PNX Metals Annual Report 2020

Plain-text annual report

PNX METALS LIMITED ABN 67 127 446 271 ANNUAL REPORT 2020 ANNUAL REPORT 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 Street 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 Governance Statement The Corporate Governance Statement for PNX Metals Limited is available on the Company’s website and can be accessed by clicking on the following URL Link: https://pnxmetals.com.au/corporate-governance/ CORPORATE DIRECTORY Australian Business Number 67 127 446 271 Country of Incorporation Australia Board of Directors Graham Ascough Non-executive Chairman Paul Dowd Non-executive Director Peter Watson Non-executive Director David Hillier Non-executive Director Hans-Jörg Schmidt Non-executive Director James Fox Managing Director & CEO Company Secretary Angelo Gaudio Principal Administrative Office Level 1, 135 Fullarton Road Rose Park SA 5067 Telephone: +61 (8) 8364 3188 Facsimile: +61 (8) 8364 4288 Registered Office Level 1, 135 Fullarton Road 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: Drilling at Fountain Head, February 2020. Photo page 3: Sunset whilst drilling at Fountain Head, February 2020. 2 PNX METALS LIMITED | ANNUAL REPORT 2020CONTENTS CHAIRMAN’S LETTER OVERVIEW EXPLORATION REPORT TENEMENTS MINERAL RESOURCES AND ORE RESERVES DIRECTORS’ REPORT REMUNERATION REPORT AUDITOR’S INDEPENDENCE DECLARATION FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS DIRECTORS’ DECLARATION 4 6 9 15 19 22 26 31 32 36 54 INDEPENDENT AUDITOR’S REPORT TO MEMBERS 55 ADDITIONAL SHAREHOLDER INFORMATION 58 PNX METALS LIMITED | AN N UAL REP ORT 2020 3 CHAIRMAN’S LETTER Dear Fellow Shareholders, On behalf of the Board of Directors, it is my pleasure to present the 2020 Annual Report for PNX Metals Limited (‘PNX’ or ‘Company’). 2020 has set the stage for a transformational year for PNX. In December 2019, the Company made a strategic decision to accelerate evaluation activities at the Fountain Head Gold Project to determine low-cost, scalable options to rapidly monetise, and generate early cashflow from the existing gold resources at Fountain Head. The development options would also look to preserve the value of the Hayes Creek Project, and potentially enhance the economics and extend mine life as the mined-out Fountain Head pit would be available for use as tailings storage from subsequent processing of Hayes Creek ores. This decision meant that DFS activities on Hayes Creek were suspended until the conclusion of the Fountain Head Studies. Subsequent to the year-end, the Company announced that it had signed a non-binding term sheet for a proposed $40 million financial commitment by private company Halifax Capital (HC) to fund gold carbon-in-leach processing infrastructure and related costs that would fast track the development of Fountain Head. The transaction includes a 50/50 production joint venture (JV) with HC’s subsidiary Bridge Creek Mining Pty Ltd. Significantly, the proposed transaction provides the Company with a clear pathway for development of Fountain Head. The executive team is currently working to finalise the formal documentation for this transformative transaction, and we look forward to updating shareholders and investors on the final details once the binding documentation is complete. Fountain Head hosts a significant amount of gold and the updated Mineral Resource announced in June 2020 estimates 156,000oz of contained gold in the Indicated and Inferred categories at an average grade of 1.7g/t. In addition to Fountain Head and Hayes Creek, the Company holds a 90% interest in a large and very prospective land holding (in excess of 1800km2) in the vicinity of these projects. In parallel with the studies and permitting activities currently underway, PNX has implemented an exploration strategy with the aim of identifying and testing exploration targets to deliver a pipeline of gold mineral resources for processing at Fountain Head, potentially adding to mine life and enhancing project economics. The Board and management are confident that continued technical studies and exploration work will be successful in growing our resource base and that the completion of development studies at Fountain Head will provide a clear pathway for this exciting production opportunity, that has the potential to deliver strong returns for PNX shareholders. 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 Fountain Head and Hayes Creek projects towards development for the benefit of all shareholders. 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 2021. Yours sincerely, Graham Ascough Chairman 15th September 2020 4 PNX METALS LIMITED | A NNU A L REPOR T 20 20 Photo pages 4 and 5: Fountain Head and Tally Ho pit. PNX METALS LIMITED | AN N UAL REP ORT 2020 5 OVERVIEW GENERAL PNX Metals Limited (PNX or the Company) is an ASX listed minerals exploration company with the objective of being a successful explorer and a sustainable and profitable gold and base metals producer for the benefit of its shareholders, employees and the communities in which it operates. PNX holds a large exploration and development portfolio which is highly prospective for gold, silver and base metals located in the Pine Creek region of the Northern Territory (NT), approximately 170km from Darwin (Figure 1). The Company’s 100% owned Mineral Leases (MLs) host considerable Mineral Resources including at the Mt Bonnie and Iron Blow polymetallic deposits (“Hayes Creek”) which contain 238,000oz of gold, 16.2Moz silver and 177,000t of zinc, and the Fountain Head Gold Project (“Fountain Head”) which hosts 156,000oz of gold (further information on the Mineral Resources is provided in the Exploration Report). The MLs are located in close proximity to each other in a favourable mining jurisdiction where existing infrastructure includes rail, road, high voltage power lines and water, further enhancing Project fundamentals and lowering development risks. In December 2019 after a review of its assets, the Company announced that it had made the significant strategic decision to target near-term gold production from Fountain Head prior to the development of Hayes Creek and to preserve its future value at a time of lower than anticipated zinc prices and higher than anticipated processing charges. In order to accelerate activities at Fountain Head funds were re-allocated from the Hayes Creek Definitive Feasibility Study (DFS) with the majority of the DFS activities deferred until the completion of the Fountain Head studies. Various mining and processing options were assessed, including Heap Leaching, to determine low-cost, scalable options for rapidly monetising, and generating early cashflow from the existing gold resources at Fountain Head. This strategy may also provide an opportunity to enhance overall Hayes Creek Project economics and extend the project mine life with the larger mined-out Fountain Head pit available for use as tailings storage from subsequent sulphide flotation of ore from the Mt Bonnie and Iron Blow deposits at Hayes Creek. Subsequent to the year-end, the Company announced that it had signed a non-binding term sheet for a proposed $40 million financial commitment by private company Halifax Capital Pty Ltd (HC) to fund gold carbon-in-leach processing infrastructure and related costs required to fast track the Fountain Head Gold Project, and a 50/50 production joint venture (JV) with HC’s subsidiary Bridge Creek Mining Pty Ltd (BCM). Burnside Project Darwin Moline Project Fountain Head Project Hayes Creek Project Chessman Project NORTHERN TERRITORY QUEENSLAND WESTERN AUSTRALIA SOUTH AUSTRALIA NEW SOUTH WALES Adelaide VICTORIA TASMANIA Aust 03 Figure 1 NT Project locations. 6 PNX METALS LIMITED | ANNUAL REPORT 2020KEY FINANCIAL RESULTS The proposed funding commitment by HC and JV with BCM will, if finalised, provide the Company with a clear pathway for development of Fountain Head. It will also allow the Company to focus on generating a pipeline of additional gold resources for processing at the Fountain Head infrastructure, through regional exploration within its significant tenure in the NT. The Company has continued to conduct near proposed mine and regional mineral exploration and 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 Gold NT Holdings Pty Ltd (PNX 90%). A full listing of PNX’s tenements is provided following the Exploration Report (refer to pages 15 to 17). Concurrent with activities at Fountain Head, and subsequent to the year end, the Company initiated a major review of its exploration projects, with the aim of identifying new targets with the potential to host significant “stand alone” gold deposits, and to supplement the proposed gold processing operations at Fountain Head. An early observation to emerge from the work is that large areas of the exploration tenements remain untested by drilling with the majority of previous work centred on known, outcropping gold deposits and their immediate surrounds. IMPACTS OF COVID-19 The safety of PNX employees and contractors is paramount and appropriate measures regarding COVID-19 have been taken in-line with government advice, particularly in relation to interstate travel. NT field-based activities were suspended earlier in 2020 pending Government advice that access to site could be permanently re-established. Interstate border restrictions between the NT and South Australia were lifted from Friday 17 July 2020 allowing field-based activities to re-commence. 30 JUNE 2020 ($000’s, EXCEPT AS INDICATED) 30 JUNE 2019 ($000’s, EXCEPT AS INDICATED) Interest/other income Research and development tax offset refund Corporate/administrative costs Impairment – exploration assets Sunstone investment – fair value through OCI 113 150 1,269 500 438 95 220 1,258 137 (39) Comprehensive loss after tax 1,944 1,041 Comprehensive loss per share 0.08 cents 0.07 cents Net operating cashflows Exploration expenditure Funds raised – equity (net of costs) Cash on hand Financial assets - term deposits3 Net working – capital1 Investment in Sunstone – at fair value Capitalised exploration expenditure Debt Contract liabilities – silver streaming Net assets (692) (4,282) 1,602 1,973 - 1,973 90 16,365 - 2,400 15,661 (1,214) (2,941) 8,552 2,804 2,500 5,315 529 12,505 - 2,400 15,969 Number of shares on issue 2,542,621,476 2,435,288,142 Number of performance rights on issue 10,800,000 12,440,000 Number of unlisted options on issue 379,125,000 453,125,000 Share price (ASX: PNX)2 1.0 cents 0.8 cents 1 Excluding investment in Sunstone Metals Ltd. 2 Closing share price as at 30 June. 3 Includes term deposits (with maturity terms greater than 90 days) held as at 30 June. 7 PNX METALS LIMITED | ANNUAL REPORT 2020 OVERVIEW KEY FINANCIAL RESULTS The Group reported a loss after tax for the year of $1.5 million (2019: $1.1 million) including a $0.5 million exploration asset impairment charge for the South Australian Burra Central tenements. The higher loss figure (up $0.4 million) was primarily due to impairment of exploration and evaluation expenditure. The loss for the year was net of a $0.15 million (2019: $0.22 million) income tax benefit from the Company’s research and development tax offset claims. Pre-tax loss for the year was $1.66 