RED 5 Limited
Annual Report 2022

Plain-text annual report

2022 Annual Report Corporate PROFILE Red 5 Limited (ABN 73 068 647 610) is an Australian gold producer with established mines located in the Eastern Goldfields of Western Australia. The Company is listed on the Australian Securities Exchange (Ticker: RED). Red 5 owns and operates the King of the Hills (KOTH) Gold Mine, located approximately 900 kilometres north-east of Perth and 25 kilometres north of Leonora in Western Australia. KOTH comprises a recently constructed 4.7 Mtpa processing plant, underpinned by an Ore Reserve of 2.4Moz of contained gold, with ore being fed from a bulk open pit and underground mining operation. The A$226 million development and construction of the KOTH project was completed on time and within budget in 2022, with first gold produced on 5 June 2022. Red 5 also owns the Darlot Gold Mine located approximately 100 kilometres north of KOTH. Darlot’s processing plant was recently suspended, with ore from the Darlot underground mine now being transported to the KOTH processing hub. The Red 5 Group divested its interests in the Siana Gold Project in the Philippines in September 2021. The Red 5 Group holds a royalty interest in Siana, which is expected to return to production in 2023. CONTENTS Message from the Chairman Managing Director’s Report Environmental, Social and Governance Summary Resources and Reserves Statement Tenement Schedule Financial Report Directors’ Report Annual Financial Statements Notes to Financial Statements Statement of Shareholders Corporate Directory 2 3 9 11 19 20 46 50 92 93 Our vision is to be a successful multi-operational exploration and mining company, providing benefits to all stakeholders through the consistent application of technical excellence and responsible and sustainable industry practices. 2022 ANNUAL REPORT FINANCIAL AND CORPORATE \ Divestment of the Siana Gold Project in the Philippines was completed in September 2021, with US$19m cash consideration received during the period. The sale consideration also comprises an entitlement to a 3.25% net smelter return gold royalty from Siana. \ Fiona Harris AM appointed to the Board as a Non-Executive Director, adding further corporate and governance experience to the Red 5 Board. \ Group cash on hand and bullion of $55.6m at the end of June 2022, of which $15.7m is allocated to reserve accounts and bond guarantees for the KOTH mine. \ $164.2m was invested in KOTH construction and operational readiness activities during FY-22. \ Red 5 had fully drawn down on the $175m KOTH project debt facility at the end of the reporting period. 2022 HIGHLIGHTS WESTERN AUSTRALIAN GOLD OPERATIONS Construction of the King of the Hills Gold Mine \ King of the Hills (KOTH) mine development completed on schedule and within the $226 million budget. This was achieved despite the impacts of widespread cost inflation, border closures, an unprecedented labour and supply market and the spread of COVID-19 in Western Australia. \ Successful commissioning of the new 4.7Mtpa processing plant, crushing circuit and power station completed, with first gold poured on 5 June 2022 and now ramping up towards steady-state operations. \ Over 70,000 metres of underground and open pit grade control drilling completed, with open pit mining and underground commencing on schedule in the March and June Quarters 2022 respectively. \ Over 1.2 million tonnes of ore, equivalent to approximately three months of processing feedstock, on the ROM pad as at 30 June 2022. Darlot Gold Mine \ Gold production of 64,667 ounces for FY-22. \ Total gold sales for FY-22 of 64,315 ounces at an AISC of A$2,479 per ounce of gold sold. \ Creditable safety performance, with three Lost Time Injuries (LTI) and 15 Restricted Work Injuries (RWI) recorded across Red 5’s mining, processing and exploration activities in FY-22. \ Darlot processing plant was suspended in July 2022, as part of the Darlot Transition Strategy which will see the Darlot underground mine become high-grade feed source for the new KOTH processing hub. Exploration and resource development \ Drilling campaigns undertaken at the KOTH open pit and underground mines throughout the reporting period focused on a mixture of grade control, resource definition and exploration. \ Encouraging results at Darlot from underground diamond drilling highlighted the potential for further Resource growth, including significant extensions to the known mineralisation at Darlot’s Middle Walters South, currently under development. \ High-grade assays returned from resource and exploration drilling at the Mission and Cable prospects, located 10km north of Darlot. \ Great Western underground drill program demonstrates that the Resource remains open at depth. 2022 ANNUAL REPORT 1 Message to Shareholders FROM THE CHAIRMAN Dear Shareholders I am pleased to report on what has been a year of great success and achievement for Red 5. Notwithstanding the unprecedented challenges of the market for labour, equipment and services in Western Australia, surging cost inflation and the spread of the COVID-19 pandemic, our team successfully delivered the $226 million King of the Hills (KOTH) gold mine on time and on budget. At the time of this report, commissioning of all key aspects of the new KOTH process plant had been completed with ramp-up of the 4.7Mtpa mill proceeding to plan. The efficient, professional and seamless execution of this project is a credit to the Red 5 team, led by our Managing Director Mark Williams, Chief Operating Officer Jason Greive and Project Manager Warren King – supported by our Tier-1 contracting and business partners MACA-Interquip and Macmahon Contracting. There is little doubt that, had we not taken the step of raising the equity component of $125 million in March 2020 with the onset of the global COVID-19 crisis – a move which allowed us to lock in orders for long-lead items and secure a fixed price EPC contract – the price tag for the KOTH project would have been significantly higher and the timeline to completion extended. On the corporate front, we completed the divestment of our interests in the Siana Gold Project in the Philippines during the year, for a consideration of US$19 million in cash as well as a net smelter return on future gold production up to 619,000 ounces. This has completed Red 5’s transformation from a Philippines- focused gold producer into an Australian gold producer with an exciting future of growth ahead of us. As we embark on this next chapter of our growth journey, I am pleased to say that Red 5 has continued to evolve and strengthen its Board and senior leadership team to ensure that we have the right skills-sets and experience to lead the Company into the future. The Company recognises the benefits of diversity in a competitive labour market and the importance of being able to attract, retain and motivate employees from the widest possible pool of available talent. Programmes are being developed to encourage diversity within employment in the Company and in the composition of its Board We recently welcomed Fiona Harris AM to the Board as a non- executive Director, bringing further valuable corporate and governance experience. Fiona has already made a strong contribution and we look forward to her input and wise counsel in the years ahead. This approach also resulted in a change to the normal sequence of events typically seen during the mine financing and development process – with the bulk of the equity component raised before the completion of the Final Feasibility Study in September 2020 and ahead of the competitive $175 million debt funding package that was secured in June 2021. We have also continued to recruit and build our site leadership team at KOTH with high-quality appointments during the year including Neil Valk as General Manager Operations, Craig Hatch as Operations Manager, Andrew McRae as Mining Manager, Oliver Keene as Mining Manager Underground and Patrick Duffy moving to the position of Chief Financial Officer post year end. I would like to take this opportunity to acknowledge and thank our financiers, BNP Paribas, HSBC and Macquarie, our key contracting and business partners and our shareholders and key investors for supporting our development strategy and helping us to achieve this outcome. Turning to our Western Australian gold operations in the Eastern Goldfields, gold production for FY-22 was 66,871 ounces. This reflected a strong performance by the Darlot gold mine and the Great Western open pit, notwithstanding the impacts of operator and skills shortages in the West Australian mining sector, high staff turnover and the impacts of COVID-19. In 2021, we announced a plan for the Darlot underground mine to transition to become a high-grade feed source for the new KOTH processing plant. In what represents a reversal of our original operating strategy in the Eastern Goldfields, this will facilitate a decrease in Darlot’s production cost base with ore being processed through the low-cost 4.7Mtpa CIL plant at KOTH. In line with this strategy, the Darlot processing plant was placed on care and maintenance in July 2022, with trucking of Darlot underground ore to KOTH commencing in the September Quarter 2022. This has also provided an opportunity to transition many Darlot employees across to KOTH, reducing the labour related risks for KOTH and at the same time de-risking the ramp-up of production at KOTH. 2 2022 ANNUAL REPORT Like other gold producers, Red 5 has not been immune to the broad-based sell-off in global equity, debt and commodity markets that unfolded in the final two months of the financial year and continued into the early part of FY-23. It is important to focus on the significant achievements of the year, the quality of our core asset at KOTH and the strong growth potential ahead of us – all of which will help to strengthen our business during this period of global volatility. With a substantial Ore Reserve of 2.4 million ounces, KOTH is a top-10 endowed Australian gold mine and is a high-quality, long-life and highly strategic asset. Together with the new low-cost processing facility, KOTH will be a cornerstone of our continued growth in the Australian gold sector. In conclusion, my sincere thanks must go to the entire Red 5 team, my fellow Board members, our senior management team, our contracting partners, our financiers and our shareholders. You have all played a vital role in our success, and I would like to thank you for your hard work and support. Kevin Dundo Chairman 31 August 2022 MANAGING DIRECTOR’S Report The 2022 financial year has been a busy and successful period for Red 5, with the Company successfully constructing and commissioning Australia’s newest major gold mine, the King of the Hills (KOTH) gold mine in the Eastern Goldfields region of Western Australia. The efficient and highly professional execution of this $226 million project during the year is a significant achievement, with the first gold pour on 5 June 2022 marking a major milestone for our entire team. Considering the challenging conditions being experienced in the Western Australian resource sector with widespread labour and skills shortages, cost inflation, border closures and the onset of the COVID-19 pandemic, the delivery of KOTH on time and within budget is testament to the dedication and commitment of the entire Red 5 team supported by contracting partners MACA-Interquip and Macmahon Contractors. On the mining front, Red 5’s Eastern Goldfields operations delivered total gold production over the past year from Darlot and the Great Western open pit of 64,667 ounces. This was a commendable achievement, particularly given the operator and skills shortages experienced during the year and high turnover of operators and staff – an industry-wide issue which has impacted many mining operations around Western Australia. Following the comprehensive review of our operations completed last year, Red 5 implemented a revised mine plan for Darlot which saw Redpath Mining Contractors engaged to commence underground mine development as part of a strategy to unlock the project’s resource base and reduce reliance on mining remnant areas. Our new mine plan and future processing strategy will see the Darlot underground mine transition into a high-grade feed source for the new KOTH processing plant, with trucking of ore from Darlot to KOTH having commenced in the September 2022 quarter. Processing Darlot’s ore through KOTH’s new processing plant will enable us to deliver a step-change in production costs, with the Darlot mill suspended in July 2022 and the bulk of the surface operations personnel transitioned across to KOTH. 250,000mE 300,000mE Bellevue E a s t e r n G o l d fi e l d s G a s P i p e l i n e Vivien Agnew Agnew 1.3 Mtpa Leinster Goldfields H i g h w a y Thunderbox 350,000mE NLGP 400,000mE 150km Darlot 100km Darlot 1.0 Mtpa Thunderbox 3.0 Mtpa 50km Great Western Bannockburn King of the Hills King of the Hills 4.7 Mtpa Mt Morgans 2.8 Mtpa 6,950,000mN Duketon 2.5, 2.5 & 5 Mtpa Duketon 6,900,000mN 6,850,000mN Laverton Granny Smith 3.5 Mtpa Mt Morgans Leonora Cardinia Granny Smith 6,800,000mN Gwalia Gwalia 1.5 Mtpa Mt Ida Ulysses Apollo Hill Sunrise Dam Sunrise Dam 4.1 Mtpa RED 5 LIMITED Tenements ARDEA JV Tenements Gold Mine (operating, closed) Gold Project (developing) Mtpa Mill throughput (million tonnes/annum) Gold Prospects Greenstones Granites NORTH 25 Kilometers Western Australia Darlot Project King of the Hills Project KOTH, Darlot and Great Western locations, showing annual mill throughput from key gold deposits in the region. 2022 ANNUAL REPORT 3 MANAGING DIRECTOR’S Report (cont.) HEALTH AND SAFETY Red 5 continues to manage and mitigate the potential impact of the COVID-19 global pandemic on the Company’s operations. The Management Response Plan remains focused on ensuring the health and safety of Red 5 personnel and limiting the disruption risk to our operations. This plan has been progressively developed in line with the formal guidance of State and Federal health authorities, in close coordination with the Australian Resources and Energy Group (AMMA) and under the Company’s existing Emergency Management Policies. The Company continues to closely monitor the advice and requirements from State and Federal Governments and health authorities and maintain its focus on the health and well-being of staff and the communities in which we operate. Three Lost Time Injuries (LTI) and 15 Restricted Work Injuries (RWI) were recorded across Red 5’s mining, processing and exploration activities in FY-22. EASTERN GOLDFIELDS, WESTERN AUSTRALIA Red 5 holds an extensive 2,555km2 strategic tenement footprint in the world-class Leonora-Leinster mineral district in the northern goldfields of Western Australia, which includes the Darlot and Great Western gold mines and the KOTH gold mine where construction was completed in late FY-22. In addition to its operating gold mines, Red 5’s tenements also offer significant exploration upside, with active exploration programs being undertaken at both Darlot and KOTH during the year. KING OF THE HILLS CONSTRUCTION Development activities were completed at KOTH during FY-22, with first ore processed through the 4.7Mtpa processing plant in May 2022 and first gold poured on 5 June 2022. Process plant construction Construction of the process plant and other infrastructure progressed on schedule and within budget throughout the reporting period. As at 30 June 2022, key construction status included: \ commissioning of the gravity and elution circuits completed; \ SAG mill currently achieving throughput rates of 600 tonnes per hour for extended periods at moderate mill load and power draw; \ commissioning of the variable speed drive completed; \ installation of the KOTH power station and gas supply completed. At 30 June 2022 the KOTH processing team was focused on increasing the mill production rate and completing outstanding punch list items with the EPC contractor. 4 2022 ANNUAL REPORT Village construction The KOTH accommodation village and infrastructure was completed in the September Quarter 2021. The village can accommodate 380 personnel with provision to expand to 450, including water treatment and waste-water treatment plants. KOTH power station and gas supply KOTH’s turnkey power station was supplied by Zenith Pacific. Construction and commissioning of the gas pipeline, connecting KOTH to APA’s goldfields gas pipeline, was completed during the March 2022 Quarter. Installation of the KOTH power station was complete as at the end of FY-22, with a combination of gas and solar energy supplying site power. MANAGING DIRECTOR’S Report (cont.) KING OF THE HILLS OPERATIONAL RAMP-UP KOTH mining activities Open pit grade control drilling Red 5 completed an initial 70,000 metres of grade control drilling in the KOTH southern pit during FY-22 to cover the first 30 to 45 metres vertically of the current Stage 1 design. Open pit grade control will be conducted in phases, with the initial phase of drilling designed to cover the first six months of open pit mining with the objective of de-risking and setting up the initial ore blocks for mining. Underground drilling In preparation for mining at KOTH, approximately 40,100 metres of underground drilling was undertaken in FY-22, with an additional 86,000 metres planned for FY-23 for an estimated total of 140,000 metres. Drilling is focused on a mixture of grade control, resource definition and exploration programs. KOTH processing The KOTH processing facility was commissioned in May 2022 and has been progressively ramping up, with both throughput rates and gold recoveries in-line with expectations. The gas power station has been operating to plan, and the water balance has now reached steady state, with all water bores and Tailings Storage Facility (TSF) return water infrastructure operational. The first gold pour from the process plant was achieved on 5 June 2022. During June 2022, the total mill operating time was 84%. The SAG mill continues to deliver throughput rates in excess of 600 tonnes per hour for significant periods at moderate mill loads and power draw. A total of 385,704 dry tonnes was milled up to 30 June 2022, producing a total of 9,545 ounces at an average recovery of 90.9% and grade of 0.85g/t. The reconciled grade of near surface KOTH ore was 0.55g/t, with over 60% of the processing feed stock sourced from historical stockpiles. The reconciled grade of KOTH ore was within 1% of the expected grade of ore mined at this stage of the open pit cut-back. The processing plant feed was supplemented by higher-grade ore trucked from the Great Western satellite open pit during May and June 2022. During the June Quarter, Macmahon Contractors progressively ramped up total material movement as two open pit fleets and supporting ancillary equipment began operating on a double shift basis. Macmahon mined 2.9 million bank cubic metres (Mbcms) in the June Quarter from the Stage 1 pit, including 365,675 tonnes of ore at an average grade of 0.52g/t (consistent with the expected grade of ore mined at this stage of the open pit cut-back). Land clearing for the waste storage facility is progressing to plan, drill and blast activities are on plan. Construction of the Run of Mine (ROM) pad was completed early in the quarter. The ROM pad is now established and has been designed to allow highly efficient “super-quad” road trains to deliver ore from off-site sources such as Great Western and Darlot as part of a strategic haulage agreement in place with key business partner MLG. The construction of Tailings Storage Facility 5 (TSF5) is progressing to plan. Following the TSF5 construction tender award in May 2022, the successful contractor, Iron Mining, has mobilised to site and begun site establishment and construction. All construction materials for TSF5 have been sourced from Stage 1 open pit mining activities. Underground mine development activities continued during the quarter, with over 800 metres of development completed. The first stope was fired in June 2022, signalling the commencement of underground production activities. Underground infrastructure is still under development, with connection to the site high voltage system to occur early in the September Quarter. Mining infrastructure establishment continues, with the completion of the heavy vehicle workshop, offices, change rooms, ablutions and training facilities expected in the September 2022 Quarter. 2022 ANNUAL REPORT 5 MANAGING DIRECTOR’S Report (cont.) WESTERN AUSTRALIAN GOLD OPERATIONS Darlot production summary A total of 64,667 ounces of gold was recovered for the 12 months to 30 June 2022, with ore sourced from the Darlot underground mine and the Great Western open pit. During the June Quarter, 9,473 ounces of gold produced from Darlot’s Great Western satellite mine included 7,341 ounces processed at the KOTH process plant in May and June. Processing – Darlot A total of 974,269 tonnes of ore was milled at an average grade of 2.0g/t during FY-22. Table 1: Darlot mill processing statistics Units t g/t % oz oz June 2022 Quarter 197,688 1.88 94.4 11,245 12,225 March 2022 Quarter December 2021 Quarter September 2021 Quarter FY-22 Total 246,307 281,161 249,133 974,269 1.83 90.9 13,185 14,644 1.98 92.2 16,519 15,839 2.20 92.9 16,377 15,908 2.00 92.4 57,326 58,616 Ore milled Average head grade Recovery Gold recovered Gold sales Mining activities – Darlot Mining during the year predominantly focused on the Middle Walters South (MWS), Burswood, Oval 1300, Pedersen Lower, Thomson, Federation 1190, Lillie 1065 and the Lords South 685 and 750 areas. Capital development was undertaken in the Middle Walters South incline/decline, Burswood incline, Lillee and Pedersen Lower sectors. Production during the reporting period originated from the Grace, Border, Lillee, Bradman, Thomson, Lords, Walters and Federation areas. Mining activities – Great Western Mining of the Great Western open pit continued throughout the reporting period. At the end of FY-22, the Great Western open pit had progressed to within two benches of its final design depth and was completed in July 2022. The mine was then placed into care and maintenance while the underground potential is assessed. 6 2022 ANNUAL REPORT MANAGING DIRECTOR’S Report (cont.) EXPLORATION AND RESOURCE DEVELOPMENT KING OF THE HILLS King of the West The 40,100 metres of drilling conducted at KOTH for FY-22 focussed on a mix of stope de-risking (GC) and infill and extensional drilling for resource development. The key areas targeted were: \ de-risking narrow vein stopes in the Central area; \ de-risking bulk stopes in the Syra (West decline below the W4890) and West decline below W4895; \ infilling the Regal (north) 4925 stope shapes from the W4950 and Regal 4885; Assay results from air-core (AC) drilling completed over the King of the West area in March 2021 identified significant gold anomalism associated with a sheared mafic-granite contact and sheared mafic host rock similar to the mineralisation setting observed at Great Western. Large parts of the tenement remain untested, with structures and geology bearing similarities to major gold deposits in the area, including Great Western. The AC program was designed to test three of these areas to identify targets for follow-up RC drilling. \ testing the Regal area below the 4925 and East – West Link. Great Southern DARLOT Darlot near-mine exploration Near-mine drilling at Darlot during FY-22 focused on extending new mining areas such as Middle Walters South and reducing the dependency on remnant mining. Results reported included strong intercepts from Middle Walters South and positive results from Dar-Cent, Oval 1300 and Pedersen Lower, all of which offer the opportunity for resource growth. A pXRF soil sample program covering the Great Southern area commenced in late April 2022 and was ongoing at the end of the reporting period. The target area represents the southern-most extent of the Yandal Belt, containing a central corridor of NW trending ultramafic-mafic greenstones which are bound to the east and west by granitoids. Structurally, the package is superficially analogous to Darlot, bound and intersected by the regional NNW trending El Dorado and Waikato shear zones, and deformed by smaller-scale structures. Great Western Gilmore Well The Gilmore Well prospect, located approximately 10km SW of the Darlot mine, comprises a large and sparsely explored area west of the Emperor mineralised corridor. Previous exploration results from historical soil and rock chip sampling defined a continuous NW-SE gold trend extending up to 1km, as well as several smaller NE-SE and N-S oriented Au trends which range in length between 300-400 metres. Historical assay results reported values up to 2.9g/t Au in rock chips (sourced from auriferous quartz veins) and 20ppb Au from soil samples. The main NW-SE trending corridor is parallel to the proximal Emperor trend, and all identified gold trends show a spatial relationship with the margins of prominent magnetic highs and areas of sub-cropping dolerite and vein quartz float. The first stage of the Great Western underground drill program comprising nine exploration drill holes was completed in mid- December 2021. The program was designed to test the underground potential of the Great Western orebody below the open pit and returned encouraging results with drill holes intersecting a mineralised zone ranging from sub-1.0 metres up to 4.0 metres in width over an approximate 300-metre strike length. The geology logging results confirm that the orebody continues at depth below the Great Western open pit and provides evidence that supports ongoing resource exploration drilling to further de-risk the underground resource potential and test the extent of the orebody, which remains open at depth. Mission and Cable Resource definition and exploration drilling completed at the Mission and Cable prospects, located 10km north of Darlot, delivered high-grade assay results and identified new zones of gold mineralisation. The drilling program comprised a combination of reverse circulation (RC) percussion drilling to underpin an upgrade of the historical JORC 2004 mineral resource estimates to JORC 2012 status, as well as exploration diamond drilling aimed at identifying new zones of mineralisation. At Cable, diamond exploration drilling identified a broad new zone of mineralisation measuring between 70 and 100 metres width, which was intersected in all diamond holes and is observable along the entire length of the known extent of gold mineralisation. At the Mission prospect, similar to Cable, assay results from both the RC and diamond drill programs have been encouraging, confirming good continuity of gold mineralisation and identifying new zones of mineralisation within the historical oxide mineral resource. 2022 ANNUAL REPORT 7 MANAGING DIRECTOR’S Report (cont.) CORPORATE Divestment of Siana gold project In September 2021, Red 5 completed the divestment of its interests in Philippine affiliated company Greenstone Resources Corporation (GRC), which holds both the Siana and Mapawa gold projects in the Philippines, to TVI Resource Development (Phils.) Inc. (TVIRD). TVIRD is the Philippine affiliate of the Canadian-listed TVI Pacific Inc. TVIRD has two operating mines and a number of other development projects in the Philippines with interests in gold, nickel and copper. Consideration for the transaction comprised US$19m cash, which was received during the reporting period. In addition, the sale consideration includes an entitlement to a net smelter return royalty of 3.25% for up to 619,000 ounces of gold, which will become payable from first gold from the restart of the Siana processing plant. Based on an assumed gold price of US$1,800/oz, this royalty has an estimated future face value of US$36m. The divestment of its interests in the Siana and Mapawa projects is consistent with Red 5’s strategy to focus on its KOTH and Darlot gold mines in Western Australia. Financial The Group recorded sales revenue of $165.0 million for the 2022 financial year. Net cash outflows from operating activities was $2.4 million with $55.6 million in cash and bullion at year-end, of which $15.7 million was allocated to reserve accounts and bank guarantees for the KOTH project. For the year ended 30 June 2022, the Company recorded a gross loss from operations of $31.1 million and a net loss after income tax of $28.6 million. SUMMARY AND OUTLOOK With production now ramping up at the new, long-life KOTH gold mine, the coming financial year is set to be a defining period for Red 5, with the Company expected to join the ranks of mid-tier Australian gold producers during FY-23. The new modern 4.7Mtpa mill at KOTH provides a platform for Red 5’s next growth chapter, with the capacity to process ore from Darlot to deliver a reduction in group operating costs. While much of the focus over the past year has been on our activities at KOTH, we have also laid the foundations for new growth and development at Darlot, with a high-rate development strategy initiated in early FY-22 set to unlock new mining areas in the Middle Walters South, Pedersen and Burswood areas of the Darlot underground in FY-23. In parallel with our mining and processing operations, Red 5 will also continue its exploration and resource development activities, with targeted drilling programs planned across key targets over the coming year. All these activities will be conducted with a commitment to the Company’s environment, social and governance principles. Further information regarding the Company’s ESG activities is contained in the following section of this report. With these foundations, the coming year will be a busy and exciting growth period for Red 5. The strength of this position is thanks to the outstanding hard work and commitment of the Red 5 team of staff and contractors, who have delivered an exceptional effort over the past year. I would also like to thank our shareholders for their continued support. Mark Williams Managing Director 31 August 2022 8 2022 ANNUAL REPORT ENVIRONMENTAL, SOCIAL AND GOVERNANCE Summary FY22 OVERVIEW FY-22 marked a defining period in Red 5’s growth pathway to becoming a mid-tier Australian gold producer. The construction, ramp up and delivery of the King of the Hills (KOTH) Mine was achieved on time and within budget. Throughout the year, the Company’s key Environment, Social and Governance (ESG) focus was: 1. maintaining compliance. 2. maximising water efficiency. 3. minimising waste. 4. improving our carbon footprint. 5. stakeholder engagement. ENVIRONMENT Water management KOTH mine dewatering and existing production bores around the open pit provided the necessary water supply for the KOTH processing plant construction, commissioning and ramp up. The re-commissioned Sullivan Creek borefield, including four new production bores, mine dewatering and recycled tailings decant water will continue to support operations going forward. Routine monitoring is vital to the sustainability of our groundwater resources. Waste management In FY-22 a specialist waste management contractor was engaged to demolish the remains of the historical processing and administration infrastructure at KOTH, as well as provide waste management services for the operations. Disposal and recycling processes across the operation will continue to be refined and improved in collaboration with business partners, which will include a new landfill, scrap storage/salvage and bioremediation area planned for construction in early FY-23. Green House Gas management Power for the KOTH operation is sourced from an onsite hybrid gas-solar power station. This has significantly reduced the operation’s carbon footprint relative to a diesel fuelled power generation alternative. The installation includes a 2MW solar farm and solar arrays to power some production bores further reduces the operation’s carbon emissions. Solar farm at KOTH providing 2MW to the operation. Borefield powered by a solar array. SOCIAL Cultural heritage The landscape in the region holds special significance for local traditional owners. Surveys involving specialist archaeologists, anthropologists and the traditional owners have taken place in all areas of our operation. Sites of importance have been mapped and integrated into our mine planning process to avoid these sites and protecting them for the future. Red 5 is committed to engaging and consulting with traditional owners to ensure protection of important cultural heritage values and to maintain a positive relationship between the Darlot people and Red 5. Human capital Red 5 is committed to ensuring that it is an employer of choice and that it provides a safe, respectful work environment for all its employees. It has in place a Diversity Policy and will look to further develop its diversity activities having regard to the challenging Western Australian market for talent. Red 5 notes the reports prepared for the Western Australian Parliament in 2022 titled “Sexual Harassment on Women in the FIFO Mining Industry” and has developed a program in response for implementation in FY23. Community relations Red 5 operates in a sparsely populated region with the main communities being in the township of Leonora and several local landowners. A number of providers located in the region benefit from the Red 5 operations through provision of services. Red 5’s presence additionally benefits the community through our emergency medical facilities and medical response capability and various levels of assistance to our surrounding pastoralists. 