 2 August 2018, 22 August 2018, 23 August 2018, 19 September 2018, and 20 December 2018). The program was designed to test for gold mineralisation directly under the existing Fountain Head and Tally Ho historic mining areas and over an approximate 1.6 km strike extent to the north-west along the Fountain Head anticline. The return of numerous high- grade gold intersections along a 1.6 km strike extent demonstrates that a sizeable gold system is emerging at the Fountain Head project. Highlights from the drill program include: Banner prospect • 6m at 39.5g/t Au from 54m in FHRC085, including: » 1m at 215g/t Au from 54m Fountain Head lode • 1m at 10.86g/t Au from 29m in FHRC072; • 3m at 11.09g/t Au from 93m in FHRC062; • 1m at 28.00g/t Au from 83m in FHRC070; and • 16m @ 1.37g/t Au from surface in FHRC074, including: » 1m @ 8.39g/t Au from 5m Tally Ho lode • 5m @ 3.96g/t Au from 107m in FHRC076, including: » 2m @ 9.17g/t Au from 110m Assays results from the diamond drill component of the program containing high-grade gold include: • 6.67m at 11.35g/t Au from 201.15m in FHRC077D (Tally Ho lode), including: » 0.85m at 84.8g/t Au from 201.15m • 1m at 6.64g/t Au from 172.48m in FHDD092 (Tally Ho lode) Figure 10 Plan view of the Fountain Head and Tally Ho Mineral Resources showing proximity to historic mining areas, mineral leases and drill collar locations. Fountain Head anticline is shown in green. 16 PNX METALS LIMITED | ANNUAL REPORT 2019 REGIONAL EXPLORATION PROJECTS Figure 11 Fountain Head plan showing selection of mineralised drill hole intercepts greater than 1 g/t Au outside of the mineral resource estimate. Mineral Resource Estimate Analysis of this drilling and re-interpretation of historic drill hole data has resulted in the development of a new geological model, and the Company’s’ first mineral resource for Fountain Head containing 138,000oz gold (reported in accordance with the JORC Code 2012) for the Fountain Head and Tally Ho deposits, (refer to Table 5 on Page 28, see ASX announcement dated 11 July 2019). This new resource is an important development as it highlights the significant potential of the Company’s large NT exploration tenure. Detailed studies are being undertaken to determine if all or some of these mineral resources may be incorporated into the overall Hayes Creek Project. Additional drill testing is required to target depth extensions to mineralised zones and to increase the density of drill data along strike to support additional mineral resources. Interpretation of the newly developed geological model suggests that drilling of the hinge of the anticline and associated sub-vertical structures could provide the greatest return; this concept is part of a drill program ongoing as at the date of this report. 17 PNX METALS LIMITED | ANNUAL REPORT 2019 EXPLORATION REPORT REGIONAL EXPLORATION PROJECTS REGIONAL EXPLORATION PROJECTS MOLINE The 100% owned Moline project is located approximately 65km to the east of Hayes Creek and less than 1.5 km off the Kakadu Highway (Figure 9). Moline comprises three main “lines of lode” hosting numerous gold and gold-zinc prospects, including Moline, School, Tumbling Dice, Swan, and Hercules. The majority of historical mining only extended to shallow depths in the oxide zone and studies have indicated that the primary mineralisation at depth could potentially be recovered and upgraded to a high-value concentrate utilising the proposed Hayes Creek process plant. Following up on positive results from 2016 and 2017 drill campaigns, PNX carried out RC and diamond drilling for approximately 1,500m in late 2018 to further evaluate the resource potential and to collect samples for preliminary metallurgical data (Figure 12). The initial program was focused on the Moline and Tumbling Dice prospects in order to increase geological confidence and continue to define mineralisation within the boundaries of potential open-pit mining. Highlights of drilling include: • 5m at 1.08g/t Au and 1.6g/t Ag from 92m in MORC035; » Including 1m at 2.45g/t Au, 7.0g/t Ag and 1.33% Zn • 6m at 1.50g/t Au, 1.03% Zn from 104m and 4.13m at 1.62g/t Au from 144.42m in MORC036; • 14m at 0.9g/t Au from 97m in MORC038; » Including 6m at 1.5g/t Au from 99m • 1m at 8.4g/t Au from 69m in MORC039; • 1m at 1.33% Zn from 72m and 2m at 1.61% Zn from 81m in MORC040; • 2.49m at 3.38g/t Au from 134.48m in MORC014; and • 1.64m at 2.28g/t Au from 132.42m and 2.79m at 1.85g/t Au from 142.2m in MORC042 18 Figure 12 Core samples at Moline. Figure 13 Moline Project drill collar locations. PNX METALS LIMITED | ANNUAL REPORT 2019 REGIONAL EXPLORATION PROJECTS BURNSIDE The Burnside project (90%) is located along the Stuart Highway, 150km south of Darwin. It surrounds Hayes Creek and Fountain Head project, and therefore is strategically important in the future growth plans of PNX. There are numerous mineral deposits and mineral occurrences within the Pine Creek Orogen that attest to the mineral wealth of the area, these include the third-party owned Cosmo- Howley, Woolwonga, the Brocks Creek group, and Goodall deposits, with around 2Moz of gold produced historically. Drilling was completed at Cookies Corner, one of a cluster of gold targets in the north-west of PNX’s Burnside exploration project, located at the convergence of two major gold-producing structural corridors, the Pine Creek Shear Zone and the Howley Anticline (host to Kirkland Lake Gold Limited’s Cosmo gold mine). The Cookies Corner geochemical anomaly is directly analogous to that observed over the historic Goodall mine located 4km to the south-west. Goodall was discovered via geochemical sampling in 1981, mined from 1988-1993 and produced, on average over that time, 41,500oz Au per year1. Twenty-three holes were drilled to test the source of a consistent >0.1g/t gold in soils anomaly. All holes drilled intersected gold mineralisation over an approximate 800m strike length (Figure 14) (ASX release 9 October 2018 and 29 January 2019). Highlights from the program include: • 8m at 3.13g/t Au from 12m in CCRC005; including: » 1m @ 11. g/t Au from 12m • 6m at 3.72g/t Au from 71m in CCRC002; • 19m at 1.15g/t Au from 10m in CCRC012; • 11m at 1.13g/t Au from 75m in CCRC023; including: » 1m at 5.62g/t Au from 75m The Company is growing increasingly confident in the potential for additional mineral resources within the Burnside project area; prospects such as Ithaca, Ios and Santorini along the Howley Anticline are already well advanced with Cookies Corner now also in that category. The Goodall area also contains what now would be considered potentially economic gold intersections which were not followed up by previous explorers, including Western Mining in the 1980s. The Golden Dyke Dome area, located close to Hayes Creek contains numerous historic open-pits and gold in near-surface oxide mineralisation that has not been drill-tested within this gold-price environment. Base metals potential is evidenced by the Iron Blow and Mt Bonnie zinc-gold- silver massive sulphide deposits, and the historic Mt Ellison copper mine. Further exploration work is warranted and on-ground mapping and follow up of geophysical targets will continue. 1 Exploration and Geology of the Goodall Gold Mine, D R Quick, AusIMM Annual Conference 1994 19 PNX METALS LIMITED | ANNUAL REPORT 2019 EXPLORATION REPORT REGIONAL EXPLORATION PROJECTS REGIONAL EXPLORATION PROJECTS Figure 14 Cookies Corner plan view showing PNX completed drilling, gold-in-soil anomaly and target structure on geology. 20 PNX METALS LIMITED | ANNUAL REPORT 2019 REGIONAL EXPLORATION PROJECTS CHESSMAN PROJECT The Chessman Project is located approximately 20km due east of Katherine at the southern margin of the Pine Creek Orogen. Easy access is via the Stuart Highway and then along roads that were established in 2000 for ore haulage to and from the Maud Creek mining area. The Chessman Project surrounds the ~1Moz Maud Creek gold deposit which is being contemplated for development by Kirkland Lake Gold. No work was completed by PNX on the Chessman Project Area during this reporting period. KILFOYLE FARM-IN PROJECT – LITCHFIELD AREA, NT On 31 May 2018, PNX executed a binding term sheet with May Drilling Pty Ltd to commence a farm-in over three exploration licences in the Litchfield area of the NT, approximately 80km to the west of Hayes Creek. During June 2019, the Company withdrew from the Kilfoyle farm-in due to prioritisation of the Hayes Creek DFS and Fountain Head activities over regional exploration on non-PNX assets, and no high-priority base metals targets having been identified to drill test. SOUTH AUSTRALIA – BURRA REGION & YORKE PENINSULA No on-ground exploration activities were undertaken during the year by PNX on the Company’s tenements in the Burra region (prospective for copper/gold) or Yorke Peninsula (prospective for IOCG). Ausmex Mining Group Limited (Ausmex) commenced a farm-in over PNX’s eight exploration licences in the Burra area, to earn up to a 90% interest over two stages (60% and 90%) by spending a minimum of $300,000 in each stage on diamond drilling or other agreed exploratory work. The first stage is to be completed by 30 September 2019 but can be extended to 31 December 2019. Ausmex may then elect to continue to Stage 2 at which time PNX may instead elect to form a joint venture and contribute to 40% of future exploration expenditure. All South Australian tenements remain in good standing. 21 PNX METALS LIMITED | ANNUAL REPORT 2019 EXPLORATION REPORT ENVIRONMENT SOCIAL AND COMMUNITY OCCUPATIONAL HEALTH AND SAFETY The Company has approved exploration and care and maintenance Mine Management Plans (MMPs) for all project areas in the NT; these include environmental bonds which are required prior to any exploration activities taking place. Progressive rehabilitation of disturbed areas has occurred in accordance with licence conditions, and will continue to occur in the future. PNX recognises and responds to the growing expectation from community, regulators and industry leaders for more open community engagement and stakeholder consultation. The Company engages with local stakeholders, including government, pastoral leaseholders, Aboriginal groups, and local community as an integral part of the exploration process. The Company recently participated in the Mining the Territory Conference in early September 2019. PNX is committed to the health and safety of its employees, contractors and visitors. No reportable incidents occurred during the year. The Company reviews its Health and Safety policies and procedures on a regular basis to ensure it maintains a high standard. All field staff take part in ongoing training to develop skills for supervising and conducting exploration activities in remote environments. 22 PNX METALS LIMITED | ANNUAL REPORT 2019 HOLDER AREA (HECTARE) TENEMENTS NORTHERN TERRITORY PNX TENEMENTS TENEMENT Hayes Creek ML30512 ML30589 MLN1033 MLN1039 MLN214 MLN341 MLN342 MLN343 MLN346 MLN349 MLN405 MLN459 MLN811 MLN816 TOTAL Other MLN794 MLN795 ML30936 TOTAL Fountain Head ML31124^ MLN1020^ MLN4^ MLN1034^ TOTAL^ Moline ML24173^ MLN1059^ MLN41^ TOTAL MINERAL LEASES EL28616^ EL31893 EL31099 NAME Mt Bonnie Mt Bonnie Mt Bonnie Mt Bonnie Iron Blow Iron Blow Mt Bonnie Iron Blow Mt Bonnie Iron Blow Mt Bonnie Mt Bonnie Mt Bonnie Mt Bonnie Fishers-1 Fishers-2 Good Shepherd Fountain Head Fountain Head Fountain Head Fountain Head Moline Moline Mt Evelyn Moline Ryan Creek Bridge Creek PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% TOTAL EXPLORATION LICENCES ^ Acquisition of Fountain Head tenements and additional 49% of Moline was completed in July 2018. 6.4 31.6 4.8 1.2 6.3 14.9 13.7 14.9 16.0 15.0 12.0 15.0 8.1 8.1 168.0 8.1 8.1 106 122.6 33.5 12.0 529.9 304.2 879.6 3126.0 418.7 8.9 4,723.4 262.5 km2 23.4 km2 60.2 km2 346.1 km2 23 PNX METALS LIMITED | ANNUAL REPORT 2019 TENEMENTS NORTHERN TERRITORY FARM-IN TENEMENTS TENEMENT NAME HOLDER AREA (km2) Burnside Project* EL10012 EL10347 EL23431 EL23536 EL23540 EL23541 EL24018 EL24051 EL24058 EL24351 EL24405 EL24409 EL24715 EL25295 EL25748 EL9608 Chessman Project* Tenement EL25054 EL28902 ML30293 Mt Ringwood Golden Dyke Thunderball Brocks Creek Jenkins Cosmo North Hayes Creek Margaret River Yam Creek PNX Metals Limited 90%, Newmarket 10% PNX Metals Limited 90%, Newmarket 10% PNX Metals Limited 90%, Newmarket 10% PNX Metals Limited 90%, Newmarket 10% PNX Metals Limited 90%, Newmarket 10% PNX Metals Limited 90%, Newmarket 10% PNX Metals Limited 90%, Newmarket 10% PNX Metals Limited 90%, Newmarket 10% PNX Metals Limited 90%, Newmarket 10% McCallum Creek PNX Metals Limited 90%, Newmarket 10% Yam Creek PNX Metals Limited 90%, Newmarket 10% Brocks Creek South PNX Metals Limited 90%, Newmarket 10% Mt Masson PNX Metals Limited 90%, Newmarket 10% Margaret Diggings PNX Metals Limited 90%, Newmarket 10% Burnside Mt Bonnie Name Maud Maud PNX Metals Limited 90%, Newmarket 10% PNX Metals Limited 90%, Newmarket 10% PNX Metals Limited 90%, Newmarket 10% PNX Metals Limited 90%, Newmarket 10% Chessman PNX Metals Limited 90%, Newmarket 10% TOTAL EXPLORATION LICENCES * PNX has earned 90% interest under a farm-in agreement with Newmarket – awaiting completion of formal transfer of 90% interest. 14.9 10.0 13.4 70.4 16.7 3.3 23.4 86.9 3.3 13.4 4.1 22.1 56.8 10.0 584.5 10.0 64.0 104.5 1.1 1,113 24 PNX METALS LIMITED | ANNUAL REPORT 2019 SOUTH AUSTRALIA PNX TENEMENTS EXPLORATION LICENCES NAME HOLDER AREA (km2) Adelaide Geosyncline** EL6326 EL5874 EL6150 EL6327 EL5918 EL6386 EL5910 ELA2019/00085 TOTAL Yorke Peninsula ELA 2018/00013 ELA 2017/00169 ELA 2019/00062 ELA 2017/00099 Burra Central Burra West Burra North Mongolata Princess Royal Bagot Well Spalding Washpool# Minlaton# Point Pearce# Koolywurtie# Coonarie# TOTAL EXPLORATION LICENCES PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% Wellington Exploration Pty Ltd 100% Wellington Exploration Pty Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% ** Ausmex Mining Group earning up to 90% in these tenements over 2 stages under a farm-in agreement. # Tenenment under subsequent renewal. 84 69 300 60 314 71 157 135 1,190 509 38 255 254 1,056 25 PNX METALS LIMITED | ANNUAL REPORT 2019 26 PNX METALS LIMITED | ANNUAL REPORT 2019 MINERAL RESOURCES AND ORE RESERVES As at 30 June 2019 NORTHERN TERRITORY HAYES CREEK MINERAL RESOURCES Table 1: Iron Blow Mineral Resources by JORC Classification as at 3 May 2017 JORC CLASSIFICATION LODE AuEq CUT-OFF (g/t) TONNAGE (kt) Zn (%) Indicated East Lode Total Indicated Inferred West Lode East Lode West Lode FW Gold HW Gold Interlode Gold Interlode Base Metal Total Inferred 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 800 7.64 1,280 4.14 2,080 5.49 20 20 0.48 0.76 210 0.25 40 40 120 450 0.06 0.21 3.52 1.11 Total Indicated + Inferred Mineral Resource 2,530 4.71 Pb (%) 1.83 0.33 0.91 0.34 0.96 0.07 0.09 0.03 0.32 0.18 0.78 Cu (%) 0.30 0.31 0.30 0.16 0.13 0.03 0.01 0.07 0.14 0.07 0.26 Ag (g/t) 275 60 143 132 109 16 6 8 35 27 122 Au (g/t) 2.90 1.73 2.19 6.01 1.02 2.03 1.68 1.66 0.69 1.71 2.10 ZnEq (%) AuEq (g/t) 20.64 15.53 8.84 6.66 13.39 10.08 13.65 5.90 3.48 2.57 2.79 5.87 4.38 11.79 9.43 4.44 2.62 1.94 2.10 4.42 3.30 8.87 Total Contained Metal (t) 119,200 19,700 6,650 9.9Moz 170.9koz 298,000t 721.5koz Table 2: Mt Bonnie Mineral Resources by JORC Classification as at 8 February 2017 JORC CLASSIFICATION Indicated Indicated Total Indicated Inferred Inferred Inferred Total Inferred DOMAIN CUT-OFF GRADE TONNAGE (kt) Zn (%) Oxide/Transitional 0.5g/t Au 195 0.94 Fresh 1% Zn 1,180 4.46 1,375 3.96 Oxide/Transitional 0.5g/t Au 32 0.43 Fresh Ag Zone 1% Zn 50g/t Ag 118 2.91 21 0.17 171 2.11 Total Indicated + Inferred Mineral Resource 1,545 3.76 Pb (%) 2.43 0.94 1.15 1.33 0.90 0.03 0.87 1.12 Cu (%) 0.18 0.23 0.23 0.29 0.15 0.04 0.16 0.22 Ag (g/t) 171 121 128 74 135 87 118 127 Au (g/t) 3.80 1.02 1.41 2.28 0.54 0.04 0.80 1.34 ZnEq (%) 11.50 9.60 9.87 6.37 7.61 2.36 6.73 9.53 AuEq (g/t) 9.44 7.88 8.11 5.23 6.25 1.94 5.53 7.82 Total Contained Metal (t) 58,000 17,300 3,400 6.3Moz 66.8koz 147,000t 388.5koz Table 3: Total Hayes Creek Mineral Resources (Iron Blow + Mt Bonnie) by JORC Classification at 3 May 2017 JORC CLASSIFICATION Total Indicated (84.7%) Total Inferred (15.3%) Total Indicated + Inferred Mineral Resource TONNAGE (kt) Zn (%) 3,455 4.88 622 1.39 4,077 4.35 Pb (%) 1.01 0.37 0.91 Cu (%) 0.27 0.10 0.25 Ag (g/t) 137 52 124 Au (g/t) 1.88 1.46 1.81 ZnEq (%) 11.99 5.03 10.93 AuEq (g/t) 9.29 3.91 8.47 Total Contained Metal (t) 177,200 37,000 10,050 16.2Moz 237.7koz 445,000t 1,110koz 27 PNX METALS LIMITED | ANNUAL REPORT 2019 MINERAL RESOURCES AND ORE RESERVES As at 30 June 2019 Table 4: Commodity price and metal recovery assumptions METALS Zinc Lead Copper Silver Gold UNIT USD / t USD / t USD / t USD / troy ounce USD / troy ounce PRICE* 2,450 2,100 6,200 20.50 1,350 RECOVERY MT BONNIE RECOVERY IRON BLOW 80% 60% 60% 70% 55% 80% 60% 60% 80% 60% * consensus prices at the time of the resources estimates. Notes relating to Hayes Creek Project Resource Tables • Due to effects of rounding, the total may not represent the sum of all components. No material changes in the estimates of the mineral resources at Mt Bonnie and Iron Blow have occurred since they were originally reported. • Metallurgical recoveries and metal prices (Table 4) have been applied in calculating zinc equivalent (ZnEq) and gold equivalent (AuEq) grades. • Iron Blow – A mineralisation envelope was interpreted for each of the two main lodes, the eastern lode (Zn-Au-Ag-Pb) and western lode (Zn-Au), and four subsidiary lodes with a 1 g/t AuEq cut-off used to interpret and report these lodes. • Mt Bonnie – Zinc domains are reported above a cut-of grade of 1% zinc, gold domains are reported above a cut-off grade of 0.5 g/t gold and silver domains are reported above a cut-off grade of 50 g/t silver. FOUNTAIN HEAD MINERAL RESOURCES Table 5: Fountain Head and Tally Ho initial Mineral Resources by JORC Classification as at 11 July 2019 JORC CLASSIFICATION TALLY HO Indicated Inferred Total FOUNTAIN HEAD Indicated Inferred Total GLOBAL Indicated Inferred Total TONNAGE (Mt) 0.94 – 0.94 0.50 1.15 1.64 1.43 1.15 2.58 AU (g/t) 2.0 – 2.0 1.5 1.5 1.5 1.8 1.5 1.7 OUNCES (Koz) 59 – 59 23 55 79 83 55 138 Notes relating to Fountain Head Mineral Resources • Due to effects of rounding, the total may not represent the sum of all components. No material changes in the estimates of the mineral resources at Fountain Head and Tally Ho deposits have occurred since they were originally reported (please refer to ASX Release dated 11 July 2019). • Fountain Head and Tally Ho mineralisation reported above a cut-off grade of 0.7 g/t Au/t gold, consistent with the proposed open pit mining method. 