million compared to $1.30 million in 2019. The increase in the comparable pre-tax loss is due to the increased impairment charge during 2020, and the comparable pre-tax loss is not unexpected considering the impairment of exploration assets and given PNX’s corporate cost structure has not significantly changed, and exploration costs in the Northern Territory (the primary area of expenditure) are capitalised. Corporate and administration costs include head office wages, directors’ fees, insurance, professional fees, regulatory, occupancy and communications, and these have not changed significantly. Net operating cash outflows of $0.7 million for the year primarily reflect payments for exploration activities ($4.3 million) and to suppliers and employees ($1.1 million) financed through new shares issued ($1.6 million), maturing term deposits ($2.5 million) and various government grants ($0.5 million). Exploration and evaluation cash outflows of $4.3 million consisted of $3.2 million on the Fountain Head Gold Project (including drilling at Fountain Head that resulted in an updated Mineral Resource Estimate being completed and reported in accordance with the JORC Code 2012 and released to the ASX 16 June 2020), $0.7 million on the Hayes Creek DFS and $0.4 million on NT regional exploration for the year. The Company received a total of $1.6 million (before costs) during March 2020 comprising a share placement at 1.5 cents per share to sophisticated and professional investors for $0.5 million, and $1.1 million through the exercise of unlisted options at 1.5 cents per share. At 30 June 2020, the Group had: • no debt, • cash holdings of $1.97 million, and • investment in Sunstone Metals Ltd valued at $0.1 million. Fountain Head and Tally Ho pit. 8 PNX METALS LIMITED | ANNUAL REPORT 2020EXPLORATION REPORT In December 2019 following a strategic review of its Projects, the Company announced that it had made the significant decision to target near-term gold production from the Fountain Head Gold Project (“Fountain Head”) prior to the proposed development of the Hayes Creek zinc-gold-silver Project (“Hayes Creek”) (PNX ASX release 12 December 2019). HAYES CREEK DFS Successful completion of a Pre-Feasibility Study (PFS) in mid-2017 confirmed the Hayes Creek zinc-gold-silver project to be a promising, high value, relatively low risk, and technically strong development opportunity (see PNX ASX release 12 July 2017). Due to the acceleration of the Fountain Head development and re-allocation of funds from the Hayes Creek DFS, technical studies completed related to the Project Environmental Impact Statement and locked cycle and materials handling analysis. Project infrastructure requirements and suitable locations were assessed and combined with reviews of options for base power generation and supply. These studies are relevant to the Fountain Head development and have been incorporated into the Fountain Head project scope. The Hayes Creek project economics and mine life may benefit from an enlarged mined-out Fountain Head pit available for use as tailings storage from subsequent sulphide flotation of ore from the Mt Bonnie and Iron Blow deposits at Hayes Creek. Heap leaching was assessed as a low-cost, scalable option for rapidly monetising, and generating early cashflow from, existing gold resources at Fountain Head in a supportive gold price environment, whilst preserving the future value of Hayes Creek. In June 2020, PNX Metals announced an updated Mineral Resource estimate (MRE) at Fountain Head that contained 156,000 oz Au at 1.7g/t (see ASX release 16 June 2020 and Table 5). The Hayes Creek polymetallic deposits, Mt Bonnie and Iron Blow, also host considerable Mineral Resources; 238,000oz of gold, 16.2Moz silver and 177,000t of zinc (Table 3). Subsequent to year-end PNX announced a non-binding term sheet for a proposed $40 million financial commitment by HC to fund the Fountain Head development including a gold carbon-in-leach process plant, and a 50/50 production joint venture between PNX and the HC subsidiary BCM. IMPACT OF COVID-19 NT field-based activities were suspended early in 2020 due to COVID-19 restrictions and the Company’s COVID-19 policy. They recommenced as interstate border restrictions between the NT and South Australia were lifted in mid- July 2020. At the time of the decision to prioritise the Fountain Head Project zinc, gold and silver prices and the Australian dollar exchange rate were not as favourable as the estimates used in the PFS for Hayes Creek and concentrate processing charges had risen steeply. During the second half of the year gold silver and zinc all experienced significant improvements in AUD terms further strengthening the project economics. for both Projects, but still leaving the Fountain Head Project as the better first priority. Gold and silver increased by >50% and >20% respectively from the estimates used during the PFS to end July 2020 and the zinc price was close to the PFS estimate. PNX also understands that concentrate processing charges may have softened a little, all of which is encouraging for the prospects of starting Hayes creek development once Fountain Head mining has ceased. 9 PNX METALS LIMITED | ANNUAL REPORT 2020EXPLORATION REPORT FOUNTAIN HEAD DEVELOPMENT A geological review of the main mineralised zones at Fountain Head preceded the July 2019 initial Mineral Resource Estimate, and identified new target areas for follow up drilling, infill drilling, and areas requiring modern QAQC data for further resource category upgrade. Two RC drill programs were subsequently carried out; an initial 18-hole drill program for 1,671m between August and September 2019, and a larger 59-hole program for 5,593m from November 2019 to February 2020. The aim of the drill programs was to test areas of open mineralisation adjacent to the current resource envelope and potential higher-grade ‘trap sites’ within the main mineralised zones. Interpretation of controls over the gold mineralisation suggested that increased grades and thicker intercepts typically occur at the intersection between vertical feeder structures and the anticline fold axis. Numerous mineralised intercepts were returned from drilling confirming good high-grade continuity at depth and along strike (see ASX releases 21 November 2019), increasing confidence in the geological model and highlighting the potential for further resource growth. In June 2020, PNX Metals announced a further Mineral Resource Estimate (MRE) update at Fountain Head carried out on behalf of the Company by independent mining consultants CSA Global Pty Ltd (“CSA Global”) and reported in accordance with the JORC Code (2012). (Refer to Table 5 on page 9). The MRE update saw an increase of 18koz Au representing a 13% increase to the contained gold, including a 20.5% increase to the indicated resource category from the previous July 2019 MRE. Preliminary testwork on Fountain Head gold mineralisation included five bottle roll tests by Bureau Veritas Metallurgy Laboratories (BV) in Adelaide on representative drill chip samples taken from various locations within the modelled resource shell. Excellent cyanide soluble (CN) gold recoveries from 88.9% to 97% were achieved on samples with grades ranging from 0.24g/t Au up to 24.05g/t Au. The recoveries of gold and silver, along with low cyanide and lime consumption rates are comparable with other global gold projects. These Figure 2 Updated 2020 Fountain Head Resource, outline projected to surface. 10 PNX METALS LIMITED | ANNUAL REPORT 2020769000 770000 771000 772000 0 0 0 1 1 5 8 0 0 0 0 1 5 8 0 0 0 9 0 5 8 769000 770000 771000 772000 8 5 1 1 0 0 0 8 5 1 0 0 0 0 8 5 0 9 0 0 0 Figure 3 Fountain Head proposed site layout. results are consistent with historical data from 1996, which also reported high CN soluble gold recoveries predominantly in excess of 90% (PNX ASX release 17 November 2019). Gold deportment and size by size analysis of three bulk samples taken from the western edge of the existing Fountain Head pit was also completed. Numerous pit optimisation studies were modelled, and preliminary open-pit mine designs incorporating haul roads and waste dumps were generated based on economic considerations. Mining and crushing estimates were also received from mining contractors. This information, along with results from the metallurgical test work was used to generate a financial model which supported the near- term development of Fountain Head. Subsequent to the year-end, the Company announced the signing of a non-binding term sheet for a proposed $40 million financial commitment to fund gold carbon-in-leach processing infrastructure and related costs required to fast track the Fountain Head project, and a 50/50 production joint venture involving not only Fountain Head Project but other precious metals prospects on the combined mineral tenure. Further details of this proposed transaction are included elsewhere in this Annual Report and can be found in (PNX’s ASX release of 15 July 2020). This proposed funding commitment and JV provides the Company with a clear pathway for development of Fountain Head. It also allows the Company to focus on generating a pipeline of additional gold resources for processing at the Fountain Head infrastructure, through regional exploration within its significant tenure in the NT. ENVIRONMENTAL PERMITTING AND APPROVALS A significant component of the Fountain Head project development relates to Government and Environmental approvals and the technical studies required to inform the Mine Management Plan (MMP) and Environmental Impact Statement (EIS). The Northern Territory Environmental Protection Authority (NT EPA) indicated that Fountain Head and Hayes Creek would be assessed as separate projects and therefore required a separate Notice of Assessment (NOI) and approval under an EIS for both mining and processing. The Fountain Head NOI was submitted to the NT EPA in December 2019 as the first step in the environmental approval process. It provides a description of the project including the options being considered together with a background environmental description. Terms of reference were received mid- 2020, and the Company is now finalising the EIS and incorporating updates related to the proposed carbon-in-leach process route, and tailings and water management. The EIS is expected to be submitted by the end of 2020. 11 PNX METALS LIMITED | ANNUAL REPORT 2020EXPLORATION REPORT REGIONAL EXPLORATION PROJECTS PNX holds significant exploration tenure in the Pine Creek region of Northern Territory (Figure 4), divided into three main geographically separate project areas: • Burnside (PNX 90% and Newmarket 10%) – gold and base metals – Surrounds the Fountain Head and Hayes Creek lease areas Concurrent with activities underway at Fountain Head, the Company has initiated a major review of the Burnside and Moline regional prospectivity, with the aim of identifying new targets within those projects with the potential to host significant “stand alone” gold deposits, and to supplement future proposed gold processing operations at Fountain Head. • Moline (PNX 100%) – gold and base metals • Chessman (PNX 90% and Newmarket 10%) – gold and base metals. An early observation to emerge from the work is that large areas of the exploration tenements remain untested by drilling with the majority of previous work centred on known gold deposits and their immediate areas. The goal of the exploration strategy is: • Phase 1 – Identify new economic mineralisation to supplement Fountain Head • Phase 2 – Delineate additional reserves for processing at Fountain Head • Phase 3 – Discover an orebody of sufficient scale to justify stand- alone development. Figure 4 Tenure in the Pine Creek region of Northern Territory. 