2022 ANNUAL REPORT 9 ENVIRONMENTAL, SOCIAL AND GOVERNANCE Summary (cont.) FY22 OVERVIEW GOVERNANCE Approvals and compliance Mining proposals and works approvals for KOTH were in place for the construction and commissioning of the new processing plant, TSFs and associated infrastructure that occurred during FY22. Routine monthly, quarterly and annual compliance monitoring, sampling and reporting have continued across the operations during the year with no issues to report. There were no fines or penalties imposed on the Company and no serious environmental incidents. Corporate Governance Policy Structure Governance Social Environment FY23 OBJECTIVES MATERIAL TOPICS ASSESSMENT With the support of a specialist sustainability consulting firm, a materiality assessment was undertaken to identify key sustainability topics which are important to us and our stakeholders in FY22. Workshop sessions were completed based on a list of potential material topics. Based on these workshops the following list of potential material topics has been developed. ESG Material Topics Summary This is a summary of the material topics of focus for FY23. 01 HUMAN CAPITAL \ Workplace Health and Safety 04 SOCIAL CAPITAL \ Cultural Heritage & Native Title \ Employee Engagement \ Diversity \ Socio-economic and community contributions 05 ENVIRONMENT \ Energy Management & renewables \ Water Management 02 BUSINESS MODEL \ Economic Performance 03 GOVERNANCE \ Critical Risk Management \ Corporate Governance \ Business Partner ESG Performance \ \ \ \ \ \ \ \ \ \ Based on the above priority lists, the following work program has been developed for the focus of the ESG program in FY23. \ \ Our ESG Roadmap FY23 Q1 GOAL Finalise Framework for ESG Reporting for FY23 \ \ \ \ \ \ \ \ Q3 GOAL Stakeholder Management Plan released FY24 Q1 GOAL Implement FY24 - 26 ESG Plan Q2 GOAL Start collecting information and data Q4 GOAL Release ESG Report for FY23 Develop ESG Plan for FY24-26 Stakeholder Survey Further details on the Company’s ESG programs are available in the 2022 Environmental, Social and Governance Report available on the Company’s web-site at www.red5limited.com. Board responsibility Board charter Constitution Continuous disclosure policy Code of conduct Corporate governance statement Securities trading policy Shareholder communications policy Modern slavery statement Audit Committee responsibility Audit committee charter Anti-bribery and corruption policy Selection and performance of external auditor Whistleblower policy Remuneration Committee responsibility Remuneration committee charter Selection and nomination of new directors Diversity policy Risk and Environment Committee responsibility Risk and environment committee charter Risk management policy Environmental policy statement Health, Safety and Community Committee responsibility HSC committee charter Occupational health and safety policy \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 10 2022 ANNUAL REPORT MINERAL RESOURCES AND ORE RESERVES Statement WESTERN AUSTRALIAN GOLD OPERATIONS KING OF THE HILLS GOLD PROJECT The Mineral Resource for the King of the Hills (KOTH) project has increased by 6% for an additional 277koz since 30 June 2021. During the 2022 financial year, Red 5 completed a 70,000 metre reverse circulation (RC) open-pit grade control program targeting stage 1 of the KOTH open-pit and an approximate 40,100 metres of underground drilling for stope de-risking and resource development. The 7 x 7 metre spaced open-pit grade control program has been modelled and reported as Measured along with a full resource update on available assays for underground for the 30 June 2022 resource model update. The combined open-pit and underground Ore Reserve at KOTH, which includes regional open pit reserves, as at 30 June 2022 is 70.2Mt @ 1.2g/t for 2.66Moz of contained ounces. This represents an increase of 12.7% for an additional 300koz, net after depletion since 30 June 2021. The key catalyst for this growth is in the KOTH open-pit where grade control drilling has driven the reclassification of waste into ore and the deepening of the ultimate pit design. The KOTH Mineral Resource and Ore Reserve estimates, net of mining depletion, as at 30 June 2022 are detailed on the next page. The KOTH Mineral Resource, which includes all historic stockpiles, ROM and underground broken stocks, as at 30 June 2022 is 105.5Mt@ 1.4g/t for 4.75Moz of contained ounces. 2022 ANNUAL REPORT 11 MINERAL RESOURCES AND ORE RESERVES Statement (cont.) King of the Hills JORC 2012 Resources and Reserves as at 30 June 2022 King of the Hills Gold Project Mineral Resource as at 30 June 2022 Project Au cut off g/t Mining Method Classification Tonnes (kt) Grade Au (g/t) Contained Au (koz) King of the Hills 0.4 OP 1.0 UG Variable All 0.6 OP 0.4 OP 0.5 OP King of the Hills - sub total Rainbow Severn Centauri Cerebus-Eclipse 0.5 OP Regional Resources Variable OP Regional Resources - sub total King of the Hills and Regional Resources Variable OP 1.0 UG King of the Hills and Regional Resources - sub total Stockpiles Broken Stocks ROM Stockpiles - sub total 0.0 Variable Variable OP UG UG Total King of the Hills Gold Project (as at 30 June 2022) Variable All Grand total Measured Indicated Inferred Sub Total Indicated Inferred Sub Total Measured Indicated Inferred Indicated Inferred Sub Total Indicated Inferred Sub Total Indicated Inferred Sub Total Indicated Inferred Sub Total Indicated Inferred Measured Indicated Inferred Sub Total Indicated Inferred Sub Total Indicated Measured Measured Measured Indicated Inferred 1,330 66,870 12,990 81,190 6,010 8,080 14,090 1,330 72,880 21,070 95,280 1,380 200 1,580 480 440 920 1,390 320 1,710 2,160 650 2,810 5,410 1,610 7,020 1,330 72,280 14,600 88,210 6,010 8,080 14,090 102,300 2,064 5 1,120 3,189 2,455 80,354 22,680 105,489 1.2 1.3 1.3 1.3 2.4 2.1 2.2 1.2 1.4 1.6 1.4 1.3 1.4 1.3 1.7 1.5 1.6 1.5 1.3 1.5 1.3 1.1 1.3 1.4 1.3 1.4 1.2 1.3 1.3 1.3 2.4 2.1 2.2 1.4 0.4 1.2 0.6 0.5 0.9 1.4 1.6 1.4 50 2,800 540 3,390 450 550 1,000 50 3,250 1,090 4,390 58 9 67 27 21 48 68 13 81 89 23 112 242 67 308 50 3,042 607 3,698 450 550 1,000 4,698 28 0.2 22 50 73 3,519 1,157 4,748 12 2022 ANNUAL REPORT MINERAL RESOURCES AND ORE RESERVES Statement (cont.) King of the Hills Gold Project Mineral Resource as at 30 June 2021 Project Au cut off g/t Mining Method Classification Tonnes (kt) Grade Au (g/t) Contained Au (koz) King of the Hills and Regional Resources Variable All King of the Hills and Regional Resources - sub total Stockpiles Broken Stocks ROM Stockpiles - sub total 0.0 Variable Variable OP UG UG Total King of the Hills Gold Project (as at 30 June 2021) Variable All Grand total King of the Hills Gold Project Mineral Resource - difference King of the Hills Gold Project Variable All Grand total - difference Production for FY22 Measured Indicated Inferred Indicated Measured Measured Measured Indicated Inferred Measured Indicated Inferred 0 75,210 22,510 97,720 2,810 0 111 2,921 111 77,820 22,810 100,741 2,344 5,519 -130 7,733 1,178 0.0 1.3 1.6 1.4 0.5 0.0 0.9 0.5 0.9 1.3 1.6 1.4 0.0 0.0 0.0 0.0 0.6 0 3,252 1,127 4,379 40 0 3 43 3 3,312 1,157 4,471 69 257 0 326 21 King of the Hills Gold Project Ore Reserve as at 30 June 2022 Project Au cut off g/t Mining Method Classification Tonnes (kt) Grade Au (g/t) Contained Au (koz) King of the Hills 0.4 OP King of the Hills – sub-total Rainbow Centauri 1.3 UG 0.3 OP 0.3 OP Cerebus-Eclipse 0.3 OP Regional Resources - sub total Stockpiles Broken Stocks ROM Stockpiles – sub-total King of the Hills Gold Project (as at 30 June 2022) Grand total 0.0 Variable Variable OP UG All Variable All Proved Probable Sub Total Proved Probable Sub Total Proved Probable Sub Total Proved Probable Sub Total Proved Probable Sub Total Probable Proved Proved Proved Probable 1,327 59,036 60,363 0 2,835 2,835 63,198 0 2,054 2,054 0 326 326 0 1,490 1,490 3,869 2,064 5 1,007 3,076 2,384 67,804 70,188 1.0 1.2 1.2 0.0 2.0 2.0 1.2 0.0 0.8 0.8 0.0 1.2 1.2 0.0 1.0 1.0 1.0 0.4 1.2 0.6 0.5 0.8 1.2 1.2 42 2,280 2,322 0 177 177 2,499 0 56 56 0 13 13 0 47 47 116 28 0 20 48 62 2,600 2,663 2022 ANNUAL REPORT 13 MINERAL RESOURCES AND ORE RESERVES Statement (cont.) King of the Hills JORC 2012 Resources and Reserves as at 30 June 2022 (cont.) King of the Hills Gold Project Ore Reserve as at 30 June 2021 Project Au cut off g/t Mining Method Classification Tonnes (kt) Grade Au (g/t) Contained Au (koz) King of the Hills and Regional Resources Variable All King of the Hills and Regional Resources - sub total Stockpiles Broken Stocks ROM Stockpiles – sub-total King of the Hills Gold Project (as at 30 June 2021) Grand total 0.0 Variable Variable OP UG All Variable All King of the Hills Gold Project Ore Reserve - difference King of the Hills Gold Project Variable All Grand total - difference Production for FY22 Proved Probable Probable Proved Proved Proved Probable Proved Probable 0 61,679 61,679 2,810 0 111 2,921 111 64,489 64,600 2,273 3,315 5,588 1,178 0.0 1.2 1.2 0.5 0.0 0.9 0.5 0.9 1.1 1.1 -0.1 0.0 0.0 0.6 0 2,341 2,341 40 0 3 43 3 2,381 2,384 59 220 279 21 14 2022 ANNUAL REPORT MINERAL RESOURCES AND ORE RESERVES Statement (cont.) DARLOT GOLD PROJECT The Mineral Resource for the Darlot Gold Project has increased by 25% for an additional 366koz since 30 June 2021. This resource increase has been the result of several factors including updated resource models for the Middle Walters South, Centenary and Pederson deposits, improved accuracy of the lode interpretations at Darlot as a result of the additional resource drilling reported. This also includes the inaugural release of the JORC 2012 resource modelling of Mission and Cable deposits. These resources form part of the exclusive sub-lease over the southern portion of Exploration Licence E37/1220. The Darlot Gold Project Mineral Resource as at 30 June 2022, which includes all stockpiles, ROM, and underground broken stocks, is 17.1Mt @ 3.4g/t for 1.84Moz of contained ounces. The Ore Reserve for the Darlot Gold Project has decreased by 12.8% for a reduction of 16koz, net after depletion since 30 June 2021. The major contributors to the decrease are the change in cut-off grade driven by cost inflation and the depletion of the Great Western open-pit which completed mining in FY22. Further work is scheduled to progress in FY23 to convert the Great Western underground resource to reserves. The Darlot Gold Project Ore Reserves as at 30 June 2022 is 1.3Mt @ 2.6g/t for 109koz of contained ounces. The Darlot Gold Project Mineral Resource and Ore Reserve estimates, net of mining depletion, as at 30 June 2022 are detailed below. Darlot Gold Project JORC 2012 Resources and Reserves as at 30 June 2022 Darlot Gold Project Mineral Resource as at 30 June 2022 Au cut off g/t Mining Method Classification Tonnes (kt) Grade Au (g/t) Contained Au (koz) Project Darlot 2.0 UG Measured Indicated Inferred Sub Total Measured Indicated Inferred Sub Total Measured Indicated Inferred Sub Total Measured Indicated Inferred Sub Total Great Western 1.5 UG Underground – sub-total Darlot Region 0.5 OP Great Western 0.5 OP Open-pit – sub-total Darlot & Great Western UG & OP Resource - sub total Broken Stocks ROM Stockpiles – sub-total Darlot Gold Project (as at 30 June 2022) Grand total Variable Variable UG Measured UG & OP Measured Variable All Indicated Measured Inferred 2 7,149 4,846 11,998 0 57 142 199 12,196 100 810 3,508 4,418 6 83 97 186 4,604 16,800 16 251 267 375 8,099 8,593 17,067 7.4 4.3 3.9 4.1 0.0 4.0 3.1 3.4 4.1 1.0 1.2 0.7 1.4 2.8 2.7 1.9 2.3 1.4 3.4 2.3 0.6 0.7 0.8 4.0 2.6 3.4 1 987 612 1,599 0 7 14 22 1,621 3 31 76 200 1 7 6 14 214 1,834 1 5 6 10 1,032 708 1,840 2022 ANNUAL REPORT 15 MINERAL RESOURCES AND ORE RESERVES Statement (cont.) Darlot Gold Project JORC 2012 Resources and Reserves as at 30 June 2022 (cont.) Darlot Gold Project Mineral Resource as at 30 June 2021 Project Au cut off g/t Mining Method Classification Tonnes (kt) Grade Au (g/t) Contained Au (koz) Darlot and Great Western 0.5 - 2.0 UG & OP Indicated Measured Darlot and Great Western – sub-total Broken Stocks ROM Stockpiles – sub-total Darlot Gold Project (as at 30 June 2021) Grand total Inferred Variable Variable UG UG Measured Measured 0.5 - 2.0 All Darlot Gold Project Mineral Resources - difference Darlot Gold Project 0.5 - 2.0 All Grand total - difference Production for FY22 Darlot Gold Project Ore Reserve as at 30 June 2022 Measured Indicated Inferred Measured Indicated Inferred Proved Probable Proved Probable Proved Probable Proved Probable Proved Probable Au cut off g/t Mining Method 1.7 - 2.4 UG Variable Variable UG UG Proved Proved Variable All Variable Variable UG Proved UG & OP Proved Variable All Project Darlot Darlot – sub-total Broken Stocks ROM Stockpiles – sub-total Darlot Gold Project (as at 30 June 2022) Grand total Broken stocks ROM Stockpiles – sub-total Darlot Gold Project (as at 30 June 2021) Grand total Darlot Gold Project Ore Reserve as at 30 June 2021 Darlot and Great Western Variable UG & OP Darlot and Great Western – sub-total Darlot Gold Project Ore Reserve - difference Darlot Gold Project Variable All Grand total - difference Production for FY22 16 2022 ANNUAL REPORT 159 7,771 5,962 13,892 9 61 70 159 7,771 5,962 13,962 215 329 2,631 3,105 1,490 2.1 3.8 2.7 3.3 2.5 1.0 1.2 2.1 3.8 2.7 3.3 -1.3 0.2 -0.1 0.1 1.6 11 947 513 1,471 0.7 2.0 2.7 11 947 513 1,474 -1 85 285 366 78 0 1,256 1,256 16 33 49 49 1,256 1,305 104 2,309 2,414 9 41 50 154 2,309 2,464 -105 -1,053 -1,159 1,490 0.0 2.6 2.6 2.3 1.6 1.8 1.8 2.6 2.6 3.0 2.6 2.6 2.5 1.3 1.5 2.5 2.6 2.6 -0.7 0.0 0.0 1.6 0 106 106 1 2 3 3 106 109 10 191 201 1 2 2 12 191 203 -9 -85 -94 78 Classification Tonnes (kt) Grade Au (g/t) Contained Au (koz) MINERAL RESOURCES AND ORE RESERVES Statement (cont.) PHILIPPINE OPERATIONS SIANA GOLD PROJECT During the 2022 financial year, the Group divested its interests in the Siana Gold Project located in the Philippines and retains a 3.25% Net Smelter Return royalty payable up to 619,000oz of gold produced. COMPETENT PERSON’S STATEMENT Accountabilities for compilation of the 2022 annual Mineral Resource and Ore Reserve estimates are summarised in the table below. COMPETENT PERSONS FOR JORC 2012 MINERAL RESOURCE AND ORE RESERVE Discipline Competent Person Role Project Mineral Resources Byron Dumpleton Chief Geologist (Red 5 Limited) Ore Reserves Kevin Oborne Group Technical Services Manager (Red 5 Limited) King of the Hills Darlot Great Western Regional Resources King of the Hills Darlot Great Western Regional Resources Professional Membership Membership Number AIG 1598 AusIMM 226591 Mineral Resource Ore Reserve Mr Byron Dumpleton confirms that he is the Competent Person for the Mineral Resources summarised in this report and Mr Dumpleton has read and understood the requirements of the 2012 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code, 2012 Edition). Mr Dumpleton is a Competent Person as defined by the JORC Code, 2012 Edition, having five years’ experience that is relevant to the style of mineralisation and type of deposit described in this report and to the activity for which he is accepting responsibility. Mr Dumpleton is a Member of the Australian Institute of Geoscientists, No. 1598. Mr Dumpleton is a full time employee of Red 5 Limited. Mr Dumpleton has reviewed this report and consents to the inclusion of the matters based on his supporting information in the form and context in which it appears. Mr Dumpleton verifies that the Exploration Results and Mineral Resource estimate section of this report is based on and fairly and accurately reflects in the form and context in which it appears, the information in his supporting documentation relating to Open Pit and Underground Mineral Resource estimates. Mr Kevin Oborne confirms that he is the Competent Person for the underground and open-pit Ore Reserve estimates summarised in this report and Mr Oborne has read and understood the requirements of the 2012 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code, 2012 Edition). Mr Oborne is a Competent Person as defined by the JORC Code, 2012 Edition, having five years’ experience that is relevant to the style of mineralisation and type of deposit described in the report and to the activity for which he is accepting responsibility. Mr Oborne is a Member of the Australasian Institute of Mining and Metallurgy, No. 226591. Mr Oborne is a full time employee of Red 5 Limited. Mr Oborne has reviewed this report and consents to the inclusion of the matters based on his supporting information in the form and context in which it appears. Mr Oborne verifies that the Ore Reserve section of this report is based on and fairly and accurately reflects in the form and context in which it appears, the information in his supporting documentation relating to the Ore Reserves. Red 5 confirms that it is not aware of any new information or data that materially affects the information included in the original ASX market announcements and that all material assumptions and technical parameters underpinning the estimates in the relevant ASX market announcements continue to apply and have not materially changed. The Company confirms that the form and context in which the Competent Persons findings are presented have not been materially modified from the original market announcements. 2022 ANNUAL REPORT 17 MINERAL RESOURCES AND ORE RESERVES Statement (cont.) GOVERNANCE AND INTERNAL CONTROLS Mineral Resources and Ore Reserves are estimated either by suitably qualified consultants or internal personnel in accordance with the applicable JORC Code and using industry standard techniques and internal guidelines for the estimation and reporting of Mineral Resources and Ore Reserves. All data is collected in accordance with applicable JORC Code requirements. Ore Reserve estimates are based on pre-feasibility or feasibility studies which consider all material factors. The estimates and supporting data and documentation are reviewed by qualified Competent Persons (including estimation methodology, sampling, analytical and test data). GENERAL NOTES Mineral Resources are quoted as inclusive of Ore Reserves and Ore Reserves are quoted as inclusive of Mineral Resources. Discrepancy in summation may occur due to rounding. Figures take into account mining depletion as at 30 June 2022. Figures also include ROM and broken stocks for Darlot, Great Western and KOTH operations as at 30 June 2022. For information that relates to KOTH Resources, KOTH Regional Resources, KOTH Ore Reserves, Darlot Gold Project Resources, Darlot Gold Project Ore Reserves, refer to the ASX release dated 7 September 2022 and titled Ore Reserves and Mineral Resources Statement. KING OF THE HILLS GOLD PROJECT Mineral Resources: 1. The Measured component for the KOTH open pit resource is based on updated resource developed from the 70,000m Open Pit RC grade control drilling at a nominal drill spacing of 7 x 7m and 2m sample interval, refer to the Mineral Resource and Ore Reserve ASX release dated 7 September 2022. 2. The information that relates to Rainbow and Severn which forms part of the KOTH Regional resources refer to ASX release dated 1 May 2019 titled Maiden JORC open pit Resources defined for near-mine regional deposits at King of the Hills. 3. The information that relates to Centauri and Cerebus-Eclipse which forms part of the KOTH Regional resource refer to ASX release dated 6 May 2020 titled Additional Resources defined for satellite open pit deposits at King of the Hills. Ore Reserves: 1. KOTH reserves are based on a gold price of A$2,100/oz. 2. Cut-off grades for the KOTH open-pit are 0.4g/t Au, the KOTH underground are 1.2g/t Au, and regional resources are 0.4g/t Au. 3. KOTH open-pit and regional open-pit reserves generated with detailed pit designs based on A$2,000/oz pit shells. 4. Ore loss and dilution for the KOTH open-pit were reflected in the Selective Mining Unit process. 5. Underground reserves include 5% or 9koz of Inferred material entrained within stope designs. 6. The information that relates to the Rainbow, Centauri, and Cerebus- Eclipse open-pit reserves refer to ASX release dated 15 September 2020, titled KOTH Final Feasibility Study delivers 2.4Moz Ore Reserve, underpinning an initial 16-year mine life and confirming a clear pathway to production in 2022. DARLOT GOLD PROJECT Mineral Resources: 1. Darlot regional open pit resources includes the inaugural release of the Mission and Cable JORC 2012 resource. Refer to the Mineral Resource and Ore Reserve ASX release dated 7 September 2022. 2. The Darlot Region Open Pit Resource figures include the Waikato South (1,902kt @ 0.8g/t for 50koz) and Cornucopia North (62kt @ 1.3g/t for 3koz) deposits. The tenements on which these Resources are located are held under a Joint Venture with PanAust, where Darlot Mining Company (DMC) owns 84% and PanAust 16%. For information that relates to these deposits refer to the Red 5 Resource and Reserve growth at Darlot Gold Mine ASX release dated 10 February 2020. Ore Reserves: 1. The updates to the underground reserves are based on a gold price of A$2,300/oz. 2. Cut-off grades for the underground reserves are 2.4g/t Au. 3. Underground reserves have planned dilution varying between 10% to 20% with planned mining recovery between 90% to 95%. 4. Underground reserves include 7% or 7koz of Inferred material entrained within stope designs. 18 2022 ANNUAL REPORT TENEMENT Schedule 30 June 2022 WESTERN AUSTRALIA Project Tenement number King of the Hills Gold Mine Darlot Gold Mine E37/1385, E37/1409, E37/1410, L37/0211, L37/0248, L37/0250, M37/0021, M37/0067, M37/0076, M37/0090, M37/0179, M37/0201, M37/0222, M37/0248, M37/0330, M37/0394, M37/0407, M37/0410, M37/0416, M37/0429, M37/0449, M37/0451, M37/0457, M37/0496, M37/0529, M37/0544, M37/0547, M37/0548, M37/0551, M37/0570, M37/0571, M37/0572, M37/0573, M37/0574, M37/0905, M37/1050, M37/1051, M37/1081, M37/1105, M37/1165, P37/9157, P37/9160, P37/9161, P37/9270, P37/9271, P37/9281, P37/9282, P37/9283, P37/9284, P37/9286, P37/9287, P37/9288, P37/9289, P37/9290, P37/9291, P37/9293, P37/9294, P37/9295, P37/9392, P37/9393, P37/9394, P37/9395, P37/9396, P37/9397, P37/9398, P37/9399, P37/9400, P37/9401, P37/9402, P37/9403, P37/9404, P37/9405, P37/9406, P37/9407, P37/9408, P37/9409, P37/9410, P37/9491, P37/9492 P37/9285, P37/9292, P37/9626 E36/0865, E36/0940, E36/0941, E36/0944, E36/0945, E36/0964, E36/0968, E36/0969, E36/0980, E36/0997, E36/0999, E36/1002, E37/1054, E37/1194, E37/1195, E37/1210, E37/1247, E37/1253, E37/1268, E37/1269, E37/1296, E37/1297, E37/1298, E37/1319, E37/1321, E37/1322, E37/1350, E37/1352, E37/1369, E37/1378, E37/1393, E37/1395, E37/1398, E37/1400, E37/1413, E37/1415, E37/1428, G37/0037, L37/0118, L37/0206, L37/0207, L37/0223, L37/0224, L37/0230, L37/0231, L37/0237, M37/0054, M37/0155, M37/0252, M37/0373, M37/0417, M37/0418, M37/0419, M37/0420, M37/0503, M37/0584, M37/0592, M37/0608, M37/0667, M37/0774, M37/0775, M37/1217, P36/1879, P36/1883, P36/1884, P36/1889, P36/1920, P37/8587, P37/8699, P37/8716, P37/8788, P37/8789, P37/9210, P37/9345 E36/1027, L37/0238, P36/1921, P36/1931 E37/1220 E37/1271, E37/1272, E37/1273, E37/1274, E39/1706, E39/1854, E39/1985 Red 5 interest 100% 100% (Applications pending) 100% 100% (Applications pending) Right to explore and mine Sub-Lease Area Farm-in agreement to earn up to 80% M37/0552, M37/0631, M37/0709, M37/1045 M37/0246, M37/0265, M37/0320, M37/0343, M37/0345, M37/0393, M37/0776 30% 84% M37/0421, M37/0632 Montague Project M57/0429, M57/0485, E57/0793 100% with a portion of tenements at 30% via agreement 25% free carried Abbreviations M: Mining Lease P: Prospecting Licence E: Exploration Licence L: Miscellaneous Licence The Group divested its interests in the Siana gold project and the Mapawa gold project located in the Philippines, during the financial year. 2022 ANNUAL REPORT 19 DIRECTORS’ Report The Directors of Red 5 Limited (“Red 5” or “parent entity”) submit their report on the results and state of affairs of Red 5 and its subsidiaries (“the Group” or the “consolidated entity”) for the year ended 30 June 2022. Mark Williams Executive Director Appointment date Non-Executive Director from January 2014 and Managing Director since April 2014 1. DIRECTORS AND COMPANY SECRETARY Special responsibilities Managing Director Qualifications Dip CSM Mining, GAICD The names of the Directors of Red 5 in office during the course of the financial year and at the date of this report are as follows: Experience Kevin Anthony Dundo Mark James Williams Ian Keith Macpherson John Colin Loosemore Steven Lloyd Tombs Andrea Jane Sutton Fiona Elizabeth Harris (appointed on 8 June 2022) Unless otherwise indicated, all Directors held their position as a Director throughout the entire financial period and up to the date of this report. 1.1. INFORMATION ON DIRECTORS Kevin Dundo Non-Executive Chairman Appointment date Non-Executive Director since March 2010 and Non-Executive Chairman since November 2013 Special responsibilities Member of the Remuneration and Nomination Committee; Member of the Audit Committee; and Member of the Health, Safety and Community Committee. Mr Williams was previously General Manager of the Tampakan Copper-Gold Project in the southern Philippines from 2007 to 2013. He has over 25 years’ of mining experience operating within a diverse range of open cut, underground, quarrying and civil engineering environments across the developed markets of Australia, United Kingdom and New Zealand as well as the emerging markets of Philippines, Vietnam, Thailand and South Pacific. Mr Williams has not held directorships in any other listed companies in the past 3 years. Other listed company directorships Ian Macpherson Non-Executive Director Appointment date Special responsibilities April 2014 Chair of the Audit Committee; Member of the Remuneration and Nomination Committee; and Member of the Risk and Environment Committee. Qualifications B.Com, LLB, FCPA Qualifications B.Comm, CA Experience Other listed company directorships Mr Dundo practices as a lawyer and specialises in commercial and corporate areas with experience in the mining sector, the service industry and the financial services industry. Director of Imdex Limited (since January 2004); Avenira Limited (since October 2019); and Cash Converters International Limited (February 2015 to November 2020). Experience Other listed company directorships Mr Macpherson is a Chartered Accountant with over 35 years’ experience in the provision of financial and corporate advisory services. He was a former partner at Arthur Andersen & Co managing a specialist practice providing corporate and financial advice to the mining and mineral exploration industry. Mr Macpherson established Ord Partners in 1990 (later to become Ord Nexia) and has specialised in the area of corporate advice with particular emphasis on capital structuring, equity and debt raising, corporate affairs and stock exchange compliance for publicly listed companies. Director of RBR Group Ltd (since October 2010). 20 2022 ANNUAL REPORT DIRECTORS’ Report (cont.) 1. DIRECTORS AND COMPANY SECRETARY (cont.) Colin Loosemore Non-Executive Director Appointment date December 2014 Special responsibilities Chair of the Health, Safety and Community Committee; and Member of the Audit Committee. Qualifications B.Sc.Hons., M.Sc., DIC., FAusIMM Experience Mr Loosemore is a Geologist with over 40 years’ experience in multi-commodity exploration including over 30 years as a director of public exploration companies within Australia and overseas. He graduated from London University in 1970 and the Royal School of Mines in 1977. Mr Loosemore was most recently Managing Director of Archipelago Resources plc where he oversaw the development of the Toka Tindung Gold Mine in Sulawesi, Indonesia. Other listed company directorships Mr Loosemore has not held directorships in any other listed companies in the last 3 years. Steven Tombs Non-Executive Director Appointment date August 2018 Special responsibilities Chair of the Remuneration and Nomination Committee; and Member of the Risk and Environment Committee. Qualifications B.Sc.Hons, FAusIMM Experience Other listed company directorships Mr Tombs is a Mining Engineer with over 40 years’ experience in the mining industry in Australia and overseas. Mr Tombs graduated from Nottingham University in 1976 and was previously Red 5’s General Manager at Darlot and the Underground Project Manager at Siana. Mr Tombs previously held Senior Management positions at AngloGold Ashanti, Placer Dome and Newcrest in the Eastern Goldfields. Mr Tombs has not held directorships in any other public companies in the last 3 years. Andrea Sutton Non-Executive Director Appointment date November 2020 Special responsibilities Chair of the Risk and Environment Committee; and Member of the Health, Safety and Community Committee. Qualifications B.Eng Chemical (Hons), GradDipEcon, GAICD Experience Ms Sutton is a qualified Chemical Engineer and has over 25 years’ experience with Rio Tinto and ERA. Between 2013 and 2017, Ms Sutton was Chief Executive and Managing Director of ERA, then a Non-Executive Director from 2018 to 2020. Ms Sutton had extensive executive and operational leadership roles across Rio Tinto. This experience included Head of Health, Environment, Safety and Security; General Manager Operations at the Bengalla Mine and General Manager of Infrastructure, Iron Ore. Other listed company directorships Non-executive director of: DDH1 Holdings Pty Ltd (since February 2021); Iluka Resources Limited (since March 2021); and Energy Resources of Australia Ltd (October 2018 to May 2020). Fiona Harris Non-Executive Director Appointment date June 2022 Special responsibilities - Qualifications B.Com, FCA, FAICD Experience Other listed company directorships Ms Harris is a qualified Chartered Accountant with over 25 years’ experience as a non- executive director, including on a number of internationally-focused listed energy and natural resources companies. She is a former WA State President and National Board Member of the Australian Institute of Company Directors, and is a member of Chief Executive Women. Ms Harris was previously a partner of chartered accountants, KPMG. Non-executive director of: BWP Trust (since October 2012); Oil Search Ltd (January 2017 to December 2021). 2022 ANNUAL REPORT 21 DIRECTORS’ Report (cont.) 1. DIRECTORS AND COMPANY SECRETARY (cont.) 1.2. INFORMATION ON COMPANY SECRETARY Frank Campagna Appointment date Qualifications Experience Company Secretary June 2002 B.Bus (Acc), CPA Mr Campagna is a Certified Practicing Accountant with over 25 years’ experience as Company Secretary, Chief Financial Officer and Commercial Manager for listed resources and industrial companies. He presently operates a corporate consultancy practice that provides corporate secretarial and advisory services to listed and unlisted companies. 