28 PNX METALS LIMITED | ANNUAL REPORT 2019 SOUTH AUSTRALIA EL5918 – PRINCESS ROYAL Table 6: Inferred Mineral Resource at Princess Royal Princess Royal CUT-OFF GRADE TONNAGE GRADE % COPPER TONNES COPPER CONTAINED >0.3% >0.4% >0.5% 286,757 216,586 184,995 0.81% 0.96% 1.10% 2,325 2,083 2,034 The information pertaining to the Princess Royal Inferred Mineral Resource was prepared and first disclosed by PNX under the JORC Code 2004. It has not been updated since to comply with the JORC Code 2012 on the basis that the information has not materially changed since it was last reported. The reported mineral resources for Iron Blow and Mt Bonnie were updated in February 2017 and May 2017 respectively and there have been no material changes in the estimated resources, underlying assumptions or technical parameters since then. The reported mineral resources for Fountain Head and Tally Ho were initially reported on 11 July 2019 (Refer to ASX Release dated 11 July 2019) and there have been no material changes in the estimated resources, underlying assumptions or technical parameters since then. PNX utilises suitably qualified independent consultants to compile all new mineral resources estimates. These resources estimates, and the underlying assumptions and interpretations, are reviewed by PNX management, and in particular PNX employee Mr Bradley Ermel, (a Competent Person), for reasonableness prior to being finalised. COMPETENT PERSON’S STATEMENT The information in this report that relates to Exploration Results is based on information compiled by Mr Bradley Ermel, a Competent Person who is a Member of the Australian Institute of geoscientists (AIG). Mr Ermel has sufficient experience relevant to the style of mineralisation and the type of deposits under consideration and to the activity being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves”. Mr Ermel is a full-time employee of PNX Metals Ltd and consents to the inclusion in this report of the matters based on his information in the form and context in which it appears. 29 PNX METALS LIMITED | ANNUAL REPORT 2019 DIRECTORS’ REPORT The Directors of PNX Metals Limited (‘PNX’ or ‘Company’) present their report for the financial year ended 30 June 2019. DIRECTORS The names and details of directors in office during and since the end of the financial year are as follows. GRAHAM ASCOUGH Non-executive Chairman Appointed 7 December 2012 PAUL J DOWD Non-executive Director Appointed 27 September 2007 PETER WATSON Non-executive Director Appointed 7 September 2007 Graham Ascough (BSc, PGeo, MAusIMM) is a senior resources executive with more than 30 years of industry experience evaluating mineral projects and resources in Australia and overseas. Mr Ascough, a geophysicist by training, has had broad industry involvement playing a leading role in setting the strategic direction for companies, completing financing and in implementing successful exploration programmes. Mr Ascough was the Managing Director of Mithril Resources Ltd from October 2006 until June 2012. Prior to joining Mithril in 2006, he was the Australian Manager of Nickel and PGM Exploration at a major Canadian resources house, Falconbridge Limited, which was acquired by Xstrata Plc in 2006. He is a member of the Australian Institute of Mining and Metallurgy and is a Professional Geoscientist of Ontario, Canada. In the 3 years immediately prior to 30 June 2019, Graham Ascough held the following directorships of other listed companies for the following periods: • Non-executive Chairman, Sunstone Metals Limited – since 30 November 2013 • Non-executive Chairman, Mithril Resources Limited – from 9 October 2006 to 15 May 2019 • Non-executive Chairman, Musgrave Minerals Limited – since 26 May 2010 Paul Dowd has over 50 years’ experience in the mining industry in Australia and many overseas countries. In April 2012 he retired as Managing Director of PNX, a position he assumed in September 2008. Mr Dowd’s experience includes executive management roles including Vice President of Newmont Mining Corporation’s Australian and New Zealand Operations and Managing Director of Newmont Australia Limited, and as a senior public servant – head of the resources and petroleum department in the Kennett Government of Victoria. In 2015, he retired as Chairman of the SA Mineral Resources & Heavy Engineering Skills Centre but remains on the Board. In 2017, Mr Dowd retired as a non- executive director of Oz Minerals Limited after 8 years of service. He is a non- executive director of Energy Resources of Australia Limited (ERA), a board member of the Sustainable Minerals Institute (University of Queensland) and Chairman of the Mineral Resources Sector Advisory Council of the CSIRO. In the 3 years immediately prior to 30 June 2019, Paul Dowd held the following directorships of other listed companies for the following periods: • Non-executive director, Oz Minerals Limited – from 23 July 2009 to 24 May 2017 • Non-executive director, Energy Resources of Australia Limited – since 26 October 2015 Peter Watson, a founder of PNX, studied Law at Melbourne University and graduated with honours. He has practiced law for over 48 years, specialising in commercial, corporate, resources and trade practices law. He is admitted to practice in South Australia, New South Wales, Victoria and Western Australia as well as the High Court of Australia. For over 20 years, Mr Watson was a partner in the national law firm now known as Norton Rose Fulbright. During that time he established, and for 4 years managed, its Perth office. He also managed its Melbourne office for 2 years. In 1996 Mr Watson joined Andersen Legal as its first Melbourne partner and in 1999 was recruited by Normandy Mining Limited as its group legal counsel and a group executive. Following the takeover of Normandy by Newmont Mining Corporation, he returned to private legal practice and founded the boutique law firm Watsons Lawyers in Adelaide which on 1 July 2016 merged with Piper Alderman (an Adelaide headquartered firm with Sydney, Melbourne and Brisbane offices). Mr Watson is a director of BGRF Company Ltd, the trustee of the Bethlehem Griffiths Research Foundation (a medical research charitable foundation), non-executive director of Felton Grimwade & Bosisto’s Pty Ltd (a manufacturer and supplier of essential oil products and over-the-counter therapeutic products) and a trustee of a perpetual charitable trust. In the 3 years immediately prior to 30 June 2019, Peter Watson held no directorships of other listed companies. 30 PNX METALS LIMITED | ANNUAL REPORT 2019 DAVID HILLIER Non-executive Director Appointed 17 September 2010 David Hillier is a Chartered Accountant and has more than 40 years’ experience in commercial aspects of the resources industry. He has served as Chairman and as a director of a number of public companies in the mining and exploration fields, including Lawson Gold Limited and Buka Gold Limited. He was Chief Financial Officer and an executive director of AIM listed Minerals Securities Limited, based in London. Over a period of 14 years Mr Hillier held a range of senior executive positions in the Normandy Mining Limited Group of companies and was Chief Financial Officer of Normandy for six of these years. In the 3 years immediately prior to 30 June 2019, David Hillier held no directorships of other listed companies. JAMES FOX Managing Director & Chief Executive Officer (MD & CEO) Appointed 26 November 2014 James Fox has been CEO of the Company since May 2012. He has over 20 years’ experience in the mining industry. Prior to joining PNX, he was responsible for the development and operation of the Nickel Laterite Heap Leach project at the Murrin Murrin operations in Western Australia. Mr Fox has held various senior processing positions including Process Manager at the Nifty Copper Operation in Western Australia. He has worked in the UK, Cyprus, Uganda and Australia in gold, lead, zinc, copper, nickel and cobalt mining and processing operations. In the 3 years immediately prior to 30 June 2019, James Fox held no directorships of other listed companies. COMPANY SECRETARY Angelo Gaudio (Appointed 10 January 2019) Angelo Gaudio has significant experience in senior financial positions within the resource sector. Previous roles include; the Chief Financial Officer and Company Secretary for Investigator Resources Limited, Renascor Resources Limited, as well as Vice President, Finance and Administration with Heathgate Resources. Angelo is a qualified accountant with over forty years of finance, management and accounting experience. His expertise includes corporate finance, risk management, financial reporting and corporate development. Angelo is a Fellow of the Institute of Public Accountants and a certificated member of the Governance Institute of Australia. Tim Moran (resigned 10 January 2019) Tim Moran is a Chartered Accountant with over 20 years’ experience in accounting and finance and over 10 years’ experience in the mining and energy industries. Prior to commencing with PNX, Mr Moran was the Chief Financial Officer and Company Secretary of a Canadian listed oil and gas company in Calgary, Canada, and before that spent 12 years with global accounting and professional advisory firm KPMG. INTERESTS IN SHARES AND PERFORMANCE RIGHTS OF THE COMPANY As at the date of this report, the interests of the Directors in the shares, unlisted options and Performance Rights of PNX are as follows: Graham Ascough, Non- Executive Chairman Graham Ascough has an indirect interest in 11,066,532 Shares and 3,125,000 unquoted options with an exercise price of 1.5 cents each, expiring on 30 September 2021. Paul Dowd, Non-Executive Director Paul Dowd has a direct interest in 500,000 Shares, an indirect interest in 21,354,638 Shares and 6,250,000 unquoted options with an exercise price of 1.5 cents each, expiring on 30 September 2021. Peter Watson, Non-Executive Director Peter Watson has a direct interest in 2,827,571 Shares and an indirect interest in 13,485,714 Shares. David Hillier, Non-executive Director David Hillier has an indirect interest in 10,500,001 Shares and 3,125,000 unquoted options with an exercise price of 1.5 cents each, expiring on 30 September 2021. James Fox, Managing Director & CEO James Fox holds 11,600,000 Performance Rights, and a related party of Mr Fox holds 9,999,999 Shares and 1,875,000 unquoted options with an exercise price of 1.5 cents each, expiring on 30 September 2021. DIVIDENDS AND DISTRIBUTIONS No dividends or distributions were paid to members during the financial year and none were recommended or declared for payment. PRINCIPAL ACTIVITIES The principal activity of the Company and its wholly owned subsidiary (‘Group’) during the financial year was progression of a Detailed Feasibility Study (‘DFS’) over its zinc-gold-silver Hayes Creek Project, as well as conducting near-mine and regional mineral exploration at its Fountain Head, Moline, Burnside, and Chessman projects in the Pine Creek region of the Northern Territory (‘NT’). 31 PNX METALS LIMITED | ANNUAL REPORT 2019 DIRECTORS’ REPORT REVIEW OF OPERATIONS Refer to the Overview and Exploration Report sections of this Annual Report for detail on the Hayes Creek Project and regional exploration activities conducted during the year in the NT. The Group reported an overall loss after tax for the year of $1.1 million (2018: $1.0 million). The higher loss figure (up $0.1 million) was due primarily to the $137k impairment of exploration and evaluation expenditure. The Group’s other corporate costs, which include head office wages, directors’ fees, professional fees, insurance, regulatory, occupancy and communication costs have not changed significantly. Net operating cash outflows of $1.2 million for the year reflect the loss after tax. Exploration cash outflows of $2.9 million consisted of $0.9 million on the Hayes Creek DFS, including drilling undertaken during the year for resource definition and geotechnical, hydrological and metallurgical purposes. NT regional exploration costs for the year were $2.0 million, including drilling at Fountain Head ($1.0 million), that resulted in a JORC resource estimate being completed and reported in an ASX Release dated 11 July 2019. The Company raised $2.1 million from the first tranche of a two-part share placement at 0.8 cents per share to sophisticated and professional investors during August 2018. A second tranche of the share placement approved by shareholders was completed on 20 September 2018 and raised a further $1.36 million. Each share issued as part of the two tranche placement (total 433,125,000) included an attaching free unquoted option – for details see Options and Performance Rights below. 32 The Company will continue near-mine and regional exploration, targeting gold and base metals mineralisation that could supplement the established mineral resources at Hayes Creek. PNX completed the second stage of its farm- in agreement with Newmarket during December 2018, and has now earned an incremental 39%, and total 90%, interest in the Burnside and Chessman projects. ENVIRONMENT REGULATION AND PERFORMANCE The Group continues to meet all environmental obligations across its tenements. An environmental Notice of Intent was lodged with the NT’s Department of Primary Industry & Resources in August 2018, as the first step toward completing an Environmental Impact Statement over the Hayes Creek Project. A project referral was submitted to the Commonwealth Department of Environment and Energy in accordance with the Environmental Protection Biodiversity Act 1999 to assess the proposed development of Hayes Creek Project and the level of approval required. The referral was released for public comment for a period of two weeks during March 2019 and the Company recently received a decision that the proposal to develop Hayes Creek is not a controlled action. As expected, NT EPA has determined that the Hayes Creek Project requires assessment under the Environmental Assessment Act 1982 at the level of an Environmental Impact Statement (EIS). Draft Terms of Reference were developed by the NT EPA to assist PNX in preparing an EIS for the Project. A fully underwitten non-renounceable rights issue was completed on 20 May 2019 with the issue of 913,233,122 shares at 0.6 cents per share, raising $5.1 million (after costs). At 30 June 2019, the Group had cash holdings of $2.8 million plus a further $2.5 million in Term Deposits, with terms greater than 90 days, and as such these are classified in the statement of financial position as Financial assets – Term Deposits. SIGNIFICANT CHANGES IN STATE OF AFFAIRS There were no significant changes in the state of affairs of the Group during or since the end of the year. SIGNIFICANT EVENTS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR There has been no matter or circumstance that has occurred subsequent to the end of the financial year that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years. LIKELY DEVELOPMENTS PNX’s aim is to be a sustainable, profitable gold and base metals producer and successful minerals explorer by advancing the Hayes Creek Project to development and production, and by making new mineral discoveries in the Pine Creek region of the Northern Territory to either supplement Hayes Creek or to be developed as stand- alone operations. In 2019-20, PNX plans to complete detailed feasibility studies over the Hayes Creek Project, including finalisation of metallurgical studies and process plant design and the completion of the Project’s Environmental Impact Statement for publication. The Company also continues with efforts to secure marketing and sales agreements. PNX METALS LIMITED | ANNUAL REPORT 2019 REVIEW OF OPERATIONS OPTIONS AND PERFORMANCE RIGHTS During the year there were 10,000,000 Performance Rights issued to the Managing Director, James Fox, as approved by shareholders at the Annual General Meeting held on 24 October 2018. During the year there were no shares issued in satisfaction of Performance Rights that vested under the Company’s Performance Rights Plan. 4,630,000 Performance Rights expired during the year as the vesting conditions were not met. At the date of this report, 12,440,000 Performance Rights are on issue. During the year, 433,125,000 unquoted options exercisable at a price of 1.5 cents and expiring on 30 September 2021 were issued to participants of a share placement completed on 2 October 2018. The options were issued on the basis of one attaching unquoted option for each share subscribed for, as approved by shareholders at an EGM held on 12 September 2018. 