12 PNX METALS LIMITED | ANNUAL REPORT 2020REGIONAL EXPLORATION PROJECTS MOLINE BURNSIDE CHESSMAN PROJECT The 100% owned Moline Project is located approximately 65km to the east of Hayes Creek. 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 to supplement future proposed processing at Fountain Head or at Hayes Creek. The Burnside Exploration Project (90%) is located along the Stuart Highway, 150km south of Darwin. It surrounds the Hayes Creek project and Fountain Head projects, 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 gold produced historically. The Company is 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. The Chessman Project is located approximately 20km due east of Katherine at the southern margin of the Pine Creek Orogen. Access is via the Stuart Highway and along roads that were established in 2000 for haulage to and from the Maud Creek mining area. The Chessman Project surrounds the approximately 1Moz Maud Creek gold deposit owned by Kirkland Lake Gold. No material work was completed by PNX on the Chessman Project Area during the year. 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 or Yorke Peninsula regions. Pursuant to a ‘farm-in’ agreement, Ausmex Mining Group Limited (ASX: AMG) earned a 90% interest in PNX’s eight exploration licences in the Burra area (Burra Tenements), during the financial year. The second stage of the earn-in was completed in April 2020 and PNX elected to take a 2% net smelter return royalty over all minerals that may be produced from the Burra Tenements instead of a 10% (contributing) interest. Transfer of the Burra Tenements was initiated and as at 30 June 2020 the formal transfer remains with the Mines department to be finalised. A provision for impairment of the carrying value of the capitalised exploration and evaluation costs for the Burra Tenements was recorded in the year-end accounts. 13 PNX METALS LIMITED | ANNUAL REPORT 2020EXPLORATION 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, including 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. Regular water monitoring and weed mapping was completed in accordance with approved MMPs. 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 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. See also the COVID-19 comments made elsewhere in this Annual Report. Water Buffalo. Australian Leaf Green Tree Frog. Tata Lizard. Fountain Head and Tally Ho pit. 14 PNX METALS LIMITED | ANNUAL REPORT 2020TENEMENTS NORTHERN TERRITORY PNX TENEMENTS TENEMENT NAME HOLDER AREA (HECTARE) Hayes Creek ML30512 ML30589 MLN1033 MLN1039 MLN214 MLN341 MLN342 MLN343 MLN346 MLN349 MLN405 MLN459 MLN811 MLN816 TOTAL HAYES CREEK Other MLN794 MLN795 ML30936 TOTAL OTHER Fountain Head ML31124 MLN1020 MLN4 MLN1034 TOTAL FOUNTAIN HEAD Moline ML24173 MLN1059 MLN41 TOTAL MOLINE TOTAL MINERAL LEASES Exploration licences EL28616 EL31893 EL31099 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 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% Good Shepherd PNX Metals Ltd 100% Fountain Head Fountain Head Fountain Head Fountain Head Moline Moline Mt Evelyn 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% Moline Ryan Creek Bridge Creek PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% TOTAL EXPLORATION LICENCES 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 8.1 106.0 122.2 33.5 12.0 529.9 304.2 879.6 3126.0 418.7 8.9 3,553.6 4,723.4 262.5 km2 23.41 km2 60.2km2 346.11km2 15 PNX METALS LIMITED | ANNUAL REPORT 2020TENEMENTS NORTHERN TERRITORY FARM-IN TENEMENTS TENEMENT NAME HOLDER AREA (SQ KM) Burnside Project* EL10012 EL10347 EL23431 EL23536 EL23540 EL23541 EL24018 EL24051 EL24058 EL24351 EL24405 EL24409 EL24715 EL25295 EL25748 EL9608 Chessman Project* EL25054 EL28902 ML30293 Mt Ringwood Golden Dyke Thunderball Brocks Creek Jenkins Cosmo North Hayes 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% Margaret River PNX Metals Limited 90%, Newmarket 10% Yam Creek 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 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 Metals Ltd earned a 90% interest under a farm-in agreement with Newmarket Gold NT Holdings Pty Ltd (Newmarket). 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 16 PNX METALS LIMITED | ANNUAL REPORT 2020SOUTH AUSTRALIA PNX TENEMENTS EXPLORATION LICENCES NAME HOLDER AREA (SQ. KM) Adelaide Geosyncline*** EL6326 EL5874 EL6150 EL6327 EL5918 EL6386 EL5910 EL6430 Burra Central *** PNX Metals Ltd 100% Burra West *** Burra North *** Mongolata *** PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% Princess Royal *** PNX Metals Ltd 100% Bagot Well *** Spalding *** Washpool *** PNX Metals Ltd 100% PNX Metals Ltd 100% PNX Metals Ltd 100% Yorke Peninsula (YP)# EL6399 Coonarie # PNX Metals Ltd 100% TOTAL EXPLORATION LICENCES 84 69 300 60 314 71 157 135 1,190 254 1,444 *** Pursuant to a ‘farm-in’ agreement, Ausmex Mining Group Limited (ASX: AMG) earned a 90% interest in PNX’s eight exploration licences in the Burra area in South Australia (Burra Tenements), during the financial year. The second stage of the earn-in was completed in April 2020 and PNX elected to take a 2% net smelter return royalty over all minerals that may be produced from the Burra Tenements instead of maintaining a 10% (contributing) interest. Transfer of the Burra Tenements was initiated and as at 30 June 2020 the formal transfer remained with the Mines department to be finalised. # As at 30 June 2020 the relinquishment of the remaining tenement held on the YP had been initiated and the formal relinquishment remained with the Mines department to be finalised. 17 PNX METALS LIMITED | ANNUAL REPORT 2020 Iron Blow pit. 18 PNX METALS LIMITED | A NNU A L REPOR T 20 20 MINERAL RESOURCES AND ORE RESERVES As at 30 June 2020 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 19 PNX METALS LIMITED | ANNUAL REPORT 2020 MINERAL RESOURCES AND ORE RESERVES As at 30 June 2020 NORTHERN TERRITORY 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 updated Mineral Resources by JORC Classification as at 16 June 2020 JORC CLASSIFICATION TALLY HO Indicated Inferred Total FOUNTAIN HEAD Indicated Inferred Total GLOBAL Indicated Inferred Total TONNAGE (Mt) 0.94 – 0.94 0.89 1.11 2.00 1.83 1.11 2.94 Au (g/t) 2.0 – 2.0 1.4 1.6 1.5 1.7 1.6 1.7 OUNCES (Koz) 59 – 59 41 56 96 100 56 156 Notes relating to Fountain Head Mineral Resources • Due to effects of rounding, the total may not represent the sum of all components. The updated estimate of the Mineral Resources at Fountain Head and Tally Ho deposits was reported during June 2020. (Please refer to ASX Release dated 16 June 2020). The estimate of the initial Mineral Resources was reported on 11 July 2019. • Fountain Head and Tally Ho mineralisation reported utilising a cut-off grade of above 0.7 g/t Au/t gold, which is consistent with the assumed open cut mining method. 20 PNX METALS LIMITED | ANNUAL REPORT 2020SOUTH 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. It is noted that EL5918 is part of the Company’s eight Burra tenements being transferred to Ausmex Mining Group Limited pursuant to a farm-in agreement. The transfer of the Burra tenements was initiated and as at 30 June 2020, the formal transfer remained with the Department for Energy and Mining (SA) to be finalised. The reported mineral resources for Iron Blow and Mt Bonnie were updated in February 2017 and May 2017 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 updated on 16 June 2020 (Refer to ASX Release dated 16 June 2020) 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 resource estimates and the underlying assumptions and interpretations, are reviewed by PNX management, and in particular PNX contract Exploration Manager, Mr Charles Nesbitt (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 Charles Nesbitt, a Competent Person who is a Member of the Australian Institute of Mining and Metallurgy (AusIMM). Mr Nesbitt 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 Nesbitt is a full-time contract Exploration Manager 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. 21 PNX METALS LIMITED | ANNUAL REPORT 2020DIRECTORS’ REPORT The Directors of PNX Metals Limited (‘PNX’ or ‘Company’) present their report for the financial year ended 30 June 2020. 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 2020, 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 retired as Chairman, but remains a Councillor of the Mineral Resources Sector Advisory Council of the CSIRO. In the 3 years immediately prior to 30 June 2020, Paul Dowd held the following directorship of other listed companies for the following period: • 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 since 1970, 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 2020, Peter Watson held no directorships of other listed companies. 22 PNX METALS LIMITED | ANNUAL REPORT 2020DAVID 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 2020, David Hillier held no directorships of other listed companies. HANS-JÖRG SCHMIDT Non-executive Director Appointed 11 November 2019 Based in Monaco, Mr Schmidt has a Master of Business & Administration from the University of Mannheim (Germany) and has a strong track record of business start-up and investment management. He is an experienced Private Equity Investor, working and investing across a broad range of industries and has held senior positions in investment banking and investment research firms along with director roles for publicly listed Companies in Europe. He has advised boards and management teams on investment decisions, financings and transactions across a broad range of industries. In the 3 years immediately prior to 30 June 2020, Hans-Jörg Schmidt held no directorships of other ASX 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 2020, 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. 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, an indirect interest in 13,485,714 shares and related parties of Mr Watson hold 1,570,165 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 10,800,000 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. 