1.3. DETAILS OF DIRECTORS’ INTERESTS IN THE SECURITIES OF RED 5 AS AT THE DATE OF THIS REPORT ARE AS FOLLOWS: Director Kevin Dundo Mark Williams Ian Macpherson Colin Loosemore Steven Tombs Andrea Sutton Fiona Harris Fully paid shares Performance rights Service rights Deferred rights 1,905,249 15,860,891 1,580,000 10,108,190 2,719,579 - - - 5,303,575 - - - - - - - - - - - - - - - - - - - 1.4. DIRECTOR’S MEETINGS The number of meetings of the Board of Directors of Red 5 and of each Board committee held during the year ended 30 June 2022 and the number of meetings attended by each Director whilst in office are as follows: Board meetings Audit Committee Remuneration & Nomination Committee Risk & Environment Committee Health, Safety & Community Committee Director Eligible Attended Eligible Attended Eligible Attended Eligible Attended Eligible Attended Kevin Dundo Mark Williams Ian Macpherson Colin Loosemore Steven Tombs Andrea Sutton Fiona Harris 8 8 8 8 8 8 1 8 8 8 8 8 8 1 3 - 3 3 - - - 3 - 3 3 - - - 6 - 6 - 6 - - 6 - 6 - 6 - - - - 1 - 1 1 - - - 1 - 1 1 - 1 - - 1 - 1 - 1 - - 1 - 1 - 2. PRINCIPAL ACTIVITIES The principal activities of Red 5 and the consolidated entity (which includes associated entities of Red 5) during the financial period were gold mining and mineral exploration. 22 2022 ANNUAL REPORT DIRECTORS’ Report (cont.) 3. RESULTS OF OPERATIONS The consolidated result for Red 5 Limited was a net loss after income tax for the year ended 30 June 2022 of $28,615,000 (2021: Loss of $43,245,000). The consolidated result incorporates two one-off adjustments: 1. With the Darlot underground transitioning to a satellite mine providing ore to King of the Hills, accelerated depreciation and impairments for the Darlot Process Plant (now in care and maintenance) totalled $22.585 million. 2. Completing the Siana Gold Mine divestment resulted in a gain from discontinued operations of $20.049 million. The current year results include an unaudited underlying EBITDA (a) loss of $4,258,000 (2021: Profit of $11,635,000). 30 June 2022 30 June 2021 $’000 164,962 $’000 173,358 (153,934) (147,848) 208 692 Sales revenue Cost of sales (excluding depreciation) Other income Administration and other expenses (excluding depreciation) Care and maintenance (excluding depreciation) Exploration expenditure Underlying EBITDA 3.1 OPERATING REVIEW Red 5, with the support of its EPC partner MACA Interquip, completed construction of Red 5’s new King of the Hills Gold Mine (KOTH) within budget and on schedule, with the first gold pour on 5 June 2022. Meanwhile, Red 5 delivered steady-state gold production from its Darlot Gold Mine, with ore sourced from the Darlot underground mine and Great Western satellite open pit mine. In July 2022, the Darlot process plant was placed into care and maintenance, with the Darlot underground mine transitioning to a satellite mine to King of the Hills. (a) Covid-19 response Red 5 continues to manage and mitigate the potential impact of the COVID-19 global pandemic on the Company’s operations. The Management Response Plan remains focused on ensuring the health and safety of Red 5 personnel and limiting the disruption risk to our operations. This plan has been progressively developed in line with the formal guidance of State and Federal health authorities, in close coordination with the Australian Resources and Energy Group (AMMA) and under the Company’s existing Emergency Management Policies. (12,972) (9,281) - (2,522) (4,258) (2,069) (3,217) 11,635 The Company continues to closely monitor the advice and requirements from State and Federal Governments and health authorities and maintain its focus on minimising the effects of COVID-19 on the health and well-being of staff and the communities in which we operate. (a) Underlying earnings before interest, taxes, depreciation and (b) Construction of the King of the Hills amortisation (EBITDA) is an unaudited non - IFRS measure and is a common measure used to assess profitability before the impact of different financing methods, income taxes, depreciation of property, plant and equipment and amortisation of intangible assets, fair value movements and ineffective cashflow hedges. The underlying EBITDA reconciles to the profit/(loss) before tax as follows: Underlying EBITDA Financing income Financing expenses Ineffective portion of cashflow hedges Depreciation and amortisation (Loss)/profit from continuing operations before income tax expense 30 June 2022 30 June 2021 $’000 (4,258) 8 (2,815) $’000 11,635 347 (1,345) - (1,410) (42,514) (23,493) (49,579) (14,266) (KOTH) project FY22 marked a defining period in Red 5’s growth pathway to becoming a mid-tier Australian gold producer with the construction of the KOTH project. First gold at KOTH was achieved on 5 June 2022, with construction completed on time and on budget. This was achieved despite a very challenging operating environment due to COVID-19, closed borders and disruptions to both global supply chains and local labour markets. The new 4.7Mtpa process plant is now commissioned and ramping up towards full production. The SAG mill is currently operating at moderate load and power draw, which is indicative of the potential of this low-cost processing hub. The open pit and underground mines are both operational and are delivering ore to the process plant. Deliveries of ore from the Darlot satellite underground mine began in August 2022, and the processing plant is ramping up towards the target throughput of 4.7Mtpa. There is a significant amount of ore on the KOTH ROM pad, representing approximately three months of production. 2022 ANNUAL REPORT 23 DIRECTORS’ Report (cont.) 3. RESULTS OF OPERATIONS (cont.) 3.1 OPERATING REVIEW (cont.) (c) Gold operations A total of 66,871 ounces of gold was recovered for the 12 months to 30 June 2022, with ore predominantly sourced from the Darlot and Great Western gold mines. Darlot achieved its production guidance for FY22. A summary of key production statistics for the year ended 30 June 2022 and 30 June 2021 is provided below: Year ended Units 30 June 2022 30 June 2021 Mined tonnes Mined grade Tonnes milled Average head grade Recovery Gold recovered Gold operational sales t g/t t g/t % oz oz 2,660,914 931,002 1.15 2.57 1,359,974 984,220 1.66 92.1 66,871 64,315 2.63 91.5 76,104 75,907 In July 2022, the Darlot Gold Mine has transitioned to a satellite underground mine to King of the Hills, with the majority of surface employees at Darlot transitioning or having already transitioned to King of the Hills. As a result, the Darlot process plant has been placed into care and maintenance. Following a review of the related assets at Darlot, one-off accelerated depreciation and inventory write-downs totalling $22.585 million have been applied in FY22. (d) Siana Gold Project, Philippines In July 2021, the Group entered into a binding agreement with TVI Resource Development (Phils) Inc to divest its interests in Philippine-affiliated company, Greenstone Resources Corporation (GRC), which holds the Siana Gold Project and the Mapawa Gold Project in the Philippines. Financial close on this transaction was achieved in September 2021. These transactions have been classified as discontinued for the purpose of the financial statements. (e) Exploration and Resource Development During FY2022, results were reported for drilling completed at the Darlot Underground Mine, delivering high-grade results from multiple locations. The drilling forms part of an ongoing exploration and Resource development program at Darlot focused on extending new mining areas such as Middle Walters South and reducing the dependency on remnant mining. Results reported included strong intercepts from Middle Waters South and positive results from Dar-Cent, Oval 1300 and Pedersen Lower, all of which offer the opportunity for Resource growth. Full details of the drilling and assay results were provided in the Company’s ASX Announcement dated 22 February 2022. Darlot also commenced drilling as part of the government-funded Exploration Incentive Scheme (EIS) hole (CAX0075) which commenced in the June Quarter. The hole is designed primarily to target the Pipeline Fault to the south of the underground workings proximal to an interpreted jog or zone of flattening. This change in geometry could generate a favourable dilation and mineralisation site. The hole also intersects the Lords Fault enroute to target, with the nearest existing drill hole approximately 350 metres north of the target area. For regional exploration, the Exploration team focused on several geochemical surveys utilising a Portable X-ray analysis tool across the exploration tenements. Upon completion of this work, the team used the results to refine existing programs and identified additional grass root targets. (f) Corporate During the year, the Group drew down all of the $175 million debt funding package supporting the construction and development of King of the Hills. Repayments of the debt funding package will commence in December 2022 over four years. Borrowing establishment costs of $2.730 million were capitalised to the loan. Ms Fiona Harris AM was appointed as a Non-Executive Director of the Board, effective from 8 June 2022. Red 5 has appointed Mr Patrick Duffy as Chief Financial Officer of the Company, effective from 1 September 2022. Mr Duffy is currently Red 5’s Chief Corporate Development Officer, and this role will be consolidated with the CFO position. Consideration under the transaction was as follows: \ US$19 million cash (approximately A$25.3 million) paid upon 3.2 FINANCIAL REVIEW completion; and (a) Gold sales \ Net Smelter Return royalty of 3.25% payable for up to 619,000 ounces of gold, with an estimated future face value of US$36 million (based on a US$1,800/oz gold price). As per the accounting standards, the royalty represents a variable consideration and is treated as a contingent asset pending re-commencement of production at Siana, hence royalty accounting value is not recorded as at 30 June 2022. The completion of the divestment in the Siana Gold Mine resulted in a gain from discontinued operations of $20.049 million in FY22. Gold and silver sales for the reporting period totalled $164,962,000 with 64,315 gold ounces sold at an average price of $2,526 per ounce (2021: $173,358,000 with 75,907 gold ounces sold at an average price of $2,252 per ounce). 24 2022 ANNUAL REPORT DIRECTORS’ Report (cont.) 3. RESULTS OF OPERATIONS (cont.) 3.2 FINANCIAL REVIEW (cont.) (b) Income statement The Group recorded a net loss after tax for the year ended 30 June 2022 of $28,615,000 in comparison to a net loss after tax for the year ended 30 June 2021 of $43,245,000. The consolidated result incorporates two one-off adjustments: 1. With the Darlot underground transitioning to a satellite mine providing ore to King of the Hills, accelerated depreciation and inventory write-down for the Darlot Process Plant (now in care and maintenance) totalled $22.585 million in FY22. 2. The completion of the divestment in the Siana Gold Mine resulted in a gain from discontinued operations of $20.049 million. 64,315 ounces of gold was sold during the year, predominantly from the Darlot operation, which, together with silver sales and hedging adjustments, resulted in total revenue of $164,962,000. Cost of sales for the period of $196,049,000 comprised production costs, royalties, movement in stockpiles and depreciation charges (including the $22,585,000 relating to Darlot accelerated depreciation and inventory write-down). (c) Balance sheet Total assets increased from $345,485,000 to $577,365,000 at 30 June 2022. The net increase in total assets was driven by the construction of the KOTH processing plant and related infrastructure, mine development and right of use assets associated with major contracts. Total liabilities were $394,570,000, an increase of $279,961,000 from 30 June 2021. This was mainly driven by fully drawing down the KOTH construction facility of $175,000,000 and the recognition of right-of-use lease liabilities at KOTH of $96,098,000. (d) Cash flow During the year, cash and cash equivalents increased by $14,398,000. Net cash outflows from operating activities for the period were $2,359,000. Cash receipts from customers of $158,606,000 reflect the sale of gold and silver, which benefited from higher gold prices during the year. This was offset by cash outflows of $160,695,000, driven by operational spending at Darlot and Great Western, exploration activities and interest payments. Net cash outflows used in investing activities for the period were $160,104,000, reflecting the completed construction of the King of the Hills processing plant ($94,844,000) and mine development activities ($82,729,000). This was partially offset by proceeds from selling the Siana operation in the Philippines ($21,467,000). The net cash from financing activities of $176,861,000 reflects the net proceeds received from the construction facility ($175,000,000) and the transfer of $13,000,000 from restricted cash for the construction of the new tailings storage facility at King of the Hills. This is offset by payments made on lease liabilities ($8,409,000) and debt establishment and interest costs ($2,730,000). 4. DIVIDENDS No amounts were paid by way of dividends since the end of the previous financial year (2021: Nil). At the time of this report, the Directors do not recommend the payment of a dividend. 5. OPTIONS GRANTED OVER SHARES No options were granted during or since the end of the financial year. No person entitled to exercise the options has any right by virtue of the option to participate in any share issue of Red 5 or any other corporation. 6. PERFORMANCE RIGHTS At the date of this report, there were 37,906,342 performance rights convertible into ordinary fully paid shares. Vesting date: 30 June 2023 (LTIP rights subject to performance conditions) Vesting date: 30 June 2023 (PIO rights subject to performance conditions) Vesting date: 30 June 2024 (LTIP rights subject to performance conditions) Number 7,945,729 11,550,613 18,410,000 37,906,342 In December 2019, a total of 10,442,031 performance rights (Performance Rights) that were issued to key management personnel, senior management and operating personnel were vested following the partial achievement of performance conditions (being Total Shareholder Return outperformance against the All Ordinaries Gold Index and increases in ore reserves), measured over the three years ended 30 June 2022. Upon vesting, 5,576,211 Performance Rights have been exercised into an equivalent number of ordinary fully paid shares in accordance with the terms of the Plan. The balance of 4,865,820 Performance Rights were forfeited due to performance conditions not being met (being operating costs performance against budget and safety compliance) and personnel exiting the company during the performance period. 7. INDEMNIFICATION AND INSURANCE OF DIRECTORS, OFFICERS The Company has made an agreement indemnifying all the Directors and officers of the Company against all losses or liabilities incurred by each Director or officer in their capacity as Directors or officers of the Company to the extent permitted by the Corporations Act 2001. The indemnification specifically excludes wilful acts of negligence. The Company paid insurance premiums in respect of Director’s and Officer’ Liability Insurance contracts for current officers of the Company, including officers of the Company’s controlled entities. The liabilities insured are damages and legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of entities in the Group. During the financial year, Red 5 paid premiums of $459,687 (2021: $318,825). 2022 ANNUAL REPORT 25 DIRECTORS’ Report (cont.) 8. EVENTS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR In the first quarter of FY23, the Darlot Gold Mine’s processing plant was wound down and the Darlot operation has been transitioned to a satellite underground mine to provide ore to King of the Hills, with the majority of surface employees at Darlot transitioning or having already transitioned to King of the Hills. As a result, the Darlot process plant was placed into care and maintenance in July 2022. Other than the matters discussed above, there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years. 9. LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS In the opinion of the Directors, the successful completion of the KOTH Project will transform the future operating and financial performance of the Group. In the first half of FY23, KOTH is expected to steadily ramp up to full commercial production and deliver a step-change in operational performance and cost efficiency. This will establish a stable platform for continued growth and development at Red 5 well into the future. 10. BUSINESS STRATEGY AND PROSPECTS FOR FUTURE YEARS Business strategy The Group’s business strategy is firmly anchored in the Company vision of being a successful multi-operational exploration and mining company, providing benefits to all stakeholders, through the consistent application of technical excellence, and responsible and sustainable industry practices. With KOTH gold production ramping up in the first half of FY23, the Company is looking forward to another transformational year as it takes further important steps to deliver on its strategy of becoming a substantial Australian gold producer. To achieve the strategy, the Company will focus on: \ Unlocking the full potential of the KOTH operation; \ Attracting and retaining an experienced leadership and operating team; and \ Enhancing balance sheet strength and scale to achieve growth through economic and commodity price cycles. The substantial KOTH mineral resource and reserves underpin the future of Red 5, with the large KOTH bulk open pit providing the primary feed to the KOTH process plant, complemented by the additional higher-grade ore sources from the KOTH and Darlot underground mines. The longer-term strategy at KOTH is to expand the processing capacity, and to this end, the Company will embark on targeted technical studies to optimise and realise the full potential of this long-life deposit. The business plans associated with the strategy are in place, and the LOM plans demonstrate very robust future cash flows. The positive cash flow generated over a 16-year mine life will position the Company in the future to evaluate and undertake strategic acquisitions that align with the goal of becoming a major regional gold producer. Material Business Risks Red 5’s business, operating and financial results and performance are subject to various risks and uncertainties, some of which are beyond the Company’s reasonable control. Set out below are matters which the Directors consider relevant and that have the potential to impact the achievement of the business strategies. The matters identified are not necessarily listed in order of importance and are not intended as an exhaustive list of all business risks and uncertainties. External economic drivers (including macroeconomic, metal prices and exchange rates) \ The Company is exposed to fluctuations in the Australian dollar gold price, which can impact future revenue streams. As a mitigation, the Company has a partial gold price hedging program to assist in offsetting variations in the Australian dollar gold price, providing price certainty over a fixed portion of future production. \ The Company is exposed to global inflationary pressures across a range of input costs such as oil and gas, operating and maintenance parts and consumables and labour. As a mitigation the company collaborates with its suppliers to identify ways to manage these cost pressures. Reserves and Resources: \ The Mineral Resources and Ore Reserves for the Group’s assets are estimates only in compliance with industry standards, and no assurance can be given that future production will achieve the expected tonnages and grades. 26 2022 ANNUAL REPORT Capital and Liquidity \ The Company has processes in place to monitor and manage its liquidity and capital structure to ensure sufficient funds are available to meet the Group’s financial commitments. Red 5 has a single debt facility with external financiers. Health and Safety \ Red 5 has implemented management systems which promote a strong safety culture and support a genuine commitment to keep its people and stakeholders safe and healthy. The Company’s safety management practices are focused on a bottom-up approach supporting the organisational values. Environmental \ The Company has environmental liabilities associated with its tenements. The Company monitors its ongoing environmental obligations and risks and implements preventative, rehabilitation and corrective actions as appropriate. Community relations \ Red 5 has an established community relations function that includes principles, policies and procedures designed to provide a structured and consistent approach to community activities. Red 5 recognises that a failure to manage local community stakeholder expectations appropriately may lead to dissatisfaction, potentially disrupting production and exploration activities. 11. ENVIRONMENTAL REGULATIONS The consolidated entity is subject to significant environmental regulation in respect to its mineral exploration activities. These obligations are regulated under relevant government authorities within Australia. The consolidated entity is a party to exploration and development licences and has beneficial interests in Mineral Production Sharing Agreements. Generally, these licences and agreements specify the environmental regulations applicable to exploration and mining operations in the respective jurisdictions. The consolidated entity aims to ensure that it complies with the identified regulatory requirements in each jurisdiction in which it operates. Compliance with environmental obligations is monitored by the Risk and Environment Committee. There have been no significant environmental breaches during the year ended 30 June 2022. DIRECTORS’ Report (cont.) 10. BUSINESS STRATEGY AND PROSPECTS FOR FUTURE YEARS (cont.) Operational risks: \ Drilling, mining and processing activities carry risk and as such, activities may be curtailed, delayed or cancelled as a result of a number of factors outside the Company’s control. These include geological conditions, technical difficulties, securing and maintaining tenements, weather, residue storage and tailings storage facility failures and construction of efficient processing facilities. The operation may be affected by force majeure, fires, labour disruptions and availability, landslides, the inability to obtain adequate machinery, engineering difficulties and other unforeseen events. As with most mines, reserves, resources and stockpiles are based on estimates of grade, volume and tonnage. The accuracy and precision of these estimates will depend upon drill spacing and other information such as continuity, geology, rock density, metallurgical characteristics, mining dilution and costs, etc. which evolve as the mine moves through different parts of the ore body. Red 5 endeavours to take appropriate action to mitigate these operational risks (including by properly documenting arrangements with counterparties and adopting industry best practice policies and procedures) or to insure against them, but the occurrence of any one or a combination of these events may have a material adverse effect on the Company’s performance and the value of its assets. COVID-19 \ Red 5 has continued to manage the Company’s ongoing response to COVID-19 in cooperation with our contractors. The COVID-19 situation remains unpredictable, and the Company will continue to monitor and manage for potential impacts, particularly around labour availability. \ The Company is maintaining a range of measures across its business consistent with advice from State and Federal health authorities and commensurate with the community risk profile. These measures help ensure the health and welfare of our employees and their respective communities. Legal compliance and maintaining title \ The Company has systems and processes in place to ensure title to all its properties, but these can be subject to dispute or unforeseen regulatory changes. Climate Change \ Changes to climate-related regulations and government policy have the potential to impact our future financial results. These changes may include the imposition of a carbon tax on carbon output or the implementation of new regulatory requirements for diesel or other fossil fuel consumption used in Red 5’s operations. 2022 ANNUAL REPORT 27 DIRECTORS’ Report (cont.) 12. REMUNERATION REPORT LETTER FROM THE CHAIRMAN OF BOARD Dear shareholders I am pleased to present Red 5’s Remuneration Report for the Financial Year to 30 June 2022 (FY22). FY22 Performance Summary The last 12 months has seen Red 5 navigate through the enduring impact from the COVID-19 pandemic, chronic labour skill shortages and global breakdown in the supply chain of key parts and spares. Despite these challenges, Red 5 has achieved significant milestones over the year including successful commencement on time and budget of the KOTH mine, and meeting the production guidance for the Darlot mine. These outcomes translated to significant share price out-performance (see Chart 1) and assured enduring organisation capability key to the sustainable growth of Red 5 and ongoing value to shareholders. Chart 1: Red 5’s share price performance vs. All Ordinaries Gold Index over the past 12 months RED 5 All Ordinaries Gold Index Jun 2021 Aug 2021 Oct 2021 Dec 2021 Feb 2022 Apr 2022 160% 120% 8% 40% 32% 0% -25% -40% Jun 2022 Remuneration Outcomes When determining the FY22 remuneration outcomes, the Board has carefully considered the achievements made over the year in combination with the unforeseen factors that have impacted the Company. The Board believes the outcomes (as outlined below) are reasonable as they provide appropriate alignment between executive performance, shareholder returns and recognition of executive retention criticality over the next business phase. Refer to Section 12.5 for further details. \ Total Fixed Remuneration (TFR): the TFR for Managing Director and Chief Financial Officer (CFO) increased by 7% (from $643,200 to $687,500) and 6% (from $415,388 to $440,000) over the year. The TFR adjustments were considered necessary to ensure market competitiveness based on external remuneration benchmarking analysis. \ Short Term Incentive Plan (STI): while the production gateway was not met, the Board exercised its discretion to award 50% STI outcomes to executives which were settled in Service Rights subject to continued employment. This decision recognises the magnitude of external unforeseen factors outside of management’s control which have influenced the production gateway and other STI metrics such as all in sustaining costs. Refer to Section 11.5.2 for further details. \ Long Term Incentive Plan (LTI): Red 5’s total shareholder return over the past three years (19.92%) represents significant outperformance against the S&P/ASX All Ordinaries Gold Index (-10.98%). Ore reserves over the same period have grown by well over 200%. Achieving stretch levels in these two metrics has resulted in 70% of FY20 LTI awards vesting in FY22. Refer to Section 11.5.3 for further details. \ NED Fees: there were no increases to the NED fees in FY22. 28 2022 ANNUAL REPORT DIRECTORS’ Report (cont.) Changes to the Remuneration Framework The Board regularly reviews our executive remuneration structure to ensure it continues to drive shareholder value and enables us to attract and retain the talent we need. As we embed our new flagship KOTH mine, the Board has decided to adopt changes to our remuneration arrangements to further strengthen the alignment of executives with key business imperatives and ensuring a focus on long-term sustainability of returns for shareholders. These changes are summarised below. Refer to Section 11.7 for details. FY22 - Discontinue the Project Incentive Opportunity (PIO) The PIO was implemented in FY22 as a one-off program at a critical stage of the business, specifically designed to align CEO and executives on delivering the flagship KOTH project and achieving production targets at the Darlot site. With KOTH now successfully commissioned, outcomes of the PIO metrics will be evaluated after 30 June 2023 being the end of the performance period. The performance achievements and any vesting outcomes will be provided in the 2024 Remuneration Report. FY23 – Rebalance the pay mix for the CEO and executives Recognising Red 5’s growth as a gold producer and alignment with market peers, the Board has rebalanced the pay mix to enhance the focus of executives over the longer term. This will see CEO and executives remuneration mix decrease in weighting for annual incentives (STI) and increase in weighting for long term incentives (LTI). FY23 – Simplify the deferred equity structure and rebalance performance measures for STI STI outcomes for the CEO and executives will continue to be delivered in 50% cash and 50% deferred equity, comprising Service Rights. To simplify and align with contemporary market practice, the deferred equity structure will be in the form of service-based rights only which may vest subject to 12 month continued employment. Previously it was in the form of both service-based and deferred rights. Short term metrics linked to the STI will also be rebalanced to equal weightings across all short term key performance indicators. FY23 - Remove the re-testing mechanism and production gateway from the LTI The re-testing mechanism for the relative Total Shareholder Return (TSR) vesting hurdle will be removed, based on misalignment with market practice and shareholder views. Whilst the positive TSR gateway will remain, the Board has determined the production gateway is no longer appropriate for the LTI. This change recognises production performance continues to be a key metric for the STI and the positive TSR gateway requirement on the LTI is sufficient to ensure appropriate outcomes for executives are also in the interests of shareholders. The Board is confident that Red 5’s current and planned remuneration policies continue to support the financial and strategic goals of the business as a leading gold producer. We are committed to transparency and an ongoing dialogue with shareholders on remuneration and to this end we have made changes to the 2022 Remuneration Report to improve the overall format and flow of information. On behalf of the Board, I invite you to review the full report and thank you for your continued support of Red 5. Sincerely Kevin Dundo Chairman TABLE OF CONTENTS This Remuneration Report (Report) outlines the remuneration arrangements in place for key management personnel (KMP) of Red 5 Limited (Red 5 or the Company) for the year ended 30 June 2022 (FY22) in accordance with the requirements of the Corporations Act 2001 and its Regulations. The Report contains the following main sections: 12.1 Who is covered by this Remuneration Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 12.2 Remuneration Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 12.3 Principles of Remuneration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 12.4 Executive Remuneration Framework and Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 12.5 FY22 Executive Remuneration Outcomes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 12.6 Non-Executive Directors’ Remuneration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 12.7 Planned Remuneration Approach for FY23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 12.8 Details of Remuneration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 12.9 Additional Remuneration Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 2022 ANNUAL REPORT 29 DIRECTORS’ Report (cont.) 12. REMUNERATION REPORT (AUDITED) (cont.) 12.1 WHO IS COVERED BY THIS REMUNERATION REPORT For the purposes of this Report, KMP are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the consolidated entity, including any Director (whether Executive KMP or Non-Executive Director (NED)) of Red 5. The following were the KMP of the Company at any time during the year ended 30 June 2022 and unless otherwise indicated, KMP for the entire period: Name Executive Director Mark Williams Current Executive KMP Jason Grieve John Tasovac Non-Executive Directors Kevin Dundo Ian Macpherson Colin Loosemore Steven Tombs Andrea Sutton Fiona Harris Position Term as KMP Managing Director Chief Operating Officer Chief Financial Officer Chairman, Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Full year Full year Full year Full year Full year Full year Full year Full year Independent Non-Executive Director Appointed on 8 June 2022 12.2 REMUNERATION GOVERNANCE KMP remuneration decision making is directed by Red 5’s remuneration governance framework as follows: Board Take an active role in the governance and oversight of Red 5’s remuneration policies and have overall responsibility for ensuring that the Company’s remuneration strategy aligns with Red 5’s short- and long-term business objectives and risk profile. Remuneration Committee (Committee) Responsible for reviewing the remuneration arrangements for KMP and make recommendations to the Board including: \ reviewing remuneration levels and other terms of employment on an annual basis having regard to relevant market conditions, qualifications and experience of the KMP, and performance against targets set for each year where applicable. \ advising the Board on the appropriateness of remuneration packages / structures of the Company, given trends in comparative peer companies both locally and internationally, with the overall objective of ensuring maximum stakeholder benefit from the retention of a high calibre Board and executive team. The Committee’s charter can be found on the Company’s website at: www.red5limited.com/site/about-red5/corporate-governance External Remuneration Consultants To ensure the Committee is fully informed when making remuneration decisions, it may seek external, independent remuneration advice on remuneration related issues. Share trading policy During the year, the Committee engaged consultants BDO Rewards and The Reward Practice Pty Ltd to provide remuneration services in respect to external benchmarking and general insights for executive incentive arrangements. During the period no remuneration recommendations, as defined by the Corporations Act, were provided by the consultants. Red 5’s share trading policy prohibits KMP (that are granted share-based payments as part of their remuneration) from entering into other arrangements that limit their exposure to losses that would result from share price decreases. Entering into such arrangements is also prohibited by law. 30 2022 ANNUAL REPORT DIRECTORS’ Report (cont.) 12. REMUNERATION REPORT (AUDITED) (cont.) 12.3 PRINCIPLES OF REMUNERATION Four principles guide Red 5’s remuneration policies and practices: Remuneration quantum should target the middle to upper quartile of the market that Red 5 operates in to attract and retain the key talent required. At-risk reward should be based on the achievement of challenging targets over the short term (1 year) and long term (3 years +). Emphasis of reward programs should be to motivate and retain key talent over the long term. An appropriate mix of cash and equity awards so that over time executives and employees are aligned with the long-term interests of shareholders. Note NEDs do not receive remuneration related to performance or participate in any incentive plans. 