65,450,000 unquoted options with a 5.0 cent exercise price expired on 31 May 2019. As at the date of this report, a total of 453,125,000 unquoted options are on issue, including 20,000,000 unquoted options previously issued to and held by a subsidiary of Hartleys Limited under the terms of a service agreement. INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS The Company entered into a Deed of Access, Insurance and Indemnity with Peter Watson and Paul Dowd on 12 November 2007, David Hillier on 22 September 2010, Graham Ascough on 11 December 2012, and James Fox on 26 November 2014. Under the terms of these Deeds, the Company has undertaken, subject to restrictions in the Corporations Act 2001, to: • indemnify each Director in certain circumstances; • advance money to a Director for the payment of legal costs incurred by a Director in defending legal proceedings before the outcome of those proceedings is known (subject to an obligation by the Director to repay money advanced if the costs become costs in respect of which the Director is not entitled to be indemnified under the Deed); • maintain Directors’ and Officers’ insurance cover (if available) in favour of each Director whilst they remain a Director of the Company and for a run out period after ceasing to be such a director; and • provide each Director with access to Board papers and other documents provided or available to the Director as an Officer of the Company. Throughout and since the end of the financial year, the Company has had in place and paid premiums for insurance policies, with a limit of liability of $10 million, indemnifying Directors and Officers of the Company against certain liabilities incurred in the conduct of business or in the discharge of their duties as Directors or Officers of the Company. The contracts of insurance contain confidentiality provisions that preclude disclosure of the premium paid. DIRECTORS’ ATTENDANCE AT MEETINGS There were 9 Board meetings held during the financial year. Graham Ascough, Peter Watson, David Hillier and James Fox attended all 9, while Paul Dowd attended 7 of the 9 meetings. Three Audit Committee meetings were held during the financial year. Audit Committee members David Hillier, Graham Ascough and Peter Watson attended each meeting, as did James Fox and Paul Dowd by invitation. AUDITOR’S INDEPENDENCE DECLARATION The auditor’s independence declaration is included on page 39. NON-AUDIT SERVICES During the year no services other than the external audit were provided by the Company’s auditor Grant Thornton. 33 PNX METALS LIMITED | ANNUAL REPORT 2019 DIRECTORS’ REPORT REMUNERATION REPORT – AUDITED This Report outlines the remuneration arrangements in place for the Directors, Company Secretary and key management personnel of the Group. Where this Report refers to the ‘Grant Date’ of Shares or Performance Rights, the date mentioned is the date on which those Shares or Performance Rights were agreed to be issued (whether conditionally or otherwise) or, if later, the date on which key terms of the Shares or Performance Rights (e.g. performance conditions) were determined. DIRECTORS AND KEY MANAGEMENT PERSONNEL DETAILS The following persons acted as Directors of the Company during and since the end of the financial year: • Graham Ascough (Non-executive Chairman) • Paul Dowd (Non-executive Director) • Peter Watson (Non-executive Director) • David Hillier (Non-executive Director) • James Fox (Managing Director & CEO) The following persons were key management personnel of the Company and Group during and since the end of the financial year: • Angelo Gaudio (Company Secretary & Chief Financial Officer – appointed 10 January 2019) • Tim Moran (Company Secretary & Chief Financial Officer – resigned 10 January 2019) • Andy Bennett (Exploration Manager – resigned 6 September 2018) RELATIONSHIP BETWEEN REMUNERATION POLICY AND GROUP PERFORMANCE There is no direct link between the Group’s financial and operating performance and the setting of remuneration except as discussed below in relation to certain Performance Rights. REMUNERATION PHILOSOPHY The performance of the Group depends on the quality of its Directors and management and therefore the Group must attract, motivate and retain appropriately qualified industry personnel. The Group embodies the following principles in its remuneration framework: • provide competitive rewards to attract and retain high calibre executives, directors and employees; • link executive rewards to Group operating performance and shareholder value by the granting of Performance Rights with performance-based vesting conditions; and • ensure total remuneration is competitive by market standards. The Group does not currently have a policy on trading in derivatives that would limit exposure to losses resulting from share price decreases applicable to Directors and employees who receive part of their remuneration in securities of the Company. The Board is not aware of any member of the Company’s Directors or key management personnel ever conducting such activity. REMUNERATION POLICY The Group does not have a separately established remuneration committee. The full Board acts as the Group’s remuneration committee. The Board is responsible for determining and reviewing remuneration arrangements for Non-executive Directors, the Managing Director & CEO, the Company Secretary and other senior management. The Board assesses the appropriateness of the nature and amount of remuneration of such persons on a periodic basis with 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. External advice on remuneration matters is sought when the Board deems it necessary. The remuneration of Non-executive Directors and senior management is not dependent on the satisfaction of performance conditions, except in relation to Performance Rights as described below. The Company has established an Employee Performance Rights Plan (‘Plan’), where the Directors can, at their discretion, grant Performance Rights to eligible participants. Upon a grant of Performance Rights, the Board may set vesting conditions, determined at the Board’s discretion, which if not satisfied will result in the lapse of the Performance Rights granted to the particular employee. Each Performance Right granted converts into one ordinary share in PNX on vesting. No amounts are paid or payable by the recipient on receipt of the Performance Right, nor at vesting. Performance Rights have no entitlement to dividends or voting rights. NON-EXECUTIVE DIRECTOR REMUNERATION The Board seeks to set remuneration of Non-Executive Directors 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 appropriate at this stage of the Company’s development. As Non-executive Chairman, Graham Ascough is entitled to receive $75,000 per annum inclusive of superannuation and non-executive 34 PNX METALS LIMITED | ANNUAL REPORT 2019 REMUNERATION REPORT – AUDITED directors are each entitled to receive $40,000 per annum inclusive of superannuation. Non-executive Directors are entitled to be paid reasonable travelling, accommodation and other expenses incurred as a consequence of their attendance at meetings of Directors and otherwise in the execution of their duties as Directors. Non-Executive Directors are also entitled to additional remuneration for extra services or special exertions, in accordance with the Company’s Constitution. There are no schemes for retirement benefits other than government mandated superannuation. No additional amounts were paid to any director during the financial year (2018: $ Nil). There has been no changes to these fees or entitlemets since the inception of the Company in 2007. Summary details of remuneration for Non- executive Directors are given in the tables on pages 36 and 37. Remuneration is not dependent on the satisfaction of performance conditions. The maximum aggregate remuneration of Non-Executive Directors, other than for extra services or special exertions, is $500,000 per annum. MANAGING DIRECTOR & CHIEF EXECUTIVE OFFICER REMUNERATION The Group aims to reward the Managing Director & Chief Executive Officer (MD & CEO) with a level and mix of remuneration commensurate with his position and responsibilities within the Group to: • align the interests of the MD & CEO with those of shareholders; • through Performance Rights, link reward with the strategic goals and performance of the Group; and • ensure total remuneration is competitive by market standards. James Fox has been Chief Executive Officer of PNX since 1 May 2012 and assumed the title Managing Director & CEO on 26 November 2014 with his appointment to the Board. Mr Fox is entitled to an annual salary of $275,000, vehicle and telephone benefits to a maximum of $20,000, as well as mandated superannuation contributions, 20 days annual leave and 10 days sick leave per annum. At 30 June 2019 and as of the date of this report, Mr Fox held no Shares in the Company directly. At 30 June 2019 and the date of this report, a related party of Mr Fox held 9,999,999 Shares in the Company. During the year, 1,600,000 of 3,200,000 Performance Rights held by Mr Fox lapsed as a result of performance conditions not being met. A further 10,000,000 Performance Rights, as approved by shareolders, were issued to Mr Fox on 3 December 2018. The Performance Rights have performance conditions related to key Company objectives, including development of the Hayes Creek project, exploration discoveries and Company share price performance. Performance conditions are required to be achieved within specified time periods (extending to 3 December 2021) in order for the Rights to vest. At 30 June 2019, a total of 11,600,000 Performance Rights subject to performance conditions were held by Mr Fox. James Fox’s employment with the Company may be terminated on 3 months written notice or on summary notice if he: • • • is charged with any criminal offence or is guilty of any other conduct which, in the reasonable opinion of the Board, is prejudicial to the interests of the Group; is negligent in the performance of his duties; is incapacitated from performing his duties as Chief Executive Officer by illness or injury for a period of 2 consecutive months; • materially breaches any term of his contract of employment and this is not remedied within 14 days of notice of the breach to him by the Company; • materially contravenes any share dealing code relating to shares; • • is the subject of, or causes the Company or Group to be the subject of, a material penalty or serious reprimand imposed by any regulatory authority; or independently acts in a manner contravening the directives and expressed wishes of the Board. CHIEF FINANCIAL OFFICER & COMPANY SECRETARY REMUNERATION Angelo Gaudio was appointed as Chief Financial Officer and Company Secretary of the Company on 10 January 2019. Through his company, Angelo Gaudio provides his services on a part time basis and at a rate of $10,000 per month plus GST plus reimbursement of expenses. The services may be terminated by either party on one months’ notice. During the 2019 financial year, Mr Gaudio was paid fees of $70,000 (excluding GST). Tim Moran resigned as Chief Financial Officer and Company Secretary on 10 January 2019. Mr Moran had filled this role since January 2012. Any Performance Rights held by Mr Moran, at resignation, lapsed. During the 2019 financial year, Mr Moran’s fees were $126,743 inclusive of superannuation and termination payments. 35 PNX METALS LIMITED | ANNUAL REPORT 2019 DIRECTORS’ REPORT REMUNERATION REPORT – AUDITED EXPLORATION MANAGER REMUNERATION Andy Bennett resigned as Exploration Manager on 6 September 2018. Mr Bennett was employed as Exploration Manager since January 2015 and his annual salary was $195,000 plus mandated superannuation contributions and entitlements of 20 days annual leave and 10 days sick leave per year. During the 2019 financial year, Mr Bennett’s remuneration, in his capacity as Exploration Manager, was $78,955 inclusive of superannuation and entitlements at resignation. Mr Bennett has continued to provide consultancy services to the Company and any Performance Rights held by Mr Bennett were retained. During the year, 1,500,000 of 2,250,000 Performance Rights held by Mr Bennett lapsed as a result of performance conditions not being met. The remaining Performance Rights have performance conditions related to key Company objectives, including exploration discoveries. Performance conditions are required to be achieved within specified time periods (extending to 31 December 2019) in order for the Rights to vest. At 30 June 2019 and at the date of this report, Mr Bennett held 988,095 Shares and 750,000 Performance Rights. REMUNERATION OF DIRECTORS AND KEY MANAGEMENT PERSONNEL Directors’, Company Secretary and Key Management Personnel remuneration (all amounts are paid or payable) for the year ended 30 June 2019: SHORT TERM EMPLOYMENT BENEFITS POST-EMPLOYMENT EQUITY SALARY & FEES SUPERANNUATION SHARES AND PERFORMANCE RIGHTS TOTAL % OF TOTAL REMUNERATION CONSISTING OF EQUITY Directors Graham Ascough Paul Dowd Peter Watson David Hillier James Fox $75,000 $36,530 $36,530 $40,000 - $3,470 $3,470 - - - - - $75,000 $40,000 $40,000 $40,000 $276,125 $25,000 $22,5501 $323,675 Chief Financial Officer & Company Secretary Angelo Gaudio2 Tim Moran3 $70,000 $116,372 Other Key Management Personnel Andy Bennett4 TOTALS $74,977 $725,534 - $10,371 $3,978 $46,289 - ($4,665)1 - $17,885 $70,000 $122,078 $78,955 $789,708 0% 0% 0% 0% 7.0% 0% 0% 0% 1 Value of Performance Rights that have not yet vested that is attributable to the 2019 financial year (includes adjustments for lapsed Performance Rights). 2 Angelo Gaudio was appointed as Company Secretary/CFO on 10 January 2019. 3 Tim Moran resigned from his role of Company Secretary/CFO on 10 January 2019. 4 Andy Bennett resigned from his role as Exploration Manager on 6 September 2018. 36 PNX METALS LIMITED | ANNUAL REPORT 2019 REMUNERATION REPORT – AUDITED Directors’, Company Secretary and Key Management Personnel remuneration (all amounts are paid or payable) for the year ended 30 June 2018: SHORT TERM EMPLOYMENT BENEFITS POST-EMPLOYMENT EQUITY SALARY & FEES SUPERANNUATION SHARES AND PERFORMANCE RIGHTS TOTAL % OF TOTAL REMUNERATION CONSISTING OF EQUITY Directors Graham Ascough Paul Dowd Peter Watson David Hillier James Fox $75,000 $36,530 $36,530 $40,000 - $3,470 $3,470 - - - - - $75,000 $40,000 $40,000 $40,000 $275,000 $26,125 $11,5541 $312,679 Chief Financial Officer & Company Secretary Tim Moran $142,137 $13,503 $2,6411 $158,281 Other Key Management Personnel Andy Bennett TOTALS $195,000 $800,197 $18,525 $65,093 $7,5291 $21,724 $221,054 $887,014 1 Value of Performance Rights that had not yet vested that was attributable to the 2018 financial year. Other than the amounts disclosed in the column for equity, all other remuneration amounts are fixed. EQUITY HOLDINGS OF DIRECTORS AND KEY MANAGEMENT PERSONNEL i) Fully paid ordinary shares issued by PNX Metals Limited: BALANCE 1 JULY 2018 NET CHANGES3 BALANCE 30 JUNE 2019 Directors Graham Ascough Paul Dowd Peter Watson1 David Hillier James Fox2 Key Management Personnel Angelo Gaudio6 Tim Moran 4 Andy Bennett5 3,791,581 7,596,648 10,195,802 3,428,571 - - 7,274,951 14,257,990 6,117,483 7,071,430 - - 300,000 988,095 (300,000)7 (988,095)7 11,066,532 21,854,638 16,313,285 10,500,001 - - - - 1 Additional shares held by related parties at 30 June 2019: 1,570,165 (2018: 1,354,165). 2 Shares held by related party at 30 June 2019: 9,999,999 (2018: 6,577,381). 3 Movement in Directors’ holdings from participation in a Placement and a Rights Issue during the year. 4 Moran resigned from his role of Company Secretary/CFO on 10 January 2019. 5 Andy Bennett resigned from his role as Exploration Manager on 6 September 2018. 6 Angelo Gaudio was appointed as Company Secretary/CFO on 10 January 2019. 7 Tim Moran and Andy Bennett resigned during the year. 0% 0% 0% 0% 1.3% 1.7% 3.4% 37 PNX METALS LIMITED | ANNUAL REPORT 2019 DIRECTORS’ REPORT REMUNERATION REPORT – AUDITED ii) Unquoted options exercisable at 1.5 cents, expiring on 30 September 2021 issued by PNX Metals Limited: BALANCE 1 JULY 2018 NET CHANGES1 BALANCE 30 JUNE 2019 Directors Graham Ascough Paul Dowd Peter Watson David Hillier James Fox2 Key Management Personnel Angelo Gaudio3 Tim Moran4 Andy Bennett5 - - - - - - - - 3,125,000 6,250,000 - 3,125,000 6,250,000 - 3,125,000 3,125,000 - - - - - - - - 1 Unlisted Options issued on 4 October 2018 from participation in a placement. 2 Options held by related parties at 30 June 2019: 1,875,000 (2018: Nil). 3 Angelo Gaudio was appointed as Company Secretary/CFO on 10 January 2019. 4 Tim Moran resigned from his role of Company Secretary/CFO on 10 January 2019. 5 Andy Bennett resigned from his role as Exploration Manager on 6 September 2018. iii) Performance Rights issued by PNX Metals Limited and outstanding: BALANCE 1 JULY 2018 BALANCE 1 JULY 2018 VESTED UNVESTED GRANTED VESTED James Fox Tim Moran1 Andy Bennett2 - - - 3,200,000 10,000,000 900,000 2,250,000 - - - - - 1 Tim Moran resigned from his role of Company Secretary/CFO on 10 January 2019. 2 Andy Bennett resigned from his role as Exploration Manager on 6 September 2018. BALANCE 30 JUNE 2019 BALANCE 30 JUNE 2019 VESTED UNVESTED - - - 11,600,000 - 750,000 EXPIRED/ LAPSED 1,600,000 900,000 1,500,000 OTHER RELATED PARTY TRANSACTIONS During the financial year the Group engaged Piper Alderman, an entity in which a Director (Peter Watson) is a senior consultant, to advise on legal matters. The cost of these services during the financial year inclusive of GST was $78,657 (2018:$40,524). END OF REMUNERATION REPORT Signed on 17 September 2019 in accordance with a resolution of the Board made pursuant to section 298(2) of the Corporations Act 2001. Graham Ascough Chairman 38 PNX METALS LIMITED | ANNUAL REPORT 2019 AUDITORS INDEPENDENCE DECLARATION Level 3, 170 Frome Street Adelaide SA 5000 Correspondence to: GPO Box 1270 Adelaide SA 5001 T +61 8 8372 6666 F +61 8 8372 6677 E info.sa@au.gt.com W www.grantthornton.com.au Auditor’s Independence Declaration To the Directors of PNX Metals Limited In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of PNX Metals Limited for the year ended 30 June 2019, I declare that, to the best of my knowledge and belief, there have been: a no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b no contraventions of any applicable code of professional conduct in relation to the audit. GRANT THORNTON AUDIT PTY LTD Chartered Accountants J L Humphrey Partner – Audit & Assurance Adelaide, 17 September 2019 Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 www.grantthornton.com.au ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. 