23 PNX METALS LIMITED | ANNUAL REPORT 2020DIRECTORS’ REPORT 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 advancement of the Fountain Head Gold Project and progression of a Definitive Feasibility Study (‘DFS’) over its Hayes Creek Zinc and Precious Metals Project, both situated in the Pine Creek region of the Northern Territory. The Company continued to conduct near-mine and regional mineral exploration at its Fountain Head and other projects in the Pine Creek region of the Northern Territory (‘NT’). REVIEW OF OPERATIONS Refer to the Overview and Exploration Report sections of this Annual Report for detail on the Fountain Head and Hayes Creek Projects and regional exploration activities conducted during the year in the Northern Territory. In December 2019, the Company made the significant decision to re-prioritise its NT activities and focus on near-term gold production from the Fountain Head Gold Project. New geological information derived from analysis and interpretation of the most recent 2019 and 2020 diamond and reverse circulation (RC) drilling campaigns resulted in an updated Mineral Resource Estimate (FH MRE) of 2.94Mt at 1.7g/t for 156,000oz of gold at Fountain Head due to low zinc prices at the time and strong Australian dollar gold price. Subsequent to the year-end, the Company announced that it had signed a non-binding term sheet with Halifax Capital Pty Limited (HC) and its subsidiary Bridge Creek Mining Pty Limited (BCM) for a proposed: • capital investment of A$40 million by HC (or nominee) via BCM to fund the acquisition, construction and commissioning of a fit-for-purpose gold carbon-in-leach (CIL) processing plant and associated infrastructure (Project Infrastructure) to be located at PNX’s 100% owned Fountain Head Gold Project (FH) in the Pine Creek region of the Northern Territory to facilitate profitable treatment of certain PNX (including FH) and BCM gold mineral resources; and • an unincorporated joint venture (JV) between PNX and BCM to mine and process those mineral resources through the Project Infrastructure and to share 50/50 the gold produced with agreed direct operating costs to be paid by PNX and BCM in the same proportion. The proposed transaction and JV with BCM and HC provides the Company with a clear pathway for development of the Fountain Head gold resource. It also allows the Company to focus on generating a pipeline of additional gold resources for processing at Fountain Head, through regional exploration within its significant tenure in the NT. PNX’s overall strategy remains to rapidly monetise the existing gold mineral resources at Fountain Head whilst retaining control over any future Hayes Creek Project development. The mined-out Fountain Head pit will be made available for use as tailings storage for subsequent sulphide flotation of ore from the Mt Bonnie and Iron Blow zinc-gold- silver deposits at Hayes Creek. There has been a significant rise in the gold and silver price between publishing of the Hayes Creek PFS in mid 2017 and at 30 June 2020. Significant value still exists at Hayes Creek and the Company is assessing options to advance development once the Fountain Head gold project is operational. The Group reported a loss after tax for the year of $1.5 million (2019: $1.1 million). The higher loss was due primarily to the $0.5 million impairment charge in respect of previously capitalised exploration and evaluation expenditure. The Group’s 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 $0.7 million for the year primarily reflect payments for exploration activities $4.3 million) and to suppliers and employees ($1.1 million) financed through new shares issued ($1.6 million), maturing term deposits ($2.5 million) and various government grants ($0.5 million). Exploration and Evaluation cash outflows of $4.3 million consisted of $3.2 million on the Fountain Head Gold Project $0.7 million on the Hayes Creek DFS and $0.4 million on NT regional exploration for the year. The Company raised a total $1.6 million during March 2020 through a share placement at 1.5 cents per share to sophisticated and professional investors raising $0.5 million and $1.1 million through the exercise of unlisted options at 1.5 cents per share. 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 On 15 July 2020 the Company announced that it had signed a non-binding term sheet for a proposed financial commitment by private company Halifax Capital and joint venture with its subsidiary Bridge Creek Mining to fund the acquisition, construction and commissioning of a fit-for-purpose gold Carbon-in-Leach (CIL) processing plant and associated 24 PNX METALS LIMITED | ANNUAL REPORT 2020infrastructure (Project Infrastructure) to be located at PNX’s 100% owned Fountain Head Gold Project. HC has proposed to fund A$40m to cover the anticipated capital required for development and construction of Project Infrastructure and related costs necessary to fast track the Project. Formal binding documentation for the proposed transaction is anticipated to be completed in October 2020, with commercial gold production targeted for late 2021, subject to receipt of Mining and Environmental approvals. The proposed transaction and JV with BCM provides the Company with a clear path to monetising the Fountain Head gold resource and certainty around a funding solution that minimises dilution for PNX shareholders and significantly de-risks the Fountain Head Gold Project. It will also allow the Company to focus on generating a pipeline of additional gold resources for processing at Fountain Head, through regional exploration within its significant tenure in the NT. The Group’s office lease in Rose Park, South Australia, extended to August 2020 as at year end. Subsequent to 30 June 2020, the Company secured the extension of the office lease for a further 12 months. There has been no other 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 The Company’s aim is to be a sustainable, profitable gold and base metals producer and successful minerals explorer by advancing the Fountain Head and Hayes Creek Projects to development and production, and by making new mineral discoveries in the Pine Creek region of the Northern Territory to either supplement the Fountain Head and Hayes Creek Projects or to be developed as stand- alone operations. ENVIRONMENT REGULATION AND PERFORMANCE The Group continues to meet all environmental obligations across its tenements. An environmental Notice of Intent was submitted to the Northern Territory Environmental Protection Authority (NT EPA) in December 2019 and as expected, on 16 March 2020 the Company received a Statement of Reasons determining that the Fountain Head Gold Project requires an Environmental Impact Statement (EIS). Final Terms of Reference were received during May 2020. The majority of technical information and studies required to inform the Project EIS have now been completed, however, due to the proposed agreements with HC and BCM it is expected that amendments will be required to incorporate the updated process route. As a result submission of the EIS is likley to be deferred until the latter part of 2020. OPTIONS AND PERFORMANCE RIGHTS There were no additional performance rights issued during the financial year. There were no shares issued in satisfaction of performance rights that vested under the Company’s Performance Rights Plan. 1,640,000 performance rights lapsed during the year as the vesting conditions were not met. At the date of this report, 10,800,000 performance rights are on issue. There were no options issued during the financial year. 74,000,000 shares were issued on 23 March 2020 at a price of 1.5 cents per share in satisfaction of the exercise of 74,000,000 unquoted options, raising $1.1million. As at the date of this report, a total of 379,125,000 unquoted options are on issue, comprising 20,000,000 unquoted options exercisable at a price of $0.0147 per share, expiring on 30 October 2020 and 359,125,000 unquoted options exercisable at a price of $0.015 per share, expiring on 30 September 2021. 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, James Fox on 26 November 2014, and Hans-Jörg Schmidt on 11 November 2019. 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. 25 PNX METALS LIMITED | ANNUAL REPORT 2020DIRECTORS’ REPORT DIRECTORS’ ATTENDANCE AT MEETINGS There were 9 Board meetings held during the financial year. Graham Ascough, Peter Watson, David Hillier, Paul Dowd and James Fox attended all 9 meetings, while Hans-Jörg Schmidt (appointed on 11 November 2019) attended 6 of the meetings, being all of the meetings held since his appointment. 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. Hans-Jörg Schmidt (appointed on 11 November 2019) attended 2 of the 3 meetings by invitation. AUDITOR’S INDEPENDENCE DECLARATION The auditor’s independence declaration is included on page 31. NON-AUDIT SERVICES During the year no services other than the external audit were provided by the Company’s auditor Grant Thornton. 26 REMUNERATION REPORT – AUDITED This Report outlines the remuneration arrangements in place for the Directors and the Company Secretary. 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 • Hans-Jörg Schmidt Non-executive Director (appointed on 11 November 2019) • 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 Chief Financial Officer and Company Secretary) 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 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. PNX METALS LIMITED | ANNUAL REPORT 2020REMUNERATION REPORT – AUDITED 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 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 (2019: $Nil). There has been no changes to these fees or entitlemets since the inception of the Company in 2007. In response to the COVID-19 pandemic, all directors agreed to a 20% reduction of their director’s fees for the 3-month period from 1 April 2020 to 30 June 2020. Summary details of remuneration for non- executive directors are given in the tables on pages 28 and 29. 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 an estimated remuneration value of $20,000, as well as mandated superannuation contributions, 20 days annual leave and 10 days sick leave per annum. At 30 June 2020 and as of the date of this report, Mr Fox held no shares in the Company directly. At 30 June 2020 and the date of this report, a related party of Mr Fox held 9,999,999 Shares in the Company. During the year, 800,000 of 11,600,000 performance rights held by Mr Fox lapsed as the performance conditions were not met. The performance rights have performance conditions related to key Company objectives, including development of the Hayes Creek project 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 2020, a total of 10,800,000 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. 27 PNX METALS LIMITED | ANNUAL REPORT 2020DIRECTORS’ REPORT REMUNERATION REPORT – AUDITED CHIEF FINANCIAL OFFICER & COMPANY SECRETARY REMUNERATION Angelo Gaudio has been the Chief Financial Officer and Company Secretary of the Company since 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 out of pocket expenses. The services may be terminated by either party on one months’ notice. During the 2020 financial year, Mr Gaudio was paid fees of $120,000 (excluding GST). REMUNERATION OF DIRECTORS AND KEY MANAGEMENT PERSONNEL Directors’ and key management personnel remuneration (all amounts are paid or payable) for the year ended 30 June 2020: SHORT TERM EMPLOYMENT BENEFITS POST-EMPLOYMENT EQUITY SALARY & FEES NON–CASH BENEFITS5 SUPERANNUATION SHARES AND PERFORMANCE RIGHTS TOTAL % OF TOTAL REMUNERATION CONSISTING OF EQUITY Directors Graham Ascough3 Paul Dowd3 Peter Watson3 David Hillier3 Hans-Jörg Schmidt1,3 $71,250 $34,704 $34,704 $38,000 $21,501 - - - - - James Fox4 $276,125 $17,0235 Chief Financial Officer & Company Secretary - $3,296 $3,296 - $2,042 $25,000 - - - - - $71,250 $38,000 $38,000 $38,000 $23,543 $33,8252 $351,973 Angelo Gaudio $120,000 - - - $120,000 TOTAL $596,284 $17,023 $33,635 $33,825 $680,766 0% 0% 0% 0% 0% 9.6% 0% 5.0% 1 Hans-Jörg Schmidt was appointed as a director on 11 November 2019. 