12.4 EXECUTIVE REMUNERATION FRAMEWORK AND COMPONENTS Executives receive fixed remuneration and variable remuneration consisting of short and long term incentive opportunities. Executive remuneration levels are reviewed annually by the Remuneration Committee with reference to the remuneration guiding principles and market movements. The following diagram presents a high-level summary of remuneration components for executive KMP for FY22. Fixed remuneration Base salary + superannuation + benefits Variable remuneration STI Plan LTI Plan Cash Service Rights (1 year) Deferred Rights (1 year) Rights (3 years) 50% financial performance 50% non-financial performance 70% relative TSR 30% growth in reserves One- off incentive Project Incentive Opportunity (PIO) Performance Rights (2 years) 50% gold production 25% ore processed 25% development metres In addition, various minimum gateways are in place that need to be achieved in order to be awarded the variable remuneration component. The following diagram sets out the mix for fixed and “at risk” remuneration for executive KMP at maximum opportunity level for FY22 based on the potential of a 100% vesting of STI and LTI. Note given the one-off nature of the PIO it is excluded from the remuneration mix analysis. 2022 Remuneration Mix (at Maximum Opportunity) Managing Director 42% 26% 32% 58% Total at risk Other KMP’s 60% 27% 13% 40% 0% 50% 100% Fixed STI (at risk) LTI (at risk) 2022 ANNUAL REPORT 31 DIRECTORS’ Report (cont.) 12. REMUNERATION REPORT (AUDITED) (cont.) 12.4 EXECUTIVE REMUNERATION FRAMEWORK AND COMPONENTS (cont.) Fixed remuneration Fixed remuneration consists of base salary, superannuation and optional salary sacrifice benefits. It is designed to recognise the execution of business strategy and the qualifications, experience and accountability of executives. It is set with reference to comparable roles in similar companies. STI The following table outlines the FY22 STI arrangements in detail: What is the purpose? \ Reward executive KMP for the achievement of Red 5’s annual targets linked to business strategy and shareholder value; \ Ensure that executives have commonly shared objectives related to the delivery of annual business plans; \ Encourage share ownership among senior roles; and \ Provide a component of remuneration to enable the Company to compete effectively for the calibre of talent required for it to be successful, on a short to medium term basis. STI awards are paid in 50% cash and 50% equity following the conclusion of performance period. The 50% equity component is to be satisfied in 25% Service Rights (subject to 12 month continued service) and 25% Deferred Rights (which vest immediately into restricted shares which are subject to a 2 year disposal restriction). How is it paid? What is the target incentive opportunity? STI opportunity is set as a percentage of TFR. Subject to performance, the MD was entitled to an opportunity of up to 60% and other executive KMP were entitled to an opportunity of up to 50%. What is the performance period? The STI is offered annually and is measured over a single financial year. How is performance assessed? An executive’s actual award is based on meeting KPIs set in advance of the financial year. The KPIs comprise financial and non-financial objectives which directly align the individual’s reward to the Company’s annual business plans. The KPIs set for the FY22 awards were: \ Company Financial: budgeted EBITDA (30%) \ Gold production: across both Darlot and KOTH (20%) \ Safety: assessed by Total Recordable Injury Frequency Rate (TRIFR) and no fatalities (20%) \ Cost management: via All-in-Sustaining-Cost (AISC) per ounce (20%) \ Individual effectiveness: measured by Board or Managing Director (where applicable) (10%) KPIs are set at threshold, target, and stretch levels resulting in payout at 50%, 100% and 200% of target opportunity. What is the gateway? An overall gateway of 90% of budgeted gold production level must be achieved before any award is made under the STI. What vesting conditions / dealing restrictions apply to the equity components of the STI award? The Service and Deferred Rights granted following the performance period based on KPI outcomes and are intended to prevent the equity being sold for a period of 12 and 24 months respectively. \ Service Rights (50% of the equity component) vest into shares 12 months after the grant date based on continued employment with the Company (no further restriction period applies following the vesting); \ Deferred Rights (50% of the equity component) vest immediately into restricted shares which are subject to dealing restrictions for 24 months after the performance period. The purpose of deferral / restrictions is to manage the risk of short-termism inherent in setting short term objectives, promote sustainable value creation and build further alignment with shareholder interest. 32 2022 ANNUAL REPORT DIRECTORS’ Report (cont.) 12. REMUNERATION REPORT (AUDITED) (cont.) 12.4 EXECUTIVE REMUNERATION FRAMEWORK AND COMPONENTS (cont.) LTI The following table outlines the FY22 LTI arrangements in detail: What is the purpose? \ To promote the alignment of interest between executives and shareholders through the holding of equity. As such, LTI awards are generally granted to executives and management who are able to influence the future of Red 5, and/or in a position to contribute to shareholder wealth creation; \ Ensure that executives have commonly shared goals related to producing relatively high return for shareholders; \ Encourage share ownership among senior roles; \ Provide a component of remuneration to enable the Company to compete effectively for the calibre of talent required for it to be successful on a long-term basis; and \ Help retain employees, thereby minimising turnover and providing a stable workforce. How is it paid? LTI awards are paid in Performance Rights for nil cash consideration. What is the LTI opportunity The LTI opportunity is set as a percentage of TFR. Subject to performance the MD was entitled to an opportunity of up to 60% and other executive KMP were entitled to an opportunity of up to 45%. What is the performance period The LTI is considered annually and is measured over a 3-year performance period. How is performance assessed? LTI awards are granted at the beginning of performance period and vest based on: \ Total Shareholder Return (TSR) compared to that of S&P/ASX All Ordinaries Gold Index (70%); and \ Growth of the Company’s proved and probable ore reserves (30%). Retesting after 12 months (following the end of performance period) is available on the relative TSR hurdle. What is the gateway? The following gateways must be satisfied in order for the awards to vest: How the LTI vesting is determined? LTI vesting is subject to the following sliding scale: \ A positive TSR; and \ 90% budgeted gold production level. Relative TSR (70%) Performance level to be achieved Percentage vesting =< S&P/ASX All Ordinaries Gold Index (Index) Target: Outperform the Index by 10% 0% 50% Performance between Target and Stretch Sliding scale vesting Stretch: Outperform the Index by 20% 100% Growth in ore reserves (30%) Performance level to be achieved Percentage vesting <15% Threshold =15% Target = 20% Stretch = > 35% 0% 25% 50% 100% What are the restrictions of the equity components of the LTI awards? There are no further restrictions to the vested awards following the end of the performance period. 2022 ANNUAL REPORT 33 DIRECTORS’ Report (cont.) REMUNERATION REPORT (AUDITED) (cont.) 12. 12.4 EXECUTIVE REMUNERATION FRAMEWORK AND COMPONENTS (cont.) 12.4.1 One-off Project Incentive Opportunity (PIO) The PIO is a one-off incentive designed specifically to support the successful development of the KOTH project and broader production based objectives and help mitigate retention and attraction risks for executives and other critical employees. PIO awards were offered at the start of FY22 and are to be delivered in 60% cash and 40% Performance Rights subject to performance assessment (including continued employment) at 30 June 2023 in consideration of the following project metrics: \ Gold produced (50%): based on a specified number of gold ounces produced across both the KOTH and Darlot mines based on budgeted production schedules; \ Ore processed (25%): based on a specified volume of ore processed at the KOTH processing plant based on forecast mining schedules; and \ Development metres (25%): based on a specified volume of development metres completed at the Darlot underground mine based on forecast mining schedules. A safety gate of no fatalities at either the KOTH or Darlot operations applies to all PIO KPIs. The KOTH mine and process plant is progressively ramping up to full production and the Company will provide production guidance for KOTH when it achieves steady state production in 1H FY23. The performance hurdles are set at threshold, target and stretch levels, achievement of which will result in different vesting outcomes (as illustrated in the following table: Performance level Below Threshold level Threshold (represents the minimum acceptable level of performance) Target (represents a challenging level of performance) Stretch (represents an exceptional level of performance) Vesting outcome (% of PIO opportunity to vest) 0% 33% 67% 100% * The award for performance between Threshold and Target, Target and Stretch will be determined on a pro- rata/sliding basis. 12.5 FY22 EXECUTIVE REMUNERATION OUTCOMES The following table summarises key measures of Company performance for FY22 and the previous four financial years: Performance outcomes over the past five FYs ASX share price at year end Profit/(loss) after income tax attributable to owners of the company for continuing operations ($’000) Profit/(loss) after income tax attributable to owners of the company ($’000) Dividends paid ($’000) Underlying EBITDA (a) ($’000) (a) Underlying EBITDA is a non-IFRS measure which is unaudited. FY22 $0.25 FY21 $0.19 FY20 $0.20 FY19 $0.18 FY18 $0.08 (48,664) (9,478) 4,544 (3,030) (11,928) (28,615) (43,245) 4,544 (3,030) (11,928) - - - - (4,258) 11,635 53,978 29,890 - 297 34 2022 ANNUAL REPORT DIRECTORS’ Report (cont.) REMUNERATION REPORT (AUDITED) (cont.) 12. 12.5.1 Fixed remuneration outcomes Following the review of executive remuneration levels against relevant market comparators (with the benchmarking analysis provided by BDO), the following table outlines fixed remuneration changes for executive KMP in FY22. FY22 Executive KMP Fixed Remuneration Outcomes Mark Williams, Managing Director Jason Greive, Chief Operating Officer John Tasovac, Chief Financial Officer FY22 TFR $687,500 $550,000 $440,000 FY21 TFR $643,200 $492,750 $415,388 The Board will continue to monitor remuneration levels based on the factors set out in the executive remuneration framework. 12.5.2 FY22 STI outcome Following the end of FY22 the gateway of 90% of budgeted gold production was not achieved due to several external factors that were not known when setting the STI targets. These factors include the continued disruptions by the COVID-19 pandemic on the Red 5 key operations and staffing levels, the increased labour market pressures across the WA gold mining industry, the global breakdown in the supply chain of key parts and spares (which impacted the production targets). Within the above context the Board carefully assessed the FY22 performance against set targets and exercised its discretion to proceed with a 50% of STI outcome for all executives. The awards will be fully satisfied in Service Rights subject to an 18-month deferral period based on continued employment with Red 5. The share price for the calculation of the number of Service Rights to be issued will be based on the volume weighted average price (VWAP) of the Company’s shares in the 14 trading days up to 30 June 2022 ($0.307). The Board considered the STI outcome business appropriate for the following reasons: \ Despite the unforeseen challenges Red 5 had a solid FY22 year overall where the executives had significant success in meeting key operational targets including the successful commencement of the KOTH mine in Quarter 4 and the achievement of guidance on production from Darlot; \ Notwithstanding the factors which have impacted the WA gold mining sector, the Company’s share price has performed well in FY22 compared to peers and the S&P/ASX All Ordinaries Gold Index (i.e. Red 5 total shareholder return of 31.6% vs Index of -25.1%); and \ As competition for executive talent within the mining industry remains extremely tight, the retention of key staff is considered a key priority for Red 5 over the coming years. The FY22 awards in Service Rights recognise executive achievement over the year whilst providing a retention mechanism to ensure the progression of key projects in the following 18 months. The following table outlines KPI performance outcomes for FY22: Threshold Target Stretch FY22 STI KPIs and Performance Outcomes FY22 Actual KPI KPI Weighting Performance Outcomes STI Outcomes Group EBITDA 30% Below threshold Gold production across Darlot and KOTH 20% Discretion applied TRIFR and no fatalities 20% Below threshold AISC 20% Discretion applied $2.74m $3.04m $3.35m 86,158oz 95,731oz 105,304oz 6.36 6.04 5.72 $2,563/oz $2,330/oz $2,097/oz 50% 100% 200% Individual effectiveness 10% Achieved 90% of budgeted gold production level Gateway Not satisfied due to external factors (outside of management control) STI performance outcomes (FY22 awards): - 20% - 20% 10% 8 50% 2022 ANNUAL REPORT 35 DIRECTORS’ Report (cont.) REMUNERATION REPORT (AUDITED) (cont.) 12. 12.5.2 FY22 STI outcome (cont.) Based on the above outcomes the following provides further detail for FY22 STI awards. FY22 Executive KMP STI Award Outcomes Target STI Opportunity $ $412,500 $250,000 $200,000 $862,500 STI awarded % STI outcomes $ 50% 50% 50% 50% $206,250 $125,000 $100,000 $431,250 Number of Service Rights awarded in the year 671,013 406,674 325,340 1,403,027 Mark Williams Jason Greive John Tasovac Total 12.5.3 FY22 LTI outcome Following the assessment of relevant performance hurdles over the 3 years ended 30 June 2022, 70% of Rights granted at the start of FY20 vested. The FY20 Rights was assessed as follows (noting back in FY20 different LTI hurdles and gateway were adopted for determining the vesting level). Threshold Target Stretch FY20 LTI Performance Hurdles and Outcomes FY22 Actual KPI KPI Weighting Performance Outcomes <+Index >10% >20% Vesting Outcomes Relative TSR (against the S&P/ASX All Ordinaries Gold Index) Growth in ore reserves excluding 50% of acquired ore reserves, AISC (as a percentage of operating costs per ounce of AISC) Safety compliance criteria (no fatalities, maintenance of the ISO14001 and ISO 18001 certifications, and year on year improvement in safety Gateways: \ Positive TSR; and \ 80% of budget gold production Total level of LTI vesting (FY20 awards): 50% Stretch met 20% Stretch met 20% Below threshold 15% 20% 95% 90% 35% 80% 10% Below threshold Threshold Target Stretch Gateway Both gateways satisfied (TSR = +19.92% and gold production = 81.1%) 50% 20% 0% 0% 4 70% In accordance with the terms of the Red 5 Rights Plan, 2,003,062 Rights (out of a total of 2,861,517 Rights issued in FY20) vested following the 70% vesting level as at the date of this Report. A balance of 858,455 Rights held by executive KMP were forfeited. The following table outlines the LTI awarded by executive. Executive KMP – FY20 LTI Awards Vesting Outcomes Executive KMP Mark Williams Jason Greive (a) John Tasovac Total Maximum LTI Opportunity $ Number of LTI Rights granted $514,619 Not eligible $210,775 $725,395 2,030,056 Not eligible 831,461 2,861,517 LTI Rights vested % 70% LTI Rights vested $ $358,711 Number of Rights vested during FY22 1,421,039 Not eligible Not eligible Not eligible 70% 70% $146,919 $505,630 582,023 2,003,062 (a) Jason Greive was appointed Chief Operating Officer on 30 November 2020, subsequent to the performance rights being issued in FY20. Details regarding FY22 LTI performance rights issued during the year are shown in Section 11.9. 36 2022 ANNUAL REPORT DIRECTORS’ Report (cont.) REMUNERATION REPORT (AUDITED) (cont.) 12. 12.6 NON-EXECUTIVE DIRECTORS’ REMUNERATION In accordance with current corporate governance practices, the structure for the remuneration of NEDs and executive KMP is separate and distinct. Shareholders approve the maximum aggregate fees payable to NEDs, with the current limit being $850,000 per annum. 12.6.1 FY22 Non-Executive Director Fee Policy There were no increases to NED remuneration over FY22. The following table sets out the policy fee for NEDs for FY22 (exclusive of statutory superannuation of 10%). Chair Member Board and Committee Fees Board Audit Committee Remuneration and Nomination Committee Risk and Environment Committee Health, Safety and Community Committee FY21 $135,000 $15,000 $10,000 $10,000 $10,000 FY22 $135,000 $15,000 $10,000 $10,000 $10,000 FY21 $100,000 FY22 $100,000 Nil Nil Nil Nil Nil Nil Nil Nil The Board may approve any consultancy arrangements (at a rate) for NEDs who provide additional services outside of their Board and/ or Committee duties. NEDs are not entitled to participate in performance-based incentive schemes. The Board may seek annual shareholder approval for a share plan, under which NEDs can elect to receive a portion of their fees in shares in Red 5. All Directors are entitled to have premiums on indemnity insurance paid by Red 5. During the financial year, Red 5 paid premiums of $459,687 (FY21: $318,825) to insure the Directors and other officers of the consolidated entity. The liabilities insured are for costs and expenses that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of entities in the consolidated entity. 12.6.2 FY22 Non-Executive Director Statutory Remuneration Disclosures The following table outlines the fees paid to NEDs in FY22 as prepared in accordance with the requirements of the Corporations Act 2001 and the relevant Australian Accounting Standards. NED Kevin Dundo, Chair Ian Macpherson, NED Colin Loosemore, NED Steven Tombs, NED Andrea Sutton (a), NED Fiona Harris (a), NED TOTAL Base fees Committee Chair fees Consulting fees Superannuation FY22 FY21 FY22 FY21 FY22 FY21 FY22 FY21 FY22 FY21 FY22 FY21 FY22 FY21 $ 135,000 135,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 61,370 6,319 - 541,319 496,370 $ - - 15,000 15,000 10,000 10,000 10,000 10,000 10,000 - - - 45,000 35,000 $ - - - - - - - - - - - - - - $ 13,500 12,825 11,500 10,925 11,000 10,450 11,000 10,450 11,000 5,830 663 - 58,663 50,480 Total $ 148,500 147,825 126,500 125,925 121,000 120,450 121,000 120,450 121,000 67,200 6,982 - 644,982 581,850 (a) Andrea Sutton was appointed as a director on 18 November 2020 and Fiona Harris was appointed as a director on 8 June 2022. 2022 ANNUAL REPORT 37 DIRECTORS’ Report (cont.) 12. REMUNERATION REPORT (AUDITED) (cont.) 12.7 PLANNED REMUNERATION APPROACH FOR FY23 During FY22 the Company’s executive remuneration framework was reviewed considering feedback from shareholders, market insights on incentive structure from external remuneration consultants and the Company’s circumstances. As a result, the following key changes to executive remuneration arrangements are planned for FY23 to ensure a strong alignment with business need, shareholder feedback and contemporary market practice. Further details will be provided in the FY23 Remuneration Report. Remuneration Element FY23 Approach TFR \ As per the Red 5 Remuneration Framework, the Remuneration and Nomination Committee (RNC) will review TFR levels and recommend necessary adjustments to the Board for approval. STI PIO LTI \ Any remuneration changes for KMP during FY23 will consider independent market benchmarking outcomes, changes in executive responsibilities and trends in market for executive talent locally. \ Simplify the equity component (representing 50% of STI award) including removing the Deferred Rights component of the STI and simplify the 50% equity award in the form of a Service Right (subject to a one-year service-based vesting hurdle). This change ensures a greater alignment with market practice, the attractiveness of the incentive package and will reduce the administrative burden / tax complexity. \ Rebalance the KPI weightings so that each is weighted at 20%. In light of the importance of culture and executive behaviours in establishing the tone from the top, the individual effectiveness weighting of 10% was lifted to 20% and the EBITDA KPI has reduced from 30% to 20%. \ PIO discontinued. The PIO was granted in FY22 as a one-off initiative to meet the unique demands the Company faced at the time (in a strong development and growth phase where incentive opportunity offered is low in relation to market). The program is no longer required considering the objectives of the program can be managed / achieved through the enhanced STI and LTI structures in FY23 and onwards. \ Remove design elements not aligned to market including the 12-month retesting mechanism (in relating to the relative TSR hurdle) and the 90% gold production gateway (which is already assessed annually in the STI). \ No change to the relative TSR assessment approach. The Board has considered alternative methodologies of measuring TSR performance (i.e. comparison of outperformance on a percentage versus absolute basis). To ensure smooth implementation of other planned changes, the Board determined to retain current approach and reassess the position in FY24. 38 2022 ANNUAL REPORT DIRECTORS’ Report (cont.) 12. REMUNERATION REPORT (AUDITED) (cont.) 12.8 DETAILS OF REMUNERATION The following table discloses details of the nature and amount of each element of the remuneration paid to executive KMP the year ended 30 June 2022 and 30 June 2021. Short term Long term ) a ( y r a l a s h s a C $ / s e s n e p x E s e c n a w o l l a $ s u n o b h s a c I T S $ Executive remuneration Executive Director - - - 75,000 60,000(h) Mark Williams FY22 660,000(a) FY21 618,200(a) Executive KMP’s Jason Greive (b) FY22 522,500(a) FY21 264,286 John Tasovac FY22 412,500(a) FY21 390,388(a) FY22 - Brendon Shadlow (c) - - - - - - - FY21 144,583 1,500 s t h g i r d e r r e f e d I T S $ - - - - - e c i v r e s I T S ) e ( s t h g i r $ - - - 75,000(d) - - - - 617 26,744(e) - - 483 8,729 TOTAL FY22 1,595,000 - 60,000 - - FY21 1,417,457 1,500 75,000 1,100 110,473 s e e f g n i t l u s n o C $ - - - - - - - - - - n o i t a u n n a r e p u S $ g n o l d n a l a u n n A e v a e l e c i v r e s e c n a m r o f r e p I T L ) f ( e s n e p x e s t h g i r e c n a m r o f r e p I T L ) g ( d e t i e f r o f s t h g i r $ $ $ l a t o T $ 27,500 74,416 658,559 (155,908) 1,264,567 25,000 62,743 326,378 (57,900) 974,421 27,500 38,701 286,147 26,546 20,330 24,288 - - 874,848 485,450 27,500 32,978 314,754 (63,856) 783,876 25,000 17,245 132,669 (27,628) 565,035 - - - 16,166 18,609 50,600 - - - 240,670 82,500 146,095 1,259,460 (219,764) 2,923,291 92,712 118,927 533,935 (85,528) 2,265,576 (a) Includes salary, superannuation contributions above concessional cap expensed. (b) Jason Greive was appointed Chief Operating Officer on 30 November 2020. (c) Brendon Shadlow was KMP until 30 November 2020. General Manager is no longer categorised as a KMP position upon appointment of the Chief Operating Officer role. (d) Includes service rights to granted to Mr Greive for FY21. They have a 12 month service test and vest on 1 July 2022 if Mr Greive is still an employee at that date. (e) Includes service rights granted during FY20 subject to a 12 month service test, they have been valued at $0.26 (Red 5 share price as at 18 November 2020). No service rights were granted to Mr Tasovac during FY21. (f) Relates to performance rights expense for the 2021, 2022 and 2023 series. The fair value at grant date of Tranche A which has market-based performance conditions, was estimated using a Monte Carlo simulation. The fair value at grant date of Tranches B, C and D, which have market and non-market-based performance conditions, were valued using a single share price barrier model incorporating a Monte Carlo simulation. (g) Performance rights that were issued to key management personnel, senior management and operating personnel in 2019 and 2018 have been partially forfeited following the partial achievement of performance conditions measured over the three years ended 30 June 2022 and 30 June 2021. (h) Mr Tasovac was given a ‘special and discretionary award’ by the Board of Directors in recognition of the strong efforts throughout the year, including success in securing the Debt facility. 2022 ANNUAL REPORT 39 DIRECTORS’ Report (cont.) 12. REMUNERATION REPORT (AUDITED) (cont.) 12.8 DETAILS OF REMUNERATION (cont.) The relative proportions of remuneration that are linked to performance and those that are fixed are as follows: Executive Director Mark Williams Non-Executive Directors Kevin Dundo Ian Macpherson Colin Loosemore Steven Tombs Andrea Sutton Fiona Harris Executives Jason Greive John Tasovac Brendon Shadlow Fixed At risk – short term incentives At risk – long term incentives 2022 2021 2022 2021 2022 2021 60% 72% 100% 100% 100% 100% 100% 100% 67% 60% - 100% 100% 100% 100% 100% - 64% 70% 46% - - - - - - - - 8% - - - - - - - - 40% 28% - - - - - - - - - - - - 30% 4% 7% 33% 32% - 6% 26% 47% 12.9 ADDITIONAL REMUNERATION DISCLOSURES 12.9.1 Executive Service Contracts Remuneration and other terms of employment for executive KMP’s are formalised in service agreements. The service agreements specify the components of remuneration, benefits and notice periods. Participation in STI and LTI plans is subject to the Board’s discretion. Other major provisions of the agreements relating to remuneration are set out below: Position Terms of agreement TFR including superannuation effective July 2022 Executive KMP Mark Williams Jason Greive Managing Director No fixed term Chief Operating Officer No fixed term John Tasovac (a) Chief Financial Officer No fixed term Patrick Duffy (a) Chief Financial Officer No fixed term Notice period 3 months 3 months 3 months 3 months Termination benefit 12 months 3 months 6 months 3 months $725,000 $578,000 $442,000 $450,000 (a) Mr Duffy will be appointed the role of Chief Financial Officer effective from 1 September 2022 following the resignation of Mr Tasovac from the Company on 31 August 2022. 12.9.2 Options granted to key management personnel No options over ordinary shares were held or granted during the year to executive officers of Red 5 as part of their remuneration. No shares were issued during the year as a result of the exercise of options granted as part of remuneration. 40 2022 ANNUAL REPORT DIRECTORS’ Report (cont.) REMUNERATION REPORT (AUDITED) (cont.) 12. 12.9 ADDITIONAL REMUNERATION DISCLOSURES (cont.) 12.9.3 Shareholdings of directors and key management personnel The numbers of shares in Red 5 held during the financial year by key management personnel, including personally related entities are set out below: Balance at previous year reporting date 1,905,249 14,439,852 1,362,054 10,108,190 2,719,579 - - 1,669,048 3,761,420 35,965,392 Received through vesting and exercise of performance rights Received through vesting and exercise of service and deferred rights - 1,421,039 - - - - - - 582,023 2,003,062 - - - - - - - 412,088 102,861 514,949 Other purchases/ disposals during the year - - 217,946 - - - - - (3,689,398) (3,471,452) Balance at reporting date 1,905,249 15,860,891 1,580,000 10,108,190 2,719,579 - - 2,081,136 756,906 35,011,951 2022 Kevin Dundo Mark Williams Ian Macpherson Colin Loosemore Steven Tombs Andrea Sutton Fiona Harris Jason Greive John Tasovac Total 12.9.4 Service and Deferred Rights Granted Over FY22 The numbers of Service Rights granted during the financial year are set out in the following table. No Deferred Rights were issued. Service rights issued: Jason Greive (a) 26-Oct-21 30-Jun-22 Service rights issued: John Tasovac (b) 24-Nov-20 30-Jun-21 Grant Date Vesting Date Fair Value at Grant Date $75,000 $26,744 Granted 412,088 102,861 Exercised up to reporting date Outstanding at reporting date (412,088) (102,861) - - (a) Service Rights for Mr Greive issued under the Red 5 FY21 Rights Plan. They have a 12 month service test and vested on 30 June 2022 because Mr Greive was still an employee at that date. (b) Service Rights for Mr Tasovac issued under the Red 5 FY20 Rights Plan. They have a 12 month service test and vested on 30 June 2021 because Mr Tasovac was still an employee at that date. Share based payments expense for the shares issued, service and deferred rights for KMP’s was $1,259,460 (2021: $123,794). The fair value is based on observable market share price at the date of grant. 