39 PNX METALS LIMITED | ANNUAL REPORT 2019 CORPORATE GOVERNANCE STATEMENT The Board has adopted a Corporate Governance Charter (Charter), which includes a code of conduct, an audit committee charter, a shareholder communication policy, a continuous disclosure policy and a securities dealing policy. The Charter is available on the Company’s website. The Company’s corporate governance principles and policies and this corporate governance statement are structured with reference to the ASX Corporate Governance Principles and Recommendations, 3rd Edition (Principles and Recommendations). This Corporate Governance statement is current as of 17 September 2019 and has been approved by the Board. FUNCTIONS AND OPERATION OF THE BOARD The Board is responsible for the corporate governance of the Company. The Board’s primary responsibility is to shareholders but it also has regard for the interests of other stakeholders and the broader community. The Board is comprised of an independent Chairman, independent non-executive directors, and the Managing Director and Chief Executive Officer (MD & CEO). The most important responsibilities of the Board include: • Providing oversight and strategic direction to the Company, including reviewing and approving business and project plans and monitoring the achievement of the Company’s strategic goals and objectives; • Identifying and managing material business and legal risks, including sources of capital, regulatory, safety, and environmental. This process includes ensuring an effective Risk Management system is in place to monitor material risks and opportunities and reviewing the effectiveness of the Company’s internal controls to manage risks; • Appointing, removing and monitoring the performance of the Chairman, MD & CEO, senior executives, consultants and the Company Secretary; • Approving the remuneration of Directors within the limits approved by shareholders, and the remuneration of senior executives and consultants; • Evaluating the Board’s performance and recommending the appointment and removal of Directors; • Reporting to and communicating with shareholders; • Reviewing, approving and monitoring the progress of budgets, financial plans, acquisitions, divestments and major capital expenditure; • Monitoring the financial performance of the Company and approving all external financial reporting including the annual and half-year reports; and • Improving and protecting the reputation of the Company. The Board has delegated the day-to- day management of the Company to its senior executives, and in particular the MD & CEO. Only the tasks of Director remuneration, MD & CEO appointment, removal and remuneration, Director appointment and removal, and Board performance evaluation are expressly reserved to the Board. The appointment of the Company Secretary is also finalised by the Board, and the Company Secretary is accountable directly to the Board on matters to do with the proper functioning of the Board. Appointment The Directors may appoint any person as a Director to fill a casual vacancy or as an addition to the existing Directors. Unless the Director is an Executive Director and the ASX Listing Rules do not require that Director to be subject to retirement, a Director so appointed will hold office until the end of the next annual general meeting of the Company, at which time the Director may be re- elected but he or she will not be taken into account in determining the number of Directors who must retire by rotation at the meeting. A detailed description of the background, qualifications and experience of a Director nominated for appointment or re-election, as well as his or her financial interest in the Company, is provided to the Company’s security holders via the Notice of Meeting prior to the relevant annual general meeting at which the appointment or re-election will be voted on. The Board does not have a separate Nominations Committee as the Board considers it is not necessary or practical for the Company given its current small size and low level of complexity. The full Board is responsible for the duties and responsibilities typically delegated to a nomination committee. The Board undertakes background checks and evaluates the qualifications, skills and experience of any Directors before making an appointment. The Company has an informal induction process for new Directors that includes meetings with other Directors and senior executives, as well as providing a new Director with relevant governance (including the Code of Conduct), financial and project related information. Each Director has entered into a services agreement with the Company that sets out the terms of his or her appointment including fees and responsibilities and matters of independence. Each Director has also entered into a Deed of Access, Insurance and Indemnity with the Company. Directors have the right, in connection with their duties and responsibilities, to seek independent professional advice at the Company’s expense where prior written or email approval has been obtained from the Chairman. Such approval will not be unreasonably withheld. 40 PNX METALS LIMITED | ANNUAL REPORT 2019 CORPORATE GOVERNANCE STATEMENT Retirement and removal A person, other than a Director retiring by rotation or because he or she is a Director appointed by the other Directors and is seeking re-election, is not eligible for election as a Director at a general meeting unless: • • the person is proposed as a candidate by at least 50 Members or Members holding between them at least 5% of the votes that may be cast at a general meeting of the Company; and the proposing Members leave a notice at the Company’s registered office not less than 35 business days before the relevant general meeting which nominates the candidate for the office of Director and includes the signed consent of the candidate. The retirement by rotation of Directors is governed by the Company’s Constitution, the Corporations Act 2001 and the ASX Listing Rules. Clause 2.5 of the Company’s Constitution specifies that one-third of the Directors (excluding any executive Directors) must retire from office at the end of each annual general meeting. A retiring Director remains in office until the end of the meeting and will be eligible for re-election at the meeting. The Directors to retire by rotation at an annual general meeting are those Directors who have been longest in office since their last election. According to the Company’s Constitution, the Company may, subject to the Corporations Act, pass a resolution in a general meeting to: • • remove any Director before the end of the Director’s term of office; and if the outgoing Director is a non- executive Director, elect another person to replace the Director. STRUCTURE OF THE BOARD: SKILLS, QUALIFICATION, EXPERIENCE & DIVERSITY The names, term of office, skills, experience and expertise of the Directors in office are set out at the beginning of the Directors’ Report. As part of the Director appointment process, the Board considers the necessary balance of skills and knowledge of the Board as a whole to ensure the Board is able to discharge its duties effectively. The Board looks to maintain an appropriate balance of geological, minerals processing, capital project management, financial, legal and funding skills and experience that is relevant for a minerals exploration company with aspirations to becoming a successful mining company. The Board does not keep a formal ‘skills matrix’ of current Directors; however, the Board considers that collectively the Directors have the appropriate range of skills and experience to guide and direct the Company toward achieving its business objectives. The Board recognises the benefits of diversity in terms of both the composition of the Board and senior executives of the Company. The Board, however, does not have specific objectives in relation to the gender, age, cultural background or ethnicity of its Board or senior executives. Board members and senior executives are appointed or employed based on their skills and experience and candidates are not discriminated against based on age, gender or background. The Board currently has no female representation. Of the Company’s four permanent employees and four contractors, six are male and two are female. PERFORMANCE EVALUATION AND REMUNERATION The performance of the Board, Audit Committee and individual Directors is periodically reviewed by self-assessing whether or not the Company is achieving its strategic objectives, and by assessing the Company’s exploration success, project development, financial performance and movement in its market capitalisation. The last formal board performance evaluation was completed in June 2019. No major deficiencies in Board or individual director performance were noted, although some improvement areas were identified and actioned. The next board performance review is expected to occur during 2020. A performance appraisal process exists regarding the Company’s senior executives, whereby the performance of executives is formally reviewed against previously set goals relating to both Company and individual performance. The performance of the MD & CEO is monitored by the Board, and his performance is informally reviewed each year. The performance of the Company’s Chief Financial Officer/Company Secretary and Exploration Manager is monitored by the MD & CEO and informally reviewed from time to time. The Board considers that a separate remuneration committee is not necessary for the Company given its current size and complexity. The full Board acts as the Company’s remuneration committee. All senior executives of the Company have entered into written agreements with the Company outlining their responsibilities, remuneration arrangements, and other terms of their employment. 41 PNX METALS LIMITED | ANNUAL REPORT 2019 CORPORATE GOVERNANCE STATEMENT Remuneration arrangements for non- executive Directors are structured separately from those of the MD & CEO and senior executives. Non-executive directors are entitled to fixed fees for services, whereas the MD & CEO and senior executives can earn equity-based remuneration (performance rights) at the Board’s discretion, in addition to fixed salary arrangements. Details of the Company’s remuneration policies and levels are provided in the Remuneration Report in the Directors’ Report. The Company’s Constitution states that, subject to the Corporations Act 2001, the Company may provide a retirement benefit to persons retiring from the Board or from employment with the Company. COMMUNICATION Communication with the Company’s shareholders occurs through ASX announcements, updates to the Company’s website, in person at the Annual General Meeting and other general meetings (when held), through its share registry, and through other means as appropriate including the channels of investor relations consultants. The Company, via its share registrar, provides an option to shareholders to receive Company communications by electronic means. The Board is mindful of its obligations under the Continuous Disclosure rules set by the ASX, and also of its disclosure requirements under the Corporations Act 2001. The Board has delegated the day- to-day management of public disclosure to its MD & CEO and Company Secretary. All price sensitive information is disclosed to the ASX before being disclosed to any other party outside the Company. AUDIT COMMITTEE The Audit Committee consists of three Non-executive directors David Hillier, Peter Watson and Graham Ascough and is chaired by David Hillier. All three members are considered to be independent. Peter Watson is a senior consultant at the Company’s legal advisor Piper Alderman; however, as Mr Watson is not actively engaged in the day-to- day management of the Company’s key business activities, he is considered by the Board to be independent. The qualifications of the Audit Committee members are set out at the beginning of the Directors’ Report. All members of the Board are encouraged to attend Audit Committee Meetings. The Audit Committee’s responsibilities are set out in the Company’s Corporate Governance Charter and include: • establishing a framework for identifying and managing the Company’s key business risks; • reviewing, at least twice annually including once with the Company external auditors, the Company’s risk management systems, controls and procedures, ensuring these controls are regularly tested for effectiveness, and that recommended improvements are implemented; • recommending the appointment, liaising with, and reviewing the performance of the external auditors; • evaluating the independence of the external auditor, including considering the auditor’s policy on rotating the external audit engagement partner; • reviewing the Company’s annual reports and half year reports and ensuring that the financial reports comply with accounting standards and the law; • evaluating the adequacy and effectiveness of the Company’s accounting policies through ongoing communication with management and the Company’s external auditors; and • investigating any matters raised by the external auditors. The Audit Committee discharges its responsibilities by making recommendations to the Board. The Audit Committee does not have any executive powers to commit the Board or management to implement its recommendations. The Company’s auditor Grant Thornton was appointed in accordance with section 327B of the Corporations Act 2001. Any subsequent appointment or rotation of external auditors will occur in accordance with the Corporations Act 2001. Grant Thornton has a policy, in accordance with the Corporations Act, of rotating the partner responsible for the PNX Metals Limited audit engagement every five years. The auditor is available at each annual general meeting of the Company to answer questions related to the audit from shareholders. RISK MANAGEMENT Whilst the Board is ultimately responsible for identifying and managing areas of significant business risk, it has delegated the management of this function to the Audit Committee as noted above. The Audit Committee is responsible for maintaining effective Risk Management systems, identifying and managing key Company risks, establishing and maintaining effective controls, ensuring compliance with risk management policies and reporting of any non- compliance occurrences. The Company has created a Corporate Risk Register, which lists and rates these risks in terms of likelihood and consequence, and documents the controls in place to manage these risks. 42 PNX METALS LIMITED | ANNUAL REPORT 2019 ONGOING MONITORING AND IMPROVEMENT The Corporate Governance policies of the Company are reviewed on an ongoing basis by the Directors to ensure they meet the standards set by the Board, as well as those required by ASX, ASIC and other stakeholders. CORPORATE GOVERNANCE STATEMENT The key areas of risk that have been identified are as follows: • Financial • Statutory/regulatory • Legal • Personnel and safety • Asset management and protection • Tenement management • Information Technology and Security • Community • Environmental The Company has no material exposure at present to economic, social, or sustainability risks. The Company is exposed to environmental and permitting risks as a mineral exploration company with its key project at Hayes Creek progressing toward development. Environmental matters are identified and addressed by management and communicated to the Board as part of normal business activities. External environmental consultants have been and continue to be used for feasibility studies in relation to the Company’s Hayes Creek Project. All risks facing the Company are managed on an ongoing basis and are reviewed at least annually by the Board and Audit Committee. Management ensures that the Risk Register is kept up-to-date so as to reflect changes in the Company’s business activities and risks, the law and current best practice within the mining industry. A thorough review of the Corporate Risk Register is undertaken by management and the Audit Committee each year to identify any further risks, evaluate existing controls and, if necessary, develop and implement further strategies and action plans for minimising and controlling the risks. The Audit Committee, in conjunction with management, has developed specific cost-effective strategies, controls and action plans for minimising and treating the risks. The current control measures and improvement actions for minimising and managing each risk are noted in detail on the Company’s Corporate Risk Register and followed by employees and contractors. The Board requires management to report to it at least annually in a comprehensive manner, and by exception at each Board meeting, on compliance with the Company’s risk management policies and whether the Company’s material business risks are being managed effectively. While the Company does not have an internal audit function, the comprehensive risk review process is seen by the Board as an effective and appropriate substitute for the internal audit function. The Board has received assurance from the MD & CEO and Chief Financial Officer that the declaration provided in accordance with section 295A of the Corporations Act 2001 is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. 