2 3 4 Value of performance rights that have not yet vested that is attributable to the 2020 financial year. 20% reduction in Directors fees Directors was applied for Qtr 4 (Apr-Jun 2020) in response to the COVID-19 Pandemic. 20% reduction in James Fox CEO salary was applied for Qtr 4 (Apr-Jun 2020) in response to the COVID-19 Pandemic and annual leave entitlement was taken in lieu of the reduction. 5 Use of a company provided motor vehicle. 28 PNX METALS LIMITED | ANNUAL REPORT 2020REMUNERATION REPORT – AUDITED Directors’ and key management personnel remuneration for the year ended 30 June 2019: SHORT TERM EMPLOYMENT BENEFITS POST-EMPLOYMENT EQUITY SALARY & FEES NON–CASH BENEFITS5 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 $276,125 Chief Financial Officer & Company Secretary Angelo Gaudio2 Tim Moran3 $70,000 $116,372 Other key management personnel Andy Bennett4 TOTAL $74,977 $725,534 - - - - - - - - - - $3,470 $3,470 - - - - - $75,000 $40,000 $40,000 $40,000 $25,000 $22,5501 $323,675 - - $70,000 $10,371 -$4,6651 $122,078 $3,978 - $78,955 $46,289 $17,885 $789,708 0% 0% 0% 0% 7.0% 0% 0% 0% 2.3% 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. EQUITY HOLDINGS OF DIRECTORS AND KEY MANAGEMENT PERSONNEL i) Fully paid ordinary shares issued by PNX Metals Limited: BALANCE 1 JULY 2019 NET CHANGES BALANCE 30 JUNE 2020 Directors Graham Ascough Paul Dowd Peter Watson1 David Hillier Hans-Jörg Schmidt James Fox2 Key management personnel Angelo Gaudio 11,066,532 21,854,638 16,313,285 10,500,001 - - - 1 Additional shares held by related parties at 30 June 2020: 1,570,165 (2019: 1,570,165). 2 Shares held by related party at 30 June 2020: 9,999,999 (2019: 9,999,999). - - - - - - - 11,066,532 21,854,638 16,313,285 10,500,001 - - - 29 PNX METALS LIMITED | ANNUAL REPORT 2020 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 2019 NET CHANGES BALANCE 30 JUNE 2020 Directors Graham Ascough Paul Dowd Peter Watson David Hillier Hans-Jörg Schmidt James Fox1 Key management personnel Angelo Gaudio 3,125,000 6,250,000 - 3,125,000 - - 1 Options held by related parties at 30 June 2020: 1,875,000 (2019: 1,875,000). iii) Performance rights issued by PNX Metals Limited and outstanding: - - - - - - 3,125,000 6,250,000 - 3,125,000 - - BALANCE 1 JULY 2019 BALANCE 30 JUNE 2020 VESTED UNVESTED GRANTED VESTED FORFEITED VESTED UNVESTED James Fox - 11,600,000 - - 800,000 - 10,800,000 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 services paid to Piper Alderman during the financial year, inclusive of GST, was $34,438 (2019: $78,657). END OF REMUNERATION REPORT Signed on 15th September 2020 in accordance with a resolution of the Board made pursuant to section 298(2) of the Corporations Act 2001. Graham Ascough Chairman 30 PNX METALS LIMITED | ANNUAL REPORT 2020 AUDITORS INDEPENDENCE DECLARATION Level 3, 170 Frome Street Adelaide SA 5000 Correspondence to: GPO Box 1270 Adelaide SA 5001 T +61 8 8372 6666 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 2020, I declare that, to the best of my knowledge and belief, there have been: a no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b no contraventions of any applicable code of professional conduct in relation to the audit. GRANT THORNTON AUDIT PTY LTD Chartered Accountants I S Kemp Partner – Audit & Assurance Adelaide, 15 September 2020 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. 31 PNX METALS LIMITED | ANNUAL REPORT 2020CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME for the year ended 30 June 2020 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: Items that will not be subsequently reclassified to profit or loss: NOTE 4(a) 4(e) 10 4(c) 20 18 4(b) 4(d), 10 5 YEAR ENDED 30/06/20 $ 43,417 70,000 (258,518) (414,447) (208,793) (34,719) (66,501) (29,196) (61,560) (12,882) (36,028) (33,824) (105,072) (7,591) (500,000) - (1,655,714) 150,189 (1,505,525) 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) Financial assets – fair value through OCI 9, 16 (438,329) 38,677 Total comprehensive loss for the year, attributable to equity holders of the parent (1,943,854) (1,041,305) Loss per share – continuing operations Basic and diluted (cents per share) Loss per share – total Basic and diluted (cents per share) 25 25 (0.06) (0.06) (0.07) (0.07) The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes. 32 PNX METALS LIMITED | ANNUAL REPORT 2020 CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 30 June 2020 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 30/06/20 $ 1,972,721 - 93,582 155,165 90,244 30/06/19 $ 2,803,691 2,500,000 356,443 150,682 528,573 2,311,712 6,339,389 16,364,563 12,505,077 14,768 16,379,331 18,691,043 479,920 130,586 610,506 19,258 2,400,000 2,419,258 3,029,764 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 15,661,279 15,968,931 47,072,054 (19,297) (31,391,478) 15,661,279 45,469,675 385,208 (29,885,952) 15,968,931 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. 33 PNX METALS LIMITED | ANNUAL REPORT 2020CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 30 June 2020 ISSUED CAPITAL $ EQUITY-BASED PAYMENT RESERVES $ FAIR VALUE OCI RESERVES ACCUMULATED LOSSES $ $ TOTAL $ Balance at 1 July 2018 36,917,796 40,230 296,516 (28,805,970) 8,448,572 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 - - - - - - 9,785 50,015 - (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 Balance at 1 July 2019 45,469,675 50,015 335,193 (29,885,952) 15,968,931 Total loss for the year Other comprehensive loss Total comprehensive loss for the year - - - Shares issued (placement) 500,000 Shares issued (unlisted options exercised) 1,110,000 Share issue costs Fair value of equity settled payments (7,621) - Balance at 30 June 2020 47,072,054 - - - - - - 33,824 83,839 - (1,505,525) (1,505,525) (438,329) - (438,329) (438,329) (1,505,525) (1,943,854) - - - - - - - - 500,000 1,110,000 (7,621) 33,824 (103,136) (31,391,477) 15,661,280 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. 34 PNX METALS LIMITED | ANNUAL REPORT 2020CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 30 June 2020 Cash flows relating to operating activities Receipt of research and development tax offsets COVID-19 stimulus support received Payments for exploration activities expensed Payments to suppliers and employees Net operating cash flows Cash flows relating to investing activities Term deposits (terms greater than 90 days) – matured /(purchased) Interest received Payments for exploration activities Payments for plant and equipment Proceeds on disposal of plant and equipment Net investing cash flows Cash flows relating to financing activities Proceeds from share issues (Note 15) Payments for capital raising costs Net financing cash flows Net increase/(decrease) in cash Cash at beginning of financial year Cash at end of financial year Loss for the year Interest income Miscellaneous income Equity-based remuneration 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 30/06/20 $ INFLOWS/(OUTFLOWS) YEAR ENDED 30/06/19 $ 415,025 50,000 (34,720) (1,122,469) (692,164) 2,500,000 41,780 (4,282,964) - - - - (1,214,207) (1,214,207) (2,500,000) 36,317 (2,940,550) (20,255) 30,431 (1,741,184) (5,394,057) 1,610,000 (7,621) 1,602,379 (830,970) 2,803,691 1,972,721 8,944,398 (392,519) 8,551,879 1,943,615 860,076 2,803,691 (1,505,525) (1,079,982) (43,417) (50,000) 33,824 7,591 34,720 500,000 263,092 12,954 56,737 (2,140) (34,886) (60,431) 9,785 6,598 64,758 137,379 (225,149) 6,164 (18,333) (20,110) (692,164) (1,214,207) The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. 35 PNX METALS LIMITED | ANNUAL REPORT 2020NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2020 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 15th September 2020. 2 NEW AND REVISED ACCOUNTING STANDARDS At the date of authorisation of these financial statements, several new, but not yet effective, Standards and amendments to existing Standards, and Interpretations have been published by the IASB. None of these Standards or amendments to existing Standards have been adopted early by the Group. Management anticipates that all relevant pronouncements will be adopted for the first period beginning on or after the effective date of the pronouncement. New Standards, amendments and Interpretations not adopted in the current year have not been disclosed as they are not expected to have a material impact on the Group’s financial statements. The accounting policies applied by the Group in the consolidated financial statements are consistent with those applied in the prior year, except for the adoption of new standards effective as of 1 January 2019. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. The Group applies, for the first time, AASB 16 Leases and AASB Interpretation 23 - Uncertainty over Income tax treatments, for the year ending 30 June 2020. As required by AASB 134, the nature and effect of these changes are disclosed below. Several other amendments and interpretations apply for the first time in 2020, but do not have an impact on the consolidated financial statements of the Group. AASB 16 Leases AASB 16 was issued in January 2016 and replaces AASB 117 Leases, AASB Interpretation 4 Determining whether an Arrangement contains a Lease, AASB Interpretation 115 Operating Leases-Incentives and AASB Interpretation 127 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. AASB 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on- balance sheet model similar to the accounting for finance leases under AASB 117. Transition to AASB 16 The Group has elected to account for it’s lease using one of the practical expedients as decribed in AASB 16 C10(c), due to the short-term nature of the remaining lease term on transition. Instead of recognising a right-of-use asset and lease liability, the payments in relation to this lease are recognised as an expense in profit or loss on a straight-line basis over the lease term. At the date of transition a total of $80,213 was payable over the remaining period of this lease. Interpretation 23 – Uncertainty over income tax treatments The first-time adoption of this amendment did not have any impact on the amounts recognised in prior periods and is not expected to significantly affect the current or future periods. 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 2020, the Group made a loss of $1,505,525 (2019: loss of $1,079,982) and recorded a net cash outflow from operating and investing activities of $2,433,348 (2019: $6,608,264). At 30 June 2020, the Group had cash of $1,972,721 (2019: $2,803,691), net current assets, excluding the investment in Sunstone Metals Ltd of $1,610,963 (2019: $5,315,315) and net assets of $15,661,280 (2019: $15,968,931). 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 activities to progress towards the development of the Fountain Head Gold Project. The Group’s ability to continue as a going concern 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. 