12.9.5 Performance rights held by KMP under the LTI The number of performance rights in Red 5 held as at the date of this report by executive KMP are set out below: Balance at prior year reporting date Received through issuing of LTI performance rights (a) Received through issuing of PIO rights (b) Performance rights vested and exercised (c) Performance rights forfeited (c) Balance at reporting date 3,556,158 415,182 1,429,886 5,401,226 2,266,484 1,373,626 1,098,901 4,739,011 1,510,989 1,098,901 879,121 (1,421,039) (609,017) 5,303,575 - - (582,023) (249,438) 2,887,709 2,576,447 3,489,011 (2,003,062) (858,455) 10,767,731 KMP Mark Williams Jason Greive John Tasovac Total (a) (b) (c) The following tables provide further details regarding Rights on foot: 2022 ANNUAL REPORT 41 DIRECTORS’ Report (cont.) REMUNERATION REPORT (AUDITED) (cont.) 12. 12.9.5 Performance rights held by KMP under the LTI (cont.) (a) FY22 LTI Performance Rights– Managing Director and KMP (Expiry date: 30 June 2024) Managing Director Other KMPs: Jason Greive John Tasovac Total KMP rights Value per right Valuation per tranche Condition criteria Tranche A 1,586,539 961,538 769,231 3,317,308 $0.217 $719,856 Tranche B 679,945 412,088 329,670 1,421,703 $0.28 $398,077 Total 2,266,484 1,373,626 1,098,901 4,739,011 $1,117,933 TSR ranking relative to TSR of S&P/ASX All Ordinaries Gold Total Return Index Growth in the Company’s Ore Reserves (proved and probable), excluding 50% of acquired Ore Reserves In addition, vesting of the performance rights is also conditional on the following being exceeded: TSR > Index TSR +20% 100% Stretch: 35% or over 100% 1. a positive Company TSR for the measurement period; and TSR > Index TSR +10% TSR < or equal to Index TSR 50% Target: 20% 50% nil Threshold: 15% 25% 2. 90% of budgeted gold production over the measurement period. < 15% nil (b) Project Incentive Opportunity – Managing Director and KMP (Expiry date: 30 June 2023) Managing Director Other KMPs: Jason Greive John Tasovac Total KMP rights Value per right Valuation per tranche Condition criteria Tranche A 755,495 549,451 439,561 1,744,507 $0.28 $488,462 Tranche B 377,747 274,725 219,780 872,252 $0.28 $244,231 Tranche C 377,747 274,725 219,780 872,252 $0.28 $244,231 Total 1,510,989 1,098,901 879,121 3,489,011 $976,924 Greater than a specified number of gold ounces produced across both KOTH and Darlot mines (50% weighting) Greater than a specified volume of tonnes of ore processed at the KOTH processing plant (25% weighting) Greater than a specified volume of development metres completed at the Darlot underground mine (25% weighting) In addition, a safety gate applies to all PIO KPI’s whereby no workplace fatalities occur at either the KOTH or Darlot operations. The Tranche A Rights have been valued using a hybrid employee share option pricing model which incorporates a Monte Carlo simulation. It uses a correlated simulation that simultaneously calculates the TSR of the Company and the Index on a risk neutral basis as at the vesting date with regards to the measurement period. The percentage by which the return on the stock exceeds the total return on the Index is calculated as at the vesting date and a vesting percentage is calculated from the vesting schedule. The forecast share price at the vesting date is then used to calculate the value of the Right. The price is adjusted based on the vesting percentage, then discounted to its present value. Tranche B of the LTI Rights and Tranches A, B and C of the PIO Rights have non-market based vesting conditions attached and are valued using a single share price barrier model such as a Black Scholes option pricing model. 42 2022 ANNUAL REPORT DIRECTORS’ Report (cont.) REMUNERATION REPORT (AUDITED) (cont.) 12. 12.9.5 Performance rights held by KMP under the LTI (cont.) (c) Rights with market based and non-market based vesting conditions can only be exercised following the satisfaction of these exercise conditions. In accordance with the terms of the Red 5 Rights Plan, performance rights that were issued to key management personnel and senior management have vested following the partial achievement of performance conditions measured over the three years ended 30 June 2022. Performance rights with unmet performance conditions have lapsed, and have been forfeited. Details of the performance rights issued previously: FY20 Performance Rights– Managing Director (Expiry date: 30 June 2023) Tranche A Tranche B Tranche C Tranche D Total rights Value per right 763,052 $0.188 Valuation per tranche $143,454 305,220 $0.195 $59,518 305,220 $0.195 $59,518 152,610 $0.195 $29,759 Condition criteria TSR ranking relative to TSR of S&P/ASX All Ordinaries Gold Total Return Index Growth in the Company’s Ore Reserves (excluding 50% of acquired Ore Reserves) Operating Costs as % of Budgeted Operating Costs Safety Compliance TSR > Index TSR +20% TSR > Index TSR +10% TSR < or equal to Index TSR 100% Stretch: 35% 100% Stretch: 80% 100% 50% Target: 20% 50% Target: 90% 50% nil Threshold: 15% 25% Threshold: 95% 25% All criteria to be met: - No fatalities - Maintenance of the ISO14001 and ISO 18001 certifications - Year on year improvement in safety performance < 15% nil > 95% nil Total 1,526,102 $292,249 In addition, vesting of the performance rights is also conditional on the following being exceeded: 1. A positive Company TSR for the measurement period; and 2. 90% of budgeted gold production by 30 June 2023. FY20 Performance Rights – Other Key Management Personnel (Expiry date: 30 June 2023) Jason Greive John Tasovac Total rights Value per right Valuation per tranche Condition criteria Tranche A Tranche B Tranche C Tranche D 207,592 299,213 506,805 $0.172 $87,170 83,036 119,685 202,721 $0.179 $36,287 83,036 119,685 202,721 $0.179 $36,287 41,518 59,842 101,360 $0.179 $18,143 TSR ranking relative to TSR of S&P/ASX All Ordinaries Gold Total Return Index Growth in the Company’s Ore Reserves (excluding 50% of acquired Ore Reserves) Operating Costs as % of Budgeted Operating Costs Safety Compliance TSR > Index TSR +20% TSR > Index TSR +10% TSR < or equal to Index TSR 100% Stretch: 35% 100% Stretch: 80% 100% 50% Target: 20% 50% Target: 90% 50% nil Threshold: 15% 25% Threshold: 95% 25% All criteria to be met: - No fatalities - Maintenance of the ISO14001 and ISO 18001 certifications - Year on year improvement in safety performance < 15% nil > 95% nil Total 415,182 598,425 1,013,607 $177,887 In addition, vesting of the performance rights is also conditional on the following being exceeded: 1. A positive Company TSR for the measurement period; and 2. 90% of budgeted gold production by 30 June 2023. 2022 ANNUAL REPORT 43 DIRECTORS’ Report (cont.) REMUNERATION REPORT (AUDITED) (cont.) 12. 12.9.6 Transactions with Key Management Personnel and their related parties The NEDs Kevin Dundo, Ian Macpherson and Andrea Sutton invoice for their directors fees through their private companies. They are not separate entities that provide consulting services to the Company. NEDs Colin Loosemore, Steven Tombs and Fiona Harris are paid directors fees through the Company’s payroll. Mr Dundo, Mr Macpherson, Mr Loosemore, Mr Tombs, Ms Sutton and Ms Harris meet the definition and maintain their status as independent NEDs, thus retain objectivity and their ability to meet their oversight role. END OF AUDITED REMUNERATION REPORT NON AUDIT SERVICES 13. During the year, Red 5’s external auditors, KPMG, have provided other services in addition to their statutory audit function. Non audit services provided by the external auditors comprised $44,546 (2021: $173,887) for non-audit services. Further details of remuneration of the auditors are set out in Note 25. The Board has considered the non-audit services provided during the year and is satisfied that the provision of those services is compatible with the general standard of independence for auditors imposed by the Corporations Act and did not compromise the auditor independence requirements of the Corporations Act, for the following reasons: \ All non-audit services were subject to the corporate governance guidelines adopted by Red 5; \ Non-audit services have been reviewed by the audit committee to ensure that they do not impact the impartiality or objectivity of the auditor; and \ The non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity, acting as an advocate for Red 5 or jointly sharing economic risks and rewards. AUDITOR’S INDEPENDENCE DECLARATION 14. A copy of the auditor’s independence declaration as required under Section 307C of the Corporations Act is included immediately following the Directors’ Report and forms part of the Directors’ Report. ROUNDING 15. The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 and in accordance with that instrument, all financial information has been rounded to the nearest thousand dollars, unless otherwise stated. Signed in accordance with a resolution of the Directors. Kevin Dundo Chairman Perth, Western Australia 31 August 2022 44 2022 ANNUAL REPORT AUDITOR’S Independence Declaration Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of Red 5 Limited I declare that, to the best of my knowledge and belief, in relation to the audit of Red 5 Limited for the financial year ended 30 June 2022 there have been: i. ii. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. PAR_SIG_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01 KPMG R Gambitta Partner Perth 31 August 2022 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation 2022 ANNUAL REPORT 45 Consolidated Statement of PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME for the year ended 30 June 2022 CONSOLIDATED 30 June 2022 30 June 2021 Sales revenue Cost of sales Gross (loss)/profit Other income and expenses Other income Administration and other expenses Care and maintenance Exploration expenditure Financing income Financing expenses Ineffective portion of cashflow hedges Total other income and expenses (Loss)/profit before income tax expense Income tax benefit/(expense) Net (loss)/profit from continuing operations (Loss)/gain from discontinued operation (net of tax) Net (loss)/profit after income tax for the year Other comprehensive income/(loss) Items that are or may be reclassified subsequently to profit or loss: Foreign currency translation differences - Movement in foreign currency translation reserve - Reclassified to profit or loss Re-measurement of defined retirement benefit Cash flow hedge movements Total comprehensive loss for the year Net profit/(loss) after income tax attributable to: Non-controlling interest Members of parent entity Total comprehensive profit/(loss) attributable to: Non-controlling interest Members of parent company Earnings/(loss) per share attributable to shareholders Basic earnings/(loss) per share Diluted earnings/(loss) per share Basic earnings/(loss) per share – continuing operations Diluted earnings/(loss) per share – continuing operations Note 5(a) 5(b) 5(c) 5(d) 5(e) 12 5(f) 5(f) 6 23 22 22 22 22 $’000 164,962 (196,049) (31,087) 208 (13,371) - (2,522) 8 (2,815) - (18,492) (49,579) 915 (48,664) 20,049 (28,615) 631 (26,504) - (1,444) (55,932) (86) (28,529) (28,615) (83) (55,849) (55,932) Cents (1.21) (1.21) (2.06) (2.06) The accompanying notes form part of these financial statements. 46 2022 ANNUAL REPORT $’000 173,358 (171,050) 2,308 692 (9,572) (2,069) (3,217) 347 (1,345) (1,410) (16,574) (14,266) 4,788 (9,478) (33,767) (43,245) (1,722) - 76 20,038 (24,853) (324) (42,921) (43,245) (364) (24,489) (24,853) Cents (2.08) (2.08) (0.44) (0.44) Consolidated Statement of FINANCIAL POSITION as at 30 June 2022 CONSOLIDATED 30 June 2022 30 June 2021 Note $’000 $’000 Assets Current Assets Cash and cash equivalents Trade and other receivables Inventories Assets held for sale Total Current Assets Non-Current Assets Property, plant and equipment Mine properties Exploration and evaluation assets Trade and other receivables Intangible assets Total Non-Current Assets Total Assets Liabilities Current Liabilities Trade and other payables Financial liability Employee benefits Provisions Lease liabilities Liabilities held for sale Total Current Liabilities Non-Current Liabilities Financial liability Lease liabilities Provisions Employee benefits Deferred tax liability Total Non-Current Liabilities Total Liabilities Net Assets Equity Contributed equity Other equity Reserves Accumulated losses 7 8 9 23 10 11 12 8 13 15 18 16 17 23 15 17 16 18 6 20 21 Total Equity Attributable to Equity Holders of the Company Non-controlling interests Total Equity The accompanying notes form part of these financial statements. 32,526 19,025 41,415 - 92,966 303,378 131,416 41,133 8,180 292 484,399 577,365 64,174 19,376 8,316 1,296 18,490 - 111,652 152,894 81,604 47,681 739 - 282,918 394,570 182,795 443,160 930 6,918 (268,196) 182,812 (17) 182,795 17,415 9,861 26,572 25,623 79,471 136,814 63,025 37,135 28,810 230 266,014 345,485 39,787 - 5,498 1,116 3,529 3,940 53,870 - 6,624 52,161 421 1,533 60,739 114,609 230,876 442,626 930 31,027 (239,797) 234,786 (3,910) 230,876 2022 ANNUAL REPORT 47 Consolidated Statement of CHANGES IN EQUITY for the year ended 30 June 2022 ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT ENTITY l a t i p a c d e u s s I d e t a l u m u c c A s e s s o l y t i u q e r e h t O e v r e s e r n o i t a l s n a r t y c n e r r u c n g i e r o F $’000 $’000 $’000 $’000 Balance at 1 July 2021 442,626 (239,797) 930 26,309 e v r e s e r g n i g d e H d n a s t n e m y a p s e v r e s e r r e h t o d e s a b - e r a h S g n i l l o r t n o c - n o N t s e r e t n i l a t o T $’000 1,444 $’000 $’000 $’000 3,274 (3,910) 230,876 Net profit/(loss) for the year Other comprehensive (loss)/income for the period: Foreign currency translation differences Reclassified to profit or loss Ineffective portion of cash flow hedges transferred to profit or loss Total comprehensive income/(loss) for the period Vesting of performance rights (LTI) converted to ordinary shares Vested service and deferred rights converted to ordinary shares (STI) Performance rights (LTI) forfeited Share based payments (LTI & STI) Transfer from reserves Disposal of subsidiary - - - - - 449 85 - - - - (28,529) - - - (28,529) - - - - 130 - - - - - - - - - - - - - 628 (26,504) - - - - (1,444) (25,876) (1,444) - - - - - - - - - - - - - - - - - - (449) (85) (296) 4,171 (130) (86) (28,615) 3 - - 631 (26,504) (1,444) (83) (55,932) - - - - - - - (296) 4,171 - - 3,976 3,976 6,485 (17) 182,795 Balance at 30 June 2022 443,160 (268,196) 930 433 Balance at 1 July 2020 383,887 (196,876) 930 27,991 (18,594) 2,257 (3,546) 196,049 Net profit/(loss) for the year Other comprehensive (loss)/income for the period: Foreign currency translation differences Change in fair value of cash flow hedges, net of tax Ineffective portion of cash flow hedges transferred to profit or loss Total comprehensive income/(loss) for the period Issue of ordinary shares Share issue expenses Vesting of performance rights (LTI) converted to ordinary shares Vested service and deferred rights converted to ordinary shares (STI) Issue of deferred and service rights (STI) Deferred rights reversed, issued in cash instead Share based payments (LTI & STI) - - - - - (42,921) - - - (42,921) 60,067 (2,102) 542 232 - - - - - - - - - - - - - - - - - - - - - - - (1,682) - - - (324) (43,245) 76 (40) (1,646) - - 24,786 (4,748) - - - - 24,786 (4,748) (1,682) 20,038 76 (364) (24,853) - - - - - - - - - - - - - - - - (542) (232) 160 (52) 1,607 - - - - - - - 60,067 (2,102) - - 160 (52) 1,607 Balance at 30 June 2021 442,626 (239,797) 930 26,309 1,444 3,274 (3,910) 230,876 The accompanying notes form part of these financial statements. 48 2022 ANNUAL REPORT Consolidated Statement of CASH FLOWS for the year ended 30 June 2022 CONSOLIDATED 30 June 2022 30 June 2021 Note $’000 $’000 Cash flows from operating activities Cash received from customers Payments to suppliers and employees Payments for exploration and evaluation Sundry receipts Income tax paid Interest received Interest paid Net operating cash flows used in discontinued operation Net cash from operating activities Cash flows used in investing activities Payments for property, plant equipment and intangibles Payments for mine development and pre-operational cost Payments for exploration and evaluation Payments for bank guarantee relating to King of the Hills project Disposal of discontinued operation, net of cash Net investing cash flows used in discontinued operation Net cash used in investing activities Cash flows from financing activities Proceeds from issues of shares Payments for share issue transaction costs Proceeds from borrowings Repayments of borrowings Payments of facility fee on borrowings and interest Payment for settlement for closure of hedges Receipt from / (payment to) restricted cash Payments of lease liabilities Net cash from financing activities Net increase in cash and cash equivalents Cash at the beginning of the period Effect of exchange rate fluctuations on cash held Cash held within assets held for sale 23(c) 30 23(c) 23(c) 15 Cash and cash equivalents at the end of the year 7 The accompanying notes form part of these financial statements. 158,606 (157,055) (2,522) 223 - 8 (791) (828) (2,359) (94,844) (82,729) (3,998) - 21,467 - 174,677 (153,921) (3,217) 547 - 444 - (3,975) 14,555 (99,643) (10,050) (7,579) (21,112) - (53) (160,104) (138,437) - - 175,000 - (2,730) - 13,000 (8,409) 176,861 14,398 17,415 713 - 32,526 60,066 (2,102) - (12,000) (379) (4,774) (7,500) (7,393) 25,918 (97,964) 116,220 (67) (744) 17,415 2022 ANNUAL REPORT 49 Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 \ A steadily increasing production profile in line with the expected ramp up of the mill and access to higher grade ore from the KOTH open pit as the lower benches are accessed, as well as higher-grade feed being delivered from the KOTH underground mine and Darlot underground mine. \ Gold price continuing at current market prices. \ Operating costs have been prepared based on contracted rates taking into account cost pressures facing the industry, including rising costs. \ Capital equipment sufficient to deliver the planned mine development, completion of the Tailings Storage Facility 5 and planned exploration activities, noting that not all of these items have currently been contracted and that there is scope for these to be modified if required during the course of the year. The Directors believe the Group will be able to continue as a going concern and recognise that: \ The ramp up of KOTH gold production will progressively generate positive cash flow for the Company. \ There are risks associated with the ramp up of a new gold mine and that the industry is operating in a highly volatile business environment including Covid-19, supply chain challenges, labour shortages and rising costs. \ Where there is a mismatch in the generation of cash flows at KOTH, the Company may formally request the lenders to vary the timing of debt repayments and scheduled hedging under the KOTH Project Financing Facility. \ If required, suitable funding solutions can be sourced taking into account KOTH’s 4.1Moz Mineral Resource and 2.4Moz Ore Reserves, the divestment of non-core assets and other options. 2.3 BASIS OF MEASUREMENT The consolidated financial statements have been prepared on the historical cost basis, except for derivative financial instruments and certain other financial assets and liabilities which are required to be measured at fair value. Share based payments are measured at fair value. The methods used to measure fair values of share based payments are discussed further in the Note 4.12. Rehabilitation provisions are based on net present value and are discussed in Note 4.14. 2.4 FUNCTIONAL AND PRESENTATION CURRENCY The consolidated financial report is presented in Australian dollars, which is the Group’s presentation currency. The functional currency of the Parent Company and the Australian subsidiaries in which the Group holds its Australian assets is Australian dollars, and the functional currency of the Company’s other foreign subsidiaries is Philippine pesos. The functional currency of each of the Group’s entities is measured using the currency of the primary economic environment in which that entity operates. 1. REPORTING ENTITY Red 5 Limited (“parent entity” or “the Company”) is a for profit company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange. The Consolidated Financial Report for the year ended 30 June 2022 comprise the Company and its subsidiaries (together referred to as the “Group” and individually as “Group entities”) and the Group’s interest in associates and jointly controlled entities. The Group is primarily involved in the exploration and mining of gold. 2. BASIS OF PREPARATION 2.1 STATEMENT OF COMPLIANCE The consolidated financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards (IFRSs) adopted by the International Accounting Standards Board (IASB). The consolidated financial statements were authorised for issue by the Board of Directors on 31 August 2022. 2.2 GOING CONCERN The Directors believe it is appropriate to prepare the consolidated financial report on a going concern basis, which contemplates continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business. The Group’s principal cash flow generating assets are the King of the Hills (KOTH) and the Darlot Gold Mines, which operate as a single cash generating unit. In July 2022, Darlot has transitioned to an underground satellite mine providing ore to KOTH, and the Darlot process plant has been placed into care and maintenance. The new KOTH process plant produced first gold on 5 June 2022, and the KOTH plant and mine is now ramping up towards its expected full production. The development of the KOTH Project was partly funded via a $175 million Project Financing Facility provided by Macquarie Bank, BNP Paribas and Hongkong Shanghai Banking Corporation. At 30 June 2022, the Group had current assets of $92.966 million, primarily consisting of cash on hand, trade receivables and inventories. At the same date, the Group had current liabilities of $111.652 million comprised of trade payables, employee benefits, loan repayments and payments due for right of use leases. A significant portion of the working capital deficit ($18.686 million) relates to the current portion of employee benefits and lease liabilities, which will be funded from KOTH operational cash flows throughout the course of the year ending 30 June 2023. Management has prepared a cash flow forecast for the next twelve months, which anticipates that the Group will be able to pay its debts as and when they fall due during that period. Key assumptions in the cashflow forecast include: 50 2022 ANNUAL REPORT Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 2. BASIS OF PREPARATION (cont.) 2.5 USE OF ESTIMATES AND JUDGEMENTS The preparation of the Consolidated Financial Statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities at the date of the consolidated financial statements. Estimates and assumptions are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. In particular, the Group has identified a number of areas where significant judgements, estimates and assumptions are required. Further information on each of these areas and how they impact the various accounting policies are described with the associated accounting policy note within the related qualitative and quantitative note as described below (refer note 4.22). 2.6 ROUNDING The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 and in accordance with that instrument, all financial information has been rounded to the nearest thousand dollars, unless otherwise stated. 3. REMOVAL OF PARENT ENTITY FINANCIAL STATEMENTS The Group has applied amendments to the Corporations Act 2001 that remove the requirement for the Group to lodge parent entity financial statements. Parent entity financial statements have been replaced by the specific parent entity disclosures in Note 35. 4. SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all periods presented in these financial statements and have been applied consistently by the consolidated entity. 4.1 PRINCIPLES OF CONSOLIDATION The consolidated financial report incorporates the assets and liabilities of all entities controlled by the Company as at 30 June 2022 and the results of all controlled entities for the year then ended. The Company and its controlled entities together are referred to in this financial report as the consolidated entity. The financial statements of controlled entities are prepared for the same reporting period as the parent entity, using consistent accounting policies. Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements. Where control of an entity is obtained during a financial period, its results are included only from the date upon which control commences. Where control of an entity ceases during a financial period, its results are included for that part of the period during which control existed. Non-controlling interests in equity and results of the entities which are controlled by the consolidated entity are shown as a separate item in the consolidated financial statements. 4.2 FINANCE INCOME AND EXPENSES Finance income comprises interest income on funds invested. Interest income is recognised as it accrues, using the effective interest rate method. Finance expenses comprise interest expense on borrowings and amortisation of loan borrowing costs. Loan borrowing costs are amortised using the effective interest rate method. Interest incurred on loans for the construction of a qualifying asset is capitalised to the qualifying asset. 4.3 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment includes land and buildings, plant and equipment, fixtures and fittings, right-of-use assets and assets under construction. All assets acquired are initially recorded at their cost of acquisition, being the fair value of the consideration provided plus incidental costs directly attributable to the acquisition. Land and buildings are measured at cost less accumulated depreciation on the buildings. Buildings are depreciated on a straight-line basis over the life of mine. Plant and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. Items of plant and equipment are depreciated using a combination of units of production, straight line and diminishing value methods, commencing from the time they are installed and ready for use, or in respect of internally constructed assets, from the date the asset is completed and ready for use. Depreciation of the processing plant is based on life of mine. The expected useful lives of plant and equipment are between 3 and 13 years. Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. Fixtures and fittings include office equipment and computer hardware and are depreciated on a straight-line basis over their expected useful lives between 3 and 13 years. Right-of-use assets are measured at cost less accumulated depreciation and any accumulated impairment losses. They are depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term, or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case the right-of-use assets are depreciated over the useful life of the underlying asset. 2022 ANNUAL REPORT 51 Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 4. SIGNIFICANT ACCOUNTING 4.7 MINE PROPERTIES POLICIES (cont.) INTANGIBLE ASSETS 4.4 Intangible assets mainly comprise capitalised software. Intangible assets are initially recorded at cost of acquisition, being the fair value of the consideration provided plus incidental costs directly attributable to the acquisition. Capitalised software is amortised on a straight-line basis over three years commencing when it is available for use. 4.5 INVENTORIES Gold in circuit, bullion on hand and ore stockpiles are physically measured or estimated and valued at the lower of cost and net realisable value. Cost represents the weighted average cost and comprises direct material, labour, and an appropriate portion of fixed and variable production overhead expenditure on the basis of normal operating capacity, including depreciation and amortisation incurred in converting materials to finished products. Inventories of consumable supplies and spare parts expected to be used in production are valued at the lower of cost and net realisable value. Any provision for obsolescence or damage is determined by reference to specific stock items identified. The carrying value of those items identified, if any, is written down to net realisable value. 4.6 EXPLORATION AND EVALUATION ASSETS Exploration and evaluation assets are accumulated at cost in respect of each identifiable area of interest. Costs incurred in respect of generative, broad scale exploration activities are expensed in the period in which they are incurred, other than costs relating to acquisitions. Costs incurred for each area of interest where a resource or reserve estimated in accordance with JORC guidelines has been identified, are capitalised. The costs are only carried forward to the extent they are expected to be recouped through the successful development of the area, or where further work is to be performed to provide additional information. When production commences, the accumulated costs for the relevant area of interest will be amortised over the life of the area according to the rate of depletion of reserves. A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. Accumulated costs in relation to an abandoned area will be written off in full to the Statement of Profit or Loss and Other Comprehensive Income in the year in which the decision to abandon the area is made. Mine development: Pre-Production: Costs incurred in the development of a mine before production commences are capitalised as part of the mine development costs, with the exception of any costs relating to the pre-production sale of products which is expensed to the Statement of Profit or Loss. All capitalised development costs incurred within that area of interest are capitalised and carried at cost. Costs are amortised from the commencement of commercial production over the productive life of the project on a unit-of-production basis, based on reserves. Post-Production: Costs incurred in developing further areas of the mine are capitalised as part of the mine development costs and are amortised over the productive life of the project on a unit-of- production basis, based on reserves. Deferred waste mining costs: Stripping costs incurred after the commencement of production are generally considered to create two benefits, being either the production of inventory or improved access to the ore to be mined in the future. Where the benefits are realised in the form of inventory produced in the period, the production stripping costs are accounted for as part of the cost of producing those inventories. Where the benefits are realised in the form of improved access to ore to be mined in the future, the costs are recognised as a non-current asset, if the following criteria is met: \ Future economic benefits (being improved access to the ore body) are probable; \ The component of the ore body for which access will be improved can be accurately identified; and \ The costs associated with the improved access can be reliably measured. If all the criteria are not met, the production stripping costs are charged to profit or loss as they are incurred. Depreciation of the stripping activity asset is determined on a unit of production basis over the life of the asset based on reserves for each area of interest. Mineral rights: Mineral rights comprise identifiable exploration and evaluation assets, mineral resources and ore reserves, which are acquired as part of a business combination or joint venture acquisition and are recognised at fair value at the date of acquisition. Where possible, mineral interests are attributable to specific areas of interest and are classified within mine properties, and are amortised over the life of the mine. Asset retirement obligation: Asset retirement obligation represents the estimated future cost of closure and rehabilitation of the mine site. It is amortised over the life of the mine. 52 2022 ANNUAL REPORT Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 4. SIGNIFICANT ACCOUNTING POLICIES (cont.) IMPAIRMENT 4.8 At each reporting date, the consolidated entity reviews and tests the carrying value of assets when events or changes in circumstances indicate that the carrying amount may not be recoverable. Where an indicator of impairment exists, the consolidated entity makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount. Impairment losses are recognised in the Statement of Profit or Loss and Other Comprehensive Income unless the asset has previously been revalued, in which case the impairment loss is recognised as a reversal to the extent of that previous revaluation with any excess recognised through the Statement of Profit or Loss and Other Comprehensive Income. Calculation of recoverable amount Recoverable amount is the greater of fair value less costs of disposal and value in use. It is determined for an individual asset, unless it does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs. The estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. 