43 PNX METALS LIMITED | ANNUAL REPORT 2019 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME for the year ended 30 June 2019 Interest income Other income Employee benefits Professional fees Directors’ fees Exploration – tenement maintenance Occupancy Insurance Share registry and regulatory Communication Audit fees Equity-based remuneration Other expenses Depreciation Impairment - exploration and evaluation assets Interest charges Loss before income tax Income tax benefit Loss for the year Other comprehensive income/loss: Financial assets - Fair Value through OCI Total comprehensive loss for the year, attributable to equity holders of the parent Loss per share – continuing operations Basic and diluted (cents per share) Loss Per Share - Total Basic and Diluted (cents per share) NOTE 4(a) 10 4(c) 20 4(b) 4(d), 10 5 25 25 YEAR ENDED 30/06/19 $ 34,887 60,431 (238,061) (421,321) (195,000) (64,758) (68,177) (31,057) (90,663) (20,042) (28,599) (9,785) (83,696) (6,598) (137,379) - (1,299,818) 219,836 (1,079,982) 38,677 (1,041,305) (0.07) (0.07) YEAR ENDED 30/06/18 $ 34,160 24,920 (247,490) (369,824) (195,000) (87,158) (66,284) (28,226) (88,019) (11,275) (38,436) (24,134) (91,421) (5,263) - (59,845) (1,253,295) 252,620 (1,000,675) 296,516 (704,159) (0.10) (0.10) The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes. 44 PNX METALS LIMITED | ANNUAL REPORT 2019 CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 30 June 2019 CURRENT ASSETS Cash and cash equivalents Financial Assets – Term Deposits Trade and other receivables Prepayments and deposits Other financial assets Total current assets NON-CURRENT ASSETS Exploration and evaluation expenditure Plant and equipment Total non-current assets Total assets CURRENT LIABILITIES Trade and other payables Provisions Total current liabilities NON-CURRENT LIABILITIES Provisions Contract liabilities Total non-current liabilities Total liabilities Net assets EQUITY Issued capital Reserves Accumulated losses Total equity NOTE 6 6 7 8 9 10 11 12 13 13 14 15 16 17 30/06/19 $ 2,803,691 2,500,000 356,443 150,682 528,573 30/06/18 $ 860,076 - 143,071 153,739 489,896 6,339,389 1,646,782 12,505,077 25,760 12,530,837 18,870,226 352,394 143,106 495,500 5,795 2,400,000 2,405,795 2,901,295 9,706,714 22,161 9,728,875 11,375,657 358,075 101,670 459,745 67,340 2,400,000 2,467,340 2,927,085 15,968,931 8,448,572 45,469,675 385,208 (29,885,952) 15,968,931 36,917,796 336,746 (28,805,970) 8,448,572 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. 45 PNX METALS LIMITED | ANNUAL REPORT 2019 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 30 June 2019 AVAILABLE FOR SALE RESERVES FAIR VALUE OCI RESERVES ACCUMULATED LOSSES TOTAL ISSUED CAPITAL OTHER EQUITY $ $ EQUITY-BASED PAYMENT RESERVES $ Balance at 30 June 2017 32,665,302 600,000 90,687 Total loss for the year Other comprehensive income Total comprehensive loss for the year Shares issued Share issue costs Shares issued – settlement of convertible notes and loan principal Interest on convertible notes - see Note 15 (j) Fair value of equity settled payments - - - 2,619,213 (155,007) - - - - - 1,800,000 (600,000) (11,712) - - - - (74,591) - - - 24,134 $ - - 296,516 296,516 - - - - - $ - - - - - - - - - - $ $ (27,805,295) 5,550,694 (1,000,675) (1,000,675) - 296,516 (1,000,675) (704,159) - - - - - 2,544,622 (155,007) 1,200,000 (11,712) 24,134 (28,805,970) 8,448,572 Balance at 30 June 2018 36,917,796 Reclassification - See Note 3 (f) - Balance at 1 July 2018 36,917,796 Total loss for the year Other comprehensive income Total comprehensive loss for the year Shares issued Share issue costs Interest on convertible notes – reduction to equity Fair value of equity settled payments - - - 8,944,398 (392,519) - - Balance at 30 June 2019 45,469,675 40,230 296,516 - (296,516) 296,516 - - 40,230 - - - - - - 9,785 50,015 - - - - - - - - - 296,516 (28,805,970) 8,448,572 - (1,079,982) (1,079,982) 38,677 - 38,677 38,677 (1,079,982) (1,041,305) - - - - - - - - 8,944,398 (392,519) - 9,785 335,193 (29,885,952) 15,968,931 - - - - - - - - - - - - - The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. 46 PNX METALS LIMITED | ANNUAL REPORT 2019 CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 30 June 2019 Cash flows relating to operating activities Receipt of research and development tax offsets Payments to suppliers and employees Net operating cash flows Cash flows relating to investing activities Purchase of term deposits (terms greater than 90 days) Interest received Loan repaid/(advanced) Payments for exploration activities Payments for plant and equipment Proceeds on disposal of plant & equipment Net investing cash flows Cash flows relating to financing activities Proceeds from metal streaming transactions Proceeds from share issues (Note 15) Payments for capital raising costs (Note 15) Net financing cash flows Net increase/(decrease) in cash Cash at beginning of financial year Cash at end of financial year (Note 6) Loss for the year Interest income Non-cash miscellaneous income Equity-based remuneration Interest expense – equity settled Depreciation and amortisation Exploration not capitalised – investing Impairment charges – exploration and evaluation assets (Increase)/decrease in receivables – operating (Increase)/decrease in other current assets – operating Increase/(decrease) in payables – operating Increase/(decrease) in employee provisions Net operating cash flows INFLOWS/(OUTFLOWS) YEAR ENDED 30/06/19 $ INFLOWS/(OUTFLOWS) YEAR ENDED 30/06/18 $ - (1,214,207) (1,214,207) (2,500,000) 36,317 - 402,620 (1,133,950) (731,330) - 32,736 50,000 (2,940,550) (3,027,395) (20,255) 30,431 (2,773) - (5,394,057) (2,947,432) - 8,944,398 (392,519) 8,551,879 1,943,615 860,076 2,803,691 800,000 2,463,215 (155,007) 3,108,208 (570,554) 1,430,630 860,076 (1,079,982) (1,000,675) (34,886) (60,431) 9,785 - 6,598 64,758 137,379 (225,149) 6,164 (18,333) (20,110) (1,214,207) (34,160) (24,398) 24,134 52,845 5,263 87,158 - 142,133 (1,266) (5,329) 22,965 (731,330) 47 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes PNX METALS LIMITED | ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2019 There is no lifetime expected credit loss based on zero historical customer default. Therefore, there is no impact on transition to AASB 9 for trade receivables. The derecognition of financial instruments rules have been transferred from AASB 139 and have not been changed. The new hedge accounting rules under AASB 9 have no impact as the group has no hedges in place. Year ending 30 June 2019: AASB 2016-5 Amendments to Australian Accounting Standards – Classification and Measurement of Share-based Payment Transactions This Standard amends AASB 2 Share- based Payment to address: a. The accounting for the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments; b. The classification of share-based payment transactions with a net settlement feature for withholding tax obligations; and c. The accounting for a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. The adoption of this standard for the year ending 30 June 2019, does not materially impact on the transactions and balances recognised in the financial statements. At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been published but are not yet effective, and have not been adopted early by the Group. Management anticipates that all of the relevant pronouncements will be adopted in the Group’s accounting policies for the first period beginning after the effective date of the pronouncement. Information on the following issued but not yet effective standards that may be relevant to the Group’s financial statements in future periods is provided below. Year ending 30 June 2020: AASB 16 Leases This standard replaces AASB 117 Leases and some lease-related Interpretations. The new standard: » » » » requires all leases to be accounted for ‘on-balance sheet’ by lessees, other than short-term and low value asset leases provides new guidance on the application of the definition of lease and on sale and lease back accounting largely retains the existing lessor accounting requirements in AASB 117 requires new and different disclosures about leases When this standard is first adopted for the year ending 30 June 2020, it is not expected that there will be a material impact on the transactions and balances recognised in the financial statements or on the notes to the financial statements. The Group has few operating leases currently in place. 1 GENERAL INFORMATION AND BASIS OF PREPARATION PNX Metals Limited (“Company”) is a for-profit Australian publicly listed company, incorporated and operating in Australia. Its registered office and principal place of business is Level 1, 135 Fullarton Road, Rose Park, South Australia 5067. The consolidated financial statements of PNX Metals Limited comprises the Company and its controlled entity (“Group”) and is a general purpose financial report prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. The consolidated financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The consolidated financial statements have been prepared on the basis of historical cost, which is based on the fair values of the consideration given in exchange for assets. All amounts are presented in Australian dollars, unless otherwise noted. The financial statements were authorised for issue by the Directors on 17th September 2018. 2 NEW AND REVISED ACCOUNTING STANDARDS New standards and amendments to standards that are mandatory for the first time for the financial year ending 30 June 2019 do not have any material effect on any amounts recognised or disclosed in the current or prior period. The accounting policies applied by the Group in the consolidated financial statements are consistent with those applied in the prior year except for the application of AASB 9 and 15 as described below. The Group has adopted the new, revised or amending standards that are mandatory. The Group has for the first time applied AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers with effect from 1 July 2018. AASB 15: Revenue from contracts with customers There is no impact in relation to the adoption of AASB 15 Revenue from Contracts with Customers other than a reclassification of amounts held in relation to metal streaming contracts from deferred revenue to non current contract liabilities. AASB 9: Financial instruments AASB 9 Financial Instruments replaces the provisions of AASB 139 that relate to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting. The financial assets held by the group are detailed as follows: » Equity investments at Fair Value through Other Comprehensive Income (FVOCI) – see Note 3 (f); » Cash and cash equivalents (including current accounts and short-term term deposits); » Trade receivables currently held at cost, measured at amortised cost under the classification conditions for AASB 9. 48 PNX METALS LIMITED | ANNUAL REPORT 2019 3. SIGNIFICANT ACCOUNTING POLICIES In the application of the Group’s accounting policies, which are described below, management is required to make judgements, estimates and assumptions. Key areas of judgement and estimation uncertainty are discussed in Note 3(s). The following significant accounting policies have been adopted in the preparation of the financial report: a) Going concern basis The financial report has been prepared on the going concern basis which contemplates the continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business. For the year ended 30 June 2019, the Group made a total comprehensive loss of $1,041,305 (2018: total comprehensive loss of $704,159) and recorded a net cash outflow from operating and investing activities of $6,608,264 (2018: $3,678,762). At 30 June 2019, the Group had cash of $2,803,691 (2018: $860,076) plus bank Term Deposits totalling $2,500,000, net current assets, including cash and Term Deposits but excluding the investment in Sunstone Metals Ltd of $5,315,316 (2018: $697,141) and net assets of $15,968,931 (2018: $8,448,572). The Directors believe that it is appropriate to prepare the financial statements on the going concern basis, as the Group raised sufficient capital during the year to allow planned feasibility studies to be completed, together with mineral exploration and administrative activities. The Group’s ability to continue as a going concern in the longer term is contingent on raising additional capital and/ or the successful exploration and subsequent exploitation of its areas of interest through sale or development. If sufficient additional capital is not raised, the going concern basis of accounting may not be appropriate, and the Group may have to realise its assets and extinguish its liabilities other than in the ordinary course of business and at amounts different from those stated in the financial report. No allowance for such circumstances has been made in the financial report. b) Principles of consolidation The consolidated financial statements comprise the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved when the Company: ¬ has power over the investee; ¬ is exposed, or has rights, to variable returns from its involvement with the investee; and ¬ has the ability to use its power to affect its returns. The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. The results of subsidiaries acquired or disposed of are included in the Statement of Profit or Loss and Other Comprehensive Income from the effective date of acquisition and up to the effective date of disposal. Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All intra-group transactions, balances, income and expenses, and cash flows are eliminated in full on consolidation. c) Revenue Revenue is measured at the fair value of consideration received or receivable. Contract liabilities Cash received from the forward sale of metal from future mining projects is accounted for as a long-term liability until such time as the metal is delivered. Deferred revenue amounts are recognised as revenue from the sale of goods in the period that the related metal is delivered. Interest Interest income is accrued on a time basis, with reference to the principal balance and at the effective interest rate applicable, which is that rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the asset’s net carrying amount. d) Government grants Government grants that are received or receivable as direct compensation for mineral exploration expenditure already incurred are recognised as a reduction in the accumulated cost of the relevant exploration and evaluation asset. e) Cash and cash equivalents Cash and cash equivalents comprise cash on hand, cash held at financial institutions and bank deposits with a maturity of less than 3 months. Any Term Deposits with terms greater than a 3 month maturity are classified as Financial assets – Term Deposits on the statement of financial position. 49 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 2019 f) Financial assets Other Financial Assets – Fair Value OCI AASB 9 Financial Instruments AASB 9 Financial Instruments replaces AASB 139 Financial Instruments: Recognition and Measurement, for annual periods beginning on or after 1 January 2018. When adopting AASB 9, the Group has applied transitional relief and elected not to restate prior periods. Rather, differences arising from the adoption of AASB 9 in relation to classification, measurement, and impairment are recognised in opening retained earnings as at 1 July 2018. The reclassifications and adjustments arising from the introduction of AASB 9 have not been reflected in the statement of financial position as at 30 June 2018, but are recognised in the opening balances from 1 July 2018. On 1 July 2018 (the date of initial application of AASB 9 by PNX), the group’s management assessed which business models apply to the financial assets held by the group and has classified its financial instruments into the appropriate categories. The group elected to present changes for the fair value of all its equity investments previously classified as available- for-sale, in Other Comprehensive Income, as these investments are medium to long-term investments that are not expected to be sold in the short term. As a result, assets with a fair value of $489,896 were reclassified from available-for-sale financial assets to financial assets at FVOCI and fair value gains of $296,516 were reclassified from the available-for-sale financial assets reserve to the FVOCI reserve on 1 July 2018. Statement of financial position extract: Current financial assets Financial assets at fair value through other comprehensive income (OCI) 30 JUNE 2018 AS ORIGINALLY PRESENTED $ AASB 9 1 JULY 2018 $ $ - 489,896 489,896 Available-for-sale financial assets 489,896 (489,896) - The following table shows the adjustments recognised for each applicable line item: Closing Balance 30 June 2018 - AASB 139 Reclassify non trading equities from available-for-sale to FVOCI AFS1 RESERVE $ 296,516 (296,516) FVOCI2 RESERVE $ - 296,516 Opening Balance 1 July 2018 - AASB 9 - 296,516 1 2 Equity investments previously classified as available-for-sale (AFS). Fair value through Other Comprehensive Income (FVOCI). AASB 9 Financial Instruments – Accounting Policies applied from 1 July 2018 CLASSIFICATION AND MEASUREMENT As outlined above, on 1 July 2018 management assessed which business models apply to the financial assets held by the group and classified its financial instruments into the appropriate categories. There was no change to the measurement of these assets. IMPAIRMENT The group has two types of financial assets that are subject to AASB 9’s new expected credit loss model, being equity investments and other receivables. The group was required to revise its impairment methodology for these assets under AASB 9. There was no material impact of the change in impairment methodology on the group’s retained earnings and equity. While cash and cash equivalents are also subject to the impairment requirements of AASB 9, there was no material impairment loss identified. The adoption of the expected credit loss requirements of AASB 9 have not materially impacted the expected recoverability of financial assets and accordingly no adjustment or restatement was required to be recognised by the Group. 