36 PNX METALS LIMITED | ANNUAL REPORT 2020 b) Principles of consolidation e) Cash and cash equivalents 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. The Group applies AASB120 “Accounting for Government Grants and Disclosure of Government Assistance” in accounting for such programmes as the cash flow boost and Jobkeeper wage subsidy, whereby a credit is recognised in other income over the period necessary to match the benefit of the credit with the costs which they are intended to compensate (for). Cash and cash equivalents comprise cash on hand, cash held at financial institutions and bank deposits with a maturity not more 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. f) Financial instruments Financial assets Financial assets are measured at amortised cost if the assets meet the following conditions (and are not designated as FVPL): ¬ they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows ¬ the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding After initial recognition, these are measured at amortised cost using the effective interest method. Discounting is omitted where the effect of discounting is immaterial. The Group’s cash and cash equivalents, trade and most other receivables fall into this category of financial instruments. The Group’s trade and other receivables are subject to AASB 9‘s credit loss model. Financial assets designated at fair value through OCI (equity instruments) Upon initial recognition, the Group can elect to classify irrevocably its equity investments as equity instruments designated at fair value through OCI when they meet the definition of equity under AASB 132 Financial Instruments: Presentation, and are not held for trading. The classification is determined on an instrument-by-instrument basis. Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as other income in the statement of profit or loss when the right of payment has been established, except when the Group benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair value through OCI are not subject to impairment assessment. The Group elected to classify irrevocably its listed equity investments under this category. Financial liabilities The Group’s financial liabilities include borrowings, trade and other payables and derivative financial instruments. Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the Group designated a financial liability at fair value through profit or loss. Subsequently, financial liabilities are measured at amortised cost using the effective interest method except for derivatives and financial liabilities designated at FVPL, which are carried subsequently at fair value with gains or losses recognised in profit or loss (other than any derivative financial instruments that are designated and effective as hedging instruments). All interest-related charges and, if applicable, changes in an instrument’s fair value that are reported in profit or loss are included within finance costs or finance income. 37 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 2020 g) Exploration and evaluation expenditure Exploration and evaluation expenditure in relation to each separate area of interest is recognised as an asset in the year in which it is incurred or acquired and where the following conditions are satisfied: i) the rights to tenure of the area 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 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. h) Impairment of assets (other than financial assets, exploration and evaluation assets and plant and equipment) 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. i) Plant and equipment 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. 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. 38 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 2020 l) Employee benefits o) Leases 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. 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. The Group has elected to account for short-term leases and leases of low-value assets using the practical expedients. Instead of recognising a right-of-use asset and lease liability, the payments in relation to these are recognised as an expense in profit or loss on a straight-line basis over the lease term. At 30 June 2020 the Group was committed to a short-term lease expiring on 31 August 2020, and the total commitment at that date was $11,336. Leases (accounting policy applicable before 1 July 2019) The economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership of the leased asset. The related asset is then recognised at the inception of the lease at the fair value of the leased asset or, if lower, the present value of the lease payments plus incidental payments, if any. A corresponding amount is recognised as a finance leasing liability, irrespective of whether some of these lease payments are payable up-front at the date of inception of the lease. Leases of land and buildings are classified separately and are split into a land and a building element, in accordance with the relative fair values of the leasehold interests at the date the asset is recognised initially. Depreciation methods and useful lives for assets held under finance lease agreements correspond to those applied to comparable assets which are legally owned by the Group. The corresponding finance leasing liability is reduced by lease payments less finance charges, which are expensed as part of interest on lease liabilities in the Statement of Profit and Loss. The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged to profit or loss over the period of the lease. All other leases are treated as operating leases. Payments on operating lease agreements are recognised as an expense on a straight-line basis over the lease term. Associated costs, such as maintenance and insurance, are expensed as incurred. p) Income tax Income tax expense represents the sum of tax currently payable and deferred tax. 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). 39 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 2020 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. Research and development tax incentive To the extent that research and development costs are eligible activities under the “Research and development tax incentive” programme, a 43.5% refundable tax offset is available for companies with annual turnover of less than $20 million. The Group recognises refundable tax offsets based on management’s best estimate of the amount receivable as an income tax benefit, in profit or loss, resulting from the monetisation of available tax losses that otherwise would have been carried forward. 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. 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. 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. 40 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 2020 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 $500,000 (2019: $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 Group 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%. 4 LOSS FROM CONTINUING OPERATIONS a) Interest income Interest on bank deposits b) Depreciation YEAR ENDED 30/06/20 $ YEAR ENDED 30/06/19 $ 43,417 34,887 Depreciation of plant and equipment 7,591 6,598 c) Occupancy Short-term lease expenses d) Impairment Exploration and evaluation assets e) Professional fees Accounting and taxation expenses Legal fees Contractor services Company promotion Secretarial services Total professional fees 66,501 68,177 500,000 137,379 32,639 38,472 20,189 203,147 120,000 414,447 25,476 52,948 - 156,475 186,422 421,321 41 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 2020 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% (2019: 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 30/06/20 $ (55,000) (95,189) (150,189) 1,655,714 (455,321) 9,302 446,019 (55,000) (95,189) YEAR ENDED 30/06/19 $ (150,000) (69,836) (219,836) 1,299,818 (357,450) 2,691 354,759 (150,000) (69,836) Tax expense (benefit) (150,189) (219,836) 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). b) Recognised tax assets and liabilities Deferred tax assets and (liabilities) are attributable to the following: Exploration and evaluation expenditure (4,471,844) (3,185,402) Plant and equipment Trade and other payables Employee benefits Share issue costs Net deferred tax liabilities Tax losses recognised Net deferred tax assets / (liabilities) (4,061) 6,930 41,207 106,092 (4,321,676) 4,321,676 - (7,084) 12,100 40,948 139,733 (2,999,705) 2,999,705 - 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) 30/06/20 $ 8,167,833 146,948 30/06/19 $ 7,995,639 146,948 Of the total operating tax losses of approximately $45.4 million in the Group at 30 June 2020, $29.7 million are unrecognised as shown above as a $8.167 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. 42 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 2020 6 CASH AND CASH EQUIVALENTS AND TERM DEPOSITS Cash and cash equivalents Term deposits (Terms greater than 3 months maturity) 30/06/20 $ 1,972,721 - 30/06/19 $ 2,803,691 2,500,000 Cash and cash equivalents comprise cash on hand, cash held at financial institutions and bank term deposits with a maturity of not greater than 3 months. At 30 June 2020, the Group did not hold any term deposits with maturity terms of greater than 3 months (2019: $2,500,000). 7. TRADE AND OTHER RECEIVABLES Interest Research and development tax offset incentive Goods and services tax Other 30/06/20 $ 3,150 55,000 34,914 518 93,582 30/06/19 $ 1,513 319,836 34,334 760 356,443 A research and development tax offset claim amount of $55,000 for the year ended 30 June 2020 has been accrued based on management’s estimate of qualifying expenditure, and will be finalised upon the lodgement of PNX’s 2020 tax return. 8. PREPAYMENTS AND DEPOSITS Prepayments Environmental deposits – Northern Territory Deposit – office bond 30/06/20 $ 14,193 108,212 32,760 155,165 30/06/19 $ 27,146 90,776 32,760 150,682 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 2021 and earning 1.2% interest. 9. OTHER FINANCIAL ASSETS Investment in Sunstone Metals Ltd 30/06/20 $ 90,244 30/06/19 $ 528,573 The Group continues to hold 12,892,013 shares in ASX listed Sunstone Metals Limited (‘Sunstone’, previously Avalon Minerals Limited). 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 2020, the investment was reflected at fair value of $90,244, with the incremental movement recorded at fair value through other comprehensive income (FVOCI) – refer to Note 16. 