4.9 INCOME TAX Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at reporting date, and any adjustment to tax payable in respect of previous years. Deferred income tax is provided using the balance sheet liability method on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax assets are recognised for all deductible temporary differences, carry forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised. A deferred income tax asset is not recognised where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. The carrying amount of deferred income tax assets is reviewed at each balance date and reduced to the extent it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax to be utilised. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted at the balance date. Income taxes relating to items recognised directly in equity are recognised in equity and not in the Statement of Profit or Loss and Other Comprehensive Income. 4.10 FINANCIAL INSTRUMENTS Non-derivative financial instruments Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash and cash equivalents, loans and borrowings and trade and other creditors. Non-derivative financial instruments are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, non-derivative financial instruments are measured as described below. Trade and other receivables are carried at amortised cost. Trade receivables are non-interest bearing. Loans and borrowings are measured at amortised cost using the effective interest method, less any impairment losses. Liabilities for trade creditors and other amounts are carried at amortised cost. Trade payables are non-interest bearing and are normally settled on 30 day terms. For trade receivables, the Group uses the simplified approach to recognise impairments based on the lifetime expected credit loss. For other receivables, the Group applies the general approach and recognises impairments based on a 12-month expected credit loss. Impairment allowances are based on a forward- looking expected credit loss model. Where there has been a significant increase in credit risk, a loss allowance for lifetime expected credit losses is required. Exposures are grouped by external credit rating and security options and an expected credit loss rate is calculated accordingly. Where applicable, actual credit loss experience is also taken into account. For remaining receivables without an external credit rating or security option, a rating of BB (Standard and Poor’s) is used, on the basis that there is no support that it is investment grade, nor is there any evidence of default. For the purposes of the statement of cash flows, cash includes deposits at call which are readily convertible to cash on hand and which are used in the cash management function on a day to day basis, net of outstanding bank overdrafts. Derivative financial instruments Derivative financial instruments are recognised initially at fair value; any attributable transaction costs are recognised in profit and loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value. Cashflow hedges When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income and accumulated in the hedging reserve. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. 2022 ANNUAL REPORT 53 Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 4. SIGNIFICANT ACCOUNTING POLICIES (cont.) 4.10 FINANCIAL INSTRUMENTS (cont.) However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award. It is management’s intention to settle each contract through physical delivery of gold and as such, the gold forward sale contracts entered into by the Company do not meet the criteria of financial instruments for accounting purposes. This is referred to as the “own use” exemption. Accordingly, the contracts will be accounted for as sale contracts with revenue recognised once the gold has been delivered to the counterparty. 4.11 EMPLOYEE BENEFITS Provision for employee entitlements represents the amount which the consolidated entity has a present obligation to pay resulting from employees’ service provided up to the balance date. Liabilities arising in respect of employee benefits expected to be settled within twelve months of the balance date are measured at their nominal amounts based on remuneration rates which are expected to be paid when the liability is settled. All other employee benefit liabilities are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the balance date. Obligations for contributions to defined contribution superannuation funds are recognised as an expense in the Statement of Profit or Loss and Other Comprehensive Income as incurred. 4.12 SHARE BASED PAYMENTS The consolidated entity may provide benefits to employees (including Directors) and other parties as necessary in the form of share-based payments, whereby employees render services in exchange for shares or rights over shares (“equity settled transactions”). The cost of these equity settled transactions with employees is measured by reference to the fair value at the date they are granted. The value is determined using a Monte Carlo model or equivalent valuation technique. The cost of equity settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (“vesting date”). The cumulative expense recognised for equity settled transactions at each reporting date until vesting date reflects the extent to which the vesting period has expired and the number of awards that, in the opinion of the Directors, will ultimately vest. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. 4.13 FOREIGN CURRENCY Foreign currency transactions Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the statement of financial position date are translated to Australian dollars at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the Statement of Profit or Loss and Other Comprehensive Income. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to Australian dollars at foreign exchange rates ruling at the dates the fair value was determined. The following significant exchange rates have been applied: Average Rate Year-End Spot Rate AUD Philippine Peso USD 2022 37.19 0.72 2021 36.17 0.75 2022 37.91 0.69 2021 36.48 0.75 Financial statements of foreign operations Each entity in the consolidated entity determines its functional currency, being the currency of the primary economic environment in which the entity operates, reflecting the underlying transactions, events and conditions that are relevant to the entity. The functional currency of the Australian entities is the Australian dollar and the functional currency of the Philippine entities is the Philippine Peso. The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated from the entity’s functional currency to the consolidated entity’s presentation currency of Australian dollars at foreign exchange rates ruling at reporting date. The revenues and expenses of foreign operations are translated to Australian dollars at the exchange rates approximating the exchange rates ruling at the date of the transactions. Foreign exchange differences arising on translation are recognised directly in a separate component of equity. 4.14 REHABILITATION COSTS Full provision for rehabilitation costs is made based on the net present value of the estimated cost of restoring the environmental disturbance that has occurred up to the balance date. Increases due to additional environmental disturbances are capitalised and amortised over the remaining lives of the operations where they have future economic benefit, otherwise they are expensed. These increases are accounted for on a net present value basis. 54 2022 ANNUAL REPORT Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 4. SIGNIFICANT ACCOUNTING 4.18 REVENUE FROM CONTRACTS POLICIES (cont.) WITH CUSTOMERS 4.14 REHABILITATION COSTS (cont.) Annual increases in the provision relating to the change in the net present value of the provision and inflationary increases are accounted for in the Statement of Profit and Loss as an interest expense. The estimated costs of rehabilitation are reviewed annually and adjusted as appropriate for changes in legislation, technology or other circumstances. 4.15 PROVISIONS A provision is recognised in the Statement of Financial Position when the consolidated entity has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at the pre-tax rate that reflects current market assessments of the time value of money and where appropriate, the risk specific to the liability. 4.16 EARNINGS PER SHARE Basic earnings per share is determined by dividing net operating results after income tax attributable to members of the parent entity, 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 income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to potential ordinary shares. 4.17 BUSINESS COMBINATIONS The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss. Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, other contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognised in profit or loss. The Group recognises revenue when control has passed to the buyer; the Company has no significant continuing involvement; and the amount of revenue and costs incurred or costs to be incurred in respect of the transaction can be measured reliably. The Group’s assessment is that this occurs when the sales contract has been entered into and the customer has physical possession of the gold as this is the point at which the customer obtains the ability to direct the use and obtains substantially all of the remaining benefits of ownership of the asset. The transaction price is determined based on the agreed upon price and the number of ounces delivered. Payment is due upon delivery into the sales contract. As part of the risk management policy, the Group enters into gold forward contracts to manage the gold price of a proportion of anticipated gold sales. The counterparty to the gold forward contracts is BNP Paribas, Australia Branch, the Hongkong and Shanghai Banking Corporation Limited, Sydney Branch and Macquarie Bank Limited (“MBL”) (the counterparties). It is management’s intention to settle each contract through physical delivery of gold and as such, the gold forward sale contracts disclosed below do not meet the criteria of financial instruments for accounting purposes. This is referred to as the “own use” exemption. Accordingly, the contracts will be accounted for as sale contracts with revenue recognised once the gold has been delivered to the counterparties. 4.19 LEASES At the inception of a contract the Group assesses whether the contract is or contains a lease. A contract is, or contains, a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Group recognises it as a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets. For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate. 2022 ANNUAL REPORT 55 Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease. The Group applies AASB 136 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as described in the ‘Property, Plant and Equipment’ policy (as outlined in the financial report for the annual reporting period). Variable rents that do not depend on an index or rate are not included in the measurement the lease liability and the right-of- use asset. The related payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs and are included in profit or loss. As a practical expedient, AASB 16 permits a lessee not to separate non-lease components, and instead account for any lease and associated non-lease components as a single arrangement. The Group has not used this practical expedient. For a contract that contains a lease component and one or more additional lease or non-lease components, the Group allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components. 4.20 DISCONTINUED OPERATION A discontinued operation is a component of the Group’s business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which: \ represents a separate major line of business or geographic area of operations; \ is part of a single co-ordinated plan to dispose of a separate major line of business or geographic area of operations; or \ is a subsidiary acquired exclusively with a view to resale. Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be classified as held-for-sale. When an operation is classified as a discontinued operation, the comparative statement of profit or loss and Other Comprehensive Income is re-presented as if the operation had been discontinued from the start of the comparative year. 4. SIGNIFICANT ACCOUNTING POLICIES (cont.) 4.19 LEASES (cont.) Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments: \ fixed payments (including in-substance fixed payments), less any lease incentives receivable; \ variable lease payments that are based on an index or a rate; \ amounts expected to be payable by the lessee under residual value guarantees; \ the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and \ payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever: \ The lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate; \ The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which case the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used); \ A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification. The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses. Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured under AASB 137. To the extent that the costs relate to a right-of-use asset, the costs are included in the related right-of- use asset, unless those costs are incurred to produce inventories. 56 2022 ANNUAL REPORT Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 4. SIGNIFICANT ACCOUNTING POLICIES (cont.) 4.21 ASSETS HELD FOR SALE Non-current assets, or disposal groups comprising assets and liabilities, are classified as held-for-sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use. Such assets, or disposal groups, are generally measured at the lower of their carrying amount and fair value less costs to sell. Any impairment loss on a disposal group is allocated first to goodwill, and then to the remaining assets and liabilities on a pro rata basis, except that no loss is allocated to inventories, financial assets or deferred tax assets which continue to be measured in accordance with the Group’s other accounting policies. Impairment losses on initial classification as held-for-sale or held-for-distribution and subsequent gains and losses on remeasurement are recognised in profit or loss. Once classified as held-for-sale, intangible assets and property, plant and equipment are no longer amortised or depreciated, and any equity-accounted investee is no longer equity accounted. 4.22 ACCOUNTING ESTIMATES AND JUDGEMENTS The selection and disclosure of the consolidated entity’s critical accounting policies and estimates and the application of these policies, estimates and judgements is the responsibility of the Board of Directors. The estimates and judgements that may have a significant impact on the carrying amount of assets and liabilities are discussed below. Impairment of Assets At each reporting date, the Group makes an assessment for impairment of all assets if there has been an impairment indicator by evaluating conditions specific to the Group and to the particular assets that may lead to impairment. The recoverable amount of Property, Plant & Equipment and Mine Development Expenditure is determined as the higher of value-in-use and fair value less costs of disposal. Value-in-use is generally determined as the present value of the estimated future cash flows. Present values are determined using a risk adjusted discount rate appropriate to the risks inherent in the asset. Given the nature of the Group’s mining activities, future changes in assumptions upon which these estimates are based may give rise to a material adjustment to the carrying value. This could lead to the recognition of impairment losses in the future. The inter- relationship of the significant assumptions upon which estimated future cash flows are based is such that it is impracticable to disclose the extent of the possible effects of a change in a key assumption in isolation. Future cash flow estimates are based on expected production volumes and grades, gold price and exchange rate estimates, budgeted and forecasted development levels and operating costs. Management is required to make these estimates and assumptions which are subject to risk and uncertainty. As a result, there is a possibility that changes in circumstances may alter these projections, which could impact on the recoverable amount of the assets. In such circumstances, some or all of the carrying value of the assets may be impaired. Impairment losses are recognised in the Statement of Profit or Loss unless the asset has previously been revalued. Rehabilitation and mine closure provisions As set out in note 4.14, this provision represents the discounted value of the present obligation to restore, dismantle and rehabilitate certain items of property, plant and equipment. The discounted value reflects a combination of the Group’s assessment of the costs of performing the work required, the timing of the cash flows and the discount rate. A change in any, or a combination, of the three key assumptions used to determine the provisions could have a material impact to the carrying value of the provision. In the case of provisions for assets which remain in use, adjustments to the carrying value of the provision are offset by a change in the carrying value of the related asset. Where the provisions are for assets no longer in use or for obligations arising from the production process, the adjustment is reflected directly in the Statement of Profit or Loss. Reserves and resources The Group determines and reports ore reserves under the Australian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves Code (“JORC”) as revised December 2012 JORC for underground reserves and the JORC 2012 edition for open pit reserves. The JORC code requires the use of reasonable investment assumptions to calculate reserves. Reserves determined in this way are taken into account in the calculation of depreciation of mining plant and equipment (refer to 4.3), amortisation of capitalised development expenditure (refer to note 4.7), and impairment relating to these assets. Changes in reported reserves may affect the Group’s financial results and financial position in a number of ways, including: \ Asset carrying values may be impacted due to changes in estimated cash flows \ Depreciation and amortisation charged in the statement of profit or loss and other comprehensive income may change where such charges are calculated using the units of production basis \ Deferred waste amortisation, based on estimates of reserve to waste ratios \ Decommissioning, site restoration and environmental provisions may change where changes in estimated reserves alter expectations about the timing or cost of these activities. Going concern A key assumption underlying the preparation of the financial statements is that the Group will continue as a going concern. An entity is a going concern when it is considered to be able to pay its debts as and when they are due, and to continue in operation without any intention or necessity to liquidate or otherwise wind up its operations. 2022 ANNUAL REPORT 57 Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 4. SIGNIFICANT ACCOUNTING POLICIES (cont.) 4.22 ACCOUNTING ESTIMATES AND JUDGEMENTS (cont.) Share based payment transactions The Group measures the cost of equity settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using Monte Carlo modelling. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the equity instrument, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed note 31. Production start date The Group assesses the stage of each mine under development/ construction to determine when a mine moves into the production phase, this being when the mine is substantially complete and ready for its intended use. The criteria used to assess the start date are determined based on the unique nature of each mine development/construction project, such as the complexity of the project and its location. The Group considers various relevant criteria to assess when the production phase is considered to have commenced. Some of the criteria used to identify the production start date include, but are not limited to: \ Level of capital expenditure incurred compared with the original construction cost estimate; \ Completion of a reasonable period of testing of the mine plant and equipment; \ Ability to produce metal in saleable form (within specifications); and \ Ability to sustain ongoing production of metal. When a mine development project moves into the production phase, the capitalisation of certain mine development costs ceases and costs are either regarded as forming part of the cost of inventory or expensed, except for costs that qualify for capitalisation relating to mining asset additions or improvements, underground mine development or mineable reserve development. It is also at this point that depreciation/amortisation commences. Capitalised exploration and evaluation assets The future recoverability of capitalised exploration and evaluation expenditure is dependent on a number of factors, including whether the Group decides to exploit the related lease itself or, if not, whether it successfully recovers the related exploration and evaluation asset through sale. Factors which could impact the future recoverability include the level of proved, probable and inferred mineral resources, future technological changes which could impact the cost of mining, future legal changes (including changes to environmental restoration obligations) and changes to commodity prices. To the extent that capitalised exploration and evaluation expenditure is determined not to be recoverable in the future, this will reduce profits and net assets in the period in which this determination is made. In addition, exploration and evaluation expenditure is capitalised if activities in the area of interest have not yet reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves. To the extent that it is determined in the future that this capitalised expenditure should be written off, this will reduce profits and net assets in the period in which this determination is made. 4.23 NEW AND REVISED STANDARDS AND INTERPRETATIONS Certain new accounting standards and interpretations have been published that are not effective for the 30 June 2022 reporting period. Except for the amendment to AASB 16 Property, Plant and Equipment, the Group has not elected to early adopt any other new standards. The other new standards do not have a material effect on the Group’s financial statements. Amendment to AASB 116 Property, Plant and Equipment The Group has elected to early adopt the amendment in AASB 116 Property, Plant and Equipment, effective for annual periods beginning on or after 1 January 2022. The amendment to AASB 116 prohibits an entity from deducting from the cost of an item of property, plant or equipment any proceeds received from selling items produced while the entity is preparing the asset for its intended use. The effect of adopting the amendment in AASB 116 is to recognise in profit or loss the proceeds from sales of gold ore produced by the Group’s King of the Hills operation while it is still in pre- production phase. Prior to the amendment pre-production sales proceeds were recognised as a credit against the cost of the asset. Effect of pre-production sales from King of the Hills CONSOLIDATED 30 June 2022 30 June 2021 $’000 3,205 (7,644) (4,439) $’000 - - - Gold and silver sales (a) Costs of goods sold (b) Effect on gross profit (a) Pre-production gold ounces sold that were produced by King of the Hills processing plant amounted to 1,205 ounces for the year (30 June 2021: nil). This excludes ore fed into the plant sourced from the Great Western operation. (b) Costs of producing the gold ounces sold by King of the Hills during the pre-production phase were allocated to the cost of goods sold on the basis of the inventory value of the finished goods sold, along with an allocation of administrative overheads. 58 2022 ANNUAL REPORT Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 5 REVENUE AND EXPENSES Consolidated Year ended 30 June 2022 30 June 2021 $’000 $’000 (a) Revenue Gold and silver sales Realised gains/(losses) on cashflow hedges (b) Cost of sales Operating costs Depreciation and amortisation (1) (c) Other income Other income (d) Administration and other expenses Employee and consultancy expenses Share-based payments Corporate costs Property and other indirect taxes Legal fees Depreciation Travel and accommodation Acquisition related costs Foreign exchange gains Other administration overheads (e) Care and maintenance (2) Fuel and utilities Other costs External services Materials and consumables used (f) Finance income / (expenses) Interest income Interest expense on borrowings and leases Amortisation of borrowing costs Unwinding of discount on rehabilitation provision Unrealised loss on fuel hedges 162,899 2,063 164,962 (153,934) (42,115) (196,049) 208 208 (5,750) (4,171) (1,547) (931) (379) (399) (205) - 647 (636) (13,371) - - - - - 8 8 (1,867) (90) (858) - (2,815) (2,807) 189,711 (16,353) 173,358 (147,848) (23,202) (171,050) 692 692 (4,109) (1,767) (1,457) (201) (878) (291) (59) (176) 2 (636) (9,572) (1,026) (160) (848) (35) (2,069) 347 347 (921) (150) (161) (113) (1,345) (998) (1) With Darlot underground transitioning to a satellite mine providing ore to King of the Hills, accelerated depreciation and impairments for the Darlot Process Plant (now in care and maintenance) were booked during the year and totalled $22.585 million. (2) Care and maintenance costs in 2021 relate to the King of the Hills gold mine, which previously went into care and maintenance in February 2021. 2022 ANNUAL REPORT 59 Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 6 INCOME TAX Current income tax Current income tax charge Adjustment for prior period Deferred income tax Deferred income tax credit Adjustment for prior period Income tax benefit/(charge) A reconciliation between income tax charge and the profit/(loss) before income tax at the applicable income tax rate is as follows: (Loss)/profit before income tax At statutory income tax rate of 30% (2021: 30%) Temporary difference not recognised / (recognised) Items not allowable for income tax purposes: Non-deductible expenses Utilisation of carry forward tax losses not brought to account Current year losses for which deferred tax asset is not recognised Prior period adjustment Income tax benefit benefit/(charge) Tax losses and temporary differences not brought to account (tax effected) Deductible temporary differences Tax losses Consolidated Year ended 30 June 2022 30 June 2021 $’000 - - - 842 73 915 915 (49,579) 14,874 2,458 (1,266) - (15,224) 73 915 42,261 16,326 $’000 - 1,791 1,791 5,122 (2,125) (2,997) 4,788 (14,266) 4,280 1,400 (558) - - (334) 4,788 49,709 7,017 A portion of the tax losses and deductible temporary differences have not been recognised as a deferred tax asset at 30 June 2022 because the Directors do not presently believe that their realisation can be regarded as probable, except to the extent that they offset deferred tax liabilities. Movement in deferred tax balances: Net balance at 1 July 2021 Recognised in other comprehensive income Recognised in profit or loss Net balance at 30 June 2022 $’000 (22,463) (9,561) - 18,771 - 1,584 (278) 10,414 (1,533) $’000 - - - - 618 - - - 618 $’000 (48,611) (2,380) 3,994 (1,771) (618) (2,044) 2,307 50,038 915 $’000 (71,074) (11,941) 3,994 17,000 - (460) 2,029 60,452 - Property, plant and equipment and intangible assets Exploration and evaluation assets Inventories Provisions and employee benefits Derivative financial instruments Leases Other items Tax losses recognised 60 2022 ANNUAL REPORT Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 6 INCOME TAX (cont.) Property, plant and equipment and intangible assets Exploration and evaluation assets Provisions and employee benefits Derivative financial instruments Leases Other items Tax losses recognised Net balance at 1 July 2020 Recognised in other comprehensive income Recognised in profit or loss Net balance at 30 June 2021 $’000 (8,534) (8,009) 12,813 10,012 (135) (2,089) - 4,058 $’000 - - - (8,588) - - - (8,588) $’000 (13,929) (1,552) 5,958 (1,424) 1,719 1,811 10,414 2,997 $’000 (22,463) (9,561) 18,771 - 1,584 (278) 10,414 (1,533) (a) Red 5 Limited resolved to form a tax consolidated group incorporating all its Australian subsidiaries, with an effective date of 1 November 2017. In accordance with the tax consolidation legislation, the head entity of the Australian tax consolidated group, will assume the deferred tax assets and liabilities initially recognised by wholly owned members of the tax consolidated group. 7 CASH AND CASH EQUIVALENTS Cash at bank (a) Cash on deposit Cash on hand Cash held within assets held for sale CONSOLIDATED 30 June 2022 30 June 2021 $’000 32,525 - 1 32,526 - 32,526 $’000 18,159 30 - 18,189 (774) 17,415 (a) Cash at bank includes $13.0 million funds for the construction of the tailings storage facility at King of the Hills which the financiers require to be set aside for this purpose. 8 TRADE AND OTHER RECEIVABLES CONSOLIDATED 30 June 2022 30 June 2021 Current assets Trade debtors (a) Restricted cash (b) GST receivable Prepayments Sundry debtors Interest receivable Non-current assets Security deposits Restricted cash (b) VAT receivable $’000 8,158 7,500 2,138 988 240 1 19,025 8,177 - 3 8,180 $’000 3,538 - 1,612 4,690 20 1 9,861 8,306 20,500 4 28,810 (a) Trade debtors includes amounts receivable for 2,794 ounces sold on 30 June 2022, equivalent to $7.362 million (30 June 2021: 1,313 ounces equivalent to $3.068 million). (b) Restricted cash is made up of $7.5 million of funds in a debt service reserve account which has been transferred to current assets in FY22. The prior year balance included $13.0 million held to fund the construction of the tailings storage facility at King of the Hills. This was transferred to Cash and Cash Equivalents in FY22 when construction began. 