50 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 2019 g) Exploration and evaluation expenditure h) Plant and equipment Exploration and evaluation expenditure in relation to each separate area of interest are recognised as an asset in the year in which they are incurred or acquired and where the following conditions are satisfied: the rights to tenure of the area i. of interest are current; and ii. at least one of the following conditions is also met: ¬ the exploration and evaluation expenditure is expected to be recouped through successful development of the mineral exploration project, or alternatively, by its sale; or ¬ exploration and evaluation activities in the area of interest have not at the reporting date reached a stage which permits a reasonable assessment of the existence of economically recoverable reserves, and active and significant operations in, or in relation to, the area of interest are continuing. Exploration and evaluation assets are initially measured at cost and include the acquisition cost of rights to explore, studies, exploration drilling, trenching and sampling and associated activities. General and administrative costs are only included in the measurement of exploration and evaluation assets where they relate directly to operational activities in a particular area of interest. Exploration and evaluation assets are assessed for impairment when facts and circumstances (as defined in AASB 6 Exploration for and Evaluation of Mineral Resources) suggest that the asset’s carrying amount may exceed its recoverable amount. The recoverable amount of exploration and evaluation assets (or the cash- generating unit to which they have been allocated, being no larger than the relevant area of interest), is determined in accordance with AASB 136 Impairment of Assets, being the higher of fair value less costs to sell and value in use. If the recoverable amount as determined is less than the carrying amount, an impairment loss is recognised. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount had no impairment loss been recognised for the asset in previous years. Where a decision is made to proceed with development in respect of a particular area of interest, the relevant exploration and evaluation asset is tested for impairment, reclassified to development properties, and then amortised over the life of the reserves associated with the area of interest once mining operations have commenced. Plant and equipment is stated at cost less accumulated depreciation and accumulated impairment. Cost includes expenditure that is directly attributable to the acquisition of the item. In the event that settlement of all or part of the purchase consideration is deferred, cost is determined by discounting the amounts payable in the future to their present value as at the date of acquisition. Depreciation is provided on plant and equipment. Depreciation is calculated on a straight line basis so as to write off the cost of each asset over its expected useful life to its estimated residual value. The estimated useful lives, residual values and depreciation method are reviewed at the end of each annual reporting period. Estimated useful lives of 3-5 years are used in the calculation of depreciation for plant and equipment. i) Impairment of assets (other than financial assets, exploration and evaluation assets) At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, estimated future cash flows are discounted to their present value using pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset which have not already been incorporated into the future cash flows estimates. If the recoverable amount of an asset or cash- generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash- generating unit is reduced to its recoverable amount. An impairment loss is recognised in profit or loss. Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount had no impairment loss been recognised in prior periods. A reversal of an impairment loss is recognised in profit or loss. j) Trade and other payables Liabilities for goods and services provided to the Group are recognised initially at their fair value and subsequently at amortised cost using the effective interest method. Trade and other payables are unsecured. 51 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 2019 k) Debt and equity Instruments Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangement. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Contracts settled via the delivery of a fixed number of equity instruments in the Company in exchange for cash or other assets are accounted for as equity instruments. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs. l) Employee benefits A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave when it is probable that settlement will be required and amounts are capable of being measured reliably. Liabilities recognised in respect of employee benefits expected to be settled within 12 months are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Liabilities recognised in respect of employee benefits which are not expected to be settled within 12 months are measured as the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to reporting date. The present value is calculated using a discount rate that references market yields on high quality corporate bonds that have maturity dates that approximate the timing of the estimated future cash flows. Contributions to accumulated benefit superannuation plans are expensed when incurred. m) Site restoration and environmental rehabilitation Provision for the costs of environmental restoration and rehabilitation are recognised when the Group has a present obligation (legal or constructive) to perform restoration activities, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Restoration and rehabilitation provisions are measured as the present value of estimated future cash flows to perform the rehabilitation activities, discounted at pre-tax rate that reflects market assessments of the time value of money and risks specific to the rehabilitation obligation. n) Share-based payments Equity-settled share-based payments made to employees and directors are measured at fair value at the grant date, which is the date on which the equity instruments were agreed to be issued (whether conditionally or otherwise) or, if later, the date on which key terms (e.g. subscription or exercise price) were determined. Fair value is determined using the Black-Scholes model or another binomial model, depending on the type of equity instrument issued. The fair value of the equity instruments at grant date is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of the number of equity instruments that will eventually vest, with a corresponding increase to the equity settled benefits reserve in shareholders’ equity. 52 Equity-settled share-based payment transactions with other parties are measured at the fair value of the goods and services received, except where the fair value cannot be estimated reliably, in which case the transactions are measured at the fair value of the equity instruments granted, measured at the date the Group obtains the goods or the counterparty renders the service. o) Leases Operating lease payments made by the Group are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. p) Income tax Income tax expense represents the sum of tax currently payable and deferred tax. Refundable tax offsets received or receivable under the Australian government’s Research & Development Tax Offset Incentive program are classified as an income tax benefit (current or deferred) in the Statement of Profit or Loss. Current tax Current tax is calculated with reference to the amount of income tax payable or recoverable in respect of the taxable profit or tax loss for the financial year. It is calculated using tax rates and tax laws that have been enacted or substantively enacted at the reporting date. Current tax for current and prior periods is recognised as a liability (or asset) to the extent that it is unpaid (or refundable). Deferred tax Deferred tax is accounted for in respect of temporary differences arising from differences between the carrying amount of assets and liabilities for accounting purposes and the corresponding tax base of those items. In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities (other than as a result of a business combination) which affects neither taxable income nor accounting profit. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period(s) when the assets or liabilities giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of the related assets and liabilities. NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 2019 Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Current and deferred tax recognition Current and deferred tax is recognised as an expense or income in the Statement of Profit or Loss and Other Comprehensive Income, except when it relates to items credited or debited directly to equity (in which case the deferred tax is also recognised directly in equity), or where it arises from the initial accounting for a business combination. Tax consolidation The Company and its wholly-owned Australian resident entity are part of a tax-consolidated group under Australian taxation law. The members of the tax consolidated group are disclosed in Note 26. PNX Metals Limited is the head entity in the tax-consolidated group. Tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using the ‘separate taxpayer within group’ approach. Current tax liabilities and assets and deferred tax assets arising from unused tax losses and tax credits of the members of the tax-consolidated group are recognised by the Company (as the head entity in the tax-consolidated group). Under a tax funding arrangement between the entities in the tax-consolidated group, amounts transferred from entities within the tax consolidated group and recognised by the Company (‘tax contribution amounts’) are recorded in intercompany accounts in accordance with the arrangement. Where the tax contribution amount recognised by a member of the tax-consolidated group for a particular period is different to the aggregate of the current tax liability or asset and any deferred tax asset arising from unused tax losses and tax credits in respect of that period, the difference is recognised as a contribution from (or distribution to) the group member. q) Goods and service tax Revenues, expenses, assets and liabilities are recognised net of the amount of goods and services tax (GST), except: i. where the amount of GST incurred is not recoverable from the taxation authority, in which case it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or ii. for receivables and payables which are recognised inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. Cash flows are included in the cash flow statement on a gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows. r) Earnings per share Basic earnings per share is calculated by dividing the profit or loss attributable to owners of the Company (excluding any costs of servicing equity other than ordinary shares) by the weighted average number of ordinary shares outstanding during the financial year. Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account: ¬ the after tax effect of interest and other financing costs associated with dilutive potential ordinary shares; and ¬ the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. s) Critical accounting judgements and key sources of estimation uncertainty In the application of the Group’s accounting policies, management is required to make judgements, estimates and assumptions about the carrying values of assets, liabilities and equity. These estimates and assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgements. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only the current period, or in the period of the revision and future periods if the revision affects both current and future periods. The following are the critical judgements that management has made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements. Impairment Determining whether assets are impaired requires an estimation of the value in use or fair value of the assets or cash-generating units to which assets are allocated. The fair value of exploration assets is inherently difficult to estimate, particularly in the absence of comparable transactions and where a purchase offer has not been made, and relies on management judgement. During the year an impairment loss of $137,379 was recognised in relation to certain Exploration and Evaluation Assets - refer to Note 10 for detail. Equity-based payments The determination of the fair value at grant date of options and Performance Rights utilises a financial asset pricing model with a number of assumptions, the most critical of which is an estimate of the Company’s future share price volatility. Refer to Note 18 for more information regarding equity-based payments made during the year. Research and development (R&D) tax offset incentive The Company is entitled to claim R&D tax offset incentives in Australia. The R&D tax offset incentive is calculated based on management’s assessment of eligible expenditure multiplied by 43.5%. 53 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 2019 4 LOSS FROM CONTINUING OPERATIONS a) Interest income Interest on bank deposits Interest on loan receivable b) Depreciation YEAR ENDED 30/06/19 $ YEAR ENDED 30/06/18 $ 34,887 - 34,887 32,125 2,035 34,160 Depreciation of plant and equipment 6,598 5,263 c) Occupancy Operating lease rental expenses d) Impairment 68,177 66,284 Exploration and evaluation assets 137,379 - 5 INCOME TAX a) Income tax recognised in profit or loss Current tax expense/(benefit) Deferred tax expense/(benefit) Total tax expense/(benefit) The prima facie income tax benefit on the loss before income tax reconciles to the tax expense/(benefit) in the financial statements as follows: Total loss for the year before tax Income tax benefit calculated at 27.5% (2018: 27.5%) Equity-based remuneration – Performance Rights Current year tax losses and movements in temporary differences not recognised Recognition of estimated research and development tax offset refund related to the current tax year Recognition of actual research and development tax offset refund related to the previous tax year YEAR ENDED 30/06/19 $ (150,000) (69,836) (219,836) 1,299,818 (357,450) 2,691 354,759 YEAR ENDED 30/06/18 $ (100,000) (152,620) (252,620) 1,253,295 (344,656) 6,637 338,019 (150,000) (100,000) (69,836) (152,620) Tax expense (benefit) (219,836) (252,620) The tax rate used in the above reconciliation is the corporate tax rate of 27.5% payable by Australian base rate entities (those with turnover less than $50 million of revenue, and 80% or less of their assessable income is base rate entity passive income). In the 2018 income year, the turnover threshold was $25 million. 54 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 2019 b) Recognised tax assets and liabilities Deferred tax assets and (liabilities) are attributable to the following: Exploration and evaluation expenditure (3,185,402) (2,622,871) Plant and equipment Trade and other payables Employee benefits Share issue costs Net deferred tax liabilities Tax losses recognised Net deferred tax assets / (liabilities) (7,084) 12,100 40,948 139,733 (2,999,705) 2,999,705 - (6,094) 6,600 46,478 82,133 (2,493,755) 2,493,755 - A net deferred tax liability will only arise if the Company generates taxable income in the future (for example via a profitable mining operation). Deferred tax balances shown above have been calculated utilising a 27.5% tax rate. The potential benefit of unrecognised tax losses (shown below) has similarly been calculated utilising a 27.5% tax rate. c) Unrecognised tax losses: A deferred tax asset has not been recognised in respect of the following: Tax losses – operating (tax effected) Tax losses – capital (tax effected) 30/06/19 $ 7,995,639 146,948 30/06/18 $ 7,464,702 146,948 Of the total operating tax losses of approximately $39 million in the Group at 30 June 2019, $29 million are unrecognised as shown above as a $7.99 million potential tax benefit. A deferred tax asset has not been recognised in respect of these losses because it is not considered probable at this time that future taxable profit will be available against which to utilise the losses. 6 CASH AND CASH EQUIVALENTS AND TERM DEPOSITS Cash and cash equivalents Term deposits (Terms greater than 3 months maturity) 30/06/19 $ 2,803,691 2,500,000 30/06/18 $ 860,076 - Cash and cash equivalents comprise cash on hand, cash held at financial institutions and bank term deposits with a maturity of less than 3 months. At 30 June 2019, the Group held $2,500,000 in term deposits with maturity terms of greater than 3 months and have been reclassified to Financial assets – Term deposits on the statement of financial position. The term deposits earn interest between 1.5% and 2.1%. 7 TRADE AND OTHER RECEIVABLES Interest Research & Development Tax Offset Incentive Goods & Services Tax Other 30/06/19 $ 1,513 319,836 34,334 760 356,443 30/06/18 $ 2,942 100,000 29,013 11,116 143,071 The expected Research & Development tax offset refund of $169,836 relating to the year ended 30 June 2018 remained outstanding at year end and was received subsequent to year end. A Research & Development tax offset claim amount of $150,000 for the year ended 30 June 2019 has been accrued based on estimated qualifying expenditure, and will be finalised with the lodgement of PNX’s 2019 tax return. 55 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 2019 8 PREPAYMENTS AND DEPOSITS Prepayments Environmental Deposits – Northern Territory Deposit – office bond 30/06/19 $ 27,146 90,776 32,760 150,682 30/06/18 $ 16,755 104,224 32,760 153,739 Environmental deposits are required to be lodged with the Department of Primary Industry & Resources in the Northern Territory prior to the commencement of exploration activities. The office bond is invested in a 365 day term deposit maturing February 2020 and earning 2.4% interest. 