43 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 202010 EXPLORATION AND EVALUATION EXPENDITURE Costs brought forward Expenditure incurred during the year Recognised as an expense (tenements previously impaired) Impairment charges 30/06/20 $ 12,505,077 4,394,205 (34,719) (500,000) 30/06/19 $ 9,706,714 3,000,500 (64,758) (137,379) 16,364,563 12,505,077 During December 2019, the Company made a decision to focus its activities on near-term gold production from the Fountain Head Gold Project, in the Pine Creek region of the Northern Territory. New geological information derived from analysis and interpretation of the most recent 2019 and 2020 diamond and reverse circulation (RC) drilling campaigns at Fountain Head during the year resulted in an updated Mineral Resource Estimate of 156,000 oz of gold. Pursuant to an agreement covering the Company’s eight Burra Central tenements, Ausmex Mining Group Limited (Ausmex) could earn a 90% interest in the tenements in 2 stages. During December 2019, Ausmex completed the stage 1 ‘earn-in’. The second stage of the ‘earn-in’ was completed in April 2020 and PNX elected to take a 2% net smelter return royalty over all minerals that may be produced from the Burra Tenements instead of a 10% contributing interest. Transfer of the Burra Tenements was initiated and as at 30 June 2020 the formal transfer remains with the Department of Mining and Energy (SA) to be finalised. There is no certainty that any minerals will be produced from the Burra Tenements and a provision for the impairment of the carrying value of $500,000 has been recorded in the year end accounts. 11 PLANT AND EQUIPMENT COST Balance at 30 June 2018 Additions Disposals Balance at 30 June 2019 Additions Disposals Balance at 30 June 2020 Accumulated depreciation Balance at 30 June 2018 Depreciation expense Depreciation capitalised to exploration assets Disposals Balance at 30 June 2019 Depreciation expense Depreciation capitalised to exploration assets Disposals Balance at 30 June 2020 Net book value – plant and equipment Balance at 30 June 2019 Balance at 30 June 2020 The useful lives applied in the determination of depreciation for all items of plant and equipment is 3-5 years. 44 $ 606,813 20,255 (81,392) 545,676 - - 545,676 584,651 9,596 7,061 (81,392) 519,916 7,591 3,400 - 530,907 25,760 14,769 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 202012 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 30/06/20 $ 358,139 108,982 12,799 479,920 30/06/20 $ 73,345 57,241 30/06/19 $ 246,377 89,007 17,010 352,394 30/06/19 $ 77,774 65,332 Employee benefits – long service leave 19,258 5,795 14 CONTRACT LIABILITIES Silver streaming receipts 30/06/20 $ 30/06/19 $ 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. During the year these agreements were amended to transfer silver delivery obligations from the Hayes Creek Project to the Fountain Head Project; to modify the silver delivery to consist of an equivalent value of gold in the event that the silver production from Fountain Head could not fulfill the silver delivery obligation; and to reflect that the NSR royalty at the end of the three year delivery period is calculated over gold and silver produced from the Fountain Head Project. 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 or gold is delivered in the future. In the event the Fountain Head Gold Project is not developed, the forward payments will be converted to shares in the Company. 45 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 202015 ISSUED CAPITAL 30/06/20 $ 30/06/19 $ 2,542,621,476 fully paid ordinary shares (2019: 2,435,288,142) 47,072,054 45,469,675 Movement in ordinary shares for the year: NUMBER 30/06/20 $ NUMBER 30/06/19 $ Ref Balance at beginning of year 2,435,288,142 45,469,675 1,088,930,020 36,917,796 a b c d e Shares issued at 1.5 cents 33,333,334 500,000 Shares issued on the exercise of unlisted options at 1.5 cents 74,000,000 1,110,000 Shares issued at 0.8 cents Shares issued at 0.8 cents Shares issued at 0.6 cents Share issue costs - - - - (7,621) - - 263,750,000 169,375,000 913,233,122 - - 2,110,000 1,355,000 5,479,398 (392,519) Balance at end of year 2,542,621,476 47,072,054 2,435,288,142 45,469,675 Fully paid shares carry one vote per share and a right to dividends. a) 33,333,334 Shares were issued at 1.5 cents under a placement to sophisticated and professional investors on 23 March 2020. b) 74,000,000 Shares were issued on the exercise of 74,000,000 unlisted options at 1.5 cents per share to major shareholder, DELPHI UNTERNEHMENSBERATUNG AKTIENGESELLSCHAFT\C on 23 March 2020. c) 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. d) 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. e) 913,233,122 shares were issued at 0.6 cents under a fully underwritten non-renounceable rights Issue on 20 May 2019. 16 RESERVES FVOCI investment Equity-settled benefits 30/06/20 $ (103,136) 83,839 (19,297) 30/06/19 $ 335,193 50,015 385,208 The change in Fair Value through Other Comprehensive Income (FVOCI) investment reserve reflects the current year decrease in the fair value of the Company’s investment in Sunstone Metals Ltd of $438,329. The equity-settled benefits reserve arises on the fair value of the performance rights granted to employees, consultants and executives under the PNX Metals Limited Employee Performance Rights Plan. The reserve at 30 June 2020, includes any adjustments for lapsed 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 2020. 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. The fair value of equity-settled benefit payments was $33,824 during the year ended 30 June 2020 and is reflected in the equity-settled benefits reserve. Further information on share-based payments is disclosed in Note 18. 46 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 2020 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 30/06/20 $ 29,885,952 1,505,526 31,391,478 30/06/19 $ 28,805,970 1,079,982 29,885,952 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 October 2018, 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 2020. In relation to the unvested 2,440,000 performance rights held by PNX personnel under the Plan as at 1 July 2019: » » » 800,000 perfrormance rights held by the Company’s Managing Director & CEO were forfeited during the year as the performance conditions were not met; 840,000 performance rights held by PNX personnel were forfeited during the year as the performance conditions were not met; and 800,000 performance rights held by the Company’s Managing Director & CEO remain unvested at 30 June 2020. The total remaining 10,800,000 unvested performance rights at 30 June 2020 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. 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. The Company had previously issued, 433,125,000 unquoted free attaching options to share placement participants. These unquoted options are exercisable at 1.5 cents each and expire on 30 September 2021. On 23 March 2019, 74,000,000 shares were issued at 1.5 cents each on the exercise of 74,000,000 of these unlisted options. 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. At 30 June 2020, a total of 379,125,000 unlisted options were on issue, as shown in the table below. OPTIONS 30/06/20 NUMBER OF OPTIONS 30/06/20 WEIGHTED AVERAGE EXERCISE PRICE $ 30/06/19 NUMBER OF OPTIONS 30/06/19 WEIGHTED AVERAGE EXERCISE PRICE $ Balance at beginning of the year 453,125,000 0.01499 85,450,000 Options granted Options exercised Options forfeited - - 433,125,000 (74,000,000) 0.015 - - - (65,450,000) Balance at end of the year 379,125,000 0.01498 453,125,000 0.042 0.015 0.05 0.01499 47 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 202019 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) » Hans-Jörg Schmidt (Non-executive Director – appointed 11 November 2019) » » James Fox (Managing Director & Chief Executive Officer) Angelo Gaudio – (Chief Financial Officer and Company Secretary) The aggregate compensation of key management personnel of the Group is set out below: Short-term employee benefits Post-employment benefits Share-based payments 30/06/20 $ 613,307 33,635 33,825 680,767 Details of key management personnel compensation are disclosed within the Remuneration Report in the Directors’ Report. 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 30/06/20 $ $36,028 30/06/19 $ 725,534 46,289 17,885 789,708 30/06/19 $ 28,599 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 $34,438 (2018: $78,657). $11,922 inclusive of GST was owed to Piper Alderman at 30 June 2020 (2019: $Nil). 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 in order to retain the full tenement. 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 2020 in respect of minimum expenditure requirements not provided for in the financial statements are approximately: Minimum exploration expenditure on exploration licences 30/06/20 $ 154,250 30/06/19 $ 1,168,000 48 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 2020Pursuant to a farm-in agreement, Ausmex Mining Group Limited (ASX: AMG) earned a 90% interest in PNX’s eight exploration licences in the Burra area (Burra Tenements), during the financial year. The second stage of the earn-in was completed in April 2020 and PNX elected to take a 2% net smelter return royalty over all minerals that may be produced from the Burra Tenements instead of a 10% contributing interest. Formal transfer of the Burra Tenements was accordingly initiated and as at year ended 30 June 2020 the formal transfer remained to be finalised. The Group’s office lease in Rose Park, South Australia, with annual lease payments of $68,754 exclusive of GST, extends to August 2020 as at year end. Subsequent to year end, the Company secured the extension of the office lease for a further 12 months. 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. Remaining contingent consideration pursuant to this agreement (Formal assignment of the contingent consideration to Ausmex Mining Group has been initiated and as at 30 June 2020 the formal assignment remained to be finalised): ¬ 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. c) Royalty agreements The Company has granted the following royalties (relating to Northern Territory tenements): ¬ Newmarket Gold NT Holdings Pty Ltd (Newmarket) – 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). (Formal assignment of the royalties has been initiated and as at 30 June 2020 remains to be finalised): ¬ 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 2020 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 when a JORC compliant resource is defined on certain tenements subject to PNX’s farm-in agreement by paying PNX three times the Company’s accumulated expenditure on the deposit(s). A single 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. 49 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 202023. FINANCIAL INSTRUMENTS & 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 30/06/20 $ 1,972,721 - 140,972 93,582 90,244 30/06/19 $ 2,803,691 2,500,000 123,535 356,443 528,573 479,920 352,394 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. Market risk The development prospects of the Fountain Head Gold Project and Hayes Creek Projects are to some extent exposed to the risk of unfavourable movements in the US/Australian dollar exchange rate and gold, silver and zinc 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 and 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 $7,535 (2019: increase or decrease by approximately $8,000). 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. 50 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 2020Liquidity 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 2020 Non-interest bearing Fixed Interest bearing 2019 Non-interest bearing Fixed Interest bearing - - - - 370,938 108,981 - - 263,387 89,007 - - $ - - - - $ - - - - 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. 