2022 ANNUAL REPORT 61 Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 9 INVENTORIES Stores, spares and consumables at cost Provision for slow-moving stores, spares and consumables (a) Run of mine stockpiles at net realisable value (2021: net realisable value) (b) Gold in circuit at net realisable value (2021: net realisable value) (b) Crushed ore stockpile at net realisable value(b) (2021: at cost) Gold Bullion at cost CONSOLIDATED 30 June 2022 30 June 2021 $’000 12,641 (5,382) 7,259 22,245 9,816 1,943 152 41,415 $’000 8,722 (683) 8,039 6,064 11,886 451 132 26,572 (a) During the year the provision for slow-moving stores, spares and consumables inventory at the Darlot mine was increased to $5.382 million (30 June 2021: $0.683 million). (b) Net realisable value adjustments of $5.881 million were made during the year (30 June 2021: $3.243 million). In addition a write-down adjustment to gold in circuit of $7.934 million relating to the Darlot process plant being placed in care and maintenance in July 2022 was made. Stores, spares and consumables represent materials and supplies consumed in the production process. All stocks have been calculated as the lower of cost and net realisable value, representing the estimated selling price in the ordinary course of business less any further costs expected to be incurred in respect of such disposal. 10 PROPERTY, PLANT AND EQUIPMENT Land and buildings Plant and equipment Fixtures and fittings Right of use assets Assets under construction $’000 $’000 $’000 $’000 $’000 Total $’000 189,356 198,544 - 369 302 - 6 27,156 99,473 - 10 102,281 3,595 - 677 126,639 6,575 385,037 (99,300) (2,863) Cost Balance at 1 July 2021 Additions (a) Disposals Transfer from assets under construction Balance at 30 June 2022 Cost 10,648 24,315 - 207 35,170 48,902 70,859 - 96,214 215,975 Balance at 1 July 2020 13,264 138,487 2,014 Additions (a) Disposals (b) Transfer from assets under construction Transfer to assets held for sale Balance at 30 June 2021 436 - 13 (3,065) 10,648 2,025 (727) 1,867 (92,750) 48,902 29 - 78 (1,752) 369 21,080 6,224 (72) - (76) 7,206 97,765 - (1,958) (732) 27,156 102,281 182,051 106,479 (799) - (98,375) 189,356 62 2022 ANNUAL REPORT Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 10 PROPERTY, PLANT AND EQUIPMENT (cont.) Land and buildings Plant and equipment Fixtures and fittings Right of use assets Assets under construction $’000 $’000 $’000 $’000 $’000 Accumulated depreciation Balance at 1 July 2021 Depreciation for the year (c) Disposals (5,830) (1,677) - (31,082) (18,204) - (223) (65) - (15,407) (9,171) - Balance at 30 June 2022 (7,507) (49,286) (288) (24,578) Balance at 1 July 2020 Depreciation for the year Disposals Transfer to assets held for sale (6,475) (1,600) - 2,245 (73,739) (7,387) 453 49,591 Balance at 30 June 2021 (5,830) (31,082) (1,802) (55) - 1,634 (223) (9,518) (5,995) 71 35 (15,407) - - - - - - - - - Total $’000 (52,542) (29,117) - (81,659) (91,534) (15,037) 524 53,505 (52,542) Carrying amounts At 1 July 2020 At 30 June 2021 At 30 June 2022 6,789 4,818 64,748 17,820 27,663 166,689 212 146 389 11,562 11,749 7,206 90,517 102,281 136,814 102,061 6,575 303,378 (a) During the year ended 30 June 2022 additions included construction of the KOTH processing plant and the completion of the accommodation facility and administration blocks at the site. It also included new leased assets, sustaining capital and tailing storage facility improvements. (b) Disposals in the prior year relate to old mobile machinery sold during FY21. (c) With the Darlot underground transitioning to a satellite mine to provide ore to KOTH, and the Darlot process plant being placed into care and maintenance in July 2022, accelerated depreciation of $9.953 million was recognised in FY22. 11 MINE PROPERTIES Mine development Asset retirement obligation Mineral rights Cost Balance at 1 July 2021 Additions Transfer from assets under construction Rehabilitation change in estimate (refer to note 16) Balance at 30 June 2022 Balance at 1 July 2020 Additions Transfer from exploration and evaluation (refer to note 12) Rehabilitation change in estimate (refer to note 16) Transfer to assets held for sale Balance at 30 June 2021 $’000 58,944 82,729 2,693 - 144,366 235,525 10,050 2,805 - (189,436) 58,944 $’000 30,717 - - - Total $’000 112,626 82,729 2,693 (3,859) $’000 22,965 - - (3,859) 19,106 30,717 194,189 11,328 30,717 277,570 - - 13,796 (2,159) 22,965 - - - - 30,717 10,050 2,805 13,796 (191,595) 112,626 2022 ANNUAL REPORT 63 Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 11 MINE PROPERTIES (cont.) Accumulated depreciation Balance at 1 July 2021 Amortisation Balance at 30 June 2022 Balance at 1 July 2020 Amortisation Reclassification of rehabilitation asset Balance at 30 June 2021 Carrying amounts At 1 July 2020 At 30 June 2021 At 30 June 2022 Mine development Asset retirement obligation Mineral rights $’000 (27,962) (11,487) (39,449) (207,810) (4,658) 184,506 (27,962) 27,715 30,982 104,917 $’000 (1,756) (1,434) (3,190) (86) (1,756) 86 $’000 (19,883) (251) (20,134) (18,457) (1,426) - (1,756) (19,883) 11,242 21,209 15,916 12,260 10,834 10,583 Total $’000 (49,601) (13,172) (62,773) (226,353) (7,840) 184,592 (49,601) 51,217 63,025 131,416 12 EXPLORATION AND EVALUATION ASSETS Opening balance Exploration and evaluation expenditure incurred in current period Capitalised exploration costs transferred to mine development (refer to note 11) Exploration expenditure transferred to profit or loss (a) Transferred to assets available for sale Closing Balance CONSOLIDATED 30 June 2022 30 June 2021 $’000 37,135 6,520 - (2,522) - 41,133 $’000 32,361 11,187 (2,805) (3,217) (391) 37,135 (a) The carrying value of exploration costs totalling $2.522 million were expensed (30 June 2021: $3.217 million). These costs were associated with drilling and studies at the Darlot Gold Mine, where no further work will be performed in that particular area. 13 TRADE AND OTHER PAYABLES CONSOLIDATED 30 June 2022 30 June 2021 $’000 60,069 1,663 - 2,442 64,174 $’000 33,973 1,227 2,291 2,296 39,787 Current Creditors and accruals Royalties and other indirect taxes Insurance payable Other creditors 64 2022 ANNUAL REPORT Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 14 INCOME TAX PAYABLE Income tax payable 15 FINANCIAL LIABILITY Nominal Interest Rate Loan Term Carrying Value Current borrowings Non-current borrowings CONSOLIDATED 30 June 2022 30 June 2021 $’000 - - $’000 - - CONSOLIDATED 30 June 2022 30 June 2021 $’000 $’000 BBSY bid rate +4.0% BBSY bid rate +4.0% 69 months 69 months 172,270 19,376 152,894 172,270 - - - - On 17 March 2021 a $175 million debt facility commitment was announced with a syndicate comprising BNP Paribas, Australia branch, The Hongkong and Shanghai Banking Corporation Limited, Sydney Branch and Macquarie Bank Limited. The key terms of the project financing facilities include: \ A$160 million senior secured project loan facility fully drawn; \ A$15 million cost overrun and working capital facility fully drawn; \ Loan term of 5.75 years, maturing on 30 September 2026; \ An interest rate in respect of the senior secured project loan facility of BBSY-bid plus a margin below 4.00% p.a.; \ Certain financial covenants; and \ Guaranteed and secured on a first-ranking basis over all Australian assets of Red 5, Greenstone Resources (WA) Pty Ltd, Opus Resources Pty Ltd and Darlot Mining Company Pty Ltd. The first draw-down on the debt facility took place in July 2021 and the first repayment of $10.303 million is scheduled for December 2022. Loan acquisition costs of $2.730 million have been off-set against the $175 million drawn down. Under the Syndicated Facility Agreement which governs the long term debt, the Company will be subject to covenants from the December 2022 quarter for which it has to report on a quarterly basis or in the event of a default. 2022 ANNUAL REPORT 65 Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 16 PROVISIONS Opening balance Provisions made Provisions utilised Change in rehabilitation estimate Change in rehabilitation variables Unwinding of discount Closing balance Rehabilitation provision (a) Withholding tax Other provisions (b) $’000 50,683 - - 4,982 (8,841) 857 47,681 $’000 504 - (504) - - - - $’000 2,090 323 (1,116) - - - 1,296 Total $’000 53,277 323 (1,620) 4,982 (8,841) 857 48,977 (a) Rehabilitation provision Mining activities within the Group are required by law to undertake rehabilitation as part of their ongoing operations. The rehabilitation provision represents the present value of rehabilitation costs, which are expected to be incurred when the rehabilitation work following the cessation of operations is expected to be completed. This provision has been created based on the Group’s internal estimates which are reviewed over time as the operation develops. The accretion of the effect of discounting on the provision is recognised as a financial expense. In addition, the rehabilitation obligation has been recognised as an intangible asset and has been amortised over the life of the mines on units of production basis. (b) Other provisions: Includes provision for MRF Levy and insurance payable at 30 June 2022. Current Non-current CONSOLIDATED 30 June 2022 30 June 2021 $’000 1,296 47,681 48,977 $’000 1,116 52,161 53,277 17 LEASE LIABILITIES Lease liabilities include electricity and gas power plants, vehicles and equipment. They have increased as a result of the construction and development of the King of the Hills. Lease liabilities expire between August 2022 and March 2032 and bear interest at rates between 2.3% and 8.4%. Ownership of the vehicles and equipment will revert to the Company at the end of the leases at no additional cost. The Company’s obligations under the leases are secured by the lessor’s title to the leased assets. The fair value of the lease liabilities approximates their carrying values. The following schedule outlines the total minimum loan payments due for the lease obligations over their remaining term: Year ended 30 June Less than one year Between one and five years Current Non-current Future minimum lease payments Interest Present value of minimum lease payments 2022 $’000 25,289 102,863 128,152 25,289 102,863 128,152 2021 $’000 3,917 7,760 11,677 3,917 7,760 11,677 2022 $’000 6,799 21,259 28,058 6,799 21,259 28,058 2021 $’000 388 1,136 1,524 388 1,136 1,524 2022 $’000 18,490 81,604 2021 $’000 3,529 6,624 100,094 10,153 18,490 81,604 100,094 3,529 6,624 10,153 Variable lease payments on right-of-use assets amounted to $27.287 million for the year. 66 2022 ANNUAL REPORT Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 18 EMPLOYEE BENEFITS Provision for annual leave Provision for long-service leave Provision for incentive payments Current Non-current 19 DERIVATIVE FINANCIAL INSTRUMENTS Opening balance Settlement of cashflow hedges Closing balance CONSOLIDATED 30 June 2022 30 June 2021 $’000 3,436 1,589 4,030 9,055 8,316 739 9,055 $’000 2,912 1,634 1,373 5,919 5,498 421 5,919 CONSOLIDATED 30 June 2022 30 June 2021 $’000 - - - $’000 (33,375) 33,375 - During the prior year as part of the King of the Hills debt funding, the Group closed all existing hedge contracts and entered into new gold forward contracts amounting to 189,651 ounces of gold produced at the King of the Hills operation. The hedge contracts are priced at an average of $2,154 per ounce for the period from October 2022 to June 2025. The new gold forward contracts are accounted for using the “own use” exemption. In the prior year the Group had a hedge liability position reflecting a negative mark-to-market value of gold contracts of $33.375 million comprising forward contracts for 67,000 ounces of gold at an average price of $2,089 per ounce for the period July 2020 to September 2021. In March 2021 the remaining open hedges were closed as mentioned above. 20 CONTRIBUTED EQUITY (a) Share capital 2,356,360,652 (30 June 2021: 2,346,323,247) ordinary fully paid shares CONSOLIDATED 30 June 2022 30 June 2021 $’000 443,160 $’000 442,626 2022 ANNUAL REPORT 67 Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 20 CONTRIBUTED EQUITY (cont.) (b) Movements in ordinary share capital On issue at 1 July 2020 Capital raising for cash Service rights vested Deferred rights vested and converted to shares Performance rights vested and converted to shares Share issue costs On issue at 30 June 2021 On issue at 1 July 2021 Service rights vested Performance rights vested and converted to shares On issue at 30 June 2022 CONSOLIDATED Thousand Shares 1,958,845 375,415 744 328 10,992 - 2,346,323 2,346,323 328 9,710 2,356,361 $’000 383,887 60,066 149 83 542 (2,102) 442,626 442,626 85 449 443,160 Ordinary shares entitle the holder to participate in dividends and proceeds on the winding up of the parent entity in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. (c) Other equity Opening balance 1 July 2021 (a) Balance 30 June 2022 CONSOLIDATED Thousand Shares 581 581 30 June 2022 $’000 930 930 (a) Red 5 has provided for 581,428 shares to be issued at a value of $930,285 to settle the outstanding tax liability in relation to the acquisition of Merrill Crowe Corporation (MCC) in a previous financial year. 21 RESERVES Foreign currency translation reserve (a) Deferred retirement benefit (b) Share-based payment reserve and other reserves(c) Hedging reserve (d) CONSOLIDATED 30 June 2022 30 June 2021 $’000 433 - 6,485 - 6,918 $’000 26,309 130 3,144 1,444 31,027 (a) The foreign currency translation reserve comprises foreign exchange differences arising from the translation of the financial statements of foreign operations where the functional currency is different to the presentation currency of the reporting entity. This balance has been mostly released to the income statement on the sale of the main Philippine operation, Greenstone Resources Corporation (GRC) in the current year. (b) This reserve is for the revaluation movements of the defined retirement benefit fund for Philippines employees. It has been released on the sale of GRC during the current year. (c) The share-based payment reserve includes performance rights, service and deferred rights reserve. It arises on the granting and vesting of equity instruments. Refer note 31 for further details. (d) The hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging instruments (net of tax) used in cash flow hedges pending subsequent recognition in profit or loss. At year-end there were no open hedges (refer note 19). 68 2022 ANNUAL REPORT Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 22 EARNINGS PER SHARE Earnings per share (“EPS”) is the amount of post-tax profit or loss attributable to each share. The Group presents basic and diluted EPS data for ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS takes into account the dilutive effect of all potential ordinary shares, being unlisted employee performance and service rights on issue. Net (loss)/profit after income tax from continuing operations attributable to members of the parent company Net profit/(loss) after income tax from discontinued operations Net (loss)/profit after income tax attributable to members of the parent company Weighted average number of ordinary shares (‘000) Issued ordinary shares at 1 July Effect of shares issued 21 August 2021 Effect of shares issued 7 September 2021 Effect of shares issued 20 July 2020 Effect of shares issued 11 September 2020 Effect of shares issued 25 November 2020 Effect of shares issued 25 March 2021 Effect of shares issued 16 April 2021 CONSOLIDATED 30 June 2022 30 June 2021 $’000 (48,578) 20,049 $’000 (9,478) (33,767) (28,529) (43,245) CONSOLIDATED Weighted average no. of shares 2022 2021 2,346,322 1,958,845 8,353 266 - - - - - - - 706 8,823 196 65,861 27,093 Weighted average number of ordinary shares at 30 June (basic) 2,354,941 2,061,524 Weighted-average number of ordinary shares (basic): 2,354,941 2,061,524 Effect of performance rights contingently issuable Effect of service rights contingently issuable - - - - Weighted average number of ordinary shares at 30 June (diluted) 2,354,941 2,061,524 Earnings per share (cents per share) Basic (loss)/profit per share Diluted (loss)/profit per share Basic (loss)/profit per share – continuing operations Diluted (loss)/profit per share – continuing operations (1.21) (1.21) (2.06) (2.06) (2.08) (2.08) (0.44) (0.44) For fully diluted (loss)/profit per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of dilutive potential ordinary shares if the Group has made a profit. The Group’s potentially dilutive securities consist of performance and service rights. 2022 ANNUAL REPORT 69 Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 23 DISCONTINUED OPERATION Sale of Siana Gold Mine (Philippines) During FY21, the Group had been in negotiations with interested parties to divest its interests in Philippine-affiliated company Greenstone Resources Corporation (GRC), which holds both the Siana Gold Project (Siana) and the Mapawa Gold Project. The divestment of its interests in Siana is consistent with Red 5’s strategy to focus on its King of the Hills and Darlot gold mines in Western Australia, with the aim of becoming a substantial mid-tier Australian gold producer. In July 2021, a binding agreement with TVI Resource Development (Phils.) Inc. (TVIRD) was entered into for the sale of GRC. TVIRD is the Philippine affiliate of the Canadian-listed TVI Pacific Inc. The divestment included the process plant and all other infrastructure at Siana. Upon completion of all closing conditions of the agreement, which included certain Philippine regulatory approvals which were satisfied during the September 2021 quarter, the Group received gross proceeds of US$19 million (approximately A$25.3 million) through the repayment of outstanding shareholder advances due from its Philippine-affiliated company, Red 5 Asia Inc, which was a shareholder of GRC. In addition, a royalty of 3.25% payable for up to 619,000 ounces of gold will be payable to the Group from first gold from the restart of the Siana processing plant, which is expected in the first half of 2023. (a) Results of discontinued operation Disposal consideration net of costs to sell Net assets disposed of Non-controlling interest Foreign currency translation reserve Gain on sale of discontinued operation (i) Care and maintenance costs Impairment of discontinued operation (ii) Profit/(loss) from discontinued operation CONSOLIDATED 30 June 2022 30 June 2021 $’000 22,076 (22,580) (3,976) 25,704 21,224 (1,175) - 20,049 $’000 - - - - - (7,199) (26,568) (33,767) (i) The gain on sale of discontinued operation is mainly derived from the release of the foreign currency translation reserve associated with the disposal of the discontinued operation’s net assets. There were no tax consequences on the sale consideration due to available tax losses in the Philippines. (ii) Due to uncertainty of receipt of the 3.25% royalties on the ounces of gold to be produced by GRC in the future, an impairment loss to the write down of the assets and liabilities of the discontinued operation to the lower of its carrying amount and fair value was incurred and accounted for in the June 2021 annual report. 70 2022 ANNUAL REPORT Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 23 DISCONTINUED OPERATION (cont.) (b) Effect of disposal of discontinued operation on the financial position of the Group CONSOLIDATED 30 June 2022 30 June 2021 Plant, property and equipment Mine properties Inventory Trade and other receivables Cash and cash equivalents Total assets disposed of (2021: Assets held for sale) Trade and other payables Provisions Employee benefits Lease liabilities Total liabilities disposed of (2021: Liabilities held for sale) Net assets disposed of (2021: Net assets held for sale) (c) Cash flows (used in)/ from discontinued operation Net cash used in operating activities Net cash used in investing activities Net cash from financing activities Net cash flow for the year $’000 16,740 960 6,014 639 609 24,962 (18) (2,364) - - (2,382) 22,580 $’000 17,367 960 6,003 519 774 25,623 (1,514) (2,362) (58) (6) (3,940) 21,683 CONSOLIDATED 30 June 2022 30 June 2021 $’000 (828) 21,467 - 20,639 $’000 (3,975) (53) - (4,028) 24 RELATED PARTIES The following were key management personnel of the consolidated entity at any time during the reporting period and unless otherwise indicated, were key management personnel for the entire reporting period: Executive Directors Mark Williams – Managing Director Non-Executive Directors Kevin Dundo Ian Macpherson Colin Loosemore Steve Tombs Andrea Sutton Fiona Harris Other executives Jason Greive – Chief Operating Officer John Tasovac – Chief Financial Officer 2022 ANNUAL REPORT 71 Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 24 RELATED PARTIES (cont.) Compensation of key management personnel A summary of the compensation of key management personnel is as follows: Key management personnel Short term benefits including service and deferred rights Post-employment benefits Long term benefits Share based payments CONSOLIDATED 30 June 2022 30 June 2021 $ $ 2,241,301 141,130 146,095 1,039,696 3,568,273 2,136,900 143,192 118,927 448,407 2,847,426 Loans to key management personnel There were no loans to key management personnel during the period. Transactions with related parties in the wholly owned group During the financial year, unsecured loan advances were made between the parent entity and its controlled entities. All such loans were interest free. Intra entity loan balances have been eliminated in the financial report of the consolidated entity. The ownership interests in related parties in the wholly owned group are set out in Note 29. 25 REMUNERATION OF THE AUDITOR Amounts paid or due and payable to the auditor for: Auditing and reviewing financial reports – KPMG Australia – KPMG Australia fee from prior year – overseas KPMG firms Taxation advisory services – KPMG Australia – overseas KPMG firms CONSOLIDATED 30 June 2022 30 June 2021 $ $ 195,900 40,000 4,445 44,546 - 284,891 153,810 - 39,738 165,859 8,028 367,435 72 2022 ANNUAL REPORT Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 26 CAPITAL AND OTHER COMMITMENTS CONSOLIDATED 30 June 2022 30 June 2021 $’000 $’000 Capital expenditure commitments Contracted but not provided for: (a) - not later than one year Contractual sale commitments Sale commitments: (b) - not later than one year - later than one year but not later than two years - later than two years but not later than five years Contractual expenditure commitments Non-capital expenditure commitments: - not later than one year Tenement expenditure commitments: - not later than one year - later than one year but not later than two years 15,413 15,413 125,072 184,419 100,533 410,024 904 904 3,291 2,931 6,222 83,934 83,934 - 125,072 284,952 410,124 5,376 5,376 3,310 2,612 5,922 (a) In the prior year capital commitments related to the processing plant construction at King of the Hills. The project was completed during the current year, resulting in the remaining capital commitments at 30 June 2022 relating to the construction of the tailings storage facility at King of the Hills. (b) Includes forward sale contractual commitments for 189,650 ounces amounting to $410 million relating to future sales of gold from King of the Hills. The hedge contracts are fixed at an average price of $2,154 per ounce and settle between October 2022 and June 2025. They are accounted for under the “own use” exemption. 27 CONTINGENT LIABILITIES The consolidated entity had no material contingent liabilities as at the reporting date and as at the end of the year. 2022 ANNUAL REPORT 73 Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 28 SEGMENT INFORMATION The Group is managed primarily on the basis of its production, development and exploration assets in both Australia and the Philippines. Operating segments are therefore determined on the same basis. Due to the sale of the Philippines operation (refer to note 23), the Philippines segment is classified as a discontinued operation. The Australia segment is made up of the Darlot and King of the Hills operations. Unless otherwise stated, all amounts reported to the Board of Directors as the chief decision maker with respect to operating segments are determined in accordance with accounting policies that are consistent with those adopted in the consolidated annual financial statements of the Group. Australia (a) Philippines (discontinued) $’000 $’000 Other (b) $’000 Total $’000 (i) Segment performance Year ended 30 June 2022 Revenues (c) Segment result before tax Included within segment result: Other income Interest income Finance expenses Exploration costs expensed Depreciation and amortisation Profit/(loss) from discontinued operation Year ended 30 June 2021 Revenues (c) Segment result before tax Included within segment result: Other income Interest income Finance expenses Exploration costs expensed Depreciation and amortisation Impairment of discontinued operation Care and maintenance costs (ii) Segment Assets As at 30 June 2022 Segment assets Additions to non-current assets: Plant and equipment expenditure Mine properties Intangible assets As at 30 June 2021 Segment assets Additions to non-current assets: Plant and equipment expenditure Mine properties Intangible assets 74 2022 ANNUAL REPORT 164,962 164,962 (38,089) 208 2 (1,797) (2,522) (42,188) - 173,358 173,358 (4,363) 527 35 (787) (3,217) (23,253) - - 546,992 198,540 82,729 14 - - - - 164,962 164,962 20,049 (11,490) (29,530) - - - - - 20,049 - - - 6 (1,018) - (326) - - - 208 8 (2,815) (2,522) (42,514) 20,049 173,358 173,358 (33,767) (9,903) (48,033) - - - - - (26,568) (7,199) - - - - 165 312 (558) - (240) - - 692 347 (1,345) (3,217) (23,493) (26,568) (7,199) 30,373 577,365 4 - 103 198,544 82,729 117 294,099 25,623 25,763 345,485 105,060 10,050 3 - - - 1,419 - 36 106,479 10,050 39 Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 28 SEGMENT INFORMATION (cont.) (iii) Segment Liabilities As at 30 June 2022 Segment liabilities As at 30 June 2021 Segment liabilities Australia (a) Philippines (discontinued) $’000 $’000 Other (b) $’000 Total $’000 215,484 - 179,086 394,570 105,688 3,940 4,981 114,609 (a) Australia segment consists of the Darlot Mining Company Pty Ltd and the King of the Hills gold project. (b) Includes corporate costs of the group and inter-company transactions. (c) Revenue is attributable to two customers only. 29 INVESTMENTS IN CONTROLLED ENTITIES Name of controlled entities Bremer Resources Pty Ltd Estuary Resources Pty Ltd Greenstone Resources (WA) Pty Ltd Oakborough Pty Ltd Opus Resources Pty Ltd Red 5 Philippines Pty Ltd Red 5 Mapawa Pty Ltd Red 5 Dayano Pty Ltd Darlot Mining Company Pty Ltd Bremer Binaliw Corporation Red 5 Mapawa Inc Red 5 Dayano Inc Red 5 Asia Inc Greenstone Resources Corporation (a)(b) Surigao Holdings and Investments Corporation (b) Country of incorporation Class of shares 2022 2021 Equity holding % Australia Australia Australia Australia Australia Australia Australia Australia Australia Philippines Philippines Philippines Philippines Philippines Philippines Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100 100 100 100 100 100 100 100 100 - 100 100 100 - 40 100 100 100 100 100 100 100 100 100 100 100 100 100 40 40 (a) In September 2021 the Company sold all its interest in Greenstone Resources Corporation to a Philippine registered resources company, TVI Resources Incorporated (refer to note 23). (b) The Company held a 40% direct interest in Greenstone Resources Corporation (GRC) before it’s sale (refer to note above) and currently still holds a 40% interest in Surigao Holdings and Investments Corporation (SHIC) voting stock. Agreements are in place which deal with the relationship between Red 5 and other shareholders of these entities. In accordance with Australian accounting standard, AASB 10 Consolidated Financial Statements, Red 5 has consolidated these companies in these financial statements. 2022 ANNUAL REPORT 75 Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 30 RECONCILIATION OF NET CASH FLOWS FROM OPERATING ACTIVITIES CONSOLIDATED 30 June 2022 30 June 2021 Operating (loss)/profit after income tax Profit on sale discontinued operation Impairment of discontinued operation Amortisation and depreciation Ineffective portion of cashflow hedges Deferred tax Share based payment Interest expenses Write down of obsolete inventory Write down of gold-in-circuit inventory Non-cash stockpile movements Unwinding of asset retirement obligation Amortisation of borrowing costs Other Changes in operating assets and liabilities: (Increase)/decrease in inventories (Increase)/decrease in receivables Increase/(decrease) in payables (Decrease)/increase in income tax payable (Decrease)/increase in provisions Net cash flow from operating activities $’000 (28,615) (21,225) - 42,514 (2,063) (915) 3,875 326 4,699 7,934 (522) 858 90 861 (14,843) (1,664) 7,192 - (861) (2,359) 31 SHARE-BASED PAYMENT ARRANGEMENTS The following is the movement in performance rights during the period: Movement in Performance Rights year ended 30 June 2022 Performance rights Series 2022 Series 2023 Series 2023 PIO Series 2024 Series Total Balance at 1 July 2021 10,442,031 7,945,729 - - 18,387,760 Granted (a) - - 11,550,613 18,410,000 29,960,613 Vested (b) (5,576,211) Forfeited (c) (4,865,820) - - - - - - (5,576,211) (4,865,820) Movement in Performance Rights year ended 30 June 2021 $’000 (43,245) - 26,568 23,493 (3,363) (2,997) 1,767 921 683 - 362 179 150 2,632 9,588 1,936 (2,930) (1,791) 602 14,555 Balance at 30 June 2022 - 7,945,729 11,550,613 18,410,000 37,906,342 Balance at 30 June 2021 - 10,442,031 7,945,729 Performance rights Series 2021 Series 2022 Series 2023 Series Total Balance at 1 July 2020 15,241,298 10,442,031 - 25,683,329 76 2022 ANNUAL REPORT Granted (a) Vested (b) - - 7,945,729 7,945,729 (10,668,909) - - Forfeited (c) (4,572,389) - - (10,668,909) (4,572,389) 18,387,760 Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 31 SHARE-BASED PAYMENT ARRANGEMENTS (cont.) Performance rights granted during the year ended 30 June 2022: (a) Project Incentive Opportunity (PIO) rights were granted to the Managing Director, Key Management Personnel, Senior Management and other operational employees during the period. The performance rights are split into three tranches based on different performance conditions measured over a period commencing 1 July 2022 to the vesting date which is 30 June 2023 if the conditions are met. Details of the PIO rights granted during the period are summarised below: Project Incentive Opportunity – (Expiry date: 30 June 2023) Total PIO rights Value per right Valuation per tranche Condition criteria Tranche A 5,775,306 $0.28 $1,617,086 Tranche B 2,887,654 $0.28 $808,543 Tranche C 2,887,654 $0.28 $808,543 Greater than a specified number of gold ounces produced across both KOTH and Darlot mines (50% weighting) Greater than a specified number of tonnes of ore processed at the KOTH processing plant (25% weighting) Greater than a specified volume of development metres completed at the Darlot underground mine (25% weighting) Total 11,550,613 $3,234,172 In addition, a safety gate applies to all PIO KPI’s whereby no workplace fatalities occur at either the KOTH or Darlot operations. LTIP Performance rights were granted to the Managing Director, Key Management Personnel, Senior Management and other operational employees during the period. The performance rights are split into two tranches based on different performance conditions measured over a period commencing 1 July 2022 to the vesting date which is 30 June 2024 if the conditions are met. Details of the performance rights granted during the period are summarised below: LTIP Performance Rights 2024 series – (Expiry date: 30 June 2024) Total performance rights Value per right Valuation per tranche Condition criteria Tranche A 12,887,002 $0.217 $2,796,479 Tranche B 5,522,998 $0.28 $1,546,440 TSR ranking relative to TSR of S&P/ASX All Ordinaries Gold Total Return Index Growth in the Company’s Ore Reserves (proved and probable), excluding 50% of acquired Ore Reserves Total 18,410,000 $4,342,919 In addition, vesting of the performance rights is also conditional on the following being exceeded: 1. a positive Company TSR for the measurement period; and 2. 