9 OTHER FINANCIAL ASSETS Investment in Sunstone Metals Ltd 30/06/19 $ 528,573 30/06/18 $ 489,896 The Company continues to hold 12,892,013 shares in ASX listed Sunstone Metals Limited (‘Sunstone’, previously Avalon Minerals Limited). This investment was previously classified as “Available for sale financial asset” and from 1 July 2018 this investment is recognised as “Fair value through other comprehensive income (FVOCI)”, under AASB 9 Financial Instruments – refer to Note 3 (f). At 30 June 2019, the investment was reflected at fair value of $528,573, with the incremental movement recorded at fair value through other comprehensive income (FVOCI) – refer to Note 16. 10 EXPLORATION AND EVALUATION EXPENDITURE Costs brought forward Expenditure incurred during the year Recognised as an expense (tenements previously impaired) Impairment charges 30/06/19 $ 9,706,714 3,000,500 (64,758) (137,379) 30/06/18 $ 6,899,372 2,894,500 (87,158) - 12,505,077 9,706,714 Expenditure during the year related to ongoing detailed feasibility studies on the Hayes Creek Project (100% owned) as well as near-mine and regional mineral exploration activity on the Group’s Northern Territory tenements (during the year the Company earned additional 39% interest increasing from 51% owned to 90% under a farm-in agreement). During July 2018, the Company’s agreement with Newmarket Gold NT Holdings Pty Ltd (‘Newmarket’) for the acquisition of 4 mineral leases at Fountain Head in the Pine Creek region of the Northern Territory was completed, securing the preferred location for the proposed processing plant and tailings facility for the Hayes Creek Project. As part of the agreement, PNX took 100% ownership of the Moline Exploration Project (previously 51% owned). In return, PNX agreed to carve out (and returned to Newmarket its 100% ownership of) three exploration areas within the Burnside project area that were part of the farm-in agreement with Newmarket, and to provide a 2% royalty over any future gold and silver produced from the Moline and Fountain Head tenements. In June 2019, an impairment charge of $137,379 was recognised following the exit from the Kilfoyle Farm-in agreement with May Drilling Pty Ltd. In 2017 an impairment charge of $1.5 million was recognised in relation to the Group’s Burra and Yorke Peninsula exploration tenements in South Australia. The fair value less costs to sell of these projects was assessed as $0.5 million, based on their estimated value in an arms-length sale transaction and the prevailing market conditions. At 30 June 2019, the fair value of PNX’s SA tenements remains unchanged at $0.5 million, based on the previous assessment made. 56 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 2019 11 PLANT AND EQUIPMENT Cost Balance at 30 June 2017 Additions Disposals Balance at 30 June 2018 Additions Disposals Balance at 30 June 2019 Accumulated depreciation Balance at 30 June 2017 Depreciation expense Depreciation capitalised to exploration assets Disposals Balance at 30 June 2018 Depreciation expense Depreciation capitalised to exploration assets Disposals Balance at 30 June 2019 Net book value – plant and equipment Balance at 30 June 2018 Balance at 30 June 2019 The useful lives applied in the determination of depreciation for all items of plant and equipment is 3-5 years. 12 TRADE AND OTHER PAYABLES Trade payables Accrued expenses Other payables Average credit period on trade payables is 30 days. 13 PROVISIONS Current Employee benefits – annual leave Employee benefits – long service leave Non-current Employee benefits – long service leave 30/06/19 $ 246,377 89,007 17,010 352,394 30/06/19 $ 77,774 65,332 $ 604,040 2,773 - 606,813 20,255 (81,392) 545,676 566,024 5,263 13,364 - 584,651 9,596 7,061 (81,392) 519,916 22,161 25,760 30/06/18 $ 303,419 32,221 22,435 358,075 30/06/18 $ 101,670 - During the year an amount of $61,369 relating to non-current long service leave was reclassified as current benefits as the employee had completed seven years of continuous service. 5,795 67,340 57 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 2019 14 CONTRACT LIABILITIES Silver streaming receipts 30/06/19 $ 30/06/18 $ 2,400,000 2,400,000 Two parties have entered into silver streaming and royalty agreements with the Company. The Company has received a total of $2.4 million under these agreements, for the forward sale of a total of 336,000 oz of silver, to be delivered over a 3 year period once commissioning and ramp up of the Hayes Creek Project is complete. At the end of the three year silver delivery period, each investor is to receive a 0.36% Net Smelter Return (NSR) royalty over gold and silver produced from the Hayes Creek Project, and will be paid for a 5 year period. PNX can buy back the NSR royalty from an investor prior to production commencing for $0.4 million. Cash received from the forward sale of silver has been accounted for as a contract liability, classified in the Statement of Financial Position as a long-term liability. Revenue will be recognised as the silver is delivered in the future. In the event the Hayes Creek Project is not developed, the forward payments will be converted to shares in the Company. 15 ISSUED CAPITAL 30/06/19 $ 30/06/18 $ 2,435,288,142 fully paid ordinary shares (2018: 1,088,930,020) 45,469,675 36,917,796 Movement in ordinary shares for the year: Balance at beginning of year 1,088,930,020 36,917,796 741,055,537 32,665,302 NO. 30/06/19 $ NO. 30/06/18 $ a) Shares issued at 0.8 cents 263,750,000 2,110,000 b) Shares issued at 0.8 cents 169,375,000 1,355,000 c) Shares issued at 0.6 cents 913,233,122 5,479,398 d) Shares issued at 2.0 cents e) Shares issued at 2.0 cents f) Shares issued at 2.0 cents g) Shares issued to settle loan h) Shares issued to settle interest on convertible notes i) Shares issued to settle interest on loan j) Interest on convertible notes – reduction in share capital Share issue costs - - - - - - - - - - - - - - - (392,519) - - - - - - 3,090,000 74,591 234,591,886 2,463,215 24,000,000 600,000 80,000,000 1,200,000 1,156,698 15,000 5,035,899 - - 66,407 (11,712) (155,007) Balance at end of year 2,435,288,142 45,469,675 1,088,930,020 36,917,796 Fully paid shares carry one vote per share and a right to dividends. a) 263,750,000 Shares were issued at 0.8 cents under tranche 1 of a placement to sophisticated and professional investors on 2 August 2018. b) 169,375,000 Shares were issued at 0.8 cents under under tranche 2 of a placement to sophisticated and professional investors and Directors of the Company on 20 September 2018. c) 913,233,122 shares were issued at 0.6 cents under a fully underwritten non-renounceable rights Issue on 20 May 2019. d) 3,090,000 shares were issued in August 2017 to PNX personnel or their associates following the vesting of an equivalent number of Performance Rights. e) Shares were issued under a placement to sophisticated and professional investors (179,830,000 shares, September 2017) and a Share Purchase Plan (54,761,886 shares, October 2017) at 1.05 cents per share, raising a total of $2.5 million before costs. 58 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 2019 f) 24,000,000 shares were issued in November 2017 to Marilei International Limited and Sochrastem SA to settle $0.6 million of convertible notes. g) 80,000,000 shares were issued to settle a $1.2 million loan. h) 1,156,698 Shares were issued in November 2017 at the Company’s preceding 30 day volume-weighted average share price (VWAP) of 1.3 cents to settle a total of $15,000 (2017: $30,000) of interest payable on convertible notes. i) Shares were issued in November 2017 (3,599,194 shares) and February 2018 (1,436,705 shares) at the Company’s 30 day VWAP of 1.25 cents and 1.49 cents respectively to settle a total of $66,407 (2017: $90,000) of interest payable on a $1.2 million loan. j) Interest paid by issuing shares on convertible notes has been accounted for as a reduction in share capital, consistent with the treatment of the convertible notes as an equity item. 16 RESERVES Available for sale investment FVOCI investment Equity-settled benefits 30/06/19 $ - 335,193 50,015 385,208 30/06/18 $ 296,516 - 40,230 336,746 The fair value through other comprehensive income (FVOCI) investment reserve reflects the current year increase in the fair value of the Company’s investment in Sunstone Metals Ltd of $38,677 together with the reclassification of the prior year increase of $296,516 previously shown as Available for Sale Investment reserve - refer to Note 3 (f). The equity-settled benefits reserve arises on the annual fair value assessment of the the vesting of Performance Rights granted to employees, consultants and executives under the PNX Metals Limited Employee Performance Rights Plan. The reserve at 30 June 2019, includes any adjustments for lapsed/expired rights and any changed probability of the vesting of the Performance Rights together with changes in fair value due to the passage of time to 30 June 2019. Amounts are transferred out of the reserve and into Issued Capital when the rights are converted into shares, or to accumulated losses if rights lapse. During the year there were no Performance Rights that vested and converted to share capital. Further information on share-based payments is disclosed in Note 18. 17 ACCUMULATED LOSSES Balance at beginning of year Loss for the year Balance at end of year 18 SHARE OPTIONS AND PERFORMANCE RIGHTS Performance rights 30/06/19 $ 28,805,970 1,079,982 29,885,952 30/06/18 $ 27,805,295 1,000,675 28,805,970 Under PNX’s Employee Performance Rights Plan (‘Plan’), Directors may issue Performance Rights to Company executives, employees and consultants. Performance Rights are granted for no monetary consideration and entitle the holder to be issued one fully paid ordinary share per performance right upon vesting. 10,000,000 Performance Rights, approved by shareholders at the AGM held on 24 October2018 , were issued to the Managing Director on 3 December 2018. The fair value at the time of issue was $84,107. These Performance Rights remain unvested at 30 June 2019. In relation to the unvested 7,070,000 Performance Rights held by PNX personnel under the Plan as at 1 July 2018: » » » 1,600,000 Perfrormance Rights held by the Company’s Managing Director & CEO expired during the year as the performance conditions were not met; 3,030,000 Performance Rights held by PNX personnel lapsed during the year as the performance conditions were not met; and 2,440,000 Performance Rights remain unvested at 30 June 2019. The total remaining 12,440,000 unvested Performance Rights at 30 June 2019 have performance vesting conditions related to key Company objectives, including development of the Hayes Creek project, exploration discoveries and Company share price performance. Performance conditions are required to be achieved within specified time periods (extending to 31 December 2021) in order for the Performance Rights to vest. 59 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 2019 Options At the discretion of the Directors, and subject to shareholder approval if required, options to acquire shares can be issued, for example as part of corporate and asset acquisitions or as part of a capital raising process. During the year, 433,125,000 unquoted free attaching options were issued to share placement participants. These unquoted options are exercisable at 1.5 cents each and expire on 30 September 2021. The Company had previously issued 20,000,000 unquoted options to a subsidiary of a corporate advisor, with an exercise price of 1.47 cents each and an expiry date of 30 October 2020. On 31 May 2019, 65,450,000 unlisted options exercisable at 5.0 cents each, expired unexercised. These were previously issued to placement participants in December 2016 as part of a share placement that raised $2.6 million At 30 June 2019, a total of 453,125,000 unlisted options were on issue, as shown in the table below. OPTIONS 30/06/19 NUMBER OF OPTIONS 30/06/19 WEIGHTED AVERAGE EXERCISE PRICE $ 30/06/18 NUMBER OF OPTIONS 30/06/18 WEIGHTED AVERAGE EXERCISE PRICE $ Balance at beginning of the year Options granted Options expired or lapsed Balance at end of the year 85,450,000 433,125,000 65,450,000 453,125,000 0.042 0.015 0.05 65,450,000 20,000,000 - 0.01499 85,450,000 0.05 0.0147 - 0.042 19 KEY MANAGEMENT PERSONNEL DISCLOSURE The key management personnel of the Group during the year were: » Graham Ascough (Non-executive Chairman) » » Paul Dowd (Non-executive Director) Peter Watson (Non-executive Director) » David Hillier (Non-executive Director) » » » » James Fox (Managing Director & Chief Executive Officer) Angelo Gaudio – appointed 10 January 2019 (Chief Financial Officer and Company Secretary) Tim Moran – resigned 10 January 2019 (Chief Financial Officer and Company Secretary) Andy Bennett – resigned 6 September 2018 (Exploration Manager) The aggregate compensation of Key Management Personnel of the Group is set out below: Short-term employee benefits Post-employment benefits Share-based payments 30/06/19 $ 725,534 46,289 17,885 789,708 30/06/18 $ 800,197 65,093 21,724 887,014 Details of key management personnel compensation are disclosed within the Remuneration Report in the Directors’ Report. 60 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 2019 20 REMUNERATION OF AUDITOR Audit and review of the financial reports The Company’s auditor is Grant Thornton Audit Pty Ltd. 21 RELATED PARTY DISCLOSURES a) Subsidiaries 30/06/19 $ 28,599 30/06/18 $ 38,436 Detail of the percentage of ordinary shares held in the Company’s subsidiary is disclosed in Note 26. b) Other related party transactions During the year the Company engaged Piper Alderman, an entity in which a Director (Peter Watson) is a senior consultant, to advise on legal matters. The cost of those services during the financial year inclusive of GST was $78,657 (2018: $40,524). $Nil inclusive of GST was owed to Piper Alderman at 30 June 2019 (2018: $7,893). 22 COMMITMENTS FOR EXPENDITURE AND CONTINGENT LIABILITIES a) Expenditure commitments The Group has certain obligations to perform exploration work and expend minimum amounts of money on mineral exploration tenements in the Northern Territory and South Australia in order to retain the full tenement lease. There are no minimum expenditure requirements on the Company’s mineral leases in the Northern Territory. These obligations vary from time to time, subject to statutory approval. The terms of current and future joint ventures, the grant or relinquishment of licences and changes to licence areas at renewal or expiry will alter the expenditure commitments of the Company. Total expenditure commitments at 30 June 2019 in respect of minimum expenditure requirements not provided for in the financial statements are approximately: Minimum exploration expenditure on exploration licences 30/06/19 $ 1,168,000 30/06/18 $ 450,000 Ausmex Mining Group Limited continues to farm-in to earn up to 90% of the Group’s 8 Burra South Australia tenements, and all farm- in expenditure will go towards the Group’s expenditure requirements in South Australia. The Group’s office lease in Rose Park, South Australia, with annual lease payments of $68,754 exclusive of GST, extends to August 2020. b) Reilly Tenement Acquisition Agreement (relating to Burra South Australia tenements) Under the Reilly Tenement Acquisition Agreement dated 19 October 2007 between the Company and Matthew Reilly, as amended by deed dated 19 November 2007 (RTAA), the Company agreed to purchase mineral exploration licence EL 3161 (now EL 6326) from Mr Reilly. Contingent consideration pursuant to this agreement: ¬ the issue and allotment to Mr Reilly of 800,000 Shares and 800,000 Options upon grant of an Exploration Licence over some or all of the area within EL 6326 (previously EL 5382) reserved from the operation of the Mining Act 1971 (SA), comprising the area, and immediate surroundings, of the historic Burra Mine and the historic Burra Smelter, as gazetted in March 1988; ¬ the payment of $100,000 upon commencement of processing of any tailings, waste residues, waste rock, spoiled leach materials and other materials located on the surface of the land the subject matter of EL 6326 (previously EL 5382) or derived from that land by or on behalf of the Company; and ¬ the payment of $200,000 upon the Company announcing an ore reserve, prepared in accordance with the JORC Code, on EL 6326 (previously EL 5382) of at least 15,000 tonnes of contained copper. 61 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 2019 c) Royalty agreements The Company has granted the following royalties (relating to Northern Territory tenements): ¬ Newmarket Gold NT Holdings Pty Ltd – 2% royalty on the market value of any future production of gold and silver from the 14 mineral leases in the Northern Territory comprising the Hayes Creek Project. ¬ Newmarket – 2% net smelter return royalty on precious metals produced from the Moline and Fountain Head tenements. The Company has granted the following royalties (relating to Burra South Australia tenements): ¬ Mr Matthew Reilly - 6% of the aggregate net revenue in respect of all metals derived from EL 6326 (previously EL 5382). ¬ Avanti Resources Pty Ltd - 2.5% of the net smelter return on all metals derived from ELs 5874, 6150, and 5910. ¬ Leigh Creek Energy Limited (previously Marathon Resources Limited) - 2.5% net smelter return on all metals derived from EL 6327 (previously EL 5411). ¬ Copper Range (SA) Pty Limited - 1.5% net smelter return on all metals derived from EL 5918. ¬ Copper Range (SA) Pty Limited - 50% of a 1.5% net smelter return on all metals derived from EL 5557. ¬ Flinders Mines Limited - 50% of a 1.5% net smelter return on all metals derived from EL 5557. d) Native title A native title claim application was lodged several years ago with the Federal Court of Australia over land on which the majority of the Group’s tenements in South Australia are located. The Group is unable to determine the prospects of success or otherwise of the claim application, and to what extent an approved claim might affect the Group or its projects. There were no developments of significance in this claim application over the 2019 financial year, and no costs incurred by the Company in relation to it. e) Other rights held by Newmarket Gold NT Holdings Pty Ltd (relating to Northern Territory tenements) Newmarket can re-acquire 90% of any gold or silver deposits with a JORC compliant resource on the tenements subject to PNX’s farm-in agreement by paying PNX three times the Company’s accumulated expenditure on the deposit(s). A payment of $500,000, either in cash or shares at the Company’s election, is due to Newmarket if a bankable feasibility study is completed over the Hayes Creek Project or on any of the tenements that are subject to a farm-in agreement between the two companies. 