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 30/06/20 $ REVENUE YEAR ENDED 30/06/19 $ - - - - - - SEGMENT LOSS YEAR ENDED 30/06/20 $ - (534,720) SEGMENT LOSS YEAR ENDED 30/06/19 $ (137,379) (64,758) (1,113,135) (1,097,681) (1,655,714) (1,299,818) 150,189 219,836 (1,505,525) (1,079,982) 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. 51 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 2020The 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 30/06/20 $ 30/06/19 $ 16,496,785 - 2,194,258 18,691,044 272,878 - 2,756,886 3,763,905 12,125,402 500,000 6,244,824 18,870,226 159,964 - 2,741,101 2,901,065 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. 25 EARNINGS PER SHARE Basic and diluted loss per share – continuing operations (0.06) (0.07) 30/06/20 CENTS PER SHARE 30/06/19 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 ($) (1,505,525) (1,079,982) Weighted average number of ordinary shares 2,466,080,492 1,566,428,763 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. 52 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 2020 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 2020 % OWNERSHIP INTEREST 2019 % (i) Australia (ii) 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 On 15 July 2020 the Company announced that it had signed a non-binding term sheet for a proposed financial commitment by private company Halifax Capital and joint venture with its subsidiary Bridge Creek Mining to fund the acquisition, construction and commissioning of a fit-for-purpose gold carbon-in-leach (CIL) processing plant and associated infrastructure (Project Infrastructure) to be located at PNX’s 100% owned Fountain Head Gold Project . HC has proposed to fund up to A$40m to cover the anticipated capital required for development and construction of Project Infrastructure and related costs necessary to fast track the Project. Formal binding documentation for the proposed transaction is anticipated to be completed in October 2020, with commercial gold production targeted for late 2021, subject to receipt of Mining and Environmental approvals. The proposed transaction and JV with BCM provides the Company with a clear path to monetising the Fountain Head gold resource and certainty around a funding solution that minimises dilution for PNX shareholders and significantly de-risks the Fountain Head Gold Project. It will also allow the Company to focus on generating a pipeline of additional gold resources for processing at Fountain Head, through regional exploration within its significant tenure in the NT. The Group’s office lease in Rose Park, South Australia, extended to August 2020 as at year end. Subsequent to 30 June 2020, the Company secured the extension of the office lease for a further 12 months. There has been no other 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. 53 NOTES TO THE FINANCIAL STATEMENTSPNX METALS LIMITED | ANNUAL REPORT 2020DIRECTORS’ 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 2020 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. 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 15th September 2020 54 PNX METALS LIMITED | ANNUAL REPORT 2020INDEPENDENT AUDITOR’S REPORT to the Members of PNX Metals Limited Level 3, 170 Frome Street Adelaide SA 5000 Level 3, 170 Frome Street Correspondence to: Adelaide SA 5000 GPO Box 1270 Adelaide SA 5001 Correspondence to: GPO Box 1270 T +61 8 8372 6666 Adelaide SA 5001 T +61 8 8372 6666 Independent Auditor’s Report Independent Auditor’s Report To the Members of PNX Metals Limited To the Members of PNX Metals Limited Report on the audit of the financial report Report on the audit of the financial report Opinion We have audited the financial report of PNX Metals Limited (the Company), and its subsidiaries (the Group), which Opinion comprises the consolidated statement of financial position as at 30 June 2020, the consolidated statement of profit or loss We have audited the financial report of PNX Metals Limited (the Company), and its subsidiaries (the Group), which and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows comprises the consolidated statement of financial position as at 30 June 2020, the consolidated statement of profit or loss for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows policies, and the Directors’ declaration. for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: policies, and the Directors’ declaration. a giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its performance for the year In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: ended on that date; and a giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its performance for the year b complying with Australian Accounting Standards and the Corporations Regulations 2001. 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 Basis for opinion further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are independent of the Company in accordance with the auditor independence requirements of the Corporations Act 2001 and further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for independent of the Company in accordance with the auditor independence requirements of the Corporations Act 2001 and Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for our other ethical responsibilities in accordance with the Code. Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 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 loss of $1,505,525 Material uncertainty related to going concern during the year ended 30 June 2020, and net cash outflows (excluding the acquisition of term deposits) from operating and We draw attention to Note 3 (a) in the financial statements, which indicates that the Group incurred a net loss of $1,505,525 investing activities of $2,433,348. As stated in Note 3 (a), these events or conditions, indicate that a material uncertainty exists during the year ended 30 June 2020, and net cash outflows (excluding the acquisition of term deposits) from operating and 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. investing activities of $2,433,348. 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 Grant Thornton Audit Pty Ltd ACN 130 913 594 ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 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 ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients 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 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 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 Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to 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 Grant Thornton Australia Limited. 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 Liability limited by a scheme approved under Professional Standards Legislation. Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. www.grantthornton.com.au www.grantthornton.com.au 55 PNX METALS LIMITED | ANNUAL REPORT 2020 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 – Note 3(g) and 10 At 30 June 2020 the carrying value of exploration and evaluation assets was $16,364,563. 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 management’s reconciliation of capitalised exploration and evaluation expenditure and agreeing to the general ledger;  Review 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, reviewing exploration licenses to determine whether a right of tenure exists.  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 2020, 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. 56 PNX METALS LIMITED | ANNUAL REPORT 2020 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_2020.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 2020. In our opinion, the Remuneration Report of PNX Metals Limited, for the year ended 30 June 2020 complies with section 300A of the Corporations Act 2001. Responsibilities The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. GRANT THORNTON AUDIT PTY LTD Chartered Accountants I S Kemp Partner – Audit & Assurance Adelaide, 15 September 2020 57 PNX METALS LIMITED | ANNUAL REPORT 2020ADDITIONAL SHAREHOLDER INFORMATION as at 1 September 2020 SHARES The total number of shares issued as at 1 September 2020 was 2,542,621,476 held by 1,211 registered shareholders. 326 shareholders hold less than a marketable parcel, based on the market price of a share as at 1 September 2020. Each share carries one vote. PERFORMANCE RIGHTS/OPTIONS As at 1 September 2020, the Company had 10,800,000 performance rights and 379,125,000 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 359,125,000 options have a 1.5 cent exercise price expiring 30 September 2021. 33% of the unquoted options are held by Delphi Unternehmensberatung Aktiengesellschaft\C. TWENTY LARGEST SHAREHOLDERS As at 1 September 2020, the twenty largest shareholders were as shown in the following table and held 78.35% of the shares: RANK NAME SHARES % OF SHARES DELPHI UNTERNEHMENSBERATUNG AKTIENGESELLSCHAFT\C 1,062,956,294 41.81 SOCHRASTEM SA\C MARILEI INTERNATIONAL LIMITED ROBERT LEON POTEZNA GROMADKA LTD BNP PARIBAS NOMS PTY LTD CITICORP NOMINEES PTY LIMITED TALIS SA\C HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED BNP PARIBAS NOMS PTY LTD KOMON NOMINEES PTY LTD J P MORGAN NOMINEES AUSTRALIA PTY LIMITED PJ & BA DOWD INVESTMENTS PTY LTD LATSOD PTY LTD WGS PTY LTD SYNOD NOMINEES PTY LTD ESM LIMITED BNP PARIBAS NOMINEES PTY LTD MR GRANT MORRIS MR PETER JAMES WATSON + MS JUDITH WATSON 169,403,240 156,766,095 102,665,001 90,207,053 75,286,190 41,064,398 39,319,603 36,334,952 27,925,865 24,679,033 23,634,623 21,354,638 20,229,761 18,888,888 18,650,000 18,048,000 16,261,723 15,000,000 13,485,714 6.66 6.17 4.04 3.55 2.96 1.62 1.55 1.43 1.10 0.97 0.93 0.84 0.80 0.74 0.73 0.71 0.64 0.59 0.53 Total 1,992,161,071 78.35 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 58 PNX METALS LIMITED | ANNUAL REPORT 2020SUBSTANTIAL SHAREHOLDERS As at 1 September 2020, the substantial shareholders in the Company’s register of substantial shareholders are listed below: SHAREHOLDER Delphi Unternehmensberatung Aktiengesellschaft\C Sochrastem SA\C Marilei International Limited HOLDING 1,062,956,294 169,403,240 156,766,095 % 41.81 6.66 6.17 DISTRIBUTION SCHEDULES A distribution schedule of the number of Shareholders, by size of holding, as at 1 September 2020 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 50 93 473 595 1,211 There is no current on-market buy-back. A distribution schedule of the number of unlisted option holders, by size of holding, as at 1 September 2020 is set out below: SIZE OF HOLDINGS 1 – 1000 1,001 – 10,000 10,001 – 100,000 100,001 and over Total VOTING RIGHTS Subject to the Company constitution: NUMBER OF OPTION HOLDERS 0 0 0 25 25 a) at meetings of shareholders, each shareholder is entitled to vote in person, by proxy, by attorney or by representative; b) on a show of hands, each shareholder present in person, by proxy, by attorney or by representative is entitled to one vote; and c) on a poll, each shareholder present in person, by proxy, by attorney or by representative is entitled to one vote for every share held by the shareholder. In the case of joint holdings, only one joint holder may vote. 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. 59 PNX METALS LIMITED | ANNUAL REPORT 2020

Continue reading text version or see original annual report in PDF format above