90% of budgeted gold production over the measurement period. TSR > Index TSR +20% TSR > Index TSR +10% TSR < or equal to Index TSR 100% 50% nil Stretch: 35% or over 100% Target: 20% Threshold: 15% 50% 25% < 15% nil 2022 ANNUAL REPORT 77 Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 31 SHARE-BASED PAYMENT ARRANGEMENTS (cont.) Model Inputs Grant date Value of the underlying security at grant date Exercise price Dividend yield Risk free rate Volatility Performance period (years) Commencement of measurement period Vesting date Remaining performance period (years) Weighted average fair value per right No. performance rights Total Valuation PIO Rights (2023 series) 10 Dec 2021 $0.28 nil nil 0.535% LTIP Rights (2024 series) 10 Dec 2021 $0.28 nil nil 0.935% All tranches: 75% All tranches: 75% 2.00 1 July 2021 30 June 2023 1.55 $0.28 11,550,613 $3,234,172 3.00 1 July 2021 30 June 2024 2.56 $0.236 18,410,000 $4,342,919 (b) In accordance with the terms of the Red 5 Rights Plan, performance rights that were issued to key management personnel and senior management have vested following the partial achievement of performance conditions measured over the three years ended 30 June 2022. (c) Performance rights with unmet performance conditions have lapsed, and have been forfeited. Shares issued, Service and Deferred Rights Grant Date Vesting Date Fair Value at Grant Date Granted Exercised Outstanding at 30 June 2022 Service rights issued and vested: Jason Greive (a) Service rights issued and vested: John Tasovac (b) 26-Oct-21 30-Jun-22 $75,000 412,088 - 412,088 24-Nov-20 30-Jun-21 $26,744 102,861 (102,861) - (a) Service Rights for Mr Greive issued under the Red 5 FY21 Rights Plan. They have a 12 month service test and vested on 1 July 2022 because Mr Greive was still an employee at that date. (b) Service Rights for Mr Tasovac issued under the Red 5 FY20 Rights Plan. They have a 12 month service test and vested on 1 July 2021 because Mr Tasovac was still an employee at that date. Share based payments expense for the shares issued, service and deferred rights was $nil, (2021: $0.124 million). The fair value is based on observable market share price at the date of grant. 32 FINANCIAL RISK MANAGEMENT OVERVIEW This note presents information about the consolidated entity’s exposure to credit, liquidity and market risks, their objectives, policies and processes for measuring and managing risk, and the management of capital. The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. Management monitors and manages the financial risks relating to the operations of the consolidated entity through regular reviews of the risks. CREDIT RISK Credit risk is the risk of financial loss to the consolidated entity if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the consolidated entity receivables from customers and investment securities. For the Company it arises from receivables due from subsidiaries. Presently, the consolidated entity undertakes exploration, mining and gold production activities. The Group sells gold to two customers in Australia and has managed its exposure to credit risk by analysing the creditworthiness of the customer. 78 2022 ANNUAL REPORT Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 32 FINANCIAL RISK MANAGEMENT (cont.) Cash and cash equivalents The consolidated entity limits its exposure to credit risk by only investing in liquid securities and only with counterparties that have an acceptable credit rating. Any excess cash and cash equivalents are maintained in short term deposits with more than one major Australian commercial bank at interest rates maturing over 30 to 120 day rolling periods. Trade and other receivables The Group’s trade and other receivables relate mainly to gold sales and sales tax refunds. The Group has determined that its exposure to trade receivable credit risk is low, given that it sells gold bullion to a single reputable refiner with short contractual payment terms and sales tax refunds are due from Government tax bodies namely the Australian Tax Office and the Philippines Bureau of Internal Revenue. Exposure to credit risk The carrying amount of the consolidated entity’s financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was: Cash and cash equivalents Trade and other receivables Non-current receivables LIQUIDITY RISK CONSOLIDATED Carrying amount 2022 $’000 32,526 19,025 8,180 2021 $’000 17,415 9,861 28,810 Liquidity risk is the risk that the consolidated entity will not be able to meet its financial obligations as they fall due. The consolidated entity approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the consolidated entity. The consolidated entity manages liquidity risk by maintaining adequate cash reserves from funds raised in the market and by continuously monitoring forecast and actual cash flows. The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements: CONSOLIDATED As at 30 June 2022 Trade and other payables Lease liabilities Financial liabilities As at 30 June 2021 Trade and other payables Lease liabilities Carrying amount $’000 64,174 100,094 172,270 336,538 39,787 10,153 49,940 Contractual cash flows Less than one year Between one and five years More than five years $’000 $’000 $’000 $’000 (64,174) (128,152) (194,598) (64,174) (25,288) (27,830) - (73,582) (166,768) - (29,282) - (386,924) (117,292) (240,350) (29,282) (39,787) (12,715) (52,502) (39,787) (6,385) (46,172) - (6,330) (6,330) - - - 2022 ANNUAL REPORT 79 Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 32 FINANCIAL RISK MANAGEMENT (cont.) MARKET RISK Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and commodity prices will affect the consolidated entity income or the value of its holdings of financial instruments. Changes in the market gold price will affect the derivative valuation at each reporting date. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. Hedge accounting The Group’s risk management policy is to hedge gold sales in local currency as and when appropriate, subject to the terms of the Syndicated Facility Agreement. At 30 June 2022 there were commitments over future sales of gold from the King of the Hills operation (refer to note 26). These are accounted for using the “own use” exemption and are not regarded as financial instruments. Gold price sensitivity Derivative financial instruments valued using valuations models with inputs such as forward gold prices, are sensitive to gold price fluctuations. Currently there are no derivative financial instruments because the Group accounts for gold hedges using the “own use” exemption (2021: nil). An increase of 10% or decrease of 10% in the average gold price for the year would have increased/(decreased) equity and profit or loss by the amounts shown below: CONSOLIDATED 30 June 2022 Gold sales revenue 30 June 2021 Gold sales revenue CURRENCY RISK Profit or loss Equity 10% increase $’000 10% decrease $’000 10% increase $’000 10% decrease $’000 16,246 (16,246) 16,246 (16,246) 17,094 (17,094) 17,094 (17,094) The consolidated entity is exposed to currency risk on investments and purchases that are denominated in a currency other than the respective functional currencies of the subsidiaries within the consolidated entity being Australian Dollar (A$) and Philippine Pesos. The currencies in which these transactions primarily are denominated are United States dollars (US$). The consolidated entity has not entered into any derivative financial instruments to hedge such transactions. The Company’s investments in its subsidiaries are not hedged as those currency positions are considered to be long term in nature. INTEREST RATE RISK The consolidated entity is exposed to interest rate risk, primarily on its borrowings and on its cash and cash equivalents. This is the risk that a financial instrument’s value will fluctuate as a result of changes in the market interest rates on interest-bearing financial instruments. The consolidated entity does not currently use derivatives to mitigate these exposures. For cash and cash equivalents, the consolidated entity adopts a policy of ensuring that any excess cash is utilised to pay down long term debt under the terms of the Syndicated Facility Agreement. At the reporting date the interest rate profile of the consolidated entity’s interest-bearing financial instruments was: Cash and cash equivalents Restricted cash Security deposits Borrowings 80 2022 ANNUAL REPORT CONSOLIDATED Carrying amount 2022 $’000 32,526 7,500 8,177 (172,270) (124,067) 2021 $’000 17,415 20,500 8,306 - 46,221 Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 32 FINANCIAL RISK MANAGEMENT (cont.) Cash flow sensitivity analysis for variable rate instruments An increase of 100 basis points or decrease of 100 basis points in interest rates at the reporting date would have increased/(decreased) equity and profit or loss by the amounts shown below: Profit or loss Equity 100bp increase $’000 100bp/50bp decrease $’000 100bp increase $’000 100bp/50bp decrease $’000 (1,241) 462 1,241 (231) (1,241) 462 1,241 (231) CONSOLIDATED 30 June 2022 Variable rate instruments 30 June 2021 Variable rate instruments NET FAIR VALUES The carrying value of financial assets and liabilities equates to their fair value. CAPITAL MANAGEMENT The consolidated entity’s objective when managing capital is to safeguard its ability to continue as a going concern, so as to maintain a strong capital base sufficient to maintain future exploration and development of its projects. In order to maintain or adjust the capital structure, the consolidated entity may return capital to shareholders, issue new shares or sell assets to reduce debt. Risk management is facilitated by regular monitoring by and reporting to the Board and key management personnel. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements. 33 FAIR VALUE MEASUREMENT The fair values of financial assets and financial liabilities carried at amortised cost approximate their carrying value. The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique. Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities Level 2 - Valuation techniques for which the lowest - level input that is significant to the fair value measurement is directly or indirectly observable Level 3 - Valuation techniques for which the lowest - level input that is significant to the fair value measurement is unobservable The following financial assets and liabilities are classified as level 2: \ Financial liabilities - borrowings of $172.270 million (30 June 2021: $nil) \ Derivative Financial Instruments, liability of $nil (30 June 2021: $nil) 34 DEED OF CROSS GUARANTEE Pursuant to ASIC Corporations (Wholly owned Companies) Instrument 2016/785 the wholly owned subsidiaries listed below are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports, and Directors’ Reports. It is a condition of the Instrument that the Company and each of the subsidiaries enter into a Deed of Cross Guarantee. The effect of the Deed is that the Company guarantees to each creditor payment in full of any debt in the event of winding up of any of the subsidiaries under certain provisions of the Corporations Act 2001. If a winding up occurs under other provisions of the Act, the Company will only be liable in the event that after six months any creditor has not been paid in full. The subsidiaries have also given similar guarantees in the event that the Company is wound up. The subsidiaries subject to the Deed are: \ Opus Resources Pty Ltd \ Darlot Mining Company Pty Ltd \ Greenstone Resources (WA) Pty Ltd Opus Resources Pty Ltd and Darlot Mining Company Pty Ltd both became party to the Deed of Cross Guarantee on 30 June 2018. Greenstone Resources (WA) Pty Ltd became party to the Deed of Cross Guarantee on 30 June 2021. 2022 ANNUAL REPORT 81 Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 34 DEED OF CROSS GUARANTEE (cont.) A consolidated statement of comprehensive income and a consolidated statement of financial position, comprising of the Company and controlled entities which are party to the Deed, after eliminating all transactions between parties to the Deed of Cross Guarantee, for the year ended 30 June 2022 is set out as follows: (a) Statement of Other Comprehensive Income CLOSED GROUP YEAR ENDED 30 June 2022 30 June 2021 Sales revenue Cost of sales Gross profit Other income and expenses Other income Administration and other expenses Exploration expenditure Operating (loss)/profit Finance income Finance expenses Net financing expense Profit/(loss) before tax Income tax (expense)/benefit (Loss)/profit after tax for the year Other comprehensive income/(loss) Changes in fair value of cashflow hedges, net of tax Ineffective portion of cash flow hedges $’000 164,962 (196,049) (31,087) 208 (13,547) (2,522) (46,948) 8 (126,388) (126,380) (172,328) 915 (172,413) - (1,444) $’000 173,358 (171,050) 2,308 527 (11,471) (3,217) (11,853) 347 (57,960) (57,613) (69,466) 4,788 (64,678) 24,787 (4,748) Total comprehensive profit/(loss) for the year (173,857) (44,639) 82 2022 ANNUAL REPORT Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 34 DEED OF CROSS GUARANTEE (cont.) (b) Statement of Financial Position CLOSED GROUP YEAR ENDED 30 June 2022 30 June 2021 Assets Cash and cash equivalents Trade and other receivables Inventories Total current assets Property, plant and equipment Mine properties Exploration and evaluation assets Trade and other receivables Intangible assets Investments Total non-current assets Total assets Liabilities Trade and other payables Employee benefits Income tax payable Borrowings Lease liabilities Total current liabilities Employee benefits Provisions Borrowings Lease liabilities Deferred tax liability Total non-current liabilities Total liabilities Net assets Equity Contributed equity Other equity Reserves Accumulated losses Total equity $’000 32,474 18,880 41,415 92,769 303,378 131,273 41,133 7,380 291 658 484,113 576,882 64,987 8,316 - 19,376 18,490 111,169 739 47,681 152,894 81,604 - 282,918 394,087 182,795 445,411 930 35,938 (299,484) 182,795 $’000 17,374 9,858 26,572 53,804 136,814 62,882 37,135 50,490 230 658 288,209 342,013 40,953 5,498 - - 3,529 49,980 421 52,926 - 6,624 1,533 61,504 111,484 230,529 444,877 930 34,041 (249,319) 230,529 2022 ANNUAL REPORT 83 Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.) 35 PARENT ENTITY DISCLOSURES PARENT ENTITY 30 June 2022 30 June 2021 $’000 $’000 (a) Finance position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Equity Contributed equity Other equity Reserves Accumulated losses Total equity (b) Finance performance Profit/(loss) for the year Other comprehensive income Total comprehensive profit/(loss) for the year (c) Financial commitments Low value and short term leases: - Not later than one year Total financial commitments (d) Contingent liabilities 28,849 292,988 321,837 25,340 153,263 178,603 443,160 930 6,485 (307,341) 143,234 (172,413) (1,444) (173,857) - - 3,595 154,964 158,559 4,246 3,497 7,743 442,626 930 4,587 (297,327) 150,816 (64,678) 20,039 (44,639) - - The parent entity did not have any contingent liabilities at 30 June 2022 (2021: $nil). The parent entity has entered into a Deed of Cross Guarantee with the effect that the Company guarantees debts in respect of certain subsidiaries. Further details of the Deed of Cross Guarantee and the subsidiaries subject to the deed are disclosed in Note 34. 36 SUBSEQUENT EVENTS During the first quarter of FY23, the Darlot Gold Mine’s processing plant was wound down and the Darlot operation has been transitioned to a satellite underground mine to provide ore to King of the Hills, with the majority of surface employees at Darlot transitioning or having already transitioned to King of the Hills. As a result, the Darlot process plant was placed into care and maintenance in July 2022. Other than the matters discussed above, there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years. 84 2022 ANNUAL REPORT DIRECTORS’ Declaration The Board of Directors of Red 5 Limited declares that: (a) the consolidated financial statements, accompanying notes and the remuneration disclosures that are contained in the Remuneration Report in the Directors’ Report are in accordance with the Corporations Act 2001, including: \ giving a true and fair view of the Group’s financial position as at 30 June 2022 and of its performance for the financial year ended on that date; and \ complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; (b) the financial report also complies with International Financial Reporting Standards as disclosed in note 2.1; and (c) there are reasonable grounds to believe that the Group will be able to pay its debts as and when they fall due. (d) Aa the date of the declaration, the Company is within the class of companies affected by ASIC Corporations (Wholly owned Companies) Instrument 2016/785. The nature of the deed of cross guarantee is such that each company which is party to the deed guarantees to each creditor payment in full of any debt in accordance with the deed of cross guarantee. The Board of Directors has received the declaration by the Managing Director and Chief Financial Officer required by Section 295A of the Corporations Act 2001, for the year ended 30 June 2022. Signed in accordance with a resolution of the Directors. Kevin Dundo Chairman Perth, Western Australia 31 August 2022 2022 ANNUAL REPORT 85 Independent AUDITOR’S REPORT 86 2022 ANNUAL REPORT KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation Independent Auditor’s Report To the shareholders of Red 5 Limited Opinion We have audited the Financial Report of Red 5 Limited (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including: • giving a true and fair view of the Group’s financial position as at 30 June 2022 and of its financial performance for the year ended on that date; and • complying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report comprises: • Consolidated statement of financial position as at 30 June 2022; • Consolidated statement of profit or loss and other comprehensive income, Consolidated statement of changes in equity, and Consolidated statement of cash flows for the year then ended; • Notes including a summary of significant accounting policies; and • Directors’ Declaration. The Group consists of the Company and the entities it controlled at the year-end or from time to time during the financial year. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with these requirements. Independent AUDITOR’S REPORT (cont.) 2022 ANNUAL REPORT 87 Key Audit Matters The Key Audit Matters we identified are: • Sales revenue; • Property, plant and equipment and mine properties; and • Going concern basis of accounting. 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. Sales revenue ($164.962 million) Refer to Note 5(a) to the Financial Report The key audit matter How the matter was addressed in our audit Existence and accuracy of sales revenue is a key audit matter due to its significance to the consolidated financial statements combined with the incremental audit effort assessing the application of relevant accounting standards. Gold sales revenue from the Group’s Darlot and King of the Hills (KOTH) operations was the most significant item in the consolidated statement of profit or loss ($164.962 million). We focused on the following judgements the Group applied in determining sales revenue: • Assessing the revenue recognised against the requirements of AASB 15 Revenue form Contracts with Customers; • Judgements made by the Group in the early adoption to forthcoming requirements to AASB 116 Property, Plant and Equipment. Proceeds from sales made from the KOTH operation while in pre-production phase have been recorded in the income statement with a corresponding allocation made to costs of goods sold; and • The application of the “own-use” exemption for gold forward contracts. Our procedures included: • We considered the Group’s accounting policies for the recognition of sales revenue against the requirements of the accounting standards; • For gold sales recognised during the year we obtained the sales invoice and compared the quantity sold against third party statements from the refinery and cash received in the bank; • For a sample of sales recorded close to year end, we tested against the recognition criteria of AASB 15 checking control had passed to the customer to the date of the third party statements; • We evaluated the methodology for allocating costs to inventory for sales made in the KOTH pre-production phase. We tested, on a sample basis, costs allocated against these sales; and • For gold forward contracts where “own-use” exemption was applied, we checked the gold forward contracts, compared to the Group’s gold production forecasts and inquired with finance and operational personnel as to the intention to deliver physical gold in those contracts in accordance with the requirements of the accounting standards to apply the own-use exemption. Independent AUDITOR’S REPORT (cont.) 88 2022 ANNUAL REPORT Property, plant and equipment ($303.4m) and mine properties ($131.4m) Refer to Notes 10 and 11 to the Financial Report The key audit matter How the matter was addressed in our audit Existence, accuracy and valuation of expenditure capitalised as an asset as part of the Group’s mining operations was considered to be a key audit matter. Additions to Property, Plant and Equipment ($198.5 million) and Mine Development ($82.7 million) primarily related to construction of the King of the Hills (KOTH) project. Of the additions to Property, Plant and Equipment $99.5 million relates to right of use assets, which is largely leases embedded in supply contracts relating to the establishment of the KOTH mining operations. Property, Plant and Equipment and Mine Development represents 75% of total assets of the Group. The Group used judgement in the identification and allocation of cost between operating and capital expenditure. The risks we focused on include: • the existence of expenditure capitalised; • the methodology used to allocate costs between operating expenditure (including inventory stockpiles), capital expenditure and exploration & evaluation assets; • the relative magnitude of lease liabilities right-of-use assets added during the year pursuant to AASB 16 “Leases”. A focus for us was the completeness of leases to be recognised and the accuracy of multiple inputs which may drive different accounting outcomes, including key terms of the lease agreements, such as commencement dates, fixed and variable payments, renewal and termination options; and • the assessment of the existence of impairment or reversal indicators of the non-financial assets contained within Group’s CGUs. Our procedures included: • Test of controls and inputs relating to the authorisation and accuracy of the recording, classification and payment of expenditure; • Assessment of the allocation of costs between operating expenditure (including inventory stockpiles), capital expenditure and exploration & evaluation assets by inspecting documentation on a sample basis and assessing the nature of the underlying activity; • Selecting a sample of supplier and contractor invoices raised during the year. We checked the timing and nature of recorded expenditure against the details of the service description on the invoice or contract; • We compared the key inputs adopted by the Group in its AASB 16 lease calculations against underlying source documents including signed agreements and lessor’s invoices; • We assessed the completeness of leases recognition by understanding the Group’s process to identify leases within contracts, and by inspecting a sample of non-lease agreements for the existence of potential embedded leases; and • Challenging the Group’s assertion as to the presence of no impairment or reversal indicators. This included assessing the composition of the KOTH mining hub CGU. Independent AUDITOR’S REPORT (cont.) 2022 ANNUAL REPORT 89 Going concern basis of accounting Refer to Note 2.2 to the Financial Report The key audit matter How the matter was addressed in our audit The Group’s use of the going concern basis of accounting is a key audit matter due to the level of judgement required by us in evaluating the Group’s assessment of going concern. These are outlined in Note 2.2. The Directors have determined that the use of the going concern basis of accounting is appropriate in preparing the financial report. Their assessment of going concern was based on cash flow projections. The preparation of these projections incorporated a number of assumptions and significant judgements. We critically assessed the judgements focusing on the following: • the Group’s significant cash inflow assumptions particularly forecast production volumes, impact of future commodity prices and foreign exchange rates to cash inflows projected; • the Group’s planned levels of operational and capital expenditures, and the ability of the Group to manage cash outflows within available funding; • the Group’s ability to meet financing commitments and covenants. This included nature of planned activities to achieve this and status/progress of those plans; and • the Group’s ability to source suitable funding solutions. In assessing this key audit matter, we involved senior audit team members who understand the Group’s business, industry and the economic environment it operates in. Our procedures included: • We analysed the cash flow projections by: • Evaluating the underlying data used to generate the projections. We specifically looked for consistency of information used with the Group’s intentions, as outlined in Directors minutes and the KOTH feasibility study; • Analysing the impact of reasonably possible changes in projected cash flows and their timing, to the projected periodic cash positions. Assessing the resultant impact to the ability of the Group to pay debts as and when they fall due and continue as a going concern including ability to meet financing commitments and covenants. The specific areas we focused on was gold production sensitivities given the ramp up of production at KOTH; • Assessing the Group’s significant cash inflow assumptions and judgements for feasibility and timing. We used our knowledge of the client, its industry, published views of market trends and conditions to assess the level of associated uncertainty; and • Assessing the planned levels of operating and capital expenditures for consistency of relationships and trends to the Group’s actual results, results since year end, and our understanding of the busines and industry including KOTH’s feasibility study. • We read correspondence to assess the timing and magnitude of suitable funding options. • We evaluated the Group’s going concern disclosures in the financial report by comparing them to our understanding of the matter, the events or conditions incorporated into the cash flow projection assessment, the Group’s funding plans or conditions and accounting standard requirements. Independent AUDITOR’S REPORT (cont.) 90 2022 ANNUAL REPORT Other Information Other Information is financial and non-financial information in Red 5 Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information. The Other Information we obtained prior to the date of this Auditor’s Report was the Directors’ report and the Corporate Directory. The Chairman’s Review, Managing Director’s Report, Resources and Reserves Statement, Tenement Schedule and Statement of Shareholders are expected to be made available to us after the date of the Auditor's Report. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we 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. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: • preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001; • implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error; and • assessing the Group and Company’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so. Independent AUDITOR’S REPORT (cont.) 2022 ANNUAL REPORT 91 Auditor’s responsibilities for the audit of the Financial Report Our objective is: • 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 Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They 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 the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf This description forms part of our Auditor’s Report. Report on the Remuneration Report Opinion In our opinion, the Remuneration Report of Red 5 Limited for the year ended 30 June 2022 complies with Section 300A of the Corporations Act 2001. Directors’ 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 responsibilities We have audited the Remuneration Report included in the Directors’ report for the year ended 30 June 2022. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG R Gambitta Partner Perth 31 August 2022 Statement of SHAREHOLDERS as at 25 August 2022 DISTRIBUTION OF SHARE AND RIGHTS HOLDERS 1 1,001 5,001 10,001 100,001 - - - - 1,000 5,000 10,000 100,000 and over Including holdings of less than a marketable parcel (based on a market share price of $0.275 per share) CLASSES OF SHARES AND VOTING RIGHTS Number of holders Fully paid shares Unlisted rights 711 2,841 1,748 4,627 1,112 11,039 1,237 - - - 16 106 122 At meetings of members or classes of members, each member entitled to vote may vote in person or by proxy or attorney. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy is entitled to one vote, and on a poll, every person present in person or by proxy has one vote for each ordinary share held. TWENTY LARGEST HOLDERS OF FULLY PAID SHARES Shareholder 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. HSBC Custody Nominees (Australia) Limited Citicorp Nominees Pty Ltd JP Morgan Nominees Australia Pty Ltd BNP Paribas Noms Pty Ltd VBS Exchange Pty Ltd VBS Exchange Pty Ltd VBS Exchange Pty Ltd Broadgate Investments Pty Ltd BNP Paribas Nominees Pty Ltd UBS Nominees Pty Ltd National Nominees Limited VBS Exchange Pty Ltd VSG Resources Pty Ltd 14. Gary B Branch Pty Ltd 15. 16. 17. 18. 19. 20. VSG Resources Pty Ltd VSG Resources Pty Ltd Raylou Investments Pty Ltd HSBC Custody Nominees (Australia) Limited John Colin Loosemore and Susan Loosemore Vicki Leith Jackson Shares 626,927,469 279,195,060 263,885,888 104,747,383 72,273,918 50,000,000 40,000,000 34,187,439 30,091,574 26,211,196 24,159,948 20,697,674 16,500,000 15,085,770 11,190,476 11,077,051 8,842,326 7,893,606 7,697,068 7,659,062 % 26.60 11.85 11.20 4.44 3.07 2.12 1.70 1.45 1.28 1.11 1.03 0.88 0.70 0.64 0.47 0.47 0.37 0.33 0.33 0.32 1,658,322,908 70.36 92 2022 ANNUAL REPORT Statement of SHAREHOLDERS as at 25 August 2022 (cont.) SUBSTANTIAL SHAREHOLDERS The following shareholders have lodged a notice of substantial shareholding in the Company. Shareholder Victor Smorgon Partners Pty Ltd Franklin Resources Inc Ruffer LLP UNQUOTED SECURITIES The following classes of unquoted securities are on issue: Number of shares 354,882,605 256,750,994 136,701,036 % 15.06 10.89 5.80 Holders of greater than 20% of each class of security Security Number on issue Name of holder Number Performance rights (2023) Project Incentive Opportunity performance rights (2023) Performance rights (2024) Service Rights 7,945,729 11,550,613 18,410,000 1,672,300 - - - - - - - - % - - - - CORPORATE GOVERNANCE STATEMENT The Company’s 2022 corporate governance statement can be viewed at https://www.red5limited.com/site/about-red5/corporate-governance CORPORATE Directory BOARD OF DIRECTORS SHARE REGISTRY Automic Pty Ltd Level 5 191 St Georges Terrace Perth WA 6000 Telephone: 1300 288 664 E-mail: hello@automicgroup.com.au Web-site: www.automicgroup.com.au BANKERS Hongkong and Shanghai Banking Corporation Limited Macquarie Bank Limited BNP Paribas Kevin Dundo (Chairman) Mark Williams (Managing Director) Ian Macpherson (Non-Executive Director) Colin Loosemore (Non-Executive Director) Steven Tombs (Non-Executive Director) Andrea Sutton (Non-Executive Director) Fiona Harris (Non-Executive Director) COMPANY SECRETARY Frank Campagna REGISTERED OFFICE Level 2 35 Ventnor Avenue West Perth Western Australia 6005 Telephone: (61-8) 9322 4455 E-mail: info@red5limited.com Web-site: www.red5limited.com AUDITORS KPMG SOLICITORS HopgoodGanim STOCK EXCHANGE LISTING Australian Securities Exchange Trading code: RED 2022 ANNUAL REPORT 93 ABN 73 068 647 610 www.red5limited.com 

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