23 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT Categories of financial instruments Financial assets Cash and cash equivalents Financial assets – Term deposits Deposits Trade and other receivables Other financial assets – Investment in Sunstone Financial liabilities Trade and other payables 30/06/19 $ 2,803,691 2,500,000 123,535 356,4441 528,573 30/06/18 $ 860,076 - 136,984 143,071 489,896 352,394 358,075 The Group’s activities expose it to several financial risks which impact on the measurement of, and potentially could affect the ultimate settlement amount of, its financial instruments including market risk, credit risk, and liquidity risk. 62 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 2019 Market risk The development prospects of the Hayes Creek Project are to some extent exposed to the risk of unfavourable movements in the US/Australian dollar exchange rate and zinc, gold and silver commodity prices. However, the Group has no direct exposure to foreign exchange or commodity price risk at present. The Group has some exposure to movements in the share price of Sunstone Metals Limited, as the Company’s investment of 12,892,013 shares is carried at fair value, and price movements are reflected through profit or loss or other comprehensive income/ loss. Each one cent change in the market value of Sunstone’s shares changes the fair value of the Company’s investment by $128,920. The Group’s exposure to interest rate movements is limited to increases or decreases in interest earned on cash, cash equivalents, and deposits. If interest rates had been 50 basis points higher or lower during the financial year and all other variables were held constant, the Group’s net loss would increase or decrease by approximately $8,000 (2018: increase or decrease by approximately $9,000). As the Group’s exposure to market risks is not significant, management of these risks is limited to monitoring movements in commodity prices, foreign exchange rates, interest rates, and the market value of the shares of Sunstone Metals Ltd. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from activities. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies. The carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the Group’s maximum exposure to credit risk without taking account of the value of any collateral obtained. Liquidity risk Ultimate responsibility for managing liquidity risk rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Board and senior management manage liquidity risk by continuously monitoring forecast and actual cash flows, and raising capital as needed, primarily through new equity issuances, in order to meet the Group’s exploration expenditure commitments and corporate and administrative costs. Liquidity and interest risk tables The following table details the Company’s and the Group’s remaining contractual maturity for its non- derivative financial liabilities. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. WEIGHTED AVERAGE EFFECTIVE INTEREST RATE LESS THAN ONE MONTH 1-3 MONTHS 3-12 MONTHS 1-5 YEARS 2019 Non-interest bearing Fixed Interest bearing 2018 Non-interest bearing Fixed Interest bearing % - - - - $ 263,387 - 334,000 - $ 89,007 - 24,000 - $ - - - - Fair value of financial instruments The Directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements approximate their fair values. Capital risk management The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns through the optimisation of debt and equity balances. Due to the nature of the Group’s activities, the Directors believe that the most appropriate and advantageous way to fund activities is through equity issuances, and all capital raised to date with the exception of the silver streaming transactions (see Note 14) has been equity based. The Group closely monitors and forecasts its cash flow and working capital to ensure that adequate funds are available in the future to meet project development, exploration and administrative activities. $ - - - - 63 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 2019 24 SEGMENT INFORMATION AASB 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. Information reported to the Group’s Chief Executive Officer for the purposes of resource allocation and assessment of performance is both activity and project based. The principal activity is mineral exploration and development in the Northern Territory. Projects are evaluated individually, and the decision to allocate resources to individual projects in the Group’s overall portfolio is predominantly based on available cash reserves, technical data and expectations of resource potential and future metal prices. The Group’s reportable segments under AASB 8 are therefore as follows: » » Exploration in the Northern Territory Exploration in South Australia Financial information regarding these segments is presented below. The accounting policies for reportable segments are the same as the Group’s accounting policies. Exploration – NT Exploration – SA Unallocated/corporate Total loss before tax Income tax benefit Total loss for the year REVENUE YEAR ENDED 30/06/19 $ REVENUE YEAR ENDED 30/06/18 $ - - - - - - SEGMENT LOSS YEAR ENDED 30/06/19 $ (137,379) (64,758) (1,097,681) (1,299,818) 219,836 SEGMENT LOSS YEAR ENDED 30/06/18 $ - (87,158) (1,166,137) (1,253,295) 252,620 (1,079,982) (1,000,675) Segment loss represents the loss incurred by each segment without allocation of corporate administration costs, interest income and income tax. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance. The following is an analysis of the Group’s assets and liabilities by reportable operating segment: Assets Exploration – NT Exploration – SA Unallocated assets Total assets Liabilities Exploration – NT Exploration – SA Unallocated liabilities Total liabilities 30/06/19 $ 30/06/18 $ 12,125,402 500,000 6,244,824 18,870,226 159,964 - 2,741,101 2,901,065 9,348,815 500,000 1,526,842 11,375,657 232,049 - 2,695,036 2,927,085 For the purposes of monitoring segment performance and allocating resources between segments, all assets are allocated to reportable segments except for cash/cash equivalents, other financial assets, prepayments, loan and corporate office equipment. All liabilities are allocated to reportable segments other than employee provisions, loans, contract liabilities and corporate/administrative payables. 64 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 2019 25 EARNINGS PER SHARE Basic and Diluted loss per share- continuing operations (0.07) (0.10) 30/06/19 CENTS PER SHARE 30/06/18 CENTS PER SHARE The earnings and weighted average number of ordinary shares used in the calculation of basic and diluted earnings per share are as follows: Loss after tax – continuing operations $ (1,079,982) (1,000,675) Weighted average number of ordinary shares 1,566,428,763 974,058,242 The weighted average number of ordinary shares in the calculation of diluted earnings per share is the same as for basic earnings per share, as the inclusion of potential ordinary shares in the diluted earnings per share calculation is anti-dilutive due to the loss incurred for the year. 26 CONTROLLED ENTITIES NAME OF ENTITY Parent entity PNX Metals Limited Subsidiaries Wellington Exploration Pty Ltd i) Head entity in tax consolidated group ii) Member of tax consolidated group COUNTRY OF INCORPORATION OWNERSHIP INTEREST 2019 % OWNERSHIP INTEREST 2018 % (i) (ii) Australia Australia 100% 100% The ultimate parent entity in the wholly-owned group is PNX Metals Limited. During the financial year, PNX Metals Limited provided accounting and administrative services at no cost to the controlled entity and advanced interest free loans to the entity. Tax losses have been transferred to PNX Metals Limited by way of inter-company loans. 27 PARENT ENTITY DISCLOSURES The summarised Statement of Financial Position and Statement of Profit or Loss for PNX Metals Limited as parent entity in the Group is identical to that of the Group, as the investment in subsidiary and intercompany loan receivable (parent) and related exploration and evaluation asset (subsidiary) are both non-current assets. Commitments for expenditure and contingent liabilities of the parent entity Note 22 discloses the Group’s commitments for expenditure and contingent liabilities, which are also applicable to the parent entity. 28 SUBSEQUENT EVENTS There are no other matters or circumstances that have arisen since 30 June 2019 that have significantly affected or may significantly affect: » » » the Group’s operations in future financial years; the results of those operations in future financial years; or the Group’s state of affairs in future financial years. 65 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 2019 DIRECTORS’ DECLARATION In the Directors’ opinion: a) the consolidated financial statements and notes thereto are in accordance with the Corporations Act 2001, including: i. complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements, and ii. giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its performance for the financial year ended on that date; b) the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board; c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by Section 295A of the Corporations Act 2001. Signed in accordance with a resolution of the Directors made pursuant to Section 295(5) of the Corporations Act 2001. Graham Ascough Chairman 17 September 2019 66 PNX METALS LIMITED | ANNUAL REPORT 2019 INDEPENDENT AUDITOR’S REPORT to the Members of PNX Metals Limited Level 3, 170 Frome Street Adelaide SA 5000 Correspondence to: GPO Box 1270 Adelaide SA 5001 T +61 8 8372 6666 F +61 8 8372 6677 E info.sa@au.gt.com W www.grantthornton.com.au Independent Auditor’s Report To the Members of PNX Metals Limited Report on the audit of the financial report Opinion We have audited the financial report of PNX Metals Limited (the Company) and its subsidiary (the Group), which comprises the consolidated statement of financial position as at 30 June 2019, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies, and the Directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its performance for the year ended on that date; and b complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material uncertainty related to going concern We draw attention to Note 3(a) in the financial statements, which indicates that the Group incurred a net comprehensive loss of $1,041,305 during the year ended 30 June 2019, and net cash outflows (excluding the acquisition of term deposits) from operating and investing activities of $4,108,264. As stated in Note 3(a), these events or conditions indicate that a material uncertainty exists that may cast doubt on the Group’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 www.grantthornton.com.au ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. 67 PNX METALS LIMITED | ANNUAL REPORT 2019 INDEPENDENT AUDITOR’S REPORT to the Members of PNX Metals Limited Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Material uncertainty related to going concern section, we have determined the matters described below to be the key audit matters to be communicated in our report. Key audit matter How our audit addressed the key audit matter Exploration and evaluation assets - Notes 3(i) and 10 At 30 June 2019 the carrying value of exploration and evaluation assets was $12,505,077. In accordance with AASB 6 Exploration for and Evaluation of Mineral Resources, the Group is required to assess at each reporting date if there are any triggers for impairment which may suggest the carrying value is in excess of the recoverable value. The process undertaken by management to assess whether there are any impairment triggers in each area of interest involves an element of management judgement. This area is a key audit matter due to the significant judgement involved in determining the existence of impairment triggers. Our procedures included, amongst others: • obtaining the management reconciliation of capitalised exploration and evaluation expenditure and agreeing to the general ledger; • reviewing management’s area of interest considerations against AASB 6; • conducting a detailed review of management’s assessment of trigger events prepared in accordance with AASB 6 including; − tracing projects to statutory registers, exploration licenses and third party confirmations to determine whether a right of tenure existed; − enquiry of management regarding their intentions to carry out exploration and evaluation activity in the relevant exploration area, including review of management’s budgeted expenditure; − understanding whether any data exists to suggest that the carrying value of these exploration and evaluation assets are unlikely to be recovered through development or sale; • assessing the accuracy of impairment recorded for the year as it pertained to exploration interests; • evaluating the competence, capabilities and objectivity of management’s experts in the evaluation of potential impairment triggers; and • assessing the appropriateness of the related financial statement disclosures. Information other than the financial report and auditor’s report thereon The Directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2019, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 68 PNX METALS LIMITED | ANNUAL REPORT 2019 Responsibilities of the Directors’ for the financial report The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our auditor’s report. Report on the remuneration report Opinion on the remuneration report We have audited the Remuneration Report included in the Directors’ report for the year ended 30 June 2019. In our opinion, the Remuneration Report of PNX Metals Limited, for the year ended 30 June 2019 complies with section 300A of the Corporations Act 2001. Responsibilities The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. GRANT THORNTON AUDIT PTY LTD Chartered Accountants J L Humphrey Partner – Audit & Assurance Adelaide, 17 September 2019 69 PNX METALS LIMITED | ANNUAL REPORT 2019 ADDITIONAL SHAREHOLDER INFORMATION SHARES The total number of shares issued as at 2 September 2019 was 2,435,288,142 held by 1,179 registered shareholders. 438 shareholders hold less than a marketable parcel, based on the market price of a share as at 2 September 2019. Each share carries one vote. PERFORMANCE RIGHTS/OPTIONS As at 2 September 2019, the Company had 12,440,000 Performance Rights and 453,125,000 unquoted options on issue.20,000,000 options have a 1.47 cent exercise price and expire on 30 October 2020 and Zenix Nominees Pty Limited holds 100% of this class.The remaining 423,125,000 options have a 1.5 cent exercise price expiring 30 September 2021 of which 46% is held by Delphi Unternehmensberatung Aktiengesellschaft. TWENTY LARGEST SHAREHOLDERS As at 2 September 2019, the twenty largest Shareholders were as shown in the following table and held 77.59% of the Shares. RANK NAME SHARES % OF SHARES DELPHI UNTERNEHMENSBERATUNG AKTIENGESELLSCHAFT\C MARILEI INTERNATIONAL LIMITED SOCHRASTEM SA\C POTEZNA GROMADKA LTD ROBERT LEON BNP PARIBAS NOMS PTY LTDTALIS SA\C CITICORP NOMINEES PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED AUSTRALIAN MINERAL & WATERWELL DRILLING PTY LTD BNP PARIBAS NOMS PTY LTD KOMON NOMINEES PTY LTD PJ & BA DOWD INVESTMENTS PTY LTD BNP PARIBAS NOMINEES PTY LTD J P MORGAN NOMINEES AUSTRALIA PTY LIMITED LATSOD PTY LTD ESM LIMITED SYNOD NOMINEES PTY LTD MR PETER JAMES WATSON + MS JUDITH WATSON SARTAIN ENTERPRISES PTY LTD 988,956,294 156,766,095 152,736,573 90,207,053 85,998,334 79,466,714 39,319,603 39,124,744 36,197,400 31,250,000 26,925,865 24,679,033 21,354,638 19,258,339 19,248,869 18,193,133 18,048,000 15,000,000 13,485,714 13,433,672 40.61 6.44 6.27 3.70 3.53 3.26 1.61 1.61 1.49 1.28 1.11 1.01 0.88 0.79 0.79 0.75 0.74 0.62 0.55 0.55 Total 1,889,650,073 77.59 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 70 PNX METALS LIMITED | ANNUAL REPORT 2019 SUBSTANTIAL SHAREHOLDERS As at 2 September 2019, the substantial Shareholders as disclosed in substantial holding notices given to the Company are: Delphi Unternehmensberatung Aktiengesellschaft\C Marilei International Limited Sochrastem SA\C HOLDING 988,956,294 156,766,095 63,153,239 % 40.61 14.40 5.80 DISTRIBUTION SCHEDULES A distribution schedule of the number of Shareholders, by size of holding, as at 2 September 2019 is set out below: SIZE OF HOLDINGS 1 – 1000 1,001 – 10,000 10,001 – 100,000 100,001 and over Total NUMBER OF SHAREHOLDERS 49 93 461 576 1179 There is no current on-market buy-back. A distribution schedule of the number of unlisted Option holders, by size of holding, as at 2 September 2019 is set out below: SIZE OF HOLDINGS 1 – 1000 1,001 – 10,000 10,001 – 100,000 100,001 and over Total NUMBER OF OPTIONHOLDERS 0 0 0 25 25 ENQUIRIES FROM SHAREHOLDERS Shareholders wishing to record a change of address or other holder details or with queries regarding their Shareholding should contact the Company’s share registry, Computershare, as detailed in the Corporate Directory at the front of this Annual Report.Shareholders with any other query are invited to contact the Company’s registered office as detailed in the Corporate Directory at the front of this Annual Report. 71 PNX METALS LIMITED | ANNUAL REPORT 2019